On November 15, 2007, the Department of Transportation (DOT or Department) issued an Advance Notice of Proposed Rulemaking (ANPRM) in Docket DOT-OST-2007-22 entitled “Enhancing Airline Passenger Protections.” This ANPRM was published in the Federal Register five days later. See “Department of Transportation, Office of the Secretary, 14 CFR Parts 234, 253, 259, and 399 [Docket No. DOT-OST-2007-0022], RIN No. 2105-AD72, 72 FR 65233 et seq. (November 20, 2007). We announced in the ANPRM that we were considering adopting or amending rules to address several concerns, including, among others, the problems consumers face when aircraft sit for hours on the airport tarmac. We observed that, beginning in December of 2006 and continuing through the early spring of 2007, weather problems had kept more than a few aircraft sitting for long hours on the tarmac, causing the passengers undue discomfort and inconvenience. We observed further that passengers were also being harmed by the high incidence of less extreme flight delays. We acknowledged that the industry and interested observers have attributed both the lengthy tarmac waits and many of the other flight delays to a number of factors besides weather, such as capacity and operational constraints, for example. We also noted that some of these issues are being addressed by the Federal Aviation Administration (FAA) in other contexts.

Citing our authority and responsibility under 49 U.S.C. 41712, in concert with 49 U.S.C. 40101(a)(4), 40101(a)(9) and 41702, to protect consumers from unfair or deceptive practices and to ensure safe and adequate service in air transportation, we called for comment on seven tentative proposals intended to ameliorate difficulties that passengers experience without creating undue burdens for the carriers. The measures on which we sought comment in the ANPRM covered the following subjects: Contingency plans for lengthy tarmac delays; carriers' responses to consumer problems; chronically delayed flights; delay data on Web sites; complaint data on Web sites; reporting of on-time performance of international flights; and customer service plans.

We received approximately 200 comments in response to the ANPRM. Of these, 13 came from members of the industry—i.e., air carriers, air carrier associations, and other industry trade associations—and the rest came from consumers, consumer associations, and two U.S. Senators. In general, consumers and consumer associations maintained that the Department's proposals did not go far enough, while carriers and carrier associations attributed the current problems mostly to factors beyond their control such as weather and the air traffic control system and tended to characterize the proposals as unnecessary and unduly burdensome. The travel agency associations generally expressed support for consumer protections.

On December 8, 2008, after reviewing and considering the comments on the ANPRM, we issued a Notice of Proposed Rulemaking (NPRM). See 73 FR 74586 (December 8, 2008). The NPRM covered the following subjects: Contingency plans for lengthy tarmac delays; carriers' responses to consumer problems; chronically delayed flights; reporting certain flight delay information; and customer service plans. It did not cover complaint data on Web sites or reporting of on-time performance for international flights, both of which were raised in the ANPRM. We decided not to propose to require carriers to publish complaint data on their Web sites because we believe the data would be of little or no value to consumers since consumers already have access to a tabulation of airline complaints filed by passengers with the Department in the Air Travel Consumer Report. These complaints are a reliable indicator of the types of complaints about air travel filed by passengers with airlines. We also decided not to propose to require carriers to report on-time performance of international flights for a number of reasons, including concerns that a reporting requirement could make carriers less inclined to hold flights for inbound connections resulting in hardships for passengers in city-pairs with infrequent service.

The Department received 21 comments in response to the NPRM. Of these, 10 comments were from members of the industry and the rest came from consumers and consumer associations. On the consumer side, eight individuals filed comments as did three consumer advocacy organizations: Flyersrights.org (formerly the “Coalition for an Airline Passengers Bill of Rights” or CAPBOR), the Aviation Consumer Action Project (ACAP) and the Federation of State Public Interest Research Groups (U.S. PIRG). Of the industry commenters, two carriers (US Airways and ExpressJet Airways), and two airport authorities (Dallas-Fort Worth International Airport and The City of Atlanta Department of Aviation) filed comments. Three industry associations filed comments: The National Business Travel Association (NBTA), the Air Transport Association of America (ATA), and the Regional Airline Association (RAA). Two travel agency associations, the American Society of Travel Agents (ASTA) and the Interactive Travel Services Association (ITSA), also filed comments, as did the Airports Council International, North America (ACI-NA).

In general, the consumers and consumer associations maintain that the Department's proposals do not go far enough and contend that additional regulatory measures are needed to better protect consumers. One of the consumer organizations also expressed disappointment that the Department eliminated two of the proposals, while industry commenters generally supported that decision. Overall, carriers and carrier associations continue to characterize some of the proposals as unnecessary and unduly burdensome. ATA also expressed a number of concerns with the Department's preliminary regulatory evaluation and suggests changes are best made by addressing weather-related and air traffic control related issues. The airport authorities support carriers having a contingency plan and coordination of the plans at medium and large hub airports, while the travel agency associations expressed support for consumer protections, with one noting a concern with “unfunded mandates” on travel agents to address problems for which they are not the cause. The commenters' positions that are germane to the specific issues raised in the NPRM are set forth below. The Department plans to seek comment on ways to further enhance protections afforded airline passengers in a forthcoming notice of proposed rulemaking by addressing the following areas: (1) Review and approval of contingency plans for lengthy tarmac delays; (2) reporting of tarmac delay data; (3) standards for customer service plans; (4) notification to passengers of flight status changes; (5) inflation adjustment for denied boarding compensation; (6) alternative transportation for passengers on canceled flights; (7) opt-out provisions where certain services are pre-selected for consumers at additional costs (e.g., travel insurance, seat selection); (8) contract of carriage venue designation provisions; (9) baggage fees disclosure; (10) full fare advertising; and (11) responses to complaints about charter service.

The NPRM: Under the proposed rule, a certificated or commuter air carrier 1 that operates domestic scheduled passenger service or public charter service using any aircraft with 30 or more passenger seats 2 would be required to develop and implement a contingency plan for lengthy tarmac delays. As proposed, it would apply to all of a covered U.S. carrier's flights, both domestic and international, including those involving aircraft with fewer than 30 seats if a carrier operates any aircraft with 30 or more passenger seats. We asked for comments on whether the Department should limit this section's applicability to carriers that operate large aircraft—i.e., aircraft originally designed to have a maximum passenger capacity of more than 60 seats—and we asked proponents and opponents of this alternative to provide arguments and evidence in support of their positions.

Comments: We did not receive any comments from individual consumers or consumer groups regarding which carriers should be required to develop and implement contingency plans for lengthy tarmac delays. We did receive comments on this point from carriers, carrier associations, and airports.

RAA takes the position that, if the rule is adopted, it should apply only to those carriers that hold out services to the public, ticket passengers, offer reservation services and control decisions regarding delays and food and beverage service. RAA states that over 90 percent of passengers flying on regional aircraft travel on flights that are ticketed and handled by mainline carriers who schedule the flights, and that most regional carriers have no direct interaction with consumers in this regard. RAA also notes that these passengers' contracts of carriage are with the major carrier, not the regional airline, and that a regional carrier follows the contingency plan of its mainline airline partner. RAA explains that regional airlines that operate under agreements with more than one network partner must in some cases comply with different contingency plans at the same airport. According to RAA, at times multiple network carrier contingency plans could be in effect and even in conflict on the same flight in instances where a regional airline operates a single flight for several different network carriers. As such, RAA contends that requiring a regional carrier to have its own plan would increase the conflicts and inconsistencies that could arise as it is not clear if the regional carrier's own contingency plan would supersede the contracts of the carriers who marketed and sold the ticket to the consumer. RAA further asserts that as proposed the rule unfairly targets regional carriers, which do not make scheduling and/or delay decisions and are most often the first carriers to be subjected to FAA ground stops.

ExpressJet Airlines agrees with the comments submitted by RAA. It emphasizes that regional carriers operate under code-share agreements with mainline carriers and that those contracts dictate scheduling, delay, and cancellation decisions. It asserts that, as a result of a regional carrier having limited control over these decisions, the rule would impose unfair burdens on regional carriers. ExpressJet comments that, should the Department require carriers to have a contingency plan, all Part 121 and 135 carriers should have to abide by the regulations, not just carriers which operate aircraft having 30 or 60 seats or more, since, it is the carrier's opinion, the rule as proposed discriminates against the larger of the small regional carriers.

ACI-NA opposes limiting the application of the rule to air carriers that operate aircraft with more than 60 seats and notes that the rule should extend to regional airlines as they serve the vast majority of airports. ASTA also opposes limiting the application of the rule to carriers that operate large aircraft and asserts that the proposal should be extended to all carriers, pointing out that the regional airlines carried 160 million passengers in 2007.

US Airways suggests that airports, as well as other service providers, should be held equally accountable as a fair way to share the burden among regulated entities, and that international operations should not be part of the proposed requirements. ATA, which strongly opposes any requirement for hard time limits for returning to a gate and/or deplaning passengers remotely, specifically requests that international flights be excluded from any hard time limits, (1) due to the difficulty associated with accommodating passengers if flights are cancelled, (2) because those flights are better equipped to keep passengers comfortable for longer periods of time, and (3) because the time, costs, and planning associated with those flights is much higher.

DOT Response: After fully considering the comments received, the Department maintains that it is reasonable to apply the requirement to any certificated or commuter U.S. air carrier that operates passenger service using any aircraft with a design capacity of 30 or more passenger seats. In determining to do so, we note that, according to RAA's own statistics, regional airlines now carry one out of every five domestic air travelers in the United States. Moreover, most regional flights are operated by regional carriers affiliated with a major carrier via a code-share agreement, a fee-for-service arrangement, and/or an equity stake in the regional carrier. DOT statistics also demonstrate a substantial number of passengers are carried on flights operated by aircraft with 30 through 60 seats. According to data from the Department's Bureau of Transportation Statistics (BTS), a total of 668,476,000 domestic passengers were transported in 2008, 96,310,000 of which were on flights using aircraft with 30 through 60 seats. The large number of passengers carried on such aircraft accompanied by the increase in the “branding” of those operations with the codes of major carriers has blurred the distinction between small-aircraft and large-aircraft service in the minds of many passengers. As such, it seems appropriate to extend the rule to these operations in order to better protect the majority of consumers.

In reaching this decision, we have concluded that we cannot agree with RAA's reasoning that regional carriers should be treated differently than their mainline code-share partners and not be responsible to the passengers they transport on the vast majority of their operations because of their relationships to those partners. We recognize that the larger carrier's personnel may provide pre-flight services and make most of the decisions from an operational standpoint on code-shared flights with a regional carrier. As we pointed out in the NPRM, however, even if the determination to cancel a flight or keep it on the tarmac is made by the mainline carrier or results from action by the FAA, it is the carrier operating the flight that has direct contact with the passengers on the aircraft during a tarmac delay and that remains directly responsible for serving them. Accordingly, we have decided to apply the rule to both carriers in a code-share arrangement. We expect that the mainline carriers and their regional code-share partners will collaborate on their contingency plans to come up with standards that suit both parties. When multiple network carrier contingency plans are effective on a single flight operated by a regional carrier, it would likely not be practical for the regional carrier to apply different standards to individuals on the same flight who bought their tickets from different mainline partners. Instead, we expect the regional carrier to choose to use the contingency plan that is most beneficial to all the passengers on that flight.

With regard to the international flights of U.S. carriers, while we understand the concerns about applying hard time limits on deplaning passengers on international flights because of the different environment in which those flights operate, we believe that it is still important to ensure that passengers on international flights are also afforded protection from unreasonably lengthy tarmac delays. Therefore, we have decided to apply the requirement to develop and implement a contingency plan for lengthy tarmac delays to both the domestic and international flights of each U.S. carrier operating any aircraft with 30 or more passenger seats. This requirement applies to U.S. carriers even if they operate only international scheduled or charter service.

However, we have arrived at more flexible requirements with regard to the content of the contingency plans for a U.S. carrier's international flight (i.e., flexibility to determine the time limit to deplane passengers on tarmac) as compared to its domestic flights, recognizing that international flights operate less frequently than most domestic flights, potentially resulting in much greater harm to consumers if carriers cancel these international flights. Although carriers are free to establish their own tarmac delay time limits for international flights, and even to have different limits for different specified situations, these limits must be included in each carrier's contingency plan—they are not to be ad hoc decisions made during the course of a flight delay.

An international flight for purposes of this requirement is a nonstop flight segment that takes off in the United States and lands in another country, or vice-versa, exclusive of non-traffic technical stops. For example, if a U.S. carrier operates a direct flight Chicago-New York-Frankfurt, with some Chicago-originating passengers destined for New York and others destined for Frankfurt, and the aircraft experiences a tarmac delay in Chicago, then we would consider the tarmac delay to be on a domestic flight. This is because Chicago-New York is a domestic flight segment even though the final destination of the flight is Frankfurt, Germany. If, on the other hand, the aircraft only stops for refueling or a crew change in New York and the airline carries no Chicago-New York traffic, then we would consider the tarmac delay in Chicago to be a tarmac delay on an international flight.

We have decided against applying this requirement to carriers that operate using only aircraft with fewer than 30 seats because these entities carry a very small percentage of passenger traffic and we are not aware of incidents of lengthy tarmac delays involving carriers that only operate aircraft of this size (i.e., carriers that exclusively operate aircraft with a design capacity of 29 passenger seats or less). We note that the requirement to develop and implement contingency plans applies to carriers who have any aircraft with 30 or more seats, meaning that it would apply to all aircraft of those carriers, including those with fewer than 30 seats.

The NPRM: Under the NPRM, each plan would have been required to include at least the following: The maximum tarmac delay that the carrier would permit; the amount of time on the tarmac that would trigger the plan's terms; an assurance of adequate food, water, lavatory facilities, and medical attention, if needed, while the aircraft remains on the tarmac; an assurance of sufficient resources to implement the plan; and an assurance that the plan has been coordinated with all of the airport authorities at medium and large hub U.S. airports served by the carrier. We specifically asked for comment on whether the Department should set a uniform standard for the time interval that would trigger the terms of carriers' contingency plans and a time interval after which carriers would be required to allow passengers to deplane. If establishing a time interval was recommended, we asked commenters to propose specific amounts of time and explain why they believe those time intervals to be appropriate.

Comments: Consumer associations and individuals generally support a stronger proposal than that proposed by the Department. For example, Flyersrights.org continues to maintain that the Department should establish minimum standards for contingency plans through regulation and should also review and approve the plans rather than allow each carrier the leeway to set what it fears might be overly lax standards. Specifically, the organization requests that the Department set a “three hours plus” time limit for an aircraft to return to the gate and deplane passengers, if the pilot determines this can be accomplished safely. It also requests that in any rule proposed or adopted, we refer to “potable water” and “operable lavatories” rather than simply “water” and “lavatory facilities” respectively.

Other consumer associations concur with Flyersrights.org. ACAP asserts that this proposal is “an unlawful delegation of DOT authority and responsibility to regulate airlines in the public interest by delegating this function to the airlines themselves” and that the proposal will lead to a multiplicity of unenforceable “standards” and “plans” that will offer fewer passenger protections. ACAP also suggests three hours as the maximum interval before passengers are allowed to deplane and, without being specific, suggests payments should be made to passengers who are confined for longer periods of time.

Individual commenters make similar points. For example, they tend to think the Department should set minimum standards, particularly regarding the amount of time that triggers the provisions of the contingency plans and the maximum amount of time an aircraft can remain on the tarmac before the carrier must return the aircraft to a gate and allow passengers to deplane. Some comments also suggested specific times to trigger the terms of a carrier's contingency plan and/or for passengers to be allowed to deplane. For example, one commenter suggested 1.5 hours and three hours, respectively.

The industry commenters expressed a different point of view. NBTA stated that it does not support DOT requiring carriers to develop contingency plans and specifically the content of those plans. It does support the recommendations issued by the Tarmac Delay Task Force, but does not believe plans should be required by regulation; rather, NBTA contends that airlines, under marketplace constraints, are more likely to resolve tarmac delay issues in a manner most beneficial to the largest number of passengers.

ATA agrees in principle that carriers should have contingency plans covering lengthy tarmac delays on domestic flights, provided that each air carrier is permitted to decide on the details of its own plan based on its own unique facilities, equipment, operating procedures, and network. ATA reports that carriers already have both general contingency plans and airport-specific contingency plans that reflect the diverse facilities, equipment and network of each carrier. ATA notes that the Tarmac Delay Task Force recommends coordination among air carriers, airports, and the appropriate government agencies, and supports coordinating contingency plans with airports, but notes that a carrier cannot force an airport to cooperate in that coordination. As such, ATA thinks this part of the proposed rule should not be adopted, but if it is, suggests that some changes are necessary to ensure, for example, that a carrier is not held responsible for the airport's failure to provide services within its control or for an airport's failure to coordinate with a carrier in executing a plan.

ATA continues to oppose any requirement for a set interval of time after which an aircraft must be returned to the gate, particularly on international flights, claiming that such a requirement would do passengers more harm than good and equate to artificial scheduling restrictions. Among the potential negative consequences ATA lists are potential conflicts with government agency directives governing safety or security that could require that passengers be kept on aircraft, and increased flight cancellations in any one place that could affect passengers further down the line. In addition, ATA suggests that, if the proposal is adopted, the Department should include an exception that exempts carriers from the rule if returning to the gate would conflict with orders of the FAA or other agencies (e.g., Customs & Border Protection), and notes, among other things, that in weather delay situations taxiway configurations are such that returning to the gate may not even be possible.

In general, RAA maintains that the rule requiring contingency plans should not be adopted because, it contends, the rule will not solve the current delay problem and the Department should instead focus on initiatives that increase the efficiency of the Air Traffic Control (ATC) system. Regarding the content of contingency plans, similar to ATA, RAA maintains that the Department should permit airlines to adopt their own plans that allow flexibility and reflect their own circumstances, capabilities, and passenger service standards. RAA also asserts that the proposed requirement of providing “adequate” food and water is unreasonable and impracticable for regional airlines because most regional airlines have no catering facilities and do not have storage room on smaller aircraft for contingency supplies. RAA further states that regional airlines serve small community airports that do not have vendors or facilities from which the airlines could readily obtain supplies of food and water.

Similar to comments of the airline associations, US Airways believes that a rule will not reduce tarmac delays, as those delays occur due to circumstances outside a carrier's control (i.e., weather, ATC system, etc.), and states that it already has a plan in place that addresses how to handle a tarmac delay of longer than one hour. US Airways states that a carrier should not be mandated to return to the gate at a fixed time, rather this decision should be left to carrier expertise, and that forcing an aircraft to return to the gate at a fixed time may lead to more flight cancellations. Additionally, the carrier notes that it has improved its own performance based on pressure from market forces. ExpressJet Airlines, who also asserts that most delays are beyond the direct control of carriers, thinks that a DOT rule could have unintended consequences for the consumer, which could lead to increased flight cancellations.

Of the airports and airport authorities that commented on this proposal, Dallas-Fort Worth International Airport approves of the elements of the rule that require air carriers to (1) develop and implement contingency plans for lengthy tarmac delays, (2) include in their plan the maximum delay that will trigger the plan's terms in order to provide adequate warning to service providers that may be called upon for support during the event, and (3) ensure that the plan has been coordinated with airport authorities at large and medium hub airports that the carrier serves. It also states that “coordination of each air carrier's contingency plans with the airports they serve is an important part of this process to enable shared situational awareness and timely response to lengthy delay events in an effective manner.”

The City of Atlanta, Department of Aviation, supports the guidance as provided by the DOT Tarmac Delay Task Force, and the Department's proposal for carriers to coordinate contingency plans for lengthy tarmac delays with medium and large hub airports. It states that 2 hours is an appropriate time to trigger the terms of a carrier's contingency plan and agrees that passengers should be provided basic services as proposed by the Department. Finally, it states that carriers' plans should provide for communication, coordination, and collaboration among airport operator, airlines, Federal agencies, and other service providers.

ACI-NA supports the proposal, in general. ACI-NA opines that DOT should not impose a maximum time limit for deplaning passengers during lengthy tarmac delays and that airport-specific plans should not be required, in order to give airlines flexibility, but it does support requiring carriers to post information regarding their plans at their ticketing and gate areas. ACI states that DOT should review the plans prior to their implementation and that airlines should coordinate their plans with all airports at which they provide scheduled or charter service, not just medium and large hub airports. ACI also suggests a template be developed that can be used to assist airlines and airports in addressing the appropriate elements for coordination.

As for the travel agency associations, ASTA strongly supports the notion of carriers adopting and complying with contingency plans and believes that the DOT should review the plans to ensure they contain specific promises that are enforceable. ASTA also supports the imposition of a single mandatory deplanement time limit, the three hours provided in the legislation introduced by Senators Boxer and Snowe and Representative Mike Thompson. However, in its initial comments, ASTA took a different position and opposed the Federal government mandating a specific time after which passengers must be deplaned. Rather, it suggested allowing each carrier to adopt its own time limits for each requirement, and requiring carriers to publish their policies in print ads and on their Web sites. ITSA did not comment on this proposal.

DOT Response: We have decided to adopt a final rule along the lines set forth in the NPRM, with one important exception: We are strengthening the protections for consumers from those initially proposed by setting time limits (1) for carriers to provide food and water to passengers; and (2) to deplane passengers when lengthy tarmac delays occur on domestic flights. In adopting this approach, we have carefully considered all the comments in this proceeding and believe that our action strikes the proper balance between permitting carriers the freedom to make marketplace-based decisions while ensuring consumers can count on receiving the protections they deserve in the unlikely event of an extended tarmac delay.

The final rule requires that each plan include, at a minimum, the following: (1) An assurance that, for domestic flights, the air carrier will not permit an aircraft to remain on the tarmac for more than three hours unless the pilot-in-command determines there is a safety-related or security-related impediment to deplaning passengers (e.g.,kiiii weather, air traffic control, a directive from an appropriate government agency, etc.), or Air Traffic Control advises the pilot-in-command that returning to the gate or permitting passengers to disembark elsewhere would significantly disrupt airport operations; (2) for international flights that depart from or arrive at a U.S. airport, an assurance that the air carrier will not permit an aircraft to remain on the tarmac for more than a set number of hours, as determined by the carrier in its plan, before allowing passengers to deplane, unless the pilot-in-command determines there is a safety-related or security-related reason precluding the aircraft from doing so, or Air Traffic Control advises the pilot-in-command that returning to the gate or permitting passengers to disembark elsewhere would significantly disrupt airport operations; (3) for all flights, an assurance that the air carrier will provide adequate food and potable water no later than two hours after the aircraft leaves the gate (in the case of a departure) or touches down (in the case of an arrival) if the aircraft remains on the tarmac, unless the pilot-in-command determines that safety or security requirements preclude such service; (4) for all flights, an assurance of operable lavatory facilities, as well as adequate medical attention if needed, while the aircraft remains on the tarmac; (5) an assurance of sufficient resources to implement the plan; and (6) an assurance that the plan has been coordinated with airport authorities at all medium and large hub airports that the carrier serves, including medium and large hub diversion airports. Failure to do any of the above would be considered an unfair and deceptive practice within the meaning of 49 U.S.C. § 41712 and subject to enforcement action, which could result in an order to cease and desist as well as the imposition of civil penalties.

There is little, if any dispute that passengers stuck on an aircraft during a lengthy tarmac delay deserve to be provided some type of food, potable water, working lavatories, and, if necessary, medical care. We believe a two-hour time limit is a reasonable maximum time after which carriers should ensure that passengers experiencing a tarmac delay are provided food and potable water. Carriers, of course, are free to establish an earlier time at which they will provide these services. As pointed out by ATA and confirmed in reports to Congress by the Department's Inspector General, most large carriers already have contingency plans providing for such services. As for RAA's assertion that most regional airlines lack the resources to provide adequate food and water during lengthy tarmac delays, it seems to be based on a misconception that extensive supplies are needed. The Department would consider snack foods such as pretzels or granola bars that carriers typically provide on flights to suffice as “adequate” food. We have clarified in this rule, as suggested by at least one commenter, that the water required under our rule must be “potable,” i.e., drinking water.

We are also persuaded that the Department should require a set time limit, in the case of domestic flights, for the point in time after which carriers would be required to allow passengers to deplane, with exceptions for issues related to safety, or security or other government requirements that may arise. Passengers on flights delayed on the tarmac have a right to know that there is a reasonable limit and that the limit will be enforced by the Department. We conclude that a three-hour time limit is the maximum time after which passengers must be permitted to deplane from domestic flights given the cramped, close conditions on aircraft and the typical scheduled time for these flights. We have not selected a maximum delay time of less than three hours because taxi times of an hour or more are not unusual at certain large airports, such as the New York airports. By holding the airlines to a bright line rule of three-hours after which passengers must be deplaned, the Department has established a tarmac delay limit that is both reasonable and easier to enforce.

While we agree with consumers and consumer groups that passengers should have protection from remaining on an aircraft on the tarmac for an extended period of time, we agree with ATA and other commenters that operational and safety-related concerns, such as ATC-related concerns or an inability to return to the gate without delaying other aircraft, should be taken into consideration. Thus, we have also included an exception for safety, security, or instances where Air Traffic Control advises the pilot-in-command that returning to the gate or permitting passengers to disembark elsewhere would significantly disrupt airport operations. We believe this strikes an appropriate balance between allowing air carriers flexibility to address their operational concerns while also providing passengers with a reasonable time after which they can expect to return to the gate and deplane, as well as make alternate travel arrangements, if necessary. Those arrangements could include re-boarding the same aircraft if the carrier decides to continue the same flight to its original destination, in which case a new three-hour period would begin when the aircraft left the gate. The Department views the three hour time limit as the outside limit at which time an aircraft should have returned to the gate or another appropriate disembarkation area in order to deplane passengers. If the carrier has reason to know that a gate or other appropriate means by which to deplane passengers will not be available at the three hour mark, we expect the carrier to make reasonable attempts to deplane passengers earlier.

With regard to deplaning passengers on international flights, we are persuaded by comments that mandating a specific time frame for deplaning passengers on these flights may be harmful to consumers because of the different environment in which those flights operate. Because international flights are of much longer duration on average, it is possible that delays may not have as negative an impact on consumers and their expectations. Also, because international flights tend to operate less frequently than most domestic flights, flight cancellations may result in much greater harm to consumers who are less likely to be accommodated on an alternate flight in a reasonable period of time. As such, while this rule requires U.S. carriers to establish time limits for deplaning passengers who experience lengthy tarmac delays on international operations, we are permitting carriers the flexibility to determine this time limit. This limit will also allow exceptions for consideration of safety, security and instances where Air Traffic Control advises the pilot-in-command that returning to the gate or permitting passengers to disembark elsewhere would significantly disrupt airport operations. We note that the Department is considering revisiting the issue of whether carriers should set specific time limits to deplane passengers on international flights in a supplemental notice of proposed rulemaking.

Some consumer groups and individuals requested that the Department include in the rule a requirement that the contingency plans be filed with and be reviewed and approved by the Department. Such a requirement is beyond the scope of this rulemaking. Moreover, we are not convinced that this requirement is necessary or the best use of Department aviation consumer protection resources at this time. Carriers are required to adhere to all Department rules, and it would be a departure from Department practice to require carriers to file with it proof that they have done so. The Department and its predecessor in such matters, the Civil Aeronautics Board, have issued numerous other consumer protection rules that detail specific requirements carriers must follow without having carriers file with the government proof that they have or are prepared to comply with the rule. We see some merit in approving carrier contingency plans if the Department were to dictate more detailed requirements regarding their contents and we plan to explore this approach in a future rulemaking. In the meantime, we will review the larger carriers' plans and, randomly, other carriers' plans within a year of the rule's effective date to ensure the plans contain the provisions as required by this rule.

With regard to coordination of plans, because tarmac delays are particularly problematic in situations where flights must be diverted from their intended destination airports, this rule requires carriers to coordinate their plans not only with medium and large hub airports to which they regularly operate, but also with airports that serve as diversion airports for such operations. The Department is not convinced by comments that it should remove the requirement for airlines to coordinate with airports because a carrier cannot force an airport to cooperate in that coordination. It is essential that airlines involve airports in developing their plans to enable them to effectively meet the needs of passengers. As recommended by the Tarmac Delay Task Force, we also urge carriers to include in their coordination efforts appropriate government authorities such as Customs and Border Protection and the Transportation Security Administration, when appropriate.

The NPRM: The NPRM proposed that each covered carrier would be required to incorporate its plan in its contract of carriage and make its contract of carriage available on its Web site. We also invited interested persons to comment on the implications of a private right of action based on a carrier's failure to follow the terms of its contingency plan and to address the potential for multiple lawsuits by classes as well as individual plaintiffs and the potential for inconsistent judicial decisions among various jurisdictions. Additionally, we asked commenters to address whether and to what extent requiring the incorporation of contingency plans in carriers' contracts of carriage might weaken existing plans by making carriers more reluctant to be specific and possibly expose themselves to liability.

Comments: Flyersrights.org supports requiring carriers to incorporate their contingency plans into their contracts of carriage in order to provide passengers an avenue for redress for breach of contract. ASTA also strongly supports the notion of carriers incorporating the contingency plans into their contract of carriages in order to enable consumers to more effectively enforce their rights. With regard to the potential for inconsistent judicial decisions if airlines must include their plans in their contracts of carriage, ASTA points out that this means merely that airlines will face the same litigation risks that all businesses face, and notes that the Task Force recommendations can be used as a defense.

According to RAA, regional carriers should not be required to incorporate a contingency plan into their contract of carriage because most regional passengers are subject to the ticketing carrier's contract of carriage. ExpressJet also states that, because a passenger is flying under the contract of carriage of the mainline carrier, a passenger's recourse should be against the mainline carrier, and not the regional carrier.

ATA explains that it shares the Department's goal of enhancing service for airline passengers but disagrees that rules are required to achieve this goal and strongly opposes incorporation of a contingency plan into a contract of carriage. ATA challenges the Department's legal authority to do this in the aftermath of deregulation. ATA argues that the Department may not substitute a different enforcement process other than the one Congress intended (i.e., there should not be a private right of action for violations of section 41712) and states that such an imposition would subject carriers to the vagaries of law in the fifty States.

DOT Response: The Department disagrees with the arguments of ATA and other carrier commenters that we lack the authority to require incorporation of contingency plans in contracts of carriage and that such incorporation would subject carriers to the risk of inconsistent standards among various jurisdictions. However, the Department has decided that it will not require such incorporation at this time. Instead, the Department strongly encourages carriers to incorporate the terms of their contingency plans in their contracts of carriage, as most major carriers have done voluntarily with respect to their customer service plans. At the same time, the Department will undertake a series of related measures to ensure the dissemination of information regarding each airline's contingency plans. As proposed in the NPRM, the Department requires that each air carrier with a Web site post its entire contract of carriage on its Web site in easily accessible form, including all updates to its contract of carriage. The Department also requires each air carrier with a Web site that chooses not to include their plan in its contract of carriage post the plan itself on its Web site in easily accessible form. Finally, the Department will shortly commence a new rulemaking proceeding addressing possible further enhancements to airline passenger protection in which it may consider, among other things, whether the voluntary incorporation of contingency plan terms urged here has resulted in sufficient protection for air travelers.

The airlines' incorporation of their contingency plans into their contracts of carriage is an important means of providing notice to consumers of their rights, since that information will then be contained in a readily available source. Carriers' contracts of carriage are generally posted online and must, by Department rule, be available at airports. Better informed consumers will further improve the Department's enforcement program as consumers are more likely to know of and report incidents where airlines do not adhere to their plans. Better consumer information will also create added incentive for carriers to adhere to their plans. We believe the incorporation of airline contingency plans in contracts of carriage to be in the public interest.

For these reasons, we strongly encourage carriers to include their contingency plans in their contracts of carriage and are requiring that carriers with a Web site post either their contracts of carriage containing the plans or the plans themselves (if they chose not to include the plans in their contracts of carriage) on their Web sites in easily accessible form. Additionally, to provide carriers with added incentive to incorporate their plans into their contracts of carriage, we will publicize a list of carriers that do and do not so incorporate their plans via regular press releases, the Department's Web site, and other means available to us. We will also be closely monitoring carriers' responses to our efforts in this regard and will not hesitate to revisit our decision here in the airline consumer protection rulemaking that we plan to commence in the near future. Finally, if necessary, we will consider using our authority to condition carrier certificates, as required in the public interest, to ensure that our consumer protection goals are met. See 49 U.S.C. 41109.

As noted above, while the Department has decided not to require at this time incorporation of contingency plans in airline contracts of carriage, we disagree with ATA's contentions that we lack the authority to require such incorporation and that the exercise of such authority would risk creating inconsistent standards across jurisdictions. Our broad authority under 49 U.S.C. 41712 to prohibit unfair and deceptive practices, and under 49 U.S.C. 41702 to ensure safe and adequate transportation, clearly encompasses the regulation of contingency plans. We have consistently exercised that authority for decades and will continue to do so. Moreover, while we have chosen not to require the incorporation of contingency plans in airline contracts of carriage at this time, there is nothing new, or unfair to carriers, about airlines being subject, through civil proceedings in State courts, to action for failing to comply with their contracts of carriage for air transportation. To the contrary, carriers have historically been subject to such actions and, indeed, the Department has for years published advice to consumers about pursuing claims against airlines, if necessary, in appropriate State small claims courts precisely because the Department has no authority to adjudicate individual claims and make monetary awards.

The NPRM: The NPRM proposed that covered carriers retain for two years the following information for any tarmac delay that either triggers their contingency plans or lasts at least four hours: The length of the delay; the cause of the delay; and the actions taken to minimize hardships for passengers. Our proposal did not contemplate that the Department would review or approve the plans, but we stated that the Department would consider failure to comply with any of the above requirements—including implementing the plan as written—to be an unfair and deceptive practice within the meaning of 49 U.S.C. 41712 and therefore subject to enforcement action.

Comments: ATA questions the need for the proposed record-retention requirement covering lengthy tarmac delays, asserting that the Department's BTS already has reporting requirements covering similar issues, with the exception of how carriers respond to delay situations. With regard to this category of information, ATA suggests that a record retention requirement of six months would be sufficient and argues that retention of record for long periods of time will impose additional and unnecessary costs.

DOT Response: The Department does not believe that it is advisable to remove the record-retention requirement for a number of reasons. First, certificated U.S. carriers that account for at least one percent of domestic scheduled passenger revenue currently provide delay data to BTS but the requirement to retain information for lengthy tarmac delays under this final rule would apply to additional carriers—any certificated or commuter air carrier that operates scheduled passenger service or public charter service using any aircraft with 30 or more passenger seats. Second, most of the delay information that this rule requires carriers to retain is more specific than the delay data the largest airlines currently submit to BTS. This rule requires carriers to retain for two years the following information on any tarmac delay that either triggers their contingency plans or lasts at least three hours (as opposed to four hours in the NPRM): The length of the delay, the specific cause of the delay, and the steps taken to minimize hardships for passengers (including providing food and water, maintaining lavatories, and providing medical assistance); whether the flight ultimately took off (in the case of a departure delay or diversion) or returned to the gate; and an explanation for any tarmac delay that exceeded three hours, including why the aircraft did not return to the gate by the three-hour mark. Aside from the length of the delay and whether the flight ultimately took off or returned to the gate, the remaining information that this rule requires carriers to retain is not available through data that the largest airlines submit to BTS. As for the cause of a delay, although the largest airlines do submit information to BTS about the nature of ground delays, this information is very general (i.e., air carrier, extreme weather, National Aviation System, security, and late arriving aircraft). This rule requires carriers to retain information on the specific cause(s) of the tarmac delay. We note that the Tarmac Delay Task Force dealt with this issue in its report to the Secretary, and listed a number of lengthy on-board ground delay causal factors.3 We recommend that carriers use that list for examples of the types of delay causes that the Department is looking for carriers to include in their retained records. Third, to the extent that carriers already collect and submit to BTS certain elements of the information that this rule requires, then there is no real burden to them of complying with the requirement.

The NPRM: The NPRM proposed to require certificated and commuter air carriers that operate domestic scheduled passenger service using any aircraft with 30 or more passenger seats to designate, at its system operations center and at each airport dispatch center, an employee to monitor the effects on passengers of flight delays, flight cancellations, and lengthy tarmac delays and to have input into decisions such as which flights are cancelled and which are subject to the longest delays.

Comments: ATA supports the idea of designating an airline employee at a carrier's operation center to monitor the effects of flight delays and cancellations, provided that the designee is a current employee who carries out other responsibilities as well. It does not support requiring such an employee at each airport dispatch center, claiming that this would duplicate existing procedures and would strain carriers' resources without easing the problems that consumers face. In general, RAA thinks this provision is unnecessary as airlines have no incentive to leave a plane full of passengers on the tarmac. RAA further notes that regional airlines are unable to designate personnel with responsibility for influencing delay decisions since delay decision-making is not a function of regional airline employees. NBTA characterizes this proposal as micromanagement of airline customer service and unnecessary to meet the needs of its business travelers. NBTA maintains that an air carrier's response to cancellations and delays is a key factor by which purchasers make their buying decisions, and opposes a mandate that airlines create new customer service positions at each airport. FlyersRights.org defers to the Department and the airlines to determine the best use of airline manpower to mitigate the effects of flight delays, cancellations and lengthy tarmac delays.

DOT Response: The Department has decided to require carriers to designate an employee to monitor performance of their flights; however, we are persuaded that we should not require carriers to designate an employee at their systems operations center as well as at each airport dispatch center, as long as whatever employee(s) are designated can monitor flight delays and cancellations throughout the carriers' systems and have input into decisions regarding how to best meet the needs of passengers affected by any irregular operations. By adopting this performance standard, the Department leaves it up to each carrier to determine the most efficient and effective method to monitor the effects of flight delays and cancellations (e.g., designate individual(s) at its systems operations center, designate individual(s) at each airport dispatch center, designate individual(s) at another location). This rule does not require carriers to hire new employees to comply with this provision as these responsibilities may be borne by current employees in addition to their other responsibilities.

We disagree with RAA's assertion that regional carriers have no control over decisions on delays, diversions and cancellations and thus should not be required to designate an employee to monitor such occurrences. We recognize that, as a rule, regional carriers' mainline partners make most of the decisions from an operational standpoint on code-shared flights with a regional carrier; however, this does not lead to the conclusion that regional carriers are or should be totally removed from the process. Even if the determination to cancel or delay a flight or keep it on the tarmac is made by the mainline carrier, the regional carrier as the carrier operating the flight is the entity that knows first-hand the situation within and surrounding the aircraft, that is responsible for passing information about that situation to the mainline partner, and that has direct contact with the passengers and remains the sole means for directly serving them. As such, this final rule requires all airlines operating scheduled passenger service using any aircraft with 30 or more passenger seats to designate an employee to monitor the effects of flight delays, flight cancellations, and lengthy tarmac delays on passengers and to provide input into decisions on which flights to cancel and which will be delayed the longest. It applies to all of a covered U.S. carrier's scheduled flights, both domestic and international, including those involving aircraft with fewer than 30 seats if a carrier operates any aircraft with 30 or more passenger seats. The requirement to designate advocates for passenger interests applies to U.S. carriers even if they operate only international scheduled service.

The NPRM: Under the proposed rule, a certificated or commuter air carrier that operates domestic scheduled passenger service using any aircraft with 30 or more passenger seats would be required to inform consumers how to file a complaint with the carrier (name of person, address, telephone number, and e-mail or Web-mail address) on its Web site, on all e-ticket confirmations, and, upon request, at each ticket counter and gate.

Comments: Flyersrights.org supports the proposal requiring airlines to provide information to passengers on how to file a complaint. ACI-NA states that consumers should be provided information regarding how to file a complaint, which should include the appropriate contact information, including a contact name, address, telephone number and e-mail or Web address.

ATA supports the proposal for carriers to provide passengers complaint contact information but contends that the Department should not dictate the particular communication method to be used (e.g., e-mail, carrier's Web site, traditional mail, telephone). Instead, ATA states that the Department should allow carriers the flexibility to choose the contact method for customer complaints, as each of these various methods carries with them associated costs. In particular, ATA emphasizes the expense of telephone “talk time” and explains that this would impose a high cost on airlines without countervailing benefits, given other complaint methods available to consumers. ATA points out that all of its members already provide complaint contact information on their Web sites. ATA also reiterates its strong opposition to the proposal that would require carriers to include complaint contact information on e-tickets. It states that this proposal is unnecessary and costly as it believes there is no indication that finding complaint contact information is a problem and views e-ticket space as being limited and having significant commercial value to the carrier and third parties. ATA estimates that the “value to the U.S. industry as a whole of the e-ticket space, which it asserts the Department proposes to `confiscate' is $5 million annually,” an amount it claims far exceeds the DOT's estimate of the proposal's value. ATA also suggests that the Department not require airlines to name a specific employee contact person for complaint purposes since airline personnel change frequently, and recommends that carriers be required to provide a position/office so complaints are directed to the right department.

RAA notes that most regional airlines already have systems in place to handle passenger complaints and to coordinate those systems with their mainline partners. If the Department adopts a proposal for carriers to provide passengers complaint contact information, RAA asserts that any requirement to post complaint information on airline Web sites or e-ticketing confirmations should apply to the ticketing carrier and not to regional airlines. According to RAA, many regional airlines do not have their own Web sites upon which to post complaint information and states that only the ticketing airline should have a “legal” responsibility to consumers claiming breach of contract. RAA also asserts that in some cases there is no regional airline employee at the gate, ticket counter, or elsewhere in the airport.

DOT Response: The Department rejects carriers' suggestions that it leave completely to the discretion of each carrier the methods that carriers must make available to consumers to contact an airline. While generally the Department prefers specifying ends rather than means, it is important to identify a sufficient number of contact methods for customer complaints and require carriers to accept such complaints to ensure that all passengers who wish to express their dissatisfaction are able to do so easily. For example, if an airline were to only accept complaints by e-mail then those without access to the Internet would face significant difficulty in filing a complaint. On the other hand, if an airline were to only accept complaints by traditional mail then a number of individuals may decide against sending a complaint because of the “hassle” they see in writing a letter, addressing an envelope, and mailing the letter. However, we are persuaded that not all of the contact methods for customer complaints listed in the proposal are necessary. In this regard, we agree with ATA that we need not require carriers to receive complaints by telephone. In reaching this conclusion, we do not mean to imply that carriers should not have in place some mechanism for resolving consumer problems in real time, and failure to do so may require us to revisit this decision in the future. We also do not see the necessity in requiring carriers to accept complaints by fax. As a result, this rule only requires carriers to provide passengers their e-mail or Web-form address and their mailing address. Of course, in addition to accepting complaints by e-mail and traditional mail, airlines are free, and we encourage them, to accept customer complaints through other methods. This final rule also clarifies that it is sufficient for airlines to identify the designated department within the airline with which to file a complaint instead of identifying a specific employee contact person.

We require that complaint contact information be provided on carrier Web sites, on all e-ticket confirmations, and upon request at all airline ticket counters and boarding gates. In reaching this decision, we note that the comments do not demonstrate that including complaint contact information on e-ticket confirmations would impose substantial costs on airlines despite such assertions. Only a limited amount of space on an e-ticket space is needed to provide complaint contact information. Moreover, a carrier can comply with this requirement for providing contact information on an electronic e-ticket confirmation or itinerary by including a link to a Web site containing the complaint information in lieu of displaying the entire text of the contact information, which will take up even less space on an e-ticket. It is our opinion that requiring complaint contact information on e-tickets and, upon request, at each ticket counter and departure gate would be beneficial to consumers as a large number of passengers do not have access to the Internet while traveling and would not be able to access the complaint contact information through the airlines' Web sites.

In response to RAA's comment that many regional airlines do not have their own Web sites and there is no regional airline employee at the gate or ticket counter in some airports, we wish to make clear that the requirement to have complaint contact information in those locations would not apply to those airlines as the rule does not require regional carriers that do not have Web sites or a presence at an airport to provide information on filing complaints via these channels. However, we see no reason to narrow the coverage of this requirement to exclude regional airlines. Passengers who wish to complain to regional airlines should be able to find out how to do so.

The NPRM: Under the NPRM, a certificated or commuter air carrier that operates domestic scheduled passenger service using any aircraft with 30 or more passenger seats would be required to acknowledge receipt of each consumer complaint within 30 days of receiving it and send a substantive response to each complainant within 60 days of receiving it.

Comments: ASTA and Atlanta's Department of Aviation strongly support this proposal. Atlanta's Department of Aviation states that acknowledging a complaint within 30 days and providing a substantive response within 60 days is reasonable considering airline concerns about increased staffing and the need for consumers to know their complaints have been received and concerns will be addressed. Flyersrights.org also supports the proposal but takes the position that carriers should be required to provide a “proposed final resolution” rather than a “substantive response” within 60 days.

Of the carrier associations, ATA supports requiring carriers to respond to consumer problems and cites the voluntary commitments to do so that a number of carriers have long had in place. ATA states that its members agree that consumers should receive an acknowledgment within 30 days after their complaints are received, and a substantive response within 60 days, with an exception to the 30 day acknowledgement requirement for extenuating circumstances such as mail delivery and address problems, or when carriers need to obtain additional information from a passenger. ATA adds that the Department needs to clarify the term “complaint” as meaning a complaint that raises customer service concerns and that is submitted to the carrier's customer relations department. ATA notes that complaints made through other means cannot be tracked by the carriers and the response coordinated. ACI-NA supports the Department's proposal that carriers should have 30 days to acknowledge a complaint and 60 days to provide a passenger with a substantive response. ACI-NA also believes the proposal should apply to all airlines operating aircraft with more than 30 seats, including regional carriers.

DOT Response: We have decided to adopt a rule along the lines set forth in the NPRM. The Department believes that 30 days to acknowledge a complaint and 60 days to provide a passenger with a substantive response represent standard practice in the industry and should allow carriers adequate time to investigate and respond appropriately. By “substantive response” we mean a response that addresses the specific problems about which the consumer has complained. This type of response often results in a resolution of the complaint. We are also clarifying that by “complaint” we mean a specific written expression of dissatisfaction concerning a difficulty or problem which the person experienced when using or attempting to use an airline's services and that contains sufficient information for the carrier to identify the passenger. Airlines will be required to acknowledge and respond to all such complaints even if a passenger does not submit it directly to the carrier's customer relations department. The Department would expect, as we find is largely already the case, that a passenger complaint sent to the wrong office or department at an airline would be expeditiously forwarded to the appropriate office within the airline.

The NPRM: Under the proposed rule, the Department would consider any chronically delayed flight of a certificated U.S. carrier that operates passenger service and/or cargo and mail service and that accounts for at least one percent of domestic scheduled passenger revenue to be an unfair and deceptive practice and an unfair method of competition within the meaning of 49 U.S.C. 41712.

Comments: RAA takes the position that this requirement should only apply to airlines that hold out services to the public and ticket passengers. RAA reasons that regional airlines lack the ability to engage in the behavior the Department is seeking to prevent since regional airlines fly schedules established by major airlines and do not advertise or publish flight times independent of the mainline partner. Similarly, ExpressJet states that this requirement should not be applied to regional carriers because they are not responsible for making scheduling decisions. ExpressJet explains that typical regional carriers operate under a code-share agreement with one or more larger air carriers which agreements grant to the larger carrier the right to make non-safety related decisions regarding the regional carrier's schedule of flights. ACI-NA expressed disappointment that the Department defined “covered carrier” as only those that account for at least one percent of domestic scheduled passenger revenue and did not propose to provide all consumers the same level of protection. ACI-NA maintains that the requirement should apply not only to large carriers but also to the operations of regional or feeder carriers. ACI-NA points out that delays harm passengers just as much regardless of which certificate holder operates the aircraft. ACI-NA further notes that regional airlines operate half of the daily domestic flights and provide the only scheduled service to approximately 70 percent of U.S. airports.

DOT Response: The Department continues to believe that the substantial cost burden that compliance with this requirement would impose on the smaller carriers, which are not required to collect or report on-time performance data, would outweigh any corresponding public benefits. Therefore, the chronically delayed flight provision should not apply to those smaller carriers.

Under 14 CFR Part 234, any certificated U.S. carrier that accounts for at least 1 percent of domestic scheduled-passenger revenues is required to file an “On-Time Flight Performance Report” with the Department's Bureau of Transportation Statistics on a monthly basis, setting forth specified information for each of its flights held out in Official Airline Guide (OAG), in the computer reservations systems (CRS), or in other schedule publications. As a result, the Department's Office of Aviation Enforcement and Proceedings can obtain data from BTS that enable the office to determine whether the schedules that the reporting airlines cause to be listed in the OAG and CRS are indicative of the schedules that the carriers could reasonably be expected to achieve and whether the reporting airlines are operating flights that we would consider to be chronically late. These data do not currently exist in a single location for other carriers, i.e., smaller carriers, and these carriers would incur significant costs in setting up the infrastructure to collect, compile and report this information. Unless the Department requires smaller carriers to also report on-time performance data, a prohibition against smaller carriers operating chronically delayed flights as defined in this rule would be difficult and impractical to enforce as there is no mechanism in place for the Department to independently determine whether such carriers are complying with the requirement. The Department believes that the cost of requiring smaller carriers to report on-time performance data in order to be able to determine whether these carriers operate chronically delayed flights outweighs the benefits to consumers in light of the fact that the operations of the reporting carriers account for nearly 90 percent of all domestic passenger enplanements. As such, we will not apply this requirement to smaller carriers. We are also clarifying that this requirement does not apply to certificated U.S. carriers that only operate cargo and mail service as the concern about chronically delayed flights involves passenger service. The final rule applies to certificated U.S. carriers that operate passenger service and that account for at least one percent of domestic scheduled passenger revenue.

The NPRM: In the NPRM, we proposed to define a chronically delayed flight as a flight by a covered carrier that is operated at least 30 times in a calendar quarter and arrives more than 15 minutes late, or is cancelled, more than 70 percent of the time during that quarter. We proposed that the Department would consider a chronically delayed flight to be an unfair and deceptive practice within the meaning of 49 U.S.C. 41712 if it is not corrected before the end of the second calendar quarter following the one in which it is first chronically delayed. We invited interested persons to comment on an alternate definition of a chronically late flight as one that is operated at least 30 times in a calendar quarter and that arrives at least 30 minutes late at least 60 percent of the time. We also asked whether we should adopt an even stricter definition favored by the Department's Inspector General (IG), i.e. a flight that is delayed 30 minutes or more, or cancelled, at least 40 percent of the time during a one month period. We noted that we were considering the option of not treating a flight that remains chronically delayed for three consecutive quarters as an unfair and deceptive practice and an unfair method of competition if every prospective passenger using any available channel of purchase is informed before buying a seat on that flight that the flight is chronically delayed. The NPRM also broadly asked for comments on other possible chronic delay standards.

Comments: Flyersrights.org favors a stricter definition of a chronically delayed flight than the one proposed in the NPRM, specifically, that a chronically delayed flight should be defined as a flight that operates at least 30 times in a calendar quarter and arrives more than 15 minutes late more than 50 percent of the time during that quarter. Flyersrights.org further states that it finds woefully lax a requirement that would allow a carrier to operate a chronically delayed flight for three consecutive calendar quarters (9 months) and asserts that carriers should not be allowed two calendar quarters (six months) to correct chronically delayed flights. Instead, Flyersrights.org suggests that carriers be provided one calendar quarter (3 month period) to fix the problem. Flyersrights.org also disagrees with the option suggested by the Department not to consider a chronically delayed flight as an unfair and deceptive practice if all the passengers are informed that the flight is a chronically delayed flight before purchasing a ticket, as it allows a carrier to continue providing poor service. It also states that DOT should provide for a parallel regulatory approach for “chronically cancelled” flights as well. Of the consumer associations that commented on this provision, ACAP concurs with Flyersrights.org. Several individual commenters stated that they believe a chronically delayed flight should be considered an unfair and deceptive practice.

Of the carrier associations that commented, ATA supports the proposed definition of a chronically delayed flight as a flight that operates at least 30 times in a calendar quarter and arrives 15 minutes late, or is cancelled, more than 70% of the time during that quarter. ATA supports the proposal not to consider it an unfair and deceptive practice if a passenger is informed when purchasing a ticket that a flight is chronically delayed. RAA asserts that a prohibition on chronically delayed flights is unnecessary as airlines are already motivated to provide delay-free service since airlines incur costs (e.g., must pay crews overtime, burn fuel), negative publicity and adverse consumer reaction when on-time performance suffers. RAA emphasizes that, rather than penalizing airlines, the Department should focus on improving the efficiency of our nation's ATC system.

ACI-NA maintains that delays cause passengers to lose confidence in an airport's operations, which can impact both the airport's finances and the local community's economy. ACI-NA disagrees with the option put forth in the rulemaking that the Department not treat a chronically delayed flight as an unfair and deceptive practice if the passenger is informed that a flight is chronically delayed prior to purchase, as it questions how DOT could determine that every passenger has been appropriately informed. ACI-NA also questions whether it is reasonable to define a chronically delayed flight as a flight that is delayed more than 70% of the time in a calendar quarter. ACI-NA explains that a 50% standard is more reasonable as air travelers should be able to expect that airlines can arrive at the promised time for at least half of their operations. ACI-NA supports the proposal to consider chronically delayed flights operated for three consecutive calendar quarters as an unfair and deceptive practice.

Of the travel agency associations, ASTA, supports defining a chronically delayed flight as an unfair and deceptive practice, but suggests that the proposal can be improved in a number of ways. First, ASTA argues that a chronically delayed flight should be defined as a flight that is late more than 50 percent of the time as this is in tune with the way most people think of this issue. As an alternative, ASTA notes that it could also support the DOT Inspector General's recommendation of a 40 percent factor with a 30 minute trigger. Second, ASTA asserts that airlines should be able to cure a chronic delay problem in three months rather than six months. ASTA notes its concern that as proposed an airline can operate a flight that is delayed 70 percent of the time for nine months before there is a remedy. ASTA also strongly opposes the “option” of excusing chronically delayed flights from being considered an unfair and deceptive practice if a consumer is informed of the chronic delay. ASTA explains that this option encourages the airlines to continue operating chronically delayed flights while shifting the cost burden onto the retail distribution system to inform the public about the practice on a flight-by-flight basis.

DOT Response: The Department agrees with commenters advocating the need to strengthen the definition of a chronically delayed flight and is adopting a more rigorous set of criteria for determining what constitutes a chronically delayed flight in an effort to further improve carrier performance. The final rule defines a flight as chronically delayed if it is operated at least 10 times in a month and arrives more than 30 minutes late (including cancelled flights) more than 50 percent of the time during that period. We find persuasive the comments that suggested that the Department should define a flight as chronically delayed if it is late more than 50 percent of the time rather than 70 percent of the time, as a flight that is delayed “more often than not” is commonly viewed by consumers and the public at large as being chronically delayed. From the standpoint of the consumer, the offering of scheduled service and the acceptance of reservations by a carrier give rise to the justifiable expectation that the carrier has the intent and the capability to arrive at the promised time. Consumers rely on carrier schedules and, to the extent they are chronically inaccurate, consumers are seriously harmed. We are also changing the criteria in the definition of a chronically delayed flight related to the number of operations that must take place in a given time period from at least 30 operations in a calendar quarter to at least 10 operations in a month, as we believe a monthly standard is a more precise, simplified and rigorous standard by which to determine a chronic delay. Further, we are amending the threshold defining a flight delay for purposes of this requirement from 15 minutes late to 30 minutes late because while no consumer likes delay, the real concern appears to be with significant delays, the kind that result in missed connections and other problems.

With regard to when to classify a chronically delayed flight as an unfair and deceptive practice, the Department agrees with comments that the proposal provided too much time for airlines to act to correct chronically delayed flights. The final rule specifies that a flight that remains chronically delayed for more than four consecutive one-month periods is an unfair or deceptive practice within the meaning of 49 U.S.C. 41712 and subject to enforcement action. This more stringent standard will better ensure that airlines do not schedule flights that they reasonably know or should know are going to be seriously late most of the time, thereby providing consumers more reliable information about the actual arrival time of a flight. We also believe this provision provides carriers adequate time to adjust their schedules. Carriers know at the beginning of month two whether the flights they operated during month one were chronically late. We believe that carriers can make adjustments to their schedules within 60 days; therefore, we expect that during months two, three and four carriers would adjust their schedule for each of their chronically late flights to make the schedule for that flight more realistic by month five. While flight delays for weather, mechanical, or other operational reasons occur frequently in the airline industry, the Department considers the continued publishing of schedules that list chronically late flights to be one form of unrealistic scheduling and an unfair or deceptive practice and unfair method of competition within the meaning of 49 U.S.C. 41712.

In the NPRM, we expressed some concern that if a significantly larger number of flights are defined and identified as chronically delayed flights then carriers may choose to cancel these flights rather than operate them. The Department believes that the definition of chronically delayed flight in this final rule, while more stringent than the one proposed, will nevertheless not lead to a large number of flight cancellations as we have found, based on calendar year 2008 data provided by BTS, that the vast majority of the chronically delayed flights as defined in this rule were not chronically delayed for four or more consecutive months. This indicates that carriers were able to ensure that these flights operated on schedule without canceling flights.

We are not adopting the option we suggested in the NPRM of not treating a flight that remains chronically delayed for three consecutive quarters (now after four consecutive months) as an unfair and deceptive practice if every prospective passenger using any available means of purchase is informed before buying a seat on that flight that the flight is chronically delayed. We are concerned that this proposal could result in more chronically delayed flights and that it would be difficult for the Department to determine if all passengers were properly notified prior to purchasing a ticket that the flight is a chronically delayed flight.

The NPRM: Other than an editorial change (the removal of references to “Board”), the proposal would not make any other changes to the existing rule which states that unrealistic scheduling of flights by any air carrier providing scheduled passenger air transportation or the use of any figures, with respect to the advertising of schedule performance, purporting to reflect schedule or on-time performance without providing detailed information about the basis of the calculation would be an unfair or deceptive practice and an unfair method of competition within the meaning of 49 U.S.C. 41712.

Comments: We received only one comment on this issue. ATA opposes the proposal to continue requiring that advertising of on-time performance reveal the detailed information about basis of the calculation. ATA states that the effect of requiring so many data points will be to prevent the use of this statistic. ATA also asserts that the Department should not adopt this proposal as there isn't any consumer demand for this level of detail and it would create a burden with no public benefit.

DOT Response: This rule continues to prohibit carriers providing scheduled passenger service from engaging in unrealistic scheduling, which can be many things beyond the Department's definition of a chronically delayed flight that a carrier continues to hold out for more than four consecutive months. For example, a flight that is cancelled 30 percent of the time for a sustained period of time could be considered to be unrealistic scheduling. The posting of unrealistic schedules can have a significant and harmful impact on consumers. When a carrier publishes schedules, it assumes an obligation to adhere to those schedules insofar as is reasonable. A carrier's practice of publishing schedules that it knows or should know it probably will not achieve can also adversely affect competition, which ultimately redounds to the further detriment of consumers, whose choices in air travel may have been reduced by the carrier's artifice.

With respect to the advertising of schedule performance, this rule continues to regard as an unfair or deceptive practice the use of any figures purporting to reflect schedule or on-time performance without indicating the basis of the calculation, the time period involved, and the pairs of points or the percentage of system-wide operations thereby represented and whether the figures include all scheduled flights or only scheduled flights actually performed. We are not persuaded by ATA's assertions that this requirement is not beneficial to consumers. Without this requirement, a carrier's advertising of on time performance could be very misleading and consumers would not have any basis for determining whether a statistic provided by a carrier is trustworthy or even relevant to their particular circumstance.

The NPRM: Under current rule, certificated air carriers that account for at least 1 percent of domestic scheduled passenger revenues (“reporting carriers”) are required to track on-time performance, report it to DOT, and provide, during the course of reservations/ticketing discussions or inquires about flights, the on-time performance percentage for a flight upon request. In the NPRM, we proposed to continue requiring reporting carriers' reservations agents to disclose on-time performance information to consumers only upon request although we had solicited comment in the ANPRM as to whether reservations agents should disclose this information to consumers without being asked and whether any disclosure requirement should be expanded to cover more types of carriers or travel agents. In the NPRM, we also proposed requiring reporting carriers to provide certain flight delay data on their Web sites. We proposed to require this delay data only for flights of reporting carriers but asked commenters if we should in addition require the reporting carriers to post delay data on their Web site for all their domestic code-share partners' flights, including those carriers that are not themselves required to report on-time performance. We decided not to propose requiring on-line travel agencies to post delay data on their Web sites (a proposal upon which we solicited comment in the ANPRM) because of concerns that the cost would outweigh the benefits.

Comments: No one commented as to whether the proposal to continue requiring reporting carriers to disclose the on-time performance code for a flight upon request should or should not be expanded to cover more carriers (e.g., domestic scheduled passenger service using aircraft with 30 or more seats) or more types of flights (e.g., code-share flights). The comments received on scope/coverage addressed only the proposal to require carriers to publish delay data on their Web sites. Flyersrights.org recommends that the regulation require covered carriers to post flight delay information only for code-share flights operated by carriers that report on-time performance, as this will narrow the amount of information required. Flyersrights.org suggests that the Department can expand the requirement later based on consumer comments. ACI-NA believes that it is important for consumers to have access to comprehensive on-time performance data and strongly supports requiring that flight delay data be made available on reporting carriers' Web sites for all the domestic code-share flights of that carrier.

ATA states that, given the Department's proposal not to impose any data reporting requirements on travel agents, the proposal unfairly burdens the reporting carriers as these carriers would uniquely bear the cost of collecting data, programming, and updating their booking sites to reflect such data. ATA also contends that the proposal is unfair to the approximately thirty percent of passengers who book through carriers' Web sites as they would be burdened with having to see performance information that they did not request and likely do not want. ATA suggests that the “excessive performance data display” may even discourage booking travel through carriers' Web sites. ATA's comments indicate that it supports extending the requirement for disclosure of flight delay information on Web sites to cover online travel agencies if the Department imposes such a requirement on reporting carriers. On the other hand, ITSA supports the preliminary conclusions reached by the Department that the cost of imposing a requirement for online travel agencies to post flight delay information would vastly outweigh the benefits to consumers. ITSA urges the Department to make final its tentative decision not to apply this requirement to online travel companies, global distributions systems and other third party online reservation services. ASTA notes that the Department wisely exempts travel agencies from the requirement to disclose flight delay information.

DOT Response: We have decided to continue to require reporting carriers to disclose the on-time performance code for a flight upon request as there were no comments received on this point and the rule as is works well from the Department's perspective. The final rule requires a reporting carrier to display on its Web site flight delay information for each flight it operates and for each flight its U.S. code-share partners operate for which schedule information is available. The Department believes that requiring a reporting carrier to display on its Web sites flight delay information for each domestic flight it holds out as its own will help consumers make better informed decisions when selecting flights. In adopting this approach, we are rejecting arguments that requiring a reporting carrier to provide flight delay information for domestic code-share flights operated by carriers that do not report on-time performance would unduly burden them. There are currently only 21 non-reporting U.S. carriers that code-share with reporting carriers, and the on-time performance data for these carriers may be collected through third party entities at a reasonable cost. FlightStats is an example of a third party which collects detailed on-time performance data for many airlines. Moreover, the benefit of flight delay data to consumers does not differ based on whether the flight is operated by a reporting carrier, its reporting code-share partner or its non-reporting code-share partner. We note that if more than one reporting carrier has an agreement with the same code-share partner, each reporting carrier must display on its website the on-time performance information for the covered flight that bears the reporting carrier's code.

We again considered applying the requirement to publish delay data to online travel agencies, but we continue to view the cost of requiring on-line travel agencies to post the flight delay information as outweighing the benefits to passengers. The cost to on-line travel agencies of complying with such a requirement is much higher than it is for the reporting carriers because of costs associated with reformatting the Global Distribution Systems (booking engines used by travel agencies) and Online Travel Companies (online agencies with independent airline ticket booking capabilities).

The NPRM: This proposal would not make any changes to the existing rule which requires covered carriers to disclose upon request the on-time performance of a flight during the course of reservations/ticketing discussions, transactions, or inquires about flights between a carrier's employees and the public. We decided not to propose that the carrier reservations agents be required to disclose a carrier's on-time performance at the time of booking without being asked (an issue upon which we solicited comment in the ANPRM) because of concerns that the costs of providing this information to all callers, whether requested or not, would be unduly burdensome to carriers and of dubious benefit to consumers, particularly if the rule provides for flight delay information on the carriers' Web sites.

Comments: Flyersrights.org states its continued belief that passengers would like to be told, without having to ask, about the past on-time performance of the flight they are discussing on the phone or in person with a carrier employee or travel agent. ATA did not comment on this provision of the NPRM. However, at the ANPRM stage, ATA expressed its strong opposition to requiring carriers' reservations agents to disclose on-time information without being asked, because of its belief that the high cost of compliance would outweigh its speculative benefit.

DOT Response: We have decided to issue a rule along the lines set forth in the NPRM. Specifically, the final rule requires a reporting carrier to disclose upon request the on-time performance of a flight during the course of reservations discussions or inquires about flights. We note that requiring carriers to provide passengers on-time performance data during discussions, transactions or inquires, even if not requested, would be burdensome to a degree and of dubious benefit. We note that the rule has been amended to clarify that the requirement to provide on time performance data upon request applies whether a member of the public is speaking with a carrier's employee or contractor.

The NPRM: This proposal would require covered carriers to include for each listed flight in the flight inquiry/booking stream on their Web sites, at a point before the passenger selects a flight for purchase, the following information for the flight for the most recent calendar month for which the carrier has reported on-time performance data to DOT: (1) The percentage of arrivals that were on time (within 15 minutes of scheduled arrival time); (2) the percentage of arrivals that were more than 30 minutes late; (3) special highlighting of any flight that was late (i.e., arrived more than 15 minutes past scheduled arrival time) more than 50 percent of the time; and (4) the percentage of cancellations. We proposed that this information be provided by either showing the percentage of on-time arrivals on the initial listing of flights and disclosing the remaining information on a later page at some stage before a consumer buys a ticket, or by making available all the required information via a hyperlink on the page with the initial listing of flights. We also proposed to require that carriers load the delay information for the previous month into their internal reservations systems between the 20th and 23rd day of the current month to ensure that all carriers are posting information covering the same period.

Comments: In general, individual commenters (as opposed to organizations) who addressed this issue agree that carriers should be required to disclose flight delay information on their Web sites. One commenter notes that she has concerns that the cost to modify and provide delay information on a carrier's Web site may be too burdensome and, consequently, may be passed on to consumers. FlyersRights.org urges that airlines be required to post the on-time performance data for all their flights rather than just the nonperforming flights.

ATA supports requiring disclosure of on-time arrival percentages for each flight on a carrier's Web site for the most recent reported calendar month as this information is already reported to BTS. However, ATA objects to a requirement for carriers to report and display any flight delay data not currently required by BTS. ATA asserts that collecting and reporting on the data categories proposed by the Department in its NPRM would be expensive and overly burdensome because it would require substantial efforts to capture this information, significant reprogramming of internal software, rebuilding of portions of Web sites and delay of other critical technology projects. ATA also contends that the requirement does not have any offsetting benefits. ATA reiterates its comment to the ANPRM that past delay information is unlikely to predict future performance because of variations in seasonal weather. It notes that 70 percent of delays and cancellations are due to weather, which makes performance data from previous periods a poor predictor of the passenger's probable flight experience. ATA also states that the additional data that the Department is proposing carriers make available on their Web sites would provide little additional consumer benefit since many carriers already post on-time data on their Web sites. ATA further expresses concern that flight on-time statistics can be misinterpreted by passengers and provides an example of a passenger erroneously assuming a flight will be delayed in September because it was delayed in August and arriving late for the flight and missing that flight.

Similar to ATA, NBTA supports requiring carriers to provide on-time performance information to consumers only “so long as these requirements are aligned with performance reports that carriers must file with DOT.” ASTA states that it is not “convinced of the efficacy” of the publication of delay data on a carrier's Web site. ITSA thinks this is a matter best left to the marketplace, and concurs with ATA that data will be of no use due to the unpredictability of weather-related delays. As such, ITSA does not support inclusion of this proposal in the final rule.

DOT Response: The final rule requires that covered carriers provide on their Web sites the following on-time performance information: (1) Percentage of arrivals that were on time—i.e., within 15 minutes of scheduled arrival time; (2) the percentage of arrivals that were more than 30 minutes late (including special highlighting if the flight was late more than 50 percent of the time); and (3) the percentage of flight cancellations if 5 percent or more of the flight's operations were canceled in the month covered. The Department recognizes that industry representatives support only the requirement to post on-time (within 15 minutes of scheduled arrival time) arrival percentages for each flight on a carrier's Web site because this information is already reported to BTS. However, the Department views the posting of the percentage of arrivals that were more than 30 minutes late as important because consumers are particularly interested in significant delays as these delays are the kind that are likely to result in missed connections and other serious problems. The Department is also requiring special highlighting of flights if they are late more than 30 minutes of scheduled arrival time more than 50 percent of the time to enable consumers to make more informed travel decisions. For example, chronic lengthy delays on short flights may result in passengers choosing other modes of transportation, choosing earlier flights or selecting a different airline. Without a requirement for carriers to publish such information, knowing which flights are often late can be difficult for passengers to determine, which can lead to frustration and confusion. Similarly, without a requirement for carriers to post information about flights that are cancelled more than 5% of the time, consumers would be unaware prior to purchasing a ticket on that flight that it is regularly cancelled. We agree with carriers that publishing data on the percentage of cancellations for all flights is an unnecessary burden and may result in too much “clutter” on the Web site.

With regard to the manner in which this information must be posted on carriers' Web sites, we have amended the rule so carriers must show all the delay data on the initial listing of flights or by a hyperlink on the page with the initial listing of flights. We were concerned that if we permitted carriers to simply display flight delay information at any stage before a consumer buys a ticket it could result in passengers not having access to that information until just before they click the “Buy Now” button. By providing flight delay data to consumers at an earlier stage, they can choose during the browsing/shopping phase whether or not to abandon consideration of a given flight that is canceled regularly or has a high percentage of delays longer than 30 minutes. To ensure that all carriers are posting flight delay information covering the same month, the final rule maintains the language in the proposal that carriers load data for the previous month into their internal reservation systems between the 20th and 23rd day of the current month.

The NPRM: This proposal would require carriers covered by 14 CFR Part 234 (“Airline Service Quality Performance Reports”)—i.e., certificated air carriers that account for at least one percent of domestic scheduled passenger revenue (“reporting carriers”)—to adopt customer service plans for their scheduled service and for public charter flights that they sell directly to the public and audit their adherence to their plans annually. We explained in the NPRM that we are proposing that the rule include public charter flights because the operating carrier is the party responsible for ensuring that charter passengers receive many of the promised services in those customer service plans. The NPRM did not provide an explanation as to the reason that the Department tentatively decided not to cover all U.S. airlines that operate scheduled passenger service using any aircraft with 30 or more passenger seats as proposed in the ANPRM.

Comments: ATA believes that the Department should require all carriers to adopt customer service plans, not just U.S. airlines that account for at least one percent of scheduled domestic passenger revenue. ACI-NA also supports imposing this requirement on all carriers, as it does not believe there is any justification for protecting only a portion of the traveling public. RAA identifies six regional carriers that account for at least one percent of scheduled domestic passenger revenue and argues that this requirement should not apply to any of them since none of them offer their own reservations services and do not ticket passengers for the vast majority of their services. ExpressJet also filed comments contending that the requirement for customer service plans should not apply to regional carriers operating as code-share partners of mainline airlines because these carriers do not sell or hold out transportation to customers, as their mainline partners do.

DOT Response: In response to comments, the Department has changed the types of carriers that are covered by this requirement. We agree with commenters that the benefits afforded consumers by airlines' customer service plans should be expanded beyond consumers who purchase tickets for flights on U.S. airlines that account for at least one percent of scheduled domestic passenger revenue. A substantial number of domestic air travelers in the United States are carried on flights using aircraft with 30 through 60 seats. As mentioned earlier, in 2008, according to data received from BTS, a total of 668,476,000 domestic passengers were transported, 96,310,000 of which were on flights using aircraft with 30 through 60 seats. Many of these were carried by non-reporting carriers. Because of the use of smaller aircraft to carry a significant number of domestic passengers, we conclude that it is appropriate to extend the rule to these operations in order to better protect the majority of consumers. Moreover, in a Final Report on Airline Customer Service Commitments issued on February 12, 2001, the Department's IG recommended that all U.S. carriers be required to adopt customer service plans. Subsequently, in a Status Report on Actions Underway to Address Flight Delays and Improve Airline Customer Service issued on April 9, 2008, the IG recommended that U.S. airlines that provide domestic scheduled service using any aircraft with more than 30 passenger seats be required to self-audit such plans.

With regard to the comments from RAA and ExpressJet that this requirement should not apply to regional carriers when conducting operations under code-share agreements with larger carriers, we disagree. We recognize that regional or other airlines that code-share with mainline carriers generally do not offer their own reservations and ticketing services or directly perform certain other customer service elements. However, we cannot agree that they should not be responsible at all to the passengers they transport during many of their operations because of their relationships to those larger airlines. Instead, we have decided to apply the requirement to adopt and audit customer service plans in a more flexible manner, as described below, that takes into account their role, including the fact that certain carriers that may not hold out and sell air transportation to consumers. Consequently, this final rule requires U.S. airlines that operate scheduled passenger service using any aircraft with 30 or more passenger seats (including carriers that code-share with mainline carriers) to adopt and audit a customer service plan, and to publish this plan on their Web sites. It is important to note that this requirement applies to all of a covered U.S. carrier's scheduled flights, both domestic and international, including those involving aircraft with fewer than 30 seats if a carrier operates any aircraft with 30 or more passenger seats. The requirement to adopt and audit a customer service plan, and to publish this plan on the Web site applies to U.S. carriers even if they operate only international scheduled service.

The NPRM: We proposed in the NPRM that, at a minimum, each plan would have to address the same subjects as the customer service elements adopted from the ATA's Customers First initiative: (1) Offering the lowest fare available; (2) notifying consumers of known delays, cancellations, and diversions; (3) delivering baggage on time; (4) allowing reservations to be held or cancelled without penalty for a defined amount of time; (5) providing prompt ticket refunds; (6) properly accommodating disabled and special-needs passengers, including during tarmac delays; (7) meeting customers' essential needs during lengthy on-board delays; (8) handling “bumped” passengers in the case of oversales with fairness and consistency; (9) disclosing travel itinerary, cancellation policies, frequent flyer rules, and aircraft configuration; (10) ensuring good customer service from code-share partners; and (11) improving responsiveness to customer complaints. We solicited comment on whether we should also require carriers to describe in their customer service plans the services they provide to mitigate passengers' inconvenience resulting from flight cancellations and missed connections and to specify whether they provide these services in all circumstances or only when the cause of the cancellations or missed connections were within their control.

Comments: Flyersrights.org and its members support the proposal and take the position that the Department should also establish minimum standards for carriers to meet their obligations under the plans, review the plans for adequacy, and approve them if appropriate. ASTA also recommends that the Department undertake to review the customer plans at least for the purpose of a preliminary determination of whether they are sufficiently specific and enforceable. NBTA thinks that customer service is best left to market forces, but a baseline standard for passengers' rights should exist. ATA supports the proposal that carriers adopt and adhere to their customer service plans and states that its members adopted customer service plans in 2000 and have made these plans available to the public. In response to the Department's question as to whether it should require carriers to describe in customer plans the services a carrier provides to mitigate passenger inconveniences resulting from cancellations and misconnections, ATA states that carriers need flexibility to take action that will minimize the impact of delays. In this regard, ATA explains that carriers should not be required to provide a list of services, as it would ultimately diminish passenger satisfaction due to the loss of flexibility to deal with specific situations. ATA also notes that services can be very specific, change over time, and include competitively sensitive information.

RAA contends that many of the subjects proposed to be addressed in a customer service plan would be inappropriate if applied to an airline that does not hold out, market, sell or ticket its services. RAA states that most regional carriers do not offer fares, take reservations, ticket passengers, receive payment from passengers, provide refunds to passengers, or have their own frequent flyer rules or cancellation policies. ExpressJet asks that the Department eliminate elements in the customer service commitments, such as the requirement that a customer service plan “ensure good customer service from code-share partners,” that it asserts has no applicability to carriers that do not hold out and sell air transportation to individuals.

DOT Response: The Department agrees with comments from RAA and ExpressJet that some of the subjects proposed to be addressed in the customer service plan would only apply in the context of the relationship between a seller of the air transportation and a buyer, and it would thus not be appropriate to mandate that carriers that do not offer their own reservation services or ticket passengers adopt a plan for addressing these elements. More specifically, we view the customer service elements concerning offering the lowest fare available, allowing reservations to be held or cancelled without penalty for a defined amount of time, and providing prompt ticket refunds as having no applicability to an airline that does not hold out, market, sell or ticket its services. Similarly, the commitment concerning disclosing travel itinerary, cancellation policies, frequent flyer rules and aircraft configuration would also not be applicable to an airline that does not sell or ticket its services to the extent these travel-related disclosures are made at the point of sale. We are further persuaded that only an airline that sells air transportation to individual customers should be required to adopt a plan ensuring good customer service from its code-share partners. As such, airlines that do not offer their own reservations and ticketing services may comply with the provisions of the customer service elements that address functions they do not perform by including in their customer service plan under each of these elements an explanation that this service is not provided by them and identifying the airline that provides the service. With regard to the other required elements in a customer service plan, including the promise to handle overbooked passengers with fairness and consistency, we believe that the covered airlines, whether or not they sell air transportation to passengers, have responsibilities in this area and must fully address these subjects in their customer service plans.

The Department has decided to require carriers to describe in customer plans the services a carrier provides to mitigate passenger inconvenience resulting from cancellations and misconnections. Consumers deserve to know up front what to expect in such an event. We believe that carriers already note in their contracts of carriage many of the services they will provide to mitigate passenger inconveniences due to flight irregularities. Moreover, our requirement here is in no way a limitation on carriers. They always retain the flexibility to provide additional services, when necessary.

The Department also agrees with commenters that there should be some baseline standard in place to ensure that the carriers' customer service plans are specific and enforceable. The NPRM, however, did not propose to establish such standards. Consequently, the Department plans to seek comment about establishing standards for ensuring compliance with customer service plans in a forthcoming notice of proposed rulemaking. The preamble to that NPRM will discuss this issue in more detail.

The NPRM: The NPRM proposed that each covered carrier be required to incorporate its customer service plan in its contract of carriage and make its contract of carriage available on its Web site. As in the case of contingency plans for lengthy tarmac delays, we invited interested persons to comment on the implications of our creating a private right of action here, particularly potential benefits to passengers, potential negative consequences, and the costs to carriers.

Comments: Flyersrights.org notes that incorporating customer service plans into a contract of carriage is important as it provides an avenue for individual passengers to enforce airline promises. Flyerrights.org also supports providing contract of carriage information on a carrier's Web site, stating that it provides passengers an opportunity to educate themselves on the carrier's stated obligations. ACAP and U.S. PIRG agree with the views of Flyersrights.org. ASTA also supports incorporating the customer service plans into the contract of carriage, but has concerns about its effectiveness because DOT does not plan to review the plans to ensure sufficient specificity and enforceability. ATA opposes a requirement that these plans be incorporated in carriers' contracts of carriage. ATA challenges the Department's legal authority to do this in the aftermath of deregulation and argues that the Department cannot substitute Congress's chosen enforcement mechanism which precludes private judicial enforcement with one of its own creation. ATA also expresses concern that litigation costs would increase dramatically over current levels if each customer service commitment were incorporated into airlines' contracts of carriage.

DOT Response: Although we agree with the commenters about the benefits of customer service plans being incorporated into a carrier's contract of carriage, we will not in this final rule make such incorporation a mandatory requirement of covered carriers, for the same reasons as stated in our discussion of contingency plans. The Department has determined that for now it should strongly encourage carriers to voluntarily incorporate the terms of their customer service plans in their contracts of carriage. At the same time, the Department will undertake a series of related measures to ensure the dissemination of information regarding each airline's customer service plans. The Department believes that incorporation of the customer service plans into carriers' contracts of carriage provides individuals notice of their rights and carrier responsibilities in a readily available source and will help improve compliance with the matters so incorporated. However, as stated in our discussion of contingency plans, we believe that incentives exist for carriers to include their customer service plans in their contracts of carriage and, as pointed out by the Department's Inspector General in his 2006 report, most major airlines already do so.

As discussed above, the Department will require each air carrier that has a Web site to post its entire contract of carriage on its Web site in easily accessible form, including all updates to its contract of carriage. The Department will also require each air carrier with a Web site that chooses not to include their customer service plan in its contract of carriage to post the plan itself on its Web site in easily accessible form.

Many airlines already post their contract of carriage, including their customer service plan, on their Web site. An airline's contract of carriage is also available for public inspection at airports and ticket offices. The purpose of this requirement is to ensure that interested consumers can easily review an airline's contract of carriage, which as of the effective date of the rule may include the customer service plan of airlines that choose to incorporate such a plan. By reviewing an airline's contract of carriage, consumers can find out an airline's stated legal obligations to passengers and be better informed about their rights and a carrier's responsibilities when problems occur (for example, the passenger's rights and carrier's responsibilities if an airline delays or cancels a flight or loses a bag).

This rule also requires each covered carrier that has a Web site to post its entire contract of carriage on its site in easily accessible form. Many airlines already post their contract of carriage on their Web site. An airline's contract of carriage is also available for public inspection at airports and ticket offices. The purpose of this requirement is to ensure that interested consumers can easily review an airline's contract of carriage, which as of the effective date of rule may include the customer service plan of airlines that are required to have such a plan. By reviewing an airline's contract of carriage, consumers can find out an airline's stated legal obligations to passengers and be better informed about their rights and a carrier's responsibilities when problems occur (for example, the passenger's rights and carrier's responsibilities if an airline delays or cancels a flight or loses a bag).

The NPRM: The NPRM proposed that each covered carrier audit its own adherence to its plan annually and make the results of its audits available for the Department's review for two years. We rejected carriers' arguments in comments to the ANPRM against requiring audits and invited carriers that oppose self-auditing as unduly burdensome to provide evidence of the costs that they anticipate. We also rejected consumers' arguments that the Department should set standards for the audits, review all audits, or have them done by our IG.

Comments: NBTA favors giving the Department's IG the resources to conduct audits of carriers' customer service plans, and suggests that these audits be conducted not more frequently than once every three years and at similar times in the year to provide accurate comparative information. ATA agrees with the self-auditing proposal because internal auditors are more familiar with the industry, and it saves time and training costs associated with outside auditors. ASTA notes that self-auditing is unlikely to improve the situation because the “promises” carriers make in their customer service plans are likely to be aspirational, lacking in substance and unenforceable.

DOT Response: The rule requires each carrier to audit its own adherence to its plan annually and to make the results of each audit available for the Department's review for two years afterwards. The Department believes that a system for verifying compliance with customer service plans is essential. We believe that requiring covered carriers to audit their plans annually will further influence carriers to live up to their commitments. We agree with ATA that self-auditing is preferable as internal auditors are familiar with the industry and the cost of external audits can be avoided. The Department's IG, in several reports, also recommended that airlines conduct internal audits to measure their compliance with their customer service plans. Some airlines are already doing so, but most are not. We disagree with the suggestion that the IG, rather then the airlines, conduct routine audits. In the past, in response to Congressional requests, the IG has conducted audits of the customer service commitments that ATA member carriers voluntarily adopted; however, these audits, which were costly, lengthy and resource intensive, were not routine annual audits. Instead, the audits focused on the effectiveness of the plans and the extent to which each airline met the provisions under its plan for the purpose of making recommendations for improving accountability, enforcement and consumer protections afforded to air travelers.

The Department believes that audits of customer service plans should be conducted at least once a year to enable an airline to quickly take action if it learns that it is not in compliance with its customer service plans or if it is not effectively implementing its plan. If audits are conducted once every three years as suggested by one commenter, an airline may not be properly implementing its customer service plans for quite some time before it becomes aware of the problem. We are also not requiring that the audits be conducted “at similar times in the year” or even that there be a single unified audit of all the subjects covered in the customer service plans, in order to allow each airline the flexibility to design an audit program that fits its particular operational environment.

The NPRM: In the NPRM, we proposed to adopt a rule to prohibit carriers from retroactively applying any material amendment to their contracts of carriage with significant negative implications for consumers to people who have already bought tickets. We asked for commenters to address the implications of a carrier's being held to different contract terms vis-à-vis different passengers on the same flight if some bought their tickets before the contract of carriage was amended and some afterwards.

Comments: NBTA states that customers on the same flight should be governed under the same contract of carriage, and last minute business travelers should not be subject to different contracts than other passengers. ATA also opposes this measure, and notes that carriers need flexibility and such a requirement will discourage carriers from making improvements in customer service due to the difficulty of dealing with differing customer service standards as applied to passengers depending on the time of purchase. ASTA thinks the Department should prohibit retroactive changes to the contract of carriage, as the contract is formed at the moment of purchase. ASTA states that it would be unfair to the airlines to allow consumers to take retroactive advantage of improvements that were not in effect when they bought their tickets and equally unfair to consumers to permit an airline to change the bargain that existed when the ticket was purchased.

DOT Response: As we believe that consumers have the right to receive accurate information at the time of purchase about the terms in the contract of carriage that are applicable to them and to which they will be held, this final rule prohibits carriers from retroactively applying any material amendment to their contracts of carriage that has any significant negative implications for consumers who have already bought tickets. We believe that it would be unfair, for example, for a passenger to purchase a non-refundable ticket in March for a flight in May and to learn later that the carrier added a significant fee in April that the passenger would be subject to and that may have affected his/her purchase decision had he/she been aware of it. This provision is included in the rule as a new section 253.9 in Part 253.

The NPRM: In the NPRM, we proposed that the final rule take effect 180 days after its publication in the Federal Register in order to afford carriers sufficient time to adopt their plans, modify their computer systems, and take other necessary steps to be able to comply with the new requirements before we begin enforcing them. We invited comments on whether 180 days is an appropriate interval for completing these changes.

Comments: We received few comments on this issue. Flyersrights.org suggested that the rules should become effective after 120 days. NBTA thinks a “reasonable date should be established after determining the impact the final rule will have on carriers.” ACI-NA supports the DOT proposal to make the final rule effective 180 days after publication in the Federal Register but suggests a tiered implementation schedule providing an extra 120 days to small and non-hub airports if the Department adopts its suggestion that airlines be required to coordinate their plans with all airports at which they provide service. ATA recommends a “significant implementation period” as the rule would require substantial software and operational changes.

DOT Response: We agree with ATA and NBTA that carriers should have sufficient time to implement these changes. We also agree with Flyerrights.org that four months is adequate time for carriers to implement the necessary changes. Consequently, for the reasons stated above the rule will go into effect 120 days after it is published in the Federal Register.

This action has been determined to be significant under Executive Order 12866 and the Department of Transportation's Regulatory Policies and Procedures. It has been reviewed by the Office of Management and Budget. The final Regulatory Evaluation has concluded that the benefits of the final rule exceed its costs, even without considering non-quantifiable benefits. The total present value of benefits over a 20 year period at a 7% discount rate is $169.7 million and the total present value of costs over a 20 year period at a 7% discount rate is $100.6 million. The net present value of the rule for 20 years at a 7% discount rate is $69.1 million. A copy of the final Regulatory Evaluation has been placed in the docket.

The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires an agency to review regulations to assess their impact on small entities unless the agency determines that a rule is not expected to have a significant economic impact on a substantial number of small entities. An air carrier is a small business if it provides air transportation only with small aircraft (i.e., aircraft with up to 60 seats/18,000 pound payload capacity). See 14 CFR 399.73. Our analysis identified 19 small businesses potentially affected by the requirements of the final rule. However, although certain elements of this rule impose new requirements on these small air carriers, the Department believes that the economic impact will not be significant based on its examination because for those carriers identified as small businesses (and for which data on receipts was readily available) annualized total costs of the rule are estimated to be one tenth of one percent or less of annual receipts per firm. More specifically, annualized total costs as a percent of annual receipts ranged from 0.09% to 0.0006%. On the basis of this examination, the Department certifies that this rule will not have a significant economic impact on a substantial number of small entities. A copy of the Regulatory Flexibility Analysis has been placed in docket.

This Final Rule has been analyzed in accordance with the principles and criteria contained in Executive Order 13132 (“Federalism”). This final rule does not include any provision that: (1) Has substantial direct effects on the States, the relationship between the national government and the States, or the distribution of power and responsibilities among the various levels of government; (2) imposes substantial direct compliance costs on State and local governments; or (3) preempts State law. Therefore, the consultation and funding requirements of Executive Order 13132 do not apply.

This final rule has been analyzed in accordance with the principles and criteria contained in Executive Order 13084 (“Consultation and Coordination with Indian Tribal Governments”). Because this final rule does not significantly or uniquely affect the communities of the Indian Tribal governments or impose substantial direct compliance costs on them, the funding and consultation requirements of Executive Order 13084 do not apply.

As required by the Paperwork Reduction Act of 1995, DOT has submitted the Information Collection Requests (ICRs) abstracted below to the Office of Management and Budget (OMB). Before OMB decides whether to approve these proposed collections of information and issue a control number, the public must be provided 30 days to comment. Organizations and individuals desiring to submit comments on the collection of information requirements should direct them to the Office of Management and Budget, Attention: Desk Officer for the Office of the Secretary of Transportation, Office of Information and Regulatory Affairs, Washington, DC 20503, and should also send a copy of their comments to: Department of Transportation, Office of Aviation Enforcement and Proceedings, Office of the General Counsel, 1200 New Jersey Avenue, SE., Washington, DC 20590. OMB is required to make a decision concerning the collection of information requirements contained in this rule between 30 and 60 days after publication of this document in the Federal Register. Therefore, a comment to OMB is best assured of having its full effect if OMB receives it within 30 days of publication.

We will respond to any OMB or public comments on the information collection requirements contained in this rule. OST may not impose a penalty on persons for violating information collection requirements which do not display a current OMB control number, if required. OST intends to obtain current OMB control numbers for the three new information collection requirements resulting from this rulemaking action. The OMB control number, when assigned, will be announced by separate notice in the Federal Register.

The ICRs were previously published in the Federal Register as part of NPRM (73 FR 74587) and the Department invited interested persons to submit comments on any aspect of each of these three information collections, including the following: (1) The necessity and utility of the information collection, (2) the accuracy of the estimate of the burden, (3) ways to enhance the quality, utility, and clarity of the information to be collected, and (4) ways to minimize the burden of collection without reducing the quality of the collected information.

The final rule contains three new information collection requirements. The first is a requirement that certificated and commuter air carriers that operate passenger service using any aircraft with 30 or more passenger seats retain for two years the following information about any ground delay that lasts at least three hours: the length of the delay, the precise cause of the delay, the actions taken to minimize hardships for passengers, whether the flight ultimately took off (in the case of a departure delay or diversion) or returned to the gate; and an explanation for any tarmac delay that exceeded 3 hours. The Department plans to use the information to investigate instances of long delays on the ground and to identify any trends and patterns that may develop. The assumptions upon which the calculations for this requirement are based have not changed; however, we have modified the information collection burden hours to take into account the fact that the final rule requires covered carriers to retain information about any ground delay that last at least three hours as opposed to ground delays that last at least four hours as proposed in the NPRM. Also, rather than using data about the total number of tarmac delays in 2007 as we did in the NPRM, we use the total number of tarmac delays averaged in 2007-2008. The second is a requirement that any certificated and commuter air carrier that operates scheduled passenger service using any aircraft with 30 or more passenger seats adopt a customer service plan, audit its adherence to the plan annually, and retain the results for two years. The Department plans to review the audits to monitor carriers' compliance with their plans and take enforcement action when appropriate. We have revised the information collection burden hours for this requirement because it applies not only to the reporting carriers as proposed in the NPRM but to all U.S. airlines that operate domestic scheduled passenger service using any aircraft with 30 or more passenger seats. The third is a requirement that each reporting carrier display on its Web site information on each listed flight's on-time performance for the previous month for both its flights and those of its non-reporting code-share carriers. This information will help consumers to select their flights. The assumptions upon which the calculations for this requirement are based have changed significantly. Initially, we had estimated that the one-time programming cost for displaying flight delay data on each covered carrier's Web sites would be $20,000. Based on industry comments received, we have revised the on-time programming cost from $20,000 to $400,000 for each covered carrier. The median hourly wage for computer programmers has decreased from $33.47 to $32.73.

For each of these information collections, the title, a description of the respondents, and an estimate of the annual recordkeeping and periodic reporting burden are set forth below:

Respondents: Certificated and commuter air carriers that operate domestic passenger service using any aircraft with 30 or more passenger seats.

Estimated Annual Burden on Respondents: From 0 to 21 hours and 15 minutes (1275 minutes) per year for each respondent. The estimate was calculated by multiplying the estimated time to retain information about one ground delay (15 minutes) by the total number of ground delay incidents lasting at least three hours per respondent (from 0 to 85 incidents, averaged in 2007-2008).

Estimated Total Annual Burden: A maximum of 207 hours and 15 minutes (12,435 minutes) for all respondents. The estimate was calculated by multiplying the estimated time to retain information about one ground delay (15 minutes) by the total number of ground delay incidents lasting at least three hours in calendar years 2007-2008 (averaged) for the reporting carriers (748) and adding the product of the estimated time to retain information about one ground delay (15 minutes) multiplied by 11 percent of the total number of ground delay incidents lasting at least three hours in calendar years 2007-2008 (averaged) for the reporting carriers (82.28). (The reporting carriers accounted for 89 percent of domestic scheduled passenger service, so we have assumed that nearly all of the remaining 11 percent was provided by other certificated and commuter carriers using aircraft with more than 30 passenger seats.)

Frequency: From 0 to 85 ground delay information sets to retain per year for each respondent. (N.b. Some air carriers may not experience any ground delay incident of at least three hours in a given year, while some larger air carriers could experience as many as 85 in a given year according to data on ground delays in the average of calendar years 2007 and 2008.)

Respondents: Certificated and commuter air carriers that operate domestic scheduled passenger service using any aircraft with 30 or more passenger seats (42 carriers).

Estimated Annual Burden on Respondents: 15 minutes per year for each respondent. The estimate was calculated by multiplying the estimated time to retain a copy of the carrier's self-audit of its compliance with its Customer Service Plan by the number of audits per carrier in a given year (1).

Estimated Total Annual Burden: A maximum of 10 hours and 30 minutes (630 minutes) for all respondents. The estimate was calculated by multiplying the time in a given year for each carrier to retain a copy of its self-audit of its compliance with its Customer Service Plan (15 minutes) by the total number of covered carriers (42).

Frequency: One information set to retain per year for each respondent.

Respondents: Every U.S. carrier that accounts for at least one percent of scheduled passenger revenue, maintains a Web site, and is not already displaying the required information (9 carriers).

Estimated Annual Burden on Respondents: 11,964 hours (717,780 minutes) in the first year and no more than 12 hours (720 minutes) in subsequent years for each respondent. The estimate for the first year was calculated by adding the estimated number of hours per respondent for developing its Web site for data posting (11,951 hours [717,060 minutes], the quotient of a one-time programming cost of $400,000 divided by $33.47, the median hourly wage for computer programmers) to the estimated number of hours for management of data links (12 hours [720 minutes], estimated at one hour per month).

Estimated total annual burden: 107,667 hours (6,460,020 minutes) in the first year and no more than 108 hours (6,480 minutes) in subsequent years for all respondents. The estimate for the first year was calculated by multiplying the number of hours per respondent for developing its Web site for data posting (11,951 hours) by the number of covered carriers (9) and adding the product of the number of hours per year for management of data links (12) and the number of covered carriers (9). The estimate for subsequent years was calculated by multiplying the number of hours per year for management of data links (12) by the number of covered carriers requiring action to come into compliance (9).

Frequency: Development of Web site for data posting: 1 time for each respondent. Updating information for each flight listed on Web site: 12 times per year (1 time per month) for each respondent.

The Department has determined that the requirements of Title II of the Unfunded Mandates Reform Act of 1995 do not apply to this rule.

On October 13, 2009, the Commission published for comment in the Federal Register proposed amendments to Regulations 1.10 and 1.12 (the “Proposals”).1 Commission Regulation 1.10 sets forth the financial reporting requirements for FCMs and IBs 2 and Regulation 1.12 requires FCMs, IBs and applicants for registration thereof to provide notice of a variety of predefined events as or before they occur.3

The Proposals consisted of several amendments regarding electronic filing of financial reports and notices by FCMs and IBs as well as amendments to certain other financial reporting requirements. Specifically, the Commission proposed amendments to: (1) Broaden language in the Commission's regulations concerning authentication procedures applicable to electronic filing of financial reports in order to enable internet-based filing of such reports in anticipation of expected changes to “WinJammerTM,” an application used by FCMs that file their non-certified financial reports electronically with the Commission; (2) expand the types of filings that FCMs and IBs may submit electronically to include required “early warning” notices and certain other notices and filings under Regulations 1.10 and 1.12; (3) provide for less prescriptive, but more immediate, documentation to be filed regarding a firm's undercapitalized condition; (4) expressly include an income statement in the required periodic unaudited financial reports of FCMs and IBs; and (5) make several other minor amendments to correct certain outdated references and to make other clarifications to existing regulations.

The 30-day public comment period on the Proposals expired on November 12, 2009. The Commission received one written comment on the Proposals, submitted by the National Futures Association (“NFA”). NFA noted its agreement and support of the Commission's Proposals and commended the Commission for its review of its electronic filing requirements and proposal of changes to reflect technological advances and current practices. As discussed below, NFA also encouraged the Commission to consider certain additional amendments to further expand the use of electronic filing in certain circumstances. NFA did not suggest delaying the implementation of the Proposals while these additional suggestions made by NFA are under consideration by the Commission. The Commission further notes that certain provisions included in the additional amendments offered by NFA for consideration may require publication in the Federal Register for prior notice and comment before they may be adopted. For the reasons set forth below, the Commission has therefore determined to adopt the amendments as proposed.

Commission Regulation 1.10(c) generally sets forth the provisions governing where and how financial reports required to be filed by FCMs and IBs under Regulation 1.10 must be filed. Regulation 1.10(c)(1) indicates with whom reports should be filed and Regulation 1.10(c)(2) addresses the method for submitting such reports. Electronic submission of certified financial reports currently is addressed separately in Regulation 1.10(b)(2)(iii). This section provides that FCMs must file certified financial reports in paper form and IBs must file such reports electronically in accordance with electronic filing procedures established by NFA.

For clarification and ease of reading, the Commission is moving Regulation 1.10(b)(2)(iii) into a new subparagraph of Regulation 1.10(c)(2). Regulation 1.10(c)(2) is being amended as discussed below and divided into 2 new subparagraphs: New subparagraph (c)(2)(i) addresses electronic filing by FCMs with the Commission and new subparagraph (c)(2)(ii) addresses electronic filings with NFA by IBs and by applicants for registration as IBs and FCMs.

Regulation 1.10(c)(2) currently provides that non-certified financial reports may be submitted to the Commission “in electronic form using a Commission assigned Personal Identification Number, and otherwise in accordance with instructions issued by the Commission * * *.” The adopted amendments to Regulation 1.10(c)(2) broaden the language in the regulation relating to user authentication by no longer limiting user authentication to the use of a personal identification number (“PIN”). As described in the proposing release, the use of such a PIN is no longer consistent with the internet-based enhancements under development for Winjammer. The revisions to Regulation 1.10(c)(2) also permit any filing or other notice submitted under the regulation to be transmitted electronically, rather than limiting such submission to financial reports as under the current regulation. Such other notices would include, for example, an election to use a fiscal year other than a calendar year under Regulation 1.10(e) and a request for an extension of time to file uncertified financial reports under Regulation 1.10(f). Regulation 1.10(d)(4)(iii), which deals with electronic filing of Form 1-FR, is being amended by deleting references to the use of a PIN.

As amended, Regulation 1.10(c)(2)(i) provides that all filings or other notices or applications prepared by a futures commission merchant “[except with respect to the filing of certified financial reports which must be filed in paper form], and pursuant to [Regulation 1.10] may be submitted to the Commission in electronic form using a form of user authentication assigned in accordance with procedures established by or approved by the Commission, and otherwise in accordance with instruction issued by or approved by the Commission, if the futures commission merchant or a designated self-regulatory organization has provided the Commission with the means necessary to read and to process the information contained in such report.”

Amended Regulation 1.10(c)(2)(ii) provides that “[except with respect to the filing of certified FOCUS reports by a registered broker or dealer with the SEC], all filings or other notices or applications prepared by an introducing broker or applicant for registration as an introducing broker or futures commission merchant * * * must be filed electronically in accordance with electronic filing procedures established by the National Futures Association * * *.”

In its comment letter, NFA indicated that it would support the Commission further broadening the permitted use of electronic filing to include FCM certified financial statements. The current requirement in Regulation 1.10 for FCM certified financial statements to be filed in paper form is due in part to the fact that such statements are not prepared in a standard format that lends itself easily to electronic input. NFA suggested that notwithstanding this lack of standardization, the Commission could consider permitting the submission of such statements in portable document format (“pdf”). The Commission notes, however, that this suggestion requires further review because the pdf format is not conducive to the application of automated review of the data by the Commission. Further review would also be beneficial in light of continuing developments in technology that may at a later date result in increased benefits of electronic filing of certified financial statements for the filers, the Commission and the DSRO recipients. The adoption of the amendments as proposed will not impede such further review, and will make available to these same parties other recognized enhancements to the current requirements for electronic filing.

Commission Regulation 1.12 requires FCMs, IBs and applicants for registration thereof to provide notice of a variety of predefined events as or before they occur.4 The Commission proposed to amend Regulation 1.12(i), which sets forth the procedures for filing notices under Regulation 1.12, to allow FCMs and IBs to submit electronically filings otherwise required to be submitted in writing via facsimile.5 In its comment letter, NFA supported this change, but suggested that the Commission consider requiring, rather than simply permitting, registrants to electronically file such notices. Although the Commission strongly encourages, and believes that most registrants will choose to utilize, electronic filing as a more efficient and expeditious means to file notices, the Commission nonetheless appreciates that there may be times when a registrant would prefer, or is otherwise unable, to file electronically. For example, a registrant may have a regulatory deadline under the Commission's regulations but be unable to satisfy such deadline through electronic means due to temporary technological issues with WinJammerTM, NFA's EasyFile system or the registrants' own systems. Moreover, moving from a permissive to mandatory filing requirement may require publication in the Federal Register in order to obtain public comment on such a proposal. In light of these concerns, the Commission has determined to adopt the amendment as proposed.

The amendment adopted adds a new subparagraph 1.12(i)(3) to the Commission's regulations which provides that “[e]very notice or report required to be provided in writing under [Regulation 1.12] may, in lieu of facsimile, be filed via electronic transmission using a form of user authentication assigned in accordance with procedures established by or approved by the Commission, and otherwise in accordance with instructions issued by or approved by the Commission.” An electronic submission is required to clearly indicate the registrant or applicant on whose behalf such filing is made and the use of such user authentication in submitting such filing would constitute and become a substitute for the manual signature of the authorized signer.

Commission Regulation 1.10(d) sets forth the content requirements for financial reports filed with the Commission: The Commission proposed to amend Regulation 1.10(d)(1) to require “statements of income (loss)” to be included as part of FCM and IB non-certified financial report filings. The Commission noted that this amendment is consistent with Regulation 1.10(d)(2)(ii), which requires FCMs and IBs to include an income statement as part of their certified financial reports, and is a practice currently followed by most registrants. NFA voiced its support of this amendment in its comment letter noting its agreement that the income statement provides the Commission with important information for monitoring the financial condition of firms. The Commission is adopting the amendment as proposed.

As noted in the Proposals, this amendment does not affect the ability of a broker-dealer to file with the Commission in accordance with Regulation 1.10(h) the FOCUS report under the Securities and Exchange Act of 1934, including the income statement currently provided in that report.6

Regulation 1.12(a) requires a registrant or applicant for registration as an FCM or IB that knows or should have known that its adjusted net capital is less than the minimum required by the Commission or by its designated self-regulatory organization (“DSRO”) to provide notice of such event immediately by telephone and confirm such telephonic notice in writing by facsimile. Regulations 1.12(a)(2) (applicable to FCMs) and 1.12(a)(3) (applicable to IBs) further require that, within 24 hours thereafter, the registrant (or applicant) must file certain specific financial records with the Commission.7

The Commission also is amending Regulations 1.12(a)(2) and (a)(3) to require more immediate, but less prescriptive, reporting to the Commission when a registrant or applicant falls below its minimum net capital requirement. NFA supported this amendment, stating its agreement with the Commission that it is more beneficial for the Commission to receive prompt information concerning a firm's capital condition than to receive such information in a specific prescribed format. Under the amended regulation, a firm must continue to provide immediate telephonic notice, confirmed in writing, in the event that its adjusted net capital falls below its required minimum. Amended Regulation 1.12(a)(2) requires that together with such initial telephonic notice and written confirmation, a firm must provide “documentation in such form as necessary to adequately reflect the firm's capital condition as of any date such person's adjusted net capital is less than the minimum required.” 8 The Commission envisions that such adequate documentation would at a minimum specify the firm's adjusted net capital requirement and actual adjusted net capital for any date during which the firm fell below its regulatory requirement. The amended regulation also requires a firm to provide similar documentation to that initially provided for any other days the Commission may request.9 By requiring documentation as of “any” date that adjusted net capital is less than the required minimum, the amended regulation makes clear that where a firm is undercapitalized on more than one day, documentation related to all such time must be provided.

Regulation 1.12(a)(3), which provides documentation requirements for IBs that provide the Commission with notice of their undercapitalized condition, has been deleted because Regulation 1.12(a)(2) as amended applies to IBs as well as to FCMs. Regulation 1.12(i)(1) also is being amended by deleting certain language related to the method of filing documentation that is no longer required to be submitted to the Commission in light of the amendments to Regulation 1.12(a)(2) discussed above.

The Commission proposed a number of minor amendments to Regulations 1.10 and 1.12 to correct certain outdated references and to otherwise clarify existing regulations. NFA noted their support of certain of these amendments that eliminated requirements that provided for duplicative filing with NFA and the Commission (enumerated as items (1) and (2), below). The Commission received no comments on the other amendments. The Commission is, therefore, adopting each of the amendments as proposed and, as outlined below:

(1) Regulation 1.10(c)(1) is amended to clarify that FCM and IB applicants for registration need file financial reports required as part of the application process only with NFA and not also with a regional office of the Commission;

(2) Regulation 1.12(i)(1) is amended to clarify that an applicant for registration as an FCM need file any notices required under Regulation 1.12 only with NFA and not also with the Commission. The amended regulation makes clear that any notice or report filed with NFA will be deemed to be filed with, and to be the official record of, the Commission;

(3) The following minor wording amendments are being made to Regulation 1.10(c)(1) for the purposes of consistency with other provisions of the regulations and/or general clarification:

(A) The reference to “[a] report filed by an [IB] pursuant to paragraph (b)(2)(i) or (b)(2)(ii)” is amended to clarify that “a report” in this context is meant to refer to Form 1-FR;

(B) The reference to subparagraphs (b)(2)(i) and (b)(2)(ii) is being amended for simplicity to refer only to paragraph (b)(2) in general; and

(C) The language of paragraph 1.10(c)(1) is being amended to clarify that it is intended to cover not only “reports” but all reports and other “information;”

(4) Regulations 1.10(b)(2)(i) and 1.10(b)(2)(ii) are being amended to delete language referring to an option to file financial statements on a calendar-year basis which is no longer contained in the Commission's regulations;

(5) Regulation 1.10(b)(3), which permits an FCM or IB to satisfy the Commission's Form 1-FR filing requirements if it satisfies certain financial reporting standards and reporting requirements of its DSRO, is being amended to delete outdated language referring to DSRO regulations applicable “after the effective date of these regulations by the Commission”; and

(6) Language within regulation 1.10(h) that references “NFA” is amended for consistency purposes by spelling out “National Futures Association.”

The Administrative Procedure Act (“APA”) provides that the required publication of a substantive rule shall be made not less than 30 days before its effective date, unless the agency is permitted to implement an earlier effective date under one of the exceptions recognized by the APA.10 The exceptions set forth in the APA are as follows: (1) A substantive rule which grants or recognizes an exemption or relieves a restriction; (2) interpretative rules and statements of policy; or (3) as otherwise provided by the agency for good cause found and published with the rule.11

The amendments being made to Rules 1.10 and 1.12 will “grant or recognize an exemption or relieve a restriction” in that they generally serve to permit and enable registrants to file notices and reports electronically that previously were required to be filed in paper form. In addition, the amendments include a number of non-substantive amendments to correct certain outdated references and to otherwise clarify existing regulations.

With regard to the amendments relating to the timing of documentation required by firms that become undercapitalized, the Commission has a clear interest in receiving such information immediately and believes, therefore, that there is “good cause” to make such requirement effective in fewer than 30 days. With respect to the amendments requiring an income statement, the Commission believes that there is also “good cause” to make this provision effective on January 4, 2010, consistent with the other rule amendments. It would not be logical for the income statement requirement to be implemented at a time later than the effective date of the remaining rules, as the information in the income statement is an integral part of a registrant's financial statements. Further, as the SEC and several self-regulatory organizations already require dual registrants and other FCMs to include the income statement in their financial statements, the income statement is already formatted as part of the Form 1-FR reports that registrants currently file with the Commission, and the data required to complete it is generally already available from other parts of the form. In fact, substantially all FCMs and IBs already complete the income statement as part of their required periodic non-certified financial report filings.

Accordingly, the Commission has determined to make these amendments effective on January 4, 2010, consistent with the anticipated availability of the updated WinJammerTM system.

The Regulatory Flexibility Act (“RFA”), 5 U.S.C. 601 et seq., requires that agencies, in rulemaking, consider the impact of those regulations on small businesses. This rulemaking would affect FCMs and IBs. The Commission has previously determined that, based upon the fiduciary nature of FCM/customer relationships, as well as the requirement that FCMs meet minimum financial requirements, FCMs should be excluded from the definition of small entity.

With respect to IBs, the Commission stated that it is appropriate to evaluate within the context of a particular rule proposal whether some or all IBs should be considered to be small entities and, if so, to analyze the economic impact on such entities at that time.12 These amendments will not place any additional burdens on IBs that are small businesses because all such parties, if any, already are subject to the financial reporting and notice requirements under Regulations 1.10 and 1.12 and already file financial reports through NFA's electronic filing system. Additionally, although the Commission is amending its regulations to add a requirement to include statements of income and loss as part of non-certified financial report filings, substantially all IBs already are filing this data in practice and, in any event, must compute the relevant income and loss data (although not currently required to be provided in a separate income statement) in order to complete Commission Form 1-FR or the SEC FOCUS report, as applicable, under the Commission's regulations.13 The Commission's Proposals solicited public comment on this analysis.14 No comments were received. Accordingly, pursuant to Section 3(a) of the RFA, 5 U.S.C. 605(b), the Chairman, on behalf of the Commission, certifies that the action taken herein will not have a significant economic impact on a substantial number of small entities.

This rulemaking provides an alternative method of collection for a required collection of information under Part 1 of the Commission's rules, but is not anticipated to change the burden under such collection as the actual financial reporting requirements have not changed significantly. As required by the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)), the Commission submitted a copy of this section to the Office of Management and Budget (“OMB”) for its review. No comments were received in response to the Commission's invitation in its notice of proposed rulemaking to comment on any change in the potential paperwork burden associated with these rule amendments.15

Section 15(a) of the Act, as amended by Section 119 of the Commodity Futures Modernization Act, requires the Commission to consider the costs and benefits of its action before issuing a new regulation under the Act. By its terms, Section 15(a) as amended does not require the Commission to quantify the costs and benefits of a new regulation or to determine whether the benefits of the proposed regulation outweigh its costs. Rather, Section 15(a) simply requires the Commission to “consider the costs and benefits” of its action.

Section 15(a) further specifies that costs and benefits shall be evaluated in light of five broad areas of market and public concern: Protection of market participants and the public; efficiency, competitiveness, and financial integrity of futures markets; price discovery; sound risk management practices; and other public interest considerations. The Commission, in its discretion, can choose to give greater weight to any one of the five enumerated areas and determine that, notwithstanding its costs, a particular regulation is necessary or appropriate to protect the public interest or to effectuate any of the provisions or to accomplish any of the purposes of the Act.

The Commission's proposal contained an analysis of its consideration of these costs and benefits and solicited public comment thereon.16 No comments were received with respect to this analysis. Therefore, pursuant to such consideration, the Commission has decided to adopt these amendments as discussed above.

The Securities and Exchange Commission is adopting as final temporary Rule 206(3)-3T [17 CFR 275.206(3)-3T] under the Investment Advisers Act of 1940 [15 U.S.C. 80b].

On September 24, 2007, we adopted, on an interim final basis, Rule 206(3)-3T, a temporary rule under the Investment Advisers Act of 1940 (the “Advisers Act”) that provides an alternative means for investment advisers who are registered with us as broker-dealers to meet the requirements of Section 206(3) of the Advisers Act when they act in a principal capacity in transactions with certain of their advisory clients.1 The purpose of the rule was to permit broker-dealers to sell to their advisory clients, in the wake of Financial Planning Association v. SEC (the “FPA Decision”),2 certain securities held in the proprietary accounts of their firms that might not be available on an agency basis—or might be available on an agency basis only on less attractive terms 3 —while protecting clients from conflicts of interest as a result of such transactions.4

The rule vacated in the FPA Decision had allowed broker-dealers to offer fee-based accounts without complying with the Advisers Act, including the requirements of Section 206(3). Section 206(3) makes is unlawful for any investment adviser, directly or indirectly, “acting as a principal for his own account, knowingly to sell any security to or to purchase any security from a client * * *, without disclosing to such client in writing before the completion of such transaction the capacity in which he is acting and obtaining the consent of the client to such transaction.” 5 Prior to our adoption of Rule 206(3)-3T, several firms that had offered fee-based brokerage accounts informed our staff that the written disclosure and the client consent requirements of Section 206(3) act as an operational barrier to their ability to engage in principal trades with their clients. Most informed us that they planned to discontinue fee-based brokerage accounts as a result of the FPA decision. They explained that they planned to do so because of the application of the Advisers Act and that, unless they were provided an exemption from (or an alternative means of complying with) Section 206(3), they would be unable to provide the same range of services to those fee-based brokerage customers who elected to become advisory clients and would expect few to elect to do so.

Rule 206(3)-3T was designed to continue to provide the protection of transaction-by-transaction disclosure and consent 6 to advisory clients when investment advisers seek to trade with them on a principal basis, subject to several conditions.7 Specifically, Rule 206(3)-3(T) permits an adviser, with respect to non-discretionary advisory accounts,8 to comply with Section 206(3) of the Advisers Act by, among other things, meeting the following conditions:

(i) Providing written, prospective disclosure regarding the conflicts arising from principal trades; 9

(ii) Obtaining written, revocable consent from the client prospectively authorizing the adviser to enter into principal transactions; 10

(iii) Making certain disclosures, either orally or in writing, and obtaining the client's consent before each principal transaction; 11

(iv) Sending to the client confirmation statements disclosing the capacity in which the adviser has acted and disclosing that the adviser informed the client that it may act in a principal capacity and that the client authorized the transaction; 12 and

(v) Delivering to the client an annual report itemizing the principal transactions made during the year.13

The rule also requires that the investment adviser be registered as a broker-dealer under Section 15 of the Securities Exchange Act of 1934 (the “Exchange Act”) [15 U.S.C. 78o] and that each account for which the adviser relies on the rule be a brokerage account subject to the Exchange Act, and the rules thereunder, and the rules of the self-regulatory organization(s) (“SRO”) of which it is a member.14 The rule is not available for principal trades of securities if the investment adviser or a person who controls, is controlled by, or is under common control with the adviser (“control person”) is the issuer or is an underwriter of the security.15 The rule includes one exception—an adviser may rely on the rule for trades in which the adviser or a control person is an underwriter of non-convertible investment-grade debt securities.16 Rule 206(3)-3T(b) clarifies that the rule does not relieve in any way an investment adviser from its obligation to act in the best interests of each of its advisory clients, including fulfilling the duty with respect to the best price and execution for a particular transaction for the advisory client.17 Rule 206(3)-3T was set to expire on December 31, 2009, approximately 27 months after its adoption.18

We are adopting Rule 206(3)-3T in the same form in which we adopted it on an interim final basis in 2007, except that the sunset period of the rule will end one year later (on December 31, 2010). Absent further action by the Commission, Rule 206(3)-3T will expire on December 31, 2010. As we continue to assess the operation of the rule along with intervening developments, we believe that the substantive provisions of Rule 206(3)-3T as it was adopted on an interim final basis provide sufficient protections to advisory clients to warrant its continued operation for an additional limited period of time. We will use that time to consider whether to propose to continue the rule beyond the revised sunset date and, if so, what if any modifications should be made to the rule.

We received comment letters from eight commenters on the interim final rule.19 Several favored narrowing the scope of the exemption provided by the rule or opposed its expansion.20 Others, however, urged us to expand the rule's exemption to cover additional securities.21 Some commenters suggested that an adviser be prohibited from relying on the rule when trading any securities underwritten or issued by the adviser or any of its affiliates (i.e., that we exclude underwritten non-convertible investment grade debt securities).22 Others asked that we allow advisers, in reliance on the rule, to engage in principal trades with clients in various types of securities the adviser or an affiliate underwrote that are highly liquid and for which ascertainable prices are readily available.23

Some commenters generally viewed the protections afforded to clients under the rule as inadequate,24 while others urged us to modify the rule to make it easier for advisers to effect principal transactions with their clients.25 For example, one commenter urged us to limit the rule's relief to principal transactions with sophisticated or wealthy investors who are in a position to protect themselves.26 Another suggested the rule expressly require firms to develop policies and procedures that are specifically designed to detect, deter and prevent disadvantageous principal transactions.27 And others suggested that we require that the disclosure supporting the initial client authorization for principal trades be in a separately executed, stand-alone document and not permit it to be incorporated directly into an account opening agreement.28 Some commenters asserted, however, that the disclosure requirements—in particular, requiring transaction-by-transaction disclosures for principal trades with sophisticated investors—were too restrictive,29 while others argued that they did not go far enough.30 Some commenters suggested we impose additional disclosures or disclosure-related requirements.31 One commenter questioned the rule's overall focus on disclosure and urged us to consider instead requiring affirmative measures designed to prevent principal trading abuses.32

Commenters who addressed the issue generally agreed with our view that principal trades in securities issued or underwritten by an adviser or its control persons should not be permitted under the rule.33 However, these commenters expressed differing views with respect to the rule's exception from the general prohibition for trades in which the adviser or control person is an underwriter of non-convertible investment grade debt securities.34 We also received mixed comments on the rule's limitation of relief to investment advisers that are registered with the Commission as broker-dealers. Some commenters, generally those representing financial institutions that act as both advisers and broker-dealers, supported the limitation 35 while others opposed it.36

Several commenters agreed with our decision to limit the rule to non-discretionary accounts.37 In contrast, one commenter urged us to expand the rule to be available to all advisory accounts, not just non-discretionary ones.38 One commenter urged us to limit the scope of the rule so that advisers may only rely on it when they are conducting a principal trade with a “qualified client,” as defined under Rule 205-3 [17 CFR 275.205-3] under the Advisers Act,39 while another argued that the rule should not be restricted to particular clients.40

Five commenters addressed the duration of Rule 206(3)-3T.41 Three expressed support for the temporary duration of the rule, arguing that, in light of the substantial risks associated with principal trading facilitated by the rule, a temporary effectiveness period would be important for the Commission to assess whether the scope of relief provided by the rule is appropriate.42 Two commenters supported making the rule permanent at the end of the sunset provision with broadened relief.43

We received two subsequent letters from market participants. The Securities Industry and Financial Markets Association (SIFMA) urged us to extend the temporary rule for two years in light of pending legislation that could address principal trading by investment advisers.44 The Financial Planning Association (FPA) also wrote recommending allowing the rule to expire or extending it for no more than an additional year while the Commission conducts a study that either substantiates a clear basis for adopting a permanent exemption under Section 206(3) or disproves the view of firms that it affords unique benefits to the public.45

When we adopted Rule 206(3)-3(T) on a temporary basis in September 2007, we anticipated the two-year period would provide us with adequate time to evaluate the operation of the rule in the marketplace and determine, in conjunction with consideration of all comments received, whether the rule should be made permanent, modified or allowed to expire. At the time we adopted the interim final rule, we explained that we would need to take action no later than the end of the original duration of the temporary rule if we intended to continue the same or similar relief.46

We need additional time to understand how, and in what situations, advisers are using the rule. Fewer firms than we anticipated at the time we adopted the rule on an interim final basis immediately determined to rely on it and those that did were slower than expected to implement the rule. We take seriously the investor protection concerns raised by commenters. Consequently, we have determined to limit the duration of the extension to one year while we continue to evaluate the operation of the rule. As our staff continues to gather information, we will assess whether the rule is operating, and firms are applying it, in a manner consistent with protecting investors.

Given the limited nature of the extension, we believe that making other changes to the temporary rule could cause firms relying on the rule to need to make adjustments to their disclosure documents, client agreements, procedures, or systems that, depending on whether we determine to propose and adopt a permanent rule in the future, may be applicable for only a year.

Further evaluation will help inform our decision whether to propose to make the rule permanent in its current or an amended form or to allow it to expire.47 We will consider, among other things, the comments we received on the interim final rule in deciding whether to propose a permanent rule or to let the rule expire. If we decide to propose a permanent rule, we will also consider the comments we received in determining how such a rule might differ from Rule 206(3)-T.

In addition, there are currently pending before both houses of Congress bills that may address, or otherwise have an impact on, principal trading activities by investment advisers and broker-dealers, as well as broader issues under the Advisers Act.48 Waiting some additional time for Congress to act will permit us to consider the impact that any of those proposals, if enacted, will have on such activities prior to taking further action with respect to the temporary rule.

For the reasons discussed in this release, we have determined that it is necessary or appropriate in the public interest and consistent with the protection of investors and consistent with the purposes fairly intended by the policy and provisions of the Advisers Act to adopt Rule 206(3)-T as a final temporary rule. We are adopting Rule 206(3)-3T in the same form in which we originally adopted it on an interim final basis, except that it will expire on December 31, 2010, one year after its original expiration date.

The amendment to Rule 206(3)-3T is effective on December 30, 2009. The Administrative Procedure Act generally requires that an agency publish a final rule in the Federal Register not less than 30 days before its effective date.49 However, this requirement does not apply if the rule is a substantive rule which grants or recognizes an exemption or relieves a restriction, or if the rule is interpretive.50 Rule 206(3)-3T in part has interpretive aspects and is a rule that recognizes an exemption and relieves a restriction.

Rule 206(3)-3T contains “collection of information” requirements within the meaning of the Paperwork Reduction Act of 1995.51 The Office of Management and Budget (“OMB”) approved the burden estimates presented in the 2007 Principal Trade Rule Release,52 first on an emergency basis and subsequently on a regular basis. OMB approved the collection of information with an expiration date of March 31, 2011. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number. The title for the collection of information is: “Temporary rule for principal trades with certain advisory clients, rule 206(3)-3T” and the OMB control number for the collection of information is 3235-0630.

The 2007 Principal Trade Rule Release explains that, under Rule 206(3)-3T, there are four distinct collection burdens. Our estimate of the burden of each of the collections reflects the fact that the alternative means of compliance provided by the rule is substantially similar to the approach advisers currently employ to comply with the disclosure and consent obligations of Section 206(3) of the Advisers Act and the approach that broker-dealers employ to comply with the confirmation requirements of Rule 10b-10 under the Exchange Act. The 2007 Principal Trade Rule Release solicited comments on our PRA estimates,53 but we did not receive comment on them. The amendment to the rule we are adopting today—to extend the rule for twelve months—does not affect the burden estimates contained in the 2007 Principal Trade Rule Release.54

We are adopting, as a final temporary rule, Rule 206(3)-3T under the Advisers Act, which provides an alternative means for investment advisers that are registered with us as broker-dealers to meet the requirements of Section 206(3) when they act in a principal capacity with respect to transactions with certain of their advisory clients. Other than extending the sunset period of the temporary rule for one year, we are not otherwise modifying the rule from the form in which we initially adopted it on an interim final basis in September 2007.

In summary, as explained in the 2007 Principal Trade Rule Release,55 we believe the principal benefit of Rule 206(3)-3T is that it maintains investor choice and protects the interests of investors who held an estimated $300 billion in one million fee-based brokerage accounts. A resulting second benefit of the rule is that non-discretionary advisory clients of advisory firms that are also registered as broker-dealers have easier access to a wider range of securities which, in turn, should lead to increased liquidity in the markets for these securities and promote capital formation in these areas. A third benefit of the rule is that it provides the protections of the sales practice rules of the Exchange Act and the relevant self-regulatory organizations because an adviser relying on the rule must also be a registered broker-dealer. Another benefit of Rule 206(3)-3T is that it provides a lower cost alternative for an adviser to engage in principal transactions.

We believe there are some benefits associated with extension of the rule for one year. By extending the rule for one year, non-discretionary advisory clients who have had access to certain securities because of their advisers' reliance on the rule to trade on a principal basis will continue to have access to those securities without disruption. Firms relying on the rule will continue to be able to offer clients and prospective clients access to certain securities on a principal basis as well and will not need during this one-year period to incur the cost of adjusting to a new set of rules or abandoning the systems established to comply with the current rule. In other words, extension will avoid disruption to clients and firms during the period while we consider whether to make the rule permanent in its current form or in a modified form or to let it expire.

As discussed in the 2007 Principal Trade Rule Release,56 we presented estimates of the costs of each of the rule's disclosure elements, including: the prospective disclosure and consent; transaction-by transaction disclosure and consent; transaction-by-transaction confirmations; and the annual report of principal transactions. We also provided estimates for the following related costs of compliance with Rule 206(3)-3T: (i) The initial distribution of prospective disclosure and collection of consents; (ii) systems programming costs to ensure that trade confirmations contain all of the information required by the rule; and (iii) systems programming costs to aggregate already-collected information to generate compliant principal transactions reports.57 Finally, we solicited comment on, and requested data to assist us in further developing, our cost and benefit estimates.58

We did not receive comments directly addressing with supporting data the cost-benefit analysis we presented in the 2007 Principal Trade Rule Release and we continue to believe that our estimates reflect the likely costs an adviser would incur to rely on the rule.59 Several of the comments described above, however, relating to the utility of specific disclosure provisions, along with an additional comment regarding the potential effect of the rule on small firms, do have bearing on our cost-benefit analysis of the rule. In particular, one commenter argued that the costs of transaction-by-transaction notice and consent for sophisticated investors may outweigh the benefits.60 This commenter suggested that the rule expressly permit negative consent for principal trading because the costs for certain clients who must locate and contact an authorized person to sign an affirmative consent on behalf of the client on a timely basis may outweigh the benefits.61 Another commenter expressed doubt that the benefit of the transaction-by-transaction confirmation requirement would outweigh the costs of revising and further burdening the standard confirmation form, especially given the rule's other disclosure and consent requirements.62 Another commenter argued that limiting the availability of the rule to advisers that also are registered as broker-dealers imposes substantial regulatory burdens that are not justified by corresponding investor protection benefits.63 We recognize these commenters' concerns and will consider them, as well as all the other comments we have received, if we determine to propose to make the rule permanent in its current or a modified form. For purposes of the limited extension at issue here, however, we believe the costs of adjustments to practices and systems that may or may not be continued or necessary under a potential, future permanent rule would not be justified at this time.64

We acknowledge that firms relying on the rule would incur operational costs associated with complying with the rule for one year. We believe that the estimates of the costs we outlined were reasonable, and no commenter provided specific, alternative estimates. We believe that the benefits were appropriately identified. We believe that all the costs and benefits associated with the rule—which, as noted above, the purpose of which was to permit broker-dealers to sell to their non-discretionary advisory clients certain securities held in the proprietary accounts of their firms that might not be available on an agency basis (or might be available on an agency basis only on less attractive terms) should be considered in aggregate. The particular array of disclosure requirements and limitations contained in the rule was tailored to safeguard investor protection and counterbalance investor protection concerns that might stem from the rule's allowance for transaction-by-transaction notice and consent to principal trades to be delivered orally or in written form, instead of just in written form. We believe that, for purposes of this one-year extension of the rule, these overall benefits justify the costs associated with the rule.

Section 202(c) of the Advisers Act mandates that the Commission, when engaging in rulemaking that requires it to consider or determine whether an action is necessary or appropriate in the public interest, consider, in addition to the protection of investors, whether the action will promote efficiency, competition, and capital formation.65

As we explained in the 2007 Principal Trade Rule Release, Rule 206(3)-3T may increase efficiency by providing an alternative means of compliance with Section 206(3) of the Advisers Act that we believe will be less costly and less burdensome.66 By permitting oral transaction-by-transaction disclosure, advisers may be more willing to engage in principal trades with advisory clients leading advisers to provide access to certain securities the adviser or its affiliate has in inventory. As we noted in the 2007 Principal Trade Rule Release, firms have argued that making securities available to clients through principal trades could lead to faster or less expensive execution, advantages a client may deem to outweigh the risks presented by principal trading with an adviser.67

We further explained our expectation that Rule 206(3)-3T will promote competition because it preserves investor choice for different types of advisory accounts and that, if Rule 206(3)-3T has any effect on capital formation, it is likely to be positive, although indirect.68 We also described our understanding that providing an alternative to the traditional requirements of transaction-by-transaction written disclosure might serve to broaden the potential universe of purchasers of securities, in particular investment grade debt securities, for the reasons described in the 2007 Principal Trade Rule Release, opening the door to greater investor participation in the securities markets with a potential positive effect on capital formation.69

Some commenters, while expressing support for the goal of affording investors engaged in principal transactions the protections of both the investment adviser regulatory regime (i.e., the Advisers Act and rules thereunder) and the broker-dealer regulatory regime (i.e., the Exchange Act and rules thereunder and the rules of applicable SROs), opposed the limitation of the temporary rule not only to investment advisers that are also registered as broker-dealers, but also to accounts that are subject to both the Advisers Act and Exchange Act.70 One of these commenters specifically argued that these limitations are unnecessary, contending they provide no additional protection for investors engaging in principal transactions because any principal trades conducted for an advisory account would be subject to the Exchange Act and SRO rules anyway.71 This commenter concluded that the limitation instead merely provides a competitive advantage to investment advisers that are also registered broker-dealers.72

We intend to continue to evaluate the effects of the rule on efficiency, competition and capital formation as we consider whether to propose to extend or modify the rule or allow it to expire. As discussed above, we have no reason to believe, based on our experience with the rule to date, that small broker-dealers (or affiliated but separate investment advisers and broker-dealers) are put at a competitive disadvantage to larger advisers that are themselves also registered as broker-dealers. We believe that the effects on efficiency, competition and capital formation of Rule 206(3)-3T as it was adopted on an interim final basis warrant its continued operation for the additional limited period of time. We anticipate no new effects on efficiency, competition and capital formation as a result of the one-year extension. During that time, we will continue to assess the rule's operation and impact along with intervening developments.

A final regulatory flexibility analysis (“FRFA”) was prepared in accordance with 5 U.S.C. 603 when Rule 206(3)-3T was adopted in September 2007. In the 2007 Principal Trade Rule Release, we analyzed: (i) The need for and objectives of the rule; (ii) an estimate of small entities subject to the rule; (iii) the rule's projected reporting, recordkeeping and other compliance requirements; (iv) agency action to minimize the effect on small entities; (v) duplicative, overlapping or conflicting Federal rules; and (vi) significant alternatives. We sought comment on each of these aspects of our FRFA.

As discussed above, several commenters objected to the condition that advisers seeking to rely on the rule must also be registered as broker-dealers and that each account must be subject to both the Advisers Act and the Exchange Act (and applicable SRO rules). Some contended that the burdens of requiring application of both regulatory regimes do not outweigh the benefits.73 Others essentially argued that limiting the availability of the relief under the rule to advisers also registered as broker-dealers might be anti-competitive.74 With respect to small entities in particular, one commenter suggested that the alternative means of compliance with the Advisers Act's principal trading restrictions made available by Rule 206(3)-3T (in particular, when considered in conjunction with the interpretive rule proposed on the same day),75 would disadvantage small broker-dealers because they are less likely to also be registered as an investment adviser, and as a result would have to form an adviser to take advantage of the benefits of the rule.76

We specifically considered and discussed these issues in the final regulatory flexibility analysis in the 2007 Principal Trade Rule Release and believe that it is appropriate to continue this condition of the rule for the limited extension. As explained above, however, we expect to continue to consider these comments in conjunction with data our staff gathers on the operation of the rule in the marketplace, no later than the end of the rule's revised termination date if the Commission intends to propose to continue the same or similar relief.

The Commission is adopting Rule 206(3)-3T pursuant to Sections 206A and 211(a) of the Advisers Act.

On March 23, 2007, CBP published in the Federal Register (72 FR 13714) a proposal to implement Remote Location Filing (RLF) regulations in a new subpart E to part 143 within title 19 of the Code of Federal Regulations (19 CFR part 143, subpart E).

RLF, which currently operates as a National Customs Automation Program (NCAP) prototype test pursuant to section 414 of the Tariff Act of 1930, as added by section 631 within the Customs Modernization provisions of the North American Free Trade Agreement Implementation Act, allows an RLF filer to electronically file with U.S. Customs and Border Protection (CBP) those consumption entries and related information that CBP can process in a completely electronic data interchange system from a location other than where the goods will arrive in the United States.

As noted in 72 FR 13714, the RLF prototype will terminate upon the effective date of this final rule. RLF prototype participants may continue to participate in the NCAP test program until this date.

CBP solicited comments on the proposed rulemaking.

Fourteen commenters responded to the solicitation of public comment in the proposed rule. A description of the comments received, together with CBP's analyses, is set forth below.

Comment: Proposed § 143.44(c) describes RLF automation requirements as encompassing only those entries and entry summaries that CBP processes completely in an electronic data interchange system. Three commenters requested that, in the final rule, CBP either specifically list the RLF-eligible entry types or cite to a source for such information.

CBP Response: Currently, only electronically transmitted consumption entries—entry types 01 and 11—may be filed using RLF. CBP is presently working to expand the entry types that may be processed via RLF. It is anticipated that upon the total integration of the major cargo and entry summary functionalities into Automated Commercial Environment (ACE), the expansion of RLF will be fully realized and will incorporate most entry types.

As the entry types currently permitted under RLF are expanded in the future, CBP will not list them in the regulatory text; rather, CBP will include a reference in the regulatory text, at § 143.44(c), to the Web site located at http://www.cbp.gov/xp/cgov/trade/trade_programs/remote_location_filing/ that provides a current listing of permissible RLF entry types.

Comment: Four commenters requested that RLF permit the filing of all entry types (including anti-dumping, countervailing duty, and quota entries), and not be limited to type 01 and 11 consumption entries. One of the commenters also suggested that CBP create a special class of National Permit to allow a broker to file any type of entry in RLF.

CBP Response: As noted in the response to the previous comment, it is anticipated that most entry types will be permitted under RLF at such time as the major cargo and entry summary functionalities are totally integrated into ACE. For this reason, the creation of a special class of National Permit is unnecessary.

Comment: One commenter requested that all brokers meeting the criteria set forth in proposed § 143.43 should have their filer codes centrally “turned on” automatically in the Automated Commercial System (ACS) for all eligible RLF ports instead of having their Automated Broker Interface (ABI) Client Representatives enter them as needed.

CBP Response: The current ACS environment does not provide this capability. Coordination with the ABI Client Representative is required to enable a broker to file remotely at a specific port.

Comment: Two commenters requested additional clarification regarding the specific criteria used by CBP in establishing RLF-operational locations.

CBP Response: CBP continually reviews and makes determinations concerning the addition of new ports to the list of RLF-approved processing locations. A prospective port must, at a minimum, have appropriate electronic entry processing capabilities. In determining whether to make a port RLF-operational, CBP may take into consideration factors such as trade interest and whether CBP personnel have been trained in RLF procedures at a particular location. Filers are encouraged to contact the CBP RLF Program Manager at remote.filing@dhs.gov to suggest possible port additions.

Comment: Four commenters advocated that RLF be permanently adopted as a final rule.

CBP Response: CBP concurs.

Comment: Three commenters requested that CBP adopt procedures that would provide the trade with a 90-day advance notice of new RLF-operational ports. The commenters noted that Express Consignment Carrier Facility (ECCF) operators require advance notice to modify automated systems to accept RLF entries and, although the proposed rule notice stated that new RLF locations will be listed in the Automated Broker Interface (ABI) administrative messaging system, the document did not state that advance notice will be provided. The commenters also note that messages sent via ABI will not reach parties such as carriers and ECCF operators who are not part of ABI messaging.

CBP Response: CBP will make every effort to provide advance notice to the trade of new RLF-operational ports and will list new and pending RLF-operational ports on its Web page so that parties who do not participate in the ABI administrative messaging system will be informed in this regard. The agency, however, views adopting a 90-day advance notice regulatory requirement as unnecessarily restrictive as the time it takes to train CBP personnel and ensure that the port is fully RLF operational varies from port to port. As noted above, filers are encouraged to contact the CBP RLF Program Manager at remote.filing@dhs.gov for information regarding possible port additions.

Comment: Three commenters requested that CBP publish a list of current RLF operational ports in a manner that is clearly labeled on the CBP Web site and includes the date of last update.

CBP Response: A complete and current list of existing RLF operational ports is set forth at the CBP Web site located at http://www.cbp.gov/xp/cgov/trade/trade_programs/remote_location_filing/. A link entitled “RLF Operational Locations” directs viewers to the list, which also contains the date of last update. A reference to this Web site is set forth in § 143.42(b).

Comment: One commenter stated that the need for adequate staffing at RLF-operational ports is essential and noted a lack of uniform training at these sites.

CBP Response: CBP is in the process of updating internal RLF standard operating procedures and training materials which will help achieve a higher level of proficiency and uniformity in RLF processing skills at RLF-operational ports.

Comment: One commenter noted that under the terms of the RLF prototype, CBP accepted electronic filings of certain “other government agency” (OGA) information and certifications such as Toxic Substances Control Act (TSCA) certificates. The commenter urges CBP to expand RLF in this capacity.

CBP Response: CBP continues to work with OGAs to fulfill documentation requirements electronically through the International Trade Data System (ITDS). Also, as noted above, when the major cargo and entry summary functionalities are totally integrated into ACE, it is anticipated that the expansion of RLF will be fully realized and most OGA information and filings will be able to be filed electronically.

Comment: One commenter suggested that RLF should be expanded to include the Line Release process, prescribed in 19 CFR part 142, subpart D, which exists to facilitate the clearance of repetitive, low-risk transactions.

CBP Response: Line Release provides for advance cargo screening and expedited release at land border ports. The current ACS environment does not provide the capability for RLF to include Line Release. However, as entry processing migrates to ACE and CBP's system capabilities evolve, CBP will explore opportunities to achieve various process objectives based on the expanded automation capabilities.

Comment: One commenter stated that RLF regulations are not necessary because the RLF prototype has been functioning for 13 years and ACE will make RLF redundant. The commenter suggests that RLF should continue as a NCAP prototype until such time as the functionalities of ACE are totally integrated.

CBP Response: Promulgating RLF as a regulatory program will clarify and harmonize RLF requirements and provide the operational groundwork for ACE. ACE will not replace RLF; rather, ACE will be the electronic means necessary to expand RLF.

Comment: One commenter, citing the proposed amendment to 19 CFR 141.61(a)(2) which would allow electronic entry and entry summary documentation to be filed “by the importer of record or his duly authorized agent, one of whom must be a resident of the United States for the purposes of receiving service of process,” requested that CBP verify that it is not amending part 141 to allow customs brokers (or any other future authorized agent for an importer) to prepare and file customs entries, entry summaries and/or other “customs business” documents from outside the United States on the importer's behalf.

CBP Response: The amendments to 19 CFR 141.61(a)(2) are intended to provide regulatory guidance for RLF regarding the manner by which electronic entry and entry summary documentation are to be prepared. This regulatory package does not address the issue of whether entries can be filed from outside the United States.

Comment: One commenter suggested changes to proposed 19 CFR 141.61(a)(2) which concerns the preparation of electronic entry and entry summary documentation. The commenter notes that the certification of the entry filing is “customs business,” as defined in 19 U.S.C. 1641(a) and 19 CFR 111.1, and the person responsible for preparing the electronic filing, not simply the transmitter of the filing, must be the importer self-filer or a licensed U.S. customs broker. Accordingly, the commenter suggests deleting the phrase in proposed § 141.61(a)(2) which states, “* * * by the importer of record or his duly authorized agent, one of whom must be resident in the United States for purposes of receiving service of process * * *” and adding in its place the language, “* * * by the importer of record or the importer's duly authorized customs broker”.

CBP Comment: CBP agrees with the commenter's suggested language and proposed § 141.61(a)(2), as set forth in 72 FR 13714, is amended in this document to state that the entry and entry summary documentation must be certified by the importer of record or the importer's duly authorized “customs broker.” This provision is further amended to retain the concept of the importer's “duly authorized agent” in a service of process context.

Comment: One commenter noted that RLF pertains only to customs brokers and that importers who are self-filers have no permit restrictions and may file entries of all kinds at all ports in the U.S. In order to maintain the current level playing field, brokers must continue to have the option of offering their clients the same capabilities. To that end, the commenter proposes that a special class of national permit should be created that would allow brokers to file at all ports with no restrictions as to entry types. The commenter posits that creating a new class of permit would provide brokers with the same filing options as self-filing importers.

CBP Response: The legislative intent of the Customs Modernization Act (Pub. L. 103-182, 107 Stat. 2170 (December 8, 1993)), was to allow nationally permitted brokerage firms to file electronically at all ports of entry, and CBP is working toward that objective.

Additionally, and as noted above, when the major cargo and entry summary functionalities are totally integrated into ACE, the expansion of RLF will be fully realized, and it is anticipated that RLF will be able to encompass most, if not all, entry types.

Comment: One commenter inquired whether a broker would be allowed to make entry via RLF even when the broker has an office in the port of entry.

CBP Response: A broker may use CBP's electronic invoice capabilities to facilitate an entry filing when the broker has an office in the port of entry.

Comment: Several commenters noted that express consignment carrier and courier hub facilities (ECCFs) are privately constructed and funded facilities at which ECCF operators are required to pay reimbursement fees to CBP (see § 24.23(b)(4)) for services provided by the agency at these facilities. As ECCFs are increasingly used by conventional brokers who do not pay reimbursement fees, the commenters suggested that CBP should impose filer code restrictions and ECCF operators should be able to choose which of their port codes will be RLF-eligible and which brokers will be permitted to file RLF entries at the ECCFs.

CBP Response: With regard to the commenters' request for filer code restrictions at ECCFs, CBP notes that RLF operational ports, including ECCFs, are open to all filers and importers who fulfill the RLF eligibility criteria.

Comment: Several commenters requested that ECCF operators be notified as part of the approval and set-up process to prevent the filing of duplicate entries resulting from situations where an importer retains the services of an outside customs broker to file an entry instead of using the ECCF's designated “in-house” broker who typically arranges customs clearance at the facility.

CBP Response: As this issue is substantively outside the scope of the proposed amendments to the CBP regulations set forth in 72 FR 13714, it cannot be addressed in this final rule.

CBP notes, however, that as importers are obligated to use reasonable care in making an entry, the U.S. purchaser and the foreign shipper are obligated to coordinate with each other as to which of them will be responsible for entering the foreign merchandise covered by their transaction. Brokers are obligated to exercise reasonable supervision over the customs business they perform and are obligated to ask whether an entry is being made on behalf of the foreign shipper or the U.S. purchaser. If the parties to the transaction meet their above-described legal obligations, the issue of duplicate entries being made on the same merchandise should not occur. However, where duplicate entries are filed, filers may remedy this through CBP's established entry cancellation procedures. For a further discussion of this issue, the trade is advised to contact the Trade Facilitation and Administration Division, Office of International Trade, Customs and Border Protection, at (202) 863-6000.

Comment: Several commenters note that as an ECCF operator engages in a contractual agreement with a shipper through the terms and conditions of the air waybill, the ECCF operator is contractually obligated to abide by the instructions from the shipper. These terms and conditions include the authority to make clearance arrangements at destination and offer an option under which the shipper can specify that the consignee will make clearance arrangements. The commenters expressed concern that the proposed RLF regulations make no mention of this contractual obligation and thus create the possibility of forced contractual breach by requiring the ECCF operator to accept the entry under arrangements by the consignee.

CBP Response: These comments address a substantive issue that is beyond the scope of the proposed RLF rule and therefore will not be considered in the context of this final rule.

Comment: Several commenters described the PAIRED program as distinct from RLF and suggested that if PAIRED were to be eliminated, as proposed, valuable experience and established relationships between the trade, participating government agencies and CBP will be lost. The commenters noted that PAIRED port entries were designed to facilitate legitimate low risk/repetitive trade throughout the United States and therefore play a significant part in the economic well-being of our nation and the importing companies that use the PAIRED program. The commenters further noted that although Congress stated that the PAIRED program would be eliminated upon implementation of RLF, this presupposed that RLF would provide the same benefits and unique aspects of PAIRED. In this regard, it is noted that AD/CVD entries, quota entries, single bond entries, and paper entry filings required by certain other government agencies are permitted under PAIRED, but not under RLF at this time.

CBP Response: CBP agrees that the PAIRED program is distinct from RLF. RLF is processed in a completely electronic environment while PAIRED, in most cases, still relies on paper filings. The PAIRED program was implemented in 1987 as an alternative process for importers to use the existing “telecommunications facilities” that were available at that time to expedite the submission, review, and final disposition of entry documentation.

PAIRED was implemented as an attempt to reduce the costs associated with maintaining the transportation in-bond system. In 1987, CBP did not possess the technological resources for electronic filing, nor did the agency possess the statutory authority to permit brokers to file entries to districts other than those for which they held district permits.

Congress directed the discontinuance of PAIRED entries upon implementation of RLF. See House Report No. 103-361(I), page 127. CBP is of the view that elimination of the PAIRED program fulfills Congressional intent by increasing electronic filing (a major impetus of the Customs Modernization provisions of the North American Free Trade Agreement Implementation Act, Pub. L. 103-182, 107 Stat. 2170 (December 8, 1993)). The argument that RLF was intended to provide the same benefits as PAIRED is unsubstantiated and, in any event, will be rendered moot in the foreseeable future as ACE modernization development will deliver major release and entry summary processing capabilities in 2009.

Comment: Several commenters request that elimination of the PAIRED program should be phased in until RLF is implemented for all entry types.

CBP Response: CBP does not view an interim continuation of the PAIRED program as conducive to either CBP's homeland security objectives or its customs modernization initiatives.

As noted above, RLF was established under the Customs Modernization Act and provides for the electronic submission of required entry and entry summary data from any location regardless of where the merchandise arrives in the United States or where it is examined. Under RLF, physical examinations are not restricted to either the port of filing or the port of arrival (unlike PAIRED). Examination can also take place at the port nearest the cargo's final destination. RLF supports comprehensive account based processing by allowing filers to electronically manage and control filing of customs cargo data. RLF also supports the accurate electronic tracking of cargo arrival and required electronic review. The PAIRED program does not support these important security objectives and runs counter to the agency's modernization efforts.

After analysis of the comments and further review of the matter, CBP has determined to adopt as final, with the changes mentioned in the comment discussion, the proposed rule published in the Federal Register (72 FR 13714) on March 23, 2007.

This final rule also affects an additional non-substantive change to §§ 143.43(a), 143.44(a) and 143.44(b) to clarify that the importer of record, in addition to a customs broker, may participate in RLF.

Because these amendments implement a voluntary program provided for by statute, and have the effect of streamlining the entry process and reducing the overall regulatory burden on the general public, it is certified pursuant to the provisions of the Regulatory Flexibility Act, 5 U.S.C. 601 et seq. that these amendments will not have a significant economic impact on a substantial number of small entities. Further, these amendments do not meet the criteria for a “significant regulatory action” as specified in E.O. 12866.

As there are no new collections of information proposed in this document, the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3507) are inapplicable.

This document is being issued in accordance with 19 CFR 0.1(a)(1).

This document contains amendments to 26 CFR part 1 under section 304 of the Code. Section 304(a)(1) provides generally that, for purposes of sections 302 and 303, if one or more persons are in control of each of two corporations and one such corporation (acquiring corporation) acquires in exchange for property stock of the other corporation (issuing corporation) from the person (or persons) so in control, then, unless section 304(a)(2) applies, the property shall be treated as received in redemption of the stock of the acquiring corporation. Section 304(a)(2) provides generally that, for purposes of sections 302 and 303, if in exchange for property the acquiring corporation acquires stock of the issuing corporation from a shareholder of the issuing corporation and the issuing corporation controls the acquiring corporation, then the shareholder shall be treated as receiving the property in redemption of the stock of the issuing corporation. For purposes of section 304, control means the ownership of stock possessing at least 50 percent of the total combined voting power of all classes of voting stock or at least 50 percent of the total value of shares of all classes of stock. With certain modifications, the constructive ownership rules of section 318 apply for this purpose.

Under section 304(b)(2), the determination of the amount of the property distribution that is a dividend (and the source thereof) is made as if the property were distributed by the acquiring corporation to the extent of its earnings and profits, and then by the issuing corporation to the extent of its earnings and profits. If the acquiring corporation is foreign, section 304(b)(5) limits the amount of earnings and profits of the acquiring corporation that are taken into account for this purpose.

As part of a broad set of anti-avoidance rules published in the Federal Register on June 14, 1988 (TD 8209) the IRS and the Treasury Department promulgated § 1.304-4T to address transactions that are subject to section 304 but that are entered into with a principal purpose of avoiding the application of section 304 to certain corporations. Specifically, for purposes of determining the amount of a property distribution constituting a dividend (and the source thereof) under section 304(b)(2), the District Director (now known as the Director of Field Operations) is permitted to consider a corporation (deemed acquiring corporation) as having acquired for property the stock of the issuing corporation that is in fact acquired for property by the acquiring corporation, if the deemed acquiring corporation controls the acquiring corporation and if one of the principal purposes for creating, organizing, or funding the acquiring corporation (through capital contributions or debt) is to avoid the application of section 304 to the deemed acquiring corporation.

The IRS and Treasury Department have become aware of certain transactions that are subject to section 304 but that are entered into with a principal purpose of avoiding the treatment of a corporation as the issuing corporation. In one such transaction, for example, a domestic corporation (USP) wholly owns two foreign corporations (F1 and F2). The basis and fair market value of the F1 stock is $100×. F1 does not have positive earnings and profits (or its earnings and profits for purposes of section 304(b)(2) are limited by section 304(b)(5)) but has at least $100× cash. The basis and fair market value of the F2 stock is $100× and F2 has earnings and profits of at least $100×. USP forms a new foreign corporation (F3) and contributes the stock of F2 to F3 in exchange for F3 stock. In a transaction subject to section 304(a)(1), USP then transfers the stock of F3 to F1 in exchange for $100× cash. Because neither F1 (the acquiring corporation) nor F3 (the issuing corporation) has positive earnings and profits, USP reports the $100x cash received in redemption of the shares deemed issued by F1 under section 304(a)(1) as a return of basis under section 301(c)(2).

The IRS and Treasury Department believe that an anti-avoidance rule similar to § 1.304-4T, but that applies in the case of a transaction entered into with a principal purpose of avoiding the treatment of a corporation as the issuing corporation is appropriate for transactions such as the one described above. Accordingly, the regulations amend § 1.304-4T to provide that for purposes of determining the amount of a property distribution that is a dividend (and the source thereof) under section 304(b)(2), the acquiring corporation shall be treated as acquiring for property the stock of a corporation (deemed issuing corporation) that is controlled by the issuing corporation, if, in connection with the acquisition for property of stock of the issuing corporation by the acquiring corporation, the issuing corporation acquired stock of the deemed issuing corporation with a principal purpose of avoiding the application of section 304 to the deemed issuing corporation.

Current § 1.304-4T applies at the discretion of the District Director. The IRS and the Treasury Department believe the anti-avoidance rule of current § 1.304-4T should be self-executing. Thus, current § 1.304-4T is amended accordingly.

Current § 1.304-4T applies when “one of the principal purposes” for the transaction is to avoid the application of section 304. The regulations included in this document apply when “a principal purpose” for the transaction is to avoid the application of section 304. The IRS and the Treasury Department do not view this modification as a substantive change.

Finally, and as noted above, current § 1.304-4T applies if one of the principal purposes for creating, organizing, or funding the acquiring corporation, through capital contributions or debt, is to avoid the application of section 304 to the deemed acquiring corporation. The regulations included in this document clarify that this rule may apply in cases where the funding is from an unrelated party. For example, the regulations may apply when the deemed acquiring corporation facilitates the repayment of an obligation incurred by the acquiring corporation (even if such obligation is with respect to a borrowing from an unrelated party) to acquire the stock of the issuing corporation.

The regulations apply to acquisitions occurring on or after December 29, 2009. No inference is intended as to the potential applicability of other Code or regulatory provisions or judicial doctrines (including step transaction or substance over form) to transactions described in the regulations.

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It has also been determined that section 553(b) and (d) of the Administrative Procedure Act (5 U.S.C. chapter 5) do not apply to these regulations. For applicability of the Regulatory Flexibility Act (5 U.S.C. chapter 6), refer to the Special Analyses section of the preamble and to the cross-referenced notice of proposed rulemaking published elsewhere in this issue of the Federal Register. Pursuant to section 7805(f) of the Code, these regulations have been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

The principal author of the regulations is Sean W. Mullaney of the Office of Associate Chief Counsel (International). However, other personnel from the IRS and the Treasury Department participated in their development.

(e) Expiration date. This section expires on or before December 31, 2012.

On October 2, 2008, the Department of Labor, Office of Labor-Management Standards (OLMS), published a Final Rule establishing the Form T-1, Trust Annual Report. 73 FR 57411. The Form T-1 is an annual financial disclosure report to be filed by labor unions about certain trusts in which they are interested. For an organization or fund to be a labor union's trust subject to Form T-1 reporting, it must be established by the labor union or have a governing body that includes at least one member appointed or selected by the labor union, and a primary purpose of the trust must be to provide benefits to the members of the labor union or their beneficiaries. Examples of such trusts include building and redevelopment corporations, educational institutes, credit unions, labor union and employer joint funds, and job targeting funds. Labor unions currently are required to disclose financial information about the trust, such as assets, liabilities, receipts and disbursements through use of Form T-1.

Labor unions with total annual receipts of $250,000 or more (those required to file Form LM-2, Labor Organization Annual Report) are required to file the Form T-1 report. A labor union must file a Form T-1 report for each trust where the labor union, alone or in combination with other labor unions, appoints or selects a majority of the members of the trust's governing board or the labor union's contribution to the trust, alone or in combination with other labor unions, represents more than 50% of the trust's receipts. Contributions by an employer under a collective bargaining agreement are considered contributions by the labor union.

The Form T-1 rule also provides that unions will not be required to file a Form T-1 under certain circumstances, such as when the trust is a political action committee, if publicly available reports on the committee are filed with appropriate federal or state agencies; when an independent audit has been conducted for the trust, in accordance with standards set forth in the final rule; or when the trust is required to file a Form 5500 with the Employee Benefits Security Administration (EBSA).

The Form T-1 final rule took effect on January 1, 2009. Filing due dates depend on the fiscal year ending dates of both the reporting union and the trust being reported. The fiscal year of both the labor union and its trust must begin on or after January 1, 2009, for a Form T-1 report to be owed that fiscal year. The earliest Form T-1 reports would be required of unions that have, and whose trusts have, a fiscal year start date of January 1, 2009. Reports are due within 90 days of the end of the union's fiscal year. These first Form T-1 reports would therefore be due on or after January 1, 2010, but no later than March 31, 2010.

In the Spring 2009 Regulatory Agenda, the Department notified the public of its intent to initiate rulemaking proposing to rescind the Form T-1 and to require labor unions to report their wholly owned, wholly controlled, and wholly financed (“subsidiary”) organizations on their Form LM-2 or LM-3 reports. See http://www.reginfo.gov/public/do/eAgendaViewRule?pubId=200904&RIN=1215-AB75. Additionally, the Department held a public meeting on July 21, 2009, which allowed interested parties to comment on any aspect of the Form T-1. Furthermore, the Department's Fall 2009 Regulatory Agenda stated that such proposal to rescind would be published in January 2010 (See http://www.reginfo.gov/public/do/eAgendaViewRule?pubId=200910&RIN=1215-AB75). A draft proposed rule to withdraw the October 2, 2008 Form T-1 rule is currently under review by the Administration.

In view of its plan to propose rescission of the Form T-1 Trust Annual Report, the Department proposed to extend the filing due dates of Form T-1 reports that would otherwise be due in 2010, pending review and consideration of comments on the proposal to rescind. Extension of the filing due dates delays or eliminates the first year recurring and nonrecurring burdens on labor organizations associated with the Form T-1 reporting requirements pending the outcome of the proposed withdrawal. Without this extension of the filing dates, many affected labor organizations likely will incur the reporting costs and burdens associated with filing the form, including the nonrecurring first year costs and burdens associated with implementing changes to the reporting systems necessary for completion of the Form T-1. Specifically, the October 2, 2008 rule estimated that unions would incur 41.20 hours in reporting burden per Form T-1 filed during the first year of the rule's implementation, for a total first year reporting burden of 128,978.11 hours. The estimated reporting cost per form filed in the first year is $1,632.41, and the estimated reporting cost in the first year for all projected Form T-1 filings is $5,110,324.80. The Department notes that the first year burden is higher than that in later years, which is estimated to be 28.28 hours per form filed and 88,542.01 hours total. 73 FR 57444-5. If the proposal to rescind the rule ultimately is effectuated, these expenses, including upfront costs, will have been incurred unnecessarily.

In its proposal, the Department noted that the extension of the filing dates for Form T-1 reports due in 2010 would not affect the filing due date of Form T-1 reports owed in any subsequent year. The Department's proposal did not extend the filing due date of any Form T-1 report that normally would be due during calendar year 2011 or beyond. Further, in the event that the Department determines to retain the Form T-1 rule, the initial Form T-1 reports that would have been due during 2010 would be filed in 2011 in addition to any Form T-1 reports due in 2011.

For the foregoing reasons, the Department proposed extending the filing dates of Form T-1 reports due during calendar year 2010 and sought comments on the proposal.

The Department received 128 comments on this proposal. Of these, 15 supported the proposed extension and 111 opposed any changes to the Form T-1 reporting regime. Two additional comments addressed only the adequacy of the ten day comment period. One comment was received after the comment period closed and was not considered.

Of the 111 comments submitted in opposition to any changes to the Form T-1 requirements, only one specifically addressed the Department's rationale for the proposal to extend the Form T-1 filing due dates. The remainder expressed only general opposition to any changes to the Form T-1 reporting regime, including rescission, and only approximately ten of those comments included any reference to the proposed extension.

The comment specifically opposing the Department's rationale for its proposal to extend the Form T-1 filing due dates was submitted by a public policy group. The comment asserted that the Department's rationale that an extension of the filing due date for 2010 filers is necessary to prevent them from unnecessarily incurring first year reporting burdens is flawed. It argued that an extensive amount of “lead time” is necessary to build new reporting systems to ensure that receipts, disbursements, and other information can be tracked from the first day the rule is in effect. The commenter claims that since the Form T-1 went into effect on January 1, 2009, filers have had nearly a year to implement the necessary tracking systems and suggests that they should have already incurred most of the costs imposed by the Form T-1 requirements. Additionally, the public policy group stated that only those in the regulated community that did not intend to comply with the reporting requirements would have failed to take the steps needed to enable them to meet the initial Form T-1 filing dates. The commenter also suggested that the Department is heading towards the elimination of “any meaningful reporting of union finances.”

The Department disagrees with the public policy group's assertion that an extension in the deadline will not prevent unnecessary burden. As stated in the notice proposing the extension of the Form T-1 filing due dates, no filers have yet incurred any reporting burden and will not incur such burden until at least January 1, 2010, although calendar year filers should have incurred much of the recordkeeping burden for the initial Form T-1 reports. 74 FR 63335, 63336 (Dec. 3, 2009). Since a reporting labor organization must retrieve the data recorded for the entire fiscal year by the trust, and then must organize and report this data on the Form T-1, the union would initiate these steps upon completion of the fiscal year, which for the earliest filers will not begin until after December 31, 2009.

As explained in the notice proposing the extension of the Form T-1 filing due dates, the October 2, 2008 rule estimated that unions would incur 41.20 hours in reporting burden per Form T-1 filed during the first year of the rule's implementation. The estimated reporting cost per form filed in the first year is $1,632.41, and the estimated reporting cost in the first year for all projected Form T-1 filings is $5,110,324.80. 73 FR 57444-5. If the proposal to rescind the rule ultimately is effectuated, these expenses, including up front costs, will have been incurred unnecessarily. Furthermore, the Department does not accept the argument that extending this reporting eliminates “any meaningful” union financial disclosure, as this rule only extends Form T-1 reporting for one year.

Each of the remaining 110 comments in opposition to the Department's proposal was submitted by an individual expressing general opposition to any change in the Form T-1 reporting regime, including rescission. Approximately ten of these general comments referenced the proposed extension. However, these references generally did not provide any substantive argument in response to the Department's proposal. Rather, they asserted broadly that an extension of a rule that may be rescinded would set a “bad precedent;” that more transparency was needed, not less; and that the burden on unions is worth the disclosure. Comments in general opposition also referenced or alluded to such issues as President Obama's emphasis on transparency; suggestions of political and special interest favor; opposition to government corruption; general opposition to labor unions; and general opposition to the President and the Administration's economic policies. There were, in addition, other political comments unrelated to the proposed extension. The general opposition also often compared union disclosure to reporting requirements for taxpayers, the insurance industry, companies, and others; expressed support for union financial disclosure and opposed any lessening of such disclosure; supported the need to combat union corruption; and argued for the need for timely disclosure and time to evaluate the union disclosure requirements presently in place.

The Department reiterates that it is not assessing the merits of the Form T-1 in this rule extending the 2010 Form T-1 filing due dates. The Department acknowledges and fully supports the importance of labor-management transparency through the LMRDA reporting regimes. Thus, it stresses that the union financial reporting requirements, such as the Form LM-2, LM-3, and LM-4, remain in place. Further, the Form T-1 reporting requirements remain in place, as well, pending the result of a proposal to rescind them, which the Department anticipates will be published in January 2010 for notice and comment rulemaking.

Of the 15 comments supporting the extension, 12 came from national or international unions, two from federations of unions, and one from a certified public accounting (CPA) firm. These comments all offered support for the Department's justification for its proposal to extend the filing due dates for Form T-1 for one year to avoid upfront reporting costs that would prove unnecessary if the Department implemented a proposal to rescind the form.

With respect to these costs, one national union stated that its accountants and financial specialists had estimated that start up costs needed to comply with the Form T-1 requirements could be in “the tens of thousands of dollars,” which would likely be a one-time cost that, in its view, would not benefit the union members, trust beneficiaries, or the public with any greater transparency or accountability, while costing the unions significant dues monies. Another national union stressed that the resources that would be used to implement these reporting requirements are union members' dues. Another national union compared the implementation of the Form T-1 with the Form LM-2 changes, which required significant resources to create new accounting systems, practices and procedures, new reporting systems for officers and staff, additional accounting personnel, new forms for internal use, and the purchase of additional equipment and software, all of which are ongoing costs but higher in the first year. In the union's experience, the Form T-1 would add significant costs and burdens to those imposed by the existing Form LM-2.

Several other comments discussed the burden on trusts and the burden of union coordination with the trusts to complete the Form T-1. One international union stated that the trusts would be required to reprogram their recordkeeping systems to comply, which would be highly disruptive to the trusts and expensive for the unions. Further, according to this commenter, unions would need to retain accountants and coordinate with the trusts for reviewing the records and preparing the report and these start-up costs would be wasted if the Department did rescind the form. This union also argued that no harm has occurred from the repeated postponement of the Form T-1 caused by court decisions.

Commenters also noted that the Department in the Spring 2009 Regulatory Agenda notified the public of its intent to initiate rulemaking to rescind the 2008 Form T-1 rule and that a notice of proposed rulemaking is now under review by the Administration with an anticipated January 2010 publication date. One national union asserted that the rescission may take place for some unions before their reports are even due, and an international union emphasized the waste of government resources, as well, if the Department were to enforce the filing due dates in 2010 while at the same time moving to rescind the form.

One of the federations of unions offered two additional arguments in support of an extension. First, the federation asserted that much of the reporting and recordkeeping burden associated with the Form T-1 is actually borne by the trusts and not the reporting unions. Although the rule requires that unions must reimburse the trusts for implementing recordkeeping systems and transmitting the information to the unions, the comment expressed doubt that trusts would be willing to alter their systems to implement the Form T-1 reporting requirements, knowing that the Department may effectuate its intention to rescind the rule. Furthermore, the federation anticipates conflict between the unions and trusts and difficulties for the Department in enforcement of the Form T-1 rule. The trusts, according to the federation, will display resistance to changing their systems for a possible one-time reporting requirement. This would put the unions in a difficult position, according to the federation, because the Department indicated in the 2008 Form T-1 rule that it expects union officials to “take timely, reasonable, and good faith actions to obtain the necessary information from section 3(l) trusts,” and that it could “assert a willful and knowing violation of the filing requirements” against the union and its officials. 73 FR at 57432.

Second, the federation maintained that enforcement of the Form T-1 in 2010 will generate litigation challenging the rule itself. The federation believes that the 2008 Form T-1 rule suffers from the same flaws identified by the courts when striking down the two previous versions of the form. Thus, the federation concluded, if the Department went forth with enforcement of the Form T-1 in 2010, pending rescission, it would unnecessarily waste its own resources and those of the courts.

Various national and international unions that belong to this federation submitted comments adopting or restating its comments, in whole or part. Further, a number of unions advised of their support for the rescission of the Form T-1. Two international unions commented that the Department may have underestimated the cost and burden associated with obtaining the necessary information from the trusts. One of these commenters urged that any effort by union officials to complete the Form T-1 exposes the union and those officials (but not the trust) to the “risk of civil and criminal liability” for failing to obtain the necessary data from trusts, over which they may not have practical or legal control. Further, this commenter claims, it is not clear what authority the Department has under the LMRDA to retrieve the information from the trusts on behalf of the unions. The union commented that the Department has not provided a “safe harbor” provision in the event that the trust fails to provide complete and accurate data by which a Form T-1 can be filed.

An international union offered similar comments to the above national union, with several additional points regarding its view that the Department underestimated the reporting burden on filers. In its view, these are errors that justify an extension even without pending regulatory action to rescind the rule. First, it argued that the itemization and aggregation requirements of the Form T-1 create tremendous burden not truly appreciated by the 2008 rule. Second, it asserted that there is no dollar threshold on the contribution of one union to a trust, which could result in unions filing Form T-1 reports for trusts that only have a small amount of money derived from the union. Further, it claims that, because there is no threshold on the size of the trust, unions could be reporting on very small trusts. Third, and similarly to other comments, it stated that the union must identify the trusts for which a Form T-1 is required, which can be costly, and it must obtain information from the third-party trust, over which it may not have any legal control. Fourth, it claimed that the 2008 rule overstated the benefits of the Form T-1 and downplayed any redundancy, because multiple unions are required to file a report on the same trust, regardless of which union has a greater financial contribution or level of control over the trust, and because trusts generally file the Internal Revenue Service (IRS) Form 990, which provides financial transparency for these entities.

The other federation of unions similarly cited potential litigation arising from the reporting requirements of the Form T-1. This federation also emphasized that labor organizations do not have the information required to be reported. The federation went on to note that although the trusts do have this information, they do not organize the data in the manner that the Form T-1 requires. The unions must reimburse the trusts to assemble and provide them with the necessary information, which, citing the Department, requires potentially unnecessary start-up costs. The federation argued that, given the current economic situation and the demand on labor organizations to further legitimate interests, it would be wasteful to mandate unions and trusts to comply with potentially unnecessary reporting requirements.

The CPA firm that submitted comments contended that the implementation of the Form T-1 would be a costly burden for unions, as many of the firm's union clients had not established procedures to implement the filing of the form, nor have, to the firm's knowledge, the trusts established any procedures to capture and provide data to the unions. The firm believes that it would be “impractical” for the Department to require unions to timely submit Form T-1 reports in 2010, and, instead, that a one year extension would enable such entities to prepare for either a Form T-1 or, in the case rescission is effectuated, to consolidate information about wholly owned, wholly controlled, and wholly financed organizations (i.e. “subsidiary organizations”) on their Form LM-2.1

The Department acknowledges comments that suggest that many unions and trusts have not begun the necessary steps needed to implement the Form T-1 reporting and recordkeeping requirements. The Department points out that unions should already have incurred much of the recordkeeping burden imposed by the 2008 Form T-1 rule, as this rule went into effect on January 1, 2009. Thus, unions and trusts should have put into place the necessary systems to track trust transactions. However, the reporting burden has not yet been triggered for unions, and it would not be triggered until, at the earliest date, January 1, 2010. Therefore, while today's rule extends the 2010 filing due dates, to avoid the potentially unnecessary and burdensome reporting costs that would otherwise be triggered for many Form T-1 reporting unions on January 1, 2010, the Department leaves in place, for 2010, the recordkeeping responsibilities imposed by the 2008 rule.

Finally, four commenters claimed that the Department did not provide for an adequate comment period. A public policy group and a trade association made requests for an extension of the period and two individual commenters opposing changes to the Form T-1 requirements addressed the issue generally, while also commenting on other matters. The public policy group asked for a minimum extension of 140 days and asserted that the Department took almost a decade to develop the Form T-1, with great effort by personnel, and that a comment period of only ten days on extending “the effective date” of the rule is not sufficient for those union members who would gain from the disclosure provided by the Form T-1. The commenter stated that the Department has granted much longer comment periods for notices contemplating “regulatory changes to the annual financial reports.” In particular, the comment cited the 90-day extension granted during the recent Form LM-30 rulemaking, after a request from two unions, for a total of 150 days. Further, the comment suggested that the Department has not adequately justified the length of its comment period, particularly in light of Executive Order (E.O.) 12866, sec. 6(a)(1), and the multiple regulatory actions currently being undertaken by the Administration.

The trade association requested an 80-day extension, arguing that the ten-day period does not provide sufficient time for stakeholders to submit a meaningful response. The comment also addressed past extensions that the Department has granted, particularly concerning “changes to the substance or filing instructions of labor organization financial reporting regulations,” such as the 90-day extension granted during the Form LM-30 rulemaking mentioned by the public policy group, after two stakeholder requests. The trade association also cited E.O. 12866, sec. 6(a)(1), which states, in part, that “in most cases” an agency should include a comment period of not less than 60 days.

The Department finds that the commenters have not established grounds to extend the comment period. The Department reiterates that it sought comments on a proposal to extend the Form T-1 filing due dates for one year, not to rescind the Form T-1 rule or otherwise make regulatory changes to the form, such as was the case with the regulations referenced in the requests for an extended comment period. The Department will provide a lengthier comment period concerning any future proposal to rescind the Form T-1. The Department believes that the ten-day comment period was sufficient for the narrow purpose of reviewing the proposal to extend the filing due dates, as the large number of comments demonstrates. Further, there is urgency in providing for this extension, because the first reports to be filed under the Form T-1 rule would be due on or after January 1, 2010, and the Department anticipates publication as early as January 2010 of a proposal to withdraw the Form T-1 rule. As such, there is sufficient reason that the Department determined that a longer comment period was not feasible in this case.

For the reasons stated above and in light of the Department's intention to propose the withdrawal of the Form T-1 rule as early as January 2010, the Department has decided to extend for one year the filing due dates of Form T-1 reports that otherwise must be filed during calendar year 2010. In particular, the Department acknowledges the evidence and experience described in those comments regarding the costs and burdens associated with implementing new reporting requirements, particularly those created by the unique nature of the Form T-1, which mandates that trusts provide unions with information about the former's transactions. The Department notes comments suggesting that enforcement of the filing due dates in 2010 could lead to conflict between the unions and the trusts. Such conflict, as well as the up front reporting costs and burdens, may be avoided by extending the calendar year 2010 filing due dates for one year, pending the outcome of a proposal to rescind the 2008 Form T-1 rule. The Department believes that a one-year extension of the Form T-1 filing due dates is justified by a significant decrease in potentially unnecessary reporting burden, including up front costs.

The Coastal Bridge Company, contracted by Louisiana Department of Transportation and Development, has requested a bridge closure for the Danziger Lift Span Bridge on Route US 90 crossing the Inner Harbor Navigational Canal, mile 3.1, in New Orleans, LA. The vertical clearance of the bridge in the closed-to-navigation position is 50 feet above mean high water and 55 feet above mean low water. Currently, according to 33 CFR 117.458(b), the draw of the US 90 (Danziger) bridge, mile 3.1, shall open on signal; except that, from 8 p.m. to 7 a.m. the draw shall open on signal if at least four hours notice is given, and the draw need not be opened from 7 a.m. to 8:30 a.m. and 5 p.m. to 6:30 p.m. Monday through Friday. This deviation allows the draw span of the bridge to remain closed-to-navigation for 12 consecutive hours between 7 a.m. and 7 p.m. on intermittent days from January 16, 2009 through January 30, 2009. Uncontrollable variables such as inclement weather make it difficult to predict the exact dates that work can be conducted. Thus, the exact dates for the closures cannot be firmly scheduled. Notices will be published in the Eighth Coast Guard District Local Notice to Mariners and will be broadcast via the Coast Guard Broadcast Notice to Mariners System as soon as information pertaining to the exact closure dates becomes available. During the deviation period seven new aerial cables between the two bridge towers will be installed, the wiring for the roadway and navigation lighting will be replaced, and the guide rollers and span locks will be replaced. The closure periods are necessary for the guide rollers and span locks to be replaced. During the non-closure times of the deviation period the bridge will remain in the open position for vessel traffic. Navigation on the waterway consists mainly of tugs with tows. As a result of coordination between the Coast Guard and the waterway users, it has been determined that this closure will not have a significant effect on these vessels. The Coast Guard will inform these users through the Local Notice to Mariners. Vessels will be allowed to pass underneath the bridge in the closed-to-navigation position. There are alternate routes available to vessel traffic. The bridge will not be able to open for emergencies.

In accordance with 33 CFR 117.35(e), the drawbridge must return to its regular operating schedule immediately at the end of the designated time period. This deviation from the operating regulations is authorized under 33 CFR 117.35.

California Department of Transportation requested a temporary change to the operation of the Knights Landing Drawbridge, mile 90.1, Sacramento River, at Knights Landing, CA. The draw opens on signal if at least 12 hours notice is given as required by 33 CFR 117.189(b). This deviation allows the bridge owner to operate the double leaf bascule bridge in single leaf mode while securing one leaf of the drawspan in the closed-to-navigation position from 7 a.m. on December 11, 2009 to 7 a.m. on February 6, 2010.

The Knights Landing Drawbridge provides 3 feet vertical clearance above the 100 year floodplain when closed and unlimited vertical clearance in the open-to-navigation position. The drawbridge provides 199 feet horizontal clearance between bridge piers. The horizontal clearance provided by the drawbridge during single leaf operation is reduced by approximately 100 feet between the tip of the closed bascule and the opposite pier face. The vertical clearance will be unaffected.

No alternative routes are available for navigation. This temporary deviation has been coordinated with all known waterway users. No objections were received concerning the temporary deviation.

Vessels that can safely transit the bridge, while in the closed-to-navigation position, may continue to do so at any time.

In accordance with 33 CFR 117.35(e), the drawbridge must return to its regular operating schedule immediately at the end of the designated time period. This deviation from the operating regulations is authorized under 33 CFR 117.35.

The information in this section is organized as follows:

The U.S. Environmental Protection Agency (EPA) is granting a petition submitted for the Professional Plating, Incorporated (PPI) facility located in Brillion, Wisconsin to exclude or delist an annual volume of 140 cubic yards of F019 wastewater treatment sludges from the lists of hazardous waste set forth in Title 40 of the Code of Federal Regulations (40 CFR) 261.32 and 261.33. PPI claims that the petitioned waste does not meet the criteria for which EPA listed it, and that there are no additional constituents or factors which could cause the waste to be hazardous.

Based on our review described in section III, we agree with the petitioner that the waste is nonhazardous. We reviewed the description of the process which generates the waste and the analytical data submitted by PPI. We believe that the petitioned waste does not meet the criteria for which the waste was listed, and that there are no other factors which might cause the waste to be hazardous.

The EPA published an amended list of hazardous wastes from nonspecific and specific sources on January 16, 1981, as part of its final and interim final regulations implementing section 3001 of the Resource Conservation and Recovery Act (RCRA). The EPA has amended this list several times and published it in 40 CFR 261.31 and 261.32.

We list these wastes as hazardous because: (1) they typically and frequently exhibit one or more of the characteristics of hazardous wastes identified in subpart C of part 261 (that is, ignitability, corrosivity, reactivity, and toxicity) or (2) they meet the criteria for listing contained in §§ 261.11(a)(2) or (3).

Individual waste streams may vary depending on raw materials, industrial processes, and other factors. Thus, while a waste described in these regulations generally is hazardous, a specific waste from an individual facility meeting the listing description may not be.

A procedure to exclude or delist a waste is provided in 40 CFR 260.20 and 260.22 which allows a person, or a facility to submit a petition to the EPA or to an authorized State, demonstrating that a specific waste from a particular generating facility is not hazardous.

In a delisting petition, the petitioner must show that a waste does not meet any of the criteria for listed wastes in 40 CFR 261.11 and that the waste does not exhibit any of the hazardous waste characteristics of ignitability, reactivity, corrosivity, or toxicity. The petitioner must present sufficient information for us to decide whether any factors in addition to those for which the waste was listed warrant retaining it as a hazardous waste. (See § 260.22, 42 U.S.C. 6921(f) and the background documents for the listed wastes.)

If a delisting petition is granted, the generator remains obligated under RCRA to confirm that the waste remains nonhazardous.

In reviewing this petition, we considered the original listing criteria and the additional factors required by the Hazardous and Solid Waste Amendments of 1984 (HSWA). See sec. 222 of HSWA, 42 U.S.C. 6921(f), and 40 CFR 260.22(d)(2)-(4). We evaluated the petitioned waste against the listing criteria and factors cited in §§ 261.11(a)(2) and (3).

Besides considering the criteria in 40 CFR 260.22(a), §§ 261.11(a)(2) and (3), 42 U.S.C. 6921(f), and in the background documents for the listed wastes, EPA must consider any factors (including additional constituents) other than those for which we listed the waste if these additional factors could cause the waste to be hazardous.

Our decision to delist waste from PPI's facility is based on our evaluation of the waste for factors or criteria which could cause the waste to be hazardous. These factors included: (1) Whether the waste is considered acutely toxic; (2) the toxicity of the constituents; (3) the concentration of the constituents in the waste; (4) the tendency of the constituents to migrate and to bioaccumulate; (5) the persistence in the environment of any constituents once released from the waste; (6) plausible and specific types of management of the petitioned waste; (7) the quantity of waste produced; and (8) waste variability.

EPA must also consider as hazardous wastes mixtures containing listed hazardous wastes and wastes derived from treating, storing, or disposing of listed hazardous waste. See 40 CFR 261.3(a)(2)(iv) and (c)(2)(i), called the “mixture” and “derived-from” rules, respectively. Mixture and derived-from wastes are also eligible for exclusion but remain hazardous until excluded.

On June 23, 2009, PPI petitioned EPA to exclude an annual volume of 140 cubic yards of F019 wastewater treatment sludges generated at its facility in Brillion, Wisconsin from the list of hazardous wastes contained in 40 CFR 261.31. F019 is defined in § 261.32 as “Wastewater treatment sludges from the chemical conversion coating of aluminum except from zirconium phosphating in aluminum can washing when such phosphating is an exclusive conversion coating process.” PPI claims that the petitioned waste does not meet the criteria for which F019 was listed and that there are no other factors which would cause the waste to be hazardous.

The F019 is generated from the rinse waters and overflows of two zinc phosphating lines used for conversion coating aluminum parts. The aluminum parts are spray cleaned, immersion cleaned, and cleaned with a phosphoric acid prior to conversion coating. The rinse waters from these steps do not contribute to the petitioned waste. Rinse waters and overflows from the zinc phosphating step and the remaining steps in the treatment line are the only wastewaters contributing to the petitioned waste. Zinc phopshating includes several acids and nickel- and manganese-compounds. The parts are sealed with compounds containing fluorine, zirconium, and ammonium hydroxide. Lastly, epoxy-based and acrylic paint films are cathodically electrodeposited on the aluminum parts.

The combined rinse waters and overflows from these process steps go to an on-site wastewater treatment plant dedicated to the F019 wastewater. The pH of the wastewater is adjusted to 9.0 standard units with either sulfuric acid or sodium hydroxide. Coagulants containing polymers, calcium chloride, and potassium chloride are added to assist in precipitating wastewater contaminants. A polyacrylamide anionic flocculant is added to gather the coagulum into clumps large enough to settle at the bottom of a clarifier. The clarified water is discharged to the sewer and the settled sludge is pumped to a sludge thickening tank and then through a plate and frame filter press.

Process vessels for both zinc phosphating lines (epoxy-coating and acrylic-coating) are periodically cleaned out with the resulting sludges also pressed by the plate and frame filter press dedicated to the F019 water treatment process.

Six sludge samples were collected each on a monthly basis from April through October 2008. Sludge accumulated in a roll-off box and was sampled representing sludge collected over a period of approximately 4 weeks each. Two sludge samples representing clean-out of the epoxy-coating line were collected on August 25 and on October 20, 2008 in order to characterize sludge generated from clean-out activities. Sludge generated from the clean-out of the acrylic-coating line was sampled on August 11, 2008. PPI collected one composite and one grab sample of sludge from each roll-off box during each sampling event. Composite samples consisted of four individual full-depth core grab samples mixed together to form one sample.

PPI analyzed all composite samples using the following methodology: (1) Total constituent analysis and Toxicity Characteristic Leaching Procedure (TCLP) for metals in Appendix IX of 40 CFR part 264, (Test Methods for Evaluating Solid Waste, Physical/Chemical Methods—SW-846—Methods 6010B and 1311 1 ); (2) total constituent and TCLP analysis for sulfide (SW-846 Methods 9030A and 1311); (3) total constituent and TCLP analysis for cyanide (SW-846 Methods 9010 and 1311 2 ); (4) total constituent and TCLP analysis for fluoride (SW-846 Methods 9056 and 1311); (5) flashpoint (SW-846 Method 1010); (6) pH (SW-846 Method 9040); and (7) oil & grease (SW-846 Method 9070).

PPI screened the first two of the six monthly composite samples and one each of the composite samples of clean-out sludges for: (1) Total constituent and TCLP analysis for 120 semi-volatile organic compounds (SW-846 Methods 8270 and 1311); (2) total constituent and TCLP analysis for formaldehyde (SW-846 Methods 8315 and 1311); (3) total constituent and TCLP analysis for acrylamide (SW-846 Methods 8032 and 1311); (4) TCLP analysis for metals in Appendix IX of 40 CFR part 264, substituting the TCLP extraction fluid with deionized water in order to assess leachability under pH-neutral conditions (SW-846 Methods 6010B and 1311); and (5) TCLP analysis for metals in Appendix IX of 40 CFR part 264, substituting the TCLP extraction fluid with a buffered alkaline solution in order to assess leachability under alkaline conditions (SW-846 Methods 6010B and 1311). PPI analyzed two of the six monthly full-depth core grab samples and one each of the grab samples of clean-out sludges for total constituent and TCLP analysis for volatile organic compounds (VOCs) (SW-846 Method 8260 and SW-846 Method 1311). This screening analysis was performed to check for unexpected organic compounds in the waste as well as identify pH-dependence of metals in leachate in the event landfill leachates with neutral or alkaline pH result in higher concentrations. Detections of organic compounds were insignificant and the remainder of the sludge samples were not analyzed for these parameters.

Metals of concern were generally preferentially leached by the acidic TCLP test. The exception, barium, leached more in some samples under alkaline conditions. However, detections of all metals, including barium, were so far below concentrations of concern that the remainder of the samples were not tested at neutral and alkaline leaching conditions.

The table below presents the maximum observed total and leachate concentrations for all detected constituents for which maximum allowable total and/or TCLP concentration were available. Total concentrations are expressed in milligrams per kilogram (mg/kg). Leachate concentrations are expressed in milligrams per liter (mg/L). The table also includes the results of analysis for the constituents for which F019 was listed, chromium and cyanide. PPI submitted a signed a statement certifying accuracy and responsibility of the results. See 40 CFR 260.22(i)(12).

For this delisting determination, we assumed that the waste would be disposed in a Subtitle D landfill and we considered transport of waste constituents through ground water, surface water and air. We evaluated PPI's petitioned waste using the Agency's Delisting Risk Assessment Software (DRAS) to predict the concentration of hazardous constituents that might be released from the petitioned waste and to determine if the waste would pose a threat. To predict the potential for release to groundwater from landfilled wastes and subsequent routes of exposure to a receptor, the DRAS uses dilution attenuation factors (DAFs) derived from EPA's Composite Model for leachate migration with Transformation Products (CMTP). From a release to groundwater, the DRAS considers routes of exposure to a human receptor of ingestion of contaminated groundwater, inhalation from groundwater while showering and dermal contact from groundwater while bathing.

From a release to surface water by erosion of waste from an open landfill into storm water run-off, DRAS evaluates the exposure to a human receptor by fish ingestion and ingestion of drinking water. From a release of waste particles and volatile emissions to air from the surface of an open landfill, DRAS considers routes of exposure of inhalation of volatile constituents, inhalation of particles, and air deposition of particles on residential soil and subsequent ingestion of the contaminated soil by a child.

For a detailed description of the DRAS program and revisions see the Delisting Technical Support Document, DRAS version 3.0 Update Summary, and DRAS version 3.0 User's Guide available in the docket for today's action.

At a target cancer risk of 1×10− 6 and a target hazard quotient of one, the DRAS program determined maximum allowable concentrations for each constituent in both the waste and the leachate at an annual waste volume of 140 cubic yards. We used the maximum estimated annual waste volume and the maximum reported total and leachate concentrations as inputs for DRAS. If, using an appropriate analytical method, a constituent was not detected in any sample nor in the leachate of any sample, it was considered not to be present in the waste.

The maximum reported leachate concentrations and the maximum reported total concentrations of the hazardous constituents found in this waste are presented in the table above. The table also presents the maximum allowable concentrations. The concentrations of all constituents in both the waste and the leachate are below the allowable levels of concern calculated by the DRAS program at the target risk levels. We therefore conclude that PPI's wastewater treatment sludge is not a substantial or potential hazard to human health and the environment when disposed of in a Subtitle D landfill. Once the exclusion becomes effective, PPI must dispose of this waste in a Subtitle D landfill permitted or licensed by a State.

EPA is publishing this rule without a prior proposed rule because we view this as a noncontroversial action and anticipate no adverse comment. The exclusion applies to a very small waste stream generated at a single facility and rigorous chemical analysis of the waste indicated that concentrations of chemicals and elements in the waste were far below levels of concern. If EPA receives adverse comment, we will publish a timely withdrawal in the Federal Register informing the public that the rule will not take effect. Any parties interested in commenting must do so at this time.

If the petitioned waste is delisted, PPI must dispose of it in a Subtitle D landfill which is permitted, licensed, or registered by a State to manage industrial waste.

The following parameters were selected for ongoing verification because of their prevalence in the waste relative to the maximum allowable concentrations. Concentrations measured in the TCLP (or OWEP, where appropriate) extract of the waste of these constituents must not exceed the following concentrations (mg/l): chromium—5, cobalt—10.4; manganese—815; and nickel—638.

PPI must analyze a representative sample of the wastewater treatment sludges on an annual basis to demonstrate that leachate concentrations do not exceed the levels of concern in Section IV.B. above. PPI must use methods with appropriate detection levels with appropriate quality control procedures. SW-846 Method 1311 must be used for generation of the leachate extract used in the testing of the delisting levels if oil and grease comprise less than 1% of the waste. SW-846 Method 1330A must be used for generation of the leaching extract if oil and grease comprise 1% or more of the waste. SW-846 Method 9071B must be used for determination of oil and grease. SW-846 Methods 1311, 1330A, and 9071B are incorporated by reference in 40 CFR 260.11.

PPI must submit the data obtained through annual verification testing to U.S. EPA Region 5, 77 W. Jackson Blvd., Chicago, IL 60604, upon the anniversary of the effective date of this exclusion. PPI must compile, summarize, and maintain on site records of operating conditions and analytical data. PPI must make these records available for inspection. All data must be accompanied by a signed copy of the certification statement in 40 CFR 260.22(i)(12).

If PPI violates the terms and conditions established in the exclusion, the Agency may start procedures to withdraw the exclusion.

If any testing of the waste does not meet the maximum allowable concentrations described in section IV.B. above or other data (including but not limited to leachate data or groundwater monitoring data) relevant to the delisted waste indicates that any constituent is at a level in the leachate higher than the specified maximum allowable concentration, or is in groundwater at a concentration higher than the groundwater concentrations used in the risk evaluation, PPI must notify the Agency within 10 days of first possessing or being made aware of the data. Maximum allowable groundwater concentrations (mg/L) are as follows: chromium—0.1; cobalt—0.0113; manganese—0.9; and nickel—0.75.

The exclusion will be suspended and the waste managed as hazardous until PPI has received written approval from the Agency to continue the exclusion. PPI may provide sampling results which support the continuation of the delisting exclusion.

The EPA has the authority under RCRA and the Administrative Procedures Act, 5 U.S.C. sec. 551 (1978) et seq. to reopen a delisting decision if we receive new information indicating that the conditions of this exclusion have been violated, or are otherwise not being met.

If PPI significantly changes the manufacturing or treatment process or the chemicals used in the manufacturing or treatment process, PPI may not handle the wastewater treatment sludge generated from the new process under this exclusion until it has demonstrated to the EPA that the waste meets the levels set in section IV.B. and that no new hazardous constituents listed in Appendix VIII of 40 CFR part 261 have been introduced. PPI must manage wastes generated after the process change as hazardous waste until PPI has received written notice from EPA that the delisting is reinstated.

Because EPA is issuing today's exclusion under the Federal RCRA delisting program, only States subject to Federal RCRA delisting provisions would be affected. This exclusion may not be effective in States which have received our authorization to make their own delisting decisions.

EPA allows States to impose their own non-RCRA regulatory requirements that are more stringent than EPA's, under section 3009 of RCRA. These more stringent requirements may include a provision that prohibits a Federally issued exclusion from taking effect in the State. We urge petitioners to contact the State regulatory authority to establish the status of their wastes under the State law.

EPA has also authorized some States to administer a delisting program in place of the Federal program, that is, to make State delisting decisions. Therefore, this exclusion does not apply in those authorized States. If PPI manages the waste in any State with delisting authorization, PPI must obtain delisting authorization from that State before it can manage the waste as nonhazardous in that State.

Under Executive Order 12866, “Regulatory Planning and Review” (58 FR 51735, October 4, 1993), this rule is not of general applicability and therefore is not a regulatory action subject to review by the Office of Management and Budget (OMB). This rule does not impose an information collection burden under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) because it applies to a particular facility only. Because this rule is of particular applicability relating to a particular facility, it is not subject to the regulatory flexibility provisions of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.), or to sections 202, 204, and 205 of the Unfunded Mandates Reform Act of 1995 (UMRA) (Pub. L. 104-4). Because this rule will affect only a particular facility, it will not significantly or uniquely affect small governments, as specified in section 203 of UMRA. Because this rule will affect only a particular facility, this final rule does not have federalism implications. It will not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132, “Federalism”, (64 FR 43255, August 10, 1999). Thus, Executive Order 13132 does not apply to this rule.

Similarly, because this rule will affect only a particular facility, this final rule does not have Tribal implications, as specified in Executive Order 13175, “Consultation and Coordination with Indian Tribal Governments” (65 FR 67249, November 9, 2000). Thus, Executive Order 13175 does not apply to this rule. This rule also is not subject to Executive Order 13045, “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997), because it is not economically significant as defined in Executive Order 12866, and because the Agency does not have reason to believe the environmental health or safety risks addressed by this action present a disproportionate risk to children. The basis for this belief is that the Agency used DRAS, which considers health and safety risks to children, to calculate the maximum allowable concentrations for this rule. This rule is not subject to Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355 (May 22, 2001)), because it is not a significant regulatory action under Executive Order 12866. This rule does not involve technical standards; 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. As required by section 3 of Executive Order 12988, “Civil Justice Reform”, (61 FR 4729, February 7, 1996), in issuing this rule, EPA has taken the necessary steps to eliminate drafting errors and ambiguity, minimize potential litigation, and provide a clear legal standard for affected conduct.

The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report which includes a copy of the rule to each House of the Congress and to the Comptroller General of the United States. Section 804 exempts from section 801 the following types of rules: (1) Rules of particular applicability; (2) rules relating to agency management or personnel; and (3) rules of agency organization, procedure, or practice that do not substantially affect the rights or obligations of non-agency parties (5 U.S.C. 804(3)). EPA is not required to submit a rule report regarding today's action under section 801 because this is a rule of particular applicability.

This is a synopsis of the Commission's Report and Order, MB Docket No. 09-196, adopted December 14, 2009, and released December 15, 2009. The full text of this document is available for public inspection and copying during normal business hours in the FCC's Reference Information Center at Portals II, CY-A257, 445 12th Street, SW., Washington, DC 20554. This document will also be available via ECFS (http://www.fcc.gov/cgb/ecfs/). (Documents will be available electronically in ASCII, Word 97, and/or Adobe Acrobat.) This document may be purchased from the Commission's duplicating contractor, Best Copy and Printing, Inc., 445 12th Street, SW., Room CY-B402, Washington, DC 20554, telephone 1-800-478-3160 or via e-mail http://www.BCPIWEB.com. To request this document in accessible formats (computer diskettes, large print, audio recording, and Braille), send an e-mail to fcc504@fcc.gov or call the Commission's Consumer and Governmental Affairs Bureau at (202) 418-0530 (voice), (202) 418-0432 (TTY). This document does not contain information collection requirements subject to the Paperwork Reduction Act of 1995, Public Law 104-13. In addition, therefore, it does not contain any information collection burden “for small business concerns with fewer than 25 employees,” pursuant to the Small Business Paperwork Relief Act of 2002, Public Law 107-198, see 44 U.S.C. 3506(c)(4). Provisions of the Regulatory Flexibility Act of 1980 do not apply to this proceeding.

The Commission will send a copy of this Report and Order in a report to be sent to Congress and the Government Accountability Office pursuant to the Congressional review Act, see 5 U.S.C. 801(a)(1)(A).