DOE provides assistance to eligible applicants through a number of different programs. This assistance can take the form of financial assistance ( i.e., grants, cooperative agreements, and technology investment agreements), loan guarantees, and direct loans, among others. DOE has consistently sought to protect trade secrets and commercial or financial information that is privileged or confidential submitted by applicants for these forms of assistance, but the procedures required of applicants when submitting such information can vary. In today's final rule, DOE establishes procedures for the submission to DOE of trade secrets and commercial or financial information that is privileged or confidential meant to standardize DOE's procedures for processing and handling applicant submissions containing such information. The procedures are modeled after existing procedures DOE uses to process loan applications submitted to DOE's Advanced Technology Vehicles Manufacturing Incentive Program.

DOE makes minor changes to the Notice of Restriction on Disclosure and Use of Data in 10 CFR 600.15(b)(1), as well as corresponding changes to 10 CFR 600.15(a) and 600.15(b)(2) and (3). These changes are intended to allow for cross reference from other portions of Subpart H (specifically, Parts 609—Loan Guarantees for Projects that Employ Innovative Technologies and 611—Advanced Technology Vehicles Manufacturer Assistance Program) while recognizing that Part 600 does not otherwise apply to loans and loan guarantees.

DOE amends 10 CFR 600.15(b)(1) to require a party submitting information to DOE, at the time of submission, to identify and assert a claim of exemption regarding information it considers to be trade secrets or commercial or financial information that is privileged or confidential such that the information would be exempt from disclosure under the Freedom of Information Act (FOIA, 5 U.S.C. 552). This claim of exemption must be made by placing the following notice on the first page of the application or other document and specifying the page or pages to be restricted: “Pages [__] of this document may contain trade secrets or commercial or financial information that is privileged or confidential and exempt from public disclosure. Such information shall be used or disclosed only for evaluation purposes or in accordance with a financial assistance or loan agreement between the submitter and the Government. The Government may use or disclose any information that is not appropriately marked or otherwise restricted, regardless of source.”

To further protect trade secrets and commercial or financial information that is privileged or confidential, DOE also adds a requirement in section 600.15(b)(1) that each page containing such data must be specifically identified and marked with text that is similar to the following: “May contain trade secrets or commercial or financial information that is privileged or confidential and exempt from public disclosure.” In addition, each line or paragraph containing trade secrets or commercial or financial information that is privileged or confidential on the page or pages on which this statement appears must be marked with brackets or other clear identification, such as highlighting.

DOE acknowledges that the marking procedures set forth above may not be feasible on unalterable forms submitted through Grants.gov. In such cases only, submitters must include in a cover letter or the project narrative a notice containing language substantially similar to the following: “Forms [ __ ] may contain trade secrets or commercial or financial information that is privileged or confidential and exempt from public disclosure. Such information shall be used or disclosed only for evaluation purposes or in accordance with a financial assistance or loan agreement between the submitter and the Government. The Government may use or disclose any information that is not appropriately marked or otherwise restricted, regardless of source.” The cover letter or project narrative must also specify the particular information on such forms that the submitter believes to be trade secrets or commercial or financial information that is privileged or confidential.

DOE also amends 10 CFR 603.850 to require that the markings affixed to data for technology investment agreements that may contain trade secrets or commercial or financial information that is privileged or confidential conform to the marking requirements of 10 CFR 600.15.

In addition, DOE regulations implementing its loan guarantee program for projects that employ innovative technologies under Title XVII of the Energy Policy Act of 2005 (42 U.S.C. 16511-16514) now cross-reference 10 CFR 600.15. These regulations are set forth at 10 CFR Part 609. In today's final rule, DOE thus establishes the same marking requirements as described above for any information submitted through the Title XVII loan application process, including pre-applications, applications, and any additional information provided by loan applicants. Similarly, DOE regulations implementing its Advanced Technology Vehicles Manufacturing (ATVM) Incentive Program at 10 CFR Part 611 will also cross-reference 10 CFR 600.15. DOE already applies to the ATVM program procedures virtually identical to those established in this notice. In this final rule, DOE establishes the marking requirements described above in the program's implementing regulations.

DOE received no comments on its proposed rule and made no changes to the proposal in today's final rule.

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

The Regulatory Flexibility Act (5 U.S.C. 601 et seq. ) requires preparation of a regulatory flexibility analysis for any rule that by law must be proposed for public comment, unless the agency certifies that the rule, if promulgated, will not have a significant economic impact on a substantial number of small entities. As required by Executive Order 13272, “Proper Consideration of Small Entities in Agency Rulemaking” 67 FR 53461 (Aug. 16, 2002), DOE published procedures and policies on February 19, 2003, to ensure that the potential impacts of its rules on small entities are properly considered during the rulemaking process. 68 FR 7990. DOE has made its procedures and policies available on the Office of the General Counsel's Web site ( http://www.gc.doe.gov ).

DOE has reviewed today's rule under the Regulatory Flexibility Act and certifies that the rule will not have a significant impact on a substantial number of small entities. While DOE recognizes that some applicants for assistance may be small businesses according to SBA size standards, DOE believes that the impact on such applicants of the rule will not be significant. The rule does not change the information applicants are required to submit to apply for the various forms of DOE assistance. It merely instructs applicants how to mark information that they believe to be trade secrets or commercial or financial information that is privileged or confidential.

The information collection requirements for the various forms of assistance to which the marking requirements in this rule will apply have been approved under OMB Control Numbers 1910-0400 (Financial Assistance Regulations) and 1910-5134 (Title XVII loan guarantee program).

Notwithstanding any other provision of the law, no person is required to respond to, nor shall any person be subject to a penalty for failure to comply with, a collection of information subject to the requirements of the PRA, unless that collection of information displays a currently valid OMB Control Number.

In this rule, DOE establishes procedures for the submission of information relating to various forms of assistance, including grants, cooperative agreements, technology investment agreements, loans, and loan guarantees. DOE has determined that this rule falls into a class of actions that are categorically excluded from review under the National Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq. ) and DOE's implementing regulations at 10 CFR part 1021. Specifically, this rule is a procedural rule covered by Categorical Exclusion A6 under 10 CFR Part 1021, subpart D, which applies to any rulemaking that is strictly procedural in nature. Accordingly, neither an environmental assessment nor an environmental impact statement is required.

Executive Order 13132, “Federalism,” 64 FR 43255 (August 4, 1999), imposes certain requirements on agencies formulating and implementing policies or regulations that preempt State law or that have other federalism implications. The Executive Order requires agencies to examine the constitutional and statutory authority supporting any action that would limit the policymaking discretion of the States and to carefully assess the necessity for such actions. The Executive Order also requires agencies to have an accountable process to ensure meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications. On March 14, 2000, DOE published a statement of policy describing the intergovernmental consultation process it will follow in the development of such regulations. 65 FR 13735. DOE has considered today's final rule in accordance with Executive Order 13132 and its policy and determined that this rule setting forth requirements for the marking of trade secrets and commercial or financial information that is privileged or confidential will not preempt State law or have any federalism impacts. No further action is required by Executive Order 13132.

With respect to the review of existing regulations and the promulgation of new regulations, section 3(a) of Executive Order 12988, “Civil Justice Reform,” imposes on Federal agencies the general duty to adhere to the following requirements: (1) Eliminate drafting errors and ambiguity; (2) write regulations to minimize litigation; and (3) provide a clear legal standard for affected conduct rather than a general standard and promote simplification and burden reduction. 61 FR 4729 (February 7, 1996). Section 3(b) of Executive Order 12988 specifically requires that Executive agencies make every reasonable effort to ensure that the regulation: (1) Clearly specifies the preemptive effect, if any; (2) clearly specifies any effect on existing Federal law or regulation; (3) provides a clear legal standard for affected conduct while promoting simplification and burden reduction; (4) specifies the retroactive effect, if any; (5) adequately defines key terms; and (6) addresses other important issues affecting clarity and general draftsmanship under any guidelines issued by the Attorney General. Section 3(c) of Executive Order 12988 requires Executive agencies to review regulations in light of applicable standards in section 3(a) and section 3(b) to determine whether they are met or it is unreasonable to meet one or more of them. DOE has completed the required review and determined that this rule meets the relevant standards of Executive Order 12988.

Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) (Pub. L. 104-4) requires each Federal agency to assess the effects of Federal regulatory actions on State, local, and Tribal governments and the private sector. For proposed regulatory actions likely to result in a rule that may cause expenditures by State, local, and Tribal governments, in the aggregate, or by the private sector of $100 million or more in any one year (adjusted annually for inflation), section 202 of UMRA requires a Federal agency to publish estimates of the resulting costs, benefits, and other effects on the national economy. (2 U.S.C. 1532(a), (b).) UMRA also requires Federal agencies to develop an effective process to permit timely input by elected officers of State, local, and Tribal governments on a proposed “significant intergovernmental mandate.” In addition, UMRA requires an agency plan for giving notice and opportunity for timely input to small governments that may be affected before establishing a requirement that might significantly or uniquely affect them. On March 18, 1997, DOE published a statement of policy on its process for intergovernmental consultation under UMRA. (62 FR 12820.) (This policy is also available at http://www.gc.doe.gov ). Today's rule contains neither an intergovernmental mandate, nor a mandate that may result in the expenditure of $100 million or more in any year, so these requirements do not apply.

Section 654 of the Treasury and General Government Appropriations Act, 1999 (Pub. L. 105-277) requires Federal agencies to issue a Family Policymaking Assessment for any rule that may affect family well-being. This rule will not have any impact on the autonomy or integrity of the family as an institution. Accordingly, DOE has concluded that it is not necessary to prepare a Family Policymaking Assessment.

DOE has determined, under Executive Order 12630, “Governmental Actions and Interference with Constitutionally Protected Property Rights,” 53 FR 8859 (March 18, 1988), that this regulation will not result in any takings which might require compensation under the Fifth Amendment to the U.S. Constitution.

Section 515 of the Treasury and General Government Appropriations Act, 2001 (44 U.S.C. 3516, note) provides for agencies to review most disseminations of information to the public under guidelines established by each agency pursuant to general guidelines issued by OMB. OMB's guidelines were published at 67 FR 8452 (Feb. 22, 2002), and DOE's guidelines were published at 67 FR 62446 (Oct. 7, 2002). DOE has reviewed today's rule under the OMB and DOE guidelines and has concluded that it is consistent with applicable policies in those guidelines.

Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use,” 66 FR 28355 (May 22, 2001), requires Federal agencies to prepare and submit to OIRA at OMB a Statement of Energy Effects for any proposed significant energy action. A “significant energy action” is defined as any action by an agency that promulgates or is expected to lead to promulgation of a final rule, and that (1) is a significant regulatory action under Executive Order 12866 or any successor order; and (2) is likely to have a significant adverse effect on the supply, distribution, or use of energy; or (3) is designated by the Administrator of OIRA as a significant energy action. For any proposed significant energy action, the agency must give a detailed statement of any adverse effects on energy supply, distribution, or use should the proposal be implemented, and of reasonable alternatives to the action and their expected benefits on energy supply, distribution, and use.

DOE has concluded that today's regulatory action, which establishes marking requirements for information submitted to DOE that the submitter believes to be trade secrets or commercial or financial information that is privileged or confidential, is not a significant energy action because the rule is not likely to have a significant adverse effect on the supply, distribution, or use of energy, nor has it been designated as such by the Administrator at OIRA. Accordingly, DOE has not prepared a Statement of Energy Effects for the rule.

On December 16, 2004, OMB, in consultation with the Office of Science and Technology Policy, issued its Final Information Quality Bulletin for Peer Review (the Bulletin). 70 FR 2664 (Jan. 14, 2005). The Bulletin establishes that certain scientific information shall be peer reviewed by qualified specialists before it is disseminated by the Federal Government, including influential scientific information related to agency regulatory actions. The purpose of the bulletin is to enhance the quality and credibility of the Government's scientific information. DOE has determined that today's rule does not contain any influential or highly influential scientific information that would be subject to the peer review requirements of the Bulletin.

As required by 5 U.S.C. 801, DOE will report to Congress on the promulgation of this rule prior to its effective date. The report will state that it has been determined that the rule is not a “major rule” as defined by 5 U.S.C. 804(2).

The Secretary of Energy has approved publication of this rule.

For the reasons stated in the preamble, DOE amends Subchapter H of Chapter II of Title 10, Code of Federal Regulations, to read as set forth below:

This document contains amendments to 26 CFR part 31 under section 3402(t) of the Internal Revenue Code (Code). This document also contains amendments to 26 CFR part 31 under sections 3406, 6011, 6051, 6071, and 6302 of the Code.

Section 3402(t) of the Code was added by section 511 of the Tax Increase Prevention and Reconciliation Act of 2005, Public Law 109-222 (TIPRA), 120 Stat. 345, which was enacted into law on May 17, 2006. Section 3402(t)(1) provides that the Government of the United States, every State, every political subdivision thereof, and every instrumentality of the foregoing (including multi-State agencies) making any payment to any person providing any property or services (including any payment made in connection with a government voucher or certificate program which functions as a payment for property or services) shall deduct and withhold from such payment a tax in an amount equal to 3 percent of such payment. Section 3402(t)(2) provides exceptions to withholding under section 3402(t).

Proposed regulations under sections 3402(t), 3406, 6011, 6051, 6071, and 6302 of the Code were published in the Federal Register on December 5, 2008 (REG-158747-06, 73 FR 74082, 2009-4 IRB 362).

After the issuance of the proposed regulations, section 1511 of the American Recovery and Reinvestment Act of 2009, Public Law 111-5 (ARRA), 123 Stat. 115, 355, extended the effective date of section 3402(t) withholding to payments made after December 31, 2011.

Notice 2010-91, 2010-52 IRB 915, provided interim guidance on the application of section 3402(t) to payments by debit cards, credit cards, stored value cards, and other payment cards.

Written comments were received in response to the proposed regulations, and a public hearing was held on April 16, 2009. All comments are available at http://www.regulations.gov or upon request. After consideration of all the comments, the proposed regulations are adopted as amended by this Treasury decision.

The Treasury Department and the IRS received numerous comments in response to the proposed regulations, all of which were considered in formulating the final regulations. Commenters generally expressed concerns about the administrative burdens of compliance and the revenue effect on persons subject to section 3402(t) withholding. The final regulations are intended to balance the legislative intent to construct a withholding and reporting regime for payments by government entities for property and services (other than those specifically excepted under section 3402(t)(2)) with the goal of alleviating administrative burdens on both government entities required to withhold and persons receiving payments subject to withholding where appropriate.

As discussed in section IX of the preamble, these final regulations provide an additional one-year extension from the revised statutory effective date of payments made after December 31, 2011. Thus, under the final regulations, section 3402(t) withholding and reporting requirements apply to payments made after December 31, 2012, subject to an exception for payments made under contracts existing on December 31, 2012, that are not materially modified (but see section IX of this preamble for discussion of accompanying proposed regulations that would apply section 3402(t) withholding and reporting requirements to payments made under all contracts after December 31, 2013, regardless of whether the contract was existing on December 31, 2012, and had not been materially modified).

Section 3402(t)(2)(G) provides that section 3402(t) withholding does not apply to payments by a political subdivision of a State (or any instrumentality of that political subdivision) that makes less than $100,000,000 of payments for property or services annually (other than for payroll or of another type exempt from withholding under the regulations). Consistent with the proposed regulations, the final regulations provide as a general rule that eligibility for the exception for each calendar year is determined based on payments made during the accounting year ending with or within the second preceding calendar year. All payments for property and services during that accounting year, including payments that are less than the $10,000 payment threshold, must be considered except payments qualifying for any of the exceptions under § 31.3402(t)-4(a) through (q) of the final regulations (for example, payments to the employees of the government entity that are subject to income tax withholding and thus excludable under § 31.3402(t)-4(a) (such as salary payments) and payments to employees of the government entity with respect to their services as an employee that are excludable under § 31.3402(t)-4(i) (such as payments of nontaxable fringe benefits)).

Commenters stated that if the political subdivision's or instrumentality's yearly payments generally are near $100,000,000, but do not always equal or exceed $100,000,000, the entity could incur considerable expense and difficulty administering withholding in some years but not in others. In addition, providing for withholding in contracts would be problematic and uncertain. Other commenters noted that due to substantial unusual capital spending, a political subdivision or instrumentality could exceed the $100,000,000 threshold in one year, even though the entity usually makes annual total payments well below the threshold. The burden of applying section 3402(t) withholding for a single year because of one year of unusual spending could be considerable.

In response to these comments, the final regulations provide an optional rule under which a political subdivision or instrumentality may average the payments made during any four of the five consecutive accounting years ending with the accounting year that ends with or within the second preceding calendar year. An entity applying this optional rule must keep adequate records for each of the five years for the period of limitations for assessment applicable to the calendar year for which it claimed the exception. This rule is intended to provide a reasonable alternative method of determining expenditures for a political subdivision or instrumentality with an unusually high year of expenditures.

This optional rule will give greater predictability for future years and will allow political subdivisions and their instrumentalities to moderate the effect of unusual years of expenditures. The entity may apply the optional rule at its discretion for any given taxable year and is not required to file a form or otherwise indicate to the IRS that it is using the optional rule. Additionally, under the final regulations, if a political subdivision or instrumentality withholds under section 3402(t), pays (or deposits) the withheld tax, and reports this withholding on payments in any calendar year for which it does not qualify for the section 3402(t)(2)(G) exception under the general rule, but could have qualified under the optional rule, it will be deemed to have waived any right to use the optional rule for that year. Thus, an affected entity should decide before the beginning of the calendar year whether it will rely on the optional rule for that year.

One commenter requested a similar exception for Federal Government entities and State entities with total annual payments of less than $100,000,000. By its terms, section 3402(t)(2)(G) does not apply to the United States Government, States, or instrumentalities of the United States Government or States. Therefore, this comment was not adopted.

The proposed regulations requested comments on how to determine whether an organization is an instrumentality of a government entity. Commenters did not request a definition. The final regulations do not define the term instrumentality, but reserve the issue for future guidance. See § 31.3402(t)-2(e). Although the Code contains multiple references to government instrumentalities, neither the Code nor the regulations define the term instrumentality . Several revenue rulings provide guidance on determining whether an organization will be treated as an instrumentality of a government entity for purposes of other Code provisions. See Rev. Rul. 57-128, 1957-1 CB 311 (adopting a six-factor test for use in determining what is an instrumentality of a State or a political subdivision thereof for purposes of an exception from the requirement to pay tax under the Federal Insurance Contributions Act (FICA)); Rev. Rul. 65-26, 1965-1 CB 444; Rev. Rul. 65-196, 1965-2 CB 388; and Rev. Rul. 69-453, 1969-2 CB 182. These rulings may be applied by analogy to determine whether an entity is an instrumentality for purposes of section 3402(t) withholding until final guidance is issued defining the term instrumentality for purposes of section 3402(t). See § 601.601(d)(2)(ii)( b ).

The final regulations reserve for future guidance the issue of the potential application of section 3402(t) withholding to payment card transactions (including payments by credit, debit, stored value, and other payment cards). See Notice 2010-91 and § 31.3402(t)-3(e). The Treasury Department and the IRS continue to study whether payments by payment card should be subject to section 3402(t) withholding and, if so, in what manner the withholding should apply. As provided in Notice 2010-91, the section 3402(t) withholding requirements and the related reporting requirements will not apply to any payment made by payment card for any calendar year beginning earlier than at least 18 months from the date further guidance is finalized applying section 3402(t) withholding to payments by payment card. This relief does not apply to convenience checks issued in connection with payment card accounts.

Consistent with the proposed regulations, the final regulations provide that a payment subject to withholding arises when the government entity or its payment administrator pays a person for providing property or services. The final regulations adopt the rule in the proposed regulations that withholding will not apply to any payment that is less than $10,000 (subject to the anti-abuse rule described in section II.B.3 of this preamble).

Commenters generally approved of the concept of a threshold, and many commenters approved of the proposed $10,000 threshold level. However, numerous commenters requested that the threshold be raised, and some commenters requested that the threshold be adjusted each year based on changes in the cost of living.

The final regulations adopt the payment threshold of $10,000, which corresponds to a minimum withholding of $300. This $10,000 threshold level strikes a reasonable balance between alleviating administrative burdens and preserving the legislative intent that the withholding requirement apply broadly. The final regulations do not adopt an annual cost-of-living adjustment to the threshold. Computer processing and transaction systems are becoming increasingly cost-effective so that increasing the threshold annually is not warranted.

Some commenters requested that the payment threshold apply cumulatively rather than to individual payments. Under this suggestion, section 3402(t) withholding would begin to apply when the payee receives payments totaling $10,000 in the aggregate from the government entity during the calendar year, and then apply to all subsequent payments to the payee during the remainder of the year. The final regulations do not adopt this suggestion. As other commenters noted, one section or division of a government entity may not be able to coordinate its billing with another section's or division's billing on a real-time basis. Thus, a requirement to withhold immediately upon reaching an annual minimum payment threshold would require the establishment of new systems to track and coordinate payments.

The $10,000 threshold applies on a payment-by-payment basis; therefore, if a government entity makes a single payment of $10,000 or more for multiple items of property or services, the entity must withhold on the payment. For example, if a person bills a government entity $5,000 each day for seven days of daily services, but the entity pays the bills by making one $35,000 payment, the payment threshold is applied to the $35,000 payment.

Consistent with the proposed regulations, the final regulations provide that multiple payments by a government entity to a payee generally will not be aggregated in applying the $10,000 threshold. The final regulations also adopt the anti-abuse rule in the proposed regulations providing that if a payment is divided into multiple payments primarily to avoid the payment threshold, the payments will be treated as a single payment made on the date of the first payment for purposes of applying the threshold. For example, if a government entity is scheduled to make a contractual payment for landscaping services of $15,000 on July 2, 2013, but divides the payment into payments of $7,000 and $8,000 on July 1, 2013, and July 2, 2013, respectively, to avoid withholding, the government entity will be treated as having made a single payment of $15,000 on July 1, 2013. This anti-abuse rule will not apply if the primary reason for making multiple payments is unrelated to section 3402(t).

Some commenters expressed concerns about the anti-abuse rule. Some argued that it was too subjective and would lead to conflicts between government entities and payees. Commenters noted that in many cases, the payee controls the billing and the government entity cannot determine whether the payee manipulated the billing to avoid the threshold or engaged in a normal business practice. Commenters also requested guidance on which entity (the payor or the payee) determines whether the anti-abuse rule applies. Commenters asserted that theoretically every payment below $10,000 will need to be examined to determine whether the anti-abuse rule applies.

An anti-abuse rule is necessary because the parties could potentially avoid the threshold by manipulating the amount of each payment. Because the government entity is responsible for withholding and may not have sufficient information regarding the payee's billing process, the final regulations provide that the anti-abuse rule applies only if the government entity knew or should have known that the payment had been divided (whether by the government entity or as a result of divided billing) with the primary purpose of avoiding the withholding requirements. The final regulations further provide that in determining whether the anti-abuse rule applies, a significant factor is whether the government entity has exhibited a pattern or practice of intentionally dividing payments (or intentionally permitting divided billing) to avoid withholding. Thus, the anti-abuse rule is intended to apply only in a limited number of cases.

Additionally, the final regulations permit a government entity and a person providing services or property to that government entity to contractually agree that the government entity will or may withhold in accordance with the rules governing withholding under section 3402(t), on specified payments not subject to section 3402(t) withholding, including payments below $10,000. Therefore, the parties could contractually agree to permit the government entity to apply, in its discretion as it deemed appropriate, the anti-abuse rule. This type of contractual provision would enable the parties to avoid disputes about whether the anti-abuse rule applies. This provision in the final regulations permitting additional withholding does not apply to payments already subject to section 3402(t) withholding notwithstanding the contractual provision, including amounts subject to section 3402(t) withholding solely due to the anti-abuse rule.

Commenters objected to applying the threshold to the payment amount where the government entity chooses for its convenience to make one payment for different “unrelated transactions” (which they termed “bundling” the payment), causing the payment to meet the $10,000 threshold. Commenters suggested that if a single payment covers more than one “unrelated” transaction, the threshold should apply separately to each transaction, invoice, or billing item, rather than to the full payment amount. According to these commenters, applying the threshold to bundled payments makes the threshold difficult to program into accounts payable systems because the threshold amount cannot be applied at the time of the transaction but only at the time the payment is processed.

The final regulations adopt the proposed rule applying the threshold on a payment-by-payment basis rather than a billing item basis. A billing item approach would require formulating a method for identifying a billing item or a similar term, which may not be easily identifiable in every case. As a result, disputes would likely arise about the number and amount of valid billing items, raising both compliance issues for government entities and enforcement issues for the IRS. A billing item approach also would require the government entity to maintain records of the items covered by a particular payment, and the supporting documentation justifying the separate billing item treatment, increasing the administrative burden. This approach could also facilitate abuse by parties seeking to avoid the threshold by dividing billing items.

Consistent with the proposed regulations, the final regulations provide that, if a government entity or its payment administrator makes a payment to a person that is subject to section 3402(t) withholding, no subsequent transfer of cash or property by that person to another person is treated as a payment for section 3402(t) purposes. Therefore, if the government entity contracts with a prime contractor for property and services, and that prime contractor separately contracts with subcontractors for delivery of certain property and services, section 3402(t) withholding applies only to payments by the government entity or its payment administrator to the prime contractor, and does not apply to successive payments by the prime contractor to its subcontractors.

Also consistent with the proposed regulations, the final regulations apply to payments made by the government entity or its payment administrator. A payment administrator is any person that acts with respect to a payment solely as an agent for a government entity by making the payment on behalf of the government entity to a person providing property or services to, or on behalf of, the government entity. The government entity is liable for the required withholding and responsible for all related reporting regardless of whether the government entity or its payment administrator makes the payment. Transfers of funds from a government entity to a payment administrator to be used by the payment administrator, on the government entity's behalf, to pay persons for providing property or services are not payments subject to section 3402(t) withholding. However, if the government entity pays the payment administrator a fee for its services, the fee is a payment subject to withholding.

Many commenters requested additional guidance on the application of section 3402(t) to prime contractors, subcontractors, and payment administrators to specific factual situations. The final regulations adopt the rules in proposed regulations without change. These rules provide general guidance that can be applied to various specific situations and it is not practicable to describe all those situations explicitly in the regulations. However, the Treasury Department and the IRS may issue other forms of guidance in the future if it is determined that such guidance is necessary to assist with particularly problematic situations.

Commenters requested guidance on whether section 3402(t) withholding applies to any of the following payments that are made before the final delivery and acceptance of service by the government entity: Contract financing payments, performance-based payments, commercial advance payments, interim payments, progress payments based on cost, progress payments based on a percentage or stage of completion, or interim payments under a cost-reimbursement contract. Commenters requested exceptions for these types of payments because withholding would detrimentally affect the cash flows of contractors and could result in price increases for government contracts. Commenters also argued that in some cases withholding is unnecessary because amounts are already withheld from contract payments until the completion of a contract. Finally, commenters suggested that government entities are protected from loss through other provisions such as the Miller Act (40 U.S.C. 3131-3134, discussed in greater detail in section IV.E.1 of this preamble).

Commenters specifically requested that section 3402(t) withholding apply to contract financing payments on the date the government entity accepts the services or property provided under the contract. Under Federal Acquisition Regulations (FAR), a contractor is not entitled to liquidate contract financing payments until the government entity has accepted the property or services. On this basis, a commenter asserted that contract financing payments are not payments for property or services until the contract is settled and the property or services are “accepted” by the government entity. The commenter maintained that the payment date for section 3402(t) purposes should be the acceptance date because interest under the Prompt Payment Act (31 U.S.C. 3903) for late payments under a contract does not begin to run until the acceptance date.

The final regulations do not adopt these suggestions. Treating the acceptance date as the payment date would add administrative complexity to section 3402(t) withholding, as would any attempt to distinguish between payments in advance of performance by the contractor, interim payments for partial performance, and other designated payments for property or services. Treating the date the funds are disbursed as the payment date ensures that there will be funds upon which to withhold. For these reasons, the final regulations provide that payment is made and withholding applies when the funds are disbursed and not when the contract is settled and the services or property accepted.

The proposed regulations provided that, unless otherwise excepted, utility payments are subject to section 3402(t) withholding on the same basis as payments for other property and services. Commenters requested that utility payments be exempted from the withholding requirement on the ground that utilities are already subject to regulation and that government entities might lose utility services if forced to withhold on payment of the utility bill.

There is no statutory exception for utility payments. In addition, all persons receiving payments subject to section 3402(t) withholding, including utility companies, are paid the full amount charged, albeit in the form of a combination of a cash payment and a deposit of tax made to the IRS. Thus, unless otherwise excepted, utility payments are subject to section 3402(t) withholding.

Commenters requested exemptions from withholding or lower rates of withholding based on a particular industry's profit margin or a particular payee's expectation that it will not have any income tax liability (because, for example, the payee had net operating losses). Commenters also requested exemptions for payees that are current in their Federal tax payments. The final regulations do not adopt these suggestions because differing rates for differing industries or taxpayers are not contemplated by the statute and would raise administrative complexities.

In addition, many commenters requested guidance on whether certain types of payments or designated portions of payments are payments for property or services subject to section 3402(t) withholding. The final regulations do not adopt most of these suggestions because the general rules provide sufficient guidance. For example, commenters requested guidance on certain amounts that typically are part of a payment for a specific service or property, but generally are stated separately in invoices to government entities, such as fuel surcharges. The final regulations do not except separately stated costs (other than the optional rule permitting sales, excise, and value-added taxes to be excepted from the amount subject to section 3402(t) withholding). In general, separately stated items such as fuel surcharges are treated as part of the payment for property or services by the government entity, and therefore are subject to section 3402(t) withholding unless an exception applies. For example, the amount subject to withholding includes late payment fees (that are not interest) and shipping and handling costs in connection with the purchase of property that is subject to section 3402(t) withholding.

Commenters also requested guidance on determining the amount subject to withholding when a portion of one payment is subject to withholding, but the remainder of the payment is excepted from withholding. Commenters asserted that it would be difficult to identify which portion of the payment was excepted and to apply withholding only to the remainder. In response to these administrative concerns, the final regulations permit government entities to withhold on the full amount of a payment that combines an amount subject to withholding and an amount excepted from withholding, provided the payee has consented to this additional withholding.

Commenters requested guidance on determining the amount of withholding when a payment for property or services to a person is subject to offsets for the person's outstanding debt or other amounts owed to the government entity. Because there is no exclusion or other provision under section 3402(t) for offsets, the payment to which the section 3402(t) withholding applies is not reduced by offsets. Rather, the amount of the payment subject to section 3402(t) withholding includes any portion of the payment that is offset to pay debt owed to the government entity or other offsets.

Consistent with the proposed regulations, the final regulations except from section 3402(t) withholding payments to other government entities required to withhold, to foreign governments, and to tax-exempt organizations as provided in section 3402(t)(2)(E). A commenter asked whether the exception for payments to tax-exempt organizations extends to payments that are included in determining the organization's unrelated business income that is subject to income tax. A payment to a tax-exempt organization is excepted from section 3402(t) withholding regardless of whether it is treated as unrelated business income.

Consistent with the proposed regulations, the final regulations exempt payments to Indian Tribal governments. Because Indian Tribal governments are not subject to United States income tax, subjecting payments made by government entities to Indian Tribal governments to section 3402(t) withholding would be unduly burdensome. In response to comments, the final regulations also exempt payments to passthrough entities that are owned 80 percent or more by one or more persons each of which is an Indian Tribal government or a person described in section 3402(t)(2)(E).

Commenters requested guidance on how to identify exempt payees. Exempt payees include: (1) Government entities required to withhold under section 3402(t), foreign governments, tax-exempt organizations, and Indian Tribal governments; (2) passthrough entities that are 80 percent or more owned by those types of entities; and (3) nonresident alien individuals and foreign corporations that receive certain types of payments (and partnerships that receive certain types of payments and that are 80 percent or more owned by nonresident alien individuals and foreign corporations). The Treasury Department and the IRS expect to issue additional guidance on how a payee can claim an exemption. The guidance is expected to provide that if the government entity receives a payee statement indicating under penalties of perjury that the payee qualifies for an exemption from section 3402(t) withholding and identifying the particular exemption, the entity will be able to rely on that statement unless it knew or had reason to know that the payee did not actually qualify for the exception. The guidance is also expected to provide that a government entity need not obtain a payee statement if the name of the payee reasonably indicates or the payor knows the payee to be a government entity (including an Indian Tribal government) or foreign government. However, it is not anticipated that this “eyeball” test would apply to tax-exempt organizations, foreign corporations, nonresident alien individuals, or passthrough entities.

Section 3402(t)(2)(C) excepts payments of interest from section 3402(t) withholding. Two commenters requested that a definition of interest be provided, and other commenters inquired whether certain specific types of payments are payments of interest for purposes of this exception.

The Code and the regulations do not provide a general definition of interest. Rather, a definition of interest has arisen through case law. Generally, under long-standing case law, interest is compensation paid for the use or forbearance of money. See, for example, Old Colony R.R. Co. v. Commissioner, 284 U.S. 552 (1932), 1932-1 CB 274; Deputy v. DuPont, 308 U.S. 488 (1940), 1940-1 CB 118; see also Thompson v. Commissioner, 73 T.C. 878, 887 (1980) (interest is the charge per unit of time for the use of borrowed money); Dickman v. Commissioner, 465 U.S. 330, 337 (1984), 1984-1 CB 197 (interest is the equivalent of rent for the use of funds). The general standard, as developed through the case law, may be applied to particular facts and circumstances. Thus, the final regulations do not provide a definition of interest. However, the Treasury Department and the IRS continue to study whether any particular guidance with respect to the application of section 3402(t) to interest payments may assist taxpayers in complying with the section 3402(t) withholding and reporting requirements, and accordingly continue to reserve that section. See § 31.3402(t)-4(c).

Section 3402(t)(2)(D) excepts payments for real property from section 3402(t) withholding. Consistent with the proposed regulations, the final regulations provide that the term payments for real property includes payments for the purchase and the leasing of real property, but does not include payments for the construction of buildings or other public works projects, such as bridges or roads.

Commenters requested that payments for construction be treated as payments for real property. One commenter interpreted 40 U.S.C. 3131-3134 (the “Miller Act”) as already protecting the Federal Government for taxes owed by the contractor. The commenter stated that the Miller Act mandates that the contractor provide a performance bond to protect the Government, and a separate payment and performance bond to protect all persons supplying labor and material in carrying out the work provided for in the contract. According to the commenter, the protection afforded by these bonds includes taxes due under the Code. See 40 U.S.C. 3131(c)(1).

The tax protection afforded by these bonds relates to employment taxes deducted from wages, not to income taxes which the contractor may owe. Therefore, these performance bonds do not protect against a contractor's failure to pay its correct income tax liability, and the Miller Act does not provide the Federal Government protection for the contracting entity's income tax liability.

Another commenter suggested that treating payments for construction as payments for real property would be consistent with other tax provisions, including section 460(e)(4) and § 1.460-3(a) (defining the term construction contract for purposes of determining whether an exception from the required use of the percentage of completion method in determining taxable income applies), and § 1.263A-8 (defining the term real property to include land, buildings, and inherently permanent structures, and the structural components of both buildings and inherently permanent structures for purposes of the requirement to capitalize interest under section 263A). Another commenter cited other Code sections and regulations, including: (1) Section 469 (relating to passive activity losses and credits and providing that a “real property trade or business” includes “any real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage trade or business”); (2) section 856 (defining “interests in real property” to include “fee ownership and co-ownership of land or improvements thereon, leaseholds of land or improvements thereon, options to acquire land or improvements thereon, and options to acquire leaseholds of land or improvements thereon”); and (3) § 1.1031(a)-1(b) (relating to like-kind exchanges and providing that the fact that any real estate involved is improved or unimproved is not material, for that fact relates only to the grade or quality of the property and not to its kind or class).

The final regulations do not adopt these suggestions. None of these authorities provides as a general rule that payments for construction are payments for real property. Moreover, the Code and regulations sections cited serve different purposes. The relevant distinction here is between payment for a completed building (a payment for real property), and payment for the services and materials used to construct a building (not a payment for real property). There is no evidence that Congress intended to exempt payments for construction. Additionally, an exemption for construction would substantially reduce the scope of payments subject to section 3402(t) withholding.

The proposed regulations provided that the exemption for payments for real property extends to payments for the leasing of real property. A commenter asked whether payments for construction in leased buildings are treated as payments for real property if the government entity pays the person providing the property or services directly for facility improvements rather than the lessor. Commenters also asked whether payments to the lessor for services or property (such as for utilities or insurance) or for services under the lease agreement (such as for utilities provided at the lessor's expense) are considered payments for the lease. In addition, commenters asked whether payments to third parties required by the lease agreement (such as payments for utilities and insurance) are considered payments for the lease.

The final regulations distinguish between payments to the lessor as part of the lease and payments to a third party. Payments to the lessor that are required under the lease agreement, such as payments for utilities or insurance, are payments for leasing, and are not subject to section 3402(t) withholding. In contrast, payments to third parties for services or property are subject to section 3402(t) withholding, even if required by the lease. Thus, under the final regulations, the lease terms generally govern whether payments for leasehold improvements and for services or property in connection with a lease are subject to section 3402(t) withholding. However, because of the potential to avoid the application of withholding to payments for construction by temporarily leasing before purchasing, rather than simply purchasing, the property on which the construction will occur, payments for construction are subject to section 3402(t) withholding even if required by a lease and paid to the lessor.

Section 3402(t)(2)(A) excepts from section 3402(t) withholding amounts that are subject to withholding under another provision of chapter 3 or chapter 24 (other than section 3406). Commenters asked whether unpaid compensation paid to beneficiaries or the estates of deceased employees is subject to section 3402(t) withholding. Although such amounts generally are not subject to wage withholding under section 3402(a) (see Rev. Rul. 86-109, 1986-2 CB 196), the final regulations provide that these payments are excepted from section 3402(t) withholding under section 3402(t)(2)(I) as payments to an employee.

Section 3402(t)(2)(F) excepts payments made pursuant to a classified or confidential contract described in section 6050M(e)(3). Commenters asked whether this exception applies to other government operations not specifically covered by section 6050M(e)(3), recommending that the exception apply to any contract whose subject matter contains any scope of work subject to the National Industrial Security Program Operating Manual (NISPOM). Because of the express statutory language describing the confidential contracts to which the exception applies, the final regulations do not extend the exception beyond contracts described in section 6050M(e)(3).

Section 3402(t)(2)(H) excepts from section 3402(t) withholding any payment in connection with a public assistance or public welfare program for which eligibility is determined by a needs or income test. Consistent with the proposed regulations, the final regulations adopt a broad definition of in connection with to include payments made to third parties under a public assistance or public welfare program for the benefit of the recipient of benefits under the program. Consistent with the legislative history, a program for which eligibility is determined under a needs or income test does not include a program under which eligibility is based on age only (for example, Medicare). For purposes of this exception, a program providing disaster relief to victims of a natural or other disaster is considered to be a program for which eligibility is determined under a needs test.

Many commenters asked that the regulations address specific benefits under various plans. Questions about specific plans can be resolved by applying the statute and these final regulations, and special rules are not needed. However, the Treasury Department and the IRS may issue other guidance in the future, as necessary to address arrangements to which it is particularly difficult to determine the application of the statute and these final regulations.

Commenters asked how section 3402(t) applies when a government office or portion of a government office is used to administer a public welfare program. Commenters asked whether payments for expenses of that office (utilities, property insurance, maintenance) that are attributable to administering the public welfare program qualify as payments made in connection with a public welfare program under section 3402(t)(2)(H). The final regulations provide that government entities may determine the portion of any payment that is attributable to expenses to administer the public welfare program using any reasonable allocation method (including, for example, using prospective budget allocations). To ease administration, the final regulations also provide that, if a government entity makes a reasonable, good faith determination that only an insignificant portion of the government office's payments are attributable to administering a public welfare program (or to functions other than administering a public welfare program), that insignificant portion may be disregarded.

Section 3402(t)(2)(I) excepts payments to a government employee for the employee's services as an employee. Consistent with the proposed regulations, the final regulations interpret this exception broadly to exclude any form of compensation that is paid to the employee or on the employee's behalf. For example, the final regulations exclude employer and employee contributions to employee benefit and deferred compensation plans, employer-provided fringe benefits, and employer payments for insurance under the Federal Employees Health Benefits Program.

The final regulations further provide that, consistent with the proposed regulations, the section 3402(t)(2)(l) exception applies to payments to employees under an accountable plan for the employee's business travel expenses, and to payments made by the employee to providers of the employee's travel, meals, and lodging when the employee is traveling on government business and is reimbursed under the accountable plan. Payments to an employee made under a reimbursement or other expense allowance arrangement that do not exceed the substantiated expenses are treated as paid under an accountable plan and are not wages if the arrangement meets the requirements of section 62(c) and the expenses are substantiated within a reasonable period of time. See § 31.3401(a)-4(a). In contrast, payments to an employee under a nonaccountable plan are includible in wages subject to income tax withholding under section 3402(a), and thus are excepted from section 3402(t) withholding by section 3402(t)(2)(A).

Commenters requested that payments by a government entity to third party providers (and not to an employee) for employee travel and lodging also be excepted from section 3402(t) withholding, arguing that these payments are another way to pay for employee business travel expenses and should be excepted in the same manner as payments made under accountable plans. Commenters argued that applying withholding in this instance will complicate the travel arrangement process, reduce the use of more efficient central billing accounts, and create unjustified discrepancies in travel expense reimbursements based on the employer method of payment.

The section 3402(t)(2)(I) exception by its terms applies only to payments to employees (or their successors in interest). If the government entity pays a provider directly for employee travel expenses, there is no payment from the government entity to the employee to invoke this exception. Payments to the provider by the government entity are payments for property and services, and therefore subject to section 3402(t) withholding unless another exception applies. The exception for employee fringe benefits does not apply where a payment is made directly to the provider because, while related to the provision of a fringe benefit to the employee, the payment itself is not a fringe benefit and is made to a third party rather than to the employee. However, payments made by payment card are excepted pending future guidance. See Notice 2010-91.

The proposed regulations did not provide an explicit exception for grant payments. Commenters requested that all grant payments be excluded from section 3402(t) withholding because they are “non-exchange” transactions in which the government entity is not making a payment for property or services for the direct benefit or use of the government entity. According to commenters, grant payments are distinguishable from payments in a transaction with a vendor in which a government entity is directly purchasing property or services for its own benefit or use.

Commenters also recommended that section 3402(t) withholding not apply to the use of grant funds by grant recipients that are complying with the grant eligibility and award process. One commenter cited the example of a city or county fire department that receives a grant from a government entity specifically for the purchase of an emergency response vehicle. If the purchase of an emergency response vehicle by the local fire department were subject to section 3402(t) withholding, the commenter maintained the withholding would divert Federal grant money from the authorized acquisition use into the three percent withholding process.

In cases where the grant recipient is another government entity or a tax-exempt organization, the grant payment will be excepted from section 3402(t) withholding under section 3402(t)(2)(E). In addition, grant payments may qualify as payments made in connection with a public assistance or public welfare program for which eligibility is determined by a needs or income test, and thus be excepted from withholding under section 3402(t)(2)(H). Thus, it seems likely that many grant payments will qualify for these statutory exceptions.

In light of the administrative difficulty and potential frustration to the intended use of the grant proceeds that may arise, the final regulations explicitly except all grants from section 3402(t) withholding. For this purpose, the final regulations define a grant as a transfer of funds by a government entity to a recipient (which may be a state government, local government, or other recipient) pursuant to an agreement reflecting a relationship between the government entity and the recipient when (1) the principal purpose of the relationship is to transfer a thing of value to the recipient to carry out a public purpose of support or stimulation authorized by law instead of acquiring (by purchase, lease, or barter) property or services for the direct benefit or use of the government entity; and (2) substantial involvement is not expected between the government entity and the recipient when carrying out the activity contemplated in the agreement.

The exception from section 3402(t) withholding for grants does not apply to the distribution of grant proceeds by a government entity. Commenters' suggestions that grant proceeds be permanently excepted from withholding if the grant recipient is using the proceeds for the purposes specified in the grant is not supported by the statute and would be difficult to administer. Tracing would be required to determine which government entity purchases had been made with grant proceeds. Tracing would be particularly difficult if the grant agreement does not identify specific uses for the proceeds (for example, to purchase items necessary to improve emergency response time, which may include an additional emergency response vehicle) or if only a portion of a payment consists of grant proceeds. Accordingly, the final regulations do not adopt this suggestion.

Commenters requested guidance on whether the payment subject to withholding includes the amount of any sales tax, excise tax, or value-added tax. Sales taxes are generally paid by the purchaser, collected by the vendor, and remitted to the state. The sales tax amount generally is not included in the vendor's gross income.

By comparison, information reporting under section 6041 and related backup withholding under section 3406 apply only to payments that are includible in the payee's income. Therefore, if the payee is liable for sales tax and the payor includes the amount of sales tax in the total payment to the payee, the payor includes the amount of sales tax on Form 1099-MISC, “Miscellaneous Income,” as part of the reportable payment. In contrast, if (as is generally the case) the payor is liable for any sales tax and the payee merely collects sales tax from the payor, the payor does not include sales tax in the total amount reported on Form 1099-MISC.

A different reporting rule applies to reportable payment card transactions under section 6050W. Section 1.6050W-1(a)(6) provides that the gross amount reportable on Form 1099-K, “Merchant Card and Third Party Network Payments,” is the total dollar amount of aggregate reportable payment transactions for each participating payee without regard to any adjustments for credit, cash equivalents, discount amounts, fees, refunded amount or any other amounts. Thus, the gross amount reported on Form 1099-K includes the amount of sales tax, excise tax, or value-added tax paid as part of a payment transaction.

Similar to reporting under section 6050W, but in contrast to reporting under section 6041, section 3402(t) withholding does not depend on whether an amount is includible in gross income. The entire amount paid for property or services is subject to withholding regardless of whether the vendor realizes a profit on transactions covered by the payments. Accordingly, the final regulations provide that the amount subject to withholding and reporting includes any sales, excise or value-added tax. However, the final regulations also permit government entities to exclude the amount of any sales, value-added, or excise tax, for purposes of section 3402(t) withholding, provided the exclusion is applied consistently to all payments to a given payee during the calendar year. This rule is similar to the rules permitting payors to exclude the amount of the wager from gambling winnings for reporting and withholding purposes under § 31.3406(g)-2(d)(2) or to exclude commissions and option premiums in determining gross proceeds from securities sales for reporting purposes under § 1.6045-1(d)(5).

Commenters requested guidance on whether loan guarantees provided by government entities and payments on loan guarantees are subject to section 3402(t) withholding. The final regulations provide that the loan guarantee itself (meaning a guarantee provided by a government entity on a loan by a lender) is not a payment subject to section 3402(t). The underlying amounts are still loans and guaranteeing a loan or making a loan that is expected to be repaid through the payment of principal and interest is not a payment for property or services.

Payments of principal and interest by the government entity as guarantor of the loan so that the borrower can continue performing services under the contract are also not subject to withholding under section 3402(t). The government entity is making these payments as guarantor of the loan, and the payments are being made to the lender, not to a third party contractor that is performing services or transferring property. Thus, the final regulations provide that government entity payments of principal and interest on a loan pursuant to a loan guarantee are not subject to section 3402(t) withholding.

Under some circumstances, borrowers use the funds from guaranteed loans to fund a specific project. As part of a loan guarantee, the government has the right to assume the operation of the underlying project if the borrower ceases making payments on the loan. If the government entity (through a right of subrogation) assumes the operation of the underlying project, the government entity as the operator of the project makes payments to the contractors providing services and property for the project. In that case, payments by the government entity to third party contractors are payments for property or services. Although the government exercised its right of subrogation pursuant to the loan guarantee or the underlying loan, and not as a party to the underlying contract between the borrower and the third party contractors, the government is stepping into the borrower's shoes and making payments for property or services directly to the third party contractors. Accordingly, the final regulations provide that section 3402(t) withholding applies in that case.

Commenters requested clarification that a government entity's repayments of principal on a loan are not subject to section 3402(t) withholding. Generally, repayments of principal on a loan will not be subject to section 3402(t) withholding because they are not payments for property or services. However, if a government entity issues a debt obligation to a person providing services as part of the purchase price, the debt's fair market value is subject to section 3402(t) withholding when the obligation becomes effective, unless an exception applies. If a government entity issues a debt obligation to a person providing property as part of the purchase price, the debt's issue price as determined under section 1273 or 1274, as applicable, is subject to section 3402(t) withholding unless an exception applies (for example, the exception for payments for real property will apply to a debt obligation issued as part of a government entity's purchase of real property). For administrative convenience, the regulations allow the government entity and the person providing property to agree to use the stated principal amount of the debt obligation in lieu of the issue price as the amount of the payment attributable to the debt obligation that is subject to section 3402(t) withholding. Thus, for example under these rules, if a government entity pays a person in 2013 for the performance of services with $50,000 cash and a 5-year note valued at $50,000, then the note's fair market value would be subject to section 3402(t) withholding in 2013 along with the cash payment, but the repayment of the principal after the note matured in 2018 would not be subject to section 3402(t) withholding. If a government entity uses a third party debt obligation (a debt obligation issued by another government entity or by an entity other than a government entity) to pay for property or services, the fair market value of the debt obligation is subject to section 3402(t) withholding, unless an exception applies.

The final regulations also except payments to purchase stock, bonds, and other negotiable instruments primarily for investment purposes. Although these payments are for intangible property, withholding on purchases in stock and bond markets is not practicable given the functioning of the investment markets in which buyers and sellers are paired on a virtually anonymous basis. However, a government entity's payment of investment advisory fees to investment advisors (including a payment from the government entity's account) is a payment for services subject to section 3402(t) withholding. In contrast, investment advisory fees paid, for example, by a mutual fund in which a government entity owns shares are not subject to section 3402(t) withholding, since these payments are not made by the government entity.

The final regulations generally adopt the same basic rules as the proposed regulations on applying section 3402(t) where either the payor or the payee is a partnership or S corporation (a passthrough entity). Payments from a passthrough entity generally are not subject to section 3402(t) withholding unless 80 percent or more of the passthrough entity is owned in the aggregate by government entities required to withhold under section 3402(t)(1). Similarly, payments to a passthrough entity generally are subject to section 3402(t) withholding unless 80 percent or more of the passthrough entity is owned in the aggregate by persons described in section 3402(t)(2)(E) (government entities required to withhold under section 3402(t)(1), tax-exempt entities, and foreign governments) and Indian Tribal governments. Expanding on the exceptions in the proposed regulations, the final regulations additionally provide that certain payments to a partnership that is 80 percent or more owned by foreign corporations or nonresident alien individuals are not subject to section 3402(t) withholding. This exception does not apply to S corporations because nonresident alien individuals and foreign corporations are not permissible shareholders of an S corporation under section 1361(b)(1). The regulations also provide that, as a general rule, whether a passthrough entity is subject to section 3402(t) is determined on the first day of the passthrough entity's taxable year. However, any manipulation of the ownership percentage with intent to avoid application of section 3402(t) will be recharacterized as appropriate to reflect the actual ownership percentage. Because the government entity is responsible for withholding and may not have sufficient information regarding the payee's ownership structure, the final regulations provide that this rule applies only if the government entity knew or should have known that the payee's ownership percentage had been manipulated with intent to avoid application of section 3402(t).

Commenters requested that payments to all passthrough entities be excepted from section 3402(t) withholding. The final regulations do not adopt this suggestion. A passthrough entity exemption would create opportunities for payees to circumvent section 3402(t) by using passthrough entities to receive government payments.

The final regulations adopt the same reporting and payment rules for section 3402(t) withholding purposes as the proposed regulations. Final regulations under section 6011 provide that the payor required to withhold under section 3402(t) must file Form 945, “Annual Return of Withheld Federal Income Tax,” reporting the amounts withheld. Final regulations under section 6302 provide that the amounts withheld under section 3402(t) must be deposited and reported in the same manner as other nonpayroll withheld amounts, such as withholding on gambling winnings and pensions. Pursuant to existing regulations, these amounts are treated as if they were employment taxes for purposes of the deposit rules, but are subject to special rules for determining the payor's deposit schedule. See § 31.6302-4. Additionally, final regulations under section 6051 provide that payors required to withhold amounts under section 3402(t) must file information returns and furnish payee statements on Form 1099-MISC, “Miscellaneous Income” (or any successor form), reporting such payments and tax withheld. Because this reporting is pursuant to regulations under section 6051, the exceptions provided in the regulations under section 6041 relating to Form 1099 do not apply.

Commenters requested that the regulations permit fiscal year taxpayers to credit amounts withheld against their income tax liability for the fiscal year in which the tax is withheld. The final regulations do not adopt this suggestion because it is inconsistent with the statute. Section 31 governs the taxable year against which a taxpayer may credit income tax. Section 31(a)(1) provides that “[t]he amount withheld as tax under chapter 24 shall be allowed to the recipient of the income as a credit against the tax imposed by this subtitle.” Chapter 24 includes section 3402(t), and section 31(a)(1) is in subtitle A, income taxes. Thus, by its terms, section 31(a)(1) applies to persons who have had income tax withheld from a payment pursuant to section 3402(t). Section 31(a)(2) provides the general rule on the timing of the allowance of the credit allowed under section 31(a)(1): “The amount so withheld during any calendar year shall be allowed as a credit for the taxable year beginning in such calendar year. If more than one taxable year begins in a calendar year, such amount shall be allowed as a credit for the last taxable year so beginning.” Thus, absent a special rule, section 31(a)(2) generally applies for purposes of withholdings required under chapter 24, which includes section 3402(t).

Section 31(c) provides a special rule solely for backup withholding. Under section 31(c), any credit allowed by section 31(a) for backup withholding under section 3406 must be allowed for the taxable year of the recipient of the income in which the income is received. Section 31(c) is limited by its terms to section 3406 withholding only, and thus does not apply to section 3402(t) withholding.

Practical considerations also support the section 31(a)(2) crediting rule. Taxpayers generally will have received Forms 1099-MISC reporting the withholding prior to filing income tax returns crediting the income tax withheld, promoting accuracy in return filing.

Commenters requested that taxpayers be permitted to credit the income tax withheld against the estimated tax liability for the specific tax quarter in which the income tax is withheld. However, the Code specifically provides that crediting for estimated tax purposes occurs in the taxable year in which the tax withheld may be taken as a credit against income tax liability. See sections 6654(g)(1) and 6655(g)(1)(B). Thus, the final regulations do not adopt this comment.

Many commenters requested that taxpayers be permitted to credit their section 3402(t) withholding against employment taxes on wages or other taxes. The final regulations do not adopt this suggestion. Section 3402(t)(3) directs that crediting occur under the rules in section 31(a), which provides for crediting against income tax. As noted in the preamble to the proposed regulations, if a statute permits income tax payments to be treated as employment tax payments, or vice versa, it makes specific provision for that treatment. See, for example, section 3510(b) (providing that domestic employment taxes are treated as taxes due for estimated tax purposes under section 6654); and section 31(b) (providing for the crediting against income tax of the special refund of social security tax under section 6413(c) applicable when an employee receives wages from two or more employers in excess of the social security contribution and benefit base). The Code does not provide for section 3402(t) withholding to be treated as payments of the taxpayer's employment tax liability. In addition, payments of income tax and employment taxes occur under different processes, using different forms, and are subject to different procedures for corrections of underpayments and overpayments, as well as different audit procedures and potential penalties. Therefore, the crediting of an amount withheld for income tax against an employment tax obligation is not administratively feasible.

Amounts withheld on payments to passthrough entities are subject to the same crediting rules as payments made to other entities. Thus, a passthrough entity with a fiscal year may only claim the credit for its fiscal year beginning in the calendar year during which the amount was withheld pursuant to section 31(a)(2). The timing of when the owners of the passthrough entity take into account the credit would then be determined under the rules applicable to that type of passthrough entity (for example, section 706 for a partnership). Commenters specifically asked how the credit would be allocated by a partnership. This allocation is governed by the rules set forth in § 1.704-1(b)(4)(ii), with appropriate adjustments under section 705.

Commenters requested clarification that a government entity is liable for tax that the entity was required to withhold under section 3402(t) but did not withhold, unless the entity can demonstrate that the payee has paid its income tax liability. Commenters also requested clarification of the rules applicable to corrections of overwithholding and underwithholding, and guidance on the effect of repayments, underpayments, or overpayments for services or property on the determination of section 3402(t) liability.

Section 3402(t)(3) provides that, for purposes of sections 3403 and 3404 and for purposes of so much of subtitle F (except section 7205) as relates to Chapter 24, Collection of Income Tax at Source, payments to any person for property or services that are subject to withholding are treated as if the payments were wages paid by an employer to an employee. If a government entity fails to withhold the tax imposed by section 3402(t), section 3403 applies to determine the government entity's liability.

Section 3403 provides that the employer is liable for the payment of tax required to be deducted and withheld under Chapter 24, and is not liable to any person for the amount of that payment. Section 31.3403-1 of the Employment Tax Regulations provides that every employer required to deduct and withhold the tax under section 3402 from an employee's wages is liable for the payment of the tax whether or not the employer collects the tax from the employee. If the employer fails to withhold all or part of the amount required to be withheld, and thereafter the employee pays the tax, section 3402(d) provides that the tax will not be collected from the employer. Thus, for purposes of section 3402(t), the government entity generally will be liable if it fails to withhold unless under section 3402(d) it can demonstrate that the contractor reported the amount subject to section 3402(t) withholding on its return and paid the income tax due (which may include payment through an amended return or settlement of an audit).

Pursuant to section 3402(t)(3), the rules for adjustments of overpayments or underpayments of income tax withholding on wages also apply to section 3402(t) withholding. See section 6413, § 31.6413(a)-2(c)(1), and § 31.6413(a)-1(b)(1)(i) (repayments and reimbursements to employees of overwithholding, and correction of overpayments of income tax withholding); section 6205 and § 31.6205-1 (corrections of underpayments of income tax withholding). If an error is discovered before a return is filed, the payor must report on the return and pay to the IRS the correct amount of income tax withholding. Corrections of overwithholding or underwithholding of income tax before the return is filed are not adjustments, and a payor that discovers an error before a return is filed but does not report and pay the correct amount of tax to the IRS may not later correct the error through an adjustment.

For purposes of correcting overpayments of income tax withholding, a payor must repay or reimburse the overwithheld income tax to the payee in the same calendar year as the original payment in order to make an adjustment. The payor can then make that adjustment on its return at any time before the period of limitations on credit or refund under section 6511 expires for that calendar year. If the amount of the overwithheld income tax is not repaid or reimbursed to the payee in the same calendar year as the original payment, there is no overpayment to be adjusted; rather the amount withheld will be credited to the payee and subject to a potential tax refund. However, an adjustment may be made to correct an administrative error (that is, an inaccurate reporting of the amount actually withheld).

For purposes of correcting underpayments of income tax withholding, an adjustment can generally only be made in the same calendar year as the original payment. An exception to this general rule applies to corrections for administrative errors (that is, an inaccurate reporting of the amount actually withheld).

Pursuant to section 3402(t)(3), the rules for claims for refund of income tax withholding on wages also apply to section 3402(t) withholding. See section 6414 and § 31.6414-1. Section 6414 permits refunds of income tax withholding only to the extent the amount of the overpayment was not actually deducted and withheld from the payee.

Amounts withheld under section 3402(t) are reported on an annual Form 945.

Accordingly, any corrections of overwithholding or underwithholding during the calendar year are not adjustments; the government entity must report and pay to the IRS the correct amount of tax on Form 945. For example, if a government entity pays an amount subject to section 3402(t) withholding in error to a contractor and the contractor repays the net amount to the government entity within the same calendar year, the government entity should not report the amount and the related withholding on the annual Form 945 (that is, the government entity should report and pay the correct amount of tax on Form 945). Because the correction is made before the return is filed, the correction does not constitute an adjustment. The government entity may reduce its deposit of other withholding reportable on Form 945 for that calendar year to account for the deposit of section 3402(t) withholding on the amount repaid by the contractor. If the contractor repays the government entity an amount in a later calendar year, no adjustment can be made because an adjustment is permitted only in the case of an administrative error (an inaccurate reporting of the amount actually withheld) discovered after the filing of the Form 945. The contractor already received a credit for the amount withheld under the general rules for crediting income tax withholding.

Similarly, the government entity can collect underwithholding only during the same calendar year as the payment (except corrections made in the case of administrative errors). If the underpayment is discovered in a later calendar year, the government entity is liable under section 3403 for any amount that should have been withheld, unless under section 3402(d) it can demonstrate that the contractor reported the amount subject to section 3402(t) withholding on its return and paid the income tax due (which may include payment through an amended return or settlement of an audit). The contractor is liable for any income tax due on any payment subject to withholding regardless of whether the government entity actually withholds any amount from the payment.

The final regulations provide that the $10,000 payment threshold applies to the actual payment made by the government entity, even if the amount of the actual payment is incorrect. For example, if an excessive payment is subject to section 3402(t) withholding, the subsequent repayment of all or a portion of the initial payment does not affect whether the $10,000 threshold was met with respect to the initial payment. Any correction of income tax withholding applies only to the withholding on the amount repaid and not to the remaining portion of the original payment, even if that remaining portion is less than $10,000. Similarly, if the payment was less than $10,000 due to an insufficient payment to the payee, the $10,000 threshold applies separately to the initial payment and the subsequent payment (to make up for the insufficient payment) unless the anti-abuse rule applies (that is, unless the payment was divided into two or more payments primarily to avoid the $10,000 payment threshold).

Numerous commenters indicated that an extended period of time following the issuance of final regulations would be necessary for government entities to adopt the systems and processes necessary to comply with the § 3402(t) withholding and related reporting requirements. Noting the necessity to formulate government acquisition rules that are consistent with the final regulations, as well as the infrastructure needed to apply those rules, some commenters stated that government entities would need at least 18 months from the issuance of final regulations under section 3402(t) to be able to comply.

In response to these practical considerations, the final regulations provide that the withholding and reporting requirements under these regulations apply to payments made after December 31, 2012, subject to an existing contract exception. Thus, under the regulations, payments made under written binding contracts in effect on December 31, 2012, are not subject to section 3402(t) withholding, while payments made after December 31, 2012, under contracts entered into after December 31, 2012, are subject to section 3402(t) withholding unless otherwise excepted. In addition, if an existing contract is materially modified after December 31, 2012, the contract ceases to be an existing contract and payments under the contract become subject to section 3402(t) withholding. With respect to payments before January 1, 2013, government entities are not required to apply section 3402(t) withholding and the related reporting, and accordingly will not be subject to any liability, penalties or interest for failure to do so.

Commenters requested that the material modification rule be removed because of the difficulty in determining whether it applies. Commenters anticipated disputes between parties about what constitutes a material modification and questioned how such disputes would be resolved. Certain commenters also requested that a mere contract renewal not be considered a material modification. Some commenters suggested that, in lieu of a material modification rule, withholding should apply to all contracts after a certain effective date, including those that have not been materially modified.

In response to these comments, at the same time that these final regulations are being issued, the IRS and the Treasury Department are proposing regulations to provide that the exception for payments made under existing contracts will not apply to payments made on or after January 1, 2014. See REG-151687-10. Thus, under these proposed regulations, payments on or after January 1, 2014, under all contracts (existing and new) would be subject to withholding under section 3402(t) unless an exception applies.

The final regulations retain the material modification rule but provide that a mere contract renewal will generally not be considered a material modification. For this purpose, a modification is not a material modification unless it materially affects either the payment terms of the contract or the services or property to be provided under the contract. Thus, for example, a change order (meaning a change in the specifications of a contract that the government entity is authorized to make under the contract without the contractor's consent) generally would not be a material modification unless the change materially affected the price or other payment terms, or the services or property to be provided. The final regulations also provide that modifying a contract to conform to changes in the applicable law is not a material modification.

Several commenters requested guidance on the application of section 3402(t) withholding to payments under Medicare provider agreements. Under the final regulations, Medicare provider agreements in effect as of December 31, 2012, are existing contracts for purposes of the existing contract exception unless materially modified after December 31, 2012. Additionally, renewals of Medicare provider agreements will not be treated as material modifications to the extent the agreement is modified to conform to Federal law. As with other existing contracts, the proposed regulations issued with these final regulations would provide that payments made by government entities on or after January 1, 2014, under both existing and new Medicare provider agreements will be subject to section 3402(t) withholding.

Consistent with the proposed regulations, the final regulations provide a transition rule for payments for property and services made before January 1, 2014. Under this rule, a government entity will not be liable for interest and penalties for failure to withhold on payments for property or services made before January 1, 2014, if the entity made a good faith effort to comply with section 3402(t). However, this rule does not relieve the entity from liability for the amount of tax required to be withheld under section 3402(t).

These regulations apply to payments made after December 31, 2012. In addition, the regulations will not apply to payments under a contract existing on December 31, 2012, unless the contract is materially modified after December 31, 2012.

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to this regulation, and because the regulation does not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Internal Revenue Code, the notice of proposed rulemaking preceding this regulation was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

The principal author of these final regulations is A. G. Kelley, Office of the Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). However, other personnel from the IRS and the Treasury Department participated in their development.

Accordingly, 26 CFR part 31 is amended as follows:

We did not publish a notice of proposed rulemaking (NPRM) for this regulation. The Coast Guard finds that this rule is exempt from notice and comment rulemaking requirements under 5 U.S.C. 553(b)(A) because the changes involve agency organization. The Coast Guard also finds good cause exists under 5 U.S.C. 553(b)(B) for not publishing an NPRM because the changes will have no substantive effect on the public, and notice and comment are therefore unnecessary. For the same reasons, the Coast Guard finds good cause under 5. U.S.C. 553(d)(3) to make the rule effective fewer than 30 days after publication in the Federal Register.

The Coast Guard has reorganized Sector North Carolina. The Coast Guard has the authority to do so under 14 U.S.C. 92, which gives the Secretary of Homeland Security the authority to establish the limits of, consolidate, discontinue, and re-establish Coast Guard districts; and DHS Delegation 0170.1, which delegates that authority to the Coast Guard.

The previous organization of Sector North Carolina was described in regulations, which also contain contact details and other references to Sector North Carolina. This technical amendment updates those regulations so that they contain current information.

Sector North Carolina was established by a 2007 technical amendment that updated regulations to reflect a broad sector realignment (72 FR 36316, July 2, 2007). At that time, Sector North Carolina's office was located in Fort Macon, NC, with a Marine Safety Unit (MSU) in Wilmington, NC, responsible for the Cape Fear River Marine Inspection and Captain of the Port (COTP) Zones. Various regulations addressing marine events, safety zones, and regulated navigational areas contained references to Sector North Carolina, MSU Wilmington, and the Cape Fear River Marine Inspection and COTP Zones.

The Coast Guard has now reorganized Sector North Carolina by moving the Sector office to Wilmington, NC and by disestablishing MSU Wilmington and the Cape Fear River Marine Inspection and COTP Zones. This reorganization is intended to improve field-level operations in the region and improve access to the Sector Commander for the industry within the Port of Wilmington. The consolidation into one COTP zone will strengthen unity of command in the Sector North Carolina area of responsibility and provide a single interface point for state and local officials.

This rule amends 33 CFR part 3 to reflect the new organization of Sector North Carolina. The revised § 3.25-20 indicates that Sector North Carolina's office is located in Wilmington, NC, rather than in Fort Macon, NC, and eliminates the separate description of the Cape Fear River Marine Inspection and COTP Zones. The boundaries of the Sector's Marine Inspection Zone and COTP Zone are otherwise unchanged, except for the correction of a typographical error that previously had placed the offshore boundary outside the exclusive economic zone.

This rule also amends 33 CFR part 100, addressing special local regulations for marine events in the Fifth Coast Guard District. Specifically, it removes § 100.501(d)(5), which had referred to the Cape Fear River COTP Zone, and revises § 100.501(d) to provide updated contact information.

This rule amends several sections of 33 CFR part 165 affecting safety zones and a regulated navigation area. Specifically, it provides updated contact information and updated COTP designations in §§ 165.506, 165.514, 165.515, 165.518, 165.530, and 165.540. These changes do not place any new requirements on the public.

We developed this rule after considering numerous statutes and executive orders related to rulemaking. Below we summarize our analyses based on 13 of these statutes or executive orders.

This rule is not a significant regulatory action under section 3(f) of Executive Order 12866, Regulatory Planning and Review, as supplemented by Executive Order 13563, and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. The Office of Management and Budget has not reviewed it under that Order. Because this rule involves internal agency organization and non-substantive changes, it will not impose any costs on the public.

Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we have considered whether this rule would have a significant economic impact on a substantial number of small entities. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. This rule does not require a general NPRM and therefore is exempt from the requirements of the Regulatory Flexibility Act. Although this rule is exempt, we have considered its potential impact on small entities and found that it will not have a significant economic impact on a substantial number of small entities.

Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call1-888-REG-FAIR (1-888-734-3247). The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard.

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

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

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

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

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

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

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

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

The National Technology Transfer and Advancement Act (NTTAA) (15 U.S.C. 272 note) directs agencies to use voluntary consensus standards in their regulatory activities unless the agency provides Congress, through the Office of Management and Budget, with an explanation of why using these standards would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards ( e.g., specifications of materials, performance, design, or operation; test methods; sampling procedures; and related management systems practices) that are developed or adopted by voluntary consensus standards bodies. This rule does not use technical standards. Therefore, we did not consider the use of voluntary consensus standards.

We have analyzed this rule under Department of Homeland Security Management Directive 023-01 and Commandant Instruction M16475.lD, which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321-4370f), and have concluded that this action is one of a category of actions that do not individually or cumulatively have a significant effect on the human environment. This rule is categorically excluded under section 2.B.2, figure 2-1, paragraph (34)(a) of the Instruction. This rule involves editorial or procedural regulations. An environmental analysis checklist and a categorical exclusion determination are available in the docket where indicated under ADDRESSES .

For the reasons discussed in the preamble, the Coast Guard amends 33 CFR parts 3, 100, and 165 as follows:

The Kansas City Southern Railroad has requested a temporary deviation from the operating schedule of the vertical lift span bridge across the Neches River at mile 19.5 in Beaumont, Texas. The vertical clearance of the bridge in the closed-to-navigation position is 13 feet above Mean High Water and 140 feet above Mean High Water in the open-to-navigation position.

In accordance with 33 CFR 117.971, the vertical lift span of the bridge is automated and normally not manned but will open on signal for the passage of vessels. This deviation allows the vertical lift span of the bridge to remain closed to navigation from 7 a.m. on Monday, May 23, 2011 through 7 a.m. on Thursday, May 26, 2011.

The closure is necessary in order to replace four haul cables on the bridge that allow the bridge to be raised. This maintenance is essential for the continued operation of the bridge. Notices will be published in the Eighth Coast Guard District Local Notice to Mariners and will be broadcast via the Coast Guard Broadcast Notice to Mariners System.

Navigation on the waterway consists of commercial and recreational fishing vessels, small to medium crew boats, and small tugs with and without tows. No alternate routes are available for the passage of vessels; however, the closure was coordinated with waterway interests who have indicated that they will be able to adjust their operations around the proposed work schedule. Small vessels may pass under the bridge while in the closed-to-navigation position provided caution is exercised.

Due to prior experience and coordination with waterway users, it has been determined that this closure will not have a significant effect on vessels that use the waterway.

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

The Canadian National Railroad requested a temporary deviation for Elgin, Joliet, and Eastern Railroad Drawbridge, across the Illinois Waterway, mile 270.6, near Morris, Illinois to remain in the closed-to-navigation position for eighty-four hours while the existing lift span is removed and the replacement lift span is installed. The Elgin, Joliet, and Eastern Railroad Drawbridge currently operates in accordance with 33 CFR 117.5, which states the general requirement that drawbridges shall open promptly and fully for the passage of vessels when a request to open is given in accordance with the subpart.

There are no alternate routes for vessels transiting this section of the Illinois Waterway.

The Elgin, Joliet, and Eastern Railroad Drawbridge, in the closed-to-navigation position, provides a vertical clearance of 26.3 feet above flat pool. Navigation on the waterway consists primarily of commercial tows and recreational watercraft. This temporary deviation has been coordinated with waterway users. No objections were received.

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

Regulatory Information

The Coast Guard is issuing this temporary final rule without prior notice and opportunity to comment pursuant to authority under section 4(a) of the Administrative Procedure Act (APA) (5 U.S.C. 553(b)). This provision authorizes an agency to issue a rule without prior notice and opportunity to comment when the agency for good cause finds that those procedures are “impracticable, unnecessary, or contrary to the public interest.” Under 5 U.S.C. 553(b)(B), the Coast Guard finds that good cause exists for not publishing a notice of proposed rulemaking (NPRM) with respect to this rule because any delay encountered in this regulation's effective date by publishing a NPRM would be contrary to public interest since immediate action is needed to provide for the safety of life and property on navigable waters. Under 5 U.S.C. 553(d)(3), the Coast Guard finds that good cause exists for making this rule effective less than 30 days after publication in the Federal Register . Delaying the effective date would be contrary to the public interest since immediate action is needed to ensure the safety of the event participants, spectator craft, and other vessels transiting the event area.

Coast Guard Sector Hampton Roads has been notified that Langley Air Force Base will host an air show event in the vicinity of Willoughby Point, VA immediately above the Back River, Hampton, VA. The event is scheduled to take place May 13, 2011 through May 15, 2011. In recent years, there have been unfortunate instances of jets and planes crashing during performances at air shows. Along with a jet or plane crash, there is typically a wide area of scattered debris that also damages property and could cause significant injury or death to mariners observing the air show. Due to the need to protect mariners transiting on the Back River immediately below the Air Show from the hazards associated with a potential jet or plane crash, the Coast Guard is establishing a safety zone bound by the following coordinates: 37°05′35″N/076°20′47″ W; thence to 37°05′43″ N/076°20′14″ W; thence to 37°05′19″ N/076°20′02″ W; thence to 37°05′12″ N/076°20′18″ W (NAD 1983). Access to this area will be temporarily restricted for public safety purposes.

The Coast Guard is establishing a safety zone on specified waters of the Back River bound by the following coordinates: 37°05′35″ N/076°20′47″ W; thence to 37°05′43″ N/076°20′14″ W; thence to 37°05′19″ N/076°20′02″ W; thence to 37°05′12″ N/076°20′18″ W (NAD 1983), in the vicinity of Willoughby Point on the Back River, Hampton, Virginia.

This safety zone is in the interest of public safety during the Hampton Roads Air Show and will be enforced from 5 p.m. to 9 p.m. on May 13, 2011, from 9 a.m. to 5 p.m. on May 14, and from 9 a.m. to 5 p.m. on May 15, 2011. Access to the safety zone will be restricted during the specified dates and times. Except for vessels authorized by the Captain of the Port or his Representative, no person or vessel may enter or remain in the safety zone.

We developed this rule after considering numerous statutes and executive orders related to rulemaking. Below we summarize our analyses based on 13 of these statutes or executive orders.

This rule is not a significant regulatory action under section 3(f) of Executive Order 12866, Regulatory Planning and Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. The Office of Management and Budget has not reviewed it under that Order. Although this regulation restricts access to the safety zone, the effect of this rule will not be significant because: (i) The safety zone will be in effect for a limited duration; (ii) the zone is of limited size; (iii) mariners may transit the waters in and around this safety zone at the discretion of the Captain of the Port or designated representative; and (iv), the Coast Guard will make notifications via maritime advisories so mariners can adjust their plans accordingly.

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

The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities.

The rule would affect the following entities, some of which might be small entities: The owners or operators of vessels intending to transit or anchor in a portion of the Back River from 5 p.m. to 9 p.m. on May 13, 2011, from 9 a.m. to 5 p.m. on May 14, and from 9 a.m. to 5 p.m. on May 15, 2011.

This safety zone will not have a significant economic impact on a substantial number of small entities for the following reasons: (i) The safety zone will only be in place for a limited duration. (ii) Before the enforcement period of May 13, 2011 to May 15, 2011, maritime advisories will be issued allowing mariners to adjust their plans accordingly.

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

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we offer to assist small entities in understanding the rule so that they can better evaluate its effects on them and participate in the rulemaking process.

Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call1-888-REG-FAIR (1-888-734-3247). The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard.

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

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

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

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

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

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

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

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

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

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

We have analyzed this rule under Department of Homeland Security Management Directive 023-01 and Commandant Instruction M16475.lD, which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321-4370f), and have concluded this action is one of a category of actions which do not individually or cumulatively have a significant effect on the human environment. This rule is categorically excluded, under figure 2-1, paragraph (34)(g), of the Instruction. This rule involves establishing a temporary safety zone. An environmental analysis checklist and a categorical exclusion determination will be available in the docket where indicated under ADDRESSES .

For the reasons discussed in the preamble, the Coast Guard amends 33 CFR part 165 subpart C as follows:

Throughout this document, “we,” “us” and “our” refer to EPA.

On May 21, 2010 (75 FR 28509), EPA proposed to approve the following rule into the California SIP.

We proposed to approve this rule because we determined that it complied with the relevant CAA requirements. Our proposed action contains more information on the rule and our evaluation.

EPA's proposed action provided a 30-day public comment period. During this period, we received comments from the following parties.

1. Susan Asmus, National Association of Home Builders (NAHB); letter dated July 6, 2010.

2. Lawrence J. Joseph, representing the American Road & Transportation Builders Association (ARTBA); letter dated July 6, 2010.

3. Paul Cort, EarthJustice; letter dated July 6, 2010.

4. Mat Ciremele, email dated May 25, 2010.

The comments and our responses are summarized below.

Comment #1: NAHB asserts that EPA must disapprove Rule 9510 because a state must provide adequate assurances of the legal authority to carry out all SIP revisions and, in light of NAHB's legal challenge to Rule 9510 in the U.S. Court of Appeals and the possibility of the court's finding section 6.1.1 of Rule 9510 preempted and unenforceable, the SJVUAPCD cannot enforce the emission limitations in section 6.1.1 because the limitations are preempted standards or other requirements.

Response #1: The commenter is correct in asserting that a state must provide assurances of legal authority to carry out SIPs and SIP revisions. See CAA section 110(a)(2)(E)(SIPs must “provide (i) necessary assurances that the State * * * will have adequate * * * authority under State (and, as appropriate, local) law to carry out such implementation plan * * * ”). In our Technical Support Document (TSD) for the proposed rule, we recognized the legal challenge brought by NAHB against the SJVUAPCD in connection with enforcement of Rule 9510. At the time we proposed action on Rule 9510, NAHB had appealed to the Ninth Circuit Court of Appeals [in National Association of Home Builders v. San Joaquin Valley Unified Air Pollution Control District (No. 08-17309)] to overturn a District Court ruling that held that Rule 9510 was not preempted under the CAA, but the Ninth Circuit had not yet reached a decision on the appeal. Based on the information available to us at the time, we concluded that the SJVUAPCD had the authority to adopt and implement Rule 9510 because we believed that the limits in the rule were not preempted under CAA section 209(e), consistent with the District Court ruling.

Since publication of the proposed rule, the Ninth Circuit has published its opinion in National Association of Home Builders v. San Joaquin Valley Unified Air Pollution Control District, 627 F.3d 730 (9th Cir. 2010) (“NAHB”). In an opinion filed December 7, 2010, the Ninth Circuit affirmed the District Court's ruling that Rule 9510 was not preempted. With respect to the express preemption of CAA section 209(e)(1), which preempts states and subdivisions thereof from adopting or attempting to enforce any standard or other requirement relating to the control of emissions from either of two categories of new nonroad vehicles or engines, the court held that Rule 9510 was not preempted because none of the construction equipment that Rule 9510 regulates would be considered “new” under EPA's pre-existing (and permissible, in the court's view) definition of “new.”

Before turning to the implied preemption of CAA section 209(e)(2), which preempts states and subdivisions thereof from adopting or attempting to enforce any standard or other requirement relating to the control of emissions from all other types of nonroad vehicles and engines not covered in CAA section 209(e)(1), the court first determined that Rule 9510 was authorized under CAA section 110(a)(5), the CAA section that allows states and subdivisions thereof to include indirect source review (ISR) programs in a SIP. CAA section 110(a)(5)(C) defines “indirect sources” as meaning “a facility, building, structure, installation, real property, road, or highway which attracts, or may attract, mobile sources of pollution,” but also provides that “[d]irect emissions sources or facilities at, within, or associated with, any indirect source shall not be deemed indirect sources for the purposes of this paragraph.”

Noting that Rule 9510 is ultimately directed at emissions that come from construction equipment ( i.e., direct sources), the court, nonetheless, concluded that Rule 9510 was authorized under section 110(a)(5) because in the court's view, the limitation only makes sense if it is read to prohibit an indirect source review program from targeting direct sources at, within, or associated with, any indirect source apart from the program's regulation of an indirect source, and Rule 9510 does not target construction equipment apart from its regulation of development sites. The court also notes that the scope of Rule 9510 indicates that the rule targets sites rather than equipment. The reach of the rule depends on the character of the site, not on the character of the equipment. The court then concluded that the feature that allows Rule 9510 to qualify as an indirect source for the purposes of CAA section 110(a)(5), i.e., its site-based regulation of emissions, was the same feature that allows the rule to avoid preemption under CAA section 209(e)(2).

Given the appellate court's decision, we believe that any significant doubt about the SJVUAPCD's authority to enforce the emissions requirements in section 6.1.1 has been removed, and that our approval of Rule 9510 is consistent with CAA section 110(a)(2)(E) as explained in the proposal.

Comment #2: NAHB asserts that the emission limits of section 6.1.1 of Rule 9510 are preempted under CAA section 209(e)(1) because they represent “standards or other requirements” relating to the control of emissions from new nonroad construction vehicles or engines less than 175 horsepower.

Response #2: CAA section 209(e)(1) states: “No State or any political subdivision thereof shall adopt or attempt to enforce any standard or other requirement relating to the control of emissions from * * * (A) New engines which are used in construction equipment or vehicles or used in farm equipment or vehicles and which are smaller than 175 horsepower. (B) New locomotives or new engines used in locomotives. Subsection (b) of this section shall not apply for purposes of this paragraph.” The construction equipment to which section 6.1.1 of Rule 9510 applies is not new equipment. Under EPA's nonroad emissions standard regulations, “new” means “a nonroad engine, nonroad vehicle, or nonroad equipment the equitable or legal title to which has never been transferred to an ultimate purchaser. Where the equitable or legal title to the engine, vehicle, or equipment is not transferred to an ultimate purchaser until after the engine, vehicle, or equipment is placed into service, then the engine, vehicle, or equipment will no longer be new after it is placed into service.” See 40 CFR 89.2. This definition was upheld by the Court of Appeals for the District of Columbia in Engine Manufacturers Association v. EPA, 88 F.3d 1075 (DC Cir. 1996) ( EMA v. EPA ), and the 9th Circuit, in NAHB, also indicated its view that this definition was permissible.

Rule 9510 applies to applicants that seek final discretionary approval for certain development projects, and thus the emission limits in section 6.1.1 of Rule 9510 apply to construction equipment that has already been purchased or placed into service, and brought to a development site to meet the particular construction needs of a given development project. Therefore, the limits do not apply to new construction equipment within the meaning of CAA section 209(e)(1).

Even if the emission limits in the rule could have the consequence of influencing an applicant early in the planning process in connection with the purchase of construction equipment, for the reasons provided in the TSD to EPA's proposed rule on Rule 9510 and in the responses, EPA believes that the emission limits in section 6.1.1 of Rule 9510 do not represent a standard or other requirement relating to the control of emissions from new nonroad engines or nonroad vehicles, and thus are not preempted under CAA section 209(e)(1).

NAHB references the Supreme Court's decision in Engine Manufacturers Assocation v. South Coast Air Quality Management District, 541 U.S. 246 (2004) ( EMA v. South Coast ). However, that case involved a regulation of vehicles that clearly were “new,” as defined in the statute, as the regulations applied to vehicles at the time of purchase. Rule 9510 applies after the time of purchase of the engine and in any case is directed to the site of the project, not the engine, and can be met in ways that do not implicate the purchase of new engines. The Court of Appeals has ruled that Rule 9510 is not preempted under section 209(e)(1) and we follow and agree with that decision.

Comment #3: NAHB asserts that the emission limits of section 6.1.1 of Rule 9510 are preempted under CAA section 209(e)(2) because they apply to used nonroad construction equipment greater than 50 horsepower.

Response #3: CAA section 209(e)(2) applies to, among other categories of nonroad vehicles and engines, used nonroad vehicles or engines, and it allows EPA to authorize, after notice and opportunity for public hearing, the State of California to adopt and enforce standards and other requirements relating to the control of emissions from such vehicles or engines if certain criteria are met. As asserted by the commenter, no authorization has been sought from EPA by California for the emission limitations in section 6.1.1 of Rule 9510. However, EPA does not believe such authorization is required because, while section 6.1.1 sets standards relating to the control of emissions from used construction equipment, EPA notes that the standards at issue in this SIP revision relate directly only to emissions associated with development sites. As the Court of Appeals stated, this regulation is authorized as an indirect source review program under section 110(a)(5) of the Act. Rule 9510 does not regulate nonroad engines directly and would not affect nonroad engines apart from the possible effects from the regulation of the indirect source as a whole. The court noted that given the language in section 110 authorizing indirect source programs, they would cautiously examine the Act before concluding that section 209(e)(2) preempted such a program. The court also distinguished the cases cited by NAHB, EMA v. South Coast and Pacific Merchant Shipping Ass'n v. Goldstene, 517 F.3d 1108 (9th Cir. 2008), by noting that the regulations in those cases were directed at vehicles, not sites. EPA also notes that Rule 9510 allows compliance with the site-based requirement using actions that would not affect the engines at the site or would only affect the use of the engine, which EPA has already determined is not preempted by section 209(e)(2). See also, EMA v. EPA and Pacific Merchant Shipping Ass'n v. Goldstene, 2009 U.S. Dist Lexis 55516, 70 ERC 1337 (E.D. Cal. 2009). Thus any argument that the requirements are de facto standards on nonroad engines is not persuasive. The Court of Appeals has ruled that Rule 9510 is not preempted under section 209(e)(2) and we follow and agree with that decision.

Comment #4: Citing Engine Manufacturers Association v. South Coast Air Quality Management District [541 U.S. 246 (2004)], NAHB asserts that EPA erred in finding that the emissions limits in Rule 9510 are not preempted under CAA section 209(e) because the standards can be met in numerous ways including options that do not involve any changes to nonroad equipment and that the emission limits in Rule 9510 would be preempted only if they impose burdens so onerous that manufacturers would be forced to alter the design or emission control equipment on new nonroad engines or vehicles.

Response #4: EPA agrees that, if the emission limits in Rule 9510 were standards or other requirements relating to the emissions from nonroad vehicles or engines, then the limits would be preempted under section 209(e) regardless of whether the rule provides for compliance options other than direct reduction of emissions from nonroad vehicles or engines and regardless of whether the limits would in practical effect force manufacturers to alter the design or emission control equipment on new nonroad engines or vehicles. In this case, though, as noted above and as found by the Court of Appeals, the emission limits in Rule 9510 are not such standards.

In the TSD, EPA describes the flexibility provided in Rule 9510 to developers in meeting the emissions limitations not to show that the standards are therefore not preempted, but as further evidence that the rule truly is an indirect source rule that only indirectly regulates emissions from direct sources (such as construction equipment). Furthermore, in the TSD, EPA evaluates the potential for Rule 9510, as an ISR rule otherwise authorized under CAA section 110(a)(5), to nevertheless run afoul of CAA section 209(e), and in so doing, EPA identified two ways that an ISR rule that on its face is authorized under CAA section 110(a)(5) could nonetheless be preempted. First, the ISR rule could be preempted if the rule in practice as applied acts to compel the manufacturer or user of a nonroad engine or vehicle to change the emission control design of the engine or vehicle, or second, an ISR rule could be preempted if it creates incentives so onerous as to be in effect a purchase mandate. EPA concluded, however, that Rule 9510 would not have either type of effect and would not operate in such a way as to amount to a standard controlling the emissions of nonroad vehicles or engines, and thus would not be preempted.

Comment #5: NAHB contrasts EPA's stated position on preemption of state attempts to enforce fleet-based nonroad emissions standards with EPA's proposed approval of section 6.1.1 of Rule 9510 which, in NAHB's view, establishes emissions standards for fleets of construction equipment when used at construction sites subject to Rule 9510.

Response #5: EPA agrees that, if the emission limits in Rule 9510 were standards or other requirements relating to the control of emissions from nonroad vehicles or engines, then the fact that they apply to fleets of construction equipment, rather than to individual nonroad vehicles or engines, would not make any difference as to preemption. Such fleet-based nonroad emission limits would be preempted just as would emission limits that apply to individual nonroad engines or vehicles.

However, as the Court of Appeals found, the emission limits in section 6.1.1. of Rule 9510 are not standards or other requirements relating to the control of emissions from nonroad vehicles or engines, but rather, are emission reduction obligations that relate to the construction-phase at development sites, and as such are not preempted. EPA notes that the rule by its terms (see section 2.0 of the rule) applies to applicants seeking discretionary approval for development projects that meet certain size criteria and to certain transportation or transit projects, not to fleets of nonroad vehicles or engines. EPA also notes that a developer has numerous options to meet the emission reduction obligation in section 6.1.1, including options that do not involve any changes to construction equipment (see section 6.3 of the rule). The flexibility provided in the rule in meeting the emission reduction obligation in section 6.1.1 provides further evidence that the rule is intended to reduce emissions from construction sites as an indirect source of emissions, rather than to regulate the construction equipment directly, either as a fleet or as individual pieces of equipment.

Comment #6: ARTBA petitions EPA to amend EPA's rules implementing CAA section 209(e) to clarify that: (1) Section 209(e) preempts rules based on nonroad fleets to the same extent that it preempts rules based on individual nonroad vehicles and engines; (2) section 209(e)'s preemption lasts throughout nonroad vehicles and engines' useful life; (3) section 209(e)(1)(A) preempts California standards and other requirements related to emissions from farm and construction equipment under 175 horsepower to the same extent that section 209(e)(1)(B) preempts California standards and other requirements related to emissions from locomotives; and (4) section 209(e) preempts emission-based regulation of the use and operation of nonroad vehicles and engines, such as regulations on hours of usage, daily mass emission limits, and fuel restrictions.

Response #6: ARTBA's petition seems to be little more than a renewal of its earlier request for an amendment to EPA's rule implementing CAA section 209(e). EPA denied ARTBA's petition. See 73 FR 59034 (October 8, 2008). ARTBA's challenge to EPA's denial of ARTBA's petition was dismissed for lack of subject matter jurisdiction by the U.S. Court of Appeals for the DC Circuit. See Am. Rd. & Transp. Builders Ass'n v. EPA, 588 F.3d 1109 (DC Cir. 2009), petition for cert. denied, No. 09-1485 (U.S. Oct. 4, 2010). ARTBA's petition, except as discussed below, is related to the general preemption issues that ARTBA has raised previously and not specifically to the proposal to add Rule 9510 to the California SIP. EPA has already reviewed these issues several times and is not revisiting these broader issues in this limited proceeding. To the extent ARTBA intends EPA to do so, the request is denied. Further, because EPA did not propose any changes to its rules implementing section 209(e) in this rulemaking on the California SIP, it could not make any such revisions in this final rule in any event.

Comment #7: ARTBA contends that, in EPA's final rule on California's submittal of Rule 9510, EPA should find that EPA's action has “nationwide scope or effect” pursuant to CAA section 307(b)(1) leading to exclusive jurisdiction in the U.S. Court of Appeals for the District of Columbia to ensure nationwide uniformity in the interpretation and enforcement of these important CAA issues.

Response #7: CAA section 307(b)(1) generally provides that judicial review of EPA action in approving a SIP or SIP revisions may be filed only in the U.S. Court of Appeals for the appropriate circuit. Thus, final EPA actions on revisions to the California SIP, such as Rule 9510, are generally subject to timely challenges filed in the U.S. Court of Appeals for the Ninth Circuit. However, judicial review of an EPA SIP action may be filed only in the U.S. Court of Appeals for the District of Columbia if such action is based on a determination of nationwide scope or effect and if in taking such action the EPA finds and publishes that such action is based on such a determination.

We do not believe that our action approving Rule 9510 as a revision to the California SIP is based on a determination of “nationwide scope or effect.” While we recognize Rule 9510 as a novel approach for advancing air quality goals, the innovative or unusual nature of the rule alone does not give our approval of it under CAA section 110 “nationwide scope or effect.” Once approved, Rule 9510 will become enforceable under the CAA by its terms only to certain development projects within the geographic jurisdiction covered by the SJVUAPCD. Thus, EPA's approval of Rule 9510 is clearly regional in scope and effect.

Of course, EPA's rationale for approval of Rule 9510 sets a precedent for future rulemaking actions on similar ISR rules submitted to EPA as SIP revisions by California or any other state, but the precedential effect in this instance is no different than for EPA actions approving or disapproving any other SIP or SIP revision anywhere in the country. Thus, EPA's action on Rule 9510 is based on a determination of no greater scope or effect than any other EPA action on SIPs, which are reviewable only in the U.S. Courts of Appeal of the appropriate circuit, not necessarily the U.S. Court of Appeals for the District of Columbia.

Comment #8: ARTBA contends that EPA cannot approve Rule 9510 as a SIP revision because: (1) Section 209(e) preempts Rule 9510 as an impermissible standard and “other requirement” related to emissions for construction equipment both above and below 175 horsepower; (2) California and the SJVUAPCD therefore lack authority to enforce Rule 9510, and (3) SIP approval does not meet the criteria or procedures for waiving federal preemption such as California's protectiveness determination, consistency with sections 209 and 202(a), and the opportunity for an EPA hearing.

Response #8: As to preemption issues, please see our responses to comments #2 through #5 above. As to the legal authority to enforce Rule 9510, please see our response to comment #1. Lastly, as to the failure by Rule 9510 to meet the criteria or procedures for waiving preemption, we do not believe that Rule 9510 requires a waiver because, as discussed above and as determined by the Court of Appeals, it is not preempted as it does not establish standards or other requirements relating to the control of emissions of nonroad engines or vehicles for the purposes of CAA section 209(e) but rather establishes standards relating to the control of emissions from an indirect source, the construction phase of development projects.

Comment #9: Citing EPA's TSD for Rule 9510, NAHB notes EPA has concluded that some provisions of Rule 9510 concerning on-site and off-site emissions reductions are not federally enforceable. NAHB asserts that section 172(c)(6) the CAA (42 U.S.C. 7502(c)(6)) prohibits EPA from incorporating into a SIP “any portion of Rule 9510 that it has determined to be federally unenforceable.”

Response #9: NAHB misinterprets section 172(c)(6) the Act. As cited by NAHB, section 172(c)(6) does state that SIPs “shall include enforceable emissions limitations.” However, NAHB reads this language to mean that SIPs shall only include enforceable emissions limitations. This reading is far from correct. SIPs contain many aspects which are not federally enforceable emissions limitations. For example, approved SIPs contain such items as current emissions inventories, future emissions inventory projections based upon economic and technological trends, and air quality modeling. In addition, section 172(c)(6) expressly provides for “other control measures, means or techniques” which may not include enforceable emissions limitations. One example given in section 172(c)(6) is “economic incentives such as fees.” The imposition of a fee on a polluting activity may create an incentive to minimize the resulting pollution from that activity, and the incentive might be successful in accomplishing that goal. However, imposition of the fee, in itself, in no way creates an enforceable emissions limitation.

In addition, as noted in EPA's TSD, through policies such as “Guidance for Incorporating Voluntary Mobile Source Emission Reduction Programs in State Implementation Plans (VMEP)” and “Incorporating Emerging and Voluntary Measures into a State Implementation Plan (SIP),” EPA has recognized that measures and rules which are not federally enforceable can be incorporated into a SIP pursuant to the Act in appropriate circumstances.

Finally, in evaluating rules or measures which contain novel and/or voluntary aspects, some issues regarding federal enforceability really concern the amount of emissions reductions which can be legally compelled pursuant to such a rule or measure, and, therefore, what amount of emissions reductions, if any, should be credited toward satisfying the planning requirements of section 110 of the Act. This is the case with Rule 9510. As noted by NAHB, many of the issues described in EPA's TSD concern the mechanisms created by Rule 9510 to accomplish emissions reductions. For example, a project developer subject to Rule 9510 might choose to pay fees instead of reducing emissions associated with the project site. In turn, the SJVUAPCD would use these collected fees to generate off-site emissions reductions. The SJVUAPCD's ability to require these reductions would rely on a contract between the SJVUAPCD and an off-site project applicant.

If Rule 9510 was incorporated into the SIP, EPA could use the Act's enforcement authority to require that the appropriate fees be collected from a project developer, and that the collected fees be used by the SJVUAPCD to seek off-site emissions reductions. However, the issue of federal enforceability arises because EPA may not be able to enforce the terms of a contract between the SJVUAPCD and an off-site project applicant, and thus the emissions reductions required by that contract, pursuant to its enforcement authority under the Act. Thus the issue is not EPA's ability to enforce the provisions of Rule 9510 as they are written, but whether those provisions create adequate legal authority for EPA to require emissions reductions which are sought or claimed by the rule. In view of these enforceability concerns, among other issues, the TSD recommends approving Rule 9510 into the SIP, but also recommends that “reductions from the Rule should not be credited in any attainment and rate of progress/reasonable further progress demonstrations or used to meet contingency measure requirements until the District corrects the identified problems, which we believe the District should easily be able to do.” In today's final rule we therefore approve Rule 9510 but we do not assign any emissions reduction credit to the rule for purposes of any attainment or progress demonstration in any area.

Comment #10: NAHB states that Rule 9510 is not an “incentive” program that “encourages” reductions, but rather Rule 9510 requires developers to achieve emission reductions. NAHB therefore asserts that Rule 9510 is not an economic incentive program and EPA's guidance, “ Improving Air Quality with Economic Incentive Programs” (EIP Guidance) does not apply.

Response #10: Economic incentive programs (EIPs), as defined by EPA's EIP Guidance, 1 are programs which may include State established measures directed toward stationary, area, and/or mobile sources, to achieve emission reductions milestones to attain and maintain ambient air quality standards, and/or to provide more flexible, lower-cost approaches to meeting environmental goals. EIPs use market-based strategies to encourage reducing emissions in the most efficient manner (see EIP Guidance sections 1.1 and 15.1). While Rule 9510 requires developers subject to the rule to reduce emissions, it also provides developers the flexibility of paying a fee as an alternative means to comply. The developer may choose to pay a fee when it is a lower cost approach to meeting the rule requirements. Rule 9510 also requires SJVUAPCD to administer a program that uses these funds to achieve surplus emission reductions. Because the program as a whole includes this separate program where SJVUAPCD will use the funds to obtain emission reductions, it allows for a more flexible and potentially lower cost approach to getting emission reductions from the program. For these two reasons, Rule 9510 is an economic incentive program and EPA's EIP Guidance applies.

Comment #11: NAHB states that Rule 9510 is not a voluntary program, that it is a mandatory program. NAHB asserts that EPA's “ Guidance on Incorporating Voluntary Mobile Source Emission Reduction Programs in State Implementation Plans (VMEP)” does not apply.

Response #11: First, we wish to clarify that EPA proposed to approve Rule 9510 because it strengthens the SIP. EPA did not propose to approve Rule 9510 as a measure under VMEP. 2 Our discussion of VMEP and the Emerging and Voluntary Measures Policy  3 was intended to provide the SJVUAPCD and the public with information concerning certain deficiencies in Rule 9510 and how these deficiencies might be addressed under the policies so that SIP emission reduction credit could be granted for the emission reductions achieved by Rule 9510. In addition, we acknowledge that we may not have made fully clear in the TSD the difference between enforceability in the context of reviewing the provisions of an individual emissions control rule as distinct from being able to assure that a state's commitment to achieve emissions reductions is fully accomplished.

The commenter is correct that entities subject to Rule 9510 are required to comply with the rule, and in that sense the provisions are mandatory. However, the commenter misunderstands the scope and potential applicability of VMEP.

VMEP defines voluntary measures as emission reduction programs that rely on voluntary actions of individuals or other parties for achieving emission reductions. However, a State's obligations with respect to VMEPs must be enforceable at the State and Federal levels. That is, under the VMEP policy guidance, the State is not responsible, necessarily, for implementing a program dependent on voluntary actions. However, the State is obligated to monitor, assess and report on the implementation of voluntary actions and the emission reductions achieved from the voluntary actions and to remedy in a timely manner emission reduction shortfalls should the voluntary measure not achieve projected emission reductions.

While the developer must comply with the rule, several of the developer's compliance options rely upon voluntary emission reductions. For instance, the developer could include on-site mitigation measures designed to reduce vehicle miles travelled by the residents. Emission reductions would occur when residents voluntarily choose to drive less. Alternatively, the developer could also pay a fee in lieu of implementing on-site mitigation measures. While the SJVUAPCD would use the funds to achieve emission reductions, the entities actually providing the emission reductions are voluntarily participating in the program and are not subject to a rule. Because some of the activities generating the actual emission reductions are voluntary, VMEP could be used to help evaluate whether SIP credit is appropriate if the deficiencies discussed in section (5)(f) of our TSD are addressed.

Comment #12: NAHB notes that EPA's guidance “ Incorporating Emerging and Voluntary Measures into a State Implementation Plan (SIP)” (Emerging and Voluntary Measures Policy) does not apply to emissions from mobile sources. NAHB states that while EPA asserts that developers are the entities subject to the rule, developers are not the “sources” of NO X and PM 10 mobile source emissions. NAHB states that nonroad engines and vehicles are the “source” of emissions regulated by Section 6.1.1. NAHB therefore concludes that this policy does not apply.

Response #12: In section (5)(b)(iv) of our TSD (page 13), we discuss enforceability and how prohibitory rules typically hold “sources” of emissions legally responsible for the required emission reductions. Rule 9510 in contrast applies to developers. As the entity subject to the rule and legally responsible for the emission reductions, our reference to the developer as the “source” in Rule 9510 was shorthand to reflect their legal responsibility under Rule 9510. The commenter is correct that sources of emissions are normally categorized as mobile, stationary, or area sources. However, as we described in Response #1, the CAA recognizes that development projects are “indirect sources” and can be subject to regulation in a SIP.

Development projects indirectly result in new emissions from mobile, stationary, and area sources, including those from new or longer vehicle trips, fuel combustion from stationary and area sources, use of consumer products, landscaping maintenance, and construction activities.

While the calculation of emission reductions required by Rule 9510 takes into account construction equipment emissions (Section 6.1) and operational emissions (Section 6.2), the emission reduction obligation is expressed in tons of NO X and tons of PM 10 without regard to whether the reductions must come from mobile, stationary, or area sources. Indeed, Section 6.3 allows the emission reduction requirement to be met through any combination of on-site measures or off-site fees.

Because the sources of emissions are mobile, stationary, and area sources and the emission reductions could come from all three types of sources, EPA has appropriately considered the guidances “ Incorporating Emerging and Voluntary Measures into a State Implementation Plan (SIP)” which applies to stationary and area sources, and “ Guidance on Incorporating Voluntary Mobile Source Emission Reduction Programs in State Implementation Plans (VMEP)” which applies to mobile sources. As we clarified in Response #11, the discussion in the TSD on the consideration of these policies was largely to provide the SJVUAPCD and the public with information on how rule deficiencies might be addressed in the future.

Comment #13: NAHB states that even if the Emerging and Voluntary Measures Policy applied to non-road mobile sources under Rule 9510, EPA cannot approve Rule 9510 because the non-road mobile source reductions are not permanent. The reductions are not permanent because they are not federally enforceable.

Response #13: As we stated in Responses #11 and #12, EPA did not propose to approve Rule 9510 as a measure under the Emerging and Voluntary Measures Policy, and the discussion in the TSD was largely to provide information on how rule deficiencies might be addressed in the future to obtain SIP credit for emission reductions. While thus not relevant to our action in approving Rule 9510, we will elaborate on the concept of permanent.

Whether a reduction is considered “permanent” is dependent on the duration of the obligation which the particular measure and resulting emission reductions are meant to address. The commenter has noted that EPA identified enforceability concerns with the provisions requiring implementation of the mitigation measure, and Response #9 addresses the enforceability issue. Enforceability is a separate question from whether the non-road mobile source mitigation measure, if implemented, results in permanent reductions. If a developer's mitigation measure is the use of lower emitting construction equipment, the very use of that equipment results in a stream of emission reductions during the construction phase. Although these reductions may not be federally enforceable, they can still be permanent during the relevant time period.

No comments were submitted that change our assessment that the submitted rules comply with the relevant CAA requirements. Therefore, as authorized in section 110(k)(3) of the Act, EPA is fully approving this rule into the California SIP.

Under the Clean Air Act, 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 Clean Air Act. 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 interfere with Executive Order 12898 (59 FR 7629 (Feb. 16, 1994)) because EPA lacks the discretionary authority to address environmental justice in this rulemaking.

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.

The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this action and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register . A major rule cannot take effect until 60 days after it is published in the Federal Register . This action is not a “major rule” as defined by 5 U.S.C. 804(2).

Under section 307(b)(1) of the Clean Air Act, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by July 8, 2011. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this action for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements (see section 307(b)(2)).

Part 52, Chapter I, Title 40 of the Code of Federal Regulations is amended as follows:

Throughout this document, “we,” “us” and “our” refer to EPA.

On February 9, 2011 (76 FR 7142), EPA proposed to approve the following rules into the California SIP.

We proposed to approve these rules because we determined that they complied with the relevant CAA requirements. Our proposed action contains more information on the rules and our evaluation.

EPA's proposed action provided a 30-day public comment period. During this period, we received no comments.

No comments were submitted that change our assessment that the submitted rules comply with the relevant CAA requirements. Therefore, as authorized in section 110(k)(3) of the Act, EPA is fully approving these rules into the California SIP.

Under the Clean Air Act, 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 Clean Air Act. 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 disproportionate human health or environmental effects with practical, appropriate, 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.

The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this action and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register . A major rule cannot take effect until 60 days after it is published in the Federal Register . This action is not a “major rule” as defined by 5 U.S.C. 804(2).

Under section 307(b)(1) of the Clean Air Act, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by July 8, 2011. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this action for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements (see section 307(b)(2)).

Part 52, Chapter I, Title 40 of the Code of Federal Regulations is amended as follows:

I. Incorporation By Reference A. What is codification?

Codification is the process of placing a State's statutes and regulations that comprise the State's authorized hazardous waste management program into the Code of Federal Regulations (CFR). Section 3006(b) of RCRA, as amended, allows EPA to authorize State hazardous waste management programs to operate in lieu of the federal hazardous waste management regulatory program.

EPA codifies its authorization of the State programs in 40 CFR part 272 and incorporates by reference State statutes and regulations that EPA will enforce under sections 3007 and 3008 of RCRA and any other applicable statutory provisions.

The incorporation by reference of State authorized programs in the CFR should substantially enhance the public's ability to discern the current status of the authorized State program and State requirements that can be federally enforced. This effort provides clear notice to the public of the scope of the authorized program in each State.

Wisconsin initially received final authorization on January 30, 1986, effective January 31, 1986 (51 FR 3783) to implement the RCRA hazardous waste management program. EPA granted authorization for changes to Wisconsin's program on May 23, 1989, effective June 6, 1989 (54 FR 15029), on November 22, 1989, effective January 22, 1990 (54 FR 48243), on April 24, 1992, effective April 24, 1992 (57 FR 15029), on June 2, 1993, effective August 2, 1993 (58 FR 31344), on August 5, 1994, effective October 4, 1994 (59 FR 39971), on August 5, 1999, effective October 4, 1999 (64 FR 42630), on June 26, 2002, effective June 26, 2002 (67 FR 43027), on April 15, 2009 (74 FR 17423) effective April 15, 2009, and on April 17, 2009 (74 FR 17785) effective April 17, 2009.

EPA first codified Wisconsin's authorized hazardous waste program on February 21, 1989, effective April 24, 1989 (54 FR 7422), and updated the codification of Wisconsin's program on March 30, 1990, effective May 29, 1990 (55 FR 11910), and September 22, 1993, effective November 22, 1993 (58 FR 49199). In this action, EPA is revising Subpart YY of 40 CFR part 272 to include the authorization revision actions effective through April 17, 2009.

The purpose of today's Federal Register document is to codify Wisconsin's base hazardous waste management program and its revisions to that program. This codification reflects the Wisconsin hazardous waste program EPA authorized in final rules dated April 15, 2009 (74 FR 17423) and April 17, 2009 (74 FR 17785).

EPA provided notices and opportunity for comments on its decisions to authorize the Wisconsin program. EPA is not now reopening the decisions, nor requesting comments, on the Wisconsin authorizations as published in the Federal Register notices specified in Section B of this document.

This document incorporates by reference Wisconsin's authorized hazardous waste statutes and regulations and clarifies which provisions are included in the authorized and federally enforceable program. By codifying Wisconsin's authorized program and by amending the CFR, the public will be more easily able to discern the status of federally approved requirements of the Wisconsin hazardous waste management program.

EPA is incorporating by reference the Wisconsin authorized hazardous waste program in subpart YY of 40 CFR part 272. 40 CFR 272.2501 incorporates by reference Wisconsin's authorized hazardous waste statutes and regulations. Section 272.2501 also references the statutory provisions (including procedural and enforcement provisions) which provide the legal basis for the State's implementation of the hazardous waste management program, the Memorandum of Agreement, the Attorney General's Statements, and the Program Description, which are approved as part of the hazardous waste management program under Subtitle C of RCRA.

The EPA retains its authority under statutory provisions, including but not limited to, RCRA sections 3007, 3008, 3013, and 7003, and other applicable statutory and regulatory provisions to undertake inspections and enforcement actions and to issue orders in all authorized States. On occasion when EPA might need to undertake these actions, it will rely on Federal sanctions, Federal inspection authorities, and Federal procedures rather than any authorized State analogues to these provisions. Therefore, EPA is not incorporating by reference any such approved Wisconsin procedural and enforcement authorities. 40 CFR 272.2501(c)(2) lists the statutory provisions which provide the legal basis for the State's implementation of the hazardous waste management program, as well as those procedural and enforcement authorities that are part of the State's approved program, but these are not incorporated by reference.

The public needs to be aware that some provisions of Wisconsin's hazardous waste management program are not part of the federally authorized State program. These non-authorized provisions include:

(1) Provisions that are not part of the RCRA subtitle C program because they are “broader in scope” than RCRA subtitle C (see 40 CFR 271.1(i));

(2) Federal rules for which Wisconsin is not authorized, but which have been incorporated into the State regulations because of the way the State adopted Federal regulations by reference.

(3) Unauthorized State requirements; and

(4) State procedural and enforcement authorities which are necessary to establish the ability of the State's program to enforce compliance but which do not supplement the Federal statutory enforcement and procedural authorities.

State provisions that are “broader in scope” than the Federal program are not part of the RCRA authorized program and EPA will not enforce them. Therefore, they are not incorporated by reference in 40 CFR part 272. For reference and clarity, 40 CFR 272.2510 (c) (3) lists the Wisconsin regulatory provisions which are “broader in scope” than the Federal program and which are not part of the authorized program being incorporated by reference. “Broader in scope” provisions cannot be enforced by EPA; the State, however, may enforce such provisions under State law.

With respect to any requirement pursuant to the Hazardous and Solid Waste Amendments of 1984 (HSWA) for which the State has not yet been authorized, EPA will continue to enforce the Federal HSWA standards until the State is authorized for these provisions.

EPA is not amending 40 CFR part 272 to include HSWA requirements and prohibitions that are implemented by EPA. Section 3006(g) of RCRA provides that any HSWA requirement or prohibition (including implementing regulations) takes effect in authorized and not authorized States at the same time. A HSWA requirement or prohibition supersedes any less stringent or inconsistent State provision which may have been previously authorized by EPA (50 FR 28702, July 15, 1985). EPA has the authority to implement HSWA requirements in all States, including authorized States, until the States become authorized for such requirement or prohibition. Authorized States are required to revise their programs to adopt the HSWA requirements and prohibitions, and then to seek authorization for those revisions pursuant to 40 CFR part 271.

Instead of amending the 40 CFR part 272 every time a new HSWA provision takes effect under the authority of RCRA section 3006(g), EPA will wait until the State receives authorization for its analog to the new HSWA provision before amending the State's 40 CFR part 272 incorporation by reference. Until then, persons wanting to know whether a HSWA requirement or prohibition is in effect should refer to 40 CFR 271.1(j), as amended, which lists each such provision.

Some existing State requirements may be similar to the HSWA requirement implemented by EPA. However, until EPA authorizes those State requirements, EPA can only enforce the HSWA requirements and not the State analogs. EPA will not codify those State requirements until the State receives authorization for those requirements.

The Office of Management and Budget has exempted this rule from its review under Executive Order 12866 (58 FR 51735, October 4, 1993) and, therefore, this action is not subject to review by OMB.

This rule does not impose an information collection burden under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ).

This action authorizes State requirements for the purpose of RCRA section 3006 and imposes no additional requirements beyond those imposed by State law. Accordingly, I certify that this rule will not have a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ).

Because this rule approves pre-existing requirements under State law and does not impose any additional enforceable duty beyond that required by State law, it does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4).

Executive Order 13132 (64 FR 43255, August 10, 1999) does not apply to this rule because it will not have federalism implications ( i.e., substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government).

Executive Order 13175 (65 FR 67249, November 9, 2000) does not apply to this rule because it will not have tribal implications ( i.e., substantial direct effects on one or more Indian tribes, or on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes).

This rule is not subject to Executive Order 13045 (62 FR 19885, April 23, 1997), because it is not economically significant as defined in Executive Order 12866 and because EPA does not have reason to believe the environmental health or safety risks addressed by this action present a disproportionate risk to children.

This rule is not subject to Executive Order 13211 (66 FR 28355, May 22, 2001), because it is not a significant regulatory action as defined in Executive Order 12866.

EPA approves State programs as long as they meet criteria required by RCRA, so it would be inconsistent with applicable law for EPA, in its review of a State program, to require the use of any particular voluntary consensus standard in place of another standard that meets requirements of RCRA. Thus, the requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) do not apply to this rule.

As required by section 3 of Executive Order 12988 (61 FR 4729, February 7, 1996), in issuing this rule, EPA has taken the necessary steps to eliminate drafting errors and ambiguity, minimize potential litigation, and provide a clear legal standard for affected conduct.

EPA has complied with Executive Order 12630 (53 FR 8859, March 18, 1988) by examining the takings implications of the rule in accordance with the Attorney General's Supplemental Guidelines for the Evaluation of Risk and Avoidance of Unanticipated Takings issued under the executive order.

Because this rule proposes authorization of pre-existing State rules and imposes no additional requirements beyond those imposed by State law and there are no anticipated significant adverse human health or environmental effects, the rule is not subject to Executive Order 12898 (59 FR 7629, February 16, 1994).

EPA will submit a report containing this rule and other information required by the Congressional Review Act (5 U.S.C. 801 et seq. ) to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to the publication in the Federal Register . A major rule cannot take effect until 60 days after it is published in the Federal Register . This action is not a “major rule” as defined by 5 U.S.C. 804(2).

For the reasons set forth in the preamble, 40 CFR part 272 is amended as follows:

This is a synopsis of the Commission's Report and Order and Order on Reconsideration (Order), FCC 11-50, adopted and released on April 7, 2011. The full text of the Order is available for inspection and copying during regular business hours in the FCC Reference Center, 445 Twelfth Street, SW., Room CY-A257, Portals II, Washington, DC 20554, and may also be purchased from the Commission's copy contractor, BCPI, Inc., Portals II, 445 Twelfth Street, SW., Room CY-B402, Washington, DC 20554. Customers may contact BCPI, Inc. via their Web site, http://www.bcpi.com, or call 1-800-378-3160. This document is available in alternative formats (computer diskette, large print, audio record, and braille). Persons with disabilities who need documents in these formats may contact the FCC by e-mail: FCC504@fcc.gov or phone: 202-418-0530 or TTY: 202-418-0432.

1. In 1978, Congress added section 224 to the Communications Act of 1934, as amended (Communications Act or Act) thereby directing the Commission to ensure that the rates, terms, and conditions for pole attachments by cable television systems are just and reasonable. Section 224 provides that the Commission will regulate pole attachments except where such matters are regulated by a state. Section 224 also withholds from the Commission jurisdiction to regulate attachments where the utility is a railroad, cooperatively organized, or owned by a government entity.

2. The Telecommunications Act of 1996 (1996 Act) expanded the definition of pole attachments to include attachments by providers of telecommunications service, and granted both cable systems and telecommunications carriers an affirmative right of nondiscriminatory access to any pole, duct, conduit, or right-of-way owned or controlled by a utility. However, the 1996 Act permits utilities to deny access where there is insufficient capacity and for reasons of safety, reliability or generally applicable engineering purposes. Besides establishing a right of access, the 1996 Act set forth section 224(e) — a rate methodology for “attachments used by telecommunications carriers to provide telecommunications services” — in addition to the existing methodology in section 224(d) for attachments “used by a cable television system solely to provide cable service.”

3. The Commission implemented the new section 224 access requirements in the Local Competition Order (47 FR 47283, Sept. 6, 1996, FCC 96-333, rel. Aug. 8, 1996). At that time, the Commission concluded that it would determine the reasonableness of a particular condition of access on a case-by-case basis. Finding that no single set of rules could take into account all attachment issues, the Commission specifically declined to adopt the National Electrical Safety Code (NESC) in lieu of access rules. The Commission also recognized that utilities typically develop individual standards and incorporate them into pole attachment agreements, and that, in some cases, Federal, state, or local laws also impose relevant restrictions. The Local Competition Order acknowledged concerns that utilities might deny access unreasonably, but, rather than adopt a set of substantive engineering standards, the Commission decided that procedures for requiring utilities to justify the conditions they placed on access would best safeguard attachers' rights. The Commission did adopt five rules of general applicability and several broad policy guidelines in the Local Competition Order. The Commission also stated that it would monitor the effect of the case-specific approach, and would propose specific rules at a later date if conditions warranted.

4. In the 1998 Implementation Order (63 FR 12013, Mar. 12, 1998, FCC 98-20, rel. Feb. 6, 1998), the Commission adopted rules implementing the 1996 Act's new pole attachment rate formula for telecommunications carriers. The Commission also concluded that cable television systems offering both cable and Internet access service should continue to pay the cable rate. The Commission further held that wireless carriers had a statutory right of nondiscriminatory access to poles. Although the latter two determinations were challenged, both were ultimately upheld by the Supreme Court. In particular, the Court held that section 224 gives the Commission broad authority to adopt just and reasonable rates. The Court also deferred to the Commission's conclusion that wireless carriers are entitled by section 224 to attach facilities to poles.

5. On November 20, 2007, the Commission issued the Pole Attachment NPRM (73 FR 6879, Feb. 6, 2008, FCC 07-187, rel. Nov. 20, 2007) in recognition of the importance of pole attachments to the deployment of communications networks, in part in response to petitions for rulemaking from USTelecom and Fibertech Networks. USTelecom argued that incumbent LECs, as providers of telecommunications service, are entitled to just and reasonable pole attachment rates, terms, and conditions of attachment even though, under section 224, they are not included in the term “telecommunications carriers” and therefore have no statutory right of access. Fibertech petitioned the Commission to initiate a rulemaking to set access standards for pole attachments, including standards for timely performance of make-ready work, use of boxing and extension arms, and use of qualified third-party contract workers, among other concerns. The Pole Attachment NPRM sought comment on the concerns raised by USTelecom and Fibertech, as well as the application of the telecommunications rate to wireless pole attachments and other pole access concerns.

6. The American Recovery and Reinvestment Act of 2009 included a requirement that the Commission develop a national broadband plan to ensure that every American has access to broadband capability. On March 16, 2010, the National Broadband Plan was released, and identified access to rights-of-way—including access to poles—as having a significant impact on the deployment of broadband networks. Accordingly, the Plan included several recommendations regarding pole attachment access, enforcement, and pricing policies to further advance broadband deployment.

7. On May 20, 2010, the Commission issued the Pole Attachment Order and FNPRM. In the 2010 Order (75 FR 45494, Aug. 3, 2010, FCC 10-84, rel. May 20, 2010), the Commission took initial steps to clarify the rules governing pole attachments and to streamline the pole attachment process. The Commission clarified the statutory right of communications providers to use the same space- and cost-saving techniques that pole owners use, such as placing attachments on both sides of a pole (boxing), and established that providers have a statutory right to timely access to poles. In the FNPRM (75 FR 41338, July 15, 2010, FCC 10-84, rel. May 20, 2010), the Commission sought comment on a variety of measures to speed access to poles. The Commission proposed a comprehensive timeline for all wired pole attachment requests and sought comment on possible adjustments to that timeline. The Commission sought comment on whether to adopt a separate timeline for wireless attachments. The Commission proposed to permit attachers to use independent contractors to perform surveys and make-ready work if the pole owner missed its deadlines, subject to certain conditions. The Commission further proposed that utilities may deny access by contractors to work among the electric lines. In addition, the Commission proposed a staggered payment system for make-ready work; proposed requiring a schedule of make-ready charges; proposed requiring joint pole owners to designate a single managing utility; and sought comment on improving the collection and availability of data.

8. The Commission also sought comment on whether current rules governing pole attachment complaints create appropriate incentives for parties to settle or resolve disputes informally, and whether appropriate remedies are available when parties pursue formal complaints. The FNPRM sought comment on ways to reduce the existing disparities in pole rental rates and proposed to address those disparities by reinterpreting the telecom rate formula and by considering the issues surrounding possible regulation of pole attachments by incumbent local exchange carriers (LECs).

9. On September 2, 2010, various electric utilities and cable providers filed petitions seeking clarification or reconsideration of parts of the 2010 Order concerning the nondiscriminatory use of attachment techniques. The petitions ask the Commission to clarify, among other things, whether a utility must allow attachers to use the same attachment techniques that it uses for itself in the electric space, and whether a pole owner is free to impose new boxing and extension arm requirements going forward.

10. The Commission has held workshops addressing pole attachment issues. On September 28, 2010 the Wireline Competition Bureau convened a workshop to “learn from the experiences and insights of state regulators regarding the Commission's proposed pole attachment regulations.” On February 9, 2011, the Commission held a Broadband Acceleration Conference that brought together leaders from Federal, state, and local governments; broadband providers; telecommunications carriers; tower companies; equipment suppliers; and utility companies to identify opportunities to reduce regulatory and other barriers to broadband build-out. At this conference, the Commission announced its Broadband Acceleration Initiative: an agenda for work inside the Commission, with our partners in Tribal, state, and local government, and with the private sector to reduce barriers to broadband deployment.

11. We take several steps to improve access to utility poles. Our rules are generally consistent with proposals in the FNPRM, but also reflect a close examination of the record developed in this proceeding. We adopt a four-stage timeline that provides a maximum of 148 days for attachers to access the communications space on utility poles. For wireless attachments above the communications space, we adopt a modified form of the timeline. The timeline begins to run after the requester submits a complete application. We also establish that a utility may stop the clock for emergencies pursuant to a “good and sufficient cause” standard. We adopt rules that allow attachers to use independent contractors pre-authorized by the utilities to complete survey and make-ready work in the communications space, subject to a number of protections and conditions, if the pole owner does not meet the prescribed timelines. In particular, electric utilities have ultimate decision-making authority regarding the contractor's work with respect to section 224(f)(2) denial-of-access issues.

12. We allow a utility to limit on a per-state basis the size of a pole attachment request that is subject to the timeline, and allow extra time for large orders. Specifically, we apply the basic timeline to requests of up to 300 pole attachments per state or attachments to 0.5 percent of the utility's in-state poles, whichever is less. For larger requests of up to 3,000 pole attachments per state or 5 percent of the utility's in-state poles, whichever is less, additional time is provided for survey and make-ready. Utilities may treat multiple in-state requests from a single attacher during a 30-day period as one request. Our rules further provide that any denial of a request to attach must cite with specificity the particular safety, reliability, engineering, or other valid concern that is the basis for denial. We clarify that blanket prohibitions on pole top access are not permitted. And, as noted elsewhere in the Order, we encourage a high degree of pre-planning and coordination between attachers and pole owners, to begin as early in the process as possible.

13. We decline to adopt several proposals set forth in the FNPRM or that commenters recommend, and explain those decisions. For example, we determine that the timeline will provide adequate incentives for joint owners of poles to coordinate, and thus do not require joint owners to name a single management entity. We also conclude that several subsections of section 224 provide the Commission with sufficient authority to adopt a timeline and other access rules.

14. For most attachments, the total time from submission of the request through completion of make-ready should take between 105 and 148 days, depending on how long the parties take to prepare and accept an estimate. Attachers may hire contractors authorized by the utility to complete make-ready either on the 133rd or 148th day, depending on whether an owner timely notifies the attacher that it intends to move existing facilities and conduct make-ready if existing attachers have failed to move their attachments. Although we establish this timeline as a maximum, we recognize that the necessary work can often proceed more rapidly, especially at the estimate and acceptance stages, or for relatively routine requests. It would not be reasonable behavior for a utility to take longer to fulfill any requests simply because a timeline with maximum timeframes is being adopted. Likewise, for large orders, we allow 15 more days for the survey and 45 more days to complete make-ready.

15. Stage 1—Survey: 45 days. We require a utility to respond within 45 days of receipt of a complete application to attach facilities on the utility's poles—for both wireline and wireless attachments either in or above the communications space. This required response is specified in our current 45-day response rule, which provides that, where a utility denies an attachment request, it must provide a written explanation of its denial that is specific; include all supporting evidence and information; and explain how the evidence and information relate to reasons of lack of capacity, safety, reliability, or engineering standards. The 45-day period also accords with the “survey” period in some state models and a proposal in the record. Indeed, the FNPRM stated that “[the 45-day response] rule is functionally identical to a requirement for a survey and engineering analysis when applied to wired facilities, and is generally understood by utilities as such.” No commenter disagrees, and most utilities regularly meet this deadline. According to a Utilities Telecom Council survey of its members, utilities meet the 45-day requirement 81 percent of the time. More than half of the missed deadlines are caused by either the size of the project or errors in the application. Our new rules address both of these problems: under the rules we adopt today the timeline does not start until a completed application is submitted, and there is flexibility for larger orders. Thus, we expect that utilities acting diligently and in good faith will be able to conduct surveys within the prescribed 45-day period. Owners are given an additional 15 days for large orders.

16. To constitute a “request for access” necessary to trigger the timeline, a requester must submit a complete application that provides the utility with the information necessary under its procedures to begin to survey the poles. We find that pole owners must timely notify attachers of errors in an application, and may not stop the clock to correct errors in an application once it is accepted as complete, as surveys that are not interrupted are more conducive to dependable timeframes. Furthermore, the timing of any such notification of deficiencies in an application must be reasonable. If the request involves attachment of facilities that are unfamiliar to the utility, engineering specifications must be established prior to submission of the application. If an application is submitted for which such engineering specifications have not been established, the pole owner must respond in a manner that is reasonable and timely under the circumstances, but in any event within 45 days. We leave the specific processes for establishing such engineering specifications to individual utilities, so long as they are reasonable and timely.

17. Stages 2 and 3—Estimate and Acceptance: Where a request for access is not denied, a utility must present to a requesting entity an estimate of charges to perform all necessary make- ready work within 14 days of providing its Stage 1 response—or within 14 days after the requesting entity delivers its own survey to the pole owner, as it may do if the pole owner fails to meet the timeline's Stage 1 deadline. The requesting entity may consider the estimate for 14 days after receiving it before the utility may withdraw the offer. Both offer and acceptance may be made sooner than the maximum 14 days. Estimates will not expire automatically after 14 days, but rather must be actively withdrawn by the utility. If an estimate is withdrawn by the utility, the prospective attacher must resubmit its application for attachment.

18. Stage 4—Make-Ready: Upon receipt of payment from the attacher, we require a utility to notify immediately and in writing all known entities with existing attachments that may be affected by the planned make-ready. The notice shall: (1) Specify where and what make-ready will be performed; (2) set a date for completion of make-ready no later than 60 days after notification (or 105 days after notification in the case of larger orders) for attachments in the communications space, or no later than 90 days after notification (or 135 days after notification in the case of larger orders) for wireless attachments above the communications space; (3) state that any entity with an existing attachment may add to or modify the attachment before the date set for completion of make-ready; (4) state that the utility may assert its right to 15 additional days to complete make-ready and that, for attachment in the communications space, the requesting entity may complete the specified make-ready itself if make-ready is not completed by the date set by the utility (or, if the utility has asserted its 15-day right of control, by the date 15 days after that completion date); and (5) state the name, telephone number, and e-mail address of a person to contact for more information about the make-ready procedure. Under normal circumstances, performance of make-ready will complete the elements of the timeline that precede actual attachment.

19. For wireless attachments above the communications space on a pole, we include an extra 30 days for make-ready for two reasons. First, these attachments generally are located in, near or above the electric space, which can raise significant safety concerns. Second, the record reflects that, at present, there is less experience with application of state timelines to attachments at the pole top, and in those circumstances, it is appropriate to err on the side of caution. Also, we follow state models that allow additional days for make-ready for large orders within a single state.

20. Completion by Owner: If make-ready is not completed by the date specified in the utility's notice to entities with existing attachments, a utility, prior to the expiration of the 60-day notice period (or 105-day notice period in the case of larger orders), may notify the requesting attacher in writing that it intends to assert its right to complete all remaining work within 15 days. In such cases, the utility will have an additional 15 days to complete make-ready. If make-ready remains unfinished at the end of the 15-day extension, the attacher may assume control of make-ready at that point (Day 148 of the timeline, or Day 193 in the case of larger orders). Thus, we permit a pole owner to assert its right to 15 days to complete make-ready in lieu of adopting an automatic fifth stage for “multi-party coordination” as proposed in the FNPRM. For attachments in the communications space, if the utility does not timely assert its right to 15 extra days to perform make-ready, control of the project transfers to the new attacher immediately at the end of the 60-day period (or 105-day period in the case of larger orders), and the attacher may use a contractor to complete make-ready.

21. Scope of the Timeline. The timeline we adopted—which is modeled after the timeline that has been in use in Utah—applies to all requests by telecommunications carriers (including wireless) and cable operators for attachment in the communications space on a pole. The timeline begins when an application is complete, such that the utility has been provided with the information necessary under its procedures to begin to survey the requested pole(s), including developed engineering specifications for the particular equipment to be attached. A modified form of the timeline applies to wireless attachments by telecommunications carriers and cable operators that are made above the communications space. The timeline does not apply to section 224 ducts, conduits, or rights-of-way. We affirm that completion of an initial pole attachment agreement or “master agreement” is not a prerequisite to starting the clock on a completed application, which may have multiple attachment requests within it. Applications that are outside the scope of the timeline remain subject to the general requirement that the pole owner provide a specific written response within 45 days.

22. Remedy: Utility-Approved Contractors. Requesters need a way to obtain access to poles if a utility does not meet the deadlines we impose. We adopt the proposal in the FNPRM and hold that, if a utility does not meet the deadline to complete a survey or make-ready established in the timeline, an attacher may hire contractors to complete the work in the communications space. We require each utility to make available a reasonably sufficient list of contractors that it authorizes to perform surveys or make-ready on its poles, and require that the attacher must use contractors from this list. We also seek to ensure that safety and network integrity are preserved at all costs. Thus, we require attachers that hire contractors to perform survey and make-ready work to provide a utility with an opportunity for a utility representative to accompany and consult with the attacher and its contractor prior to commencement of any make-ready work by the contractor. Consulting electric utilities are entitled to make final determinations in case of disputes over capacity, safety, reliability, and generally applicable engineering purposes.

23. Limit on Order Size. Based on the record before us and successful state models, we adopt limits on the size of attachment requests that are subject to the timelines we adopt today. The limits on size of attachment requests apply both to attachments in the communications space and the longer timeline for wireless attachments above the communications space. Specifically, we apply the timeline to orders up to the lesser of 0.5 percent of the utility's total poles within a state or 300 poles within a state during any 30-day period. For larger orders—up to the lesser of 5 percent of a utility's total poles in a state or 3,000 poles within a state—we add 15 days to the timeline's survey period and 45 days to the timeline's make-ready period, for a total of 60 days. For in-state orders greater than 3,000 poles, we require parties to negotiate in good faith regarding the timeframe for completing the job. An attacher always has the ability to submit requests of up to 3,000 poles in any 30-day period, so an attacher could start a 9,000 pole order within a single state through the timeline over three successive months.

24. Stopping the Clock. Emergencies and certain events during the make-ready phase that are beyond a utility's control may legitimately interrupt pole attachment projects, and the FNPRM sought comment on how best to reconcile the timeline with this reality. We adopt a “good and sufficient cause” standard under which a utility may toll the timeline for no longer than necessary where conditions render it infeasible to complete the make-ready work within the prescribed timeframe. A utility must exercise its judgment in invoking a clock stoppage in the context of its general duty to provide timely and nondiscriminatory access, and an attacher may challenge a utility's failure to either meet its deadline or surrender control of make-ready if a clock stoppage is not justified by good and sufficient cause.

25. Specificity of Denials. We clarify that, regardless of whether a utility has a master agreement with a wireless carrier, the specificity requirement of § 1.1403(b) of the Commission's rules applies to all denials of requests for access. The Commission's rules require that, when a utility denies a request for access, it must state with specificity its reasons for doing so. Section 1.1403(b) of the Commission's rules requires that denials of access be confirmed in writing within 45 days of the request. The utility also “shall be specific, shall include all relevant evidence and information supporting its denial, and shall explain how such evidence and information relate to a denial of access for reasons of lack of capacity, safety, reliability or engineering standards.” In the FNPRM, the Commission proposed that, where a utility has no master agreement with a carrier for wireless attachments requested, the utility may satisfy the requirement to respond with a written explanation of its concerns with regard to capacity, safety, reliability, or engineering standards.

26. Pole Tops. We clarify that section 224 allows wireless attachers to access the space above what has traditionally been referred to as “communications space” on a pole. On previous occasions, the Commission has declined to establish a presumption that this space may be reserved for utility use only, and has stated that the only recognized limits to access for antenna placement are those contained in the statute. Yet wireless attachers assert that pole top access is persistently challenged by pole owners, who often impose blanket prohibitions on attaching to some or all pole tops. Blanket prohibitions are not permitted under the Commission's rules. We reject the assertions of some utilities that our rule regarding pole tops will create a “ de facto presumption in favor of pole top attachments” or otherwise “restrict an electric utility's right to deny access for reasons of safety and reliability.” Instead, we clarify that a wireless carrier's right to attach to pole tops is the same as it is to attach to any other part of a pole. Utilities may deny access “where there is insufficient capacity, and for reasons of safety, reliability, and generally applicable engineering purposes.” The record in this proceeding is replete with examples of various types of pole top attachments that have been successfully accommodated, both for wireless attachers and for the utilities themselves.

27. As proposed in the FNPRM, we resolve an ambiguity in the Commission's rules regarding the use of contractors to attach facilities “in the proximity of electric lines” after make-ready has been completed and attachment permits issued. Specifically, we clarify that “proximity of electric lines” in this context includes work that extends into the safety space that separates the communications space from the electric space, but does not include work among the power lines. While an attacher may use a contractor to attach a wireless antenna above the communications space and associated safety space, we find that an attacher may only use a contractor that has the proper qualifications and that the utility has approved to perform such work. Utilities are not required to keep a separate list of contractors for this purpose, but must be reasonable in approving or disapproving contractors. Accordingly, the standard for attachment by a contractor in the communications space remains that of the “same qualifications” as the utility, but any attachment in the electric space must be at the higher utility-approved standard.

28. In the FNPRM, we proposed to require owners to consolidate authority in one managing utility when more than one utility owns a pole and to make the identity of this managing utility publicly available. We decline to adopt the proposed rules relating to joint ownership, but we clarify and emphasize that we expect joint owners to coordinate and cooperate with each other and with requesting attachers consistent with pole owners' duty to provide just and reasonable access.

29. We conclude that section 224 authorizes the Commission to promulgate the access rules we adopted, including the timeline and its self-effectuating remedy for failure to meet the timeline in the communications space. Through section 224(b)(1), Congress explicitly delegated authority to the Commission to “regulate the rates, terms, and conditions for pole attachments,” as well as to develop procedures necessary for resolving complaints arising under the Commission's substantive regulations, and to fashion appropriate remedies. In addition, section 224(b)(2) directs the Commission to make rules to carry out the provisions of this section. Congress also gave more specific substantive guidance for access to poles in section 224(f): “just and reasonable” access must also be “nondiscriminatory.”

30. Revising Pole Attachment Dispute Resolution Procedures. In the FNPRM, we sought comment on whether the Commission should modify its existing procedural rules governing pole attachment complaints. Several commenters expressed the view that new procedures and processes are not needed or that existing procedures can be improved to address any problems. Similarly, there was little discussion of, or support for, the formation of specialized forums to address enforcement issues. A number of commenters, however, maintained that the Commission should do more to encourage parties to resolve their disputes themselves prior to filing a complaint with the Commission.

31. We agree that parties ought to make every effort to settle their disputes informally before instituting formal processes at the Commission. Section 1.1404(k) of the Commission's rules requires a complainant to “include a brief summary of all steps taken to resolve the problem before filing,” and, if no such steps were taken, to “state the reason(s) why it believed such steps were fruitless.” In our view, however, that rule does not adequately ensure that the parties will engage in serious efforts to resolve disputes prior to the initiation of litigation. We believe a requirement similar to that imposed by the California Public Utility Commission, requiring “executive-level” discussions, should be incorporated into the Commission's rules. We therefore revise Commission rule §  1.1404(k) to require that there be “executive-level discussions” ( i.e., discussions among individuals who have sufficient authority to make binding decisions on behalf of the company they represent), preferably face-to-face, prior to the filing of a complaint at the Commission. We will consider in any enforcement proceedings whether such coordination has taken place.

32. In addition, a number of commenters expressed concern about the length of time it takes for the Commission to resolve pole attachment complaints. We believe that the new processes adopted elsewhere in the Order will have the effect of expediting the pole access process. And, to the extent that access disputes remain a problem, we will make every effort to resolve them expeditiously. We do not believe that other substantial changes, such as new procedures or specialized forums, are justified at this time.

33. Efficient Informal Dispute Resolution Process. The FNPRM sought comment on whether the Commission should attempt to encourage “local dispute resolution,” and several commenters endorsed the notion. We agree, and believe that it is desirable for parties to include dispute resolution procedures in their pole attachment agreements. Any refusal to enter into an agreement because it contains a dispute resolution provision would be considered unreasonable. We suggest that issues to be addressed specifically in a dispute resolution provision might include the requirement of executive-level settlement negotiations, and reliance on a forum other than the Commission ( e.g., an arbitrator or expert panel) to resolve disputes. We also note that the Commission's pre-complaint mediation process has had marked success in helping parties resolve pole attachment disputes, and we encourage parties to utilize that process.

34. This Order also concludes, as proposed in the FNPRM, that the portion of the Commission's rules § 1.1404(m) that provides that potential attachers who are denied access to a pole, duct, or conduit must file a complaint “within 30 days of such denial” should be eliminated. We believe the 30-day rule no longer serves a useful purpose, and is actually counterproductive at times. Any concern about stale complaints is addressed by our modifications of the Commission's rules § 1.1410, which state that remedies must be “consistent with the applicable statute of limitations.” We therefore eliminate the portion of the Commission's rules § 1.1404(m) requiring that denial of access complaints be filed within 30 days.

35. Remedies. The FNPRM proposed to amend § 1.1410 of the Commission's pole attachment complaint rules to enumerate the remedies available to an attacher that proves a utility has unlawfully delayed or denied access to its poles, simply codifying the existing authority and practice, and we accordingly adopt the rule change as proposed. The FNPRM also proposed to amend the Commission's rules § 1.1410 to specify that compensatory damages may be awarded where an unlawful denial or delay of access is established, or a rate, term, or condition is found to be unjust and unreasonable. After reviewing voluminous and sharply divided comments on this question, we decline, at this time, to amend the Commission's rules § 1.1410 to allow compensatory damages. Given all of the rules designed to improve and expedite pole access that we adopt herein, we anticipate that attachers will experience far fewer difficulties than they have to date.

36. We also adopt the proposed modification of the Commission's rules § 1.1410(c), which permits a monetary award in the form of a “refund or payment,” measured “from the date that the complaint, as acceptable, was filed, plus interest.” We believe that this modification, which will allow monetary recovery in a pole attachment action to extend back as far as the applicable statute of limitations, will make injured attachers whole, and will be consistent with the way that claims for monetary recovery are generally treated under the law. It will also remove the perceived impediment to pre-complaint negotiations between the parties to resolve disputes about rates, terms and conditions of attachment. We reject the contention that the proposed rule change creates an incentive for attaching entities to attempt to maximize their monetary recovery by waiting until shortly before the statute of limitations has expired to bring a dispute over rates to the Commission.

37. Unauthorized Attachments. In modifying our rules regarding penalties for unauthorized attachments, we acknowledge the wide range of opinions among commenters regarding the scope of the problem posed by unauthorized attachments. Although the record is insufficient for us to make specific findings regarding the scope and severity of non-compliance, there appears to be a well-founded concern that the current unauthorized attachment regime ( i.e., the Mile Hi case), which involves payment amounting to no more than back rent, provides little incentive for attachers to follow authorization processes, and that competitive pressure to bring services to market overwhelms any deterrent effect. That said, we take seriously the arguments by attachers that utilities may deem attachments to be unauthorized because of poor record keeping or changes in pole ownership, rather than because of the attacher's failure to follow proper protocol. Consequently, the policy we enunciate today applies on a prospective basis only— i.e., to new agreements, or amendments to existing agreements, executed after the effective date of this Order.

38. To address the concerns implicated by unauthorized attachments, we explicitly abandon the Mile Hi limitation on penalties and instead create a safe harbor for more substantial penalties. Specifically, going forward, we will consider contract-based penalties for unauthorized attachments to be presumptively reasonable if they do not exceed those implemented by the Oregon PUC. Oregon has established a multifaceted system that contains, among others, the following provisions:

• An unauthorized attachment fee of $500 per pole for pole occupants without a contract ( i.e., when there is no pole attachment agreement between the parties);

• An unauthorized attachment fee of five times the current annual rental fee per pole if the pole occupant does not have a permit and the violation is self-reported or discovered through a joint inspection, with an additional sanction of $100 per pole if the violation is found by the pole owner in an inspection in which the pole occupant has declined to participate.

• A requirement that the pole owner provide specific notice of a violation (including pole number and location) before seeking relief against a pole occupant.

• An opportunity for attachers to avoid sanctions by submitting plans of correction within 60 calendar days of receipt of notification of a violation or by correcting the violation and providing notice of the correction to the owner within 180 calendar days of receipt of notification of the violation.

• A mutual obligation of pole owners and pole occupants to correct immediately violations that pose imminent danger to life or property. If a party corrects another party's violation, the party responsible for the violation must reimburse the correcting party for the actual cost of corrections.

• The opportunity for resolution of factual disputes via settlement conferences before an alternative dispute resolution forum.

39. In a case where an attacher makes unauthorized attachments to a pole at a time when the attacher has no pole attachment agreement with the utility, but later enters into such an agreement, we find that it would be reasonable for the utility to apply the unauthorized attachment provisions in that agreement to attachments that were made before the agreement was executed, as well as to any unauthorized attachments made following execution. If an attacher who has made unauthorized attachments without any contract with the utility refuses to enter into a pole attachment agreement, the utility may seek other remedies including, for example, an action in state court for trespass.

40. We do not adopt the Oregon system as Federal law, but rather continue to favor agreements negotiated between utilities and attaching entities. We simply conclude that we have examined Oregon's rules and find them to be reasonable, and that we would expect to find reasonable any unauthorized attachment provisions contained in agreements that do not exceed the Oregon penalties. As noted above, however, the Oregon sanctions are part of a larger system that also affords protections to attachers that operate in good faith. Consequently, we anticipate that, like the Oregon system, a reasonable pole attachment agreement also will contain provisions that provide notice to attachers, a fair opportunity to remedy violations, and a reasonable process for resolving factual disputes that may arise.

41. The “Sign and Sue” Rule. Our review of the comments responding to the FNPRM' s proposal to revise the Commission's long-standing “sign and sue” rule, which allows an attacher to challenge the lawfulness of terms in an executed pole attachment agreement that the attacher claims it was coerced to accept in order to gain access to utility poles, persuades us that the Commission should not amend § 1.1404(d) of the Commission's rules to add a notice requirement to the “sign and sue” rule. Such a requirement poses a significant risk of unduly delaying the negotiation process and adding unnecessary complexity to the adjudication of pole attachment disputes before the Commission. Moreover, we find that a number of the intended benefits of the proposed notice provision will be realized through the amendment to the Commission's rules § 1.1404(k), requiring executive-level discussions between the parties.

42. In the FNPRM, the Commission sought to limit the distortions present in the current pole rental rates “to increase the availability of, and competition for, advanced services to anchor institutions and as middle-mile inputs to wireless services and other broadband services,” some of which potentially could be classified as telecommunications services. Accordingly, the Commission sought comment on alternative approaches for reinterpreting the telecom rate formula within the existing statutory framework, including a specific Commission proposal based on elements proposed by TW Telecom (TWTC). This approach was consistent with the National Broadband Plan's recommendation to establish rates “as low and close to uniform as possible” based on evidence that the uncertainty regarding the applicable rate “may be deterring broadband providers that pay lower pole rates from extending their networks or adding capabilities (such as high-capacity links to wireless towers).” This uncertainty results from the risk that, by offering services that potentially could be classified as “telecommunications services,” a higher telecom rental rate might then be applied to the broadband provider's entire network.

43. The Commission adopts a modified form of the FNPRM's proposal as the new telecom rate. The new telecom rate generally will recover the same portion of pole costs as the current cable rate, is fully compensatory, and is grounded in sound economic policies. Accordingly, the new rate will minimize the difference in rental rates paid for attachments that are used to provide voice, data, and video services, and thus will help remove market distortions that affect attachers' deployment decisions. Removing these barriers to telecommunications and cable deployment will enable consumers to benefit through increased competition, affordability, and availability of advanced communications services, including broadband.

44. The Order reinterprets the telecommunications rate formula for pole attachments consistent with its authority and the existing statutory framework. The Commission identifies a range of possible rates consistent with section 224(e), from the current application of the telecom rate formula based on fully allocated costs at the upper end, to an alternative application of the telecom rate formula based on cost causation principles that results in a rate closer to incremental costs at the lower end. Within that range, Commission seeks to balance the goals of promoting broadband and other communications services with the historical role that pole rental rates have played in supporting the investment in pole infrastructure, and thus define the ambiguous statutory term “cost of providing space” on that basis.

45. Upper-Bound Rate. To begin identifying the range of reasonable rates that could result from the telecom rate formula, we first identify the present telecom rate as a reasonable upper bound. The Commission's current telecom rate formula is based on a fully allocated cost methodology, which recovers costs that the pole owner incurs regardless of the presence of attachments. It includes a full range of costs, some of which do not directly relate to or vary with the presence of pole attachments.

46. Lower-Bound Rate. As the Commission observed in the FNPRM, “a rate that covers the pole owners' incremental cost associated with attachment would, in principle, provide a reasonable lower limit.” However, the section 224(e) formulas allocate the relevant costs in such a way that simply defining “cost” as equal to incremental cost, as TWTC initially proposed, would result in pole rental rates below incremental cost.

47. Thus, to identify a lower-bound rate that is consistent with this statutory framework—and enables costs to be allocated based on the prescribed cost-apportionment formulas—the Commission relies on the basic principles of cost causation that would underlie a marginal cost rate without defining “cost” as equivalent to marginal or incremental cost per se. Under cost causation principles, if a customer is causally responsible for the incurrence of a cost, then that customer—the cost causer—pays a rate that covers this cost. This is consistent with the Commission's existing approach in the make-ready context, where a pole owner recovers the entire associated capital costs through make-ready fees.

48. For purposes of identifying a lower bound for the telecom pole rental rate, we exclude capital costs from the definition of “cost of providing space.” As an initial matter, we note that if capital costs arise from the make-ready process, existing rules are designed to require attachers to bear the entire amount of those costs. With respect to other capital costs, the record demonstrates that the attacher is not the “cost causer” of these costs. In the case here of applying cost-causation principles to identify the lower-bound telecom rate, the record includes findings by economists and analysts that capital costs are justifiably excluded from the lower-bound rate because the attachers cause none or no more than a de minimis amount of these costs, other than those that are recovered up front through the make-ready fees.

49. By contrast, we continue to include certain operating expenses—namely maintenance and administrative expenses—in the definition of “cost” for purposes of the lower bound telecom rate formula. This is generally consistent with cost causation principles because it is likely that an attacher is causally responsible for some of the ongoing maintenance and administrative expenses relating to use of the pole. Although the attacher might not be the cost causer with respect to all the operating costs that would be included in the lower bound telecom rate, Congress' intention was that the Commission not “embark upon a large-scale ratemaking proceeding in each case brought before it, or by general order” to establish pole rental rates.

50. Determining the New Just and Reasonable Telecom Rate. From within the range of possible interpretations of the term “cost” for purposes of section 224(e), the Commission adopts a particular definition of cost, and therefore a particular rate as the appropriate just and reasonable telecom rate. The definition of cost we select is based on a balancing of policy goals. We seek to ensure that the Commission's policies promote the availability of broadband services and efficient competition for those services. We also recognize, however, that pole rental rates historically have helped support the investment utilities make in their pole infrastructure, and acknowledge utilities' policy concerns about shifting that burden to utility ratepayers.

51. We agree with commenters who explain that today, the telecom rate is sufficiently high that it hinders important statutory objectives. For example, commenters explain that reducing the telecom rate would improve the business case for providing advanced services, because it will reduce the expected incremental cash outflows of providing such services, thereby increasing the likelihood that the present value of the expected incremental cash inflows will exceed the present value of the expected incremental cash outflows. In addition to reducing barriers to the provision of new services, reducing the telecom rate can expand opportunities for communications network investment. We thus conclude that lowering the telecom rates will better enable providers to compete on a level playing field, will eliminate distortions in end-user choices between technologies, and lead to provider behavior being driven more by underlying economic costs than arbitrary price differentials. We also find persuasive the views of consumer advocates in this respect. Notably, “NASUCA members are interested in keeping the costs of pole attachments down, so as to keep the costs of the[se] services * * * down. But NASUCA members also * * * are interested in ensuring that pole attachment rates appropriately compensate the owners of the poles, so that other services are not required to subsidize the attachments.” Balancing these concerns, NASUCA recommends that the cable rate “should be used for all pole attachments.”

52. We also observe that pole owners have the opportunity to recover through make-ready fees all of the capital costs actually caused by third-party attachers. As a result, the pole owner need not bear any significant risk of unrecovered pole investment undertaken to accommodate a third-party attacher. Thus, permitting recovery of 100 percent of apportioned, fully allocated costs through the pole rental rate seems unwarranted under the statute and could undermine furtherance of important statutory objectives.

53. Although we do not permit utilities to recover 100 percent of apportioned, fully allocated costs through the new telecom rate, we find it appropriate to allow the pole owner to charge a monthly pole rental rate that reflects some contribution to capital costs, aside from those recovered through make-ready fees. For example, regulated pole attachment rates historically have included such a contribution, and we are concerned that adopting a telecom rate that no longer permits utilities to recover such capital costs would unduly burden their ratepayers. We are also mindful of the possible adverse impact of other pole attachment reforms. For one, our regulation of rates for attachments by incumbent LECs could reduce the amount of costs that utilities are able to recover from other sources. Moreover, in conjunction with the pole access reforms adopted in this Order, we are mindful of Congress' expectation that the priority afforded an attacher's access to poles would relate to its sharing in the costs of that infrastructure. We balance these considerations by adopting, in most cases, the following definition of “cost” for purposes of section 224(e): (a) In urban areas, 66 percent of the fully allocated costs used for purposes of the pre-existing telecom rate; and (b) in non-urban areas, 44 percent of the fully allocated costs used for purposes of the pre-existing telecom rate. Defining cost in terms of a percentage of the fully allocated costs previously used for purposes of the telecom rate is a readily administrable approach, and consistent with Congress' direction that the Commission's pole attachment rate regulations be “simple and expeditious” to implement. Further, the specific percentages we select provide a reduction in the telecom rate, and will, in general, approximate the cable rate, advancing the Commission's policies.

54. We adopt a different definition of cost in non-urban areas—namely, 44 percent of fully allocated costs—to address the fact that there typically are fewer attachers on poles in non-urban areas, as reflected by the Commission's presumptions. Given the operation of section 224(e), using the same definition of cost in both types of areas would increase the burden pole attachment rates pose for providers of broadband and other communications services in non-urban areas, as compared to urban areas. Such an outcome would be problematic given the increased challenges already faced in non-urban areas, where cost characteristics can be different and where the availability of, and competition for, broadband services tends to be less today than in urban areas. By defining cost in non-urban areas as 44 percent of the fully allocated costs we largely mitigate that concern, particularly under the Commission's presumptions.

55. We observe that these definitions of cost, when applied pursuant to the cost apportionment formula in section 224(e), generally will recover a portion of the pole costs that is equal to the portion of costs recovered in the cable rate. We conclude that the pole owner will have appropriate incentives to invest in poles and provide attachments to third-party attachers, carrying forward under our new approach to the telecom rate. Moreover, this approach will significantly reduce the marketplace distortions and barriers to the availability of new broadband facilities and services that arose from disparate rates.

56. The Commission's calculations show that the costs for urban and non-urban areas typically will be within the higher- and lower-bound range permissible under section 224(e), and in those circumstances, we adopt that definition of cost for establishing the just and reasonable telecom rate. However, if scenarios arise where the costs identified above would be lower than the 100 percent of administrative and operating expenses that serves as a lower bound for the zone of reasonableness, we adopt the higher definition of cost in those circumstances. In sum, the applicable cost for purposes of section 224(e) will be the costs identified above or 100 percent of administrative and operating expenses, whichever is higher.

57. We also reaffirm that wireless carriers are entitled to the benefits and protection of section 224, including the right to the telecom rate under section 224(e). Specifically, in the 1998 Implementation Order, the Commission explained that it has authority under section 224(e)(1) to prescribe rules governing wireless attachments used by telecommunications carriers to provide telecommunications services. The Commission also stated that Congress did not intend to distinguish between wired and wireless attachments and that there was no basis to limit the definition of telecommunications carriers under the statute only to wireline providers. The Commission noted that, despite the “potential difficulties in applying the Commission's rules to wireless pole attachments, as opponents of attachment rights have argued,” it did not see any need for separate rules. Instead, it explained that “[w]hen an attachment requires more than the presumptive one-foot of usable space on the pole,” the presumption can be rebutted. Accordingly, wireless attachments are entitled to the telecom rate formula, and where parties are unable to reach agreement through good faith negotiations, they may bring a complaint before the Commission.

58. We also address the role of the new telecom rate in the context of commingled services. Some cable operators express concern that pole owners will seek to impose rates higher than both the cable rate and the new telecom rate where cable operators or telecommunications carriers also provide services, such as VoIP, that have not been classified. We agree that this outcome would be contrary to our policy goals of reducing the disparity in pole rental rates among providers of competing services and of minimizing disputes. Consequently, we make clear that the use of pole attachments by providers of telecommunications services or cable operators to provide commingled services does not remove them from the pole attachment rate regulation framework under section 224. Rather, we will not consider rates for pole attachments by telecommunications carriers or cable operators providing commingled services to be “just and reasonable” if they exceed the new telecom rate. This action does not disturb prior Commission decisions addressing particular scenarios regarding commingled services.

59. We believe that section 224(e) provides the Commission sufficient latitude to adopt our definition of costs underlying the new telecom rate. In particular, section 224(e)(2) and (3) describe how “[a] utility shall apportion the cost of providing space” on a pole—whether usable or unusable—but does not define the term “cost.” We therefore find the term “the cost of providing space” to be ambiguous.” Our new telecom rate reflects a reasonable interpretation of the ambiguous statutory language, and we conclude that Congress gave the Commission authority to interpret section 224(e), including the ambiguous phrases “cost of providing space * * * other than the usable space” in section 224(e)(2) and “cost of providing usable space” in section 224(e)(3).

60. We are not persuaded by electric utilities that argue section 224(e) must be read in a manner that mandates use of a fully allocated cost methodology based on legislative history. Primarily, they cite to language in the legislative history of the House bill endorsing a fully allocated cost methodology and other discussions in the legislative history attempting to link the benefits attachers receive from pole attachments to pole rental rates. We are not persuaded that these arguments compel an interpretation of section 224(e) that is contrary to the Commission's approach.

61. We also are not persuaded by claims of utilities that the new telecom rate will not enable them to recover their costs. The new telecom rate is compensatory and is designed so that utilities will not be cross-subsidizing attachers, as it ensures that utilities will recover more than the incremental cost of making attachments. The record provides no evidence indicating that there is any category or type of costs that are caused by the attacher that are not recovered through the new telecom rate.

62. In the 2010 FNPRM, the Commission asked parties to refresh the record on the issues raised in the 2007 Pole Attachment NPRM “both in light of the specific telecom rate proposals, as well as the factual findings of the National Broadband Plan.” In addition, the Commission sought comment “on the relationship between the pole rental rates paid by incumbent LECs and any other rights and responsibilities they have by virtue of their pole access agreements with utilities,” such as joint use agreements, and whether any remedies otherwise were available to incumbent LECs absent the ability to file complaints with the Commission. The FNPRM also sought comment on proposals under which incumbent LECs' regulated rate would be an existing rate, whether the cable rate, the pre-existing telecom rate, or any new rate adopted in this proceeding, or an alternative rate, as well as how to balance the rate paid with the other terms and conditions in incumbent LECs' pole attachment agreements with other utilities.

63. Based on the record in this proceeding, we find it appropriate to revisit our interpretation of section 224 with respect to rates, terms and conditions for pole attachments by incumbent LECs. We allow incumbent LECs to file complaints with the Commission challenging the rates, terms and conditions of pole attachment agreements with other utilities.

64. Statutory Analysis. In implementing section 224, as amended by the 1996 Act, the Commission interpreted the exclusion of incumbent LECs from the term “telecommunications carrier” to mean that section 224 does not apply to attachment rates paid by incumbent LECs. Although these decisions did not consider alternative interpretations of incumbent LECs' rights under section 224 in detail, the Commission's interpretation appears to have been based in part on incumbent LECs' status as pole owners and thus “utilities” under section 224, and in part on the view that “Congress' intent” was to “promote competition by ensuring the availability of access to new telecommunications entrants.”

65. We find it appropriate to change the Commission's prior interpretation of section 224(b) with respect to incumbent LECs given the evidence in the record regarding current market realities. Over time, aggregate incumbent LEC pole ownership has diminished relative to that of electric utilities. Thus, incumbent LECs often may not be in an equivalent bargaining position with electric utilities in pole attachment negotiations in some cases. Further, although we agree with the Commission's prior assessment that “Congress' intent” in section 224—and the 1996 Act more broadly—was to “promote competition,” we believe this intent was not limited to entities that were “new telecommunications entrants” at the time of the 1996 Act.

66. In reviewing the Commission's prior interpretation of section 224, we note that even incumbent LECs acknowledge that they are excluded from the section 224 definition of “telecommunications carrier,” and generally concede that they thus have no statutory right to nondiscriminatory pole access under section 224(f)(1). That is, they agree that because section 224(f)(1) requires utilities to provide nondiscriminatory access to “telecommunications carriers,” which exclude incumbent LECs, they have no statutory right of nondiscriminatory access to poles, ducts, conduits or rights-of-way under this provision of the Act. We agree. They also contend, however, that sections 224(b)(1) and 224(a)(4) provide an independent right to reasonable rates, terms and conditions for any pole attachment by a provider of telecommunications service, and that the statute thus mandates the Commission to apply the “just and reasonable” standard to pole attachments for all such providers, including incumbent LECs.

67. We are persuaded to revisit our prior conclusion, and instead adopt a new interpretation of section 224(b). Specifically, we find that the Commission has authority to ensure that incumbent LECs' attachments to other utilities' poles are pursuant to rates, terms and conditions that are just and reasonable. For one, this reflects the marketplace evidence discussed above. This also reflects the fact that actions to reduce input costs, such as pole rental rates, can expand opportunities for investment, especially in combination with other actions, which is particularly important given the up to 24 million Americans that do not have access to broadband today. Incumbent LECs identify five specific categories of consumer benefits arising from ensuring just and reasonable rates for incumbent LECs' attachments to other utilities' poles: (1) Reduced demand on the universal service fund arising from reduced incumbent LEC costs; (2) automatic flow-through of cost reductions to the regulated rates of rate-of-return incumbent LECs; (3) use of cost savings to improve service and/or lower prices for broadband services in areas with competition; (4) increased broadband deployment in areas where incumbent LECs currently do not provide broadband due to the improved business case; and (5) a source of capital for expansion. We expect these promised consumer benefits to occur, and we encourage incumbent LECs to provide data to the Commission on an ongoing basis demonstrating the extent to which these benefits are being realized. We would be concerned if these consumer benefits were not realized. We will continue to monitor the outcomes of the Order, and in the absence of evidence that expected benefits are being realized, we may, among other things, revisit our approach to this issue.

68. We conclude that neither the language or structure of section 224 precludes our finding that incumbent LECs are entitled to pole attachment rates, terms and conditions that are just and reasonable pursuant to section 224(b)(1). The Commission's authority to regulate the rates, terms and conditions of pole attachments by incumbent LECs derives principally from section 224(b) of the Act. In particular, section 224(b)(1) provides that the Commission “shall regulate the rates, terms, and conditions for pole attachments to provide that such rates, terms, and conditions are just and reasonable, and shall adopt procedures necessary and appropriate to hear and resolve complaints concerning such rates, terms, and conditions.” The statute defines the term “pole attachment,” in turn, as “any attachment by a cable television system or provider of telecommunications service to a pole, duct, conduit, or right-of-way owned or controlled by a utility.”

69. Although section 224(a)(5) cites section 3 of the Communications Act as a starting point for defining “telecommunications carrier,” by excluding incumbent LECs, it deviates from that baseline, resulting in a definition that is unique to section 224. In addition, where Congress did not intend for the Commission to regulate rates, terms and conditions in a particular respect, it stated this clearly. Section 224's departure from the definition in section 3, coupled with the fact that Congress could have expressly excluded attachments by incumbent LECs from the Commission's jurisdiction over rates, terms and conditions under section 224(b)(1), persuade us to interpret “provider of telecommunications service” as distinct from “telecommunications carrier” for purposes of section 224.

70. Interpreting these terms as distinct leads us to conclude that the definition of “pole attachment” includes pole attachments of incumbent LECs. Moreover, because section 224(b) requires the Commission to “regulate the rates, terms, and conditions for pole attachments, ” under our revised reading the Commission has a statutory obligation to regulate the attachments of incumbent LECs.

71. Guidance Regarding Commission Review of Incumbent LEC Pole Attachment Complaints. Having found that section 224(b) enables the Commission to ensure that pole attachments by incumbent LECs are accorded just and reasonable rates, terms and conditions, we recognize the need to exercise that authority in a manner that accounts for the potential differences between incumbent LECs and telecommunications carrier or cable operator attachers. As we observed in the FNPRM, the issues related to rates for pole attachments by incumbent LECs raise complex questions, both with respect to potential remedies for incumbent LECs and the details of the complaint process itself. These complexities can arise because, for example, incumbent LECs also own many poles and historically have obtained access to other utilities' poles within their incumbent LEC service territory through “joint use” or other agreements. We therefore decline at this time to adopt comprehensive rules governing incumbent LECs' pole attachments, finding it more appropriate to proceed on a case-by-case basis. We do, however, provide certain guidance below regarding the Commission's approach to incumbent LEC pole attachment complaints.

72. We also note that outside of the carrier's incumbent LEC service territory, it would be subject to the pole attachment regulations applicable to a telecommunications carrier. In addition, we decline to apply our new interpretation of section 224 retroactively, and make clear that incumbent LECs only can get refunds of amounts paid subsequent to the effective date of this Order.

73. Evidence of Bargaining Power. We recognize that not all incumbent LECs are similarly situated in terms of their bargaining position relative to other pole owners. For example, although there has been a general trend of reduced pole ownership by incumbent LECs' relative to other utilities, there is evidence that circumstances can vary considerably from location to location. Where parties are in a position to achieve just and reasonable rates, terms and conditions through negotiation, we believe it generally is appropriate to defer to such negotiations. Thus, in evaluating incumbent LEC pole attachment complaints, the Commission will consider the incumbent LEC's evidence that it is in an inferior bargaining position to the utility against which it has filed the complaint.

74. Existing vs. New Agreements. The record reveals that incumbent LECs frequently have access to pole attachments pursuant to joint use agreements today. Although some incumbent LECs express concerns about existing joint use agreements, these long-standing agreements generally were entered into at a time when incumbent LECs concede they were in a more balanced negotiating position with electric utilities, at least based on relative pole ownership. As explained above, we question the need to second guess the negotiated resolution of arrangements entered into by parties with relatively equivalent bargaining power. Consistent with the foregoing, the Commission is unlikely to find the rates, terms and conditions in existing joint use agreements unjust or unreasonable. The record also indicates, however, that both incumbent LECs and other utilities have the ability to terminate existing agreements and seek new arrangements, and that, at times, each type of entity has sought to do so. To the extent that an incumbent LEC can demonstrate that it genuinely lacks the ability to terminate an existing agreement and obtain a new arrangement, the Commission can consider that as appropriate in a complaint proceeding. The Commission will review complaints regarding agreements between incumbent LECs and other utilities entered into following the adoption of this Order based on the totality of those agreements, consistent with the additional guidance we offer below. In addition, to the extent that an incumbent LEC can show that it was compelled to sign a new pole attachment agreement with rates, terms, or conditions that it contends are unjust or unreasonable simply to maintain pole access as a result of a utility's unequal bargaining power, we note that the “sign and sue” rule will apply here in a manner similar to its application in the context of pole attachment agreements between pole owners and either cable operators or telecommunications carriers.

75. Reference to Other Agreements. As discussed above, the historical joint use agreements between incumbent LECs and other utilities implicate rights and responsibilities that differ from those in typical pole lease agreements between utilities and telecommunications carriers or cable operators. Under any new agreements, to the extent that the incumbent LEC demonstrates that it is obtaining pole attachments on terms and conditions that leave them comparably situated to telecommunications carriers or cable operators, we believe it will be appropriate to use the rate of the comparable attacher as the “just and reasonable” rate for purposes of section 224(b). As discussed above, just and reasonable pole attachments rates for incumbent LECs are not bound by the formulas in sections 224(d) or (e). Where incumbent LECs are attaching to other utilities' poles on terms and conditions that are comparable to those that apply to a telecommunications carrier or a cable operator—which generally will be paying a rate equal or similar to the cable rate under our rules—competitive neutrality counsels in favor of affording incumbent LECs the same rate as the comparable provider (whether the telecommunications carrier or the cable operator). In this regard, an incumbent LEC might demonstrate that it obtains access to poles on terms and conditions that are the same as a telecommunications carrier or cable operator. Likewise, an incumbent LEC may seek the same term or condition that applies to a telecommunications carrier or cable operator upon a showing that it otherwise is comparably situated to that provider.

76. Even if the terms and conditions of access are not the same, however, incumbent LECs may seek to demonstrate that the arrangement at issue does not provide a material advantage to incumbent LECs relative to cable operators or telecommunications carriers. To facilitate this analysis, we modify our pole attachment complaint rules to require that incumbent LECs provide, in a complaint proceeding, any agreements between the defendant utility and a third party attacher with whom the incumbent LEC claims it is similarly situated (or that the other utility do so if necessary).

77. By contrast, if a new pole attachment agreement between an incumbent LEC and a pole owner includes provisions that materially advantage the incumbent LEC vis a vis a telecommunications carrier or cable operator, we believe that a different rate should apply. Just as considerations of competitive neutrality counsel in favor of similar treatment of similarly situated providers, so too should differently situated providers be treated differently. In particular, we find it reasonable to look to the pre-existing, high-end telecom rate as a reference point in complaint proceedings involving a pole owner and an incumbent LEC attacher that is not similarly situated, or has failed to show that it is similarly situated to a cable or telecommunications attacher. As a higher rate than the regulated rate available to telecommunications carriers and cable operators, it helps account for particular arrangements that provide net advantages to incumbent LECs relative to cable operators or telecommunications carriers. We find it prudent to identify a specific rate to be used as a reference point in these circumstances because it will enable better informed pole attachment negotiations between incumbent LECs and electric utilities. We also believe it will reduce the number of disputes for which Commission resolution is required by providing parties clearer expectations regarding the potential outcomes of formal complaints, thus narrowing the scope of the conflict. For example, we would be skeptical of a complaint by an incumbent LEC seeking a proportionately lower rate to attach to an electric utility's poles than the rate the incumbent LEC is charging the electric utility to attach to its poles. We believe that a just and reasonable rate in such circumstances would be the same proportionate rate charged the electric utility, given the incumbent LEC's relative usage of the pole (such as the same rate per foot of occupied space). Further, we find it more administrable to look to the existing, high-end telecom rate, which historically has been used in the marketplace, than to attempt to develop in this Order an entirely new rate for this context.

78. We also recognize that incumbent LECs generally are pole owners themselves and, like electric utilities, have agreements governing access to their poles. As appropriate, in evaluating an incumbent LEC's complaint, the Commission may also consider the rates, terms and conditions that the incumbent LEC offers to the electric utility or other attachers for access to the incumbent LEC's poles, including whether they are more or less favorable than the rates, terms and conditions the incumbent LEC is seeking. Further, evidence that a term or condition was contained in the parties' prior joint use agreement will carry significant weight in the Commission's assessment of whether a refusal to agree to a substantially different term or condition regarding the same subject in a new agreement is unreasonable.

79. Other Fora for Dispute Resolution. Some electric utilities and other commenters have observed that certain state commissions might provide a forum for resolving incumbent LEC-electric utility pole attachment disputes. We do not preclude parties from electing to pursue complaints before state commissions, rather than before the Commission. Section 224 ensures incumbent LECs of appropriate Commission oversight of their pole attachments, however, and we therefore do not require incumbent LECs to pursue relief in state fora before filing a complaint with the Commission.

80. Prospective Policies. We clarify that a utility may not simply prohibit an attacher from using boxing, bracketing, or any other attachment technique on a going forward basis where the utility, at the time of an attacher's request, employs such techniques itself. As Fibertech points out, even a policy that is equally applied prospectively is discriminatory in the sense that it disadvantages new attachers. Thus, the relevant standards for purposes of determining a utility's “existing practices” are those that a utility applies at the time of an attacher's request to use a particular attachment technique—not the standards that a utility wishes to apply going forward. A utility may, however, choose to reduce or eliminate altogether the use of a particular method of attachment used on its poles, including boxing or bracketing, which would alter the range of circumstances in which it is obligated to allow future attachers to use the same techniques.

81. Joint Ownership. We also clarify that, where a pole is jointly owned and the owners have adopted different standards regarding the use of boxing, bracketing, or other attachment techniques, the joint owners may apply the more restrictive standards. For instance, if an electric utility and an incumbent LEC jointly own a pole but have divergent standards regarding the use of boxing, they may refuse to allow an attacher to box in a situation where boxing would be allowed by one utility's standards but not the other's. We disagree with Fibertech that permitting application of the more restrictive standard will allow joint pole owners to “double team” attachers by demanding compliance with one set of standards initially and then a different set later. In order to avoid a claim that their terms and conditions for access are unjust, unreasonable or discriminatory, joint pole owners should settle on and apply a single set of standards—not different sets at different times.

82. Similar Circumstances and the Electric Space. At the Coalition's request, we clarify that an electric utility's use of a particular attachment technique for facilities in the electric space does not obligate the utility to allow the same technique to be used by attachers in the communications space. We likewise clarify, in response to the Florida IOUs' request, that the existence of boxing and bracketing configurations in the electric space do not trigger an attacher's right to use boxing and bracketing in the communications space. The 2010 Order specified that attachers are entitled to use the same techniques that the utility itself uses in similar circumstances, and we agree with the petitioners that the above situations do not involve similar circumstances. For instance, boxing and bracketing in the communications space can limit the use of climbing as a means of maintenance and repair, and also complicate pole change out.

83. We disagree with the petitioners, however, that the nondiscrimination requirement in section 224(f)(1) applies only to the extent that a pole owner has allowed itself or others to use an attachment technique in the communications space of a pole. As explained in further detail below, the Act does not limit a utility's nondiscrimination obligations to activities that take place in the communications space. Thus, while an electric utility's use of an attachment technique in the electric space might not obligate it to permit use of such technique in the communications space, its use of an attachment technique (like boxing and bracketing) in the electric space may, in fact, obligate it to allow use of that technique in the electric space. The salient issue is whether the attacher's use of a particular technique is consistent with the utility's, not whether its use is consistent with the utility's in the communication space.

84. Insufficient Capacity and the Electric Space. We deny the Florida IOUs' request to find that a pole has “insufficient capacity” if an electric utility must rearrange its electric facilities to accommodate a new attacher. As explained in the 2010 Order, a pole does not have insufficient capacity where a request for attachment could be accommodated using traditional methods of attachment. Rearrangement of facilities on a pole is one of these methods, and nothing in the statute suggests that, for purposes of gauging capacity, rearrangement of facilities in the electric space should be treated differently from rearrangement of facilities in the communications space. Thus, where rearrangement of a pole's facilities—whether in the communications space or the electric space—can accommodate an attachment, there is not “insufficient capacity” under section 224(f)(2).

85. Space-and Cost-Saving. The Florida IOUs argue that section 224(f)(2) allows an electric utility to deny use of a particular attachment technique when the utility itself has not used or authorized that technique as a means of saving both space and cost. We disagree that section 224(f)(2) is so limited. We find that the Florida IOUs' restrictive interpretation has no basis in the text of section 224 and would enable a utility to refuse an attacher use of a particular attachment technique in situations where the utility itself uses the technique or authorizes its use by third parties. If a utility uses bracketing as a means of saving cost (but not space) in a particular type of situation, for instance, it must allow attachers also to use bracketing. But under the Florida IOUs' formulation, the utility would have no duty to do so.

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

87. This document contains new information collection requirements subject to the Paperwork Reduction Act of 1995 (PRA), Public Law 104-13. It will be submitted to the Office of Management and Budget (OMB) for review under section 3507(d) of the PRA. OMB, the general public, and other Federal agencies are invited to comment on the new or modified information collection requirements adopted in this Order.

88. As required by the Regulatory Flexibility Act of 1980, as amended (RFA), an Initial Regulatory Flexibility Analysis (IRFA) was included in the 2010 Order and FNPRM in WC Docket No. 07-245 and GN Docket No. 09-51. The Commission sought written public comment on the proposals in these dockets, including comment on the IRFA. This Final Regulatory Flexibility Analysis (FRFA) conforms to the RFA.

89. In this Report and Order and Order on Reconsideration (Order), FCC 11-50, adopted and released on April 7, 2011, the Commission revises its pole attachment rules to promote competition and to reduce the potentially excessive costs of deploying telecommunications, cable, and broadband networks. The Commission has historically relied primarily on private negotiations and case-specific adjudications to ensure just and reasonable rates, terms, and conditions, but its experience during the past 15 years has demonstrated the need to provide more guidance. Accordingly, the Commission establishes a four-stage timeline for wireline and wireless access to poles; provides attachers with a self-effectuating contractor remedy in the communications space; improves its enforcement rules; reinterprets the telecommunications rate formula within the existing statutory framework; and addresses rates, terms, and conditions for pole attachments by incumbent LECs. The Commission also resolves multiple petitions for reconsideration and addresses various points regarding the nondiscriminatory use of attachment techniques.

90. One commenter discussed the IRFA from the FNPRM. A group of associations representing rural telephone companies argued specifically that the Commission should adopt the lowest telecom rate for broadband connections, adopt an incumbent LEC dispute resolution process, and cap pole attachment orders at 100 poles. We squarely address these concerns by revising the section 224(e) rental rate for pole attachments used by telecommunications carriers to provide telecommunications services; permitting incumbent LECs to file complaints with the Commission to ensure reasonable rates, terms, and conditions of pole attachments; and adopting the lesser of a numerical or a percentage-based cap on pole orders.

91. The RFA directs agencies to provide a description of, and where feasible, an estimate of the number of small entities that may be affected by the proposed rules and policies, if adopted. The RFA generally defines the term “small entity” as having the same meaning as the terms “small business,” “small organization,” and “small governmental jurisdiction.” In addition, the term “small business” has the same meaning as the term “small business concern” under the Small Business Act. A “small business concern” is one which: (1) Is independently owned and operated; (2) is not dominant in its field of operation; and (3) satisfies any additional criteria established by the SBA.

92. Small Businesses. Nationwide, there are a total of approximately 29.6 million small businesses, according to the SBA.

93. Small Organizations. Nationwide, as of 2002, there are approximately 1.6 million small organizations. A “small organization” is generally “any not-for-profit enterprise which is independently owned and operated and is not dominant in its field.”

94. Small Governmental Jurisdictions. The term “small governmental jurisdiction” is defined generally as “governments of cities, towns, townships, villages, school districts, or special districts, with a population of less than fifty thousand.” Census Bureau data for 2002 indicate that there were 87,525 local governmental jurisdictions in the United States. We estimate that, of this total, 84,377 entities were “small governmental jurisdictions.” Thus, we estimate that most governmental jurisdictions are small.

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

96. Incumbent Local Exchange Carriers (ILECs). Neither the Commission nor the SBA has developed a small business size standard specifically for incumbent local exchange services. The appropriate size standard under SBA rules is for the category Wired Telecommunications Carriers. Under that size standard, such a business is small if it has 1,500 or fewer employees. According to Commission data, 1,311 carriers have reported that they are engaged in the provision of incumbent local exchange services. Of these 1,311 carriers, an estimated 1,024 have 1,500 or fewer employees and 287 have more than 1,500 employees. Consequently, the Commission estimates that most providers of incumbent local exchange service are small businesses that may be affected by our proposed action.

97. Competitive Local Exchange Carriers (CLECs), Competitive Access Providers (CAPs), “Shared-Tenant Service Providers,” and “Other Local Service Providers.” Neither the Commission nor the SBA has developed a small business size standard specifically for these service providers. The appropriate size standard under SBA rules is for the category Wired Telecommunications Carriers. Under that size standard, such a business is small if it has 1,500 or fewer employees. According to Commission data, 1005 carriers have reported that they are engaged in the provision of either competitive access provider services or competitive local exchange carrier services. Of these 1005 carriers, an estimated 918 have 1,500 or fewer employees and 87 have more than 1,500 employees. In addition, 16 carriers have reported that they are “Shared-Tenant Service Providers,” and all 16 are estimated to have 1,500 or fewer employees. In addition, 89 carriers have reported that they are “Other Local Service Providers.” Of the 89, all have 1,500 or fewer employees. Consequently, the Commission estimates that most providers of competitive local exchange service, competitive access providers, “Shared-Tenant Service Providers,” and “Other Local Service Providers” are small entities that may be affected by our proposed action.

98. Interexchange Carriers (IXCs). Neither the Commission nor the SBA has developed a small business size standard specifically for providers of interexchange services. The appropriate size standard under SBA rules is for the category Wired Telecommunications Carriers. Under that size standard, such a business is small if it has 1,500 or fewer employees. According to Commission data, 300 carriers have reported that they are engaged in the provision of interexchange service. Of these, an estimated 268 have 1,500 or fewer employees and 32 have more than 1,500 employees. Consequently, the Commission estimates that the majority of IXCs are small entities that may be affected by our proposed action.

99. Satellite Telecommunications and All Other Telecommunications. These two economic census categories address the satellite industry. The first category has a small business size standard of $15 million or less in average annual receipts, under SBA rules. The second has a size standard of $25 million or less in annual receipts. The most current Census Bureau data in this context, however, are from the (last) economic census of 2002, and we will use those figures to gauge the prevalence of small businesses in these categories.

100. The category of Satellite Telecommunications “comprises establishments primarily engaged in providing telecommunications services to other establishments in the telecommunications and broadcasting industries by forwarding and receiving communications signals via a system of satellites or reselling satellite telecommunications.” For this category, Census Bureau data for 2002 show that there were a total of 371 firms that operated for the entire year. Of this total, 307 firms had annual receipts of under $10 million, and 26 firms had receipts of $10 million to $24,999,999. Consequently, we estimate that the majority of Satellite Telecommunications firms are small entities that might be affected by our action.

101. The second category of All Other Telecommunications comprises, inter alia, “establishments primarily engaged in providing specialized telecommunications services, such as satellite tracking, communications telemetry, and radar station operation. This industry also includes establishments primarily engaged in providing satellite terminal stations and associated facilities connected with one or more terrestrial systems and capable of transmitting telecommunications to, and receiving telecommunications from, satellite systems.” For this category, Census Bureau data for 2002 show that there were a total of 332 firms that operated for the entire year. Of this total, 303 firms had annual receipts of under $10 million and 15 firms had annual receipts of $10 million to $24,999,999. Consequently, we estimate that the majority of All Other Telecommunications firms are small entities that might be affected by our action.

102. Wireless Telecommunications Carriers (except Satellite). Since 2007, the Census Bureau has placed wireless firms within this new, broad, economic census category. Prior to that time, such firms were within the now-superseded categories of “Paging” and “Cellular and Other Wireless Telecommunications.” Under the present and prior categories, the SBA has deemed a wireless business to be small if it has 1,500 or fewer employees. Because Census Bureau data are not yet available for the new category, we will estimate small business prevalence using the prior categories and associated data. For the category of Paging, data for 2002 show that there were 807 firms that operated for the entire year. Of this total, 804 firms had employment of 999 or fewer employees, and three firms had employment of 1,000 employees or more. For the category of Cellular and Other Wireless Telecommunications, data for 2002 show that there were 1,397 firms that operated for the entire year. Of this total, 1,378 firms had employment of 999 or fewer employees, and 19 firms had employment of 1,000 employees or more. Thus, we estimate that the majority of wireless firms are small.

103. Common Carrier Paging. As noted, since 2007 the Census Bureau has placed paging providers within the broad economic census category of Wireless Telecommunications Carriers (except Satellite). Prior to that time, such firms were within the now-superseded category of “Paging.” Under the present and prior categories, the SBA has deemed a wireless business to be small if it has 1,500 or fewer employees. Because Census Bureau data are not yet available for the new category, we will estimate small business prevalence using the prior category and associated data. The data for 2002 show that there were 807 firms that operated for the entire year. Of this total, 804 firms had employment of 999 or fewer employees, and three firms had employment of 1,000 employees or more. Thus, we estimate that the majority of paging firms are small.

104. In addition, in the Paging Second Report and Order, the Commission adopted a size standard for “small businesses” for purposes of determining their eligibility for special provisions such as bidding credits and installment payments. A small business is an entity that, together with its affiliates and controlling principals, has average gross revenues not exceeding $15 million for the preceding three years. The SBA has approved this definition. An initial auction of Metropolitan Economic Area (MEA) licenses was conducted in the year 2000. Of the 2,499 licenses auctioned, 985 were sold. Fifty-seven companies claiming small business status won 440 licenses. A subsequent auction of MEA and Economic Area (EA) licenses was held in the year 2001. Of the 15,514 licenses auctioned, 5,323 were sold. One hundred thirty-two companies claiming small business status purchased 3,724 licenses. A third auction, consisting of 8,874 licenses in each of 175 EAs and 1,328 licenses in all but three of the 51 MEAs, was held in 2003. Seventy-seven bidders claiming small or very small business status won 2,093 licenses.

105. Currently, there are approximately 74,000 Common Carrier Paging licenses. According to the most recent Trends in Telephone Service, 281 carriers reported that they were engaged in the provision of “paging and messaging” services. Of these, an estimated 279 have 1,500 or fewer employees and two have more than 1,500 employees. We estimate that the majority of common carrier paging providers would qualify as small entities under the SBA definition.

106. Wireless Telephony. Wireless telephony includes cellular, personal communications services, and specialized mobile radio telephony carriers. As noted, the SBA has developed a small business size standard for Wireless Telecommunications Carriers (except Satellite). Under the SBA small business size standard, a business is small if it has 1,500 or fewer employees. According to Trends in Telephone Service data, 434 carriers reported that they were engaged in wireless telephony. Of these, an estimated 222 have 1,500 or fewer employees and 212 have more than 1,500 employees. We have estimated that 222 of these are small under the SBA small business size standard.

107. Broadband Personal Communications Service. The broadband personal communications services (PCS) spectrum is divided into six frequency blocks designated A through F, and the Commission has held auctions for each block. The Commission has created a small business size standard for Blocks C and F as an entity that has average gross revenues of less than $40 million in the three previous calendar years. For Block F, an additional small business size standard for “very small business” was added and is defined as an entity that, together with its affiliates, has average gross revenues of not more than $15 million for the preceding three calendar years. These small business size standards, in the context of broadband PCS auctions, have been approved by the SBA. No small businesses within the SBA-approved small business size standards bid successfully for licenses in Blocks A and B. There were 90 winning bidders that qualified as small entities in the Block C auctions. A total of 93 “small” and “very small” business bidders won approximately 40 percent of the 1,479 licenses for Blocks D, E, and F. In 1999, the Commission reauctioned 155 C, D, E, and F Block licenses; there were 113 small business winning bidders.

108. In 2001, the Commission completed the auction of 422 C and F Broadband PCS licenses in Auction 35. Of the 35 winning bidders in this auction, 29 qualified as “small” or “very small” businesses. Subsequent events, concerning Auction 35, including judicial and agency determinations, resulted in a total of 163 C and F Block licenses being available for grant. In 2005, the Commission completed an auction of 188 C block licenses and 21 F block licenses in Auction 58. There were 24 winning bidders for 217 licenses. Of the 24 winning bidders, 16 claimed small business status and won 156 licenses. In 2007, the Commission completed an auction of 33 licenses in the A, C, and F Blocks in Auction 71. Of the 14 winning bidders, six were designated entities. In 2008, the Commission completed an auction of 20 Broadband PCS licenses in the C, D, E and F block licenses in Auction 78.

109. Advanced Wireless Services. In 2008, the Commission conducted the auction of Advanced Wireless Services (AWS) licenses. This auction, which as designated as Auction 78, offered 35 licenses in the AWS 1710-1755 MHz and 2110-2155 MHz bands (AWS-1). The AWS-1 licenses were licenses for which there were no winning bids in Auction 66. That same year, the Commission completed Auction 78. A bidder with attributed average annual gross revenues that exceeded $15 million and did not exceed $40 million for the preceding three years (small business) received a 15 percent discount on its winning bid. A bidder with attributed average annual gross revenues that did not exceed $15 million for the preceding three years (very small business) received a 25 percent discount on its winning bid. A bidder that had combined total assets of less than $500 million and combined gross revenues of less than $125 million in each of the last two years qualified for entrepreneur status. Four winning bidders that identified themselves as very small businesses won 17 licenses. Three of the winning bidders that identified themselves as a small business won five licenses. Additionally, one other winning bidder that qualified for entrepreneur status won 2 licenses.

110. Narrowband Personal Communications Services. In 1994, the Commission conducted an auction for Narrowband PCS licenses. A second auction was also conducted later in 1994. For purposes of the first two Narrowband PCS auctions, “small businesses” were entities with average gross revenues for the prior three calendar years of $40 million or less. Through these auctions, the Commission awarded a total of 41 licenses, 11 of which were obtained by four small businesses. To ensure meaningful participation by small business entities in future auctions, the Commission adopted a two-tiered small business size standard in the Narrowband PCS Second Report and Order. A “small business” is an entity that, together with affiliates and controlling interests, has average gross revenues for the three preceding years of not more than $40 million. A “very small business” is an entity that, together with affiliates and controlling interests, has average gross revenues for the three preceding years of not more than $15 million. The SBA has approved these small business size standards. A third auction was conducted in 2001. Here, five bidders won 317 (Metropolitan Trading Areas and nationwide) licenses. Three of these claimed status as a small or very small entity and won 311 licenses.

111. Cellular Radiotelephone Service. Auction 77 was held to resolve one group of mutually exclusive applications for Cellular Radiotelephone Service licenses for unserved areas in New Mexico. Bidding credits for designated entities were not available in Auction 77. In 2008, the Commission completed the closed auction of one unserved service area in the Cellular Radiotelephone Service, designated as Auction 77. Auction 77 concluded with one provisionally winning bid for the unserved area totaling $25,002.

112. Private Land Mobile Radio (PLMR). PLMR systems serve an essential role in a range of industrial, business, land transportation, and public safety activities. These radios are used by companies of all sizes operating in all U.S. business categories, and are often used in support of the licensee's primary (non-telecommunications) business operations. For the purpose of determining whether a licensee of a PLMR system is a small business as defined by the SBA, we use the broad census category, Wireless Telecommunications Carriers (except Satellite). This definition provides that a small entity is any such entity employing no more than 1,500 persons. The Commission does not require PLMR licensees to disclose information about number of employees, so the Commission does not have information that could be used to determine how many PLMR licensees constitute small entities under this definition. We note that PLMR licensees generally use the licensed facilities in support of other business activities, and therefore, it would also be helpful to assess PLMR licensees under the standards applied to the particular industry subsector to which the licensee belongs.

113. As of March 2010, there were 424,162 PLMR licensees operating 921,909 transmitters in the PLMR bands below 512 MHz. We note that any entity engaged in a commercial activity is eligible to hold a PLMR license, and that any revised rules in this context could therefore potentially impact small entities covering a great variety of industries.

114. Fixed Microwave Services. Fixed microwave services include common carrier, private operational-fixed, and broadcast auxiliary radio services. At present, there are approximately 22,015 common carrier fixed licensees and 61,670 private operational-fixed licensees and broadcast auxiliary radio licensees in the microwave services. The Commission has not created a size standard for a small business specifically with respect to fixed microwave services. For purposes of this analysis, the Commission uses the SBA small business size standard for the category Wireless Telecommunications Carriers (except Satellite), which is 1,500 or fewer employees. The Commission does not have data specifying the number of these licensees that have no more than 1,500 employees, and thus are unable at this time to estimate with greater precision the number of fixed microwave service licensees that would qualify as small business concerns under the SBA's small business size standard. Consequently, the Commission estimates that there are 22,015 or fewer common carrier fixed licensees and 61,670 or fewer private operational-fixed licensees and broadcast auxiliary radio licensees in the microwave services that may be small and may be affected by the rules and policies proposed herein. We note, however, that the common carrier microwave fixed licensee category includes some large entities.

115. Local Multipoint Distribution Service. Local Multipoint Distribution Service (LMDS) is a fixed broadband point-to-multipoint microwave service that provides for two-way video telecommunications. The auction of the 986 LMDS licenses began and closed in 1998. The Commission established a small business size standard for LMDS licenses as an entity that has average gross revenues of less than $40 million in the three previous calendar years. An additional small business size standard for “very small business” was added as an entity that, together with its affiliates, has average gross revenues of not more than $15 million for the preceding three calendar years. The SBA has approved these small business size standards in the context of LMDS auctions. There were 93 winning bidders that qualified as small entities in the LMDS auctions. A total of 93 small and very small business bidders won approximately 277 A Block licenses and 387 B Block licenses. In 1999, the Commission re-auctioned 161 licenses; there were 32 small and very small businesses winning that won 119 licenses.

116. Rural Radiotelephone Service. The Commission has not adopted a size standard for small businesses specific to the Rural Radiotelephone Service. A significant subset of the Rural Radiotelephone Service is the Basic Exchange Telephone Radio System (BETRS). In the present context, we will use the SBA's small business size standard applicable to Wireless Telecommunications Carriers (except Satellite), i.e., an entity employing no more than 1,500 persons. There are approximately 1,000 licensees in the Rural Radiotelephone Service, and the Commission estimates that there are 1,000 or fewer small entity licensees in the Rural Radiotelephone Service that may be affected by the rules and policies proposed herein.

117. Broadband Radio Service and Educational Broadband Service. Broadband Radio Service systems, previously referred to as Multipoint Distribution Service (MDS) and Multichannel Multipoint Distribution Service (MMDS) systems, and “wireless cable,” transmit video programming to subscribers and provide two-way high speed data operations using the microwave frequencies of the Broadband Radio Service (BRS) and Educational Broadband Service (EBS) (previously referred to as the Instructional Television Fixed Service (ITFS)). In connection with the 1996 BRS auction, the Commission established a small business size standard as an entity that had annual average gross revenues of no more than $40 million in the previous three calendar years. The BRS auctions resulted in 67 successful bidders obtaining licensing opportunities for 493 Basic Trading Areas (BTAs). Of the 67 auction winners, 61 met the definition of a small business. BRS also includes licensees of stations authorized prior to the auction. At this time, we estimate that of the 61 small business BRS auction winners, 48 remain small business licensees. In addition to the 48 small businesses that hold BTA authorizations, there are approximately 392 incumbent BRS licensees that are considered small entities. After adding the number of small business auction licensees to the number of incumbent licensees not already counted, we find that there are currently approximately 440 BRS licensees that are defined as small businesses under either the SBA or the Commission's rules. In 2009, the Commission conducted Auction 86, the sale of 78 licenses in the BRS areas. The Commission offered three levels of bidding credits: (i) A bidder with attributed average annual gross revenues that exceed $15 million and do not exceed $40 million for the preceding three years (small business) will receive a 15 percent discount on its winning bid; (ii) a bidder with attributed average annual gross revenues that exceed $3 million and do not exceed $15 million for the preceding three years (very small business) will receive a 25 percent discount on its winning bid; and (iii) a bidder with attributed average annual gross revenues that do not exceed $3 million for the preceding three years (entrepreneur) will receive a 35 percent discount on its winning bid. Auction 86 concluded in 2009 with the sale of 61 licenses. Of the ten winning bidders, two bidders that claimed small business status won 4 licenses; one bidder that claimed very small business status won three licenses; and two bidders that claimed entrepreneur status won six licenses.

118. In addition, the SBA's Cable Television Distribution Services small business size standard is applicable to EBS. There are presently 2,032 EBS licensees. All but 100 of these licenses are held by educational institutions. Educational institutions are included in this analysis as small entities. Thus, we estimate that at least 1,932 licensees are small businesses. Since 2007, Cable Television Distribution Services have been defined within the broad economic census category of Wired Telecommunications Carriers; that category is defined as follows: “This industry comprises establishments primarily engaged in operating and/or providing access to transmission facilities and infrastructure that they own and/or lease for the transmission of voice, data, text, sound, and video using wired telecommunications networks. Transmission facilities may be based on a single technology or a combination of technologies.” The SBA has developed a small business size standard for this category, which is: all such firms having 1,500 or fewer employees. To gauge small business prevalence for these cable services we must, however, use current census data that are based on the previous category of Cable and Other Program Distribution and its associated size standard; that size standard was: all such firms having $13.5 million or less in annual receipts. According to Census Bureau data for 2002, there were a total of 1,191 firms in this previous category that operated for the entire year. Of this total, 1,087 firms had annual receipts of under $10 million, and 43 firms had receipts of $10 million or more but less than $25 million. Thus, the majority of these firms can be considered small.

119. Cable Television Distribution Services. Since 2007, these services have been defined within the broad economic census category of Wired Telecommunications Carriers; that category is defined as follows: “This industry comprises establishments primarily engaged in operating and/or providing access to transmission facilities and infrastructure that they own and/or lease for the transmission of voice, data, text, sound, and video using wired telecommunications networks. Transmission facilities may be based on a single technology or a combination of technologies.” The SBA has developed a small business size standard for this category, which is: all such firms having 1,500 or fewer employees. To gauge small business prevalence for these cable services we must, however, use current census data that are based on the previous category of Cable and Other Program Distribution and its associated size standard; that size standard was: all such firms having $13.5 million or less in annual receipts. According to Census Bureau data for 2002, there were a total of 1,191 firms in this previous category that operated for the entire year. Of this total, 1,087 firms had annual receipts of under $10 million, and 43 firms had receipts of $10 million or more but less than $25 million. Thus, the majority of these firms can be considered small.

120. Cable Companies and Systems. The Commission has also developed its own small business size standards, for the purpose of cable rate regulation. Under the Commission's rules, a “small cable company” is one serving 400,000 or fewer subscribers, nationwide. Industry data indicate that, of 1,076 cable operators nationwide, all but eleven are small under this size standard. In addition, under the Commission's rules, a “small system” is a cable system serving 15,000 or fewer subscribers. Industry data indicate that, of 6,635 systems nationwide, 5,802 systems have fewer than 10,000 subscribers, and an additional 302 systems have 10,000-19,999 subscribers. Thus, under this second size standard, most cable systems are small.

121. Cable System Operators. The Communications Act of 1934, as amended, also contains a size standard for small cable system operators, which is “a cable operator that, directly or through an affiliate, serves in the aggregate fewer than 1 percent of all subscribers in the United States and is not affiliated with any entity or entities whose gross annual revenues in the aggregate exceed $250,000,000.” The Commission has determined that an operator serving fewer than 677,000 subscribers shall be deemed a small operator, if its annual revenues, when combined with the total annual revenues of all its affiliates, do not exceed $250 million in the aggregate. Industry data indicate that, of 1,076 cable operators nationwide, all but ten are small under this size standard. We note that the Commission neither requests nor collects information on whether cable system operators are affiliated with entities whose gross annual revenues exceed $250 million, and therefore we are unable to estimate more accurately the number of cable system operators that would qualify as small under this size standard.

122. Open Video Systems. The open video system (OVS) framework was established in 1996, and is one of four statutorily recognized options for the provision of video programming services by local exchange carriers. The OVS framework provides opportunities for the distribution of video programming other than through cable systems. Because OVS operators provide subscription services, OVS falls within the SBA small business size standard covering cable services, which is “Wired Telecommunications Carriers.” The SBA has developed a small business size standard for this category, which is: All such firms having 1,500 or fewer employees. To gauge small business prevalence for such services we must, however, use current census data that are based on the previous category of Cable and Other Program Distribution and its associated size standard; that size standard was: all such firms having $13.5 million or less in annual receipts. According to Census Bureau data for 2002, there were a total of 1,191 firms in this previous category that operated for the entire year. Of this total, 1,087 firms had annual receipts of under $10 million, and 43 firms had receipts of $10 million or more but less than $25 million. Thus, the majority of cable firms can be considered small. In addition, we note that the Commission has certified some OVS operators, with some now providing service. Broadband service providers (BSPs) are currently the only significant holders of OVS certifications or local OVS franchises. The Commission does not have financial or employment information regarding the entities authorized to provide OVS, some of which may not yet be operational. Thus, again, at least some of the OVS operators may qualify as small entities.

123. Cable Television Relay Service. This service includes transmitters generally used to relay cable programming within cable television system distribution systems. This cable service is defined within the broad economic census category of Wired Telecommunications Carriers; that category is defined as follows: “This industry comprises establishments primarily engaged in operating and/or providing access to transmission facilities and infrastructure that they own and/or lease for the transmission of voice, data, text, sound, and video using wired telecommunications networks. Transmission facilities may be based on a single technology or a combination of technologies.” The SBA has developed a small business size standard for this category, which is: All such firms having 1,500 or fewer employees. To gauge small business prevalence for cable services we must, however, use current census data that are based on the previous category of Cable and Other Program Distribution and its associated size standard; that size standard was: all such firms having $13.5 million or less in annual receipts. According to Census Bureau data for 2002, there were a total of 1,191 firms in this previous category that operated for the entire year. Of this total, 1,087 firms had annual receipts of under $10 million, and 43 firms had receipts of $10 million or more but less than $25 million. Thus, the majority of these firms can be considered small.

124. Multichannel Video Distribution and Data Service. MVDDS is a terrestrial fixed microwave service operating in the 12.2-12.7 GHz band. The Commission adopted criteria for defining three groups of small businesses for purposes of determining their eligibility for special provisions such as bidding credits. It defined a very small business as an entity with average annual gross revenues not exceeding $3 million for the preceding three years; a small business as an entity with average annual gross revenues not exceeding $15 million for the preceding three years; and an entrepreneur as an entity with average annual gross revenues not exceeding $40 million for the preceding three years. These definitions were approved by the SBA. On January 27, 2004, the Commission completed an auction of 214 MVDDS licenses (Auction No. 53). In this auction, ten winning bidders won a total of 192 MVDDS licenses. Eight of the ten winning bidders claimed small business status and won 144 of the licenses. The Commission also held an auction of MVDDS licenses on December 7, 2005 (Auction 63). Of the three winning bidders who won 22 licenses, two winning bidders, winning 21 of the licenses, claimed small business status.

125. Internet Service Providers. The 2007 Economic Census places these firms, whose services might include voice over Internet protocol (VoIP), in either of two categories, depending on whether the service is provided over the provider's own telecommunications connections ( e.g. cable and DSL, ISPs), or over client-supplied telecommunications connections ( e.g. dial-up ISPs). The former are within the category of Wired Telecommunications Carriers, which has an SBA small business size standard of 1,500 or fewer employees. The latter are within the category of All Other Telecommunications, which has a size standard of annual receipts of $25 million or less. The most current Census Bureau data for all such firms, however, are the 2002 data for the previous census category called Internet Service Providers. That category had a small business size standard of $21 million or less in annual receipts, which was revised in late 2005 to $23 million. The 2002 data show that there were 2,529 such firms that operated for the entire year. Of those, 2,437 firms had annual receipts of under $10 million, and an additional 47 firms had receipts of between $10 million and $24,999,999. Consequently, we estimate that the majority of ISP firms are small entities.

126. Electric Power Generation, Transmission and Distribution. The Census Bureau defines this category as follows: “This industry group comprises establishments primarily engaged in generating, transmitting, and/or distributing electric power. Establishments in this industry group may perform one or more of the following activities: (1) Operate generation facilities that produce electric energy; (2) operate transmission systems that convey the electricity from the generation facility to the distribution system; and (3) operate distribution systems that convey electric power received from the generation facility or the transmission system to the final consumer.” This category includes Electric Power Distribution, Hydroelectric Power Generation, Fossil Fuel Power Generation, Nuclear Electric Power Generation, and Other Electric Power Generation. The SBA has developed a small business size standard for firms in this category: “A firm is small if, including its affiliates, it is primarily engaged in the generation, transmission, and/or distribution of electric energy for sale and its total electric output for the preceding fiscal year did not exceed 4 million megawatt hours.” According to Census Bureau data for 2002, there were 1,644 firms in this category that operated for the entire year. Census data do not track electric output and we have not determined how many of these firms fit the SBA size standard for small, with no more than 4 million megawatt hours of electric output. Consequently, we estimate that 1,644 or fewer firms may be considered small under the SBA small business size standard.

127. Natural Gas Distribution. This economic census category comprises: “(1) Establishments primarily engaged in operating gas distribution systems ( e.g., mains, meters); (2) establishments known as gas marketers that buy gas from the well and sell it to a distribution system; (3) establishments known as gas brokers or agents that arrange the sale of gas over gas distribution systems operated by others; and (4) establishments primarily engaged in transmitting and distributing gas to final consumers.” The SBA has developed a small business size standard for this industry, which is: All such firms having 500 or fewer employees. According to Census Bureau data for 2002, there were 468 firms in this category that operated for the entire year. Of this total, 424 firms had employment of fewer than 500 employees, and 18 firms had employment of 500 to 999 employees. Thus, the majority of firms in this category can be considered small.

128. Water Supply and Irrigation Systems. This economic census category “comprises establishments primarily engaged in operating water treatment plants and/or operating water supply systems.” The SBA has developed a small business size standard for this industry, which is: All such firms having $6.5 million or less in annual receipts. According to Census Bureau data for 2002, there were 3,830 firms in this category that operated for the entire year. Of this total, 3,757 firms had annual sales of less than $5 million, and 37 firms had sales of $5 million or more but less than $10 million. Thus, the majority of firms in this category can be considered small.

129. The timeline for access to poles that we adopt today will marginally affect recordkeeping and compliance requirements for utilities and attachers. We anticipate that utilities and attachers will modify their recordkeeping regarding the performance of make-ready work, including timeliness, safety, and capacity, in order to show compliance with the timeline in the case of a dispute. The notification rule requires the inclusion of certain information in make-ready notifications sent to other attachers. We also anticipate that the rule regarding the publication of qualified third-party contract workers will involve more recordkeeping for utilities that must maintain and make available the list to prospective attachers. However, we expect the costs of complying with these rules to be minimal, since they do not measurably differ from the requirements in place before the adoption of this Order.

130. The changes we adopt today in the enforcement process, specifically for pole attachment complaints, similarly do not produce significant differences in recordkeeping and compliance requirements from the requirements in place before the adoption of this Order. For example, although our decision to permit recovery of a monetary award to extend as far back as the appropriate statute of limitations allows, rather than beginning the award period with the filing of the complaint, may increase the period of time over which a complainant must produce data to support its monetary claim, we have not adopted any requirements of data collection or filing per se.

131. We expect the costs of complying with the new rules affecting attachment rates to be minimal, since any of these compliance costs do not significantly differ from requirements in place before the adoption of this Order.

132. The RFA requires an agency to describe any significant alternatives that it has considered in reaching its proposed approach, which may include (among others) the following four alternatives: (1) The establishment of differing compliance or reporting requirements or timetables that take into account the resources available to small entities; (2) the clarification, consolidation, or simplification of compliance or reporting requirements under the rule for small entities; (3) the use of performance, rather than design, standards; and (4) an exemption from coverage of the rule, or any part thereof, for small entities.

133. The specific timeline and additional rules adopted in this Order provide a predictable, timely process for parties to seek and obtain pole attachments, while maintaining a utility's interest in preserving safety, reliability, and sound engineering. We do not adopt different requirements for small entities because we expect the economic impact on small entities to be minimal. Since we cap the number of poles subject to the timeline based on the lesser of a numerical cap or a percentage of poles owned by a utility in a state, small entities do not undergo any disproportionate hardship. The 100 pole order cap proposed by NTCA et al. does not achieve the same benefit for small entities because it is not specifically tailored to the size of the entity. Also, it is unlikely that the timeline will result in any significant recordkeeping burdens for small entities since prudent utilities and attachers already keep records regarding make-ready work and pole capacity and we do not impose any additional information collection requirements. Similarly, identifying the contractors that utilities themselves already use to prospective attachers should not require an additional resource burden. Finally, the Commission does not have authority to regulate (and the proposed rules, thus, do not apply to) small utilities that are municipally or cooperatively owned.

134. Further, in this Order, the Commission revises the section 224(e) rental rate for pole attachments used by telecommunications carriers to provide telecommunications services. This new telecom rate generally will recover the same portion of pole costs as the current cable rate. The new formula will minimize the difference in rental rates paid for attachments that are used to provide voice, data, and video services, and thus will help remove market distortions that pose barriers to deployment of new services by small cable and telecommunications providers. The Commission also revisits its prior interpretation of the statute and allows incumbent LECs to file pole attachment complaints before the Commission if they are unable to negotiate just and reasonable rates, terms, and conditions with other pole owners. Thus, we believe that the rules adopted in this Order to ensure that pole attachment rates are just and reasonable will have a positive economic benefit on small entities in areas that fall under the Commission's regulatory jurisdiction, rather than an adverse impact.

135. Specifically, NTCA et al. asserts that small rural incumbent LECs are concerned about unreasonably high rates and “face difficulties in negotiating and, in some cases, litigating contractual terms for pole attachments.” NCTA et al. also asserts that “[t]he Commission's current pole attachment rules effectively deny rural ILECs a remedy against unreasonable pole attachment provisions which has a significant economic impact on a substantial number of small ILECs.” NTCA requested that the Commission adopt a “remedy mechanism by which [rural ILECs] can present claims of unjust or unreasonable pole attachment rates, terms and conditions imposed by utilities”—and stated that such a provision “would reduce the economic impact on small rural communications providers.” The Commission, in fact, adopts such a rule in this Order—allowing incumbent LECs to file pole attachment complaints. Further, the Commission provides guidance regarding its approach to evaluating those complaints and what the appropriate rate may be.

136. Also in this Order, the Commission responds to small cable operator concerns about “possible increases in rates for comingled Internet and video services,” as noted by the U.S. Small Business Administration. Addressing the role of the new telecom rate in the context of commingled services, the Commission recognized concerns by some cable operators that pole owners may seek to impose rates higher than both the cable rate and the new telecom rate where cable operators or telecommunications carriers also provide services, such as VoIP, that have not been classified. The Commission stated that this outcome would be contrary to its policy goals here in which it adopts a lower and more uniform attachment rate to reduce the disparity in pole rental rates among providers of competing services to minimize disputes resulting from the disparity between cable and pre-existing higher telecom rates. This disparity has acted to deter investment and network expansion for new services by cable providers because of the risk that some of those services could potentially be classified as “telecommunications services”—triggering disputes and litigation as to whether the higher telecom rate should be applied over their entire pole attachment network. The Commission also makes clear that the use of pole attachments by telecommunications carriers or cable operators to provide commingled services does not remove them from the pole rate regulation framework, and that rates generally will not be considered just and reasonable if they exceed the new telecom rate.

137. In addition, the new rate for attachments used by telecommunications carriers will have a positive economic impact on small competitive LECs. It will minimize competitive disadvantages that these carriers faced by having to pay higher rates for these key inputs to communications services. The Order also confirms that wireless carriers are entitled to the same rate under the statute as other telecommunications carriers. Specifically, the Commission explains that wireless carriers are entitled to the benefits and protection of section 224, including the right to the telecom rate under section 224(e), in response to reports by the wireless industry of cases where wireless providers were not afforded the regulated rate and instead had been charged higher rates that were unreasonable.

138. None.

Accordingly, it is ordered that pursuant to sections 1, 4(i), 4(j), 224, 251(b)(4), and 303, of the Communications Act of 1934, as amended, and section 706 of the Telecommunications Act of 1996, as amended, 47 U.S.C. 151, 154(i), 154(j), 224, 251(b)(4), 303(r), 1302, this Report and Order and Order on Reconsideration is adopted.

It is further ordered that part 1 of the Commission's rules is amended as set forth in Appendix A.

It is further ordered that, pursuant to §§ 1.4(b)(1) and 1.103(a) of the Commission's rules, 47 CFR 1.4(b)(1), 1.103(a), this Report and Order and Order on Reconsideration shall become effective June 8, 2011. The information collection requirements contained in the Report and Order will become effective following OMB approval.

It is further ordered that the Commission's Consumer and Governmental Affairs Bureau, Reference Information Center, shall send a copy of this Report and Order and Order on Reconsideration, including the Final Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of the Small Business Administration.

For the reasons discussed in the preamble, the Federal Communications Commission amends 47 CFR part 1 to read as follows:

This is a synopsis of the Commission's National Deaf-Blind Equipment Distribution Program (NDBEDP) Report and Order ( Order ), document FCC 11-56, adopted April 4, 2011, and released April 6, 2011, in CG Docket No. 10-210.

The full text of document FCC 11-56 and copies of any subsequently filed documents in this matter will be available for public inspection and copying via ECFS, and during regular business hours at the FCC Reference Information Center, Portals II, 445 12th Street, SW., Room CY-A257, Washington, DC 20554. They may also be purchased from the Commission's duplicating contractor, Best Copy and Printing, Inc., Portals II, 445 12th Street, SW., Room CY-B402, Washington, DC 20554, telephone: (800) 378-3160, fax: (202) 488-5563, or Internet: www.bcpiweb.com. Document FCC 11-56 can also be downloaded in Word or Portable Document Format (PDF) at http://www.fcc.gov/cgb/dro/headlines.html and at http://www.fcc.gov/cgb/dro/cvaa.html.

To request materials in accessible formats for people with disabilities (Braille, large print, electronic files, audio format), send an e-mail to fcc504@fcc.gov or call the Consumer and Governmental Affairs Bureau at 202-418-0530 (voice), 202-418-0432 (TTY).

This document contains new and modified information collection requirements. The Commission, as part of its continuing effort to reduce paperwork burdens, invites the general public to comment on the information collection requirements contained in document FCC 11-56 as required by the PRA of 1995, Public Law 104-13. In addition, the Commission notes that pursuant to the Small Business Paperwork Relief Act of 2002, Public Law 107-198, the Commission previously sought specific comment on how the Commission might “further reduce the information collection burden for small business concerns with fewer than 25 employees.” See 44 U.S.C. 3506(c)(4). In this present document, the Commission has assessed the effects of the rules for the NDBEDP pilot program and finds that the collection of information requirements will not have a significant impact on small business concerns with fewer than 25 employees.

The Commission will send a copy of document FCC 11-56 in a report to be sent to Congress and the Government Accountability Office pursuant to the Congressional Review Act. See 5 U.S.C. 801(a)(1)(A).

1. Document FCC 11-56 implements a provision of the CVAA, Public Law 111-260, 124 Stat. 2751 (2010). ( See also Pub. L. 111-265, 124 Stat. 2795 (2010) (making technical corrections to the CVAA)). Section 105 of the CVAA adds section 719, 47 U.S.C. 620, to the Communications Act of 1934, as amended (the Act). Section 719 of the Act requires the Commission to establish rules that define as eligible for relay service support those programs approved by the Commission for the distribution of specialized customer premises equipment (CPE) to low-income individuals who are deaf-blind. 47 U.S.C. 620(a). The CVAA authorizes the Commission to allocate $10 million annually from the Interstate Telecommunications Relay Service (TRS) Fund for this equipment distribution effort. 47 U.S.C. 620(c). In document FCC 11-56, the Commission establishes a National Deaf-Blind Equipment Distribution Program (NDBEDP) pilot program to certify and provide funding to one entity in each state to distribute specialized CPE to make telecommunications service, Internet access service, and advanced communications, including interexchange services and advanced telecommunications and information services, accessible to low-income individuals who are deaf-blind.

2. Prior to the adoption of document FCC 11-56, the Consumer and Governmental Affairs Bureau (CGB) issued a Public Notice on November 3, 2010, seeking comment on a range of issues related to the Commission's implementation of section 719 of the Act. See Consumer and Governmental Affairs Bureau Seeks Comment on Implementation of Requirement to Define Programs for Distribution of Specialized Customer Premises Equipment Used by Individuals who are Deaf-Blind, Public Notice, document DA-10-2112, released November 3, 2010 in CG Docket No. 10-210 ( NDBEDP PN ). The comments filed in response to the NDBEDP PN informed the preparation of a Notice of Proposed Rulemaking that the Commission released on January 14, 2011. See Implementation of the Twenty-First Century Communications and Video Accessibility Act of 2010, Section 105, Relay Services for Deaf-Blind Individuals, Notice of Proposed Rulemaking, published at 76 FR 4838, January 27, 2011 ( NDBEDP NPRM ). In the NDBEDP NPRM, the Commission proposed ways to support the distribution of specialized CPE to enhance and promote access to telecommunications service, Internet access service, and advanced communications by low-income individuals who are deaf-blind, and sought comment on those proposals. The NDBEDP pilot program, established by the rules adopted in document FCC 11-56, will support the distribution of such specialized CPE and the provision of associated services, as well as help to inform future Commission action in establishing a more permanent NDBEDP.

3. In document FCC 11-56, the Commission adopts a rule permitting all qualified entities to apply for certification to participate in the NDBEDP. The Commission will then select among these program applicants based on the criteria set out in the NDBEDP pilot program rules. Program applicants may include recommendations with their certification applications from members of the deaf-blind community in their state, appropriate experts, or others with direct knowledge of their capabilities and qualifications. The Commission will certify only one entity per state as eligible to receive support for the distribution of equipment to individuals who are deaf-blind. Each certified entity will have primary oversight and responsibility for compliance with program requirements, but certified entities may fulfill their responsibilities either directly or through collaboration, partnership, or contract with other individuals or entities in-state or out-of-state (including other state EDPs).

4. The Commission will require the submission of certification applications within 60 days after the effective date of these rules. These rules will be effective upon notice in the Federal Register announcing OMB approval of the information collection requirements subject to the Paperwork Reduction Act. The Commission will announce the selected participants, starting date, and funding allocations as soon as possible thereafter. Certification will be granted for the duration of the pilot program, subject to compliance with program requirements.

5. The Commission will operate the NDBEDP pilot for two years, from the pilot program start date, with an option for to extend the program for an additional year. The Commission delegates authority to CGB to establish the pilot program start date, as soon as possible, but not later than July 1, 2012, the start of the 2012-2013 TRS Fund year. The Commission believes that the experiences and information gained during this pilot program will provide it with a comprehensive understanding of how to ensure the most efficient and effective use of the funds available to meet the needs of this population on a more permanent basis.

6. Definition of Individuals who are Deaf-Blind. Under the CVAA, persons eligible to receive equipment under the NDBEDP must be “deaf-blind,” as this term is defined by the Helen Keller National Center Act (HKNC Act), 29 U.S.C. 1905(2). That definition contains three prongs. The first prong of the definition requires assessment of the individual's vision, and provides measurable standards of loss of visual acuity. The second prong asks whether the individual has a hearing loss so severe “that most speech cannot be understood with optimum amplification.” The third prong asks whether the individual's combined visual and hearing losses “cause extreme difficulty in attaining independence in daily life activities, achieving psychosocial adjustment, or obtaining a vocation.” The Commission directs certified programs to consider an individual's functional abilities with respect to using telecommunications, Internet access, and advanced communications services in various environments, when they make determinations as to whether an individual is deaf-blind under the second and third prongs of the definition.

7. Verification of Disability. NDBEDP applicants who are deaf-blind are likely to face significant logistical challenges, including the very types of communication barriers the NDBEDP is itself designed to eliminate, in their attempts to obtain verification of their disabilities. To facilitate access to the NDBEDP by the intended population, while at the same time implementing measures to prevent potential fraud or abuse of this program, the Commission adopts a rule requiring an individual seeking equipment under the NDBEDP to provide verification of his or her disability from any practicing professional that has direct knowledge of that individual's disability. For the pilot program, such professional must verify the individual's disability to the best of his or her knowledge. Also, for purposes of the pilot program, the Commission will accept existing documentation as verification that a person is deaf-blind, such as an individualized education program (IEP) that indicates that the person receiving equipment is deaf-blind, or a statement from a public or private agency, such as a Social Security determination letter that a person is deaf-blind. The Commission also adopts a requirement that such verification of disability include the attesting name, title, and contact information, including address, phone number, and e-mail address of the professional.

8. Income Eligibility. Section 719 of the Act limits NDBEDP eligibility to “low-income” individuals. The Commission concludes that the unusually high medical and disability-related costs incurred by individuals who are deaf-blind discussed in the comments, together with the extraordinarily high costs of specialized CPE typically needed by this population, support an income eligibility rule of 400 percent of the Federal Poverty Guidelines (FPG) for the NDBEDP pilot program. NDBEDP certified programs will not be permitted to apply income eligibility limits that are lower than the limit the Commission adopts. State EDPs or alternate entities with income eligibility criteria for other programs they administer that are different from the NDBEDP criteria may still be certified under the NDBEDP, but they must use NDBEDP-compliant income eligibility criteria to assess individuals who will participate in the federal NDBEDP pilot.

9. Verification of Income Eligibility. The Commission adopts a rule to allow individuals enrolled in federal subsidy programs with income thresholds lower than 400 percent of the FPG threshold to automatically be deemed income eligible for the NDBEDP pilot program. The Commission also adopts a rule that permits the NDBEDP Administrator to authorize other federal or state programs with income eligibility thresholds that do not exceed 400 percent of the FPG to be the basis for determining income eligibility under the NDBEDP. Where applicants are not already enrolled in a qualifying low-income program, low-income eligibility must be verified by the certified program using appropriate and reasonable means, for example, by reviewing the individual's most recent income tax return.

10. Other Eligibility Requirements and Considerations. During the NDBEDP pilot program, the Commission will permit certified programs to require that NDBEDP equipment recipients demonstrate that they have access to the telecommunications service, Internet access service, and advanced communications that the equipment is designed to use and make accessible. States choosing to impose this qualification criterion must allow access to such services to be in the form of wireless, WiFi, or other free services made available by public or private entities, or by the recipient's family, friends, neighbors, or other personal contacts. However, the Commission prohibits certified programs from adopting or imposing any employment-related eligibility requirement as there is no statutory basis for such a requirement under the CVAA. Requiring NDBEDP recipients to be employed or actively seeking employment would limit the scope of the NDBEDP, potentially excluding children, students, retirees, and senior citizens.

11. Scope of Specialized Customer Premises Equipment. The Commission's rules require covered equipment and technology eligible for distribution under the NDBEDP to be defined broadly, without restrictions on specific brands, models, or types of technology, including hardware, software, and applications, separately or in combination, needed to achieve access. During the NDBEDP pilot program, certified programs will have the discretion to determine the specific equipment needed and to be provided, as long as that equipment can make telecommunications service, Internet access service, and advanced communications accessible by the consumer who is deaf-blind. Certified programs may not be limited by state statute or otherwise to distribute equipment to make only some communications accessible; certified programs must be permitted to distribute equipment to enable deaf-blind individuals to access the full spectrum of communication covered under section 719 of the Act, as needed by those individuals. The Commission further concludes that certified programs may distribute “off-the-shelf” equipment to serve as specialized CPE, or as needed for use with specialized CPE, as long as it meets the needs of an individual covered under this program. The Commission will examine the kinds of equipment that are requested and distributed during the NDBEDP pilot program to assess both the demand for varied technologies and to make any necessary adjustments in the scope of covered equipment when the Commission conducts the rulemaking proceeding for the permanent program. The Commission also prohibits certified programs from disabling or making more difficult to access capabilities, functions, or features on distributed equipment that are needed to access communications services covered by section 719 of the Act, for example, by having the manufacturer bury access to those functions into deeper menus.

12. Because of the lack of consensus in the record, and because the Commission would like to first gather experience under the NDBEDP on the costs associated with the various devices and services that will be funded under the certified programs, the Commission will not establish caps on the quantity or cost of equipment distributed to individuals during this pilot program. Certified programs may distribute new equipment or equipment upgrades to keep current with changes in technology and individual needs. Certified programs may also distribute more than one device to an individual who is deaf-blind to achieve access to more than one type of covered communications service or to achieve such access in more than one setting. Equipment distribution is subject to the constraints of the state's annual funding allocation, and the desire to make communications accessible for as many individuals who are deaf-blind as possible.

13. Loan Versus Ownership. While the Commission strongly recommends that certified programs lend equipment distributed under the NDBEDP to equipment recipients, the Commission does not require that they use this method of distributing equipment. For those programs that choose to lend equipment, the Commission requires that recipients be permitted to keep their devices for as long as needed. Under either a “loan” or “ownership” program, equipment recipients should not be permitted to sell, give away, or otherwise transfer equipment distributed under the NDBEDP. When a recipient relocates to another state, the certified program must transfer the recipient's account and any control of the distributed equipment to the new state's certified program, so that the individual need not reapply.

14. Research and Development. The Commission recognizes that there are equipment and technology gaps in the communications technology currently available to the deaf-blind population. However, the Commission concludes that an allocation of NDBEDP funding for equipment research and development is not appropriate at this time because of insufficient information about those gaps and the kinds of research and funding that are needed to fill them.

15. Individualized Assessment of Communication Needs. The Commission concludes that qualified assistive technology specialists who are familiar with both the manner in which deaf-blind people communicate and the range of specialized equipment that is available under this program are necessary to ensure that the equipment provided to deaf-blind individuals effectively meets their needs. Accordingly, certified programs may be reimbursed for the reasonable costs of making individualized assessments of a deaf-blind consumer's communications needs during the NDBEDP pilot. The reasonable costs of travel to conduct individual assessments of applicants who are located in rural or remote areas may also be covered when necessary to support the distribution of equipment by certified programs.

16. Installation and Training. Based on the record in this proceeding, the Commission concludes that equipment installation and individualized consumer training on how to use the distributed equipment are essential to the efficient and effective distribution of equipment for use by people who are deaf-blind and, as such, the reasonable costs associated with these services will be compensable for programs certified under section 719 of the Act. The Commission recognizes that there is a shortage of qualified personnel who can provide individualized training for equipment distributed to persons who are deaf-blind. However, because of the limited funding available in this program, and because the record is not clear on how programs to “train the trainer” should be set up at this time, the Commission will not set aside NDBEDP funds or reimburse certified programs for the costs of such training programs. The Commission does, however, encourage certified programs to maximize the use of limited resources through collaboration and partnerships between and among certified NDBEDP programs on a national or regional basis, as well as partnerships or contracts with other individuals and entities, in-state or out-of-state, in order to locate qualified individuals who can provide appropriate and effective training to people who are deaf-blind.

17. Maintenance, Repairs, and Warranties. The Commission concludes that, for the NDBEDP pilot program, reasonable costs associated with equipment maintenance and repairs that are not covered under warranties are eligible for reimbursement, except when such repair costs are the result of consumer or program negligence or misuse. The Commission encourages NDBEDP certified programs or manufacturers to provide equipment that can be loaned to the consumer during periods of equipment repair, especially when such equipment is under warranty. Reasonable costs associated with maintaining an inventory of equipment that can be loaned to the consumer during periods of equipment repair will also be covered under the NDBEDP pilot program. The Commission recommends that certified programs establish policies and the means for consumers to return equipment that is no longer needed or used to the certified program for possible refurbishing and redistribution. The reasonable costs of such return and refurbishing will be covered under the NDBEDP. The reasonable costs of warranties covering maintenance, updates, and repairs will also be covered during the pilot program.

18. Outreach and Education. The Commission concludes that a wide variety of outreach efforts is needed to reach the diverse population of individuals who are deaf-blind to make the NDBEDP effective. Certified programs participating in the pilot program must conduct outreach to inform residents of their states who are deaf-blind about the NDBEDP. Such outreach may include, but is not limited to, the development and maintenance of a program Web site and the distribution of accessible information and materials. The Commission also directs the NDBEDP Administrator to establish a Web site, accessible to deaf-blind consumers, that contains information about the NDBEDP. To supplement the outreach efforts of NDBEDP certified programs, the Commission will set aside $500,000 for outreach on a national level during each TRS Fund year of the pilot program. This outreach may be conducted by entities that have significant experience with and expertise in working with the deaf-blind community or by others and the Commission delegates authority to CGB to select appropriate entities to conduct outreach.

19. Allocation. The Commission will make the full amount of authorized funding, $10 million, available to the NDBEDP during each TRS Fund year (July 1 through June 30) of this pilot program. Insofar as $500,000 will be set aside for a nationwide outreach effort, a total of $9.5 million will be available for initial allocations among certified programs during each of the Fund years of this NDBEDP pilot program. Annual funding for the pilot program will be allocated on the basis of the population of each state. To ensure that every certified program in the NDBEDP pilot program receives a level of support that will both provide it with the incentive to participate in the NDBEDP and permit the distribution of equipment to as many eligible residents as possible, the Commission will allocate a minimum base amount of $50,000 to each state per TRS Fund year during the pilot program, with the balance of available funds allocated in proportion to the population of each of these jurisdictions.

20. Funding Mechanism. The Commission concludes that a mechanism that allocates funding for reimbursement of authorized costs of equipment and associated services, up to each state's initial or adjusted allotment, is appropriate for the NDBEDP pilot program. The Commission will permit certified programs to request reimbursement every six months, commencing with the starting date of the pilot program, as determined by CGB. Certified programs may seek reimbursement of costs up to the funding allocation for the state, for the equipment they distribute and related services they provide. In order to be compensated for equipment distributed and services rendered, certified programs must submit documentation and a reasonably detailed explanation of those costs incurred within 30 days after the end of each six-month period of the funding year. Costs submitted must be for those costs actually incurred during the prior six-month period. The TRS Fund Administrator and the NDBEDP Administrator shall review submitted costs and may request supporting documentation to verify the expenses claimed, and may also disallow unreasonable costs.

21. Rollover and Reallocation. The Commission will not permit the rollover of unused funds from one Fund year to another, in part because the Commission believes that not having the option of carrying over unused funds to the next year will create greater incentives for NDBEDP certified programs to distribute communications equipment to their residents rapidly and efficiently. The Commission will review NDBEDP funding data as it becomes available, and will consider whether to keep or revise this funding approach for the permanent NDBEDP. The Commission also delegates authority to the CGB to reduce, raise, or reallocate funding allocations to any certified program as it may deem necessary and appropriate.

22. Administrative Costs. For the NDBEDP pilot program, the Commission will allow certified programs to receive reimbursement from the TRS Fund for administrative costs that do not exceed 15 percent of the total reimbursable costs for the distribution of equipment and related services permitted under this program. The Commission expects such administrative costs incurred through participation in the NDBEDP pilot program to typically cover expenses incurred through reporting requirements, accounting, regular audits, oversight, and general administration.

23. Funding Caps. Because there is insufficient information in the record to support specific caps or amounts that should be used for outreach, assessments, equipment, installation, or training out of each state's funding allocation, the Commission will not adopt any such caps for the pilot program at this time. The Commission does, however, require that all costs incurred through participation in the NDBEDP pilot program be reasonable and notes that the Commission will carefully monitor and evaluate the data submitted by certified programs for reimbursement of costs, as well as all other data and information submitted in the semi-annual reports filed by certified programs, to determine whether caps on outreach, assessments, equipment, installation, or training costs are necessary and appropriate in subsequent Fund years of the NDBEDP pilot program or for the permanent program.

24. The Commission adopts a six-month reporting requirement as part of our NDBEDP pilot rules. This reporting requirement is necessary to provide timely data for the effective administration of the NDBEDP pilot; to assess the effectiveness of the pilot program in meeting the communications equipment and technology needs of deaf-blind individuals; to ensure that the TRS Fund is being used for the purpose intended by Congress; to detect and prevent potential fraud, waste and abuse of the TRS Fund; to ensure compliance with our rules; and to inform our rulemaking for the permanent NDBEDP. This reporting schedule also coincides with and complements the schedule for program reimbursements. The information the Commission requires certified programs to report is set out in our rules.

25. The Commission is mindful that qualitative as well as quantitative data may be needed to appropriately assess the efficiency and effectiveness of the certified programs and the pilot program, and to better inform the structure and operation and the development of rules for a permanent NDBEDP. The Commission takes particular note of the need expressed by several commenters for input from deaf-blind consumers, advocacy groups, and leaders. The Commission encourages certified programs to seek and obtain such qualitative data and to share that information with the Commission.

26. In order to receive compensation from the TRS Fund, each certified program must engage an independent auditor to perform an annual audit designed to detect and prevent fraud, waste and abuse. In addition, all such programs must submit, as necessary, to any audits directed by the Commission, CGB, the NDBEDP Administrator, or the TRS Fund Administrator. The Commission also requires all certified programs to retain all records associated with the distribution of equipment and provision of related services under the NDBEDP for two years following the termination of the pilot program. The Commission believes that adopting these policies will promote greater transparency and accountability.

27. To further prevent abuse, the Commission also adopts a rule that prohibits certified programs from accepting any type of financial arrangement from an equipment vendor that could incentivize the purchase of particular equipment. The Commission will request during the initial certification application process and thereafter, as necessary, disclosure of actual or potential conflicts of interest with manufacturers or providers of equipment, software, or applications that may be distributed under the NDBEDP. Finally, the Commission requires that each NDBEDP certified program filing these reports attest to the truth and accuracy of the information provided in these reports under penalty of perjury.

28. The Commission delegates authority to the CGB to take the administrative actions necessary to implement and administer the NDBEDP. CGB will designate an NDBEDP Administrator to review applications and certify programs for participation in the NDBEDP pilot; allocate funding; review submissions for reimbursement of costs; establish and maintain an NDBEDP Web site and oversee other outreach efforts undertaken by the Commission; confer with stakeholders and obtain, review, and analyze data to assess the effectiveness of the pilot program; work with Commission staff on the adoption of rules for a permanent program; and serve as the Commission's point of contact for the NDBEDP.

29. The Commission also concludes that the TRS Fund Administrator, as directed by the NDBEDP Administrator, shall have responsibility for (A) reviewing cost submissions and releasing funds for equipment that has been distributed and authorized related services, including outreach efforts; (B) releasing funds for other authorized purposes, as requested by the Commission or CGB; and (C) collecting data as needed for delivery to the Commission and the NDBEDP Administrator.

30. Advisory Body. The Commission believes that the participation of deaf-blind consumers is critical in all aspects of the NDBEDP to ensure that the program effectively meets the needs of this constituency. The Commission is exploring the best means by which to engage and confer with these and other stakeholders. While the Commission will not create a separate advisory body at this time, the NDBEDP Administrator will nevertheless meet with stakeholders, including consumers who are deaf-blind, consumer groups, experts on deaf-blindness, technical experts, manufacturers, vendors, and certified programs, jointly or separately, during the course of the pilot program to obtain ongoing input and feedback.

31. Central Repository. The Commission believes that the best means of ensuring that the public has up-to-date information about the equipment made available by NDBEDP certified programs is to include such information in the clearinghouse on accessible products and services that the Commission will be establishing over the next year under the CVAA. The Commission hopes to gather extensive information about the equipment provided under the NDBEDP for inclusion within this clearinghouse from the reports submitted during this pilot program.

32. NDBEDP as a Supplemental Funding Source. When it is established, the NDBEDP will be one of several federal laws or programs that either mandate or authorize the provision of specialized CPE to individuals who are deaf-blind. The Commission concludes that the NDBEDP provides a new funding resource for the distribution of equipment that supplements, rather than supplants any existing legal mandates or programs for equipment available to consumers today. Individuals who are deaf-blind should not be disqualified from participating in the NDBEDP pilot program because they may also be eligible for or receive equipment under other programs for other purposes ( e.g., education or employment related equipment). Instead, individual assessments must be conducted to determine each deaf-blind person's needs for different settings. The Commission encourages NDBEDP certified programs to collaborate with other programs to achieve the goal of addressing the communication technology needs of this underserved population while avoiding duplicative services.

33. Program Compliance. In addition to the certification, the Commission requires that each NDBEDP certified program requesting reimbursement for equipment and related services under this program attest to the truth and accuracy of the claims for reimbursement submitted, under penalty of perjury. To ensure that individuals with knowledge of program abuses are encouraged to come forward, the Commission also adopts a whistleblower protection rule for the NDBEDP pilot program. The Commission also reserves the right to suspend or revoke NDBEDP certification if, after notice and opportunity for hearing, it determines that such certification is no longer warranted. In cases where a program's certification has been suspended or revoked, the Commission delegates authority to CGB to take such steps as may be necessary, to ensure continuity of the NDBEDP for that state. The Commission may also, on its own motion, require a certified program to submit documentation demonstrating ongoing compliance with the Commission's rules, if it has reason to suspect that a state program may not be in compliance with its program rules or requirements.

37. The Regulatory Flexibility Act of 1980, as amended (RFA), requires that a regulatory flexibility analysis be prepared for rulemaking proceedings, unless the agency certifies that “the rule will not, if promulgated, have a significant economic impact on a substantial number of small entities.” See 5 U.S.C. 603. The RFA generally defines the term “small entity” as having the same meaning as the terms “small business,” “small organization,” and “small governmental jurisdiction.” 5 U.S.C. 601(6). In addition, the term “small business” has the same meaning as the term “small business concern” under the Small Business Act. A “small business concern” is one that: (1) Is independently owned and operated; (2) is not dominant in its field of operation; and (3) satisfies any additional criteria established by the Small Business Administration (SBA). 15 U.S.C. 632.

38. In document FCC 11-56, the Commission proceeds with rules for implementing a NDBEDP pilot program to provide support to programs approved by the Commission for the distribution of specialized CPE to low-income individuals who are deaf-blind. In the Notice of Proposed Rulemaking in this proceeding, document FCC 11-3, the Commission concluded that no Initial Regulatory Flexibility Analysis was required because, even if a substantial number of small entities might be affected by the proposed rules, including those deemed to be small entities under the SBA's standard, all of the providers potentially affected by the proposed rules would be entitled to receive reimbursement for their reasonable costs of participation and compliance. Therefore, the Commission concluded that the rules proposed in document FCC 11-3, if adopted, would not have a significant impact on a substantial number of small entities. Accordingly, and as described below, the Commission provides this certification.

39. In document FCC 11-56, the Commission adopts rules to implement section 105 of the CVAA, signed into law by President Obama on October 8, 2010. The CVAA requires the Commission to take various measures to ensure that people with disabilities have access to emerging communications technologies in the 21st century. Section 105 of the CVAA adds section 719 to the Communications Act (the Act), as amended. Section 719 of the Act directs the Commission to establish rules, within six months of enactment, that define as eligible for relay service support those programs approved by the Commission for the distribution of specialized CPE to low-income individuals who are deaf-blind. The equipment to be distributed is needed to make telecommunications service, Internet access service, and advanced communications, including interexchange services and advanced telecommunications and information services, accessible by individuals who are deaf-blind. For these purposes, section 719 of the Act adopts the definition of “individuals who are deaf-blind” in the Helen Keller National Center (HKNC) Act and authorizes $10 million annually from the Interstate Telecommunications Relay Service (TRS) Fund.

40. Specifically, in document FCC 11-56, the Commission concludes that a two-year pilot program, with an option to extend for one more year, will enable the Commission to appropriately assess the most efficient and effective method of administering the NDBEDP, and lay the groundwork for a more permanent program. The Commission adopts rules to establish the NDBEDP pilot program which will rely on existing state equipment distribution programs (EDPs) and other entities to distribute equipment to deaf-blind individuals. The rules provide selection criteria for NDBEDP pilot program application and certification, and for the Commission to certify one program per state as eligible for support. The Commission also adopts eligibility and verification of requirements for individuals to qualify as “low-income” and “deaf-blind” for receipt of equipment and services from NDBEDP certified programs.

41. Document FCC 11-56 makes the full amount of authorized funding, $10 million, available to the NDBEDP pilot program during each TRS Fund year, of which up to $500,000 per year may be used to support certified programs through national outreach efforts. Initial funding allocations will provide a base amount of $50,000 for each state, with the balance of available funds allocated in proportion to the population of each state. Document FCC 11-56 gives NDBEDP certified programs the discretion to determine the equipment to be provided, whether specialized or off-the-shelf, separately or in combination, provided that the equipment meets the needs of the individual and makes the communications services covered under section 719 of the Act accessible. The rules require certified programs to submit requests for and to be reimbursed every six months, up to each state's allotment, for the equipment distributed and the reasonable costs of warranties, maintenance, repairs, temporary equipment loans, and refurbishing; and for the reasonable costs of conducting state and local outreach and individualized needs assessments, installing equipment, and providing individualized training on how to use the equipment. The rules adopt a funding cap for administrative costs at 15 percent of the total reimbursable costs for the distribution of equipment and provision of authorized related services. Funds that are not used in one TRS Fund year will not be carried over to the next TRS Fund year.

42. Document FCC 11-56 adopts a six-month reporting requirement for certified programs, specifying the information to be reported and certification under penalty of perjury by a senior executive of the certified program. In addition, document FCC 11-56 requires certified programs to conduct annual independent audits, retain records, and disclose potential conflicts of interest. Document FCC 11-56 also adopts rules for the designation of and actions to be taken by an NDBEDP Administrator, and the actions to be taken by the TRS Fund Administrator related to the administration and operation of the NDBEDP.

43. With regard to whether the rules adopted by document FCC 11-56 will have a significant economic impact on a substantial number of small entities, NDBEDP certified programs affected by these rules are entitled to receive reimbursement, as described above, up to each state's allotment, for the equipment distributed, related services provided, and administrative costs of participation in the NDBEDP. As such, the economic impact on such entities will be de minimis. Therefore, the Commission concludes that the rules adopted by document FCC 11-56 will not have a significant economic impact on these entities.

44. With regard to whether a substantial number of small entities may be economically impacted by the rules adopted by document FCC 11-56, the Commission notes that existing state EDPs and other entities certified by the Commission to participate in the NDBEDP pilot program to distribute equipment to low-income individuals who are deaf-blind are likely to meet the definition of a small entity as a “small business,” “small organization,” or a “small governmental jurisdiction.” The Commission describes here, at the outset, three comprehensive, statutory small entity size standards. First, nationwide, there are a total of approximately 27.2 million small businesses, according to the SBA. In addition, a “small organization” is generally “any not-for-profit enterprise which is independently owned and operated and is not dominant in its field.” Nationwide, as of 2002, there were approximately 1.6 million small organizations. Finally, the term “small governmental jurisdiction” is defined generally as “governments of cities, towns, townships, villages, school districts, or special districts, with a population of less than fifty thousand.” Census Bureau data for 2002 indicate that there were 87,525 local governmental jurisdictions in the United States. The Commission estimates that, of this total, 84,377 entities were “small governmental jurisdictions.” Thus, the Commission estimates that most governmental jurisdictions are small.

45. While the Congressional mandate has led us to list the above entities as the ones that in all reasonable likelihood will function as NDBEDP certified programs, there exists the possibility that our list may not be complete and/or may subsequently include entities not listed above. This includes entities which may not fit into traditional categories currently under the Commission's jurisdiction. However, as noted above, the Commission will rely on existing state EDPs and other entities to distribute equipment to low-income individuals who are deaf-blind. The rules provide selection criteria for NDBEDP pilot program application and certification, and for the Commission to certify one program per state as eligible for support. Therefore, a maximum of 53 entities may be selected to participate in the NDBEDP pilot program—the 50 states plus the District of Columbia, Puerto Rico, and the Virgin Islands. Each of these jurisdictions currently administers an intrastate TRS program. The Commission concludes, therefore, that a substantial number of small entities will not be affected by the rules adopted document FCC 11-56.

46. Therefore, the Commission certifies that the requirements of document FCC 11-56 will not have a significant economic impact on a substantial number of small entities.

47. The Commission will send a copy of document FCC 11-56, including a copy of this Final Regulatory Flexibility Certification, in a report to Congress and the Government Accountability Office pursuant to the Congressional Review Act. In addition, document FCC 11-56 and this final certification will be sent to the Chief Counsel for Advocacy of the SBA.

48. Pursuant to the authority contained in sections 1, 4(i), 4(j), and 719 of the Communications Act of 1934, as amended, 47 U.S.C. 151, 154(i), 154(j), and 620, document FCC 11-56 is adopted.

Document FCC 11-56 shall become effective June 8, 2011 except that rules that contain information collection requirements, which are subject to the PRA and require approval by OMB, shall become effective after the Commission publishes a notice in the Federal Register announcing such approval and the relevant effective date.

49. The Commission's Consumer and Governmental Affairs Bureau, Reference Information Center, shall send a copy of document FCC 11-56, including the Final Regulatory Flexibility Certification, to the Chief Counsel for Advocacy of the Small Business Administration.

For the reasons discussed in the preamble, the Federal Communications Commission amends 47 CFR part 64 as follows: