You may examine the AD docket on the Internet at http://dms.dot.gov or in person at the Docket Operations office between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The Docket Operations office (telephone (800) 647-5527) is located on the ground floor of the West Building at the DOT street address stated in the ADDRESSES section.

The FAA issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 to include an AD that supersedes AD 2005-26-17, amendment 39-14438 (70 FR 77301, December 30, 2005). The existing AD applies to certain Airbus Model A300-600, A310-200, and A310-300 series airplanes. That NPRM was published in the Federal Register on May 16, 2007 (72 FR 27493). That NPRM proposed to continue to require inspecting for certain serial numbers on elevators, and doing a detailed inspection, visual inspection with a low-angle light, and tap-test inspection of the upper and lower surfaces of the external skins on certain identified elevators for any damage (i.e., debonding of the graphite fiber reinforced plastic (GFRP)/Tedlar film protection, bulges, debonding of the honeycomb core to the carbon fiber reinforced plastic, abnormal surface reflections, and torn-out plies), and doing corrective actions if necessary. That NPRM also proposed to require inspecting for damage of the identified elevators in accordance with a new repetitive inspection program, at new repetitive intervals; and would provide an optional terminating action for the repetitive inspections.

We provided the public the opportunity to participate in the development of this AD. No comments have been received on the NPRM or on the determination of the cost to the public.

We have revised this action to clarify the appropriate procedure for notifying the principal inspector before using any approved AMOC on any airplane to which the AMOC applies.

We have carefully reviewed the available data and determined that air safety and the public interest require adopting the AD with the change described previously. We have determined that this change will neither increase the economic burden on any operator nor increase the scope of the AD.

We consider this AD interim action. We are currently considering requiring the optional terminating action of replacing the external GFRP/Tedlar film with an application of pore filler on the whole elevator external surface, which would constitute terminating action for the repetitive inspections required by this AD.

This AD affects about 142 airplanes of U.S. registry. The following table provides the estimated costs for U.S. operators to comply with this AD. The average labor rate is $80 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 AD will not have federalism implications under Executive Order 13132. This 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 this AD:

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

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

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

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

The FAA amends 14 CFR part 39 by superseding AD 2005-10-16, Amendment 39-14093 (70 FR 28806, May 19, 2005). That AD requires improved software version E.1.N to be installed into the ECU. That AD was the result of an uncommanded engine acceleration event caused by a failure of the ECU digital interface unit. That condition, if not corrected, could result in an undetected failure of the ECU digital interface unit, leading to uncommanded acceleration to the overspeed limit without response to throttle commands. The airplane could then experience asymmetric thrust.

Since AD 2005-10-16 was issued, GE CF6-80E1 and CF6-80C2 series turbofan engines continue to experience flameout events that are due to ice accretion and shedding into the engine during flight. Although the investigation is not yet complete, we believe that the ice accretion is caused by exposure to ice crystals during flight. Industry reports 35 airplane flameout events, including reports of multi-engine events where all engines on the airplane simultaneously experienced a flameout. Some of these events had high pressure compressor blade damage that may have been caused by impact with shedding ice. In all events, the engines restarted and continued to operate normally for the remainder of the flight.

This AD addresses only the CF6-80E1 series turbofan engines, installed on Airbus Industrie A330 series airplanes. We believe the CF6-80E1 series turbofan engines are susceptible to flameouts caused by ice accretion and shedding into the engine during flight. Similar AD actions for CF6-80C2 series engines may be forthcoming.

We view an all-engine flameout event as an unsafe condition particularly for low-altitude events, or other factors that might result in the inability to restart the engines and regain control of the airplane. Since some aspects of this problem are not completely understood, this proposed AD is considered an interim action due to GE's on-going investigation. Future AD action might become necessary based on the results of the investigation and field experience. This condition of insufficient margin to engine flameout due to ice accretion and shedding during flight, if not addressed, could result in an all-engine flameout event during flight.

We have reviewed and approved the technical contents of GE Service Bulletin (SB) No. CF6-80E1 S/B 73-0091, Revision 1, dated June 26, 2007. That SB describes procedures for removing certain software versions from the ECU, and installing a software version that is FAA-approved. The new FAA-approved software version described in the SB modifies the variable bleed valve schedule, which will provide an increased margin to flameout. This increased margin is expected to reduce the rate of flameout occurrences due to ice accretion and shedding during flight. The new FAA-approved software version incorporates the software improvements required by AD 2005-10-16, which prevent failure of the ECU digital interface unit.

Although no airplanes that are registered in the United States use these CF6-80E1 series turbofan engines, the possibility exists that the engines could be used on airplanes that are registered in the United States in the future. The unsafe condition described previously is likely to exist or develop on other CF6-80E1 series turbofan engines of the same type design. We are issuing this AD to minimize the potential of an all-engine flameout event caused by ice accretion and shedding during flight. This AD requires removing certain software versions from the engine ECU.

Since there are currently no domestic operators of this engine model, notice and opportunity for public comment before issuing this AD are unnecessary. A situation exists that allows the immediate adoption of this regulation.

These actions are interim actions due to the on-going investigation. We may take further rulemaking actions in the future, based on the results of the investigation and field experience.

This AD is a final rule that involves requirements affecting flight safety and was not preceded by notice and an opportunity for public comment; however, we invite you to send us any written relevant data, views, or arguments regarding this AD. Send your comments to an address listed under ADDRESSES . Include “AD Docket No. FAA-2005-21238; Directorate Identifier 2005-NE-12-AD” in the subject line of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of the rule that might suggest a need to modify it.

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 AD. Using the search function of the DMS Web site, anyone can find and read the comments in any of our dockets, including the name of the individual who sent the comment (or signed the comment on behalf of an association, business, labor union, etc.). You may review the DOT's complete Privacy Act Statement in the Federal Register published on April 11, 2000 (65 FR 19477-78) or you may visit http://dms.dot.gov.

You may examine the AD docket on the Internet at http://dms.dot.gov; or in person at the Docket Operations office between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The AD docket contains this AD, the regulatory evaluation, any comments received, and other information. The street address for the Docket Operations office (telephone (800) 647-5527) is provided in the ADDRESSES section. Comments will be available in the AD docket shortly after receipt.

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 AD will not have federalism implications under Executive Order 13132. This 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 this AD:

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

We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 to include an AD that would apply to the specified products. That NPRM was published in the Federal Register on May 24, 2007 (72 FR 29086). That NPRM proposed to correct an unsafe condition for the specified products. The MCAI states:

We gave the public the opportunity to participate in developing this AD. We received no comments on the NPRM or on the determination of the cost to the public.

We reviewed the available data and determined that air safety and the public interest require adopting the AD as proposed.

We have reviewed the MCAI and related service information and, in general, agree with their substance. But we might have found it necessary to use different words from those in the MCAI to ensure the AD is clear for U.S. operators and is enforceable. In making these changes, we do not intend to differ substantively from the information provided in the MCAI and related service information.

We might also have required different actions in this AD from those in the MCAI in order to follow our FAA policies. Any such differences are highlighted in a NOTE within the AD.

We estimate that this AD will affect 3 products of U.S. registry. We also estimate that it will take about 7 work-hours per product to comply with the basic requirements of this AD. The average labor rate is $80 per work-hour. Based on these figures, we estimate the cost of this AD to the U.S. operators to be $1,680, or $560 per product.

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 determined that this AD will not have federalism implications under Executive Order 13132. This 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 this AD:

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 AD and placed it in the AD docket.

You may examine the AD docket on the Internet at http://dms.dot.gov; or in person at the Docket Operations office between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The AD docket contains the NPRM, the regulatory evaluation, any comments received, and other information. The street address for the Docket Operations office (telephone (800) 647-5527) is in the ADDRESSES section. Comments will be available in the AD docket shortly after receipt.

Discussion

On May 9, 2007, we issued a proposal to amend part 39 of the Federal Aviation Regulations (14 CFR part 39) to include an AD that would apply to certain Ag Cat G-164 series airplanes. This proposal was published in the Federal Register as a notice of proposed rulemaking (NPRM) on May 16, 2007 (72 FR 27489). The NPRM proposed to retain the actions of AD 82-07-04 and add airplane models and serial numbers to the applicability.

We provided the public the opportunity to participate in developing this AD. We received no comments on the proposal or on the determination of the cost to the public.

We have carefully reviewed the available data and determined that air safety and the public interest require adopting the AD as proposed except for minor editorial corrections. We have determined that these minor corrections:

• Are consistent with the intent that was proposed in the NPRM for correcting the unsafe condition; and

• Do not add any additional burden upon the public than was already proposed in the NPRM.

This AD affects additional models and serial numbers airplanes compared to the list in the applicability section of the service information. The requirements of this AD take precedence over the provisions in the service information.

We estimate that this AD affects 1,400 airplanes in the U.S. registry, including those airplanes affected by AD 82-07-04.

We estimate the following costs to do the modification:

We based our fleet cost estimate on all airplanes needing the modification. We have no way of knowing which airplanes already have modified the fuel shut-off control per AD 82-07-04. We also have no way of knowing how many airplanes have been retrofitted with the Gemini fuel shut-off valve part number 3/4-86-6-RT-6 (A3580-1) without incorporating AD 82-07-04.

The estimated total cost on U.S. operators includes the cumulative costs associated with those airplanes affected by AD 82-07-04 and those airplanes being added in this AD.

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 AD.

We have determined that this AD will not have federalism implications under Executive Order 13132. This 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 this AD:

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 summary of the costs to comply with this AD (and other information as included in the Regulatory Evaluation) and placed it in the AD Docket. You may get a copy of this summary by sending a request to us at the address listed under ADDRESSES . Include “Docket No. FAA-2007-27860; Directorate Identifier 2007-CE-034-AD” in your request.

We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 to include an AD that would apply to the specified products. That NPRM was published in the Federal Register on May 24, 2007 (72 FR 29091). That NPRM proposed to correct an unsafe condition for the specified products. The MCAI states:

We gave the public the opportunity to participate in developing this AD. We received no comments on the NPRM or on the determination of the cost to the public.

We reviewed the available data and determined that air safety and the public interest require adopting the AD as proposed.

We have reviewed the MCAI and related service information and, in general, agree with their substance. But we might have found it necessary to use different words from those in the MCAI to ensure the AD is clear for U.S. operators and is enforceable. In making these changes, we do not intend to differ substantively from the information provided in the MCAI and related service information.

We might also have required different actions in this AD from those in the MCAI in order to follow our FAA policies. Any such differences are highlighted in a NOTE within the AD.

Based on the service information, we estimate that this AD affects about 15 products of U.S. registry. We also estimate that it takes about 36 work-hours per product to comply with the basic requirements of this AD. The average labor rate is $80 per work-hour. Required parts cost between $7,900 and $8,610 per product, depending on the airplane configuration. Where the service information lists required parts costs that are covered under warranty, we have assumed that there will be no charge for these costs. As we do not control warranty coverage for affected parties, some parties may incur costs higher than estimated here. Based on these figures, we estimate the cost of the AD on U.S. operators to be between $161,700 and $172,350 for the fleet, or between $10,780 and $11,490 per product.

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 determined that this AD will not have federalism implications under Executive Order 13132. This 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 this AD:

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 AD and placed it in the AD docket.

You may examine the AD docket on the Internet at http://dms.dot.gov; or in person at the Docket Operations office between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The AD docket contains the NPRM, the regulatory evaluation, any comments received, and other information. The street address for the Docket Operations office (telephone (800) 647-5527) is in the ADDRESSES section. Comments will be available in the AD docket shortly after receipt.

History

On Tuesday, May 22, 2007, the FAA proposed to amend part 71 of the Federal Aviation Regulations (14 CFR part 71) to revise Class E airspace upward from the surface, from 700 ft. above the surface and from 1,200 ft. above the surface at Fort Yukon, AK (72 FR 28626). The action was proposed in order to create Class E airspace sufficient in size to contain aircraft while executing SIAPs for the Fort Yukon Airport. Class E controlled airspace extending upward from the surface, from 700 ft. above the surface and from 1,200 ft. above the surface, in the Fort Yukon Airport area is revised by this action.

Interested parties were invited to participate in this rulemaking proceeding by submitting written comments on the proposal to the FAA. No comments were received. The rule is adopted as proposed.

The area will be depicted on aeronautical charts for pilot reference. The coordinates for this airspace docket are based on North American Datum 83. The Class E airspace areas designated as surface areas are published in paragraph 6002 of FAA Order 7400.9P, Airspace Designations and Reporting Points , dated September 1, 2006, and effective September 15, 2006, which is incorporated by reference in 14 CFR 71.1. The Class E airspace areas designated as 700/1,200 ft. transition areas are published in paragraph 6005 of FAA Order 7400.9P, Airspace Designations and Reporting Points , dated September 1, 2006, and effective September 15, 2006, which is incorporated by reference in 14 CFR 71.1. The Class E airspace designations listed in this document will be published subsequently in the Order.

This amendment to 14 CFR part 71 revises Class E airspace at the Fort Yukon Airport, Alaska. This Class E airspace is revised to accommodate aircraft executing new and amended DPs and SIAPs, and will be depicted on aeronautical charts for pilot reference. The intended effect of this rule is to provide adequate controlled airspace for Instrument Flight Rules (IFR) operations at the Fort Yukon Airport, Fort Yukon, Alaska.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. It, therefore—(1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

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

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

History

On Tuesday, May 22, 2007, the FAA proposed to amend part 71 of the Federal Aviation Regulations (14 CFR part 71) to revise Class E airspace upward from the surface, from 700 ft. above the surface and from 1,200 ft. above the surface at Kotzebue, AK (72 FR 28624). The action was proposed in order to create Class E airspace sufficient in size to contain aircraft while executing SIAPs for the Ralph Wien Memorial Airport. The Kotzebue VOR/DME location has also been updated to reflect the current location. Class E controlled airspace extending upward from the surface, from 700 ft. above the surface and from 1,200 ft. above the surface, in the Ralph Wien Memorial Airport area is revised by this action.

Interested parties were invited to participate in this rulemaking proceeding by submitting written comments on the proposal to the FAA. No comments were received. The rule is adopted as proposed.

The area will be depicted on aeronautical charts for pilot reference. The coordinates for this airspace docket are based on North American Datum 83. The Class E airspace areas designated as surface areas are published in paragraph 6002 of FAA Order 7400.9P, Airspace Designations and Reporting Points , dated September 1, 2006, and effective September 15, 2006, which is incorporated by reference in 14 CFR 71.1. The Class E airspace areas designated as 700/1,200 ft. transition areas are published in paragraph 6005 of FAA Order 7400.9P, Airspace Designations and Reporting Points , dated September 1, 2006, and effective September 15, 2006, which is incorporated by reference in 14 CFR 71.1. The Class E airspace designations listed in this document will be published subsequently in the Order.

This amendment to 14 CFR part 71 revises Class E airspace at the Ralph Wien Memorial Airport, Alaska. This Class E airspace is revised to accommodate aircraft executing amended DPs and SIAPs, and will be depicted on aeronautical charts for pilot reference. The intended effect of this rule is to provide adequate controlled airspace for Instrument Flight Rules (IFR) operations at the Ralph Wien Memorial Airport, Kotzebue, Alaska.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. It, therefore—(1) Is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

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

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

On Tuesday, May 22, 2007, the FAA proposed to amend part 71 of the Federal Aviation Regulations (14 CFR part 71) to revise Class E airspace upward from 700 ft. above the surface and from 1,200 ft. above the surface at Noatak, AK (72 FR 28627). The action was proposed in order to create Class E airspace sufficient in size to contain aircraft while executing SIAPs for the Noatak Airport. Class E controlled airspace extending upward from 700 ft. above the surface and from 1,200 ft. above the surface in the Noatak Airport area is revised by this action.

Interested parties were invited to participate in this rulemaking proceeding by submitting written comments on the proposal to the FAA. No comments were received. The rule is adopted as proposed.

The area will be depicted on aeronautical charts for pilot reference. The coordinates for this airspace docket are based on North American Datum 83. The Class E airspace areas designated as 700/1,200 ft. transition areas are published in paragraph 6005 of FAA Order 7400.9P, Airspace Designations and Reporting Points, dated September 1, 2006, and effective September 15, 2006, which is incorporated by reference in 14 CFR 71.1. The Class E airspace designations listed in this document will be published subsequently in the Order.

This amendment to 14 CFR part 71 revises Class E airspace at the Noatak Airport, Alaska. This Class E airspace is revised to accommodate aircraft executing amended DPs and SIAPs, and will be depicted on aeronautical charts for pilot reference. The intended effect of this rule is to provide adequate controlled airspace for Instrument Flight Rules (IFR) operations at the Noatak Airport, Noatak, Alaska.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. It, therefore—(1) Is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

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

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

On Tuesday, May 22, 2007, the FAA proposed to amend part 71 of the Federal Aviation Regulations (14 CFR part 71) to revise Class E airspace upward from 700 ft. above the surface and from 1,200 ft. above the surface at Ruby, AK (72 FR 28629). The action was proposed in order to create Class E airspace sufficient in size to contain aircraft while executing SIAPs for the Ruby Airport. The Notice of Proposed Rulemaking contained airport location data, which has since been updated. The revised airport location coordinates are listed in this rule. Class E controlled airspace extending upward from 700 ft. above the surface and from 1,200 ft. above the surface, in the Ruby Airport area is revised by this action.

Interested parties were invited to participate in this rulemaking proceeding by submitting written comments on the proposal to the FAA. No comments were received. The rule is adopted as proposed.

The area will be depicted on aeronautical charts for pilot reference. The coordinates for this airspace docket are based on North American Datum 83. The Class E airspace areas designated as 700/1,200 ft. transition areas are published in paragraph 6005 of FAA Order 7400.9P, Airspace Designations and Reporting Points, dated September 1, 2006, and effective September 15, 2006, which is incorporated by reference in 14 CFR 71.1. The Class E airspace designations listed in this document will be published subsequently in the Order.

This amendment to 14 CFR part 71 revises Class E airspace at the Ruby Airport, Alaska. This Class E airspace is revised to accommodate aircraft executing new SIAPs, and will be depicted on aeronautical charts for pilot reference. The intended effect of this rule is to provide adequate controlled airspace for Instrument Flight Rules (IFR) operations at the Ruby Airport, Ruby, Alaska.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. It, therefore—(1) Is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

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

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

Before Commissioners: Joseph T. Kelliher, Chairman; Suedeen G. Kelly, Marc Spitzer, Philip D. Moeller, and Jon Wellinghoff.

1. This Final Rule amends a number of sections of the Commission's regulations to revise outdated references to various Commission offices. An internal reorganization in 2003 resulted in functions previously carried out by the Offices of Pipeline Regulation and Electric Power Regulation being distributed between the Offices of Markets, Tariffs and Rates (OMTR) and Energy Projects (OEP). In addition, the functions of the Office of Hydropower Licensing were moved to OEP. Since then, OMTR has been renamed the Office of Energy Markets and Reliability (OEMR). The Commission's regulations currently contain references to the three former offices, as well as several references to OMTR. This rulemaking changes these references to OEMR or OEP, as appropriate.

2. This Final Rule also revises the delegations to the Director of OEMR  1 contained in 18 CFR 375.307. The majority of these revisions are intended to organize better and to clarify those delegations rather than modify them. The revisions delete redundant language; revise language concerning electric, gas and oil filings to better ensure consistency in the delegations of authority; and reorganize the language by program.

3. In a few instances, OEMR's delegated authority has been expanded. In such cases, these authorities are intended to assist the Commission in processing routine, noncontroversial matters in an efficient manner. New section 375.307(a)(2) includes delegated authority to assist OEMR in implementing certain reliability provisions of Federal Power Act section 215, which were enacted by the Energy Policy Act of 2005. 2 New sections 375.307(a)(4)(iii) and (a)(6) also delegate to the Director of OEMR authority to assist in implementing the provisions of the Energy Policy Act of 2005. 3 New sections 375.307(a)(10)(iii) and (iv) add delegated authority to act in routine matters involving natural gas pipeline rates and charges under section 311 of the Natural Gas Policy Act of 1978  4 that is similar to the authority delegated to the Director of OEMR to act on natural gas pipeline rates and charges under section 4 of the Natural Gas Act. New section 375.307(b)(2)(i) delegates authority to act on waiver requests for various forms, while new section 375.307(b)(3)(ii) delegates to the Director of OEMR authority to request further information relating to matters processed by OEMR. Finally, because new section 375.307(a)(4) includes authority to act on uncontested FERC-65A and FERC-65B filings, overlapping authority is being deleted from section 366.4.

4. The rule updates one of the standards of conduct for Commission employees to include a reference to a relevant provision in the Energy Policy Act of 2005. Current 18 CFR 3c.2(a), which prohibits Commission employees from disclosing nonpublic information, contains references to relevant provisions of the Federal Power Act and Natural Gas Act. The revision adds a reference to a similar statutory provision, section 1264(d) of the new Public Utility Holding Company Act of 2005, added by the Energy Policy Act, Pub. L. No. 109-58, § 1264(d), 119 Stat. 594, 974 (2005).

5. This rule also makes two changes to the delegations to the Secretary of the Commission contained in 18 CFR 375.302. The first amends § 375.302 to add a new paragraph (y), which delegates to the Secretary the authority to refer complaint proceedings to the Commission's Dispute Resolution Service (DRS). Under the new provision, the Secretary is authorized to direct DRS staff to contact the parties in any complaint proceeding subject to the Commission's jurisdiction so that DRS can assist the parties in determining whether use of an alternative dispute resolution (ADR) process is appropriate to address matters raised in the complaint. 5 The Secretary is also authorized to establish a date by which DRS must report to the Commission whether an ADR process will be pursued by the parties.

6. The second change to the Secretary's delegations, new paragraph (z), allows the Secretary to specify formatting requirements for documents submitted to the Commission on electronic media. Allowing the Secretary to do so, through instructions issued to the public and posted on the Commission's Web site, is more efficient and thus preferable to specifying formats in a regulation. Technological needs and capabilities change frequently. This revision will allow Commission staff to update formats without delay.

7. A minor change is being made to the Commission's regulations on recreational opportunities and development at licensed hydroelectric projects. The provision governing filing of Form No. 80  6 is being revised to require filing with the Commission rather than with a Regional Office. This will facilitate electronic filing of the form, which the Commission expects to implement in the near future. In addition, we are eliminating section 8.11(a)(3), which provides that the filer need only update a previously filed form rather than file a completely new form. This change similarly anticipates electronic filing, which will allow prior forms to be easily saved, stored and edited for resubmittal.

8. The delegation to the Director of External Affairs to take necessary actions in connection with requests under the Freedom of Information Act (FOIA)  7 is being deleted. The delegation is unnecessary because the Commission's regulations implementing FOIA afford the Director the needed authority. 8

9. A minor clarification is being made to allow the rejection of applications for certificates of public convenience and necessity within ten business days rather than ten calendar days. 9 This parallels similar language in the provision regarding notice of acceptance of an application. 10

10. Finally, the Commission's regulations are being revised to correct erroneous or outdated references or language in the following sections: 2.9, 4.30, 4.32, 4.33, 4.41, 4.71, 4.81, 4.92, 4.107, 5.9, 5.18, 6.1, 11.10, 16.12, 16.16, 16.19, 16.22, 131.20, 157.14, 157.209, 375.308, and 388.2201.

11. The Office of Management and Budget's (OMB) regulations require that OMB approve certain information collection requirements imposed by agency rule. 11 This Final Rule does not contain information reporting requirements and is not subject to OMB approval.

12. 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 quality of the human environment. 12 Issuance of this Final Rule does not represent a major federal action having a significant adverse effect on the quality of the human environment under the Commission's regulations implementing the National Environmental Policy Act. Part 380 of the Commission's regulations lists exemptions to the requirement to draft an Environmental Analysis or Environmental Impact Statement. Included is an exemption for procedural, ministerial or internal administrative actions. 13 This rulemaking is exempt under that provision.

13. The Regulatory Flexibility Act of 1980 (RFA)  14 generally requires a description and analysis of final rules that will have significant economic impact on a substantial number of small entities. This Final Rule concerns matters of internal agency procedure and the Commission therefore certifies that it will not have such an impact. An analysis under the RFA is not required.

14. 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 the Commission's Home Page ( http://www.ferc.gov ) and in the Commission'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.

15. From the Commission's Home Page on the Internet, this information is available on 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 the docket number excluding the last three digits of this document in the docket number field.

16. 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 Press 0, TTY (202) 502-8659. (e-mail at public.referenceroom@ferc.gov ).

17. These regulations are effective immediately upon publication in the Federal Register . In accordance with 5 U.S.C. 553(d)(3), the Commission finds that good cause exists to make this Final Rule effective immediately. It concerns only matters of internal operations or is ministerial in nature and will not affect the rights of persons appearing before the Commission. There is, therefore no reason to make this rule effective at a later time.

18. The provisions of 5 U.S.C. 801 regarding Congressional review of Final Rules do not apply to this Final Rule, because this Final Rule concerns agency procedure and practice and will not substantially affect the rights of non-agency parties.

19. The Commission is issuing this as a Final Rule without a period for public comment. Under 5 U.S.C. 553(b), notice and comment procedures are unnecessary where a rulemaking concerns only agency procedure and practice, or where the agency finds that notice and comment is unnecessary. This Final Rule concerns only matters of agency procedure and will not significantly affect regulated entities or the general public.

In the Federal Register of June 19, 2007 (72 FR 33664), FDA amended the color additive regulations to add § 74.2053 (21 CFR 74.2053) to provide for the safe use of D&C Black No. 3 as a color additive in the following cosmetics: Eyeliner, eye shadow, mascara, and face powder.

FDA gave interested persons until July 19, 2007, to file objections or requests for a hearing. The agency received no objections or requests for a hearing on the final rule. Therefore, FDA finds that the effective date of the final rule that published in the Federal Register of June 19, 2007, should be confirmed.

Electronic Access

This document and all comments received by the DOT Dockets, Room PL-401, may be viewed through the Docket Management System (DMS) at http://dms.dot.gov. It is available 24 hours each day, 365 days each year. Electronic submission and retrieval help and guidelines are available under the help section of this Web site.

An electronic copy of this document may be downloaded from the Federal Register 's home page at http://www.archives.gov and the Government Printing Office's Web page at http://www.access.gpo.gov/nara.

Section 1503 of the SAFETEA-LU (Pub. L. 109-59; August 10, 2005, 119 Stat. 1144) revises the definition of a design-build “qualified project” (23 U.S.C. 112(b)(3)). This change removes a previous monetary threshold for design-build projects, thus eliminating the requirement to approve Federal-aid design-build projects exceeding certain dollar thresholds under Special Experimental Project No. 14 (SEP-14). 1 When appropriate, the FHWA will continue to make SEP-14 available for projects that do not conform to the requirements of 23 CFR part 636.

Section 1503 also requires the Secretary of Transportation to make certain changes to the design-build regulations at 23 CFR part 636. Generally, section 1503 requires the Secretary to amend the design-build rule to permit a State transportation department to release requests for proposals and award design-build contracts prior to the completion of the NEPA process, but preclude a contractor from proceeding with final design or construction before NEPA is complete.

The FHWA published a NPRM on May 25, 2006, (71 FR 30100) proposing certain changes to comply with section 1503 of SAFETEA-LU. All comments received in response to the NPRM have been considered in drafting this final rule. We received 36 comments. The commenters include: one private individual, one Federal agency, the Governor of the State of Indiana, 18 State departments of transportation (State DOTs), 3 local public agencies, 8 industry organizations, and 4 firms that provide engineering and construction services. We classified the American Association of State Highway and Transportation Officials (AASHTO) as a State DOT, because it represents State DOT interests. It is noted that the State DOTs of Idaho, Montana, North Dakota, and South Dakota submitted a combined comment. It is also noted that these State DOTs, as well as the Wyoming Department of Transportation, simply commented that they support the comments submitted by AASHTO. Additionally, an organization known as the E-470 Public Highway Authority simply commented that it supports the comments submitted by the Texas Department of Transportation (TxDOT). Lastly, the FHWA notes that the Southern California Association of Governments (SCAG) submitted its comments on the design-build NPRM to the docket for the FHWA's planning NPRM (Docket No. FHWA-2005-22986). The FHWA considered SCAG's comments along with all other comments submitted to the rulemaking docket for the design-build NPRM in developing this final rule.

The following discussion summarizes the major comments submitted to the docket by the commenters on the NPRM, notes where and why changes have been made to the rule, and, where relevant, states why particular recommendations or suggestions have not been incorporated into the final rule.

The Virginia Department of Transportation (VDOT), Utah Department of Transportation (UDOT), TxDOT, Associated General Contractors (AGC) of America, Design-Build Institute of America (DBIA), and Bechtel Infrastructure Corporation (Bechtel) each commented on the changes proposed for this section. Bechtel commented that the project agreement for a design-build project should be executed prior to the completion of the NEPA process. The FHWA disagrees with this comment to the extent that Bechtel is requesting that the project agreement cover final design and physical construction. The execution of the project agreement for a project constitutes an obligation of Federal funds to the project, and the FHWA is precluded under 40 CFR 1508.18 and 23 CFR 771.109 and 771.113 from funding final design or physical construction. However, the FHWA agrees that project agreements may be executed for preliminary engineering, preliminary design, and other preconstruction activities for design-build projects. Accordingly, we have amended the final regulatory text in section 630.106(a)(3) to clarify that only project agreements for final design and physical construction must wait until the conclusion of the NEPA process.

AGC of America commented that there is no definition of preliminary engineering, while preliminary design is defined in section 636.103. Preliminary design is defined because the amendments to 23 U.S.C. 112(b)(3) in section 1503 of SAFETEA-LU make a distinction between preliminary design and final design. Under these amendments, a design-builder may proceed to conduct preliminary design, but not final design. There is nothing in the SAFETEA-LU amendments to preclude preliminary engineering, which generally consists of those activities necessary for the analysis of a project or project alternatives, including environmental impacts, as necessary to complete the NEPA process. As such, preliminary engineering may continue to be authorized prior to the completion of the NEPA process as it has been prior to the SAFETEA-LU amendments. Thus, the FHWA does not believe that a separate definition of preliminary engineering is necessary.

TxDOT, UDOT, and DBIA were each concerned that the language would preclude authorization for activities which may be carried out prior to the completion of the NEPA process other than preliminary engineering. Similarly, VDOT commented that the proposed regulatory change would preclude authorization for preconstruction activities that may not necessarily be preliminary engineering. The FHWA agrees with these comments and has amended the final regulation to include the term “preliminary design” as defined in section 636.103. It is not FHWA's intent to preclude Federal participation in preliminary engineering or other activities that can be carried out consistent with NEPA.

Bechtel and the National Council for Public Private Partnerships (NCPPP) both commented on the proposed changes to this section. In general, both suggested that the FHWA should extend the FHWA's concurrence to the selection of the proposer and execute a project agreement. The FHWA disagrees with these comments. First, the FHWA cannot commit funds to a project before the NEPA process is complete. The execution of a project agreement for a design-build project would result in the obligation of Federal funds for the construction of the project prior to the completion of the NEPA process. Second, section 1503 of SAFETEA-LU amended 23 U.S.C. 112(b)(3) to expressly require the Secretary's concurrence prior to issuing a request for proposals (RFP), awarding a design-build contract, and issuing notices to proceed with preliminary design. Bechtel and NCPPP's comments would result in the Secretary only concurring in the RFP.

The FHWA is making a technical, conforming amendment to the regulation at section 635.309(p)(1). Specifically, the FHWA is deleting the parenthetical providing that the States' authority to advertise or release a request for proposals document may not be granted until the NEPA review process has been concluded. In place of the parenthetical, the FHWA has inserted the words “for final design and physical construction.” This amendment is necessary to ensure that there is no confusion in the regulations concerning whether an request for proposals document may be released, or a design-build contract may be awarded, in accordance with 23 U.S.C. 112(b)(3)(D). However, this section would continue to preclude project authorization for final design and physical construction of a design-build project until after the NEPA review process is complete.

The substance of this amendment, which is to allow the release of a request for proposals document prior to the completion of the NEPA process, was addressed in the NPRM. Specifically, the proposed changes to sections 635.112 and 636.109 both expressly dealt with the advertising and release of a request for proposals document for a design-build project prior to the conclusion of the NEPA process. Additionally, the decision to prohibit project authorization for the final design and physical construction of a design-build project were proposed in sections 630.106 and 636.109 of the NPRM.

Bechtel and NCPPP commented on the proposed amendments to this section. In general, Bechtel and NCPPP commented that this section should be revised to allow for additional warranties beyond the normal construction/contractor warranties of 1-2 years. The FHWA disagrees with these comments. The FHWA's funding authority is generally limited to participation in construction and preventive maintenance. The FHWA will authorize the use of Federal funding to procure a warranty, if the warranty is for a construction or preventative maintenance project. The proposed regulatory language does not preclude the contracting agency from procuring warranties for projects other than construction and preventative maintenance with its own funds.

We received several comments on the proposed definitions under this section in the NPRM. These comments are discussed under each respective definition below.

VDOT, UDOT, TxDOT, AASHTO, and DBIA each commented on the proposed definition of “developer.” These comments generally stated that the distinction between developer and design-builder is unclear and that the definition duplicates the language in the proposed definition of public-private agreement. The FHWA agrees with these comments and has decided to strike the definition of developer from the final rule. Since the FHWA has struck the changes to 636.119, as discussed below, the term developer no longer has any significance to the regulations.

TxDOT, UDOT, Maryland State Highway Administration (MdSHA), Pennsylvania Department of Transportation (PennDOT), Missouri Department of Transportation (MoDOT), New Jersey Department of Transportation (NJDOT), Louisiana Department of Transportation and Development (LDOTD), Indiana Governor Mitch Daniels, AASHTO, AGC of America, DBIA, Jacobs Civil, Inc. (JCI), and the Nossaman, Guthner, Knox, and Elliott LLP law firm/The Ferguson Group LLC (Nossaman) each commented on this proposed definition. In general, the comments stated that the definition is too restrictive and that the definition should be limited to work directly associated with the preparation of final construction plans and detailed technical specifications. The comments arguing that the definition is too restrictive are based on the comments to the proposed definition of preliminary design, which are discussed below. As explained below, the proposed definition of preliminary design has been broadened in the final rule. Thus, the language in the definition of final design stating that final design includes any design activities following preliminary design has been retained and the language concerning any design activities not necessary to complete the NEPA process has been stricken. Moreover, since a number of commenters stated that final design includes work directly related to the preparation of final construction plans and detailed specifications, these activities have been expressly included in the definition of final design.

All of the commenters substantially commented on the proposed definition of “preliminary design.” Specifically, LDOTD, Georgia Department of Transportation (GDOT), Indiana Governor Mitch Daniels, NJDOT, MoDOT, PennDOT, Knik Arm Bridge and Toll Authority (KABATA), California Department of Transportation (Caltrans), VDOT, Ohio Department of Transportation (OhDOT), Oregon Department of Transportation (OrDOT), UDOT, Minnesota Department of Transportation (Mn/DOT), Florida Department of Transportation (FDOT), MdSHA, TxDOT, AASHTO, AGC of America, American Council of Engineering Companies (ACEC), NCPPP, Nossaman, Bechtel, Washington Group International (WGI), JCI, Michael T. McGuire, Professional Engineers in California Government, and SCAG all commented on this proposed definition.

Michael T. McGuire commented that allowing a design-builder to proceed with preliminary design prior to NEPA is a conflict of interest. The FHWA disagrees with this comment. So long as the design-builder does not prepare the NEPA documents, the conflict of interest provision in the Council on Environmental Quality (CEQ) regulation, 40 CFR 1506.5(c), is met.

The Professional Engineers in California Government commented that they agreed with the proposed definition of “preliminary design.” All other commenters felt that the proposed definition is too narrow. In general, these commenters were concerned that the definition would exclude activities needed to comply with other environmental laws and omit activities that have been traditionally considered preliminary engineering, that do not materially affect the consideration of alternatives in the NEPA analysis, and that work to advance the design of the preferred alternative as permitted in 23 U.S.C. 139(f)(4)(D), which was added by section 6002 of SAFETEA-LU. Several commenters also listed specific activities that have traditionally been allowed to proceed during the NEPA review process. After considering these comments, the FHWA agrees that the proposed definition is too narrow. It is not the FHWA's intent to preclude the States from conducting preliminary engineering and other pre-decisional project-related activities consistent with NEPA when a request for proposals is issued or design-build contract is awarded, prior to the completion of the NEPA process. Accordingly, the FHWA has revised the definition of preliminary design to mean activities undertaken to define the general project location and design concepts. The FHWA has also specified some general activities that may be conducted as preliminary design that typically do not compromise the objectivity of the NEPA process. These activities were specifically identified by VDOT, OhDOT, MdSHA, TxDOT, UDOT, AASHTO, DBIA, and Nossaman. The activities specified in this definition are not intended to be an exhaustive list of activities that may be considered preliminary design. However, any activity, regardless of its inclusion in the definition of preliminary design, must not materially affect the object consideration of alternatives in the NEPA review process.

UDOT, TxDOT, AASHTO, and DBIA each submitted comments on the proposed definition of “public-private agreement.” In general, these comments stated that the definition is overly broad and makes the distinction between design-build contracts and public-private agreements unclear. The FHWA agrees with these comments and has adopted a modified version of the language suggested by UDOT, TxDOT, and DBIA to the definition of public-private agreement in the final rule.

The AGC of Texas, NJDOT, and GDOT each commented on the proposed definition of “qualified project.” GDOT commented that it agrees with the definition. NJDOT asked whether FHWA approval is needed to award any design-build contract, even if it has limited scope and low total project cost. Pursuant to 23 CFR 636.109(c), FHWA approval is needed before awarding any design-build contract funded under title 23, United States Code. AGC of Texas commented that the regulation should retain the $50 million general project and $5 million Intelligent Transportation System (ITS) project thresholds in the final rule. Since Congress specifically amended 23 U.S.C. 112(b)(3)(C) in section 1503 of SAFETEA-LU to abolish these monetary thresholds, the FHWA does not believe that retaining them in the final rule is appropriate.

MoDOT, PennDOT, and Mn/DOT each commented on the changes proposed for this section. MoDOT pointed out that the preamble to the NPRM mentioned a monetary threshold while the proposed regulation did not. To clarify this apparent inconsistency, the proposed regulation was intended to abolish the monetary threshold for SEP-14 approval. Since Congress amended 23 U.S.C.112 to eliminate the design-build contracting monetary thresholds, SEP-14 approval is no longer needed for design-build projects below a certain monetary threshold. After considering this comment, the FHWA has decided that it is not necessary to expressly include SEP-14 as part of the final regulations, since it appears that SEP-14 is no longer needed. However, SEP-14 will continue to be available on a case-by-case basis as new innovative approaches to delivering design-build projects are proposed.

PennDOT requested clarification that the reporting requirements are no longer necessary. To answer this question, there are no reporting requirements contained in this final rule. Mn/DOT asked whether this rule replaces the SEP-15 program. The answer to the question is “no.” SEP-15 continues to be available on a case-by-case basis consistent with the parameters of the program. (For more information, see 69 FR 59983, October 6, 2004.)

TxDOT, UDOT, MoDOT, DBIA, and AGC of America each commented on the proposed changes to this section. AGC of America supports the prohibition on geographic preferences. MoDOT suggested deleting the parenthetical contained in the proposed language in order to avoid future misinterpretation that would exclude non-geographic based incentives. This section only applies to geographic preferences and the parenthetical is merely intended to clarify that all means of such preferences are prohibited. Thus, the FHWA has retained the parenthetical in the final language.

TxDOT, UDOT, and DBIA suggested eliminating the word “prohibit” and making other minor revisions because they felt that this language implies that the contract documents must affirmatively address these issues. The FHWA agrees with these comments and has revised the final rule to incorporate the suggested language.

There were several comments on the changes to this proposed section in the NPRM. These comments are discussed under each respective subsection below.

PennDOT, UDOT, TxDOT, DBIA, and WGI each commented on the proposed changes to section 636.109(a). WGI commented that it supports these changes. PennDOT commented that it needs clarification that the FHWA will grant concurrence to proceed with the activities outlined in section 636.109(a), so long as the conditions outlined in the proposed rule are met. The FHWA assumes that PennDOT's comments are based on the preamble to the NPRM, where the FHWA stated that contracting agencies need FHWA concurrence prior to proceeding with any of the activities specified in the proposed subsection. To clarify this issue, a contracting agency does not need FHWA concurrence to issue a request for qualifications at any point in the process. However, FHWA concurrence for the other activities specified in this subsection is required. FHWA intends to concur with the activities outlined in section 636.109(a), (such as issuing an RFP, awarding a contract, proceeding with preliminary design, etc.), provided all applicable Federal requirements are met.

UDOT, TxDOT, and DBIA stated that some minor changes are needed in order to clarify the intent in the first paragraph under section 636.109 as well as section 636.109(a)(1). The FHWA agrees to add the language suggested by UDOT, TxDOT, and DBIA in section 636.109(a)(1) concerning the protection of contracting agencies in the first paragraph of section 636.109, but does not agree to strike the language concerning the protection of design-build proposers in the first paragraph. The FHWA believes that this section protects the interests of both contracting agencies and design-build proposers. Additionally, UDOT, TxDOT, and DBIA requested that language be added to clarify that a design-builder can proceed with final design and construction for projects that have already obtained final NEPA approval. An example to amplify these comments would be a project that is being conducted under a tiered NEPA analysis. At any given point, tier 2 NEPA approvals could be given at different times for any portions with independent utility and logical termini within the tier 1 NEPA document. The FHWA agrees with these comments and has added a new paragraph (6) to section 636.109(a) to clarify this issue.

MdSHA, FDOT, Mn/DOT, UDOT, VDOT, TxDOT, Caltrans, MoDOT, Indiana Governor Mitch Daniels, AASHTO, DBIA, ACEC, NCPPP, Bechtel, Wilbur Smith Associates, Nossaman, and the Environmental Protection Agency (EPA) each commented on proposed 636.109(b). First, UDOT, TxDOT, and DBIA commented that the language should be clarified to ensure that a design-builder can proceed with final design and construction on projects that have already obtained NEPA approval. The FHWA agrees that a design-builder should be allowed to proceed with such work on projects for which NEPA approval has been obtained and intends that design-builders be allowed to do so under these regulations. However, the FHWA does not believe that additional language is needed to clarify this intent.

Second, MdSHA, FDOT, Mn/DOT, UDOT, Indiana Governor Mitch Daniels, AASHTO, ACEC, NCPPP, and Nossaman each commented that the contracting agencies and design-builders should be allowed to proceed with final design activities at risk. In general, States can proceed with final design activities under the design-bid-build method of contracting so long as those activities include no Federal funding and the State understands that its preferred alternative could ultimately be rejected by the FHWA. See, e.g., Burkholder v. Wykle , 268 F. Supp. 2d 835 (N.D. Ohio 2002). However, the amendment to 23 U.S.C. 112(b)(3)(D)(iii) in section 1503 of SAFETEA-LU expressly requires the design-build regulations to “preclude the design-build contractor from proceeding with final design or construction of any permanent improvement prior to the completion of the process of such section 102.” In other words, Congress has directed that the regulations must preclude the design-build contractor from proceeding with either final design or construction. Therefore, the FHWA is unable to permit the design-builder to proceed with final design, regardless of whether these activities are funded by the FHWA, the State, or the contractor itself.

Third, FDOT, UDOT, TxDOT, VDOT, Caltrans, Indiana Governor Mitch Daniels, AASHTO, DBIA, and ACEC each commented on whether the design-builder is precluded from preparing the NEPA decision document or any NEPA document. In general, these comments pointed out an inconsistency between the preamble to the NPRM, which refers to NEPA documents, and the proposed regulatory text in sections 636.109(b)(4) and (5), which uses the term “NEPA decision document.” To clarify this issue, the FHWA intends for the regulations to preclude a design-builder from preparing not only the NEPA decision documents ( i.e. Categorical Exclusion (CE), Finding of No Significant Impact (FONSI), and Record of Decision (ROD)), but also the NEPA analysis documents ( i.e. Environmental Assessment (EA) and Environmental Impact Statement (EIS)). The CEQ conflict of interest regulation at 40 CFR 1506.5(c) expressly prohibits a contractor, who has an interest in the outcome of the NEPA process, from preparing an EIS. Additionally, this regulation has also been applied to EAs. See, e.g., Burkholder v. Peters, 58 Fed. Appx. 94 (6th Cir. 2003) . Thus, the final regulations at section 636.109(b)(6) and (7) have been amended to clarify that the design-builder is precluded from preparing all NEPA documents, rather than just the NEPA decision documents. However, while the design-builder cannot prepare the NEPA documents, the FHWA notes that there is nothing in the final regulations that would prohibit a design-builder from financing the preparation of the NEPA documents, so long as the criteria in section 636.109(b)(7) are met.

Fourth, UDOT, TxDOT, and DBIA suggested some minor clarifications to proposed section 636.109(b)(6) to ensure that the States can consider any work provided by the design-builder in the NEPA analysis. The FHWA agrees with these comments and has revised section 636.109(b)(8) to incorporate UDOT, TxDOT, and DBIA's suggested language.

Fifth, Wilbur Smith Associates commented that barring consultants who are participating in the preparation of the NEPA documents from joining a design-build team will result in less economical projects. Although the FHWA appreciates eliminating unnecessary costs, FHWA notes that the CEQ regulations at 40 CFR 1506.5(c) prohibit such consultants from having a financial or other interest in the outcome of the project to avoid either the reality or the appearance of a conflict, thereby maintaining the credibility of the environmental review process. Sixth, the EPA had several general comments on section 636.109(b). The EPA states that it is supportive of the provisions in the proposed rule intended to ensure an adequate review process and supports the prohibition on the design-builder from having any decisionmaking responsibility on the NEPA process. The EPA further commented that avoiding conflicts of interest and premature commitments to a particular alternative are difficult to ensure in practice. As such, the EPA suggested that the FHWA provide examples of appropriate contract provisions that would ensure that the merits of all alternatives are evaluated. An example of one such provision would be one precluding the commitment of significant financial resources to any particular alternative. Another example would be a provision that clearly allows the State to decide not to move forward with the project in the event the no-build alternative is selected, while allowing the design-build contractor to receive a reasonable reimbursement of certain costs the contractor may have incurred in advancing the project. The FHWA is committed to work with the States to develop any such provisions to also ensure the integrity of the NEPA process is maintained.

The EPA also expressed a concern about using financial incentives linked to milestones that could result in contractor reluctance to revise the NEPA analysis when appropriate. While the FHWA is not aware of any specific problems in this area, the FHWA shares the EPA's concern and will discourage the use of any timeline-based incentives that may have an undue influence on the NEPA process. Additionally, the EPA commented on how appropriate oversight will be maintained under the surface transportation project delivery pilot program at 23 U.S.C. 327. Since this pilot program is limited only to the States' assumption of the Secretary's environmental responsibilities, the FHWA will retain full oversight over the contracting process. Moreover, the pilot program requires a memorandum of understanding to be executed between the State and the FHWA whenever a State assumes any of the Secretary's responsibilities under the pilot program. Appropriate oversight provisions will be specified in these MOUs.

Lastly, the FHWA is adding two new provisions at sections 636.109(b)(1) and (2). Section 636.109(b)(1) is intended to clarify that the design-builder may proceed with preliminary design under a design-build contract. Section 636.109(b)(2) is intended to clarify that the States may permit any design and engineering activities to be undertaken for the purposes of defining the project alternatives and completing the NEPA alternatives analysis and review process; complying with other related environmental laws and regulations; supporting agency coordination, public involvement, permit applications, or development of mitigation plans; or developing the design of the preferred alternative to a higher level of detail when the lead agencies agree that it is warranted in accordance with 23 U.S.C. 139(f)(4)(D). As previously discussed, several comments on the proposed definition of preliminary design expressed the concern that the States would not be able to conduct activities needed to comply with other related environmental laws or advance the design of the preferred alternative as permitted in 23 U.S.C. 139(f)(4)(D). The addition of section 636.109(b)(2) clarifies that the States may conduct these types of activities.

UDOT, TxDOT, MdSHA, DBIA, Association of Engineering Employees of Oregon, and Profession Engineers in California Government each commented on the proposed changes in section 636.109(c) and (d). The Association of Engineering Employees of Oregon and Professional Engineers in California Government commented that section 639.109(c) does not go far enough in protecting the integrity of the NEPA process. Section 636.109(c) would require certain FHWA approvals during the project development process and would clarify that any such approval is not a commitment of Federal funds. The FHWA believes that not committing any Federal funds until after the NEPA process is complete, in conjunction with the various FHWA approvals during the project development process as well as the requirements in section 636.109(b), adequately protect the integrity of the NEPA process.

UDOT, TxDOT, MdSHA, and DBIA questioned why the FHWA is requiring concurrence in the issuance of a notice to proceed with preliminary design. Section 1503 of SAFETEA-LU amended 23 U.S.C. 112(b)(3)(D)(ii) to require the States to receive concurrence from the Secretary prior to carrying-out any activity specified in 23 U.S.C. (b)(3)(D)(i), which includes the issuance of notices to proceed with preliminary design work. Thus, the States must receive FHWA concurrence prior to issuing a notice to proceed with preliminary design work.

TxDOT, UDOT, VDOT, PennDOT, DBIA, ACEC each commented on the proposed changes to section 636.116. ACEC supports the proposed changes to section 636.116, because it believes that firms have been unfairly eliminated from competing for design-build contracts merely by virtue of providing some technical work on a NEPA document. ACEC further suggests that the language be revised to preclude the States from disallowing such firms to compete for design-build contracts. In contrast to ACEC's comments, PennDOT commented that it is concerned about the conflict of interest that may arise if the State subsequently needs the firm to provide additional input or work on the NEPA analysis for the project. The FHWA agrees with both ACEC and PennDOT. The FHWA has accommodated ACEC's concern in the final rule by giving the States the flexibility to allow such firms to compete for design-build contracts. The FHWA has also accommodated PennDOT's concern by making the changes discretionary on the part of the States rather than mandatory as requested by ACEC.

VDOT, TxDOT, UDOT, and DBIA all supported the proposed changes to section 636.116. However, TxDOT, UDOT, and DBIA further commented that the contracting agency should have the flexibility to release a subconsultant to the consultant responsible for preparing the NEPA documents from further NEPA responsibilities and allow such firm to compete for a design-build contract. The FHWA supports giving the States this flexibility and has added a new subsection (d) to section 636.116 in the final rule.

TxDOT, FDOT, UDOT, MdSHA, Indiana Governor Mitch Daniels, AGC of America, NCPPP, WGI, and Bechtel each commented on this proposed section. WGI commented that it supports making public-private agreement procurements subject to State law. SCAG, Bechtel, and NCPPP were concerned that the numerous approvals required under this proposed section would add time and cost to the project delivery process. AGC of America commented that it supports the oversight provisions in the proposed section. TxDOT, UDOT, Indiana Governor Mitch Daniels, and SCAG commented that it is inappropriate for the FHWA to assert approval rights over State procedures. TxDOT, UDOT, and MdSHA commented that it is unnecessary for the FHWA to concur in requests for qualifications. TxDOT and UDOT further commented that some provisions of this proposed section were unclear, and FDOT commented that public-private agreement requirements should be an entirely separate part in the Code of Federal Regulations.

After considering these comments, the FHWA agrees that some further revisions may be necessary and that it is more appropriate for these requirements to be contained in a separate part in the Code of Federal Regulations. Accordingly, the FHWA has struck the proposed changes to section 636.119 and will consider whether a future rulemaking for these requirements is necessary. Minor revisions have been made to section 636.119(b) to define the FHWA's requirements for preserving Federal-aid eligibility in any procurement actions under a public-private partnership.

TxDOT, UDOT, PennDOT, DBIA, Professional Engineers in California Government, and Association of Engineering Employees of Oregon each commented on the proposed changes to section 636.302. Professional Engineers in California Government and Association of Engineering Employees of Oregon commented that the price evaluation requirements should continue. The FHWA shares the concern about eliminating the price evaluation requirement. After considering these comments and taking a closer look at the proposed regulation, the FHWA has decided to add a new subparagraph to section 636.302(a)(1)(ii) to require that price be considered to the extent that the contract requires payment from the contracting agency utilizing Federal-aid highway funds to the design-builder for any services to be provided prior to final design or construction. The FHWA is adding this requirement, because the FHWA believes that the consideration of price will ensure that a project does not incur unreasonable costs. This provision will ensure that, to the extent the State must make any payments to the design-builder, the price to be paid for these services is one of the factors that States must consider.

The FHWA has also added language to section 636.302(a)(1)(iv) to clarify that the price reasonableness requirement only applies to the extent that the contracting agency wishes to use Federal funds for final design or construction. These provisions also respond to the comments made by TxDOT, UDOT, and DBIA who were concerned that some public-private agreements may not require any payment to be made to the design-builder. However, whenever a contract is awarded prior to the completion of the NEPA process, it is impossible to consider the price of the total contract because an alternative has not yet been selected and final design has not yet been completed. Thus, a contracting agency will be able to consider price only to a certain extent.

PennDOT commented that the proposed procedures in section 636.302(a)(1) would be very complex and hard to implement. Since the statute now permits States to award contracts prior to the conclusion of the NEPA process, which will require the costs for final design and construction to be negotiated later, the States and FHWA must find a way to control the costs under the contract and ensure that the public gets a fair price for these services. Thus, the State will need to develop methodologies through which the State can determine whether the final fixed price for the project is reasonable. An open-book negotiation method through which both the contractor and the State share supporting data on the prices of the items being negotiated can be an effective way to make this determination. While the FHWA recognizes the difficulties in ensuring that the public gets the best price whenever a design-build contract is awarded prior to the conclusion of the NEPA process, we believe that a price reasonableness standard for these costs will be the most effective approach. The FHWA will provide appropriate guidance and support to the States in implementing this standard.

Finally, TxDOT, UDOT, and DBIA each commented that the FHWA should not concur in the States' price reasonableness determination, but rather only the methodologies the States use to make that determination. The FHWA disagrees with this comment. The FHWA is the steward of all Federal funds that are used in highway projects. Since total contract price cannot be considered during the competition to award a contract prior to the conclusion of the NEPA process, the FHWA must have some mechanism to ensure that price for the project for which Federal funds proposed to be used is reasonable.

The FHWA has determined that this rule is a significant regulatory action within the meaning of Executive Order 12866, and within the meaning of the U.S. Department of Transportation's regulatory policies and procedures. The Office of Management and Budget (OMB) has reviewed this document under E.O. 12866. This rule is significant, because of the substantial State, environmental, and industry interest in the design-build contracting technique.

The economic impact of this rulemaking will be minimal and it will not adversely affect, in a material way, any sector of the economy. This rulemaking merely revises the FHWA's policies concerning the design-build contracting technique. The final rule will not affect the total Federal funding available to the State DOTs under the Federal-aid highway program. Therefore, an increased use of design-build delivery method will not yield significant economic impacts to the Federal-aid highway program. Additionally, this rule will not interfere with any action taken or planned by another agency and will not materially alter the budgetary impact of any entitlements, grants, user fees, or loan programs. Consequently, a full regulatory evaluation is not required.

The FHWA does not have sufficient data to quantify the economic impacts of this rule. However, the FHWA believes that increased use of the design-build contracting method may result in certain efficiencies in the cost and time it normally takes to deliver a transportation project. We also believe that States will not use the design-build contracting technique if using such a technique will increase the cost of a project.

The design-build contracting technique is important to increasing the involvement of the private sector in the delivery of transportation projects. Insofar as this rule will increase the uses of the design-build contracting technique, it may result in increased private sector financial investment in transportation. The FHWA did not receive any comments on the economic impacts analysis in the NPRM.

In compliance with the Regulatory Flexibility Act (5 U.S.C. 601-612), we have evaluated the effects of this action on small entities and have determined that the action will not have a significant economic impact on a substantial number of small entities. The rule addresses the obligation of Federal funds to States for Federal-aid highway projects. As such, it affects only States and States are not included in the definition of small entity set forth in 5 U.S.C. 601. Therefore, the Regulatory Flexibility Act does not apply, and the FHWA certifies that the rule will not have a significant economic impact on a substantial number of small entities.

This rule will not impose unfunded mandates as defined by the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4, 109 Stat. 48, March 22, 1995), because it will not result in the expenditure by State, local, tribal governments, or by the private sector, of $128.1 million or more in any 1 year (2 U.S.C. 1532 et seq. ). This rule merely updates the design-build regulation to reflect the changes made by SAFETEA-LU. The design-build regulation allows, but does not require, States to use the design-build technique for the delivery of Federal-aid projects. States use the design-build contracting technique because, in some instances, it may reduce the time and cost of delivering a project.

Further, the definition of “Federal Mandate” in the Unfunded Mandates Reform Act excludes financial assistance of the type in which State, local, or tribal governments have authority to adjust their participation in the program in accordance with changes made in the program by the Federal Government. The Federal-aid highway program permits this type of flexibility.

This rule has been analyzed in accordance with the principles and criteria contained in Executive Order 13132 dated August 4, 1999, and the FHWA has determined that this rule will not have a substantial direct effect or sufficient federalism implications on the States. The FHWA has also determined that this final rule will not preempt any State law or regulation or affect the States' ability to discharge traditional State governmental functions.

Catalog of Federal Domestic Assistance Program Number 20.205, Highway Planning and Construction. The regulations implementing Executive Order 12372 regarding intergovernmental consultation on Federal programs and activities apply to this program. The FHWA did not receive any comments on the intergovernmental review analysis.

Under the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501, et seq. ), the FHWA must obtain approval from the OMB for each collection of information we conduct, sponsor, or require through regulations. The FHWA has determined that this rule does not contain a collection of information requirement for purposes of the PRA.

The FHWA has analyzed this rule for the purpose of the National Environmental Policy Act of 1969, as amended (42 U.S.C. 4321 et seq. ), and has determined that this rule will not have any effect on the quality of the environment. The promulgation of regulations has been identified as a categorical exclusion under 23 CFR 771.117(c)(20). However, Federal-aid highway projects on which design-build is used, must still comply with the National Environmental Policy Act of 1969, as amended.

The FHWA has analyzed this rule under Executive Order 12630, Governmental Actions and Interface with Constitutionally Protected Property Rights. This rule will not affect a taking of private property or otherwise have taking implications under Executive Order 12630.

This action 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 rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. The FHWA certifies that this rule will not cause an environmental risk to health or safety that might disproportionately affect children.

The FHWA has analyzed this rule under Executive Order 13175, dated November 6, 2000, and believes that the rule will not have substantial direct effects on one or more Indian tribes; will not impose substantial direct compliance costs on Indian tribal governments; and will not preempt tribal laws. The rule addresses obligations of Federal funds to States for Federal-aid highway projects and will not impose any direct compliance requirements on Indian tribal governments. Therefore, a tribal summary impact statement is not required.

The FHWA has analyzed this action under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use dated May 18, 2001. We have determined that it is not a significant energy action under that order, because, although it is a significant regulatory action under Executive Order 12866, it will not have a significant adverse effect on the supply, distribution, or use of energy. Therefore, a Statement of Energy Effects is not required.

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

Design-build, Grant programs—transportation, Highways and roads.

This document contains final amendments to the Income Tax Regulations, 26 CFR part 1, relating to the credit for expenses for household and dependent care services necessary for gainful employment (the credit) under section 21 of the Internal Revenue Code (Code).

On May 24, 2006, a notice of proposed rulemaking (REG-139059-02) regarding the credit was published in the Federal Register (71 FR 29847). Written and electronic comments responding to the notice of proposed rulemaking were received. No public hearing was requested or held. After consideration of all the comments, the proposed regulations are adopted as amended by this Treasury decision. The comments and revisions are discussed in the preamble.

Section 21(b)(2) provides, in part, that employment-related expenses are amounts paid to enable a taxpayer to be gainfully employed for a period for which there are one or more qualifying individuals with respect to a taxpayer. The proposed regulations provide that a taxpayer may take expenses into account under section 21 only in the later of the taxable year the services are performed or the taxable year the expenses are paid. The proposed regulations also provide that the status of an individual as a qualifying individual is determined on a daily basis, that a taxpayer may take into account only expenses that qualify before a disqualifying event, such as a child turning 13, and that the requirements of section 21 and the regulations are applied at the time the services are performed, regardless of when the expenses are paid.

A verbal comment inquired whether, to be creditable, expenses must be paid and services must be performed before a disqualifying event.

The determination of whether expenses qualify as employment-related expenses, including whether an individual is a qualifying individual, can be made only at the time services are performed. Only expenses for the care of a qualifying individual that are for the purpose of enabling the taxpayer to be gainfully employed qualify for the credit. Therefore, services must be performed prior to a disqualifying event and at a time when the purpose is to enable the taxpayer to be gainfully employed. For purposes of determining whether expenses are employment-related expenses, the time of payment is irrelevant, although payment must be made before the credit is claimed. The final regulations provide examples to illustrate these rules.

Under section 21(b)(2)(A), expenses are employment-related only if the expenses are primarily for household services or for the care of a qualifying individual. The proposed regulations provide that the primary purpose of expenses for the care of a qualifying individual must be to assure that individual's well-being and protection.

The proposed regulations provide that expenses for a child in nursery school, pre-school, or similar programs for children below the kindergarten level are for the care of a qualifying individual and may be employment-related expenses. Expenses for a child in kindergarten or a higher grade are not for care and therefore, are not employment-related expenses. However, expenses for before-or after-school care of a child in kindergarten or a higher grade may be for care.

Commentators noted that some public school systems offer only half-day kindergarten, and that some parents send their children to private kindergarten because it offers a full-day program. Under the proposed regulations, a parent whose child attends a half-day kindergarten may claim the credit for the cost of an afternoon after-school program. However, a parent whose child attends a full-day private kindergarten may not claim the credit for the cost of services performed in the afternoon, because the services are part of the kindergarten program and not after-school care. Commentators suggested that taxpayers who send their children to full-day private kindergarten should be allowed some apportionment of expenses for the afternoon portion of the kindergarten.

The final regulations do not adopt this comment. Kindergarten programs are primarily educational. See, for example, section 62(d)(1) (definitions of eligible educator and school) and section 530(b)(3)(B) (definition of school). Although nursery school and other programs below the level of kindergarten also may include significant educational elements, for administrative convenience the proposed regulations treat these programs as for care. The final regulations retain these rules for greater ease of administration.

A commentator suggested that amounts paid for sending a child to a private school by a taxpayer living overseas should be an employment-related expense if public education is not available. The final regulations do not adopt this comment. Employment-related expenses must be for the care of a qualifying individual and may not be for other services such as education.

The proposed regulations provide that the full amount paid for a day camp or similar program may be for the care of a qualifying individual although the camp specializes in a particular activity, such as soccer or computers. For administrative convenience, no allocation is required in this situation between the cost of care and amounts paid for learning a specialized skill.

A verbal comment requested that the regulations clarify that summer school is not day camp and that the cost of summer school is not creditable. Another commentator commended the proposed regulations for allowing the credit for the cost of “education day camps” that focus on reading, math, writing, and study skills.

The final regulations retain the rule that no allocation is required for the cost of a specialty day camp, but clarify that expenses for summer school and tutoring programs are not creditable. Summer school and tutoring programs are indistinguishable from school and are education, not care. The final regulations provide examples to illustrate these rules.

Section 21(b)(2)(C) provides, in part, that the cost of services performed by a dependent care center are employment-related expenses only if the dependent care center complies with the applicable laws of the state and local government. A commentator requested that the regulations clarify whether a day camp is a dependent care center and must comply with this requirement. The final regulations clarify that the requirements of section 21(b)(2)(C) apply to day camps that meet the definition of dependent care center in section 21(b)(2)(D).

A commentator asserted that sick child centers that provide care for children with illnesses who cannot be cared for by the primary care provider primarily provide dependent care and that any medical care provided is incidental. The commentator suggested that these costs may be employment-related expenses.

The final regulations do not adopt this comment. A taxpayer may take an amount into account as either an employment-related expense under section 21 or an expense for medical care under section 213 (but not both). See section 213(e). Whether the care provided at a sick child center assures a child's well-being and protection or constitutes medical care is a factual matter that must be determined on a case-by-case basis.

The proposed regulations provide that an allocation must be made between expenses for the care of a qualifying individual and expenses for other goods or services, unless the other goods or services are incidental to and inseparably a part of the care. Specifically, amounts paid for food, lodging, clothing, or education are not for the care of a qualifying individual. The proposed regulations provide an example requiring a taxpayer to allocate the costs of a boarding school between care and education, meals, and housing.

A commentator stated that the example does not provide clear guidance for determining which expenses are for care and whether lodging and meals could be considered incidental and therefore, part of care. The commentator suggested that meals and lodging at a boarding school are incidental to and inseparably a part of the care provided.

The final regulations do not adopt this comment. The example and the regulations clearly distinguish care from food, lodging, and education provided by a boarding school, which are not for the care of a qualifying individual, or incidental to or inseparably a part of the care provided.

The proposed regulations provide that the additional cost of providing room and board for a caregiver over usual household expenses may be an employment-related expense. This rule is based on Rev. Rul. 76-288 (1976-2 CB 83), which holds that under the predecessor to section 21, a taxpayer furnishing meals and lodging to a housekeeper who provides care may deduct the allocable expenses attributable to the housekeeper that are in addition to normal household expenses. The ruling provides an example allowing a taxpayer to take into account the additional cost of rent for an apartment with an additional bedroom to accommodate the housekeeper and additional utilities attributable to the housekeeper.

The proposed regulations provide that the general substantiation rules of section 6001 and the implementing regulations apply to taxpayers claiming the credit. A commentator stated that the regulations should clarify whether an increase in utilities (such as electric, water, and gas) may be employment-related expenses and what constitutes acceptable proof of costs.

The final regulations adopt the first of these comments and include an example similar to the example in Rev. Rul. 76-288. However, the final regulations do not provide special substantiation rules for these costs. These rules encompass substantiation of allocations by taxpayers claiming the credit with respect to the additional cost of providing room and board for a caregiver.

A commentator suggested that the credit should be allowed for a portion of the cost of overnight camp allocable to time when parents work. The final regulations do not adopt this comment. Under section 21(b)(2), the cost of overnight camp is not an employment-related expense.

Under section 21(b)(2)(A), expenses are employment-related only if the taxpayer's purpose in obtaining the services is to enable the taxpayer to be gainfully employed. The expenses must be for periods during which the taxpayer is gainfully employed or is in active search of gainful employment.

The proposed regulations provide that a taxpayer must allocate the cost of care on a daily basis if expenses are paid for a period during only part of which the taxpayer is employed or in active search of gainful employment. The proposed regulations provide an exception to the allocation requirement for a short, temporary absence from work for a taxpayer paying for dependent care on a weekly, monthly, or annual basis. Whether an absence is a short, temporary absence is determined based on all the facts and circumstances. The proposed regulations requested comments on an appropriate period to constitute a temporary absence safe harbor.

A commentator suggested that the exception for short, temporary absences should not be limited to taxpayers who pay employment-related expenses on a weekly, monthly, or annual basis. The commentator stated that regardless of payment schedule, taxpayers who take their children out of care due to a short illness or vacation typically must pay for that care when absent or risk losing it.

The final regulations adopt this comment and delete the provision that the temporary absence exception applies only to taxpayers who must pay for care on a weekly, monthly, or annual basis. The final regulations clarify, however, that only those costs that the taxpayer is required to pay during the absence qualify for the exception. The final regulations provide examples to illustrate these rules.

A commentator suggested that a length of absence that is less than a taxpayer's pay period should be deemed to be a short, temporary absence for that taxpayer, up to a maximum of 2 weeks. For example, the maximum short, temporary absence period of a taxpayer with a 1-week pay period would be 4 days. The final regulations do not adopt this comment, which would result in disparate treatment of taxpayers based on length of pay period.

A commentator suggested that the final regulations should adopt 12 weeks as a temporary absence safe harbor. The commentator based this suggestion on the Family Medical Leave Act (FMLA), which guarantees workers a maximum of 12 weeks of unpaid leave for the birth or adoption of a child and other purposes. The final regulations do not adopt this comment. Different policies underlie the FMLA and the dependent care credit. An absence of 12 weeks is not a short, temporary absence for purposes of claiming the credit.

The final regulations include a safe harbor that treats an absence of no more than 2 consecutive calendar weeks as a short, temporary absence, and modify the examples to illustrate this rule.

A commentator suggested that the final regulations should clarify that expenses may be paid to enable a taxpayer to be gainfully employed and may be employment-related expenses if one parent works during the day and the other parent works at night, and the expenses are for care while one parent is working and the other is sleeping. Another commentator suggested that the cost of overnight care (not overnight camp) should be an employment-related expense for a taxpayer who works at night. The final regulations include examples illustrating that expenses may be employment-related expenses in these situations.

Commentators suggested that the cost of care should be treated as an employment-related expense for any period that a taxpayer is on short-or long-term disability, leave under the FMLA, paid medical leave, or paid maternity leave. The final regulations do not adopt these comments as these rules would be inconsistent with the statutory requirement that expenses are employment-related expenses only if paid to enable the taxpayer to be gainfully employed.

Commentators suggested that the dollar limit on employment-related expenses should be increased from $3,000 for one qualifying child and $6,000 for two or more qualifying children, to $5,000 for each qualifying child. The final regulations do not adopt these comments as they are inconsistent with the statutory limitations.

For purposes of the deemed earned income of a spouse who is a full-time student, section 21(e)(7) and (8) defines student as an individual who, during each of 5 calendar months during the taxable year, is a full-time student at an educational organization described in section 170(b)(1)(A)(ii). Section 170(b)(1)(A)(ii) provides that an educational organization normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on.

A commentator suggested that a full-time student in an on-line degree program is a full-time student at an educational organization. The final regulations do not adopt this comment. A degree program offered by an organization that provides instruction exclusively over the internet (as opposed to an organization that provides courses on-line as well as traditional classroom instruction) does not have students in attendance at the place where its educational activities are regularly carried on and is not an educational organization within the meaning of section 170(b)(1)(A)(ii). Accordingly, an individual enrolled in a program provided by an organization that offers only on-line instruction is not a student for purposes of the deemed earned income rule. However, an individual who takes on-line courses at an organization that has traditional classroom instruction as well as on-line courses, and that otherwise meets the definition of educational organization under section 170(b)(1)(A)(ii), may be a student for purposes of the deemed earned income rule.

The final regulations delete the cross-reference in the proposed regulations to the definition of student in section 152(f)(2) (for taxable years beginning after December 31, 2004) or section 151(c)(4) (for taxable years beginning before January 1, 2005), and the regulations thereunder, as that term is defined in section 21(e)(7) and (8) and these regulations.

The proposed regulations provide that taxpayers claiming a credit for employment-related expenses must maintain adequate records or other sufficient evidence to substantiate the expenses in accordance with section 6001 and the regulations thereunder.

A commentator suggested that dependent care assistance program administrators should be able to rely on the representations of plan participants, without additional documentation, to establish that indirect expenses are required and are subject to forfeiture, the proper expense allocation for part-time employees, and whether expenses are paid on a weekly or monthly basis. The final regulations do not adopt this comment as these situations do not present unusual substantiation issues.

The final regulations incorporate several changes to conform to amendments to the statute. The final regulations reflect that the special dependency rule of section 21(e)(5) applies to children of parents who live apart at all times during the last 6 months of the calendar year as well as to the children of separated or divorced parents. The final regulations reflect the changes made to the definitions of qualifying individual and custodial parent by the Gulf Opportunity Zone Act of 2005 (Pub. L. 109-135, 119 Stat. 2577). Finally, the final regulations clarify that, for taxable years beginning after December 31, 2004, costs for care outside the taxpayer's household of a qualifying individual who is a dependent or spouse incapable of self-care who regularly spends at least 8 hours each day in the taxpayer's household may continue to qualify for the credit.

The final regulations apply to taxable years ending after August 14, 2007.

Rev. Rul. 76-278 (1976-2 CB 84) and Rev. Rul. 76-288 (1976-2 CB 83) are obsoleted as of August 14, 2007.

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. Section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations. Because the regulations do not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Code, the notice of proposed rulemaking that preceded these final regulations was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

The principal author of these regulations is Amy Pfalzgraf of the Office of Associate Chief Counsel (Income Tax and Accounting). However, other personnel from the IRS and Department of the Treasury participated in their development.

The collections of information contained in these final regulations have been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) under control number 1545-1893. Responses to these collections of information are mandatory and are required to obtain a benefit. The collections of information in these final regulations are in § 1.1045-1(b)(3)(ii)(C), (b)(5)(ii), and (c)(4)(ii). The information collected in § 1.1045-1(b)(5)(ii) is required to ensure that gain from the sale of QSB stock by a partnership is reported correctly. The information collected in § 1.1045-1(b)(3)(ii)(C) and (c)(4)(ii) will be used by the partnership and the partner to make the basis adjustments upon the sale of QSB stock and the purchase of replacement QSB stock when necessary. The likely respondents are businesses or other for-profit institutions and small businesses or organizations.

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number assigned by the Office of Management and Budget.

Estimated total annual reporting burden: 1,500 hours.

The estimated annual burden per respondent varies from 45 to 75 minutes, depending on individual circumstances, with an estimated average of 1 hour.

Estimated number of respondents: 1,500.

Estimated annual frequency of responses: On occasion.

Comments concerning the accuracy of this burden estimate and suggestions for reducing this burden should be sent to the Internal Revenue Service, Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP Washington, DC 20224, and to the Office of Management and Budget, Attn: Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503.

Books or records relating to these collections of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and return information are confidential, as required by 26 U.S.C. 6103.

This document amends 26 CFR part 1 under section 1045 of the Code by adding § 1.1045-1 regarding the application of section 1045 to partnerships and their partners.

Section 1045 permits a non-corporate taxpayer that holds QSB stock for more than six months and sells it after August 5, 1997, to elect to defer recognizing gain (other than gain treated as ordinary income) on the sale. To qualify for such deferral, the taxpayer must purchase QSB stock (replacement QSB stock) within a 60-day period beginning on the date of the sale of the QSB stock. Any gain not recognized reduces the cost basis of the replacement QSB stock. The taxpayer recognizes gain to the extent the amount realized on the sale of the QSB stock exceeds the cost basis of the replacement QSB stock. The benefits of section 1045 with respect to a sale of QSB stock by a partnership flow through to a non-corporate partner that held an interest in the partnership at all times the partnership held the QSB stock. See section 1045(b)(5) and the legislative history accompanying section 6005(f)(2) of the Internal Revenue Service Restructuring and Reform Act of 1998, Public Law 105-206 (112 Stat. 6005(f)(2)), July 22, 1998. In response to inquiries, the IRS issued Rev. Proc. 98-48 (1998-2 CB 367) which provides procedures for taxpayers (including passthrough entities and individuals holding interests in a passthrough entity) to elect to apply section 1045. Since Rev. Proc. 98-48 was published, the IRS and the Treasury Department received further inquiries regarding the application of section 1045 to partnerships and their partners. See § 601.601(d)(2)(ii)(b) of this chapter.

On July 15, 2004, in response to those inquiries, a notice of proposed rulemaking and a notice of public hearing (REG-150562-03; 2004-32 IRB 175) were published in the Federal Register (69 FR 42370) regarding the application of section 1045 to partnerships and their partners. No one requested to speak at the public hearing. Accordingly, the public hearing scheduled for November 9, 2004, was cancelled in the Federal Register (69 FR 62631) on October 27, 2004. Comments responding to the proposed regulations were received. After consideration of the comments, the proposed regulations are adopted as revised by this Treasury decision.

The proposed regulations provided that the term “QSB stock” had the same meaning given such term by section 1202(c) and did not include an interest in a partnership that held QSB stock. Thus, under the proposed regulations, an investment in a partnership that held QSB stock was not treated as an investment in QSB stock. Consequently, a partner that sold an interest in a partnership that held QSB stock was not treated as selling QSB stock, and could not elect to apply section 1045 with respect to gain realized on the sale of the partnership interest. Similarly, under the proposed regulations, a partner that made a section 1045 election with respect to QSB stock sold by the partnership could not treat as replacement QSB stock an interest in a second partnership that held QSB stock.

Commentators agreed that an interest in a partnership that owns QSB stock should not be treated as an investment in QSB stock. Some commentators, however, argued that the final regulations should permit a partner that makes a section 1045 election with respect to QSB stock sold by one partnership to satisfy the replacement QSB stock requirement of section 1045 by holding an interest in a partnership, which acquires QSB stock within the statutory period. Commentators believed that the suggested rule is consistent with the intent of Congress to encourage investments in QSB stock.

The final regulations adopt this comment. A taxpayer (other than a C corporation) that sells QSB stock and elects to apply section 1045 may satisfy the replacement QSB stock requirement with QSB stock that is purchased within the statutory period by a partnership in which the taxpayer is a partner on the date the QSB stock is purchased (purchasing partnership). In addition, the final regulations provide that an eligible partner of a partnership that sells QSB stock (selling partnership) and elects to apply section 1045 may satisfy the replacement QSB stock requirement with QSB stock purchased by a purchasing partnership during the statutory period. The IRS and the Treasury Department believe that these rules are appropriate because they are consistent with the underlying continuous economic interest requirement of section 1045. Although the final regulations permit the replacement QSB stock requirement to be satisfied in this manner, for the reasons stated, a partner that sells its interest in the purchasing partnership is not treated as selling replacement QSB stock.

The final regulations contain rules for calculating a partner's distributive share of partnership gain that is not recognized as a result of an election under section 1045 by the partner. These rules are necessary for determining how much gain a partner can defer upon a sale of QSB stock under section 1045. These rules address instances in which the eligible partner continues to defer gain under section 1045 from a prior sale or sales of QSB stock.

The proposed regulations provided rules regarding adjustments to an eligible partner's basis in a partnership interest and a partnership's basis in replacement QSB stock. One rule required a partnership to make a basis adjustment to the partnership's replacement QSB stock by the amount of gain from the partnership's sale of QSB stock that is deferred by an eligible partner, the effect of which is determined under the principles of § 1.743-1(g), (h), and (j). Under this rule, the basis adjustments constitute an adjustment to the basis of the partnership's replacement QSB stock with respect to that eligible partner only. To allow the partnership to make the appropriate basis adjustments, the proposed regulations required any partner that must recognize all or a part of the partner's distributive share of partnership section 1045 gain to notify the partnership of the amount of the partnership section 1045 gain that was recognized.

One commentator argued that many partnerships that invest in QSB stock are thinly staffed, and that they would incur additional administrative expenses to comply with the notification and basis adjustment requirements. Therefore, the commentator suggested that the partner make the basis adjustments with respect to the partnership's replacement QSB stock, unless the partnership makes an election to make the basis adjustments.

The IRS and the Treasury Department believe that, if the partnership makes an election under section 1045 and purchases replacement QSB stock, the partnership is the proper party to make the appropriate basis adjustments with respect to that stock. Accordingly, this comment is not adopted. As noted below, a partnership is not required to maintain these basis adjustments for eligible partners that separately make the election under section 1045. The final regulations also clarify that if a partnership makes an election under section 1045, the partnership must attach a statement to the partnership return for the taxable year in which the partnership purchases replacement QSB stock setting forth the computation of the adjustment, the replacement QSB stock to which the adjustment has been made, the date(s) on which such stock was acquired by the partnership, and each partner's distributive share of deferred partnership section 1045 gain.

If a taxpayer or an eligible partner makes an election under section 1045 and treats its interest in QSB stock purchased by a purchasing partnership as its replacement QSB stock, the final regulations provide specific rules for the determination of the partner's basis in the replacement QSB stock and interest in the purchasing partnership. In these cases, the partner's adjusted basis in the partnership interest is reduced by the partner's gain that is deferred under section 1045, and the electing partner must reduce its share of the partnership's adjusted basis of the replacement QSB stock by the amount of gain deferred. When the basis reduction results from a partner-level election, the final regulations require the partner, rather than the partnership, to retain records setting forth the computation of this basis adjustment, the replacement QSB stock to which the adjustment has been made, and the date(s) on which such stock was acquired by the purchasing partnership.

The final regulations provide rules requiring a partner to recognize gain upon a distribution of replacement QSB stock to another partner that reduces the partner's share of the replacement QSB stock held by a partnership. The amount of gain that the partner must recognize is determined based on the amount of gain that the partner would have recognized upon a sale of the distributed replacement QSB stock for its fair market value on the date of the distribution (not to exceed the amount of gain previously deferred by the partner with respect to the distributed replacement QSB stock). Any gain recognized by a partner whose interest is reduced must be taken into account in determining the adjusted basis of the partner's interest in the partnership and also taken into account in determining the partnership's adjusted basis in the QSB stock distributed to another partner under § 1.1045-1(e)(4). These rules apply in the case of a partner election or a partnership election under section 1045.

The proposed regulations provided that the amount of gain that an eligible partner may defer under section 1045 may not exceed: (A) The partner's smallest percentage interest in the partnership's income, gain, or loss with respect to the QSB stock that was sold, multiplied by (B) the partnership's realized gain from the sale of such stock. This nonrecognition rule follows section 1202(g)(2) and (3) by ensuring that the partner can defer recognition of only the gain that relates to the partner's continuous economic interest in the QSB stock that was sold.

Commentators agreed with the underlying “continuous ownership” requirement in the proposed regulations, but raised concerns that the nonrecognition limitation rule may be difficult to administer when a partnership does not have a simple “pro rata” partnership arrangement. One commentator suggested that the nonrecognition limitation rule only apply in certain situations.

The IRS and the Treasury Department continue to believe that a nonrecognition limitation rule is consistent with section 1045 and the underlying continuous economic interest requirement in section 1202(g)(2) and (3). The continuous economic interest requirement as applied under section 1202(c)(1)(B) requires that QSB stock must be acquired by the taxpayer at its original issuance in exchange for money or other property or as compensation for services provided to such corporation. Taxpayers that invest through a partnership acquire the requisite interest for purposes of the continuous economic interest requirement by an investment of capital in the partnership. Accordingly, to address the commentator's concerns, the nonrecognition rule has been modified to provide that the amount of gain that an eligible partner may defer under section 1045 may not exceed: (A) The partner's smallest percentage interest in partnership capital from the time the QSB stock is acquired until the time the QSB stock is sold, multiplied by (B) the partnership's realized gain from the sale of such stock. The IRS and the Treasury Department believe that this nonrecognition rule in the final regulations will be easier to administer, is consistent with each partner's economic interest in the partnership, and will not inappropriately limit the amount of gain that can be deferred.

The proposed regulations allowed an eligible partner to make a section 1045 election with respect to all or part of the partner's share of gain from the partnership's sale of QSB stock only if the partnership did not make a section 1045 election, or the partnership did make a section 1045 election, but failed to purchase any (or enough) replacement QSB stock within the statutory time period. If a partnership elected to apply section 1045 and purchased replacement QSB stock, all eligible partners of the partnership were required to defer their distributive shares of the partnership section 1045 gain. One commentator suggested that an eligible partner should be allowed to opt out of a partnership section 1045 election and either purchase separate replacement QSB stock directly, and elect to apply section 1045 at the partner level, or recognize the partner's distributive share of the partnership section 1045 gain. The IRS and the Treasury Department believe that allowing a partner to opt out of a partnership section 1045 election is consistent with providing the intended and desired flexibility for investments in QSB stock. Accordingly, this comment is adopted. The final regulations provide that a partner that elects out of a partnership's section 1045 election must notify the partnership in writing. If an eligible partner opts out of a partnership section 1045 election, such action does not constitute a revocation of the partnership section 1045 election and the partnership section 1045 election continues to apply to the other partners.

The final regulations do not impose a deadline for when a partner must notify the partnership that the partner is opting out of a partnership section 1045 election. The IRS and the Treasury Department believe partnerships are responsible for obtaining the required information to report gain properly, and that the partnership agreement should require that partners supply this notice to the partnership in a timely manner.

Under the proposed regulations, only an eligible partner was entitled to defer gain under section 1045. The proposed regulations provided special rules for determining whether a partner was an eligible partner if a partnership (upper-tier partnership) held an interest in a partnership (lower-tier partnership) that held QSB stock. The proposed regulations disregarded the upper-tier partnership's ownership of the lower-tier partnership and treated each partner of the upper-tier partnership as owning an interest in the lower-tier partnership directly. The preamble to the proposed regulations explained that, although this rule provided a simple approach, it limited the availability of section 1045 in situations involving tiered partnerships. The IRS and the Treasury Department requested comments specifically on the application of section 1045 in tiered-partnership situations.

Commentators suggested that an upper-tier partnership should be an “eligible partner” of a lower-tier partnership and allowed to make an election to defer gain under section 1045 with respect to the distributive share of the gain from the lower-tier partnership's sale of QSB stock. After careful consideration, the IRS and the Treasury Department have concluded that treating an upper-tier partnership as an “eligible partner” of a lower-tier partnership would create an unacceptable administrative burden and increased complexity to the rules. Therefore, the final regulations retain the rule in the proposed regulations relating to tiered-partnership structures. The final regulations, however, clarify that the rule does not preclude a partner in an upper-tier partnership from treating its interest in QSB stock that was purchased by either the upper-tier partnership or a lower-tier partnership as replacement QSB stock. The final regulations contain an example illustrating this rule.

One commentator suggested that the final regulations set forth rules that are specific to disregarded entities. It has been determined that this suggestion is beyond the scope of the regulations and, therefore, is not included in the final regulations.

The proposed regulations provided that a partnership making a section 1045 election must do so on the partnership's timely filed return (including extensions) for the taxable year during which the partnership sells the QSB stock. The proposed regulations also provided that a partner making an election under section 1045 with respect to its distributive share of gain on the partnership's sale of QSB stock must do so on the partner's timely filed Federal income tax return (including extensions) for the taxable year in which such gain is taken into account. The final regulations retain these rules. However, in both cases, the proposed regulations stated that the electing partnership or partner also must follow the procedures of Rev. Proc. 98-48. In contrast, the final regulations provide that a partnership making an election under section 1045 or a partner making an election under section 1045 must do so in accordance with the applicable forms and instructions. It is anticipated that the applicable forms and instructions will be revised to take into account the rules in the final regulations.

The final regulations apply to sales of QSB stock on or after August 14, 2007.

Rev. Proc. 98-48 (1998-2 CB 367) is modified to include the following sentence at the end of the PURPOSE section: “This revenue procedure does not apply in situations described in § 1.1045-1 of the Income Tax regulations.” See § 601.601(d)(2)(ii)( b ) of this chapter.

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations. It is hereby certified that the collection of information in these regulations will not have a significant economic impact on a substantial number of small entities. This certification is based upon the fact that QSB stock is not held by a substantial number of small entities and that the time required to make the election is estimated to average 1 hour. Therefore, a Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the Code, the notice of proposed rulemaking that preceded these regulations was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

The principal author of these regulations is Jian H. Grant, Office of the Associate Chief Counsel (Passthroughs and Special Industries). However, other personnel from the IRS and the Treasury Department participated in their development.

(j) Effective date/applicability—In general. This section applies to sales of QSB stock on or after August 14, 2007.

MSHA issued an Emergency Temporary Standard (ETS) on May 22, 2007 (72 FR 28796). On June 25, 2007, MSHA notified the public that the comment period for the ETS would close on August 17, 2007 (72 FR 34609). On August 3, 2007, the National Mining Association requested that the comment period be extended 30 days to allow additional time to comment on several new ETS related documents recently posted on MSHA's Web page, including a set of compliance assistance questions and answers posted on July 23, 2007; MSHA's Procedure Instruction Letter No. I07-V-04, Procedures for Inspection of Seals, issued on July 24, 2007, and posted on July 25, 2007; and the Seal Design Approval Information Template updated on August 2, 2007.

In addition, MSHA posted four new seal designs on August 2, 2007: Three 50 psi seal designs and one 120 psi seal design. Furthermore, NIOSH recently published a final report on “Explosion Pressure Design Criteria for New Seals in U.S. Coal Mines.” The report is available on the Internet at: http://www.cdc.gov/niosh/mining/pubs/pdfs/2007-144.pdf.

MSHA is extending the comment period to September 17, 2007. This action allows commenters sufficient time to fully review the posted documents and submit comments. MSHA will accept written comments and other appropriate data from any interested party up to the close of the comment period on September 17, 2007.

In accordance with Title 5, Part I, Chapter 5, Subchapter II, § 553(b)(3)(B) of the Administrative Procedures Act, the following rationale is being provided for implementing TRICARE's OPPS under the IFR process.

In the National Defense Authorization Act for Fiscal Year 2002 (NDAA-02), Public Law 107-107 (December 28, 2001), several reforms were enacted relating to TRICARE coverage and payment methods for skilled nursing and home health services which were all implemented through interim final rule (IFR) making to ensure expeditious implementation of Congressionally mandated reimbursement systems. In addition to the requirement that TRICARE establish an integrated sub-acute care program consisting of skilled nursing facility and home health care services modeled after the Medicare program, Congress also—in section 707 of NDAA-02—changed the statutory authorization (in 10 U.S.C. 1079(j)(2)) that TRICARE payment methods for institutional care “may be” determined to the extent practicable in accordance with Medicare payment rules to a mandate that TRICARE payment methods “shall be” determined to the extent practicable in accordance with Medicare payment rules. Section 707(c) required that the amendments made by this section shall take effect on the date that is 90 days after the date of the enactment of the Act.

In the supplementary sections of both the Sub-Acute Care Program interim and final rules (67 FR 40597, June 13, 2002, and 70 FR 61377—Supplementary Information, VIII. Payment Methods for Hospital Outpatient Services), the public was informed of the Agency's intent to adopt and implement the Medicare Prospective Payment System to the extent practicable. However, because of complexities of the Medicare transition process and the lack of TRICARE cost report data comparable to Medicare's, it was not practicable for the Department to adopt Medicare OPPS for hospital outpatient services at that time.

It was recognized that adoption of the Medicare OPPS would require full commitment by the Agency to ensure expeditious implementation of the OPPS given the fact that Medicare's outpatient reimbursement system had been in effect since August 1, 2000. A formal OPPS work group was formed over 2 1/2 years ago to finalize operational requirements and develop sophisticated software for processing and payment of hospital outpatient claims. Although the agency was committed to mirroring the basic Medicare reimbursement methodology as closely as possible (i.e., Medicare Ambulatory Payment Classification (APC) system, national APC payment rates, geographical wage adjustments, discounting, coding requirements, etc.), there were modifications that had to be done to the software grouping and pricing components to accommodate TRICARE's unique beneficiary and benefit structure. The continual updating of grouping and pricing software based on ongoing Medicare quarterly updates, along with TRICARE specific requirements, have been a challenge to both TRICARE and its Managed Care Support Contractors.

Based on the agency's requirement to implement OPPS as mandated under section 707 of NDAA-02 (i.e., the statutory change to 10 U.S.C. 1079(j)(2)) that TRICARE payment methods for institutional care shall be determined to the extent practicable in accordance with Medicare payment rules), and to maximize the administrative efficiencies and cost-savings of this new reimbursement system, TRICARE opted to go with the same interim final rule making process that it used in implementing the two previously mandated Medicare reimbursement systems (i.e., the TRICARE Home Health Agency and the Skilled Nursing Facility Prospective Payment System, which also statutorily mandated under the same NDAA as OPPS—which was section 707 of NDAA-02).

The fact that TRICARE will be following Medicare changes to the extent practicable (i.e., outpatient services provided in hospitals subject to Medicare OPPS as specified in 42 CFR § 413.65 and 42 CFR § 419.20 will be paid in accordance with the provisions outlined in section 1833(t) of the Social Security Act and its implementing Medicare regulation (42 CFR 419)) would make it difficult to conform to the traditional proposed and final rule making process since changes would be continual and ongoing based on Medicare rules and policy transmittals. The IFR process would most accurately reflect the provisions of the payment methodology at the time of implementation, while at the same time affording public review and comment which will be addressed in the Final Rule.

It is estimated that going with proposed and final rulemaking instead of interim final and final rule making would result in at least a 12-month delay in implementation of the TRICARE Outpatient Prospective Payment System, which in turn would result in the program foregoing projected cost-savings in the amount of $50 to $70 million.

TRICARE's Managed Care Support Contractors (MCSCs) have fully integrated the OPPS Outpatient Code Editor and Pricer into their claims processing systems (i.e., the software modules that were developed to process and accurately price hospital outpatient claims). A 12-month delay in implementation of OPPS would result in an additional $8-12 million in administrative costs for the government. Even though the system would remain in test mode it would have to be maintained and updated during the delay (4-6 updates), which would require staff support and programming. Maintaining multiple outpatient reimbursement systems would impose an administrative burden on TRICARE and its MCSCs.

A delay would also be extremely challenging from a public relations standpoint, since the MCSCs have already gone out to their network hospitals and renegotiated contracts. Approximately 97 percent of all network agreements have been renegotiated to accommodate implementation of the TRICARE OPPS. As a result, providers are anticipating conversion to OPPS within the near future (i.e., they are reconfiguring their charge masters to accommodate TRICARE OPPS billing).

OPPS will ensure consistency of hospital outpatient payments throughout the United States, thus reducing the denial and return of claims to providers for coding errors. Providers will have access to OCE/Pricer software that will facilitate the filing and payment of outpatient claims with their TRICARE claims processors. A 12-month delay would reduce overall administrative cost savings for both providers and TRICARE contractors. These administrative efficiencies/cost-savings will not be lost through IFR making.

The general public and other interested parties ( e.g. , consulting groups and medical associations) are also anticipating implementation of OPPS in the near future. A significant delay in implementation will cause frustration and confusion. The education efforts will have to be doubled to accommodate a significant delay in implementation of OPPS.

There is urgency for TRICARE implementation of the Medicare OPPS given the fact that the Medicare OPPS has been in place since August 1, 2000. The initial delay, which was reflected in the previous Sub-Acute Care Program interim and final rules (67 FR 40597, June 13, 2002, and 70 FR 61377), was due in part to the Agency's desire to avoid the transitioning provisions that were in effect under the Medicare program from its implementation though CY 2005. The remaining time was necessary to accommodate the revised programming necessary to accommodate TRICARE's unique population and benefit structure. The OPPS workgroup (both TMA and contractor staff) has worked over the past three years to ensure expeditious implementation of this Congressionally mandated outpatient reimbursement system.

The OPPS evolved out of Congressional mandates for replacement of Medicare's cost-based payment methodology with a prospective payment system (PPS). Medicare implemented OPPS for services furnished on or after August 1, 2000, with temporary transitional provisions to buffer the financial impact of the new prospective payment system (e.g., incorporating transitional pass-through adjustments and proportional reductions in beneficiary cost-sharing to lessen potential payment reductions experienced under the new OPPS).

Congress likewise established enabling legislation under section 707 of the National Defense Authorization Act of Fiscal Year 2002 (NDAA-02), Pub. L. 107-107 (December 28, 2001) changing the statutory authorization [in 10 U.S.C. 1079(j)(2)] that TRICARE payment methods for institutional care be determined, to the extent practicable, in accordance with the same reimbursement rules used by Medicare. Similarly, under 10 U.S.C. 1079(h), the amount to be paid to health care professional and other non-institutional health care providers “shall be equal to an amount determined to be appropriate, to the extent practicable, in accordance with the same reimbursement rules used by Medicare”. Based on these statutory provisions, TRICARE is adopting Medicare's prospective payment system for reimbursement of hospital outpatient services currently in effect for the Medicare program as required under the Balanced Budget Act of 1997 (BBA 1997), (Pub. L 105-33) which added section 1833(t) of the Social Security Act providing comprehensive provisions for establishment of a hospital OPPS. The Act required development of a classification system for covered outpatient services that consisted of groups arranged so that the services within each group were comparable clinically and with respect to the use of resources. The Act also described the method for determining the Medicare payment amount and beneficiary coinsurance amount for services covered under the outpatient PPS. This included the formula for calculating the conversion factor and data requirements for establishing relative payment weights.

Centers for Medicare and Medicaid Services (CMS) published a proposed rule in the Federal Register on September 8, 1998 (63 FR 47552) setting forth the proposed PPS for hospital outpatient services. On June 30, 1999, a correction notice was published (64 FR 35258) to correct a number of technical and typographical errors contained in the September 8, 1998 proposed rule.

Subsequent to publication of the proposed rule, the Medicare, Medicaid, and State Child Health Insurance Program (SCHIP) Balanced Budget Refinement Act of 1999 (BBRA 1999) (Pub. L. 106-133) enacted on November 29, 1999, made major changes that affected the proposed outpatient PPS. The following BBRA 1999 provisions were implemented in a final rule (65 FR 18434) published on April 7, 2000.

• Made adjustments for covered services whose costs exceed a given threshold (i.e., an outlier payment).

• Established transitional pass-through payments for certain medical devices, drugs, and biologicals.

• Placed limitations on judicial review for determining outlier payments and the determination of additional payments for certain medical devices, drugs, and biologicals.

• Included as covered outpatient services implantable prosthetics and durable medical equipment and diagnostic x-ray, laboratory, and other tests associated with those implantable items.

• Limited the variation of costs of services within each payment classification group.

• Required at least annual review of the groups, relative payment weights, and the wage and other adjustments to take into account changes in medical practice, the addition of new services, new cost data, and other relevant information or factors.

• Established transitional corridors that would limit payment reductions under the hospital outpatient PPS.

• Established hold harmless provisions for rural and cancer hospitals.

• Provided that the coinsurance amount for a procedure performed in a year could not exceed the hospital inpatient deductible for the year.

Section 1833(t) of the Social Security Act was subsequently amended by the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act (BIPA) of 2000 (Pub. L. 106-554) and the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of 2003 (Pub. L. 108-173), making additional changes in the OPPS.

As a prelude to implementation of the OPPS, Congress enacted the Omnibus Budget Reconciliation Act of 1986 (OBRA) (Pub. L. 99-509) which paved the way for development of a PPS for hospital outpatient services by prohibiting payment for nonphysician services furnished to hospital patients (inpatients and outpatients), unless the services were furnished either directly or under arrangement with the hospital, except for services of physician assistants, nurse practitioners and clinical nurse specialists. Exceptions were also made for clinical diagnostic procedures, the payment of which may only be made to the person or entity that performed, or supervised the performance of, the test; and for exceptionally intensive hospital outpatient services provided to skilled nursing facility (SNF) residents that lie well beyond the scope of the care that SNFs would ordinarily furnish, and thus beyond the ordinary scope of the SNF care plan. Consolidated billing facilitated the payment of services included within the scope of each ambulatory payment classification (APC). The OBRA also mandated hospitals to report claims for services under the Healthcare Common Procedure Coding System (HCPCS) which enabled the identification of specific procedures and services used in the development of outpatient PPS rates.

Ongoing changes and refinement to the OPPS have been accomplished through annual proposed and final rulemaking, along with interim transmittals and program memoranda taking into consideration changes in medical practice, addition of new services, new cost data, and other relevant information and factors. TRICARE will recognize to the extent practicable all applicable statutory requirements and changes arising from Medicare's continuing experience with this prospective payment system, including changes to the amounts and factors used to determine the payment rates for hospital outpatient services paid under the prospective payment system [e.g., annual recalibration (updating) of group weights and conversion factors and adjustments for area wage differences (wage index updates)].

While TRICARE intends to remain as true as possible to Medicare's basic OPPS methodology (i.e., adoption and updating of the Medicare data elements used to calculate the prospective payment amounts), there will be some deviations required to accommodate the uniqueness of the TRICARE program. These deviations have been designed to accommodate existing TRICARE benefit structure and claims processing procedures/systems implemented under the TRICARE Next Generation Contracts (T-NEX), while at the same time eliminating any undue financial burden to TRICARE Prime, Extra, and Standard beneficiary populations. Following is a brief discussion of each of these deviations:

• Outpatient Code Editor (OCE) —The Medicare Outpatient Code Editor with APC program edits data to help identify possible errors in coding and assigns Ambulatory Payment Classification numbers based on HCPCS codes for payment under the OPPS. The OPPS is an outpatient equivalent of the inpatient, Diagnosis Related Group (DRG)-based PPS. Like the inpatient system based on DRGs, each APC has a pre-established prospective payment amount associated with it. However, unlike the inpatient system that assigns a patient to a single DRG, multiple APCs can be assigned to one outpatient claim. If a patient has multiple outpatient services during a single visit, the total payment for the visit is computed as the sum of the individual payments for each service. Medicare provides updated versions of the OCE, along with installation and user manuals, to its fiscal intermediaries on a quarterly basis. The updated OCE reflects all new coding and editing changes during that quarter.

It was found upon initial testing of the OCE that it could not be used in its present form given the fact that the extensive editing embedded in its software program was specific to Medicare's benefit structure and internal claims processing requirements. As a result, the Agency has developed a TRICARE-specific OCE which will better accommodate the benefit structure and claims processing systems currently in place under the T-NEX contracts. This modified software package will edit claims data for errors and indicate actions to be taken and reasons why the actions are necessary. This expanded functionality will facilitate the linkage between the action being taken, the reasons for the action, and the information on the claim that caused the action. The edits will be specific for TRICARE, ensuring compliance with current claims processing criteria. The OCE will also assign an APC number for each service covered under the OPPS and return information to be used as input to the TRICARE PRICER program.

Like Medicare's OCE, the TRICARE-specific OCE will be updated on a quarterly basis incorporating, to the extent practicable, all Medicare changes/updates (i.e., those changes initiated through rulemaking and transmittals/program memoranda). Periodic updating of the TRICARE-specific OCE will ensure consistency and accuracy of claims processing and payment under the OPPS.

• Deductible and Cost-Sharing —Medicare's OPPS coinsurance was initially frozen at 20 percent of the national median charge for the services within each APC (wage adjusted for the provider's geographic area) or 20 percent of the APC payment rate, whichever was greater (i.e., the coinsurance for an APC could not fall below 20 percent of the APC payment rate). This was designed so that, as the total payment to the provider increased each year based on market basket updates, the present or frozen coinsurance amount would become a smaller portion of the total payment until the coinsurance represented 20 percent of the total. Once the coinsurance became 20 percent of the payment amount, annual updates would be applied to the coinsurance so that it would continue to account for 20 percent of the total charge. Wage adjusted coinsurance amounts were further limited by the Medicare inpatient deductible. Subsequent legislation has accelerated the reduction of beneficiary copayment amounts by imposing prescribed percentage limitations off of the APC payment rate. For example, for all services paid under the OPPS in CY 2005, the national unadjusted copayment amount cannot exceed 45 percent of the APC rate. Accelerated reductions were imposed specifically for those APC groups for which coinsurance represented a relatively high proportion of the total payment.

A program payment percentage is calculated for each APC by subtracting the unadjusted national coinsurance amount for the APC from the unadjusted payment rate and dividing the result by the unadjusted payment rate. The payment rate for each APC group is the basis for determining the total payment (subject to wage-index adjustment) that a hospital will receive from the beneficiary and the Medicare program.

Since imposition of Medicare's unadjusted national coinsurance amounts would have an adverse financial impact on TRICARE beneficiaries (i.e., imposition of significantly higher cost-sharing for Primary beneficiaries), the Agency has opted to use the following hospital outpatient deductible and cost-sharing/copayments currently being applied in Tables 1 and 2 below for Prime, Extra, and Standard TRICARE programs for hospital outpatient services:

• Hold-Harmless Protection —Since the inception of the Medicare OPPS, providers have been eligible to receive additional transitional outpatient payments (TOPs) if the payments they received under the OPPS were less than the payments they could have received for the same services under the payment system in effect before the OPPS. Prior to January 1, 2004, most hospitals that realized lower payments under OPPS received transitional corridor payments based on a percent of the decreased payments, with the exception of cancer hospitals, children's hospitals and rural hospitals having 100 or fewer beds which were held harmless under this provision and paid the full amount of the decrease in payment under the OPPS. Since transitional corridor payments were intended to be temporary payments to ease the provider's transition from a prior cost-based payment system to a prospective payments system, they were terminated as of January 1, 2004, with the exception of cancer and children's hospitals who were held harmless permanently under transitional corridor provisions of the statute (section 1833(t)(7) of the Social Security Act). The authority for making transitional corridor payments under section 1833(t)(7)(D)(i) of the Act, as amended by section 411 Pub. L. 108-173, expired for rural hospitals having 100 or fewer beds, and sole community hospitals (SCHs) located in rural areas as of December 31, 2005. However, subsequent legislation (Section 5105 of Pub. L. 109-171) reinstituted the hold-harmless transitional outpatient payments (TOPs) for covered OPD services furnished on or after January 1, 2006, and before January 1, 2009, for rural hospitals having 100 or fewer beds that are not SCHs. This provision provided an increased payment for such hospitals for outpatient services if the OPPS payment they received was less than the pre-BBA payment amount (i.e., the amount that was received prior to implementation of OPPS) that they would have received for the same covered service. When the OPPS payment is less than the payment the provider would have received prior to OPPS implementation, the amount of payment is increased by 90 percent of the amount of that difference for CY 2007, and by 85 percent of the amount of the difference for CY 2008. The amount of payment under Section 1833(t)(13)(B) of the Act, as amended by section 411 of Pub. L. 108-73, also provided a payment increase for rural SCHs of 7.1 percent for all services and procedures paid under the OPPS, excluding drugs, biologicals, brachytherapy seeds and services paid under pass-through payments effective January 1, 2006, if justified by a study of the difference in costs for rural SCHs.

While the Agency adopted the hold-harmless TOPs for rural hospitals having 100 or fewer beds and SCHs, it opted to totally exempt cancer and children's hospitals from the OPPS in lieu of imposing the hold-harmless provision, given the administrative complexity of capturing the data required for payment of monthly interim TOP amounts. TOPs would require a comparison of what would have been paid [i.e., billed charges and CHAMPUS Maximum Allowable Charge (CMAC) amounts] prior to implementation of the OPPS for hospital outpatient services to those amounts actually paid under the OPPS for the same services. A TOP would be allowed in addition to the OPPS amount if payment to a cancer or children's hospital was lower than the amount that would have been paid prior to implementation of the OPPS. Since transitional corridor payments were specifically designed to supplement the losses experienced under the OPPS (i.e., to pay for services at the full amount that would have been allowed prior to implementation of the OPPS), and most, if not all, outpatient services paid at a billed or CMAC would exceed the OPPS amount, the program cannot justify the administrative burden/expense of maintaining the hold-harmless provisions for cancer and children's hospitals. As a result, TRICARE will continue to reimburse cancer and children's hospitals on a fee-for-services basis using billed charges and CMAC rates; i.e., they will be excluded altogether from the OPPS.

Adoption of the Medicare OPPS has also highlighted other policy considerations which must be addressed in order to accommodate preexisting authorization criteria and reimbursement systems. Following are these identified policy considerations and prescribed resolutions:

• Partial Hospitalization Programs (PHP) —Currently, TRICARE coverage extends to both full- and half-day psychiatric partial hospitalization services furnished by TRICARE-authorized partial psychiatric hospitalization programs and authorized mental health providers for the active treatment of a mental disorder. Each psychiatric partial hospitalization program must be either a distinct part of an otherwise authorized institutional provider or a freestanding program certified pursuant to TRICARE certification standards; i.e., the facility must be accredited by the Joint Commission on Accreditation of Healthcare Organizations (JCAHO) under the current edition of the Accreditation Manual for Mental Health, Chemical Dependency, and Mental Retardation/Developmental Disabilities Services and meet all other requirements as prescribed under 32 CFR 199.6(b)(4)(xii)(A) through (D). These authorized and participating partial hospitalization programs are paid a percentage off of the average inpatient per diem amount per case to both high- and low-volume psychiatric hospitals. Full-day partial hospitalization programs (minimum of 6 hours) receive 40 percent of the average inpatient per diem, while partial hospitalization programs with less than 6 hours (with a minimum of three hours) will be paid a per diem of 75 percent of the rate for full-day partial hospitalization programs.

Although the prescribed payment methodology for PHP under OPPS is similar to that currently being used (i.e., payment under a per diem recognizing the provider's overhead costs and support staff), there are subtle differences in that OPPS' all-inclusive per diems represent actual median costs of furnishing a day of partial hospitalization while per diems under the existing TRICARE system as prescribed under 32 CFR 199.14(a)(2)(ix) are extrapolated from inpatient costs based on the intensity of the program (i.e., dependent on whether it is classified as a full- or half-day program). Another notable difference between the two programs is the continuation of reimbursement of half-day PHPs (≥ to 3 hrs. but < 6 hrs.) under TRICARE which are currently not recognized for payment under the Medicare OPPS (i.e., Medicare has not established a separate APC for half-day PHPs which can be used for reimbursement under the TRICARE OPPS). This deviation from the Medicare PHP required the establishment of an additional APC, the per diem of which was set at 75 percent of the unadjusted full-day PHP APC amount (i.e., 75 percent of the APC 0033 amount of $234.73, equaling $176.05 for CY 2007). This will ensure continued coverage of a well established mental health treatment modality (half-day PHP) which has been in place under TRICARE for over a decade. The above-established per diems reflect the structure and scheduling of PHPs, and the composition of the PHP APC consists of the cost of all services provided each day. Although there is a requirement that each PHP day include a psychotherapy service, there is no specification regarding the specific mix of other services furnished within the day.

The TRICARE criteria under which PHP services may be rendered are different than Medicare's—both with regard to the need for PHP services and facility requirements. Currently, Medicare OPPS partial hospitalization services may be provided to patients in lieu of inpatient psychiatric care in hospital outpatient departments or Medicare-certified community mental health centers (CMHCs). The Agency has opted to retain the existing mental health review criteria under 32 CFR 199.4(b)(10) in order to ensure the continued level and quality of mental health care afforded under the basic program. Following are the TRICARE review criteria for determining the medical necessity of psychiatric partial hospitalization services:

• The patient is suffering significant impairment from a mental disorder (as defined in § 199.2) which interferes with age appropriate functioning.

• The patient is unable to maintain himself or herself in the community, with appropriate support, at a sufficient level of functioning to permit an adequate course of therapy exclusively on an outpatient basis (but is able, with appropriate support, to maintain a basic level of functioning to permit partial hospitalization services and presents no substantial imminent risk of harm to self or others).

• The patient is in need of crisis stabilization, treatment of partially stabilized mental health disorders, or services as a transition from an inpatient program.

• The admission into the partial hospitalization program is based on the development of an individualized diagnosis and treatment plan expected to be effective for the patient and permit treatment at a less intensive level.

Based on existing mental health review criteria under 32 CFR 199.4(b)(10) and certification requirements prescribed under 32 CFR 1996(b)(4)(xii)(A), including accreditation by the JCAHO, under the current edition of the Accreditation Manual for Mental Health, Chemical Dependency, and Mental Retardation/Developmental Disabilities Services, not all hospital-based PHPs will be assured of receiving payment under the OPPS unless they meet the above prescribed certification requirements and enter into a participation agreement with TRICARE. CMHC PHPs have been excluded from payment under the TRICARE OPPS since CMHCs are not recognized as authorized providers under the TRICARE program.

While the authorization standards under 32 CFR 199.6(b)(4)(xii)(A) through (D) will be retained/applied for both hospital-based and freestanding PHPs currently recognized under the Program, including the requirement for a written participation agreement with TRICARE, freestanding PHPs will be exempt from OPPS and will continue to be reimbursed under the old TRICARE PHP per diem system as prescribed under 32 CFR 199.14(a)(2)(ix), subject to their own unique mental health copayment/cost-sharing provisions.

• Ambulatory Surgery Procedures —Currently, ambulatory surgery procedures provided in both freestanding ambulatory surgery centers (ASCs) and hospital outpatient departments or emergency rooms are paid using prospectively determined rates established on a cost basis and divided into eleven groups as prescribed under 32 CFR 199.14(d). These payment groups are further adjusted for area labor costs based on Metropolitan Statistical Areas (MSAs). The payment rates established under this system apply only to facility charges for ambulatory surgery (e.g., standard overhead amounts that include, but are not limited to, nursing and technician services, use of the facility and supplies and equipment directly related to the surgical procedure) and do not include such items as physician's fees, laboratory, X-rays or diagnostic procedures (other than those directly related to the performance of the surgical procedure), prosthetics and durable medical equipment for use in the patient's home. Ambulatory surgery procedures (both provided in hospital-based and freestanding ambulatory surgery centers) are subject to their own unique copayment/cost-sharing provisions under the current TRICARE ambulatory surgery benefit.

With implementation of the OPPS, hospital-based ambulatory surgery procedures will no longer be reimbursed under the original eleven tier payment system, but will instead be paid on a rate-per-service basis that varies according to the APC group to which the surgical procedure is assigned. The relative weight of the APC group will represent the median hospital cost of the services included in the APC relative to the median cost of services included in APC 0606, Level 3 Clinic Visit. The prospective payment rate for each APC will be calculated by multiplying the APC's relative weight by a nationally established conversion factor and adjusting it for geographic wage differences. The APC payment will be subject to the deductible and cost-sharing/copayment amounts currently being applied under Prime, Extra, and Standard TRICARE programs for hospital outpatient services. Denial of Medicare inpatient procedures will also be adhered to under the OPPS (i.e., denial of inpatient surgical procedures performed in a hospital outpatient setting) except for those inpatient procedures, which upon medical review, could be safely and efficaciously rendered in an outpatient setting due to TRICARE's younger, healthier beneficiary population. TRICARE-specific APCs will be developed for these designated inpatient procedures based on median costs off of the most recent 12 months of claims history. OPPS reimbursement will also be extended for an inpatient procedure performed to resuscitate or stabilize a patient with an emergent, life-threatening condition who dies before being admitted as a patient, which in this case, will be paid under a new technology APC.

Freestanding ASCs will be exempt from OPPS and will continue to be paid under the existing eleven tier payment system. ASC procedures will be placed into one of ten groups by their median per procedure cost, starting with $0 to $299 for Group 1, and ending with $1,000 to $1,299 for Group 9 and $1,300 and above for Group 10, subject to their own unique copayment/cost-sharing provisions under the TRICARE freestanding ambulatory surgery benefit. The eleventh payment tier/group was added to the ASC reimbursement system as of November 1, 1998, for extracorporeal shock wave lithotripsy, with a rate established off of the inpatient Diagnostic Related Group (DRG) 323 which is currently $3,289.

• Birthing Centers —As described in 32 CFR 199.6(b)(4)(xi)(3), a birthing center is a freestanding or institution-affiliated outpatient maternity care program which principally provides a planned course of outpatient prenatal care and outpatient childbirth services limited to low-risk pregnancies. These all-inclusive maternity and childbirth services are currently being reimbursed in accordance with 32 CFR 199.14(e) at the lower of the TRICARE established all-inclusive rate or the billed charge. The all-inclusive rate includes laboratory studies, prenatal management, labor management, delivery, post-partum management, newborn care, birth assistant, certified nurse-midwife professional services, physician professional services, and the use of the facility to the extent that they are usually associated with a normal pregnancy and childbirth. Since institutional-affiliated maternity centers will continue to be reimbursed under the TRICARE maximum allowable birthing center all-inclusive rate methodology as prescribed under 32 CFR 199.14(e), payment will be equal to the sum of the Class 3 CMAC for total obstetrical care for a normal pregnancy and delivery (CPT code 59400) and the TMA supplied non-professional component amount, which includes both the technical and professional components of tests usually associated with a normal pregnancy and childbirth. As a result, hospital-based birthing centers will continue to be reimbursed the same as freestanding birthing centers except that updating of the hospital-based all inclusive rate, consisting of the CMAC for procedure code 59400 (Birthing Center, all-inclusive charge, complete) and the state specific non-professional component, will lag two months behind the freestanding birthing center all-inclusive update; i.e., the freestanding birthing center all-inclusive rate components will usually be updated on February 1 of each year to coincide with the annual CMAC file update, followed by the hospital-based birthing center all-inclusive rate component updates on April 1 of the same year. There will also be differences in cost-sharing based on the particular outpatient setting, since the cost-share amount for freestanding birthing center claims will continue to be calculated using the ambulatory surgery formula while cost-share for hospital-based claims will be calculated under the regular outpatient cost-sharing provisions.

• Observation Stays —Observation Services are those services furnished on a hospital's premises, including the use of a bed and periodic monitoring by a hospital's staff, which are reasonable and necessary to evaluate an outpatient's condition or to determine the need for a possible admission to the hospital as an inpatient. Under Medicare, a hospital may receive separate APC payments for observation services for patients having diagnoses of chest pain, asthma, or congestive heart failure, when billed in conjunction with an evaluation and management visit for a minimum of 8 hours. Since these qualifying diagnoses would greatly restrict separate payment of observation stays currently being reimbursed based solely on medical necessity, they are being expanded to accommodate the special needs of unique TRICARE beneficiary populations (e.g., separate payment for maternity observations stays). Separate payment of maternity observation stays required the modification of the existing conditional criteria for separate payment of observation stays associated with pain, asthma or congestive heart failure. Under the TRICARE OPPS, additional hospital services (e.g., separate emergency room visit or clinic visit) will not be required on a claim with a maternity diagnosis in order to receive separate payment for an observation stay. The minimum time requirements have also been reduced from 8 to 4 hours to ensure maximum coverage of medically necessary maternity observation stays.

• End-State Renal Disease (ESRD) Dialysis Services —In accordance with sections 1881(b) (2) and (b)(7) of the Social Security Act, a facility that furnishes dialysis services to Medicare patients with ESRD is paid a prospectively determined rate for each dialysis treatment furnished. The rate is a composite that includes all costs associated with furnishing dialysis services except for the costs of physician services and certain laboratory tests and drugs that are billed separately. CMS has exercised the authority granted under section 1833(t)(1)(B)(i) to exclude from the outpatient PPS those services for patients with ESRD that are paid under the ESRD composite rate. Since TRICARE does not have a comparable composite rate in effect for payment of ESRD services, they will be reimbursed under TRICARE's OPPS.

The outpatient prospective payment system is applicable to any hospital participating in the Medicare program except for Critical Access Hospitals (CAHs), Indian Health Service hospitals, certain hospitals in Maryland that qualify for payment under the state's cost containment waiver, and hospitals located outside one of the 50 states, the District of Columbia and Puerto Rico and specialty care providers which include: (1) Cancer and children's hospitals; (2) freestanding ASCs; (3) freestanding partial hospitalization programs (PHPs); (4) freestanding psychiatric and substance use disorder rehabilitation facilities (SUDRFs); (5) comprehensive outpatient rehabilitation facilities (CORFs); (6) home health agencies (HHAs); (7) hospice programs; (8) other corporate services providers (e.g., freestanding cardiac catheterization centers, freestanding sleep diagnostic centers, and freestanding hyperbaric oxygen treatment centers); (9) freestanding birthing centers; (10) VA hospitals; and (11) freestanding ESRD centers. Due to their inability to meet the more stringent requirements imposed for hospital-based and freestanding PHPs under the Program. CMHCs have also been excluded from payment under OPPS for partial hospitalization program (PHP) services since they are not recognized as authorized providers under the TRICARE program.

An outpatient department, remote location hospital, satellite facility, or other provider-based entity must also be either created by, or acquired by, a main provider (hospital qualifying for payment under OPPS) for the purpose of furnishing health care services of the same type as those furnished by the main provider under the name, ownership, and financial administrative control of the main provider, in accordance with the following requirements under 42 CFR § 413.65 (Medicare Regulation) in order to qualify for payment under the OPPS:

• Licensure —The outpatient department, remote location hospital, or the satellite facility and the main hospital are operated under the same license, except in areas where the State requires a separate license for the department of the provider.

• Clinical Integration —Professional staff of the outpatient department, remote location hospital or satellite facility are monitored by, and have clinical privileges at the main hospital. The medical director of the outpatient facility must also maintain a reporting relationship with the chief medical officer at the main hospital that has the same frequency, intensity and level of accountability that exists in the relationship between other departmental medical directors and the chief medical officer of the main hospital. Medical records for patients treated in the facility or organization must be integrated into a unified retrieval system (or cross reference) of the main hospital and there must be full access to all services provided at the main hospital for patients treated in the outpatient facility requiring further care.

• Financial integration. The financial operation of the outpatient facility must be fully integrated within the financial system of the main hospital, as evidenced by shared income and expenses between the main hospital and outpatient facility.

• Public awareness. The outpatient department, remote location hospital, or a satellite facility is held out to the public and other payers as part of the main provider. When patients enter the outpatient facility they are aware that they are entering the main provider and are billed accordingly.

Payment for services under the OPPS is based on grouping outpatient services into APC groups in accordance with provisions outlined in section 1833(t) of the Social Security Act and its implementing regulation 42 CFR part 419. This grouping is accommodated through the reporting of HCPCS codes and descriptors that are used to group homogenous services (both clinically and in terms of resource consumption) into their respective APC groups.

During the development of the hospital OPPS it was recognized that certain hospital outpatient services were being paid based on fee schedules or other prospectively determined rates that were being applied across other ambulatory care settings. As a result, the following services were excluded from the OPPS in order to achieve consistency of payment across different service delivery sites: (1) Physician services; (2) nurse practitioner and clinical nurse specialist services; (3) physician assistant services; (4) certified nurse-midwife services; (5) services of a qualified psychologist; (6) clinical social worker services, except under half- and full-day partial hospitalization programs in which the services are included within the per diem payment amount; (7) services of an anesthetist; (8) screening and diagnostic mammographies; (9) clinical diagnostic services; (10) non-implantable DME, orthotics, prosthetics, and prosthetic devices and supplies; (11) hospital outpatient services furnished to SNF inpatients as part of their comprehensive care plan; (12) ambulance services; (13) physical therapy; (14) speech-language pathology; (15) occupational therapy; (16) influenza and pneumococcal pneumonia vaccines; (17) take-home surgical dressings; (18) services and procedures designated as requiring inpatient care; and (19) ambulance services. These services will continue to be reimbursed under the current CMAC fee schedule or other TRICARE-recognized allowable charge methodology (e.g., statewide prevailings).

The remaining outpatient procedures which were not being paid under current fee schedules or other prospectively determined rates were grouped under an APC as set forth in section 1833(t)(2)(B) of the Social Security Act and under 42 CFR § 419.31 based on the following criteria:

• Resource Homogeneity —The amount and type of facility resources (for example, operating room, medical supplies, and equipment) that are used to furnish or perform the individual procedures or services within each APC group should be homogeneous. That is, the resources used are relatively constant across all procedures or services even though resources used may vary somewhat among individual patients.

• Clinical Homogeneity —The definition of each APC should be “clinically meaningful.” That is, the procedures or services included within the APC group relate generally to a common organ system or etiology, have the same degree of extensiveness, and utilize the same method of treatment.

• Provider Concentration —The degree of provider concentration associated with the individual services that comprise the APC is considered. If a particular service is offered only in a limited number of hospitals, then the impact of payment for the services is concentrated in a subset of hospitals. Therefore, it is important to have an accurate payment level for services with a high degree of provider concentration. Conversely, the accuracy of payment levels for services that are routinely offered by most hospitals does not bias the payment system against any subset of hospitals.

• Frequency of Service —Unless there is a high degree of provider concentration, creating separate APC groups for services that are infrequently performed is avoided. Since it is difficult to establish reliable payment rates for low-volume groups, HCPCS codes are assigned to an APC that is most similar in terms of resource use and clinical coherence.

• Minimal Opportunities for Upcoding and Code Fragmentation —The APC system is intended to discourage using a code in a higher paying group to define the care. That is, putting two related codes such as the codes, for excising a lesion for 1.1 cm and one of 1.0 cm, in different APC groups may create an incentive to exaggerate the size of the lesions in order to justify the incrementally higher payment. APC groups based on subtle distinctions would be susceptible to this kind of coding. Therefore, APC groups were kept as broad and inclusive as possible without sacrificing resource or clinical homogeneity.

In accordance with section 1833(t)(2) of the Social Security Act, services and items within an APC group cannot be considered comparable with respect to the use of resources in the APC group if the highest median cost is more than 2 times the lowest median cost for an item or service within the same group (referred to a the “2 times rule”). Exceptions may be granted in unusual cases, such as low-volume items and services, but cannot be extended in cases of a drug or biological that has been designated as an orphan drug under section 526 of the Federal Food, Drug and Cosmetic Act.

The prospective payment system establishes a national payment rate, standardized for geographic wage differences, that includes operating and capital-related costs that are directly related and integral to performing a procedure or furnishing a service on an outpatient basis, which has ultimately resulted in the establishment of distinct groups of surgical, diagnostic, and partial hospitalization services, as well as medical visits. No separate payment is made for packaged services, because the cost of these items is included in the APC payment for the service of which they are an integral part. These costs include, but are not limited to: (1) Use of operating suite; (2) use of procedure room or treatment room; (3) use of recovery room or area; (4) use of an observation bed; (5) anesthesia, along with supplies and equipment for administering and monitoring anesthesia or sedation; (6) certain drugs, biologicals, and other pharmaceuticals; (7) medical and surgical supplies; (8) surgical dressings; (9) devices used for external reduction of fractures and dislocations; (10) intraocular lenses (IOLs); (11) capital related costs; (12) costs incurred to procure donor tissue other than corneal tissue; (13) incidental services such as venipuncture; (14) implantable items used in connection with diagnostic laboratory tests, and other diagnostics; and (15) implantable prosthetic devices (other than dental) which replace all or part of an internal body organ (including colostomy bags and supplies directly related to colostomy care), including replacement of these devices.

Payments for packaged services under the OPPS are bundled into the payment providers receive for separately payable services provided on the same day and are identified by the status indicator (SI) “N”. Hospitals include charges for packaged services on their claims, and the costs associated with these packaged services are bundled into the costs for separately payable procedures in calculating their payment rates. The following criteria are used in determining whether procedures should be packaged: (1) Whether the service is normally provided separately or in conjunction with other services; (2) how likely it is for the costs of the packaged code to be appropriately mapped to the separately payable codes with which it was performed; (3) whether the APC payment to which the services were packaged will offset the hospital's actual costs; and (4) whether the expected cost of the service is relatively low.

Special logic has also been programmed into the OCE which will have the OPPS PRICER automatically assign payment for a special packaged service reported on a claim if there were no other services separately payable under the OPPS claim for the same date. A new status indicator “Q” will be assigned to these special packaged codes to indicate that they are usually packaged, except for special circumstances when they are separately payable.

Based on the above packaging criteria, is was felt that certain other expensive items and services which were otherwise considered an integral part of another procedure should not be packaged within that procedure's APC payment rate, since the resulting payment would not offset the costs of those items and services. This could have a potentially negative impact, thereby jeopardizing access to these items and services in a hospital outpatient setting. As a result, the costs associated with these items and services were not packaged within the APC of the primary procedure with which they were normally associated. Instead, separate APCs were developed for payment of these items and services under the following payment provisions:

• Transitional Pass-Through for Additional Costs of Drugs, Biologicals, and Radiopharmaceuticals. Although the costs of drugs, biologicals and pharmaceuticals are generally packaged into the APC payment rate for the primary procedure or treatment with which the drugs are usually furnished, there are special temporary additional payments or “transitional pass-through payments” available under section 1833(t)(6) of the Social Security Act for at least two years, but not more than three years for the following drugs and biologicals: (1) Current orphan drugs, as designated under section 526 of the Federal Food, Drugs, and Cosmetic Act; (2) current drugs and biological agents used for treatment of cancer; (3) current radiopharmaceutical drugs and biological products; and (4) new drugs and biologic agents in instances where the item was not being paid as a hospital outpatient service as of December 31, 1996, and where the cost of the item is “not insignificant” in relation to the hospital OPPS payment amount.

Section 1833(t)(6)(D)(i) of Social Security Act sets the payment rate for pass-through eligible drugs as amounts determined under section 1842(o) of the Act. Section 1847A of the Act establishes the use of average sales price (ASP) methodology (i.e., the rate equivalent to the payment that would be received in a physician office setting) as the basis for payment for drugs and biologicals described in section 1842(o)(1)(C) of the Act. Section 1883(t)(6)(D)(i) also states if a drug or biological is covered under a competitive acquisition contract under section 1847B of the Act, the payment rate is equal to the average price for the drug or biologicals for all competitive acquisition areas. Thus, drugs and biologicals with pass-through status in CY 2007 will receive payment consistent with the provision of section 1842(o) of the Act, at a rate that is equivalent to the payment they would receive in a physician office setting (ASP) or the rate that would be paid under the competitive acquisitions program, while pass-through radiopharmaceuticals will be paid the hospital's charge for the radiopharmaceutical adjusted to the cost using the hospital's overall cost-to-charge ratio (CCR).

• Packaging and Payment for Drugs, Biologicals and Radiopharmaceuticals Without Pass-Through Status. Drugs, biologicals and radiopharmaceuticals that do not have pass-through status are paid in one of two ways: Either packaged into the APC payment rate for the procedure or treatment with which the products are usually furnished, or separately based on a packaging threshold which has been set at $55 for CY 2007. Therefore, for CY 2007 and beyond, drugs, biologicals and radiopharmaceuticals that are not new and do not have pass-through status will be packaged if their calculated per-day cost is equal to or more than $55 for CY 2007 or equal to or more than the updated threshold (i.e., the packaging threshold inflated annually by the Producer Price Index (PPI) for prescription drugs), with the exception of 5HT3 antiemetics which will continue to be paid separately regardless of their calculated per-day cost.

Section 1833(t)(14) of the Act requires special classification of certain separately payable drugs, biologicals and radiopharmaceuticals and mandates payment under section 1833(t)(14)(A)(iii) of the Act for specified covered outpatient drugs in CY 2006 and subsequent years to be equal to the average acquisition cost for the drug subject to any adjustment for overhead costs, which for CY 2007 is a combined rate of ASP + 6 percent. Separately payable drugs and biologicals without ASP-based data will be paid at their mean cost calculated from Medicare CY 2005 hospital claims data. The preadmission-related services associated with intravenous immune globulin (IVIG) will continue to be paid under a New Technology APC with a rate of $75. Also, payment for blood clotting factors in the outpatient setting will be set at ASP + 6 percent, plus the updated furnishing fee of $0.15. The temporary policy of paying radiopharmaceuticals at charges reduced to costs is also being extended for one additional year since it is still considered the best proxy for radiopharmaceutical acquisition and overhead costs. However, separate payment will only apply to those radiopharmaceuticals with per-day costs greater than $55.

• Payment for Nonpass-Through Drugs, Biologicals, and Radiopharmaceuticals With HCPC Codes, But Without OPPS Claims Data . For CY 2007, hospitals will receive payment for nonpass-through radiopharmaceuticals without hospital claims data that have been assigned HCPCS codes as of January 1, 2007, at the hospital's charge for the radiopharmaceutical adjusted to cost using the hospital's overall cost-to-charge ratio, which will be the same methodology used in the payment for pass-through radiopharmaceuticals. For new drugs without pass-through status or hospitals claims data, payment will be made at the lesser of the ASP or competitive acquisition contract price (Part B CAP). In rare instances where a drug does not have a Part B drug CAP rate or data available for use for ASP methodology, payment will be made at 95 percent of the product's most recent AWP. Established drugs without hospital claims data that have been classified as separately payable in CY 2007 will be paid per the ASP-based methodology at a rate of ASP+ 6 percent.

New drugs, biologicals and devices which qualify for separate payment under OPPS, but have not yet been assigned to a transitional APC (i.e., assigned to a temporary APC for separate payment of an expensive drug or device) will be reimbursed under the TRICARE standard allowable charge methodology. This allowable charge payment will continue until a transitional APC has been assigned (i.e., until CMS has had the opportunity to assign the new drug, biological or device to a temporary APC for separate payment).

• Drug Administration Coding and Payment. For CY 2007, hospitals will be expected to report the full set of CPT drug administration codes in a manner consistent with their descriptors, CPT instructions and correct coding principles. They will no longer be able to report the alphanumeric HCPCS codes (C8950, C8951, C8952, C8954, and C8955) that were recognized prior to January 1, 2007. These newly recognized CPT codes will be assigned to six new drug administration APCs, with payment rates based on median costs for the APCs as calculated from Medicare's CY 2005 claims data.

• Payment for Blood and Blood Products . Since Medicare's implementation of the OPPS in August 1, 2000, separate payments have been made for blood and blood products through APCs rather than packaging them into the procedures with which they were administered. Hospital payment for the costs of blood and blood products, as well as the costs of collecting, processing, and storing blood products, are made through the OPPS payments for specific blood product APCs. For CY 2007, these blood products payments will be based on the unadjusted, simulated median costs for blood and blood products that are derived from CY 2005 Medicare claims data, with the exception of the seven products for which there will be a payment adjustment to smooth their transition to full claims-based payment in the future.

• Other Procedures or Services Costs Not Packaged in APC Payment. Costs for casting, splinting and strapping services, immunosuppressive drugs for patients following organ transplant, and certain other high-cost drugs that are infrequently administered are not packaged into the costs of the primary procedures with which they are normally associated. Instead, new APC groups have been created for these items and services, which will allow separate payment.

• Corneal Tissue Acquisition Costs. Corneal tissue acquisition costs will not be packaged with the APC payment for corneal transplant surgical procedures. Instead, separate payment will be made based on the hospital's reasonable costs incurred to acquire corneal tissue. Corneal acquisition costs must be submitted using HCPCS code V2785 (Processing, Preserving and Transporting Corneal Tissue), indicating the actual cost of the acquisition rather than the hospital's charge on the bill.

• Transitional Pass-Through Payment for Devices. Transitional payments will only apply to new and innovative medical devices meeting the following criteria: (1) Were not recognized for payment as a hospital outpatient service prior to 1997 ( i.e. , payment was not being made as of December 31, 1996) or treated as meeting the time constraints under special prescribed conditions; (2) have been approved/cleared for use by the Food and Drug Administration (FDA); (3) are determined to be reasonable and necessary for the diagnosis or treatment of an illness or injury or to improve the functioning of a malformed body part; (4) are an integral and subordinated part of the procedure performed, are used for one patient only (except for reprocessed single-use devices meeting FDA's most recent regulatory criteria on single-use devices), are surgically implanted or inserted via a natural or surgically created orifice or incision and remain with the patient after the patient is released from the hospital outpatient department; (5) are not equipment, instruments, apparatus, implements, or such items for which depreciation and financing expenses are recovered as depreciable assets; (6) are not materials and supplies such as sutures, clips or customized surgical kits furnished incidental to a service or procedure; (7) are not material such as biologicals or synthetics that are used to replace human skin; (8) no existing or previously existing device category is appropriated for the device; (9) associated cost is not insignificant in relation to the APC payment for the service in which the innovative medical equipment is packaged; and (10) must demonstrate that utilization of the device provides substantial clinical improvement for beneficiaries compared with currently available treatments, including procedures utilizing devices in existing or previously existing device categories.

The duration of transitional pass-through payments for devices is for at least two, but not more than three years. This period begins with the first date on which a transitional pass-through payment is made for any medical device that is described by the new medical category. The costs of the devices will be packaged into the costs of the procedures with which they are normally billed once they are no longer eligible for pass-through payment.

Device pass-through payments (those procedures designated with a SI “H”) are calculated by applying the statewide cost-to-charge ratio (CCR), which is based on the geographical CBSA (2 digit = rural, 5 digit = urban), to the hospital's charges on the claims and subtracting any appropriate pass-through offset. The offset adjustment only applies when a pass-through device is billed in addition to the primary procedure with which it is normally associated.

Provisions are also in place in accordance with 1833(t)(6)(D)(ii) of the Social Security Act for reducing transitional pass-through payments by the estimated portion of each APC payment rate that could reasonably be attributed to the cost of the associated devices that are eligible for pass-through payments. Offsets are calculated by comparing the median APC cost without device packaging to the Median APC cost (including device packaging), developed from claims with device codes, to determine the percentage of median APC costs attributable to the associated pass-through device. These percentages are then applied to the APC payment amounts in order to determine the applicable amounts to be deducted from the pass-through payments, known as the “offset” amounts. Offset amounts are only applied when it can be determined that an APC contained cost is actually associated with the device. Currently, there is only one transitional pass-through payment offset in effect for device category C1820 (generator, neurostimulator (implantable), with rechargeable battery and charging system) with an amount of $8,668.94, which represents 77.65 percent of the CY 2007 payment rate for APC 0222.

Two new device categories have been established for pass-through payment starting in 2007: (1) L8690—auditory osseointegrated device, external sound processor, replacement; and (2) C1821—interspinous process distraction device (implantable). The offset amounts for both of these new device categories were set to $0 for CY 2007, since there were not identifiable device-related costs associated with their procedure APCs (i.e., APC 0256 for L8690 and APC 0050 for C1821).

• Payment When Devices Are Replaced Without Cost or Where Credit for a Replacement Device Is Furnished to the Hospital. Payments will be reduced for selected APCs in cases in which an implanted device is replaced without cost to the hospital or with full credit for the removed device in accordance with 42 CFR 419.45. The amount of the reduction to the APC rate will be calculated in the same manner as the offset amount that would be applied if the implanted device assigned to the APC had pass-through status as defined under 42 CFR 419.66. The adjustment would be made under the authority of section 1833(t)(2)(E) of the Social Security Act, which permits equitable adjustments to the OPPS payments contingent on meeting all of the following criteria: (1) All procedures assigned to the selected APCs must require implantable devices that would be reported if device replacement procedures were performed; (2) the required devices must be surgically inserted or implanted devices that remain in the patient's body after the conclusion of the procedures, at least temporarily; and (3) the offset percent for the APC (i.e., the median cost of the APC without device costs divided by the median cost of the APC with device costs) must be significant—significant offset percent is defined as exceeding 40 percent.

The presence of the modifier “FB” [“Item Provided Without Cost to Provider, Supplier, or Practitioner or Credit Received for Replacement (examples include, but are not limited to: covered under warranty, replaced due to defect, free sample)”] would trigger the adjustment in payment if the procedure code to which modifier “FB” was amended appeared in Table 3 and was also assigned to one of the APCs listed in Table 4 below.

In cases in which the device is being replaced without cost, the hospital will report a token device charge. However, if the device is being inserted as an upgrade, the hospital will report the difference between its usual charge for the device being replaced and the credit for the replacement device. Multiple procedure reductions would also continue to apply even after the APC payment adjustment to remove payment for the device cost, because there would still be the expected efficiencies in performing the procedure if it was provided in the same operative session as another surgical procedure. Similarly, if the procedure was interrupted before administration of anesthesia (i.e., there was a modifier 52 or 73 on the same line as the procedure), a 50 percent reduction would be taken from the adjusted amount.

• Coding and Payment of Emergency Department Visits. The following five Type B emergency department G-codes have been established for emergency departments meeting the definition of a dedicated emergency department (DED) under the Emergency Medical Treatment and Labor Act (EMTALA) regulations in 42 CFR § 489.24, but which are not Type A emergency departments (i.e., they may meet the DED definition but are not available 24 hours a day, 7 days a week).

The use of these G-codes, along with the following redefinition of a Type A emergency department, will serve as a vehicle to capture median cost and resource differences among visits to Type A emergency departments, Type B emergency departments and clinics. A new G-code (G0390—Trauma response team activation associated with hospital critical care services) was also created (effective January 1, 2007) to be used in addition to CPT codes 99291 and 99292 to address the meaningful cost difference between critical care when billed with and without trauma activation. If critical care is provided without trauma activation, the hospital will bill with either CPT 99291 or 99292, receiving payment for APC 0617 with a median cost of $402.67. However, if trauma activation occurs, the hospital would be allowed to bill one unit of G-code (G0390), reported with revenue code 68x on the same date of service, thereby receiving $491.66 under APC 0618. Hospitals will continue to bill CPT codes for both clinic and Type A Emergency department visits until national guidelines have been established.

The above CPT E/M codes and other HCPCS codes currently assigned to the clinic visit APCs have been mapped in Table 6 to eleven new APCs; five for clinic visits; five for emergency department visits; and one for critical care services, based on median costs and clinical consideration.

• Inpatient Only Procedures. The inpatient list on TMA's OPPS Web site at http://www.tricare.mil/opps specifies those services that are only paid when provided in an inpatient setting because of the nature of the procedure, the need for at least 20 hours of postoperative recovery time or monitoring before the patient can be safely discharged, or the underlying physical condition of the patient. The following criteria will be used when reviewing procedures to determine whether or not they should be moved from the inpatient list and assigned to an APC group for payment under OPPS: (1) Most outpatient departments are equipped to provide the services to the TRICARE population; (2) the simplest procedure described by the code may be performed in most outpatient departments; (3) the procedure is related to codes that have already been removed from the inpatient list; (4) the procedure is being performed in numerous hospitals on an outpatient basis; and (5) the procedure can be appropriately and safely performed in an ASC. While it is anticipated that TRICARE will be following the Medicare inpatient listing fairly closely, there may be occasions where, upon medical review, it is found that a particular inpatient procedure can be provided safely in an outpatient setting due to TRICARE's younger, healthier beneficiary population. These procedures will be removed from the TRICARE inpatient listing and will be assigned to either an existing or new APC group based on their median costs.

If a patient was not admitted as an inpatient, and the procedure designated as an inpatient-only procedure (by OPPS payment status indicator “C”) was performed to resuscitate or stabilize a patient with an emergency, life-threatening condition and the patient dies before being admitted as an inpatient, the hospital would bill for payment under the OPPS for the services that were furnished on that date and included modifier—“CA” on the line with the HCPCS code for the inpatient procedures. Payment for all services other than the inpatient procedure designated under OPPS by status indicator “C”, furnished on the same date, would be bundled into a single payment under APC 0375 (Ancillary Outpatient Services the Patient Expires) whose CY 2007 median cost is $3,539.

• Partial Hospitalization Services. Partial hospitalization services are those services furnished by TRICARE-authorized partial hospitalization programs and authorized mental health providers for the active treatment of a mental disorder. All services must follow a medical model and patient care must be under the general direction of a licensed psychiatrist employed by the partial hospitalization program to ensure medication and physical needs of all the patients are considered. The OPPS established per diem payment for both half- and full-day partial hospitalization represents the hospital's costs for overhead, support staff and the services of clinical social workers (CSWs) and occupational therapists (OTs). For SUDRFs, the cost of alcohol and additional counselor services would also be included in the PHP per diem. However, the OPPS does not include the cost of services for physicians, clinical psychologists, and psychiatric nurse practitioners (NPs), which will continue to be billed separately for covered mental health services. In order to receive payment under OPPS, the hospital must use specific HCPCS and revenue codes and report partial hospitalization services under bill type 13X, along with condition code 41 on the UB-04 (HCFA 1450 claim form). The claim must also include a mental health diagnosis and an authorization on file for each day of service, along with a designated H-code (i.e., either H0035 for half-day PHP or H0037 for full-day PHP) and its accompanying revenue code, prior to assigning a half-or full-day partial hospitalization APC. Specific therapy codes (e.g., coding for family, group and individual psychotherapy) will be reported in addition to the designated partial hospitalization codes H0035 and H0037 and will be packaged into a single PHP code for the same date of service, with the exception of electroconvulsive therapy (ECT). Claims that do not meet the above criteria (e.g., claims filed without condition code 41, appropriate H-coding—H0035 or H0037, and/or revenue code) will undergo further payment review to ensure that outpatient mental health procedures do not exceed the full-day partial hospitalization per diem amount; i.e., the sum of the individual mental health APC amounts on any particular day does not exceed the full-day partial hospitalization per diem amount. The half-day PHP per diem (APC T0001) will be priced at 75 percent of the full-day APC (0033) amount of $233.37 for CY 2007. Free-standing psychiatric partial hospitalization services will continue to be reimbursed the all-inclusive PHP per diem rates as established under 32 CFR 199.14(a)(2)(ix), subject to their own unique mental health copayment/cost-sharing provisions.

• Separate Payment for Observation Stays. Observation care is a well-defined set of specific, clinically appropriate services that include short-term treatment, assessment and reassessment before a decision can be made regarding whether patients will require further treatment as hospital inpatients, or if they are able to be discharged from the hospital. The determination of whether or not observation services are separately payable under APC 0339 (observation) has been shifted from the hospital billing department to the OPPS claims processing logic using two HCPCS codes (i.e., G0378—Hospital observation services per hour, and G0379—Direct admission of patient for hospital observation care). These HCPCS codes will be assigned status indicator “Q” (package service subject to separate payment based on criteria) that will trigger the OCE logic during the processing of the claim to determine if the observation service or direct admission service is packaged with the other separately payable hospital services provided, or if a separate APC payment for observation services or direct admission to observation is appropriate. Following are the criteria that must be met in order to receive separate payment under APC 0039: (1) The beneficiary must have one of four medical conditions—congestive heart failure, chest pain, asthma, or maternity—as documented by specific ICD-9-CM diagnosis codes; (2) the number of units reported with HCPCS code G0378 must be equal to or exceed 8 hours for observation stays with diagnoses of chest pain, asthma or congestive heart failure and a minimum of 4 hours for maternity observation services; (3) an emergency department visit, clinic visit, critical care visit, or direct admission to observation services using HCPCS code G037 must be provided on the same day as, or the day before the observation except for maternity observation stays; (4) ongoing physician evaluation must be provided. The FY 2007 median cost for the observation APC 0339 is $442.81.

Direct admissions to observation will continue to be paid at a rate equal to that of a Level 1 Clinic Visit (APC 0604) with a CY 2007 median cost of $50.37 when a beneficiary is seen by a physician in the community and then is directly admitted into a hospital outpatient department for observation care that does not qualify for separate payment under APC 0039, or under T00020. In order to receive separate payment for a direct admission into observation (APC 0604), the claim must show: (1) Both HCPCS codes G0378 (Hourly Observation) and G0379 (Direct Admit to Observation) with the same date of service; (2) that there are no services with status indictor “T” or “V” (clinic or emergency department visit) or critical care (APC 0620) provided on the same day of service as HCPCS code G0379; and (3) that the observation care does not qualify for separate payment under APC 0339.

If the period of observation spans more than one calendar day, hospitals should include all of the hours for the entire period of observation on a single line and enter as the date of service for that line the date the patient is admitted to observation. Also, if there are multiple maternity observation stays on the same day without condition code G0 or 27 to indicate that the visits were distinct and independent of each other, the first listed observation stay will be paid and the rest will be denied.

• Payment for Brachytherapy Sources. In accordance with section 1833(t)(2)(H) of the Social Security Act, brachytherapy sources are being paid separately under their own service groups (APCs) reflecting the number, isotope, and radioactive intensity of the devices of brachytherapy furnished, including separate groups for palladium-103 and iodine-125 devices. The payment for devices of brachytherapy based on hospitals' charges, adjusted to costs as prescribed under section 1833(t)(16)(C) of the Social Security Act, has been extended under the Tax Relief and Health Care Act of 2006 to January 1, 2008. As a result, brachytherapy sources will continue to be assigned to status indicator “H” and will not be eligible for outlier payments in CY 2007. The codes for the CY 2007 separately paid sources, long descriptors and APCs are listed in Table 7 below:

• APC for Vaginal Hysterectomy. When billing for vaginal hysterectomies, hospitals must use procedure 58260, which will be assigned to APC 0202.

• New Technology APCs. A process has also been developed that will recognize new technologies that do not otherwise meet the definition of current orphan drugs, or current cancer therapy drugs and biologicals and brachytherapy, or current radiopharmaceutical drugs and biological products, and which are considered a covered benefit under TRICARE. In contrast to the other APC groups, the new technology APC groups do not take into account clinical aspects of the services they are to contain, but only their costs. This process, along with transitional pass-throughs, will provide additional payment for a significant share of new technologies. New items and services will be assigned to new technology APCs when it is determined that they cannot appropriately be placed into existing APC groups. The new technology APC groups have established payment rates based on the midpoint of ranges of possible costs providing a mechanism for initiating payment at an appropriate level within a relatively short timeframe. The cost bands for New Technology APCs range from: $0 to $50, in increments of $10; $50 to $100, in increments of $50; $100 to $2,000, in increments of $100; and $2,000 to $6,000, in increments of $500. These increments which are in two parallel sets of New Technology APCs—one with status indictor “S” and the other with “T,”—allow assignment to the same APC group procedures that are appropriately subject to a multiple procedure payment reduction (T) with those that should not be discounted (S).

• Coding Requirement for Reimbursement Under TRICARE OPPS. To receive TRICARE reimbursement under OPPS, providers must follow, and contractors shall enforce, all Medicare specific coding requirements. TRICARE Management Activity (TMA) will develop specific APCs (those APCs beginning with a “T”) for those services that are unique to the TRICARE beneficiary population (e.g., those TRICARE specific APCs for half-day partial hospitalization program (PHP) services and maternity observation stays).

• General Overview. Under the TRICARE OPPS, hospital outpatient services are paid on a rate-per-services basis that varies according to the APC group to which the service is assigned. The APC classification system is composed of groups of services that are comparable clinically and with respect to the use of resources. Level 1 (CPT) and Level II HCPCS codes and descriptors are used to identify and group the services within each APC. Costs associated with items or services that are directly related and integral to performing a procedure or furnishing a service have been packaged into each procedure or service within an APC group with the exception of: (1) New temporary technology APCs for certain approved services that are structured based on cost rather than clinical homogeneity; and (2) separate APCs for certain medical devices, drugs, biologicals, radiopharmaceuticals and devices of brachytherapy under transitional pass-through provisions. TRICARE is adopting Medicare's classification system, along with its nationally established APC payment amounts as prescribed in section 1833(t) of the Social Security Act and in its accompanying Medicare regulation (42 CFR part 419) for reimbursement of hospital outpatient services, to the extent practicable, in accordance with 10 U.S.C. 1079(j)(2), with the realization that there will be subtle differences occurring between the TRICARE and Medicare OPPS methodologies based on differences in the age and general health of the populations they serve (i.e., it can be assumed that the TRICARE population is younger and healthier than the population being served by Medicare). For example, TRICARE has already found it necessary to develop two new TRICARE specific APCs, one for maternity observation stays (T0002) and the other for a half-day partial hospitalization program (T001) to accommodate its unique benefit structure and beneficiary population. There may also be subtle differences in the inpatient only procedure listings being maintained by the two programs since some of the Medicare inpatient only procedures may be determined by TRICARE, upon medical review, to be safe for administration in an outpatient setting due to its younger, healthier population. This may require the development of additional APC groups, along with nationally established payment amounts based on their median costs from the previous year's claims history.

The payment rate for each APC is calculated by multiplying the APC's relative weight by the conversions factor. Weights are derived based on median hospital costs for services/procedures assigned to the hospital outpatient APC groups. Billed charges for items integral to performing the major procedure or visit; which include packaged HCPCS codes (i.e., codes with SI = “N”) and revenue codes appearing on the same claim, are converted to costs by multiplying each revenue center charge by the appropriate hospital-specific CCR. Centers for Medicare and Medicaid Services (CMS) currently use a four-tiered hierarchy of cost center CCRs to match a cost center to every possible revenue code appearing in the outpatient claims, with the top tier being the most common cost center and the lowest tier being the default CCR. If a hospital's cost CCR was deleted by trimming, another cost center CCR in the revenue hierarchy can be applied. If no other department CCR can be applied to the revenue code on the claim, CMS uses the hospital's overall CCR for the revenue code.

The costs of the above services/procedures are then standardized for geographic wage variations by dividing the labor-related portion of the operating and capital costs (currently estimated at 60 percent on the average for each billed item) by the hospital inpatient prospective payment system (IPPS) wage index. The standardized labor-related cost and the nonlabor- related cost component for each billed item are summed to derive the total standardized cost for each separately payable HCPCS code. Extreme costs outside three standard deviations from the geometric mean will be eliminated prior to calculating the median cost for each separately payable HCPCS code. The median costs of these procedures will then be mapped to their assigned APCs, and the median costs of those assigned procedures will be used in establishing the overall APC median cost.

The relative payment weights are calculated for each APC by dividing the median cost of each APC by the median cost for APC 0606 (Level 3 Clinic Visit), which is $83.88 for CY 2007, as a reconfiguration of the visit APCs. APC 0606 was chosen in order to maintain consistency in using a median for calculating unscaled weights representing the median cost of some of the most frequently provided services. The relative payment weights were further adjusted by 1.364598352 for budget neutrality, based on a comparison of aggregate payments using CY 2006 relative weights to aggregate payments using the CY 2007 final relative weights.

The other component used in establishing national APC payment amounts is the conversion factor, updated on an annual basis in accordance with section 1833(t)(3)(C)(iv) of the Social Security Act, which provides for CY 2007 an updated amount equal to the hospital inpatient market basket percentage increase applicable to hospital discharges under section 1886(b)(3)(B)(iii) of the Act. The market basket increase updated factor of 3.4 percent for CY 2007, along with the required wage index budget neutrality adjustment of approximately 0.999331979, the adjustment of 0.04 percent for the difference in the pass-through set-aside, and the adjustment for the rural payment adjustment for rural SCHs (including EACHs) of 0.999975941, resulted in a standard conversion factor for CY 2007 of $61.468.

The national unadjusted APC payment rates that were calculated by multiplying the CY 2007 scaled weight for each APC by the final CY 2007 conversion factor apply to all the services that are classified within the APC group. These national rates (i.e., the unadjusted national rates for both APCs and the HCPCS to which OPPS payment was assigned) are listed on TMA's OPPS Web site at http://www.tricare.mil/opps.

• Determination of Payment. A payment SI is provided for every code in the HCPCS to identify how the service or procedure described by the code would be paid under the hospital outpatient prospective payment system (OPPS); i.e., it indicates if a service represented by a HCPCS code is payable under the OPPS or another payment system, and also which particular OPPS payment policies apply. One, and only one, SI is assigned to each APC and to each HCPCS code. Each HCPCS code that is assigned to an APC has the same SI as the APC to which it is assigned. Following are the CY 2007 payment status indicators, along with a description of the particular services each indicator identifies.

Throughout this document, whenever “we”, “us”, or “our” is used, we mean the EPA. Information is organized as follows:

On Monday February 5, 2007, EPA solicited public comment on a proposal to approve for inclusion in the Alaska SIP numerous revisions to the State of Alaska Implementation Plan. EPA also proposed not to approve into the SIP a number of submitted rule provisions which are inappropriate for EPA approval. A detailed description of our action was published in the Federal Register on February 5, 2007. The reader is referred to the proposed rulemaking (72 FR 5232, February 5, 2007) for details.

EPA provided a 30-day review and comment period and solicited comments on our proposal published in the February 5, 2007, Federal Register . No adverse comments were received on the proposed rulemaking. EPA did receive one letter during the public comment period from the Alaska Oil and Gas Association (AOGA). The letter noted that EPA had proposed not to approve the version of Alaska's excess emission rule, 18 AAC 50.240, as amended by ADEC in 2004. The letter further stated that AOGA had no comment on EPA's proposal not to approve the 2004 version of 18 AAC 50.240 based on the understanding that EPA's action did not affect the SIP-approved status of the version of 18 AAC 50.240 adopted by ADEC in 1997 and approved into the SIP by EPA in 1999. EPA confirms that our decision not to approve the 2004 amendments to 18 AAC 50.240 does not affect the approval status of the 1997 version of that regulation.

EPA is taking final action to approve as part of the Alaska SIP the following new and revised sections of Alaska's regulations submitted May 6, 2005 and June 30, 2006:

18 AAC 50.080 Ice Fog Standards, State effective January 18, 1997;

18 AAC 50.025 Visibility and Other Special Protection Areas; and 18 AAC 50.070 Marine Vessel Visible Emission Standards, State effective June 21, 1998;

18 AAC 50.050 Incinerator Emission Standards, State effective May 3, 2002;

18 AAC 50.005 Purpose of Chapter; 18 AAC 50.010 Ambient Air Quality Standards [except (7) and (8)]; 18 AAC 50.015 Air Quality Designations, Classifications, and Control Regions; 18 AAC 50.020 Baseline Dates and Maximum Allowable Increases, 18 AAC 50.045 Prohibitions; 18 AAC 50.055 Industrial Processes and Fuel-Burning Equipment [except (d)(2)(B)]; 18 AAC 50.100 Nonroad Engines; 18 AAC 50.200 Information Requests; 18 AAC 50.201 Ambient Air Quality Investigation; 18 AAC 50.205 Certification; 18 AAC 50.215 Ambient Air Quality Analysis Methods [except (a)(3)]; 18 AAC 50.220 Enforceable Test Methods [except (c)(2)]; 18 AAC 50.245 Air Episodes and Advisories; 18 AAC 50.250 Procedures and Criteria for Revising Air Quality Classifications; 18 AAC 50.301 Permit Continuity; 18 AAC 50.302 Construction Permits; 18 AAC 50.306 Prevention of Significant Deterioration (PSD) Permits [except (b)(2) and (b)(3)]; 18 AAC 50.311 Nonattainment Area Major Stationary Source Permits; 18 AAC 50.345 Construction and Operating Permits: Standard Permit Conditions [except (b), (c)(3), and (l)]; 18 AAC 50.508 Minor Permits Requested by the Owner or Operator [except (1) and (2)]; 18 AAC 50.546 Minor Permits: Revisions [except (b)]; 18 AAC 50.560 General Minor Permits; and 18 AAC 50.900 Small Business, State effective October 1, 2004;

18 AAC 50.542 Minor Permit: Review and Issuance [except (b)(2), (f)(4), (f)(5), and (g)(1) but only with respect to clean units and pollution control projects], State effective December 1, 2004;

18 AAC 50.225 Owner-Requested Limits; 18 AAC 50.230 Preapproved Emission Limits [except (d)]; and 18 AAC 50.544 Minor Permits: Content [except (e)], State effective January 29, 2005;

18 AAC 50.035 Documents, Procedures, and Methods Adopted By Reference [except (b)(4)]; 18 AAC 50.040 Federal Standards Adopted by Reference [except (a), (b), (c), (d), (e), (g), (h)(17), (h)(18), (h)(19), (i)(7), (i)(8), (i)(9), and (j)]; 18 AAC 50.502 Minor Permits for Air Quality Protection [except (g)(1) and (g)(2)]; 18 AAC 50.540 Minor Permit: Application [except (f) and (g)]; and 18 AAC 50.990 Definitions [except (21), and (77)], State effective December 3, 2005.

EPA is also approving the following new and revised section as part of the SIP, but is not incorporating it by reference into Federal law because it does not regulate air emissions, but rather, describes general authorities such as procedural and enforcement authorities: 18 AAC 50.030 State Air Quality Control Plan, State effective October 1, 2004.

EPA is not approving in this rulemaking the following sections of Alaska's regulations submitted May 6, 2005 and June 30, 2006 which are inappropriate for EPA approval:

18 AAC 50.010(7) and (8); 18 AAC 50.055(d)(2)(B); 18 AAC 50.215(a)(3); 18 AAC 50.220(c)(2); 18 AAC 50.240; 18 AAC 50.306(b)(2) and (b)(3); 18 AAC 50.345(b), (c)(3) and (l); 18 AAC 50.346(a); 18 AAC 50.508(1) and (2); 18 AAC 50.509; and 18 AAC 50.546(b), State effective October 1, 2004;

18 AAC 50.316; and 18 AAC 50.542(b)(2), (f)(4), (f)(5), and, with respect to the reference to clean units and pollution control projects only, (g)(1), State effective December 1, 2004;

18 AAC 50.544(e), State effective January 29, 2005;

18 AAC 50.035(b)(4); 18 AAC 50.040(a), (b), (c), (d), (e), (g), (h)(17), (h)(18), (h)(19), (i)(7), (i)(8), (i)(9) and (j); 18 AAC 50.502(g)(1) and (g)(2); 18 AAC 50.540(f) and (g); and 18 AAC 50.990(21) and (77), State effective December 3, 2005.

EPA is approving removal of the following provisions from the Alaska SIP because they have been previously repealed by ADEC, have been replaced by more recent versions of the ADEC's regulations, or because they are not required elements of a SIP under title I of the CAA: 18 AAC 50.030 State Air Quality Control Plan, State effective September 21, 2001; 18 AAC 50.035(b)(4) Documents, Procedures and Methods Adopted by Reference, State Effective January 18, 1997; 18 AAC 50.090 Ice Fog Limitations, State effective May 26, 1972; 18 AAC 50.220(c)(2) Enforceable Test Methods, State effective January 18, 1997; 18 AAC 50.300 Permit to Operate and 18 AAC 50.400 Application Review & Issuance of Permit to Operate, State effective July 21, 1991 and April 23, 1994; 18 AAC 50.520 Emissions and Ambient Monitoring, State effective July 21, 1991; 18 AAC 50.530 Circumvention, State effective June 7, 1987; 18 AAC 50.310 Revocation or Suspension of Permit, State effective May 4, 1980; 18 AAC 50.400 Permit Administration Fees, 18 AAC 50.420 Billing Procedures, and 18 AAC 50.430 Appeal Procedures, State effective January 18, 1997; 18 AAC 50.600 Reclassification Procedures & Criteria, State effective November 1, 1982; 18 AAC 50.620 State Air Quality Control Plan, State effective January 4, 1995; and 18 AAC 50.900 Definitions, State effective July 21, 1991 and January 4, 1995.

The SIP approval does not extend to sources or activities located in Indian Country, as defined in 18 U.S.C. 1151. EPA will continue to implement the CAA in Indian Country in Alaska because ADEC has not adequately demonstrate authority over sources and activities located within the exterior boundaries of the Annette Island Reserve and other areas of Indian Country in Alaska.

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

This rule also does not have tribal implications because it will not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes, as specified by Executive Order 13175 (65 FR 67249, November 9, 2000). This action also does not have Federalism implications because it does not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132 (64 FR 43255, August 10, 1999). This action merely approves a State rule implementing a Federal standard, and does not alter the relationship or the distribution of power and responsibilities established in the Clean Air Act. This rule also is not subject to Executive Order 13045 A, Protection of Children from Environmental Health Risks and Safety Risks (62 FR 19885, April 23, 1997), because it is not economically significant.

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

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

Under section 307(b)(1) of the Clean Air Act, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by October 15, 2007. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this rule for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may t be challenged later in proceedings to enforce its requirements. (See CAA section 307(b)(2).)

The EPA Region 6 office is publishing this direct final notice of deletion of the Bailey Waste Disposal Superfund Site from the NPL.

The EPA identifies sites that appear to present a significant risk to public health or the environment and maintains the NPL as the list of those sites. As described in 300.425(e)(3) of the NCP, sites deleted from the NPL remain eligible for remedial actions if conditions at a deleted site warrant such action.

Because EPA considers this action to be noncontroversial and routine, EPA is taking it without prior publication of a notice of intent to delete. This action will be effective October 15, 2007 unless EPA receives adverse comments by September 13, 2007 on this document. If adverse comments are received within the 30-day public comment period on this document, EPA will publish a timely withdrawal of this direct final notice of deletion before the effective date of the deletion, and the deletion will not take effect. The EPA will, as appropriate, prepare a response to comments and continue with the deletion process on the basis of the notice of intent to delete and the comments already received. There will be no additional opportunity to comment.

Section II of this document explains the criteria for deleting sites from the NPL. Section III discusses procedures that EPA is using for this action. Section IV discusses the Bailey Waste Disposal Superfund Site, and demonstrates how it meets the deletion criteria. Section V discusses EPA actions to delete the Site from the NPL unless adverse comments are received during the public comment period.

Section 300.425(e) of the NCP provides that releases may be deleted from the NPL where no further response is appropriate. In making a determination to delete a Site from the NPL, EPA shall consider, in consultation with the State, whether any of the following criteria have been met:

i. Responsible parties or other persons have implemented all appropriate response actions required;

ii. All appropriate Fund-financed (Hazardous Substance Superfund Response Trust Fund) response under CERCLA has been implemented, and no further response action by responsible parties is appropriate; or

iii. The remedial investigation has shown that the release poses no significant threat to public health or the environment and, therefore, the taking of remedial measures is not appropriate.

Even if a site is deleted from the NPL, where hazardous substances, pollutants, or contaminants remain at the deleted site above levels that allow for unlimited use and unrestricted exposure, CERCLA Section 121(c), 42 U.S.C. 9621(c) requires that a subsequent review of the site be conducted at least every five years after the initiation of the remedial action at the deleted site to ensure that the action remains protective of public health and the environment. If new information becomes available that indicates a need for further action, EPA may initiate remedial actions. Whenever there is a significant release from a site deleted from the NPL, the deleted site may be restored to the NPL without application of the hazard ranking system.

The following procedures apply to deletion of the Site:

(1) The EPA consulted with TCEQ on the deletion of the Site from the NPL prior to developing this direct final notice of deletion.

(2) TCEQ concurred with deletion of the Site from the NPL.

(3) Concurrent with publication of this direct final notice of deletion, a notice of availability of the parallel notice of intent to delete published today in the “Proposed Rules” section of the Federal Register is being published in a major local newspaper of general circulation at or near the Site, and is being distributed to appropriate federal, state and local government officials and other interested parties. The newspaper notice announces the 30-day public comment period concerning the notice of intent to delete the Site from the NPL.

(4) The EPA placed copies of documents supporting the deletion in the Site information repositories identified above.

(5) If adverse comments are received within the 30-day public comment period on this document, EPA will publish a timely notice of withdrawal of this direct final notice of deletion before its effective date and will prepare a response to comments and continue with the deletion process on the basis of the notice of intent to delete and the comments already received.

Deletion of a site from the NPL does not itself create, alter or revoke any individual's rights or obligations. Deletion of a site from the NPL does not in any way alter EPA's right to take enforcement actions as appropriate. The NPL is designed primarily for informational purposes and to assist EPA management. Section 300.425(e)(3) of the NCP states that the deletion of a site from the NPL does not preclude eligibility for future response actions should future conditions warrant such actions.

The following information provides EPA's rationale for deleting this Site from the NPL.

The Bailey Waste Disposal Site is located approximately three (3) miles southwest of Bridge City in Orange County, Texas, and was originally part of a tidal marsh near the confluence of the Neches River and Sabine Lake. The total site area includes two rectangular ponds and occupies approximately 280 acres. However, numerous investigations provided data to minimize the areas of the site that required remediation. These areas include the North Marsh Area (approximately four acres), the North Dike Area (approximately 7.8 acres) and the East Dike Area (approximately 7.6 acres).

The Site is situated in a sparsely populated marsh area, surrounded by primarily industrial land use. Two ponds, A and B, were constructed on the property by the landowner, Mr. Joe Bailey, as part of the Bailey Fish Camp in the early 1950s by dredging the marsh and piling the sediments to form levees, which surrounded the ponds. The fish camp was active until September 1961, when it was destroyed by Hurricane Carla, which introduced saline waters into the ponds, killing the freshwater fish. Mr. Bailey operated the site pursuant to his ownership and leasehold interests from the early 1950s through March or April 1971.

Following the hurricane, Mr. Bailey allowed the disposal of industrial and municipal waste within the levees along the north and east margins of Pond A (the North Dike Area and the East Dike Area, respectively). In addition to the waste located within the North Dike Area, which includes waste contained in Pits A-l, A-2, A-3, and B, and the East Dike Area, waste was also present in the North Marsh Area. Major contaminants within the waste included ethyl benzene, styrene, benzene, chlorinated hydrocarbons and polynuclear aromatic hydrocarbons. Waste disposal operations at the Site ceased in 1971, and it was purchased by Gulf State Utilities.

The North Dike Area is currently managed as a Texas Prairie Wetlands Project in cooperation with the Texas Parks & Wildlife, Ducks Unlimited, the U.S. Department of Agriculture Natural Resources Conservation Service and the U.S. Fish and Wildlife Service. There is little likelihood of additional development.

In December 1984 the state of Texas entered into a cooperative agreement with EPA to conduct an RI/FS. Based on results from preliminary assessments, the Site was placed on the NPL on May 20, 1986, with the Texas Water Commission (TWC) as the lead agency. The TWC completed Rl activities at the Site in October 1987, concluding: The Site has had no impact on drinking water and it would take over 800 years to reach potable groundwater, but that existing site conditions could degrade through a flood or other natural occurrences, releasing the contaminants contained in the dikes into the surrounding marsh. At the time of the RI, there had been no development in the immediate vicinity of the Site, nor was it likely to be suitable for future development due to prohibitions against development in wetland areas. Upon completion of the RI, EPA assumed the role of lead agency and, under the terms of an administrative order on consent, a group of potentially responsible parties (PRPs), the Bailey Site Settlors Committee (BSSC), completed a feasibility study (FS) in April 1988.

Data collected during the RI indicated that should hazardous substances be released from the Site that might endanger public health, welfare, or the environment, the most significant risks to human health and the environment included: Direct contact with organic compounds and heavy metals determined to be carcinogens via absorption through the skin or other routes of inadvertent intake; air emissions of volatile organic compounds; surface waters (marsh) directly contacted by the waste, including organic compounds and heavy metals; and shallow groundwater directly beneath the waste contaminated with organic compounds and heavy metals.

Based on the FS, EPA selected an in-situ stabilization and capping remedy, issuing the site ROD in June 1988. In July 1988 EPA, pursuant to section 122 of CERCLA, issued special notice letters to the PRPs providing them an opportunity to enter into an agreement to perform the remedial action. In September 1988 the BSSC submitted to EPA its “Good Faith Offer,” and an agreement to conduct the remedial action was reached. This agreement provided that the Settlors, as defined in the Consent Decree, would carry out the remedy selected by EPA, and that EPA would reimburse the Settlors for a portion of the costs to implement the remedy. However, because of demonstrated difficulties in achieving in-situ stabilization specifications and the finding that successful implementation of the original remedy would, if possible at all, be significantly more difficult, more time-consuming and more costly to implement than was contemplated at the time the original Record of Decision (ROD) was issued, EPA requested that the BSSC conduct a Focused Feasibility Study (FFS). FFS activities commenced in June 1995, and were completed in October 1996. The Revised Remedial Action was developed as a result of the FFS, and the ROD was amended in December 1996 consistent with the conclusions of the FFS. The amended ROD replaced the in-situ stabilization component of the original remedy with lightweight composite caps and the removal of certain wastes. February 8, 1996 and May 1, 1996 Explanations of Significant Difference (ESDs) documented the removal and offsite disposal of wastes, which was not specified in the original remedy.

The remedial action objectives were to minimize the potential for waste migration, protect human health and the environment, prevent future contamination of surface water and groundwater and minimize short-term air emissions resulting from remedial activities.

After numerous in-situ stabilization attempts, subsequent investigations and a stabilization field pilot study, it was determined that the waste stabilization performance standards established in the ROD and the remedial design would, if possible at all, be significantly more difficult, more time-consuming, and more costly to implement than was contemplated at the time the original ROD was issued. Due to these difficulties, outlined in the Amended ROD (1996), implementation of the original remedy was not completed. Before that determination was made, the original action accomplished: Waste/soil interface evaluation; consolidation and relocation of shallow wastes; construction of clay dikes; construction of access roads; stabilization of approximately one-third of the East Dike Area; south drum disposal area remediation; and construction of a wastewater treatment plant. Between February and May 1996, additional actions taken included excavation of approximately 20,000 cubic yards of waste and affected sediments and transportation of this material to an off-site industrial landfill for disposal, excavation and onsite relocation of waste and affected sediments and placement of interim soil covers. Final removal activities included: Relocation and consolidation of wastes within the limits of the area to be capped; installation of a temporary water collection system to intercept and remove groundwater; construction of lightweight composite caps; installation of riprap along the cap perimeter for erosion and scour protection; installation of storm water management controls; construction of maintenance roads; and installation of a passive gas venting system.

The EPA and the Texas Natural Resource Conservation Commission (TNRCC) conducted a pre-final site inspection on July 31, 1997, and on August 20, 1997 the EPA conducted a final site inspection. All items noted in the pre-final site inspection were found to have been satisfactorily addressed with the exception of the removal of the silt fences, which were left in place until the establishment of vegetative growth on the cap surface. During the third quarterly site inspection conducted on May 29, 1998, EPA noted that the silt fences had been removed. The Preliminary Close Out Report signed on September 14, 1998 notes that the remedy had been constructed in accordance with the remedial design plans and specifications and was operational and functional.

On May 4, 1998, the EPA approved the Final Remedial Action Report for the Site. The final report documents that the remedial action for the site was completed in accordance with the ROD, Explanations of Significant Differences and the ROD Amendment for the site, and that the final site inspection had been conducted for construction activities. This action initiated the Operation and Maintenance phase under EPA oversight, with site O&M activities required of the BSSC.

In September 1997 EPA approved the Final Inspection, Maintenance and Monitoring Plan (IMMP) for the Site. The purpose of the IMMP is to document procedures to be used to assess and maintain the long-term protectiveness of the remedy while minimizing adverse natural or man-made impacts on the Site. The Plan requires of the BSSC (1) regular inspection of the Site, including grounds, fencing, signs, access roads, bridge, vegetative cover, erosion control (riprap), evidence of erosion, gas vents, free movement of water and soil depression or settlement, (2) visits to the Site as needed to check site security and evaluate damage from severe weather events such as hurricanes, (3) maintenance, including regular mowing and clearance of trees and weeds from the capped and riprapped areas, repair of animal burrow damage, clearance of gas vent obstructions, silt removal if impeding the free flow of water within the diked area, repair or replacement of fences and signs, road and bridge repairs and periodic bridge recertification and (4) regular reporting of these activities to EPA through a formal Site Inspection Report. These reports are reviewed by the Remedial Program manager (RPM) when received, and are one component of the ongoing five-year reviews.

Institutional controls (ICs) are a necessary component of maintaining the long-term protectiveness of the remedy. ICs are legal and administrative measures that prevent exposure to contaminants that may remain at a site at concentrations above health-based risk levels. They are typically designed to limit activities at or near the Site, and include requirements for providing notice (i.e., deed recordation) in the real property records for properties where residual contamination will remain. For this Site, the ICs include a deed recordation with a notice that buried contaminants remain on the property, and a prohibition against any reuse, development or other activities that might disturb or damage the affected areas without the approval of EPA, TCEQ and the property owner. The requirement for institutional controls was met through the August 2, 2006 deed recordation in the Official Public Records of Real Property of Orange County, Texas for each of the two capped areas.

Hazardous substances remain at the Site above levels that allow for unlimited use and unrestricted exposure. Therefore, the EPA must conduct a statutory five-year review of the remedy no less than every five years after the initiation of the remedial action pursuant to CERCLA Section 121(c), and as provided in the current guidance on Five Year Reviews (OSWER Directive 9355.7-03B-P, Comprehensive Five-Year Review Guidance, June 2001). Based on the five-year reviews, EPA will determine whether human health and the environment continue to be adequately protected by the implemented remedy. Five-year reviews for this Site were completed in September 2000 and September 2005. The reviews found that the remedy remains protective of human health and the environment, and that the Site appears to have been properly maintained during the period between reports. The next five-year review will occur no later than September 2010.

Public participation activities required in CERCLA Section 113(k), 42 U.S.C. 9613(k), and CERCLA Section 117, 42 U.S.C. 9617, have been satisfied, and documents which EPA generated and/or relied on are available to the public in these information repositories.

The EPA, with concurrence of the State of Texas, has determined that all appropriate responses under CERCLA have been completed, and that no further response actions under CERCLA, other than O&M and five-year reviews, are necessary. Therefore, EPA is deleting the Site from the NPL.

Because EPA considers this action to be noncontroversial and routine, EPA is taking it without prior publication. This action will be effective October 15, 2007 unless EPA receives adverse comments by September 13, 2007. If adverse comments are received within the 30-day public comment period, EPA will publish a timely withdrawal of this direct final notice of deletion before the effective date of the deletion and it will not take effect. The EPA will prepare a response to comments and continue with the deletion process on the basis of the notice of intent to delete and the comments already received. There will be no additional opportunity to comment.

The Board instituted this proceeding, in conjunction with our decision in Rail Fuel Surcharges , STB Ex Parte No. 661 (STB served Jan. 26, 2007), to solicit comments, pursuant to the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. (PRA) and Office of Management and Budget (OMB) regulations at 5 CFR 1320.8(d)(3), regarding the Board's proposal to require all Class I (large) railroads to submit a monthly report containing the following information: (1) Total monthly fuel cost; (2) gallons of fuel consumed during the month; (3) increased or decreased cost of fuel over the previous month; and (4) total monthly revenue from fuel surcharges. In Rail Fuel Surcharges , STB Ex Parte No. 661 (Sub-No. 1) (STB served Jan. 26, 2007) (published at 72 FR 4676 on Feb. 1, 2007), the Board sought comments regarding: (1) Whether the particular collection of information described above is necessary for the proper performance of the functions of the Board, including whether the collection has practical utility; (2) the accuracy of the Board's burden estimates; (3) ways to enhance the quality, utility, and clarity of the information collected; and (4) ways to minimize the burden of the collection of information on the respondents, including the use of automated collection techniques or other forms of information technology, when appropriate.

The Board received comments on the proposed rules from the following shipper interests: Edison Electric Institute (EEI); National Grain and Feed Association (NGFA); North Dakota Grain Dealers Association (NDGDA); Snavely King Majoros O'Connor & Lee, Inc. (Snavely); Total Petrochemicals, USA, Inc. (Total). The Board also received comments from the following rail carriers: Canadian National Railway Company (CN); CSX Transportation, Inc. (CSX); Norfolk Southern Railway Company (NS); and Union Pacific Railroad Company (UP). All but NS support the reporting requirement. Railroads suggest several ways to minimize their reporting burden. In contrast, shippers suggest additional data that they assert should be collected to increase the report's utility. No comments were received on burden estimates.

CN, CSXT, and UP suggest that the report be submitted quarterly, rather than monthly, to reduce the degree to which the data might be misinterpreted and to be consistent with reporting periods used by the Securities and Exchange Commission (SEC), as well as periods used by the STB for other reports. CSXT and UP also suggest that the deadline for submitting a report should be 30 days after the end of the reporting period (rather than 20 days, as proposed) to be more consistent with other STB reporting deadlines.

CN, CSXT, and UP also ask the Board to clarify whether the report is intended to include data on both regulated and unregulated traffic. CN and CSXT argue that it would be difficult to segregate revenue by tariff, exempt, or contract traffic, while UP states that aggregated reporting (at least as to revenue derived from its numerous separate/distinct fuel surcharge programs) may be more burdensome and may lead to confusion and misinterpretation. In addition, CSXT asks the Board to clarify whether reported rail fuel surcharge revenue should include all revenue earned/billed during the time period or only revenue collected, and whether reported fuel costs should include state fuel taxes.

NS opposes this reporting requirement, arguing that Class I railroads must already submit extensive financial reports to the SEC. NS also argues that a carrier that does not impose a fuel surcharge on STB-regulated traffic should be exempt from this reporting requirement because its report would have no relation to any Board function.

Shippers are generally concerned that the proposed Fuel Surcharge Report would not provide sufficient transparency to enable the Board and the public to monitor the fairness of the rail fuel-cost recovery practices. Additional data requested includes: Fuel consumption per the same unit (whether mile, ton-mile, car-mile, etc.) used by the carrier to assess the fuel surcharge; total ton-miles and/or car-miles; total recovery of fuel costs, whether by fuel surcharge or any other means; commodity-specific data; and data that distinguishes between freight that is subject to fuel surcharges and freight that is not. 1

In addition, EEI and TOTAL ask the Board to direct that the report reference a single fuel index and a single, objective source of railroad miles. Snavely asks the Board to direct that the fuel surcharge data also be reported in the Waybill Sample (in the accessorial field) and to clarify that “total fuel cost” should exclude gains or losses from fuel hedging.

The proposed rule was submitted to OMB for review as required under the PRA, 5 U.S.C. 3507(d) and 5 CFR 1320.11. No comments were received from OMB, which has tentatively approved the reporting requirement, pending publication and review of the final rule. OMB has 60 days to review the final rule. The Board will publish a separate notice of OMB's final action. This collection has been assigned Control Number 2140-0014. 2

Under 49 U.S.C. 10702, the Board has authority to address the reasonableness of a rail carrier's practices. The Board also has specific authority under 49 U.S.C. 11145(a)(1) to require regulated rail carriers to file annual, periodic, and special reports with the Board. This rule to require the Report of Fuel Cost, Consumption, and Surcharge Revenues will provide an overall picture of the use of fuel surcharges and will permit the Board to monitor the current fuel surcharge practices of Class I carriers.

The four line items originally proposed are intended to reflect aggregate data on fuel costs and fuel surcharge revenue. Although the underlying ruling adopted in STB Ex Parte No. 661—that the use of rate-based calculations to determine a fuel surcharge is an unreasonable practice—is applicable only to regulated traffic, several carriers argue that it would be unduly burdensome to require railroads to segregate the fuel costs and revenue for regulated traffic. We can discern no practical method for allocating fuel costs for regulated traffic alone. Therefore, we will not require railroads to segregate fuel costs.

However, upon further reflection and review of the comments received, we believe that carriers should be required to segregate and separately report the total fuel-surcharge revenue collected from regulated traffic. Our decision to require these data is consistent with our concerns, as detailed in our decisions in STB Ex Parte No. 661, regarding the potentially disparate impact of fuel surcharges on regulated shippers. Requiring these additional data, as urged by several commenters, will increase the utility of the report as a tool for monitoring the use of these surcharges on regulated traffic and should not unduly burden reporting railroads. This information should be readily available to reporting railroads because railroads bill shippers on an individual basis. If in practice this added requirement is more burdensome for a carrier than we anticipate, that carrier may bring that to our attention by seeking an individual exemption.

We also clarify that the costs reported in lines 1 and 3 should include state fuel taxes, and that the revenue reported in line 4 should be the revenue billed in that period rather than the revenue collected in that period.

All Class I carriers, even those that impose no fuel surcharges on regulated traffic, will be required to submit this report. This approach will better enable the Board to monitor industry-wide fuel surcharge practices. Moreover, unregulated traffic includes traffic that has been exempted under 49 U.S.C. 10502. Were these reports to suggest that a carrier was imposing fuel surcharges that over-recovered for its actual fuel costs, a shipper could file a complaint asking the Board to investigate and revoke an exemption under section 10502(d).

Based on the comments received, we will require these reports to be submitted on a quarterly basis, due 30 days after the end of the reporting period. As the railroads point out, these changes will make this reporting requirement more consistent with other financial reporting to the Board and to the SEC. These changes will decrease the reporting burden on carriers while retaining the utility of the reports. The aggregated nature of the data, combined with the longer reporting interval, will provide a more useful and reliable regulatory tool for monitoring the relationship between changes in revenues and costs.

With the one exception noted above, we will not require carriers to submit additional data in this report. 3 The Fuel Surcharge Report is intended to provide an overall picture of the use of fuel surcharges. It is not intended as a substitute for evidence brought in an individual case.

The Board concludes that this action will not have a significant economic effect on a substantial number of small entities within the meaning of the Regulatory Flexibility Act.

This action will not significantly affect either the quality of the human environment or the conservation of energy resources.