This rule is issued under Marketing Order No. 927, as amended (7 CFR part 927), regulating the handling of pears grown in Oregon and Washington, 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.

Under the order, Oregon-Washington fresh pear handlers are subject to assessments, which provide funds to administer the order. Assessment rates issued under the order are intended to be applicable to all assessable fresh pears for the entire fiscal period, and continue indefinitely until amended, suspended, or terminated. The Committee's fiscal period begins on July 1, and ends on June 30.

In an interim rule published in theFederal Registeron August 31, 2011, and effective on September 1, 2011, (76 FR 54075, Doc. No. AMS-FV-2011-0060, FV11-927-2 IR), § 927.236 was amended by decreasing the assessment rate established for the Committee for the 2011-2012 and subsequent fiscal periods from $0.501 to $0.471 per standard box or equivalent of fresh winter pears handled. The Committee recommended the assessment rate decrease because the fresh winter pear promotion budget for the 2011-2012 fiscal period was reduced. The assessment rates for summer/fall and “other” fresh pears remain unchanged at $0.366 and $0.00, respectively.

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 rule on small entities. Accordingly, AMS has prepared this final regulatory flexibility analysis.

The purpose of the RFA is to fit regulatory actions to the scale of business subject to such actions in order that small businesses will not be unduly or disproportionately burdened. Marketing orders issued pursuant to the Act, and 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 approximately 1,581 producers of fresh pears in the regulated production area and approximately 38 handlers of fresh pears subject to regulation under the order. Small agricultural producers are defined by the Small Business Administration (SBA)(13 CFR 121.201) as those having annual receipts of less than $750,000, and small agricultural service firms are defined as those whose annual receipts are less than $7,000,000.

According to the Noncitrus Fruits and Nuts 2010 Summary issued in July 2011 by the National Agricultural Statistics Service, the average price for fresh pears in 2010 was $591 per ton. The 2010 farm-gate value of fresh pears grown in Oregon and Washington is estimated at approximately $249,500,579, based on shipments of 19,189,400 44-pound standard boxes. Based on the number of fresh pear producers in the Oregon and Washington, the average gross revenue for each producer can be estimated at approximately $157,812. Furthermore, based on Committee records, the Committee has estimated that 56 percent of Northwest pear handlers currently ship less than $7,000,000 worth of fresh pears on an annual basis. From this information, it is concluded that the majority of producers and handlers of Oregon and Washington fresh pears may be classified as small entities.

This rule continues in effect the action that decreased the assessment rate established for the Committee and collected from handlers for the 2011-2012 and subsequent fiscal periods from $0.501 to $0.471 per standard box or equivalent of fresh winter pears handled. The Committee unanimously recommended 2011-2012 expenditures of $8,827,860 and an assessment rate of $0.471 per standard box or equivalent of fresh winter pears. The assessment rate of $0.471 is $0.03 lower than the previous rate. The assessment rates for summer/fall and “other” fresh pearsremain unchanged at $0.366 and $0.00, respectively. The Committee recommended the assessment rate decrease because the fresh winter pear promotion budget for the 2011-2012 fiscal period was reduced.

The quantity of assessable fresh winter pears for the 2011-2012 fiscal period is estimated at 15,500,000 standard boxes or equivalent. Thus, the $0.471 rate should provide $7,300,500 in assessment income. In addition, income derived from summer/fall fresh pear handler assessments, interest, and miscellaneous income will be adequate to cover the budgeted expenses.

This rule continues in effect the action that decreased the assessment obligation imposed on handlers. Assessments are applied uniformly on all handlers, and some of the costs may be passed on to producers. However, decreasing the assessment rate reduces the burden on handlers, and may reduce the burden on producers.

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. 0581-0189, Generic Fruit Crops. No changes in those requirements as a result of this action are anticipated. Should any changes become necessary, they would be submitted to OMB for approval.

This action imposes no additional reporting or recordkeeping requirements on either small or large Oregon-Washington fresh pear 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. USDA has not identified any relevant Federal rules that duplicate, overlap, or conflict with this rule.

In addition, the Committee's meeting was widely publicized throughout the Oregon-Washington pear industry and all interested persons were invited to attend the meeting and participate in Committee deliberations on all issues. Like all Committee meetings, the June 3, 2011, meeting was a public meeting and all entities, both large and small, were able to express views on this issue.

Comments on the interim rule were required to be received on or before October 31, 2011. No comments were received. Therefore, for reasons given in the interim rule, we are adopting the interim rule as a final rule, without change.

To view the interim rule, go to:http://www.regulations.gov/#!documentDetail;D=AMS-FV-11-0060-0001.

This action also affirms information contained in the interim rule concerning Executive Orders 12866 and 12988, the Paperwork Reduction Act (44 U.S.C. Chapter 35), and the E-Gov Act (44 U.S.C. 101).

After consideration of all relevant material presented, it is found that finalizing the interim rule, without change, as published in theFederal Register(76 FR 54075, August 31, 2011) will tend to effectuate the declared policy of the Act.

This rule is issued under Marketing Order No. 927, as amended (7 CFR part 927), regulating the handling of pears grown in Oregon and Washington, 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.

Under the order, Oregon-Washington processed pear handlers are subject to assessments, which provide funds to administer the order. Assessment rates issued under the order are intended to be applicable to all assessable processed pears for the entire fiscal period, and continue indefinitely until amended, suspended, or terminated. The Committee's fiscal period begins on July 1, and ends on June 30.

In an interim rule published in theFederal Registeron August 30, 2011, and effective on August 31, 2011, (76 FR 53811, Doc. No. AMS-FV-11-0070, FV11-927-3 IR), § 927.237 was amended by decreasing the assessment rate established for the Committee for the 2011-2012 and subsequent fiscal periods from $8.41 to $7.73 per ton for summer/fall processed pears handled. The Committee recommended the assessment rate decrease because the summer/fall processed pear promotion budget for the 2011-2012 fiscal period was reduced.

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 rule on small entities. Accordingly, AMS has prepared this final regulatory flexibility analysis.

The purpose of the RFA is to fit regulatory actions to the scale of business subject to such actions in order that small businesses will not be unduly or disproportionately burdened. Marketing orders issued pursuant to the Act, and 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 approximately 1,500 producers of processed pears in the regulated production area and approximately 51 handlers of processed pears subject to regulation under the order. Small agricultural producers are defined by the Small Business Administration (SBA)(13 CFR 121.201) as those having annual receipts of less than $750,000, and small agricultural service firms are defined as those whose annual receipts are less than $7,000,000.

According to the Noncitrus Fruits and Nuts 2010 Preliminary Summary issued in January 2011 by the National Agricultural Statistics Service, the total farm-gate value of summer/fall processed pears grown in Oregon and Washington for 2010 was $76,427,000. Based on the number of processed pear producers in the Oregon and Washington, the average gross revenue for each producer can be estimated at approximately $50,951. Furthermore, based on Committee records, the Committee has estimated that each of the Northwest pear handlers currently ship less than $7,000,000 worth of processed pears on an annual basis. From this information, it is concluded that the majority of producers and handlers of Oregon and Washington processed pears may be classified as small entities.

In addition, there are five processing plants in the production area, with one in Oregon and four in Washington. All five processors would be considered large entities under the SBA's definition of small businesses.

This rule continues in effect the action that decreased the assessment rate established for the Committee and collected from handlers for the 2011-2012 and subsequent fiscal periods from $8.41 to $7.73 per ton for summer/fall processed pears handled. The Committee unanimously recommended 2011-2012 expenditures of $926,933 and an assessment rate of $7.73 per ton for summer/fall processed pears. The assessment rate of $7.73 is $0.78 lower than the previous rate. The Committee recommended the assessment rate decrease because the summer/fall processed pear promotion budget was reduced.

The quantity of assessable processed pears for the 2011-2012 fiscal period is estimated at 120,000 tons. Thus, the $7.73 rate should provide $927,600 in assessment income. Income derived from summer/fall processed pear handler assessments, interest and other income will be adequate to cover the budgeted expenses.

This rule continues in effect the action that decreased the assessment obligation imposed on handlers. Assessments are applied uniformly on all handlers, and some of the costs may be passed on to producers. However, decreasing the assessment rate reduces the burden on handlers, and may reduce the burden on producers.

In accordance with the Paperwork Reduction Act of 1991 (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. 0581-0189, Generic Fruit Crops. No changes in those requirements as a result of this action are anticipated. Should any changes become necessary, they would be submitted to OMB for approval.

This action imposes no additional reporting or recordkeeping requirements on either small or large Oregon-Washington processed pear 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. USDA has not identified any relevant Federal rules that duplicate, overlap, or conflict with this rule.

In addition, the Committee's meeting was widely publicized throughout the Oregon-Washington pear industry and all interested persons were invited to attend the meeting and participate in Committee deliberations on all issues. Like all Committee meetings, the June 2, 2011, meeting was a public meeting and all entities, both large and small, were able to express views on this issue.

Comments on the interim rule were required to be received on or before October 31, 2011. No comments were received. Therefore, for the reasons given in the interim rule, we are adopting the interim rule as a final rule, without change.

To view the interim rule, go to:http://www.regulations.gov/#!documentDetail;D=AMS-FV-11-0070-0001.

This action also affirms information contained in the interim rule concerning Executive Orders 12866 and 12988, the Paperwork Reduction Act (44 U.S.C. Chapter 35), and the E-Gov Act (44 U.S.C. 101).

After consideration of all relevant material presented, it is found that finalizing the interim rule, without change, as published in theFederal Register(76 FR 53811, August 30, 2011) will tend to effectuate the declared policy of the Act.

Various NRC regulations provide the NRC General Counsel with authority to issue binding written interpretations of the NRC's regulations. Between 1956 and 1977, the General Counsel of the NRC and its precursor, the Atomic Energy Commission (AEC), occasionally published such interpretations in Title 10 of the Code of Federal Regulations (10 CFR) part 8. These interpretations have not been updated, and contained various provisions that have since been superseded by statutory and regulatory changes.

To resolve these problems and prevent any confusion resulting from mistaken reliance upon outdated interpretations, the NRC is now removing and reserving 10 CFR part 8. This action is consistent with Section 2 of Executive Order 13579 (76 FR 41587; July 14, 2011), which calls upon independent regulatory agencies to repeal outmoded and unnecessary rules.

Less than one year after the Atomic Energy Act of 1946 authorized the creation of the NRC's predecessor, the AEC issued 10 CFR 40.50, “Valid Interpretations” (12 FR 1855; March 20, 1947). Section 40.50 was the first AEC regulation authorizing the agency's General Counsel to issue written “interpretations” of other AEC regulations, which would be valid and binding upon the Commission. The current 10 CFR 40.6 is almost identical to the original 10 CFR 40.50.

Following the enactment of 10 CFR 40.50, the AEC and then the NRC added very similar regulations to most of its parts in Title 10 of the CFR. Like the current rules authorizing General Counsel interpretations, these rules did not specify where the General Counsel would publish written interpretations.

In 1956, AEC General Counsel William Mitchell issued the first formal General Counsel interpretation, 10 CFR 8.1, regarding inventions under Section 152 of the Atomic Energy Act (21 FR 1414; March 3, 1956).

Four years later, General Counsel L.K. Olson issued the next formal interpretation, published at 10 CFR 8.2, which construed the Price-Anderson Act, a provision that had been recently added to the Atomic Energy Act in 1957 (25 FR 4075; May 7, 1960).

The AEC General Counsel Joseph Hennessey then issued 10 CFR 8.3, which related to the computation of time when regulatory deadlines fell on Saturdays, Sundays, or holidays (32 FR 11379; August 5, 1967). “Based upon comments and further consideration,” the Commission revoked that interpretation in 1978 (43 FR 17999; April 26, 1978).

General Counsel Hennessey also published 10 CFR 8.4, which addressed whether states could regulate materials covered under the Atomic Energy Act on the basis of radiological health and safety (34 FR 7273; May 3, 1969). When faced with a later industry petition for rulemaking, the Commission defended this rule, asserting that the interpretation remained “correct as it stands” (67 FR 66075; October 30, 2002).

Lastly, the NRC General Counsel Peter Strauss issued 10 CFR 8.5, which interpreted contemporary illumination and physical search requirements under 10 CFR 73.55 (42 FR 33265; June 30, 1977). Since the publication of 10 CFR 8.5 and revocation of 10 CFR 8.3 one year later, the interpretations in 10 CFR Part 8 have remained unchanged for approximately thirty-three years.

The Administrator of the Office of Management and Budget's (OMB's) Office of Information and Regulatory Affairs, recently issued a Memorandum to the Independent Regulatory Agencies regarding “Executive Order 13579, `Regulation and Independent Regulatory Agencies' ” (July 22, 2011). This Memorandum encouraged independent agencies to identify “rules that are obsolete, unnecessary, unjustified, excessively burdensome, or counter-productive,” and to modify or repeal them. Moreover, the Memorandum advised that agencies “should focus on the elimination of rules that are no longer justified or necessary.” This is consistent with the longstanding policy of the Administrative Committee of the Federal Register, which maintains that each agency should “amend its regulations whenever the regulations are rendered ineffective in whole or in part” (54 FR 9670; March 7, 1989).

When the AEC issued its first General Counsel interpretation, regarding the status of licensee inventions with respect to Section 152 of the Atomic Energy Act, that statute was unclear. It referred to inventions “made or conceived under any contract, subcontract, arrangement, or other relationship with the Commission.” Thus, General Counsel Mitchell felt it necessary to announce whether agency licensees had a “relationship with the Commission” under that section.

But five years later, Congress amended Section 152 to its current form, eliminating the “other relationship” language. The legislative history makes it clear that the purpose of this amendment was to “more clearly define the applicability of Section 152” by eliminating its former “unclear” language. See 107 Cong. Rec. 15514 (Aug. 22, 1961) (statement of Rep. Aspinall); S. Rep. No. 87-746 at 8 (Aug. 16, 1961). Therefore, § 8.1 is “no longer justified or necessary,” as it interprets a statutory provision that no longer exists.

The next General Counsel interpretation, 10 CFR 8.2, has remained unchanged since 1960. It comments on the international application of the Price-Anderson Act. The interpretation relied on “Section 11o.” of the Atomic Energy Act, which was the original definition of “nuclear incident.” That definition included occurrences causing “damage” without specifying the location of that damage. But since the issuance of § 8.2, that definition, subsequently retitled as Section 11q., has been significantly amended to explicitly cover damages “within or outside the United States.” The interpretation also relied on “Section 11u.” of the Atomic Energy Act, the original definition of “public liability,” which has since been amended and retitled as Section 11w.

Moreover, §§ 8.2(h)-(i) pointed to a “confusing” and “ambiguous” legislative history, “since the language of the Act [at that time] draws no distinction between damage received in the United States and that received abroad.” The interpretation concluded that Price-Anderson insurance should cover damage to Canada or Mexico caused by a nuclear incident in the United States.

However, as noted above, the crucial definition of “nuclear incident” has been updated since 1960. In itsamendments, Congress made it absolutely clear that “nuclear incidents” under Price-Anderson would include incidents in America causing damage “outside the United States.” There is no longer any ambiguity, and thus no need for the interpretation.

Section 8.2 is also confusing, because it hinted at a potential controversy involving “ambiguous” legislation where there is none. The NRC understands that some stakeholders still rely on § 8.2 as valid guidance on the scope of the Price-Anderson Act. The NRC is attempting to end any such confusion by removing this rule, which has been rendered obsolete and is thus “no longer justified or necessary.”

As indicated previously, the Commission revoked the former General Counsel interpretation at 10 CFR 8.3 in 1978.

Nine years ago, in response to a petition for rulemaking, the Commission reaffirmed the position set forth in 10 CFR 8.4, which discussed state regulation of materials covered under the Atomic Energy Act on the basis of radiological health and safety (67 FR 66075; October 30, 2002). Although this interpretation was never updated to incorporate subsequent court decisions and other events, the NRC continues to adhere to the substance of the interpretation in § 8.4. The removal of 10 CFR part 8 should not be read to imply a change in the NRC's substantive position on this or any other issue.

The last General Counsel interpretation, 10 CFR 8.5, referred to the illumination and physical search requirements contained in a previous version of 10 CFR 73.55. However, § 73.55 has been amended at least 18 times since this interpretation was issued in June 1977. The latest version of § 73.55 bears little resemblance to the version interpreted in § 8.5.

For example, the interpretation relied on provisions in §§ 73.55(c)(4), (c)(5), and (d)(1) that no longer exist. Moreover, it cited forthcoming revisions to a guidance document that was itself superseded thirty years ago. Unsurprisingly, the NRC staff recently concluded that § 8.5 is no longer needed from a technical perspective, and recommended removing that provision. Thus, it is clear that the interpretation at § 8.5 has also been “rendered ineffective” and should be removed.

Under the Administrative Procedure Act, 5 U.S.C. 552(a)(1)(D), all “interpretations of general applicability formulated and adopted by the agency” must be “state[d] and currently publish[ed] in theFederal Registerfor the guidance of the public.”1 All of the General Counsel's formal interpretations in 10 CFR Part 8 were properly published in theFederal Register. Other agencies also continue to publish their legal interpretations in theFederal Register. See, e.g., Department of Veterans Affairs, “Summary of Precedent Opinions of the General Counsel” (76 FR 4430; January 25, 2011); Department of Energy, “Office of the General Counsel Ruling 1995-1 Concerning 10 CFR Parts 830 and 835” (61 FR 4209; February 5, 1996).

However, publication in the CFR is another matter. Beginning with an opinion by then-Judge Scalia, the Court of Appeals for the D.C. Circuit has repeatedly held that under a provision of the Federal Register Act, 44 U.S.C. 1510, “the Code of Federal Regulations [may] contain only documents having general applicability and legal effect.”Wilderness Societyv.Norton,434 F.3d 584, 596 (D.C. Cir. 2006), quotingBrockv.Cathedral Bluffs Shale Oil Co.,796 F.2d 533, 539 (D.C. Cir. 1986). See alsoAmerican Mining Congressv.Mine Safety & Health Admin.,995 F.2d 1106, 1109 (D.C. Cir. 1993) (“44 U.S.C. 1510 limits publication in [the] [C]ode to rules `having general applicability and legal effect.' ”).

Moreover, the administrative regulations implementing 44 U.S.C. 1510 confirm that the CFR should “contain * * * Federal regulation[s] of general applicability and legal effect.” 1 CFR 8.1. The key to this limitation on publication in the CFR is “legal effect.”

The D.C. Circuit long-ago established that documents with “legal effect” are those that “ha[ve] the force and effect of statute.”Sheridan-Wyoming Coal Co.v.Krug,172 F.2d 282, 287 (D.C. Cir. 1949). The interpretations in 10 CFR Part 8 do not have the binding force and effect of statute (67 FR 66076; October 30, 2002) (agreeing that the NRC's 10 CFR part 8 interpretations “presumably would not be binding on a court”). Likewise, regulations define the term “Document having general applicability and legal effect” to mean “any document issued under proper authority prescribing a penalty or course of conduct, conferring a right, privilege, authority, or immunity, or imposing an obligation.” 1 CFR 1.1. Interpretive rules like those in 10 CFR part 8 do not meet this definition, as the General Counsel's interpretations do not have “legal effect” like the substantive regulations published elsewhere in 10 CFR chapter I.

Therefore, the NRC has concluded that it would be more prudent to remove the obsolete interpretations in 10 CFR Part 8 than to attempt to update these provisions. Any future formal General Counsel interpretations will be published only in theFederal Register.

Because this rulemaking concerns interpretive rules, the notice and comment provisions of the Administrative Procedure Act do not apply under 5 U.S.C. 553(b)(A), and this rule is immediately effective under 5 U.S.C. 553(d)(2). Additionally, the NRC has determined that a post-promulgation comment period would serve no public interest under 10 CFR 2.804(e)(2) because the interpretations have been superseded by subsequent statutory and regulatory changes.

This final rule is the type of action described in categorical exclusion 10 CFR 51.22(c)(1). Therefore, the NRC has not prepared an environmental impact statement or an environmental assessment for this rule.

This final rule does not contain information collection requirements and, therefore, is not subject to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.).

The NRC may not conduct or sponsor, and a person is not required to respond to, a request for information or an information collection requirement unless the requesting document displays a currently valid OMB control number.

A regulatory analysis has not been prepared for this final rule because the NRC is eliminating regulations that have been superseded by subsequent statutory and regulatory actions, andthis rule has no impact on health, safety, or the environment. There is no cost to licensees, the NRC, or other Federal agencies.

The NRC has determined that the backfit rule does not apply to this final rule because removal of these interpretations does not involve any backfits as defined in 10 CFR 50.109(a)(1). Therefore, a backfit analysis is not required for this rule.

In accordance with the CRA, the NRC has determined that this action is not a major rule and has verified this determination with OMB's Office of Information and Regulatory Affairs.

I. Background

The Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111-203 (the “Act”) establishes the Council, which, among other functions, is responsible for identifying and responding to threats to the financial stability of the United States. Section 112(d)(5)(C) of the Act provides that the FOIA, “including the exceptions thereunder, shall apply to any data or information submitted under this subsection and subtitle B.”

On March 28, 2011 (76 FR 17038), the Council published a proposed rule that would implement the requirements of the FOIA as they apply to the Council. The proposed rule, among other things, described how information would be made available and the timing and procedures for public requests. See the March 28, 2011 notice for a description of the proposed rule.

The comment period closed on May 27, 2011, and the Council received comments from nine entities on the proposed rule. Comments were received from an insurance company, trade associations, a federal government agency, and consumer groups. This section of the preamble sets out significant comments raised, along with FSOC's responses to these comments, and identifies where the Council has made changes to the regulations.

Several commenters indicated that it was unclear whether FOIA requests could be submitted by electronic means. In response, the regulation has been modified throughout to clarify that FOIA requests may be submitted via the Internet and that online methods may be used throughout the FOIA process. Although it is likely that the Council will initially rely on a Web form to enable electronic receipt of FOIA requests, the Council anticipates that, eventually, email requests also could be accommodated.

Section 1301.2, as proposed, stated that, even though a FOIA exemption might apply, the Council could make discretionary disclosures if not precluded by law. Some commenters expressed concern that this provision would give the Council unfettered discretion and would result in the unnecessary disclosure of sensitive information. The Council is sympathetic to these concerns and, as suggested by the commenters, has modified the language to make clear that the Council will make discretionary disclosures after weighing the particular facts and circumstances of each request. In considering requests under the FOIA, the Council will carefully consider the balance between protecting sensitive information in accordance with the FOIA, and the public interest in disclosure. It will also take steps to assure consistent handling of multiple requesters for the same information.

Some commenters expressed concern about what they perceived as overly-strict procedural requirements in § 1301.5. The Council has revised this section of the rule to explicitly afford greater latitude for accepting and processing requests that contain one or more technical deficiencies. In particular, § 1301.5(d), as added in the final rule, provides that the Council may not reject a request solely because the request contains one or more technical deficiencies. Moreover, the regulation now more clearly states that requesters will be notified when their requests fail to meet the requirements that allow for adequate and timely processing.

Some commenters suggested that § 1301.5 should also be modified to make clear that fee waiver requests do not necessarily need to be included with the original FOIA request. Rather, commenters urged the Council to allow fee-waiver requests to be submitted at any time prior to the processing of the FOIA request. Accordingly, the Council modified § 1301.5(b)(7) to allow a requester to seek a fee waiver at a later time.

Regarding the procedures in § 1301.6 governing records originating from other agencies, some commenters suggested that referrals to other agencies be prohibited whereas others suggested that such referrals be required in all cases. The referral procedures as originally proposed are consistent with the statute and with case law, and FSOC has determined to retain those procedures. However, FSOC has modified § 1301.6 to more clearly describe how it will treat documents originated by federal agencies and state agencies.

In § 1301.8, governing the format of the agency's response to FOIA requests and its description of the records withheld, some commenters objected to the use of the word “amount” rather than “volume,” suggesting that FSOC would only be providing information regarding redactions within documentsthat were released and would not be providing information regarding the number of responsive documents withheld in their entirety. That was not FSOC's intention, and the language has been modified to address this concern.

It was also suggested that § 1301.8 be modified to make clear that fees being assessed by FSOC will be broken down by search, review, and duplication fees. This commenter also suggested that the Council include a brief description of the subject of the request in acknowledgement letters. The Council agrees and these changes have been incorporated in this final rule.

Two commenters provided views on § 1301.10 related to requests for business information. One commenter urged the Council to modify the provision to state that business information provided by any submitter, not just a business submitter, should not be disclosed except as provided in § 1301.10. The Council agrees and has changed the references to “business submitter” to “submitter.” Another commenter recommended that the Council broaden the scope of protection of business information beyond Exemption 4 of the FOIA and eliminate the scaled-back notice in § 1301.10(d) if the number of submitters is voluminous. Although the FSOC appreciates these recommendations, it has determined that the proposed changes are not appropriate. The existing language is consistent with the FOIA and Executive Order 12600 (“Predisclosure notification procedures for confidential commercial information”). FSOC has, however, determined to omit the provision contained in § 1301.10(i)(4) of the proposed regulation that stated only limited notice would be provided if the designation made by the submitter appeared obviously frivolous. The omission is intended to simplify the predisclosure notification procedures.

Section 1301.11, governing administrative appeals, has been modified at the suggestion of the National Archives and Records Administration, Office of Government Information Services (“OGIS”), to remind requesters that OGIS's mediation services are available as a non-exclusive alternative to litigation.

With respect to § 1301.12, governing fees for processing requests for Council records, several commenters expressed the view that the listed duplication fees in the proposed regulations were too high and did not reasonably reflect the likely costs of duplication. The Council agrees and has reduced the listed fees to accurately reflect the direct costs of duplication.

Some commenters proposed that the FSOC proactively post online the calendars and travel records for high-level FSOC officials. However, the highest-level FSOC officials are the members of the Council, who generally are heads of other federal agencies. As such, the FSOC has concluded that this request is best directed, on a case-by-case basis, to the specific member agencies.

A couple of commenters proposed that the regulation should require the disclosure of all votes by members of the Council in Council proceedings. The Council has concluded that this is unnecessary because the Council is subject to the requirements of the FOIA,see5 U.S.C. 552(a)(5), as well as the Council's official transparency policy,see http://www.treasury.gov/initiatives/Documents/FSOCtransparencypolicy.pdf.

Various other minor changes were made to the regulation—some in response to comments received. For example, in § 1301.7(e)(3), a sentence was added to indicate that if a request is disaggregated, the requester will be notified. In addition, the term “deletion” was replaced with the term “redaction” in § 1301.4, and the term “governmental entity” was removed from § 1301.12. Further, in § 1301.4, the reference to records “clearly of interest to the public at large” has been removed. Certain other suggestions from commenters were inconsistent with the requirements of the FOIA or outside the scope of this rulemaking and have not been adopted in this final rule.

Pursuant to the Regulatory Flexibility Act (5 U.S.C. 601et seq.), it is hereby certified that this rule will not have a significant economic impact on a substantial number of small entities. This rule establishes procedures for access to Council records under the Freedom of Information Act. Under the FOIA, agencies may recover only the direct costs of searching for, reviewing, and duplicating the records processed for requesters. Thus, fees assessed by the Council would be nominal and would not impose a significant economic impact on small entity requesters. Accordingly, a regulatory flexibility analysis is not required.

This rule is not a significant regulatory action as defined in Section 3.f of Executive Order 12866.

Section 111 of the Dodd-Frank Act (12 U.S.C. 5321) established the Financial Stability Oversight Council. Among the purposes of the Council under section 112 of the Dodd-Frank Act (12 U.S.C. 5322) are “(A) to identify risks to the financial stability of the United States that could arise from the material financial distress or failure, or ongoing activities, of large, interconnected bank holding companies or nonbank financial companies, or that could arise outside the financial services marketplace; (B) to promote market discipline, by eliminating expectations on the part of shareholders, creditors, and counterparties of such companies that the Government will shield them from losses in the event of failure; and (C) to respond to emerging threats to the stability of the United States financial system.”

In the recent financial crisis, financial distress at certain nonbank financial companies contributed to a broad seizing up of financial markets and stress at other financial firms. Many of these nonbank financial companies were not subject to the type of regulation and consolidated supervision applied to bank holding companies, nor were there effective mechanisms in place to resolve the largest and most interconnected of these nonbank financial companies without causing further instability. To address any potential risks to U.S. financial stability posed by these companies, the Dodd-Frank Act authorizes the Council to determine that certain nonbank financial companies will be subject to supervision by the Board of Governors and prudential standards. The Board of Governors is responsible for establishing the prudential standards that will be applicable, under section 165 of the Dodd-Frank Act, to nonbank financial companies subject to a Council determination.

Title I of the Dodd-Frank Act defines a “nonbank financial company” as a domestic or foreign company that is “predominantly engaged in financial activities,” other than bank holding companies and certain other types of firms.1 The Dodd-Frank Act provides that a company is “predominantly engaged” in financial activities if either (i) the annual gross revenues derived by the company and all of its subsidiaries from financial activities, as well as from the ownership or control of insured depository institutions, represent 85 percent or more of the consolidated annual gross revenues of the company; or (ii) the consolidated assets of the company and all of its subsidiaries related to financial activities, as well as related to the ownership or control of insured depository institutions, represent 85 percent or more of the consolidated assets of the company.2 The Dodd-Frank Act requires the Board of Governors to establish the requirements for determining whether a company is “predominantly engaged in financial activities” for this purpose.3

The Council issued an advance notice of proposed rulemaking (the “ANPR”) on October 6, 2010 (75 FR 61653), inwhich it requested public comment on the application of the statutory factors that the Dodd-Frank Act requires the Council to consider in determining whether a nonbank financial company should be supervised by the Board of Governors and subject to prudential standards. The ANPR posed 15 questions, all of which addressed the application of the statutory considerations that the Council must take into account in the process of determining whether a nonbank financial company should be subject to supervision by the Board of Governors and be subject to prudential standards (the “Determination Process”).

On January 26, 2011, the Council issued a notice of proposed rulemaking (the “First NPR”) (76 FR 4555) through which it sought public comment regarding the specific criteria and analytic framework that the Council intends to apply in the Determination Process. The comment period for the First NPR closed on February 25, 2011.

In response to comments that the Council received on the First NPR, on October 18, 2011, the Council issued a second notice of proposed rulemaking (the “NPR”) and proposed interpretive guidance (the “Proposed Guidance”) (76 FR 64264) to provide (i) additional details regarding the framework that the Council intends to use in the process of assessing whether a nonbank financial company could pose a threat to U.S. financial stability, and (ii) further opportunity for public comment on the Council's proposed approach to the Determination Process.

The Council received 41 comment letters in response to the NPR and Proposed Guidance, of which 12 were from companies or trade associations in the insurance industry, eight were from companies or trade associations in the asset management industry, seven were from other financial or business trade associations, four were from specialty finance companies, and 10 were from law firms, advocacy groups, think tanks, and individuals.4 (Comment letters are available online athttp://www.regulations.gov.) In addition to issuing the ANPR, the First NPR, and the NPR and Proposed Guidance for public comment, staff of Council members and their agencies met with financial industry representatives to discuss the proposals. Meeting participants generally reiterated the views expressed in their comment submissions.

Commenters generally found that the NPR and Proposed Guidance provided helpful insight and transparency into the Council's approach to the Determination Process. Many commenters applauded the inclusion of a three-stage process for review of nonbank financial companies and the inclusion of sample metrics for the Council's analysis under its analytic framework. Some commenters suggested that the NPR and Proposed Guidance continued to provide an insufficient degree of certainty and transparency.5

As described below, the Council has carefully considered the comments received on the NPR and Proposed Guidance in developing the final rule and interpretive guidance.

Many commenters addressed the types of nonbank financial companies that should be considered for determinations. Many commenters representing particular segments of the financial industry suggested that nonbank financial companies operating in those segments do not pose a threat to U.S. financial stability and should not generally be subject to a determination. For example, commenters representing the insurance industry argued that the products and services of regulated, traditional insurance companies are highly substitutable and that these companies operate without significant leverage or reliance on short-term debt and are subject to high levels of existing regulatory scrutiny. Commenters representing the asset management industry contended that asset managers are unlikely to pose a threat to U.S. financial stability, and some noted that the legal distinction between investment advisers and the funds they manage make the prudential standards contemplated by section 165 of the Dodd-Frank Act an inappropriate mechanism for addressing any threat posed by such firms. Others commented on behalf of financial guaranty insurers, captive finance companies, money market funds, and the Federal Home Loan Banks. The Council's determination with respect to a nonbank financial company will be based on an evaluation of whether the nonbank financial company meets the statutory standards, taking into account the statutory considerations set forth in section 113 of the Dodd-Frank Act. The Council does not intend to provide industry-based exemptions from potential determinations under section 113 of the Dodd-Frank Act, but the Council intends to give these comments due consideration in the Determination Process.6

In contrast, some commenters argued that the standard for determinations should be low, so that many nonbank financial companies may be subject to a determination. Other commenters suggested that particular types of nonbank financial companies, such as companies that serve as primary dealers or foreign banking organizations that reorganize their operations and deregister as bank holding companies in order to avoid new capital and liquidity requirements should automatically be considered by the Council.7 As noted above, the Council's determination with respect to a nonbank financial company will be based on an application of the statutory standards, taking into accountthe considerations set forth in section 113 of the Dodd-Frank Act, to the facts regarding that nonbank financial company.

As noted above under “Background,” Title I of the Dodd-Frank Act defines a “nonbank financial company” as a domestic or foreign company that is “predominantly engaged in financial activities,” with certain exceptions. The guidance notes that the Council intends to interpret the term “company” broadly with respect to nonbank financial companies and other companies in connection with section 113 of the Dodd-Frank Act, to include any corporation, limited liability company, partnership, business trust, association, or similar organization. In response to commenter concerns, the Council clarifies that it does not generally intend to encompass unincorporated associations within the definition of “company.” One commenter suggested that the rule include a definition of “company.” The Council has determined that adding this definition to the rule would not be consistent with the focus of the rule on issues of Council procedure and practice, but the Council's intended interpretation of this term has been included in the interpretive guidance. Other commenters argued that the definition of “nonbank financial company” should include financial businesses owned by another company that engage in separate, unrelated financial transactions, or that open-end investment companies might not be included within the statutory definition of “nonbank financial company.” The Board of Governors has authority to issue regulations regarding the requirements for determining if a company is predominantly engaged in financial activities, and thus potentially a nonbank financial company, and has issued a proposed rule under this authority.

A number of commenters requested that the Council delay this rulemaking until other, related regulatory activities are completed. The other regulatory activities cited were (i) the requirements for determining if a company is “predominantly engaged in financial activities” under section 102 of the Dodd-Frank Act; (ii) the adoption of enhanced prudential standards applicable under section 165 of the Dodd-Frank Act to nonbank financial companies subject to a Council determination; (iii) the rule regarding the establishment of an intermediate holding company under section 626 of the Dodd-Frank Act; (iv) the rules further defining “major swap participant” and “major security-based swap participant” under Title VII of the Dodd-Frank Act; (v) the Council's regulations implementing the Freedom of Information Act (“FOIA”); (vi) safe harbors from Board of Governors supervision under section 170 of the Dodd-Frank Act; and (vii) recommendations of the Council for additional standards applicable to activities or practices under section 120 of the Dodd-Frank Act.

The regulatory activities cited by commenters are in various stages of the rulemaking process, including the Council's FOIA regulations, which the Council adopted on April 3, 2012. The Council does not believe it is necessary or appropriate to postpone the adoption of this rule or the interpretive guidance until these other regulatory actions are completed. These rulemakings are not essential to the Council's consideration of whether a nonbank financial company could pose a threat to U.S. financial stability, and the Council has the statutory authority to proceed with determinations under section 113 of the Dodd-Frank Act prior to the adoption of such rules.

In addition, several commenters urged the Council to coordinate the issuance of the rule and interpretive guidance with G-20-mandated efforts being undertaken by international bodies, such as the Financial Stability Board and the International Association of Insurance Supervisors, or to postpone the Determination Process until broader U.S. and international financial reforms have been implemented. Council members are working closely with their international counterparts on a number of initiatives, including the process for identifying globally systemically important financial institutions and financial market infrastructures. At the same time, the Council's determinations under section 113 of the Dodd-Frank Act are an important part of the U.S. financial reform process, and the Council believes it is important for this framework to be in place as soon as practicable.

In developing the rule and interpretive guidance, the Council has carefully considered the comments received on the NPR and Proposed Guidance, as well as the language and legislative history of the Dodd-Frank Act. After this review, the Council is adopting the rule and interpretive guidance substantially as proposed, but with a number of clarifications in response to commenter concerns.

The rule sets forth the procedures and practices for the Council's determinations regarding nonbank financial companies, including the statutory considerations and procedures for information collection and hearings.

The interpretive guidance, which is attached as an appendix to the rule, addresses, among other things—

• Key terms and concepts related to the Council's determination authority, including “material financial distress” and “threat to financial stability”;

• The uniform quantitative thresholds that the Council intends to use to identify nonbank financial companies for further evaluation;

• The six-category framework that the Council intends to use to consider whether a nonbank financial company meets either of the statutory standards for a determination, including examples of quantitative metrics for assessing each category; and

• The process that the Council intends to follow when considering whether to subject a nonbank financial company to supervision by the Board of Governors and prudential standards.

To foster transparency with respect to the Determination Process, the rule and interpretive guidance provide a detailed description of (i) the profile of those nonbank financial companies that the Council likely will evaluate for potential determination, so as to minimize uncertainty among nonbank financial companies, market participants, and other members of the public, and (ii) the factors that the Council intends to use when analyzing companies at various stages of the Determination Process, including examples of the metrics that the Council intends to use when evaluating a nonbank financial company under the six-category analytic framework. The Council's ultimate assessment of whether a nonbank financial company meets a statutory standard for determination will be based on an evaluation of each of the statutory considerations, taking into account facts and circumstances relevant to each nonbank financial company.

The Council has numerous authorities and tools to carry out its statutory duty to monitor the financial stability of the United States. In addition to the Council's determination authority under section 113 of the Dodd-Frank Act, the Council has the authority to make recommendations to primary financial regulatory agencies to apply new or heightened standards and safeguards for a financial activity or practice conducted by bank holding companies or nonbank financial companies underthe jurisdiction of such agencies if the Council determines that the conduct, scope, nature, size, scale, concentration, or interconnectedness of such activity or practice could create or increase the risk of significant liquidity, credit, or other problems spreading among bank holding companies and nonbank financial companies, U.S. financial markets, or low-income, minority, or underserved communities.8 In addition, the Council may designate financial market utilities and payment, clearing and settlement activities that the Council determines are, or are likely to become, systemically important.9 The Council expects that its response to any potential threat to financial stability will be based on an assessment of the circumstances.

Pursuant to section 115(a) of the Dodd-Frank Act, the Council may also make recommendations to the Board of Governors concerning the establishment and refinement of prudential standards and reporting and disclosure requirements applicable to nonbank financial companies supervised by the Board of Governors pursuant to section 113 of the Dodd-Frank Act. In making such recommendations, the Dodd-Frank Act also authorizes the Council to differentiate among companies on an individual basis or by category, taking into consideration their capital structure, riskiness, complexity, financial activities (including the financial activities of their subsidiaries), size, and any other risk-related factors that the Council deems appropriate. In addition, section 165 of the Dodd-Frank Act gives the Board of Governors the ability to tailor the application of the prudential standards on its own.

Several commenters supported the recognition in the NPR of the Council's numerous authorities and tools to carry out its statutory duties. Commenters also urged the Council to perform, in connection with each potential determination with respect to a nonbank financial company, a comparative cost-benefit analysis of the tools available to the Council to mitigate any identified threat posed by the company. Some commenters further suggested that the Council provide this analysis to the nonbank financial company, explaining why a determination is the best available tool to mitigate the threat. Section 113 of the Dodd-Frank Act sets forth the factors that the Council must consider in determining whether to subject a nonbank financial company to Board of Governors supervision and prudential standards. The relative cost and benefit of such a determination is not one of these statutory considerations. Therefore, while the Council expects to consider its available regulatory tools in addressing any potential threat to financial stability, the Council does not intend to conduct cost-benefit analyses in making determinations with respect to individual nonbank financial companies.

The rule and interpretive guidance, as well as the Council's responses to the comments received, are discussed in greater detail below.

Section 113 of the Dodd-Frank Act authorizes the Council to subject a nonbank financial company to supervision by the Board of Governors and prudential standards if the Council determines that (i) material financial distress at the nonbank financial company could pose a threat to the financial stability of the United States (the “First Determination Standard”), or (ii) the nature, scope, size, scale, concentration, interconnectedness, or mix of the activities of the nonbank financial company could pose a threat to the financial stability of the United States (the “Second Determination Standard”).

Pursuant to the provisions of the Dodd-Frank Act, the Council is required to consider the following statutory considerations when evaluating whether to make this determination with respect to a nonbank financial company:10

(A) The extent of the leverage of the company;

(B) The extent and nature of the off-balance-sheet exposures of the company;

(C) The extent and nature of the transactions and relationships of the company with other significant nonbank financial companies and significant bank holding companies;

(D) The importance of the company as a source of credit for households, businesses, and State and local governments and as a source of liquidity for the U.S. financial system;

(E) The importance of the company as a source of credit for low-income, minority, or underserved communities, and the impact that the failure of such company would have on the availability of credit in such communities;

(F) The extent to which assets are managed rather than owned by the company, and the extent to which ownership of assets under management is diffuse;

(G) The nature, scope, size, scale, concentration, interconnectedness, and mix of the activities of the company;

(H) The degree to which the company is already regulated by one or more primary financial regulatory agencies;

(I) The amount and nature of the financial assets of the company;

(J) The amount and types of the liabilities of the company, including the degree of reliance on short-term funding; and

(K) Any other risk-related factors that the Council deems appropriate.

The Council intends to take into account all of the statutory considerations, separately and in conjunction with each other, when determining whether either of the statutory standards for determination has been met. The Council included each of the statutory considerations in the NPR and has retained this text in the rule. The interpretive guidance provides detail regarding the manner in which the Council intends to assess nonbank financial companies under the First and Second Determination Standards.11 The interpretive guidance sets forth definitions of the terms “material financial distress,” which is relevant to the First Determination Standard, and “threat to the financial stability of the United States,” which is relevant to both determination standards.

Commenters requested further clarification of the Council's interpretation of certain relevant definitions underlying the First and Second Determination Standards, such as the addition of quantitative metrics to measure material financial distress and a threat to U.S. financial stability. In addition, two commenters recommended that “threat to the financial stability of the United States” be defined narrowly, as a high threshold for the Council's determinations. The Council believes that these definitions accurately reflect the statutory requirements and the nature of the threat that the Council's authority under section 113 of the Dodd-Frank Act seeks to mitigate. The interpretive guidance therefore includes these definitions as proposed.

The interpretive guidance also describes three channels the Council believes are most likely to facilitate the transmission of the negative effects of a nonbank financial company's material financial distress or activities to other firms and markets, thereby posing a threat to U.S. financial stability: (i) Exposure of creditors, counterparties, investors, or other market participants to a nonbank financial company; (ii) disruptions caused by the liquidation of a nonbank financial company's assets; and (iii) the inability or unwillingness of a nonbank financial company to provide a critical function or service relied upon by market participants and for which there are no ready substitutes.

A number of commenters requested further clarification of the three transmission channels. These commenters suggested that the Council provide identifying metrics and explicit links between the channels and the statutory considerations. To address these requests, the interpretive guidance provides some additional clarification describing how the Council expects its assessments under the First and Second Determination Standards to relate to the transmission channels and the statutory considerations. However, due to the unique threat that each nonbank financial company may pose to U.S. financial stability and the qualitative nature of the inquiry under the statutory considerations, it is not possible to provide broadly applicable metrics defining these channels or to identify universally applicable links between the channels and the statutory considerations.

Two commenters also objected to the inclusion in the third transmission channel of a nonbank financial company's ability or willingness to provide a critical function or service, arguing that regulators should not interfere with companies' business decisions in this regard. Substitutability is an important consideration for evaluating the importance of a financial company. If a nonbank financial company is the sole provider, or one of a small number of providers, of a critical market function or service, the Council believes that it is appropriate to consider the impact a decision by the company to cease providing that function or service could have on other market participants or market functioning and, thereby, on U.S. financial stability.

As described in the Proposed Guidance, the Council has incorporated the statutory considerations for evaluating whether a nonbank financial company meets either the First or Second Determination Standard into an analytic framework consisting of the following six categories: (i) Size, (ii) interconnectedness, (iii) substitutability, (iv) leverage, (v) liquidity risk and maturity mismatch, and (vi) existing regulatory scrutiny. Three of these six categories seek to assess the potential impact of a nonbank financial company's financial distress on the broader economy: size, interconnectedness, and substitutability. The remaining three categories seek to assess the vulnerability of a nonbank financial company to financial distress: leverage, liquidity risk and maturity mismatch, and existing regulatory scrutiny. The interpretive guidance contains the table from the Proposed Guidance that illustrates the relationship between the 10 statutory considerations and the six framework categories.

Most commenters addressed these six categories either in the context of a particular financial sector (as described above under “Comments on Scope and Implementation of Determination Authority”) or with respect to the proposed uniform quantitative thresholds that the Council intends to use to identify nonbank financial companies for further evaluation (as described below under “The Stage 1 Thresholds”). Of the commenters that specifically addressed the analytic framework, several recommended that substitutability either be narrowed to focus on nonbank financial companies that provide a critical function or service, or be broadened to encompass circumstances such as oligopolies and potential future business changes. The Council is adopting the description of substitutability as proposed, because the Council believes it accurately delineates the primary factors that may cause a lack of substitutability to pose a threat to U.S. financial stability.

Several commenters also urged the Council to give significant weight in its evaluations to existing regulatory scrutiny. In particular, one commenter argued that a nonbank financial company operating internationally should only have one lead supervisor, to ensure consistent supervision. Several other commenters advised that the effectiveness of existing regulation, or a consideration of existing regulations in light of the potential threat posed by a particular nonbank financial company, should be evaluated. As existing regulatory scrutiny is one of the statutory considerations, the Council intends to evaluate this factor, together with each of the other statutory considerations, in connection with any determination. In response to these comments, the interpretive guidance has been revised to clarify that the Council will consider both the existence and the effectiveness of consolidated supervision of a nonbank financial company.

A number of commenters provided detailed recommendations regarding the analysis of companies within particular industries under the six-category analytic framework in Stages 2 and 3. For example, commenters highlighted the differences between insurance companies and other types of nonbank financial companies. These comments addressed issues such as the importance of focusing on the unregulated, nontraditional activities undertaken by insurance companies, rather than on regulated activities. One commenter suggested that the analysis of interconnectedness of insurance companies should focus on interconnectedness within a financial services conglomerate and between a U.S. insurance company and foreign entities. Others recommended technical changes to the types of information described in the interpretive guidance that the Council may consider in evaluating insurance companies. With respect to all the comments on industry-specific analyses, the evaluation of any nonbank financial company under the six-category framework will be company-specific, and the description in the interpretive guidance is intended to indicate the types of information that the Council will consider. The Council has not revised the interpretive guidance to address these comments but intends to consider such factors, where appropriate.

In response to a commenter, the interpretive guidance clarifies that the risk of interest rate fluctuations and reinvestment risk may be considered in evaluating maturity mismatch of life insurance companies.

The interpretive guidance provides a detailed description of the three-stage process that the Council intends to use to identify nonbank financial companies for determinations in non-emergency situations. Each stage of the Determination Process involves an analysis based on an increasing amount of information to determine whether a nonbank financial company meets the First or Second Determination Standard.

The first stage of the process (“Stage 1”) is designed to narrow the universeof nonbank financial companies to a smaller set of nonbank financial companies. In Stage 1, the Council intends to evaluate nonbank financial companies by applying uniform quantitative thresholds that are broadly applicable across the financial sector to a large group of nonbank financial companies. These Stage 1 thresholds represent the framework categories that are more readily quantified: Size, interconnectedness, leverage, and liquidity risk and maturity mismatch.12 A nonbank financial company would be subject to additional review if it meets both the size threshold and any one of the other quantitative thresholds. The Council believes that the Stage 1 thresholds will help a nonbank financial company predict whether such company will be subject to additional review by the Council. Stage 1 does not reflect a determination by the Council that the nonbank financial companies identified during Stage 1 meet one of the Determination Standards. Rather, Stage 1 is intended to identify nonbank financial companies that should be subject to further evaluation in subsequent stages of review.

In the second stage of the process (“Stage 2”), the Council will conduct a comprehensive analysis, using the six-category analytic framework, of the potential for the nonbank financial companies identified in Stage 1 to pose a threat to U.S. financial stability. In general, this analysis will be based on a broad range of quantitative and qualitative information available to the Council through existing public and regulatory sources, including industry- and company-specific metrics beyond those analyzed in Stage 1, and any information voluntarily submitted by the company.

Based on the analysis conducted during Stage 2, the Council intends to identify the nonbank financial companies that the Council believes merit further review in the third stage (“Stage 3”). The Council will send a notice of consideration to each nonbank financial company that will be reviewed in Stage 3, and will give those nonbank financial companies an opportunity to submit materials within a time period specified by the Council (which will be not less than 30 days). Stage 3 will build on the Stage 2 analysis using quantitative and qualitative information collected directly from the nonbank financial company, generally by the Office of Financial Research (the “OFR”), in addition to the information considered during Stages 1 and 2. The Council will determine whether to subject a nonbank financial company to Board of Governors supervision and prudential standards based on the results of the analyses conducted during this three-stage review process.

As discussed in the interpretive guidance, the Council does not believe that a determination decision can be reduced to a formula. Each determination will be made based on a company-specific evaluation and an application of the standards and considerations set forth in section 113 of the Dodd-Frank Act, and taking into account qualitative and quantitative information that the Council deems relevant to a particular nonbank financial company.

As described in the interpretive guidance, in Stage 1, the Council intends to apply quantitative thresholds to a broad group of nonbank financial companies to identify a set of nonbank financial companies that merit further evaluation.

Many commenters commended the inclusion of Stage 1 in the Proposed Guidance. A smaller number of commenters objected to the Stage 1 process generally, stating either that the thresholds will capture too many or too few nonbank financial companies, or that the thresholds are not focused on activities that could cause a threat to financial stability. In addition, several commenters proposed that nonbank financial companies should be subject to further review only if they exceed at least two Stage 1 thresholds, rather than only one, in addition to the total consolidated assets threshold (described below). One commenter suggested that Stages 1 and 2 could be combined in instances when it is clear that a nonbank financial company may meet either the First or Second Determination Standard. Based on its analysis, the Council believes the Stage 1 approach as proposed, with certain clarifications, is appropriate. Stage 1 is not intended to identify nonbank financial companies for a final determination. Instead, Stage 1 is a tool that the Council, nonbank financial companies, market participants, and other members of the public may use to assess whether a nonbank financial company will be subject to further evaluation by the Council. Any nonbank financial company that is selected for further evaluation during Stage 1 will be assessed more comprehensively during Stage 2 and, if appropriate, Stage 3. In addition to its other benefits, the careful, company-specific analysis in Stages 2 and 3 avoids any possible “cliff effects” for nonbank financial companies that narrowly exceed the Stage 1 thresholds.

The Council considered several approaches for Stage 1 other than the thresholds-based approach described in the interpretive guidance. Alternatives that were considered included a weighting of various metrics according to relative importance, and a multi-step, quantitative analysis under which progression through the analysis would have required meeting certain thresholds in each step. These approaches attempted to tailor the Stage 1 analysis more specifically to the various types of nonbank financial companies and to customize the factors to address narrower concepts of a threat to U.S. financial stability. In contrast to these alternative approaches, the Council determined that the thresholds-based approach set forth in the interpretive guidance offers greater transparency, consistency, and ease of application for the Council, nonbank financial companies, market participants, and other members of the public, and requires less reliance on subjective assumptions. A tailored analysis will be performed, potentially using the approaches described above, with respect to individual nonbank financial companies, as appropriate, in Stages 2 and 3. This approach will enable the Council to engage in a flexible, company-specific analysis that will reflect the unique risks posed by each nonbank financial company.

In all instances, the Council reserves the right, at its discretion, to subject any nonbank financial company to further review if the Council believes that further analysis of the company is warranted to determine if the company could pose a threat to U.S. financial stability, irrespective of whether such company meets the thresholds in Stage 1. Several commenters commended the Council's reservation of authority, while others suggested that the Council's reservation of authority will generate uncertainty or was otherwise inappropriate. As noted above, the Stage 1 thresholds are intended only to identify nonbank financial companies for further evaluation. However, the Council recognizes that all relevant data are likely not available to assess all nonbank financial companies using the Stage 1 quantitative thresholds and that the thresholds are an imperfect mechanism to identify all nonbank financial companies of which further review is warranted. While the thresholds were designed to be uniform,transparent, and readily calculable by the Council, nonbank financial companies, market participants, and other members of the public, the Council also recognizes that the thresholds may not adequately measure unique risks posed by particular nonbank financial companies. Therefore, the Council retains its discretion to consider nonbank financial companies not identified by the Stage 1 thresholds for any reason, including a lack of available data in Stage 1.

Commenters also suggested that the Council should provide an explanation of the basis for the Council's evaluation of any nonbank financial company that is reviewed in Stage 2 but did not exceed the Stage 1 thresholds. Any nonbank financial company that the Council determines should be reviewed during Stage 3 will receive notice of this review. If the Council determines by vote to subject a nonbank financial company to a proposed determination, the Council will provide the nonbank financial company with notice and an explanation of the basis of the proposed determination, as described below.

Several commenters addressed the collection of data from nonbank financial companies in Stage 1. While some commenters sought clarification of how the Council would collect data for Stage 1, particularly in cases where the data underlying the Stage 1 thresholds is not available, others urged the Council expressly to reserve the right to collect data from nonbank financial companies in Stage 1, to avoid any failure to identify a nonbank financial company that should be evaluated further. A fundamental purpose of Stage 1 is to narrow the universe of nonbank financial companies, based on information available to the Council through existing public and regulatory sources, to a smaller set of companies that will be subject to company-specific evaluation in Stage 2. The Council recognizes that all relevant data are likely not available to assess all nonbank financial companies using the Stage 1 thresholds. Therefore, the Council may subject a nonbank financial company to further review in Stage 2 if the Council believes that further analysis is warranted, for any reason, to determine if the company could pose a threat to U.S. financial stability.

In Stage 1, the Council intends to apply six quantitative thresholds to a broad group of nonbank financial companies. The thresholds are—

• $50 billion in total consolidated assets;

• $30 billion in gross notional credit default swaps outstanding for which a nonbank financial company is the reference entity;

• $3.5 billion of derivative liabilities;

• $20 billion in total debt outstanding;

• 15 to 1 leverage ratio of total consolidated assets (excluding separate accounts) to total equity; and

• 10 percent short-term debt ratio of total debt outstanding with a maturity of less than 12 months to total consolidated assets (excluding separate accounts).

Many commenters provided detailed recommendations regarding the six Stage 1 thresholds. These comments generally fall into three categories: (i) The level of a threshold should be changed; (ii) the method of calculating a threshold should be refined; and (iii) a threshold generally is inappropriate. A smaller number of commenters suggested new Stage 1 thresholds.

Commenters suggested that the Council tailor the thresholds by industry to provide a more accurate indication of the threat to U.S. financial stability that could be posed by a nonbank financial company in a particular industry. The Council recognizes that the quantitative thresholds it has identified for application during Stage 1 may not provide a comprehensive means to identify nonbank financial companies for further review across all financial industries and companies. However, the Stage 1 thresholds provide a reasonable set of measures for identifying nonbank financial companies that, in general, warrant further review. In addition, because many nonbank financial companies engage in financial activities across multiple segments of the financial markets, the application of specialized industry-specific thresholds to nonbank financial companies is not generally useful. Industry- and company-specific considerations are better evaluated during Stages 2 and 3, when more detailed information can be collected and more tailored analysis can be performed.

Several commenters requested additional information on how the Stage 1 thresholds were selected and suggested alternative measures that could be used. The Council selected the Stage 1 thresholds based on their applicability to nonbank financial companies that operate in diverse financial industries and because the data underlying these thresholds for a broad range of nonbank financial companies are generally available from existing public and regulatory sources. The Council reviewed distributions of various samples of nonbank financial companies and bank holding companies to inform its judgment regarding the appropriate thresholds and their quantitative levels. As discussed in the interpretive guidance, the Council also considered historical testing of the thresholds to assess whether they would have captured nonbank financial companies that encountered material financial distress during the financial crisis of 2007-2008. In this review, the Council focused separately on the period immediately before the crisis and also a number of years preceding it. While some commenters argued that historical analyses are not a sufficient justification for determining appropriate levels of thresholds, this approach, when combined with other analytical methods, can be a helpful tool for evaluating potential thresholds. After considering the comments on the Stage 1 thresholds, including those recommending the elimination of particular thresholds, the Council has determined to finalize the thresholds largely as proposed. The Stage 1 thresholds and their levels reflect the collective judgment of the Council members regarding the appropriate thresholds and their levels, in light of the statutory standards and considerations and an extensive review of applicable data and various analyses. The Stage 1 thresholds do not reflect a determination that the identified nonbank financial companies meet one of the Determination Standards, or that nonbank financial companies that do not meet the thresholds will not be designated. Rather, they are designed to identify nonbank financial companies for further evaluation based on the statutory standards and considerations.

While the Council will apply the Stage 1 thresholds to all types of nonbank financial companies, including, to the extent that the relevant data are available, to financial guarantors, asset management companies, private equity firms, and hedge funds, these and other types of companies may pose risks that are not well-measured by the quantitative thresholds approach.

With respect to hedge funds and private equity firms in particular, the Council intends to apply the Stage 1 thresholds, but recognizes that less data are generally available about these companies than about certain other types of nonbank financial companies. Beginning in June 2012, advisers tohedge funds and private equity firms and commodity pool operators and commodity trading advisors will be required to file Form PF with the Securities and Exchange Commission (“SEC”) or the Commodity Futures Trading Commission (“CFTC”), as applicable, on which form such companies will make certain financial disclosures. Using these and other data, the Council will consider whether to establish an additional set of metrics or thresholds tailored to evaluate hedge funds and private equity firms and their advisers.

In addition, the Council, its member agencies, and the OFR are analyzing the extent to which there are potential threats to U.S. financial stability arising from asset management companies. This analysis is considering what threats exist, if any, and whether such threats can be mitigated by subjecting such companies to Board of Governors supervision and prudential standards, or whether they are better addressed through other regulatory measures. The Council may develop additional guidance regarding potential metrics and thresholds relevant to determinations regarding asset managers, as appropriate. Commenters voiced both support for and opposition to the implementation of new metrics and thresholds applicable to asset managers. While the Council intends to address such issues at a later date, consistent with the intention described above not to provide exemptions under section 113 of the Dodd-Frank Act for any type of nonbank financial company, the Council intends to evaluate asset managers under the current interpretive guidance.

Generally, as reporting requirements evolve and new information about certain industries and nonbank financial companies become available, the Council expects to review the quantitative thresholds as appropriate based on this new information. For example, the Council may consider credit exposure data proposed to be collected under section 165 of the Dodd-Frank Act by the Federal Deposit Insurance Corporation and the Board of Governors. Similarly, pursuant to reporting and disclosure requirements being implemented under section 728 of the Dodd-Frank Act,13 the Council may consider swaps information reported to swap data repositories.

The Council recognizes that the Stage 1 threshold to measure a nonbank financial company's derivative liabilities captures only the current exposure, rather than the current and potential future exposure created by the nonbank financial company's outstanding derivatives. The SEC and CFTC have proposed rules to further define the terms “major swap participant” (“MSP”) and “major security-based swap participant” (“MSBSP”) that contain a methodology to measure the potential future exposure created by an entity's outstanding derivatives, with respect to certain institutions.

Once the final rules regarding reporting of data on swaps and security-based swaps come into effect, and data have been collected pursuant to those rules, the Council may revisit this Stage 1 threshold based on factors such as a nonbank financial company's current and potential future exposure from its outstanding derivatives for purposes of determining whether some or all MSPs, MSBSPs, or other nonbank financial companies that are subject to the rules will be subject to further examination in Stage 2.

In addition, in response to comments, the Council has made several clarifying changes to the interpretive guidance with respect to the Stage 1 thresholds. The Proposed Guidance included a “loans and bonds outstanding” threshold of $20 billion. A number of commenters requested a clarification of the types of obligations and instruments that would be included in the calculation of this threshold. In response to these comments, the Council has renamed this threshold “total debt outstanding.” The interpretive guidance now also specifies that this threshold will be defined broadly and regardless of maturity to include loans, bonds, repurchase agreements, commercial paper, securities lending arrangements, surplus notes (for insurance companies), and other forms of indebtedness. The interpretive guidance has also been revised to clarify that this definition of “total debt outstanding” will be used in calculating the short-term debt ratio threshold.

In response to questions from two commenters regarding the Council's data source for the threshold relating to credit default swaps outstanding, the Council currently intends to calculate this threshold using data available through the Trade Information Warehouse, which is operated by a subsidiary of the Depository Trust & Clearing Corporation. If other sources for this data become available, the Council may use those sources instead of, or in addition to, this source.

Further, to respond to comments, the interpretive guidance clarifies that in calculating the derivative liabilities threshold for nonbank financial companies that disclose the effects of master netting agreements and cash collateral held with the same counterparty on a net basis, the Council intends to calculate derivative liabilities after taking into account the effects of these arrangements. For nonbank financial companies that do not disclose the effects of these arrangements, derivative liabilities will equal the fair value of derivative contracts in a negative position. For Stages 2 and 3, the impact of netting will be considered as appropriate.

Several commenters suggested that embedded derivatives be excluded from the definition of derivative liabilities, particularly for insurance companies or insurance products. Under statutory accounting principles (“SAP”), derivative features within insurance products are not accounted for separately from the host contract. Under generally accepted accounting principles in the United States (“GAAP”), derivative features that are combined with traditional insurance products may be accounted for separately and included in a company's derivative liabilities, depending on whether the contract as a whole is carried at fair value and other criteria. The Council is cognizant of these differences between reporting under GAAP and SAP. Embedded derivatives will be included in the calculation of the Stage 1 derivative liabilities threshold, in accordance with GAAP, when such information is available. The Council will, as appropriate, assess embedded derivatives in Stages 2 and 3 with respect to particular nonbank financial companies. The relative importance of embedded derivatives tied to insurance products will depend on their type and how they may contribute to the risk posed by a nonbank financial company, regardless of how they are reported.

A number of commenters questioned how the Council will calculate the Stage 1 thresholds for asset managers and investment advisers. The Council has included in the interpretive guidance a clarification that while the Council expects that its determinations will apply to individual legal entities, the Council has authority to assess nonbank financial companies in a manner that addresses the statutory considerations and such other factors as the Council deems appropriate. For example, in applying the Stage 1 thresholds to funds (whether or not they are registered investment companies), the interpretive guidance states that the Council may consider the aggregate risks posed by separate funds that are managed by thesame adviser, particularly if the funds' investments are identical or highly similar. When applying the Stage 1 thresholds to an asset manager, the Council's analysis will appropriately reflect the distinct nature of assets under management compared to the asset manager's own assets. As discussed above, the Council may in the future issue additional guidance regarding additional metrics and thresholds, potentially including factors related to assets under management, regarding asset managers.

With respect to the application of the Stage 1 thresholds to foreign nonbank financial companies, several commenters requested that the thresholds be calculated based solely on the companies' U.S. operations. To respond to this request, the interpretive guidance specifies that for purposes of evaluating any U.S. nonbank financial company, the Council intends to apply each of the Stage 1 thresholds based on the global assets, liabilities and operations of the company and its subsidiaries. In contrast, for foreign nonbank financial companies, the Council intends to calculate the Stage 1 thresholds based solely on the U.S. assets, liabilities and operations of the foreign nonbank financial company and its subsidiaries.

Several commenters also suggested that a nonbank financial company's subsidiaries should not be included in the Council's evaluation of the company, including for purposes of calculating the Stage 1 thresholds. Similarly, these commenters requested that the Stage 1 thresholds, as applied to foreign nonbank financial companies, should exclude the operations of any U.S. subsidiary that meets the definition of “U.S. nonbank financial company.” The Dodd-Frank Act requires the Council to consider subsidiaries of nonbank financial companies in its analysis, and thus, the references to subsidiaries in the rule and interpretive guidance include subsidiaries. This conclusion is based in part on the statutory definition of “nonbank financial company,” which is based on a calculation of the revenues or assets of the relevant company “and all of its subsidiaries.”14 Further, in light of the purposes of section 113 of the Dodd-Frank Act and the broad statutory considerations set forth in that provision, and the types of prudential standards to which nonbank financial companies subject to Council determinations are subject, a meaningful analysis must include not only a nonbank financial company's own operations, but also those of its subsidiaries. To determine whether a subsidiary of a nonbank financial company should be included for purposes of calculating the Stage 1 thresholds, the interpretive guidance, as described below, specifies that the Council intends generally to apply the Stage 1 thresholds using applicable accounting standards or such other data as are available to the Council.

Numerous commenters suggested that the levels of the Stage 1 thresholds should be adjusted periodically over time, based on indexes such as inflation or economic growth. The Council believes that automatic adjustments to the threshold levels based on one or more particular indexes such as inflation could result in threshold levels that do not indicate the potential for a nonbank financial company to pose a threat to financial stability. Therefore, the interpretive guidance states that the Council intends to review the levels of the Stage 1 thresholds that are specified in dollars at least every five years and to adjust those thresholds as the Council may deem advisable.

A number of commenters requested a clarification of the calculation date for the Stage 1 thresholds, with several proposing that the calculations be based on multi-period averages to reduce volatility and mitigate the effects of any unusual or one-time items. The Council recognizes that certain events that may cause a nonbank financial company briefly to exceed one or more Stage 1 thresholds may not indicate an increased threat to U.S. financial stability. However, because such an analysis is by its nature fact-specific, the Council believes that the appropriate framework for consideration of such factors is in Stage 2. Therefore, the interpretive guidance provides that the Council intends to reapply the Stage 1 thresholds using the most recently available data on a quarterly basis, or less frequently for nonbank financial companies with respect to which quarterly data are unavailable.

Several commenters also requested a clarification of the financial reporting standards that the Council will apply in Stage 1. In response to this request, the Council has revised the interpretive guidance to provide that the Council intends generally to apply the Stage 1 thresholds using GAAP when such information is available, or otherwise to rely on SAP, international financial reporting standards, or such other data as are available to the Council. While commenters suggested that the Council should rely on SAP when analyzing insurance companies, the Council has determined generally to rely on GAAP when such data are available in order to promote consistency and uniformity in the application of the Stage 1 thresholds. The Council expects to review financial statements prepared in accordance with SAP in Stages 2 and 3, if applicable.

After a subset of nonbank financial companies has been identified in Stage 1, the Council intends in Stage 2 to conduct a robust analysis of the potential threat that each of those nonbank financial companies could pose to U.S. financial stability primarily based on information available to the Council through existing public and regulatory sources, including information possessed by the company's primary financial regulatory agency or home country supervisor, as appropriate. The evaluation of the risk profile and characteristics of each nonbank financial company in Stage 2 will be based on a wide range of quantitative and qualitative industry- and company-specific factors. This analysis will use the six-category analytic framework described above under “Analytic Framework for Determinations.” To the extent data are available, the Council also intends in Stage 2 to consider the impact that resolving the nonbank financial company could have on U.S. financial stability.

Following Stage 2, nonbank financial companies that are selected for additional review in Stage 3 will receive notice that they are being considered for a proposed determination. Several commenters suggested that this notice should include an explanation of the basis of the Council's consideration, so that the nonbank financial company may present the Council with pertinent information. The Council believes that it would be premature to explain the basis of the nonbank financial company's identification for further consideration because the decision to review a nonbank financial company in Stage 3 does not represent a formal determination. The Council will provide the company with a written explanation of the basis of any proposed determination that it makes regarding the nonbank financial company after the Stage 3 review.

As discussed in greater detail in the interpretive guidance, during the Stage 3 review, the Council intends to analyze the nonbank financial company's potential to pose a threat to financial stability based on information obtained directly from the nonbank financial company and the informationpreviously obtained by the Council during prior stages of review. In Stage 3, the Council likely will consider qualitative factors, including considerations that could mitigate or aggravate the potential of the nonbank financial company to pose a threat to U.S. financial stability, such as the nonbank financial company's resolvability, the opacity of its operations, its complexity, and the extent and nature of its existing regulatory scrutiny.

Several commenters requested an additional description of how the Council will perform its analysis in Stages 2 and 3, including a timetable for evaluations in Stages 2 and 3 and the relative weighting of particular metrics in the analysis. Commenters also suggested a variety of additional types of analysis the Council could perform in Stages 2 and 3, including trend analysis, risk-weighting of criteria, and analysis of economic cyclicality. Due to the diverse types of nonbank financial companies that may be evaluated in Stages 2 and 3 and the unique threats that these nonbank financial companies may pose to U.S. financial stability, the analysis and timing of review will depend on the particular circumstances of each nonbank financial company under consideration and the unique nature of the threat it may pose to U.S. financial stability.

While the interpretive guidance describes many metrics and factors that the Council may consider in evaluating nonbank financial companies, one commenter suggested that the Council should publicly disclose the use of any factors that are not specified in the interpretive guidance. The Council will include in any written notice of a proposed or final determination the basis of the proposed or final determination, whether or not the relevant metrics and factors are specified in the interpretive guidance. In accordance with section 112(a)(2)(N)(iv) of the Dodd-Frank Act, the basis for the Council's final determinations will be specified in the Council's annual report to Congress.

Commenters also cited a nonbank financial company's internal risk management program as a factor that the Council either should or should not consider in its evaluations. The interpretive guidance notes, as proposed, that the Council may analyze a nonbank financial company's risk-management procedures as one of many factors in Stage 3.

Several commenters also requested a clarification of the Council's assessment of resolvability. The interpretive guidance has been revised to clarify that the evaluation of a nonbank financial company's resolvability may mitigate or aggravate the potential of a nonbank financial company to pose a threat to U.S. financial stability.

In response to a commenter's request for a clarification of one of the sample metrics specified in the Proposed Guidance, the interpretive guidance clarifies that the Council may consider total consolidated assets or liabilities as determined under GAAP or the nonbank financial company's applicable financial reporting standards, depending on the availability of data and the stage of the Determination Process.

Several commenters also requested that nonbank financial companies that are evaluated in Stage 2 receive notices at the beginning of Stage 2, or be permitted to participate in Stage 2 by submitting information to the Council. Pursuant to the rule, the Council will provide every nonbank financial company that will be reviewed in Stage 3 a notice of consideration and an opportunity to submit written materials to contest the Council's consideration of the nonbank financial company for a proposed determination. Stage 2 is intended to comprise the Council's initial company-specific analysis, based primarily on existing public and regulatory sources, and the Council believes that Stage 3 provides a sufficient opportunity for nonbank financial companies to participate in the Determination Process. In addition, commenters requested that a nonbank financial company be notified if it is evaluated in Stage 2 and will not be considered in Stage 3. Due to the preliminary nature of the Council's evaluation of a nonbank financial company in Stage 2, the Council does not currently intend to provide for such notices in Stage 2. The Council may, at its discretion, adjust its process for providing notifications to nonbank financial companies as it gains experience with the Determination Process.

Based on the analysis performed in Stages 2 and 3, the Council may consider whether to vote to subject a nonbank financial company to a proposed determination. Prior to making a proposed determination, the Council may (i) consult with the nonbank financial company's primary financial regulatory agency or home country supervisor, as appropriate, and (ii) consider the views of such entities.15 Commenters urged the Council to consult closely with the primary state regulator for any U.S. nonbank financial company or the primary home country supervisor for any foreign nonbank financial company under consideration for a determination. Such consultation and coordination will be an important part of the Determination Process, and the Council believes this process is sufficiently incorporated into paragraphs (b), (c), and (d) of § 1310.20 of the rule.

As noted in the interpretive guidance, the Council expects to notify a nonbank financial company that has been evaluated in Stage 3 if the company, either before or after a proposed determination, ceases to be considered for determination.

Following a proposed determination, the Council will issue a written notice of the proposed determination to the nonbank financial company that will provide an explanation of the basis of the proposed determination. The nonbank financial company may request a hearing to contest the proposed determination in accordance with section 113(e) of the Dodd-Frank Act and § 1310.21(c) of the rule.

In response to the public comments requesting more transparency regarding the Determination Process, the rule and interpretive guidance reflect certain clarifying changes.

Several commenters made suggestions as to whether the Council should publish the names of nonbank financial companies under consideration for a determination. Due to the preliminary nature of the Council's evaluation of a nonbank financial company prior to a final determination, and the potential for market participants to misinterpret such an announcement, the Council does not intend to publicly announce or otherwise disclose the name of any nonbank financial company that is under evaluation for a determination prior to a final determination with respect to such company. A statement that this is the Council's intention has been included in the interpretive guidance. In addition, in response to comments, the interpretive guidance specifies that, when practicable and consistent with the purposes of the Determination Process, the Council intends to provide a nonbank financial company with a notice of a final determination at least one business day before publicly announcing the finaldetermination. This minimum time period is intended to allow nonbank financial companies to prepare any public communications and disclosures, but is relatively brief in order to avoid any potential market impact after the nonbank financial company is informed of the determination and before the determination is publicly announced.

One commenter recommended that the Council specify, in every notice of proposed and final determination, the regulatory approach the Council recommends to the Board of Governors with respect to the nonbank financial company. Under the Dodd-Frank Act, while the Council is authorized to make determinations regarding nonbank financial companies, the establishment of prudential standards applicable to such companies is within the purview of the Board of Governors, subject to any recommendations by the Council under section 115 of the Dodd-Frank Act. Therefore, in accordance with its statutory authority, the Council does not generally intend to make company-specific regulatory recommendations to the Board of Governors in connection with determinations.

One commenter requested that the Council clarify the registration procedures for companies that are subject to a final determination. Under section 114 of the Dodd-Frank Act, the Board of Governors is authorized to prescribe the forms for registration, including such information as the Board of Governors, in consultation with the Council, may deem necessary or appropriate. It is therefore appropriate for the registration procedures to be established by the Board of Governors, rather than by the Council.

Several commenters questioned the Council's authority to issue the proposed rule and interpretive guidance, while other commenters requested that the Council clarify the legal status of the interpretive guidance. Section 111(e)(2) of the Dodd-Frank Act explicitly authorizes the Council to issue rules necessary for the conduct of the business of the Council, and specifies that such rules will constitute rules of agency organization, procedure, or practice. In accordance with this authority, the rule sets forth the procedures and practices that the Council will follow in the Determination Process and the manner in which nonbank financial companies may present themselves and their views to the Council.

Moreover, as the agency charged by Congress with responsibility for acting under section 113 of the Dodd-Frank Act, the Council has the inherent authority to promulgate interpretive rules and interpretive guidance that explain and interpret the statutory factors that the Council will consider in the Determination Process.16 The interpretive guidance simply describes the Council's interpretation of the statutory factors and provides transparency to the public as to how the Council intends to exercise its statutory grant of discretionary authority. The interpretive guidance does not impose duties on, or alter the rights or interests of, any company, nor does it relieve the Council of making specific determinations in accordance with the Dodd-Frank Act. Rather, the Council must review and determine whether to subject any particular nonbank financial company to Board of Governors supervision on a company-specific basis after review of all of the relevant factors. Moreover, by providing for transparency in the Determination Process, the rule and interpretive guidance promote an accountability that benefits the public and the nonbank financial companies subject to evaluation. Thus, notwithstanding arguments to the contrary by a small number of commenters, the Council has the necessary authority to issue the rule and interpretive guidance.

Some commenters requested either that the interpretive guidance be incorporated into the rule text, or that the Council commit to providing the public with notice and an opportunity to comment on any proposed changes to the interpretive guidance. These commenters sought to ensure that the Council's actions would be made consistently and fairly and that the public would have notice of any changes to the interpretive guidance. If the Council revises the interpretive guidance in the future, the Council may provide the public with notice and an opportunity to comment on those changes, as the Council determines appropriate.

One commenter argued that Title I of the Dodd-Frank Act violates the U.S. Constitution based on (i) the limited judicial review of Council determinations under section 113(h) of the Dodd-Frank Act and (ii) the scope of the delegation of Congressional authority embodied by the regulation of nonbank financial companies under Title I of the statute. The Council disagrees with this assessment and does not believe that this rulemaking is the appropriate context to address these issues.

One commenter asserted that the Council had not satisfied the requirements of the Congressional Review Act (5 U.S.C. 801) in connection with this rulemaking. That statute provides that before a rule can take effect, the federal agency promulgating it must submit certain information to Congress and to the Comptroller General. No action was required to be taken by the Council in connection with the issuance of the NPR and Proposed Guidance, and the Council will comply fully with the statutory requirements in connection with the issuance of the rule and interpretive guidance.

This section sets forth the authority for and purpose of the rule.

This section defines the terms relevant to the rule. One commenter requested a clarification of the definition of “member agencies.” That term is defined, unchanged from the NPR, as an agency represented by a voting member of the Council under section 111(b)(1) of the Dodd-Frank Act.

This section sets forth the Council's authority to make proposed and final determinations with respect to nonbank financial companies, pursuant to sections 113(a) and (b) of the Dodd-Frank Act. It sets forth the two standards for determinations, the requirements for a Council vote with respect to proposed and final determinations, and the Council's ability pursuant to section 112(d)(4) of the Dodd-Frank Act to request that the Board of Governors conduct an examination to determine whether a U.S. nonbank financial company should be supervised by the Board of Governors for purposes of Title I of the Dodd-Frank Act.

Two commenters suggested that the Council clarify the circumstances underwhich the Council will enlist the Board of Governors as an examiner under § 1310.10(c)(1) of the rule. In order to maintain consistency with section 112(d)(4) of the Dodd-Frank Act, the Council is adopting this section of the rule as proposed.

This section sets forth the considerations that the Council must consider in making a proposed or final determination with respect to a U.S. nonbank financial company or foreign nonbank financial company. These considerations reflect the statutory factors set forth in sections 113(a)(2) and (b)(2) of the Dodd-Frank Act.

This section sets forth the Council's authority to require that the financial activities of a company that is not a nonbank financial company be supervised by the Board of Governors and be subject to prudential standards if the Council determines that material financial distress related to, or the nature, scope, size, scale, concentration, interconnectedness, or mix of, the financial activities conducted directly or indirectly by a company would pose a threat to the financial stability of the United States, and the company is organized or operates in such a manner as to evade the application of Title I of the Dodd-Frank Act. This section defines “financial activities” as that term is defined in section 113(c)(5) of the Dodd-Frank Act.

Paragraph (d) is intended to clarify the application of subpart C. This section provides that, in accordance with section 113(c)(4) of the Dodd-Frank Act, the provisions of subpart C governing information collection (including the confidentiality provisions), consultation, notice and opportunity for an evidentiary hearing, emergency waivers or modifications, and reevaluation and rescission of determinations will apply in the context of the Council's anti-evasion authority. The information-collection authority of the Council with respect to companies in this context derives from the authority of the Council to receive information from the OFR, member agencies, and the Federal Insurance Office, and from the authority of the OFR, on behalf of the Council, to require the submission of periodic and other reports from any financial company, under sections 112(a)(2)(A), 112(d)(1), (2), and (3), and 154(b) of the Dodd-Frank Act.

Companies that are engaged in financial activities, but that are organized or operated in such a manner as to evade the application of Title I of the Dodd-Frank Act, may be subject to a determination by the Council under the anti-evasion authority in section 113(c) of the Dodd-Frank Act. In exercising its anti-evasion authority with respect to a U.S. nonbank financial company or foreign nonbank financial company, the Council must consider the relevant statutory factors applicable to a U.S. or foreign nonbank financial company, respectively. The Council may make such a determination either on its own initiative or at the request of the Board of Governors. Commenters requested that the rule further define the scope of the Council's anti-evasion authority. In addition, one commenter recommended that the rules should permit the supervision of internal financial activities of a nonbank financial company that has been the subject of a Council determination under its anti-evasion authority. Because § 1310.12 of the rule reflects the statutory authorities under section 113(c), and the Council believes such consistency is appropriate, the Council has not revised this section as suggested by commenters.

This section sets forth the Council's authority to collect information with respect to nonbank financial companies and its responsibilities in consulting and coordinating with regulators and maintaining the confidentiality of submitted information. Paragraph (a) sets forth the Council's ability to collect information from the OFR, member agencies, the Federal Insurance Office, and other Federal and State financial regulatory agencies. Pursuant to its statutory authority, the Council may also receive and request the submission of data or information from its voting and non-voting members. Paragraph (b) sets forth the Council's ability to collect information from nonbank financial companies. These two paragraphs implement the provisions of section 112 of the Dodd-Frank Act relating to the Council's authority to obtain information and collect financial data. Paragraph (c), which has been revised for consistency with section 113(g) of the Dodd-Frank Act, provides that the Council will consult with a nonbank financial company's primary financial regulatory agency in a timely manner. Paragraph (d) provides that the Council will consult with appropriate foreign regulatory authorities, to the extent appropriate, in accordance with section 113(i) of the Dodd-Frank Act. Paragraph (e) implements the confidentiality requirements provided in section 112(d)(5) of the Dodd-Frank Act.

Several commenters requested that information submitted by nonbank financial companies be treated as exempt from disclosure under the FOIA. Commenters also requested that further confidentiality provisions be added to the rule, such as incorporating the Council's separate FOIA rule into the rule, committing to limiting the collection of sensitive information, and protections for information that has been collected. The Council is sensitive to these concerns. Under § 1310.20(e)(3) of the rule, the FOIA and the applicable exemptions thereunder apply to any data or information submitted under the rule. In addition, the Council's FOIA rule will apply to data and information received by the Council. The Council expects that nonbank financial companies' submissions will likely contain or consist of “trade secrets and commercial or financial information obtained from a person and privileged or confidential” and information that is “contained in or related to examination, operating, or condition reports prepared by, on behalf of, or for the use of an agency responsible for the regulation or supervision of financial institutions.” These types of information are subject to withholding under exemptions 4 and 8 of the FOIA (5 U.S.C. 552(b)(4) and (8)). To the extent that nonbank financial companies' submissions contain or consist of data or information not subject to an applicable FOIA exemption, that data or information would be releasable under the FOIA.

In response to commenters' concerns regarding confidentiality, the Council has modified § 1310.20 of the rule to clarify that the protections under that section apply to data, information, and reports (i) collected from federal and state financial regulatory agencies other than the OFR, member agencies, and the Federal Insurance Office and (ii) voluntarily submitted by any nonbank financial company that is being considered for a determination. This change also addresses another commenter's assertion that the Council lacks statutory authority to collect information from federal or state financial regulatory agencies other than the OFR, member agencies and the Federal Insurance Office,17 because theCouncil expects that the OFR will participate as necessary in the information-collection and review process pursuant to its authority under sections 112(d) and 154(b) of the Dodd-Frank Act. Further, it should be noted that all members of the Council, including both its voting and non-voting members, will treat records of the Council in accordance with the Council's FOIA rule. When the Council and its members provide non-public information to each other in connection with Council functions and activities, the recipients generally intend to treat such information as confidential and not publicly to disclose such information without the consent of the providing party. However, such information may be used by the recipients for enforcement, examination, resolution planning, or other purposes, subject to any appropriate limitations on the disclosure of such information to third parties, taking into account factors including the need to preserve the integrity of the supervision and examination process. The Council believes that the additional confidentiality restrictions suggested by commenters generally would not materially increase the confidentially of information collected by the Council, due to requirements under the FOIA, or would harmfully constrain the Council's ability to perform its evaluations of nonbank financial companies.

Commenters also recommended that the Council rely to the extent possible on existing regulatory sources and on information in the form it is reported to regulators, to minimize the burden of information requests. The Council generally agrees with these comments, and in accordance with the Council's statutory obligation under section 112(d)(3)(B) of the Dodd-Frank Act intends, whenever possible, to rely on information available from the OFR or any member agency or primary financial regulatory agency that regulates a nonbank financial company before requiring the submission of reports from such nonbank financial company. The Council expects that the collection of information under this section of the rule will be performed in a manner that attempts to minimize burdens for affected nonbank financial companies.

This section sets forth the procedural rights of a nonbank financial company being considered for a proposed or final determination, the time period within which the Council will act after it notifies the nonbank financial company that it is being considered for a proposed determination, and the nonbank financial company's rights to a hearing after a proposed determination. Paragraph (a) provides that the Council will deliver written notice to a nonbank financial company that it is being considered for a proposed determination and will provide the nonbank financial company an opportunity to submit written materials to contest the proposed determination. Paragraph (a) clarifies that the nonbank financial company may submit any written materials to contest the proposed determination, including materials concerning whether the nonbank financial company meets the standards for a determination. In response to comments, paragraph (a) provides that the Council will provide a nonbank financial company at least 30 days to respond to the notice of consideration. Commenters had requested a longer minimum period for responses, but based on the types and volume of information the Council expects to request, the subsequent opportunity for a nonbank to provide additional information following any proposed determination, and the Council's authority in individual cases to grant a longer period for a response, the Council believes a 30-day minimum is appropriate.

Paragraph (b) provides that the Council will provide a nonbank financial company with written notice of a proposed determination, including an explanation of the basis of the proposed determination. Paragraphs (c), (d), and (e) set forth the procedures for an evidentiary hearing following a proposed determination, pursuant to section 113(e) of the Dodd-Frank Act, and provide the time period within which the Council will make a final determination. These paragraphs also provide that the Council will make public any final determination that it makes. While not specified in the rule, the Council expects to notify the relevant nonbank financial company if the Council has not made a final determination with respect to the company within the time period set forth in paragraph (d) or (e), as applicable. In response to comments, the Council has clarified paragraph (c) to provide that the hearing would be nonpublic. However, the Council has not revised the rule as requested by several commenters to provide a nonbank financial company with a right to an oral hearing. Instead, the rule maintains consistency with section 113(e)(2) of the Dodd-Frank Act, which grants the Council sole discretion as to the format of any hearing. Paragraph (c)(1) has also been revised to clarify that, consistent with the definition of “hearing date,” a hearing may be before the Council or its representatives.

Paragraph (f) sets forth the time period within which the Council may make a proposed determination with respect to a nonbank financial company that has received a notice of consideration of determination. Under paragraph (a)(3), the Council will notify a nonbank financial company that is being considered for a proposed determination of the date on which the Council deems its evidentiary record regarding that nonbank financial company to be complete. If the Council does not make a proposed determination with respect to that nonbank financial company within 180 days after that date, the Council will not make a proposed determination unless the Council issues a subsequent written notice of consideration of determination under paragraph (a) and thereafter complies with the other procedures set forth in that section. This paragraph is intended to provide clarity to a nonbank financial company that is subject to a notice of consideration of determination regarding the timing of any potential subsequent Council action. The Council expects to notify the relevant nonbank financial company upon expiration of this 180-day period.

This section sets forth the process by which the Council may waive or modify any of the notice or other procedural requirements of the rule if the Council determines that the waiver or modification is necessary or appropriate to prevent or mitigate threats posed by the nonbank financial company to the financial stability of the United States, pursuant to section 113(f) of the Dodd-Frank Act. This section provides that a nonbank financial company will receive notice of the waiver or modification and an opportunity for a hearing to contest the waiver or modification, and sets forth the process by which the Council will make and publicly announce its final determination. This section incorporates the statutory requirement that the Council consult with the appropriate home country supervisor, if any, of a foreign nonbank financial company considered for a determination under this section. This section also requires the Council to consult with the primary financial regulatory agency, if any, of a nonbank financial company inmaking a determination under this section. These consultations will be conducted in such time and manner as the Council may deem appropriate. Several commenters requested that the Council clarify or limit the scope of this section of the rule. To maintain consistency with the Council's statutory authority under section 113(f) of the Dodd-Frank Act, and to avoid imposing unwarranted restrictions on the Council's ability to respond to emergency situations, the Council is adopting this section as proposed. In response to comments, the Council has clarified paragraph (c) to provide that the hearing under this section would be nonpublic, and the Council has revised paragraph (d) to clarify that while the Council will publicly announce final determinations under § 1310.10(a), the Council will not publicly announce determinations regarding waivers or modifications under § 1310.22(c). Paragraph (c)(1) has also been revised to clarify that, consistent with the definition of “hearing date,” a hearing may be before the Council or its representatives.

This section sets forth the Council's statutory responsibility, pursuant to section 113(d) of the Dodd-Frank Act, to reevaluate currently effective determinations and rescind any determination if the Council determines that the nonbank financial company no longer meets the standards for determination.

In response to comments requesting clarification of the process for reevaluations, paragraph (b) provides new procedural protections for nonbank financial companies. Pursuant to paragraph (b), the Council will notify each nonbank financial company subject to a currently effective determination prior to the Council's annual reevaluation. The nonbank financial company will be provided an opportunity to submit written materials to the Council to contest the determination. Because increased information about any nonbank financial company subject to a previous determination will be available to the Council through the Board of Governors, and the Council will have previously performed a comprehensive analysis of any such company, a replication in full of the Council's evaluation in Stages 2 and 3 will not be necessary. Instead, the Council expects that its reevaluations will focus on any material changes with respect to the nonbank financial company or the markets in which it operates since the Council's previous review. Commenters also suggested that nonbank financial companies be permitted to request additional reevaluations. Due to the relatively frequent mandatory reevaluations, such additional reevaluations should rarely be necessary. In the event of an extraordinary change that materially decreases the threat a nonbank financial company poses to U.S. financial stability relatively soon after a previous reevaluation, the Council may, at its sole discretion, consider a request from such company for a reevaluation prior to the next annual reevaluation. New paragraph (d) provides that upon a rescission of a determination with respect to a nonbank financial company, the Council will notify the company and publicly announce the rescission.

The Council certifies that this final rule will not have a significant economic impact on a substantial number of small entities. The economic impact of this rule is not expected to be significant. The final rule would apply only to nonbank financial companies that could pose a threat to the financial stability of the United States. Size is an important factor, although not the exclusive factor, in assessing whether a nonbank financial company could pose a threat to financial stability. The Council expects that few, if any, small companies (as defined for purposes of the Small Business Act) could pose a threat to financial stability. Therefore, the Council does not expect the rule to directly affect a substantial number of small entities. Accordingly, a regulatory flexibility analysis under the Regulatory Flexibility Act (5 U.S.C. 601-612) is not required.

The collection of information contained in this final rule has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) under control 1505-0244. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number assigned by the Office of Management and Budget.

The collection of information in this final rule is found in § 1310.20, § 1310.21, § 1310.22, and § 1310.23.

The hours and costs associated with preparing data, information, and reports for submission to the Council constitute reporting and cost burdens imposed by the collection of information. The estimated total annual reporting burden associated with the collection of information in this final rule is 1,000 hours. We estimate the cost associated with this information collection to be $450,000. In making this estimate, the Council estimates that due to the nature of the information likely to be requested, approximately 75 percent of the burden in hours will be carried by nonbank financial companies internally at an average cost of $400 per hour, and the remainder will be carried by outside professionals retained by nonbank financial companies at an average cost of $600 per hour. In addition, in determining these estimates, the Council considered its obligation under § 1310.20(b) of the rule to, whenever possible, rely on information available from the OFR or any member agency or primary financial regulatory agency that regulates a nonbank financial company before requiring the submission of reports from such nonbank financial company. The Council expects that its collection of information under the rule will be performed in a manner that attempts to minimize burdens for affected nonbank financial companies. The aggregate burden will be subject to the number of nonbank financial companies that are evaluated in Stage 3, the extent of information regarding such companies that is available to the Council through existing public and regulatory sources, and the amount and types of information that nonbank financial companies provide to the Council during the Determination Process.

Several commenters asserted that the Paperwork Reduction Act disclosure in the NPR did not comply with the statute, citing a requirement to provide the public with notice and an opportunity to comment on the proposed collection of information, including an estimate of the burden that will result from the collection of information. The NPR cited the sections of the proposed rule that related to the collection of information, described the types of information expected to be collected and the frequency of collections, provided an estimate of the total annual reporting burden, and enabled the public to assess the likely respondents. The NPR therefore complied with the requirements of the Paperwork Reduction Act.

Presidential Executive Order 12866, “Regulatory Planning and Review,”18 and Executive Order 13563, “ImprovingRegulation and Regulatory Review,”19 direct certain agencies to assess costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This rule has been designated a “significant regulatory action” although not economically significant under section 3(f) of Executive Order 12866. Accordingly, the rule has been reviewed by the Office of Management and Budget.

Several commenters suggested that the Council should, or is required to, conduct a cost-benefit analysis, such as a review of the impact of the rule on the economy and on different sectors of the financial services industry. These commenters argued that a cost-benefit analysis would enhance transparency and ensure that costs are minimized, and may be required under Executive Orders 12866 and 13563. In addition, commenters questioned the determination that this rule is not economically significant under section 3(f) of Executive Order 12866. That section defines “significant regulatory action” to include a regulatory action (which may include a proposed rule of agency procedure or practice) that is likely to result in a rule that may raise certain novel legal or policy issues. Based on this determination, which is made by the Office of Management and Budget, the Council is not required to conduct a cost-benefit analysis in connection with this rulemaking. The rule and the interpretive guidance are limited to descriptions of the processes and procedures that the Council intends to follow in making determinations under section 113 of the Dodd-Frank Act, the manner in which nonbank financial companies may present themselves and their views to the Council, the Council's interpretation of the statutory factors, and how the Council intends to exercise its statutory grant of discretionary authority. The rights and obligations of nonbank financial companies that the Council is considering for a determination, or for a reevaluation and potential rescission of a determination, arise directly from section 113 of the Dodd-Frank Act. The rights and obligations of nonbank financial companies that the Council has been determined shall be supervised by the Board of Governors arise from other sections of the Dodd-Frank Act and the rules promulgated thereunder, such as the enhanced prudential standards to be established by the Board of Governors and the resolution plans required under section 165 of the Dodd-Frank Act. Based on data currently available to the Council through existing public and regulatory sources, the Council has estimated that fewer than 50 nonbank financial companies meet the Stage 1 thresholds.

For the reasons set forth in the preamble, the Financial Stability Oversight Council adds a new part 1310 to Title 12 of the Code of Federal Regulations, to read as follows:

The FAA received notice from the National Aeronautical Navigation Services (NANS) that St. Petersburg Automated Flight Service Station has closed and its reference should be updated in the descriptor of Cape Canaveral Skid Strip, Cocoa Beach, FL. Also, the geographic coordinates for the airport need correcting to coincide with the FAAs aeronautical database.

Class D airspace designations are published in Paragraphs 5000, of FAA Order 7400.9V dated August 9, 2011, and effective September 15, 2011, which is incorporated by reference in 14 CFR part 71.1. The Class D airspace designations listed in this document will be published subsequently in the Order.

This amendment to Title 14, Code of Federal Regulations (14 CFR) part 71 amends Class D airspace at Cocoa Beach, FL. The geographic coordinates of the Cape Canaveral Skid Strip are corrected to coincide with the FAAs aeronautical database and St. Petersburg Automated Flight Service Station will be removed from the descriptor. Accordingly, since this is an administrative change, and does not involve a change in the dimensions or operating requirements of that airspace, notice and public procedures under 5 U.S.C. 553 (b) are unnecessary.

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

The FAA's authority to issue rules regarding 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, Subpart I, Section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it establishes and amends controlled airspace at Cape Canaveral Skid Strip, Cocoa Beach FL.

In consideration of the foregoing, the Federal Aviation Administration amends 14 CFR part 71 as follows:

EPA is approving a SIP revision, submitted through the DAQ to EPA on December 3, 2008, for the purpose of demonstrating attainment of the 1997 Annual PM2.5NAAQS for the Kentucky portion of the Huntington-Ashland Area. Specifically, EPA is approving Kentucky's PM2.5attainment plan, which includes an attainment demonstration; an analysis of RACM/RACT; a RFP plan; base-year and attainment-year emissions inventories; contingency measures; and an insignificance determination for mobile direct PM2.5and NOXemissions for transportation conformity purposes for Kentucky's portion of the Huntington-Ashland Area.

EPA has determined that Kentucky's PM2.5attainment plan for the 1997 Annual PM2.5NAAQS for its portion of the Huntington-Ashland Area meets applicable requirements of the CAA and the PM2.5Implementation Rule. More detail on EPA's rationale for this approval can be found in EPA's January 30, 2012, proposed rulemaking for this action (see75 FR 4510). Section III of this rulemaking responds to the adverse comments received on EPA's January 30, 2012, proposal.

On April 25, 2007, EPA published the PM2.5Implementation Rule for the 1997 PM2.5NAAQS (72 FR 20586). This rule describes the CAA framework and requirements for developing SIPs to achieve attainment in areas designated nonattainment for the 1997 PM2.5NAAQS. Such attainment plans must include a demonstration that a nonattainment area will meet the applicable NAAQS within the timeframe provided in the statute. For the 1997 PM2.5NAAQS, an attainment demonstration must show that a nonattainment area will attain the standards as expeditiously as practicable, but within five years of designation (i.e., by an attainment date of no later than April 5, 2010, based on air quality data for 2007 through 2009). As mentioned above, Kentucky provided the Commonwealth's SIP revision with the attainment plan (the subject of this rulemaking) for the Kentucky portion of the Huntington-Ashland Area on December 3, 2008.

On September 7, 2011, EPA published a final rulemaking with a determination that the Huntington-Ashland Area has attained the 1997 Annual PM2.5NAAQS.See76 FR 55542. That determination was based on the most recent three years of complete, quality-assured, quality controlled and certified ambient air monitoring data showing that the Area has met the 1997 Annual PM2.5NAAQS. EPA also determined, in the September 7, 2011, rulemaking, and in accordance with CAA 179(c), that the Huntington-Ashland Area had attained the 1997 Annual PM2.5NAAQS by its applicable attainment date of April 5, 2010.

As discussed in the September 7, 2011, rulemaking, EPA's determination of attainment1 suspended the obligation for the State to meet planning SIP requirements for the Area for so long as the Area continues to attain the 1997 Annual PM2.5NAAQS.See40 CFR 51.1004(c). The state must still submit required emissions inventories consistent with appropriate timelines. The suspended planning SIP submission obligations include the attainment demonstration (including in this case the mobile source insignificance determination submitted to satisfy transportation conformity requirements), associated RACM/RACT, RFP and the associated contingency measures. Despite the suspension of the aforementioned requirements for the Huntington-Ashland Area for the 1997 Annual PM2.5NAAQS, Kentucky has requested that EPA take action on its planning SIP for this Area in part because the SIP submittal includes the insignificance determination. Further, in September 2011, EPA agreed in a Consent Decree to take action on these submissions.

EPA notes that on December 22, 2011, EPA published a proposal to approve the State of Ohio's request to redesignate to attainment the Ohio portion of the Huntington-Ashland Area. 76 FR 79593. EPA has also received requests from Kentucky and the State of West Virginia to redesignate their respective portions of the Huntington-Ashland Area but has not yet proposed action on those submissions.

Monitoring data thus far available, but not yet certified, in the Air Quality System (AQS) database for 2011 show that this Area continues to meet the 1997 Annual PM2.5NAAQS at this time. As shown in the table below, ambient PM2.5levels in the Huntington-Ashland Area have declined steadily sinceKentucky submitted its PM2.5attainment plan in 2008.

EPA understands that the Commonwealth chose not to withdraw the attainment plan SIP revision for the Huntington-Ashland Area because it includes a mobile insignificance determination for direct PM2.5and NOXemissions from mobile sources. Therefore, as mentioned above, although the SIP planning requirements for the 1997 Annual PM2.5NAAQS have been suspended for the Huntington-Ashland Area, EPA is acting on Kentucky's attainment plan because of the Consent Decree obligation to do so and because it remains a submittal to EPA.

On January 30, 2012, EPA proposed to approve Kentucky's PM2.5attainment plan, which includes an attainment demonstration; RACT and RACM; RFP; base-year and attainment-year emissions inventories; contingency measures; and, for transportation conformity purposes, an insignificance determination for direct PM2.5and NOXfor the mobile source contribution to ambient PM2.5levels for the Commonwealth's portion of the Huntington-Ashland Area. As mentioned above, more detail on EPA's rationale for this approval can be found in EPA's January 30, 2012, proposed rulemaking for this action.See77 FR 4510. Section III of this rulemaking responds to the adverse comments received on EPA's January 30, 2012, proposal.

On February 29, 2012, EPA received comments on EPA's January 30, 2012, proposal submitted by Robert Ukeiley on behalf of Sierra Club. In summary, the Commenter states EPA cannot approve the Kentucky December 3, 2008, SIP revision because it: (1) Relies on inaccurate and inadequate emission reductions in its attainment demonstration modeling and emissions inventory, in part because of the status of the NOXSIP Call, CAIR and the industrial boiler/heater MACT (40 CFR part 63, subpart DDDDD); (2) relies on temporary and unenforceable emission reductions from the Big Sandy Power Plant; (3) has not been evaluated for reasonably available control measures for the nonattainment area; and (4) includes on-road mobile source emission calculations which fail to consider 15 percent ethanol in gasoline. The complete set of comments is provided in the docket for this rulemaking. A summary of the specific comments and EPA's responses to them are provided below.

Comment 1:The Commenter contends that it is problematic to “credit” emission reductions associated with the NOXSIP Call because that is a cap-and-trade program. The Commenter cites toNRDCv.EPA,571 F.3d 1245, 1257 (DC Cir. 2009) for support of the proposition that, because EPA cannot predict which sources will reduce emissions, EPA cannot rely on the NOXSIP Call for future reductions. The Commenter makes a similar contention regarding the Clean Air Interstate Rule (CAIR).

The Commenter states that any source could decide at any time in the future to purchase emissions credits and increase its emissions and impacts to the Huntington-Ashland Area. The Commenter adds that emissions banking can also lead to violations of the NAAQS and prevents CAIR emission budgets from being permanent and enforceable emission limits. The Commenter concludes by explaining his opinion that, although DAQ modeled hypothetical effects of CAIR well beyond 2011 in its 2018 projected inventory, it is not even clear that EPA is fully enforcing CAIR at this point.

Response 1:EPA notes that the Huntington-Ashland Area attained the 1997 Annual PM2.5NAAQS by the applicable attainment date of April 5, 2010, and that the emission control measures that led to that attainment were in place at least through that date. For this PM2.5attainment plan the modeled attainment year is 2009. The year 2018 was modeled by the Visibility Improvement State and Tribal Association of the Southeast (VISTAS) for the purposes of Kentucky's Regional Haze SIP.

EPA disagrees with the Commenter's position that emission reductions occurring within the relevant nonattainment area cannot be relied upon for the purpose of attainment demonstrations if they are associated with the emissions trading programs established in the NOXSIP Call and CAIR. The case cited by the CommenterNRDCv.EPA,571 F.3d 1245 (D.C. Cir. 2009), does not support the Commenter's position and is entirely consistent with EPA's position here. That case addressed EPA's determination that the nonattainment RACT requirement was satisfied by the NOXSIP Call trading program. The court emphasized that reductions outside the nonattainment area do not satisfy the RACT requirement and thus held that because EPA had not shown the trading program would result in sufficient reductionsin a nonattainment area,its determination that the program satisfied RACT was not supported.2 Id.at 1256-58. The court did not hold, as the Commenter suggests, that emissions trading programs must be ignored when evaluating nonattainment area requirements.

There is simply no support for the Commenter's argument that attainment modeling demonstrations must ignore all emission reductions achieved by the NOXSIP Call and CAIR simply because the mechanism used to achieve the reductions is an emissions trading program. As a general matter, these programs cap and permanently reduce the total emissions allowed by sources subject to the programs. Any purchase of allowances and increase in emissionsby one source covered by the program necessitates a corresponding sale of allowances and reduction in emissions by another covered source. Given the regional nature of particulate matter, the corresponding emission reduction will have an air quality benefit that will compensate, at least in part, for the impact of any emission increase. Where an area can show that it will attain the standard with the reductions from enforceable trading programs, as done here,3 the area may take credit for the reductions from that program.

The Commenter's contention that EPA cannot rely on trading programs that allow banking is also not on point. The comment is not relevant in this context where the trading programs in question were in place through the attainment deadline and the Area did attain by that deadline. The fact that the Huntington-Ashland Area attained the PM2.5standard by the April 2010 attainment date with these trading programs in place belies the argument that banking of allowances might cause the Area to fail to attain by its attainment date. Moreover, there is no support for the Commenter's contention, based on the flawed premise that allowance banking somehow renders those programs' emission reduction requirements impermanent or unenforceable, that EPA must ignore reductions associated with any trading program that allows banking. In general, banking provides economic incentives for early reductions in emissions and encourages sources to install controls earlier than required for compliance with future caps on emissions. The fact that reductions may occur more quickly than required (freeing up allowances that may then be banked) does not, in any way, undermine the permanence or enforceability of the requirements in the underlying rule.

In sum, contrary to petitioner's contention, the decision of D.C. Circuit inNRDCv.EPAdoes not establish that emission reductions from cap and trade programs, or emission reductions from cap and trade programs that allow banking, may not be relied upon for attainment modeling demonstrations. As discussed in EPA's proposal notice, DAQ utilized appropriate emissions inventory and modeling guidance to make this demonstration, which is consistent with the Area's current status as attaining the standard. For these reasons, EPA disagrees that the Commenter has identified a basis on which EPA should disapprove Kentucky's attainment plan.

With regard to CAIR, EPA published this rule on May 12, 2005, to address the interstate transport requirements of the CAA.See76 FR 70093. As originally promulgated, CAIR requires significant reductions in emissions of sulfur dioxide (SO2) and NOXto limit the interstate transport of these pollutants. In 2008, however, the D.C. Circuit remanded CAIR back to EPA.North Carolinav.EPA,550 F.3d 1176. The Court found CAIR to be inconsistent with the requirements of the CAA,North Carolinav.EPA,531 F.3d 896 (D.C. Cir. 2008), but ultimately remanded the rule to EPA without vacatur because it found that “allowing CAIR to remain in effect until it is replaced by a rule consistent with [the court's] opinion would at least temporarily preserve the environmental values covered by CAIR.”North Carolinav.EPA,550 F.3d at 1178. CAIR thus remained in place following the remand and was in place and enforceable through the April 5, 2010, attainment date.

In response to the court's decision, EPA has issued a new rule to address interstate transport of NOXand SO2in the eastern United States (i.e., the Transport Rule, also known as the Cross-State Air Pollution Rule).See76 FR 48208, August 8, 2011. In the Transport Rule, EPA finalized regulatory changes to sunset (i.e., discontinue) CAIR and the CAIR FIPs for control periods in 2012 and beyond.See76 FR 48322.

On December 30, 2012, the D.C. Circuit issued an order addressing the status of the Transport Rule and CAIR in response to motions filed by numerous parties seeking a stay of the Transport Rule pending judicial review. In that order, the D.C. Circuit stayed the Transport Rule pending the court's resolution of the petitions for review of that rule inEME Homer Generation, L.P.v.EPA(No. 11-1302 and consolidated cases). The court also indicated that EPA is expected to continue to administer CAIR in the interim until the court rules on the petitions for review of the Transport Rule.

EPA does not believe that the circumstances set forth above make it inappropriate, in any way, to finalize its proposed approval of the Huntington-Ashland attainment plan. While the data that shows the Area attained the 1997 Annual PM2.5NAAQS by the April 2010 attainment deadline is impacted by CAIR, which is in place only temporarily, EPA's analysis for the Transport Rule demonstrates that the Area would be able to attain the NAAQS even in the absence of CAIR.SeeAppendix B to the Air Quality Modeling Final Rule Technical Support Document for the Cross-State Air Pollution Rule. Moreover, although the court has stayed the implementation of the Transport Rule at this time, EPA believes that the rule has a strong legal basis. To the extent that the current status of CAIR and the Transport Rule affect any of the criteria for approval of this SIP revision, EPA believes that the ongoing implementation and enforcement of CAIR during the period of the stay, coupled with the promulgation of the Transport Rule, provide adequate assurance of these components. EPA again notes that this action approves an attainment demonstration that the Area will attain in 2010, which the Area did. As of 2010, CAIR was an enforceable control measure applicable to the Area. Any issues of the effect of the ongoing litigation surrounding the Transport Rule which will replace CAIR will need to be addressed by the Area in any plan demonstrating maintenance of the PM2.5standard into the future, which is not at issue in this attainment demonstration.

Comment 2:The Commenter contends that EPA cannot approve the Kentucky submittal because DAQ included, among its controls, a hazardous air pollutant rule found at 40 CFR part 63, subpart DDDDD, that was vacated in June 2007. More specifically, the Commenter suggests that EPA cannot rely on a claim that emission reductions attributed to a vacated rule will be an “insignificant fraction” of total emissions.

Response 2:As noted by the Commenter, nonattainment plans must include “a comprehensive, accurate, current inventory of actual emissions from all sources of the relevant pollutant or pollutants * * * ”See, e.g.,CAA section 172(c)(3). As a point of clarification, this is the inventory EPA is approving for the purposes of CAA section 172(c)(3). Kentucky selected 2002 as the base year for the emissions inventory in accordance with 40 CFR 51.1008(b). The 2002 emissions inventory was based on data developed by VISTAS contractors and submitted by the states to the 2002 National Emissions Inventory. Several iterations of the 2002 inventories were developed for the different emission source categories resulting from revisions and updates to the data. This resulted in the use of version G2 of the updated 2002 emissions inventory, which does not include the boiler MACT reductions.

EPA also notes that DAQ not only acknowledges that the final 2009 inventory and modeling demonstration include emissions reductionsattributable to the vacated rule, but also provides a reasonable demonstration for why such inclusion does not impact the results of the modeling. Following detailed analysis and presentation of calculations, DAQ summarizes that the emissions sensitivity results for the Boyd County, Kentucky, monitor indicate that the SO2and primary PM2.5emissions assumed under the vacated boiler MACT would result in a total increase in the ambient PM2.5concentration of 0.0009 micrograms per cubic meter (μg/m3). DAQ reasonably concluded that this level of impact would not change the conclusion that the Huntington-Ashland Area would attain the 1997 Annual PM2.5NAAQS by its applicable attainment date of April 5, 2010. As EPA indicated earlier in this rulemaking, EPA determined that the Huntington-Ashland Area attained the standard by April 5, 2010. For these reasons, EPA disagrees that the Commenter has identified a basis on which EPA should disapprove Kentucky's attainment plan.

Comment 3a:The Commenter asserts that the Big Sandy Power Plant in Lawrence County, Kentucky, is the largest single source of PM2.5precursor emissions in the Huntington-Ashland Area and raises several issues associated with Kentucky's treatment of the plant's emissions. First, the Commenter contends that DAQ's attainment year modeling relies on artificially low emissions from the Big Sandy Power Plant because, the Commenter alleges, Kentucky modeled attainment during 2008, which the Commenter states was the “largest economic recession in recent times.” To support its contention, the Commenter identifies heat input data and SO2and NOXemissions data for Big Sandy's Unit 1 and Unit 2 for the years 2007 through 2010. The Commenter concludes by saying that EPA must require Kentucky's SIP to include enforceable limits for both Big Sandy units, restricting emissions to the lowest levels achieved during the attainment modeling years, 2007-2011.

Response 3a:As an initial point of clarification, Kentucky modeled attainment during 2009, not 2008 as stated by the Commenter.SeeChapter 6 of the attainment demonstration narrative. Additionally, as shown in EPA's January 30, 2012, proposal notice, all 2009 predicted (modeled) annual PM2.5design values for the monitors of the Huntington-Ashland Area were higher than the values actually measured at those sites in 2009. Further, the emissions assumed for the Big Sandy Power Plant were projections based upon DAQ's knowledge of the facility's future plans when the modeling was performed, not actual emissions that occurred in 2008. Based on actual ambient data, EPA has already determined that the Area attained the 1997 Annual PM2.5standard by its April 5, 2010, attainment date. The 2008 economic downturn was irrelevant to, and in fact occurred after, the modeling results were produced. Finally, EPA finds that the modeling conducted for the 2009 attainment year used the VISTAS Best & Final emissions inventory.SeePM2.5attainment plan submittal, Appendix F (“DRAFT Documentation of the Base G2 and Best & Final 2002 Base Year, 2009 and 2018 Emission Inventories for VISTAS”), page 3. This inventory shows Big Sandy Unit 1 having neither selective catalytic reduction (SCR) nor a scrubber in 2009, and Unit 2 having SCR since 2003 but no scrubber in 2009.SeePM2.5attainment plan submittal, Appendix I (“EGU CONTROLS FOR COAL AND OIL/GAS UNITS FOR THE BEST & FINAL INVENTORY”) of Appendix F, page 260. This is consistent with what is shown for these units on EPA's Clean Air Market Division's Web site. For these reasons, EPA has determined that the Commenter has not provided a basis on which to disapprove the revision with respect to the above-described modeling issues.

With regard to the Commenter's statements about emission limits, the Big Sandy facility has numerous emission limitations for relevant pollutants. In addition, the facility was included in the October 2007 federal Consent Decree resolving an enforcement matter between EPA and American Electric Power Company which operates the Big Sandy facility.See http://www.epa.gov/compliance/resources/cases/civil/caa/americanelectricpower1007.html(last visited 3/15/12) for additional information. The facility is also subject to a number of other CAA programs including but not limited to the regional haze program. As part of Kentucky's regional haze SIP, on which EPA recently took final action, the facility will be installing ammonia injection controls on Unit 1 and flue gas desulfurization on Unit 2.4 Through these and other requirements, the facility is subject to enforceable emission limits. For these reasons, EPA disagrees that the Commenter has identified a basis on which EPA should disapprove Kentucky's attainment plan.

Comment 3b:The Commenter states that DAQ's attainment demonstration modeling lists emission controls at the Big Sandy Power Plant inaccurately. The Commenter contends that DAQ made adjustments to its Integrated Planning Model (IPM) results for the 2009 and 2018 electric generating unit (EGU) inventories to account for various control measures and that this renders DAQ's modeling flawed for the attainment year of 2009. The Commenter concludes that EPA should require DAQ to include in the Kentucky SIP an enforceable schedule for installation of a SCR and scrubber at Big Sandy.

Response 3b:As noted in the response above, the modeling presented by Kentucky used the correct assumptions about emission controls at Big Sandy in 2009. The 2002 emissions inventory was based on data that was developed by the VISTAS contractors and submitted by the states to the 2002 National Emissions Inventory. As required by section 172(c)(3), and as discussed in the modeling documentation submitted by Kentucky, the 2002 base year inventory is an inventory of actual emissions in the Area. For the projected 2009 attainment year inventory, VISTAS relied primarily on the IPM to project future power generation and to calculate the impact of future emission control programs as of October 1, 2007. The State and local agencies were then asked to identify any updates needed to better reflect current information on when and where future controls would occur based on the best available data from state rules, enforcement agreements, compliance plans, permits and other sources.SeePM2.5attainment plan submittal, Appendix F (“DRAFT Documentation of the Base G2 and Best & Final 2002 Base Year, 2009 and 2018 Emission Inventories for VISTAS”). Kentucky indicated that Big Sandy Unit 1 was not expected to have a scrubber or SCR control operational in 2009 (IPM had projected these controls would be in use by Big Sandy Unit 1 in 2009). In February 2008, VISTAS used this updated information in completing the Best & Final inventory, which was used in the modeling relied upon by Kentucky.

Further, as explained earlier, the facility is subject to several CAA programs involving the installation of controls and/or specific emission limits for relevant pollutants. The Area has demonstrated attainment of the PM2.5NAAQS already and, considering future controls and limits, EPA disagrees that the Commenter has identified a basis on which EPA should disapprove Kentucky's attainment plan.

Comment 4a:The Commenter raises several issues regarding the Huntington-Ashland Area's RACM/RACT analysis. First, the Commenter states that DAQ did not conduct a RACM/RACT analysis for this Area, but rather, another nearby area, the bi-state Louisville Area (Kentucky and Indiana).

Response 4a:Kentucky's December 3, 2008, SIP revision included attainment plans for all three of Kentucky's nonattainment areas for the 1997 Annual PM2.5NAAQS: Louisville, Kentucky-Indiana; Cincinnati-Hamilton, Ohio-Kentucky-Indiana; and Huntington-Ashland, West Virginia-Kentucky-Ohio. Although DAQ summarizes, in chapter 7 of the December 3, 2008 SIP revision, a detailed air quality analysis contracted for the Louisville Area, the overall RACM and RACT discussion is intended for all three of the identified PM2.5nonattainment areas.

EPA interprets RACT for PM2.5as linked to attainment needs of an area. If an area is attaining the PM2.5NAAQS, EPA deems the RACT requirement to be satisfied. Therefore, under EPA's interpretation of the RACT requirement, as it applies to PM2.5, Kentucky has satisfied the requirement.

In accordance with 40 CFR section 51.1004(c), EPA's September 7, 2011, determination that the Huntington-Ashland Area has attained the 1997 Annual PM2.5NAAQS suspended the requirement for the Area to submit an attainment demonstration and associated RACM, including RACT, related to the 1997 Annual PM2.5NAAQS. EPA has noted that certain language in the preamble of the PM2.5Implementation Rule contradicts the regulatory text in 40 CFR 51.1004(c). On May 22, 2008, EPA issued a memorandum “to eliminate any confusion that could result from this erroneous statement.” Memorandum from William T. Harnett, Director, Air Quality Policy Division to Regional Air Division Directors, “PM2.5Clean Data Policy Clarification.” This memorandum states:

“Section 51.1004(c) provides that: `Upon a determination by EPA that an area designated nonattainment for the PM2.5NAAQS has attained the standard, the requirements for such area to submit attainment demonstrations and associated reasonably available control measures, reasonable further progress plans, contingency measures, and other planning SIPs related to attainment of the PM2.5NAAQS shall be suspended. * * *'

“Section 51.1010 provides in part: `For each PM2.5nonattainment area, the State shall submit with the attainment demonstration a SIP revision demonstrating that it has adopted all reasonably available control measures (including RACT for stationary sources) necessary to demonstrate attainment as expeditiously as practicable and to meet any RFP requirements.'

“Thus the regulatory text defines RACT as included in RACM, and provides that it is only required insofar as it is necessary to advance attainment.Seealso section 51.1010(b). As a result, when an area is attaining the standard, the suspension of the RACM requirement pursuant to 51.1004(c) necessarily includes the suspension of the RACT requirement.”

EPA has already determined that the Huntington-Ashland Area attained the 1997 Annual PM2.5NAAQS by its April 2010 attainment date based on controls that were in force at least through that date. In addition, as explained above, modeling done for the Cross-State Air Pollution Rule demonstrates that the Area would attain in the absence of CAIR. For these reasons, EPA disagrees that the Commenter has identified a basis on which EPA should disapprove Kentucky's attainment plan.

Comment 4b:The Commenter appears to disagree with EPA's interpretation of 40 CFR 51.1010 and contends that measures must be adopted which are necessary to demonstrate attainment as expeditiously as practicable.

Response 4b:Section 51.1010(b) of the PM2.5Implementation Rule provides that “[p]otential measures that are reasonably available considering technical and economic feasibility must be adopted as RACM if, considered collectively, they would advance the attainment date by one year or more.” In order to advance the attainment date by at least one year, the state would first have to know their projected attainment date. As stated in EPA's January 30, 2012, proposed rulemaking, Kentucky participated in a modeling project of the Association for Southeastern Integrated Planning and VISTAS. Modeling projections were provided in January 2008. While showing the Area would attain by no later than five years from designation (i.e., by no later than April 5, 2010), there was not time for the State to develop measures that could possibly advance the attainment date by one year. This would have been particularly true for any new control requirements, which would have required a legislative rulemaking process that can take a year or more. Further, as stated above, because the Huntington-Ashland Area is now attaining the PM2.5standard, Kentucky has satisfied the RACT requirement without need for further measures.SeeMemorandum from William T. Harnett cited above. In addition, as explained earlier, Kentucky did provide a RACM/RACT analysis that applied for the Huntington-Ashland Area. For these reasons, EPA disagrees that the Commenter has identified a basis on which EPA should disapprove Kentucky's attainment plan.

Comment 4c:The Commenter opines that EPA will not be able to redesignate the Huntington-Ashland nonattainment area until it conducts a RACM/RACT analysis, citingWallv.EPA,265 F.3d 426, 442 (6th Cir. 2001).

Response 4c:This action does not propose to redesignate the Huntington-Ashland Area to attainment. However, EPA disagrees with the Commenter's assertion that EPA will not be able to redesignate the Huntington-Ashland Area until a RACM/RACT analysis is conducted. The September 7, 2011, determination that the Huntington-Ashland Area attained the 1997 Annual PM2.5NAAQS suspends the obligation to meet attainment planning requirements, including the RACM/RACT requirements so long as the Area continues to attain the 1997 Annual PM2.5NAAQS.See40 CFR 51.1004(c). EPA disagrees with the Commenter's invocation, in the context of this rulemaking, of the ruling inWallv.EPA.TheWallcourt addressed only the issue of adoption of RACT for ozone nonattainment areas under Part D subpart 2 of the Clean Air Act. Thus that case addressed a distinct set of statutory provisions for a different RACT requirement applicable only to ozone nonattainment areas. TheWallRACT ruling is therefore not applicable or pertinent to the PM2.5RACT provision here. For these reasons, EPA disagrees that the Commenter has identified a basis on which EPA should disapprove Kentucky's attainment plan.

Comment 5:The Commenter states that EPA recently decided to allow up to 15 percent ethanol content in gasoline (E15), 76 FR 4662 (Jan. 26, 2011), which the Commenter believes will lead to an increase in NOXand VOC emissions from many cars and light duty trucks, particularly those with pollution control devices not designed to deal with E15. The Commenter then contends that there is no indication that DAQ or EPA accounted for the increase in NOXand VOC emissions that will result from use of E15.

Response 5:EPA disagrees with the Commenter's suggestion that theEthanol 15 (E15) rulemaking cited to by the Commenter will result in a significant increase in NOXand VOC emissions in the Huntington-Ashland Area. As a general point of background, E15 is not mandated by EPA. Rather, EPA granted a partial waiver for vehicles model years 2001 and newer, light duty vehicles (76 FR 4662) to be able to use E15. To receive a waiver under CAA section 211(f)(4), a fuel or fuel additive manufacturer must demonstrate that a new fuel or fuel additive will not cause or contribute to the failure of engines or vehicles to achieve compliance with the emission standards to which they have been certified over their useful life. Data used to act upon the approval of the E15 partial waiver showed that model year 2001 and newer vehicles would still meet their certified engine standards for emissions for both short and long term use, and use of E15 would not significantly increase the emission from these engines. EPA's partial waiver for E15 is based on extensive studies done by the Department of Energy, as well as the Agency's engineering assessment to determine the effects of exhaust and evaporative emissions for the fleet prior to the partial waiver. The criteria for granting the waiver was not that there are no emission impacts of E15, but rather that vehicles operating on it would not be expected to violate their emission standards in-use.

As discussed in the waiver decision, there are expected to be some small emission impacts. E15 is expected to cause a small immediate emission increase in NOXemissions. However, due to its lower volatility than the E10 currently in-use, its use is also expected to result in lower evaporative VOC emissions. Any other emissions impacts related to E15 would be a result of misfueling of E15 in model year 2000 and older vehicles, and recreational or small engines. EPA has approved regulations dealing specifically with the mitigation of misfueling and reducing the potential increase in emissions from misfueling. 76 FR 44406 (July 25, 2011).

The partial waivers that EPA has granted to E15 do not require that E15 be made or sold. The waivers merely allow fuel or fuel additive manufacturers to introduce E15 into commerce if they meet the waivers' conditions. Other federal, state and local requirements must also be addressed before E15 may be sold. The granting of the partial waivers is only one of several requirements for registration and distribution of E15.

E15 may never be used in Kentucky. But even if it is, there is no indication that any potential emission impacts would significantly alter DAQ's calculation of on-road mobile source emissions because of the small and opposite direction of emission impacts, the limited vehicle fleet which can use it, and the measures required to avoid mitigating misfueling. For these reasons, EPA disagrees that the Commenter has identified a basis on which EPA should disapprove Kentucky's attainment plan.

EPA is approving a revision to the Kentucky SIP submitted to EPA by DAQ on December 3, 2008, for the purpose of demonstrating how the Kentucky portion of the Huntington-Ashland Area will achieve attainment of the 1997 Annual PM2.5NAAQS by no later than April 5, 2010. EPA previously determined on September 7, 2011, that the Huntington-Ashland Area attained the 1997 Annual PM2.5NAAQS by its April 2010 attainment date.See76 FR 55542, September 7, 2011. EPA has also determined that the Area has since continued to attain that NAAQS. Kentucky's December 3, 2008, SIP revision includes an attainment demonstration; RACT and RACM analyses; RFP; base-year and attainment-year emissions inventories; contingency measures; and, for transportation conformity purposes, an insignificance determination for direct PM2.5and NOXfor the mobile source contribution to ambient PM2.5levels for the Commonwealth's portion of the Huntington-Ashland Area. After review and consideration of the relevant information and data, including the comments received, EPA has determined that Kentucky's December 3, 2008, SIP revision is consistent with the CAA and EPA's PM2.5Implementation Rule, and as such EPA is approving this SIP revision.

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 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 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 Clean Air Act; 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).

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

Under section 307(b)(1) of the CAA, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by June 11, 2012. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this action for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements. (Seesection 307(b)(2).)

40 CFR part 52 is amended as follows:

You may be potentially affected by this action if you are an agricultural producer, food manufacturer, or pesticide manufacturer. Potentially affected entities may include, but are not limited to those engaged in the following activities:

• Crop production (NAICS code 111).

• Animal production (NAICS code 112).

• Food manufacturing (NAICS code 311).

• Pesticide manufacturing (NAICS code 32532).

This listing is not intended to be exhaustive, but rather to provide a guide for readers regarding entities likely to be affected by this action. Other types of entities not listed in this unit could also be affected. The North American Industrial Classification System (NAICS) codes have been provided to assist you and others in determining whether this action might apply to certain entities. If you have any questions regarding the applicability of this action to a particular entity, consult the person listed underFOR FURTHER INFORMATION CONTACT.

You may access a frequently updated electronic version of EPA's tolerance regulations at 40 CFR part 180 through the Government Printing Office's e-CFR site athttp://ecfr.gpoaccess.gov/cgi/t/text/text-idx?&c=ecfr&tpl=/ecfrbrowse/Title40/40tab_02.tpl.To access the OCSPP test guidelines referenced in this document electronically, go to:http://www.epa.gov/ocsppand select “Test Methods and Guidelines.”

Under FFDCA section 408(g), 21 U.S.C. 346a, any person may file an objection to any aspect of this regulation and may also request a hearing on those objections. You must file your objectionor request a hearing on this regulation in accordance with the instructions provided in 40 CFR part 178. To ensure proper receipt by EPA, you must identify docket ID number EPA-HQ-OPP-2011-0086 in the subject line on the first page of your submission. All objections and requests for a hearing must be in writing, and must be received by the Hearing Clerk on or before June 11, 2012. Addresses for mail and hand delivery of objections and hearing requests are provided in 40 CFR 178.25(b).

In addition to filing an objection or hearing request with the Hearing Clerk as described in 40 CFR part 178, please submit a copy of the filing that does not contain any CBI for inclusion in the public docket. Information not marked confidential pursuant to 40 CFR part 2 may be disclosed publicly by EPA without prior notice. Submit a copy of your non-CBI objection or hearing request, identified by docket ID number EPA-HQ-OPP-2011-0086, by one of the following methods:

•Federal eRulemaking Portal: http://www.regulations.gov.Follow the online instructions for submitting comments.

•Mail:Office of Pesticide Programs (OPP) Regulatory Public Docket (7502P), Environmental Protection Agency, 1200 Pennsylvania Ave. NW., Washington, DC 20460-0001.

•Delivery:OPP Regulatory Public Docket (7502P), Environmental Protection Agency, Rm. S-4400, One Potomac Yard (South Bldg.), 2777 S. Crystal Dr., Arlington, VA. Deliveries are only accepted during the Docket Facility's normal hours of operation (8:30 a.m. to 4 p.m., Monday through Friday, excluding legal holidays). Special arrangements should be made for deliveries of boxed information. The Docket Facility telephone number is (703) 305-5805.

In theFederal Registerof July 6, 2011 (76 FR 39358) (FRL-8875-6), EPA issued a notice pursuant to FFDCA section 408(d)(3), 21 U.S.C. 346a(d)(3), announcing the filing of a pesticide petition (PP 0E7818) by IR-4, 500 College Road East, Suite 201 W, Princeton, NJ 08540. The petition requested that 40 CFR part 180 be amended by establishing a tolerance for residues of the fungicide acibenzolar-S-methyl, benzo(1,2,3)thiadiazole-7-carbothioic acid-S-methyl ester, in or on low growing berry subgroup 13-07G at 0.15 parts per million (ppm), and by amending the tolerance expression to read, “tolerances are established for residues of acibenzolar-S-methyl, benzo(1,2,3)thiadiazole-7-carbothioic acid-S-methyl ester, including its metabolites and degradates, in or on the commodity(s) listed. Compliance with the tolerance level is to be determined by measuring only those acibenzolar-S-methyl residues convertible to benzo(1,2,3)thiadiazole-7-carboxylic acid (CGA-210007), expressed as the stoichiometric equivalent of acibenzolar-S-methyl. That notice referenced a summary of the petition prepared by Syngenta Crop Protection, Inc., the registrant, which is available in the docket,http://www.regulations.gov.

One comment on the notice of filing was received. EPA's response to this comment is discussed in Unit IV.C.

Section 408(b)(2)(A)(i) of FFDCA allows EPA to establish a tolerance (the legal limit for a pesticide chemical residue in or on a food) only if EPA determines that the tolerance is “safe.” Section 408(b)(2)(A)(ii) of FFDCA defines “safe” to mean that “there is a reasonable certainty that no harm will result from aggregate exposure to the pesticide chemical residue, including all anticipated dietary exposures and all other exposures for which there is reliable information.” This includes exposure through drinking water and in residential settings, but does not include occupational exposure. Section 408(b)(2)(C) of FFDCA requires EPA to give special consideration to exposure of infants and children to the pesticide chemical residue in establishing a tolerance and to “ensure that there is a reasonable certainty that no harm will result to infants and children from aggregate exposure to the pesticide chemical residue * * *.”

Consistent with FFDCA section 408(b)(2)(D), and the factors specified in FFDCA section 408(b)(2)(D), EPA has reviewed the available scientific data and other relevant information in support of this action. EPA has sufficient data to assess the hazards of and to make a determination on aggregate exposure for acibenzolar-S-methyl including exposure resulting from the tolerances established by this action. EPA's assessment of exposures and risks associated with acibenzolar-S-methyl follows.

EPA has evaluated the available toxicity data and considered their validity, completeness, and reliability as well as the relationship of the results of the studies to human risk. EPA has also considered available information concerning the variability of the sensitivities of major identifiable subgroups of consumers, including infants and children.

Acibenzolar-S-methyl showed no significant toxicity in a battery of acute toxicity tests. Considerable skin sensitizing (contact allergenic) potential was demonstrated in a dermal sensitization study in guinea pigs.

In subchronic and chronic oral studies in rats, dogs and mice, signs of mild regenerative hemolytic anemia were consistently observed in all three species. Additional toxic effects observed in these same studies included decreases in body weight, body weight gain and/or food consumption. In a 28-day dermal study in rats, no systemic or dermal effects were observed at dose levels up to 1,000 milligrams/kilogram/day (mg/kg/day), the limit dose. No neurotoxic effects were observed at any dose in a subchronic neurotoxicity study in rats.

Prenatal and postnatal toxicity data are available including developmental toxicity studies in rats and rabbits, a developmental neurotoxicity (DNT) study in rats, and a 2-generation reproduction toxicity study in rats. Based on the developmental toxicity in rats and the developmental neurotoxicity studies in rats, there is concern for increased qualitative and/or quantitative susceptibility followingin uteroexposure to acibenzolar-S-methyl. In the rat developmental toxicity study, treatment related visceral malformations and skeletal variations were observed in fetuses at 200 mg/kg/day, the no observed adverse effect level (NOAEL) for maternal toxicity. In the developmental neurotoxicity study, offspring toxicity was observed at 82 mg/kg/day while no maternal toxicity was observed at 326 mg/kg/day, the highest dose tested (HDT). Additional developmental toxicity studies in rats and rabbits and reproduction studies in rats provided no indication of increased susceptibility of rat or rabbit fetuses or neonates compared to adult animals. In a dermal developmental toxicity study in rats, no maternal or developmental toxicity was observed at dose levels up to 500 mg/kg/day, the HDT.

Acibenzolar-S-methyl was classified by the Agency as “not likely” to be a human carcinogen based on negative carcinogenicity studies in male and female rats and mice and generally negative results in an acceptable battery of mutagenicity studies.

An immunotoxicity study required as part of new 40 CFR part 158 data requirements for registration of a pesticide has been submitted and is being reviewed by the Agency. Based on a preliminary review, the study isacceptable and indicates no evidence of immunotoxicity.

Specific information on the studies received and the nature of the adverse effects caused by acibenzolar-S-methyl as well as the NOAEL and the lowest-observed-adverse-effect-level (LOAEL) from the toxicity studies can be found athttp://www.regulations.govin document “Acibenzolar-S-methyl Human Health Risk Assessment for Proposed Use of Acibenzolar-S-methyl on Low Growing Berries Crop Subgroup 13-07G, dated February 23, 2012”, on pages 28-33 in docket ID number EPA-HQ-OPP-2011-0086-0007.

Once a pesticide's toxicological profile is determined, EPA identifies toxicological POD and LOC to use in evaluating the risk posed by human exposure to the pesticide. For hazards that have a threshold below which there is no appreciable risk, the toxicological POD is used as the basis for derivation of reference values for risk assessment. PODs are developed based on a careful analysis of the doses in each toxicological study to determine the dose at which the NOAEL and the lowest dose at which adverse effects of concern are identified the LOAEL. Uncertainty/safety factors are used in conjunction with the POD to calculate a safe exposure level—generally referred to as a population-adjusted dose (PAD) or a reference dose (RfD)—and a safe margin of exposure (MOE). For non-threshold risks, the Agency assumes that any amount of exposure will lead to some degree of risk. Thus, the Agency estimates risk in terms of the probability of an occurrence of the adverse effect expected in a lifetime. For more information on the general principles EPA uses in risk characterization and a complete description of the risk assessment process, seehttp://www.epa.gov/pesticides/factsheets/riskassess.htm.

A summary of the toxicological endpoints for acibenzolar-S-methyl used for human risk assessment is shown in the following table.

I. General Information A. Does this action apply to me?

You may be potentially affected by this action if you are an agricultural producer, food manufacturer, or pesticide manufacturer. Potentially affected entities may include, but are not limited to:

• Crop production (NAICS code 111).

• Animal production (NAICS code 112).

• Food manufacturing (NAICS code 311).

• Pesticide manufacturing (NAICS code 32532).

This listing is not intended to be exhaustive, but rather provides a guide for readers regarding entities likely to be affected by this action. Other types of entities not listed in this unit could also be affected. The North American Industrial Classification System (NAICS) codes have been provided to assist you and others in determining whether this action might apply to certain entities. If you have any questions regarding the applicability of this action to a particular entity, consult the person listed underFOR FURTHER INFORMATION CONTACT.

You may access a frequently updated electronic version of 40 CFR part 180 through the Government Printing Office's e-CFR site athttp://ecfr.gpoaccess.gov/cgi/t/text/text-idx?&c=ecfr&tpl=/ecfrbrowse/Title40/40tab_02.tpl.

Under FFDCA section 408(g), 21 U.S.C. 346a, any person may file an objection to any aspect of this regulation and may also request a hearing on those objections. You must file your objection or request a hearing on this regulation in accordance with the instructions provided in 40 CFR part 178. To ensure proper receipt by EPA, you must identify docket ID number EPA-HQ-OPP-2011-0934 in the subject line on the first page of your submission. All objections and requests for a hearingmust be in writing, and must be received by the Hearing Clerk on or before June 11, 2012. Addresses for mail and hand delivery of objections and hearing requests are provided in 40 CFR 178.25(b).

In addition to filing an objection or hearing request with the Hearing Clerk as described in 40 CFR part 178, please submit a copy of the filing that does not contain any CBI for inclusion in the public docket. Information not marked confidential pursuant to 40 CFR part 2 may be disclosed publicly by EPA without prior notice. Submit a copy of your non-CBI objection or hearing request, identified by docket ID number EPA-HQ-OPP-2011-0934, by one of the following methods.

•Federal eRulemaking Portal: http://www.regulations.gov.Follow the on-line instructions for submitting comments.

•Mail:Office of Pesticide Programs (OPP) Regulatory Public Docket (7502P), Environmental Protection Agency, 1200 Pennsylvania Ave. NW., Washington, DC 20460-0001.

•Delivery:OPP Regulatory Public Docket (7502P), Environmental Protection Agency, Rm. S-4400, One Potomac Yard (South Bldg.), 2777 S. Crystal Dr., Arlington, VA. Deliveries are only accepted during the Docket Facility's normal hours of operation (8:30 a.m. to 4 p.m., Monday through Friday, excluding legal holidays). Special arrangements should be made for deliveries of boxed information. The Docket Facility telephone number is (703) 305-5805.

In theFederal Registerof Thursday, December 8, 2011 (76 FR 76674) (FRL-9328-8), EPA issued a notice pursuant to section 408 of FFDCA, 21 U.S.C. 346a, announcing the receipt of a pesticide petition (PP 1E7877) filed by Dow Corning Corporation, 2200 W. Salzburg Road, Midland, MI. The petition requested that 40 CFR 180.960 be amended by establishing an exemption from the requirement of a tolerance for residues of Silicic acid, sodium salt, reaction products with chlorotrimethylsilane and iso-propyl alcohol, reaction with poly(oxypropylene)-poly(oxyethylene) glycol. That notice included a summary of the petition prepared by the petitioner and solicited comments on the petitioner's request. The Agency received one comment. EPA's response to this comment is discussed in Unit VIII.C.

Section 408(c)(2)(A)(i) of FFDCA allows EPA to establish an exemption from the requirement for a tolerance (the legal limit for a pesticide chemical residue in or on a food) only if EPA determines that the exemption is “safe.” Section 408(c)(2)(A)(ii) of FFDCA defines “safe” to mean that “there is a reasonable certainty that no harm will result from aggregate exposure to the pesticide chemical residue, including all anticipated dietary exposures and all other exposures for which there is reliable information.” This includes exposure through drinking water and use in residential settings, but does not include occupational exposure. Section 408(b)(2)(C) of FFDCA requires EPA to give special consideration to exposure of infants and children to the pesticide chemical residue in establishing an exemption from the requirement of a tolerance and to “ensure that there is a reasonable certainty that no harm will result to infants and children from aggregate exposure to the pesticide chemical residue * * *” and specifies factors EPA is to consider in establishing an exemption.

EPA establishes exemptions from the requirement of a tolerance only in those cases where it can be shown that the risks from aggregate exposure to pesticide chemical residues under reasonably foreseeable circumstances will pose no appreciable risks to human health. In order to determine the risks from aggregate exposure to pesticide inert ingredients, the Agency considers the toxicity of the inert in conjunction with possible exposure to residues of the inert ingredient through food, drinking water, and through other exposures that occur as a result of pesticide use in residential settings. If EPA is able to determine that a finite tolerance is not necessary to ensure that there is a reasonable certainty that no harm will result from aggregate exposure to the inert ingredient, an exemption from the requirement of a tolerance may be established.

Consistent with FFDCA section 408(b)(2)(D), EPA has reviewed the available scientific data and other relevant information in support of this action and considered its validity, completeness and reliability and the relationship of this information to human risk. EPA has also considered available information concerning the variability of the sensitivities of major identifiable subgroups of consumers, including infants and children. In the case of certain chemical substances that are defined as polymers, the Agency has established a set of criteria to identify categories of polymers expected to present minimal or no risk. The definition of a polymer is given in 40 CFR 723.250(b) and the exclusion criteria for identifying these low-risk polymers are described in 40 CFR 723.250(d). Silicic acid, sodium salt, reaction products with chlorotrimethylsilane and iso-propyl alcohol, reaction with poly(oxypropylene)-poly(oxyethylene) glycol conforms to the definition of a polymer given in 40 CFR 723.250(b) and meets the following criteria that are used to identify low-risk polymers.

1. The polymer is not a cationic polymer nor is it reasonably anticipated to become a cationic polymer in a natural aquatic environment.

2. The polymer does contain as an integral part of its composition the atomic elements carbon, hydrogen, and oxygen.

3. The polymer does not contain as an integral part of its composition, except as impurities, any element other than those listed in 40 CFR 723.250(d)(2)(ii).

4. The polymer is neither designed nor can it be reasonably anticipated to substantially degrade, decompose, or depolymerize.

5. The polymer is manufactured or imported from monomers and/or reactants that are already included on the TSCA Chemical Substance Inventory or manufactured under an applicable TSCA section 5 exemption.

6. The polymer is not a water absorbing polymer with a number average molecular weight (MW) greater than or equal to 10,000 daltons.

Additionally, the polymer also meets as required the following exemption criteria specified in 40 CFR 723.250(e): The polymer's number average MW of 75,000 is greater than or equal to 10,000 daltons. The polymer contains less than 2% oligomeric material below MW 500 and less than 5% oligomeric material below MW 1,000.

Thus, Silicic acid, sodium salt, reaction products with chlorotrimethylsilane and iso-propyl alcohol, reaction with poly(oxypropylene)-poly(oxyethylene) glycol meets the criteria for a polymer to be considered low risk under 40 CFR 723.250. Based on its conformance to the criteria in this unit, no mammalian toxicity is anticipated from dietary, inhalation, or dermal exposure to Silicic acid, sodium salt, reaction products with chlorotrimethylsilane and iso-propyl alcohol, reaction with poly(oxypropylene)-poly(oxyethylene) glycol.

For the purposes of assessing potential exposure under this exemption, EPA considered that Silicic acid, sodium salt, reaction productswith chlorotrimethylsilane and iso-propyl alcohol, reaction with poly(oxypropylene)-poly(oxyethylene) glycol could be present in all raw and processed agricultural commodities and drinking water, and that non-occupational non-dietary exposure was possible. The number average MW of Silicic acid, sodium salt, reaction products with chlorotrimethylsilane and iso-propyl alcohol, reaction with poly(oxypropylene)-poly(oxyethylene) glycol is 75,000 daltons. Generally, a polymer of this size would be poorly absorbed through the intact gastrointestinal tract or through intact human skin. Since Silicic acid, sodium salt, reaction products with chlorotrimethylsilane and iso-propyl alcohol, reaction with poly(oxypropylene)-poly(oxyethylene) glycol conform to the criteria that identify a low-risk polymer, there are no concerns for risks associated with any potential exposure scenarios that are reasonably foreseeable. The Agency has determined that a tolerance is not necessary to protect the public health.

Section 408(b)(2)(D)(v) of FFDCA requires that, when considering whether to establish, modify, or revoke a tolerance, the Agency consider “available information” concerning the cumulative effects of a particular pesticide's residues and “other substances that have a common mechanism of toxicity.”

EPA has not found Silicic acid, sodium salt, reaction products with chlorotrimethylsilane and iso-propyl alcohol, reaction with poly(oxypropylene)-poly(oxyethylene) glycol to share a common mechanism of toxicity with any other substances, and Silicic acid, sodium salt, reaction products with chlorotrimethylsilane and iso-propyl alcohol, reaction with poly(oxypropylene)-poly(oxyethylene) glycol does not appear to produce a toxic metabolite produced by other substances. For the purposes of this tolerance action, therefore, EPA has assumed that Silicic acid, sodium salt, reaction products with chlorotrimethylsilane and iso-propyl alcohol, reaction with poly(oxypropylene)-poly(oxyethylene) glycol does not have a common mechanism of toxicity with other substances. For information regarding EPA's efforts to determine which chemicals have a common mechanism of toxicity and to evaluate the cumulative effects of such chemicals, see EPA's Web site athttp://www.epa.gov/pesticides/cumulative.

Section 408(b)(2)(C) of FFDCA provides that EPA shall apply an additional tenfold margin of safety for infants and children in the case of threshold effects to account for prenatal and postnatal toxicity and the completeness of the data base unless EPA concludes that a different margin of safety will be safe for infants and children. Due to the expected low toxicity of Silicic acid, sodium salt, reaction products with chlorotrimethylsilane and iso-propyl alcohol, reaction with poly(oxypropylene)-poly(oxyethylene) glycol, EPA has not used a safety factor analysis to assess the risk. For the same reasons the additional tenfold safety factor is unnecessary.

Based on the conformance to the criteria used to identify a low-risk polymer, EPA concludes that there is a reasonable certainty of no harm to the U.S. population, including infants and children, from aggregate exposure to residues of Silicic acid, sodium salt, reaction products with chlorotrimethylsilane and iso-propyl alcohol, reaction with poly(oxypropylene)-poly(oxyethylene) glycol.

An analytical method is not required for enforcement purposes since the Agency is establishing an exemption from the requirement of a tolerance without any numerical limitation.

In making its tolerance decisions, EPA seeks to harmonize U.S. tolerances with international standards whenever possible, consistent with U.S. food safety standards and agricultural practices. EPA considers the international maximum residue limits (MRLs) established by the Codex Alimentarius Commission (Codex), as required by FFDCA section 408(b)(4). The Codex Alimentarius is a joint U.N. Food and Agriculture Organization/World Health Organization food standards program, and it is recognized as an international food safety standards-setting organization in trade agreements to which the United States is a party. EPA may establish a tolerance that is different from a Codex MRL; however, FFDCA section 408(b)(4) requires that EPA explain the reasons for departing from the Codex level.

The Codex has not established a MRL for Silicic acid, sodium salt, reaction products with chlorotrimethylsilane and iso-propyl alcohol, reaction with poly(oxypropylene)-poly(oxyethylene) glycol.

Accordingly, EPA finds that exempting residues of Silicic acid, sodium salt, reaction products with chlorotrimethylsilane and iso-propyl alcohol, reaction with poly(oxypropylene)-poly(oxyethylene) glycol from the requirement of a tolerance will be safe.

This final rule establishes an exemption from the requirement of a tolerance under section 408(d) of FFDCA in response to a petition submitted to the Agency. The Office of Management and Budget (OMB) has exempted these rules from review under Executive Order 12866, entitledRegulatory Planning and Review(58 FR 51735, October 4, 1993). Because this final rule has been exempted from review under Executive Order 12866, this final rule is not subject to Executive Order 13211, entitledActions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use(66 FR 28355, May 22, 2001) or Executive Order 13045, entitledProtection of Children From Environmental Health Risks and Safety Risks(62 FR 19885, April 23, 1997). This final rule does not contain any information collections subject to OMB approval under the Paperwork Reduction Act (PRA), 44 U.S.C. 3501et seq.,nor does it involve any technical standards that would require Agency consideration of voluntary consensus standards pursuant to section 12(d) of the National Technology Transfer and Advancement Act of 1995 (NTTAA), Public Law 104-113, section 12(d) (15 U.S.C. 272 note).

Since tolerances and exemptions that are established on the basis of a petition under section 408(d) of FFDCA, such as the tolerance in this final rule, do not require the issuance of a proposed rule, the requirements of the Regulatory Flexibility Act (RFA) (5 U.S.C. 601et seq.) do not apply.

This final rule directly regulates growers, food processors, food handlers, and food retailers, not States or tribes, nor does this action alter the relationships or distribution of power and responsibilities established by Congress in the preemption provisions of section 408(n)(4) of FFDCA. As such, the Agency has determined that thisaction will not have a substantial direct effect on States or tribal governments, on the relationship between the national government and the States or tribal governments, or on the distribution of power and responsibilities among the various levels of government or between the Federal Government and Indian tribes, or otherwise have any unique impacts on local governments. Thus, the Agency has determined that Executive Order 13132, entitledFederalism(64 FR 43255, August 10, 1999) and Executive Order 13175, entitledConsultation and Coordination with Indian Tribal Governments(65 FR 67249, November 9, 2000) do not apply to this final rule. In addition, this final rule does not impose any enforceable duty or contain any unfunded mandate as described under Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) (Pub. L, 104-4).

Although this action does not require any special considerations under Executive Order 12898, entitledFederal Actions To Address Environmental Justice in Minority Populations and Low-Income Populations(59 FR 7629, February 16, 1994), EPA seeks to achieve environmental justice, the fair treatment and meaningful involvement of any group, including minority and/or low-income populations, in the development, implementation, and enforcement of environmental laws, regulations, and policies. As such, to the extent that information is publicly available or was submitted in comments to EPA, the Agency considered whether groups or segments of the population, as a result of their location, cultural practices, or other factors, may have atypical or disproportionately high and adverse human health impacts or environmental effects from exposure to the pesticide discussed in this document, compared to the general population.

One comment was received from a private citizen who opposed the authorization to sell any pesticide that leaves residue on food. The Agency understands the commenter's concerns and recognizes that some individuals believe that no residue of pesticides should be allowed. However, under the existing legal framework provided by section 408 of the Federal Food, Drug and Cosmetic Act (FFDCA) EPA is authorized to establish pesticide tolerances or exemptions where persons seeking such tolerances or exemptions have demonstrated that the pesticide meets the safety standard imposed by the statute.

The Congressional Review Act, 5 U.S.C. 801et seq.,generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of this rule in theFederal Register. This rule is not a “major rule” as defined by 5 U.S.C. 804(2).

Therefore, 40 CFR chapter I is amended as follows:

The shrimp fishery in the exclusive economic zone (EEZ) of the Gulf is managed under the Gulf FMP prepared by the Gulf of Mexico Fishery Management Council (Gulf Council), and the shrimp fishery in the EEZ of the South Atlantic is managed under the South Atlantic FMP prepared by the South Atlantic Fishery Management Council (South Atlantic Council). The Gulf and South Atlantic FMPs are implemented under the authority of the Magnuson-Stevens Act by regulations at 50 CFR part 622.

On January 9, 2012, NMFS published a proposed rule to certify two new BRDs for use in the Gulf and South Atlantic shrimp fisheries, and revise a harvesting restriction for shrimp vessels fishing in Federal waters of the Gulf and requested public comment (77 FR 1045). On January 23, 2012, NMFS published a correction to the proposed rule to correct an error in the preamble, which stated that the “Expanded Mesh BRD” would be decertified for use by the Gulf shrimp fishery after May 24, 2012, when it should have stated the “Extended Funnel BRD” would be decertified for use in the Gulf shrimp fishery after May 24, 2012 (77 FR 3224). The proposed rule outlined the rationale for the actions contained in this final rule and is not repeated here.

This final rule certifies two new BRDs for use in the Gulf and South Atlantic shrimp fisheries, namely the Cone Fish Deflector Composite Panel BRD and the Square Mesh Panel (SMP) Composite Panel BRD, and provides technical specifications for the construction of these BRDs. The two BRDS that are currently provisionally certified, through May 24, 2012, namely the Composite Panel BRD and the Extended Funnel BRD (Gulf only), will automatically be decertified on the date their preliminary certification expires. The Extended Funnel BRD will continue to be certified in the South Atlantic.

This final rule also revises a harvesting restriction for shrimp vessels fishing in Federal waters of the Gulf. In accordance with regulations established when Joint Amendment 14/27 to the Gulf FMP and the FMP for the Reef Fish Fishery of the Gulf (Joint Amendment 14/27) were implemented on February 28, 2008 (73 FR 3117, January 29, 2008), the rate of shrimp trawl bycatch mortality on juvenile red snapper found in the 10 to 30 fathom depth contours, west of Mobile Bay, Alabama, must be reduced by at least 74 percent, compared to the average rate of fishing mortality documented during 2001 through 2003. Joint Amendment 14/27 further documented a direct correlation between shrimp trawl bycatch mortality and shrimping effort, as measured in days fished by shrimp vessels; meaning that shrimping effort, measured in days fished, can be used as proxy for shrimp trawl bycatch mortality rates. Based on data from 2001 through 2003, the benchmark mortality or “F” rate for shrimp trawl bycatch was 0.617. Using days fished as a proxy for bycatch mortality, that F rate corresponds to 82,811 days fished. To comply with Joint Amendment 14/27, the days fished needs to be reduced by 74 percent, to meet the required 74 percent reduction in bycatch mortality. To ensure that the F rate is reduced by 74 percent to 0.160, the number of days fished in a particular year cannot exceed 21,531 days (i.e.,a 74 percent reduction from 82,811 days). To date, the annual shrimping effort has not exceeded the threshold level of 21,531 days, and no closures in the following fishing year have been needed.

Joint Amendment 14/27 also established that this restriction would be relaxed in 2011 by requiring only a 67 percent reduction (not 74 percent) in shrimp trawl bycatch mortality. In accordance with Joint Amendment 14/27, this rule requires that the annual rate of shrimp trawl bycatch mortality must now be reduced by 67 percent, again using shrimping effort as a proxy for mortality. Using effort as measured in days fished as a proxy for bycatch mortaility, to reduce mortality by at least 67 percent, the number of days fished cannot now exceed a threshold of 27,328 days. The intent of relaxing this restriction on fishing effort is to benefit the shrimp fleet for its contribution to red snapper recovery, much like increasing allowable catch to the directed fishery as the red snapper stock recovers on its rebuilding trajectory.

One letter was received commenting on the proposed rule, identifying three issues. These comments and NMFS' responses are presented below.

Comment 1:One of the elements of the Composite Panel BRD that makes it preferable for use is that it can be constructed within the existing standard turtle excluder device (TED) extension. This allows the TED/BRD manufacturer to install both devices into the same extension of webbing, resulting in labor and material savings. The regulations should allow the BRD webbing extension to consist of the aft portion of a currently legal TED extension with all the components of the BRD otherwise installed, as described, and the openings cut into the existing TED extension, as described.

Response:This final rule does not prohibit installing the Composite Panel BRD designs (Composite Panel BRD, Cone Fish Deflector Composite Panel BRD, and the SMP Composite Panel BRD) within the existing TED extension, provided that the extension material in the aft portion of the TED meets the specifications for the BRD installation as well (i.e.,241/2meshes by 150 to 160 meshes). There is no requirement to cut the TED extension off and sew a complete Composite Panel BRD extension on the shortened TED extension. However, this may be more efficient for some fishers who do not wish to take their TED extensions out of their nets and take them to the net shop to have a new Composite Panel BRD installed. Nevertheless, the BRD can be installed in the TED extension. The portion of the extension that constitutes the BRD extension must be installed no more than 4 meshes from the posterior edge of the TED and the BRD escape openings must be installed 11/2meshes from the leading edge of the BRD extension. Therefore, if a Composite Panel BRD design is installed in the TED extension, the BRD escape openings must be no more than 51/2meshes from the posterior edge of the grid.

Comment 2:The instructions describing the starting point for attachment of the leading edges of the panels should be changed from “* * * extension starting 12 meshes up from the bottom center on each side * * *” to “* * * extension starting 12-14-16-18 meshes (i.e.,10 percent of the circumference of the extension) up from the bottom center on each side * * *” This would more accurately keep the opening in the same relative position to the original Composite Panel testing, which was done using a 120-meshextension, as in the original write-up of the provisional certification of the Composite Panel BRD. Establishing a requirement in terms of percentages instead of meshes would allow for the same opening position orientation in extensions as large as 180 meshes or even 200 meshes. This should also more accurately place the openings in the 150 to 160 mesh extensions.

Response:The Composite Panel BRD regulations, as published February 13, 2008 (73 FR 8219), require that the BRD be constructed with a webbing extension with the dimensions of 241/2meshes by 150 to 160 meshes, not 120 meshes. All configurations of the Composite Panel BRDs were tested with TED/BRD extensions of 150 to 160 meshes. It is not known what the effect of installing the BRD into an extension of 180 or 200 meshes would have regarding the performance of the BRD. Therefore, the portion of the extension that forms the BRD should be no more than 160 meshes. Allowing the current provisionally certified Composite Panel BRD to be installed in extensions of 180 to 200 meshes would require additional certification tests with the larger extensions.

Comment 3:The twine size of the currently described webbing extension is not stated in the proposed rule (77 FR 1045, January 9, 2012) for either modification of the Composite Panel BRD.

Response:The current regulations for the provisional certification of the Composite Panel BRD do not specify the twine size for the BRD extension. The purpose of this omission is to allow the Composite Panel BRDs to be installed in the TED extensions. NMFS acknowledges that the construction and installation manual posted on the Southeast Regional Office Web site (http://sero.nmfs.noaa.gov/sf/pdfs/Composite%20BRD%20Instructions.pdf) erroneously specifies a specific twine size for the extension webbing. This error will be corrected in the new construction and installation manuals for the two new modifications of the Composite Panel BRD.

The two BRDs whose provisional certification expires May 25, 2012 will still be provisionally certified at the time this final rule takes effect. NMFS prepared the regulatory text in the proposed rule under the assumption that the final rule would be effective on a date concurrent with the expiration of the provisional certification of these two BRDs. However, due to the timing of this final rule, the two provisionally certified BRDS may still be used until May 25, 2012. Therefore, the regulatory text has been revised to include these provisionally certified BRDs through their date of effectiveness.

The effective date for the BRD construction instructions in § 622.41, paragraph (g)(3)(ii), is delayed until May 25, 2012, when the two provisionally certified BRDs expire. Additionally, the effective date for the removal of the description of the Composite BRD in Appendix D to part 622, paragraph G., is delayed until May 25, 2012. Finally, the description of the two new BRDs being certified through this rule are added to Appendix D in part 622, in paragraphs H. and I., instead of paragraphs G. and H., as written in the proposed rule regulatory text.

To improve this rule's clarity, NMFS is adding the number of days fished that result from the 67-percent target reduction of shrimp trawl bycatch mortality on red snapper in § 622.34 (l)(1).

NMFS is also correcting a typo in the description of the two new BRDs being certified through this rule. The term “number” is removed from the first sentence of part 622, Appendix D H.2.a. and I.2.a. The minimum construction and installation requirements for the Cone Fish Deflector Composite Panel BRD and the SMP Composite Panel BRD do not specify a number for the twine size of the stretch mesh, to allow for more flexibility in the construction of these BRDs, therefore the term “number” can be removed from these specifications.

The NMFS Assistant Administrator, Southeast Region, has determined that the actions contained in this rule are necessary for the conservation and management of the shrimp fishery in the Gulf and South Atlantic and that they are consistent with the Magnuson-Stevens Act, and other applicable law.

This final rule has been determined to be not significant for purposes of Executive Order 12866.

The Chief Counsel for Regulation of the Department of Commerce certified to the Chief Counsel for Advocacy of the Small Business Administration during the proposed rule stage that this action would not have a significant economic impact on a substantial number of small entities. The factual basis for this determination was published in the proposed rule and is not repeated here. No comments were received regarding this certification. As a result, a regulatory flexibility analysis was not required and none was proposed.

For the reasons set out in the preamble, 50 CFR part 622 is amended as follows:

NMFS manages the groundfish fishery in the GOA exclusive economic zone according to the Fishery Management Plan for Groundfish of the Gulf of Alaska (FMP) prepared by the North Pacific Fishery Management Council under authority of the Magnuson-Stevens Fishery Conservation and Management Act. Regulations governing fishing by U.S. vessels in accordance with the FMP appear at subpart H of 50 CFR part 600 and 50 CFR part 679. Regulations governing sideboard protections for GOA groundfish fisheries appear at subpart B of 50 CFR part 680.

The A season allowance of the 2012 Pacific cod total allowable catch (TAC) apportioned to C/Ps using trawl gear in the Central Regulatory Area of the GOA is 847 metric tons (mt), as established by the final 2012 and 2013 harvest specifications for groundfish of the GOA (77 FR 15194, March 14, 2012).

In accordance with § 679.20(d)(1)(i), the Administrator, Alaska Region, NMFS (Regional Administrator) has determined that the A season allowance of the 2012 Pacific cod TAC apportioned to C/Ps using trawl gear in the Central Regulatory Area of the GOA will soon be reached. Therefore, the Regional Administrator is establishing a directed fishing allowance of 547 mt, and is setting aside the remaining 300 mt as bycatch to support other anticipated groundfish fisheries. In accordance with § 679.20(d)(1)(iii), the Regional Administrator finds that this directed fishing allowance has been reached. Consequently, NMFS is prohibiting directed fishing for Pacific cod by C/Ps using trawl gear in the Central Regulatory Area of the GOA. After the effective date of this closure the maximum retainable amounts at § 679.20(e) and (f) apply at any time during a trip.

This action responds to the best available information recently obtained from the fishery. The Assistant Administrator for Fisheries, NOAA (AA), finds good cause to waive the requirement to provide prior notice and opportunity for public comment pursuant to the authority set forth at 5 U.S.C. 553(b)(B) as such requirement is impracticable and contrary to the public interest. This requirement is impracticable and contrary to the public interest as it would prevent NMFS from responding to the most recent fisheries data in a timely fashion and would delay the directed fishing closure of Pacific cod for C/Ps using trawl gear in the Central Regulatory Area of the GOA. NMFS was unable to publish a notice providing time for public comment because the most recent, relevant data only became available as of April 5, 2012.

The AA also finds good cause to waive the 30-day delay in the effective date of this action under 5 U.S.C. 553(d)(3). This finding is based upon the reasons provided above for waiver of prior notice and opportunity for public comment.

This action is required by § 679.20 and is exempt from review under Executive Order 12866.