This final rule is issued under Marketing Agreement and Order No. 930 (7 CFR part 930), regulating the handling of tart cherries produced in the States of Michigan, New York, Pennsylvania, Oregon, Utah, Washington, and Wisconsin, hereinafter referred to as the “order.” The order is effective under the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), hereinafter referred to as the “Act.”

The Department of Agriculture (Department) is issuing this rule in conformance with Executive Order 12866.

This final rule has been reviewed under Executive Order 12988, Civil Justice Reform. Under the marketing order provisions now in effect, final free and restricted percentages may be established for tart cherries handled by handlers during the crop year. This rule establishes final free and restricted percentages for tart cherries for the 2010-2011 crop year, beginning July 1, 2010, through June 30, 2011.

The Act 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 file with the Secretary 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 law and request a modification of the order or to be exempt therefrom. Such handler is afforded the opportunity for a hearing on the petition. After the hearing, the Secretary 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 his or her principal place of business, has jurisdiction in equity to review the Secretary's ruling on the petition, provided an action is filed not later than 20 days after the date of the entry of the ruling.

The order prescribes procedures for computing an optimum supply and preliminary and final percentages that establish the amount of tart cherries that can be marketed throughout the season. The regulations apply to all handlers of tart cherries that are in the regulated districts. Tart cherries in the free percentage category may be shipped immediately to any market, while restricted percentage tart cherries must be held by handlers in a primary or secondary reserve, or be diverted in accordance with § 930.59 of the order and § 930.159 of the regulations, or used for exempt purposes (to obtain diversion credit) under § 930.62 of the order and § 930.162 of the regulations. The regulated Districts for the 2010-2011 crop year are: District two-Central Michigan; District three-Southern Michigan; District four-New York; District seven-Utah; District eight-Washington; and District nine-Wisconsin. Districts one, five, and six (Northern Michigan, Oregon, and Pennsylvania, respectively) are not regulated for the 2010-2011 season.

The order prescribes under § 930.52 that those districts to be regulated shall be those districts in which the average annual production of cherries over the prior three years has exceeded six million pounds. A district not meeting the six million-pound requirement shall not be regulated in such crop year. Because this requirement was not met in the Districts of Oregon and Pennsylvania, handlers in those districts are not subject to volume regulation during the 2010-2011 crop year. Section 930.52 of the order also provides that any district producing a crop which is less than 50 percent of the average annual processed production in that district in the previous five years is exempt from volume regulation. Thus, Northern Michigan is also not subject to volume regulation for the 2010-2011 crop year because its 2010 crop production was less than 50 percent of its 5-year average production due to weather related crop damage.

Demand for tart cherries at the farm level is derived from the demand for tart cherry products at retail. Demand for tart cherries and tart cherry products tend to be relatively stable from year to year. The supply of tart cherries, by contrast, varies greatly from crop year to crop year. The magnitude of annual fluctuations in tart cherry supplies is one of the most pronounced for any agricultural commodity in the United States. In addition, since tart cherries are processed either into cans or frozen, they can be stored and carried over from crop year to crop year. This createssubstantial coordination and marketing problems. The supply and demand for tart cherries is rarely balanced. The primary purpose of setting free and restricted percentages is to balance supply with demand and reduce large surpluses that may occur.

Section 930.50(a) of the order prescribes procedures for computing an optimum supply for each crop year. The Board must meet on or about July 1 of each crop year, to review sales data, inventory data, current crop forecasts and market conditions. The optimum supply volume is calculated as 100 percent of the average sales of the prior three years to which is added a desirable carryout inventory not to exceed 20 million pounds or such other amount as may be established with the approval of the Secretary. The optimum supply represents the desirable volume of tart cherries that should be available for sale in the coming crop year.

The order also provides that on or about July 1 of each crop year, the Board is to establish preliminary free and restricted percentages. These percentages are computed by deducting the actual carryin inventory from the optimum supply figure (adjusted to raw product equivalent—the actual weight of cherries handled to process into cherry products) and subtracting that figure from the current year's USDA crop forecast or from an average of such other crop estimates the Board votes to use. If the resulting number is positive, this represents the estimated over-production, which would be the restricted tonnage. The restricted tonnage is then divided by the sum of the crop estimates for the regulated districts to obtain a preliminary restricted percentage for the regulated districts. The preliminary free percentage is the difference between the restricted percentage and 100 percent. If the tonnage requirements for the year are more than the USDA crop forecast, the Board is required to establish a preliminary free tonnage percentage of 100 percent and a preliminary restricted percentage of zero. The Board is required to announce the preliminary percentages in accordance with paragraph (h) of § 930.50.

The Board met on June 17, 2010, and computed, for the 2010-2011 crop year, an optimum supply of 170 million pounds. The Board recommended that the desirable carryout figure be zero pounds. Desirable carryout is the amount of fruit required to be carried into the succeeding crop year and is set by the Board after considering market circumstances and needs. This figure can range from zero to a maximum of 20 million pounds.

The Board calculated preliminary free and restricted percentages as follows: The USDA estimate of the crop for the entire production area was 195 million pounds; a 51 million pound carryin (based on Board estimates) was subtracted from the optimum supply of 170 million pounds which resulted in the 2010-2011 poundage requirements (adjusted optimum supply) of 119 million pounds. The carryin figure reflects the amount of cherries that handlers actually have in inventory at the beginning of the 2010-2011 crop year. Subtracting the adjusted optimum supply of 119 million pounds from the USDA crop estimate, (195 million pounds) resulted in a surplus of 76 million pounds of tart cherries. The surplus was divided by the production in the regulated districts (191 million pounds) and resulted in a restricted percentage of 40 percent for the 2010-2011 crop year. The free percentage was 60 percent (100 percent minus 40 percent). The Board established these percentages and announced them to the industry as required by the order.

The preliminary percentages were based on the USDA production estimate and the following supply and demand information available at the June meeting for the 2010-2011 crop year:

Between July 1 and September 15 of each crop year, the Board may modify the preliminary free and restricted percentages by announcing interim free and restricted percentages to adjust to the actual pack occurring in the industry. No later than September 15, the Board must recommend final free and restricted percentages to the Secretary.

The Secretary establishes final free and restricted percentages through the informal rulemaking process. These percentages would make available the tart cherries necessary to achieve the optimum supply figure calculated by the Board. The difference between any final free percentage and 100 percent is the final restricted percentage.

The Board met on September 10, 2010, to recommend final free and restricted percentages. The actual production reported by the Board was 189 million pounds, which is a 6 million pound decrease from the USDA crop estimate of 195 million pounds.

The Board also recommended an economic adjustment of 20 million pounds to be subtracted from the surplus to adjust the supply for the poor quality and yields due to adverse harvest conditions in various parts of the production area. Handlers stated that processing yields from the 2010 tart cherry harvest were significantly lower this year than in previous years. The lower yields resulted in processors using more raw tart cherries than usualto produce a given amount of finished product.

A 51 million pound carryin (based on handler reports) was subtracted from the optimum supply of 170 million pounds which resulted in the 2010-2011 poundage requirements (adjusted optimum supply) of 119 million pounds. Subtracting the adjusted optimum supply of 119 million pounds from the actual production of 189 million pounds results in a surplus of 70 million pounds of tart cherries. An economic adjustment of 20 million pounds was subtracted from the surplus, resulting in an adjusted surplus of 50 million pounds of tart cherries. The adjusted surplus of 50 million pounds was divided by the production in the regulated districts (120 million pounds) and resulted in a restricted percentage of 42 percent for the 2010-2011 crop year. The free percentage was 58 percent (100 percent minus 42 percent).

The final percentages are based on the Board's reported production figures and the following supply and demand information available in September for the 2010-2011 crop year:

The USDA's “Guidelines for Fruit, Vegetable, and Specialty Crop Marketing Orders” specify that 110 percent of recent years' sales should be made available to primary markets each season before recommendations for volume regulation are approved. This goal would be met by the establishment of a final percentage which releases 100 percent of the optimum supply and the additional release of tart cherries provided under § 930.50(g). This release of tonnage, equal to 10 percent of the average sales of the prior three years, is made available to handlers each season. The Board recommended that such release should be made available to handlers the first week of December and the first week of May. Handlers can decide how much of the 10 percent release they would like to receive on the December and May release dates. Once released, such cherries are available for free use by such handler. Approximately 17 million pounds would be made available to handlers this season in accordance with Department Guidelines. This release would be made available to every handler in proportion to the handler's percentage of the total regulated crop handled. If a handler does not take his/her proportionate amount, such amount remains in the inventory reserve.

Pursuant to requirements set forth in the Regulatory Flexibility Act (RFA), the Agricultural Marketing Service (AMS) has considered the economic impact of this action on small entities. Accordingly, AMS has prepared this final regulatory flexibility analysis.

The purpose of the RFA is to fit regulatory actions to the scale of business subject to such actions in order that small businesses will not be unduly or disproportionately burdened. Marketing orders issued pursuant to the Act, and rules issued thereunder, are unique in that they are brought about through group action of essentially small entities acting on their own behalf. Thus, both statutes have small entity orientation and compatibility.

There are approximately 40 handlers of tart cherries who are subject to regulation under the tart cherry marketing order and approximately 600 producers of tart cherries in the regulated area. Small agricultural service firms, which includes handlers, have been defined by the Small Business Administration (SBA) (13 CFR 121.201) as those having annual receipts of less than $7,000,000, and small agricultural producers are defined as those having annual receipts of less than $750,000. A majority of the producers and handlers are considered small entities under SBA's standards.

The principal demand for tart cherries is in the form of processed products. Tart cherries are dried, frozen, canned, juiced, and pureed. During the period 1997/98 through 2008/09, approximately 85 percent of the U.S. tart cherry crop, or 222.7 million pounds, was processed annually. Of the 222.7 million pounds of tart cherries processed, 61 percent was frozen, 27 percent was canned, and 12 percent was utilized for juice and other products.

Based on National Agricultural Statistics Service data, acreage in the United States devoted to tart cherry production has been trending downward. Bearing acreage has declined from a high of 50,050 acres in 1987/88 to 35,550 acres in 2009/10. This represents a 29 percent decrease in total bearing acres. Michigan leads the nation in tart cherry acreage with 73 percent of the total and produces about 75 percent of the U.S. tart cherry crop each year.

The 2010/11 crop is 189 million pounds. This production level is 6 million pounds less than the 195.3 million pounds estimated by the National Agricultural Statistics Service (NASS) in June. The largest crop occurred in 1995 with production in the regulated districts reaching a record 395.6 million pounds. The price per pound received by tart cherry growersranged from a low of 7.3 cents in 1987 to a high of 46.4 cents in 1991. These problems of wide supply and price fluctuations in the tart cherry industry are national in scope and impact. Growers testified during the order promulgation process that the prices they received often did not come close to covering the costs of production.

The industry demonstrated a need for an order during the promulgation process of the marketing order because large variations in annual tart cherry supplies tend to lead to fluctuations in prices and disorderly marketing. As a result of these fluctuations in supply and price, growers realize less income. The industry chose a volume control marketing order to even out these wide variations in supply and improve returns to growers. During the promulgation process, proponents testified that small growers and processors would have the most to gain from implementation of a marketing order because many such growers and handlers had been going out of business due to low tart cherry prices. They also testified that, since an order would help increase grower returns, this should increase the buffer between business success and failure because small growers and handlers tend to be less capitalized than larger growers and handlers.

Aggregate demand for tart cherries and tart cherry products tends to be relatively stable from year-to-year. Similarly, prices at the retail level show minimal variation. Consumer prices in grocery stores, and particularly in food service markets, largely do not reflect fluctuations in cherry supplies. Retail demand is assumed to be highly inelastic which indicates that price reductions do not result in large increases in the quantity demanded. Most tart cherries are sold to food service outlets and to consumers as pie filling; frozen cherries are sold as an ingredient to manufacturers of pies and cherry desserts. Juice and dried cherries are expanding market outlets for tart cherries.

Demand for tart cherries at the farm level is derived from the demand for tart cherry products at retail. In general, the farm-level demand for a commodity consists of the demand at retail or food service outlets minus per-unit processing and distribution costs incurred in transforming the raw farm commodity into a product available to consumers. These costs comprise what is known as the “marketing margin.”

The supply of tart cherries, by contrast, varies greatly. The magnitude of annual fluctuations in tart cherry supplies is one of the most pronounced for any agricultural commodity in the United States. In addition, since tart cherries are processed either into cans or frozen, they can be stored and carried over from year-to-year. This creates substantial coordination and marketing problems. The supply and demand for tart cherries is rarely in equilibrium. As a result, grower prices fluctuate widely, reflecting the large swings in annual supplies.

In an effort to stabilize prices, the tart cherry industry uses the volume control mechanisms under the authority of the Federal marketing order. This authority allows the industry to set free and restricted percentages. These restricted percentages are only applied to states or districts with a 3-year average of production greater than six million pounds, and to states or districts in which the production is 50 percent or more of the previous 5-year processed production average.

The primary purpose of setting restricted percentages is an attempt to bring supply and demand into balance. If the primary market is over-supplied with cherries, grower prices decline substantially.

The tart cherry sector uses an industry-wide storage program as a supplemental coordinating mechanism under the Federal marketing order. The primary purpose of the storage program is to warehouse supplies in large crop years in order to supplement supplies in short crop years. The storage approach is feasible because the increase in price—when moving from a large crop to a short crop year—more than offsets the costs for storage, interest, and handling of the stored cherries.

The price that growers receive for their crop is largely determined by the total production volume and carryin inventories. The Federal marketing order permits the industry to exercise supply control provisions, which allow for the establishment of free and restricted percentages for the primary market, and a storage program. The establishment of restricted percentages impacts the production to be marketed in the primary market, while the storage program has an impact on the volume of unsold inventories.

The volume control mechanism used by the cherry industry results in decreased supplies to primary markets. Without volume control the primary markets (domestic) would likely be over-supplied, resulting in lower grower prices.

To assess the impact that volume control has on the prices growers receive for their product, an econometric model has been developed. The econometric model provides a way to see what impacts volume control may have on grower prices. The two districts in Michigan, along with the districts in Utah, New York, Washington, and Wisconsin are the restricted areas for this crop year and their combined total production is 120 million pounds. A 42 percent restriction means 70 million pounds is available to be shipped to primary markets from these five states. Production levels of 65.3 million pounds for Northwest Michigan, 1.2 million pounds for Oregon, and 2.2 million pounds for Pennsylvania (the unregulated areas in 2010/11), result in an additional 69 million pounds available for primary market shipments.

In addition, USDA requires a 10 percent release from reserves as a market growth factor. This results in an additional 17 million pounds being available for the primary market. The 70 million pounds from the two Michigan districts, Utah, Washington, Wisconsin, and New York, the 69 million pounds from the other producing states, the 17 million pound release, and the 51 million pound carryin inventory gives a total of 207 million pounds being available for the primary markets.

The econometric model is used to estimate the impact of establishing a reserve pool for this year's crop. With the volume controls, grower prices are estimated to be approximately $0.12 per pound higher than without volume controls.

The use of volume controls is estimated to have a positive impact on growers' total revenues. With regulation, growers' total revenue from processed cherries is estimated to be $23 million higher than without restrictions. The without-restrictions scenario assumes that all tart cherries produced would be delivered to processors for payments.

It is concluded that the 42 percent volume control would not unduly burden producers, particularly smaller growers. The 42 percent restriction would be applied to the growers in two districts in Michigan, New York, Utah, Washington, and Wisconsin. The growers in the other unregulated areas covered under the marketing order will benefit from this restriction.

Recent grower prices have been as high as $0.44 per pound in 2002-03 when there was a crop failure. Prices in the last two crop years have been $0.372 in 2008-09 and $0.194 per pound in 2009-10. At current production levels, yield is estimated at approximately 10,251 pounds per acre. At this level of yield the cost of production is estimated to be $0.25 per pound (costs were estimated by representatives of Michigan State University with input provided by growers for the currentcrop). The grower price for 2010-11 will likely be less than $0.25 per pound for the combined free and restricted production. Thus, this year's grower price even with regulation is estimated to be below the cost of production. The use of volume controls is believed to have little or no effect on consumer prices and will not result in fewer retail sales or sales to food service outlets.

Without the use of volume controls, the industry could be expected to start to build large amounts of unwanted inventories. These inventories have a depressing effect on grower prices. The econometric model shows for every 1 million-pound increase in carryin inventories, a decrease in grower prices of $0.0036 per pound occurs. The use of volume controls allows the industry to supply the primary markets while avoiding the disastrous results of over-supplying these markets. In addition, through volume control, the industry has an additional supply of cherries that can be used to develop secondary markets such as exports and the development of new products. The use of reserve cherries in the production shortened 2002/03 crop year proved to be very useful and beneficial to growers and packers.

In discussing the possibility of marketing percentages for the 2010-2011 crop year, the Board considered the following factors contained in the marketing policy: (1) The estimated total production of tart cherries; (2) the estimated size of the crop to be handled; (3) the expected general quality of such cherry production; (4) the expected carryover as of July 1 of canned and frozen cherries and other cherry products; (5) the expected demand conditions for cherries in different market segments; (6) supplies of competing commodities; (7) an analysis of economic factors having a bearing on the marketing of cherries; (8) the estimated tonnage held by handlers in primary or secondary inventory reserves; and (9) any estimated release of primary or secondary inventory reserve cherries during the crop year.

The Board's review of the factors resulted in the computation and announcement in September 2010 of the free and restricted percentages proposed to be established by this rule (58 percent free and 42 percent restricted).

One alternative to this action would be not to have volume regulation this season. Board members believed that no volume regulation would be detrimental to the tart cherry industry.

As mentioned earlier, the Department's “Guidelines for Fruit, Vegetable, and Specialty Crop Marketing Orders” specify that 110 percent of recent years' sales should be made available to primary markets each season before recommendations for volume regulation are approved. The quantity available under this rule is 110 percent of the quantity shipped in the prior three years.

The free and restricted percentages established by this rule release the optimum supply and apply uniformly to all regulated handlers in the industry, regardless of size. There are no known additional costs incurred by small handlers that are not incurred by large handlers. The stabilizing effects of the percentages impact all handlers positively by helping them maintain and expand markets, despite seasonal supply fluctuations. Likewise, price stability positively impacts all producers by allowing them to better anticipate the revenues their tart cherries will generate.

While the benefits resulting from this rulemaking are difficult to quantify, the stabilizing effects of the volume regulations impact both small and large handlers positively by helping them maintain markets even though tart cherry supplies fluctuate widely from season to season.

In compliance with Office of Management and Budget (OMB) regulations (5 CFR part 1320) which implement the Paperwork Reduction Act of 1995 (Pub. L. 104-13), the information collection and recordkeeping requirements under the tart cherry marketing order have been previously approved by OMB and assigned OMB Number 0581-0177.

Reporting and recordkeeping burdens are necessary for compliance purposes and for developing statistical data for maintenance of the program. The forms require information which is readily available from handler records and which can be provided without data processing equipment or trained statistical staff. As with other, similar marketing order programs, reports and forms are periodically studied to reduce or eliminate duplicate information collection burdens by industry and public sector agencies. This rule does not change those requirements.

As noted in the initial regulatory flexibility analysis, the Department has not identified any relevant Federal rules that duplicate, overlap, or conflict with this regulation.

In addition, the Board's meeting was widely publicized throughout the tart cherry industry and all interested persons were invited to attend the meeting and participate in Board deliberations on all issues. Like all Board meetings, the September 10, 2010, meeting was a public meeting and all entities, both large and small, were able to express views on this issue.

AMS is committed to complying with the E-Government Act, to promote the use of the Internet and other information technologies to provide increased opportunities for citizen access to Government information and services and for other purposes.

A proposed rule concerning this action was published in theFederal Registeron December 13, 2010 (75 FR 77564). Copies of the rule were mailed or sent via facsimile to all Board members and alternates. Finally, the rule was made available through the Internet by USDA and the Office of the Federal Register. A 30-day comment period ending January 12, 2011, was provided to allow interested persons to respond to the proposal. No comments were received.

A small business guide on complying with fruit, vegetable, and specialty crop marketing agreements and orders may be viewed at:http://www.ams.usda.gov/fv/moab.html.Any questions about the compliance guide should be sent to Antoinette Carter at the previously mentioned address in theFOR FURTHER INFORMATION CONTACTsection.

After consideration of all relevant matter presented, including the information and recommendation submitted by the Board and other available information, it is hereby found that this rule, as hereinafter set forth, will tend to effectuate the declared policy of the Act.

It is further found that good cause exists for not postponing the effective date of this rule until 30 days after publication in theFederal Register(5 U.S.C. 553) because handlers are already shipping tart cherries from the 2010-2011 crop. Further, handlers are aware of this rule, which was recommended at a public meeting. Also a 30-day comment period was provided for in the proposed rule. No comments were received.

For the reasons set forth in the preamble, 7 CFR part 930 is amended as follows:

Background

On March 28, 2003, The Boeing Commercial Airplane Group (hereafter referred to as “Boeing”) applied for an FAA type certificate for its new Boeing Model 787-8 passenger airplane. The company applied for an extension of time for the type certificate on March 9, 2009, and was granted that extension on March 13, 2009. The Boeing Model 787-8 airplane will be an all-new, two-engine, jet transport airplane with a two-aisle cabin. The maximum takeoff weight will be 476,000 pounds, with a maximum passenger capacity of 381.

Under provisions of Title 14 Code of Federal Regulations (14 CFR) 21.17, Boeing must show that the Boeing Model 787-8 airplane (hereafter referred to as “the 787”) meets the applicable provisions of 14 CFR part 25, as amended by Amendments 25-1 through 25-117, 25-120, 25-124, 25-125 and 25-128, except that § 25.1309 remains at Amendment 25-117 for cargo-fire protection systems. If the Administrator finds that the applicable airworthiness regulations (i.e.,14 CFR part 25) do not contain adequate or appropriate safety standards for the 787 because of a novel or unusual design feature, special conditions are prescribed under the provisions of § 21.16.

In addition to complying with the applicable airworthiness regulations and special conditions, the 787 must comply with the fuel-vent and exhaust-emission requirements of 14 CFR part 34, and the noise-certification requirements of 14 CFR part 36. In addition, the FAA must issue a finding of regulatory adequacy pursuant to section 611 of Public Law 92-574, the “Noise Control Act of 1972.”

The FAA issues special conditions, as defined in 14 CFR 11.19, in accordance with § 11.38, and they become part of the type certification basis under § 21.17(a)(2).

Special conditions are initially applicable to the model for which they are issued. Should the type certificate for that model be amended later to include any other model that incorporates the same novel or unusual design features, the special conditions would also apply to the other model under provisions of § 21.101.

Crew-rest compartments have been installed and certificated on several Boeing airplane models in locations as varied as the main passenger-seating area, the overhead space above the main passenger-cabin seating area, and below the passenger-cabin seating area within the cargo compartment. In each case, the Administrator has determined that the applicable regulations (i.e.,14 CFR part 25) did not provide all of the necessary requirements because each installation had unique features by virtue of its design, location, and use on the airplane. The special conditions contain safety standards that the Administrator considers necessary to establish a level of safety equivalent to that established by the existing airworthiness standards.

Most recently for the Boeing Model 777 series airplanes, the FAA has issued Special Conditions No. 25-230-SC, dated April 9, 2003, for crew-rest compartments allowed to be occupied by crewmembers and flight crewmembers during flight, and Special Conditions No. 25-260-SC, dated April 14, 2004, for crew-rest compartments allowed to be occupied by crewmembers and flight crewmembers during TT&L, as well as during flight.

The OCR compartment on the 787 identified by Boeing as an overhead flight-attendant rest is located above the main passenger cabin, adjacent to Door 4, and will be accessed from the main deck by stairs through a vestibule. This OCR compartment will contain six private berths, an emergency hatch that opens directly into the main passenger-cabin area, a smoke-detection system, an oxygen system, and various occupant amenities. This OCR compartment will only be occupied by trained crewmembers in flight. It will not beoccupied during taxi, takeoff, or landing.

This 787 OCR compartment is unique to part 25 because of its design, location, and use on the airplane.

Because of the novel or unusual features associated with installation of this compartment, special conditions are considered necessary to provide a level of safety equal to that established by the airworthiness regulations.

These special conditions do not negate the need to address other applicable part 25 regulations.

Notice of proposed special conditions 25-09-08-SC for the Boeing Model 787 series airplanes was published in theFederal Registeron January 4, 2010. No comments were received, and these special conditions are adopted as proposed.

These special conditions outline requirements for OCR-compartment design approvals administered by the FAA's Aircraft Certification Service. Before operational use of an OCR compartment, the FAA's Flight Standards Service must evaluate and approve the “basic suitability” of the compartment for crew occupation. Additionally, if an operator wishes to use an OCR compartment as “sleeping quarters,” the compartment must undergo an additional evaluation and approval (reference 14 CFR 121.485(a), 121.523(b), and 135.269(b)(5)). Compliance with these special conditions does not ensure that the applicant has demonstrated compliance with the requirements of parts 121 or 135.

To obtain an operational evaluation, the type certificate holder must contact the appropriate aircraft evaluation group (AEG) in the Flight Standards Service and request a “basic suitability” evaluation or a “sleeping quarters” evaluation of its OCR compartment. The results of these evaluations should be documented in a 787 flight standardization board (FSB) report appendix. Individual operators may reference these standardized evaluations in discussions with their FAA principal operating inspector (POI) as the basis for an operational approval, in lieu of an on-site operational evaluation.

Any changes to the approved OCR compartment configuration that affect crewmember emergency egress, or any other procedures affecting safety of the occupying crewmembers or related emergency training, will require re-evaluation and approval. The applicant for an OCR compartment design change that affects egress, safety procedures, or training is responsible for notifying the FAA's AEG that a new compartment evaluation is required. The results of a re-evaluation should also be documented in a 787 FSB report appendix.

Procedures must be developed to ensure that a crewmember entering the OCR compartment through the stairway/vestibule to fight a fire will examine the stairway/vestibule and the adjacent galley or lavatory areas (if installed) for the source of the fire before entering the remaining areas of the compartment. This is intended to ensure that the source of the fire is not between the crewmember and the entrance to the OCR compartment. If a fire source is not immediately evident to the firefighter, the firefighter should check for potential fire sources at areas closest to the OCR compartment entrance first, then proceed to check areas in such a manner that the fire source, when found, will not be between the firefighter and his or her way to get out of the compartment. Procedures describing methods for searching the OCR compartment for fire source(s) must be transmitted to operators for incorporation into their training programs and appropriate operational manuals.

These special conditions initially apply to an OCR compartment installed adjacent to the Door 4 exits on the 787. These special conditions supplement 14 CFR part 25. Except as noted below, these special conditions for the 787 closely resemble Boeing 777 Special Conditions No. 25-230-SC.

Special Conditions 4 and 14 contain requirements for the exit signs that must be provided in the OCR compartment. Symbols that satisfy the equivalent level of safety finding established for the 787 may be used in lieu of the text required by § 25.812(b)(1)(i). The FAA expects that crewmembers will learn the meaning of any symbolic exit sign as a part of their training in evacuation procedures.

Special Condition 13 contains requirements for supplemental oxygen systems. Special Conditions No. 25-260-SC, for the overhead flightcrew rest compartments, required that each berth be provided with two oxygen masks. This was intended to address the case where a person not in a berth was moving around in the crew-rest compartment and needed quick access to the oxygen. For the designs used in the model 777, this requirement was sufficient. However, for the 787, the requirement to have two masks per berth may not always meet the objective of having masks available to persons who are in transition within the compartment. Therefore, the wording of this special condition has been modified to better state the objective rather than specify that two masks be provided per berth. In addition, the requirement to have adequate illumination to retrieve the mask, while implied previously, is made explicit in these special conditions.

Special Condition 17 contains the requirement for materials used in the construction of the OCR compartment and states that § 25.853 as amended by Amendment 25-116 is the appropriate regulation. Amendment 25-116 is the latest amendment level for § 25.853.

Compliance with these special conditions does not relieve the applicant from the existing airplane certification-basis requirements. One particular area of concern is that installation of OCR compartments changes the compartment volume in the overhead area of the airplane. The applicant must comply with the pressurized compartment loads requirements of § 25.365(e), (f), and (g) for the OCR compartment, as well as for any other airplane compartments whose decompression characteristics are affected by the installation of an OCR compartment. Compliance with § 25.813 emergency exit access requirements must be demonstrated for all phases of flight during which occupants will be present.

Section 25.813(e) prohibits installation of interior doors between passenger compartments, but the FAA has historically found crew rest-compartment doors to be acceptable, because crew rests are not passenger compartments. Special Conditions 1 and 14 provide requirements for crew rest-compartment doors which are considered to provide an appropriate level of safety to OCR compartment occupants.

Sections 25.1443. 25.1445, and 25.1447 describe oxygen requirements for flightcrew, passengers, and cabin attendants. Crewmembers occupying the OCR compartment are not on duty, and therefore are considered passengers in determining compliance with these oxygen regulations.

As discussed above, these special conditions are applicable to the 787. Should Boeing apply at a later date for a change to the type certificate to include another model incorporating the same novel or unusual design features, these special conditions would apply to that model as well.

This action affects only certain novel or unusual design features of the 787. It is not a rule of general applicability.

The authority citation for these special conditions is as follows:

Background

On March 28, 2003, The Boeing Commercial Airplane Group (hereafter referred to as “Boeing”) applied for an FAA type certificate for its new Boeing Model 787-8 passenger airplane. The company applied for an extension of time for the type certificate on March 9, 2009, and was granted that extension on March 13, 2009. The Boeing Model 787-8 airplane will be an all-new, two-engine, jet transport airplane with a two-aisle cabin. The maximum takeoff weight will be 476,000 pounds, with a maximum passenger capacity of 381.

Under provisions of Title 14 Code of Federal Regulations (14 CFR) 21.17, Boeing must show that the Boeing Model 787-8 airplane (hereafter referred to as “the 787”) meets the applicable provisions of 14 CFR part 25, as amended by Amendments 25-1 through 25-117, 25-120, 25-124, 25-125 and 25-128, except that § 25.1309 remains at Amendment 25-117 for cargo-fire protection systems. If the Administrator finds that the applicable airworthiness regulations (i.e., 14 CFR part 25) do not contain adequate or appropriate safety standards for the 787 because of a novel or unusual design feature, special conditions are prescribed under the provisions of § 21.16.

In addition to complying with the applicable airworthiness regulations and special conditions, the 787 must comply with the fuel-vent and exhaust-emission requirements of 14 CFR part 34, and the noise-certification requirements of 14 CFR part 36. The FAA must also issue a finding of regulatory adequacy pursuant to section 611 of Public Law 92-574, the “Noise Control Act of 1972.”

The FAA issues special conditions, as defined in 14 CFR 11.19, in accordance with § 11.38, and they become part of the type certification basis under § 21.17(a)(2).

Special conditions are initially applicable to the model for which they are issued. Should the type certificate for that model be amended later to include any other model that incorporates the same novel or unusual design features, the special conditions would also apply to the other model under provisions of § 21.101.

Flightcrew rest compartments have been installed and certificated on several Boeing airplane models in locations as varied as the main passenger seating area, the overhead space above the main passenger-cabinseating area, and below the passenger-cabin seating area within the cargo compartment. In each case, the Administrator has determined that the applicable regulations (i.e.,14 CFR part 25) did not provide all of the necessary requirements because each installation had unique features by virtue of its design, location, and use on the airplane. The special conditions contain safety standards that the Administrator considers necessary to establish a level of safety equivalent to that established by the existing airworthiness standards.

Most recently for the Boeing Model 777 series airplanes, the FAA has issued Special Conditions No. 25-230-SC, dated April 9, 2003, for crew-rest compartments allowed to be occupied by crewmembers and flight crewmembers during flight, and Special Conditions No. 25-260-SC, dated April 14, 2004, for crew-rest compartments allowed to be occupied by crewmembers and flight crewmembers during TT&L, as well as during flight.

For the 787, an OFCR compartment is located in the overhead space above the main passenger cabin seating area immediately aft of the first pair of main deck emergency exits (Door 1). This compartment includes two private berths and up to two seats. Occupancy of the compartment will be limited to a maximum of four trained crewmembers during flight and two trained flight crewmembers, one in each seat, during TT&L. Stairs through a vestibule access the compartment from the main deck. In addition, a secondary evacuation route, which opens directly into the main passenger-seating area, will be available as an alternate for evacuating occupants of the compartment. A smoke detection system and an oxygen system will be provided in the compartment. Other optional features, such as a sink with cold-drink stowage or a lavatory, may be provided as well.

This 787 OFCR compartment is unique because of its design, location, and use on the airplane. It is also unique because it is in the overhead area of the passenger compartment and is proposed to be occupied by trained flightcrew during TT&L.

Because of the novel or unusual features associated with installation of this OFCR compartment, special conditions are considered necessary to provide a level of safety equal to that established by the airworthiness regulations.

These special conditions do not negate the need to address applicable part 25 regulations.

Notice of proposed special conditions 25-09-07-SC for the Boeing Model 787 series airplanes was published in theFederal Registeron January 4, 2010. No comments were received, and these special conditions are adopted as proposed.

For Boeing Model 777 Special Conditions No. 25-260-SC, the FAA considered whether or not a special condition should require that the OFCR compartment have an external exit leading directly outside the airplane. The Air Line Pilots Association, International (ALPA), and International Federation of Air Line Pilots (IFALPA) reviewed the design of the 777 OFCR compartment and informed the FAA that in their opinion an external exit was not needed because two independent, internal evacuation routes were provided. That input, and the fact that flight crewmembers would be the only occupants of the compartment during TT&L, supported the FAA in determining that a special condition requiring an external exit was not required. The FAA considers that the following, in addition to Special Conditions No. 25-260-SC, provide a level of safety equivalent to that established by part 25 for main-deck occupants:

1. The distances along the evacuation routes from the seats in the OFCR compartment to the Door 1 exits on the main deck are significantly shorter than the maximum distance a seated passenger on the main deck would need to travel to reach an exit.

2. Occupancy during TT&L will be limited to two flight crewmembers trained in the evacuation, fire fighting, and depressurization procedures of the OFCR compartment. An airplane-flight-manual limitation must be established to restrict occupancy to only persons the pilot in command has determined are able to use both evacuation routes rapidly. The ability of such persons to fit through the escape hatch must be considered in this determination.

For the reasons noted above, the FAA does not believe that this special condition should require that the 787 OFCR compartment have an external exit.

These special conditions establish requirements for OFCR-compartment design approvals administered by the FAA's Aircraft Certification Service. Before operational use of an OFCR compartment, the FAA's Flight Standards Service must evaluate and approve the “basic suitability” of the compartment for crew occupation. Additionally, if an operator wishes to use an OFCR compartment as “sleeping quarters,” the compartment must undergo an additional evaluation and approval (reference 14 CFR 121.485(a), 121.523(b), and 135.269(b)(5)). Compliance with these special conditions does not ensure that the applicant has demonstrated compliance with the requirements of parts 121 or 135.

To obtain an operational evaluation, the type certificate holder must contact the appropriate aircraft evaluation group (AEG) in the Flight Standards Service and request a “basic suitability” evaluation or a “sleeping quarters” evaluation of its OFCR compartment. The results of these evaluations should be documented in a 787 flight standardization board (FSB) report appendix. Individual operators may reference these standardized evaluations in discussions with their FAA principal operating inspector (POI) as the basis for an operational approval, in lieu of an on-site operational evaluation.

Any changes to the approved OFCR compartment configuration that affect crewmember emergency egress, or any other procedures affecting safety of the occupying crewmembers or related emergency training, will require re-evaluation and approval. The applicant for an OFCR compartment design change that affects egress, safety procedures, or training is responsible for notifying the FAA's AEG that a new compartment evaluation is required. The results of a re-evaluation should also be documented in a 787 FSB report appendix.

Procedures must be developed to ensure that a crewmember, acting as firefighter, entering the OFCR compartment through the stairway/vestibule to fight a fire, will examine the stairway/vestibule and the adjacent galley or lavatory areas (if installed) for the source of the fire before entering the remaining areas of the compartment. This is intended to ensure that the source of the fire is not between the crewmember and the entrance to the OFCR compartment. If a fire source is not immediately evident to the firefighter, the firefighter should check for potential fire sources at areas closest to the OFCR compartment entrance first, then proceed to check areas in such a manner that the fire source, when found, will not be between the firefighter and his or her way to get out of the compartment. Procedures describing methods for searching theOFCR compartment for fire source(s) must be transmitted to operators for incorporation into their training programs and appropriate operational manuals.

Installation of an OFCR compartment that can be occupied during TT&L by flightcrew is unusual. Appropriate information must be provided to airport fire-rescue personnel so that they understand that this remote compartment may be occupied during an emergency landing. The applicant must provide rescue-crew training materials to the local FAA Airports Division, Safety and Standards Branch, to address this issue. The FAA Airports Division, Safety and Standards Branch, will ensure that these materials are distributed to appropriate airports, domestic and foreign. A special condition is not considered appropriate to address this issue.

These special conditions apply to OFCR compartments that are occupiable during TT&L and are installed immediately aft of the Door 1 exits on the 787. These special conditions supplement 14 CFR part 25. Except as noted below, these special conditions for the 787 are identical to Boeing Model 777 Special Conditions No. 25-260-SC.

Special Conditions 6 and 16 contain requirements for the exit signs that must be provided in the OFCR compartment. Symbols that satisfy the equivalent level of safety finding established for the 787 may be used in lieu of the text required by § 25.812(b)(1)(i). The FAA expects that the meaning of any symbolic exit sign will be reinforced as a part of crewmember training in evacuation procedures.

Special Condition 15 contains requirements for supplemental oxygen systems. Special Conditions No. 25-260-SC required that each berth be provided with two oxygen masks. This was intended to address the case where a person not in a berth was moving around within the flightcrew rest compartment and needed quick access to the oxygen. For the designs used in the model 777, this requirement was sufficient. However, for the 787, the requirement to have two masks per berth may not always meet the objective of having masks available to persons who are in transition within the compartment. Therefore, the wording of this special condition has been modified to better state the objective rather than specifying a two-masks-per-berth requirement. In addition, the requirement to have adequate illumination to retrieve the mask, while implied previously, is made explicit in these special conditions.

Special Condition 18 contains the requirements for materials used in the construction of the OFCR compartment. Special Conditions No. 25-260-SC stated that § 25.853 as amended by Amendment 25-83 is the appropriate regulation. Section 25.853 has since been further amended, and these special conditions reference the latest amendment level for § 25.853, Amendment 25-116.

Compliance with these special conditions does not relieve the applicant from the existing airplane certification-basis requirements. One particular area of concern is that installation of OFCR compartments changes the compartment volume in the overhead area of the airplane. The applicant must comply with the pressurized compartment loads requirements of § 25.365(e), (f), and (g) for the OFCR compartment, as well as for any other airplane compartments whose decompression characteristics are affected by the installation of an OFCR compartment. Compliance with § 25.813 emergency exit access requirements must be demonstrated for all phases of flight during which occupants will be present.

The configuration includes a seat installed adjacent to the OFCR compartment exit which will be occupiable during TT&L. It should be noted that the emergency landing conditions requirements of §§ 25.561(d) and 25.562(c)(8)apply to this configuration. Deformations resulting from required static and dynamic structural tests must not impede rapid evacuation of the OFCR compartment occupants. Seat deformations must not prevent opening of the secondary escape hatch or rapid evacuation through the secondary escape route.

Section 25.785(h)(2) mandates that the flight attendant seats required by the operating rules be located in a position that provides a direct view of the cabin area for which the flight attendant is responsible. Since the OFCR compartment will be occupied only by trained crewmembers, the FAA does not consider this requirement applicable to the seating area in the OFCR compartment.

Section 25.787(a) requires each stowage compartment in the passenger cabin, except for underseat and overhead stowage compartments for passenger convenience, to be completely enclosed. This requirement does not apply to the flight deck, because flight crewmembers must be able to quickly access items to better perform their duties. Flight crewmembers occupying the OFCR compartment will not be performing flight deck duties however. Therefore, stowage compartments in the OFCR compartment, except for underseat compartments for occupant convenience, should be completely enclosed. This will provide occupants of the OFCR compartment a similar level of safety to that provided to passengers on the main deck. Special Condition 20 contains this requirement.

Section 25.811(c) requires that means be provided to assist occupants in locating the exits in conditions of dense smoke. Section 25.812(e) requires floor proximity emergency escape path marking to provide guidance for passengers when all sources of illumination above 4 feet from the cabin aisle floor are totally obscured. The FAA considers that the current OFCR compartment design is sufficient in regard to these regulations. The two OFCR compartment seats are only a couple of steps away from the stairway and once a trained flight crewmember is at the top of the stairway, the stairway itself will guide him/her to the main deck. Once the crewmember is on the main deck, floor proximity lighting and exit marker signs, which are less than 4 feet above the floor, are provided.

Section 25.813(e) prohibits installation of interior doors between passenger compartments, but the FAA has historically found flightcrew rest-compartment doors to be acceptable, because flightcrew rest compartments are not passenger compartments. Special Conditions 2 and 16 provide requirements for flightcrew rest-compartment doors which are considered to provide an appropriate level of safety to OFCR compartment occupants.

Sections 25.1443, 25.1445, and 25.1447 describe oxygen requirements for flightcrew, passengers, and cabin attendants. Flight crewmembers occupying the OFCR compartment are not on duty, and therefore are considered passengers in determining compliance with these oxygen regulations.

As discussed above, these special conditions are applicable to the 787. Should Boeing apply at a later date for a change to the type certificate to include another model incorporating the same novel or unusual design features, these special conditions would apply to that model as well.

This action affects only certain novel or unusual design features of the 787. It is not a rule of general applicability.

The authority citation for these special conditions is as follows:

Accordingly, the Federal Aviation Administration (FAA) proposes the following special conditions as part of the type certification basis for the Boeing Model 787-8 airplanes with an OFCR compartment installed adjacent to or immediately aft of the first pair of exits (Door 1).

1. During flight, occupancy of the OFCR compartment is limited to the total number of installed bunks and seats in the compartment, and that are approved to the maximum flight-loading conditions. During TT&L, occupancy of the OFCR compartment is limited to the total number of installed seats approved for the flight- and ground-load conditions, and emergency-landing conditions. Therefore, the OFCR compartment is limited to a maximum of four crewmembers during flight, and two flight crew members during TT&L.

(a) Appropriate placards must be located inside and outside each entrance to the OFCR compartment to indicate:

(1) The maximum number of crewmembers allowed during flight and the maximum number of flight crewmembers allowed during TT&L.

(2) Occupancy is restricted to crewmembers the pilot in command has determined to be both trained in the emergency procedures for the OFCR compartment and able to rapidly use the evacuation routes.

(3) Smoking is prohibited in the OFCR compartment.

(4) Stowage in the OFCR compartment area is limited to crew personal luggage. The stowage of cargo or passenger baggage is not allowed.

(b) At least one ashtray must be located on both the inside and the outside of any entrance to the OFCR compartment.

(c) A limitation in the airplane flight manual must be established to restrict occupancy to crewmembers the pilot in command has determined to be both trained in the emergency procedures for the OFCR compartment and able to rapidly use the evacuation routes of the OFCR compartment.

2. The following requirements are applicable to OFCR compartment door(s):

(a) A means for any door installed between the OFCR compartment and the passenger cabin to be quickly opened from inside the OFCR compartment, even when crowding from an emergency evacuation occurs at each side of the door.

(b) Doors installed across emergency egress routes must have a means to latch them in the open position. The latching means must be able to withstand the loads imposed upon it when the door is subjected to the ultimate inertia forces, relative to the surrounding structure, listed in § 25.561(b).

(c) A placard must be displayed in a conspicuous place on the outside of the entrance door of the OFCR compartment, and on any other door(s) installed across emergency egress routes of the OFCR compartment, requiring those doors to be latched open during TT&L when the OFCR compartment is occupied.

(1) This requirement does not apply to emergency-escape hatches installed in the floor of the OFCR compartment.

(2) A placard must be displayed in a conspicuous place on the outside of the entrance door to the OFCR compartment that requires it to be closed and locked when it is not occupied.

(3) Procedures for meeting these requirements must be transmitted to the operator for incorporation into its training programs and appropriate operational manuals.

(d) For all doors installed in the OFCR compartment, a means must be in place to preclude anyone from being trapped inside the OFCR compartment. If a locking mechanism is installed, it must be capable of being unlocked from the outside without the aid of special tools. The lock must not prevent opening from the inside of the OFCR compartment at any time.

3. In addition to the requirements of § 25.562 for seats, which are occupiable during takeoff and landing, and restraint systems, the OFCR compartment structure must be compatible with the loads imposed by the seats as a result of the conditions specified in § 25.562(b).

4. At least two emergency evacuation routes must be available and which could be used by each occupant of the OFCR compartment to rapidly evacuate to the main cabin. These evacuation routes must be able to be closed from the main passenger cabin after evacuation. In addition—

(a) The routes must be located with sufficient separation within the OFCR compartment to minimize the possibility of an event either inside or outside of the OFCR compartment rendering both routes inoperative.

Compliance with requirements of Special Condition 4(a) may be shown by inspection or by analysis. Regardless of which method is used, the maximum acceptable distance between flightcrew-rest compartment exits is 60 feet.

Inspection may be used to show compliance with Special Condition 4(a). An inspection finding that an OFCR compartment has evacuation routes located so that each occupant of the seats and berths has an unobstructed route to at least one of the OFCR compartment exits, regardless of the location of a fire, would be reason for a finding of compliance. A fire within a berth that only blocks the occupant of that berth from exiting the berth need not be considered. Therefore, flightcrew rest-compartment exits that are located at opposite ends (i.e., adjacent to opposite end walls) of the OFCR compartment would require no further review or analysis with regard to exit separation.

Analysis must show that the OFCR compartment configuration and interior features allow all occupants of the OFCR compartment to escape the compartment in the event of a hazard inside or outside of the compartment. Elements to consider in this evaluation are as follows:

(1) Fire inside or outside the OFCR compartment, considered separately, and the design elements used to reduce the available fuel for the fire.

(2) Design elements used to reduce fire-ignition sources in the OFCR compartment.

(3) Distribution and quantity of emergency equipment within the OFCR compartment.

(4) Structural failure or deformation of components that could block access to the available evacuation routes (e.g., seats, folding berths, contents of stowage compartments, etc).

(5) An incapacitated person blocking the evacuation routes.

(6) Any other foreseeable hazard not identified above that could cause the evacuation routes to be compromised.

Analysis must consider design features affecting access to the evacuation routes. Possibilities for design components affecting evacuation that should be considered include, but are not limited to, seat deformations (reference §§ 25.561(d) and 25.562(c)(8)), seat-back break-over, rigid structure that reduces access from one part of the compartment to another, anditems known to be the cause of potential hazards. Factors that also should be considered are availability of emergency equipment to address fire hazards; availability of communications equipment; supplemental restraint devices to retain items of mass that, if broken loose, could hinder evacuation; and load-path isolation between components containing evacuation routes.

Analysis of fire threats should be used in determining placement of required fire extinguishers and protective breathing equipment (PBE). This analysis should consider the possibility of fire in any location in the OFCR compartment. The location and quantity of PBE equipment and fire extinguishers should allow occupants located in any approved seats or berths access to the equipment necessary to fight a fire in the OFCR compartment.

The intent of this special condition is to provide sufficient exit-route separation. Therefore, the exit-separation analysis described above should not be used to approve OFCR-compartment exits that have less physical separation (measured between the centroid of each outlet opening) than the minimums prescribed below, unless compensating features are identified and submitted to the FAA for evaluation and approval.

For an OFCR compartment with one outlet located near the forward or aft end of the compartment (as measured by having the centroid of the exit opening within 20 percent of the forward or aft end of the total OFCR-compartment length), the outlet separation from one outlet to the other should not be less than 50 percent of the total OFCR-compartment length.

For OFCR compartments with neither required flightcrew rest-compartment outlet located near the forward or aft end of the compartment (as measured by not having the centroid of either outlet opening within 20 percent of the forward or aft end of the total OFCR-compartment length), the outlet separation from one outlet to the other should not be less than 30 percent of the total OFCR-compartment length.

(b) The routes must be designed to minimize the possibility of blockage, which might result from fire, mechanical or structural failure, or persons standing below or against the flightcrew-rest compartment outlets. One of the two OFCR compartment outlets should not be located where normal movement or evacuation by passengers occurs (main aisle, cross aisle, or galley complex, for example) that would impede egress from the OFCR compartment. If an evacuation route is in an area where normal movement or evacuation of passengers occurs, it must be demonstrated that passengers would not impede egress to the main deck. If low headroom is at or near the evacuation route, provisions must be made to prevent or to protect occupants of the OFCR compartment from head injury. Use of evacuation routes must not depend on any powered device. If an OFCR-compartment outlet is over an area of passenger seats, a maximum of five passengers may be displaced from their seats temporarily during the process of evacuating an incapacitated person(s). If such an evacuation procedure involves the evacuee stepping on seats, the seats must not be damaged to the extent that they would not be acceptable for occupancy during an emergency landing.

(c) Emergency evacuation procedures, including procedures for emergency evacuation of an incapacitated occupant from the OFCR compartment, must be established. The applicant must transmit all of these procedures to the operator for incorporation into its training programs and appropriate operational manuals.

(d) A limitation must be included in the airplane flight manual or other suitable means to require that crewmembers are trained in the use of the OFCR-compartment evacuation routes. This training must instruct them to ensure that the OFCR compartment (including seats, doors, etc.) is in its proper TT&L configuration during TT&L.

(e) In the event no flight attendant is present in the area around the door to the OFCR compartment, and also during an emergency, including an emergency evacuation, a means must be available to prevent passengers on the main deck from entering the OFCR compartment.

(f) Doors or hatches separating the OFCR compartment from the main deck must not adversely affect evacuation of occupants on the main deck (slowing evacuation by encroaching into aisles, for example) or cause injury to those occupants during opening or while opened.

(g) The means of opening doors and hatches to the OFCR compartment must be simple and obvious. The OFCR compartment doors and hatches must be able to be closed from the main passenger cabin.

5. A means must be available for evacuating an incapacitated person (representative of a 95th percentile male) from the OFCR compartment to the passenger cabin floor.

(a) Such an evacuation must be demonstrated for all evacuation routes. A crewmember (a total of one assistant within the OFCR compartment) may provide assistance in the evacuation. Additional assistance may be provided by up to three persons in the main passenger compartment. These additional assistants must be standing on the floor while providing assistance. For evacuation routes with stairways, the additional assistants may ascend up to one half the elevation change from the main deck to the OFCR compartment, or to the first landing, whichever is lower.

6. The following signs and placards must be provided in the OFCR compartment and they must meet the following criteria:

(a) At least one exit sign, located near each OFCR compartment outlet, meeting the emergency lighting requirements of § 25.812(b)(1)(i). One allowable exception would be a sign with reduced background area of no less than 5.3 square inches (excluding the letters), provided that it is installed so that the material surrounding the exit sign is light in color (white, cream, light beige, for example). If the material surrounding the exit sign is not light in color, a sign with a minimum of a one-inch-wide background border around the letters would be acceptable. Another allowable exception is a sign with a symbol that the FAA has determined to be equivalent for use as an exit sign in an OFCR compartment.

(b) An appropriate placard located conspicuously on or near each OFCR-compartment door or hatch that defines the location and the operating instructions for access to and operation of the outlet door or hatch.

(c) Placards must be readable from a distance of 30 inches under emergency lighting conditions.

(d) The door or hatch handles and operating-instruction placards required by Special Condition 6(b) of these special conditions must be illuminated to at least 160 microlamberts under emergency lighting conditions.

7. A means must be available, in the event of failure of the aircraft's main power system, or of the normal OFCR compartment lighting system, for emergency illumination to be automatically provided for the OFCR compartment.

(a) This emergency illumination must be powered independently of the main lighting system.

(b) The sources of general cabin illumination may be common to both the emergency and the main lighting systems if the power supply to the emergency lighting system is independent of the power supply to the main lighting system.

(c) The illumination level must be sufficient to allow occupants of the OFCR compartment to locate and move to the main passenger cabin floor by means of each evacuation route.

(d) The illumination level must be sufficient, with the privacy curtains in the closed position, for each occupant of the OFCR compartment to locate a deployed oxygen mask.

8. A means must be available for two-way voice communications between crewmembers on the flight deck and occupants of the OFCR compartment. Two-way communications must also be available between occupants of the OFCR compartment and each flight attendant station in the passenger cabin that is required per § 25.1423(g) to have a public-address-system microphone. In addition, the public-address system must include provisions to provide only the relevant information to the crewmembers in the OFCR compartment (e.g.,fire in flight, aircraft depressurization, preparation of the compartment for landing,etc.). That is, provisions must be made so that occupants of the OFCR compartment will not be disturbed with normal, non-emergency announcements made to the passenger cabin.

9. A means must be available for manual activation of an aural emergency alarm system, audible during normal and emergency conditions, to enable crewmembers on the flight deck and at each pair of required floor-level emergency exits to alert occupants of the OFCR compartment of an emergency situation. Use of a public address or crew interphone system will be acceptable, provided an adequate means of differentiating between normal and emergency communications is incorporated. The system must be powered in flight, after the shutdown or failure of all engines and auxiliary power units, for a period of at least ten minutes.

10. A means, readily detectable by seated or standing occupants of the OFCR compartment, must be in place to indicate when seat belts should be fastened. Seatbelt-type restraints must be provided for berths and must be compatible with the sleeping position during cruise conditions. A placard on each berth must require that these restraints be fastened when occupied. If compliance with any of the other requirements of these special conditions is predicated on specific head position, a placard must identify that head position.

11. In lieu of the requirements specified in § 25.1439(a) pertaining to isolated compartments, and to provide a level of safety equivalent to that provided to occupants of an isolated galley, the following equipment must be provided in the OFCR compartment:

(a) At least one approved, hand-held fire extinguisher appropriate for the kinds of fires likely to occur.

(b) Two PBE devices suitable for firefighting, or one PBE for each hand-held fire extinguisher, whichever is greater. All PBE devices must be approved to Technical Standard Order (TSO)-C116 or equivalent.

(c) One flashlight.

12. A smoke- or fire-detection system (or systems) must be provided that monitors each occupiable space within the OFCR compartment, including those areas partitioned by curtains or doors. Flight tests must be conducted to show compliance with this requirement. If a fire occurs, each system (or systems) must provide:

(a) A visual indication to the flight deck within one minute after the start of a fire.

(b) An aural warning in the OFCR compartment.

(c) A warning in the main passenger cabin. This warning must be readily detectable by a flight attendant, taking into consideration the locations of flight attendants throughout the main passenger compartment during various phases of flight.

13. A means to fight a fire must be provided. This can be either a built-in extinguishing system or a manual, hand-held extinguishing system.

(a) For a built-in extinguishing system:

(1) The system must have adequate capacity to suppress a fire considering the fire threat, volume of the compartment, and the ventilation rate. The system must have sufficient extinguishing agent to provide an initial knockdown and suppression environment per the minimum performance standards that have been established for the agent being used. In addition, certification flight testing will verify the acceptable duration that the suppression environment can be maintained.

(2) If the capacity of the extinguishing system does not provide effective fire suppression that will last for the duration of flight from the farthest point in route to the nearest suitable landing site expected in service, an additional manual firefighting procedure must be established. For the built-in extinguishing system, the time duration for effective fire suppression must be established and documented in the firefighting procedures in the airplane flight manual. If the duration of time for demonstrated effective fire suppression provided by the built-in extinguishing agent will be exceeded, the firefighting procedures must instruct the crew to:

(i) Enter the OFCR compartment at the time that demonstrated fire suppression effectiveness will be exceeded.

(ii) Check for and extinguish any residual fire.

(iii) Confirm that the fire is out.

(b) For a manual, hand-held extinguishing system (designed as the sole means to fight a fire or to supplement a built-in extinguishing system of limited suppression duration) for the OFCR compartment:

(1) A limitation must be included in the airplane flight manual or other suitable means requiring that crewmembers be trained in the firefighting procedures.

(2) The OFCR compartment design must allow crewmembers equipped for firefighting to have unrestricted access to all parts of the OFCR compartment.

(3) The time for a crewmember on the main deck to react to the fire alarm, don the firefighting equipment, and gain access to the OFCR compartment must not exceed the time it would take for the compartment to become filled with smoke, thus making it difficult to locate the fire source.

(4) Approved procedures describing methods for searching the OFCR compartment for fire source(s) must be established. These procedures must be transmitted to the operator for incorporation into its training programs and appropriate operational manuals.

14. A means must be provided to prevent hazardous quantities of smoke or extinguishing agent originating in the OFCR compartment from entering any other occupiable compartment.

(a) Small quantities of smoke may penetrate from the OFCR compartment into other occupied areas during the one-minute smoke detection time.

(b) A provision in the firefighting procedures must ensure that all doors and hatches at the OFCR compartment outlets are closed after evacuation of the compartment and during firefighting to minimize smoke and extinguishing agent entering other occupiable compartments.

(c) All smoke entering any occupiable compartment when access to the OFCR compartment is open for evacuation must dissipate within five minutes after the access to the OFCR compartment is closed.

(d) Hazardous quantities of smoke may not enter any occupied compartment during access to manually fight a fire in the OFCR compartment. The amount of smoke entrained by a firefighter exiting the OFCR compartment is not considered hazardous.

(e) Flight tests must be conducted to show compliance with this requirement.

15. A supplemental oxygen system within the OFCR compartment must provide the following:

(a) At least one mask for each seat and berth in the OFCR compartment.

(b) If a destination area (such as a changing area) is provided in the OFCR compartment, an oxygen mask must be readily available for each occupant who can reasonably be expected to be in the destination area (with the maximum number of required masks within the destination area being limited to the placarded maximum occupancy of the OFCR compartment).

(c) An oxygen mask must be readily accessible to each occupant who can reasonably be expected to be moving from the main cabin into the OFCR compartment, moving around within the OFCR compartment, or moving from the OFCR compartment to the main cabin.

(d) The system must provide an aural and visual alert to warn occupants of the OFCR compartment to don oxygen masks in the event of decompression. The aural and visual alerts must activate concurrently with deployment of the oxygen masks in the passenger cabin. To compensate for sleeping occupants, the aural alert must be heard in each section of the OFCR compartment and must sound continuously for a minimum of five minutes or until a reset switch within the OFCR compartment is activated. A visual alert that informs occupants that they must don an oxygen mask must be visible in each section.

(e) A means must be in place by which oxygen masks can be manually deployed from the flight deck.

(f) Approved procedures must be established for OFCR occupants in the event of decompression. These procedures must be transmitted to the operator for incorporation into its training programs and appropriate operational manuals.

(g) The supplemental oxygen system for the OFCR compartment must meet the same 14 CFR part 25 regulations as the supplemental oxygen system for the passenger cabin occupants except for the 10 percent additional masks requirement of 14 CFR 25.1447(c)(1).

(h) The illumination level of the normal OFCR compartment-lighting system must automatically be sufficient for each occupant of the compartment to locate a deployed oxygen mask.

16. The following additional requirements apply to OFCR compartments that are divided into several sections by the installation of curtains or partitions:

(a) A placard is required adjacent to each curtain that visually divides or separates, for example, for privacy purposes, the OFCR compartment into multiple sections. The placard must require that the curtain(s) remains open when the section it creates is unoccupied. The vestibule section adjacent to the stairway is not considered a private section and, therefore, does not require a placard.

(b) For each section of the OFCR compartment created by the installation of a curtain, the following requirements of these special conditions must be met with the curtain open or closed:

(1) No-smoking placard requirement (Special Condition 1).

(2) Emergency illumination requirement (Special Condition 7).

(3) Emergency alarm-system requirement (Special Condition 9).

(4) Seatbelt-fasten signal or return-to-seat signal as applicable requirement (Special Condition 10).

(5) Smoke- or fire-detection system requirement (Special Condition 12).

(6) Oxygen-system requirement (Special Condition 15).

(c) OFCR compartments that are visually divided to the extent that evacuation could be adversely affected must have exit signs directing occupants to the primary stairway outlet. The exit signs must be provided in each separate section of the OFCR compartment, except for curtained bunks, and must meet requirements of § 25.812(b)(1)(i). An exit sign with reduced background area or a symbolic exit sign, as described in Special Condition 6(a), may be used to meet this requirement.

(d) For sections within an OFCR compartment created by the installation of a rigid partition with a door separating the sections, the following requirements of these special conditions must be met with the door open or closed:

(1) A secondary evacuation route from each section to the main deck, or the applicant must show that any door between the sections precludes anyone from being trapped inside a section of the compartment. Removal of an incapacitated occupant from within this area must be considered. A secondary evacuation route from a small room designed for only one occupant for a short time duration, such as a changing area or lavatory, is not required, but removal of an incapacitated occupant from within such a small room must be considered.

(2) Any door between the sections must be shown to be openable when crowded against, even when crowding occurs at each side of the door.

(3) No more than one door may be located between any seat or berth and the primary stairway door.

(4) In each section, exit signs meeting requirements of § 25.812(b)(1)(i), or shown to have an equivalent level of safety, must direct occupants to the primary stairway outlet. An exit sign with reduced background area or a symbolic exit sign, as described in Special Condition 6(a), may be used to meet this requirement.

(5) Special Conditions 1 (no-smoking placards), 7 (emergency illumination), 9 (emergency alarm system), 10 (fasten-seatbelt signal or return-to-seat signal as applicable), 12 (smoke- or fire-detection system), and 15 (oxygen system) must be met with the OFCR compartment door open or closed.

(6) Special Conditions 8 (two-way voice communication) and 11 (emergency firefighting and protective equipment) must be met independently for each separate section except for lavatories or other small areas that are not intended to be occupied for extended periods of time.

17. If a waste-disposal receptacle is fitted in the OFCR compartment, it must be equipped with an automatic fire extinguisher that meets the performance requirements of § 25.854(b).

18. Materials (including finishes or decorative surfaces applied to the materials) must comply with flammability requirements of § 25.853 as amended by Amendment 25-116. Seat cushions and mattresses must comply with the flammability requirements of § 25.853(c) as amended by Amendment 25-116 and the test requirements of part 25, appendix F, part II, or other equivalent methods.

19. The addition of a lavatory within the OFCR compartment would require the lavatory to meet the same requirements as those for a lavatory installed on the main deck except with regard to Special Condition 12 for smoke detection.

20. Each stowage compartment in the OFCR compartment, except for underseat compartments for occupant convenience, must be completely enclosed. All enclosed stowage compartments within the OFCR compartment that are not limited to stowage of emergency equipment or airplane-supplied equipment (i.e.,bedding) must meet the design criteria described in the table below. Enclosed stowage compartments greater than 200ft.3in interior volume are not addressed by this special condition. The in-flight accessibility of very large, enclosed, stowage compartments and the subsequent impact on the crewmembers' ability to effectively reach any part of the compartment with the contents of a hand-held fire-extinguishing system will require additional fire-protection considerations similar to those required for inaccessible compartments such as Class C cargo compartments.

The FAA has determined that notice and opportunity for prior public comment hereon are impracticable because these procedures would significantly delay issuance of the design approval and thus delivery of the affected aircraft. In addition, the substance of these special conditions has been subject to the public comment process previously with no substantive comments received. The FAA therefore finds that good cause exists for making these special conditions effective on issuance.

While we did not precede this with a notice of proposed special conditions, we invite interested people to take part in this action by sending written comments, data, or views. The most helpful comments reference a specific portion of the special conditions, explain the reason for anyrecommended change, and include supporting data.

We will file in the special conditions docket all comments we receive, as well as a report summarizing each substantive public contact with FAA personnel about these special conditions. You can inspect the docket before and after the comment closing date. If you wish to review the docket in person, go to the address in theADDRESSESsection of this document between 8:30 a.m. and 4 p.m., Monday through Friday, except Federal holidays.

We will consider all comments we receive by the closing date for comments. We will consider comments filed late if it is possible to do so without incurring expense or delay. We may change these special conditions based on the comments we receive.

If you want us to let you know we received your mailed comments on these special conditions, send us a pre-addressed, stamped postcard on which the docket number appears. We will stamp the date on the postcard and mail it back to you.

On July 16, 2009, Hoh submitted an application to the FAA's Los Angeles Aircraft Certification Office (LA ACO) for a supplemental type certification (STC) to install an AP/SAS on a Bell model 407 helicopter. The Bell model 407 helicopter is a 14 CFR part 27 Normal category, single turbine engine, conventional helicopter designed for civil operation. This helicopter model is capable of carrying six passengers with one pilot, and has a maximum gross weight of approximately 5,250 pounds, depending on the configuration. The major design features include a 4-blade, soft-in-plane main rotor, a 2-blade anti-torque tail rotor, a skid landing gear, and a visual flight rule (VFR) basic avionics configuration. Hoh proposes to modify a model 407 Bell helicopter by installing a two-axis AP/SAS.

Under 14 CFR 21.115, Hoh must show that the Bell model 407 helicopter, as modified by the installed AP/SAS, continues to meet the 14 CFR 21.101 standards. The baseline of the certification basis for the unmodified Bell model 407 helicopter is listed in Type Certificate Number H2SW. Additionally, compliance must be shown to any applicable equivalent level of safety findings, exemptions, and special conditions, prescribed by the Administrator as part of the certification basis.

If the Administrator finds the applicable airworthiness regulations (that is, 14 CFR part 27), as they pertain to this STC, do not contain adequate or appropriate safety standards for the Bell model 407 helicopter because of a novel or unusual design feature, special conditions are prescribed under § 21.101(d).

In addition to the applicable airworthiness regulations and special conditions, Hoh must show compliance of the AP/SAS STC-altered Bell model 407 helicopter with the noise certification requirements of 14 CFR part 36.

The FAA issues special conditions, as defined in § 11.19, under § 11.38 and they become part of the type certification basis under § 21.101.

The Hoh AP/SAS incorporates novel or unusual design features, for installation in a Bell model 407 helicopter, Type Certificate Number H2SW. This AP/SAS performs non-critical control functions, since this model helicopter has been certificated to meet the applicable requirements independent of this system. However, the possible failure conditions for this system, and their effect on continued safe flight and landing of the helicopter, are more severe than those envisioned by the present rules.

The effect on safety is not adequately covered under § 27.1309 for the application of new technology and new application of standard technology. Specifically, the present provisions of § 27.1309(c) do not adequately address the safety requirements for systems whose failures could result in catastrophic or hazardous/severe-major failure conditions, or for complex systems whose failures could result in major failure conditions.

To comply with the provisions of the special conditions, we require that Hoh provide the FAA with a systems safety assessment (SSA) for the final AP/SAS installation configuration that will adequately address the safety objectives established by the functional hazard assessment (FHA) and the preliminary system safety assessment (PSSA), including the fault tree analysis (FTA). This must ensure that all failure conditions and their resulting effects are adequately addressed for the installed AP/SAS. The SSA process, FHA, PSSA, and FTA are all parts of the overall safety assessment (SA) process discussed in FAA Advisory Circular (AC) 27-1B (Certification of Normal Category Rotorcraft) and Society of Automotive Engineers (SAE) document Aerospace Recommended Practice (ARP) 4761 (Guidelines and Methods for Conducting the Safety Assessment Process on Civil Airborne Systems and Equipment).

These special conditions require that the AP/SAS installed on a Bell model 407 helicopter meet the requirements to adequately address the failure effects identified by the FHA, and subsequently verified by the SSA, within the defined design integrity requirements.

These special conditions are applicable to the Hoh AP/SAS installed as an STC approval, in Bell model 407 helicopter, Type Certificate Number H2SW.

This action affects only certain novel or unusual design features for a Hoh AP/SAS STC installed on one model helicopter. It is not a rule of general applicability and affects only the applicant who applied to the FAA for approval of these features on the helicopter.

The substance of these special conditions has been subjected to the notice and comment period previously and has been derived without substantive change from those previously issued. It is unlikely that prior public comment would result in a significant change from the substance contained herein. Therefore, because a delay would significantly affect the certification of the helicopter, which is imminent, the FAA has determined that prior public notice and comment are unnecessary and impracticable, and good cause exists for adopting these special conditions upon issuance. The FAA is requesting comments to allow interested persons to submit views that may not have been submitted in response to the prior opportunities for comment.

The authority citation for these special conditions is as follows:

Accordingly, pursuant to the authority delegated to me by the Administrator, the following special conditions are issued as part of the Hoh Aeronautics, Inc. (Hoh) supplemental type certificate basis for the installation of an autopilot/stability augmentation system (AP/SAS) on the Bell Helicopter Textron Canada Limited (Bell) model407 helicopter, Type Certificate Number H2SW.

The AP/SAS must be designed and installed so that the failure conditions identified in the Functional Hazard Assessment and verified by the System Safety Assessment, after design completion, are adequately addressed in accordance with the “failure condition categories” and “requirements” sections (including the system design integrity, design environmental, and test and analysis requirements) of these special conditions.

Failure Condition CategoriesFailure conditions are classified, according to the severity of their effects on the rotorcraft, into one of the following categories:

1.No Effect—Failure conditions that would have no effect on safety; for example, failure conditions that would not affect the operational capability of the rotorcraft or increase crew workload; however, could result in an inconvenience to the occupants, excluding the flight crew.

2.Minor—Failure conditions which would not significantly reduce rotorcraft safety, and which would involve crew actions that are well within their capabilities. Minor failure conditions would include, for example, a slight reduction in safety margins or functional capabilities, a slight increase in crew workload, such as, routine flight plan changes, or result in some physical discomfort to occupants.

3.Major—Failure conditions which would reduce the capability of the rotorcraft or the ability of the crew to cope with adverse operating conditions to the extent that there would be, for example, a significant reduction in safety margins or functional capabilities, a significant increase in crew workload or result in impairing crew efficiency, physical distress to occupants, including injuries, or physical discomfort to the flight crew.

4.Hazardous/Severe-Major—Failure conditions which would reduce the capability of the rotorcraft or the ability of the crew to cope with adverse operating conditions to the extent that there would be:

• A large reduction in safety margins or functional capabilities;

• Physical distress or excessive workload that would impair the flight crew's ability to the extent that they could not be relied on to perform their tasks accurately or completely; or,

• Possible serious or fatal injury to a passenger or a cabin crewmember, excluding the flight crew.

5.Catastrophic—Failure conditions which would result in multiple fatalities to occupants, fatalities or incapacitation to the flight crew, or result in loss of the rotorcraft.

The present §§ 27.1309(b) and (c) regulations do not adequately address the safety requirements for systems whose failures could result in “catastrophic” or “hazardous/severe-major” failure conditions, or for complex systems whose failures could result in “major” failure conditions. The current regulations are inadequate because when §§ 27.1309(b) and (c) were promulgated, it was not envisioned that this type of rotorcraft would use systems that are complex or whose failure could result in “catastrophic” or “hazardous/severe-major” effects on the rotorcraft. This is particularly true with the application of new technology, new application of standard technology, or other applications not envisioned by the rule that affect safety.

Hoh must provide the FAA with a systems safety assessment (SSA) for the final AP/SAS installation configuration that will adequately address the safety objectives established by the functional hazard assessment (FHA) and the preliminary system safety assessment (PSSA), including the fault tree analysis (FTA). This will show that all failure conditions and their resulting effects are adequately addressed for the installed AP/SAS.

Hoh must comply with the existing requirements of § 27.1309 for all applicable design and operational aspects of the AP/SAS with the failure condition categories of “no effect,” and “minor,” and for non-complex systems whose failure condition category is classified as “major.” Hoh must comply with the requirements of these special conditions for all applicable design and operational aspects of the AP/SAS with the failure condition categories of “catastrophic” and “hazardous severe/major,” and for complex systems whose failure condition category is classified as “major.”

A complex system is a system whose operations, failure conditions, or failure effects are difficult to comprehend without the aid of analytical methods (for example, FTA, Failure Modes and Effect Analysis, FHA).

Each of the failure condition categories defined in these special conditions relate to the corresponding aircraft system integrity requirements. The system design integrity requirements, for the Hoh AP/SAS, as they relate to the allowed probability of occurrence for each failure condition category, and the proposed software design assurance level, are as follows:

• “Major”—For systems with “major” failure conditions, failures resulting in these major effects must be shown to be remote, a probability of occurrence on the order of between 1 × 10−5to 1 × 10−7failures/hour, and associated software must be developed to the RTCA/DO-178B (Software Considerations in Airborne Systems And Equipment Certification) Level C software design assurance level.

• “Hazardous/Severe-Major”—For systems with “hazardous/severe-major” failure conditions, failures resulting in these hazardous/severe-major effects must be shown to be extremely remote, a probability of occurrence on the order of between 1 × 10−7to 1 × 10−9failures/hour, and associated software must be developed to the RTCA/DO-178B (Software Considerations in Airborne Systems and Equipment Certification) Level B software assurance level.

• “Catastrophic”—For systems with “catastrophic” failure conditions, failures resulting in these catastrophic effects must be shown to be extremely improbable, a probability of occurrence on the order of 1 × 10−9failures/hour or less, and associated software must be developed to the RTCA/DO-178B (Software Considerations in Airborne Systems and Equipment Certification) Level A design assurance level.

The AP/SAS system equipment must be qualified to the appropriate environmental level per RTCA document DO-160F (Environmental Conditions and Test Procedures for Airborne Equipment), for all relevant aspects. This is to show that the AP/SAS system performs its intended function under any foreseeable operating condition, which includes the expected environment in which the AP/SAS is intended to operate. Some of the main considerations for environmental concerns are installation locations and the resulting exposure to environmental conditions for the AP/SAS system equipment, including considerations for other equipment that may be affected environmentally by the AP/SAS equipment installation.The level of environmental qualification must be related to the severity of the considered failure conditions and effects on the rotorcraft.

Compliance with the requirements of these special conditions may be shown by a variety of methods, which typically consist of analysis, flight tests, ground tests, and simulation, as a minimum. Compliance methodology is related to the associated failure condition category. If the AP/SAS is a complex system, compliance with the requirements for failure conditions classified as “major” may be shown by analysis, in combination with appropriate testing to validate the analysis. Compliance with the requirements for failure conditions classified as “hazardous/severe-major” may be shown by flight-testing in combination with analysis and simulation, and the appropriate testing to validate the analysis. Flight tests may be limited for “hazardous/severe-major” failure conditions and effects due to safety considerations. Compliance with the requirements for failure conditions classified as “catastrophic” may be shown by analysis, and appropriate testing in combination with simulation to validate the analysis. Very limited flight tests in combination with simulation are used as a part of a showing of compliance for “catastrophic” failure conditions. Flight tests are performed only in circumstances that use operational variations, or extrapolations from other flight performance aspects to address flight safety.

These special conditions require that the Hoh AP/SAS system installed on a Bell model 407 helicopter, Type Certificate Number H2SW, meet these requirements to adequately address the failure effects identified by the FHA, and subsequently verified by the SSA, within the defined system design integrity requirements.

1. In Order No. 741, the Commission adopted reforms to credit policies used in organized wholesale electric power markets.1 In the instant order, the Commission addresses requests for rehearing of Order No. 741. The Commission grants rehearing as to its establishment of a $100 million corporate family cap on unsecured credit and extends the deadline for complying with the requirement regarding the ability to offset market obligations to September 30, 2011, with the relevant tariff revisions to take effect January 1, 2012, but denies rehearing in all other respects, as discussed below.

2. As noted in Order No. 741, the Commission must ensure that all rates charged for the transmission or sale of electric energy in interstate commerce are just, reasonable, and not unduly discriminatory or preferential,2 and clear and consistent credit policies are an important element in ensuring rates that are just, reasonable, and not unduly discriminatory or preferential. The management of risk and credit requires a balance between protecting the markets from costly defaults3 and ensuring that barriers to entry for market participants are not prohibitive.

3. The Commission provided guidance to the industry on appropriate credit policies in Order No. 8884 and thePolicy Statement on Electric Creditworthiness. 5 Credit policies among the organized wholesale electric markets, however, developed in an incremental manner leading to varying credit practices. Because these variable practices posed a heightened risk to the stability of the organized wholesale electric markets, and especially in light of recent events in the financial markets, the Commission proposed that the different credit practices among the organized wholesale electric markets be strengthened.

4. In Order No. 741, the Commission directed the regional transmission organizations (RTO) and independent system operators (ISO) to revise their tariffs to reflect the following reforms: implementation of shortened settlement timeframes, restrictions on the use of unsecured credit, elimination of unsecured credit in all financial transmission rights (FTR) or equivalent markets,6 adoption of steps to addressthe risk that RTOs and ISOs may not be allowed to use netting and set-offs, establishment of minimum criteria for market participation, clarification regarding the organized markets' administrators' ability to invoke “material adverse change” clauses to demand additional collateral from participants, and adoption of a two-day grace period for “curing” collateral calls.

5. Requests for rehearing were filed by the New York Independent System Operator, Inc. (NYISO), Morgan Stanley Capital Group Inc. (Morgan Stanley), Financial Marketers,7 the American Public Power Association (APPA), East Texas Cooperatives, Six Cities,8 Midwest Transmission Dependent Utilities (Midwest TDUs),9 Twin Cities,10 and Southern California Edison Company (SCE). The New York Transmission Owners filed an answer.11

6. Six Cities and Morgan Stanley seek rehearing of the Commission's requirement that each ISO and RTO revise its tariff provisions to reduce the extension of unsecured credit to no more than $50 million per market participant and $100 million per corporate family.12

7. Morgan Stanley argues that the Commission should eliminate the $50 million market participant cap. Morgan Stanley contends that the separate caps—$50 million for a market participant and $100 million for a corporate family—will encourage entities to reconfigure their corporate structures to avoid the $50 million per entity cap and instead use the $100 million corporate family cap. Morgan Stanley asserts that such a structure will increase costs to market participants, making the $50 million cap illusory and generating unnecessary burdens for ISOs and RTOs without a corresponding benefit.13

8. Conversely, Six Cities argue that the Commission should eliminate the $100 million corporate family cap. They assert that the Commission did not provide a rational explanation for permitting affiliated entities to impose a greater degree of risk than individual entities, and so should not have allowed the $100 million corporate family cap. Six Cities also argues that the $100 million corporate family cap could run up to $600 million if there was a default in every ISO/RTO.14

9. The Commission grants rehearing on this issue. Specifically, the Commission is persuaded that an entity reconfiguring its corporate structure, to avoid the $50 million single-entity cap and to instead take advantage of the $100 million corporate family cap, raises a significant risk that is inconsistent with Order No. 741's intent to lower risk. Additionally, the Commission has taken into consideration Six Cities' point that affiliated entities should not be able to impose a greater risk to the stability of organized wholesale markets than individual entities. We agree that the cumulative danger posed by a $100 million corporate family cap on the use of unsecured credit poses an unacceptable risk to the organized wholesale electric markets; many market participants either themselves or through subsidiaries participate in multiple markets. We agree with Six Cities that the default of a single entity could result in a significant cumulative unsecured exposure if we were to allow the higher $100 million corporate cap for unsecured credit originally permitted in Order No. 741. Socializing such losses to other market participants could lead to even more significant market disruption than merely the default of a single entity. The Commission therefore grants rehearing and finds that the limit on the use of unsecured credit should be no more than $50 million per entity, including the corporate family to which an entity belongs.15 This is the approach originally suggested by the Commission in its Notice of Proposed Rulemaking16 and the Commission is persuaded it should return to this proposal.

10. APPA, Midwest TDUs, and Six Cities request rehearing on the Commission's elimination of unsecured credit in the FTR markets.17 They argue that the Commission erred in eliminating unsecured credit for all participants, particularly load-serving entities.

11. APPA and Midwest TDUs argue that the elimination of unsecured credit in FTR markets will make it financially prohibitive for load-serving entities to obtain and hold long-term FTRs of ten years or more (LTTR).18 They contend that this is inconsistent with the Commission's responsibilities, under section 217(b)(4) of the Federal Power Act (FPA)19 and Order No. 681,20 to enable load-serving entities to secure firm transmission rights on a long-term basis for long-term power supply arrangements to serve their load. At a minimum, they contend, the Commission should direct RTOs and ISOs to implement Order No. 741 in compliance with section 217(b)(4) and Order No. 681. Further, APPA and Midwest TDUs argue that they be allowed to request exemptions under Order No. 741 to ensure that a load-serving entity's access to LTTRs is not impaired.

12. Midwest TDUs further argue that ISOs and RTOs manage risk in the FTR markets by determining the creditworthiness of individual FTR market participants. Moreover, Midwest TDUs contend that load-serving entities are less of a credit risk because their bond resolutions give explicit paymentpriority to energy and transmission market service providers over bondholders, in effect giving RTOs/ISOs a security interest in their accounts receivable. APPA also contends that, although the Commission noted the challenges in valuing FTRs, the Commission did not provide guidance in how to address that issue.

13. Six Cities contends that the Commission should not have eliminated unsecured credit for all types and holders of FTRs. Six Cities notes that the CAISO has two types of FTRs: allocated CRRs, which are used by load-serving entities to hedge congestion costs for purchases to serve the needs of native load customers, and auctioned CRRs, which may be purchased by any entity that satisfies CAISO's qualification criteria. Six Cities argues that CAISO should be allowed to differentiate between the two categories in setting credit requirements. Specifically, Six Cities argues that load-serving entities have no obligation to pay for allocated CRRs, thus cannot default. By eliminating unsecured credit for all FTRs without regard to the purpose for purchase, Six Cities argues that the Commission's decision is not reasoned decision-making as required by the Administrative Procedures Act.21

14. The Commission denies rehearing. The Commission is not persuaded that the elimination of unsecured credit in the FTR markets is inconsistent with the statutory directive to facilitate access to long-term FTRs. While section 217(b)(4) directs us to exercise our authority under the FPA to “enable[] load-serving entities” to “secure” FTRs “on a long-term basis,” the statute does not require that we guarantee the availability of unsecured credit, and does not require that we ignore the risks posed by the use of unsecured credit. Denying unsecured credit does not prohibit load-serving entities from securing long-term FTRs, but rather merely requires use of some other form of financing,e.g.,the use of secured credit or the posting of collateral. Moreover, there is nothing in the record to indicate that acquisition of long-term FTRs will be prohibitively expensive. Our reason for eliminating reliance on unsecured credit in the FTR markets is to reduce risk to market participants, including risk to those market participants that are load-serving entities. Those seeking rehearing on this issue have failed to demonstrate that this risk can and should be so readily discounted.

15. Nor is the Commission persuaded that unsecured credit in FTR markets should be allowed for certain market participants based on the “purpose” of the entity engaging in the FTR market. The FTR market exists to hedge,i.e.,manage, risk, but there are no guarantees that such hedges, even for load-serving entities, will themselves have no risk. The risk of adverse FTR market outcomes and potential effects on market participants led us to take these actions initially, and are no more or less applicable to some participants than others based on the “purpose” of the participant.22 Finally, to the extent that certain FTRs have inherently low risk, we expect that the RTO and ISO's credit modeling will result in relatively low collateral requirements.

16. As to the question of how FTRs are valued, as we stated in Order No. 741, this issue is beyond the scope of this proceeding.23 Regarding the Midwest TDUs' argument that where bond resolutions give explicit payment priority to energy and transmission market service providers over bondholders, in effect giving RTOs/ISOs a security interest in their accounts receivable, first, it is not clear that such payment priority would apply in the event of a default in an FTR market. Furthermore, we are not persuaded that giving such payment priority would provide a level of security comparable to the elimination of reliance on unsecured credit.

17. Morgan Stanley, SCE, NYISO, and the New York Transmission Owners seek rehearing of the Commission's directive that, if an ISO/RTO wishes to allow netting of amounts owed to a market participant against amounts owed by that participant, the ISO/RTO must revise its tariff to include one of the following options: (1) Establish a central counterparty; (2) require market participants to provide a security interest in their transactions in order to establish collateral requirements based on net exposure; or (3) propose another alternative, which provides the same degree of protection as the two above-mentioned methods.24

18. NYISO requests clarification that the Commission intended that, in the absence of a counterparty, security interest, or other alternative, netting would only be prohibited across product or service categories. If the Commission does not grant the clarification, NYISO requests rehearing, arguing that an ISO/RTO be allowed to net amounts owed against amounts receivable if supported by the doctrine of recoupment. NYISO contends that, under the doctrine of recoupment, it is inequitable for a debtor to enjoy the benefits of a transaction without also meeting its obligations, so a market participant's benefits from its sales within a category area are lawfully offset by its obligations related to its purchases within the same product category.25 NYISO argues that, in the event of a market participant's bankruptcy, the bankruptcy court would allow netting within a product or service category under the doctrine of recoupment.

19. SCE requests a similar clarification, and questions how “gross obligations” is defined. SCE states that the Commission was not clear whether requiring collateral posted to gross obligations would (i) allow for netting within a given market but not between markets, (ii) allow for netting for transactions deemed not to have participated in the markets (e.g.E-schedules), or (iii) disallow netting both within markets and across markets and require credit obligations to be determined on an absolute gross basis.26

20. SCE also requests that the Commission extend the time for compliance with this tariff revision until October 1, 2012, or alternatively, clarify that parties may move for an extension of time if needed.27

21. Morgan Stanley argues that ISOs and RTOs should not require market participants to post collateral to their gross obligations, especially if they are netting amounts owed against amounts receivable under their tariffs. Morgan Stanley contends that requiring collateral to gross obligations will be very expensive, without corresponding benefits. Morgan Stanley also asserts that “other less costly (and at least as effective) options are available.”28 Morgan Stanley requests in thealternative that if the Commission retains this requirement, then it should allow higher levels of unsecured credit to ameliorate the effects of this provision.

22. The Commission denies rehearing. In Order No. 741, the Commission established requirements to minimize risk in the event of bankruptcy (i.e.,the options noted in paragraph 117 of Order No. 741, and described above in paragraph 17) out of concern that the effect of a default could be exacerbated by a bankruptcy court decision that does not allow netting. Those concerns exist whether netting is performed within a market product category or across market categories. A market administrator must have legal support to net transactions, whether it serves as a counterparty, has been granted a security interest in the transactions, or employs some other solution, in the event of a legal challenge to set-off during a bankruptcy proceeding.29 The record before us does not clearly demonstrate that the availability of netting will depend on whether it is within or across product categories, and therefore we deny rehearing on this issue.

23. Our denial of rehearing is based in part on the testimony we received during the May 2010 technical conference. In response to questioning regarding set-off within product markets, Mr. Stephen Dutton suggested that a bankruptcy court would be most likely to allow netting within product categories if the ISO or RTO was acting in the same capacity with respect to amounts owed and amounts owing.30 In response to Mr. Dutton's comments, Mr. Harold Novikoff asserted that the bankruptcy court would look at a different issue, specifically, whether the ISO or RTO is a party to the transaction.31 Mr. Iskender Catto reiterated Mr. Novikoff's opinion, indicating that a court would look first to the identity of the counterparty, then the role served by the counterparty.32 Based on this testimony, we believe that netting within product categories may put an RTO or an ISO at risk, were it to not adopt one of remedies we specified in Order No. 741.

24. The Commission also denies Morgan Stanley's request for rehearing on the issue of posting collateral based on gross obligations; this was merely one option presented in Order No. 741. The Commission provided two other options to meet its requirements on this matter and expressed its willingness to consider yet others that can be shown to provide the same degree of protections as the two other options set out in Order No. 741. In the absence of the RTO or ISO taking advantage of such options, it is appropriate that credit requirements be set based on gross obligations in order to minimize the risk, and costs, of market participant default and a bankruptcy court decision refusing to allow netting; anything less would not adequately protect the market and participants in the markets.

25. As to SCE's request that the Commission delay the required filing date of a compliance filing regarding this requirement to October 1, 2012, we believe that such an extension is excessive. However, we will extend the date for filing tariff revisions to comply with this requirement related to the ability to offset market obligations to September 30, 2011, with the relevant tariff revisions to take effect January 1, 2012.

26. APPA, Twin Cities, Six Cities, and Financial Marketers seek rehearing on the Commission's determination that each ISO and RTO should include in its tariff language that sets forth specific minimum participation criteria to be eligible to participate in the organized wholesale electric market, such as requirements related to adequate capitalization and risk management controls.33

27. APPA requests that the Commission instruct RTOs and ISOs to avoid unreasonable or onerous conditions on load-serving entities or provide specific exemptions for them if needed. APPA states that smaller, public power load-serving entities present “minimal risk, and related costs,” so they should not have to comply with unreasonable or onerous minimum criteria to participate in the market. Also, a default by such a participant would not pose a risk of significant market disruption.34

28. Twin Cities request that the Commission provide stronger guidance on minimum criteria, and require that the criteria be uniform across ISOs and RTOs. Twin Cities state that market participants that participate in several markets are burdened by participating in multiple stakeholder processes and they risk being treated differently by different markets. Twin Cities request that the Commission establish the minimum participation criteria, similar to that of the Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC), based on tangible net worth. Similar criteria, established by the Commission to apply to all ISO and RTO markets, would provide regulatory certainty, reduce risk, and promote the goal of Order No. 741.35

29. Six Cities requests that the Commission require that minimum participation criteria be tiered or calibrated based on the magnitude of a market participant's positions in the market. Because the size of a participant's positions has an effect on the size of a risk that it poses, there should be a correlation between the market participant's positions and the minimum criteria.36

30. Financial Marketers express concern that the minimum criteria will exclude small and mid-size companies, virtual traders, and new entrants from participating in the RTO/ISO markets. They contend that the Commission has praised such participants,37 and that customers in Midwest ISO have suffered higher prices since Midwest ISO began discouraging virtual trading by allocating high Revenue Sufficiency Guarantee (RSG) charges to virtual transactions.38 Financial Marketers further argue that the stakeholder process will not protect small companies or new entrants, because large utilities will be able to meet any minimum criteria and have a vested interest in excluding competition.

31. Financial Marketers argue that most smaller companies are fully collateralized, and thus pose no threat. They contend that other markets rely on collateral requirements to curb marketrisk, and that the CFTC does not require minimum capitalization.39

32. Financial Marketers also note that ISO New England Inc. (ISO-NE) and PJM Interconnection, LLC (PJM) have previously considered minimum participation criteria, but abandoned their efforts after concluding that they would reduce competition, result in greater market power by existing large companies, and not provide any additional protections to the market.40 Financial Marketers conclude that market participants have developed businesses based on participation in the organized wholesale electric markets, and regulations that would prohibit their participation would result in a regulatory taking that would require compensation.41

33. The Commission denies rehearing. In Order No. 741, the Commission deferred to stakeholder processes the determination of reasonable minimum criteria for market participation.42 Because no market participation criteria have yet to be filed, the Commission cannot determine whether such criteria are or are not reasonable. However, we note that we did not mandate a single set of criteria for all participants in a market,43 and we see value in Six Cities' suggestion that stakeholders consider whether some criteria can be tiered or calibrated based on, for example, the size of a market participant's positions. Such an approach would allow for differentiation based on a market participant's characteristics, but still reduce the market's exposure to the risk of a default. We remind stakeholders that the Commission will review all criteria, including both market-wide criteria and any tiered or calibrated criteria, when such criteria are filed, to ensure that they are just and reasonable and not unduly discriminatory or preferential.

34. East Texas Cooperatives request rehearing on the Commission's establishment of a two-day grace period to “cure” a collateral call.44 East Texas Cooperatives assert that the Commission should not have established a uniform two-day period because it was not supported by sufficient evidence and the requirement will be onerous for small market participants with small staffs and constrained budgets. East Texas Cooperatives argue that most ISOs and RTOs already have two- or three-day cure periods, and the matter should have been left to their discretion. Alternatively, the Commission could establish a uniform three-day “cure” period for all entities or, as a last resort, a three-day period for not-for-profit load-serving entities, such as cooperatives, municipalities, and other public power entities.

35. The Commission denies rehearing. In establishing the two-day cure period in Order No. 741, the Commission carefully weighed the needs of market participants with the need for the mitigation of uncertainty when the organized electric wholesale markets are under stress. As we learned during the financial crisis, a market administrator may request additional collateral when the market is under stress. As a result, timely cure of a collateral deficiency is critical. We also note that the CFTC called for a one-day cure period, while others promoted a three-day cure period, and we found—and continue to find—that the two-day cure period strikes a reasonable balance between mitigating uncertainty in the market and providing for the needs of participants.

36. APPA, Six Cities, and Financial Marketers challenge the Commission's conclusion that Order No. 741 “will not have a significant economic impact on a substantial number of small entities.”45 They contend that the Commission should analyze the effect of Order No. 741 on small entities, as required by the Regulatory Flexibility Act (RFA).46

37. APPA and Six Cities argue that the Commission erred in determining that small utilities within the balancing authority area of an RTO have a choice as to whether to join the RTO. Because large transmission owners are part of the RTO, they argue, small utilities must join to obtain necessary transmission and ancillary services. APPA estimates that more than a thousand public power distribution systems, plus rural electric cooperatives, are located in states served by RTOs and are “small utilities” within the meaning of RFA. APPA also contends that public power systems have unique financial constraints and may not be able to meet the new financial requirements that RTOs might impose.47

38. In support of its argument, Six Cities citesAeronautical Repair Station Ass'n, 48 in which, they state, the court held that even though air carriers were the direct objects of the rule promulgated by the Federal Aviation Administration (FAA), the employees of the contractors and subcontractors were also subject to the rule. The D.C. Circuit concluded that the FAA was required to analyze the effect of the rule on the contractors and subcontractors.49 Six Cities argues that the ISOs and RTOs are analogous to air carriers, and market participants can be compared to the contractors and subcontractors which are also directly regulated by the agency's rule.50

39. Financial Marketers argue that the Commission did not properly analyze the effect of minimum participation criteria on small financial traders under the RFA. Financial Marketers contend that the Commission's directives will push small financial traders out of ISO/RTO markets and prevent market entry by smaller companies.51

40. The RFA requires that, when promulgating a final rule, an agency must conduct an analysis that includes, among other things, “(3) a description of and an estimate of the number of small entities to which the rule will apply or an explanation of why no such estimateis available; * * * and (5) a description of the steps the agency has taken to minimize the significant economic impact on small entities consistent with the stated objectives of applicable statutes * * *.”52

41. Under the RFA, an agency must consider the economic impact on entities directly affected and regulated by the subject regulations. The D.C. Circuit has held that Congress did not, however, intend to require that the agency “consider every indirect effect that any regulation might have on small businesses in any stratum of the national economy.”53 More recently, the Seventh Circuit compared the holdings in several cases considering the RFA, includingAeronautical Repair Station Ass'n,and described the rule as follows: “Small entities directly regulated by the proposed statute—whose conduct is circumscribed or mandated—may bring a challenge to the RFA analysis or certification of an agency. * * * However, when the regulation reaches small entities only indirectly, they do not have standing to bring an RFA challenge.”54 The court further stated that, where the regulation “expressly” addresses an entity's actions, that entity is subject to an RFA analysis, and that, although the regulation may affect the actions of other entities, those other entities are not subject to an RFA analysis.55

42. We note at the outset that the regulations adopted in this proceeding directly apply to RTOs and ISOs only, not small entities, thus the Commission is not required to assess the impact of the rule on small entities.56 In contrast toAeronautical Repair Station Ass'n,in which the regulations expressly required certain actions by small entities, in this rulemaking, the regulations require specific actions only by the RTOs and ISOs.57 Further, the relevant impact considered under the RFA is the impact of compliance, including “the projected reporting, recordkeeping and other compliance requirements of the proposed rule.”58 Those obligations are directly imposed on RTOs and ISOs only, and not market participants.

43. Additionally, in issuing Order No. 741, the Commission focused on protecting the organized wholesale electric markets from default by a market participant. In the event of a default by a market participant, the losses related to that default must be socialized among all other market participants, potentially leading to cascading defaults, all leading to adverse effects on customers. The Commission sought to balance measures intended to protect the market and market participants from the risk of a default against the effect of the measures on market participants. For instance, in establishing the cap on unsecured credit,59 setting the two-day cure period,60 and, on rehearing, allowing RTOs/ISOs to consider a market participant's level of participation in the market in setting minimum criteria,61 the Commission has sought to protect the markets and market participants from the risk of a default, while providing consideration of the needs of the market participants themselves.

44. The Commission thus has sought to accommodate market participants' concerns while still meeting its responsibility to protect markets to ensure that the resulting rates are just and reasonable and not unduly discriminatory or preferential under FPA sections 205 and 206; however, we are not obligated to conduct a further analysis under the RFA. The regulations promulgated in Order No. 741 and here direct the actions of the ISOs and RTOs in administering the organized wholesale electric markets. While the regulations may indirectly affect other entities—market participants, including investor-owned utilities, municipalities and cooperatives, and financial marketers, as well as customers of all kinds—we are not required to conduct an analysis under the RFA on such entities in this proceeding.

45. Furthermore, by requiring tariff revisions to protect the markets and market participants from the risk and resulting cost of default by others, we are not only protecting market participants from the risk and resulting costs of default by others, but we are, in particular, protecting those smaller market participants that are least able to withstand a default. Smaller market participants have fewer resources available to them to deal with a default when one occurs, and thus it is particularly important for smaller market participants that the Commission put in place measures that minimize the risk of a default and the resulting cost of a default.

46. Further, we note that ISOs and RTOs are in the best position, in the first instance, to assess to what extent credit practices, as implemented in their markets, will have an adverse effect on their market participants, as well as the potential harm to the market in the event of a default. Thus, as noted in Order No. 741, ISOs and RTOs may, through their stakeholder processes, propose specific exemptions for individual entities whose participation is such that a default would not risk significant market disruptions.62 We also note that, as the ISOs and RTOs submit their compliance filings, interested persons will have an opportunity to contest the various revisions as filed for individual tariffs, and the Commission remains open to comments on the particular revisions at that time. The Commission, however, will not, at this time, adopt any exemptions.

47. The Office of Management and Budget (OMB) regulations require that OMB approve certain information collection requirements imposed by an agency.63 The revisions in Order No. 741 to the information collection requirements for ISOs and RTOs were approved under OMB Control Nos. 1902-0096. While this order clarifies and revises aspects of the existing information collection requirements, it does not add to these requirements. Accordingly, a copy of this order will be sent to OMB for informational purposes only.

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

49. From the Commission's Home Page on the Internet, this information is available in the Commission's document management system, eLibrary. The fulltext of this document is available on eLibrary in PDF and Microsoft Word format for viewing, printing, and/or downloading. To access this document in eLibrary, type “RM10-13” in the docket number field.

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

51. Changes to Order No. 741 adopted in this order on rehearing will become effective March 28, 2011.

In consideration of the foregoing, the Commission amends part 35, subchapter B, chapter I, title 18,Code of Federal Regulations,as follows:

The Department published a proposed rule, Public Notice 7077 at 75 FR 60674-60679, October 1, 2010, with a request for comments, amending § 62.17 (“Fees and Charges”) containing all of the fees and charges for Exchange Visitor Program services. As explained in the proposed rule, the Department is increasing user fees charged for Exchange Visitor Program services in order to recoup the full cost of such services which are requested and performed for the benefit of foreign nationals or U.S. corporate entities. These costs were calculated by an independent certified public accounting firm in full compliance with the Office of Management and Budget directives regarding such user fee calculations as set forth in OMB Circular A-25.

The Department received three comments and is now promulgating a final rule with no changes from the proposed rule. Thus, the fee charged to foreign nationals for a request for individual program services, such as change of program category, program extensions and reinstatements, will decrease to $233.00. The fee charged to U.S. corporate entities for requests for program designation, redesignation and amendments to program designation will increase to $2,700.00 in order to recoup the full cost of such services.

The Department received three comments. One comment suggested that the Exchange Visitor Program be closed and that the fees be increased to $10,991 for application fees and $5,945 for individual program services. The Department rejected this comment as there is no basis or justification for such a proposal. The comment was not responsive to the proposed rule concepts. Another comment was from an academic institution and opined that a 54% increase in fees was such a financial burden on academic institutions that the redesignation period should also be increased. As no other academic institutions presented this view, we find that this comment does not represent the views of the higher academic community or its ability to pay this bi-annual redesignation fee. A further comment was from a private sector organization that combined comments to both opposition of the final secondary school student rule and the proposed fee rule and does not believe that the increase in fees will help the Department with its oversight responsibilities. This comment was not responsive to the proposed rule which discussed neither secondary school student exchanges nor oversight initiatives or duties of designated program sponsors.

The Department of State is of the opinion that the Exchange Visitor Program is a foreign affairs function of the U.S. Government and that rules implementing this function are exempt from section 553 (Rulemaking) and section 554 (Adjudications) of the Administrative Procedure Act (APA). The U.S. Government supervises programs that invite foreign nationals to come to the United States to participate in exchange visitor programs, either directly or through private sector program sponsors or grantees. When problems occur, the U.S. Government often has been, and likely will be, held accountable by foreign governments for the treatment of their nationals, regardless of who is responsible for the problems.

The purpose of this rule is to set the fees that will fund the services provided by the Exchange Visitor Program Office of Designation, which provides services to 1,226 sponsor organizations and 350,000 Exchange Visitor Program participants. These services include oversight and compliance with program requirements as well as the monitoring of programs to ensure the health, safety and well-being of foreign nationals entering the United States (many of these exchange programs andparticipants are often funded by the U.S. Government) under the aegis of the Exchange Visitor Program and in furtherance of its foreign relations mission. The Department of State represents that failure to protect the health and well-being of these foreign nationals and their appropriate placement with reputable organizations will have direct and substantial adverse effects on the foreign affairs of the United States.

Although the Department is of the opinion that this rule is exempt from the rulemaking provisions of the APA, the Department published this rule as a proposed rule and solicited comments. This was without prejudice to its determination that the Exchange Visitor Program is a foreign affairs function.

As discussed above, the Department believes that this final rule is exempt from the provisions of 5 U.S.C 553, and that no other law requires the Department to give notice of proposed rulemaking. Accordingly the Department believes that this rule is not subject to the requirements of the Regulatory Flexibility Act (5 U.S.C. 601,et seq.) or Executive Order 13272, section 3(b).

Nevertheless, the Department has examined the potential impact of this rule on small entities. Entities conducting student exchange programs are classified under code number 6117.10 of the North American Industry Classification System. Some 5,573 for-profit and tax-exempt entities are listed as falling within this classification. Of this total number of so-classified entities, 1,226 are designated by the Department of State as sponsors of an exchange visitor program, designated as such to further the public diplomacy mission of the Department and U.S. Government through the conduct of people-to-people exchange visitor programs. Of these 1,226 Department designated entities, 933 are academic institutions and 293 are for-profit or tax-exempt entities. Of the 933 academic institutions designated by the Department, none are believed to meet the definition of small entity for Regulatory Flexibility Act analysis purposes. The RFA utilizes the SBA's definition of “small entities” for educational institutions, which are for-profit entities that have annual revenues of less than $7 million. The RFA defines “small organizations” as any not-for-profit educational institution that is independently owned or operated and not dominant in its field. Of the 293 for-profit or tax-exempt entities designated by the Department, 131 have annual revenues of less than $7 million, thereby falling within the analysis purview of the Regulatory Flexibility Act. Although, as stated above, the Department is of the opinion that the Exchange Visitor Program is a foreign affairs function of the United States Government and, as such, that this rule is exempt from the rulemaking provisions of section 553 of the APA, given the projected costs (discussed below) to the approximately 131 small entities designated to conduct exchange visitor programs, the Department has determined that this rule will not have a significant economic impact on a substantial number of small entities. The annual additional cost to a small entity is $476.00.

This final rule will not result in the expenditure by State, local and tribal governments, in the aggregate, or by the private sector, of $100 million in any year and it will not significantly or uniquely affect small governments. Therefore, no actions were deemed necessary under the provisions of the Unfunded Mandates Reform Act of 1995.

The Department has determined that this rulemaking will not have tribal implications, will not impose substantial direct compliance costs on Indian tribal governments, and will not pre-empt tribal law. Accordingly, the requirements of Section 5 of Executive Order 13175 do not apply to this rulemaking.

This final rule is not a major rule as defined by 5 U.S.C. 804 for the purposes of Congressional review of agency rulemaking under the Small Business Regulatory Enforcement Fairness Act of 1996 (5 U.S.C. 801-808). This rule will not result in an annual effect on the economy of $100 million or more; a major increase in costs or prices; or significant adverse effects on competition, employment, investment, productivity, innovation, or on the ability of United States-based companies to compete with foreign-based companies in domestic and export markets.

As discussed above, the Department is of the opinion that the Exchange Visitor Program is a foreign affairs function of the United States Government and that rules governing the conduct of this function are exempt from the requirements of Executive Order 12866. However, the Department has nevertheless reviewed this regulation to ensure its consistency with the regulatory philosophy and principles set forth in that Executive Order. The Department has examined the economic benefits, costs, and transfers associated with this final rule, and finds that educational and cultural exchanges are both the cornerstone of U.S. public diplomacy and an integral component of American foreign policy. Though the benefits of these exchanges to the United States and its people cannot be monetized, the Department is nonetheless of the opinion that these benefits outweigh the costs associated with this rule. The Department projects the cost to the government of providing Exchange Visitor Program services to be $3.4 million annually. This rule will provide an estimated $3.4 million annually that will support the operations of the Department's Office of Designation, including funds for designation and redesignation, for individual exchange participant services, and the appropriate share of costs for regulatory review and development, outreach, and general program administration. These costs are divided among the 1,226 designated sponsors who will account for $2.7 million of the total $6.8 million over the next two years, with foreign national exchange participants requesting individual-based program services accounting for the remaining $4.1 million. The actual increase in annual costs per designated sponsor is $462 which represents a total annual increase of $378,302. The cost to foreign national exchange participants requesting program services has been decreased by $13 per transaction. Thus, the Department of State has identified $3.4 million in economic transfers associated with this rule. The Department has not identified any monetized benefits or costs, though it believes that the revenue generated by these fees and charges will enable the Department to administer an effective program and is essential to continuing to support and strengthen the United States' foreign policy goal of promoting mutual understanding between the people of the United States and other countries.

The Department has reviewed this regulation in light of sections 3(a) and 3(b)(2) of Executive Order 12988 to eliminate ambiguity, minimizelitigation, establish clear legal standards, and reduce burden.

This regulation will not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. Therefore, in accordance with section 6 of Executive Order 13132, it is determined that this rule does not have sufficient federalism implications to require consultations or warrant the preparation of a federalism summary impact statement. The regulations implementing Executive Order 12372 regarding intergovernmental consultation on Federal programs and activities do not apply to this regulation.

The information collection requirements contained in this rulemaking are pursuant to the Paperwork Reduction Act, 44 U.S.C. chapter 35 and OMB Control Number 1405-0147, expiring on November 30, 2013.

Accordingly, 22 CFR part 62 is amended as follows:

The Occupational Safety and Health Administration (OSHA) is adjusting the approach it uses to calculate the fees charged to Nationally Recognized Testing Laboratories (NRTLs). This adjustment will recoup a larger percentage of the cost of administering the NRTL Program than the current approach. This adjustment allows OSHA to continue to charge NRTLs for the core application processing and audit functions performed under the NRTL Program, while also recouping the other costs, such as the cost for ancillary activities that provide special benefits to NRTLs, that currently represent a significant portion of OSHA's costs of running the NRTL Program.

Because the revised approach results in a large increase in the fees for existing NRTLs and pending NRTL applicants, OSHA is instituting a three-year phase-in period for any fee increase that is greater than $200. OSHA also is revising language in 29 CFR 1910.7(f) (the OSHA rule implementing the NRTL fee structure) to clarify the cost basis for the fees. In addition, OSHA will now require advance payment of all NRTL fees, which complies with instructions to Federal agencies issued by the Office of Management and Budget (OMB).

In this notice, section II describes the NRTL Program and the prior fee structure for charging NRTLs for application processing and audits. In section III, OSHA explains the legal authority for recovering costs for ancillary activities and leave. The Agency also explains the basis for advance collection of the fees. Section IV describes how OSHA will recoup the ancillary and leave costs, and section V shows the derivation of the fee amounts. Sections VI and VII present the revised fee schedule and fee descriptions, respectively, and address the sole comment OSHA received in response to the proposal. Finally, in sections VIII and IX, respectively, OSHA explains themajor revisions to the fees and to the regulatory text of 29 CFR 1910.7(f).

Many of OSHA's safety standards require approval (i.e.,tested and certified) of equipment or products used in the workplace to help ensure that workers can use them safely. See,e.g.,29 CFR part 1910, subpart S. In general, an NRTL must approve such equipment and products. The NRTL Program administered by OSHA ensures that laboratories perform testing and certification appropriately,

The NRTL Program requirements are set forth in 29 CFR 1910.7, “Definition and requirements for a nationally recognized testing laboratory,” which specifies that, to receive and maintain recognition as an NRTL, an organization must: (1) Have the appropriate capability to test, evaluate, and approve products to assure safe use of the products in the workplace; (2) be completely independent of the manufacturers, vendors, and major users of the products for which OSHA requires certification; (3) have internal programs that ensure proper control of the testing and certification process; and (4) have effective reporting and complaint handling procedures. 29 CFR 1910.7(b).

OSHA requires that organizations applying for initial recognition as an NRTL provide, in writing, detailed and comprehensive information about their programs, processes, and procedures. To process an application, OSHA reviews the written information for completeness and adequacy, and conducts an on-site assessment to determine whether the organization meets the requirements of 29 CFR 1910.7. OSHA uses a similar process when an NRTL (i.e.,an organization already recognized) applies for expansion or renewal of its recognition. In addition, the Agency conducts annual audits primarily to ensure that each NRTL maintains its programs and continues to meet the recognition requirements. Currently, there are 15 NRTLs operating 49 recognized sites in the U.S., Canada, Europe, and the Far East. Application processing and audits are the core functions that OSHA performs for the NRTL Program.

To perform these core functions, OSHA also must perform a number of ancillary activities that support these functions. OSHA investigates complaints filed against NRTLs to ensure that the laboratories are performing their testing and certification functions adequately. In addition, OSHA represents the NRTL Program in a variety of forums related to conformity assessment1 of products used in the workplace. OSHA also maintains a detailed Web site that both explains the program and, more importantly for the NRTLs, lists all the laboratories currently recognized under the NRTL Program, the products each laboratory can test, and registered certification marks used by each laboratory.

On August 30, 2000, OSHA established a schedule of fees for several of the services rendered to NRTLs; specifically, the application processing and audit functions. In theFederal Registernotice announcing the fee schedule (65 FR 46797, July 31, 2000), OSHA found that laboratories receive “special benefits” from the NRTL Program, and that charging these laboratories was appropriate under the Independent Offices Appropriations Act of 1952 (IOAA) (31 U.S.C. 9701), OMB Circular A-25 “User Charges,” and other legal authorities. 65 FR 46803. At 65 FR 46807, OSHA stated:

Through that rulemaking, OSHA promulgated 29 CFR 1910.7(f). Paragraph (f) states that each applicant for NRTL recognition and each NRTL must pay fees for services provided by OSHA. 29 CFR 1910.7(f)(1). Specifically, the Agency assesses fees for the following activities: (1) Processing applications for initial recognition, expansion of recognition, or renewal of recognition, including on-site reviews; review and evaluation of the applications; and preparation of reports, evaluations andFederal Registernotices; and (2) audits. The rule also sets forth that OSHA bases the fees, in part, on the staff costs per hour of performing application processing and audit activities.

This final rule adjusts the approach that OSHA uses to calculate the fees charged for the services it provides to NRTLs. OSHA makes this adjustment because the prior fee schedule only allowed recovery of about half of the allowable reimbursable costs of the NRTL Program.2 For example, the prior approach did not recover the costs of the ancillary activities that are necessary to the program's functioning.

This final rule adjusts the approach that the Agency uses to calculate the fees it charges NRTLs for services performed to the benefit of the NRTLs by including the costs for benefits shared by all NRTLs. As described above, these costs include costs associated with ancillary activities and leave. Although OSHA still does not charge separate fees for the time spent on ancillary activities and leave, it adjusted the rate charged for the fee-generating activities to account for the portion of the program costs attributable to ancillary activities and leave. This section describes the legal basis for OSHA recouping these costs from the NRTLs.

In Title V of the IOAA, Congress set forth the objective of collecting fees and charges for services and things of value provided by an agency. As noted in this statute, “It is the sense of Congress that each service or thing of value provided by an agency * * * to a person * * * is to be self-sustaining to the extent possible.” 31 U.S.C. 9701(a). Additionally, the Congressional Committee that drafted the measure indicated, “The Committee is concerned that the Government is not receiving full return from many of the services which it renders to special beneficiaries.”Nat'l Cable Television Ass'nv.U.S.,415 U.S. 336 (1974),quotingH.R. Rep. No. 82-384, at 2-3 (1951). Accordingly, Congress enacted the statute to ensure that the specific individuals and companies that receive benefits from agency programs, not taxpayers at large, fund the programs.

In addition to establishing a source of funding, Congress also provided general guidance to agency heads on the establishment of fees. The fees are to be “fair” and based on the costs to the Government, the value of the service or thing to the recipient, public policy or interest served, and other relevant facts. See 31 U.S.C. 9701(b). The 1993 OMB Circular A-25 (discussed in greater detail below) embodies the authority of the IOAA, and reflects interpretations from the related case law decisions.

Since 1997, in OSHA's yearly appropriations, Congress specifically authorized the Secretary of Labor to collect and retain fees charged to sustain the NRTL Program, stating, “[T]he Secretary of Labor is authorized * * * to collect and retain fees for services provided to Nationally Recognized Testing Laboratories, and may utilize such sums * * * to administer national and international laboratory recognition programs that ensure the safety of equipment and products used by workers in the workplace.” See,e.g.,Consolidated Appropriations Act for FY 2000, Pub. L. 106-113 (113 Stat. 1501A-222) and Consolidated Appropriations Act, 2009, Pub. L. 111-117 (123 Stat. 3034).

The Supreme Court and the Courts of Appeals issued decisions addressing the application of the IOAA and its interpretation by Federal agencies. These cases provide guidance that provides specific information regarding the fee schedules, and the methods of assessing fees, that agencies may use. These decisions make clear that agencies may recoup all of the Governmental costs associated with providing private entities with specific benefits.

In 1974, the Supreme Court decided the companion cases ofNat'l Cable Television Ass'n,415 U.S. 336, andFed. Power Comm'nv.New England Power Co.,415 U.S. 345 (1974). InNat'l Cable,the Court found that an agency may charge a fee for services, but the agency should base the fee on “value to the recipient.”Nat'l Cable,415 U.S. at 342-43. InNew England Power Co.,the Court held that, pursuant to the IOAA and OMB Circular A-25, agencies can only recoup specific charges for specific services to specific individuals or companies.Fed. Power Comm'n,415 U.S. at 349.

InNat'l Cable Television Ass'n, Inc.v.FCC, 554 F.2d 1094 (DC Cir. 1976), the Court of Appeals also made clear that the fees must be for specific services. The court upheld charging both an application fee and an annual fee provided that the agency, to prevent charging twice for the same service, makes clear the activities covered by each fee.Nat'l Cable Television Ass'n,554 F.2d at 1105. Furthermore, the court agreed that fees based on reasonable approximations of costs for the services are acceptable: “It is sufficient for the Commission to identify the specific items of direct or indirect cost incurred in providing each service or benefit for which it seeks to assess a fee, and then to divide that cost among the members of the recipient class * * * in such a way as to assess each a fee which is roughly proportional to the `value' which that member has thereby received.”Nat'l Cable Television Ass'n,554 F.2d at 1105-1106.

InElec. Indus. Ass'nv.FCC,554 F.2d 1109 (DC Cir. 1976), the Court of Appeals indicated that “expenses incurred to serve some independent public interest cannot * * * be included in the cost basis for a fee, although the Commission is not prohibited from charging an applicant or grantee the full cost of services rendered * * * which also result in some incidental public benefits.”Elec. Indus. Ass'n,554 F.2d at 1115. Moreover, the court held that the agency can only include, in the cost basis of the fees, expenses incurred to confer value upon the recipient.Id.Along similar lines, the same Court of Appeals clarified in a companion case that “the proper standard is not value derived by the recipient but rather value conferred on the recipient. In our view, this standard requires the fee assessed to bear a reasonable relationship to the cost of the services rendered to identifiable recipients.”Capital Cities Communications, Inc.v.FCC,554 F.2d 1135, 1138 (DC Cir. 1976).

Lastly, inMiss. Power and Lightv.U.S. Nuclear Regulatory Comm'n, 601 F.2d 223 (5th Cir. 1979), the 5th Circuit Court of Appeals upheld the Nuclear Regulatory Commission's (NRC) fee schedule methodology because the NRC did not seek to recover the entire cost of regulating. The NRC charged a fee based only on the costs of providing a specific benefit to identifiable private parties.Miss. Power and Light, 601 F.2d at 230.

OMB issued Circular No. A-25, pursuant to the IOAA, to establish “Federal policy regarding fees assessed for Government services and for sale or use of Government goods or resources. * * * [I]t provides guidance for agency implementation of charges and the disposition of collections.” User Charges, Circular No. A-25, OMB (July 8, 1993). In section 6 of the Circular, OMB directs agencies to assess user charges “against each identifiable recipient for special benefits derived from Federal activities beyond those received by the general public.” Furthermore, user charges “will be sufficient to recover the full cost to the Federal Government * * * of providing the service, resource, or good when the Government is acting in its capacity as sovereign.” Finally, the Circular defines full cost to include “all direct and indirect costs to any part of the Federal Government of providing a good, resource, or service.” Examples of such costs include personnel costs (including salaries and fringe benefits), physical overhead, management and supervisory costs, and costs of enforcement and research. Circular No. A-25, OMB 6(d)(1)(a)-(e).

The legal authorities described above establish several considerations for determining how an agency can assess fees for services rendered: (1) The agency must base the fees on special benefits derived from Federal activities beyond those benefits received by the general public; (2) the agency must confer the benefits on identifiable recipients; and (3) the fees must bear a reasonable relationship to the cost of the services rendered. In addition, the OMB circular makes clear that agencies can recoup indirect costs of services rendered to special beneficiaries, and that agencies should endeavor to make agency programs self-sustaining to the extent that the programs provide special benefits to identifiable recipients. Assessing NRTL fees that recover the cost of ancillary activities and leave satisfies these considerations, which we further discuss below.

OSHA based the implemented fee structure on the costs of providing services that confer special benefits. As noted earlier, NRTLs and NRTL applicants accrue special benefits from the services that OSHA renders for the fees. These special benefits are the product of OSHA's initial and continuing evaluation of an organization's qualifications to test and certify products used in the workplace. Primarily, these special benefits are the business opportunities that result from OSHA recognition of these organizations as NRTLs, which allowsthem to offer their testing and certification services to manufacturers of products that require NRTL testing and certification when used in the workplace. These opportunities are “special benefits derived from Federal activities beyond those received by the general public,” as described in OMB Circular A-25.

Ancillary activities performed by OSHA under the NRTL Program result in identifiable costs from the provision of those specific services and benefits to NRTLs. Examples of ancillary activities include administration of the program, budgetary, and policy matters; training OSHA personnel to perform program activities; interagency and international coordination; responses to requests for information related to the program; handling complaints; Web site development and maintenance; and participation in meetings with stakeholders and outside interest groups.

OSHA must recover the costs of these activities because it incurs such costs solely for the administration of the NRTL Program, from which NRTLs derive special benefits. The absence of these necessary activities would severely reduce, if not eliminate, many of the benefits that NRTLs derive from OSHA recognition. Two examples illustrate this point. First, through application processing and audits, OSHA determines which organizations qualify as NRTLs and which products each NRTL can approve under the NRTL Program. By maintaining a Web site, OSHA shares this information with the public. This activity benefits NRTLs by making current and potential clients, as well as employers, aware that OSHA qualified the NRTLs to approve those products.

Second, complaint handling is a valuable activity that OSHA relies upon, especially between audits, to learn of inappropriate or questionable activities by an NRTL. If, for example, OSHA receives a complaint that an NRTL is testing equipment made for use in extremely hazardous environments, but OSHA does not recognize the NRTL to perform this testing, OSHA would investigate the complaint to determine whether the testing jeopardizes the safety of the equipment. If so, OSHA could take steps to prevent accidents from occurring as a result of using this equipment. Through complaint handling, OSHA reinforces the NRTL Program's effectiveness, which maintains confidence in the program, and, thus, assures the benefits derived by NRTLs from participation in the program.

As with the prior schedules, OSHA is assessing fees to identifiable recipients of the NRTL Program benefits. The ancillary activities result in benefits shared among all NRTLs, in contrast to the benefits of the core application and auditing services, which are more easily attributed to individual NRTLs than ancillary activities. To share the costs of these benefits equitably, while still ensuring that the fees charged are specific with regard to the services provided to individual NRTLs, OSHA is apportioning the costs of the shared benefits in accordance with the time OSHA spends on core services rendered to each NRTL. This approach recognizes that an individual NRTL's portion of the shared benefits relates directly to the core benefits it receives. OSHA is, therefore, retaining its fee structure of charging the NRTLs fees involving core actions directed at, or initiated by, an NRTL, while adjusting the rate used to compute the fee to recoup a greater portion of the actual program costs than is the case currently.

OSHA will charge an NRTL a fee when the NRTL applies, for example, for an expansion of its recognition by OSHA. In this situation, the NRTL is asking OSHA to review its application for expansion so that the NRTL can increase its scope of recognition. The fee that OSHA would charge in this instance is related directly to the NRTL seeking the expansion. The converse is also true: If in any year an NRTL does not apply to expand its recognition, OSHA will not charge the NRTL an expansion-application fee. Thus, the new fee schedule would reimburse OSHA for ancillary activities, but would do so by charging specific NRTLs only when these NRTLs receive the core services of the program.

OSHA is basing much of the fee schedule on the average documented cost of specific activities performed to benefit the NRTLs. Through the revised fee schedule issued by this rule, OSHA will recover a large percentage of the costs of the NRTL Program. To ensure that it does not overcharge, OSHA structured this revised fee schedule to capture approximately 95% of the costs of the NRTL Program.

Finally, by including the costs of ancillary activities in the fees, OSHA now is fully compliant with the IOAA and OMB Circular A-25, both of which require agency programs to be self-sustaining to the extent that the programs confer special benefits on identifiable recipients. In fact, until implementation of a revised fee schedule in February 2007, that allowed recovery of approximately 50% of program costs, OSHA was recovering only about 30% of the costs of the NRTL Program; taxpayers were funding the remaining 70% through OSHA's annual appropriations. This arrangement does not comport with the IOAA and OMB Circular A-25, and OSHA is correcting this deficiency through this final rule.

In summary, including the cost of ancillary activities in the fees comports with the legal framework described in the preceding section. That is, OSHA based the fees on special benefits to NRTLs, assessed to identifiable beneficiaries of the NRTL Program, and reasonably related to OSHA's costs of providing the services to the NRTLs.

OSHA recognizes that its new approach differs from the position it took in the 2000 rulemaking implementing the initial fee structure. In that rulemaking, OSHA stated that it would not seek to recover costs for some ancillary activities such as Web site development and training compliance officers on the NRTL Program.See, e.g.,65 FR 46802. At the time of that rulemaking, however, OSHA believed those activities would use only a small portion of the NRTL Program's resources. Recent workload reviews show that these activities have become a large part of the program, and now are critical in supporting the NRTL Program's core functions. It is, therefore, appropriate for OSHA to include these costs in the revised fees.

Because work on ancillary activities grew so much faster than program resources over the last several years, OSHA has less time available for application processing and audits than was the case in 2000. Moreover, because existing fees only recoup the cost of time spent on core services, OSHA is recovering a dwindling percentage of the NRTL Program costs. For OSHA to meet, on a timely basis, the needs of the NRTLs in application processing and auditing, while recovering its costs for providing those services, is a significant challenge. Through this final rule, OSHA will fund the resources to improve its effectiveness in rendering these core services.

Although the prior fee structure accounted for some personnel costs for core NRTL activities, it did not accountfor all personnel costs; therefore, it did not account for the total time spent on core activities. As Federal employees, Department of Labor employees, including OSHA employees, earn leave as part of their regular compensation. However, the prior fee structure failed to account for leave earned by OSHA employees, even though that leave is part of the personnel costs of rendering NRTL services.3 In this respect, the prior fee structure was not compliant with OMB Circular A-25 and the other legal authorities described above. Thus, in this revised fee structure, OSHA is adjusting the personnel costs to include leave earned by all Federal employees performing services in support of the NRTL Program.

Previously, OSHA required that NRTLs and applicants pay an application review fee when submitting an application, and, for initial applications, prepay the fee for an on-site assessment. OSHA generally billed the remainder of the fees to the NRTLs or applicants after it rendered the services. When OSHA adopted this billing system in the 2000 final rule, it expected the system to “reduce collection activity of the Agency, since only one bill would need to be sent to the NRTL for an audit, rather than the two contemplated under the NPRM.” 65 FR 46802 (July 31, 2000). It, therefore, predicted a “minimal financial burden” to the Agency by delaying collection.Id.

However, in recent years this post-collection system resulted in problems, including the loss of some funds. For example, to ensure that the Agency retained all fees that were due for audits conducted during a fiscal year, OSHA requested that NRTLs pay fees in advance for any audits that it conducted in the last two months of the Federal Government fiscal year. OSHA requested advance payment because, to comply with Federal mandates, it could not retain any fees received after the end of a fiscal year, but would have to forfeit them to a general Federal Government fund. The current fee-collection system also made it difficult to ensure that the Agency complied with OMB Circular A-25. In addition to providing guidance regarding the collection and retention of user fees, OMB Circular A-25 generally requires agencies to collect user fees in advance. See OMB Circular A-25, Section 6.a.2.(c) (“User charges will be collected in advance of, or simultaneously with, the rendering of services unless appropriations and authority are provided in advance to allow reimbursable services.”); see also OMB Circular A-11, “Preparation, Submission, And Execution Of The Budget” (June 2008), section 20.13.4

Therefore, while the current program directly benefits NRTLs, OSHA must advance funds to cover the program costs until the NRTLs or applicants reimburse OSHA for its program activities. Given the competing demands on the appropriations from which OSHA draws these funds, continued use of these general operating funds to pre-fund the NRTL Program could adversely impact OSHA's ability to perform other operational functions.

In summary, OSHA will now bill in advance for audits and other fees to ensure compliance with OMB guidance, and to reduce any financial impact on OSHA's other functions caused by advancing funds to the NRTL Program. OSHA will estimate and collect travel costs and other expenses in advance, and will adjust any difference between actual costs and estimated costs after completion of the audit or other activity.

Through this final rule, OSHA will continue to calculate the fee for each of the service activities listed in the fee schedule by multiplying an equivalent average cost per hour rate (ECR) by the time it takes to perform that activity: Fee for Activity = ECR × Time for Activity.

In the July 31, 2000,Federal Registernotice, OSHA explained that it derived the initial fee schedule's ECR by dividing the total estimated direct and indirect costs of the program, excluding travel, (TPC),5 by the total available annual work hours of the NRTL Program and legal staff that perform the services (TAW).6 Although OSHA did not illustrate the derivation of the ECR as an equation in the 2000 notice, it does so here for clarification, and refers to it as ECR2000 (to contrast it with the equation for ECR2009, which we explain later in this notice); accordingly, ECR2000 = TPC2000/TAW2000.7 As discussed above, the approach used in 2000 resulted in fees that recouped the costs only of the time spent actually performing individualized audits and application processing, which is only a portion of TAW, and did not recoup the costs of the time associated with running the program and providing other benefits shared among all NRTLs.

To account properly for the costs associated with these shared benefits, OSHA proposed and requested comment on the following calculation for the new ECR (ECR2009): Dividing the new estimated total cost of the NRTL Program (TPC2009) by the total annual service hours (TAS2009). This latter term is a new figure that equals the total estimated work hours that the NRTL Program staff spend on the core service activities for which OSHA will bill NRTLs; accordingly, ECR2009 = TPC2009/TAS2009. By way of comparison with the prior fee schedules, TAS equals TAW minus estimated hours spent on ancillary activities (AH) and leave (LH) (i.e.,TAS = TAW−AH−LH). By continuing to include the full program costs in the numerator (TPC2009), but including in the denominator (TAS2009) only the amount of time spent on providing “billable” core services, the revised ECR more accurately represents the total work hours spent on those core activities than the current 2000 equation; OSHA bills these hours to the NRTLs. The Agency did not receive any comments on this new calculation methodology, and is including it in the final rule as proposed.

OSHA could achieve the same result by charging each NRTL separately for its share of the program resources used to produce the shared benefits. OSHA did not use this method primarily because it would be impractical to calculate and track these shared costs separately for each NRTL, and to attribute the costs appropriately to individual NRTLs through separate fees. As explained above, the new fee approach adopted in this final rule, in which OSHA charges NRTLs only for core services, providesa more straightforward and manageable method, in comparison to the previous approach, of ensuring that OSHA recoups only “specific charges for specific services to specific individuals or companies.”Fed. Power Comm'n,415 U.S. at 349. In addition to this methodological change, the revised fee schedule presented in this notice also includes updated calculations of the total resources committed to the NRTL Program (TPC2009), and of the average time spent on some of the service activities for which OSHA charges fees.

OSHA estimated that TAS2009 = 3.5075 FTEs (7295.6 work hours), which is 50.11% of total available annual work hours (TAW2009), 7.0 FTE.8 Using the TPC2009 of $1,079,090, shown in Table 1 below, the new rate is: ECR2009 = $1,079,090/7295.6 hours = $147.90.

Table 1 below shows a summary of program costs and value of revised ECR2009, which OSHA uses later to generate the revised fee schedule in section VI below.

For existing NRTLs and applicants that submit applications prior to the effective date of this final rule, OSHA will phase in, over three years, any fee increase that is greater than $200: a 33% increase for the first year's fees; a similar increase for the second year's fees; and the remaining increase in the third year. OSHA uses this $200 threshold because it limits the number of fees that would otherwise increase 100% for the first year; OSHA will phase in the increase for the remaining fees, thus reducing the financial impact the increase may have on any existing NRTL or applicant. As evident from the comparison of fees shown in VIII of this notice, this approach affects only three fees, which will increase by a combined total of $510. The $200 threshold and the three-year phase-in period will balance the need for a period of adjustment for some existing NRTLs against OSHA's responsibility to recoup the full costs of the NRTL Program as soon as possible. Although OSHA requested comments on these approaches and suggested alternatives, it received no comments.

The entire increase is effective immediately for any organization that submits an application to become a new NRTL if OSHA receives the application on or after the effective date of this final rule. OSHA is taking this approach because, unlike currently recognized NRTLs and pending applicants, new applicants are free to choose whether or not to participate in the NRTL Program.

Tables 2, 3, 4, and 5, below, present the costs of the major activities for the various fee categories. In general, OSHA calculated the cost of these activities by multiplying the staff9 activity time by ECR, and adding any applicable average travel costs. However, because OSHA charges for actual travel, only non-travel costs serve as the basis for the fees shown later in Tables A and B. In deriving the fee amounts shown in the fee schedule (Table A or B), OSHA generally rounded the costs shown in Tables 2, 3, 4, and 5, up or down, to the nearest $5 or $10 amount.

*Average cost for staff time = average hours × equivalent average direct staff cost/hr. ($147.90).

**Note:2 additional days estimated for 2 assessors, and 4 additional days estimated for 1 assessor.

See notes to Table A below for more information concerning the activities listed in this table.

*Average cost for staff time = average hours × equivalent average direct staff cost/hr. ($147.90).

**Note:2 additional days estimated for 1 assessor.

See notes to Table A below for more information concerning the activities listed in this table.

*Average cost for staff time = average hours × equivalent average direct staff cost/hr. ($147.90).

**Note:2 additional days estimated for renewal assessment; no additional days for expansion assessment.

See notes to Table A below for more information concerning the activities listed in this table.

OSHA is implementing the revised fee schedules shown below in Tables A and B. All existing NRTLs and any initial applicant (i.e.,an entity not presently approved by OSHA as an NRTL) having a pending application (i.e.,received by OSHA before the effective date of this rule), must pay the fees set forth in Table A during the first year of the three-year phase-in period. OSHA will publish the revised fee schedule for the second year at a later date, as explained below. In this final rule, OSHA revised the audit fees as explained above, and modified the fee schedule in Table A of the proposal slightly to clarify that initial NRTL applicants havingapplications received by OSHA on or after the effective date of this rule must pay the fees in Table B, not Table A. The Agency eliminated the initial-application review fee in Table A, and added a reference to footnote 7 of the table to explain the fee amount that OSHA charges to pending applicants (i.e.,those applicants having applications received before the effective date of this rule) that substantially modify their applications after the effective date of the rule.

The fees in Table A are the fees for the first phase of OSHA's fee increase, which are applicable to existing NRTLs and pending applicants. As explained above, for existing NRTLs and pending applicants, OSHA is phasing in over a period of three years any fee increase that is greater than 200: 33% of the increased fees specified in this final rule on the effective date of the rule; another 33% increase in the second year; and the final 34% increase in the third year. OSHA will adjust the percentage increase when it performs its periodic review of the fees during the next two years; it will base the adjustment on any increase or decrease in fees calculated for each of those years. During this review, OSHA will determine the amount of time it actually charged for application processing and audits, and the actual indirect travel OSHA performed, and adjust the amount in the fee schedule by the amount over- or underestimated. OSHA then will publish the second-year fee schedule in theFederal Register.

On October 26, 2010, FinCEN issued a final rule (“the Chapter X Final Rule”), creating a new Chapter X in title 31 of the Code of Federal Regulations (CFR) for Bank Secrecy Act (BSA) regulations. As discussed in the Chapter X Final Rule, FinCEN is reorganizing its regulations in new Chapter X to make them more accessible for covered individuals and financial institutions. The reorganization is not intended to have any substantive effect on the BSA regulations. Chapter X will be effective on March 1, 2011.1

On April 14, 2010, FinCEN issued a final rule to include mutual funds within the general definition of “financial institution” in the BSA regulations.2 On October 15, 2010, FinCEN published a final rule extending the compliance date for those provisions of 31 CFR 103.33 that apply to mutual funds from January 10, 2011 to April 10, 2011; however, this extension of the compliance date has not otherwise amended the applicable regulation.3 The regulatory changes made by including mutual funds within the general definition of “financial institution” were contained in the Chapter X Final Rule. The extended compliance date for these provisions still applies even though they have moved to 31 CFR Chapter X.

On December 3, 2010, FinCEN issued a final rule to amend the BSA regulations regarding the confidentiality of a report of suspicious activity (“SAR”). To reflect the reorganization of BSA rules in Chapter X, FinCEN is issuing this technical amendment rule to move the revised SAR confidentiality rules, without any change to their applicability date, to Chapter X.

As published, the Chapter X Final Rule contains omissions from Subpart C of Part 1026 Rules for Futures Commission Merchants and Introducing Brokers in Commodities. This final rule corrects those omissions.

The effective date of this technical amendment to Chapter X will be March 1, 2011. As noted above, this technical amendment does not affect any of the applicability dates of the rules that are being moved to Chapter X by this technical amendment.

It has been determined that this rulemaking is not a significant regulatory action for purposes of Executive Order 12866. Accordingly, a regulatory impact analysis is not required.

Section 202 of the Unfunded Mandates Reform Act of 1995 (“Unfunded Mandates Act”), Public Law 104-4 (March 22, 1995), requires that an agency prepare a budgetary impact statement before promulgating a rule that may result in expenditure by state, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more in any one year. If a budgetary impact statement is required, section 202 of the Unfunded Mandates Act also requires an agency to identify and consider a reasonable number of regulatory alternatives before promulgating a rule. FinCEN has determined that it is not required to prepare a written statement under Section 202 and has concluded that on balance the rule provides the most cost-effective and least burdensome alternative to achieve the objectives of the rule.

Pursuant to the Regulatory Flexibility Act (RFA) (5 U.S.C. 602et seq.), FinCEN certifies that this final regulation likely will not have a significant economic impact on a substantial number of small entities. The regulatory changes in this final rule merely restructure and re-codify existing regulations and do not alter current regulatory obligations.

This regulation contains no new information collection requirements subject to review and approval by the Office of Management and Budget under the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)et seq.). The information collection requirements for the Bank Secrecy Act, currently codified at 31 CFR Part 103, were previously approved by the Office of Management and Budget under OMB Control numbers 1506-0001 through 1506-0046. Under the Paperwork Reduction Act, an agency may not conduct or sponsor and a person is not required to respond to a collection of information unless it displays a valid OMB control number.

For the reasons set forth above, 31 CFR Chapter X, published October 26, 2010 (75 FR 65842), is amended as follows:

Pursuant to its authorities in Section 7 of the Rivers and Harbors Act of 1917 (40 Stat. 266; 33 U.S.C. 1) and Chapter XIX of the Army Appropriations Act of 1919 (40 Stat. 892; 33 U.S.C. 3), the Corps is amending the danger zone regulations at 33 CFR 334.230 to: Expand the description of continuing hazardous operations in the danger zone to include firing of large or small caliber guns and projectiles, aerial bombing, directed energy technology, and manned or unmanned water craft operations; expand the Middle Danger Zone farther into Upper Machodoc Creek where operations involving directed energy, watercraft maneuvers and transportation of explosives are conducted; add a 100-yard buffer to prevent public contact with unexploded ordinance along the shoreline of the Naval Facility within the Middle Danger Zone; and extend normal hours of operation of hazardous operations from 4 p.m. to 5 p.m. The danger zone represents a public safety buffer beyond the physical boundaries of the test range to further reduce the safety threat to the boating public.

The proposed rule was published in the November 10, 2010, issue of theFederal Register(75 FR 69033) with the docket number COE-2010-0038 and no comments were received.

This final rule is issued with respect to a military function of the Defense Department and the provisions of Executive Order 12866 do not apply.

This final rule has been reviewed under the Regulatory Flexibility Act (Pub. L. 96-354) which requires the preparation of a regulatory flexibility analysis for any regulation that will have a significant economic impact on a substantial number of small entities (i.e.,small businesses and small governments). The economic impact of the amendment to this danger zone does not have an effect on the public, does not result in a navigational hazard, or interfere with existing waterway traffic. Therefore, this final rule does not have a significant economic impact on small entities.

Due to the administrative nature of this action and because there is no intended change in the use of the area, the Corps determined the amendment does not have a significant impact on the quality of the human environment and, therefore, preparation of an environmental impact statement is not required. An environmental assessment was prepared after the public notice period closed. The environmental assessment may be reviewed at the District office listed at the end of theFOR FURTHER INFORMATION CONTACTsection, above.

This final rule does not impose an enforceable duty among the private sector and, therefore, it is not a Federal private sector mandate and it is not subject to the requirements of either Section 202 or Section 205 of the Unfunded Mandates Act. We have also found under Section 203 of the Act that small governments will not be significantly and uniquely affected by this rulemaking.

For the reasons stated in the preamble, the Corps amends 33 CFR part 334 as follows:

In FR Doc. 2011-2478 appearing on page 6327 in theFederal Registerof Friday, February 4, 2011, the following correction is made:

Bottomfish fishing in Hawaii is managed under the Fishery Ecosystem Plan for the Hawaiian Archipelago (Hawaii FEP), developed by the Western Pacific Fishery Management Council (Council) and implemented by NMFS under the authority of the Magnuson-Stevens Fishery Conservation and Management Act. Regulations governing fishing by U.S. vessels in accordance with the Hawaii FEP appear at 50 CFR part 665 and at subpart H of 50 CFR part 600.

The regulations at § 665.211 authorize NMFS and the Council to set a TAC limit for Deep 7 bottomfish for the fishing year, based on the best available scientific, commercial, and other information, and taking into account the associated risk of overfishing. The Deep 7 bottomfish are onaga (Etelis coruscans), ehu (E. carbunculus), gindai (Pristipomoides zonatus), kalekale (P. sieboldii), opakapaka (P. filamentosus), lehi (Aphareus rutilans), and hapuupuu (Epinephelus quernus).

When the TAC limit for the year is projected to be reached, the NMFS Regional Administrator is required to publish notification that the fishery will be closed beginning on a specified date, not earlier than 14 days after the date of filing the closure notice for public inspection at the Office of the Federal Register, until the end of the fishing year in which the TAC is reached. During the closure, no person may fish for, possess, or sell any Deep 7 bottomfish in the Main Hawaiian Islands, except as otherwise authorized by law. Specifically, fishing for, and the resultant possession or sale of, Deep 7 bottomfish by vessels legally permitted to fish in the Pacific Remote Island Areas, and conducted in compliance with all other laws and regulations, are not affected by this closure. There is no prohibition on fishing for or selling non-Deep 7 bottomfish species throughout the year.

The TAC limit for the 2010-2011 fishing year was recommended by the Council, and specified by NMFS, as 254,050 lb (115,235 kg) of Deep 7 bottomfish (75 FR 53606; September 1, 2010). Progress toward the TAC was monitored using information reported by holders of State of Hawaii commercial marine licenses through monthly catch reports submitted to the State. Based on this information, the TAC for the 2010-11 fishing year is projected to be reached on or before March 12, 2011.

In accordance with § 665.211(c), this document serves as advance notification to fishermen, the fishing industry, and the general public that the Main Hawaiian Islands Deep 7 bottomfish fishery will be closed from March 12, 2011, through the remainder of the fishing year. The 2011-12 fishing year is scheduled to open on September 1, 2011. The proposed TAC for the 2011-12 fishing year will be published in theFederal Registerby August 31, 2011.

This action is required by § 665.211(c) and is exempt from review under Executive Order 12866.