OSC published notice of proposed revisions to its regulations at 5 C.F.R. Part 1830, dealing with the agency's implementation of the Privacy Act, at 5 U.S.C. 552a, with a request for comments and a description of the proposed revisions, in the Federal Register on August 14, 2007 (72 FR 45388). The regulation, as revised: (1) modifies and updates contact information for requests and appeals to OSC, adding fax delivery as a means by which they may be sent, and specifies the OSC point of receipt for such matters; (2) modifies the description of information needed for effective processing of requests and appeals; (3) revises the description of proof of identity information needed by OSC (including by deletion of the requirement that all requests must include a date and place of birth and a Social Security number, while retaining the option for OSC to request some or all of that data if needed to confirm a requester's identity); (4) clarifies that Privacy Act requests for records may also be processed under the Freedom of Information Act; (5) extends the appeal period for requests and revises the description of the response time for appeals; (6) clarifies that exempt material in OSC case files includes all matters within OSC's jurisdiction (including alleged violations of the Uniformed Services Employment and Reemployment Rights Act) and information included in background investigations conducted for OSC employees and others; (7) adds two new sections (on general provisions and other rights and services), moves updated information about fees to a new section, and revises section headings throughout the regulation. OSC is submitting a report on this final rule to Congress and the Government Accountability Office pursuant to the Congressional Review Act.

Procedural determinations were published in the notice of proposed rulemaking for the Congressional Review Act, Regulatory Flexibility Act, Unfunded Mandates Reform Act, Paperwork Reduction Act, Executive Order 12866 (Regulatory Planning and Review), Executive Order 13132 (Federalism), and Executive Order 12988 (Civil Justice Reform). There have been no changes in these procedural determinations.

Sec.

1830.1 General provisions.

1830.2 Requirements for making Privacy Act requests.

1830.3 Medical records.

1830.4 Requirements for requesting amendment of records.

1830.5 Appeals.

1830.6 Exemptions.

1830.7 Fees.

1830.8 Other rights and services.

This part contains rules and procedures followed by the Office of Special Counsel (OSC) in processing requests for records under the Privacy Act (PA), at 5 U.S.C. 552a. Further information about access to OSC records generally is available on the agency's web site (http://www.osc.gov/foia.htm ).

On September 18, 2007 (72 FR 53108), we published a final rule AD, FR Doc. E7-18324, in the Federal Register . That AD applies to Rolls-Royce plc RB211 Trent 500 series turbofan engines. We need to make the following corrections:

The final and temporary regulations (TD 9355) that are the subject of these corrections are under section 6411 of the Internal Revenue Code.

As published, these final and temporary regulations (TD 9355) contain errors that may prove to be misleading and are in need of clarification.

Section 503(a) of the Act permits a State to assume primacy for the regulation of surface coal mining and reclamation operations on non-Federal and non-Indian lands within its borders by demonstrating that its State program includes, among other things, “a State law which provides for the regulation of surface coal mining and reclamation operations in accordance with the requirements of the Act * * *; and rules and regulations consistent with regulations issued by the Secretary pursuant to the Act.” See 30 U.S.C. 1253(a)(1) and (7). On the basis of these criteria, the Secretary of the Interior conditionally approved the Pennsylvania program on July 30, 1982. You can find background information on the Pennsylvania program, including the Secretary's findings, the disposition of comments, and conditions of approval in the July 30, 1982, Federal Register (47 FR 33050). You can also find later actions concerning Pennsylvania's program and program amendments at 30 CFR 938.11, 938.12, 938.13, 938.15 and 938.16.

By letter dated December 18, 2006, the Pennsylvania Department of Environmental Protection (PADEP) sent us an amendment to revise its program regulations at 25 Pennsylvania Code (Administrative Record No. PA 891.00) under SMCRA (30 U.S.C. 1201 et seq .). The revisions that Pennsylvania proposed at its own initiative concern program changes to address the exemption of permitting requirements when the extraction of coal is incidental to government-financed construction or government-financed reclamation projects.

We announced receipt of the proposed amendment in the February 6, 2007, Federal Register (72 FR 5380). In the same document, we opened the public comment period and provided an opportunity for a public hearing or meeting on the amendment's adequacy (Administrative Record No. PA 891.03). The public comment period ended on March 8, 2007. We did not hold a public hearing or meeting because no one requested one. We did not receive any public comments. We received written comments from three Federal agencies: Mine Safety and Health Administration, District 1 (Administrative Record No. 891.04); Mine Safety and Health Administration, District 2 (Administrative Record No. 891.02); and Environmental Protection Agency (Administrative Record No. 891.05).

Following are the findings we made concerning the amendment under SMCRA and the Federal regulations at 30 CFR 732.15 and 732.17. We are approving the amendment which amends Chapter 86 of the Pennsylvania Code by adding the subsection 86.6, Extraction of coal incidental to government-financed construction or government-financed reclamation. Any revisions that we do not specifically discuss below concern nonsubstantive wording, editorial, or re-numbering of section changes and are approved here without discussion.

The Federal regulations regarding government-financed construction contracts are found at: (1) 30 CFR part 707, Exemption for Coal Extraction Incident to Government-Financed Highway or Other Construction. This part establishes the procedures for determining those surface coal mining and reclamation operations which are exempt from permitting requirements because the extraction of coal is an incidental part of Federal, State, or local government-financed highway or other construction and meets specified criteria that ensure that the construction is government-financed and that the extraction of coal is incidental to it; and (2) 30 CFR 874.17, Abandoned Mine Land agency procedures for reclamation projects receiving less than 50% government financing. This section sets forth the requirements for the AML agency when considering an abandoned mine land reclamation project as government-financed construction under 30 CFR part 707. This section only applies if the level of funding for the construction will be less than 50% of the total cost because of planned coal extraction. Pennsylvania had previously adopted the provisions of 30 CFR part 874 in prior rulemaking. This amendment concerns the provisions of 30 CFR part 707.

This amendment concerns the exemption from the permitting requirements of 25 Pa Code Chapters 87 and 88 when the extraction of coal is incidental to government-financed construction contracts or government-financed abandoned mine land reclamation projects. Pennsylvania has added a new section, 25 Pa Code 86.6, to address the definitions, eligibility requirements (applicability) for exemption, and information to be maintained on-site. With a few exceptions, this new section contains language that mirrors the Federal definitions, eligibility requirements, etc. provided at 30 CFR part 707. The specific sections and findings are provided below.

25 Pa Code 86.6(a)(1) provides that the PADEP be provided an opportunity to provide comments to the government entity financing the construction or reclamation during the site selection process and prior to development of final construction plans regarding the potential environmental impacts of the project. There is no Federal counterpart to this requirement. However, this change requires additional coordination to assure that environmental impacts are considered. Therefore, we find that the addition of 25 Pa Code 86.6(a)(1) does not render the Pennsylvania program inconsistent with SMCRA or the Federal regulations and can be approved.

25 Pa Code 86.6(a)(2) provides for the eligibility limits of the extraction of coal as it pertains to the right-of-way for roads, utility lines, or other similar construction. This is consistent with the Federal regulations at 707.5, Definitions. However, there is no mention that any extraction outside of the right-of-way or boundary of the area is subject to the requirements of the Act as mentioned in the Federal regulations at 707.5. One can deduce that once it is determined that the exemption criteria cannot be met, the exemption does not apply and the applicability of this chapter does not exist. Therefore, we find that the addition of 25 Pa Code 86.6(a)(2) is no less stringent than SMCRA and no less effective than the Federal regulations and can be approved.

25 Pa Code 86.6(a)(3) and (a)(4) provide the cost sharing requirements necessary for the construction project or reclamation to be eligible for consideration under this subchapter.

The language provides that the construction or reclamation be funded by a unit of government and it be funded 50% or more by funds appropriated from the government unit's budget or obtained from general revenue bonds. Funding at less than 50% may qualify if the construction is undertaken as a Department-approved reclamation contract or project.

There is no mention of the requirement for the project to meet the eligibility requirements of Title IV of SMCRA. However, the Pennsylvania statute [PA SMCRA Section 4.8(c)(1)] makes specific reference to abandoned mine land reclamation eligibility as a condition to secure special authorization under this section and the regulations must be read in the context of the authorizing statute, as it serves to limit the application of 86.6(a)(4) to abandoned mine land reclamation. Furthermore, the AML plan as amended in 1999 includes provisions requiring coordination between the AML and Title V Agency and an authorization which includes the requirement that the project be an abandoned mine land reclamation project. Because the AML eligibility requirement is provided in the statute and in the AML plan, we find that the addition of 25 Pa Code 86.6(a)(3) and (4) is no less stringent than SMCRA and no less effective than the Federal regulations and can be approved.

25 Pa Code 86.6(a)(5) and (a)(6) provide that the construction be performed under a bond, contract and specifications that substantially provide for and require protection of the environment, reclamation of the affected area, and handling of excavated materials in a manner consistent with the acts and regulations implementing the acts. In addition, it provides that the Department approve the standards and specifications for protection of the environment that will apply to the project when potential adverse environmental impacts have been identified. There is no Federal counterpart to this requirement. However, these requirements provide additional assurance that reclamation will be performed in a satisfactory manner. Therefore, we find that the addition of 25 Pa Code 86.6(a)(5) and (a)(6) do not render the Pennsylvania program inconsistent with SMCRA or the Federal regulations and can be approved.

25 Pa Code 86.6(b) provides that construction funded through government financing agency guarantees, insurance, loans, funds obtained through industrial revenue bonds or their equivalent or in-kind payments does not qualify as government-financed construction. This is consistent with the Federal regulations at 30 CFR 707.5, Definitions. We find that the addition of 25 Pa Code 86.6(b) is no less stringent than SMCRA and no less effective than the Federal regulations and can be approved.

25 Pa Code 86.6(c) provides that documentation must be available for inspection on-site when a person extracting coal incidental to government-financed construction or government-financed reclamation extracts more than 250 tons of coal or affects more than 2 acres. The required documentation is provided in subsections 86.6(c)(1) through (c)(4). Subsections 86.6(c)(1) through (c)(3) are consistent with the Federal regulations at 30 CFR 707.12(a), (b), and (c). Therefore, we find that addition of 25 Pa Code 86.6(c)(1) through (c)(3) is no less stringent than SMCRA and no less effective than the Federal regulations and can be approved.

There is no Federal counterpart for subsection 86.6(c)(4), which requires that when an area is wholly or partially within an area designated unsuitable for mining by the Environmental Quality Board under 86.130, a copy of the detailed report required by subsection 86.124(e) relating to procedures (initial processing, recordkeeping and notification requirements) must be maintained on the site and made available for inspection. The change reflects an additional information requirement and therefore, we find that the addition of 25 Pa Code 86.6(c)(4) does not render the Pennsylvania program inconsistent with SMCRA or the Federal regulations and can be approved.

25 Pa Code 86.6(d) provides that government-financed construction projects and government-financed reclamation must comply with Chapters 91-96, 102 and 105. The reference requires that the project and reclamation comply with the State regulations pertaining to water quality, National Pollutant Discharge Elimination System, sediment control, waste management, and dam safety. There is no Federal counterpart for subsection 86.6(d). The Pennsylvania regulations require compliance with other environmental standards and, therefore, we find that the addition of 25 Pa Code 86.6(d) does not render the Pennsylvania program inconsistent with SMCRA or the Federal regulations and can be approved.

We asked for public comments on the amendment through the Federal Register Notice dated February 6, 2007, (72 FR 5380) (Administrative Record No. PA 891.03). We did not receive any comments from the public.

Under Federal regulations at 30 CFR 732.17(h)(11)(i) and section 503(b) of SMCRA, we requested comments on the amendment from various Federal agencies with an actual or potential interest in the Pennsylvania program (Administrative Record No. PA 891.01). The Mine Safety and Health Administration (MSHA), District 1, responded (Administrative Record No. PA 891.04) and stated that it did not have any comments or concerns regarding this request. The Mine Safety and Health Administration (MSHA), District 2, responded (Administrative Record No. PA 891.02) and stated that in the case of government-financed construction or other government-financed reclamation projects, MSHA reserves the right to assess each project where the extraction of coal is incidental to the project, to determine jurisdictional standing.

Under Federal regulations at 30 CFR 732.17(h)(11)(i) and (ii), we are required to get a written concurrence from EPA for those provisions of the program amendment that relate to air or water quality standards issued under the authority of the Clean Water Act (33 U.S.C. 1251 et seq. ) or the Clean Air Act (42 U.S.C. 7401 et seq. ).

None of the revisions that Pennsylvania proposed to make in this amendment pertain to air or water quality standards. Therefore, we did not ask EPA to concur on the amendment.

On December 20, 2006, we requested comments on the amendment from EPA (Administrative Record No. PA 891.01). The EPA, Region III, responded (Administrative Record No. 891.05) and stated that it did not identify any inconsistencies with the Clean Water Act or any other statutes or regulations under its jurisdiction.

Based on the above findings, we approve the amendment Pennsylvania sent to us on December 18, 2006. We are approving the changes to the Pennsylvania program at 25 Pa. Code 86.6.

To implement this decision, we are amending the Federal regulations at 30 CFR part 938, which codify decisions concerning the Pennsylvania program. We find that good cause exists under 5 U.S.C. 553(d)(3) to make this final rule effective immediately. Section 503(a) of SMCRA requires that the State's program demonstrate that the State has the capability of carrying out the provisions of the Act and meeting its purposes. Making this regulation effective immediately will expedite that process. SMCRA requires consistency of State and Federal standards.

This rule does not have takings implications. This determination is based on the analysis performed for the counterpart Federal regulations.

This rule is exempted from review by the Office of Management and Budget under Executive Order 12866.

The Department of the Interior has conducted the reviews required by Section 3 of Executive Order 12988 and has determined that, to the extent allowable by law, this rule meets the applicable standards of Subsections (a) and (b) of that Section. However, these standards are not applicable to the actual language of State regulatory programs and program amendments because each program is drafted and promulgated by a specific State, not by OSM. Under Sections 503 and 505 of SMCRA (30 U.S.C. 1253 and 1255) and the Federal regulations at 30 CFR 730.11, 732.15, and 732.17(h)(10), decisions on proposed State regulatory programs and program amendments submitted by the States must be based solely on a determination of whether the submittal is consistent with SMCRA and its implementing Federal regulations and whether the other requirements of 30 CFR parts 730, 731, and 732 have been met.

This rule does not have Federalism implications. SMCRA delineates the roles of the Federal and State governments with regard to the regulation of surface coal mining and reclamation operations. One of the purposes of SMCRA is to “establish a nationwide program to protect society and the environment from the adverse effects of surface coal mining operations.” Section 503(a)(1) of SMCRA requires that State laws regulating surface coal mining and reclamation operations be “in accordance with” the requirements of SMCRA. Section 503(a)(7) requires that State programs contain rules and regulations “consistent with” regulations issued by the Secretary pursuant to SMCRA.

In accordance with Executive Order 13175, we have evaluated the potential effects of this rule on Federally-recognized Indian tribes and have determined that the rule does not have substantial direct effects 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. The basis for this determination is that our decision is on a State regulatory program and does not involve a Federal program involving Indian lands.

On May 18, 2001, the President issued Executive Order 13211 which requires agencies to prepare a Statement of Energy Effects for a rule that is (1) considered significant under Executive Order 12866, and (2) likely to have a significant adverse effect on the supply, distribution, or use of energy. Because this rule is exempt from review under Executive Order 12866 and is not expected to have a significant adverse effect on the supply, distribution, or use of energy, a Statement of Energy Effects is not required.

Section 702(d) of SMCRA (30 U.S.C. 1292(d)) provides that a decision on a proposed State regulatory program provision does not constitute a major Federal action within the meaning of Section 102(2)(C) of the National Environmental Policy Act (42 U.S.C. 4332(2)(c)). A determination has been made that such decisions are categorically excluded from the NEPA process (516 DM 8.4.A).

This rule does not contain information collection requirements that require approval by OMB under the Paperwork Reduction Act (44 U.S.C. 3507 et seq. ).

The Department of the Interior 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. ). The State amendment that is the subject of this rule is based on counterpart Federal regulations for which an economic analysis was prepared and certification made that such regulations would not have a significant economic effect upon a substantial number of small entities. Accordingly, this rule will ensure that existing requirements previously promulgated by OSM will be implemented by the State. In making the determination as to whether this rule would have a significant economic impact, the Department relied upon the data and assumptions for the counterpart Federal regulations.

This rule is not a major rule under 5 U.S.C. 804(2), the Small Business Regulatory Enforcement Fairness Act. This rule: (a) Does not have an annual effect on the economy of $100 million; (b) Will not cause a major increase in costs or prices for consumers, individual industries, geographic regions, or Federal, State, or local government agencies; and (c) Does not have significant adverse effects on competition, employment, investment, productivity, innovation, or the ability of U.S.-based enterprises to compete with foreign-based enterprises. This determination is based upon the fact that the State submittal, which is the subject of this rule, is based upon counterpart Federal regulations for which an analysis was prepared and a determination made that the Federal regulation was not considered a major rule.

This rule will not impose a cost of $100 million or more in any given year on any governmental entity or the private sector.

This section presents EPA's most recent acceptable listing decisions for substitutes in the refrigeration and air conditioning sector. For copies of the full list of ODS substitutes in all industrial sectors, visit EPA's Ozone Depletion Web site at http://www.epa.gov/ozone/snap/lists/index.html .

The sections below discuss each substitute listing in detail. Appendix A contains a table summarizing today's listing decisions for new substitutes. The statements in the “Further Information” column in the table provide additional information, but are not legally binding under section 612 of the Clean Air Act. In addition, the “further information” may not be a comprehensive list of other legal obligations you may need to meet when using the substitute. Although you are not required to follow recommendations in the “further information” column of the table to use a substitute, EPA strongly encourages you to apply the information when using these substitutes. In many instances, the information simply refers to standard operating practices in existing industry and/or building-code standards. Thus, many of these statements, if adopted, would not require significant changes to existing operating practices.

You can find submissions to EPA for the use of the substitutes listed in this document and other materials supporting the decisions in this action in docket EPA-HQ-OAR-2003-0118 at http://www.regulations.gov .

EPA's decision:

RS-45[R-125/143a/134a/600a (63.2/18.0/16.0/2.8)] is acceptable for use in new and retrofit equipment as a substitute for hydrochlorofluorocarbon (HCFC)-22 in:

• Chillers (centrifugal, screw, reciprocating).

• Industrial process refrigeration.

• Industrial process air conditioning.

• Retail food refrigeration.

• Cold storage warehouses.

• Refrigerated transport.

• Commercial ice machines.

• Ice skating rinks.

• Household refrigerators and freezers.

• Water coolers.

• Residential dehumidifiers.

• Household and light commercial air conditioning and heat pumps.

RS-45 is a blend of 18.0% by weight hydrofluorocarbon (HFC)-143a (1,1,1-trifluoroethane, CAS ID #420-46-2), 63.2% by weight HFC-125 (pentafluoroethane, CAS ID #354-33-6), 16.0% by weight HFC-134a (1,1,1,2-tetrafluoroethane, CAS ID #811-97-2, and 2.8% by weight R-600a (isobutane, 2-methyl propane, CAS ID #75-28-5). The American Society of Heating, Refrigerating, and Air-Conditioning Engineers (ASHRAE) has assigned this blend the designation R-434A. You may find the submission under Docket item EPA-HQ-OAR-2003-0118-0162 at www.regulations.gov.

Environmental information: The ozone depletion potential (ODP) of R-421A is zero. The global warming potentials (GWPs) of HFC-143a, HFC-125, HFC-134a, and isobutane are 3800, 3450, 1320, and less than 10, respectively (relative to carbon dioxide, using a 100-year time horizon (United Nations Environment Programme (UNEP) and World Meteorological Organization (WMO) Scientific Assessment of Ozone Depletion: 2002 )). The atmospheric lifetimes of these constituents are 48.3, 29, and 14 years, and less than one year, respectively.

The contribution of this blend to greenhouse gas emissions will be minimized through the implementation of the venting prohibition under section 608 (c)(2) of the Clean Air Act (see 40 CFR part 82, subpart F). This section and EPA's implementing regulations prohibit venting or release of substitutes for class I or class II ODSs used in refrigeration and air conditioning and require proper handling, such as recycling or recovery, and disposal of these substances.

HFC-143a, HFC-125 and HFC-134a are excluded from the definition of volatile organic compound (VOC) under Clean Air Act regulations (see 40 CFR 51.100(s)) addressing the development of State implementation plans (SIPs) to attain and maintain the national ambient air quality standards. Isobutane is a VOC under Clean Air Act regulations.

Flammability information: While two of the blend components, isobutane and HFC-143a, are flammable, the blend as formulated and under worst case fractionated formulation scenarios is not flammable.

Toxicity and exposure data: HFC-143a has an 8 hour/day, 40 hour/week recommended acceptable exposure limit for the workplace from the manufacturer of 1000 ppm. HFC-125 and HFC-134a have 8 hour/day, 40 hour/week workplace environmental exposure limits (WEELs) of 1000 ppm established by the American Industrial Hygiene Association (AIHA). Isobutane has an 8 hour/day, 40 hour/week threshold limit value (TLV) established by the American Conference of Governmental Industrial Hygienists (ACGIH) of 1000 ppm. EPA recommends that users follow all requirements and recommendations specified in the Material Safety Data Sheet (MSDS) for the blend and the individual components and other safety precautions common in the refrigeration and air conditioning industry. EPA also recommends that users of RS-45 adhere to the AIHA's WEELs and the ACGIH's TLV.

Comparison to other refrigerants: RS-45 is not an ozone depleter in contrast to HCFC-22, the ozone-depleting substance which it replaces. RS-45 is comparable to other substitutes for HCFC-22 in its lack of risk for ozone depletion. RS-45 has a GWP of about 3200, comparable to or lower than that of other substitutes for HCFC-22. For example, the GWP of R-407C is about 1700, the GWP of R-410A is about 2000, and the GWPs of R-404A and R-507 are about 3900. Flammability and toxicity risks are low, as discussed above. Thus, we find that RS-45 is acceptable because it does not pose a greater overall risk to public health and the environment than the other substitutes acceptable in the end uses listed above.

EPA's decision:

KDD5 is acceptable for use in new and retrofit equipment as a substitute for HCFC-22 in:

• Chillers (centrifugal, screw, reciprocating).

• Industrial process refrigeration.

• Industrial process air conditioning.

• Retail food refrigeration.

• Cold storage warehouses.

• Refrigerated transport.

• Commercial ice machines.

• Ice skating rinks.

• Household refrigerators and freezers.

• Vending machines.

• Water coolers.

• Residential dehumidifiers.

• Household and light commercial air conditioning and heat pumps.

• Motor vehicle air conditioning (buses and passenger trains only).

• Non-mechanical heat transfer.

Environmental information: The ODP of KDD5 is zero. The average 100-year integrated GWP of this blend is in the range of the GWPs for R-407C and R-410A. Some components of the blend are VOCs under Clean Air Act regulations addressing the development of State implementation plans (SIPs) to attain and maintain the national ambient air quality standards. 40 CFR 51.100(s).

The contribution of this blend to greenhouse gas emissions will be minimized through the implementation of the venting prohibition under section 608(c)(2) of the Clean Air Act (see 40 CFR part 82, subpart F). This section and EPA's implementing regulations prohibit venting or release of substitutes for class I or class II ODSs used in refrigeration and air conditioning and require proper handling, such as recycling or recovery, and disposal of these substances.

Flammability information: As formulated and under worst-case fractionated formulation scenarios, this blend is not flammable.

Toxicity and exposure data: The manufacturer's recommended 8-hr TWA workplace exposure limit for the blend is 995 ppm. A number of components of the blend have workplace exposure limits of 1000 ppm set by the manufacturer, the AIHA, or the ACGIH.

Comparison to other refrigerants: KDD5 is not an ozone depleter; thus, it poses a lower risk for ozone depletion than the ODSs it replaces. KDD5 has comparable or lower risk for ozone depletion than other substitutes for HCFC-22. KDD5 has a GWP comparable to or lower than that of other substitutes for HCFC-22. For example, the GWP of R-407C is about 1700, the GWP of R-410A is about 2000, and the GWPs of R-404A and R-507 are about 3900. Flammability and toxicity risks are low, as discussed above. We find that KDD5 is acceptable because it does not pose a greater overall risk to public health and the environment than the other substitutes acceptable in the end uses listed above.

EPA's decisions:

R-428A is acceptable for use in new and retrofit equipment as a substitute for R-502, HCFC-22, and refrigerant blends containing HCFC-22, including R-402A, R-408A, R-403B, and R-411B in:

• Retail food refrigeration.

• Cold storage warehouses.

• Refrigerated transport.

• Commercial ice machines.

• Household refrigerators and freezers.

R-428A is acceptable for use in new equipment as a substitute for R-403B in:

• Industrial process refrigeration.

R-428A is acceptable for use in new and retrofit equipment as a substitute for R-502 and HCFC-22 in:

• Ice skating rinks.

Environmental information: The ODP of R-428A is zero. For environmental information on HFC-125, HFC-143a and isobutane, see the section on environmental information above for RS-45. The 100-year integrated GWP of propane is generally considered to be less than 10, relative to CO 2 . The atmospheric lifetime of propane is less than one year.

The contribution of this blend to greenhouse gas emissions will be minimized through the implementation of the venting prohibition under section 608(c)(2) of the Clean Air Act (see 40 CFR part 82, subpart F). This section and EPA's implementing regulations prohibit venting or release of substitutes for class I or class II ODSs used in refrigeration and air conditioning and require proper handling, such as recycling or recovery, and disposal of these substances.

Isobutane and propane are VOCs under Clean Air Act regulations concerning the development of SIPs to attain and maintain the national ambient air quality standards. HFC-125 and HFC-143a are exempt from the definition of VOC under these regulations. 40 CFR 51.100(s).

Flammability information: While three components of the blend, HFC-143a, isobutane and propane, are flammable, the blend as formulated and under worst-case fractionated formulation scenarios, is not flammable.

Toxicity and exposure data: For information on the workplace exposure limits for HFC-125 and HFC-143a, see the section on toxicity and exposure data above for RS-45. Isobutane has an 8 hour/day, 40 hour/week threshold limit value (TLV) established by the American Conference of Governmental Industrial Hygienists (ACGIH) of 1000 ppm. Propane has an 8 hour/day, 40 hour/week TLV of 800 ppm established by the ACGIH. EPA recommends that users follow all requirements and recommendations specified in the MSDS for the blend and the individual components and other safety precautions common in the refrigeration and air conditioning industry. EPA also recommends that users of R-428A adhere to the ACGIH's TLVs.

Comparison to other refrigerants: R-428A is not an ozone depleter in contrast to the ozone depleting substances which it replaces. R-428A has comparable or lower risk for ozone depletion than other substitutes for R-502. R-428A has a GWP of about 3500, comparable to or lower than that of other substitutes for HCFC-22 and R-502. For example, the GWP of R-407C is about 1700, the GWP of R-410A is about 2000, and the GWPs of R-404A and R-507 are about 3900. The flammability and toxicity risks are low, as discussed above. Thus, we find that R-428A is acceptable because it does not pose a greater overall risk to public health and the environment than the other substitutes acceptable in the end uses listed above.

Section 612 of the Clean Air Act authorizes EPA to develop a program for evaluating alternatives to ozone-depleting substances. We refer to this program as the Significant New Alternatives Policy (SNAP) program. The major provisions of section 612 are:

• Rulemaking —Section 612(c) requires EPA to promulgate rules making it unlawful to replace any class I (chlorofluorocarbon, halon, carbon tetrachloride, methyl chloroform, and hydrobromofluorocarbon) or class II (hydrochlorofluorocarbon) substance with any substitute that the Administrator determines may present adverse effects to human health or the environment where the Administrator has identified an alternative that (1) reduces the overall risk to human health and the environment, and (2) is currently or potentially available.

• Listing of Unacceptable/Acceptable Substitutes —Section 612(c) also requires EPA to publish a list of the substitutes unacceptable for specific uses. We must publish a corresponding list of acceptable alternatives for specific uses.

• Petition Process —Section 612(d) grants the right to any person to petition EPA to add a substance to or delete a substance from the lists published in accordance with section 612(c). The Agency has 90 days to grant or deny a petition. Where the Agency grants the petition, it must publish the revised lists within an additional six months.

• 90-day Notification —Section 612(e) directs EPA to require any person who produces a chemical substitute for a class I substance to notify the Agency not less than 90 days before new or existing chemicals are introduced into interstate commerce for significant new uses as substitutes for a class I substance. The producer must also provide the Agency with the producer's unpublished health and safety studies on such substitutes.

• Outreach —Section 612(b)(1) states that the Administrator shall seek to maximize the use of federal research facilities and resources to assist users of class I and II substances in identifying and developing alternatives to the use of such substances in key commercial applications.

• Clearinghouse —Section 612(b)(4) requires the Agency to set up a public clearinghouse of alternative chemicals, product substitutes, and alternative manufacturing processes that are available for products and manufacturing processes which use class I and II substances.

On March 18, 1994, EPA published the final rulemaking (59 FR 13044) that described the process for administering the SNAP program and issued our first acceptability lists for substitutes in the major industrial use sectors. These sectors include:

• Refrigeration and air conditioning;

• Foam blowing;

• Solvents cleaning;

• Fire suppression and explosion protection;

• Sterilants;

• Aerosols;

• Adhesives, coatings and inks; and

• Tobacco expansion.

As described in this original rule for the SNAP program, EPA does not believe that rulemaking procedures are required to list alternatives as acceptable with no limitations. Such listings do not impose any sanction, nor do they remove any prior license to use a substance. Therefore, by this notice we are adding substances to the list of acceptable alternatives without first requesting comment on new listings.

However, we do believe that notice-and-comment rulemaking is required to place any substance on the list of prohibited substitutes, to list a substance as acceptable only under certain conditions, to list substances as acceptable only for certain uses, or to remove a substance from the lists of prohibited or acceptable substitutes. We publish updates to these lists as separate notices of rulemaking in the Federal Register.

The Agency defines a “substitute” as any chemical, product substitute, or alternative manufacturing process, whether existing or new, intended for use as a replacement for a class I or class II substance. Anyone who plans to market or produces a substitute for an ODS in one of the eight major industrial use sectors must provide EPA with health and safety studies on the substitute at least 90 days before introducing it into interstate commerce for significant new use as an alternative. This requirement applies to substitute manufacturers, but may include importers, formulators, or end-users, when they are responsible for introducing a substitute into commerce.

You can find a complete chronology of SNAP decisions and the appropriate Federal Register citations from the SNAP section of EPA's Ozone Depletion World Wide Web site at http://www.epa.gov/ozone/snap/chron.html. This information is also available from the Air Docket (see ADDRESSES section above for contact information).

This final regulation establishes safe harbor protection under the anti-kickback statute for certain arrangements involving Federally qualified health centers. Section I of this preamble contains a brief background discussion addressing the anti-kickback statute and safe harbors; a discussion of section 330-funded health centers; a summary of the relevant MMA provisions; a summary of the proposed safe harbor; and a summary of the final safe harbor. Section II of this preamble sets forth a summary of the public comments and our responses to those comments.

The anti-kickback statute provides criminal penalties for individuals or entities that knowingly and willfully offer, pay, solicit, or receive remuneration in order to induce or reward the referral of business reimbursable under any of the Federal health care programs, as defined in section 1128B(f) of the Act. The offense is classified as a felony and is punishable by fines of up to $25,000 and imprisonment for up to five years. Violations of the anti-kickback statute may also result in the imposition of civil money penalties (CMPs) under section 1128A(a)(7) of the Act (42 U.S.C. 1320a-7a(a)(7)), program exclusion under section 1128(b)(7) of the Act (42 U.S.C. 1320a-7(b)(7)), and liability under the False Claims Act, (31 U.S.C. 3729-33).

The types of remuneration prohibited specifically include, without limitation, kickbacks, bribes, and rebates, whether made directly or indirectly, overtly or covertly, in cash or in kind. Prohibited conduct includes not only the payment of remuneration intended to induce or reward referrals of patients, but also the payment of remuneration intended to induce or reward the purchasing, leasing, or ordering of, or arranging for or recommending the purchasing, leasing, or ordering of, any good, facility, service, or item reimbursable by any Federal health care program.

Because of the broad reach of the statute, concern was expressed that some relatively innocuous commercial arrangements were covered by the statute and, therefore, potentially subject to criminal prosecution. In response, Congress enacted section 14 of the Medicare and Medicaid Patient and Program Protection Act of 1987, Public Law 100-93 (section 1128B(b)(3)(E) of the Act), which specifically required the development and promulgation of regulations, the so-called “safe harbor” provisions, which would specify various payment and business practices that would not be treated as criminal offenses under the anti-kickback statute, even though they may potentially be capable of inducing referrals of business under the Federal health care programs. Since July 29, 1991, OIG has published in the Federal Register a series of final regulations establishing “safe harbors” in various areas. 1 These OIG safe harbor provisions have been developed “to limit the reach of the statute somewhat by permitting certain non-abusive arrangements, while encouraging beneficial or innocuous arrangements.” (56 FR 35952, 35958; July 21, 1991).

Health care providers and others may voluntarily seek to comply with safe harbors so that they have the assurance that their business practices will not be subject to liability under the anti-kickback statute, the CMP provision for anti-kickback violations, or the program exclusion authority related to kickbacks. In giving the Department the authority to protect certain arrangements and payment practices from penalties under the anti-kickback statute, Congress intended the safe harbor regulations to be evolving rules that would be updated periodically to reflect changing business practices and technologies in the health care industry.

Beginning in the 1960s, Congress enacted various health center programs to assist the large number of individuals living in medically underserved areas, as well as the growing number of special populations with limited access to preventive and primary health care services. In the Health Centers Consolidation Act of 1996, Public Law 104-299, Congress consolidated the four then-existing Federal health center grant programs (the Migrant Health Center Program, the Community Health Center Program, the Health Care for the Homeless Program, and the Health Services for Residents of Public Housing Program) into a single program under section 330 of the Public Health Service (PHS) Act. See S. Rep. 104-186 (December 15, 1995). In the Health Care Safety Net Amendments of 2002, Public Law 107-251, Congress reauthorized and strengthened the health centers program. In 2005, the Federal health center programs supported 954 organizations that provided care to over 14 million patients at 3,745 health care service delivery sites. 2

Section 330 grant recipients play a vital role in the health care safety net, providing cost effective care for communities with limited access to health care resources. All recipients of grants under section 330 are public, nonprofit, or tax-exempt entities. The health centers must serve “a population that is medically underserved, or a special medically underserved population comprised of migratory and seasonal agricultural workers, the homeless, and residents of public housing.” 42 U.S.C. 254b(a)(1). Health centers must be community based; to this end, a majority of a health center's governing board must be users of the center and must, as a group, represent the individuals being served by the center. 3 42 U.S.C. 254b(k)(3)(H)(i). Health centers receiving section 330 grant funding must provide, either directly or through contracts or cooperative arrangements, a broad range of required primary health care services, including clinical services by physicians, and, where appropriate, physician assistants, nurse practitioners, and nurse midwives; diagnostic laboratory and radiological services; preventive health services; emergency medical services; certain pharmaceutical services; referrals to other providers (including substance abuse and mental health services); patient case management; services that enable individuals to use the services of the health center ( e.g. , outreach, transportation, and translation services); and patient and community education services. 42 U.S.C. 254b(b)(1). They may also provide certain additional health services that are appropriate to serve the health needs of the population served by the health center. 42 U.S.C. 254b(b)(2). These additional health services may include mental health and substance abuse services; recuperative care services; environmental health services; special occupation-related health services for migratory and seasonal agricultural workers; programs to control infectious disease; and injury prevention programs.

Consistent with their mission and the terms of their PHS grants, section 330 grant recipients serve predominantly low-income individuals, including some beneficiaries of the Medicare and Medicaid programs. In 2005, 36 percent of patients treated by section 330 grant recipients were beneficiaries of a Medicaid program, 7.5 percent were beneficiaries of the Medicare program, and 2.3 percent were beneficiaries of another public insurance program. 4 Section 330 grant recipients also treat a substantial and growing number of uninsured patients. In 1996, section 330 grant recipients provided services to 3.2 million uninsured patients, and by 2005, this number had increased to 5.6 million, representing nearly 40 percent of patients treated at those centers during that year. 5

Section 330 grant recipients must serve all residents of their “catchment” area regardless of the patient's ability to pay and must establish a fee schedule with discounts to adjust fees on the basis of ability to pay. 42 U.S.C. 254b(a)(1)(B) and 254b(k)(3)(G)(i). Section 330 grant recipients must also make and continue “every reasonable effort to establish and maintain collaborative relationships with other health care providers in the catchment area of the center” (42 U.S.C. 254b(k)(3)(B)), and must “develop an ongoing referral relationship” with at least one hospital in the area. 42 U.S.C. 254b(k)(3)(L).

Section 330 grant funds are intended to defray the costs of serving uninsured patients. Grant recipients are required to seek reimbursement from those patients who are able to pay all or a portion of the charges for their care (applying a schedule of fees and a corresponding schedule of discounts adjusted on the basis of the patient's ability to pay) or who have private insurance or public coverage, such as Medicare or Medicaid. The amount of a section 330 grant may not exceed the amount by which the costs of operation of the health center in such fiscal year exceed the total of: (i) State, local, and other operational funding provided to the health center; and (ii) the fees, premiums, and third-party reimbursements that the center may reasonably be expected to receive for its operations in such fiscal year. By statute, nongrant funds must be used to further the objectives of the recipient's section 330 grant.

Section 330 grant funding accounts for approximately 20 percent of revenue for health centers receiving such grants. The majority of health center funding derives from charges for patient services. On average, the largest source of revenue, 37 percent comes from Medicaid payments, 6.5 percent of health center revenues come from private third-party reimbursement, 6 percent from Medicare payments, and 6.5 percent from self-payments from patients. Remaining revenue comes from a mix of other Federal, State, local, and philanthropic sources. 6

Frequently, health centers are provided with, or seek out, opportunities to enter into arrangements with hospitals or other providers or suppliers to further the health centers' patient care mission. 7 For example, providers or suppliers may agree to provide health centers with capital development grants, low cost (or no cost) loans, reduced price services, or in-kind donations of supplies, equipment, or space.

Some providers and suppliers expressed concern that remuneration offered to health centers might be viewed as suspect under the anti-kickback statute, because the health centers are frequently in a position to refer Federal health care program beneficiaries to the provider or supplier. Accordingly, Congress enacted section 431 of MMA to enable some health centers to conserve section 330 and other monies by accepting needed goods, items, services, donations, or loans for free or at reduced rates from willing providers and suppliers.

Section 431 of MMA amended the anti-kickback statute to create a new safe harbor for certain agreements involving health centers. Specifically, section 431(a) of MMA excludes from the reach of the anti-kickback statute any remuneration between: (i) A health center described under section 1905(l)(2)(B)(i) or 1905(l)(2)(B)(ii) of the Act; and (ii) an individual or entity providing goods, items, services, donations, loans, or a combination of these to the health center pursuant to a contract, lease, grant, loan, or other agreement, provided that such agreement contributes to the health center's ability to maintain or increase the availability, or enhance the quality, of services provided to a medically underserved population served by the health center.

In other words, Congress intended to permit health centers to accept certain remuneration that would otherwise implicate the anti-kickback statute when the remuneration furthers a core purpose of the Federal health centers program: ensuring the availability and quality of safety net health care services to otherwise underserved populations. As discussed in greater detail below, Congress limited the scope of the safe harbor to certain health centers engaged in arrangements involving specific types of identifiable remuneration.

In establishing regulatory standards relating to the safe harbor, Congress directed the Department to consider the following factors:

• Whether the arrangement results in savings of Federal grant funds or increased revenues to the health center. We believe this factor evidences Congress' intent that a protected arrangement directly benefit the health center economically and that the benefits of the arrangement primarily inure to the health center, rather than the individual or entity providing the remuneration.

• Whether the arrangement restricts or limits patient freedom of choice. We believe this factor evidences Congress' intent that protected arrangements not result in inappropriate steering of patients. Under the safe harbor, patients remain free to obtain services from any provider or supplier willing to furnish them.

• Whether the arrangement protects the independent medical judgment of health care professionals regarding medically appropriate treatment for patients. We believe this factor evidences Congress' intent to safeguard the integrity of medical decision-making and ensure it is untainted by direct or indirect financial interests. In all cases, the best interests of the patient should guide the medical decision-making of health centers and their affiliated health care professionals.

Section 431(b)(1)(B) of MMA provides that these three factors are “among” the factors the Department may consider in establishing the safe harbor standards. The statute authorizes the Department to include “other standards and criteria that are consistent with the intent of Congress in enacting” the health center safe harbor. Accordingly, we interpret the statute to permit us to consider other relevant factors and to establish other relevant safe harbor standards consistent with the anti-kickback statute and the health center safe harbor. Among the factors we have considered is whether arrangements would pose a risk of fraud or abuse to any Federal health care programs or their beneficiaries. We believe Congress intended to protect arrangements that foster an important goal of the section 330 grant program—assuring the availability and quality of needed health care services for medically underserved populations—without adversely impacting other Federal programs or their beneficiaries.

On July 1, 2005, we issued a notice of proposed rulemaking (70 FR 38081) to set forth standards related to the safe harbor described in section 431 of MMA, in which we proposed: (1) To protect remuneration in the form of goods, items, services, donations, loans, or a combination thereof provided by an individual or entity (hereinafter in this preamble “Donor”) to a qualifying health center; (2) that remuneration must be medical or clinical in nature or relate directly to patient services provided by the health center as part of the scope of the health center's section 330 grant; and (3) importantly, that a protected arrangement must contribute to the ability of the health center to maintain or increase the availability, or enhance the quality, of services provided to a medically underserved population.

The proposed regulation proposed that protected arrangements must be pursuant to a comprehensive contract, lease, grant, loan, or other agreement that is written and signed by the parties, and the amount of the protected remuneration must not be conditioned on the volume or value of Federal health care program business generated between the parties. As we said in the notice of proposed rulemaking:

We proposed that health centers must reasonably determine before entering into an agreement that the arrangement is likely to contribute to the health center's ability to maintain or increase the availability, or enhance the quality, of services provided to a medically underserved population. We also proposed that health centers would have to periodically re-evaluate agreements to ensure ongoing compliance with this benefit standard and terminate as expeditiously as possible any arrangements that are not reasonably expected to continue to meet the standard. We proposed that the initial determination and any re-evaluations should be contemporaneously documented.

Our proposed rule stated that health centers must not be required to refer patients to a particular provider or supplier. In addition, we proposed that Donors that offer to provide goods, items, or services must accept all referrals of patients from the health center who clinically qualify for the goods, items, or services, regardless of payor status or ability to pay. We proposed that protected arrangements could not be exclusive. The proposed rule also required health centers to provide effective notification to patients of their freedom to choose any willing provider or supplier and to disclose the existence and nature of protected arrangements.

We proposed to give health centers the option of requiring that a Donor that enters into a protected arrangement charge a referred health center patient the same rate it charges other similarly situated persons not referred by the health center or that the items or services be furnished to health center patients at a reduced rate or free of charge.

Finally, we proposed that an arrangement could not be protected under the safe harbor unless it complied with the requirements of the health center's section 330 grant funding.

We have modified the proposed rule in a number of areas in response to public comments. The substantial changes and clarifications being made in the final regulations include:

• Clarifying the definition of the term “remuneration” for purposes of the safe harbor;

• Eliminating the requirement that arrangements that do not comply with the safe harbor be terminated;

• Eliminating the requirement that arrangements must comply with all relevant requirements of the health center's section 330 grant funding;

• Consolidating and clarifying the documentation requirements;

• Clarifying that health centers do not need to develop set standards for determining whether an arrangement is expected to contribute meaningfully to services for underserved patients;

• Simplifying the safe harbor requirement pertaining to disclosures to patients;

• Clarifying health centers' freedom to refer patients; and

• Clarifying the conditions under which individuals and entities furnish separately billable goods, items, or services to health centers.

As discussed more fully in this preamble and regulations, the health center safe harbor protects remuneration in the form of goods, items, services, donations or loans (whether the donation or loan is in cash or in-kind), or a combination thereof provided by a Donor to a qualifying health center. Qualifying health centers are health centers described under section 1905(l)(2)(B)(i) or 1905(l)(2)(B)(ii) of the Act. Remuneration must be medical or clinical in nature or relate directly to services provided by the health center as part of the scope of the health center's section 330 grant. A protected arrangement must contribute to the ability of the health center to maintain or increase the availability of, or enhance the quality of, services provided to a medically underserved population.

Protected arrangements must be pursuant to a contract, lease, grant, loan, or other agreement that is written, signed by the parties, and covers all of the remuneration to be provided. The amount of the remuneration must be specified and not be conditioned on the volume or value of Federal health care program business generated between the parties.

Health centers must reasonably expect before entering into an agreement that the arrangement is likely to contribute to the health center's ability to maintain or increase the availability, or enhance the quality, of services provided to a medically underserved population as defined at 42 U.S.C. 254b(b)(3). Health centers must document the basis for their determination that the arrangement will yield such a benefit. Health centers must periodically re-evaluate agreements to ensure ongoing compliance with the benefit standard. These determinations must be contemporaneously documented.

Health centers must not be required to refer patients to a particular provider or supplier under the arrangement, and must be free to refer patients to any provider or supplier. In addition, Donors that offer to furnish goods, items, or services for health center patients must furnish those goods, items, or services to all health center patients who clinically qualify for them, regardless of payor status or ability to pay.

Health centers are required to provide effective notification to patients of their freedom to choose any willing provider or supplier and to disclose to patients, upon request, the existence and nature of the arrangement with the Donor.

The safe harbor makes clear that a health center may, at its option, require a Donor that enters into a protected arrangement to charge a referred health center patient the same rate it charges other similarly situated persons not referred by the health center or furnish items or services to health center patients at a reduced rate (where the discount applies to the total charge and not just the cost-sharing portion owed by an insured patient).

In response to our proposed rulemaking, OIG received a total of nine timely filed comments from trade associations, hospitals, health centers, and other interested parties. We have divided the summaries of the public comments and our responses into three parts: general comments; comments on statutory elements; and comments on additional regulatory standards.

All the commenters supported the establishment of a safe harbor for arrangements involving Federally Qualified Health Centers. While some commenters expressed their support for all of the regulatory standards in the proposed rule, other commenters took issue with one or more specific aspects of the proposal.

Comment: A trade association objected to the number of standards in the proposed regulation. The commenter suggested that the number of standards is too high and might dissuade parties from participating in safe harbored arrangements.

Response: As discussed in detail elsewhere in this preamble, we have reduced the number of standards from eleven in the proposed rule to nine in the final rule. We do not believe that the regulatory standards should create an undue burden or otherwise chill participation in arrangements under the safe harbor.

Comment: Several commenters responded to the statement in the preamble to the proposed rule that OIG intended to monitor participants in safe harbored arrangements for compliance with billing rules, in order to guard against improper billing of Federal health care programs or inappropriate transfers of governmental funds. See 70 FR 38086. Two trade associations requested that we remove any mention of such monitoring, lest it discourage parties from participating in arrangements under this safe harbor. Another trade association suggested that, in return for safe harbor protection, it would be appropriate that health centers be monitored closely for compliance with the requirements of section 330 funding to determine whether the funding is used for its intended purpose. In particular, the commenter stated that it is important to ensure that any government benefits provided to health centers to serve uninsured patients are used to provide services to those patients and not diverted to subsidizing unrelated service lines.

Response: Our use of the term “monitor” may have inadvertently created the misimpression that parties to arrangements under this safe harbor would be subject to a higher level of scrutiny than parties to other arrangements. We clarify that we were referring simply to our usual and customary oversight authorities and practices. Participation in a safe harbored arrangement would not necessarily make parties a target of OIG attention or subject parties to heightened scrutiny; however, as providers who receive funding from Federal health care programs, health centers remain subject to our general oversight tools, including monitoring for proper billing and appropriate transfers of governmental funds. With that clarification, we do not believe that referencing our longstanding oversight authority should discourage participation in safe harbored arrangements. We agree with the last commenter and affirm our continued commitment to ensuring that Government funding is used for its intended purposes.

Comment: A trade association requested that we remove the proposed requirement at § 1001.952(w)(11), which would have required any safe harbored agreement to comply with all relevant requirements of the health center's section 330 grant funding. The commenter suggested that the requirement is unnecessary, because health centers already operate under an obligation to comply with all requirements of their section 330 grant funding. Moreover, the commenter observed that including this provision in the safe harbor regulations might chill a Donor's willingness to participate in safe harbored arrangements, if that Donor also becomes obligated to ensure that the arrangements comply with the terms of a health center's section 330 grant funding.

Response: We agree with this commenter and are eliminating the standard in the final rule. The remaining safe harbor conditions, in combination with health centers' existing obligations to comply with the requirements of their section 330 grant funding, should be sufficient to minimize any risk of fraud and abuse.

Comment: We received a comment from a health center network noting that the safe harbor only offers protection under the anti-kickback statute and does not offer protection under the physician self-referral law, section 1877 of the Act (commonly known as the “physician self-referral law” or “Stark” law). The commenter expressed concern that the need to comply with both statutes may prove burdensome for health centers, and suggested that the requirements of the two laws be consolidated.

Response: The commenter correctly notes that the safe harbor only protects arrangements under the anti-kickback statute, and, where applicable, parties would also need to comply with the physician self-referral law. An exception under the physician self-referral law is beyond the scope of this rulemaking. The anti-kickback statute and the physician self-referral law, while similar in that they both address abuses of the Medicare and Medicaid programs, are different in scope and application. Congress has made clear that the physician self-referral law and the anti-kickback statute are separate legal authorities, and compliance with one does not necessarily ensure compliance with the other. See, e.g. , H.R. Conf. Rep. No. 386, 101st Cong., 1st session 856 (1989).

Comment: A trade association suggested we broaden the scope of the safe harbor to apply to arrangements involving other types of health centers that are similar to the health centers described in sections 1905(l)(2)(B)(i) and 1905(l)(2)(B)(ii) of the Act, except for the fact that they lack section 330 funding. These other facilities are often called “look-alike” facilities.

Response: We decline to adopt this suggestion. Congress specifically provided that the safe harbor should apply to the facilities described in sections 1905(l)(2)(B)(i) and 1905(l)(2)(B)(ii) of the Act and not to other types of facilities. Moreover, we believe the lack of section 330 funding, which entails a higher level of Government oversight, constitutes a significant distinction between section 330-funded health centers and look-alike facilities. Extending safe harbor protection to entities without such Government funding and such a level of oversight would pose a greater risk of fraud and abuse. We recognize that many look-alike facilities play important roles in the health care safety net, and we note that just because arrangements with look-alike facilities do not fall within the safe harbor does not mean they are necessarily illegal. The fact that the safe harbor does not apply simply means that such arrangements must be analyzed on a case-by-case basis to determine whether they violate the anti-kickback statute.

Comment: A trade association asked us to commit to considering the issuance of a regulatory safe harbor protecting arrangements involving look-alike facilities.

Response: We may consider this option in the future, depending on our experience with this safe harbor in practice.

Comment: Several commenters sought clarification as to whether community benefit grants and other types of cash donations qualify as protected remuneration under this safe harbor. A trade association asked that we add language in § 1001.952(w)(2) that clarifies that donations and loans could include cash donations, such as community benefit grants, and are not limited to in-kind donations and loans. One commenter noted that some community benefit grants entail reconciliation provisions, which allow the donor (i) to augment the grant if grant funds fall short of actual health center expenditures or (ii) to determine the use of excess funds where grant funds exceed actual health center spending. Two trade associations requested clarification of the definition of “remuneration” and assurance that the definition includes community benefit grants or similar payments to health centers by public hospitals and health systems, even if the amount of the payments are subject to reconciliation.

Response: The definition of “remuneration” at § 1001.952(w) would generally extend to community benefit grants or similar payments, even where such grants or payments are subject to a reconciliation provision. So long as the reconciliation methodology is fixed in advance and does not hinge on the volume or value of referrals from the health center to the Donor, funding subject to reconciliation could comply with the condition at § 1001.952(w)(1) and be protected remuneration under this safe harbor (provided all other safe harbor conditions are satisfied). Donations and loans need not be limited to in-kind goods or services, and indeed may be in monetary form. We have clarified the scope of § 1001.952(w) to make this point more explicit: “As used in section 1128B of the Act, 'remuneration' does not include the transfer of any goods, items, services, donations or loans ( whether the donation or loan is in cash or in-kind ), or combination thereof from an individual or entity to a health center * * *” (emphasis added).

Comment: A trade association suggested we expand the scope of the safe harbor to cover arrangements whereby the remuneration is provided not to the health center, but from the health center to an individual or entity related to the health center. The commenter said there are arrangements not covered by other safe harbors where a health center could provide payments or other forms of support to a provider that would result in improving the overall health outcomes of patients.

Response: Section 431 of MMA does not protect remuneration from a health center to an individual or entity. We believe it is clear that Congress intended the safe harbor to enhance the resources available to health centers in order to help them achieve their community benefit mission, and we decline to adopt the commenter's recommendation. We recognize that there may be beneficial arrangements where remuneration flows away from the health center that may not fit within a safe harbor; such arrangements would be evaluated on a case-by-case basis to ensure compliance with the anti-kickback statute. We note that some arrangements pursuant to which a health center provides remuneration to an individual or entity may qualify for other safe harbors, including, for example, the safe harbors for personal services, employees, practitioner recruitment, and electronic health records items a nd services. See §§ 1001.952(d), (i), (n), and (y).

Comment: A trade association noted that our proposed rule stated that section 431 “only protects remuneration provided to a health center and does not protect remuneration provided to individuals affiliated with a health center * * *.” 70 FR 38084. The commenter asked whether, for purposes of this safe harbor, remuneration to the health center could include funds provided by a hospital, if such funds were used to help recruit a physician to the health center.

Response: The donation described by the commenter raises the possibility of two scenarios: one in which the donation could be used to recruit a physician to the health center primarily for the benefit of health center patients, and one where it could be used to recruit a physician primarily for the benefit of the donor hospital. If the hospital made the donation of funds to the health center primarily for the benefit of health center patients, then its donation of funds for the purpose of supporting general physician recruitment by the health center could qualify for protection under this safe harbor, if all safe harbor conditions are satisfied. Conversely, we believe Congress did not intend the safe harbor to protect arrangements where the donation primarily creates a benefit to the Donor instead of to the health center. Likewise, this safe harbor would not protect an arrangement where a Donor used the health center as a conduit to transfer remuneration to a particular recruited physician; to transfer remuneration specifically for the purpose of recruiting a physician to join the Donor's medical staff, or to practice in the Donor's service area; or to transfer remuneration to existing group practices. The safe harbor does not protect remuneration provided by Donors to individuals affiliated with the health center. Section 431 evidences Congress' intent to protect the provision of certain remuneration “to” a health center. It does not protect remuneration transferred to an individual affiliated with a health center, nor does it protect remuneration transferred from a health center to an individual or entity. We note that, depending on the circumstances, such a recruitment arrangement between a health center and a physician may be eligible for protection under another safe harbor, such as the safe harbor for practitioner recruitment at § 1001.952(n). When evaluating arrangements with potential Donors for funds to support physician recruitment, health centers should consider whether the remuneration would be used for expenses commonly or typically borne by the health center, such that the arrangement results in measurable savings that will benefit a medically underserved population, or would be used to recruit a health care professional needed by the health center to serve a medically underserved population. If a recruited physician were to join the health center's medical staff, it would be some evidence that the benefit primarily runs to medically underserved populations served by the health center as opposed to the Donor.

Comment: We received several comments regarding the proposed regulatory text for § 1001.952(w)(2), which provides examples of “patient services furnished by the health center as part of its section 330 grant” in the parenthetical portion of the text, but does not similarly list examples of “goods, items, donations, or loans.” The commenters expressed concern that this suggested that only services could constitute protected remuneration. These commenters requested that the regulatory text also supply examples of protected goods, items, donations, and loans.

Response: The commenters misread proposed § 1001.952(w)(2). Goods, items, donations, and loans—and services—can indeed constitute protected remuneration under this safe harbor. In the interest of clarifying § 1001.952(w)(2) so that health centers and Donors do not interpret the scope of protected remuneration to be narrower than it actually is, we have deleted the term “patient services furnished” and replaced it with the term “services provided.” Section 1001.952(w)(2) now requires that goods, items, services, donations, or loans (or combination thereof) must either (i) Be medical or clinical in nature or (ii) relate directly to services provided by the health center in furtherance of its section 330 grant. The parenthetical list offers illustrative examples of the kind of services that meet the latter test and makes clear that such services need not be medical or clinical in nature. For example, goods, items, services, donations, or loans directly related to a health center's billing, administrative, social services, and health information functions can qualify. We note that the term “medical or clinical in nature” broadly covers all medical or clinical services ( e.g. , physician services, nurse practitioner and physician assistant services, diagnostic services, therapeutic services, etc.); medical or clinical goods and items ( e.g. , pharmaceuticals, knee braces, stethoscopes, x-ray machines, etc.); donations of money or other forms of remuneration that the health center can use to furnish medical or clinical services or to acquire goods, items, or services that are medical or clinical in nature; and loans of money or other forms of remuneration that the health center can use to furnish medical or clinical services or to acquire goods, items, or services that are medical or clinical in nature.

Comment: A non-profit organization and several health centers submitted comments seeking clarification that the definition of remuneration at § 1001.952(w) would include pharmaceutical manufacturers' donations of pharmaceutical products to health centers with the intent that these products be used to treat patients of the health center. They requested that we amend § 1001.952(w) specifically to include donations of pharmaceutical products from pharmaceutical manufacturers, citing concerns that absent such an explicit acknowledgement, pharmaceutical manufacturers would refuse to donate to health centers.

Response: Nothing in § 1001.952(w) excludes donations of pharmaceuticals by pharmaceutical companies from protection by the safe harbor. To the contrary, as discussed in the preceding response, such donations are clearly within the meaning of the language “goods * * * [that] are medical or clinical in nature” in § 1001.952(w)(2). Pharmaceutical donations can play an important role in ensuring a health center safety net for vulnerable patients, and many arrangements between health centers and pharmaceutical companies may be eligible for protection. That said, we are not enumerating in the regulatory text any particular types of Donors. Whether something fits in the definition of protected “remuneration” at § 1001.952(w) turns on the nature of the remuneration, not on its source. By listing some Donors and not others, we might create a misimpression regarding the scope of the safe harbor.

Comment: A non-profit organization sought clarification that a health center's practice of purchasing discounted drugs by means of participation in the 340B Drug Pricing Program would not preclude that health center from receiving free drugs pursuant to a donation protected under this safe harbor.

Response: We confirm that this safe harbor could protect arrangements involving the donation of pharmaceuticals to health centers, including to health centers that participate in the 340B Drug Pricing Program.

Comment: Several commenters supported our documentation requirements at proposed §§ 1001.952(w)(1) and (3) (consolidated at § 1001.952(w)(1) of the final rule). A trade association commented that the documentation requirements at proposed §§ 1001.952(w)(1) and (3) are inconsistent with statements in the preamble. According to the commenter, the use of the term “written agreement” in the proposed regulatory language implies that all arrangements between a health center and a Donor must be included in a single writing, while the preamble says that all such arrangements should be memorialized “by one comprehensive writing or by means of multiple writings that cross-reference and otherwise incorporate the agreements between the parties.”

Response: For clarity and ease of application, we have combined the documentation requirements at proposed §§ 1001.952(w)(1) and (3) of the proposed rule into one requirement at § 1001.952(w)(1) in the final rule. We confirm that it may be satisfied by one comprehensive writing or by multiple writings that cross-reference and otherwise incorporate the agreements between the parties. We have revised the safe harbor to reflect this. We have also revised the safe harbor to provide the option of using a centralized master list in lieu of cross-referencing and incorporation of multiple agreements. The master list must be maintained centrally and in a manner that preserves the historical record of arrangements, kept up to date, and made available for review by the Secretary upon request. This flexibility should enhance the ability of Donors and health centers to use the safe harbor. The safe harbor does not require that all arrangements between a health center and a Donor be included in a single agreement that would qualify under the safe harbor.

Comment: A trade association sought clarification that the documentation requirements at proposed §§ 1001.952(w)(1) and (3) (§ 1001.952(w)(1) of the final rule) apply only to arrangements related to a safe harbored arrangement, and not to other interactions between the health center and the Donor that truly are unrelated to a safe harbored arrangement. The commenter believed that the documentation requirements imply that all arrangements between a health center and a Donor must be included in a single arrangement that would qualify under the safe harbor. The commenter suggested that only arrangements that “require safe harbor protection” should require documentation.

Response: The safe harbor does not require that all arrangements between a health center and a Donor be included in a single arrangement that would qualify under the safe harbor. The documentation standards at § 1001.952(w)(1) (§§ 1001.952(w)(1) and (3) in our proposed rule) require that the written documentation “cover all goods, items, services, donations, or loans to be provided to the health center.” In the interest of providing bright-line guidance with respect to what must be documented under § 1001.952(w)(1), we clarify that this paragraph requires the documentation of all arrangements for the transfer of goods, items, services, donations, or loans from a Donor to a health center. With respect to the commenter's assertion that certain arrangements “require safe harbor protection,” we note that, like all safe harbors, compliance with this safe harbor is voluntary and no arrangement requires safe harbor protection. Rather, arrangements must comply with the anti-kickback statute. Compliance with a safe harbor is one option for ensuring compliance with the anti-kickback statute.

Comment: A trade association asked us to clarify § 1001.952(w)(4) of the proposed rule (§ 1001.952(w)(3) of the final rule), which requires that arrangements protected under the safe harbor be reasonably expected to contribute meaningfully to the health center's ability to maintain or increase the availability, or enhance the quality of, services provided to a medically underserved population. Specifically, the commenter sought confirmation that, in order to contribute meaningfully, the arrangement need not result in a financial gain for the health center. The commenter asked us to consider the case of a health center that does not offer a particular service for its patients, but enters into an arrangement with a Donor for that service for free. The commenter observed that since the health center had not previously incurred expenses for the service, the new arrangement would not offer a financial gain to the health center. Another trade association requested confirmation that proposed § 1001.952(w)(4) would not necessarily require direct savings of section 330 funding and could be satisfied without a monetary benefit to the health center.

Response: We confirm that proposed § 1001.952(w)(4) (§ 1001.952(w)(3) of the final rule) does not require a financial gain to the health center and does not require the direct savings of section 330 funding. Whether the condition is satisfied will depend on the specific facts and circumstances. As noted in the preamble to the proposed rule at 70 FR 38085, we believe health centers are well-situated in the first instance to make a reasonable determination whether an arrangement contributes meaningfully to the health center's ability to maintain or increase the availability, or enhance the quality of, services provided to a medically underserved population, and we believe health centers should have flexibility in making these determinations. In the preamble to the proposed rule at 70 FR 38085, we listed factors that are exemplars of the type that should be considered in making these determinations:

• Does the arrangement directly benefit a medically underserved population?

• Does the arrangement involve goods, items, or services of a type that are commonly or typically purchased by the health center, such that the arrangement results in measurable savings that will benefit a medically underserved population?

• If the arrangement involves a donation to the health center, would the donation result in the increased availability of an item, good, device, service, technology, or treatment needed by a medically underserved population but not previously available in sufficient quantities due to financial limitations?

• Does the health center need the donated items, goods, or services, or the loaned funds to satisfy the scope of its section 330 grant?

The arrangement described in the first commenter's example could contribute meaningfully, if it increased the availability of the service for the health center's medically underserved population. With respect to the second commenter, we observe that while an arrangement that conserves a health center's section 330 funding means the health center has more money available to provide or enhance services for a medically underserved population, there are many other ways that remuneration could maintain, increase, or enhance services for a medically underserved population without the direct savings of section 330 funding. For example, if an arrangement allowed a health center to begin delivering an important new clinical service, which the health center was not previously able to provide, a meaningful benefit to a medically underserved population would likely be achieved without a direct monetary gain to the health center.

Comment: A trade association had a concern regarding the significance of the list of factors in the preamble that we wrote “should be considered” in determining whether an arrangement would result in a meaningful benefit to a medically underserved population. See 70 FR 38085. The commenter asked for confirmation that the factors in the list are only examples, and that it is not necessary to satisfy all of the factors to demonstrate a meaningful benefit under proposed § 1001.952(w)(4) (§ 1001.952(w)(3) of the final rule).

Response: The factors listed in the proposed rule and noted in the preceding response are examples of ways to analyze the existence of a meaningful benefit, and the commenter correctly understood that it is not necessary to satisfy each exemplary factor to establish the existence of a meaningful benefit to a medically underserved population under § 1001.952(w)(3) of the final rule.

Comment: A trade association commented that our requirement at proposed § 1001.952(w)(4) that health centers apply “reasonable, consistent, and uniform standards” when determining whether an arrangement bestows a meaningful benefit for services provided to a medically underserved population provides insufficient guidance to health centers for structuring arrangements. The commenter also objected to the proposed requirement that health centers document evaluation of such standards. It expressed concern that these requirements would have a chilling effect on parties' participation in safe harbored arrangements, as parties would be unsure whether their standards would satisfy the requirements of the safe harbor. The commenter requested that we provide examples of acceptable standards and how to document them, or eliminate the requirement all together.

Response: We intended the language “reasonable, consistent and uniform standards” to give health centers flexibility in assessing benefits to a medically underserved population, while at the same time requiring accountability and providing safeguards against abuse. Upon further consideration and consistent with our original intent, we have determined that proposed § 1001.952(w)(4) (now § 1001.952(w)(3)) can be simplified. Under § 1001.952(w)(3) of the final rule, parties need not develop or apply any separate “standards,” nor document that they have applied them. They must, however, document the basis for the reasonable expectation of benefits to a medically underserved population prior to entering the arrangement. Parties may, as a matter of prudent business practice, develop standards that are reasonable, uniform, and consistently applied as part of the methodology they use in assessing the expected benefit to a medically underserved population. We have similarly changed the corresponding language in § 1001.952(w)(4) of the final rule, which concerns the reevaluation of arrangements. With respect to the commenter's concern that proposed § 1001.952(w)(4) (§ 1001.952(w)(3) in the final rule) will chill participation in the safe harbor, we note that our approach here is consistent with several existing safe harbors that provide parties with flexibility to determine how to satisfy key conditions ( e.g. , how to determine fair market value). A health center can document its determination of a meaningful benefit to a medically underserved population, for example, by maintaining written or electronic records of the data and methodology used to assess the expected maintenance of, increase in, or enhanced quality of services to a medically underserved population and the outcome of such assessment. We believe that the documentation necessary to satisfy this requirement is consistent with that generally kept in the usual and customary course of a health center's business. For example, in many cases a health center's section 330 grant documents, in combination with the agreement required under § 1001.952(w)(1), may serve as the documentation of a sufficient benefit to a medically underserved population, to the extent they transparently document that a volume of items or services specified by the section 330 grant requirements will be provided under the agreement. Parties with concerns about their specific practices can avail themselves of OIG's advisory opinion process.

Comment: A health network supported the requirement at proposed § 1001.952(w)(5) (§ 1001.952(w)(4) of the final rule) that parties periodically re-evaluate arrangements. The commenter stated that it seems reasonable and useful for health centers participating in these arrangements to re-evaluate agreements periodically and document such factors as fair market value of equipment or costs of providing services. A trade association requested that we eliminate the requirement that an arrangement that, upon reevaluation, fails to meet the benefit standard be terminated. This commenter also asked us to clarify that continuation of such an arrangement would not automatically constitute a violation of the anti-kickback statute.

Response: We agree with these commenters. We have adopted the trade association's recommendation to eliminate the language in § 1001.952(w)(5) of the proposed rule that required noncompliant arrangements to be promptly terminated. We also confirm that a decision by a health center to continue participating in an arrangement that no longer satisfies the requirements of § 1001.952(w)(3) of the final rule will not necessarily give rise to a violation of the anti-kickback statute. Rather, the continuation of such an arrangement would fall outside of the safe harbor, and its legality under the anti-kickback statute would be determined on a case-by-case basis, based on all the facts and circumstances, including the intent of the parties. Finally, we agree with the commenter that, depending on the arrangement, it would be reasonable and useful for health centers participating in these arrangements to re-evaluate agreements periodically and document such factors as fair market value of equipment or costs of providing services.

Comment: A trade association asserted that the regulatory standards OIG proposed in accordance with section 431 of MMA should be limited to the factors set forth in section 431 and should not include additional requirements. As discussed in our preamble to the proposed rule at 70 FR 38083, in addition to the standards established by Congress, section 431 of MMA authorizes OIG to add other standards or criteria consistent with Congress' intent in creating this safe harbor. The commenter stated that establishing additional safe harbor standards consistent with the anti-kickback statute contravenes the plain language of the statute and Congress' intent. The commenter asked that the regulatory standards created in accordance with section 431 not include additional requirements that health centers and their partners would have to meet to be consistent with the anti-kickback statute. Finally, the commenter contended that these standards wrongly “reconsider” whether the arrangements pose a risk of fraud and abuse. According to the commenter, by definition, all the arrangements described in the safe harbor pose a risk of fraud and abuse, which is why they require safe harbor protection in the first place.

Response: We agree with the commenter's view that the regulatory standards we create in accordance with section 431 must be consistent with the language of section 431, and we believe that our regulations meet that test. Section 431 explicitly requires us to consider health center resources, patient freedom of choice, and independent medical judgment; however, it further states that these factors are “among” those to be considered and that “the Secretary may also include other standards and criteria that are consistent with the intent of Congress in enacting the exception established under this section.” Every safe harbor is established to protect arrangements that otherwise implicate the anti-kickback statute. Therefore, we believe Congress charged the Secretary with promulgating regulations implementing the health center safe harbor in a manner that furthers beneficial health center arrangements without posing an undue risk of fraud and abuse under the anti-kickback statute. This approach is consistent with our longstanding approach to safe harbor rulemaking. For instance, in our preamble to the proposed rule for the first ten safe harbors we stated that: “[w]e have attempted in these proposed regulations to permit physicians to freely engage in business practices and arrangements that encourage competition, innovation and economy. However, we have added criteria to each ‘safe harbor’ in order to reduce the potential for abuse.” (50 FR 3088; January 23, 1989) Congress enacted section 431 in the context of this regulatory history. Moreover, we do not believe Congress intended to protect arrangements that pose significant risk to Federal health care programs or their beneficiaries. We believe our regulations directly and reasonably derive from the guidelines specifically enacted in section 431 and Congress' invitation to include other standards consistent with the establishment of the safe harbor. With respect to the commenter's final comment, historically, regulatory safe harbors were initiated in response to concerns that the anti-kickback statute covered some relatively innocuous commercial arrangements. ( See 50 FR 3088; January 23, 1989 and 56 FR 35952; July 29, 1991) These safe harbors are meant to protect arrangements that do not pose undue risk for Federal health care programs or beneficiaries; they are not meant to protect arrangements that pose high risks to Federal health care programs.

Comment: A trade association sought clarification that proposed §§ 1001.952(w)(6) and (8) (§§ 1001.952(w)(5) and (7) of the final rule) would permit a health center to select a single supplier of particular goods or services if the health center followed the procurement rules applicable to health centers set forth at 45 CFR 74.40 through 74.48. The commenter presented the scenario of a health center purchasing laboratory services where the health center has a choice of suppliers, which are equal in all respects except that one prospective supplier will offer free laboratory services for uninsured patients while the other will not. The commenter suggested that it may be appropriate for the health center to enter into an exclusive contract with the supplier that offers free services.

Response: Where a health center purchases or receives a particular good or service from a supplier, the health center may limit the number of suppliers with which it contracts, in keeping with health center procurement rules. Nothing in this safe harbor is to the contrary. We agree that in some circumstances it would be appropriate for a health center to contract with one supplier ( e.g. , a single supplier of laboratory services), and that such an arrangement would not be likely to impinge unduly or significantly on the freedom of choice of patients seeking care at a section 330 health center. We have made clarifying revisions to § 1001.952(w)(5) of the final rule to reflect that a Donor may not require a health center to refer patients to a particular individual or entity. Nothing in this provision limits a health center's ability to contract with one supplier consistent with the procurement rules.

Similarly, proposed § 1001.952(w)(8) (§ 1001.952(w)(7) of the final rule) prohibits a Donor from requiring the health center to forego arrangements with other prospective Donors, but does not prohibit the health center from entering into an exclusive arrangement with a provider or supplier when the health center so chooses, and when it can do so in compliance with relevant procurement rules. In the commenter's example, a health center can accept the offer of free laboratory services for uninsured patients under the safe harbor, provided all other safe harbor conditions are met. We emphasize that this safe harbor is unique to Federally Qualified Health Centers. In general, arrangements where a provider or supplier offers free or discounted items or services to a potential referral source that would otherwise incur out-of-pocket costs for such items or services pose a substantial risk of fraud under the anti-kickback statute. Nevertheless, Congress enacted a law that protects such arrangements in the health center context, where the remuneration inures to the benefit of a section 330 health center and its medically underserved patients, and where other appropriate safeguards are in place. Other similar arrangements outside the health center context are fundamentally different and pose substantial risk under the anti-kickback statute.

Comment: A trade association offered mixed reactions to proposed § 1001.952(w)(7) (§ 1001.952(w)(6) in the final rule), which provides that Donors who offer to provide goods, items, or services to health center patients cannot limit their acceptance of health center patient referrals based on a patient's insurance status. The commenter stated that asking Donors to accept all health center patients without regard to insurance status is a laudable goal, but expressed concern that this requirement would put prospective Donors at significant financial risk and could have a chilling effect on parties' willingness to participate in safe harbored arrangements. The commenter also stated that allowing Donors to “impose reasonable limits on the aggregate volume or value of referrals it will accept” might cause risk averse Donors to commit to serving a smaller number of health center patients than they otherwise would.

Response: We are mindful of the commenter's concerns and we believe that the regulations strike an appropriate balance between preserving health center patients' access to care, allowing prospective Donors to limit their risk, and reducing the risk of parties abusing the safe harbor by “cherry picking” lucrative patients from the health centers. We believe a requirement that Donors that offer to furnish goods, items, or services to health center patients should do so for all health center patients without regard to insurance status is essential to effectuating Congress' intent that the safe harbor promote arrangements that provide a benefit to the health centers and the medically underserved populations they serve. We are mindful that this requirement could discourage prospective Donors from participating in safe harbored arrangements absent a way for them to limit their risk, which is why we have provided a mechanism for Donors to set a reasonable cap on the volume or value of items or services they will provide. Furthermore, nothing in § 1001.952(w)(6) of the final rule precludes Donors from billing for such goods, items, or services in accordance with the Donor's usual billing practice (absent an agreement between the parties as provided for in § 1001.952(w)(9)). The safe harbor does not protect arrangements through which Donors limit their financial risk by cherry picking which health center patients will receive their goods or services based on the patient's insurance status. For example, if a physician were to offer physician services to a health center, he or she could not condition the offer on treating only patients who are Federal healthcare program beneficiaries. However, the physician could cap the number of hours he or she would work at the health center. Similarly, an end stage renal disease facility cannot offer to provide free dialysis for one uninsured health center patient for every four insured patients the health center refers to the facility. However, the facility could offer to provide a fixed number of dialysis treatments to the health center. Finally, we clarified that § 1001.952(w)(6) concerns goods, items, or services furnished by Donors to the health center, and not donations or loans.

Comment: A health system commenter asked if the requirements of proposed § 1001.952(w)(7) (§ 1001.952(w)(6) of the final rule) would apply to Donors providing remuneration in the form of loans or donations, since a patient cannot “clinically qualify” for a loan or donation.

Response: Proposed § 1001.952(w)(7) (§ 1001.952(w)(6) of the final rule) does not apply to Donors providing donations or loans to a health center. For clarity and consistency of meaning, we have replaced the term “provide” with the term “furnish” in § 1001.952(w)(6) of the final rule. As defined at 42 CFR 1000.10, “[f]urnished refers to items or services provided or supplied, directly or indirectly, by any individual or entity.” We have further clarified the subsequent language in this paragraph by conforming it to reflect that the term “furnish” refers to items or services provided or supplied, not referrals accepted. We believe these changes better distinguish between (i) Donors who furnish items or services for health centers patients (and may bill insurers separately for some of these items or services), who must comply with § 1001.952(w)(6) of the final rule if they want safe harbor protection, and (ii) Donors who provide health centers with donations or loans. We note that safe harbored donations or loans may not take into account the volume or value of Federal health care program referrals, in accordance with § 1001.952(w)(1).

Comment: Two trade associations asked that we eliminate the patient notification requirement at proposed § 1001.952(w)(9) (§ 1001.952(w)(8) of the final rule). One commenter suggested that, if the requirement is retained, we distinguish providers of health care services from suppliers of goods and services since, in the commenter's opinion, it is less important to preserve patients' freedom of choice to select suppliers of health care goods and services. This commenter also questioned why this safe harbor requires patient notification when other safe harbors do not. Another trade association asserted that any patient notification requirement would be unworkable and would not significantly enhance patient freedom of choice.

Response: We disagree with the commenters and decline to eliminate the notification requirement. We will not draw a distinction between providers and suppliers for purposes of this subparagraph because preserving patient freedom of choice is important for both providers and suppliers of health care items and services (we note that physicians are “suppliers” for Medicare Part B purposes. 42 CFR 400.202. We believe a patient notification requirement is consistent with our specific charge from Congress to protect patient freedom of choice. Moreover, this is not the only safe harbor that requires patient notification. See, e.g. , 42 U.S.C. 1001.952(v). As we noted in the preamble to the proposed rule, transparency will help protect the informed decision-making of patients, enhancing their ability to act as prudent consumers of health care services and preserving freedom of choice. (70 FR 38086; July 1, 2005) That said, we have simplified the requirements. Under the final rule, health centers must notify patients of their freedom of choice and provide information regarding the existence and nature of arrangements under this safe harbor to patients upon request.

Comment: A trade association asked that we specify how to satisfy the patient notification requirement at proposed § 1001.952(w)(9) (§ 1001.952(w)(8) of the final rule). The commenter asked us to confirm that health centers would be allowed to notify patients strictly through broad disclosures and that an acceptable notification method would be to direct patients to a posted written disclosure notice.

Response: We confirm that health centers can satisfy the notification requirement through broad disclosures. For example, directing patients to a written disclosure notice posted in a conspicuous place in the health center would be an acceptable disclosure method, provided that the written notice is reasonably calculated to provide effective notice and to be understood by the parties. However, since the most appropriate notification method is likely to vary from health center to health center, depending on the particular facts and circumstances, we believe it would be inappropriate for us to dictate a one-size-fits-all notification method to be used by all health centers. Accordingly, we further note that broad disclosures are not required. To further improve clarity, we replaced the general reference to arrangements under “this paragraph” with a specific cite to § 1001.952(w)(1).

Comment: We received several comments concerning proposed § 1001.952(w)(10) (§ 1001.952(w)(9) of the final rule), which gives health centers the option of requiring a Donor to charge a patient referred from the health center the same rate it charges other patients or a reduced rate. A trade association requested that the entire proposed provision be deleted from the safe harbor or, if retained, clarified as optional. The same trade association sought clarification that the provision would not preclude providers or suppliers from waiving or reducing cost sharing obligations for health center patients under the safe harbor at 42 CFR 1001.952(k).

Response: We emphasize that proposed § 1001.952(w)(10) (§ 1001.952(w)(9) of the final rule) describes an optional standard. We have revised § 1001.952(w)(9) of the final rule to make this elective clear. Health centers are not required to exercise this option, but they may choose to do so to ensure that Donors giving remuneration to a health center do not simply recoup the remuneration by overcharging health center patients. Our intent is to allow health centers to protect their patients from price gouging. (We note that a similar provision is included in the safe harbor for referral services at § 1001.952(f).) We added this provision to ensure that health centers can protect their patients from being charged prices higher than they would be charged in the absence of the health center's participation in the safe harbored arrangement. We are concerned, for example, that Donors might otherwise seek to recoup part of the cost of remuneration offered to a health center by charging health center patients inflated rates. We confirm that nothing in the provision would preclude hospitals and health centers from offering health center patients waivers or reductions of cost sharing obligations, as permitted in the safe harbor for waiver of beneficiary coinsurance and deductible amounts at § 1001.952(k). Moreover, health centers and other providers and suppliers can waive or reduce patients' cost sharing amounts based on individualized, good faith assessments of financial need. Section 1128A(i)(6)(A)(iii) of the Act.

Comment: A health system asked whether the regulatory language “the same rate it charges other patients” at proposed § 1001.952(w)(10) (§ 1001.952(w)(9) of the final rule) means the entity's customary charges (as defined at 42 CFR 413.13(a)) or the discounted rate the provider or supplier actually charges similarly situated patients.

Response: We clarify that “the same rate it charges other patients” refers to the rate the provider or supplier actually charges a patient similarly situated to a patient referred from a health center. We have changed the regulatory text at § 1001.952(w)(9) to reflect this clarification by inserting the words “similarly situated” after the word “other.”

We have examined the impact of this rule as required by Executive Order 12866, the Unfunded Mandates Reform Act of 1995, the Regulatory Flexibility Act (RFA) of 1980, and Executive Order 13132.

Executive Order 12866 directs agencies to assess all costs and benefits of available regulatory alternatives and, if regulations are necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health, and safety effects; distributive impacts; and equity). A regulatory impact analysis must be prepared for major rules with economically significant effects ( i.e. , $100 million or more in any given year).

This is not a major rule, as defined at 5 U.S.C. 804(2), and it is not economically significant since the overall economic effect of the rule is less than $100 million annually. This safe harbor is designed to allow health centers to enter into certain beneficial arrangements with individuals or entities providing goods, items, services, donations, loans, or a combination thereof to the health center. In doing so, this regulation would impose no requirements on any party. Health centers may voluntarily seek to comply with this provision so that they have assurance that participating in covered agreements will not subject them to liability under the anti-kickback statute. The safe harbor facilitates health centers' ability to provide important health care services to communities in need and helps these centers fulfill their mission as integral components of the health care safety net. We believe that the aggregate economic impact of this rule will be minimal and will have no effect on the economy or on Federal or State expenditures. To the extent that there is any economic impact, that impact will likely result in savings of Federal grant dollars.

Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law 104-4, requires that agencies assess anticipated costs and benefits before issuing any rule that may result in expenditures in any one year by State, local, or tribal governments, in the aggregate, or by the private sector, of $110 million. Since compliance with safe harbor requirements is voluntary, we believe that there are no significant costs associated with this safe harbor that will impose any mandates on State, local, or tribal governments or the private sector that would result in an expenditure of $110 million or more (adjusted for inflation) in any given year, and that a full analysis under the Unfunded Mandates Reform Act is not necessary.

The Regulatory Flexibility Act (RFA) and the Small Business Regulatory Enforcement and Fairness Act of 1996, which amended the RFA, require agencies to analyze options for regulatory relief of small entities. For purposes of the RFA, small entities include small businesses, certain nonprofit organizations, and small governmental jurisdictions. Individuals and States are not included in the definition of a small entity. In accordance with the RFA, some of the health centers that may avail themselves of the protections of the safe harbor are considered to be small entities.

In addition, section 1102(b) of the Act requires us to prepare a regulatory impact analysis if a rule may have a significant impact on the operations of a substantial number of small rural hospitals. This analysis must conform to the provisions of section 604 of the RFA. While this safe harbor may have an impact on small rural hospitals, we believe that the aggregate economic impact of this rule will be minimal, since it is the nature of the violation and not the size or type of the entity that would result in a violation of the anti-kickback statute. Moreover, the safe harbor should benefit small rural hospitals (and their patients) that have relationships with health centers by increasing their flexibility to engage in transactions involving goods, items, services, donations, and loans that result in conservation of Federal grant dollars and other funding without any risk under the anti-kickback statute. The safe harbor should effectively expand opportunities for health centers to engage in arrangements beneficial for fulfilling their mission. For these reasons, and because the vast majority of entities potentially affected by this rule do not engage in prohibited arrangements, schemes, or practices in violation of the law, we have concluded that this rule should not have a significant impact on a substantial number of small rural hospitals, and that a regulatory flexibility analysis is not required for this rulemaking.

Executive Order 13132, Federalism, establishes certain requirements that an agency must meet when it promulgates a rule that imposes substantial direct requirements or costs on State and local governments, preempts State law, or otherwise has Federalism implications. In reviewing this rule under the threshold criteria of Executive Order 13132, we have determined that this rule would not significantly limit the rights, roles, and responsibilities of State or local governments. We have determined, therefore, that a full analysis under Executive Order 13132 is not necessary.

The Office of Management and Budget (OMB) has reviewed this rule in accordance with Executive Order 12866.

In accordance with section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995 (PRA), we are required to solicit public comments, and receive final OMB approval, on any information collection requirements set forth in rulemaking.

In order to fairly evaluate whether an information collection should be approved by OMB, section 3506(c)(2)(A) of the PRA requires that we solicit comment on the following issues:

• Whether the information collection is necessary and useful to carry out the proper functions of the agency;

• The accuracy of the agency's estimate of the information collection burden;

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

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

On July 1, 2005, we solicited comment under this section upon publication of the 60-day notice of proposed rulemaking (70 FR 38081). We will publish the 30-day Federal Register notice soliciting public comment on each of these issues for the following sections of this document that contain information collection requirements following publication of this final rule.

For an arrangement to fall within the safe harbor it will have to fulfill the following documentation requirements: (1) It must be set out in writing (§ 1001.952(w)(1)(i)(A)); (2) the written agreement must be signed by the parties (§ 1001.952(w)(1)(i)(B)); (3) the written agreement must cover, and specify the amount of, all goods, items, services, donations, or loans provided by the individual or entity to the health center § 1001.952(w)(1)(i)(C)); (4) the health center must document its basis for its reasonable expectation that the arrangement will benefit a medically underserved population (§ 1001.952(w)(3)); and (5) the health center, at reasonable intervals, must re-evaluate the arrangement to ensure that it is expected to continue to benefit a medically underserved population, and must document the re-evaluation contemporaneously (§ 1001.952(w)(4)).

As required by section 3504(h) of the Paperwork Reduction Act of 1995, we will submit a copy of this document to OMB for its review and approval of these information collection requirements.

We believe that the documentation requirements necessary to enjoy safe harbor protection do not qualify as an added paperwork burden, because the requirements deviate minimally, if at all, from the information these entities would routinely collect in their normal course of business. The statute applies only to the health centers' receipt of goods, items, services, donations, or loans pursuant to a contract, lease, grant, loan, or other agreement. We believe it is usual and customary for health centers to memorialize contracts, leases, grants, loans, and other similar agreements in writing. Ensuring that such writings are comprehensive and that the actual business activities are accurately reflected by documentation are standard prudent business practices. The only documentation requirement of the safe harbor that potentially imposes an additional recordkeeping burden is the requirement that health centers document the statutorily mandated expected benefit to a medically underserved population. Since serving a medically underserved population is central to the underlying mission of the health centers and the section 330 grant program (and all health centers serve at least one such population), documentation of such benefit would seem to be a prudent business practice to ensure continued compliance, not only with the safe harbor, but also with the section 330 grant program.

We note that although we require health centers to provide effective notification to patients reminding patients of their freedom to choose any willing provider or supplier and to provide information about safe harbored arrangements to patients who inquire, these disclosures need not be in writing. Instead, we require that health centers provide patient disclosures in a manner reasonably calculated to provide effective notice and to be understood by the patient. The type of notice provided may vary depending on the health center and its patients. We believe the notification requirement will achieve the goal of protecting patients without imposing an added paperwork burden because the notice need not be written. Moreover, we believe the notification requirement will be consistent with health centers' existing interest in protecting their vulnerable patient populations.

It should be noted that compliance with a safe harbor under the Federal anti-kickback statute is voluntary, and no party is ever required to comply with a safe harbor. Instead, safe harbors merely offer an optional framework regarding how to structure business arrangements to ensure compliance with the anti-kickback statute. All parties remain free to enter into arrangements without regard to a safe harbor, so long as the arrangements do not involve unlawful payments for referrals under the anti-kickback statute.

This is a summary of the Commission's Report and Order (“ Order ”), FCC 07-169, adopted on September 11, 2007, and released on October 1, 2007. The full text of this document is available for public inspection and copying during regular business hours in the FCC Reference Center, Federal Communications Commission, 445 12th Street, SW., CY-A257, Washington, DC 20554. This document will also be available via ECFS ( http://www.fcc.gov/cgb/ecfs/ ). (Documents will be available electronically in ASCII, Word 97, and/or Adobe Acrobat.) The complete text may be purchased from the Commission's copy contractor, 445 12th Street, SW., Room CY-B402, Washington, DC 20554. To request this document in accessible formats (computer diskettes, large print, audio recording, and Braille), send an e-mail to fcc504@fcc.gov or call the Commission's Consumer and Governmental Affairs Bureau at (202) 418-0530 (voice), (202) 418-0432 (TTY).

In addition to filing comments with the Office of the Secretary, a copy of any comments on the proposed information collection requirements contained herein should be submitted to Cathy Williams, Federal Communications Commission, 445 12th St., SW., Room 1-C823, Washington, DC 20554, or via the Internet at PRA@fcc.gov.

This document contains modified information collection requirements. The Commission will send the requirements for OMB review at a later date. The Commission, as part of its continuing effort to reduce paperwork burdens, will invite the general public to comment on the information collection requirements as required by the Paperwork Reduction Act of 1995, Public Law 104-13. In addition, pursuant to the Small Business Paperwork Relief Act of 2002, Public Law 107-198, see 44 U.S.C. 3506(c)(4), we sought specific comment on how we might “further reduce the information collection burden for small business concerns with fewer than 25 employees.” We have assessed the effects of the information collection requirements resulting from the modifications to the Commission's procedures for resolving program access disputes adopted herein, and find that those requirements will benefit companies with fewer than 25 employees by facilitating the resolution of program access complaints and that these requirements will not burden those companies.

1. In areas served by a cable operator, Section 628(c)(2)(D) of the Communications Act of 1934, as amended (“Communications Act”) generally prohibits exclusive contracts for satellite cable programming or satellite broadcast programming between vertically integrated programming vendors and cable operators (the “exclusive contract prohibition”). See 47 U.S.C. 548(c)(2)(D). In this Order, we find that the exclusive contract prohibition continues to be necessary to preserve and protect competition and diversity in the distribution of video programming, and accordingly, retain it again for five years, until October 5, 2012. In the Order, we decline to narrow the scope of the exclusive contract prohibition based on the popularity of the programming network, based on the competitive circumstances in individual geographic areas served by a cable operator, or by precluding certain competitive multichannel video programming distributors (“MVPDs”) from benefiting from the prohibition. We also decline to expand the exclusive contract prohibition to apply to non-cable-affiliated programming, and we again conclude that terrestrially delivered programming is beyond the scope of the exclusive contract prohibition in Section 628(c)(2)(D).

2. Further, we modify our procedures for resolving program access disputes by (i) codifying the requirements that a respondent in a program access complaint proceeding that expressly relies upon a document in asserting a defense include the document as part of its answer; (ii) finding that in the context of a complaint proceeding, it would be unreasonable for a respondent not to produce all the documents either requested by the complainant or ordered by the Commission, provided that such documents are in its control and relevant to the dispute; (iii) codifying the Commission's authority to issue default orders granting a complaint if the respondent fails to comply with discovery requests; and (iv) allowing parties to a program access complaint proceeding to voluntarily engage in alternative dispute resolution, including commercial arbitration, during which time Commission action on the complaint will be suspended. We also retain our goals of resolving program access complaints within five months from the submission of a complaint for denial of programming cases, and within nine months for all other program access complaints, such as price discrimination cases. We decline to (i) mandate electronic filings of pleadings at this time (but we note that parties currently may voluntarily submit electronic copies of their pleadings to staff via e-mail); (ii) adopt a more expedited pleading cycle for program access complaints; (iii) mandate weekly status conferences; (iv) shift resolution of program access complaints to the Enforcement Bureau; or (v) adopt mandatory arbitration.

3. In enacting the program access provisions, adopted as part of the Cable Television Consumer Protection and Competition Act of 1992 (“1992 Cable Act”), Congress intended to encourage entry into the MVPD market by existing or potential competitors to traditional cable systems by making available to those entities the programming necessary to enable them to become viable competitors. The 1992 Cable Act and its legislative history reflect Congressional findings that increased horizontal concentration of cable operators, combined with extensive vertical integration (which means the combined ownership of cable systems and suppliers of cable programming), created an imbalance of power, both between cable operators and program vendors and between incumbent cable operators and their multichannel competitors. Congress concluded at that time that vertically integrated program suppliers had the incentive and ability to favor their affiliated cable operators over other MVPDs, such as other cable systems, home satellite dish (“HSD”) distributors, direct broadcast satellite (“DBS”) providers, satellite master antenna television (“SMATV”) systems, and wireless cable operators.

4. When the Commission promulgated regulations implementing the program access provisions of Section 628, it recognized that Congress placed a higher value on new competitive entry into the MVPD marketplace than on the continuation of exclusive distribution practices when such practices impede this entry. Congress absolutely prohibited exclusive contracts for satellite cable programming or satellite broadcast programming between vertically integrated programming vendors and cable operators in areas unserved by cable, and generally prohibited exclusive contracts within areas served by cable:

Congress recognized that, in areas served by cable, some exclusive contracts may serve the public interest by providing offsetting benefits to the video programming market or assisting in the development of competition among MVPDs. See 47 U.S.C. 548(c)(2)(4). Any cable operator, satellite cable programming vendor in which a cable operator has an attributable interest, or satellite broadcast programming vendor in which a cable operator has an attributable interest seeking to enforce or enter into an exclusive contract in an area served by a cable operator must submit a “petition for exclusivity” to the Commission for approval. See 47 CFR 76.1002(c)(5).

5. Congress directed that the exclusive contract prohibition would cease to be effective on October 5, 2002, unless the Commission found in a proceeding conducted between October 2001 and October 2002 that the prohibition “continues to be necessary to preserve and protect competition and diversity in the distribution of video programming.” See 47 U.S.C. 548(c)(5). In October 2001, the Commission sought comment on this issue ( 2001 Sunset NPRM, 66 FR 54972, October 31, 2001) and ultimately concluded that the exclusive contract prohibition did continue to be “necessary.” See 2002 Extension Order, 67 FR 49247, July 30, 2002. The Commission therefore extended the prohibition for five years (i.e., through October 5, 2007).

6. The Commission further provided that, during the year before the expiration of the five-year extension of the exclusive contract prohibition, it would conduct another review to determine whether the exclusive contract prohibition continues to be necessary to preserve and protect competition and diversity in the distribution of video programming. We issued a Notice of Proposed Rulemaking (“ NPRM ”) in February 2007 to initiate this review (72 FR 9289, March 1, 2007).

7. Section 628 of the Communications Act prohibits unfair methods of competition or unfair or deceptive practices that hinder or prevent any MVPD from providing satellite-delivered programming to consumers. Section 628(b) provides:

As part of the Telecommunications Act of 1996, Congress expanded program access protection to include common carriers and their affiliates that provide video programming by any means directly to subscribers, and to satellite cable programming vendors in which a common carrier has an attributable interest. See 47 U.S.C. 548(j). Section 628, among other things, protects access to vertically integrated cable programming services by competing MVPDs in order to increase competition and diversity in the MVPD market and foster the development of competition to traditional cable systems.

8. Parties aggrieved by conduct alleged to violate the program access provisions have the right to commence an adjudicatory proceeding before the Commission. As instructed by Section 628(c), the Commission promulgated regulations implementing a program access complaint process. The Commission determined that a streamlined program access complaint process, with limited discovery procedures and adjudication based on a complaint, answer, and reply, would provide the most flexible and expeditious means of enforcing the anti-discrimination program access provisions. The Commission further addressed program access complaint process issues in response to a petition for rulemaking filed by Ameritech New Media, Inc. The Commission resolved these and other issues in the 1998 Program Access Order (13 FCC Rcd 15822).

9. In the 1998 Program Access Order, the Commission affirmed its authority to impose damages on a case-by-case basis for program access violations and adopted guidelines for resolving program access disputes so that denial of programming cases, such as unreasonable refusal to sell, petitions for exclusivity, and exclusivity complaints, are resolved within five months of the submission of the complaint to the Commission and all other program access complaints, including price discrimination cases, are resolved within nine months of the submission of the complaint to the Commission. The Commission subsequently amended the program access rules as part of an overhaul of the Commission's pleading and complaint rules.

10. In the NPRM, in addition to seeking comment on extension of the exclusive contract prohibition, we sought comment on whether and how our procedures for resolving program access disputes under Section 628 should be modified. We sought comment on the costs associated with the complaint process and whether the pre-filing notice, pleading requirements, evidentiary standards, timing, and potential remedies are appropriate and effective. We also sought comment on whether specific time limits on the Commission, the parties, or others would promote a speedy and just resolution of program access complaints. We asked whether the program access complaint rules and procedures, including those governing discovery and protection of confidential information, are adequate. We also asked whether we should adopt alternative procedures or remedies such as mandatory standstill agreements or arbitration, as the Commission has done in recent mergers.

11. Our analysis of whether the exclusive contract prohibition “continues to be necessary to preserve and protect competition and diversity in the distribution of video programming” proceeds in five parts. Based on this five-part analysis, we conclude as explained below that the exclusive contract prohibition continues to be necessary to preserve and protect competition and diversity in the distribution of video programming and, accordingly, retain it again for five years.

12. Various cable MSOs repeat arguments made in response to the 2001 Sunset NPRM that the Commission should construe the term “necessary” as used in Section 628(c)(5) as requiring the exclusive contract prohibition to be “indispensable” or “essential” to prevent harm to competition. In the 2002 Extension Order, the Commission explained that the term “necessary” has been interpreted differently depending on the statutory context. In some cases, courts have interpreted the term to mean “useful,” “convenient,” or “appropriate” while in other contexts courts have interpreted the term in a more restrictive sense to mean “indispensable” or “essential.” Consistent with judicial precedent, the Commission construed the term “necessary” in its statutory context and determined that the exclusive contract prohibition continues to be “necessary” if, in the absence of the prohibition, competition and diversity in the distribution of video programming would not be preserved and protected. We find no basis to revisit the conclusions reached in the 2002 Extension Order, which, we note, were never challenged. We continue to believe that Section 628(c)(5), when construed in its statutory context, requires the exclusive contract prohibition to be extended if we find that, in the absence of the prohibition, competition and diversity in the distribution of video programming would not be preserved and protected.

13. We examine below the changes that have occurred in the programming and distribution markets since 2002 when the Commission last reviewed whether the exclusive contract prohibition continued to be necessary to preserve and protect competition.

14. Satellite-Delivered National Programming Networks. The number of satellite-delivered national programming networks available to MVPDs has increased by 237 since 2002, from 294 networks to 531 networks. This amounts to an eighty percent increase in satellite-delivered national programming networks available to MVPDs.

15. Vertically Integrated Satellite-Delivered National Programming Networks. The number of satellite-delivered national programming networks that are vertically integrated with cable operators has increased by twelve since 2002, from 104 networks to 116 networks. The percentage of all satellite-delivered national programming networks that are vertically integrated with cable operators has declined since 2002, from 35 percent to 22 percent.

16. The amount of the most popular programming that is vertically integrated with cable operators has declined slightly since 2002. While nine of the Top 20 (45 percent) satellite-delivered national programming networks (as ranked by subscribership) were vertically integrated in 2002 when the Commission last reviewed the exclusive contract prohibition, commenters state that this number has decreased to seven (35 percent). As discussed below, we find that this number has decreased to six. These networks are The Discovery Channel, CNN, TNT, TBS, TLC, and Headline News.

17. Only the largest cable MSOs tend to own vertically integrated programming. In the 2002 Extension Order, the Commission noted that all vertically integrated programming was attributable to five cable operators, four of which were among the seven largest cable MSOs. Today, all vertically integrated programming is attributable to five cable operators, all of which are among the six largest cable MSOs: Comcast, Time Warner, Cox, Cablevision, and Advance/Newhouse.

18. Regional Programming Networks. The number of regional programming networks available to MVPDs has increased by sixteen since 2002, from 80 networks to 96 networks. This amounts to a 20 percent increase since 2002 in regional programming networks available to MVPDs. The number of regional sports networks (“RSNs”) has increased by approximately 36 percent since 2002, from 28 networks to 39 networks, by some estimates. We note that, according to the Commission's most recent annual competition report, there were 37 RSNs as of June 2005. See 12th Annual Report, 21 FCC Rcd at 2510 and 2586. More recent data indicates that there are now 39 RSNs.

19. Vertically Integrated Regional Programming Networks. The number of regional programming networks that are vertically integrated with cable operators has increased by five since 2002, from 39 networks to 44 networks. The percentage of all regional programming networks that are vertically integrated with cable operators, however, has declined slightly since 2002, from 49 percent to 46 percent. The number of RSNs that are vertically integrated with cable operators has decreased by six since 2002, from 24 networks to 18 networks, by some estimates. We note that, according to the Commission's most recent annual competition report, there were 17 vertically integrated RSNs as of June 2005. See 12th Annual Report, 21 FCC Rcd at 2510 and 2586. More recent data indicates that there are now 18 vertically integrated RSNs. The percentage of all RSNs that are vertically integrated has declined since 2002, from 86 percent to approximately 46 percent. We note that, according to the Commission's most recent annual competition report, 45.9 percent of RSNs were vertically integrated as of June 2005. If the unaffiliated MASN and the cable-affiliated SportsNet New York are included, then 18 out of 39 RSNs, or 46.1 percent, are vertically integrated.

20. MVPD Market. Since the Commission last examined the exclusive contract prohibition in 2002, the percentage of MVPD subscribers receiving their video programming from a cable operator has declined from 78 percent to 67 percent, by some estimates. We note that, according to the Commission's annual competition reports, the percentage of MVPD subscribers receiving their video programming from a cable operator was 78.11 percent as of June 2001 and 69.41 percent as of June 2005. More recent data indicates that the portion of MVPD subscribers served by cable operators is now approximately 67 percent. The number of cable subscribers has declined by 3.4 million since 2002, from 69 million to 65.4 million. During this same period, the percentage of MVPD subscribers receiving their video programming from a DBS operator has increased from 18 percent to over 30 percent, by some estimates. We note that, according to the Commission's annual competition reports, the percentage of MVPD subscribers receiving their video programming from a DBS operator was 18.2 percent as of June 2001 and 27.72 percent as of June 2005. Compare 8th Annual Report , 17 FCC Rcd at 1388, Table C-1 (18.2 percent) with 12th Annual Report , 21 FCC Rcd at 2617, Table B-1 (27.72 percent). More recent data indicates that the portion of MVPD subscribers served by DBS operators is now over 30 percent. The number of DBS subscribers has increased by 11.6 million since 2002, from 18 million to 29.6 million, by some estimates. We note that, according to the Commission's annual competition reports, the number of MVPD subscribers receiving their video programming from a DBS operator was 16.07 million as of June 2001 and 26.12 million as of June 2005. More recent data indicate that the number of DBS subscribers is now 29.6 million.

21. A significant development since 2002 is the emergence of video services offered by telephone companies, including AT&T, Qwest, and Verizon. As of the end of the second quarter of 2007, AT&T's U-Verse fiber-based video and Internet service passed over 4 million households. AT&T also recently announced that its U-Verse video service has more than 100,000 customers. Qwest has twenty-one cable franchises and provides nearly 60,000 subscribers with multichannel video service in Arizona, Colorado, Nebraska, and Utah. Verizon, which introduced its fiber-based FiOS TV service in September 2005, had 515,000 video subscribers at the end of the second quarter of 2007. Verizon's FiOS TV was available for sale to nearly 3.9 million premises in nearly 500 communities in 12 states as of the end of the second quarter of 2007. Other wireline Broadband Service Providers (“BSPs”) also offer video services in competition with cable operators, including RCN, WideOpenWest, Knology, and Grande. Some wireline entrants cite a 2004 Government Accountability Office (“GAO”) Report which concludes that wireline video entry provides more price discipline to cable than DBS and is more likely to cause cable operators to enhance their own services and to improve customer service. In response, cable MSOs argue that wireline entry does not have a greater impact on cable prices than DBS entry. Despite the significant investments made in competitive wireline networks, AT&T notes NCTA's estimate that wireline entrants have no more than 1.9 percent of all MVPD subscribers.

22. The cable industry also cites other potential sources of video competition, such as SMATV systems, providers of video on the Internet (such as YouTube, Google, and Akimbo), over-the-air broadcast television, DVDs and videotape purchases and rentals, municipal and non-municipal utilities, and providers of mobile video services. Comcast also argues that in every community, consumers can choose from a minimum of three MVPDs, and states that in many communities a fourth or fifth MVPD is available or will be soon. Cablevision states that DIRECTV and EchoStar have at least double the number of subscribers of every cable MSO, with the exception of Time Warner and Comcast.

23. Commenters in favor of extending the prohibition state that the figures cited by the cable industry are misleading. EchoStar claims that national DBS penetration figures obscure the extent of competition on a local or regional basis where DBS penetration is much lower than the national average. While the number of DBS subscribers has increased by 11.6 million since the 2002 Extension Order , CA2C notes that cable subscribership during the same period decreased by less than one million, demonstrating that cable operators have maintained their position in the market. Some competitive MVPDs argue that the continued ability of cable operators to raise prices in excess of inflation demonstrates the lack of competition in the video marketplace. Competitive MVPDs also assert that barriers in the MVPD market still persist, as demonstrated by the Commission's efforts to promote greater competition. CA2C notes that the Commission in its decision on cable franchising reform found that in the vast majority of communities around the country, “cable competition simply does not exist.” Some competitive MVPDs disagree with the assertion by the cable industry that mobile video, Internet video, and DVDs are substitutes for cable television. Moreover, competitive MVPDs state that only 2.9 percent of MVPD subscribers receive service from an alternative provider to cable or DBS.

24. Consolidation of the Cable Industry . The cable industry has continued to consolidate since 2002. During this period, the percentage of MVPD subscribers receiving their video programming from one of the four largest cable MSOs (Comcast, Time Warner, Cox, and Charter) has increased from 48 percent to between 53 and 60 percent, by some estimates, after taking into account the recent acquisition by Comcast and Time Warner of cable systems formerly owned by Adelphia. We note that, according to the Commission's annual competition reports, the percentage of MVPD subscribers receiving their video programming from one of the four largest cable MSOs was 47.67 percent as of June 2001 and 47.78 percent as of June 2005. More recent data indicates that the percentage of MVPD subscribers receiving their video programming from one of the four largest cable MSOs (Comcast, Time Warner, Cox, and Charter) has increased to between 53 and 60 percent. Moreover, the percentage of MVPD subscribers receiving their video programming from one of the four largest vertically integrated cable MSOs (Comcast, Time Warner, Cox, and Cablevision) has increased significantly since 2002, from 34 percent to between 54 and 56.75 percent, by some estimates. We note that, according to the Commission's annual competition reports, the percentage of MVPD subscribers receiving their video programming from one of the four largest vertically integrated cable MSOs was 34.26 percent as of June 2001 and 44.63 percent as of June 2005. Compare 8th Annual Report , 17 FCC Rcd at 1341, Table C-3 (34.26 percent) with 12th Annual Report , 21 FCC Rcd at 2620, Table B-3 (44.63 percent). More recent data indicates that the percentage of MVPD subscribers receiving their video programming from one of the four largest vertically integrated cable MSOs (Comcast, Time Warner, Cox, and Cablevision) has increased to between 54 and 56.75 percent.

25. Clustering of Cable Systems . The amount of regional clustering of cable systems has remained significant. Clustering refers to a strategy whereby cable MSOs concentrate their operations in regional geographic areas by acquiring cable systems in regions where the MSO already has a significant presence, while giving up other holdings scattered across the country. This strategy is accomplished through purchases and sales of cable systems, or by system “swapping” among MSOs. The percentage of cable subscribers that are served by systems that are part of regional clusters has increased since 2002, from 80 percent to as much as 85 to 90 percent, by some estimates, taking into account the acquisition by Comcast and Time Warner of cable systems formerly owned by Adelphia. We note that, according to the Commission's annual competition reports, the percentage of cable subscribers served by systems that are part of regional clusters was 80.4 percent as of 2000 and 77.9 percent as of 2004. Compare 8th Annual Report , 17 FCC Rcd at 1340, Table C-2 (stating that, as of 2000, 108 cable system clusters were serving 54.4 million subscribers, or 80.4 percent of cable subscribers) with 12th Annual Report , 21 FCC Rcd at 2619, Table B-2 (stating that, as of 2004, 118 cable system clusters were serving 51.5 million subscribers, or 78.7 percent of cable subscribers). More recent data indicates that the percentage of cable subscribers that are served by systems that are part of regional clusters has increased to between 85 and 90 percent.

26. Our analysis of whether the exclusive contract prohibition continues to be necessary requires us to assess whether, in the absence of the exclusive contract prohibition, vertically integrated programmers would have the ability and incentive to favor their affiliated cable operators over nonaffiliated competitive MVPDs and, if so, whether such behavior would result in a failure to protect and preserve competition and diversity in the distribution of video programming.

27. As discussed in this section, we conclude that satellite-delivered vertically integrated programming remains programming for which there are often no good substitutes and that such programming is necessary for viable competition in the video distribution market. In assessing the ability of satellite-delivered vertically integrated programmers to favor their affiliated cable operators to the detriment of competing MVPDs, we consider whether developments in the last five years have diminished the importance of satellite-delivered vertically integrated programming or have affected the ability of satellite-delivered vertically integrated programmers to favor their affiliated cable operators over other MVPDs.

28. Discussion. Despite some pro-competitive developments over the past five years, we find that access to vertically integrated programming continues to be necessary in order for competitive MVPDs to remain viable substitutes to the incumbent cable operator in the eyes of consumers. What is most significant to our analysis is not the percentage of total available programming that is vertically integrated with cable operators, but rather the popularity of the programming that is vertically integrated and how the inability of competitive MVPDs to access this programming will affect the preservation and protection of competition in the video distribution marketplace. While there has been a decrease since 2002 in the percentage of the most popular programming networks that are vertically integrated, we find that the four largest cable MSOs (Comcast, Time Warner, Cox, and Cablevision) still have (i) an interest in six of the Top 20 satellite-delivered networks as ranked by subscribership (The Discovery Channel, CNN, TNT, TBS, TLC, and Headline News); (ii) seven of the Top 20 satellite-delivered networks as ranked by prime time ratings (TNT, Adult Swim, HBO, TBS, American Movie Classics, Cartoon Network, and The Discovery Channel); (iii) almost half of all RSNs; (iv) popular subscription premium networks, such as HBO and Cinemax (competitive MVPDs argue that first-run programming produced by HBO and other premium networks are essential for a competitive MVPD to offer to potential subscribers in order to compete with the incumbent cable operator); and (v) video-on-demand (“VOD”) networks, such as iN DEMAND (competitive MVPDs argue that movie libraries owned by VOD networks are essential for a competitive MVPD to offer to potential subscribers in order to compete with the incumbent cable operator). The record thus reflects that popular national programming networks, such as CNN, TNT, TBS, and The Discovery Channel, among many others, in addition to premium programming networks, RSNs, and VOD networks, are affiliated with the four largest vertically integrated cable MSOs and that such programming networks are demanded by MVPD subscribers. We thus find that cable-affiliated programming continues to represent some of the most popular and significant programming available today.

29. We find that access to vertically integrated programming is essential for new entrants in the video marketplace to compete effectively. If the programming offered by a competitive MVPD lacks “must have” programming that is offered by the incumbent cable operator, subscribers will be less likely to switch to the competitive MVPD. We give little weight to the claims by cable operators that recent entrants, such as telephone companies, have not experienced “any trouble” to date in acquiring access to satellite-delivered vertically integrated programming. As an initial matter, we note that competitive MVPDs state that they pay significant amounts for access to satellite-delivered vertically integrated programming. Moreover, because the exclusive contract prohibition is currently in effect and has been since 1992, vertically integrated programmers delivering programming to MVPDs via satellite were not able to deny competitors access to their programming. We also reject the cable MSOs' suggestion that the resources of some competitors in the video distribution market (i.e., telephone companies) should change our analysis of whether to extend the prohibition at this time. The competitors to which the cable operators refer are new entrants to the video distribution market, and have no established customer base. If cable operators have exclusive access to content that is essential for viable competition and for which there are no close substitutes, and they have the incentive to withhold such content, they can significantly impede the ability of new entrants to compete effectively in the marketplace, regardless of their level of resources. As competitive MVPDs note, DBS providers have been able to attract and retain millions of subscribers because of their ability to offer “must have” programming that is affiliated with cable operators.

30. For the reasons discussed above, we conclude that there are no close substitutes for some satellite-delivered vertically integrated programming and that such programming is necessary for viable competition in the video distribution market. Having made this determination, we further conclude that vertically integrated programmers continue to have the ability to favor their affiliated cable operators over competitive MVPDs such that competition and diversity in the distribution of video programming would not be preserved and protected. Accordingly, assuming vertically integrated programmers continue to have the incentive to favor their affiliated cable operators, allowing vertically integrated programmers to enter into exclusive arrangements with their affiliated cable operators will fail to protect and preserve competition and diversity in the distribution of video programming.

31. We next assess whether vertically integrated programmers continue to have the incentive to favor their affiliated cable operators over competitive MVPDs. This requires us to analyze (i) whether cable operators, through the number of subscribers they serve, the number of homes they pass, and their affiliations with programmers, continue to have market dominance of sufficient magnitude that, in the absence of the prohibition, they would be able to act in an anticompetitive manner; and (ii) whether there continues to be an economic rationale for vertically integrated programmers to engage in exclusive agreements with cable operators that will cause such anticompetitive harms.

32. While cable MSOs argue that they have no incentive to withhold programming, competitive MVPDs provide the following examples which they claim demonstrate that cable MSOs will withhold programming if advantageous and permitted. Competitive MVPDs argue that many of the examples listed below, involving terrestrially delivered programming (sports as well as non-sports)—for which the exclusive contract prohibition does not apply—demonstrate the incentive and ability of vertically integrated cable operators to deny access to programming where permitted by the statute.

• Comcast SportsNet Philadelphia. Some competitive MVPDs state that Comcast refuses to make the terrestrially delivered Comcast SportsNet Philadelphia channel available to EchoStar and DIRECTV. Competitive MVPDs cite the Commission's conclusion in the Adelphia Order that the percentage of households that subscribe to DBS service in Philadelphia is 40 percent below what would otherwise be expected. In response, Comcast notes that Comcast SportsNet Philadelphia is available to RCN.

• Channel 4 San Diego. Some competitive MVPDs claim that Cox makes available its Channel 4 San Diego network, which has exclusive rights to San Diego Padres baseball games, only to cable operators that do not directly compete with Cox and not to DIRECTV, EchoStar, and AT&T. While competitive MVPDs state that DIRECTV's market penetration in San Diego is half of its national average, Cablevision notes that DIRECTV in the Adelphia proceeding reported that it did not find a statistically significant effect on its market penetration in San Diego resulting from its inability to access this RSN.

• Overflow sports programming in New York, NY. RCN notes that it was deprived of access to overflow sports programming from Cablevision after Cablevision revised its distribution system from satellite to terrestrial delivery.

• RSNs Affiliated with Cablevision in New York and New England. Verizon notes that it was forced to file a program access complaint against Cablevision and its vertically integrated programming subsidiary, Rainbow Media Holdings, LLC, in order to obtain access to RSNs in the New York City metropolitan area and New England.

• High Definition (“HD”) Feeds of RSNs Affiliated with Cablevision. While Rainbow has made available standard definition feeds of its RSNs, Verizon states that Rainbow is delivering HD feeds of this programming terrestrially to avoid the program access rules.

• New England Cable News (“NECN”) in Boston, MA. One commenter claims that RCN was provided with access to NECN, a terrestrially delivered network that is 50 percent owned by Comcast, only after the Senate Judiciary Committee indicated that they were considering legislative action to apply an exclusive contract prohibition to terrestrially delivered programming.

• PBS Kids Sprout. AT&T and RCN claim that after PBS Kids Sprout became vertically integrated with Comcast, RCN lost access to the network, resulting in an 83 percent drop in the usage of its children's VOD service.

• iN DEMAND. CA2C notes that iN DEMAND is jointly owned by Time Warner, Comcast, and Cox. CA2C argues that iN DEMAND has taken the position that its programming is beyond the scope of the exclusive contract prohibition in Section 628(c)(2)(D) because iN DEMAND programming is delivered to MVPDs terrestrially. CA2C claims that iN DEMAND initially refused to provide its service to BSPs that competed with incumbent cable operators and that it reversed this position only after meetings were held with the Antitrust Subcommittee of the Senate Judiciary Committee.

• CN8—The Comcast Network. Qwest claims that CN8—The Comcast Network is a local news and information channel that serves 12 states and 20 television markets but is only available to Comcast and Cablevision subscribers because it is terrestrially delivered and therefore beyond the scope of Section 628(c)(2)(D).

• NRTC. NRTC, which acts as a “buying group” on behalf of its members, claims that it has been denied access to two vertically integrated programming networks, the identities of which it claims it cannot disclose due to non-disclosure agreements.

33. Discussion. We conclude that vertically integrated cable programmers retain the incentive to withhold programming from their competitors. We recognize the pro-competitive developments in the MVPD market since the 2002 Extension Order , such as the reduction in the cable industry's share of MVPD subscribers from 78 percent to an estimated 67 percent and the increase in the DBS industry's market share from 18 percent to approximately 30 percent. Despite these positive trends, however, almost seven out of ten subscribers still choose cable over competitive MVPDs, the percentage of all MVPD subscribers nationwide served by one of the four largest vertically integrated cable operators has increased substantially since 2002, and cable operators have continued to raise prices in excess of inflation. While cable MSOs claim that the emergence of telephone companies as new video competitors demonstrates that competition is flourishing, the fact is that, based on estimates provided by the cable industry, competitive MVPDs, excluding DBS operators, serve approximately three percent of all MVPD subscribers nationwide, which accounts for less than three million total MVPD subscribers. Although we are encouraged by developments since 2002, we do not believe these developments have been significant enough for us to reverse the Commission's previous conclusion that cable operators have market dominance of sufficient magnitude that, in the absence of the prohibition, they would be able to act in an anticompetitive manner.

34. We also conclude that cable-affiliated programmers continue to have an economic incentive to favor their affiliated cable operators over competitive MVPDs by entering into exclusive agreements. We agree that in many instances a cable-affiliated programmer may choose to provide its programming to as many platforms as possible in order to maximize advertising and subscription revenues. In other cases, however, cable-affiliated programmers will have an incentive to withhold programming from competitive MVPDs in order to favor their affiliated cable operator. Our conclusion that vertically integrated cable programmers retain the incentive to withhold programming from their competitors is reinforced by specific factual evidence that vertically integrated programmers have withheld and continue to withhold programming, including both sports and non-sports programming, from competitive MVPDs. If vertically integrated programmers had no economic incentive other than to distribute their programming to as many platforms as possible, then we would not expect to see such examples of withholding.

35. As the Commission did in the 2002 Extension Order , we find that the costs (i.e., foregone revenues) incurred by a cable-affiliated programmer by refusing to sell to competitive MVPDs would be offset by (i) revenues from increased subscriptions to the services of its affiliated cable operator resulting from subscribers that switch to cable to obtain access to the cable-exclusive programming; (ii) revenues from increased rates charged by the affiliated cable operator in response to increased demand for its services resulting from its ability to offer exclusive programming; and (iii) revenues resulting from the ability of the cable-affiliated programmer to raise the price it charges for programming to other cable operators in return for exclusivity. Thus, particularly where competitive MVPDs are limited in their market share, a cable-affiliated programmer will be able to recoup a substantial amount, if not all, of the revenues foregone by pursuing a withholding strategy. In the long term, a withholding strategy may result in a reduction in competition in the video distribution market, thereby allowing the affiliated cable operator to raise rates. We thus conclude that the one-third share of the MVPD market held by competitive MVPDs remains limited enough to allow cable-affiliated programmers to successfully and profitably implement a withholding strategy.

36. We also find that three additional developments since 2002 provide cable-affiliated programmers with an even greater economic incentive to withhold programming from competitive MVPDs: (i) the increase in horizontal consolidation in the cable industry; (ii) the increase in clustering of cable systems; and (iii) the recent emergence of new entrants in the video market place, such as telephone companies.

37. Horizontal Consolidation. The cable industry has continued to consolidate since 2002. Since this time, the percentage of MVPD subscribers receiving their video programming from one of the four largest vertically integrated cable MSOs (Comcast, Time Warner, Cox, and Cablevision) has increased from 34 percent to between 54 and 56.75 percent. Moreover, the percentage of MVPD subscribers receiving their video programming from one of the four largest cable MSOs (Comcast, Time Warner, Cox, and Charter) has increased from 48 percent to between 53 and 60 percent after taking into account the recent acquisition by Comcast and Time Warner of cable systems formerly owned by Adelphia. Thus, while the evidence demonstrates that the market share of small-to-medium sized, non-vertically integrated cable operators has declined, the market share of large cable operators, and in particular those that own cable programming, has increased substantially since 2002. In the 2002 Extension Order , the Commission observed that because four of the five largest vertically integrated cable operators served 34 percent of all MVPD subscribers, they could reap a substantial portion of the gains from withholding programming from their rivals. Now that the market share of the four largest vertically integrated cable MSOs has increased to between 54 and 56.75 percent, the largest vertically integrated cable operators stand to gain even more from a withholding strategy. Thus, the increase in horizontal consolidation in the cable industry since 2002 increases the incentive to pursue anticompetitive withholding strategies.

38. Clustering. The cable industry has continued to form regional clusters since the 2002 Extension Order , when approximately 80 percent of cable subscribers were served by systems that were part of regional clusters. Today, taking into account the sale of Adelphia's systems to Comcast and Time Warner, some estimate that the percentage of cable subscribers served by systems that are part of regional clusters has increased to between 85 and 90 percent. The Commission concluded in the 2002 Extension Order that horizontal consolidation and clustering combined with affiliation with regional programming contributed to the cable industry's overall market dominance. Given the increase in horizontal consolidation and regional clustering since 2002, this statement is no less true today. With a regional programming denial strategy, a cable-affiliated programmer foregoes only those revenues associated with the subscribers of competitive MVPDs within the cluster, not the revenues associated with subscribers of competitive MVPDs nationwide. As the Commission concluded previously, in many cities where cable MSOs have clusters, the market penetration of competitive MVPDs is much lower and cable market penetration is much higher than their nationwide penetration rates. For example, according to data from Nielsen Media Research, the collective market penetration of competitive MVPDs in many DMAs where cable MSOs have clusters is far less than their collective nationwide market penetration rate (approximately 33 percent): San Diego (13.7 percent), New York (18.2 percent), Philadelphia (19.8 percent), and San Francisco (26.9 percent). As the Commission acknowledged in the 2002 Extension Order , this market penetration data may not correspond exactly to cable MSO cluster boundaries, and there are likely other factors, such as line-of-sight, in addition to cable competition that affect city market penetration. Nevertheless, we believe that this market penetration data provide support for the position that market penetration of competitive MVPDs is lower in certain cable cluster areas than nationwide. Moreover, due to the national distribution of DBS services and the insufficient mass of DBS subscribers on a regional basis, DBS operators do not have an economic base for substantial regional programming investments on a market-by-market basis. As a result, the cost to a cable-affiliated programmer of withholding regional programming is lower in many cases than the cost of withholding national programming. Moreover, the affiliated cable operator will obtain a substantial share of the benefits of a withholding strategy because its share of subscribers within the cluster is likely to be inordinately high.

39. As we concluded in the 2002 Extension Order , Sections 628(b), 628(c)(2)(A), and 628(c)(2)(B) of the Communications Act are not adequate substitutes for the particularized protection afforded under Section 628(c)(2)(D). We stated that (i) Section 628(c)(2)(D) places the burden on the party seeking exclusivity to show that an exclusive contract meets the statutory public interest standard and that no other program access provision provides this protection; (ii) these other provisions were all enacted as part of the 1992 Cable Act, indicating that, despite the existence of these other program access provisions, Congress found the exclusive contract prohibition to be necessary to preserve and protect competition and diversity; (iii) as compared to Section 628(c)(2)(D), Section 628(b) carries with it an added burden “to demonstrate that the purpose or effect of the conduct complained of was to “hinder significantly or to prevent” an MVPD from providing programming to subscribers or customers”; (iv) conduct of undue influence necessary to establish a violation of Section 628(c)(2)(A) “may be difficult for the Commission or complainants to establish”; and (v) the prohibition of “non-price discrimination” in Section 628(c)(2)(B) requires the complainant to demonstrate the conduct was “unreasonable” which may be difficult to establish. No commenter provides any basis for us to revisit these conclusions. Moreover, we note that some competitive MVPDs argue that allowing the exclusive contract prohibition to sunset would provide cable-affiliated programmers with an incentive to enter into exclusive contracts with their affiliated cable operators to avoid allegations of unfair acts or practices or discrimination with respect to their dealings with unaffiliated distributors.

40. We recognize the benefits of exclusive contracts and vertical integration cited by some cable MSOs, such as encouraging innovation and investment in programming and allowing for “product differentiation” among distributors. We do not believe, however, that these purported benefits outweigh the harm to competition and diversity in the video distribution marketplace that would result if we were to lift the exclusive contract prohibition. In addition, the Commission's rules permit cable-affiliated programmers to seek approval to enter into an exclusive contract based on a demonstration that the exclusive arrangement serves the public interest consistent with factors established by Congress.

41. We find above that the exclusive contract prohibition continues to be necessary to preserve and protect diversity in the distribution of programming. As we stated in the 2002 Extension Order , while we recognize that the exclusive contract prohibition's impact on programming diversity is one component of our analysis, Congress directed that “our primary focus should be on preserving and protecting diversity in the distribution of video programming—i.e., ensuring that as many MVPDs as possible remain viable distributors of video programming.” While cable MSOs contend that the exclusive contract prohibition reduces incentives for cable operators and competitive MVPDs to create and invest in new programming, we find no evidence to support this theory. To the contrary, the number of vertically integrated satellite-delivered national programming networks has more than doubled since 1994 when the rule implementing the exclusive contract prohibition took effect and has continued to increase since 2002 when the Commission last examined the exclusive contract prohibition. There is also evidence that some competitive MVPDs have begun to invest in their own programming despite their ability to access cable-affiliated programming based on the exclusive contract prohibition and the program access rules. Accordingly, we find no basis to conclude that extending the exclusive contract prohibition will create a disincentive for the creation of new programming.

42. We are mindful that our decision to extend the exclusive contract prohibition must withstand an intermediate scrutiny test pursuant to First Amendment jurisprudence. As the D.C. Circuit explained in rejecting a facial challenge to the constitutionality of the exclusive contract prohibition in Section 628(c)(2)(D), the prohibition will survive intermediate scrutiny if it “furthers an important or substantial governmental interest; if the governmental interest is unrelated to the suppression of free expression; and if the incidental restriction on alleged First Amendment freedoms is no greater than is essential to the furtherance of that interest.” For the reasons discussed herein, our decision to extend the exclusive contract prohibition satisfies this intermediate scrutiny test. First, in Time Warner , the court found that the governmental interest Congress intended to achieve in enacting the exclusive contract prohibition was “the promotion of fair competition in the video marketplace,” and that this interest was substantial. Moreover, one of Congress' express findings in enacting the 1992 Cable Act was that “[t]here is a substantial governmental and First Amendment interest in promoting a diversity of views provided through multiple technology media.” Moreover, the court noted Congress' conclusion that “the benefits of these provisions—the increased speech that would result from fairer competition in the video programming marketplace—outweighed the disadvantages [resulting in] the possibility of reduced economic incentives to develop new programming.” We disagree with cable MSOs to the extent they argue that the substantial government interest in achieving competition in the video distribution market has been met. As discussed above, cable operators still have a dominant share of MVPD subscribers (approximately 67 percent), have raised prices in excess of inflation despite the emergence of new competitors, and still own significant programming networks. Accordingly, we conclude that competition and diversity in the video distribution market has not reached the level at which Congress intended the exclusive contract prohibition would sunset. Second, in Time Warner , the court held that the governmental objective in adopting the exclusive contract prohibition in Section 628(c)(2)(D) was unrelated to the suppression of free speech. In this Order , we extend the exclusive contract prohibition for an additional five years but do not otherwise modify the prohibition. Thus, the prohibition remains unrelated to the suppression of free speech, as the D.C. Circuit Court of Appeals previously held. Third, in Time Warner , the court rejected claims that the exclusive contract prohibition was not narrowly tailored to achieve the stated government interest. In this Order , we extend the exclusive contract prohibition for a term of five years but do not otherwise modify the prohibition. Thus, the prohibition remains narrowly tailored to meet the statute's objective, and any incidental restriction on alleged First Amendment freedoms is no greater than is essential to the furtherance of that objective.

43. We note that cable MSOs argue that the exclusive contract prohibition is not narrowly tailored because it is allegedly both overinclusive (in that it applies to “new,” “unpopular,” and other types of programming that are arguably not essential to the viability of competition in the video distribution market) and underinclusive (in that it does not apply to certain non-cable-affiliated programming that may be necessary for viable competition in the MVPD market). Moreover, we note that the exclusive contract prohibition in Section 628(c)(2)(D) is not absolute. Rather, cable-affiliated programmers may seek approval to enter into exclusive programming contracts that satisfy the criteria set forth by Congress in Section 628(c)(2) and (4). Despite claims that the exclusive contract prohibition deprives cable operators and others of the incentive to invest in new programming, thereby restricting the creation of new programming, the record reflects the opposite. Thus, contrary to these contentions, the prohibition has fostered, not restricted, speech.

44. Various commenters argue that the exclusive contract prohibition is both overinclusive and underinclusive with respect to the type of programming and MVPDs it covers. As discussed below, we decline to either narrow or expand the exclusive contract prohibition.

45. For the reasons discussed below, we decline to narrow the scope of the exclusive contract prohibition based on the status of the programming network. The exclusive contract prohibition in Section 628(c)(2)(D) and the implementing rules pertain to all satellite-delivered programming networks that are vertically integrated with a cable operator, regardless of their popularity.

46. As an initial matter, we note that in adopting the exclusive contract prohibition in Section 628(c)(2)(D), Congress applied the prohibition to all cable-affiliated programming. Congress did not distinguish between different types of cable-affiliated programming. Accordingly, as the Commission concluded in the 2002 Extension Order , we believe that treating all satellite cable programming and satellite broadcast programming uniformly for purposes of the exclusive contract prohibition is consistent with Section 628(c)(2)(D) and the definitions set forth in Sections 628(i)(1) and (3). Moreover, no commenter has provided a rational and workable definition of “must have” programming that would allow us to apply the exclusive contract prohibition to only this type of programming.

47. For the reasons discussed below, we decline to narrow the scope of the exclusive contract prohibition based on the status of the cable operator. Cable MSOs argue that we should narrow the exclusive contract prohibition by allowing certain types of exclusive arrangements based on the status of the cable operator, such as (i) those involving an affiliated cable operator whose network passes only a small number of households throughout the nation; (ii) those between a cable operator and an affiliated programming network outside the footprint of the affiliated cable operator; and (iii) those involving affiliated cable operators that face competition from both DBS and telephone companies.

48. In adopting the exclusive contract prohibition in Section 628(c)(2)(D), Congress applied the prohibition to all cable operators. Congress did not distinguish between different types of cable operators for purposes of Section 628(c)(2)(D). Moreover, in adopting the exclusive contract prohibition, Congress has already delineated a geographic demarcation applicable to the prohibition—“areas served by a cable operator.” Congress did not provide that the exclusive contract prohibition should vary based on the competitive circumstances in individual geographic areas served by a cable operator.

49. We also find that these attempts to narrow the exclusive contract prohibition would harm competition in the video distribution marketplace. One of the key anticompetitive practices that the exclusive contract prohibition addresses is the practice of leveraging cable's market power collectively by withholding affiliated programming from rival MVPDs while selling the affiliated programming to other cable operators which do not compete with one another. A cable operator may gain by weakening a current or potential rival (such as a DBS operator) even in markets that the cable operator itself does not serve. Thus, proposals to narrow the exclusive contract prohibition by allowing exclusive arrangements outside of the footprint of the affiliated cable operator or with cable operators whose networks pass only a small number of households throughout the nation will impede competition in the video distribution marketplace. We similarly find that allowing exclusive arrangements for affiliated cable operators that face competition from both DBS and telephone companies would harm competition in the video distribution marketplace. We conclude herein that a cable operator will not lose the incentive and ability to enter into an exclusive arrangement in a given geographic area simply because it faces competition from both DBS operators and telephone companies in that area.

50. For the reasons discussed below, we decline to narrow the exclusive contract prohibition by precluding certain competitive MVPDs from benefiting from the prohibition. Comcast and Cablevision ask us to narrow the exclusive contract prohibition by precluding certain competitive MVPDs from benefiting from the prohibition, such as competitive MVPDs that (i) have been in the MVPD market for more than five years; (ii) have extensive resources; or (iii) enter into exclusive contracts for programming.

51. Section 628 makes no distinction among MVPDs of the kind suggested by these commenters. Moreover, we find that adopting such restrictions on the entities that can benefit from the prohibition will limit competition in the video distribution market and will result in no discernible public interest benefits. The resources of competitors or the number of years they have spent in the market has no bearing on the goal of Section 628(c)(2)(D) to preclude exclusive contracts in order to facilitate competition in the video distribution market. Rather, if cable operators have exclusive access to non-substitutable content that is essential for viable competition and they have the incentive to withhold such content, the amount of resources of competitive MVPDs or their longevity in the market will not be able to overcome that competitive advantage. Comcast asks us to prevent competitive MVPDs that themselves enter into exclusive programming contracts from being the beneficiaries of the exclusive contract prohibition applied to cable-affiliated programmers. Section 628, however, does not exempt cable operators from its restrictions based on the contracting practices of non-cable MVPDs.

52. For the reasons discussed below, we decline to apply an exclusive contract prohibition to non-cable-affiliated programming. The exclusive contract prohibition in Section 628(c)(2)(D) and the implementing rules pertain only to programming networks that are vertically integrated with a “cable operator,” as that term is defined in the Communications Act. Competitive MVPDs, as well as some cable MSOs, argue that the prohibition is thus underinclusive because it does not pertain to certain non-cable-affiliated programming that is necessary for MVPDs to compete.

53. As an initial matter, to the extent that an MVPD meets the definition of a “cable operator” under the Communications Act, the exclusive contract prohibition in Section 628(c)(2)(D) already applies to its affiliated programming and, thus, no further action is required on our part. Moreover, as AT&T notes, Section 628(j) of the Communications Act provides that any provision of Section 628 that applies to a cable operator also applies to any common carrier or its affiliate that provides video programming. See 47 U.S.C. 548(j). We have previously explained that the exclusive contract prohibition in Section 628(c)(2)(D) does not extend to unaffiliated programming networks and programming networks affiliated with non-cable MVPDs, such as DBS operators. Moreover, the record before us in this proceeding does not provide sufficient evidence upon which to conclude that non-cable-affiliated programming is being withheld from MVPDs to a significant extent or that such withholding is adversely impacting competition in the video distribution market.

54. We decline to apply an exclusive contract prohibition to terrestrially delivered programming at this time. Some competitive MVPDs argue that the Commission should apply the exclusive contract prohibition to terrestrially delivered programming networks, citing various provisions of the Communications Act in addition to Section 628(c) for statutory support. The Commission previously declined to address arguments regarding the Commission's statutory authority to address terrestrially delivered programming under Sections 4(i) and 303(r) of the Communications Act. Commenters have failed to provide any new evidence or arguments that would lead us to reconsider our previous conclusion that terrestrially delivered programming is “outside of the direct coverage” of Section 628(c)(2)(D). We continue to believe that the plain language of the definitions of “satellite cable programming” and “satellite broadcast programming” as well as the legislative history of the 1992 Cable Act place terrestrially delivered programming beyond the scope of Section 628(c)(2)(D).

55. We conclude that the exclusive contract prohibition will be extended for five years subject to review during the last year of this extension period ( i.e. , between October 2011 and October 2012). We believe that five years could be a sufficient amount of time for competition to develop in the video distribution and programming markets. Accordingly, we believe that five years is an appropriate period of time to revisit the exclusivity prohibition. We also emphasize that, if adequate competition emerges before five years, the Commission could initiate its review earlier either on its own motion or in response to a petition. Moreover, we will continue to evaluate petitions for exclusivity under the public interest factors established by Congress.

56. Small and rural telephone MVPDs raise additional concerns in their comments regarding the difficulties they face in trying to obtain access to programming, such as tying of desired with undesired programming and unwarranted security requirements. We find that these concerns are beyond the scope of the programming issues raised in the NPRM , which pertained only to the prohibition on exclusive contracts for satellite-delivered vertically integrated programming under Section 628(c)(2)(D) and the extension of that prohibition pursuant to Section 628(c)(5). We did not seek comment on these issues in the NPRM and, accordingly, do not have a sufficient record upon which to address these concerns in this Order. We seek further comment on these issues in the Notice of Proposed Rulemaking in MB Docket No. 07-198.

57. As discussed below, we revise our program access complaint procedures. Specifically, we codify the existing requirement that respondents to program access complaints must attach to their answers copies of any documents that they rely on in their defense; find that in the context of a complaint proceeding, it would be unreasonable for a respondent not to produce all the documents requested by the complainant or ordered by the Commission, provided that such documents are in its control and relevant to the dispute; codify the Commission's authority to issue default orders granting a complaint if a respondent fails to comply with discovery requests; and allow parties to choose, within 20 days of the close of the pleading cycle, to engage in voluntary commercial arbitration of their program access complaints.

58. In the NPRM , the Commission sought comment on whether and how the procedures for resolving program access disputes under Section 628 should be modified.

59. In this Order , we retain our existing pleading cycle. The Commission's existing rules provide that an MVPD aggrieved by conduct that it believes constitutes a violation of Section 628 and the Commission's program access rules may file a complaint with the Commission. See 47 CFR 76.7 and 76.1003. A complainant must first notify the programming vendor that it intends to file the complaint and allow the vendor 10 days to respond. Once a complaint is filed, the cable operator or satellite programming vendor must answer within 20 days of service of the complaint. Replies to the answer are due within 15 days of service of the answer.

60. Discussion. A shorter pleading cycle would not necessarily improve the overall time for complaint resolution because incomplete or rushed responses could lead to the need for further pleadings and discovery. We therefore decline to adopt a more expedited pleading cycle. However, we believe that electronic filing may help improve the speed of resolution and, therefore, we will continue to study this issue internally to determine if it is technologically feasible to require electronic filing for program access complaints, which necessarily involve a number of confidential documents. Currently, parties may voluntarily submit electronic copies of their pleadings to staff via e-mail in order to expedite review.

61. In this Order , after reviewing our discovery rules pertaining to program access disputes, we codify the existing requirement that respondents to program access complaints must attach to their answers copies of any documents that they rely on in their defense; find that in the context of a complaint proceeding, it would be unreasonable for a respondent not to produce all the documents either requested by the complainant or ordered by the Commission, provided that such documents are in its control and relevant to the dispute; and emphasize that the Commission will use its authority to issue default orders granting a complaint if a respondent fails to comply with its discovery requests. The respondent shall have the opportunity to object to any request for documents. Such request shall be heard, and determination made, by the Commission. The respondent need not produce the disputed discovery material until the Commission has ruled on the discovery request.

62. Discussion. We take measures to ensure that the Commission has the information necessary to expeditiously resolve program access complaints.

63. Respondent's Answer. In the 1998 Program Access Order , the Commission clarified that, to the extent that a respondent expressly references and relies upon a document or documents in defending a program access claim, the respondent must attach that document or documents to its answer. In this Order , we expressly codify that requirement in the Commission's rules. To the extent that there has been any confusion about this requirement in the past, we clarify that a respondent must attach the necessary documentation to its answer to a program access complaint, subject to our rules on confidential filings. Subsequent to the 1998 Program Access Order , the Commission, in the 1998 Biennial Review (64 FR 6565, February 10, 1999), further clarified the response requirements for specific types of program access complaints. To the extent that a respondent fails to include the permissive attachments identified in our rules that are necessary to a resolution of the complaint, the Commission may require the production of further documents. See 47 CFR 76.1003(e); 47 CFR 76.7(e)(2). Moreover, a program access complainant is entitled, either as part of its complaint or through a motion filed after the respondent's answer is submitted, to request that Commission staff order discovery of any evidence necessary to prove its case. See 47 CFR 76.7(e), (f). Respondents are also free to request discovery.

64. Submission of Necessary Information. We believe that expanded discovery will improve the quality and efficiency of the Commission's resolution of program access complaints. Accordingly, we find that it would be unreasonable for a respondent not to produce all the documents either requested by the complainant or ordered by the Commission (indeed, in such circumstances, failure to produce the subject documents would also be a violation of a Commission order), provided that such documents are in its control and relevant to the dispute. While we retain the existing process for the Commission to order the production of documents and other discovery, we will also allow parties to a program access complaint to serve requests for discovery directly on opposing parties.

65. Parties to a program access complaint may serve requests for discovery directly on opposing parties, and file a copy of the request with the Commission. The respondent shall have the opportunity to object to any request for documents that are not in its control or relevant to the dispute. If the respondent refuses to produce the requested documents, the requesting party may file a petition with the Commission seeking to compel production of the documents. Such discovery dispute shall be heard, and determination made, by the Commission. Until the objection is ruled upon, the respondent need not produce the disputed material. Any party who fails to timely provide discovery requested by the opposing party to which it has not raised an objection as described above may be deemed in default and an order may be entered in accordance with the allegations contained in the complaint, or the complaint may be dismissed with prejudice.

66. We reiterate that respondents to program access complaints must produce in a timely manner, the contracts and other documentation that are necessary to resolve the complaint, subject to confidential treatment. See 47 CFR 76.9. In order to prevent abuse, the Commission will strictly enforce its default rules against respondents who do not answer complaints thoroughly or do not respond in a timely manner to permissible discovery requests with the necessary documentation attached. Respondents that do not respond in a timely manner to all discovery ordered by the Commission will risk penalties, including having the complaint against them granted by default. Likewise, a complainant that fails to respond promptly to a Commission order regarding discovery will risk having its complaint dismissed with prejudice. Finally, a party that fails to respond promptly to a request for discovery to which it has not raised a proper objection will be subject to these sanctions as well.

67. Confidential Material. We understand that this approach requires the submission of confidential and extremely competitively-sensitive information. See, e.g. , 47 CFR 0.457(d)(iv). Accordingly, in order to appropriately safeguard this confidential information we believe it is necessary to revise the standard protective order and declaration (“Protective Order”) for use in program access proceedings.

68. To ensure that confidential information is not improperly used for competitive business purposes, we intend to make an important revision to the Protective Order. Specifically, we revise it to reflect that any personnel, including in-house counsel, involved in competitive decision-making are prohibited from accessing the confidential information.

69. In order to appropriately safeguard confidential information, we revise the Protective Order for use in program access proceedings to find that any personnel, including in-house counsel, (i) that are involved in competitive decision-making, (ii) are in a position to use the confidential information for competitive commercial or business purposes, or (iii) whose activities, association, or relationship with the complainant, client, or any authorized representative involve rendering advice or participation in any or all of said person's business decisions that are or will be made in light of similar or corresponding information about a competitor, are prohibited from accessing the confidential information. See Appendix.

70. A protective order constitutes both an order of the Commission and an agreement between the party executing the declaration and the submitting party. The Commission has full authority to fashion appropriate sanctions for violations of its protective orders, including but not limited to suspension or disbarment of attorneys from practice before the Commission, forfeitures, cease and desist orders, and denial of further access to confidential information in Commission proceedings. We intend to vigorously enforce any transgressions of the provisions of our protective orders.

71. In this Order , we retain our current goals for resolving program access complaints with the intent to expedite complaints filed by small companies without existing carriage contracts. Under the current process, the Commission has set forth goals for the resolution of program access complaints as five months from the submission of a complaint for denial of programming cases, and nine months for all other program access complaints, such as price discrimination cases.

72. Discussion. We agree that program access complaints should be resolved in a timely manner, but the time frames for resolving complaints must be realistic. We will retain our goals of resolving program access complaints within five months from the submission of a complaint for denial of programming cases, and nine months for all other program access complaints, such as price discrimination cases.

73. However, we are concerned with delays in the resolution of complaints filed by new entrants, especially small businesses, and therefore, the Commission will expedite the resolution of such complaints and, as discussed above in Section III.B.2, will strictly enforce its default rules against respondents who do not answer complaints thoroughly with the necessary documentation attached. See 47 CFR 76.7(b)(2)(iii).

74. In this Order , we expand the use of voluntary arbitration for resolution of program access disputes, by increasing opportunities for parties to choose arbitration in lieu of Commission resolution of a pending complaint, and refrain from imposing a mandatory arbitration requirement at this time.

75. Discussion. We decline to impose mandatory arbitration as a rule in all program access cases at this time. We would like to see how arbitration of program access disputes, either through a merger condition or through voluntary arbitration, is working over time, to determine if modifications to the arbitration process are necessary prior to imposing a mandatory requirement on all parties to all program access complaints. Once there is a track record for arbitration of program access disputes, we will be able to determine which types of disputes lend themselves more readily to resolution by arbitration and which may be more judiciously resolved by the Commission in the first instance.

76. The current rules allow parties to voluntarily engage in ADR, including arbitration, in lieu of an administrative hearing. See 47 CFR 76.7(g)(2). However, we believe that parties to program access complaints should be able to voluntarily choose arbitration prior to the Commission making a determination to forward the complaint to an administrative law judge and that the Adelphia Order provides adequate guidance for the arbitration process. Therefore, the Commission will suspend action on a complaint where both parties agree to use ADR, including commercial arbitration, within 20 days following the close of the pleading cycle. Parties may agree that voluntary arbitration is a quick and productive way to resolve their commercial disputes. Moreover, we will continue to monitor developments in the marketplace and will, if necessary, revisit in the future whether to adopt a mandatory arbitration requirement.

77. This document contains information collection requirements subject to the Paperwork Reduction Act of 1995 (PRA), Public Law 104-13. It will be submitted to the OMB for review under section 3507(d) of the PRA. OMB, the general public, and other Federal agencies are invited to comment on the information collection requirements contained in this proceeding. In addition, we note that pursuant to the Small Business Paperwork Relief Act of 2002, Public Law 107-198, see 44 U.S.C. 3506(c)(4), we will seek specific comment on how the Commission might “further reduce the information collection burden for small business concerns with fewer than 25 employees.”

78. We have assessed the effects of the information collection requirements, and find that those requirements will benefit companies with fewer than 25 employees by facilitating the resolution of program access complaints and that these requirements will not burden those companies.

79. The Commission will send a copy of this Order in a report to be sent to Congress and the Government Accountability Office pursuant to the Congressional Review Act, see 5 U.S.C. 801(a)(1)(A).

80. As required by the Regulatory Flexibility Act (“RFA”), 5 U.S.C. 604, the Commission has prepared the following Final Regulatory Flexibility Analysis (“FRFA”) relating to the Order. An Initial Regulatory Flexibility Analysis (“IRFA”) was incorporated in the NPRM in MB Docket No. 07-29 (72 FR 9289, March 1, 2007). The Commission sought written public comment on the proposals in the NPRM , including comment on the IRFA. The comments received are discussed below. This present FRFA conforms to the RFA. We note that, because our action with respect to the exclusive contract prohibition in Section 628(c)(2)(D) retains the status quo in this context, we could have certified our action under the RFA. See generally 5 U.S.C. 605.

81. Background. Congress enacted the program access provisions contained in Section 628 of the Communications Act of 1934, as amended (the “Communications Act”), as part of the Cable Television Consumer Protection and Competition Act of 1992 (“1992 Act”). Section 628 is intended to encourage entry into the multichannel video programming distribution (“MVPD”) market by existing or potential competitors to traditional cable operators by requiring cable operators to make available to MVPDs the programming necessary for them to become viable competitors. Specifically, this proceeding involves (i) Section 628(c)(2)(D), which prohibits, in areas served by a cable operator, exclusive contracts for satellite cable programming or satellite broadcast programming between vertically integrated programming vendors and cable operators unless the Commission determines that such exclusivity is in the public interest; and (ii) the Commission's procedures for resolving program access disputes under Section 628.

82. Extension of Exclusive Contract Prohibition. Section 628(c)(5) of the Communications Act directed that the exclusive contract prohibition in Section 628(c)(2)(D) would cease to be effective on October 5, 2002, unless the Commission found in a proceeding conducted between October 2001 and October 2002 that the prohibition “continues to be necessary to preserve and protect competition and diversity in the distribution of video programming.” 47 U.S.C. 548(c)(5). In October 2001, the Commission issued a Notice of Proposed Rulemaking in CS Docket No. 01-290 seeking comment on whether the exclusive contract prohibition continued to be “necessary” pursuant to the criteria set forth in Section 628(c)(5). See 66 FR 54972, October 31, 2001. In June 2002, the Commission issued a decision concluding that the exclusive contract prohibition continued to be “necessary” pursuant to these criteria and therefore extended the prohibition for five years ( i.e. , through October 5, 2007). See 67 FR 49247, July 30, 2002. The Commission also provided that, during the year before the expiration of the five-year extension of the exclusive contract prohibition, it would conduct another review to determine whether the exclusive contract prohibition continues to be necessary to preserve and protect competition and diversity in the distribution of video programming. We issued the NPRM in February 2007 to initiate this review. See 72 FR 9289, March 1, 2007.

83. The Order herein adopted retains for five years (until October 5, 2012) the prohibition on exclusive contracts for satellite cable programming and satellite broadcast programming between vertically integrated programming vendors and cable operators as set forth in Section 628(c)(2)(D) of the Communications Act and Section 76.1002(c)(2) of the Commission's rules.

84. In the Order , we analyze the changes that have occurred in the video programming and distribution markets since 2002 when we last decided that the exclusive contract prohibition continued to be necessary to preserve and protect competition. While the markets for both programming and distribution reflect some pro-competitive trends since 2002, we conclude that these developments are not sufficient to allow us to decide that the exclusive contract prohibition is no longer necessary to preserve and protect competition and diversity in the distribution of video programming. We then assess whether vertically integrated programmers today retain both the ability and incentive to favor their affiliated cable operators over nonaffiliated MVPDs such that competition and diversity in the distribution of video programming would not be preserved and protected. We conclude that vertically integrated programmers retain this ability and incentive. Thus, we find that the exclusive contract prohibition is necessary to preserve and protect competition and diversity in the distribution of video programming. We therefore extend the exclusive contract prohibition for five years subject to review during the last year of this extension period.

85. In the Order , we also reject proposals presented by some commenters to narrow the exclusive contract prohibition based on the status of the programming, the cable operator, or the competitive MVPD. We find that narrowing the prohibition in this manner is not supported by the Communications Act and would not promote competition. We also reject proposals presented by some commenters to expand the exclusive contract prohibition to non-cable-affiliated programming and unaffiliated programming. We find that expanding the prohibition is not supported by the Communications Act and that there is no record evidence to support such an expansion of the prohibition. We also considered the possibility of allowing the exclusive contract prohibition to sunset. Because we conclude that the exclusive contract prohibition is necessary to preserve and protect competition and diversity in the video distribution market, we decide not to allow the exclusive contract prohibition to sunset. The decision to retain the exclusive contract prohibition will facilitate competition in the video distribution market, thereby benefiting various competitive MVPDs including those that are smaller entities. Therefore, we conclude that our decision to retain the exclusive contract prohibition set forth in Section 628(c)(2)(D) benefits smaller entities as well as larger entities.

86. Modification of Program Access Complaint Procedures . The Commission's rules provide that any MVPD aggrieved by conduct that it believes constitutes a violation of Section 628 and the Commission's program access rules may file a complaint at the Commission. 47 CFR 76.7 and 76.1003. In the NPRM , we considered whether and how our procedures for resolving program access disputes under Section 628 should be modified. Among other things, we considered (i) whether specific time limits on the Commission, the parties, or others would promote a speedy and just resolution of these disputes; (ii) whether our rules governing discovery and protection of confidential information are adequate; and (iii) whether the Commission should adopt alternative procedures or remedies such as mandatory standstill agreements and arbitration.

87. In the Order , to facilitate the resolution of program access complaints, we modify our procedures for resolving such complaints by (i) codifying the requirements that a respondent in a program access complaint proceeding who expressly relies upon a document in asserting a defense must include the document as part of its answer; (ii) finding that in the context of a complaint proceeding, it would be unreasonable for a respondent not to produce all the documents either requested by the complainant or ordered by the Commission, provided that such documents are in its control and relevant to the dispute; (iii) codifying the Commission's authority to issue default orders granting a complaint if the respondent fails to comply with discovery requests; and (iv) allowing parties to a program access complaint proceeding to voluntarily engage in alternative dispute resolution, including commercial arbitration, during which time Commission action on the complaint will be suspended. We also retain our goals of resolving program access complaints within five months from the submission of a complaint for denial of programming cases, and within nine months for all other program access complaints, such as price discrimination cases.

88. In its Comments on the IRFA, the Office of Advocacy of the United States Small Business Administration (“SBA Office of Advocacy”) claims that the Commission's IRFA in this proceeding was inadequate because it allegedly (i) did not contain a complete economic analysis of the impact of a decision to allow the exclusive contract prohibition to sunset on the small entities listed in the IRFA; (ii) failed to consider alternatives to allowing the prohibition to sunset that will achieve the Commission's goals while minimizing burdens on small entities; and (iii) failed to collect data on the impact of a sunset of the prohibition on small businesses that offer video programming to customers, such as sports bars, smalls entities in the hospitality industry, and certain housing developments. The SBA Office of Advocacy Office argues that without access to video content demanded by subscribers, small providers of video services will not be able to compete in the MVPD market. Accordingly, the SBA Office of Advocacy urges a three-year extension of the exclusive contract prohibition. Although not filed specifically in response to the IRFA, comments were filed in response to the NPRM by small competitive MVPDs and small cable operators that urged the Commission to retain the exclusive contract prohibition and to revise the procedures for resolving program access complaints. These commenters argued that they will be unable to viably compete in the video distribution market if denied access to vertically integrated programming. Moreover, they argued that the current program access complaint process is costly and time-consuming such that it makes it impracticable for small carriers to pursue filing a program access complaint. Our response to all such comments is contained below.

89. The RFA directs agencies to provide a description of, and where feasible, an estimate of the number of small entities that may be affected by the proposed rules, if adopted. The RFA generally defines the term “small entity” as having the same meaning as the terms “small business,” “small organization,” and “small governmental jurisdiction.” In addition, the term “small business” has the same meaning as the term “small business concern” under the Small Business Act. A “small business concern” is one which: (1) Is independently owned and operated; (2) is not dominant in its field of operation; and (3) satisfies any additional criteria established by the Small Business Administration (“SBA”).

90. Wired Telecommunications Carriers . The 2007 North American Industry Classification System (“NAICS”) defines “Wired Telecommunications Carriers” (2007 NAISC Code 517110) to include the following three classifications which were listed separately in the 2002 NAICS: Wired Telecommunications Carriers (2002 NAICS Code 517110), Cable and Other Program Distribution (2002 NAISC Code 517510), and Internet Service Providers (2002 NAISC Code 518111). The 2007 NAISC defines this category as follows: “This industry comprises establishments primarily engaged in operating and/or providing access to transmission facilities and infrastructure that they own and/or lease for the transmission of voice, data, text, sound, and video using wired telecommunications networks. Transmission facilities may be based on a single technology or a combination of technologies. Establishments in this industry use the wired telecommunications network facilities that they operate to provide a variety of services, such as wired telephony services, including VoIP services; wired (cable) audio and video programming distribution; and wired broadband Internet services. By exception, establishments providing satellite television distribution services using facilities and infrastructure that they operate are included in this industry.” The SBA has developed a small business size standard for Wired Telecommunications Carriers, which is all firms having 1,500 employees or less. According to Census Bureau data for 2002, there were a total of 27,148 firms in the Wired Telecommunications Carriers category (2002 NAISC Code 517110) that operated for the entire year; 6,021 firms in the Cable and Other Program Distribution category (2002 NAISC Code 517510) that operated for the entire year; and 3,408 firms in the Internet Service Providers category (2002 NAISC Code 518111) that operated for the entire year. Of these totals, 25,374 of 27,148 firms in the Wired Telecommunications Carriers category (2002 NAISC Code 517110) had less than 100 employees; 5,496 of 6,021 firms in the Cable and Other Program Distribution category (2002 NAISC Code 517510) had less than 100 employees; and 3,303 of the 3,408 firms in the Internet Service Providers category (2002 NAISC Code 518111) had less than 100 employees. Thus, under this size standard, the majority of firms can be considered small.

91. Cable and Other Program Distribution . The 2002 NAICS defines this category as follows: “This industry comprises establishments primarily engaged as third-party distribution systems for broadcast programming. The establishments of this industry deliver visual, aural, or textual programming received from cable networks, local television stations, or radio networks to consumers via cable or direct-to-home satellite systems on a subscription or fee basis. These establishments do not generally originate programming material.” This category includes, among others, cable operators, direct broadcast satellite (“DBS”) services, home satellite dish (“HSD”) services, satellite master antenna television (“SMATV”) systems, and open video systems (“OVS”). The SBA has developed a small business size standard for Cable and Other Program Distribution, which is all such firms having $13.5 million or less in annual receipts. According to Census Bureau data for 2002, there were a total of 1,191 firms in this category that operated for the entire year. Of this total, 1,087 firms had annual receipts of under $10 million, and 43 firms had receipts of $10 million or more but less than $25 million. Thus, under this size standard, the majority of firms can be considered small.

92. Cable System Operators (Rate Regulation Standard) . The Commission has also developed its own small business size standards for the purpose of cable rate regulation. Under the Commission's rules, a “small cable company” is one serving 400,000 or fewer subscribers nationwide. As of 2006, 7,916 cable operators qualify as small cable companies under this standard. In addition, under the Commission's rules, a “small system” is a cable system serving 15,000 or fewer subscribers. Industry data indicate that 6,139 systems have under 10,000 subscribers, and an additional 379 systems have 10,000-19,999 subscribers. Thus, under this standard, most cable systems are small.

93. Cable System Operators (Telecom Act Standard) . The Communications Act of 1934, as amended, also contains a size standard for small cable system operators, which is “a cable operator that, directly or through an affiliate, serves in the aggregate fewer than 1 percent of all subscribers in the United States and is not affiliated with any entity or entities whose gross annual revenues in the aggregate exceed $250,000,000.” There are approximately 65.4 million cable subscribers in the United States today. Accordingly, an operator serving fewer than 654,000 subscribers shall be deemed a small operator, if its annual revenues, when combined with the total annual revenues of all its affiliates, do not exceed $250 million in the aggregate. Based on available data, we find that the number of cable operators serving 654,000 subscribers or less totals approximately 7,916. We note that the Commission neither requests nor collects information on whether cable system operators are affiliated with entities whose gross annual revenues exceed $250 million. Although it seems certain that some of these cable system operators are affiliated with entities whose gross annual revenues exceed $250,000,000, we are unable at this time to estimate with greater precision the number of cable system operators that would qualify as small cable operators under the definition in the Communications Act.

94. Direct Broadcast Satellite (“DBS”) Service . DBS service is a nationally distributed subscription service that delivers video and audio programming via satellite to a small parabolic “dish” antenna at the subscriber's location. Because DBS provides subscription services, DBS falls within the SBA-recognized definition of Cable and Other Program Distribution. This definition provides that a small entity is one with $13.5 million or less in annual receipts. Currently, three operators provide DBS service, which requires a great investment of capital for operation: DIRECTV, EchoStar (marketed as the DISH Network), and Dominion Video Satellite, Inc. (“Dominion”) (marketed as Sky Angel). All three currently offer subscription services. Two of these three DBS operators, DIRECTV and EchoStar Communications Corporation (“EchoStar”), report annual revenues that are in excess of the threshold for a small business. The third DBS operator, Dominion's Sky Angel service, serves fewer than one million subscribers and provides 20 family and religion-oriented channels. Dominion does not report its annual revenues. The Commission does not know of any source which provides this information and, thus, we have no way of confirming whether Dominion qualifies as a small business. Because DBS service requires significant capital, we believe it is unlikely that a small entity as defined by the SBA would have the financial wherewithal to become a DBS licensee. Nevertheless, given the absence of specific data on this point, we recognize the possibility that there are entrants in this field that may not yet have generated $13.5 million in annual receipts, and therefore may be categorized as a small business, if independently owned and operated.

95. Private Cable Operators (PCOs) also known as Satellite Master Antenna Television (SMATV) Systems. PCOs, also known as SMATV systems or private communication operators, are video distribution facilities that use closed transmission paths without using any public right-of-way. PCOs acquire video programming and distribute it via terrestrial wiring in urban and suburban multiple dwelling units such as apartments and condominiums, and commercial multiple tenant units such as hotels and office buildings. The SBA definition of small entities for Cable and Other Program Distribution Services includes PCOs and, thus, small entities are defined as all such companies generating $13.5 million or less in annual receipts. Currently, there are approximately 150 members in the Independent Multi-Family Communications Council (IMCC), the trade association that represents PCOs. Individual PCOs often serve approximately 3,000-4,000 subscribers, but the larger operations serve as many as 15,000-55,000 subscribers. In total, PCOs currently serve approximately one million subscribers. Because these operators are not rate regulated, they are not required to file financial data with the Commission. Furthermore, we are not aware of any privately published financial information regarding these operators. Based on the estimated number of operators and the estimated number of units served by the largest ten PCOs, we believe that a substantial number of PCO may qualify as small entities.

96. Home Satellite Dish (“HSD”) Service . Because HSD provides subscription services, HSD falls within the SBA-recognized definition of Cable and Other Program Distribution, which includes all such companies generating $13.5 million or less in revenue annually. HSD or the large dish segment of the satellite industry is the original satellite-to-home service offered to consumers, and involves the home reception of signals transmitted by satellites operating generally in the C-band frequency. Unlike DBS, which uses small dishes, HSD antennas are between four and eight feet in diameter and can receive a wide range of unscrambled (free) programming and scrambled programming purchased from program packagers that are licensed to facilitate subscribers' receipt of video programming. There are approximately 30 satellites operating in the C-band, which carry over 500 channels of programming combined; approximately 350 channels are available free of charge and 150 are scrambled and require a subscription. HSD is difficult to quantify in terms of annual revenue. HSD owners have access to program channels placed on C-band satellites by programmers for receipt and distribution by MVPDs. Commission data shows that, between June 2004 and June 2005, HSD subscribership fell from 335,766 subscribers to 206,358 subscribers, a decline of more than 38 percent. The Commission has no information regarding the annual revenue of the four C-Band distributors.

97. Broadband Radio Service and Educational Broadband Service . Broadband Radio Service comprises Multichannel Multipoint Distribution Service (MMDS) systems and Multipoint Distribution Service (MDS). MMDS systems, often referred to as “wireless cable,” transmit video programming to subscribers using the microwave frequencies of MDS and Educational Broadband Service (EBS) (formerly known as Instructional Television Fixed Service (ITFS)). We estimate that the number of wireless cable subscribers is approximately 100,000, as of March 2005. The SBA definition of small entities for Cable and Other Program Distribution, which includes such companies generating $13.5 million in annual receipts, appears applicable to MDS and ITFS.

98. The Commission has also defined small MDS (now BRS) entities in the context of Commission license auctions. For purposes of the 1996 MDS auction, the Commission defined a small business as an entity that had annual average gross revenues of less than $40 million in the previous three calendar years. This definition of a small entity in the context of MDS auctions has been approved by the SBA. In the MDS auction, 67 bidders won 493 licenses. Of the 67 auction winners, 61 claimed status as a small business. At this time, the Commission estimates that of the 61 small business MDS auction winners, 48 remain small business licensees. In addition to the 48 small businesses that hold BTA authorizations, there are approximately 392 incumbent MDS licensees that have gross revenues that are not more than $40 million and are thus considered small entities. MDS licensees and wireless cable operators that did not receive their licenses as a result of the MDS auction fall under the SBA small business size standard for Cable and Other Program Distribution, which includes all such entities that do not generate revenue in excess of $13.5 million annually. Information available to us indicates that there are approximately 850 of these licensees and operators that do not generate revenue in excess of $13.5 million annually. Therefore, we estimate that there are approximately 850 small entity MDS (or BRS) providers, as defined by the SBA and the Commission's auction rules.

99. Educational institutions are included in this analysis as small entities; however, the Commission has not created a specific small business size standard for ITFS (now EBS). We estimate that there are currently 2,032 ITFS (or EBS) licensees, and all but 100 of the licenses are held by educational institutions. Thus, we estimate that at least 1,932 ITFS licensees are small entities.

100. Local Multipoint Distribution Service . Local Multipoint Distribution Service (LMDS) is a fixed broadband point-to-multipoint microwave service that provides for two-way video telecommunications. The SBA definition of small entities for Cable and Other Program Distribution, which includes such companies generating $13.5 million in annual receipts, appears applicable to LMDS. The Commission has also defined small LMDS entities in the context of Commission license auctions. In the 1998 and 1999 LMDS auctions, the Commission defined a small business as an entity that had annual average gross revenues of less than $40 million in the previous three calendar years. Moreover, the Commission added an additional classification for a “very small business,” which was defined as an entity that had annual average gross revenues of less than $15 million in the previous three calendar years. These definitions of “small business” and “very small business” in the context of the LMDS auctions have been approved by the SBA. In the first LMDS auction, 104 bidders won 864 licenses. Of the 104 auction winners, 93 claimed status as small or very small businesses. In the LMDS re-auction, 40 bidders won 161 licenses. Based on this information, we believe that the number of small LMDS licenses will include the 93 winning bidders in the first auction and the 40 winning bidders in the re-auction, for a total of 133 small entity LMDS providers as defined by the SBA and the Commission's auction rules.

101. Open Video Systems (“OVS”) . The OVS framework provides opportunities for the distribution of video programming other than through cable systems. Because OVS operators provide subscription services, OVS falls within the SBA-recognized definition of Cable and Other Program Distribution Services, which provides that a small entity is one with $13.5 million or less in annual receipts. The Commission has approved approximately 120 OVS certifications with some OVS operators now providing service. Broadband service providers (BSPs) are currently the only significant holders of OVS certifications or local OVS franchises, even though OVS is one of four statutorily-recognized options for local exchange carriers (LECs) to offer video programming services. As of June 2005, BSPs served approximately 1.4 million subscribers, representing 1.49 percent of all MVPD households. Among BSPs, however, those operating under the OVS framework are in the minority. As of June 2005, RCN Corporation is the largest BSP and 14th largest MVPD, serving approximately 371,000 subscribers. RCN received approval to operate OVS systems in New York City, Boston, Washington, DC and other areas. The Commission does not have financial information regarding the entities authorized to provide OVS, some of which may not yet be operational. We thus believe that at least some of the OVS operators may qualify as small entities.

102. Cable and Other Subscription Programming. The Census Bureau defines this category as follows: “This industry comprises establishments primarily engaged in operating studios and facilities for the broadcasting of programs on a subscription or fee basis * * *. These establishments produce programming in their own facilities or acquire programming from external sources. The programming material is usually delivered to a third party, such as cable systems or direct-to-home satellite systems, for transmission to viewers.” The SBA has developed a small business size standard for firms within this category, which is all firms with $13.5 million or less in annual receipts. According to Census Bureau data for 2002, there were 270 firms in this category that operated for the entire year. Of this total, 217 firms had annual receipts of under $10 million and 13 firms had annual receipts of $10 million to $24,999,999. Thus, under this category and associated small business size standard, the majority of firms can be considered small.

103. Small Incumbent Local Exchange Carriers. We have included small incumbent local exchange carriers in this present RFA analysis. A “small business” under the RFA is one that, inter alia, meets the pertinent small business size standard (e.g., a telephone communications business having 1,500 or fewer employees), and “is not dominant in its field of operation.” The SBA's Office of Advocacy contends that, for RFA purposes, small incumbent local exchange carriers are not dominant in their field of operation because any such dominance is not “national” in scope. We have therefore included small incumbent local exchange carriers in this RFA, although we emphasize that this RFA action has no effect on Commission analyses and determinations in other, non-RFA contexts.

104. Incumbent Local Exchange Carriers (“LECs”). Neither the Commission nor the SBA has developed a small business size standard specifically for incumbent local exchange services. The appropriate size standard under SBA rules is for the category Wired Telecommunications Carriers. Under that size standard, such a business is small if it has 1,500 or fewer employees. According to Commission data, 1,307 carriers have reported that they are engaged in the provision of incumbent local exchange services. Of these 1,307 carriers, an estimated 1,019 have 1,500 or fewer employees and 288 have more than 1,500 employees. Consequently, the Commission estimates that most providers of incumbent local exchange service are small businesses.

105. Competitive Local Exchange Carriers, Competitive Access Providers (CAPs), Shared-Tenant Service Providers,” and “Other Local Service Providers.” Neither the Commission nor the SBA has developed a small business size standard specifically for these service providers. The appropriate size standard under SBA rules is for the category Wired Telecommunications Carriers. Under that size standard, such a business is small if it has 1,500 or fewer employees. According to Commission data, 859 carriers have reported that they are engaged in the provision of either competitive access provider services or competitive local exchange carrier services. Of these 859 carriers, an estimated 741 have 1,500 or fewer employees and 118 have more than 1,500 employees. In addition, 16 carriers have reported that they are “Shared-Tenant Service Providers,” and all 16 are estimated to have 1,500 or fewer employees. In addition, 44 carriers have reported that they are “Other Local Service Providers.” Of the 44, an estimated 43 have 1,500 or fewer employees and one has more than 1,500 employees. Consequently, the Commission estimates that most providers of competitive local exchange service, competitive access providers, “Shared-Tenant Service Providers,” and “Other Local Service Providers” are small entities.

106. Electric Power Generation, Transmission and Distribution. The Census Bureau defines this category as follows: “This industry group comprises establishments primarily engaged in generating, transmitting, and/or distributing electric power. Establishments in this industry group may perform one or more of the following activities: (1) Operate generation facilities that produce electric energy; (2) operate transmission systems that convey the electricity from the generation facility to the distribution system; and (3) operate distribution systems that convey electric power received from the generation facility or the transmission system to the final consumer.” The SBA has developed a small business size standard for firms in this category: “A firm is small if, including its affiliates, it is primarily engaged in the generation, transmission, and/or distribution of electric energy for sale and its total electric output for the preceding fiscal year did not exceed 4 million megawatt hours.” According to Census Bureau data for 2002, there were 1,644 firms in this category that operated for the entire year. Census data do not track electric output and we have not determined how many of these firms fit the SBA size standard for small, with no more than 4 million megawatt hours of electric output. Consequently, we estimate that 1,644 or fewer firms may be considered small under the SBA small business size standard.

107. The rules adopted in the Report and Order will impose additional reporting, recordkeeping, and compliance requirements on complainants and respondents in program access disputes by (i) codifying the requirements that a respondent in a program access complaint proceeding who expressly relies upon a document in asserting a defense must include the document as part of its answer; and (ii) finding that in the context of a complaint proceeding, it would be unreasonable for a respondent not to produce all the documents either requested by the complainant or ordered by the Commission, provided that such documents are in its control and relevant to the dispute.

108. The RFA requires an agency to describe any significant alternatives that it has considered in proposing regulatory approaches, which may include the following four alternatives (among others): (1) The establishment of differing compliance or reporting requirements or timetables that take into account the resources available to small entities; (2) the clarification, consolidation, or simplification of compliance or reporting requirements under the rule for small entities; (3) the use of performance, rather than design, standards; and (4) an exemption from coverage of the rule, or any part thereof, for small entities.

109. The NPRM invited comment on issues that had the potential to have significant economic impact on some small entities, including (i) whether the exclusive contract prohibition remains necessary to preserve and protect competition in the video distribution market; and (ii) whether and how our procedures for resolving program access disputes under Section 628 should be modified.

110. Extension of Exclusive Contract Prohibition. As discussed above, the decision to extend the exclusive contract prohibition for five years will facilitate competition in the video distribution market by ensuring that competitive MVPDs continue to have access to the programming they need to compete. The decision therefore confers benefits upon various competitive MVPDs, including those that are smaller entities. Moreover, the decision avoids the adverse impact to smaller entities that the SBA Office of Advocacy Office and others stated would occur if the prohibition were to sunset. Therefore, we conclude that our decision to retain the exclusive contract prohibition set forth in Section 628(c)(2)(D) benefits smaller entities as well as larger entities. The alternative of allowing the exclusive contract prohibition to expire would hinder competition in the video distribution market, thereby harming smaller entities.

111. Modification of Program Access Complaint Procedures. As discussed above, the decision to modify the procedures for resolving program access disputes will facilitate the processing and resolution of program access complaints, thereby conferring benefits upon smaller entities as well as larger entities that seek to compete in the video distribution marketplace. The alternative of retaining the current program access complaint procedures would not facilitate the resolution of program access complaints and would thereby harm smaller entities that file such complaints.

112. The Commission will send a copy of the Report and Order, including this FRFA, in a report to be sent to Congress pursuant to the Congressional Review Act. In addition, the Commission will send a copy of the Report and Order, including this FRFA, to the Chief Counsel for Advocacy of the SBA. A copy of the Report and Order and FRFA (or summaries thereof) will also be published in the Federal Register .

113. It is ordered that, pursuant to the authority found in Sections 4(i), 303(r), and 628 of the Communications Act of 1934, as amended, 47 U.S.C. 154(i), 303(r), and 548, this Report and Order is adopted.

114. It is ordered that, pursuant to the authority found in Sections 4(i), 303(r), and 628 of the Communications Act of 1934, as amended, 47 U.S.C. 154(i), 303(r), and 548, the Commission's rules are hereby amended as set forth in the Rules Changes below.

115. It is ordered that the rules adopted herein are effective October 4, 2007, except for § 76.1003(e)(1) and (j) which contains information collection requirements that are not effective until approved by the Office of Management and Budget. The Commission will publish a document in the Federal Register announcing the effective date for those sections.

116. It is ordered that, pursuant to 5 U.S.C. 553(d)(3) and 47 CFR 1.427(b), the Commission finds good cause to make § 76.1002(c)(6) and § 76.1003(i) and (k) effective upon publication in the Federal Register . Section 76.1002(c)(6) provides that the exclusive contract prohibition set forth in § 76.1002(c)(2) will expire on October 5, 2007. See 47 CFR 76.1002(c)(6). Accordingly, it is necessary for the five-year extension of this prohibition reflected in the amendment to § 76.1002(c)(6) adopted herein to take effect by October 5, 2007. We thus find good cause to make the amendment to § 76.1002(c)(6) effective upon publication in the Federal Register . We note further that this amendment extends an existing requirement and does not impose any new requirements on any entity. Accordingly, no entity will be harmed as a result of our decision to make this amendment effective upon publication in the Federal Register . We also find good cause to make the amendments to our procedural rules adopted herein, other than those that require OMB approval, effective upon publication in the Federal Register . These rules are (i) new § 76.1003(i), which allows parties to a program access dispute to voluntarily engage in ADR; and (ii) new § 76.1003(k), which pertains to the Commission's authority to issue protective orders regarding confidential material submitted in program access complaint proceedings and to issue appropriate sanctions for violations of its protective orders. These new rules are essential to our goal of expeditiously resolving program access complaints. We find good cause to make these amendments effective upon publication in the Federal Register so that parties to all program access complaint proceedings, including those currently pending before the Commission, can benefit from these new rules. With respect to new § 76.1003(i) regarding ADR, we note this procedure is voluntary and requires both parties to agree to engage in alternative dispute resolution; thus, no entity will be harmed as a result of our decision to make this amendment effective upon publication in the Federal Register . With respect to new § 76.1003(k) regarding protective orders, we note that this rule enhances existing safeguards provided under our form protective order, and will facilitate and expedite the review of privileged and/or confidential documents; thus, no entity will be harmed as a result of our decision to make this amendment effective upon publication in the Federal Register .

117. It is further ordered that the Commission's Consumer and Governmental Affairs Bureau, Reference Information Center, shall send a copy of this Report and Order including the Final Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of the Small Business Administration.

118. It is further ordered that the Commission shall send a copy of this Report and Order in a report to be sent to Congress and the Government Accountability Office pursuant to the Congressional Review Act, see 5 U.S.C. 801(a)(1)(A).

This final rule is accessible via the Internet at the Office of the Federal Register ′s Website at http://www.gpoaccess.gov/fr/index.html . Background information and documents are available at the Pacific Fishery Management Council′s (Council′s) website at http://www.pcouncil.org/ .

The Pacific Coast Groundfish FMP and its implementing regulations at title 50 in the Code of Federal Regulations (CFR), part 660, subpart G, regulate fishing for over 90 species of groundfish off the coasts of Washington, Oregon, and California. Groundfish specifications and management measures are developed by the Pacific Fishery Management Council (Council), and are implemented by NMFS. A proposed rule to implement the 2007-2008 specifications and management measures for the Pacific Coast groundfish fishery and Amendment 16-4 of the FMP was published on September 29, 2006 (71 FR 57764). The final rule to implement the 2007-2008 specifications and management measures for the Pacific Coast Groundfish Fishery was published on December 29, 2006 (71 FR 78638). These specifications and management measures were codified in the CFR (50 CFR part 660, subpart G). The final rule was subsequently amended on: March 20, 2007 (71 FR 13043); April 18, 2007 (72 FR 19390); July 5, 2007 (72 FR 36617); August 3, 2007 (72 FR 43193); and September 18, 2007 (72 FR 53165).

Changes to current groundfish management measures implemented by this action were recommended by the Council, in consultation with Pacific Coast Treaty Indian Tribes and the States of Washington, Oregon, and California, at its September 10-14, 2007, meeting in Portland, Oregon. At that meeting, the Pacific Council recommended adjusting current groundfish management measures to respond to updated fishery information and other inseason management needs.

The Pacific Council recommended: (1) increasing the 2-month cumulative limit in the limited entry fixed gear fishery for shortspine thornyheads south of 34°27′ N. lat.; (2) prohibiting retention of cabezon by recreational ocean boat anglers in Federal waters off Oregon; (3) closing the Federal recreational fishing season for rockfish, cabezon, greenlings, and lingcod from 42° N. lat. to 37°11′ N. lat.; (4) adjust the shoreward boundary of the limited entry non-whiting trawl RCA to a line approximating the 75-fm (137-m) depth contour North of Cape Alava (48°10′ N. lat.) and between Humbug Mountain (43°20.83′ N. lat.) and Cape Arago (42°40.50′ N. lat.); (5) increasing coastwide sablefish limits for large and small footrope trawl gear; (6) increasing longspine thornyhead limits south of 40°10′ N. lat. for large and small footrope trawl gear; (7) increasing shortspine thornyhead limits coastwide for large and small footrope trawl gear; (8) increasing coastwide Dover sole limits for large and small footrope trawl gear; (9) increasing coastwide other flatfish limits for large and small footrope trawl gear; (10) increasing petrale sole limits north of 40°10′ N. lat. for large and small footrope trawl gear; (11) increasing slope rockfish limits for limited entry trawl gear south of 38° N. lat.; (12) increasing the 2007 non-tribal whiting widow rockfish bycatch limit from 220 mt to 275 mt, and (13) re-opening the 2007 non-tribal whiting primary season for the catcher-processor, mothership, and shore-based sectors.

NMFS has considered these recommendations, and is implementing them as described below. Pacific Coast groundfish landings will be monitored throughout the remainder of the year, and further adjustments to trip limits or management measures may be made as necessary to allow achievement of, or to avoid exceeding, optimum yields (OYs).

As of May 31, 2007, the total shortspine thornyhead landings south of 34°27′ N. lat. were estimated to be 60.6 mt out of a 421-mt OY. In June 2007, the Council recommended a short term increase in shortspine thornyhead cumulative limits south of 34°27′ N. lat.. The Council considered that increases in effort in this area could result in higher incidental catches of sablefish and other species; however, estimates at that time showed that sablefish catches in this area were lower than they had been predicted to be at the beginning of the year. To balance the potential impacts on sablefish from a possible effort shift and the larger amount of shortspine thornyheads available for harvest, the shortspine thornyhead cumulative limits south of 34°27′ N. lat. were increased during Period 4 (July-August), and reverted back to the lower limits for Periods 5 and 6 (September-October and November-December, respectively).

At its September meeting, the Council considered further adjustments to shortspine thornyhead cumulative limits based on more recently available fishery data. Period 4 increases in the shortspine thornyhead cumulative limit did not result in a large effort shift, and only slightly increased the catch rate in this area. As of September 15, 2007, the total shortspine thornyhead landings south of 34°27′ N. lat. were estimated to be 87 mt out of a 421-mt OY. The Council considered continuing the Period 4 increases to the shortspine thornyhead cumulative limit south of 34°27′ N. lat. through the end of the year. Estimates show that sablefish catches in this area are lower than they had been predicted to be at the beginning of the year, and that maintaining the higher shortspine thornyhead cumulative limit would not exceed the 2007 sablefish 211-mt OY in this area. Shortspine thornyheads are a slope rockfish species and the overfished species south of 36° N. lat. are shelf species, so no increased impacts on overfished species are expected to occur as a result of increasing shortspine thornyhead trip limits.

Therefore, the Council recommended, and NMFS is implementing the following changes for the limited entry fixed gear fishery: (1) South of 34°27′ N. lat., increase the shortspine thornyhead limits from 2,000 lb (907 kg) per 2 months to 3,000 lb (1,361 kg) per 2 months, beginning October 1.

In the Oregon recreational groundfish fishery, the Oregon Department of Fish and Wildlife (ODFW) manages cabezon, which is harvested primarily in state waters, under a state harvest limit. Oregon recreational catch estimates through July and projections from historical temporal catch patterns indicate that the Oregon state harvest limit for cabezon of 15.8 mt has been reached. State harvest limits apply to landings by recreational ocean boats and do not include shore catch and discards. State harvest limits are subset of Federal limits; the 2007 cabezon OY is 69 mt. Effective August 11, 2007, Oregon prohibited cabezon retention in the recreational ocean and estuary boat fisheries. Shore fisheries, including shore-based diving, angling and spear fishing, were not affected by this closure. A similar closure was implemented by ODFW for cabezon in 2006, on September 22, 2006. Landings data updated later in the year confirmed that the management measure was appropriate; cabezon landings were 14.9 mt, or 94 percent of the 2006 state harvest limit.

Therefore, in order to conform recreational management measures for Federal waters (3 200 nm) to management measures for Oregon state waters (0 3 nm), the Pacific Council recommended and NMFS is implementing a prohibition on the retention of cabezon by ocean boat anglers off Oregon in Federal recreational regulations beginning October 1.

In the California recreational groundfish fishery, the California Department of Fish and Game (CDFG) manages yelloweye, canary, and minor nearshore rockfish under state harvest limits. California recreational catch estimates through July and projections based on recent catch patterns indicate that the California state harvest limit for yelloweye, canary, and minor nearshore rockfish, which are 2.1 mt, 9 mt, and 426 mt, respectively, are projected to be exceeded. California projected that without taking inseason action, the total 2007 mortality from the California recreational fishery would be: 8.4 mt yelloweye rockfish; 12.3 mt canary rockfish; and 564 mt minor nearshore rockfish. Updates were made to catch and effort estimation methodologies to incorporate the most recent catch and effort data, which indicates higher than previously expected catches have occurred in the 2007 recreational fishery off California. Original projections for California coastwide catches of yelloweye rockfish in May and June were too low, and higher than expected catches of yelloweye rockfish also occurred in July north of 37°11′ N. lat. (Pigeon Point, CA) to the California-Oregon border at 42 N. lat.. Both of these factors have contributed to increased catch projections for the 2007 season, and without inseason action the California recreational catch of yelloweye rockfish, in combination with all other coastwide recreational and commercial fishery impacts, would exceed the 2007 yelloweye rockfish OY. State harvest limits apply to landings by recreational ocean boats and do not include shore catch and discards. To reduce recreational fishery impacts on yelloweye and canary rockfish, California will close the recreational boat-based fisheries north of 37°11′ N. lat. for all Federal groundfish species subject to bag limits in that area, effective October 1, 2007. Projections indicate that closure of the California recreational fishery north of 37°11′ N. lat. will reduce the impacts on yelloweye rockfish and canary rockfish, and keep the mortality of yelloweye rockfish within the 2007 OY. California projected that taking inseason action to close recreational fishing from 42° N. lat. to 37°11′ N. lat. would reduce the total mortality from the California recreational fishery to: 7.2 mt yelloweye rockfish; 10.1 mt canary rockfish; and 523 mt minor nearshore rockfish. Shore fisheries, including shore-based diving, angling and spear fishing, were not affected by this closure, nor were fisheries not subject to bag limits.

Therefore, in order to conform recreational management measures for Federal waters (3 200 nm) to management measures for California state waters (0 3 nm), the Pacific Council recommended and NMFS is implementing a closure of the Federal recreational fishing season for rockfish, cabezon, greenlings, and lingcod from 42° N. lat. to 37°11′ N. lat. beginning October 1.

Catch of canary rockfish by research vessels is lower than projected for 2007. Earlier in the year, an advisory body to the Pacific Council, the Groundfish Management Team (GMT), had projected 7.7 mt of canary rockfish would be taken as 2007 research catch in their bycatch scorecard. The bycatch scorecard is a tool used by the GMT to track estimated and projected total mortality of overfished species for the year. The 7.7 mt of canary rockfish projected earlier this year to be taken in 2007 scientific research consisted of 7.3 mt from the NMFS trawl survey and 0.4 mt from other research. The projected catch of 7.3 mt for the NMFS trawl survey is equivalent to the total 2006 catch of canary rockfish in this survey; however, in 2001-2005 no more than 2.3 mt of canary rockfish was taken per year in this survey. Based on preliminary information received from the NMFS trawl survey research vessels on September 10, 2007, the total 2007 research catch for the trawl survey is predicted to be 3.3 mt; therefore, the GMT reduced the total projected 2007 research catch value in the bycatch scorecard from 7.7 mt to 3.7 mt of canary rockfish (3.3 mt from the NMFS triennial trawl survey and 0.4 mt from other research). At the time of the update, the NMFS trawl survey was complete in almost all of the areas where high catch of canary rockfish occurred in 2006, and no high canary rockfish catches have occurred thus far. The updated value NMFS researchers provided to the GMT included expected catches for the remainder of the 2007 survey. The reduction in the expected amount of canary rockfish caught by research vessels, and the decrease in the expected amount of canary rockfish caught in California recreational fisheries due to recreational closures in the North and North Central regions, is projected to result in a lower total estimated canary rockfish mortality of 40.4 mt out of a 44-mt OY.

The Council received a request to consider adjusting the shoreward boundary of the limited entry non-whiting trawl rockfish conservation area (RCA) to open the areas shoreward of a line approximating the 75-fm (137-m) depth contour North of Cape Alava (48°10′ N. lat.) and between Humbug Mountain (43°20.83′ N. lat.) and Cape Arago (42°40.50′ N. lat.). These shoreward areas were closed on April 18, 2007 (72 FR 19390) by moving the shoreward boundary of the RCA from a line approximating the 75-fm (137-m) depth contour to the shore to keep canary rockfish within the 2007 canary rockfish OY. With the lower than expected catch of canary rockfish by research vessels and lowered impacts on canary rockfish due to closure of the California recreational fishery from 42° N. lat. to 37°11′ N. lat., the Council considered the impacts of adjusting the shoreward RCA boundary and providing fishing opportunity in areas that had been closed earlier in the year to protect canary rockfish. Based on the most recently available data from the trawl fishery, reopening these areas would take an additional 1.7 mt of canary rockfish but would not be expected to increase impacts to any other overfished species.

The Council also considered adjustments to trip limits in the limited entry non-whiting trawl fishery. At the September meeting, the GMT reviewed the best available data on estimates of landed catch and total mortality for the limited entry trawl fishery. These data, which which estimated catch through the end of July, were compared to catch and mortality estimates modeled for the trawl fishery and were used to update catch predictions through the end of the year. Based on the Pacific Fishery Information Network′s (PacFIN′s) Quota Species Monitoring(QSM) data, groundfish landed catch and total mortality data were lower than expected for all target species taken with large and small footrope trawl gear in the non-whiting trawl fishery. These species include: sablefish; longspine and shortspine thornyheads; Dover sole; other flatfish; petrale sole; and slope rockfish species. The Council considered increases to trip limits for these species and the potential impacts on overall catch levels and overfished species.

The most recently updated catch projections for 2007 indicate that the following percentages of groundfish species or species groups are expected to be taken through the end of the year: 81 percent (2,138 mt out of 2,651 mt) of the trawl allocation of sablefish north of 36°; 37 percent (827 mt out of 2,220 mt) of the longspine thornyhead OY north of 34°27′ N. lat.; 52 percent (853 mt out of 1,634 mt) of the coastwide shortspine thornyhead OY; 58 percent (9,595 mt out of 16,500 mt) of the coastwide Dover sole OY; 62 percent (3,599 mt out of 5,800 mt) of the coastwide arrowtooth flounder OY; 94 percent (2,356 mt out of 2,499 mt) of the coastwide petrale sole OY; 31 percent (1,510 mt out of 4,884 mt) of the coastwide other flatfish OY, and; 16 percent (286 mt out of 1,786 mt) of the minor slope rockfish OY south of 38 N. lat.. These projections are below the anticipated catch projections through the end of 2007, and continuing the trawl fishery under these limits is projected to prevent the fishery from attaining the OYs for these species. Increases to cumulative limits are expected to increase overall catch levels, but those increases are predicted to be within the 2007 OYs for these species. Increased catch levels for these species will increase the canary rockfish catch in the limited entry non-whiting trawl fishery by 0.3 mt, but are not expected to result in greater than projected impacts on other overfished species. Yelloweye rockfish, impacts to which are of concern in hook-and-line fisheries like the California recreational fishery, are rarely taken in trawl fisheries.

Therefore, the Council recommended and NMFS is implementing the following changes for the limited entry trawl fishery through the end of the year, beginning October 1 unless otherwise specified: (1) Adjust the shoreward boundary of the limited entry non-whiting trawl RCA to a line approximating the 75-fm (137-m) depth contour North of Cape Alava (48°10′ N. lat.) and between Humbug Mountain (43°20.83′ N. lat.) and Cape Arago (42°40.50′ N. lat.); (2) increase coastwide sablefish limits for large and small footrope trawl gear to 22,000 lb (9,979 kg) per 2 months; (3) increase longspine thornyhead limits south of 40°10′ N. lat. for large and small footrope trawl gear from 22,000 lb (9,979 kg) per 2 months to 25,000 lb (11,340 kg) per 2 months; (4) increase shortspine thornyhead limits north of 40°10′ N. lat. for large and small footrope trawl gear from 10,000 lb (4,536 kg) per 2 months to 12,000 lb (5,443 kg) per 2 months; (5) increase shortspine thornyhead limits south of 40°10′ N. lat. for large and small footrope trawl gear from 7,500 lb (3,402 kg) per 2 months to 13,000 lb (5,896 kg) per 2 months; (6) increase Dover sole limits for large and small footrope trawl gear from 60,000 lb (27,216 kg) north of 40°10′ N. lat. and 80,000 lb (36,287 kg) south of 40°10′ N. lat. to 95,000 lb (43,091 kg) per 2 months coastwide; (7) increase coastwide other flatfish limits for large and small footrope trawl gear from 110,000 lb (49,895 kg) to 150,000 lb (68,039 kg) per 2 months; (8) increase petrale sole limits north of 40°10′ N. lat. for large and small footrope trawl gear from 30,000 lb (13,608 kg) per 2 months to 40,000 lb (18,143 kg) per 2 months beginning in Period 6, and; (9) increase slope rockfish limits for limited entry trawl gear south of 38° N. lat. from 40,000 lb (18,143 kg) per 2 months to 55,000 lb (36,287 kg) per 2 months.

The 2007 Pacific whiting (whiting) primary season closed for the catcher-processor, mothership and shore-based sectors on July 26, 2007 (72 FR 46176) when estimates indicated that the bycatch limit for widow rockfish had been reached. The limited availability of overfished species that can be taken as incidental catch in the whiting fisheries, particularly canary, darkblotched and widow rockfish, led to NMFS implementing bycatch limits for those species. With bycatch limits, the industry has the opportunity to harvest a larger whiting OY, providing the incidental catch of overfished species does not exceed the adopted bycatch limits. If a bycatch limit is reached, all non-tribal sectors of the whiting fishery are closed for the remainder of the year. For 2007, the following bycatch limits were specified for the non-tribal whiting sectors: 4.7 mt for canary rockfish, 25 mt for darkblotched rockfish and 220 mt for widow rockfish.

The best available information on July 25, 2007, indicated that 220.7 mt of widow rockfish had been taken in the non-tribal whiting fisheries in 2007. Accordingly, the primary seasons for the catcher-processor sector, mothership sector and the shore-based sectors were closed at 1800 l.t. July 26, 2007. Data corrections were made and some additional data were incorporated into the catch estimates after the closure, and estimates from September 10, 2007 indicate the non-tribal fishery took: 158,036 mt of the 208,091 mt of whiting available to the non-tribal fishery, 241.6 mt of widow rockfish, 4 mt of canary rockfish, and 12.8 mt of darkblotched rockfish.

At its September meeting, the Council considered reopening the non-tribal whiting fishery based on availability of bycatch species and fishing impacts on protected species through the end of 2007. The Council also considered an inseason adjustment of the widow rockfish bycatch limit for the whiting fishery in order to allow the fishery to reopen. Updated fishery information indicates that the entire coastwide groundfish fishery, including the 241.6 mt of widow rockfish taken in the non-tribal whiting fishery, is projected to take 301.9 mt of widow rockfish through the end of the year. This leaves 66.1 mt of the 368-mt OY available to provide additional groundfish fishing opportunity in 2007. The Council considered an increase in the widow rockfish bycatch limit for the non-tribal whiting fishery to 275 mt, resulting in 32.7 mt of widow rockfish projected to remain unharvested through 2007. Widow rockfish is primarily taken as bycatch in the whiting fisheries.

The whiting fishery exceeded their initial 2007 bycatch limit for widow rockfish of 220 mt by 21.6 mt. This is likely due to several factors, including: fishing effort increased during the period when fishery participants knew that the fishery was nearing the widow rockfish bycatch limit; some final landings data were delayed, which caused a delay in the total catch estimates that should have closed the fishery earlier; and, the bycatch limit for widow rockfish was set too low to accommodate the 2007 whiting OY because the bycatch rate of widow rockfish in 2007 was higher than projected at the beginning of the year, likely due to the widow rockfish stock rebuilding while the whiting stock is in a period of decline. Therefore, at its September meeting, the Council purposefully recommended setting the widow rockfish bycatch limit well under the amount of widow rockfish estimated to be available through the end of 2007. In order to ensure more timely data reporting from the shore-based sector when the fishery reopened, the Council also recommended delaying reopening of the whiting fishery until after the new catch accounting requirements went into effect for whiting processors on October 5, 2007 (72 FR 50906). This new regulation requires first receivers of whiting deliveries of 4,000 lb (XXX kg) or more to submit catch reports to the Pacific States Marine Fish Commission within 24 hours of landing. Prior to this rulemaking, NMFS had no regulations in place to delineate a time frame in which reports should be received by fishery managers.

At its September meeting, the Council also addressed concerns with availability of canary rockfish if the whiting fishery were to reopen under the higher widow rockfish bycatch limit. The whiting fishery had closed with 0.7 mt available in the canary rockfish bycatch limit, and an increase in this bycatch limit was not considered by the Council due to limited availability of canary rockfish from other fisheries. If the whiting fishery were reopened under the same management measures that were in place earlier in the year, approximately 1.7 mt of canary rockfish would be estimated to be taken if the entire remaining 2007 whiting OY were caught, exceeding the canary rockfish bycatch limit of 4.7 mt by 1 mt. The Council discussed reopening the whiting fishery seaward of a line approximating the 150-fm (274-m) depth contour to reduce the impacts on canary rockfish, which are strongly associated with shelf habitat in depths shoreward of 150 fm (274 m), and to keep the total catch of canary rockfish within the bycatch limit of 4.7 mt. Estimates show that if the entire remaining whiting OY were prosecuted seaward of 150 fm (274 m), the canary rockfish catch would be 4.7 mt, equivalent to the 2007 bycatch limit.

Shifting all of the non-tribal whiting fishery effort seaward of a line approximating the 150-fm (274-m) depth contour is expected to increase impacts on darkblotched rockfish; however, the whiting fishery has only taken 12.8 mt of the 25-mt darblotched rockfish bycatch limit, or 51 percent, while they have taken 76 percent of the 2007 non-tribal whiting allocation. If all of the fisheries that are anticipated to take darkblotched rockfish reach their projected take for 2007, including the 25-mt bycatch limit for darkblotched rockfish in the non-tribal whiting fishery, there would be 37.7 mt of darkblotched rockfish projected to remain unharvested through 2007.

A depth-based closure is not a routine management measure for the whiting fishery; therefore, a closure shoreward of the line approximating the 150-fm (274-m) depth contour cannot be implemented via inseason action. The shore-based sector operates in the non-tribal whiting primary season under an exempted fishing permit (EFP). A second 2007 EFP will be issued to each participant in the shore-based fishery qualified to fish in the reopening of the fishery. The new EFP must be signed and returned to NMFS NWR prior to participation in the fishery, and will require that the vessel fish seaward of a line approximating the 150-fm (274-m) depth contour. Although a depth-based closure cannot be imposed on the mothership or catcher-processor sector via timely regulation or EFP, these sectors have agreed to fish seaward of a line approximating the 150-fm (274-m) depth contour. On several past occasions, these fleets have successfully taken similar voluntary action to constrain their bycatch of overfished groundfish species or salmon.

The Council considered possible dates that could be set for reopening the non-tribal whiting fishery. The Council agreed that reopening the fishery as quickly as possible would be beneficial for several reasons, particularly: aggregations of whiting will begin to disperse later in the year, potentially causing increased bycatch rates for non-whiting species, and; increasing the danger of operating in less favorable late autumn weather. Based on their discussion of the October 5, 2007 implementation of the first receiver reporting rule, described above, the Council recommended reopening the fishery as close as possible to October 5, 2007. Subsequent Council discussions also highlighted the benefits to the data-reporting structure for this fishery of reopening on a Sunday or a Monday to shorten the lag time between when the fishery reopens and when managers have access to fishery data.

Based on Council recommendations and discussions, NMFS is implementing: (1) an increase in the 2007 non-tribal whiting widow rockfish bycatch limit from 220 mt to 275 mt; (2) re-opening the 2007 non-tribal whiting primary season for the catcher-processor, mothership, and shore-based sectors at 0800 l.t. on Sunday, October 7, 2007 and restricting of the shore-based sector to fishing seaward of a line approximating the 150-fm (274-m) depth contour through the EFP.

These actions are taken under the authority of 50 CFR 660.370(c) and are exempt from review under Executive Order 12866.

These actions are authorized by the Pacific Coast groundfish FMP and its implementing regulations, and are based on the most recent data available. The aggregate data, upon which these actions are based, are available for public inspection at the Office of the Administrator, Northwest Region, NMFS, (see ADDRESSES ) during business hours.

For the following reasons, NMFS finds good cause to waive prior public notice and comment on the revisions to the 2007 groundfish management measures under 5 U.S.C. 553(b)(3)(B) because notice and comment would be impracticable and contrary to the public interest. Also for the same reasons, NMFS finds good cause to waive part of the 30-day delay in effectiveness pursuant to 5 U.S.C. 553(d)(1) and 5 U.S.C. 553(d)(3).

The data upon which these recommendations were based was provided to the Council and the Council made its recommendations at its September 10-14, 2007, meeting in Portland, OR. There was not sufficient time after that meeting to draft this notice and undergo proposed and final rulemaking before these actions need to be in effect. For the actions to be implemented in this notice, affording the time necessary for prior notice and opportunity for public comment would be impractical and contrary to the public interest because it would prevent the Agency from managing fisheries using the best available science to approach without exceeding the OYs for Federally managed species. The adjustments to management measures in this document affect commercial and recreational groundfish fisheries off Washington, Oregon, and California.

Changes to the limited entry trawl RCA must be implemented as quickly as possible to allow fishing opportunities that had been restricted earlier in the year. Changes to the trawl RCA made in April 2007, restricted fishing effort in areas of high canary rockfish bycatch rates. Catch of canary rockfish by research vessels was much lower than predicted over the summer months, and there is canary rockfish available for harvest in groundfish fisheries that take canary rockfish incidentally. It would be contrary to the public interest to wait to implement this RCA revision until after public notice and comment, because making this regulatory change as soon as possible relieves a regulatory restriction for fisheries that are important to coastal communities.

Changes to the cumulative limits in the non-whiting commercial fisheries must be implemented in a timely manner to relieve a restriction by allowing fishermen increased opportunities to harvest available healthy stocks. Changes to cumulative limits for the following stocks must be implemented in a timely manner as close as possible to October 1, 2007: (1) sablefish, longspine thornyhead, shortspine thornyhead, Dover sole, other flatfish, and slope rockfish in the limited entry trawl fishery; and (2) shortspine thornyheads in the limited entry fixed gear fishery. In the limited entry trawl fishery, changes to the petrale sole cumulative limits must be implemented in a timely manner by November 1, 2007. These changes allow fishermen an opportunity to harvest higher trip limits for stocks with catch tracking behind their projected 2007 catch levels. All of these cumulative limit changes are within projected mortality for overfished species. All of these actions provide increased trip limits; therefore, it would be contrary to the public interest to fail to relieve the current restrictions in a timely manner.

Changes to the non-tribal whiting widow rockfish bycatch limit must be implemented and the non-tribal fishery must be reopened on or as soon as possible after October 7, 2007, to relieve a restriction by allowing fishermen increased opportunities to harvest available healthy stocks. It would be contrary to the public interest to wait to implement these changes until after public notice and comment, because making this regulatory change by October 7 relieves a regulatory restriction for fisheries that are important to coastal communities. Currently, 24 percent, or 50,055 mt (110,352,385 lb) of the non-tribal whiting allocation remains unharvested. The current price of Pacific whiting dockside is $0.08 per pound, resulting in approximately $8,828,191 of whiting available for harvest. The whiting fishery contributes a large amount of revenue to the coastal communities of Washington and Oregon, and leaving this portion of the whiting OY unharvested sacrifices millions of dollars and hundreds of jobs for fishermen and coastal communities. Projected effects of reopening the non-tribal whiting fishery and increasing the non-tribal whiting widow rockfish bycatch limit are within projected mortality for overfished species and other groundfish species. Failing to increase the non-tribal whiting widow rockfish bycatch limit and reopen the non-tribal fishery in a timely manner would result in unnecessary restriction of fisheries that are important to coastal communities and is therefore contrary to the public interest.

Changes to the Oregon recreational fishery must be implemented as quickly as possible in order to conform to existing Oregon state regulations and to keep recreational harvest within Oregon state harvest limits. Changes to the California recreational fishery must be implemented as quickly as possible in order to conform to upcoming California State regulations and to reduce the risk of further exceeding the harvest guideline and the risk of exceeding OYs. Without action, California's state harvest limits for canary, yelloweye and minor shelf rockfish were projected to be exceeded based on updated information as of September 10, 2007. CDFG will close recreational fisheries for all groundfish species subject to bag limits between 42° N. lat. and 37°11′ N. lat. beginning October 1, 2007. Even with this closure, projected impacts to canary, yelloweye, and minor nearshore rockfish could still exceed the harvest guidelines, and failing to take conforming action would risk additional recreational catches of canary, yelloweye, and minor nearshore rockfish in Federal waters, which could further exceed the harvest guideline and risk exceeding the OYs for these species.

Delaying these changes would keep management measures in place that are not based on the best available data, which could risk fisheries exceeding their OY, or deny fishermen access to available harvest. Such delay would impair achievement of one of the Pacific Coast Groundfish FMP objectives of providing for year-round harvest opportunities or extending fishing opportunities as long as practicable during the fishing year.