On December 21, 2000, the Secretary established, within the National Organic Standards (NOS) (7 CFR part 205), the National List (§§ 205.600 through 205.607). The National List is the Federal list that identifies synthetic substances and ingredients that are allowed and nonsynthetic (natural) substances and ingredients that are prohibited for use in organic production and handling. Since established, the National List has not been amended. However, under the authority of the Organic Foods Production Act of 1990 (OFPA), as amended (7 U.S.C. 6501et seq.), the National List can be amended by the Secretary based on proposed amendments developed by the NOSB.

This final rule amends the National List to reflect recommendations submitted to the Secretary by the NOSB from June 6, 2000 through October 20, 2002. Between the specified time period, the NOSB has recommended that the Secretary add ten substances to §§ 205.601 through 205.603 of the National List based on petitions received from industry participants. These substances were evaluated by the NOSB using the criteria specified in OFPA (7 U.S.C. 6517 and 6518) and the NOS. The NOSB also recommended that the Secretary revise the annotations of two substances included within sections 205.602 and 205.605.

The NOSB has recommended that the Secretary add additional substances to sections 205.603 and 205.605 which have not been included in this final rule but are under review and, as appropriate, will be included in future rulemaking.

In addition to the amendments made based on June 6, 2000 through October 20, 2002, NOSB recommendations, this final rule also makes technical revisions to specific sections of the National List that provide clarity and adequately reflect the intent of the paragraphs identified within those sections.

The following provides an overview of the amendments made to designated sections of the National List:

This final rule amends the introductory paragraph of § 205.601 by adding language to clarify that synthetic substances used in crop production must be used in a manner which does not contribute to contamination of crops, soil, or water. The amendment further clarifies that synthetic substances, except those in paragraphs (c), (j), (k), and (l), may only be used when the provisions of § 205.206(a) through (d) prove insufficient to prevent or control the target pest.

This final rule amends paragraph (a) of § 205.601 (as algicide, disinfectants and sanitizers, including irrigation cleaning systems) by adding the following materials:

Copper Sulfate,for use as an algicide, is limited to one application per field during any 24-month period. Application rates are limited to those which do not increase baseline soil test values for copper over a timeframe agreed upon by the producer and accredited certifying agent.

Ozone Gas,for use as an irrigation system cleaner only; and

Peracetic acid,for use in disinfecting equipment, seed, and asexually propagated planting material.

Paragraph (a) is further amended by correcting the spelling of the word “demisters” contained in subparagraph (a)(4) to “demossers.”

This final rule amends paragraph (e) of § 205.601 by adding the following material:

Copper Sulfate,for use as tadpole shrimp control in rice production, is limited to one application per field during any 24-month period. Application rates are limited to levels which do not increase baseline soil test values for copper over a timeframe agreed upon by the producer and accredited certifying agent.

This final rule amends paragraph (f) by changing “As insect attractants” to “As insect management.”

This final rule amends paragraph (i) of § 205.601 (as plant disease control) by adding the following substance:

Peracetic acid,for use to control fire blight bacteria.

Paragraph (i) is further amended by removing the annotation contained in subparagraph (i)(3).

This final rule revises paragraph (k) of § 205.601 (as plant growth regulators) by inserting the word “gas” behind “ethylene” to be consistent with the June 2000 NOSB recommendation for the substance. Section 205.601(k) now reads “As plant growth regulators—Ethylene gas, for regulation of pineapple flowering.”

This final rule revises paragraph (m) of § 205.601 by inserting a new subpart (2) as follows:

(2) EPA List 3—Inerts of unknown toxicity—for use only in passive pheromone dispensers.

This final rule amends § 205.602 by adding the following substance:

Calcium chloride,except as a brine-sourced foliar spray to treat physiological disorders associated with calcium uptake.

This final rule revises current paragraph (h) of § 205.602 by amending its annotation to read as follows:

Sodium nitrate—unless use is restricted to no more than 20% of the crop's total nitrogen requirement; use in spirulina production is unrestricted until October 21, 2005.

This final rule revises current subparagraph (4) of § 205.603(a) by correcting the spelling of the word “chlorohexidine” to “chlorhexidine.”

This final rule revises paragraph (b)(4) by replacing “Bordeaux mixes” with “as external pest control.”

This final rule amends paragraph (d) of § 205.603 (as feed additives) by adding the following three substances:

DL—Methionine, DL—Methionine—Hydroxy Analog, and DL—Methionine—Hydroxy Analog Calcium—for use only in organic poultry production until October 21, 2005.

This final rule revises current subparagraph (1) of § 205.603(d) by removing examples (i) and (ii) copper sulfate and magnesium sulfate, as they are both approved for use by FDA and do not need to be listed individually as examples. As currently published, subparagraphs § 205.603(d)(1)(i) and (ii) may have misled some readers to believe that the use of trace minerals are limited only to copper sulfate and magnesium sulfate. Therefore, the revision made in this final rule for current subparagraph (1) of § 205.603(d) reads “Trace minerals, used for enrichment or fortification when FDA approved.”

This final rule amends current paragraph (e) of § 205.603 (as synthetic inert ingredients as classified by the Environmental Protection Agency (EPA), for use with nonsynthetic substances or synthetic substances listed in this section and used as active pesticide ingredients in accordance with any limitations on the use of such substances) by redesignating current paragraph (f) of § 205.603 as subparagraph (1) under § 205.603(e). While drafting § 205.603 for final publication in theFederal Register, current paragraph (f) was intended to be designated as § 205.603(e)(1), however, its designation was not properly assigned. Therefore, this final rule redesignates current paragraph (f) of § 205.603 as subparagraph (e)(1) of the same section.

This final rule amends current paragraph (a) of § 205.605 by adding agar-agar, carageenan and tartaric acid as technical corrections. These substances were included on the National List proposed in theFederal Registeron December 16, 1997, but were inadvertently omitted from the National List published in theFederal Registeron March 13, 2000, and the final rule published on December 21, 2000, Final Rule (7 CFR part 205).

This final rule revises current paragraph (b)(10) of § 205.605 by amending its annotation to read as follows:

Ethylene, allowed for postharvest ripening of tropical fruit and degreening of citrus.

Paragraph (b) is further amended by adding tartaric acid as a technical correction.

Ethylene, for organic crop production, was a substance that was petitioned and reviewed for inclusion onto the National List after promulgation of the proposed rule published in theFederal Registeron March 13, 2000. The NOSB approved and recommended that ethylene gas be included on the National List with the annotation “for regulation of pineapple flowering.” After receiving the NOSB recommendation for the material, the NOP, while finalizing the NOS, included the material on the National List without receiving public comment on the material through the Federal rulemaking process. As a result, the proposed rule requested public comment on the use of ethylene gas and this final rule addresses comments that were received on the use of ethylene gas for regulation of pineapple flowering.

Eight notices were published regarding the meetings of the NOSB and its deliberations on recommendations and substances petitioned for amending the National List. Substances and recommendations included in this final rule were announced for NOSB deliberation in the followingFederal RegisterNotices: (1) 64 FR 54858, October 8, 1999, (Ethylene); (2) 65 FR 33802, May 25, 2000, (Ethylene gas); (3) 65 FR 64657, October 30, 2000, (Calcium borogluconate and Peracetic acid); (4) 66 FR 10873, February 20, 2001, (Poloxalene); (5) 66 FR 48654, September 21, 2001, (Calcium chloride, Copper sulfate, Methionine); (6) 67 FR 19375, April 19, 2002, (Potassium sorbate and Sodium propionate); (7) 67 FR 54784, August 26, 2002, (Ozone gas, Pheromones, Sodium (Chilean) nitrate, Propylene glycol, Magnesium hydroxide/Magnesium oxide, Kaolin pectin, Bismuth subsalicylate, Flunixin, Xylazine, Tolazoline, Butorphanol, Mineral oil, Activated charcoal, Epinephrine); and (8) 67 FR 62950, October 9, 2002, (Potassium sulfate and Calcium propionate).

The Organic Foods Production Act of 1990 (OFPA), as amended (7 U.S.C. 6501et seq.), authorizes the Secretary, at § 6517(d)(1), to make amendments to the National List based on proposed amendments developed by the NOSB. Sections 6518(k)(2) and 6518(n) of OFPA authorize the NOSB to develop proposed amendments to the National List for submission to the Secretary and establish a petition process by which persons may petition the NOSB for the purpose of having substances evaluated for inclusion onto or deletion from the National List. The National List petition process is implemented under § 205.607 of the NOS. The current petition process (65 FR 43259) can be accessed through the NOP Web site athttp://www.ams.usda.gov/nop.

This action has been determined to be non-significant for purposes of Executive Order 12866, and therefore, does not have to be reviewed by the Office of Management and Budget.

Executive Order 12988 instructs each executive agency to adhere to certain requirements in the development of new and revised regulations in order to avoid unduly burdening the court system. The final rule was reviewed under this Executive Order and no additional related information has been obtained since then. This final rule is not intended to have a retroactive effect.

States and local jurisdictions are preempted under section 2115 of the Organic Foods Production Act (OFPA) (7 U.S.C. 6514) from creating programs of accreditation for private persons or State officials who want to become certifying agents of organic farms or handling operations. A governing State official would have to apply to USDA tobe accredited as a certifying agent, as described in section 2115(b) of the OFPA (7 U.S.C. 6514(b)). States are also preempted under sections 2104 through 2108 of the OFPA (7 U.S.C. 6503 through 7 U.S.C. 6507) from creating certification programs to certify organic farms or handling operations unless the State programs have been submitted to, and approved by, the Secretary as meeting the requirements of the OFPA.

Pursuant to section 2108(b)(2) of the OFPA (7 U.S.C. 6507(b)(2)), a State organic certification program may contain additional requirements for the production and handling of organically produced agricultural products that are produced in the State and for the certification of organic farm and handling operations located within the State under certain circumstances. Such additional requirements must: (a) Further the purposes of the OFPA, (b) not be inconsistent with the OFPA, (c) not be discriminatory toward agricultural commodities organically produced in other States, and (d) not be effective until approved by the Secretary.

Pursuant to section 2120 (f) of the OFPA (7 U.S.C. 6519(f)), this regulation would not alter the authority of the Secretary under the Federal Meat Inspection Act (21 U.S.C. 601et seq.), the Poultry Products Inspections Act (21 U.S.C. 451et seq.), or the Egg Products Inspection Act (21 U.S.C. 1031et seq.), concerning meat, poultry, and egg products, nor any of the authorities of the Secretary of Health and Human Services under the Federal Food, Drug and Cosmetic Act (21 U.S.C. 301et seq.), nor the authority of the Administrator of the Environmental Protection Agency (EPA) under the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. 136et seq.).

Section 2121 of the OFPA (7 U.S.C. 6520) provides for the Secretary to establish an expedited administrative appeals procedure under which persons may appeal an action of the Secretary, the applicable governing State official, or a certifying agent under this title that adversely affects such person or is inconsistent with the organic certification program established under this title. The OFPA also provides that the U.S. District Court for the district in which a person is located has jurisdiction to review the Secretary's decision.

The Regulatory Flexibility Act (RFA) (5 U.S.C. 601et seq.) requires agencies to consider the economic impact of each rule on small entities and evaluate alternatives that would accomplish the objectives of the rule without unduly burdening small entities or erecting barriers that would restrict their ability to compete in the market. The purpose is to fit regulatory actions to the scale of businesses subject to the action. Section 605 of the RFA allows an agency to certify a rule, in lieu of preparing an analysis, if the rulemaking is not expected to have a significant economic impact on a substantial number of small entities.

Pursuant to the requirements set forth in the RFA, the Agricultural Marketing Service (AMS) performed an economic impact analysis on small entities in the final rule published in theFederal Registeron December 21, 2000. AMS has also considered the economic impact of this action on small entities and has determined that this final rule will have an impact on a substantial number of small entities. However, AMS has determined that the impact on entities affected by this rule will not be significant. The effect of this rule will be to allow the use of additional substances in agricultural production and handling. This action relaxes the regulations published in the final rule and provides small entities with more tools to use in day-to-day operations. The AMS concludes that the economic impact of this addition of allowed substances, if any, will be minimal and entirely beneficial to small agricultural service firms. Accordingly, the Administrator of the AMS hereby certifies that this rule will not have a significant economic impact on a substantial number of small entities.

Small agricultural service firms, which include producers, handlers, and accredited certifying agents, have been defined by the Small Business Administration (SBA) (13 CFR 121.201) as those having annual receipts of less than $750,000 and small agricultural producers are defined as those having annual receipts of less than $5,000,000.

The U.S. organic industry at the end of 2001 included nearly 6,600 certified crop and livestock operations, including organic production and handling operations, producers, and handlers. These operations reported certified acreage totaling more than 2.34 million acres, 72,209 certified livestock, and 5.01 million certified poultry. Data on the numbers of certified handling operations are not yet available, but likely number in the thousands, as they would include any operation that transforms raw product into processed products using organic ingredients. Growth in the U.S. organic industry has been significant at all levels. From 1997 to 2001, the total organic acreage grew by 74 percent; livestock numbers certified organic grew by almost 300 percent over the same period, and poultry certified organic increased by 2,118 percent over this time. Sales growth of organic products has been equally significant, growing on average around 20 percent per year. Sales of organic products were approximately $1 billion in 1993, but are estimated to reach $13 billion this year, according to the Organic Trade Association (the association that represents the U.S. organic industry). In addition, USDA has accredited 85 certifying agents who have applied to USDA to be accredited in order to provide certification services to producers and handlers. A complete list of names and addresses of accredited certifying agents may be found on the AMS NOP Web site, athttp://www.ams.usda.gov/nop.AMS believes that most of these entities would be considered small entities under the criteria established by the SBA.

Pursuant to the Paperwork Reduction Act of 1995, the existing information collection requirements for the NOP are approved under OMB number 0581-0181. No additional collection or recordkeeping requirements are imposed on the public by this final rule. Accordingly, OMB clearance is not required by section 350 (h) of the Paperwork Reduction Act, 44 U.S.C. 3501,et seq., or OMB's implementing regulation at 5 CFR part 1320.

Altogether, 23 comments were received on these proposed revisions and amendments. Commenters included consumers, producers, processors, the National Organic Standards Board (NOSB), certifying agents, food industry organizations, State governments, and trade organizations.

No comments were opposed to the revision of the introductory text concerning use of materials as required in 205.203(c) and 205.206(a)-(d). One commenter, however, questioned whether every substance in 205.601 has to be measured against the criteria in 205.206(a)-(d). The commenter pointed out that algicides should be measured against these criteria in paragraphs 205.206(a)-(d), but that disinfectants, sanitizers, and cleaning materials in irrigation systems should not have to meet the criteria in (a)-(d). The commenter suggests revising paragraph 205.601(b) to include algicides andremoving the term algicides from 205.601(a). We agree that the use of disinfectants and sanitizers listed in § 205.601(a) should not be measured against the criteria in paragraphs 205.206 (a)-(d). Accordingly, we have amended the introductory text to exclude disinfectants and sanitizers. We disagree, however, with removing algicides from § 205.601(a). We recognize that there may be similar types of changes that could be made to improve the organization of the National List and the categories of materials and substances. Therefore, we will request that the NOSB begin work on addressing such organizational issues for inclusion in future rulemaking. One commenter asked that the final rule be written in plain English so that an average person will understand what is being said. We have made considerable efforts to write these regulations in plain English, but note that the regulations dealing with the National List are inherently difficult to understand because of their technical nature.

(a) As algicides, disinfectants and sanitizers, including irrigation cleaning systems—(3) Copper Sulfate. Two commenters opposed the addition of copper sulfate to the National List when it was published in December, 2000 and restated their opposition; one commenter cited problems with harmonization with European standards which do not allow the use of copper sulfate. USDA is currently engaged in discussions with the European Union (EU) concerning harmonization and mutual recognition of our respective standards for organic production and processing, and we believe these issues will be addressed in those discussions. Copper sulfate has been the subject of considerable debate and review at more than one NOSB public meeting, and the annotations restricting its use reflect an attempt by the NOSB to address all of the concerns raised regarding the use of copper sulfate in organic systems. Two commenters requested that the phrase “in aquatic rice systems” be added as it was stated in the NOSB recommendation. These two comments have merit and we have made the requested change.

(5) Ozone gas. No commenters opposed the addition of ozone gas.

(6) Peracetic acid. One commenter noted that many peracetic acid formulations contain small amounts of toxic stabilizer compounds, and that the National List should only be for formulations of this material that do not have synthetic stabilizers in them. However, we believe the NOSB understands the full nature of peracetic acid and its uses and made its recommendation accordingly. The public is invited to petition the NOSB to reconsider any material at any time that new information becomes available. Such information should also be forwarded to the NOSB prior to its re-review of any materials on the National List before the sunset date of five years after being added to the List. One commenter asked that this paragraph be further amended to require that documentation be shown that alternatives including biocontrols have been tried. However, with the revision to the introductory text in this subsection, we believe the additional annotation is not necessary and the final rule remains as proposed.

(e) As insecticides (including acaricides or mite control)—(3) Copper Sulfate. The word “aquatic” will be added before the words “rice production” to be consistent with the revised wording in paragraph (a) (3).

(f) As insect attractants—Pheromones. Commenters pointed out that the word “attractants” may be somewhat inaccurate. Pheromones may also include mating disruption or other general confusion, not necessarily synonymous with attraction. We have amended the paragraph to state “as insect management.” We also received two comments urging a policy guidance statement be issued to clarify types of pheromones permitted as those that are EPA-exempt or EPA-registered without additional synthetic toxicants (unless those are also on the List) or those containing no List 1 or List 2 inerts. We will publish on our Web site such policy guidance.

(i) As plant disease control—(3) Hydrated lime. Numerous commenters pointed out that the annotation is incorrectly written in the current regulations. As currently written, the annotation reads “must be used in a manner that minimizes copper accumulation in the soil.” However, there is no copper in hydrated lime. The annotation referred to an earlier reference to “Bordeaux mixes” that are a combination of copper sulfate plus hydrated lime. Accordingly, we have deleted the annotation altogether as suggested by the commenters.

(7) Peracetic acid. Commenters pointed out that the proposed annotation referring to EPA approval is unnecessary, as the material is currently regulated by EPA and it is unnecessary to restate EPA's status in the NOP regulation. These comments have merit and we have amended the annotation to read “for use to control fire blight bacteria.” And one comment opposed the addition of additional synthetic materials to the National List, specifically, the addition of paracetic acid to section 205.601. The commenter raised concerns that the addition of synthetic materials to the National List could continue a disturbing trend of moving organic systems away from the basic principles of minimizing use and dependence on purchased inputs, especially synthetic substances. Congress recognized that synthetic materials might be necessary for organic production to develop and that is why the National List was created in the first place. Moreover, the process of adding a material to the National List is sufficiently rigorous that by itself, the process will provide a natural limit to the number of materials that may be added to the List.

(k) As plant growth regulators. No commenters opposed to the addition of “gas” behind “ethylene.”

(m) As synthetic inert ingredients as classified by the EPA, for use with nonsynthetic substances or synthetic substances listed in this section and used as an active pesticide ingredient in accordance with any limitations on the use of such substances—(2) EPA List 3—Inerts of unknown toxicity—for use only in passive pheromone dispensers. One commenter objected to the addition of any List 3 Inert unless a Technical Advisory Panel (TAP) review is conducted and the NOSB approved the substance for addition to the National List. However, we believe the annotation accurately reflects the NOSB's understanding that in passive pheromone dispensers, the allowance of List 3 Inerts poses no significant harm to sustainable systems, including crops, soil, and water. Accordingly, no change is made to this provision.

No comments were opposed to the addition of calcium chloride.

The language in the proposed rule on sodium nitrate differs in two places, and may be misleading. The amendment to paragraph (g) should read: Sodium nitrate—unless use is restricted to no more than 20 percent of the crop's total nitrogen requirement; use in spirulina production is unrestricted until October 21, 2005.” Two commenters opposed the use of sodium nitrate in any amount, or for any crop production, and one of those commenters cited problems with harmonization with European standards for organic crop production. USDA is currently engaged in discussions with the European Union (EU) concerning harmonization and mutual recognition of our respective standards for organic production and processing, and webelieve these issues will be addressed in those discussions. Sodium nitrate was a subject of considerable debate and review at more than one NOSB public meeting, and the annotation restricting its use reflects an attempt by the NOSB to address all of the concerns that were raised regarding the use of sodium nitrate in organic systems.

The NOSB also commented that the natural substance sodium chloride (also known as salt) should be prohibited and added to 205.602, with the annotation that it be permitted in organic cotton production to comply with emergency spray programs or to prevent immediate loss of crop. The NOSB pointed out that failure to add this material to 205.602 means that it may be used without restriction, when the NOSB recommended its addition to the list of prohibited natural materials in 1995. However, we did not include this material for comment in the proposed rule that was issued in April 2003. Therefore, we believe it is inappropriate to add this material to this final rule without offering the public a chance to comment on the NOSB's recommendation. This material can be included in subsequent rulemaking so that the public can comment on its proposed addition to 205.602, with the annotation recommended by the NOSB.

(b) As topical treatment, external parasiticide or local anesthetic as applicable—(4) hydrated lime. The annotation following hydrated lime refers to Bordeaux mixes, which the NOSB correctly points out is a crop protection material, not a livestock material. The NOSB recommended changing the annotation to replace “Bordeaux mixes” with “as external pest control.” We agree and have revised the annotation accordingly.

(d) As feed additives—(1) DL-Methionine; DL-Methionine—hydroxy analog, and DL-Methionine—hydroxy analog calcium—for use only in organic poultry production until October 21, 2005. We received two comments in opposition to the addition of these three methionine materials as a feed additive for organic poultry feed; one comment cited problems with EU harmonization, which we have addressed above. Methionine has been the subject of considerable debate and review at more than one NOSB meeting, and the annotation restricting its use reflects an attempt by the NOSB to address all of the concerns raised regarding the use of methionine in organic systems.

(2) Trace minerals, used for enrichment or fortification when FDA approved. We received two comments raising concerns on this proposed change. One commenter seemed to think that we were eliminating trace minerals from allowed synthetic materials for use in livestock production. We are not eliminating their use; rather we eliminated the references to copper sulfate and magnesium sulfate to eliminate the perception that only those two trace minerals could be used since they were the only two examples listed. As long as the trace mineral is approved by FDA for use in feed supplements for the purpose of enrichment or fortification, the trace mineral is allowed under these regulations. Notwithstanding their allowed use in paragraph (d)(2), producers are also bound to comply with paragraphs (a) and (b) of § 205.237 dealing with livestock feed, including paragraph (b)(2) and (b)(6), which prohibit a producer from providing feed supplements or additives in amounts above those needed for adequate nutrition and health maintenance for the species at its specific stage of life or use feed additives and supplements in violation of the Federal Food, Drug, and Cosmetic Act. These livestock feed standards are also why we did not take the recommended changes of the second commenter that wanted a two-year period of use for minerals approved by the NOSB after a TAP review is conducted, and questioned NOP's policy with respect to trace minerals for animal feeds. This commenter cited an NOSB statement in 1995 that nutrients should come from organic sources, followed by non-synthetic sources if organic is unavailable, and only allowing synthetic sources of minerals if natural sources are unavailable. We believe that the regulations as written, especially § 205.237(a) addresses this concern by requiring feed to be 100 percent organic, with exceptions for nonsynthetic substances and synthetic substances as allowed under § 205.603(d).

The proposed rule contained a typographical error, listing both nonsynthetic and synthetic lists as § 205.605(a). The synthetic nonagricultural substance list should be denoted as § 205.605(b).

(b) Synthetics allowed—Tartaric acid. As noted in the proposed rule, tartaric acid was one of three materials that were inadvertently omitted from publication on the National List in the final regulations that were published on December 21, 2000, and the proposed rule would amend the National List to include tartaric acid in § 205.605(a). However, the NOSB pointed out in their comments that the NOSB had approved both synthetic and nonsynthetic forms of tartaric acid. Accordingly, § 205.605(a) and (b) are amended to include tartaric acid.

Ethylene—we received one comment asking why this is not in the list of synthetic materials approved for crop production, since it deals with ripening for fruit. However, its use is clearly intended for fruit that has left the farm and is enroute to final consumers and is more appropriately considered part of a processing function to prepare the fruit for final purchase. Three commenters opposed its addition to the National List, citing general concerns about adding more synthetic materials to the National List and degrading the status of organic products and one of those comments cited problems with European harmonization.

Congress recognized that synthetic materials might be necessary for organic production to develop and that is why the National List was created in the first place. Moreover, the process of adding a material to the National List is sufficiently rigorous that by itself, the process will provide a natural limit to the number of materials that may be added to the List.

The USDA is currently engaged in discussions with the European Union (EU) concerning harmonization and mutual recognition of our respective standards for organic production and processing, and we believe these issues will be addressed in those discussions.

Pursuant to 5 U.S.C. 553, it is found and determined that good course exists for not postponing the effective date of this action until 30 days after publication in theFederal Register.

This rule reflects recommendations submitted to the Secretary by the NOSB. The ten substances proposed to be added to the National List were based on petitions from the industry and evaluated by the NOSB using criteria in the Act and the regulations. Because these substances are critical to organic production and handling operations, the National List should be amended as soon as possible.

1. On June 26, 2003, the Federal Energy Regulatory Commission (Commission or FERC) issued an Interim Rule, which amended its regulations under 18 CFR parts 101, 201, and 352 of the Commission's Uniform Systems of Accounts by implementing documentation requirements for FERC-regulated entities that participate in cash management programs. Cash management or “money pool” programs typically concentrate affiliates’ cash assets in joint accounts for the purpose of providing financial flexibility and lowering the cost of borrowing.

2. The regulations require that FERC-regulated entities subject to these rules place their cash management agreements in writing, specify the duties and responsibilities of cash management program participants and administrators, specify the methods for calculating interest and for allocating interest income and expenses, and specify any restrictions on deposits or borrowings by participants.

3. In the Interim Rule, the Commission also sought comments on new reporting requirements that would require FERC-regulated entities to file their cash management agreements with the Commission and notify the Commission when their proprietary capital ratios drop below 30 percent and when their proprietary capital ratios subsequently return to or exceed 30 percent. The reporting requirements were reflected in changes to 18 CFR parts 141, 260, and 357 of the Commission's regulations for public utilities and licensees, natural gas companies, and oil pipeline companies.

4. This Final Rule amends the Commission's regulations under 18 CFR parts 141, 260, and 357 of the Uniform System of Accounts for public utilities and licensees, natural gas companies, and oil pipeline companies by implementing the reporting requirements proposed in the Interim Rule, with some modifications. The modifications require FERC-regulated entities to compute their proprietary capital ratios quarterly (as compared to a proposed monthly computation) and to notify the Commission within 45 days after the end of each calendar quarter if their proprietary capital ratios drop below or subsequently exceed 30 percent (as compared to a proposed 15 day period for computation and 5 day notification deadline).

5. The Final Rule also modifies certain aspects of the documentation requirements that were implemented in the Interim Rule and became effective August 7, 2003. Specifically, the Commission is revising parts 101 and 201, Account 146 C, and part 352, Account 13(c), to require that FERC-regulated entities maintain documentation related only to the administrator and the FERC-regulated entity (rather than documentation related to all cash management participants). Account 146 B(1), (2) and (4) and Account 13(b)(1), (2) and (4) are also revised to require that FERC-regulated entities document the interest rates on deposits or borrowings in the cash management agreements, but not on the daily records for each deposit, withdrawal or borrowing. Additionally, the regulations are revised to require records showing the monthly balances of cash management programs, rather than daily balances.

6. The documentation and reporting requirements the Commission is adopting in this Final Rule directly address the deficiencies in cash management programs found by the Chief Accountant in audits conducted in 2002. At that time, FERC-regulated entities had $16 billion in cash management accounts. More recently, analysis indicates that FERC-regulated entities have $25.2 billion in cash management accounts. The documentation and reporting requirements the Commission is adopting are needed to ensure that rates paid by the customers of FERC-regulated entities are just and reasonable. The additional financial transparency required by these rules will also aid the Commission in meeting its oversight and market monitoring obligations and will benefit the investing public.

7. In sum, the Final Rule applies to all FERC-regulated entities that have not been granted waivers of the Commission's accounting regulations and the FERC Annual Report Forms 1, 1-F, 2, 2-A or 6 filing requirements.1 Due to the nature of electric cooperatives, the Commission is exempting them from the requirement to notify the Commission when their proprietary capital ratios drop below 30 percent and when their proprietary capital ratios subsequently return to or exceed 30 percent.2 Electric cooperatives must comply with the Final Rule except for the notification requirements stated above.

8. An investigation by the Chief Accountant in March 2002 revealed that FERC-regulated entities had approximately $16 billion of assets in cash management accounts. The preliminary results of the investigation also revealed severe recordkeeping deficiencies:

• Cash management agreements generally were not formalized in writing.

• The terms of the programs and the interest associated with loans were not documented in writing.

• It was unclear whether interest had been paid to subsidiary companies by the parent companies.

9. The Commission issued a Notice of Proposed Rulemaking (NOPR) on August 1, 2002, 67 FR 51150 (Aug. 7, 2002), IV FERC Stats. Regs. ¶ 32,561 (August 1, 2002), to amend its Uniform Systems of Accounts for public utilitiesand licensees,3 natural gas companies,4 and oil pipeline companies.5 The NOPR proposed to require that, as a prerequisite to a FERC-regulated entity participating in a cash management program, the FERC-regulated entity shall maintain a minimum proprietary capital ratio of at least 30 percent and the FERC-regulated entity and its parent shall maintain investment grade credit ratings. Also, the NOPR proposed new documentation requirements for cash management programs.

10. The Commission issued an interim rule on June 26, 2003, 68 FR 40500 (July 8, 2003), FERC Stats. Regs. ¶ 31,145 (June 26, 2003), which amended its regulations under 18 CFR parts 101, 201, and 352 of the Commission's Uniform Systems of Accounts for public utilities and licensees, natural gas companies, and oil pipeline companies by implementing the documentation requirements proposed in the NOPR. The interim regulations required that FERC-regulated entities maintain their cash management agreements in writing, that the agreements specify the duties and responsibilities of cash management program participants and administrators, specify the methods for calculating interest and for allocating interest income and expenses, and specify any restrictions on deposits or borrowings by participants. The regulations became effective August 7, 2003 for all FERC-regulated entities that have not been granted waivers of the Commission's accounting regulations and the FERC Annual Report Forms 1, 1-F, 2, 2-A or 6 filing requirements.

11. The Commission decided not to adopt the financial prerequisites proposed in the NOPR. Instead, the Commission sought comments on new reporting requirements that require FERC-regulated entities participating in cash management programs to file agreements related to such programs with the Commission and to notify the Commission when their proprietary capital ratios drop below 30 percent, and when they subsequently return to or exceed 30 percent. These new reporting requirements were reflected in revisions to parts 141, 260, and 357 of the Commission's regulations. The Commission also concluded that the information collected through the new reporting requirements would be considered non-confidential in nature and be made available to the general public via FERC's eLibrary (formerly FERRIS) accessed from FERC's Home Page.6 The Commission did not implement the new reporting requirements in the Interim Rule, but sought comments on these requirements.

12. Requests for stay of the Interim Rule were denied in an order dated August 21, 2003.7

13. The Commission received twenty-five comments8 in response to the new reporting requirements or comments asking clarification of the documentation requirements that became effective August 7, 2003. While commenters generally support the Commission's decision not to impose prerequisites to cash management program participation, some commenters question whether the Commission has authority to require utilities to file agreements associated with cash management programs. Other commenters ask whether the Commission has a statutory basis for cash management oversight of public utility affiliates of registered holding companies and of utilities whose money pools are regulated by state commissions.

14. Several commenters also suggested various changes to make compliance with the proposed regulations easier. The suggested changes principally involve the time period for performing the proprietary capital ratio calculation, the deadline for notifying the Commission when the proprietary capital ratio falls below, or subsequently returns to or exceeds 30 percent, and the requirement to file cash management agreements with the Commission.

15. After careful consideration of the comments received, the Commission is implementing the new reporting requirements with some modifications, as discussed below, and is modifying certain aspects of the documentation requirements that became effective August 7, 2003.

16. Consistent with the discussions below, the Commission also denies all requests for rehearing of the Interim Rule.

17. The Interim Rule did not propose to regulate participation in cash management programs, nor did it establish any prerequisites for participation in cash management programs as the Notice of Proposed Rulemaking had originally proposed. Rather, the Interim Rule merely established documentation requirements and proposed reporting requirements. The Final Rule requires FERC-regulated entities subject to the rule to file their cash management agreements with the Commission, as well as notify the Commission when their proprietary capital ratios drop below 30 percent. The provisions in the Federal Power Act (FPA), Natural Gas Act (NGA), and Interstate Commerce Act (ICA) that authorize the Commission to require reports and documentation to administer these statutes provide ample authority for issuance of the Final Rule.9

18. Most commenters do not challenge the Commission's legal authority to set the documentation and reporting requirements of the Interim Rule.10 A few commenters still raise such challenges, however, and we address their concerns here. EEI, for example, argues that the Commission lacks a legal or factual basis for the reporting requirements.11 Southern California Edison Company (Edison) supports EEI's comments on the Interim Rule. Duke Energy asserts that the Commission lacks the statutory authority to regulate the financial transactions of Duke Energy's FERC-regulated entities, including their participation in cash management programs.

19. The short answer is that the Commission is not “regulating” cash management programs. Rather, the Final Rule implements reporting and documentation requirements, which areamply justified by the enormous amount of assets of regulated entities in cash management programs. In 2002, the Commission found at least $16 billion of regulated entities' assets in such accounts and that amount has increased in 2003 to approximately $25 billion. This is an enormous, mostly unregulated, pool of money in cash management programs that may detrimentally affect regulated rates. The Final Rule properly requires that FERC-regulated entities document and report information to aid the Commission in monitoring cash management programs, but is not in the nature of a regulation governing participation in cash management programs. The reporting requirements allow the Commission to protect ratepaying customers of regulated entities by providing greater transparency of cash management activities.

20. AOPL and Chevron Pipeline Company,et al., in their comments on the Interim Rule question the Commission's statutory authority for the record-keeping requirements, insofar as the Final Rule may intend to require such records of non-FERC-regulated entities. Shell Pipeline Company LP shares these concerns. The Final Rule does not require recordkeeping or reports from non-jurisdictional entities. Accordingly, the recordkeeping and reporting requirements of the NGA, FPA, and ICA provide express statutory authority for the reporting requirements of the Final Rule, which are imposed solely on FERC-regulated entities.

21. Specifically, NGA Section 8 provides that “[e]very natural-gas company shall make, keep, and preserve for such periods, such accounts, records of cost-accounting procedures, correspondence, memoranda, papers, books, and other records as the Commission may by rules and regulations prescribe as necessary or appropriate for purposes of the administration of this Act * * *,”12 and NGA Section 10 provides that “[e]very natural-gas company shall file with the Commission such annual and other periodic or special reports as the Commission may by rules and regulations or order prescribe as necessary or appropriate to assist the Commission in the proper administration of this act.”13 FPA Section 301 provides that “[e]very licensee and public utility shall make, keep and preserve for such periods, such accounts, records of cost-accounting procedures, correspondence, memoranda, papers, books, and other records as the Commission may by rules and regulations prescribe as necessary or appropriate for purposes of the administration of this Act * * *,”14 and FPA Section 304 provides that “[e]very licensee and every public utility shall file with the Commission such annual and other periodic or special reports as the Commission may by rules and regulations or order prescribe as necessary or appropriate to assist the Commission in the proper administration of this Act.”15 Section 20(1) of the ICA provides that “[t]he Commission is authorized to require annual, periodical, or special reports from [oil pipeline] carriers * * * and full, true, and correct answers to all questions upon which the Commission may deem information to be necessary * * *,”16 and Section 20(5) of the ICA authorizes the Commission “in its discretion, [to] prescribe the forms of any and all accounts, records, and memoranda to be kept by carriers and their lessors, including the accounts, records, and memoranda of the movement of traffic, as well as of the receipts and expenditures of moneys. * * *.”17

22. In sum, the Commission is entrusted with the responsibility to ensure that rates are just and reasonable and that FERC-regulated entities provide the services to which they have committed.18 The transparency-enhancing reporting requirements adopted in the Final Rule for cash management programs—in which over $25 billion of regulated entities' funds are deposited (and accessible to others in their corporate family)—will help ensure that both goals are achieved.

23. Requiring that FERC-regulated entities that participate in money pools file reports and maintain documents does not impermissibly extend the Commission's jurisdiction to unregulated parent companies (or other unregulated affiliates). The Commission is requiring jurisdictional entities to document cash management transactions and file cash management agreements to which the jurisdictional entities are parties. This is squarely within the ambit of the Commission's statutory authority.

24. The Interim Rule applied the documentation requirements to all FERC-regulated entities that have not been granted waivers of the Commission's accounting regulations and the FERC Annual Report Forms 1, 1-F, 2, 2-A or 6 filing requirements. This includes subsidiaries of registered holding companies that are regulated by the SEC pursuant to Public Utility Holding Company Act (PUHCA).19

25. In the Interim Rule, the Commission found that to protect ratepayers, the Commission needed to better understand the financial condition of the companies it regulates, including their cash management practices. And while the Commission agreed with many commenters that the SEC regulates some aspects of a registered holding company's cash management programs, the SEC's case-by-case analysis of these programs did not provide assurance that documentation adequate for this Commission's regulatory oversight would be maintained.

26. Therefore, the Interim Rule required that FERC-regulated entities that are also subject to PUHCA follow the documentation requirements adopted in the Commission's Uniform Systems of Accounts and proposed that FERC-regulated holding company subsidiaries follow the same reporting requirements as all other FERC-regulated entities subject to this rule.

Comments Received:

27. EEI requested rehearing and clarification of the applicability of the rule to subsidiaries of registered holding companies, asserting that regulation by the Commission is unnecessary and barred by Section 318 of the FPA.20 While acknowledging that “the documentation requirements the FERC is imposing differ somewhat from the SEC's requirements,” EEI goes on to assert that any regulated holding company's cash management program “already satisfies documentation requirements comparable to those that would be imposed in the interim rule.”Thus, EEI asserts, there is “no reason to create redundant requirements for registered holding company systems.” EEI makes the same policy and legal arguments against the reporting requirements proposed in the Interim Rule.

28. FirstEnergy, while not requesting rehearing, reiterates many of EEI's comments. FirstEnergy also points out that the documentation the Interim Rule requires companies to maintain is different from the documentation that the SEC requires companies to maintain under PUHCA. Additionally, FirstEnergy echoes EEI's argument that the SEC has the sole and exclusive jurisdiction over the regulation of cash management programs. Finally, in regard to the proposed notification and filing requirements, FirstEnergy argues that “in our view, there is no critical need for utilities to file this information with the Commission” and that “such information could then be made available to the Commission in connection with an audit or other Commission proceeding.”

Commission Response:

29. The Commission finds that to better ensure that rates for jurisdictional services are just and reasonable, it must examine the financial structure of the entities it regulates. As the Commission stated in the Interim Rule, regulated entities routinely place large quantities of funds (over $25 billion, at last count) into cash management accounts. As recent market events have shown, financial troubles may afflict both PUHCA and non-PUHCA companies. A highly leveraged company, with the accompanying fixed interest expense and future obligation to repay the principal, may be in a weakened financial position if there is an unfavorable change in the business climate. This event may result in an inadequate flow of cash which may have an adverse impact on the FERC-regulated entity's ability to remain solvent. As a result, it is vital to the Commission's statutory mission that it has on hand the necessary information to understand how regulated entities are accounting for their assets.

30. Section 318 of the FPA governs conflicts between the Commission's and the SEC's regulations.21

31. FirstEnergy and EEI mistakenly seem to believe that the Commission's requirements are in conflict with the requirements of the SEC, and are therefore barred by FPA Section 318. The Final Rule does not dictate the content of or terms for participating in a cash management program. And nothing in the regulations the Commission is adopting is incompatible with existing SEC requirements.

32. While the SEC sometimes requires the filing of cash management agreements and notification of changes in a holding company's capital equity, there is nothing that prevents a registered holding company from making one filing with the SEC and its subsidiary making another filing with FERC. Therefore, there is no conflict, and Section 318 does not bar the proposed regulations.

33. The Interim Rule did not specifically address application of the rule to companies whose cash management programs are regulated by State Public Utility Commissions (PUCs).

Comments Received:

34. EEI and Duke Energy suggest that the Interim Rule should not apply to a public utility or licensee whose participation in cash management arrangements or whose securities and debts are regulated by the utility commission of the State in which the public utility or licensee is organized and operating. The commenters argue that those companies are subject to oversight similar to the oversight the Commission is imposing here. Second, EEI suggests that Section 204(f) of the FPA excludes such State-regulated public utility activities from further Commission regulation.22 If a State utility commission already regulates a utility's participation in a cash management arrangement, or regulates the utility's securities and debt, EEI asserts that the Commission should defer to the state commission's regulation of those activities and not also apply the documentation and reporting requirements of the Final Rule to the utility.

35. National Grid, PacifiCorp, Edison, and others urge the Commission to avoid imposing cash management program requirements that either conflict with or inappropriately duplicate requirements of state commissions that may have existing regulatory oversight. PacifiCorp, for instance, states that it already receives regulatory permission for its cash management operations from six states and is loath to modify those agreements since any modification would require it to seek regulatory approval from each of those states, as well as the SEC. Both PacifiCorp and National Grid companies seek clarification that the new cash management rules pertain only to proper documentation, reporting, and notification, and not modification of their cash management programs. Edison believes that the proposed reporting requirements are unduly burdensome, considering that Edison is already regulated by both the California Public Utilities Commission (CPUC) and the SEC with respect to affiliate transactions. According to Edison, CPUC's rules and regulations already require it to comply with voluminous documentation and other requirements concerning its relationship with its affiliates.

Commission Response:

36. The Commission's Final Rule does not conflict with any requirement of any State PUC. The Final Rule does not require entities to alter their cash management agreements, nor will the Commission alter them after they are filed. Further, as mentioned earlier, the FPA gives the Commission broad authority to collect the information it needs to administer the FPA, NGA and ICA. The documentation and reporting requirements all fall within this broad grant of power.

37. EEI and Duke Energy's concern over Section 204(f)'s limitation on the Commission's authority over the issuance of securities regulated by a state commission is misplaced. Section 204 does not apply because the Commission is not regulating the issuance of any security by means of this Final Rule. Therefore, in response to EEI's concerns, none of the Final Rule's requirements regulates a public utility's ability to “issue any security, or assume any obligation or liability.”

38. In response to other complaints about duplication of effort, theCommission reiterates the need for this information in carrying out its statutory obligations to customers. The burden imposed on regulated entities by the Final Rule is extremely low while the benefits to the Commission and the public of documenting over $25 billion worth of regulated assets is high. The Commission would be remiss in its obligation to ensure just and reasonable rates if it were to ignore the effects on its jurisdictional entities of having these large sums in cash management programs.

39. The interim rule proposed requiring FERC-regulated entities subject to the rule to file their cash management agreements with the Commission, and to file any subsequent changes within 10 days from the date of change. The Commission is adopting this requirement in the Final Rule.

Comments Received:

40. Several commenters23 argue that FERC-regulated entities should not be required to file cash management agreements with the Commission. A few commenters argue that doing so is unnecessary. For example, INGAA, Duke Energy and FirstEnergy assert that because the Interim Rule requires FERC-regulated entities to maintain documentation supporting their cash management agreements which are subject to audit, there is no compelling reason to have the agreements filed with the Commission. Duke Energy adds that the Commission's own annual reporting requirements require FERC-regulated entities to provide the Commission with a description of material terms of their agreements in footnotes to their annual reports.

41. Other commenters24 suggest that the Commission should merely require companies to maintain documentation, subject to Commission review, without requiring companies to submit the information. EEI expresses the concern that filing cash management agreements would invite proceedings unintended by the Commission, and requests that the Commission clarify that the documents are for informational purposes only, and not subject to complaints or protests. Commenters25 also argue that the new reporting requirement is excessively burdensome.

42. Additionally, Cinergy asks that the Commission clarify that the initial submission of the agreements for programs established prior to the effective date of the rule shall be within 10 days of the effective date of this rule.

Commission Response:

43. The underlying premise of this reporting requirement is that additional transparency of cash management activities between FERC-regulated entities and their affiliates will allow the Commission and other users of financial information to make decisions based on relevant and accurate information. The only way to achieve this transparency is to require FERC-regulated entities to file their cash management documents with the Commission, which will consequently make them available to the public. In addition, the requirement that any subsequent changes to an existing agreement be filed within 10 days of the date of the change is necessary to provide users of financial information with knowledge of when such decisions are being made. Since cash management agreements are altered infrequently and only after considerable planning, the 10 day notification deadline is reasonable.

44. Any cash management agreements established prior to the effective date of the rule must be filed within 10 days of the effective date of the rule.

45. With regard to the concern that the filing of cash management agreements will generate protests and complaints, these filings are for informational purposes and the Commission will not entertain public comments on them.

46. The Interim Rule proposed that FERC-regulated entities participating in cash management programs notify the Commission when their proprietary capital ratios fall below 30 percent and when they subsequently return to or exceed 30 percent. The Interim Rule also required that FERC-regulated entities compute their proprietary capital ratios within 15 days after the end of each month and notify the commission within 5 days after making the calculation. In the Final Rule, the Commission is adopting the notification requirement, but is allowing FERC-regulated entities to compute their proprietary capital ratios quarterly and to notify the Commission within 45 days after the end of each calendar quarter if their proprietary capital ratios fall below 30 percent and when they subsequently return to or exceed 30 percent.

Comments Received:

47. Virtually all commenters expressed concerns about the Interim Rule's proposal that FERC-regulated entities notify the Commission when their proprietary capital ratios fall below 30 percent. Several commenters26 argue that the choice of 30 percent seemed arbitrary, and that the 30 percent threshold was not necessarily an accurate indication of a company's health. Rather, the commenters argue, the 30 percent threshold has been overemphasized in the Interim Rule, since it is only one of many possible gauges of the financial health of a FERC-regulated entity. Gulf South adds that establishing a minimum equity threshold is inconsistent with the NGA since pipelines are not required to maintain any minimum capitalization level.

48. Cinergy, Duke Energy, Gulfterra and PacifiCorp expressed concerns about the requirement that the ratio be computed within 15 days after the end of the monitoring period. For example, Duke Energy argues that 15 days is insufficient to compute the proprietary capital ratio. Cinergy suggests that the Commission revise the date by which the ratio must be determined to the 15th business day rather than the 15th calendar day. Also, Gulfterra and PacifiCorp suggest extending the time period to 45 days.

49. Numerous commenters27 object to the monthly monitoring requirement, stating that complying with the requirement would be unworkable or burdensome, and that calculations completed in such a short timeframe may be unreliable. PSEG Companies and FirstEnergy note that their capitalization reviews are not prepared on a monthly basis. FirstEnergy explains that while books are maintained on a monthly basis, utilities do not and are not required to close their books at the end of the month in a manner that would enable them to calculate their proprietary capital ratios.

50. EEI and Exelon ask that the Commission allow utilities to calculate the 30 percent equity ratio with transition bonds and other non-recourse debt eliminated from the calculation. They argue that these bonds were issued pursuant to state enabling legislation that allows the bonds to be repaid through a specifically authorized retail rate and, as such, the bonds are not the obligation of the utility or parent company but instead are non-recourse.

51. Also, EEI, Sierra Southwest Cooperative Services, Inc. and the PSEG Companies ask that the Commission clarify that 18 CFR part 141.500 B, C and D applies only to public utilities and licensees that are subject to theCommission's Uniform System of Accounts.

52. NRECA asserts that the local and continuous control and oversight of member-owners provides far more effective control over potential abuse of an electric cooperative's cash management programs and practices than the Commission could accomplish. It asks that the Commission give careful consideration to any request for waiver from the final rule.28

Commission Response:

53. Although a 30 percent proprietary capital threshold was not adopted as a prerequisite for participation in a cash management arrangement, the threshold remains a reasonable and important indicator of a company's financial health and the extent to which a FERC-regulated entity has taken on debt to finance its assets or operations. We considered the application of various proprietary capital percentages. Our analyses indicate that over 90 percent of FERC-regulated entities have at least 30 percent proprietary capital. In addition, the SEC utilizes a 30 percent proprietary capital percentage for its evaluations, albeit for broader purposes than monitoring a specific company's financial health.

54. The Commission agrees that a quarterly reporting requirement of proprietary capital ratios, rather than a monthly one as proposed in the Interim Rule, would be more appropriate since many companies do not currently prepare monthly financial analyses. Adopting a quarterly requirement would also ease the administrative burden of complying with the reporting requirement. Additionally, this will make the reporting requirement more consistent with the quarterly financial reports required by the SEC.

55. The Commission also agrees that it would be more consistent to require notification within 45 days after the end of each calendar quarter that a company's proprietary capital ratio has dropped below or subsequently exceeded 30 percent, rather than allowing only 15 days to make the computation and 5 days to make the filing as proposed in the Interim Rule. Changing the notification requirement to 45 days is more consistent with the SEC's requirement that financial information be disclosed 45 days after the end of each fiscal quarter, as well as with the change in the Final Rule from a monthly to a quarterly monitoring requirement. Lengthening the notification period will also ease the administrative burden on affected companies.

56. Additionally, the Commission will continue to require transition bonds and other non-recourse debt to be included in the proprietary capital ratio computation. If the proprietary capital ratio drops below 30 percent because of this inclusion, the documentation notifying the Commission may include a description of this fact.

57. The Commission is also revising parts 141.500 B, C and D, 260.400 B, C and D, and 357.5(b), (c) and (d) to apply only to public utilities and licensees, natural gas or oil pipeline companies that are subject to the Commission's Uniform Systems of Accounts. The language is revised to read, “Public utilities and licensees or natural gas or oil pipeline companies subject to the provisions of the Commission's Uniform System of Accounts in part 101 and § 141.1 or § 141.2 or part 201 and § 260.1 or § 260.2, or part 352 and § 357.2 of this title that participate in cash management programs and are not electric cooperatives must determine, on a quarterly basis, the percentage of their capital structures that constitute proprietary capital.”

58. Parts 141.500 C, 260.400 C and 357.5(c) are revised to read, “In the event that the proprietary capital ratio is less than 30 percent, public utilities and licensees, natural gas or oil pipeline companies subject to the provisions of the Commission's Uniform System of Accounts in part 101 and § 141.1 or § 141.2, or part 201 and § 260.1 or § 260.2 or part 352 and § 357.2 of this title that participate in cash management programs and are not electric cooperatives must notify the Commission within 45 days after the end of each calendar quarter.”

59. Parts 141.500 D, 260.400 D and 357.5(d) are revised to read, “In the event that the proprietary capital ratio subsequently meets or exceeds 30 percent, public utilities and licensees, natural gas or oil pipeline companies subject to the provisions of the Commission's Uniform System of Accounts in part 101 and § 141.1 or § 141.2 or part 201 and § 260.1 or § 260.2 or part 352 and § 357.2 of this title that participate in cash management programs and are not electric cooperatives must notify the Commission within 45 days after the end of each calendar quarter.”

60. The Commission recognizes that electric cooperatives operate as not-for-profit organizations collecting only enough revenues in excess of operating expenses to meet mortgage requirements and would, therefore, not be able to meet the 30 percent proprietary capital requirement. It also recognizes that electric cooperatives generally do not accumulate profits for shareholders as in the case of investor owned utilities. After careful consideration of the comments and the structure of electric cooperatives, the Final Rule is revised to exempt electric cooperatives from the requirement to notify the Commission when their proprietary capital ratios drop below 30 percent and when their proprietary capital ratios subsequently return to or exceed 30 percent. However, the Commission is aware that electric cooperatives have themselves established subsidiaries that are engaged in diversified non-electric business activities. Placing cash management agreements in writing contributes to a stable environment in which rates are just and reasonable, and filing those agreements provides needed transparency for the Commission to understand the financial arrangements of the cooperatives it regulates.

61. The final rule applies to all FERC-regulated entities that have not been granted waivers of the Commission's accounting regulations and the FERC Annual Report Forms 1, 1-F, 2, 2-A or 6 filing requirements. Electric cooperatives must comply with the Final Rule except for the notification requirements related to the 30 percent proprietary capital ratio.

62. The interim rule explained that all of the information contained in the required filings will be made public to provide for greater transparency of the cash management program activities of FERC-regulated entities.

Comments Received:

63. Several commenters29 object to public disclosure of their cash management agreements. They claim that such agreements may contain competitively sensitive or proprietary information and urge the Commission to protect from disclosure agreements or supporting documents that contain competitively sensitive information. Gulf South argues that making cash management agreements public is anticompetitive because pipelines would be required to disclose their internal costs of capital, and that disclosure of sensitive proprietary information would create an uneven competitive playing field among regulated and unregulated market participants. AOPL, Duke Energy, and Edison suggest that the Commission should grant the agreements confidential treatment under theFreedom of Information Act's confidential business information exemption.

64. The commenters also object to public notification when their proprietary capital ratios fall below 30 percent. Gulfterra and INGAA argue that such notifications should also be kept confidential to avoid stock volatility.

Commission Response:

65. As noted in the Interim Rule, the Commission considers the information to be collected to be non-confidential in nature and therefore it will be made available to the public. The Commission has determined that release of the information is “necessary to carry out its jurisdictional responsibilities.”See18 CFR 388.112(c)(2003). The information will provide the Commission with relevant and accurate information on which to make decisions.

66. Allowing only the Commission and not the public to review the cash management agreements would not meet the goal of providing greater transparency for the protection of ratepaying customers. This transparency, in turn, will lessen the chance of an acute financial reversal that would harm utility ratepaying customers and energy markets. Entities that believe the information they submit should be withheld from public view on account of unique circumstances may still request confidential treatment pursuant to § 388.112 of our regulations, stating the rationale for their requests. However, general, unsubstantiated assertions that future harm will occur if information contained in cash management agreements is released will be insufficient for a specific company to acquire confidential status.

67. In the interim rule, the Commission implemented documentation requirements for cash management programs that became effective August 7, 2003. The regulations require that cash management agreements be in writing, that the agreements specify the duties and responsibilities of cash management program participants and administrators, specify the methods for calculating interest and for allocating interest income and expenses, and specify any restrictions on deposits or borrowings by participants. The regulations also require FERC-regulated entities to maintain documentation of all deposits into and borrowings from cash management programs, including the amount of the deposit or borrowing, the maturity date, if any, of the deposit or borrowing, and the interest earning rate on the deposit or borrowing, and the daily balance of the cash management program.

Comments Received:

68. Generally, commenters support the requirement to put all cash management agreements in writing. Exelon asserts that it continues to support the Commission's desires to protect customers of FERC-jurisdictional utilities from misuse of cash management accounts. INGAA agrees that cash management agreements should be documented and that FERC-regulated entities should maintain documentation as specified by the regulatory text of Account 146.

69. On the other hand, many commenters, including AOPL, EEI, INGAA and PacifiCorp seek clarification of the documentation requirements. Specifically, AOPL, INGAA, El Paso and PacifiCorp seek clarification of the requirements to document the duties and responsibilities of the administrator and the non-FERC-regulated participants in the program.

70. AOPL and El Paso argue that the regulated entity cannot be called upon to maintain documentation on third party participants. AOPL asserts that the terms of the cash management agreement between the administrator and individual participants can vary and are kept confidential. Cash management programs in which AOPL's member companies participate can have more than a thousand participants and that maintaining this information would prohibit some regulated entities from participating in a cash management program. INGAA also asserts that the regulated entity will not necessarily know the restrictions on deposits or borrowings by each of the other participants in the cash management agreement. PacifiCorp is unclear whether the Commission is also creating a requirement for regulated utilities to amend their existing cash management agreements.

71. Gulf South asks that the Commission clarify that the documentation requirement only applies to monies contributed into the cash management program by the pipeline and not by other participants. It argues that to require pipelines to maintain records on the activities of all cash management participants is not only burdensome, but requires pipelines to be more involved in its affiliates' daily businesses than traditionally has either been required or desired by the Commission.

72. AOPL and EEI urge the Commission to reconsider the requirement to document the interest rates on each deposit into or withdrawal from a cash management program. Both commenters assert that interest earnings on deposits or charges on borrowings typically cannot be determined for an individual deposit or borrowing; rather, interest rates fluctuate based on the average balance for the month or other relevant time period. AOPL also argues that the interest earned on a deposit or charged on a borrowing is both documented in the cash management agreement and reported on a monthly basis in the current statements.

73. Gulf South asks for clarification of what documentation would be required when a program is based solely upon bilateral loan agreements. It asserts that this arrangement is not a traditional money pooling or cash management arrangement and does not have an administrator, but appears to be subject to the requirements of the Final Rule.

Commission Response:

74. The Commission agrees that documentation related to the other participants might be unduly burdensome for FERC-regulated entities to maintain. Therefore, the Commission is requiring that FERC-regulated entities only maintain documentation related to the administrator and the FERC-regulated entity. To reflect this change, the Commission is revising the language in 18 CFR parts 101 and 201, Account 146 C and part 352, Account 13(c) to read, “the public utilities or licensee, natural gas or oil pipeline company must maintain documents authorizing the establishment of cash management programs including the duties and responsibilities of the administrator and the public utility or licensee, natural gas or oil pipeline company in the cash management program.”

75. The Commission agrees that it may be difficult for some FERC-regulated entities to maintain documentation that includes the interest rate on each deposit, withdrawal and borrowing from the cash management program and to maintain records showing the daily balance of the cash management program. Therefore, the Commission is requiring that the documentation authorizing the cash management program include the interest rate but that the documentation supporting deposits, withdrawals and borrowings from the cash management program need not show the interest rate for each transaction. The Commission is modifying the daily balance documentation requirement of the Interim Rule. Rather than require daily balance documentation, the Final Rule is requiring FERC-regulated entities subject to the rule to maintain monthlybalances of their cash management program.

76. To reflect these changes, parts 101 and 201, Account 146 B(1), (2) and (4), and part 352, Account 13(b)(1), (2) and (4) are revised to read, “the written documentation must include (1) For deposits with and withdrawals from the cash management program: the date of the deposit or withdrawal, the amount of the deposit or withdrawal, and the maturity date, if any, of the deposit; (2) For borrowings from a cash management program: the date of the borrowing, the amount of the borrowing, and the maturity date, if any, of the borrowing; * * * and (4) The monthly balance of the cash management program.”

77. Parts 101 and 201, Account 146 C(3), and part 352, Account 13(c)(3) are also revised to read, “The interest rate, including the method used to determine the interest earning rates and interest borrowing rates for deposits into and borrowings from the program.”

78. For cash management programs that are based upon bilateral loan agreements, documentation supporting the programs should include the documentation requirements adopted here. To the extent that certain information is not applicable to the arrangement, the FERC-regulated entity should so state in the information maintained by the entity and filed with the Commission.

79. The Regulatory Flexibility Act (RFA)30 requires agencies to prepare certain statements, descriptions, and analyses of proposed rules that will have a significant economic impact on a substantial number of small entities. The Commission is not required to make such analyses if a rule would not have such an effect.

80. The Commission concludes that this Final Rule would not have such an impact on small entities. Most companies regulated by the Commission do not fall within the RFA's definition of a small entity, and the data required by this rule are already being captured by their accounting systems. However, if the recordkeeping requirements represent an undue burden on small businesses, the entity affected may seek a waiver of the requirements from the Commission.

81. The Commission is required to prepare an Environmental Assessment or an Environmental Impact Statement for any action that may have a significant adverse effect on the human environment.31 The Commission excludes certain actions not having a significant effect on the human environment from the requirement to prepare an environmental impact statement.32 No environmental consideration is raised by the promulgation of a rule that is procedural or does not substantially change the effect of legislation or regulations being amended.33 This Final Rule updates parts 101, 141, 201, 260, 352 and 357 of the Commission's regulations and does not substantially change the effect of the underlying legislation or the regulations being revised or eliminated. Accordingly, no environmental consideration is necessary.

82. The Office of Management and Budget's (OMB) regulations at 5 CFR 1320.11 require that it approve certain reporting and recordkeeping requirements (collections of information) imposed by an agency. Upon approval of a collection of information, OMB will assign an OMB control number and an expiration date. Respondents subject to the information collection requirements of this Final Rule will not be penalized for failing to respond to these collections of information unless the collections of information display a valid OMB control number.

83. In accordance with Section 3507(d) of the Paperwork Reduction Act of 1995,34 the information collection requirements in the subject rulemaking were submitted to OMB for review.

84.Public Reporting Burden:FERC-regulated entities must file their cash management agreements and notify the Commission when their proprietary capital ratios fall below 30 percent and when their proprietary capital ratios subsequently return to or exceed 30 percent. In the Interim Rule the Commission estimated that 602 FERC-regulated entities will be submitting documents describing their cash management agreements and 34 will be submitting notifications. For each entity, the Interim Rule estimated it would require an average of 1.5 hours to file its cash management agreement and .75 hours to submit the notification for a total of burden estimate of 903 hours and 51 hours, respectively. The burden estimates below reflect the reporting requirements.

85. The Commission received over twenty-five comments on the Interim Rule. Several commenters35 have indicated that the Interim Rule's proposed requirements would place a significant burden upon them. In particular, Edison asserts that the implementation of any rule takes much longer than the time it takes to file the document and/or notify FERC of any changes under the rule.

86. Companies were already familiar with the documentation and reporting requirements proposed by the Commission in the Interim Rule. The Commission is responding to comments and modifying what the Interim Rule proposed to ameliorate any additional burden. Sound business practices already require companies to keep adequate internal controls over cash management practices. Such internal controls include documenting and maintaining information to support cash management programs.

87. To reduce the burden on companies, the Commission has changed the reporting requirement in the Final Rule to quarterly and has extended the notification period. The Commission finds the burden associated with complying with this Final Rule is minimal and that its previous estimate was a reasonable one.

88.Reporting Requirements:

Monsanto Co., 800 North Lindbergh Blvd., St. Louis, MO 63167, filed a supplement to NADA 140-872 that provides for the use of POSILAC (sometribove zinc suspension) to increase the production of marketable milk in healthy lactating dairy cows. The supplemental NADA provides for revised precautionary labeling. The application is approved as of September 11, 2003, and the regulations are amended in 21 CFR 522.2112 to reflect the approval. The basis of approval is discussed in the freedom of information summary.

In addition, Monsanto Co. has changed their DLC. At this time, 21 CFR 510.600(c) is being amended to reflect this DLC change.

In accordance with the freedom of information provisions of 21 CFR part 20 and 21 CFR 514.11(e)(2)(ii), a summary of safety and effectiveness data and information submitted to support approval of this application may be seen in the Division of Dockets Management (HFA-305), Food and Drug Administration, 5630 Fishers Lane, rm. 1061, Rockville, MD 20852, between 9 a.m. and 4 p.m., Monday through Friday.

The agency has determined under 21 CFR 25.33(a)(1) that this action is of a type that does not individually or cumulatively have a significant effect on the human environment. Therefore, neither an environmental assessment nor an environmental impact statement is required.

This rule does not meet the definition of “rule” in 5 U.S.C. 804(3)(A) because it is a rule of “particular applicability.” Therefore, it is not subject to thecongressional review requirements in 5 U.S.C. 801-808.

Intervet, Inc., P.O. Box 318, 405 State St., Millsboro, DE 19966, filed NADA 141-222 for the oral use of MATRIX (altrenogest) 0.22% Solution for synchronization of estrus in sexually mature gilts that have had at least one estrous cycle. The NADA is approved as of September 30, 2003, and the regulations are amended in 21 CFR 520.48 and in part 556 (21 CFR part 556) by adding § 556.36 to reflect the approval. The basis of approval is discussed in the freedom of information summary.

In accordance with the freedom of information provisions of 21 CFR part 20 and 21 CFR 514.11(e)(2)(ii), a summary of safety and effectiveness data and information submitted to support approval of this application may be seen in the Division of Dockets Management (HFA-305), Food and Drug Administration, 5630 Fishers Lane, rm. 1061, Rockville, MD 20852, between 9 a.m. and 4 p.m., Monday through Friday.

The agency has carefully considered the potential environmental impact of this action and has concluded that the action will not have a significant impact on the human environment and that an environmental impact statement is not required. FDA's finding of no significant impact and the evidence supporting that finding, contained in an environmental assessment, may be seen in the Division of Dockets Management (address above) between 9 a.m. and 4 p.m., Monday through Friday.

Under section 512(c)(2)(F)(ii) of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 360b(c)(2)(F)(ii)), this approval qualifies for 3 years of marketing exclusivity beginning September 30, 2003.

This rule does not meet the definition of “rule” in 5 U.S.C. 804(3)(A) because it is a rule of “particular applicability.” Therefore, it is not subject to the congressional review requirements in 5 U.S.C. 801-808.

(a)Acceptable Daily Intake (ADI). The ADI for total residues of altrenogest is 0.04 micrograms per kilogram of body weight per day.

(b)Tolerances—(1)Swine—(i)Liver (the target tissue). The tolerance for altrenogest (the marker residue) is 4 parts per billion (ppb).

(ii)Muscle.The tolerance for altrenogest (the marker residue) is 1 ppb.

(2) [Reserved].

In accordance with section 513(f)(1) of the act (21 U.S.C. 360c(f)(1)), devices that were not in commercial distribution before May 28, 1976, the date of enactment of the amendments, generally referred to as postamendments devices, are classified automatically by statute into class III without any FDA rulemaking process. These devices remain in class III and require premarket approval, unless the device is classified or reclassified into class I or II, or FDA issues an order finding the device to be substantially equivalent, in accordance with section 513(i) of the act to a predicate device that does not require premarket approval. The agency determines whether new devices are substantially equivalent to previously marketed devices by means of premarket notification procedures in section 510(k) of the act (21 U.S.C. 360(k)) and 21 CFR part 807 of the FDA regulations.

Section 513(f)(2) of the act provides that any person who submits a premarket notification under section 510(k) of the act for a device that has not previously been classified may, within 30 days after receiving an order classifying the device in class III under section 513(f)(1) request FDA to classify the device under the criteria set forth in section 513(a)(1). FDA shall, within 60 days of receiving such a request, classify the device by written order. This classification shall be the initial classification of the device. Within 30 days after issuing an order classifying the device, FDA will publish a notice in theFederal Registerannouncing the classification.

On April 14, 2003, FDA received a petition submitted under section 513(f)(2) of the act by the Devices and Diagnostics Consulting Group, Inc., seeking an evaluation of the automatic class III designation of its “endotoxin activity assay.” In accordance with section 513(f)(1) of the act, FDA issued an order classifying the device in class III because it was not substantially equivalent to a device that was introduced or delivered for introduction into interstate commerce for commercial distribution before May 28, 1976, or a device that was subsequently reclassified into class I or II. After reviewing information submitted in the petition, FDA determined that the endotoxin activity assay could be classified in class II under the generic name, endotoxin assay, with the establishment of special controls. This device is intended to measure endotoxin activity as an aid in the risk assessment on the first day of the patient's admission to the intensive care unit (ICU). FDA believes that class II special controls, in addition to the general controls, will provide reasonable assurance of the safety and effectiveness of the device.

FDA has identified the risk to health associated specifically with this type of device as improper patient management. Therefore, in addition to the general controls of the act, the device is subject to a special controls guidance document entitled “Class II Special Controls Guidance Document: Endotoxin Assay.” FDA believes this special controls guidance document will reasonably assure the safety and effectiveness of this type of device.

The class II special controls guidance provides information on how to meetpremarket notification submission (510(k)) requirements for the device, including recommendations for labeling and performance studies. FDA believes manufacturers of the device that adhere to the class II special controls guidance will address the potential risk to health identified in the previous paragraph.

Following the effective date of this final classification rule, any firm submitting a 510(k) for an endotoxin assay will need to address the issues covered in the special controls guidance document. However, the firm need only show that its device meets the recommendations of the guidance or in some other way provides equivalent assurances of safety and effectiveness.

Section 510(m) of the act provides that FDA may exempt a class II device from the premarket notification requirement under section 510(k) of the act, if FDA determines that premarket notification is not necessary to provide reasonable assurance of the safety and effectiveness of the device. For this type of device, FDA has determined that premarket notification is necessary to provide reasonable assurance of safety and effectiveness and, therefore, the device is not exempt from the premarket notification requirements. The endotoxin assay is a device that uses serological techniques in whole blood. The device is intended for use in conjunction with other laboratory findings and clinical assessment of the patient to aid in the risk assessment of critically ill patients for progression to severe sepsis. FDA review of performance characteristics and labeling will ensure that acceptable levels of performance for both safety and effectiveness are addressed before marketing clearance. Thus, persons who intend to market this device must submit to FDA a 510(k) containing information on the endotoxin assay before marketing the device.

On June 16, 2003, FDA issued an order classifying the endotoxin activity assay and substantially equivalent devices of this generic type into class II. FDA identifies this generic type of device as an endotoxin assay, which is intended for the use of serological techniques in whole blood. The device is intended for use in conjunction with other laboratory findings and clinical assessment of the patient to aid in the risk assessment of critically ill patients for progression to severe sepsis. The order also stated the endotoxin activity assay is intended for use only on the first day of admission to the ICU.

FDA is codifying the classification of this device by adding 21 CFR 866.3610. The order also identifies a special control applicable to this device, a guidance document entitled “Class II Special Controls Guidance Document: Endotoxin Assay.” Elsewhere in this issue of theFederal Register, FDA is announcing the availability of a guidance document that will serve as the special control for the device.

The agency has determined under 21 CFR 25.34(b) that this action is of a type that does not individually or cumulatively have a significant effect on the human environment. Therefore, neither an environmental assessment nor an environmental impact statement is required.

FDA has examined the impacts of the final rule under Executive Order 12866, the Regulatory Flexibility Act (5 U.S.C. 601-612), and the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1501et seq.). Executive Order 12866 directs agencies to assess all costs and benefits of available regulatory alternatives and, when regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity). The agency believes that this final rule is consistent with the regulatory philosophy and principles identified in the Executive order. In addition, the final rule is not a significant regulatory action as defined by the Executive order and so it is not subject to review under the Executive order.

The Regulatory Flexibility Act requires agencies to analyze regulatory options that would minimize any significant impact of a rule on small entities. FDA knows of only one manufacturer of this type of device. Classification of these devices in class II will relieve manufacturers of the device of the cost of complying with the premarket approval requirements of section 515 of the act (21 U.S.C. 360e), and may permit small potential competitors to enter the marketplace by lowering their costs. The agency, therefore, certifies that the final rule will not have a significant impact on a substantial number of small entities. In addition, this final rule will not impose costs of $100 million or more on either the private sector or State, local, and tribal governments in the aggregate and, therefore, a summary statement of analysis under section 202(a) of the Unfunded Mandates Reform Act is not required.

FDA has analyzed this final rule in accordance with the principles set forth in Executive Order 13132. FDA has determined that the rule does not contain policies that have substantial direct effects on the States, on the relationship between the National Government and the States, or on the distribution of power and responsibilities among the various levels of government. Accordingly, the agency has concluded that the rule does not contain policies that have federalism implications as defined in the Executive order and, consequently, a federalism summary impact statement is not required.

This final rule contains no collections of information. Therefore, clearance by the Office of Management and Budget under the Paperwork Reduction Act of 1995 is not required.

A notice of proposed rulemaking (NPRM) was not published for this regulation. In accordance with 5 U.S.C. 553 (b)(B), the Coast Guard finds good cause exists for not publishing an NPRM. The Coast Guard is taking this action for the continued protection of national security interests in light of terrorist acts perpetrated on September 11, 2001 and the continuing threat that remains from those who committed those acts. Also, in accordance with 5 U.S.C. 553(d)(3), the Coast Guard finds good cause to exist for making this regulation effective less than 30 days after publication in theFederal Register. Publication of a notice of proposed rulemaking and delay of effective date would be contrary to the public interest because immediate action is necessary to provide for the safety of the TAPS terminal and TAPS tank vessels. On November 7, 2001, we published three temporary final rules in theFederal Register(66 FR 56208, 56210, 56212) that created security zones effective through June 1, 2002. The section numbers and titles for these zones are—

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

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

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

Then on June 4, 2002, we published a temporary final rule (67 FR 38389) that established security zones to replace these security zones that expired June 1, 2002. That rule issued in June, which expired July 30, 2002, created temporary § 165.T17-009, entitled ”Port Valdez and Valdez Narrows, Valdez, Alaska”.

Then on July 30, 2002 we published a temporary final rule (67 FR 19359) that established security zones to extend the temporary security zones that would have expired July 30, 2002. This extension was to allow for a notice of proposed rulemaking process to be completed for permanent security zones to replace the temporary zones. Then on October 23, 2002, we published the notice of proposed rulemaking that sought public comment on establishing the temporary security zones as permanent security zones (67 FR 65074). The comment period for that NPRM ended December 23, 2002. Although no comments were received that would result in changes to the proposed rule an administrative omission was found that resulted in the need to issue a supplemental notice of proposed rulemaking (SNPRM) to address the “Collection of Information” section of the proposed rule (68 FR 14935, March 27, 2003). Then, on December 30, 2002, we issued a temporary final rule (68 FR 26490, May 16, 2003) that established security zones to extend the temporary security zones through June 30, 2003. This extension was to allow for a rulemaking for the permanent security zones to be completed. This temporary final rule resumes the temporary security zones to allow for the SNPRM process to be completed.

This temporary final rule establishes three security zones. The Trans-Alaska Pipeline (TAPS) Valdez Marine Terminal Security zone encompasses the waters of Port Valdez between Allison Creek to the east and Sawmill Spit to the west and offshore to marker buoys A and B (approximately 1.5 nautical miles offshore from the TAPS Terminal). The Tanker Moving Security Zone encompasses the waters within 200 yards of a TAPS Tanker within the Captain of the Port, Prince William Sound Zone. The Valdez Narrows Security Zone encompasses the waters 200 yards either side of the Tanker Optimum Trackline through Valdez Narrows between Entrance Island and Tongue Point. This zone is active only when a TAPS Tanker is in the zone.

This temporary final rule reflects the proposed changes to 33 CFR 165.1701 published in an NPRM in theFederal Register(67 FR 65074, October 23, 2002). The Coast Guard has worked closely with local and regional users of Port Valdez and Valdez Narrows waterways to develop these security zones and the NPRM in order to mitigate the impact on commercial and recreational users. This temporary final rule establishes a uniform transition from the temporary operating zones while the NPRM and SNPRM process is completed.

Although the Coast Guard has good cause in implementing this regulation without a notice of proposed rulemaking, we want to afford the maritime community the opportunity to participate in this rulemaking by submitting comments and related material regarding the size and boundaries of these security zones in order to minimize unnecessary burdens. If you do so, please include your name and address, identify the docket number for this rulemaking, COTP Prince William Sound 03-002, indicate the specific section of this document to which each comment applies, and give the reason for each comment. Please submit all comments and related material in an unbound format, no larger than 8.5 by 11 inches, suitable for copying. If you would like to know they reached us, please enclose a stamped, self-addressed postcard or envelope. We will consider all comments and material received during the comment period. We may change this temporary final rule in view of them.

This rule is not a significant regulatory action under section 3(f) of Executive Order 12866 and does not require an assessment of potential costs and benefits under section 6(a)(3) of that order. The Office of Management and Budget has not reviewed it under that Order. It is not “significant” under the regulatory policies and procedures of the Department of Homeland Security (DHS). The Coast Guard expects the economic impact of this proposal to be so minimal that a full Regulatory Evaluation under the regulatory policies and procedures of DHS is unnecessary. Economic impact is expected to be minimal because there are alternative routes for vessels to use when the zone is enforced, permits to enter the zone are available, and the Tanker Moving Security Zone is in effect for a short duration.

Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we have considered whether this rule would have a significant economic impact on a substantial number of small entities. The term ”small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities. The number of small entities impacted by this rule is expected to be minimal because there are alternative routes for vessels to use when the zone is enforced, permits to enter the zone are available, and the Tanker Moving Security Zone is in effect for a short duration. Since the time frame this rule is in effect may cover commercial harvests of fish in the area, the entities most likely affected are commercial and native subsistence fishermen. The Captain of the Port will consider applications for entry into the security zone on a case by-case basis; therefore, it is likely that very few, if any, small entities will be impacted by this rule. Those interested may apply for a permit to enter the zone by contacting Marine Safety Office, Valdez at the above contact number.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we offered to assist small entities in understanding the rule so that they could better evaluate its effects on them and participate in the rulemaking process. Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247).

This rule contains no information collection requirements under the Paperwork Reduction Act (44 U.S.C. 3501et seq.).

The Coast Guard has analyzed this rule under the principles and criteria contained in Executive Order 13132 and has determined that this temporary final rule does not have sufficient federalism implications to warrant the preparation of a Federalism Assessment.

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

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

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

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

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

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

The Coast Guard considered the environmental impact of this rule and concluded that, under Figure 2-1 paragraph 34(g) of Commandant Instruction M16745.1D, this rule is categorically excluded from further environmental documentation. A ”Categorical Exclusion Determination” is available in the docket where indicated underADDRESSES.

In this document, the Librarian of Congress, upon the recommendation of the Register of Copyrights, announces that during the period from October 28, 2003, through October 27, 2006, the prohibition against circumvention of technological measures that effectively control access to copyrighted works shall not apply to persons who engage in noninfringing uses of four classes of copyrighted works. This announcement is the culmination of a year-long rulemaking proceeding conducted by the Register. A more comprehensive statement of the background and legal requirements of the rulemaking, a discussion of the record and the Register's analysis may be found in the Register's memorandum of October 27, 2003 to the Librarian, which contains the full explanation of the Register's recommendation.1 This notice summarizes the Register's recommendation and publishes the regulatory text codifying the four exempted classes of works.

Section 1201 of title 17, United States Code, prohibits circumvention of technological measures employed by or on behalf of copyright owners to protect their works (hereinafter “access controls”). In order to ensure that the public will have continued ability to engage in noninfringing uses of copyrighted works, such as fair use, subparagraph (B) limits this prohibition, exempting noninfringing uses of any “particular class of works” when users are (or in the next 3 years are likely to be) adversely affected by the prohibition in their ability to make noninfringing uses of that class of works. Identification of such classes of works is made in a rulemaking proceeding conducted by the Register of Copyrights, who is to provide notice of the rulemaking, seek comments from the public, consult with the Assistant Secretary for Communications and Information of the Department of Commerce, and recommend final regulations to the Librarian of Congress. The regulations, to be issued by the Librarian of Congress, announce “any class of copyrighted works for which the Librarian has determined, pursuant to the rulemaking conducted under subparagraph (C), that noninfringing uses by persons who are users of a copyrighted work are, or are likely to be, adversely affected, and the prohibition contained in subparagraph (A) shall not apply to such users with respect to suchclass of works for the ensuing 3-year period.”2

The first section 1201 rulemaking took place three years ago, and on October 27, 2000, the Librarian announced that noninfringing users of two classes of works would not be subject to the prohibition on circumvention of access controls.3 Exemptions to the prohibition on circumvention remain in force for a three-year period and expire at the end of that period. The Librarian is required to make a determination on potential new exemptions every three years.

The purpose of the rulemaking proceeding conducted by the Register is to determine whether users of particular classes of copyrighted works are, or in the next three years are likely to be, adversely affected by the prohibition in their ability to make noninfringing uses of copyrighted works. In making her recommendation to the Librarian, the Register must carefully balance the availability of works for use, the effect of the prohibition on particular uses and the effect of circumvention on copyrighted works.

1.Purpose of the Rulemaking.As originally drafted, section 1201(a)(1) provided simply that “No person shall circumvent a technological measure that effectively controls access to a work protected under this title.” However, in response to concerns that section 1201, in its original form, might undermine Congress' commitment to fair use if developments in the marketplace relating to use of access controls result in less access to copyrighted materials that are important to education, scholarship, and other socially vital endeavors, it was determined that a triennial rulemaking proceeding should take place to monitor the use of access controls. If the rulemaking record revealed that access was being unduly restricted,e.g., by elimination of print or other hard-copy versions, permanent encryption of all electronic copies or adoption of business models that restrict distribution and availability of works, then users of particular classes of works who are engaging in noninfringing uses of those works would be allowed to circumvent access controls without running afoul of the prohibition in section 1201(a)(1). The rulemaking proceeding, to be conducted by the Register of Copyrights, was considered a “fail-safe” mechanism, monitoring developments in the marketplace for copyrighted materials, and would allow the enforceability of the prohibition against the act of circumvention to be selectively waived, for limited time periods, if necessary to prevent a diminution in the availability to individual users of a particular category of copyrighted materials.

2.The Necessary Showing.Proponents of an exemption have the burden of proof. In order to make a prima facie case for an exemption, proponents must show by a preponderance of the evidence that there has been or is likely to be a substantial adverse effect on noninfringing uses by users of copyrighted works. De minimis problems, isolated harm or mere inconveniences are insufficient to provide the necessary showing. Similarly, for proof of “likely” adverse effects on noninfringing uses, a proponent must prove by a preponderance of the evidence that the harm alleged is more likely than not; a proponent may not rely on speculation alone to sustain a prima facie case of likely adverse effects on noninfringing uses. It is also necessary to show a causal nexus between the prohibition on circumvention and the alleged harm.

Proposed exemptions are reviewedde novo.The existence of a previous exemption creates no presumption for consideration of a new exemption, but rather the proponent of such an exemption must make a prima facie case in each three-year period.

3.Determination of “Class of Works”.A “particular class of works” to be exempted from the prohibition on circumvention must be based upon attributes of the works themselves, and not by reference to some external criteria such as the intended use or users of the works. The starting point for any definition of a “particular class” of works in this rulemaking must be one of the categories of works set forth in section 102 of the Copyright Act, but those categories are only a starting point and a “class” will generally constitute some subset of a section 102 category. The determination of the appropriate scope of a “class of works” recommended for exemption will also take into account the likely adverse effects on noninfringing uses and the adverse effects an exemption may have on the market for or value of copyrighted works.

While starting with a section 102 category of works, or a subcategory thereof, the description of a “particular class” of works ordinarily should be further refined by reference to other factors that assist in ensuring that the scope of the class addresses the scope of the harm to noninfringing uses. For example, the class might be defined in part by reference to the medium on which the works are distributed, or even to the access control measures applied to them. But classifying a work solely by reference to the medium on which the work appears, or the access control measures applied to the work, would be beyond the scope of what “particular class of work” is intended to be. And it is not permissible to classify a work by reference to the type of user or use (e.g., libraries, or scholarly research).

As required by section 1201(a)(1)(C), the Register consulted with the Assistant Secretary for Communications and Information of the Department of Commerce, meeting with her at the outset of the rulemaking proceeding and after the record had been compiled, and keeping her and her staff apprised of developments throughout the proceeding. The Assistant Secretary shared her views with the Register orally in July, 2003, and in a letter dated August 11, 2003. Rather than address any particular proposals for exemptions, the Assistant Secretary commented on the rulemaking process itself, focusing exclusively on the Notice of Inquiry (“NOI”) published October 15, 2002.

The Assistant Secretary expressed general agreement with the discussion in the NOI regarding the definition of a “class of works,” but added that the intended use of the work or the attributes of the user will sometimes be critical to that determination. She also agreed with the Register that proponents of exemptions have the burden of proof and that and that the assessment of adverse impacts is to be determinedde novo.However, she expressed some concern that the NOI may have described the proponents' burden of proof as higher than required by the statute.

The Assistant Secretary appears to have misread the NOI, which stated the burden of proof using verbatim quotations from the legislative history of section 1201. In particular, the Assistant Secretary appears to have misunderstood the meaning of the requirement that proponents show thatthe prohibition on circumvention has had a “substantial” adverse effect on noninfringing uses of a particular class of work. Use of the term “substantial” does not impose a “heightened” requirement; it imposes the requirement found throughout the legislative history, which is variously stated as “substantial adverse impact,” “distinct, verifiable, and measurable impacts,” and more than “de minimisimpacts.” As is apparent from the dictionary definition of “substantial” and the Supreme Court's treatment of the term (e.g., in its articulation of the substantial evidence rule), requiring that one's proof be “substantial” simply means that it must have substance. The Assistant Secretary's fear that the Register has imposed a heightened burden is misplaced. When all is said and done, the Register believes that she and the Assistant Secretary view the burden on proponents in much the same way.

On October 15, 2002, the Librarian and the Register initiated the second rulemaking proceeding pursuant to section 1201(a)(1)(C) with publication of a NOI.4 The Copyright Office received 51 written comments proposing a class or classes of works for exemption. Supporters and opponents of these proposals filed 338 reply comments. Six days of public hearings were conducted in Spring 2003 in Washington, D.C., and Los Angeles, California. Following the hearings, the Office sent follow-up questions to some of the hearing witnesses, and responses were received during the summer. The entire record in this and the previous section 1201(a)(1)(C) rulemaking are available on the Office's Web site.5

The Register has now carefully reviewed and analyzed the entire record in this rulemaking proceeding to determine whether any class of copyrighted works should be exempt from the prohibition against circumvention during the next three years. The Register recommends that noninfringing users of four classes of works be exempt from the prohibition on circumvention of access controls.

Based on the Register's review of the record, the case has been made for exemptions of the following four classes of copyrighted works.

This is similar to an exemption made in the previous rulemaking, but with some modifications. The class consists of lists of blocked Web sites that are used in various filtering software programs sometimes referred to as “censorware.” These programs are intended to prevent children and other Internet users from viewing objectionable material while online. It was alleged that although the software is intended to serve a useful societal purpose, the emphasis of the programs is on blocking rather than accuracy. Critics contend that the result of this focus is that filtering software used to prevent access to objectionable material tends to over-block, thereby preventing access to legitimate information resources. In order to comment on this software and expose what they claim is the excessive blocking of Web sites, critics claim they need to gain access to the lists of blocked Web sites, which typically are protected by access controls.

Opponents argued that filtering software companies serve a critical societal purpose and that an exemption would undermine the integrity of filtering software. They also argued that filtering software companies provide reasonable means for ascertaining the material or sites that a particular filtering software blocks. They also stated that even if the Register found that an exemption was warranted, the particular class articulated in the previous rulemaking was overly broad and that repeating an exemption for that class could create adverse consequences for other types of software, such as antivirus and spam software.

Although a similar class was exempted in the first rulemaking, proponents are required to make their case anew every three years. The record in the current rulemaking warrants a new exemption. While providers of filtering software offer some information about the Web sites their software blocks, it is too limited to permit comprehensive or meaningful analysis. Persons wishing to review, comment on and criticize this software as part of an ongoing debate on a matter of public interest should be permitted to gain access to the complete lists of blocked Web sites.

The particular class of works designated in this rulemaking covers the lists of websites blocked by commercially marketed filtering software applications that are intended to prevent access to domains, websites or portions of Web sites. However, the exempted class specifically excludes lists of Internet locations blocked by software designed to protect against damage to computers, such as firewalls and antivirus software, or software designed to prevent receipt of unwanted e-mail, such as anti-spam software.

The second exempted class is also similar to a class exempted in 2000, but again the class exempted in this proceeding is somewhat more limited. Many commenters supported a renewal of the previous exemption for “literary works, including computer programs and databases, protected by access control mechanisms that fail to permit access because of malfunction, damage or obsoleteness.” Few commenters, however, provided any factual support for such an exemption. The facts that were presented related to a narrower class of works: computer programs using “dongles,” or hardware locks, which control access to the programs. Accordingly, the exempted class is limited to such computer programs. When a dongle is damaged or malfunctions in such as way that the authorized user of the software cannot gain access to the software, the authorized user should be given a means to make the software work. The exempted class includes only that software that actually cannot be accessed due to a damaged or malfunctioning dongle, and only when the dongle cannot be replaced or repaired. The class is formulated as including “computer programs protected by dongles that prevent access due to malfunction or damage and which are obsolete.” Copyright law already provides a definition of obsolete, found in section 108(c) of the Copyright Act, which captures the circumstances under which an exemption is justified: “a [dongle] shall be considered obsolete if [it] is no longer manufactured or is no longer reasonably available in the commercial marketplace.” For purposes of this exemption, a dongle would beconsidered “obsolete” if replacement or repair are not reasonably available in the marketplace. In addition to encouraging reasonable support to be made available to users, the exemption will allow users who are denied access as a result of a damaged or malfunctioning dongle to circumvent when repair or a replacement are unavailable. This exemption minimizes the adverse effects on noninfringing uses by users of software protected by these access control measures while also minimizing the adverse effects on copyright owners.

This is a new exemption, in response to a proposal by The Internet Archive for “[l]iterary and audiovisual works embodied in software whose access control systems prohibit access to replicas of the works.” The Internet Archive, a non-profit library that maintains a collection of websites, software and other works in digital formats in a digital archive, migrates such works to modern storage systems (e.g., by transferring a computer program from a floppy diskette to a hard drive) that are more stable and that will ensure continuing access to the works.

The Internet Archive stated that works distributed in digital formats on physical media (such as floppy diskettes, CD-ROMs, etc.) have sometimes been accompanied by “original only” access controls, technological measures that, while technically permitting copies to be made, prevent those copies from functioning (so that, for example, a copy of a computer program made from the original floppy diskette will not run, or a copy of an audiovisual game made from the original CD-ROM cannot be played). This prevents the Internet Archive from migrating those works to its modern storage system.

The problem is particularly compelling when the physical format in which the copy was originally marketed has become obsolete. If the Internet Archive is given computer software that was marketed on 51/4-inch floppy diskettes, it will not even be able to access the work in its original format on the typical computer sold in the marketplace today, because computers sold today are not equipped with 51/4-inch floppy drives. However, Internet Archive also desires an exemption that addresses the “original only” problem even when the medium on which the original copy was marketed (e.g., CD-ROM) is not yet obsolete, noting that it is crucial to archive digital works before they become inaccessible and before the information on the medium has degraded.

The Register has concluded that to the extent that libraries and archives wish to make preservation copies of published software and video games that were distributed in formats that are (either because the physical medium on which they were distributed is no longer in use or because the use of an obsolete operating system is required), such activity is a noninfringing use covered by section 108(c) of the Copyright Act. The exempted class is therefore limited to works distributed in such now-obsolete formats. Again, “obsolete” has the same meaning that is set forth in section 108(c). A format shall be considered obsolete if the machine or system necessary to render perceptible a work stored in that format is no longer manufactured or is no longer reasonably available in the commercial marketplace. The class is also limited to computer programs and video games because the evidence in the record of this rulemaking does not support a broader class of works.

The final exempted class is based upon proposals by the American Foundation for the Blind and five major library associations. It is in response to problems experienced by the blind and visually impaired in gaining meaningful access to literary works distributed as ebooks. Ebooks can offer accessibility to the blind and the visually impaired that is otherwise not available from a print version. Ebooks may allow the user to activate a “read-aloud” function offered by certain ebook readers. Ebooks may also permit accessibility to the work by means of screen reader software, a separate program for the blind and visually impaired that interacts with an ebook reader and that is capable of converting the text into either synthesized speech or braille.

By using digital rights management tools that implicate access controls, publishers of ebooks can disable the read-aloud function of an ebook and may prevent access to a work in ebook form by means of screen reader software. The record indicates that many ebooks are distributed with these two functions disabled. The disabling of these functions is alleged to prevent the blind and visually impaired from engaging in particular noninfringing uses such as private performance, and to prevent access to these works by blind and visually impaired users altogether. The uses that such persons make by using the “read-aloud” function and screen readers are noninfringing, and are likely to be the most reasonable means of meaningful access for such persons to works that are published in ebook format.

To be included in the exempted class, a literary work must exist in ebook format. Moreover, the exemption is not available if any existing edition of the work permits the “read-aloud” function or is screen reader-enabled. Thus, a publisher may avoid subjecting any of its works to this exemption simply by ensuring that for each of its works published in ebook form, an edition exists which is accessible to the blind and visually impaired in at least one of these two ways.

A number of other proposed exemptions were considered, but rejected. They are briefly discussed below. Similar proposed exemptions are discussed together.

Many comments declined to specify a “class of works” and instead designated the “class” to be exempted as “all works.” Because the proponents of an exemption for “all works” have utterly failed to propose “a particular class of copyrighted works,” but have simply asked, in effect, for a blanket exemption for all works—in effect, an administrative abrogation of section 1201(a)(1)—these proposals must be rejected.

Another group of proposals defined the class of works primarily by reference to the type of use of works or the nature of the users,e.g., fair use works. A “use-based” or “user-based” classification is not permitted. The statutory exemptions in section 1201 contain carefully crafted, use-based and user-based exemptions. Congress considered and declined to enact certain use-based exemptions similar to some of the proposals raised in this rulemaking. The statutory text and the legislative historyprovide no evidence that Congress intended this rulemaking to second-guess congressional determinations. Rather, Congress created this rulemaking as a “fail-safe” mechanism to focus on evidence of adverse effects in particular sub-categories of works that could be ameliorated by appropriately crafted, short-term exemptions.

These two related classes were proposed by one commenter. Each proposed class consists of “musical recordings and audiovisual works,” apparently occupying virtually the entire field of works in the category of audiovisual works (section 102(6)) and a substantial part of the categories of sound recordings (section 102(7)) and musical works (section 102(2)). The proposed class is further narrowed only by reference to the necessary or intended use by persons wishing to circumvent the access controls. Because each of these proposed classes is defined largely in terms of the purpose of the circumvention, they cannot be considered. They are simply variants of the type of use-based class that is beyond the scope of this proceeding.

This proposal also failed to propose “a particular class of copyrighted works.” Moreover, commenters proposed this class without providing any factual support whatsoever. Proponents failed to specify particular access controls that have caused adverse effects on noninfringing uses, and have failed to describe what noninfringing uses have been adversely affected.

This class was proposed by a commenter seeking an exemption to permit persons who have obtained digital copies of motion pictures or sound recordings, under agreements that limit the circumstances (typically, a time limitation) under which they may view or hear them, to circumvent access controls that enforce those agreements. The examples cited by the commenter relate primarily to online services that deliver music or movies to subscribers under an agreement that permits the subscriber to obtain access to the work only so long as the subscriber continues to subscribe to the service. The commenter seeks to exempt such works from the prohibition on circumvention so that users of such works would be able to continue to play them even when the agreed-on conditions for their use no longer apply.

A consumer who enters into an agreement to pay a particular sum for the right to listen to or view a copyrighted work for a limited period of time can have no reasonable expectation of continued access once that time has expired. Especially when the works that are the subject of this proposed exemption—motion pictures and sound recordings—are widely available for purchase in formats that have no time restrictions on use, the case for an exemption has not been made. In fact, the DMCA was intended to encourage such use-facilitating services that give consumers the option to pay lower prices for more limited uses of copyrighted works.

The proposed exemption for “thin copyright works” suffers from the same flaws as the proposals to exempt classes such as “fair use works.” Although it was stated that these “thin copyright” works contain “limited copyrighted subject material,” there was no showing of any present or likely harm to users wishing to engage in noninfringing uses. There was no showing that any such works were unavailable in an alternative, unprotected format. Without any demonstration of an adverse effect, any specific allegation of any particular technological measure protecting access to works, or any discussion of the unavailability of the material cited in unprotected formats, there is little basis for consideration.

Several comments sought an exemption for works that are either public domain, open source or “open access,” but to which access controls are applied. The commenters addressing open source and open access works provided absolutely no information in support of their requests. Aside from a proposal relating to public domain material on DVDs, there was a paucity of information relating to other public domain works. These commenters have overlooked that if a work that is entirely in the public domain is protected by an access control measure, the prohibition on circumvention will not be applicable. Therefore, no exemption is needed.

In the DVD context, a proponent provided a series of lists of audiovisual works that it contended are in the public domain, some of which it alleged are distributed bundled with copyrighted material. However, opponents of the proposed exception indicated that many if not all the works named by the proponent are available in unencrypted (VHS) format, are not bundled with copyrighted material, are themselves still subject to copyright protection, or are not encrypted by the Content Scrambling System (“CSS”) or otherwise subject to an access control, effectively rebutting the proponent's showing.

Supporters of this proposed class wanted to be able to transfer sound recordings and musical works from one medium to another. Some commenters also believe that they should be able to convert these works to new or different formats or to back up the works for archival purposes,e.g., to “refresh” the media from time to time to ensure that the works are available both for their use and for future generations. However, these proponents have not clearly stated or demonstrated that access controls are preventing these activities.

In the case of audiovisual works on DVDs, the proponents desire to make backup copies of their DVDs for a variety of purposes: They claim that DVDs are inherently fragile and subject to damage; they are concerned about loss or theft of the original during travel; they wish to duplicate collections to avoid the burdens and risks of transporting DVDs; they assert that some titles are out of print and cannot be replaced in case of damage; and they claim that the duration of a DVD's lifespan is limited. The Register concludes that the proponents have not made the case with respect to fragility of DVDs, nor have they shown that the making of backup copies of DVDs is a noninfringing use.

Sections 111(d) and 129 of the Clean Air Act (CAA) require states to submit plans to control certain pollutants (designated pollutants) at existing solid waste combustor facilities (designated facilities) whenever standards of performance have been established under section 111(b) for new sources of the same type, and EPA has established emission guidelines (EG) for such existing sources. A designated pollutant is any pollutant for which no air quality criteria have been issued, and which is not included on a list published under section 108(a) or section 112(b)(1)(A) of the CAA, but emissions of which are subject to a standard of performance for new stationary sources. However, section 129 of the CAA, also requires EPA to promulgate EG for Commercial and Industrial Solid Waste Incineration (CISWI) units that emit a mixture of air pollutants. These pollutants include organics (dioxins/furans), carbon monoxide, metals (cadmium, lead, mercury), acid gases (hydrogen chloride, sulfur dioxide, and nitrogen oxides) and particulate matter (including opacity). On December 1, 2000 (65 FR 75338), EPA promulgated CISWI unit new source performance standards and the EG, 40 CFR part 60, subparts CCCC and DDDD, respectively. The designated facility to which the EG apply is each existing CISWI unit, as defined in subpart DDDD, that commenced construction on or before November 30, 1999.

Section 111(d) of the CAA requires that “designated” pollutants, regulatedunder standards of performance for new stationary sources by section 111(b) of the CAA, must also be controlled at existing sources in the same source category to a level stipulated in an EG document. Section 129 of the CAA specifically addresses solid waste combustion and emission controls based on what is commonly referred to as “maximum achievable control technology” (MACT). Section 129 requires EPA to promulgate a MACT based emission guidelines document for CISWI units, and then requires states to develop plans that implement the EG requirements. The CISWI EG under 40 CFR part 60, subpart DDDD, establishes emission and operating requirements under the authority of the CAA sections 111(d) and 129. These requirements must be incorporated into a state plan that is “at least as protective” as the EG, and is Federally enforceable upon approval by EPA. The procedures for adoption and submittal of state plans are codified in 40 CFR part 60, subpart B.

On May 20, 2003, the Puerto Rico Environmental Quality Board (PREQB) submitted to EPA a section 111(d)/129 plan to implement 40 CFR part 60, subpart DDDD—Emission Guidelines, for existing CISWI units located in the Commonwealth of Puerto Rico. PREQB's submittal included: Enforceable mechanisms; the necessary legal authority; inventory of CISWI units; emissions inventory; enforceable compliance schedules; testing, monitoring, recordkeeping, and reporting requirements; record of public hearing; and a provision for annual state progress reports.

40 CFR 60.24(a) requires that a section 111(d) plan include emissions standards, defined in 40 CFR 60.21(f) as “a legally enforceable regulation setting forth an allowable rate of emissions into the atmosphere, or prescribing equipment specifications for control of air pollution emissions.”

On June 4, 2003, Puerto Rico adopted revisions to Rule 102 and Rule 405 of the Puerto Rico Regulations for the Control of Atmospheric Pollution (PRRCAP), entitled “Definitions” and “Incineration”, respectively. Revised rules 102 and 405 became effective on July 4, 2003, and are intended to control air emissions from existing CISWI units located in Puerto Rico.

40 CFR 60.26 requires that a section 111(d) plan demonstrate that the state has the necessary legal authority to adopt and implement the plan. In order to make this demonstration, the plan must show that the state has the legal authority to adopt emission standards and compliance schedules for the designated facilities; enforce the applicable laws, regulations, emission standards and compliance schedules, including the ability to obtain injunctive relief; the authority to obtain information from the designated facilities in order to determine compliance, including the authority to require recordkeeping from the facilities, to make inspections and to conduct tests at the facilities; the authority to require designated facilities to install, maintain and use emission monitoring devices; the authority to require periodic reporting to the state on the nature and amounts of emissions from the facility; and the authority for the state to make such emissions data available to the public. Puerto Rico has demonstrated all these elements. As a result, Puerto Rico has demonstrated that it has sufficient authority to adopt rules governing existing CISWI units and that the PREQB has sufficient legal authority to enforce these rules and to develop and administer this CISWI plan.

40 CFR 60.25(a) requires that a section 111(d) plan include a complete source inventory of all existing CISWI units (i.e., those CISWI units that commenced construction on or before November 30, 1999) in Puerto Rico that are subject to the plan. 40 CFR 60.25(a) also requires an estimate of the regulated pollutants. A list of the existing CISWI units in Puerto Rico and emission estimates for organics (dioxins/furans), carbon monoxide, metals (cadmium, lead, mercury), acid gases (hydrogen chloride, sulfur dioxide, and nitrogen oxides) and particulate matter (including opacity) for each existing CISWI unit located in Puerto Rico, has been submitted as part of Puerto Rico's CISWI plan.

40 CFR 60.24(c) specifies that a state plan must include emission standards that are no less stringent than the EG (except as specified in 40 CFR 60.24(f) which allows for less stringent emission limitations on a case-by-case basis if certain conditions are met). 40 CFR 60.2875 contains the emissions standards applicable to existing CISWI units. Subsection 405(c)(2) of the PRRCAP includes emission limitation requirements consistent with 40 CFR 60.2875.

A state's section 111(d) plan must include a compliance schedule that owners and operators of affected CISWI units must meet in complying with the requirements of the plan. 40 CFR 60.2535 indicates that final compliance should be achieved as expeditiously as practicable after EPA approval of the state plan but no later than December 1, 2005 or three years after the effective date of the state plan approval, whichever is sooner. If the owner or operator of a CISWI unit plans to achieve compliance more than one year following the effective date of the state plan approval, then two increments of progress must be met, which are; submit a final control plan; and achieve final compliance.

Subsection 405(c)(8) of the PRRCAP includes the increments of progress and the dates by which those increments must be met, which are, submit final control plan six months after the effective date of EPA plan approval and achieve final compliance 18 months after the effective date of EPA plan approval, or by December 1, 2005, whichever date is earlier.

Subsection 405(c)(5) of the PRRCAP includes the performance testing requirements and testing methods. Subsection 405(6) includes the monitoring requirements including the monitoring equipment and parameters to be used. Subsection 405(c)(7) requires that all designated CISWI facilities subject to the rule keep appropriate records of the operation and maintenance of the CISWI units. Subsection 405(c)(7) also includes the reporting requirements.

On January 15, 2003, Puerto Rico held a public hearing on its CISWI plan, including the revisions to Rules 102 and 405 of the PRRCAP. PREQB included in its May 20, 2003, submittal to EPA, copies of the public notices and public hearing record.

40 CFR 60.25(e) and (f) requires states to submit to EPA annual reports on theprogress of plan enforcement. Puerto Rico has acknowledged this requirement and will submit to EPA annual reports on the progress in the implementation of its CISWI plan.

EPA has evaluated the CISWI plan submitted by Puerto Rico for consistency with the CAA, EPA emission guidelines and policy. EPA has determined that Puerto Rico's Plan meets all requirements and, therefore, EPA is approving Puerto Rico's Plan to implement and enforce subpart DDDD, as promulgated on December 1, 2000, applicable to existing CISWI units that have commenced construction on or before November 30, 1999. EPA is also approving revisions to Rule 102 and Rule 405 of the Puerto Rico Regulations for the Control of Atmospheric Pollution, entitled, “Definitions” and “Incineration”, respectively.

The EPA is publishing this rule without prior proposal because the Agency views this as a noncontroversial submittal and anticipates no adverse comments. However, in the proposed rules section of thisFederal Registerpublication, EPA is publishing a separate document that will serve as the proposal to approve the State Plan revision should adverse comments be filed. This rule will be effective December 30, 2003, without further notice unless the Agency receives adverse comments by December 1, 2003.

If the EPA receives adverse comments, then EPA will publish a timely withdrawal in theFederal Registerinforming the public that the rule will not take effect. EPA will address all public comments in a subsequent final rule based on the proposed rule. The EPA will not institute a second comment period on this action. Any parties interested in commenting must do so at this time.

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

This rule also does not have tribal implications because it will not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes, as specified by Executive Order 13175 (65 FR 67249, November 9, 2000). Puerto Rico's State plan applies to all affected sources regardless of whether it has been identified in its plan. Therefore, EPA has concluded that this rulemaking action does not have federalism implications nor does it have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132 (64 FR 43255, August 10, 1999). This action merely approves a state rule implementing a Federal standard, and does not alter the relationship or the distribution of power and responsibilities established in the CAA. This rule also is not subject to Executive Order 13045 “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997), because it is not economically significant.

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

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

Under section 307(b)(1) of the CAA, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by December 30, 2003. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this rule for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements. (See section 307(b)(2).)

In 48 CFR part 1733, OPM has promulgated regulations concerning disputes and appeals involving OPM contracting officer decisions. Pursuant to a designation by the Director of OPM, appeals under the Contract Disputes Act, 41 U.S.C. 601et. seq.,are handled by IBCA. Since 1970, IBCA has been located at 4015 Wilson Boulevard, and that address is included in two sections within 48 CFR part 1733.

IBCA has relocated to 801 North Quincy Street, Arlington, Virginia. OPM is revising its administrative appeals regulations to reflect IBCA's new street address.

OPM has determined that the general notice of proposed rulemaking and comment provisions of the Administrative Procedures Act, 5 U.S.C. 553(b), do not apply to this rulemaking because the changes being made relate solely to matters of agency organization, procedure, and practice. They therefore satisfy the exemption from notice and comment rulemaking in 5 U.S.C. 553 (b)(A).

OPM has reviewed this rule under the following statutes and executive orders governing rulemaking procedures: The Unfunded Mandates Reform Act of 1995,2 U.S.C.1501et. seq.;the Regulatory Flexibility Act, 5 U.S.C. 601et. seq.;the Small Business. Regulatory Enforcement Fairness Act of 1996, 5 U.S.C. 801et. seq.;the Paperwork Reduction Act, 44 U.S.C. 3501et. seq.; the National Environmental Policy Act of 1969, 42 U.S.C. 4321et. seq.;Executive Order 12630 (Takings); Executive Order 12866 (Regulatory Planning and Review); Executive Order 12988 ( Civil Justice Reform); Executive Order 13132 (Federalism); Executive Order 13175 (Tribal Consultation); and Executive Order 13211 (Energy Impacts). OPM has determined that this rule does not trigger any of the procedural requirements of those statutes and executive orders, since this rule merely changes the street address for IBCA.

I certify that these regulations would not have a significant economic impact on a substantial number of small entities because they would apply only to Federal agencies and employees.

This rule has been reviewed by the Office of Management and Budget in accordance with E.O. 12866.

Item I of FAC 2001-15 eliminated the SF 129, Solicitation Mailing List Application and the need to maintain paper-based sources of contractor information. As a result, a change to NFS Part 1805 is required. FAC 2001-15, item number V, Leadership inEnvironmental Management (E.O. 13148), requires insertion of Alternates I or II to FAR clause 52.223-5, Pollution Prevention and Right-to-Know Information, in certain contracts that provide for performance on a Federal facility if an Environmental Management System (EMS) is being implemented. NASA is implementing an EMS. This NFS change implements FAC 2001-15 item number V by providing guidance on when to use the alternates. FAC 2001-14, clarified the use of the term “United States.”

NFS section 1825.7001 is amended to remove the phrase “ its possessions, and Puerto Rico” since it is no longer necessary based on the definition of “United States” contained in FAR Part 25. Lastly, this change to the NFS updates the designated NASA ombudsman.

This is not a significant regulatory action and, therefore, was not subject to review under section 6(b) of Executive Order 12866, Regulatory Planning and Review, dated September 30, 1993. This rule is not a major rule under 5 U.S.C. 804.

This final rule does not constitute a significant revision within the meaning of FAR 1.501 and Pub. L. 98-577, and publication for public comment is not required. However, NASA will consider comments from small entities concerning the affected NFS Parts 1805, 1823, 1825 and 1852 in accordance with 5 U.S.C. 610.

The Paperwork Reduction Act does not apply because the changes do not impose recordkeeping or information collection requirements which require the approval of the Office of Management and Budget under 44 U.S.C. 3501,et seq.

Each year, NASA's financial statements are audited in accordance with generally accepted government auditing standards. NASA must maintain adequate controls to reasonably assure that property, plant and equipment and materials are presented fairly in its financial statements. Since contractors maintain NASA's official records for its assets in their possession, NASA uses the data contained in contractor reports for annual financial statements and property management. This interim rule provides policies and procedures related to obsolete property, contractor validation of 1018 data, and proper reporting of software to which NASA has title. This change will provide for consistent reporting of NASA property by contractors. It also reflects the need to change the date of submission forannual property reports from October 31st to October 15th.

NASA certifies that this interim rule will not have a significant economic impact on a substantial number of small businesses within the meaning of the Regulatory Flexibility Act (5 U.S.C. 601et seq.) because it clarifies existing property reporting policies and procedures contractors must follow when accounting for and reporting assets.

The Paperwork Reduction Act does not apply because the changes to the NFS do not impose new recordkeeping or information collection requirements which require the approval of the Office of Management and Budget under 44 U.S.C. 3501,et seq.

In accordance with 41 U.S.C. 418(d), NASA has determined that urgent and compelling reasons exist to promulgate this interim rule. The basis for this determination is that the clarifications contained in this interim rule are needed to ensure consistent reporting of NASA assets in contractor annual reports to be submitted for Fiscal Year 2003. Public comments received in response to this interim rule will be considered in the formation of the final rule.