This rule is issued under Marketing Agreement No. 121 and Order No. 915, both as amended (7 CFR part 915), regulating the handling of avocados grown in South Florida, hereinafter referred to as the “order.” The marketing agreement and order are effective under the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), hereinafter referred to as the “Act.”

The Department of Agriculture (Department) is issuing this rule in conformance with Executive Order 12866.

This rule has been reviewed under Executive Order 12988, Civil Justice Reform. Under the marketing order now in effect, Florida avocado handlers are subject to assessments. Funds to administer the order are derived from such assessments. It is intended that the assessment rate as proposed herein would be applicable to all assessable avocados beginning on April 1, 2000, and continue until amended, suspended, or terminated. This rule will not preempt any State or local laws, regulations, or policies, unless they present an irreconcilable conflict with this rule.

The Act provides that administrative proceedings must be exhausted before parties may file suit in court. Under section 608c(15)(A) of the Act, any handler subject to an order may file with the Secretary a petition stating that the order, any provision of the order, or any obligation imposed in connection with the order is not in accordance with law and request a modification of the order or to be exempted therefrom. Such handler is afforded the opportunity for a hearing on the petition. After the hearing the Secretary would rule on the petition. The Act provides that the district court of the United States in any district in which the handler is an inhabitant, or has his or her principal place of business, has jurisdiction to review the Secretary's ruling on the petition, provided an action is filed not later than 20 days after the date of the entry of the ruling.

This rule would increase the assessment rate established for the Committee for the 2000-2001 and subsequent fiscal periods from $0.16 per 55-pound bushel container or equivalent to $0.19 per 55-pound bushel container or equivalent of avocados.

The Florida avocado marketing order provides authority for the Committee, with the approval of the Department, to formulate an annual budget of expenses and collect assessments from handlers to administer the program. The members of the Committee are producers and handlers of Florida avocados. They are familiar with the Committee's needs and with the costs for goods and services in their local area and are thus in a position to formulate an appropriate budget and assessment rate. The assessment rate is formulated and discussed in a public meeting. Thus, all directly affected persons have an opportunity to participate and provide input.

For the 1999-2000 and subsequent fiscal periods, the Committee recommended, and the Department approved, an assessment rate that would continue in effect from fiscal period to fiscal period unless modified, suspended, or terminated by the Secretary upon recommendation and information submitted by the Committee or other information available to the Secretary.

The Committee met on March 8, 2000, and unanimously recommended 2000-2001 expenditures of $186,333 and an assessment rate of $0.19 per 55-pound bushel container or equivalent of avocados. In comparison, last year's budgeted expenditures were $164,335. The assessment rate of $0.19 is $0.03 higher than the rate currently in effect.

The Florida Lime and the Florida Avocado Administrative Committees share certain costs (staff, office space, and equipment) for economy and efficiency (7 CFR part 911 and 915). Each Committee's share of these costs is based upon the amount of work performed and time devoted to administration. To reflect its increased share of the workload and resources, the Avocado Administrative Committee needs to fund a greater share of the costs. An increased budget for avocados is needed to accomplish this.

The major expenditures recommended by the Committee for the 2000-2001 year include $69,000 for salaries, $35,000 for national enforcement, $20,000 for research, $14,898 for employee benefits, and $13,782 for insurance and bonds. Budgeted expenses for these items in 1999-2000 were $46,000, $27,000, $39,500, $10,040, and $8,955, respectively.

The assessment rate recommended by the Committee was derived by dividing anticipated expenses by expected shipments of Florida avocados. Commodity shipments for the year are estimated at 900,000 55-pound bushel containers, which should provide $171,000 in assessment income. Income derived from handler assessments, along with interest income and funds from the Committee's authorized reserve, would be adequate to cover budgeted expenses. Funds in the reserve (currently $174,431) would be kept within the maximum permitted by the order (approximately three fiscal periods' expenses, section 915.42(a)(2)).

The proposed assessment rate would continue in effect indefinitely unless modified, suspended, or terminated by the Secretary upon recommendation and information submitted by the Committee or other available information.

Although this assessment rate would be in effect for an indefinite period, the Committee would continue to meet prior to or during each fiscal period to recommend a budget of expenses and consider recommendations for modification of the assessment rate. The dates and times of Committee meetings are available from the Committee or the Department. Committee meetings are open to the public and interested persons may express their views at these meetings. The Department would evaluate Committee recommendations and other available information to determine whether modification of the assessment rate is needed. Further rulemaking would be undertaken as necessary. The Committee's 2000-2001 budget and those for subsequent fiscal periods would be reviewed and, as appropriate, approved by the Department.

Pursuant to requirements set forth in the Regulatory Flexibility Act (RFA), the Agricultural Marketing Service (AMS) has considered the economic impact of this rule on small entities. Accordingly, AMS has prepared this initial regulatory flexibility analysis.

The purpose of the RFA is to fit regulatory actions to the scale of business subject to such actions in order that small businesses will not be unduly or disproportionately burdened. Marketing orders issued pursuant to the Act, and the rules issued thereunder, are unique in that they are brought about through group action of essentially small entities acting on their own behalf. Thus, both statutes have small entity orientation and compatibility.

There are approximately 141 avocado producers in the production area and approximately 49 avocado handlers subject to regulation under the marketing order. Small agricultural producers have been defined by the Small Business Administration (SBA) (13 CFR 121.201) as those having annual receipts less than $500,000, and small agricultural service firms are defined as those having annual receipts less than $500,000,000.

The average grower price for fresh avocados during the 1998-99 season was $17.90 per 55-pound bushel box equivalent for all domestic shipments and the total shipments were 890,859 bushels. Approximately 10 percent of all handlers handled 90 percent of the Florida avocado shipments. Many avocado handlers ship other tropical fruit and vegetable products, which are not included in the Committee's data but would contribute further to handler receipts.

Using these prices, about 90 percent of avocado handlers could be considered small businesses under the SBA definition. The majority of Florida avocado producers also may be classified as small entities.

This rule would increase the assessment rate established for the Committee and collected from handlers for the 2000-2001 and subsequent fiscal periods from $0.16 per 55-pound bushel container or equivalent to $0.19 per 55-pound bushel container or equivalent of avocados. The Committee unanimously recommended 2000-2001 expenditures of $186,333 and an assessment rate of $0.19 per 55-pound bushel container or equivalent. The proposed assessment rate of $0.19 is $0.03 higher than the 1999-2000 rate. The quantity of assessable avocados for the 2000-2001 season is estimated at 900,000 55-pound bushel containers. Thus, the $0.19 rate should provide $171,000 in assessment income. Income derived from handler assessments, along with interest income and funds from the Committee?s authorized reserve, would be adequate to cover budgeted expenses.

The major expenditures recommended by the Committee for the 2000-2001 fiscal year include $69,000 for salaries, $35,000 for national enforcement, $20,000 for research, $14,898 for employee benefits, and $13,782 for insurance and bonds. Budgeted expenses for these items in 1999-2000 were $46,000, $27,000, $39,500, $10,040, and $8,955, respectively.

The Florida Lime and the Florida Avocado Administrative Committees share certain costs (staff, office space, and equipment) for economy and efficiency (7 CFR part 911 and 915). Each Committee's share of these costs is based upon the amount of work performed and time devoted to administration. To reflect its increased share of the workload and resources, the Avocado Administrative Committee needs to fund a greater share of the costs. An increased budget for avocados is needed to accomplish this.

The Committee reviewed and unanimously recommended 2000-2001 expenditures of $186,333, which include increases in administrative and office salaries, and local and national enforcement. Prior to arriving at this budget, the Committee considered information from various sources, such as the Committee's Budget Subcommittee. Alternative expenditure levels were discussed. However, the Committee ultimately determined that the recommended expenditures were appropriate to reflect its increased share of the workload and resource demands. The assessment rate of $0.19 per 55-pound bushel container or equivalent of assessable avocados was then determined by dividing the total recommended budget by the quantity of assessable avocados, estimated at 900,000 55-pound bushel containers or equivalents for the 2000-2001 fiscal year. This is approximately $11,000 below the anticipated expenses, which the Committee determined to be acceptable.

A review of historical information and preliminary information pertaining to the upcoming fiscal year indicates that the average grower price for the 2000-2001 season could be close to $17.90 per 55-pound bushel container or equivalent of avocados. Therefore, the estimated assessment revenue for the 2000-2001 fiscal year as a percentage of total grower revenue could be one percent.

This action would increase the assessment obligation imposed on handlers. While assessments impose some additional costs on handlers, the costs are minimal and uniform on all handlers. Some of the additional costs may be passed on to producers. However, these costs would be offset by the benefits derived by the operation of the marketing order. In addition, the Committee's meeting was widely publicized throughout the Florida avocado industry and all interested persons were invited to attend the meeting and participate in Committee deliberations on all issues. Like all Committee meetings, the March 8, 2000, meeting was a public meeting and all entities, both large and small, were able to express views on this issue. Finally, interested persons are invited to submit information on the regulatory and informational impacts of this action on small businesses.

This proposed rule would impose no additional reporting or recordkeeping requirements on either small or large Florida avocado handlers. As with all Federal marketing order programs, reports and forms are periodically reviewed to reduce information requirements and duplication by industry and public sector agencies.

The Department has not identified any relevant Federal rules that duplicate, overlap, or conflict with this rule.

A small business guide on complying with fruit, vegetable, and specialty crop marketing agreements and orders may be viewed at the following web site: http://www.ams.usda.gov/fv/moab.html. Any questions about the compliance guide should be sent to Jay Guerber at the previously mentioned address in the FOR FURTHER INFORMATION CONTACT section.

A 30-day comment period is provided to allow interested persons to respond to this proposed rule. Thirty days is deemed appropriate because: (1) The 2000-2001 fiscal period began on April 1, 2000, and the marketing order requires that the rate of assessment for each fiscal period apply to all assessable avocados handled during such fiscal period; (2) the Committee needs to have sufficient funds to pay its expenses which are incurred on a continuous basis; and (3) handlers are aware of this action which was unanimously recommended by the Committee at a public meeting and is similar to other assessment rate actions issued in past years.

For the reasons set forth in the preamble, 7 CFR part 915 is proposed to be amended as follows:

The regulations in 9 CFR part 91, “Inspection and Handling of Livestock for Exportation” (referred to below as the regulations), prescribe conditions for exporting animals from the United States. Section 91.3 of the regulations provides, among other things, that all animals intended for exportation to a foreign country must be accompanied from the State of origin of the export movement to the port of embarkation or the border of the United States by an origin health certificate. The origin health certificate must certify that the animals were inspected within the 30 days prior to the date of the movement of the animals for export and that they were found to be healthy and free from evidence of communicable disease and exposure to communicable disease. The origin health certificate must be issued by an Animal and Plant Health Inspection Service (APHIS) representative or an accredited veterinarian and must be endorsed by an authorized APHIS veterinarian in the State of origin of the export movement. The origin health certificate must individually identify the animals in the shipment as to species, breed, sex, and age and, if applicable, must also show registration name and number, natural markings, and acquired markings. The origin health certificate must also include all test results, certifications, or other statements required by the country of destination.

Section 91.3(c) requires that all samples for tests required by the regulations be taken by an inspector or accredited veterinarian in the State of origin of the export movement. Further, § 91.3 requires that the samples be taken and tests made within the 30 days prior to the date of the export movement, with the following exceptions: The Administrator may permit sampling and testing more than 30 days prior to the date of export if required by the receiving country, and the tuberculin test may be conducted within the 90 days prior to the date of the movement of the animals for export.

The provision allowing sampling and tests more than 30 days prior to the date of export if required by the receiving country is intended to cover those cases where the country of destination either allows testing earlier than 30 days prior to the date of export, or requires earlier testing. For example, sometimes the country of destination wishes to test the animals again upon arrival. Since a certain interval of time must elapse between tests, the country requires pre-export testing to be conducted more than 30 days prior to the date of export.

When preparing animals for exportation, exporters normally request the accredited veterinarian or APHIS representative who takes samples for testing to inspect the animals and issue the origin health certificate at the same time. Exporters who have their animals inspected and obtain an origin health certificate more than 30 days prior to the date of export arrive at the port of embarkation or the border with an invalid origin health certificate. This is because, as explained earlier, § 91.3(a) requires the origin health certificate to certify that the animals were inspected within the 30 days prior to the date of export. Exporters must then obtain a second origin health certificate. The services of an APHIS representative or accredited veterinarian are required, there is a fee for the issuance of the origin health certificate, and the exporter is inconvenienced.

We are proposing to amend the regulations to allow animals to be inspected for the origin health certificate as early as the required sampling or testing may be performed, in accordance with the requirements of the country of destination. Although this change will mean that some animals will be inspected for export in the State of origin more than 30 days prior to export, all animals leaving the country are inspected an additional time. In accordance with § 91.15 of the regulations, all animals leaving the country by sea or air must be inspected by an APHIS veterinarian within 24 hours of embarkation at an export inspection facility at an authorized port. All animals offered for exportation into Mexico or Canada through a land border port are inspected at the border by Mexican or Canadian officials before being authorized entry into Mexico or Canada. Thus, there is another opportunity to inspect the animals for evidence of disease or exposure to disease before they are exported from the United States.

This action would simplify the export process and reduce costs for those exporters who now must secure a new origin health certificate at the port of embarkation or border because they were unaware of the current time limitations for the export certificates.

In conjunction with this proposed amendment, we also propose to amend § 91.3(c). As explained earlier in this document, § 91.3(c) now provides that the Administrator may permit sampling and testing more than 30 days prior to the date of export if required by the receiving country. This wording does not adequately cover cases where a receiving country allows (rather than requires) sampling or testing more than 30 days prior to the date of export. Therefore, we propose to change this language to provide that the Administrator may permit sampling and testing more than 30 days prior to the date of export when required or allowed by the country of destination.

We also propose to amend § 91.3(a) and (c) to replace the phrase “the date of the movement of the animals for export” with “the date of export.” We currently use both phrases in § 91.3(a) and (c) in various places. It is not clear from “the date of the movement of the animals for export” whether we mean the date that animals move from their premises of origin to the port of embarkation or border, or the date the animals move from the port of embarkation or across the border. We mean the latter, and we believe using the term “date of export” consistently will help clarify that.

Further, we propose to amend 9 CFR part 161, “Requirements and Standards for Accredited Veterinarians and Suspension or Revocation of Such Accreditation.” Currently, § 161.3(b) states that certificates, forms, records, and reports issued by an accredited veterinarian shall be valid for 30 days following the date of inspection of the animal identified on the document. We propose to amend § 161.3(b) to allow an origin health certificate to be valid for more than 30 days when the Administrator allows the animals to be inspected more than 30 days prior to the date of export in accordance with § 91.3.

This proposed rule has been reviewed under Executive Order 12866. The rule has been determined to be not significant for the purposes of Executive Order 12866 and, therefore, has not been reviewed by the Office of Management and Budget.

The regulations currently require all animals intended for exportation from the United States to be accompanied from the State of origin to the port of embarkation or the border of the United States by an origin health certificate. The origin health certificate must be issued by an APHIS representative or an accredited veterinarian. It must certify that the animals were inspected within 30 days of being exported and were found to be healthy and free from evidence of communicable disease and exposure to communicable disease. The origin health certificate must also include all test results, certifications, or other statements required by the country of destination. If required by the country of destination, the Administrator may permit sampling and testing more than 30 days prior to the date of export.

We are proposing to amend part 91 to allow animals to be inspected for the origin health certificate as early as the sampling or testing may be performed. We also propose to amend part 161 to allow an origin health certificate to be valid for more than 30 days when animals are allowed to be inspected more than 30 days prior to the date of movement for export in accordance with § 91.3.

Currently, exporters who have their animals inspected and obtain an origin health certificate more than 30 days prior to the date of export must obtain a new origin health certificate when the animals arrive at the port of embarkation or the border. On average, it costs $150 to have a veterinarian inspect animals for export and issue an origin health certificate. If this proposal is adopted, the original origin health certificate will still be valid when the animals arrive at the port of embarkation or the border, and the exporter will not incur the costs of obtaining an additional origin health certificate.

United Nations trade data show that U.S. exports of live animals are worth more than half a billion dollars a year (see tables 1 and 2). On average, U.S. exports of live animals from 1993 through 1998 were distributed as follows: More than 40 percent went to Mexico and Canada, approximately 15.3 percent went to Japan, approximately 2 percent went to Brazil, 1.4 percent went to Turkey, 1.1 percent went to the Republic of Korea (Korea), and less than 1 percent went to Egypt or Taiwan. Of these countries, Brazil, Egypt, Japan, Korea, Taiwan, and Turkey provide for sampling and testing of live animals more than 30 days prior to exportation from the country of origin.

Kazakhstan, Turkmenistan, and Uzbekistan also provide for sampling and testing of live animals more than 30 days prior to exportation from the country of origin. These three Central Asian countries have imported relatively few live animals in the 6-years period from 1993 through 1998 and none from the United States. Table 3 shows the value of live animals imported into these three countries, based on United Nations data.

This proposed rule would facilitate live animal exports from the United States to Brazil, Egypt, Japan, Kazakhstan, Korea, Taiwan, Turkey, Turkmenistan, Uzbekistan, and other countries that may allow or require animals to be tested, or samples to be taken for testing, more than 30 days prior to export from the United States. Approximately 19 percent of live animal exports from the United States went to these countries over the 6-year period from 1993 through 1998. We do not know how many of these shipments were made by small entities. However, all U.S. entities, including small entities, who export live animals to these countries would benefit from this proposal, albeit in a relatively small way, by not having to bear the costs of an additional origin health certificate, estimated at approximately $150 per shipment.

Under these circumstances, the Administrator of the Animal and Plant Health Inspection Service has determined that this action would not have a significant economic impact on a substantial number of small entities.

This program/activity is listed in the Catalog of Federal Domestic Assistance under No. 10.025 and is subject to Executive Order 12372, which requires intergovernmental consultation with State and local officials. (See 7 CFR part 3015, subpart V.)

This proposed rule has been reviewed under Executive Order 12988, Civil Justice Reform. If this proposed rule is adopted: (1) All State and local laws and regulations that are inconsistent with this rule will be preempted; (2) no retroactive effect will be given to this rule; and (3) administrative proceedings will not be required before parties may file suit in court challenging this rule.

This proposed rule contains no information collection or recordkeeping requirements under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ).

Accordingly, we propose to amend 9 CFR parts 91 and 161 as follows:

The discussion topics are tentative and subject to change. Anyone interested in providing a presentation on these or other related topic(s), please contact Egan Wang at (301) 415-1076. This workshop will provide an opportunity to discuss topics related to Option 2 in risk-informed regulations.

The NRC's proposed rule can be obtained from the NRC website (http://www.nrc.gov/NMSS/DWM/hlwreg.html), or by contacting Ms. Judy Goodwin at (301) 415-5870 or via e-mail at jcg@nrc.gov. Copies of the rule will also be available at the meetings.

Interested persons are invited to participate in the making of the proposed rule by submitting such written data, views, or arguments as they may desire. Communications shall identify the Rules Docket number and be submitted in triplicate to the address specified above. All communications received on or before the closing date for comments, specified above, will be considered before taking action on the proposed rule. The proposals contained in this notice may be changed in light of the comments received.

Comments are specifically invited on the overall regulatory, economic, environmental, and energy aspects of the proposed rule. All comments submitted will be available, both before and after the closing date for comments, in the Rules Docket for examination by interested persons. A report summarizing each FAA-public contact concerned with the substance of this proposal will be filed in the Rules Docket.

Commenters wishing the FAA to acknowledge receipt of their comments submitted in response to this notice must submit a self-addressed, stamped postcard on which the following statement is made: “Comments to Docket Number 99-NM-356-AD.” The postcard will be date stamped and returned to the commenter.

Any person may obtain a copy of this NPRM by submitting a request to the FAA, Transport Airplane Directorate, ANM-114, Attention: Rules Docket No. 99-NM-356-AD, 1601 Lind Avenue, SW., Renton, Washington 98055-4056.

The Departmento de Aviacao Civil (DAC), which is the airworthiness authority for Brazil, notified the FAA that an unsafe condition may exist on certain EMBRAER EMB-120 series airplanes. The DAC advises that, in the event of the loss of the green hydraulic system pressure, if the present Airplane Flight Manual (AFM) “Free-Fall” operational procedure is not followed, there is a possibility that the landing gear doors may not open. Investigation revealed that blockage of the doors may occur due to the energizing of the landing gear door selector valve in the absence of hydraulic fluid. (The spool valve may not shift completely and may result in trapped fluid in the door's closure line.) This condition, if not corrected, could result in the landing gear doors becoming blocked from opening during application of emergency procedures in the event of a loss of hydraulics.

In light of this information, the FAA finds that certain cautionary statements should be included in the FAA-approved AFM to ensure that correct procedures are followed in the event of a loss of hydraulics. The FAA has determined that the procedures currently may not be defined adequately in the AFM for these airplanes.

Empresa Brasileira de Aeronautica S.A. (EMBRAER) has issued Service Bulletin 120-32-0077, Change 02, dated December 23, 1997, which describes procedures for installation of hydraulic tube assemblies incorporating a check valve. For airplanes already equipped with those check valves, the service bulletin describes procedures for a visual inspection to detect the check valve flow direction, and reorientation of the valve, if installed incorrectly. The DAC classified this service bulletin as mandatory and issued Brazilian airworthiness directive 97-05-03R2, dated March 16, 1998, in order to assure the continued airworthiness of these airplanes in Brazil. The installation of hydraulic tube assemblies incorporating a check valve is intended to modify the hydraulic system to make the landing gear “Free-Fall” system more tolerant to operational variations from AFM procedures. The Brazilian AD also mandates incorporation of an AFM revision of abnormal landing gear extension procedures.

This airplane model is manufactured in Brazil and is type certificated for operation in the United States under the provisions of section 21.29 of the Federal Aviation Regulations (14 CFR 21.29) and the applicable bilateral airworthiness agreement. Pursuant to this bilateral airworthiness agreement, the DAC has kept the FAA informed of the situation described above. The FAA has examined the findings of the DAC, reviewed all available information, and determined that AD action is necessary for products of this type design that are certificated for operation in the United States.

Since an unsafe condition has been identified that is likely to exist or develop on other airplanes of the same type design registered in the United States, the proposed AD would require incorporation of a revision to the “Emergency Procedures” and “Abnormal Procedures” sections of the FAA-approved AFM. This revision includes cautionary statements to ensure that correct procedures are followed in the event of a loss of hydraulics. The AD would also require accomplishment of the actions specified in the service bulletin described previously.

The proposed AD differs from the parallel Brazilian airworthiness directive. This proposed AD would require the check valve installation within 2,000 flight hours after the effective date of the AD, whereas the original version of the Brazilian airworthiness directive mandated the installation within 400 hours after the effective date of that AD. The 2,000-flight-hour interval generally corresponds to a “C-check” maintenance period for the EMBRAER EMB-120. The FAA finds that a 2,000-flight-hour compliance time provides an adequate level of safety, and will allow operators to accomplish the installation at the next “C-check.”

The Brazilian airworthiness directive mandates incorporation of a specific revision level for each of five different AFM's. Of these five, only AFM 120/794 is applicable to U.S.-registered airplanes. Thus, the proposed AD would mandate incorporation of Revision 45 to AFM 120/794.

The FAA estimates that 213 airplanes of U.S. registry would be affected by this proposed AD.

The FAA estimates that it would take approximately 1 work hour per airplane to incorporate the applicable AFM revision, and that the average labor rate is $60 per work hour. Based on these figures, the cost impact of the AFM revision proposed by this AD on U.S. operators is estimated to be $12,780, or $60 per airplane.

The FAA estimates that it would take approximately 1 work hour per airplane to perform the visual inspection of the check valve, and that the average labor rate is $60 per work hour. Based on these figures, the cost impact of the inspection proposed by this AD on U.S. operators is estimated to be $60 per airplane.

The FAA estimates that it would take approximately 2 work hours per airplane to install the hydraulic tube assemblies incorporating a check valve, and that the average labor rate is $60 per work hour. Required parts would cost approximately $2,021 per airplane. Based on these figures, the cost impact of the installation proposed by this AD on U.S. operators is estimated to be $2,141 per airplane.

The cost impact figures discussed above are based on assumptions that no operator has yet accomplished any of the proposed requirements of this AD action, and that no operator would accomplish those actions in the future if this AD were not adopted.

The regulations proposed herein would 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. Therefore, in accordance with Executive Order 12612, it is determined that this proposal would not have sufficient federalism implications to warrant the preparation of a Federalism Assessment.

For the reasons discussed above, I certify that 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); and (3) if promulgated, 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. A copy of the draft regulatory evaluation prepared for this action is contained in the Rules Docket. A copy of it may be obtained by contacting the Rules Docket at the location provided under the caption ADDRESSES.

Accordingly, pursuant to the authority delegated to me by the Administrator, the Federal Aviation Administration proposes to amend part 39 of the Federal Aviation Regulations (14 CFR part 39) as follows:

Interested persons are invited to participate in the making of the proposed rule by submitting such written data, views, or arguments as they may desire. Communications shall identify the Rules Docket number and be submitted in triplicate to the address specified above. All communications received on or before the closing date for comments, specified above, will be considered before taking action on the proposed rule. The proposals contained in this notice may be changed in light of the comments received.

Comments are specifically invited on the overall regulatory, economic, environmental, and energy aspects of the proposed rule. All comments submitted will be available, both before and after the closing date for comments, in the Rules Docket for examination by interested persons. A report summarizing each FAA-public contact concerned with the substance of this proposal will be filed in the Rules Docket.

Commenters wishing the FAA to acknowledge receipt of their comments submitted in response to this notice must submit a self-addressed, stamped postcard on which the following statement is made: “Comments to Docket Number 2000-NM-49-AD.” The postcard will be date stamped and returned to the commenter.

Any person may obtain a copy of this NPRM by submitting a request to the FAA, Transport Airplane Directorate, ANM-114, Attention: Rules Docket No. 2000-NM-49-AD, 1601 Lind Avenue, SW., Renton, Washington 98055-4056.

Supplemental Type Certificates (STC) SA1063SO and SA1377SO [originally issued to Aeronautical Engineers, Inc. (AEI)] specify a design for installation of a main deck cargo door, associated door cutout in the fuselage, door hydraulic and indication systems, and Class “E” cargo interior with a cargo barrier on McDonnell Douglas Model DC-8 series airplanes. STC SA1063SO installs the main deck cargo door and associated hydraulic and indication systems. STC SA1377SO installs the Class “E” interior with a cargo barrier, a cargo handling system, and a 9g crash barrier. The FAA has conducted a design review of Model DC-8 series airplanes modified in accordance with STC's SA1063SO and SA1377SO and has conducted discussions regarding the design with the STC holder. From the design review and these discussions, the FAA has identified several potential unsafe conditions. [Results of this design review are contained in “DC-8 Cargo Modification Review Team, Review of AEI Supplemental Type Certificates SA1063SO—Installation of a Cargo Door and SA1377SO—Installation of a Cargo Interior, Final Report, dated July 30, 1999,” hereinafter referred to as “the Design Review Report,” which is included in the Rules Docket for this NPRM.]

For airplanes modified in accordance with STC SA1063SO, this NPRM proposes corrective actions for those potential unsafe conditions that relate to the hydraulic and indication systems of the main deck cargo door and a means to prevent pressurization to an unsafe level if the main deck cargo door is not fully closed, latched, and locked. These conditions, if not corrected, could result in opening of the cargo door while the airplane is in flight, and consequent rapid decompression of the airplane including possible loss of flight control or severe structural damage.

The FAA is considering further rulemaking to address the remaining potential unsafe conditions on Model DC-8 series airplanes modified in accordance with STC SA1063SO that relate to the main deck cargo door hinge and fuselage structure in the area modified by installation of a main deck cargo door. In addition, the FAA is considering further rulemaking to address the potential unsafe conditions on Model DC-8 series airplanes modified in accordance with STC SA1377SO that relate to the unreinforced main deck floor, 9g crash barrier, and fire/smoke detection system.

In early 1989, two transport airplane accidents were attributed to cargo doors coming open during flight. The first accident involved a Boeing Model 747 series airplane in which the cargo door separated from the airplane, and damaged the fuselage structure, engines, and passenger cabin. The second accident involved a McDonnell Douglas DC-9 series airplane in which the cargo door opened but did not separate from its hinge. The open door disturbed the airflow over the empennage, which resulted in loss of flight control and consequent loss of the airplane. Although cargo doors have opened occasionally without mishap shortly after the airplane was in flight, these two accidents served to highlight the extreme potential dangers associated with the opening of a cargo door while the airplane is in flight.

As a result of these cargo door opening accidents, the Air Transport Association (ATA) of America formed a task force, including representatives of the FAA, to review the design, manufacture, maintenance, and operation of airplanes fitted with outward opening cargo doors, and to make recommendations to prevent inadvertent cargo door openings while the airplane is in flight. A design working group was tasked with reviewing 14 CFR part 25.783 [and its accompanying Advisory Circular (AC) 25.783-1, dated December 10, 1986] with the intent of clarifying its contents and recommending revisions to enhance future cargo door designs. This design group also was tasked with providing specific recommendations regarding design criteria to be applied to existing outward opening cargo doors to ensure that inadvertent openings would not occur in the current transport category fleet of airplanes.

The ATA task force made its recommendations in the “ATA Cargo Door Task Force Final Report,” dated May 15, 1991 (hereinafter referred to as “the ATA Final Report”). On March 20, 1992, the FAA issued a memorandum to the managers of the Transport Airplane Directorate (TAD) and Los Angeles, Seattle, and Atlanta Aircraft Certification Offices (hereinafter referred to as “the FAA Memorandum”), acknowledging ATA's recommendations and providing additional guidance for purposes of assessing the continuing airworthiness of existing designs of outward opening doors. The FAA Memorandum was not intended to upgrade the certification basis of the various airplanes, but rather to identify criteria to evaluate potential unsafe conditions identified on in-service airplanes. Appendix 1 of this AD contains the specific paragraphs from the FAA Memorandum that set forth the criteria to which the outward opening doors should be shown to comply.

Utilizing the applicable requirements of Civil Air Regulations (CAR) part 4b and the design criteria provided by the FAA Memorandum, the FAA has reviewed the original type design of major transport airplanes, including McDonnell Douglas Model DC-8 airplanes equipped with outward opening doors, for any design deficiency or service difficulty. Based on that review, the FAA identified unsafe conditions and issued, among others, the following AD's and NPRM:

• For certain McDonnell Douglas Model DC-9 series airplanes: AD 89-11-02, amendment 39-6216 (54 FR 21416, May 18, 1989);

• For all Boeing Model 747 series airplanes: AD 90-09-06, amendment 39-6581 (55 FR 15217, April 23, 1990);

• For certain McDonnell Douglas Model DC-8 series airplanes: AD 89-17-01 R1, amendment 39-6521 (55 FR 8446, March 8, 1990);

• For certain Boeing Model 747-100 and -200 series airplanes: AD 96-01-51, amendment 39-9492 (61 FR 1703, January 23, 1996);

• For certain Boeing Model 727-100 and -200 series airplanes: AD 96-16-08, amendment 39-9708 (61 FR 41733, August 12, 1996);

• For certain McDonnell Douglas Model DC-8 series airplanes: NPRM Rules Docket No. 99-NM-338-AD (64 FR 72689, December 22, 1999); and

• For certain McDonnell Douglas Model DC-8 series airplanes: NPRM Rules Docket No. 2000-NM-01-AD (65 FR 7796, February 16, 2000).

In late 1997, the FAA informed the STC holders and operators of Model DC-8 series airplanes that it was embarking on a review of Model DC-8 series airplanes that have been converted from a passenger to a cargo-carrying (“freighter”) configuration by STC. The FAA proposed at a subsequent industry sponsored meeting in early 1998, that DC-8 operators and STC holders work together to identify and address potential safety concerns. This suggestion to the affected industry resulted in the creation of the DC-8 Cargo Conversion Joint Task Force (JTF) (hereinafter referred to as “the JTF”).

The current composition of the JTF includes holders of each of the six STC's that addresses the installation of a main deck cargo door in Model DC-8 series airplanes and operators and lessors of those modified airplanes. At the JTF's request, the FAA participates in its meetings to offer counsel and guidance with respect to the FAA's regulatory processes. The JTF is a clearinghouse for the gathering and sharing of information among the parties affected by the FAA review of STC cargo conversions of Model DC-8 series airplanes. The JTF also is a liaison between the FAA, operators, and STC holders.

The JTF has been working with the FAA to provide data relating to the number of STC modified Model DC-8 series airplanes and operators of those airplanes, and identified which airplanes are modified by each STC. It also was instrumental in polling the operators and providing maintenance schedules and locations to the FAA, which helped the FAA arrange visits to operators of airplanes modified by each of the STC's. These visits allowed the FAA to review both the available data supporting each STC and modified airplanes and to identify potential safety concerns with each of the STC modifications. Additionally, the JTF has coordinated funding of the industry review of the data supporting the STC's and ongoing efforts to resolve safety issues identified by the FAA.

Using the applicable requirements of CAR part 4b and the criteria specified in the FAA Memorandum as evaluation guides, the FAA, in collaboration with the JTF, conducted an engineering design review and inspection of an airplane modified in accordance with STC SA1063SO. The FAA identified a number of design features of the main deck cargo door systems of STC SA1063SO that are unsafe and do not meet the applicable requirements of CAR part 4b or the criteria specified in the FAA Memorandum. These systems include the door indication and hydraulic systems. The FAA design review team also determined that the design data of this STC did not include an adequate safety analysis of the main deck cargo door systems.

For airplanes modified in accordance with STC SA1063SO, the FAA considers the following five specific design deficiencies of the main deck cargo door systems to be unsafe:

The main deck cargo door indication system for STC SA1063SO utilizes door warning lights at the door operator's control panel and the flight engineer's panel. The warning lights do not indicate either the door open or closed status, or latch or lock status. All three conditions ( i.e., door closed, latched, and locked) must be monitored directly so that the door indication system cannot display either “latched” before the door is closed or “locked” before the door is latched. If a sequencing error caused the door to latch and lock without being fully closed, the subject indication system, as currently designed, would not alert the door operator or the flight engineer of this condition. As a result, the airplane could be dispatched with the main deck cargo door unsecured, which could lead to the cargo door opening while the airplane is in flight.

The light on the flight engineer's panel is labeled “Cargo Door” and is displayed in red since it indicates an event that requires immediate pilot action. However, if the flight engineer is temporarily away from his station, a door unsafe warning indication could be missed by the pilots. In addition, the flight engineer could miss such an indication by not scanning the panel. As a result, the pilots and flight engineer could be unaware of or misinterpret an unsafe condition and could fail to respond in the correct manner. The warning lights have a “Press-to-Test” feature which is adequate to check the light bulb functionality, but is not adequate to check the cargo door closed, latched, and locked functions. Therefore, an indicator light that monitors all three conditions ( i.e., door closed, latched, and locked) must be located in front of and in plain view of both pilots since one of the pilot's stations is always occupied during flight operations.

During an FAA review of STC modified airplanes, instances of distress of the wire bundle between the fuselage and main deck cargo door and the associated attach hardware were noted. Therefore, a one-time general visual inspection of this area to detect crimped, frayed, or chafed wires is necessary to ensure the electrical continuity of the existing door indication system during the interim period.

The locking system of STC SA1063SO consists of a lock pin installed at one of the seven latches of the main deck cargo door. The single view port of the main deck cargo door installed in accordance with STC SA1063SO monitors the position of the torque tube that actuates the door latches, but does not provide a means to ensure the position of the lock pin. Therefore, a means to visually inspect the door locking mechanism must be installed to ensure that the door is fully closed, latched, and locked.

As discussed in the ATA Final Report and the FAA Memorandum, there should be a means of directly inspecting each lock or, at a minimum, the locks at each end of the lock shaft of certain designs, such that a failure condition in the lock shaft would be detectable.

McDonnell Douglas Model DC-8 series airplanes modified in accordance with STC SA1063SO are not equipped with a means to prevent pressurization of the airplane to an unsafe level in the event that the main deck cargo door is not fully closed, latched, and locked. Therefore, such a means must be installed.

STC SA1063SO utilizes a nose gear squat switch to remove power ( i.e., electrical and hydraulic) from the door control master switch while the airplane is in flight. Latent failure of the squat switch together with other latent and/or single point failures could precipitate inadvertent door openings. Therefore, a means to remove power from the door controls must be installed to prevent inadvertent opening of the main deck cargo door in flight.

A systems safety analysis would normally evaluate and resolve the potential for these types of unsafe conditions. The need for a system safety analysis is identified in the ATA Final Report and the FAA Memorandum.

Analysis of the existing latching and locking mechanism of the main deck cargo door indicates that in the event of a system jam, continued operation of the hydraulic cylinders could result in structural deformation of elements of the latching and locking mechanisms. Structural deformation of the locking mechanism could result in the single door latch equipped with a lock not being locked and consequent erroneous indication to the pilots that the latch is locked properly. Further, the FAA has determined that a lock on a single latch is inadequate to provide the level of safety envisioned by the applicable certification requirements. Therefore, the latching and locking systems for the main deck cargo door must be modified to prevent structural deformation, which could result in incorrect indication to the pilots that the door is not fully closed, latched, and locked.

Since unsafe conditions have been identified that are likely to exist or develop on other products of this same type design, the proposed AD would require, within 60 days after the effective date of this AD, a general visual inspection of the wire bundle of the main deck cargo door between the exit point of the cargo liner and the attachment point on the main deck cargo door to detect crimped, frayed, or chafed wires; a general visual inspection for damaged, loose, or missing hardware mounting components; and repair, if necessary. These actions would be required to be accomplished in accordance with FAA-approved maintenance procedures.

The proposed AD also would require, within 60 days after the effective date of the AD, a revision of the Limitations Section of the appropriate FAA-approved Airplane Flight Manual Supplement (AFMS) for STC SA1063SO by inserting therein procedures to ensure that the main deck cargo door is closed, latched, and locked prior to dispatch of the airplane; and installation of any associated placards. These actions would be required to be accomplished in accordance with a method approved by the Manager, Los Angeles Aircraft Certification Office (ACO), FAA, Transport Airplane Directorate.

The proposed AD also would require, within 18 months after the effective date of this AD, the following actions:

• Modification of the indication system of the main deck cargo door to indicate to the pilots whether the main deck cargo door is fully closed, latched, and locked;

• Modification of the mechanical and hydraulic systems of the main deck cargo door to eliminate detrimental deformation of the elements of the door latching and locking mechanisms;

• Installation of a means to visually inspect the locking mechanism of the main deck cargo door;

• Installation of a means to remove power to the door while the airplane is in flight; and

• Installation of a means to prevent pressurization to an unsafe level if the main deck cargo door is not fully closed, latched, and locked.

The modifications and installations would be required to be accomplished in accordance with a method approved by the Manager, Los Angeles ACO. Accomplishment of the modifications and installations would constitute terminating action for the inspections, AFMS revision, and associated placards described previously.

There are approximately 15 Model DC-8 series airplanes of the affected design in the worldwide fleet. The FAA estimates that 11 airplanes of U.S. registry would be affected by this proposed AD.

It would take approximately 1 work hour per airplane to accomplish the general visual inspections, at an average labor rate of $60 per work hour. Based on these figures, the cost impact of the general visual inspections proposed by this AD on U.S. operators is estimated to be $660, or $60 per airplane, per inspection cycle.

It would take approximately 1 work hour per airplane to accomplish the AFMS revision and installation of associated placards, at an average labor rate of $60 per work hour. Based on these figures, the cost impact of the AFMS revision and installation of associated placards proposed by this AD on U.S. operators is estimated to be $660, or $60 per airplane.

The FAA estimates that it would take approximately 210 work hours per airplane to accomplish the modification required by paragraph (c) of the proposed AD, at an average labor rate of $60 per work hour. The FAA also estimates that required parts would cost approximately $45,000 per airplane. Based on these figures, the cost impact of this modification proposed by this AD on U.S. operators is estimated to be $633,600, or $57,600 per airplane.

The cost impact figures discussed above are based on assumptions that no operator has yet accomplished any of the proposed requirements of this AD action, and that no operator would accomplish those actions in the future if this AD were not adopted.

The regulations proposed herein 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. Therefore, it is determined that this proposal would not have federalism implications under Executive Order 13132.

For the reasons discussed above, I certify that 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); and (3) if promulgated, 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. A copy of the draft regulatory evaluation prepared for this action is contained in the Rules Docket. A copy of it may be obtained by contacting the Rules Docket at the location provided under the caption ADDRESSES.

Accordingly, pursuant to the authority delegated to me by the Administrator, the Federal Aviation Administration proposes to amend part 39 of the Federal Aviation Regulations (14 CFR part 39) as follows:

The events in 1998 involving highly leveraged hedge funds, particularly the near collapse of Long Term Capital Portfolio, L.P. (“LTCM”), raised concerns that problems at one such financial institution, under certain circumstances, could be transmitted to other financial institutions and pose material systemic risks to the financial system of the United States and to international financial systems. In the months following these events, the President's Working Group on Financial Markets (the “PWG”) conducted a study of the events and their policy implications and, in April of 1999, issued “Hedge Funds, Leverage, and the Lessons of Long Term Capital Management: Report of The President's Working Group on Financial Markets” (the “PWG Report”). 1

The PWG Report stated that the “primary mechanism that regulates risk taking by firms in a market economy is the market discipline provided by creditors, counterparties (including financial contract counterparties), and investors.”  2 The report observed, however, that “market discipline tends to be effective only when creditors have the incentives and the means to evaluate the riskiness of the firm.”  3 The report concluded that investors and counterparties had “exercised minimal scrutiny of its risk management practices and [its] risk profile” and were “almost certainly not adequately aware” of the “nature of the exposures and risks [LTCM] had accumulated.”  4 The report attributed this “insufficient monitoring” to “LTCM's practice of disclosing only minimal information” about itself that “did not reveal meaningful details about [its] risk profile.”  5

Thus, the members of the PWG unanimously recommended that “more frequent and meaningful information on hedge funds should be made public”  6 and that the public disclosures should include risk information. Specifically, the report recommended that: (i) registered CPOs operating large funds begin filing with the Commission quarterly, rather than annual, reports of financial information; (ii) in addition to traditional financial statements, these reports include more “meaningful and comprehensive measures of market risk ( e.g. , value at risk or stress test results), without requiring the disclosure of proprietary information on strategies or positions;”  7 and (iii) these reports be published. Separately, the report recommended that “regulators should encourage improvements in the risk management systems of regulated entities.”  8

With respect to hedge funds that are not currently registered as CPOs, the PWG Report recommended that “a means for disclosure should be developed to ensure that similar financial information is provided to the public” but recognized that “Congress would need to enact legislation that authorizes mechanisms for [such] disclosure.”  9 On September 23, 1999, Representative Richard Baker of Louisiana introduced a bill which would require unregulated hedge funds to report certain financial and risk information to the Federal Reserve Board. As amended on March 16, 2000, and referred by the Subcommittee on Capital Markets to the full Committee on Banking and Financial Services, this legislation would require each such hedge fund or family of such hedge funds with total assets of $3 billion or net assets of $1 billion to report to the Board on a quarterly basis both “[m]eaningful and comprehensive financial information (such as a complete set of financial statements * * *)” and “[m]eaningful and comprehensive measures of risk (such as value-at-risk or stress test results).”  10

In advocating the reporting of risk, as well as financial, information, the PWG report pointed out that financial leverage, particularly when measured by balance sheet leverage, does not by itself provide an adequate measure of risk because “for any given balance sheet leverage ratio, the fragility of a portfolio depends on the market, credit, and liquidity risks in the portfolio.”  11 Financial information should be supplemented with a “statistical measure” such as “value-at-risk relative to net worth,” which would “produce a more meaningful description of leverage in terms of risk.”  12

The PWG believes that improving the transparency of the risk profiles of hedge funds would help other market participants make more informed judgments about market integrity and the creditworthiness of borrowers and counterparties. Secretary of the Treasury Lawrence Summers recently noted that the public sector “can help to enhance the effectiveness of market discipline by creating an environment of greater transparency and disclosure. * * * [A]gencies should continue to apply the recommendations of the [PWG Report] that are designed to enhance the monitoring of leverage and risk, and to improve transparency, especially the steps to increase reporting by the largest hedge funds. * * *”  13

Moreover, the PWG has not been the only group to recognize these advantages of greater public disclosure. The PWG's recommendations have met with the approval of international financial regulators. The International Organization of Securities Commissioners (IOSCO) released a report last November which stated that:

Similarly, the Financial Stability Forum, a group consisting of the U.S. Treasury and the Federal Reserve Bank of New York as well as the Basel Committee on Banking Supervision, IOSCO and financial regulators from the UK, France, Germany, Australia, Italy, and Hong Kong, released in March a report which stated that:

The regulations proposed today are intended to implement the PWG Report recommendations discussed above, and are consistent with the recommendations of the IOSCO Hedge Fund Report and the FSF Report. As described more fully below, they would require operators of the largest commodity pools to file, with respect to each pooled investment vehicle under their direct or indirect control, including vehicles which are not commodity pools, (1) an initial report that would provide summary descriptions of key aspects of their risk management practices, and (2) quarterly reports that would disclose both financial information and information about the exposure of the pool to market risk over the course of the quarter (but that would not reveal positions or trading strategies).

Proposed Section 4.27(b) would define a reporting person as a commodity pool operator that controls one or more pools where, at the end of a quarter, either (a) the controlled assets of such pool or pools total three billion dollars ($3,000,000,000) or greater or (b) the controlled net assets of such pool or pools total one billion dollars ($1,000,000,000) or greater. These thresholds are intended to limit the reporting requirement to the CPOs of funds whose activities potentially could have systemic risk effects. Any person which has met these thresholds at the end of any of the past three quarters is included as a reporting person in order to ensure a reasonable continuation of coverage of hedge funds which may be experiencing problems. Based on financial filings received pursuant to existing rules, the Commission believes that approximately twenty-five pool operators would be required to report under the proposed rule.

The Commission requests comment on whether these criteria for “reporting persons” are appropriate and whether other criteria should be applied.

Participation in many of the funds that would be subject to proposed Rule 4.27 is limited to large, sophisticated investors that are generally considered to need less protection than other customers. Pursuant to Rules 4.7, 4.8, and 4.12(b), these funds may be exempted from specified provisions of other Part 4 rules.  17 In contrast to other rules under Part 4, however, Rule 4.27 is not intended primarily as a means of customer protection. Rather, the regulation is intended to facilitate the exercise of market discipline by other market participants in their dealings with hedge funds that, because of their size, could potentially have systemic risk effects. The importance of facilitating market discipline, to the benefit of counterparties and the market at large, is independent of the sophistication of the investors in any particular pool. Accordingly, the proposed rule does not exempt funds from the provisions of Rule 4.27 on the grounds that participation in such funds is limited to large, sophisticated investors.

Rule 4.12(a) permits the Commission to “exempt any person or any class or classes of persons from any provision of this Part 4 if it finds that the exemption is not contrary to the public interest.” A number of persons have received such exemptions on the grounds that participants in their pools are not in need of customer protections provided by the Part 4 rules. Most of these persons manage funds that would fall below the size threshold of Rule 4.27. However, for the reasons stated above, no person that controls any pool or pools that satisfy the thresholds of Section 4.27(b) and that has obtained relief pursuant to Rule 4.12(a) prior to the effective date of these rules will be exempt from Rule 4.27 by virtue of such relief. No person that obtains relief pursuant to Rule 4.12(a) in accordance with a Commission order or an exemptive letter issued subsequent to the effective date of these rules will be exempt from Rule 4.27 unless such order or letter expressly exempts such person from Rule 4.27.

Rule 4.5 excludes certain entities from the definition of commodity pool operator on the grounds that they are otherwise regulated. 18 These entities include investment companies, insurance companies, banks, trust companies, and fiduciaries and employers subject to ERISA. 19 Proposed Rule 4.27, by its terms, would only apply to commodity pool operators. Therefore, entities excluded from the definition of commodity pool operator pursuant to Rule 4.5 would not be required to file reports under proposed Rule 4.27.

Each reporting person would file two types of reports: (i) An initial set of qualitative descriptions of its risk management practices and (ii) quarterly reports disclosing quantitative financial and risk exposure information. The initial descriptions would be filed concurrently with the first quarterly report; thereafter, revised responses that reflect material changes, if any, to the initial descriptions would be filed concurrently with subsequent quarterly reports. Each quarterly report would be filed not later than thirty days after the end of each quarter.

As noted above, the discipline exercised by other market participants can provide a critical means of controlling excessive leverage and, thus, constraining the added market, credit, and funding liquidity risks generated thereby. Public disclosure of the information collected under this rule should help other market participants to make more informed judgments and to more effectively exercise market discipline. This discipline is expected to both constrain excessive leverage of reporting persons and encourage reporting persons to adopt best practices in risk management as such evolve within the industry. Accordingly, the Commission is proposing to disclose publicly both the initial descriptions and the quarterly reports. 20 Section 4.27(f). The Commission intends to make this information available over the Internet within one business day after receipt. Thus, the Commission effectively would serve as a conduit for transmitting this information to the public.

Discussions of the quantitative financial and risk information proposed to be reported on a quarterly basis are presented in sections 1 and 2 below, respectively. The qualitative risk management information to be reported initially is discussed in section 3. Specific filing and attestation requirements are set forth in section 4, while definitional matters are discussed in section 5.

Market discipline can only serve as an effective check upon excessive leverage if other market participants can obtain meaningful information about a reporting person's financial condition on a reasonably timely basis. The PWG Report observed that “[c]urrently, the scope and timeliness of information made available about the financial activities of hedge funds are limited.”  21 As noted above, the first of its recommendations was that “[h]edge funds should be required to disclose additional, and more up-to-date, information to the public” and that CPOs should file “quarterly reports rather than annual reports.”  22 Accordingly, consistent with the PWG Report's recommendations, Section 4.27(d)(1) of the proposed rule would require each reporting person to report on a quarterly basis certain key financial information for each pool under its control, including statements of income, financial condition, changes in financial position, and changes in net asset value.

Leverage has been described within the hedge fund industry not as an independent source of risk but, rather, as “a factor that influences the rapidity with which changes in market risk, credit risk or liquidity risk factors” create losses. 23 It has been noted that “the market risk inherent in a [hedge fund], coupled with the constraints imposed by funding liquidity, make the amplifying effect of leverage of particular concern to [hedge fund managers].”  24 The PWG emphasized that leverage is not an adequate measure of risk because “for any given balance sheet leverage ratio, the fragility of a portfolio depends on the market, credit, and liquidity risks in the portfolio.”  25

Accordingly, the Commission believes that, in order to fairly portray the risk profile of reporting persons, the quarterly financial information discussed above should be supplemented with certain quantitative risk information. Currently, the most widely accepted methodology of calculating exposure to market risk is value-at-risk (also called “capital-at-risk”). Value-at-risk is calculated using statistical techniques, and represents the largest dollar loss  26 which is expected to be suffered over a given investment horizon or “holding period” (for example, one day or ten days) with a given degree of certainty or “confidence level” (for example, 95% or 99.6%). 27 Because it is expressed in dollars, value-at-risk for a particular entity can be compared over time and, in some circumstances, across multiple entities (for example, when all such entities compute value-at-risk using the same confidence level and holding period). Most importantly, value-at-risk incorporates correlations among positions in the portfolio without revealing the positions themselves; it does not compromise the confidentiality of a firm's trading strategies.

The methodology commonly understood as “value-at-risk” may, in the future, be replaced by some other method of measuring of market risk. Indeed, one or more reporting persons may already have developed such an alternative method. Accordingly, for purposes of proposed Rule 4.27 and in the discussion below, the term “VAR” shall mean any measure of exposure to market risk, including value-at-risk, that can be expressed in dollars and that represents the amount that a pool's losses during a stated period are expected not to exceed, with a stated degree of certainty.

VAR would complement traditional balance sheet measures of leverage by giving other market participants insight into the magnitude of the firm's exposure to losses. Under Section 4.27(d)(2)(i), each reporting person would be required to report for each pool under its control the highest, lowest, and ending VAR calculated during the reporting period at each confidence level and holding period for which VAR is normally calculated by the reporting person. However, as further discussed below, the proposed rule would not require disclosure of stress test results so as not to discourage reporting persons from conducting the most rigorous stress tests. 28 Some reporting persons may conduct stress testing by calculating VAR at extremely high confidence levels. Accordingly, no reporting person would be required to report VAR calculated at a confidence level in excess of 99.6%. (This is the confidence level corresponding to a VAR not expected to be exceeded more often than once in a year of 250 trading days).

A matrix of VAR results ( e.g., for 95%, 98%, and 99.6% confidence levels) would be more informative than a single result. Accordingly, the proposed rule requires disclosure of the highest, lowest, and ending VAR at each confidence level and holding period for which VAR is calculated by the reporting person. The Commission is aware, however, that this approach might be more burdensome than requiring, for example, results at the single highest confidence level for which VAR is calculated. The Commission invites comment on the best approach to take in this regard.

Under Section 4.27(d)(2)(ii), each reporting person would be required to report for each holding period for which it calculates VAR the frequency during the quarter with which losses for each pool under its control exceeded the corresponding VAR for such pool (at the highest confidence level calculated not exceeding 99.6%). Each reporting person would also be required to report the dollar magnitude of the greatest loss experienced by each pool during the quarter. The importance of examining the magnitude, as well as the frequency, of losses in excess of VAR is exemplified by the recommendation of one group of hedge fund managers that “[e]ven if the frequency of changes in value in excess of that generated by the market risk model is within the expected range, if the observed change in the value of the portfolio differs significantly from the change that would be expected, given the composition of the portfolio and the observed changes in the market factors, [the hedge fund manager] should reconcile the difference.”  29

Many hedge funds actively seek risk, and indeed serve the market by acting as “risk absorbers;” that is, “by standing ready to lose capital, [they] act as a buffer for other market participants in absorbing ‘shocks.' ”  30 The ratio of VAR to net asset value (“NAV”) provides an indication of the ability of a firm to absorb the losses that it is likely to experience during normal market conditions. This type of ratio very usefully relates the separate concepts of leverage and risk to one another. The Industry Sound Practices report recommends that hedge fund managers track the leverage of their funds by “using ‘risk-based leverage' measures reflecting the relationship between the riskiness of a * * * portfolio and the capacity * * * to absorb the impact of that risk.” “VAR/Equity” is one of several such measures mentioned in the report. 31

To be sure, the calculation of VAR is highly sensitive to the selection of the confidence level at which it is measured, and the holding period over which it is calculated. There is no widely accepted standard for either of these parameters. For example, a 95% one-day VAR for a particular firm may be a relatively low dollar value that is expected to be exceeded every month (95% covering 19 out of 20 trading days in a month). By contrast, a 99.6% one-day VAR for the same firm might be a significantly larger dollar value that is not expected to be exceeded more often than once a year (99.6% covering 249/250 trading days). Many firms use each of these confidence levels and still other firms use levels of 98%, 99%, and so forth.

The Commission has considered whether it would be advisable to ensure that reported VAR information would remain directly comparable across multiple firms. To do so, the Commission would have to mandate the confidence level and holding period for which firms would be required to calculate and report VAR. This would mean, however, that some firms might be compelled to begin calculating VAR information that they do not already prepare and that would be inconsistent with the information used internally to manage trading activities. The Basel Committee on Banking Supervision (“Basel”) and IOSCO have recognized that the objectives of comparability across firms and consistency with internal risk management systems are not always compatible. They have emphasized the latter objective because “linking public disclosure to internal risk management processes helps ensure that disclosure keeps pace with innovations in risk measurement and management techniques.”  32

The Commission believes that it is more important to ensure consistency with internal practices and proposes to require reporting persons to report VAR only for confidence levels and holding periods for which VAR is routinely calculated for internal purposes. This approach would provide other market participants with information which is consistent with information the pool's management utilizes in managing risk internally, in addition to imposing a lighter regulatory burden upon reporting persons.

Nor is the Commission proposing to specify a particular method or model that a firm should use to calculate VAR. To do so could create significant burdens for reporting persons and, given the rapid pace of innovation in both financial engineering and risk management, would be of questionable utility. Rather, the Commission is following the “internal model” approach chosen by Basel and IOSCO.

The Commission does seek to encourage firms to use accurate, reliable VAR models, and would do so by mandating the disclosure of the firms' backtesting results. Backtesting is a process by which the losses implied by the VAR calculation are compared to the losses experienced. 33 The results of this comparison provide valuable information about the validity of a firm's VAR model. 34 The Commission believes that market discipline will be facilitated by disclosing this information, so that other market participants may reach their own conclusions as to the accuracy of the firm's VAR, and the reliability of the firm's risk management systems. For example, if a firm calculates VAR at a 95% confidence interval over a one-day holding period, the expected value for the number of trading days that the VAR figure will be exceeded over a quarter-year of approximately 60 trading days is three (60 trading days × 95% = 57; 60−57=3). If a firm's actual one-day losses exceeded its calculated 95% one-day VAR on ten separate occasions during a quarter, and no sufficient explanation is provided, other market participants might conclude that the VAR calculated by the firm is of questionable reliability, and might draw adverse inferences concerning the firm's risk management.

Even when validated by solid backtest results, however, VAR provides only part of the information necessary to fully evaluate a firm's exposure to market risk. VAR represents merely the loss that is not expected to be exceeded under “normal” market conditions; it provides no information whatsoever about the possible extent of losses under “abnormal” market conditions. Even if VAR accurately predicts the worst loss that would occur in 99.6% of the trading days over a year (250 × 99.6% = 249), it would not provide any information as to the magnitude of potential losses on the remaining 0.4% of the trading days (250 × 0.4% = 1). A reporting person can only explore the potential extent of such extraordinary losses by conducting stress tests.

Stress tests involve subjecting models of the firm's positions to various sets of extreme market conditions and measuring the losses that would result. 35 These conditions might include historical circumstances, such as the 1987 stock market drop or the 1998 Russian loan default, or hypothetical scenarios specifically designed to stress the firm's current positions. Consequently, the results of properly performed stress tests can show extraordinarily high hypothetical losses. For example, a firm with total assets of $3 billion, a net asset value of $500 million, and a 99.6% one-day VAR of $100 million ( e.g. a VAR-to-NAV ratio of only 20% which many might consider quite adequate) could very likely, through rigorous stress tests, generate modeled losses well in excess of $500 million.

If reporting persons were compelled to publicly disclose their stress test results, they might be discouraged from performing the most rigorous stress tests that they could develop and might not learn of and address potential weaknesses in their portfolio strategies. Therefore, the proposed rule would not require reporting persons to report stress test results. Rather, reporting persons would be required simply to report whether stress tests have been performed during the quarter and, if so, whether the results of such tests are communicated to an appropriate level of management.

The reporting person would be permitted (but not required) to provide any other information with which it might wish to supplement the reported VAR information. This information would be posted publicly along with the required information.

As discussed above, the Commission is not proposing to mandate use of specific parameters or methodologies for monitoring the risk exposures. This means, however, that for the quantitative information in the quarterly reports to be useful to other market participants, some additional information must be made available to enable the quarterly reports to be placed in context.

The Commission therefore proposes that each reporting person submit narrative descriptions of their practices in five areas set forth in Section 4.27(c)(2). These cover the reporting person's policies, procedures, and systems for supervising, monitoring, and reviewing market, credit, and funding liquidity risks generated by its financing, trading, and investment activities. Initially, each reporting person would be required to submit an entire set of responses. Thereafter, a revised set of responses would be required following any material change in those policies, procedures, or systems. Such updated responses would be due concurrently with the submission of the next quarterly report required under Section 4.27(d)(2).

The Commission has developed the topics described below based on a review of discussions of “best practices” from both governmental organizations  36 and private industry. 37 It is important to note that the Commission is not proposing to require reporting persons to use any of the tools that are the subjects of the inquiries. This is consistent with the caveats in the private industry reports, which emphasize that the best practices they discuss may not be appropriate for hedge funds of all sizes. 38 Rather, the Commission is simply proposing that reporting persons be required to disclose to the market information about its use of such tools, along with any additional information the reporting person might believe is necessary to put that disclosure in context. It would then be up to a reporting person's counterparties to determine whether or not the reporting person's risk management efforts are adequate, and the appropriate steps to take in light of that determination. Thus, these reports are expected to lead to improvements in risk management systems as market discipline encourages firms to adopt best practices as they evolve in the industry.

A notice of proposed rulemaking and notice of public hearing that appeared in the Federal Register on January 24, 2000, (65 FR 3629), announced that a public hearing was scheduled for April 20, 2000 at 10 a.m., in room 2615, Internal Revenue Building, 1111 Constitution Avenue NW., Washington, DC. The subject of the public hearing is proposed regulations under section 367(b), of the Internal Revenue Code. The deadline for requests to speak and outlines of oral comments expired on March 31, 2000.

The notice of proposed rulemaking and notice of public hearing, instructed those interested in testifying at the public hearing to submit a request to speak and an outline of the topics to be addressed. As of April 11, 2000, no one has requested to speak. Therefore, the public hearing scheduled for April 20, 2000, is cancelled.

The Clean Air Act (Act) requires the EPA to establish National Ambient Air Quality Standards (NAAQS) for certain widespread pollutants that cause or contribute to air pollution that is reasonably anticipated to endanger public health or welfare. Clean Air Act sections 108 and 109. In 1979, EPA promulgated the 1-hour ground-level ozone standard of 0.12 parts per million (ppm) (120 parts per billion (ppb)). 44 FR 8202 (February 8, 1979).

Ground-level ozone is not emitted directly by sources. Rather, Volatile Organic Compounds (VOC) and NO X , emitted by a wide variety of sources, react in the presence of sunlight to form ground-level ozone. NO X and VOC are referred to as precursors of ozone.

An area exceeds the 1-hour ozone standard each time an ambient air quality monitor records a 1-hour average ozone concentration above 0.124 ppm in any given day (only the highest 1-hour ozone concentration at the monitor during any 24 hour day is considered when determining the number of exceedance days at the monitor). An area violates the ozone standard if, over a consecutive 3-year period, more than 3 days of exceedances occur at any monitor in the area or in its immediate downwind environs.

The highest of the fourth-highest daily peak ozone concentrations over the 3 year period at any monitoring site in the area is called the ozone design value for the area. The Act, as amended in 1990, required EPA to designate as nonattainment any area that was violating the 1-hour ozone standard, generally based on air quality monitoring data from the 1987 through 1989 period. Clean Air Act section 107(d)(4); 56 FR 56694 (November 6, 1991). The Act further classified these areas, based on the areas' ozone design values, as marginal, moderate, serious, severe, or extreme. Marginal areas were suffering the least significant ozone nonattainment problems, while the areas classified as severe and extreme had the most significant ozone nonattainment problems.

The control requirements and date by which attainment is to be achieved vary with an area's classification. Marginal areas were subject to the fewest mandated control requirements and had the earliest attainment date, November 15, 1993. Severe and extreme areas are subject to more stringent planning requirements but are provided more time to attain the standard. Serious areas were required to attain the 1-hour standard by November 15, 1999, and severe areas are required to attain by November 15, 2005 or November 15, 2007, depending on the areas' ozone design values for 1987 through 1989. The St. Louis ozone nonattainment area was classified as moderate and its attainment date was November 15, 1996. The St. Louis ozone nonattainment area is defined (40 CFR 81.314 and 81.326) to contain Madison, Monroe, and St. Clair Counties in Illinois, and Franklin, Jefferson, St. Charles, and St. Louis Counties and St. Louis City in Missouri.

The requirements of the Act for ozone attainment demonstrations for moderate ozone nonattainment areas are determined by considering several sections of the Act. Section 172(c)(6) of the Act requires SIPs to include enforceable emission limitations, and such other control measures, means or techniques as well as schedules and timetables for compliance, as may be necessary to provide for attainment by the applicable attainment date. Section 172(c)(1) requires the implementation of all reasonably available control measures (including Reasonably Available Control Technology (RACT)) and requires the SIP to provide for attainment of the NAAQS. Section 182(b)(1)(A) requires the SIP to provide for specific annual reductions in emissions of VOC and NO X as necessary to attain the ozone NAAQS by the applicable attainment date. Finally, section 182(j)(1)(B) requires the use of photochemical grid modeling or other methods judged to be at least as effective to demonstrate attainment of the ozone NAAQS in multi-state ozone nonattainment areas. As part of today's proposal, EPA is proposing action on the attainment demonstration SIP revisions submitted by Illinois and Missouri for the St. Louis multi-state ozone nonattainment area and its associated ozone modeling domain.

In general, an attainment demonstration SIP includes a modeling analysis showing how an area will achieve the standard by its attainment date and the emission control measures necessary to achieve attainment. The attainment demonstration SIPs must include motor vehicle emission budgets for transportation conformity purposes. Transportation conformity is a process for ensuring that States consider the effects of emissions associated with federally-funded transportation activities on attainment of the standard. Attainment demonstrations must include the estimates of motor vehicle VOC and NO X emissions that are consistent with attainment, which then act as a budget or ceiling for the purposes of determining whether transportation plans, programs, and projects conform to the attainment SIP.

Notwithstanding significant efforts by the States, in 1995 EPA recognized that many States in the eastern half of the United States could not meet the November 1994 time frame for submitting an attainment demonstration SIP because emissions of NO X and VOC in upwind States (and the ozone formed by these emissions) affected these nonattainment areas and the full impact of this effect had not yet been determined. This phenomenon is called ozone transport.

On March 2, 1995, Mary D. Nichols, EPA's then Assistant Administrator for Air and Radiation, issued a memorandum to EPA's Regional Administrators acknowledging the efforts made by the States but noting the remaining difficulties in making attainment demonstration SIP submittals.  1 Recognizing the problems created by ozone transport, the March 2, 1995 memorandum called for a collaborative process among the States in the eastern half of the Country to evaluate and address transport of ozone and its precursors. This memorandum led to the formation of the Ozone Transport Assessment Group (OTAG)  2 and provided for the States to submit the attainment demonstration SIPs based on the expected time frames for OTAG to complete its evaluation of ozone transport.

In June 1997, OTAG concluded and provided EPA with recommendations regarding ozone transport. The OTAG generally concluded that transport of ozone and the precursor NO X is significant and should be reduced regionally to enable States in the eastern half of the Country to attain the ozone NAAQS.

Building upon the OTAG recommendations and technical analyses, in November 1997, EPA proposed action addressing the ozone transport problem. In its proposal, the EPA found that current SIPs in 22 States and the District of Columbia (23 jurisdictions) were insufficient to provide for attainment and maintenance of the 1-hour standard because they did not regulate NO X emissions that significantly contribute to ozone transport. 62 FR 60318 (November 7, 1997). The EPA finalized that rule in September 1998, calling on the 23 jurisdictions, including Illinois and Missouri, to revise their SIPs to require NO X emission reductions within each State to a level consistent with a NO X emissions budget identified in the final rule. 63 FR 57356 (October 27, 1998). This final rule is commonly referred to as the NO X SIP call. 3

Although Illinois and Missouri do not rely on the full ozone impacts and regional NO X emission reduction requirements of the NO X SIP call in the ozone attainment demonstration SIPs reviewed here, they do rely, in part, on regional, statewide NO X emission reductions for their own States and for States upwind of Illinois and Missouri. In developing the attainment demonstration, Illinois and Missouri originally anticipated the implementation of the NO X SIP call. Because of a court-ordered stay of the submission deadline for SIPs in response to the NO X SIP call, Illinois and Missouri reconsidered the role and magnitude of regional NO X reductions. As noted below, the NO X SIP call has substantially been upheld by the U.S. Court of Appeals for the District of Columbia; accordingly, Illinois and Missouri may expect even more upwind NO X emission reductions than they addressed in developing the attainment demonstration.

The States submitted the attainment demonstration SIP revisions and supporting documentation between November 1999 and February 2000. The EPA believes that it is important to keep the process moving forward in evaluating these plans and, as appropriate, approving them. Thus, in today's Federal Register , EPA is proposing to approve the plans if the States make the additional submittals called for in this document. The EPA, however, proposes to disapprove the plans if the States do not submit all of the emission control regulations required to support the attainment of the 1-hour ozone standard as demonstrated in these SIPs, do not correct the ozone attainment demonstration modeling to incorporate changes recently made in the ozone precursor emissions inventory, or do not have adequate motor vehicle emission budgets to support transportation conformity determinations. The States are expected to submit the proposed rules by June 2000, along with any proposed revisions to the ozone attainment demonstration modeling. The States are expected to submit final adopted measures, and final revisions to the attainment demonstration, no later than December 2000. The EPA intends to act on the State NO X regulations in separate rulemaking actions, and will not take final action to approve the attainment demonstration until it completes action on the rules.

The anticipated schedule for actions on the States' submittals has been set forth in a recent filing in the United States District Court for the District of Columbia. Sierra Club v. Carol Browner (D.C.D.C. No. 98-02733). The EPA intends to complete rulemaking on the attainment demonstration and attainment date extension for the St. Louis area when it completes action on the submittals from both Missouri and Illinois of the additional control measures necessary for the attainment demonstration. The following outlines the anticipated schedule for EPA action.

If, by June 30, 2000, either Illinois or Missouri does not submit proposed regulations for the emission control measures (local and regional) needed to achieve attainment of the 1-hour ozone standard as indicated by the attainment demonstration, and any proposed revisions to the attainment demonstration (to include any proposed revisions to the motor vehicle emissions budgets) determined to be necessary after remodeling the 1996 base year ozone levels to account for revised 1996 base year emissions, the EPA intends to take final action on the proposed reclassification of the St. Louis area  4 to serious ozone nonattainment no later than August 1, 2000. If either State does not submit final adopted emission control measures and any final revisions to the attainment demonstration (including any final revisions to the motor vehicle emissions budgets) by December 31, 2000, the EPA intends to take final action on the reclassification of the area to serious nonattainment for ozone no later than February 1, 2001. The EPA plans to send a notice of final rulemaking on the attainment demonstration and attainment date extension to the Federal Register no later than February 22, 2001.

Due to the circumstances in which the SIP submissions arose, the EPA is proposing two alternative courses of action: approval or disapproval in the alternative. The proposal for approval provides that the States must take additional actions to obtain final approval. Failure by the States to complete these additional actions will result in EPA's disapproval of the SIPs.

The EPA provides ( Guidance on the Use of Modeled Results to Demonstrate Attainment of the Ozone NAAQS , EPA-454/B-95-007, June 1996) that States may rely on a modeled attainment demonstration supplemented with additional evidence to demonstrate attainment. To have a complete modeling demonstration submission, States should have submitted the required modeling analyses and identified any additional evidence that EPA should consider in evaluating whether the area will attain the standard. Additional required components are discussed below.

The following documents contain EPA's guidelines affecting the content and review of ozone attainment demonstration submittals:

1. Guideline for Regulatory Application of the Urban Airshed Model , EPA-450/4-91-013, July 1991. Web site: http://www.epa.gov/ttn/scram/ (file name: “UAMREG”).

2. Memorandum, “The Ozone Attainment Test in State Implementation Plan (SIP) Modeling Demonstrations,” from Joseph A. Tikvart, Office of Air Quality Planning and Standards, December 16, 1992.

3. Guidance on Urban Airshed Model (UAM) Reporting Requirements for Attainment Demonstrations , EPA-454/R-93-056, March 1994. Web site: http://www.epa.gov/ttn/scram/ (file name: “UAMRPTRQ”).

4. Memorandum, “Ozone Attainment Demonstrations,” from Mary D. Nichols, Assistant Administrator for Air and Radiation, March 2, 1995. Web site: http://www.epa.gov/ttn/oarpg/t1pgm.html .

5. Guidance on the Use of Modeled Results to Demonstrate Attainment of the Ozone NAAQS , EPA-454/B-95-007, June 1996. Web site: http://www.epa.gov/ttn/scram/ (file name: “O3TEST”).

6. Memorandum, “Guidance for Implementing the 1-Hour Ozone and Pre-Existing PM10 NAAQS,” from Richard Wilson, Office of Air and Radiation, December 29, 1997. Web site: http://www.epa.gov/ttn/oarpg/t1pgm.html .

7. Memorandum, “Extension of Attainment Dates for Downwind Transport Areas,” from Richard D. Wilson, Acting Assistant Administrator for Air and Radiation, July 16, 1998.

8. Memorandum, “Guidance on Motor Vehicle Emissions Budgets in One-Hour Ozone Attainment Demonstrations,” from Merrylin Zaw-Mon, Acting Director of the Regional and State Programs Division, November 3, 1999. Web site: http://www.epa.gov/ttn/oarpg/t1pgm.html .

9. Memorandum, “Guidance on the Reasonably Available Control Measures (RACM) Requirement and Attainment Demonstration Submissions for Ozone Nonattainment Areas,” from John S. Seitz, Director of Office of Air Quality Planning and Standards, November 30, 1999.

10. Paper, “Guidance for Improving Weight of Evidence Through Identification of Additional Emission Reductions, Not Modeled,” Office of Air Quality Planning and Standards, November 1999. Web site: http://www.epa.gov/ttn/scram/ (file name: “ADDWOE1H”).

For purposes of demonstrating attainment, the Act requires States containing portions of a multi-state moderate ozone nonattainment area to use photochemical grid modeling or an analytical method judged by EPA to be as effective. The photochemical grid model is set up using meteorological conditions conducive to the formation of ozone in the nonattainment area and its modeling domain. Emissions for a base year are used to evaluate the model's ability to reproduce actual monitored air quality values. Following validation of the modeling system for a base year, emissions are projected to an attainment year to predict air quality changes in the attainment year due to the emission changes, which include growth up to and controls implemented by the attainment year. A modeling domain is chosen that encompasses the nonattainment area. Attainment is demonstrated when all predicted ozone concentrations inside the modeling domain are at or below the ozone standard or an acceptable upper limit above the standard permitted under certain conditions by EPA's guidance. When the predicted concentrations are above the standard or upper limit, EPA guidance allows for an optional weight-of-evidence determination which incorporates other analyses, such as air quality and emissions trends, to address uncertainty inherent in the application of photochemical grid models. This latter approach may be used under certain circumstances to support the demonstration of attainment.

The EPA guidance identifies the features of a modeling analysis that are essential to obtain credible results. First, the State must develop and implement a modeling protocol. The modeling protocol describes the methods and procedures to be used in conducting the modeling analyses and provides for policy oversight and technical review by individuals responsible for developing or assessing the attainment demonstration (State and local agencies, EPA, the regulated community, and public interest groups). Second, for purposes of developing the information to put into the model, the State must select air pollution days, i.e., days in the past with high ozone concentrations exceeding the standard, that are representative of the ozone pollution problem for the nonattainment area. Third, the State needs to identify the appropriate dimensions of the area to be modeled, i.e., the modeling domain size. The domain should be larger than the designated nonattainment area to reduce uncertainty in the boundary conditions and should include any large upwind sources just outside the nonattainment area. In general, the domain is considered the local area where control measures are most beneficial to bring the area into attainment. Alternatively, a much larger modeling domain may be established, addressing the impacts of both local and regional emission control measures on a number of ozone nonattainment areas. In both cases, the attainment determination is based on the review of ozone predictions within the local area where control measures are most beneficial to bring the area into attainment (referred to as the local modeling domain). Fourth, the State needs to determine the grid resolution. The horizontal and vertical resolutions in the model affect the dispersion and transport of emission plumes. Artificially large grid cells (too few vertical layers and horizontal grids) may dilute concentrations and may not properly consider impacts of complex terrain, complex meteorology, and land/water interfaces. Fifth, the State needs to generate meteorological and emissions data that describe atmospheric conditions and emissions inputs reflective of the selected high ozone days. Finally, the State needs to verify that the modeling system is properly simulating the chemistry and atmospheric conditions through diagnostic analyses and model performance tests (generally referred to as model validation). Once these steps are satisfactorily completed, the model is ready to be used to generate air quality estimates to support an attainment demonstration.

The modeled attainment test compares model predicted 1-hour daily maximum ozone concentrations in all grid cells for the attainment year to the level of the ozone standard. A predicted peak ozone concentration above 0.124 ppm (124 ppb) indicates that the area is expected to exceed the standard in the attainment year. This type of test is often referred to as an exceedance test. The EPA's June 1996 guidance recommends that States use either of two exceedance tests for the 1-hour ozone standard: a deterministic test or a statistical test.

The deterministic test requires the State to compare predicted 1-hour daily maximum ozone concentrations for each modeled day  5 to the attainment level of 0.124 ppm. If none of the predictions exceed 0.124 ppm, the test is passed.

The statistical test takes into account the fact that the form of the 1-hour ozone standard allows exceedances. If, over a 3 year period, the area has an average of 1 or fewer ozone standard exceedances per year at any monitoring site, the area is not violating the standard. Thus, if the State models a severe day (considering meteorological conditions that are very conducive to high ozone levels and that should lead to fewer than 1 exceedance per year at any location in the nonattainment area and in the modeling domain over a 3 year period), the statistical test provides that a prediction above 0.124 ppm up to a certain upper limit may be consistent with attainment of the standard.

The acceptable upper limit above 0.124 ppm is determined by examining the size of exceedances at monitoring sites which meet or attain the 1-hour standard. For example, a monitoring site for which the 4 highest 1-hour average concentrations over a 3 year period are 0.136 ppm, 0.130 ppm, 0.128 ppm, and 0.122 ppm is attaining the standard. To identify an acceptable upper limit, the statistical likelihood of observing ozone air quality exceedances of the standard of various concentrations is equated to the severity of the modeled day. The upper limit generally represents the maximum ozone concentration level observed at a location that would be expected to occur no more than an average of once a year over a 3 year period. Therefore, if the maximum ozone concentration predicted by the model is below the acceptable upper limit, in this case 0.136 ppm, then EPA might conclude that the modeled attainment test is passed. Generally, exceedances well above 0.124 ppm are very unusual at monitoring sites meeting the standard. Thus, these upper limits are rarely significantly higher than the attainment level of 0.124 ppm.

When the modeling does not conclusively demonstrate that the area will attain, additional analyses may be presented to help determine whether the area will attain the standard. As with other predictive tools, there are inherent uncertainties associated with modeling and its results. For example, there are uncertainties in some of the modeling inputs, such as the meteorological and emissions data bases for individual days and in the methodology used to assess the severity of an exceedance at individual sites. The EPA's guidance recognizes these limitations and provides a means for considering other evidence to help assess whether attainment of the standard is likely. The process by which this is done is called a weight-of-evidence determination.

Under a weight-of-evidence determination, the State can rely on and EPA will consider factors such as: model performance and results, episode selection, other modeled attainment tests, e.g., relative reduction factor analysis; other modeled outputs, e.g., changes in the predicted frequency and pervasiveness of exceedances and predicted changes in the design value; actual observed air quality trends; estimated emission trends; analyses of air quality monitored data; the responsiveness of the model predictions to further controls; and, whether there are additional control measures that are or will be approved into the SIP but were not included in the modeling analysis. This list is not an exhaustive list of factors that may be considered and these factors could vary from case to case. The EPA's guidance contains no limit on how close a modeled attainment test must be to passing to conclude that other evidence besides an attainment test is sufficiently compelling to suggest attainment. However, the further a modeled attainment test is from being passed, the more compelling the weight-of-evidence needs to be.

In addition to the modeling analysis and weight-of-evidence determination demonstrating attainment, the EPA has identified the following key elements which must be present in order for EPA to approve the 1-hour attainment demonstration SIP.

To receive final approval of the attainment demonstration SIP, the State must have adopted the emission control measures required under the Act for the area's classification or must have established negative source declarations for the source categories for which the area has no major sources that are subject to Clean Air Act requirements for such sources. All required emission controls must be implemented prior to the beginning of the ozone season (April through October in the St. Louis area, 40 CFR part 58) in the area's attainment year to assure attainment of the ozone standard in the attainment year.

The attainment demonstration must incorporate the emission impacts of, and the SIP submittal must address the rule development for, any additional emission control measures needed to achieve attainment. The rules for these emission controls must also have been adopted before the EPA can finally approve the attainment demonstration. The emission controls for these sources must be implemented prior to the beginning of the ozone season in the attainment year.

For purposes of fully approving the State's SIP, the State must adopt and submit all VOC and NO X control regulations for affected sources within the State and within the local modeling domain as reflected in the adopted emission control strategy and as reflected in the attainment demonstration.

Table 1 presents a summary of the Clean Air Act requirements that need to be met for a moderate ozone nonattainment area for the 1-hour ozone standard. These requirements are specified in sections 182(b) and 182(f) of the Act. Information on additional measures that Illinois and Missouri have adopted and relied on in their SIP submissions is not shown in this table, but is addressed later in this proposed rule.

An attainment demonstration SIP must estimate the motor vehicle emissions that will be produced in the attainment year and must demonstrate that this emissions level, when considered with emissions from all other sources, is consistent with attainment. For transportation conformity purposes, the estimate of motor vehicle emissions in a control strategy SIP such as an attainment demonstration (converted to a typical ozone season week day level) is defined as the motor vehicle emissions budget. The motor vehicle emissions budget must meet certain adequacy criteria which are listed in the Transportation Conformity Rule (40 CFR 93.118) before the budget can be approved as part of the attainment demonstration SIP. When a motor vehicle emissions budget is found to be adequate, it is used to determine the conformity of the transportation plans and programs to the SIP, as required by section 176(c) of the Act. The motor vehicle emissions budget must meet adequacy criteria (40 CFR part 93) before the attainment demonstration SIP can be approved. An appropriately identified motor vehicle emissions budget is a necessary part of an attainment SIP.

The EPA's policy regarding an extension of the ozone attainment date for the St. Louis area is fully addressed in a EPA's initial notice of proposed rulemaking dated March 18, 1999. 64 FR 13384. The March 18, 1999 document proposed to reclassify the St. Louis area to a serious ozone nonattainment area, but also provided notice of the area's potential eligibility for an attainment date extension based on a July 16, 1998 EPA guidance memorandum. In today's document, EPA proposes to approve the States' request for an attainment date extension under that policy. The specifics of the attainment date policy are repeated below for clarity.

On July 16, 1998, a guidance memorandum entitled “Extension of Attainment Dates for Downwind Transport Areas” was issued by the EPA. That memorandum included EPA's interpretation of the Act regarding the extension of attainment dates for ozone nonattainment areas that have been classified as moderate or serious for the 1-hour ozone standard and which are downwind of areas that have interfered with their ability to demonstrate attainment of the ozone standard by dates prescribed in the Act. That memorandum stated that the EPA will consider extending the attainment date for an area or a State that:

(1) has been identified as a downwind area affected by transport from either an upwind area in the same State with a later attainment date or an upwind area in another State that significantly contributes to downwind ozone nonattainment;

(2) has submitted an approvable attainment demonstration with any necessary, adopted local measures and with an attainment date that shows it will attain the 1-hour standard no later than the date that the emission reductions are expected from upwind areas under the final NO X SIP call (by 2003) and/or the statutory attainment date for upwind nonattainment areas, i.e., assuming the boundary conditions reflecting those upwind emission reductions;

(3) has adopted all applicable local measures required under the area's current ozone classification and any additional emission control measures demonstrated to be necessary to achieve attainment, assuming the emission reductions occur as required in the upwind areas; and

(4) has provided that it will implement all adopted measures as expeditiously as practicable, but no later than the date by which the upwind reductions needed for attainment will be achieved.

Once an area receives an extension of its attainment date based on ozone/precursor transport impacts, the area would no longer be subject to reclassification to a higher ozone nonattainment classification. If the St. Louis area is granted an attainment date extension, it would no longer be subject to a reclassification to serious nonattainment for ozone and no longer subject to the additional emission control requirements that would result from the reclassification to serious nonattainment.

Illinois and Missouri have requested an extension of the attainment date for the St. Louis nonattainment area in conjunction with the ozone attainment demonstration submittals. The ozone attainment demonstration considers 2003 as the revised ozone attainment year. The 2003 attainment year reflects the NO X emission control deadline contained in the NO X SIP call and the NO X emission control deadline that EPA is considering to address section 126 petitions currently before it.

The State of Illinois has petitioned for an exemption from excess NO X emission reductions pursuant to section 182(f)(2) of the Act. The State is seeking an exemption from requirements for NO X Reasonably Available Control Technology (NO X RACT), New Source Review (NSR), and general conformity. The following discusses the Act requirements and EPA policy with regard to NO X emission controls and emission control exemptions, particularly as such policy deals with the Illinois petition.

Section 182(f)(1) of the Act requires SIPs to include emission control provisions for major stationary sources of NO X as required for major stationary sources of VOC. For moderate and above ozone nonattainment areas, this includes emission control requirements for NSR and RACT.

The portions of section 182(f)(1) relevant to St. Louis provide that the stationary source NO X requirements shall not apply where either of the following tests are met:

(1) in any area, the net air quality benefits are greater without the NO X reductions from the sources concerned; or

(2) in an ozone nonattainment area, additional NO X reductions would not contribute to ozone attainment in the nonattainment area.

Section 182(f)(2) of the Act states that the application of the NO X emission reduction requirements may be limited to the extent necessary to avoid excess reductions of NO X .

The main tests for a NO X emissions control exemption under EPA policy are discussed in a December 1993 EPA guidance, Guideline for Determining the Applicability of Nitrogen Oxides Requirements under Section 182(f) . This guidance was issued by the Office of Air Quality Planning and Standards of the EPA. This guidance notes that the EPA has determined, based on a review of the Act, that the excess reduction demonstration for a NO X emissions control exemption, under either a “contribute to attainment” test or a “net ozone benefits” test, must be tied to an area's ozone attainment demonstration SIP. For the reasons described in Chapter 6 of the EPA guidance document, the excess reductions must be those NO X emission reductions in excess of the NO X emission reductions specified as being necessary for attainment in the attainment demonstration. The approval of the excess emissions reduction petition must be contingent on the final approval of the ozone attainment demonstration.

Details of the current EPA policy regarding NO X emission control exemptions and transportation conformity is contained in a November 14, 1995 final rule (60 FR 44790) amending the transportation conformity requirements. The final transportation conformity rule requires consistency with NO X motor vehicle emission budgets in control strategy SIPs regardless of whether a NO X control exemption has been granted. Areas must establish NO X emission budgets unless the State's modeled attainment demonstration shows that NO X emissions can essentially grow without limit due to new federally funded activities or federal actions without threatening attainment of the ozone standard.

Approval of a NO X emissions control exemption would provide a basis for eliminating the requirement to comply with the transportation conformity rule's build/no-build test and less-than-1990 test for NO X . The current Illinois submittal, however, does not request an exemption from transportation conformity NO X requirements. In addition, it should be noted that after an area receives approval to use a motor vehicle emissions budget for the purposes of conformity determinations, the use of a build/no-build test or a less-than-1990 emissions test is no longer pertinent. Therefore, an exemption from NO X requirements for the build/no-build test and less-than-1990 emissions test is not necessary once an area's motor vehicle emissions budget is approved (or found adequate) for use in transportation conformity determinations. The EPA is proposing the approval of Illinois' motor vehicle emissions budget in this document.

The requirements for exemption from the NO X control requirements of general conformity relevant to Illinois' request are found in section 182(f)(2) of the Act. Since section 182(f)(2) NO X control exemptions are based on a demonstration of “excess emission reductions,” a NO X control exemption cannot be granted unless the State has made a clear showing through the ozone attainment demonstration that the emission reductions are indeed excess (that the attainment demonstration does not rely on such emission reductions) or, where NO X emission increases (due to new federally-funded activities or federal actions) are expected to result from source growth due to an activity for which the NO X control exemption is sought, that NO X emissions can essentially increase without limit and still not cause ozone standard violations. Note that activities that are subject to conformity generally involve emission increases rather than emission decreases. For transportation conformity determinations, consistency with the motor vehicle emissions budget is the means for ensuring that increases in such emissions do not threaten attainment of the ozone standard. In contrast to transportation conformity, however, general conformity determinations are not based on consistency with an explicitly identified emissions budget, since quite often the SIP does not create such budgets for the emissions-generating activities that are subject to general conformity. Consequently, a NO X control exemption for general conformity cannot be granted under section 182(f)(2) of the Act unless the State has otherwise clearly demonstrated that NO X emissions can essentially increase without limit and still provide for attainment of the ozone standard.

The situation for NSR, under section 182(f)(2) of the Act, is analogous. Unless the State has otherwise clearly demonstrated that NO X emissions can essentially increase without limit due to new or modified major stationary sources, the NO X control exemption for NSR cannot be approved. A policy memorandum, “Scope of Nitrogen Oxides (NO X ) Exemptions,” dated January 12, 1995, and signed by G.T. Helms, Group Leader, Ozone/Carbon Monoxide Programs Branch, EPA, explains that, where EPA grants a NO X exemption under the “excess reductions” provision, the exemption makes sense with respect to RACT but not necessarily with respect to NSR. The distinction would be that RACT emissions impacts are exclusively emission reductions, whereas NSR impacts often involve emission increases. It should be noted that NO X new source requirements in ozone nonattainment areas would revert to Prevention of Significant Deterioration (PSD) requirements (PSD allows emission increases, but only at a controlled rate) if an area is granted an exemption from NSR NO X requirements. Therefore, a NSR NO X control exemption request, under section 182(f)(2), must be supported by a demonstration that NO X emissions due to new or modified major stationary sources can essentially increase in an area without limit and not cause ozone standard violations.

Illinois and Missouri have made the following submittals, which in whole or in part concern the ozone attainment demonstration, a partial NO X control exemption for the Illinois portion of the St. Louis ozone nonattainment area, and an extension of the attainment date for the St. Louis ozone nonattainment area:

(a) In a submission dated November 10, 1999, the Missouri Department of Natural Resources (MDNR) submitted an ozone attainment demonstration along with several additional proposed SIP revisions. The additional SIP revisions included:

i. Regulations and associated documentation for the control of VOC emissions from: aerospace manufacture and rework facilities; volatile organic liquid storage; wood furniture manufacturing operations; batch process operations; reactor processes and distillation operations processes in the synthetic organic chemical manufacturing industry; and existing major sources;

ii. Regulations and associated documentation for the control of NO X emissions intended to meet NO X RACT requirements of the Act in the Missouri portion of the St. Louis nonattainment area;

iii. A 15 percent rate-of-progress plan for the control of VOC emissions in the Missouri portion of the St. Louis area; and

iv. An improved vehicle inspection and maintenance program.

The review of these additional SIP revisions is the subject of separate technical support documents and rulemakings. See 65 FR 8094, 65 FR 8060, 65 FR 8092, 65 FR 8097, and 65 FR 8083, February 17, 2000. Only the ozone attainment demonstration portions of the submittal are considered here;

(b) On November 15, 1999, the IEPA submitted a letter outlining the ozone attainment strategy for the St. Louis area and the State's emission control commitments;

(c) On January 19, 2000, the MDNR submitted an additional supplement to the ozone attainment demonstration. This supplement reflects revised modeling which was performed at the recommendation of EPA to include future emission control measures in the St. Louis area, including Missouri's NO X RACT program, emission control contingency measures implemented by both States, and additional VOC RACT controls implemented by Missouri. The revised analysis also incorporates other emission inventory corrections based on quality assurance activities conducted by both States; and

(d) On February 10, 2000, the IEPA submitted its adopted ozone attainment demonstration SIP. This SIP revision submittal includes a petition for an exemption from NO X RACT, NO X NSR, and general conformity NO X requirements for the Illinois portion of the St. Louis ozone nonattainment area. This SIP revision also reflects the emission modifications and attainment demonstration revisions contained in MDNR's January 19, 2000 submittal.

The MDNR held a public hearing on the attainment demonstration on October 28, 1999, and the Missouri Air Conservation Commission (MACC) adopted the attainment demonstration on November 8, 1999.

The IEPA held a public hearing on the attainment demonstration on November 15, 1999. A subsequent public hearing on the updated ozone attainment demonstration was not held. It must be noted, however, that the updated ozone attainment demonstration did not include additional emission controls in Illinois beyond those addressed in the November 15, 1999 public hearing.

Illinois and Missouri cooperatively conducted the modeling analyses and other analyses used to support the attainment demonstration. The modeling approach is documented in both Illinois' February 10, 2000 ozone attainment demonstration and in Missouri's November 10, 1999 ozone attainment demonstration submittal. Additional modeling analyses and weight-of-evidence analyses are addressed in Missouri's January 19, 2000 supplemental modeling submittal.

The heart of the modeling system and approach is the Urban Airshed Model—Version V (UAM-V), developed originally for application in the Lake Michigan area, but now applied in many other areas. This model was applied to a large grid system (referred to as Grid M) covering much of the upper Midwest. Grid M was selected to cover many of the ozone precursor emission sources believed to affect the Lake Michigan area and the St. Louis area. Grid M was nested inside of a larger grid system covering the eastern half of the United States (the larger grid system includes areas referred to as the “coarse-grid states” in the OTAG process used to assess ozone transport in the eastern United States and the impacts of possible emission control measures to generally reduce interstate ozone and ozone precursor transport). The data derived from the larger OTAG grid provided air quality data for the perimeter of Grid M. It should be noted that for most of the attainment considerations, the States considered the peak ozone concentrations and model performance for a sub-portion of Grid M surrounding the St. Louis ozone nonattainment area (the local modeling domain). The conclusions discussed later in this document were based on data from this local modeling domain.

Besides being able to model ozone and other pollutants in nested horizontal grids, UAM-V can also model individual elevated source plumes within the modeling grid (plume-in-grid or PiG). Gaussian dispersion models are used to grow plumes until the plumes essentially fill grid cells. At these points, the numerical dispersion and advection components of UAM take over to address further downwind dispersion and advection.

The following input data systems and analyses were also used as part of the combined modeling system:

Emissions: UAM-V requires the input of an emissions inventory of gridded, hourly estimates of CO, NO X , and speciated VOC emissions (speciated based on carbon bond types). The States provided regional and local emission inventories, which were processed through the Emissions Modeling System—1995 version (EMS-95) to prepare UAM-V emissions data input files.

The initial emissions inventory files were based on EPA's NO X SIP call emissions inventory. Substantial revisions were made to the Missouri point source and mobile source inventories based on Missouri's comments on the NO X SIP call emissions inventories (Missouri has also made a number of additional attainment year emission inventory changes as documented in the January 19, 2000 submittal, discussed above). The State submittals describe in detail the procedures used to develop, and then project, the base year emission inventories to the 1995/1996 period and to project emissions to account for growth and control through 2003.

An important deviation from the NO X SIP call inventory was the treatment of biogenic emissions emanating from the Ozark Mountain portion of Missouri. Initial UAM-V modeling results had indicated that biogenic emissions, consisting primarily of isoprene from oak trees, were overestimated in the UAM-V model. This determination was based on a recent study of biogenic emissions and related VOC concentrations in this area, referred to as the Ozark Isoprene Experiment (OZIE). Based on initial results from the OZIE study, the Ozark biogenic emissions predicted from the BEIS2 model have been adjusted downward 50 percent. Although the investigation of the Ozark biogenics is not yet completed, and the source of the overestimation is not yet determined, this gross adjustment to the inventory is acceptable in this instance because there is a general consensus between the States and EPA that the UAM-V modeling system clearly overestimates isoprene in this area.

Meteorology: Meteorological inputs for the UAM-V modeling system were developed through prognostic meteorological modeling (use of a set of dynamic equations that describe atmospheric motion and the distribution and change of meteorological parameters) using the RAMS3a modeling system developed by Colorado State University. A limited four-dimensional data assimilation was performed for all days modeled. RAMS3a output data were re-mapped to the three-dimensional grid structure of UAM-V.

The IEPA and MDNR have noted that typically there are three types of meteorological regimes associated with high ozone concentrations in the St. Louis nonattainment area. The first type of episode occurs when a surface high pressure system is centered to the east of the St. Louis area along the Ohio and Tennessee Valleys. This situation brings southerly wind flow into the area. High ozone in this situation is also associated with high surface temperatures in the upper 80's and 90's degrees Fahrenheit (°F) range and with relatively low wind speeds of less than 10 miles per hour. Precipitation and cloud cover are minimal.

The second type of high ozone episode is due to stagnation conditions, when surface winds are calm or with wind speeds less than 5 miles per hour. The wind direction is variable. The temperatures are relatively high, in the upper 80's or lower 90's.

The third type of episode occurs with the approach of a frontal system from the north. The front is generally weak with little or no moisture and little or no cloud cover. Temperature inversions often form near the surface, trapping pollutants near the surface and limiting pollutant dispersion.

The following summarizes the meteorology of the two episodes modeled for the final attainment demonstration:

July 16-19, 1991: On July 16, a migratory high pressure system arrived in central Pennsylvania producing light southerly winds in the St. Louis area. Hot, dry weather persisted during this period, with temperatures reaching 90 °F in the St. Louis area. For the July 17 through July 19 period, winds in the St. Louis area became southwesterly. Wind speeds strengthened by July 19 as a cold front approached from the northwest.

July 10-14, 1995: On July 10, a high pressure system was centered over Missouri, resulting in light and variable winds across the St. Louis area. By July 11 and 12, the high pressure system migrated eastward to the Tennessee Valley. Winds in the St. Louis area were southerly and peak temperatures were in the mid to upper 90's °F range. On July 13 and 14, the conditions at the surface remained the same with the high pressure system centered near the East Coast and dominating the meteorology in the Eastern and Central United States. Temperatures continued to peak in the upper 90's with relatively light southerly winds.

The RAMS3a system was relatively effective in modeling these meteorological conditions.

Chemistry: Atmospheric chemistry within the modeling grid system was simulated using the Carbon Bond-Version IV model developed by the EPA.

Boundary and Initial Conditions: For a 1996 base case evaluation, initial and boundary conditions were derived from extraction of data from a larger, 36 kilometer resolution OTAG coarse grid over the grid cells marking the edges of the Grid M domain. For the 2003 simulations, various NO X control levels were applied in the coarse grid runs to simulate the NO X impacts expected in the various States. For States subject to EPA's NO X SIP call NO X emission budgets (including the eastern third of Missouri, but excluding the western two-thirds of Missouri), NO X emission rates for Electric Generating Units (EGUs) were limited to 0.25 pounds per mmBTU in the modeling system's emissions data. For the western two-thirds of Missouri, an EGU NO X emission rate of 0.35 pounds per mmBTU was assumed. 6 Only Act-required NO X control levels and Act-required VOC emission controls were considered for States not subject to EPA's NO X SIP call (tightened EGU NO X emission levels were not considered for these States).

Three high ozone episodes, July 16-19, 1991, July 10-14, 1995, and June 27-29, 1996 were originally considered for the attainment demonstration. The 1996 episode was subsequently dropped due to unacceptable model performance.

In selecting the episodes to be modeled, the States followed the guidance provided by the EPA. The July 1991 ozone modeling guidance, Guideline for Regulatory Application of the Urban Airshed Model, recommends that episodes for modeling be selected to represent different meteorological regimes observed to correspond with ozone exceeding the standard. Both stagnation and transport conditions should be examined. A minimum of 3 primary episode days should be modeled. Primary episode days are those days for which ozone concentrations exceeding the standard were monitored in the area.

As noted in the discussion above, the high ozone episodes Illinois and Missouri selected and modeled have covered more than 3 primary episode days and have generally covered the types of meteorology observed along with high ozone in the St. Louis area.

To develop the attainment year (2003) EGU emissions, the States initially considered EPA's 2007 base case emissions developed for the NO X SIP call. EPA developed these emissions using the Integrated Planning Model (IPM). The 2003 base case emissions were developed from this assuming a linear interpolation between the 1995/1996 base period emissions and EPA's 2007 base case emissions. A single growth factor was developed for each State to project the EGU emissions from the 1995/1996 base period to the 2003 base case levels. Subsequent emission control strategy tests altered the NO X emission limits for these projected source emissions.

For point source, non-EGU emissions, the States projected the 1995/1996 base period emissions to 2003 using BEA projections of Gross State Product (GSP). State-specific growth factors were used for Illinois based on the use of the Emissions Growth Analysis System (EGAS), which replaced EPA-supplied growth factors.

The 1995 stationary area and non-road emission inventories were projected to 2003 using BEA projections of GSP. These projections include the impacts of all applicable Clean Air Act required controls. The projected non-road emissions were adjusted to account for certain federal emission control requirements expected to be implemented by 2003, including: the federal small engine standards, Phase II; federal marine engine standards (for diesel engines of greater than 50 horsepower); federal locomotive standards; and non-road diesel engine standards.

Projections of on-road emissions from 1995/1996 to 2003 were accomplished by projecting Vehicle Miles Traveled (VMT) derived from the Highway Performance Monitoring System (HPMS) and by considering the VMT growth estimates derived by the EPA from the OTAG process. Travel demand VMT estimates for 2003 were also obtained for the St. Louis nonattainment area from the East-West Gateway Coordinating Council. The Illinois VMT growth estimates reflect a growth rate of 2.0 percent per year, and the Missouri VMT estimates reflect a growth of 23.5 percent between 1996 and 2003 (approximately 3 percent per year). Future emission reductions for on-road emissions were assumed to occur by 2003, including emission reductions resulting from: national low emissions vehicle standards; implementation of improved vehicle inspection and maintenance in the St. Louis Metropolitan Statistical Area (MSA); and reformulated gasoline in the Missouri portion of the St. Louis MSA.

Biogenic emissions were assumed to remain unchanged between 1995 and 2003.

All projected emissions were processed through EMS-95 to provide the emission inventory files for use in UAM-V.

The States conducted a number of statistical analyses to compare the modeling system's ozone predictions to observed peak ozone concentrations for the base period. Using the preliminary base period emissions and meteorological inputs, the States derived statistics covering: unpaired peak prediction accuracy; normalized bias of data pairs; and gross errors of data pairs for each of the modeled high ozone episode days. These results were compared to acceptable accuracy ranges specified by the EPA. With a few exceptions, the current modeling results for the July 1991 and July 1995 episodes are in agreement with EPA-specified criteria. The results of the June 1996 episode modeling, however, did not meet the EPA-specified criteria, and the episode was, therefore, dropped from further consideration.

Table 2 presents a summary of the model performance statistics for the St. Louis ozone nonattainment area. These data were taken from Table 6.1 of Illinois' February 10, 2000 submittal.

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

Table 1 lists the rule addressed by this proposal with the date that it was adopted by the local air agency and submitted by the California Air Resources Board (CARB).

On January 26, 1999, this rule submittal was found to meet the completeness criteria in 40 CFR part 51, appendix V, which must be met before formal EPA review.

There are no previous versions of Rule 4653 in the SIP, although the SJVUAPCD adopted earlier versions of this rule on March 17, 1994 and April 13, 1995, and CARB submitted them to us on May 24, 1994 and August 10, 1995, respectively. While we can act on only the most recently submitted version, we have reviewed materials provided with previous submittals.

Rule 4653 limits the VOC emissions resulting from the application of adhesives and adhesive primers. The TSD has more information about this rule.

Generally, SIP rules must be enforceable (see section 110(a) of the Act), must require Reasonably Available Control Technology (RACT) for major sources in nonattainment areas (see section 182(a)(2)(A)), and must not relax existing requirements (see sections 110(l) and 193). The SJVUAPCD regulates an ozone nonattainment area (see 40 CFR part 81), so Rule 4653 must fulfill RACT.

Guidance and policy documents that we used to define specific enforceability and RACT requirements include the following:

1. Portions of the proposed post-1987 ozone and carbon monoxide policy that concern RACT, 52 FR 45044, November 24, 1987.

2. “Issues Relating to VOC Regulation Cutpoints, Deficiencies, and Deviations; Clarification to Appendix D of November 24, 1987 Federal Register Document,” (Blue Book), notice of availability published in the May 25, 1988 Federal Register .

3. The State of California Air Resources Board's “Determination of Reasonably Available Control Technology (RACT) and Best Available Retrofit Control Technology (BARCT) for Adhesives and Sealants,” December 1998.

This rule improves the SIP by establishing emission limits for adhesives, by specifying application methods and housekeeping practices, by designating appropriate solvents, and by requiring recordkeeping. This rule is largely consistent with the relevant policy and guidance regarding enforceability, RACT and SIP relaxations. Rule provisions which do not meet the evaluation criteria are summarized below and discussed further in the TSD.

These provisions conflict with sections 110 and 182 and part D of the Act and prevent full approval of the SIP revision.

1. Rule 4653 establishes VOC limits which do not meet RACT for specialty contact adhesives which are labeled exclusively for the bonding of single-ply roof material or immersible products, for adhesives used to bond porous materials, and for surface preparation solvents.

2. Under section 4.1.1, certain exempt operations are only required to maintain monthly records documenting the type and quantity of adhesive products used. These operations, however, may potentially use noncompliant materials which necessitates that daily records be kept.

3. SJVUAPCD included an exemption in section 4.1.9 for contact adhesives subject to 16 CFR part 1302. EPA is unable to approve the inclusion of this exemption without further justification because compliant formulations of these products that perform adequately already exist in the market place.

The TSD describes additional rule revisions that do not affect EPA's current action but are recommended for the next time the local agency modifies the rules.

As authorized in sections 110(k)(3) and 301(a) of the Act, EPA is proposing a limited approval of the submitted rule to improve the SIP. If finalized, this action would incorporate the submitted rule into the SIP, including those provisions identified as deficient. This approval is limited because EPA is simultaneously proposing a limited disapproval of the rule under section 110(k)(3). If this disapproval is finalized, sanctions will be imposed under section 179 of the Act unless EPA approves a subsequent SIP revision that corrects the rule deficiencies within 18 months. These sanctions would be imposed as described in 59 FR 39832 (August 4, 1994). A final disapproval would also trigger the federal implementation plan (FIP) requirement under section 110(c). Note that the submitted rule has been adopted by the SJVUAPCD, and EPA's final limited disapproval would not prevent the local agency from enforcing it.

We will accept comments from the public on the proposed limited approval and limited disapproval for the next 30 days.

VOCs help produce ground-level ozone and smog, which harm human health and the environment. Section 110(a) of the CAA requires states to submit regulations that control VOC emissions. Table 2 lists some of the national milestones leading to the submittal of this local agency VOC rule.

The Office of Management and Budget (OMB) has exempted this regulatory action from Executive Order 12866, Regulatory Planning and Review.

Executive Order 13045, entitled Protection of Children from Environmental Health Risks and Safety Risks (62 FR 19885, April 23, 1997), applies to any rule that: (1) Is determined to be “economically significant” as defined under Executive Order 12866, and (2) concerns an environmental health or safety risk that EPA has reason to believe may have a disproportionate effect on children. If the regulatory action meets both criteria, the Agency must evaluate the environmental health or safety effects of the planned rule on children, and explain why the planned regulation is preferable to other potentially effective and reasonably feasible alternatives considered by the Agency. This rule is not subject to Executive Order 13045 because it is does not involve decisions intended to mitigate environmental health or safety risks.

Under Executive Order 13084, Consultation and Coordination with Indian Tribal Governments, EPA may not issue a regulation that is not required by statute, that significantly or uniquely affects the communities of Indian tribal governments, and that imposes substantial direct compliance costs on those communities, unless the Federal government provides the funds necessary to pay the direct compliance costs incurred by the tribal governments, or EPA consults with those governments. If EPA complies by consulting, Executive Order 13084 requires EPA to provide to the Office of Management and Budget, in a separately identified section of the preamble to the rule, a description of the extent of EPA's prior consultation with representatives of affected tribal governments, a summary of the nature of their concerns, and a statement supporting the need to issue the regulation. In addition, Executive Order 13084 requires EPA to develop an effective process permitting elected officials and other representatives of Indian tribal governments “to provide meaningful and timely input in the development of regulatory policies on matters that significantly or uniquely affect their communities.” Today's rule does not significantly or uniquely affect the communities of Indian tribal governments. Accordingly, the requirements of section 3(b) of Executive Order 13084 do not apply to this rule.

Executive Order 13132, entitled Federalism (64 FR 43255, August 10, 1999) revokes and replaces Executive Orders 12612, Federalism and 12875, Enhancing the Intergovernmental Partnership. Executive Order 13132 requires EPA to develop an accountable process to ensure “meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications.” “Policies that have federalism implications” is defined in the Executive Order to include regulations that 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.” Under Executive Order 13132, EPA may not issue a regulation that has federalism implications, that imposes substantial direct compliance costs, and that is not required by statute, unless the Federal government provides the funds necessary to pay the direct compliance costs incurred by State and local governments, or EPA consults with State and local officials early in the process of developing the proposed regulation. EPA also may not issue a regulation that has federalism implications and that preempts State law unless the Agency consults with State and local officials early in the process of developing the proposed regulation.

This proposed rule 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 (64 FR 43255, August 10, 1999), because it merely approves a state rule implementing a federal standard, and does not alter the relationship or the distribution of power and responsibilities established in the Clean Air Act. Thus, the requirements of section 6 of the Executive Order do not apply to this rule.

The Regulatory Flexibility Act (RFA) generally requires an agency to conduct a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements 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 not-for-profit enterprises, and small governmental jurisdictions. This final rule will not have a significant impact on a substantial number of small entities because SIP approvals under section 110 and subchapter I, part D of the Clean Air Act do not create any new requirements but simply approve requirements that the State is already imposing. Therefore, because the Federal SIP approval does not create any new requirements, I certify that this action will not have a significant economic impact on a substantial number of small entities. Moreover, due to the nature of the Federal-State relationship under the Clean Air Act, preparation of flexibility analysis would constitute Federal inquiry into the economic reasonableness of state action. The Clean Air Act forbids EPA to base its actions concerning SIPs on such grounds. Union Electric Co., v. U.S. EPA, 427 U.S. 246, 255-66 (1976); 42 U.S.C. 7410(a)(2).

Under section 202 of the Unfunded Mandates Reform Act of 1995 (“Unfunded Mandates Act”), signed into law on March 22, 1995, EPA must prepare a budgetary impact statement to accompany any proposed or final rule that includes a Federal mandate that may result in estimated annual costs to State, local, or tribal governments in the aggregate; or to the private sector, of $100 million or more. Under section 205, EPA must select the most cost-effective and least burdensome alternative that achieves the objectives of the rule and is consistent with statutory requirements. Section 203 requires EPA to establish a plan for informing and advising any small governments that may be significantly or uniquely impacted by the rule.

EPA has determined that the approval action promulgated does not include a Federal mandate that may result in estimated annual costs of $100 million or more to either State, local, or tribal governments in the aggregate, or to the private sector. This Federal action approves pre-existing requirements under State or local law, and imposes no new requirements. Accordingly, no additional costs to State, local, or tribal governments, or to the private sector, result from this action.

Section 12 of the National Technology Transfer and Advancement Act (NTTAA) of 1995 requires Federal agencies to evaluate existing technical standards when developing a new regulation. To comply with NTTAA, EPA must consider and use “voluntary consensus standards” (VCS) if available and applicable when developing programs and policies unless doing so would be inconsistent with applicable law or otherwise impractical.

The EPA believes that VCS are inapplicable to this action. Today's proposed action does not require the public to perform activities conducive to the use of VCS.

The rules being proposed for limited approval and a simultaneous limited disapproval into the California SIP are Tehama County Air Pollution Control District (TCAPCD) Rule 4.31—Industrial, Institutional, and Commercial Boilers, Steam Generators, and Process Heaters, Rule 4.34—Stationary Piston Engines, and Rule 4.37—Determination of Reasonably Available Control Technology for the Control of Oxides of Nitrogen from Stationary Gas Turbines. Rules 4.31, 4.34 and 4.37 were submitted by the State of California to EPA on May 13, 1999.

On November 15, 1990, the Clean Air Act Amendments of 1990 were enacted. Public Law 101-549, 104 Stat. 2399, codified at 42 U.S.C. 7401-7671q.

On November 25, 1992, EPA published a proposed rule entitled, “State Implementation Plans; Nitrogen Oxides Supplement to the General Preamble; Clean Air Act Amendments of 1990 Implementation of Title I; Proposed Rule,” (the NO X Supplement). The November 25, 1992, action should be referred to for further information on the NO X requirements for SIPs.

This document addresses EPA's proposed action for Tehama County Air Pollution Control District (TCAPCD) Rule 4.31, adopted by the TCAPCD on March 14, 1995, Rule 4.34 on June 3, 1997, and Rule 4.37 on April 21, 1998. The State of California submitted Rules 4.31, 4.34 and 4.37 to EPA on May 13, 1999. Rules 4.31, 4.37 and 4.34 were found to be complete on May 26, 1999, pursuant to EPA's completeness criteria that are set forth in 40 CFR part 51, appendix V. 1

NO X emissions contribute to the production of ground level ozone and smog. TCAPCD Rules 4.31, 4.34, and 4.37 specify NO X emission standards and were originally adopted as part of TCAPCD's effort to maintain the National Ambient Air Quality Standard (NAAQS) for ozone, and in response to the CAA requirements cited above. The following is EPA's evaluation and proposed action for the rules.

In determining the approvability of a NO X rule, EPA must evaluate the rule for consistency with the requirements of the CAA and EPA regulations, as found in section 110 and part D of the CAA and 40 CFR part 51 (Requirements for Preparation, Adoption, and Submittal of Implementation Plans). The EPA interpretation of these requirements, which forms the basis for today's action, appears in the NO X Supplement (57 FR 55620) and various other EPA policy guidance documents. 2

For the purpose of assisting State and local agencies in developing NO X RACT rules, EPA prepared the NO X Supplement to the General Preamble. In addition, pursuant to section 183(c), EPA is issuing alternative control technique documents (ACTs), that identify alternative controls for all categories of stationary sources of NO X . The ACT documents will provide information on control technology for stationary sources that emit or have the potential to emit 25 tons per year or more of NO X .

California Air Resources Board (CARB), developed a guidance document entitled Determination of Reasonably Available Control Technology and Best Available Retrofit Control Technology for Institutional, Industrial and Commercial Boilers, Steam Generators and Process Heaters, July 18, 1991. EPA has used CARB's guidance document in evaluating Rule 4.31. In addition, the CARB has developed a guidance document entitled, “Proposed Determination of Reasonably Available Control Technology and Best Available Retrofit Control Technology for Stationary Internal Combustion Engines,” Dec. 3, 1997. EPA has used CARB's proposed Determination, dated Dec. 3, 1997, in evaluating Rule 4.34. CARB has developed a guidance document entitled Determination of Reasonably Available Control Technology and Best Available Retrofit Control Technology (BARCT) for Control of Oxides of Nitrogen from Stationary Gas Turbines, dated May 18, 1992. EPA has used CARB's guidance document in evaluating Rule 4.37. In general, the guidance documents cited above, as well as other relevant and applicable guidance documents, have been set forth to ensure that submitted NO X rules meet Federal requirements and are fully enforceable and strengthen or maintain the SIP.

There are currently no versions of Rules 4.31, 4.34, and 4.37 in the SIP.

Submitted Rules 4.31, 4.34, and 4.37 include the following provisions:

• General provisions including applicability, exemptions, and definitions.

• Exhaust emissions standards for oxides of nitrogen (NO X ).

• Compliance and monitoring requirements including compliance schedule, reporting requirements, monitoring and recordkeeping, and test methods.

Rules submitted to EPA for approval as revisions to the SIP must be fully enforceable, must maintain or strengthen the SIP and must conform with EPA policy in order to be approved by EPA. When reviewing rules for SIP approvability, EPA evaluates enforceability elements such as test methods, recordkeeping, and compliance testing in addition to guidance regarding emission limits.

EPA has evaluated Tehama County Air Pollution Control District Rules 4.31, 4.34, and 4.37 for consistency with the CAA, EPA regulations, and EPA policy and has found that submitted Rules 4.31, 4.34, and 4.37 supercede TCAPCD Rule 4.14, and contain the following significant modifications from Rule 4.14, which are deficiencies, which must be corrected pursuant to the section 182(a)(2)(A) requirement of part D of the CAA.

• Section C.4.: Exemptions: contains unapprovable APCO discretion for units that are exempt from emission requirements due to lack of technical or economic feasibility. Paragraph C. 4. should be deleted.

• Section F.1.: Compliance schedule: Allows unapprovable APCO discretion as to schedule of periodic compliance determinations. The words “as specified by the APCO” should be removed and replaced with “once every 2 years, or after 8760 hours of operation, which ever is more frequent.”

• Section G.2: Allows APCO discretion in approving the use of alternate portable analyzers.(Also, the note on bottom of page IV-6 of the Rule requires an asterisk.)

• Section D.1.c.: Allows APCO discretion as to approval of units that are exempt from RACT emission requirements due to lack of technical or economic feasibility. This section “c.” should be removed.

A detailed discussion of these deficiencies can be found in the Technical Support Documents for Rules 4.31, 4.34, and 4.37, dated January 25, 2000, which are available from the U.S. EPA, Region IX office. Because of these deficiencies, EPA cannot grant approval of the rules under section 110(k)(3) and part D. In order to strengthen the SIP, EPA is proposing a limited approval and a simultaneous limited disapproval of TCAPCD's submitted Rules 4.31, 4.34, and 4.37 under sections 110(k)(3) and 301(a) of the CAA because they contain deficiencies which must be corrected in order to fully meet the requirements of sections 182(a)(2), 182(b)(2), 182(f), of part D of the CAA. Under section 179(a)(2), if the Administrator disapproves a submission under section 110(k) for an area designated nonattainment, based on the submission's failure to meet one or more of the elements required by the Act, the Administrator must apply one of the sanctions set forth in section 179(b) unless the deficiency has been corrected within 18 months of such disapproval. Section 179(b) provides two sanctions available to the Administrator: Highway funding and offsets. The 18 month period referred to in section 179(a) will begin on the effective date of EPA's final disapproval. Moreover, the final disapproval triggers the Federal implementation plan (FIP) requirement under section 110(c). It should be noted that the rules covered by this document have been adopted by the Tehama County Air Pollution Control District and are currently in effect in the Tehama County Air Pollution Control District. EPA's final disapproval action will not prevent the Tehama County Air Pollution Control District or EPA from enforcing the rule.

The Office of Management and Budget (OMB) has exempted this regulatory action from Executive Order 12866, Regulatory Planning and Review.

Under Executive Order 12875, Enhancing the Intergovernmental Partnership, EPA may not issue a regulation that is not required by statute and that creates a mandate upon a State, local or tribal government, unless the Federal government provides the funds necessary to pay the direct compliance costs incurred by those governments, or EPA consults with those governments. If EPA complies by consulting, Executive Order 12875 requires EPA to provide to the Office of Management and Budget a description of the extent of EPA's prior consultation with representatives of affected State, local and tribal governments, the nature of their concerns, copies of any written communications from the governments, and a statement supporting the need to issue the regulation. In addition, Executive Order 12875 requires EPA to develop an effective process permitting elected officials and other representatives of State, local and tribal governments “to provide meaningful and timely input in the development of regulatory proposals containing significant unfunded mandates.” Today's rules do not create a mandate on State, local or tribal governments. The rules do not impose any enforceable duties on these entities. Accordingly, the requirements of section 1(a) of Executive Order 12875 does not apply to the rule.

Protection of Children from Environmental Health Risks and Safety Risks (62 FR 19885, April 23, 1997), applies to any rule that: (1) Is determined to be “economically significant” as defined under Executive Order 12866, and (2) concerns an environmental health or safety risk that EPA has reason to believe may have a disproportionate effect on children.

If the regulatory action meets both criteria, the Agency must evaluate the environmental health or safety effects of the planned rule on children, and explain why the planned regulation is preferable to other potentially effective and reasonably feasible alternatives considered by the Agency. The rule is not subject to Executive Order 13045 because it does not involve decisions intended to mitigate environmental health or safety risks.

Under Executive Order 13084, Consultation and Coordination with Indian Tribal Governments, EPA may not issue a regulation that is not required by statute, that significantly or uniquely affects the communities of Indian tribal governments, and that imposes substantial direct compliance costs on those communities, unless the Federal government provides the funds necessary to pay the direct compliance costs incurred by the tribal governments, or EPA consults with those governments. If EPA complies by consulting, Executive Order 13084 requires EPA to provide to the Office of Management and Budget, in a separately identified section of the preamble to the rule, a description of the extent of EPA's prior consultation with representatives of affected tribal governments, a summary of the nature of their concerns, and a statement supporting the need to issue the regulation. In addition, Executive Order 13084 requires EPA to develop an effective process permitting elected officials and other representatives of Indian tribal governments “to provide meaningful and timely input in the development of regulatory policies on matters that significantly or uniquely affect their communities.” Today's rules does not significantly or uniquely affect the communities of Indian tribal governments. Accordingly, the requirements of section 3(b) of Executive Order 13084 do not apply to the rules.

The Regulatory Flexibility Act (RFA) generally requires an agency to conduct a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements 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 not-for-profit enterprises, and small governmental jurisdictions. The proposed rules will not have a significant impact on a substantial number of small entities because SIP approvals under section 110 and subchapter I, part D of the Clean Air Act do not create any new requirements but simply approve requirements that the State is already imposing. Therefore, because the Federal SIP approval does not create any new requirements, I certify that this action will not have a significant economic impact on a substantial number of small entities. Moreover, due to the nature of the Federal-State relationship under the Clean Air Act, preparation of flexibility analysis would constitute Federal inquiry into the economic reasonableness of state action. The Clean Air Act forbids EPA to base its actions concerning SIPs on such grounds. Union Electric Co ., v. U.S. EPA , 427 U.S. 246, 255-66 (1976); 42 U.S.C. 7410(a)(2).

Under section 202 of the Unfunded Mandates Reform Act of 1995 (“Unfunded Mandates Act”), signed into law on March 22, 1995, EPA must prepare a budgetary impact statement to accompany any proposed or final rule that includes a Federal mandate that may result in estimated annual costs to State, local, or tribal governments in the aggregate; or to private sector, of $100 million or more. Under section 205, EPA must select the most cost-effective and least burdensome alternative that achieves the objectives of the rule and is consistent with statutory requirements. Section 203 requires EPA to establish a plan for informing and advising any small governments that may be significantly or uniquely impacted by the rules.

EPA has determined that the approval action promulgated does not include a Federal mandate that may result in estimated annual costs of $100 million or more to either State, local, or tribal governments in the aggregate, or to the private sector. This Federal action approves pre-existing requirements under State or local law, and imposes no new requirements. Accordingly, no additional costs to State, local, or tribal governments, or to the private sector, result from this action.

The rule being proposed for approval into the California SIP is Tehama Air Pollution Control District Rule 4.14, Fuel Burning Equipment. Rule 4.14 was submitted by the State of California to EPA on May 13, 1999.

On November 15, 1990, the Clean Air Act Amendments of 1990 were enacted. Public Law 101-549, 104 Stat. 2399, codified at 42 U.S.C. 7401-7671q.

On November 25, 1992, EPA published a proposed rule entitled, “State Implementation Plans; Nitrogen Oxides Supplement to the General Preamble; Clean Air Act Amendments of 1990 Implementation of Title I; Proposed Rule,” (the NO X Supplement). The NO X Supplement should be referred to for further information on the NO X requirements.

This document addresses EPA's proposed action for Tehama Air Pollution Control District Rule 4.14, Fuel Burning Equipment, adopted by the TCAPCD on November 3, 1998. The State of California submitted Rule 4.14 to EPA May 13, 1999. Rule 4.14 was found to be complete on May 26, 1999, pursuant to EPA's completeness criteria that are set forth in 40 CFR part 51, appendix V. 1

NO X emissions contribute to the production of ground level ozone and smog. TCAPCD Rule 4.14 specifies exhaust emission standards for NO X , and was originally adopted as part of TCAPCD's effort to maintain the National Ambient Air Quality Standard (NAAQS) for ozone, and in response to the CAA requirements cited above. The following is EPA's evaluation and proposed action for the rule.

In determining the approvability of a NO X rule, EPA must evaluate the rule for consistency with the requirements of the CAA and EPA regulations, as found in section 110 and part D of the CAA and 40 CFR part 51 (Requirements for Preparation, Adoption, and Submittal of Implementation Plans). The EPA interpretation of these requirements, which forms the basis for today's action, appears in the NO X Supplement (57 FR 55620) and various other EPA policy guidance documents. 2

The California Air Resources Board (CARB) has developed a guidance document entitled, “California Clean Air Act Guidance, Determination of Reasonably Available Control Technology and Best Available Retrofit Control Technology for Institutional, Industrial and Commercial Boilers, Steam Generators and Process Heaters,” July 18, 1991. EPA has used CARB's Determination, dated July 18, 1991, in evaluating Rule 4.14 for consistency with the CAA's requirements. In general, EPA uses the guidance documents cited above, as well as other relevant and applicable guidance documents, to ensure that submitted NO X rules meet Federal RACT requirements and are fully enforceable and strengthen or maintain the SIP.

There is currently a July 12, 1990, EPA approved (55 FR 28624) version of Tehama County Air Pollution Control District Rule 4.14, Fuel Burning Equipment, in the SIP. Submitted Rule 4.14 includes the following provisions:

• General provisions including applicability, exemptions, and definitions.

• Exhaust emissions standards for oxides of nitrogen (NO X ).

• Compliance and monitoring requirements including compliance schedule, reporting requirements, monitoring and record keeping, and test methods.

Rules submitted to EPA for approval as revisions to the SIP must be fully enforceable, must maintain or strengthen the SIP and must conform with EPA policy in order to be approved by EPA. When reviewing rules for SIP approvability, EPA evaluates enforceability elements such as test methods, record keeping, and compliance testing in addition to guidance regarding emission limits. The submitted version of Rule 4.14 strengthens the SIP through the addition of enforceable measures such as record keeping, test methods, definitions, and more stringent compliance testing. The submitted version of Rule 4.14 relaxes the SIP by exempting sources subject to Rules 4.31, 4.34 and 4.37. EPA is separately acting on these rules and believes that they generally adequately control the sources exempted from Rule 4.14. A more detailed discussion of the sources controlled and the controls required can be found in the Technical Support Document (TSD), dated January 25, 2000, which is available from the U.S. EPA, Region IX office.

EPA, in light of Rules 4.31, 4.34 and 4.37, has evaluated the submitted rule and has determined that it is consistent with the CAA, EPA regulations and EPA policy. Therefore, Tehama County Air Pollution Control District Rule 4.14 is being proposed for approval under section 110(k)(3) of the CAA as meeting the requirements of section 110(a), section 182(b)(2), section 182(f) and the NO x Supplement to the General Preamble.

The Office of Management and Budget (OMB) has exempted this regulatory action from Executive Order 12866, Regulatory Planning and Review.

Federalism (64 FR 43255, August 10, 1999) revokes and replaces Executive Orders 12612, Federalism and 12875, Enhancing the Intergovernmental Partnership. Executive Order 13132 requires EPA to develop an accountable process to ensure “meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications.” “Policies that have federalism implications” is defined in the Executive Order to include regulations that 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.” Under Executive Order 13132, EPA may not issue a regulation that has federalism implications, that imposes substantial direct compliance costs, and that is not required by statute, unless the Federal government provides the funds necessary to pay the direct compliance costs incurred by State and local governments, or EPA consults with State and local officials early in the process of developing the proposed regulation. EPA also may not issue a regulation that has federalism implications and that preempts State law unless the Agency consults with State and local officials early in the process of developing the proposed regulation.

This proposed rule 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 (64 FR 43255, August 10, 1999), because it merely approves a state rule implementing a federal standard, and does not alter the relationship or the distribution of power and responsibilities established in the Clean Air Act. Thus, the requirements of section 6 of the Executive Order do not apply to this rule.

Protection of Children from Environmental Health Risks and Safety Risks (62 FR 19885, April 23, 1997), applies to any rule that: (1) Is determined to be “economically significant” as defined under Executive Order 12866, and (2) concerns an environmental health or safety risk that EPA has reason to believe may have a disproportionate effect on children. If the regulatory action meets both criteria, the Agency must evaluate the environmental health or safety effects of the planned rule on children, and explain why the planned regulation is preferable to other potentially effective and reasonably feasible alternatives considered by the Agency. This rule is not subject to Executive Order 13045 because it is does not involve decisions intended to mitigate environmental health or safety risks.

Under Executive Order 13084, Consultation and Coordination with Indian Tribal Governments, EPA may not issue a regulation that is not required by statute, that significantly or uniquely affects the communities of Indian tribal governments, and that imposes substantial direct compliance costs on those communities, unless the Federal government provides the funds necessary to pay the direct compliance costs incurred by the tribal governments, or EPA consults with those governments. If EPA complies by consulting, Executive Order 13084 requires EPA to provide to the Office of Management and Budget, in a separately identified section of the preamble to the rule, a description of the extent of EPA's prior consultation with representatives of affected tribal governments, a summary of the nature of their concerns, and a statement supporting the need to issue the regulation. In addition, Executive Order 13084 requires EPA to develop an effective process permitting elected officials and other representatives of Indian tribal governments “to provide meaningful and timely input in the development of regulatory policies on matters that significantly or uniquely affect their communities.” Today's rule does not significantly or uniquely affect the communities of Indian tribal governments. Accordingly, the requirements of section 3(b) of Executive Order 13084 do not apply to this rule.

The Regulatory Flexibility Act (RFA) generally requires an agency to conduct a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements 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 not-for-profit enterprises, and small governmental jurisdictions. This final rule will not have a significant impact on a substantial number of small entities because SIP approvals under section 110 and subchapter I, part D of the Clean Air Act do not create any new requirements but simply approve requirements that the State is already imposing. Therefore, because the Federal SIP approval does not create any new requirements, I certify that this action will not have a significant economic impact on a substantial number of small entities. Moreover, due to the nature of the Federal-State relationship under the Clean Air Act, preparation of flexibility analysis would constitute Federal inquiry into the economic reasonableness of state action. The Clean Air Act forbids EPA to base its actions concerning SIPs on such grounds. Union Electric Co., v. U.S. EPA, 427 U.S. 246, 255-66 (1976); 42 U.S.C. 7410(a)(2).

Under section 202 of the Unfunded Mandates Reform Act of 1995 (“Unfunded Mandates Act”), signed into law on March 22, 1995, EPA must prepare a budgetary impact statement to accompany any proposed or final rule that includes a Federal mandate that may result in estimated annual costs to State, local, or tribal governments in the aggregate; or to private sector, of $100 million or more. Under section 205, EPA must select the most cost-effective and least burdensome alternative that achieves the objectives of the rule and is consistent with statutory requirements. Section 203 requires EPA to establish a plan for informing and advising any small governments that may be significantly or uniquely impacted by the rule.

EPA has determined that the approval action promulgated does not include a Federal mandate that may result in estimated annual costs of $100 million or more to either State, local, or tribal governments in the aggregate, or to the private sector. This Federal action approves pre-existing requirements under State or local law, and imposes no new requirements. Accordingly, no additional costs to State, local, or tribal governments, or to the private sector, result from this action.

Proposed rules regarding amending the medical malpractice payment reporting requirements for the NPDB were published on December 24, 1998 (63 FR 71255). More than 120 comments on the proposed rule were received. Given the large number of thoughtful comments and the high level of concern that was voiced about the potential impact of the proposal as published, HRSA believes it is imperative to gather additional data and conduct further analyses before proceeding. A new NPRM then will be published for public comment, with a goal of publishing the revised proposal by the end of 2000. The decision to publish another NPRM with its associated public comment period means that new final regulations likely will be implemented in 2001.

The draft FMP provides for the following: Establishment of management units for dolphin and wahoo; proposed dealer, vessel and operator permit requirements; reporting requirements; establishment of a maximum sustainable yield (MSY) and OY; definition of overfishing for dolphin and wahoo; and the establishment of a framework procedure for regulatory adjustments without requiring FMP amendments.

The following proposed management measures are under consideration for dolphin and wahoo in the Atlantic EEZ: (1) Prohibition of the sale of recreationally caught fish in the Atlantic EEZ; (2) a limit on the percent of dolphin harvested in the Atlantic EEZ by the recreational fishery and the commercial fishery, at 87 percent and 13 percent, respectively. (Note: Should either sector's catch exceed these percentages, the Council will review the data and evaluate the need for additional regulations which may be established through the FMP's framework procedures); (3) a recreational bag limit of 5 to 10 dolphins per person per day, excluding the captain and crew of for-hire boats in the Atlantic EEZ; (4) a commercial dolphin trip limit of 1,000 to 5,000 lb or an equivalent number of fish, with no transfer at sea allowed in the Atlantic EEZ; (5) no minimum size limit for dolphin in the Atlantic EEZ; (6) a commercial trip limit for wahoo of 500 lb or an equivalent number of fish, with no transfer at sea allowed in the Atlantic EEZ; (7) no minimum size limit for wahoo in the Atlantic EEZ; (8) a recreational bag limit of two wahoo per person per day for the recreational fishery, excluding the captain and crew of for-hire boats in the Atlantic EEZ; (9) specification of allowable gear for dolphin and wahoo in the Atlantic EEZ as surface longline and as hook-and-line gear including manual, electric, or hydraulic rod and reels, bandit gear, and spearfishing gear; (10) prohibition of the use of pelagic longline gear for dolphin and wahoo concurrent with time/area closures to the use of such gear for highly migratory pelagic species in the Atlantic EEZ; (11) establish a fishing year of January 1 to December 31 for the dolphin and wahoo fishery; (12) identification of essential fish habitat (EFH) for dolphin and wahoo in the Atlantic; and (13) identification of EFH—Habitat Areas of Particular Concern (HAPC) for dolphin and wahoo in the Atlantic.

Public hearings for the draft FMP will be held at the following dates, times, and locations.

1. May 1, 2000, 7 p.m., Town & Country Inn, 2008 Savannah Highway, Charleston, SC 29407; telephone: 843-571-1000.

2. May 2, 2000, 7 p.m., Sea Turtle Inn, One Ocean Boulevard, Atlantic Beach, FL 32233; telephone: 904-249-7402

3. May 3, 2000, 7 p.m., Holiday Inn, 1300 N. Atlantic Ave., Cocoa Beach, FL 32931; telephone: 407-783-2271.

4. May 4, 2000, 7 p.m., Holiday Inn, 999 N. Atlantic Boulevard, Ft. Lauderdale Beach, FL 32931; telephone: 954-563-5961.

5. May 9, 2000, 7 p.m., Holiday Inn Kill Devil Hills, 1601 Virginia Dare Trail, Kill Devil Hills, NC 27948; telephone: 252-441-6333.

6. May 10, 2000, 7 p.m., Crystal Coast Civic Center, 3505 Arendell Street, Morehead City, NC 28557; telephone: 252-247-3883.

7. May 11, 2000, 7 p.m., Blockade Runner, 275 Waynick Boulevard, Wrightsville Beach, NC 28480; telephone: 910-256-2251.

8. May 15, 2000, 7 p.m., Hyatt Regency Savannah, 2 West Bay Street, Savannah, GA 31401; telephone: 912-238-1234.

9. May 17, 2000, 7 p.m., Embassy Suites Hotel and Casino, 8000 Tartak St., Isla Verde, Carolina, Puerto Rico; telephone: 787-791-0505.

10. May 18, 2000, 7 p.m., Holiday Inn St. Thomas, Veterans Drive, St. Thomas USVI; telephone: 800-524-7389.

11. May 19, 2000, 7 p.m., Caravelle Hotel, 448 Queen Cross St., St. Croix, USVI; telephone: 800-595-9505 or 340-773-0687.

12. June 8, 2000, 7 p.m., Hyatt Key West, 601 Front Street, Key West, FL 33040; telephone: 305-296-9900.

13. June 12, 2000, 7 p.m., Cheeca Lodge, Mile Marker 82, US Highway One, Islamorada, FL 33036; telephone: 305-664-4651.

14. June 26, 2000, 7 p.m., Princess Bayside, 4801 Coastal Highway, Ocean City, MD 21842; telephone: 410-723-2900.

15. June 27, 2000, 7 p.m., Holiday Inn, 290 Route 37 East, Toms River, NJ 08753; telephone: 732-244-4000.

16. June 28, 2000, 7 p.m., Holiday Inn, 3845 Veterans Memorial Highway, Ronkonkoma, NY 11779; telephone: 516-585-9500.

17. June 29, 2000, 7 p.m., The Radisson Hotel, 35 Governor Winthrop Boulevard, New London, CT 06320; telephone: 860-443-7000.

Copies of the draft FMP can be obtained from the Council (see ADDRESSES ).

These meetings are physically accessible to people with disabilities. Requests for sign language interpretation or other auxiliary aids should be directed to the Council office (see ADDRESSES ) by April 26, 2000.