The U.S. Office of Special Counsel (OSC) is revising its regulations governing filing of: (1) complaints of prohibited personnel practices or other prohibited activity; (2) disclosures of information; and (3) requests for advisory opinions on the Hatch Act, under 5 CFR 1800.1, 1800.2, and 1800.3. These revisions are intended to more clearly describe the requirements and options for filing complaints, disclosures and requests for advisory opinions, and to direct potential filers to OSC's web site for information and instructions on electronic filing of complaints and disclosures (athttp://www.osc.gov). The Government Paperwork Elimination Act (GPEA, Pub. L. 105-277) requires Federal agencies to provide individuals or entities that deal with agencies the option to submit information or transact with the agency electronically, and to maintain records electronically, when practicable. OSC has been working to comply with GPEA in stages by first offering complaint and disclosure forms to be printed from OSC's web site; then adding the capability of filling the forms out on-line and submitting them by mail or fax to OSC; and finally by offering electronic filing. These options are described on the OSC Web site athttp://www.osc.gov(under “Forms”). This revision of OSC regulations on filing complaints and disclosures with OSC is intended to present clear information on all available options for such filings.

Administrative Procedure Act(APA)

This action is taken under the Special Counsel's authority, at 5 U.S.C. 1212(e), to publish regulations in the Federal Register. Under the Administrative Procedure Act, at 5 U.S.C. 553(b)(3)(B), statutory procedures for agency rulemaking do not apply “when the agency for good cause finds (and incorporates the finding and a brief statement of reasons therefore in the rules issued) that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.” OSC finds that such notice and public procedure are unnecessary and contrary to the public interest because: (1) these revisions more clearly describe filing options at OSC; and (2) the public benefits from early notice of additional filing options, and further delay is unnecessary and contrary to the public interest.

Congressional Review Act(CRA): OSC has determined that these revisions are non-major under the Congressional Review Act, and is submitting a report on this final rule to Congress and the General Accounting Office pursuant to the act. The rule is effective December 1, 2003, as permitted by 5 U.S.C. 808.

Regulatory Flexibility Act(RFA): The Regulatory Flexibility Act does not apply, as this rule is not subject to notice and comment procedures under the APA.

Paperwork Reduction Act(PRA): OSC has received OMB approval of the Forms OSC-11 and OSC-12, which are referenced in the regulations, for use through August 31, 2006, including use of these forms for electronic filing.

Unfunded Mandates Reform Act(UMRA): This proposed revision does not impose any Federal mandates on State, local, or tribal governments, or on the private sector within the meaning of the UMRA.

Executive Order 12866(Regulatory Planning and Review): OSC anticipates that the economic impact of this revision will be insignificant. Thus this proposed revision 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 the order.

Executive Order 12988(Civil Justice Reform): This proposed rule meets applicable standards of section 3(a) and 3(b)(2) of Executive Order 12988.

Executive Order 13132(Federalism): This proposed revision does not have new federalism implications under Executive Order 13132. The Hatch Act, at title 5 of the U.S. Code, chapter 15, prohibits certain political activities of covered state and local government employees. The OSC has jurisdiction to issue advisory opinions on political activity by those employees, and to bring an enforcement action before the Merit Systems Protection Board for prohibited activity by a covered state or local government employee. However, this proposed revision does not substantively affect the rights of state and local government employees. Rather, these revised regulations simply provide information on options for filing an allegation of a violation of the Hatch Act, or a request for an advisory opinion on the Hatch Act with OSC.

This document adopts as a final rule, without change, an interim final rule concerning pooling provisions of the Central milk order. Specifically, this final rule continues to amend thePool plantprovisions which: Establish lower but year-round supply plant performance standards; do not consider the volume of milk shipments to distributing plants regulated by another Federal milk order as a qualifying shipment on the Central order; exclude from receipts diverted milk made by a pool plant to another pool plant in determining pool plant diversion limits; and establish a “net shipments” provision for milk deliveries to distributing plants. ForProducer milk,this final rule continues to adopt amendments which: Establish higher year-round diversion limits; base diversion limits for supply plants on deliveries to Central order distributing plants; and eliminate the ability to simultaneously pool the same milk on the Central order and a State-operated milk order that has marketwide pooling.

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

This final rule has been reviewed under Executive Order 12988, Civil Justice Reform. This rule is not intended to have a retroactive effect. This rule will not preempt any State or local laws, regulations, or policies, unless they present an irreconcilable conflict with the rule.

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

In accordance with the Regulatory Flexibility Act (5 U.S.C. 601et seq.), the Agricultural Marketing Service has considered the economic impact of this action on small entities and has certified that this rule will not have a significant economic impact on a substantial number of small entities. For the purpose of the Regulatory Flexibility Act, a dairy farm is considered a “small business” if it has an annual gross revenue of less than $750,000, and a dairy products manufacturer is a “small business” if it has fewer than 500 employees.

For the purposes of determining which dairy farms are “small businesses,” the $750,000 per year criterion was used to establish a production guideline of 500,000 pounds per month.

Although this guideline does not factor in additional monies that may be received by dairy producers, it should be an inclusive standard for most “small” dairy farmers. For purposes of determining a handler's size, if the plant is part of a larger company operating multiple plants that collectively exceed the 500-employee limit, the plant will be considered a large business even if the local plant has fewer than 500 employees.

Of the 10,108 dairy producers (farmers) whose milk was pooled under the Central order at the time of the hearing (November 2001) 9,695 or 95.9 percent would meet the definition of small businesses. On the processing side, 10 of the 56 milk plants associated with the Central order during November 2001 would qualify as “small businesses,” constituting about 18 percent of the total.

Based on these criteria, more than 95 percent of the producers would be considered as small businesses. The adoption of the proposed pooling standards serves to revise the criteria that determine those producers, producer milk, and plants that have a reasonable association with, and are consistently serving the fluid needs of, the Central milk marketing area and are not associated with other marketwide pools concerning the same milk. Criteria for pooling are established on the basis of performance levels that are considered adequate to meet the Class I fluid needs and, by doing so, determine those that are eligible to share in the revenue that arises from the classified pricing of milk. Criteria for pooling are established without regard to the size of any dairy industry organization or entity. The criteria established are applied in an identical fashion to both large and small businesses and do not have any different economic impact on small entities as opposed to large entities. Therefore, the amendments will not have a significant economic impact on a substantial number of small entities.

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

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

Notice of Hearing:Issued October 17, 2001; published October 23, 2001 (66 FR 53551).

Tentative Final Decision:Issued November 8, 2002; published November 19, 2002 (67 FR 69910).

Interim Final Rule:Issued February 6, 2003; published February 12, 2003 (68 FR 7070).

Final Decision:Issued August 18, 2003; published August 27, 2003 (68 FR 51640).

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

The following findings are hereby made with respect to the Central order:

(A)Findings upon the basis of the hearing record.Pursuant to the provisions of the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), and the applicable rules of practice and procedure governing the formulation of marketing agreements and marketing orders (7 CFR part 900), a public hearing was held upon certain proposed amendments to the tentative marketing agreement and to the order regulating the handling of milk in the Central marketing area.

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

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

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

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

(B)Additional Findings.It is necessary in the public interest to make these amendments to the Central order effective December 1, 2003.

The amendments to these orders are known to handlers. The final decision containing the proposed amendments to these orders was issued on August 18, 2003. These proposed amendments are identical to the amendments in the Interim Final Rule published in theFederal Registeron February 12, 2003 (68 FR 7070), regulating the handling of milk in the Central marketing area.

The changes that result from these amendments will not require extensive preparation or substantial alteration in the method of operation for handlers. In view of the foregoing, it is hereby found and determined that good cause exists for making these order amendments effective December 1, 2003. It would be contrary to the public interest to delay the effective date of these amendments for 30 days after their publication in theFederal Register. (Sec. 553(d), Administrative Procedure Act, 5 U.S.C. 551-559.)

(C)Determinations.It is hereby determined that:

(1) The refusal or failure of handlers (excluding cooperative associations specified in Sec. 8c(9) of the Act) of more than 50 percent of the milk, which is marketed within the specified marketing area, to sign a proposed marketing agreement, tends to prevent the effectuation of the declared policy of the Act;

(2) The issuance of this order amending the Central order is the only practical means pursuant to the declared policy of the Act of advancing the interests of producers as defined in the order as hereby amended;

(3) The issuance of the order amending the Central order is favored by at least two-thirds of the producers who were engaged in the production of milk for sale in the marketing area.

The Federal Election Commission published a document in theFederal Registerof August 8, 2003, at 68 FR 47386, containing revised regulations at 11 CFR 104.5, 107.2, 110.2, 9001.1, 9003.1, 9003.3, 9003.5, 9004.4, 9008.3, 9008.7, 9008.8, 9008.10, 9008.12, 9008.50, 9008.51, 9008.52, 9008.53, 9031.1, 9032.9, 9033.1, 9033.11, 9034.4, 9035.1, 9036.1, 9036.2, and 9038.2, and new regulations at 11 CFR 9004.11, 9008.55, 9034.10, and 9034.11. The Commission is announcing the effective date for these regulations. Section 9009(c) of Title 26, United States Code, require that any rules or regulations prescribed by the Commission to carry out the provisions of the Presidential Election Campaign Fund Act be transmitted to the Speaker of the House of Representatives and the President of the Senate thirty legislative days prior to final promulgation. These rules were transmitted to Congress on July 31, 2003. Thirty legislative days expired in the Senate and the House of Representatives on November 4, 2003.

On July 22, 2003, the FAA proposed to amend part 71 of the Federal Aviation Regulations (14 CFR part 71) by establishing Class D airspace at Columbus, MS, (68 FR 43340). This action provides adequate Class D airspace for IFR operations at Golden Triangle Regional Airport. Designations for Class D are published in FAA Order 7400.9L, dated September 2, 2003, and effective September 16, 2003, which is incorporated by reference in 14 CFR part 71.1. The Class D designations listed in this document will be published subsequently in the Order.

Interested parties were invited to participate in this rulemaking proceeding by submitting written comments on the proposal to the FAA. No comments objecting to the proposal were received.

This amendment to part 71 of the Federal Aviation Regulations (14 CFR part 71) establishes Class D airspace at Columbus, MS.

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

This amendment to 14 CFR 71 modifies the Class E airspace area extending upward from 700 feet above the surface of the earth at Milford, IA. An examination of controlled airspace for Fuller Airport reveals it does not meet the criteria for 700 AGL airspace required for diverse departures as specified in FAA Order 7400.2E, Procedures for HandlingAirspace Matters. The criteria in FAA Order 7400.2E for an aircraft to reach 1200 feet AGL is based on a standard climb gradient of 200 feet per mile plus the distance from the Airport Reference Point (ARP) to the end of the outermost runway. Any fractional part of a mile is converted to the next higher tenth of a mile. This amendment brings the legal description of the Milford, IA Class E airspace area into compliance with FAA Order 7400.2E. This area will be depicted on appropriate aeronautical charts. Class E airspace areas extending upward from 700 feet or more above the surface of the earth are published in paragraph 6005 of FAA Order 7400.9L, dated September 2, 2003, and effective September 16, 2003, which is incorporated by reference in 14 CFR 71.1. The Class E airspace designation listed in this document will be published subsequently in the Order.

The FAA anticipates that this regulation will not result in adverse or negative comment and, therefore, is issuing it as a direct final rule. Previous actions of this nature have not been controversial and have not resulted in adverse comments or objections. Unless a written adverse or negative comment, or a written notice of intent to submit an adverse or negative comment is received within the comment period, the regulation will become effective on the date specified above. After the close of the comment period, the FAA will publish a document in theFederal Registerindicating that no adverse or negative comments were receiving and confirming the date on which the final rule will become effective. If the FAA does receive, within the comment period, an adverse or negative comment, or written notice of intent to the submit such a comment, a document withdrawing the direct final rule will be published in theFederal Register, and a notice of proposed rulemaking may be published with a new comment period.

Interested parties are invited to participate in this rulemaking by submitting such written data, views, or arguments, as they may desire. Comments that provide the factual basis supporting the views and suggestions presented are particularly helpful in developed reasoned regulatory decisions on the proposal. Comments are specifically invited on the overall regulatory, aeronautical, economic, environmental, and energy-related aspects of the proposal. Communications should identify both docket numbers and be submitted in triplicate to the address listed above. Commenters wishing the FAA to acknowledge receipt of their comments on this notice must submit with those comments a self-addressed, stamped postcard on which the following statement is made: “Comments to Docket No. FAA-2003-16497/Airspace Docket No. 03-ACE-81.” The postcard will be date/time stamped and returned to the commenter.

The regulations adopted herein will not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government. Therefore, it is determined that this final rule does not have federalism implications under Executive Order 13132.

The FAA has determined that this regulation is noncontroversial and unlikely to result in adverse or negative comments. For the reasons discussed in the preamble, I certfy that this regulation (1) is not a “significant regulatory action” under Executive Order 12866; (2) is not “significant rule” under Department of Transportation (DOT) Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and (3) if promulgated, will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

This amendment to 14 CFR 71 modifies the Class E airspace area extending upward from 700 feet above the surface at Mapleton, IA. It replaces “Mapleton Municipal Airport,” the former name of the airport, with “James G. Whiting Memorial field,” the new name of the airport, in the legal description. A review of controlled airspace at Mapleton, IA indicates 700 feet Above Ground Level (AGL) airspace required for diverse departures, as specified in FAA Order 7400.2E, Procedures for Handling Airspace Matters, for James G. Whiting Memorial Field does not comply with the Order. The criteria in FAA Order 7400.2E for an aircraft to reach 1200 feet AGL is based on a standard climb gradient of 200 feet per mile plus the distance from the Airport Reference Point (ARP) to the end of the outermost runway. Any fractional part of a mile is converted to the next higher tenth of a mile. The area is enlarged to conform to the criteria in FAA Order 7400.2E. This action also modifies the northeast extension of the Mapleton, IA Class E airspace area by defining it with the 030° bearing from the Mapleton NDB versus the current 032° bearing. It brings the legal description of this airspace area into compliance with FAA Order 7400.2E. The area will be depicted on appropriate aeronautical charts. Class E airspace areas extending upward from 700 feet or more above the surface of the earth are published in paragraph 6005 of FAA Order 7400.9L, dated September 2, 2003, and effective September 16, 2003, which is incorporated by reference in 14 CFR 71.1. The Class E airspace designation listed in this document will be published subsequently in the Order.

The FAA anticipates that this regulation will not result in adverse or negative comment and, therefore, is issuing it as a direct final rule. Previous actions of this nature have not been controversial and have not resulted in adverse comments or objections. Unless a written adverse or negative comment, or a written notice of intent to submit an adverse or negative comment is received within the comment period, the regulation will become effective on the date specified above. After the close of the comment period, the FAA will publish a document in theFederal Registerindicating that no adverse or negative comments were received and confirming the date on which the final rule will become effective. If the FAA does receive, within the comment period, an adverse or negative comment, or written notice of intent to submit such a comment, a document withdrawing the direct final rule will be published in theFederal Registerand a notice of proposed rulemaking may be published with a new comment period.

Interested parties are invited to participate in this rulemaking by submitting such written data, views, or arguments, as they may desire. Comments that provide the factual basis supporting the views and suggestions presented are particularly helpful in developing reasoned regulatory decisions on the proposal. Comments are specifically invited on the overall regulatory, aeronautical, economic, environmental, and energy-related aspects of the proposal. Communications should identify both docket numbers and be submitted in triplicate to the address listed above. Commenters wishing the FAA to acknowledge receipt of their comments on this notice must submit with those comments a self-addressed, stamped postcard on which the following statement is made: “Comments to Docket No. FAA-2003-16496/Airspace Docket No. 03-ACE-80.” The postcard will be date/time stamped and retuned to the commenter.

The regulations adopted herein will not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government. Therefore, it is determine that this final rule does not have federalism implications under Executive Order 13132.

The FAA has determined that this regulation is noncontroversial and unlikely to result in adverse or negative comments. For the reasons discussed in the preamble, I certify that this regulation (1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under Department of Transportation (DOT) Regulatory Policies and Procedure (44 FR 11034, February 26, 1979); and (3) if promulgated, will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

The National Construction Safety Team Act, Pub. L. 107-231, was enacted to provide for the establishment of investigative teams (“Teams”) to assess building performance and emergency response and evacuation procedures in the wake of any building failure that has resulted in substantial loss of life or that posed significant potential of substantial loss of life. The purpose of investigations by Teams is to improve the safety and structural integrity of buildings in the United States. A Team will (1) establish the likely technical cause or causes of the building failure; (2) evaluate the technical aspects of evacuation and emergency response procedures; (3) recommend, as necessary, specific improvements to building standards, codes, and practices based on the findings made pursuant to (1) and (2); and (4) recommend any research and other appropriate actions needed to improve the structural safety of buildings, and improve evacuation and emergency response procedures, based on the findings of the investigation. Section 2(c)(1) of the Act requires that the Director develop procedures for certain activities to be carried out under the Act as follows: Regarding conflicts of interest related to service on a Team; defining the circumstances under which the Director will establish and deploy a Team; prescribing the appropriate size of Teams; guiding the disclosure of information under section 7 of the Act; guiding the conduct of investigations under the Act; identifying and prescribing appropriate conditions for provision by the Director of additional resources and services Teams may need; to ensure that investigations under the Act do not impede and are coordinated with any search and rescue efforts being undertaken at the site of the building failure; for regular briefings of the public on the status of the investigative proceedings and findings; guiding the Teams in moving and preserving evidence; providing for coordination with Federal, State, and local entities that may sponsor research or investigations of building failures; and regarding other issues.

NIST published an interim final rule with a request for public comments in theFederal Registeron January 30, 2003 (68 FR 4693), seeking public comment on general provisions regarding implementation of the Act and on provisions establishing procedures for the collection and preservation of evidence obtained and the protection of information created as part of investigations conducted pursuant to the Act, including guiding the disclosure of information under section 7 of the Act (§§ 270.350, 270.351, and 270.352) and guiding the Teams in moving and preserving evidence (§ 270.330). These general provisions and procedures, comprising Subparts A and D of the rule, are necessary to the conduct of the investigation of the World Trade Center disaster, already underway, and became effective immediately upon publication. The comment period closed on March 3, 2003. On May 7, 2003, NIST published a final rule in theFederal Register(68 FR 24343), addressing the comments received.

The interim final rule amends section 270.1, Description of rule; purpose, applicability, of the final rule to clarify NIST's role in recommending improvements to building codes, standards, and practices and to clarify the relationship between investigations conducted under the Act and criminal investigations of the same building failure. This interim final rule also amends the definition of Credentials, contained in section 270.2, to clarify that credentials are issued by the Director of NIST and to better define the term. This interim final rule also sets forth procedures regarding conflicts of interest related to service on a Team (section 270.106); defining the circumstances under which the Director will establish and deploy a Team (section 270.102); prescribing the appropriate size of Teams (section 270.104); guiding the conduct of investigations under the Act (section 270.200); identifying and prescribing appropriate conditions for provision by the Director of additional resources and services Teams may need (section 270.204); to ensure that investigations under the Act do not impede and are coordinated with any search and rescue efforts being undertaken at the site of the building failure (section 270.202); for regular briefings of the public on the status of the investigative proceedings and findings (section 270.206); providing for coordination with Federal, State, and local entities that may sponsor research or investigations of building failures (section 270.203); and regarding other issues. This interim final rule also amends section 270.313, Requests for Evidence, to clarify that collections of evidence under that section are investigatory in nature and are not research.

Research for Public Comment:Persons interested in commenting on the interim final rule should submit their comments in writing to the above address. All comments received in response to this notice will become part of the public record and will be available for inspection and copying at the Department of Commerce Central Reference and Records Inspection facility, room 6228, Hoover Building, Washington, DC 20230.

This rule has been determined not to be significant under section 3(f) of Executive Order 12866.

This rule does not contain policies with Federalism implications sufficient to warrant preparation of a Federalism assessment under Executive Order 12612.

Prior notice and an opportunity for public comment are not required for this rule of agency organization, procedure, or practice. 5 U.S.C. 553(b)(A). However, NIST feels it important to seek public comment on the issues addressed in this rule.

Because notice and comment are not required under 5 U.S.C. 553, or any other law, the analytical requirements of the Regulatory Flexibility Act (5 U.S.C. 601et seq.) are inapplicable. As such, a regulatory flexibility analysis is not required, and none has been prepared.

Notwithstanding any other provision of the law, no person is required to, nor shall any person be subject to penalty for failure to comply with, a collection of information, subject to the requirements of the Paperwork Reduction Act, unless that collection of information displays a currently valid OMB Control Number.

There are no collections of information involved in this rulemaking.

This rule will not significantly affect the quality of the human environment. Therefore, an environmental assessment or Environmental Impact Statement is not required to be prepared under the National Environmental Policy Act of 1969.

The temporary regulations that are the subject of these corrections are under section 448 of the Internal Revenue Code.

As published, this temporary regulation (TD 9090) contain errors that may prove to be misleading and are in need of clarification.

Accordingly, the publication of temporary regulations (TD 9090), which were the subject of FR Doc. 03-22458, is corrected as follows:

1. On page 52504, column 1, § 1.448-2T(f)(c)T3Example 4, the sixth entry in the table is corrected to read as follows:

2. On page 52504, column 1, § 1.448-2T(f)(c),Example 4(ii), third line, the language “Assume that $49,300 of the total $80,000 of” is corrected to read “Assume that $49,300 of the total $90,000 of”.

In 1998, FinCEN granted a conditional exception (the Customer Information File (CIF) Exception) to the strict operation of 31 CFR 103.33(g) (the Travel Rule).SeeFinCEN Issuance 98-1, 63 FR 3640 (January 26, 1998). The Travel Rule requires a financial institution to include certain information in transmittal orders relating to transmittals of funds of $3,000 or more. The CIF Exception addressed computer programming problems in the banking and securities industries by relaxing the Travel Rule's requirement that a customer's true name and address be included in a funds transmittal order, so long as alternate steps, described in FinCEN Issuance 98-1 and designed to prevent avoidance of the Travel Rule, were satisfied. By its terms, the CIF Exception to the Travel Rule was to expire on May 31, 1999; however, in light of programming burdens associated with year 2000 compliance issues, FinCEN extended the CIF Exception so that it would expire on May 31, 2001.SeeFinCEN Issuance 99-1, 64 FR 41041 (July 29, 1999). On May 30, 2001, after first soliciting input from the law enforcement community for its views on any law enforcement burdens caused by the CIF Exception, FinCEN again extended the CIF Exception so that it would expire on May 31, 2003.SeeFinCEN Issuance 2001-1, 66 FR 32746 (June 18, 2001). On March 7, 2003, FinCEN published a Notice of intent to permit the CIF exception to expire on May 31, 2003.See68 FR 10965 (Notice of Intent). The Notice of Intent solicited comment on a number of issues relating to the operation of the CIF Exception. On May 19, 2003, FinCEN published a notice that again extended the CIF Exception so that it would expire on December 1, 2003.SeeFinCEN Issuance 2003-1, 68 FR 26996. The purpose of this most recent extension was to allow time for FinCEN to conduct a study on the operation of the CIF Exception, and to determine whether to remove, modify, or make permanent the Exception.

FinCEN promulgated the Travel Rule in 1995. The Travel Rule requires financial institutions to include certain information in transmittal orders relating to transmittals of funds of $3,000 or more, which must “travel” with the order throughout the funds transmittal sequence. Among these requirements is that each transmittor's financial institution and intermediary financial institution include in a transmittal order the transmittor's name and address.See31 CFR 103.33(g)(1)(i)-(ii) and (g)(2)(i)-(ii). Subsequently, financial institutions represented to FinCEN that their ability to comply with the Travel Rule at all depended on their ability to use their automated customer information files, known as CIFs. Although an originating institution always maintains the originating customer's true name and address, the CIFs were sometimes programmed with coded or nominee names and addresses (or post office boxes). The reprogramming tasks involved in changing the CIFs were represented to be a significant barrier to compliance with the Travel Rule. In light of these burdens, and in the interest of obtaining prompt compliance, FinCEN promulgated the conditional exception.

The conditional exception provides that a financial institution may satisfy the requirements of 31 CFR 103.33(g) that a customer's true name and address be included in a transmittal order, only upon satisfaction of the following conditions:

(1) The CIFs are not specifically altered for the particular transmittal of funds in question;

(2) The CIFs are generally programmed and used by the institution for customer communications, not simply for transmittal of funds transactions, and are programmed to generate other than true name and street address information;

(3) The institution itself knows and can associate the CIF information used in the funds transmittal order with the true name and street address of the transmittor of the order;

(4) The transmittal order includes a question mark symbol immediately following any designation of the transmittor other than by a true name on the order;

(5) Any currency transaction report or suspicious activity report by the institution with respect to the funds transmittal contains the true name andaddress information for the transmittor and plainly associates the report with the particular funds transmittal in question.

The conditional exception further provides that it has no application to any funds transmittals for whose processing an institution does not automatically rely on preprogrammed and prespecified CIF name and address information. FinCEN's release promulgating the CIF Exception further informed financial institutions that any customer request for a nominee name in a CIF should be carefully evaluated as a potentially suspicious transaction.See63 FR 3642.

Since the issuance in May 2003 of the Notice of Intent, FinCEN has studied the use of the CIF Exception by financial institutions, and the implications of continuing the CIF exception for law enforcement investigations. The staff of the Federal Reserve Bank of New York assisted in this process by providing FinCEN with a sample of funds transfer activity using the Fedwire system, which gave FinCEN a one-day snapshot of the frequency and type of use of the CIF Exception. FinCEN also obtained the views of law enforcement officials and financial institutions on this issue. Ultimately, FinCEN formed a Subcommittee of the Bank Secrecy Act Advisory Group (BSAAG)1 to advise FinCEN on the costs and benefits of maintaining, terminating, or modifying the Exception. The Subcommittee consists of officials representing FinCEN, the U.S. Department of the Treasury, the U.S. Department of Justice, the federal bank and securities regulators, the banking industry, and the securities industry. FinCEN presented the Subcommittee with the results of its factfinding and the Subcommittee also reviewed information provided by the New York Clearing House Association L.L.C.2

Based on its factfinding and input from the Subcommittee, FinCEN has made the following determinations. First, there is a powerful law enforcement interest, particularly in light of the tragic events of 9/11, in ensuring that a financial institution can identify funds transfers conducted by a terrorist suspect listed in a subpoena or other authorized search request. The use of coded names and pseudonyms effectively prevents an intermediary or a receiving financial institution from recognizing if it has records related to a government target. Second, to the extent that code names and pseudonyms are used in transmittal orders, such use appears to be limited to select private banking customers for confidentiality purposes. Because the use of coded names and pseudonyms is so infrequent, there is not a substantial cost involved in changing CIFs to reflect true names. Lastly, FinCEN understands that mailing addresses, rather than street addresses, are widely used by financial institutions in their CIFs. The banking industry contends that changing CIFs to reflect street addresses would require banks to examine each address in a CIF, and compare it with other customer information maintained by the bank, to determine whether the CIF address was a mailing address or street address. In addition, a new field would have to be created in the CIF to accommodate street address information, because customers would still want their statements and other information sent to their mailing address. Finally, each program that links the CIF to each of the bank's systems would have to be revised so that the correct address would be used for each application. According to the banking industry, each of these steps would have to be accomplished largely on a manual basis, resulting in significant costs to financial institutions. Law enforcement has acknowledged that the conduct of a reliable search is more dependent upon the use of true names than it is upon the use of street addresses.

Based upon these findings, and after weighing the competing interests involved, FinCEN has determined that revocation of the CIF Exception is appropriate. Regarding true name information, whatever legitimate interest is served by the use of coded names or pseudonyms in shielding the identity of a few select clients is overwhelmingly outweighed by the potential harm resulting from an intermediary or receiving financial institution not being able to determine whether it has records related to a government target. Weighed against the small number of clients for which the CIF Exception is used, the law enforcement interests predominate. FinCEN wishes to clarify that, although the Travel Rule does not permit the use of coded names or pseudonyms, the Rule does allow the use of abbreviated names, names reflecting different accounts of a corporation (e.g., XYZ Payroll Account), as well as trade and assumed names of businesses (D/B/A) or the names of unincorporated divisions or departments of businesses.

FinCEN has reached a different conclusion regarding the requirement to use a transmittor's street address. The term “address,” as it is used in 31 U.S.C. 103.33(g), is not defined. FinCEN has previously issued guidance that has been interpreted as not allowing the use of mailing addresses, including post office boxes, in situations in which a street address is known to the transmittor's financial institution.3 Because the use of the conditional exception for mailing addresses arises from a prior interpretation, rather than the explicit language of section 103.33(g) itself, FinCEN believes this issue is more appropriately addressed through a regulatory interpretation, rather than through a temporary exception.

FinCEN believes that the Travel Rule, like all Bank Secrecy Act rules, should be read with some flexibility so as to avoid the unnecessary burdening of financial institutions. After weighing the competing interests involved in whether to require street address information FinCEN has determined that the Travel Rule should be read to allow the use of mailing addresses. Consequently, for purposes of 31 CFR 103.33(g), the term address means either the transmittor's street address, or the transmittor's address maintained in the financial institution's automated customer information file so long as the institution maintains the transmittor's address on file and such address information is retrievable upon request by law enforcement.4 Under nocircumstances may a financial institution use its own address or another financial institution's address in place of the customer's address, notwithstanding any prior guidance that appeared to allow the use of a financial institution's address under limited circumstances.5 To avoid any confusion on the issue of addresses in transmittal orders, FinCEN, by this notice, hereby revokes QA no. 18 contained in FinCEN Advisory Issue 3 (June 1996) and QA no.16 contained in FinCEN Advisory Issue 7 (January 1997). FinCEN anticipates issuing a new set of frequently asked questions and answers regarding the application of the funds transfer rules very shortly. Nothing in this notice affects the obligation of a financial institution to comply with any other requirement imposed under the Bank Secrecy Act, including a customer identification program requirement imposed under Section 326 of the USA Patriot Act.

Finally, to give financial institutions the opportunity to take those steps necessary to comply fully with the Travel Rule, this Notice extends the conditional exception through July 1, 2004.

By virtue of the authority contained in 31 CFR 103.55(a) and (b), which has been delegated to the Director of FinCEN, the effective period of the CIF Exception, as such Exception is set forth (as part of FinCEN Issuance 98-1, 63 FR 3640 (January 6, 1998)) under the heading “Grant of Exceptions” (63 FR 3641) is extended so that CIF Exception will expire on July 1, 2004, for transmittals of funds initiated after that date.

Copies:ThisFederal Registerdocument is available from the Federal Register online database throughGPO access,a service of the U.S. Government Printing Office. The Web site address ishttp://www.access.gpo.gov/nara/index.html.

Section 4454 of the Balanced Budget Act of 1997 (BBA ’97), (Pub. L. 105-33, enacted August 5, 1997) provides for removal of all statutory and regulatory references to Christian Science sanatoria, and for coverage and payment of inpatient hospital services and post-hospital extended care services furnished in qualified religious nonmedical health care institutions (RNHCIs) under Medicare and as a State Plan option under Medicaid. (We will refer to these services as “RNHCI services.”) The new amendments make it possible for institutions other than Christian Science facilities to qualify as RNHCIs and to participate in Medicare and Medicaid.

On November 30, 1999, we published an interim final rule in theFederal Register(67 FR 67028) to implement the BBA '97 amendments that set forth the requirements for coverage and payment for services furnished by RNHCIs, and modified the rules regarding advance directives.

Specifically, the interim final rule presented the methodologies under which we will pay RNHCIs, monitor the Medicare expenditure level for RNHCI secular services for any given federal fiscal year (FFY), and implement a statutory “sunset” of the RNHCI benefit. In addition, the rule set forth the conditions of participation that an RNHCI must fully meet to participate in the Medicare program and revised Medicaid regulations to reflect statutory changes and made necessary nomenclature and conforming changes. Finally, the rule revised the regulations pertaining to advance directives for all providers.

Below we provide a brief summary of the provisions we implemented in the November 30, 1999, interim final rule to comply with requirements set forth by section 4454 of BBA '97.

This subpart implemented sections 1821; 1861(e), (y) and (ss); 1869; and 1878 of the Social Security Act (the Act) regarding Medicare payment for inpatient hospital or post-hospital extended care services furnished to eligible beneficiaries in RNHCIs.

Under this section, we included definitions for terms or acronyms used in the rule. Those terms that were defined elsewhere within the text of the rule were not included under this section.

Under this section, we specified the 10 qualifying provisions as contained in section 1861(ss)(1) of the Act that a Medicare or Medicaid provider must satisfy to meet the definition of an RNHCI. While the requirements contained in sections 1861(ss)(1)(B) (lawful operation), (G) (ownership by or in a provider of medical services), and (H) (utilization review) of the Act were explicitly addressed in the Medicare Conditions of Participation before passage of the BBA '97, it is essential that a facility meet all 10 elements to qualify as an RNHCI for both the Medicare and Medicaid programs.

In addition to meeting the definition of an RNHCI, the facility must also meet conditions of coverage for RNHCI services as established under section 1821 of the Act. Specifically, section 1821(a) of the Act requires that as a condition for Part A Medicare coverage, the beneficiary must have a condition that would qualify under Medicare Part A for inpatient hospital services or extended care services furnished in a hospital or skilled nursing facility that is not an RNHCI. The beneficiary must also have a valid election in effect to receive RNHCI services.

The RNHCI may not accept a patient as a Medicare or Medicaid beneficiary after the sunset provision (§ 403.756) is implemented, unless the patient has an election in effect before January 1 of the year in which the sunset provision is implemented. A claim filed for payment for services furnished to a patient with no valid election in effect before January 1 of the year the sunset provision is implemented would be denied. We explain the circumstances in which the sunset provision would be triggered at § 403.750 of the regulations.

Under this section, we implemented section 1821(b) of the Act to address the issues involved in beneficiary election of RNHCI services. We specified the general requirements relating to the election and the election process as well as the written statements that must be included in the election form. In addition, we described the circumstances under which the election would be revoked. Finally, we discussed the limitations that apply to subsequent elections.

Under section 1861(ss)(1)(J) of the Act, we may accept an RNHCI as a participating Medicare provider only if, in addition to meeting the specific requirements of that section, it meets other requirements we find necessary in the interest of patient health and safety. With the broad authority the Act gave us to impose these requirements, we set forth those conditions we found to be appropriate and necessary in the religious nonmedical setting that an RNHCI must meet to participate in the Medicare program. We set forth conditions of participation regarding patient rights (§ 403.730); quality assessment and performance improvement (§ 403.732); food services (§ 403.734); discharge planning (§ 403.736); administration (§ 403.738); staffing (§ 403.740); physical environment (§ 403.742); life safety from fire (§ 403.744); and utilization review (UR) (§ 403.746).

Life Safety from Fire.In the interim final rule we required that an RNHCI comply with the 1997 edition of the National Fire Protection Association (NFPA) Life Safety Code that we incorporated by reference. We discuss the update to the Life Safety Code later in this rule.

Utilization Review.This was the only condition of participation specifically required by statute. Section 1861(ss)(1)(H) of the Act requires that an RNHCI have in effect a UR plan that includes the establishment of a UR committee to carry out the functions of the program.

Section 1821(c)(1) of the Act requires us to estimate the level of Medicare expenditures for RNHCI benefits before the beginning of each Federal fiscal year (FFY) and requires us to monitor the expenditure level for RNHCI services provided in each FFY. The estimation of expenditure levels is necessary to determine if adjustments are required to limit payments to RNHCIs in the following FFY. In addition, the estimate is used to determine if the sunset provision is implemented.

As required by section 1861(e) of the Act, we will issue an annual Report to Congress, reviewed by the Office of Management and Budget, as the vehicle for reporting the potential need to make adjustments in payments and proposed mechanisms to be employed in order to stay within the established expenditure “trigger level” which is defined in section 1821(c)(2)(C) of the Act as the “unadjusted trigger level” for an FFY, adjusted using the consumer price index to the last 12 months ending July of the prior FFY, and increased or decreased by the carry forward from the previous FFY. In the interim final rule, we provided descriptions and examples of the trigger level calculation, the carry forward calculation, estimated expenditures, and adjustments in payments to help explain the statutory provision (64 FR 67036).

Section 1821(c)(2)(A) of the Act provides for a proportional reduction in payments for covered RNHCI services when the level of estimated expenditures exceeds the trigger level for any FFY. In addition to a proportional reduction in payments, section 1821(c)(2)(B) of the Act authorizes us to impose other conditions or limitations to keep Medicare expenditure levels below the trigger level. The statute provides us with authority to decide which type of adjustment to apply but is silent about when to apply a proportional adjustment or when to apply alternative adjustments. Therefore, we have extremely broad authority to decide what type of adjustments to impose.

The regulations at § 403.750 implement the statute and provide for imposing either a proportional adjustment to payments or alternative adjustments, depending on the magnitude of the adjustment required to keep the level of estimated expenditures from exceeding the trigger level. To account for any error in the estimation of expenditure levels, the trigger level for the next FFY is adjusted by the “carry forward.” If expenditures were to exceed the trigger level, the trigger level for the subsequent year must be decreased, resulting in more drastic payment adjustments in future years. We will do this in an attempt to prevent expenditures from exceeding the trigger level for 3 consecutive years and thus avoid having to implement the sunset provision.

Payment to RNHCIs.Sections 1861(e) and (y)(1) of the Act grant us broad authority to construct a payment methodology for RNHCIs. We specified that we would continue to pay RNHCIs under the same reasonable cost methodology we used for Christian Science sanatoria. We pay RNHCIs the reasonable cost of furnishing covered services to Medicare beneficiaries subject to the rate of increase limits in accordance with the provisions in 42 CFR 413.40, which implement section 101 of the Tax Equity and FiscalResponsibility Act of 1982 (TEFRA) (Pub. L. 97-248).

We added that we intended to continue paying all RNHCIs under a reasonable cost, subject to the rate of increase limit methodology, until we identify an appropriate prospective payment methodology to meet the special requirements for this provider group. In the interim final rule, we removed and reserved § 412.90(c) and § 412.98 for the RNHCI prospective payment.

Administrative and Judicial Review.Under section 1821(c)(2)(D) of the Act, there is no administrative or judicial review of our estimates of the level of expenditures for RNHCI services or the application of the adjustment in payments for those services. We incorporated this provision into our regulations.

Beneficiary Liability.Under the new regulations, RNHCIs are subject to Medicare rules for deductibles and coinsurance. Under normal Medicare rules, a provider of services may only bill a beneficiary deductible and coinsurance amounts. However, section 1821(c)(2)(E) of the Act authorizes RNHCIs to bill individuals an amount equal to the reduction in payments applied under sections 1821(c)(2)(A) or (B) of the Act. We implemented this provision specifying that when payments are reduced to prevent estimated expenditures from exceeding the trigger level, the RNHCI may bill the beneficiary the amount of the Medicare reduction attributable to his or her covered services. In addition, we set forth the requirements an RNHCI must follow regarding notifying a beneficiary of any current or proposed Medicare adjustments.

Under this section, we implemented section 1821(c)(3)(A) of the Act that requires us to monitor the expenditure level of RNHCIs beginning with FFY 1999 which allows us to calculate the carry forward.

Section 1821(d) of the Act contains the RNHCI sunset provision. This provision, when activated, will prevent beneficiaries from making elections to receive Medicare payment for religious nonmedical health care services after a certain date. The sunset provision will be activated when the level of estimated expenditures exceeds the trigger level for three consecutive FFYs.

In accordance with this statutory provision, we specified in our regulations under this section that beginning FFY 2002, if the level of estimated expenditures for all RNHCIs exceeds the trigger level for 3 consecutive FFYs, we would not accept any Medicare claims for payment for any election executed on or after January 1 of the following calendar year. We also specified in the interim final rule that we would publish a notice in theFederal Registerat least 60 days before the effective date of the sunset provision to alert the public that no elections will be accepted for services in an RNHCI.

Services in RNHCIs are optional Medicaid services that a State may elect to include in its title XIX State plan in accordance with section 1905(a)(27) of the Act. This section permits the inclusion of any other medical care and any other type of remedial care recognized under State law, specified by CMS. Federal financial participation is only available to a State for these services if they are included in the State Plan.

Section 4454(b) of the BBA '97 provides for coverage of a religious nonmedical health care institution as defined in section 1861(ss)(1) of the Act. Specific ownership and affiliation requirements related to RNHCIs are described in section 1861(ss)(4) of the Act. We therefore revised § 440.170(c), “Services in Christian Science sanitoriums,” to accommodate the new RNHCI program. Additionally, an RNHCI as defined in section 1861(ss)(1) of the Act furnishes exclusively inpatient services. Consequently, we revised § 440.170(b), “Services of Christian Science nurses,” since it dealt with Christian Science and care in the home setting. We revised language at § 440.170(b), to define an RNHCI for Medicaid coverage purposes as one that meets the requirements of section 1861(ss)(1) of the Act, and § 440.170(c), to describe the specific ownership and affiliation requirements applicable to Medicaid RNHCIs. In addition, we specified in the interim final rule that RNHCIs are required to meet the Medicare conditions of participation described in part 403 of this rule in order to be eligible to receive payment under Medicaid, rather than developing separate Medicaid requirements.

Section 1861(ss)(2) of the Act provides that we may accept the accreditation of an approved group that RNHCIs meet or exceed some or all of the applicable Medicare requirements. Therefore, in the interim final rule, we amended the regulations at § 488.2 to add section 1861(ss)(2) of the Act as the statutory basis for accreditation of RNHCIs and § 488.6 to add the RNHCIs to the list of providers in this section.

Section 4641 of the BBA ’97 required that (for all providers entering into a provider agreement with CMS) an individual's advance directive be placed in a “prominent part” of his or her medical record. As this was such a minor change to our requirements at section 489, we requested that this change be appended to the RNHCI regulation, thereby avoiding a separate rulemaking process. Therefore, in the November 30, 1999 final rule, we added “prominent part” to § 489.102(a)(2) to reflect this requirement. That is, providers are required to document an advance directive in a prominent part of the individual's current medical record.

We received a total of three items of correspondence on the interim final rule with comment published on November 30, 1999. The comment response on the interim final rule was very limited, and there were no similarities in issues raised by the commenters. We received comments from a fire safety association; a pediatric medical association; and a national religious organization that is oriented to healing by prayer. Each commenter approached the final rule in a manner that reflected the views of his or her particular organization. The major issues that commenters raised included the following:

• A prohibition on the admission of children to an RNHCI.

• Incorporation of a specific version of the fire safety code in the rule.

• Modification of the requirements to correspond to the beliefs of a specific religious group.

• Modification of the requirements related to the election process and the related coverage of services.

• Modification of the prohibition on the use of restraints.

We are not making any changes in the regulation as a result of the three comments we received, although we note that one change, regarding the Life Safety Code, was made in a separate rule on January 10, 2003, with an effective date of March 11, 2003 (68 FR 1374). We summarized the issues raised by each commenter and have provided our responses below.

Comment:One commenter suggested amending the conditions of participation explicitly to prohibit RNHCIs from providing care to any child, regardless of whether the individual is seeking payment under Medicare or Medicaid for that care. The comment is based on the statutory language that authorizes the Secretary to establish standards to ensure the health and safety of patients choosing to receive care in RNHCIs. The commenter believes that it is impossible to ensure the health and safety of children who are patients in an RNHCI because the patient is isolated from persons competent or willing to assess the need and appropriately secure medical care when the care is necessary to preserve the child's life or health. The commenter added that the Secretary has the authority to prohibit RNHCIs from providing services to children and should do so.

Response:We do not have the authority to exclude any patients, including children, from admission to an RNHCI. Nevertheless, our data indicate that no children have sought RNHCI services as program beneficiaries thus far. The reason for this situation is that, in at least some instances, children must undergo some type of medical examination before they can obtain benefits under Medicare and Medicaid. For example, a child can only receive Medicare benefits if he or she has undergone a medical physical examination and as a result was determined to meet Social Security criteria for disability. Such an examination is inconsistent with opposition to receipt of traditional medical care. For these reasons, we believe few if any children will be admitted to RNHCIs as Medicare or Medicaid beneficiaries. Therefore, we will not revise the conditions of participation as the commenter suggested.

Comment:The commenter requested that the definition for “religious nonmedical care or religious method of healing” be removed or revised as follows:

The commenter indicated that their method of healing did not include the use of conventional or unconventional care and that the teachings of this Church did not expressly “prohibit” the choice of medical treatment. The commenter stated that the choice of treatment rested with the individual, but an individual would not be practicing his or her religion while receiving medical care. The commenter further stated that this is why practicing members of the group, relying entirely on spiritual means for healing, required accommodation in order to participate in Medicare. The commenter indicated that many members of their group engaged in a number of practices that involved neither the acceptance of medical treatment nor reliance on religious “tenets” but were undertaken in the interest of practicing good care of their “health.” The commenter sought more flexibility for a beneficiary to select some forms of health care that are nonintrusive such as visiting dentists for oral hygiene; visiting an optometrist or wearing eyeglasses; or being fitted for or wearing a mechanical hearing aid.

Additionally, the commenter expressed that the definition of “religious nonmedical care or religious method of healing” was neither required by nor consistent with the Act, and that Constitutional issues have been raised regarding the use of the term “established religious tenets.”

Response:Both the statute and the related legislative history demonstrate a clear congressional intent to establish this benefit for those who for religious reasons are conscientiously opposed to acceptance of medical care and to provide parameters for nonexcepted medical treatment. Since both the law and the congressional deliberations are clear on the issue, the rule must follow the statutory intent and provide a framework for all religious groups that may use the benefit. The rule must be applicable to all in the intended benefit group, not to just a sector of the potential beneficiaries. With regard to a beneficiary's choice or need to receive such services as oral hygiene visits, optometry visits or eyeglasses, or testing and fitting for hearing aids, it should be noted that Medicare does not cover these services and that they are the financial responsibility of the individual.

The use of the term “religious tenet” is considered appropriate to cover the basic beliefs of any religious group that is seeking participation in the RNHCI program. While the use of the term is not prescribed by the statute, the development of regulations does provide the opportunity to use other language and the term “religious tenets” is consistent with the Act. Federal courts have repeatedly upheld the constitutionality of these provisions.See,for example,Kongv.Min De Parle,No. C 00-4285 CRB, 2001 WL 1464549 (N.D.Cal. Nov. 13, 2001) (upholding constitutionality of section 4454 of the BBA);see also Children's Healthcare is a Legal Duty, Inc.v.Min De Parle,212 F.3d 1084 (8th Cir. 2000),cert. den., 532 U.S. 957, 121 S.Ct. 1483 (2001) (same). We are making no changes to the terms “religious nonmedical care” or “religious method of healing.”

Comment:The commenter suggested that we provide a more flexible definition of “religious nonmedical nursing personnel” to provide the RNHCI more latitude in hiring outside their religious denomination, if they so choose. The commenter indicates that constitutional issues may be raised by the requirement that nursing personnel “be grounded in the religious beliefs of the RNHCI.” The commenter stated that the Act only requires personnel to be “experienced in caring for the physical needs of these patients.”

Additionally the commenter would appreciate it if the regulations could clearly state that nursing personnel who are less experienced, such as trainees, may provide service to patients under the supervision of those who are “formally recognized as competent in the administration of care within their religious nonmedical health care group.” The commenter assumed that the regulations did not prohibit RNHCIs from allowing trainees to provide service to patients when supervised by experienced personnel but requested that we provide clarification in the regulation.

Response:Medical model health care settings use registered nurses or licensed practical nurses that have participated in educational programs and following graduation take standardized tests for licensure. The statute requires that for payment purposes a beneficiary would require hospital or skilled nursing facility care in order to qualify for admission to an RNHCI. In turn, by statute the RNHCI may provide only nonmedical nursingitems and services to patients, which is contrary to conventional nursing practice. Currently the only standardization for RNHCI nurse credentials exists for those individuals prepared in religious group nurse training programs and involved in the practice of that religion.

The phrase “grounded in the religious beliefs” of an RNHCI is not intended to mean that religious nonmedical nursing personnel must “accept or practice” a particular religious belief. The phrase “grounded in the religious beliefs” means that nonmedical nursing personnel must be appropriately familiar with the culture and religious beliefs of the RNHCI to care for the physical needs of patients.

For purposes of writing the rule, it was necessary to choose those requirements that would provide a level of standardization for providing nonmedical nursing care to beneficiaries. We are retaining the definition of religious nonmedical nursing personnel as set forth in the interim final rule.

Similar to other provider types, the issue of nurse trainees was not addressed in the rule. The per-diem rate includes payment for RNHCI nurses responsible for the care of beneficiaries, and they may also supervise those aspects of care provided by trainees. While trainees can provide care under the supervision of an RNHCI nurse, any cost or payment attributed to the trainee is not to be considered a component of the Medicare or Medicaid per diem rate.

Comment:The commenter suggested that we expand the term “legal representative” that is included in the definition of “election” to include someone acting under a valid health care durable power of attorney or an equivalent instrument.

Response:The term “legal representative” as used in the definition of “election” is considered appropriate to safeguard the interest of the beneficiary, and we are not making any revisions. The designation of a legal representative is a serious responsibility that should follow accepted legal protocols and therefore does not require further definition in the rule. In this matter, we generally defer to the States in deciding who qualifies as a “legal representative” since State law governs these questions.

Comment:The commenter suggested that for practical purposes an election be considered valid without notarization under certain circumstances. The commenter requested a grace period to cover those periods when the business office is not open, such as evenings, nights, weekends, and holidays.

Response:Since we consider obtaining notary authority for individual staff members to be a relatively straightforward process, there can be several notaries in a facility to meet beneficiary needs when the business office is not open. Additionally, the RNHCI can establish relationships with notaries within the community to provide assistance in emergency situations. Therefore, we are retaining the election policy as established in the interim final rule.

Comment:The commenter suggested that care be covered without an election under certain limited circumstances. The commenter requested a grace period of at least 72 hours to provide care for a patient in distress, or to locate a legal representative or have one appointed in the case of admitting an unresponsive or incompetent Medicare beneficiary, before fully executing the election for RNHCI care.

Response:We do not believe we have the authority for the requested grace period. The statute requires a valid election to be in place for RNHCI services to be covered and paid for. Delaying the election process is of concern particularly for an individual in distress and unable to make his or her personal wishes known.

Comment:The commenter recommended that an election be effective retroactively for care provided up to 72 hours before the election is signed. If the patient expires before the execution of a valid election, the commenter requested that Medicare pay for the care provided by the RNHCI to the beneficiary.

Response:We do not believe we have the authority to accommodate the requested pre-election coverage period.

Comment:The commenter indicated an inconsistency between section 1821(b)(3) of the Act and § 403.724(a)(1)(iii) of the regulation, regarding payment being received versus payment being requested. The commenter believes that the election should be revoked only if Medicare makes payment rather than when Medicare medical care is merely sought.

Response:Section 403.724(a)(1)(iii) of our regulations implements section 1821(b)(3) of the Act, which set forth the information that must be included in the election form. This section specifies that receipt of nonexcepted medical services constitutes a revocation of an election. Seeking Medicare medical care indicates that a beneficiary anticipates that the program will pay for the service under the statute. It is the payment for that Medicare claim that actually triggers the revocation of the RNHCI election and (if applicable) the start of the waiting period that determines when a new RNHCI election may be filed.

Comment:The commenter requested that the utilization review committee have the power to authorize the limited use of restraints when the patient poses a danger to self, other patients, or staff. The commenter indicated that since the UR committee could make an initial determination for coverage under Medicare and Medicaid, it could also be capable of determining if and when those rare occasions existed when there would be a need to protect the safety of a patient and the staff. Additionally, the commenter stated that it would be appropriate to place specific requirements on the use of restraints, such as—

• Choosing the least restrictive manner for the least amount of time as possible;

• Placing time limits for using restraints without additional review by the UR committee;

• Not permitting standing orders for the use of restraints;

• Using restraints only when absolutely necessary and other interventions have been ineffective; and

• Requiring RNHCI staff to frequently check on the restrained patient.

Response:Section 1866(ss)(1) of the Act and the related legislative history underscore the centrality of nonmedical interventions to the care provided by RNHCIs. The statute requires active patient choice and limits the benefit to those for whom the “acceptance of medical health services would be inconsistent with their religious beliefs.” Under this model, chemical restraints (drugs) would clearly be antithetical, as well against the statute. On the other hand, “assistive devices” (such as crutches, canes, and walkers,etc.), used only on a voluntary basis by the patient, would not constitute a “restraint.” We currently define “physical restraint” in our hospital condition of participation at § 482.13 as “any manual method or physical or mechanical device, material, or equipment attached or adjacent to the patient's body that he or she cannot easily remove [and] that restricts freedom of movement or normal access to one's body.” In thinking about whether a device or practice may be considered a restraint, the RNHCIshould consider how the device or practice affects the patient. For example, if a patient were in a wheelchair with a belt, the belt would not be considered a restraint if the patient can independently unsnap the belt. The key is to assess each patient and each situation to determine how a device or practice will affect the patient. If the belt described above were snapped in the back so that the patient could not reach it to release it, it would be considered a restraint. (Seeprevious discussion in the preamble of the interim final at 64 FR 67032.)

Current professional standards of practice and guidelines advocate for minimal use of physical restraints, in limited medical circumstances. The Medicare and Medicaid programs have very strict criteria for the use of physical restraints in other provider types, such as hospitals and nursing homes, that require both medical supervision and intensive “medical * * * examination, diagnosis, prognosis [and] treatment” of the patient in order to assure that the minimum appropriate restraint is used. While it would seem that rare occasions could arise where (physical) restraints could be used to protect the safety of a patient or staff, we believe that this restraint use, without medical review poses too great a hazard. Since the RNHCI statute expressly prohibits these facilities from engaging in “medical * * * examination, diagnosis, prognosis [and] treatment,” the use of restraints is not within their purview.

We disagree that the utilization review committees in the RNHCIs could provide an adequate oversight function for the use of physical restraints. While the UR committees are the body responsible for ascertaining the appropriateness of Medicare (or Medicaid) covered services for an individual, they do not have the medical expertise necessary to assure that physical restraints could be provided to Medicare or Medicaid beneficiaries safely.

Comment:The commenter requested that we add the language to our standard regarding requirements for the meal served to the patient in the RNHCI at § 403.734(b). The commenter believes we should add that the RNHCI should be required to ensure that the meals served to beneficiaries meet the recommended daily allowances of the Food and Nutrition Board of the National Research Council, National Academy of Sciences, “except insofar as compliance with such dietary allowances would be contrary to the religious beliefs observed by the institution or its personnel.” The commenter considered the recommended dietary allowances of the National Academy of Sciences to be a medical model that involved learning the chemistry of food and determining the patient's body weight and height. As the basis for their objection, the commenter cited section 1861(ss)(3)(B)(i) of the Act, which species that the Secretary shall not subject a religious nonmedical health care institution or its personnel to any medical supervision, regulations, or control, insofar as such supervision, regulation, or control would be contrary to the religious beliefs observed by the institution or those personnel.

Response:Our first priority is to patient health and safety. We appreciate the commenter's suggestion, but we disagree with the suggested provision. We do not believe that this requirement violates section 1861(ss)(3)(B)(i) of the Act because the requirement is designed to meet general physical health needs unrelated to medical treatment for any illness, injury, or condition. Because therapeutic diets or parenteral nutrition are not expected to be ordered for the population of patients in these facilities, we are not suggesting that nurses perform duties outside the scope of their religious beliefs. The requirements in the rule are not medical in nature, but rather guidance for the maintenance of health within the general population.

Comment:One commenter requested that, following the first sentence of the discharge planning evaluation standard at § 403.736(a) that states the RNCHI must assess the need for a discharge plan for patients likely to suffer adverse consequences if there is no plan and for patients upon request or at the request of their legal representative, we add the following language, “provided that this planning process shall not require actions which would be contrary to the religious beliefs observed by the institution or its personnel.” The commenter believes that the requirement to initiate discharge planning on admission requires the nurse to make a prognosis. Again, the commenter cited section 1861(ss)(3)(B)(i) of the Act as the basis for the objection.

Response:Again, we appreciate the commenter's suggestion for additional language, but we do not agree that the requirement violates section 1861(ss)(3)(B)(i) of the Act. The requirement for discharge planning is for the safety of the patient and does not mean that a medical prognosis is being made. The requirement is not that a prognosis be made but rather that the discharge process be started early on during a stay, and not only when discharge is imminent. The RNCHI is also responsible for identifying the qualified and experienced person for developing or supervising a discharge plan. If a patient may need additional services after discharge from the RNCHI, a plan must be in place to ensure that those services will be available in the community or another facility.

Comment:The commenter objected to the requirement of having a UR plan that must contain written procedures for evaluating the duration of care and the need for continuing care of an extended duration. The commenter believes that the requirement leads to speculation about the duration of a patient's illness and requires nurses to make a prognosis, which is contrary to the nursing practice of the religious group. The commenter requested that we revise the standard under § 403.746(a) to include a disclaimer in favor of their beliefs.

Response:We are not suggesting that RNHCI nurses practice outside of their scope of practice or religious beliefs. We are requiring, however, that the RNCHI provide, through procedures written in their UR plan, the patient's initial need and appropriateness of an RNHCI stay and justifications for extending that stay. The UR condition of coverage and condition of participation are statutory, and we do not believe we have authority to alter those conditions.

Comment:The commenter requested that we remove the requirement that the governing body be included on the UR committee. The commenter stated that the governing bodies of most Christian Science facilities are made up of Christian Scientists from the large geographical area served by the facility and are not involved in the daily administration of the facility. Many do not live close enough to the facility to permit review of admissions or decisions on a daily basis. Additionally, they do not possess the skills or experience required to make appropriate UR decisions. The commenter suggested that the UR committee be composed of the administrator, superintendent of nursing, the assistant superintendent of nursing or another Christian Science nurse, and a nonvoting secretary/recorder.

Response:We appreciate the commenter's concerns; however, we do not agree with these suggestions. The purpose of this requirement is to affordthe governing body the opportunity to be involved in the daily operations of the provider. With current technology, including the governing body in the UR committee meetings may be accomplished via many avenues (for example, teleconferencing).

Comment:One commenter stated that the proposed regulations do not specify the frequency of the UR committee meeting. The organization believes that the rules before implementation of the BBA '97, which required a meeting at least every 14 days, were appropriate and should be in the new rule.

Response:We appreciate the commenter's suggestion, but we do not agree. Because there is no medical necessity for RNHCI UR committee meetings within certain time frames, we did not see a necessity to mandate these timeframes. Additionally, not mandating a timeframe for the frequency of UR committee meetings is less burdensome for the provider and can appropriately accommodate patient needs within an individual RNHCI.

Comment:The commenter commended us for our recognition of the National Fire Safety Protection Association as state-of-the-art technology in fire and life safety protection and the best method to provide continued health care fire safety to Medicare and Medicaid beneficiaries. The association applauded our reference of the 1997 edition of the Life Safety Code that, they stated, showed our commitment to Public Law 104-113, the “National Technology Transfer and Advancement Act of 1995” (requires Federal government agencies to use private sector, national consensus technology standards in carrying out public policy wherever appropriate).

Response:We appreciate the commenter's support. When we published the November 30, 1999 interim final rule, we required RNHCIs to comply with the 1997 edition of the Life Safe Code, which, at that time, was the latest edition. Since that time, a new regulation was published updating the Life Safety Code for providers, including RNHCIs. Therefore, we are now requiring RNHCIs to comply with the 2000 edition of the Life Safety Code that we incorporated by reference in the final rule published in theFederal Registeron January 10, 2003 (68 FR 1374). That rule became effective on March 11, 2003.

For the most part, this final rule incorporates the provisions of the November 30, 1999 interim final rule. However, we are making the following minor changes to our regulations:

• We are making editorial changes to § 403.736(a)(3) to clarify our policy regarding the discharge planning evaluation. We are specifying that the discharge planning evaluation must be included in the patient's “care” record rather than the patient's “rights” record and specified that staff are required to discuss the results of the evaluation with the beneficiary.

• We are amending to § 403.738(a) to include that RNHCIs must comply with Federal, State, and local laws pertaining to “privacy of individually identifiable health information (45 CFR part 164).”

• We are amending the introductory text of § 489.102 to add RNHCIs among the list of providers that must maintain written policies and procedures concerning advance directives. In addition, we are adding that these advance directives must be maintained with respect to all adult individuals receiving medical care, “or patient care in the case of a patient in a religious nonmedical health care institution.” We intended to make these changes in the interim final rule; however, they were not incorporated due to an error in our amendatory language.

• Section 1861(ss)(i) of the Act specifies the requirements that a Medicare or Medicaid provider must meet to satisfy the definition of a RNHCI. In addition, section 1866 of the Act requires that all providers of services under Medicare enter into a provider agreement with the Secretary and comply with other requirements specified in that section. Currently, all of the 16 not-for-profit Medicare/Medicaid RNHCI providers have provider agreements with CMS. In the November 30, 1999 interim final rule, we intended to revise the regulations to include RNHCIs among the providers required to enter into provider agreements in accordance with the statute. These revisions were inadvertently omitted from the interim final rule. Therefore, in this final rule, we are revising the regulations at part 489 so that RNHCIs are subject to the requirements regarding provider agreements and supplier approval. In addition we are revising regulations at part 498 to ensure the RNHCI access to the appeals process in the case of an adverse determination concerning continued participation in the Medicare program.

A final rule published on January 10, 2003 (68 FR 1374) revised § 403.744 that set forth the condition of participation for life safety from fire. That final rule amended the fire safety standards for most health care providers, including RNHCIs. It adopted the 2000 edition of the Life Safety Code and eliminated references in our regulations to all earlier editions. The regulation became effective March 11, 2003. Since the rule published in January updated this provision, we are not republishing or making any additional changes to § 403.744 of the regulations.

Under the Paperwork Reduction Act of 1995 (PRA), we are required to provide 30-day notice in theFederal Registerand solicit public comment before a collection of information requirement is submitted to the Office of Management and Budget (OMB) for review and approval. In order to fairly evaluate whether an information collection should be approved by OMB, section 3506(c)(2)(A) of the PRA requires that we solicit comment on the following issues:

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

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

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

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

We are soliciting public comment on each of the issues for the provisions summarized below that contain information collection requirements:

In summary, § 403.724(a)(1) requires an RNHCI to use a written election statement that includes the requirements set forth in this section.

The burden associated with this requirement is the one-time effort required to agree on the format for the election statement. It was estimated that it would take each RNHCI 2 hours to comply with these requirements. This was completed by the 16 RNHCIs when they started participating in the program. We know of only one provider that is considering applying to participate; thus, there will be a possible total of 2 burden hours. There have been no new applications since the first providers transitioned into the RNHCIprogram. The burden associated with signing, filing, and submitting the election statement is described in § 403.724(a)(2), § 403.724(a)(3), and § 403.724(a)(4).

In summary § 403.724(a)(2) and § 403.724(a)(3) require that an election must be signed and dated by the beneficiary or his or her legal representative and have it notarized.

The burden associated with this requirement is the time required for the beneficiary or his or her legal representative to read, sign, and date the election statement and have it notarized. It is estimated that it will take each beneficiary approximately 10 minutes to read, sign, and date the election statement. We anticipate that the RNHCI will have a notary present to witness and notarize the election statement. There are approximately 800 beneficiaries that will be affected by this requirement for a total of 103.3 burden hours during the first year of the final rule.

Section 403.724(a)(4) requires that the RNHCI keep a copy of the election statement on file and submit the original to CMS with any information obtained regarding prior elections or revocations.

The burden associated with this requirement is the time required for an RNHCI to keep a copy of the election statement and submit the original to CMS. It is estimated that it will take 5 minutes to comply with this requirement. During the first year, there will be approximately 800 election statements for a total of 66.6 burden hours.

If not revoked, an election is effective for life and does not need to be completed during future admissions. Section 403.724(b)(1) states that a beneficiary can revoke his or her election statement by the receipt of nonexcepted medical treatment or the beneficiary may voluntarily revoke the election and notify CMS in writing. We anticipate that there would be very few (fewer than 10 beneficiaries) if any instances in which a beneficiary will notify CMS in writing that he or she will revoke his or her election statement. We believe the above requirement is not subject to the PRA in accordance with 5 CFR 1320.3(c)(4) since this requirement does not collect information from 10 or more entities on an annual basis.

While the information collection requirements summarized below are subject to the PRA, we believe the burden associated with these information collection requirements is exempt as defined in 5 CFR 1320.3(b)(2) because the time, effort, and financial resources necessary to comply with these requirements would be incurred by persons in the normal course of their activities.

Section 403.730(a)(1) states that the RNHCI must inform each patient of his or her rights in advance of furnishing patient care.

Section 403.730(b)(3) states that the RNHCI must formulate advance directives and expect staff who furnish care in the RNHCI to comply with those directives, in accordance with part 489, subpart I of this chapter. For purposes of conforming with the requirement in § 489.102 that there be documentation in the patient's medical records concerning advanced directives, the patient care records of a beneficiary in an RNHCI are equivalent to medical records held by other providers.

In summary, § 403.732 states that the RNHCI must develop, implement, and maintain a quality assessment and evaluation program.

Section 403.736(a)(1) requires that the discharge planning evaluation must be initiated at admission and must include the following: (1) An assessment of the possibility of a patient needing post-RNHCI services and of the availability of those services; and (2) an assessment of the probability of a patient's capacity for self-care or of the possibility of the patient being cared for in the environment from which he or she entered the RNHCI.

Section 403.736(a)(3) states that the discharge planning evaluation must be included in the patient's care record for use in establishing an appropriate discharge plan. Staff must discuss the results of the discharge planning evaluation with the patient or a legal representative acting on his or her behalf.

Section 403.736(b)(1) states that, if the discharge planning evaluation indicates a need for a discharge plan, qualified and experienced personnel must develop or supervise the development of the plan.

Section 403.736(b)(2) states that, in the absence of a finding by the RNHCI that the beneficiary needs a discharge plan, the beneficiary or his or her legal representative may request a discharge plan. In this case, the RNHCI must develop a discharge plan for the beneficiary.

Section 403.736(b)(3) states that the RNHCI must arrange for the initial implementation of the patient's discharge plan.

Section 403.736(b)(4) states that, if there are factors that may affect continuing care needs or the appropriateness of the discharge plan, the RNHCI must reevaluate the beneficiary's discharge plan.

Section 403.736(b)(5) states that the RNHCI must inform the beneficiary or legal representative about the beneficiary's post-RNHCI care requirements.

Section 403.736(b)(6) states that the discharge plan must inform the beneficiary or his or her legal representative about the freedom to choose among providers of care when a variety of providers is available that are willing to respect the discharge preferences of the beneficiary or legal representative.

Section 403.736(c) states that the RNHCI must transfer or refer patients to appropriate facilities (including medical facilities if the beneficiary so desires) as needed for follow up or ancillary care and notify the patient of his or her right to participate in planning the transfer or referral in accordance with § ”403.730(a)(2).

Section 403.736(d) states that the RNHCI must reassess its discharge planning process on an ongoing basis. The reassessment must include a review of discharge plans to ensure that they are responsive to discharge needs.

In summary, § 403.738(a) states that an RNHCI must have written policies regarding its organization, services, and administration.

Section 403.738(c)(3) states that the RNHCI must furnish written notice, including the identity of each new individual or company, to CMS at the time of a change, if a change occurs in any of the following: Persons with an ownership or control interest, as defined in 42 CFR 420.201 and 455.101; the officers, directors, agents, or managing employees; the religious entity, corporation, association, or other company responsible for the management of the RNHCI; and the RNHCI's administrator or director of nonmedical nursing services.

While this information collection requirement is subject to the PRA, we believe the burden associated with this information collection requirement is exempt as defined in 5 CFR 1320.3(c)(4), since it does not collect information from 10 or more entities on an annual basis.

Section 403.742(a)(4) requires that a RNHCI have a written disaster plan to address loss of power, water, sewage disposal, and other emergencies.

Section 403.742(b)(3) requires that CMS may permit variances in requirements specified in paragraphs (b)(1)(i) and (b)(1)(ii) of this section relating to rooms on an individual basis when the RNHCI adequately demonstrates in writing that the variances meet the requirements of this section.

While this information collection requirement is subject to the PRA, we believe the burden associated with this ICR is exempt as defined in 5 CFR 1320.3(c)(4), since it does not collect information from 10 or more entities on an annual basis.

In summary, § 403.746 states that the RNHCI must have in effect a written utilization review plan to assess the necessity of services furnished. The plan must provide that records be maintained of all meetings, decisions, and actions by the utilization review committee. The utilization review plan must contain written procedures for evaluating the following: Admissions, the duration of care, continuing care of an extended duration, and items and services furnished.

The following sections describe the burden associated with the payment provisions. Based on the most recent data available, Medicare expenditures for Christian Science sanatoria were approximately $5 million annually. The trigger level for FFY 1998, the first year of RNHCI implementation, was $20 million. Beginning in FFY 2000, when estimated expenditures for RNHCI services exceed the trigger level for a FFY, CMS must adjust the RNHCI payment rates. Therefore, the burden associated with the following sections is not subject to the PRA at this point in time.

Section 403.752(d)(i) states that the RNHCI must notify the beneficiary in writing at the time of admission of any proposed or current proportional Medicare adjustment. A beneficiary currently receiving care in the RNHCI must be notified in writing 30 days before the Medicare reduction is to take effect. The notification must inform the beneficiary that the RNHCI can bill him or her for the proportional Medicare adjustment.

Section 403.752(d)(ii) states that the RNHCI must, at time of billing, provide the beneficiary with his or her liability for payment, based on a calculation of the Medicare reduction pertaining to the beneficiary's covered services permitted by § 403.750(b).

We believe that this ICR is not subject to the PRA, as implemented by 5 CFR 1320.4(a)(2), since the collection action is conducted during an investigation or audit against specific individuals or entities.

Section 440.170(b)(9) states that an RNHCI must provide, upon request, information CMS may require to implement section 1821 of the Act, including information relating to quality of care coverage and determinations.

The ICR in the following section, except for its application to RNHCIs, has been approved under OMB approval number 0938-0610.

In summary, § 489.102(a) requires that hospitals, critical access hospitals, skilled nursing facilities, home health agencies, providers of home health care (and for Medicaid purposes, providers of personal care services), hospices, and religious nonmedical health care institutions document and maintain written policies and procedures concerning advance directives with respect to all adult individuals receiving medical care.

For the current approval, we stated that it will take each facility 3 minutes to document a beneficiary's record whether he or she has implemented an advance directive. We anticipate that it will also take each RNHCI 3 minutes per patient to comply with this requirement, for a total of 104 burden hours on an annual basis. In addition, there will be a one-time burden of 8 hours per RNHCI to maintain written policies and procedures concerning advance directives, for a total of 152 hours.

We will submit a revision to OMB approval number 0938-0610 to reflect the addition of RNHCIs to the paperwork burden.

We have submitted a copy of this rule to OMB for its review of the ICRs. These requirements are not effective until they have been approved by OMB. A notice will be published in theFederal Registerwhen approval is obtained.

If you comment on these information collection and recordkeeping requirements, please mail copies directly to the following:

We have examined the impacts of this rule as required by Executive Order 12866 (September 1993, Regulatory Planning and Review), the Regulatory Flexibility Act (RFA) (September 16, 1980, Pub. L. 96-354), section 1102(b) of the Social Security Act, the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4), and Executive Order 13132.

Executive Order 12866 (as amended by Executive Order 13258, which merely reassigns responsibility of duties) directs agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). A regulatory impact analysis (RIA) must be prepared for major rules with economically significant effects ($100 million or more in any 1 year).

This rule provides religious nonmedical health care institution (RNHCI) inpatient services to individuals qualifying for Medicare or Medicaid benefits, who because of their religious beliefs do not find it appropriate to use conventional medical care. The rule provides for the physical care of these beneficiaries in RNHCIs but does not provide payment for the religious component of care. Currently, only 16 RNHCI facilities nationally participate in the program, with expenditure levels approximately $5 million annually. This rule does not reach the economic threshold and thus is not considered a major rule.

The RFA requires agencies to analyze options for regulatory relief of small businesses. For purposes of the RFA, small entities include small businesses, nonprofit organizations, and government agencies. Most hospitals and most other providers and suppliersare small entities, either by nonprofit status or by having revenues of $6 million to $29 million in any 1 year. For purposes of the RFA, all of the 16 not-for-profit Medicare/Medicaid RNHCI providers are considered small businesses according to the Small Business Administration's size standards, with total revenues of $6 million or less in any one year. Individuals and States are not included in the definition of a small entity.

Currently, only one religious group is participating in the RNHCI program and no other groups have applied for participation. The RNHCIs are operated as independent facilities by individual boards composed of members from the religious group. The facilities are not in competition with other medical care providers in any geographical area since they pursue a religious rather than a medical approach to health care. We are not preparing an analysis for the RFA because we have determined that this rule will not have a significant economic impact on a substantial number of small entities.

In addition, section 1102(b) of the Act requires us to prepare a regulatory impact analysis if a rule may have a significant impact on the operations of a substantial number of small rural hospitals. This analysis must conform to the provisions of section 604 of the RFA. For purposes of section 1102(b) of the Act, we define a small rural hospital as a hospital that is located outside of a Metropolitan Statistical Area and has fewer than 100 beds. This rule will not have a significant impact on small rural hospitals. The RNHCIs are not in competition with other medical care providers in any geographical area, since they pursue a religious rather than a medical approach to health care. Currently, all of the RNHCIs are located in metropolitan rather than rural areas. We are not preparing an analysis for section 1102(b) of the Act because we have determined that this rule will not have a significant impact on the operations of a substantial number of small rural hospitals.

Section 202 of the Unfunded Mandates Reform Act of 1995 also requires that agencies assess anticipated costs and benefits before issuing any rule that may result in expenditure in any one year by State, local, or tribal governments, in the aggregate, or by the private sector, of $110 million. This rule will have no consequential effect on the governments mentioned or on the private sector.

Executive Order 13132 establishes certain requirements that an agency must meet when it promulgates a proposed rule (and subsequent final rule) that imposes substantial direct requirement costs on State and local governments, preempts State law, or otherwise has Federalism implications.

In accordance with the provisions of Executive Order 13132, this regulation will not significantly affect any State or local government. This rule describes only processes that must be undertaken if a State chooses to exercise its option to amend the State plan and include coverage of inpatient RNHCI services.

Those States that have RNHCI facilities and have selected to offer the optional RNHCI service are very limited. Currently, we only have 16 facilities participating in Medicare and one of these is dually eligible to participate in Medicare and Medicaid. The monitoring of the program is conducted by staff in the Boston Regional Office (Region I) and they will be responsible for the survey and certification activity that is usually conducted by a State Agency. Since this regulation does not impose any costs on State or local governments, the requirements of E.O. 13132 are not applicable.

Section 4454 of BBA '97 removed the authorization for payment for services furnished in Christian Science sanatoria from under both Medicare and Medicaid. Section 4454 authorizes payment for inpatient services in an RNHCI for beneficiaries who, for religious reasons, are conscientiously opposed to the acceptance of medical care. Section 4454 of BBA '97 provides for coverage of the nonmedical aspects of inpatient care services in RNHCIs under Medicare and as a State option under Medicaid. In order for a provider to satisfy the definition of a religious nonmedical health care institution, for both Medicare and Medicaid, it must satisfy the 10 qualifying provisions contained in section 1861(ss)(1) of the Act. The RNHCI choosing to participate in Medicare must also be in compliance with both the conditions for coverage and the conditions of participation contained in the regulations. Neither Medicare nor Medicaid will pay for any religious aspects of care provided in these facilities. CMS has used one fiscal intermediary to handle all RNHCIs and the Boston Regional Office to monitor the process, and we plan to continue that arrangement.

Section 4454 of BBA '97 establishes certain controls on the amount of expenditures for RNHCI services in a given FFY. Section 1821(c)(2)(C) of the Act explains the operation of these controls through the use of a trigger level.

The trigger level is used to determine if Medicare payments for the current FFY need to be adjusted. If the estimated level of expenditures for an FFY exceeds the trigger level for that FFY, we are required under statute to make a proportional adjustment to payments or alternative adjustments to prevent expenditures from exceeding the trigger level.

BBA '97 precludes administrative or judicial review of adjustments that we determine are necessary to control expenditures. The trigger level is also used to activate the sunset provision, which prohibits us from accepting any new elections when estimated expenditures exceed the trigger level for 3 consecutive fiscal years. It must be noted that the trigger level has not been even closely approached since the inception of the program.

Currently, there are 16 RNHCIs that are furnishing services and receiving payment under Medicare. One of these facilities is dually eligible to participate in Medicare and Medicaid. There have been no Medicaid expenditure reports submitted by any State for several years.

The rule enables RNHCI providers and beneficiaries the opportunity to continue to receive funding for inpatient health care service that are in keeping with their religious convictions. Additionally, the rule provides that a beneficiary will always have the option of choosing to seek conventional medical care for covered services.

This final rule adheres to the statutory provisions, which in many instances were very prescriptive; however, we used every opportunity possible to consider alternative approaches as discussed below.

The statute does not prescribe when the election must be made except to specify that it must be made before receiving care. Initially, we considered the possibility of opening the election process to all eligible beneficiaries, who would wish to pursue RNHCI services, to ensure these benefits would be available when they were admitted to an RNHCI. However, some religious groups consider it acceptable to receive some medical care (for example, closedreduction of fractures) that is considered as nonexcepted care under the RNHCI amendments to the statute and regulations. With the above cited approach to elections, we might be placing some beneficiaries in a position of having an RNHCI election revoked one or more times without ever being admitted to an RNHCI. This would subject a beneficiary to having to wait the prescribed period of time between revocation and when they could again file a viable election. Therefore, we decided it was in the beneficiary's best interest to initiate the election process at the time of admission to an RNHCI.

The statute provided flexibility for provider payment and initially we continued the new provider group under the TEFRA payment methodology to ensure a smooth transition. The new RNHCI group was already facing a number of changes when compared with their prior requirements as Christian Science sanatoria. We considered the possibility of moving swiftly to a prospective payment methodology as systems were being developed for skilled nursing facilities, home health agencies and rehabilitation hospitals. While the new methodologies were different from those under the hospital diagnosis related group (DRG), there was still a partial diagnosis based relationship to the payment system. Since the statute prohibits the use of diagnosis or other medical approaches for assessing RNHCI patients, we have decided to wait until we can conduct studies and find a methodology that is fully appropriate for the RNHCI setting.

For the above reasons, we are not preparing analyses for either the RFA or section 1102(b) of the Act. We have determined that this rule will not have a significant economic impact on a substantial number of small entities or a significant impact on the operations of a substantial number of small rural hospitals.

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

To order copies of theFederal Registercontaining this document, send your request to: New Orders, Superintendent of Documents, P.O. Box 371954, Pittsburgh, PA 15250-7954. Specify the date of the issue requested and enclose a check or money order payable to the Superintendent of Documents, or enclose your Visa or Master Card number and expiration date. Credit card orders can also be placed by calling the order desk at (202) 512-1800 or by faxing to (202) 512-2250. The cost for each copy is $10. As an alternative, you can view and photocopy theFederal Registerdocument at most libraries designated as Federal Depository Libraries and at many other public and academic libraries throughout the country that receive theFederal Register. ThisFederal Registerdocument is also available from the Federal Register online database through GPO access, a service of the U.S. Government Printing Office. The Web site address is:http://www.access.gpo.gov/nara/index.html.

Section 606 of the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA) amended section 1854 (f) (1) of the Social Security Act (the Act) by allowing Medicare+Choice (M+C) organizations to elect to receive a reduction in its payment under § 422.250(a)(1), 80 percent of which would be applied to reduce (or eliminate) the standard Medicare Part B premium otherwise paid by, or on behalf of, its Medicare enrollees. This was intended to make the M+C plan more attractive to Medicare beneficiaries and increase enrollment in M+C plans.

Beneficiaries must pay a premium in order to receive Supplementary Medical Insurance benefits commonly referred to as Medicare Part B. The Part B premiums are collected monthly, most commonly as deductions from the beneficiary's Social Security or other retirement benefits. They also may be paid by a third party, such as an employer or the State Medicaid program, or are paid directly by the beneficiary.

The provisions of this final rule revising part 408 to reflect the provisions of section 606 of BIPA are described in detail in section II, Provisions of the Final Rule.

We are making the following revisions to 42 CFR part 408 to reflect changes in the statute made in section 606 of BIPA:

We are adding a new § 408.21 entitled “Reduction in Medicare Part B Premium as an Additional Benefit Under Medicare+Choice Plans.” This new provision includes paragraphs treating, respectively, the basis for a reduction of Medicare Part B premiums, the administrative requirements for a Medicare Part B premium reduction,beneficiary eligibility, and notification of premium reductions.

In § 408.21(a), we set forth language reflecting the fact that, under section 606 of BIPA, an M+C organization may offer, as an additional benefit under an M+C plan, a reduction in the amount that an enrollee in the M+C plan pays to Medicare for the Medicare Part B premium. For the Medicare Part B premium reduction to occur, the M+C organization must accept a reduction in its monthly capitation payments under § 422.250(a)(1). The Medicare Part B premium paid by a beneficiary enrolled in an M+C plan that offers this additional benefit will be reduced by 80 percent of the amount that the capitation payment to the M+C organization is reduced. The Medicare Part B premium reduction may not exceed the standard Medicare Part B premium amount, and if the beneficiary owes less than this amount, the difference is not paid to the Medicare beneficiary.

In § 408.21(b), we set forth the administrative requirements under section 606 of BIPA for the Medicare Part B premium reductions. These requirements include: (1) The M+C capitation reduction must not result in a Medicare Part B premium reduction greater than the standard premium amount determined for the year under section 1839 of the Act (the reduction to the Medicare Part B premium may be less); (2) the Medicare Part B premium reduction will use only multiples of 10 cents; (3) the Medicare Part B premium reduction will be applied to all beneficiaries who are enrolled in the M+C plan under which the benefit is offered without regard to who actually pays/collects the Medicare Part B premium (Social Security Administration (SSA), Railroad Retirement Board (RRB), Office of Personnel Management (OPM), the beneficiary, the State, or employer); (4) The Medicare Part B premium reduction will never result in a payment to a beneficiary. (If the amount of the reduction is equal to or greater than the amount a beneficiary owes due to hold harmless premiums, the beneficiary will owe $0.)

Section 408.21(c) specifies the eligibility requirements under section 606 of BIPA for the Medicare Part B premium reduction; namely that, in order to be eligible for the reduction, a beneficiary must be enrolled in an M+C plan that offers the reduction to the Medicare Part B premium as an additional benefit.

Section 408.21(d) explains that after the Centers for Medicare Medicaid Services (CMS) determines the Medicare Part B premium reduction amount for each eligible beneficiary, the SSA, RRB, or OPM, as applicable, will include the adjusted amount of the Medicare Part B premium in benefit check amounts as appropriate and notify the beneficiaries of their new benefit amount. The paragraph also notes that we will notify States, formal groups, and directly billed beneficiaries of each beneficiary's reduced Medicare Part B premium amounts in the regular monthly billing process.

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

There are no information collection requirements associated with this final rule. This provision is strictly voluntary and is provided as a benefit option for M+C organizations.

We have examined the impacts of this final rule as required by Executive Order 12866 (September 1993, Regulatory Planning and Review), the Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), section 1102(b) of the Social Security Act, the Unfunded Mandates Reform Act of 1955 (Pub. L. 104-4), and Executive Order 13132.

Executive Order 12866 (as amended by Executive Order 13258, which merely reassigns responsibility of duties) directs agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects; distributive impacts; and equity). A regulatory impact analysis (RIA) must be prepared for major rules with economically significant effects ($100 million or more annually). This is not a major rule. It will have no significant economic impact on either costs or savings and may result in lower premiums for some beneficiaries.

The RFA requires agencies to analyze options for regulatory relief of small businesses. For purposes of the RFA, small entities include small businesses, nonprofit organizations, and government agencies. Most hospitals and most other providers and suppliers are small entities, either by nonprofit status or by having revenues of $6 million to $29 million annually (see65 FR 69432). Individuals and States are not included in the definition of small entities.

In addition, section 1102(b) of the Act requires us to prepare a regulatory impact analysis if a rule may have a significant impact on the operations of a substantial number of small rural hospitals. This analysis must conform to the provisions of section 604 of the RFA. For purposes of section 1102(b) of the Act, we define a small rural hospital as a hospital located outside of a Metropolitan Statistical Area with fewer than 100 beds.

We are not preparing analyses for either the RFA or section 1102(b) of the Act because we have determined, and we certify, that this rule will have no impact on any small entities or rural hospitals.

Section 202 of the Unfunded Mandates Reform Act of 1995 requires that agencies assess anticipated costs and benefits before issuing any rule that may result in an expenditure in any one year by State, local, or tribal governments, in the aggregate, or by the private sector, of $110 million. This final rule will have a positive effect on the annual expenditures of any State, local, or tribal government, or private sector with enrollees covered under a State buy-in agreement or group payer arrangement as set forth in subpart C and E, respectively, of part 407 of this chapter; and, whose enrollees opt to enroll in a Medicare+Choice organization's (M+CO) Plan Benefit Package that offers a reduction to the Medicare Part B premium permitted as an additional benefit, authorized under section 606 of the BIPA and defined under part 422, subpart A of this chapter. Any reduction to the beneficiary's Medicare Part B premium will be applied regardless of the entity that actually pays the Medicare Part B premium on behalf of the beneficiary. The entity that actually pays theMedicare Part B premium would receive the benefit of this reduction under this rule. If a beneficiary is paying the premium, he or she would pay a lower premium. If another entity pays the premium, they would receive the savings.

Executive Order 13132 establishes certain requirements that an agency must meet when it promulgates a final rule that imposes substantial direct requirement costs on State and local governments, preempts State law, or otherwise has Federalism implications. This final rule would impose no direct requirement costs on State and local governments, would not preempt State law, or have any Federalism implications. Participation is strictly voluntary.

In accordance with the provisions of Executive Order 12866, this final rule was reviewed by the Office of Management and Budget. This final rule is not a major rule as defined at 5 U.S.C. 804(2).

We ordinarily publish a notice of proposed rulemaking in theFederal Registerand invite public comment on the proposed rule. The notice of proposed rulemaking includes a reference to the legal authority under which the rule is proposed, and the terms and substances of the proposed rule or a description of the subjects and issues involved. The notice of proposed rulemaking can be waived, however, if an agency finds good cause that notice and comment procedures are impracticable, unnecessary, or contrary to the public interest, and it incorporates a statement of the finding and its reasons in the rule issued.

Publishing a proposed rule is unnecessary in this instance, as this final rule only makes conforming changes to the regulations to implement sections of the BIPA in which the Congress allowed no discretion as to the actions to be taken and the times in which they must be completed. These changes were enacted by the Congress, and would be in effect on the date mandated by the legislation without regard to whether they are reflected in conforming changes to the regulation text, since a statute controls over a regulation. In this final rule we merely have revised the regulation text to reflect these new statutory provisions. The BIPA provisions have been incorporated virtually verbatim, with no interpretation necessary. We do not believe that publishing a notice of proposed rulemaking is necessary, nor would it be practicable given that a number of the provisions have already taken effect consistent with the effective dates established under the BIPA.

On March 20, 2003, the Office of Hearings and Appeals (OHA) published for comment a petition for rulemaking that it had received from the National Mining Association (NMA). 68 FR 13657-13661 (Mar. 20, 2003). On the basis of the decision of the U.S. Supreme Court inDirector, Office ofWorkers' Compensation Programs, Department of Laborv.Greenwich Collieries,512 U.S. 267, 114 S. Ct. 2251 (1994), the petition urged that OHA reallocate the burden of proof in several existing rules that govern hearings under the Surface Mining Control and Reclamation Act of 1977, 30 U.S.C. 1201-1328 (2000) (the Act or SMCRA).

The Administrative Procedure Act (APA), 5 U.S.C. 554 (2000), applies to cases of adjudication that are required by statute to be determined on the record after an opportunity for an agency hearing. Section 554(c)(2) of the APA requires an agency to give all interested parties an opportunity for a hearing in accordance with sections 556 and 557. Section 556(d) provides that “[e]xcept as otherwise provided by statute, the proponent of a rule or order has the burden of proof.”

InGreenwich Collieries,the Supreme Court considered whether a rule employed by the Department of Labor in adjudicating claims for benefits under the Black Lung Benefits Act was consistent with section 556(d) of the APA. The Court explained that the effect of the rule was to “shift the burden of persuasion to the party opposing the benefits claim—when the evidence is evenly balanced, the benefits claimant wins,” 512 U.S. at 269, 114 S. Ct. at 2253. The Court construed the term “burden of proof” in section 556(d) to mean “burden of persuasion,” not merely “burden of production (i.e., the burden of going forward with evidence),” 512 U.S. at 272, 114 S. Ct. at 2255; and it concluded that the Department of Labor rule was inconsistent with section 556(d), pursuant to which “when the evidence is evenly balanced, the benefits claimant must lose.” 512 U.S. at 281, 114 S. Ct. at 2259.

The NMA petition argued that, “[i]n those proceedings where SMCRA does not expressly provide a burden of proof distinct from that set forth in the APA, OHA has improperly relieved OSM [the Office of Surface Mining Reclamation and Enforcement] of the burden of persuasion when OSM is the proponent of a rule or order * * *. Since the ultimate burden of persuasion under section [556(d)] of the APA requires the agency as a proponent of a rule or order to prove its case by a preponderance of the evidence * * *, OHA must revise its regulations concerning the burden of proof to require OSM, as the proponent of a rule or order, to prove its case by a preponderance of the evidence.” Petition at 11.

The petition addressed existing OHA rules applicable to the burden of proof in five different kinds of proceedings: (1) Proceedings to review notices of violation or cessation orders issued under section 521 of the Act (the applicable existing rule is 43 CFR 4.1171); (2) civil penalty proceedings (§ 4.1155); (3) individual civil penalty proceedings (§ 4.1307); (4) permit suspension or revocation proceedings (§ 4.1194); and (5) proceedings to review permit revisions ordered by OSM (§ 4.1366(b)).

OHA received 19 comments in support of the petition from mining companies, mining trade associations, and law firms; and it received one comment from an agency in a primacy state recommending that the burden of proof remain with the permittee.

As a preliminary matter OHA observes that, although the Supreme Court did not discuss how often “the evidence is evenly balanced,” in OHA's experience under SMCRA it is quite rare.See, e.g., OSMv.C-Ann Coal Co.,94 IBLA 14, 19 (1986);Harry Smith Construction Co.v.OSM,78 IBLA 27, 29, 32 (1983).

In any event, with one exception, OHA does not agree with the premise of the NMA petition,i.e., that SMCRA does not provide for a burden of proof distinct from that set forth in section 556(d) of the APA for the proceedings NMA addresses. Whether or not OSM is “the proponent of a rule or order” within the meaning of section 556(d), it does not bear the burden of persuasion in most of the proceedings discussed in NMA's petition because SMCRA “otherwise provide[s].” Each of the proceedings is analyzed below.

Section 525(a)(1) of the Act, 30 U.S.C. 1275(a)(1), provides as follows:

The existing regulation, 43 CFR 4.1171, provides that OSM has the “burden of going forward to establish a prima facie case as to the validity” of the notice or order or its modification, vacation or termination; the “ultimate burden of persuasion” rests with the applicant for review. OHA believes the regulation correctly allocates the burdens of proof.

InOld Ben Coal Corp.v.Interior Board of Mine Operations Appeals,523 F.2d 25 (7th Cir. 1975), the court construed nearly identical language from the Federal Coal Mine Health and Safety Act of 1969. Section 105(a)(1) of that statute, 30 U.S.C. 815(a)(1) (1976), provided as follows:

The operator in that case argued that a Department of the Interior regulation allocating the burden of proof under section 105(a) to “the applicant, petitioner, or other party initiating the proceedings” violated section 556(d) of the APA because there was no provision in the Coal Mine Health and Safety Act that “require[d] the mine operator to carry the burden of proof in a review of summary agency action.” 523 F.2d at 35. In defending the regulation, the Secretary argued that section 105(a) fit within the “[e]xcept as otherwise provided by statute” language in section 556(d) “because it specifically places on the operator who requests a publichearing the burden “to present information relating to the issuance and continuance of such order [Section 104(a) withdrawal order].”’Id.at 36 (bracketed text in original). The court agreed:

SinceOld Bendealt with the exception language in 5 U.S.C. 556(d), rather than the meaning of the term “burden of proof,” it remains good law after the Supreme Court's decision inGreenwich Collieries.II Richard J. Pierce, Jr.,Administrative Law Treatise§ 10.7 (4th ed. 2002), at 760-61.

A similar examination of SMCRA's language and legislative history demonstrates that the allocation of the burden of proof in 43 CFR 4.1171 is likewise consistent with the intent of Congress. The purpose of the hearing provided in section 525(a)(1) is not for the Secretary to prove that a violation exists but “to enablethe applicant* * * to present information relating to the issuance and continuance of [the] notice or order * * *.” (emphasis supplied). Thus SMCRA itself places the burden of proof on the applicant. This interpretation is clear from the legislative history:

The legislative history also confirms what is obvious from the language of the two statutes, namely, that SMCRA's enforcement provisions were modeled after those in the Coal Mine Health and Safety Act.Id.at 58. Thus, comparable to the regulation at issue inOld Ben,43 CFR 4.1171 properly allocates to OSM the burden of going forward to establish a prima facie case as to the validity of the notice of violation or cessation order (or its modification, vacation, or termination), and to the applicant for review the ultimate burden of persuasion.

Section 518(a) of the Act, 30 U.S.C. 1268(a), provides that a permittee who violates the Act or a permit condition may be assessed a civil penalty. Section 518(b) provides that the penalty may only be assessed after the person charged with a violation has been given the opportunity for a public hearing conducted in accordance with section 554 of the APA. Section 518(c) provides that the person charged may contest the amount of the penalty or the fact of the violation.

Section 518(b) also provides that, when there has been a hearing, “the Secretary shall * * * issue a written decision as to the occurrence of the violation and the amount of the penalty which is warranted” and “shall consolidate such hearings with other proceedings under section 521” when appropriate.

When OHA originally adopted the regulation governing burdens of proof in civil penalty proceedings, 43 CFR 4.1155, it allocated both the burden of going forward to establish a prima facie case and the burden of persuasion to OSM, with respect to both the fact of violation and the amount of the penalty. 43 FR 34376, 34393 (Aug. 3, 1978). The result was that the allocation of the ultimate burden of persuasion as to the fact of a violation was inconsistent with the legislative history of the Act discussed above in connection with section 525. In addition, when there was a consolidated hearing to review a notice or order issued under section 521 and a civil penalty proposed under section 518, there were contradictory provisions allocating the ultimate burden of persuasion as to the fact of a violation: § 4.1171 to the applicant for review and § 4.1155 to OSM. 52 FR 38246-38247 (October 15, 1987).

In 1988, therefore, OHA amended § 4.1155 to provide that “OSM shall have the burden of going forward to establish a prima facie case as to the fact of the violation and the amount of the civil penalty and the ultimate burden of persuasion as to the amount of the civil penalty.” A person who petitions for review of a proposed assessment of a civil penalty, however, has “the ultimate burden of persuasion as to the fact of the violation.”

Viewing the statutory scheme as a whole, including the interplay among SMCRA sections 518, 521, and 525, and in view of the legislative history and case precedent discussed above, OHA concludes that the burden of proof as to the fact of the violation in civil penalty proceedings fits within the exception language of 5 U.S.C. 556(d) and that 43 CFR 4.1155 is consistent with Congressional intent.

Section 518(f) of the Act, 30 U.S.C. 1268(f), provides that, when a corporate permittee violates a condition of its permit or fails or refuses to comply with any order issued under section 521 of the Act or any order in a final decision by the Secretary (with certain exceptions), any director, officer, or agent of the corporation who willfully and knowingly authorized, ordered, or carried out the corporation's violation or its failure or refusal to comply, “shall be subject to the same civil penalties * * * that may be imposed upon a person” under section 518(a).

43 CFR 4.1307(a) allocates to OSM the burden of going forward with evidence to establish a prima facie case that (1) the corporation violated a permit condition or failed or refused to comply with an order; (2) the individual was a director, officer, or agent of the corporation at the time of the violation; and (3) the individual acted willfully and knowingly. Section 4.1307(b) imposes on the individual the ultimate burden of persuasion as to (1) whether the corporation violated a permit condition or failed or refused to comply with an order and (2) whether he or she was a director or officer at the time of the violation or refusal. Section 4.1307(c) imposes on OSM the ultimate burden of persuasion as to (1) whether the individual was an agent of the corporation and (2) the amount of the individual civil penalty.

Just as the statutory scheme, legislative history, and court precedent discussed above assign the burden of persuasion as to the fact of a violation to a corporate permittee under section 518(a), so they support allocating the burden of proof on that issue to the individual under section 518(f). However, the same conclusion cannot be drawn as to the individual's role in the corporation. Since SMCRA does not“otherwise provide[]” an allocation of the burden of proof on that issue, OHA agrees with NMA that the burden must be imposed on OSM as the proponent of the order (individual civil penalty) under 5 U.S.C. 556(d). OHA is therefore amending 43 CFR 4.1307 in this final rule to state that OSM has the ultimate burden of persuasion as to whether the individual was a director, officer, or agent of the corporation.

Section 521(a)(4) of the Act, 30 U.S.C. 1271(a)(4), provides as follows:

OHA's regulations at 43 CFR 4.1194 provide that, in such proceedings, OSM has the burden of going forward to establish a prima facie case for suspension or revocation of the permit, but the ultimate burden of persuasion that the permit should not be suspended or revoked rests with the permittee.

The language of section 521(a)(4) clearly assigns the burden of persuasion in permit suspension or revocation proceedings to the permittee. The legislative history confirms Congress' intent:

As with the fact-of-the-violation issue in proceedings under sections 525(a)(1), 518(b), and 518(f), therefore, SMCRA provides its own allocation of the burden of proof in permit suspension or revocation proceedings, and the language of 5 U.S.C. 556(d) assigning the burden to the proponent of the order does not apply.

Section 511 of the Act, 30 U.S.C. 1261, applies to revision of permits. Section 511(a) provides that, during the term of the permit, a permittee may apply for a revision to a permit. Section 511(c) provides that the regulatory authority must, within time limits prescribed in regulations, review outstanding permits and may require reasonable revision or modification of permit provisions during the term of the permit. The revision or modification is to be “based upon a written finding and subject to notice and hearing requirements established by the State or Federal program.”Id.

OSM's implementing regulations at 30 CFR 774.10(a) provide that the regulatory authority must review each permit issued under an approved program not later than the middle of each permit term. The regulatory authority “may, by order, require reasonable revision of a permit * * * to ensure compliance with the Act and the regulatory program.” § 774.10(b). Any order requiring revision of a permit “shall be based upon written findings and shall be subject to the provisions for administrative and judicial review in [30 CFR] part 775.” § 774.10(c). Under § 775.11(c), all hearings “under a Federal program for a State or a Federal lands program * * * on an application for approval of * * * permit revision shall be of record and governed by 5 U.S.C. 554 and 43 CFR part 4.”

OHA's regulations at 43 CFR 4.1366(b) provide that, in a proceeding to review a permit revision ordered by OSM, OSM has the burden of going forward to establish a prima facie case that the permit should be revised, and the permittee has the ultimate burden of persuasion. This allocation of the burden of proof was explained in the preamble to the proposed rule:

Under section 510(a) of the Act, 30 U.S.C. 1260(a), “[t]he applicant for a permit, or revision of a permit, shall have the burden of establishing that his application is in compliance with all the requirements of the applicable State or Federal program.” If at any point the permitted operation is no longer in compliance with the Act, “the regulatory authority * * * may require reasonable revision or modification of the permit provisions * * * .” Section 511(c). It follows that, when challenging OSM's decision to require a permit revision to ensure compliance with the Act, the permit holder properly bears the burden of persuasion.

Construing section 511(c) in light of the statutory scheme as a whole, including sections 510(a), 521(a), and 525(a), and in light of the legislative history and case precedent interpreting those provisions, OHA believes it has correctly allocated the burden of proof in 43 CFR 4.1366(b).

For the foregoing reasons, NMA's petition for rulemaking is granted in part with respect to 43 CFR 4.1307 and is otherwise denied.

A.Planning and Review (E.O. 12866).accordance with the criteria in Executive Order 12866, the Department of the Interior finds that this document is not a significant rule. The Office of Management and Budget has not reviewed this rule under Executive Order 12866.

1. This rule will not have an annual economic effect of $100 million or adversely affect an economic sector, productivity, competition, jobs, the environment, public health or safety, or other units of government. A cost-benefit and economic analysis is not required. The amended rule will have virtually no effect on the economy because it will only change the allocation of the burden of proof—from the individual to OSM—on one issue in one kind of proceeding under SMCRA. Moreover, the practical effect of the rule will be limited to the rare situation in which the evidence on that one issue is evenly balanced.

2. This rule will not create inconsistencies with or interfere with other agencies' actions. The rule amends an existing OHA regulation to changethe allocation of the burden of proof in one kind of proceeding under SMCRA.

3. This rule will not alter the budgetary effects of entitlements, grants, user fees, loan programs, or the rights and obligations of their recipients. The existing regulation has to do with the burden of proof in one kind of proceeding under SMCRA, not with entitlements, grants, user fees, loan programs, or the rights and obligations of their recipients.

4. This rule does not raise novel legal or policy issues. Rather, it conforms OHA's regulations to recent court precedent.

B.Regulatory Flexibility Act.The Department certifies that this rule will not have a significant economic effect on a substantial number of small entities as defined under the Regulatory Flexibility Act (5 U.S.C. 601et seq.). Changing the allocation of the burden of proof on one issue in individual civil penalty proceedings under SMCRA will have no effect on small entities. A Small Entity Compliance Guide is not required.

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

1. This rule will not have an annual effect on the economy of $100 million or more. Changing the allocation of the burden of proof in one kind of proceeding under SMCRA will have no effect on the economy.

2. This rule will not cause a major increase in costs or prices for consumers, individual industries, Federal, state, or local government agencies, or geographic regions. Changing the allocation of the burden of proof in one kind of proceeding under SMCRA will not affect costs or prices for citizens, individual industries, or government agencies.

3. This rule will not have significant adverse effects on competition, employment, investment, productivity, innovation, or the ability of U.S.-based enterprises to compete with foreign-based enterprises. Changing the allocation of the burden of proof in one kind of proceeding under SMCRA will have no effects, adverse or beneficial, on competition, employment, investment, productivity, innovation, or the ability of U.S.-based enterprises to compete with foreign-based enterprises.

D.Unfunded Mandates Reform Act.In accordance with the Unfunded Mandates Reform Act (2 U.S.C. 1531et seq.), the Department finds as follows:

1. This rule will not have a significant or unique effect on state, local, or tribal governments or the private sector. Changing the allocation of the burden of proof in one kind of proceeding under SMCRA will neither uniquely nor significantly affect these governments. A statement containing the information required by the Unfunded Mandates Reform Act, 2 U.S.C. 1531et seq., is not required.

2. This rule will not produce an unfunded Federal mandate of $100 million or more on state, local, or tribal governments or the private sector in any year,i.e., it is not a “significant regulatory action” under the Unfunded Mandates Reform Act.

E.Takings (E.O. 12630).In accordance with Executive Order 12630, the Department finds that this rule will not have significant takings implications. A takings implication assessment is not required. Imposing on OSM the burden of proof on one issue in one kind of proceeding under the SMCRA will have no effect on property rights.

F.Federalism (E.O. 13132).In accordance with Executive Order 13132, the Department finds that this rule does not have sufficient federalism implications to warrant the preparation of a Federalism Assessment. States with approved regulatory programs may be affected to the extent they make a conforming change to their own rules and consequently bear the burden of proof on the issue of whether someone who receives a proposed individual civil penalty assessment was an officer, director, or agent of the corporation. These effects are so minor that a Federalism Assessment is not required.

G.Civil Justice Reform (E.O. 12988).In accordance with Executive Order 12988, the Office of the Solicitor has determined that this rule does not unduly burden the judicial system and meets the requirements of sections 3(a) and 3(b)(2) of the Order. This rule, because it simply changes the allocation of the burden of proof proceedings in one kind of proceeding under SMCRA, will not burden either administrative or judicial tribunals.

H.Paperwork Reduction Act.This rule will not require an information collection from 10 or more parties, and a submission under the Paperwork Reduction Act is not required. An OMB form 83-I has not been prepared and has not been approved by the Office of Policy Analysis. This rule will only change the allocation of the burden of proof in one kind of proceeding under SMCRA; it will not require the public to provide information.

I.National Environmental Policy Act.The Department has analyzed this rule in accordance with the National Environmental Policy Act of 1969 (NEPA), 42 U.S.C. 4321et seq., Council on Environmental Quality (CEQ) regulations, 40 CFR part 1500, and the Department of the Interior Departmental Manual (DM). CEQ regulations, at 40 CFR 1508.4, define a “categorical exclusion” as a category of actions that the Department has determined ordinarily do not individually or cumulatively have a significant effect on the human environment. The regulations further direct each department to adopt NEPA procedures, including categorical exclusions. 40 CFR 1507.3. The Department has determined that this rule is categorically excluded from further environmental analysis under NEPA in accordance with 516 DM 2, Appendix 1, which categorically excludes “[p]olicies, directives, regulations and guidelines of an administrative, financial, legal, technical or procedural nature.” In addition, the Department has determined that none of the exceptions to categorical exclusions, listed in 516 DM 2, Appendix 2, applies to this rule. This rule is an administrative and procedural rule, relating to the allocation of the burden of proof in one kind of proceeding under SMCRA. Therefore, neither an environmental assessment nor an environmental impact statement under NEPA is required.

J.Government-to-Government Relationship with Tribes.In accordance with the President's memorandum of April 29, 1994, “Government-to-Government Relations with Native American Tribal Governments” (59 FR 22951), E.O. 13175, and 512 DM 2, the Department has evaluated potential effects of this rule on Federally recognized Indian tribes and has determined that there are no potential effects. This rule will not affect Indian trust resources; it will simply change the allocation of the burden of proof in one kind of proceeding under SMCRA.

K.Effects on the Nation's Energy Supply.In accordance with Executive Order 13211, the Department finds that this regulation does not have a significant effect on the nation's energy supply, distribution, or use. Changing the allocation of the burden of proof in one kind of proceeding under SMCRA will not affect energy supply or consumption.

The Department has determined that prior publication of a proposed rule to amend 43 CFR 4.1307 is not required by the notice and comment provisions of the Administrative Procedure Act, 5 U.S.C. 553(b), because an opportunity was provided to comment on the changeas proposed in NMA's petition for rulemaking (68 FR 13657).

This is a summary of the Federal Communications Commission's Second Report and Order and Second Further Notice of Proposed Rulemaking, FCC 03-225, adopted on September 10, 2003, and released on October 9, 2003. The full text of this document is available for inspection and copying during normal business hours in the FCC Reference Center, 445 12th Street, SW., Washington, DC 20554. The complete text may be purchased from the Commission's copy contractor, Qualex International, 445 12th Street, SW., Room CY-B402, Washington, DC 20554. The full text may also be downloaded at:www.fcc.gov.Alternative formats are available to persons with disabilities by contacting Brian Millin at (202) 418-7426 or TTY (202) 418-7365 or atBrian.Millin@fcc.gov.

The Second Report and Order portion of this document contains either a new or modified information collection(s). The Commission, as part of its continuing effort to reduce paperwork burdens, invites the general public and the Office of Management and Budget (OMB) to comment on the information collections contained in this Second Report and Order, as required by the Paperwork Reduction Act of 1995, Public Law 104-13. Public and agency comments are due January 27, 2004.

In addition to filing comments with the Secretary, a copy of any PRA comments on the information collections contained herein should be submitted to Leslie Smith, Federal Communications Commission, Room 1-A804, 445 12th Street, SW., Washington, DC 20554, or via the Internet toLeslie.Smith@fcc.gov,and to Kim A. Johnson, OMB Desk Officer, Room 10236 NEOB, 725 17th Street, NW., Washington, DC 20503, or via the Internet toKim_A._Johnson@omb.eop.gov.

1. In theSecond Report and Orderportion of thisSecond Report and Order and Second Further Notice of Proposed Rulemaking,the Commission is adopting final rules that set technical and other criteria that manufacturers would have to meet in order to label or market unidirectional digital cable televisions and other unidirectional digital cable products as “digital cable ready.” This regime includes testing and self-certification standards. The final rules also require consumer information disclosures to purchasers of unidirectional digital cable televisions receivers in appropriate post-sale materials that describe the functionality of these devices and the need to obtain a security module from their cable operator. Cable operators with digital systems of 750 MHz or greater activated channel capacity will be required to support operation of unidirectional digital cable products on digital cable systems. Certain other technical support requirements apply to all digital cable systems, regardless of channel capacity, including those systems whole only digital programming comes from HITS. In addition, all cable operators will be required to supply digital subscribers with point-of-deployment modules (“PODs”) and high definition set-top boxes that comply with certain technical standards by April 1, 2004 and July 1, 2005 deadlines. Finally, all MVPDs would be prohibited from encoding content to activate selectable output controls on consumer premises equipment, or the down-resolution of unencrypted broadcast television programming. MVPDs would also be limited in the levels of copy protectionthat could be applied to various categories of programming.

2.Paperwork Reduction Act:ThisSecond Report and Ordercontains either a new or modified information collection(s). The Commission, as part of its continuing effort to reduce paperwork burdens, invites the general public to comment on the information collection(s) contained in thisSecond Report and Orderas required by the Paperwork Reduction Act of 1995, Public Law 104-13. Public and agency comments are due January 27, 2004.

3.Final Regulatory Flexibility Analysis:As required by the Regulatory Flexibility Act, the Commission has prepared a Final Regulatory Flexibility Analysis (“FRFA”) relating to thisSecond Report and Order.The FRFA is set forth within.

4.Ordering Clauses: It is orderedthat pursuant to the authority contained in sections 1, 4(i) and (j), 303, 403, 601, 624A and 629 of the Communications Act of 1934, 47 U.S.C 151, 154(i) and (j), 303, 403, 521, 544a and 549, that the Commission's rulesare hereby amendedas set forth herein, and shall become effective December 29, 2003, except that §§ 15.123, 76.1905, and 76.1906 that contain information collection requirements under the PRA is not effective until approved by OMB. The FCC will publish a document in theFederal Registerannouncing the effective date for those sections. The Commission's Consumer and Governmental Affairs Bureau, Reference Information Center,shall senda copy of thisSecond Report and Order,including the Final Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of the Small Business Administration.

5. As required by the Regulatory Flexibility Act of 1980, as amended (“RFA”) an Initial Regulatory Flexibility Analysis (“IRFA”) was incorporated in the Further Notice of Proposed Rulemaking (“FNPRM”). The Commission sought written public comment on the proposals in the FNPRM, including comment on the IRFA. Comments were received on the IRFA. This present Final Regulatory Flexibility Analysis (“FRFA”) conforms to the RFA.

6.Need for, and Objectives of, the Second Report and Order and Second Further Notice of Proposed Rulemaking.The need for FCC regulation in this area derives from the lack of a so-called cable compatibility “plug and play” standard for a digital cable television receiver and related digital cable television consumer electronics equipment. The absence of such a standard has been identified as a key impediment to the anticipated rate and scope of the transition to digital television (“DTV”). Such a standard would allow consumers to directly attach their DTV receivers to cable systems and receive certain cable television services without the need for an external navigation device. Since more than sixty percent of television households subscribe to cable programming services, the availability of digital cable television receivers and products would encourage more consumers to convert to DTV, thereby furthering the transition. Private industry negotiations between cable operators and consumer electronics manufacturers resulted in a Memorandum of Understanding (“MOU”) on a cable compatibility standard for an integrated, unidirectional digital cable television receiver, as well as for other unidirectional digital cable products. The MOU requires the consumer electronics and cable television industries to each commit to certain voluntary acts and sought the creation or revision of certain relevant Commission rules. The objective of the final rules, as set forth in the Second Report and Order portion of the Second Report and Order and Further Notice of Proposed Rulemaking (“Second Report and Order”), is to facilitate the DTV transition.

7.Summary of Significant Issues Raised by Public Comments in Response to the IRFA.The Commission received comments from the American Cable Association (“ACA”) in response to the IRFA accompanying the FNPRM. In these comments, ACA expresses its support for the Commission's efforts to advance the DTV transition, but asks that the Commission take into account the special circumstances of smaller cable companies in this proceeding. Specifically, ACA asks that the Commission consider: (1) the costs of compliance for smaller cable systems, (2) how plug-and-play requirements might affect smaller cable systems that use Comcast's Headend-in-the-Sky (“HITS”) programming, and (3) why some of the plug-and-play requirements are limited to systems having 750 MHz activated channel capacity or higher, while other requirements apply to all digital cable systems. To the extent that the Commission determines that there would be a disparate cost impact upon small cable systems, ACA asks that the Commission consider waivers and an extended phase-in for small system compliance. We have discussed compliance impacts in this FRFA in below.

8.Description and Estimate of the Number of Small Entities to Which the Proposed Rules Will Apply.The RFA directs the Commission to provide a description of and, where feasible, an estimate of the number of small entities that will be affected by the proposed rules. The RFA generally defines the term “small entity” as encompassing the terms “small business,” “small organization,” and “small governmental entity.” In addition, the term “small business” has the same meaning as the term “small business concern” under the Small Business Act. A small business concern is one which: (1) Is independently owned and operated; (2) is not dominant in its field of operation; and (3) satisfies any additional criteria established by the Small Business Administration (“SBA”).

9.Television Broadcasting.The Small Business Administration defines a television broadcasting station that has no more than $12 million in annual receipts as a small business. Business concerns included in this industry are those “primarily engaged in broadcasting images together with sound.” According to Commission staff review of the BIA Publications, Inc. Master Access Television Analyzer Database as of May 16, 2003, about 814 of the 1,220 commercial television stations in the United States have revenues of $12 million or less. We note, however, that, in assessing whether a business concern qualifies as small under the above definition, business (control) affiliations must be included. Our estimate, therefore, likely overstates the number of small entities that might be affected by our action, because the revenue figure on which it is based does not include or aggregate revenues from affiliated companies. There are also 2,127 low power television stations (LPTV). Given the nature of this service, we will presume that all LPTV licensees qualify as small entities under the SBA definition.

10. In addition, an element of the definition of “small business” is that the entity not be dominant in its field of operation. We are unable at this time to define or quantify the criteria that would establish whether a specific television station is dominant in its field of operation. Accordingly, the estimate of small businesses to which rules may apply do not exclude any television station from the definition of a small business on this basis and are therefore over-inclusive to that extent. Also as noted, an additional element of the definition of “small business” is that the entity must be independently ownedand operated. We note that it is difficult at times to assess these criteria in the context of media entities and our estimates of small businesses to which they apply may be over-inclusive to this extent.

11.Cable and Other Program Distribution.The SBA has developed a small business size standard for cable and other program distribution services, which includes all such companies generating $12.5 million or less in revenue annually. This category includes, among others, cable operators, direct broadcast satellite (“DBS”) services, home satellite dish (“HSD”) services, multipoint distribution services (“MDS”), multichannel multipoint distribution service (“MMDS”), Instructional Television Fixed Service (“ITFS”), local multipoint distribution service (“LMDS”), satellite master antenna television (“SMATV”) systems, and open video systems (“OVS”). According to the Census Bureau data, there are 1,311 total cable and other pay television service firms that operate throughout the year of which 1,180 have less than $10 million in revenue. We address below each service individually to provide a more precise estimate of small entities.

12.Cable Operators.The Commission has developed, with SBA's approval, our own definition of a small cable system operator for the purposes of rate regulation. Under the Commission's rules, a “small cable company” is one serving fewer than 400,000 subscribers nationwide. We last estimated that there were 1,439 cable operators that qualified as small cable companies. Since then, some of those companies may have grown to serve over 400,000 subscribers, and others may have been involved in transactions that caused them to be combined with other cable operators. Consequently, we estimate that there are fewer than 1,439 small entity cable system operators that may be affected by the decisions and rules proposed in this Second Report and Order.

13. The Communications Act, as amended, also contains a size standard for a small cable system operator, which is “a cable operator that, directly or through an affiliate, serves in the aggregate fewer than 1% of all subscribers in the United States and is not affiliated with any entity or entities whose gross annual revenues in the aggregate exceed $250,000,000.” The Commission has determined that there are 68,500,000 subscribers in the United States. Therefore, an operator serving fewer than 685,000 subscribers shall be deemed a small operator if its annual revenues, when combined with the total annual revenues of all of its affiliates, do not exceed $250 million in the aggregate. Based on available data, we find that the number of cable operators serving 685,000 subscribers or less totals approximately 1,450. Although it seems certain that some of these cable system operators are affiliated with entities whose gross annual revenues exceed $250,000,000, we are unable at this time to estimate with greater precision the number of cable system operators that would qualify as small cable operators under the definition in the Communications Act.

14.Direct Broadcast Satellite (“DBS”) Service.Because DBS provides subscription services, DBS falls within the SBA-recognized definition of cable and other program distribution services. This definition provides that a small entity is one with $12.5 million or less in annual receipts. There are four licensees of DBS services under Part 100 of the Commission's Rules. Three of those licensees are currently operational. Two of the licensees that are operational have annual revenues that may be in excess of the threshold for a small business. The Commission, however, does not collect annual revenue data for DBS and, therefore, is unable to ascertain the number of small DBS licensees that could be impacted by these proposed rules. DBS service requires a great investment of capital for operation, and we acknowledge, despite the absence of specific data on this point, that there are entrants in this field that may not yet have generated $12.5 million in annual receipts, and therefore may be categorized as a small business, if independently owned and operated.

15.Home Satellite Dish (“HSD”) Service.Because HSD provides subscription services, HSD falls within the SBA-recognized definition of cable and other program distribution services. This definition provides that a small entity is one with $12.5 million or less in annual receipts. The market for HSD service is difficult to quantify. Indeed, the service itself bears little resemblance to other MVPDs. HSD owners have access to more than 265 channels of programming placed on C-band satellites by programmers for receipt and distribution by MVPDs, of which 115 channels are scrambled and approximately 150 are unscrambled. HSD owners can watch unscrambled channels without paying a subscription fee. To receive scrambled channels, however, an HSD owner must purchase an integrated receiver-decoder from an equipment dealer and pay a subscription fee to an HSD programming package. Thus, HSD users include: (1) viewers who subscribe to a packaged programming service, which affords them access to most of the same programming provided to subscribers of other MVPDs; (2) viewers who receive only non-subscription programming; and (3) viewers who receive satellite programming services illegally without subscribing. Because scrambled packages of programming are most specifically intended for retail consumers, these are the services most relevant to this discussion.

16.Multipoint Distribution Service (“MDS”), Multichannel Multipoint Distribution Service (“MMDS”) Instructional Television Fixed Service (“ITFS”) and Local Multipoint Distribution Service (“LMDS”).MMDS systems, often referred to as “wireless cable,” transmit video programming to subscribers using the microwave frequencies of the MDS and ITFS. LMDS is a fixed broadband point-to-multipoint microwave service that provides for two-way video telecommunications.

17. In connection with the 1996 MDS auction, the Commission defined small businesses as entities that had annual average gross revenues of less than $40 million in the previous three calendar years. This definition of a small entity in the context of MDS auctions has been approved by the SBA. The MDS auctions resulted in 67 successful bidders obtaining licensing opportunities for 493 Basic Trading Areas (“BTAs”). Of the 67 auction winners, 61 met the definition of a small business. MDS also includes licensees of stations authorized prior to the auction. As noted, the SBA has developed a definition of small entities for pay television services, which includes all such companies generating $12.5 million or less in annual receipts. This definition includes multipoint distribution services, and thus applies to MDS licensees and wireless cable operators that did not participate in the MDS auction. Information available to us indicates that there are approximately 850 of these licensees and operators that do not generate revenue in excess of $12.5 million annually. Therefore, for purposes of the IRFA, we find there are approximately 850 small MDS providers as defined by the SBA and the Commission's auction rules.

18. The SBA definition of small entities for cable and other program distribution services, which includes such companies generating $12.5 million in annual receipts, seems reasonably applicable to ITFS. There are presently 2,032 ITFS licensees. All but 100 of these licenses are held by educational institutions. Educational institutions are included in the definition of a small business. However,we do not collect annual revenue data for ITFS licensees, and are not able to ascertain how many of the 100 non-educational licensees would be categorized as small under the SBA definition. Thus, we tentatively conclude that at least 1,932 licensees are small businesses.

19. Additionally, the auction of the 1,030 LMDS licenses began on February 18, 1998, and closed on March 25, 1998. The Commission defined “small entity” for LMDS licenses as an entity that has average gross revenues of less than $40 million in the three previous calendar years. An additional classification for “very small business” was added and is defined as an entity that, together with its affiliates, has average gross revenues of not more than $15 million for the preceding calendar years. These regulations defining “small entity” in the context of LMDS auctions have been approved by the SBA. There were 93 winning bidders that qualified as small entities in the LMDS auctions. A total of 93 small and very small business bidders won approximately 277 A Block licenses and 387 B Block licenses. On March 27, 1999, the Commission re-auctioned 161 licenses; there were 40 winning bidders. Based on this information, we conclude that the number of small LMDS licenses will include the 93 winning bidders in the first auction and the 40 winning bidders in the re-auction, for a total of 133 small entity LMDS providers as defined by the SBA and the Commission's auction rules.

20. In sum, there are approximately a total of 2,000 MDS/MMDS/LMDS stations currently licensed. Of the approximate total of 2,000 stations, we estimate that there are 1,595 MDS/MMDS/LMDS providers that are small businesses as deemed by the SBA and the Commission's auction rules.

21.Satellite Master Antenna Television (“SMATV”) Systems.The SBA definition of small entities for cable and other program distribution services includes SMATV services and, thus, small entities are defined as all such companies generating $12.5 million or less in annual receipts. Industry sources estimate that approximately 5,200 SMATV operators were providing service as of December 1995. Other estimates indicate that SMATV operators serve approximately 1.5 million residential subscribers as of July 2001. The best available estimates indicate that the largest SMATV operators serve between 15,000 and 55,000 subscribers each. Most SMATV operators serve approximately 3,000-4,000 customers. Because these operators are not rate regulated, they are not required to file financial data with the Commission. Furthermore, we are not aware of any privately published financial information regarding these operators. Based on the estimated number of operators and the estimated number of units served by the largest ten SMATVs, we believe that a substantial number of SMATV operators qualify as small entities

22.Open Video Systems (“OVS”).Because OVS operators provide subscription services, OVS falls within the SBA-recognized definition of cable and other program distribution services. This definition provides that a small entity is one with $12.5 million or less in annual receipts. The Commission has certified 25 OVS operators with some now providing service. Affiliates of Residential Communications Network, Inc. (“RCN”) received approval to operate OVS systems in New York City, Boston, Washington, D.C. and other areas. RCN has sufficient revenues to assure us that they do not qualify as small business entities. Little financial information is available for the other entities authorized to provide OVS that are not yet operational. Given that other entities have been authorized to provide OVS service but have not yet begun to generate revenues, we conclude that at least some of the OVS operators qualify as small entities.

23.Electronics Equipment Manufacturers.Rules adopted in this proceeding could apply to manufacturers of DTV receiving equipment and other types of consumer electronics equipment. The SBA has developed definitions of small entity for manufacturers of audio and video equipment as well as radio and television broadcasting and wireless communications equipment. These categories both include all such companies employing 750 or fewer employees. The Commission has not developed a definition of small entities applicable to manufacturers of electronic equipment used by consumers, as compared to industrial use by television licensees and related businesses. Therefore, we will utilize the SBA definitions applicable to manufacturers of audio and visual equipment and radio and television broadcasting and wireless communications equipment, since these are the two closest NAICS Codes applicable to the consumer electronics equipment manufacturing industry. However, these NAICS categories are broad and specific figures are not available as to how many of these establishments manufacture consumer equipment. According to the SBA's regulations, an audio and visual equipment manufacturer must have 750 or fewer employees in order to qualify as a small business concern. Census Bureau data indicates that there are 554 U.S. establishments that manufacture audio and visual equipment, and that 542 of these establishments have fewer than 500 employees and would be classified as small entities. The remaining 12 establishments have 500 or more employees; however, we are unable to determine how many of those have fewer than 750 employees and therefore, also qualify as small entities under the SBA definition. Under the SBA's regulations, a radio and television broadcasting and wireless communications equipment manufacturer must also have 750 or fewer employees in order to qualify as a small business concern. Census Bureau data indicates that there 1,215 U.S. establishments that manufacture radio and television broadcasting and wireless communications equipment, and that 1,150 of these establishments have fewer than 500 employees and would be classified as small entities. The remaining 65 establishments have 500 or more employees; however, we are unable to determine how many of those have fewer than 750 employees and therefore, also qualify as small entities under the SBA definition. We therefore conclude that there are no more than 542 small manufacturers of audio and visual electronics equipment and no more than 1,150 small manufacturers of radio and television broadcasting and wireless communications equipment for consumer/household use.

24.Computer Manufacturers.The Commission has not developed a definition of small entities applicable to computer manufacturers. Therefore, we will utilize the SBA definition of electronic computers manufacturing. According to SBA regulations, a computer manufacturer must have 1,000 or fewer employees in order to qualify as a small entity. Census Bureau data indicates that there are 563 firms that manufacture electronic computers and of those, 544 have fewer than 1,000 employees and qualify as small entities. The remaining 19 firms have 1,000 or more employees. We conclude that there are approximately 544 small computer manufacturers.

25.Description of Projected Reporting, Recordkeeping and other Compliance Requirements.The final rules set technical and other criteria that manufacturers would have to meet in order to label or market unidirectional digital cable televisions and other unidirectional digital cable products as “digital cable ready.” This regimeincludes testing and self-certification standards. The final rules also require consumer information disclosures to purchasers of unidirectional digital cable televisions receivers in appropriate post-sale materials that describe the functionality of these devices and the need to obtain a security module from their cable operator. Cable operators with digital systems of 750 MHz or greater activated channel capacity will be required to support operation of unidirectional digital cable products on digital cable systems. Certain other technical support requirements apply to all digital cable systems, regardless of channel capacity, including those systems whose only digital programming comes from HITS. In addition, all cable operators will be required to supply digital subscribers with point-of-deployment modules (“PODs”) and high definition set-top boxes that comply with certain technical standards by April 1, 2004 and July 1, 2005 deadlines. Finally, all MVPDs would be prohibited from encoding content to activate selectable output controls on consumer premises equipment, or the down-resolution of unencrypted broadcast television programming. MVPDs would also be limited in the levels of copy protection that could be applied to various categories of programming.

26.Steps Taken to Minimize Significant Impact on Small Entities, and Significant Alternatives Considered.The RFA requires an agency to describe any significant alternatives that it has considered in reaching its proposed approach, which may include the following four alternatives (among others): (1) The establishment of differing compliance or reporting requirements or timetables that take into account the resources available to small entities; (2) the clarification, consolidation, or simplification of compliance or reporting requirements under the rule for small entities; (3) the use of performance, rather than design, standards; and (4) an exemption from coverage of the rule, or any part thereof, for small entities.

27. Because the “digital cable ready” labeling regime does not require manufacturers to affix a label to devices, we do not anticipate that small manufacturers will be significantly affected. Although the consumer information disclosure in post-sale is mandatory, we do not believe that it will adversely affect small manufacturers since they already include owner's manuals and other documentation inside equipment packaging.

28. The record in this proceeding did not provide the Commission with detailed cost information on the digital cable system support requirements. In an effort to take into account the concerns of small cable systems, the Commission has indicated that it will consider waiver requests for these requirements on a case-by-case basis. As to the POD-provisioning mandate, cable operators are already required to provide PODs to subscribers by request. We therefore do not believe that the new provisioning requirements will have a significant impact on small cable systems. Likewise, we anticipate that the upcoming high definition set-top box deadlines will not negatively impact small operators since the 2004 deadline only applies to output upgrades upon subscriber request, and the 2005 deadline will only apply to inventory acquired after that date.

29. Finally, we anticipate that the encoding prohibitions on selectable output controls and the down-resolution of unencrypted broadcast programming will largely impact upon the DBS industry, which is primarily composed of large entities. While the caps on copy protection will affect all MVPDs, we do not believe they will negatively impact small entities.

30.Federal Rules Which Duplicate, Overlap, or Conflict with the Commission's Proposals.None.

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

This interim rule is added to incorporate information to facilitate deploying contractor personnel to Iraq or other areas of operations. It also seeks to ease the administrative difficulty for each contractor and contracting office researching current guidance on contractors accompanying the force, and to increase consistency among Army contracts. This AFARS change is published to address contractor and Army contracting offices' questions and concerns. This rule was not subject to Office of Management and Budget review under Executive Order 12866, dated September 30, 1993.

The Army does not expect this rule to have a significant economic impact on a substantial number of small entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601,et seq., because the rule applies only to contractors that may require deployment of contractor personnel outside the United States, and because it only consolidates existing and draft logistical guidance. The amount of such additional services is not expected to be significantly large in comparison to the total amount of services procured by Army, and any additional costs would be reimbursable under the resulting contract. Therefore, Army has not performed an initial regulatory flexibility analysis. Army invites comments from small businesses and other interested parties. Army also will consider comments from small entities concerning the affected AFARS subpart in accordance with 5 U.S.C. 610. Such comments should be submitted separately and should cite “Small Entities CAF comment.”

The Paperwork Reduction Act does not apply because the rule does not impose any information collection requirements that require the approval of the Office of Management and Budget under 44 U.S.C. 3501,et seq.

A determination has been made under the authority of the Army Deputy Assistant Secretary of the Army (Policy Procurement) that urgent and compelling reasons exist to publish this rule prior to affording the public an opportunity to comment. Contracting offices continue to write contracts that require contractor personnel to accompany the military force in Iraq and other places. Contractor representatives and contracting offices have requested inclusion of coverage in the AFARS expeditiously, even if not a complete solution, pending coverage on this topic in higher level regulations. Comments received in response to this notice will be considered.

A. Background

This issuance amends 48 CFR part 5152 (also referred to as the Army Federal Acquisition Regulation Supplement (AFARS)) to incorporate information to facilitate deploying contractor personnel to Iraq or other areas of operations. It also seeks to ease the administrative difficulty for each contractor and contracting office researching current guidance on contractors accompanying the force, and to increase consistency among Army contracts. This AFARS change is published to address contractor and Army contracting offices' questions and concerns. This notice was not subject to Office of Management and Budget review under Executive Order 12866, dated September 30, 1993.

The Army does not expect this rule to have a significant economic impact on a substantial number of small entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601,et seq., because the rule applies only to contractors that may require deployment of contractor personnel outside the United States, and because it only consolidates existing and draft logistical guidance. The amount of such additional services is not expected to be significantly large in comparison to the total amount of services procured by Army, and any additional costs would be reimbursable under the resulting contract. Therefore, Army has not performed an initial regulatory flexibility analysis. Army invites comments from small businesses and other interested parties. Army also will consider comments from small entities concerning the affected AFARS subpart in accordance with 5 U.S.C. 610. Such comments should be submitted separately and should cite “Small Entities CAF comment.”

The Paperwork Reduction Act does not apply because the rule does not impose any information collection requirements that require the approval of the Office of Management and Budget under 44 U.S.C. 3501,et seq.

A determination has been made under the authority of the Army Deputy Assistant Secretary of the Army (Policy Procurement) that urgent and compelling reasons exist to publish this notice prior to affording the public an opportunity to comment. Contracting offices continue to write contracts that require contractor personnel to accompany the military force in Iraq and other places. Contractor representatives and contracting offices have requested inclusion of coverage in the AFARS expeditiously, even if not a complete solution, pending coverage on this topic in higher level regulations. Comments received in response to this notice will be considered.

Interim Final Rule

On October 22, 2002, NHTSA published an interim final rule to permit, temporarily, the manufacture and sale of harnesses designed to attach to school bus seats. (67 FR 64818; Docket No. NHTSA-2002-12065). The interim rule was adopted to facilitate the transportation of preschool and special needs children for the new school year, and to relieve a restriction imposed by FMVSS No. 213,Child restraint systems,on the manufacture and sale of the harnesses.

The interim rule responded to a petition for rulemaking from a harness manufacturer, E-Z-On Products, Inc. (“E-Z-On”), which requested that NHTSA amend a prohibition in S5.3.1 of FMVSS No. 213 against seat-mounted harnesses. The petitioner believed that the harnesses were especially needed to help transport preschool and special needs children in school buses, because the devices could restrain the children and provide upper body support without the use of seat belts.

In the interim rule, NHTSA determined that permitting the manufacture and sale of seat-mounted harnesses for use on school buses would enhance the safe transportation of preschool and special needs children, subject to a precautionary measure to avoid overloading the seat to which the harness is attached in a collision. The interim rule provided that, as of February 1, 2003, seat-mounted harnesses for school buses could be manufactured if they bore a permanent warning label that warned about overloading the seat. The agency decided that the likelihood of seat failure in a collision would be reduced if the entire seat directly rearward of a child restrained in a seat-mounted harness were vacant or occupied only by restrained passengers. NHTSA required the label to be placed on the part of the restraint that attaches the harness to the vehicle seat back, and it must be visible when the harness is installed. The label must bear a pictogram and the following statements: “WARNING! This restraint must only be used on school bus seats. Entire seat directly behind must be unoccupied or have restrained occupants.”

The interim rule also added a definition of “harness”1 to the standard. The definition of a harness is “a combination pelvic and upper torso child restraint system that consists primarily of flexible material, such as straps, webbing or similar material, and that does not include a rigid seating structure for the child.”

The interim rule made several other amendments to FMVSS No. 213 relating to this issue. These other amendments specified the means of attachment by which a harness must be capable of meeting the requirements of FMVSS No. 213 and established the dynamic test procedures of the standard for testing seat-mounted harnesses.

NHTSA determined that it was in the public interest to make the changes effective immediately on an interim basis (until December 1, 2003) to enable the restraints to be manufactured and sold for immediate use during the school year. A one-year period was provided to enable us to decide whether to amend the standard permanently.

A large majority of the commenters supported adopting a permanent exclusion for harnesses manufactured and sold for use on school bus seats from the prohibition against such a design. Some commenters raised questions about the warning label text and placement. Comments were also received on the specific test conditions of the standard.

The agency is in the process of determining whether to amend the standard permanently in response to the comments received. We anticipate issuing a response to comments in early 2004. A nine-month extension of the temporary amendments, to September 1, 2004, preserves the status quo until then.

Because the December 1, 2003 date for the termination of the period during which seat-mounted harnesses can be manufactured is fast approaching, NHTSA finds for good cause that today's action extending the temporary amendments must take effect immediately. Today's final rule makes no substantive change to the standard as amended by the interim rule, but extends the temporary amendments for nine months while the agency complete its response to the comments. If the effective date were not delayed, manufacturers would be required to stop production and sales of harnesses that attach to school bus seat backs prior to the agency's response to comments that requested the interim rule to be made permanent. Also, pupil transportation operators would find it increasingly difficult to purchase seat-mounted harnesses beginning December 1, 2003.

NHTSA has considered the impact of this rule under Executive Order 12866 and the Department of Transportation's regulatory policies and procedures. This rulemaking document was not reviewed under E.O. 12866, “Regulatory Planning and Review.” This action has been determined to be “nonsignificant” under the Department of Transportation's regulatory policies and procedures. The agency concludes that the impacts of the amendments are so minimal that preparation of a full regulatory evaluation is not required. The rule will not impose any new requirements or costs on manufacturers, but instead will continue to allow manufacturers to produce a type of harness for nine months if the harness bears a label providing information regarding how the harness should be used.

NHTSA has considered the impacts of this rulemaking action under the Regulatory Flexibility Act (5 U.S.C. 601et seq.). I certify that the amendment will not have a significant economic impact on a substantial number of small entities. The rule will not impose any new requirements or costs on manufacturers, but instead will extend the period in which manufacturers are permitted to produce seated-mounted harnesses, so long as the harnesses bear a label providing information regarding how the restraint should be used. We anticipate that the seat-mounted harnesses will be sold to school districts and to other pupil transportation providers. NHTSA has learned of the existence of two manufacturers, both of which are small businesses. The agency believes that this rule will not have a significant impact on these businesses since it only preserves the status quo for nine months.

Under the Paperwork Reduction Act of 1995, a person is not required to respond to a collection of information by a Federal agency unless the collection displays a valid OMB control number. This document does notestablish any new information collection requirements.

NHTSA has analyzed this amendment for the purposes of the National Environmental Policy Act and determined that it will not have any significant impact on the quality of the human environment.

Executive Order 13132 requires NHTSA to develop an accountable process to ensure “meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications.” “Policies that have federalism implications” is defined in the Executive Order to include regulations 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.” Under Executive Order 13132, the agency may not issue a regulation with Federalism implications, that imposes substantial direct costs, and that is not required by statute, unless the Federal government provides the funds necessary to pay the direct compliance costs incurred by State and local governments, or the agency consults with State and local officials early in the process of developing the proposed regulation. NHTSA may also not issue a regulation with Federalism implications and that preempts State law unless the agency consults with State and local officials early in the process of developing the proposed regulation.

The agency has analyzed this rulemaking action in accordance with the principles and criteria contained in Executive Order 13132 and has determined that it does not have sufficient federalism implications to warrant consultation with State and local officials or the preparation of a federalism summary impact statement. The rule will have no substantial effects on the States, or on the current Federal-State relationship, or on the current distribution of power and responsibilities among the various local officials.

This rule does not have any retroactive effect. Under 49 U.S.C. 30103, whenever a Federal motor vehicle safety standard is in effect, a state may not adopt or maintain a safety standard applicable to the same aspect of performance which is not identical to the Federal standard, except to the extent that the state requirement imposes a higher level of performance and applies only to vehicles procured for the State's use. 49 U.S.C. 30161 sets forth a procedure for judicial review of final rules establishing, amending or revoking Federal motor vehicle safety standards. That section does not require submission of a petition for reconsideration or other administrative proceedings before parties may file suit in court.

Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (NTTAA), Public Law 104-113, section 12(d) (15 U.S.C. 272) directs us to use voluntary consensus standards in regulatory activities unless doing so would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards (e.g.,materials specifications, test methods, sampling procedures, and business practices) that are developed or adopted by voluntary consensus standards bodies, such as the Society of Automotive Engineers (SAE).

The agency searched for, but did not find any voluntary consensus standards relevant to this final rule.

Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) requires Federal agencies to prepare a written assessment of the costs, benefits, and other effects of proposed or final rules that include a Federal mandate likely to result in the expenditure by State, local, or tribal governments, in the aggregate, or by the private sector, of more than $100 million in any one year (adjusted for inflation with base year of 1995).

This final rule will not impose any unfunded mandates under the Unfunded Mandates Reform Act of 1995. This rule will not result in costs of $100 million or more to either State, local, or tribal governments, in the aggregate, or to the private sector. Thus, this rule is not subject to the requirements of sections 202 and 205 of the UMRA.

The Department of Transportation assigns a regulation identifier number (RIN) to each regulatory action listed in the Unified Agenda of Federal Regulations. The Regulatory Information Service Center publishes the Unified Agenda in April and October of each year. You may use the RIN contained in the heading at the beginning of this document to find this action in the Unified Agenda.

Section 1371(a)(5)(A) of the Marine Mammal Protection Act (MMPA) (16 U.S.C. 1361-1407) gives the Secretary of the Interior (Secretary) through the Director of the Service the authority to allow the incidental, but not intentional, taking of small numbers of marine mammals, in response to requests by U.S. citizens (you) (as defined in 50 CFR 18.27(c)) engaged in a specified activity (other than commercial fishing) in a specified geographic region. If regulations allowing such incidental taking are issued, we can issue Letters of Authorization (LOA) to conduct activities under the provisions of these regulations when requested by citizens of the United States.

We are authorizing the incidental taking of polar bears and Pacific walrus based on our final finding using the best scientific evidence available that the total of such taking for the regulatory period will have no more than a negligible impact on these species and will not have an unmitigable adverse impact on the availability of these species for taking for subsistence use by Alaska Natives. These regulations set forth: (1) Permissible methods of taking; (2) the means of effecting the least practicable adverse impact on the species and their habitat and on the availability of the species for subsistence uses; and (3) requirements for monitoring and reporting.

The term “take,” as defined by the MMPA, means to harass, hunt, capture, or kill, or attempt to harass, hunt, capture, or kill, any marine mammal. Harassment as defined by the MMPA, as amended in 1994, “means any act of pursuit, torment, or annoyance which (i) has the potential to injure a marine mammal or marine mammal stock in the wild” (the MMPA calls this Level A harassment), “or (ii) has the potential to disturb a marine mammal or marine mammal stock in the wild by causing disruption of behavioral patterns, including, but not limited to, migration, breathing, nursing, breeding, feeding, or sheltering” (the MMPA calls this Level B harassment). As a result of 1986 amendments to the MMPA, we amended 50 CFR 18.27 (i.e., regulations governing small takes of marine mammals incidental to specified activities) with a final rule published on September 29, 1989 (54 FR 40338). Section 18.27(c) included a revised definition of “negligible impact” and a new definition for “unmitigable adverse impact” as follows. Negligible impact is “an impact resulting from the specified activity that cannot be reasonably expected to, and is not reasonably likely to, adversely affect the species or stock through effects on annual rates of recruitment or survival.” Unmitigable adverse impact means “an impact resulting from the specified activity (1) that is likely to reduce the availability of the species to a level insufficient for a harvest to meet subsistence needs by (i) causing the marine mammals to abandon or avoid hunting areas, (ii) directly displacing subsistence users, or (iii) placing physical barriers between the marine mammals and the subsistence hunters; and (2) that cannot be sufficiently mitigated by other measures to increase the availability of marine mammals to allow subsistence needs to be met.” Industry conducts activities such as oil and gas exploration, development, and production in marine mammal habitat and, therefore, risks violating the prohibitions on the taking of marine mammals.

Although Industry is under no legal requirement to obtain incidental take authorization, since 1993 Industry has chosen to seek authorization to avoid the uncertainties of taking marine mammals associated with conducting activities in marine mammal habitat.

On November 16, 1993 (58 FR 60402), we issued final regulations to allow the incidental, but not intentional, take of small numbers of polar bears and Pacific walrus when such taking(s) occurred in the course of Industry activities during year-round operations in the area described later in this rule in the section “Description of Geographic Region.” The regulations were effective for 18 months. At the same time, the Secretary of the Interior directed us to develop, and then begin implementation of, a polar bear habitat conservation strategy before extending the regulations beyond the initial 18 months for a total 5-year period as allowed by the MMPA. On August 14, 1995, we completed development of and issued our Habitat Conservation Strategy for Polar Bears in Alaska to ensure that the regulations met with the intent of Congress. On August 17, 1995, we issued the final rule and notice of availability of a completed final polar bear habitat conservation strategy (60 FR 42805). We then extended the regulations for an additional 42 months to expire on December 15, 1998.

On August 28, 1997, BP Exploration (Alaska), Inc., submitted a petition for itself and for ARCO Alaska, Inc., Exxon Corporation, and Western Geophysical Company for rulemaking pursuant to section 101(a)(5)(A) of the MMPA, and section 553(e) of the Administrative Procedure Act (APA; 5 U.S.C. 553).Their request sought regulations to allow the incidental, but not intentional, take of small numbers of polar bears and Pacific walrus when takings occurred during Industry operations in Arctic Alaska. Specifically, they requested an extension of the incidental take regulations that begin at 50 CFR 18.121 for an additional 5-year term from December 16, 1998, through December 15, 2003. The geographic extent of the request was the same as that of previously issued regulations that begin at 50 CFR 18.121 that were in effect through December 15, 1998 (seeabove).

The petition to extend the incidental take regulations included two new oil fields (Northstar and Liberty). Plans to develop each field identified a need for an offshore gravel island and a buried subsea pipeline to transport crude oil to existing onshore infrastructure. The Liberty prospect was subsequently abandoned, while the Northstar prospect moved toward production. At the time, based on the preliminary nature of the information related to subsea pipelines published in a Draft Environmental Impact Statement (DEIS) for the Northstar project, we were unable to make a finding of negligible impact and issue regulations for the full 5-year period as requested by Industry.

On November 17, 1998, we published proposed regulations (63 FR 63812) to allow the incidental, unintentional take of small numbers of polar bears and Pacific walrus in the Beaufort Sea and northern coast of Alaska for a 15-month period. These regulations did not authorize the incidental take of polar bears and Pacific walrus during construction or operation of subsea pipelines in the Beaufort Sea. On January 28, 1999, we issued final regulations effective through January 30, 2000 (64 FR 4328).

The U.S. Army Corps of Engineers (Corps) finalized the Northstar Final Environmental Impact Statement (FEIS) in February 1999. On February 3, 2000, we issued regulations effective through March 31, 2000 (65 FR 5275), in order to finalize the subsequent longer-term regulations without a lapse in coverage. After a thorough analysis of the Northstar FEIS and other data related to oil spills, on March 30, 2000, we issued regulations effective for a 3-year duration, through March 31, 2003 (65 FR 16828). This assessment included a polar bear oil spill risk analysis, a model that simulated oil spills and their subsequent effects on estimated polar bear survival on the basis of distribution in the Beaufort Sea. The likelihood of polar bear mortality caused by oil spills during different seasons (open-water, ice-covered, broken ice) was also analyzed. A 3-year period was selected, rather than a 5-year period, due to the potential development of additional offshore oil and gas production sites, such as the offshore Liberty Development, which would need increased oil spill analysis if development proceeded. The Liberty Development Plan was subsequently withdrawn by the operator to be re-evaluated.

Between January 1994 and March 2003, we issued 223 LOAs for oil and gas related activities. Activities covered by LOAs included: exploratory operations, such as seismic surveys and drilling; development activities, such as construction and remediation; and production activities for operational fields. Between January 1, 1994, and March 31, 2000, 77 percent (n=89) of LOAs issued were for exploratory activities, 10 percent (n=11) were for development, and 13 percent (n=15) were for production activities. Less than a third (32 of 115) of these activities actually sighted polar bears, and approximately two-thirds of sightings (171 of 258) occurred during production activities.

On August 23, 2002, the Alaska Oil and Gas Association (AOGA), on behalf of its members, requested that we promulgate regulations for nonlethal incidental take of small numbers of Pacific walrus and polar bears pursuant to section 101(a)(5) of the MMPA. The request was for a period of 5 years, from March 31, 2003, through March 31, 2008. Members of AOGA include Alyeska Pipeline Service Company; Marathon Oil Company; Anadarko Petroleum Corporation Petro Star, Inc.; BP Exploration (Alaska) Inc.; Phillips Alaska, Inc.; ChevronTexaco Corporation; Shell Western EP Inc.; Cook Inlet Pipe Line Company; Tesoro Alaska Company; Cook Inlet Region, Inc.; TotalFinaElf EP USA; EnCana Oil Gas (USA) Inc.; UNOCAL; Evergreen Resources, Inc.; Williams Alaska Petroleum, Inc.; ExxonMobil Production Company; XTO Energy, Inc.; and Forest Oil Corporation. Along with their request for incidental take authorization, Industry has also developed and implemented polar bear conservation measures. The geographic region defined in Industry's 2002 application is described later in this rule in the section titled “Description of Geographic Region.”

On July 25, 2003, we published in theFederal Register(68 FR 44020) a proposal to promulgate regulations under section 101(a)(5)(A) of the MMPA that would allow the Industry to take small numbers of polar bears and Pacific walrus incidental to year-round oil and gas industry exploration, development, and production operations in the Beaufort Sea and adjacent northern coast of Alaska.

The comment period on the proposed rule was open from July 25, 2003, through August 25, 2003. To expedite the rulemaking process, a comment period of 30 days was selected because the previous regulations authorizing the incidental, unintentional take of small numbers of polar bears and Pacific walrus during year-round oil and gas industry exploration, development, and production operations in the Beaufort Sea and adjacent northern coast of Alaska had expired on March 31, 2003.

We are issuing new regulations that will remain in effect for 16 months to ensure that we have adequate time to thoroughly assess effects of Industry activities over the longer period (5 years) requested by Industry. We will assess the effects of Industry activities for the requested period (5 years) and expect to publish a longer-term proposed rule during the term described in this final rule.

The regulations that we are issuing include: Permissible methods of taking; measures to ensure the least practicable adverse impact on the species and the availability of these species for subsistence uses; and requirements for monitoring and reporting. The geographic coverage and the scope of industrial activities assessed in these regulations are the same as those in the regulations we issued on March 30, 2000. New LOAs will be issued following the effective date of these final regulations.

These regulations do not authorize the actual activities associated with oil and gas exploration, development, and production. Rather, they authorize the incidental, unintentional take of small numbers of polar bears and Pacific walrus associated with those activities. The U.S. Minerals Management Service (MMS), the Corps, and the U.S. Bureau of Land Management are responsible for permitting activities associated with oil and gas activities in Federal waters and on Federal lands. The State of Alaska is responsible for activities on State lands and in State waters.

With final incidental take regulations, persons seeking taking authorization for particular projects will apply for an LOA to cover take associated with exploration, development, and production activities pursuant to the regulations. Each group or individual conducting an oil and gas industry-related activity within the area covered by these regulations may request an LOA. Each applicant for an LOA must submit a plan to monitor the effects of authorized activities on polar bears and walrus. Each LOA applicant must also include a Plan of Cooperation on the availability of these species for subsistence use by Alaska Native communities that may be affected by Industry operations. The purpose of the Plan is to minimize the impact of oil and gas activity on the availability of the species or the stock to ensure that subsistence needs can be met. The Plan must provide the procedures on how Industry will work with the affected Native communities, including a description of the necessary actions that will be taken to: (1) avoid interference with subsistence hunting of polar bears and Pacific walrus; and (2) ensure continued availability of these species for subsistence use.

We will evaluate each request for an LOA for a specific activity and specific location, and may condition each LOA for that activity and location. For example, an LOA issued in response to a request to conduct activities on barrier islands with known active bear dens, or a history of polar bear denning, may be conditioned to require avoidance of a specific den site by 1 mile, intensified monitoring in a 1-mile buffer around the den, or avoiding the area until a specific date. More information on applying for and receiving an LOA can be found at 50 CFR 18.27(f).

These regulations would allow Industry to incidentally take small numbers of polar bear and Pacific walrus within the same area, referred to as the Beaufort Sea Region, as covered by our previous regulations. This region is defined by a north-south line at Barrow, Alaska, and includes all Alaska coastal areas, State waters, and Outer Continental Shelf waters east of that line to the Canadian border. The onshore region is the same north-south line at Barrow, 25 miles inland and east to the Canning River. The Arctic National Wildlife Refuge is not included in the area covered by these regulations.

In accordance with 50 CFR 18.27, Industry submitted a request for the promulgation of incidental take regulations pursuant to section 101(a)(5)(A) of the MMPA. Activities covered in this regulation include Industry exploration, development, and production of oil and gas, as well as environmental monitoring associated with these activities. These regulations do not authorize incidental take for offshore production sites other than the Northstar Production area.

Exploration activities may occur onshore or offshore and include: Geological surveys; geotechnical site investigations; reflective seismic exploration; vibrator seismic data collection; airgun and water gun seismic data collection; explosive seismic data collection; vertical seismic profiles; subsea sediment sampling; construction and use of drilling structures such as caisson-retained islands, ice islands, bottom-founded structures (steel drilling caisson, or SDC), ice pads and ice roads; oil spill prevention, response, and cleanup; and site restoration and remediation.

Exploratory drilling for oil is an aspect of exploration activities. Exploratory drilling and associated support activities and features include: transportation to site; setup of 90-100 person camps and support camps (requiring lights, generators, snow removal, water plants, wastewater plants, dining halls, sleeping quarters, mechanical shops, fuel storage, camp moves, landing strips, aircraft support, health and safety facilities, data recording facility, and communication equipment); building gravel pads; building gravel islands with sandbag and concrete block protection, ice islands, and ice roads; gravel hauling; gravel mine sites; road building; pipelines; electrical lines; water lines; road maintenance; buildings; facilities; operating heavy equipment; digging trenches; burying pipelines and covering pipelines; sea lift; water flood; security operations; dredging; moving floating drill units; helicopter support; and drill ships such as the SDC, CANMAR Explorer III, and the Kulluk.

Development activities associated with oil and gas industry operations include: Road construction; pipeline construction; waterline construction; gravel pad construction; camp construction (personnel, dining, lodging, maintenance shops, water plants, wastewater plants); transportation (automobile, airplane, and helicopter traffic; runway construction; installation of electronic equipment); well drilling; drill rig transport; personnel support; and demobilization, restoration, and remediation.

Production activities include: personnel transportation (automobiles, airplanes, helicopters, boats, rolligons, cat trains, and snowmobiles) and unit operations (building operations, oil production, oil spills, cleanup, restoration, and remediation).

Alaska's North Slope encompasses an area of 88,280 square miles and contains 8 major oil and gas fields in production: Endicott-Duck Island, Prudhoe Bay, Kuparuk River, Point McIntyre, Milne Point, Badami, Northstar, and Colville River. These 8 fields include 21 current satellite oilfields: Sag Delta North, Eider, North Prudhoe Bay, Lisburne, Niakuk, Niakuk-Ivashak, Aurora, Midnight Sun, Borealis, West Beach, Polaris, Orion, Tarn, Tabasco, Palm, West Sak, Meltwater, Cascade, Schrader Bluff, Sag River, and Alpine. Exploration and delineation of known satellite fields identified within existing production fields would also be appropriate for coverage under the provisions of this rule.

During the period covered by the regulations, we anticipate a level of activity per year at existing production facilities similar to that during the timeframe of the previous regulations. In addition, during the period of the rule, we anticipate that the levels of new annual exploration and development activities will be similar to those of the previous 3 years. At this time no additional production sites are planned within the next 16 months, except possibly satellite fields, associated with existing major oil and gas fields and addressed through existing Environmental Assessments or existing Environmental Impact Statements.

The Pacific walrus (Odobenus rosmarus) typically inhabits the waters of the Chukchi and Bering seas. Most of the population congregates near the ice edge of the Chukchi Sea pack ice west of Point Barrow during the summer. Walrus migrate north and south following the annual advance and retreat of the pack ice. In the winter, walrus inhabit the pack ice of the Bering Sea, with concentrations occurring in the Gulf of Anadyr, south of St. Lawrence Island, and south of Nunivak Island. The current, conservative minimum population estimate is approximately 200,000 walrus. This estimate is based on surveys conducted in 1990 and is associated with wide confidence intervals. However, no surveys have been conducted since then and the actual size and trend of the population is unknown, although believed to be near the 1990 level. Pacific walrus use five major haulout sites on the west coast of Alaska. There are no known haulout sites from Point Barrow to Demarcation Point on the Beaufort Sea coast.

Walrus occur infrequently in the Beaufort Sea, and although individuals are occasionally seen in the Beaufort Sea, they do not occur in significant numbers to the east of Point Barrow. If walrus are observed, they are most likely to be seen in nearshore and offshore areas during the summer open-water season. They will not be encountered during the ice-covered season.

Walrus sightings in the Beaufort Sea have consisted solely of widely scattered individuals and small groups. For example, while walrus have been encountered and are present in the Beaufort Sea, there were only five sightings of walrus between 146° and 150°W during MMS sponsored aerial surveys conducted from 1979 to 1995.

Pacific walrus mainly feed on bivalve mollusks obtained from bottom sediments along the shallow continental shelf, typically at depths of 80 m (262 ft) or less. Walrus are also known to feed on a variety of benthic invertebrates such as worms, snails, and shrimp and some slow-moving fish; and some animals feed on seals and seabirds. Mating usually occurs between January and March. Implantation of a fertilized egg is delayed until June or July. Gestation lasts 11 months (a total of 15 months after mating) and birth occurs between April and June during the annual northward migration. Calves weigh about 63 kg (139 lb) at birth and are usually weaned by age two. Females give birth to one calf every two or more years. This reproductive rate is much lower than other pinnipeds; however, some walrus may live to age 35-40 and remain reproductively active until late in life.

Polar bears (Ursus maritimus) occur in the circumpolar Arctic and live in close association with polar ice. In Alaska, their distribution extends from south of the Bering Strait to the U.S.-Canada border. Two stocks occur in Alaska: the Chukchi-Bering seas stock, whose minimum size is approximately 2,000; and the Southern Beaufort Sea stock, which was estimated in 2002 to have 2,273 bears.

Females without dependent cubs breed in the spring and enter maternity dens by late November. Females with cubs do not mate. Each pregnant female gives birth to one to three cubs, with two-cub litters being most common. Cubs are usually born in December. Family groups emerge from their dens in late March or early April. Only pregnant females den for an extended period during the winter; however, other polar bears may burrow in depressions to escape harsh winter winds. The reproductive potential (intrinsic rate of increase) of polar bears is low. The average reproductive interval for a polar bear is 3-4 years. The maximum reported age of reproduction in Alaska is 18 years. Based on these data, a female polar bear may produce about 8-10 cubs in her lifetime.

Ringed seals (Phoca hispida) are the primary prey species of the polar bear, although polar bears occasionally hunt bearded seals (Erignathus barbatus) and walrus calves. Polar bears also scavenge on marine mammal carcasses washed up on shore and have been known to eat anthropogenic nonfood items such as Styrofoam, plastics, car batteries, antifreeze, and lubricating fluids.

Polar bears have no natural predators, and they do not appear to be prone to death by disease or parasites. The most significant source of mortality is humans. Since 1972, with the passage of the MMPA, only Alaska Natives are allowed to hunt polar bears in Alaska. Bears are used by Alaska Natives for subsistence purposes, such as consumption and the manufacture of handicraft and clothing items. The Native harvest occurs without restrictions on sex, age, number, or season, provided that takes are non-wasteful. From 1980 through 2002, the total annual harvest in Alaska averaged 107 bears. The majority of this harvest (69 percent) occurred in the Chukchi and Bering Seas area.

Polar bears in the near-shore Alaskan Beaufort Sea are widely distributed in low numbers, with an average density of about one bear per 30 to 50 square miles. Polar bears congregate on barrier islands in the fall and winter because of available food and favorable environmental conditions. Polar bears will occasionally feed on bowhead whale carcasses on barrier islands. In November 1996, biologists from the U.S. Geological Survey observed 28 polar bears near a bowhead whale carcass on Cross Island, and approximately 11 polar bears within a 2-mile radius of another bowhead whale carcass near the village of Kaktovik on Barter Island. From 2000 to 2003, biologists from the Service conducted systematic coastal aerial surveys for polar bears from Cape Halkett to Barter Island. During these surveys they observed as many as 5 polar bears at Cross Island and 51 polar bears on Barter Island within a 2-mile radius of bowhead whale carcasses. In a survey during October 2002, we observed 109 polar bears on barrier islands and the coastal mainland from Cape Halkett to Barter Island, a distance of approximately 350 kilometers.

The subsistence harvest provides Alaska Natives with food, clothing, and materials that are used to produce arts and crafts. Walrus meat is often consumed, and the ivory is used to manufacture traditional arts and crafts. Polar bears are primarily hunted for their fur, which is used to manufacture cold weather gear; however, their meat is also consumed. Although walrus and polar bears are a part of the annual subsistence harvest of most rural communities on the North Slope of Alaska, these species are not as significant a food resource as bowhead whales, seals, caribou, and fish.

The Pacific walrus has cultural and subsistence significance to Alaska Natives. Although it is not considered a primary food source for residents of the North Slope, walrus are still taken by a few Alaskan communities located in the southern Beaufort Sea along the northern coast of Alaska, including Barrow, Nuiqsut, and Kaktovik.

The primary range of Pacific walrus is west and south of the Beaufort Sea. Accordingly, few walrus inhabit, or are harvested in, the Beaufort Sea along the northern coast of Alaska. Therefore, the effect to Pacific walrus of Industry activities described in this rulemaking would most likely be minimal, as they would affect only those individuals inhabiting the Beaufort Sea. Walrus constitute only a small portion of the total marine mammal harvest for the village of Barrow. From 1994 to 2002, 182 walrus were taken by Barrow hunters as reported through the Service Marking, Tagging, and Reporting Program. Reports indicate that only up to 4 of the 182 animals were taken east of Point Barrow, within the geographic area of these incidental take regulations. Furthermore, hunters from Nuiqsut and Kaktovik do not normally hunt walrus east of Point Barrow and have taken only one walrus in that area in the last 13 years.

Within the area covered by the regulations, polar bears are taken for subsistence use in Barrow, Nuiqsut, and Kaktovik where Alaska Natives utilize parts of the bears to make traditional handicrafts and clothing. Data from our Marine Mammal Management Office indicate that, from July 1, 1993, to June 30, 2002, a total of 194 polar bears was reported harvested by residents of Barrow; 26 by residents of the village ofNuiqsut; and 26 by residents of the village of Kaktovik. Hunting success varies considerably from year to year because of variable ice and weather conditions.

Native subsistence polar bear hunting could be affected by oil and gas activities in various ways. Hunting areas where polar bears are historically taken may be viewed as tainted if an oil spill were to occur at these sites. Other potential disturbances, such as noise and vehicular traffic, could have limited effects on subsistence activities if these disturbances were to occur near traditional hunting areas and lead to the displacement of polar bears.

Polar bear and Pacific walrus inhabiting the Beaufort Sea represent a small portion, in terms of the number of animals, of the total subsistence harvest for the villages of Barrow, Nuiqsut, and Kaktovik. Despite this fact, the harvest of these species is important to Alaska Natives. An important aspect of the LOA process, therefore, is that prior to issuance of an LOA, Industry must provide evidence to us that an adequate Plan of Cooperation has been presented to any affected subsistence community, the Eskimo Walrus Commission, the Alaska Nanuuq Commission, and the North Slope Borough. This Plan of Cooperation must provide the procedures on how Industry will work with the affected Native communities and what actions will be taken to avoid interfering with subsistence hunting of polar bear and walrus. For this rule we evaluated the effect of proposed activities on the availability of polar bears and walrus for subsistence use. Although all three communities are located in the geographic area of the rule, the community most likely affected by Industry activities due to its close proximity is Nuiqsut. For this rule we determined that the total taking of polar bears and walrus will not have an unmitigable adverse impact on the availability of these species for subsistence uses during the duration of the regulation. We base this conclusion on: the results of coastal aerial surveys conducted within the area during the past three years; direct observations of polar bears occurring on Cross Island during the village of Nuiqsut's annual fall bowhead whaling efforts; anecdotal reports and recent sighting of polar bears by Nuiqsut residents; and data discussed in the sections of this regulation titlted, “Effects of Oil and Gas Industry Activities on Pacific Walrus and Polar Bears” and “Actual Impacts of Oil and Gas Industry Activities on Pacific Walrus and Polar Bears”. Furthermore, we have received no evidence or reports that bears are being deflected (i.e., altering habitat use patterns by avoiding certain areas) or being impacted in other ways by the existing level of oil and gas activity near Nuiqsut to diminish their availability for subsistence use; nor do we expect any change in the impact of future activities.

Walrus are not present in the region of activity during the ice-covered season and occur only in small numbers in the defined area during the open-water season. From 1994 to 2000, three Pacific walrus were sighted during the open-water season. In June 1996, one walrus was observed from a seismic vessel near Point Barrow. In October 1996, one walrus was sighted approximately 5 miles northwest of Howe Island. In September 1997, one walrus was sighted approximately 20 miles north of Pingok Island.

Certain activities associated with oil and gas exploration and production during the open-water season have the potential to disturb walrus. Activities that may affect walrus include disturbance by: (1) Noise, including stationary and mobile sources, and vessel and aircraft traffic; (2) physical obstructions; and (3) contact with releases of oil or waste products. Despite the potential for disturbance, there is no indication that walrus have been injured during an encounter by industry activities on the North Slope, and there has been no evidence of lethal takes to date.

Reactions of marine mammals to noise sources, particularly mobile sources such as marine vessels, vary. Reactions depend on the individuals' prior exposure to the disturbance source and their need or desire to be in the particular habitat or area where they are exposed to the noise and visual presence of the disturbance sources. Walrus are typically more sensitive to disturbance when hauled out on land or ice than when they are in the water. In addition, females and young are generally more sensitive to disturbance than adult males.

Noise generated by Industry activities, whether stationary or mobile, has the potential to disturb small numbers of walrus. The response of walrus to sound sources may be either avoidance or tolerance. In one instance, prior to the initiation of incidental take regulations, walrus that tolerated noises produced by Industry activities were intentionally harassed to protect them from more serious injury. Shell Western E P Inc. encountered several walrus close to the drillship during offshore drilling operations in the eastern Chukchi Sea in 1989. On more than one occasion, one walrus actually entered the moon pool of the drillship. (A moon pool is the opening to the sea on a drillship for a marine drill apparatus. The drill apparatus protrudes from the ship through the moon pool to the sea floor.) Eventually, the walrus had to be removed from the ship for its own safety.

A. Stationary Sources—It is highly improbable that noise from stationary sources would impact walrus. Currently, Endicott, the saltwater treatment plant, and Northstar, are the only offshore facilities that could produce noise that has the potential to disturb walrus. Walrus are rare in the vicinity of these facilities, although one walrus hauled out on Northstar Island in the fall of 2001.

B. Mobile Sources—Open-water seismic exploration produces underwater sounds, typically with airgun arrays, that may be audible numerous kilometers from the source. Such exploration activities could potentially disturb walrus at varying ranges. In addition, source levels are thought to be high enough to cause hearing damage in pinnipeds close in proximity to the sound. Therefore, it is possible that walrus within the 190 dB re 1 μPa safety radius of seismic activities (Industry standard) could suffer temporary threshold shift; however, the use of acoustic safety radii and monitoring programs are designed to ensure that marine mammals are not exposed to potentially harmful noise levels. Previous open-water seismic exploration has been conducted in nearshore ice-free areas. This is the area where any expected open-water seismic exploration will occur in the duration of this rule. It is highly unlikely that walrus will be present in these areas, and therefore, it is not expected that seismic exploration would disturb walrus.

C. Vessel Traffic—Noise produced by routine vessel traffic could potentially disturb walrus in the Beaufort Sea. However, walrus densities are highest along the edge of the pack ice, and Industry vessel traffic typically avoids these areas. The reaction of walrus to vessel traffic is highly dependent on distance, vessel speed, as well as previous exposure to hunting. Walrus in the water appear to be less readilydisturbed by vessels than walrus hauled out on land or ice. In addition, barges and vessels associated with Industry activities travel in open water and avoid large ice floes or land where walrus are likely to be found. Thus, vessel activities are likely to impact at most a few walrus.

D. Aircraft Traffic—Aircraft overflights may disturb walrus. Reactions to aircraft vary with range, aircraft type, and flight pattern, as well as walrus age, sex, and group size. Adult females, calves, and immature walrus tend to be more sensitive to aircraft disturbance. Most aircraft traffic, however, is in nearshore areas, where there are typically few to no walrus.

Based on known walrus distribution and numbers in the Beaufort Sea near Prudhoe Bay, it is unlikely that walrus movements would be displaced by offshore stationary facilities, such as the Northstar or Endicott, or vessel traffic. There was no indication that the walrus that used Northstar Island as a haulout in 2001 was displaced from its movements. Vessel traffic could temporarily interrupt the movement of walrus, or displace some animals when vessels pass through an area. This displacement would probably have minimal or no effect on animals and would last no more than a few hours at most.

The potential releases of oil and waste products associated with oil and gas exploration and production during the open-water season and the associated potential to disturb walrus are discussed following the polar bear discussion in this section.

Oil and gas activities could impact polar bears in various ways during both open-water and ice-covered seasons. These impacts could result from the following: (1) Noise from stationary operations, construction activities, vehicle traffic, vessel traffic, aircraft traffic, and geophysical and geological exploration activities; (2) physical obstruction, such as a causeway or an artificial island; (3) human-animal encounters; and (4) oil spills or contact with hazardous materials or production wastes.

Noise produced by Industry activities during the open-water and ice-covered seasons could potentially result in takes of polar bears. During the ice-covered season, denning female bears, as well as mobile, non-denning bears, could be exposed to oil and gas activities and potentially affected in different ways. The best available scientific information indicates that female polar bears entering dens, or females in dens with cubs, are more sensitive than other age and sex groups to noises.

Noise disturbance can originate from either stationary or mobile sources. Stationary sources include: Construction, maintenance, repair, and remediation activities; operations at production facilities; flaring excess gas; and drilling operations from either onshore or offshore facilities. Mobile sources include: Vessel and aircraft traffic; open-water seismic exploration; winter vibroseis programs; geotechnical surveys; ice road construction and associated vehicle traffic; drilling; dredging; and ice-breaking vessels.

A. Stationary Sources—All production facilities on the North Slope in the area to be covered by this rulemaking are currently located within the landfast ice zone. Typically, most polar bears occur in the active ice zone, far offshore, hunting throughout the year; although some bears also spend a limited amount of time on land, coming ashore to feed, den, or move to other areas. At times, usually during the fall season when the ice edge is near shore and then quickly retreats northward, bears may remain along the coast or on barrier islands for several weeks until the ice returns.

During the ice-covered season, noise and vibration from Industry facilities may deter females from denning in the surrounding area, even though polar bears have been known to den in close proximity to industrial activities. In 1991, two maternity dens were located on the south shore of a barrier island within 2.8 km (1.7 mi) of a production facility. Recently, industrial activities were initiated while two polar bears denned close to the activities. During the ice-covered seasons of 2000-2001 and 2001-2002, dens known to be active were located within approximately 0.4 km and 0.8 km (0.25 mi and 0.5 mi) of remediation activities on Flaxman Island without any observed impact to the polar bears.

In contrast, information exists indicating that polar bears within the geographic area of these regulations may have abandoned dens in the past due to exposure to human disturbance. For example, in January 1985, a female polar bear may have abandoned her den due to rollagon traffic, which occurred 250-500 m from the den site. While such events may have occurred, information indicates they have been infrequent and isolated, and will continue to be so in the future.

Noise produced by stationary Industry activities could elicit several different responses in polar bears. The noise may act as a deterrent to bears entering the area, or the noise could potentially attract bears. Attracting bears to these facilities could result in a human-bear encounter, which could result in unintentional harassment, lethal take, or intentional hazing (under separate authorization) of the bear.

B. Mobile Sources—In the southern Beaufort Sea, during the open-water season, polar bears spend the majority of their lives on the pack ice, which limits the chances of impacts on polar bears from Industry activities. Although polar bears have been documented in open water, miles from the ice edge or ice floes, this is a relatively rare occurrence. In the open-water season, Industry activities are generally limited to vessel-based exploration activities, such as ocean-bottom cable (OBC) and shallow hazards surveys. These activities avoid ice floes and the multi-year ice edge.

C. Vessel Traffic—Vessel traffic would most likely result in short-term behavioral disturbance only. During the open-water season, most polar bears remain offshore in the pack ice and are not typically present in the area of vessel traffic. Barges and vessels associated with Industry activities travel in open water and avoid large ice floes.

D. Aircraft Traffic—Routine aircraft traffic should have little to no effect on polar bears. However, extensive or repeated overflights of fixed-wing aircraft or helicopters could disturb polar bears throughout the year. Behavioral reactions of non-denning polar bears should be limited to short-term changes in behavior and would have no long-term impact on individuals and no impacts on the polar bear population. In contrast, denning bears may abandon or depart their dens early in response to noise and vibrations produced by extensive aircraft overflights. Mitigation measures, such as minimum flight elevations over polar bears, or areas of concern, and flight restrictions around known polar bear dens, are routinely implemented to reduce the likelihood that aircraft disturbs bears.

E. Seismic Exploration—Although polar bears are typically associated with the pack ice during summer and fall, open-water seismic exploration activities can encounter polar bears in the central Beaufort Sea in late summer or fall. It is unlikely that seismic exploration activities or other geophysical surveys during the open-water season would result in more than temporary behavioral disturbance to polar bears. Polar bears normally swim with their heads above the surface, where underwater noises are weak or undetectable.

Noise and vibrations produced by oil and gas exploration and production activities during the ice-covered season could potentially result in impacts on polar bears. During this time of year, denning female bears as well as mobile, non-denning bears could be exposed to and affected differently by potential impacts from oil and gas activities. Disturbances to denning females, either on land or on ice, are of particular concern. As part of the LOA application for seismic surveys during denning season, Industry provides us with the proposed seismic survey routes. To minimize the likelihood of disturbance to denning females, we evaluate these routes along with information about known polar bear dens, historic denning sites, and probable denning habitat.

A standard condition of LOAs requires Industry to maintain a 1-mile buffer between survey activities and known denning sites. In addition, we may require Industry to avoid denning habitat until bears have left their dens. To further reduce the potential for disturbance to denning females, we have conducted research, in cooperation with Industry, to enable us to accurately detect active polar bear dens. We have evaluated the use of remote sensing techniques, such as Forward Looking Infrared (FLIR) imagery and the use of scent-trained dogs to locate dens. Based on these methodologies, the use of FLIR technology coupled with using trained dogs to locate occupied polar bear dens as a verification is a viable technique that could help to minimize impacts from oil and gas industry activities on denning polar bears. These techniques will be included as conditions of LOAs as appropriate. In addition, Industry has sponsored cooperative research evaluating noise and vibration propagation through substrates and the received levels of noise and vibration in polar bear dens. This information will be used to refine site-specific mitigation measures.

There is little chance that Industry facilities would act as physical barriers to movements of polar bears. Most facilities are located onshore where polar bears are only occasionally found. The offshore and coastal facilities are most likely to be approached by polar bears. The Endicott Causeway and West Dock facilities have the greatest potential to act as barriers to movements of polar bears because they extend continuously from the coastline to the offshore facility. Yet, because polar bears appear to have little or no fear of man-made structures and can easily climb and cross gravel roads and causeways, bears have frequently been observed crossing existing roads and causeways in the Prudhoe Bay oilfields. Offshore production facilities, such as Northstar, may be approached by polar bears, but due to their layout (i.e., continuous sheet pile walls around the perimeter) the bears may not gain access to the facility itself. This situation may present a small scale, local obstruction to the bears' movement, but also minimizes the likelihood of human-bear encounters.

Encounters with humans can result in the harassment or (rarely) the death of polar bears. Unlike most mammals, polar bears typically do not fear humans and are extremely curious. Polar bears are most likely to encounter humans during the ice-covered season, when both humans and bears are found on the land-fast ice and adjacent coastline. Polar bears can also come in contact with humans along the coast or on islands, particularly near locations where subsistence whalers haul bowhead whales on shore to butcher them.

Depending upon the circumstances, bears can be either repelled from or attracted to sounds, smells, or sights associated with Industry activities. In the past, such interactions have been addressed through the LOA process which requires the applicant to develop a polar bear interaction plan for each operation. These plans outline the steps the applicant will take, such as garbage disposal procedures, to minimize impacts to polar bears by reducing the attraction of Industry activities to polar bears. Interaction plans also outline the chain of command for responding to a polar bear sighting. In addition to interaction plans, Industry personnel participate in polar bear interaction training while on site. Employee training programs are designed to educate field personnel about the dangers of bear encounters and to implement safety procedures in the event of a bear sighting. The result of these polar bear interaction plans and training allows personnel on site to detect bears and respond appropriately. Most often, this response involves deterring the bear from the site. Personnel are instructed to leave an area where bears are seen. If it is not possible to leave, in most cases bears can be displaced by using pyrotechnics (e.g., cracker shells) or other forms of deterrents (e.g., the vehicle itself, vehicle horn, vehicle siren, vehicle lights, spot lights, etc.). The purpose of these plans and training is to eliminate the potential for lethal takes of bears in defense of human life. No bears have been killed and no Industry personnel have been injured as a result of Industry activities since regulations have been in place. Therefore, we believe, such mitigation measures have minimized polar bear/human interactions and will continue to be requirements of future LOAs as appropriate.

Although very unlikely, it is possible that on-ice vehicle traffic could physically run over an unidentified polar bear den. Known dens around the oilfield are monitored by the Service and Industry. The oil and gas industry communicates with the Service to determine the location of Industry's activities relative to known dens. General LOA provisions require Industry operations to avoid known polar bear dens by 1 mile. There is the possibility that an unknown den may be encountered during Industry activities. If a previously unknown den is identified, communication between Industry and the Service and the implementation of mitigation measures, such as the 1-mile exclusion area around the den, help ensure that disturbance is minimized.

The discharge of oil or waste products into the environment could potentially impact polar bears and walrus depending on the location (i.e., onshore or offshore), size of the spill, environmental conditions, and success of cleanup measures. Spills of crude oil and petroleum products associated with onshore production facilities during ice-covered and open-water seasons are usually minor spills (i.e., 1 to 50 barrels per incident) that are contained and cleaned up immediately. They can occur during normal operations (e.g., transfer of fuel, handling of lubricants and liquid products, and general maintenance of equipment). Fueling crews have personnel that are trained to handle operational spills. If a small offshore spill occurs, spill response vessels are stationed in close proximity and respond immediately. Production related spills, generally larger, could occur at any production facility or pipeline connecting wells to the Trans-Alaska Pipeline System. These large spills have been modeled to examine potential impacts on marine mammals.

Walrus could contact oil in water and on potential haulouts (ice or islands), while polar bears could contact spilled oil in the water, on ice, or on land. In 1980, Canadian scientists performed experiments that studied the effects to polar bears of exposure to oil. More information is available regarding the effects of oil on polar bears than walrus.

Effects on experimentally oiled polar bears (where bears were forced to remain in oil for prolonged periods of time) included acute inflammation of the nasal passages, marked epidermal responses, anemia, anorexia, and biochemical changes indicative of stress, renal impairment, and death. In experimental oiling, many effects did not become evident until several weeks after exposure to oil.

A.External Oiling— Oiling of the pelt causes significant thermoregulatory problems by reducing the insulation value of the pelt in polar bears. Excessive oiling could cause mortality as well. Polar bears rely on their fur as well as their layer of blubber for thermal insulation. Experiments on live polar bears and pelts showed that the thermal value of the fur decreased significantly after oiling, and oiled bears showed increased metabolic rates and elevated skin temperatures. Irritation or damage to the skin by oil may further contribute to impaired thermoregulation. Furthermore, an oiled bear would ingest oil because it would groom in order to restore the insulation value of the oiled fur. In one field observation, biologists documented a bear in Cape Churchill, Manitoba, with lubricating oil matted into its fur on parts of its head, neck, and shoulders. The bear was re-sighted two months later, at which time he had suffered substantial hair loss in the contaminated areas. Four years later, the bear was recaptured and no skin or hair damage was detectable, which suggests that while oiling can damage the fur and skin, in some instances this damage is only temporary.

Walrus do not rely on fur for thermal insulation, using a layer of blubber for warmth. Hence, they would be less susceptible to similar insulative and pelt impacts of external oiling than bears.

Petroleum hydrocarbons can also be irritating or destructive to eyes and mucous membranes, and repeated exposure could have detrimental consequences to polar bears and walrus. In one experimental study, ringed seals quickly showed signs of eye irritation after being immersed in water covered by crude oil. This progressed to severe inflammation and corneal erosions during the 24-hour experiment. When the animals were returned to uncontaminated water, the eye condition resolved within 3-4 days. This reaction could be expected in other marine mammals, such as polar bears and walrus.

B.Ingestion and Inhalation of Oil— Oil ingestion by polar bears through consumption of contaminated prey, and by grooming or nursing, could have pathological effects, depending on the amount of oil ingested and the individual's physiological state. Death could occur if a large amount of oil were ingested or if volatile components of oil were aspirated into the lungs. Indeed, two of three bears died in the Canadian experiment and it was suspected that the ingestion of oil was a contributing factor to the deaths. Experimentally oiled bears ingested much oil through grooming. Much of it was eliminated by vomiting and in the feces, but some was absorbed and later found in body fluids and tissues.

Ingestion of sublethal amounts of oil can have various physiological effects on a polar bear, depending on whether the animal is able to excrete and/or detoxify the hydrocarbons. Petroleum hydrocarbons irritate or destroy epithelial cells lining the stomach and intestine, and thereby affect motility, digestion, and absorption. Polar bears may exhibit these types of symptoms, such as affected motility, digestion, and absorption if they ingest oil.

Polar bears and walrus swimming in, or bears walking adjacent to, an oil spill could inhale petroleum vapors. Vapor inhalation by polar bears and walrus could result in damage to various systems, such as the respiratory and the central nervous systems, depending on the amount of exposure.

C.Indirect Effects of Oil—Oil may affect food sources of walrus and polar bears. A local reduction in ringed seal numbers as a result of direct or indirect effects of oil could, therefore, temporarily affect the local distribution of polar bears. A reduction in density of seals as a direct result of mortality from contact with spilled oil could result in polar bears not using a particular area for hunting. Possible impacts from a loss of a food source could reduce recruitment or survival. Also, seals that die as a result of an oil spill could be scavenged by polar bears. This would increase bears' exposure to hydrocarbons and could result in lethal impact or reduced survival to individual bears. Additionally, potentially lethal impacts caused by an oil spill to an area's benthic community could divert walrus from using the area as a food source.

A. Pacific Walrus.Onshore oil spills would not impact walrus unless oil moved into the offshore environment. During the open-water season, if a small spill occurs at offshore facilities or by vessel traffic, few walrus would likely encounter the oil. In the event of a larger spill during the open-water season, oil in the water column could drift offshore and possibly encounter a limited number of walrus. During the ice-covered season, spilled oil would be incorporated into the thickening sea ice. During spring melt, the oil would then travel to the surface of the ice, via brine channels, where most could be collected by spill response activities.

Few walrus are found in the Beaufort Sea east of Barrow and low to moderate numbers are found along the pack-ice edge 241 km (150 mi) or more northwest of Prudhoe Bay. Thus, the probability of individual walrus occurring in the vicinity of industry and encountering oil, as a result of an oil spill from Industry activities, is low.

B.Polar Bear.Polar bears could encounter oil spills during the open-water and ice-covered seasons in offshore or onshore habitat. Although the majority of the Southern Beaufort Sea polar bear population spends a large amount of its time offshore on the pack ice, individual bears could encounter oil from a spill regardless of ocean conditions.

Small spills (1-50 barrels) of oil or waste products throughout the year by Industry activities could impact small numbers of bears. As stated previously, the effects of fouling fur or ingesting oil or wastes, depending on the amount of oil or wastes involved, could be short term or result in death. In April 1988, a dead polar bear was found on Leavitt Island, approximately 9.3 km (5 nmi) northeast of Oliktok Point. The cause of death was determined to be poisoning by a mixture that included ethylene glycol and Rhodamine B dye; however, the source of the mixture was unknown.

During the ice-covered season, mobile, non-denning bears would have a higher probability of encountering oil or other production wastes than denning females. Current management practices put in place by Industry minimize the potential for such incidents by requiring the proper use, storage, and disposal of hazardous materials. In the event of an oil spill, it is also likely that polar bears would be deliberately hazed to move them awayfrom the area, further reducing the likelihood of impacting the population.

To date, large oil spills from Industry activities in the Beaufort Sea and coastal regions that have impacted polar bears have not occurred, although the development of offshore production facilities has increased the potential for large offshore oil spills. In a large spill (e.g., 3,600 barrels: the size of a rupture in the Northstar pipeline and a complete drain of the subsea portion of the pipeline), oil would be influenced by seasonal weather and sea conditions. These would include temperature, winds, and, for offshore events, wave action and currents. Weather and sea conditions would also affect the type of equipment needed for spill response and how effective spill cleanup would be. For example, spill response has been unsuccessful in the cleanup of oil in broken ice conditions. These factors, in turn, would dictate how large spills impact polar bear habitat and numbers.

The major concern regarding large oil spills is the impact a spill would have on the survival and recruitment of the Southern Beaufort Sea polar bear population. Currently, this bear population is approximately 2,200 bears. The most recent population growth rate was estimated at 2.4 percent annually based on data from 1982 through 1992, although the population is believed to have slowed its growth or stabilized since 1992. In addition, the maximum sustainable harvest is 80 bears for this population (divided between Canada and Alaska). In Alaska, the annual subsistence harvest has fluctuated around 36 bears. The annual subsistence harvest for the Southern Beaufort Sea population (Alaska and Canada combined) has been approximately 62 bears.

The bear population may be able to sustain the additional mortality caused by a large oil spill of a small number of bears, such as 1-5 individuals; however, the additive effect of numerous bear deaths (i.e., in the range of 20-30) caused by an oil spill or secondary effects of the spill caused through a local reduction in seal productivity or scavenging of oiled seal carcasses coupled with the subsistence harvest and other potential impacts, both natural and human-induced, may reduce population rates of recruitment and survival. The removal rate of bears from the population would then increase higher than what could be sustained by the population, potentially causing a decline in the bear population and affecting bear productivity and subsistence use.

The actual impact to Pacific walrus in the central Beaufort Sea from oil and gas activities has been minimal. From 1994 to 2000, only three Pacific walrus were encountered in the Beaufort Sea. All were sighted during open-water seismic programs.

Actual impacts on polar bears by the oil and gas industry during the past 30 years have been minimal as well. Polar bears have been encountered at or near most coastal and offshore production facilities, or along the roads and causeways that link these facilities to the mainland. During this time, only 2 polar bear deaths related to oil and gas activities have occurred. In winter 1968-1969, an industry employee on the Alaskan North Slope shot and killed a polar bear. In 1990 a female polar bear was killed at a drill site on the west side of Camden Bay. In contrast, 33 polar bears were killed in the Canadian Northwest Territories from1976 to 1986 due to encounters with industry. Since the beginning of the incidental take program, including measures that minimize impacts to the species, no polar bears have been killed due to encounters associated with current Industry activities in the Prudhoe Bay area (Alpine to Badami).

The majority of actual impacts on polar bears have resulted from direct human-bear encounters. Monitoring efforts by Industry required under previous regulations for the incidental take of polar bears and walrus have documented various types of interaction between polar bears and Industry. During a 7-year period (1994-2000), while incidental take regulations were in place, Industry reported 258 polar bear sightings. During this period, polar bears were sighted during 32 of the 115 activities covered by incidental take regulations. Approximately two-thirds of the sightings (171 of 258 sightings) occurred during production activities, which suggests that Industry activities that occur on or near the Beaufort Sea coast have a greater possibility for encountering polar bears than other Industry activities. Sixty-one percent of polar bear sightings (157 of 258 sightings) consisted of observations of polar bears traveling through or resting near the monitored areas without a perceived reaction to human presence, while 101 polar bear sightings involved bear-human interactions.

Twenty-one percent of all bear-human interactions (21 of 101 sightings) involved anthropogenic attractants, such as garbage dumpsters and landfills, where these attractants altered the bear's behavior. Sixty-five percent of polar bear-human interactions (66 of 101 sightings) involved Level B harassment to maintain human and bear safety by preventing bears from approaching facilities and people. We have no indication that these types of encounters that cause this type of minor alteration of the behavior and movement of individual bears have any long-term effects on those bears, related to recruitment or survival. We, therefore, believe that the small number and types of encounters anticipated to occur between polar bears and Industry are unlikely to have any significant effect on the polar bear population.

For Pacific walrus and polar bears, oil spills are of most concern when they occur in the marine environment, where spilled oil can accumulate at the water surface and ice edge, in leads, and similar areas of importance to marine mammals. Thus, offshore production activities, such as Northstar, have the potential to cause negative impacts on marine mammals because as additional offshore oil exploration and production occurs, the potential for large spills increases.

Due to the concern of a potential offshore oil spill, a risk assessment was performed to investigate the probability of mortality in polar bears due to an oil spill and the likelihood of occurrence in various ice conditions. Pacific walrus were not included in the risk assessment due to a lack of data regarding walrus abundance and distribution in the Beaufort Sea and because small numbers are present only seasonally in the Beaufort Sea.

The Northstar production field was used as a basis for the assessment because Northstar is currently the only offshore production field not connected to the mainland and serviced by an island. Northstar transports crude oil from a gravel island in the Beaufort Sea to shore via a 5.96-mile buried subsea pipeline. The pipeline is buried in a trench in the sea floor deep enough to reduce the risk of damage from ice gouging and strudel scour (i.e., erosion to the sea floor caused by large volumes of water siphoning at high velocities through openings in the sea ice resulting in unstable pipeline bedding). Production of Northstar began in 2001, and currently 70,000 barrels of oil pass through the pipeline daily.

The quantitative rationale for a negligible impact assessment was based on a risk assessment that considered oil spill probability estimates for the Northstar production field, an oil spill trajectory model, and a polar bear distribution model. The Northstar FEIS provided estimates of the probability that one or more spills greater than 1,000 barrels of oil (a large volume spill) will occur over the project's life of 15 years. We considered only spill probabilities for the drilling platform and subsea pipeline, as these are the spill locations that would affect polar bears.

Initially, Applied Sciences Associates, Inc., was contracted by BP Exploration Alaska Inc. to run the OILMAP oil spill trajectory model. The size of the modeled spills was set at 3,600 barrels, simulating rupture and drainage of the entire subsea pipeline. Each spill was modeled by tracking the location of 100 “spillets,” each representing 36 barrels. In the model, spillets were driven by wind, and their movements were stopped by the presence of sea ice. Open water and broken ice scenarios were each modeled with 250 simulations. A solid ice scenario was also modeled, in which oil was trapped beneath the ice and did not spread. In this event, we found it unlikely that polar bears will contact oil, and therefore removed this scenario from further analysis. Each simulation was run to cover a period of 4 days, with no cleanup or containment efforts simulated. At the end of each simulation, the size and location of each spill was represented in a geographic information system, or GIS.

The trajectory model was dependent on numerous assumptions, some of which underestimate, while others overestimate, the potential risk to polar bears. These assumptions relate to, and include: variation in spill probabilities during the year; the length of time that oil was in the environment and was subject to the spill trajectory model; whether or not containment occurred in various runs of the trajectory model; types of efforts and effects of efforts to deter wildlife during spills; contact by bears with a modeled spillet resulting in mortality; and the presence and size of bear groups. We assumed that the annual probability of a spill was equal during any season of the year. Any differences in seasonal spill probabilities would have a corresponding increase or decrease in risk. The model assumed oil would remain in the environment for 4 days; increasing that period of time would increase the risk to polar bears, while decreasing the period would decrease the risk. We assumed that containment of oil in broken-ice conditions would not be effective; however, any successful containment of oil under other water conditions would correspondingly reduce the risk of oiling to wildlife. We assumed that deterrent hazing of wildlife did not take place. If instituted, hazing could reduce the likelihood of polar bears encountering oil. We assumed that polar bear distribution was not affected by sights, smells, or sounds associated with a spill and that polar bears were neither attracted to nor displaced by these factors.

Similarly, the risk assessment model accounted for average movements and likelihood of polar bears being present in any given location based on a history of movements from satellite-collared females. The model did not consider aggregations of polar bears that may be present seasonally in the study area, nor did it consider whether other sex and age classes of polar bears have movements similar to adult females. If aggregations were to occur, then the risk to polar bears could increase. If the distribution of other sex-age classes differs from adult females, then risk may correspondingly increase or decrease for these sex-age classes.

Lastly, we assumed that polar bears located within the distribution grid that intersected with oil spillets modeled in the trajectory model were oiled and that mortality occurred, although this may not occur naturally. In evaluating the impacts of all these assumptions, we determined that the assumptions that overestimate and underestimate mortalities were generally in balance.

Impacts to polar bears from the oil spill trajectory model were derived using telemetry data from the U.S. Geological Survey, Biological Resources Division (USGS). Telemetry data suggest that polar bears are widely distributed in low numbers across the Beaufort Sea with a density of about one bear per 30-50 square miles. Movement and distribution information was derived from radio and satellite relocations of collared adult females. The USGS developed a polar bear distribution model based on an extensive telemetry data set of over 10,000 relocations. Using a technique called “kernel smoothing,” they created a grid system centered over Northstar and estimated the number of bears expected to occur within each 0.25-km2grid cell. Each of the simulated oil spills was overlaid with the polar bear distribution grid. In the simulation, if a spillet passed through a grid cell, the bears in that cell were considered killed by the spill. In the open water scenario, the estimated number of bears killed ranged from less than 1 to 78 bears, with a median of 8 bears. In the broken ice scenario, results ranged from less than 1 to 108, with a median of 21. These results are based on an “average” distribution of polar bears and do not include potential aggregation of bears, such as on Cross Island in the fall.

The Service then analyzed the spill trajectory and polar bear distribution to estimate the probability of an oil spill during the 16-month regulation period and the likelihood of occurrence of oil spills causing mortality for various numbers of bears. Assuming this probability was uniform throughout the year, the probability during any particular set of ice conditions was proportional to the length of those conditions. The probability of polar bear mortality in the event of an oil spill was calculated from mortality levels in excess of 5, 10, and 20 bears. Likelihood of occurrence is the product of the probabilities of spill and mortality. Hence, the overall likelihood is the sum of likelihoods over all ice conditions.

We calculated that the probability of a spill that will cause mortality of one or more bears is 0.4-1.3 percent. As the threshold number of bears is increased, the likelihood of that event decreases; the likelihood of taking more bears becomes less and less. Thus, the probability of a spill that will cause a mortality of 5 or more bears is 0.3-1.1 percent; for 10 or more bears is 0.3-0.9 percent; and for 20 or more bears is 0.1-0.5 percent. We note that the values of these probabilities differ slightly from those presented in the Proposed Rule. The reason for this difference is that the Proposed Rule relied on calculations for probabilities of an oil spill resulting in polar bear mortality for a three-year period (i.e., the length of time used during the last rulemaking). The corrected values presented in this rule reflect the probabilities over a 16-month period. Although the values differ slightly, the final results of the analysis are similar; there is still a very low probability that there will be an oil spill that will result in bear mortality.

In addition, using exposure variables and production estimates from the Northstar EIS, we estimated that the likelihood of one or more spills greater than 1,000 barrels in size occurring in the marine environment is 1-5 percent during the period covered by the regulations.

The greatest source of uncertainty in our calculations was the probability of an oil spill occurring. The oil spill probability estimates for the Northstar Project were calculated using data for sub-sea pipelines outside of Alaska and outside of the Arctic. These spill probability estimates, therefore, do not reflect conditions that are routinely encountered in the Arctic, such as permafrost, ice gouging, and strudel scour. They may include other conditions unlikely to be encountered in the Arctic, such as damage from anchors and trawl nets. Consequently, we have some uncertainty about oil spill probabilities as presented in the Northstar FEIS. However, if the probability of a spill were actually twice the estimated value, the probability of a spill that will cause a mortality of one or more bears is still low (about 6 percent).

In addition to the results from the risk analysis, anecdotal information supported our determination that any take associated with Northstar will have a negligible impact on the Beaufort Sea polar bear population. This information was based on observations of polar bear aggregations on barrier islands and coastal areas in the Beaufort Sea, which may occur for brief periods in the fall, usually 4 to 6 weeks. The presence and duration of these aggregations are influenced by the presence of sea ice near shore and the availability of marine mammal carcasses, notably bowhead whales from subsistence hunts. In order for any take associated with a Northstar oil spill to have more than a negligible impact on polar bears, an oil spill would have to occur, an aggregation of bears would have to be present, and the spill would have to contact the aggregation. We believe the probability of all these events occurring simultaneously is low, but are not quantified.

We concluded that if an offshore oil spill were to occur during the fall or spring broken-ice periods, a significant impact to polar bears could occur. We also recognize that some of the impact may result from latent effects of the spill on bears themselves or locally through secondary impacts to the environment and its value for feeding, such as foraging or scavenging on oiled seal carcasses. In balancing the level of potential impacts with the probability of occurrence, however, we conclude that the probability of a large-volume spill that would cause latent effects that result in significant polar bear takes is low.

Additionally, because of the small volume of oil associated with onshore spills, the rapid response system in place to clean up spills, and the protocol available to deter bears away from the affected area for their safety, we concluded that onshore spills would have little impact on the polar bear population. Therefore, the total expected taking of polar bear caused by Industry discharge of oil or waste products into the environment will have no more than a negligible impact on this species.

In making this finding, we are following Congressional direction in balancing the potential for a significant impact with the likelihood of that event occurring. The specific Congressional direction that justifies balancing probabilities with impacts follows:

If potential effects of a specified activity are conjectural or speculative, a finding of negligible impact may be appropriate. A finding of negligible impact may also be appropriate if the probability of occurrence is low but the potential effects may be significant. In this case, the probability of occurrence of impacts must be balanced with the potential severity of harm to the species or stock when determining negligible impact. In applying this balancing test, the Service will thoroughly evaluate the risks involved and the potential impacts on marine mammal populations. Such determination will be made based on the best available scientific information. 53 FR at 8474; accord, 132 Cong. Rec. S 16305 (Oct. 15, 1986).

Since walrus are typically not found in the region of Industry activity, the probability is small that Industry activities, such as offshore drilling operations, seismic, and