A proposal to amend part 39 of the Federal Aviation Regulations (14 CFR part 39) by superseding AD 2003-12-06, amendment 39-13191 (68 FR 35152, June 12, 2003), which is applicable to certain Bombardier Model CL-600-2C10 (Regional Jet Series 700 & 701) series airplanes, was published in the Federal Register on August 22, 2003 (68 FR 50729). That action proposed to require an inspection to detect damage of the wing anti-ice (WAI) ducts to determine if the external shrouds of the ducts are open or cracked, and replacement of any damaged duct with a new duct or a duct with the same part number, and an optional terminating action for the AFM revision and inspection. That action also proposed to require accomplishment of the previously optional terminating action for the AFM revision and inspection.

Interested persons have been afforded an opportunity to participate in the making of this amendment. Due consideration has been given to the comment received.

One commenter is concerned that the language of the AD calls for replacement of any damaged duct with a new or undamaged duct of the same part number that was previously installed; and that a replacement duct of the same part number would not be of sufficient strength to withstand the applied differential pressures it will experience. The commenter requests that the FAA mandate the replacement of a damaged wing anti-ice (WAI) duct with a stronger duct with a new part number.

The FAA acknowledges the commenter's concern. The purpose of this AD action is to supersede AD 2003-12-06, amendment 39-13191 (68 FR 35152, June 12, 2003), which provides an interim action that prohibits operations into known or forecast icing conditions when there are indications of a damaged WAI duct. That action also provides for inspections and interim replacements of damaged ducts. This new action terminates the interim actions of AD 2003-12-06 by mandating the replacement of all four WAI ducts with new WAI ducts that have new part numbers. We find that these new ducts are of sufficient strength to withstand the applied differential pressure, as requested by the commenter. We have not changed the final rule regarding this issue.

After careful review of the available data, including the comment noted above, the FAA has determined that air safety and the public interest require the adoption of the rule as proposed.

There are approximately 55 airplanes of U.S. registry that will be affected by this AD.

The AFM revision that is currently required by AD 2003-12-06 takes approximately 1 work hour per airplane to accomplish, at an average labor rate of $65 per work hour. Based on these figures, the cost impact of the previously required actions on U.S. operators is estimated to be $3,575, or $65 per airplane.

The inspection that is currently required by AD 2003-12-06 takes approximately 4 work hours per airplane to accomplish, at an average labor rate of $65 per work hour. Based on these figures, the cost impact of the currently required inspection on U.S. operators is estimated to be $14,300, or $260 per airplane.

The new action that is required by this new AD will take approximately 48 work hours per airplane to accomplish, at an average labor rate of $65 per work hour. Based on these figures, the cost impact of the new requirement of this AD on U.S. operators is estimated to be $171,600, or $3,120 per airplane.

The cost impact figures discussed above are based on assumptions that no operator has yet accomplished any of the requirements of this AD action, and that no operator would accomplish those actions in the future if this AD were not adopted. The cost impact figures discussed in AD rulemaking actions represent only the time necessary to perform the specific actions actually required by the AD. These figures typically do not include incidental costs, such as the time required to gain access and close up, planning time, or time necessitated by other administrative actions.

The regulations adopted herein will 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 final rule does not have federalism implications under Executive Order 13132.

For the reasons discussed above, I certify that this action (1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and (3) 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 final evaluation has been prepared for this action and it is contained in the Rules Docket. A copy of it may be obtained from the Rules Docket at the location provided under the caption ADDRESSES.

Table of Contents I. Introduction II. Background A. Changes in the Natural Gas Industry B. Events in Western Energy Markets in 2000 III. Comment Analysis A. Application of Code of Conduct to Jurisdictional Sellers B. Limited Jurisdiction of Blanket Certificates C. Code of Conduct 1. General Language Prohibiting Manipulation 2. Wash Trades 3. Collusion 4. Reporting to Gas Index Publishers 5. Three-Year Data and Information Retention Requirement 6. Prohibition on Reporting Transaction with Affiliates D. Remedies 1. General Issues 2. 90-Day Time Limit on Complaints IV. Administrative Finding and Notices A. Information Collection Statement B. Environmental Analysis C. Regulatory Flexibility Act Certification D. Document Availability E. Effective Date and Congressional Review Regulatory Text Appendix—Entities Filing Intervening and Reply Comments Before Commissioners: Pat Wood, III, Chairman; William L. Massey, and Nora Mead Brownell. I. Introduction

1. The Federal Energy Regulatory Commission (Commission) is amending the blanket certificates for unbundled gas sales services held by interstate natural gas pipelines and the blanket marketing certificates held by persons making sales for resale of gas at negotiated rates in interstate commerce to require that pipelines and all sellers for resale adhere to a code of conduct with respect to gas sales. The purpose of the revisions is to ensure the integrity of the gas sales market that remains within the Commission's jurisdiction. This rule is another part of the Commission's continuing effort to restore confidence in the nation's energy markets. Contemporaneously with this rule, the Commission is also issuing a rule to require wholesale sellers of electricity at market-based rates to adhere to certain behavioral rules when making wholesale sales of electricity. In an order dated June 26, 2003, 1 the Commission, acting under the authority of Section 7 of the Natural Gas Act, proposed to revise Section 284.288 of its regulations, which is currently reserved, to require that pipelines providing unbundled sales service adhere to a code of conduct when making gas sales. The Commission also proposed to add a new Section 284.403 to Part 284, Subpart L to require persons holding blanket marketing certificates under Section 284.402 to adhere to a code of conduct when making gas sales. 2

2. The need for this code of conduct, we stated, was informed by the types of behavior that occurred in the Western markets during 2000 and 2001, by Commission Staff's Final Report concerning these markets, 3 and by our experience in other competitive markets. We stated that in formulating our proposed code of conduct rules, we were required to strike a careful balance among a number of competing interests. We noted, for example, that while customers must be given an effective remedy in the event anticompetitive behavior or other market abuses occur, sellers should be provided rules of the road that are clearly-delineated. We noted that while regulatory certainty was important for individual market participants and the marketplace in general, the Commission must not be impaired in its ability to provide remedies for market abuses whose precise form and nature cannot be envisioned today. We specifically sought comments on whether our proposed code of conduct rules had achieved the appropriate balance among these competing interests.

3. Here, based on the extensive comments received by the entities listed in the Appendix to this order and based on our further consideration of the issues presented, we will adopt the code of conduct rules proposed in the June 26 NOPR subject to certain modifications discussed below. These rules, as revised, are set forth below in, 18 CFR §§ 284.288 and 284.403.

4. Under Sections 284.288 and 284.403 of the new codes of conduct, a pipeline providing unbundled natural gas sales service under Section 284.284, or any person making natural gas sales for resale in interstate commerce pursuant to Section 284.402, is prohibited from engaging in actions without a legitimate business purpose that manipulate or attempt to manipulate market conditions, including wash trades and collusion.

5. New Sections 284.288 and 284.403 also contain various reporting obligations. To the extent a pipeline providing service under Section 284.284, or any person making natural gas sales for resale in interstate commerce pursuant to Section 284.402, engages in reporting of transactions to publishers of gas price indices, the pipeline or blanket marketing certificate holder shall provide complete and accurate information to any such publisher. Further, such entities must retain all relevant data and information upon which they billed the prices they charged for natural gas they sold pursuant to their market based sales certificate or the prices they reported for use in price indices for three years. Moreover, such entities that engage in reporting must do so consistent with the Policy Statement on Natural Gas and Electric Price Indices , 104 FERC ¶ 61,121 (2003) ( Policy Statement ), which provides that a data provider should only report each bilateral, arm's-length transaction between non-affiliated companies. Violation of the preceding provisions may result in disgorgement of unjust profits, suspension or revocation of a pipeline's blanket certificate or other appropriate non-monetary remedies. Finally, any person filing a complaint for a violation of the preceding provisions must do so no later than 90 days after the end of the calendar quarter in which the alleged violation occurred unless that person could not have known of the alleged violation, in which case the 90-day time limit will run from the discovery of the alleged violation.

6. This code of conduct is designed to provide market participants adequate opportunities to detect, and the Commission to remedy, market abuses. This code is clearly defined so that it does not create uncertainty, disrupt competitive commodity markets or simply prove ineffective. However, since competitive markets are dynamic, it is important that we periodically evaluate the impact that these regulations have on the energy markets. We direct our office of Market Oversight and Investigation to evaluate the effectiveness and consequences of these regulations on an annual basis and to include this analysis in the State of the Markets Report.

7. A decade ago, as a result of changes in the natural gas industry, Congressional legislation and various Commission rulemaking proceedings restructuring the gas industry, the Commission issued blanket certificates to allow pipelines and other persons selling natural gas to make sales for resale of natural gas at market-based or negotiated rates. These certificates were granted in two final rules issued by the Commission: Order No. 636  1 and Order No. 547. 2

8. In Order No. 636, the Commission required all pipelines that provide open-access transportation to offer their sales services on an unbundled basis. To this end, the Commission issued to pipelines holding a blanket transportation certificate under subpart G of part 284 of the Commission's regulations, or performing transportation under subpart B, a blanket certificate authorizing firm and interruptible sales for resale. 3 The Commission required that all firm and interruptible sales services be provided as unbundled services under the blanket sales certificate. The Commission found that this form of regulation would enable the pipelines to compete directly with other gas sellers on the same terms at prices determined in a competitive market. The unbundled sales services were also afforded pregranted abandonment authority.

9. In Order No. 636, the Commission authorized pipelines to make unbundled sales at market-based rates because it concluded that, after unbundling, sellers of short-term or long-term firm gas supplies (whether they be pipelines or other sellers) would not have market power over the sale of natural gas. The Commission's determination was also based on Congress' express finding that a competitive market exists for gas at the wellhead and in the field. The Commission indicated that it was instituting light-handed regulation, relying upon market forces at the wellhead or in the field to constrain unbundled pipeline sales for resale gas prices within the Natural Gas Act's “just and reasonable” standard. In addition, the requirement that pipelines provide open access transportation from the wellhead to the market also permitted the Commission to exercise light-handed regulation over jurisdictional gas sales. Finally, the Commission stated that it would be regulating the pipeline sales in the same manner as it had done for sales for resale by marketers.

10. The Commission also determined that a pipeline as a gas merchant would be the functional equivalent of a pipeline's marketing affiliate. The Commission concluded that standards of conduct set forth by Order No. 497 would apply to the relationship between the pipeline transportation function and its merchant function. 4 Accordingly, the regulations issuing pipelines blanket sales certificates included standards of conduct and reporting requirements. The purpose of imposing the requirements set forth in Order No. 497 was to ensure that the pipeline did not favor itself as a merchant over other gas suppliers in performing its transportation function.

11. In Order No. 547, as part of the industry restructuring begun by Order No. 636, the Commission issued blanket certificates to all persons who are not interstate pipelines authorizing them to make jurisdictional gas sales for resale at negotiated rates with pregranted abandonment authority. 5 The blanket certificates were issued by operation of the rule itself and there was no requirement for persons to file applications seeking such authorization. The Commission determined that the competitive gas commodity market would lead all gas suppliers to charge rates that are sensitive to the gas sales market and cognizant of the variety of options available to gas purchasers. The Commission further stated that, in a competitive market, the basis for the rate to be negotiated between a willing buyer and seller is a commercial, not a regulatory, matter. The requirement that pipelines provide open access transportation from the wellhead to the market also permitted the Commission to exercise light-handed regulation over jurisdictional gas sales. The Commission also determined that marketing certificates issued by the final rule are of a limited jurisdiction. The Commission held that the holders of marketing certificates are not subject to any other regulation under the Natural Gas Act jurisdiction of the Commission by virtue of transactions under the certificates.

12. In March 2003, in Docket No. PA02-2-000, the Commission Staff concluded its Fact Finding Investigation of Potential Manipulation of Electric and Gas Prices and issued a Final Report on Price Manipulation in Western Markets (Final Report). A key conclusion of the Final Report is that markets for natural gas and electricity in California are inextricably linked, and that dysfunctions in each fed off one another during the California energy crisis. Staff found that spot gas prices rose to extraordinary levels, facilitating the unprecedented price increase in the electricity market. The Final Report found that dysfunctions in the natural gas market appear to stem, at least in part, from efforts to manipulate price indices compiled by trade publications. The Final Report stated that reporting of false data and wash trading are examples of efforts to manipulate published price indices.

13. While the Final Report contained numerous recommendations which will not be discussed here, the Staff did recommend that Sections 284.284 and 284.402 of the Commission's regulations be amended to provide explicit guidelines or prohibitions for trading natural gas under Commission blanket certificates. The specific recommendations include: (1) Conditioning natural gas companies' blanket certificates on providing accurate and honest information to entities that publish price indices; (2) conditioning blanket certificates on retaining all relevant data for three years for reconstruction of price indices; (3) establishing rules banning any form of prearranged wash trading; and (4) prohibiting the reporting of trades between affiliates to industry indices.

14. As an initial matter, the Commission will clarify the extent of its jurisdiction over resales of natural gas. As stated above, the Commission's NGA jurisdiction to regulate the prices charged by sellers of natural gas has been substantially narrowed by the Natural Gas Policy Act of 1978 (NGPA) and Congress' subsequent enactment of the Natural Gas Wellhead Decontrol Act of 1989. As a result of these statutory provisions first sales of natural gas were deregulated. Under the NGPA, first sales of natural gas are defined as any sale to an interstate or intrastate pipeline, LDC or retail customer, or any sale in the chain of transactions prior to a sale to an interstate or intrastate pipeline or LDC or retail customer. NGPA Section 2(21)(A) sets forth a general rule stating that all sales in the chain from the producer to the ultimate consumer are first sales until the gas is purchased by an interstate pipeline, intrastate pipeline, or LDC. 4 Once such a sale is executed and the gas is in the possession of a pipeline, LDC, or retail customer, the chain is broken, and no subsequent sale, whether the sale is by the pipeline, or LDC, or by a subsequent purchaser of gas that has passed through the hands of a pipeline or LDC, can qualify under the general rule as a first sale on natural gas. In addition to the general rule, NGPA Section 2(21)(B) expressly excludes from first sale status any sale of natural gas by a pipeline, LDC, or their affiliates, except when the pipeline, LDC, or affiliate is selling its own production.

15. Therefore, the Commission's jurisdiction under the NGA includes all sales for resale by interstate and intrastate pipelines and LDCs and their affiliates, other than their sales of their own production. The Commission's jurisdiction also includes a category of sales by entities that are not affiliated with any pipeline or LDC. Such entities are those making sales for resale of gas that was previously purchased and sold by an interstate or intrastate pipeline or LDC or retail customer.

16. Given that the Commission does not have jurisdiction over the entire natural gas market, several commenters raise concerns regarding the potential adverse effect of imposing the proposed code of conduct only on the portion of the natural gas market under the Commission's jurisdiction. 5 Commenters assert that the proposed rules could tilt capital markets against those subject to the code of conduct because they would be viewed as a riskier proposition than those entities selling gas that do not have the same regulatory risk. Commenters argue that to impose these regulations on a portion of the market causes an uneven playing field and amounts to undue discrimination because those under the rules would be: (1) Subject to sanctions such as loss of certificate authority and disgorgement of profits; (2) hesitant to engage in legitimate transactions due to uncertainty imposed by vague and inconsistent standards developed in different proceedings; (3) subject to the increased risk of private enforcement actions by gas purchasers before the Commission; (4) subject to the shifting of investment to non-jurisdictional marketers, and; (5) subject to increased recordkeeping costs for jurisdictional entities.

17. Commenters argue that the proposed regulations are duplicative because other government agencies such as the Federal Trade Commission, the Department of Justice, and various state agencies already exercise jurisdiction over anticompetitive behavior. 6 Further, commenters argue that in addition to stifling innovation, the proposed regulations will erode regulated marketer participation, and thereby reduce the efficiency of the markets and deprive the customers of the benefits of deregulation. Furthermore, since this code regulates only a small portion of the market, 7 they argue that the rules will be ineffective in achieving uniform compliance.

18. Finally, commenters maintain that before imposing these potentially burdensome compliance conditions, the Commission should ascertain critical information on its effects, including the percentage of the natural gas sellers that would be required to comply with the proposed rule or the amount of the gas affected. Commenters argue that uncertainty caused by the proposed rules would be particularly damaging in light of the current need for additional supplies and the current need to regain investor confidence.

19. However, several commenters support the Commission's action in imposing a code of conduct. 8 These commenters state that if jurisdictional gas sellers seek to avoid a requirement that they do business honestly by restructuring their business to escape the Commission's jurisdiction, Congress might be interested in broadening the Commission's jurisdiction to prevent such outcomes. Moreover, they assert that the only way that jurisdictional certificate holders could be at a competitive disadvantage is if they are competing against companies that are engaging in the very illegal acts that the Commission's code of conduct is proscribing. Finally, commenters argue that the proposed regulations should not harm any market participant and should not have a negative impact on natural gas prices, but will only require action consistent with a competitive market.

20. The Commission has reviewed the comments setting forth possible problems in placing a code of conduct regulations over the portion of the natural gas marketplace within its jurisdiction. In the Commission's view, implementing these regulations designed to prevent manipulation of market prices and prevent abusive behavior which distorts the competitive marketplace for natural gas will not present an undue burden for gas sellers under the Commission's jurisdiction or disrupt the competitive gas market.

21. As stated above, the Commission retains jurisdiction of sales of domestic gas for resale by pipelines, local distribution companies and affiliated entities, if the seller does not produce the gas it sells. The fact that the Commission does not regulate the entire natural gas market does not compel the Commission to refrain from exercising its authority over that portion of the gas market which is within its jurisdiction to prevent the manipulation of prices. By its action here, the Commission will maintain and protect the competitive marketplace within its jurisdiction. On balance, the Commission finds that its statutory responsibility to ensure just and reasonable rates for the sales over which it does have jurisdiction outweighs concerns that a portion of the market will not be subject to these regulations and the potential resulting market disruptions. 9

22. This finding is based upon a balancing of factors raised by the commenters against the Commission's duty to maintain the competitive marketplace for natural gas within its jurisdiction. Although all sellers of natural gas will not be under the same set of regulations, this does not by itself place an undue burden, or for that matter, a competitive disadvantage of any consequence upon the sellers of natural gas within the Commission's jurisdiction. This is because the regulations to be placed upon jurisdictional natural gas sellers only prevent such market participants from distorting the competitiveness of the marketplace by engaging in abusive or manipulative acts in the marketplace. For instance, commenters argue that the increased regulatory risk could shift capital markets against those subject to the new regulations. This argument is speculative and it appears to the Commission that it is at least equally likely that investors and gas buyers would gain confidence in the knowledge that the jurisdictional seller of natural gas was required to engage in business practices that do not abuse or manipulate the marketplace.

23. In its June 26 NOPR, the Commission proposed to delete the last sentence of 18 CFR 284.402(a) (2003) from its regulations. That sentence reads, “[a] blanket certificate issued under Subpart L is a certificate of limited jurisdiction which will not subject the certificate holder to any other regulation under the Natural Gas Act jurisdiction of the Commission by virtue of the transactions under the certificate.”

24. Several commenters raise concerns regarding this deletion. 10 Commenters argue that the statement of limited jurisdiction for the subject blanket certificates should remain in the regulations in order to relieve blanket holders of market sales certificates from any aspect of the Commission's jurisdiction which does not apply to market based rates such as the filing of tariff rates and various forms. Retaining this statement of limited jurisdiction is of particular concern to LDCs that are comprehensively regulated at the state level. 11 Commenters argue that the Commission should clarify that blanket certificate holders are not subject to any other regulations except as provided in Subpart L of Part 284. Finally, commenters argued that the new rules and burdens are inappropriate for affiliates of small pipelines, particularly where the pipeline is non-major and serves few customers and the affiliated seller is selling supplies for the primary purpose of balancing its purchases with its manufacturing needs. 12 These commenters argue that the Commission should establish a procedure to exempt such affiliates of small pipelines.

25. The Commission has reviewed the comments and has determined that it will not delete the affirmative statement of limited jurisdiction from its regulations; rather, in keeping with the points raised by the comments it will modify the sentence to read, “[a] blanket certificate issued under Subpart L is a certificate of limited jurisdiction which will not subject the certificate holder to any other regulation under the Natural Gas Act jurisdiction of the Commission, other than that set forth in this Subpart L, by virtue of the transactions under this certificate.” Because the regulations adopted by the instant rulemaking will be placed in Subpart L, this action will maintain the original intent of the limited market based blanket certificate while allowing for the new conditions found necessary by the Commission.

26. Further, the Commission will not grant a generic exception to these regulations for small entities. In the Commission's view, entities with a small number of customers making few, or low volume, transactions should incur only minimal administrative or financial burden by virtue of these regulations.

27. As revised Section 284.288(a) of the Commission's regulations provides that:

28. As discussed above, several commenters raise concerns regarding the general language prohibiting manipulation. 14 Commenters contend that the regulation contains too many ambiguous terms such as “legitimate business purpose,” “manipulation,” and “legitimate forces of supply and demand.” NJR Companies assert that the proposal violates due process requirements, and that parties must receive fair notice before being deprived of their property. NJR Companies suggest that the Commission replace vague language with straightforward requirements.

29. Sempra recommends that the Commission take a cue from the jurisprudence of the CFTC and SEC by adopting a standard for manipulation that includes ability, intent, and effect as required elements of an offence. Reliant, Select, Merrill Lynch and Morgan Stanley assert that the Commission should establish four essential elements to prove manipulation: (1) The ability to move market prices, (2) the specific intent to create an artificial price, (3) the existence of an artificial price, and (4) causation of the artificial price by the accused.

30. Coral contends that adoption of the proposed regulation could have the effect of deterring blanket certificate holders from aggressively or creatively marketing their gas or developing new products that may benefit competitive gas markets. NASUCA argues that the Commission should clarify what types of manipulative behavior is prohibited. It adds that manipulation that results from inadequate planning, inept design, incompetent personnel, or poor supervision should not be exempted from enforceable action.

31. Hess believes that the Commission should not adopt this measure, asserting that, among other things, it has not sufficiently explained how it intends to enforce the standard. EnCana and Mirant question the necessity of the rule since the Commission and other agencies have already shown an ability to police allegedly manipulative behavior.

32. We find that our rules, including specifically the prohibitions set forth relating to market manipulation, are not unduly vague as asserted by some commenters. While constitutional due process requirements mandate that the Commission's rules and regulations be sufficiently specific to give regulated parties adequate notice of the conduct they require or prohibit, 15 this standard is satisfied “[i]f, by reviewing [our rules] and other public statements issued by the agency, a regulated party acting in good faith would be able to identify, with ascertainable certainty, the standards with which the agency expects parties to conform.”  16 The Commission's rules will be found to satisfy this due process requirement “so long as they are sufficiently specific that a reasonably prudent person, familiar with the conditions the regulations are meant to address and the objectives the regulations are meant to achieve, would have fair warning of what the regulations require.”  17

33. As applied by the courts, this due process standard has been held to allow for flexibility in the wording of an agency's rules and for a reasonable breadth in their construction. 18 The courts have recognized, in this regard, that specific regulations cannot begin to cover all of the infinite variety of cases to which they may apply and that “[b]y requiring regulations to be too specific, [courts] would be opening up large loopholes allowing conduct which should be regulated to escape regulation.”  19

34. The Supreme Court has further noted that the degree of vagueness tolerated by the Constitution, as well as the relative importance of fair notice and fair enforcement, depend in part on the nature of the rules at issue. 20 In Hoffman , for example, the Court held that in the case of economic regulation (as opposed to criminal sanctions), the vagueness test must be applied in less strict manner because, among other things, “the regulated enterprise may have the ability to clarify the meaning of the regulation by its own inquiry, or by resort to an administrative process.”  21

35. Applying these standards here, we find that our rules satisfy the requirement of due process. It cannot be said that the prohibitions against market manipulation, as set forth in the rules, are unclear in their intent. For example, our requirement that a seller's actions must have a “legitimate business purpose” is clearly intended to give sellers some latitude in determining their business actions, while safeguarding market participants against market manipulation for which there can be no legitimate business purpose. Sellers will not be required to guess at the meaning of the above-referenced term because it can only have meaning with specific reference to seller's own business practices and motives. In other words, if the seller has a legitimate business purpose for its actions, it cannot be sanctioned under this rule.

36. In establishing these rules, we have worked to strike a necessary balance. On the one hand, this prohibition allows the Commission to protect market participants from market abuses that cannot be precisely envisioned at the present time. At the same time, we have attempted to set forth with sufficient specificity the class of behaviors prohibited in a manner that will inform market-based rate sellers of the type of activities that are consistent with just and reasonable rates. This provides the Commission the ability to codify these requirements and provide a regulatory vehicle for their prospective enforcement. Thus, our rules have been designed to meet these twin objectives—to be specific in order to inform sellers as to the type of behavior that is prohibited today, while containing enough breadth and flexibility to address new and unanticipated activities, as they may arise down the road.

37. Nonetheless, we are committed to making our rules as specific as possible and thus, we are adopting a number of the revisions proposed by commenters in order to clarify the scope and application of our rules.

38. We clarify that we are focusing on behavior undertaken without an appropriate commercial underpinning for the purpose of distorting prices from those that would otherwise occur in the competitive market. However, the proposed term that would have characterized as manipulative behavior an act resulting in “market prices which do not reflect the legitimate forces of supply and demand” has resulted in confusion. While we do not believe that our use of this term was inappropriate or unjustified (as we intended it), many commenters appear to have misunderstood its purpose, suggesting that causes other than manipulation may explain a given dysfunction in the interplay between supply and demand. To avoid confusion on this point, then, and because our objectives with respect to this rule can be satisfied under the surviving clause, discussed above, we have eliminated this term from our rule. We clarify that this rule is not meant to say that we will identify prices that properly reflect supply and demand and then take action against sellers whose prices (however they may be established) differ. Rather, our rule is designed to prohibit market-based rate sellers from taking actions without a legitimate business purpose that are intended to or foreseeably could interfere with the prices that would be set by competitive forces. 22 One such action would be a wash trade. As discussed below, wash trades have no economic risk or substance, and create a false price for use in indices or in the market in general.

39. Commenters have also raised questions regarding how the Commission will determine whether this rule has been violated. In determining whether an activity is in violation of our rule, we will examine all relevant facts and circumstances surrounding the activity to evaluate whether there is a legitimate business purpose attributable to the behavior. We will evaluate whether the activity was designed to lead to (or could foreseeably lead to) a distorted price that is not reflective of a competitive market. Our approach will be to consider the facts and circumstances of the activity to determine its purpose and its intended or foreseeable result. However, the Commission recognizes that manipulation of energy markets does not happen by accident. We also recognize that intent often must be inferred from the facts and circumstances presented. Therefore, a violation of the instant rule must involve conduct which is intended to, or would foreseeably distort prices. 23

40. Some ambiguity necessarily arises from the fact that we cannot expressly identify all behaviors that are precluded by the instant rule. However, in the Commission's view, the rule and its implementation provide sufficient clarity for market-based rates sellers to understand the scope of precluded behaviors. The rule clearly prohibits behaviors that are undertaken without a legitimate business purpose which are designed to, or foreseeably would, distort prices for jurisdictional natural gas sales.

41. Many commenters have raised concerns with the Commission's inclusion of the phrase “legitimate business purpose.” The Commission's inclusion of the phrase is to assure sellers that transactions with economic substance in which a seller offers or provides service to a willing buyer where value is exchanged for value will not be considered prohibited by our rule. While several commenting sellers have raised concerns regarding the inclusion of the phrase “legitimate business purpose” in the rule, we believe that not only is the inclusion of the phrase necessary, it acts to ensure that such sellers acting in a pro-competitive manner will be able to show that their actions were not designed to distort prices or otherwise manipulate the market. Behaviors and transactions with economic substance in which a seller offers or provides service to a willing buyer where value is exchanged for value will be recognized as reflecting a legitimate business purpose consistent with just and reasonable rates. However, an action or transaction which is anticompetitive (even though it may be undertaken to maximize seller's profits), could not have a legitimate business purpose attributed to it under our rule. 24

42. Prices for transactions undertaken in the competitive marketplace where value is exchanged for value should be disciplined by market forces. On the other hand, all gas transactions may not be constrained by market forces. For example, if a gas merchant bought natural gas at a location typically used as an index reference point in a manner that drives prices higher (and promptly thereafter sold such gas at the market prevailing price at a loss) while also possessing a derivative position at a notional quantity significantly in excess of its physical gas position, that benefits from the increase in the market price of natural gas at this index reference point, these physical purchases may be interpreted as a component of a broader manipulative scheme and the cash market transactions may be found to be without a legitimate business purpose. 25

43. We recognize that we are establishing a general rule that will become more clear and concrete after we have had the opportunity to consider actual cases. As with all new requirements of this nature, with caselaw comes further clarity. This reflects the fact that we oversee a dynamic and evolving market where addressing yesterday's concerns may not address tomorrow's. Nevertheless, experience in applying this rule should be instructive to both the Commission and market-based rates sellers. As we apply the rule, we will be mindful of the fact that we are not only taking steps to assure just and reasonable rates for a specific transaction but also providing guidance to sellers in general. As such, in determining the appropriate remedy for violations of this rule, we will take into account factors such as how self evident the violation is and whether such violation is part of a pattern of manipulative behavior.

44. The Commission rejects arguments that it should identify and prohibit only expressly-defined acts of manipulation. For all the reasons discussed above, it is essential and appropriate that we have a prohibition designed to prohibit all forms of manipulative conduct. In sum, we believe our rules, as modified, explained and adopted herein, put sellers and all market participants on fair notice regarding the conduct we seek to encourage and the conduct we seek to prohibit. Stripped to their essentials, these guidelines amount to the following: (i) Act consistently within the Commission's established rules; (ii) do not manipulate or attempt to manipulate natural gas markets; (iii) be honest and forthright with the Commission and the institutions it has established to implement open-access transportation and entities publishing indices for the purpose of price transparency; and (iv) retain associated records. Viewed in this context, there can be no reasonable uncertainty over the underlying objectives embodied in our rules or their requirements going forward.

45. Our code of conduct rules would not supercede or replace parties' rights under Section 5 of the NGA to file a complaint contending that a contract should be revised by the Commission (pursuant to either the “just and reasonable” or “public interest” test as required by the contract). Rather, any party seeking contract reformation or abrogation based on a violation of one or more of these regulations would be required to demonstrate that such a violation had a direct nexus to contract formation and tainted contract formation itself. If a jurisdictional seller enters into a contract without engaging in behavior that violates these regulations with respect to the formation of such contract, we do not intend to entertain contract abrogation complaints predicated on our instant code of conduct rules.

46. Proposed Section 284.288(a)(1) provides that:

47. TXU comments that wash trades should be more precisely defined, contending that the present definition does not explicitly limit the applicable transaction to one involving the same location, price, quantity, and term, and can be interpreted to prohibit legitimate exchange transactions that occur through displacement or backhauls.

48. Merrill Lynch and Morgan Stanley request that the Commission modify the definition of wash trades to clarify that it applies to parties who intended to enter into simultaneous offsetting trades to effectuate a wash trade. They request that the Commission further clarify its definition by specifying that wash trades must involve: (1) A deliberately pre-arranged pair of trades, (2) trades made at the same time, at the same price, and at the same delivery points, and (3) trades made between the same legal entities. NGSA submits that the proposed ban on wash trades should be narrowed to encompass only simultaneous offsetting trades that are intended to manipulate market prices or rules. It explains that parties may enter into legitimate business arrangements that may appear as wash trades, for example, trades made to correct a scheduling or nomination error, or to liquidate a position at a pricing point based on subsequent changes in market conditions. NGSA suggests that the proposed regulation regarding wash trades be rewritten as: “knowingly pre-arranged simultaneous offsetting trades of the same product among the same parties, which involve no economic risk, and no net change in beneficial ownership (sometimes called ‘wash trades').”

49. Reliant recommends the definition of wash trades be refined to eliminate the possibility that multiple traders within the same company who are trading with multiple traders in another company do not stand accused of engaging in wash trades by the mere coincidence that their trades offset one another. Reliant suggests that the regulation be re-written as: “trades of the same product among the same parties, which trades are pre-arranged to be offsetting and involve no economic risk, and no net change in beneficial ownership (sometimes called ‘wash trades’).

50. The Oversight Board asserts that the definition of wash trade is unduly narrow, because it limits wash trades to transactions involving the same parties, the same quantity, and no economic risk whatsoever. The Oversight Board joins NASCUA in contending the proposed definition would permit a party to evade the wash trade prescription by engaging in transactions that result in the net financial position near to, but not equal to, zero. The Oversight Board contends that the Commission should qualify its wash trade definition to ensure that the codes of conduct can effectively react to unforeseen, novel attempts to circumvent the regulatory process. The Oversight Board requests that the Commission clarify that it will define wash trades as those necessarily affecting market prices or modify the definition to include pre-arranged multi-party transactions.

51. Commenters such as Select, Duke and NEMA suggest that the Commission's definition of a “wash trade” is too broad and may encompass transactions not intended to be wash trades such as “sleeving” and “bookout” transactions. Select explains that “sleeving” is a commonly performed trading practice in which a creditworthy party agrees to act as an intermediary in transactions between two parties who do not have a credit relationship. Duke recommends that legitimate trades may include the so-called “bookout” transactions, in which companies with offsetting delivery obligations resulting from heavy trading activity agree not to deliver to one another the offsetting amounts of energy. In the same vein, NEMA submits that there may be instances where legitimate business purposes appear to be wash trades ( e.g., when traders “book out” or “test the waters”), and that the Commission should not deem such trade to be illegal. Sempra request that the wash trade prohibition to only apply to trades that affect the market and asks that the Commission clarify the definition accordingly.

52. Other commenters such as Shell Offshore, NEMA, and Coral question whether the Commission has provided adequate definitions for the terms used in its regulations. For example, Shell Offshore questions what the regulations mean by a “pre-arranged” trade, and how it differs from any other negotiation leading to a trade. It also questions how to define an “offsetting trade,” and how the value is measured. It also asks what constitutes the “same product” ( i.e. , does an exchange of gas among the same parties constitute the same product, and thus qualify as an illegal wash trade). It also notes that there are legitimate transactions that involve “no economic risk,” such as a transaction providing a guaranteed supply at a guaranteed price. NEMA also requests additional clarification of the terms “wash trades” and “pre-arranged deals” and requests that the Commission investigate the meanings of the terms “intentional manipulation” and “wash trades” as they apply to securities and commodity futures trading.

53. The Commission will adopt Section 284.288(a)(1) as proposed. Thus, the regulation will state that:

54. The Commission disagrees with the comments that its definition of wash trades is ill conceived or vague. The definition of wash trades states the two key elements that the Commission sees as the fundamentally manipulative aspects of wash trading: (1) that the transaction or transactions are prearranged to cancel each other out; and (2) that they involve no economic risk. As such, the prohibition against wash trades is illustrative of the Commission's prohibition against the manipulation of market conditions.

55. Transactions such as “sleeving” or “bookouts” as described by the commenters do not fall with the key elements of the Commission's definition and therefore would not be prohibited by the regulation. Further, trades made to correct scheduling or nomination errors, or trades that do not result from an attempt to manipulate the market would not be prohibited by the Commission's regulation. Moreover, displacement or backhauls are not wash trades as they are transportation services obtained from a pipeline if operationally feasible and simply do not meet the definition of wash trades as set forth herein. A sleeve is not an off-setting trade but rather a mechanism to accomplish a gas sale among parties that have not established a credit relationship by including a third party seller that has acceptable credit in the transaction chain. The two resulting sales (which are only offsetting to the “sleeving” seller) are each with economic risk with a change in beneficial ownership and, usually at slightly different prices to reflect the use of the “sleeving” seller's credit. A “bookout” is not a pre-arranged trade but rather a subsequent arrangement to financially close out trades that were not prearranged and executed (and, in fact, closed out) with economic risk.

56. Commenters argue that the Commission should impose an “intent” standard relating to wash trading. The language, as proposed and finalized in this order, does include the element of intent. We recognize that buyers and sellers trade the same products with the same counterparties over the course of a trading day. Entering into a set of trades that happen to offset each other is not market manipulation. Wash trades are by their nature manipulative. By definition, parties must purposefully create prearranged off-setting trades with no economic risk to engage in a wash trade. We know of no legitimate business purpose to such behavior and no commenter has suggested one. Accordingly, as opposed to many other behaviors which would not, standing alone, violate Sections 284.288(a) or 284.403(a), wash trades will constitute a per se violation.

57. The Commission finds that its definition of wash trading, as explained here, satisfies the requirements that parties will generally know what is expected of them and what actions are prohibited. Therefore, the Commission will not further define its regulations at this point.

58. As revised Section 284.288(a)(2) of the Commission's regulations provides that prohibited actions and transactions include but are not limited to:

59. Several commenters argue that the Commission should better define the term collusion. 29 For instance, TXU recommends that the Commission and market participants rely on federal and state antitrust laws specifically defining collusion in order to ensure certainty concerning the conduct that is prescribed. Sempra argues that the Commission's prohibition of collusion is unconstitutionally vague, as well as unnecessary since such conduct is already proscribed under other statutory and regulatory schemes administered by other federal agencies with specialized expertise in those areas of law.

60. NEMA argues that for conduct to constitute collusion, there must be an element of intent to manipulate prices in the marketplace as well as an actual impact on commodity prices. Shell asks what standard the Commission would rely upon to determine whether or not there was collusion to “create” prices at levels that differ from those set by market forces.

61. While commenters such as Sempra are correct in their observation that the prohibition set forth in Sections 284.288(a)(1) and 284.403(a)(1) may be similar, in certain respects, to the prohibitions set forth in federal antitrust laws, our authority, as it relates to Sections 284.288(a)(1) and 284.403(a)(1), is not derived from federal antitrust law. Rather, our authority comes from the NGA itself and its requirement that all rates and charges made, demanded, or received by any natural gas company selling natural gas subject to the jurisdiction of the Commission and all rules and regulations affecting or pertaining to such rates and charges be just and reasonable. 30 Although our regulatory approach includes elements of anti-trust law, it is not limited to the structure of those laws. For example, our regulatory approach encompasses “partnerships” whose existence does not implicate anti-trust concerns that may, nonetheless, undertake manipulative behavior. Therefore, these regulations will be interpreted and enforced by the Commission consistent with our own policies and precedents. As such, we need not be concerned here whether, or to what extent, federal antitrust law may be broader in scope or more narrow in scope. 31 These regulations are expressly tailored to our statutory duties and our competitive goals with respect to the natural gas market. 32

62. To avoid possible confusion regarding the interpretation and scope from our originally proposed language which prohibited collusion for the purpose of creating market prices differing from those set by market forces, we have replaced this term with language consistent with our prohibition against manipulation set forth above. Therefore, the instant regulation prohibits collusion with another party for the purpose of manipulating market prices, market conditions or market rules for natural gas. We find such collusive acts to be illustrative of our prohibition against the manipulation of market prices and clarify that Sections 284.288(a)(2) and 284.403(a)(2) merely expand our general manipulation standard set forth in subparagraphs (a) of these rules to include acts taken in concert with another party. In other words, these regulations prohibit market manipulation undertaken by one market participant acting alone and market manipulation undertaken collectively by more than one market participant.

63. Proposed Regulation Section 284.288(b) states that:

64. Commenters argue that the Commission should not prescribe reporting requirements that might prevent innovation of better long-term solutions to the industry's evolving future needs for price information. 34 Others argue that the proposed penalties may discourage market participants from voluntarily reporting price data.

65. Commenters also argue that the confidential treatment of reported data, as required by the Policy Statement, is critical to the voluntary reporting process. 35 Moreover, several commenters recommend that the Commission articulate specific reporting requirements, consistent with the Policy Statement. Commenters submit that many aspects of the reporting process remain unclear. For instance, they argue that it is unclear what data must be reported, the format for the data, the policy for confirming the accuracy of the data, and to which entities the seller must report. BP seeks clarification of this rule, contending that it does not mandate reporting, but simply requires that any information reported be “complete.” Specifically, BP asks the Commission to clarify that where an entity voluntarily reports, that entity should not be required to report all sales at all locations. Coral suggests that general reviews followed by spot checks should be all that is required to assure a reasonable level of accuracy in reported trade price information. 36 Other commenters argue that the Policy Statement obviates the need for a reporting rule. 37

66. Several other commenters assert that the rule does not go far enough. 38 They recommend that the Commission require that all entities holding blanket certificates report all of their trades to the data collectors. They assert that only reporting occasional bits of information could lead to inaccuracies.

67. Moreover, several commenters request clarification as to whether the Commission notification requirement is a one-time or ongoing obligation. 39 BP argues that the Commission should clarify that it is only necessary to indicate to the Commission that the entity engages in reporting. Merrill Lynch and Morgan Stanley requests that the Commission clarify that if new entrants or entities that currently do not report to indices subsequently initiate reporting, such entities must notify the Commission within 30 days from the first date they initiated reports.

68. As part of the reporting provisions, numerous parties recommend that the Commission incorporate a safe harbor provision into its proposal so that an industry participant who, in good faith, provides trade data to index developers, will not be subject to penalties for inadvertent mistakes in reporting the information. Several commenters ask that the safe harbor provisions mirror the one adopted in the Commission's Policy Statement . 40 Commenters submit that incorporation of a safe harbor provision will encourage the voluntary reporting of information. Commenters also request the Commission to clarify the proposed false reporting prohibition so that it only applies to information that is known to be false at the time it is reported, as opposed to false reports based on inadvertent mistakes or human error. 41 Nicor and NGSA add that the Commission should expressly state that the safe harbor protections in the Policy Statement are not eliminated or negated by the subject reporting requirements.

69. Calpine contends that any safe harbor provision must be adopted into the proposed code without the burden on industry participants to self-audit and self-correct errors not otherwise discovered in the ordinary course of business. Given the volumes of data to be reported, Calpine believes it a certainty that inadvertent errors that do no harm to the overall integrity of the indices will be made. NEMA urges that the safe harbor be extended to index prices published by parties that meet the Commission's protocols.

70. The Commission proposed this regulation to assure that to the degree that a market-based rates seller reports its transactions to publishers of natural gas price indices, such seller must do so honestly and accurately. The Commission also proposed to require sellers to inform it if they undertook such reporting. Based upon the comments received, we have modified Sections 284.288(b) and 284.403(b) to read as follows:

71. In our June 26 NOPR, we referred to our on-going proceeding investigating price index formation. As many commenters have pointed out, since our proposal regarding these rules was issued we have also issued a Policy Statement addressing standards we believe appropriate for the formation of price indices that will be robust and accurate in the context of a voluntary reporting regime. 42 Included in the Policy Statement is a “Safe Harbor” under which reporting errors will not be subject to Commission sanction. Here, we explicitly adopt the standards set forth in the Policy Statement for transaction reporting. Further, we also adopt the “Safe Harbor” set forth therein as a component of our enforcement policy with respect to this rule.

72. The Commission clarifies that the requirement that entities notify the Commission of any change in status with regard to price reporting to indices is an ongoing obligation. As such, the entities must, upon the implementation of these regulations, inform the Commission of whether they report to the index publishers. As shown above, the Commission will modify the text of Sections 284.288(b) and 284.403(b) of its proposed regulations to provide that the blanket marketing certificate holder shall, after the initial notification to the Commission, inform the Commission of its reporting status within 15 days of the effective date of these regulations and within 15 days of any subsequent change in reporting status.

73. Finally, some commenters have asked that we require mandatory reporting while others contend that we have created requirements that will have a chilling effect on reporting. We believe that we have struck an appropriate balance in these rules. For the moment, we are attempting to work within the framework of voluntary reporting. We are awaiting our staff's review of the comprehensiveness of reporting in the wake of our Policy Statement. At this time, we are not mandating reporting. However, we have engaged in a comprehensive investigation of transaction reporting and related issues and believe that the practices set forth in our Policy Statement represent the necessary minimum for those entities that choose to report. Accordingly, we will not require reporting, but will seek to learn which sellers are reporting and set forth standards for those that do.

74. Proposed Section 284.288(c) of the Commission's regulations provides that:

75. Several entities comment on the Commission's proposed three-year data and information retention requirement. 44 Other commenters request clarification as to what constitutes “relevant data”, and suggest that the Commission specify what types of data and information must be retained, and in what format ( e.g. , paper or electronic). 45 Commenters are concerned that the required documentation will prove too burdensome due to both the time and the money required to store and retrieve information. NJR Companies argues that the proposal may create a new set of business records that could lead to decreased market activity, and a slow-down or elimination of certain transactions.

76. BP asserts that relevant data should be limited to accounting data that records the details of each reported transaction, along with a record of the data transmitted to the index developer, if applicable. BP adds that requiring data maintained in the accounting records would be consistent with the Commission's proposed requirement for price reporting in its recent Policy Statement, which requires that price, volume, buy/sell indicator, delivery/receipt point, transaction date and time, term, and any counterparty name be maintained. It argues that negotiation materials and other ancillary data should not be required to be maintained.

77. Several commenters argue that the three-year retention period is too long, and that the burden may dissuade blanket marketing certificate holders from reporting data. 46 Other commenters argue that the three-year retention period is too short, and that with current computer technology, a longer retention period should not result in additional costs to market participants. 47 Finally, some commenters argue that the three-year record retention period is consistent with the commercial practices of many natural gas sellers. 48

78. Several commenters argue that the record retention requirement will only be meaningful if the Commission makes reporting of all trade data mandatory. 49 At the same time, other commenters argue that if an entity does not report, then documentation is not necessary to verify the accuracy of price indices. 50 Other commenters submit that only relevant data should be retained and not peripheral documents that may have been generated in association with a transaction, but which have no bearing on the data reported to index publishers. 51

79. This proposed rule requires that sellers maintain relevant records regarding their sales for three years. After review of the comments received, we revise Section 284.288(c) to read:

80. In revising the proposed rule, we clarify that we are not seeking retention “cost-of service” or analytical data related to sellers’ sales as some commenters perceived from our suggestion that entities retain all relevant data “necessary for the reconstruction of price indices” in our original proposal. Rather, we are requiring that sellers retain the complete set of contractual and related documentation upon which such entities billed their customers for sales. The Commission is indifferent as to whether this material is retained in paper form or in an electronic medium as long as the data can be made accessible in a reasonable fashion if its review is required. In addition, commenters raise several issues in regard to the three-year retention period. On balance, the Commission does not believe that requiring sellers to retain records for a three-year period constitutes an undue burden given the fact that the Commission is prepared to allow the records to be kept in electronic or paper form. To permit a shorter retention period may not allow sufficient time for the investigations into possible violations.

81. Proposed section 284.288(d) of the Commission's regulations provides that:

82. Commenters generally agree with this restriction. 54 NASUCA agrees to the prohibition of affiliate transactions from price indices calculations, but contends that other non-price information, such as the number of trades and the volumes associated with each trade, is important information that will help determine the liquidity at various hubs for which prices are calculated. It recommends that the regulation be modified to state that pipelines and certificate holders should separately report other non-price data associated with affiliate transactions.

83. Although the separate reporting of other non-price data associated with affiliate transactions may provide additional information regarding liquidity at certain points, the Commission finds that this information is not necessary for the purposes of these rules.

84. Although commenters generally agree with reporting restrictions on transactions between affiliates in the June 26 NOPR, new Sections 284.288(b) and 284.403(b) of the Final Rule provide that to the extent a Seller engages in the reporting of transactions to publishers of price indices, the Seller shall do so in a manner consistent with the procedures set forth in the Policy Statement . The Policy Statement states that “a data provider should report each bilateral, arm's length transaction between non-affiliated companies in the physical (cash) markets at all trading locations.”  55 Therefore, an entity filing consistent with the Policy Statement will not include sales to affiliates in its report. Accordingly, the Commission believes the addition of these two regulations (Sections 284.288(d) and 284.403(d) of the June 26 NOPR) is redundant, and shall be deleted.

85. Several commenters responded to the Commission's proposal that the violations of its code of conduct may result in various remedial actions by the Commission including the disgorgement of unjust profits, suspension or revocation of the blanket sales certificates or other appropriate remedies.

86. In regard to the Commission's inclusion of disgorgement as a potential remedy various commenters argue that the Commission does not have authority to condition NGA Section 7 certificates with such a retroactive refund obligation. 56 Commenters argue that the courts have held that the Commission's power to condition certificates cannot be permitted to diminish an entity's rights under NGA Sections 4 and 5. 57 These commenters argue the proposed disgorgement remedy is a refund condition that is not permitted under Section 5 of the NGA and that such disgorgement of unjust profits from a just and reasonable rate is tantamount to retroactive ratemaking because NGA Section 5 provides only for prospective relief. 58 The commentors argue the Commission is attempting to expand its authority to order retroactive refunds, or, change retroactively the filed rate. They argue that courts have been clear that the Commission cannot (i) use its conditioning authority to circumvent other provisions of the NGA and (ii) do indirectly what it may not do directly and therefore the Commission cannot condition rates as it proposes to do so here, and subject them to retroactive refunds because Congress did not include such authority in the NGA.

87. Several commenters express concern that the term “unjust profits” is vague and subjective, the calculation of which would necessitate a review of all market conditions. 59 AGA recommends that the Commission limit the disgorgement of unjust profits to all illegal activity and not impose penalties for violation of those regulatory provisions associated with reporting activities. 60 NJR Companies object to the disgorgement remedy when the violation is inadvertent. 61

88. Several commenters argue that the Commission should consider additional remedies such as a remedy that would require the offending entity to make the market whole for losses incurred because of its actions. 62 They argue that if an entity must simply disgorge unjust profits, even if is caught for every infraction of the code, it is no worse off than if it had followed the rules in the first place. Therefore, they argue that disgorgement of unjust profits does not serve as a penalty or deterrent to future, similar actions. In sum, they argue that the failure to comply with the filed rate by engaging in prohibited manipulative behavior should include a potential remedy that is greater than disgorgement, such as a make the market whole remedy.

89. Regarding the issue of appropriate non-monetary penalties, PSCNY states that all violations of the regulations should be publicly disclosed in a public file that may be accessed by buyers and the public. A list of bad actors and dates could be maintained on the Commission's Web site. Such public disclosure, PSCNY argues, would provide an additional deterrent for companies to avoid the stigma associated with engaging in anticompetitive behavior. PSCNY states that in the event of a particularly blatant and serious violation, or multiple violations, the Commission should place parties on notice that appropriate remedies could include revocation of market-based rate authority. NASUCA recommends that the Commission clarify that revocation of market-based rate authority will be for a specified minimum period of time that depends on the severity of the violation.

90. In Order No. 636, the Commission determined that after gas services were unbundled, sellers of gas supplies would not have market power over the sale of natural gas. This determination was based in large part upon Congress' finding that a competitive market exists for gas at the wellhead and in the gas field. The Commission determined that it would institute light-handed regulation and would rely on market forces at the wellhead to constrain sales for resale of natural gas within the just and reasonable standard set forth by the NGA. In implementing its findings in Order No. 636 and Order No. 547, the Commission issued blanket certificates to all persons who are not interstate pipelines which authorized such persons to make jurisdictional gas sales for resale at negotiated rates with pre-granted abandonment. 63 In issuing these certificates the Commission determined that the competitive natural gas market would lead all gas suppliers to charge rates that are sensitive to the gas sales market.

91. The Commission has determined that in order to protect and maintain the competitive natural gas market and to continue its light-handed regulation of the gas sales within its jurisdiction, it is necessary to place additional conditions on its grant of market-based sales certificates. In formulating such conditions to the market based rate certificates the Commission is fulfilling its obligation to appropriately monitor markets and to ensure that market-based rates remain within the zone of reasonableness required by the NGA. 64

92. In order to find the market based sales service to be in the public convenience and necessity the Commission finds that the conditions herein must be met. Once the sales service is so conditioned, in the Commission's view adequate safeguards are in place so that the Commission may grant market based sales authority to jurisdictional sellers of natural gas. In so conditioning this service, the Commission is not prohibiting a jurisdictional seller of natural gas from requesting a certificate for a different form of service or filing pursuant to Section 4 of the NGA for a different rate or conditions of service. Neither does the Commission prohibit a customer of such a seller from raising objections under Section 5 of the NGA.

93. Moreover, if the conditions of service are not met, the Commission has the authority to impose the appropriate remedy for the violation. 65 In particular, the Commission does not agree with the comments that a violation of an existing condition of service may not be remedied by the Commission from the time the violation occurred. The Commission has the authority to remedy violations of certificate conditions. 66 Moreover, the courts have held that the Commission has a great deal of discretion when imposing remedies devised to arrive at maximum reinforcement of Congressional objectives in the NGA. 67 In devising its remedy the Commission is required to exercise its discretion to arrive at an appropriate remedy, 68 and to explore all the equitable considerations, and practical consequences of its action and the purposes of the NGA. 69

94. This action of remedying a violation of a certificate condition is not the same as the Commission's action in finding an existing rate unjust and unreasonable after hearing under Section 5 of the NGA. At the initiation of an NGA Section 5 proceeding the existing condition has not yet been found to be unjust and unreasonable. In contrast, in a remedial proceeding the issue is whether the entity has violated an existing condition of the tariff or the regulations. Therefore, in a remedial proceeding, unlike an NGA section 5 proceeding, the regulated entity has notice of the conditions required for service at the time of the implementation of the service condition and the Commission may, at its discretion, fashion an appropriate remedy.

95. In appropriate circumstances these remedies may include disgorgement of unjust profits, suspension or revocation of the blanket sales provision or other appropriate non-monetary remedies. Which of these remedies is appropriate will depend on the circumstances of the case before it and the Commission will not determine here which remedy or remedies it will utilize. 70

96. Several commenters raise concerns about the 60-day time limit on complaints proposed in the June 26 NOPR. 71 Most of the commenters argue that the 60-day time period is unreasonably too short. Some commenters suggest a limit of six months. 72 Many commenters suggest modification of the provision's discovery exception, by adopting a “reasonableness” standard, i.e. , a reasonable person exercising due diligence could not have known of the wrongful conduct.

97. Several commenters argue that the Commission errs in not applying the 60-day deadline to itself. They argue that if the Commission is allowed to initiate unlimited retroactive investigations, this vitiates any time constraints the rule otherwise places on private complainants. Commenters recommend that the scope of any investigation that might stem from a complaint, or the Commission's own motion, be narrowly defined, and require the demonstration and quantification of the individual harm resulting from the prohibited conduct. 73 These commenters are concerned about the lack of finality for transactions under the proposed discovery exception to the 60-day requirement. Merrill Lynch and Morgan Stanley suggest either a hard and fast deadline of 60 days from the event with no exceptions or a rebuttable presumption the complainant knew about the alleged violation within the 60-day time period.

98. Upon consideration of the comments received concerning our 60-day proposal, in the Commission's view the 60-day time period may be insufficient time for parties to discover and act upon violations of these regulations. Accordingly, the Commission will modify its original proposal to allow 90 days from the end of the quarter from which a violation occurred for a party to bring a complaint based on these regulations. A 90-day time period provides a reasonable balance between encouraging due diligence in protecting one's rights, discouraging stale claims, and encouraging finality in transactions. Furthermore, the Commission clarifies that the language in Sections 284.288(e) and 284.403(e), “unless that person could not have known of the alleged violation”, incorporates a reasonableness standard, i.e. , the 90-day time period to file a complaint does not begin to run until a reasonable person exercising due diligence should have known of the alleged wrongful conduct. Rather than being impermissibly vague, this safeguard ensures a sufficient time-period for complainants to discover hidden wrongful conduct and submit a claim.

99. We will also place a time limitation on Commission enforcement action for potential violations of these regulations. The Commission, unlike the market participants who may be buyers or otherwise directly affected by a transaction, may not be aware of actions or transactions that potentially may violate our rules. Thus, the Commission will act within 90 days from the date it knew of an alleged violation of these code of conduct regulations or knew of the potentially manipulative character of an action or transaction. Commission action in this context means a Commission order or the initiation of a preliminary investigation by Commission Staff pursuant to 18 CFR section 1b. If the Commission does not act within this time period, the seller will not be exposed to potential liability regarding the subject action or transaction. Knowledge on the part of the Commission will take the form of a call to our Hotline alleging inappropriate behavior or communication with our enforcement Staff.

100. We also clarify that in this context the Commission's action will have reference to a Commission order or to the initiation to a preliminary investigation by Commission Staff. If the Commission does not act within this period, the Seller will not be exposed to potential liability regarding the subject transaction. In such a proceeding, knowledge on the part of the Commission must take the form of a call to our Hotline alleging inappropriate behavior or communication with our enforcement staff.

101. The code of conduct rules adopted herein would require jurisdictional gas sellers to retain certain records for three years and also require them to notify the Commission whether or not they engage in the reporting of natural gas sales transactions to publishers of gas indices. 74

102. The Office of Management and Budget's (OMB) regulations require that OMB approve certain information collection requirements imposed by agency rule. 75 This final rule does not make any substantive or material changes to the information collection requirements specified in the NOPR, which was previously submitted to OMB for approval on July 14, 2003. OMB has elected to take no action on the NOPR. Thus, the information collection requirements in this rule are pending OMB approval. Comments were solicited and received on the need for this information, whether the information will have practical utility, the accuracy of the provided burden estimates, ways to enhance the quality, utility, and clarity of the information to be collected, and any suggested methods for minimizing respondents' burden, including the use of automated information techniques. The Commission addressed these issues in sections III(C)(4)-(5) of this order. The burden estimates for complying with this proposed rule are as follows:

Information Collection Costs: The Commission seeks comments on the cost to comply with these requirements. It has projected the average annualized cost of all respondents to be: Annualized Capital Startup Costs: 666 ÷ 2080 × $117,041 = $37,475. This is a one time cost for the implementation of the proposed requirements.

103. OMB's regulations require it to approve certain information collection requirements imposed by agency rule. The Commission is submitting a copy of this order to OMB.

104. Title: FERC-549, Gas Pipeline Rates: Natural Gas Policy Act, Section 311.

105. Action: Proposed Data Collection.

106. OMB Control No.: 1902-0086.

107. Respondents: Businesses or other for profit.

108. Frequency of Responses: On occasion.

109. Necessity of Information: The code of conduct rules approved herein would revise the Commission's regulations to require that pipelines that provide unbundled sales service or persons holding blanket marketing certificates adhere to a code of conduct when making gas sales. In addition, the Commission will require blanket sales certificate holders to maintain certain data for a period of three years. The addition of the codes of conduct, retention of data and standards for accuracy are efforts by the Commission to ensure the integrity of the natural gas market that remains within its jurisdiction.

110. Internal review: The Commission has reviewed the requirements pertaining to blanket sales certificates and has determined the proposed revisions are necessary to ensure the integrity of the gas sales market that remains within its jurisdiction. These requirements conform to the Commission's plan for efficient information collection, communication, and management within the natural gas industry. The Commission has assured itself, by means of internal review, that there is specific, objective support for the burden estimates associated with the information requirements.

111. Interested persons may obtain information on the information requirements by contacting the following: Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426 [Attention: Michael Miller, Office of the Executive Director, Phone: (202) 502-8415, fax: (202) 273-0873, e-mail: Michael.Miller@ferc.gov. ]

112. For submitting comments concerning the collection of information(s) and the associated burden estimate(s), please send your comments to the contact listed above and to the Office of Management and Budget, Office of Information and Regulatory Affairs, Washington, DC 20503, [Attention: Desk Officer for the Federal Energy Regulatory Commission, phone: (202) 395-7856, fax: (202) 395-7285].

113. The Commission is required to prepare an Environmental Assessment or an Environmental Impact Statement for any action that may have a significant adverse effect on the human environment. 76 The Commission has categorically excluded certain actions from these requirements as not having a significant effect on the human environment. 77 The actions proposed to be taken here fall within categorical exclusions in the Commission's regulations for rules that are clarifying, corrective, or procedural, for information gathering, analysis, and dissemination, and for sales, exchange, and transportation of natural gas that requires no construction of facilities. 78 Therefore, an environmental assessment is unnecessary and has not been prepared in this rulemaking.

114. The Regulatory Flexibility Act of 1980 (RFA)  79 generally requires a description and analysis of final rules that will have significant economic impact on a substantial number of small entities. The Commission is not required to make such analyses if a rule would not have such an effect. 80

115. The Commission does not believe that this rule would have such an impact on small entities. Most of the entities required to comply with the proposed regulations would be pipelines, LDCs or their affiliates who do not meet the RFA's definition of a small entity whether or not they are under the Commission's jurisdiction. It is likely that any small entities selling natural gas would be making gas sales that are no longer subject to the Commission's jurisdiction. Therefore, the Commission certifies that this rule will not have a significant economic impact on a substantial number of small entities.

116. In addition to publishing the full text of this document in the Federal Register , the Commission provides all interested persons an opportunity to view and/or print the contents of this document via the Internet through FERC's Home Page ( http://www.ferc.gov ) and in FERC's Public Reference Room during normal business hours (8:30 a.m. to 5 p.m. Eastern time) at 888 First Street, NE., Room 2A, Washington DC 20426

117. From FERC's Home Page on the Internet, this information is available using the eLibrary link. The full text of this document is available on eLibrary in PDF and Microsoft Word format for viewing, printing, and/or downloading. To access this document in eLibrary, type the docket number excluding the last three digits of this document in the docket number field.

118. User assistance is available for eLibrary and the FERC's Web site during normal business hours at FERCOnLineSupport@ferc.gov or by calling (866) 208-3676 or for TTY, contact (202) 502-8659.

119. These regulations are effective December 26, 2003. The Commission has determined, with the concurrence of the administrator of the Office of Information and Regulatory Affairs of OMB, that this Final Rule is not a “major rule” as defined in Section 351of the Small Business Regulatory Enforcement Fairness Act of 1996. The Commission will submit the Final Rule to both houses of Congress and the General Accounting Office.

An electronic copy of this document may be downloaded by using a computer, modem and suitable communications software from the Government Printing Office's Electronic Bulletin Board Service at (202) 512-1661. Internet users may also reach the Office of the Federal Register's home page at: http://www.archives.gov and the Government Printing Office's Web page at: http://www.access.gpo.gov/nara.

In 1973, the Interstate System was about 83 percent complete; however, due to changed social, economic, and environmental conditions, many States realized it would be impracticable or unnecessary to construct some uncompleted segments of the Interstate, particularly in urbanized areas. But these States were reluctant to give up these segments for fear of losing substantial amounts of Federal-aid funds. Therefore, the Federal-Aid Highway Act of 1973 (Pub. L. 93-87, 87 Stat. 250, August 13, 1973), amended title 23, United States Code, by adding section 103(e)(4) to allow uncompleted or planned highways on the Interstate System in urbanized areas to be withdrawn and their funding entitlements be transferred to mass transit projects. This became known as the “Interstate withdrawal and substitution program” (also known as the “Interstate Transfer program”) and it provided States with the opportunity to request withdrawal of a non-essential segment of the Interstate System, and the substitution of transit projects to serve the area that would have been served by the withdrawn segment. As a result of this Act, the Federal Highway Administration together with the Federal Transit Administration (known as the Urban Mass Transit Administration at that time) promulgated 23 CFR Part 476, Interstate Highway System. 1 Subpart D of this regulation outlined the procedures for the withdrawal of Interstate System segments and the substitution of public mass transit or highway projects.

In 1976, the Congress expanded the Interstate withdrawal and substitution program to allow substitution projects to include highway projects as well as transit projects ( see Federal-Aid Highway Act of 1976 (Pub. L. 94-280, 90 Stat. 425, May 5, 1976)). The Federal-Aid Highway Act of 1978 (Pub. L. 95-599, 92 Stat. 2689, November 6, 1978) further amended 23 U.S.C. 103(e)(4) by establishing time limits for withdrawals and substitute project approvals. Nonessential Interstate System segments passing through and connecting urbanized areas within a State could also be withdrawn. Withdrawals were to receive approval by September 30, 1983, unless the route was under judicial injunction prohibiting construction at the time of enactment of the 1978 Highway Act. All substitute projects were to be approved no later than September 30, 1983. Furthermore, all substitute projects were to be under construction or under contract for construction no later than September 30, 1986, provided sufficient funds were available. Therefore in 1980, the FHWA and the FTA amended 23 CFR part 476 to comply with these changes. 2

In 1987, Congress again modified the Interstate withdrawal and substitution program in a number of ways ( see Surface Transportation and Uniform Relocation Assistance Act of 1987 ((Pub. L. 100-17, 101 Stat. 132, April 2, 1987)). A cost adjustment provision was enacted to assure that the “buying power” of the value of the withdrawals was maintained over time. A portion of the annual funding authorized for highway and transit substitute projects each year was set aside to be allocated on a discretionary basis. Open to traffic Interstate segments could no longer be withdrawn. The regulations were not revised to reflect these provisions. Instead, the FHWA and FTA administered the program under the 1980 regulations and the modifications made in the 1987 legislation.

In 1998, the Congress enacted the Transportation Equity Act for the 21st Century (TEA-21) (Pub. L. 105-178, 112 Stat. 107, June 9, 1998) and recognized the expiration of the Interstate withdrawal and substitution program by removing 23 U.S.C. 103(e)(4). 3 Therefore, since the time limits for the Interstate withdrawal and substitution program have long expired, the underlying statutory authority for 23 CFR part 476 has been eliminated, and the Interstate withdrawal and substitution program no longer exists, it is appropriate to remove 23 CFR part 476 from the Code of Federal Regulations.

The removal of 23 CFR part 476 does not affect prior obligations under the Interstate withdrawal and substitution program, nor does it affect Interstate withdrawal and substitution funds that are still available. Rather, section 1045(b)(2) of the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA) specifies that Interstate withdrawal and substitution funds remain available until expended. Moreover, States that still have Interstate withdrawal and substitution funds available to them can elect to deobligate those funds from a particular project and reobligate them to another eligible project. Any State interested in deobligating and reobligating Interstate withdrawal and substitution funds can contact its FHWA Division Office or FTA Regional Office to explore that possibility.

Under the Administrative Procedure Act (APA) (5 U.S.C. 553(b)), an agency may waive the normal notice and comment requirements if it finds, for good cause, that they are impracticable, unnecessary, or contrary to the public interest. The issuance of this rule without prior notice and opportunity for public comment is based on the good cause exceptions in 5 U.S.C. 553 (b)(3)(B). Seeking public comment is unnecessary and contrary to the public interest. This action is merely a ministerial action to remove an obsolete part from the CFR and the removal of this part will have no substantive impact. Therefore, the agencies would not anticipate receiving meaningful comments on a proposal to eliminate 23 CFR part 476. Prior notice is therefore unnecessary, and it would be contrary to the public interest to delay unnecessarily this effort to eliminate an outdated rule. Furthermore, the FHWA and the FTA believe that because the underlying statutory authority for 23 CFR part 476 no longer exists, we are eliminating any confusion that may be caused from the existence of 23 CFR part 476.

The APA also allows agencies, upon a finding of good cause, to make a rule effective immediately upon publication (5 U.S.C. 533(d)(3)). For the same reasons discussed above, the agencies also believe good cause exists for making this action effective immediately upon publication.

The FHWA and the FTA have determined that this action is not a significant regulatory action within the meaning of Executive Order 12866 or significant within the meaning of Department of Transportation regulatory policies and procedures. It is anticipated that the economic impact of this rulemaking will be minimal. The obsolete provision in law to withdraw Interstate System segments under part 476 was eliminated on June 9, 1998, by TEA-21. Substitute projects are essentially all complete and related funding fully utilized.

This final rule will not adversely affect, in a material way, any sector of the economy. In addition, these changes will not interfere with any action taken or planned by another agency and will not materially alter the budgetary impact of any entitlements, grants, user fees, or loan programs.

In compliance with the Regulatory Flexibility Act (Pub. L. 96-354, 5 U.S.C. 601-612) the agencies have evaluated the effects of this action on small entities and have determined that the action will not have a significant economic impact on a substantial number of small entities.

This rule eliminates an obsolete part of title 23 of the Code of Federal Regulation. This will simply eliminate any confusion that could be generated by retaining these obsolete regulatory provisions. For these reasons, the FHWA and the FTA certify that this action will not have a significant economic impact on a substantial number of small entities.

This rule does not impose unfunded mandates as defined by the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4, March 22, 1995, 109 Stat. 48). This rule will not result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more in any one year. This rule simply deletes an obsolete regulatory provision.

This action has been analyzed in accordance with the principles and criteria contained in Executive Order 13132, and the agencies have determined that this action does not have sufficient federalism implications to warrant the preparation of a federalism assessment. The FHWA and the FTA have also determined that this action does not preempt any State law or State regulation or affect the States' ability to discharge traditional State governmental functions.

Catalog of Federal Domestic Assistance Program Number 20.205, Highway Planning and Construction. The regulations implementing Executive Order 12372 regarding intergovernmental consultation on Federal programs and activities apply to this program.

This action does not contain a collection of information requirement under the Paperwork Reduction Act of 1995, 44 U.S.C. 3501-3520.

The agencies have analyzed this action for the purpose of the National Environmental Policy Act of 1969 (42 U.S.C. 4321-4347) and have determined that this action will not have any effect on the quality of the environment.

The FHWA and the FTA have analyzed this final action under Executive Order 13175, dated November 6, 2000, and believe that this action will not have substantial direct effects on one or more Indian tribes; will not impose substantial direct compliance costs on Indian tribal governments; and will not preempt tribal law. Therefore, a tribal summary impact statement is not required.

We have analyzed this final rule under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use. We have determined that it is not a significant energy action under that order because it is not a significant regulatory action under Executive Order 12866 and is not likely to have a significant adverse effect on the supply, distribution, or use of energy. Therefore, a Statement of Energy Effects under Executive Order 13211 is not required.

A regulation identification number (RIN) is assigned to each regulatory action listed in the Unified Agenda of Federal Regulations. The Regulatory Information Service Center publishes the Unified Agenda in April and October of each year. The RIN contained in the heading of this document can be used to cross-reference this action with the Unified Agenda.

This document finalizes the Compact Council rule proposed in the Federal Register on November 25, 2002, (67 FR 70567). The Compact Council accepted comments on the proposed rule from interested parties until December 26, 2002, and is finalizing the rule with certain changes in response to the comments.

Two comments from the same party questioned the Council's reference in the Supplementary Information that “the Compact eliminates barriers to the sharing of criminal history record information among Compact parties for noncriminal justice purposes”, asking if the Compact encompassed all noncriminal justice purposes or only those criminal history record information requests supported by fingerprint submissions. The Council's response was that the Compact encompasses all noncriminal justice purposes. The second comment asked for verification of the quoted statement in the Supplementary Information that “Article VI of the Compact provides for a Compact Council that has the authority to promulgate rules and procedures governing the use of the Interstate Identification Index (III) System for noncriminal justice purposes, not to conflict with the FBI administration of the III System for criminal justice purposes.” The Council's response was that this is a direct quote from the Compact, 28 CFR 14616, Article VI.

Nine comments referencing particular subsections of the proposed rule were received from a second party. The first comment referenced the use of and subsequent referral to the term “directly aggrieved” (§ 902.2, paragraphs (a) and (b)). To eliminate what was interpreted as a “circular” reference, the Council is revising paragraph (a) to state,

“Cognizable disputes may be based upon:

The Union Pacific Railroad has requested a temporary deviation in order to replace a motor on the swing span bridge across Buffalo Bayou at mile 0.1 at Houston, Harris County, Texas. This maintenance is essential for the continued safe operation of the bridge. This temporary deviation will allow the bridge to remain in the closed-to-navigation position from 6 a.m. on Wednesday, December 10, 2003, until 6 p.m. on Sunday, December 21, 2003. The bridge will not be able to open for emergencies during this time and no alternate routes are available. The vertical clearance of the bridge in the closed-to-navigation position is approximately 34 feet above mean low water, elevation 0.0.

Requests to open the bridge are infrequent with the most recent request on April 14, 2003. Waterway users consist mainly of small tows. Based upon coordination with waterway users and Vessel Traffic Service Houston/Galveston, it has been determined that this closure will not have a significant effect on these vessels.

In accordance with 33 CFR 117.35(c), this work will be performed with all due speed in order to return the bridge to normal operation as soon as possible. This deviation from the operating regulations is authorized under 33 CFR 117.35.

The State of Louisiana, Department of Transportation and Development (LDOTD), has requested a temporary deviation from the requirements of 33 CFR 117.422(a) in order to replace a hydraulic cylinder on the swing span bridge across the Amite River, mile 6.0, at Clio, Livingston Parish, Louisiana. This maintenance is essential for the continued safe operation of the bridge. This temporary deviation will allow the bridge to remain in the closed-to-navigation position from 6 a.m. on Monday, December 15, 2003, until 6 p.m. on Friday, December 19, 2003. The bridge will open for emergencies during this time with delays for the mobilization of equipment to swing the bridge. No alternate routes are available. The vertical clearance of the bridge in the closed-to-navigation position is approximately 4 feet above mean high water.

Presently, the draw of the S22 bridge opens on signal if at least four hours advanced notice is given. Records indicate that requests for the bridge to open are infrequent with only two vessels requesting openings last December. Waterway users consist mainly of small recreational vessel. It has been determined that this closure will not have a significant effect on these vessels.

In accordance with 33 CFR 117.35(c), this work will be performed with all due speed in order to return the bridge to normal operation as soon as possible. This deviation from the operating regulations is authorized under 33 CFR 117.35.

I. Background

On January 30, 2001, the Delaware Department of Natural Resources and Environmental Control (DNREC) submitted SIP revisions to Delaware Regulation 26: Motor Vehicle Emissions Inspection Program and Delaware Regulation 31: Low Enhanced Inspection and Maintenance (LEIM) Program. The revisions to Regulation 26 include a provision to exempt the five newest model year vehicles from inspection and an amendment to the program's waiver requirements. The revisions to Regulation 31 create a new car clean screen provision in the LEIM program. On September 24, 2001, DNREC submitted another SIP revision to Regulation 31 that incorporates an on-board diagnostics (OBD) systems check as part of the LEIM Program.

This rulemaking pertains to both the January 30, 2001 and September 24, 2001 SIP revisions submitted by DNREC to amend Regulations 26 and 31.

On January 30, 2001, DNREC officially submitted a revision to EPA pertaining to SIP-approved Delaware Regulation 31. Regulation 31 for the LEIM program applies in Kent and New Castle Counties. The revision includes a new model year clean screen provision whereby newer model year vehicles may be exempt from exhaust and evaporative emissions testing when waiting lines at inspection stations are too long. The previous version of Regulation 31 called for the use of a low emitter profile (LEP) model to clean screen vehicles at the lanes during peak inspection periods. However, this LEP model clean screen provision of the previous version of Regulation 31 was not implemented, and long lines continued to be a problem during certain times. The main reason for not implementing the LEP clean screen program was the complexity of integrating the LEP program into the existing information systems. The revision to Regulation 31 replaces the LEP model clean screen provision with a new model year clean screen exemption to exempt vehicles that are less than eight model years old. The DNREC provided a modeling analysis that demonstrates that with this new model year clean screen provision, its LEIM program still meets the applicable performance standard required under the Federal I/M rule. Furthermore, DNREC's analysis demonstrates that with this revision to Regulation 31, its LEIM program provides more emission reductions that the previous version calling for the use of an LEP model to clean screen. For a more detailed evaluation of the modeling analysis, please see the Technical Support Document (TSD) prepared in support of this rulemaking action. Copies of that TSD are available from the EPA Regional Office listed in the ADDRESSES section of this document. EPA has determined that these revisions to Regulation 31 are consistent with the applicable requirements of the Federal I/M rule.

The DNREC's January 30, 2001 SIP revision submittal also included amendments to Delaware Regulation 26: Motor Vehicle Emissions Inspection Program, which only applies in Sussex County. The revisions to Regulation 26 include a provision to exempt the five newest model year vehicles from inspection and an amendment to the program's waiver requirements. EPA has determined that the five-year-model exemption and revised waiver provisions are consistent with the applicable requirements of the Federal I/M rule.

On September 24, 2001, DNREC submitted to EPA further revisions to Regulation 31 to incorporate an OBD systems check as part of the LEIM Program. This revision addresses the key components for making an OBD systems check part of a LEIM program such as implementation deadlines, model year coverage, test standards and procedures, waivers, and test reports. The September 24, 2001 submittal also revises Regulation 31 to clarify the test procedures for the Evaporative System Integrity Test (pressure test). EPA has determined that these revisions to Regulation 31 are consistent with the applicable requirements of the Federal I/M rule.

EPA is approving the SIP revisions submitted by DNREC on January 30, 2001 pertaining to Regulations 26 and 31 and on September 24, 2001 pertaining to Regulation 31 as described in Section II of this document.

EPA is publishing this rule without prior proposal because the Agency views this as a noncontroversial amendment and anticipates no adverse comment. However, in the “Proposed Rules” section of today's Federal Register , EPA is publishing a separate document that will serve as the proposal to approve the SIP revision if adverse comments are filed. This rule will be effective on January 26, 2004, without further notice unless EPA receives adverse comment by December 26, 2003. If EPA receives adverse comment, EPA will publish a timely withdrawal in the Federal Register informing the public that the rule will not take effect. EPA will address all public comments in a subsequent final rule based on the proposed rule. EPA will not institute a second comment period on this action. Any parties interested in commenting must do so at this time. Please note that if EPA receives adverse comment on an amendment, paragraph, or section of this rule and if that provision may be severed from the remainder of the rule, EPA may adopt as final those provisions of the rule that are not the subject of an adverse comment.

You may submit comments either electronically or by mail. To ensure proper receipt by EPA, identify the appropriate rulemaking identification number DE059-1038a in the subject line on the first page of your comment. Please ensure that your comments are submitted within the specified comment period. Comments received after the close of the comment period will be marked “late.” EPA is not required to consider these late comments.

1. Electronically. If you submit an electronic comment as prescribed below, EPA recommends that you include your name, mailing address, and an e-mail address or other contact information in the body of your comment. Also include this contact information on the outside of any disk or CD ROM you submit, and in any cover letter accompanying the disk or CD ROM. This ensures that you can be identified as the submitter of the comment and allows EPA to contact you in case EPA cannot read your comment due to technical difficulties or needs further information on the substance of your comment. EPA's policy is that EPA will not edit your comment, and any identifying or contact information provided in the body of a comment will be included as part of the comment that is placed in the official public docket. If EPA cannot read your comment due to technical difficulties and cannot contact you for clarification, EPA may not be able to consider your comment.

i. E-mail. Comments may be sent by electronic mail (e-mail) to morris.makeba@epa.gov, attention DE059-1038. EPA's e-mail system is not an “anonymous access” system. If you send an e-mail comment directly without going through Regulations.gov, EPA's e-mail system automatically captures your e-mail address. E-mail addresses that are automatically captured by EPA's e-mail system are included as part of the comment that is placed in the official public docket.

ii. Regulations.gov. Your use of Regulation.gov is an alternative method of submitting electronic comments to EPA. Go directly to http://www.regulations.gov, then select “Environmental Protection Agency” at the top of the page and use the “go” button. The list of current EPA actions available for comment will be listed. Please follow the online instructions for submitting comments. The system is an “anonymous access” system, which means EPA will not know your identity, e-mail address, or other contact information unless you provide it in the body of your comment.

iii. Disk or CD ROM. You may submit comments on a disk or CD ROM that you mail to the mailing address identified in the ADDRESSES section of this document. These electronic submissions will be accepted in WordPerfect, Word or ASCII file format. Avoid the use of special characters and any form of encryption.

2. By Mail. Written comments should be addressed to the EPA Regional office listed in the ADDRESSES section of this document.

For public commenters, it is important to note that EPA's policy is that public comments, whether submitted electronically or in paper, will be made available for public viewing at the EPA Regional Office, as EPA receives them and without change, unless the comment contains copyrighted material, confidential business information (CBI), or other information whose disclosure is restricted by statute. When EPA identifies a comment containing copyrighted material, EPA will provide a reference to that material in the version of the comment that is placed in the official public rulemaking file. The entire printed comment, including the copyrighted material, will be available at the Regional Office for public inspection.

Do not submit information that you consider to be CBI electronically to EPA. You may claim information that you submit to EPA as CBI by marking any part or all of that information as CBI (if you submit CBI on disk or CD ROM, mark the outside of the disk or CD ROM as CBI and then identify electronically within the disk or CD ROM the specific information that is CBI). Information so marked will not be disclosed except in accordance with procedures set forth in 40 CFR part 2.

In addition to one complete version of the comment that includes any information claimed as CBI, a copy of the comment that does not contain the information claimed as CBI must be submitted for inclusion in the official public regional rulemaking file. If you submit the copy that does not contain CBI on disk or CD ROM, mark the outside of the disk or CD ROM clearly that it does not contain CBI. Information not marked as CBI will be included in the public file and available for public inspection without prior notice. If you have any questions about CBI or the procedures for claiming CBI, please consult the person identified in the FOR FURTHER INFORMATION CONTACT section.

You may find the following suggestions helpful for preparing your comments:

1. Explain your views as clearly as possible.

2. Describe any assumptions that you used.

3. Provide any technical information and/or data you used that support your views.

4. If you estimate potential burden or costs, explain how you arrived at your estimate.

5. Provide specific examples to illustrate your concerns.

6. Offer alternatives.

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

8. To ensure proper receipt by EPA, identify the appropriate regional file/rulemaking identification number in the subject line on the first page of your response. It would also be helpful if you provided the name, date, and Federal Register citation related to your comments.

Under Executive Order 12866 (58 FR 51735, October 4, 1993), this action is not a “significant regulatory action” and therefore is not subject to review by the Office of Management and Budget. For this reason, this action is also not subject to Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001). This action merely approves state law as meeting Federal requirements and imposes no additional requirements beyond those imposed by state law. Accordingly, the Administrator certifies that this rule will not have a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ). Because this rule approves pre-existing requirements under state law and does not impose any additional enforceable duty beyond that required by state law, it does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4). This rule also does not have tribal implications because it will not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes, as specified by Executive Order 13175 (65 FR 67249, November 9, 2000). This action also does not have Federalism implications because it does 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). This action 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. This rule also is not subject to Executive Order 13045 “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997), because it is not economically significant.

In reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the Clean Air Act. In this context, in the absence of a prior existing requirement for the State to use voluntary consensus standards (VCS), EPA has no authority to disapprove a SIP submission for failure to use VCS. It would thus be inconsistent with applicable law for EPA, when it reviews a SIP submission, to use VCS in place of a SIP submission that otherwise satisfies the provisions of the Clean Air Act. Thus, the requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) do not apply. This rule does not impose an information collection burden under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ).

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

Under section 307(b)(1) of the Clean Air Act, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by January 26, 2004. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this rule for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action approving revisions to Delaware Regulations 26 and 31 pertaining to vehicle inspection and maintenance programs may not be challenged later in proceedings to enforce its requirements. ( See section 307(b)(2).)

Throughout this document whenever “we,” “us,” or “our” is used, we mean EPA. This section provides additional information by addressing the following questions:

Section 110 of the Clean Air Act (CAA) requires states to develop air pollution regulations and control strategies to ensure that state air quality meets the national ambient air quality standards established by EPA. These ambient standards are established under section 109 of the CAA, and they currently address six criteria pollutants. These pollutants are: Carbon monoxide, nitrogen dioxide, ozone, lead, particulate matter, and sulfur dioxide.

Each state must submit these regulations and control strategies to us for approval and incorporation into the Federally-enforceable SIP.

Each Federally-approved SIP protects air quality primarily by addressing air pollution at its point of origin. These SIPs can be extensive, containing state regulations or other enforceable documents and supporting information such as emission inventories, monitoring networks, and modeling demonstrations.

In order for state regulations to be incorporated into the Federally-enforceable SIP, states must formally adopt the regulations and control strategies consistent with state and Federal requirements. This process generally includes a public notice, public hearing, public comment period, and a formal adoption by a state-authorized rulemaking body.

Once a state rule, regulation, or control strategy is adopted, the state submits it to us for inclusion into the SIP. We must provide public notice and seek additional public comment regarding the proposed Federal action on the state submission. If adverse comments are received, they must be addressed prior to any final Federal action by us.

All state regulations and supporting information approved by EPA under section 110 of the CAA are incorporated into the Federally-approved SIP. Records of such SIP actions are maintained in the Code of Federal Regulations (CFR) at title 40, part 52, entitled “Approval and Promulgation of Implementation Plans.” The actual state regulations which are approved are not reproduced in their entirety in the CFR outright but are “incorporated by reference,” which means that we have approved a given state regulation with a specific effective date.

Enforcement of the state regulation before and after it is incorporated into the Federally-approved SIP is primarily a state responsibility. However, after the regulation is Federally approved, we are authorized to take enforcement action against violators. Citizens are also offered legal recourse to address violations as described in section 304 of the CAA.

The Missouri Department of Natural Resources (MDNR) has requested that EPA approve changes to the transportation conformity rules; 10 CSR 10-2.390 for the Kansas City area, and 10 CSR 10-5.480 for the St. Louis area. The changes were adopted by the Missouri Air Conservation Commission on May 29, 2003, and became effective on September 30, 2003.

This revision will accomplish the implementation of the one-year grace period before conformity is required in areas that are designated non-attainment for a given air quality standard for the first time and will require that conformity be determined within 18 months of EPA's affirmative finding that the SIP's motor vehicle emissions budgets are adequate. The revision is consistent with the EPA regulation promulgated on August 6, 2002 (67 FR 50808).

The state submittal has met the public notice requirements for SIP submissions in accordance with 40 CFR 51.102. The submittal also satisfied the completeness criteria of 40 CFR part 51, appendix V. In addition, as explained above and in more detail in the technical support document which is part of this document, the revision meets the substantive SIP requirements of the CAA, including section 110 and implementing regulations.

We are taking direct final action to approve this revision. The revisions make changes to the existing rules which are noncontroversial. Therefore, we do not anticipate any adverse comments. Please note that if EPA receives adverse comment on part of this rule and if that part can be severed from the remainder of the rule, EPA may adopt as final those parts of the rule that are not the subject of an adverse comment.

You may submit comments either electronically or by mail. To ensure proper receipt by EPA, identify the appropriate rulemaking identification number, MO 198-1198, in the subject line on the first page of your comment. Please ensure that your comments are submitted within the specified time period. Comments received after the close of the comment period will be marked “late.” EPA is not required to consider these late comments.

1. Electronically. If you submit an electronic comment as prescribed below, EPA recommends that you include your name, mailing address, and an e-mail address or other contact information in the body of your comment. This ensures that you can be identified as the submitter of the comment and allows EPA to contact you in case EPA cannot read your comment due to technical difficulties or needs further information on the substance of your comment. EPA's policy is that EPA will not edit your comment, and any identifying or contact information provided in the body of a comment will be included as part of the comment that is placed in the official public docket. If EPA cannot read your comment due to technical difficulties and cannot contact you for clarification, EPA may not be able to consider your comment.

a. Electronic mail. Comments may be sent by e-mail to Heather Hamilton at hamilton.heather@epa.gov. Please include identification number, MO 198-1198, in the subject line. EPA's e-mail system is not an “anonymous access” system. If you send an e-mail comment directly without going through Regulations.gov, EPA's e-mail system automatically captures your e-mail address. E-mail addresses that are automatically captured by EPA's e-mail system are included as part of the comment that is placed in the official public docket.

b. Regulations.gov. Your use of Regulations.gov is an alternative method of submitting electronic comments to EPA. Go directly to http://www.regulations.gov, click on “To Search for Regulations,” then select Environmental Protection Agency and use the “go” button. The list of current EPA actions available for comment will be listed. Please follow the online instructions for submitting comments. The system is an “anonymous access” system, which means EPA will not know your identity, e-mail address, or other contact information unless you provide it in the body of your comment.

2. By Mail. Written comments should be sent to the name and address listed in the ADDRESSES section of this document.

Under Executive Order 12866 (58 FR 51735, October 4, 1993), this action is not a “significant regulatory action” and therefore is not subject to review by the Office of Management and Budget. For this reason, this action is also not subject to Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001). This action merely approves state law as meeting Federal requirements and imposes no additional requirements beyond those imposed by state law. Accordingly, the Administrator certifies that this rule will not have a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ). Because this rule approves pre-existing requirements under state law and does not impose any additional enforceable duty beyond that required by state law, it does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Public Law 104-4).

This rule also does not have tribal implications because it will not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes, as specified by Executive Order 13175 (65 FR 67249, November 9, 2000). This action also does not have Federalism implications because it does 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). This action 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 CAA. This rule also is not subject to Executive Order 13045, “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997), because it is not economically significant.

In reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the CAA. In this context, in the absence of a prior existing requirement for the State to use voluntary consensus standards (VCS), EPA has no authority to disapprove a SIP submission for failure to use VCS. It would thus be inconsistent with applicable law for EPA, when it reviews a SIP submission, to use VCS in place of a SIP submission that otherwise satisfies the provisions of the CAA. Thus, the requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) do not apply. This rule does not impose an information collection burden under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ).

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

Under section 307(b)(1) of the CAA, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by January 26, 2004. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this rule for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements. ( See section 307(b)(2).)

On September 17, 2003 (68 FR 54406), EPA proposed to approve the following rules into the North Carolina State Implementation Plan: Sections 2D.0105, 2D.0507, 2D.0509, 2D.0515, 2D.0516, 2D.0521, 2D.0912, 2D.0927, 2D.0932, 2D.0952, 2D.0954 and 2D.0959. On the same day (68 FR 54362), EPA also published a direct final rule approving these rules into the SIP, and providing a 30-day public comment period and explained that if we received comments, we would withdraw the relevant direct final action.

We received comments, and are therefore removing the direct final approval of North Carolina's rule 2D.0952 “Petition for Alternative Controls For RACT” and 2D.0959 “Petition for Superior Alternative Controls”. We are not opening an additional comment period. At a later date, we intend to respond to comments and finalize action on this rule based on the September 17, 2003 proposal. The other rules listed above are not affected by this withdrawal and are incorporated into the SIP as of November 17, 2003.

This is a summary of the Commission's Memorandum Opinion and Order, MB Docket No. 03-58, adopted November 12, 2003, and released November 14, 2003. The full text of this Commission decision is available for inspection and copying during regular business hours in the FCC's Reference Information Center, Portals II, 445 12th Street, SW., Room CY-A257, Washington, DC 20554. The complete text of this decision may also be purchased from the Commission's duplicating contractor, Qualex International, Portals II, 445 12th Street, SW., Room CY-B402, Washington, DC 20554, telephone 202-863-2893, facsimile 202-863-2898, or via e-mail qualexint@aol.com.

This Federal Register document is available on the Government Printing Office's Web site at: http://www.access.gpo.gov/su_docs/ca/docs/aces/aces140.html. Background information and documents are available at the NMFS Northwest Region Web site at: http://www.nwr.noaa.gov/1sustfsh/gdfsh01.htm and at the Pacific Fishery Management Council's Web site at: http://www.pcouncil.org.

The Pacific Coast Groundfish FMP and its implementing regulations at 50 CFR part 660, subpart G, regulate fishing for over 80 species of groundfish off the coasts of Washington, Oregon, and California. Annual groundfish specifications and management measures are initially developed by the Pacific Fishery Management Council (Pacific Council), and are implemented by NMFS. The groundfish specifications include acceptable biological catches (ABCs) and optimum yields (OYs) for groundfish species and species groups. The OYs are the annual harvest targets and management measures are implemented at the start of the season, and adjusted inseason, to allow the fishery to achieve, but not exceed, the OYs for groundfish. The ABCs are the maximum total mortality levels for species or species groups under sustainable management. Should catch levels approach the ABC, total mortality of that species or species group will be minimized in order to prevent exceeding the ABC and overfishing that species or species group. The specifications and management measures for the 2003 fishing year (January 1-December 31, 2003) were initially published in the Federal Register as an emergency rule for January 1-February 28, 2003 (68 FR 908, January 7, 2003) and as a proposed rule for March 1-December 31, 2003 (68 FR 936, January 7, 2003). The emergency rule was amended at 68 FR 4719, January 30, 2003, and the final rule for March 1-December 31, 2003 was published in the Federal Register on March 7, 2003 (68 FR 11182). The final rule has been subsequently amended at 68 FR 18166 (April 15, 2003), at 68 FR 23901 (May 6, 2003), at 68 FR 23924 (May 6, 2003), at 68 FR 32680 (June 2, 2003), at 68 FR 35575 (June 16, 2003), at 68 FR 40187 (July 7, 2003), at 68 FR 43473 (July 23, 2003), at 68 FR 52703 (September 5, 2003), and at 68 FR 60865 (October 24, 2003).

The following changes to current groundfish management measures were recommended by the Pacific Council, in consultation with Pacific Coast Treaty Tribes and the States of Washington, Oregon, and California, at its November 3-7, 2003, meeting in Del Mar, CA.

At the Pacific Council's November 3-7, 2003, meeting, the most recent commercial and recreational catch data were reviewed by the Pacific Council's Groundfish Management Team (GMT) in preparation for recommending inseason adjustments to the Pacific Council. These data included: Commercial landed catch data through the middle of October available in the Pacific Fishery Information Network (PacFIN); estimated discard in the commercial groundfish fisheries; recreational catch estimates through the end of August available in the Recreational Fishery Information Network (RecFIN); as well as estimated recreational catch through the end of October and projected recreational catch through the end of the year compiled by state agency personnel and GMT members. When the GMT reviewed these data, it became apparent that the RecFIN catch estimates for California, specifically nearshore rockfish, canary rockfish, and lingcod, during the months of July and August were significantly higher than the GMT had initially predicted for those months. RecFIN catch estimates for the State of California during July and August are as follows: shallow nearshore rockfish 88.2 mt (88,200 kg), deeper nearshore rockfish 748 mt (748,000 kg), lingcod 509 mt (509,000 kg), and canary rockfish 14 mt (14,000 kg).

While catch rate and the weight of individual fish were above average during this period, the principle factor contributing to the significantly higher than predicted RecFIN catch estimates is the exceptionally high estimates of effort (angler days) for the private and rental boat participants in northern California (north of 34°27′ N. lat.). This higher than expected influx of effort is estimated to have occurred during the first two months (July and August) of the fishery. It may be due, in part, to a NMFS and State of California prohibition on fishing between 40°10′ N. lat. and the U.S./Mexico border for the first six months of 2003.

Combining RecFin catch estimates from California with catch estimates from other recreational and commercial fisheries coastwide produces total mortality estimates that exceed harvest targets for groundfish species and/or species groups. Specifically, the total mortality estimate for canary rockfish, an overfished species, through October is 52 mt (52,000 kg), as compared to its 2003 OY of 44 mt (44,000 kg) and ABC of 272 mt (272,000 kg); and the total mortality estimate for lingcod, another overfished species, through October is 956.4 mt (956,400 kg), as compared to its 2003 OY of 651 mt (651,000 kg) and ABC of 841 mt (841,000 kg). Additionally, the California state harvest guidelines for shallow nearshore rockfish (105 mt (105,000 kg)) and deeper nearshore rockfish (54 mt (54,000 kg)) are also predicted to be exceeded by the end of October.

Because of the magnitude of RecFIN catch estimates for the California recreational groundfish fisheries during July and August and its implications for other Pacific Coast groundfish fisheries for the remainder of the year, the California Department of Fish and Game (CDFG) staff thought these catch estimates warranted evaluation. Therefore, CDFG staff explored these data by stratifying RecFIN catch estimates by area (Area One is between 42°00′ N. lat. (Oregon/California border) and 40°10′ N. lat. and Area Two is between 40°10′ N. lat. and the 34°27′ N. lat.) as well as applying a historical effort estimate to replace the exceptionally high RecFIN effort estimate for July and August 2003. The historical estimate used was the next highest effort estimate from the July and August period which occurred during 1985. When RecFIN catch estimates were stratified by applying the effort and catch per unit effort (CPUE) for the two areas, the total mortality estimates for canary rockfish (48.3 mt (48,300 kg)) and lingcod (928.2 mt (928,200 kg)) were slightly lower than those estimated by unadjusted RecFIN data. When the unusually high RecFIN effort estimate for July and August was treated as an anomaly and replaced with the historical estimate described above, the estimated total mortality for canary rockfish was similar to the stratified estimate (47.8 mt (47,800 kg)). However, this technique of adjusting the RecFIN effort estimate reduced the total mortality estimate for lingcod to 821.2 mt (821,200 kg), a harvest level that still exceeds the lingcod OY but is about 20 mt (20,000 kg) below the lingcod ABC.

The Pacific Council reviewed RecFIN catch estimates, data presented by CDFG, statements on inseason adjustments prepared by the GMT and Groundfish Advisory Panel (GAP), as well as public testimony before recommending inseason adjustments to groundfish management measures for the remainder of 2003. In order to keep the harvest of canary rockfish and lingcod within levels that allow continued rebuilding, as well as minimizing the mortality of California nearshore rockfish species, the Pacific Council was faced with the need to recommend drastic inseason adjustments. In an effort to continue sustainable groundfish management while recognizing the economic importance of allowing fishery access to more abundant groundfish stocks, the Pacific Council recommended a series of inseason adjustments to groundfish management measures that would provide some fishery opportunities with minimal mortality of canary rockfish and lingcod.

In order to provide some year-end fishing opportunity for the trawl fleet while protecting canary rockfish and lingcod, the trawl RCA (the area closed to fishing for groundfish with trawl gear) is expanded in size for the remainder of the year to extend from the shoreline to specific latitude and longitude coordinates that approximate the 200-fm (366-m) depth contour and are modified to allow fishing for petrale sole. This increase in the size of the trawl RCA results in a change from the previously scheduled eastern trawl RCA boundary. That previously scheduled eastern trawl RCA boundary consisted of specific latitude and longitude coordinates approximating the 50-fm (91-m) depth contour between the U.S./Canada border and 40°10′ N. lat., coordinates approximating the 60-fm (110-m) depth contour between 40°10′ N. lat. and 34°27′ N. lat., and coordinates approximating the 100-fm (183-m) depth contour between 34°27′ N. lat. and the U.S./Mexico border. Expanding this closed area is intended to protect canary rockfish and lingcod by prohibiting trawling over the continental shelf, where canary rockfish and lingcod are found.

Year-end fishery access to deepwater, slope species, specifically petrale sole, is economically important to the limited entry trawl groundfish fleet. According to PacFIN, the coastwide exvessel price for petrale sole is currently averaging about one dollar per pound and last year's exvessel revenue generated by petrale sole landed with trawl gear was over three and a half million dollars. During winter months (November—February), petrale sole aggregate in certain areas along the coast to spawn. Within these “petrale sole areas”, petrale sole can be harvested with a lower bycatch rate than in other areas. Because canary rockfish are typically found at depths shallower than 150-fm (274-m), allowing the petrale sole fishery to continue as previously scheduled is not predicted to result in additional mortality of canary rockfish. Using NMFS West Coast Groundfish Observer data, the effects of allowing the slope/petrale sole fishery to continue as previously scheduled is predicted to result in about 1 mt (1,000 kg) of additional lingcod take by the end of 2003.

In the inseason adjustment to Pacific Coast annual specifications and management measures for October—December (68 FR 60865, October 24, 2003), NMFS announced a western trawl RCA boundary with specific latitude and longitude coordinates approximating the 200-fm (366-m) depth contour which was modified to allow for petrale sole fishing. That boundary contained several errors, specifically it omitted boundary modifications to allow for fishing in the petrale sole areas off the states of Oregon and California. Therefore, this inseason action corrects that 200-fm (366-m) trawl RCA boundary by modifying it to allow for petrale fishing in areas where petrale sole aggregate.

In 2003, the Pacific Coast non-trawl fleet has been severely constrained by low trip limits as well as limited nearshore fishing opportunities. Throughout the year, the non-trawl RCA (the area closed to fishing for groundfish with non-trawl gear) has extended from an eastern boundary ranging between the shoreline and specific latitude and longitude coordinates approximating the 30-fm (55-m) depth contour out to a western boundary ranging between specific latitude and longitude coordinates approximating the 100-fm (183-m) and 150-fm (274-m) depth contours. These management measures were designed to limit the incidental take of overfished groundfish species.

Much like inseason adjustments to the trawl RCA, the non-trawl RCA is similarly expanded to prevent further mortality of canary rockfish, lingcod, and California's nearshore rockfish species. In an effort to protect these species while still allowing access to more abundant deepwater groundfish stocks, the non-trawl RCA is expanded for the remainder of the year to extend from the shoreline to specific latitude and longitude coordinates that approximate the 200-fm (366-m) depth contour, modified to allow fishing for petrale sole, between the U.S./Canada border and 46°16′ N. lat. and from the shoreline to specific latitude and longitude coordinates that approximate the 150-fm (274-m) depth contour between 46°16′ N. lat. and the U.S./Mexico border. This increase in the size of the non-trawl RCA results in a change from the previously scheduled non-trawl RCA. The previously scheduled non-trawl RCA boundary extended from the shoreline to specific latitude and longitude coordinates approximating the 100-fm (183-m) depth contour between the U.S./Canada border and 46°16′ N. lat., from specific latitude and longitude coordinates approximating the 27-fm (49-m) to the 100-fm (183-m) depth contours between the 46°16′ N. lat. and 40°10′ N. lat., from specific latitude and longitude coordinates approximating the 20-fm (37-m) to the 150-fm (274-m) depth contours between 40°10′ N. lat. and 34°27′ N. lat., and from the 30-fm (55-m) to the 150-fm (274-m) depth contours between 34°27′ N. lat. and the U.S./Mexico border.

The GMT predicted that allowing fishing to continue seaward of the expanded non-trawl RCA for the remainder of the year would result in no additional mortality of canary rockfish or California nearshore rockfish species and only minimal additional mortality of lingcod. No additional mortality of canary rockfish or the California nearshore rockfish species is predicted because these species are typically found at depths shallower than 150-fm (274-m). The GMT predicted that additional mortality of lingcod from the remaining non-trawl fishery would be minimal. According to NMFS shelf and slope survey data from the summers of 1984 to the present, 1 percent of lingcod catches occurred at depths greater than 150-fm (274-m) between the U.S./Canada border and 40°10′ N. lat. and 34 percent of lingcod catches occurred at depths greater than 150-fm (274-m) between 40°10′ N. lat. and the U.S./Mexico border. Because this adjustment to the non-trawl RCA is occurring from November 21, 2003, through December 31, 2003 the GMT has predicted that impacts on lingcod would be further reduced because lingcod typically move into shallower waters (less than 100-fm (183-m)) to spawn during winter months.

Throughout 2003, differential trip limits, or trip limits that vary with gear type, have been in place for DTS (Dover sole, thornyheads, sablefish) species in the area between the U.S./Canada border and 40°10′ N. lat. Specifically, vessels that use large footrope or midwater trawl gear are offered higher DTS trip limits than those vessels that use small footrope gear. Because RCA regulations specify that small footrope and midwater trawl gear are the only limited entry trawl gears permitted shoreward of the trawl RCA while all limited entry trawl gears (large and small footrope, midwater) are permitted seaward of the RCA, the intent of the differential trip limits is to encourage fishing seaward of the trawl RCA rather than shoreward of the trawl RCA.

As discussed earlier, this inseason action is expanding the eastern boundary of the trawl RCA to the shoreline. Thus, there is no trawling opportunity shoreward of the trawl RCA from November 21, 2003, through December 31, 2003, and no need for differential trip limits. Therefore, the Pacific Council recommended that the differential DTS trip limits between the U.S./Canada border and 40°10′ N. lat. be removed for November and December. The previously scheduled DTS trip limits associated with the use of large footrope or midwater trawl gear (i.e., 7,000 lb (3,175 kg) per 2 months of sablefish, 4,500 lb (2,041 kg) per 2 months of longspine thornyhead, 900 lb (408 kg) per 2 months of shortspine thornyhead, and 30,000 lb (13,608 kg) per 2 months of Dover sole) will be available to vessels using all limited entry trawl gear types. This change is not expected to negatively affect continental shelf overfished species, because those waters are protected by the trawl RCA. Additionally, because this change does not increase overall limits for deepwater species, NMFS does not expect this action to increase the impact of the fishery on continental slope overfished species.

Much like the Pacific Coast commercial fisheries, the Pacific Coast recreational fisheries have been restricted in recent years to rebuild overfished groundfish species. Management measures intended to reduce the incidental take of overfished species in recreational fisheries include such things as decreased bag limits, reduced season length, and closed areas. An example of these restrictive management measures was evident this year in the California recreational fishery that occurs between 40°10′ N. lat. and the U.S./Mexico border. Historically, this recreational fishery has had year-round fishing opportunities. In an effort to keep this fishery's harvest levels within 2003 OYs for overfished species and within California harvest guidelines for target species, the season length for this fishery was reduced to six months and scheduled to extend from July through December. Despite this restricted season length, RecFIN catch estimates for California, specifically nearshore rockfish, canary rockfish, and lingcod, during the months of July and August were significantly higher than predicted. As discussed previously, combining RecFIN catch estimates from California with catch estimates from other recreational and commercial fisheries coastwide produces total mortality estimates which exceed harvest targets for some groundfish species and/or species groups. Therefore, the Pacific Council recommended inseason adjustments to recreational groundfish fisheries coastwide. From November 21, 2003, through December 31, 2003, recreational groundfish fisheries off the State of Washington will be prohibited seaward of the Federal/State three mile boundary. Effective November 13, 2003, the state of Washington took action to prohibit the retention of canary rockfish shoreward of the three mile boundary. Because inclement weather curtails recreational groundfish fisheries off Washington during winter months, the additional mortality of either canary rockfish or lingcod associated with this fishery occurring in State waters is predicted to be near zero. Additionally, recreational fishing for lingcod off Washington closed on October 16, 2003. Off the State of Oregon, recreational groundfish fisheries from November 21, 2003, through December 31, 2003, will be prohibited seaward of specific latitude and longitude coordinates approximating the 27-fm (49-m) depth contour and shoreward of the 27-fm (49-m) depth contour retention of canary rockfish and lingcod will be prohibited. Similarly to Washington, effort in Oregon's recreational groundfish fisheries during November and December is low. Because of this low effort, Oregon Department of Fish and Wildlife has predicted that the additional mortality associated with this fishery would be approximately 0.11 mt (110 kg) of canary rockfish and 0.09 mt (90 kg) of lingcod. Off the state of California, all recreational groundfish fisheries, with the exception of the fixed gear sanddab fishery, will be prohibited from November 21, 2003, through December 31, 2003. Because of the small hooks used in this recreational sanddab fishery, California Department of Fish and Game has predicted that the additional mortality of canary rockfish, lingcod, and California nearshore rockfish species would be near zero.