I. Background Information

The Energy Independence and Security Act of 2007, Public Law 110-140, Title XII, section 1205(a), amended section 303 of the Small Business Investment Act of 1958 (SBI Act) by authorizing SBICs licensed after September 30, 2008, to issue energy saving debentures. Section 1205(b) of the Energy Act amended section 103 of the SBI Act by adding the new defined terms “energy saving debenture” and “energy saving qualified investment.” Section 1206 of the Energy Act amended section 303(b)(2) of the SBI Act to make SBICs licensed after September 30, 2008, eligible for additional leverage if they have made energy saving qualified investments. An SBIC making maximum use of this provision could have approximately 11% more leverage outstanding than would be permitted under the standard leverage eligibility formula.

Section 107.50—Definitions. The Energy Act provides that energy saving debentures are to be issued at a discount, have a 5-year or 10-year maturity, and require no interest payment or annual charge for the first five years. Although an SBIC can use other funds to make an energy saving qualified investment, an SBIC that issues an Energy Saving Debenture must use the proceeds only to make an energy saving qualified investment. To implement these new statutory provisions, SBA proposes to add “Energy Saving Qualified Investment” and “Energy Saving Activities” as defined terms in § 107.50.

The proposed regulatory definition of Energy Saving Qualified Investment has several key points. First, as specified in the statute, an Energy Saving Qualified Investment can only be made by an SBIC licensed after September 30, 2008. Second, the investment must be made in a Small Business, as defined in 13 CFR part 107. Third, the investment must be in the form of a Loan, a Debt Security (a debt instrument that includes an equity feature, such as warrants or rights to convert to equity), or an Equity Security. Fourth, the Small Business must be “primarily engaged” in business activities that reduce the use or consumption of non-renewable energy sources (“Energy Saving Activities”).

The proposed rule defines Energy Saving Activities primarily by reference to various criteria established by the Department of Energy and other Federal agencies to identify energy efficient products and services and to encourage the provision of renewable energy sources. As one example, the manufacturing of products that satisfy the criteria for use of the Energy Star trademark label would qualify as an Energy Saving Activity. For each type of Energy Saving Activity, the proposed rule provides a reference to the appropriate Federal program or Internal Revenue Code section, or a detailed definition that would allow users to determine whether the manufacture or development of a specific product, or the provision of a specific service, qualifies under the definition. SBA believes that reference wherever possible to existing standards for energy efficient products and services will ensure that Energy Saving Qualified Investments satisfy the objectives of the Energy Act. This approach will also allow the definition of Energy Saving Activities to be more easily updated as energy efficiency standards expand to include new products and services.

In addition, paragraph (4) of the definition would allow SBA to determine whether activities not specifically addressed in the proposed rule are Energy Saving Activities. This approach will provide flexibility to accommodate activities based on technologies or practices that may emerge in the future. Paragraph (4) encompasses the manufacturing of products, provision of services, and conduct of research and development activities that reduce (or are anticipated to reduce) the consumption of non- renewable energy, either through the more efficient use of such energy or by providing energy from renewable sources. An SBIC requesting a determination by SBA under paragraph (4) will be asked to submit written information and certifications (see also the discussion of proposed § 107.610 in this preamble). The proposed definition identifies the information required to be submitted and the factors that SBA will take into account in determining whether activities are Energy Saving Activities, although an SBIC would be free to provide other information to support its request. Ideally, the claimed energy savings will have been tested by an independent engineer or other recognized professional with expertise in the subject technology. The results of in-house or other non-independent testing may also be considered if the SBIC can document that tests were designed, performed and evaluated by qualified personnel following appropriate professional standards. SBA will also consider such factors as patents held by the Small Business, grants awarded by Federal or State government agencies, foundations, etc. to promote energy efficiency or energy savings, and licenses purchased by the Small Business to make use of energy-saving technologies developed by others. For research and development-stage companies that have not yet brought a product or service to market, SBA will consider projected energy savings, but the SBIC must also provide evidence supporting the feasibility and commercial potential of the products or services under development. Finally, SBA will consider whether an activity that would have been eligible for an energy-related Federal tax credit in past years should be considered an Energy Saving Activity, even though the subject credit is not currently available.

SBA welcomes comments regarding additional activities that may be candidates for inclusion in the Energy Saving Activities definition. For example, SBA is open to suggestions regarding activities that could reduce the consumption of non-renewable fuels by reducing the dependency on automobiles for transportation, such as provision of telework facilities, carpooling services, or improved transit options.

SBA intends to link its Investment Division Web site ( http://www.sba.gov/inv ) to other government Web sites that will assist users in determining whether a company providing or developing particular products or services is engaged in Energy Saving Activities. Some sites allow users to search for a specific product by name, while others provide performance criteria or outcomes that a qualifying product or service must satisfy. The current addresses for these sites are:

1. Energy Star: http://www.energystar.gov/products

2. Federal Energy Management Program: www1.eere.energy.gov/femp/technologies/eep_purchasingspecs.html

3. Renewable Electricity Production Tax Credit (Internal Revenue Code Section 45): http://www.irs.gov/irb/2010-18_IRB/ar11.html

4. Energy Credit (Internal Revenue Code Section 48): http://frwebgate.access.gpo.gov/cgi-bin/usc.cgi?ACTION=RETRIEVE&FILE=$$xa$$busc26.wais&start=1688508&SIZE=98870&TYPE=PDF

5. Installation-related Federal Tax Credits for Consumer Energy Efficiency: http://www.energystar.gov/index.cfm?c=tax_credits.tx_index

The proposed rule presumes that a company is “primarily engaged” in Energy Saving Activities if it derived at least 50% of its total revenues for its most recently completed fiscal year directly from Energy Saving Activities. However, SBA recognizes that one of the objectives of creating the Energy Saving debenture, which does not require the payment of interest during the first five years following issuance, may be to allow SBICs to invest in earlier stage enterprises that do not meet this revenue test for Energy Saving Activities. In some cases, small businesses may be engaged in research and development activities with little or no revenues. In other instances, a company may already have revenue from activities not related to Energy Saving Activities, but may be heavily engaged in activities that are expected to produce revenue from Energy Saving Activities in the future. Therefore, the proposed rule would allow SBA to determine that a small business is primarily engaged in Energy Saving Activities based on the totality of the circumstances, as evidenced by such factors as the distribution of the company's revenues; the percentage of total employees engaged in Energy Saving Activities; the expenditures (which may include both amounts expensed and amounts capitalized) allocated to Energy Saving Activities; activities related to the development and use of intellectual property held by the company related to Energy Saving Activities; and Energy Saving Activities contemplated by a business plan presented to outside investors as part of a formal fund-raising effort.

As provided in section 1205(b) of the Energy Act, the energy saving debenture would be a five- or ten-year debenture issued at a discount so as to be, in effect, a “zero coupon” debenture for the first five years. SBA leverage fees would be paid as required under current § 107.1130, except for the annual charge in § 107.1130(d) which would be deferred for the first five years and thereafter be payable semi-annually along with the debenture interest. For example, an SBIC issuing a $1,000,000 ten-year debenture with a combined interest rate and annual charge of 6% would receive roughly $750,000 upon issuance and would make no payments of interest or annual charge for the first five years. Starting with the sixth year, the SBIC would make semi-annual payments of interest and charges on the debenture's face amount of $1,000,000. At maturity the SBIC would pay the $1,000,000 face amount of the debenture.

Each SBIC that was licensed after September 30, 2008, and is eligible to issue debentures under current regulations would be eligible to issue an energy saving debenture for the purpose of making an Energy Saving Qualified Investment. No regulatory changes are necessary to implement this new type of debenture.

Section 107.610—Required Certifications for Loans and Investments. An SBIC that intends to issue energy saving debentures based on its Energy Saving Qualified Investments or that intends to seek additional leverage based on its Energy Saving Qualified Investments in Smaller Enterprises must have an appropriate certification for each such investment. Proposed § 107.610(f) makes a distinction between investments for which SBA needs to make a pre-financing determination of eligibility and those for which it does not. If the small business concern is engaged in activities that are specifically included in the Energy Saving Activities definition, and it is presumed to be “primarily engaged” in those activities based on the source of its revenues, the SBIC only needs to certify the basis for the concern's eligibility and retain the certification and supporting documentation in its files. If SBA must make a pre-financing determination as to whether the concern is engaged in Energy Saving Activities and/or whether it is “primarily engaged” in such activities, the proposed rule would require the SBIC to provide SBA with all available information from the concern that is relevant to those determinations, along with certifications by the SBIC and the concern that the submitted information is true and correct. SBA recognizes the burden that may be inherent in this type of “total facts and circumstances” determination, but believes it is preferable to offer this option to SBICs rather than to define Energy Saving Qualified Investments more narrowly.

Section 107.1150—Maximum Amount of Leverage for a Section 301(c) Licensee. New paragraph (d) implements a provision of the Energy Act that may provide additional leverage eligibility to SBICs licensed on or after October 1, 2008, that make Energy Saving Qualified Investments in Smaller Enterprises. This paragraph adjusts the leverage eligibility formula in § 107.1150(a) by subtracting from an SBIC's outstanding leverage the cost basis of Energy Saving Qualified Investments that the SBIC has made in Smaller Enterprises. The amount that can be subtracted is limited to 33% of the SBIC's Leverageable Capital. Furthermore, as required by the Energy Act, only the cost basis of Energy Saving Qualified Investments that individually do not exceed 20% of the SBIC's Regulatory Capital may be subtracted, even though SBICs in general can invest up to 30% of their Regulatory Capital in a single company.

The Office of Management and Budget has determined that this rule is a “significant” regulatory action under Executive Order 12866. The Regulatory Impact Analysis is set forth below.

This proposed regulatory action would implement sections 1205 and 1206 of the Energy Independence and Security Act of 2007, Public Law 110-140. The statutory revisions provide an SBIC seeking to make an “energy saving qualified investment” with a new SBA leverage option in the form of an “energy saving debenture.”

Because the regulatory definition of Energy Saving Qualified Investment must be consistent with the statutory definition, SBA had a limited ability to consider alternatives. The statute defines “energy saving qualified investment” as an “investment in a small business concern that is primarily engaged in researching, manufacturing, developing, or providing products, goods, or services that reduce the use or consumption of non-renewable energy resources.” The SBA considered adopting this statutory definition without modification. However, SBA did not select this approach due to concerns that without some interpretation of the broad statutory language, it would be difficult to evaluate (a) whether qualifying investments would actually contribute to the energy-saving objectives of the statute and (b) what constitutes “primarily engaged”.

In considering alternatives for determining whether a qualifying investment would likely contribute to the energy-saving objectives of the statute, the SBA conferred with the Department of Energy (DOE) to consider two options besides using the broad statutory definition: (1) Defining a list of specific industries and (2) referencing existing standards developed for Federal programs that promote energy efficiency. SBA did not adopt the first option to identify a list of specific industries because (1) “energy saving” efforts take place across a broad spectrum of industries; (2) the North American Industrial Classification System (NAICS) codes, typically used to identify industries, are inadequate for capturing whether a business is involved in “energy saving” across this spectrum; and (3) developing a static list does not adequately allow for either a full range of products and services or the rapid growth in this area that might further the statutory goals. Given the number of Federal programs already directed towards “energy saving” activities, SBA chose to adopt the second option in order to improve standardization across agencies, allow growth as DOE and other agencies update program standards to reflect new “energy saving” initiatives, and to address the broadest spectrum of products and services. Towards those goals, SBA recognizes that SBICs may wish to invest in Small Businesses that are manufacturing or researching products or performing services that have not been identified by existing Federal standards. Therefore, SBA will also consider other investments on a case by case basis, based on the SBIC's ability to demonstrate energy savings associated with the Small Business's activities.

To determine whether a concern is “primarily engaged” in Energy Saving Activities, SBA considered using either a specific quantitative standard or an evaluation based on total facts and circumstances. For simplicity, the proposed rule presumes that a business is “primarily engaged” if it derived at least 50% of revenues during its most recently completed fiscal year from Energy Saving Activities. SBA also considered a higher percentage requirement, but chose 50% to encourage energy-saving investments as much as possible while meeting statutory requirements. Alternatively, an SBIC may ask SBA to determine whether a concern is “primarily engaged” in Energy Saving Activities based on an evaluation of various factors. As stated in the proposed definition of Energy Saving Qualified Investments, these factors include “the distribution of revenues, employees and expenditures, intellectual property rights held, and business plans presented to investors as part of a formal solicitation”. SBA believes the combination of these two approaches provides a reasonable balance between simplicity and inclusiveness.

SBA anticipates that this rule will provide marginal benefit to small businesses seeking investments by SBICs under those circumstances in which the investment structure does not lend itself well to SBA's standard debenture. Standard debentures require the SBIC to make semi-annual interest payments, while the energy saving debenture contemplated by the statute would be issued at a discount, have a 5-year or 10-year maturity, and require no interest payment or annual charge for the first five years. This structure is the same as the SBIC program's currently available low and moderate income (LMI) debenture.

Since the structure of the energy saving debenture mirrors that of the LMI debenture, in determining this rule's benefit to both SBICs and small businesses, SBA analyzed the impact of the LMI debenture. The LMI debenture was first issued in FY 2001. Between FY 2001 and March 31, 2010, SBICs have issued approximately $4.2 billion in debentures, with less than $45 million in LMI debentures (approximately 1% of all debenture leverage issued since FY 2001). The proceeds of LMI debentures can only be used to make LMI financings; however, SBA estimates that only 2% of LMI financings by SBICs issuing debentures were funded using the LMI debenture. SBICs placed 21.5% of their investment dollars in portfolio companies in LMI zones between FY 2001 and July 31, 2010, compared with 21.6% in fiscal years 1998-2000 when the LMI debenture was not available. The structural similarities between the LMI debenture and the energy saving debenture suggest that this rule will have a similarly marginal impact.

In estimating the impact, the SBA also considered available industry data. The PricewaterhouseCoopers/National Venture Capital Association MoneyTree  TM Report indicates that $1.9 billion in Cleantech investments were made in calendar year 2009, representing approximately 11% of all venture financings. SBA believes that Cleantech investments are fairly representative of energy saving investments. SBA estimates that the percentage of the SBIC portfolio directed towards Energy Saving Qualified Investments will be similar to the percentage of Cleantech investments in the venture industry. However, only SBICs licensed after September 30, 2008, will be eligible to issue energy saving debentures and many such SBICs will choose to use the standard debenture to make these types of financings. Therefore, the SBA estimates that approximately half of the anticipated SBIC energy saving investments will be performed using the new energy saving debenture or 5% of all financings by SBICs issuing debentures. In FY 2009, SBICs issuing debentures provided $1.2 billion in financing to small businesses.

With respect to potential costs of the regulation to SBICs, the cost has been incorporated into the program formulation model which determines the annual fee to keep the debenture program to zero subsidy cost as required by law. Because the structure of the LMI debenture is the same as the energy saving debenture, SBA used its performance as a proxy for the energy saving debenture. SBA's estimate that energy saving debentures would constitute 5% of total demand for debenture leverage resulted in an increase to the annual fee of 14.3 basis points versus formulations with no energy saving debentures. This increase reflects the additional risk associated with underlying SBIC equity investments contemplated in the usage of this debenture. Despite this increase, the annual fee is estimated to remain substantially lower than the ten year average and far below the statutory maximum of 1.38%. It should be noted that if the energy saving debenture was formulated as a stand-alone program (apart from the standard debenture) it is likely that its annual fee would exceed the statutory maximum. SBA will review the demand for and performance of the energy saving debenture on an annual basis to determine if these assumptions should be changed. Should the actual or anticipated demand for the energy saving debenture exceed 5% of all debenture leverage issued in any given year, SBA will consider separately formulating the energy saving debenture as a separate program so that its higher cost would be borne directly by users rather than spread among all SBICs.

This action meets applicable standards set forth in section 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden. The action does not have retroactive or presumptive effect.

The rule will not have substantial direct effects on the States, or the distribution of power and responsibilities among the various levels of government. Therefore, for the purposes of Executive Order 13132, Federalism, SBA determines that this proposed rule has no federalism implications warranting the preparation of a federalism assessment.

SBA has determined that this proposed rule imposes additional reporting and recordkeeping requirements under the Paperwork Reduction Act, 44 U.S.C., chapter 35. This collection of information includes three different reporting requirements: (1) Information needed for SBA to determine whether a Small Business is “primarily engaged” in Energy Saving Activities, (2) information needed for SBA to determine whether a particular activity is an “Energy Saving Activity”, and (3) identification of a completed financing as an Energy Saving Qualified Investment on the Portfolio Financing Report. As a result of proposed changes in this rule, SBA will also amend an existing approved information collection, Portfolio Financing Report, SBA Form 1031 (OMB Control Number 3245-0078). The titles, descriptions and respondent descriptions of the information collections provisions are discussed below with an estimate of the annual reporting burden. Included in the estimate is the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing each collection of information.

SBA invites comments on: (1) Whether the proposed collection of information is necessary for the proper performance of SBA's functions, including whether the information will have a practical utility; (2) the accuracy of SBA's estimate of the burden of the proposed collections of information, including the validity of the methodology and assumptions used; (3) ways to enhance the quality, utility, and clarity of the information to be collected; and (4) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques, when appropriate, and other forms of information technology.

Please send comments by the closing date for comment for this proposed rule to Wendy Liberante, Office of Management and Budget, Office of Information and Regulatory Affairs, 725 17th Street, NW., Washington, DC 20503 and to Harry Haskins, Deputy Associate Administrator for Investment, Office of Investment, Small Business Administration, 409 Third Street, SW., Washington, DC 20416.

Title: Financing Eligibility Statement for Usage of Energy Saving Debentures [no SBA form number].

Summary: The Financing Eligibility Statement for Usage of Energy Saving Debentures will be used by SBICs requesting either or both of the SBA determinations that may be requested under the proposed rule: (1) Whether a Small Business is “primarily engaged” in Energy Saving Activities, as described in the proposed definition of “Energy Saving Qualified Investment” in § 107.50 and as used in § 107.610(f)(2)(i), and/or (2) whether a particular activity in which a Small Business is engaged is an “Energy Saving Activity”, as described in the proposed definition of that term and as used in § 107.610(f)(2)(ii). The SBIC must provide supporting evidence of the Small Business's eligibility based on the factors listed in the proposed rule.

Need and Purpose: Section 1205 of the Energy Independence and Security Act of 2007 makes SBA leverage in the form of a deferred interest “energy saving debenture” available to SBICs licensed after September 30, 2008 for the purpose of making Energy Saving Qualified Investments. The proposed rule identifies various criteria under which a financing can qualify as an Energy Saving Qualified Investment; however, SBA recognizes that some proposed investments will need to be individually reviewed by SBA to determine whether they fulfill the energy saving objectives of the statute. SBA will use the submitted information to make those determinations.

Description of Respondents: Small business investment companies will submit this form to obtain a determination from SBA as to whether a proposed financing is an Energy Saving Qualified Investment. There are approximately 300 active SBICs; only about 10% of these were licensed after September 30, 2008, and are eligible to issue energy saving debentures to make Energy Saving Qualified Investments. Based on anticipated new licensing activity, SBA is estimating the number of eligible SBICs at 60. Assuming each of these SBICs will invest in five companies per year, that 5% of all investments will be in energy-saving companies, and that one-third of those will require SBA to make a pre-financing determination of eligibility, SBA estimates five responses per year.

SBA estimates the burden of this collection of information as follows: An applicant will complete this collection once for each prospective Energy Saving Qualified Investment that requires SBA to make a pre-financing determination of eligibility. SBA estimates that the time needed to complete this collection will average 10 hours. SBA estimates that the cost to complete this collection will be approximately $150 per hour. Total estimated aggregate burden is 50 hours per annum costing a total of $7,500 for the year.

Title: Portfolio Financing Report, SBA Form 1031 (OMB Control Number 3245-0078).

Summary: SBA Form 1031 is a currently approved information collection form. SBA regulations (§ 107.640) require SBICs to submit a Portfolio Financing Report on SBA Form 1031 for each financing that an SBIC provides to a small business concern. The form is SBA's primary source of information for compiling statistics on the SBIC program as a provider of capital to small businesses. SBA also uses the information provided on Form 1031 to evaluate SBIC compliance with regulatory requirements. SBA proposes to revise the form by adding one new question, which would ask the SBIC to use a pull-down menu to identify whether a completed financing was an Energy Saving Qualified Investment. SBA's financial reporting software would automatically transfer this designation to the SBA Form 468 (SBIC Financial Statements), the source of data needed to determine eligibility for additional leverage based on Energy Saving Qualified Investments under § 107.1150(d)(2)(i).

Need and Purpose: Section 1206 of the Energy Independence and Security Act of 2007 increases the maximum amount of leverage potentially available to an SBIC licensed on or after October 1, 2008, that makes Energy Saving Qualified Investments. Proposed § 107.1150(d) adjusts the basic leverage eligibility formula in § 107.1150(a) by subtracting from an SBIC's outstanding leverage the cost basis of Energy Saving Qualified Investments that the SBIC has made in Smaller Enterprises. The amount that can be subtracted is limited to 33% of the SBIC's Leverageable Capital. SBA will use the information submitted on Form 1031 to track Energy Saving Qualified Investments that an SBIC may use in its leverage eligibility calculation, as well as for overall program evaluation purposes.

Description of Respondents: All SBICs are currently required to submit SBA Form 1031 within 30 days after closing an investment. The current estimate of 3,700 responses per year is not affected by this proposed rule. SBA proposes to add a single additional field to the form to identify whether the investment is an Energy Saving Qualified Investment.

SBA estimates the burden of this collection of information as follows: An SBIC making an Energy Saving Qualified Investment will select that descriptor from a pull-down menu on SBA Form 1031. There is no incremental burden attributable to completion of this additional field. An SBIC will complete SBA Form 1031 for each of its completed financing transactions. The currently approved hour burden for this collection is 12 minutes per response (0.2 hours), at a cost of $5.00 per response (based on $25.00 per hour). The total estimated burden is 740 hours per annum at an aggregate cost of $18,500.

The recordkeeping requirements under the proposed rule relate to the information that an SBIC must maintain in its files to support the required certifications for Energy Saving Qualified Investments under § 107.610(f)(1). SBA expects that SBICs will be able to obtain the necessary documentation with minimal effort. The SBIC would first document that the contemplated investment is in a company that provides products or services included in the definition of Energy Saving Activities, generally by referring to one of the government web sites discussed in this preamble. Second, the SBIC would document that the company derives at least 50 percent of its revenues from the sales of these products or services; the company would have this information available in the ordinary course of business.

When an agency promulgates a rule, the Regulatory Flexibility Act (5 U.S.C. 601-612) requires the agency to prepare an initial regulatory flexibility analysis (IRFA) which will describe the potential economic impact of the rule on small entities and alternatives that may minimize that impact. Section 605 of the RFA allows an agency to certify a rule, in lieu of preparing an IRFA, if the rulemaking is not expected to have a significant economic impact on a substantial number of small entities. This proposed rule affects all SBICs issuing debentures, of which there are approximately 160, most of which are small entities. Therefore, SBA has determined that this proposed rule will have an impact on a substantial number of small entities. However, SBA has determined that the impact on entities affected by the rule will not be significant. The energy saving qualified investment definition identifies the type of investment for which an SBIC will be permitted to seek SBA funding in the form of an “energy saving debenture”; this instrument, because of its deferred interest feature, is expected to provide SBICs with greater flexibility in structuring qualified investments. The energy saving debenture is expected to increase the annual fee charged on all new debenture commitments by approximately 14 basis points; however, the fee would continue to remain low by historical standards. Accordingly, the Administrator of the SBA hereby certifies that this rule will not have a significant impact on a substantial number of small entities. SBA welcomes comment from members of the public who believe there will be a significant impact either on SBICs, or on companies that receive funding from SBICs.

For the reasons stated in the preamble, SBA proposes to amend part 107 of title 13 of the Code of Federal Regulations as follows:

Later in this preamble under the Additional Information section, we discuss how you can comment on this proposal and how we will handle your comments. Included in this discussion is related information about the docket, privacy, and the handling of proprietary or confidential business information. We also discuss how you can get a copy of related rulemaking documents.

In 1995 Congress, through the Department of Transportation Appropriations Act, 1 directed the FAA “to develop and implement, not later than April 1, 1996, an acquisition management system that addressed the unique needs of the agency and, at a minimum, provided for more timely and cost effective acquisitions of equipment and materials.” The Act instructed the FAA to design the system, notwithstanding provisions of Federal acquisition law, and to not use certain provisions of Federal acquisition law. In response, the FAA developed the Acquisition Management System (AMS) for the management of FAA procurement. The AMS included a system of policy guidance that maximized the use of agency discretion in the interest of best business practices. As a part of the AMS, the FAA created the Office of Dispute Resolution for Acquisition (ODRA) to facilitate the Administrator's review of procurement protests and contract disputes. In a 1996 notice  2 published in the Federal Register , the FAA announced the creation of the ODRA and stated the agency would promulgate rules of procedure governing the dispute resolution process.

In August 1998, the FAA issued a Notice of Proposed Rulemaking (NPRM)  3 that proposed regulations under 14 CFR part 17 for the conduct of protests and contract disputes under the FAA AMS. The comment period for the NPRM closed on October 26, 1998. On June 18, 1999, 4 the FAA published the final rule entitled, Procedures for Protests and Contract Disputes; Amendment of Equal Access to Justice Act Regulations, which codified (effective June 28, 1999) the procedures governing the dispute resolution process. On August 31, 1999, the FAA published a document  5 that made certain corrections to the June 1999 final rule.

In addition to the rules of procedures, ODRA operates pursuant to delegations of authority from the Administrator. In a memorandum signed (1998 Delegation) by the Administrator on July 29, 1998, 6 the Administrator generally authorized the ODRA through its Director to provide dispute resolution services including administrative adjudication of all bid protests and contract disputes under the AMS. The 1998 Delegation further provided that all final decisions must be executed by the Administrator. The 1998 Delegation was expanded by a Delegation dated March 27, 2000 (2000 Delegation), which provided additional authority to the ODRA Director “to execute and issue, on behalf of the Administrator, Orders and Final Decisions for the Administrator in all matters within the ODRA's jurisdiction valued at not more than $1 Million.”  7 The 2000 Delegation was superseded by a Delegation of Authority from the Administrator, dated March 10, 2004 (2004 Delegation), which increased the dollar limit of the final decisional authority of the ODRA Director from $1 Million to $5 Million. 8 The 2004 Delegation was superseded by another Delegation of Authority dated March 31, 2010 (2010 Delegation), which increased the dollar limit of the final decisional authority of the ODRA Director from $5 Million to $10 Million. 9

Congress provided further confirmation about the FAA's dispute resolution authority in the Vision 100—Century of Aviation Reauthorization Act of 2003 (2003 Reauthorization Act) See Public Law 108-176, § 224(b), 117 Stat. 2490, 2528 (codified as amended at 49 U.S.C. 40110(d)(4)), which confirmed the ODRA's exclusive jurisdiction. Specifically, the 2003 Reauthorization Act expressly provided at Subsection (b)(2)(4) under the title “Adjudication of Certain Bid Protests and Contract Disputes”, that “[a] bid protest or contract dispute that is not addressed or resolved through alternative dispute resolution shall be adjudicated by the Administrator, through Dispute Resolution Officers or Special Masters of the Federal Aviation Administration Office of Dispute Resolution for Acquisition, acting pursuant to Sections 46102, 46104, 46105, 46106 and 46107 and shall be subject to judicial review under Section 46110 and Section 504 of Title 5.”

The ODRA dispute resolution procedures encourage the parties to protests and contract disputes to use Alternative Dispute Resolution (ADR) as the primary means to resolve protests and contract disputes, pursuant to the Administrative Dispute Resolution Act of 1996 (“ADRA”), Pub. L. 104-320, 5 U.S.C. §§ 570-579, and in consonance with Department of Transportation and FAA policies to maximize the use of ADR to the extent possible. Under these procedures, the ODRA actively encourages the parties to consider ADR techniques such as case evaluation, mediation, arbitration, or other types of ADR. In this regard, on October 15, 2001, the FAA published in the Federal Register Final Guidance (66 FR 52475) for the use of binding arbitration for purposes of resolving bid protests and contract disputes relating to procurements and contracts under the FAA AMS after receiving the concurrence of the Attorney General in accordance with Section 575 of the ADRA. Additionally, the ODRA developed an informal pre-dispute process, which provides voluntary dispute avoidance services that are available to parties upon request.

Since the issuance of the FAA's rules of procedure more than 10 years ago, the ODRA's statutory and regulatory authorities for conducting a dispute resolution process evolved, along with the body of case law interpreting those rules. The ODRA's implementation of these rules of procedure also resulted in the identification of procedural issues in need of clarification to provide uniform guidance. The ODRA further identified certain aspects of the rules that need revision to reflect evolving practices at the ODRA, as well as evolving dispute resolution practices in general. An example of such practices is the increased emphasis on early intervention and dispute avoidance efforts. In consideration of this changing environment, the FAA is proposing to amend part 17 to incorporate the evolving practices; reflect the availability of a pre-dispute process; reorganize and streamline the rules for ease of use; and harmonize the existing part 17 rules with current statutory and other authority.

The FAA's review of current part 17 identified aspects of the regulations that would benefit from a reorganization and consolidation of certain sections. For example, the procedures that pertain to filing and adjudicating protests and contract disputes are scattered throughout several subparts. In today's proposal, the procedures for filing and adjudicating protests and contract disputes are consolidated into subparts B and C, respectively. Also, the finality and review provisions are moved from current subpart F to proposed subpart E.

The FAA also found that the regulations could be improved by including streamlined procedures, as well as providing expanded coverage in those instances where guidance was lacking or a process has evolved over time. Examples of expanded coverage include the proposed addition of a section on the confidentiality of ADR (§ 17.39) and a section for filing requests for reconsideration (§ 17.47). In addition to these proposed revisions, new sections are added to proposed subpart F to address “other matters” like sanctions and professional conduct. Further, new subpart G is added to address procedures for filing pre-disputes.

A discussion, organized by subpart, and excluding minor editorial revisions and clarifications, of proposed changes to 14 CFR part 17, follows.

Subpart A would be revised as noted below.

The following new definitions would be added to this section: Adjudicative Process, Default Adjudicative Process, Counsel, Contractor, Legal Representative, and Pre-disputes.

Paragraph (c) would be revised to clarify that “other days on which Federal Government offices in Washington, DC are not open” is an excluded timeframe in calculating time limits for filings. In addition, paragraph (d) would be added to allow the use of electronic filing where permitted by the ODRA.

Paragraph (d) would be revised to explain the type of sanctions that could be imposed if a protective order is violated.

In subpart B, current § 17.21 (Protest remedies) would be renumbered as § 17.23, and the Adjudicative process for protests section that is currently in subpart E would be moved to proposed § 17.21.

Paragraph (d)(2) would be revised to make clear the standard of review for a request for a suspension or delay of the procurement. Also, paragraph (d)(3) would be added to explain the possible consequences of protesters' failure to provide appropriate supporting documentation in their requests to suspend a procurement or contract performance.

In § 17.17(a), the timeframes for responding to a request for a suspension or delay of the procurement would be revised according to the established ODRA practice of granting an extension until the date of the initial status conference. In § 17.17(b), the purpose of the initial status conference would be clarified. In § 17.17(c), the requirement that parties file a joint statement about whether they are pursuing ADR, and the adjudication timeframes that automatically begin when no ADR is contemplated would be removed.

Paragraph (a) would be revised to clarify the use of appropriate motions for dismissal or summary decision of protests and the ODRA's standard of review for such motions. Paragraph (d) would be revised to clarify when such a decision is construed as a final agency order.

In addition to moving the procedures for the Adjudicative Process for protests (from current § 17.37 of subpart E) to proposed § 17.21 of subpart B, this section would be revised to more fully address the management of the discovery process and the type of discovery that is authorized. This section would be further revised to delineate the ODRA's standard of review for protests, the development of the administrative record, and under what circumstances ex parte communications are permitted in protests. In addition, the revisions to this section would address the procedures for preparing and issuing the ODRA's findings and recommendations and final FAA order.

Paragraph (b) of this section would be revised to identify the factors the ODRA would consider in determining an appropriate remedy.

In subpart C, current §§ 17.23, 17.25, 17.27, and 17.29 would be renumbered as §§ 17.25, 17.27, 17.29 and 17.31, respectively. Section 17.33 (Adjudicative process for contract disputes), which would be moved from current § 17.39 of subpart E, would be added to proposed subpart C. Also, the requirement in current § 17.27 (Submission of joint or separate statements) would be deleted.

Paragraph (a) would be revised to provide additional guidance on the information to be included in the contract dispute. Paragraph (e) would be added to state the ODRA retains the discretion to modify any timeframe established by the regulations in connection to contract disputes.

This section would be revised to conform to current practice regarding the informal resolution process. This would include clarifications related to scheduling and assigning a potential neutral for ADR.

Section 17.31 would be revised to clarify the standard for requesting a dismissal or summary decision, and the process for responding to and issuing a decision on a request for dismissal or summary decision. This section would also be revised to clarify when such a decision is to be construed as a final agency order.

In addition to moving this section from current § 17.39 of subpart E, § 17.33 would be revised to clarify that the process for submitting the Dispute File applies to cases initiated by the contractor or alternatively by the FAA. Also, it would be revised to more fully explain what documents will be admitted into the administrative record and the timeframes for responding to written discovery. Further, the section would be revised to streamline the requirements for final submissions. Additionally, the proposed revisions would state that the ODRA must conduct a de novo review using the preponderance of the evidence standard, unless a different standard is required. The proposed revisions would also identify the circumstances under which ex parte communications are permitted in contract disputes.

The current sections under subpart D would be renumbered from §§ 17.31 and 17.33 to §§ 17.35 and 17.37, respectively. Also, new § 17.39 (Confidentiality of ADR) would be added to provide the applicability of the Administrative Dispute Resolution Act of 1996, 5 U.S.C. § 571 et seq., and to clarify how ADR communications are treated. Further, current § 17.35 (Selection of neutrals for the alternative dispute resolution process) would be deleted.

As noted previously, §§ 17.37 and 17.39 of current subpart E (Default Adjudicative Process) would be moved to subparts B (§ 17.21) and C (§ 17.33), respectively. In today's proposal, the requirements in current subpart F (Finality and Review—§§ 17.41, 17.43, and 17.45) would be moved to subpart E. Also, § 17.47 (Reconsideration) would be added to subpart E to provide the timeframe for filing requests for reconsideration and to state the standard for reconsideration according to ODRA precedent.

Subpart F would be revised to add sections covering sanctions, decorum and professional conduct, the use of orders and subpoenas for testimony and document production, and Standing Orders of the ODRA Director.

A new subpart (subpart G) would be added. This subpart would make clear that the pre-dispute process applies to all potential disputes arising under contracts or solicitations with the FAA. Also, it would set forth the process for filing a pre-dispute. Further, it would clarify the non-binding voluntary nature of the pre-dispute process and that it is subject to the confidentiality requirements of proposed § 17.39.

Appendix A would be revised to eliminate the description of “Minitrial” and to add a provision that addresses and clarifies the use of binding arbitration.

The Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) requires that the FAA consider the impact of paperwork and other information collection burdens imposed on the public. We have determined that there is no new information collection requirement associated with this proposed rule.

In keeping with U.S. obligations under the Convention on International Civil Aviation, it is FAA policy to conform to International Civil Aviation Organization (ICAO) Standards and Recommended Practices to the maximum extent practicable. The FAA has determined that there are no ICAO Standards and Recommended Practices that correspond to these proposed regulations.

Changes to Federal regulations must undergo several economic analyses. First, Executive Order 12866 directs that each Federal agency shall propose or adopt a regulation only upon a reasoned determination that the benefits of the intended regulation justify its costs. Second, the Regulatory Flexibility Act of 1980 (Pub. L. 96-354) requires agencies to analyze the economic impact of regulatory changes on small entities. Third, the Trade Agreements Act (Pub. L. 96-39) prohibits agencies from setting standards that create unnecessary obstacles to the foreign commerce of the United States. In developing U.S. standards, this Trade Act requires agencies to consider international standards and, where appropriate, that they be the basis of U.S. standards. Fourth, the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) requires agencies to prepare a written assessment of the costs, benefits, and other effects of proposed or final rules that include a Federal mandate likely to result in the expenditure by State, local, or Tribal governments, in the aggregate, or by the private sector, of $100 million or more annually (adjusted for inflation with base year of 1995). This portion of the preamble summarizes the FAA's analysis of the economic impact of the proposed rule.

Department of Transportation Order DOT 2100.5 prescribes policies and procedures for simplification, analysis, and review of regulations. If the expected cost impact is so minimal that a proposed or final rule does not warrant a full evaluation, this order permits that a statement to that effect and the basis for it be included in the preamble if a full regulatory evaluation of the costs and benefits is not prepared. Such a determination has been made for this proposed rule.

The reasoning for this determination follows: Under the FAA's Acquisition Management System, the Office of Dispute Resolution for Acquisition (ODRA) manages the dispute resolution process, including administrative adjudication of all procurement protests and contract disputes. This proposed rule simplifies and clarifies the current part 17 regulations under which the ODRA operates, including clarifying language and definitions, reorganization and consolidation of certain sections, and simplification and clarification of certain procedures such as filing requirements. These changes would be cost beneficial as they make it easier to use the dispute resolution process.

In addition, the proposed rule is updated to incorporate changes in statutory authority and additional authority delegated by the Administrator to the ODRA. These changes would have no effect on costs or benefits. The rulemaking would also codify a voluntary dispute avoidance and early resolution process that the ODRA is already using. The voluntary process is inherently less costly than the more formal dispute resolution process. The FAA expects that codification of the voluntary process will increase its use, thereby lowering the cost of the dispute resolution process.

Since the changes to the proposed rule would either be cost beneficial or have no cost effect, we expect the proposed rule to have a minimal impact with positive benefits. The FAA therefore has determined that this proposed rule does not warrant a full regulatory evaluation. The FAA requests comments regarding this determination.

The FAA has also determined that this proposed rule is not a “significant regulatory action” as defined in section 3(f) of Executive Order 12866, and is not “significant” as defined in DOT's Regulatory Policies and Procedures.

The Regulatory Flexibility Act of 1980 (Pub. L. 96-354) (RFA) establishes “as a principle of regulatory issuance that agencies shall endeavor, consistent with the objectives of the rule and of applicable statutes, to fit regulatory and informational requirements to the scale of the businesses, organizations, and governmental jurisdictions subject to regulation. To achieve this principle, agencies are required to solicit and consider flexible regulatory proposals and to explain the rationale for their actions to assure that such proposals are given serious consideration.” The RFA covers a wide-range of small entities, including small businesses, not-for-profit organizations, and small governmental jurisdictions.

Agencies must perform a review to determine whether a rule will have a significant economic impact on a substantial number of small entities. If the agency determines that it will, the agency must prepare a regulatory flexibility analysis as described in the RFA. However, if an agency determines that a rule is not expected to have a significant economic impact on a substantial number of small entities, section 605(b) of the RFA provides that the head of the agency may so certify and a regulatory flexibility analysis is not required. The certification must include a statement providing the factual basis for this determination, and the reasoning should be clear.

As noted above, the proposed changes to part 17 are either cost beneficial or have no effect on costs. Accordingly, the proposed rule would not have a significant impact on a substantial number of small entities. Therefore, the FAA certifies that this proposed rule would not have a significant economic impact on a substantial number of small entities. The FAA requests comments regarding this determination.

Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) requires each Federal agency to prepare a written statement assessing the effects of any Federal mandate in a proposed or final agency rule that may result in an expenditure of $100 million or more (adjusted annually for inflation with the base year 1995) in any one year by State, local, and Tribal governments, in the aggregate, or by the private sector; such a mandate is deemed to be a “significant regulatory action.” The FAA currently uses an inflation-adjusted value of $141.3 million.

This proposed rule does not contain such a mandate. The requirements of Title II do not apply.

The FAA has analyzed this proposed rule under the principles and criteria of Executive Order 13132, Federalism. We determined that this action would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government, and, therefore, would not have federalism implications.

FAA Order 1050.1E identifies FAA actions that are categorically excluded from preparation of an environmental assessment or environmental impact statement under the National Environmental Policy Act in the absence of extraordinary circumstances. The FAA has determined this proposed rulemaking action qualifies for the categorical exclusion identified in paragraph 312d and involves no extraordinary circumstances.

The FAA has analyzed this NPRM under Executive Order 13211, Actions Concerning Regulations that Significantly Affect Energy Supply, Distribution, or Use (May 18, 2001). We have determined that it is not a “significant energy action” under the executive order, it is not a “significant regulatory action” under Executive Order 12866 and DOT's Regulatory Policies and Procedures, and it is not likely to have a significant adverse effect on the supply, distribution, or use of energy.

The FAA invites interested persons to participate in this rulemaking by submitting written comments, data, or views. We also invite comments relating to the economic, environmental, energy, or federalism impacts that might result from adopting the proposals in this document. The most helpful comments reference a specific portion of the proposal, explain the reason for any recommended change, and include supporting data. To ensure the docket does not contain duplicate comments, please send only one copy of written comments, or if you are filing comments electronically, please submit your comments only one time.

We will file in the docket all comments we receive, as well as a report summarizing each substantive public contact with FAA personnel concerning this proposed rulemaking. Before acting on this proposal, we will consider all comments we receive on or before the closing date for comments. We will consider comments filed after the comment period has closed if it is possible to do so without incurring expense or delay. We may change this proposal in light of the comments we receive.

Do not file in the docket information that you consider to be proprietary or confidential business information. Send or deliver this information directly to the person identified in the FOR FURTHER INFORMATION CONTACT section of this document. You must mark the information that you consider proprietary or confidential. If you send the information on a disk or CD-ROM, mark the outside of the disk or CD-ROM and identify electronically within the disk or CD-ROM the specific information that is proprietary or confidential.

Under 14 CFR 11.35(b), when we are aware of proprietary information filed with a comment, we do not place it in the docket. We hold it in a separate file to which the public does not have access, and we place a note in the docket that we have received it. If we receive a request to examine or copy this information, we treat it as any other request under the Freedom of Information Act (5 U.S.C. 552). We process such a request under the DOT procedures found in 49 CFR part 7.

You can get an electronic copy of rulemaking documents using the Internet by—

1. Searching the Federal eRulemaking Portal ( http://www.regulations.gov );

2. Visiting the FAA's Regulations and Policies Web page at http://www.faa.gov/regulations_policies or

3. Accessing the Government Printing Office's Web page at http://www.gpoaccess.gov/fr/index.html.

You can also get a copy by sending a request to the Federal Aviation Administration, Office of Rulemaking, ARM-1, 800 Independence Avenue, SW., Washington, DC 20591, or by calling (202) 267-9680. Make sure to identify the docket or notice number of this rulemaking.

You may access all documents the FAA considered in developing this proposed rule, including economic analyses and technical reports, from the Internet through the Federal eRulemaking Portal referenced in paragraph (1).

In consideration of the foregoing, the Federal Aviation Administration proposes to amend Chapter I of Title 14, Code of Federal Regulations by revising part 17 to read as follows:

We are proposing amendments to Rules 12h-3 and 15d-22  1 and Form 15  2 under the Securities Exchange Act of 1934 (“Exchange Act”). 3

This release is one of several that the Commission is issuing to implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”)  4 related to asset-backed securities (“ABS”). Section 942(a) of the Act eliminated the automatic suspension of the duty to file under Section 15(d)  5 of the Exchange Act for ABS issuers and granted the Commission the authority to issue rules providing for the suspension or termination of such duty. In this release, we propose rule amendments to permit the suspension of reporting obligations for ABS issuers under certain circumstances and to update our rules in light of the amendment of Exchange Act Section 15(d).

Exchange Act Section 15(d) generally requires an issuer with a registration statement that has become effective pursuant to the Securities Act of 1933  6 (“Securities Act”) to file ongoing Exchange Act reports with the Commission. In 2004, the Commission adopted an Exchange Act reporting regime specifically designed for ABS issuers. Under those rules, the Exchange Act reporting requirements for ABS issuers consist of:

• Annual reports on Form 10-K  7 that include a report on the assessment of compliance with servicing criteria as well as an attestation report on assessments of compliance by a registered public accounting firm;

• Distribution reports on Form 10-D  8 that include distribution and pool performance information for the distribution period and disclosure regarding the assets filed based on the frequency of distributions on the ABS; and

• Current reports on Form 8-K. 9

Prior to enactment of the Act, Exchange Act Section 15(d) provided that for issuers without a class of securities registered under the Exchange Act the duty to file ongoing reports is automatically suspended as to any fiscal year, other than the fiscal year within which the registration statement for the securities became effective, if the securities of each class to which the registration statement relates are held of record by less than three hundred persons. As a result, the reporting obligations of ABS issuers, other than those with master trust structures, 10 were generally suspended after the ABS issuer filed one annual report on Form 10-K because the number of record holders was below, often significantly below, the 300 record holder threshold. 11

ABS offerings are typically registered on shelf registration statements and each ABS offering is typically sold in a separate “takedown” off of the shelf. In 2004, the Commission adopted Exchange Act Rule 15d-22, relating to ABS reporting under Exchange Act Section 15(d). 12 Exchange Act Rule 15d-22(b) codified the staff position that the starting and suspension dates for any reporting obligation with respect to a takedown of ABS is determined separately for each takedown. Exchange Act Rule 15d-22 also clarified that a new takedown for a new ABS offering off the same shelf registration statement did not necessitate continued reporting for a class of securities from a prior takedown that was otherwise eligible to suspend reporting.

Prior to enactment of the Act, in April of 2010, we proposed rules that would revise the disclosure, reporting and offering process for ABS (the “2010 ABS Proposing Release”). 13 Among other things, the 2010 ABS Proposing Release proposed to replace the investment grade ratings conditions to ABS shelf eligibility with four new eligibility conditions. One of the proposed new conditions would require an ABS issuer to undertake to file the same Exchange Act reports with the Commission as would be required by Section 15(d) of the Exchange Act and rules thereunder, if the issuer were subject to the reporting requirements of that section. 14 Before we acted on that proposal, the Act rendered that proposed shelf eligibility condition unnecessary by removing any class of ABS from the automatic suspension provided in Exchange Act Section 15(d) by inserting the phrase, “other than any class of asset-backed securities.” Consequently, ABS issuers no longer automatically suspend reporting under Exchange Act Section 15(d). Instead, the Act granted the Commission authority to “provide for the suspension or termination of the duty to file under this subsection for any class of asset-backed security, on such terms and conditions and for such period or periods as the Commission deems necessary or appropriate in the public interest or for the protection of investors.”  15

As noted, by adding the exception for ABS, the amendment removed the automatic suspension for any class of ABS. The effect is that the Exchange Act Section 15(d) reporting obligation now requires ongoing reporting for ABS issuers. As a result, we are proposing to update our rules consistent with the changes to Exchange Act Section 15(d), as amended by Section 942(a) of the Act. 16 Our proposal to amend Exchange Act 15d-22 is described below. In addition, because ABS issuers no longer automatically suspend reporting absent Commission action, we are proposing relief where there are no longer ABS of a class that were sold in a registered transaction held by non-affiliates of the depositor.

As indicated above, Exchange Act Section 15(d), as amended by the Act, establishes an ongoing reporting obligation for each class of ABS for which an issuer has filed a registration statement which has become effective pursuant to the Securities Act. Exchange Act Section 15(d) also grants the Commission authority to provide for the suspension or termination of the duty to file. We believe that post-issuance reporting of information by an ABS issuer provides investors and the markets with transparency regarding many aspects of the ongoing performance of the securities and the servicer in complying with servicing criteria, among other things, and further believe this transparency is important for investors and the market in evaluating transaction performance and making ongoing investment decisions. We recognize, however, the costs imposed by ongoing reporting obligations and are proposing limited relief from these reporting obligations that we believe is appropriate in the public interest and consistent with the protection of investors. In addition, we are proposing rule and form amendments to update our rules relating to ABS takedowns under a shelf registration statement.

We are proposing in new Exchange Act Rule 15d-22(b) to permit suspension of the reporting obligations for a given class of ABS pursuant to Exchange Act Section 15(d) for any fiscal year, other than the fiscal year within which the registration statement became effective, if, at the beginning of the fiscal year, there are no longer ABS of the class that were sold in a registered transaction held by non-affiliates of the depositor. 17 As revised by the Act, Exchange Act Section 15(d) no longer provides for the automatic suspension of the duty to file periodic and other reports for issuers of a class of ABS. Without action by the Commission, ABS issuers that have filed a registration statement that has become effective pursuant to the Securities Act or that have conducted a takedown off of a shelf registration statement as described above, would be obligated to continue to file such reports for the life of the security.

In the 2010 ABS Proposing Release, we noted the importance to investors of post-issuance reporting of information regarding an ABS transaction in understanding transaction performance and in making ongoing investment decisions. 18 We also believe, however, that there is a point at which the benefits to investors and the market of reporting significantly diminish, such as the limited benefit provided by reporting of an issuer that has no non-affiliated holders of its securities. Where an issuer has only affiliated holders of its securities, there is no public market for the securities and the affiliated holders typically have access to comparable information to that provided by public reports. In addition, preparation of reports under such circumstances would add to the cost of offering and maintaining the ABS and therefore to the cost of capital formation.

In the 2010 ABS Proposing Release we sought to balance the value of the information to investors and the market with the burden to issuers of preparing the reports. We proposed in the 2010 ABS Proposing Release to require, as a condition to ABS shelf eligibility, that the issuer undertake to file reports providing disclosure as would be required pursuant to Exchange Act Section 15(d) and the rules thereunder as long as non-affiliates of the depositor hold any of the issuer's securities that were sold in a registered transaction. 19 While our proposal to require ongoing reporting as a condition to ABS shelf eligibility and the comments we received on that proposal are informative, the Act no longer provides for the automatic suspension of the duty to file periodic and other reports for issuers of a class of ABS.

We believe that the limited benefits of ongoing reporting to investors and the market where there are only affiliated holders of the ABS would not justify the burden of reporting by issuers. Consequently, we are proposing new Exchange Act Rule 15d-22(b) which would provide that the reporting obligation regarding any class of ABS is suspended for any fiscal year, other than the fiscal year within which the registration statement became effective, if, at the beginning of the fiscal year there are no longer any securities of such class held by non-affiliates of the depositor that were sold in the registered transaction. We are also proposing to amend Form 15 to add a checkbox for ABS issuers to indicate that they are relying on proposed Exchange Act Rule 15d-22(b) to suspend their reporting obligation to alert the market and the Commission of the change in reporting status.

• Is it appropriate to suspend the Exchange Act Section 15(d) reporting obligation regarding a class of ABS for any fiscal year, other than the fiscal year within which the registration statement became effective, if, at the beginning of the fiscal year there are no longer any securities of such class held by non-affiliates of the depositor that were sold in a registered transaction?

• Should we instead consider allowing suspension of the reporting obligation dependent on a limited number of non-affiliates of the depositor holding the securities? If so, what would be an appropriate number and why? Please provide data establishing a basis for such a limit.

• If an issuer is unable to locate a security holder in order to provide information and make distributions to that security holder, such that the distributions are returned to the issuer without payment to the unknown security holder and the issuer or its agent has attempted to notify the unknown security holder within seven months of the failed distribution, should we allow the issuer not to count such security holders when determining the number of non-affiliates of the depositor that hold its securities? Should we allow an issuer to suspend the Exchange Act Section 15(d) reporting obligation regarding a class of ABS if, at the beginning of the fiscal year there are no longer any securities of such class, other than securities held by such lost or missing security holders, held by non-affiliates of the depositor that were sold in a registered transaction?

• Should we allow an issuer to suspend the Exchange Act Section 15(d) reporting obligation regarding a class of ABS if that issuer has effected legal or covenant defeasance of such class? Why or why not? Is legal or covenant defeasance typically provided for in ABS indentures or other governing instruments? Is legal or covenant defeasance effected with any meaningful frequency in the ABS market? Are there certain asset classes or tranches where it is more or less common? Please provide data to support your conclusions.

• Is there another standard, such as one relying on the percentage of pool assets remaining or the percentage of pool assets held by non-affiliates of the depositor, that would be more appropriate? Should we permit suspension based on a mandatory period of time since the registered offering? If so, how long would be appropriate? Three years? Five years? Should the amount of time depend on the asset class?

In light of the statutory changes to Exchange Act Section 15(d), we are proposing to update Exchange Act Rule 15d-22 to indicate when annual and other reports need to be filed and when starting and suspension dates are determined with respect to a takedown. We are also proposing to amend Exchange Act Rule 12h-3(b)(1) to add the language “, other than any class of asset-backed securities,” to conform the rule to the language of amended Exchange Act Section 15(d) and to add a clarifying note.

Exchange Act Rule 15d-22 currently provides that: (1) No annual or other reports need be filed pursuant to Exchange Act Section 15(d) for ABS until the first bona fide sale in a takedown of securities under the registration statement; and (2) the starting and suspension dates for any reporting obligation with respect to a takedown of ABS is determined separately for each takedown.

We are proposing to amend Exchange Act Rule 15d-22. The revised rule would retain the approach that the Exchange Act Section 15(d) reporting obligation relates to each separate takedown in current Exchange Act Rules 15d-22(a) and 15d-22(b) in a new Exchange Act Rule 15d-22(a). Proposed Rule 15d-22(a)(1) tracks the language in current Exchange Act Rule 15d-22(a) providing that with respect to an offering of ABS sold off the shelf pursuant to Securities Act Rule 415(a)(1)(x), 20 the requirement to file annual and other reports pursuant to Exchange Act Section 15(d) regarding a class of securities commences upon the first bona fide sale in a takedown of securities under the registration statement. Proposed Exchange Act Rule 15d-22(a)(2) would restate the concept contained in current Exchange Act Rule 15d-22(b) that the requirement to file annual and other reports pursuant to Exchange Act Section 15(d) regarding a class of securities is determined separately for each takedown of securities under the registration statement. Exchange Act Rule 15d-22(b) currently does this by relying on language relating to when an issuer may suspend reporting under Exchange Act Section 15(d). Because the Act eliminated the automatic suspension of reporting for ABS issuers, we are proposing to delete current Exchange Act Rule 15d-22(b) and replace it with new Exchange Act Rule 15d-22(a)(2). 21

You may be potentially affected by this action if you use mercury-containing thermometers in laboratories, for field analysis, or for other industrial applications. Potentially affected entities may include, but are not limited to:

• Testing Laboratories (NAICS code 541380).

• Petroleum Refineries (NAICS code 324110).

• Analytical Laboratory Instrument Manufacturing (NAICS code 334516).

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

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

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

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

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

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

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

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

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

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

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

EPA's action is part of a more expansive Agency initiative to reduce the use of mercury-containing products to help prevent unnecessary human and environmental exposures to elemental mercury. EPA is proposing to incorporate revised ASTM standards that provide flexibility to use alternatives to mercury-containing industrial thermometers as part of complying with EPA regulatory requirements. Separately, EPA is soliciting responses from the public to specific questions ( see Unit II.B.) relating to the need to revise the remaining ASTM standards embedded within EPA regulations that require the use of mercury-containing thermometers. EPA is specifically interested in public responses that address the benefits of providing flexibility to use mercury-containing thermometer alternatives and whether the remaining EPA regulations that require the use of mercury-containing thermometers could be revised or whether mercury-containing thermometers are needed for their accuracy and performance.

Mercury exposures can harm the brain, heart, kidneys, lungs, and immune system. Most human exposure to mercury is through the consumption of fish containing methylmercury. Exposure to methylmercury through ingestion can harm the normal development of the nervous system, resulting in learning disabilities. Elemental mercury and other forms of mercury from industrial sources are deposited from the air and are converted into methylmercury. Mercury exposures can also occur by the inhalation of elemental mercury from the breakage or improper disposal of mercury-containing products such as mercury-containing thermometers. Inhalation exposure of elemental mercury can lead to neurotoxic and developmental neurotoxic effects.

Following a thorough search, the Agency determined that certain EPA regulations reference ASTM standards that require the use of mercury-containing thermometers for certain temperature measurement applications. EPA seeks to provide the regulated community with the flexibility to use mercury-free alternatives, where feasible, comparable, and available. This action proposes to update EPA regulations to incorporate three specific ASTM standards (D5865-10, D445-09, and D93-09) that allow for the use of alternatives to mercury-containing thermometers. EPA is proposing to update these ASTM standards where they are referenced in regulations pursuant to the Clean Air Act (CAA) and the Toxic Substances Control Act (TSCA) (certain sections of 40 CFR parts 49, 60, 63, 75, 86, 89, 92, 94, 761, and 1065). One of the incorporated ASTM standards (D5865-10) requires the use of a mercury-free device while the other two standards (D445-09 and D93-09) provide the flexibility to use alternatives to mercury-containing thermometers, but do not require their use. EPA is proposing to allow the use of the updated standard D5865-10 and the previous standards, D5856-01a, D5856-03a, and D5856-04 so that flexibility is given to use mercury-free thermometers, but not required. Although a first step, incorporating these current standards comprises only a small percentage of the ASTM standards referenced within EPA regulations that require the use of mercury-containing thermometers. Further revisions to other relevant ASTM standards would be necessary before EPA could provide more comprehensive flexibility. To facilitate the use of mercury alternatives, EPA encourages ASTM to expeditiously review and revise their standards that require the use of mercury-containing thermometers, particularly those currently embedded in EPA regulations.

As part of the Agency's mercury-product reduction effort, EPA believes it is important to remove unnecessary requirements to use mercury-containing thermometers where viable and comparable non-mercury substitutes exist. The National Institute of Standards and Technology (NIST), recognized experts in the field of thermometry, believe there are no fundamental barriers to the replacement of mercury-containing thermometers. Although perceived as superior in performance, mercury-containing thermometers have readily available and comparable alternatives such as platinum resistance thermometers, thermistors, thermocouples, and portable electronic thermometers (PETs). The use of thermometers in high temperature applications, such as the use of thermometers in autoclaves, traditionally provided significant challenges to the use of mercury-containing thermometer alternatives. However, the use of data-loggers in autoclave operations is an example of an emerging innovation to allow the viable use of mercury substitutes.

In addition to the embedded ASTM standards, certain EPA regulations directly require the use of mercury-containing thermometers. Most of these regulations are pursuant to CAA and will be addressed through a separate rulemaking currently pursued by EPA's Office of Air and Radiation. It is important to note that for ASTM standards contained within State implementation plan (SIP) approvals the Agency will need to address each ASTM standard separately after consultation with the States.

Additionally, analytical methods mandated under the Resource Conservation and Recovery Act (RCRA) that use mercury-containing thermometers as a Method Defined Parameter (MDP) will not be addressed in this proposed rule. While the Office of Solid Waste and Emergency Response (OSWER) Methods Innovation Rule (MIR) allows flexibility in RCRA-related sampling and analysis by removing unnecessary requirements in SW-846 Methods, the MIR does not allow for flexibility for test methods that have MDPs. EPA may address MDPs in future actions but not as part of this proposed rule.

1. How can EPA provide additional flexibility in the use of mercury-free thermometers to comply with the Agency's relevant regulations?

2. Are requirements to use mercury-containing thermometers necessary for performance reasons or should flexibility be provided in most if not all measurement applications?

3. Does the use of data-loggers for temperature measurement in autoclaves provide a viable alternative to the use of mercury-containing thermometers?

4. What else can EPA do to help expedite the use of alternatives to mercury-containing thermometers where feasible, comparable, and available?

This proposed rule is issued under the Agency's authority pursuant to the CAA (42 U.S.C. 7401-7671q) and TSCA (15 U.S.C. 2601-2692).

This is not a “significant regulatory action” under Executive Order 12866, entitled Regulatory Planning and Review (58 FR 51735, October 4, 1993). Accordingly, this action was not submitted to the Office of Management and Budget (OMB) for review under Executive Order 12866.

According to the Paperwork Reduction Act (PRA), 44 U.S.C. 3501 et seq., an agency may not conduct or sponsor, and a person is not required to respond to a collection of information that requires OMB approval under PRA, unless it has been approved by OMB and displays a currently valid OMB control number. The OMB control numbers for EPA's regulations in title 40 of the CFR, after appearing in the Federal Register , are listed in 40 CFR part 9, and included on the related collection instrument, or form, if applicable. There are no information collection requirements in this proposed rule that require additional approval or consideration under PRA.

Pursuant to section 605(b) of the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq. ), the Agency hereby certifies that this action will not have a significant adverse economic impact on a substantial number of small entities. Small entities include small businesses, small organizations, and small governmental jurisdictions. In making this determination, the impact of concern is any significant adverse economic impact on small entities because the primary purpose of regulatory flexibility analysis is to identify and address regulatory alternatives “which minimize any significant economic impact of the rule on small entities” (5 U.S.C. 603 and 604). Thus, an agency may certify under RFA when the rule relieves regulatory burden, or otherwise has no expected economic impact on small entities subject to the rule. EPA believes that this proposed rule does not have any adverse economic impact because it will provide flexibility by allowing the use mercury-free thermometers, without mandating their use. Of course, EPA welcomes comments on this conclusion.

This proposed rule does not contain a Federal mandate that may result in expenditures of $100 million or more for State, local, and Tribal governments, in the aggregate, or the private sector in any 1 year. As such, EPA has determined that this proposed rule does not impose any enforceable duty, contain any unfunded mandate, or otherwise have any effect on small governments subject to the requirements of sections 202, 203, 204, or 205 of the Unfunded Mandates Reform Act (UMRA) (2 U.S.C. 1531-1538).

This action will not have federalism implications because it is not expected to have a substantial direct effect on 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, entitled Federalism (64 FR 43255, August 10, 1999). Thus, Executive Order 13132 does not apply to this action.

This action will not have Tribal implications because it is not expected to have substantial direct effects on Indian Tribes, will not significantly or uniquely affect the communities of Indian Tribal governments, and does not involve or impose any requirements that affect Indian Tribes. Accordingly, the requirements of Executive Order 13175, entitled Consultation and Coordination with Indian Tribal Governments (65 FR 67249, November 9, 2000), do not apply to this action.

EPA interprets Executive Order 13045, entitled Protection of Children from Environmental Health Risks and Safety Risks (62 FR 19885, April 23, 1997), as applying only to those regulatory actions that concern health or safety risks, such that the analysis required under section 5-501 of the Executive Order has the potential to influence the regulation. This action is not subject to Executive Order 13045 because it does not establish an environmental standard intended to mitigate health or safety risks, nor is it an “economically significant regulatory action” as defined by Executive Order 12866.

This action is not a “significant energy action” as defined in Executive Order 13211, entitled Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use (66 FR 28355, May 22, 2001), because this action is not likely to affect the supply, distribution, or use of energy.

Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (NTTAA), Public Law 104-113, 12(d) (15 U.S.C. 272 note) directs EPA to use voluntary consensus standards in its regulatory activities unless to do so would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards (e.g., materials specifications, test methods, sampling procedures, and business practices) that are developed or adopted by voluntary consensus standards bodies. NTTAA directs EPA to provide Congress, through OMB, explanations when the Agency decides not to use available and applicable voluntary consensus standards. ASTM standards constitute voluntary consensus standards and, as such, the NTTAA directly applies to this proposed rule. The NTTAA requires that EPA use voluntary consensus standards unless to do so would be inconsistent with applicable law or otherwise impractical. With this proposed rule, EPA is adding the most current versions of applicable ASTM standards that allow flexibility in the use of mercury-containing thermometers and in the spirit of the NTTAA plans to work closely with ASTM to address the remaining standards within EPA regulations that require the use of mercury-containing thermometers.

This action does not entail special considerations of environmental justice related issues as delineated by Executive Order 12898, entitled Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations (59 FR 7629, February 16, 1994).

Therefore, it is proposed that 40 CFR chapter I be amended as follows:

Throughout this document whenever “we,” “us,” or “our” is used, we mean EPA. This SUPPLEMENTARY INFORMATION section is arranged as follows:

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

When submitting comments, remember to:

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

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

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

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

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

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

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

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

EPA is proposing to approve a SIP revision submitted by the State of Indiana to modify the ozone SIP such that the I/M program in Clark and Floyd Counties (the Indiana portion of the Louisville (IN-KY) 1997 8-hour ozone area) is no longer an active program in this area and remains instead as a contingency measure in this area's maintenance plan for 1997 8-hour ozone.

Indiana House Enrolled Act No. 1798, effective on July 1, 2003, amended Indiana code 13-17-5 to eliminate the applicability of the vehicle emissions testing rule to Clark and Floyd Counties after December 31, 2006, at which time the program ceased operations. IDEM submitted a revision to the Indiana SIP for Clark and Floyd Counties (the Indiana portion of the Louisville (IN-KY) 1997 8-hour ozone nonattainment area) on October 10, 2006, requesting that the Indiana I/M program in Clark and Floyd Counties be moved from the active control measures portion of the SIP to the contingency measures portion of the Clark and Floyd Counties 1997 8-Hour Ozone Maintenance Plan.

Clark and Floyd Counties were originally required to implement “basic” I/M programs under section 182(b)(4) of the CAA because they had been designated as part of the Louisville moderate 1-hour ozone nonattainment area. In order to maximize the emissions reductions from the I/M program, IDEM chose to implement an “enhanced” program in those areas and incorporated an on-board diagnostic (OBD) component into the program. EPA fully approved Indiana's I/M program on March 19, 1996 (61 FR 11142). The enhanced I/M program component began operation in 1997, to help meet nonattainment area requirements for the ozone NAAQS effective at the time. 1 The Louisville 1-hour ozone nonattainment area was redesignated to attainment for that standard on October 23, 2001 (66 FR 53665).

Subsequently, Clark and Floyd Counties were designated as a portion of the IN-KY Louisville nonattainment for the 1997 8-hour ozone NAAQS. On November 15, 2006, IDEM submitted a request to redesignate the Indiana portion of the Louisville nonattainment area to attainment for the 8-hour NAAQS, and for EPA approval of a 14-year maintenance plan for Clark and Floyd Counties. At the same time, IDEM requested EPA approval to terminate the I/M program in these counties. EPA approved the redesignation and maintenance plan for Clark and Floyd Counties on July 19, 2007 (72 FR 39571). The approved maintenance plan demonstrated that the area could maintain the standard without the need for emission reductions from I/M. See 72 FR 26057, 26064-26065 (May 8, 2007).

The Louisville 1997 8-hour ozone nonattainment area also includes Jefferson County, Kentucky. EPA approved the discontinuation of the I/M program in Jefferson County on May 18, 2005, at 70 FR 28429.

Areas designated nonattainment for the ozone NAAQS and classified “moderate” are required by the CAA to implement vehicle I/M. See CAA section 182(b)(4). 2 The Louisville area was previously designated moderate nonattainment for the 1-hour ozone standard, prompting the requirement for I/M. However, as noted above, the Louisville area was redesignated to attainment for the 1-hour standard, and the 1-hour standard has been revoked. While Clark and Floyd Counties were designated nonattainment for the 0.08 ppm 8-hour ozone standard, they were not classified for that standard. 3 Thus, these areas are not currently required to have I/M programs under the CAA and the State may move them to the contingency measures portion of the SIP, 4 provided the State can satisfy the anti-backsliding requirements of the CAA (sections 110(l) and 193) and of EPA's ozone implementation rule, 40 CFR 51.905. As previously noted, EPA in approving the area's maintenance plan for the 1997 8-hour ozone standard concluded that it demonstrated maintenance without reliance on any emissions reductions from the I/M program.

CAA section 110(l) provides:

In addition, EPA adopted anti-backsliding requirements as part of the implementation rule for the 0.08 ppm 8-hour ozone standard. See 40 CFR 51.905. For areas such as these that were required under the CAA to implement basic I/M, EPA applies the provisions of the implementation rule in concert with the provisions of 40 CFR 51.372(c).

The provisions of 40 CFR 51.372(c) allow certain areas seeking redesignation to submit only the authority for an I/M program (together with certain commitments), rather than an implemented program, in satisfaction of the applicable I/M requirements. Under these I/M rule provisions, a basic I/M area ( i.e., an area that was required to adopt a basic I/M program) which has been redesignated to attainment for the 1-hour ozone NAAQS can convert the I/M program to a contingency measure as part of the area's 1-hour ozone maintenance plan, notwithstanding the anti-backsliding provisions in EPA's 8-hour ozone implementation rule published April 30, 2004 (69 FR 23858). A basic I/M area which is designated nonattainment for the 8-hour ozone NAAQS, yet is not required to have an I/M program based on its 8-hour ozone classification, continues to have the option to move its I/M program to a contingency measure pursuant to the provisions of 40 CFR 51.372(c), provided the 8-hour ozone nonattainment area can demonstrate that doing so will not interfere with its ability to comply with any NAAQS or any other applicable CAA requirement pursuant to section 110(l) of the Act. For further details on the application of 8-hour ozone anti-backsliding provisions to basic I/M programs in 1-hour ozone maintenance areas, please refer to the May 12, 2004, EPA Memorandum from Tom Helms, Group Leader, Ozone Policy and Strategies Group, Office of Air Quality Planning and Standards, and Leila H. Cook, Group Leader, State Measures and Conformity Group, Office of Transportation and Air Quality, to the Air Program Managers, the subject of which is “1 Hour Ozone Maintenance Plans Containing Basic I/M Programs.” A copy of this memorandum may be obtained at http://www.epa.gov/ttn/oarpg/t1pgm.html under the file date “5-12-04.”

Clark and Floyd Counties were redesignated to attainment of the 1-hour ozone NAAQS on October 23, 2001 (66 FR 53665). On July 19, 2007 (72 FR 39571), EPA approved the redesignation of Clark and Floyd Counties to attainment with respect to the 8-hour ozone NAAQS. EPA approved maintenance plans with respect to each of these standards in connection with these redesignations. The approved maintenance plans show that control measures in place in these areas are sufficient for overall emissions to remain beneath the attainment level of emissions until the end of the maintenance period, even without operation of I/M. In both plans, the conformity budget in the maintenance plans reflects mobile source emissions without I/M in future years, and the maintenance plans demonstrate that the applicable standard will continue to be met without I/M. In accordance with the Act and EPA redesignation guidance, states are free to adjust control strategies in the maintenance plan as long as they can satisfy section 110(l). With such a demonstration of noninterference with attainment or other applicable requirements, control programs may be discontinued and removed from the SIP. However, section 175A(d) of the CAA requires that contingency measures in the maintenance plan include all measures in the SIP for the area before that area was redesignated to attainment. Since the I/M program was in the SIP prior to redesignation to attainment for ozone, the I/M program must be included in the contingency portion of the ozone maintenance plan as required by section 175A(d). As part of its submittal, IDEM provided a demonstration showing continued maintenance of the 8-hour ozone standard without taking credit for reductions from the Clark and Floyd Counties I/M program after December 2006.

As discussed above, EPA interprets its regulations as allowing basic I/M areas such as these to have the option to move an I/M program to a contingency measure pursuant to 40 CFR 51.372(c), provided that moving I/M to contingency measures will not interfere with the area's ability to comply with any NAAQS or any other applicable CAA requirement (including section 193). Under 40 CFR 51.372(c), an area is required to include in its submittal, with a request to place the I/M program into the contingency measures: (1) Legal authority to implement a basic I/M program; (2) a commitment by the Governor of the State, or the Governor's designee, to adopt or consider adopting regulations to implement an I/M program to correct a violation of the ozone or carbon monoxide standard, in accordance with the maintenance plan; and (3) a contingency commitment that includes an enforceable schedule, with appropriate milestones, for adoption and implementation of an I/M program.

In the State's supplemental submittal of November 25, 2008, IDEM reaffirms that Indiana has retained the necessary legal authority to implement I/M under Indiana Code 13-17-5. EPA examined the applicable Indiana statutory language and the State's subsequent legal review and concurs with Indiana's finding that it has the necessary legal authority to implement I/M if it becomes necessary under the CAA to implement contingency measures. In addition, the State's supplemental submittal includes a commitment by IDEM to consider the adoption of I/M as a corrective measure should an ambient 8-hour ozone design value trigger a contingency measure in Clark and Floyd Counties, and the required program is determined by the State to be an I/M program. The State's supplemental submittal of April 23, 2010, also contains an I/M implementation schedule in the event that I/M is selected by the State as a corrective measure, as required by 40 CFR 51372(c).

As mentioned above, on July 19, 2007 (72 FR 39571), EPA concluded that Clark and Floyd Counties met the 0.08 ppm ozone air quality standard and redesignated this area to attainment for that standard. The maintenance plan for this area shows that the area will continue to attain the standard even with the discontinuation of I/M.

As noted above, the 1997 8-hour maintenance plan estimated the levels of volatile organic compounds (VOC) and oxides of nitrogen (NO X ) emissions in the area associated with attainment of the respective ozone standards, and found that emissions would remain below those quantities even with the discontinuation of I/M. Furthermore, the maintenance plan demonstrates that current emissions of VOC and NO X , without the I/M program, are lower than emissions were in 2005, representing emissions when I/M was still operating.

EPA has also compared the expected reductions of VOC and NO X from the I/M program with the reduction of emissions that have resulted from the Federal Motor Vehicle Control Program and other emission control programs since the I/M program ceased operation. EPA concludes that the ongoing reductions from implementation of these programs, particularly the Tier II standards for motor vehicles, 5 are greater than the emissions reductions that would have been achieved from the I/M program.

On March 27, 2008 (73 FR 16436), EPA revised the ozone standard to 0.075 ppm as an 8-hour average. 6 EPA therefore examined whether discontinuation of the I/M program in Clark and Floyd Counties might interfere with attainment and maintenance of this standard. The most direct evidence regarding this issue is the most recent three years of air quality data. Since the I/M program in Clark and Floyd Counties was discontinued in 2006, the most recent three years have all reflected emissions without operation of an I/M program in Clark and Floyd Counties. All ozone monitoring sites in the Louisville area are meeting the 0.075 ppm air quality standard, with the highest design value at 0.075 ppm, observed at the Watson Elementary site in Jefferson County, Kentucky (site 21-111-0051). Ozone air quality in the 2007 to 2009 period, representing a period in which the I/M program was discontinued, attains the ozone NAAQS and is better than ozone air quality in the 2004 to 2006, representing the last three years in which the program operated. Furthermore, Indiana's ozone maintenance plan for this area shows a continuing decline in the emissions of ozone precursors.

On November 19, 2010, Indiana submitted modeling analyses that further support the conclusion that the discontinuation of the I/M program in Clark and Floyd Counties will not interfere with attainment and maintenance of the 0.075 ppm ozone standard. This submittal reviews analyses conducted by EPA and by the Lake Michigan Air Directors Consortium (LADCO), in both cases reflecting no operation of an I/M program in Clark and Floyd Counties. These analyses indicate that the Louisville area can be expected to continue to attain the 0.075 ppm ozone standard without I/M in Clark and Floyd Counties. Most notably, Indiana reviews the modeling conducted by EPA in support of its proposed transport rule, showing that the Louisville area can be expected to continue to attain the 0.075 ppm ozone standard in 2012 not only with the discontinuation of the I/M program in Clark and Floyd Counties but also with the discontinuation of power plant emission controls mandated by the Clean Air Interstate Rule. Thus, these modeling analyses provide further evidence that the discontinuation of the I/M program in Clark and Floyd Counties will not interfere with attainment and maintenance of the 0.075 ozone standard in the Louisville area.

EPA also examined whether discontinuation of the I/M program might interfere with attainment of the annual fine particulate matter (PM 2.5 ) standards. Since Indiana discontinued its I/M program at the end of 2006, the PM 2.5 air quality from 2007 to 2009 are indicative of whether the Louisville area can be expected to attain the annual PM 2.5 standard notwithstanding the discontinuation of Indiana's I/M program. In a separate rulemaking proceeding, published on September 14, 2010 (75 FR 55725), EPA has proposed to determine that the Louisville area is now attaining the annual PM 2.5 standards. 7 Furthermore, mobile source emissions affecting PM 2.5 concentrations are continuing to decline, as a result of the Federal Motor Vehicle Control Program. 8

EPA also examined whether cessation of the I/M program has interfered with attainment of other air quality standards. The Louisville area is designated attainment for the coarse particulate matter (PM 10 ) standard, for the 24-hour PM 2.5 standards promulgated on July 18, 1997, and October 17, 2006, for carbon monoxide, for sulfur dioxide, and for nitrogen dioxide. EPA has no reason to believe that discontinuation of the I/M program in Clark and Floyd Counties has caused or will cause the Louisville area to become nonattainment for any of these pollutants. In addition, EPA believes that the discontinuation of the I/M program in Clark and Floyd Counties will not interfere with the area's ability to meet any other CAA requirement.

For the reasons discussed above, EPA believes that Indiana has satisfied currently applicable criteria for discontinuing I/M in Clark and Floyd Counties. We are proposing to find that the State of Indiana has demonstrated that eliminating the I/M program in Clark and Floyd Counties is consistent with the requirements of sections 110(l) and 193 of the Clean Air Act. Accordingly, we are proposing to approve Indiana's request to modify the SIP such that I/M is no longer an active program in these areas and is instead a contingency measure in this area's maintenance plan.

Under the CAA, the Administrator is required to approve a SIP submission that complies with the provisions of the CAA and applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the CAA. Accordingly, this action merely approves state law as meeting Federal requirements and does not impose additional requirements beyond those imposed by state law. For that reason, this action:

• Is not a “significant regulatory action” subject to review by the Office of Management and Budget under Executive Order 12866 (58 FR 51735, October 4, 1993);

• Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq. );

• Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. );

• Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4);

• Does not have Federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);

• Is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);

• Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);

• Is not subject to requirements of Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the Clean Air Act; and

• Does not provide EPA with the discretionary authority to address, as appropriate, disproportionate human health or environmental effects, using practicable and legally permissible methods, under Executive Order 12898 (59 FR 7629, February 16, 1994).

In addition, this rule does not have tribal implications as specified by Executive Order 13175 (65 FR 67249, November 9, 2000), because the SIP is not approved to apply in Indian country located in the state, and EPA notes that it will not impose substantial direct costs on tribal governments or preempt tribal law.

Throughout this document, whenever “we,” “us,” or “our” is used, we mean EPA. On October 27, 2010, the Virginia Department of Environmental Quality submitted a revision to its SIP for the addition of a new Chapter 85 of 9VAC5.

On October 27, 2010, VADEQ submitted a draft revision to EPA for approval into the Virginia SIP to establish appropriate emission thresholds for determining which new or modified stationary sources become subject to Virginia's Prevention of Significant Deterioration (PSD) permitting requirements for GHG emissions. Final approval of Virginia's October 27, 2010, SIP revision will put in place the GHG emission thresholds for PSD applicability set forth in EPA's “Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule,” (the Tailoring Rule) Final Rule, 75 FR 31514 (June 3, 2010), ensuring that smaller GHG sources emitting less than these thresholds will not be subject to permitting requirements when these requirements begin applying to GHGs on January 2, 2011. Pursuant to section 110 of the CAA, EPA is proposing to approve this revision into the Virginia SIP.

Today's proposed action on the Virginia SIP generally relates to three federal rulemaking actions. The first rulemaking is EPA's Tailoring Rule. The second rulemaking is EPA's “Action to Ensure Authority to Issue Permits Under the Prevention of Significant Deterioration Program to Sources of Greenhouse Gas Emissions: Finding of Substantial Inadequacy and SIP Call,” Proposed Rule (GHG SIP Call). 75 FR 53892 (September 2, 2010). The third rulemaking is EPA's “Action to Ensure Authority to Issue Permits Under the Prevention of Significant Deterioration Program to Sources of Greenhouse Gas Emissions: Federal Implementation Plan,” Proposed Rule, 75 FR 53883 (September 2, 2010) (GHG FIP), which serves as a companion rulemaking to EPA's proposed GHG SIP Call. A summary of each of these rulemakings is described below.

In the first rulemaking, the Tailoring Rule, EPA established appropriate GHG emission thresholds for determining the applicability of PSD requirements to GHG-emitting sources. In the second rulemaking, the GHG SIP Call (which is not yet final), EPA proposed to find that the EPA-approved PSD programs in 13 States (not including Virginia) are substantially inadequate to meet CAA requirements because they do not appear to apply PSD requirements to GHG-emitting sources. For each of these States, EPA proposed to require the State (through a “SIP Call”) to revise its SIP as necessary to correct such inadequacies. EPA proposed an expedited schedule for these States to submit their SIP revision, in light of the fact that as of January 2, 2011, certain GHG-emitting sources will become subject to the PSD requirements and may not be able to obtain a PSD permit in order to construct or modify. In the third rulemaking, the GHG FIP (which is not yet final), EPA proposed a FIP to apply in any state that is unable to submit, by its deadline, a SIP revision to ensure that the state has authority to issue PSD permits for GHG-emitting sources. Because Virginia already has authority to regulate GHGs, Virginia is only seeking to revise its SIP to put in place the GHG emission thresholds for PSD applicability set forth in EPA's Tailoring Rule, thereby ensuring that smaller GHG sources emitting less than these thresholds will not be subject to permitting requirements when these requirements begin applying to GHGs on January 2, 2011.

Below is a brief overview of GHGs and GHG-emitting sources, the CAA PSD program, minimum SIP elements for a PSD program, and EPA's recent actions regarding GHG permitting. Following this section, EPA discusses, in sections III and IV, the relationship between the proposed Virginia SIP revision and EPA's other national rulemakings as well as EPA's analysis of Virginia's SIP revision.

A detailed explanation of GHGs, climate change and the impact on health, society, and the environment is included in EPA's technical support document for EPA's GHG endangerment finding final rule (Document ID No. EPA-HQ-OAR-2009-0472-11292 at www.regulations.gov ).

The endangerment finding rulemaking is discussed later in this rulemaking. A summary of the nature and sources of GHGs is provided below.

GHGs trap the Earth's heat that would otherwise escape from the atmosphere into space and form the greenhouse effect that helps keep the Earth warm enough for life. GHGs are naturally present in the atmosphere and are also emitted by human activities. Human activities are intensifying the naturally occurring greenhouse effect by increasing the amount of GHGs in the atmosphere, which is changing the climate in a way that endangers human health, society, and the natural environment.

Some GHGs, such as carbon dioxide (CO 2 ), are emitted to the atmosphere through natural processes as well as human activities. Other gases, such as fluorinated gases, are created and emitted solely through human activities. The well-mixed GHGs of concern directly emitted by human activities include CO 2 , methane (CH 4 ), nitrous oxide (N 2 O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF 6 ), hereafter referred to collectively as “the six well-mixed GHG,” or, simply, GHGs. Together these six well-mixed GHGs constitute the “air pollutant” upon which the GHG thresholds in EPA's Tailoring Rule are based. These six gases remain in the atmosphere for decades to centuries where they become well-mixed globally in the atmosphere. When they are emitted more quickly than natural processes can remove them from the atmosphere, their concentrations increase, thus increasing the greenhouse effect.

In the United States, the combustion of fossil fuels (e.g., coal, oil, gas) is the largest source of CO 2 emissions and accounts for 80 percent of the total GHG emissions by mass. Anthropogenic CO 2 emissions released from a variety of sources, including through the use of fossil fuel combustion and cement production from geologically stored carbon (e.g., coal, oil, and natural gas) that is hundreds of millions of years old, as well as anthropogenic CO 2 emissions from land-use changes such as deforestation, perturb the atmospheric concentration of CO 2 , and the distribution of carbon within different reservoirs readjusts. More than half of the energy-related emissions come from large stationary sources such as power plants, while about a third come from transportation. Of the six well-mixed GHGs, four (CO 2 , CH 4 , N 2 O, and HFCs) are emitted by motor vehicles. In the United States, industrial processes (such as the production of cement, steel, and aluminum), agriculture, forestry, other land use, and waste management are also important sources of GHGs.

Different GHGs have different heat-trapping capacities. The concept of Global Warming Potential (GWP) was developed to compare the heat-trapping capacity and atmospheric lifetime of one GHG to another. The definition of a GWP for a particular GHG is the ratio of heat trapped by one unit mass of the GHG to that of one unit mass of CO 2 over a specified time period. When quantities of the different GHGs are multiplied by their GWPs, the different GHGs can be summed and compared on a carbon dioxide equivalent (CO 2 e) basis. For example, CH 4 has a GWP of 21, meaning each ton of CH 4 emissions would have 21 times as much impact on global warming over a 100-year time horizon as 1 ton of CO 2 emissions. Thus, on the basis of heat-trapping capability, 1 ton of CH 4 would equal 21 tons of CO 2 e. The GWPs of the non-CO 2 GHG range from 21 (for CH 4 ) up to 23,900 (for SF 6 ). Aggregating all GHG on a CO 2 e basis at the source level allows a facility to evaluate its total GHG emissions contribution based on a single metric.

The PSD program is a preconstruction review and permitting program applicable to new major stationary sources and major modifications at existing stationary sources. The PSD program applies in areas that are designated “attainment” or “unclassifiable” for a national ambient air quality standard (NAAQS). The PSD program is contained in part C of title I of the CAA. The “nonattainment new source review (NSR)” program applies in areas not in attainment of a NAAQS or in the Ozone Transport Region, and it is implemented under the requirements of part D of title I of the CAA. Collectively, EPA commonly refers to these two programs as the major NSR program. The governing EPA rules are contained in 40 CFR 51.165, 51.166, 52.21, 52.24, and part 51, Appendices S and W. There is no NAAQS for CO 2 or any of the other well-mixed GHGs, nor has EPA proposed any such NAAQS; therefore, unless and until EPA takes such further action, the nonattainment NSR program does not apply to GHGs.

The applicability of PSD to a particular source must be determined in advance of construction or modification and is pollutant-specific. The primary criterion in determining PSD applicability for a proposed new or modified source is whether the source is a “major emitting facility,” based on its predicted potential emissions of regulated pollutants, within the meaning of CAA section 169(1) that either constructs or undertakes a modification. EPA has implemented these requirements in its regulations, which use somewhat different terminology than the CAA does, for determining PSD applicability.

Under PSD, a “major stationary source” is any source belonging to a specified list of 28 source categories that emits or has the potential to emit (PTE) 100 tons per year (tpy) or more of any air pollutant subject to regulation under the CAA, or any other source type that emits or has the potential to emit such pollutants in amounts equal to or greater than 250 tpy. We refer to these levels as the 100/250-tpy thresholds. A new source with a potential to emit (PTE) at or above the applicable “major stationary source threshold” is subject to major NSR. These limits originate from section 169 of the CAA, which applies PSD to any “major emitting facility” and defines the term to include any source that emits or has a PTE of 100 or 250 tpy, depending on the source category. Note that the major source definition incorporates the phrase “subject to regulation,” which, as described later, will begin to include GHGs on January 2, 2011, under our interpretation of that phrase as discussed in the recent memorandum entitled, “EPA's Interpretation of Regulations that Determine Pollutants Covered by Federal Prevention of Significant Deterioration (PSD) Permit Program.” 75 FR 17004 (April 2, 2010).

PSD also applies to existing sources that undertake a “major modification,” which occurs when: (1) There is a physical change in, or change in the method of operation of, a “major stationary source;” (2) the change results in a “significant” emissions increase of a pollutant subject to regulation (equal to or above the significance level that EPA has set for the pollutant in 40 CFR 52.21(b)(23)); and (3) there is a “significant net emissions increase” of a pollutant subject to regulation that is equal to or above the significance level (defined in 40 CFR 52.21(b)(23)). Significance levels, which EPA has promulgated for criteria pollutants and certain other pollutants, represent a de minimis contribution to air quality problems. When EPA has not set a significance level for a regulated NSR pollutant, PSD applies to an increase of the pollutant in any amount (that is, in effect, the significance level is treated as zero).

This section provides a very brief summary of the main requirements of the PSD program. One principal requirement is that a new major source or major modification must apply best available control technology (BACT), which is determined on a case-by-case basis taking into account, among other factors, the cost effectiveness of the control and energy and environmental impacts. EPA has developed a “top-down” approach for BACT review, which involves a decision process that includes identification of all available control technologies, elimination of technically infeasible options, ranking of remaining options by control and cost effectiveness, and then selection of BACT. Under PSD, once a source is determined to be major for any regulated NSR pollutant, a BACT review is performed for each attainment pollutant that exceeds its PSD significance level as part of new construction or for modification projects at the source, where there is a significant increase and a significant net emissions increase of such pollutant. 1

In addition to performing BACT, the source must analyze impacts on ambient air quality to assure that sources do not cause or contribute to violation of any NAAQS or PSD increments and must analyze impacts on soil, vegetation, and visibility. In addition, sources or modifications that would impact Class I areas (e.g., national parks) may be subject to additional requirements to protect air quality related values (AQRVs) that have been identified for such areas. Under PSD, if a source's proposed project may impact a Class I area, the Federal Land Manager is notified and is responsible for evaluating a source's projected impact on the AQRVs and recommending either approval or disapproval of the source's permit application based on anticipated impacts. There are currently no NAAQS or PSD increments established for GHGs, and therefore these PSD requirements would not apply for GHGs, even when PSD is triggered for GHGs. However, if PSD is triggered for a GHG-emitting source, all regulated NSR pollutants that the new source emits in significant amounts would be subject to PSD requirements. Therefore, if a facility triggers NSR for non-GHG pollutants for which there are established NAAQS or increments, the air quality, additional impacts, and Class I requirements would apply to those pollutants.

Pursuant to existing PSD requirements, the permitting authority must provide notice of its preliminary decision on a source's application for a PSD permit and must provide an opportunity for comment by the public, industry, and other interested persons. After considering and responding to comments, the permitting authority must issue a final determination on the construction permit. Usually NSR permits are issued by a state or local air pollution control agency that has its own authority to issue PSD permits under a permit program that has been approved by EPA for inclusion in its SIP. In some areas, EPA has delegated its authority to issue PSD permits under federal regulations to the state or local agency. In other areas, EPA issues the permits under its own authority.

The CAA contemplates that the PSD program be implemented in the first instance by the states and requires that states include PSD requirements in their SIPs. CAA section 110(a)(2)(C) requires that—

These provisions, read in conjunction with the PSD applicability provisions as well as other provisions such as the BACT provision the under CAA Section 165(a)(4), mandate that SIPs include PSD programs that are applicable to, among other things, any air pollutant that is subject to regulation. As discussed below, this includes GHGs on and after January 2, 2011. 2 A number of states do not have PSD programs approved into their SIPs. In those states, EPA's regulations at 40 CFR 52.21 govern, and either EPA or the state as EPA's delegatee acts as the permitting authority. However, most states have PSD programs that have been approved into their SIPs, and these states implement their PSD programs and act as the permitting authority. Virginia's PSD program has been granted a “limited” approval. The approval was limited because the definition of “baseline actual emissions” at 9 VAC5 Chapter 80 differs from the federal definition at 40 CFR 51.166 (b)(47). This issue will not prevent today's proposed action from being fully approved.

By notice dated December 15, 2009, and pursuant to CAA section 202(a), EPA issued two findings regarding GHGs that are commonly referred to as the “Endangerment Finding” and the “Cause or Contribute Finding.” “Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act,” 74 FR 66496. In the Endangerment Finding, the Administrator found that six long-lived and directly emitted GHGs—CO 2 , CH 4 , N 2 O, HFCs, PFCs, and SF 6 —may reasonably be anticipated to endanger public health and welfare. In the Cause or Contribute Finding, the Administrator “define[d] the air pollutant as the aggregate group of the same six * * * greenhouse gases,” 74 FR 66536, and found that the combined emissions of this air pollutant from new motor vehicles and new motor vehicle engines contribute to the GHG air pollution that endangers public health and welfare.

By notice dated May 7, 2010, EPA published what is commonly referred to as the “Light-Duty Vehicle Rule” (LDVR), which for the first time established federal controls on GHGs emitted from light-duty vehicles. “Light-Duty Vehicle Greenhouse Gas Emission Standards and Corporate Average Fuel Economy Standards; Final Rule.” 75 FR 25324. In its applicability provisions, the LDVR specifies that it “contains standards and other regulations applicable to the emissions of six greenhouse gases,” including CO 2 , CH 4 , N 2 O, HFCs, PFCs, and SF 6 . 75 FR 25686 (40 CFR 86.1818-12(a)). Shortly before finalizing the LDVR, by notice dated April 2, 2010, EPA published a notice commonly referred to as the Johnson Memo Reconsideration. On December 18, 2008, EPA issued a memorandum, “EPA's Interpretation of Regulations that Determine Pollutants Covered by Federal Prevention of Significant Deterioration (PSD) Permit Program” (known as the “Johnson Memo” or the “PSD Interpretive Memo,” and referred to in this preamble as the “Interpretive Memo”), that set forth EPA's interpretation regarding which EPA and state actions, with respect to a previously unregulated pollutant, cause that pollutant to become “subject to regulation” under the CAA. Whether a pollutant is “subject to regulation” is important for the purposes of determining whether it is covered under the federal PSD permitting program. The Interpretive Memo established that a pollutant is “subject to regulation” only if it is subject to either a provision in the CAA or regulation adopted by EPA under the CAA that requires actual control of emissions of that pollutant (referred to as the “actual control interpretation”). On February 17, 2009, EPA granted a petition for reconsideration on the Interpretive Memo and announced its intent to conduct a rulemaking to allow for public comment on the issues raised in the memorandum and on related issues. EPA also clarified that the Interpretive Memo would remain in effect pending reconsideration.

On March 29, 2010, EPA signed a notice conveying its decision to continue applying (with one limited refinement) the Interpretive Memo's interpretation of “subject to regulation” (“Interpretation of Regulations that Determine Pollutants Covered by Clean Air Act Permitting Programs,” 75 FR 17004). EPA concluded that the “actual control interpretation” is the most appropriate interpretation to apply given the policy implications. However, EPA refined the Agency's interpretation in one respect: EPA established that PSD permitting requirements apply to a newly regulated pollutant at the time a regulatory requirement to control emissions of that pollutant “takes effect” (rather than upon promulgation or the legal effective date of the regulation containing such a requirement). In addition, based on the anticipated promulgation of the LDVR, EPA stated that the GHG requirements of the vehicle rule would take effect on January 2, 2011, because that is the earliest date that a 2012 model year vehicle may be introduced into commerce. In other words, the compliance obligation under the LDVR does not occur until a manufacturer may introduce into commerce vehicles that are required to comply with GHG standards, which will begin with model year 2012 and will not occur before January 2, 2011.

On June 3, 2010 (effective August 2, 2010), EPA promulgated a final rulemaking, the Tailoring Rule, for the purpose of relieving overwhelming permitting burdens that would, in the absence of the rule, fall on permitting authorities and sources. 75 FR 31514. EPA accomplished this by tailoring the applicability criteria that determine which GHG emission sources become subject to the PSD program  3 of the CAA. In particular, EPA established in the Tailoring Rule a phase-in approach for PSD applicability and established the first two steps of the phase-in for the largest GHG-emitters. Additionally, EPA committed to certain follow-up actions regarding future steps beyond the first two, discussed in more detail later in this notice.

For the first step of the Tailoring Rule, which will begin on January 2, 2011, PSD requirements will apply to major stationary source GHG emissions only if the sources are subject to PSD anyway due to their emissions of non-GHG pollutants. Therefore, in the first step, EPA will not require sources or modifications to evaluate whether they are subject to PSD requirements solely on account of their GHG emissions. Specifically, for PSD, Step 1 requires that as of January 2, 2011, the applicable requirements of PSD, most notably, the BACT requirement, will apply to projects that increase net GHG emissions by at least 75,000 tpy CO 2 e, but only if the project also significantly increases emissions of at least one non-GHG pollutant.

The second step of the Tailoring Rule, beginning on July 1, 2011, will phase in additional large sources of GHG emissions. New sources that emit, or have the PTE, at least 100,000 tpy CO 2 e will become subject to the PSD requirements. In addition, sources that emit or have the PTE at least 100,000 tpy CO 2 e and that undertake a modification that increases net GHG emissions by at least 75,000 tpy CO 2 e will also be subject to PSD requirements. For both steps, EPA notes that if sources or modifications exceed these CO 2 e-adjusted GHG triggers, they are not covered by permitting requirements unless their GHG emissions also exceed the corresponding mass-based triggers in tpy.

EPA believes that the costs to the sources and the administrative burdens to the permitting authorities of PSD permitting will be manageable at the levels in these initial two steps and that it would be administratively infeasible to subject additional sources to PSD requirements at those times. However, EPA also intends to issue a supplemental notice of proposed rulemaking in 2011, in which the Agency will propose or solicit comment on a third step of the phase-in that would include more sources, beginning on July 1, 2013. In the Tailoring Rule, EPA established an enforceable commitment that the Agency will complete this rulemaking by July 1, 2012, which will allow 1 year's notice before Step 3 would take effect. In addition, EPA committed to explore streamlining techniques that may well make the permitting programs much more efficient to administer for GHG, and that therefore may allow their expansion to smaller sources. EPA expects that the initial streamlining techniques will take several years to develop and implement.

In the Tailoring Rule, EPA also included a provision, that no source with emissions below 50,000 tpy CO 2 e, and no modification resulting in net GHG increases of less than 50,000 tpy CO 2 e, will be subject to PSD permitting before at least 6 years (i.e., April 30, 2016). This is because EPA has concluded that at the present time, the administrative burdens that would accompany permitting sources below this level would be so great that even with the streamlining actions that EPA may be able to develop and implement in the next several years, and even with the increases in permitting resources that EPA can reasonably expect the permitting authorities to acquire, it would be impossible to administer the permit programs for these sources until at least 2016.

As EPA explained in the Tailoring Rule, the threshold limitations are necessary because without it, PSD would apply to all stationary sources that emit or have the PTE more than 100 or 250 tons of GHG per year beginning on January 2, 2011. This is the date when EPA's recently promulgated LDVR takes effect, imposing control requirements for the first time on CO 2 and other GHGs. If this January 2, 2011, date were to pass without the Tailoring Rule being in effect, PSD requirements would apply to GHG emissions at the 100/250 tpy applicability levels provided under a literal reading of the CAA as of that date. From that point forward, a source owner proposing to construct any new major source that emits at or higher than the applicability levels (and which therefore may be referred to as a “major” source) or modify any existing major source in a way that would increase GHG emissions would need to obtain a permit under the PSD program that addresses these emissions before construction or modification could begin.

Under these circumstances, many small sources would be burdened by the costs of the individualized PSD control technology requirements and permit applications that the PSD provisions, absent streamlining, require. Additionally, state and local permitting authorities would be burdened by the extraordinary number of these permit applications, which are orders of magnitude greater than the current inventory of permits and would vastly exceed the current administrative resources of the permitting authorities. Permit gridlock would result since the permitting authorities would likely be able to issue only a tiny fraction of the permits requested.

In the Tailoring Rule, EPA adopted regulatory language codifying the phase-in approach. As explained in that rulemaking, many state, local and tribal area programs will likely be able to immediately implement the approach without rule or statutory changes by, for example, interpreting the term “subject to regulation” that is part of the applicability provisions for PSD permitting. EPA has requested permitting authorities to confirm that they will follow this implementation approach for their programs, and if they cannot, then EPA has requested that they notify the Agency so that we can take appropriate follow-up action to narrow federal approval of their programs before GHGs become subject to PSD permitting on January 2, 2011. 4 On July 28, 2010, Virginia provided a letter to EPA with confirmation that the Commonwealth has the authority to regulate GHG in its PSD and title V programs. See the docket for this proposed rulemaking for a copy of Virginia's letter.

The thresholds that EPA established in the Tailoring Rule are based on CO 2 e for the aggregate sum of six GHGs that constitute the pollutant that will be subject to regulation, which we refer to as GHG. 5 These gases are: CO 2 , CH 4 , N 2 O, HFCs, PFCs, and SF 6 . Thus, in EPA's Tailoring Rule, EPA provided that PSD applicability is based on the quantity that results when the mass emissions of each of these gases is multiplied by the GWP of that gas, and then summed for all six gases. However, EPA further provided that in order for a source's GHG emissions to trigger PSD requirements, the quantity of the GHG emissions must equal or exceed both the applicability thresholds established in the Tailoring Rule on a CO 2 e basis and the statutory thresholds of 100 or 250 tpy on a mass basis. 6 Similarly, in order for a source to be subject to the PSD modification requirements, the source's net GHG emissions increase must exceed the applicable significance level on a CO 2 e basis and must also result in a net mass increase of the constituent gases combined.

By Federal Register notice dated September 2, 2010, EPA proposed the GHG SIP Call. In that action, along with the companion GHG FIP rulemaking published at the same time, EPA took steps to ensure that in the 13 States that do not appear to have authority to issue PSD permits to GHG-emitting sources at present, either the State or EPA will have the authority to issue such permits by January 2, 2011. EPA explained that although for most states, either the state or EPA is already authorized to issue PSD permits for GHG-emitting sources as of that date, our preliminary information shows that these 13 States have EPA-approved PSD programs that do not appear to include GHG-emitting sources and therefore do not appear to authorize these States to issue PSD permits to such sources. Therefore, EPA proposed to find that these 13 States' SIPs are substantially inadequate to comply with CAA requirements and, accordingly, proposed to issue a SIP Call to require a SIP revision that applies their SIP PSD programs to GHG-emitting sources. In the companion GHG FIP rulemaking, EPA proposed a FIP that would give EPA authority to apply EPA's PSD program to GHG-emitting sources in any State that is unable to submit a corrective SIP revision by its deadline. Virginia was not one of the States for which EPA proposed a SIP Call.

As noted above, by notice dated September 2, 2010, EPA proposed the GHG SIP Call. At the same time, EPA proposed a FIP to apply in any state that is unable to submit, by its deadline, a SIP revision to ensure that the state has authority to issue PSD permits to GHG-emitting sources. 7 As discussed in Section IV of this rulemaking, Virginia interprets its current PSD regulations as providing them with the authority to regulate GHG, and as such, Virginia is not included on the list of areas for the proposed SIP call. Additionally, Virginia would not be subject to the FIP to implement GHG for PSD applicability. Virginia's October 27, 2010, proposed SIP revision (the subject of this rulemaking) merely modifies Virginia's SIP to establish appropriate thresholds for determining which stationary sources and modification projects become subject to permitting requirements for GHG emissions under the PSD program of the CAA.

In 1995, Virginia adopted legislation that provides, subject to certain conditions, for an environmental assessment (audit) “privilege” for voluntary compliance evaluations performed by a regulated entity. The legislation further addresses the relative burden of proof for parties either asserting the privilege or seeking disclosure of documents for which the privilege is claimed. Virginia's legislation also provides, subject to certain conditions, for a penalty waiver for violations of environmental laws when a regulated entity discovers such violations pursuant to a voluntary compliance evaluation and voluntarily discloses such violations to the Commonwealth and takes prompt and appropriate measures to remedy the violations. Virginia's Voluntary Environmental Assessment Privilege Law, Va. Code Sec. 10.1-1198, provides a privilege that protects from disclosure documents and information about the content of those documents that are the product of a voluntary environmental assessment. The Privilege Law does not extend to documents or information (1) that are generated or developed before the commencement of a voluntary environmental assessment; (2) that are prepared independently of the assessment process; (3) that demonstrate a clear, imminent and substantial danger to the public health or environment; or (4) that are required by law.

On January 12, 1998, the Commonwealth of Virginia Office of the Attorney General provided a legal opinion that states that the Privilege law, Va. Code Sec. 10.1-1198, precludes granting a privilege to documents and information “required by law,” including documents and information “required by Federal law to maintain program delegation, authorization or approval,” since Virginia must “enforce Federally authorized environmental programs in a manner that is no less stringent than their Federal counterparts. * * *” The opinion concludes that “[r]egarding § 10.1-1198, therefore, documents or other information needed for civil or criminal enforcement under one of these programs could not be privileged because such documents and information are essential to pursuing enforcement in a manner required by Federal law to maintain program delegation, authorization or approval.” Virginia's Immunity law, Va. Code Sec. 10.1-1199, provides that “[t]o the extent consistent with requirements imposed by Federal law,” any person making a voluntary disclosure of information to a state agency regarding a violation of an environmental statute, regulation, permit, or administrative order is granted immunity from administrative or civil penalty. The Attorney General's January 12, 1998 opinion states that the quoted language renders this statute inapplicable to enforcement of any Federally authorized programs, since “no immunity could be afforded from administrative, civil, or criminal penalties because granting such immunity would not be consistent with Federal law, which is one of the criteria for immunity.”

Therefore, EPA has determined that Virginia's Privilege and Immunity statutes will not preclude the Commonwealth from enforcing its PSD program consistent with the Federal requirements. In any event, because EPA has also determined that a state audit privilege and immunity law can affect only state enforcement and cannot have any impact on Federal enforcement authorities, EPA may at any time invoke its authority under the CAA, including, for example, sections 113, 167, 205, 211 or 213, to enforce the requirements or prohibitions of the state plan, independently of any state enforcement effort. In addition, citizen enforcement under section 304 of the CAA is likewise unaffected by this, or any, state audit privilege or immunity law.

On October 27, 2010, VADEQ provided a revision to Virginia's SIP to EPA for approval. This revision to Virginia's SIP is necessary because without it, PSD requirements would apply, as of January 2, 2011, at the 100- or 250-tpy levels provided under the CAA. This would greatly increase the number of required permits, imposing undue costs on small sources; which would overwhelm Virginia's permitting resources and severely impair the function of the program.

Virginia's October 27, 2010, proposed SIP revision establishes thresholds for determining which stationary sources and modification projects become subject to permitting requirements for GHG emissions under Virginia's PSD program. Specifically, Virginia's October 27, 2010, proposed SIP revision includes changes to VADEQ's Rule 9VAC5, specifically the creation of Chapter 85: Permits for Stationary Sources Subject to Regulation, and addresses the thresholds for GHG permitting applicability.

The current SIP-approved program (adopted prior to the promulgation of EPA's Tailoring Rule) applies to major stationary sources (having the potential to emit at least 100 tpy or 250 tpy or more of a regulated NSR pollutant, depending on the type of source) or modifications constructing in areas designated attainment or unclassifiable with respect to the NAAQS.

The changes to Virginia's PSD program regulations at 9VAC5 Chapter 85: Permits for Stationary Sources Subject to Regulation are substantively the same as the federal provisions amended in EPA's Tailoring Rule. As part of its review of the Virginia submittal, EPA performed a line-by-line review of Virginia's proposed revision and has preliminarily determined that they are consistent with the Tailoring Rule. These changes to Virginia's regulations are also consistent with section 110 of the CAA because they are incorporating GHGs for regulation in the Virginia SIP.

Pursuant to section 110 of the CAA, EPA is proposing to approve Virginia's October 27, 2010, SIP revision, relating to PSD requirements for GHG-emitting sources. Specifically, Virginia's October 27, 2010, proposed SIP revision establishes appropriate emissions thresholds for determining PSD applicability to new and modified GHG-emitting sources in accordance with EPA's Tailoring Rule. EPA has made the preliminary determination that this SIP revision is approvable because it is in accordance with the CAA and EPA regulations regarding PSD permitting for GHGs. EPA is soliciting public comments on the issues discussed in this document. These comments will be considered before taking final action.

Under the CAA, the Administrator is required to approve a SIP submission that complies with the provisions of the Act and applicable federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the CAA. Accordingly, this proposed action merely approves the State's law as meeting federal requirements and does not impose additional requirements beyond those imposed by the State's law. For that reason, this proposed action:

• Is not a “significant regulatory action” subject to review by the Office of Management and Budget under Executive Order 12866 (58 FR 51735, October 4, 1993);

• Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq. );

• Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. );

• Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4);

• Does not have Federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);

• Is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);

• Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);

• Is not subject to requirements of Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the CAA; and

• Does not provide EPA with the discretionary authority to address, as appropriate, disproportionate human health or environmental effects, using practicable and legally permissible methods, under Executive Order 12898 (59 FR 7629, February 16, 1994).

In addition, this proposed SIP revision pertaining to greenhouse gas permitting does not have tribal implications as specified by Executive Order 13175 (65 FR 67249, November 9, 2000), because the SIP is not approved to apply in Indian country located in the State, and EPA notes that it will not impose substantial direct costs on tribal governments or preempt tribal law.

We intend that any final action resulting from the proposed rule will be based on the best scientific data available and will be as accurate and effective as possible. Therefore, we request comments or information from other concerned government agencies, the scientific community, industry, or any other interested party during this reopened comment period on the proposed designation of critical habitat for the Tumbling Creek cavesnail published in the Federal Register on June 23, 2010 (75 FR 35751), including the draft economic analysis of the proposed designation of critical habitat for the Tumbling Creek cavesnail and the amended required determinations provided in this document. We will consider information and recommendations from all interested parties. We are particularly interested in comments concerning:

(1) The reasons why we should or should not designate habitat as “critical habitat” under section 4 of the Act (16 U.S.C. 1531 et seq. ), including whether there are threats to the species from human activity, the degree of which can be expected to increase due to the designation, and whether that increase in threat outweighs the benefit of designation such that the designation of critical habitat is not prudent.

(2) Specific information on:

• The amount and distribution of Tumbling Creek cavesnail habitat,

• What areas within the geographical area occupied by the species at the time of listing that contain features essential to the conservation of the species we should include in the designation and why, and

• What areas outside the geographical area occupied at the time of listing are essential to the conservation of the species and why.

(3) Land-use designations and current or planned activities in the subject areas and their possible effects on the proposed critical habitat for the Tumbling Creek cavesnail.

(4) Any foreseeable economic, national security, or other relevant impacts of designating any area that may be included in the final designation. We are particularly interested in any impacts on small entities ( i.e., small businesses, small organizations, and small government jurisdictions), and the benefits of including or excluding areas from the proposed designation that exhibit these impacts.

(5) The likelihood of adverse social reactions to the designation of critical habitat, as discussed in the DEA, and how the consequences of such reactions, if likely to occur, would relate to the conservation and regulatory benefits of the proposed critical habitat designation.

(6) Comments or information that may assist us in identifying or clarifying the primary constituent elements and the resulting physical and biological features essential to the conservation of the Tumbling Creek cavesnail.

(7) How the proposed critical habitat boundaries could be refined to more closely circumscribe the landscapes identified as essential.

(8) Information on the potential effects of climate change on the Tumbling Creek cavesnail and its habitat.

(9) Any foreseeable impacts on energy supplies, distribution, and use resulting from the proposed designation and, in particular, any impacts on electricity production, and the benefits of including or excluding any particular areas that exhibit these impacts.

(10) Whether our approach to designating critical habitat could be improved or modified in any way to provide for greater public participation and understanding, or to better accommodate public concerns and comments.

(11) Information on whether the DEA makes appropriate assumptions regarding current practices and any regulatory changes that likely may occur if we designate proposed critical habitat for the Tumbling Creek cavesnail.

(12) Information on the accuracy of our methodology in the DEA for distinguishing baseline and incremental costs, and the assumptions underlying the methodology.

(13) Information on whether the DEA correctly assesses the effect on regional costs associated with any land use controls that may result from the proposed designation of critical habitat for the Tumbling Creek cavesnail.

(14) Information on whether the proposed designation of critical habitat will result in disproportionate economic impacts to specific areas or small businesses, including small businesses in the land development sector in Taney County.

(15) Information on whether the DEA identifies all costs that could result from the proposed designation of critical habitat for the Tumbling Creek cavesnail.

(16) Economic data on the incremental costs of designating a particular area as critical habitat.

If you submitted comments or information on the proposed rule (75 FR 35751) during the initial comment period from June 23, 2010, to August 23, 2010, please do not resubmit them. We will incorporate them into the public record as part of this comment period, and we will fully consider them in the preparation of our final determination. Our final determination concerning critical habitat will take into consideration all written comments and any additional information we receive during both comment periods. On the basis of public comments, we may, during the development of our final determination, find that areas proposed are not essential, are appropriate for exclusion under section 4(b)(2) of the Act, or are not appropriate for exclusion.

You may submit your comments and materials concerning our proposed rule, the associated DEA, and our amended required determinations by one of the methods listed in the ADDRESSES section. We will not consider comments sent by e-mail or fax or to an address not listed in the ADDRESSES section.

If you submit a comment via http://www.regulations.gov, your entire comment—including any personal identifying information—will be posted on the Web site. If you submit a hard copy comment that includes personal identifying information, you may request at the top of your document that we withhold this information from public review. However, we cannot guarantee that we will be able to do so. We will post all hard copy comments on http://www.regulations.gov.

Comments and materials we receive (and have received), as well as supporting documentation we used in preparing the proposed rule and DEA, will be available for public inspection on http://www.regulations.gov (Docket Number FWS-R3-ES-2010-0042), or by appointment, during normal business hours, at the U.S. Fish and Wildlife Service, Columbia, Missouri Ecological Services Field Office ( see FOR FURTHER INFORMATION CONTACT ).

You may obtain copies of the proposed rule and DEA by mail from the Columbia, Missouri Ecological Services Field Office ( see FOR FURTHER INFORMATION CONTACT ), by visiting the Federal eRulemaking Portal at http://www.regulations.gov (Docket Number FWS-R3-ES-2010-0042), or on our Web site at http://www.fws.gov/midwest/Endangered.

It is our intent to discuss only those topics directly relevant to the proposed designation of critical habitat for the Tumbling Creek cavesnail in this document. For more information on previous Federal actions concerning the Tumbling Creek cavesnail, refer to the proposed designation of critical habitat published in the Federal Register on June 23, 2010 (75 FR 35751). Additional information on the Tumbling Creek cavesnail may also be found in the final listing rule published in the Federal Register on August 14, 2002 (67 FR 52879). These documents are available on our Web site at http://www.fws.gov/midwest/Endangered.

On December 27, 2001 (66 FR 66803), we published an emergency rule to list the Tumbling Creek cavesnail, due to water degradation and a precipitous decline in the cavesnail populations. The species was subsequently listed as endangered on August 14, 2002 (67 FR 52879). At the time, critical habitat was not designated in order to allow the Service to concentrate its resources on immediate protections needed for the conservation of the species. On August 11, 2008, the Institute for Wildlife Protection and Crystal Grace Rutherford filed a lawsuit against the Secretary of the Interior for our failure to timely designate critical habitat for the Tumbling Creek cavesnail ( Institute for Wildlife Protection et al. v. Kempthorne, (Case No. CV-07-01202-CMP)). In a court-approved settlement agreement, we agreed to submit to the Federal Register a prudency determination, and if the designation was found to be prudent, a proposed designation of critical habitat, by June 30, 2010, and a final designation by June 30, 2011. On June 23, 2010, we proposed to designate 25 acres of Tumbling Creek and associated springs as critical habitat.

The Tumbling Creek cavesnail is a small, white, blind, aquatic snail, restricted to a single cave stream in Tumbling Creek Cave in Taney County, southwestern Missouri. Significant declines in the snail's population have been documented since 1996. The Tumbling Creek cavesnail is likely threatened by habitat degradation through diminished water quality from upstream locations within the unprotected or improperly managed areas within the cave's delineated recharge zone. The species may also be threatened with competition from limpets or from changes in the cave's normal hydrological cycles due to recent droughts.

Section 3 of the Act defines critical habitat as the specific areas within the geographical area occupied by a species, at the time it is listed in accordance with the Act, on which are found those physical or biological features essential to the conservation of the species and that may require special management considerations or protection, and specific areas outside the geographical area occupied by a species at the time it is listed, upon a determination that such areas are essential for the conservation of the species. If the proposed rule is made final, section 7 of the Act will prohibit destruction or adverse modification of critical habitat by any activity funded, authorized, or carried out by any Federal agency. Federal agencies proposing actions affecting areas designated as critical habitat must consult with us on the effects of their proposed actions, under section 7(a)(2) of the Act.

Section 4(b)(2) of the Act requires that we designate critical habitat based upon the best scientific data available, after taking into consideration the economic impact, impact on national security, or any other relevant impact of specifying any particular area as critical habitat. We may exclude an area from critical habitat if we determine that the benefits of excluding the area outweigh the benefits of including the area as critical habitat, provided such exclusion will not result in the extinction of the species. We have not proposed to exclude any areas from critical habitat. However, the final decision on whether to exclude any areas will be based on the best scientific data available at the time of the final designation, including information obtained during the comment period and information about the economic impact of designation. Accordingly, we have prepared a draft economic analysis concerning the proposed critical habitat designation (DEA), which is available for review and comment ( see ADDRESSES section).

The intent of the DEA is to identify and analyze the potential economic impacts associated with the proposed designation of critical habitat for the Tumbling Creek cavesnail. The DEA quantifies the economic impacts of all potential conservation efforts for the Tumbling Creek cavesnail; some of these costs will likely be incurred regardless of whether we designate critical habitat. The economic impact of the proposed designation of critical habitat for the Tumbling Creek cavesnail is analyzed by comparing scenarios both “with critical habitat” and “without critical habitat.” The “without critical habitat” scenario represents the baseline for the analysis, considering protections already in place for the species (for example, under the Federal listing and other Federal, State, and local regulations). The baseline, therefore, represents the costs incurred regardless of whether critical habitat is designated and may include costs incurred in the future. The “with critical habitat” scenario describes the incremental impacts associated specifically with the designation of critical habitat for the species. The incremental conservation efforts and associated impacts are those not expected to occur absent the designation of critical habitat for the species. In other words, the incremental costs are those attributable solely to the designation of critical habitat above and beyond the baseline costs; these are the costs we may consider in the final designation of critical habitat. The analysis looks retrospectively at baseline impacts incurred since we listed the species, and forecasts both baseline and incremental impacts likely to occur if we finalize the proposed designation of critical habitat for the Tumbling Creek cavesnail. For a further description of the methodology of the analysis, see Chapter 2, “Framework for the Analysis,” of the DEA.

The current DEA estimates the foreseeable economic impacts of the proposed designation of critical habitat for the Tumbling Creek cavesnail by identifying the potential resulting incremental costs. The DEA analyzed economic impacts of Tumbling Creek cavesnail conservation efforts on the following activities: Water management and other activities that may affect water quality such as road construction and maintenance; oil, gas, and utility easements; forest and pasture management; alteration of septic systems; and effluent discharges. It also assessed possible indirect impacts to economic activities as the result of possible applications of other State and local laws and regulatory uncertainty or delay. The DEA considers future baseline and incremental impacts over the next 20 years (2011 to 2030).

The DEA estimates that minimal economic impacts are likely to result from the designation of critical habitat. The main reason for this conclusion is that the private landowners of all surface critical habitat areas and the Tumbling Creek Cave Foundation, which owns lands within much of the cave's recharge area, have been undertaking extensive restoration and conservation efforts for the benefit of the cavesnail. Those lands have recently been enrolled in a voluntary conservation program that encourages the landowners to undertake and continue additional conservation activities. These efforts are expected to continue after critical habitat designation.

An additional reason that minimal economic impacts are likely to result from critical habitat designation is that, while cavesnails may not always be detected through surveys within critical habitat every year, the Service assumes the species is present within the entire area proposed for designation. Thus, we anticipate that Action agencies will initiate consultation regarding the cavesnail regardless of whether critical habitat is designated. Activities taking place outside of the proposed designation but within the recharge area for the cave may affect the cavesnail. These projects may include road construction projects, U.S. Forest Service activities, or management changes at Bull Shoals reservoir. These types of projects are already subject to section 7 consultation under the jeopardy standard; therefore, the only incremental costs are those resulting from the additional administrative costs by the Service and action agency to include an adverse modification finding within the Biological Opinion and Biological Assessment as part of a formal consultation. As a result, the total incremental costs associated with this rule are estimated to be $4,420 annually over the next 20 years, assuming a 7 percent discount rate.

The DEA also discusses the potential benefits associated with the designation of critical habitat. The primary intended benefit of critical habitat is to support the conservation of endangered and threatened species, such as the Tumbling Creek cavesnail. However, economic benefits are not quantified or monetized in the DEA. As described in the DEA, designation of critical habitat is not anticipated to result in additional conservation efforts for the cavesnail. As a result, no changes in economic activity or land management are expected to result from critical habitat designation.

The DEA considered both economic efficiency and distributional effects. In the case of habitat conservation, efficiency effects generally reflect the “opportunity costs” associated with the commitment of resources to comply with habitat protection measures ( e.g., lost economic opportunities associated with restrictions on land use). The DEA also addresses how potential economic impacts are likely to be distributed, including an assessment of any local or regional impacts of habitat conservation and the potential effects of conservation activities on government agencies, small entities, and the energy industry. We can use this information to assess whether the effects of the proposed designation might unduly burden a particular group or economic sector.

As we stated earlier, we are soliciting data and comments from the public on the DEA, as well as on all aspects of the proposed designation of critical habitat, and our amended required determinations. We may revise the proposed rule or the economic analysis to incorporate or address information we receive during this public comment period. In particular, we may exclude an area from critical habitat if we determine that the benefits of excluding the area outweigh the benefits of including the area as critical habitat, provided the exclusion will not result in the extinction of the species.

In our proposed rule dated June 23, 2010 (75 FR 35751), we indicated that we would defer our determination of compliance with several statutes and executive orders until the information concerning potential economic impacts of the designation and potential effects on landowners and stakeholders became available in the DEA. We have now made use of the DEA to make these determinations. In this document, we affirm the information in our proposed rule concerning Executive Order (E.O.) 12866 (Regulatory Planning and Review), E.O. 12630 (Takings), E.O. 13132 (Federalism), E.O. 12988 (Civil Justice Reform), the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ), the National Environmental Policy Act (42 U.S.C. 4321 et seq. ), and the President's memorandum of April 29, 1994, “Government-to-Government Relations with Native American Tribal Governments” (59 FR 22951). Based on the DEA data, we are also affirming our required determinations made in the proposed rule concerning the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ), Unfunded Mandates Reform Act (2 U.S.C. 1501 et seq. ), and E.O. 13211 (Energy, Supply, Distribution, and Use).

Under the Regulatory Flexibility Act, as amended by the Small Business Regulatory Enforcement Fairness Act (5 U.S.C. 802(2)), whenever an agency is required to publish a notice of rulemaking for any proposed or final rule, it must prepare and make available for public comment a regulatory flexibility analysis that describes the effect of the rule on small entities ( i.e., small businesses, small organizations, and small government jurisdictions). However, no regulatory flexibility analysis is required if the head of an agency certifies the rule will not have a significant economic impact on a substantial number of small entities. Based on our DEA of the proposed designation, we provide our analysis for determining whether the proposed rule would result in a significant economic impact on a substantial number of small entities. Based on comments we receive, we may revise this determination as part of a final rulemaking.

According to the Small Business Administration, small entities include small organizations, such as independent nonprofit organizations; small governmental jurisdictions, including school boards and city and town governments that serve fewer than 50,000 residents; and small businesses (13 CFR 121.201). Small businesses include manufacturing and mining concerns with fewer than 500 employees, wholesale trade entities with fewer than 100 employees, retail and service businesses with less than $5 million in annual sales, general and heavy construction businesses with less than $27.5 million in annual business, special trade contractors doing less than $11.5 million in annual business, and agricultural businesses with annual sales less than $750,000. To determine if potential economic impacts to these small entities are significant, we considered the types of activities that might trigger regulatory impacts under this designation as well as types of project modifications that may result. In general, the term “significant economic impact” is meant to apply to a typical small business firm's business operations.

To determine if the proposed designation of critical habitat for the Tumbling Creek cavesnail would affect a substantial number of small entities, we considered the number of small entities affected within particular types of economic activities, such as residential and commercial development. In order to determine whether it is appropriate for our agency to certify that this rule would not have a significant economic impact on a substantial number of small entities, we considered each industry or category individually. In estimating the numbers of small entities potentially affected, we also considered whether their activities have any Federal involvement. Critical habitat designation will not affect activities that do not have any Federal involvement; designation of critical habitat only affects activities conducted, funded, permitted, or authorized by Federal agencies. Some kinds of activities are unlikely to have any Federal involvement and so will not be affected by critical habitat designation. In areas where the species is present, Federal agencies already are required to consult with us under section 7 of the Act on activities they fund, permit, or implement that may affect the Tumbling Creek cavesnail. If the proposed critical habitat designation is finalized, consultations to avoid the destruction or adverse modification of critical habitat would be incorporated into the existing consultation process.

In the DEA of the proposed designation of critical habitat, we evaluated the potential economic effects resulting from implementation of conservation actions related to the proposed designation of critical habitat. Although the DEA forecasts approximately $50,100 in incremental impacts over the next 20 years, these impacts are expected to be borne by Federal and State agencies, including the U.S. Forest Service, U.S. Army Corps of Engineers, the Natural Resource Conservation Service, and the Missouri Department of Transportation. Such agencies are not considered small entities.

In summary, we have considered whether the proposed designation would result in a significant economic impact on a substantial number of small entities. Information for this analysis was gathered from the Small Business Administration, stakeholders, and the Service. For the reasons discussed above, and based on currently available information, we certify that if promulgated, the proposed designation would not have a significant economic impact on a substantial number of small entities. Therefore, an initial regulatory flexibility analysis is not required.

Executive Order 13211 requires an agency to prepare a Statement of Energy Effects when undertaking certain actions. We implement this executive order using the Office of Management and Budget's guidance which outlines nine outcomes that may constitute “a significant adverse effect” when compared to no regulatory action. As discussed in chapter 3, the DEA finds that this proposed critical habitat designation is not expected to have any impacts on the energy industry. As a result, a Statement of Energy Effects is not required.

In accordance with the Unfunded Mandates Reform Act, the Service makes the following findings:

(a) This rule will not produce a Federal mandate. In general, a Federal mandate is a provision in legislation, statute, or regulation that would impose an enforceable duty upon State, local, or Tribal governments, or the private sector, and includes both “Federal intergovernmental mandates” and “Federal private sector mandates.” These terms are defined in 2 U.S.C. 658(5)-(7). “Federal intergovernmental mandate” includes a regulation that “would impose an enforceable duty upon State, local or Tribal governments,” with two exceptions. It excludes “a condition of Federal assistance.” It also excludes “a duty arising from participation in a voluntary Federal program,” unless the regulation “relates to a then-existing Federal program under which $500,000,000 or more is provided annually to State, local and Tribal governments under entitlement authority,” if the provision would “increase the stringency of conditions of assistance” or “place caps upon, or otherwise decrease, the Federal Government's responsibility to provide funding,” and the State, local, or Tribal governments “lack authority” to adjust accordingly. “Federal private sector mandate” includes a regulation that “would impose an enforceable duty upon the private sector, except (i) as a condition of Federal assistance; or (ii) a duty arising from participation in a voluntary Federal program.”

Critical habitat designation does not impose a legally binding duty on non-Federal government entities or private parties. Under the Act, the only regulatory effect is that Federal agencies must ensure that their actions do not destroy or adversely modify critical habitat under section 7. Designation of critical habitat may indirectly impact non-Federal entities that receive Federal funding, assistance, or permits, or that otherwise require approval or authorization from a Federal agency for an action that may affect designated critical habitat. However, the legally binding duty to avoid destruction or adverse modification of critical habitat rests squarely on the Federal agency. Furthermore, to the extent that non-Federal entities are indirectly impacted because they receive Federal assistance or participate in a voluntary Federal aid program, the Unfunded Mandates Reform Act would not apply, nor would critical habitat shift the costs of the large entitlement programs listed above on to State governments.

(b) As discussed in the DEA of the proposed designation of critical habitat for the Tumbling Creek cavesnail, we do not believe that this rule would significantly or uniquely affect small governments because it would not produce a Federal mandate of $100 million or greater in any year; that is, it is not a “significant regulatory action” under the Unfunded Mandates Reform Act. The DEA concludes that incremental impacts expected to result from the designation of critical habitat are limited to additional administrative effort to consider adverse modification in section 7 consultation. In total, these impacts are estimated at $50,100 in present value terms over the next 20 years, or $4,420 on an annualized basis (discounted at seven percent). Consequently, we do not believe critical habitat designation would significantly or uniquely affect small government entities. As such, a Small Government Agency Plan is not required.

A complete list of all references we cited in the proposed rule and in this document is available on the Internet at http://www.regulations.gov at Docket No. FWS-R3-ES-2010-0042 or from the Columbia, Missouri Ecological Services Field Office ( see FOR FURTHER INFORMATION CONTACT section).

The primary authors of this notice are staff members of the Columbia, Missouri Ecological Services Field Office ( see FOR FURTHER INFORMATION CONTACT ).

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