Prior documents in this proceeding: Notice of Hearing issued on March 4, 2011, and published in the March 14, 2011, issue of theFederal Register(76 FR 13528). The Recommended Decision was issued on November 3, 2011 and published in the November 9, 2011, issue of theFederal Register(76 FR 69673).

This action is governed by the provisions of sections 556 and 557 of title 5 of the United States Code and is therefore excluded from the requirements of Executive Order 12866.

The proposed amendments are based on the record of a public hearing held April 20 and 21, 2011, in Grand Rapids, Michigan, and a second public hearing held April 26, 2011, in Provo, Utah. The hearing was held pursuant to the provisions of the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), hereinafter referred to as the “Act”, and the applicable rules of practice and procedure governing the formulation of marketing agreements and orders (7 CFR part 900). Notice of this hearing was published in theFederal Registeron March 14, 2011 (76 FR 13528). The notice of hearing contained the proposal submitted by CIAB and one proposal by the Agricultural Marketing Service (AMS). This action is a decision addressing the amendments listed in the notice of hearing.

The proposed amendments were recommended by CIAB and submitted to USDA on September 22, 2010.

The proposed amendments recommended by the CIAB are summarized below.

1. Amendment 1 would revise the term “handle” within the order. This proposal would revise existing section 930.10, Handle, to exclude handler acquisition of grower diversion certificates from definition of handle.

2. Amendment 2 would revise the “marketing policy” provisions in section 930.50 of the order so that grower-diverted cherries are not counted as production in the volume control formula.

3. Amendment 3 would revise the existing section 930.58, so grower-diverted cherries are not treated as actual harvested cherries.

In addition to the proposed amendments to the order, AMS proposed to making any additional changes to the order as may be necessary to conform to any amendment that may result from the hearings.

Upon the basis of evidence introduced at the hearings and the record thereof, the Administrator of AMS issued a Recommended Decision published in theFederal Registeron November 9, 2011 (76 FR 69673). An opportunity to file written exceptions was provided through November 25, 2011. Two comments were received during that period. A comment was received on behalf of the CherryIndustry Administrative Board. The second comment was from a grower/handler in Michigan. Both supported the proposed amendments. Therefore, no changes were adopted by AMS based on the received comments.

Pursuant to the requirements set forth in the Regulatory Flexibility Act (RFA), 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 so that small businesses will not be unduly or disproportionately burdened. Marketing orders and amendments thereto are unique in that they are normally brought about through group action of essentially small entities for their own benefit.

There are approximately 40 handlers of tart cherries subject to regulation under the order and approximately 600 producers of tart cherries in the regulated area. Small agricultural service firms, which include 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 tart cherry producers and handlers are considered small entities under the SBA standards.

The geographic region regulated by the order includes the states of Michigan, New York, Oregon, Pennsylvania, Utah, Washington, and Wisconsin. Acreage devoted to tart cherry production in the regulated area has declined in recent years. According to data presented at the hearings, bearing acreage in 1987-88 totaled 50,050 acres; by 2010-11 it had declined to 35,650 acres. Michigan accounts for 73 percent of total U.S. bearing acreage with 26,200 bearing acres. Utah is second, with a reported 3,300 acres, or approximately nine percent of the total. The remaining states' acreage ranges from 600 to 1,800 acres. The order includes authority for (1) volume regulation, (2) promotion and research, and (3) grade and quality standards. Volume regulation is used under the order to augment supplies during low supply years, with product placed in reserves during large supply years.

Production of tart cherries can fluctuate widely from year to year. The magnitude of these fluctuations is one of the most pronounced for any agricultural commodity in the United States, and is due in large part to weather related conditions during the bloom and growing seasons. This fluctuation in supply presents a marketing challenge for the tart cherry industry because demand for the product is relatively inelastic; meaning a change in supply has a proportionately larger change in price.

According to data presented at the hearing, production has ranged from a low of 62.5 million pounds in 2002-03 to a high of 395.6 million pounds in 1995-96. For 2010-11, Michigan accounted for 71 percent of total U.S. production with 135 million pounds. Utah is second, with a reported 23 million pounds, or approximately twelve percent of the total. The remaining states produce between 15.4 and 1.2 million pounds.

During the hearings, multiple witnesses testified that they did not believe that the proposed amendments would have any adverse impacts on small agricultural service firms or small agricultural producers as defined by the SBA. According to the record, the proposed amendments would help agricultural businesses and growers by encouraging growers to divert some of their tart cherries in the orchard during years of extremely large supply. The proposed amendments would result in higher grower returns during years of extremely large supply. Furthermore, the growers who divert their crop do not incur harvest and transportation costs. The proposed amendments would result in a lower possibility of market saturation. Overall the supply of tart cherries in extremely large supply years would result in higher returns for growers.

The proposed amendments are intended to provide additional flexibility in administering the volume control provisions of the order, and to improve its operation and administration. Record evidence indicates that the proposed amendments are intended to benefit all producers and handlers under the order, regardless of size.

There are three proposed amendments. Amendment one would amend Section 930.10 of the order to change the definition of “handle,” so that handler acquisition of grower diversion certificates is not considered handling. Amendment two would amend the “marketing policy” provisions in Section 930.50 of the order so that grower-diverted cherries are not counted as production in the OSF. Amendment three would amend section 930.58 of the order so that grower-diverted cherries are not treated as actual harvested cherries. The proposed amendments would modify how grower diversions are accounted for under the order.

Evidence presented when the order was promulgated indicated that a grower diversion program could benefit the industry by managing fluctuating supply. Witnesses indicated that the order has been successful in this regard. However, the record indicated that the order should be more flexible in addressing how grower diversions are utilized under the order.

The most efficient method to deal with a surplus is at the lowest level of the production and processing chain. The industry wastes the least amount of resources if it diverts cherries in the orchard. Once they are harvested, chilled, washed, de-stemmed, sorted, pitted, and packed, significantly higher costs are incurred and there is a greater risk of waste. Diverting surplus cherries in the orchard is the most cost effective method of dealing with a surplus situation and provides the largest benefit to growers through lower costs.

The order establishes an opportunity for growers to undertake in-orchard diversions of cherries (section 930.58). These diversions are done during harvest in accordance with procedures defined under the order and are overseen by the CIAB. The CIAB issues grower diversion certificates to the growers that represent the pounds of cherries that were left in the orchard.

Growers redeem the diversion certificates with handlers, who use them as one of their compliance alternatives to meet their reserve or restricted obligation. However, under the current order definition of “handle,” handlers must include the pounds of cherries represented by the certificates as part of the total cherries that have been delivered and processed.

Consequently, grower in-orchard diversions effectively increase the supply of restricted cherries even though none of those cherries were delivered for processing. Grower diversion certificates are considered to be part of the total quantity of cherries that a handler receives and processes, and contribute to the total supply of restricted cherries in the OSF. This creates confusion in accounting for the cherries in years when cherries are restricted for both the growers and processors.

The OSF is the mechanism specified in the order and used by CIAB to determine the relationship between the demand and supply of tart cherries in a given year. When the supply of tart cherries exceeds the average demand, volume regulation is implemented.

In an effort to stabilize supply and prices, the tart cherry industry uses volume regulation which allows the industry to set free and restricted percentages. Free percentage cherries can be marketed by handlers to any outlet, while restricted percentage cherries are placed in a reserve inventory. The primary purpose of setting restricted percentages and placing cherries in a reserve inventory is to attempt to balance supply with demand.

A related component of the OSF under the order involves growers diverting cherries by leaving them un-harvested in the orchard. Handlers can coordinate with their growers in large crop years by encouraging them to divert cherries from production. Handlers can then acquire the diversion certificates issued to growers and use them as credit toward their restriction or reserve obligations.

The interaction of sections 930.10 and 930.50 of the order establishes that grower in-orchard diversion is subject to the restriction percentage calculated for the year. Because of this, grower diversion certificates have less value when growers redeem them with handlers. Therefore, when a handler utilizes the grower diversion certificates received from growers, the certificates have a reduced value as a compliance tool in meeting the restricted obligation. Because the certificates have a reduced value growers will deliver most of their crop to handlers instead of diverting cherries in the orchard in large crop years.

The intent of these amendments is to remove the grower disincentive for in-orchard diversion. If the way grower diversions are accounted for is changed, the grower diversion program is expected to help mitigate the negative effects of oversupply, by increasing the amount of cherries diverted from production.

This action is expected to have a positive impact on growers. The value of the grower diversion certificates is expected to increase. As the value of the certificates increases, grower diversion of cherries in large crop years is expected to increase. Increased grower diversion activity will help to reduce excess supplies, which in turn is expected to have a positive impact on grower returns. In addition, grower costs associated with harvesting and transporting cherries to handlers will be reduced as more cherries are diverted.

This action is also expected to have a positive impact on handlers. As more fruit is diverted in the orchard, handlers will avoid the processing and storage costs that they would otherwise incur if growers harvested and delivered the fruit. Reducing the available supply of cherries is expected to mitigate the price depressing effects that oversupply typically has on the market, resulting in a positive effect for both growers and handlers.

Testimony at the hearing suggested that the amendments, which would encourage grower diversions, would not have a negative impact on small growers or handlers. The hearing record suggests that these amendments would benefit small growers by providing better opportunities to divert cherries in the orchard in large crop years. Small handlers are not always able to ship to export markets or have as much new product activity as larger handlers. Small handlers would benefit from these amendments by providing diversion credits as a way to meet their restrictions.

In accordance with the Paperwork Reduction Act of 1995, (44 U.S.C. Chapter 35), the order's information collection requirements have been previously approved by the Office of Management and Budget (OMB) and assigned OMB No. 0581-0177, (Tart cherries Grown in the States of Michigan, New York, Pennsylvania, Oregon, Utah, Washington and Wisconsin). No changes in those requirements is necessary a result of this action. Should any change become necessary, it would be submitted to OMB for approval.

As with all Federal marketing order programs, reports and forms are periodically reviewed to reduce information requirements and duplication by industry and public sector agencies. USDA has not identified any relevant Federal rules that duplicate, overlap or conflict with this proposed rule. All of these amendments are designed to enhance the administration and functioning of the marketing order to the benefit of the industry.

The implementation of these requirements is not expected to have any additional costs on handlers. In fact, these proposed changes are expected to reduce costs for both growers and handlers.

In addition, the meetings regarding these proposals as well as the hearing dates were widely publicized throughout the existing tart cherry production area and all interested persons were invited to attend the meetings and the hearings and participate in CIAB deliberations on all issues. All CIAB meetings and the hearing were public forums and all entities, both large and small, were able to express views on these issues. The CIAB itself is composed of members representing handlers, producers and the public. Finally, interested persons were invited to present evidence at the hearing on the regulatory and informational impacts of this action on small businesses.

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.

The amendments to Marketing Order 930 proposed herein have been reviewed under Executive Order 12988, Civil Justice Reform. They are not intended to have retroactive effect.

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 USDA a petition stating that the order, any provision of the order, or any obligation imposed in connection with the order, is not in accordance with the law, and request a modification of the order or to be exempted therefrom. A handler is afforded the opportunity for a hearing on the petition. After the hearing, USDA would rule on the petition. The Act provides that the district court of the United Sates in any district in which the handler is an inhabitant, or has his or her principal place of business, has jurisdiction to review USDA's ruling on the petition, provided an action is filed no later than 20 days after the date of the entry of the ruling.

The findings and conclusions, rulings, and general findings and determinations included in the Recommended Decision set forth in the November 9, 2011 (76 FR 69673) issue of theFederal Registerare hereby approved and adopted.

Annexed hereto and made a part hereof is the document entitled “Order Amending the Order Regulating the Handling of Tart Cherries Grown in Michigan, New York, Pennsylvania, Oregon, Utah, Washington, and Wisconsin.” This document has been decided upon as the detailed and appropriate means of effectuating the foregoing findings and conclusions.

It is hereby ordered,that this entire decision be published in theFederal Register.

It is hereby directed that a referendum be conducted in accordance with the procedure for the conduct of referenda (7 CFR 900.400-407) to determine whether the annexed order amending the order regulating the handling of Tart cherries is approved or favored by growers and processors, as defined under the terms of the order, who during the representative period were engaged in the production or processing of tart cherries in the production area.

The representative period for the conduct of such referendum is hereby determined to be July 1, 2010, through, June 30, 2011.

The agents of the Secretary to conduct such referendum are hereby designated to be Christian Nissen, or Jennie Varela, Southeast Marketing Field Office, Marketing Order and Agreement Division, Fruit and Vegetable Programs, AMS, USDA; Telephone: (863)324-3375, Fax (863)325-8793, or Email:Christian.Nissen@ams.usda.gov or Jennie.Varela@ams.usda.gov,respectively.

The findings and determinations hereinafter set forth are supplementary to the findings and determinations which were previously made in connection with the issuance of the marketing order; and all said previous findings and determinations are hereby ratified and affirmed, except insofar as such findings and determinations may be in conflict with the findings and determinations set forth herein.

(a) Findings and Determinations Upon the Basis of the Hearing Record

Pursuant to the provisions of the Agricultural Marketing Agreement Act of 1937, as amended, (7 U.S.C. 601-612), and the applicable rules of practice and procedure effective thereunder (7 CFR part 900), a public hearing was held upon proposed further amendment of Marketing Agreement and Order No. 930, regulating the handling of tart cherries grown in Michigan, New York, Pennsylvania, Oregon, Utah, Washington, and Wisconsin. Upon the basis of the evidence introduced at such hearing and the record thereof, it is found that:

1. The marketing order, as amended, and as hereby proposed to be further amended, and all of the terms and conditions thereof, would tend to effectuate the declared policy of the Act;

2. The marketing order, as amended, and as hereby proposed to be further amended, regulates the handling of tart cherries grown in the production area in the same manner as, and is applicable only to, persons in the respective classes of commercial and industrial activity specified in the marketing order upon which a hearing has been held;

3. The marketing order, as amended, and as hereby proposed to be further amended, is limited in its application to the smallest regional production area which is practicable, consistent with carrying out the declared policy of the Act, and the issuance of several orders applicable to subdivisions of the production area would not effectively carry out the declared policy of the Act;

4. The marketing order, as amended, and as hereby proposed to be further amended, prescribes, insofar as practicable, such different terms applicable to different parts of the production area as are necessary to give due recognition to the differences in the production and marketing of tart cherries grown in the production area; and

5. All handling of tart cherries grown in the production area as defined in the marketing order, is in the current of interstate or foreign commerce or directly burdens, obstructs, or affects such commerce.

It is therefore ordered,That on and after the effective date hereof, all handling of tart cherries grown in Michigan, New York, Pennsylvania, Oregon, Utah, Washington, and Wisconsin shall be in conformity to, and in compliance with the terms and conditions of the said order as hereby proposed to be amended as follows:

The provisions of the proposed marketing order amending the order contained in the Recommended Decision issued on November 3, 2011 and published on November 9, 2011 (76 FR 69673) will be and are the terms and provisions of this order amending the order and are set forth in full below.

For the reasons stated in the preamble, the Agricultural Marketing Service proposes to amend 7 CFR Part 930 as follows:

This rule is issued under Marketing Order No. 985 (7 CFR part 985), as amended, regulating the handling of spearmint oil produced in the Far West (Washington, Idaho, Oregon, and designated parts of Nevada and Utah), 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 (USDA) is issuing this rule in conformance with Executive Order 12866.

This proposed rule has been reviewed under Executive Order 12988, Civil Justice Reform. Under the marketing order now in effect, salable quantities and allotment percentages may be established for classes of spearmint oil produced in the Far West. This proposed rule would establish the quantity of spearmint oil produced in the Far West, by class, which handlers may purchase from, or handle on behalf of, producers during the 2012-2013 marketing year, which begins on June 1, 2012.

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 USDA a petition stating that the order, any provision of the order, or any obligation imposed in connection with the order is not in accordance with law and request a modification of the order or to be exempted therefrom. A handler is afforded the opportunity for a hearing on the petition. After the hearing, USDA 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 to review USDA'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 Committee meets annually in the fall to adopt a marketing policy for the ensuing marketing year or years. In determining such marketing policy, the Committee considers a number of factors, including, but not limited to, the current and projected supply, estimated future demand, production costs, and producer prices for all classes of spearmint oil, as well as input from spearmint oil handlers and producers regarding prospective marketing conditions. During the meeting, the Committee recommends to USDA any volume regulations deemed necessary to meet market requirements and to establish orderly marketing conditions for Far West spearmint oil. If the Committee's marketing policyconsiderations indicate a need for limiting the quantity of any or all classes of spearmint oil marketed, the Committee subsequently recommends the establishment of a salable quantity and allotment percentage for such class or classes of oil for the forthcoming marketing year.

The salable quantity represents the total amount of each class of spearmint oil that handlers may purchase from, or handle on behalf of, producers during the marketing year. Each producer is allotted a prorated share of the salable quantity by applying the allotment percentage to that producer's allotment base for each applicable class of spearmint oil. The producer allotment base is each producer's quantified share of the spearmint oil market based on a statistical representation of past spearmint oil production, with accommodation for reasonable and normal adjustments to such base as prescribed by the Committee and approved by USDA. Salable quantities are established at levels intended to meet market requirements and to establish orderly marketing conditions. Committee recommendations for volume controls are made well in advance of the period in which the regulations are to be effective, thereby allowing producers the chance to adjust their production decisions accordingly.

Pursuant to authority in §§ 985.50, 985.51, and 985.52 of the order, the full eight-member Committee met on October 12, 2011, and recommended salable quantities and allotment percentages for both classes of oil for the 2012-2013 marketing year. The Committee unanimously recommended the establishment of a salable quantity and allotment percentage for Scotch spearmint oil of 782,413 pounds and 38 percent, respectively. For Native spearmint oil, the Committee, in a vote of seven members in favor and one member opposed, recommended the establishment of a salable quantity and allotment percentage of 1,162,473 pounds and 50 percent, respectively. The member opposing the action favored recommending an undetermined higher salable quantity and allotment percentage for Native spearmint oil.

This proposed rule would limit the amount of spearmint oil that handlers may purchase from, or handle on behalf of, producers during the 2012-2013 marketing year, which begins on June 1, 2012. Salable quantities and allotment percentages have been placed into effect each season since the order's inception in 1980.

The U.S. production of Scotch spearmint oil is concentrated in the Far West, which includes Washington, Idaho, Oregon, and a portion of Nevada and Utah. Scotch type oil is also produced in seven other States: Indiana, Michigan, Minnesota, Montana, North Dakota, South Dakota, and Wisconsin. Additionally, Scotch spearmint oil is produced outside of the U.S., with China and India being the largest global competitors of domestic Scotch spearmint oil production.

The Far West's share of total global Scotch spearmint oil sales has varied considerably over the past several decades, from as high as 72 percent in 1988, and as a low as 27 percent in 2002. More recently, sales of Far West Scotch spearmint oil have been approximately 49 percent of world sales, and are expected to hold steady, or increase slightly, in upcoming years.

Despite the Far West's growing share of the world market for Scotch spearmint oil, in recent years the U.S. industry has faced challenging marketing conditions. From 2004 to 2007 the Far West spearmint oil industry experienced relatively good economic conditions, which motivated producers to increase their production acreage. The Far West region, which produced 635,508 pounds of Scotch spearmint oil in 2004, gradually increased production over a five-year period to 1,050,700 pounds in 2009, an increase of 65 percent.

However, as the Far West spearmint oil production was increasing, demand for spearmint oil started to decline significantly due in part to a weakening global economy. Sales, which had peaked at 1,002,779 pounds in 2005, declined to 627,868 pounds in 2009. As production rose and sales dropped, excess inventory of uncommitted Scotch spearmint oil began to accumulate. Scotch spearmint oil carry-in (unsold salable quantity from prior years that is available for sale at the beginning of a new marketing year), which serves as a measure of oversupply in the market, grew from 23,141 pounds in 2007 to 431,028 pounds in 2010.

The Committee's response to the deteriorating marketing environment after 2008 was to recommend the tightening of volume control regulations. The Committee, which had recommended a Scotch spearmint oil salable quantity of 993,067 pounds for 2008-2009, dropped the recommendation to only 566,523 pounds for the 2010-2011 marketing year. Similarly, the recommended allotment percentage was reduced from 50 percent during 2008-2009 to just 28 percent during the 2010-2011 marketing year.

By 2011, production of Far West Scotch spearmint oil had declined to an estimated 753,947 pounds and was at levels considered more in line with demand. Salable carry-in on June 1, 2011, had also dropped to 227,241 pounds.

When the Committee met in October 2011 to consider volume regulation for the 2012-2013 marketing year, the outlook for Far West Scotch spearmint oil was slightly more optimistic than in previous years and an increase in salable quantity and allotment percentage was recommended.

Although the spearmint industry continues to have some concern over the strength of the U.S. economy, at the same time there have been incremental improvements in the marketing conditions for Scotch spearmint oil. Current inventories, steady production, and increases in projected demand are all positive indicators of improving marketing conditions for Scotch spearmint oil, and are approaching levels considered stable for the industry.

Certain factors may be contributing to the recent increase in demand for Far West Scotch spearmint oil. First, although China and India have been significant suppliers of spearmint oil for the past 15 years, they have started to replace some spearmint acreage with other mint varieties, such asMentha arvensis(wild mint), and other non-mint competing crops. In addition, both countries are utilizing more of their domestically produced spearmint oil, removing oil that might otherwise have been exported. Finally, the Midwest region of the U.S. is experiencing a significant reduction in spearmint production. This decrease in regional production is partly due to unexpected disease and weather related factors and partly the result of competition from other alternate crops, such as corn and soybeans, which are currently experiencing higher than average returns.

The Committee estimates that the carry-in of Scotch spearmint oil on June 1, 2012, the primary measure of excess supply, will be approximately 161,154 pounds. This amount is down from the previous year's high of 227,241 pounds and is closer to a carry-in quantity that the Committee would consider to be favorable.

As previously mentioned, production of Scotch spearmint oil has also been decreasing and is nearing a level that the Committee would view as optimum. Production has declined from a high of 1,050,700 pounds in 2009 to 753,947pounds in 2011 and is expected to remain comparatively the same during the 2012 season. The Committee considers this trend to be favorable because it has contributed relief to the industry's oversupply situation.

There are also reports that indicate consumer demand for mint flavored products is steady, providing some optimism for long-term increases in the demand for Far West spearmint oil. Spearmint oil handlers have indicated that demand for Scotch spearmint oil may be gaining strength. Handlers that had projected the 2011-2012 trade demand for Far West Scotch Spearmint oil to be in the range of 785,000 pounds to 1,000,000 pounds now expect it to increase to between 800,000 pounds to 1,100,000 pounds during the 2012-2013 marketing year.

However, this projected increase in demand, generally thought of as a positive indicator for the spearmint oil industry, is viewed cautiously by some industry participants. Due to the inelastic nature of demand for spearmint oil, the industry is aware that demand remains relatively consistent over time. Therefore, some handlers believe that the manufacturers of mint flavored products are currently increasing spearmint oil purchases just to rebuild inventories that were depleted during the worst of the recent U.S. economic recession. As such, those handlers feel that at least some of the recent increase in Scotch spearmint oil sales may not represent an actual increase in sustained demand, but instead a temporary response to fluctuations in the strategic inventories of spearmint product manufacturers.

Given the moderately improving economic indicators for the Far West Scotch spearmint oil industry outlined above, the Committee took a cautiously optimistic perspective into the discussion of establishing appropriate salable quantities and allotment percentages for the upcoming season.

Therefore, at the October 12, 2011, meeting, the Committee recommended the 2012-2013 Scotch spearmint oil salable quantity of 782,413 pounds and allotment percentage of 38 percent. The Committee utilized sales estimates for 2012-2013 Scotch spearmint oil, as provided by several of the industry's handlers, as well as historical and current Scotch spearmint oil production and inventory statistics, to arrive at these recommendations. The volume control levels recommended by the Committee represent an increase of 48,500 pounds and 2 percentage points over the previous year's final salable quantity and allotment percentage, reflecting a more positive assessment of the industry's economic conditions.

The Committee estimates that about 825,000 pounds of Scotch spearmint oil may be sold during the 2012-2013 marketing year. When considered in conjunction with the estimated carry-in of 161,154 pounds of Scotch spearmint oil on June 1, 2012, the recommended salable quantity of 782,413 pounds results in a total available supply of approximately 943,567 pounds of Scotch spearmint oil during the 2012-2013 marketing year. The Committee estimates that carry-in of Scotch spearmint oil into the 2013-2014 marketing year, which begins June 1, 2013, would be 118,567 pounds, a decrease of 42,587 pounds from the beginning of the 2012-2013 marketing year.

The Committee's stated intent in the use of marketing order volume control regulations for Scotch spearmint oil is to keep adequate supplies available to meet market needs and establish orderly marketing conditions. With that in mind, the Committee developed its recommendation for the proposed Scotch spearmint oil salable quantity and allotment percentage for the 2012-2013 marketing year based on the information discussed above, as well as the data outlined below.

(A)Estimated carry-in on June 1, 2012—161,154 pounds.This figure is the difference between the revised 2011-2012 marketing year total available supply of 961,154 pounds and the estimated 2011-2012 marketing year trade demand of 800,000 pounds.

(B)Estimated trade demand for the 2012-2013 marketing year—825,000 pounds.This figure is based on input from producers at six Scotch spearmint oil production area meetings held in late September and early October 2011, as well as estimates provided by handlers and other meeting participants at the October 12, 2011, meeting. The average estimated trade demand provided at the six production area meetings is 859,444 pounds, which is 28,056 pounds less than the average of trade demand estimates submitted by handlers. The average of Far West Scotch spearmint oil sales over the last five years is 743,506 pounds.

(C)Salable quantity required from the 2012-2013 marketing year production—663,846 pounds.This figure is the difference between the estimated 2012-2013 marketing year trade demand (825,000 pounds) and the estimated carry-in on June 1, 2012 (161,154 pounds). This figure represents the minimum salable quantity that may be needed to satisfy estimated demand for the coming year with no carryover.

(D)Total estimated allotment base for the 2012-2013 marketing year—2,058,981 pounds.This figure represents a one percent increase over the revised 2011-2012 total allotment base. This figure is generally revised each year on June 1 due to producer base being lost because of the bona fide effort production provisions of § 985.53(e). The revision is usually minimal.

(E)Computed allotment percentage—32.2 percent.This percentage is computed by dividing the minimum required salable quantity (663,846 pounds) by the total estimated allotment base (2,058,981 pounds).

(F)Recommended allotment percentage—38 percent.This is the Committee's recommendation and is based on the computed allotment percentage (32.2 percent), the average of the computed allotment percentage figures from the six production area meetings (36.2 percent), and input from producers and handlers at the October 12, 2011, meeting. The actual recommendation of 38 percent is based on the Committee's determination that the computed percentage (32.2 percent) may not adequately supply the potential 2012-2013 Scotch spearmint oil market.

(G)The Committee's recommended salable quantity—782,413 pounds.This figure is the product of the recommended allotment percentage (38 percent) and the total estimated allotment base (2,058,981 pounds).

(H)Estimated available supply for the 2012-2013 marketing year—943,567 pounds.This figure is the sum of the 2012-2013 recommended salable quantity (782,413 pounds) and the estimated carry-in on June 1, 2012 (161,154 pounds).

The Native spearmint oil industry is facing market conditions similar to those affecting the Scotch spearmint oil market, although not nearly as severe. Approximately 90 percent of U.S. production of Native spearmint oil is produced within the Far West production area, thus domestic production outside this area is not a major factor in the marketing of Far West Native spearmint oil. This has been an attribute of U.S. production since the order's inception. A minor amount of domestic Native spearmint oil is produced outside of the Far West region in the States of Indiana, Michigan, Minnesota, Montana, North Dakota, South Dakota, and Wisconsin.

According to the Committee, very little true Native spearmint oil is produced outside of the United States. However, India has been producing anincreasing quantity of spearmint oil with qualities very similar to Native spearmint oil. Committee records show that in 1996 the Far West accounted for nearly 93 percent of the global sales of Native or Native quality spearmint oil. By 2008, that share had declined to only 48 percent. Since then, the percentage has been increasing and Far West Native spearmint oil was estimated to be over 70 percent of global sales in 2011.

Despite the fact that Far West Native spearmint oil has been gaining world market share, the industry has endured challenging marketing conditions over the past several years. Overproduction, coupled with a decrease in demand, created a similar oversupply situation for Native spearmint oil as was previously discussed for Scotch spearmint oil. Production of Native spearmint oil in the Far West region was 701,372 pounds in 2004, but increased to 1,453,896 pounds in 2009, an increase of 107 percent in just five years.

In addition to oversupply issues during this period, demand for Native spearmint oil was moving in the opposite direction. Sales of Far West Native oil peaked in 2004 at 1,249,507 pounds and then steadily declined over the next five years, dropping to just 976,888 pounds in 2009. As production rose and sales dropped, excess inventory of uncommitted Native spearmint oil began to accumulate. Salable carry-in of Native oil measured at the beginning of each marketing year, which serves as a measure of oversupply in the market, increased from 83,417 pounds at the beginning of the 2007-2008 marketing year to 343,517 pounds at the beginning of the 2010-2011 marketing year.

The Committee's response to the changing marketing conditions of Native spearmint oil was similar to its response of the Scotch spearmint oil situation. In order to achieve more orderly marketing conditions and provide the optimal level of Native spearmint oil, the Committee recommended initial salable quantities and allotment percentages at the start of each marketing period and subsequently reassessed the market to determine if intra-seasonal increases were necessary. The approach proved successful in providing the market with adequate levels of Native spearmint oil.

By 2010, production of Far West Native spearmint oil had decreased and was more in line with market demand. The Committee, which recommended a Native spearmint oil salable quantity of 953,405 pounds in 2010-2011, increased the recommendation to 1,266,161 pounds in the 2011-2012 marketing period. Similarly, the recommended allotment percentage, which was 50 percent in 2010-2011, increased to 55 percent during the 2011-2012 marketing period. Salable carry-in on June 1, 2011, was estimated to be approximately 164,809 pounds.

When the Committee met on October 12, 2011, to consider volume regulations for the upcoming 2012-2013 marketing year, the general consensus within the Native spearmint oil industry was that marketing conditions were improving marginally in comparison to recent years.

Although overproduction of Native spearmint oil has improved significantly, this continues to be an issue of constant concern for the industry. Production of Far West Native spearmint oil, which has declined from a high of 1,453,896 pounds in 2009 to approximately 1,191,707 pounds in 2011, is expected to remain relatively the same, or increase slightly, during the 2012 season. The Committee considers the current level of production to be consistent with the projected demand of Native spearmint oil in upcoming years.

In addition to an improved supply situation, demand for Far West Native spearmint oil appears to have halted its downward movement, and there is even some optimism for modest improvements in demand during the coming year. Spearmint oil handlers, who previously projected the 2011-2012 trade demand for Far West Native spearmint oil in the range of 1,225,000 pounds to 1,400,000 pounds, have projected trade demand for the 2012-2013 marketing period to be in the range of 1,200,000 pounds to 1,500,000 pounds.

However, similar to Scotch spearmint oil, the slight increase in projected Native spearmint oil demand, generally thought of as a positive indicator for the industry, is viewed by some handlers with caution. As mentioned previously, consumer demand for mint flavored products is expected to be steady or increase slightly moving forward, which provides optimism for long-term improvement in the demand for Far West spearmint oil. Some handlers, though, have reported that the manufacturers of such products may just be temporarily increasing purchases of spearmint oil to rebuild inventories that were depleted during the worst of the current U.S. economic recession. As such, the handlers believe that at least some of the recent increase in purchases does not represent an actual increase in sustained demand but, rather, a short-term response to fluctuations in the strategic inventories of the manufacturers.

Given the economic indicators for the Far West Native spearmint oil industry outlined above, the Committee took a cautiously optimistic perspective into the discussion of establishing appropriate salable quantities and allotment percentages for the upcoming season.

As such, at the October 12, 2011, meeting, the Committee recommended a 2012-2013 Native spearmint oil salable quantity of 1,162,473 pounds and an allotment percentage of 50 percent. The Committee utilized Native spearmint oil sales estimates for 2012-2013, as provided by several of the industry's handlers, as well as historical and current Native spearmint oil market statistics to establish these thresholds. These recommended volume control levels represent a 103,688 pound and a 5 percentage point decrease over the previous year's final salable quantity and allotment percentage. However, the Committee maintains the option to recommend an intra-seasonal increase, as it has done in the past two marketing periods, if demand rises beyond expectations.

The Committee estimates that approximately 1,300,000 pounds of Native spearmint oil may be sold during the 2012-2013 marketing year. When considered in conjunction with the estimated carry-in of 180,970 pounds of Native spearmint oil on June 1, 2012, the recommended salable quantity of 1,162,473 pounds results in an estimated total available supply of 1,343,443 pounds of Native spearmint oil during the 2012-2013 marketing year. The Committee also estimates that carry-in of Native spearmint oil at the beginning of the 2013-2104 marketing year will be approximately 43,443 pounds.

The Committee's stated intent in the use of marketing order volume control regulations for Native spearmint oil is to keep adequate supplies available to meet market needs and establish orderly marketing conditions. With that in mind, the Committee developed its recommendation for the proposed Native spearmint oil salable quantity and allotment percentage for the 2012-2013 marketing year based on the information discussed above, as well as the data outlined below.

(A)Estimated carry-in on June 1, 2012—180,970 pounds.This figure is the difference between the revised 2011-2012 marketing year total available supply of 1,430,970 pounds and the estimated 2011-2012 marketing year trade demand of 1,250,000 pounds.

(B)Estimated trade demand for the 2012-2013 marketing year—1,300,000 pounds.This estimate is established bythe Committee and is based on input from producers at the seven Native spearmint oil production area meetings held in late September and early October 2011, as well as estimates provided by handlers and other meeting participants at the October 12, 2011, meeting. The average estimated trade demand provided at the seven production area meetings was 1,300,833 pounds, whereas the handler estimate ranged from 1,200,000 pounds to 1,500,000 pounds.

(C)Salable quantity required from the 2012-2013 marketing year production—1,119,030 pounds.This figure is the difference between the estimated 2012-2013 marketing year trade demand (1,300,000 pounds) and the estimated carry-in on June 1, 2012 (180,970 pounds). This is the minimum amount that the Committee believes would be required to meet the anticipated 2012-2013 Native spearmint oil trade demand.

(D)Total estimated allotment base for the 2012-2013 marketing year—2,324,945 pounds.This figure represents a one percent increase over the revised 2011-2012 total allotment base. This figure is generally revised each year on June 1 due to producer base being lost due to the bona fide effort production provisions of § 985.53(e). The revision is usually minimal.

(E)Computed allotment percentage—48.1 percent.This percentage is computed by dividing the required salable quantity (1,119,030 pounds) by the total estimated allotment base (2,324,945 pounds).

(F)Recommended allotment percentage—50 percent.This is the Committee's recommendation based on the computed allotment percentage (48.1 percent), the average of the computed allotment percentage figures from the seven production area meetings (51.3 percent), and input from producers and handlers at the October 12, 2011, meeting. The actual recommendation of 50 percent is based on the Committee's determination that the computed percentage (48.1 percent) may not adequately supply the potential 2012-2013 Native spearmint oil market.

(G)The Committee's recommended salable quantity—1,162,473 pounds.This figure is the product of the recommended allotment percentage (50 percent) and the total estimated allotment base (2,324,945 pounds).

(H)Estimated available supply for the 2012-2013 marketing year—1,343,443 pounds.This figure is the sum of the 2012-2013 recommended salable quantity (1,162,473 pounds) and the estimated carry-in on June 1, 2012 (180,970 pounds).

The salable quantity is the total quantity of each class of spearmint oil that handlers may purchase from, or handle on behalf of, producers during a marketing year. Each producer is allotted a share of the salable quantity by applying the allotment percentage to the producer's allotment base for the applicable class of spearmint oil.

The Committee's recommended Scotch and Native spearmint oil salable quantities and allotment percentages of 782,413 pounds and 38 percent, and 1,162,473 pounds and 50 percent, respectively, are based on the goal of establishing and maintaining market stability. The Committee anticipates that this goal would be achieved by matching the available supply of each class of Spearmint oil to the estimated demand of such, thus avoiding extreme fluctuations in inventories and prices.

The proposed salable quantities are not expected to cause a shortage of spearmint oil supplies. Any unanticipated or additional market demand for spearmint oil which may develop during the marketing year could be satisfied by an intra-seasonal increase in the salable quantity. The order makes the provision for intra-seasonal increases to allow the Committee the flexibility to respond quickly to changing market conditions. In addition, producers who produce more than their annual allotments during the 2012-2013 marketing year may transfer such excess spearmint oil to producers who have produced less than their annual allotment, or, up until November 1, 2012, place it into the reserve pool to be released in the future in accordance with market needs.

This proposed regulation, if adopted, would be similar to regulations issued in prior seasons. The average allotment percentage for the five most recent marketing years for Scotch spearmint oil is 36.5 percent, while the average allotment percentage for the same five-year period for Native spearmint oil is 49.3 percent. Costs to producers and handlers resulting from this rule are expected to be offset by the benefits derived from a stable market and improved returns. In conjunction with the issuance of this proposed rule, USDA has reviewed the Committee's marketing policy statement for the 2012-2013 marketing year. The Committee's marketing policy statement, a requirement whenever the Committee recommends volume regulation, fully meets the intent of § 985.50 of the order.

During its discussion of potential 2012-2013 salable quantities and allotment percentages, the Committee considered: (1) The estimated quantity of salable oil of each class held by producers and handlers; (2) the estimated demand for each class of oil; (3) the prospective production of each class of oil; (4) the total of allotment bases of each class of oil for the current marketing year and the estimated total of allotment bases of each class for the ensuing marketing year; (5) the quantity of reserve oil, by class, in storage; (6) producer prices of oil, including prices for each class of oil; and (7) general market conditions for each class of oil, including whether the estimated season average price to producers is likely to exceed parity. Conformity with the USDA's “Guidelines for Fruit, Vegetable, and Specialty Crop Marketing Orders” has also been reviewed and confirmed.

The establishment of these salable quantities and allotment percentages would allow for anticipated market needs. In determining anticipated market needs, the Committee considered historical sales, as well as changes and trends in production and demand. This rule also provides producers with information on the amount of spearmint oil that should be produced for the 2012-2013 season in order to meet anticipated market demand.

Pursuant to requirements set forth in the Regulatory Flexibility Act (RFA) (5 U.S.C. 601-612), the Agricultural Marketing Service (AMS) has considered the economic impact of this action on small entities. Accordingly, AMS has prepared this initial 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 the rules issued thereunder, are unique in that they are brought about through group action of essentially small entities acting on their own behalf.

There are eight spearmint oil handlers subject to regulation under the order, and approximately 32 producers of Scotch spearmint oil and approximately 88 producers of Native spearmint oil in the regulated production area. Small agricultural service firms are 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.

Based on the SBA's definition of small entities, the Committee estimates that 2 of the 8 handlers regulated by the order could be considered small entities. Most of the handlers are large corporations involved in the international trading of essential oils and the products of essential oils. In addition, the Committee estimates that 15 of the 32 Scotch spearmint oil producers and 26 of the 88 Native spearmint oil producers could be classified as small entities under the SBA definition. Thus, a majority of handlers and producers of Far West spearmint oil may not be classified as small entities.

The Far West spearmint oil industry is characterized by producers whose farming operations generally involve more than one commodity, and whose income from farming operations is not exclusively dependent on the production of spearmint oil. A typical spearmint oil-producing operation has enough acreage for rotation such that the total acreage required to produce the crop is about one-third spearmint and two-thirds rotational crops. Thus, the typical spearmint oil producer has to have considerably more acreage than is planted to spearmint during any given season. Crop rotation is an essential cultural practice in the production of spearmint oil for purposes of weed, insect, and disease control. To remain economically viable with the added costs associated with spearmint oil production, a majority of spearmint oil-producing farms fall into the SBA category of large businesses.

Small spearmint oil producers generally are not as extensively diversified as larger ones and as such are more at risk from market fluctuations. Such small producers generally need to market their entire annual allotment and do not have the luxury of having other crops to cushion seasons with poor spearmint oil returns. Conversely, large diversified producers have the potential to endure one or more seasons of poor spearmint oil markets because income from alternate crops could support the operation for a period of time. Being reasonably assured of a stable price and market provides small producing entities with the ability to maintain proper cash flow and to meet annual expenses. Thus, the market and price stability provided by the order potentially benefit small producers more than such provisions benefit large producers. Even though a majority of handlers and producers of spearmint oil may not be classified as small entities, the volume control feature of this order has small entity orientation.

This proposed rule would establish the quantity of spearmint oil produced in the Far West, by class, that handlers may purchase from, or handle on behalf of, producers during the 2012-2013 marketing year. The Committee recommended this rule to help maintain stability in the spearmint oil market by matching supply to estimated demand, thereby avoiding extreme fluctuations in supplies and prices. Establishing quantities that may be purchased or handled during the marketing year through volume regulations allows producers to plan their spearmint planting and harvesting to meet expected market needs. The provisions of §§ 985.50, 985.51, and 985.52 of the order authorize this rule.

Instability in the spearmint oil sub-sector of the mint industry is much more likely to originate on the supply side than the demand side. Fluctuations in yield and acreage planted from season-to-season tend to be larger than fluctuations in the amount purchased by handlers. Notwithstanding the recent global recession and the overall negative impact on demand for consumer goods that utilize spearmint oil, demand for spearmint oil tends to change slowly from year to year.

Demand for spearmint oil at the farm level is derived from retail demand for spearmint-flavored products such as chewing gum, toothpaste, and mouthwash. The manufacturers of these products are by far the largest users of mint oil. However, spearmint flavoring is generally a very minor component of the products in which it is used, so changes in the raw product price have virtually no impact on retail prices for those goods.

Spearmint oil production tends to be cyclical. Years of relatively high production, with demand remaining reasonably stable, have led to periods in which large producer stocks of unsold spearmint oil have depressed producer prices for a number of years. Shortages and high prices may follow in subsequent years, as producers respond to price signals by cutting back production.

The significant variability of the spearmint oil market is illustrated by the fact that the coefficient of variation (a standard measure of variability; “CV”) of Far West spearmint oil grower prices for the period 1980-2010 (when the marketing order was in effect) is 0.17 compared to 0.34 for the decade prior to the promulgation of the order (1970-79) and 0.48 for the prior 20-year period (1960-79). This provides an indication of the price stabilizing impact of the marketing order.

Production in the shortest marketing year was about 48 percent of the 31-year average (1.89 million pounds from 1980 through 2010) and the largest crop was approximately 163 percent of the 31-year average. A key consequence is that, in years of oversupply and low prices, the season average producer price of spearmint oil is below the average cost of production (as measured by the Washington State University Cooperative Extension Service).

The wide fluctuations in supply and prices that result from this cycle, which was even more pronounced before the creation of the order, can create liquidity problems for some producers. The order was designed to reduce the price impacts of the cyclical swings in production. However, producers have been less able to weather these cycles in recent years because of the increase in production costs. While prices have been relatively steady, the cost of production has increased to the extent that plans to plant spearmint may be postponed or changed indefinitely. Producers are also enticed by the prices of alternative crops and their lower cost of production.

In an effort to stabilize prices, the spearmint oil industry uses the volume control mechanisms authorized under the order. This authority allows the Committee to recommend a salable quantity and allotment percentage for each class of oil for the upcoming marketing year. The salable quantity for each class of oil is the total volume of oil that producers may sell during the marketing year. The allotment percentage for each class of spearmint oil is derived by dividing the salable quantity by the total allotment base.

Each producer is then issued an annual allotment certificate, in pounds, for the applicable class of oil, which is calculated by multiplying the producer's allotment base by the applicable allotment percentage. This is the amount of oil of each applicable class that the producer can sell.

By November 1 of each year, the Committee identifies any oil that individual producers have produced above the volume specified on their annual allotment certificates. This excess oil is placed in a reserve pool administered by the Committee.

There is a reserve pool for each class of oil that may not be sold during the current marketing year unless USDA approves a Committee recommendation to increase the salable quantity and allotment percentage for a class of oil and make a portion of the pool available. However, limited quantities of reserve oil are typically sold by one producer to another producer to filldeficiencies. A deficiency occurs when on-farm production is less than a producer's allotment. In that case, a producer's own reserve oil can be sold to fill that deficiency. Excess production (higher than the producer's allotment) can be sold to fill other producers' deficiencies. All of these provisions need to be exercised prior to November 1 of each year.

In any given year, the total available supply of spearmint oil is composed of current production plus carryover stocks from the previous crop. The Committee seeks to maintain market stability by balancing supply and demand, and to close the marketing year with an appropriate level of carryout. If the industry has production in excess of the salable quantity, then the reserve pool absorbs the surplus quantity of spearmint oil, which goes unsold during that year, unless the oil is needed for unanticipated sales.

Under its provisions, the order may attempt to stabilize prices by (1) limiting supply and establishing reserves in high production years, thus minimizing the price-depressing effect that excess producer stocks have on unsold spearmint oil, and (2) ensuring that stocks are available in short supply years when prices would otherwise increase dramatically. The reserve pool stocks, which are increased in large production years, are drawn down in years where the crop is short.

An econometric model was used to assess the impact that volume control has on the prices producers receive for their commodity. Without volume control, spearmint oil markets would likely be over-supplied. This could result in low producer prices and a large volume of oil stored and carried over to the next crop year. The model estimates how much lower producer prices would likely be in the absence of volume controls.

The Committee estimated trade demand for the 2012-2013 marketing year for both classes of oil at 2,125,000 pounds, and that the expected combined carry-in will be 342,124 pounds. This results in a combined required salable quantity of 1,782,876 pounds. With volume control, sales by producers for the 2012-2013 marketing year would be limited to 1,944,886 pounds (the recommended salable quantity for both classes of spearmint oil).

The recommended allotment percentages, upon which 2012-2013 producer allotments are based, are 38 percent for Scotch and 50 percent for Native. Without volume controls, producers would not be limited to these allotment levels, and could produce and sell additional spearmint. The econometric model estimated a $1.19 decline in the season average producer price per pound (from both classes of spearmint oil) resulting from the higher quantities that would be produced and marketed without volume control. The surplus situation for the spearmint oil market that would exist without volume controls in 2012-2013 also would likely dampen prospects for improved producer prices in future years because of the buildup in stocks.

The use of volume controls allows the industry to fully supply spearmint oil markets while avoiding the negative consequences of over-supplying these markets. The use of volume controls is believed to have little or no effect on consumer prices of products containing spearmint oil and will not result in fewer retail sales of such products.

The Committee discussed alternatives to the recommendations contained in this rule for both classes of spearmint oil. The Committee discussed and rejected the idea of recommending that there not be any volume regulation for both classes of spearmint oil because of the severe price-depressing effects that would occur without volume control.

After computing the initial 32.2 percent Scotch spearmint oil allotment percentage, the Committee considered various alternative levels of volume control for Scotch spearmint oil. Given the moderately improving marketing conditions, there was consensus that the allotment percentage for 2012-2013 should be more than the percentage established for the 2011-2012 marketing year (36 percent). After considerable discussion, the eight-member committee unanimously determined that 782,413 pounds and 38 percent would be the most effective salable quantity and allotment percentage, respectively, for the 2012-2013 marketing year.

The Committee was also able to reach a consensus regarding the level of volume control for Native spearmint oil. After first determining the computed allotment percentage at 48.1 percent, the Committee, in a vote of seven members in favor and one member opposed, recommended 1,162,473 pounds and 50 percent for the effective salable quantity and allotment percentage, respectively, for the 2012-2013 marketing year. The dissenting member felt that the salable quantity and allotment percentage for Native spearmint oil should be set at an unidentified higher level.

As noted earlier, the Committee's recommendation to establish salable quantities and allotment percentages for both classes of spearmint oil was made after careful consideration of all available information, including: (1) The estimated quantity of salable oil of each class held by producers and handlers; (2) the estimated demand for each class of oil; (3) the prospective production of each class of oil; (4) the total of allotment bases of each class of oil for the current marketing year and the estimated total of allotment bases of each class for the ensuing marketing year; (5) the quantity of reserve oil, by class, in storage; (6) producer prices of oil, including prices for each class of oil; and (7) general market conditions for each class of oil, including whether the estimated season average price to producers is likely to exceed parity. Based on its review, the Committee believes that the salable quantity and allotment percentage levels recommended would achieve the objectives sought.

Without any regulations in effect, the Committee believes the industry would return to the pronounced cyclical price patterns that occurred prior to the order, and that prices in 2012-2013 could decline substantially below current levels.

According to the Committee, the recommended salable quantities and allotment percentages are expected to facilitate the goal of establishing orderly marketing conditions for Far West spearmint oil.

As previously stated, annual salable quantities and allotment percentages have been issued for both classes of spearmint oil since the order's inception.

In accordance with the Paperwork Reduction Act of 1995, (44 U.S.C. Chapter 35), the order's information collection requirements have been previously approved by the Office of Management and Budget (OMB) and assigned OMB No. 0581-0178, Vegetable and Specialty Crops. No changes in those requirements as a result of this action are necessary. Should any changes become necessary, they would be submitted to OMB for approval.

This proposed rule would establish the salable quantities and allotment percentages of Class 1 (Scotch) spearmint oil and Class 3 (Native) spearmint oil produced in the Far West during the 2012-2013 marketing year. Accordingly, this proposed rule would not impose any additional reporting or recordkeeping requirements on either small or large spearmint oil producers or handlers. As with all Federal marketing order programs, reports and forms are periodically reviewed to reduce information requirements and duplication by industry and public sector agencies. Furthermore, USDA has not identified any relevant Federal rulesthat duplicate, overlap, or conflict with this proposed rule.

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.

In addition, the Committee's meeting was widely publicized throughout the spearmint oil industry and all interested persons were invited to attend the meeting and participate in Committee deliberations on all issues. Like all Committee meetings, the October 12, 2011, meeting was a public meeting and all entities, both large and small, were able to express views on this issue. Finally, interested persons are invited to submit comments on this proposed rule, including the regulatory and informational impacts of this action on small businesses.

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

A 30-day comment period is provided to allow interested persons to respond to this proposed rule. Thirty days is deemed appropriate because: (1) The 2012-2013 fiscal period begins on June 1, 2012, and a final determination on the salable quantities and allotment percentages should be made prior to handlers purchasing from, or handling on behalf of, producers any oil for the ensuing marketing year; and (2) handlers are aware of this action, which was recommended by the Committee at a public meeting and is similar to other salable quantities and allotment percentages issued in past years.

For the reasons set forth in the preamble, 7 CFR part 985 is proposed to be amended as follows:

On January 24, 2012, DOE published aFederal Registernotice announcing the availability of its preliminary technical support document for energy conservation standards for automatic commercial ice makers, as well as a public meeting to discuss and receive comment on the preliminary analysis. 77 FR 3404. The NOPM provides for the submission of comments by March 9, 2012. The public meeting to discuss the preliminary analysis was held on February 16, 2012. At the public meeting, commenters requested that DOE provide additional information not contained in the preliminary technical support document. DOE agreed to provide the additional information. In addition, DOE received several requests for an extension to the comment period to review this additional information. Therefore, DOE has determined that an extension of the public comment period is appropriate to allow for the review of the additional information, and is hereby extending the comment period. DOE will consider any comments received by April 22, 2012 to be timely.

Under 10 CFR 1004.11, any person submitting information that he or she believes to be confidential and exempt by law from public disclosure should submit two copies: One copy of the document including all the information believed to be confidential, and one copy of the document with the information believed to be confidential deleted. DOE will make its own determination about the confidential status of the information and treat it according to its determination.

Factors of interest to DOE when evaluating requests to treat submitted information as confidential include (1) a description of the items; (2) whether and why such items are customarily treated as confidential within the industry; (3) whether the information is generally known by or available from other sources; (4) whether the information has previously been made available to others without obligation concerning its confidentiality; (5) an explanation of the competitive injury to the submitting person which would result from public disclosure (6) when such information might lose its confidential character due to the passage of time; and (7) why disclosure of the information would be contrary to the public interest.

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

This rulemaking is promulgated under the authority described in Subtitle VII, Part A, Sections 46101, “Complaint and Investigations” and 46104, “Evidence,” and Part B, Section 47122, “Administrative.” Under these sections, Congress provided for the FAAto prescribe regulations for practices, methods, and procedures to hear complaints concerning compliance by federally-assisted airports and carry out investigations and conduct proceedings in a way conducive to justice and the proper dispatch of business. This rulemaking is within the scope of that authority because it would amend rules necessary to investigate, hear, and provide rulings on matters related to federally-assisted airport conduct.

The FAA is required by statute to adjudicate complaints on matters within the agency's authority (49 U.S.C. 46014). Title 14 CFR part 16, Rules of Practice for Federally-Assisted Airport Enforcement Proceedings (Part 16), provides a process for investigating and adjudicating complaints against sponsors for violation of federal obligations. For this NPRM, a sponsor is a recipient of federal assistance, usually an airport operator. This rulemaking would improve the efficiency of Part 16 proceedings by providing an electronic filing alternative, opportunities for sponsors to seek early disposition of complaints in certain cases, and clarification of processes already described in the rule. It would affect those parties involved in filing and responding to formal complaints. It would also affect the FAA offices involved in investigating and adjudicating those complaints.

The FAA, sponsors, aeronautical users, and other stakeholders have 15 years of experience with Part 16 as implemented in 1996.1 In general, Part 16 has been a useful process for resolving complaints regarding sponsor compliance. The FAA does not intend to change the basic features of the process. Rather, the FAA has identified updates to Part 16 that could improve the process and reduce time required to address certain cases, based on agency and stakeholder lessons learned.

The FAA believes the agency, sponsors, aeronautical users, and other stakeholders in Part 16 proceedings would benefit from adding the following to the rule:

• Procedures for concluding the investigation by “summary judgment” or dismissal without an answer by the sponsor.

• Termination of complainant standing in certain cases where the FAA finds the sponsor in noncompliance on all issues raised in the complaint.

• Optional electronic filing procedures.

• Procedures for filing complaints under Title 49 CFR part 23, Participation of Disadvantaged Business Enterprises (DBEs) in Airport Concessions, and 49 CFR part 26, Participation by DBEs in Department of Transportation (DOT) Financial Assistance Programs.

• Intervention and other participation.

• The process for ordering corrective action for noncompliant sponsors.

• Processes involving the Director, including procedures for seeking rehearing of Director's Determinations upon a showing of good cause.

• Standard of Proof and Burden of Proof requirements.

• Standards for raising new issues on appeal to the Associate Administrator.

• Consent Orders.

• Requests for testimony of agency employees.

• Processes involving the Associate Administrator, including procedures for seeking rehearing of Final Agency Decisions upon a showing of good cause.

• Transfer of responsibility for decision-making for civil rights cases.

• Availability of Judicial Review.

• Extension of the time period for filing pleadings by mail.

The FAA expects benefits of these proposed changes to include a decrease in both time spent and volume of paper documents required to process Part 16 complaints.

Part 16 provides a specific procedure for filing and adjudicating formal complaints against sponsors where these complaints involve violations of federal obligations incurred as a condition of receiving federal assistance. Federal assistance is either a grant from the FAA, or transferred surplus or non-surplus federal property received by a sponsor for airport purposes.

Sponsors agree to a list of standard conditions, or grant assurances, when accepting a grant.3 Similar requirements also attach to the transfer of federal surplus property to sponsors and are often specified as obligations in surplus property deeds.4 Persons directly and substantially affected by an alleged violation of one of these assurances and/or obligations may file a complaint under Part 16 for resolution.5 The sponsor must file an answer and may include a motion to dismiss the complaint in the answer. The complainant may then file a reply to the answer. The sponsor may then file a rebuttal. Through this process the complainant and the sponsor each have the opportunity to file written statements with the FAA.

The FAA Administrator has delegated authority to take action and issue orders for airport matters to the FAA Chief Counsel and the Associate Administrator for Airports.6 The authority includes the responsibility of investigating and adjudicating complaints against sponsors. In practice, the Airports and Environmental Law Division (AGC-600), the Airports line of business' Office of Airport Compliance and Management Analysis (ACO), and, in cases involving alleged civil rights violations, the FAA Office of Civil Rights (ACR), review the complaint.7 The Airports and Environmental Law Division reviews the complaint to ensure it meets the basic filing and docketing requirements of Part 16.8 The Airports and Environmental Law Division coordinates its docketing or dismissal with the Office of Airport Compliance and Management Analysis. The Airports and Environmental Law Division also reviews Director's Determinations and Final Agency Decisions for legal sufficiency. A legal sufficiency review assesses legal standards and includes consideration of whether the document substantially satisfies applicable procedural and regulatory requirements.

The Director of the Office of Airport Compliance and Management Analysis,the Deputy Assistant Administrator for the Office of Civil Rights, or their respective designee (“Director”) either dismisses the complaint, or conducts an investigation and issues a Director's Determination. If the Director's Determination includes a finding of noncompliance, it generally requires corrective action to return the sponsor to compliance. A sponsor may be entitled to a hearing on the Director's Determination. Either party may appeal the Director's Determination, or, if a hearing is held, the hearing officer's initial decision. A party makes such an appeal to the Associate Administrator for Airports or the Assistant Administrator for Civil Rights, as appropriate, for issuance of a Final Agency Decision. A party may then file an appeal of the Final Agency Decision to a United States Court of Appeals.

The FAA published an NPRM in 1994 (the 1994 NPRM) first proposing to set up specific rules of practice for the filing of complaints and adjudication of compliance matters involving federally-assisted airports.9 The resulting Final Rule, published in 1996 (the 1996 Final Rule), addressed exclusively airport compliance matters arising under the Airport and Airway Improvement Act (AAIA) of 1982, as amended and recodified; certain airport-related provisions of the Federal Aviation Act of 1958, as amended; the Surplus Property Act, as amended; predecessors to those acts; and rules, grant agreements, and documents of conveyance issued or made under those acts.10 Before 1996, the FAA handled complaints filed against sponsors under the agency's general complaint procedures in 14 CFR part 13, Investigative and Enforcement Procedures (Part 13). The FAA had found these processes to be cumbersome and inefficient for addressing complaints against airports involving financial assistance matters. Amending Part 13 and establishing Part 16 provided a dedicated procedure to the airport community for resolution of such complaints. The informal complaint procedures of Part 13 (§ 13.1), however, may be utilized to facilitate a Part 16 complainant meeting the pre-complaint resolution requirements of 14 CFR 16.21. Under that section, potential complainants are required to engage in good faith efforts to resolve the disputed matter informally with potentially responsible respondents before filing a formal Part 16 complaint. Informal resolution may include mediation, arbitration, use of a dispute resolution board, or other form of third party assistance, including assistance from the responsible FAA ADO or regional airports division. When filing a Part 16 complaint, the complainant must certify that good faith efforts have been made to achieve informal resolution. In our experience, the informal resolution process has been effective in bringing both parties together in a timely manner to resolve differences and misunderstandings about the rights and responsibilities of the airport sponsor and the aeronautical user.

In 1999, DOT cited the FAA's Part 16 procedures when it established 49 CFR part 26, Participation by Disadvantaged Business Enterprises (DBEs), in DOT Financial Assistance Programs.11 Title 49 CFR 26.105(c) allows any person who knows of a violation of this part by a recipient of FAA funds to file a complaint under 14 CFR part 16. A person filing a Part 16 complaint under the authority provided in 49 CFR 26.105(c) is accorded the same processes as any party filing under Part 16, but need not be directly and substantially affected by the sponsor's alleged violation.

On July 5, 2001, the Director of Airport Safety and Standards issued a Notice of Limited Delegation in which he transferred authority to the Associate Administrator for Civil Rights to serve as “Director” in accordance with 14 CFR 16.31 for a specific case.12 The Notice went on to say that most Part 16 complaints address issues within the Director of Airport Safety and Standards' expertise, but that complaints filed by DBEs under 49 CFR parts 23 and 26 are more properly handled by the Office of Civil Rights because of that office's expertise in such matters. The Notice also specifically limited the delegation to the subject case, although it concluded by stating that a final delegation of authority would be included in an upcoming amendment to 14 CFR part 16.

Subsequently, on February 22, 2002, the Director of the Office of Airport Safety and Standards and the Associate Administrator for Airports each issued memoranda delegating blanket authority in civil rights violations to the Deputy Assistant Administrator for Civil Rights and the Assistant Administrator for Civil Rights, respectively. These memoranda delegated authority to prepare and issue Director's Determinations pursuant to 14 CFR 16.31 and final decisions pursuant to 14 CFR 16.33 and 16.241(b)-(f), respectively.

Section 16.3 currently defines “Director” to be the Director of the Office of Airport Safety and Standards. The Director holds primary responsibility for issuing decisions in response to Part 16 complaints. In 2008, the FAA Administrator created the Office of Airport Compliance and Field Operations, and reassigned responsibility for adjudication of complaints filed against sponsors under Part 16 to that organization. The goal of these changes was to allow the Office of Airport Safety and Standards to provide greater emphasis on core safety and engineering mission requirements.13 With added changes to the FAA Airports organization in 2011, the Administrator assigned the compliance function to the newly reorganized Office of Airport Compliance and Management Analysis.14

Various stakeholders with experience filing or responding to Part 16 complaints have expressed opinions to the FAA on how to improve the complaint adjudication process. To obtain initial input early in 2011 as the agency considered pursuing rulemaking, the FAA held “listening sessions” with stakeholder organizations whose members have been most affected by Part 16 proceedings. The FAA met with representatives from the following associations:

• Airports Council International-North America (ACI-NA), whose member airport operators may be the subject of complaints and therefore be required to respond under Part 16 (February 2011);

• National Air Transportation Association (NATA), whose member aviation service businesses such as fixed base operators (FBOs), charter providers, and aircraft management companies are often involved in Part 16 complaints (March 2011); and

• Aircraft Owners and Pilots Association (AOPA), whose member general aviation operators are also often involved in Part 16 complaints (April 2011).

The intent of Part 16 was to expedite substantially the handling and disposition of airport-relatedcomplaints. The FAA's experience with the use of Part 16 has been positive, in that the rule improved on the process available to complainants under Part 13 before Part 16's implementation. While decisions sometimes take longer than the basic time frames provided in Part 16 for many reasons, there is no backlog of formal complaints awaiting resolution.

Part 16 has not been updated since its original implementation in 1996. As described earlier in this preamble, existing Part 16 processes have worked well but are in need of revision based on agency and stakeholder experience during the past 15 years. The FAA proposes adding new processes and revising existing processes to clarify Part 16 and apply lessons learned to provide for more efficient use of agency and stakeholder time and resources during complaint proceedings.

Current § 16.23(d) requires the respondent to file an answer to any complaint not dismissed by the FAA under § 16.25, within 20 days of the date of service of the FAA notification of docketing. Under the present rule, it is not worthwhile for the respondent to move to dismiss a complaint prior to preparing an answer because the submission of a motion to dismiss does not suspend the 20-day time-limit for filing an answer.15 The FAA has found that the respondent usually begins the sometimes costly and time-consuming effort of drafting an answer, complete with supporting documentation, at the same time as it drafts the motion to dismiss. The practical result is that, as suggested by current § 16.23(j), the motion to dismiss and the answer are almost always submitted at the same time. This practice is inconsistent with that of other agencies and with the Federal Rules of Civil Procedure.16 For example, 49 CFR 821.17 of the National Transportation Safety Board's (NTSB) Rules of Practice in Air Safety Proceedings, found at 49 CFR 821.1,et seq.,provides an opportunity for the NTSB to make a ruling through a summary judgment or grant a motion to dismiss.17

In addition to lacking consistency with other agency rules, the FAA believes that the current rule has required the full investigation process for some complaints that clearly lacked sufficient legal basis. The volume of complaints filed under Part 16 (231 through March 2011) creates a significant workload for the agency and for respondents alike.

Sponsor representatives in Part 16 actions have indicated to the FAA that the full process under the current rule is burdensome in cases where complaints may be considered frivolous. They have specifically expressed concern about complaints they believe were filed merely to harass, intimidate, or cause financial hardship to a respondent. These stakeholders have suggested that a responsive motion could be used to dispose of frivolous complaints.

The FAA recognizes that “frivolous” is in the eye of the beholder. That said, it is not consistent with the intent of Part 16 or good government to require full response and investigation of clearly frivolous complaints. Although such complaints are clearly subject to dismissal under §§ 16.23, 16.25, and 16.27, the FAA recognizes that there may be differences of opinion about their applicability. Accordingly, the FAA believes it is appropriate to bring the Part 16 processes more in line with the Federal Rules of Civil Procedure18 and other agencies' practices and permit respondents' some recourse and opportunity for “self-help,” consistent with adequate due process. Therefore, the FAA is proposing a new § 16.26, Motions to dismiss and motions for summary judgment. These proposed rules could relieve the respondent and the agency from completing a full investigative process in certain cases by allowing the respondent to file a motion to dismiss or a motion for summary judgment in lieu of preparing an answer. Under proposed § 16.26(e), the time-limits for filing an answer would begin to run after the Director's decision regarding the motion for dismissal or summary judgment. Under proposed § 16.26(f), the time-limits for filing an answer would begin to run, in cases where the Director does not act on the motion, within 30 days of the date an answer to a motion is due under proposed § 16.26. The proposed change provides the FAA, the complainant, and the respondent an opportunity to narrow the issues, and allows the FAA to conserve resources by investigating only legitimate, non-frivolous grant compliance issues.

Specifically, proposed § 16.26(a) includes a process for summary judgment whereby the respondent can request, and the FAA can issue, a decision as a matter of law when there are no genuine issues of material fact. Proposed § 16.26(b) includes a process whereby the respondent can file, and the FAA can grant or deny, a motion to dismiss a complaint that fails to state a claim or where the claim is legally inadequate because the facts do not support the claim. Proposed new §§ 16.26(c)-(g) provide more requirements in these cases.

The FAA believes that a complainant who has prevailed on all issues at the Director's decision stage has received due process. Therefore, the FAA is proposing to amend § 16.109 so that a complainant may not appeal a Director's Determination that has found a respondent in noncompliance on all issues. Current § 16.109 does not address the continuing participation of a complainant when the Director finds a sponsor in noncompliance on all issues identified in the initial complaint. It is inconsistent with the process for a complainant to appeal an action in which the complainant has prevailed. Such appeals would produce unnecessary workload for the agency and respondents. When a complainant prevails at the Director's Determination level, the objectives of the Part 16 process have been met because the complainant has identified sponsor noncompliance and the FAA has agreed through issuance of a Director's Determination.

In the 1994 NPRM, the FAA proposed that the respondent and the agency would be parties to the hearing and named in the hearing order. The FAA received comments stating that the complainant should also be a party to the hearing. The National Business Aviation Association (NBAA) argued that “the complainant's participation will help develop the record of the case.”19 As a result, the final rule allowed the complainant to be a party to the hearing with the respondent and the agency.20 In the preamble to the final rule, the FAA stated:

Since the enactment of Part 16, there has been confusion about the role of the complainant on appeal, given that at the hearing stage, the FAA has identified the noncompliance and taken over the role of complainant. The agency therefore becomes the prosecutor in a proceeding before a hearing officer. The FAA has the burden of proof to establish the validity of its initial determination, including the proposed order of compliance. Therefore, the FAA is clarifying that the role of the complainant at the hearing stage is limited to assisting, as needed, in the development of the factual record.22

The existing Part 16 process does not include provisions for electronic filing. Based on the success of an electronic filing test program that the FAA started in 2010, the effective implementation of such filing programs by other federal agencies, and the DOT's implementation of an electronic Part 16 Docket through regulations.gov, the FAA is proposing a new § 16.13(h) to add an electronic filing alternative for parties to use when filing pleadings as part of a Part 16 proceeding. In addition, the FAA is proposing new definitions for “electronic filing” and “writing or written,” and amended language for the definition of “mail” in § 16.3.

Use of electronic filing would be an alternative rather than a requirement. In most cases, the electronic filing process would begin at the complaint filing stage for the complainant and at the answer stage for the respondent. The proposed rule would continue to require the complainant to serve the respondent with the initial complaint by personal delivery, facsimile, or mail unless the respondent has previously agreed in writing to electronic filing. Any party that has agreed to file electronically would be able to later opt out of the electronic filing process. In these cases, the proposed rule would require all other parties to then serve the party that has opted out by personal delivery, facsimile, or mail. Finally, unless the FAA provides specific notice that it will not accept electronic service, any party could file pleadings electronically with the FAA docket clerk at any stage of the Part 16 process except the hearing stage. At the hearing stage, a hearing officer could direct the parties to serve pleadings by another means.

The FAA expects that introducing the proposed electronic filing option would save participating parties and the FAA both time and money by foregoing the need to print documents on paper and then send them by delivery or mail. The new electronic filing procedures would expedite the process, reduce paper file storage requirements, and help in document transmittal and routing. The FAA also expects to reduce administrative costs because documents submitted electronically are more easily placed in the FAA's electronic docket on regulations.gov.

The present rule does not reference Disadvantaged Business Enterprises' (DBEs) rights to file complaints under the Part 16 process. As described in section II.B of this preamble, the current rule predates the 1999 implementation of 49 CFR part 26, Participation by Disadvantaged Business Enterprises in DOT Financial Assistance Programs.23 Present Part 16 does not describe how persons who are eligible to file a complaint in accordance with 49 CFR 26.105(c) may do so under Part 16, nor does it make clear that such a person does not have to be directly and substantially affected by the alleged violation to file a complaint.

To align with 49 CFR part 26, the FAA is proposing to change 14 CFR part 16 by—

• Revising the definition ofComplaintin § 16.3 to include a document filed by a person under 49 CFR 26.105(c) against a recipient of FAA funds alleged to have violated a provision of 49 CFR parts 23 and/or 26.

• Adding new §§ 16.21(a) and (b) that would relieve persons filing under 49 CFR 26.105(c) from the informal resolution process required by this section.

• Adding language in § 16.23(a) to clarify the complaint procedures for complainants filing under 49 CFR 26.105(c).

• Adding language in § 16.23(b)(4) to exclude a complainant filing under 49 CFR 26.105(c) from the requirement to describe how the respondent directly and substantially affected him or her by “things done or omitted to be done.”

Current § 16.207 addresses third-party intervention and other participation in Part 16 proceedings. This section has been generally effective, but FAA experience has led the agency to identify several updates that would improve the intervention process and reflect current practices. First, the current rule does not limit third-party participation to the hearing stage, nor does it restrict such participation to the discretion of the hearing officer. The FAA therefore proposes to add a new § 16.207(a) to reflect this. This addition would compel the redesignation of current paragraphs (a) through (d) as newly redesignated paragraphs (b) through (e). The FAA also proposes to recognize specifically the hearing officer's discretion over participation at this stage by replacing “FAA” with “hearing officer” in current § 16.207(d) (which the agency is proposing to redesignate as § 16.207(e)).

The FAA requires, in practice, any party that wishes to intervene in Part 16 proceedings to do so with a written motion. To make this practice transparent, the FAA is proposing to add the word “written” to the language in current § 16.207(a), which it is proposing to also redesignate as § 16.207(b).

Currently, § 16.207(b) states that a person may be granted leave to intervene if that person has a property or financial interest that may not be addressed adequately by the parties. The FAA believes that, as written, parties may infer that the intervenor may use the Part 16 process for monetary gains. This inference would be wrong. In practice, neither an intervenor nor a complainant should expect monetary gains, or, equitable or declaratory relief through the Part 16 process.

The FAA emphasizes that the Part 16 process is not a means of providing compensation to complainants for damages incurred due to alleged sponsor violations. The purpose of the Part 16 process, as established in the 1996 rule, has been to address sponsor noncompliance with federal obligations. Monetary relief, equitable relief, and declaratory judgment have not been available to complainants as remedies. Yet, some complainants have included in their complaints specific requests for monetary or declaratory relief under the current rule. Part 16 findings of noncompliance cannot and do not result in the award of monetary damages.24 The FAA proposes to clarify this point by amending language in current § 16.207(b) to replace “if the person has a property or financial interest that may not be addressed adequately by the parties” with “if the person has an interest that will benefit the proceedings,” as well as redesignating this paragraph as § 16.207(c).

Presently, Part 16 identifies two remedies available for the FAA to correct a noncompliant sponsor. First, § 16.109 describes procedures to terminate or prohibit federal grants, but does not address corrective action. Second, current §§ 16.241(c) and (f)(3) provide for the Associate Administrator to make a statement of corrective action, if appropriate, and identifies sanctions for continued noncompliance. The FAA has found that corrective action can be effective at the Director/initial decision level, but also could benefit from clarified requirements. The FAA proposes to allow the Director to have the same authority as the Associate Administrator to require submission and completion of a Corrective Action Plan. These changes would expedite the benefits of corrective action.

Proposed new §§ 16.109(c) and 16.245(d)(1) specify that the Director would be able to either enforce a Corrective Action Plan, or begin proceedings to revoke or deny the respondent's application for federal assistance. If a respondent fails to complete the Corrective Action Plan requirement to the satisfaction of the FAA, proposed § 16.109(d) would allow the FAA to begin proceedings to revoke or deny the sponsor's application for federal assistance. Proposed § 16.109(f) would give the process finality when a sponsor has fully complied with a Corrective Action Plan and/or the sponsor has corrected the areas of noncompliance by allowing the Director to terminate the proceedings.

In addition, the FAA proposes to add language to § 16.33 to address an unusual situation concerning the interaction of a proposed Corrective Action Plan and an appeal of a Director's Determination. This situation occurs when the agency finds against the sponsor in its initial determination and proceeds to work with the sponsor on the Corrective Action Plan, but at the same time the sponsor appeals the Director's Determination to the Associate Administrator for Airports. It results in confusion when on the one hand, the agency is working with the sponsor on correcting its behavior, and on the other hand, the sponsor is challenging the legal basis for the Corrective Action Plan and alleging error on the Director's part. To avoid this situation, the FAA is proposing to hold any Corrective Action Plan in abeyance until the appeal is resolved and/or a final order is issued.

The FAA has seen the need to clarify the role of the Director in certain areas. Section 16.11 states, in part, that the Director will conduct investigations, issue orders, and take such other actions as are necessary to fulfill the purposes of this part. It goes on to address the Director's authority to set time limits. The FAA has experienced situations where a party has continued to file documents with the Director after the issuance of a Director's Determination. Most of these documents challenge the determination and some ask for reconsideration. Some administrative processes used by other agencies allow the official making an initial decision to retain jurisdiction of a case and address the parties' concerns after rendering a decision.25 However, it is the practice for the FAA to terminate the initial stage with the issuance of the Director's Determination and then to allow the Associate Administrator to consider any challenges to the Director's Determination. Part 16 does not presently have a process that specifically allows a party to ask for reconsideration of an initial decision. Allowing the Associate Administrator to take up any challenges to the Director's Determination starting at the issuance of the Director's Determination would adequately address parties' interests and uphold due process.

Therefore, proposed § 16.11(c) provides that the Director's jurisdiction terminates at the issuance of a Director's Determination, except where the determination contains a Corrective Action Plan and the sponsor does not appeal the determination.

The FAA is also proposing to change the section title to better describe the contents of § 16.11. The authority described in this section is broader than that described by “Expedition and other modification of process,” and would be better described by changing this section heading to “General processes.”

Additionally, the FAA finds it necessary to clarify whether or not the Director may be petitioned for rehearing after issuing his or her Director's Determination. The 1994 NPRM preamble indicates that the FAA did not intend to make rehearings available to the parties immediately after issuance of the Director's Determination. However, the 1996 Final Rule makes no mention of rehearings at that stage in either the regulatory text or the preamble, which dealt only with the availability of appeals to the Associate Administrator.26 In order to increase clarity and transparency, the FAA is proposing language in new § 16.31(e) to preclude requests for “rehearing, reargument, reconsideration, or modification” at this stage without a showing of “good cause.”

Good cause is a “substantial or legally sufficient reason for doing something * * * `good cause' might include the existence of a fraud, lack of notice to the parties or new evidence.”27 It is a strict standard under which rehearing, reargument or reconsideration is not granted lightly.28 The FAA believes that full reconsideration after the Director's Determination stage is unnecessary because of the availability of an appeal to the Associate Administrator. This position is consistent with the 1994 NPRM's intent to “[p]rohibit interlocutory appeals and requests for reconsideration, and focus instead on an effective appeals process.”29

The present rule addresses Standard of Proof and Burden of Proof only as they relate to hearing officer actions, in §§ 16.227 and 16.229 respectively. The present rule does not provide a Standard of Proof and a Burden of Proof that the Director and Associate Administrator must utilize. However, it has been the practice of the Director and the Associate Administrator to use thesame Standard of Proof and Burden of Proof throughout all stages of Part 16 proceedings, even though inconsistent treatment is permitted under the current rules. This inconsistent treatment is neither the intent nor the practice of the agency. In order to apply the same requirements throughout all stages of Part 16 proceedings, the agency proposes to add new § 16.31(b) addressing Standard of Proof, and new §§ 16.23(k) and 16.33(e) addressing Burden of Proof.

Currently, § 16.33(d) does not prescribe any limitations for the scope of the proceedings, and does not specifically prevent parties from raising new issues at the review stage. Parties in past cases have attempted to introduce new issues, offer additional evidence, and expand the scope of the complaint at the appeal stage. Such practices have delayed the issuance of Final Agency Decisions and have unfairly required parties responding to an appeal to defend extraneous claims.

Other agencies limit the scope of an appeal, presumably for reasons of economy and fairness.30 The FAA recognizes that such limits are useful, and proposes to limit issues for consideration on appeal by adding new sections addressing proceedings with and without hearings. Therefore, under §§ 16.33(e) and 16.245(e), if the Associate Administrator sustains the Director or the hearing officer, the Associate Administrator would limit review to whether or not—

• The findings of fact are each supported by a preponderance of reliable, probative and substantial evidence contained in the record;

• The conclusions are made in accordance with law, precedent, and policy;

• The questions on appeal are substantial; and

• Any prejudicial errors have occurred.

Present § 16.243 provides an opportunity for parties to settle a case by entering into a consent order at the hearing stage of a proceeding. In practice, parties have entered into consent orders with the approval of the FAA at the non-hearing stage as well. This has proven to be a viable way to settle cases. Therefore, the FAA proposes to add a new § 16.34 to explicitly provide for this practice. The new process for the non-hearing stage in proposed § 16.34 would be consistent with the process in current § 16.243 for the hearing stage.

Current § 16.215 addresses the general requirements for depositions at the hearing stage of Part 16 proceedings. It does not specifically consider the deposition of agency employees. The FAA believes that this omission has provided an opportunity for parties to acquire technical data from FAA employees to support their case, rather than obtaining expert witness support. Proposed new § 16.215(e) would remove this opportunity. Specifically, new § 16.215(e)(1) would align Part 16 with the provisions of 49 CFR part 9, Testimony of Employees of the Department and Production of Records in Legal Proceedings. New § 16.215(e)(2) would allow parties to depose agency employees only with the specific written permission of the Chief Counsel.

The FAA believes that sections in current Part 16 pertaining to the Associate Administrator's authority and review would benefit from consolidation and clarification, especially with respect to the authority of the Associate Administrator in ordering corrective action after a finding of noncompliance. The FAA is proposing the following changes:

• Add new § 16.33(f) clarifying the requirements for submission of a petition to consider new evidence on appeal to the Associate Administrator to show “good cause.”31

• Remove the Subpart G heading label “Initial Decisions, Orders and Appeals” from before §§ 16.241 through 16.243, since these sections relate to the processes concerning hearings and are therefore more fittingly included in Subpart F, Hearings.

• Add a new § 16.245, Associate Administrator Review after a Hearing, to Subpart F, Hearings. New paragraphs would include:

○ § 16.245(a), providing for permanent transfer of authority in civil rights cases to the FAA Assistant Administrator for Civil Rights (as described in section III.D.10 of this preamble);

○ § 16.245(b), providing a more complete description of the Administrator's Authority to change a hearing officer's initial decision or remand it to the hearing officer if the Associate Administrator finds that the hearing officer erred;

○ § 16.245(c), describing the Associate Administrator's authority after a hearing, as adopted from current § 16.241(f) with an increase of the time limit from 30 to 60 days for the Associate Administrator to issue a Final Agency Decision (to reflect current practice and resources);

○ § 16.245(d), Orders of Compliance, explaining Associate Administrator authority to impose a Corrective Action Plan when the FAA finds a sponsor in violation (proposed § 16.245(d)(1)), and to remand the case to the Director for enforcement of the Corrective Action Plan (proposed § 16.245(d)(2)) (see also section III.D.2 of this preamble);

○ §§ 16.245(e) and (f), limiting issues that the Associate Administrator will consider upon appeal (as described in section III.D.5 of this preamble); and

○ § 16.245(g), providing for appeal of Final Agency Decisions issued by the Associate Administrator in accordance with existing Subpart H, Judicial review (which the FAA proposes to redesignate as Subpart G).

As discussed at several points in this preamble, the present rule predates the 1999 DOT amendment to 49 CFR parts 23 and 26 that provided for DBE filing of complaints under 14 CFR part 16, and does not provide specific direction for complaints involving civil rights issues. 49 CFR part 26 is designed to help ensure that there is a level playing field for socially and economically disadvantaged firms to compete for airport contracting and concession opportunities.

Section III.C of this preamble specifically addresses the process for complainants filing under 49 CFR parts 23 and 26. However, the FAA also believes the new rule should reflect the agency practice of transferring the investigation and adjudication of part 16 complaints involving civil rights issues to the Office of Civil Rights. The FAArecognizes that its Office of Civil Rights is best suited to issue decisions in part 16 cases filed under 49 CFR parts 23 and 26.32 The FAA would formalize the authority of the FAA Office of Airports to transfer appropriate complaints, in whole or in part, to the Office of Civil Rights by amending the definitions of Associate Administrator and Director in current § 16.3, and adding new §§ 16.11(d), 16.33(a), and 16.245(a) to address the involvement of the Office of Civil Rights throughout the proceedings.

Presently, § 16.247(a) provides that a person may seek judicial review of a final decision and order of the Associate Administrator. Section 16.247(b) states the decisions and determinations that do not constitute a final agency order. Although § 16.25 states that complaints may be dismissed with prejudice, in whole or in part for three reasons, the regulatory text is silent about whether such partial dismissals are interlocutory orders or are final orders subject to immediate judicial review. The discussion of dismissals under § 16.25 in the preamble to the 1996 Final Rule states:

The FAA saves time and resources by permitting direct judicial review of dismissals based upon the types of issues set forth in § 16.25. The parties similarly save time and resources. Moreover, that position is consistent with decisions of United States Courts of Appeals, which have found that certain orders of administrative agencies may be appealed when the claims involved in the order are separable from others in the case at hand and important enough that a decision from the courts, without full agency review, is desirable.35

At this time, the FAA reiterates, consistent with the reasoning in the preamble of the current rule and the 1994 NPRM, the Director has the discretion to issue partial as well as complete dismissals with prejudice. The FAA proposes to amend § 16.247(a) to clarify that such orders of dismissal with prejudice under § 16.25 are final agency orders subject to judicial review.

Presently, § 16.17(c) provides that 3 days shall be added to the prescribed period after the service if the service of a document is by mail. The FAA is proposing to extend this time period to 5 days in the new rule to align it with requirements contained in the agency's part 13 Rules of Practice found at 14 CFR 13.211(e).

The FAA proposes other minor updates to part 16 that include:

• Replacing the term “Director's determination” with “Director's Determination” throughout the rule to reflect what has become a term of art;

• Replacing references to the FAA Office of Airport Safety and Standards in the definition of “Director” (§ 16.3) with the FAA Office of Airport Compliance and Management Analysis, to reflect current FAA Office of Airport organization (as described in section II.B of this preamble);

• Adding reference to “other Federal obligations” to §§ 16.1(a)(3)-(5) to ensure that any special conditions, terms or requirements incorporated in grant agreements are included within the provisions of general applicability to initiate a part 16 proceeding;

• Removing § 16.301, Definitions, inserting the definitions of “decisional employee” and “ex parte communication” currently in § 16.301 to § 16.3, Definitions, and redesignating §§ 16.303, 16.305, and 16.307 as §§ 16.301, 16.303, and 16.305, respectively;

• Adding citation for 49 U.S.C. 47133, Restriction on use of revenues, which became effective in 1996 after the publication of current part 16, to the part 16 List of Authorities and § 16.1(a)(5) (it is technically necessary to include references to 49 U.S.C. § 47133, Restriction on use of airport revenue, for completeness even though it supplements and parallels 49 U.S.C. 47107(b));

• Amending the filing address in § 16.13 to reflect that the docket clerk in part 16 proceedings is now located in AGC-600;

• Adding clarifying instructions for filing motions (§ 16.19);

• Adding § 16.19(e) Extension by motion, requiring that “[a] party shall file a written motion for extension of time no later than 3 days before the document is due,” to ensure clarity and transparency to the process of granting extensions. The day is described as a “business-day” to avoid the 3-day limit encompassing a Saturday, Sunday, or legal holiday; and

• Adding to § 16.21(c) requirements that certifications of a party's efforts to obtain informal resolution involve descriptions of efforts that are “relatively recent” and “demonstrated by pertinent documentation.”

The FAA believes that these updates would align the rule with current practice and terminology.

Changes to Federal regulations must undergo several economic analyses. First, Executive Order 12866 and Executive Order 13563 direct that each Federal agency shall propose or adopt a regulation only upon a reasoned determination that the benefits of the intended regulation justify its costs. Second, the Regulatory Flexibility Act of 1980 (Pub. L. 96-354) requires agencies to analyze the economic impact of regulatory changes on small entities. Third, the Trade Agreements Act (Pub. L. 96-39) prohibits agencies from setting standards that create unnecessary obstacles to the foreign commerce of the United States. In developing U.S. standards, the Trade Act requires agencies to consider international standards and, where appropriate, that they be the basis of U.S. standards. Fourth, the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) requires agencies to prepare a written assessment of the costs, benefits, and other effects of proposed or final rules that include a Federal mandate likely to result in the expenditure by State, local, or tribal governments, in the aggregate, or by the private sector, of $100 million or more annually (adjusted for inflation with base year of 1995). This portion of the preamblesummarizes the FAA's analysis of the economic impacts of this proposed rule.

Department of Transportation Order DOT 2100.5 prescribes policies and procedures for simplification, analysis, and review of regulations. If the expected cost impact is so minimal that a proposed or final rule does not warrant a full evaluation, this order permits that a statement to that effect and the basis for it be included in the preamble if a full regulatory evaluation of the cost and benefits is not prepared. Such a determination has been made for this proposed rule.

The reasoning for this determination follows: The FAA's Office of Airport Compliance and Management Analysis handles complaints made against federally-assisted airports. Part 16 provides a process for investigating and adjudicating complaints against airport operators for violation of federal obligations. This proposed rule clarifies and improves the efficiency of the current part 16 regulations for adjudicating complaints on matters within the agency's authority. These changes would be cost beneficial as they decrease time spent and volume of paper documents required to process part 16 complaints. Resource savings would be produced by allowing parties and the government to use the new electronic filing process and allow a respondent to file a motion to dismiss or a motion for summary judgment in lieu of an answer. Once the complainant has prevailed at the Director's Determination, no further positive outcome can be obtained through FAA action. At this point there is no further purpose to be served by the complainant and further appeals (and participation) are not productive.

The expected outcome will be a minimal impact with positive net benefits, and a regulatory evaluation was not prepared. The FAA requests comments regarding this determination.

FAA has, therefore, determined that this proposed rule is not a “significant regulatory action” as defined in section 3(f) of Executive Order 12866, and is not “significant” as defined in DOT's Regulatory Policies and Procedures.

The Regulatory Flexibility Act of 1980 (Pub. L. 96-354) (RFA) establishes “as a principle of regulatory issuance that agencies shall endeavor, consistent with the objectives of the rule and of applicable statutes, to fit regulatory and informational requirements to the scale of the businesses, organizations, and governmental jurisdictions subject to regulation. To achieve this principle, agencies are required to solicit and consider flexible regulatory proposals and to explain the rationale for their actions to assure that such proposals are given serious consideration.” The RFA covers a wide-range of small entities, including small businesses, not-for-profit organizations, and small governmental jurisdictions.

Agencies must perform a review to determine whether a rule will have a significant economic impact on a substantial number of small entities. If the agency determines that it will, the agency must prepare a regulatory flexibility analysis as described in the RFA. However, if an agency determines that a rule is not expected to have a significant economic impact on a substantial number of small entities, section 605(b) of the RFA provides that the head of the agency may so certify and a regulatory flexibility analysis is not required. The certification must include a statement providing the factual basis for this determination, and the reasoning should be clear.

As noted above, the proposed changes to part 16 are cost relieving. Accordingly, the proposed rule would not have a significant impact on a substantial number of small entities. Therefore, the FAA certifies that this proposed rule would not have a significant economic impact on a substantial number of small entities. The FAA requests comments regarding this determination. Specifically, the FAA requests comments on whether the proposed rule creates any specific compliance costs unique to small entities. Please provide detailed economic analysis to support any cost claims.

The Trade Agreements Act of 1979 (Pub. L. 96-39), as amended by the Uruguay Round Agreements Act (Pub. L. 103-465), prohibits Federal agencies from establishing standards or engaging in related activities that create unnecessary obstacles to the foreign commerce of the United States. Pursuant to these Acts, the establishment of standards is not considered an unnecessary obstacle to the foreign commerce of the United States, so long as the standard has a legitimate domestic objective, such as the protection of safety, and does not operate in a manner that excludes imports that meet this objective. The statute also requires consideration of international standards and, where appropriate, that they be the basis for U.S. standards. The FAA has assessed the potential effect of this proposed rule and determined that it would have only a domestic impact and therefore create no obstacles to the foreign commerce of the United States.

Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) requires each Federal agency to prepare a written statement assessing the effects of any Federal mandate in a proposed or final agency rule that may result in an expenditure of $100 million or more (in 1995 dollars) in any one year by State, local, and tribal governments, in the aggregate, or by the private sector; such a mandate is deemed to be a “significant regulatory action.” The FAA currently uses an inflation-adjusted value of $143.1 million in lieu of $100 million. This proposed rule does not contain such a mandate; therefore, the requirements of Title II of the Act do not apply.

The Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) requires that the FAA consider the impact of paperwork and other information collection burdens imposed on the public. The FAA has determined that there would be no new requirement for information collection associated with this proposed rule.

In keeping with U.S. obligations under the Convention on International Civil Aviation, it is FAA policy to conform to International Civil Aviation Organization (ICAO) Standards and Recommended Practices to the maximum extent practicable. The FAA has determined that there are no ICAO Standards and Recommended Practices that correspond to these proposed regulations.

FAA Order 1050.1E, Policies and Procedures for Considering Environmental Impacts, identifies FAA actions that are categorically excluded from preparation of an environmental assessment or environmental impact statement under the National Environmental Policy Act in the absence of extraordinary circumstances. The FAA has determined this rulemaking action qualifies for the categorical exclusion identified in paragraph 312d and involves no extraordinary circumstances.

The FAA has analyzed this proposed rule under the principles and criteria of Executive Order 13132, Federalism. The agency has determined that this action would not have a substantial direct effect on the States, or the relationship between the Federal Government and the States, or on the distribution of power and responsibilities among the various levels of government, and, therefore, would not have Federalism implications.

The FAA analyzed this proposed rule under Executive Order 13211, Actions Concerning Regulations that Significantly Affect Energy Supply, Distribution, or Use (May 18, 2001). The agency has determined that it would not be a “significant energy action” under the executive order and would not be likely to have a significant adverse effect on the supply, distribution, or use of energy.

The FAA invites interested persons to participate in this rulemaking by submitting written comments, data, or views. The agency also invites comments relating to the economic, environmental, energy, or federalism impacts that might result from adopting the proposals in this document. The most helpful comments reference a specific portion of the proposal, explain the reason for any recommended change, and include supporting data. To ensure the docket does not contain duplicate comments, commenters should send only one copy of written comments, or if comments are filed electronically, commenters should submit only one time.

The FAA will file in the docket all comments it receives, as well as a report summarizing each substantive public contact with FAA personnel concerning this proposed rulemaking. Before acting on this proposal, the FAA will consider all comments it receives on or before the closing date for comments. The FAA will consider comments filed after the comment period has closed if it is possible to do so without incurring expense or delay. The agency may change this proposal in light of the comments it receives.

An electronic copy of rulemaking documents may be obtained from the Internet by—

1. Searching the Federal eRulemaking Portal (http://www.regulations.gov);

2. Visiting the FAA's Regulations and Policies Web page athttp://www.faa.gov/regulations_policiesor

3. Accessing the Government Printing Office's Web page athttp://www.gpoaccess.gov/fr/index.html.

Copies may also be obtained by sending a request to the Federal Aviation Administration, Office of Rulemaking, ARM-1, 800 Independence Avenue SW., Washington, DC 20591, or by calling (202) 267-9680. Commenters must identify the docket or notice number of this rulemaking.

All documents the FAA considered in developing this proposed rule, including economic analyses and technical reports, may be accessed from the Internet through the Federal eRulemaking Portal referenced in item (1) above.

In consideration of the foregoing, the Federal Aviation Administration proposes to amend chapter I of title 14, Code of Federal Regulations as follows:

We invite you to send any written relevant data, views, or arguments about this proposed AD. Send your comments to an address listed under theADDRESSESsection. Include “Docket No. FAA-2010-0480; Directorate Identifier 2010-NM-035-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this proposed AD. We will consider all comments received by the closing date and may amend this proposed AD because of those comments.

We will post all comments we receive, without change, tohttp://www.regulations.gov,including any personal information you provide. We will also post a report summarizing each substantive verbal contact we receive about this proposed AD.

We issued an NPRM to amend 14 CFR part 39 to include an AD that would apply to Model 747-400 and 747-400D series airplanes. That NPRM was published in theFederal Registeron May 19, 2010 (75 FR 27966). That NPRM proposed to require installing aluminum gutter reinforcing brackets tothe forward and aft drip shield gutters of the MEC; and adding a reinforcing fiberglass overcoat to the top surface of the MEC drip shield, including an inspection for cracking and holes in the MEC drip shield, and corrective actions if necessary. That NPRM also provided for an option to install an MEC drip shield drain system, which, if accomplished, would extend the compliance time for adding the reinforcing fiberglass overcoat to the top surface of the MEC drip shield.

Since we issued the previous NPRM (75 FR 27966, May 19, 2010), difficulties were found in accessing areas for repair due to a service bulletin error. We have determined that changing the locating dimensions of support brackets and re-routing the forward drain tubes are necessary due to interference with an existing pitot/static shroud.

We gave the public the opportunity to comment on the previous NPRM (75 FR 27966, May 19, 2010). The following presents the comments received on the NPRM and the FAA's response to each comment.

Boeing requested that we refer to Boeing Alert Service Bulletin 747-25A3555, Revision 1, dated July 27, 2011, which includes steps to take into account an interference issue found during part installation.

We agree to update the references in this supplemental NPRM to Boeing Alert Service Bulletin 747-25A3555, Revision 1, dated July 27, 2011. (The previous NPRM (75 FR 27966, May 19, 2010) refers to Boeing Alert Service Bulletin 747-25A3555, dated November 4, 2009.) Paragraphs (c) and (g) of this supplemental NPRM have been updated to refer to Boeing Alert Service Bulletin 747-25A3555, Revision 1, dated July 27, 2011. Boeing Alert Service Bulletin 747-25A3555, Revision 1, dated July 27, 2011, revises the locating dimensions of the brackets and changes the routing of the forward drain tubes due to difficulties in accessing areas for repair. It also revises the airplane groups.

Delta Air Lines requested provisions in the previous NPRM (75 FR 27966, May 19, 2010) to electively remove the stanchions, fittings, and tubing installed when doing the interim action, after completing the terminating inspection, repair, and fiberglass overlay reinforcement on the top surface of the drip shields. Delta Air Lines stated that these items add 26 pounds to the weight of the aircraft, and if the interim action is optional, it may be removed once the terminating action is implemented.

We disagree with the request. We have determined that removal of the hardware installed to the MEC area during the interim action poses concerns on the effect on the protection offered by the terminating action (overcoat layer). Removing the hardware could compromise the seals by creating disbonded seams and reopening cracks in the MEC polycarbonate casing, and could result in other damage. Although the interim action is optional, it should be considered a permanent installation once performed. It should be noted that doing both the interim and terminating actions provides two layers of water protection to the MEC, which greatly minimizes the issue of future water contamination. We have discussed this issue with Boeing. No change has been made to the supplemental NPRM in this regard.

Boeing requested that we change the wording of paragraphs (g)(1) and (g)(2)(i) of the previous NPRM (75 FR 27966, May 19, 2010) from “MEC drip shield aluminum gutter” to “aluminum reinforcing brackets on the MEC drip shield gutter” to clarify that the original drip shield gutter is composite material and the reinforcement material is aluminum.

We agree with the request and have changed paragraphs (g)(1) and (g)(2)(i) of this supplemental NPRM accordingly.

Boeing requested that we revise the previous NPRM (75 FR 27966, May 19, 2010) to change the parts costs associated with installing the brackets and adding the overcoat. Boeing stated that the parts costs for the aluminum reinforcing bracket kit is $2,408 instead of “none” as specified in the previous NPRM. Boeing also stated that the parts costs for the fiberglass reinforcement is $1,731 (3 panels × $577/panel) plus the cost of fiberglass, resin, and repair materials for cracks and holes in the drip shield instead of “none” as mentioned in the previous NPRM.

We agree with the request and have changed the “Estimated costs” table of this AD accordingly. However, because the costs for parts required for bracket installation depends on the work package, we have stated the cost as “Up to $2,408” in the “Estimated costs” table of this supplemental NPRM.

We are proposing this supplemental NPRM because we evaluated all the relevant information and determined the unsafe condition described previously is likely to exist or develop in other products of the same type design. Certain changes described above expand the scope of the original NPRM (75 FR 27966, May 19, 2010). As a result, we have determined that it is necessary to reopen the comment period to provide additional opportunity for the public to comment on this supplemental NPRM.

This supplemental NPRM would require accomplishing the actions specified in Boeing Alert Service Bulletin 747-25A3555, Revision 1, dated July 27, 2011, as described previously.

We estimate that this proposed AD affects 71 airplanes of U.S. registry.

We estimate the following costs to comply with this proposed AD:

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. “Subtitle VII: Aviation Programs” describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701: “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

We determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed above, I certify this proposed regulation:

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

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

(3) Will not affect intrastate aviation in Alaska, and

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

Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:

I. Scope of ANPRM

The scope of this ANPRM includes all of the industries that have anti-money laundering (AML) program requirements under FinCEN's regulations. At this time, and as an initial matter, FinCEN is considering developing a CDD rule to cover banks, brokers or dealers in securities, mutual funds, futures commission merchants, and introducing brokers in commodities; accordingly, this ANPRM is focused primarily on these institutions. However, FinCEN believes that a CDD rule may be appropriate for all financial institutions subject to FinCEN's regulations, and will consider extending such a rule to such other financial institutions in the future.

Therefore, in addition to focusing on input from those types of institutions that would be subject to an initial rulemaking, FinCEN is also specifically requesting comment from other institutions, such as money services businesses (including providers of prepaid access), insurance companies, casinos, dealers in precious metals, stones and jewels, non-bank mortgage lenders or originators, and other entities under FinCEN's regulations, in particular regarding issues related to identification and verification of customers as discussed in Section IV A. of this ANPRM. While these institutions currently are not mandated to obtain the minimum mandatory information required to identify customers as is mandated in regulations pertaining to depository institutions, brokers or dealers, and others described above, in some cases they still must, on a risk-based approach, obtain all relevant and appropriate customer-related information necessary to administer an effective anti-money laundering program.1

FinCEN exercises regulatory functions primarily under the Currency and Financial Transactions Reporting Act of 1970, as amended by the USA PATRIOT Act of 2001 (the Act) and other legislation, which legislative framework is commonly referred to as the “Bank Secrecy Act” (BSA),2 which authorizes the Secretary of the Treasury (Secretary) to require financial institutions to keep records and file reports that “have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings, or in the conduct of intelligence or counterintelligence activities, including analysis, to protect against international terrorism”3 The Secretary has delegated to the Director of FinCEN the authority to implement, administer and enforce compliance with the BSA and associated regulations.4 FinCEN is authorized to impose AML program requirements on financial institutions,5 as well as to require financial institutions to maintain procedures to ensure compliance with the BSA and FinCEN's implementing regulations or guard against money laundering.6

As reflected in recent guidance and enforcement actions, the cornerstone of a strong BSA/AML compliance program is the adoption and implementation of internal controls, which include comprehensive CDD policies, procedures, and processes for all customers, particularly those that present a high risk for money laundering or terrorist financing.7 Aspart of their basic business model, financial institutions seek at some level to identify their customers and their needs in order to best service them. The requirement that a financial institution know its customers, and the risks presented by its customers, is basic and fundamental to the development and implementation of an effective BSA/AML compliance program.8 In particular, appropriate CDD policies, procedures, and processes assist a financial institution in identifying, detecting, and evaluating unusual or suspicious activity.9 Furthermore, financial institutions may not be able to perform effective risk assessments of their customers or account bases without conducting adequate due diligence throughout customer relationships.

As discussed in more detail below, despite the basis for a CDD obligation implicit in BSA requirements, such as the AML program and suspicious activity reporting (SAR) rules, FinCEN believes that issuing an express CDD rule that requires financial institutions to perform CDD, including an obligation to categorically obtain beneficial ownership information, may be necessary to protect the United States financial system from criminal abuse and to guard against terrorist financing, money laundering and other financial crimes. Despite efforts to highlight and clarify CDD and beneficial ownership expectations over the past several years, FinCEN is concerned that there is a lack of uniformity and consistency in the way financial institutions address these implicit CDD obligations and collect beneficial ownership information within and across industries. In the absence of a broader definition of the term “beneficial owner,” in particular a definition that can be applied across lines of business and customer categories in the context of CDD, it may be difficult for a financial institution to (1) identify the risk scenarios that would require the identification of beneficial owners; and (2) collect sufficient information to adequately address identified risk. The lack of consistency and uniformity also severely limits the ability of financial institutions to rely on the CDD efforts of other financial institutions, which would promote greater efficiency and eliminate instances of duplication of effort in transactions involving multiple financial institutions.

FinCEN believes that an explicit CDD program rule codifying, clarifying and (with respect to beneficial ownership information) strengthening existing CDD expectations for U.S. financial institutions could enhance efforts to combat money laundering, terrorist financing, tax evasion and other financial crimes by:

(i) Strengthening the ability of financial institutions to identify and report illicit financial transactions and comply with all existing legal requirements, including FinCEN regulations implementing the BSA, the International Emergency Economic Powers Act (IEEPA),10 and related authorities;

(ii) Promoting consistency in the implementation of, examination for, and enforcement of CDD program requirements across and within sectors of the U.S. financial system;

(iii) Assisting financial investigations by law enforcement, particularly by enhancing the availability of beneficial ownership and other information held by U.S. financial institutions;

(iv) Facilitating reporting and investigations in support of tax compliance; and

(v) Promoting global financial transparency and efforts to combat transnational illicit finance, consistent with international standards.

We are exploring an express CDD program rule as one key element of a broader U.S. Department of the Treasury strategy to enhance financial transparency in order to strengthen efforts to combat financial crime, including money laundering, terrorist financing, and tax evasion. Illicit actors continue to create legal entities, masking beneficial ownership information in order to facilitate access to the financial system and conduct financial crimes. Enhancing financial transparency to address such ongoing abuse of legal entities requires a broad approach. Other key elements of this strategy include: (i) Improving the availability of beneficial ownership information of legal entities created in the United States; and (ii) facilitating global implementation of international standards regarding beneficial ownership of legal entities and trusts and CDD by financial institutions.

While these three elements of the U.S. government's strategy for combating criminal abuse of legal entities are proceeding independent of each other, together they establish a comprehensive approach to effectively combat the criminal abuse of legal entities. As such, strengthening CDD program requirements for financial institutions complements the Administration's ongoing work with Congress to adopt legislation that would require the collection of beneficial ownership information at the time that legal entities are created in the United States. These efforts are also consistent with Treasury's ongoing work with the Group of Twenty Finance Ministers and Central Bank Governors (G20), the Financial Action Task Force (FATF), and other financial centers around the world to clarify and strengthen implementation of international standards on identifying and understanding beneficial ownership, particularly with respect to CDD by financial institutions and the creation of legal entities.

The establishment and maintenance of strong AML programs that include CDD policies, procedures, and processes has been a long-standing regulatory and supervisory expectation of certain Federal financial regulatory agencies, and is implicit in regulations requiring financial institutions to maintain an effective BSA compliance program that is reasonably designed to assure and monitor compliance with the recordkeeping and reporting requirements of the BSA.11 An effective CDD program should provide a financial institution with sufficient information to develop a customer risk profile that can then be used by the financial institution to identify higher-risk customers and accounts, including customers and accounts subject to special or enhanced due diligence requirements.12 The financialinstitution also should apply appropriate internal controls to identify and investigate unusual and suspicious activity and make an informed decision whether or not to file a SAR.13 In the event that a financial institution files a SAR, CDD information collected could enhance the information included in the SAR and thereby enhance law enforcement's ability to initiate and pursue the successful investigation and prosecution of criminal activity. The failure to obtain adequate CDD information may impede a financial institution's ability to detect and report suspicious or unusual activity or provide information in a filing that is useful to law enforcement. Several of the consent orders and enforcement actions issued over the last few years have identified the lack of effective CDD policies, procedures, and processes, or the underlying elements thereof, as rendering AML programs inadequate, being a significant deficiency, and an underlying factor in supervisory actions.14

Although appropriate and adequate CDD policies, procedures, and processes have generally been an expectation of the Federal financial regulatory agencies, FinCEN believes that an express CDD program rule will strengthen compliance with and enforcement of CDD program requirements by clarifying, consolidating, and harmonizing such agencies' minimum expectations with respect to CDD policies, procedures, and processes, including the fundamental elements necessary for an effective CDD program.

As described in detail below, FinCEN believes that one fundamental element necessary for an effective CDD program is obtaining beneficial ownership information for all account holders, possibly subject to limited exceptions based upon lower risk. An express CDD program rule would enable FinCEN to establish such a clear requirement, thereby strengthening the ability of financial institutions to detect and address suspicious activity. Establishing a categorical beneficial ownership information requirement through a CDD program rule also would address current concerns regarding potential confusion or inconsistency across financial sectors regarding obligations to obtain beneficial ownership information outside of statutorily prescribed circumstances. Recent industry commentary and feedback indicated a lack of common understanding and consistent practice across the financial services industry for collecting beneficial ownership information. For example, an industry survey conducted by FinCEN in 2008 indicated certain inconsistencies in financial institutions' practices related to collecting and maintaining beneficial ownership information both within and across industries. Moreover, industry commentary following the issuance of the Beneficial Ownership Guidance15 indicated that there is at least some question about the nature of a financial institution's obligation to conduct CDD and to obtain beneficial ownership information.16

As discussed previously, an effective CDD program is important in facilitating effective suspicious activity monitoring, which in turn facilitates the filing of quality SARs containing information that is both meaningful and useful to law enforcement. The lack of such information has been a source of growing concern to law enforcement in its efforts to conduct successful criminal investigations, both domestically and in conjunction with international counterparts. For example, the Chief of DOJ's Asset Forfeiture and Money Laundering Section (AFMLS) has stated that, with respect to international law enforcement cases, “the lack of beneficial ownership information can also hamper our ability to respond to requests for assistance from our foreign counterparts. This problem not only damages our reputation, but also undermines our efforts to join with foreign counterparts in a global offensive against organized crime and terrorism.”17

The collection of CDD information by financial institutions is also fundamentally important in facilitating tax reporting, investigations and compliance. For example, a variety of information may be needed in a tax enquiry including information held by banks and other financial institutions as well as information concerning the ownership of companies or the identity of interest holders in other persons or entities, such as partnerships and trusts. The United States has long been a global leader in establishing and promoting the adoption of international standards for transparency and information exchange to combat cross-border tax evasion and other financial crimes, and strengthening the CDD procedures of financial institutions is an important part of that effort. Moreover, the United States has an extensive network of agreements for the exchange of tax information that meet international standards. In addition, new tax reporting provisions under the Foreign Account Tax Compliance Act (FATCA)18 would require overseas financial institutions to identify U.S. account holders, including foreign entities with significant U.S. ownership, and to report certain information about their accounts to the IRS.19 In manycases, implementing these provisions will require the cooperation of foreign governments to address impediments under foreign law. Requiring U.S. financial institutions to obtain similar ownership information would put the United States in a better position to work with foreign governments to combat offshore tax evasion and other financial crimes.

An effective CDD program supports effective suspicious activity monitoring, strengthens national anti-money laundering and counter-financing of terrorism (AML/CFT) regimes, and promotes the integrity of the international financial system as a whole. This importance was recognized by the G20 in several Leaders' Statements supporting the strengthening of CDD procedures. During the Pittsburgh Summit in 2009, the G20 asked the Financial Action Task Force (FATF)20 to “help detect and deter the proceeds of corruption by prioritizing work to strengthen standards on customer due diligence.”21 In November 2010, the G20 specifically urged the FATF to clarify and strengthen beneficial ownership as an element of CDD and as a key component of its Anti-Corruption Action Plan.22 Additionally, effective adoption and implementation of CDD by financial institutions is consistent with the FATF's global AML/CFT standards to combat money laundering and the financing of terrorism.23

The G20 recognition of the importance of CDD is also reflected in the work of other international standard setting bodies. In October 2001, the Basel Committee on Banking Supervision (BCBS) published a report on CDD, supporting the FATF's efforts in fighting money laundering. The report states that sound CDD-related procedures are not only critical in combating financial crime, but “critical in protecting the safety and soundness of banks and the integrity of the banking systems.”24 Similarly, in light of the FATF's and other international organizations' work, in October 2002 the International Organization of Securities Commissions (IOSCO) established a Task Force on Client Identification and Beneficial Ownership to survey existing securities regulatory regimes relating to the identification of clients and beneficial owners and to develop principles that address aspects of the CDD process.25 In May 2004, IOSCO published a report describing principles for client identification and beneficial ownership in the securities industry.26 Among other things, the report noted that while “[t]he CDD process is a key component of securities regulatory requirements intended to achieve the principal objectives of securities regulation, the protection of investors; ensuring that markets are fair, efficient and transparent; and the prevention of the illegal use of the securities industry,” it also “contributes to the pursuit of other policy goals related to the prevention of the illegal use of the securities industry such as money laundering and the financing of terrorism that are generally within the competence of other authorities.”27

The identification of beneficial ownership interests as noted previously has become increasingly relevant to AML/CFT efforts both within the United States and beyond its borders. Treasury also has consistently engaged with the Federal financial regulatory agencies and financial institutions for the purpose of understanding and clarifying the efforts of financial institutions with respect to CDD and identifying beneficial ownership interests. Most notably:

i. Following the adoption of the Act in 2001, the Treasury Department and the federal financial regulatory agencies engaged the financial industry in order to develop customer identification program (“CIP”) and special due diligence requirements in accordance with Sections 326 and 312 of the Act, respectively.

ii. In November 2006, FinCEN issued a report on “The Role of Domestic Shell Companies in Financial Crime and Money Laundering: Limited Liability Companies.” The report highlights the need for financial institutions to assess and manage the risks of providing financial services to shell companies in order to identify and report potential money laundering activity.28

iii. In 2008, FinCEN submitted a survey to industry to solicit feedback on how and when financial institutions obtain and retain beneficial ownership information. The survey results indicated certain inconsistencies in financial institutions' understanding of requirements related to collecting and maintaining beneficial ownership information both within and across industries.

iv. In November 2009, the Department of the Treasury's then-Assistant Secretary, and current Under Secretary, David Cohen, testified before the Senate Committee on Homeland Security and Governmental Affairs and outlined Treasury's comprehensive plan, the elements of which are designed to enhance the transparency of legal entities with respect to beneficial ownership. Treasury's plan involves: (i) Working with Congress to promote legislation that enhances transparency of legal entities in the company formation process; (ii) clarifying and strengthening requirements for U.S. financial institutions with respect to the beneficial ownership of legal entity accountholders, and (iii) clarifying and facilitating the implementation of international standards regarding beneficial ownership, including with respect to company formation by jurisdictional authorities and CDD by financial institutions.

v. In March 2010, FinCEN, jointly with the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the Securities and Exchange Commission, and in consultation with staff of the Commodity Futures Trading Commission, issued the BeneficialOwnership Guidance to clarify and consolidate existing regulatory expectations for obtaining beneficial ownership information for certain accounts and customer relationships.29

vi. In November 2011, the Department of the Treasury's Assistant Secretary Daniel Glaser testified before the Senate Committee on the Judiciary, Subcommittee on Crime and Terrorism to discuss efforts to combat international organized crime. In his testimony, Assistant Secretary Glaser discussed the importance of financial transparency in mitigating threats posed by transnational organized crime and other forms of illicit finance as well as the Treasury Department's work to clarify and strengthen CDD requirements for financial institutions.

vii. In February 2012, the Department of the Treasury's Deputy Assistant Secretary Luke Bronin testified before the House Committee on the Judiciary, Subcommittee on Crime, Terrorism, and Homeland Security to discuss key vulnerabilities in the U.S. financial system related to transnational organized crime. The testimony included highlighting the importance of CDD as essential to an AML regime. Additionally, Deputy Assistant Secretary Bronin discussed the importance of effective implementation of CDD and the need to clarify, consolidate, and strengthen CDD requirements for financial institutions.

Based on the past efforts outlined above and ongoing industry and regulatory consultation and outreach, FinCEN believes that an effective CDD program includes the following elements:

(i) Conducting initial due diligence on customers, which includes identifying the customer, and verifying that customer's identity as appropriate on a risk basis, at the time of account opening;

(ii) Understanding the purpose and intended nature of the account, and expected activity associated with the account for the purpose of assessing risk and identifying and reporting suspicious activity;

(iii) Except as otherwise provided, identifying the beneficial owner(s) of all customers, and verifying the beneficial owner(s)' identity pursuant to a risk-based approach; and

(iv) Conducting ongoing monitoring of the customer relationship and conducting additional CDD as appropriate, based on such monitoring and scrutiny, for the purposes of identifying and reporting suspicious activity.

FinCEN's understanding of how U.S. financial institutions currently perform certain aspects of CDD in accordance with these elements under existing regulations and FinCEN's proposal for codifying these elements in a CDD rule are described below.

Various AML obligations are dependent on financial institutions at least obtaining, and in some instances verifying, certain basic customer identification information. For example, financial institutions subject to the CIP rules implementing Section 326 of the Act must identify and verify the identity of certain “customers” seeking to open an account.30 In identifying such customers, a financial institution must obtain the customer's name; for individuals, date of birth, address, and an identification number (e.g.,taxpayer identification number, passport number, or alien identification card number) and for a person other than an individual (such as a corporation, partnership or trust), a principal place of business, local office, or other physical location, and identification number.31 For the purposes of the CIP requirement, the definition of “customer” is the accountholder, regardless of whether the accountholder is also the beneficial owner.32

In addition to identifying customers covered by the CIP rule, a financial institution's CIP must include risk-based procedures for verifying the identity of each customer to the extent reasonable and practicable such that the institution can form a reasonable belief that it knows the true identity of each customer.33 These procedures must be based on the institution's assessment of the relevant risks, including those presented by the various types of accounts maintained by the institution, the various methods of opening accounts provided by the institution, the various types of identifying information available, and the institution's size, location, and customer base.34 Further, the CIP must include procedures that describe when the financial institution will use documents, non-documentary methods, or a combination of both methods to verify a customer's identity.35 In addition, for customer relationships where the customer is not an individual, based on the financial institution's risk assessment of the account, the financial institution must obtain information about the individuals with authority or control over such account.36 Consistent with these explicit regulatory requirements and guidance, FinCEN is exploring an express customer identification and risk-based verification component of CDD, which does not create a new CIP obligation, but would be satisfied by compliance with the financial institution's current CIP obligations. The identification and verification component of a CDD requirement may state, generally:

If a financial institution is compliant with its current CIP obligations, a financial institution would be compliant with this part of the CDD program rule and therefore there will be no new or additional regulatory obligation. FinCEN notes that, although certain customers are exempt from the CIP requirements (i.e.,the customers that are excluded from the definition of “customer” for purposes of the CIP requirement),37 those customers would not be exempt from the requirements to understand the nature and purpose of the account and to conduct ongoing monitoring. As discussed below, FinCEN is seeking comment on whether the beneficial ownership requirementshould apply with respect to those exempt customers.

As a general business matter, financial institutions seek to understand the needs of their customers in order to serve them. Financial institutions should understand the nature and purpose of an account or customer relationship so that they can appropriately assess the risk presented by the relationship and appropriately monitor for suspicious activity. Pursuant to suspicious activity reporting procedures, financial institutions compare the available facts of a transaction or series of transactions, including their type, volume, and possible purpose, against the type of transaction in which the customer would normally be expected to engage.38 In other words, in discerning whether a transaction or series of transactions is suspicious, a financial institution must determine if the activity varies from the normal activities or activities appropriate for the particular customer or class of customer, and has no apparent reasonable explanation.39 FinCEN has also issued guidance highlighting the need to understand the nature and purpose of an account, in order to assess the risk and determine the appropriate level of due diligence for the account.40 Accordingly, and in keeping with the SAR obligation and related regulatory guidance, FinCEN is specifically considering including an express obligation to understand the nature and purpose of the account or customer relationship as an element of a CDD program rule. This element of a CDD program rule may state, generally:

Under existing FinCEN regulations, there are two limited situations where financial institutions are expressly obligated to obtain beneficial ownership information. Specifically, under the rules implementing Section 312 of the Act, there are two situations where certain “covered financial institutions”41 are required to take reasonable steps to obtain beneficial ownership information: (i) covered financial institutions that offer private banking accounts are required to take reasonable steps to identify the nominal and beneficial owners of such accounts;42 and (ii) covered financial institutions that offer correspondent accounts for certain foreign financial institutions are required to take reasonable steps to obtain information from the foreign financial institution about the identity of any person with authority to direct transactions through any correspondent account that is a payable-through account, and the sources and beneficial owner of funds or other assets in the payable-through account.43

In addition to these explicit requirements to obtain beneficial ownership information, under the CIP rules, a financial institution's CIP must address situations where, based on the financial institution's risk assessment of a new account opened by a customer that is not an individual, the financial institution will obtain information about individuals with authority or control over such account.44 Moreover, FinCEN and the federal financial regulatory agencies have issued guidance stating that there are other situations when financial institutions should consider whether it is appropriate to obtain beneficial ownership information.45

Consistent with these explicit and implicit beneficial ownership information obligations, FinCEN is considering expanding the requirement to obtain beneficial ownership information to all customers. Such a beneficial ownership information requirement would constitute an essential element of an effective CDD program. This element of the CDD program rule may state, generally:

This component of the CDD program rule would create a new express regulatory obligation to obtain beneficial ownership information, given the limited circumstances in which financial institutions are currently expressly obligated to obtain this information.

In the limited instances where reasonable steps to obtain beneficial ownership information are currently required, FinCEN has defined the beneficial owner of an account as “an individual who has a level of control over, or entitlement to, the funds or assets in the account that, as a practical matter, enables the individual, directly or indirectly, to control, manage or direct the account * * *”46 This definition was designed specifically for accounts referred to above where beneficial ownership information is required and may not be useful for application to the wide range of other accounts offered by financial institutions.

In addition to FinCEN's current definition of beneficial owner, federal regulatory agencies47 and various international organizations and foreign jurisdictions define beneficial ownership in ways that may be usefulin assisting financial institutions with understanding beneficial ownership in the CDD framework.48 For purposes of the CDD program requirement discussed above, and not affecting the limited instances in which beneficial ownership information is currently required,FinCEN is considering a definition to be used that would, in the case of legal entities, include:

FinCEN emphasizes that the potential new beneficial ownership requirement and definition discussed in this ANPRM is not intended to supersede existing BSA obligations to obtain beneficial ownership information.

FinCEN recognizes that there may be instances in which obtaining beneficial ownership information about a legal entity customer may not be warranted given the AML/CFT risk or other factors associated with that entity. For example, FinCEN is considering whether legal entity customers that are exempt from identification as customers under the CIP Rules (e.g.,financial institutions regulated by a federal regulatory agency and publicly traded companies), should also be exempt from the beneficial ownership requirement, both because beneficial ownership information for these entities may not be particularly relevant to the money laundering risks associated with such entities, and because their beneficial ownership information is readily available to law enforcement and regulators. Accordingly, FinCEN seeks comment on a potential exemption from the beneficial ownership requirement for legal entity customers that are exempt under the CIP Rules.

FinCEN recognizes that financial institutions may not have beneficial ownership information on existing customers (which are also exempt from the CIP Rules), outside those requiring such information, and is also considering whether and how a potential beneficial ownership requirement would apply to existing customers of financial institutions. In this regard, FinCEN is considering adopting a risk-based approach similar to that utilized in the case of the CIP Rules, whereby this potential requirement would apply to all new customers. With respect to existing customers, FinCEN is seeking comment on how a beneficial ownership identification requirement could be phased into ongoing CDD.

Given the particular money laundering risks posed by some legal entities, the beneficial ownership requirement and potential definition of “beneficial owner” under consideration as discussed above are designed to identify the beneficial owner of a legal entity customer, as distinct from the beneficial owner of assets in an account. However, there may be instances in which obtaining information about the beneficial owners of assets in an account may be warranted instead, such as where a legal entity (e.g.a foreign or regulated or unregulated domestic financial institution) opens an account for the benefit of its customers (as opposed to for its own benefit), as those customers could pose a money laundering risk through their ability to access the financial system through that account relationship. In such instances, FinCEN recognizes that the potential definition of “beneficial owner” described above may not generally be relevant or appropriate for AML/CFT purposes.

Accordingly, FinCEN seeks comment on potential alternative definitions of “beneficial owner” in instances where obtaining information about the beneficial owners of assets in an account may be warranted. FinCEN also seeks comment on how financial institutions currently address the potential money laundering risks presented by the beneficial owners of assets in an account pursuant to financial institutions' existing legal obligations and expectations under FinCEN's regulations and related guidance, whether there are any issues or practical difficulties in doing so, and whether further guidance or rulemaking on this particular issue would be beneficial.

FinCEN recognizes that there may be impediments to identifying the beneficial owner of assets in an account in certain instances and account structures (e.g.,omnibus accounts or other intermediated accounts), such as where there are layers of intermediated relationships or where there are numerous beneficial owners of assets in the account. FinCEN seeks comment on the difficulties associated with identifying beneficial owners of assets of such an account. FinCEN further requests comment on whether a potential explicit obligation to identify the beneficial owners of assets in an account should be based upon the financial institution's risk assessment of the customer, or whether a more specific obligation would be appropriate.

FinCEN believes that, although the use of legal entities to mask beneficial ownership presents the primary illicit finance vulnerability and accordingly the need for beneficial ownership identification, the question of beneficial ownership can also arise in the context of accounts established by an individual or entity (e.g.law or accounting firm) which could be acting on behalf of another individual or individuals without disclosing this fact. FinCEN is considering how to best address this potential vulnerability. A possible solution would be to require any individual or entity (other than a regulated financial institution) opening an account at a financial institution to state that he, she, or it is not acting on behalf of any other person. Such approach would be analogous to longstanding FinCEN transaction reporting requirements, under which a financial institution must record identifying information with respect to“any person or entity on whose behalf such transaction is to be effected.”50 For individuals and entities acting on behalf of another person, the beneficial ownership element of a CDD program requirement would apply to the person on whose behalf the account is being opened. FinCEN seeks comment on this approach, as well as suggestions for other approaches.

FinCEN anticipates that, in general, the individual opening the account on behalf of a legal entity customer will identify its beneficial owner, and that covered financial institutions will generally be able to rely upon the beneficial ownership information presented by the customer, absent information that indicates reason to question the veracity of the information or an elevated risk of money laundering or terrorist financing. Verification of the beneficial owner could have two possible meanings. One meaning would require verifying the identity of the individual identified by the customer as the beneficial owner of the account, i.e., verifying the existence of the identified beneficial owner. This would presumably be accomplished by using procedures similar to those currently required pursuant to the CIP Rules (e.g., obtaining a copy of a government-issued identity document of the individual), but applied to the identified beneficial owner rather than to an individual customer. The second possible meaning would require that the financial institution verify that the individual identified by the customer as the beneficial owner, is indeed the beneficial owner of the customer, i.e., to verify the status of the identified individual. FinCEN is considering that, in each case the required procedures would need to be reasonable and practicable, and sufficient to form a reasonable belief that the financial institution knows the identity or status, as the case may be, of the beneficial owner. FinCEN is seeking comment below regarding these two possible meanings, and the appropriateness and challenges associated with each.

Due diligence is an on-going obligation, and for this reason financial institutions should have in place policies and procedures to maintain the accuracy of their customer risk profiles and risk assessments. Financial institutions should update CDD information as necessary based on the overall risk of the customer, and may need to update or conduct additional CDD in association with specific events that would result in material changes in a customer's risk profile, such as volume of alerts or red flags relating to the account, change in control, change in occupation or account purpose, or the occurrence of a transaction or activity that is unusual for the customer.

Pursuant to suspicious activity reporting requirements, financial institutions must report a transaction that: (i) Involves funds derived from illegal activity or is conducted to hide or disguise funds or assets derived from illegal activity as part of a plan to violate or evade any federal law or regulation or to avoid any federal transaction reporting requirement; (ii) is designed to evade any requirements of the BSA or its implementing regulations; or (iii) has no business or apparent lawful purpose or is not the sort in which the particular customer would normally be expected to engage, and the financial institution knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction.51 Financial institutions' ongoing monitoring and due diligence are critical elements of effectively complying with current suspicious activity reporting requirements.

FinCEN is exploring an ongoing monitoring and due diligence requirement as an express element of a CDD program rule. This element of the CDD program rule may state:

Existing CDD requirements are an implicit, but essential, part of complying with AML program regulations. However, as discussed above, FinCEN is considering expressly requiring that financial institutions conduct CDD as part of their existing AML program requirements, and as part of this requirement, collect beneficial ownership information for all customers, with limited exceptions. For this reason, FinCEN is seeking comment from industry and other interested parties concerning the implementation of CDD programs in general pursuant to existing rules and guidance described above. FinCEN is also interested in better understanding what types of CDD information are currently collected, specifically in relation to beneficial ownership information, and under what circumstances the information is collected.

1. Aside from policies and procedures with respect to beneficial ownership, what changes would be required in a financial institution's CDD processes as a result of the adoption by FinCEN of an express CDD rule as described in this ANPRM?

Aside from beneficial ownership, FinCEN believes that the other elements of a potential CDD rule as described above are already being implemented by a substantial number of financial institutions, due to three of the four proposed elements of CDD being explicit or implicit under existing FinCEN regulations and related regulatory and supervisory expectations. For this reason, FinCEN believes an explicit regulatory requirement with respect to these elements of CDD should not be onerous, particularly for those industries where CIP requirements are already in place. However, FinCEN is interested in obtaining a better understanding from all industry sectors of anticipated issues and concerns that may arise from creating an explicit regulatory requirement with respect to these three potential elements of CDD, including any additional costs that would be incurred to comply with these three elements.

2. What changes would be required in a financial institution's CDD process, as a result of the adoption by FinCEN of a categorical requirement to obtain (and in some cases verify) beneficial ownership information, as described in this ANPRM? Is FinCEN's suggested alternate definition of “beneficial owner,” discussed above, a clear and easily understood definition for the purpose of obtaining beneficial ownership information for legal entities in the context of complying with a CDD obligation? If not, would you suggest a better definition? In addition, how do financial institutions currently address the money laundering risks that might be presented by the beneficial owners of assets in an account held by anintermediary, what difficulties are presented in this regard, would further guidance or regulation be appropriate, should any requirement in this area be risk-based, and how should FinCEN define beneficial ownership for this purpose?

FinCEN is seeking comment on the impact on financial institutions of the adoption of a categorical requirement to obtain beneficial ownership information for most customers, as described in this ANPRM. FinCEN is also seeking comment as to whether financial institutions have concerns regarding the proposed alternative definition of beneficial ownership discussed above and whether it may cause difficulties with financial institution compliance with a categorical beneficial ownership obligation. In addition, FinCEN is seeking comment on whether it would be confusing to adopt an alternate definition of beneficial ownership as proposed for a general CDD program requirement, except in the limited instances in which the current definition for beneficial owner that is required pursuant to 31 CFR 1010.610 and 1010.620 would continue to be used, and whether the potential beneficial ownership requirement and associated potential definition would be relevant with respect to certain types of intermediated accounts, such as omnibus accounts, and if not, what definition would be more appropriate. Also, please comment on appropriate exemptions from a potential beneficial ownership requirement, including with respect to existing customers, and the practicality of phasing a requirement into ongoing CDD. Please also comment on possible approaches to preventing the misuse of a financial institution account by an individual or entity acting on behalf of another without disclosing this fact. Finally, please comment regarding the costs of complying with a categorical beneficial ownership requirement, in the case where the beneficial ownership requirement would apply only to new customers, as well as where it would apply to all existing customers.

3. Under what circumstances does a financial institution currently obtain beneficial ownership information on a customer or accountholder?

Current FinCEN regulations require financial institutions to obtain beneficial ownership information as a component of CDD on private banking and foreign correspondent customers. Existing BSA obligations, including regulatory and supervisory expectations, require financial institutions to collect this information, as appropriate, as part of CDD/EDD on higher-risk customers. For this reason, FinCEN requests information from industry regarding the circumstances under which a financial institution currently determines that it is necessary or prudent to obtain beneficial ownership information from a customer, who is neither a private banking nor foreign correspondent customer, whether as part of their customer identification program procedures, anti-money laundering program requirements, transaction/account monitoring procedures, or for other purposes. For example, are there types of customers, types of accounts, levels of account activity, forms of suspicious activity, or other indicia that lead a financial institution to make decisions as to when there may be no risk, moderate risk or substantial risk in not obtaining beneficial ownership information?

4. How do financial institutions currently obtain beneficial ownership information?

FinCEN requests information on how financial institutions collect such information and, specifically, what methods, both documentary and non-documentary, are used to identify and/or verify the beneficial owner (e.g. public documents, identification numbers, etc.). When or if financial institutions collect beneficial ownership information other than as specifically required pursuant to 31 CFR 1010.610 and 1010.620, FinCEN requests comments on whether financial institutions use the same definition of beneficial ownership as that which is applicable under these regulations for private banking and certain foreign correspondent accounts, or other definitions, such as those referenced above in the description of a potential additional definition of beneficial owner.

5. Is the current, primarily risk-based, approach to a CDD program requirement resulting in varied approaches across industries or varied approaches within industries?

FinCEN is seeking comment on whether financial institutions are aware of varied approaches either across or within industries relating to current CDD expectations, including beneficial ownership obligations. For example, FinCEN seeks comment on whether financial institutions are aware of circumstances in which one financial institution may turn down an account due to lack of beneficial ownership information, later to learn that the accountholder has established an account with another institution that did not require the accountholder to provide beneficial ownership information. Alternatively, are there circumstances under which financial institutions have concerns about their ability to rely on CDD undertaken by other financial institutions due to inconsistent practices or expectations?

6. Are there other elements of CDD that would be more effective in facilitating compliance with AML program requirements and other obligations under FinCEN's regulations?

The four elements of CDD listed above were selected based on consistency with existing regulatory requirements and expectations; the importance of beneficial ownership information and other elements of CDD to financial investigations pertaining to money laundering, terrorist financing, and tax evasion, and IEEPA violations; and, consistency with international standards and financial transparency. FinCEN seeks comment on whether other elements of CDD, aside from those listed in this ANPRM would be more effective and efficient in advancing these interests.

7. What information should be required in order to identify, and verify on a risk basis, the identity of the beneficial owner?

Should the required identification information on beneficial owners be consistent with the customer identification information currently required under the CIP regulations (i.e.,name, address, date of birth and identification number) or should additional information be required? In addition, what should be required of financial institutions to verify the identity of the beneficial owner? FinCEN is exploring two possible meanings for verification of beneficial ownership information: One meaning would require verifying the identity of the natural person identified by the customer to be the beneficial owner. This would require that the financial institution, for example, obtain a copy of a government-issued identification document bearing a photograph of the individual identified by the customer as its beneficial owner, to verify that the individual exists. The second meaning would require verifying that the individual identified by the customer as its beneficial owner is, in fact, the beneficial owner of the legal entity customer. FinCEN is seeking comment as to challenges posed by each of these possible verification requirements.

8. Are there any products and services, or customers that should be exempted from the requirement to obtain beneficial ownership information due to there being (i) substantially less risk of money laundering or terrorist financing associated with the account; (ii) limited value associated with thebeneficial ownership information in mitigating money laundering/terrorist financing risk; or (iii) an inability to obtain the required information due to other legal requirements?

FinCEN is seeking comment to determine if there are certain types of, or thresholds for, products, services, or customers, with respect to which a financial institution should not be required to obtain beneficial ownership information, due to substantially reduced risk. For example, should customers that are exempt from the CIP Rules, also be exempt from beneficial ownership identification? Additionally, FinCEN is seeking comment as to whether there are certain products or services offered by financial institutions that, due to ancillary statutory or regulatory obligations, would prohibit compliance with a CDD requirement to obtain beneficial ownership information as outlined in this ANPRM. FinCEN is also seeking comment on whether there are significant differences in risks or perceived ability to obtain beneficial ownership information with respect to foreign versus domestic customers and/or beneficial owners.

9. What financial institutions should not be covered by a CDD rule based on products and services offered?

FinCEN is considering whether a CDD program rule as described in this ANPRM should be more widely applicable to financial institutions not currently subject to a CIP Rule, and is seeking comments from industry and interested parties to determine if there are types of financial institutions currently covered under FinCEN's regulations and subject to SAR and AML Program rules, that should not be covered by a CDD obligation, either because the products and services offered are not consistent with the information sought in a CDD obligation or for any other reason.

10. What would be the impact on consumers or other customers of a CDD program including the elements identified above?

FinCEN is seeking comment regarding the potential impact on consumers or customers of financial institutions. What are the benefits and challenges of the above suggested CDD requirements that may exist between financial institutions and customers taking into account the objective of increasing the inclusion in the financial system of traditionally underserved individuals? Will a CDD program affect the willingness or ability of consumers or others to use or access certain financial institutions or services?

With this ANPRM, FinCEN is seeking input on the questions set forth above. FinCEN also is soliciting comments on the impact to law enforcement or authorities, regulatory agencies, and consumers, and welcomes comments on all aspects of the ANPRM, and all interested parties are encouraged to provide their views.

Table of Contents I. What is parallel processing? II. What is the background of the RVP requirement? III. What are the section 110(l) requirements? IV. What is EPA's analysis of Alabama's submittal? V. Proposed Action VI. Statutory and Executive Order Reviews I. What is parallel processing?

Consistent with EPA regulations found at 40 CFR part 51, Appendix V, section 2.3.1, for purposes of expediting review of a SIP submittal, parallel processing allows a state to submit a plan to EPA prior to actual adoption by the state. Generally, the state submits a copy of the proposed regulation or other revisions to EPA before conducting its public hearing. EPA reviews this proposed state action, and prepares a notice of proposed rulemaking. EPA's notice of proposed rulemaking is published in theFederal Registerduring the same time frame that the state is holding its public process. The state and EPA then provide for concurrent public comment periods on both the state action and federal action.

If the revision that is finally adopted and submitted by the State is changed in aspects other than those identified in the proposed rulemaking on the parallel process submission, EPA will evaluate those changes and if necessary and appropriate, issue another notice of proposed rulemaking. The final rulemaking action by EPA will occur only after the SIP revision has been adopted by the state and submitted formally to EPA for incorporation into the SIP.

On January 10, 2012, the State of Alabama, through ADEM, submitted a request for parallel processing of a draft SIP revision that the State had already taken through public comment. ADEM requested parallel processing so that EPA could begin to take action on its draft SIP revision in advance of the State's submission of the final SIP revision. As stated above, the final rulemaking action by EPA will occur only after the SIP revision has been: (1) Adopted by Alabama, (2) submitted formally to EPA for incorporation into the SIP; and (3) evaluated by EPA, including any changes made by the State after the January 10, 2012, draft was submitted to EPA.

The following subsections of this proposed rulemaking summarize both the federal and state RVP requirements in the Birmingham Area. Volatility is the property of a liquid fuel that defines its evaporation characteristics. RVP is an abbreviation for “Reid vapor pressure,” a common measure of and generic term for gasoline volatility. Pursuant to the CAA, EPA regulates the vapor pressure of gasoline sold at retail stations during the high ozone season (June 1 to September 15) to reduce evaporative emissions from gasoline that contribute to ground-level ozone and diminish the effects of ozone-related health problems.

Section 211(h) of the CAA requires EPA to set a maximum RVP standard of 9.0 psi during the high ozone season, which is defined as June 1st through September 15th of each year.See also40 CFR 80.27. The CAA provides for more stringent requirements to be established for ozone nonattainment areas. Specifically, CAA section 211(h) states:

The Birmingham Area was originally classified as a 1-hour ozone nonattainment area by EPA on March 3, 1978 (43 FR 8962). The Birmingham nonattainment Area at that time was geographically defined as Jefferson County, Alabama. On November 6, 1991, by operation of law under section 181(a) of the CAA, EPA classified the Birmingham nonattainment area as a marginal nonattainment area for the 1-hour ozone and added Shelby County to the nonattainment area (56 FR 56693). The nonattainment classification for the Birmingham marginal ozone area was based on ambient air sampling measurements for ozone made during 1987-1989. As an ozone nonattainment area, the Birmingham Area was subject to the federal RVP requirements of 7.8 psi for both Jefferson and Shelby Counties. Subsequently, in 2001, EPA approved a state fuel program that imposed a 7.0 psi requirement for this area, under section 211(c)(4)(C) of the CAA. The action being proposed todaywould move the 7.0 psi requirement from the active portion of the Alabama SIP to the contingency measures portion of the maintenance plans for the ozone, 1997 PM2.5and 2006 PM2.5NAAQS. Throughout this proposed rulemaking, EPA's reference to the maintenance plans for the 1997 PM2.5and 2006 PM2.5NAAQS is in reference to the proposed maintenance plans as these plans have been proposed for approval by EPA but have not yet been finalized.

Section 211(c)(4)(C) of the CAA allows states to seek a waiver from EPA to adopt into the federally-approved SIP, a state fuel program that is more stringent than federal requirements. Specifically, CAA section 211(c)(4)(C)(i) states:

As mentioned above, the Birmingham Area was designated as a marginal 1-hour ozone nonattainment area on November 6, 1991.See56 FR 56693. Marginal 1-hour ozone nonattainment areas such as the Birmingham Area were required to attain the 1-hour ozone NAAQS no later than November 15, 1993. However, the Birmingham Area did not attain the 1-hour ozone NAAQS by the required deadline and thus, EPA issued a SIP Call for Alabama to develop and submit a plan on how the Area would comply with the 1-hour ozone NAAQS as expeditiously as practicable. This plan, also known as an attainment demonstration, contained the control strategies and underlying regulations that Alabama would use to come into compliance with the 1-hour ozone NAAQS. On November 1, 2000, ADEM submitted the 1-hour ozone attainment demonstration for the Birmingham Area as a revision to the Alabama SIP. Among other control strategies and regulations, this attainment demonstration included a request for EPA to approve Alabama's regulation to establish requirements for low sulfur and low-RVP requirements for the Birmingham Area pursuant to 211(c)(4)(C)(i).

In a final rulemaking on November 7, 2001 (66 FR 56218), EPA determined that Alabama's November 1, 2000, SIP revision contained the necessary data and analyses to support a finding under section 211(c)(4)(C)(i) that the State's low sulfur and low-RVP requirements were necessary for the Birmingham Area to achieve the 1-hour ozone NAAQS. In summary, Alabama's low sulfur/low-RVP fuel program required that all gasoline sold during the control period (June 1st through September 15th) in the Birmingham Area contain a maximum RVP of 7.0 psi and maximum sulfur levels of 150 parts per million volume-weighted average. Alabama's control on sulfur applied only through the summer of 2003. After that time, federal controls on sulfur in gasoline went into effect. There was no termination date for the low-RVP portion of Alabama's fuel regulation.

The Birmingham Area subsequently attained the 1-hour ozone NAAQS and was redesignated for that NAAQS on March 12, 2004.See69 FR 11798. At that time, ADEM included the 7.0 psi RVP requirement in its maintenance plan. Thereafter, the Birmingham Area was designated as a nonattainment for the more stringent 1997 8-hour ozone NAAQS, effective June 15, 2004 (69 FR 23858). On May 12, 2006 (71 FR 27631), the Birmingham Area was redesignated to attainment for the 1997 8-hour ozone NAAQS.1 As part of the requirement to be redesignated to attainment, ADEM developed a maintenance plan pursuant to CAA section 175A(a) that demonstrated the Area would maintain the 1997 8-hour ozone NAAQS for at least 10 years after redesignation. In that maintenance demonstration, ADEM, in its emissions projections, adopted a conservative approach to the fuel requirement in the Area by assuming a high ozone season RVP requirement of 9.0 psi as opposed to 7.0 psi.2 The State demonstrated that the Area could continue to maintain the ozone NAAQS with the 9.0 psi requirement. Nonetheless, the State's RVP requirement of 7.0 psi remains in the active portion of the SIP, and the federal RVP requirement of 7.8 psi also remains applicable through 40 CFR 80.27.

On January 10, 2012, ADEM submitted a draft revision to Alabama's SIP to move Chapter 335-3-20 “Control of Fuels” from the active measures portion of the Alabama SIP to the contingency measures portions of the maintenance plans for the applicable ozone and PM2.5NAAQS. ADEM explained that the 7.0 psi requirement would be moved to the maintenance plans as a contingency measure for the ozone NAAQS, the annual 1997 PM2.5standard and the 2006 24-hour PM2.5standards; however, it would be removed from the SIP as an active requirement. The applicable RVP would then be the federal standard of 7.8 psi. Because the state RVP requirement of 7.0 psi is a part of the federally-approved SIP for Alabama, the State must meet the requirements of CAA section 110(l) to move this state-level RVP requirement from the active measures portions of the SIP to the contingency measures portions of the affected maintenance plans. More details on CAA section 110(l) requirements are provided below.

EPA's primary consideration for determining the approvability of Alabama's January 10, 2012, draft SIP revision is whether this requested action complies with section 110(l) of the CAA. Section 110(l) of the CAA states:

Because the RVP requirements currently are a part of the SIP, the revision must meet the requirements of CAA section 110(l). Alabama's January 10, 2012, draft SIP revision is requestingonly that the state-level requirement of 7.0 psi be moved from the active measures portions of the Alabama SIP to the contingency measures portions of the maintenance plans for the ozone NAAQS, the annual 1997 PM2.5standards and the 2006 24-hour PM2.5standards. Therefore, as part of Alabama's SIP revision request to change its RVP requirement, Alabama must demonstrate that the revision will not interfere with the attainment or maintenance of any of the NAAQS or any other applicable requirement of the CAA.

Developing what is necessary for a SIP revision to comply with section 110(l) is a case-by-case determination based upon the circumstances of each revision. EPA interprets 110(l) as applying to all NAAQS that are in effect, including those that have been promulgated but for which the EPA has not yet made designations. The specific elements of the SIP revision depend on the circumstances and emissions analyses. The State's request does not involve a modification of the 7.8 psi federal RVP requirement, which is separately applicable by federal regulation (40 CFR 80.27) to both Jefferson and Shelby Counties. Thus, EPA's proposed approval action considers the potential impacts with regard to a difference in RVP requirements for the Birmingham Area between the state-level requirement of 7.0 psi and the federal-level requirement of 7.8 psi. EPA's analysis of Alabama's January 10, 2012, draft SIP revision is provided below.

ADEM submitted a draft revision to the Alabama SIP on January 10, 2012, for parallel processing. The purpose of Alabama's January 10, 2012, draft SIP revision is to move the state-level RVP requirement of 7.0 psi from the active measures portions of the SIP to the contingency measures portions of the SIP. The applicable RVP requirement would then be the federal 7.8 psi requirement and the 7.0 psi state-level requirement would be a part of the maintenance plans as contingency measures for the NAAQS discussed above. The State is not seeking a change to the federal RVP requirements of 7.8 psi that are applicable to the Birmingham Area.

Alabama's January 10, 2012, draft SIP revision includes an evaluation of the impact that the removal of the 7.0 psi state-level RVP requirement would have on the applicable NAAQS. For the purposes of this change, EPA is making the preliminary determination that the applicable NAAQS3 of interest for the noninterference demonstration required by section 110(l) of the CAA are the ozone, particulate matter and nitrogen oxides (NO2) standards because the RVP requirements results primarily in emissions benefits for VOCs and NOX. VOCs and NOXemissions are precursors for ozone and particulate matter, and NO2is a component of NOX. There are no emissions reductions attributable to the emissions of carbon monoxide (CO), lead and sulfur dioxide (SO2) from RVP requirements. As a result, there is no information indicating the proposed revision would have any impact on those NAAQS. Additionally, the Birmingham Area is currently designated attainment for the CO, lead and SO2NAAQS, and is continuing to attain these standards. Therefore, the analysis below focuses on the impact of Alabama's changes to the RVP requirements on the ozone, particulate matter and NO2NAAQS.

In Alabama's January 10, 2012, draft SIP revision, the State provided a technical demonstration to support the request to move Alabama's 7.0 psi RVP requirement from the active measures portions of the Alabama SIP to the contingency measures portions of the affected maintenance plans. In that technical demonstration, Alabama provided information regarding the emissions trends from the maintenance plans for the ozone and PM2.5NAAQS. To determine these emissions, Alabama took a conservative approach and assumed a high ozone season RVP requirement for the Birmingham Area of 9.0 psi in the ozone maintenance plan and 7.8 psi in the maintenance plans for the 1997 annual and 2006 24-hour PM2.5standards. All of these maintenance plans, which included modeling, indicated future emissions projections under the baseline “attainment” level emissions without the emissions reductions associated with the state-level 7.0 psi RVP requirements.

In Alabama's January 10, 2012, draft SIP revision, ADEM also provided an updated analysis utilizing the Motor Vehicle Emissions Simulator (MOVES) modeling to evaluate the potential impacts for the ozone NAAQS that might result exclusively from changing the high ozone season RVP requirements from the state-level requirement of 7.0 psi to the federal requirement of 7.8 psi. Specifically, ADEM compared what the projected emissions in the year 2012 (the year the program is requested to be rescinded), would be, assuming a RVP level of 7.0 psi and 7.8 psi. The comparison revealed a slight increase in emissions of 25 tons for NOXand 60 tons for VOC (cumulative over the entire season) would result from the change to the federal requirement from June 1st through September 15th. While the modeling showed a slight increase in NOXand VOC emissions resulting from the use of 7.8 psi RVP as opposed to 7.0 psi, the most appropriate analysis for purposes of evaluating non-interference is whether total area emissions in the future years would remain at or below the level determined to be consistent with maintenance of the NAAQS. To provide this full evaluation, the State compared emissions generated for the year 2011, using a RVP of 7.0 psi to emissions generated for the years 2012 and 2015, using a RVP of 7.8 psi. Table 1 below provides the results of this analysis.

As Table 1 clearly indicates, NOXand VOC emissions in the Birmingham Area will continue to decrease, even with the increase in high ozone season fuel RVP to 7.8 psi. The slight increase in emissions is being mitigated area-wide by a steady decrease in tailpipe emissions, which is the result of cleaner new vehicle fleet replacing the older fleet. As discussed below, based on this data, together with air quality data, and maintenance demonstrations and attainment designations for the NAAQS, EPA is making the preliminary determination that the slight increase in NOXand VOC emissions resulting from this change will not interfere with the Area's ability to attain and maintain the NAAQS, or any other applicable requirement. More details on the individual non-interference analyses for the ozone, PM2.5and NO2NAAQS are provided below.

Effective June 15, 2004, the Birmingham Area was designated as nonattainment for the 1997 8-hourozone NAAQS. The primary precursors for ozone are VOCs and NOXemissions. As a previous 1-hour ozone nonattainment area, the Birmingham Area was already subject to the federal RVP requirements for high ozone season gasoline, and as mentioned above, the State opted to implement a state-level RVP requirement for high ozone season gasoline to aid the Area with compliance with the ozone NAAQS. Although originally implemented for the 1-hour ozone NAAQS, these federal and state RVP requirements continued to apply to the Birmingham Area for the 1997 8-hour ozone NAAQS, and are still applicable for the Birmingham Area.

On January 27, 2006, ADEM submitted a redesignation request and maintenance plan for the 1997 8-hour ozone NAAQS. As part of the State's ozone maintenance plan, Alabama took a conservative approach to projecting its emissions inventories for the future projection years of 2009, 2015 and 2017 by assuming a level of 9.0 psi for RVP for high ozone season gasoline in the Birmingham Area. The intent of this conservative approach to developing the future projection year emissions was to demonstrate that the Birmingham Area could maintain the 1997 8-hour ozone standard without relying on the 7.0 psi state-level requirement for RVP in high ozone season gasoline. ADEM used the MOBILE6.2 mobile source emissions model to estimate the emissions. In the years 2015 and 2017, ADEM projected a reduction from the 2002 base year inventory of approximately 45 percent in NOXemissions (in tons per summer day). The projected reduction of VOC emissions (in tons per summer day) for the years 2015 and 2017 is approximately a 20 percent from the 2002 base year emissions inventory.

There is an overall downward trend in ozone concentration in the Birmingham Area that can be attributed to regional and local programs/controls enacted in the Birmingham Area that have led to significant emissions reductions. On May 12, 2006 (71 FR 27631), EPA approved Alabama's 1997 8-hour ozone maintenance plan for the Birmingham Area and redesignated the Area to attainment for the 1997 8-hour ozone NAAQS. The Birmingham Area is continuing to meet the 1-hour and 1997 8-hour ozone NAAQS,4 and is meeting the new 2008 8-hour ozone NAAQS, based on the 2008-2010 design value of 75 parts per billion (ppb). The 2008 ozone NAAQS is met when the annual fourth-highest daily maximum 8-hour average concentration, averaged over 3 years is 75 ppb or less. Based on preliminary monitoring data from 2009-2011, the Birmingham Area is continuing to meet the 2008 8-hour ozone NAAQS. More detail on the 2008 8-hour ozone NAAQS is provided below.

EPA established a more stringent 8-hour ozone NAAQS of 75 ppb on March 12, 2008. The Agency is currently in the process of determining areas' compliance with the 2008 8-hour ozone NAAQS, and has not yet completed the formal designation process. However, on December 9, 2011, EPA announced its preliminary intention regarding designations for nonattainment areas for the 2008 8-hour ozone NAAQS. EPA did not indicate the Birmingham Area as a potential nonattainment area for the 2008 8-hour ozone NAAQS. As stated above, although the Agency has not yet completed the designation process, EPA must still consider compliance with section 110(l) of the CAA. EPA, therefore, evaluated whether or not Alabama's requested change to its RVP requirements would interfere with attainment or maintenance of the 2008 8-hour ozone NAAQS. In doing so, EPA reviewed current monitoring data, which suggest that the Birmingham Area appears to be attaining the 2008 8-hour ozone NAAQS. The current design value for ozone for the Birmingham Area is 2008-2010 is 75ppb, while the preliminary 2009-2011 design value is 75 ppb for this Area. EPA also evaluated the potential increase in the VOC and NOXprecursor emissions, and whether it is reasonable to conclude that the requested change to Alabama's high ozone season RVP requirement (which would have the effect in the Area of reverting to the federal RVP requirement for high ozone season fuel) would cause the Area to be out of compliance with the 2008 8-hour ozone NAAQS.

In light of the current designations, monitoring data and the submitted modeling, including the fact that the VOC and NOXemissions inventories are projected to continue to significantly decrease,5 EPA has preliminarily determined that Alabama's change to its RVP requirements for the Birmingham Area will not interfere with attainment or maintenance of the ozone NAAQS.

Effective April 5, 2005, the Birmingham Area was designated as nonattainment for the 1997 PM2.5Annual NAAQS. The primary precursors for PM2.5are NOXand sulfur oxides. VOC and ammonia can be determined to be precursors to PM2.5formation on a case-by-case basis. For the Birmingham Area, neither the State of Alabama or EPA have made a determination that VOC and ammonia are significant precursors to the formation of PM2.5in the Birmingham Area thus NOXand sulfur oxides are the precursors of interests in addition to direct PM2.5emissions. In 2005 ADEM and Jefferson County Department of Health contracted with Envair to study the nature and potential causes of PM2.5concentrations in the Birmingham Area. The study investigated the sources of particulate matter pollution in and around the North Birmingham and Wylam monitors. The study gave insight into the sources of particulate matter pollution in and around the North Birmingham and Wylam monitors. According to the findings of the study, sulfate and primary organic matter are the most important contributors to PM2.5in the Birmingham Area. The results of the study indicate that the most effective control strategies to reduce PM2.5concentrations in the Birmingham area include the reduction of regional and urban/local emissions of SO2. As mentioned earlier in this rulemaking, the RVP requirements result in emissions benefits for VOC and NOXso EPA focused on these precursors for the analysis of the potential impact of Alabama's SIP change.

On May 13, 2009, ADEM submitted a redesignation request and maintenance plan for the 1997 PM2.5Annual standards. As part of the State's 1997 Annual PM2.5maintenance plan, Alabama took a conservative approach for developing its emissions inventory for the future projection years of 2009, 2015 and 2017 by assuming a level of 7.8 psi for RVP for high ozone season gasoline in the Birmingham Area. The intent of this conservative approach to developing the future projection year emissions was to demonstrate that the Birmingham Area could maintain the 1997 Annual PM2.5standard without relying on the 7.0 psi state-level requirement for RVP in high ozone season gasoline. ADEM originally used the MOBILE6.2 mobile source emissions model to estimate the emissions but later updated these emissions with the MOVES mobile source emissions model. As discussed earlier the most effectiveway to reduce PM2.5concentrations in the Birmingham area is to control SO2emissions. The projected reduction of SO2emissions (in tons per day) for the years 2012, 2015, 2018, 2021 and 2024 is approximately 58 percent from the 2009 base year emissions inventory. As Table 2 indicates the PM2.5annual design value has been decreasing. The overall downward trend in PM2.5concentration in the Birmingham area can be attributed to regional and local programs/controls enacted in the Birmingham area that have led to significant emission reductions.

On June 17, 2010, ADEM submitted a redesignation request and maintenance plan for the 2006 24-hour PM2.5standards. As part of the State's 2006 24-hour PM2.5maintenance plan, Alabama took a conservative approach for developing its emissions inventory for the future projection years of 2012, 2015, 2018, 2021 and 2024 by assuming a level of 7.8 psi for RVP for high ozone season gasoline in the Birmingham Area. The intent of this conservative approach to developing the future projection year emissions was to demonstrate that the Birmingham Area could maintain the 2006 24-hour PM2.5standards without relying on the 7.0 psi state-level requirement for RVP in high ozone season gasoline. ADEM used the MOVES mobile source emissions model to estimate the emissions. As Table 3 indicates the PM2.524-hour design value has been decreasing. The overall downward trend in PM2.5concentration in the Birmingham Area can be attributed to regional and local programs/controls enacted in the Birmingham Area that have led to significant emission reductions.

In light of the proposed designation, monitoring data and the submitted modeling, including the fact that the VOC and NOXemissions inventories are projected to continue to significantly decrease, EPA has preliminarily determined that Alabama's change to its RVP requirements for the Birmingham Area will not interfere with attainment or maintenance of the 1997 PM2.5annual or the 2006 24-hour PM2.5standards.

On January 20, 2012, EPA finalized designations for 2010 NO2NAAQS. Alabama was designated unclassifiable/attainment, including the Birmingham Area, for the 2010 NO2NAAQS. Also, EPA evaluated the potential increase in the NOXemissions (approximately a quarter of a ton per day between June 1st and September 15th) and whether it is reasonable to believe that Alabama's change for its high ozone season RVP requirement (which has the effect of reverting the Area to the federal RVP requirement for high ozone season fuel) would cause the Area to be out of compliance with the 2010 NO2NAAQS. The slight increase in NOXemissions is being mitigated by a steady decrease in tailpipe emissions, which is the result of cleaner new vehicle fleet replacing the older fleet. In light of the current designation, monitoring data and the submitted modeling, including the fact that NOXemissions inventories are projected to continue to significantly decrease, EPA has preliminarily determined that Alabama's change to its RVP requirements for the Birmingham Area will not interfere with the continued decline in NOXemissions, nor with attainment or maintenance of the 2010 NO2NAAQS.

EPA is proposing to approve Alabama's January 10, 2012, SIP revision regarding the State's regulation at Chapter 335-3-20 “Control of Fuels” which identifies Alabama's 7.0 psi requirement for the low-RVP fuel program in the Birmingham Area (i.e.,Jefferson and Shelby Counties). Specifically, Alabama's January 10, 2012, proposed SIP revision moves the State's 7.0 psi requirement for low-RVP fuel program in the Birmingham Area from the active measures portion to the contingency measures portions of the maintenance plans for ozone standards, the annual 1997 PM2.5standard and the 2006 24-hour PM2.5standard. This action, if finalized, would result in applicability of the federal RVP requirement of 7.8 psi for the Birmingham Area.

Under the CAA, the Administrator is required to approve a SIP submission that complies with the provisions of the Act and applicable federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, EPA's role is to approve state choices,provided that they meet the criteria of the CAA. Accordingly, this proposed action merely approves state law as meeting federal requirements and does not impose additional requirements beyond those imposed by state law. For that reason, this proposed action:

• Is not a “significant regulatory action” subject to review by the Office of Management and Budget under Executive Order 12866 (58 FR 51735, October 4, 1993);

• Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501et seq.);

• Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601et seq.);

• Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4);

• Does not have Federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);

• Is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);

• Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);

• Is not subject to requirements of Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the CAA; and

• Does not provide EPA with the discretionary authority to address, as appropriate, disproportionate human health or environmental effects, using practicable and legally permissible methods, under Executive Order 12898 (59 FR 7629, February 16, 1994).

This proposed rule applies to facilities that submit annual reports under section 313 of the Emergency Planning and Community Right-to-Know Act (EPCRA) and section 6607 of the Pollution Prevention Act (PPA). To determine whether your facility would be affected by this action, you should carefully examine the applicability criteria in Part 372, Subpart B, of Title 40 of the Code of Federal Regulations. Potentially affected categories and entities may include, but are not limited to the following:

If you have questions regarding the applicability of this action to a particular entity, consult the individual listed in the precedingFOR FURTHER INFORMATION CONTACTsection. This action may also be of interest to those who use EPA's TRI data and have an interest in the public availability of high-quality, timely TRI data and information, including state agencies, local governments, communities, environmental groups and other non-governmental organizations, as well as members of the general public.

1.Submitting CBI.Do not submit this information to EPA throughwww.regulations.govor email. Clearly mark the part or all of the information that you claim to be CBI. For CBI information in a disk or CD-ROM that you mail to EPA, mark the outside of the disk or CD-ROM as CBI and then identify electronically within the disk or CD-ROM the specific information that is claimed as CBI. In addition to one complete version of the comment that includes information claimed as CBI, a copy of the comment that does not contain the information claimed as CBI must be submitted for inclusion in the public docket. Information so marked will not be disclosed except in accordance with procedures set forth in 40 CFR part 2.

2.Tips for Preparing Your Comments.When submitting comments, remember to:

• Identify the rulemaking by docket number and other identifying information (subject heading,Federal Registerdate and page number).

• Follow directions—The Agency may ask you to respond to specific questions or organize comments by referencing a Code of Federal Regulations (CFR) part or section number.

• Explain why you agree or disagree, suggest alternatives, and substitute language for your requested changes.

• Describe any assumptions and provide any technical information and/or data that you used.

• If you estimate potential costs or burdens, explain how you arrived at your estimate in sufficient detail to allow for it to be reproduced.

• Provide specific examples to illustrate your concerns, and suggest alternatives.

• Explain your views as clearly as possible, avoiding the use of profanity or personal threats.

• Make sure to submit your comments by the comment period deadline identified.

The EPA is implementing this action under sections 313(g), 313(h), and 328 of EPCRA, 42 U.S.C. 11023(g), 11023(h) and 11048, and section 6607 of the Pollution Prevention Act, 42 U.S.C. 13106.

Under EPCRA, Congress granted EPA broad rulemaking authority. EPCRA section 328 provides that the “Administrator may prescribe such regulations as may be necessary to carry out this chapter.” 42 U.S.C. 11048. EPCRA requires EPA to “publish a uniform toxic chemical release form for facilities covered” by the TRI Program. 42 U.S.C. 11023(g).

The Government Paperwork Elimination Act (GPEA) (Pub. L. 105-277 (44 U.S.C. 3504)) allows Federal agencies to provide for electronic submissions and the use of electronic signatures, when practicable. Similarly, EPA's Cross-Media Electronic Reporting Regulation (CROMERR) (40 CFR Part 3), published in theFederal Registerissue of October 13, 2005, states that any requirement in Title 40 of the CFR to submit a report directly to EPA can be satisfied with an electronic submission that meets certain conditions, once the Agency publishes a notice that electronic document submission is available for that requirement.

EPA is proposing to require facilities to report non-confidential TRI data to EPA electronically. Under this proposal, EPA would no longer accept paper submissions of TRI reports, except for trade secret submissions which would still be submitted on paper forms (including sanitized and unsanitized versions).

Currently, EPA provides an online-reporting application,TRI-MEweb,for facilities to use to report TRI data to the Agency.TRI-MEwebprovides a number of features that allow facilities to prepare and submit their TRI reports to EPA more efficiently. For example, it includes data validation tools that help facilities submit complete and valid data and compare the current year's data to the prior year's data—a feature which can sometimes help facilities identify potential data errors. Comprehensive use ofTRI-MEwebshould help facilities prepare and submit accurate TRI reports and reduce the amount of time it takes EPA to process the reports and make the data available to the public.

Many TRI facilities have recognized the benefits of electronic reporting, as reflected by the general increase in the percentage of facilities that useTRI-MEwebto submit TRI data to EPA electronically each year. For reporting year (RY) 2010, approximately 95% of facilities usedTRI-MEwebto report TRI data.

Because such a large portion of TRI reporters already useTRI-MEweb,this proposed TRI electronic reporting requirement is not expected to affect the majority of TRI reporting facilities. In fact, fewer than 5% of current TRI reporting facilities would need to become familiar with the electronic reporting process. Information about usingTRI-MEwebto report electronically is available on the TRI Web site (http://www.epa.gov/tri) and in the most recent version of the Toxic Chemical Release Inventory Reporting Forms and Instructions (RFI), which is available on the TRI Web site.

Under this proposed rule, facilities that submit trade secret information would continue to submit two versions of the substantiation form and two versions of Form R or Form A—sanitized versions that include the generic chemical name that is structurally descriptive of the chemical being claimed as a trade secret and unsanitized versions that include the trade secret chemical name.TRI-MEwebdoes not allow facilities to submit trade secret information; however, to facilitate reporting of such information, EPA currently provides electronically fillable/printable versions of the TRI reporting forms (i.e., Form A, Form R, and Form R Schedule 1) on the TRI Web site. EPA strongly recommends that TRI facilities that submit TRI trade secret information use a computer or typewriter to prepare their hard-copy submissions of TRI information and consult the TRI Web site (http://www.epa.gov/tri) for more detailed information.

To codify this proposed rule, EPA proposes inserting a paragraph (c) into 40 CFR 372.85. This codification would require most regulated facilities to submit TRI data electronically using the current electronic reporting tool provided by EPA. EPA would only accept TRI data that are submitted electronically, except for trade secret TRI forms and substantiations; and EPA would not accept or process TRI data that are not submitted in the appropriate manner.

Currently, facilities submit TRI reporting forms electronically or by paper. To submit TRI data by paper, facilities download the appropriate TRI reporting form or forms from the TRI Web site (accessible athttp://www.epa.gov/tri). Before RY 2006, EPA mailed paper TRI reporting forms to facilities each year. Since RY 2006, EPA has made the TRI reporting forms available on its Web site.

If using a paper TRI reporting form, the facility's form Preparer enters the facility's data on the form, the CertifyingOfficial certifies/signs the form, and the facility then sends the form to EPA's TRI Data Processing Center (DPC) via mail or courier. The current RFI, available on the TRI Web site (accessible athttp://www.epa.gov/tri), provides a more detailed explanation of this process.

In January 2011, EPA began providing fillable/printable versions of the TRI Reporting Form R, Form R Schedule 1, and Form A through the TRI Web site. For those facilities still wishing or needing to submit paper forms (e.g., for trade secret submissions), EPA encouraged the use of the fillable/printable forms, rather than handwritten forms, to help ensure that the data—once received by the DPC—could be read and entered into the TRI database.

Electronic reporting usingTRI-MEwebis already EPA's recommended reporting approach for submitting TRI information to the Agency, and under this proposed rule, it would become the required approach. To submit TRI data electronically, a facility registers with EPA's Central Data Exchange (CDX) and usesTRI-MEwebto prepare, certify, and submit TRI reports. The use of CDX andTRI-MEwebto prepare and submit TRI reports is explained below, in Unit III.D, “How Does a Facility Report TRI Data UsingTRI-MEweb?”

Beginning in 1987, the Agency began encouraging facilities to submit TRI Form R data electronically using magnetic media. Initially, EPA provided year-specific Automated Form R (AFR) software that allowed a facility to submit TRI data for a particular reporting year. Facilities could install and use the AFR software to produce either a hard-copy TRI report or a diskette, which facilities could then submit to EPA. Upon receipt, the DPC would transcribe hard-copy TRI reports into a database and electronically enter diskette submissions into a database. The use of AFR proved to be popular among facilities, and the percentage of TRI reporting facilities using this tool increased from 13 percent in 1990 to 62 percent in 1996.

Generally, the Agency improved upon the AFR each year by incorporating new features, such as the ability to submit TRI data for multiple reporting years (i.e., separate reports for each year), data validation checks, and the ability to load data from prior years into the current reporting year's electronic form. In 1998, EPA renamed the AFR software to Automated TRI Reporting Software (ATRS) to reflect the addition of Form A into the software.

After RY 2000, EPA replaced ATRS with TRI-Made Easy (TRI-ME), which was a computer desktop application that a facility could download from the TRI Web site or receive in the mail upon request. TRI-ME provided electronic assistance to a facility preparing TRI reports and, for the first time, allowed a facility to submit TRI data to EPA's CDX via the Internet. TRI-ME also allowed facilities to print a hard-copy version of the TRI report or produce a digital file that could then be submitted online or copied to a diskette and mailed to the DPC.

In 2006, for RY 2005, EPA began making theTRI-MEwebapplication available to a limited number of facilities.TRI-MEwebis a Web-based reporting application that includes validation features to help facilities report accurate information. This application is entirely online, meaning a facility can access the application from any computer that is connected to the Internet. In addition, because the application is online, EPA can instantly perform any needed software updates or corrections without requiring users to download an updated version of software. Most, if not all, computers and Web software should be compatible withTRI-MEweb.

EPA continued to refineTRI-MEwebeach year after its limited released, expanding the number of facilities that could use it and eventually making the application widely available to nearly all facilities for RY 2008. The Agency also, for RY 2008, informed facilities that it would focus on providingTRI-MEweb,and would no longer provide the TRI-ME CD-ROM. Accordingly, a steadily increasing percentage of facilities have submitted TRI data to EPA usingTRI-MEweb,as illustrated in Chart 1. Electronic reporting usingTRI-MEwebhas now become the predominant mechanism that facilities use to submit TRI data to EPA.

Due to the longstanding history of electronic reporting of TRI data, the benefits thatTRI-MEwebprovides, and the prevalence and availability of the Internet, EPA published a notice in theFederal Registeron January 14, 2011, which encouraged facilities to utilizeTRI-MEweb.The notice also notified facilities of the availability of fillable/printable TRI reporting forms on the TRI Web site and stated that the Agency was considering publishing this proposed rule to require electronic reporting of TRI data.

TRI-MEwebis an interactive, user-friendly Web-based application that guides facilities through the TRI reporting process. As currently implemented, one or more representatives from each facility must establish an account with EPA's CDX in order to prepare, transmit, certify, and submit TRI Forms. CDX is EPA's centralized node on the Environmental Information Exchange Network that serves as EPA's main mechanism for receiving and exchanging electronic information. A facility representative may register for a CDX account or gain access to an existing CDX account athttps://cdx.epa.gov/.

During the CDX registration process, CDX prompts the facility representative to indicate which applications (e.g.,TRI-MEweb)to link with the account. If the facility representative has previously registered with CDX for other purposes, then he/she can addTRI-MEwebto his/her existing CDX account.

When addingTRI-MEwebto the CDX account, CDX will ask the facility representative to select a role as a form Preparer or Certifying Official. Either a Preparer or a Certifying Official can enter a facility's TRI data inTRI-MEweband transmit it to CDX to awaitcertification; but only a Certifying Official can approve and certify a TRI reporting form and submit the final, certified form to EPA usingTRI-MEweband CDX. Preparers and Certifying Officials can potentially perform their TRI reporting roles (preparing and/or certifying TRI forms) for multiple facilities, if so designated by the facilities.

EPA's current electronic reporting procedures require each Certifying Official to sign and submit a hard-copy Electronic Signature Agreement (ESA) to EPA before certifying any TRI reports. Once a facility representative registers in CDX as aTRI-MEwebCertifying Official, EPA sends an ESA to that representative via email. The ESA includes a TRI Facility Identification number for each facility for which the Certifying Official is responsible. The Certifying Official must sign this ESA in hard-copy and mail it to the DPC. Upon receiving an ESA, the Agency may take five to seven days to approve it. Once the ESA is approved by EPA, the Certifying Official may review, certify, and submit any pending TRI submissions to EPA usingTRI-MEweband CDX. More detailed information on these procedures is available on the TRI Web site.

Once registered with CDX andTRI-MEweb,a facility's Preparer or Certifying Official can gain access toTRI-MEwebthrough CDX. Once opened, theTRI-MEwebapplication provides interactive Web pages that enable a Preparer or Certifying Official to provide and validate the current year's data. After providing the pertinent data, a Preparer (or Certifying Official) can transmit the data electronically to CDX where it is then available for certification by the facility's Certifying Official(s). The Certifying Official can then log into CDX to review, certify, and submit the TRI report to EPA. Once EPA receives the certified report in CDX, the data are then sent to the TRI database (and if appropriate, also to a state).

Some TRI facilities have their own software or use private software to assist in collecting chemical release data. This “third-party software” is often designed to produce output data files that match EPA's electronic data structure specifications.TRI-MEwebaccepts chemical data files from third-party software using Extensible Markup Language (XML). Detailed information describing the XML schemaTRI-MEwebuses for the current reporting year is available online athttp://www.exchangenetwork.net/exchanges/cross/tri.htm.

Detailed instructions on using CDX andTRI-MEweb,including tutorials, are available on the TRI Web site and in the RFI, which is also available through the TRI Web site. Facilities may also contact the TRI Information Center, the CDX Helpdesk, the TRI DPC, the Regional TRI Coordinators, or the TRI Program staff at EPA Headquarters for further assistance. Please see the “Contact Us” information located on the TRI Web site for further details.

Please note that the use ofTRI-MEwebto report TRI data to EPA does not necessarily satisfy all reporting requirements that a state or local government might require. However, as will be explained below in Unit III.G, “What Benefits Will this Proposed Rule Likely Produce?,” facilities that are located in states or territories (hereinafter collectively referred to as “states”) that actively participate with the TRI Data Exchange (TDX) can meet dual-reporting requirements by submitting TRI reports usingTRI-MEweb.In these states, reports submitted viaTRI-MEwebare electronically made available to the state in which the facility is located, thus satisfying the requirement to report TRI data for both the applicable state and EPA.

For facilities located in states not actively participating in TDX,TRI-MEwebcan provide these facilities with a certification statement which the Certifying Official can sign and mail to the appropriate state along with a diskette or hard copy of the TRI data the Preparer or Certifying Official entered intoTRI-MEweb.

Electronic reporting not only makes it easier for facilities to prepare and submit their TRI data to EPA, it also helps EPA process and make the data available to the public more quickly than is possible for data submitted on paper forms. When facilities submit paper forms, EPA must manually enter the data into the TRI electronic database, which requires more time and staff resources than required to process electronic submissions. In addition, transcription errors can inadvertently be introduced during this process, particularly if the data have been handwritten on the reporting forms. Electronic reporting makes it possible for EPA to more quickly process the data and provide communities with access to the latest TRI data on toxic chemical releases and other waste management.

Electronic reporting itself prevents transcription errors and expedites TRI data processing; but in addition,TRI-MEweb,provides useful features that make it easier and faster for facilities to prepare and submit TRI data to EPA. For example,TRI-MEwebprovides facility representatives with access to a facility's prior years of reporting data (as applicable), pre-populates selected fields on the TRI forms (i.e., if the facility previously submitted a TRI report), provides standardized parent company information and chemical pick-lists, and automatically calculates the data for some numerical fields on the TRI forms.TRI-MEwebalso provides data validation features, which help prevent facilities from submitting incomplete or invalid data. Due to the benefitsTRI-MEwebprovides, EPA expects that its use by all facilities will enhance data accuracy and expedite EPA's processing and public release of the TRI data.

This proposal to require electronic TRI reporting supports broader government efforts to further the electronic collection and dissemination of data and information, and it is consistent with the provisions of the Government Paperwork Elimination Act (GPEA). GPEA authorizes federal organizations to use electronic forms, electronic filings, and electronic signatures, when practicable, to conduct official business with the public.

This proposed rule would require facilities that wish to revise or withdraw previously submitted non-confidential TRI data to do so electronically. As part of this proposed rule, the Agency would continue to allow facilities to revise or withdraw TRI reports going back to RY 2005, but not for reporting years prior to RY2005. Moreover, EPA would only accept revisions and/or withdrawals submitted viaTRI-MEweb. TRI-MEweballows a facility to gain access to and revise or withdraw TRI reports inTRI-MEwebfor prior reporting years, back to RY 2005, even if the facility did not useTRI-MEwebfor the original submission.

EPA proposes this RY 2005 cut off date for several reasons, including (1) the small number of revisions/withdrawals received for reporting years prior to RY 2005 (a relatively small proportion of TRI form revisions/withdrawals are generally submitted to EPA each year, and most of these revisions/withdrawals relate to TRI reports for the past few years), (2) the resources that would be required to modifyTRI-MEweband related information exchange capabilities to accommodate all reporting reporting years, and (3) the staff resources andtime required to continue processing paper form revisions/withdrawals.

As with original TRI submissions, preparing and submitting revisions/withdrawals electronically should facilitate the reporting process for facilities, while also making it possible for EPA to more quickly process and make the updated data available to the public. Information on usingTRI-MEwebto submit TRI revisions/withdrawals is available on the TRI Web site and in theTRI-MEwebapplication.

In order to focus Agency resources on processing and making the most recent TRI data available to the public and to maintain some consistency in the handling of non-confidential and trade secret data, EPA plans to accept paper submissions of trade secret revisions/withdrawals that concern reporting years back to RY 2005.

Requiring facilities to report TRI data electronically will help reduce the likelihood of data entry errors occurring at either the facility or EPA, as well as reduce the amount of time it takes EPA to process the data, when compared to paper-based submissions. By requiring electronic reporting, the Agency will be able to more effectively provide the public with timely access to the latest TRI data on toxic chemical releases and other waste management within communities.

Another benefit electronic reporting provides is that TRI data submitted via CDX is sent digitally to those states that participate in the TRI Data Exchange (TDX). Since 2005, EPA has entered into separate Memoranda of Agreements (MOA) with states that have elected to participate in TDX. More information on TDX is available through the TRI Web site.

A facility located in a state that participates in TDX can satisfy its requirement to report TRI data to both EPA and to the applicable state by electronically submitting certified TRI data to EPA. These TRI data are then automatically made available to the state within which the facility is located.

Under the proposed rule, facilities would be required to submit their TRI data to EPA electronically; and therefore, those facilities located in TDX-participating states would be able to satisfy the requirement to submit federally-required TRI data to both the EPA and the state with one electronic submission. Currently, if a facility submits a paper report to EPA, even if it is located in a TDX-participating state, the facility must also submit its TRI report directly to the state to meet its legal reporting obligations. Requiring the use of electronic reporting would make the state processing of TRI data easier for TDX-participating states because they would no longer need to process paper reporting forms for TRI data. Facilities that are located in states that do not participate in TDX would prepare and submit their TRI data to EPA usingTRI-MEweb,and they could then useTRI-MEwebto produce a certification statement, along with a hard-copy TRI report or CD, which could be signed by the Certifying Official and mailed to the appropriate state.

The Agency expects facilities that submit TRI data to EPA to do so electronically. Only trade secret TRI reports (including both sanitized and unsanitized information) would still be submitted to EPA on paper forms. EPA believes that the overall benefits of submitting TRI data electronically exceed those associated with maintaining a paper-based reporting approach. EPA recognizes that there could potentially be unexpected initial set-up costs or technical challenges associated with a requirement to submit TRI reports electronically, particularly for facilities that have never used electronic reporting; however, the Agency believes that the benefits of electronic reporting of TRI data—considering the ease of reporting, enhanced data quality, and faster public access to the data—would ultimately outweigh other considerations.

EPA also offers forms of assistance to TRI reporters looking for help with electronic reporting. The Agency provides guidance on the TRI Program Web site, maintains a TRI help desk, and offers webinars and other training programs. Further, EPA believes nearly all facilities can already access the Internet because the Agency stopped providing physical copies of the TRI reporting forms in 2006, exclusively thereafter offering the forms online and only mailing a physical copy upon request.

To inform facilities about this rulemaking and to solicit feedback prior to publication of the proposed rule, EPA sent a letter via email or postal carrier if an email address was not available to technical contacts for facilities that submitted TRI data for RY 2009 and RY 2008. This letter notified these facilities that EPA was considering a proposed rule to require the electronic reporting of TRI data and informed the facilities of an online discussion forum where any interested stakeholder could comment on EPA's plan to require electronic reporting of TRI data. EPA recognizes the discussion forum was provided electronically, which could bias the discussion toward facilities with access to computers, so EPA explained in the letter that facilities could physically mail comments to the Agency so that the Agency could make these comments available on the discussion forum.

The discussion forum went live on June 19, 2011, was accessible via the TRI homepage, and stayed open through July 1, 2011, receiving 57 comments. Both the discussion forum and the comments received are publically available for viewing in the docket for this rulemaking (EPA-HQ-TRI-2011-0174). The comments received via the forum fall into several broad categories: support for the proposed action; concerns involving the online reporting tools, and concerns regarding requiring electronic reporting.

Comments supporting this action:Many of the comments received support requiring electronic reporting of TRI data, noting electronic reporting expedites the reporting process and improves data quality, which, in turn, allows EPA to provide timely, accurate data to TRI data users. Adding to this perspective were comments suggesting nearly all TRI reporters likely have access to a computer and the Internet. Additionally, some of the comments requested EPA to require states to accept electronic submissions by mandating participation in the TRI Data Exchange.

Concerns involving the currently available reporting tools:EPA received some comments, both supportive and critical of this rulemaking, stating CDX andTRI-MEwebcould be more intuitive. In particular, many of these comments requested a simplification to the process used to register a Certifying Official. Many comments also expressed concern that the current process for registering a Certifying Official, which typically takes about a week, can become a major impediment to reporting before the yearly July 1 deadline should managers become unavailable or should the facility change its management in June.

EPA recognizes there are situations where a facility could face last-minute difficulties due to the current Certifying Official registration process. However, facilities may submit TRI reports prior to the deadline. In fact,TRI-MEwebfor the reporting period is typically made available in January, thereby providing facilities up to six months to report TRIdata prior to the yearly July 1 deadline. Any facility that foresees an upcoming change to its Certifying Official should be able to report prior to the change. Moreover, the Agency encourages facilities to designate an Alternate Certifying Official should the Certifying Official become unavailable close to the reporting deadline. In most situations either the Certifying Official or Alternate Certifying Official should be available prior to the reporting deadline.

It is important to note that the current process used to register Certifying Officials is evolving. EPA wants to make reporting as simple as possible, and, thus, is considering ways to simplify and expedite the process. It is quite possible that a new process will become available in the next year or two that will enable the near-instantaneous registration of a Certifying Official.

Comments also voiced concerns with various aspects ofTRI-MEweb.EPA improvesTRI-MEwebeach year and plans to address some of the issues raised by comments. For example, changes anticipated for future releases ofTRI-MEwebinclude supporting more Web browsers, clarifying the submittal process, and incorporating additional features intoTRI-MEwebto further expedite the reporting process. EPA plans to continue addressing issues and improvingTRI-MEwebfor successive reporting years.

Concerns regarding requiring electronic reporting:A few comments suggested the electronic reporting requirement should not extend to all facilities, suggesting not all facilities have access to a computer and the Internet. While EPA recognizes this possibility, EPA, as explained above, does not foresee that facilities meeting TRI Reporting thresholds will have difficulty accessing a computer and the Internet. Further, due to the high percentage of facilities that already useTRI-MEweband the longstanding practice of providing the reporting forms exclusively online, most facilities already appear to have access to a computer and the Internet.

Some of the comments requested EPA provide various exceptions should a facility be unable to report usingTRI-MEwebprior to the yearly July 1 deadline. The Agency does not foresee the need for such regulatory exceptions. EPCRA provides a yearly deadline of July 1, andTRI-MEwebis typically available in January, which allows facilities nearly six months to report the required TRI data. If facilities encounter unexpected difficulties with electronic reporting, they may use any one of the several help services EPA provides to assist facilities in reporting TRI data.

Several comments expressed a preference for paper reporting, stating it is easier to report by paper, especially for facilities that only submit one TRI reporting form to EPA. EPA understands in some cases a facility might prefer a paper reporting option but EPA believes, on the whole, electronic reporting will benefit facilities, TRI data users, and the Agency for all of the reasons noted in this proposed rule. Moreover, electronic reporting enables the Agency to publish data sooner, minimizes paper waste, and reduces costs to the Agency. At this point, EPA does not foresee a need to allow facilities to submit paper reports of non-confidential TRI data.

In connection with this proposed rule, EPA encourages all interested persons to submit comments on the following topics or other relevant topics:

1. EPA specifically seeks comment on whether facilities foresee any significant challenges in submitting RY 2012 TRI reports electronically, and if so, how EPA could potentially facilitate the process (e.g., through Webinars, Regional hands-on assistance, etc.).

2.TRI-MEwebcurrently does not allow a facility to revise or withdraw TRI reporting forms submitted for reporting years prior to RY 2005. The Agency proposes to begin requiring electronic reporting for reporting year 2012, which means facilities would be able to modify data submitted for the prior seven reporting years (RY 2011 through RY 2005), but not for reporting years 2004 through 1988. Historically, only a small proportion of revision and withdrawal submissions received each year pertain to reporting years beyond a seven-year period. EPA seeks comment on whether limiting revisions to data submitted for reporting years 2005 through the present would impose any hardship or concerns.

3. EPA does not foresee a need for an exception to an electronic-reporting requirement. However, the Agency is interested in receiving input on what exceptions, if any, might be appropriate in light of an electronic reporting requirement.

Input on these or other topics directly relevant to this proposed rule will assist the Agency in developing a final rule that addresses information needs, while minimizing the potential reporting burden associated with the rule. EPA requests that those who submit comments provide specific recommendations and include supporting documentation, as appropriate.

The following is a listing of the documents referenced in this preamble that have been placed in the public docket for this proposed rule under docket ID number EPA-HQ-TRI-2011-0174, which is available for inspection as specified underADDRESSES. For assistance in locating any of these documents, please consult the technical person listed underFOR FURTHER INFORMATION CONTACT.

This action is not a “significant regulatory action” under the terms of Executive Order (EO) 12866 (58 FR 51735, October 4, 1993) and is therefore not subject to review under Executive Orders 12866 and 13563 (76 FR 3821, January 21, 2011).

This proposed action does not impose any new information collection burden. Instead, this proposed action would merely change the manner in which the Agency receives information.

The Office of Management and Budget (OMB) has previously approved the information collection requirements contained in the existing regulations 40 CFR Part 372 under the provisions of the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. and has assigned the following OMB control numbers 2025-0009 (EPA Information Collection Request (ICR) No. 1363.21) and 2050-0078 (EPA ICR No. 1428.08). The OMB control numbers for EPA's regulations in 40 CFR are listed in 40 CFR part 9.

The Regulatory Flexibility Act generally requires an agency to prepare a regulatory flexibility analysis of any rule subject to notice-and-comment rulemaking requirements under theAdministrative Procedure Act or any other statute unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities.

For purposes of assessing the impacts of today's proposed rule on small entities, small entity is defined as: (1) A small business as defined by the Small Business Administration's (SBA) regulations at 13 CFR 121.201; (2) a small governmental jurisdiction that is a government of a city, county, town, school district or special district with a population of less than 50,000; and (3) a small organization that is any not-for-profit enterprise which is independently owned and operated and is not dominant in its field.

EPA conducted an economic analysis to consider the possible effects of this rulemaking on small entities. This analysis, “Economic Analysis of the Electronic Reporting Proposed Rule: Community Right-to-Know; Toxic Chemical Release Reporting” (Ref. #1), demonstrates this proposed rule should not create an economic burden on an individual small business of more than 1% of its sales (or equivalent metric) and, thus, will not have a significant adverse impact on small businesses. After conducting this initial analysis, however, EPA established a new methodology in order to increase transparency and consistency in assessments of burden associated with TRI reporting. (This new economic analysis methodology was recently cleared by OMB as part of OMB's approval of the Information Collection Request (ICR) (a Paperwork Reduction Act (PRA) requirement) which EPA relies upon for collecting information under TRI). EPA has determined that the amount of burden estimated for small entities in the economic analysis is not affected by the previously noted change in burden assessment methodology. As a result, and regardless of whether the previous or current methodology is used, EPA is able to demonstrate that this proposal would not have a significant impact on small businesses.

In summary, this proposed rule would create a one-time burden and a minor subsequent burden for facilities that have not previously usedTRI-MEwebto submit TRI data to EPA.This burden would relate to obtaining access to a computer and the Internet, designating a facility form Preparer and Certifying Official, establishing an account in CDX, and associating the CDX account withTRI-MEweb.The economic analysis EPA prepared for this proposed rule which describes this burden in detail is available under docket ID number EPA-HQ-TRI-2011-0174 as Reference #1.

After considering the economic impacts of this rule on small entities, I certify that this action will not have a significant economic impact on a substantial number of small entities.

This rule does not contain a Federal mandate that may result in expenditures of $100 million or more for state, local, and tribal governments, in the aggregate, or the private sector in any one year. This rule will merely require facilities under the TRI Program to submit electronic reports usingTRI-MEweb.Most facilities already adhere to this requirement, thus this rule will affect a relatively small number of facilities. Further, the cost to adhere to this rule is small and, in aggregate, will not cost more than $100 million or more for state, local, and tribal governments, or the private sectors in any one year. Thus, this rule is not subject to the requirements of sections 202 or 205 of the Unfunded Mandates Reform Act (UMRA).

This rule is also not subject to the requirements of section 203 of UMRA because it contains no regulatory requirements that might significantly or uniquely affect small governments. Any small government that reports to the TRI Program will not incur significant costs because the cost, if any, to report electronically, as described above, is minimal.

This action does not have federalism implications. It 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, as specified in Executive Order 13132. This action would require facilities that submit annual reports under section 313 of EPCRA to do so electronically, which 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. Thus, Executive Order 13132 does not apply to this action.

In the spirit of Executive Order 13132, and consistent with EPA policy to promote communications between EPA and State and local governments, EPA specifically solicits comment on this proposed action from State and local officials.

Under E.O. 13175, entitled Consultation and Coordination with Indian Tribal Governments (65 FR 67249, November 9, 2000), EPA has determined that this proposed rule does not have tribal implications because it will not have substantial direct effects on tribal governments, on the relationship between the Federal Government and the Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes, as specified in the Executive Order. Instead, the rule merely affects how facilities report information to the TRI Program. Thus, E.O. 13175 does not apply to this proposed rule.

EPA interprets E.O. 13045 (62 FR 19885, April 23, 1997) as applying only to those regulatory actions that concern health or safety risks, such that the analysis required under section 5-501 of the Executive Order has the potential to influence the regulation. This action is not subject to E.O. 13045 because it does not establish an environmental standard intended to mitigate health or safety risks.

This action is not subject to Executive Order 13211 (66 FR 28355 (May 22, 2001)), because it is not a significant regulatory action under Executive Order 12866.

Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (“NTTAA”), Public Law 104-113, 12(d) (15 U.S.C. 272 note) directs EPA to use voluntary consensus standards in its regulatory activities unless to do so would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards (e.g., materials specifications, test methods, sampling procedures, and business practices) that are developed or adopted by voluntary consensus standards bodies. NTTAA directs EPA to provide Congress, through OMB, explanations when the Agency decides not to use available and applicable voluntary consensus standards.

This action does not involve technical standards. Therefore, EPA did not consider the use of any voluntary consensus standards.

E.O. 12898 (59 FR 7629, Feb. 16, 1994) establishes Federal executive policy on environmental justice. Its main provision directs Federal agencies, to the greatest extent practicable and permitted by law, to make environmental justice part of their mission by identifying and addressing, as appropriate, disproportionately high and adverse human health or environmental effects of their programs, policies, and activities on minority populations and low-income populations in the United States.

EPA has determined that this proposed rule will not have disproportionately high and adverse human health or environmental effects on minority or low-income populations because it does not affect the level of protection provided to human health or the environment. Instead, this rule would merely address the manner in which regulated facilities submit reporting information.

For the reasons set out in the preamble, Chapter I of Title 40 of the Code of Federal Regulations is proposed to be amended as follows:

Background

On February 23, 2012, the Department of the Treasury published a notice of proposed rulemaking that would amend the Department of the Treasury Acquisition Regulations to implement the Internet Payment Platform. As published, the notice of proposed rulemaking contains an error, which may prove to be misleading and is in need of clarification.

Accordingly, the publication of the notice of proposed rulemaking, FR Doc. 2012-4216, published February 23, 2012 at 77 FR 10714, is corrected as follows: