The FAA has implemented new procedures for maintaining AD dockets electronically. As of May 17, 2004, new AD actions are posted on DMS and assigned a docket number. We track each action and assign a corresponding directorate identifier. The DMS AD docket number is in the form “Docket No. FAA-2005-99999.” The Transport Airplane Directorate identifier is in the form “Directorate Identifier 2005-NM-999-AD.” Each DMS AD 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 proposed AD. Send your comments to an address listed under ADDRESSES . Include “Docket No. FAA-2005-22623; Directorate Identifier 2004-NM-80-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 submitted 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 that 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 can review DOT's complete Privacy Act Statement in the Federal Register published on April 11, 2000 (65 FR 19477-78), or you can visit http://dms.dot.gov.

We are reviewing the writing style we currently use in regulatory documents. We are interested in your comments on whether the style of this document is clear, and your suggestions to improve the clarity of our communications that affect you. You can get more information about plain language at http://www.faa.gov/language and http://www.plainlanguage.gov.

You can examine the AD docket in person at the Docket Management Facility office between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The Docket Management Facility office (telephone (800) 647-5227) is located on the plaza level of the Nassif Building at the DOT street address stated in the ADDRESSES section. Comments will be available in the AD docket shortly after the DMS receives them.

On January 31, 2000, there was an accident involving a McDonnell Douglas Model DC-9-83 (MD-83) airplane. The National Transportation Safety Board (NTSB) determined that the probable cause of this accident was a loss of airplane pitch control resulting from the in-flight failure of the acme nut threads of the jackscrew assembly of the horizontal stabilizer trim system. The NTSB concluded that the thread failure was caused by excessive wear, resulting from insufficient lubrication of the jackscrew assembly.

The drive mechanism of the horizontal stabilizer on McDonnell Douglas Model DC-9-83 (MD-83) airplanes has a jackscrew assembly with an acme screw. The drive mechanism of the horizontal stabilizer on Boeing Model 767 airplanes uses a ballscrew. Acme screws and ballscrews have some differences in design, but perform similar functions and have the same airplane level effect following failure. The manufacturer's safety analysis of the 767 drive mechanism found no safety problems with the configuration of the drive mechanism, but showed that changes to the maintenance procedures and maintenance intervals are required to keep the drive mechanism properly maintained and operating as designed.

We have received a report indicating that the ballscrew in the drive mechanism of the horizontal stabilizer on a Boeing Model 757 series airplane showed extensive corrosion, which could lead to excessive wear. The ballscrew on Boeing Model 757 airplanes is similar to that on Boeing Model 767 airplanes that are the subject of this proposed AD. Therefore, both of these airplane models could have the same unsafe condition. We are considering separate action for the Boeing Model 757 series airplanes and other similar Boeing airplanes.

Extensive corrosion of the ballscrew in the drive mechanism of the horizontal stabilizer, if not corrected, could cause an undetected failure of the primary load path for the ballscrew and subsequent wear and failure of the secondary load path, which could lead to loss of control of the horizontal stabilizer and consequent loss of control of the airplane.

We have reviewed the following service bulletins:

• Boeing Service Bulletin 767-27A0194, Revision 1, dated July 21, 2005 (for Model 767-200, -300, and -300F series airplanes); and

• Boeing Service Bulletin 767-27A0195, Revision 1, dated July 21, 2005 (for Model 767-400ER series airplanes).

The compliance times specified in the service bulletins are as follows:

For all airplanes: The compliance time for the initial detailed inspections and lubrication of the ballnut and ballscrew is 15,000 total flight hours or 18 months after the original issue date on the service bulletin, whichever occurs later. The inspection is repeated at intervals not to exceed 3,500 flight hours or 24 months, whichever occurs first; the lubrication is repeated at intervals not to exceed 2,000 flight hours or 12 months, whichever occurs first.

For all airplanes except those on which an FAA-approved low utilization maintenance program is in effect: The compliance time for the initial ballscrew-to-ballnut freeplay inspection is 15,000 flight hours after accomplishing the last ballscrew-to-ballnut freeplay inspection or 18 months after the original issue date on the service bulletin, whichever occurs later. If the inspection has never been done, the compliance time for the initial inspection is 15,000 flight hours after the delivery date of the airplane or 18 months after the original issue date on the service bulletin, whichever occurs later. The inspection is repeated at intervals not to exceed 18,000 flight hours.

For all airplanes except those on which an FAA-approved low utilization maintenance program is in effect: The compliance time for the initial ballscrew-to-ballnut freeplay inspection is 60 months after accomplishing the last ballscrew-to-ballnut freeplay inspection. If the inspection has never been done, the compliance time for the initial inspection is within 60 months after the delivery date of the airplane. The inspection is repeated at intervals not to exceed 72 months.

The service bulletins also describe the procedures in the following table for the drive mechanism of the horizontal stabilizer:

We have also reviewed Boeing Alert Service Bulletin 767-27A0185, dated July 10, 2003, which is included as an additional source of service information for accomplishing certain actions. This service bulletin applies to Boeing Model 767 airplanes that have line numbers 002 through 175 inclusive, and has procedures that are equivalent to those in Service Bulletins 767-27A0194 and 767-27A0195. Accomplishing the inspection and lubrication specified in Service Bulletin 767-27A0185 is considered acceptable for compliance with the initial inspection and lubrication specified in Revision 1 of Boeing Service Bulletins 767-27A0194 and 767-27A0195.

We have determined that accomplishing the actions specified in Revision 1 of Boeing Service Bulletins 767-27A0194 and 767-27A0195 will adequately address the unsafe condition.

Revision 1 of Boeing Service Bulletins 767-27A0194 and 767-27A0195 refers to the 767 Airplane Maintenance Manuals (AMM) in the following table as additional sources of service information for accomplishing the detailed inspections, lubrications, freeplay measurements, and corrective action.

We have evaluated all pertinent information and identified an unsafe condition that is likely to exist or develop on other airplanes of this same type design. Therefore, we are proposing this AD, which would require the following actions for the drive mechanism of the horizontal stabilizer:

• Repetitive detailed inspections for discrepancies of the ballscrew assembly;

• Repetitive lubrication of the ballnut and ballscrew;

• Repetitive measurements of freeplay between the ballnut and the ballscrew; and

• Corrective action if necessary.

The proposed AD would require you to use Revision 1 of Service Bulletins 767-27A0194 and 767-27A0195 to perform these actions; except as discussed under “Difference Between the Proposed AD and Service Information.”

The service bulletins specify compliance times relative to the date of issuance of the service bulletins; however, this proposed AD would require compliance before the specified compliance time after the effective date of this AD.

There are about 903 Model 767 airplanes in the worldwide fleet. The following table provides the estimated costs for U.S. operators to comply with this proposed AD, per cycle.

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

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

We prepared a regulatory evaluation of the estimated costs to comply with this proposed AD. See the ADDRESSES section for a location to examine the regulatory evaluation.

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

The FAA has implemented new procedures for maintaining AD dockets electronically. As of May 17, 2004, new AD actions are posted on DMS and assigned a docket number. We track each action and assign a corresponding directorate identifier. The DMS AD docket number is in the form “Docket No. FAA-2005-99999.” The Transport Airplane Directorate identifier is in the form “Directorate Identifier 2005-NM-999-AD.” Each DMS AD 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 proposed AD. Send your comments to an address listed under ADDRESSES. Include “Docket No. FAA-2005-22624; Directorate Identifier 2004-NM-81-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 submitted 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 that 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 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.

We are reviewing the writing style we currently use in regulatory documents. We are interested in your comments on whether the style of this document is clear, and your suggestions to improve the clarity of our communications that affect you. You can get more information about plain language at http://www.faa.gov/language and http://www.plainlanguage.gov.

You can examine the AD docket in person at the Docket Management Facility office between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The Docket Management Facility office (telephone (800) 647-5227) is located on the plaza level of the Nassif Building at the DOT street address stated in the ADDRESSES section. Comments will be available in the AD docket shortly after the DMS receives them.

On January 31, 2000, there was an accident involving a McDonnell Douglas Model DC-9-83 (MD-83) airplane. The National Transportation Safety Board (NTSB) determined that the probable cause of this accident was a loss of airplane pitch control resulting from the in-flight failure of the acme nut threads of the jackscrew assembly of the horizontal stabilizer trim system. The NTSB concluded that the thread failure was caused by excessive wear, resulting from insufficient lubrication of the jackscrew assembly.

The drive mechanism of the horizontal stabilizer on McDonnell Douglas Model DC-9-83 (MD-83) airplanes has a jackscrew assembly with an acme screw. The drive mechanism of the horizontal stabilizer on Boeing Model 747 airplanes uses a ballscrew. Acme screws and ballscrews have some differences in design, but perform similar functions and have the same airplane level effect following failure. The manufacturer's safety analysis of the 747 drive mechanism found no safety problems with the configuration of the drive mechanism, but showed that changes to the maintenance procedures and maintenance intervals are required to keep the drive mechanism properly maintained and operating as designed.

We have received a report indicating that the ballscrew in the drive mechanism of the horizontal stabilizer on a Boeing Model 757 series airplane showed extensive corrosion, which could lead to excessive wear. The ballscrew on Boeing Model 757 airplanes is similar to that on the Boeing Model 747 airplanes that are the subject of this proposed AD. Therefore, both of these airplane models could have the same unsafe condition. We are considering separate action for Boeing Model 757 airplanes and other similar Boeing airplanes.

Extensive corrosion of the ballscrew in the drive mechanism of the horizontal stabilizer, if not corrected, could cause an undetected failure of the primary load path for the ballscrew and subsequent wear and failure of the secondary load path, which could lead to loss of control of the horizontal stabilizer and consequent loss of control of the airplane.

We have reviewed Boeing Alert Service Bulletin 747-27A2396, Revision 1, dated August 4, 2005.

The compliance times specified in the service bulletin is as follows:

For all airplanes: The compliance times for the initial detailed inspections and lubrication of the ballnut and ballscrew is 15,000 total flight hours or 18 months after the original issue date on the service bulletin, whichever occurs later. The inspection is repeated at intervals not to exceed between 2,000 and 4,000 flight hours or 24 months, whichever occurs first; the lubrication is repeated at intervals not to exceed 2,000 flight hours or 12 months, whichever occurs first.

For all airplanes except those on which an FAA-approved low utilization maintenance program is in effect: The compliance time for the initial ballscrew-to-ballnut freeplay inspection is 15,000 flight hours after accomplishing the last ballscrew-to-ballnut freeplay inspection or 18 months after the original issue date on the service bulletin, whichever occurs later. If the inspection has never been done, the compliance time for the initial inspection is 15,000 flight hours after the delivery date of the airplane or 18 months after the original issue date on the service bulletin, whichever occurs later. The inspection is repeated at intervals not to exceed between 18,000 flight hours and 21,000 flight hours.

For all airplanes except those on which an FAA-approved low utilization maintenance program is in effect: The compliance time for the initial ballscrew-to-ballnut freeplay inspection is 60 months after accomplishing the last ballscrew-to-ballnut freeplay inspection. If the inspection has never been done, the compliance time for the initial inspection is within 60 months after the delivery date of the airplane. The inspection is repeated at intervals not to exceed 72 months.

The service bulletin also describes the procedures in the following table for the drive mechanism of the horizontal stabilizer.

We have determined that accomplishing the actions specified in the service bulletin will adequately address the unsafe condition.

The service bulletin refers to the 747 Airplane Maintenance Manuals (AMM) in the following table as additional sources of service information for accomplishing the detailed inspections, lubrications, freeplay measurements, and corrective action.

We have evaluated all pertinent information and identified an unsafe condition that is likely to exist or develop on other airplanes of this same type design. Therefore, we are proposing this AD, which would require the following actions for the drive mechanism of the horizontal stabilizer:

• Repetitive detailed inspections for discrepancies of the ballscrew assembly;

• Repetitive lubrication of the ballnut and ballscrew;

• Repetitive measurements of freeplay between the ballnut and the ballscrew; and

• Corrective action if necessary.

The proposed AD would require you to use the service bulletin described previously to perform these actions; except as discussed under “Difference Between the Proposed AD and Service Information.”

The service bulletin specifies compliance times relative to the date of issuance of the service bulletin; however, this proposed AD would require compliance before the specified compliance time after the effective date of this AD.

This proposed AD would affect about 1,082 Model 747 series airplanes worldwide. The following table provides the estimated costs for U.S. operators to comply with this proposed AD, per cycle.

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

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

We prepared a regulatory evaluation of the estimated costs to comply with this proposed AD. See the ADDRESSES section for a location to examine the regulatory evaluation.

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

We invite you to submit any relevant written data, views, or arguments regarding this proposed AD. Send your comments to an address listed in the ADDRESSES section. Include the docket number “FAA-2005-22631; Directorate Identifier 2005-NM-183-AD” at the beginning 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 that 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 AD docket on the Internet at http://dms.dot.gov, or in person at the Docket Management Facility office between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The Docket Management Facility office (telephone (800) 647-5227) is located on the plaza level of the Nassif Building at the DOT street address stated in the ADDRESSES section. Comments will be available in the AD docket shortly after the Docket Management System receives them.

The FAA has examined the underlying safety issues involved in recent fuel tank explosions on several large transport airplanes, including the adequacy of existing regulations, the service history of airplanes subject to those regulations, and existing maintenance practices for fuel tank systems. As a result of those findings, we issued a regulation titled “Transport Airplane Fuel Tank System Design Review, Flammability Reduction and Maintenance and Inspection Requirements” (67 FR 23086, May 7, 2001). In addition to new airworthiness standards for transport airplanes and new maintenance requirements, this rule included Special Federal Aviation Regulation No. 88 (“SFAR 88,” Amendment 21-78, and subsequent Amendments 21-82 and 21-83).

Among other actions, SFAR 88 requires certain type design ( i.e. , type certificate (TC) and supplemental type certificate (STC)) holders to substantiate that their fuel tank systems can prevent ignition sources in the fuel tanks. This requirement applies to type design holders for large turbine-powered transport airplanes and for subsequent modifications to those airplanes. It requires them to perform design reviews and to develop design changes and maintenance procedures if their designs do not meet the new fuel tank safety standards. As explained in the preamble to the rule, we intended to adopt airworthiness directives to mandate any changes found necessary to address unsafe conditions identified as a result of these reviews.

In evaluating these design reviews, we have established four criteria intended to define the unsafe conditions associated with fuel tank systems that require corrective actions. The percentage of operating time during which fuel tanks are exposed to flammable conditions is one of these criteria. The other three criteria address the failure types under evaluation: Single failures, single failures in combination with another latent condition(s), and in-service failure experience. For all four criteria, the evaluations included consideration of previous actions taken that may mitigate the need for further action.

We have determined that the actions identified in this AD are necessary to reduce the potential of ignition sources inside fuel tanks, which, in combination with flammable fuel vapors, could result in fuel tank explosions and consequent loss of the airplane.

The Departmento de Aviacao Civil (DAC), which is the airworthiness authority for Brazil, notified us that an unsafe condition may exist on all Empresa Brasileira de Aeronautica S.A. (EMBRAER) Model EMB-120, -120ER, -120FC, -120QC, and -120RT airplanes. The DAC advises that the manufacturer conducted a fuel system review and found that certain electrical harnesses located near the fuel tanks in the wings could chafe. Chafed electrical harnesses could result in a potential source of ignition for fuel vapors near a fuel tank and consequent fire or fuel tank explosion.

EMBRAER has issued Service Bulletin 120-24-0059, Revision 02, dated March 18, 2005. The service bulletin describes procedures for modifying electrical harnesses located at the left- and right-hand wing roots; and re-routing and modifying the harness of the right-hand outboard flap actuator. Accomplishing the actions specified in the service information is intended to adequately address the unsafe condition. The DAC mandated the service information and issued Brazilian airworthiness directive 2005-06-01, dated June 29, 2005, to ensure the continued airworthiness of these airplanes in Brazil.

These airplane models are manufactured in Brazil and are type certificated for operation in the United States under the provisions of section 21.29 of the Federal Aviation Regulations (14 CFR 21.29) and the applicable bilateral airworthiness agreement. Pursuant to this bilateral airworthiness agreement, the DAC has kept the FAA informed of the situation described above. We have examined the DAC's findings, evaluated all pertinent information, and determined that we need to issue an AD for airplanes of this type design that are certificated for operation in the United States.

Therefore, we are proposing this AD, which would require accomplishing the actions specified in the service information described previously.

This proposed AD would affect about 112 airplanes of U.S. registry. The proposed actions would take about 8 work hours per airplane, at an average labor rate of $65 per work hour. Required parts would cost about $979 per airplane. Based on these figures, the estimated cost of the proposed AD for U.S. operators is $167,888, or $1,499 per airplane.

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

We prepared a regulatory evaluation of the estimated costs to comply with this proposed AD and placed it in the AD docket. See the ADDRESSES section for a location to examine the regulatory evaluation.

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

We invite you to submit any relevant written data, views, or arguments regarding this proposed AD. Send your comments to an address listed under ADDRESSES. Include “Docket No. FAA-2005-22628; Directorate Identifier 2005-NM-056-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 submitted 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 that website, 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 can review DOT's complete Privacy Act Statement in the Federal Register published on April 11, 2000 (65 FR 19477-78), or you can visit http://dms.dot.gov .

You can examine the AD docket on the Internet at http://dms.dot.gov , or in person at the Docket Management Facility office between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The Docket Management Facility office (telephone (800) 647-5227) is located on the plaza level of the Nassif Building at the DOT street address stated in the ADDRESSES section. Comments will be available in the AD docket shortly after the Docket Management System (DMS) receives them.

We received reports of testing by the manufacturer indicating unacceptable flammability properties of the spiral wire wrapping of the electrical cables in certain galleys and closets on various Boeing transport category airplanes. The existing spiral wire wrapping of certain galleys and closets was not tested for flammability standards and may not self-extinguish in the event of a fire. Electrical arcing or sparking and ignition of the spiral wire wrapping could result in fire propagation or smoke in the cabin area.

We have reviewed the service information identified in the following table.

The service bulletins and special attention service bulletins describe procedures for replacing existing spiral wire wrapping of the electrical cables of the galleys and closets with new spiral protective wrapping that has been shown to meet certain flammability testing requirements. The procedures also describe installing a modification placard to indicate that new spiral protective wrapping has been installed. Each of the service bulletins reference Dreissen Aircraft Interior Systems Service Bulletin SB 25-442, Revision E, dated April 29, 2004, and Showa Aircraft Industry Co., Ltd., Service Bulletin SB 25-30-111, dated December 11, 2000, as applicable, as additional sources of service information. Accomplishing the actions specified in the service information is intended to adequately address the unsafe condition.

We have evaluated all pertinent information and identified an unsafe condition that is likely to exist or develop on other airplanes of this same type design. Therefore, we are proposing this AD, which would require accomplishing the actions specified in the service information described previously, except as discussed under “Differences Between the Proposed AD and the Service Information.”

Each of the Boeing service bulletins referenced in this proposed AD specify certain Boeing series airplanes. However, this proposed AD is applicable to all the airplane models specified. Since galleys and closets may be removed from one airplane and installed in another airplane, this proposed AD would also require an inspection to determine if certain galleys or closets are installed, or a maintenance record check of the airplane to determine if certain galleys or closets are installed.

Although the Boeing service bulletins refer to accomplishment of certain Driessen Aircraft Interior Systems and Showa service bulletins, or “the latest FAA-approved revision,” this proposed AD would require accomplishment of the Driessen Aircraft Interior Systems and Showa service bulletins specified in this proposed AD. Using the phrase, “or later FAA-approved revision,” violates Office of the Federal Register regulations for approving materials that are incorporated by reference. However, affected operators may request approval to use a later revision of the referenced service bulletin as an alternative method of compliance, under the provisions of paragraph (j) of the proposed AD.

The Boeing service bulletins also specify an imprecise compliance time for replacing the spiral protective wrapping of the electrical cables of the galley, i.e. , “at the next heavy maintenance check.” This proposed AD would require replacement within 72 months after the effective date of the AD, and we have coordinated this compliance time with the manufacturer.

Additionally, for clarification and for the purposes of this proposed AD, the use of the term “galley” includes the terms “buffet” and “closets” referenced in certain service information specified in this proposed AD.

There are about 5,177 airplanes of the affected design in the worldwide fleet. This proposed AD would affect about 2,621 airplanes of U.S. registry. The proposed inspection to determine part numbers of the galleys would take about 1 work hour per galley, at an average labor rate of $65 per work hour. Some airplanes have only one galley and some have up to 11 galleys. With the exception of Boeing Model 777-300 airplanes, we estimate the cost of the inspection proposed in this AD for U.S. operators to be between $65 and $715 per airplane.

If an operator is required to replace the spiral protective wrapping of the electrical cables of the galley, we estimate that cost to be as follows:

1. For Dreissen galleys: About two work hours per galley, at an average labor rate of $65 per work hour, and the estimated cost for the new spiral protective wrapping to be about $1,450, per galley. The estimated total cost would be about $1,580, per galley.

2. For Showa galleys: About 20 work hours per galley, at an average labor rate of $65 per work hour, and the estimated cost of the new spiral protective wrapping to be about $1,550, per galley. The estimated total cost would be about $2,850, per galley.

Currently, there are no Boeing Model 777-300 airplanes with the subject galleys on the U.S. Register. However, if a Model 777-300 is imported and placed on the U.S. Register in the future, the required actions would take about 1 work hour per galley, at an average labor rate of $65 per work hour.

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

We prepared a regulatory evaluation of the estimated costs to comply with this proposed AD. See the ADDRESSES section for a location to examine the regulatory evaluation.

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

We invite you to submit any relevant written data, views, or arguments regarding this proposed AD. Send your comments to an address listed in the ADDRESSES section. Include the docket number “FAA-2005-22632; Directorate Identifier 2005-NM-158-AD” at the beginning 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 that 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 AD docket on the Internet at http://dms.dot.gov , or in person at the Docket Management Facility office between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The Docket Management Facility office (telephone (800) 647-5227) is located on the plaza level of the Nassif Building at the DOT street address stated in the ADDRESSES section. Comments will be available in the AD docket shortly after the Docket Management System receives them.

Transport Canada Civil Aviation (TCCA), which is the airworthiness authority for Canada, notified us that an unsafe condition may exist on certain Bombardier Model CL-600-2C10 (Regional Jet Series 700, 701, & 702), CL-600-2D15 (Regional Jet Series 705), and CL-600-2D24 (Regional Jet Series 900) airplanes. TCCA advises that fractured output links of the power control unit (PCU) for the ailerons have been found on in-service Bombardier Model CL-600-2B19 (Regional Jet Series 100 & 440) airplanes. Cracking or fracture of an output link of the aileron PCU, if not corrected, could result in failure of the link. Failure of one link may be a dormant (undetected) failure. However, failure of both output links on one aileron could result in reduced lateral control of the airplane.

The output links of the aileron PCU on certain Bombardier Model CL-600-2C10 (Regional Jet Series 700, 701, & 702), CL-600-2D15 (Regional Jet Series 705), and CL-600-2D24 (Regional Jet Series 900) airplanes are similar to those on the affected Bombardier Model CL-600-2B19 (Regional Jet Series 100 & 440) airplanes. Therefore, those Bombardier Model CL-600-2C10 (Regional Jet Series 700, 701, & 702), CL-600-2D15 (Regional Jet Series 705), and CL-600-2D24 (Regional Jet Series 900) airplanes may be subject to the unsafe condition revealed on the Bombardier Model CL-600-2B19 (Regional Jet Series 100 & 440) airplanes.

We previously issued AD 2005-03-13, amendment 39-13969 (70 FR 7845, February 16, 2005). AD 2005-03-13 requires doing repetitive inspections for fractures and cracks of the links of the aileron PCU; replacing any fractured/cracked link; and doing applicable related investigative and corrective actions, if necessary. The actions required by that AD, which applies to certain Bombardier Model CL-600-2B19 (Regional Jet Series 100 and 440) airplanes, are similar to those that would be required by this proposed AD for Bombardier Model CL-600-2C10 (Regional Jet Series 700, 701, & 702), CL-600-2D15 (Regional Jet Series 705), and CL-600-2D24 (Regional Jet Series 900) airplanes.

Bombardier has issued Alert Service Bulletin A670BA-27-023, including Appendix A, Revision A, dated May 18, 2005. The service bulletin describes procedures for repetitive detailed inspections for cracking or fracturing of the output links of the aileron PCU, and related investigative and corrective actions if necessary. If any fractured or cracked link is found, the service bulletin specifies a corrective action of replacing the fractured/cracked link with a new link. The service bulletin also describes related investigative actions and corrective actions that must be done if any fractured or cracked link is found, which include:

• Measuring the torque value of the forward and aft attachment bolts for both the damaged PCU output link and the adjacent PCU output link installed on the same aileron.

• For any damaged PCU output link, testing and measuring, as applicable, to determine if there is any mismatch between the PCU output link and the aileron lugs.

• For any damaged PCU output link, performing an eddy current inspection for cracking of the aileron lugs and flange bushings of the aileron lugs.

• If any damage (including but not limited to cracking) of an aileron lug or flange bushing is found, contacting the manufacturer for instructions.

• Reporting results of all inspections, measurements, and tests, to the manufacturer.

TCCA mandated the service information and issued Canadian airworthiness directive CF-2005-23, dated June 29, 2005, to ensure the continued airworthiness of these airplanes in Canada.

These airplane models are manufactured in Canada and are type certificated for operation in the United States under the provisions of section 21.29 of the Federal Aviation Regulations (14 CFR 21.29) and the applicable bilateral airworthiness agreement. Pursuant to this bilateral airworthiness agreement, TCCA has kept the FAA informed of the situation described above. We have examined TCCA's findings, evaluated all pertinent information, and determined that we need to issue an AD for airplanes of this type design that are certificated for operation in the United States.

Therefore, we are proposing this AD, which would require accomplishing the actions specified in the service information described previously, except as discussed under “Difference Among the Proposed AD, Canadian Airworthiness Directive, and Service Information.” The proposed AD would also require sending the inspection results to the manufacturer.

The Canadian airworthiness directive and service bulletin specify to contact the manufacturer for instructions on how to disposition certain damaged parts. This proposed AD would require you to disposition those parts using a method that we or TCCA (or its delegated agent) approve. In light of the type of action that would be required to address the unsafe condition, and consistent with existing bilateral airworthiness agreements, we have determined that, for this proposed AD, disposition of a damaged part in a manner that we or TCCA approve would be acceptable for compliance with this proposed AD.

The Canadian airworthiness directive specifies performing a “detailed visual” inspection for cracking or fracturing of the output links of the aileron PCU. We refer to this inspection as a “detailed inspection.” We have included the definition for a detailed inspection in a note in the proposed AD. (This terminology is consistent with the terminology used in the service information.)

We consider this proposed AD interim action. The inspection reports that are required by this AD will enable the manufacturer to obtain better insight into the nature, cause, and extent of the cracking, and eventually to develop final action to address the unsafe condition. Once final action has been identified, we may consider further rulemaking.

This proposed AD would affect about 205 airplanes of U.S. registry. The proposed inspection would take about 1 work hour per airplane, per inspection cycle, at an average labor rate of $65 per work hour. Based on these figures, the estimated cost of this proposed inspection for U.S. operators is $13,325, or $65 per airplane, per inspection cycle.

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

We prepared a regulatory evaluation of the estimated costs to comply with this proposed AD and placed it in the AD docket. See the ADDRESSES section for a location to examine the regulatory evaluation.

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

We invite you to submit any relevant written data, views, or arguments regarding this proposed AD. Send your comments to an address listed in the ADDRESSES section. Include the docket number “FAA-2005-22633; Directorate Identifier 2005-NM-155-AD” at the beginning 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 that 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 AD docket on the Internet at http://dms.dot.gov, or in person at the Docket Management Facility office between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The Docket Management Facility office (telephone (800) 647-5227) is located on the plaza level of the Nassif Building at the DOT street address stated in the ADDRESSES section. Comments will be available in the AD docket shortly after the Docket Management System receives them.

The Direction Générale de l'Aviation Civile (DGAC), which is the airworthiness authority for France, notified us that an unsafe condition may exist on certain Dassault Model Falcon 2000 airplanes. The DGAC advises that the inner pin of a fail-safe fastener, which ensures the link between the rear of the engine and the fuselage, has been found missing on an in-service airplane. Lack of clarity in a production procedure is suspected to be the cause of this event. A missing pin of a fail-safe fastener, if not corrected, could result in reduced structural integrity of an engine mount, and possible separation of an engine from the airplane during flight.

Dassault has issued Service Bulletin F2000-301, dated February 2, 2005. The service bulletin describes procedures for a detailed inspection for the presence of fail-safe pins, nuts, and washers on each engine, and replacement of the fail-safe fastener assembly with a new assembly if necessary. Accomplishing the actions specified in the service information is intended to adequately address the unsafe condition. The DGAC mandated the service information and issued French airworthiness directive F-2005-018, dated February 2, 2005, to ensure the continued airworthiness of these airplanes in France.

This airplane model is manufactured in France and is type certificated for operation in the United States under the provisions of section 21.29 of the Federal Aviation Regulations (14 CFR 21.29) and the applicable bilateral airworthiness agreement. Pursuant to this bilateral airworthiness agreement, the DGAC has kept the FAA informed of the situation described above. We have examined the DGAC's findings, evaluated all pertinent information, and determined that we need to issue an AD for airplanes of this type design that are certificated for operation in the United States.

Therefore, we are proposing this AD, which would require accomplishing the actions specified in the service information described previously, except as discussed under “Difference Between Proposed Rule, French Airworthiness Directive, and Referenced Service Bulletin.”

The French airworthiness directive requires operators to inform the airplane manufacturer of inspection results. The Accomplishment Instructions of the referenced service bulletin describe procedures for submitting a comment sheet related to service bulletin quality, a sheet recording compliance with the service bulletin, and reply card noting the precise location of any missing component. However, this proposed AD would not require those actions. We do not need this information from operators.

This proposed AD would affect about 149 airplanes of U.S. registry. The proposed inspection would take about 1 work hour per airplane, at an average labor rate of $65 per work hour. Based on these figures, the estimated cost of the inspection proposed by this AD for U.S. operators is $9,685, or $65 per airplane.

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

We prepared a regulatory evaluation of the estimated costs to comply with this proposed AD and placed it in the AD docket. See the ADDRESSES section for a location to examine the regulatory evaluation.

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

I. Introduction

1. On August 8, 2005, the Energy Policy Act of 2005 (EPAct 2005)  1 was signed into law. Section 1289 (Merger Review Reform) of Title XII, Subtitle G (Market Transparency, Enforcement, and Consumer Protection), 2 of EPAct 2005 amends section 203 of the Federal Power Act (FPA)  3 and directs the Federal Energy Regulatory Commission (Commission) to adopt, by rule, procedures for the expeditious consideration of applications for the approval of dispositions, consolidations, or acquisitions under section 203 of the FPA. Amended section 203 also: (1) Increases (from $50,000 to $10 million) the value threshold for certain transactions subject to section 203; (2) extends the scope of section 203 to include transactions involving certain transfers of generation facilities and certain holding companies' acquisitions with a value in excess of $10 million; (3) limits the Commission's review of a public utility's acquisition of securities of another public utility to transactions greater than $10 million; and (4) requires that the Commission, when reviewing a proposed section 203 transaction, examine cross-subsidization and pledges or encumbrances of utility assets. The Commission proposes rules and amendments to the Commission's regulations to implement amended section 203. 4

2. The Commission intends to issue a final rule within six months after EPAct 2005's enactment to coincide with the date on which amended section 203 of the FPA takes effect, February 8, 2006. The Commission seeks public comment on the rules proposed herein.

3. Section 203 of the FPA currently provides that Commission authorization is required for various types of dispositions and acquisitions of jurisdictional facilities, such as public utility mergers and consolidations. Specifically, section 203(a) of the FPA states:

The Commission shall approve such transactions if they are consistent with the public interest.

4. In 1996, the Commission issued the Merger Policy Statement  5 updating and clarifying the Commission's procedures, criteria, and policies concerning public utility mergers in light of dramatic and continuing changes in the electric power industry and the regulation of that industry. The purpose of the Merger Policy Statement was to ensure that mergers are consistent with the public interest and to provide greater certainty and expedition in the Commission's analysis of merger applications.

5. The Merger Policy Statement sets out three factors the Commission generally considers when analyzing whether a proposed section 203 transaction is consistent with the public interest: effect on competition; effect on rates; and effect on regulation. 6

6. With respect to the effect on competition, the Merger Policy Statement adopts the Department of Justice (DOJ)/Federal Trade Commission (FTC) 1992 Horizontal Merger Guidelines (Guidelines)  7 as the analytical framework for examining horizontal market power concerns. The Merger Policy Statement also uses an analytical screen (Appendix A analysis) that is intended to allow early identification of transactions that clearly do not raise competitive concerns. As part of the screen analysis, applicants must define the relevant products sold by the merging entities, identify the customers and potential suppliers in the geographic markets that are likely to be affected by the proposed transaction, and measure the concentration in those markets. 8 Using the delivered price test to identify alternative competing suppliers, the concentration of potential suppliers included in the defined market is then measured by the Herfindahl-Hirschman Index (HHI) and used as a screen to determine which transactions may raise market power concerns.

7. The Commission stated in the Merger Policy Statement that it will examine the second factor, the effect on rates, by focusing on customer protections designed to insulate consumers from any harm resulting from the transaction. We directed applicants to attempt to negotiate such measures with their customers before filing their applications. 9

8. The Merger Policy Statement set forth a third factor for examination, the effect on regulation. This includes both state regulation and the Commission's regulation, including any potential shift in regulation from the Commission to the Securities and Exchange Commission (SEC) due to a transaction creating a registered public utility holding company under the Public Utility Holding Company Act of 1935 (PUHCA 1935). 10 The Merger Policy Statement explained that, unless applicants commit themselves to abide by this Commission's policies with regard to affiliate transactions involving non-power goods and services, we will set the issue of the effect on regulation for hearing. 11 With respect to a transaction's effect on state regulation, where the state commissions have authority to act on the transaction, the Commission stated that it intends to rely on them to exercise their authority to protect state interests.

9. The Commission later issued the Filing Requirements Rule, 12 a final rule updating the filing requirements under 18 CFR Part 33 of the Commission's regulations for section 203 applications. The Filing Requirements Rule implements the Merger Policy Statement and provides detailed guidance to applicants for preparing applications. The revised filing requirements were also designed to assist the Commission in determining whether section 203 transactions are consistent with the public interest, to provide more certainty, and to expedite the Commission's handling of such applications.

10. The Filing Requirements Rule codifies the Commission's screening approach, provides specific filing requirements consistent with Appendix A of the Commission's Merger Policy Statement, establishes guidelines for vertical competitive analysis, and sets forth filing requirements for mergers that may raise vertical market power concerns. It also streamlined the rules, eliminated unnecessary Part 33 filing requirements, and reduced the information burden for transactions that raise no competitive concerns.

11. In the Filing Requirements Rule, the Commission explained that for certain transactions, abbreviated filing requirements are appropriate because it is relatively easy to determine that they will not harm competition and, thus, a full-fledged screen or vertical competitive analysis is not required. The Commission does not require the full Appendix A analysis screen if: (1) The applicant demonstrates that the merging entities do not operate in the same geographic markets, or if they do, that the extent of such overlapping operation is de minimis ; and (2) no intervenor has alleged that one of the merging entities is a perceived potential competitor in the same geographic market as the other. 13 Furthermore, the Commission stated that it will not require section 203 applicants to provide an Appendix A analysis if: (1) The application is a regional transmission organization (RTO) filing that directly responds to the Commission's RTO rule;  14 (2) the transaction is simply an internal corporate reorganization; or (3) the transaction only involves a disposition of transmission facilities. 15

12. The Commission also stated in the Filing Requirements Rule that, as announced in the Merger Policy Statement, it intended to continue processing section 203 applications expeditiously, with a goal of issuing an initial order for most mergers within 150 days of a completed application. 16 Further, the Commission stated that it intended to continue processing uncontested non-merger applications within 60 days of filing and protested non-merger applications within 90 days of filing. 17

13. EPAct 2005 revises section 203(a) of the FPA as follows:

14. Amended section 203(a)(1) states that no public utility shall, without first having secured an order of the Commission authorizing it to do so: (A) Sell, lease, or otherwise dispose of the whole of its facilities subject to the jurisdiction of the Commission, or any part thereof of a value in excess of $10 million; (B) merge or consolidate, directly or indirectly, such facilities or any part thereof with those of any other person, by any means whatsoever; (C) purchase, acquire, or take any security with a value in excess of $10 million of any other public utility; or (D) purchase, lease, or otherwise acquire an existing generation facility: (i) that has a value in excess of $10 million; and (ii) that is used for interstate wholesale sales and over which the Commission has jurisdiction for ratemaking purposes.

15. Section 203(a)(2) adds the entirely new requirement that no holding company in a holding company system that includes a transmitting utility or an electric utility shall purchase, acquire, or take any security with a value in excess of $10 million of, or, by any means whatsoever, directly or indirectly, merge or consolidate with, a transmitting utility, an electric utility company, or a holding company in a holding company system that includes a transmitting utility, or an electric utility company, with a value in excess of $10 million without Commission authorization.

16. Like the existing section 203(a), amended section 203(a)(3) provides that upon receipt of an application for such approval, the Commission shall give reasonable notice in writing to the Governor and state commission of each of the states in which the physical property affected is situated, and to such other persons as it may deem advisable.

17. Amended section 203(a)(4) states that after notice and opportunity for hearing the Commission shall approve the proposed disposition, consolidation, acquisition, or change in control if it finds that the transaction will be consistent with the public interest, but also adds the entirely new requirement that the Commission must find that the transaction will not result in cross-subsidization of a non-utility associate company or pledge or encumbrance of utility assets for the benefit of an associate company, unless that cross-subsidization, pledge, or encumbrance will be consistent with the public interest.

18. Section 203(a)(5) adds the entirely new requirement that the Commission shall:

19. Section 203(a)(6), which is also new, provides that for purposes of this subsection, the terms “associate company,” “holding company,” and “holding company system” have the meaning given those terms in the Public Utility Holding Company Act of 2005 (PUHCA 2005). 18

20. Section 1289(b) provides that the amendments made by this section shall take effect six months after the date of enactment of EPAct 2005.

21. Section 1289(c) provides that the amendments made by subsection (a) shall not apply to any section 203 application that was filed on or before the date of enactment of EPAct 2005.

22. Section 203(b) of the FPA remains unchanged. 19

23. The Commission proposes to revise 18 CFR Part 33 (Application for Acquisition, Sale, Lease, or Other Disposition, Merger or Consolidation of Facilities, or for Purchase or Acquisition of Securities of a Public Utility) and 18 CFR 2.26 (Policies concerning review of applications under section 203) to implement amended section 203 of the FPA.

24. Currently, 18 CFR Part 33 is titled “Application for Acquisition, Sale, Lease, or Other Disposition, Merger or Consolidation of Facilities, or for Purchase or Acquisition of Securities of a Public Utility.” The Commission proposes to revise the title of 18 CFR part 33 to read as follows: “Applications Under Federal Power Act Section 203.”

25. Proposed section 33.1(a) is intended to clarify what transactions are subject to amended section 203 of the FPA and Part 33 as a result of amended sections 203(a)(1)(A)-(D) and (a)(2) of the FPA. 20 Proposed new subsection 33.1(b) would define certain new terms in amended section 203 that are not defined in EPAct 2005.

26. Proposed subsection 33.1(b) would define “value.” Currently, subsection 33.1(b) defines “[v]alue in excess of $50,000” as “the original cost undepreciated as defined in the Commission's Uniform System of Accounts prescribed for public utilities and licensees in part 101 of this chapter.”

27. Before EPAct 2005, the question of what “value” means was not particularly significant for determining section 203 applicability, since most transactions involving the transfer of jurisdictional facilities clearly met the relatively low $50,000 threshold regardless of how “value” was defined. Most transactions involving the transfer of physical jurisdictional facilities (usually transmission) were clearly subject to section 203 simply because the “original cost undepreciated” of almost any transmission facility exceeded the relatively low $50,000 threshold set forth in FPA section 203(a). However, with the higher $10 million threshold, the question of how to define “value” may become significant for determining whether section 203 applies to certain transactions involving jurisdictional facilities (either physical or paper), 21 generation facilities, securities, individual companies or holding companies.

28. As relevant here, we believe that “value” can be viewed in two broad ways: Original/accounting cost value and market value. Original cost undepreciated is the amount actually paid for installing an original plant and equipment and additions thereto. A market value approach, on the other hand, bases value on the probable or expected future earnings or profits over the life of the asset. Different potential buyers of the asset will, of course, place different valuations on an asset, depending on their estimates of future expected profitability and their cost of capital.

29. As discussed below, the Commission proposes to generally rely on a “market value” approach for determining whether asset transfers are jurisdictional under section 203, with the exception of transfers of wholesale contracts. We invite comment on whether the “market value” concept or other alternative concepts are appropriate. We also invite comment and suggestions on measures of market value or other measures of value.

30. With respect to transactions involving the transfer of physical facilities, such as an existing generation facility or a transmission facility, which is addressed by amended subsections 203(a)(1)(A) and (D), the use of “original cost undepreciated” could lead to a different jurisdictional determination for facilities of equal size. For example, two generation units of the same size and type, but of substantially different ages, would likely have different values based on “original cost undepreciated.” The transfer of the newer generation unit could be deemed jurisdictional because its original construction cost exceeded $10 million, while the transfer of the older unit might not be jurisdictional because its original construction cost was less than $10 million. Thus, although the effects on markets of the transfer of both generation units could be the same, under the existing regulations the Commission would be prevented from evaluating the public interest implications of the transfer of the older unit. 22 Therefore, the Commission proposes that “value,” as applied to transmission facilities and existing generation facilities, be defined as the market value of such facilities. We recognize, however, that the determination of the market value for transmission facilities can be difficult in some instances and thus propose that, in the absence of a readily ascertainable market value, original cost undepreciated would be used. We seek comment on whether this measure of “value” of transmission and generation facilities, or some other measure, should be used, for transactions between non-affiliates and between affiliates. For transactions involving transfers of facilities between non-affiliates, the Commission believes that market value will, in most circumstances, be reflected in the transaction price. However, for a transaction between affiliates, it cannot be readily assumed that the market value will be reflected in the transaction price, since the buyer and seller do not bargain at arms' length. A possible alternative measure is original cost undepreciated. Therefore, the Commission seeks comments on these or other possible alternatives for defining value for transactions between affiliates.

31. With respect to paper jurisdictional facilities (usually wholesale contracts), Commission precedent does not address how the value of a wholesale contract should be determined for purposes of determining whether section 203 applies. 23 Rather, it appears to have been assumed, by applicants and the Commission alike, that the value of a wholesale contract, however measured, would exceed $50,000. However, with the increase in the value threshold to $10 million in amended section 203, the “value” of a wholesale contract may become significant.

32. For example, a wholesale contract may have a total revenue stream that exceeds $10 million, but with profits of much less than $10 million. A market value approach would involve basing “value” on the price or consideration paid for the contract, which, as with any other asset, would depend on the valuation of expected profits over the remaining life of the contract. Alternatively, the significance of a wholesale contract in terms of its effect on the market may be better reflected by defining “value” as total expected contract revenues over the remaining life of the contract. Total revenues are directly related to the quantity of power and energy delivered under the contract, which contributes to total market supply. 24 It may also be appropriate to factor into this determination the value of options that might affect the price and any rights to extend the contract or change the quantities sold. At this juncture, however, we propose that for purposes of determining the applicability of amended section 203 and Part 33 to a given transaction, the value of any wholesale contract included in the transaction would be based on total expected contract revenues over the remaining life of the contract. We seek comment on whether this measure of “value” of wholesale power sales contracts, a market value measure, or some other measure, should be used.

33. In addition, existing section 203 requires prior Commission approval for a public utility to acquire any security of another public utility, regardless of the value of the security. Thus, up to this point there was no need to define “value” for security acquisitions in Part 33. Amended sections 203(a)(1)(C) and (a)(2), however, state that the securities must have a value in excess of $10 million. The Commission proposes to define “value” of a security as the market price at the time the security is acquired. For transactions between non-affiliated companies, we will rebuttably presume that the market value is the agreed-upon transaction price. We seek comment on whether this measure of “value” of securities, or some other measure, should be used. We also seek comment on how to determine value for security transactions involving affiliates if the securities are not widely traded. For example, should the Commission consider using the Edgar standard  25 of review when determining value in affiliate transactions? While this valuation method would not require a direct solicitation, the Commission seeks comments as to whether we should give particular weight to evidence of non-affiliate transactions involving either non-affiliated buyers or sellers of securities of similarly situated utilities or assets.

34. The Commission proposes to define “value” with respect to a merger or consolidation with a transmitting utility, an electric utility company, or a holding company in a holding company system that includes a transmitting utility, or an electric utility company, with a value in excess of $10 million, as used in amended section 203(a)(2), as “market value.” As noted above, we would expect that in most circumstances “market value” will be reflected in the transaction price for transactions between non-affiliates. We seek comment on whether this measure of “value” or some other measure should be used in these circumstances.

35. Further, given the increased significance of valuation of a transaction under amended section 203, we solicit comment on whether the Commission's existing record keeping and reporting requirements, outside the section 203 context, provide an adequate basis for monitoring jurisdictional entities' determinations of when a section 203 application is required. 26 For example, do FERC Form 1s or Order No. 652  27 market-based rate change in status reports provide sufficient information to monitor compliance with section 203?

36. Proposed subsection 33.1(b) also defines the term “existing generation facility.” Amended section 203(a)(1)(D) provides that the acquisition of “an existing generation facility” with a value in excess of $10 million “that is used for interstate wholesale sales and over which the Commission has jurisdiction for ratemaking purposes” is now subject to section 203 of the FPA.

37. The Commission proposes to define “existing generation facility” for section 203 purposes as a generation facility that is operational at the time the transaction is consummated. If such a generation facility is intended to be used in whole or in part for wholesale sales in interstate commerce by a public utility, it is subject to our jurisdiction for ratemaking purposes and thus covered under amended section 203(a)(1)(D). Although the statutory provision refers to a facility that “is” used for wholesale sales (and over which the Commission has jurisdiction for ratemaking purposes), we believe a reasonable interpretation is that the provision would apply to newly constructed facilities that have already been energized at the time the transaction is consummated and are intended to be used in whole or in part for wholesale sales in interstate commerce by public utilities. We also note that if it can be demonstrated that a facility is used exclusively for retail sales, then amended section 203(a)(1)(D) is not triggered. We seek comment on the definition of the term “existing generation facility.” We seek comment on whether “at the time the section 203 transaction is consummated” is the correct point in time for determining whether a facility is an “existing” facility.

38. The term “transmitting utility” is already defined in amended section 3 of the FPA  28 as “an entity (including an entity described in section 201(f)) that owns, operates, or controls facilities used for the transmission of electric energy—(A) in interstate commerce; (B) for the sale of electric energy at wholesale.”  29

39. Amended section 203(a)(6) states that the terms “associate company,” “holding company,” and “holding company system” shall have the meaning given those terms in PUHCA 2005. 30

40. We note that amended section 203(a)(2) refers to the term “electric utility company,” but provides no definition of that term. However, “electric utility company” is a PUHCA term and we believe that the most reasonable interpretation, especially in light of amended section 203(a)(6), is that it has the same meaning as used in PUHCA 2005, which is any company that owns or operates facilities used for the generation, transmission, or distribution of electric energy for sale. 31 We seek comments on this proposed definition.

41. Amended section 203(a)(4) adds the new requirement that before we can approve a proposed section 203 transaction, the Commission must find that the transaction will not result in cross-subsidization of a non-utility associate company or a pledge or encumbrance of utility assets for the benefit of an associate company, unless that cross-subsidization, pledge, or encumbrance will be consistent with the public interest. However, because EPAct 2005 provides no definition of the term “non-utility associate company,” proposed subsection 33.1(b) would define this term.

42. PUHCA 2005, Subtitle F of EPAct 2005, defines an “associate company” of a company as any company in the same holding company system with such company, but does not define “non-utility associate company.”  32 A reasonable interpretation, as explained below, is that Congress was concerned about the potential that customers of “regulated” public utilities (persons that own or operate facilities used for wholesale sales or transmission in interstate commerce) would inappropriately subsidize “unregulated” associate companies  33 in the same holding company system, whether the associate companies were in energy or non-energy businesses. Such cross-subsidization can harm not only customers of the regulated public utility but it can also harm competition by giving “unregulated” sellers a competitive advantage. Similarly, Congress was concerned that regulated public utility assets not be inappropriately pledged or used to support non-regulated associate companies, to the harm of customers of the regulated public utility.

43. Historically, the Commission has used the term “non-utility” in more than one context and with more than one meaning. In the context of considering cross-subsidization concerns arising from the formation of holding companies, “non-utility operations” has been used to refer to the operation of businesses completely uninvolved in any aspect of the generation, transmission, distribution, or sale of electricity. 34 An example would be an associate company that engages in real estate development or residential construction. In the context of considering cross-subsidization or affiliate abuse concerns associated with power transactions between public utility affiliates, the Commission has differentiated between utility activities and non-utility activities according to whether they were being conducted by a public utility with captive wholesale or retail customers served under cost-based rates (sometimes described as a “traditional public utility”). In this context, the Commission has sometimes referred to a power marketer (a public utility authorized to charge market-based rates but without captive customers) affiliate of a traditional public utility as a non-utility affiliate. 35

44. To provide the broadest cross-subsidization protection, the Commission proposes to interpret the term “non-utility associate company” to mean any associate company in a holding company system other than a public utility or electric utility company that has wholesale or retail customers served under cost-based regulation. Therefore, a non-utility associate company would include, for example, a power marketer, a generator that does not have captive customers, a gas marketer, a fuel supply company or a company that provides inputs to power production, or a company that is involved in business activities not related to the generation, transmission, distribution, or sale of electricity. 36 We seek comment on whether this definition is appropriate or whether the Commission should use a narrower definition, e.g. , one which defines a “non-utility associate company” as a company that is in a business not related to generation, transmission, distribution, or sale of electricity.

45. Proposed new subsection 33.2(j) would implement section 203(a)(4) by requiring applicants to include in their section 203 applications an explanation of how applicants are providing assurance that the proposed transaction will not result in cross-subsidization of a non-utility associate company or pledge or encumbrance of utility assets for the benefit of an associate company, with appropriate evidentiary support for such explanation; or, if no such assurance can be provided, an explanation of how such cross-subsidization, pledge, or encumbrance will be consistent with the public interest. This explanation will be Exhibit M to the applicant's application. The Commission seeks comment on what evidence parties should be required to submit to support any explanation offered under this subsection.

46. EPAct 2005 provides no guidance on how the Commission, when reviewing section 203 applications, should determine whether or not a proposed transaction will result in cross-subsidization or a pledge or encumbrance of utility assets for the benefit of an associate company. The Commission has sought to guard against potential cross-subsidization and affiliate abuse when it reviews applications for cost-based or market-based rate authority under section 205 of the FPA  37 or dispositions of jurisdictional facilities under section 203 involving public utilities with captive customers or their affiliates. 38 The Commission also has in place cash management rules to monitor proprietary capital ratios and money lending or other financial arrangements that can harm regulated companies. 39 In light of the Congress' clear directive in EPAct 2005 that the Commission make findings regarding cross-subsidization and the pledge or encumbrance of utility assets in the context of a section 203 application, we seek comment, as discussed below, on what additional safeguards or conditions may need to be placed on section 203 transactions.

47. The Commission's primary focus has been to prevent a transfer of benefits from a traditional public utility's captive customers to shareholders of the public utility's holding company due to an intra-system transaction that involves power or energy, generation facilities, or non-power goods and services. Concerns arise both in the circumstance in which an “unregulated” affiliate ( e.g. , a power marketer or non-utility affiliate) provides power or goods and services to a public utility with captive customers, as well as the circumstance in which the public utility with captive customers provides power or goods and services to the “unregulated” affiliate. For instance, a traditional public utility with captive customers served at cost-based rates may purchase power from its marketing affiliate at a price above market or sell power to its marketing affiliate at below-market prices, thus transferring benefits from customers to shareholders of the holding company. Customers served at cost-based rates by a traditional public utility may also be harmed if the traditional public utility buys a generation facility from an affiliate at a price greater than market or sells a generation plant to an affiliate at less than cost or market value, whichever is higher. Further, customers may be harmed if the traditional public utility purchases non-power goods and services from an affiliate at above market prices or sells non-power goods and services to an affiliate at less than the higher of cost or market value. 40

48. The Commission's regulatory tool for protecting against inappropriate cross-subsidization, on an on-going basis, has primarily been its FPA sections 205 and 206  41 rate authority. This includes: review of just and reasonable rates and prudently incurred costs ( e.g. , costs of purchasing power or non-power goods and services from an affiliate) for public utilities that sell at cost-based rates; imposing conditions and codes of conduct on market-based rate authorizations for sellers that have, or are affiliated with companies that have, captive customers; and auditing the accounts, books, and records of public utilities to ensure that inappropriate cross-subsidization does not occur.

49. As noted above, the Commission, through its FPA sections 205 and 206 ratemaking authority, already protects in several ways against affiliate abuse in connection with power and energy transactions and non-power transactions between traditional public utilities and their affiliates. The latter affiliates may be affiliated generators or marketers with market-based rates, affiliate companies that provide goods such as fuel or supplies, or service company affiliates that provide services such as accounting or legal services. When we grant market-based rate authority under section 205 of the FPA, the Commission requires that a power marketer not sell power to, or purchase power from, any utility affiliate without prior Commission approval. Another requirement is that sales of non-power goods and services from the traditional public utility to a marketing affiliate occur at the higher of cost or market value and that the traditional public utility's purchases of non-power goods and services from an affiliate ( e.g. , an affiliate fuel company) occur at market value or less. Under section 205 of the FPA, the Commission also applies the Edgar standard to ensure that a traditional public utility's power purchases from an affiliate occur at a just and reasonable rate. 42

50. In the section 203 context, the Commission currently requires that to gain section 203 approval without a hearing, if the transaction would create a registered holding company under PUHCA 1935, applicants must agree to abide by the Commission's policy on intra-system transactions for non-power goods and services. 43 Further, when a public utility disposes of its jurisdictional facilities to another company, whether domestic or foreign, the Commission protects public utility customers against inappropriate cross-subsidization by conditioning its authorization on the applicants' acceptance of the Commission's authority, under section 301(c) of the FPA, 44 to review the parent company's books and records as they relate to transactions with or the business of the public utility. 45

51. Finally, with respect to potential encumbrances or pledges of utility assets, the Commission requires Commission-regulated entities that have not been granted waivers of our accounting and reporting rules to file copies of all cash management arrangements and changes to these arrangements. We also require jurisdictional entities that participate in such programs to calculate their proprietary capital ratios quarterly and to notify the Commission if they fall below 30 percent of total capitalization and provide other detailed information. 46

52. All of these policies seek to safeguard the interests of captive customers served at cost-based rates and protect regulated public utility assets. However, any merger transaction that creates another affiliate opens the door to possible affiliate abuse or cross-subsidization concerns or pledges or encumbrances of assets. There are various ways we could address these concerns. We note that some state commissions, when reviewing a merger transaction, impose specific conditions designed to protect customers against unfair competitive practices, cross-subsidization, and affiliate abuse. 47 Examples of these conditions include, among other things: Reporting and information access requirements; restrictions on intra-corporate transactions that result in direct charges or cost allocations; a prohibition on the local utility bearing any of the merger acquisition premium, transaction costs, or merger transition costs; measures to protect the utility's financial position; a service quality program, under which the local utility would be subject to revenue requirement reductions if it did not meet certain performance targets established annually; and restrictions on a holding company's access to the local utility's power, natural gas assets, and its individual and aggregated customer information. Given Congress' amendment of section 203, the Commission solicits comments on the adequacy of its present policies preventing affiliate abuse and cross-subsidization, and whether conditions such as those imposed by state commissions may need to be placed on section 203 transactions. 48

53. We also seek comment on whether additional conditions should be placed on section 203 approvals to ensure that there is no pledge or encumbrance that harms utility customers. 49 Specifically, we seek comment on the types of activities that would typically result in a pledge or encumbrance and the types of pledges and encumbrances that would be consistent with the public interest. We also seek comment on whether the Commission should require that all existing pledges and encumbrances be disclosed in any section 203 application proposing any sort of corporate reorganization.

54. The Commission notes that section 203(a)(4) refers to a pledge or encumbrance of utility assets for the benefit of an “associate” company, as opposed to a “non-utility associate” company. Since an associate company may either be a utility or non-utility, we interpret this provision to require the Commission to determine whether the transaction will result in the use of utility assets to finance, or serve as collateral for, activities engaged in by an associate company, whether it is a non-utility or a utility.

55. Amended section 203(a)(5) of the FPA directs the Commission to adopt procedures for the expeditious consideration of applications for the approval of dispositions, consolidations, or acquisitions under section 203 of the FPA. Section 203(a)(5) also requires the Commission to “identify classes of transactions, or specify criteria for transactions, that normally meet the standards established in [section 203(a)(4)].”

56. Proposed New sections 33.11(a) and (b) would implement amended section 203(a)(5). Specifically, proposed subsection 33.11(a) provides that the Commission will act on completed applications for approval of a transaction ( i.e. , one that is consistent with the requirements of Part 33), not later than 180 days after the completed application is filed. 50 If the Commission does not act within 180 days, such application shall be deemed granted unless the Commission finds, based on good cause, that further consideration is required and issues an order tolling the time for acting on the application for not more than 180 days, at the end of which additional period the Commission shall grant or deny the application, as required by amended section 203 of the FPA.

57. Proposed subsection 33.11(b) would provide for the expeditious consideration of completed section 203 applications that are not contested, are not mergers, and are consistent with Commission precedent, because they should typically meet the standards established in section 203(a)(4).

58. We note that, generally, the most critical period of the Commission's review of a particular section 203 application is the time between the end of the notice period and the issuance of a Commission decision ( i.e. , the review period). The length of the review period needed depends on the complexity of the application, issues raised by any protests, Commission staff's analysis, and the need to hold an evidentiary hearing. In the Filing Requirements Rule, we stated that we typically process uncontested non-merger applications within 60 days of the date of filing and protested non-merger applications within 90 days of filing. Since the issuance of that rule, the Commission has met these goals in almost all instances.

59. The Commission cannot provide a comprehensive description of all the classes or types of transactions that will be encompassed in the expedited review category. However, the Commission proposes that the transactions that would generally warrant expedited review include: (1) A disposition of only transmission facilities, particularly those that both before and after the transaction remain under the functional control of a Commission-approved RTO or independent system operator; (2) transfers involving generation facilities of a size that do not require an Appendix A analysis; (3) internal corporate reorganizations that do not present cross-subsidization issues; and (4) the acquisition of a foreign utility company by a holding company with no captive customers in the United States. 51

60. With respect to the latter category, the acquisition of a foreign utility company by a holding company with no captive customers in the United States, we recognize that amended section 203's requirement for regulatory approval could have the potential to impede or have a chilling effect on investment—particularly if the transaction were subjected to a lengthy regulatory review. Such a transaction would not cause competitive concerns in the United States and, further, there would be no concerns about cross-subsidization that harms captive customers in the United States. In addition, even with respect to the acquisition of a foreign utility company by a holding company with captive customers in the United States, there may be safeguards or conditions that could be adequate in order to expedite approval of such transactions. The Commission does not want to impede investment in the U.S. or abroad and we seek comment on procedures the Commission might adopt, or safeguards it might require, to pre-approve or expedite such transactions while at the same time protecting U.S. captive customers. 52

61. For the section 203 applications that involve a competitive analysis per the guidelines of the revised filing requirements, 53 or that may raise cross-subsidization issues or other issues, the amount of time needed for review will depend on the complexity of the issues involved. In cases where the Commission decides that a hearing should be held, establishing a specific review period could also be problematic. However, as provided in amended section 203(a)(5), the Commission must grant or deny the application within 360 days of filing.

62. The Commission also proposes to indicate the length of the notice period for various types of filings. In the Filing Requirements Rule, the Commission stated that we will notice section 203 filings that contain either a competitive analysis screen or a vertical competitive analysis (per the requirements of part 33) for 60 days and that we will notice all other section 203 filings, including mergers that do not require a competitive analysis, for less than 60 days. 54 Since the issuance of the Filing Requirements Rule, the Commission has, in almost all instances, met these goals.

63. Occasionally, applicants have sought shortened notice periods, to achieve certain financial or tax objectives or to serve certain business purposes. Most of these applications, particularly those that do not involve a competitive analysis and do not raise other competitive concerns from affiliate transactions, do not require a complex analysis and, thus, they warrant a shortened notice period.

64. Thus, we have continued to apply our notice policy in a way that has allowed us to continue processing section 203 applications quickly and that is consistent with reasonable business goals and purposes. Accordingly, we expect to have a 60-day notice period for section 203 applications that involve, contain, or require a competitive analysis per the revised filing requirements and a 21-day notice period for all other section 203 applications, except, as explained below, certain applications that may raise cross-subsidization concerns. However, we do not propose to formalize this policy by rule, so that we can maintain the flexibility needed to deal with varying circumstances.

65. In determining the length of the notice period, as a matter of policy, the Commission expects to have, in most instances, a notice period between 21 days and 60 days for applications that seek authorization to transfer ownership of a generation plant from one affiliate or associate company to another company within the same corporate structure and for other applications that may raise cross-subsidization or pledge or encumbrance issues. Not included in this category are transactions that merely change upstream ownership interests held by parent companies of public utilities or transactions that do not alter the terms of power supply or power supply costs for captive customers.

66. Section 2.26(b) lists the three factors that the Commission will generally consider in determining whether a proposed transaction subject to section 203 is consistent with the public interest. When considering the third factor, a proposed transaction's effect on federal regulation, section 2.26(e)(1) states that “[w]here the merged entity would be part of a registered public utility holding company, if applicants do not commit in their application to abide by this Commission's policies with regard to affiliate transactions, the Commission will set the issue for a trial-type hearing.”

67. However, because EPAct 2005 repeals PUHCA 1935, 55 activities of registered holding companies that were previously subject to SEC regulation, including intercompany transactions, will no longer be exempt from this Commission's regulation once PUHCA 1935 repeal takes effect on February 8, 2006. 56 In particular, the Commission's conditions and policies under FPA sections 205 and 206 with respect to non-power goods and services transactions between holding company affiliates, discussed previously, can be applied to all public utilities that are members of holding companies. 57 In addition, the Commission will have authority to review allocations of service company costs among members of holding companies that have public utilities with captive customers. There is thus no longer a concern about any potential shift in regulation from this Commission to the SEC under the effect of regulation factor, and we propose to delete section 2.26(e)(1) from our consideration of whether a proposed 203 transaction is consistent with the public interest. However, applicants are still required to address whether the transaction will have any other effect on the Commission's regulation.

68. Proposed new subsection 2.26(f) would be added to the Commission's policies and would state that the Commission will also not approve a transaction that will result in cross-subsidization of a non-utility associate company or pledge or encumbrance of utility assets for the benefit of an associate company unless that cross-subsidization, pledge, or encumbrance will be consistent with the public interest.

69. The following collection of information contained in this proposed rule has been submitted to the Office of Management and Budget (OMB) for review under section 3507(d) of the Paperwork Reduction Act of 1995. 58 OMB's regulations require OMB to approve certain information collection requirements imposed by agency rule. 59

70. Comments are solicited on the need for this information, whether the information will have practical utility, ways to enhance the quality, utility, and clarity of the information to be collected, and any suggested methods for minimizing respondents' burden. The Commission notes that in proposing to modify its current part 33 filing requirements it is carrying out an express statutory mandate set forth in EPAct 2005. The regulations that the Commission proposes should have a minimal impact on the current reporting burden associated with an individual application, as they do not substantially change the filing requirements with which section 203 applicants must currently comply. Further, the Commission does not expect the total number of section 203 applications under amended section 203 to increase substantially. While the proposed rulemaking implements the expanded scope of section 203 to include certain transactions involving existing generation facilities and certain holding company acquisitions, amended section 203 also substantially raises the value threshold to be used in determining whether certain classes of transactions involving the transfer of jurisdictional facilities and acquisition of securities (both of which are already subject to the Commission's section 203 jurisdiction) are subject to section 203. As a result, applications in these latter two classes should decline somewhat.

Title: FERC-519, Applications Under Federal Power Act Section 203.

Action: Proposed Information Collection.

OMB Control No: 1902-0082.

The applicant will not be penalized for failure to respond to this information collection unless the information collection displays a valid OMB control number or the Commission has provided justification as to why the control number should not be displayed.

Respondents: Businesses or other for profit.

Necessity of the Information: The information collected under the requirements of FERC-519 is used by the Commission to implement section 203 of the Federal Power Act and the Code of Federal Regulations under 18 CFR Part 33 and 18 CFR 2.26. This notice of proposed rulemaking is limited to implementing amended section 203 of the FPA, which directs the Commission to adopt a rule to do so. Further, the proposed rule does not substantially change the current filing requirements or regulations that applicants must comply with for transactions subject to FPA section 203.

Internal Review: The Commission has reviewed these requirements pertaining to the implementation of amended section 203 of the FPA and has determined that the proposed requirements are necessary for the Commission to meet the provisions of the Energy Policy Act of 2005. These requirements conform to the Commission's plan for efficient information collection, communication, and management within the bulk power system.

71. Please send your comments concerning the collection of information and the associated burden estimates to: (1) Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426 [Attention: Michael Miller, Office of the Executive Director, Phone (202) 502-8415, fax (202) 273-0873, e-mail: michael.miller@ferc.gov ] and (2) the Office of Management and Budget [Attention: Desk Officer for the Federal Energy Regulatory Commission, fax (202) 395-7285, e-mail oira_submission@omb.eop.gov ].

72. The Commission is required to prepare an Environmental Assessment or an Environmental Impact Statement for any action that may have a significant adverse effect on the human environment. 60 The Commission concludes that neither an Environmental Assessment or an Environmental Impact Statement is required for this notice of proposed rulemaking under section 380.4(a)(2)(ii) of the Commission regulations, which provides a “categorical exclusion for rules that do not substantively change the effect of legislation.”  61

73. The Regulatory Flexibility Act of 1980 (RFA)  62 requires that a rulemaking contain either a description and analysis of the effect that the proposed rule will have on small entities or a certification that the rule will not have a significant economic impact on a substantial number of small entities. However, the RFA does not define “significant” or “substantial,” instead leaving it up to an agency to determine the effect of its regulations on small entities.

74. In drafting this rule, the Commission has followed the provisions of both the RFA and the Paperwork Reduction Act to consider the potential effect of the regulations on small businesses and other small entities. Specifically, the RFA directs agencies to consider four regulatory alternatives to be considered in a rulemaking to lessen the effect on small entities: tiering or establishment of different compliance or reporting requirements for small entities; classification, consolidation, clarification or simplification of compliance and reporting requirements; performance rather than design standards; and exemptions.

75. The Commission does not believe that this proposed rule would have a significant economic impact on a substantial number of small entities. As noted above, EPAct 2005 directs the Commission to issue a rule adopting procedures for the expeditious consideration of applications for the approval of dispositions, consolidations, or acquisition, under this section. In accordance with this directive, this proposed rule is intended to implement section 203 of the FPA. In particular, the proposed rule increases the value threshold for filing a section 203 application with the Commission from transactions in excess of $50,000 to transactions in excess of $10 million (under amended section 203 of the FPA). Further, the proposed rule does not substantially change the current requirements and regulations that applicants must comply with for transactions subject to FPA section 203. Accordingly, the Commission certifies that the proposed rule will not have a significant economic impact on a substantial number of small entities.

76. The Commission invites interested persons to submit comments on this notice, or alternative proposals addressing the issues raised by the changes in amended section 203. Comments are due November 7, 2005. Comments must refer to Docket No. RM05-34-000, and must include the commenter's name, the organization they represent, if applicable, and their address. Comments may be filed either in electronic or paper format.

77. Comments may be filed electronically via the eFiling link on the Commission's web site at http://www.ferc.gov. The Commission accepts most standard word processing formats and commenters may attach additional files with supporting information in certain other file formats. Commenters filing electronically do not need to make a paper filing. Commenters that are not able to file comments electronically must send an original and 14 copies of their comments to: Federal Energy Regulatory Commission, Office of the Secretary, 888 First Street, NE., Washington, DC 20426.

78. All comments will be placed in the Commission's public files and may be viewed, printed, or downloaded remotely as described in the Document Availability section below. Commenters on this proposal are not required to serve copies of their comments on other commenters.

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

80. From the Commission's Home Page on the Internet, this information is available in the Commission's document management system, eLibrary. The full text of this document is available on eLibrary in PDF and Microsoft Word format for viewing, printing, and/or downloading. To access this document in eLibrary, type “RM05-34” in the docket number field.

81. User assistance is available for eLibrary and the FERC's Web site during normal business hours. For assistance, please contact FERC Online Support at 1-866-208-3676 (toll free) or 202-502-6652 (e-mail at FERCOnlineSupport@FERC.gov ), or the Public Reference Room at 202-502-8371, TTY 202-502-8659 (e-mail at public.referenceroom@ferc.gov ).

In consideration of the foregoing, the Commission proposes to amend Chapter I, Title 18, Code of Federal Regulations, as follows:

On November 7, 2001, we published three temporary final rules in the Federal Register (66 FR 56208, 56210, 56212) that created security zones effective through June 1, 2002. The section numbers and titles for these zones are—

§ 165.T17-003—Security zone; Trans-Alaska Pipeline Valdez Terminal Complex, Valdez, Alaska;

§ 165.T17-004—Security zone; Port Valdez, and

§ 165.T17-005—Security zones; Captain of the Port Zone, Prince William Sound, Alaska.

Then on June 4, 2002, we published a temporary final rule (67 FR 38389) that established security zones to replace these security zones. That rule issued in April 2002, which expired July 30, 2002, created temporary § 165.T17-009, entitled “Port Valdez and Valdez Narrows, Valdez, Alaska—security zone”.

Then on July 31, 2002, we published a temporary final rule (67 FR 49582) that established security zones to extend the temporary security zones that would have expired. This extension was to allow for the completion of a notice-and-comment rulemaking to create permanent security zones to replace the temporary zones.

On October 23, 2002, we published a notice of proposed rulemaking (NPRM) that sought public comment on establishing permanent security zones similar to the temporary security zones (67 FR 65074). The comment period for that NPRM ended December 23, 2002. Although no comments were received that would result in changes to the proposed rule an administrative omission was found that resulted in the need to issue a supplemental notice of proposed rulemaking (SNPRM) to address a collection of information issue regarding of the proposed rule (68 FR 14935, March 27, 2003). Then on May 19, 2004, we published a Second Supplemental Notice of Proposed Rulemaking (SSNPRM) (69 FR 28871) incorporating changes to Trans-Alaska Pipeline (TAPS) Valdez Terminal complex (Terminal), Valdez, Alaska and TAPS Tank Vessels security zone coordinates described in the NPRM (67 FR 65074). The comment period for that SNPRM ended on July 30, 2004. Although no comments were received that would result in changes to the SSNPRM, we have learned over the last 3 years that the Trans-Alaska Pipeline (TAPS) Valdez Terminal complex (Terminal) security zone is actually larger than originally intended due to a conversion oversight in that particular zone's respective longitude and latitude values. Accordingly, to correct the conversion oversight and to allow for more effective enforcement, proposed changes to the Trans-Alaska Pipeline (TAPS) Valdez Terminal complex (Terminal) security zone coordinates results in the need to issue a Third Supplemental Notice of Proposed Rulemaking (TSNPRM). We have also removed unnecessary text from the description of the Valdez Narrows, Port Valdez, Valdez, Alaska security zone in proposed 33 CFR 165.1710(a)(3).

This TSNPRM proposes to reduce the size of the Trans-Alaska Pipeline (TAPS) Valdez Terminal complex (Terminal) security zone we initially proposed in the NPRM published October 23, 2002 (67 FR 65074).

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, COTP Prince William Sound 02-011, 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 to know they reached us, please enclose a stamped, self-addressed postcard or envelope. We will consider all comments and material 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 Marine Safety Office Valdez 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 Coast Guard is taking this action for the protection of the national security interests in light of terrorist acts perpetrated on September 11, 2001, and the continuing threat that remains from those responsible for those acts. As a vibrant port with a high volume of oil tanker traffic, these security zones are necessary to provide protection for the tankers transiting through the Port of Valdez and Valdez Narrows. These security zones are a necessary part of the Coast Guard's efforts to provide for the safety of the people and environment in Valdez and the surrounding area.

We are incorporating changes to the Trans-Alaska Pipeline (TAPS) Valdez Terminal complex (Terminal) security zone coordinates because we have been able to determine over the years that the changes are necessary in order to properly mark and monitor the zone, reduce the number of zone incursions and provide proper tactical enforcement while still keeping boaters a safe distance from the TAPS terminal.

This supplemental notice of proposed rulemaking sets out three security zones. The Trans-Alaska Pipeline Valdez Marine Terminal Security zone encompasses the waters of Port Valdez between Allison Creek to the east and Sawmill Spit to the west and offshore to marker buoys A and B (approximately .85 nautical miles offshore from the TAPS Terminal). The Tank Vessel Moving Security Zone encompasses the waters within 200 yards of a TAPS Tanker within the Captain of the Port, Prince William Sound Zone. The Valdez Narrows Security Zone encompasses the waters 200 yards either side of the Tanker Optimum Trackline through Valdez Narrows between Entrance Island and Tongue Point.

This action is necessary to provide for the safety of the TAPS terminal and TAPS tank vessels. The Coast Guard has worked closely with local and regional users of Port Valdez and Valdez Narrows waterways to develop these security zones in order to mitigate the impact on commercial and recreational users.

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.

Economic impact is expected to be minimal because there are alternative routes for vessels to use when the zone is enforced, permits to enter the zone are available, and the Tank Vessel Moving Security Zone is in effect for a short duration.

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. The number of small entities impacted by this rule is expected to be minimal because there are alternative routes for vessels to use when the zone is enforced, permission to enter the zone is available, and the Tank Vessel Moving Security Zone is in effect for a short duration. Since the time frame this rule is in effect may cover commercial harvests of fish in the area, the entities most likely affected are commercial and native subsistence fishermen. The Captain of the Port will consider applications for entry into the security zone on a case-by-case basis; therefore, it is likely that very few, if any, small entities will be impacted by this rule. Those interested may apply for a permit to enter the zone by contacting Marine Safety Office, Valdez at the above contact number.

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 (Public Law 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 LTJG Duane Lemmon, Marine Safety Office Valdez, Alaska at (907)835-7218.

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 would not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.

This proposed rule would not effect 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.

We have analyzed this 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 rule is categorically excluded, under figure 2-1, paragraph (34)(g), of the Instruction, from further environmental documentation. This rule creates no additional vessel traffic and thus imposes no additional burdens on the environment in Prince William Sound. It simply provides guidelines for vessels transiting in the Captain Of The Port, Prince William Sound Zone so that vessels may transit safely in the vicinity of the Port of Valdez and the TAPS terminal. A draft “Environmental Analysis Check List” and a draft “Categorical Exclusion Determination” (CED) are available in the docket where indicated under ADDRESSES. Comments on this section will be considered before we make the final decision on whether the rule should be categorically excluded from further environmental review.

For the reasons discussed in the preamble, the Coast Guard proposes to amend 33 CFR part 165 as follows:

Submitting Comments: We welcome comments from the public on all issues set forth in this rule to assist us in fully considering issues and developing policies. You can assist us by referencing the file code CMS-6022-P.

Inspection of Public Comments: All comments received before the close of the comment period are available for viewing by the public, including any personally identifiable or confidential business information that is included in a comment. CMS posts all electronic comments received before the close of the comment period on its public website as soon as possible after they have been received. Comments received timely will be available for public inspection as they are received, generally beginning approximately 3 weeks after publication of a document, at the headquarters of the Centers for Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view public comments, phone 1-800-743-3951.

Medicare contracting authority has been in place since the inception of the Medicare program in 1965. Section 1874 of the Social Security Act (the Act) authorizes the Secretary to perform Medicare program functions directly or by contract.

On August 21, 1995, the Congress enacted the Health Insurance Portability and Accountability Act of 1996 (Pub. L. 104-191) (HIPAA). Section 202 of HIPAA added section 1893 to the Act that establishes the Medicare Integrity Program and allows us to contract with eligible entities to perform program integrity activities. Specifically, we contract with intermediaries as specified in section 1816(a) of the Act; and carriers as specified in section 1842(a) of the Act; and program safeguard contractors (PSCs) to perform medical, fraud, and utilization reviews, and cost report audits of Medicare claims. (Hereinafter, intermediaries, carriers, and PSCs that perform medical review functions are referred to as contractors). This program is funded by the Medicare Hospital Insurance Trust Fund for activities related to Medicare Part A and Part B.

On December 8, 2003, the Congress enacted the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA). Section 934 of the MMA amended section 1874A of the Act by adding a new subsection regarding random prepayment reviews and non-random prepayment reviews including the termination date of non-random prepayment reviews.

Although section 934 of the MMA specifies requirements regarding random prepayment review, contractors do not perform random prepayment review. However, contractors do perform non-random prepayment review.

For purposes of this regulation, we are proposing the following definitions related to medical review activities:

Allowable charges means the dollar amount (including co-pay and deductibles) that the Medicare program will pay for a particular item or service.

Complex Medical Review means review of claim information and medical documentation by a licensed medical professional, for a billed item or service identified by data analysis techniques or probe review to have a likelihood of sustained or high level of payment error.

Error rate means the dollar amount of allowable charges for a particular item or service billed in error as determined by complex medical review, divided by the dollar amount of allowable charges for that medically reviewed item or service.

Initial error rate means the calculation of an error rate based on the results of a probe review prior to the initiation of non-random prepayment complex medical review.

Medical review means the process performed by Medicare contractors to ensure that billed items or services are covered and are reasonable and necessary as specified under section 1862(a)(1)(A) of the Act.

Non-clinician medical review staff means specially trained medical review staff that do not possess the knowledge, skills, training, or medical expertise of a licensed medical professional.

Non-random prepayment complex medical review means the prepayment medical review of claim information and medical documentation by a licensed medical professional, for a billed item or service identified by data analysis techniques or probe review to have a likelihood of sustained or high level of payment error.

Non-random prepayment medical review means the prepayment medical review of claims for a billed item or service identified by data analysis techniques or probe review to have a likelihood of a sustained or high level of payment error.

Provider-specific probe review means the complex medical review of a small sample of claims, generally 20 to 40 claims, from a specific provider or supplier for a specific billing code to confirm that the provider or supplier is billing the program in error.

Quarterly error rate means the calculation of an error rate based on the results of non-random prepayment complex medical review for a specific billing code for a specific quarter.

Service-specific probe review means the complex medical review of a sample of claims, generally 100 claims, across the providers or suppliers that bill a particular item or service to confirm that the item or service is billed in error.

Termination of non-random prepayment complex medical review means the cessation of non-random prepayment complex medical review.

We enter into contractual agreements with contractors to perform medical review functions. One of the functions of a contractor is to ensure the fiscal integrity of the Medicare program by conducting medical review of claims to determine whether items or services are covered and are reasonable and necessary. When a claim is submitted for payment, it may be subject to medical review before payment is made.

There are three types of non-random prepayment medical review: Automated, routine, and complex. A non-random prepayment automated medical review is when decisions are made at the system level, using available electronic information, without the intervention of contractor personnel. A non-random prepayment routine medical review is limited to rule-based determinations performed by specially trained non-clinical medical review staff. Automated and routine non-random prepayment medical review does not create an administrative burden on the provider or supplier since additional medical documentation does not need to be submitted for these types of medical reviews and payments for covered, reasonable and necessary items or services are not delayed. Therefore, these types of reviews pose no discernable administrative burden on the provider or supplier because there is no interaction between the contractor and the provider or supplier during the medical review process. As indicated above, non-random prepayment complex medical review is the evaluation of medical records or any other documentation by a licensed medical professional prior to Medicare payment. Complex medical review determinations require the reviewer to make a clinical judgment about whether an item or service is covered, and is reasonable and necessary. In order for this determination to be made the provider or supplier would submit a copy of the medical records that indicate that the items or services billed are covered, and are reasonable and necessary for the condition of the patient. This type of review delays payment until the contractor is able to make a determination that the items or services billed are covered and are reasonable and necessary. This proposed rule only applies to terminating a provider or supplier from non-random prepayment complex medical review. (A detailed description of the concepts for performing the different types of non-random prepayment medical review functions are located in our manual instructions at http://www.cms.hhs.gov/manuals/108_pim/pim83toc.asp).

The contractor employs data analysis procedures to identify claims that may be billed inappropriately. These procedures may be based on claims data (national and local) beneficiary complaints, and alerts from other organizations (for example, Office of Inspector General and Government Accountability Office). When a contractor identifies a likelihood of sustained or high level of payment error, the contractor may request supporting medical record documentation. Examples of a high level of payment error include unusual patterns such as prescribing the same items or services for a high number of patients, consistently prescribing inappropriate treatments, unexplained increases in volume when compared to historical or peer trends, or any other reasons as determined by the Secretary or his designees.

Before a contractor places a provider or supplier on non-random prepayment complex medical review, the contractor would perform a probe review (that is, complex medical review of a small sample of claims for a specific billing code, generally 20 to 40 claims to confirm that the provider or supplier is billing the program in error). In the case of a widespread “item or service-specific” problem, a larger sample of claims (generally 100 claims of the item or service in question) would be subjected to complex medical review. Performing medical review on a sample of claims for a specific billing code before placing the provider or supplier on non-random prepayment complex medical review allows for a determination as to whether a problem exists and ensures that contractor medical review resources are targeted appropriately and that providers and suppliers are not unnecessarily burdened.

When a probe confirms that a provider or supplier is billing the program in error, and those billing errors present a likelihood of sustained or high level of payment error (for example, a high billing error rate or errors on claims representing high dollar value) this may result in the provider or supplier being placed on non-random prepayment complex medical review. Contractors target medical review activities at providers, items or services that place the greatest risk of making improper payments from the Medicare trust funds.

This activity may involve complex medical review. Complex medical review involves the application of clinical judgment by a licensed medical professional in order to evaluate medical records to determine whether an item or service is covered, and is reasonable and necessary.

Medical records include any medical documentation, other than what is included on the face of the claim that supports the item or service that is billed. For Medicare to consider coverage and payment for any item or service, the information submitted by the supplier or provider (that is, claims) must be supported by the documentation in the patient's medical records. The patient's medical records include—(1) physician's office records; (2) hospital records; (3) nursing home records; (4) home health agency records; (5) records from other healthcare professionals; and (6) diagnostic reports and other supporting documentation. The contractor specifies which pieces of documentation they want. Providers and suppliers may supply additional documentation not explicitly listed by the contractor. This supporting information may be requested by CMS and its agents on a routine basis in instances where diagnoses on the claims do not clearly indicate medical necessity. For example, documentation supporting the medical necessity of a power wheelchair would not be requested in the vast majority of cases where patients have definite medical conditions such as neurological spinal cord injury, cerebral palsy, multiple sclerosis or stroke with residual myoplegia (not all inclusive). On the other hand, it is more likely that documentation would be requested for patients whose diagnoses are limited to non-neurological conditions such as chronic obstructive pulmonary disease, congestive heart failure, coronary artery disease, arthritis or obesity (not all inclusive).

Any determination must be documented and include the rationale for the decision. While medical review staff must follow National Coverage Determinations and Local Coverage Determinations, they are expected to use their expertise to make clinical judgments when making medical review determinations. They must take into consideration the clinical condition of the beneficiary as indicated by the beneficiary's diagnosis and medical history when making these determinations. At any time during the medical review process the contractor detects possible fraud, the contractor would refer the issue to the Benefit Integrity Program Safeguard Contractor.

Before the enactment of the MMA, we continued to perform non-random prepayment complex medical review until the provider or supplier demonstrated compliance with Medicare billing requirements as evidenced by an acceptable error rate. The contractor made the determination of “acceptable error rate.” As a result, some providers and suppliers have remained on medical review for a considerable period of time.

In accordance with section 934 of the MMA, we are proposing to terminate in most cases a provider or supplier from non-random prepayment complex medical review no later than 1 year from the initiation of the review or when the provider's or supplier's error rate decreases by 70 percent from the initial error rate. The initiation of review begins on the date the contractor sends a letter to the provider or supplier. The letter would notify the provider or supplier of the results of the probe review and would inform them that they would be subjected to non-random prepayment complex review. In addition, we are proposing terminating a provider or supplier from non-random prepayment complex medical review when medical review error rate findings indicate that the provider or supplier has corrected its billing errors resulting in at least a 70 percent decrease from its initial error rate. The initial error rate would be calculated based on the probe review prior to the initiation of non-random complex prepayment medical review. We initially considered whether a 90 to 95 percent decrease in a provider's or supplier's error rate was appropriate but determined that a 90 to 95 percent reduction in a provider's or supplier's error rate would be impracticable. Therefore, we believe an error rate reduction of 70 percent from the error rate calculated during probe review, the “initial error rate,” would protect the financial integrity of the Medicare program and allow the provider or supplier a realistic opportunity to be terminated from non-random prepayment complex medical review.

When a provider or supplier is terminated from non-random prepayment complex medical review after 1 year of review and the contractor determines that the provider or supplier continues to have a high error rate despite educational interventions, the contractor must consider referring the provider or supplier to the Benefit Integrity Program Safeguard Contractor. Contractors must also consider continuing educational interventions without performing medical review or consider performing postpayment medical review.

We are also proposing that a contractor could extend a non-random prepayment complex medical review beyond the 1-year limit in certain situations. The contractor could extend non-random prepayment complex medical review if a provider or supplier stops billing the code under review or shifts billing to another inappropriate code to avoid the contractor's proper calculation of the error rate. If the reduction in the error rate is attributed to a 25 percent or greater reduction in the number of claims submitted for the specific billing code under review, non-random prepayment complex medical review for that provider or supplier could be extended. However, if the number of claims submitted for a specific code was reduced because the provider or supplier began billing claims using a new appropriate code, or there is another legitimate explanation for the reduced number of claims billed, at the contractor's discretion, the provider or supplier may not be required to undergo extended non-random prepayment complex medical review. If extended medical review is necessary, contractors would notify providers and suppliers in writing the reason for the need to perform additional prepayment complex medical review.

The contractor would evaluate the results of non-random complex prepayment medical review, and the length of time a provider or supplier remains on review, at least every quarter following the initiation of non-random prepayment complex medical review. Quarterly error-rate evaluations would be for the discrete quarter; a rolling error rate average over more than one quarter would not be appropriate. After the contractor determines that the provider or supplier should be terminated from non-random prepayment complex medical review, the contractor would update the claims processing system within 2 business days to ensure that the provider's and supplier's claims are no longer suspended for that specific billing error.

Once a provider or supplier is terminated from non-random prepayment complex medical review contractors would periodically re-evaluate the provider or supplier's data. If necessary the contractor could place a provider or supplier that appears to have resumed a high level of payment error on complex medical review. This review would only be initiated if a probe review confirms that there continues to be a high level of payment error.

To comply with section 934 of the MMA, we are proposing to amend 42 CFR part 421 by adding and reserving subpart D and adding a new subpart E entitled, “Medicare Payment Review.” This subpart would establish the general criteria for terminating a provider or supplier from non-random prepayment complex medical review.

In § 421.401, we are proposing to define the following terms for purposes of this new subpart:

• Error rate.

• Initial error rate.

• Medical review.

• Non-random complex prepayment medical review.

• Non-random prepayment medical review.

• Provider specific probe review.

• Quarterly error rate.

• Service specific probe review

• Termination of non-random prepayment complex medical review.

In addition, we are proposing in § 421.405 to specify the termination criteria for non-random prepayment complex medical review.

Under the Paperwork Reduction Act of 1995, we are required to provide 60-day notice in the Federal Register and solicit public comment before a collection of information requirement is submitted to the Office of Management and Budget (OMB) for review and approval. In order to fairly evaluate whether an information collection should be approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995 requires that we solicit comment on the following issues:

• The need for the information collection and its usefulness in carrying out the proper functions of our agency.

• The accuracy of our estimate of the information collection burden.

• The quality, utility, and clarity of the information to be collected.

• Recommendations to minimize the information collection burden on the affected public, including automated collection techniques.

We are soliciting public comment on each issue for § 421.405 as summarized and discussed below that contain information collection requirements.

In summary, § 421.405 outlines the proposed requirements and process for the termination and extension of non-random prepayment complex medical review, a form of complex medical review. Contractors conduct complex medical review to determine whether items or services billed are covered, correctly coded, and are reasonable and necessary for the condition of the patient. Under complex medical review the provider or supplier must submit a copy of the medical records that support the items or services billed.

The burden associated with this section is the time and effort necessary for the provider or supplier of services to locate and obtain the supporting documentation for the claim to Medicare and to forward the materials for submission to Medicare contractors for review. We expect that this information would generally be maintained by suppliers and/or providers as a normal course of business and that this information will be readily available.

The burden associated with this requirement is estimated to be 10 minutes per provider or supplier, to locate, photocopy and transmit this information to the contractor upon request.

Over the past 3 years, Medicare contractors have performed complex medical review on an average of 2.9 million claims.

The total annual burden associated with this requirement is estimated to be 483,333 hours (2.9 million requests for medical records × 10 minutes).

If you comment on these information collection and recordkeeping requirements, please mail copies directly to the following: Centers for Medicare & Medicaid Services, Office of Strategic Operations and Regulatory Affairs, Regulations Development Group, Attn: William N. Parham, III, CMS-6022-P, Room C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850; and

Office of Information and Regulatory Affairs, Office of Management and Budget, Room 10235, New Executive Office Building, Washington, DC 20503, Attn: Christopher Martin, CMS Desk Officer, CMS-6022-P, Christopher_Martin@omb.eop.gov . Fax (202) 395-6974.

Because of the large number of public comments we normally receive on Federal Register documents, we are not able to acknowledge or respond to them individually. We would consider all comments we receive by the date and time specified in the DATES section of this preamble, and, when we proceed with a subsequent document, we would respond to the comments in the preamble to that document.

We have examined the impact of this rule as required by Executive Order 12866 (September 1993, Regulatory Planning and Review), the Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), section 1102(b) of the Act, the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4), and Executive Order 13132.

Executive Order 12866 (as amended by Executive Order 13258, which merely reassigns responsibility of duties) directs agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). A regulatory impact analysis (RIA) be prepared for major rules with economically significant effects ($100 million or more in any 1 year). This rule does not reach the economic threshold and thus is not considered a major rule.

The RFA requires agencies to analyze options for regulatory relief of small businesses. For purposes of the RFA, small entities include small businesses, nonprofit organizations, and government agencies. Most hospitals and most other providers and suppliers are small entities, either by nonprofit status or by having revenues of $6 million to $29 million in any 1 year. Individuals and States are not included in the definition of a small entity. We are not preparing an analysis for the RFA because we have determined that this rule would not have a significant economic impact on a substantial number of small entities. We believe that this rule would decrease the costs for providers and suppliers because it establishes guidelines for terminating a provider or supplier from non-random prepayment complex medical review. We believe this rule would eliminate inappropriate reviews and would ensure that Medicare payments would not be withheld for extended time periods.

Because a contractor would no longer be maintaining providers or suppliers on non-random prepayment complex medical review for extended periods, administrative expenses (for example, copying, mailing, and the retention of medical documentation) would be reduced.

In addition, section 1102(b) of the Act requires us to prepare a regulatory impact analysis if a rule may have a significant impact on the operations of a substantial number of small rural hospitals. This analysis must conform to the provisions of section 603 of the RFA. For purposes of section 1102(b) of the Act, we define a small rural hospital as a hospital that is located outside of a Metropolitan Statistical Area and has fewer than 100 beds. We are not preparing an analysis for section 1102(b) of the Act because we have determined that this rule would not have a significant impact on the operations of a substantial number of small rural hospitals.

Section 202 of the Unfunded Mandates Reform Act of 1995 also requires that agencies assess anticipated costs and benefits before issuing any rule that may result in expenditure in any 1 year by State, local, or tribal governments, in the aggregate, or by the private sector, of $100 million. This rule would have no consequential effect on the governments mentioned or on the private sector.

Executive Order 13132 establishes certain requirements that an agency must meet when it promulgates a proposed rule (and subsequent final rule) that imposes substantial direct requirement costs on State and local governments, preempts State law, or otherwise has Federalism implications. Since this regulation would not impose any costs on State or local governments, the requirements of E.O. 13132 are not applicable.

In accordance with the provisions of Executive Order 12866, this regulation was reviewed by the Office of Management and Budget.

For the reasons set forth in the preamble, the Centers for Medicare & Medicaid Services proposes to amend 42 CFR chapter IV as follows:

Written comments on the proposed rule should be specific, should be confined to issues pertinent to the proposed rule, and should explain the reason for any recommended change. Where possible, comments should reference the specific section or paragraph of the proposal which the commenter is addressing. The BLM may not necessarily consider or include in the Administrative Record for the final rule comments which the BLM receives after the close of the comment period (See DATES ) or comments delivered to an address other than those listed above (See ADDRESSES ).

Comments including names, street addresses, and other contact information of respondents, will be available for public review at 1620 L Street, NW., Room 401, Washington, DC, during regular business hours (7:45 a.m. to 4:15 p.m.), Monday through Friday, except Federal holidays. Individual respondents may request confidentiality. If you wish to request that the BLM consider withholding your name, street address, and other contact information (such as: Internet address, FAX or phone number) from public review or from disclosure under the Freedom of Information Act, you must state this prominently at the beginning of your comment. The BLM will make available for public inspection in their entirety all submissions from organizations or businesses, and from individuals identifying themselves as representatives or officials of organizations or businesses.

The Alaska Native Veterans Allotment Act of 1998 (Act), (Section 432 of Pub. L. 105-276), as amended, authorized allotments for certain Alaska Native veterans who served in the U.S. military during the Vietnam era. The Act provided an opportunity to file allotment applications for veterans who may have missed their chance to file (under the 1906 Native Allotment Act) as a direct result of their military service. The Act provided an 18 month application period which began on July 31, 2000 and ended on January 31, 2002. Regulations promulgated to implement the Act included a requirement for applicants to post the corners of their claims before filing their applications with the BLM. The BLM issued the regulations requiring posting before filing because we believed that physical markings on the land would facilitate the processing of the veteran applications and help finalize state and Native conveyance entitlements.

The BLM, Bureau of Indian Affairs (BIA), Alaska Legal Services and BIA service providers notified Alaska Native veterans that it was critical that they submit their applications before the filing deadline. The BLM estimates almost 90% of the applicants failed to post their claim as the regulations require by January 31, 2002, the end of the application filing period. An applicant's failure to post its claim is a legal defect requiring the BLM to reject the claim. The BLM does not wish to reject a large percentage of applications because the corners of claims were not posted. Rejecting these claims for this reason alone is contrary to the purpose of the 1998 Act which was to provide another opportunity for certain veterans to file allotment applications. The BLM has determined that it would be inequitable to enforce a non-statutory requirement for the Vietnam veterans who timely filed their applications but did not post their claims. The BLM wants to give veteran applicants an opportunity to apply for a Native Allotment on the same basis as other applicants. Therefore, the BLM is proposing to amend 43 CFR 2568.74(d) by removing the requirement to post parcels and to delete 43 CFR 2568.77, which requires applicants to post corners of their claims.

In accordance with the criteria in Executive Order 12866, this rule is not a significant regulatory action. OMB makes the final determination under Executive Order 12866.

a. This rule will not have an annual economic effect of $100 million or adversely affect an economic sector, productivity, jobs, the environment, or other units of government. A cost-benefit and economic analysis is not required. This rule does not alter the budgetary effects of entitlements, grants, user fees, or loan programs or the rights or obligations of their recipients; nor does this rule raise novel legal or policy issues. Eliminating the posting requirement would only impact a limited number of individual Alaska Native Veteran applicants, Interior agencies, and tribal offices that are assisting applicants.

b. This rule will not create inconsistencies with other agencies' actions. The effect of this rule will be on a limited number of individuals who are qualified to apply for allotments and on the Interior Department agencies responsible for administering the allotment program. The allotment application period was limited by law to 18 months and has passed; the existing staff of responsible agencies will process applications following most of the same rules that are currently in effect for allotment applications under the 1906 Native Allotment Act.

c. This rule will not materially affect entitlements, grants, user fees, loan programs, or the rights and obligations of their recipients. Eliminating the posting requirement would impact a limited number of individual Alaska Native Vietnam Veteran applicants, Interior agencies, and tribal offices that are assisting applicants. It will have no affect on budgetary entitlements, grants, user fees, or loan programs.

d. This rule will not raise novel legal or policy issues. This rule will place Alaska Native Vietnam Veteran applicants in the same position as those applicants who filed under the initial 1906 Native Allotment Act.

Executive Order 12866 requires each agency to write regulations that are simple and easy to understand. We invite your comments on how to make these proposed regulations easier to understand, including answers to questions such as the following:

1. Are the requirements in the proposed regulations clearly stated?

2. Do the proposed regulations contain technical language or jargon that interferes with their clarity?

3. Does the format of the proposed regulations (grouping and order of sections, use of headings, paragraphing, etc.) aid or reduce their clarity?

4. Would the regulations be easier to understand if they were divided into more (but shorter) sections?

5. Is the description of the proposed regulations in the SUPPLEMENTARY INFORMATION section of this preamble helpful in understanding the proposed regulations? How could this description be more helpful in making the proposed regulations easier to understand?

Please send any comments you have on the clarity of the regulations to the address specified in the ADDRESSES section.

We have analyzed this rule in accordance with the criteria of the National Environmental Policy Act and 516 DM. An environmental assessment is not required. Section 910 of the Alaska National Interest Lands Conservation Act (ANILCA) of December 2, 1980, 43 U.S.C. 1638, made conveyances, regulations, and other actions which lead to the issuance of conveyances to Natives under Alaska Native Claims Settlement Act of 1971 (43 U.S.C. 1601 et seq. ) exempt from NEPA compliance requirements. Since the Alaska Native Veterans Allotment Act is part of ANCSA, NEPA does not apply.

This rule will not have a significant economic effect on a substantial number of small entities as defined under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ). An initial Regulatory Flexibility Analysis is not required. Accordingly, a Small Entity Compliance Guide is not required. This rule will only apply to certain Alaska Native veterans and specific classes of heirs of Alaskan Native veterans who are eligible to apply for allotments. Therefore, the Department of the Interior certifies that this document will not have any significant impacts on small entities under the Regulatory Flexibility Act.

This rule is not a major rule under 5 U.S.C. 804(2), the Small Business Regulatory Enforcement Fairness Act. This rule:

a. Does not have an annual effect on the economy of $100 million or more. This rule would result in some costs saving to allotment applicants because under this rule they would no longer be required to post the corners of the lands in their applications. The Department of the Interior will have to implement the allotment program over the next several years, but these costs will be far below $100 million per year. Enforcing the posting requirement would cost the Department more than eliminating the posting requirements that we have determined to be unnecessary.

b. Will not cause a major increase in costs or prices for consumers, individual industries, Federal, State, or local government agencies, or geographic regions. This rule will result in some costs saving to allotment applicants.

c. Does not have significant adverse effects on competition, employment, investment, productivity, innovation, or the ability of U.S.-based enterprises to compete with foreign-based enterprises. Eliminating the posting requirement would have a positive impact on a limited number of individual Alaska Native Vietnam Veterans, Interior agencies, and tribal offices who are helping the applicants. The BLM will not have any additional applicants because of this revised rule. The original regulations provided for the filing of applications.

In accordance with the Unfunded Mandates Reform Act (2 U.S.C. 1501 et seq. ):

a. This rule will not “significantly or uniquely” affect small governments. A Small Government Agency Plan is not required. Eliminating the posting requirement will potentially result in minimal savings to tribal governments assisting veteran applicants.

b. This rule will not produce a Federal mandate of $100 million or greater in any year, i.e. , it is not a “significant regulatory action” under the unfunded Mandates Reform Act.

In accordance with Executive Order 12630, the rule does not have significant takings implications. A taking implication assessment is not required. This rule does not represent a government action capable of interfering with constitutionally protected property rights. Eliminating the posting requirement will have no effect on the use or value of protected property rights. Therefore, the Department of the Interior determines that this rule will not cause a taking of private property or require further discussion of takings implications under this Executive Order.

In accordance with Executive Order 13132, the rule does not have significant Federalism effects. A Federalism assessment is not required. This rule would not have 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. Eliminating the posting requirement would have a neutral effect on the State of Alaska. Therefore, in accordance with Executive Order 13132, the BLM has determined that this proposed rule does not have sufficient Federalism implications to warrant preparation of a Federalism Assessment.

In accordance with Executive Order 12988, the Office of the Solicitor has determined that the rule does not unduly burden the judicial system and does not meet the requirements of sections 3(a) and 3(b) (2) of the Order.

In accordance with the President's memorandum of April 29, 1994, “Government-to-Government Relations with Native American Tribal Governments” (59 FR 22951), E.O. 13175, and 512 DM 2 we have identified potential effects on Indian trust resources and they are not addressed in this rule. The rule would result in more allotments being conveyed.

Section 41 of ANCSA, which authorizes Native allotments for certain veterans, specifically requires that the Department of the Interior promulgate regulations “after consultation with Alaska Natives groups.” The BLM consulted with the BIA throughout the process of the initial rulemaking and held public meetings to discuss the rule with Native entities, including tribes. The BLM solicited Native's views very early in the rulemaking process and the BLM considered written comments received from tribes and other Native entities in the final rule. The BLM held additional meetings with Native groups before the regulations became final and considered tribal and other Native views in the final rulemaking. Accordingly:

a. We have consulted with the affected tribes.

b. We have consulted with tribes on a government-to-government basis and the consultations have been open and candid so that the affected tribes could fully evaluate the potential impact of the rule on trust resources.

c. We will consider tribal views in the final rule.

d. We have consulted with the appropriate bureaus and offices of the Department about the potential effects of this rule on Indian tribes. We consulted with the Bureau of Indian Affairs and the Division of Indian Affairs, Office of the Solicitor.

The elimination of the posting requirement would more closely comply with verbal and written comments received as a result of the above consultation.

In accordance with Executive Order 13211, this regulation does not have a significant effect on the nation's energy supply, distribution, or use, including a shortfall in supply or price increase. This rule is not a significant energy action. It will not have an adverse effect on energy supplies. This rule will apply only to Alaska Native veterans and to a specific class of Alaskan Native veteran's heirs who are eligible to apply for allotments.

The BLM has determined this rulemaking does not contain any new information collection requirements that the Office of Management and Budget must approve under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ).

In accordance with the Endangered Species Act, this regulation does not have an effect on an endangered species or critical habitat. This rule will expedite the conveyance of otherwise valid allotment claims for a small number of Alaska Native Veterans who have already applied.

Author: The principal author of this rule is Mike Haskins, Division of Conveyance Management, Bureau of Land Management, Anchorage, Alaska; assisted by Kelly Odom of the BLM's Regulatory Affairs Group, Bureau of Land Management, Washington, DC.

For the reasons set forth in the preamble and under the authority of the Alaska Native Veterans Allotment Act of 1998 (Section 432, Pub. L. 105-276) the BLM proposes to amend part 2560 of Title 43 of the Code of Federal Regulations as set forth below:

This notice is organized as follows:

This rulemaking is based on the authority of the Motor Carrier Act of 1935 and the Motor Carrier Safety Act of 1984 (49 U.S.C. 31131, et seq. ).

The Motor Carrier Act of 1935, as amended, provides that “[t]he Secretary of Transportation (Secretary) may prescribe requirements for: (1) Qualifications and maximum hours-of-service of employees of, and safety of operation and equipment of, a motor carrier; and (2) qualifications and maximum hours-of-service of employees of, and standards of equipment of, a motor private carrier, when needed to promote safety of operation” (49 U.S.C. 31502(b)).

This NPRM proposes to amend regulations located at 49 CFR 393.48 entitled “Brakes to be Operative,” 49 CFR 393.49 currently entitled “Single Valve to operate all Brakes,” which previously was interpreted as prohibiting the use of surge brakes on commercial motor vehicles (CMVs), and to add a definition to § 393.5 for surge brakes. Section 393.48 states that all brakes with which a motor vehicle is equipped must at all times be capable of operating. Section 393.49 requires that a single application valve must when applied operate all the service brakes on the motor vehicle or combination of motor vehicles. The adoption and enforcement of such rules is specifically authorized by the Motor Carrier Act of 1935. This NPRM rests squarely on that authority.

The Motor Carrier Safety Act of 1984 provides concurrent authority to regulate drivers, motor carriers, and vehicle equipment. It requires the Secretary to “prescribe regulations on commercial motor vehicle safety. The regulations shall prescribe minimum safety standards for commercial motor vehicles. At a minimum, the regulations shall ensure that: (1) Commercial motor vehicles are maintained, equipped, loaded, and operated safely; (2) the responsibilities imposed on operators of commercial motor vehicles do not impair their ability to operate the vehicles safely; (3) the physical condition of operators of commercial motor vehicles is adequate to enable them to operate vehicles safely; and (4) the operation of commercial motor vehicles does not have a deleterious effect on the physical condition of the operators” (49 U.S.C. 31136(a)).

This NPRM deals with surge brakes. The fundamental purpose of 49 CFR Part 393 Parts and Accessories Necessary for Safe Operation is to ensure that no employer is allowed to operate a commercial motor vehicle or cause or permit it to be operated, unless it is equipped in accordance with the requirements and specifications of this part. However, nothing contained in part 393 can be construed to prohibit the use of additional equipment and accessories, not inconsistent with or prohibited by part 393, provided such equipment and accessories do not decrease the safety of operation of the motor vehicles on which they are used. Compliance with the brake regulations is necessary to ensure vehicles are equipped with adequate braking capability to ensure control of the CMV. Before prescribing modifications to such regulations, FMCSA must consider the “costs and benefits” of any proposal (49 U.S.C. 31136(c)(2)(A)).

The Surge Brake Coalition petitioned FMCSA on February 28, 2002, to amend § 393.48 entitled “Brakes to be Operative” and § 393.49 entitled “Single Valve to Operate all Brakes,” which have been interpreted as prohibiting the use of surge brakes on commercial motor vehicles. Coalition members include trailer manufacturers, parts suppliers, commercial users dependent upon trailers, trailer rental companies, and trade associations whose memberships comprise distinct segments of the trailer business. A copy of the petition is included in the docket referenced at the beginning of this document.

Section 393.48 states that all brakes with which a motor vehicle is equipped must at all times be capable of operating. Section 393.49 requires a single application valve must, when applied, operate all the service brakes on the motor vehicle or combination of motor vehicles. Regulatory guidance previously issued by the Agency (40 FR 50671, 50688, Oct. 31, 1975)  1 indicates the use of surge brakes on trailers operated in interstate commerce is inconsistent with the requirements of §§ 393.48 and 393.49.

Section 393.48 Brakes to be Operative. The Bureau's position regarding surge brakes has been that they did not comply with the requirements of Section 393.48 of the Motor Carrier Safety Regulations. The cited section requires, in part, that all brakes with which motor vehicles are required to be equipped must be operative at all times. A surge brake which is only operative under certain preset conditions would not be in compliance with this requirement. In other words, surge brakes, in general, are only operative when the vehicles are moving in the forward direction.

Section 393.49 Single Valve to Operate All Brakes. A surge brake would comply with the requirements of Section 393.49 as it specifically states that the brake system shall be so arranged that one application valve shall, when applied, operate all of the service brakes on the motor vehicle or combination of motor vehicles. When the service brakes on a power unit towing a vehicle with surge brakes are applied, the brakes on both vehicles would be applied. The power unit brakes would be applied by its application valve and the surge brakes on the towed vehicle by the overrunning effect.

Subsequent regulatory guidance published by FHWA on November 17, 1993 (58 FR 60734, 60755) indicated that surge brakes did not comply with both §§ 393.48 and 393.49:

Section 393.48 Brakes to be Operative . Question 1: Do surge brakes comply with § 393.48? No. Section 393.48 requires that brakes be operable at all times. Generally, surge brakes are only operative when the vehicle is moving in the forward direction and as such do not comply with section 393.48.

Section 393.49 Single Valve to Operate All Brakes . Question 1: Does a combination of vehicles using a surge brake to activate the towed vehicle's brakes comply with § 393.49? No. The surge brake cannot keep the trailer brakes in an applied position. Therefore, the brakes on the combination of vehicles are not under the control of a single valve as required by § 393.49.

This guidance was also included in FHWA's April 4, 1997 (62 FR 16370, 16415 and 16416) publication, “Regulatory Guidance for the Federal Motor Carrier Safety Regulations.”

The Surge Brake Coalition proposed in their petition for rulemaking that § 393.48 be amended by:

1. Revising paragraph (a) to read:

General rule. Except as provided in paragraphs (b), (c), and (d) of this section, all brakes with which a motor vehicle is equipped must at all times be capable of operating.

2. Adding a new paragraph (d) to read:

Surge brakes. Paragraph (a) of this section does not apply to:

Any trailer with a gross vehicle weight rating (GVWR) of 12,000 lbs or less, equipped with inertial surge brakes when its GVWR does not exceed 1.75 times the GVWR of the towing vehicle; or

Any trailer with a GVWR greater than 12,000 lbs, but less than 20,001 pounds (lbs), equipped with inertial surge brakes when the GVWR does not exceed 1.25 times the GVWR of the towing vehicle.

The Petitioner also requested the following exception be added to § 393.49: “This requirement shall not apply to trailers equipped with surge brakes that satisfy the conditions provided in § 393.48(d).”

The Petitioner argues that surge brakes provide a safe, practical braking system for commercial motor vehicle combinations, especially for scenarios in which the trailer is likely to be towed by a variety of vehicles. For example, in the rental market, trailers are rented separately from towing vehicles, and towing vehicles frequently are not wired for electric brake controls. The Petitioner indicates that rental companies believe it is “prohibitively expensive and impractical” to install or adapt a brake control system on each towing vehicle every time they rent a trailer or piece of mobile equipment. The Petitioner estimates that over 25 percent of the rental trailer fleet is equipped with surge brakes.

The Petitioner believes surge brakes are a popular alternative to electric brakes because surge brakes activate automatically, adapt to the weight of the load, have fewer components, and require less maintenance. These features make surge brakes ideal for flatbed and van-type trailers with a GVWR of 20,000 lbs or less, and trailers serving the marine industry. The Petitioner also points out that manufacturers install approximately 250,000 surge brake systems annually on small to medium sized trailers.

The Petitioner conducted brake performance tests at Exponent Failure Analysis Associates' (EFAA) Test and Engineering Center in Phoenix, Arizona. EFAA tested the braking performance of 16 different configurations of towing vehicles and trailers. The Petitioner used the services of a consulting engineer to interpret the test results and prepare the final report concerning the tests.

1. Straight-line braking: Vehicle combinations were stopped from speeds of approximately 20 miles per hour (mph) or greater to determine whether the vehicle could meet the performance requirements under § 393.52. The vehicle combination was required to stay within a 12-foot-wide lane during the test and the stopping distance was measured.

2. Brake holding on a 20 percent incline: Using only the service brakes, the combination was stopped going up a 20 percent incline and required to remain stationary for at least 5 minutes.

3. Braking in a turn: The towing vehicle and trailer were driven on a circular, 12-foot-wide, 500-foot-radius test track of known coefficient of friction. The driver then applied the brakes to achieve maximum deceleration. The average deceleration was calculated.

• 1999 U-Haul tandem axle auto transport (6,000 lbs GVWR), equipped with U-Haul surge brake actuator.

• 2000 Big Tex tandem axle, open cargo area, with side rails (14,000 lbs GVWR), equipped with Demco model DA20 surge brake actuator.

• Two 2001 Wells Cargo flatbed trailers with triple torsion axles (20,000 lbs GVWR). One trailer was equipped with a Titan model 20 surge brake actuator and the other with a Demco model DA20 surge brake actuator.

• 1993 Chevrolet C-1500 (6,100 lbs GVWR), curb weight 4,200 lbs. The vehicle was equipped with front disc brakes and rear drum brakes. The vehicle was also equipped with a rear-axle antilock braking system (ABS).

• 2001 Chevrolet K-3500 (11,400 lbs GVWR), curb weight 7,072 lbs. The vehicle was equipped with four-wheel disc brakes and four-wheel ABS.

• 2001 GMC Sierra (11,400 lbs GVWR), curb weight 7,476 lbs. The vehicle was equipped with four-wheel disc brakes and four-wheel ABS.

• Unladen pickup truck/unladen trailer.

• Unladen pickup truck/full GVWR trailer.

• Full GVWR pickup truck/unladen trailer.

• Full GVWR pickup truck/full GVWR trailer.

• Vehicle combinations that included a heavy trailer (GVWR between 12,001 lbs and 14,600 lbs) complied with FMCSA's brake performance requirements under 49 CFR 393.52 when the GVWR of the trailer was 1.25 times that of the towing vehicle or less, including test runs with the towing vehicle and trailer loaded to their maximum GVWR.

• Vehicle combinations that included a medium-weight trailer (GVWR up to 12,000 lbs) complied with FMCSA's brake performance requirements when the GVWR of the trailer was 2 times that of the towing vehicle or less, including runs with the towing vehicle and trailer loaded to their maximum GVWR.

• Vehicle combinations that fall within the ratios of towing vehicle GVWR to trailer GVWR are capable of complying with 49 CFR 393.52, demonstrate stability and control during braking-in-a-curve tests, and are capable of being stopped and held stationary going up a 20 percent grade.

On August 13, 2004, FMCSA granted the Surge Brake Coalition's petition. FMCSA made a preliminary determination that the petitioner presented sufficient technical information to support its request that the Agency initiate a rulemaking to allow the use of surge brakes on certain combinations of vehicles. Although a limited number of vehicle configurations were tested, the Agency believes the tests adequately demonstrate safe ratios of the towing vehicle GVWR to the trailer GVWR that would be used to determine whether surge brakes may be used on a particular combination of vehicles.

The Agency does not believe that permitting the use of surge brakes, under the specific conditions noted in this proposal, is inconsistent with the original intent of §§ 393.48 and 393.49.

Section 393.48 requires that brakes be capable of operating at all times the vehicle is in operation on public roads. The intent of the requirement is that all commercial motor vehicles operating in interstate commerce have sufficient braking capability at all times. Based upon the information provided by the petitioner, FMCSA believes vehicles equipped with surge brakes, under the conditions being proposed in this rulemaking notice, would have sufficient braking capability at all times the vehicle combination is being operated on public roads, in interstate commerce. While surge brakes automatically release when the vehicle combination comes to a complete stop, the weight-ratio between the towing vehicle and the trailer being proposed today would ensure that the brakes on the towing vehicle are sufficient to maintain control of the combination when the surge brakes release automatically. Therefore, the agency believes the original intent of Section 393.48 would be satisfied by surge brake systems meeting the proposed requirements.

The petitioner contends that:

The Agency proposes to rename and revise § 393.49 to make its construction consistent with § 393.48, and to make it easier to quickly understand the general requirement and the exceptions, which would include one for surge brakes. A new title of “Control Valves for Brakes” is proposed for this section to be more representative of the different types of brake systems addressed.

The Agency is proposing to add a definition for surge brakes to § 393.5 to ensure a clear understanding of what is meant by the term “surge brakes,” and to facilitate consistent application of the requirements being proposed.

If the proposed regulatory amendments are adopted, the Agency would withdraw the existing regulatory guidance provided as Question 1 to § 393.48 and Question 1 to § 393.49, originally published on November 17, 1993 (58 FR 60734) and republished on April 4, 1997 (62 FR 16370). These existing guidance questions addressing whether surge brakes meet the requirements of the standard would be replaced by the proposed regulatory text. Thus, the existing guidance would be superseded by the proposed regulatory text, and would be withdrawn.

The Agency requests comment on whether additional analysis is needed to support the Petitioner's assertion that vehicle combinations that include a heavy trailer (GVWR between 14,600 lbs and 20,000 lbs) would satisfy FMCSA's brake performance requirements under § 393.52 when the GVWR of the trailer is 1.25 times that of the towing vehicle or less. The agency is also requesting the submission of brake performance data and information relevant to all the other issues raised in the petition, and the proposed amendments to §§ 393.48 and 393.49.

The Agency emphasizes that the granting of the petition for rulemaking, and subsequent proposal to amend §§ 393.48 and 393.49 should not be construed as an exception to the brake performance requirements under § 393.52. Therefore, adoption of a final rule would not relieve motor carriers of their responsibility to ensure that any commercial motor vehicle, or combination of commercial motor vehicles, operated in interstate commerce, comply with the brake performance requirements under § 393.52.

FMCSA has determined that this action is a significant regulatory action within the meaning of Executive Order 12866 due to novel policy issues in that it is the subject of both a regulatory reform nomination and an industry petition. This rule has generated a significant amount of public interest as it has been identified in the 2005 “Regulatory Reform of the U.S. Manufacturing Sector” as published by the Office of Management and Budget. We expect the proposed rule would have minimal costs. The Agency has prepared a preliminary regulatory analysis analyzing the costs and benefits of this undertaking. A copy of the preliminary analysis document is included in the docket referenced at the beginning of this notice.

In compliance with the Regulatory Flexibility Act (5 U.S.C. 601-612), the FMCSA has considered the effects of this regulatory action on small entities and determined on a preliminary basis that this proposed rulemaking would have minimal, but positive impact on a substantial number of small entities. This is because it removes a regulatory obstacle to the use of surge brakes on small and medium trailers. There are over 150 firms that manufacture trailers, about 300 firms that are in the boat delivery service, thousands of landscape and construction firms that may use trailers, and over 2,000 rental equipment firms that may offer trailers for rent. The majority of these firms are small businesses according to the definition provided by the Small Business Administration. No entity would be required to use surge brakes, and those currently using electric or other types of brakes have the option to continue with no change.

The change proposed is to allow a braking system that is not currently allowed. Many of these operations use small or medium trailers in their daily operations, which are subject to the FMCSRs if operated in interstate commerce, which currently do not allow the use of surge brakes. CMVs using such trailers are most likely to be operated in interstate commerce if the operation is near a State boundary. This proposed regulatory action would help to promote more uniform requirements. This is because numerous State agencies responsible for motor carrier safety are faced with a current dilemma: specifically, enforcing Federal regulations prohibiting the use of surge brakes on trailers operated in interstate commerce, while allowing identical trailer combinations to operate on the same roads, under the same conditions, in intrastate commerce.

Accordingly, FMCSA certifies that the proposed rule would not have a significant economic impact on a substantial number of small entities.

This rulemaking would not impose an unfunded Federal mandate, as defined by the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1532, et seq. ), that will result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more in any 1 year.

This proposed action would meet 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.

FMCSA has analyzed this proposed action under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. We have determined preliminarily that this rulemaking would not concern an environmental risk to health or safety that may disproportionately affect children.

This proposed rulemaking would not effect 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 action has been analyzed in accordance with the principles and criteria contained in Executive Order 13132. The FMCSA has preliminarily determined that this rulemaking would not have a substantial direct effect on States, nor would it limit the policy-making discretion of the States.

Catalog of Federal Domestic Assistance Program Number 20.217, Motor Carrier Safety. The regulations implementing Executive Order 12372 regarding intergovernmental consultation on Federal programs and activities do not apply to this program.

This proposed rulemaking would not contain a collection of information requirement for the purposes of the Paperwork Reduction Act of 1995, 44 U.S.C. 3501, et seq.

We have analyzed this action for purposes of the National Environmental Policy Act of 1969 (42 U.S.C. 4321, et seq. ) and have determined preliminarily that this action would not have an effect on the quality of the environment. However, a preliminary environmental assessment (EA) has been prepared because the rulemaking is not among the type covered by a categorical exclusion. A copy of the preliminary environmental assessment is included in the docket listed at the beginning of this notice.

We have analyzed this proposed action under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution or Use. We have determined preliminarily that it would not be a “significant energy action” under that Executive Order because it would not be economically significant and would not be likely to have a significant adverse effect on the supply, distribution, or use of energy.

In consideration of the foregoing, FMCSA proposes to amend title 49, Code of Federal Regulations, chapter III, as follows: