[Federal Register Volume 63, Number 169 (Tuesday, September 1, 1998)]
[Rules and Regulations]
[Pages 46385-46388]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-23427]



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 Rules and Regulations
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  Federal Register / Vol. 63, No. 169 / Tuesday, September 1, 1998 / 
Rules and Regulations  

[[Page 46385]]


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NORTHEAST DAIRY COMPACT COMMISSION

7 CFR Part 1306


Over-Order Price Regulation

AGENCY: Northeast Dairy Compact Commission.

ACTION: Final rule.

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SUMMARY: This rule amends the Compact Over-order Price Regulation to 
establish a reserve fund for reimbursement to school food authorities. 
The reserve fund is required to implement the previously issued 
regulation exempting certain milk sold by school food authorities from 
the Over-order Price Regulation.

EFFECTIVE DATE: September 10, 1998.

ADDRESSES: Northeast Dairy Compact Commission, 43 State Street, P.O. 
Box 1058, Montpelier, Vermont 05601.

FOR FURTHER INFORMATION CONTACT: Kenneth M. Becker, Executive Director, 
Northeast Dairy Compact Commission at the above address or by telephone 
at (802) 229-1941, or by facsimile at (802) 229-2028.

SUPPLEMENTARY INFORMATION:

I. Background

    The Northeast Dairy Compact Commission (the ``Commission'') was 
established under authority of the Northeast Interstate Dairy Compact 
(``Compact''). The Compact was enacted into law by each of the six 
participating New England states as follows: Connecticut--Pub. L. 93-
320; Maine--Pub. L. 89-437, as amended, Pub. L. 93-274; Massachusetts--
Pub. L. 93-370; New Hampshire--Pub. L. 93-336; Rhode Island--Pub. L. 
93-106; Vermont--Pub. L. 93-57. In accordance with Article I, Section 
10 of the United States Constitution, Congress consented to the Compact 
in Pub. L. 104-127 (FAIR ACT), Section 147, codified at 7 U.S.C. 7256. 
Subsequently, the United States Secretary of Agriculture, pursuant to 7 
U.S.C. 7256(1), authorized implementation of the Compact. The Compact 
empowers the Commission to promulgate and enforce ``rules and 
regulations as it deems necessary to implement any provisions of this 
compact, or to effectuate in any other respect the purposes of this 
compact.'' Article III, Section 7. The Compact authorizes the Compact 
Commission to consider adopting a compact Over-order Price Regulation. 
Article IV, Section 9. A compact over-order price is defined as:

    A minimum price required to be paid to producers for Class 1 
milk established by the Commission in regulations adopted pursuant 
to sections nine and ten of this compact, which is above the price 
established in federal marketing orders or by state farm price 
regulation in the regulated area. Such price may apply throughout 
the region or in any part or parts thereof as defined in the 
regulations of the Commission.

Article II, Section 2(8).
    The regulated price authorized by the Compact is actually an 
incremental amount above, or ``over-order'' the minimum price for the 
same milk established by Federal Milk Market Order I. The price 
regulation establishes the minimum procurement price to be paid by 
fluid milk processors for milk that is ultimately utilized for fluid 
milk consumption in the New England region. Price regulation also 
provides for payment of a uniform ``over-order'' price, out of the 
proceeds of the price regulation, to dairy farmers making up the New 
England milkshed, regardless of the utilization of their milk. See, 
e.g., Compact, Art. IV, Sections 9 and 10.
    Pursuant to its rulemaking authority under Article V, Section 11 of 
the Compact, the Commission concluded an informal rulemaking process 
and voted to adopt a Compact Over-order Price Regulation. See, 62 FR 
29626 (May 30, 1997). The Commission subsequently amended and extended 
the Compact Over-order Price Regulation. See,62 FR 62810 (November 25, 
1997). The Commission further amended the Over-order Price Regulation 
relative to certain milk sold by school food authorities in New 
England. See 63 FR 10104 (February 27, 1998). The current Compact Over-
order Price Regulation is codified at 7 CFR 1300 through 1308.
    Article V, Section 11 of the compact delineates the administrative 
procedure the Commission must follow in deciding whether to adopt or 
amend a price regulation. That section requires the Commission to 
conduct an informal rulemaking proceeding governed by section four of 
the federal Administrative Procedures Act (``APA''), as amended, 5 
U.S.C. 553, to provide interested persons with an opportunity to 
present data and views. The informal rulemaking proceeding must include 
public notice and opportunity to participate in a public hearing and to 
present written comment. In addition, section 553(d) of the APA 
provides that ``publication or service of a substantive rule shall be 
made not less than 30 days before its effective date,'' subject to 
several enumerated exceptions, including situations where the agency 
finds ``good cause'' for dispensing with this requirement. See, 5 
U.S.C. 553(d)(3). To the extent that this rule is viewed as a 
substantive rule, the Commission finds that there is good cause for 
dispensing with the 30-day waiting period of 553(d) because compliance 
is impracticable, unnecessary, and contrary to the public interest.
    The Commission emphasizes that this rule merely implements the 
February 27, 1998 final rule adopted by the Commission after a 
comprehensive administrative process, including public hearing, notice-
and-comment rulemaking, and a producer referendum, as well as a full 
30-day notice period prior to the effective date. See, 63 FR 10104 
(February 27, 1998). Additionally, the Commission has entered into a 
Memorandum of Understanding between the Compact Commission and the 
appropriate state agencies of the participating states, as required by 
the previously issued rule, which establishes the procedure for 
providing reimbursement to the school food service programs. See, 7 CFR 
1301.13. This rule implements that reimbursement procedure.
    On June 11,1998 the Commission issued a notice of proposed 
rulemaking 1

[[Page 46386]]

to amend the Compact Over-Order Price Regulation to establish a reserve 
fund for reimbursement to school food authorities. The reserve fund 
established by this rule is simply the administrative mechanism 
selected by the Commission, in its discretion, and incorporated into 
the Memorandum of Understanding with the participating states pursuant 
to 7 CFR 1301.13, for implementing the previously-issued regulation 
exempting certain milk sold by school food authorities from the Over-
Order Price Regulation.2
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    \1\ 63 FR 31943 (June 11, 1998). In this same notice of proposed 
rulemaking, the Commission also proposed to exclude milk from the 
pool which is either diverted or transferred, in bulk, (not 
including bulk transfers of skimmed milk and condensed milk) out of 
the Compact regulated area. The Commission is continuing its 
deliberations on these proposed rules to Parts 1301 and 1304 
regarding diverted and transferred milk, and is holding an 
additional public hearing and has extended the comment period on 
these proposals until 5:00 p.m. September 16, 1998. See, 63 FR 
43891(August 17, 1998).
    \2\ The regulation provides: ``Effective April 1, 1998, all 
fluid milk distributed by handlers in eight-ounce containers under 
open and competitive bid contracts for the 1998-1999 contract year 
with School Food Authorities in New England, as defined by 7 CFR 
210.2, to the extent that the school authorities can demonstrate and 
document that the costs of such milk have been increased by 
operation of the Compact Over-Order Price Regulation. In no event 
shall such increase exceed the amount of the Compact over-order 
obligation. Documentation of increased costs shall be in accordance 
with a memorandum of understanding entered into between the Compact 
Commission and the appropriate state agencies not later than May 1, 
1998. The memorandum of understanding shall include provisions for 
certification by supplying vendor/processors that their bid and 
contract cost structures do in fact incorporate the over-order price 
obligation, in whole or in part, and provisions for defining the 
components of cost structure to be provided in support of such 
certification. The memorandum shall also establish the procedure for 
providing reimbursement to the school food service programs, 
including the scheduling of payments and the amount to be escrowed 
by the Commission to account for such payments.'' 7 CFR 1301.3.
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    The Northeast Dairy Compact Commission held a public hearing to 
receive testimony on the proposed rules at 9:00 AM on July 1, 1998 at 
the Capitol Center for the Arts, Governor's Hall, 44 South Main Street, 
Concord, New Hampshire. Pursuant to Article VI(D) of the Commission's 
Bylaws, additional comments and exhibits were received until 5:00 PM on 
July 15, 1998.
    Based on the oral testimony and written comments and exhibits 
received, the Commission hereby amends the current Over-Order Price 
Regulation, 7 CFR 1306.3, to establish a reserve fund for reimbursement 
to school food authorities.

II. Summary and Analysis of Issues and Comments

    The Commission held its deliberative meeting on August 5, 1998 
3 to duly consider all oral and written comments received at 
the public hearing held on July 1, 1998 and the additional comments 
received by the Commission's published comment deadline of July 15, 
1998 4 and to deliberate and act on the proposed amendments 
to the Over-order regulation.
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    \3\ Public notice of this meeting was published at 63 FR 40069 
(July 27, 1998).
    \4\ 63 FR 31943 (June 11, 1998).
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School Milk Reserve Regulation

    The Commission's Regulations Administrator, Carmen Ross, testified 
at the public hearing on July 1, 1998 and explained the issue and why 
the proposed amendment was needed. Mr. Ross testified that in order to 
implement the regulation 5 promulgated by the Commission 
providing a reimbursement to school food authorities for certain milk 
sold in eight-ounce containers, the Over-Order Price Regulation must be 
amended to establish a reserve account. 6

    \5\ 63 FR 10104 (February 27, 1998).
    \6\ Carmen Ross, Tr. at 22-23.
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    The proposed regulation authorizes the Commission to establish 
the reserve fund necessary to process any qualified reimbursement 
claims that are submitted by school food authorities. The proposed 
regulation also authorizes the Commission to return any surplus 
funds from this reserve account to the producer-settlement fund. 
7
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    \7\ Ross Tr. at 22-23.
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Discussion of Comments

    A total of ten individuals submitted oral and/or written public 
comments. Of the total comments received, six commenters 8 
supported the proposed rule relating to establishing a reserve account 
for reimbursement of school food authorities, no commenters opposed the 
proposed amendment. The Commission adopts the rule as proposed.
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    \8\ Wellington Tr. at 62, and on behalf of Agri-mark and 
Dairylea WC 11; Ellinwood Tr. at 99; Berthiaume at WC 5, 7; Graves 
at WC 14; and Beach at WC 17.
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III. Summary and Explanation of Findings

    Article V, Section 12 of the Compact directs the Commission to make 
four findings of fact before an amendment of the Over-Order Price 
Regulation can become effective. Each required finding is discussed 
below.

a. Whether the Public Interest Will Be Served by the Amendments

    The first finding considers whether the amendment of the Compact 
Over-Order Price Regulation to establish a reserve fund for the 
reimbursement to school food authorities serves the public interest. 
The Commission reaffirms its prior finding that the establishment of an 
exemption mechanism for milk sold in eight-ounce containers by school 
food service programs serves the public interest. 9 For all 
of the same reasons the Commission adopted the previous 
regulation,10 the Commission finds that the public interest 
will be served by amending the Over-Order Price Regulation to provide 
for a reserve fund to implement that regulation.
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    \9\ 63 FR 10106-10110 (February 27, 1998).
    \10\ See, footnote 2 for text of the regulation.
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b. The Impact on the Price Level Needed To Assure a Sufficient Price to 
Producers and an Adequate Local Supply of Milk

    The second finding considers the impact of the amendment on the 
level of producer price needed to cover the costs of production and to 
assure an adequate local supply of milk for the inhabitants of the 
regulated area and for manufacturing purposes.11
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    \11\ As noted in prior rulemaking proceedings, the Commission 
limits its assessment to issues relating to the fluid milk market. 
62 FR 29632 (May 30, 1997); 62 FR 62812 (November 25, 1997); and 63 
FR 10109 (February 27, 1998).
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    The Commission reaffirms its prior findings regarding the 
sufficiency of pay prices for milk needed to meet the New England 
market demand.12 The Commission previously concluded that, 
although amending the Compact Over-order Price Regulation to exempt 
certain milk sold by school food authorities would decrease the 
producer pay price, the price regulation would nevertheless remain at a 
sufficient level to assure that producer costs of production are 
covered and to elicit an adequate supply of fluid milk for the 
region.13 The Commission now reaffirms this finding and 
further concludes that the establishment of a reserve account to 
implement the school milk exemption will assure producers of a 
sufficient price and will elicit an adequate local supply of milk.
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    \12\ 62 FR 29632-29637 (May 30, 1997); 62 FR 62812-62817 
(November 25, 1997); and 63 FR 10109-10110 (February 27, 1998).
    \13\ 63 FR 10110 (February, 27, 1998).
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c. Whether the Major Provisions of the Order, Other Than Those Fixing 
Minimum Milk Prices, Are in the Public Interest and Are Reasonably 
Designed To Achieve the Purposes of the Order

    The third finding requires a determination of whether the 
provisions of the regulation other than those establishing minimum milk 
prices are in the public interest. The amendment serves to implement 
the prior regulation establishing an exemption from the price 
regulation for certain milk sold by school food authorities. Therefore, 
the matter of the public interest is addressed under the first required 
finding and not under this finding. In any event, the Commission 
concludes that the price regulation, as hereby amended, remains in the 
public interest

[[Page 46387]]

in the manner contemplated by this finding.

d. Whether the Terms of the Proposed Amendment Are Approved by 
Producers

    The fourth finding, requiring the determination of whether the 
amendment has been approved by producer referendum pursuant to Article 
V. Section 13 of the Compact is invoked in this instance given that the 
amendment will affect the level of the price regulation on the producer 
side. In this final rule, as in the previous final rules, the 
Commission makes this finding premised upon certification of the 
results of the producer referendum. The procedure for the producer 
referendum and certification of the results is set forth in 7 CFR part 
1371.
    Pursuant to 7 CFR 1371.3 and the referendum procedure certified by 
the Commission, a referendum was held during the period of August 14 
through August 24, 1998. All producers who were producing milk pooled 
in Federal Order #1 or for consumption in New England, during March, 
1998, the representative period determined by the Commission, were 
deemed eligible to vote. Ballots were mailed to these producers on or 
before August 14, 1998 by the Federal Order #1 Market Administrator. 
The ballots included an official summary of the Commission's action. 
Producers were notified that, to be counted, their ballots had to be 
returned to the Commission offices by 5:00 p.m. on August 24, 1998. The 
ballots were opened and counted in the Commission offices on August 25, 
1998 under the direction and supervision of Mae S. Schmidle, Vice-Chair 
of the Commission and designated ``Referendum Agent.''
    Twelve Cooperative Associations were notified of the procedures 
necessary to block vote by letter dated August 6, 1998. Cooperatives 
were required to provide prior written notice of their intention to 
block vote to all members on a form provided by the Commission, and to 
certify to the Commission that 1) timely notice was provided, and 2) 
that they were qualified under the Capper-Volstead Act. Cooperative 
Associations were further notified that the Cooperative Association 
block vote had to be received in the Commission office by 5:00 p.m. on 
August 24, 1998. Certified and notarized notification to its members of 
the Cooperative's intent to block vote or not to block vote had to be 
mailed by August 18, 1998 with notice mailed to the Commission offices 
no later than August 20, 1998.

Notice of Referendum Results

    On August 25, 1998 the duly authorized referendum agent verified 
all ballots according to procedures and criteria established by the 
Commission. A total of 4,240 ballots were mailed to eligible producers. 
All producer ballots and cooperative block vote ballots received by the 
Commission were opened and counted. Producer ballots and cooperative 
block vote ballots were verified or disqualified based on criteria 
established by the Commission, including timeliness, completeness, 
appearance of authenticity, appropriate certifications by cooperative 
associations and other steps taken to avoid duplication of ballots. 
Ballots determined by the referendum agent to be invalid were marked 
``disqualified'' with a notation as to the reason.
    Block votes cast by Cooperative Associations were then counted. 
Producer votes against their cooperative associations block vote were 
then counted for each cooperative association. These votes were 
deducted from the cooperative association's total and were counted 
appropriately. Ballots returned by cooperative members who cast votes 
in agreement with their cooperative block vote were disqualified as 
duplicative of the cooperative block vote.
    Votes of independent producers not members of any cooperative 
association were then counted.
    The referendum agent then certified the following:
    A total of 4,240 ballots were mailed to eligible producers.
    A total of 3,265 ballots were returned to the Commission.
    A total of 43 ballots were disqualified--late, incomplete or 
duplicate.
    A total of 3,222 ballots were verified.
    A total of 3,128 verified ballots were cast in favor of the price 
regulation.
    A total of 94 verified ballots were cast in opposition to the price 
regulation.
    Accordingly, notice is hereby provided that of the verified ballots 
cast, 3,222, 97.1%, or 3,128, a minimum of two-thirds were in the 
affirmative.
    Therefore, the Commission concludes that the terms of the proposed 
amendment is approved by producers.

IV. Good Cause for Effective Date Within 30 Day Notice Period

    The Administrative Procedure Act, 5 U.S.C. 553(d), requires that 
the Compact Commission publish a substantive rule not less than 30 days 
before its effective date, except that this time period is not required 
for a substantive rule which grants or recognizes an exemption or 
relieves a restriction or as otherwise provided by the agency for good 
cause found and published with the rule. In the event this final rule 
is viewed as a substantive rule, the Commission concludes that there is 
good cause for non-compliance with the 30-day advance publication 
provision of 553(d) and publishes this final rule on September 1, 1998, 
with an effective date of September 10, 1998.
    The Commission previously adopted a regulation exempting certain 
milk sold by school food authorities from the Compact Over-order Price 
Regulation and published that final rule on February 27, 1998 with an 
effective date of April 1, 1998, more than 30 days after its 
publication.14 That exemption was duly promulgated with full 
compliance of all applicable notice, hearing and comment provisions of 
the Administrative Procedure Act.15 That exemption 
regulation also required the Commission to take appropriate steps to 
enter into a memorandum of understanding with the appropriate state 
agencies and thus to ``establish the precise mechanics of the 
reimbursement procedure.'' 63 FR at 10108. See also, Proposed Rule, 63 
FR 31943, 31944 (June 11, 1998) (confirming that the Commission ``has 
entered into a Memorandum of Understanding with each of the six New 
England states regarding the school milk reimbursement program.'')
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    \14\ 63 FR 10104 (February 27, 1998).
    \15\ See, 63 FR 10104, 10105 (February 27, 1998)(describing 
administrative proceedings culminating in the adoption of the rule 
exempting certain school milk from the operation of the Over-order 
Price Regulation.)
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    In addition, the prior exemption regulation was approved by 
producers pursuant to a producer referendum conducted in February 1998. 
The producer referendum procedure 16 requires the Compact 
Commission to distribute a ballot to each producer eligible to cast a 
ballot in the referendum. The ballot must include a description of the 
terms and conditions of the referendum and an official copy of the 
proposed regulation or amendment. This final rule merely recognizes and 
implements the previously approved regulation and this final rule was 
also approved by producer referendum conducted in August 1998.
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    \16\ Compact Commission Bylaws, Article VI, section I, 7 C.F.R. 
Part 1371.
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    The commission determines that compliance with the 30-day waiting 
period, in this instance, is excused for three separate reasons: it is 
(1) impracticable, (2) unnecessary, and (3) contrary to the public 
interest. See, e.g.,

[[Page 46388]]

Service Employees Intern. Union, Local 102 v.County of San Diego, 60 
F.3d 1346 (9th Cir. 1994) (good cause exemption to Sec. 553(d) includes 
situations where compliance is impracticable, unnecessary, or contrary 
to the public interest); Buschmann v. Schweiker, 676 F.2d 352 (9th Cir. 
1982) (same).
    (1) It would be impracticable to provide the thirty-day interval 
because the previously published amendment exempting certain school 
milk for the 1998-1999 school year applies to milk being distributed to 
schools opening in New England in August. The full thirty-day notice 
would not allow the Commission to set aside the funds from the August 
pool, paid in September, although the potential liability to eligible 
school food authorities would be established with the opening of the 
1998-1999 school year; and
    (2) The full thirty-day notice is unnecessary because this 
amendment merely affects the mathematical computations necessary to 
implement the existing rule exempting school milk from the Compact 
Over-order obligation; and
    (3) Due to increases in federal market Class I milk prices, there 
will be no Compact Over-order pool for September, paid in October, from 
which to reserve funds to implement the school milk exemption. 
Therefore, the full thirty-day notice requirement would be contrary to 
the public interest, as found by the Commission in adopting both the 
underlying school milk exemption regulation, and this amendment which 
implements that regulation, because the Commission could not begin to 
establish the reserve account until well into the 1998-1999 school 
year. Thus, the otherwise required thirty-day notice procedure would 
seriously impair the effectiveness of the amendment.
    Finally, the purpose of the procedural requirement that a rule be 
published thirty days prior to its effective date is to permit those 
affected by the amendment a reasonable amount of time to prepare to 
take whatever action is prompted by the final rule. In this instance, 
the amendment merely implements a rule that all affected people have 
had notice of since publication of the school milk exemption regulation 
on February 27, 1998. The only action required by the amendment is to 
be taken by the Commission through the establishment of a reserve 
account. Those most affected by the amendment are (1) the school food 
authorities whose interests are best served by the Commission funding 
the reserve account as soon possible after the opening of the 1998-1999 
school year, and (2) the producers, all of whom have received ballots 
in February 1998 and August 1998 to vote on, and approve, the adoption 
of the school milk exemption and its implementation. For all of these 
reasons, the full thirty-day notice period is not required.

IV. Required Findings of Fact

    Pursuant to Compact Article V. Section 12, the Compact Commission 
hereby finds:
    (1) That the public interest will be served by the amendment of 
minimum milk price regulation to dairy farmers under Article IV to 
establish a reserve fund for reimbursement to school food authorities.
    (2) That a level price of $16.94 (Zone 1) to dairy farmers under 
Article IV will assure that producers supplying the New England market 
receive a price sufficient to cover their costs of production and will 
elicit an adequate supply of milk for the inhabitants of the regulated 
area and for manufacturing purposes.
    (3) That the major provisions of the order, other than those fixing 
minimum milk prices, are in the public interest and are reasonably 
designed to achieve the purposes of the order.
    (4) That the terms of the proposed amendments are approved by 
producers pursuant to a producer referendum as required by Article V. 
section 13.

List of Subjects in 7 CFR Part 1306

    Milk.

Codification in Code of Federal Regulations

    For reasons set forth in the preamble, the Northeast Dairy Compact 
Commission amends 7 CFR Chapter XIII as follows:

PART 1306--COMPACT OVER-ORDER PRODUCER PRICE

    1. The authority for part 1306 continues to read as follows:

    Authority: 7 U.S.C. 7256.

    2. In Sec. 1306.3 redesignate paragraphs (d) through (f) as 
paragraphs (e) through (g) and add new paragraph (d) to read as 
follows:


Sec. 1306.3  Computation of basic over-order producer price.

* * * * *
    (d) Beginning with the August 1998 pool, subtract from the total 
value computed pursuant to paragraph (a) of this section, an amount 
estimated by the Commission for the purpose of retaining a reserve for 
payment of obligations pursuant to Sec. 1301.13(e) of this chapter. 
Surplus funds from this reserve shall be returned to the producer-
settlement fund.
* * * * *
    Dated: August 26, 1998.
Kenneth M. Becker,
Executive Director.
[FR Doc. 98-23427 Filed 8-31-98; 8:45 am]
BILLING CODE 1650-01-P