Background

FSA has a long history of providing agricultural credit to the Nation's farmers and ranchers through its OL Program. Throughout this rule, any reference to “farm” or “farmer” also includes “ranch” or “rancher,” respectively; in this document, the word “operator” refers to farmers who operate a farm. FSA's OL Program is designed to finance the farm operating needs of family farms for operators who meet the program eligibility requirements. Among other things, eligible applicants must be unable to obtain sufficient credit from other sources; have sufficient applicable education, on-the-job training, or farming experience; have an acceptable credit history; and have adequate collateral for the proposed loan. (See 7 CFR 764.101 and 764.252 for a full explanation of OL eligibility requirements.) OL funds may be used for such things as annual or term operating purposes to refinance certain debts; pay normal farm operating and family living expenses; purchase livestock, equipment, and other materials essential to a farm operation, and may also be used for some minor improvements to farm real estate, such as wells and essential repairs to buildings. (See 7 CFR 764.251 for a complete list of OL funds uses.) OL funds cannot be used to finance the purchase of real estate. The maximum loan amount for OLs is $300,000, and repayment can be amortized up to 7 years depending on the specific loan purpose and expected useful life of the collateral. (See 7 CFR 761.8(a)(2) and 764.254(b)(1)(ii).) For example, an annual OL used to finance crop input costs such as seed, fertilizer, and chemicals, will generally be due in 1 year, while a term OL to finance equipment, livestock, or grape vines may be extended up to 7 years. As specified in 7 CFR 764.254(a)(3), the interest rate charged is the OL rate in effect at the time of loan approval or at the time of loan closing, whichever is lower. FSA's direct loan interest rates are adjusted as often as monthly and are available on the FSA Web site at:http://www.fsa.usda.gov/daflp.rates.htmand from any FSA office.

In on-going efforts to improve the OL Program, FSA evaluated the unique needs of small farm operations and identified unintended barriers to their applying for OLs, and is proposing to simplify the application process and add flexibility for meeting loan eligibility and security requirements to encourage their participation. FSA is proposing an ML process within the existing OL Program and using existing OL appropriations that would focus on the financing needs of small farm operations. These small farms, including non-traditional farm operations, currently have limited financing options, as explained below.

With increased awareness among consumers regarding the sources, affordability, and quality of their food, and the wider occurrence of community supported agriculture (CSA) the small specialty producer has increasing opportunities to raise and sell locally. Additionally, low-income neighborhoods with high concentrations of people who are far from a grocery store and have limited access to healthy food choices. These areas (sometimes called “food deserts”) have gained attention and support from the USDA, the United States Department of the Treasury, the United States Department of Health and Human Services (HHS), and the Obama Administration'sLets Moveinitiative, offering opportunities for niche-type urban farms to market directly to the city neighborhoods.

Operators of these types of small farms are not typically served by agricultural lenders, and may have difficulty obtaining financing from conventional commercial lenders. Consequently, these farmers often rely on credit cards or personal loans, which carry high interest rates and less flexible payment schedules, to finance their operations. Though their specialty produce may not be well known to ag-lending community at-large, there can be a viable market within cultural or ethnic communities.

The 2007 Census of Agriculture shows that 71 percent of all farmoperations gross less than $25,000 per year. Therefore, these operations require smaller financial investments for initial start-up expenses such as hoop houses to extend the growing season, essential tools, irrigation, delivery vehicles, and annual expenses such as seed, fertilizer, utilities, land rents, marketing, and distribution expenses. These expenses are examples of some of the operational needs that may be financed using the ML funds. Minor improvements to farm real estate such as well drilling costs, modest shed and storage structures, and underground irrigation may also be financed using ML funds.

An ML is a type of OL with abbreviated streamlined application process and modified security and eligibility requirements. The major components of the proposed ML process are the application process and flexibility in meeting some of the eligibility and security requirements. These components have been specially designed to make the ML process appeal to small farm operations. The proposed ML application process simplifies the information required to apply by reducing the level of documentation required to more appropriately align with the less complex structure and needs of smaller operations. Additionally, the eligibility requirement for managerial ability, and the loan security requirements for an ML have been modified to be more appropriate for smaller family farms.

With the proposed ML application process, FSA can provide credit to these farmers with reasonable rates and terms. Applicants that otherwise may have chosen credit card financing in lieu of an FSA OL due to the application process or certain eligibility requirements may choose to seek assistance from FSA to start and continue their operations as a result of the simplified application process and eligibility and security requirements. Additionally, the flexibility FSA gives farmers to make loan payments when they sell their products allows them to more efficiently manage their income and resources. Participation in FSA's loan programs provides eligible farms advantages over credit card financing and this is significant because financing costs have a greater impact on smaller start-up operations, which typically have tighter cashflows. These benefits will help small operations progress through the start-up years, build capacity, increase equity, expand their use of FSA's loan programs, and eventually graduate to commercial credit.

The ML application process would significantly streamline requirements compared to FSA's existing OL process. As a result, it would provide an option for farmers who may be intimidated by the documentation requirements that are often perceived as a deterrent to participation in FSA's loan programs. Additionally, FSA believes that the proposed ML application process would provide a financial bridge for many of its successful Youth Loan Program borrowers as they move toward more complex operations. Youth Loans are made to borrowers between the ages of 10 to 20 to finance income producing agriculture-related projects. The maximum amount of a youth loan is $5,000. (See 7 CFR part 764, subpart H for a further description and explanation of the requirements for youth loans.) FSA also views the ML application process as a catalyst for other small farmers to move forward in their farming ventures.

FSA has the responsibility of providing credit counseling and supervision to its direct loan borrowers. While the ML requirements will reduce the burden on loan applicants, it will not reduce the level of counseling and supervision provided by FSA. In fact, the reduced documentation will allow FSA personnel to devote more time to loan analysis and to provide technical assistance to borrowers.

Though MLs are not limited to beginning farmers, they will benefit from the modified alternatives for meeting the managerial experience eligibility requirement by allowing applicants to gain experience while managing their own farm or through a past association with an agricultural-related organization. In the application, the applicant will provide a written description of their apprenticeship relationship (planned or current), or will provide a written description of their past affiliations with an agriculture-related organization explaining how the experience will contribute to the success of managing their own farm operation.

Since the majority of small farms gross $25,000 or less in farm sales, as discussed below, a maximum of $35,000 for an ML should be ample for many beginning farmers starting out. As their financing needs expand, applicants can apply for an OL up to direct maximum loan amount of $300,000 or obtain financing from a commercial lender under the Guaranteed Loan Program.

FSA performed a preliminary analysis of the proposed ML process and evaluated its potential to impact loan losses and program costs. Actual losses will ultimately depend on the demand by, and the risk profile of, the ML borrowers. These variables are currently unknown; however, historical borrower data on OL originations was used to approximate participation. Past demand for smaller OLs provides a baseline indication of potential ML demand. ML baseline demand and associated costs were forecast by varying the maximum ML amount from $15,000 to $35,000 and applying these criteria to historical OL data. In fiscal year 2011, FSA made 14,628 direct operating loans to 10,927 applicants. Slightly less than 31 percent of all these applicants received loans totaling less than $35,000. This indicates the number of MLs made might be quite high, although the potential for increased losses could be minimized as these same applicants received just under 10 percent of the total dollar amount loaned under the direct OL Program, or $103 million out of the $1.037 billion loan portfolio. Because of expected similarities between the operations managed by ML applicants and Youth Loan applicants, such as new operations and operators, loan rates, small amounts of operating expenses, and small loan volume compared to the regular OL Program, an assumption was made that ML borrowers will have the same risk profile as Youth Loan Program participants. Furthermore, exposure to losses would also be partially offset by administrative savings achieved as a result of reductions in workload during the application process.

To implement ML, FSA is proposing changes to the regulations and to the information collection requirements as discussed below. The changes to the regulations are discussed in the same order in which the regulations appear in the Code of Federal Regulations.

Abbreviations and definitions used throughout FSA Farm Loan Programs (FLP) are in 7 CFR 761.2. This rule proposes to add abbreviations and definitions to that section that will be used for loans made through the ML application process. FSA is proposing to add an abbreviation for “microloan” and definitions for “microloan” and “apprentice.”

Proposed farm assessment requirements for ML applicants will be significantly reduced. A farm assessment for FSA's direct loan programs is a collaborative effort between FSA and the applicant and currently, it addresses the farm organization and key personnel qualifications, type of farming operation, goals for the operation, adequacy of real estate and chattelproperty to conduct the farming operation, historical performance, farm operating plan, loan evaluation, supervisory plan, and training plan. The initial assessment under 7 CFR 761.103 is completed during the application process and is then updated annually with the borrower. As the ML application will require less information to be submitted by the applicant, the farm assessment will also be pared down to a level more proportional to the smaller operations being financed by ML funds. This is expected to benefit both the applicant and the loan staff in terms of time savings and speed of processing the application. The initial assessment for an ML applicant will be in the form of a narrative that will address the type of operation, assistance needed, goals of the operation, marketing plan, supervisory plan, financial viability of the plan, and training plan. These elements reflect the less complicated organizational structure and smaller farm asset base that we would expect to encounter with ML applicants. FSA will still conduct an annual review, but believes that these elements will better evaluate the probability of success for the small farm operations expected to be typical of ML applicants.

A complete ML application would consist of the following:

• An application form;

• A description of the applicant's farm training and experience;

• A balance sheet;

• An annual cash flow budget;

• Applicable environmental information;

• Verification of non-farm income relied upon for loan repayment;

• Past income, expenses, and yields for the most recent production cycle, to the extent practicable; and

• Credit report fee.

A new application form will be available for ML applicants. This form is intended to capture most of the information needed to process an ML, including sections for the applicant to describe their farm training and experience. It will also reduce and simplify the financial statement. For example, no itemization will be required for the ML cash flow budget, which differs from the more detailed farm operating plan and similar income and expense projections as required by the existing OL programs.

Environmental information will still be handled through the county office process, involving FSA staff and NRCS staff as applicable. This will not change from the current process followed for regular OLs.

Verification of non-farm income will only be required if that income is necessary for a feasible plan and sufficient cash flow for debt repayment. This is a change over the existing OL application process, as income is always verified as specified in 7 CFR 764.51(b)(8). If it is necessary to verify debt, debts will be verified through the credit bureau reporting system.

There also are proposed changes to the requirement for reporting of past yields as currently specified in 7 CFR 761.104. Applicants can provide other forms of documentation such as operator's sales receipts, financial statements, contracts, and tax returns. This change will be helpful for operations where past yields have little bearing on the projected plan, such as vegetable operators who plan short term and grow different crops to meet current demand, operators who produce crops using measures such as rows or partial rows versus acres, or operators who grow crops that sell in volumes such as bunches. In some of these cases it will be impracticable, burdensome, and often irrelevant for the farmer to demonstrate accurate yields, especially if a variety of produce is harvested and then sold to the public only hours later. In such cases, past reliable history of income and expenses or cash receipts may be more useful in projecting the future production revenue of a field, greenhouse, or operation. Also, if an operator is changing crop from year to year to meet changing market demands, then production for the past 2 or 3 years may not be applicable to their production model. This modification allows FSA to assist operations that otherwise may have difficulty meeting or documenting production and yield history and will provide sufficient information for a loan official to determine eligibility and feasibility. FSA believes the lower loan limit will mitigate much of the risk of losses.

For incomplete applications, FSA proposes to follow existing direct loan processing procedures. Following current procedures, FSA will inform the applicant, through written correspondence, of any missing items needed to complete the application prior to established regulatory deadlines.

Since MLs are OLs, applicants will be subject to existing OL eligibility requirements. However, FSA proposes to add flexibility in meeting the managerial ability requirement. Current regulations in 7 CFR 764.101(i) require that an OL applicant show managerial ability through the following:

• Has obtained a 4-year college degree in agricultural business, horticulture, animal science, agronomy, or other agricultural-related field;

• Has on-the-job training, such as currently working on a farm as part of an apprenticeship program;

• Has farming experience, such as be an owner, manager, or operator of a farm business for at least one entire production cycle; or

• Have obtained and successfully repaid one FSA Youth-OL.

For ML applicants FSA proposes to add flexibility that will allow applicants to meet the eligibility requirement through either (1) a past association with an agriculture-related organization, such as 4-H Club or Future Farmers of America (FFA), that demonstrates experience in a related enterprise; or (2) by seeking, receiving, and applying guidance on how to manage their own start-up farm operation under an apprenticeship relationship. Only a written description of the current or future apprenticeship will be required in order to determine eligibility.

Meeting the managerial requirement through the agriculture-related organization experience will require the applicant to self certify on the application their involvement, detailing how that experience provides them with the ability to succeed with the operation they seek to finance with ML funds.

The apprenticeship relationship will allow an ML applicant to receive applied guidance and direction from an individual with the skills and knowledge pertinent to the successful operation of the farm enterprise being operated by the applicant. FSA expects that the applicant will consult with the mentor over the course of the production cycle (including issues of crop planning, purchasing from vendors, crop culture or animal husbandry, pest and disease management, networking groups and associations, harvest, marketing, etc.) while operating their own farm and take the initiative to seek and apply advice as appropriate to their needs. Successful completion of the apprenticeship through the first operating cycle will be required as a condition of the loan. FSA loan officials will monitor the borrower's progress and work with the borrower to ensure successful completion of the apprenticeship program during the first operating cycle. If unforeseen circumstances prevent successful completion, FSA loan officials will provide additional guidance to assist the borrower insuccessfully completing the requirement.

This expansion of management ability offers the opportunity for ML borrowers to gain the minimum of 3 years farm and management experience needed as part of eligibility for FSA's Farm Ownership (FO) Program, a loan program for the purchase of farm real estate. For those applicants who were not raised in a farming background, or do not have the educational experience necessary to meet the farm managerial ability requirements, or do not have the opportunity to gain management experience while working for someone else's farm operation, the ML process can provide a path to eventual ownership of a family farm.

FSA is proposing that the ML application process can be used for an annual or term OL up to a maximum of $35,000. ML applicants would be required to have an outstanding OL principal balance to FSA of no more than $35,000 after the loan is closed. Since the gross value of farm production is usually less than $25,000 for the majority of small income producing farming operations, financing needs for annual production cost are expected to be below the $35,000 maximum loan amount. FSA believes that this loan limit would provide sufficient levels of capital to small operations, which can include beginning farmers, truck farms, niche operations, CSA operations, and operations owned by immigrants who may need assistance establishing themselves in the farming community. Through this proposed rule, FSA is requesting comments on all aspects of the proposed ML process and is specifically interested in comments regarding the limitation of the loan amount.

FSA is proposing that MLs must be secured by collateral worth at least 100 percent of the loan amount. This differs from the current requirement in 7 CFR 764.104(c) that requires collateral worth at least 150 percent of the loan amount if available. Loans for improvements to farm real estate, such as well drilling, small barn or shed construction, or underground irrigation, may be secured by equipment, foundation livestock, or similar chattel security, if available, as an alternative to a lien on real estate, provided the 100 percent security requirement is met. A lien on real estate will only be required when other security is not available to meet the 100 percent security requirement. For an ML applicant, FSA can take a lien on equipment, or other available security, instead of taking a lien on real estate. Crops and livestock products will be taken as security for annual operating MLs only when other security available does not provide the minimum 100 percent security requirement. For example, when an ML is used to finance cash crops such as vegetables that are marketed at a farmers market, or when produce is grown in measures such as rows, the applicant may choose to offer a tractor as security instead of a lien on the crop. Some start-up or small family farms may not have sufficient equity in equipment or may be renting equipment and, therefore, a cash crop is all that is available to secure an annual ML. In this case, a lien on the crop produced with loan funds may provide security for the loan. FSA believes that flexibility in security requirements is another tool in meeting the needs of small family farms by providing affordable credit alternatives to credit card and high interest financing.

Other existing and applicable regulatory requirements pertaining to development of operating plans, loan processing and closing, use of loan funds, loan servicing, and environmental requirements not specifically amended by this proposed rule will apply to MLs, like other OLs.

The Lo-Doc OL application process is not widely used, for example only 3 percent of OLs obligated in FY 2010 were Lo-Doc loans. As a result of the Lo-Doc application process not being used, FSA has determined that a new program that changes not only the application process but also some eligibility and security requirements would be more appropriate rather than attempting to revise the Lo-Doc process. A large percentage of applicants that could have applied for a Lo-Doc OL will be able to apply for an ML. Therefore, FSA proposes to remove the Lo-Doc provisions from theCode of Federal Regulations.Removal of the Lo-Doc Program is not expected to have a significant impact on the public.

Executive Order 12866, “Regulatory Planning and Review,” and Executive Order 13563, “Improving Regulation and Regulatory Review,” direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasized the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility.

The Office of Management and Budget (OMB) designated this rule as not significant under Executive Order 12866 and, therefore, OMB has not reviewed this proposed rule.

Executive Order 12866, as supplemented by Executive Order 13563, requires each agency to write all rules in plain language. In addition to your substantive comments on these proposed rules, we invite your comments on how to make them easier to understand. For example:

• Are the requirements in the rule clearly stated? Are the scope and intent of the rule clear?

• Does the rule contain technical language or jargon that is not clear?

• Is the material logically organized?

• Would changing the grouping or order of sections or adding headings make the rule easier to understand?

• Could we improve clarity by adding tables, lists, or diagrams?

• Would more, but shorter, sections be better? Are there specific sections that are too long or confusing?

• What else could we do to make the rule easier to understand?

The Regulatory Flexibility Act (5 U.S.C. 601-612), as amended by the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA), generally requires an agency to prepare a regulatory flexibility analysis of any rule subject to the notice and comment rulemaking requirements under the Administrative Procedure Act (5 U.S.C. 553) or any other statute, unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. FSA has determined that this rule will not have a significant impact on a substantial number of small entities for the reasons explained below. Consequently, FSA has not prepared a regulatory flexibility analysis.

The term small entities include small businesses, small organizations, and small governmental jurisdictions. For the purposes of assessing the impacts of this rule on small entities, a small business will be as described in the Small Business Administration's Table of Small Business Size Standards by North American Industry Classification System (NAICS) Category (13 CFR121.201). This includes the following categories and the relative size standards that will apply to the entities requesting microloans. All of the entities that would request a microloan would be small businesses that produce crops and livestock in subsectors 111 and 112 listed under 13 CFR 121.201. These categories cover all primary agricultural production. Under the SBA Small Business Size Standard for these two NAICS subsector categories, the majority of businesses are considered small when they receive less than $750 thousand in annual receipts, the threshold is higher for two subcategories of animal production. (See 13 CFR 121.201, subsectors 112112 and 112310.) This standard does not exclude any of the potential farm loan borrowers who will make use of the proposed modifications to the OL Program. Nevertheless, even if the applicants under the proposed ML Program were considered small entities, there would not be a substantial number affected by the rule.

Overall, this is a new application process and greater options for eligibility and security for small loans within the existing OL Program, so theoretically some of the loans could be made under the existing program. Therefore, small entities in two credit segments have to be considered for this analysis. One segment is the number of existing borrowers who might take advantage of the modifications in eligibility for future loans. The other segment is the number of new borrowers who might never have applied for an FSA operating loan without the modifications. The number of existing borrowers who might make use of the application, eligibility, and security modifications for future loans can be precisely estimated using fiscal year 2011 direct operating loan data. Given that the maximum borrowing limit is $35,000 as proposed in the rule, it is estimated there would be at most 3,340 borrowers with $102.7 million in loans in this segment. However since these are existing borrowers with the same credit needs, this segment will have no additional economic impact. Only the demand by additional borrowers will have an incremental economic impact. This additional demand is more difficult to estimate. Preliminary estimates assume the new borrowers will be younger, below the age of 35, and have relatively low annual sales, less than $10,000 annually. Using data from the 2007 Census of Agriculture, this segment of producers consists of about 14,434 primary operators. Historically FSA direct operating loans have captured only 2 percent of the agricultural credit market, so fewer than 300 borrowers will probably be added. Therefore, about 4,000 entities could be affected by this rule with an economic impact of only about $10.5 million (300 new borrowers times $35,000 in loans per borrower).

Furthermore, the minimal regulatory requirements will impact large and small businesses equally as part of the loan making process since MLs are distinguished based on the size of the loan. ML applicants will have a lower paperwork burden that will be commensurate with the smaller loan amount due to a reduction in documentation required for these loans. Therefore, in accordance with the Regulatory Flexibility Act, FSA is certifying that there would not be a significant economic impact on a substantial number of small entities. Due to the limited number of entities, the economic effects from any additional lending are unlikely to have a substantial impact on entities of any size.

The environmental impacts of this proposed rule have been considered in a manner consistent with the provisions of the National Environmental Policy Act (NEPA, 42 U.S.C. 4321-4347), the regulations of the Council on Environmental Quality (40 CFR parts 1500-1508), and the FSA regulations for compliance with NEPA (7 CFR 799 and 7 CFR part 1940, subpart G). FSA concluded that simplifying the application process and adding flexibility for meeting loan eligibility and security requirements to encourage small farm operation participation in its OL program explained in this proposed rule are administrative in nature and will not have a significant impact on the quality of the human environment either individually or cumulatively. The environmental responsibilities for each prospective applicant will not change from the current process followed for all FLP actions (7 CFR 1940.309). Therefore, FSA will not prepare an environmental impact statement on this proposed rule.

Executive Order 12372, “Intergovernmental Review of Federal Programs,” requires consultation with State and local officials. The objectives of the Executive Order are to foster an intergovernmental partnership and a strengthened Federalism, by relying on State and local processes for State and local government coordination and review of proposed Federal Financial assistance and direct Federal development. For reasons set forth in the Notice to 7 CFR part 3015, subpart V (48 FR 29115, June 24, 1983), the programs and activities within this rule are excluded from the scope of Executive Order 12372.

This proposed rule has been reviewed in accordance with Executive Order 12988, “Civil Justice Reform.” The provisions of this proposed rule will not have preemptive effect with respect to any State or local laws, regulations, or policies that conflict with such provision or which otherwise impede their full implementation. The rule will not have retroactive effect.

This rule has been reviewed under Executive Order 13132, “Federalism.” The policies contained in this rule would not have any substantial direct effect on States, on the relationship between the Federal Government and the States, or on the distribution of power and responsibilities among the various levels of government. Nor would this rule impose substantial direct compliance costs on State and local governments. Therefore, consultation with the States is not required.

This rule has been reviewed for compliance with Executive Order 13175, “Consultation and Coordination with Indian Tribal Governments.” The Executive Order imposes requirements on the development of regulatory policies that have tribal implications or preempt tribal laws. The USDA Office of Tribal Relations has concluded that the policies contained in this rule do not, to our knowledge, preempt Tribal law.

As part of an ongoing collaboration, FSA provided government-to-government consultation with Tribal governments to discuss this proposed rule. In February, 2012, the Farm Service Agency (FSA) held three teleconference sessions for all federally recognized Tribal governments. The teleconference session was also offered to intertribal organizations, and individual Native Americans and Alaska Natives. The purpose of these teleconferences was to present information about important program changes and the new Microloan Program. FSA also provided an overview of the subjects to be discussed with the invitation letter prior to the teleconferences. These Tribal Consultation conversations and presentations were held to help guideUSDA in understanding any challenges that may be associated with the implementation of the new Microloan program among Tribal communities and within Tribal governments. A question and answer period was held immediately following each topic presentation by the FSA Administrator and staff from FSA's Farm Loan Programs. This proposed rule incorporates the information FSA received during these Tribal Consultations. In addition, comments from the general public are being requested on this proposed rule for 60 days following its publication in theFederal Registerand FSA encourages individual Native Americans and Alaska Natives, Tribal governments, and intertribal organizations to provide additional comments during this comment period.

FSA will continue to respond in a timely and meaningful manner to all Tribal government requests for Tribal consultation about this rule and its implementation and will provide additional avenues, such as webinars and teleconferences, to periodically host collaborative conversations with Tribal leaders and their representatives about ways to improve this program and rule in Indian Country.

In accordance with the Paperwork Reduction Act of 1995, the following new information collection request that supports the new ML program is being submitted to OMB. FSA is requesting comments from interested individuals and organizations on the information collection activities related to the ML application process as described in this proposed rule. FSA is currently modifying the loan application process in order to provide loans to eligible borrowers through the ML process.

This information collection request will be incorporated into FSA's approved information collection of the same title and OMB control number 0560-0237.

Title:Direct Loan Making.

OMB Control Number:0560-New.

Type of Request:New Collection.

Abstract:This information collection is required to support the regulation changes in 7 CFR 764, “Direct Loan Making,” which establishes the requirements for most of FSA's direct loan programs including the new ML application process. The information collection established in this proposed rule is necessary for FSA to evaluate the applicant's request and determine if eligibility, loan repayment, and security requirements can be met.

Estimate of Burden:Public reporting for this collection of information is estimated to average 4.27 hours.

Type of Respondents:Individuals or households, businesses or other for profit, and farms.

Estimated Number of Respondents:5,142.

Estimated Average Number of Responses per Respondent:5.71.

Estimated Total Annual Number of Responses:29,372.

Estimated Total Annual Burden on Respondents:21,938 hours.

We are requesting comments on all aspects of this information collection and to help us:

(1) Evaluate whether the collection of information is necessary for the proper performance of the functions of FSA, including whether the information will have practical utility;

(2) Evaluate the accuracy of FSA's estimate of burden including the validity of the methodology and assumptions used;

(3) Enhance the quality, utility, and clarity of the information to be collected; and

(4) Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology.

All comments received in response to this notice, including names and addresses when provided, will be a matter of public record. Comments will be summarized and included in the submission for OMB approval.

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

For reasons discussed above, FSA proposes to amend 7 CFR chapter VII as follows:

I. Background

Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act)1 established the Bureau of Consumer Financial Protection (Bureau) on July 21, 2010. One of the Bureau's key responsibilities under the Dodd-Frank Act is the supervision of very large banks, thrifts, and credit unions, and their affiliates,2 and certain nonbank covered persons.3

Under 12 U.S.C. 5514, the Bureau's supervision authority for nonbank covered persons varies by consumer financial product or service market. Specifically, 12 U.S.C. 5514 grants the Bureau authority to supervise nonbank covered persons that offer or provide to consumers: (1) Origination, brokerage, or servicing of residential mortgage loans secured by real estate, and related mortgage loan modification or foreclosure relief services; (2) private education loans; and (3) payday loans.4 In addition, the Bureau has the authority to supervise any nonbank covered person that it “has reasonable cause to determine, by order, after notice * * * and a reasonable opportunity * * * to respond” that such covered person “is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services.”5 The Bureau shall base such reasonable cause on complaints collected by the Bureau under 12 U.S.C. 5493(b)(3), or on information collected from other sources.6 This Proposal sets forth procedures to implement these risk-based provisions.

The Bureau is authorized to supervise nonbank covered persons subject to 12 U.S.C. 5514 by requiring the submission of reports and conducting examinations to: (1) Assess compliance with the requirements of Federal consumer financial law; (2) obtain information about such persons' activities and compliance systems or procedures; and (3) detect and assess risks to consumers and to markets for consumer financial products and services.7 The Proposed Rule sets forth only procedures by which the Bureau may make a nonbank covered person subject to its supervisory authority under 12 U.S.C. 5514(a)(1)(C) and would not impose new substantive consumer protection requirements on any nonbank entity. Moreover, nonbank entities are subject to the Bureau's regulatory and enforcement authority and any applicable Federal consumer financial law, regardless of whether they are subject to the Bureau's supervisory authority.

This Proposed Rule, if adopted, would govern the process by which a nonbank covered person may become subject to the supervisory authority of the Bureau pursuant to 12 U.S.C. 5514(a)(1)(C). In this Proposal, the Bureau has endeavored to establish an efficient, expeditious, and fair process to exercise the Bureau's authority under 12 U.S.C. 5514(a)(1)(C). Under the proposed process, the Bureau would provide a nonbank covered person a notice (Notice or Notice of Reasonable Cause) stating that the Bureau may have reasonable cause to determine that such covered person is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services. The Proposal establishes mechanisms to provide the nonbank covered person a reasonable opportunity to respond to the Notice. The Bureau believes that the procedures established by this Proposed Rule would provide a recipient of a Notice (respondent) with a more robust process than required by Section 1024(a)(1)(C). For example, to satisfy the statutory requirement that the Bureau provide a reasonable opportunity to respond, the Bureau need not offer respondents an opportunity to participate in a supplemental oral response. The Proposed Rule, however, if adopted,would provide such an opportunity to respondents.

To provide a reasonable opportunity to respond to a Notice, the Proposed Rule would require that a Notice include a description of the basis for the assertion that the Bureau may have reasonable cause to determine that a respondent is a nonbank covered person that is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services. A Notice is intended to afford a respondent the opportunity to evaluate the assertions set forth therein and to formulate an appropriate response. The Proposed Rule would provide a respondent with two opportunities to respond to a Notice—first in writing and then, if requested by a respondent, through a supplemental oral response generally to be conducted by telephone. Under the Proposed Rule, a respondent would be required to include with the written response records, documents, or other items supporting the arguments set forth in the response that a respondent wants the Bureau's Assistant Director for Nonbank Supervision (Assistant Director) and the Bureau's Director (Director) to consider. A supplemental oral response, if requested, would provide a respondent with the opportunity to present arguments to the Bureau's Assistant Director or her or his designee.

Under the Proposed Rule, a Notice of Reasonable Cause wouldnotconstitute a notice of charges for any alleged violation of Federal consumer financial law or other law. The proceedings under the Proposed Rule would be informal and would not constitute an adjudicatory proceeding under section 554 of the Administrative Procedure Act (APA).8 Appropriately, under the informal process that would be established by the Proposed Rule if made final, no discovery would be permitted, a supplemental oral response would not constitute a hearing on the record, and no witnesses would be permitted to be called as part of a supplemental oral response.

Under the Proposed Rule, the Bureau's Deputy Assistant Director for Nonbank Supervision (Deputy) would commence a proceeding by issuing a Notice. The response (both written and oral—if any) would then be considered by the Bureau's Assistant Director, who would provide to the Bureau's Director a recommended determination. The Director would make the final determination in any proceeding by adopting without revision, modifying, or rejecting the Assistant Director's recommended determination. The result would be either an order subjecting a respondent to the Bureau's supervisory authority under 12 U.S.C. 5514, or a notice stating that a respondent is not subject, as a result of the proceeding, to the Bureau's supervisory authority.

In addition, under the Proposed Rule there would be two ways in which a respondent could consent to the Bureau's supervisory authority. First, the Proposed Rules provides for an expedited method by which a respondent may execute the consent agreement form attached to the Notice that is served on the respondent and file it with the Assistant Director in lieu of a response. Second, under the Proposed Rule, at any time during a proceeding, a respondent may voluntarily consent to the Bureau's supervisory authority under such terms as the parties may agree.

The Proposed Rule also generally provides that if a determination by the Director results in an order bringing a respondent within the Bureau's supervisory authority under 12 U.S.C. 5514, the respondent would be permitted, after two years (and no more than annually thereafter), to petition the Director for the termination of such an order. However, under the Proposed Rule, where a respondent voluntarily consents to the Bureau's supervisory authority for a specified period of time, the respondent would not be permitted to petition for the termination of supervision during the period specified in the consent agreement. A petition for termination of an order provides a method for a respondent to inform the Bureau of actions taken and progress made to reduce the risks to consumers after the issuance of the order. Further, the Proposed Rule makes clear that nothing in the rule affects the relief the Bureau may seek in any civil action or administrative adjudication.

Finally, the Proposed Rule provides that if the Bureau otherwise issues a notice of charges against a person under 12 CFR 1081.200,9 the Bureau may, in its sole discretion, also provide a notice and opportunity to respond as required by 12 U.S.C. 5514(a)(1)(C) in the notice of charges. In such a circumstance, the procedures set forth in proposed § 1091.101—§ 1091.113 would not apply to the proceedings.

The Bureau is issuing this Proposed Rule pursuant to its authority under: (1) 12 U.S.C. 5512(b)(1), which grants the Bureau the authority to prescribe rules as may be necessary and appropriate to enable the Bureau to administer and carry out the purposes and objectives of the Federal consumer financial laws, and to prevent evasions of those laws; (2) 12 U.S.C. 5514(a)(1)(C), which authorizes the Bureau to supervise a nonbank covered person when it has reasonable cause to determine, by order, after notice to the person, and a reasonable opportunity to respond, that such person is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services; and (3) 12 U.S.C. 5514(b)(7), which authorizes the Bureau to prescribe rules to facilitate the supervision of nonbank covered persons under 12 U.S.C. 5514(a)(1).

The Proposed Rule relates solely to agency procedure and practice and, thus, is not subject to the 30-day delayed effective date for substantive rules under section 553(d) of the APA.10 Although not required, the Proposal provides that the final rule will be effective 30 days after publication in theFederal Register.

Proposed § 1091.100 sets forth the scope and purpose of the Proposed Rule. It states that the part sets forth procedures to implement 12 U.S.C. 5514(a)(1)(C) and to facilitate the supervision of nonbank covered persons under 12 U.S.C. 5514(b)(7).

Proposed § 1091.101 defines terms used in the Proposed Rule. If a term is defined in the Dodd-Frank Act, the Proposal generally incorporates that definition, with clarifications and modifications where necessary. The Bureau seeks comment on each of the definitions set forth in the Proposed Rule and any suggested clarification, modifications, or alternatives.

Assistant Director.Under the Proposal, the term “Assistant Director” means the Bureau's Assistant Director for Nonbank Supervision or her or hisdesignee. This proposed definition provides that, in the event there is no Assistant Director, the Director of the Bureau may designate an alternative Bureau employee to perform the functions of the Assistant Director.

Bureau.The Proposal provides that the term “Bureau” means the Bureau of Consumer Financial Protection.

Consumer.The Proposal incorporates the definition of the term “consumer” set forth in 12 U.S.C. 5481(4), which defines “consumer” as an individual or an agent, trustee, or representative acting on behalf of an individual.

Consumer financial product or service.The Proposal incorporates the definition of the term “consumer financial product or service” set forth in 12 U.S.C. 5481(5). The Proposal provides that the term “consumer financial product or service” means any financial product or service as defined in 12 U.S.C. 5481(15) that is described in one or more categories under: (a) 12 U.S.C. 5481(15) and is offered or provided for use by consumers primarily for personal, family, or household purposes; or (b) clause (i), (iii), (ix), or (x) of 12 U.S.C. 5481(15)(A)11 and is delivered, offered, or provided in connection with a consumer financial product or service referred to in (a).

Decisional employee.The Proposal states that the term “decisional employee” means any employee of the Bureau who has not engaged in: (a) assisting the Deputy in either determining whether to issue a Notice of Reasonable Cause, or presenting the Deputy's position in support of a Notice of Reasonable Cause, either in writing or in a supplemental oral response, to the Assistant Director; or (b) assisting the Assistant Director in the preparation of a recommended determination.

Deputy.The Proposal states that the term “Deputy” means the Bureau's Deputy Assistant Director for Nonbank Supervision or her or his designee. If there is no Deputy, the term shall mean any alternative Bureau employee designated by the Assistant Director or Director to fulfill the duties of the Deputy under this part.

Director.The Proposal states that the term “Director” means the Director of the Bureau or her or his designee. If there is no Director, the term shall mean a person authorized to perform the functions of the Director in accordance with the law, of her or his designee.

Executive Secretary.The Proposal states that the term “Executive Secretary” means the Executive Secretary of the Bureau.

Nonbank covered person.The provisions of 12 U.S.C. 5514 relate to “covered persons” as defined in 12 U.S.C. 5481(6) that are not insured depository institutions or credit unions, or, in the case of such entities with assets of more than $10 billion, their affiliates, as set forth in 12 U.S.C. 5515 and 5516. The Proposal therefore excludes from the definition of “nonbank covered persons” persons described in 12 U.S.C. 5515(a) and 5516(a), and provides that the term “nonbank covered person” means, except for persons described in 12 U.S.C. 5515(a) and 5516(a): (a) any person that engages in offering or providing a consumer financial product or service; and (b) any affiliate of a person described in (a) if such affiliate acts as a service provider to such person.

Notice of Reasonable Cause and Notice.The Proposal states that the terms “Notice of Reasonable Cause” and “Notice” mean a Notice issued under § 1091.102.

Person.The Proposal incorporates the definition of “person” set forth in 12 U.S.C. 5481(19). The Proposal therefore states that the term “person” means an individual, partnership, company, corporation, association (incorporated or unincorporated), trust, estate, cooperative organization, or other entity.

Respondent.The Proposal states that the term “respondent” means a person who has been issued a Notice of Reasonable Cause by the Deputy under § 1091.102.

Response.The Proposal states that the term “response” means the response to a Notice of Reasonable Cause filed by a respondent with the Assistant Director under § 1091.105.

Proposed § 1091.102 relates to the issuance of a Notice of Reasonable Cause, which initiates the proceedings that culminate in a determination by the Director under § 1091.109 of the Proposed Rule, or a respondent's voluntary consent to supervision by the Bureau. Section 1091.102 provides that the Deputy is authorized to issue a Notice of Reasonable Cause and, consistent with 12 U.S.C. 5514(a)(1)(C), that such Notice shall be based on complaints collected by the Bureau, or on information from other sources.

The Bureau seeks comment on the issuance of a Notice of Reasonable Cause and any suggested modifications or alternatives.

Proposed § 1091.103 details the required content of a Notice. To ensure that a respondent has a reasonable opportunity to address the substance of a Notice, proposed § 1091.103 provides that a Notice must set forth, among other things, the basis for the assertion that the Bureau may have reasonable cause to determine that a respondent is a nonbank covered person that is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services.

Under proposed § 1091.103, a Notice must also contain a statement informing a respondent how to file a timely response, and of the required contents of a response. A Notice must also inform a respondent that he or she may request a supplemental oral response, and that a respondent may, in lieu of filing a response, voluntarily consent to the Bureau's supervisory authority under 12 U.S.C. 5514 by filing an executed consent form attached to a Notice served on a respondent. Section 1091.103 further provides that a Notice shall inform a respondent that a failure to respond, as set forth in a Notice, may result in a determination by the Director without further opportunity to respond by the respondent. As set forth in proposed § 1091.103, a Notice must also inform a respondent of the various timelines associated with the process.

The Bureau seeks comment on the proposed contents of a Notice and any suggested modifications or alternatives.

Proposed § 1091.104 provides that a Notice shall be served pursuant to methods including electronic transmission (where a respondent has consented), personal service, first class U.S. Mail, or commercial courier or express delivery service. Proposed § 1091.104 further requires that the Deputy submit a copy of a Notice and any attached documents, records or other items to the Assistant Director, who shall proceed as set forth in the Proposal.

The Bureau seeks comment on the proposed requirements relating to the service of a Notice and any suggested modifications or alternatives.

Proposed § 1091.105 sets forth the requirements for responding to a Notice of Reasonable Cause. Specifically, § 1091.105 provides that any response must be filed within 20 days of service of a Notice, and the failure to file a timely response shall result in a waiver of a respondent's right to respond, authorize the Assistant Director to issue a recommended determination, and the Director a final determination, on the basis of the Notice. Proposed § 1091.105 further provides that a respondent may respond to a Notice of Reasonable Cause either by contesting that it is a nonbank covered person that is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services, or by voluntarily consenting to the Bureau's supervisory authority under 12 U.S.C. 5514. Where a respondent wishes to contest the assertions in a Notice, proposed § 1091.105 mandates that the response: (1) Set forth the basis for a respondent's contention that the respondent should not be subject to supervision pursuant to 12 U.S.C. 5514(a)(1)(C); (2) include all records, documents, or other items upon which a respondent relies; and (3) include an affidavit signed by the respondent attesting that the information contained in the response is true, accurate, and without any omission that would cause the response to be materially misleading. The Proposed Rule further provides that documents, records or other items submitted by a respondent with a response shall be deemed confidential supervisory information under 12 CFR 1070.2(i)(1)(iv). In addition, under proposed § 1091.105, if a respondent wishes also to present arguments in a supplemental oral response, the respondent must make such a request in the response. A failure to do so will constitute a waiver of a respondent's opportunity to present a supplemental oral response.

Finally, proposed § 1091.105 states that the failure to timely raise an issue in, or submit records, documents, or other items with, the response constitutes a waiver of a respondent's right to raise the issue, or submit the records, documents, or other items, at any future stage of consideration under this Proposed Rule and in any petition for judicial review. The Bureau intends for the waiver to remove any incentive for a respondent to wait until after filing a response, such as at a supplemental oral response or during judicial review, to raise an argument or present documents or other information for the first time. This will help ensure that the Bureau is aware of all relevant issues upon which a respondent wishes to rely at the earliest opportunity before reaching a determination under this Proposed Rule.

The Bureau seeks comment on the proposed contents of and requirements relating to the response and any suggested modifications or alternatives.

Proposed § 1091.106 provides that a respondent may request a supplemental oral response and sets forth the procedures for the conduct of a supplemental oral response. Under proposed § 1091.106, supplemental oral responses will generally be held via telephone. In the Bureau's view, conducting such oral responses by telephone allows for more flexibility and is less burdensome than conducting an in person response.

Proposed § 1091.106 further provides that the Assistant Director may impose limitations on the conduct of a supplemental oral response and provides a non-exhaustive set of such limitations. The Bureau believes that providing the Assistant Director with authority to impose such limitations will help ensure that a supplemental oral response focuses on a respondent's and Deputy's arguments supporting their respective legal and factual assertions in the matter.

Proposed § 1091.106 further makes clear that no discovery will be permitted, and no witnesses will be called, in connection with a supplemental oral response. This limitation is appropriate given the informal nature of the procedures set forth in this Proposed Rule. The prohibition on discovery and the calling of witnesses in connection with a supplemental oral response also furthers the Bureau's objective of providing a timely and efficient determination process, saving both the Bureau and respondents the time and expenses typically expended on discovery.

Proposed § 1091.106 also prescribes the timing of a supplemental oral response. Specifically, under the proposed section, within 14 days of receiving a respondent's request for a supplemental oral response, the Assistant Director shall serve on a respondent a notice advising of the date, time, and relevant information relating to the conduct of a supplemental oral response, with a copy to the Deputy. To allow a respondent and the Deputy sufficient time to prepare for a supplemental oral response, and to make arrangements to participate, proposed § 1091.106 provides that a supplemental oral response shall be scheduled not less than ten days after the date of such service. Finally, proposed § 1091.106 states that if a respondent fails to participate in a scheduled supplemental oral response, such a failure constitutes a respondent's waiver of the opportunity to present a supplemental oral response.

The Bureau seeks comment on the proposed procedures for a supplemental oral response and any suggested modifications or alternatives.

Proposed 1091.107 provides for filing of papers in a proceeding under the Proposed Rule by electronic transmission under such conditions as specified by the Assistant Director or Director. This section also authorizes other methods of filing and service if a respondent demonstrates electronic filing is not practicable and the Assistant Director or Director permits an alternative method of filing or service.

The Bureau seeks comment on the proposed manner of filing papers and any suggested modifications or alternatives.

Proposed § 1091.108 provides that the Assistant Director shall make a recommended determination and submit to the Director either a proposed order that would bring a respondent within the Bureau's supervisory authority under 12 U.S.C. 5514, or a proposed notification containing the determination that a respondent is not subject to the Bureau's supervisory authority under 12 U.S.C. 5514 on the basis of the proceeding. Under proposed § 1091.108, if a respondent has not voluntarily consented to the Bureau's supervisory authority, and has not requested the opportunity to present a supplemental oral response, a recommended determination shall be made not later than 45 days from the receipt of a timely-filed response, or not later than 45 days after the service of a Notice of Reasonable Cause when a respondent fails to file a timely response. If a respondent has requested the opportunity to present a supplemental oral response, a recommended determination shall be made not later than 90 days after the service of a Notice of Reasonable Cause. Proposed § 1091.108 further sets forth the required content of the Assistant Director's recommended determination, and the documents and items that must accompany the recommendeddetermination sent to the Director by the Assistant Director.

The Bureau seeks comment on the proposed content of, and procedures relating to, the recommended determination and any suggested modifications or alternatives.

Proposed § 1091.109 provides that, not later than 45 days after receipt of the Assistant Director's recommended determination, the Director shall make a final determination by adopting without revision, modifying, or rejecting the Assistant Director's recommended determination. Under the proposed section, the Director shall issue to a respondent, with copies to the Assistant Director and Deputy, an order bringing a respondent within the Bureau's supervisory authority under 12 U.S.C. 5514, or a notification containing the determination that a respondent is not subject to the Bureau's supervisory authority under 12 U.S.C. 5514 on the basis of the proceeding. Proposed § 1091.109 also provides that the Director may rely on the assistance and advice only of decisional employees in reaching a final determination.

The Bureau seeks comment on the proposed content of, and procedures relating to, the determination and any suggested modifications or alternatives.

Proposed § 1091.110 provides that a respondent may petition the Director for the termination of an order bringing a respondent within the Bureau's supervisory authority under 12 U.S.C. 5514, and sets forth the required contents of such a petition. Under proposed § 1091.110, a respondent may so petition no sooner than two years after the issuance of the order, and no more frequently than annually thereafter, except that in the case of a voluntary consent to supervision, a respondent may not petition for early termination of the supervisory authority period set forth in the consent agreement. A petition is a respondent's opportunity to inform the Bureau of the actions taken and the progress made to reduce risk to consumers after the issuance of an order. A petition should set forth the reasons supporting a respondent's petition for the termination of the order. Under proposed § 1091.110, the Deputy would be permitted to file a response to a petition for termination setting forth the Deputy's recommendation to terminate or modify the order, or to deny the petition, and the reasons supporting such a recommendation within 30 days of her or his receipt of a copy of a petition. Proposed § 1091.110 further provides that within 90 days of a respondent submitting a petition for termination, the Director shall either terminate or modify the order, or deny the petition. This section also specifies the manner in which a petition for termination must be filed.

The Bureau seeks comment on the proposed content of, and procedures relating to, the petition for termination of an order and any suggested modifications or alternatives.

Proposed § 1091.111 provides common rules for computing time limits, taking into account the effect of weekends and holidays on time periods that are ten days or less. This section also sets forth when filing or service is effective. With regard to time limits for responsive papers, proposed § 1091.111 incorporates a three-day extension for mail service, and a one-day extension for overnight delivery and electronic transmission. A one-day extension for service by electronic transmission reflects that electronic transmissions may result in delays in actual receipt by the person served.

The Bureau seeks comment on the proposed construction of time limits and any suggested modifications or alternatives.

Proposed § 1091.112 provides that requests for the extension of time may be granted in the limited circumstances in which the extension is necessary to prevent substantial prejudice. The Bureau intends for this section to further the Bureau's goal of ensuring the timely conclusion of matters. Accordingly, the section provides that requests for the extension of time are strongly disfavored and may only be granted when a party makes a strong showing that the denial of the request would substantially prejudice the party. Finally, proposed § 1091.112 states that deadlines for action by the Assistant Director or Director established in this Proposed Rule confer no substantive rights on respondents.

The Bureau seeks comment on the proposed procedures relating to the change of time limits and effect of deadlines and any suggested modifications or alternatives.

Proposed § 1091.113 provides that nothing in the Proposed Rule shall affect a person's ability to voluntarily consent, at any time, to the Bureau's supervisory authority under 12 U.S.C. 5514 as mutually agreed to by the parties. Voluntary consent under this section is an alternative to voluntarily consenting to the Bureau's supervision as provided under proposed § 1091.103(b), which allows a respondent to execute and file a consent agreement form in lieu of filing a written response. Proposed § 1091.113 also provides that a consent agreement that specifies the period during which the person will be subject to the Bureau's supervisory authority precludes such a person from petitioning for the termination of the order under proposed § 1091.110 during the agreed-to supervisory period. Additionally, proposed § 1091.113 provides that a person entering into a consent agreement waives any right to judicial review of that agreement.

The Bureau seeks comment on the proposed procedures relating to a respondent's voluntary consent to the Bureau's authority under 12 U.S.C. 5514 and any suggested modifications or alternatives.

Proposed § 1091.114 provides that if the Bureau issues a notice of charges against a person under 12 CFR 1081.200,12 the Bureau may, in its sole discretion, also provide the notice and opportunity to respond required by 12 U.S.C. 5514(a)(1)(C) in the notice of charges. In such a circumstance, the procedures set forth in proposed § 1091.101-§ 1091.113 would not apply to the proceedings. The Bureau intends to use the administrative adjudication proceedings set forth in 12 CFR 1081.200 to provide notice and a reasonable opportunity to respond as required by 12 U.S.C. 5514(a)(1)(C) only in certain cases where the Bureau has otherwise brought an administrative action against a respondent. The Bureau believes that the flexibility provided by this section would enhance efficiency and reduce burdens to respondents and the Bureau by allowing a determination under 12 U.S.C. 5514(a)(1)(C) and anadjudicative proceeding to be handled in a single forum.

The Bureau seeks comment on the proposed procedures relating to providing notice and a reasonable opportunity to respond under 12 U.S.C. 5514(a)(1)(C) in an adjudicative proceeding brought by the Bureau pursuant to 12 part CFR 1081.200 and any suggested modifications or alternatives.

This section clarifies that nothing in this part shall be construed to limit the relief the Bureau may seek in any civil action or administrative adjudication.

The Bureau seeks comment on this section and any suggested modifications or alternatives.

The Proposed Rule relates solely to agency procedure and practice and, thus, is not subject to the notice-and-comment requirements of the APA.13 Although the Proposed Rule is exempt from these requirements, the Bureau invites comment on all aspects of this notice of proposed rulemaking and on the specific issues upon which comment is solicited elsewhere herein, including on any appropriate modifications or exceptions to the Proposed Rule.

In developing the Proposed Rule, the Bureau has considered the potential benefits, costs, and impacts, and has consulted or offered to consult with the prudential regulators and the Federal Trade Commission, including with regard to consistency with any prudential market, or systemic objectives administered by such agencies.14

Under 12 U.S.C. 5514(a)(1)(C), the Bureau has the authority to supervise any nonbank covered person that it “has reasonable cause to determine, by order, after notice * * * and a reasonable opportunity * * * to respond” that such covered person “is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services.” The Proposed Rule is intended to provide an efficient, expeditious, and fair process to implement 12 U.S.C. 5514(a)(1)(C).15 Although a rule is not necessary to implement this statutory provision, the Proposed Rule, if adopted, establish a consistent procedure applicable to all affected entities, and provide transparency regarding the applicable process prior to commencement of a proceeding. Absent the Proposed Rule, the public would lack any guidance regarding the Bureau's process under 12 U.S.C. 5514(a)(1)(C). Nonbank covered persons will incur certain costs in considering and responding to a Notice from the Bureau under the rule, but these costs would generally exist in the absence of the rule.

For major provisions of the Proposal, the Bureau considered the benefits and costs of certain alternatives. For example, the Proposed Rule would provide respondents an opportunity to participate in a supplementary oral response, which would generally be conducted via telephone. The Bureau believes that the proposed approach, if adopted, would benefit covered persons by offering an additional method of responding to a Notice compared with the alternative of not permitting any oral response. At the same time, the Bureau believes that the proposed approach would be less costly than the alternative of requiring that all oral responses be conducted in person at a designated location. Also in connection with supplemental oral responses, the Proposed Rule would permit, but not require, a respondent to be represented by counsel. The Bureau considered requiring representation by counsel, but opted to provide respondents with the opportunity to receive the benefits of representation, while not mandating that respondents incur the costs of such representation.

The Proposed Rule also permits respondents to consent to the Bureau's supervisory authority under standard terms in lieu of filing a response, or to enter into a negotiated agreement at any time consenting to the Bureau's supervisory authority. The Bureau believes that this approach, if adopted, would provide a streamlined resolution process that would reduce the costs to the Bureau and those respondents who wish to consent to the Bureau's supervisory authority, compared to the alternative of permitting only negotiated consent agreements.

The Proposed Rule will have no unique impact on insured depository institutions or insured credit unions with $10 billion or less in assets as described in 12 U.S.C. 5516(a). Nor would the Proposed Rule have a unique impact on rural consumers.

The Bureau requests comments on the potential benefits, costs, and impacts of the Proposed Rule.

The Regulatory Flexibility Act (RFA), as amended by the Small Business Regulatory Enforcement Fairness Act of 1996, requires each agency to consider the potential impact of its regulations on small entities, including small businesses, small governmental units, and small not-for-profit organizations. The RFA defines a “small business” as a business that meets the size standard developed by the Small Business Administration pursuant to the Small Business Act.16

The RFA generally requires an agency to conduct an initial regulatory flexibility analysis (IRFA) and a final regulatory flexibility analysis (FRFA) of any rule subject to notice-and-comment rulemaking requirements, unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. The Bureau also is subject to certain additional procedures under the RFA involving the convening of a panel to consult with small business representatives prior to proposing a rule for which an IRFA is required.17

As discussed above in section V, a notice of proposed rulemaking is not required for this rulemaking. The Proposed Rule therefore is not a “rule” as defined by the RFA.18 Nevertheless, the Bureau opted to issue a notice of proposed rulemaking to receive public comment.

An IRFA would not otherwise be required because the Proposed Rule, ifadopted, would not have a significant economic impact on any small entities. The Proposed Rule sets forth only procedures by which a nonbank covered person may become subject to the Bureau's current supervisory authority pursuant to 12 U.S.C. 5514(a)(1)(C). The Proposed Rule establishes a transparent and streamlined process by which the Bureau would exercise its existing legal authority and would not impose new substantive requirements. Accordingly, the undersigned certifies that this Proposed Rule will not have a significant impact on a substantial number of small entities.

The Bureau has determined that the Rule does not impose any new recordkeeping, reporting or disclosure requirements on covered entities or members of the public that would be collections of information requiring OMB approval under 44 U.S.C. 3501,et seq.

For the reasons set forth above, the Bureau proposes to add part 1091 to Chapter X in Title 12 of the Code of Federal Regulations to read as set forth below.

I. Background

Section 115 of the Copyright Act, 17 U.S.C., provides that “[w]hen phonorecords of a nondramatic musical work have been distributed to the public in the United States under the authority of the copyright owner, any other person * * * may, by complying with the provisions of this section, obtain a compulsory license to make and distribute phonorecords of the work.” 17 U.S.C. 115(a)(1).

Included among the conditions that must be met to use the Section 115 compulsory license is the requirement that a person who wishes to obtain a compulsory license “shall, before or within thirty days after making, and before distributing any phonorecords of the work, serve notice of intention to do so on the copyright owner. If the registration or other public records of the Copyright Office do not identify the copyright owner and include an address at which notice can be served, it shall be sufficient to file the notice of intention in the Copyright Office. The notice shall comply, in form, content, and manner of service, with requirements that the Register of Copyrights shall prescribe by regulation.” 17 U.S.C. 115(b)(1).

In 2004, the Copyright Office (“Office”) amended 37 CFR 201.18, the regulations governing Notices of Intention to obtain a Section 115 compulsory license (“Notices”), in order to make the license more functional. 69 FR 34578 (June 22, 2004). Among the 2004 amendments to 37 CFR 201.18 was a provision that allowed that a Notice “may designate any number of nondramatic musical works, provided that the copyright owner of each designated work or, in the case of any work having more than one copyright owner, any one of the copyright owners is the same and that the information required under paragraphs (d)(1)(i) through (iv) of this section does not vary [i.e.,name and contact information of licensee; name and contact information of primary entity making and distributing phonorecords, and information concerning yearly accounting periods]. For purposes of this section, a Notice which lists multiple works shall be considered a composite filing of multiple Notices and fees shall be paid accordingly if filed in the Copyright Office under paragraph (f) of this section (i.e.,a separate fee, in the amount set forth in § 201.3(e)(1), shall be paid for each work listed in the Notice).” 37 CFR 201.18(a)(4). The 2004 amendments also allowed licensees to serve Notices directly on copyright owners or designated agents by means of an electronic transmission when the copyright owner or designated agent has a written public policy that it can accommodate such submissions. 37 CFR 201.18(a)(7).

Earlier in the 2004 rulemaking process the Office also considered whether to allow a licensee to file a Notice in the Office in an electronic format. The Office determined that it was not prepared to accept electronically filed Notices because it did not have in place the systems that would accommodate such filings but that the Office anticipated that such filings would be accepted in the future. The Office did provide that in the case where the licensee intends to license a high volume of nondramatic musical works under section 115 and would endure significant hardships if required to submit the Notices under the standard practices, the licensee may contact the Licensing Division of the Copyright Office to inquire whether special arrangements could be made for submission of the Notice electronically. 69 FR 11566, 11570 (March 11, 2004).

The Office is aware of a growing need for an electronic filing system for filing Section 115 Notices with the Copyright Office because of the large number of works being used under the compulsory license where service of the Notice cannot be made effectively on the copyright owner. To meet this need, the Office is now preparing to accept specific types of electronically filed Notices addressing multiple nondramatic musical works. Hence, the Office is proposing to amend its regulations in § 201.18 by providing for use of an online system for submission of Notices covering multiple nondramatic musical works.

The Office proposes to amend its regulations to allow prospective licensees to make electronic filings of Notices addressing multiple nondramatic musical works, provided that the information required under paragraphs (d)(1)(i) through (iv) of § 201.18 does not vary. In addition, the Office is proposing to clarify its rules for submission of Notices in a paper format that contain multiple titles of nondramatic musical works.

The Office has reviewed the Notices recently filed with the Licensing Division in the traditional paper format and observed that parties have filed such Notices that address multiple works for which the public records of the Office do not identify the copyright owner. Although paragraph (d)(1)(v)(C) of § 201.18 requires that a Notice include the copyright owner of the work only “if known,” the Office has not questioned Notices filed in a paper format addressing multiple works where such “unknown” ownership is shared across each work addressed in the Notice,i.e.,no copyright owner can be identified for any of the works listed. Such paper filings do not present a problem for the Office to process. The Office is now entering key pieces of information, e.g., name of the song, licensee, and date received, from the Notice into a spreadsheet (currently located on the Copyright Office Web page athttp://www.copyright.gov/licensing/115.pdf), making it possible to identify easily who filed a Notice for a particular work. However, because the current rules do not expressly address the Office's acceptance of Notices with multiple titles in the case where no copyright owner of any of the works can be identified, the Office proposes to amend its regulations to clarify that a Notice filed in a paper format may list multiple works in a single Notice when any of the following circumstances apply: in the case where no copyright owner can be identified from the Copyright Office records for any of the works listed in the Notice; in the case where the copyright owner of each work listed in the Notice is the same and the records of the Copyright Office do not include an address at which notice can be served; or for works having more than one copyright owner, in the case where the works listed in the Notice share a common copyright owner and the records of the Copyright Office do not include an address at which noticecan be served on any of the copyright owners for the subject works. The Office is maintaining these distinctions for the paper filings at this time because it provides more concise information to the public reviewing the Notices and facilitates the recordkeeping process for the Office.

The Office has also determined that Notices addressing multiple nondramatic musical works may be submitted electronically as XML files. Electronically submitted Notices will be maintained in a database that can be searched using any of the included fields of information. While the search capability of the electronically filed Notices will not be directly available to the public for technical reasons during the initial rollout of this service, a request may be made to the Licensing Division for a search of the database during the interim period. As such, the Office proposes to allow Notices to be filed in the Office in electronic format regardless of whether the copyright owner of each designated work is the same, provided that the Notice does not include a nondramatic musical work when the identity and address of at least one of its copyright owners may be found in the public record of the Copyright Office.

As part of the process of accepting electronically filed Notices, the Office is also proposing to adopt regulations governing payment for electronically filed Notices in order to provide a means to authenticate the licensee submitting the Notice (see below) and to facilitate an efficient implementation of the interim system. Specifically, the Office is proposing that during the introduction of the online filing process, parties that wish to use the Office's online system for electronically filing Notices be required to maintain a deposit account pursuant to § 201.6(b) of the Copyright Office regulations for payment of the Notice filing fees set forth in § 201.3(e)(1) of the Office's regulations, an option that can be easily implemented.SeeCircular 5: How to Open and Maintain a Copyright Office Deposit Account at:http://www.copyright.gov/circs/circ05.pdf.Use of a deposit account will allow the Office to make any necessary fee payments immediately and it avoids the need to solve the technological and security issues associated with providing a credit card payment in this first iteration of the system.

In addition, the Office proposes not to require an electronic signature during the initial rollout of the filing process, although the Office anticipates adding an electronic signature requirement in later versions of the system. Instead, a remitter will have to create an online account to file the Notice electronically and, as noted above, provide payment via a Copyright Office deposit account. The Office is adopting this approach because the online system will be able to use the deposit account information to reasonably verify and authenticate the identity of the person submitting and validating Notices. In addition, the Office will require that the person submitting the Notices provide contact information and attest to his or her authority to file Notices on behalf of the subject Licensee.

In order to accommodate a filer of a Notice identifying only one or a few titles who does not have a deposit account, the Office intends in the future to upgrade the online filing system to require an electronic signature and to accept additional payment options, e.g., credit card payments. At the moment, however, the focus is on offering a mechanism for filing Notices with large numbers of titles in a manner that can easily be administered by the Office at this time. The Office is also reviewing its fee for filing Notices as part of a larger project to review its fees for registration and services. Any changes to the fees for filing Notices of Intention to Obtain a Compulsory License will be addressed in that process.See77 FR 18742 (March 28, 2012).

The Office is also taking this opportunity to clarify the extent to which the Office examines the Notices. First, the Office does not examine Notices for legal sufficiency. Rather, the determination of whether a Notice filed in the Office is sufficient as a matter of law under this section shall, if necessary, be made by a court of competent jurisdiction. For that reason, a person or entity filing a Notice of Intention to obtain a Section 115 compulsory license should take care to comply with all the statutory and regulatory requirements pertaining to such Notices. However, the Office will notify a prospective licensee when a Notice was not accompanied by payment of the required fee. Such a Notice is considered an incomplete submission and the Notice shall be deemed filed only as of the date the Office has received both the Notice and the applicable fee.

In addition, the Office is proposing to amend its regulations for Notices to include a Privacy Act Advisory Statement in § 201.18 in addition to providing this information on its Web site. The Privacy Act Advisory Statement fulfills the Office's obligation to notify the public that Notices with personally identifying information filed with the Office become public records.

While the Office is proposing to amend its regulations to accept electronic filing of the Section 115 Notices of Intent to Obtain a Compulsory License, it needs to fully test the system before making it available to the public for actual, valid submissions of Notices. Thus, members of the public are invited to participate in a Beta test of the proposed electronic system. Parties wishing to participate in Beta testing should contact Tracie Coleman in the Licensing Division of the Copyright Office at 202-707-3600,tmau@loc.gov.The Beta testing will require participants to upload “test” Notices to the Beta version of the electronic system to ensure proper functionality. “Test” Notices uploaded during the Beta testing phase will not require the submission of a filing fee, and they will not have any legal effect or otherwise be considered valid for licensing purposes. The Beta testing will be limited to selected participants until system testing is complete.

The Copyright Office hereby seeks comment from the public on the proposals identified herein concerning Notices of Intention to obtain a Section 115 compulsory license.

In consideration of the foregoing, the Copyright Office proposes to amend part 201 of 37 CFR as follows:

EPA is proposing a limited approval of two Florida SIP revisions submitted by FDEP on March 19, 2010, and August 31, 2010. Today, EPA is also proposing a limited approval of a draft SIP revision submitted by FDEP on April 13, 2012, for parallel processing. See section II of this proposed rulemaking for more detail on parallel processing. These three SIP revisions address regional haze requirements for Florida under CAA sections 301(a) and 110(k)(3). EPA is proposing a limited approval of these SIP revisions because the revisions, as a whole, strengthen the Florida SIP. Throughout this document, references to Florida's (or FDEP's or the State's) “regional haze SIP” refer to Florida's original March 19, 2010, regional haze SIP revision, as later supplemented in a SIP revision submitted August 31, 2010, and in a draft SIP revision dated April 13, 2012.2 This proposed rulemaking explains the basis for EPA's proposed limited approval action.3

In a separate action, EPA has previously proposed a limited disapproval of the Florida regional haze SIP because of deficiencies in the State's regional haze SIP arising from the State's reliance on CAIR to meet certain regional haze requirements.See76 FR 82219 (December 30, 2011). EPA is not proposing to take action in today's rulemaking on issues associated with Florida's reliance on CAIR in its regional haze SIP.4 EPA will address this in a separate rulemaking.

Parallel processing refers to a concurrent state and federal proposed rulemaking action. Generally under this process, the state submits a copy of the proposed SIP revisions to EPA before conducting its public hearing.See, e.g.,40 CFR part 51, Appendix V. EPA reviews this proposed state action and prepares a notice of proposed rulemaking. EPA publishes this notice of proposed rulemaking in theFederal Registerand solicits public comment during approximately the same time frame during which the state is holding its public hearing. The state and EPA thus provide for public comment periods on both the state and the federal actions in parallel.

As mentioned above, on April 13, 2012, Florida submitted a draft regional haze SIP revision along with a request for parallel processing. Florida provided the SIP revision for public comment on April 13, 2012, but the State has not yet finalized the SIP revision. Through today's proposed rulemaking, EPA is proposing parallel limited approval for this draft SIP revision.

Once the April 13, 2012, revision is state-effective, Florida will need to provide EPA with a formal SIP revision request to incorporate the revision into the Florida SIP. After Florida submits the formal SIP revision request (including a response to any public comments raised during the State's public participation process), EPA will evaluate any changes to the SIP revision from what is proposed in today's action. If any such changes are found by EPA to be significant, the Agency intends to re-propose the action based upon the revised submission. If the changes render the SIP revision not approvable, EPA would re-propose the action as a disapproval of the revision. If there are no significant changes, EPA will prepare a final rulemaking notice for the SIP revision.

The FDEP-requested parallel processing allows EPA to begin to take action on the State's draft SIP revision in advance of the submission of the formal SIP revision. As stated above, the final rulemaking action by EPA will occur only after the SIP revision has been: (1) Adopted by Florida, (2) evaluated for changes, and (3) submitted formally to EPA for incorporation into the SIP.

Regional haze is visibility impairment that is produced by a multitude of sources and activities which are located across a broad geographic area and emit fine particles (PM2.5) (e.g., sulfates, nitrates, organic carbon, elemental carbon, and soil dust), and their precursors (e.g., SO2, NOX, and in some cases, ammonia (NH3) and volatile organic compounds (VOC)). Fine particle precursors react in the atmosphere to form fine particulate matter which impairs visibility by scattering and absorbing light. Visibility impairment reduces the clarity, color, and visible distance that one can see. PM2.5can also cause serious health effects and mortality in humans and contributes to environmental effects such as acid deposition and eutrophication.

Data from the existing visibility monitoring network, the “Interagency Monitoring of Protected Visual Environments” (IMPROVE) monitoring network, show that visibility impairment caused by air pollution occurs virtually all the time at most national park and wilderness areas. The average visual range5 in many Class I areas6 (i.e., national parks andmemorial parks, wilderness areas, and international parks meeting certain size criteria) in the western United States is 100-150 kilometers, or about one-half to two-thirds of the visual range that would exist without anthropogenic air pollution. In most of the eastern Class I areas of the United States, the average visual range is less than 30 kilometers, or about one-fifth of the visual range that would exist under estimated natural conditions.See64 FR 35715 (July 1, 1999).

In section 169A of the 1977 Amendments to the CAA, Congress created a program for protecting visibility in the nation's national parks and wilderness areas. This section of the CAA establishes as a national goal the “prevention of any future, and the remedying of any existing, impairment of visibility in mandatory Class I areas which impairment results from manmade air pollution.” On December 2, 1980, EPA promulgated regulations to address visibility impairment in Class I areas that is “reasonably attributable” to a single source or small group of sources, i.e., “reasonably attributable visibility impairment.”See45 FR 80084. These regulations represented the first phase in addressing visibility impairment. EPA deferred action on regional haze that emanates from a variety of sources until monitoring, modeling, and scientific knowledge about the relationships between pollutants and visibility impairment were improved.

Congress added section 169B to the CAA in 1990 to address regional haze issues. EPA promulgated a rule to address regional haze on July 1, 1999 (64 FR 35713), the RHR. The RHR revised the existing visibility regulations to integrate into the regulation provisions addressing regional haze impairment and established a comprehensive visibility protection program for Class I areas. The requirements for regional haze, found at 40 CFR 51.308 and 51.309, are included in EPA's visibility protection regulations at 40 CFR 51.300-309. Some of the main elements of the regional haze requirements are summarized in section IV of this preamble. The requirement to submit a regional haze SIP applies to all 50 states, the District of Columbia, and the Virgin Islands.7 40 CFR 51.308(b) requires states to submit the first implementation plan addressing regional haze visibility impairment no later than December 17, 2007.

Successful implementation of the regional haze program will require long-term regional coordination among states, tribal governments, and various federal agencies. As noted above, pollution affecting the air quality in Class I areas can be transported over long distances, even hundreds of kilometers. Therefore, to effectively address the problem of visibility impairment in Class I areas, states need to develop strategies in coordination with one another, taking into account the effect of emissions from one jurisdiction on the air quality in another.

Because the pollutants that lead to regional haze can originate from sources located across broad geographic areas, EPA has encouraged the states and tribes across the United States to address visibility impairment from a regional perspective. Five regional planning organizations (RPOs) were developed to address regional haze and related issues. The RPOs first evaluated technical information to better understand how their states and tribes impact Class I areas across the country, and then pursued the development of regional strategies to reduce emissions of particulate matter (PM) and other pollutants leading to regional haze.

The Visibility Improvement State and Tribal Association of the Southeast (VISTAS) RPO is a collaborative effort of state governments, tribal governments, and various federal agencies established to initiate and coordinate activities associated with the management of regional haze, visibility and other air quality issues in the southeastern United States. Member state and tribal governments include: Alabama, Florida, Georgia, Kentucky, Mississippi, North Carolina, South Carolina, Tennessee, Virginia, West Virginia, and the Eastern Band of the Cherokee Indians.

Regional haze SIPs must assure reasonable progress towards the national goal of achieving natural visibility conditions in Class I areas. Section 169A of the CAA and EPA's implementing regulations require states to establish long-term strategies for making reasonable progress toward meeting this goal. Implementation plans must also give specific attention to certain stationary sources that were in existence on August 7, 1977, but were not in operation before August 7, 1962, and require these sources, where appropriate, to install BART controls for the purpose of eliminating or reducing visibility impairment. The specific regional haze SIP requirements are discussed in further detail below.

The RHR establishes the deciview as the principal metric or unit for expressing visibility. This visibility metric expresses uniform changes in haziness in terms of common increments across the entire range of visibility conditions, from pristine to extremely hazy conditions. Visibility expressed in deciviews is determined by using air quality measurements to estimate light extinction and then transforming the value of light extinction using a logarithm function. The deciview is a more useful measure for tracking progress in improving visibility than light extinction itself because each deciview change is an equal incremental change in visibility perceived by the human eye. Most people can detect a change in visibility at one deciview.8

The deciview is used in expressing RPGs (which are interim visibility goals towards meeting the national visibility goal), defining baseline, current, and natural conditions, and tracking changes in visibility. The regional haze SIPs must contain measures that ensure “reasonable progress” toward the national goal of preventing and remedying visibility impairment in Class I areas caused by anthropogenic air pollution by reducing anthropogenic emissions that cause regional haze. The national goal is a return to natural conditions, i.e., anthropogenic sources of air pollution would no longer impair visibility in Class I areas.

To track changes in visibility over time at each of the 156 Class I areas covered by the visibility program (40 CFR 81.401-437), and as part of the process for determining reasonable progress, states must calculate the degree of existing visibility impairment at each Class I area at the time of each regional haze SIP submittal and periodically review progress every five years, i.e., midway through each 10-year implementation period. To do this, the RHR requires states to determine the degree of impairment (in deciviews) for the average of the 20 percent least impaired (“best”) and 20 percent most impaired (“worst”) visibility days over a specified time period at each of their Class I areas. In addition, states must also develop an estimate of natural visibility conditions for the purpose of comparing progress toward the national goal. Natural visibility is determined by estimating the natural concentrations of pollutants that cause visibility impairment and then calculating total light extinction based on those estimates. EPA has provided guidance to states regarding how to calculate baseline, natural, and current visibility conditions in documents titled, EPA'sGuidance for Estimating Natural Visibility Conditions Under the Regional Haze Rule,September 2003 (EPA-454/B-03-005 located athttp://www.epa.gov/ttncaaa1/t1/memoranda/rh_envcurhr_gd.pdf) (hereinafter referred to as “EPA's 2003 Natural Visibility Guidance”) andGuidance for Tracking Progress Under the Regional Haze Rule,September 2003 (EPA-454/B-03-004 located athttp://www.epa.gov/ttncaaa1/t1/memoranda/rh_tpurhr_gd.pdf) (hereinafter referred to as “EPA's 2003 Tracking Progress Guidance”).

For the first regional haze SIPs that were due by December 17, 2007, “baseline visibility conditions” were the starting points for assessing “current” visibility impairment. Baseline visibility conditions represent the degree of visibility impairment for the 20 percent least impaired days and 20 percent most impaired days for each calendar year from 2000 to 2004. Using monitoring data for 2000 through 2004, states are required to calculate the average degree of visibility impairment for each Class I area, based on the average of annual values over the five-year period. The comparison of initial baseline visibility conditions to natural visibility conditions indicates the amount of improvement necessary to attain natural visibility, while the future comparison of baseline conditions to the then current conditions will indicate the amount of progress made. In general, the 2000—2004 baseline period is considered the time from which improvement in visibility is measured.

The vehicle for ensuring continuing progress towards achieving the natural visibility goal is the submission of a series of regional haze SIPs from the states that establish two RPGs (i.e., two distinct goals, one for the “best” and one for the “worst” days) for every Class I area for each (approximately) 10-year implementation period. The RHR does not mandate specific milestones or rates of progress, but instead calls for states to establish goals that provide for “reasonable progress” toward achieving natural (i.e., “background”) visibility conditions. In setting RPGs, states must provide for an improvement in visibility for the most impaired days over the (approximately) 10-year period of the SIP and ensure no degradation in visibility for the least impaired days over the same period.

States have significant discretion in establishing RPGs, but are required to consider the following factors established in section 169A of the CAA and in EPA's RHR at 40 CFR 51.308(d)(1)(i)(A): (1) The costs of compliance; (2) the time necessary for compliance; (3) the energy and non-air quality environmental impacts of compliance; and (4) the remaining useful life of any potentially affected sources. States must demonstrate in their SIPs how these factors are considered when selecting the RPGs for the best and worst days for each applicable Class I area. States have considerable flexibility in how they take these factors into consideration, as noted in EPA'sGuidance for Setting Reasonable Progress Goals under the Regional Haze Program(“EPA's Reasonable Progress Guidance”), July 1, 2007, memorandum from William L. Wehrum, Acting Assistant Administrator for Air and Radiation, to EPA Regional Administrators, EPA Regions 1-10 (pp. 4-2, 5-1). In setting the RPGs, states must also consider the rate of progress needed to reach natural visibility conditions by 2064 (referred to as the “uniform rate of progress” or the “glidepath”) and the emissions reduction measures needed to achieve that rate of progress over the 10-year period of the SIP. Uniform progress towards achievement of natural conditions by the year 2064 represents a rate of progress which states are to use for analytical comparison to the amount of progress they expect to achieve. In setting RPGs, each state with one or more Class I areas (“Class I state”) must also consult with potentially “contributing states,” i.e., other nearby states with emissions sources that may be affecting visibility impairment at the Class I state's areas.See40 CFR 51.308(d)(1)(iv).

Section 169A of the CAA directs states to evaluate the use of retrofit controls at certain larger, often uncontrolled, older stationary sources in order to address visibility impacts from these sources. Specifically, section 169A(b)(2)(A) of the CAA requires states to revise their SIPs to contain such measures as may be necessary to make reasonable progress towards the natural visibility goal, including a requirement that certain categories of existing major stationary sources9 built between 1962 and 1977 procure, install, and operate the “Best Available Retrofit Technology” as determined by the state. Under the RHR, states are directed to conduct BART determinations for such “BART-eligible” sources that may be anticipated to cause or contribute to any visibility impairment in a Class I area. Rather than requiring source-specific BART controls, states also have the flexibility to adopt an emissions trading program or other alternative program as long as the alternative provides greater reasonable progress towards improving visibility than BART.

On July 6, 2005, EPA published theGuidelines for BART Determinations Under the Regional Haze Ruleat Appendix Y to 40 CFR part 51 (hereinafter referred to as the “BART Guidelines”) to assist states in determining which of their sources should be subject to the BART requirements and in determining appropriate emissions limits for each applicable source. In making a BART determination for a fossil fuel-fired electric generating plant with a total generating capacity in excess of 750 megawatts (MW), a state must use the approach set forth in the BART Guidelines. A state is encouraged, but not required, to follow the BART Guidelines in making BART determinations for other types of sources.

States must address all visibility-impairing pollutants emitted by a source in the BART determination process. The most significant visibility impairing pollutants are SO2, NOX, and PM. EPA has stated that states should use their best judgment in determining whetherVOC or NH3compounds impair visibility in Class I areas.

Under the BART Guidelines, states may select an exemption threshold value for their BART modeling, below which a BART-eligible source would not be expected to cause or contribute to visibility impairment in any Class I area. The state must document this exemption threshold value in the SIP and must state the basis for its selection of that value. Any source with emissions that model above the threshold value would be subject to a BART determination review. The BART Guidelines acknowledge varying circumstances affecting different Class I areas. States should consider the number of emissions sources affecting the Class I areas at issue and the magnitude of the individual sources' impacts. Any exemption threshold set by the state should not be higher than 0.5 deciview.

In their SIPs, states must identify potential BART sources, described as “BART-eligible sources” in the RHR, and document their BART control determination analyses. In making BART determinations, section 169A(g)(2) of the CAA requires that states consider the following factors: (1) The costs of compliance; (2) the energy and non-air quality environmental impacts of compliance; (3) any existing pollution control technology in use at the source; (4) the remaining useful life of the source; and (5) the degree of improvement in visibility which may reasonably be anticipated to result from the use of such technology. States are free to determine the weight and significance to be assigned to each factor.

A regional haze SIP must include source-specific BART emissions limits and compliance schedules for each source subject to BART. Once a state has made its BART determination, the BART controls must be installed and in operation as expeditiously as practicable, but no later than five years after the date of EPA approval of the regional haze SIP.SeeCAA section 169(g)(4); 40 CFR 51.308(e)(1)(iv). In addition to what is required by the RHR, general SIP requirements mandate that the SIP must also include all regulatory requirements related to monitoring, recordkeeping, and reporting for the BART controls on the source.

As noted above, the RHR allows states to implement an alternative program in lieu of BART so long as the alternative program can be demonstrated to achieve greater reasonable progress toward the national visibility goal than would BART. Under regulations issued in 2005 revising the regional haze program, EPA made just such a demonstration for CAIR.See70 FR 39104 (July 6, 2005). EPA's regulations provide that states participating in the CAIR cap-and trade program under 40 CFR part 96 pursuant to an EPA-approved CAIR SIP or which remain subject to the CAIR FIP in 40 CFR part 97 need not require affected BART-eligible EGUs to install, operate, and maintain BART for emissions of SO2and NOX.See40 CFR 51.308(e)(4). Because CAIR did not address direct emissions of PM, states were still required to conduct a BART analysis for PM emissions from EGUs subject to BART for that pollutant. Challenges to CAIR, however, resulted in the remand of the rule to EPA.See North Carolinav.EPA,550 F.3d 1176 (D.C. Cir. 2008).

EPA issued a new rule in 2011 to address the interstate transport of NOXand SO2in the eastern United States.See76 FR 48208 (August 8, 2011) (“the Transport Rule,” also known as the Cross-State Air Pollution Rule). On December 30, 2011, EPA proposed to find that the trading programs in the Transport Rule would achieve greater reasonable progress towards the national goal than would BART in the states in which the Transport Rule applies.See76 FR 82219. Based on this proposed finding, EPA also proposed to revise the RHR to allow states to substitute participation in the trading programs under the Transport Rule for source-specific BART. EPA has not yet taken final action on that rule. Also on December 30, 2011, 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 resolutions 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.

Consistent with the requirement in section 169A(b) of the CAA that states include in their regional haze SIP a 10 to 15 year strategy for making reasonable progress, section 51.308(d)(3) of the RHR requires that states include a LTS in their regional haze SIPs. The LTS is the compilation of all control measures a state will use during the implementation period of the specific SIP submittal to meet applicable RPGs. The LTS must include “enforceable emissions limitations, compliance schedules, and other measures as necessary to achieve the reasonable progress goals” for all Class I areas within, or affected by emissions from, the state.See40 CFR 51.308(d)(3).

When a state's emissions are reasonably anticipated to cause or contribute to visibility impairment in a Class I area located in another state, the RHR requires the impacted state to coordinate with the contributing states in order to develop coordinated emissions management strategies.See40 CFR 51.308(d)(3)(i). In such cases, the contributing state must demonstrate that it has included, in its SIP, all measures necessary to obtain its share of the emissions reductions needed to meet the RPGs for the Class I area. The RPOs have provided forums for significant interstate consultation, but additional consultations between states may be required to sufficiently address interstate visibility issues. This is especially true where two states belong to different RPOs.

States should consider all types of anthropogenic sources of visibility impairment in developing their LTS, including stationary, minor, mobile, and area sources. At a minimum, states must describe how each of the following seven factors listed below are taken into account in developing their LTS: (1) Emissions reductions due to ongoing air pollution control programs, including measures to address RAVI; (2) measures to mitigate the impacts of construction activities; (3) emissions limitations and schedules for compliance to achieve the RPG; (4) source retirement and replacement schedules; (5) smoke management techniques for agricultural and forestry management purposes including plans as currently exist within the state for these purposes; (6) enforceability of emissions limitations and control measures; and (7) the anticipated net effect on visibility due to projected changes in point, area, and mobile source emissions over the period addressed by the LTS.See40 CFR 51.308(d)(3)(v).

As part of the RHR, EPA revised 40 CFR 51.306(c) regarding the LTS for RAVI to require that the RAVI plan must provide for a periodic review and SIP revision not less frequently than every three years until the date of submission of the state's first plan addressing regional haze visibility impairment, which was due December 17, 2007, in accordance with 40 CFR 51.308(b) and (c). On or before this date, the state must revise its plan to provide for review andrevision of a coordinated LTS for addressing RAVI and regional haze, and the state must submit the first such coordinated LTS with its first regional haze SIP. Future coordinated LTS's, and periodic progress reports evaluating progress towards RPGs, must be submitted consistent with the schedule for SIP submission and periodic progress reports set forth in 40 CFR 51.308(f) and 51.308(g), respectively. The periodic review of a state's LTS must report on both regional haze and RAVI impairment and must be submitted to EPA as a SIP revision.

Section 51.308(d)(4) of the RHR includes the requirement for a monitoring strategy for measuring, characterizing, and reporting of regional haze visibility impairment that is representative of all mandatory Class I areas within the state. The strategy must be coordinated with the monitoring strategy required in section 51.305 for RAVI. Compliance with this requirement may be met through “participation” in the IMPROVE network, i.e., review and use of monitoring data from the network. The monitoring strategy is due with the first regional haze SIP, and it must be reviewed every five years. The monitoring strategy must also provide for additional monitoring sites if the IMPROVE network is not sufficient to determine whether RPGs will be met.

The SIP must also provide for the following:

• Procedures for using monitoring data and other information in a state with mandatory Class I areas to determine the contribution of emissions from within the state to regional haze visibility impairment at Class I areas both within and outside the state;

• Procedures for using monitoring data and other information in a state with no mandatory Class I areas to determine the contribution of emissions from within the state to regional haze visibility impairment at Class I areas in other states;

• Reporting of all visibility monitoring data to the Administrator at least annually for each Class I area in the state, and where possible, in electronic format;

• Developing a statewide inventory of emissions of pollutants that are reasonably anticipated to cause or contribute to visibility impairment in any Class I area. The inventory must include emissions for a baseline year, emissions for the most recent year for which data are available, and estimates of future projected emissions. A state must also make a commitment to update the inventory periodically; and

• Other elements, including reporting, recordkeeping, and other measures necessary to assess and report on visibility.

The RHR requires control strategies to cover an initial implementation period extending to the year 2018, with a comprehensive reassessment and revision of those strategies, as appropriate, every 10 years thereafter. Periodic SIP revisions must meet the core requirements of section 51.308(d) with the exception of BART. The requirement to evaluate sources for BART applies only to the first regional haze SIP. Facilities subject to BART must continue to comply with the BART provisions of section 51.308(e), as noted above. Periodic SIP revisions will assure that the statutory requirement of reasonable progress will continue to be met.

The RHR requires that states consult with FLMs before adopting and submitting their SIPs.See40 CFR 51.308(i). States must provide FLMs an opportunity for consultation, in person and at least 60 days prior to holding any public hearing on the SIP. This consultation must include the opportunity for the FLMs to discuss their assessment of impairment of visibility in any Class I area and to offer recommendations on the development of the RPGs and on the development and implementation of strategies to address visibility impairment. Further, a state must include in its SIP a description of how it addressed any comments provided by the FLMs. Finally, a SIP must provide procedures for continuing consultation between the state and FLMs regarding the state's visibility protection program, including development and review of SIP revisions, five-year progress reports, and the implementation of other programs having the potential to contribute to impairment of visibility in Class I areas.

On March 19, 2010, FDEP submitted a revision to the Florida SIP to address regional haze requirements as required by EPA's RHR. On August 31, 2010, FDEP submitted an additional SIP revision to address regional haze requirements. Specifically, Florida's August 31, 2010, SIP revision adopted amendments to rescind its Reasonable Progress Control Technology Rule and to modify its technical justification to rely on CAIR and the Industrial Boiler Maximum Achievable Control Technology (MACT) rule. Further, on April 13, 2012, FDEP submitted a draft SIP revision to evaluate BART and reasonable progress provisions for several of Florida's EGUs.

Florida has three Class I areas where visibility is an important value within its borders: Everglades National Park, Chassahowitzka Wilderness Area, and Saint (St.) Marks Wilderness Area. Florida is responsible for developing a regional haze SIP that addresses these Class I areas and for consulting with other states whose sources impact the areas.

The Florida regional haze SIP establishes RPGs for visibility improvement at Everglades National Park, Chassahowitzka Wilderness Area, and St. Marks Wilderness Area, and a LTS to achieve those RPGs within the first regional haze implementation period. In developing the LTS for the areas, Florida considered both emissions sources inside and outside of Florida that may cause or contribute to visibility impairment in Florida's Class I areas. The State also identified and considered emissions sources within Florida that may cause or contribute to visibility impairment in Class I areas in neighboring states as required by 40 CFR 51.308(d)(3). The VISTAS RPO worked with the State in developing the technical analyses used to make these determinations, including state-by-state contributions to visibility impairment in specific Class I areas, which included the Class I areas in Florida and those areas affected by emissions from Florida.

As required by the RHR and in accordance with EPA's 2003 Natural Visibility Guidance, Florida calculated baseline/current and natural visibility conditions for its Class I areas, as summarized below.

Natural background visibility, as defined in EPA's 2003 Natural Visibility Guidance, is estimated by calculating the expected light extinction using default estimates of natural concentrations of fine particle components adjusted by site-specific estimates of humidity. This calculation uses the IMPROVE equation, which is a formula for estimating light extinction from the estimated natural concentrations of fine particle components (or from componentsmeasured by the IMPROVE monitors). As documented in EPA's 2003 Natural Visibility Guidance, EPA allows states to use “refined” or alternative approaches to 2003 EPA guidance to estimate the values that characterize the natural visibility conditions of the Class I areas. One alternative approach is to develop and justify the use of alternative estimates of natural concentrations of fine particle components. Another alternative is to use the “new IMPROVE equation” that was adopted for use by the IMPROVE Steering Committee in December 2005.10 The purpose of this refinement to the “old IMPROVE equation” is to provide more accurate estimates of the various factors that affect the calculation of light extinction. Florida opted to use this refined approach, referred to as the “new IMPROVE equation,” for its Class I areas.

Natural visibility conditions using the new IMPROVE equation were calculated separately for each Class I area by VISTAS. Natural background visibility, as defined in EPA's 2003 Natural Visibility Guidance, is estimated by calculating the expected light extinction using default estimates of natural concentrations of fine particle components adjusted by site-specific estimates of humidity.

The new IMPROVE equation takes into account the most recent review of the science11 and it accounts for the effect of particle size distribution on light extinction efficiency of sulfate, nitrate, and organic carbon. It also adjusts the mass multiplier for organic carbon (particulate organic matter) by increasing it from 1.4 to 1.8. New terms are added to the equation to account for light extinction by sea salt and light absorption by gaseous nitrogen dioxide. Site-specific values are used for Rayleigh scattering (scattering of light due to atmospheric gases) to account for the site-specific effects of elevation and temperature. Separate relative humidity enhancement factors are used for small and large size distributions of ammonium sulfate and ammonium nitrate and for sea salt. The terms for the remaining contributors, elemental carbon (light-absorbing carbon), fine soil, and coarse mass terms, do not change between the original and new IMPROVE equations.

FDEP estimated baseline visibility conditions at Florida's Class I areas using available monitoring data from IMPROVE monitoring sites in Everglades National Park, Chassahowitzka Wilderness Area, and St. Marks Wilderness Area. IMPROVE data records for the Everglades had four years of complete data and no substitution of data was made. However, Chassahowitzka and St. Marks both required data substitution to make their records complete. This substitution was made in accordance with EPA guidance for tracking progress which can be found athttp://www.epa.gov/ttn/oarpg/t1/memoranda/rh_tpurhr_gd.pdf. As explained in section IV.B, baseline visibility conditions are the same as current conditions for the first regional haze SIP. A five-year average of the 2000 to 2004 monitoring data was calculated for each of the 20 percent worst and 20 percent best visibility days at the Florida Class I areas. Appendix B of the Florida regional haze SIP presents the data and calculations for the 20 percent best and worst days for the baseline period of 2000-2004 for the three Class I areas in Florida. This data is also provided at the following Web site:http://www.metro4-sesarm.org/vistas/SesarmBext_20BW.htm.

Baseline visibility on the 20 percent worst days is better at Everglades (22.3 deciviews) than Chassahowitzka (25.7 deciviews) or St. Marks (26.3 deciviews). On the other hand, natural background visibility is slightly worse for Everglades (12.1 deciviews) than either Chassahowitzka (11.0 deciviews) or St. Marks (11.7 deciviews). The natural and baseline conditions for Florida's Class I areas for both the 20 percent worst and best days are presented in Table 1 below.

On July 18, 1997 (62 FR 36852), EPA established an annual PM2.5NAAQS at 15.0 micrograms per cubic meter based on a 3-year average of annual mean PM2.5concentrations. On January 5, 2005 (70 FR 944), EPA published its air quality designations and classifications for the 1997 annual PM2.5NAAQS based upon air quality monitoring data for calendar years 2001-2003. These designations became effective on April 5, 2005. The bi-state Louisville Area (which is comprised of Clark and Floyd Counties in Indiana, in their entireties; the Madison Township portion of Jefferson County, Indiana; and Bullitt and Jefferson Counties in Kentucky in their entireties) was designated nonattainment for the 1997 annual PM2.5NAAQS.See40 CFR 81.318 for Kentucky and 40 CFR 81.315 for Indiana.

Designation of an area as nonattainment starts the process for a state to develop and submit to EPA a SIP under title I, part D of the Clean Air Act (CAA or Act). This SIP must include, among other elements, a demonstration of how the NAAQS will be attained in the nonattainment area as expeditiously as practicable, but no later than the date required by the CAA. Under CAA section 172(b), a state has up to three years after an area's designation as nonattainment to submit its SIP to EPA. For the 1997 PM2.5NAAQS, these SIPs were due April 5, 2008.See40 CFR 51.1002(a).

On December 3, 2008, Kentucky submitted an attainment demonstration and associated reasonably available control measures (RACM), a reasonable further progress (RFP) plan, contingency measures, a 2002 base year emissions inventory and other planning SIP revisions related to attainment of the 1997 annual PM2.5NAAQS in the Commonwealth's portion of the bi-state Louisville Area. Subsequently, on March 9, 2011 (76 FR 12860), EPA determined that the bi-state Louisville Area attained the 1997 annual average PM2.5NAAQS. The determination of attainment was based upon complete, quality-assured and certified ambient air monitoring data for the 2007-2009 period, showing that the Area had monitored attainment of the 1997 annual PM2.5NAAQS. The requirements for the Area to submit an attainment demonstration and associated RACM, RFP plan, contingency measures, and other planning SIP revisions related to attainment of the standard were suspended as a result of the determination of attainment, so long as the Area continues to attain the 1997 annual PM2.5NAAQS.See40 CFR 51.1004(c).

On September 30, 2011, Kentucky withdrew the nonattainment submissions (everything with the exception of the 2002 base year emissions inventory) for its portion of the bi-state Louisville Area as allowed by 40 CFR 51.1004(c). EPA notes that the determination of attainment did not suspend the emissions inventory requirement found in CAA section 172(c)(3), and as such, Kentucky did not withdraw this portion of its December 3, 2008, SIP revision. Section 172(c)(3) of the CAA requires submission and approval of a comprehensive, accurate, and current inventory of actual emissions. EPA is now proposing to approve the emissions inventory portion of the SIP revision submitted by the Commonwealth of Kentucky on December 3, 2008, as required by section 172(c)(3).

As discussed above, section 172(c)(3) of the CAA requires areas to submit a comprehensive, accurate and current inventory of actual emissions from all sources of the relevant pollutant or pollutants in such area. Kentucky selected 2002 as base year for the emissions inventory per 40 CFR 51.1008(b). Emissions contained in Kentucky's December 3, 2008, SIP revision cover the general source categories of point sources, non-road mobile sources, area sources, on-road mobile sources, and biogenic sources. A detailed discussion of the emissions inventory development can be found in Appendix H of the Kentucky submittal; a summary is provided below.

The table below provides a summary of the annual 2002 emissions of nitrogen oxides (NOX), sulfur dioxide (SO2) and PM2.5included in the Kentucky submittal.

The 172(c)(3) emissions inventory is developed by the incorporation of data from multiple sources. States were required to develop and submit to EPA a triennial emissions inventory according to the Consolidated Emissions Reporting Rule for all source categories (i.e., point, area, nonroad mobile and on-road mobile). This inventory often forms the basis of data that are updated with more recent information and data that also is used in their attainment demonstration modeling inventory. Such was the case in the development of the 2002 emissions inventory that was submitted in the Commonwealth's attainment SIP for its portion of the bi-state Louisville Area. The 2002 emissions inventory was based on data developed with the Visibility Improvement State and Tribal Association of the Southeast (VISTAS) contractors and submitted by the states to the 2002 National Emissions Inventory. Several iterations of the 2002 inventories were developed for the different emissions source categories resulting from revisions and updates to the data. This resulted in the use of version G2 of the updated data to represent the point sources' emissions. Data from many databases, studies and models (e.g., Vehicle Miles Traveled, fuel programs, the NONROAD 2002 model data for commercial marine vessels, locomotives and Clean Air Market Division, etc.) resulted in the inventory submitted in this SIP. The data were developed according to current EPA emissions inventory guidance “Emissions Inventory Guidance for Implementation of Ozone and Particulate Matter National Ambient Air Quality Standards (NAAQS) and Regional Haze Regulations” (August 2005) and a quality assurance project plan that was developed through VISTAS and approved by EPA. EPA preliminarily agrees that the process used to develop this inventory was adequate to meet the requirements of CAA section 172(c)(3) and the implementing regulations.

EPA has reviewed Kentucky's emissions inventory and has preliminarily determined that it is adequate for the purposes of meeting section 172(c)(3) emissions inventory requirement. Further, EPA has made the preliminary determination that the emissions were developed consistent with the CAA, implementing regulations and EPA guidance for emission inventories.

EPA is proposing to approve the 2002 base year emissions inventory portion of the SIP revision submitted by the Commonwealth of Kentucky on December 3, 2008. EPA has made the preliminary determination that this action is consistent with section 110 of the CAA.

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

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

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

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

• Does not contain any unfunded mandate or significantly or uniquelyaffect 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 F43255, August 10, 1999);

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

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

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

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

Throughout this document whenever “we,” “us,” or “our” is used, we mean EPA. This supplementary information section is arranged as follows:

Throughout this document, wherever “we”, “us” or “our” are used, we mean EPA. We are providing the following outline to aid in locating information in this proposal.

EPA sets the NAAQS for certain ambient air pollutants at levels required to protect public health and welfare. Particulate matter with an aerodynamic diameter less than or equal to a nominal ten micrometers, or PM10, is one of these ambient air pollutants for which EPA has established health-based standards. On July 1, 1987, EPA promulgated two primary standards for PM10: a 24-hour standard of 150 micrograms per cubic meter (μg/m3); and, an annual PM10standard of 50 μg/m3. EPA also promulgated secondary PM10standards that were identical to the primary standards. 52 FR 24634; (July 1, 1987).

Effective December 18, 2006, EPA revoked the annual PM10standard but retained the 24-hour PM10standard. 71 FR 61144; (October 17, 2006). An area attains the 24-hour PM10standard when the expected number of days per calendar year with a 24-hour concentration in excess of the standard (referred to herein as “exceedance”), as determined in accordance with 40 CFR part 50, appendix K, is equal to or less than one.1 See 40 CFR 50.6 and 40 CFR part 50, appendix K.

Areas meeting the requirements of section 107(d)(4)(B) of the Clean Air Act (CAA or “Act”) were designated nonattainment for PM10by operation of law and classified “moderate” upon enactment of the 1990 Clean Air Act Amendments. These areas included all former Group I PM10planning areas identified in 52 FR 29383, (August 7, 1987), as further clarified in 55 FR 45799, (October 31, 1990), and any other areas violating the NAAQS for PM10prior to January 1, 1989. AFederal Registernotice announcing the areas designated nonattainment for PM10upon enactment of the 1990 Amendments, known as “initial” PM10nonattainment areas, was published on March 15, 1991, (56 FR 11101); and, a subsequentFederal Registerdocument correcting the description of some of these areas was published on August 8, 1991, (56 FR 37654).

As a former “group I” area, the Paul Spur/Douglas NA2 was included in the March 1991 list of initial moderate PM10nonattainment areas. Later, we codified the PM10nonattainment designations and moderate area classifications in 40 CFR part 81 (56 FR 56694; November 6, 1991). For “moderate” nonattainment areas, such as the Paul Spur/Douglas NA, CAA section 188(c) of the 1990 Amended Act established an attainment date of December 31, 1994. On January 11, 2011, pursuant to section 188(b)(2) of the CAA, we determined that the Paul Spur/Douglas NA met the PM10NAAQS as of the applicable attainment date, December 31, 1994 (76 FR 1532). Consequently, the Paul Spur/Douglas NA was not reclassified to a “serious” PM10nonattainment area. The designation, classification, and boundaries of the Paul Spur/Douglas NA are codified at 40 CFR 81.303.

Generally, EPA determines whether an area's air quality is meeting the PM10NAAQS based upon complete,3 quality-assured, and certified data gathered at established state and local air monitoring stations (SLAMS) in the nonattainment area, and entered into the EPA Air Quality System (AQS) database. Data from air monitors operated by State, local, or Tribal agencies in compliance with EPA monitoring requirements must be submitted to AQS. These monitoring agencies certify annually that these data are accurate to the best of their knowledge. Accordingly, EPA relies primarily on data in AQS when determining the attainment status of an area. See 40 CFR 50.6; 40 CFR part 50, appendices J and K; 40 CFR part 53; and, 40 CFR part 58, appendices A, C, D, and E. EPA will also consider air quality data from other air monitoring stations in the nonattainment area provided those stations meet the Federal monitoring requirements for SLAMS, including the quality assurance and quality control criteria in 40 CFR part 58, appendix A. See 40 CFR 58.14 (2006) and 58.20 (2007)4 ; 71 FR 61236, 61242; (October 17, 2006). All valid data are reviewed to determine the area's air quality status in accordance with 40 CFR part 50, appendix K.

Attainment of the 24-hour PM10standard is determined by calculating the expected number of exceedances of the standard in a year. The 24-hour PM10standard is attained when the expected number of exceedances averaged over a three-year period is less than or equal to one at each monitoring site within the nonattainment area. Generally, three consecutive years of air quality data are required to show attainment of the 24-hour PM10standard. See 40 CFR part 50 and appendix K.5

To demonstrate attainment of the 24-hour PM10standard at a monitoring site, the monitor must provide sufficient data to perform the required calculations in 40 CFR part 50, appendix K. The amount of data required varies with the sampling frequency, data capture rate, and the number of years of record. In all cases, three years of representative monitoring data that meet the 75 percent criterion discussed earlier should be utilized, if available. More than three years may be considered, if all additional representative years of data meeting the 75 percent criterion are utilized. Data not meeting these criteria may also suffice to show attainment; however, such exceptions must be approved by the appropriate Regional Administrator in accordance with EPA guidance. See 40 CFR part 50, appendix K, section 2.3.

The Arizona Department of Environmental Quality (ADEQ) has operated PM10monitors near the Douglas Lime Plant, formerly the Chemical Lime Plant, at Paul Spur (“Paul Spur monitor”) and within the City of Douglas (“Douglas monitor”) for 20 years or more. Both sites are part of the ADEQ's SLAMS network.

The Paul Spur monitor is located near the intersection of Paul Spur Road and State Route 80. This monitor was sitedto provide PM10concentration data at a middle scale6 for the purpose of determining source impacts from the chemical lime plant. At the Paul Spur monitoring site, ADEQ replaced the dichot sampler with a partisol sampler, and added a second collocated partisol sampler for precision measurement purposes. Both monitors run on a one-day-in-six monitoring schedule. In January 2012, ADEQ replaced one of the partisol samplers with a continuous tapering element oscillating microbalance (TEOM) sampler. The TEOM sampler provides daily 24-hour average observations of PM10ambient concentrations.

Prior to 1998, the Douglas monitor was located at 15th Street Park, approximately one mile north of the border with Mexico. In 1998, ADEQ re-located the Douglas monitor to its current location, the Red Cross building just across from the park on 15th Street. The Douglas monitor was sited to provide PM10concentration data at a neighborhood scale for the purpose of determining population exposure. At the Douglas monitoring site, ADEQ replaced the dichot sampler with a partisol sampler. The Douglas monitor operates on a one-day-in six monitoring schedule.

ADEQ is responsible for monitoring ambient air quality outside the metropolitan areas in Arizona. Annually, ADEQ submits monitoring network plan reports to EPA. These reports discuss the status of the air monitoring network, as required under 40 CFR part 58. EPA reviews these annual network plans for compliance with the applicable reporting requirements in 40 CFR 58.10. With respect to PM10, we have found that ADEQ's annual network plans meet the applicable requirements under 40 CFR part 58.7 Furthermore, we concluded in ourTechnical System Audit Reportconcerning ADEQ's ambient air quality monitoring program that ADEQ's ambient air monitoring network currently meets or exceeds the requirements for the minimum number of monitoring sites designated as SLAMS for all of the criteria pollutants, and that all of the monitoring sites are properly located with respect to monitoring objectives, spatial scales and other siting criteria.8 As noted above, in January 2012, ADEQ installed a continuous TEOM sampler at the Paul Spur monitoring site. ADEQ's placement of the TEOM monitor ensures that the Paul Spur/Douglas NA monitoring network continues to meet the requirements of 40 CFR 58.12(e) for monitoring frequency. Also, ADEQ annually certifies that the data it submits to AQS are quality-assured.9

As noted above, we determined that the Paul Spur/Douglas NA attained the PM10NAAQS by its applicable attainment date based on our review of data collected during the 1992-1994 period. See 76 FR 1532; (January 11, 2011). Since 1994, the data from AQS indicate that only two exceedances of the PM10standard have been measured in the Paul Spur/Douglas NA; both exceedances were measured at the Paul Spur monitoring site. The first exceedance, 206 µg/m3, was observed in 2003 and the other, 159 µg/m3, was observed in 2008.10 No exceedances have been recorded at the Douglas monitoring site since 1991.

For the purposes of this proposed action, we have reviewed the data for the most recent three-year period (2009-2011). Table 1 summarizes the PM10concentration data collected at the Paul Spur and Douglas monitors over the past three years. As shown in Table 1, no exceedances were recorded within the Paul Spur/Douglas NA over the 2009-2011 period.

During the 2009-2011 time period, the data collected by ADEQ meets the completeness criterion for all quarters at the Paul Spur monitor and for ten of twelve quarters at the Douglas monitor. The two incomplete quarters at the Douglas monitor were the first quarter of 2010 and the fourth quarter of 2011. During the first quarter of 2010, the Douglas monitor was three samples short of the 75 percent criterion, for a 60 percent (9 of 15 samples) reporting rate, and during the fourth quarter of 2011, the Douglas monitor was one sample short of the 75 percent criterion, for a 73 percent (11 of 15 samples) reporting rate.

To be considered “complete,” valid measurements must be made for 75 percent of all the scheduled sampling dates in each quarter of the year, and generally, three years of representative monitoring data that meet the 75 percent criterion should be utilized, where available. As noted above, however, EPA may find that data notmeeting the completeness criterion suffice to show attainment of a given NAAQS. See 40 CFR part 50, appendix K, section 2.3(b). Relevant considerations that we take into account when evaluating whether data not meeting the completeness criterion would suffice include, but are not limited to, monitoring site closures/moves, monitoring diligence, consistency and levels of the valid concentration measurements that are available, and nearby observed ambient concentrations.

After reviewing the Paul Spur/Douglas NA data for the 2009-2011 period, for the three reasons discussed below, we find that the available data are sufficient to determine whether the Paul Spur/Douglas NA attained the PM10standard by December 31, 2011; notwithstanding that the Douglas' monitor data did not meet the 75 percent completeness criterion for two of twelve quarters. First, we note the extent to which the maximum monitored levels during the 2009-2011 period, 85 µg/m3at the Paul Spur monitor and 138 µg/m3at the Douglas monitor, clearly fall below the applicable standard of 150 µg/m3. Second, we note that twelve of twelve quarters were complete at the Paul Spur monitor and ten of twelve quarters were complete at the Douglas monitor. Lastly, we note that the Douglas monitor has been in operation for over 20 years and has not recorded an exceedance of the PM10standard since 1991. The only two exceedances recorded in the Paul Spur/Douglas NA since 1991 have been at the Paul Spur monitoring site; the site for which we have a complete data set for 2009-2011.

Therefore, based on our review of the certified, quality-assured data for 2009-2011, we find that the expected number of exceedances per year for the Paul Spur/Douglas NA for the most recent three-year period (i.e., 2009 to 2011) was 0.0 days per year. With an annual expected exceedance rate for the 24-hour PM10NAAQS of less than 1.0, these data represent attainment of the PM10standard. Consequently, EPA proposes to determine that the Paul Spur/Douglas NA is attaining the PM10NAAQS. Prior to taking final action on this proposal, we will review any preliminary data for 2012 submitted by ADEQ to AQS for the Paul Spur/Douglas NA to ensure that such preliminary data shows continued attainment of the standard.

The air quality planning requirements for moderate PM10nonattainment areas, such as the Paul Spur/Douglas NA, are set out in part D, subparts 1 and 4 of title I of the Act. EPA has issued guidance in a General Preamble describing how we will review state implementation plans (SIPs) and SIP revisions submitted under title I of the Act, including those containing moderate PM10nonattainment area SIP provisions.11

The subpart 1 requirements include, among other things, provisions for reasonably available control measures or “RACM”, reasonable further progress or “RFP”, emissions inventories, a permit program for construction and operation of new or modified major stationary sources in the nonattainment area or “NSR”, contingency measures, conformity, and additional SIP revisions providing for attainment where EPA determines that the area has failed to attain the standard by the applicable attainment date.

Subpart 4 requirements in CAA section 189 apply specifically to PM10nonattainment areas. The requirements for moderate PM10nonattainment areas include: (1) An attainment demonstration; (2) provisions for RACM; (3) quantitative milestones demonstrating RFP toward attainment by the applicable attainment date; and, (4) provisions ensuring that the control requirements applicable to an area's major stationary sources of PM10also apply to major stationary sources of PM10precursors, except where the Administrator has determined that such sources do not contribute significantly to PM10levels exceeding the NAAQS.

For nonattainment areas where EPA determines that monitored data show that the NAAQS have already been achieved, EPA's interpretation, upheld by the Courts, is that the obligation to submit certain requirements of part D, subparts 1, 2 and 4 of the Act are suspended for so long as the area continues to attain. These include requirements for attainment demonstrations, RFP, RACM, and contingency measures, because these provisions have the purpose of helping achieve attainment of the NAAQS. Certain other obligations for PM10nonattainment areas, however, are not suspended, such as the NSR requirements.

This interpretation of the CAA is known as the Clean Data Policy. It is the subject of several EPA memoranda and regulations, and numerous rulemakings that have been published in theFederal Registerover more than fifteen years. EPA finalized the statutory interpretation set forth in the Clean Data Policy in its final 8-hour ozone implementation rule, 40 CFR 51.918, as part of its “Final Rule to Implement the 8-hour Ozone National Ambient Air Quality Standard—Phase 2” (Phase 2 Final Rule); see discussion in the preamble to the rule at 70 FR 71612, 71645-71646; (November 29, 2005). The D.C. Circuit Court upheld this Clean Data regulation as a valid interpretation of the CAA; seeNRDCv.EPA,571 F.3d 1245 (D.C. Cir. 2009). EPA also finalized its interpretation in an implementation rule for the NAAQS for particulate matter of 2.5 microns or less (PM2.5); see 40 CFR 51.1004(c). Thus, EPA has codified the Clean Data Policy when it established final rules governing implementation of new or revised NAAQS for the pollutants. See 70 FR 71612, 71644-46 (November 29, 2005); 72 FR 20586, 20665 (April 25, 2007) (PM2.5Implementation Rule). Otherwise, EPA applies the Clean Data Policy in individual rulemakings related to specific nonattainment areas. See,e.g.,75 FR 27944 (May 19, 2010), the determination of attainment of the PM10standard in Coso Junction, California; and, 75 FR 6571 (February 10, 2010) the determination of attainment of the 1-hour ozone standard in Baton Rouge, Louisiana.

In its many applications of the Clean Data Policy interpretation to PM10, EPA has explained that the legal bases set forth in detail in our Phase 2 Final rule, our May 10, 1995 memorandum from John S. Seitz, entitled “Reasonable Further Progress, Attainment Demonstration, and Related Requirements for Ozone Nonattainment Areas Meeting the Ozone National Ambient Air Quality Standard,” our PM2.5Implementation Rule, and our December 14, 2004 memorandum from Stephen D. Page entitled “Clean Data Policy for the Fine Particle National Ambient Air Quality Standards,” are equally pertinent to the interpretation of provisions of subparts 1 and 4 applicable to PM10. See,e.g.,71 FR 6352 (February 8, 2006) (Ajo, Arizona area); 71 FR 13021 (March 14, 2006) (Yuma, Arizona area); 71 FR 40023 (July 14, 2006) (Weirton, West Virginia area); 71 FR 44920 (August 8, 2006) (Rillito, Arizona area); 71 FR 63642 (October 30, 2006) (San Joaquin Valley, Californiaarea); 72 FR 14422 (March 28, 2007) (Miami, Arizona area); 75 FR 27944 (May 19, 2010) (Coso Junction, California area); and 76 FR 21807 (April 19, 2011) (Truckee Meadows, Nevada area). EPA's interpretation that the obligation to submit an attainment demonstration, RACM, RFP contingency measures, and other measures related to attainment under part D of title I of the CAA, pertains whether the standard is PM10, ozone or PM2.5.

In our proposed and final rulemakings determining that the San Joaquin Valley nonattainment area attained the PM10standard, EPA set forth at length our rationale for applying the Clean Data Policy to PM10. The Ninth Circuit Court subsequently upheld this rulemaking, and specifically EPA's Clean Data Policy in the context of the PM10standard. SeeLatino Issues Forumv.EPA,Nos. 06-75831 and 08-71238 (9th Cir.), Memorandum Opinion, March 2, 2009. In rejecting petitioner's challenge to the Clean Data Policy for PM10, the Court stated:

EPA noted in its prior PM10rulemakings that the reasons for relieving an area that has attained the relevant standard of certain obligations under part D, subparts 1 and 2, apply equally to part D, subpart 4, which contains specific attainment demonstration and RFP provisions for PM10nonattainment areas. In EPA's Phase 2 Final Rule and ozone (Seitz) and PM2.5Clean Data (Page) memoranda, EPA established that it is reasonable to interpret provisions regarding RFP and attainment demonstrations, along with related requirements, so as not to require SIP submissions if an area subject to those requirements is already attaining the NAAQS (i.e., attainment of the NAAQS is demonstrated with three consecutive years of complete, quality-assured, and certified air quality monitoring data). Every U.S. Circuit Court of Appeals that has considered the Clean Data Policy has upheld EPA rulemakings applying its interpretation, for both ozone and PM10. SeeSierra Clubv.EPA,99 F.3d 1551 (10th Cir. 1996);Sierra Clubv.EPA,375 F.3d 537 (7th Cir. 2004);Our Children's Earth Foundationv.EPA,No. 04-73032 (9th Cir. June 28, 2005) (memorandum opinion),Latino Issues Forum, supra.

It has been EPA's longstanding interpretation that the general provisions of part D, subpart 1 of the Act (sections 171 and 172) do not require the submission of SIP revisions concerning RFP for areas already attaining the ozone NAAQS. In the General Preamble, we stated:

With respect to RFP, section 171(1) states that, for purposes of part D of title I, RFP “means such annual incremental reductions in emissions of the relevant air pollutant as are required by this part or may reasonably be required by the Administrator for the purpose of ensuring attainment of the applicable NAAQS by the applicable date.” Thus, whether dealing with the general RFP requirement of section 172(c)(2), the ozone-specific RFP requirements of sections 182(b) and (c), or the specific RFP requirements for PM10areas of part D, subpart 4, section 189(c)(1), the stated purpose of RFP is to ensure attainment by the applicable attainment date. Section 189(c)(1) states that:

Although this section states that revisions shall contain milestones which are to be achieved until the area is redesignated to attainment, such milestones are designed to show reasonable further progress “toward attainment by the applicable attainment date,” as defined by section 171. Thus, it is clear that once the area has attained the standard, no further milestones are necessary or meaningful. This interpretation is supported by language in section 189(c)(3), which mandates that a State that fails to achieve a milestone must submit a plan that assures that the State will achieve the next milestone or attain the NAAQS if there is no next milestone. Section 189(c)(3) assumes that the requirement to submit and achieve milestones does not continue after attainment of the NAAQS.

In the General Preamble, we noted with respect to section 189(c) that the purpose of the milestone requirement “is `to provide for emission reductions adequate to achieve the standards by the applicable attainment date' (H.R. Rep. No. 490, 101st Cong., 2d Sess. 267 (1990)).” 57 FR 13539; (April 16, 1992). If an area has in fact attained the standard, the stated purpose of the RFP requirement will have already been fulfilled.12 EPA took this position with respect to the general RFP requirement of section 172(c)(2) in the General Preamble and also in the Seitz memorandum with respect to the requirements of sections 182(b) and (c). In our prior applications of the Clean Data Policy to PM10, we have extended that interpretation to the specific provisions of part D, subpart 4. See,e.g.,71 FR 40952 and 71 FR 63642, the proposed and final determination of attainment for San Joaquin Valley; and, 75 FR 13710 and 75 FR 27944, the proposed and final determination of attainment for Coso Junction.

In the General Preamble, we stated, in the context of a discussion of the requirements applicable to the evaluation of requests to redesignate nonattainment areas to attainment, that the “requirements for RFP will not apply in evaluating a request for redesignation to attainment since, at a minimum, the air quality data for the area must show that the area has already attained. Showing that the State will make RFP towards attainment will, therefore, have no meaning at that point.” 57 FR 13564; (April 16, 1992). See also our September 4, 1992 memorandum from John Calcagni, entitled “Procedures for Processing Requests to Redesignate Areas toAttainment” (Calcagni memorandum), at page 6.

Similarly, the requirements of section 189(c)(2) with respect to milestones no longer apply so long as an area has attained the standard. Section 189(c)(2) provides in relevant part that:

Where the area has attained the standard and there are no further milestones, there is no further requirement to make a submission showing that such milestones have been met. As noted above, this is consistent with the position that EPA took with respect to the general RFP requirement of section 172(c)(2) in the General Preamble and also in the Seitz memorandum with respect to the requirements of section 182(b) and (c). In the Seitz memorandum, EPA also noted that section 182(g), the milestone requirement of subpart 2, which is analogous to provisions in section 189(c), is suspended upon a determination that an area has attained. The Seitz memorandum, also citing additional provisions related to attainment demonstration and RFP requirements, stated:

With respect to the attainment demonstration requirements of section 189(a)(1)(B), an analogous rationale leads to the same result. Section 189(a)(1)(B) requires that the plan provide for “a demonstration (including air quality modeling) that the [SIP] will provide for attainment by the applicable attainment date * * *.” As with the RFP requirements, if an area is already monitoring attainment of the standard, EPA believes there is no need for an area to make a further submission containing additional measures to achieve attainment. This is also consistent with the interpretation of the section 172(c) requirements provided by EPA in the General Preamble, the Page memorandum, and the section 182(b) and (c) requirements set forth in the Seitz memorandum. As EPA stated in the General Preamble, no other measures to provide for attainment would be needed by areas seeking redesignation to attainment since “attainment will have been reached.” 57 FR at 13564; (April 16, 1992).

Other SIP submission requirements are linked with these attainment demonstration and RFP requirements, and similar reasoning applies to them. These requirements include the contingency measure requirements of sections 172(c)(9) and 182(c)(9). We have interpreted the contingency measure requirements of sections 172(c)(9) and 182(c)(9) as no longer applying when an area has attained the standard because those “contingency measures are directed at ensuring RFP and attainment by the applicable date.” See 57 FR 13564; (April 16, 1992), and Seitz memorandum, pages 5-6.

Both sections 172(c)(1) and 189(a)(1)(C) require “provisions to assure that reasonably available control measures” (i.e., RACM) are implemented in a nonattainment area. The General Preamble states that EPA interprets section 172(c)(1) so that RACM requirements are a “component” of an area's attainment demonstration; see 57 FR 13560; (April 16, 1992). Thus, for the same reason the attainment demonstration no longer applies by its own terms, the requirement for RACM no longer applies. EPA has consistently interpreted this provision to require only implementation of potential RACM measures that could contribute to reasonable further progress or to attainment. See the General Preamble at 57 FR 13498; (April 16, 1992). Thus, where an area is already attaining the standard, no additional RACM measures are required.13 EPA is interpreting section 189(a)(1)(C) consistent with its interpretation of section 172(c)(1).

We emphasize that the suspension of the obligation to submit SIP revisions concerning these RFP, attainment demonstration, RACM, and other related requirements exists only for as long as the Paul Spur/Douglas NA continues to monitor attainment of the PM10standard. If EPA determines, after notice-and-comment rulemaking, that the area has monitored a violation of the PM10NAAQS, the basis for suspending the requirements would no longer exist. As a result, the Paul Spur/Douglas NA would again be subject to a requirement to submit the pertinent SIP revision or revisions and would need to address those requirements. Thus, a final determination that the area need not submit one of the pertinent SIP submittals amounts to no more than a suspension of the requirements for so long as the area continues to attain the standard. Only after EPA redesignates the area to attainment would the area be relieved of these attainment-related submission obligations. Attainment determinations under the Clean Data Policy do not suspend an area's obligations unrelated to attainment in the area, such as provisions to address pollution transport.

Based on our proposed determination that the Paul Spur/Douglas NA is currently attaining the PM10NAAQS (see section II.C above) and as set forth above, we propose to find that Arizona's obligations to submit planning provisions to meet the requirements for an attainment demonstration, reasonable further progress plans, reasonably available control measures, and contingency measures, no longer apply for so long as the Paul Spur/Douglas NA continues to monitor attainment of the PM10NAAQS.14 In the future, after notice-and-comment rulemaking, if EPA determines that the area again violates the PM10NAAQS, then the basis for suspending the attainment demonstration, RFP, RACM, and contingency measure requirements would no longer exist. In that event, we would notify Arizona that we have determined that the Paul Spur/Douglas NA is no longer attaining the PM10standard and provide notice to the public in theFederal Register.

Lastly, suspension of Arizona's obligation to make submissions of certain attainment-related requirements for as long as the Paul Spur/Douglas NA continues to attain the standard would also serve to suspend any EPA obligation to promulgate a Federal Implementation Plan (FIP) to address the same attainment-related requirements because the deficiency that had led to the FIP obligation would no longer exist, i.e., for so long as the related State obligation continues to be suspended. In this instance, in 1991, EPA made a finding of failure to submit a moderate area PM10plan for theDouglas portion of the Paul Spur/Douglas NA, thereby triggering a FIP clock during which EPA had two years under section 110(c) of the CAA to promulgate a moderate area PM10FIP for the Douglas portion of the Paul Spur/Douglas NA.15 See 57 FR 19906; (May 8, 1992). If finalized as proposed, today's proposed action would suspend this FIP obligation for so long as the State obligation is suspended, or until the area is redesignated to attainment, at which time the FIP obligation triggered in 1992 would end permanently.

Based on the most recent three-year period of certified, quality-assured data meeting the requirements of 40 CFR part 50, appendix K and for the reasons discussed above, we propose to find that the Paul Spur/Douglas NA is currently attaining the 24-hour PM10NAAQS.

In conjunction with and based upon our proposed determination that the Paul Spur/Douglas PM10NA is currently attaining the standard, EPA proposes to determine that Arizona's obligation to submit the following CAA requirements is not applicable for so long as the Paul Spur/Douglas NA continues to attain the PM10standard: the part D, subpart 4 obligation to provide an attainment demonstration pursuant to section 189(a)(1)(B); the RACM provisions of section 189(a)(1)(C); the RFP provisions of section 189(c); and, the attainment demonstration, RACM, RFP and contingency measure provisions of part D, subpart 1 contained in section 172 of the Act. Furthermore, the obligation on EPA to promulgate a FIP to address the same attainment-related requirements would also be suspended.

Any final action resulting from this proposal would not constitute a redesignation to attainment under CAA section 107(d)(3) because we have not yet approved a maintenance plan for the Paul Spur/Douglas NA as meeting the requirements of section 175A of the CAA or determined that the area has met the other CAA requirements for redesignation. The classification and designation status in 40 CFR part 81 would remain moderate nonattainment for the Paul Spur/Douglas NA until such time as EPA determines that Arizona has met the CAA requirements for redesignating the Paul Spur/Douglas NA to attainment.

EPA is soliciting public comments on the issues discussed in this document or on other relevant matters. We will accept comments from the public on this proposal for the next 30 days. We will consider these comments before taking final action.

With this action, we propose to make a determination regarding attainment of the PM10NAAQS based on air quality data and, if finalized, this proposed action would result in suspension of certain Federal requirements, and would not impose additional requirements beyond those imposed by State law or by the CAA. For that reason, this proposed action:

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

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

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

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

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

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

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

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

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

In addition, this proposed action does not have Tribal implications as specified by Executive Order 13175 (65 FR 67249; November 9, 2000), because the SIP obligations discussed herein do not apply to Indian Tribes and thus will not impose substantial direct costs on Tribal governments or preempt Tribal law.

On January 19, 2011, PHMSA published a final rule under Docket PHMSA-2009-0126 (HM-215K; 76 FR 3308) that revised the Hazardous Materials Regulations (HMR; 49 CFR Parts 171-180) to align with various international standards. The final rule adopted amendments to the HMR regarding hazard communication, hazard classification including packing group assignment, packaging authorization, air transport quantity limitations, and various other international harmonization-related topics. The amendments were necessary to align the HMR with the latest revisions to the International Civil Aviation Organization's Technical Instructions for the Safe Transport of Dangerous Goods by Air (ICAO Technical Instructions), the International Maritime Organization's Dangerous Goods Code (IMDG Code), Transport Canada's Transportation of Dangerous Goods Regulations (TDG Regulations), and the United Nations Recommendations on the Transport of Dangerous Goods: Model Regulations (UN Model Regulations) to facilitate to the seamless transportation of hazardous materials internationally, to, from, and within the United States. In this notice of proposed rulemaking (NPRM), PHMSA is proposing a number of amendments in response to administrative appeals filed in accordance with 49 CFR 106.110-130 regarding revisions to the HMR adopted in the January 19, 2011 final rule. This document also addresses recent actions taken by the International Civil Aviation Organization's (ICAO) Dangerous Goods Panel (DGP) regarding certain lithium ion battery-powered mobility aids (e.g., wheelchairs, travel scooters) offered by passengers for air transport. Additionally, PHMSA is proposing amendments to the HMR as a result of two administrative appeals submitted by an appellant in response to a final rule published February 2, 2010 (HM-231; 75 FR 5376), that revised shipper responsibilities related to packaging design variation and manufacturer notification recordkeeping requirements for certain packaging types.

This notice addresses administrative appeals submitted in response to the January 19, 2011 final rule from the following companies and organizations:

The administrative appeals are discussed in detail as follows:

A number of administrative appeals concern issues related to our adoption of the international system for transportation of limited quantitymaterial. Specifically, some appellants are concerned with the eventual phase-out of our domestic system for the transportation of limited quantity material otherwise known as other regulated material (ORM-D) (i.e., the ORM-D system). Under certain conditions, the HMR and international standards allow lesser quantities of relatively low risk hazardous materials (i.e., limited quantity material) to be afforded relief from some of the requirements generally applicable to hazardous materials transported by all modes. For example, a limited quantity material is not generally required to be packaged in a DOT or UN standard packaging. Most regulatory amendments resulting from adoption of the international system and the eventual phase-out of the ORM-D system involve revisions to hazard communication requirements, material quantity limitations and the types of material authorized. In this notice, we note that the AHS petition (P-1542) and PHMSA initiative to adopt limited quantity requirements for Types B through F self-reactive liquids and solids (non-temperature controlled) will be addressed in a separate NPRM under Docket No. PHMSA-2011-0142 (HM-219).

PHMSA revised the HMR to phase out its system of reclassing and transporting limited quantity material as ORM-D. Under this system, a limited quantity of hazardous material that also meets the definition of a “consumer commodity” may be reclassed as ORM-D and is eligible for additional exceptions from regulation. See § 171.8 for the definition of “consumer commodity.” The January 19 final rule amended the HMR by phasing out the ORM-D system beginning January 1, 2013, for material transported by aircraft and, January 1, 2014, for material transported by all other modes of transportation (e.g., motor vehicle). ACA and HDMA appealed our decision to phase out the ORM-D system arguing that we did so “without any debate or consideration of [1] the type of materials that use this exception; [2] the costs incurred by the regulated community; and [3] the safety benefits.” ACA claimed that many companies and organizations, including themselves, asked for a separate rulemaking to address these issues. ACA is also concerned that although we provided a summary of comments against the phase-out in the preamble to the final rule, PHMSA did not discuss arguments raised in the comments. They stated we arbitrarily concluded that because there would be no immediate phase-out of the current ORM-D system, there would not be a sizeable impact to companies on the basis they would have sufficient time to adjust to the eventual phase-out. ACA asked us to reconsider the decision to not move forward in a separate rulemaking and to fully consider the effects of phasing out the ORM-D system. Additionally, HDMA requested that PHMSA allow for up to a 10-year phase-out based on the longevity of its packaging systems (i.e., totes) currently in use. According to HDMA, such totes are permanently marked with the “Consumer commodity, ORM-D” marking on them.

PHMSA response.

The HMR have long-recognized the relatively low risk posed by the transportation of certain hazardous materials such as limited quantities or consumer commodities. Considerable efforts have been made internationally to harmonize multi-modal standards with regard to the transport of limited quantities, including consumer commodities. We held public meetings on this issue in February 2006 and March 2008 to discuss potential impacts on domestic stakeholders. Additionally, this issue was discussed during our pre-UN public meetings held in 2006 and 2007. There was considerable domestic interest in pursuing further harmonization internationally due to the potential for substantial savings in transportation costs and improved transportation efficiency. In the advance notice of proposed rulemaking (ANPRM) (October 21, 2009; 74 FR 53982) and NPRM we invited comments on this issue with regard to aligning the HMR with the UN Model Regulations for the domestic and international transport of limited quantities and consumer commodities. Of particular concern were any negative impacts on the domestic transportation of consumer commodities reclassed as ORM-D materials. While some changes adopted in the UN Model Regulations were similar to those currently in the HMR regarding limited quantities and consumer commodities (e.g., inner packaging limits and non-specification outer packagings allowed), some changes were not (e.g., marking, labeling, package gross mass). We stated that depending on the comments received and our own evaluation, we may determine that the significance of any amendments on the issue may warrant a separate rulemaking action. In the January 19, 2011 final rule, we concluded a separate rulemaking was not in the best interest of the hazardous material transportation community particularly when it involves international transportation. Further, creating a single global system for packaging, hazard communication, and transportation of limited quantity material would facilitate the domestic and international flow of hazardous material trade and any further delay in the phase-out would not be useful. Little or no quantification of any negative impact, including costs to domestic shippers and carriers alike, was provided in response to the ANPRM or NPRM. However, the Healthcare Distribution Management Association (HDMA) did provide some cost data related to its unique practice of reusing totes permanently embossed with the ORM-D marking. Some commenters also argued against any phase-out based on the historically safe transportation of limited quantity material under the ORM-D system. Commenters further stated that PHMSA should not adopt the international system simply based on the opportunity to align the HMR with international standards.

Allowing dual systems for communicating packages of limited quantity material would likely cause confusion and place unreasonable burdens on carriers and some shippers to train their hazmat employees to recognize and comply with both systems. We believe adopting a single global system for the transportation of limited quantity material will greatly improve safety and efficiency by decreasing the aforementioned potential for delays and confusion during transportation and by removing the burden of providing training in dual systems used to communicate the transportation of limited quantity material. However, we recognize the need to provide sufficient time for domestic shippers and carriers to adjust to the revised system and are sympathetic to the concerns expressed by ACA, HDMA and others regarding this need. Therefore, in this notice we are proposing only to authorize the continued use of packagings marked “Consumer commodity, ORM-D” until December 31, 2015 for domestic highway, rail and vessel transportation.

In the January 19, 2011 final rule, PHMSA revised the regulation for overpacks (as defined in § 171.8) by requiring the “OVERPACK” marking on an overpack containing limited quantity packaging if all markings are not visible. DGAC expressed concern over the manner in which the language in the requirement is phrased, and that it implies all markings on each packaging in the overpack must be visible. DGAC noted that this is not consistent with theUN Model Regulations which states the overpack “shall be marked with the word “OVERPACK” and the marking required by this Chapter unless the markings representative of all dangerous goods in the overpack are visible.”See3.4.11 of the 16th Revised Edition of the UN Model Regulations. It is their understanding this refers to the limited quantity marking and not to all markings that may be required by the UN Model Regulations. Their understanding is that use of the term “representative” communicates a requirement that only one limited quantity package marking needs to be visible to represent all limited quantity packaging. DGAC requested that PHMSA revise the overpack requirements in § 173.25(a)(6) to be consistent with the UN Model Regulations.

PHMSA response.

The HMR do not currently require that every individual mark (or label) on each package contained in an overpack be visible. For example, as stated in § 173.25(a)(2), an overpack must be marked with the proper shipping name and identification number (when applicable) for each hazardous material contained in the overpack, unless marking and labels representative of each hazardous material in the overpack are visible. We recommend where packages are stacked and/or banded on a pallet as part of an overpack, the packages should be positioned, when possible, so that the markings and labels are visible on the outside of the overpack. However, this does not mean that every package marking (or label) must be visible or the overpack must be marked accordingly. With regard to the “OVERPACK” marking requirement for overpacks containing limited quantity and ORM packages, in this NPRM we are accepting DGAC's appeal and are proposing to revise § 173.25(a)(6) to clarify that not all limited quantity and ORM markings must be visible and that the marking requirement is only applicable to the limited quantity and ORM mark itself. Additionally, a new § 173.25(a)(7) is proposed to be added for clarity to separate limited quantity and ORM overpack marking requirements from excepted quantity overpack marking requirements.

Formerly, § 172.315 excepted for other than transportation by aircraft, a package containing a limited quantity substance or article from being marked with the proper shipping name if it was marked with a square-on-point containing the UN identification (ID) number of the limited quantity substance or article. In the January 19, 2011 final rule, we provided a one-year transition period to authorize continued use of this marking before the revisions to the limited quantity markings become effective. ACA, DGAC, and PPG all stated the one-year transition period does not allow sufficient time to deplete stock(s) of packagings pre-printed with the square-on-point mark containing the ID number and requested an extension of three- to five-years. Specifically, ACA requested a three- to five-year timeframe while DGAC and PPG ask for a three-year timeframe. ACA, DGAC, and PPG maintained that without a longer transition period, shippers will be forced to remark packaging at their cost and there is no impact to safety by allowing continued use of the existing marking. Appellants also pointed out this alternative limited quantity marking communicates more information than the newly adopted markings or the original ORM-D markings. They stated that PHMSA already provides for a two- to three-year transition period for the phase-out of the ORM-D marking, depending on the mode of transportation. They also requested, for clarification, that any transition periods be included in § 171.14 (transitional provisions) and § 172.300 (marking applicability).

PHMSA response.

We agree that shippers should be provided with the same transition period to continue using the square-on-point mark containing the UN identification (ID) number that was provided for the continued use of the ORM-D marking(s). In the administrative appeal final rule (HM-215K; RIN 2137-AE76), we granted the appeals submitted by ACA, DGAC, and PPG and revised § 172.315 accordingly to extend the transition period to December 31, 2013. The administrative final rule also authorized, for domestic air transportation, use of the square-on-point mark containing the ID number to continue until December 31, 2012.

In response to administrative appeals filed by ACA, HDMA and DGAC, in this NPRM we are proposing that for other than air transportation, continued use of the square-on-point mark containing the ID number would be authorized until December 31, 2015. PHMSA is also soliciting public comment on whether for other than air transportation, a previously authorized limited quantity package marking (i.e., proper shipping name only) should be reauthorized for a similar transition period.

In the January 19, 2011 final rule, we revised the 49 CFR 175.10 passenger exceptions to allow passengers and crew members to place certain spare fuel cell cartridges containing a flammable liquid (Class 3) or corrosive material (Class 8) in checked baggage. We limited the scope of fuel cell cartridge chemistries allowed in checked baggage by excluding fuel cell cartridges containing Divisions 2.1 (flammable gas) and 4.3 (dangerous when wet) material. Although this is inconsistent with the ICAO Technical Instructions, in that ICAO only restricts spare fuel cell cartridges containing Division 4.3 material from checked baggage, we believed that the prohibition should include spare cartridges containing Division 2.1 materials. Flammable gases are generally prohibited from transportation on passenger-carrying aircraft as cargo. When combined with the uncertainty of the effect of baggage handling on the durability of these products when stowed in a passenger's checked baggage, the risks posed are of concern. In their administrative appeals, FCHEA and LSI requested that PHMSA revise § 175.10 to align with the ICAO Technical Instructions and allow spare fuel cell cartridges containing Division 2.1 flammable gas to be carried in checked baggage.

PHMSA response.

We are granting the appeal for reconsideration of the issue by providing additional opportunity for comment. We are soliciting public comment until July 24, 2012 for the limited purpose of gathering information to help us determine whether or not to allow fuel cell cartridges containing Division 2.1 flammable gas to be carried aboard a passenger-carrying aircraft in checked baggage.

In the January 19, 2011 final rule, PHMSA adopted requirements for certain consumer commodities intended for transportation by aircraft in new § 173.167. The new description and identification number (ID8000) are consistent with the consumer commodity entry in the ICAO Technical Instructions in Packing Instruction Y963. In its appeal submitted in response to the final rule, DGAC expressed concerns that the alignment between the two standards was not consistent. For example, DGAC pointed out that absorbent material requirements and stack test criteria were not included in the § 173.167 packaging section.

PHMSA response.

DGAC is correct in its assessment of the inconsistencies that exist between the consumer commodity provisions adopted in the HMR and the ICAO Technical Instructions. Thus, we are granting DGAC's administrative appeal and propose to revise § 173.167 accordingly.

The detailed hazardous materials incident reporting requirements of the HMR allow for exceptions from these requirements, specifically, § 171.16(d)(2) excepts, under certain conditions, the unintentional release of a hazardous material properly classed as ORM-D and a PG III material in Class or Division 3, 4, 5, 6.1, 8, or 9, from the written reporting requirements. ACA indicated in its appeal that the reporting requirements as they apply to limited quantity material should be reviewed based on the eventual phase-out of the ORM-D hazard class and suggested the exception for ORM-D material should be extended to limited quantity packagings.

PHMSA response.

We agree with ACA that relief from incident reporting previously provided to ORM-D material should continue to be provided for such materials now transported as limited quantities. We are not, however, proposing to extend the exception from incident reporting to limited quantity Class 7 (radioactive) material, instruments, and articles due to the unique nature of the hazard and because this type of material was never authorized to be reclassed and transported as ORM-D. Additionally, this exception is not applicable to air transportation.

The materials of trade (MOTS) exceptions of the HMR allow certain hazardous material articles and substances, including ORM-D, to be transported by motor vehicle as part of a business operation under less regulation.

PHMSA response.

Similar to the applicability of written incident reporting exceptions to limited quantity material, our review of the HMR revealed that we did not amend the materials of trade exceptions under the January 19, 2011 final rule to reflect the eventual phase-out of the ORM-D system. Similar to the revisions to the written incident reporting requirements, we believe there is no impact to safety by extending the exception for ORM-D to limited quantity material. Most materials reclassed as ORM-D are limited quantity material themselves; an ORM-D is a limited quantity material that also meets the definition of a “consumer commodity.” See § 171.8 for the definition of consumer commodity.

In this notice, we are proposing to extend the MOTS exceptions to limited quantity packages consistent with the exception provided to ORM-D material. We are not, however, proposing to extend the exception to limited quantities of Division 4.3 (dangerous when wet) liquid material or Class 7 (radioactive) material, instruments or articles due to the unique nature of these hazards and because these materials were never authorized to be reclassed and transported as ORM-D. Additionally, we propose to clarify that exceptions for limited quantity material also include limited quantity material authorized under § 173.63 for certain Division 1.4S explosives and § 173.306 for compressed gases.

At the 23rd Meeting of the ICAO Dangerous Goods Panel (DGP), held October 11-21, 2011, the DGP recommended amending Part 8 of the ICAO Technical Instructions applicable to passengers and crew members and the hazardous materials (dangerous goods) they may introduce aboard an aircraft either in checked or carry-on baggage or on one's person. Such provisions form the basis of similar provisions provided in § 175.10 of the HMR. One recommendation adopted by the DGP addressed concerns over wheelchairs and other mobility aids found activated after flight. Additionally, the DGP addressed the absence of any reference to mobility aids powered by nickel metal hydride batteries, and wheelchairs and other mobility aids specifically designed to allow its battery or batteries to be removed from the device and carried aboard the aircraft by a passenger within a protective bag or pouch. In this NPRM, PHMSA is proposing to amend the HMR by addressing the potential for unintended activation of all stowed devices on an aircraft and providing for the intentional removal of a lithium ion battery from a device and its stowage in the passenger cabin. PHMSA intends to address remaining Part 8 and § 175.10 revisions, including wheelchairs and other mobility aids powered by nickel metal hydride batteries, in a separate rulemaking under Docket PHMSA-2012-0027 (HM-215L).

The ICAO Technical Instructions and the HMR limit lithium ion batteries used to power portable electronic devices and medical devices to 160 watt-hours and 25 grams aggregate equivalent lithium content, respectively. Additionally, the ICAO Technical Instructions and the HMR limit any spare lithium ion batteries used to power portable electronic devices and medical devices to carry-on baggage only. At its 23rd Meeting, the DGP was informed of lithium ion batteries developed for wheelchairs and other mobility aids which did not exceed 160 watt-hours (13.5 grams aggregate equivalent lithium content). Therefore, the DGP adopted a proposal introduced by the International Air Transport Association (IATA) to include spare lithium ion batteries for battery-powered wheelchairs and other mobility aids in Part 8 consistent with the provisions for spare lithium ion batteries used to power portable electronic devices and medical devices. In this NPRM, PHMSA is proposing similar provisions by revising § 175.10(a)(17) of the HMR.

The DGP was also informed of new mobility aid designs which require the lithium ion battery to be removed from the device to permit efficient and effective stowage and transport of the mobility aid in the cargo compartment of the aircraft. The DGP agreed it would be safer to require that the removed lithium ion battery be carried in the passenger cabin rather than being stowed as checked baggage with the mobility aid. Subsequently, at the same meeting, the DGP was informed of mobility aid designs equipped with lithium ion batteries, which required removal for stowage (e.g., collapsible), that exceed the 160 watt-hour limit (13.5 grams aggregate equivalent lithium content). The DGP Panel therefore adopted an upper limit of 300 watt-hours (25 grams aggregate equivalent lithium content) for batteries which must be removed and carried aboard in the passenger cabin. The DGP Panel agreed, that when applicable, the battery must be removed by the user. Because the HMR currently places an upper limit on such batteries to 25 grams aggregate equivalent lithium content (300 watt-hours), no corresponding revision to § 175.10(a)(17) of the HMR is necessary.

Therefore, in this NPRM, PHMSA proposes to amend the HMR for consistency with the ICAO DGP/23 Panel recommendations. This NPRM also proposes to clarify and correct some related amendments adopted in the original January 19, 2011 final rule. See the Section-by-Section discussion of specific amendments being proposed in § 175.10 in Section V. of this preamble.

In this notice, PHMSA responds to an administrative appeal submitted in response to a final rule published February 2, 2010 (HM-231; 75 FR 5376) that adopted miscellaneous amendments to packaging provisions in the HMR. The final rule revised recordkeeping requirements in § 173.22 for shipper retention of manufacturer notification (including closure instructions) and required shippers to maintain a packaging's manufacturer notification (including closure instructions) for 365 days subsequent to offering the package for transportation. The final rule also revised § 178.2(c) to strengthen manufacturer notification requirements and to allow them greater flexibility in how they provide the notification. The final rule was effective on October 1, 2010.

On March 3, 2010, we received an administrative appeal from DGAC requesting that PHMSA delay the effective date of the final rule for two years to provide sufficient time for packaging manufacturers to review their current packaging design manufacturer notification (including closure instructions) for compliance with the new requirement to ensure closure instructions provide a repeatable method of closing the packaging consistent with the way it was closed prior to performing qualification testing on the packaging design.

We did not grant the DGAC administrative appeal in our September 30, 2010 final rule (75 FR 60333) that responded to a petition for rulemaking and several other administrative appeals. Specifically, we did not grant DGAC's request for a two-year extension of the effective date; however, we did agree that aligning the review and preparation of a packaging's manufacturer notification with its periodic retest merited consideration because it would facilitate the packaging manufacturer's and distributor's compliance with new packaging manufacturer notification requirements adopted in the rule. Thus, in the September 30, 2010 final rule, we revised the recordkeeping requirement from 365 days to a two-year period for combination packagings and a one-year period for single packagings consistent with a typical packaging design's periodic retest frequency.

DGAC submitted a follow-up administrative appeal objecting to our revision in the September 30, 2010 final rule to the recordkeeping requirement for manufacturer notification and requested that PHMSA return the recordkeeping duration to the 365 days adopted under the February 2, 2010 final rule. DGAC stated that while the preamble discussion in the September 30, 2010 final rule recognized its concerns in the initial appeal, the regulatory response did not grant its request for the extension of the effective date and, instead, created a recordkeeping requirement of two years that is more difficult to comply with than the original one-year (365-day) requirement in the February 2, 2010 final rule. DGAC claimed there is no need for a shipper to retain a copy of a packaging's manufacturer notification (including closure instructions) for longer than 365 days. DGAC also asked whether the words “supporting documentation” were intentionally omitted from the September 30, 2011 final rule revision to 49 CFR 178.601(g)(1). Further, DGAC requested that PHMSA amend 49 CFR 171.14 to extend the effective date of the February 2, 2010 final rule to October 1, 2011.

PHMSA response.

Although not stated clearly in both final rules, it was our intent that the new manufacturer notification requirements apply to all applicable hazardous materials packagings manufactured on or after October 1, 2010. Packagings manufactured before this date should already conform to HMR performance standards for their design type in effect at the time of manufacture. As we stated in the February 2, 2010 final rule, we revised this regulation to address an increase in hazardous materials releases as a result of improperly closed packagings. In our opinion, review of existing manufacturer notifications for packaging designs that should already be in compliance with the HMR would involve much less effort than DGAC described in its administrative appeal. We also believe sufficient time has elapsed since the February 2, 2010 final rule was published to complete this task and any additional time is not warranted.

Therefore, in this notice, we are denying DGAC's appeal to extend the effective date of the rule. However, we are proposing to amend § 178.2(c)(1)(ii) of the HMR based on DGAC's request to revert back to the original recordkeeping retention duration for manufacturer notification to the 365-day period adopted in the February 2, 2010 final rule. Additionally, PHMSA is proposing to amend § 173.22(a)(4)(ii) by requiring a shipper to retain manufacturer notification (including closure instructions) for a period of 90 days once a package is offered to the initial carrier for transportation in commerce.

In this NPRM, PHMSA is proposing to clarify that only bulk packagings and cylinders manufactured in accordance with Part 178 of the HMR are excepted from the manufacturer notification (including closure instructions) retention requirements specified in § 173.22(a)(4) if such information is permanently embossed or printed on the packaging. This exception was only provided with such packagings in mind and was originally adopted as a result of public comment.

For clarification, we did not revise § 178.601(g)(1) in the September 30, 2010 final rule as DGAC asserts; we did correct punctuation in §§ 178.601(g)(8)(xiii)(C) and (g)(8)(xiii)(D), which do not include references to supporting documentation. Moreover, we note that the requirement for supporting documentation adopted in the February 2, 2010 final rule remains in § 178.601(g)(1) with the statement that the method used to determine whether the inner packaging, including closure, of a Variation 1 packaging maintains an equivalent level of performance to the originally tested packaging design must be “documented in writing by the person certifying compliance and retained in accordance with paragraph (l)” of § 178.601. Therefore, no further revision of this paragraph is needed or is proposed in this notice.

This section prescribes written hazardous material incident report requirements. In this notice, we are proposing to revise the paragraph (d) exceptions to reflect the eventual phase-out of the ORM-D system on December 31, 2015 and to extend the exception provided for material classed as ORM-D to hazardous materials authorized for transportation as limited quantity material under Subparts C through E and Subpart G of Part 173 of the HMR.This exception is not applicable to air transportation.See section II.E for a comprehensive discussion of the proposed changes.

Section 172.200 prescribes the applicability of shipping paper requirements for the transportation of hazardous materials. In the January 19 final rule, paragraph (b)(3) was revised to remove the exceptions for ORM-D material in conformance with revisionsmade to the limited quantity requirements. In this notice, we are proposing to revise the effective date for expiration of the authorization to reclassify to the ORM-D hazard class from December 31, 2013 to December 31, 2015 in response to the appeal submitted by HDMA. Additionally, we propose to revise paragraph (b)(3) to correct the shipping paper applicability for a vessel shipment of ORM-D material that was inadvertently adopted in the January 19, 2011 final rule. Additionally, we want to emphasize that limited quantity shipments offered for transportation by air or vessel are required to be accompanied by shipping papers as adopted in the January 19, 2011 final rule.

Section 173.315 prescribes the requirements for marking packages containing limited quantity material. Based on administrative appeals submitted and requests to make the requirements for limited quantity marking clearer, we propose to revise § 172.315 to allow the continued use of alternative limited quantity markings (i.e., square-on-point with Identification Number) marking for the same duration offered for continued use of the ORM-D marking, that is, until December 31, 2015. The expiration date for the square-on-point with Identification Number marking remains December 31, 2012 for air transportation.

Section 172.316 prescribes marking requirements for packages containing materials classed as ORM-D and ORM-D-AIR. As adopted in the January 19 final rule, the marking prescribed in this section will no longer be authorized for limited quantities effective January 1, 2014. In this document, we are proposing to revise the effective date for expiration of the authorization to reclassify to the ORM-D hazard class from December 31, 2013 to December 31, 2015 in response to the appeal submitted by HDMA. The expiration date for the ORM-D-AIR hazard class marking remains December 31, 2012 for air transportation.

This section prescribes exceptions from certain requirements of the HMR for the transportation of hazardous materials defined as material of trade when transported by motor vehicle. See § 171.8. In this notice, we are proposing to revise the paragraph (d) exceptions to reflect the phase-out of the ORM-D system on December 31, 2015 and extend the exception provided ORM-D material to hazardous materials authorized for transportation as limited quantity material under Subparts C through E and Subpart G of Part 173 of the HMR. See section II.F for a comprehensive discussion of these proposed changes.

Section 173.22 prescribes shipper responsibilities. In this document, PHMSA responds to an administrative appeal submitted in response to a final rule published February 2, 2010 (HM-231; 75 FR 5376) that adopted miscellaneous amendments to packaging provisions in the HMR. The final rule revised recordkeeping requirements in § 173.22 for shipper retention of manufacturer notification (including closure instructions). The amendments adopted required shippers to maintain a packaging's manufacturer notification (including closure instructions) for 365 days subsequent to offering the package for transportation.

In this notice, PHMSA is proposing to revise § 173.22(a)(4) to clarify that only bulk packagings and cylinders manufactured in accordance with Part 178 of the HMR are excepted from the manufacturer notification (including closure instructions) retention requirements specified in § 173.22(a)(4) (shipper responsibilities) if such information is permanently embossed or printed on the packaging. Additionally, we are proposing to revise the same paragraph to require that, if applicable, a shipper only be required to retain the packaging design's manufacturer notification (including closure instructions) for 90 days once offered to the initial carrier for transportation. See Section III of this preamble for a more comprehensive discussion.

This section prescribes requirements for the transportation of authorized packages in overpacks used for protection or convenience of handling or to consolidate packages. In this document, we are proposing to revise § 173.25(a)(6) to clarify that all markings on each package containing a limited quantity or ORM-D material in an overpack are not required to be visible, but rather, that markings representative of each hazardous material in the overpack are visible as specified in § 173.25(a)(2) and (a)(3). Additionally, we are proposing to correct an error made in the January 19, 2011 final rule by revising paragraphs (a)(6) and the new (a)(7) applicable to overpacked packages of limited quantities, ORM-D, and excepted quantity materials to reaffirm that an overpack is only required to be marked with the word “OVERPACK” if specification markings, when required, are not visible.

Because these amendments were not proposed in the original NPRM, nor were they adopted in the January 19, 2011 final rule, we believe notice and comment are appropriate. We are therefore granting the administrative appeals and soliciting public comment until July 24, 2012 for the purpose of gathering information to help determine if § 173.25(a)(6) and (a)(7) should be revised to clarify that all markings on each package containing a limited quantity, ORM-D, or excepted quantity material in an overpack, are not required to be visible; rather, all markings representative of each hazardous material in the overpack are to be visible and whether the required use of the “OVERPACK” mark should be expanded in accordance with the various international standards.

Section 173.63 specifies packaging exceptions for certain Division 1.4S explosive articles authorized for reclassification and transport as ORM-D material. Such articles in Division 1.4S may continue to be reclassed as ORM-D and offered for transportation until December 31, 2013. Thus, in this notice we are proposing to revise the effective date for expiration of the authorization to reclassify to the ORM-D hazard class from December 31, 2013 to December 31, 2015 in response to the appeal submitted by HDMA.

Section 173.144 defines “Other Regulated Materials, ORM-D.” In this notice, we are proposing to revise the effective date for expiration of the ORM-D hazard class from December 31, 2013 to December 31, 2015 in response to the appeal submitted by HDMA.

Sections 173.150 through 173.155 prescribe the exceptions for certain Class 3, 8 and 9 and Division 2.1, 2.2, 4.1, 4.2, 5.1, 5.2, 6.1 hazardous materials under the HMR. In response to HDMA's administrative appeal, in this notice, we are proposing to revise the effective date for expiration of the authorization to reclassify to the ORM-D hazard class from December 31, 2013 to December 31, 2015 in each of these sections' consumer commodity paragraphs, where applicable.

Section 173.156 prescribes exceptions for the Other Regulated Materials, ORM-D hazard class. In this notice, we are proposing to revise the effective date for expiration of the authorization to reclassify to the ORM-D hazard class from December 31, 2013 to December 31, 2015 in response to HDMA's administrative appeal.

Section 173.161 prescribes packaging requirements for chemical kits and first aid kits containing small amounts of hazardous materials. In this notice, we are proposing to revise the effective date for expiration of the authorization to reclassify to the ORM-D hazard class from December 31, 2013 to December 31, 2015 in response to HDMA's administrative appeal.

In the January 19 final rule, a new section 173.165 was added to prescribe packaging and other requirements for “Polyester resin kits, UN3269” formerly contained in § 172.102, special provision 40 and § 173.152(b)(4) of the HMR. In this notice, we are proposing to revise the effective date for expiration of the authorization to reclassify to the ORM-D hazard class from December 31, 2013 to December 31, 2015 in response to HDMA's administrative appeal.

In the January 19 final rule, a new section 173.167 was added to indicate authorized materials and quantity limits for articles and substances that may be described as “ID8000, Consumer commodity,” eligible for transport by aircraft and authorized transportation by all modes. This notice addresses inconsistencies with the ICAO Technical Instructions brought to our attention in appeals submitted in response to the final rule. Appellants are correct in their assessment of the inconsistencies that exist between the consumer commodity provisions adopted in the HMR and the ICAO Technical Instructions. We are granting their administrative appeals and soliciting public comment for the limited purpose of gathering any information to help determine if we should revise the § 173.167 amendments adopted in the final rule consistent with Packing Instruction Y963 of the ICAO Technical Instructions.

Section 173.230 prescribes the requirements for fuel cells offered for transportation by all modes. In paragraph (g) of the final rule, PHMSA adopted limited quantity provisions for such articles by aircraft consistent with the ICAO Technical Instructions. In paragraph (h), PHMSA also adopted a prohibition of reclassification to “Consumer commodity, ORM-D-AIR” for transportation by aircraft. In this notice, we are proposing to revise the effective date for expiration of the authorization to reclassify to the ORM-D hazard class for other than air transportation from December 31, 2013 to December 31, 2015 in response to HDMA's administrative appeal.

Section 173.306 prescribes requirements for limited quantity of compressed gases. In paragraph (i)(2), we are proposing to revise the effective date for expiration of the authorization to reclassify to the ORM-D hazard class from December 31, 2013 to December 31, 2015 in response to HDMA's administrative appeal.

Section 173.309 prescribes requirements for fire extinguishers. In this NPRM, we are proposing to revise the entire section for clarity. First, we are proposing to move the limited quantity requirements and exceptions from paragraph (a) to paragraph (b) as we typically indicate regulation first in most sections followed by any exceptions to that regulation. Second, we are proposing to add regulatory text from § 172.102(c)(1) Special provision 18 to revised paragraph (a) that prescribes the conditions when specification cylinders may be described, offered and transported in commerce as fire extinguishers. Further, we solicit public comment on whether we should consider allowing UN specification cylinders as fire extinguishers in § 173.309. Lastly, we are proposing to revise paragraph (b) by excepting a limited quantity package of fire extinguishers from shipping papers when transported by highway or rail if marked in accordance with § 172.315. This exception is provided in addition to the existing HMR exceptions from labeling (unless offered for transportation by aircraft), placarding, Part 174 and Part 177 for limited quantity packages of fire extinguishers.

In the January 19, 2011 final rule, we amended the HMR to align with international standards by designating paragraphs (a)(17) and (a)(18) as paragraphs (a)(18) and (a)(19) and by adding a new paragraph (a)(17) that authorized a mobility aid such as a wheelchair, powered by a lithium ion battery, to be transported aboard a passenger-carrying aircraft.

For consistency with the wheelchair or other battery-powered mobility aid provisions in § 175.10(a)(15) and (a)(16), and the provisions provided for the carriage of portable electronic devices powered by lithium ion batteries in § 175.10(a)(17) (now § 175.10(a)(18)), the final rule merged applicable provisions for the transportation of lithium ion battery-powered mobility aids into a new § 175.10(a)(17). We stated that removal of the battery may be necessary based on results of the required visual inspection or if the mobility aid was to be offered to the operator as checked baggage. It was not our intent to require an operator or passenger to remove a properly secured lithium ion battery from a mobility aid that was not specifically designed to allow its batteries to be removed. Further, it is the responsibility of the operator to determine if the wheelchair or other mobility aid is designed to have its battery removed by the user. Information provided by the user or visual inspection may be used in this process. Therefore, a revision of certain amendments adopted in § 175.10(a)(17) of the final rule is required and are as follows:

• A mobility aid such as a wheelchair, powered by a lithium ion battery, must be transported as checked baggage aboard an aircraft. This requirement is consistent with the 14 CFR Part 382 provisions under the Air Carrier Access Act (ACAA);

• Provided the wheelchair or other mobility aid is not specifically designed to allow its lithium ion battery to be removed, battery removal is not required;

• If the battery is to remain installed, a wheelchair or other mobility aid may be loaded and stowed in any orientation determined by the operator necessary to prevent unintentional activation of the mobility aid or short circuiting of the battery and is equally protected as the upright orientation would provide;

• The wheelchair or other mobility aid must be protected from damage by the movement of baggage, mail, service items, or other cargo; and

• As adopted in the January 19, 2011 final rule, a lithium ion battery specifically designed to be removed from a mobility aid (e.g., collapsible) by the user and any spare batteries must be transported in carry-on baggage in accordance with paragraph (vii). The carry-on battery must not exceed 25 grams aggregate equivalent lithium content and a maximum of one sparebattery not exceeding 25 grams aggregate equivalent lithium content or two spares not exceeding 13.5 grams aggregate equivalent lithium content each may be carried on.

Section 176.905 prescribes specific requirements for motor vehicles or mechanical equipment powered by internal combustion engines that are offered for transportation and transported by vessel. In the January 19, 2011 final rule, PHMSA should have revised the paragraph (i) introductory text to clarify that if any of the exceptions criteria were met, the articles were excepted from the requirements of the HMR. Additionally, PHMSA is proposing in this notice to remove the heading for each exception criterion in paragraph (i) for clarity. They are not necessary and have resulted in confusion among our stakeholders as some of the headings were perceived to be inconsistent with the IMDG Code.

Section 178.2 prescribes HMR applicability and responsibility required of packaging manufacturers. In this notice, PHMSA responds to an administrative appeal submitted in response to a final rule published February 2, 2010 (HM-231; 75 FR 5376) that adopted miscellaneous amendments to packaging provisions in the HMR. The final rule revised recordkeeping requirements in § 173.22 for shipper retention of manufacturer notification (including closure instructions). The amendments adopted required shippers to maintain a packaging manufacturer's notification (including closure instructions) for 365 days subsequent to offering the package for transportation. The final rule also revised § 178.2(c) to strengthen manufacturer notification requirements and to allow manufacturers greater flexibility in how they provide the notification. The final rule was effective on October 1, 2010.

In response to a misunderstanding of an administrative appeal, PHMSA revised the recordkeeping requirement from 365 days to a two-year period for combination packagings and a one-year period for single packagings consistent with a typical packaging design's periodic retest frequency. Subsequently, DGAC submitted another administrative appeal requesting PHMSA revise the notification retention requirements in § 178.2(c)(1)(ii) back to the original one year from date of issuance. Thus, in this notice we are proposing to amend the HMR based on DGAC's request to revert back to the original recordkeeping retention duration for manufacturer notification to one year.

This NPRM is published under the following statutory authorities:

1. 49 U.S.C. 5103(b) authorizes the Secretary of Transportation to prescribe regulations for the safe transportation, including security, of hazardous material in intrastate, interstate, and foreign commerce. This NPRM responds to administrative appeals of certain amendments adopted in final rule PHMSA-2009-0126 (HM-215K) published on January 19, 2011 (76 FR 3308). Additionally, it responds to administrative appeals of certain amendments adopted in a final rule PHMSA-2006-25736 (HM-231) published on February 2, 2010 (75 FR 5376).

2. 49 U.S.C. 5120(b) authorizes the Secretary of Transportation to ensure that, to the extent practicable, regulations governing the transportation of hazardous materials in commerce are consistent with standards adopted by international authorities.

This notice is not considered a significant regulatory action under section 3(f) of Executive Order 12866 and, therefore, was not reviewed by the Office of Management and Budget. This notice is not considered a significant rule under the Regulatory Policies and Procedures of the Department of Transportation (44 FR 11034). Additionally, E.O. 13563 supplements and reaffirms E.O. 12866, stressing that, to the extent permitted by law, an agency rulemaking action must be based on benefits that justify its costs, impose the least burden, consider cumulative burdens, maximize benefits, use performance objectives, and assess available alternatives.

This notice applies to offerors and carriers of hazardous materials, such as chemical manufacturers, chemical users and suppliers, packaging manufacturers, distributors, radiopharmaceutical companies, and training companies. Benefits resulting from the adoption of the amendments in this notice include enhanced transportation safety resulting from the consistency of domestic and international hazard communications and continued access to foreign markets by U.S. manufacturers of hazardous materials. A regulatory evaluation is available for review in the public docket for this rulemaking.

In most instances, the amendments in this rulemaking reduce compliance costs of the regulated population, and it is likely that these changes are possible without reducing public safety. Although we were not able to quantify all of the costs and benefits for most of the amendments, the net benefits of those we were able to quantify are approximately $3.5 million per year. The following table summarizes the costs and benefits for the different amendments being proposed:

This notice has been analyzed in accordance with the principles and criteria contained in Executive Order 13132 (“Federalism”), and the President's memorandum on “Preemption” published in theFederal Registeron May 22, 2009 (74 FR 24693). If adopted in a final rule, it would preempt State, local, and Indian tribe requirements but does not propose any regulation that has substantial direct effects on the States, the relationship between the national government and the States, or the distribution of power and responsibilities among the various levels of government. Therefore, the consultation and funding requirements of Executive Order 13132 do not apply.

The Federal hazardous material transportation law, 49 U.S.C. 5101-5128, contains an express preemption provision (49 U.S.C. 5125(b)) that preempts State, local, and Indian tribe requirements for certain subjects. The subjects are:

(1) The designation, description, and classification of hazardous materials;

(2) The packing, repacking, handling, labeling, marking, and placarding of hazardous materials;

(3) The preparation, execution, and use of shipping documents related to hazardous materials and requirements related to the number, contents, and placement of those documents;

(4) The written notification, recording, and reporting of the unintentional release in transportation of hazardous material; and

(5) The design, manufacture, fabrication, marking, maintenance, recondition, repair, or testing of a packaging or container represented, marked, certified, or sold as qualified for use in transporting hazardous material.

This notice addresses all the covered subject items above and preempts State, local, and Indian tribe requirements not meeting the “substantively the same” standard. This notice is necessary to incorporate revisions to the HMR based on administrative appeals submitted in response to the January 19, 2011 final rule, effective January 1, 2011. Federal hazardous materials transportation law provides at section 5125(b)(2) that, if DOT issues a regulation concerning any of the covered subjects, DOT must determine and publish in theFederal Registerthe effective date of Federal preemption. The effective date may not be earlier than the 90th day following the date of issuance of the final rule and not later than two years after the date of issuance. The effective date of Federal preemption is [DATE 90 DAYS FROM PUBLICATION DATE OF FINAL RULE IN THEFederal Register].

This notice was analyzed in accordance with the principles and criteria contained in Executive Order 13175 (“Consultation and Coordination with Indian Tribal Governments”). Because this notice does not have tribal implications, does not impose substantial direct compliance costs, and is required by statute, the funding and consultation requirements of Executive Order 13175 do not apply.

The Regulatory Flexibility Act (5 U.S.C. 601et seq.) requires an agency to review regulations to assess their impact on small entities unless the agency determines that a rule is not expected to have a significant impact on a substantial number of small entities. We have completed an assessment and placed it in the docket for this rulemaking. Commenters are invited to address the costs and benefits of the amendments proposed in this notice and the potential impacts, positive or negative, on small businesses.

This notice has been developed in accordance with Executive Order 13272(“Proper Consideration of Small Entities in Agency Rulemaking”) and DOT's procedures and policies to promote compliance with the Regulatory Flexibility Act to ensure that potential impacts of proposed rules on small entities are properly considered.

Under the Paperwork Reduction Act of 1995, no person is required to respond to an information collection unless it has been approved by OMB and displays a valid OMB control number. Section 1320.8(d), Title 5, Code of Federal Regulations requires that PHMSA provide interested members of the public and affected agencies an opportunity to comment on information and recordkeeping requests.

This notice identifies a revised information collection request that PHMSA will submit to OMB for approval based on the requirements proposed in this notice. PHMSA has developed burden estimates to reflect proposed changes in this notice, and estimates the information collection and recordkeeping burden as proposed in this notice to be as follows:

• This notice reduces the OMB Control Number 2137-0572 information collection burden by $1,654,384 annually.

PHMSA will submit the revised information collection and recordkeeping requirements to OMB for approval.

A regulation identifier number (RIN) is assigned to each regulatory action listed in the Unified Agenda of Federal Regulations. The Regulatory Information Service Center publishes the Unified Agenda in April and October of each year. The RIN contained in the heading of this document can be used to cross-reference this action with the Unified Agenda.

This notice does not impose unfunded mandates under the Unfunded Mandates Reform Act of 1995. It does not result in costs of $141.3 million or more to either State, local, or tribal governments, in the aggregate, or to the private sector, and is the least burdensome alternative that achieves the objective of the rule.

The National Environmental Policy Act of 1969 (NEPA) requires Federal agencies to consider the consequences of major Federal actions and prepare a detailed statement on actions significantly affecting the quality of the human environment. In the January 19, 2011 final rule, we developed an assessment to determine the effects of these revisions on the environment and whether a more comprehensive environmental impact statement may be required. Our findings concluded that there are no significant environmental impacts associated with the final rule. Consistency in the regulations for the transportation of hazardous materials aids in shippers' understanding of what is required and permits shippers to more easily comply with safety regulations and avoid the potential for environmental damage or contamination. For interested parties, an environmental assessment was included with the January 19, 2011 final rule available in the public docket. Additionally, we do not see any significant environmental impacts associated with the amendments proposed in this notice regarding the administrative appeals submitted in response to the January 19 final rule. We welcome comment on this initial determination.

Anyone is able to search the electronic form of any written communications and comments received into any of our dockets by the name of the individual submitting the document (or signing the document, if submitted on behalf of an association, business, labor union, etc.). You may review DOT's complete Privacy Act Statement in theFederal Registerpublished on April 11, 2000 (65 FR 19477) or you may visithttp://www.dot.gov/privacy.html.

The Trade Agreements Act of 1979 (Pub. L. 96-39), as amended by the Uruguay Round Agreements Act (Pub. L. 103-465), prohibits Federal agencies from establishing any standards or engaging in related activities that create unnecessary obstacles to the foreign commerce of the United States. For purposes of these requirements, Federal agencies may participate in the establishment of international standards, so long as the standards have a legitimate domestic objective, such as providing for safety, and do not operate to exclude imports that meet this objective. The statute also requires consideration of international standards and, where appropriate, that they be the basis for U.S. standards. PHMSA participates in the establishment of international standards in order to protect the safety of the American public, and we have assessed the effects of this notice to ensure that it does not exclude imports that meet this objective. Accordingly, this rulemaking is consistent with PHMSA's obligations under the Trade Agreement Act, as amended.

In consideration of the foregoing, PHMSA is proposing to amend Title 49, Subtitle B, Chapter I as follows: