This final decision adopts amendments that: (1) Adjust the Class I pricing surface in the Appalachian, Florida, and Southeast marketing orders; (2) Make diversion limit standards identical for the Appalachian and Southeast orders: 25 percent of deliveries to pool plants during the months of January, February, July, August, September, October, and November, and 35 percent in the months of March, April, May, June, and December; (3) Reduce touch-base standards to one day each month for the Appalachian and Southeast orders; (4) Add January and February as months when transportation credits are paid for the Appalachian and Southeast orders; (5) Provide for the payment of transportation credits in the Appalachian and Southeast orders for full loads of supplemental milk; (6) Provide more flexibility in the qualification requirements for supplemental milk producers to receive transportation credits for the Appalachian and Southeast orders; and (7) Increase the monthly transportation credit assessment from $.20 per hundredweight (cwt) to $0.30 per cwt in the Southeast order. This decision also increases the maximum administrative assessment for the Appalachian, Florida, and Southeast orders from $0.05 per cwt to $0.08 per cwt. Increasing the maximum administrative assessment was initially addressed in a separate recommended decision (73 FR 11062). Comments concerning the recommended decision were requested but none were received. Accordingly, this document is the final decision on all proposals addressed in both the tentative final decision (73 FR 11194) for items 1 through 7 above and the recommended decision (73 FR 11062) that were simultaneously published in the Federal Register on February 25, 2008.

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

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

The Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674) (AMAA), provides that administrative proceedings must be exhausted before parties may file suit in court. Under Section 608c(15)(A) of the AMAA, any handler subject to an order may request modification or exemption from such order by filing a petition with the Department of Agriculture (USDA) stating that the order, any provision of the order, or any obligation imposed in connection with the order is not in accordance with the law. A handler is afforded the opportunity for a hearing on the petition. After a hearing, USDA would rule on the petition. The AMAA provides that the district court of the United States in any district in which the handler is an inhabitant, or has its principal place of business, has jurisdiction in equity to review USDA's ruling on the petition, provided a bill in equity is filed not later than 20 days after the date of the entry of the ruling.

In accordance with the Regulatory Flexibility Act (5 U.S.C. 601-612), the Agricultural Marketing Service has considered the economic impact of this action on small entities and has certified that this proposed rule would not have a significant economic impact on a substantial number of small entities. For the purposes of the Regulatory Flexibility Act, a dairy farm is considered a small business if it has an annual gross revenue of less than $750,000 and a dairy products manufacturer is a small business if it has fewer than 500 employees.

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

During May 2007, the time of the hearing, there were 2,744 dairy farmers pooled on the Appalachian order (Order 5), 2,924 dairy farmers pooled on the Southeast order (Order 7), and 283 dairy farmers pooled on the Florida order (Order 6). Of these, 2,612 dairy farmers in Order 5 (or 95 percent), 2,739 dairy farmers in Order 7 (or 94 percent), and 153 dairy farmers in Order 6 (or 54 percent) were considered small businesses.

During May 2007, there were a total of 36 plants associated with the Appalachian order (22 fully regulated plants, 10 partially regulated plants, 2 producer-handlers, and 2 exempt plants). A total of 55 plants were associated with the Southeast order (33 fully regulated plants, 9 partially regulated plants, 2 producer-handlers, and 11 exempt plants). A total of 25 plants were associated with the Florida order (13 fully regulated plants, 9 partially regulated plants, 1 producer-handler, and 2 exempt plants). The number of plants meeting small business criteria under the Appalachian, Southeast, and Florida orders were 8 (or 22 percent), 18 (or 33 percent), and 11 (or 44 percent), respectively.

The adopted amendments in this final decision provide for an increase in Class I prices in the Appalachian, Southeast, and Florida orders. The minimum Class I prices of the three southeastern orders, as with all other Federal milk marketing orders, are set by using the higher of an advance Class III or Class IV price as determined by USDA and adding a location-specific differential, referred to as a Class I differential. Minimum Class I prices charged to regulated handlers are applied uniformly to both large and small entities. At the time of the hearing, the Department estimated that the proposed Class I price increases would generate higher marketwide pool values in all three southeastern orders of approximately $18-19 million for the Appalachian order, $17.5 million for the Southeast order, and $38 million for the Florida order, on a monthly basis. It was estimated that monthly minimum prices paid to dairy farmers (blend prices) would increase approximately $0.26 per cwt for the Appalachian order, $0.64 per cwt for the Southeast order, and $1.20 per cwt for the Florida order.

The Class I price increases were implemented on an interim basis effective May 1, 2008. 1 As a result of those increases, marketwide pool values were increased in 2011 by approximately $16 million in the Appalachian order, $38 million in the Florida order, and $16 million in the Southeast order. This resulted in an increase in 2011 monthly minimum prices paid to dairy farms of $0.25 per cwt for the Appalachian order, $1.25 per cwt in the Florida order, and $1.25 per cwt in the Southeast order.

The adopted amendments revise the Appalachian and Southeast orders by making the diversion limit standards for the orders identical—not to exceed 25 percent in each of the months of January, February, and July through November, and 35 percent in each of the months of March through June and for the month of December. Prior to their interim adoption, the diversion limit standards of the Appalachian order for pool plants and cooperatives acting as handlers were not to exceed 25 percent in each of the months of July through November, January, and February; and 40 percent in each of the months of December and March through June. For the Southeast order, prior to their interim adoption, the diversion limit standards for pool plants and cooperatives acting as handlers were not to exceed 33 percent in each of the months of July through December and 50 percent in each of the months of January through June.

In addition, the adopted amendments establish identical touch-base standards of at least one day's milk production every month for a dairy farmer in the Appalachian and Southeast orders. Prior to their interim adoption, the Appalachian order had a touch-base standard of 6 days' production in each of the months of July through December and not less than 2 days' production in each of the months of January through June. Prior to their interim adoption, the Southeast order had a touch-base standard of not less than 10 days' production in each of the months of July through December and not less than 4 days' production in each of the months of January through June.

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

The adopted amendments add January and February to the months of July through December as months when transportation credits may be paid to those handlers who incur the costs of providing supplemental milk for the Appalachian and Southeast orders. The amendments also expand the payment of transportation credits for supplemental milk to include the full load of milk rather than the calculated Class I portion and provide more flexibility in the qualification requirements for supplemental milk producers to receive transportation credits. In addition, the maximum monthly transportation credit assessment for the Southeast order is increased from $0.20 per cwt to $0.30 per cwt on all milk assigned to Class I use. The transportation credit provisions are applicable only to the Appalachian and Southeast orders, are applied in an identical fashion to both large and small businesses, and will not have any different impact on those businesses producing manufactured milk products. The changes will not have a significant economic impact on a substantial number of small entities.

The adopted amendments also allow the Market Administrators of the Appalachian, Southeast, and Florida orders to increase the administrative assessment from the current $0.05 per cwt to $0.08 per cwt if necessary to maintain adequate funds for the operation of the orders. Administrative assessments are charged without regard to the size of any dairy industry or entity. Therefore, the proposed amendments will not have a significant economic impact on a substantial number of small entities.

The Agricultural Marketing Service is committed to complying with the E-Government Act, to promote the use of the Internet and other information technologies to provide increased opportunities for citizen access to Government information and services.

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

Interested parties were invited to submit comments on the probable regulatory and informational impact of this proposed rule on small entities.

Notice of Hearing: Issued May 3, 2007; published May 8, 2007 (72 FR 25986).

Partial Tentative Final Decision: Issued February 25, 2008; published February 29, 2008 (73 FR 11194).

Partial Recommended Decision: Issued February 25, 2008; published February 29, 2008 (73 FR 11062).

Interim Final Rule: Issued March 12, 2008; published March 17, 2008 (73 FR 14153).

Correcting Amendments: Issued May 6, 2008; published May 9, 2008 (73 FR 26513).

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

The proposed amendments set forth below are based on the record of a public hearing held in Tampa, Florida, on May 21-23, 2007, pursuant to a notice of hearing issued May 3, 2007, published May 8, 2007 (72 FR 11194).

Upon the basis of the evidence introduced at the hearing and the record thereof, USDA issued a Tentative Final Decision and a Recommended Decision on February 25, 2008, containing notice of the opportunity to file written exceptions thereto.

The materials issues on the hearing record relate to:

1. Class I Prices—adjustments and pricing surface.

2. Producer milk—diversion limit and touch-base standards.

3. Transportation credit balancing fund provisions.

4. Administrative assessment provisions.

This final decision proposes to adopt proposals, published in the hearing notice as Proposals 1, 2, 3, 4, 5, and 6, seeking to make various changes to the Appalachian, Southeast, and Florida milk marketing orders (hereinafter these marketing areas and marketing orders will collectively be referred to as the southeastern marketing areas or orders as appropriate). These amendments form a package of changes that simultaneously provide for an increase in Class I prices and the Class I pricing surface in the three southeastern orders; and for the Appalachian and Southeast orders, more stringent diversion limit standards, lower touch-base standards, and other specific changes to the transportation credit balancing fund provisions. This final decision also adopts proposals, published in the hearing notice as Proposals 4, 5, and 6, for increasing the maximum administrative assessment rate on producer milk from the current $0.05 per cwt to $0.08 per cwt for the Appalachian, Southeast, and Florida orders.

While the summary of testimony is presented as four separate material issues, the discussion and findings on all material issues are provided after the summary of comments and exceptions.

The minimum Class I prices of the three southeastern orders, as with all other Federal milk marketing orders, are set by using the higher of an advance Class III or Class IV price as determined by USDA and adding a location-specific differential, referred to as a Class I differential. The Class I differentials are location-specific by county and parish for all States of the 48 contiguous United States. These Class I differentials are specified in 7 CFR 1000.52.

The diversion limit standards of the Appalachian and Southeast milk orders are described in the Producer milk definition of the orders (7 CFR 1005.13 and 7 CFR 1007.13, respectively). The standards specify the maximum volume of milk that may be diverted to a nonpool plant and still pooled and priced under each respective order. Prior to their interim adoption, the diversion limit standards of the Appalachian order for cooperatives acting as handlers (and pool plant operators that are not cooperatives) were not to exceed 25 percent in each of the months of July through November and the months of January and February. Those limits changed to 40 percent in each of the months of March through June as well as the month of December. Prior to their interim adoption for the Southeast order, the diversion limit standards for cooperatives acting as handlers (and pool plant operators that are not cooperatives) were not to exceed 33 percent in each of the months of July through December and 50 percent in each of the months of January through June. As adopted herein, the diversion limit standards of both orders are made identical—not to exceed 25 percent for the months of January, February, and each of the months of July through November, and 35 percent for each of the months of March through June and for the month of December. This represents a modest tightening of the diversion limit standards for the Appalachian order and a significant tightening of the diversion limit standards for the Southeast order.

This decision adopts identical touch-base standards of at least 1 day's milk production per month for a dairy farmer to be considered a producer under each respective order's Producer milk definition and for making a producer's milk eligible for diversion to nonpool plants. This represents a significant change from the touch-base standards for the Appalachian and Southeast orders. Prior to their interim adoption, the Appalachian order touch-base standard was 6 days' production in each of the months of July through December and not less than 2 days' production in each of the months of January through June. For the Southeast order, the touch-base standard was not less than 10 days' production in each of the months of July through December and not less than 4 days' production in each of the months of January through June.

Currently, of the three southeastern orders, only the Appalachian and Southeast orders contain provisions for a transportation credit to partially offset handler costs of transporting supplemental milk for Class I use during certain times of the year from producers located outside of the two marketing areas. These producers are not part of the regular and consistent supply of Class I milk to the Appalachian and Southeast marketing areas.

Transportation credit balancing funds were first established for the Appalachian and Southeast (or predecessor orders) in 1996 and operate independently of the producer settlement funds. A monthly per cwt assessment is charged to Class I handlers on a year-round basis on the volume of milk assigned to Class I use at a rate of $0.15 per cwt in the Appalachian order and, prior to its interim adoption, $0.20 per cwt in the Southeast order. Payments from the transportation credit balancing fund are made during the months of July through December (when milk supplies are tightest) in both orders to those handlers that incur the costs of providing supplemental milk. The transportation credit balancing fund provisions were amended in a separate rulemaking and made effective on an interim basis on December 1, 2006 (71 FR 62377), and were again amended by this rulemaking proceeding on an interim basis effective March 18, 2008 (73 FR 14153).

Changes proposed in this final decision to the Appalachian and Southeast order transportation credit balancing fund provisions continue the previous amendments that were adopted on an interim basis (73 FR 14153). The amendments: (1) Extend the number of months that transportation credit balancing funds may be paid from the current months of July through December to include the months of January and February, with the option of the month of June if requested and approved by the market administrator; (2) expand the payment of transportation credits for supplemental milk to include the entire load of milk rather than the current calculated Class I utilization; (3) provide more flexibility in the qualification requirements for supplemental milk producers to receive transportation credits; and (4) increase the monthly transportation credit assessment rate from the current $0.20 per cwt to $0.30 per cwt for the Southeast order.

The final decision also recommends adoption of three proposals published in the hearing notice as Proposals 4, 5, and 6 seeking to increase the maximum administrative assessment rates of the Appalachian, Southeast, and Florida orders. Specifically, the maximum administrative assessment rates collected on pooled producer milk in the Appalachian, Southeast, and Florida orders will be increased from the current maximum administrative assessment rate of $0.05 per cwt to $0.08 per cwt. Proposal 4 was submitted by the Appalachian Market Administrator and Proposals 5 and 6 were submitted by the Market Administrator for the Southeast and Florida orders. These proposals were addressed in a separate recommended decision that solicited comments and exceptions to the proposed assessment rate increase. No comments or exceptions to the recommended decision were received.

A witness appearing on behalf of the proponents, Dairy Cooperative Marketing Association (DCMA) testified in support of temporarily increasing minimum Class I prices in the three southeastern milk marketing orders. The witness testified that all elements of their proposals are offered as a “single package” to address the needs of all the southeastern region's dairy industry stakeholders. It was the opinion of the witness that the supply of milk for fluid use in these marketing areas is threatened and that several simultaneous changes to the provisions of the three orders are needed to attract a sufficient quantity of milk to meet the fluid needs of the markets.

According to the witness, DCMA consists of nine Capper-Volstead cooperative members that include Arkansas Dairy Cooperative Association, Damascus, AR; Cooperative Milk Producers Association, Inc., Blackstone, VA; Dairy Farmers of America (DFA), Kansas City, MO; Dairymen's Marketing Cooperative, Inc., Mt. Grove, MO; Lone Star Milk Producers, Inc., Windthorst, TX; Maryland & Virginia Milk Producers Cooperative Association, Inc. (MD-VA), Reston, VA; Select Milk Producers, Inc., Artesia, NM; Southeast Milk, Inc. (SMI), Belleview, FL; and Zia Milk Producers, Inc., Roswell, NM. The witness testified that each of the DCMA members marketed and pooled milk in one or more of the three southeastern milk marketing order areas during 2006.

According to the DCMA witness, during December 2006 members of DCMA pooled more than 87 percent of cooperative and non-member producer milk on the Appalachian order, more than 87 percent of the cooperative and non-member producer milk on the Southeast order, and more than 96 percent of the cooperative and non-member producer milk on the Florida order.

The DCMA witness testified that their proposed changes to the Class I pricing surface better reflect the actual cost of transporting milk and the pattern in which milk produced outside of the marketing areas moves into the three marketing areas. According to the witness, the cost of procuring milk for fluid use for the southeast region has increased because local production is in serious decline and continues to decline at an increasing rate. The witness noted that the three southeastern orders collectively import more than one-third of the region's milk supply during the most deficit months of the year to cover the fluid milk needs. Fluid demand exceeds 300 million pounds of milk each month in the three southeastern marketing areas, the witness said. The witness characterized the economic situation of the dairy industry in the region as dire and marketing conditions as disorderly. The witness asserted that producers currently experience inequitable prices for their milk, that handlers have unequal costs, and that there are insufficient economic incentives for the procurement of milk supplies.

The DCMA witness characterized the southeastern region as having rapid population growth. The witness indicated that the U.S. Census Bureau population growth estimates for the states of Alabama, Arkansas, Florida, Georgia, Mississippi, Louisiana, North Carolina, South Carolina, and Tennessee have collectively increased by 8.4 percent from 2000 to 2006, while the population of the U.S. as a whole increased 6.2 percent.

Using market administrator statistics on in-area milk production for the three southeastern marketing order areas, the DCMA witness contrasted population growth to the region's milk production to demonstrate that the dairy industry is in serious decline. The witness said that during 2006 milk was delivered into the three southeastern orders from at least 27 States. The witness explained that local in-area milk production (milk produced within the geographic marketing area boundaries) during 2006 for both the Appalachian and Southeast areas supplied the entire Class I needs of these two areas only 4 months of the year and Florida's in-state milk production was insufficient to supply the Class I needs in every month of 2006. The witness estimated that the Appalachian and Southeast marketing areas are able to supply only about 76 percent of the milk necessary to meet Class I, Class II, and reserve demands, while in Florida in-area producers are able to supply only about 66 percent of the milk necessary to meet Class I and reserve demands annually. The DCMA witness asserted that minimum Federal order Class I prices have increased only twice in the past 22 years—as a part of the 1985 Farm Bill and as part of Federal milk order reform made effective in January 2000. Specifically, the witness related that the Class I differential for Atlanta increased from $2.30 to $3.08 per cwt in 1985 but was increased by only $.02 to $3.10 in January 2000. According to the witness, under Federal order reform, some Class I differentials in distant milk surplus areas were increased more than in the milk-deficit regions of the southeast.

The DCMA witness was also of the opinion that changes to the Class I price surface resulted in a flattened price surface and narrowed producer blend price differences between orders. The witness testified that such changes diminished the economic incentives to move milk within the southeastern marketing areas as well as to move milk into the deficit southeastern region of the U.S. According to the witness, minimum Class I price differences and returns to producers are simply not high enough to move milk into these deficit markets without substantial over-order premiums.

The DCMA witness explained that since 1986 diesel fuel prices have risen more rapidly than Class I differentials (and thus Class I prices) in the southeastern region. Relying on data of the Energy Information Administration (EIA) of the U.S. Department of Energy, the witness noted that the U.S. average diesel fuel price increased by 187 percent from 1986 and 2006 (from $0.94 per gallon to $2.07 per gallon.) The witness compared this increase to the 0.64 percent or $0.02 per cwt increase in the Class I differential for Atlanta since 1986.

The DCMA witness testified that the slope of the Class I pricing surface should be changed to progressively increase Class I prices as milk moves to the east and south within the three marketing areas. The witness was of the opinion that changing the slope of the Class I price surface inside the three marketing areas in this way would better encourage milk to move within the marketing areas. Additionally, the witness was of the opinion that pricing signals to producers would direct their supplies to the most milk-deficit portions of the region. In this regard, the witness added that simply raising Class I prices uniformly throughout the three marketing areas would not result in improved pricing signals to producers.

The DCMA witness explained that in developing the proposed Class I price structure and adjustments to current Class I price levels, DCMA considered two alternatives. According to the witness, in one pricing alternative all the Class I price relationships between plants in the three southeastern orders could be retained. However, under this alternative, the witness explained, the Class I prices for the plants on the outer edges of the Appalachian and Southeast marketing area boundaries would increase considerably, resulting in significant changes in price relationships between those plants and plants regulated by adjoining Federal orders.

Alternatively, the DCMA witness said that the slope of the Class I price surface within the three marketing areas could be altered to minimize plant-to-plant Class I price relationship changes. The witness testified that this approach would result in a pricing structure that better reflected actual milk movements from within and outside of the marketing areas. The witness pointed out that in either approach, plant-to-plant price relationships would change and that the method they chose provided the least change in plant-to-plant price relationships.

The DCMA witness also stressed the need for the proposed Class I price adjustments to remain aligned with the Class I price structure in adjoining marketing areas. The witness said that the proposed Class I price surface outside of the three southeastern marketing areas would not be changed. The witness was of the opinion that the proposed Class I price adjustments are reasonably aligned with Class I prices in adjoining marketing areas. Through an analysis of plant-to-plant movements of packaged milk, the witness indicated that DCMA's proposed Class I pricing structure provides pricing adjustments that are reasonable and improves the slope of the Class I price surface.

The DCMA witness explained that both a most distant demand point and several supply locations were identified in developing the proposed Class I price surface. The witness indicated that Miami, FL, was identified as the most distant demand point in the southeastern region from any alternative milk supply area. According to the witness, the five possible major supply locations and their distance to Miami were also identified. These locations included: Wayne County, OH; Jasper County, IN; Hopkins County, TX; Lancaster County, PA; and Franklin County, PA.

The witness indicated that of the five possible supply sources, Wayne County, OH, was determined as the least cost supply location with a calculated Class I price adjustment of $6.14 per cwt at Miami, FL. The witness testified that Class I price adjustments were progressively adjusted to smaller and smaller values as plant location values in the southeastern region were adjusted by their distance from the supply locations.

According to the DCMA witness, the plant-to-plant cost of moving packaged milk was analyzed. The witness testified that successive movements of packaged fluid milk from the outer edge of the Appalachian and Southeast marketing areas towards Miami, FL, were analyzed. As with bulk milk movements, the witness explained, at each plant location the minimum cost of moving packaged milk was determined and compared to the minimum costs of moving bulk milk. The witness concluded that the bulk and plant-to-plant packaged milk movements were very similar.

The DCMA witness testified that the calculated Class I pricing adjustments were re-adjusted so that plants located near each other would have a similar Class I price adjustment. The witness also acknowledged that the proposed pricing structure could not maintain current Class I price relationships because the current Class I price surface does not reflect actual hauling costs. According to the witness, the west-to-east proposed increase in Class I price adjustments reflects higher hauling costs.

The DCMA witness characterized the proposed adjustments to the calculated Class I price surface as being the result of “smoothing.” The witness explained that deviation from the calculated Class I price adjustment represents the incorporation of best professional judgment in assuring that plants located near each other have the same Class I price adjustment and the need to maintain alignment with Class I prices in adjoining marketing areas.

According to the DCMA witness, the proposed adjustments for plant locations regulated by the Appalachian order would increase in the range of $0.10 per cwt to $1.00 per cwt; plants regulated by the Southeast order would increase in the range of $0.10 per cwt to $1.15 per cwt; and plants regulated by the Florida order would increase between $1.30 per cwt to $1.70 per cwt. Relying on market administrator data, the DCMA witness concluded that the proposed Class I price increases would generate higher marketwide pool values in all three southeastern orders. According to the witness, the estimated annual increase of the Appalachian order pool for 2004, 2005, and 2006 resulting from the proposed Class I prices alone would have totaled $19.3 million, $18.6 million, and $18.3 million, respectively. For the Southeast order, the witness said, the annual pool value increase would have totaled $16.8 million, $17.1 million, and $17.7 million, respectively. For the Florida order, the witness said, the annual increase in pool value would have totaled $36.4 million, $38.3 million, and $39.2 million, respectively. In estimating the impact on minimum prices paid to dairy farmers, the witness said that average annual minimum uniform prices (as announced at current locations) would have increased by approximately $0.25 per cwt to $0.26 per cwt for the Appalachian order, approximately $0.64 per cwt higher for the Southeast order, and $1.19 per cwt to $1.22 per cwt higher for the Florida order.

The DCMA witness acknowledged and explained that changes in Class I price relationships between plant locations resulting from any changed Class I price surface would be inevitable. In this regard, the witness asserted that the price adjustment differences between plant locations under the DCMA proposal would not exceed the cost of moving Class I fluid milk products and therefore would not result in the uneconomic movement of milk.

The DCMA witness concluded by testifying that orderly marketing would be improved with a Class I price structure that is more reflective of the true hauling costs to supply the milk-deficit southeastern region. The witness urged that the proposed Class I price adjustments and pricing surface be adopted immediately. The witness reiterated that the proposed Class I price adjustments be temporarily adopted pending any system-wide changes to the Class I differential level and pricing surface.

A total of 11 dairy farmers whose milk is pooled on at least 1of the 3 southeastern orders testified at the hearing in support of DCMA's package of proposals, but suggested modifications on how the package should be changed.

Three of the dairy farmers who testified were cooperative members of MD-VA, DFA, and SMI (cooperatives previously described as member organizations of DCMA). These witnesses testified that the dairy industry in the southeastern region is in need of changes to the three marketing orders to respond to the decline in regional milk production. Their testimonies joined that of the DCMA witness supporting the DCMA proposals.

A dairy farmer whose milk is marketed on the Southeast and Florida marketing orders testified on behalf of Cobblestone Milk Producers, Inc. and Mountain View Farms of Virginia in limited support of the Class I price surface feature of DCMA's package of proposals provided certain modifications were made. This witness agreed with proponents concerning the decline of milk production in the southeastern region and the need to import supplemental milk supplies. According to the witness, lower producer pay prices in the southeastern region have led to rapidly declining production that is not being replaced by new farms or the expansion of existing farms. It was the opinion of this witness that the projected increases in producer pay prices arising from the proposed increase in Class I prices would not be enough to affect production trends in the southeastern region. The witness expressed concern that Class I processors would demand their over-order premiums be lowered to compensate for increases in the three orders' minimum Class I prices. The witness requested that the proposed Class I price adjustments for the Appalachian and Southeast marketing areas be increased but did not offer specific amounts.

Four dairy farmers from North Carolina testified in general support of the proposed Class I price adjustments. Three of the witnesses represented organizations that were part of the Southeast Producers Steering Committee (SPSC), whose members include North Carolina Dairy Producers Association, Georgia Milk Producers Association, Upper South Milk Producers Association, Kentucky Dairy Development Council (KDDC), North Carolina Department of Agriculture and Consumer Services, and the North Carolina Farm Bureau Federation. All four witnesses were of the opinion that the proposed Class I price adjustments would not be adequate to increase prices paid to dairy farmers in order to stem the decline of milk production in the southeastern region. The witnesses were of the opinion that additional efforts should be made to enhance local milk production. One dairy farmer witness testifying on behalf of the KDDC said that other adjustments needed to be made to the proposed Class I price adjustments because Kentucky dairy farmers would benefit less from the proposed adjustments than dairy farmers located in the Southeast and Florida marketing areas. Another North Carolina dairy farmer witness offered the opinion that Appalachian producers would need to receive at least a $1.00 to $1.50 per cwt increase in their mailbox price to stimulate local milk production. A third North Carolina dairy farmer witness stressed that more emphasis should be made on increasing local milk production rather than seeking better ways to import milk into the region. Another dairy farmer, also from North Carolina, expressed concern that over-order premiums might fall because of the proposed Class I prices adjustments. In addition, an SPSC witness, as well as others, called for a comprehensive study to identify problems and alternatives to the proposals regarding the decline of milk production in the southeastern region.

A witness appearing on behalf of National Dairy Holdings (NDH) testified in limited opposition to the Class I price adjustments of the DCMA package. According to the witness, NDH is a national dairy processor with facilities located throughout the United States. The witness indicated no specific opposition to Class I price increases but conditioned such increases on the fair distribution of the revenue to producers in the southeastern region. While the witness testified that NDH has no difficulty procuring milk for its plants located in the southeastern region, the witness acknowledged other testimony that identified milk production problems of the southeastern region and that the region's producers are in need of relief. The witness expressed concern on how the proposals would impact NDH's wholesale packaged milk sales. The witness also suggested that issues discussed at the hearing could be addressed by utilizing a point-of-sale or plant-point pricing method.

A witness appearing on behalf of the Kroger Company (Kroger) testified in opposition to the proposed Class I price adjustments for the Appalachian and Southeast marketing orders. According to the witness, Kroger operates four fluid distributing plants regulated by the Appalachian and Southeast orders (Winchester Farms, Westover Dairy, Heritage Farms Dairy, and Centennial Farms Dairy). The opinion of the witness was that the proposed Class I price adjustments would disrupt traditional pricing relationships, which were established by the 1985 Farm Bill, and would generate competitive discrepancies with adjoining markets.

The Kroger witness testified that the proposed Class I price adjustments would place their plants in an unacceptable competitive situation with each other in the Appalachian and Southeast marketing areas. Specifically, the witness requested that the Class I price adjustments for Louisville, KY; Lynchburg, VA; Murfreesboro, TN; and Atlanta, GA be unchanged. The witness also suggested that Winchester, KY, be increased by no more than $0.10 per cwt in order to maintain competitive milk procurement price relationships with other plants located in the Cincinnati area of the Mideast milk marketing area. The witness opposed the proponent's position that the proposal be considered on an emergency basis.

A witness appearing on behalf of the Milk Industry Foundation (MIF) testified in opposition to the Class I price adjustments of DCMA's package of proposals. According to the witness, MIF is a member organization of the International Dairy Foods Association (IDFA) which represents 115 member companies that market approximately 85 percent of the nation's milk and dairy products. The witness testified that the proposed changes are not necessary because an adequate of supply of milk already exists for the Appalachian, Southeast, and Florida orders. The witness stated that because the Federal order system is a national market, milk is available from anywhere in the country. The witness noted over-order premiums compensate those entities who supply the deficit regions. The witness was of the opinion that declining milk production in the southeastern region has been occurring for many years and as such does not warrant an increase in Class I prices. Accordingly, the witness said, emergency action is not warranted.

The MIF witness was of the opinion that Class I prices cannot be changed in one region of the country without affecting milk marketings in other regions. The witness said that the proposed Class I price adjustments would change the competitive relationships between plants located within and outside of the three southeastern marketing areas. The witness argued that Class I sales would be discouraged because all Class I plants in the three marketing areas would be required to pay a higher price for milk. The witness requested a comprehensive analysis of the national market before adopting the proposed Class I price adjustments.

A witness appearing on behalf of Dean Foods Inc. (Dean) testified in opposition to the proposed Class I price adjustments of DCMA's package of proposals. The witness agreed with testimony of other witnesses indicating the deficit milk supply conditions in the three southeastern marketing areas and the need to increase prices paid to the region's local dairy farmers.

The Dean witness was of the opinion that a comprehensive analysis of the potential impacts of changing the Class I price surface in the three marketing areas had not been conducted. The witness characterized DCMA's package of proposals as containing “too many moving parts” that make it difficult to evaluate the impact of the proposed Class I price adjustment features. The witness was of the opinion that Appalachian and Southeast marketing area dairy farmers are in greater need of higher producer prices than dairy farmers in the Florida marketing area and noted that the proposed Class I price adjustments would benefit Appalachian and Southeast marketing area producers the least. In this regard, the witness worried that the prices received by dairy farmers across the southeastern region would be unfairly distributed if the proposed Class I price changes were adopted.

The Dean witness was of the opinion that the proposed Class I price surface and Class I pricing adjustments would change how milk moves to and between plants located within and outside of the three marketing areas. The Dean witness testified that the assumptions used by DCMA in laying the foundation for the proposed Class I price adjustments and Class I pricing structure are flawed. In this regard, the witness noted that the USDA 1999 Final Decision on Federal milk order reform indicated that the cost of hauling raw milk was linear [cost increases as the distance milk is transported increases at a constant rate], but that the cost of hauling packaged milk was nonlinear. Accordingly, the Dean witness argued that the proposed Class I pricing changes could give distributing plants located outside the marketing areas incentive to change their route dispositions in order to become regulated on one of the three marketing orders.

According to the Dean witness, distributing plants located outside the area could become regulated at the expense of plants located in the area. As a result, the witness concluded, Class I revenue generated by out-of-area distributing plants would be returned to dairy farmers located far outside of the three southeastern marketing areas. The witness offered that perhaps the greatest beneficiaries of the proposed Class I pricing changes could be producers located as far away as Illinois and Indiana.

The Dean witness also criticized reliance on Wooster, OH, (located in Wayne County) as a supply area for the southeastern region and being a basis of DCMA's proposed Class I price adjustments. The witness noted while DCMA identifies Wooster, OH, as a supply area for the southeastern region, a Pennsylvania State proceeding held in 2006 indicated the testimony of a DFA witness saying that milk was not available in the Wooster, OH, area to supply Pennsylvania.

The Dean witness offered nine modifications to DCMA's package of proposals. The witness explained that their proposed modifications to the package of proposals would not seek to provide higher Class I prices or change the Class I pricing surface. According to the witness, the Appalachian and Southeast marketing orders' pooling provisions should be identical to those of the Florida marketing order (discussed further below).

The DCMA witness testified that the diversion limit standards of the Appalachian and Southeast orders should be identical. According to the witness, diversions to nonpool plants allows for the pooling of milk that is transferred from pool to nonpool plants without milk first needing to be delivered to pool plants. In setting a reasonable limit, the witness was of the opinion that diversion limit standards must take into account reserve supplies needed for Class I use, the balancing needs of the markets, and the seasonality of production.

The DCMA witness testified that milk-deficit Federal orders tend to have lower diversion limit standards relative to orders with substantial reserve milk supplies. The witness testified that while the Appalachian and Southeast order diversion limit standards generally reflect their milk-deficit marketing conditions, they are in need of tightening. Specifically, the DCMA witness proposed that the diversion limit standards be 25 percent during each of the months of January, February, and July through November, and 35 percent for each of the months of March through June and for the month of December.

In explaining the analysis conducted in arriving at the proposed new diversion limit standards for the Appalachian and Southeast orders, the DCMA witness testified that daily producer milk receipts by distributing plants regulated by the two orders from January 2004 through December 2006 were compared to the day of the month when daily receipts at distributing plants were the greatest. The witness explained that the differences between the day of the greatest receipts and each day's actual receipts for the month at distributing plants were then summed. According to the witness, the resulting value represents the amount of additional milk that would need to be pooled as reserve milk to be able to satisfy Class I demands at a distributing plant on the day of their greatest need. The witness stated that the analysis showed that an additional milk volume of 12 to 13 percent of distributing plant receipts would be the minimum reserve necessary to cover daily fluctuations in the demand for fluid milk at distributing plants. On an annual basis, the minimum average reserve needed as calculated is about 22 percent, the witness said.

The witness explained that the proposed diversion limit standards of 25 percent for both orders for each of the months of January, February, and July through November, are based on the analysis described above and the need to provide for an additional reserve in the tightest supply months. The witness explained that the proposed diversion limit standards of 35 percent for each of the months of March through June and the month of December accommodate seasonal fluctuations in supply. The witness explained that this standard would allow regular producers who supply the Class I needs of the marketing areas in the tight supply months to pool all of their additional production in the flush months and accommodate the regular decline in Class I sales that occurs when schools close for the summer months. According to the witness, Class I plants also temporarily close or severely limit their receiving operations over the holiday period in December resulting in substantial surplus milk.

Relying on market administrator data, the DCMA witness estimated that the impact on the minimum uniform prices from lowering the diversion limit standards alone would raise blend prices approximately $0.02 per cwt and $0.07 per cwt annually for the Appalachian and Southeast orders, respectively. The witness indicated that a change in the blend price for any particular producer would vary based on where the producer's milk was delivered.

The DCMA witness stressed that the proposed changes in the two orders' diversion limit standards do not fully capture the true volume of milk likely to no longer be eligible to be pooled on the two orders. The witness explained that if the volume of producer milk delivered to pool plants were the same each month, then the volume of producer milk no longer pooled and priced by the orders would drop about 6.67 percent and 29.72 percent on the Appalachian and Southeast orders, respectively. The witness further explained that lowering the diversion limit standards also should result in increasing minimum order blend prices paid to producers. According to the witness, proposed changes to the diversion limit standards of the orders, together with expected increases in revenue arising from Class I price adjustments and Class I pricing surface, will likely encourage local milk production, the movement of milk into the region from distant sources, or some combination of both.

The DCMA witness testified that the package of proposals also includes the lowering of the touch-base standards of the Appalachian and Southeast orders and makes them identical. According to the witness, this would discourage uneconomic movements of milk and offer operational savings for cooperatives supplying the Class I needs of the marketing area.

The DCMA witness explained that because of the continuing decline in local milk production, an increasing amount of milk that is produced further from the marketing areas is becoming a regular part of the supply of Class I milk. The witness characterized this milk of distant dairy farmers as the reserve supply needed for balancing the Class I needs of the two marketing areas.

The DCMA witness was of the opinion that reducing the touch-base standard to one day each month in both orders is necessary for the efficient pooling of reserve supplies. The witness testified that lowering the touch-base standard would prevent local milk already supplying the markets' Class I needs from being displaced by milk produced farther from the marketing areas, which is shipped in simply to meet pooling standards. According to the witness, requiring producers to deliver more days to pool plants when the milk is not truly needed results in increasing the cost of supplying the Class I needs of the two markets.

Eight dairy farmers testified in general support of DCMA's proposed changes to the two orders' diversion limit and touch-base standards. Some were of the general opinion that the regular reserve supply for the Appalachian and Southeast marketing areas should be pooled when not delivered to Class I plants. While all supported the pooling of milk that regularly supplies the Class I needs of the two marketing areas, several dairy farmers expressed caution that the diversion limits were not being lowered enough while touch-base standards were needlessly being lowered. According to these witnesses, this would encourage pooling milk not truly supplying the markets and result in lower blend prices paid to local dairy farmers. The dairy farmers testifying supported adopting needed changes on an emergency basis.

A witness representing Dean testified that the proposed changes to the diversion limit and touch-base standards would not be sufficient to deter the uneconomic movement of milk or to enhance producer prices in the Appalachian and Southeast marketing areas. According to the witness, current diversion limit standards are in excess of the markets' balancing needs and should be lowered immediately.

The Dean witness characterized the Appalachian and Southeast orders as being very similar to the Florida order in terms of milk consumption and production. The witness was of the opinion that the pooling standards of the Florida order work well and pooling milk not consistently serving the market's Class I needs rarely occurs. The witness specifically proposed that diversion limit standards be changed to 15 percent for each of the months of December through February, 20 percent for each of the months of March through June, and 10 percent for each of the months of July through November.

According to the Dean witness, dairy farmers will receive higher blend prices if diversion limits are made even lower than proposed by DCMA. Relying on market administrator data, the witness stated that January 2004 had shown the highest “need” of reserve milk during 2004-2006 for the Southeast order at approximately 22 percent of total milk pooled on the order. The witness contrasted this with October 2004 when the “needed” reserve was approximately 7 percent. In this regard, the witness suggested that diversion limits could be reduced below that proposed by DCMA. According to the witness, if made too low, the market administrator has the authority to change the diversion limit standards if warranted.

The Dean witness opposed DCMA's proposed one day per month touch-base standard if DCMA's proposed diversion limit standards are adopted. The witness was of the opinion that inefficient movements of milk would result if the one day touch-base standard were adopted. However, the witness indicated support for a two-day touch-base standard provided the diversion limit standards of the Florida order are simultaneously adopted.

The Dean witness explained that when touch-base requirements are low, locally produced milk can be displaced by milk located far from the marketing area because it needs to be transported to the marketing area fewer times to qualify for pooling and receiving a higher blend price. The witness was of the opinion that only milk that is necessary to serve the Class I needs of the market should be delivered to that market. According to the witness, reserve milk supplies located far from the market should not be pooled on the market if they are not delivered to the market.

The DCMA witness explained that on September 1, 2006, the Secretary issued a tentative partial decision (71 FR 54118) which amended the transportation credit provisions of the Appalachian and Southeast orders. Specifically, the witness noted that the decision established a fuel cost adjuster to determine a variable mileage rate factor used to compute the payout of transportation credits and higher maximum transportation credit assessments on Class I milk for the Appalachian and Southeast orders. To accompany these adopted changes that were implemented on December 1, 2006, (71 FR 62377) the witness proposed four other changes to the transportation credit provisions that are part of the package of changes proposed for the two southeastern orders.

According to the DCMA witness, the four additional changes to the transportation credit provisions for both orders include: (1) extending the months during which transportation credits may be paid to include the months of January and February with June being an optional transportation credit payment month; (2) expanding the payment of transportation credits to apply to the full load of milk, rather than the current calculated Class I portion of milk loads; (3) providing greater flexibility for supplemental milk producers to be eligible to receive transportation credit payments; and (4) raising the maximum monthly transportation credit assessment for the Southeast order from the current $0.20 per cwt to $0.30 per cwt.

According to the DCMA witness, the need for supplemental milk in the Appalachian and Southeast orders has increased during the months of January and February. The witness offered evidence showing that during January 2004 through December 2006, January and February are months with increasing Class I use in the Appalachian and Southeast orders. The witness claimed that during January and February, local milk is not sufficient to supply the Class I milk needs. It is this combination of Class I need and available local producer supplies that show January and February as being more like the current transportation credit payment months of July through December than the flush months of March through May, the witness concluded. According to the witness, adding January and February as transportation credit payment months would give suppliers of supplemental milk an opportunity to recoup a portion of the hauling costs to supply the marketing areas with milk for fluid use.

In explaining this proposed change, the DCMA witness said, in part, current transportation credit payment provisions result in reimbursements that are much lower than the real cost of hauling. The witness explained that the cost of hauling milk to Class I plants is the same regardless of the plant's use or the Class I utilization of the market. The witness was of the opinion that expanding the transportation credit payments to full loads of milk delivered only to pool distributing plants would enhance orderly marketing and better ensure that sufficient supplemental milk is delivered to pool distributing plants. The witness supported continuing transportation credit payments on supplemental milk deliveries to pool distributing plants only.

The DCMA witness proposed simplifying the process for determining what supplemental milk is eligible for transportation credit payments. The witness noted that currently, a dairy farm must be located outside either the Appalachian or the Southeast marketing areas, the dairy farmer must not meet the Producer provision under the two orders during more than two of the immediately preceding months of February through May, and not more than 50 percent of the dairy farmer's milk production during those two months, in aggregate, can be received as producer milk under the order during those 2 months.

The DCMA witness was of the opinion that the requirements for transportation credit payment eligibility should be changed to provide flexibility in meeting the criteria while limiting the receipt of transportation credits to only that milk which is truly supplemental and that is not part of the consistent and regular supply of milk serving the Class I needs of the two markets. Specifically, the witness proposed that: (1) A dairy farmer must not meet the Producer definition on the orders in more than 45 of the 92 days in the months March through May, or (2) a dairy farmer must have less than 50 percent of their producer milk pooled on the orders during those 3 months combined. The witness argued that limiting the producer association with the orders to no more than half the time or to no more than half their milk production is sufficient to identify a dairy farmer as a supplemental supplier of milk to the marketing areas. These changes, the witness asserted, offer substantial cost savings to cooperatives that bear the burden of sourcing and supplying the supplemental milk needs of the markets from distant locations.

The DCMA witness testified that the maximum transportation credit assessment for the Southeast order needs to be increased from the current $0.20 per cwt to $0.30 per cwt given the proposed expansion of the transportation credit payments on full loads of milk to Class I distributing plants regulated by the two orders. The witness was of the opinion that otherwise the current assessment rate would be insufficient to cover anticipated shortfalls in the transportation credit balancing fund.

While the DCMA witness proposed a higher transportation credit assessment rate for the Southeast order only, the witness projected that the proposed changes to Class I prices and the Class I pricing surface in the Appalachian and Southeast orders would lessen payments from the transportation credit balancing funds. The witness explained this may occur because of the greater positive differences (increases) from adopting the proposed Class I price adjustments and Class I pricing surface. The witness did acknowledge that the additions of the months of January and February as transportation credit payment months would tend to increase transportation credit payouts.

Relying on market administrator data, the DCMA witness estimated that for the months of July through December 2006 the Southeast order transportation credit payments would total $15,704,872 as a result of their proposal, and January and February 2006 payments would total approximately $2,900,000, resulting in an overall amount of approximately $18,604,872. At the current assessment rate of $0.20 per cwt, the witness concluded that transportation credit balancing funds would not have been sufficient to pay all transportation credit claims in 2006. At the proposed $0.30 per cwt assessment rate, the witness was of the opinion that sufficient revenue would be generated to satisfy all transportation credit claims.

Relying on market administrator data for the Appalachian order, the witness said that during July 2006 through January 2007, transportation credit payments would have totaled approximately $4,073,312. According to the witness, February 2006 would have included a payment of approximately $313,000, bringing the total estimated transportation credit payments to $4,383,312. According to the witness, the current $0.15 per cwt assessment rate for the Appalachian order would have been sufficient and no increase in the assessment rate would be needed.

The DCMA witness supported continuing to provide for market administrator discretion in setting the transportation credit assessment rates at less than the maximum allowed. The witness was of the opinion that doing so will prevent the needless collection of revenue when the transportation credit balancing funds are sufficient to meet claims.

Four dairy farmers testified in support of DCMA's proposal to provide additional flexibility in determining which producers are supplying supplemental milk to the two marketing areas. As with other features of DCMA's proposals, these dairy farmers supported adoption of these proposed changes on an emergency basis.

The witness appearing on behalf of Dean expressed support for adding the months of January and February as transportation credit payment months for the Appalachian and Southeast orders on the condition that tighter diversion limits be adopted. The witness said these months should be considered as payment-eligible months because the tentative decision implemented in December 2006 eliminated the ability to divert milk on loads of milk seeking the payment of a transportation credit. However, the Dean witness opposed expanding transportation credit payment eligibility to entire loads of milk. In this regard, the witness expressed concern that this would essentially result in Class I sales funding the supply of supplemental milk in lower-valued Class II uses.

According to the Assistant Market Administrator for the Appalachian order, Proposal 4 was offered to ensure that sufficient funds are available for administering the Appalachian order. The witness added that Proposal 4 would amend section 1005.85 (7 CFR 1005.85) to provide for all of the administrative assessment language pertinent to the Appalachian order provisions and would discontinue the reference to section 1000.85 (7 CFR 1000.85). The witness explained that administration and operating costs include administrative, accounting, human resources, economic, pooling and audit staff expenses.

The Assistant Market Administrator for the Appalachian order stated that the market administrator is required to maintain a specific level of operating reserves. The reserve level, the witness said, must be maintained in the event that an order is terminated and would fund the necessary costs for closing out an order, completing pools and audits and paying severance and leases. The reserve level is detailed in the MA Instruction 207 that is issued by the Dairy Programs Deputy Administrator, said the witness.

The Assistant Market Administrator for the Appalachian order said that the majority of the administrative assessment revenue comes from pooled producer milk. Additionally, the witness said, assessments are also collected on other source receipts assigned to Class I and certain route disposition in the marketing area by partially regulated distributing plants. The witness stated that although the maximum administrative assessment rate allowable on pooled producer milk is $0.05 per cwt, the rate currently collected each month is $0.04 per cwt, which has remained unchanged since January 2000.

The Assistant Market Administrator for the Appalachian order said that during 2000-2002, producer milk pooled on the Appalachian order averaged 547 million pounds per month. According to the witness, the $0.04 per cwt assessment rate at this volume of milk created enough revenue to fund Appalachian order operations and maintain the mandated operating reserve. The witness stated that from 2003-2005, producer milk pooled on the order averaged 525 million pounds per month and in 2006, producer milk pooled on the order averaged 520 million pounds per month. The witness also compared the first 4 months of 2007 to the first 4 months of 2006 and stated that producer milk pooled on the order was down 3.45 percent.

The Assistant Market Administrator for the Appalachian order explained that about $215,000 is needed each month to cover basic operating expenses. By keeping the assessment rate of $.04 per cwt, the witness said 538 million pounds of producer milk would be needed each month to cover monthly order expenses. The witness further explained that the Appalachian order was in an operating deficit in 2003, 2004, and 2006 and had a balanced budget in 2005. During 2003-2006, the witness said, the volumes of pooled producer milk did not generate sufficient revenue to fund order operations and lowered the mandated operating reserves.

According to the Assistant Market Administrator for the Appalachian order, a decision effective December 1, 2006 (71 FR 62377), established a zero diversion limit standard on Class I milk receiving transportation credits. The decision, the witness said, reduced the amount of milk that could be pooled on the order and reduced the amount of assessment revenue collected during the period of July through December, when those volumes of milk would be pooled. In addition, the witness said that Proposal 1, if adopted, would add January and February as additional transportation credit payout months, further reducing the amount of milk that could be pooled on the Appalachian order. The witness stressed that tightening pooling provisions of the order impacts the amount of producer milk pooled on the order. The witness expressed concern that less milk pooled on the order would reduce administrative assessment revenue and the ability to fund order operations while maintaining the mandated reserve level.

The Assistant Market Administrator for the Appalachian order said that the market administrator makes efforts to control costs of carrying out order operations. According to the witness, cost control efforts include a reduction of office staff by 29 percent through attrition since January 2003, contracting with outside computer services, negotiating a telecommunications contract, consolidating a field office, and reducing travel and mail expenses. The witness stressed that regardless of the market administrator's efforts to control costs and efficiently administer the order, gains in efficiency cannot make up for revenue lost due to a reduction in milk volumes.

The Assistant Market Administrator for the Appalachian order concluded by emphasizing that increasing the maximum administrative assessment rate to $.08 per cwt would be the maximum rate allowable and not necessarily the rate assessed. The witness said the actual rate assessed would only be as high as determined by the market administrator with approval by the Dairy Programs Deputy Administrator.

According to the Market Administrator for the Southeast and Florida orders, Proposals 5 and 6 were offered to ensure that there are sufficient funds to carry out administration of the orders. The witness said the proposals would amend sections 1006.85 (7 CFR 1006.85) and 1007.85 (7 CFR 1007.85) to provide for all of the administrative assessment language pertinent to the Southeast and Florida orders, and would discontinue the reference to section 1000.85 (7 CFR 1000.85). The witness explained that administration and operating expenses of the order include pooling, auditing, and providing market information.

The Market Administrator for the Southeast and Florida orders explained that the order is required to maintain a specified level of operating reserves. The reserve level, the witness said, is detailed in the MA Instruction 207 that is issued by the Dairy Programs Deputy Administrator. The witness said the reserve level is kept to cover necessary costs of closing out an order, such as completing pools, audits, and paying severance and lease payments.

The Market Administrator for the Southeast and Florida orders explained that the majority of the monthly administrative assessment is collected from pooled producer milk. The witness added that additional assessments are also collected from other source receipts associated with Class I and certain route disposition in the marketing area by partially regulated distributing plants. The witness stated that the market administrator largely depends on the administrative assessment revenue to fund the operations of the orders. The witness noted that since 2000, the administrative assessments for both the Southeast and Florida orders have contributed over 80 percent of the total income of the market administrator office.

According to the Market Administrator for the Southeast and Florida orders, the combined monthly average of pooled producer milk for the two orders in 2000 was 862.8 million pounds. In 2001, the witness said, the combined monthly average of producer milk pooled in both orders was 878.4 million pounds and in 2002, the combined monthly average was 885.0 million pounds. The witness said that during 2000-2002, the assessment rates charged in the Southeast and Florida orders of $0.035 and $0.03 per cwt, respectively, along with the volume of producer milk, were sufficient to fund order operations and maintain the mandated reserve funds.

The Market Administrator for the Southeast and Florida orders said that in 2003, although producer milk in the Florida order increased by 5 percent, producer milk in the Southeast order decreased 11 percent, resulting in a considerable decrease in assessment collections. According to the witness, during 2003, funds were drawn from the operating reserves, reducing the reserve level near the mandated minimum. The witness said that as a result, effective with January 2004 milk deliveries, the administrative assessment rates increased by $0.01 to $0.045 and $0.04 per cwt for the Southeast and Florida orders, respectively.

The Market Administrator for the Southeast and Florida orders stated that in 2004, the monthly average pounds of producer milk pooled increased over 2003 by 1 percent and 5 percent in the Southeast and Florida orders, respectively. The witness added that in 2005, producer milk increased over 2004 by 5 percent and 8.8 percent in the Southeast and Florida orders respectively, and in 2006, producer milk increased over 2005 by 6.8 percent and stayed the same in the Southeast and Florida orders, respectively.

According to the Market Administrator for the Southeast and Florida orders, the administrative assessments implemented in 2004, with the increase in producer milk during 2004-2006 and efforts to control costs, have been sufficient to cover operating expenses and build an adequate reserve level. The witness added that they continue to take measures to control costs. The witness said that from 2000-2006, cost control measures included a 15 percent reduction in staff through attrition, increased use of technology to hold meetings and conduct audits, a reduction in travel expenses, and a decrease in communication costs.

The Market Administrator for the Southeast and Florida orders explained that Proposal 2 seeks to limit an average of 12.3 percent of allowable diversions in the Southeast order which would reduce the amount of milk pooled on the order, as well as the value of administrative assessments used to fund order operations. The witness also noted a decision effective December 1, 2006, (71 FR 62337) that reduced allowable diversions by the volume of transportation credit claims. The witness also expressed concern that the downward trend in Southeast milk production and marketing decisions made by handlers provides an increased potential for variability in the revenue available for order operations.

The Market Administrator for the Southeast and Florida orders concluded that while the proposals seek to increase the maximum assessment rate from $0.05 per cwt to $0.08 per cwt, the $0.08 per cwt would not necessarily be the rate charged. The witness stressed that the assessed rate would only be high enough to cover operating expenses and maintain the mandated reserve level as approved by the Deputy Administrator for Dairy Programs.

Post-hearing briefs were filed by: Dairy Cooperative Marketing Association (DCMA), Southeast Producers Steering Committee (SPSC), Dean Foods Company and National Dairy Holdings (Dean/NDH), and the Milk Industry Foundation (MIF).

The DCMA post-hearing brief echoed the association's support for adoption of their proposals on an emergency basis. The brief stated that its proposals were developed as an integrated package and that the package of proposals better assures the Appalachian, Southeast, and Florida milk orders' ability to attract a sufficient quantity of milk for fluid use. The brief said this is accomplished by increasing the Class I prices in the three milk marketing orders, lowering the diversion limit and touch-base standards, and modifying the transportation credit provisions. The brief reiterated the deficit milk supply situation in the southeastern region. The brief emphasized that procuring milk for Class I use for the region is a major challenge that is borne disproportionately by cooperative associations and their dairy farmer members.

The DCMA brief explained that the proposed Class I price adjustments and changes to the Class I pricing surface in the Appalachian, Southeast, and Florida orders would accomplish two needed results. According to the brief, the changes would likely encourage local producers to increase milk production and provide pricing incentives for producers located outside the marketing areas to deliver milk to the three marketing areas for fluid use.

The DCMA brief stated that, while plant price relationships would inevitably change as a result of its proposals, the Class I prices proposed are strikingly similar to plant price differences adopted in the 1999 Order Reform final rule. The brief indicated that this is proof that its method of developing the proposed Class I price adjustments and Class I pricing surface is valid and meets the requirements of a regulated Class I price system.

The DCMA brief commented on the method used in developing its Class I pricing proposals as deviating from a model developed by Cornell University that was relied upon in the adoption of current Class I pricing structure. The brief addressed opponent arguments that the cost of shipping bulk versus packaged milk follows distinct cost equations and, therefore, different cost curves. According to the brief, the marginal costs involved in shipping bulk milk long distances (over 900 miles) are still greater than zero and subsequently do not invalidate their proposed pricing structure. The brief characterized the proposed Class I pricing portion of the proposal package as containing all the elements used by the Department in the current Class I pricing structure. The brief also argued that DCMA's proposals generate Class I pricing relationships consistent with the objectives of marketing orders in assuring an adequate supply of milk for the three marketing areas, not encouraging the uneconomic movement of milk, and being reflective of the supply and demand conditions for milk within the marketing areas.

The DCMA brief explained that lowering the diversion limit standards in the Appalachian and Southeast orders would serve to enhance producer blend prices while the decrease in the producer touch-base standard would act to encourage more efficient milk movements and offer cost savings to milk suppliers. The brief maintained that while some witnesses testified in support of even lower (tighter) diversion limits, no evidence to support such changes was presented. The brief added that diversion limit standards in both orders will effectively be much lower than the proposed standards because no diversions may accompany supplemental milk pooled on the order which receives a transportation credit payment. The brief also noted that DCMA's proposal for extending transportation credit pay-out months also effectively lowers pooling milk by diversion.

The DCMA brief stated that extending the payment of transportation credits to include the months of January and February and to the entire loads of milk would offer the suppliers of supplemental milk greater assurance that more of the actual costs of hauling milk to the southeastern region would be covered. According to the brief, simplifying the criteria that determines if producers are supplemental suppliers of milk to the marketing areas offers both administrative and marketing efficiencies. Finally, the brief explained that the proposed increase in the transportation credit assessment for the Southeast milk order will ensure that transportation credit payment claims are adequate to meet anticipated needs.

The DCMA brief maintained that the record contains abundant evidence supporting the existence of emergency conditions in the three marketing areas affecting the ability to adequately supply fluid milk. The brief stressed that providing adjustments for higher Class I prices and modifying the Class I pricing surface, if even on a temporary basis, is necessary immediately. The brief indicated that milk production in the Southeastern states during the first quarter of 2007 declined at a faster rate than the annual decline during 2006 and 2005, and that this increasing rate of milk production decline cannot be ignored. The brief reiterated the continuing increases in hauling costs and the longer distances milk must be shipped to provide sufficient supplies to meet fluid demands.

A post-hearing brief was submitted on behalf of SPSC. The SPSC brief indicated support for the Class I portions of DCMA's proposals but was not fully supportive of the proposed diversion limit standards, touch-base standards, and transportation credit provisions. The brief agreed with the DCMA proposals to increase Class I prices in the Appalachian, Southeast, and Florida orders on an emergency basis because it would promote milk production within the three marketing areas by enhancing local producer income—the primary suppliers of fluid milk for the three southeastern markets. The SPSC brief did express concern that even with expected higher blend prices to producers accruing from higher Class I prices, the current trend of lower local milk production may not be slowed.

The SPSC brief indicated support to lower (tighten) diversion limit standards in the Appalachian and Southeast orders. However, the brief expressed the opinion that diversion limit standards for both orders could and should be reduced more than that proposed by the DCMA. The SPSC brief asserted that record evidence had not determined the appropriate base and reserve milk supply volumes, the proper diversion limit and touch-base standards for the Appalachian and Southeast orders, or who should bear the costs of maintaining reserve milk supplies for the Southeastern region.

The SPSC brief was of the opinion that record evidence also did not clearly indicate that the volume of milk pooled on the orders for other than Class I use actually would be lowered by adopting DCMA's proposed diversion limit and touch-base standards. According to its brief, the majority of the producer milk removed under the DCMA proposals would be unavailable in only a few months of the flush production months for the Appalachian order and in the months of January and February for the Southeast order. The brief expressed concern that milk could actually be added in both orders in the other months due to the decrease in the touch-base standard. The brief maintained that in-area producers and those who provide the primary supply of milk for fluid use on a regular basis should receive the greatest share of revenue attributable to that service. According to the brief, pooling more milk than needed would only continue to depress the income of Southeastern producers.

The SPSC brief found agreement with Dean's testimony that proposed a more aggressive lowering of diversion limit standards for the Appalachian and Southeast orders. The brief agreed with Dean's position that tighter diversion limits would sharply reduce the volumes of pooled milk in the two orders and the relative impact on producer pay prices would be more substantial. The brief indicated support for continuing to provide discretionary authority for the market administrators to tighten diversion limits and raise touch-base standards if necessary and without the need to resort to the formal rulemaking process.

The SPSC brief indicated conditioned support for DCMA's proposed changes to the transportation credit provisions of the Appalachian and Southeast orders. However, the brief questioned the proper role of transportation credits in both marketing orders. The brief requested the Department consider the proper levels of producer delivery day requirements, diversion limits, and transportation credit provisions to achieve the stated goals of the DCMA package of proposals.

A post-hearing brief submitted on behalf of Dean and NDH (Dean/NDH) agreed that the Southeastern region of the U.S. is a deficit milk production region and that the deficit is growing. The brief said that dairy farmers who regularly and consistently supply milk to fluid milk plants in the southeastern region should be appropriately compensated for their raw milk and receive the blend price of the order they supply. However, the brief argued that adopting the proposed Class I price adjustments and the Class I price surface proposals is not supported by record evidence or by rule of law and should be denied. While the Dean/NDH brief expressed agreement that long-term problems exist regarding the viability of the southeastern region dairy industry, it doubted that correcting problems that have prevailed for 25 years could be solved overnight through emergency rulemaking.

According to the Dean/NDH brief, there is no evidence of an emergency that would warrant adopting the Class I price proposals by the omission of a Recommended Decision. To the extent that conditions warrant the need to rely on milk orders to return higher prices to dairy farmers, the brief asserted that an alternative method of returning higher prices can be achieved by simply lowering the orders' diversion limit standards. The Dean/NDH brief noted that Dean and NDH operate several fluid milk processing plants in the Southeastern region and that other processors testifying at the hearing opposed the Class I price adjustments and Class I pricing surface changes. The brief argued that such changes may have unintended consequences which may worsen the situation in the southeastern region. According to the Dean/NDH brief, adopting changes to Class I pricing may create incentives for plants located outside the Appalachian and Southeast marketing areas to direct their fluid milk sales in the marketing areas and become pooled on those orders. The brief argued that while plants may gain in blend price changes by altering where they become pooled, the price surface may not change for their competitors. The brief also asserted that since January 2000, Class I prices were intentionally linked nationwide as part of Federal milk order reform and concluded that any change in Class I differentials or the Class I price surface, even at one price location, would change the economic incentive nationwide to serve that location. The brief therefore contended that the entire national Class I price surface needs to be evaluated.

According to the Dean/NDH brief, DCMA's Class I price proposals fail to rely on accepted economic models and fail to follow the Department's established policies for making adjustments to the Class I price surface. Specifically, the brief argued that the economic calculations failed to take into consideration “shadow pricing,” which the brief characterized as how a market could react to changes such that an additional price change would alter distribution. The brief also argued that the Class I price proposals fail to calculate unique prices for each location by considering relevant reserve supply areas and fail to account for differences in raw milk movements versus packaged milk movements.

According to the Dean/NDH brief, the rationale for setting a target price for Miami, FL, and then backing off that price and “smoothing” the result is arbitrary and capricious. The brief contended that determining Class I prices in this way applied non-uniform methodology and did not meet the standards of the Administrative Procedure Act. In addition, the brief noted that no evidence or economic data backs up the “smoothing” process as described by DCMA testimony.

The Dean/NDH brief asserted that Wooster, OH, should not be identified as a supply area because it has never been relied upon as any kind of basing point for pricing milk and doing so now would be specifically contrary to testimony given at a Pennsylvania State hearing for a recent State of Pennsylvania rulemaking. Accordingly, the brief contended that DCMA's entire Class I pricing proposals should be rejected.

According to the Dean/NDH brief, although the Class I price changes sought are “temporary,” competitive impacts of such changes can be long-term and result in permanent harm to Class I handlers. The brief asserted that any decision should be considered permanent unless it has a specific sunset provision. According to the brief, no specific sunset provision had been proposed or discussed in the hearing record.

The Dean/NDH brief pointed out that, at the time of the hearing, the dairy industry was also experiencing record high Class I prices for milk further demonstrating the lack of need for emergency action. The brief noted that the May 2007 uniform price for Fulton County, GA, was $18.37 per cwt. According to the brief, this price is $1.37 per cwt higher than April 2007 and is $5.83 per cwt, or 45.3 percent, higher than in May 2006. The brief also noted that the Class I price for June 2007 at Fulton County was $1.92 per cwt higher than May 2007, and the July 2007 price increased by $3.07 per cwt. The brief indicated that even a proponent witness acknowledged that such higher prices were likely to continue through the fall 2007.

The Dean/NDH brief agreed that diversion limit standards for the Appalachian and Southeast orders should be lowered on an emergency basis and made identical to those of the Florida order. The brief indicated that the Florida order currently functions well by having lower diversion limit standards and this has supported the prevailing over-order premiums. The brief opined that because of the order's tight pooling provisions, the need for transportation credits and the need for holding numerous formal rulemaking hearings has been avoided. According to the brief, the Florida order's tight diversion limit standards have continually assisted that order in retaining strong blend prices paid to dairy farmers and attracting sufficient amounts of milk supplies.

The Dean/NDH brief asserted that pool revenues should be shared only among those producers who truly and regularly serve the Class I market and that diversion limit standards of the Appalachian and Southeast orders are not adequately identifying those true and regular suppliers. The brief asserted that both orders can be made more effective by requiring a genuine association of a milk supply with the market as intended by the AMAA.

The Dean/NDH brief indicated that if Dean's proposal for adopting the diversion limit standards of the Florida order for the Appalachian and Southeast orders is adopted, Dean would support the DCMA's one-day per month touch-base standard proposals. As Dean/NDH does not consider DCMA's proposed diversion limit standards as being any change at all, it opposed any change to the touch-base standards of the Appalachian and Southeast orders.

The Dean/NDH brief opposed the expansion of the payment of transportation credits to include the entire load of milk and stated that payments should only be paid on Class I milk as currently provided under the Appalachian and Southeast orders. The brief expressed concern that adopting the proposed changes would create the wrong economic incentives. The brief noted that suppliers of milk to a Class I plant with a higher than market average of Class II use would be receiving a larger economic benefit than Class I plants with below market average Class II use. According to the brief, this would be contrary to assuring equal minimum milk prices among similar handlers.

The Dean/NDH brief was of the opinion that transportation credits have been a key factor in contributing to the decline of the dairy industry in the southeastern region. In this regard, the brief noted the proponents acknowledgement that in some cases current touch-base provisions in conjunction with transportation credits cause inefficient movements of milk. The brief asserted that transportation credits, not touch-base standards, give rise to inefficient movements of milk.

A post-hearing brief by MIF reiterated its opposition to adopting DCMA's proposals and asserted the absence of emergency marketing conditions that warrant emergency action. The brief noted awareness of declining milk production in the southeastern region but indicated this is not a sufficient basis for the adoption of the proposals on an emergency basis. The brief further argued that no emergency exists to warrant adoption of the proposals because the trends of declining milk production in the region and rising fuel costs have existed for many years.

The MIF brief stressed that the key purpose of the Federal milk marketing order program is to ensure an adequate supply of milk for Class I needs. In this regard, the brief noted that no witnesses testified on the inability to procure milk for Class I use. The brief reiterated that in a survey of its membership conducted before the hearing, no member indicated difficulty securing milk for Class I needs in the three southeastern marketing areas. The brief also mentioned that over-order premiums are paid by Class I handlers to secure milk for fluid use and the proponents testified that current over-over premiums currently offset higher fuel costs.

The MIF brief noted that some southeastern dairy producers who testified at the hearing also participated in a herd-removal program called Cooperatives Working Together (CWT). In this regard, the brief cited this as an example of misplaced concern for declining milk production in the southeastern region.

The MIF brief asserted Class I sales would suffer if higher Class I prices were adopted because higher raw milk costs would increase wholesale costs and result in higher retail prices paid by consumers. The brief noted that the current, general structure of Class I location differentials has been in place for 22 years and that milk bottlers have made significant investments in plants and equipment during this time.

According to the MIF brief, plants could be disadvantaged in the marketplace solely because of increases in the Class I price relative to the Class I price of its competitors. The brief argued that a $0.005 difference per gallon could result in lost customers for a distributing plant and that a $0.025 increase is enough to lose a supermarket account. The brief asserted that increasing a Class I price by $0.10 per cwt ($0.0086 per gallon) could yield dire results for a Class I plant. The brief indicated that an unexpected consequence could be that plants distant to the three orders could become associated with one of the three orders due to differences between transportation costs and increased Class I prices resulting in out-of-area plants taking away sales from in-area plants.

The MIF brief said that a comprehensive study and analysis on a national scale of all potential consequences and on demand for packaged milk was needed before any changes to Class I pricing were adopted. The brief reasserted the opinion that Class I prices could not be changed in the southeastern region alone because that would change marketing conditions in all marketing areas.

A post-hearing brief submitted on behalf of DCMA expressed support for the market administrator assessment increase for the Appalachian, Southeast, and Florida milk orders in Proposals 4, 5, and 6, respectively.

Comments and exceptions to the tentative partial decision (73 FR 11194) were filed by Dairy Cooperative Marketing Association, Inc. (DCMA), Arkansas Milk Stabilization Board (AMSB), Southeast Producers Steering Committee (SPSC), Dean Foods Company and National Dairy Holdings (Dean/NDH), and the Milk Industry Foundation (MIF).

In comments and exceptions regarding the adopted Class I price surface, DCMA wrote that the amended Class I differentials will send appropriate signals to maintain and increase milk production within the three marketing areas, as well as create incentives to increase the movement of supplemental milk to these areas when needed. DCMA also expressed agreement that the Class I price surface changes will generate producer price increases in all three marketing areas. DCMA reiterated that the reduction in the volume of diverted milk in the Appalachian and Southeast marketing areas should also lead to increased uniform prices in those marketing areas. DCMA predicted that decreases in the touch-base standard will offer greater flexibility in moving pooled milk and will offer cost savings on pooled reserve supplies. Lastly, DCMA supported USDA's decision to maintain and update the transportation credit balancing fund provisions.

Comments and exceptions filed on behalf of the AMSB expressed support for the tentative partial decision, but proposed additional changes to Class I price adjustments for certain county locations in Arkansas. AMSB requested that the Class I differentials for Pulaski county be increased from $2.80 to $3.20 per cwt, Sebastian county from $2.80 to $3.10 per cwt, and Washington and Benton counties from $2.60 to $3.00 per cwt. AMSB also proposed that the touch-base standard be changed from 2 days for each of the months of July through December and to 6 days for each of the months of January through June. According to AMSB, significant decreases in milk production in Arkansas, as well as in Mississippi and Louisiana, are due, in part, to the Federal milk marketing orders. AMSB was of the opinion that their proposed changes are needed to stabilize dairy production in the State of Arkansas.

Comments and exceptions filed on behalf of the SPSC expressed support for adjusting the Class I price surface in each of the three marketing areas but asserted that the price adjustment increases adopted in the tentative partial decision will not sufficiently increase local milk production in the three marketing areas. SPSC reiterated a number of positions given in record testimony and brief: (1) lowering the touch-base standards will have a negative impact on milk prices and production in the three marketing areas, (2) changes to the transportation credit balancing fund provisions will encourage unnecessary milk movements to the detriment of producer mailbox prices in the Appalachian and Southeast marketing areas, and (3) milk produced on farms located far from the marketing areas will seek to capture higher transportation credit payments by taking advantage of the lower touch-base standards along with the extension of transportation credit eligibility on the full loads of milk.

Comments and exceptions filed on behalf of Dean/NDH expressed opposition to the tentative partial decision by reiterating its positions given in record testimony and post-hearing brief: (1) USDA has deserted utilizing a nationally coordinated pricing surface for Class I milk; (2) current economic conditions demand a nationally coordinated price surface; and (3) abandonment of a nationally coordinated Class I price surface does not follow the requirements of Administrative Procedure Act (APA) or the Agricultural Marketing Agreement Act (AMAA). Similarly, Dean/NDH comments and exceptions also continued to criticize the method used to create the Class I price surface adjustment.

Comments and exceptions filed on behalf of the MIF reiterated its opposition given in record testimony and post-hearing brief to adjusting the Class I price surface in the Appalachian, Southeast, and Florida Federal milk marketing areas and USDA's conclusion to implement the proposed changes on an interim basis. According to MIF's comments and exceptions, increasing Class I prices and adjusting the Class I price surface will not solve the problem of covering procurement costs of fluid milk. MIF asserted that over-order payments are already used to compensate cooperatives that bear the costs of balancing the supply and that increasing Class I prices will only increase costs for processors, retailers and consumers and discourage Class I sales.

No comments and exceptions were received regarding the proposed increase in the maximum administrative assessment for the Appalachian, Southeast, and Florida orders.

The record of this proceeding reveals that for many years milk production has declined in the southeastern region and supplying the region with supplemental milk has demanded the sourcing of milk supplies from ever farther distances from the marketing areas. Not only has the decline in milk production been in absolute terms, but when balanced with population increases, milk production in the region has failed to satisfy fluid demands year-round.

The proposed amendments in this proceeding to the Appalachian, Florida, and Southeast milk marketing orders aim to assure an adequate supply of milk for fluid use in the southeastern region of the U.S. As proposed by DCMA, the amendments to the three marketing orders seek simultaneous changes with the aim of providing incentives for assuring a reliable supply of milk for fluid use. The amendments integrate: (1) Higher regulated minimum prices for Class I milk, (2) changes to assure that the revenue accruing from higher minimum Class I prices will be shared with those producers who regularly and consistently serve the region's Class I needs of the region, (3) cost savings for entities who have made the commitment to supply the region, and (4) flexibility and incentives for supplying the Appalachian and Southeast marketing areas with supplemental milk by offsetting the cost of transportation.

Adjustments to the Class I prices for the three southeastern orders continue to be proposed for adoption in this final decision and result in a change to the Class I price surface. The changes are specified in the order language. Assuming no other changes to the three southeastern orders, increasing Class I prices will continue to increase Class I prices as provided for in the interim rule and increase the value of each order's marketwide pool. The higher Class I prices also will attract milk to all locations and increase blend prices for dairy farmers whose milk is pooled on the three southeastern milk marketing orders.

The basic foundation for deriving the temporary adjustments to Class I prices begins with DCMA's identification of potential supply areas and reliance on the areas to yield the lowest Class I price adjustment based on the farthest point of milk demand. The potential supply point meeting these criteria was Wooster, OH, and the farthest demand point was identified as Miami, FL. After identification of the lowest cost supply and demand point, the distance between these two points was relied upon to determine calculated price adjustments at all other county and parish locations within the marketing area boundaries of the three southeastern orders. The selection of Miami as the farthest point of milk consumption is consistent with recognition in the current pricing structure that Miami is the point with the highest Class I differential resulting in a Class I price designed to attract an adequate supply of Class I milk.

As the proposal indicated, the selection of Wooster, OH, (Wayne County) as a supply point is one of several that were considered by the proponents. The selection of Wooster was made after consideration of other supply points because it would represent the least-cost point from which a milk supply could potentially be sourced from locations in the southeastern region. All other supply points considered would have resulted in much higher Class I price adjustments.

The Class I price adjustment calculated for every county and parish location relies upon a mileage rate factor implemented in December 2006. This factor is further reduced by 20 percent. While this formed DCMA's basic foundation for adjusting Class I prices, it is not the proposed Class I price adjustments at all locations in the southeastern region.

The DCMA's Class I price adjustments differ from those calculated. What the proponents have described as “smoothing” of the Class I price adjustments is essentially price alignment. In this regard, it is clear that the adopted Class I price adjustments are different from strictly calculated values. The adopted Class I price adjustments provide reasonable alignment with the current Class I price surface beyond the geographical boundaries of the southeastern orders.

Similarly, DCMA's Class I price adjustments differ from calculated adjustments by adjusting calculated values to correspond to Class I processing plant locations. This establishes pricing zones that are conceptually identical to current pricing zones and assures that similarly situated Class I handlers will have the same minimum regulated Class I prices. Providing similar regulated prices for similarly situated handlers is consistent with the requirements of the AMAA. While conceptually identical, maintaining price alignment with adjoining milk marketing orders together with pricing zones, the adopted Class I price adjustments result in price relationships that are different from those that existed at the time of the hearing. Despite criticism that DCMA's adjustments change price relationships between plants of the same ownership, the key requirement that similarly located plants have similar regulated minimum prices is maintained.

In an effort to examine both the level and the reasonableness of the Class I price adjustments that were zoned and aligned with adjoining orders, DCMA evaluated the cost of shipping packaged milk. According to the record, there are some differences between what the resulting Class I price adjustments would be under the cost analysis of shipping packaged milk. Nevertheless, the similarities between the adopted Class I price adjustment and the cost adjustment analysis of shipping packaged milk are very similar. Since the Class I price adjustment at all locations does not exceed the value of milk at alternative locations, in either bulk or packaged form, the Class I price adjustments are reasonable. Despite criticism in comments and exceptions, this final decision continues to find that this method of evaluating the Class I pricing changes forms a rational basis to conclude that the proposed changes to Class I pricing are reasonable. The adopted Class I price adjustments are presented in Figure 1. While the Class I differentials in the southeastern region are not changed in this decision, the Class I price adjustments are added to the current Class I differentials for illustrative purposes. Figure 1 provides a graphic presentation of the combined value of Class I differentials plus the adjustment values adopted in this decision.

On the basis of a pricing surface alone, the adopted Class I price adjustments will not likely result in the uneconomic movement of milk as asserted by opponents. The adopted pricing surface better reflects the economic conditions affecting the supply and demand for milk in the three southeastern marketing areas by providing greater pricing incentives indicative of actual milk movements and the cost of supplying milk from alternative locations. The adopted Class I price adjustments result in a steeper Class I price surface that correlates with the higher location value fluid milk has in the southeastern region. The location value of milk is higher because of the cost involved in transporting milk to locations in the milk-deficit southeastern region from alternative milk-surplus locations.

Opponents to DCMA's Class I price adjustments assert that there is no reason to increase Class I prices because all Class I demands are being met. This decision continues to find that DCMA's proposed adjustments to the pricing provisions of the three orders are reasonable and necessary. The record of this proceeding reveals that it is the cooperative member organizations of DCMA who supply the majority of the Class I needs of the three marketing areas. In making the commitment to supply the fluid needs of the markets, the supplying cooperatives have largely reduced the burden on Class I handlers to source their supply. Similarly, it is the cooperative organizations that provide the service of balancing the three southeastern markets.

Opponents to DCMA's Class I price adjustments noted that there is an adequate supply of milk to meet fluid demands. There is an adequate national supply of milk to meet the national demands for fluid milk. However, in the deficit areas of the southeastern marketing areas, there must be sufficient incentives provided by the orders to encourage the movement of milk from reserve areas to these deficit markets. In this regard, the location value of milk needs to consider local milk supplies, local demand, and transportation costs. After consideration of comments and exceptions, this decision continues to find that the adopted Class I price adjustments should provide the additional incentives needed to offset some of the costs associated with the decreases in local supply, increases in local demand, and increases in transportation costs.

Opponents criticized DCMA's Class I adjustments by identifying that other means and methods are available which would return greater revenue to dairy farmers instead of increasing minimum prices. Other changes adopted in this decision will, all other things being equal, tend to increase minimum regulated prices paid to producers. However, these changes are founded on the very limited improvement gained from lowering the diversion limit standards of the Appalachian and Southeast orders. In light of the chronic milk deficit conditions of the southeastern region, only higher minimum regulated prices can reasonably generate the additional revenue needed to assure that the Class I needs of the region can be met continuously. According to market administrator analyses, the estimated annual increase of the Appalachian order pool for 2004, 2005, and 2006 resulting from DCMA's proposed Class I price adjustments would have been $19.3 million, $18.6 million, and $18.3 million, respectively. For the Southeast order, the annual pool value increase would have been $16.8 million, $17.1 million, and $17.7 million, respectively. For the Florida order, the annual increase in pool value would have been $36.4 million, $38.3 million, and $39.2 million, respectively. While alternative methods such as a tightening of pooling standards will, among other things, tend to enhance producer revenue to those producers who regularly and consistently supply the market's Class I needs, this alone will not establish minimum regulated prices high enough to attract an adequate supply for chronic milk-deficit marketing areas from alternative distant locations.

Opponents expressed concern about producers in the region being involved with a voluntary producer-funded program known as the Cooperatives Working Together (CWT). CWT is a non-government program that includes a herd retirement program, which reduces the number of cows in the national dairy herd. This decision rejects this argument as it is not germane to the issues at hand. This decision is derived on the basis of record evidence which supports the adoption of the Class I pricing surface.

AMSB, in its comments and exceptions, proposed additional Class I price surface changes for certain counties in Arkansas with the aim of raising local milk production. This decision rejects adoption of the proposed increases for the Arkansas county locations for two fundamental reasons. First, doing so would not result in a reasonably aligned Class I price surface with the current national Class I price surface. Second, the proposed additional increases are based on the narrow objective of raising local Arkansas milk production. It is the purpose of milk marketing orders to set minimum prices that result in an adequate supply of milk for fluid uses. In this regard, it is not important where the milk is produced. A function of the minimum prices set by the orders is to ensure that a sufficient supply of milk will be delivered to where it is demanded. While AMSB's proposed additional Class I price increases for certain Arkansas counties would provide an even greater incentive to deliver milk to those locations, the adjustments are justified with the goal of increasing local milk production. Accordingly, AMSB's proposed Class I pricing increases for certain Arkansas county locations cannot be deemed superior to those of the DCMA proposal that clearly seeks price increases necessary to assure an adequate supply of milk from any source while also maintaining reasonable alignment with a nationally coordinated Class I price surface.

DCMA's proposed diversion limit and touch-base standards for the Appalachian and Southeast orders continue to be proposed for adoption in this final decision. The proposed changes make the diversion limit and touch-base standards of the two orders identical. Specifically, the proposed diversion limit standards are: (1) 25 percent of deliveries to pool plants during each of the months of January, February, July, August, September, October, and November, and (2) 35 percent in each of the months of March, April, May, June, and December. Both orders' touch-base standards are amended to require at least one day's milk production of a producer be delivered to a pool plant during the month in order for a producer to be eligible to divert milk to nonpool plants.

Based on record evidence, adoption of a one-day per month touch-base standard for both orders and making the diversion limit standards of both orders identical accomplishes three important pooling standard objectives. Specifically, the changes: (1) provide a standard necessary to identify producers supplying the markets' Class I needs, (2) provide the criteria to identify the milk of producers who may be eligible for receiving a transportation credit in supplying supplemental milk for Class I use, and (3) allows milk that is part of the milk supply which regularly and consistently services the markets' Class I needs to be pooled on the orders.

Providing for the diversion of milk is a desirable and needed feature of an order because it facilitates the orderly and efficient disposition of milk when not needed for fluid use. When producer milk is not needed by the market for Class I use, some provisions should be made for that milk to be diverted to nonpool plants but remain pooled and priced under the order. The lower diversion limits adopted in this decision will likely reduce the volume of milk eligible to be pooled by diversion to a significant degree on the Southeast order and less so on the Appalachian order. Assuming all other conditions being equal, the adopted changes in diversion limit standards will result in higher blend prices paid to producers. This is a desirable outcome, especially for the Southeast order where there is the need to better identify the milk of those producers who regularly and consistently service the Class I needs of the Southeast marketing area. An examination of the Southeast order's utilization of milk belies the fact that the marketing area is chronically short of in-area milk production to meet the Class I demand of the marketing area. This can only be the result of pooling much more milk on the order than is necessary as part of the legitimate reserve supply of milk available to service the Class I needs of the market.

The record reveals that according to market administrator analyses, the estimated impact on minimum order uniform prices of the proposed diversion limit standards in both orders would have average annual increases in uniform prices of $0.02 per cwt for the Appalachian order and $0.07 per cwt for the Southeast order. Increased blend prices will help to provide greater incentives to maintain milk production from current producers and provide greater economic incentives for dairy farmers located outside of the marketing area to be regular and consistent suppliers of Class I milk to these two marketing areas.

Milk diverted to nonpool plants is milk not physically received at a pool plant. However, it is included as a part of the total producer milk receipts of the diverting plant or cooperative entity pooling milk for its own account. A diversion limit establishes the amount of producer milk that may be associated with the integral milk supply of a pool plant or cooperative acting in its capacity as a handler. With regard to the pooling issues of the Southeast order, the record reveals that current diversion limit standards contribute to the pooling of large volumes of milk on the order that does not regularly and consistently service Class I market needs. Therefore, lowering the diversion limit standard is appropriate to better assure that only milk which regularly and consistently services the Class I market is pooled. Associating more milk than is actually part of the legitimate reserve supply available for Class I use unnecessarily reduces the potential blend price paid to dairy farmers who regularly and consistently service the Class I needs of a marketing area. Not having reasonable diversion limit standards weakens the orders' ability to provide for orderly marketing. Diversion limit standards that are too high can open the door for pooling more milk on the markets than necessary. The record supports concluding that a 33 percent diversion limit for the Southeast order during each of the months of January through June and 50 percent for each of the months of July through December has not only resulted in lower blend prices harming local producers, but has also resulted in Class I utilization rates that obscure that area as a deficit market.

For the Appalachian and Southeast orders, the record reveals that since the average reserve requirements did not differ greatly over the 36 month period (January 2004 through December 2006), having the same diversion limit standards for both orders is justifiable. In addition, by having identical diversion limit standards, the blend prices paid to producers increase as milk is supplied to locations generally in an easterly and southern direction. To the extent that this diversion limit standard may warrant future adjustments, the orders already provide the market administrator authority to adjust diversion standards as marketing conditions may warrant. Given the total milk demands of the marketing areas revealed by the record, a minimum of about 12 to 13 percent of monthly pool distributing plant receipts would be needed to meet the minimum daily, weekly, monthly, and seasonal needs, as well as a modest margin for unanticipated changes in the supply and demand relationship for Class I milk needs. Accordingly, the proposed diversion standards for the orders are reasonable and continue to be proposed for adoption in this final decision.

Touch-base delivery standards define the minimum number of days of milk production each month that a dairy farmer must supply a pool plant of an order to be associated with that market and thus qualify to have their milk pooled by diversion. On the basis of the record evidence, this decision finds reason to support adopting a 1 day touch-base standard for both orders. Conditional supporters have voiced concern for DCMA's package of proposed amendments that lower the touch-base standards of the Appalachian and Southeast order because, they believe, it represents an easing of a feature of the orders' pooling standards at a time when the opposite is needed to improve producer income in the two orders. While this concern might be conceptually valid, it does not consider that the volume of milk pooled on the two orders will be appropriately restricted by the adopted diversion limit standards. In part, because the diversion limit standards of the orders are tightened, an easing of the touch-base standard can be made without fear of pooling the milk of producers who are not part of the regular and consistent supply of milk serving the Class I needs of the two marketing areas.

While diversion limit standards are a key feature of the pooling standards of an order for defining the total volume of milk that can be pooled, an argument could be made that perhaps a touch-base standard is not necessary at all if other pooling standard features are appropriately tailored. However, a touch-base standard for the Appalachian and Southeast orders remains a critical feature of both orders because some criteria are needed to identify producers who are suppliers of supplemental milk to the two marketing areas and who thereby may be eligible to receive a transportation credit.

Record evidence indicates that by reducing the touch-base standard to 1 day per month, producers, especially cooperative member producers who bear the burden of supplying the vast majority of milk to the southeastern marketing areas, would avoid the cost of delivering their milk to pool plants when not necessarily needed. While a higher touch-base standard tends to support the integrity of the orders' performance standards, the current touch-base standards result in the uneconomic movement of milk solely for the purpose of meeting a pooling standard. The current touch-base standards of the two orders too often result in the substitution of local milk with the milk of more distant producers, thus displacing the milk of local producers supplying the market. The milk of local producers needlessly incurs the cost of being transported to more distant locations. As a result of the current touch-base standard, hauling and marketing costs are needlessly higher and the supply of milk from distant producers may still not be available to serve the Class I needs of the two marketing areas.

Despite comments and exceptions received by SPSC and AMSB and for the reasons discussed above, this decision continues to find that the diversion limit standards of the Appalachian and Southeast orders at the time of the hearing resulted in the pooling of more milk than could reasonably be considered as actually serving the markets' Class I needs. Therefore, this final decision continues to support the reduced diversion limits proposed by DCMA. Additionally, the lowering of the touch-base standard, in light of the tightening of the diversion limit standards, does not compromise the integrity of the orders' pooling standards. Together with the adopted diversion limit standards, a lower touch-base standard for the two orders offers operational cost savings to producers supplying the market with Class I milk while simultaneously providing for identification of the milk of those producers who regularly and consistently service the markets' Class I needs.

Until December 2006, the transportation credit balancing provisions of the Appalachian and Southeast orders allowed supplemental milk loads to be used as a platform to pool additional milk on the order through the diversion process. Official notice is taken of the tentative partial decision concerning milk in the Appalachian and Southeast marketing areas issued September 1, 2006, and published September 13, 2006, (71 FR 54118) and the Interim Rule issued October 19, 2006, and published October 25, 2006 (71 FR 62337). In discussing the need for revised diversion limit standards for the Appalachian and Southeast orders it is necessary to consider the findings of that decision.

The September 2006 decision referenced above established a zero diversion limit standard on supplemental milk supplies seeking a transportation credit payment. An important finding in that decision regarding diversions associated with supplemental milk supplies was that pooling such diverted milk would provide additional revenue to help offset hauling costs not covered by the transportation credit payments then in place for the Appalachian and Southeast orders. The adoption of a variable mileage rate factor that reimburses hauling costs on supplemental milk at a level more reflective of actual costs was found to diminish the need to seek and generate such revenue to offset hauling costs at the expense of the local producers who are regularly and consistently supplying milk for Class I needs. This final decision adopts tighter diversion limit standards, especially for the Southeast order. Together with providing for higher Class I prices, tighter diversion limit standards should result in more orderly marketing conditions. The ability to pool more milk on the orders than the amount needed to regularly and consistently serve the Class I needs of the markets needlessly lowers the blend price of producers who regularly and consistently service such Class I needs.

DCMA's proposed changes to the Appalachian and Southeast order transportation credit balancing fund provisions continue to be proposed for adoption in this final decision. Specifically, these changes include: (1) Extending the number of months that transportation credit balancing funds will be paid to include the months of January and February. The month of June will continue to be a month for the payment of transportation credits if requested and approved by the market administrator; (2) Expanding the payment of transportation credits for supplemental milk to include the full load of milk; (3) Providing more flexibility in determining the qualification requirements for supplemental milk producers to receive transportation credit payments; and (4) Increasing the monthly transportation credit balancing fund assessment rate for the Southeast order from $0.20 per cwt to $0.30 per cwt.

The transportation credit balancing fund provisions for both orders (and predecessor orders) were established in 1996 as a result of the consistent need to import supplemental milk for fluid use during certain times of the year when local production is not sufficient to meet the markets' fluid needs. Specifically, the market administrator applies a monthly transportation credit balancing fund assessment on all dispositions of Class I milk. The assessment rate adopted on an interim basis through a separate rulemaking proceeding (71 FR 62377, published October 25, 2006) was $0.15 per cwt and $0.20 per cwt for the Appalachian and Southeast orders, respectively. At the time of the hearing, transportation credit payments were paid from each order's transportation credit balancing fund during the months of July through December to help offset the cost of transporting such supplemental milk for Class I use. As a result of this proceeding, January and February were added on interim bases as transportation credit payout months effective March 18, 2008 (73 FR 14153). The transportation credit balancing funds operate independently from the producer settlement funds of the two orders. Milk from producers located outside of the two marketing areas who are not part of the regular and consistent supply of Class I milk, is commonly referred to as supplemental milk.

The record reveals that the seasonal swings in milk production lead to inadequate milk supplies for fluid use in certain months and surplus supplies in other months. In the Appalachian and Southeast orders, the summer and fall (and sometimes winter) months are generally considered those months with inadequate (tight) milk supplies for fluid use, while the spring months are generally characterized as having sufficient supplies of milk for fluid use. Transportation credits are used as a method to compensate handlers that provide supplemental milk during the tight supply months by offsetting some of the costs of transporting milk to the two marketing areas.

Prior to the interim final rule issued in this proceeding (73 FR 14153) the payment of transportation credits under the Appalachian and Southeast orders was only made during the months of July through December. A feature of DCMA's proposal seeks to extend such payments to also include the months of January and February. Record evidence demonstrates reliance on supplemental milk supplies for each order's marketing area during July through December and the months of January and February showing similar demand for supplemental milk supplies.

Declining local milk production in the southeastern region of the country is well-known and is a chronic problem. Record evidence indicates milk marketings from dairy farmers located in both the Appalachian and Southeast marketing areas (pooled on any order) has continued to decrease since 2004. Specifically, evidence shows that annual milk marketings pooled on the Appalachian order have decreased from approximately 3.94 billion pounds in 2004 to about 3.77 billion pounds in 2006. For the Southeast order, milk marketings from in-area dairy farmers declined from 5.0 billion pounds in 2004 to 4.76 billion pounds in 2006. Furthermore, record evidence illustrates that total milk production in the southeastern states of the U.S. has declined on average almost 2 percent each year since 1986 and has decreased a total of 34.6 percent since 1986—from 18.29 billion pounds in 1986 to 11.96 billion pounds in 2006.

In each of the years of 2004, 2005, and 2006, the months of July through January were deficit in terms of monthly in-area milk marketings (milk marketed by dairy farmers within the geographical boundaries of the two marketing areas) being consistently less than the monthly Class I producer milk pooled on the Appalachian and Southeast orders. The in-area deficit in January for both orders for all 3 years combined totaled 8.4 million pounds. While February in-area milk marketings for all 3 years exceeded Class I demands, that surplus decreased from over 44 million pounds in 2004 to just under 14 million pounds in 2006—a decrease of over 68 percent.

Record evidence reveals that the months of January and February are likely to become months during which local in-area milk marketings will no longer satisfy Class I demands and the Appalachian and Southeast marketing areas will need to increasingly rely on supplemental milk supplies to satisfy Class I demands. Accordingly, this decision continues to find that expanding the transportation credit payment months to include the months of January and February for the payment of transportation credits is reasonable. June will continue to be an optional month for transportation credit payments, if requested, to be reviewed and authorized by the market administrator.

Currently, transportation credits are paid on loads of milk at the lower of the receiving plant's Class I use or the marketwide Class I utilization. DCMA's proposals seek to change these criteria by having the entire load of supplemental milk eligible to receive a transportation credit. The major justification offered by DCMA is that the cost of transporting supplemental milk, regardless of the plant's use of that milk, is the same. This decision finds that a supplier of supplemental milk sources and assembles milk demanded by distributing plants for fluid uses, but no distributing plant disposes 100 percent of its milk receipts as Class I sales. The supplemental milk supplier does not know how a receiving plant will use the supplemental milk it receives. However, it is reasonable to conclude that plants do not seek supplemental milk supplies without first having the demand for Class I use. In other words, the need for supplemental milk supplies is fueled by Class I demands that cannot be satisfied in the absence of transportation credits. It is unlikely that supplemental milk suppliers would supply full milk loads to Class I plants if the demand for milk was not at least equal to its Class I disposition, even if it has some actual lower-valued use of milk.

The current calculation of transportation credit payments in the Appalachian and Southeast orders contain a number of features to prevent offsetting the full cost of transporting supplemental milk into the marketing areas. They also contain features to prevent the pooling of milk on the orders that do not regularly and consistently supply the fluid needs of the two marketing areas. Most important is the feature denying the ability to pool milk by diversion on the basis of supplemental milk deliveries to plants in the two orders. Current transportation credit provisions prohibit pooling diverted milk on the Appalachian and Southeast orders on loads of supplemental milk seeking a transportation credit and this prohibition is continued by its adoption in this decision. Since supplemental milk can no longer form a basis from which to pool milk through the diversion process, it is reasonable to conclude that the marketwide Class I utilization percentage of the orders will likely increase. However, this improvement alone will not likely result in offsetting the costs incurred by supplemental milk suppliers who both assemble and transport milk to plants regulated by the two orders to satisfy Class I demands.

Record evidence reveals that the Appalachian and Southeast marketing areas incur different costs in attracting supplemental milk to meet Class I needs. In recent years, the transportation credit reimbursement on claims for the Southeast order has been prorated at greater rates and more often than those of the Appalachian order. As discussed in the September 13, 2006, tentative decision for the Appalachian and Southeast orders (71 FR 54118), the Appalachian marketing area receives the majority of its supplemental milk supplies from the northern Mid-Atlantic States. The Southeast marketing area receives the majority of its supply from the Midwest and Southwest States. The location of supplemental milk supplies for the Southeast marketing area therefore tends to be more distant from the marketing area than for the Appalachian marketing area.

The need to again raise the monthly transportation credit assessment rate for the Southeast order is in part explained by the continuing need of the Southeast marketing area to reach ever farther to source milk supplies to satisfy fluid demands. Additionally, expanding the payment of transportation credits on the entire load of supplemental milk also will likely increase the payment of transportation credit claims. At the same time, payment of transportation credit claims will be partially offset by the adopted changes to the Class I pricing surface because the calculation for determining payment considers the change in Class I pricing values between the origin of supplemental milk and the point where it is delivered. As discussed above, the need for supplemental milk supplies is fueled by the marketing area's Class I demand.

The current transportation credit provisions provide precautionary measures such that the rate of assessments beyond actual handler claims is unlikely. The transportation credit provisions provide the market administrators the authority to reduce or waive assessments as necessary to maintain sufficient fund balances to pay the transportation credits claims. Therefore, increasing the maximum transportation credit assessment rates will not result in an accumulation of funds beyond what is needed to pay transportation credit claims.

The record supports concluding that local milk production is expected to continue declining within both marketing areas. This will result in an even greater reliance on supplemental milk to meet the fluid milk needs of the markets. Record evidence shows a constant increase in both the volume and distance of supplemental milk supplies, especially for the Southeast marketing area. As such, it is reasonable to conclude that future transportation credit claims will increase. In this regard, it is important to prevent exhausting the transportation credit balancing fund before the payment of claims on supplemental milk. Doing so is consistent with the fundamental purposes of the transportation credit provisions.

The adopted increases in Class I prices will likely alter the payout of transportation credit claims because the differences in origin and delivery point Class I prices are increased. However, adoption of expanded transportation credit payment months to include January and February, as well as payments on the entire load of milk, will tend to offset the payout on transportation credit claims resulting from the adopted changes in Class I pricing.

An increase in the transportation credit assessment rate for the Appalachian order was not requested because 100 percent of the transportation credit requests were paid in 2006 and in January 2007. Hearing record data indicates that even with adoption of the proposed Class I prices, pooling requirements and transportation credit provisions, the transportation credit assessment rate of $0.15 per cwt in the Appalachian order should continue to be sufficient to pay future transportation credit requests.

The record indicates that the actual transportation credits paid in 2006 for the Appalachian order totaled $3,313,590. Had the current mileage rate factor (MRF) been in effect for all of 2006, transportation credit payments for the Appalachian order would have totaled $4,433,854, including the actual payment for January 2007 and an estimated payment for February. Analysis suggests that with the current MRF and proposed Class I prices in place, the total transportation credits paid during 2006 would have been about $456,000 less than the actual total transportation credit payments. Using market administrator data with the variable MRF based on 2006 calculated monthly averages ($0.044 per cwt per 10 miles), paying of transportation credit claims on full loads of milk, and the proposed Class I price adjustments, the total transportation credits paid for 2006 in the Appalachian order would have totaled $4,073,312. This is $360,000 less than what would have been paid with the MRF and the lower of a plant's Class I use or marketwide Class I utilization. Accordingly, the current $0.15 assessment rate for the Appalachian order appears to be sufficient to meet all claims even when paying transportation credits on full loads of milk delivered to Class I plants regulated by the order.

The record indicates that the transportation credit balancing fund for the Southeast order has been insufficient to pay transportation credit claims. Record evidence indicates that during 2006, Southeast order transportation credit payments were prorated to 81, 36, 39, and 64 percent of the transportation credit claims for the months of September, October, November, and December, respectively. Such transportation credit claims also have increased in number of pounds and in number of miles. Specifically, the total pounds claimed for the receipt of transportation credits has increased from 374 million pounds for July through December 2000 to 820 million pounds for July through December 2006—an increase of 119 percent.

Increasing the maximum transportation credit assessment rate for the Southeast order should not result in an unnecessary accumulation of funds. For the Southeast order, the record indicates that transportation credits paid in 2006 would have totaled $15,704,872 for the months of July through December and would have totaled $18,604,872 by including the months of January and February. This analysis is based on using the same MRF of $0.044 as in the Appalachian order analysis, paying of transportation credit claims on full loads of milk, and with the proposed Class I price adjustments. However, the assessment rate of $0.20 per cwt falls far short of the total revenue needed to pay all expected transportation credit claims. Even a $0.30 per cwt assessment may not generate sufficient revenue to meet all expected claims on full loads of supplemental milk. Nevertheless, a $0.30 cwt assessment is more likely to be sufficient to cover all expected transportation credit claims.

Determining those producers eligible to receive a transportation credit on their supplemental milk deliveries requires that the dairy farmer be located outside either the Appalachian or the Southeast marketing areas, the producer must not meet the Producer definition of the orders during more than 2 of the immediately preceding months of February through May, and not more than 50 percent of the milk production of the dairy farmer during those 2 months, in aggregate, can be received as producer milk under the order during those 2 months.

DCMA has proposed that these requirements for the Appalachian and Southeast orders be made more flexible without substantially changing the identification of milk that is not a regular part of the supply of milk to the two orders. Specifically proposed is that a dairy farmer must not be a producer on the orders for more than 45 of the 92 days in the months March through May or must have less than 50 percent of the producer's milk pooled on the orders during those 3 months combined. On the basis of record testimony, this change is warranted. Specifically, it represents a change that provides flexibility in identifying supplemental milk producers and may result in lower operational costs to those producers incurring the costs of supplying supplemental milk to the Appalachian and Southeast marketing areas. Additionally, prior to the interim adoption, February was a month used to determine the qualification of supplemental milk producers to be eligible for a transportation credit payment. Since this decision adopts providing for the month of February as a month in which transportation credit payments can be made, it is necessary to redefine the months that a producer may qualify to receive transportation credits on either order.

The hearing record reveals that fluctuations in the volumes of milk pooled on the Appalachian, Southeast, and Florida orders can be attributed to a combination of declining milk supplies and the tightening of diversion limits in all three marketing areas. This combination can reduce market administrator revenues to a level too low for the proper administration of the orders while maintaining the mandated reserve level. The adoption of Proposals 4, 5, and 6 will create a more stable revenue stream for the administration of the three southeastern orders.

It is reasonable to increase the maximum administrative assessment rate to $0.08 per cwt in the Appalachian, Southeast and Florida orders to ensure that the market administrators have the proper funds to carry out all of the services provided by the three marketing areas. While the maximum administrative assessment rate is increased to $0.08 per cwt in the Appalachian, Southeast, and Florida orders, the actual rate charged will only be as high as necessary to properly administer the orders and provide necessary services to market participants.

Conforming changes were made to 7 CFR 1000.50 Class prices, component prices, and advanced pricing factors. Specifically, the Class I skim milk price and the Class I butterfat price provisions were changed to conform to the amendments adopted in this proceeding as provided for in Proposal 7 of the hearing notice. The changes made to 7 CFR 1000.50 (b) and (c) included reference to the adjustments adopted to Class I prices specified in 7 CFR 1005.51(b), 1006.51(b), and 1007.51(b). The conforming changes were presented in the partial tentative final decision (73 FR 11194) and implemented by the interim final rule (73 FR 14153).

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

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

The following findings are hereby made with respect to the aforesaid marketing agreements and orders:

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

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

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

In arriving at the findings and conclusions, and the regulatory provisions of this decision, each of the exceptions received was carefully and fully considered in conjunction with the record evidence. To the extent that the findings, conclusions, and regulatory provisions of this decision are at variance with any of the exceptions, such exceptions are hereby overruled for the reasons previously stated in this decision.

Annexed hereto and made a part hereof are two documents—a Marketing Agreement regulating the handling of milk and an Order Amending the Order regulating the handling of milk in the Appalachian, Florida, and Southeast marketing areas, that was approved by producers and published in the Federal Register on March 17, 2008 (73 FR 14153) and on May 9, 2008 (73 FR 26513) as an Interim Final Rule and Correcting Amendments, respectively. These documents have been decided upon as the detailed and appropriate means of effectuating the foregoing conclusions.

It is hereby ordered that this entire decision and the Marketing Agreement annexed hereto be published in the Federal Register .

The month of July 2013 is hereby determined to be the representative period for the purpose of ascertaining whether the issuance of the order, as amended and as hereby proposed to be amended, regulating the handling of milk in the Appalachian, Southeast, and Florida marketing areas is approved or favored by producers, as defined under the terms of the order as hereby proposed to be amended, who during such representative period were engaged in the production of milk for sale within the aforesaid marketing area.

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

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

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

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

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

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

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

It is therefore ordered, that on and after the effective date hereof, the handling of milk in the Appalachian, Florida, and Southeast marketing areas shall be in conformity to and in compliance with the terms and conditions of the orders, as amended, and as hereby amended, as follows:

The provisions of the order amending the orders contained in the interim amendments of the orders issued by the Administrator, Agricultural Marketing Service, on March 12, 2008, and published in the Federal Register on March 17, 2008, (72 FR 14153) and as corrected in the correcting amendments issued May 6, 2008, and published May 9, 2008, (73 FR 26513) are adopted and shall be the terms and provisions of these orders.

For the reasons set forth in the preamble, 7 CFR parts 1005, 1006 and 1007 are proposed to be amended as follows:

Draft SFST-ISG-26A proposed guidance for the NRC staff to use when reviewing the shielding and radiation protection portions of applications for certificates of compliance (CoC), specific licenses, and amendments submitted in accordance with part 72 of Title 10 of the Code of Federal Regulations (10 CFR), “Licensing Requirements for the Independent Storage of Spent Nuclear Fuel, High-Level Radioactive Waste, and Reactor-Related Greater Than Class C Waste,” (10 CFR part 72) Subpart L, “Approval of Spent Fuel Storage Casks,” and Subpart B, “License Application, Form, and Contents.” Draft SFST-ISG-26A proposed to revise the shielding and radiation protection review procedures contained in NUREG-1536, Revision 1, “Standard Review Plan for Spent Fuel Dry Storage Systems at a General License Facility,” and NUREG-1567, “Standard Review Plan for Spent Fuel Dry Storage Facilities.”

The staff began writing draft SFST-ISG-26A as a response to an event involving the use of a high dose-rate transfer cask. Its first intent was to provide reviewers guidance on how to review these systems. The scope had been expanded to also provide NRC reviewers with guidance on performing graded reviews based on system dose rates which modify the review “priority” as defined in NUREG-1536. The staff developed this part of the ISG in response to industry comments regarding the amount of details the staff reviewed in response to a 10 CFR part 72 license, certificate or amendment application.

The staff published a notice of opportunity for public comment on draft SFST-ISG-26A in the Federal Register on March 29, 2013 (78 FR19148). The staff received two comments, with each commenter raising a significant number of substantive issues which has caused the staff to reconsider the need for and the clarity of the guidance.

The staff considered the comments and has decided to defer pursuing action on the draft ISG. Thus, draft SFST-ISG-26A is being withdrawn. From the comments received, the staff concluded that the guidance as written is not clear and would require substantial revision to be well understood as well as meet the needs of the staff. Although the staff still finds that guidance regarding the issues addressed in draft SFST-ISG-26A would be useful, especially in relation to high dose-rate transfer casks, there are recent developments that also touch on some of these issues that the staff finds are appropriate to pursue in lieu of the ISG. This includes the staff's consideration of a petition to make changes to 10 CFR Part 72 (PRM-72-7) and the staff's consideration of an update to NUREG-1745, “Standard Format and Content for Technical Specifications for 10 CFR part 72 Cask Certificates of Compliance.”

The staff finds withdrawing the draft ISG is appropriate considering the initiating event that caused the staff to write draft SFST-ISG-26A has thus far been an isolated event from several years ago, and the staff has not seen any applications for the use of high dose-rate transfer casks since then. However, the staff will continue to monitor for events or actions (particularly those involving transfer casks) that may indicate there is a need for the ISG prior to completion of, or in addition to, the other efforts.

With regard to the review procedure priority levels, the staff currently finds that the generic priority levels in NUREG-1536 sufficiently meet the staff's commitment of ensuring the appropriate level of effort for these reviews. However, the staff will also monitor the use of these procedures to determine any further need for enhancement.

We invite you to send any written relevant data, views, or arguments about this proposed AD. Send your comments to an address listed under the ADDRESSES section. Include “Docket No. FAA-2014-0137; Directorate Identifier 2013-NM-135-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this proposed AD. We will consider all comments received by the closing date and may amend this proposed AD based on those comments.

We will post all comments we receive, without change, to http://www.regulations.gov , including any personal information you provide. We will also post a report summarizing each substantive verbal contact we receive about this proposed AD.

The European Aviation Safety Agency (EASA), which is the Technical Agent for the Member States of the European Community, has issued EASA Airworthiness Directive 2013-0150, dated July 16, 2013 (referred to after this as the Mandatory Continuing Airworthiness Information, or “the MCAI”), to correct an unsafe condition for the specified products. The MCAI states:

You may examine the MCAI in the AD docket on the Internet at http://www.regulations.gov by searching for and locating it in Docket No. FAA-2014-0137.

Airbus has issued Mandatory Service Bulletins A300-32-0465, A300-32-6111, and A310-32-2147, all Revision 01, all dated April 25, 2013. The actions described in this service information are intended to correct the unsafe condition identified in the MCAI.

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

We estimate that this proposed AD affects 156 airplanes of U.S. registry.

We estimate the following costs to comply with this proposed AD:

In addition, we estimate that any necessary replacement would take about 9 work-hours for a cost of $765 per product. The cost of parts is minimal. We have no way of determining the number of aircraft that might need this action.

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

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

We determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed above, I certify this proposed regulation:

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

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

3. Will not affect intrastate aviation in Alaska; and

4. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

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

OSHA published a request for information (RFI) on December 09, 2013, on Process Safety Management and Prevention of Major Chemical Accidents (78 FR 73756) in response to Section 6(e) of Executive Order 13650: Improving Chemical Facility Safety and Security. The RFI notice requested comments by March 10, 2014. Section 6(a) of the Executive Order requests public input on options for policy, regulation, and standards modernization. The comment period for Section 6(a) runs until March 31, 2014. OSHA received comments from several stakeholders who are preparing responses to the Section 6(a) docket, as well as comments in response to the RFI. These stakeholders noted that much of the subject matter in Section 6(a) is similar to the subject matter addressed by the RFI. Accordingly, the stakeholders requested that the deadline for submitting comments to the RFI correspond to the deadline for the Section 6(a) comment period, which is March 31, 2014, thereby allowing them to prepare complete and accurate comments for both records. Therefore, to allow commenters adequate time to prepare complete and accurate comments to the RFI, OSHA is, with this notice, extending the deadline for submitting comments in response to the RFI to March 31, 2014. 1

David Michaels, Ph.D., MPH, Assistant Secretary of Labor for Occupational Safety and Health, U.S. Department of Labor, 200 Constitution Avenue NW., Washington, DC 20210, authorized the preparation of this notice pursuant to 29 U.S.C. 653, 655, 657, 40 U.S.C. 333, 33 U.S.C. 941, Secretary of Labor's Order No. 1-2012 (77 FR 3912, Jan. 25, 2012), and 29 CFR part 1911.

This proposed rule concerns Clean Air Act (CAA) restrictions on the consumption, production, and use of methyl bromide (a Class I, Group VI controlled substance) for critical uses during calendar years 2014 and 2015. Under the Clean Air Act, methyl bromide consumption (consumption is defined under section 601 of the CAA as production plus imports minus exports) and production were phased out on January 1, 2005, apart from allowable exemptions, such as the critical use and the quarantine and preshipment (QPS) exemptions. With this action, EPA is proposing and seeking comment on the uses that will qualify for the critical use exemption as well as specific amounts of methyl bromide that may be produced and imported for proposed critical uses for the 2014 and 2015 control periods. EPA also seeks comment on the amendments to the regulatory framework to remove provisions related to sale of pre-phaseout inventory for critical uses.

Entities and categories of entities potentially regulated by this proposed action include producers, importers, and exporters of methyl bromide; applicators and distributors of methyl bromide; and users of methyl bromide that applied for the 2014 and 2015 critical use exemption including growers of vegetable crops, fruits, and nursery stock, and owners of stored food commodities and structures such as grain mills and processors. This list is not intended to be exhaustive, but rather to provide a guide for readers regarding entities likely to be regulated by this proposed action. To determine whether your facility, company, business, or organization could be regulated by this proposed action, you should carefully examine the regulations promulgated at 40 CFR part 82, subpart A. If you have questions regarding the applicability of this action to a particular entity, consult the person listed in the preceding section.

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

2. Tips for Preparing Your Comments. When submitting comments, remember to:

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

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

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

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

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

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

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

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

Methyl bromide is an odorless, colorless, toxic gas which is used as a broad-spectrum pesticide and is controlled under the CAA as a Class I ozone-depleting substance (ODS). Methyl bromide was once widely used as a fumigant to control a variety of pests such as insects, weeds, rodents, pathogens, and nematodes. Information on methyl bromide can be found at http://www.epa.gov/ozone/mbr.

Methyl bromide is also regulated by EPA under the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) and other statutes and regulatory authority, as well as by States under their own statutes and regulatory authority. Under FIFRA, methyl bromide is a restricted use pesticide. Restricted use pesticides are subject to Federal and State requirements governing their sale, distribution, and use. Nothing in this proposed rule implementing Title VI of the Clean Air Act is intended to derogate from provisions in any other Federal, State, or local laws or regulations governing actions including, but not limited to, the sale, distribution, transfer, and use of methyl bromide. Entities affected by this proposal must comply with FIFRA and other pertinent statutory and regulatory requirements for pesticides (including, but not limited to, requirements pertaining to restricted use pesticides) when producing, importing, exporting, acquiring, selling, distributing, transferring, or using methyl bromide. The provisions in this proposed action are intended only to implement the CAA restrictions on the production, consumption, and use of methyl bromide for critical uses exempted from the phaseout of methyl bromide.

The regulatory requirements of the stratospheric ozone protection program that limit production and consumption of ozone-depleting substances are in 40 CFR part 82, subpart A. The regulatory program was originally published in the Federal Register on August 12, 1988 (53 FR 30566), in response to the 1987 signing and subsequent ratification of the Montreal Protocol on Substances that Deplete the Ozone Layer (Montreal Protocol). The Montreal Protocol is the international agreement aimed at reducing and eliminating the production and consumption of stratospheric ozone-depleting substances. The United States was one of the original signatories to the 1987 Montreal Protocol and the United States ratified the Protocol in 1988. Congress then enacted, and President George H.W. Bush signed into law, the Clean Air Act Amendments of 1990 (CAAA of 1990) which included Title VI on Stratospheric Ozone Protection, codified as 42 U.S.C. Chapter 85, Subchapter VI, to ensure that the United States could satisfy its obligations under the Protocol. EPA issued regulations to implement this legislation and has since amended the regulations as needed.

Methyl bromide was added to the Protocol as an ozone-depleting substance in 1992 through the Copenhagen Amendment to the Protocol. The Parties to the Montreal Protocol (Parties) agreed that each developed country's level of methyl bromide production and consumption in 1991 should be the baseline for establishing a freeze on the level of methyl bromide production and consumption for developed countries. EPA published a final rule in the Federal Register on December 10, 1993 (58 FR 65018), listing methyl bromide as a Class I, Group VI controlled substance. This rule froze U.S. production and consumption at the 1991 baseline level of 25,528,270 kilograms, and set forth the percentage of baseline allowances for methyl bromide granted to companies in each control period (each calendar year) until 2001, when the complete phaseout would occur. This phaseout date was established in response to a petition filed in 1991 under sections 602(c)(3) and 606(b) of the CAAA of 1990, requesting that EPA list methyl bromide as a Class I substance and phase out its production and consumption. This date was consistent with section 602(d) of the CAAA of 1990, which, for newly listed Class I ozone-depleting substances provides that “no extension [of the phaseout schedule in section 604] under this subsection may extend the date for termination of production of any class I substance to a date more than 7 years after January 1 of the year after the year in which the substance is added to the list of class I substances.”

At the Seventh Meeting of the Parties (MOP) in 1995, the Parties agreed to adjustments to the methyl bromide control measures and agreed to reduction steps and a 2010 phaseout date for developed countries with exemptions permitted for critical uses. At that time, the United States continued to have a 2001 phaseout date in accordance with section 602(d) of the CAAA of 1990. At the Ninth MOP in 1997, the Parties agreed to further adjustments to the phaseout schedule for methyl bromide in developed countries, with reduction steps leading to a 2005 phaseout. The Parties also established a phaseout date of 2015 for Article 5 countries.

In October 1998, the U.S. Congress amended the Clean Air Act to prohibit the termination of production of methyl bromide prior to January 1, 2005, to require EPA to align the U.S. phaseout of methyl bromide with the schedule specified under the Protocol, and to authorize EPA to provide certain exemptions. These amendments were contained in Section 764 of the 1999 Omnibus Consolidated and Emergency Supplemental Appropriations Act (Pub. L. 105-277, October 21, 1998) and were codified in section 604 of the CAA, 42 U.S.C. 7671c. The amendment that specifically addresses the critical use exemption appears at section 604(d)(6), 42 U.S.C. 7671c(d)(6). EPA revised the phaseout schedule for methyl bromide production and consumption in a rulemaking on November 28, 2000 (65 FR 70795), which allowed for the reduction in methyl bromide consumption specified under the Protocol and extended the phaseout to 2005 while creating a placeholder for critical use exemptions. EPA amended the regulations to allow for an exemption for quarantine and preshipment (QPS) purposes through an interim final rule on July 19, 2001 (66 FR 37751), and a final rule on January 2, 2003 (68 FR 238).

On December 23, 2004 (69 FR 76982), EPA published a rule (the “Framework Rule”) that established the framework for the critical use exemption, set forth a list of approved critical uses for 2005, and specified the amount of methyl bromide that could be supplied in 2005 from stocks and new production or import to meet the needs of approved critical uses. EPA subsequently published rules applying the critical use exemption framework for each of the annual control periods from 2006 to 2012. In the 2013 rule, EPA amended the framework to remove certain requirements related to sale of pre-phaseout inventory for critical uses.

Under authority of section 604(d)(6) of the CAA, EPA is proposing the uses that will qualify as approved critical uses for two separate control periods (2014 and 2015) as well as the amount of methyl bromide that may be produced or imported to satisfy those uses in each of those years. EPA is also proposing to amend the regulatory framework to remove additional provisions related to sale of pre-phaseout inventory for critical uses. The proposed critical uses and amounts for 2014 reflect Decision XXIV/5, taken at the Twenty-Fourth Meeting of the Parties in November 2012. The proposed critical uses and amounts for 2015 reflect Decision XXV/4, taken at the Twenty-Fifth Meeting of the Parties in October 2013.

In accordance with Article 2H(5) of the Montreal Protocol, the Parties have issued several Decisions pertaining to the critical use exemption. These include Decisions IX/6 and Ex. I/4, which set forth criteria for review of critical uses. The status of Decisions is addressed in NRDC v. EPA, (464 F.3d 1, D.C. Cir. 2006) and in EPA's “Supplemental Brief for the Respondent,” filed in NRDC v. EPA and available in the docket for this proposed action. In this proposed rule on critical uses for 2014 and 2015, EPA is honoring commitments made by the United States in the Montreal Protocol context.

Article 2H of the Montreal Protocol established the critical use exemption provision. At the Ninth Meeting of the Parties in 1997, the Parties established the criteria for an exemption in Decision IX/6. In that Decision, the Parties agreed that “a use of methyl bromide should qualify as `critical' only if the nominating Party determines that: (i) The specific use is critical because the lack of availability of methyl bromide for that use would result in a significant market disruption; and (ii) there are no technically and economically feasible alternatives or substitutes available to the user that are acceptable from the standpoint of environment and health and are suitable to the crops and circumstances of the nomination.” EPA promulgated these criteria in the definition of “critical use” at 40 CFR 82.3. In addition, the Parties decided that production and consumption, if any, of methyl bromide for critical uses should be permitted only if a variety of conditions have been met, including that all technically and economically feasible steps have been taken to minimize the critical use and any associated emission of methyl bromide, that research programs are in place to develop and deploy alternatives and substitutes, and that methyl bromide is not available in sufficient quantity and quality from existing stocks of banked or recycled methyl bromide.

EPA requested critical use exemption applications through Federal Register notices published on June 14, 2011 (76 FR 34700) (for the 2014 control period) and on May 17, 2012 (77 FR 29341) (for the 2015 control period). Applicants submitted data on their use of methyl bromide, the technical and economic feasibility of using alternatives, ongoing research programs into the use of alternatives in their sector, and efforts to minimize use and emissions of methyl bromide.

EPA reviews the data submitted by applicants, as well as data from governmental and academic sources, to establish whether there are technically and economically feasible alternatives available for a particular use of methyl bromide, and whether there would be a significant market disruption if no exemption were available. In addition, an interagency workgroup reviews other parameters of the exemption applications such as dosage and emissions minimization techniques and applicants' research or transition plans. As required in section 604(d)(6) of the CAA, for each exemption period, EPA consults with the United States Department of Agriculture (USDA) and other departments and institutions of the Federal government that have regulatory authority related to methyl bromide. This assessment process culminates in the development of the U.S. critical use nomination (CUN). Annually since 2003, the U.S. Department of State has submitted a CUN to the United Nations Environment Programme (UNEP) Ozone Secretariat. The Methyl Bromide Technical Options Committee (MBTOC) and the Technology and Economic Assessment Panel (TEAP), which are advisory bodies to Parties to the Montreal Protocol, review each Party's CUN and make recommendations to the Parties on the nominations. The Parties then make Decisions on the authorization of critical use exemptions for particular Parties, including how much methyl bromide may be supplied for the exempted critical uses. EPA then provides an opportunity for public comment on the amounts and specific uses of methyl bromide that the agency is proposing to exempt.

On January 31, 2012, the United States submitted the tenth Nomination for a Critical Use Exemption for Methyl Bromide for the United States of America to the Ozone Secretariat of UNEP. This nomination contained the request for 2014 critical uses. In February 2012, MBTOC sent questions to the United States concerning technical and economic issues in the 2014 nomination. The United States transmitted responses to MBTOC in March, 2012. In May 2012, the MBTOC provided their interim recommendations on the U.S. nomination in the May TEAP Progress Report. In that report, MBTOC posed questions about the U.S. nominations for dried fruit, dried cured ham, and strawberries. The United States responded to those questions in August 2012. These documents, together with reports by the advisory bodies noted above, are in the public docket for this rulemaking. The proposed critical uses and amounts reflect the analysis contained in those documents.

On January 24, 2013, the United States submitted the eleventh Nomination for a Critical Use Exemption for Methyl Bromide for the United States of America to the Ozone Secretariat of UNEP. This nomination contained the request for 2015 critical uses. In February and March 2013, MBTOC sent questions to the United States concerning technical and economic issues in the 2015 nomination. The United States transmitted responses to MBTOC in March, 2013. In May 2013, the MBTOC provided its interim recommendations on the U.S. nomination in the May TEAP Progress Report and posed additional questions about the U.S. nominations. The United States responded to those questions in August 2013. These documents, together with reports by the advisory bodies noted above, are in the public docket for this rulemaking. The proposed critical uses and amounts reflect the analyses contained in those documents.

The December 23, 2004, Framework Rule established the framework for the critical use exemption program in the United States, including definitions, prohibitions, trading provisions, and recordkeeping and reporting obligations. The preamble to the Framework Rule included EPA's determinations on key issues for the critical use exemption program.

Since publishing the Framework Rule, EPA has annually promulgated regulations to exempt specific quantities of production and import of methyl bromide, to determine the amounts that may be supplied from pre-phaseout inventory, and to indicate which uses meet the criteria for the exemption program for that year. See 71 FR 5985 (February 6, 2006), 71 FR 75386 (December 14, 2006), 72 FR 74118 (December 28, 2007), 74 FR 19878 (April 30, 2009), 75 FR 23167 (May 3, 2010), 76 FR 60737 (September 30, 2011), 77 FR 29218 (May 17, 2012), and 78 FR 43797 (July 22, 2013).

Unlike in previous years, EPA today proposes critical uses for both 2014 and 2015. EPA is proposing to do so to expedite the issuance of 2015 allowances. EPA has received repeated comments in recent years that a failure to issue CUE allowances in a timely fashion places manufacturers and distributors, who need to plan for the upcoming growing season, in a difficult position. For 2013, the final rule was not effective until July 22, 2013, and EPA recognizes that this late date could cause difficulties for growers as well as manufacturers and distributors. EPA seeks to avoid such difficulties for 2015 by issuing the authorization for that year in this rulemaking.

Today's proposed action continues the approach established in the 2013 rule for determining the amounts of Critical Use Allowances (CUAs) to be allocated for critical uses. A CUA is the privilege granted through 40 CFR part 82 to produce or import 1 kilogram (kg) of methyl bromide for an approved critical use during the specified control period. A control period is a calendar year. See 40 CFR 82.3. The two control periods at issue in this rule are 2014 and 2015. Each year's allowances expire at the end of that control period and, as explained in the Framework Rule, are not bankable from one year to the next.

The 2013 Rule also removed from the regulatory framework the restriction that limits the sale of inventory for critical uses through allocations of Critical Stock Allowances (CSA). A CSA was the right granted through 40 CFR part 82 to sell 1 kg of methyl bromide from inventory produced or imported prior to the January 1, 2005, phaseout date for an approved critical use during the specified control period. Under the framework, the sale of pre-phaseout inventories for critical uses in excess of the amount of CSAs held by the seller was prohibited. Today, EPA is proposing to remove all of the remaining provisions in 40 CFR part 82 related to critical stock allowances.

In Decision XXIV/5, taken in November 2012, the Parties to the Protocol agreed “to permit, for the agreed critical-use categories for 2014 set forth in table A of the annex to the present decision for each party, subject to the conditions set forth in the present decision and in decision Ex.I/4 to the extent that those conditions are applicable, the levels of production and consumption for 2014 set forth in table B of the annex to the present decision, which are necessary to satisfy critical uses . . .” The following uses are those set forth in table A of the annex to Decision XXIV/5 for the United States:

In Decision XXV/4, taken in October 2013, the Parties to the Protocol agreed “[t]o permit, for the agreed critical-use categories for 2015 set forth in table A of the annex to the present decision for each party, subject to the conditions set forth in the present decision and in decision Ex.I/4 to the extent that those conditions are applicable, the levels of production and consumption for 2015 set forth in table B of the annex to the present decision, which are necessary to satisfy critical uses . . .” The following uses are those set forth in table A of the annex to Decision XXV/4 for the United States:

EPA is proposing to modify the table in 40 CFR part 82, subpart A, appendix L to reflect the agreed critical use categories identified in Decision XXIV/5 and Decision XXV/4. EPA is proposing to amend the table of critical uses and critical users based on the authorizations in Decision XXIV/5 and Decision XXV/4 and the technical analyses contained in the 2014 and 2015 U.S. nominations that assess data submitted by applicants to the CUE program.

EPA is seeking comment on the technical analyses contained in the U.S. nominations (available for public review in the docket). Specifically, EPA requests information regarding any changes to the registration (including cancellations or registrations), use, or efficacy of alternatives that have occurred after the nominations were submitted. EPA recognizes that as the market for alternatives evolves, the thresholds for what constitutes “significant market disruption” or “technical and economic feasibility” may change. Such information has the potential to alter the technical or economic feasibility of an alternative and could thus cause EPA to modify the analysis that underpins EPA's determination as to which uses and what amounts of methyl bromide qualify for the CUE.

The following are proposed changes to the existing appendix, starting with changes due to the applications and analysis conducted for the 2014 control period. For 2014, EPA is proposing to remove Georgia growers of cucurbits, eggplants, peppers, and tomatoes. These groups did not submit applications for 2014 and therefore were not included in the 2014 U.S. nomination.

EPA is proposing to remove sectors or users that applied for a critical use in 2014 but that the United States did not nominate for 2014. EPA conducted a thorough technical assessment of each application and considered the effects that the loss of methyl bromide would have for each agricultural sector, and whether significant market disruption would occur as a result. As a result of this technical review, the United States Government (USG) determined that certain sectors or users did not meet the critical use criteria in Decision IX/6 and the United States therefore did not include them in the 2014 Critical Use Nomination. EPA notified these sectors of their status by letters dated February 7, 2012. These sectors are orchard replant for California wine grape growers and Florida growers of eggplants, peppers, and tomatoes. For each of these uses, EPA found that there are technically and economically feasible alternatives to methyl bromide.

Some sectors that were not included in the 2014 Critical Use Nomination submitted supplemental applications for 2014. These sectors are: The California Association of Nursery and Garden Centers; California stone fruit, table and raisin grape, walnut, and almond growers; ornamental growers in California and Florida; California strawberry nurseries; stored walnuts; and the U.S. Golf Course Superintendents Association. For those sectors the USG came to a decision that the sectors not nominated have not provided rigorous and convincing evidence that they meet the criteria laid out in Decision IX/6, and further that no new problem or large yield/quality loss had been demonstrated that warranted seeking a supplemental authorization from the Parties to the Montreal Protocol.

The following are proposed changes to the existing appendix due to the applications and analysis conducted for the 2015 control period. For 2015 EPA is proposing to remove California wine grape growers and Florida growers of eggplants, peppers, tomatoes, and strawberries. These groups did not submit applications for 2015 and therefore were not included in the 2015 U.S. nomination.

EPA is proposing to remove sectors or users that applied for a critical use in 2015 but that the United States did not nominate for 2015. As described above EPA conducted a thorough technical assessment of each application and the USG determined that certain sectors or users did not meet the critical use criteria. EPA notified these sectors of their status by letters dated March 26, 2013. These sectors are rice millers, pet food manufacturing facilities, members of the North American Millers Association, and California entities storing walnuts, dried plums, figs, and raisins. In addition, EPA is proposing to remove entities storing dates as a critical use for 2015. While the United States nominated this sector for 2015, MBTOC did not recommend that this sector be a critical use in 2015 and the Parties did not authorize this use.

EPA has received supplemental applications for 2015 from sectors that the United States did not nominate for 2015. These sectors are: Michigan cucurbit, eggplant, pepper, and tomato growers; Florida eggplant, pepper, tomato, and strawberry growers; the California Association of Nursery and Garden Centers; California stone fruit, table and raisin grape, walnut, and almond growers; ornamental growers in California and Florida; the U.S. Golf Course Superintendents Association; and stored walnuts, dried plums, figs, and raisins in California. The USG is currently reviewing these supplemental applications for 2015 and EPA is not proposing at this time to authorize critical use for these sectors. EPA is not proposing at this time to authorize critical use for these sectors but may take future action as appropriate.

Finally, EPA is adding information to Column B of appendix L to clarify which critical uses are approved for which control periods. EPA is not proposing other changes to the table but is repeating the following clarifications made in previous years for ease of reference. The “local township limits prohibiting 1,3-dichloropropene” are prohibitions on the use of 1,3-dichloropropene products in cases where local township limits on use of this alternative have been reached. In addition, “pet food” under subsection B of Food Processing refers to food for domesticated dogs and cats. Finally, “rapid fumigation” for commodities refers to instances in which a buyer provides short (two working days or fewer) notification for a purchase or there is a short period after harvest in which to fumigate and there is limited silo availability for using alternatives.

Table A of the annex to Decision XXIV/5 lists critical uses and amounts agreed to by the Parties to the Montreal Protocol for 2014. The maximum amount of new production and import for U.S. critical uses, specified in Table B of Decision XXIV/5, is 442,337 kg, minus available stocks. This figure is equivalent to 1.7% of the U.S. 1991 methyl bromide consumption baseline of 25,528,270 kg.

Similarly, Table A of the annex to Decision XXV/4 lists critical uses and amounts agreed to by the Parties to the Montreal Protocol for 2015. The maximum amount of new production and import for U.S. critical uses, specified in Table B of Decision XXV/4, is 376,900 kg, minus available stocks. This figure is equivalent to 1.5% of the U.S. 1991 methyl bromide consumption baseline.

For 2014 and 2015, EPA is proposing to determine the level of new production and import according to the framework and as modified by the 2013 Rule. Under this approach, the amount of new production for each control period would equal the total amount authorized by the Parties to the Montreal Protocol in their Decisions minus any reductions for available stocks, carryover, and the uptake of alternatives. These terms (available stocks, carryover, and the uptake of alternatives) are discussed in detail below. As established in the 2013 Rule, EPA would not allocate critical stock allowances. EPA would still determine whether there are any “available stocks” and reduce the new production allocation by that amount. Applying this approach, EPA is proposing to allocate allowances to exempt 442,337 kg of new production and import of methyl bromide for critical uses in 2014 and 376,900 kg of new production and import for 2015.

Available Stocks: For 2014 and 2015 the Parties indicated that the United States should use “available stocks,” but did not indicate a minimum amount expected to be taken from stocks. Consistent with EPA's past practice, EPA is considering what amount, if any, of the existing stocks may be available to critical users during 2014 and 2015. The amount of existing stocks reported to EPA as of December 31, 2012, was 627,066 kg.

The Parties to the Protocol recognized in their Decisions that the level of existing stocks may differ from the level of available stocks. Both Decision XXIV/5 and Decision XXV/4 state that “production and consumption of methyl bromide for critical uses should be permitted only if methyl bromide is not available in sufficient quantity and quality from existing stocks. . . .” In addition, the Decisions recognize that “parties operating under critical-use exemptions should take into account the extent to which methyl bromide is available in sufficient quantity and quality from existing stocks. . . .” Earlier Decisions also refer to the use of “quantities of methyl bromide from stocks that the Party has recognized to be available.” Thus, it is clear that individual Parties may determine their level of available stocks. Section 604(d)(6) of the CAA does not require EPA to adjust the amount of new production and import to reflect the availability of stocks; however, as explained in previous rulemakings, making such an adjustment is a reasonable exercise of EPA's discretion under this provision.

In the 2013 CUE Rule (78 FR 43797, July 22, 2013), EPA established an approach that considered whether a percentage of the existing inventory was available. In that rule, EPA took comment on whether 0% or 5% of the existing stocks was available. The final rule found that 0% was available to be allocated for critical use in 2013 for a number of reasons including: A pattern of significant underestimation of inventory drawdown; the increasing concentration of critical users in California while inventory remained distributed nationwide; and the recognition that the agency cannot compel distributors to sell inventory to critical users. For further discussion, please see the 2013 CUE Rule. EPA believes these circumstances remain true for 2014 and 2015.

In addition, the 2013 CUE Rule removed the restriction that critical stock allowances be expended to sell inventory to critical uses. As a result, for the first time in the history of the CUE program, distributors were free to sell their entire remaining inventory to critical users. At this time, EPA is unable to calculate what effect this policy change may have had on the remaining inventory, although the agency will docket end of year inventory data that will be reported to EPA in February 2014. EPA notes that it may be difficult to assess the impact of this change, which went into effect in mid-2013, simply from updated inventory data. EPA solicits comments on whether, and how, to draw inferences as to the availability of stocks for critical uses based on inventory figures as of December 31, 2013, (e.g., whether the magnitude of the reduction in pre-phaseout stocks could be evidence of the degree of availability for critical uses).

For these reasons, EPA is proposing to find 0% of the existing inventory available for 2014 and 2015. EPA specifically invites comment on whether 0% or 5% of existing inventory will be available to critical users in 2014 and/or 2015, taking into consideration the recent history of inventory drawdown, the removal of the critical stock allowance provisions, the quantity and geographical location of authorized uses, and the quantity and location of stocks.

Existing stocks, as of December 31, 2012, were equal to 627,066 kg. Therefore, 5% would be 31,353 kg. Were EPA to find 5% of existing stocks to be available, EPA would reduce the amount of new production for 2014 and/or for 2015 by 31,353 kg. EPA notes that it is not proposing to allocate a corresponding amount of critical stock allowances, as had been the case prior to 2013. EPA removed the requirement to expend critical stock allowances when selling inventory to critical users in the 2013 CUE Rule. EPA notes that it will receive updated end of year inventory data in February 2014. EPA anticipates that inventory will have been further drawn down, and therefore 5% of the existing stocks, based on the updated data, is likely to be significantly less than 31,353 kg. EPA solicits comment on whether, if EPA concludes some portion of existing stocks are “available,” EPA should calculate the portion that is available for 2014 and/or 2015 based on the updated data for inventory as of December 31, 2013.

Carryover Material: The Parties in paragraph 9 of Decision XXIV/5 “urge parties operating under critical-use exemptions to put in place effective systems to discourage the accumulation of methyl bromide produced under the exemptions.” EPA regulations prohibit methyl bromide produced or imported after January 1, 2005, under the critical use exemption from being added to the existing pre-2005 inventory. Quantities of methyl bromide produced, imported, exported, or sold to end-users under the critical use exemption in a control period must be reported to EPA the following year. EPA uses these reports to calculate the amount of methyl bromide produced or imported under the critical use exemption, but not exported or sold to end-users in that year. EPA deducts an amount equivalent to this “carryover” from the total level of allowable new production and import in the year following the year of the data report. So for example, the amount of carryover from 2012 is factored into the determination for 2014. Carryover material (which is produced using critical use allowances) is not included in EPA's definition of existing inventory (which applies to pre-2005 material) because this would lead to a double-counting of carryover amounts.

All critical use methyl bromide that companies reported to be produced or imported in 2012 was sold to end users. 759 MT of critical use methyl bromide was produced or imported in 2012. Slightly more than the amount produced or imported was actually sold to end-users. This additional amount was from distributors selling material that was carried over from the prior control period. Therefore, EPA is proposing to apply the carryover deduction of 0 kg to the new production amount for 2014. EPA's calculation of the amount of carryover at the end of 2012 is consistent with the method used in previous CUE rules, and with the format in Decision XVI/6 for calculating column L of the U.S. Accounting Framework. Past U.S. Accounting Frameworks, including the one for 2012, are available in the public docket for this rulemaking.

Production, import, and sales data for 2013 will be reported to EPA in February 2014. Without these data, the agency is unable to calculate how, or whether, a reduction for carryover would affect the 2015 allocation amount. However, EPA anticipates that the carryover will remain 0 kg, as it has been at that level since 2009. Based on information available, EPA believes that the demand for critical use methyl bromide continues to be high and all material produced or imported for a particular control period is sold in that control period. Therefore, while the proposed allocation amount for 2015 assumes 0 kg of carryover in 2013, EPA proposes to use the reported data to calculate the actual carryover amount for 2013, and subtract that amount (if any) from the authorization for new production and import in the final rule.

Uptake of Alternatives: EPA considers data on the availability of alternatives that it receives following submission of each nomination to UNEP. In previous rules EPA has reduced the total CUE amount when a new alternative has been registered and increased the new production amount when an alternative is withdrawn, but not above the amount authorized by the Parties.

Since the United States submitted the 2014 CUN on January 31, 2012, the California Department of Pesticide Regulation has proposed control measures for the use of chloropicrin with the intent of reducing risk from acute exposures that might occur near fields fumigated with products containing chloropicrin. Because this regulation is at the proposed stage and has not been finalized, EPA is unable to state what effects these changes may have on the availability of methyl bromide alternatives for 2014. It is more likely that the proposed changes to the chloropicrin regulation would affect the 2015 control period and EPA specifically invites comments on the implications for 2015. However EPA is not proposing to make any reductions for either the 2014 or 2015 control periods because of these uncertainties. The critical use exemption program has historically only relied on final actions when determining the availability of alternatives. EPA is not aware of any other actions regarding alternatives that would lead to either an increase or decrease in 2014 and 2015.

EPA is not proposing to make any other modifications to CUE amounts to account for availability of alternatives. Rates of transition to alternatives have already been applied for authorized 2014 and 2015 critical use amounts through the nomination and authorization process. EPA will consider new data received during the comment period and continues to gather information about methyl bromide alternatives through the CUE application process, and by other means. EPA also continues to support research and adoption of methyl bromide alternatives, and to request information about the economic and technical feasibility of all existing and potential alternatives.

Allocation Amounts: EPA is proposing to allocate 2014 critical use allowances for new production or import of methyl bromide equivalent to 442,337 kg. Because EPA is taking comment on finding 5% of existing inventory to be available, EPA is also taking comment on an allocation of 410,984 kg. EPA is also proposing to allocate 2015 critical use allowances for new production or import of methyl bromide equivalent to 376,900 kg. EPA is also taking comment on whether it should find 5% of existing inventory to be available, which would result in an allocation of 345,547 kg. EPA is taking further comment on whether, if EPA concludes some portion of existing stocks are “available,” EPA should calculate the portion that is available for 2014 and/or 2015 based on the updated data for inventory to be submitted in February 2014.

EPA is proposing to allocate the 2014 and 2015 allowances to the four companies that hold baseline allowances. The proposed allocations, as in previous years, are in proportion to those baseline amounts, as shown in the proposed changes to the table in 40 CFR 82.8(c)(1). Paragraph 3 of Decision XXIV/5 and paragraph 5 of Decision XXV/4 state that “parties shall endeavour to license, permit, authorize or allocate quantities of methyl bromide for critical uses as listed in table A of the annex to the present decision.” This is similar to language in prior Decisions authorizing critical uses. These Decisions call on Parties to endeavor to allocate critical use methyl bromide on a sector basis. The proposed Framework Rule contained several options for allocating critical use allowances, including a sector-by-sector approach. The agency evaluated various options based on their economic, environmental, and practical effects. After receiving comments, EPA determined in the final Framework Rule that a lump-sum, or universal, allocation, modified to include distinct caps for pre-plant and post-harvest uses, was the most efficient and least burdensome approach that would achieve the desired environmental results, and that a sector-by-sector approach would pose significant administrative and practical difficulties. For the reasons discussed in the preamble to the 2009 CUE rule (74 FR 19894), and because of the limited number of authorized uses, the agency believes that under the approach adopted in the Framework Rule, the actual critical use will closely follow the sector breakout listed in the Parties' decisions.

The 2013 Rule removed the provisions at § 82.4(p)(ii) and (iii) requiring the use of critical stock allowances for sales of inventory to critical users. In addition, EPA made some necessary conforming changes to 40 CFR Part 82, which follow from removing those restrictions including removing the reference to the restriction on selling inventory pursuant to a CSA from the definition of “critical use methyl bromide.”

The 2013 Rule also stated that EPA believed additional conforming changes may be appropriate but that it would address those changes in a future rulemaking. Today EPA is proposing and taking comment on removing the remaining references to critical stock allowances in 40 CFR Part 82. EPA believes these provisions are no longer necessary if the agency is not allocating separate critical stock allowances. Specifically, EPA is proposing to remove the definitions of “critical stock allowance,” “critical stock allowance holder,” and “unexpended critical stock allowance” from § 82.3. EPA is proposing to no longer allow for the intercompany transfer of critical stock allowances at § 82.12(a)  1 or the exchange of critical use allowances for critical stock allowances at § 82.12(e). EPA is also proposing to remove the reporting and recordkeeping requirements related to critical stock allowances in § 82.13(3) and (4). EPA invites comment on the necessity of these provisions, the appropriateness of removing them from the Code of Federal Regulations, and whether there are other provisions that should be amended in light of the removal of the requirement to use critical stock allowances for sales of inventory to critical users.

In 2013 EPA held discussions with USDA and the Department of State on tools that could potentially address immediate and unforeseen needs for methyl bromide including whether emergency situations may arise that warrant the use of methyl bromide consistent with the treaty, recognizing that emergency uses are not intended as a replacement for CUE uses. In August, EPA held a stakeholder meeting to present, among other things, the findings of those discussions and noted that the three agencies had not yet identified any specific situations that could not be addressed by current mechanisms. The U.S. government is committed to using flexibility in the Protocol's existing mechanisms as an avenue to address changes in national circumstance that affect the transition to alternatives. EPA welcomes comments on specific emergency situations that may necessitate the use of methyl bromide, consistent with the requirements of the Montreal Protocol, and which could be difficult to address using current tools and authorities.

Decision XXIV/5 and Decision XXV/4 call on Parties to apply the conditions and criteria listed in Decisions Ex. I/4 (to the extent applicable) and IX/6 paragraph 1 to exempted critical uses for the 2014 and 2015 control periods. A discussion of the agency's application of the criteria in paragraph 1 of Decision IX/6 appears in sections V.A., and V.C. of this preamble. Section V.C. solicits comments on the technical and economic basis for determining that the uses listed in this proposed rule meet the criteria of the critical use exemption. The CUNs detail how each proposed critical use meets the criteria in paragraph 1 of Decision IX/6, apart from the criterion located at (b)(ii), as well as the criteria in paragraphs 5 and 6 of Decision Ex. I/4.

The criterion in Decision IX/6 paragraph (1)(b)(ii), which refers to the use of available stocks of methyl bromide, is addressed in section V.D. of this preamble. The agency has previously provided its interpretation of the criterion in Decision IX/6 paragraph (1)(a)(i) regarding the presence of significant market disruption in the absence of an exemption. EPA refers readers to the preamble to the 2006 CUE rule (71 FR 5989, February 6, 2006) as well as to the memo in the docket titled “Development of 2003 Nomination for a Critical Use Exemption for Methyl Bromide for the United States of America” for further elaboration. As explained in those documents, EPA's interpretation of this term has several dimensions, including looking at potential effects on both demand and supply for a commodity, evaluating potential losses at both an individual level and at an aggregate level, and evaluating potential losses in both relative and absolute terms.

The remaining considerations are addressed in the nomination documents including: The lack of available technically and economically feasible alternatives under the circumstance of the nomination; efforts to minimize use and emissions of methyl bromide where technically and economically feasible; the development of research and transition plans; and the requests in Decision Ex. I/4 paragraphs 5 and 6 that Parties consider and implement MBTOC recommendations, where feasible, on reductions in the critical use of methyl bromide and include information on the methodology they use to determine economic feasibility.

Some of these criteria are evaluated in other documents as well. For example, the United States has considered the adoption of alternatives and research into methyl bromide alternatives (see Decision IX/6 paragraph (1)(b)(iii)) in the development of the National Management Strategy submitted to the Ozone Secretariat in December 2005, updated in October 2009. The National Management Strategy addresses all of the aims specified in Decision Ex.I/4 paragraph 3 to the extent feasible and is available in the docket for this rulemaking.

There continues to be a need for methyl bromide in order to conduct the research required by Decision IX/6. A common example is an outdoor field experiment that requires methyl bromide as a standard control treatment with which to compare the trial alternatives' results. As discussed in the preamble to the 2010 CUE rule (75 FR 23179, May 3, 2010), research is a key element of the critical use process. Research on the crops shown in the table in Appendix L to subpart A remains a critical use of methyl bromide. While researchers may continue to use newly produced material for field, post-harvest, and emission minimization studies requiring the use of methyl bromide, EPA encourages researchers to use pre-phaseout inventory. EPA also encourages distributors to make inventory available to researchers, to promote the continuing effort to assist growers to transition critical use crops to alternatives.

Previous Decisions of the Parties have stated that critical users shall employ emission minimization techniques such as virtually impermeable films, barrier film technologies, deep shank injection and/or other techniques that promote environmental protection, whenever technically and economically feasible. EPA developed a comprehensive strategy for risk mitigation through the 2009 Reregistration Eligibility Decision (RED) for methyl bromide, which is implemented through restrictions on how methyl bromide products can be used. This approach means that methyl bromide labels require that treated sites be tarped (except for California orchard replant where EPA instead requires deep (18 inches or greater) shank applications). The RED also incorporated incentives for applicators to use high-barrier tarps, such as virtually impermeable film (VIF), by allowing smaller buffer zones around those sites. In addition to minimizing emissions, use of high-barrier tarps has the benefit of providing pest control at lower application rates. The amount of methyl bromide nominated by the United States reflects the lower application rates necessary when using high-barrier tarps, where such tarps are allowed.

EPA will continue to work with the U.S. Department of Agriculture—Agricultural Research Service (USDA-ARS) and the National Institute for Food and Agriculture (USDA-NIFA) to promote emission reduction techniques. The federal government has invested substantial resources into developing and implementing best practices for methyl bromide use, including emission reduction practices. The Cooperative Extension System, which receives some support from USDA-NIFA provides locally appropriate and project-focused outreach education regarding methyl bromide transition best practices. Additional information on USDA research on alternatives and emissions reduction can be found at: http://www.ars.usda.gov/research/programs/programs.htm?NP_CODE=308 and http://www.csrees.usda.gov/fo/methylbromideicgp.cfm .

Users of methyl bromide should continue to make every effort to minimize overall emissions of methyl bromide. EPA also encourages researchers and users who are using such techniques to inform EPA of their experiences and to provide such information with their critical use applications.

Under Executive Order (EO) 12866 (58 FR 51735, October 4, 1993), this proposal is a “significant regulatory action” because it was deemed to raise novel legal or policy issues. Accordingly, EPA submitted this action to the Office of Management and Budget (OMB) for review under Executive Orders 12866 and 13563 (76 FR 3821, January 21, 2011) and any changes made in response to interagency recommendations have been documented in the docket for this action.

This action does not impose any new information collection burden. The application, recordkeeping, and reporting requirements have already been established under previous critical use exemption rulemakings. This rule does propose to remove requirements related to the recordkeeping and reporting of critical stock allowances which would decrease the information collection burden. The Office of Management and Budget (OMB) has previously approved the information collection requirements contained in the existing regulations at 40 CFR part 82 under the provisions of the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. and has assigned OMB control number 2060-0482. The OMB control numbers for EPA's regulations in 40 CFR are listed in 40 CFR part 9.

The RFA generally requires an agency to prepare a regulatory flexibility analysis of any rule subject to notice-and-comment rulemaking requirements under the Administrative Procedure Act or any other statute unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. Small entities include small businesses, small organizations, and small governmental jurisdictions. For purposes of assessing the impacts of this rule on small entities, small entity is defined as: (1) A small business as defined by the Small Business Administration's regulations at 13 CFR 121.201 (see Table below); (2) a small governmental jurisdiction that is a government of a city, county, town, school district or special district with a population of less than 50,000; and (3) a small organization that is any not-for-profit enterprise which is independently owned and operated and is not dominant in its field.

Agricultural producers of minor crops and entities that store agricultural commodities are categories of affected entities that contain small entities. This proposed rule would only affect entities that applied to EPA for an exemption to the phaseout of methyl bromide. In most cases, EPA received aggregated requests for exemptions from industry consortia. On the exemption application, EPA asked consortia to describe the number and size distribution of entities their application covered. EPA estimated that 3,218 entities petitioned EPA for an exemption for the 2005 control period. EPA revised this estimate in 2011 down to 1,800 end users of critical use methyl bromide. EPA believes that the number continues to decline as growers cease applying for the critical use exemption. Since many applicants did not provide information on the distribution of sizes of entities covered in their applications, EPA estimated that, based on the above definition, between one-fourth and one-third of the entities may be small businesses. In addition, other categories of affected entities do not contain small businesses based on the above description.

After considering the economic impacts of this proposed rule on small entities, I certify that this action will not have a significant economic impact on a substantial number of small entities. In determining whether a rule has a significant economic impact on a substantial number of small entities, the impact of concern is any significant adverse economic impact on small entities, since the primary purpose of the regulatory flexibility analyses is to identify and address regulatory alternatives “which minimize any significant economic impact of the proposed rule on small entities.” (5 U.S.C. 603-604). Thus, an agency may certify that a rule will not have a significant economic impact on a substantial number of small entities if the rule relieves a regulatory burden, or otherwise has a positive economic effect on all of the small entities subject to the rule. Since this rule would allow the use of methyl bromide for approved critical uses after the phaseout date of January 1, 2005, this action would confer a benefit to users of methyl bromide. EPA estimates in the Regulatory Impact Assessment found in the docket to this rule that the reduced costs resulting from the de-regulatory creation of the exemption are approximately $22 million to $31 million on an annual basis (using a 3% or 7% discount rate respectively). We have therefore concluded that this proposed rule would relieve regulatory burden for all small entities.

This action contains no Federal mandates under the provisions of Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), 2 U.S.C. 1531-1538 for State, local, or tribal governments or the private sector. The action imposes no enforceable duty on any State, local or tribal governments or the private sector. Instead, this action would provide an exemption for the manufacture and use of a phased out compound and would not impose any new requirements on any entities. Therefore, this action is not subject to the requirements of sections 202 or 205 of the UMRA. This action is also not subject to the requirements of section 203 of UMRA because it contains no regulatory requirements that might significantly or uniquely affect small governments.

This action does not have federalism implications. It will not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132. This proposed rule is expected to affect producers, suppliers, importers, and exporters and users of methyl bromide. Thus, Executive Order 13132 does not apply to this proposed rule. In the spirit of Executive Order 13132, and consistent with EPA policy to promote communications between EPA and State and local governments, EPA specifically solicits comment on this proposed action from State and local officials.

This action does not have tribal implications, as specified in Executive Order 13175 (65 FR 67249, November 9, 2000). This rule does not significantly or uniquely affect the communities of Indian tribal governments nor does it impose any enforceable duties on communities of Indian tribal governments. Thus, Executive Order 13175 does not apply to this action. EPA specifically solicits additional comment on this proposed action from tribal officials.

This action is not subject to EO 13045 (62 FR 19885, April 23, 1997) because it is not economically significant as defined in EO 12866, and because the Agency does not believe the environmental health or safety risks addressed by this action present a disproportionate risk to children. This rule affects the level of environmental protection equally for all affected populations without having any disproportionately high and adverse human health or environmental effects on any population.

This proposed rule is not a “significant energy action” as defined in Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355 (May 22, 2001)) because it is not likely to have a significant adverse effect on the supply, distribution, or use of energy. This proposed rule does not pertain to any segment of the energy production economy nor does it regulate any manner of energy use. Therefore, we have concluded that this proposed rule is not likely to have any adverse energy effects.

Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (“NTTAA”), Public Law 104-113, 12(d) (15 U.S.C. 272 note) directs EPA to use voluntary consensus standards in its regulatory activities unless to do so would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards (e.g., materials specifications, test methods, sampling procedures, and business practices) that are developed or adopted by voluntary consensus standards bodies. NTTAA directs EPA to provide Congress, through OMB, explanations when the agency decides not to use available and applicable voluntary consensus standards. This proposed rulemaking does not involve technical standards. Therefore, EPA is not considering the use of any voluntary consensus standards.

Executive Order (EO) 12898 (59 FR 7629 (Feb. 16, 1994)) establishes federal executive policy on environmental justice. Its main provision directs federal agencies, to the greatest extent practicable and permitted by law, to make environmental justice part of their mission by identifying and addressing, as appropriate, disproportionately high and adverse human health or environmental effects of their programs, policies, and activities on minority populations and low-income populations in the United States.

EPA has determined that this proposed rule will not have disproportionately high and adverse human health or environmental effects on minority or low-income populations, because it affects the level of environmental protection equally for all affected populations without having any disproportionately high and adverse human health or environmental effects on any population, including any minority or low-income population. Any ozone depletion that results from this proposed rule will impact all affected populations equally because ozone depletion is a global environmental problem with environmental and human effects that are, in general, equally distributed across geographical regions in the United States.

For the reasons stated in the preamble, 40 CFR part 82 is proposed to be amended as follows:

The revised text reads as follows.

In 2003, LSC added a list of documents establishing the eligibility of aliens for legal assistance from LSC funding recipients as an appendix to part 1626. 68 FR 55540, Sept. 26, 2003. The appendix has not changed since 2003, although immigration documents and forms have changed and Congress has authorized LSC recipients to provide legal assistance to new categories of eligible aliens. LSC believes that the frequently changing nature of immigration documents and forms requires a more flexible and responsive means of informing recipients of the changes than the informal rulemaking process provides. Consequently, in a notice of proposed rulemaking published on August 21, 2013, LSC announced its intention to remove the appendix to part 1626 and publish the information contained in the appendix as a program letter. 78 FR 51696, Aug. 21, 2013. Because the initial revision of the appendix and reclassification as a program letter is a change to the regulation, it is being done pursuant to the LSC rulemaking protocol. As such, LSC is publishing the program letter in the Federal Register for public comment.

LSC published a FNPRM on February 5, 2014 proposing requesting comment on additional revisions to part 1626. 79 FR 6859, Feb. 5, 2014. The proposed program letter was intended to accompany the FNPRM. The comment period for this program letter will remain open for thirty days from the date of publication of the letter in the Federal Register . Because this document does not affect the substance of the FNPRM, the deadline for comments on the FNPRM will remain March 7, 2014.

LSC published a final rule revising 45 C.F.R. Part 1626, “Restrictions on Legal Assistance to Aliens,” on [DATE]. Revised Part 1626 was published without the Appendix. The information contained in the Appendix will be published instead as a Program Letter and an accompanying chart describing the categories of aliens eligible for legal assistance from LSC recipients and containing a non-exhaustive list of examples of acceptable documentation showing eligibility under Part 1626. These documents should be read together with Part 1626 in making eligibility determinations.

The documents identified as acceptable to establish eligibility fall into one of two categories: 1) documents regarding the immigration status of an alien; or 2) documents providing evidence that the alien has experienced qualifying abuse or otherwise meets the requirements of 45 C.F.R. § 1626.4 regarding the Violence Against Women Act (VAWA) and other anti-abuse statutes.

Victims of trafficking are covered by different provisions of 45 C.F.R. § 1626.4 depending on the nature of the trafficking activity. Recipients should determine whether an alien is a victim of trafficking under VAWA or section 101(a)(15)(U) of the Immigration and Nationality Act, or a victim of severe forms of trafficking under the Trafficking Victims Protection Act, 22 U.S.C. § 7101 et seq. The facts of an alien's situation may indicate that the alien is eligible for assistance under one or more of these statutes.

Eligibility for assistance based on qualifying for a U-visa or being a victim of severe forms of trafficking requires consideration of other statutory factors in addition to the qualifying crime. See 8 U.S.C. § 1101(a)(15)(U); 22 U.S.C. § 7105(b)(1)(C). Recipients must document that an alien meets all relevant statutory factors.

If you have any questions or concerns regarding this Program Letter or for further guidance, please contact LSC General Counsel Ronald S. Flagg. Additional information regarding the documentation contained in the chart can be found at the U.S. Customs and Immigration Service Web site ( http://www.uscis.gov ) and at the Anti-Trafficking in Persons Division of the Office of Refugee Resettlement within the Department of Health and Human Services Web site ( http://www.acf.hhs.gov/programs/orr/programs/anti-trafficking ).

Sections 101(a)(5)(A) and (D) of the MMPA (16 U.S.C. 1361 et seq. ) direct the Secretary of Commerce to allow, upon request, the incidental, but not intentional, taking of small numbers of marine mammals by U.S. citizens who engage in a specified activity (other than commercial fishing) within a specified geographical region if certain findings are made and either regulations are issued or, if the taking is limited to harassment, a notice of a proposed authorization is provided to the public for review.

Authorization for incidental takings shall be granted if NMFS finds that the taking will have a negligible impact on the species or stock(s), will not have an unmitigable adverse impact on the availability of the species or stock(s) for subsistence uses (where relevant), and if the permissible methods of taking and requirements pertaining to the mitigation, monitoring, and reporting of such takings are set forth. NMFS has defined “negligible impact” in 50 CFR 216.103 as “an impact resulting from the specified activity that cannot be reasonably expected to, and is not reasonably likely to, adversely affect the species or stock through effects on annual rates of recruitment or survival.”

The National Defense Authorization Act of 2004 (NDAA) (Pub. L. 108-136) removed the “small numbers” and “specified geographical region” limitations indicated above and amended the definition of “harassment” as it applies to a “military readiness activity” to read as follows (Section 3(18)(B) of the MMPA): (i) Any act that injures or has the significant potential to injure a marine mammal or marine mammal stock in the wild [Level A Harassment]; or (ii) Any act that disturbs or is likely to disturb a marine mammal or marine mammal stock in the wild by causing disruption of natural behavioral patterns, to a point where such behavioral patterns are abandoned or significantly altered [Level B Harassment].

On July 24, 2013, NMFS received an application from the Navy for the taking of marine mammals incidental to missile launches from San Nicolas Island (SNI). NMFS determined that the application was adequate and complete on November 18, 2013.

The Navy proposes to continue a launch program for missiles and targets from several launch sites on SNI. The proposed activity would occur between June 2014 and June 2019 and may involve up to 40 launches per year. Take, by Level B Harassment only, of individuals of northern elephant seal ( Mirounga angustirostris ), Pacific harbor seal ( Phoca vitulina ), and California sea lion ( Zalophus californianus ) is anticipated to result from the specified activity.

The Navy is currently operating under an authorization to take marine mammals incidental to missile launches from SNI, which expires June 2, 2014 (74 FR 26587).

The Navy plans to continue a launch program for missiles and targets from several launch sites on SNI. Missiles vary from tactical and developmental weapons to target missiles used to test defensive strategies and other weapons systems. Some launch events involve a single missile, while others involve the launch of multiple missiles either in quick succession or at intervals of a few hours. Up to 200 missiles may be launched over the 5-year period, but the number and type of launch varies depending on operational needs.

The purpose of these launches is to support testing and training activities associated with operations on the NAWCWD Point Mugu Sea Range. The Sea Range is used by the U.S. and allied military services to test and evaluate sea, land, and air weapon systems; to provide realistic training opportunities; and to maintain operational readiness of these forces. Some of the launches are used for practicing defensive drills against the types of weapons simulated by these missiles and some launches are conducted for the related purpose of testing new types of targets.

Launches of this type have been occurring at SNI for many years and are expected to continue indefinitely into the future. The Navy has requested a 5-year Letter of Authorization for missile launches taking place between June 2014 and June 2019. The timing of these launches is variable and subject to testing and training requirements and meteorological and logistical limitations. To meet the Navy's operational testing and training requirements, launches may be required at any time of year and any time of day. Up to 200 missiles (40 missiles per year) may be launched over the 5-year period and the Navy is proposing that up to 10 launches per year may occur at night. Given the launch acceleration and flight speed of the missiles, most launch events are of extremely short duration. Strong launch sounds are typically detectable near the surrounding beaches for no more than a few seconds per launch (Holst et al., 2005a, 2008, 2011).

SNI is one of the eight Channel Islands in the Southern California Bight, located about 105 kilometers (km) southwest of Point Mugu. Missile launches would occur from the western part of SNI (see Figure 2 in the Navy's LOA application). The missiles fly generally westward through the Point Mugu Sea Range. The primary launch locations are the Alpha Launch Complex, which is located on the west-central part of SNI, and Building 807 Launch Complex, which is located at the western end of SNI. Other launch pads are located nearby.

Missiles included in the Navy's request range from relatively small and quieter missiles like the Rolling Airframe Missile to larger and louder missiles like the Terrier Black-Brant. While other missiles may be launched in the future, the largest missile analyzed here is 23,000 kilograms (kg). The following is a description of the types of missiles that may be launched at SNI during the 5-year period.

Rolling Airframe Missile (RAM) —The Navy/Raytheon RAM is a supersonic, lightweight, quick-reaction missile. This relatively small missile uses the infrared seeker of the Stinger missile and the warhead, rocket motor, and fuse from the Sidewinder missile. It has a high-tech radio-to-infrared frequency guiding system. The RAM is a solid-propellant rocket 12.7 centimeters (cm) in diameter and 2.8 m long. Its launch weight is 73.5 kg, and operational versions have warheads that weigh 11.4 kg.

At SNI, RAMs are launched from the Building 807 Launch Complex, near the shoreline. Previous RAM launches have resulted in flat-weighted sound pressure levels up to 126 decibels (dB) near the launcher and 99 dB at a nearshore site located 1.6 km from the three-dimensional closest point of approach. Flat-weighted sound exposure level ranged from 84 to 97 dB reference 20 micropascals (20 μPa), and M-weighted sound exposure levels for pinnipeds in air ranged from 76 to 96 dB reference 20 micropascals squared per second (20 μPa 2 s). Peak pressure ranged from 104 to 117 dB re 20 μPa. The reference sound pressure (20 μPa) used here and throughout the document is standard for airborne sounds.

GQM-163A “Coyote” —The Coyote, designated GQM-163A, is an expendable SSST powered by a ducted-rocket ramjet. It has replaced the Vandal, which was used as the primary missile during launches from 2001 to 2005, and is similar in size and performance. The Coyote is capable of flying at low altitudes (4 m cruise altitude) and supersonic speeds (Mach 2.5) over a flight range of 83 km. This missile is designed to provide a ground launched aerial target system to simulate a supersonic, sea-skimming Anti-Ship Cruise missile threat. The SSST assembly consists of two primary subsystems: Mk 70 solid propellant booster and the GQM-163A target missile. The solid-rocket booster is about 46 centimeters (cm) in diameter and is of the type used to launch the Navy's “Standard” surface-to-air missile. The GQM-163A target missile is 5.5 m long and 36 cm in diameter, exclusive of its air intakes. It consists of a solid fuel Ducted Rocket (DR) ramjet subsystem, Control and Fairing Subassemblies, and the Front End Subsystem, which includes an explosive destruct system to terminate flight if required.

The Coyote uses the Vandal launcher, currently installed at the Alpha Launch Complex on SNI. Previous Coyote launches produced flat-weighted sound pressure levels ranging from 126 to 134 dB re μPa 2 s at distances of 0.8 to 1.7 km from the closest point of approach of the vehicle, and 82 to 93 dB at distances of 2.4 to 3.2 km. Flat-weighted sound exposure levels ranged from 87 to 119 dB re 20 μPa 2 s. M-weighted sound exposure levels ranged from 60 to 114 dB re20 μPa 2 s, and peak pressures ranged from 100 to 144 dB 20 μPa.

Multi-stage Sea Skimming Target (MSST) —The MSST is a subsonic cruise missile with a supersonic terminal stage that approaches its target at low-level at Mach 2.8. The MSST is expected to replace the Coyote as the primary target missile launched from SNI in the future. It consists of a subsonic winged “cruise bus,” which releases a supersonic “sprint vehicle” for terminal approach. The sprint vehicle is based on the Coyote target missile.

The MSST is launched from the Alpha Launch Complex on SNI. Previous MSST launches had flat-weighted sound pressure levels of 78.7 to 96.6 dB re 20 μPa and M-weighted sound exposure levels of 62.3 to 83.3 re 20 μPa 2 s at sites 1.3 to 2.7 km from the closest point of approach.

Terrier (Black Brant, Lynx, Orion) —The Terrier class missiles consist of the Terrier Mark 70 booster with a variety of second stage rockets (e.g., Terrier-Black Brant). The solid-rocket booster is about 46 cm in diameter, 394 cm long, and weighs 1,038 kg. The three most likely Terrier class missiles that would be launched include the Terrier-Black Brant, Terrier-Lynx, and Terrier-Orion. The Black Brant has a diameter of 44 cm, is 533 cm long, and weighs 1,265 kg. This missile reaches an altitude of 203 km and has a range of 264 km. Terrier burnout occurs after 6.2 seconds at an altitude of 3 km, and Black Brant burnout occurs after 44.5 seconds at an altitude of 37.7 km. The Lynx is 36 cm in diameter and 279 cm long. This missile reaches an altitude of 84 km and has a range of 99 km. Lynx burnout occurs after 58.5 seconds at 43.5 km. The Improved Orion motor is 36 cm in diameter and 280 cm long. On SNI, this class of missile target is typically launched vertically or near-vertically from the Building 807 Launch Complex. Since these missiles use the same Terrier MK 70 booster as the Coyote, launch sound levels are generally similar to those from the Coyote. Given the near-vertical launch elevation, sounds in the immediate vicinity may be prolonged, though the missile reaches high altitude very quickly after launch.

A Terrier-Orion produced a flat-weighted sound pressure level of 91 dB re 20 µPa, a flat-weighted sound exposure level of 96 dB 20 μPa 2 s, and an M-weighted sound exposure level of 92 dB re 20 μPa 2 s at a distance of 2.4 km from the closest point of approach. The peak pressure was 104 dB 20 μPa. During previous Terrier-Black Brant launches, the flat-weighted sound pressure level ranged from 102.7 to 115 dB, and M-weighted sound exposure level ranged from 106.5 to 118.4 dB at pinniped haul-out sites located at 0.6 to 1.3 km from the closest point of approach. Sounds near the launcher reached 134 dB flat-weighted sound pressure level and 132.3 dB 20 μPa 2 s M-weighted sound exposure level. During previous Terrier-Lynx launches, flat-weighted sound pressure level measured 85.9 to 114.4 dB re 20 μPa at sites located 0.6 to 5.1 km from the closest point of approach of the launched vehicle and M-weighted sound exposure levels ranged from 90.5 to 118 dB re 20 μPa.

RIM-161 Standard Missile 3 (SM-3) —The SM-3 is a ship-based missile system used to intercept short- to intermediate-range ballistic missiles as a part of Aegis Ballistic Missile Defense System. Although primarily designed as an anti-ballistic missile defensive weapon, the SM-3 has also been employed in an anti-satellite capacity against a satellite at the lower end of low Earth orbit. The SM-3 evolved from the proven SM-2 Block IV design. The SM-3 uses the same booster and dual thrust rocket motor as the Block IV missile for the first and second stages and the same steering control section and midcourse missile guidance for maneuvering in the atmosphere. To support the extended range of an exo-atmospheric intercept, additional missile thrust is provided in a new third stage for the SM-3 missile, containing a dual pulse rocket motor for the early exo-atmospheric phase of flight. Testing of SM-3 missiles may begin during this proposed authorization period and launch sounds are expected to be within the range of existing missiles.

Other Missile Launches —The Navy may also launch other missiles to simulate various types of threat missiles and aircraft, and to test other systems. For example, in 2002, a Tactical Tomahawk was launched from Building 807 Launch Complex. The Tomahawk produced a flat-weighted sound pressure level of 93 dB re 20 μPa, a flat-weighted sound exposure level of 107 dB re 20 μPa 2 s, and an M-weighted sound exposure level of 105 dB re 20 μPa 2 s at a distance of 539 m from the closest point of approach. The peak pressure was 111 dB 20 μPa. A Falcon was launched from the Alpha Launch Complex in 2006, producing a flat-weighted sound pressure level of 84 dB re 20 μPa, a flat-weighted sound exposure level of 88 dB 20 μPa 2 s, and an M-weighted sound exposure level of 82 dB re 20 μPa 2 s at a beach located north of the launch azimuth. Near the launcher, the flat-weighted sound pressure level was 128 dB re 20 μPa, the flat-weighted sound exposure level was 126 dB 20 μPa 2 s, and the M-weighted sound exposure level was 125 dB re 20 μPa 2 s.

Missiles of the BQM-34 or BQM-74 type could also be launched. These are small, unmanned aircraft that are launched using jet-assisted take-off rocket bottles and then continue offshore powered by small turbojet engines. The larger of these, the BQM-34, is 7 m long and has a mass of 1,134 kg plus the jet-assisted take-off rocket bottle. The smaller BQM-74 is up to 420 cm long and has a mass of 250 kg plus the solid propellant jet-assisted take-off rocket bottles. Burgess and Greene (1998) reported that A-weighted sound pressure levels ranged from 92 dBA re 20 μPa at a closest point of approach distance of 370 m, to 145 dB at 15 m for a launch in 1997. If launches of other missile types occur, they would be included within the total of 40 launches anticipated per year.

General Launch Operations —Aircraft and helicopter flights between the Point Mugu airfield on the mainland, the airfield on SNI, and the target sites in the Sea Range are a routine part of a planned launch operation. These flights generally do not pass at low level over the beaches where pinnipeds are expected to be hauled out. Therefore, these flights are not further considered in this document.

Movements of personnel are restricted near the launch sites at least several hours prior to a launch for safety reasons. No personnel are allowed on the western end of SNI during launches. Movements of personnel or missiles near the island's beaches are also restricted at other times of the year for purposes of environmental protection and preservation of cultural resource sites. Launch monitoring equipment would be deployed and activated prior to the launches.

There are seven species of marine mammals with possible or confirmed occurrence in the area of the specified activity: Northern elephant seals, harbor seals, California sea lion, northern fur seals ( Callorhinus ursinus ), Guadalupe fur seal ( Arctocephalus townsendi ), Steller sea lion ( Eumetopias jubatus ), and southern sea otter ( Enhydra lutris nereis ). The northern fur seal is considered depleted under the MMPA; the Guadalupe fur seal is listed as threatened under the Endangered Species Act (ESA) and depleted under the MMPA; and the eastern distinct population segment of Steller sea lion was delisted from the ESA in 2013. The northern fur seal, Guadalupe fur seal, and Steller sea lion are considered rare at SNI and takes of these species have not been observed under the Navy's current MMPA authorization. Therefore, these three species will not be considered further. The southern sea otter is managed by the U.S. Fish and Wildlife Service and is also not considered further in this proposed rule notice. Table 1 includes species-specific information on the three species likely to occur in the area of the specified activity.

Further information on the biology and local distribution of these species can be found in the Navy's application (see ADDRESSES ), and the NMFS Marine Mammal Stock Assessment Reports, which are available online at: http://www.nmfs.noaa.gov/pr/species/.

This section includes a summary and discussion of the ways that the types of stressors associated with the specified activity (e.g., missile launch noise) have been observed to impact marine mammals. This discussion may also include reactions that we consider to rise to the level of a take and those that we do not consider to rise to the level of a take (for example, with acoustics, we may include a discussion of studies that showed animals not reacting at all to sound or exhibiting barely measurable avoidance). This section is intended as a background of potential effects and does not consider either the specific manner in which this activity will be carried out or the mitigation that will be implemented, and how either of those will shape the anticipated impacts from this specific activity. The “Estimated Take by Incidental Harassment” section later in this document will include a quantitative analysis of the number of individuals that are expected to be taken by this activity. The “Negligible Impact Analysis” section will include the analysis of how this specific activity will impact marine mammals and will consider the content of this section, the “Estimated Take by Incidental Harassment” section, the “Proposed Mitigation” section, and the “Anticipated Effects on Marine Mammal Habitat” section to draw conclusions regarding the likely impacts of this activity on the reproductive success or survivorship of individuals and from that on the affected marine mammal populations or stocks.

Potential effects of the specified activity on marine mammals involve both acoustic and non-acoustic effects. Acoustic effects are related to sound produced by the engines of all launch vehicles, and, in some cases, their booster rockets. Potential non-acoustic effects could result from the physical presence of personnel during placement of video and acoustical monitoring equipment. However, careful deployment of monitoring equipment is not expected to result in any disturbance to pinnipeds hauled out nearby. Any visual disturbance caused by passage of a vehicle overhead is likely to be minor and brief as the launch vehicles are relatively small and move at great speed.

The effects of noise on marine mammals are highly variable, and can be categorized as follows (based on Richardson et al., 1995):

(1) The noise may be too weak to be heard at the location of the animal (i.e., lower than the prevailing ambient noise level, the hearing threshold of the animal at relevant frequencies, or both);

(2) The noise may be audible but not strong enough to elicit any overt behavioral response;

(3) The noise may elicit reactions of variable conspicuousness and variable relevance to the well-being of the marine mammal; these can range from temporary alert responses to active avoidance reactions, such as stampedes into the sea from terrestrial haul-out sites;

(4) Upon repeated exposure, a marine mammal may exhibit diminishing responsiveness (habituation), or disturbance effects may persist; the latter is most likely with sounds that are highly variable in characteristics, infrequent and unpredictable in occurrence (as are vehicle launches), and associated with situations that a marine mammal perceives as a threat;

(5) Any anthropogenic noise that is strong enough to be heard has the potential to reduce (mask) the ability of a marine mammal to hear natural sounds at similar frequencies, including calls from conspecifics, and underwater environmental sounds such as surf noise;

(6) If marine mammals remain in an area because it is important for feeding, breeding, or some other biologically important purpose even though there is chronic exposure to noise, it is possible that there could be noise-induced physiological stress; this might in turn have negative effects on the well-being or reproduction of the animals involved; and

(7) Very strong sounds have the potential to cause temporary or permanent reduction in hearing sensitivity. In terrestrial mammals, and presumably marine mammals, received sound levels must far exceed the animal's hearing threshold for there to be any temporary threshold shift (TTS) in its hearing ability. For transient sounds, the sound level necessary to cause TTS is inversely related to the duration of the sound. Received sound levels must be even higher for there to be risk of permanent hearing impairment.

When considering the influence of various kinds of sound on the marine environment, it is necessary to understand that different kinds of marine life are sensitive to different frequencies of sound. Based on available behavioral data, audiograms have been derived using auditory evoked potentials, anatomical modeling, and other data, Southall et al. (2007) designate “functional hearing groups” for marine mammals and estimate the lower and upper frequencies of functional hearing of the groups. The functional groups and the associated frequencies are indicated below (though animals are less sensitive to sounds at the outer edge of their functional range and most sensitive to sounds of frequencies within a smaller range somewhere in the middle of their functional hearing range):

• Low-frequency cetaceans (13 species of mysticetes): functional hearing is estimated to occur between approximately 7 Hz and 22 kHz (however, a study by Au et al. (2006) of humpback whale songs indicate that the range may extend to at least 24 kHz);

• Mid-frequency cetaceans (32 species of dolphins, six species of larger toothed whales, and 19 species of beaked and bottlenose whales): functional hearing is estimated to occur between approximately 150 Hz and 160 kHz;

• High-frequency cetaceans (eight species of true porpoises, six species of river dolphins, Kogia, the franciscana, and four species of cephalorhynchids): functional hearing is estimated to occur between approximately 200 Hz and 180 kHz; and

• Pinnipeds in water: functional hearing is estimated to occur between approximately 75 Hz and 75 kHz, with the greatest sensitivity between approximately 700 Hz and 20 kHz.

As mentioned previously in this document, three marine mammal species (pinnipeds only) are likely to occur in the proposed action area. A species functional hearing group is a consideration when we analyze the effects of exposure to sound on marine mammals.

Acoustic impacts of the specified activity could result from sound produced by the engines of all launch vehicles, and, in some cases, their booster rockets. Noises with sudden onset or high amplitude relative to the ambient noise level may elicit a behavioral response from pinnipeds resting on shore. Some pinnipeds tolerate high sound levels without reacting strongly, whereas others may react strongly when sound levels are lower. Published papers and available technical reports describing behavioral responses of pinnipeds to the types of sound recorded near haul-out sites on SNI indicate that there is much variability in the responses. Responses can range from momentary startle reactions to animals fleeing into the water or otherwise away from their resting sites in what has been termed a stampede. Studies of pinnipeds during missile launch events have demonstrated that different pinniped species, and even different individuals in the same haul-out group, can exhibit a range of responses from alert to stampede. It is this variation that makes setting reaction criteria difficult. An acoustic stimulus with sudden onset (such as a sonic boom) may be analogous to a looming visual stimulus (Hayes and Saif, 1967), which can be especially effective in eliciting flight or other responses (Berrens et al., 1988). Missile launches are unlike many other forms of disturbance because of their sudden sound onsets, high peak levels in some cases, and short durations (Cummings, 1993).

Previous to the start of monitoring work at SNI under an Incidental Harassment Authorization issued in 2001, most existing data on reactions of hauled-out pinnipeds to sonic booms or launch noise involved far larger launch missiles than the Coyotes and other missiles that would be launched from SNI. In most cases, where the species of pinnipeds occurring in the Sea Range have been exposed to the sounds of large missile launches (such as the Titan IV from Vandenberg Air Force Base), animals did not flush into the sea unless the sound level to which they were exposed was relatively high. The reactions of harbor seals to even these large missile launches have been limited to short-term (5-30 minute) abandonment of haul-out sites.

Holst et al. (2005, 2008, 2010, and 2011) summarize the systematic monitoring results from SNI from mid-2001 through February 2011. Ugoretz and Green (2012) summarize results from 2011 through 2012. In particular, northern elephant seals seem very tolerant of acoustic disturbances (Stewart 1981; Holst et al., 2008) and were removed from the list of target species for monitoring on SNI in 2010. In contrast, harbor seals are more easily disturbed. Based on SNI launch monitoring results from 2001 to 2007, most pinnipeds—especially northern elephant seals—would be expected to exhibit no more than short-term alter or startle responses (Holst et al., 2005, 2008, 2011). Any localized displacement would be of short duration, although some harbor seals may leave their haul-out site until the following low tide. However, Holst and Lawson (2002) noted that numbers occupying haul-out sites on the next day were similar to pre-launch numbers.

The most common type of reaction to missile launches at SNI is expected to be a momentary “alert” response. When the animals hear or otherwise detect the launch, they are likely to become alert, and (at least momentarily) to interrupt prior activities in order to pay attention to the launch. Animals that are well to the side of the launch trajectory are likely to not show any additional reaction. Animals that are closer to the trajectory may show a momentary alert response, or they may react more strongly. Previous observations indicate that elephant seals, in particular, will rarely if ever show more than a momentary alert reaction (Stewart, 1981; Stewart et al., 1994; Holst et al., 2005, 2008)—even when exposed to noise levels or types that caused nearby harbor seals and California sea lions to flee.

Video recordings of pinnipeds around the periphery of western SNI during launches on SNI in 2001-2012 have shown that some pinnipeds react to a nearby launch by moving into the water or along the shoreline (Holst et al., 2005, 2008, 2010, 2011; Ugoretz and Greene, 2012). Pinniped behavioral responses to launch sounds were usually brief and of low magnitude, especially for northern elephant seals. California sea lions (especially the young animals) exhibited more reaction than elephant seals, and harbor seals were the most responsive of the three species.

Northern elephant seals exhibited little reaction to launch sounds (Holst et al., 2005, 2008, 2010, 2011). Most individuals merely raised their heads briefly upon hearing the launch sounds and then quickly returned to their previous activity pattern (usually sleeping). During some launches, a small proportion of northern elephant seals moved a short distance on the beach, away from their resting site, but settled within minutes. Because of this, elephant seals are no longer targeted for monitoring during launches, but are often in the field of view when monitoring other species.

As expected, responses of California sea lions to the launches varied by individual and age group (Holst et al., 2005, 2008, 2010, 2011). Some sea lions exhibited brief startle responses and increased vigilance for a short period after each launch. Other sea lions, particularly pups that were previously playing in groups along the margin of the haul-out beaches, appeared to react more vigorously. A greater proportion of hauled-out sea lions typically responded and/or entered the water when launch sounds were louder (Holst et al., 2005, 2008, 2010, 2011; Ugoretz and Greene, 2012). Adult sea lions already hauled out would mill about on the beach for a short period before settling, whereas those in the shallow water near the beach did not come ashore.

During the majority of launches at SNI, most harbor seals within the audible range of the launch left their haul-out sites on rocky ledges to enter the water and did not return during the duration of the video-recording period (which sometimes extended up to several hours after the launch) (Holst et al., 2005, 2008, 2010, 2011; Ugoretz and Greene, 2012). During monitoring the day after a launch, harbor seals were usually hauled out again at these sites (Holst and Lawson, 2002).

The type of missile being launched is also important in determining the nature and extent of pinniped reactions to launch sounds. Holst et al. (2008) showed that significantly more California sea lions responded during Coyote launches than during other missile launches; AGS launches caused the fewest reactions. Elephant seals showed significantly less reaction during launches involving missiles other than Vandals. The BQM-34 and especially the BQM-74 subsonic drone missiles that may be launched from SNI are smaller and less noisy than Coyotes. Launches of BQM-34 drones from NAS Point Mugu have not normally resulted in harbor seals leaving their haul-out area at the mouth of Mugu Lagoon about 3.2 kilometers (km) to the side of the launch track (Lawson et al., 1998).

Bowles and Stewart (1980) reported that harbor seals on San Miguel Island reacted to low-altitude jet overflights with alert postures and often with rapid movement across the haul-out sites, especially when aircraft were visible. These harbor seals flushed into the water in response to some sonic booms and to a few of the overflights by light aircraft, jets above 244 meters (m) and helicopters below 305 m. Sometimes the harbor seals did not return to land until the next day, although they more commonly returned the same day. These authors postulated that such disturbance-induced stampedes or other mother-pup separations could be a source of increased mortality. However, observations during actual sonic booms and tests with a carbide cannon simulating sonic booms at San Miguel and SNI provide no evidence of such pinniped injury or mortality (Stewart, 1982) and no mortality has been observed during missile launches (Holst et al., 2005, 2008, 2010, 2011; Ugoretz and Greene, 2012).

It is possible, although unlikely, that launch-induced stampedes could have adverse impacts on individual pinnipeds on the west end of SNI. However, during missile launches in 2001-2012, there was no evidence of launch-related injuries or deaths (Holst et al., 2005, 2008, 2010, 2012; Ugoretz and Greene, 2012). On several occasions, harbor seals and California sea lion adults moved over pups as the animals moved in response to the launches, but the pups did not appear to be injured. Given the large numbers of pinnipeds giving birth on SNI, it is expected that injuries and deaths will occur as a result of natural causes. For example, during the 1997-1998 El Niño event, pup mortality reached almost 90 percent for northern fur seals at nearby San Miguel Island, and some adults may have died as well (Melin et al., 2005). Pup mortality also increased during this period for California sea lions. Indirect evidence that launches have not caused mortality comes from the fact that populations of northern elephant seals and especially California sea lions on SNI are growing rapidly despite similar launches for many years. Harbor seal numbers have also increased and new harbor seal haul-out sites have been established at locations directly under and near the launch tracks of missiles.

During the period of the proposed activity, three species of pinnipeds will use various beaches around SNI as places to rest, molt, and breed. These beaches consist of sand, rock ledges, and rocky cobble. Pinnipeds continue to use beaches around the western end of SNI, and are expanding their use of some beaches, despite ongoing launch activities for many years. Similarly, it appears that sounds from prior launches have not affected use of coastal areas at Vandenberg Air Force Base where similar missile launches occur.

Pinnipeds do not feed when hauled out on these beaches and the airborne launch sounds will not persist in the water near the island for more than a few seconds. Therefore, it is not expected that the launch activities will have any impact on the food or feeding success of these pinnipeds.

Boosters from missiles may be jettisoned shortly after launch and fall on the island, but are not expected to impact beaches. Fuel contained in these boosters is consumed rapidly and completely, so there would be no risk of contamination even in the very unlikely event that a booster did land on a beach. Thus, the proposed activity is not expected to have any effects on marine mammal habitat.

In order to issue an incidental take authorization (ITA) under section 101(a)(5)(A) of the MMPA, NMFS must set forth the permissible methods of taking pursuant to such activity, and other means of effecting the least practicable impact on such species or stock and its habitat, paying particular attention to rookeries, mating grounds, and areas of similar significance, and on the availability of such species or stock for taking for certain subsistence uses (where relevant).

The NDAA of 2004 amended the MMPA as it relates to military-readiness activities and the ITA process such that “least practicable adverse impact” shall include consideration of personnel safety, practicality of implementation, and impact of the effectiveness of the “military readiness activity.” The activities described in the Navy's application are considered military readiness activities.

As during launches conducted under previous regulations, where practicable, the Navy proposes the following mitigation measures, provided that doing so will not compromise operational safety, human safety, national security, or other requirements or mission goals:

(1) Limit activities near the beaches in advance of launches;

(2) Avoid launch activities during harbor seal pupping season (February through April);

(3) Limit launch activities during other pinniped pupping seasons;

(4) Not launch missiles from the Alpha Complex at low elevation (less than 305 m) on launch azimuths that pass close to pinniped haul-out sites when occupied;

(5) Avoid launching multiple missiles in quick succession over haul-out sites, especially when young pups are present; and

(6) Aircraft and helicopter flight paths during missile launch operations would maintain a minimum altitude of 305 m from pinniped haul-outs and rookeries, except in emergencies or for real-time security incidents (e.g., search-and-rescue, fire-fighting, adverse weather conditions), which may require approaching pinniped haul-outs and rookeries closer than 305 m.

NMFS has carefully evaluated the applicant's proposed mitigation measures and considered a range of other measures in the context of ensuring that NMFS prescribes the means of effecting the least practicable impact on the affected marine mammal species and stocks and their habitat. Our evaluation of potential measures included consideration of the following factors in relation to one another:

• The manner in which, and the degree to which, the successful implementation of the measure is expected to minimize adverse impacts to marine mammals;

• The proven or likely efficacy of the specific measure to minimize adverse impacts as planned; and

• The practicability of the measure for applicant implementation, including consideration of personnel safety, practicality of implementation, and impact on the effectiveness of the military readiness activity.

Any mitigation measure(s) prescribed by NMFS should be able to accomplish, have a reasonable likelihood of accomplishing (based on current science), or contribute to the accomplishment of one or more of the general goals listed below:

1. Avoidance or minimization of injury or death of marine mammals wherever possible (goals 2, 3, and 4 may contribute to this goal).

2. A reduction in the numbers of marine mammals (total number or number at biologically important time or location) exposed to received levels of noise, or other activities expected to result in the take of marine mammals (this goal may contribute to 1, above, or to reducing harassment takes only).

3. A reduction in the number of times (total number or number at biologically important time or location) individuals would be exposed to received levels of noise, or other activities expected to result in the take of marine mammals (this goal may contribute to 1, above, or to reducing harassment takes only).

4. A reduction in the intensity of exposures (either total number or number at biologically important time or location) to received levels of noise, or other activities expected to result in the take of marine mammals (this goal may contribute to a, above, or to reducing the severity of harassment takes only).

5. Avoidance or minimization of adverse effects to marine mammal habitat, paying special attention to the food base, activities that block or limit passage to or from biologically important areas, permanent destruction of habitat, or temporary destruction/disturbance of habitat during a biologically important time.

6. For monitoring directly related to mitigation—an increase in the probability of detecting marine mammals, thus allowing for more effective implementation of the mitigation.

Based on our evaluation of the applicant's proposed measures, as well as other measures considered by NMFS, NMFS has preliminarily determined that the proposed mitigation measures provide the means of effecting the least practicable impact on marine mammal species or stocks and their habitat, paying particular attention to rookeries, mating grounds, and areas of similar significance, while also considering personnel safety, practicality of implementation, and impact on the effectiveness of the military readiness activity.

In order to issue an ITA for an activity, section 101(a)(5)(A) of the MMPA states that NMFS must set forth, “requirements pertaining to the monitoring and reporting of such taking.” The MMPA implementing regulations at 50 CFR 216.104 (a)(13) indicate that requests for ITAs must include the suggested means of accomplishing the necessary monitoring and reporting that will result in increased knowledge of the species and of the level of taking or impacts on populations of marine mammals that are expected to be present in the proposed action area. The Navy submitted a marine mammal monitoring plan as part of their application. It can be found in section 13 of their application. The plan may be modified or supplemented based on comments or new information received from the public during the public comment period.

Monitoring measures prescribed by NMFS should accomplish one or more of the following general goals:

1. An increase in the probability of detecting marine mammals, both within the mitigation zone (thus allowing for more effective implementation of the mitigation) and in general to generate more data to contribute to the analyses mentioned below.

2. An increase in our understanding of how many marine mammals are likely to be exposed to levels of noise that we associate with specific adverse effects, such as behavioral harassment, TTS, or PTS.

3. An increase in our understanding of how marine mammals respond to stimuli expected to result in take and how anticipated adverse effects on individuals (in different ways and to varying degrees) may impact the population, species, or stock (specifically through effects on annual rates of recruitment or survival) through any of the following methods:

a. Behavioral observations in the presence of stimuli compared to observations in the absence of stimuli (need to be able to accurately predict received level, distance from source, and other pertinent information).

b. Physiological measurements in the presence of stimuli compared to observations in the absence of stimuli (need to be able to accurately predict received level, distance from source, and other pertinent information).

c. Distribution and/or abundance comparisons in times or areas with concentrated stimuli versus times or areas without stimuli.

4. An increased knowledge of the affected species.

5. An increase in our understanding of the effectiveness of certain mitigation and monitoring measures.

The Navy proposes to conduct the following monitoring measures, which are further detailed in section 13 of their application:

• The Navy would continue a standard, ongoing, land-based monitoring program to assess effects on harbor seals, northern elephant seals, and California sea lions on SNI. This monitoring would occur at up to three sites at different distances from the launch site before, during, and after each launch, depending upon presence of pinnipeds during each launch. The monitoring would be via autonomous video or Forward Looking Infrared (FLIR) cameras. Pinniped behavior on the beach would be documented prior to the planned launch operations, during the launch, and following the launch. Northern elephant seals would not be specifically targeted for monitoring, though may be present in the field of view when monitoring other species.

• During each launch, the Navy would obtain calibrated recordings of the sounds of the launches as received at different distances from the missile's flightline. The Navy anticipates that acoustic data would be acquired at each video monitoring location, to estimate sounds received by pinnipeds, and at the launch site to estimate maximum potential sound received. These recordings would provide for a thorough description of launch sounds as received at different locations on western SNI, and of the factors that affect received sound levels. By analysis of the paired data on behavioral observations and received sound levels, the Navy would further characterize the relationship between the two. If there is a clear correlation, the Navy would determine the “dose-response” relationship.

Visual Monitoring —The Navy proposes to conduct marine mammal and acoustic monitoring during launches from SNI, using simultaneous video recording of pinniped behavior and audio recording of launch sounds. The land-based monitoring would provide data required to characterize the extent and nature of the takes. In particular, the monitoring would provide the information needed to document the occurrence, nature, frequency, and duration of any changes in pinniped behavior that might result from missile launches. Components of this documentation would include the following:

• Identify and document any change in behavior or movements that may occur at the time of the launch;

• Compare received levels of launch sound with pinniped responses, based on acoustic and behavioral data from up to three monitoring sites at different distances from the launch site and missile path during each launch and attempt to establish the dose-response relationship for launch sounds under different launch conditions;

• Ascertain periods or launch conditions when pinnipeds are most and least responsive to launch activities; and

• Document take by harassment and, although unlikely, any mortality or injury.

The launch monitoring program would include remote video recordings before, during, and after launches when pinnipeds are present in the area of potential impact, and visual assessment by trained observers before and after the launch. Remote cameras are essential during launches because safety rules prevent personnel from being present in most of the areas of interest. In addition, video techniques would allow simultaneous observations at up to three different locations, and would provide a permanent record that could be reviewed in detail. No specific effort would be made to monitor elephant seals, though they may be present in mixed groups when monitoring other species.

Acoustical Monitoring —The Navy would take acoustical recordings during each monitored launch. These recordings would be suitable for quantitative analysis of the levels and characteristics of the received launch sounds. The Navy would use up to four autonomous audio recorders to make acoustical measurements. During each launch, these would be located as close as practical to monitored pinniped haul-out sites and near the launch pad itself. The monitored haul-out sites would typically include one site as close as possible to the missile's planned flight path and one or two locations farther from the flight path within the area of potential impact with pinnipeds present.

The Navy would submit annual interim technical reports to NMFS no later than December 31 for the duration of the regulations. These reports would provide full documentation of methods, results, and interpretation pertaining to all monitoring tasks for launches during each calendar year. However, only preliminary information would be included for any launches during the 60-day period immediately preceding submission.

The Navy would submit a draft comprehensive technical report to NMFS 180 days prior to the expiration of the regulations, providing full documentation of the methods, results, and interpretation of all monitoring tasks for launches to date. A revised final comprehensive technical report, including all monitoring results during the entire period of the regulations would be due 90 days after the regulations expire.

The Navy would ensure that NMFS is notified immediately if an injured or dead marine mammal is judged to result from launch activities at any time.

Between 2001 and 2012, a maximum of 1,990 California sea lions, 395 harbor seals, and 130 northern elephant seals were estimated to have been potentially harassed in any single monitoring year incidental to missile launches at SNI (Holst et al., 2008, 2010, 2011; Ugoretz and Greene, 2012). These numbers may represent multiple exposures of single animals, as beaches were monitored repeatedly over the course of the year during numerous launches. However, some animals that displayed behavioral reactions may have been missed, as not all areas can be monitored during the launches. Pinnipeds that were potentially affected left the haul-out site in response to the launch, left the water at a vigorous pace, or exhibited prolonged movement or behavioral changes relative to their behavior immediately prior to the launch.

The NDAA of 2004 (Pub. L. 103-136) removed the “small numbers” and specified “geographical region” limitations indicated above and amended the definition of “harassment” as it applies to a “military readiness activity” to read as follows (section 3(18)(B) of the MMPA): (i) Any act that injures or has the significant potential to injure a marine mammal or marine mammal stock in the wild [Level A Harassment]; or (ii) Any act that disturbs or is likely to disturb a marine mammal or marine mammal stock in the wild by causing disruption of natural behavioral patterns, including, but not limited to, migration, surfacing, nursing, breeding, feeding, or sheltering, to a point where such behavioral patterns are abandoned or significantly altered [Level B Harassment].

Any takes of marine mammals are most likely to result from operational noise as launch missiles pass near haul-out sites, and/or associated visual cues. This section estimates maximum potential take and the likely annual take of marine mammal species during the proposed missile launch program at SNI.

The launch sounds could be received for several seconds and, to be conservative, are considered to be prolonged rather than transient sounds. Given the variety of responses documented previously for the sounds of man-made activities lasting several seconds, a sound exposure level of 100 dB re 20 microPascals  2 per second is considered appropriate as a disturbance criterion for pinnipeds hauled out at the west end of SNI, particularly for California sea lions and northern elephant seals. Some pinnipeds that haul-out on the western end of SNI are expected to be within the area where sound exposure levels exceed 100 dB. Far fewer pinnipeds are expected to occur within this area and none of the recorded sound exposure levels appear to be high enough to induce TTS.

Based on the reaction criterion, the distance to which it is assumed to extend, and the estimated numbers of pinnipeds exposed to sound exposure levels at or above 100 dB, the Navy estimated the number of pinnipeds on the west end of SNI that might be taken. The Navy made an additional adjustment for harbor seals, as they are known to sometimes react strongly to sound exposure levels below 100 dB. The Navy considered the percentage of animals that actually responded to launch noise in previous monitoring years in order to estimate the number of animals potentially harassed. Recorded sound exposure levels in different areas of SNI were compared to ground-based census data of pinnipeds. These censuses were typically conducted seasonally when maximum numbers of pinnipeds were known to occur on land.

To estimate the potential maximum numbers of northern elephant seals that might be exposed to sound levels at or above 100 dB in 2014, the highest pup counts within map areas K, L, and M (see Figure 16 of the Navy's application) in any year between 2000 and 2010 were used (yielding a total of 1,854), and a continuing growth rate of 7.3 percent since 2010 was applied. This results in a maximum potential pup count of 2,458 for those map areas in 2014. Based on data collected from 1988 to 2010, the total count of all age classes expected to be hauled out is approximately twice the number of pups hauled out. Therefore, the maximum number hauled out in areas of potential impact for 2014 was approximated by doubling the maximum potential calculated pup count. Thus, the maximum expected number of elephant seals that may be exposed to sound levels at or above 100 dB during 2014 is estimated to be 4,916.

In the absence of any contrary data, it is assumed that elephant seals exhibit high site fidelity when they return to shore, and that the 4,916 elephant seals calculated above represent the maximum total number that might be exposed to “strong” (at or above 100 dB) sounds during the year, assuming missiles are launched when all animals are hauled out and all beaches within the area receive strong sounds. If some seals haul out on different beaches at various times during the year, sometimes within and sometimes outside the area exposed to levels at or above 100 dB, then the number of times an individual elephant seal might be exposed to strong launch sounds would be reduced. However, the total number of individuals that would be exposed at least once over the course of the year would probably be increased. Movements from one beach to another may be more likely for juveniles than for older seals, given that this has been observed in other pinniped species (such as for harbor seal pups; Thompson et al. 1994).

Published studies and results from the 2001-2012 monitoring at SNI indicate that elephant seals are more tolerant of transient noise and other forms of disturbance than are California sea lions or harbor seals. If so, the actual impact zone is smaller than assumed here, and the number of elephant seals that might be taken by harassment would be substantially lower than the number of seals present within the area where sound levels are at or above 100 dB. For example, during the 2001-2012 launch program, the majority of northern elephant seals did not exhibit more than brief startle reactions in response to launches (Holst et al. 2005, 2008, 2010, 2011; Ugoretz and Greene, 2012). Most individuals merely raised their heads briefly upon hearing the launch sounds and then quickly returned to their previous activity pattern (usually sleeping). During some launches, a small proportion (typically much less than 10 percent) of northern elephant seals moved a short distance (<10 m) away from their resting site, but settled within minutes. Elephant seals rarely moved or reacted more than this.

Therefore, the Navy estimates that up to 10 percent of 4,916 elephant seals (or 492 seals) might be taken by Level B harassment during each year of planned launch operations.

To determine the potential numbers of harbor seals that might be taken by harassment, the Navy used the maximum total harbor seal count for SNI (858) and assumed that the population has remained relatively stable. Previous monitoring from 2001-2012 showed that most monitored harbor seals entered the water in response to launches. Previous monitoring also indicates that about 70 percent of harbor seals that haul out on SNI use the beaches within areas K, L, and M. The Navy conservatively estimates that 80 percent of harbor seals on SNI may be impacted by missile launches. Therefore, the Navy estimates that a maximum of 686 harbor seals might be taken by Level B harassment during a 1-year period.

To estimate the maximum potential number of sea lions that might be hauled out within areas exposed to sound levels at or above 100 dB, the Navy calculated the maximum number of sea lions occurring within map areas K, L, and M (Figure 16 of the Navy's application) in any year from 2001-2011. The Navy adjusted this maximum, 14,963 sea lions, for a population growth rate of 5.6 percent per year, which results in a maximum of 20,749 sea lions of all ages and sexes that might be hauled out within the areas exposed to sound levels at or above 100 dB in a single year. For most of the year, only females and pups are expected to be ashore, so the number of animals exposed to these sound levels from any one launch is likely less than the estimated total number.

Based on past monitoring, approximately 10 percent of the California sea lions exposed to launch sounds during each year of launch activity might exhibit behavioral disturbance. Therefore, the Navy estimates that a maximum of 2,740 California sea lions on SNI might be taken by Level B harassment during a 1-year period.

NMFS proposes to authorize take according to the Navy's estimates. The estimated take numbers are provided in Table 2 below for each marine mammal species. These take estimates do not take mitigation measures into consideration.

Negligible impact is “an impact resulting from the specified activity that cannot be reasonably expected to, and is not reasonably likely to, adversely affect the species or stock through effects on annual rates of recruitment or survival (50 CFR 216.103). A negligible impact finding is based on the lack of likely adverse effects on annual rates of recruitment or survival (i.e., population-level effects). An estimate of the number of Level B harassment takes, alone, is not enough information on which to base an impact determination. In addition to considering estimates of the number of marine mammals that might be “taken” through behavioral harassment, NMFS must consider other factors, such as the likely nature of any responses (their intensity, duration, etc.), the context of any responses (critical reproductive time or location, migration, etc.), as well as the number and nature of estimated Level A harassment takes, the number of estimated mortalities, and effects on habitat.

NMFS has preliminarily determined that target and missile launch activities and aircraft and helicopter operations from SNI, as described in this document and in the Navy's application, will result in no more than Level B harassment of northern elephant seals, harbor seals, and California sea lions. The effects of these military readiness activities will be limited to short-term, localized changes in behavior, including temporarily vacating haul-outs, and possible temporary threshold shift in the hearing of any pinnipeds that are in close proximity to a launch pad at the time of a launch. These effects are not likely to have a significant or long-term impact on feeding, breeding, or other important biological functions. No take by injury or mortality is anticipated, and the potential for permanent hearing impairment is unlikely. Harassment takes will be at the lowest level practicable due to incorporation of the proposed mitigation measures mentioned previously in this document. NMFS has proposed regulations for the specified activity that prescribe the means of effecting the least practicable adverse impact on marine mammals and their habitat and set forth requirements pertaining to the monitoring and reporting of that taking.

Based on the analysis contained herein of the likely effects of the specified activity on marine mammals and their habitat, and taking into consideration the implementation of the proposed monitoring and mitigation measures, NMFS preliminarily finds that the total marine mammal take from the Navy's missile launches will have a negligible impact on the affected marine mammal species or stocks.

There are no relevant subsistence uses of marine mammals implicated by this action. Therefore, NMFS has determined that the total taking of affected species or stocks would not have any unmitigable adverse impact on the availability of such species or stocks for taking for subsistence purposes.

No species listed under the ESA are expected to be affected by these activities. Therefore, NMFS has determined that a section 7 consultation under the ESA is not required.

In May 2009, NMFS prepared an Environmental Assessment on the Navy's missile launches at SNI. NMFS is currently updating this analysis, pursuant to NEPA, to determine whether or not this proposed activity may have a significant effect on the human environment. This analysis will be completed prior to the issuance or denial of an authorization.

NMFS requests comment on our analysis, the draft authorization, and any other aspect of the Notice of Proposed Rulemaking for the Navy's missile launch activities at SNI. Please include with your comments any supporting data or literature citations to help inform our final decision on the Navy's request for an MMPA authorization.

The Office of Management and Budget has determined that this proposed rule is not significant for purposes of Executive Order 12866.

Pursuant to the Regulatory Flexibility Act (RFA), the Chief Counsel for Regulation of the Department of Commerce has certified to the Chief Counsel for Advocacy of the Small Business Administration that this proposed rule, if adopted, would not have a significant economic impact on a substantial number of small entities. The RFA requires federal agencies to prepare an analysis of a rule's impact on small entities whenever the agency is required to publish a notice of proposed rulemaking. However, a federal agency may certify, pursuant to 5 U.S.C. 605(b), that the action will not have a significant economic impact on a substantial number of small entities. The Navy is the sole entity that would be affected by this rulemaking, and the Navy is not a small governmental jurisdiction, small organization, or small business, as defined by the RFA. Any requirements imposed by an LOA issued pursuant to these regulations, and any monitoring or reporting requirements imposed by these regulations, would be applicable only to the Navy. NMFS does not expect the issuance of these regulations or the associated LOAs to result in any impacts to small entities pursuant to the RFA. Because this action, if adopted, would directly affect the Navy and not any small entities, NMFS concludes that the action would not result in a significant economic impact on a substantial number of small entities. Therefore, an Initial Regulatory Flexibility Analysis is not required and none has been prepared.

For reasons set forth in the preamble, 50 CFR Part 217 is proposed to be amended as follows: