Generally, schools manage the school meals programs under the Department's Child Nutrition Programs—the National School Lunch Program, School Breakfast Program and Special Milk Program, on their own. School food service activities are self-managed by local school food authority officials. In conducting these activities, school food authorities manage the school meals programs but contract with vendors for goods and services related to the school food service operation, using either fixed price or cost reimbursable contracts. Under a fixed price award, the resulting contract has a firm fixed price, with or without adjustments. In a cost-reimbursable contract or contract with cost-reimbursable provisions, the school food authority pays the contractor for certain costs incurred by the contractor, with or without a fixed fee for services. The vast majority of these contractors are commercial enterprises.

In other situations, school food authorities operating the National School Lunch Program and/or the School Breakfast Program contract with a commercial enterprise or nonprofit organization to manage the school meal programs. These companies are collectively known as food service management companies. These contracts may be either fixed price or cost-reimbursable. The vast majority of these contractors are commercial enterprises.

School food authorities use funds from the nonprofit school food service account to pay for costs incurred under both self-managed and food service management company contracted programs. The funds in the nonprofit school food service account come from federal and nonfederal sources. The federal funds are provided as reimbursements through the Department's Child Nutrition Programs for meals and milk meeting the requirements in 7 CFR 210.10, 215.7 and 220.8 that are served to eligible children. The primary sources of nonfederal revenue are student payments, adult payments and a la carte sales revenue. Additional funding sources include State and local funds and sales revenue from vending and catering activities. Regardless of the source, the school food authority must retain all of these revenues in the restricted nonprofit school food service account and may only expend these revenues for the allowable costs of the school food authority's nonprofit school food service program. The allowability of the expenditures is determined using the applicable program and departmental regulations (7 CFR Parts 210, 215, 220, 3016 and 3019, as applicable) and Office of Management and Budget Cost Circulars (A-87 Cost Principles for State, Local Governments and Indian Tribal Governments or A-122 Cost Principles for Non-profit Organizations, as applicable).

A school food authority is permitted to engage in other activities that are outside of the scope of the nonprofit school food service; however the school food authority must ensure none of the resources of its nonprofit school food service subsidize the costs of such activities. Some examples of these nonprogram activities include food service catering to the community and individuals, providing food and nonfood supplies for school functions such as graduation ceremonies, sports banquets and school club meetings, etc., sales of meals to school non-student visitors, and allowing school food service facilities and equipment to be used by other school or community groups. The direct and indirect costs of these activities are not Child Nutrition Program charges to the nonprofit school food service account. As a result, these costs must be fully funded by the revenues received from such activities or from sources outside the nonprofit school food service account.

Regardless of the requested goods or services or the procurement method used, all procurements must be conducted in a manner that provides full and open competition. When conducting a procurement, a public school food authority must follow its own procurement procedures that reflect applicable State and local laws, provided that the procurement complies with the standards set forth in Department regulation 7 CFR 3016.36(b) through (i) and 3016.60(b) through (c). Similarly, a State agency conducting a procurement on behalf of one or more school food authority or other Child Nutrition Program participant would follow those same Department regulations. A not for profit school food authority may opt to follow its own organizational procedures for procurements made with nonprofit school food service account funds provided the procedures comply with the standards set forth in 7 CFR 3019.40 through 3019.48.

The procurement procedures used by school food authorities are either formal or informal. Formal procurement procedures use either sealed bids or competitive proposals and must be used when the proposed purchase will exceed the small purchase threshold. Formal procurement procedures require public advertising and direct solicitation of potential suppliers with written responses from the potential suppliers. Formal procurements also require the use of specific forms and processes that must be followed depending upon the formal procurement procedure chosen. The informal or small purchase procurement procedure is used for purchases that are not expected to exceed the small purchase threshold.

In a small purchase procurement, an adequate number of suppliers are contacted to obtain price quotations. While obtaining written price quotations and contacting at least three suppliers is recommended, the number of suppliers that should be contacted depends on the marketplace. This means in some areas with a large number of suppliers, more than three suppliers should be contacted, while in other areas, less than three suppliers may exist.

Full and open competition provides a “level playing field” so that all potential contractors have the opportunity to win the contract award. The outcome of a properly conducted procurement results in the school food authority obtaining the best product at the best price. When competition is impaired, the school food authority loses the fundamental benefit of an open marketplace. The loss of this benefit can needlessly diminish the resources of the nonprofit school food service account and inhibit the school food authority from providing high quality, nutritious meals to children and implementing needed improvements to its food service operations.

We are proposing to amend the National School Lunch Program regulations, 7 CFR Part 210, Special Milk Program regulations, 7 CFR Part 215, and School Breakfast Program regulations, 7 CFR Part 220 to remedy deficiencies in school food authority procurement practices that have been identified in audits conducted by the U.S. Department of Agriculture's Office of Inspector General, Report Numbers 27010-3-AT, February 2002 and 27601-0027-CH, April 2002. These identified deficiencies are undermining free and open competition and resulting in unallowable uses of nonprofit school food service account funds.

In February 2002, the Department's Office of Inspector General (OIG) released Audit Report 27010-3-AT. The audit outlined problems in school food authority cooperative buying arrangements. Under these arrangements, school food authorities in a single jurisdiction or multiple, often geographically related, jurisdictions, pool purchasing needs and solicit a single service provider to provide goods and services. School food authorities, as a cooperative buying group, expect the service provider to perform a number of different functions. These functions generally include selling food and nonfood supplies to the school food authorities from the service provider's inventory, conducting procurements with manufacturers and food processors on behalf of the member school food authorities, and storing, distributing and managing the school food authorities' inventories of USDA donated foods and purchased foods and nonfood supplies. The OIG's audit identified a number of instances where the cooperative buying group, using nonprofit school food service account funds, failed to conduct procurement transactions in a manner that provided for full and open competition. For example, one cooperative buying group failed to include all items to be purchased in its bid solicitation and instead, purchased items directly from the service provider outside of the terms of the contract. In another instance, the service provider was permitted to make a material change to the contract resulting in an unallowable cost-plus-percentage-of-cost pricing structure. As a result, unallowable costs were paid by school food authorities with funds from the nonprofit school food service account.

In April 2002, OIG released Audit Report 207601-0027-CH which revealed problems in several cost-reimbursable contracts between school food authorities and food service management companies. Some contracts between school food authorities and food service management companies lacked controls as to exactly how the company would determine the allowability of costs charged to the school food authority, including how the company would provide the school food authority with the benefits of purchase discounts and rebates in the determination of net costs. In some cases, this resulted from the school food authority's failure to inform potential contractors of how costs should be charged to the school food authority under the resulting contract award. In other cases, even though the school food authority's procurement documents required return of such discounts and rebates, some school food authorities permitted a material change to the food service management company contract that specifically allowed the food service management company to keep discounts and rebates earned through purchases billed to the school food authority.

The failure of a school food authority to fully describe its cost reporting requirements in its solicitation document undermines full and open competition by placing unreasonable burdens on potential contractors. Without adequate details on how it must report costs to the school food authority, a potential contractor lacks the information needed to properly establish the fixed price component (management fee) of its offer. For example, one potential contractor, assuming that no discounts, rebates and credits will be returned to the school food authority, could provide an offer with a low management fee, knowing that its fixed costs and profit margin would actually be funded, in part, through the retained discounts, rebates and credits. A second potential contractor, recognizing the discounts, rebates and credits as being due to the school food authority might provide an offer with a higher management fee that included all its fixed costs and profit margin. Since school food authorities only evaluate the fixed fee component when determining the most cost effective offer under a cost reimbursable contract, the failure of a school food authority to address its cost reporting requirements in its solicitation documents creates unacceptable risks to full and open competition. Further, failure to adequately address issues regarding allowable costs in solicitation documents and contracts can result in unallowable cost charges to the school food authority that are paid with nonprofit school food service account funds.

As the OIG found, the absence of a specific contract requirement limiting food service management company charges to allowable costs has resulted in food service management companies charging school food authorities for administrative costs that were already included as part of the fixed fee, billing for the same expense twice, and charging the school food authority for the food service management company's administrative cost overruns. Without adequate guidance from the school food authority on how costs must be billed, a contractor lacks the information needed to properly identify allowable and unallowable costs submitted for payment to the school food authority. In turn, the school food authority cannot determine whether nonprofit school food service account funds can be used to pay all or only part of the costs billed by the contractor. Either result is untenable.

This proposed rule would clarify that only costs resulting from cost reimbursable contracts or cost reimbursable contract provisions that meet applicable cost allowability requirements are allowable nonprofit school food service account expenditures. The proposed rule does not interfere in the right of a school food authority to enter into a contract, including a contract with terms that result in unallowable costs. The proposed rule, does, however, prohibit the school food authority from using nonprofit school food service account funds to pay for those unallowable costs.

In addition this proposed rule would prohibit contract terms that allow payments from the nonprofit school food service account in excess of the contractor's actual net allowable costs. Such net allowable costs must be computed by deducting certain discounts, rebates and other applicable credits. Contractors, using applicable department and program regulations and OMB cost circulars, would be required to provide sufficient information to permit the school food authority to identify allowable and unallowable costs and the amount of all such discounts and rebates on invoices and bills presented for payment to school food authorities. The school food authority would use this contractor supplied information to calculate the amount of net allowable costs that can be paid from the nonprofit school food service account. In making this calculation, the school food authority would apply the applicable program and department regulations and OMB cost circulars to identify the allowable costs, net of applicable credits, that may be paid from the nonprofit school food service account and unallowable contract costs that must be paid from other funding sources.

Further, the proposed rule would require that upon request, contractors would be required to provide documentation of discounts, rebates and other applicable credits as well as costs billed to the school food authorities. As defined by the applicable OMB cost circulars, discounts, rebates and other applicable credits include, but are not limited to, price reductions due to: product promotion, volume purchasing, on-line ordering or other electronic ordering systems, prompt payments or advance payments and use of certain suppliers. This proposed rule would apply to all discounts, rebates and credits accruing to or received by the contractor, including any assignee under the contract to the extent those amounts are allocable to the allowable costs for which the contractor will be reimbursed by the school food authority. For reference purposes, this proposed rule clarifies the applicability of the definition of applicable credits is the respective OMB cost circulars.

School food authorities that fail to comply with proper procurement procedures or permit a contractor to make a material change to a contract after contract award compromise the integrity of the entire procurement process. A material change to a contract after it has been awarded alters the terms and conditions of that contract to the extent that had other bidders known of these changes in advance, they could have bid differently and more competitively. This means that when a school food authority agrees to or allows a winning bidder to make changes to contract terms that are materially inconsistent with the underlying solicitation document, the school food authority has subverted full and open competition by denying all bidders the opportunity to compete under the same terms and conditions. While all school food authorities must have procedures to respond to bid protests, when a material change occurs to the contract after the bid has been awarded, the only way a disadvantaged bidder will learn of the change is through obtaining and reviewing the executed contract. This is inherently unfair given that the school food authority has undermined open and free competition by providing an unwarranted advantage to the successful bidder to the detriment of the other bidders.

This proposed rule would prohibit school food authorities from using nonprofit school food service account funds for any cost resulting from a procurement that failed to meet program requirements.

Under current regulations, State agencies generally do not review school food authority contracts until after the contracts have been executed (signed by the school food authority and contractor). Except for school food authority/food service management company contracts, State agencies do not receive copies of other school food authority contracts and generally only review these contracts during the normal on-site review process. In some States, a pre-approved prototype contract or contract terms are provided to the school food authority by the State agency. In the case of a pre-approved prototype contract, State agency officials generally do not review the executed contract since the State agency expects all school food authorities to use the approved prototype as it was drafted. In other cases, a State agency may limit its review only to discretionary contract terms and conditions because the State agency expects the school food authority has incorporated, verbatim, the pre-approved contract terms the State agency provided.

The OIG found that some food service management companies required material changes to contracts that operated to the disadvantage of the school food authorities. These included changes that were made after the State agency's review and approval of executed contracts, changes to pre-approved prototype contracts and changes to required contract terms. Many of the changes circumvented regulatory requirements. State agencies and school food authorities have indicated that food service management companies were able to accomplish these changes by requiring the school food authority sign a food service management company prepared contract or refusing to sign the school food authority's approved contract until the changes were made. While the school food authorities should have conducted a new procurement in response to these demands, the delay incident to such actions would have prevented some school food authorities from providing meals to students. Some State agencies have expressed concerns with their ability to obtain copies of contracts prior to their execution and have further expressed concerns that they do not have the ability or authority to mandate changes to contract terms and obtain required corrective actions.

When the State agency finds problems with the terms of an already executed contract, it may be too late to remedy the problems for the current contract, except when State or local laws and procedures permit contract nullification. Since the school food authority is bound to fulfill its contract terms, in the most serious cases, the State agency's only recourse is to disallow all costs resulting from the contract. In the majority of cases, the State agency's required corrective action results in the school food authority initiating a new procurement process at the end of the current contract year, eliminating the option for contract renewals. None of these approaches provide timely corrective action. To reduce the number of contract disallowances and re-bid situations, this rule proposes that when a school food authority contracts with a food service management company, the contract must be reviewed and approved by the State agency prior to the contract being executed. The proposed rule also clarifies that for all other contracts, State agencies have authority to obtain copies of the contracts prior to execution and are encouraged to do so for all contracts. Further, this rule proposes that the school food authority obtain written State agency approval of any change to a prototype solicitation document or prototype contract before the revised solicitation is issued or the revised contract is executed. This provision does not interfere with the school food authority or potential contractor's right to negotiate, pursuant to Department regulations, 7 CFR parts 3016 and 3019, contract terms and conditions under a competitive proposal procurement. In this type of procurement, the pre-approved prototype contract or contract terms only address the nonnegotiable aspects of the contract. Contract terms for areas subject to negotiation are not prepared until after the negotiations have been completed.

To ensure that school food authorities understand the scope of the authority granted to State agencies to properly administer the school meals programs, the proposed rule would clarify the right of the State agency to obtain procurement documents prior to issuance of the school food authority's solicitation as well as prior to the execution of the resulting contract. State agencies are encouraged to obtain these procurement documents prior to the school food authority's issuance (publication, direct mailing, internet posting, etc.) of the solicitation. Through this review, the State agency can provide technical assistance to the school food authority by identifying deficiencies in the procurement documents and processes before the solicitation is released. State agencies are also encouraged to obtain the school food authority's procurement documents when reviewing contracts to determine the adequacy of the contract terms and identify instances where the integrity of the procurement process may have been compromised.

Further, this proposed regulation would prohibit school food authorities from using nonprofit school food service account funds to pay for unallowable contract costs, including costs that result from improperly procured contracts and from a school food authority's failure to initiate corrective actions to procurement and contract documents as required by the State agency. Currently, 7 CFR 210.24 requires State agencies withhold program payments when a school food authority fails to comply with program requirements. This withholding would stay in effect until the school food authority took corrective action satisfactory to the State agency. At that point, the withheld funds are released to the school food authority. However, the school food authority would still be prohibited from using its nonprofit school food service account funds to pay for unallowable costs. Therefore, whether or not the State agency withheld program payments, costs incurred under an improperly procured contract as well as costs incurred during the period the school food authority fails to take State agency required corrective action would be unallowable costs.

This proposed regulation does not absolve a school food authority from fulfilling its contractual obligations, even in those cases where the school food authority has failed to comply with required procurement practices. Additionally, this proposed regulation does not impair a school food authority's right to contract, including the right to contract for goods or services that represent unallowable nonprofit school food service account costs as long as the procurement and contract terms require adequate reporting and disclosure of such costs. Such costs could include catering school board luncheons or operating concession stands at school sporting events. While this proposed regulation would not impair a school food authority's right to contract for goods and services that represent unallowable costs, such unallowable costs cannot be paid with nonprofit school food service account funds.

While not specifically identified as a deficiency in the OIG audits, the Department is aware of instances in which full and open competition has been undermined by a lack of ethical conduct on the part of potential contractors and school food authorities. When State agencies or others determine such conduct is intentional, the matter should be referred to the appropriate legal authorities. However, in some cases, the unethical conduct results from school food authorities failing to fulfill their responsibilities under applicable code of conduct rules. All public and nonprofit school food authorities must have a written code of conduct governing the performance of its employees engaged in the award and administration of contracts. The code of conduct must prohibit any employee, officer or agent of the school food authority from participating in the selection, award or administration of the contract if a conflict of interest, whether real or apparent, exists. The Department regulations at 7 CFR 3016.36(b)(3) and 3019.42 define the minimum standards for determining when a conflict of interest exists and the actions that must be taken if a conflict occurs. The information indicates that school food authorities appear to know that an individual is prohibited from personally soliciting or accepting cash as an inducement to award a contract. However, we have been concerned that these same school food authorities seem unaware that soliciting or personally accepting noncash gratuities (gifts) or accepting cash or noncash gifts in the name of the school is also prohibited. This lack of awareness may stem from the various forms such inducements can take. Inducements to contract in any form are not acceptable under Departmental regulations.

The Department is aware of situations in which school officials, in exchange for requiring the school food authority to purchase products from a specified contractor, have requested or accepted tickets to professional sporting events, contractor paid vacations, funds for student scholarships, and school building and athletic venue improvements. These situations have occurred primarily in two settings: First, in long term beverage contracting and second, in food service management company procurements.

A number of schools have entered into long term beverage contracts, particularly for the acquisition of carbonated soft drinks and bottled water. Generally, these contracts provide financial incentives to the school, either in the form of cash payments or improvements to school facilities, in exchange for the contractor's right to sell its beverages to the school on an exclusive, long-term basis. These contracts are usually obtained outside of the nonprofit school food service operation and school officials may or may not have followed competitive procurement requirements.

While these incentives may represent improper inducements under applicable Department regulations, as long as nonprofit school food service resources i.e. , cash, labor or other assets are not used to support, directly or indirectly, any purchase made under the contract, and the school observes the regulatory prohibitions on competitive food sales and the sale of foods of minimal nutritional value, the Department has no authority over the procurement or operation of these contracts.

However, in some cases, the incentives offered by a potential contractor are contingent on the nonprofit school food service purchasing beverages under the contract. In these cases, a conflict of interest has arisen, applicable procurement requirements have been violated and the Department does have an interest in the contract. While the nonprofit school food service may be bound by the terms of the contract, all direct and indirect costs resulting from the contract would be unallowable nonprofit school food service account expenses. On the other hand, if the nonprofit school food service is included in a properly procured long term beverage contract that includes incentives, cost allowability is generally not an issue; however, these incentives represent program income. The full value of all incentives (cash and noncash) would be used to determine the amount of program income resulting from the contract. This full value of these incentives is used to compute the amount of the program income that is allocated and deposited into the nonprofit school food service account. Failure to provide the nonprofit school food service with its allocated share of noncash incentives ( i.e. , athletic equipment, classroom improvements, score boards, etc.) would circumvent the proper allocation of program income to the nonprofit school food service and would be a violation of existing Department regulations, 7 CFR 3016.25 and 3019.24.

In the area of food service management company procurements, we are aware of situations in which potential bidders have offered gifts to school officials or cash payments to the school upon execution of the contract. In some cases these payments were never requested, while in other cases, some school officials have required payment at the start of the contract in exchange for contract award; and in still others, the payment is offered as an advance on a guaranteed return provision of the contract. In all of these cases, whether or not the receipt of funds is a factor in awarding the contract, the payment creates the appearance of a prohibited conflict of interest.

The Department is not proposing to add regulatory requirements to address these issues since existing regulations already require compliance with ethics and integrity requirements. However, the Department is seeking public comments to determine if there is a need for us to publish a rule on ethics and integrity for these situations.

The procurement and contract requirements and consequences for failure to comply with program regulations are not consistently addressed in the National School Lunch, School Breakfast and Special Milk Program regulations. This proposed rule makes changes to School Breakfast Program and the Special Milk Program regulations to make the procurement and contracting requirements and the consequences for failure to comply with program regulations consistent with the National School Lunch program regulations.

The phrase “nonprofit school food service account” is used by school food authorities, State agencies and the Department to describe the books and records maintained for the nonprofit school food service pursuant to §§ 210.19(a)(2) and 220.13(i). We are proposing to add a definition of nonprofit school food service account to codify this commonly used term. This new definition does not create any new requirements and does not require creation of a separate bank account. In the Special Milk Program, the phrase “nonprofit milk program” is used instead of nonprofit school food service. For the Special Milk Program, the proposed definition of nonprofit school food service account is modified accordingly.

This proposed rule has been determined to be not significant and therefore was not reviewed by the Office of Management and Budget (OMB) under Executive Order 12866.

This proposed rule has been reviewed with regard to the requirements of the Regulatory Flexibility Act (5 U.S.C. 601-612). Roberto Salazar, Administrator for the Food and Nutrition Service, has certified that this proposed rule would not have a significant economic impact on a substantial number of small entities. This proposed rule would simplify school food authority administrative procedures by clarifying procurement requirements so that all cost reimbursable contracts or cost reimbursable provisions of contracts are bid in a consistent manner. The U.S. Department of Agriculture does not anticipate any significant fiscal impact that would result from implementation of this proposed rulemaking.

Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public Law 104-4, establishes requirements for Federal agencies to assess the effects of their regulatory actions on State, local, and tribal governments and the private sector. Under section 202 of the UMRA, the Food and Nutrition Service generally prepares a written statement, including a cost-benefit analysis, for proposed and final rules with “Federal mandates” that may result in expenditures to State, local, or tribal governments, in the aggregate, or to the private sector, of $100 million or more in any one year. When such a statement is needed for a rule, section 205 of the UMRA generally requires the Food and Nutrition Service to identify and consider a reasonable number of regulatory alternatives and adopt the least costly, more cost-effective or least burdensome alternative that achieves the objectives of the rule.

This proposed rule contains no Federal mandates (under regulatory provisions of Title II of the UMRA) for State, local, and tribal governments or the private sector of $100 million or more in any one year. Thus, this proposed rule is not subject to the requirements of sections 202 and 205 of the UMRA.

The National School Lunch Program, Special Milk Program and the School Breakfast Program, which are listed in the Catalog of Federal Domestic Assistance under Nos. 10.555, 10.556, and 10.553, respectively, are subject to the provisions of Executive Order 12372, which requires intergovernmental consultation with State and local officials. ( See 7 CFR part 3015, subpart V, and final rule related notice published at 48 FR 29114, June 24, 1983.)

Executive Order 13132 requires Federal agencies to consider the impact of their regulatory actions on State and local governments. Where such actions have federalism implications, agencies are directed to provide a statement for inclusion in the preamble to the regulations describing the agency's considerations in terms of the three categories called for under section (6)(b)(2)(B) of Executive Order 13132. The Food and Nutrition Service (FNS) has considered the impact of this rule on State and local governments and has determined that this rule would not have federalism implications. This proposed rule would not impose substantial or direct compliance costs on State and local governments. Therefore, under section 6(b) of the Executive Order, a federalism summary impact statement is not required.

This proposed rule has been reviewed under Executive Order 12988, Civil Justice Reform. This proposed rule, when finalized, would have preemptive effect with respect to any State or local laws, regulations or policies which conflict with its provisions or which would otherwise impede its full implementation. This proposed rule would not have retroactive effect unless so specified in the DATES section of the final rule preamble. Prior to any judicial challenge to the provisions of this rule or the application of the provisions, all applicable administrative procedures must be exhausted. In the National School Lunch Program and the School Breakfast Program, the administrative procedures are set forth under the following regulations: (1) School food authority appeals of State agency findings as a result of an administrative review must follow State agency hearing procedures as established pursuant to 7 CFR 210.18(q), 215.13(g) and 220.14(e); (2) school food authority appeals of FNS findings as a result of an administrative review must follow FNS hearing procedures as established pursuant to 7 CFR 210.30(d)(3) and 220.14(g); and (3) State agency appeals of State Administrative Expense fund sanctions (7 CFR 235.11(b)) must follow the FNS administrative review process as established pursuant to 7 CFR 235.11(f).

Under Department Regulation 4300-4, Civil Rights Impact Analysis, FNS has reviewed this proposed rule to identify and address any major civil rights impacts the proposed rule might have on minorities, women, and persons with disabilities. After a careful review of the rule's intent and provisions, FNS has determined that this rule would not in any way limit or reduce participants' ability to participate in the Child Nutrition Programs on the basis of an individual's or group's race, color national origin, sex, age or disability. FNS found no factors that would negatively and disproportionately affect any group of individuals.

The Paperwork Reduction Act of 1995 (44 U.S.C. Chap. 35; see 5 CFR part 1320) requires that the Office of Management and Budget (OMB) approve all collections of information by a Federal agency from the public before they can be implemented. Respondents are not required to respond to any collection of information unless it displays a current valid OMB control number. This proposed rule contains information collections that are subject to review and approval by OMB; therefore, in accordance with the Paperwork Reduction Act of 1995, this notice invites the general public and other agencies to comment on the proposed information collection. Written comments on this proposed information collection must be received on or before February 28, 2005.

Comments concerning the information collection aspects of this proposed rule should be sent to the Office of Information and Regulatory Affairs, OMB, Room 10235, New Executive Office Building, Washington, DC 20503, Attention: Desk Officer for the Food and Nutrition Service. A copy of these comments may also be sent to Mr. Terry Hallberg at the address listed in the ADDRESSES section of this preamble. Commenters are asked to separate their comments on the information collection requirements from their comments on the remainder of the proposed rule.

OMB is required to make a decision concerning the collection of information contained in this proposed regulation between 30 to 60 days after the publication of this document in the Federal Register . Therefore, a comment to OMB is best assured of having full consideration if OMB receives it within 30 days of publication. This does not affect the deadline for the public to comment to the Department on the proposed regulation.

Comments are invited on: (a) Whether the collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility; (b) the accuracy of the agency's estimate of the burden of the collection of information, including the validity of the methodology and assumptions used; (c) ways to enhance the quality, utility, and clarity of the information to be collected; and (d) ways to minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology.

The title, description, and respondent description of the information collections are shown below with an estimate of the annual reporting and recordkeeping burdens. Included in the estimate is the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. The chart below identifies only the burden hours associated with those sections of 7 CFR Part 210, National School Lunch Program, 7 CFR Part 215, Special Milk Program and 7 CFR Part 220, School Breakfast Program. These burden hours represent proposed changes to the current reporting and recordkeeping requirements and incorporate additional proposed requirements.

Title: 7 CFR Part 210 National School Lunch Program.

OMB Number: 0584-0006.

Expiration Date: 07/31/2006.

Type of Request: Revision of existing collection.

Abstract: This proposed rule would update the National School Lunch Program regulations, 7 CFR Part 210 (OMB Number: 0584-0006) regarding the use of federal funds for the provision of meals and milk for school children under these programs.

This proposed rule would prohibit a school food authority from using funds in the nonprofit school food service account for expenditures made under an improperly procured contract, including any cost reimbursable provision of a contract that permits the contractor to receive payments in excess of the contractor's actual net allowable costs. State agencies would also be responsible for reviewing and approving contracts between school food authorities and food service management companies prior to their execution.

The expected result is that regulatory language will ensure optimum utilization of funds in the nonprofit school food service account. The burden associated with the proposed rules will only affect schools participating in the National School Lunch or School Breakfast Programs that contract with food service management companies.

Title: 7 CFR Part 215 Special Milk Program.

OMB Number: 0584-0005.

Expiration Date: 01/31/06.

Type of Request: Revision of existing collection.

Abstract: This proposed rule would update the Special Milk Program regulations, 7 CFR Part 215 (OMB Number: 0584-0005) regarding the use of federal funds for the provision of meals and milk for school children under these programs. This proposed rule would prohibit a school food authority from using funds in the nonprofit school food service account for expenditures made under an improperly procured contract, including any cost reimbursable provision of a contract that permits the contractor to receive payments in excess of the contractor's actual net allowable costs. State agencies would also be responsible for reviewing and approving contracts between school food authorities and food service management companies prior to their execution. The expected result is that regulatory language will ensure optimum utilization of funds in the nonprofit school food service account. The burden associated with contract review in the proposed rule will only affect schools participating in the National School Lunch or School Breakfast Programs that contract with food service management companies. The burden associated with schools participating in the Special Milk Program would be minimal because milk is often the sole procured item and the procurement is generally handled at the school food authority level. Therefore this burden is also carried in the NSLP information collection budget.

Title: 7 CFR 220 School Breakfast Program.

OMB Number: 0584-0012.

Expiration Date: 08/31/07.

Type of Request: Revision of existing collection.

Abstract: This proposed rule would update the School Breakfast Program Regulations, 7 CFR Part 220, (OMB Number: 0584-0012) regarding the use of federal funds for the provision of meals and milk for school children under these programs. This proposed rule would prohibit a school food authority from using funds in the nonprofit school food service account for expenditures made under an improperly procured contract, including any cost reimbursable provision of a contract that permits the contractor to receive payments in excess of the contractor's actual net allowable costs. State agencies would also be responsible for reviewing and approving contracts between school food authorities and food service management companies prior to their execution. The expected result is that regulatory language will ensure optimum utilization of funds in the nonprofit school food service account. The burden associated with the proposed rules will only affect schools participating in the National School Lunch or School Breakfast Programs that contract with food service management companies. The vast majority of schools participating in the SBP also participate in the NSLP. Therefore, the burden associated with state agencies and school food authorities contracting for goods and services to operate the School Breakfast Program is carried in the NSLP information collection budget.

FNS is committed to compliance with the Government Paperwork Elimination Act, which requires Government agencies to provide the public with the option of submitting information or transacting business electronically to the maximum extent possible.

Accordingly, 7 CFR Parts 210, 215 and 220 are proposed to be amended as follows:

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

These proposed amendments have been reviewed under Executive Order 12988, Civil Justice Reform. This proposed rule is not intended to have a retroactive effect. If adopted, this proposed rule will not preempt any state or local laws, regulations, or policies, unless they present an irreconcilable conflict with this rule.

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

In accordance with the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ), the Agricultural Marketing Service has considered the economic impact of this action on small entities and has certified that this proposed rule will not have a significant economic impact on a substantial number of small entities. For the purpose of the Regulatory Flexibility Act, a dairy farm is considered a “small business” if it has an annual gross revenue of less than $750,000, and a dairy products manufacturer is a “small business” if it has fewer than 500 employees. For the purposes of determining which dairy farms are “small businesses,” the $750,000 per year criterion was used to establish a production guideline of 500,000 pounds per month. Although this guideline does not factor in additional monies that may be received by dairy producers, it should be an inclusive standard for most “small” dairy farmers. For purposes of determining a handler's size, if the plant is part of a larger company operating multiple plants that collectively exceed the 500-employee limit, the plant will be considered a large business even if the local plant has fewer than 500 employees.

In the Pacific Northwest Federal milk order, 805 of the 1,164 dairy producers (farmers), or about 69 percent, whose milk was pooled under the Pacific Northwest Federal milk order at the time of the hearing (April 2002), would meet the definition of small businesses. On the processing side, 9 of the 20 milk plants associated with the Pacific Northwest milk order during April 2002 would qualify as “small businesses,” constituting about 45 percent of the total.

The adoption of the proposed pooling standard serves to revise established criteria that determine the producer milk that has a reasonable association with—and consistently serves the fluid needs of—the Pacific Northwest milk marketing area and is not associated with other marketwide pools concerning the same milk. Criteria for pooling are established on the basis of performance levels that are considered adequate to meet the Class I fluid needs and by doing so determine those that are eligible to share in the revenue that arises from the classified pricing of milk. Criteria for pooling are established without regard to the size of any dairy industry organization or entity. The established criteria are applied in an identical fashion to both large and small businesses and do not have any different economic impact on small entities as opposed to large entities. Therefore, the proposed amendment will not have a significant economic impact on a substantial number of small entities.

A review of reporting requirements was completed under the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35). It was determined that these proposed amendments would have no impact on reporting, recordkeeping, or other compliance requirements because they would remain identical to the current requirements. No new forms are proposed and no additional reporting requirements would be necessary.

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

Notice of Hearing: Issued February 26, 2002; published March 4, 2002 (67 FR 9622).

Correction to Notice of Hearing: Issued March 14, 2002; published March 19, 2002 (67 FR 12488)

Tentative Final Decision: Issued August 8, 2003; published August 18, 2003 (68 FR 49375).

Interim Final Rule: Issued January 5, 2004; published January 12, 2004 (69 FR 1654).

A public hearing was held upon proposed amendments to the marketing agreement and the order regulating the handling of milk in the Pacific Northwest marketing area. The hearing was held, pursuant to the provisions of the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), and the applicable rules of practice (7 CFR part 900), at Salt Lake City, Utah, on April 16-19, 2002, pursuant to a Notice of Hearing issued February 26, 2002; published March 4, 2002 (67 FR 9622).

Upon the basis of the evidence introduced at the hearing and the record thereof, the Administrator, on August 8, 2003, issued a Tentative Final Decision containing notice of the opportunity to file written exceptions thereto.

The material issues, findings and conclusions, rulings, and general findings of the Recommended Decision are hereby approved and adopted and are set forth herein. The material issue on the record of the hearing relate to:

1. Simultaneous pooling of milk on the order and on a State-operated milk order providing for marketwide pooling.

The following findings and conclusions on the material issues are based on evidence presented at the hearing and the record thereof:

Two proposals, published in the hearing notice as Proposals 1 and 10, seeking to exclude the same milk from being simultaneously pooled on either the Pacific Northwest or the Western orders and any State-operated order which provides for marketwide pooling, should be adopted on a permanent basis. The practice of pooling milk on a Federal order and simultaneously pooling the same milk on a State-operated order has come to be referred to as “double dipping”. The Pacific Northwest order does not currently prohibit milk to be simultaneously pooled on the order and a State-operated order that provides for marketwide pooling. Proposals 1 and 10 were offered by Northwest Dairy Association (NDA), a cooperative association that markets the milk of their dairy-farmer members in the Pacific Northwest and Western milk marketing areas. The Western order was terminated on April 1, 2004 (69 FR 1958). Accordingly, proposal 10, applicable to the Western order, is no longer considered.

A witness appearing on behalf of NDA, testified that “double dipping” not only creates disorderly conditions in California, it also results in competitive inequities in Federal milk order areas. The NDA witness explained that once minimal pool qualification standards are met, milk pooled via this manner rarely is delivered to a Federal order marketing area.

The NDA witness provided evidence indicating that in 2001, over $4.5 million was diverted from the Western Order pool and the producer blend price was reduced by an average of 10 cents per hundredweight (cwt) through “double dipping”. The witness was of the opinion that milk pooled through “double dipping” provided no service or delivery of milk from California yet the California milk receives the benefit of the Western order's blend price.

The NDA witness testified that there was no evidence of “double dipping” presently occurring on the Pacific Northwest order. However, the witness was of the opinion that the Pacific Northwest order would be targeted. The witness drew this conclusion on the premise that as soon as the “double dipping” loophole is closed in other orders, California milk will be pooled on orders that do not yet prohibit the practice.

Two witnesses, one representing Gossner Foods, Inc. (Gossner), an ultra high temperature (UHT) fluid milk processor located in Utah, and the second, Utah Dairymen's Association (UDA), a cooperative located in Utah, also provided testimony in support of eliminating “double dipping”. The witnesses concurred that by eliminating “double dipping”, producers pooled on the order would benefit financially and enhance their ability to stay in business.

A witness representing River Valley Milk Producers Inc. (River Valley), a dairy farmer cooperative located in Southwestern Idaho, testified in support of eliminating “double dipping”. The witness was of the opinion that producers from outside of the marketing area should meet pooling standards by demonstrating actual performance in supplying the Western marketing area as a condition for pooling their milk and receiving the blend price. However, the witness stressed that producer milk which already participates in a State marketwide pool should be prohibited from participating in a Federal order pool.

The Commissioner of the Utah Department of Agriculture and Food testified in support of eliminating “double dipping” on the Western milk order. The witness testified that increasing volumes of California milk are diluting the Class I utilization of the market and lowering the blend price paid to producers. The witness found this to be patently unfair and stressed that “double dipping” lowers the income of Utah dairy farmers.

Three dairy farmers from Utah testified in support of prohibiting “double dipping”. These witnesses stated that “double dipping” on the Western order has had a significant negative impact on their pay prices. They maintained that it is unfair and wrong for dairy farmers to have their milk price reduced as a result of California milk being pooled on the order. One dairy farmer witness also added that the loose pooling provisions of the Western Order have resulted in unwarranted financial gain to those who do not supply the Class I milk market of the Western marketing area. This witness indicated that this contributed to the financial ruin of a quarter of Western Order dairy farmers over the past 4 years.

There was no direct opposition to eliminating or preventing “double dipping”. However, a witness testifying on behalf of the Dairy Farmers of America (DFA), a dairy farmer cooperative that markets the milk of their members in the Pacific Northwest and in most other Federal milk orders offered their own proposals. These proposals were published in the hearing notice as Proposals 2, 3, 4, 5, 6, 7, 8, and 9, and are offered, said the witness, to address broader pooling standards and concerns rather than focusing on the single pooling issue of “double dipping'.

For nearly 70 years, the Federal Government has operated the milk marketing order program. The law authorizing the use of milk marketing orders, the Agricultural Marketing Agreement Act of 1937 (AMAA), as amended, provides authority for milk marketing orders as an instrument which dairy farmers may voluntarily opt to use to achieve objectives consistent with the AMAA and that are in the public interest. An objective of the AMAA, as it relates to milk, was the stabilization of market conditions in the dairy industry. The declaration of the AMAA is specific: “The disruption of the orderly exchange of commodities in interstate commerce impairs the purchasing power of farmers and destroys the value of agricultural assets which support the national credit structure and that these conditions affect transactions in agricultural commodities with a national public interest, and burden and obstruct the normal channels of interstate commerce.”

The AMAA provides authority for employing several methods to achieve more stable marketing conditions. Among these is classified pricing which entails pricing milk according to its use by charging processors differing prices on the basis of form and use. In addition, the AMAA provides for specifying when and how processors are to account for and make payments to dairy farmers. Plus, the AMAA requires that milk prices established by an order be uniform to all processors and that the price charged can be adjusted by, among other things, the location at which milk is delivered by producers (section 608c(5)).

As these features and constraints provided for in the AMAA were employed in establishing prices under Federal milk orders, some important market stabilization goals were achieved. The most often recognized goal was the near elimination of ruinous pricing practices of handlers competing with each other on the basis of the price they paid dairy farmers for milk and in price concessions made by dairy farmers. The need for processors to compete with each other on the price they paid for milk was significantly reduced because all processors are charged the same minimum amount for milk, and processors had assurance that their competitors were paying the same value-adjusted minimum price.

The AMAA also authorizes the establishment of uniform prices to producers as a method to achieve stable marketing conditions. Marketwide pooling has been adopted in all Federal orders because of its superior features of providing equity to both processors and producers, thereby helping to prevent disorderly marketing conditions. A marketwide pool, using the mechanism of a producer settlement fund to equalize on the use-value of milk pooled on an order, meets that objective of the AMAA of ensuring uniform prices to producers supplying a market.

The California State milk order program clearly has objectives similar to those of the AMAA. Exhibits presented at the hearing indicate that the California State order program has a long history in the development and evolution of a classified pricing plan and in providing equity in pricing to handlers and producers. Important as classified pricing has been in setting minimum prices, the issue of equitable returns to producers for milk could not be satisfied by only the use of a classified pricing plan. Some California plants had higher Class I fluid milk use than did others and some plants processed little or no fluid milk products. As with the Federal order system, producers who were fortunate enough to be located nearer Class I processors had been receiving a much larger return for their milk than producers shipping to plants with lower Class I use or to plants whose main business was the manufacturing of dairy products. Over time, disparate price differences grew between producers located in the same production area of the state which, in turn, led to disorderly marketing conditions and practices. These included producers who became increasingly willing to make price concessions with handlers by accepting lower prices and in paying higher charges for services such as hauling. Contracts between producers and handlers were the norm, but the contracts were not long-term (rarely more than a single month) and could not provide a stable marketing relationship from which the dairy farmers could plan their operations.

In 1967, the California State legislature passed and enacted the Gonsalves Milk Pooling Act. The law provided the authority for the California Agriculture Secretary to develop and implement a pooling plan, which was implemented in 1968. The California pooling plan provides for the operation of a State-wide pool for all milk that is produced in the State and delivered to California pool plants. It uses an equalization fund that equalizes prices among all handlers and sets minimum prices to be paid to all producers pooled on the State order. While the pooling plan details vary somewhat from pooling details under the Federal order program, the California pooling objectives are basically identical to those of the Federal program.

It is clear from this review of the Federal and California State programs that the orderly marketing of milk is intended in both systems. Both plans provide a stable marketing relationship between handlers and dairy farmers and both serve the public interest. It would be incorrect to conclude that the Federal and California milk order programs have differing purposes when the means, mechanisms, and goals are so nearly identical. In fact, the Federal order program has precedent in recognizing that the California State milk order program has marketwide pooling. Under milk order provisions in effect prior to milk order reform, and under § 1000.76(c), a provision currently applicable to all Federal milk marketing orders, the Department has consistently recognized California as a State government program with marketwide pooling.

Since the 1960's the Federal milk order program recognized the harm and disorder that resulted to both producers and handlers when the same milk of a producer was simultaneously pooled on more than one Federal order. When this occurs, producers do not receive uniform minimum prices, and handlers receive unfair competitive advantages. The need to prevent “double pooling” became critically important as distribution areas expanded and orders merged. The issue of California milk, already pooled under its State-operated program and able to simultaneously be pooled under a Federal order, has essentially the same undesirable outcomes that Federal orders once experienced and subsequently corrected. It is clear that the Pacific Northwest order should be amended to prevent the ability of milk to be pooled on more than one order when both orders employ marketwide pooling.

There are other State-operated milk order programs that provide for marketwide pooling. For example, New York operates a milk order program for the western region of that State. A key feature explaining why this State-operated program has operated for years alongside the Federal milk order program is the exclusion of milk from the State pool when the same milk is already pooled under a Federal order. Because of the impossibility of the same milk being pooled simultaneously, the Federal order program has had no reason to specifically address “double dipping” or “double pooling” issues, the disorderly marketing conditions that arise from such practice, or the primacy of one regulatory program over another. The other States with marketwide pooling similarly do not double-pool Federal order milk.

The record supports that the Pacific Northwest order should be similarly amended to preclude the ability to simultaneously pool the same milk on the order if the same milk is already pooled on a State-operated order that provides for marketwide pooling.

California milk should only be eligible for pooling on the Pacific Northwest order when it is not pooled on the California State order and when it meets the Pacific Northwest order's pooling standards. It is the ability of milk from California to “double dip” that is a source of disorderly marketing conditions and should be preempted in the case of the Pacific Northwest order.

Proposal 1 offers a reasonable solution for prohibiting the same milk to draw pool funds from Federal and State marketwide pools simultaneously. It is consistent with the current prohibition against the same milk pooling simultaneously in more than one Federal order pool. Adoption of Proposal 1 will not establish any barrier to the pooling of milk from any source that actually demonstrates performance in supplying the Pacific Northwest market's Class I needs. Adoption of Proposal 1 will specifically prohibit the practice of “double dipping'.

The amendatory language provided below had been modified by the Department in the interim final rule but nevertheless accomplishes the intent of Proposal 1. The amendment adopted in this final decision to prohibit “double dipping” had been made in the order's Producer milk definition. This change was made because milk marketing orders do not regulate producers in their capacity as producers. Additionally, the amendatory language adopted on a permanent basis is consistent with that adopted in other milk orders where the practice of “double dipping” has been eliminated.

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

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

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

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

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

No exceptions to the tentative final decision were received.

Annexed hereto and made a part hereof are two documents, a Marketing Agreement regulating the handling of milk, and an Order amending the order regulating the handling of milk in the Pacific Northwest marketing area. An interim amended order was approved by producers and published in the Federal Register on January 12, 2004 (69 FR 1654), as an Interim Final Rule. Both of these documents have been decided upon as the detailed and appropriate means of effectuating the foregoing conclusions.

It is hereby ordered , that this entire decision and the two documents annexed hereto be published in the Federal Register .

February 2004 is hereby determined to be the representative period for the purpose of ascertaining whether the issuance of the order, as amended in the Interim Rule published in the Federal Register on January 12, 2004 (69 FR 1654), regulating the handling of milk in the Pacific Northwest marketing area is approved or favored by producers, as defined under the terms of the order as amended and as hereby proposed to be amended on a permanent basis who during such representative period were engaged in the production of milk for sale within the aforesaid marketing area.

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

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

(a) Findings. A public hearing was held upon the proposed amendment to the tentative marketing agreement and to the order regulating the handling of milk in the Pacific Northwest marketing area. The hearing was held pursuant to the provisions of the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), and the applicable rules of practice and procedure (7 CFR part 900).

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

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

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

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

It is therefore ordered , that on and after the effective date hereof, the handling of milk in the Pacific Northwest marketing area shall be in conformity to and in compliance with the terms and conditions of the order, as amended, and as hereby amended, as follows:

The provisions of the order amending the order contained in the interim amendment of the order issued by the Administrator, Agricultural Marketing Service, on January 5, 2004, and published in the Federal Register on January 12, 2004 (69 FR 1654), shall be and are the terms and provisions of this order.

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

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

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

In accordance with the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ), the Agricultural Marketing Service has considered the economic impact of this action on small entities and has certified that this proposed rule will not have a significant economic impact on a substantial number of small entities. For the purpose of the Regulatory Flexibility Act, a dairy farm is considered a “small business” if it has an annual gross revenue of less than $750,000, and a dairy products manufacturer is a “small business” if it has fewer than 500 employees. For the purposes of determining which dairy farms are “small businesses,” the $750,000 per year criterion was used to establish a milk marketing guideline of 500,000 pounds per month. Although this guideline does not factor in additional monies that may be received by dairy producers, it should be an inclusive standard for most “small” dairy farmers. For purposes of determining a handler's size, if the plant is part of a larger company operating multiple plants that collectively exceed the 500-employee limit, the plant will be considered a large business even if the local plant has fewer than 500 employees.

During September 2003, the month during which the hearing began, there were 106 dairy producers pooled on, and 22 handlers regulated by, the Arizona-Las Vegas order. Approximately 18 producers, or 17 percent, were small businesses based on the above criteria. On the handler side, 7, or 32 percent were “small businesses''.

The adoption of the proposed producer milk provision, a part of the order's pooling standards, serves to revise established criteria that determine the producer milk that has a reasonable association with the Arizona-Las Vegas milk marketing area and is not associated with other marketwide pools concerning the same milk. Criteria for pooling milk are also established on the basis of performance standards that are considered adequate to meet the Class I fluid needs of the market and determine those that are eligible to share in the revenue arising from the classified pricing of milk. Criteria for pooling are established without regard to the size of any dairy industry organization or entity. The criteria established are applied in an equal fashion to both large and small businesses and do not have any different economic impact on small entities as opposed to large entities. Therefore, the proposed amendment will not have a significant economic impact on a substantial number of small entities.

A review of reporting requirements was completed under the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35). It was determined that the proposed amendment would have no impact on reporting, record keeping, or other compliance requirements because they would remain identical to the current requirements. No new forms are proposed and no additional reporting requirements would be necessary.

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

No other burdens are expected to fall on the dairy industry as a result of overlapping Federal rules. The rulemaking proceeding does not duplicate, overlap, or conflict with any existing Federal rules.

Interested parties are invited to submit comments on the probable regulatory and informational impact of this proposed rule on small entities. Also, parties may suggest modifications of this proposal for the purpose of tailoring their applicability to small businesses.

Notice of Hearing: Issued July 31, 2003; published August 6, 2003 (68 FR 46505).

Correction to Notice of Hearing: August 20, 2003; published August 26, 2003 (68 FR 51202).

Notice of Reconvened Hearing: Issued October 27, 2003; published October 31, 2003 (68 FR 62027).

Notice of Reconvened Hearing: Issued December 18, 2003; published December 29, 2003 (68 FR 74874).

Notice is hereby given of the filing with the Hearing Clerk of this tentative partial decision with respect to the proposed amendment to the tentative marketing agreement and the order regulating the handling of milk in the Arizona-Las Vegas marketing area. This notice is issued pursuant to the provisions of the Agricultural Marketing Agreement Act and the applicable rules of practice and procedure governing the formulation of marketing agreements and marketing orders (7 CFR part 900).

Interested parties may file written exceptions to this decision with the Hearing Clerk, U.S. Department of Agriculture, Room 1083-STOP 9200, 1400 Independence Avenue, SW., Washington, DC 20250-9200, by February 28, 2005. Six (6) copies of the exceptions should be filed. All written submissions made pursuant to this notice will be made available for public inspection at the office of the Hearing Clerk during regular business hours (7 CFR 1.27(b)).

The hearing notice specifically invited interested persons to present evidence concerning the probable regulatory and informational impact of proposals on small businesses. While no evidence was received that specifically addressed this issue, some of the evidence encompassed entities of various size.

The proposed amendment set forth below is based on the record of a public hearing held at Tempe, Arizona, on September 23-25, 2003, pursuant to a notice of hearing issued July 31, 2003, and published August 6, 2003 (68 FR 46505); reconvened at Seattle, Washington, on November 17-21, 2003, pursuant to a notice of reconvened hearing issued October 27, 2003, and published October 31, 2003 (68 FR 62027); and reconvened at Alexandria, Virginia, on January 20-22, 2004, pursuant to a notice of reconvened hearing issued December 18, 2003, and published December 29, 2003 (68 FR 74874).

The material issues on the record of the hearing relate to:

1. Simultaneous pooling of milk on the order and on a State-operated milk order providing for marketwide pooling.

2. Determination as to whether emergency marketing conditions exist that would warrant the omission of a recommended decision and the opportunity to file written exceptions.

The following findings and conclusions on the material issues are based on evidence presented at the hearing and the record thereof:

A proposal, published in the hearing notice as Proposal 4, seeking to exclude the same milk from being simultaneously pooled on the Arizona-Las Vegas order and any State-operated order which provides for marketwide pooling, should be adopted immediately. The practice of pooling milk on a Federal order and simultaneously pooling the same milk on a State-operated order has come to be referred to as double-dipping. The Arizona-Las Vegas order does not currently prohibit milk from being simultaneously pooled on the order and a State-operated order that provides for marketwide pooling. Proposal 4 was offered by United Dairymen of Arizona, a cooperative association that markets the milk of their members in the Arizona-Las Vegas marketing area.

A witness appearing on behalf of the Alliance of Western Milk Producers, testified in support of Proposal 4. The witness testified that double-dipping creates a competitive advantage in both procuring milk and competing for markets for milk.

A witness appearing on behalf of Northwest Dairy Association (NDA), testified in support of Proposal 4, saying that double-dipping not only creates disorderly conditions in California, it also results in competitive inequities in Federal milk order areas. The NDA witness explained that once minimal pool qualification standards are met, milk pooled in this manner rarely is delivered to a Federal order marketing area. The witness noted that the implementation of similar provisions in Orders 30, 32, and 124, which effectively prevents the simultaneous pooling of milk in the California State-wide pool and in the Federal order, should also be adopted for the Arizona-Las Vegas order.

A witness testifying on behalf of Dairy Farmers of America (DFA), a dairy farmer cooperative that markets the milk of their members in Arizona-Las Vegas and in most of the other Federal milk orders, supported adoption of Proposal 4. The witness indicated that the regulatory language for this proposal is identical to what has been adopted for Orders 30, 32, 33, and 124. A witness representing Sarah Farms, a producer-handler located in Arizona, testified in opposition to adopting Proposal 4. The witness was of the opinion that the adoption of Proposal 4 would be a trade restriction and that Sarah Farms preferred freer trade rather than more restricted trade. The witness concluded by hypothesizing that Proposal 4 was proposed to hurt Sarah Farms.

A witness representing Edaleen Dairy, a producer-handler located in Lynden, Washington, also testified in opposition to adopting Proposal 4. The witness indicated that since Sarah Farms was opposed to Proposal 4, they would also be opposed to it.

The witness explained that California operates a quota and overbase payment system. Under this system, all producers receive a uniform blend price in the form of the overbase. Other producers are entitled to an additional payment of $1.70 per hundredweight for their “quota” milk. The witness noted that producers who have moved California milk into the Arizona market have lost their quota and if they were to participate in California again they would only be entitled to the overbase price. The witness indicated that the California Department of Food and Agriculture had issued a decision that required a producer participating in the state order to do so for a period of twelve months at a time, preventing participation in the Federal order program because California does not permit dual participation. As a result, the witness noted that benefits can not be obtained by double-dipping.

In post hearing briefs, Edaleen Dairy, Mallorie's Dairy, Smith Brothers Farm, and Sarah Farms concurred that a producer located in California, pooling milk in Arizona, would not be considered double-dipping.

For nearly 70 years, the Federal government has operated the milk marketing order program. The law authorizing the use of milk marketing orders, the Agricultural Marketing Agreement Act of 1937 (AMAA), as amended, provides authority for milk marketing orders as an instrument which dairy farmers may voluntarily use to achieve objectives consistent with the AMAA and that are in the public interest. An objective of the AMAA, as it relates to milk, was the stabilization of market conditions in the dairy industry. The declaration of the AMAA is specific: “the disruption of the orderly exchange of commodities in interstate commerce impairs the purchasing power of farmers and destroys the value of agricultural assets which support the national credit structure and that these conditions affect transactions in agricultural commodities with a national public interest, and burden and obstruct the normal channels of interstate commerce.”

The AMAA provides authority for employing several methods to achieve more stable marketing conditions. Among these is classified pricing, which entails pricing milk according to its use by charging processors differing prices on the basis of form and use. In addition, the AMAA provides for specifying when and how processors are to account for and make payments to dairy farmers. Plus, the AMAA requires that milk prices established by an order be uniform to all processors and that the price charged can be adjusted by, among other things, the location at which milk is delivered by producers (section 608c(5)).

As these features and constraints provided for in the AMAA were employed in establishing prices under Federal milk orders, some important market stabilization goals were achieved. The most often recognized goal was the near elimination of ruinous pricing practices of handlers competing with each other on the basis of the price they paid dairy farmers for milk and in price concessions made by dairy farmers. The need for processors to compete with each other on the price they paid for milk was significantly reduced because all processors are charged the same minimum amount for milk, and processors had assurance that their competitors were paying the same value-adjusted minimum price.

The AMAA also authorizes the establishment of uniform prices to producers as a method to achieve stable marketing conditions. Marketwide pooling has been adopted in all Federal orders because it provides equity to both processors and producers, thereby helping to prevent disorderly marketing conditions. A marketwide pool, using the mechanism of a producer settlement fund to equalize the use-value of milk pooled on an order, meets that objective of the AMAA, ensuring uniform prices to producers supplying a market.

Since the 1960's the Federal milk order program has recognized the harm and disorder that resulted to both producers and handlers when the same milk of a producer was simultaneously pooled on more than one Federal order. When this occurs, producers do not receive uniform minimum prices, and handlers receive unfair competitive advantages. The need to prevent “double pooling” became critically important as distribution areas expanded and orders merged. Milk already pooled under a State-operated program and able to simultaneously be pooled under a Federal order has essentially the same undesirable outcomes that Federal orders once experienced and subsequently corrected.

There are other State-operated milk order programs that provide for marketwide pooling. For example, New York operates a milk order program for the western region of that State. A key feature explaining why this State-operated program has operated for years alongside the Federal milk order program is the exclusion of milk from the State pool when the same milk is already pooled under a Federal order. Because of the impossibility of the same milk being pooled simultaneously, the Federal order program has had no reason to specifically address “double dipping” or “double pooling” issues, the disorderly marketing conditions that arise from such practice, or the primacy of one regulatory program over another. The other States with marketwide pooling similarly do not allow double-pooling of Federal order milk.

The record supports that the Arizona-Las Vegas order should be amended to preclude the ability to simultaneously pool the same milk on the order if the same milk is already pooled on a State-operated order that provides for marketwide pooling.

Proposal 4 offers a reasonable solution for prohibiting the same milk to draw pool funds from Federal and State marketwide pools simultaneously. It is consistent with the current prohibition against allowing the same milk to participate simultaneously in more than one Federal order pool. Adoption of Proposal 4 will not establish any barrier to the pooling of milk from any source that actually demonstrates performance in supplying the Arizona-Las Vegas market's Class I needs.

Evidence presented at the hearing establishes that California milk that can be pooled simultaneously on a State-operated order and a Federal order, a practice commonly referred to as double-dipping, would render the Arizona-Las Vegas milk order unable to establish prices that are uniform to producers and to handlers. This shortcoming of the pooling provisions could allow milk not providing a reasonable or consistent service to meeting the needs of the Class I market to be pooled on the Arizona-Las Vegas order.

In view of these findings, an interim final rule amending the order will be issued as soon as the procedures are completed to determine the approval of producers whose milk is pooled in the Arizona-Las Vegas order. Consequently, it is determined that emergency marketing conditions exist and the issuance of a recommended decision is therefore being omitted. The record clearly establishes a basis as noted above for amending the order on an interim basis. Other proposals considered at the public hearing regarding producer-handlers will be issued in a separate decision.

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

The findings and determinations hereinafter set forth supplement those that were made when the Arizona-Las Vegas order was first issued and when it was amended. The previous findings and determinations are hereby ratified and confirmed, except where they may conflict with those set forth herein.

The following findings are hereby made with respect to the aforesaid marketing agreement and order:

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

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

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

Annexed hereto and made a part hereof are two documents: an Interim Marketing Agreement regulating the handling of milk, and an Interim Order amending the order regulating the handling of milk in the Arizona-Las Vegas marketing area, which have been decided upon as the detailed and appropriate means of effectuating the foregoing conclusions.

It is hereby ordered , that this entire tentative partial decision and the interim order and the interim marketing agreement annexed hereto be published in the Federal Register .

The month of May 2004 is hereby determined to be the representative period for the purpose of ascertaining whether the issuance of the order, as amended and as hereby proposed to be amended, regulating the handling of milk in the Arizona-Las Vegas marketing area is approved or favored by producers, as defined under the terms of the order as hereby proposed to be amended, who during such representative period were engaged in the production of milk for sale within the aforesaid marketing area.

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

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

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

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

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

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

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

It is therefore ordered , that on and after the effective date hereof, the handling of milk in the Arizona-Las Vegas marketing area shall be in conformity to and in compliance with the terms and conditions of the order, as amended, and as hereby amended, as follows:

The authority citation for 7 CFR part 1131 continues to read as follows:

We have implemented new procedures for maintaining AD dockets electronically. As of May 17, 2004, we post new AD actions on the DMS and assign a DMS docket number. We track each action and assign a corresponding Directorate identifier. The DMS docket No. is in the form “Docket No. FAA-200X-XXXXX.” Each DMS docket also lists the Directorate identifier (“Old Docket Number”) as a cross-reference for searching purposes.

We invite you to submit any written relevant data, views, or arguments regarding this proposal. Send your comments to an address listed under ADDRESSES. Include “Docket No. FAA-2004-19929; Directorate Identifier 2004-NE-15-AD” in the subject line of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of the proposed AD. We will consider all comments received by the closing date and may amend the proposed AD in light of those comments.

We will post all comments we receive, without change, to http://dms.dot.gov, including any personal information you provide. We will also post a report summarizing each substantive verbal contact with FAA personnel concerning this proposed AD. Using the search function of the DMS Web site, anyone can find and read the comments in any of our dockets, including the name of the individual who sent the comment (or signed the comment on behalf of an association, business, labor union, etc.). You may review the DOT's complete Privacy Act Statement in the Federal Register published on April 11, 2000 (65 FR 19477-78) or you may visit http://dms.dot.gov.

You may examine the docket that contains the proposal, any comments received and any final disposition in person at the DMS Docket Offices between 9:00 a.m. and 5:00 p.m., Monday through Friday, except Federal holidays. The Docket Office (telephone (800) 647-5227) is located on the plaza level of the Department of Transportation Nassif Building at the street address stated in ADDRESSES. Comments will be available in the AD docket shortly after the DMS receives them.

During an investigation of two high pressure compressor disks from a repair vendor, PW found chips in the disks' protective coating. When PW removed the remainder of the coating, PW found cracks and corrosion pitting. Upon further investigation, PW found approximately 85% of the parts PW looked at from the same repair vendor were either cracked, had cracks emanating from bolt holes, were pitted, or improperly blended or machined. As a result, we issued Special Airworthiness Information Bulletin (SAIB) No. NE-02-08 on December 20, 2001 to provide additional information about this subject. SAIB No. NE-02-08 does not provide compliance time information. This condition, if not corrected, could result in an uncontained engine failure and damage to the airplane.

We have reviewed and approved the technical contents of PW Alert Service Bulletin (ASB) No. JT8D A6442, dated April 4, 2003, that describes procedures for removing the affected rotating parts, inspecting, overhauling, and returning the parts to service as applicable.

We have evaluated all pertinent information and identified an unsafe condition that is likely to exist or develop on other products of this same type design. We are proposing this AD, which would require removing affected rotating parts overhauled by CADMAR Aerospace, Inc. and inspecting or replacing the parts as applicable. The proposed AD would require you to use the service information described previously to perform these actions.

We estimate that about 632 JT8D engines installed on airplanes of U.S. registry would be affected by this proposed AD. We estimate that 158 engines will require access to the high pressure compressor outside of regularly scheduled maintenance, and will require 66 work hours per engine. The high pressure compressor section of the remaining 474 engines will be inspected during regularly scheduled maintenance, and will therefore not require additional labor costs to inspect. The average labor rate is $65 per work hour. We estimate that half of the parts presently installed will require replacement, at a cost of approximately $6,730,750. Based on this information, we estimate the total cost of the proposed AD to U.S. operators to be $8,086,390.

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

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

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

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

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

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

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

We prepared a summary of the costs to comply with this proposal and placed it in the AD Docket. You may get a copy of this summary at the address listed under ADDRESSES.

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

Interested parties are invited to participate in this proposed rulemaking by submitting such written data, views, or arguments as they may desire. Comments that provide the factual basis supporting the views and suggestions presented are particularly helpful in developing reasoned regulatory decisions on the proposal. Comments are specifically invited on the overall regulatory, aeronautical, economic, environmental, and energy-related aspects of the proposal. Communications should identify both docket numbers and be submitted in triplicate to the address listed above. Commenters wishing the FAA to acknowledge receipt of their comments on this notice must submit with those comments a self-addressed, stamped postcard on which the following statement is made: “Comments to Docket No. FAA-2004-19415/Airspace Docket No. 04-AAL-15.” The postcard will be date/time stamped and returned to the commenter.

All communications received on or before the specified closing date for comments will be considered before taking action on the proposed rule. The proposal contained in this notice may be changed in light of comments received. All comments submitted will be available for examination in the public docket both before and after the closing date for comments. A report summarizing each substantive public contact with FAA personnel concerned with this rulemaking will be filed in the docket.

An electronic copy of this document may be downloaded through the Internet at http://dms.dot.gov. Recently published rulemaking documents can also be accessed through the FAA's web page at http://www.faa.gov or the Superintendent of Document's web page at http://www.access.gpo.gov/nara.

Additionally, any person may obtain a copy of this notice by submitting a request to the Federal Aviation Administration, Office of Air Traffic Airspace Management, ATA-400, 800 Independence Avenue, SW., Washington, DC 20591 or by calling (202) 267-8783. Communications must identify both docket numbers for this notice. Persons interested in being placed on a mailing list for future NPRM's should contact the FAA's Office of Rulemaking, (202) 267-9677, to request a copy of Advisory Circular No. 11-2A, Notice of Proposed Rulemaking Distribution System, which describes the application procedure.

The FAA is considering an amendment to the Code of Federal Regulations (14 CFR Part 71), which would establish additional Class E airspace at Ketchikan, AK. The intended effect of this proposal is to revise Class E airspace upward from 700 ft. above the surface to contain Instrument Flight Rules (IFR) operations at Ketchikan, AK.

The Special Instrument Flight Procedures developed for the Ketchikan Airport currently are not contained in Class E airspace. The FAA is proposing to revise Class E airspace at Ketchikan, AK, which would be sufficient to contain aircraft executing instrument procedures. Additional Class E controlled airspace extending upward from 700 ft. above the surface within the Ketchikan Airport area would be created by this action.

The area would be depicted on aeronautical charts for pilot reference. The coordinates for this airspace docket are based on North American Datum 83. The Class E airspace areas designated as 700/1200 foot transition areas are published in paragraph 6005 in FAA Order 7400.9M, Airspace Designations and Reporting Points, dated August 30, 2004, and effective September 16, 2004, which is incorporated by reference in 14 CFR 71.1. The Class E airspace designations listed in this document would be published subsequently in the Order.

The FAA has determined that this proposed regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. It, therefore —(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) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule, when promulgated, will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the United States Code. Subtitle 1, Section 106 describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority.

This rulemaking is promulgated under the authority described in Subtitle VII, Part A, Subpart 1, Section 40103, Sovereignty and use of airspace. Under that section, the FAA is charged with prescribing regulations to ensure the safe and efficient use of the navigable airspace. This regulation is within the scope of that authority because it proposes to revise Class E airspace sufficient to contain aircraft executing instrument approaches at Ketchikan Airport and represents the FAA's continuing effort to safely and efficiently use the navigable airspace.

In consideration of the foregoing, the Federal Aviation Administration proposes to amend 14 CFR part 71 as follows:

Interested parties are invited to participate in this proposed rulemaking by submitting such written data, views, or arguments as they may desire. Comments that provide the factual basis supporting the views and suggestions presented are particularly helpful in developing reasoned regulatory decisions on the proposal. Comments are specifically invited on the overall regulatory, aeronautical, economic, environmental, and energy-related aspects of the proposal. Communications should identify both docket numbers and be submitted in triplicate to the address listed above. Commenters wishing the FAA to acknowledge receipt of their comments on this notice must submit with those comments a self-addressed, stamped postcard on which the following statement is made: “Comments to Docket No. FAA-2004-19696/Airspace Docket No. 04-AAL-24.” The postcard will be date/time stamped and returned to the commenter.

All communications received on or before the specified closing date for comments will be considered before taking action on the proposed rule. The proposal contained in this notice may be changed in light of comments received. All comments submitted will be available for examination in the public docket both before and after the closing date for comments. A report summarizing each substantive public contact with FAA personnel concerned with this rulemaking will be filed in the docket.

An electronic copy of this document may be downloaded through the Internet at http://dms.dot.gov. Recently published rulemaking documents can also be accessed through the FAA's web page at http://www.faa.gov or the Superintendent of Document's web page at http://www.access.gpo.gov/nara.

Additionally, any person may obtain a copy of this notice by submitting a request to the Federal Aviation Administration, Office of Air Traffic Airspace Management, ATA-400, 800 Independence Avenue, SW., Washington, DC 20591 or by calling (202) 267-8783. Communications must identify both docket numbers for this notice. Persons interested in being placed on a mailing list for future NPRM's should contact the FAA's Office of Rulemaking, (202) 267-9677, to request a copy of Advisory Circular No. 11-2A, Notice of Proposed Rulemaking Distribution System, which describes the application procedure.

The FAA is considering an amendment to the Code of Federal Regulations (14 CFR Part 71), which would establish new Class E airspace at Beluga, AK. The intended effect of this proposal is to establish Class E airspace upward from 700 ft. above the surface to contain Instrument Flight Rules (IFR) operations at Beluga, AK.

The Special Instrument Flight Procedures developed for the Beluga Airport currently are not contained in Class E airspace. To improve safety, the FAA is proposing to establish Class E airspace at Beluga, AK, which would be sufficient to contain aircraft executing instrument procedures. New Class E controlled airspace extending upward from 700 ft. above the surface within the Beluga Airport area would be created by this action.

The area would be depicted on aeronautical charts for pilot reference. The coordinates for this airspace docket are based on North American Datum 83. The Class E airspace areas designated as 700/1200 foot transition areas are published in paragraph 6005 in FAA Order 7400.9M, Airspace Designations and Reporting Points , dated August 30, 2004, and effective September 16, 2004, which is incorporated by reference in 14 CFR 71.1. The Class E airspace designations listed in this document would be published subsequently in the Order.

The FAA has determined that this proposed regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. It, therefore—(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) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule, when promulgated, will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the United States Code. Subtitle 1, Section 106 describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority.

This rulemaking is promulgated under the authority described in Subtitle VII, Part A, Subpart 1, Section 40103, Sovereignty and use of airspace. Under that section, the FAA is charged with prescribing regulations to ensure the safe and efficient use of the navigable airspace. This regulation is within the scope of that authority because in proposes to create Class E airspace sufficient to contain aircraft executing instrument approaches at Beluga Airport and represents the FAA's continuing effort to safely and efficiently use the navigable airspace.

In consideration of the foregoing, the Federal Aviation Administration proposes to amend 14 CFR part 71 as follows:

We encourage you to participate in this rulemaking by submitting comments and related material. If you do so, please include your name and address, identify the docket number for this rulemaking CGD05-04-215, indicate the specific section of this document to which each comment applies, and give the reason for each comment. Please submit all comments and related material in an unbound format, no larger than 8 1/2 by 11 inches, suitable for copying. If you would like a return receipt, please enclose a stamped, self-addressed postcard or envelope. We will consider all submittals received during the comment period. We may change this proposed rule in view of them.

We do not now plan to hold a public meeting. But you may submit a request for a meeting by writing to Commander (obr), Fifth Coast Guard District at the address under ADDRESSES explaining why one would be beneficial. If we determine that one would aid this rulemaking, we will hold one at a time and place announced by a later notice in the Federal Register .

The Virginia Department of Transportation (VDOT) owns and operates this swing-type bridge. The current regulation requires the SR 175 Bridge, mile 3.5, at Chincoteague to open on signal except the draw may remain in the closed position to vessels from 7 a.m. to 5 p.m. on the last consecutive Wednesday and Thursday in July of every year.

On behalf of the Chincoteague Town Council (the Council), residents and business owners in the area, VDOT has requested a change to the existing regulations for the SR 175 Bridge. This proposal is an effort to schedule the number of drawbridge openings thereby reducing traffic congestion for public safety. By scheduling the number of openings this proposal will also extend the structural and operational integrity of the movable span, while balancing the needs of mariners and vehicular traffic transiting in and around this seaside resort area. SR 175 highway is also the principal arterial route that serves as the major evacuation highway in the event of emergencies or tidal flooding.

On June 28, 2004, we published a notice of temporary deviation from the regulations and request for comments entitled “Drawbridge Operation Regulations; Chincoteague Channel, VA” in the Federal Register (69 FR 36011). The temporary deviation was an operation to test an alternate drawbridge operation schedule for 90 days and to solicit comments from the public. In accordance with the temporary deviation, from July 2, 2004 through September 29, 2004, the draw of the bridge opened every two hours on the even hour from 6 a.m. to midnight; except from 7 a.m. to 5 p.m., on the last consecutive Wednesday and Thursday of July, the draw need not be opened. Finally, at all other times, the draw was not opened.

The Coast Guard received six letters and four petitions commenting on the provisions of the temporary deviation. Several comments from residents of the Town of Chincoteague favored the two-hour opening schedule. The commercial vessel owners favored a less restrictive hourly opening schedule. To ease vehicular traffic congestion, VDOT requested the movement of marine traffic be regulated. The Coast Guard reviewed the vehicle traffic information and bridge logs provided by VDOT. Bridge opening log data from 2001 to 2003 revealed that the highest concentration of vessel and vehicular traffic occurred during the peak tourist season from April to October. VDOT submitted a weekly vehicular traffic count for August 2004. The eastbound and westbound traffic counts revealed for August 19, 20, 21 and 22, that approximately 8150, 9729, 8365 and 7447 vehicles cross the SR 175 Bridge, respectively.

VDOT records reveal an increase in yearly bridge openings. For 2001 to 2003, the bridge opened for vessels 1789, 2063 and 2337 times during these years, respectively. During the peak tourist season for the same period, the bridge opened for vessels 1356, 1558 and 1761 times, respectively. With an average of only 12 openings per day (yearly) or approximately one opening per hour, restricting openings of the drawbridge hourly from 6 a.m. to midnight is not expected to seriously disrupt marine traffic, and is expected to substantially reduce vehicular traffic congestion.

This change is being requested to make the operation of the SR 175 Bridge more efficient. It will reduce vehicular traffic congestion to increase public safety and to extend the structural and operational integrity of the movable span while still balancing the needs of marine and vehicular traffic.

The Coast Guard proposes to amend the regulations governing the SR 175 Bridge, mile 3.5, at Chincoteague, which currently operates on signal, except the draw may remain in the closed position to vessels from 7 a.m. to 5 p.m. on the last consecutive Wednesday and Thursday in July of every year. At all other times, the draw need not open. The Coast Guard proposes to amend 33 CFR § 117.1005 by inserting a new provision, which would limit the required openings of the draw year-round from 6 a.m. to midnight to once an hour with closure periods from 7 a.m. to 5 p.m. on the last consecutive Wednesday and Thursday in July of every year; and at all other times, the draw need not open.

This proposed rule is not a “significant regulatory action” under section 3(f) of Executive Order 12866, Regulatory Planning and Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. The Office of Management and Budget has not reviewed it under that Order. It is not “significant” under the regulatory policies and procedures of the Department of Homeland Security (DHS).

We expect the economic impact of this proposed rule to be so minimal that a full Regulatory Evaluation under the regulatory policies and procedures of DHS is unnecessary. We reached this conclusion based on the fact that the proposed changes have only a minimal impact on maritime traffic transiting the bridge. Mariners can plan their trips in accordance with the scheduled bridge openings, to minimize delays.

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

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

This proposed rule would not have a significant economic impact on a substantial number of small entities because the rule only adds minimal restrictions to the movement of navigation, and mariners who plan their transits in accordance with the scheduled bridge openings can minimize delay.

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

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this proposed rule so that they can better evaluate its effects on them and participate in the rulemaking. If the rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact Waverly W. Gregory, Jr., Bridge Administrator, Fifth Coast Guard District, (757) 398-6222. The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard.

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

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

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

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

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

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

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

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

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

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

We have analyzed this proposed rule under Commandant Instruction M16475.lD, which guides the Coast Guard in complying with the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321-4370f), and have concluded that there are no factors in this case that would limit the use of a categorical exclusion under section 2.B.2 of the Instruction. Therefore, this proposed rule is categorically excluded, under figure 2-1, paragraph (32)(e) of the Instruction, from further environmental documentation because it has been determined that the promulgation of operating regulations for drawbridges are categorically excluded.

For the reasons discussed in the preamble, the Coast Guard proposes to amend 33 CFR part 117 as follows:

In the final rules section of this Federal Register , EPA is approving the State's SIP submittal as a direct final rule without prior proposal because the EPA views this as a noncontroversial submittal and anticipates no adverse comments. A detailed rationale for the approval is set forth in the direct final rule. If EPA receives no relevant adverse comments, the EPA will not take further action on this proposed rule. If EPA receives relevant adverse comments, the direct final rule will be withdrawn and all public comments received will be addressed in a subsequent final rule based on this proposed rule. EPA will not institute a second comment period on this action. Any parties interested in commenting on this action must do so at this time.

For additional information, see the direct final rule which is located in the “Rules and Regulations” section of this Federal Register .

I. Background

The Hazardous Materials Regulations (HMR; 49 CFR Parts 171-180), at § 173.33(e), prohibit the retention of certain liquid hazardous materials in the external product piping (wetlines) of a DOT specification cargo tank, unless the cargo tank motor vehicle (CTMV) is equipped with bottom damage protection devices. The current prohibition applies to liquid hazardous materials in Divisions 5.1 (oxidizer), 5.2 (organic peroxide), 6.1 (toxic), and Class 8 (corrosive to skin only), but does not apply to flammable liquids.

Wetlines are product piping located beneath the cargo tank on MC 306, MC 307, DOT 406, and DOT 407 CTMVs that remain filled with product after loading or unloading. Wetlines on a five-compartment CTMV carrying gasoline typically contain 30-50 gallons of gasoline. If a passenger vehicle strikes the side of a CTMV, the impact likely will fracture unprotected wetlines. In such collisions, the passenger vehicle is often wedged under the CTMV. With the automobile driver and passenger(s) trapped in the vehicle under the CTMV, the fractured wetlines may release their entire contents onto the passenger vehicle. If ignited, fire will rapidly engulf the vehicle. When ignited, a gasoline spill of 50 gallons will create a fire over an area of up to 5000 square feet, dooming those trapped in a vehicle at the site of the release and fire. If it is not extinguished immediately, the fire could result in significant loss of life or damage to property or the environment.

On February 10, 2003, the Research and Special Programs Administration (RSPA, we) published an advance notice of proposed rulemaking (ANPRM; 68 FR 6689) to solicit comments and information regarding methods to reduce the safety risks associated with the retention of lading in unprotected wetlines. The ANPRM described the regulatory history for the current requirements in § 173.33 and detailed our long-standing concern for the inherent safety risk presented by the carriage of flammable liquids in unprotected wetlines. In addition, the ANPRM asked commenters to address a number of issues to assist us in making a determination as to whether regulatory changes are needed, including the current state of technological development, practical alternatives that will protect the wetlines or eliminate the problem, the effectiveness of measures such as increased conspicuity or side guards, and current industry practices to minimize the potential safety problem posed by wetlines.

Based on comments and information received in response to the ANPRM ( see discussion below), in this NPRM we propose to prohibit the carriage of flammable liquids in wetlines, unless the cargo tank motor vehicle conforms to the accident damage protection requirements of § 178.337-10 or the bottom damage protection requirements of § 178.345-8(b)(1), as appropriate.

Since product piping configurations on cargo tank motor vehicles transporting gasoline may contain unsafe amounts even when drained, we a proposing a quantity limit of one liter or less in each pipe after it is drained. This is a performance standard. We are not proposing a specific method for achieving this standard. A performance standard permits the industry wide latitude to develop measures to meet the requirement. For example, an operator may elect to install accident damage protection devices or it may decide to equip each CTMV with a system that will remove any lading remaining in unprotected wetlines after loading. This wetline prohibition would not apply to a material classed as a combustible liquid or to a flammable liquid reclassed as a combustible liquid. For hazardous materials other than flammable liquids, the existing unprotected wetline prohibition would remain in effect.

Exception for Truck-Mounted DOT Specification Cargo Tank Motor Vehicles. In this NPRM, we propose to grant an exception from the piping damage protection requirements of §§ 178.337-10 and 178.345-8(b)(1) for truck-mounted ( e.g. , straight truck) DOT specification CTMVs. Truck-mounted CTMVs are designed and constructed with engine, body, and cargo tank permanently mounted to the same chassis. Based on the protective features afforded by their chassis and running gear, we believe that these cargo tank motor vehicles pose a significantly lower risk than most trailer and semi-trailer cargo tank motor vehicles. Under this proposal, components of the CTMV framework such as chassis rails and cross-members, suspension components, structural mounting members, or any other device that substantially protects product piping from the impact forces of another motor vehicle are expected to provide adequate accident damage protection. We are soliciting comments on whether this exception for truck-mounted cargo tank motor vehicles provides an acceptable level of safety, whether prohibiting flammable liquids in external product piping on truck-mounted DOT specification cargo tank motor vehicles should be considered, or if a quantifiable design or performance standard should be developed for these cargo tank motor vehicles. In addition, we invite comments on whether a Design Certifying Engineer should be required to determine if the product piping on a truck-mounted CTMV is adequately protected as part of the design certification process that is required for all DOT specification CTMVs.

Transitional period. We propose to make the changes in this NPRM effective two years after the effective date of a final rule and to permit CTMV operators five years to phase in requirements applicable to existing CTMVs. The two-year period provides time for planning, developing, and testing damage protection systems or systems designed to remove hazardous materials from product piping, or for redesigning cargo tank motor vehicles to eliminate external product piping altogether. Following this two-year deferral period, each newly manufactured cargo tank motor vehicle, other than excepted truck-mounted tanks, would be subject to the new requirements. Existing cargo tank motor vehicles, other than excepted truck-mounted cargo tank motor vehicles, would have to be brought into conformance on or before the date of each cargo tank motor vehicle's first scheduled pressure retest after the two-year deferral period. Retrofits for existing CTMVs would be required to be completed no later than five years after the effective date of a final rule. The proposed seven-year transition period is needed to minimize the economic and operational impacts on CTMV operators and ensure realistic progress in implementing these safety enhancements.

We received fifteen comments in response to the ANPRM. They were submitted by petroleum industry representatives, carriers, cargo tank manufacturers, and companies that manufacture cargo tank accessories. A detailed discussion of the comments follows. Note that, as appropriate, we used specific data and information provided in the comments to develop the regulatory evaluation that supports this NPRM.

The ANPRM stated that, since 1992, there have been seven fatal accidents, resulting in eight fatalities, where unprotected wetlines were damaged and gasoline released. These fatal accidents primarily involved collisions with passenger vehicles. Our experience indicates that there is a degree of under-reporting of hazardous materials transportation accidents of all types. In addition, prior to October 1, 1998, certain intrastate highway carriers were not required to report hazardous materials releases to RSPA. Therefore, our accident database probably does not include all accidents involving damage to wetlines on cargo tank motor vehicles. The ANPRM asked commenters whether our accident statistics are accurate.

One commenter, Cargo Tank Concepts (CTC), suggests that there are at least 21 accidents involving flammable liquids in unprotected wetlines that we did not include in our discussion in the ANPRM. CTC also provided a detailed analysis of the accidents it identified. This comment indicates that, as we noted in the ANPRM, our accident database is not inclusive of all wetlines incidents. We agree with CTC that in estimating the potential benefits of any proposed regulatory changes we should make an effort to account for all relevant accidents in order to accurately quantity the benefits of the proposed change. The regulatory evaluation developed in support of this ANPRM includes a detailed accident analysis.

For purposes of assessing the costs that industry might incur to comply with a performance standard, such as is proposed in this NPRM, the ANPRM identified two systems that could be used to meet the performance standard: (1) A purging system; and (2) short loading lines. In addition, the ANPRM asked commenters to address alternative strategies for reducing the risks associated with carriage of flammable liquids in unprotected wetlines, including improved vehicle conspicuity, modified accident damage protection systems, and non-regulatory alternatives.

The purging system is an onboard system that evacuates the wetlines by forcing the lading out of the product piping and into the cargo tank body. After loading is complete and the main cargo compartment valves are closed, the system introduces compressed air from an auxiliary tank into the product piping under low pressure and at a low flow rate. Lading in the product piping is displaced by air and flows through separate purging lines into the cargo tank body. This purging process is controlled automatically and lasts approximately six minutes. The system is also capable of detecting and automatically purging any leakage of product through the cargo tank's internal shutoff valve into the product piping, thereby eliminating a potential wetline condition during transportation. In the ANPRM we asked if such a system would effectively reduce the risks posed by unprotected wetlines.

In response to our question, the American Petroleum Institute (API) said, “In theory, a properly operating purging system should be very effective because the lines and equipment would be dry.” Other commenters, however, state that such a safety system would generate more concerns than it averts. The Petroleum Transportation and Storage Association (PTSA) notes that anywhere from one half to a full gallon of gasoline would be left in the hoses after purging. PTSA states that the trapped gasoline, while reducing the risk of ignition due to accidental impact, could send vapors back to an otherwise empty and purged compartment, creating a significant risk of explosion.

CTC suggests that the purging system has already been proven to be very effective. In one instance a tanker equipped with a purging system ran over a discarded drive shaft that was then propelled into the outlet piping and tore a hole in the thin schedule 10 aluminum. No product spilled from the piping because it had been purged. CTC reports another incident that occurred when a woman driving a passenger vehicle hit and damaged the outlet piping, trapping her vehicle beneath the cargo tank. Although the tanker was empty, the owner of the tanker stated that several gallons of gasoline would have poured onto the hood of her car if the lines had not been purged.

We agree with API and CTC that a properly operating purging system will be effective in reducing the risks associated with unprotected wetlines. We disagree with PTSA. A purged wetline will not send a larger quantity of vapors back to an otherwise empty and purged compartment than would be sent by a saturated wetline. The residue remaining in the wetline after it has been purged will not pose a significant risk of explosion.

In the ANPRM we asked if a purging system would be practicable for installation on new and/or existing CTMVs. Nearly all the commenters believe that any future wetlines requirement should apply to newly manufactured equipment and that it should be phased in over a period of years as existing equipment is taken out of service. Most commenters believe that retrofit is not practicable; however, NTTC indicates that retrofit would be practicable so long as the purging equipment can be installed without welding. CTC suggests that “it is more than obvious that our system is practicable for installation on both new and existing equipment. Over the last five years more than 130 fully automated systems have been installed nationwide and have been on the road for an average of three years. More than half of these systems were installed as retrofits.”

The ANPRM noted our understanding that one major oil company, representing less than one percent of the potentially affected cargo tank population, has chosen to outfit its entire fleet with a system that purges product from unprotected external piping. Two additional carriers installed the same purging system on a small portion of their fleets as part of a successful field evaluation and expressed interest in equipping their entire fleets. To verify our understanding we asked if any carriers were installing the systems on their tanks and, if so, we asked for the costs associated with installation and maintenance.

Most commenters know of only one carrier, Sun Oil Co. (Sunoco), currently operating a purging system on its cargo tanks. Sunoco worked with CTC to develop a purging system that is reliable and easy to understand and operate. According to CTC, Sunoco's experience demonstrates that vapor does not escape from a purged wetline, enter an empty compartment, and create a more volatile atmosphere than if the wetline contained a greater quantity of the flammable liquid. Further, Sunoco has indicated to CTC that it is confident that the outcome of an accident will be less serious because gasoline will have been purged from the product piping. According to CTC, British Petroleum (BP)/AMOCO/ARCO, Getty, and Motiva/Shell have each installed a CTC purging system on one of its units. Carriers that have installed the CTC purging system indicate that they are satisfied with the purging system, but they are postponing further purchases pending the issuance of a RSPA regulation. The regulatory evaluation includes a more complete discussion of the costs involved with installation of a purging system on both new and existing CTMVs.

The installation of short, or independent, loading lines involves adding a set of short lines for loading that are independent of the unloading lines. These short-loading lines, placed on the lower part of the cargo tank, are accessible and are not exposed to damage in case of rollover. Each short four-inch inside diameter pipe extends from the cargo tank wall and contains approximately one gallon of hazardous material rather than the 30 to 50 gallons contained in a typical product piping system. In the ANPRM we voiced our concern regarding the effectiveness of such a design and whether it might adversely impact the structural integrity of the cargo tank. We were interested in obtaining the industry's thoughts on the practicality of installing independent loading lines on new and/or existing tanks. We also asked if any carriers are currently installing the systems on their tanks and, if so, we asked for the costs associated with installation and maintenance.

The commenters state that short and recessed loading lines are not practicable options for installation on new or existing cargo tanks. They state that recessed loading lines will be more difficult for drivers and terminal workers to access, increasing accidents and OSHA claims. Also, commenters suggest that such a requirement would require loading rack modifications, cause increased splashing and concern for static ignition, and require a longer flow period. Commenters agree that the installation of short or recessed loading lines may be unrealistic because substantial modifications to existing loading racks may be necessary or loading times may increase. API suggests that such a substantial change to the loading rack would cost $1 million per loading lane. Commenters also assert that if the product flow were reversed at the rack and the lines were purged, there would be problems with the fuel tax accounting system, fuel blends due to mixing at the rack, and the mixing of flammable liquids in slop tanks. All of the commenters agree that draining the product at the rack is neither a feasible nor cost-effective option.

We agree with the commenters. Our analysis of short or recessed loading lines indicates that the system would not be a cost-effective means of mitigating the risks associated with unprotected wetlines. Due to the high cost of facility modification and the potential for greater risks to workers, the public, and the environment, implementation of an independent loading line requirement is not feasible at this time.

In the ANPRM, we stated that we are aware of at least one cargo tank operator that has installed under-ride protection on its cargo tank motor vehicles. Although this protection may not meet the bottom damage protection requirements in § 178.345-8(b), we invited comments on whether this may or may not substantially reduce the risks posed by unprotected product piping. We also asked if there were cost-effective designs that would provide a level of protection that would sufficiently reduce the risks associated with unprotected wetlines.

Commenters agree that there are designs for accident damage protection that would protect the wetlines from rupture during a collision, but both API and the Society of Independent Gasoline Marketers of America (SIGMA) suggest that the same structure could puncture the shell of the tank due to the impact of a collision. Also, the weight of accident damage protection rigid enough to protect the wetlines in a side impact situation would be approximately 1,100 to 1,200 pounds, which would significantly reduce the amount of product hauled per trip. API states that accident damage protection would cost between $3,000 and $5,000 for “light duty,” which would most likely be insufficient in a side impact, or $11,000 and $12,000 for “heavy duty,” which would be adequate protection. Commenters suggest that accident damage protection capable of protecting the wetlines in a side impact situation is not cost-effective at this time.

We agree with the commenters. Adequate accident damage protection is available, but we realize that there are some valid concerns regarding rigid tubing puncturing the tank shell during an accident situation and the costs involved with installation of systems that would be effective in reducing accidents involving unprotected wetlines.

In the ANPRM, we suggested that perhaps marking or other systems that increase vehicle conspicuity could be effective in reducing collisions between cargo tank motor vehicles and automobiles. All commenters agree that improved conspicuity or lighting requirements would not reduce the risk of wetlines incidents. The current conspicuity requirements make cargo tanks highly visible. Commenters further suggest that the accidents that resulted in wetlines incidents were not a result of impaired visibility.

We agree with the commenters that the conspicuity requirements currently in place are sufficient and we have decided not to propose any changes to the conspicuity features already required on cargo tank motor vehicles.

In the ANPRM, we asked if an awareness campaign might be a successful means of reducing the risk associated with unprotected wetlines. Most commenters do not see this as a reasonable approach for reducing the number of wetlines accidents. Indeed, the Petroleum Marketers Association of America (PMAA) suggests that a public awareness campaign “might cause unnecessary alarm among the public over a risk that we see as so minimal.” On the other hand CTC states that “the public has every right to be alerted to the fact that cargo tank outlet piping, designed to fail if impacted in an accident, is being used to transport up to 50 gallons of gasoline located underneath a cargo tank that carries thousands of gallons of flammable liquids.” Further, CTC indicated that the frequency and accuracy of wetlines incidents being reported would increase as the public becomes more aware of the situation.

We agree that the public should understand the risks involved with the transportation of flammable liquids and be sure to utilize safe driving techniques, but an awareness campaign would not solve the safety problem associated with the retention of flammable liquids in unprotected wetlines. We agree with CTC that an awareness campaign could help to expand data collected on wetlines incidents, but making the public aware of this situation does not eliminate the inherent safety problem.

In the ANPRM, we asked for comments on additional safety practices that the industry is currently utilizing to minimize the safety risk associated with the retention of flammable liquids in unprotected wetlines. Commenters suggest that the driver training they provide constitutes an adequate safety practice and sufficiently mitigates the risks associated with unprotected wetlines. They state that motor carriers train cargo tank motor vehicle drivers on the dangers associated with flammable liquids in wetlines and some even provide defensive driver training. Commenters did not provide any definitive costs associated with the wetlines training the industry provides. The Society of Independent Gasoline Marketers of America (SIGMA), states that “in the past, SIGMA members have estimated their per-employee hazmat training costs at approximately $4,000 per employee.” Other commenters indicate that significant resources were dedicated to safety training.

We agree that providing drivers with defensive driver training is beneficial to both the driver and the public, but the wetlines accidents that have occurred indicate that this type of training does not adequately alleviate the safety risk associated with the retention of flammable liquids in unprotected wetlines. We are encouraged that carriers realize the dangers associated with unprotected wetlines and are searching for a safety solution. We do not agree that training alone is an adequate solution; we note, however, that training is essential to the success of any proposed safety practice.

In the ANPRM we asked if an industry or an industry/government research initiative to explore new methods to address the wetlines safety problem would be of value. Commenters disagree as to the value of such research. SIGMA states that “a research initiative would be valuable if potential methods of enhancing safety of wetlines were identified.” On the other hand, PMAA's view is that “the risk is so low, we do not believe further research is warranted.”

We continue to believe that the risks associated with unprotected wetlines are significant. At this time, we do not believe that an industry/government research initiative is necessary to identify potential solutions to the safety problem because, in our view, a purging system reduces the risks associated with unprotected wetlines in a cost-effective manner. We will keep abreast of technological advances that affect the safe transportation of hazardous materials and, as necessary, conduct or participate in research projects that might provide information about new technologies or innovative ideas that could increase hazmat safety.

In the ANPRM, we suggested that there might be other cost-effective solutions that could significantly reduce or eliminate the current level of risk. We asked commenters to identify other possible approaches to reducing or eliminating the risks posed by the transportation of flammable liquids in unprotected wetlines. We asked them to provide information on the costs, effectiveness, phase of development, or any other concepts, either facility- or vehicle-related, that might reduce the risks posed by unprotected wetlines.

Two commenters indicated that there is a new technology that could reduce the safety risks associated with wetlines. These commenters are marketing two versions of a double-poppeted emergency valve that allows the external link to rotate if the valve is sheared during an accident situation, thereby closing the valve and trapping the product in the wetline. The commenters suggest that the installation of this valve requires no modification to the existing cargo tank, except for installation of the valve, and that it is easily retrofitted onto the cargo tank in place of the current emergency valve.

While we agree that a double-poppeted emergency valve could be of some value in reducing the potential consequences of an accident involving unprotected wetlines, we note that the valve's external link operates only in the event that the valve is sheared from the piping; this limitation means that for accidents that do not shear the valve from the piping, the valve's utility in mitigating the consequences of the accident is limited. In our view, a regulatory solution must comprehensively address the underlying safety risks associated with the retention of flammable liquids in unprotected wetlines.

In the ANPRM, we stated that we are aware of two systems that may be used to meet the performance standard proposed in this NPRM—a manual onboard purging system and short or recessed loading lines. We estimated that the manual onboard purging system could be installed on a newly constructed CTMV for around $2,120 (welded) or $2,256 (non-welded) (2002 dollars). A short loading line system can be installed for $1,540 per cargo tank motor vehicle (2002 dollars). Equipment and installation costs are the same for the retrofit of existing CTMVs; however, additional costs in the form of lost profit or risks to technicians installing new equipment may be incurred when systems are installed on existing CTMVs. We invited comments on the accuracy of the data that we used in the ANPRM. Specifically, we asked for information on the costs for the purging system and short and recessed loading lines.

Several commenters provided figures for the costs associated with retrofitting tanks with purging systems and short loading lines. The American Petroleum Institute (API) and the Petroleum Transportation & Storage Association (PTSA) both indicate that the hardware and installation costs of retrofitting a cargo tank with a wetline purging system could total as much as $5,000 per tank. These commenters suggest that adding in the costs associated with cleaning and purging the tank and the losses due to the time out of service for the retrofit suggests that the actual cost of the retrofit could be well over $5,000 dollars per tank. PTSA estimates the cost for installing short loading lines on a CTMV to be approximately $2,000 per tank.

Another commenter, CTC, states that it sells both automatic and manual purging systems. CTC indicates that a semi-manual system, a system that does not include optical sensors, solenoids and LEDs, would be consistent with the costs used in the ANPRM, that is $2,100 to $2,300. CTC further states that, depending on the options chosen, prices range from $3,000 to $4,000 for a fully automatic wetlines purging system; on average, according to CTC, the cost for a fully automated system, either new or retrofit, averages $3,800.

We agree with PTSA that the cost of retrofitting a tank with short lines would be approximately $2,000. However, in our view both PTSA and API are overestimating the cost of retrofitting a tank with a wetlines purging system. CTC has manufactured and installed over 130 wetline purging systems. Given CTC's experience, we believe that its estimate of the costs of installing a purging system is more accurate than the estimates provided by PTSA and API. Therefore, in the regulatory evaluation, we use the CTC cost estimates in our analysis of the costs associated with the performance standard proposed in this NPRM.

In the ANPRM we asked commenters if reductions in the costs associated with purging systems would stem from economies of scale. Most commenters indicate that economies of scale would not be applicable because there are not a sufficient number of tanks affected to provide the benefits associated with economies of scale. CTC states that over the past five years it has sold 130 systems nationwide. This does not indicate a market that could benefit from economies of scale. However, CTC suggests that if demand for its purging system were to reach 1,000 units per year, then the cost of the system would be substantially reduced. Because of the conflicting information provided by commenters, we do not include potential economies of scale in the analysis of system costs in the regulatory evaluation. However, we invite commenters to provide data and information concerning cost reductions that would be achieved as a result of economies of scale.

Based on information in the U.S. Census Bureau's 1997 Vehicle Inventory and Use Survey, we estimated in the ANPRM that the population of vehicles that would be affected by any regulatory action to address the safety risks associated with the retention of flammable liquids in unprotected wetlines is approximately 63,000. Commenters to the ANPRM indicate that there are actually between 10,000 and 50,000 vehicles that will be affected. For example, PTSA states that there are “more than 50,000 cargo tank vehicles in flammable [liquid] service nationwide” that “deliver approximately 42,000 shipments per day.” The National Tank Truck Carriers, Inc. (NTTC) states, “respondents to NTTC's membership survey reported a total fleet of 10,648 cargo tank motor vehicles designed, primarily, for the transportation of petroleum products ( i.e. , Specifications MC 306, DOT 406 and older equivalents).”

A May 2003 editorial entitled Fuel haulers find the key, published in Modern Bulk Transporter, reports an industry estimate of the number of petroleum trailers in service to be 15,000 units. The article states: “A surprising result of the research was the finding that the number of petroleum trailers in service today may be less than half of what was estimated 10 years ago. The new estimate suggests a total petroleum fleet of around 15,000 units, down significantly from the 48,000-unit figure that has been quoted since the mid 1990s.” The article indicates that this decline can be attributed in large part to 24-hour loading and delivery operations. Based on the information in this article, increases in productivity achieved by the industry over the past decade, and the inconclusive nature of the comments provided by the industry in response to the ANPRM, we believe that 15,000 vehicles is a reasonably accurate estimate for the population of CTMVs that would be affected by regulatory action to address the wetlines safety issue. A more detailed analysis of the population of vehicles that will be affected by this proposal can be found in the regulatory evaluation.

The ANPRM stated our understanding that the useful life of a cargo tank is at least 20 years and may extend to 30 years. The American Petroleum Institute (API) suggests that the useful life of a cargo tank is between five and twelve years, after which time the tanks must be upgraded or replaced. Other commenters, notably NTTC and PMAA, agree that the average useful life for a cargo tank in flammable liquid service is about 20 years and that 25-year-old cargo tanks are not uncommon. For the regulatory evaluation, we used a 20-year useful life estimate to evaluate the costs to the industry of the performance standard proposed in this NPRM.

The ANPRM asked commenters to estimate the percentage of CTMVs in flammable liquid service that are operated at maximum weight limits. Several commenters indicate that virtually all CTMVs are loaded to the maximum weight limit permitted by state or Federal regulations, whichever is greater. Commenters also suggest that for every six pounds added to the tare weight of a cargo tank, one gallon of gasoline is displaced from each load. We agree that the added weight of a system designed to reduce or eliminate lading from wetlines would have a negative impact on the amount of product that can be transported and that this cost must be addressed as part of any proposed regulatory changes. In addition, the additional risk to the general public that results from more frequent deliveries to compensate for any added weight must be addressed. The regulatory evaluation includes a more complete analysis of this issue in the discussion of costs that may be incurred by the industry to comply with the proposals in this NPRM.

In the ANPRM, we asked for an estimate of the average distance traveled by a typical CTMV during a delivery route. Most commenters indicate that the average round trip falls somewhere between 40 and 60 miles. However, some commenters suggest that the average distance per trip varies greatly depending on the areas within which deliveries are made. For example, some commenters note that tankers operating in rural areas travel significantly higher round-trip distances than tankers operating in urban areas. These commenters estimate a range of from 25 miles for an urban round-trip to 100 miles for a round-trip completed in a rural area.

Based on comments received to the ANPRM, in the regulatory evaluation, we estimate that the average round trip should fall somewhere between 40 and 60 miles. While commenters are correct that an urban route is, on average, significantly shorter than a rural route, because the demand for flammable liquids, especially gasoline, is higher in urban areas, suppliers will make far more urban delivery trips than rural delivery trips. A weighted average takes account of the larger number of short round-trips and results in an average distance per trip of between 40 and 60 miles.

In the ANPRM we asked if additional benefits, either measurable or otherwise, would result from the implementation of requirements established to reduce the safety risks associated with unprotected wetlines. Only one commenter addressed this question. CTC suggests that one of the additional benefits of an automatic wetlines purging system is that the system provides a continual means to detect leaking or malfunctioning emergency valves. Under the bottom loading system the outlet piping is filled with the flammable liquid that is in the cargo tank. CTC states “[a] recent installation of a purging system for a major oil company revealed that all five emergency valves were stuck open, despite their procedures for periodic inspections. A wetlines incident in this case would have caused the loss of the entire contents of the affected compartments.”

As we noted in the ANPRM, we are aware that the automatic purging system is also capable of detecting and purging any leakage of product through the cargo tank's internal shutoff valve into the product piping, thereby eliminating a potentially serious safety condition during transportation. We agree with CTC that this should be included as an additional benefit of the automatic purging system.

In the ANPRM, we asked if a cost-benefit analysis developed to support a regulatory change should include a reduction in risks associated with low-frequency, high-consequence events. Commenters suggest that any cost-benefit analysis should include all relevant events, regardless of their frequency or magnitude. CTC gives the following example: “Much attention has been given lately to regulations that might reduce the risk of gasoline cargo tanks being hijacked by terrorists, but a cargo tank does not need to be hijacked, nor does it need to be rigged with explosives to create a catastrophe.” CTC suggests that if terrorists decide to cause intentional accidents involving wetlines, then low-frequency, high-consequence events could rapidly become common and more than a threat to public safety. CTC argues that the benefits for addressing this vulnerability would be substantial.

We agree with the commenters that all relevant events should be included in a cost-benefit analysis. We also agree with CTC's comments regarding security concerns associated with the transportation of hazardous materials, specifically a cargo tank filled with gasoline. However, the intention of this rulemaking is to identify a cost-effective solution to the safety risks associated with the transportation of flammable liquids in unprotected product piping. We are addressing the security risks associated with hazardous materials transportation in several other rulemaking projects. Although CTC's points are valid, we do not agree that attaching security concerns to our search for a cost-effective solution to the wetlines issue would be appropriate.

This proposed rule is a significant regulatory action under section 3(f) of Executive Order 12866 and, therefore, was reviewed by the Office of Management and Budget. The proposed rule is also a significant rule under the Regulatory Policies and Procedures of the Department of Transportation (44 FR 11034). A regulatory evaluation is available for review in the docket. This regulatory evaluation makes a number of key assumptions, as follows: (1) The estimated number of CTMVs affected by our proposal is 15,000 units; (2) the lowest-cost solution identified in our proposal is 100% effective in eliminating the risk posed by wetlines; (3) for retrofit of existing CTMVs, equipment downtime would be limited to time already accounted for during DOT-mandated qualification testing; (4) affected parties will select the lowest-cost alternative available (the non-welded purging system); and (5) the benefits identified in our regulatory evaluation are from actual wetlines-related incidents.

Number of CTMVs. In our regulatory evaluation we estimate the number of affected CTMVs to be 15,000. We arrived at this conclusion using several different methodologies. For example, the daily consumption of gasoline in the United States is 7,900,000 barrels or 332,000,000 gallons. Shipment of this amount, together with the subsequent daily reshipment of gasoline from bulk storage to intermediate or jobber storage, results in 43,824 (88%) bulk shipments in 8,000 gallon CTMVs and 23,904 (12%) bulk shipments in 2,000 gallon CTMVs. Based on an average of five trips per day per CTMV and 12% of CTMVs out of service at any time, the total number of CTMVs required to transport the gasoline is 9,817 8,000-gallon cargo tanks and 5,737 2,000-gallon cargo tanks, or, a total of 15,554 CTMVs. This figure is consistent with industry estimates on the number of CTMVs currently in petroleum service (15,000). This proposed rule would except truck-mounted cargo tanks, which are typically in the 2,000-3,500 gallon range, from the wetlines prohibition; this exception would apply to a total of 5,737 CTMVs. Our regulatory evaluation assumes that 15,000 CTMVs will be affected under this NPRM. This total includes about 5,183 CTMVs that transport flammable liquids other than petroleum products that may be subject to the requirements of this NPRM. We invite comments to provide us with additional data concerning the number of CTMVs that may be affected by the provisions of this NPRM.

Effectiveness of technology solutions. The intent of this proposed rule is to eliminate the risks posed by unprotected product piping containing flammable liquids during transportation. To evaluate the benefits and costs of the proposal to prohibit the carriage of flammable liquids in wetlines, we identified several technologies that would permit operators of CTMVs to meet the proposed performance standard. The system used for our regulatory analysis is the lowest-cost system currently available—a purging system that can be installed on a CTMV without welding. A purging system evacuates the loading/unloading lines by forcing the flammable liquid out of the product lines and into the cargo tank body. After loading is complete and the main cargo compartment valves are closed, the system introduces compressed air from an auxiliary tank through an air filter and regulator into the lines. We agree with most commenters to the ANPRM that the purging-system technology that currently exists will eliminate the risks posed by wetlines and, therefore, would be 100% effective whether installed in newly manufactured CTMVs or retrofitted on existing CTMVs. We welcome additional comments on whether a purging system would be 100% effective in eliminating the risk posed by wetlines.

Costs associated with system installation. We believe that systems designed to purge loading lines on CTMVs will be installed at the point of manufacture on newly constructed CTMVs and, therefore, no additional costs would be incurred. For existing CTMVs, we propose to permit retrofits over a five-year period, thereby permitting systems designed to purge loading lines to be installed at the time of a CTMV's required 5-year pressure test. This policy would allow maximum flexibility to CTMV owners and operators when scheduling installation time and is consistent with previous rulemakings requiring the retrofit of existing CTMVs. In our regulatory evaluation we assume that labor man-hour costs are the only additional costs incurred when retrofitting existing CTMVs. Other down-time costs, such as loss of profit, are not taken into account based on our assumption that the CTMV will already be out of service at the time of installation. We welcome comments on whether the down-time costs we quote are either realistic or accurate and if there would be any extenuating circumstances of which we are not aware.

Selection of low-cost alternative. Both “welded” and “non-welded” systems are equally effective in meeting the performance standard proposed in the NPRM. An automated purging system must be installed by welding; a manual purging system may be installed with or without welding. For new construction, some companies may elect to install a “welded” purging system over a “non-welded” system, not withstanding the lower per-unit cost of the “non-welded” system, based on convenience (installation at the point of manufacture) and the opportunity to install an automated purging system rather than a manual purging system if they so choose. Although unlikely (costs and risk are higher), some companies may elect to retrofit a “welded” purging system over a “non-welded” purging system for the opportunity to install an automated rather than a manual purging system. In our regulatory analysis we assume that CTMV owners/operators will choose to install the lowest-cost alternative (the non-welded purging system) that satisfies the performance standard proposed in the NPRM for newly constructed and existing CTMVs due to its ease of installation, lower cost, and the elimination of risk posed to welders. We have included a sensitivity analysis in our regulatory evaluation that compares benefits and costs for different scenarios, including two tables highlighting a “welded” manual purging system installed on both newly constructed and existing CTMVs. We welcome comments on whether CTMV owners/operators would select the “welded” or “non-welded” option.

Benefits of proposed rule. We identified 190 reported incidents involving wetlines during the 12-year period from January 1, 1990, through December 31, 2001, which is a rate of about 16 incidents per year. Incidents reported by carriers to RSPA, under §§ 171.15 and 171.16 of the HMR, are a direct result of the hazardous material involved. Therefore, all quantified reported and non-reported costs to society to avoid a wetlines incident accrued in our regulatory evaluation are the direct result of the release of flammable liquids in unprotected product piping during an accident.

In our benefit-cost analysis we determined that achieving compliance with the proposed rule under the lowest cost system of which we are aware, the non-welded purging system, and within an acceptable time frame, would cost industry $39.9 million in present value (discounted 7%) over a period of 20 years, the estimated maximum useful life of a CTMV. The corresponding present-value benefits are $45.3 million, for a benefit-cost ratio of 1.14:1 when discounted by 7%. The benefits include lives saved, injuries prevented, and property damage avoided. In addition, the proposal to prohibit the transportation of flammable liquids in unprotected product lines reduces losses by the private sector (in terms of time and productivity), by government (in terms of allocation of scarce resources, including emergency responders, their support vehicles, and equipment), and by the general public (in terms of time and inconvenience).

Associated Damages Caused by Wetlines That Are Not Reported to RSPA. The damages caused by wetlines incidents are greater than what is reported on Incident Reports submitted to RSPA. Associated damages caused by wetlines incidents include the costs of traffic delays, additional vehicle operating expenses, commercial losses beyond those that may be included in evacuation costs, environmental damage, and emergency services beyond those that may be included in decontamination/cleanup costs. These associated damages are not reported to RSPA; however, they are part of the true costs of the wetlines incidents that are reported. Associated damages are difficult to estimate; however, high profile incidents, such as the Yonkers, New York, incident, provide insight into some of these associated damages. At best, we can provide a range of values for these associated damages that are informed by empirical and other evidence.

Because of the difficulty in estimating associated benefits, some of the estimates for the benefits discussed in this section may be over- or understated. For example, the estimate derived for traffic delays is extrapolated from information about delays associated with several wetlines incidents, including the incident in Yonkers that destroyed an overpass section of the New York State Thruway and incidents in Huntsville, Alabama; Mesa, Arizona; and Chatham, Ohio, that resulted in lengthy highway closures. For purposes of this analysis, we assume that these delays are directly attributable to the release of the hazardous materials as a result of the accidents in question. However, it is also true that traffic delays result from accidents that are not related to hazardous materials or where a hazardous material is not released from its packaging during an accident. We did not try to identify the incremental costs of traffic delays resulting from the hazardous materials spill over and above the costs for delays that may have resulted had the hazardous material not been released. For this reason, these costs may be overstated. It is reasonable to assume that most, if not all, of the costs related to traffic delays resulting from wetlines accidents are directly attributable to the release of hazardous materials. Such delays would not have been as severe if a hazardous material were not involved or had not been released. In the Yonkers incident, for example, the overpass section would not have been destroyed had the hazardous material not been released and ignited. In addition, for traffic delays, our extrapolation is based on information concerning 15 of the 190 wetlines-related incidents reported to RSPA. If the full cost of traffic delays were calculated for the remaining 175 wetlines-related incidents, the corresponding associated benefits would be much higher. However, even if only 61% of the cost to society to avoid traffic delays estimated here, when discounted by 7%, are directly attributable to wetlines incidents or, if only 40% of the costs to society to avoid traffic delays estimated here, when discounted by 3%, are directly attributable to wetlines incidents, the measures proposed in the NPRM will result in benefits exceeding costs. We invite comments on whether all associated benefits should be considered in a regulatory analysis or if a range of benefits is more appropriate.

When product piping is damaged, the potential for fire is great and the consequences of such accidents may be substantial. We believe, therefore, that transportation of flammable liquids in unprotected product piping poses an unacceptable risk and continuing to permit this practice is not in the public interest.

This proposed rule has been analyzed in accordance with the principles and criteria contained in Executive Order 13132 (“Federalism”). This proposed rule would preempt State, local and Indian tribe requirements, but does not propose any regulation that has direct effects on the States, the relationship between the national government and the States, or the distribution of power and responsibilities among the various levels of government. Therefore, the consultation and funding requirements of Executive Order 13132 do not apply.

The Federal hazardous material transportation law, 49 U.S.C. 5101-5127, contains an express preemption provision (49 U.S.C. 5125(b)) that preempts State, local, and Indian tribe requirements on certain subjects. These subjects are:

(1) The designation, description, and classification of hazardous material;

(2) The packing, repacking, handling, labeling, marking, and placarding of hazardous material;

(3) The preparation, execution, and use of shipping documents related to hazardous material and requirements related to the number, contents, and placement of those documents;

(4) The written notification, recording, and reporting of the unintentional release in transportation of hazardous material; or

(5) the design, manufacturing, fabricating, marking, maintenance, reconditioning, repairing, or testing of a packaging or container represented, marked, certified, or sold as qualified for use in transporting hazardous material.

This proposed rule covers item 5 and would preempt any State, local, or Indian tribe requirements not meeting the “substantively the same” standard.

Federal hazardous materials transportation law provides at 49 U.S.C. § 5125(b)(2) that, if the Secretary of Transportation issues a regulation concerning any of the covered subjects, the Secretary must determine and publish in the Federal Register the effective date of Federal preemption. The effective date may not be earlier than the 90th day following the date of issuance of the final rule and not later than two years after the date of issuance. We propose that the effective date of Federal preemption will be 90 days from publication of a final rule in the Federal Register .

This proposed rule has been analyzed in accordance with the principles and criteria contained in Executive Order 13175 (“Consultation and Coordination with Indian Tribal Governments”). Because this proposed rule does not have tribal implications, does not impose substantial direct compliance costs, and is not required by statute, the funding and consultation requirements of Executive Order 13175 do not apply.

The Regulatory Flexibility Act (5 U.S.C. 601 et seq. ) requires an agency to review regulations to assess their impact on small entities unless the agency determines a rule is not expected to have a significant economic impact on a substantial number of small entities. Based on the assessment in the regulatory evaluation, we believe that this NPRM may have a significant impact on a substantial number of small entities. However, many small businesses will not be affected by the proposals in this NPRM because they tend to own single-unit ( i.e. “straight”) trucks, which are excepted from the proposals.

The detailed small business analysis is available for review in the docket. We invite commenters to address the impact that the proposals in this NPRM may have on small entities.

This proposed rule has been developed in accordance with Executive Order 13272 (“Proper Consideration of Small Entities in Agency Rulemaking”) and DOT's procedures and policies to promote compliance with the Regulatory Flexibility Act to ensure that potential impacts of draft rules on small entities are properly considered. DOT has notified the Small Business Administration's Chief Counsel for Advocacy (SBA) of this draft proposed rule.

This proposed rule imposes no new information collection requirements.

A regulation identifier 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 number contained in the heading of this document can be used to cross-reference this action with the Unified Agenda.

This proposed rule does not impose unfunded mandates under the Unfunded Mandates Reform Act of 1995. It does not result in costs of $100 million or more to either State, local, or tribal governments, in the aggregate, or to the private sector, and is the least burdensome alternative that achieves the objectives of the rule.

The National Environmental Policy Act of 1969 (NEPA), as amended (42 U.S.C. 4321-4347), requires Federal agencies to consider the consequences of major federal actions and prepare a detailed statement on actions significantly affecting the quality of the human environment. There are no significant environmental impacts associated with this proposed rule. An initial environmental assessment is available in the docket.

Anyone is able to search the electronic form of all comments received into any of our dockets by the name of the individual submitting the comment (or signing the comment, if submitted on behalf of an association, business, labor union, etc.). You may review DOT's complete Privacy Act Statement in the Federal Register published on April 11, 2000 (Volume 65, Number 70; Pages 19477-78) or you may visit http://dms.dot.gov.

In consideration of the foregoing, we propose to amend 49 CFR Part 173 as follows: