Proposed Rules. Notice of a Continuance Referendum

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BILLING CODE 6325-39-P DEPARTMENT OF AGRICULTURE Agricultural Marketing Service 7 CFR Part 1218 [Doc. No. FV-06-702-Notice] Blueberry Promotion, Research, and Information Order; Continuance Referendum AGENCY: Agricultural Marketing Service, Agriculture. ACTION: Notice of a Continuance Referendum. SUMMARY: This notice directs that a referendum be conducted among the eligible producers and importers of blueberries to determine whether they favor continuance of the Blueberry Promotion, Research, and Information Order (Order).

DATES: This referendum will be conducted from August 1, 2006 through August 22, 2006. To vote in this referendum, producers and importers must have paid assessments on blueberries produced or imported during the representative period of November 1, 2004 through October 31, 2005. ADDRESSES: Copies of the Order may be obtained from: Referendum Agent, Research and Promotion Branch (RP), Fruit and Vegetable Programs (FV), AMS, USDA, Stop 0244, Room 2535-S, 1400 Independence Avenue, SW., Washington, DC 20250-0244, telephone 888-720-9917 (toll free).

Fax 202-205-2800, e-mail *deborah.simmons@usda.gov.* SUPPLEMENTARY INFORMATION: Pursuant to the Commodity Promotion, Research, and Information Act of 1996 (Pub. L. 104-427, 7 U.S.C. 7401-7425) (Act), a referendum is to be conducted not later than seven years after assessments first begin under an order to ascertain whether continuance of the Order is favored by producers and importers of blueberries. The Order is authorized under the Act. The initial referendum was conducted during the period of March 13 through April 14, 2000.

The final results of the initial referendum were that 67.84 percent of the voters in the referendum favored implementation of the Order. Those voting in favor represented 73.15 percent of the volume represented in the referendum. Therefore, the Order became effective July 17, 2000. Under § 1218.71 of the Order, the Department of Agriculture (Department) is authorized to conduct a referendum every five years or when 10 percent or more of the eligible voters petition the Secretary of Agriculture to hold a referendum to determine if persons subject to assessment favor continuance of the Order.

The Department would continue the Order if continuance of the Order is approved by a majority of the producers and importers voting in the referendum who also represent a majority of the volume of blueberries produced or imported during the representative period determined by the Secretary. The representative period for establishing voter eligibility for the referendum shall be the period from November 1, 2004 through October 31, 2005. Persons who are producers and importers of blueberries and paid assessments during the representative period are eligible to vote.

Persons who received an exemption from assessments for the entire representative period are ineligible to vote. The referendum shall be conducted by mail from August 1, 2006 through August 22, 2006. In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35), the referendum ballot has been approved by the Office of Management and Budget

(OMB)and assigned OMB No. 0581-0093. It is estimated that there are approximately 1,586 producers and 135 importers who will be eligible to vote in the referendum. It will take an average of 25 minutes for each voter to read the voting instructions and complete the referendum ballot. Referendum Order Deborah S. Simmons, Marlene M. Betts and Margaret B. Irby, RP, FV, AMS, USDA, Stop 0244, Room 2535-S, 1400 Independence Avenue, SW., Washington, DC 20250, are designated as the referendum agents to conduct this referendum. The referendum procedures 7 CFR 1218.100 through 1218.107, which were issued pursuant to the Act, shall be used to conduct the referendum. The referendum agents will mail the ballots to be cast in the referendum and voting instructions to all known producers and importers prior to the first day of the voting period. Persons who are producers and importers and who paid assessments during the representative period are eligible to vote. Ballots must be received by the referendum agent beginning August 1, 2006, through 4:30 p.m., Eastern Daylight Savings Time, August 22, 2006, in order to be counted. Authority: 7 U.S.C. 7401-7425. Dated: May 22, 2006. Lloyd C. Day, Administrator, Agricultural Marketing Service. [FR Doc. E6-8101 Filed 5-25-06; 8:45 am] BILLING CODE 3410-02-P DEPARTMENT OF AGRICULTURE Commodity Credit Corporation 7 CFR Part 1427 RIN 0560-AH48 Storage, Handling, and Ginning Requirements for Cotton Marketing Assistance Loan Collateral AGENCY: Commodity Credit Corporation, USDA. ACTION: Proposed rule. SUMMARY: This rule proposes amending regulations governing the cotton Marketing Assistance Loan Program of the Commodity Credit Corporation

(CCC)that is authorized by the Farm Security and Rural Investment Act of 2002 (2002 Act). The major proposed regulatory changes would impact the administration of the program by amending regulations governing: The outside storage of upland cotton pledged as collateral for CCC loans; the certification provided by approved ginners to produce bales that are compliant with CCC loan eligibility requirements; the reconcentration and transfer of upland cotton pledged as collateral for CCC loans; and the storage credit provided to producers when an upland cotton marketing assistance loan is repaid. DATES: Comments should be received on or before June 26, 2006. ADDRESSES: CCC invites interested persons to submit comments on this proposed rule and on the collection of information required to administer the affected regulations. Comments may be submitted by any of the following methods: • E-Mail: Send comments to *gene.rosera@wdc.usda.gov.* • Fax: Submit comments by facsimile transmission to:

(202)690-1536. • Mail: Send comments to: Director, Price Support Division, Farm Service Agency, United States Department of Agriculture (USDA), Rm. 4095-S, 1400 Independence Avenue, SW., Washington, DC 20250-0512. • Hand Delivery or Courier: Deliver comments to the above address. • Federal Rulemaking Portal: Go to *http://www.regulations.gov.* Follow the online instructions for submitting comments. All written comments will be available for public inspection at the above address during business hours from 8 a.m. to 5 p.m., Monday through Friday. FOR FURTHER INFORMATION CONTACT: Gene Rosera; phone:

(202)720-8481; e-mail: *gene.rosera@wdc.usda.gov;* or fax:

(202)690-1536. SUPPLEMENTARY INFORMATION: Background CCC regulations generally require that cotton loan collateral must be stored inside a warehouse for the cotton to be eligible for marketing assistance loan. Cotton regulations at 7 CFR 1427.5 provide that for a bale of cotton to be eligible to be pledged as collateral for a marketing assistance loan, the bale must be stored inside a warehouse approved by CCC. An exception to this general requirement is provided by regulations at 7 CFR 1427.10 that provide that a commercial entity involved in handling or storage of cotton in a county or area determined and announced by CCC may be approved for outside storage of 2003 and subsequent crops of extra long staple

(ELS)cotton. Such outside storage is subject to site requirements and terms and conditions regarding collateral identification and location as provided in an appendix to the ELS cotton note and security agreement. According to the January 2006 Crop Production Summary of the USDA Agricultural Statistics Board, total cotton production in Texas, estimated at 4.374 million bales in 2003, increased to 7.778 million bales in 2004 (about a 78 percent increase) and to 8.245 million bales in 2005 (a 6 percent increase from the prior year.) The available approved cotton storage warehouse capacity in West Texas has not kept pace with these production increases, and the result has been that loan cotton was stored outside for extended periods both years. In response to this shortage of approved cotton storage, on May 13, 2005, the CCC informed cotton warehouse operators through Notice to the Trade BCD-97 that they could apply for approval of short-term temporary storage subject to placing any 2004-crop cotton loan collateral in conventional space by June 1, 2005 (later extended to June 27, 2005). In early March, 2005, the quantity of loan cotton stored outside exceeded 118,000 bales. In response to storage shortages that began in December, 2005, CCC, on January 18, 2006, issued Notice to the Trade BCD-117, allowing warehouse operators to again request temporary use of yard storage for 2005-crop cotton loan collateral, to be limited to the earlier of 90 days from the original storage date or April 1, 2006. This deadline was subsequently extended to May 1, 2006. By early March, 2006, the quantity of loan cotton stored outside topped 435,000 bales, equal to 93 percent of the Texas crop increase for the year. These recent authorizations by CCC of outside storage for upland cotton are viewed by some industry entities as counterproductive to CCC's interests. The traditional requirement for inside storage of loan cotton has wide support for being essential to prevent quality losses from sun, dust, and moisture. This view has been bolstered by complaints from cotton buyers regarding U.S. cotton quality. In the end, CCC has strived to provide a balance between the practical needs for storing back-to-back bumper crops with the need for reasonable crop protection to protect the quality and reputation of U.S. cotton for domestic and export buyers. Cotton regulations at 7 CFR 1427.5 provide that for a bale of cotton to be eligible to be pledged as collateral for a marketing assistance loan, the bale must be in good condition and not be false-packed or water-packed. False-packed cotton is defined by regulations at 7 CFR 1427.3 as containing damaged cotton in the interior with or without any indication of the damage on the exterior; or cotton composed of good cotton on the exterior and decidedly inferior cotton in the interior, but not detectable by customary examination. Water-packed cotton is defined by 7 CFR 28.40(h) as cotton in a bale that has been penetrated by water during the baling process, causing damage to the fiber, or a bale that through exposure to the weather or by other means, while apparently dry on the exterior, has been damaged by water in the interior. The incidence of water damage in cotton loan collateral has historically been minimal. The wet bales that have occasionally been produced at gins have, most commonly, occurred as a result of the variability of moisture in seed cotton. It is common practice for cotton gins to dry excessively moist seed cotton, if required, before ginning, or to add some moisture if the cotton is too dry. The moisture restoration systems at cotton gins use humidified air, liquid water sprays, or a combination of both systems. These systems may be employed before the gin stand, at the battery condenser, or at the lint slide before the cotton is pressed. Generally, cotton is thought to gin best at 6 to 7 percent moisture content (wet basis) which minimizes breakage and allows for fiber separation. Moisture in this range also aids in the bale compression by reducing the amount of needed pressure. During the 2005 marketing year for cotton, CCC determined that the cotton produced at two gins was water damaged and, therefore, ineligible as collateral for a loan. The damage to the bales was discovered after the cotton had been accepted by CCC as loan collateral, and some cotton merchants had been designated as agents for the cotton, implying that the cotton had figured into their marketing plans. Still other cotton from the gins had already been sold. Both of the gins employed direct liquid water spray systems. As a result of the losses and marketing disruptions resulting from these bales being water damaged, CCC has received comments with respect to whether policy changes are needed in this matter. One national organization commented that cotton lint exposed to direct liquid water spray at a gin should not be eligible to be used as collateral for CCC loans. Others have commented that direct liquid spray equipment has been used by many gins without damaging the cotton. Discussion of Comments CCC published an advance notice of proposed rulemaking on February 13, 2006 at 71 FR 7445. During the 60-day comment period, CCC received 43 comments. Respondents included 4 national organizations, 8 regional organizations, 15 cotton storage warehouses, and 16 individuals or companies. Regarding CCC's overall storage requirements regarding upland loan cotton, the comments received indicate a lack of industry consensus as to appropriate policy. Generally, warehouses support use of outside storage on a temporary, case-by-case basis when justified by extraordinary circumstances, with such storage subject to requirements such as use of dunnage or additional protection of the cotton. Cotton merchants stated that outside storage contributes to the damage of such cotton and is detrimental to producers and cotton users. Many specific recommendations were provided as to how CCC might restrict the use of such outside storage. Generally, there is no support for CCC to reduce the loan rate for loan cotton that might be stored outside, but some comments are that CCC should reduce or provide no storage credit for outside-stored cotton as an incentive to producers and warehouses to store cotton indoors. Regarding the storage credit provided for outside-stored loan collateral, many comments supported CCC providing the full storage credit, and others commented that the storage costs affect U.S. cotton competitiveness. Other comments are that outside storage has its own unique costs, or that no reduction in the storage credit is warranted because the incidence of damage to loan cotton from the use of outside storage has been minimal. Two national producer or industry organizations support a policy of requiring loan cotton to be stored inside except to accommodate temporary, extraordinary or unforeseen conditions. Although respondents support a storage policy to ensure that cotton is protected, their views differ as to whether outside storage constitutes a risk to the cotton. Some maintain that there are no procedures that can mitigate the incidence of rain, dust, or sun damage, while other comments minimize such risks, or contend that outside storage has been justified due to extraordinary, localized production increases. The comments, in general, support the conclusion that outside storage exposes cotton to specific risks of damage from water, dust, sun bleaching, and possibly mold from water trapped by double bagging. Those supporting use of temporary outside storage generally contend that practices such as use of dunnage and double wrapping or covering of bales provides sufficient protection; other contend that the packaging standards of the Joint Cotton Industry Bale Packaging Committee were not established for outside storage and, thus, there are no materials determined appropriate for outside use. There were many comments regarding CCC allowing producers or agents of producers to request “re-concentration” of loan cotton. Reconcentration is the term used to describe the movement of CCC loan cotton from one warehouse to another. Two national organizations stated that any reconcentration policy should not affect the integrity of electronic warehouse receipts, and that CCC should pay accrued storage to warehouses prior to reconcentrations. Other comments supported reconcentrations only under limited circumstances, such as for cotton stored outside or other warehouse violations. Concern was stated that any unlimited opportunities for merchants to relocate loan cotton would benefit a few and possibly add to cotton flow problems. CCC has concluded from the comments provided that the relocation of loan cotton, at the expense of the producer or producer's agent, is a reasonable course of action regardless of whether the original storing warehouse consents to the movement of the cotton. The transfer of loan collateral should ameliorate the risks of quality deterioration of the cotton, relieve regional shortage congestion, and facilitate more efficient marketing of cotton. Regarding the existing 4.5 percent weekly minimum shipping standard, several comments suggested that the standard should be amended to be based on the higher of approved capacity or the quantity of bales on hand. A few commented that the weekly minimum standard is inadequate and should be raised to meet needs of the growing export-oriented market. Other comments suggested that USDA should enforce the existing standard or support steps to improve warehouse shipping performance through weekly performance reporting or new standards. At this time, and based on its current statutory authorities, CCC is not proposing any new warehouse performance or reporting requirements related to the 4.5 percent weekly shipping requirement. CCC continues to examine warehouse performance against this current standard and has not completed its review. However, CCC understands the importance of the enforcement of a standard to the efficient flow of cotton, and is receptive to support any improvements in the standard, or enforcement procedures, that may be developed and recommended by a consensus of industry representatives. Proposed Changes CCC proposes to revise regulations at 7 CFR part 1427 to: Provide cotton loan eligibility consistent with any short-term needs for outside storage of upland cotton loan collateral; improve the flow of cotton by removing excessive incentives to store cotton; and protect CCC from assuming losses that result from accepting upland cotton as collateral for a loan that has unpaid charges. A. Outside Storage of Upland Loan Cotton Based on the comments received, and consistent with CCC objectives in administering the marketing assistance loan program for upland cotton, CCC has concluded that, in spite of the inherent risk of increasing the damage to cotton by storing it outside, the use of outside storage may be unavoidable under some circumstances beyond the control of the producer. Depriving the producer of eligibility for marketing assistance loan benefits based on circumstances that may arise after the production of the crop would raise concerns over the fairness of policy and could disrupt the marketing of the cotton. However, CCC is mindful that a relaxed storage policy may also increase the use of outside storage when inside storage may be available nearby or within economically practicable distances. CCC, therefore, concludes that its policy regarding the storage of cotton needs to accommodate special circumstances without creating incentives that might indirectly increase the use of outside storage when it may not be warranted. Accordingly, CCC proposes to amend the cotton loan eligibility requirements to amend the storage requirements for a bale of cotton to be eligible as collateral for a marketing assistance loan. Generally, CCC will continue to require that a bale of cotton must be stored inside a cotton storage warehouse but will annually determine in which counties outside storage for cotton pledged as collateral for a CCC loan may be used subject to the following special provisions:

(1)As part of the application for approval of the use of outside storage, the warehouse must agree to implement special storage requirements, including but not limited to, additional packaging, dunnage, security, and insurance coverage with CCC named as the loss payee, and

(2)the loan repayment amount will not be reduced by any storage credit as would apply to loan cotton stored inside. B. Reconcentration of Cotton The changes in domestic cotton marketing caused by strong export market demand have altered domestic cotton marketing channels and, as a result, have created more urgency to move cotton efficiently through marketing channels. The 9-month loan term for marketing assistance loans, coupled with crediting the repayment of the loan for accrued storage charges, may create incentives to maintain the upland cotton in the loan program and adversely delay marketings. In order to ameliorate risks of quality deterioration to CCC marketing loan collateral, relieve regional storage congestion, and facilitate more efficient cotton marketing, CCC proposes to amend regulations at 7 CFR 1427.16, Reconcentration of Cotton, to allow the transfer of 2006 and subsequent crop cotton under loan from one CCC-approved warehouse to another CCC-approved warehouse. Under the proposed process, upon receipt of a transfer application from the producer or producer's authorized agent, CCC will enter into a transfer agreement providing that:

(1)CCC will continue to be holder of the negotiable electronic warehouse receipts from the original storing warehouse during the period of the transfer;

(2)the cotton will be moved at the expense of the producer to another CCC-approved cotton storage warehouse (the receiving warehouse) which must have signed the transfer application to indicate its ability to accept the cotton;

(3)the receiving warehouse will issue a non-negotiable electronic warehouse receipt in coverage of the depositor obligation represented by the negotiable electronic warehouse receipts for the transferred cotton;

(4)the receiving warehouse will, when requested, cancel and replace the non-negotiable electronic warehouse receipt with negotiable electronic warehouse receipts;

(5)the original storing warehouse operator must agree to cancel the negotiable electronic warehouse receipts and deliver the non-negotiable electronic warehouse receipt to the receiving warehouse operator promptly upon notice by the producer or CCC; and

(6)all CCC loan servicing, including, but not limited to the loan and repayment rates and warehouse charges, will be based on the terms and conditions of the original storage location. The producer or the requestor of any transfer of loan cotton is responsible for all costs associated with relocating loan cotton, regardless of the circumstances prompting the relocation. This includes any costs of moving loan cotton to inside storage for its delivery to CCC in satisfaction of a loan obligation. CCC assumes responsibility only for the costs of relocating cotton it owns. C. Ginner Agreement and Certification Existing regulations at 7 CFR 1427.5, General eligibility requirements, provide that as a condition for loan eligibility, a bale must be ginned by a ginner that has entered into a Cooperating Ginners' Bagging and Bale Ties Certification and Agreement on a form prescribed by CCC, or certified that the bale is wrapped with bagging and bale ties meeting the requirements of 7 CFR 1427.5(b)(10). All U.S. commercial cotton gins have entered into this agreement with CCC. This agreement remains in effect until terminated by either the gin or by CCC. CCC proposes to amend this regulation to provide that, effective for the 2006 and subsequent crops, cotton must be ginned by a ginner that additionally certifies that the bale, upon ginning, meets the quality requirements for loan eligibility of 7 CFR 1427.5(b) that provide for the bale to be in good condition and not false-packed, water-packed, mixed-packed, re-ginned, or repacked. To administer this new agreement and certification for the 2006 and subsequent cotton crops, CCC proposes to notify all U.S. ginners that previous agreements are terminated. A revised agreement providing the additional certifications explained above will be made available for ginners to sign prior to the 2006-crop harvest. D. Repayment of Loans Current regulations at 7 CFR 1427.19(h) provide that at the time of an upland cotton loan repayment, if the repayment rate is less than the loan level and charges, plus interest, CCC will pay to the producer or agent of the producer the warehouse storage charges that have accrued during the period the cotton was pledged for loan. The amount of this payment may be reduced at times when the adjusted world price is above the national average loan rate by less than the sum of the accrued interest and warehouse storage charges that accrued during the period the cotton was pledged for loan. CCC's payment of the accrued warehouse storage charges under this regulation has, in all cases, been based upon the tariff rate for the cotton storage warehouse where the loan cotton has been stored. CCC has not provided for a uniform storage payment rate to producers or their agents designated to repay the producer's loan obligation even though the loan gain or LDP rate is uniform and provided regardless of location. The tariff rates established by warehouses vary considerably, from below $2.00 to over $5.00 per bale per month. The tariff rates generally appear to be unrelated to the approved capacity of the individual warehouse, with the highest rates occurring in California and Arizona. For the 2005 crop, the average warehouse tariff rate, weighted by quantity of loan bales, is $2.61 per bale per month. About 52 percent of 2005-crop loan cotton was placed into storage in states where the tariff rate, weighted by loan volume, averages $2.15 per bale per month or less. Tariff rates in storage-deficit areas of Texas, including warehouses that recently stored loan cotton outside, fall below the $2.15 per bale level and are among the lowest rates being charged nationwide. The storage credits provided by CCC have been provided so that as storage charges accrue on un-sold cotton, the cost of the cotton and charges does not become uncompetitive relative to the adjusted world price level. However, if the tariff charges levied by the warehouse are especially profitable, the credits provided by CCC will induce producers and ginners to ship their cotton to locations that maximize their storage returns or warehouse rebates. In these cases, the warehouse may be chosen without regard to whether the cotton will be stored inside, or because it is at a location that provides timely load-out when requested by a merchant. For these reasons, CCC has concluded that providing unrestricted storage credits may have a negative impact on both the maintenance of bale quality and on the flow of cotton pledged under the CCC loan program. To improve the equity of program benefits among all producers, to reduce incentives for cotton to be held in storage to maximize CCC-storage payments, and to improve cotton flow, CCC proposes, effective for the 2006 and subsequent crops of upland cotton, to amend the regulations at 7 CFR 1427.19(h), Repayment of Loans, to provide that any storage credit that may be provided by CCC shall be:

(1)Based on a maximum monthly storage-credit payment rate that will not exceed the rate used in 2005 at the location where the 2006 and 2007 crops are stored, not to exceed $2.15, for all loan cotton stored inside an approved cotton storage warehouse; and

(2)zero, for a cotton loan, for which one or more bales are stored outside during the period of the loan, even if these bales are later moved to inside storage. Comments are specifically requested as to whether the proposed maximum rate of $2.15 per bale per month will promote the flow of cotton and provide more equitable program benefits compared to use of individual warehouse tariff rates. E. Liens Current regulations at 7 CFR 1427.12, Liens, provide that if there are any liens or encumbrances on cotton provided as collateral for a marketing assistance loan CCC must obtain waivers that fully protect the interest of CCC before disbursement of the loan even though the liens or encumbrances are satisfied from the loan proceeds. Additionally, no liens or encumbrances shall be placed on the cotton after the loan is approved. Additionally, 7 CFR 1427.19(h) provides that, depending on the level of the adjusted world price determined under 7 CFR 1427.25, CCC may pay to the producer or producer's agent, at the time of the loan repayment, all or a portion of the warehouse storage charges that have accrued during the period the cotton was pledged for loan. Loan cotton stored in approved warehouses also accrues receiving, storage and load-out charges that are paid by the buyer before taking delivery of the cotton from the warehouse. For cotton delivered to CCC in satisfaction of the loan obligation, and to minimize the administrative burden of receiving lien waivers for these charges, CCC has paid the receiving and accrued storage charges to the storing warehouse and then billed the producer for both the receiving charges and any amount of storage that accrued up to the date the cotton was pledged for loan. CCC proposes to revise 7 CFR 1427.12 to establish consistency between these two requirements, and to clarify that CCC shall not be responsible for any charges attached to a bale other than for the storage charges as provided in 7 CFR 1427.19(h). Notice and Comment Section 1601(c) of the 2002 Act provides that the regulations needed to implement Title I of the 2002 Act, which include those involved here, may be promulgated without regard to the notice and comment provisions of 5 U.S.C. 553 or the Statement of Policy of the Secretary of Agriculture effective July 24, 1971 relating to notices of proposed rulemaking and public participation in rulemaking. Executive Order 12866 This rule is issued in conformance with Executive Order 12866, was determined to be not significant and has not been reviewed by the Office of Management Budget. Regulatory Flexibility Act It has been determined that the Regulatory Flexibility Act is not applicable to this rule because the CCC is not required by 5 U.S.C. 533 or any other law to publish a notice of proposed rulemaking for the subject matter of this rule. Environmental Assessment The environmental impacts of this rule have been considered consistent with the provisions of the National Environmental Policy Act of 1969 (NEPA), 42 U.S.C. 4321 *et seq.* , the regulations of the Council on Environmental Quality (40 CFR parts 1500-1508), and the FSA regulations for compliance with NEPA, 7 CFR part 799. FSA concluded that the rule requires no further environmental review because it is categorically excluded. No extraordinary circumstances or other unforeseeable factors exist which would require preparation of an environmental assessment or environmental impact statement. Executive Order 12988 This rule has been reviewed in accordance with Executive Order 12988. This rule will preempt State laws that are inconsistent with it. Before any legal action may be brought regarding a determination under this rule, the administrative appeal provisions set forth at 7 CFR parts 11 and 780 must be exhausted. Executive Order 12372 This program is not subject to the provisions of Executive Order 12372, which require intergovernmental consultation with State and local officials. See the notice related to 7 CFR part 3014, subpart V, published at 48 FR 29115 (June 24, 1983). Unfunded Mandates Reform Act of 1995 The rule contains no Federal mandates under the regulatory provisions of Title II of the Unfunded Mandates Reform Act of 1995

(UMRA)for State, local, and tribal governments or the private sector. Thus, this rule is not subject to the requirements of sections 202 and 205 of the UMRA. Paperwork Reduction Act Section 1601(c) of the 2002 Act provides that the promulgation of regulations and the administration of Title I of the 2002 Act shall be made without regard to chapter 5 of title 44 of the United States Code (the Paperwork Reduction Act). Accordingly, these regulations and the forms and other information collection activities needed to administer the program authorized by these regulations are not subject to review by OMB under the Paperwork Reduction Act. Executive Order 12612 This rule does not have sufficient Federalism implications to warrant the preparation of a federalism assessment. The provisions contained in this rule will not have substantial direct effect on States or their political subdivisions or on the distribution of power and responsibilities among the various levels of government. Government Paperwork Elimination Act CCC is committed to compliance with the Government Paperwork Elimination Act

(GPEA)and the Freedom to E-File Act, which require Government agencies in general and FSA in particular to provide the public the option of submitting information or transacting business electronically to the maximum extent possible. The forms and other information collection activities required for participation in the program are available electronically through the USDA eForms Web site at *http://www.sc.egov.usda.gov* for downloading. The regulation is available at FSA's Price Support Division Internet site at *http://www.fsa.usda.gov/dafp/psd.* Applications may be submitted at the FSA county offices, by mail or by FAX. At this time, electronic submission is not available. Full development of electronic submission is underway. Federal Assistance Programs The title and number of the Federal assistance program found in the Catalog of Federal Domestic Assistance to which this final rule applies are Commodity Loans and Loan Deficiency Payments, 10.051. List of Subjects in 7 CFR Part 1427 Agricultural commodities, Cotton, Loan programs-agriculture, Price support programs, Reporting and recordkeeping requirements. For the reasons set out in the preamble, 7 CFR part 1427 is proposed to be amended as follows: PART 1427—COTTON 1. The authority citation for part 1427 continues to read as follows: Authority: 7 U.S.C. 7231-7237 and 7931-7939; and 15 U.S.C. 714b and 714c. Subpart A—Nonrecourse Cotton Loan and Loan Deficiency Payments 2. Amend § 1427.5 by revising paragraph (b)(2) and adding paragraph (b)(11)(iii) to read as follows: § 1427.5 General eligibility requirements.

(b)* * *

(2)Be in existence and good condition, be covered by fire insurance, and at the time of disbursement of the loan proceeds, be stored inside an approved storage warehouse unless, as determined under § 1427.10, CCC has approved a warehouse to use outside storage for cotton loan collateral for the period of the loan.

(11)* * *

(iii)For the 2006 and subsequent crops has provided a certification to CCC on a form prescribed by CCC, that upon ginning, the bales meet the condition and quality requirements for loan eligibility as provided in § 1427.5(b) and; 3. Amend § 1427.10 by revising paragraph (b), redesignating paragraphs (c), (d), and

(e)as (d), (e), and (f), and adding a new paragraph

(c)to read as follows: § 1427.10 Approved storage.

(b)When the operator of a warehouse receives notice from CCC that a loan has been made by CCC on a bale of cotton, the operator shall, if such cotton is not stored within the warehouse, as directed by CCC place such cotton within such warehouse.

(c)CCC will annually determine and announce geographic areas where approved cotton storage warehouses may apply for approval to store cotton pledged as collateral outside. The application for approval to use outside storage shall be on a form prescribed by CCC that provides all applicable outside storage requirements related to the duration of such storage, use of dunnage, insurance, packaging, or other storage and handling requirements as determined by CCC. As a condition for approval to store loan cotton outside, CCC may require the warehouse to consent to reconcentration and transfer orders approved by CCC applicable to any cotton stored at the applicant's warehouse. 4. Revise § 1427.12 to read as follows: § 1427.12 Liens. Notwithstanding provisions in § 1427.19(h) that provide that CCC may pay for some or all of the warehouse storage charges that accrued for the cotton during the period the cotton was pledged for loan, if there are any liens or encumbrances on the cotton tendered as collateral for a loan, waivers that fully protect the interest of CCC must be obtained before disbursement even though the liens or encumbrances are satisfied from the loan proceeds, except that CCC may elect to accept as loan collateral cotton that has warehouse receiving, compression, load-out or other charges if the producer, at the time of loan application, agrees to reimburse CCC for any such charges that CCC may pay on behalf of the producer or that reduce the value of the cotton delivered to CCC. 5. Amend § 1427.16 by adding paragraph (b)(3) as follows: § 1427.16 Reconcentration of cotton.

(b)* * *

(3)Effective for the 2006 and subsequent crops of cotton, CCC may approve a request for relocation of cotton loan collateral, submitted by a producer or a properly designated agent of the producer, and approved by the receiving warehouse operator. Such relocation shall be based on, but are not limited to, the original loan rate, repayment rate, and other terms and conditions of the original loan storage location. Any charges, fees, costs, or expenses incident to such reconcentration or transfer shall be paid by the requestor of such transfer. 6. Amend § 1427.19 by revising paragraphs (h)(1) and (h)(2) to read as follows: § 1427.19 Repayment of loans.

(h)* * *

(1)Below the national average loan rate for upland cotton, CCC will pay at the time of loan repayment to the producer of agent or subsequent agent authorized by the producer in the manner prescribed by CCC, for the period the cotton was pledged as collateral for such loan:

(i)The warehouse storage charges which have accrued, and

(ii)With respect to the 2006 and subsequent-crops of upland cotton, if the entire quantity of the loan was stored inside an approved cotton warehouse during the entire period of the loan, the storage charges that accrued based on a maximum monthly storage-credit payment rate will not exceed the rate used in 2005 at the location where the 2006 and 2007 crops are stored, not to exceed $2.15. With respect to those producers who store cotton at a warehouse that was not in existence in 2005, CCC will assign the county average credit that was used in 2005. CCC shall not pay any storage charges if at any time while pledged as collateral for such loan the cotton was stored outside.

(2)Above the national average loan rate by less than the sum of the accrued interest and warehouse storage charges that accrued during the period the cotton was pledged for loan, CCC will pay at the time of loan repayment to the producer or agent or subsequent agent authorized by the producer in the manner prescribed by CCC, without regard to any warehouse charges that accrued before the cotton was pledged for loan:

(i)That portion of the warehouse storage charges that accrued during the period the cotton was pledged for loan, that are determined to be necessary to permit the loan to be repaid at the adjusted world price; and

(ii)With respect to the 2006 and subsequent crops of upland cotton, CCC shall not pay any storage charges if at any time while pledged as collateral for such loan the cotton was stored outside. If the entire quantity of the loan was stored inside an approved cotton warehouse during the entire period of the loan, that portion of the warehouse storage charges that accrued during the period the cotton was pledged for loan based on a maximum monthly storage-credit payment rate will not exceed the rate used in 2005 at the location where the 2006 and 2007 crops are stored, not to exceed $2.15. With respect to those producers who store cotton at a warehouse that was not in existence in 2005, CCC will assign the county average credit that was used in 2005; or Signed in Washington, DC, on May 18, 2006. Teresa C. Lasseter, Executive Vice President, Commodity Credit Corporation. [FR Doc. E6-8161 Filed 5-25-06; 8:45 am] BILLING CODE 3410-05-P SMALL BUSINESS ADMINISTRATION 13 CFR Part 120 RIN 3245-AF23 Business Loan Programs; Premier Certified Lenders Program Alternative Loan Loss Reserve Pilot Program AGENCY: Small Business Administration. ACTION: Proposed rule. SUMMARY: The U.S. Small Business Administration (“SBA” or “the Administration”) proposes to amend its Premier Certified Lenders Program (“PCLP”) in accordance with recent statutory amendments to the PCLP. Presently, under the PCLP, participating Certified Development Companies (“CDCs”) have increased authority in connection with making and servicing loans made under SBA's development company loan program (“504 Program”). One PCLP requirement relates to a loan loss reserve fund (“LLRF”) which a CDC participating in the PCLP (“PCLP CDC”) must maintain to cover losses it may incur in connection with the 504 Program loans (“504 Loans”) it has made under the PCLP (“PCLP loans”). Recent statutory changes to the PCLP include two pilot programs related to PCLP LLRF requirements. One pilot (“Pilot 1”) changes LLRF requirements by requiring the value of an LLRF to equal 1 percent of the combined outstanding balances of each debenture issued by a PCLP CDC to fund a PCLP loan (“PCLP Debenture”), instead of the combined original face value of those PCLP Debentures. Another pilot (“Pilot 2”) authorizes certain PCLP CDCs with significantly large LLRFs to elect to meet alternative LLRF requirements in lieu of certain existing PCLP LLRF requirements. The proposed regulations would implement requirements, procedures, and guidelines relating to Pilot 1 and Pilot 2. DATES: SBA must receive comments on or before July 25, 2006. ADDRESSES: You may submit comments, identified by RIN number, by any of the following methods:

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

(2)E-mail: *Charles.Thomas@SBA.gov.* Include RIN Number in the subject line of the message;

(3)Fax:

(202)205-7722;

(4)Mail: Charles Thomas, Director, Program Development Division, Office of Financial Assistance, U.S. Small Business Administration, 409 Third Street, SW., Washington, DC 20416;

(5)Hand Delivery/Courier: 409 3rd Street, SW., Washington, DC 20416, c/o Charles Thomas. FOR FURTHER INFORMATION CONTACT: Charles Thomas, Director, Program Development Division, Office of Financial Assistance, Small Business Administration, 409 Third Street, SW., Washington, DC 20416,

(202)205-6656, *Charles.Thomas@SBA.gov.* SUPPLEMENTARY INFORMATION: Statutory Basis for This Proposed Rulemaking SBA must amend the PCLP LLRF regulatory requirements established pursuant to Title V (“Title V”) of the Small Business Investment Act of 1958, as amended (the “Act”), to conform with amendments to Title V contained in Public Law 108-232, enacted on May 28, 2004 (“Pilot 1 and Pilot 2”). Pilot 1 and Pilot 2 were enacted with the ultimate goal of having each PCLP LLRF more accurately correspond to the risk of loss it secures. Overview of the PCLP and the Basis for Pilot 1 and Pilot 2 While access to capital is vital to the success of small businesses, many find it difficult to access financing, particularly long term financing. SBA's lending programs address these difficulties by providing a critical stream of funding to small businesses. Last year, SBA loan programs supplied $21 billion in capital, accounting for 40 percent of all long-term small business lending to this country's entrepreneurs. One of SBA's most important loan programs is the 504 Program. The 504 Program provides small businesses with long-term, fixed-rate financing to acquire major assets, such as heavy machinery and equipment, land, and buildings, with the overall goal of enhancing the economic development of a particular community or region. A typical 504 Loan has three components:

(1)A loan from a private-sector lender, secured by a senior lien, covering up to 50 percent of the project cost;

(2)a loan from an SBA authorized Certified Development Company, secured by a junior lien position, covering up to 40 percent of the cost; and

(3)an equity contribution of at least 10 percent from the small business. The CDC obtains the funds it needs to make its loan to the small business by selling a debenture that is 100 percent guaranteed by SBA. The maximum SBA debenture under the 504 Program is generally $1.5 million, but it is $2.0 million if the proceeds of the 504 Loan will be directed toward certain public policy goals set forth in Title V, and $4.0 million when the project is for a small manufacturer as defined in Title V. In FY 2005, SBA approved about $5 billion in lending to approximately 9,200 small businesses through the 504 Program. Currently, under non-PCLP 504 Loan processing procedures, SBA analyzes each loan proposal to determine its creditworthiness and its conformance with SBA's regulations and policies, which are designed to control program risk. As the 504 Program expanded, however, SBA's budget constraints limited its capacity to process and service expeditiously the expanding number of 504 Loans. The PCLP was thus conceived to transfer substantial 504 Program lending and servicing authority to qualified CDCs, thereby reducing the demand for SBA resources and improving 504 Loan turn-around time. However, to ensure adequate program oversight and to protect the Federal Government from undue risk of loss, PCLP CDCs were required to:

(1)Meet and maintain several additional qualifications and standards;

(2)implement certain critical management controls;

(3)reimburse SBA for 10 percent of any loss SBA incurred in connection with any of its PCLP Debentures; and

(4)contribute and maintain an SBA-controlled LLRF equal to one percent of the aggregate of the face values of each of its PCLP Debentures. Participation in PCLP has expanded gradually since its 1997 inception to nearly 30 PCLP CDCs, which collectively accounted for approximately $720 million in 504 lending in FY 2005. Losses under the program have been minimal thus far. As noted above, each participant must maintain an LLRF equal to one percent of the sum of the face values of each of its outstanding PCLP Debentures, even as the outstanding balances of those PCLP Debentures decrease and, consequently, the risk of loss to SBA relating to those Debentures decreases. Pilot 1 and Pilot 2 were enacted so that PCLP LLRFs would be more accurately aligned with the true level of risk associated with the PCLP Debentures those LLRFs secure. Pilot 1 reduces the amount a PCLP CDC is required to maintain in its LLRF to one percent of the aggregate of the outstanding balances of its PCLP Debentures rather than one percent of the aggregate of the original face value amounts of those PCLP Debentures. Pilot 2 allows a PCLP CDC, which meets certain requirements, to maintain its LLRF under an alternative set of LLRF requirements. Under Pilot 2, the amount of reserves required to be maintained in an LLRF will be determined by a sound risk assessment methodology, which must be evaluated and certified by an independent auditor. Pilot 1 Pilot 1 is a two-year pilot program initiated because existing PCLP statutory requirements do not take into account that SBA's risk of loss decreases as each PCLP Debenture is paid down. PCLP Debentures are issued for either a ten- or twenty-year term and are amortized over the duration of the term. As the PCLP CDC makes its semi-annual payments on its PCLP Debentures, the outstanding balance is reduced; however, prior to Pilot 1 the PCLP CDC could only decrease its LLRF after one of the PCLP Debentures secured by its LLRF was completely paid off. Now, in accordance with Pilot 1, each PCLP CDC will be permitted to adjust its LLRF downward to equal one percent of the sum of the outstanding balances of its PCLP Debentures. Congress expects that Pilot 1 will encourage additional CDCs to participate in the PCLP. In addition, Congress anticipates that Pilot 1 will encourage PCLP CDCs to use the funds withdrawn from its LLRF to promote more local economic development. Pilot 2 Pilot 2 allows certain PCLP CDCs with large LLRFs to elect to calculate the appropriate funding of their LLRF using a risk-based approach; provided, however, that the minimum amount of the LLRF determined by this method equals or exceeds $100,000. A Pilot 2 participant must use an appropriate and effective process to maintain acceptable funding of its LLRF. The American Institute of Certified Public Accountants (“AICPA”) and the Federal Financial Institutions Examination Council (“FFIEC”) are recognized by SBA to have published substantial guidance on the Allowances for Loan and Lease Losses (“ALLL”) methodologies and documentation used by the lending industry. SBA believes that these methodologies will provide an appropriate set of guidelines for independent auditors calculating LLRF funding requirements for Pilot 2 participants. In addition, SBA recognizes that the United States Department of Treasury, Office of Thrift Supervision (“OTS”), has established regulations relating to the qualifications of auditors working for institutions subject to OTS oversight. SBA believes that those guidelines are also suitable for independent auditors making Pilot 2 calculations. Accordingly, SBA proposes that a Pilot 2 participant be required to have its LLRF determined in accordance with AICPA and FFIEC ALLL methodologies by an independent auditor that meets the OTS auditor requirements referenced above. Due to the lack of portfolio diversification of CDC loan portfolios in terms of region, industry, and asset size, and the delegation of additional authority to participants, Congress added additional eligibility requirements applicable to Pilot 2 participants. For example, a Pilot 2 participant must submit a certification stating that its LLRF is sufficient to protect the Federal Government from loss due to inadequate LLRFs. The certification must be signed by the head of the participating PCLP CDC and its independent auditor and a new certification must be submitted for each quarter of Pilot 2 participation. The proposed regulations would require that the certification be adequately supported by methodologies and documentation which are consistent with the FFIEC's Policy Statement on Allowance for Loan and Lease Losses Methodologies and Documentation for Banks and Savings Institutions dated July 2, 2001, as published in 66 FR 35629, July 6, 2001. Perhaps most significantly, a PCLP CDC electing to participate in Pilot 2 would have its loss exposure related to PCLP Debentures increased from 10 percent to 15 percent for each PCLP Debenture issued while it was participating in Pilot 2. Congress determined that this increase might be a useful safety measure that could help balance unanticipated risks associated with Pilot 2. Section-by-Section Analysis Section 120.847(a) would be amended by creating subsections (a)(1) and (a)(2), with (a)(1) adding new definitions applicable to Pilot 1 and Pilot 2 and (a)(ii) containing the general PCLP CDC LLRF information as amended to include reference to Pilot 2 requirements. Section 120.847(g) would be amended to incorporate Pilot 1 LLRF withdrawal options. SBA would amend section 120.847(j) governing insufficient funding of the LLRF to add guidance on SBA notification of an LLRF deficiency to a Pilot 2 participant. Section 120.848 would be redesignated as § 120.849. A new § 120.848 would be added to incorporate Pilot 2 provisions, with the subsections covering various authorities, requirements, procedures, and guidelines applicable to Pilot 2. Subsection

(a)references regulation sections applicable to Pilot 2 and states that Pilot 2 participants must reimburse SBA for 15 percent of any loss sustained as a result of a default in the payment of principal or interest on a PCLP Debenture issued by the PCLP, and guaranteed by SBA, during participation in Pilot 2 and 10 percent of any such loss related to any of its other PCLP Debentures. Subsection

(b)sets forth the requirements a PCLP CDC must meet to participate in Pilot 2. In addition to the statutory requirements, SBA proposes specific guidelines relating to the statutory requirement that a prospective Pilot 2 participant has established and is utilizing an appropriate and effective process for analyzing the risk of loss associated with its portfolio of PCLP loans. Specifically, SBA proposes that LLRF funding requirements made under Pilot 2 follow GAAP, AICPA, FFIEC and SBA Office of Lender Oversight guidelines for calculating appropriate allowances for loan and lease losses. Proposed subsection

(b)would also provide for (in paragraph (4)) a performance requirement directed at a Pilot 2 participant meeting four or more specified risk management benchmarks. This is consistent with statutory language. In addition to the benchmark indicator, SBA is considering whether the performance requirement in the final rule should include that a Pilot 2 participant's risk rating (as determined by SBA pursuant to published guidance) be at a level acceptable to SBA. Subsection

(c)sets forth the statutory requirements applicable to independent auditors used by Pilot 2 participants. The statute requires the independent auditor to “be approved by SBA.” Under the proposed rule, SBA's Bureau of PCLP Oversight would approve the independent auditor. SBA also proposes to include in subsection

(c)the qualifications for independent auditors who will be acceptable to SBA. SBA used as a basis for these proposed qualifications the qualifications OTS requires for the independent public accountants it employs to audit financial statements, applications, or procedures of institutions for which the OTS has oversight responsibility. SBA believes these qualifications are broad enough to apply usefully to the independent auditors who will be carrying out the agreed upon procedures applicable to Pilot 2. The subsection also requires that a Pilot 2 participant that changes auditors during a Pilot 2 Calendar Quarter provide the reasons for the change to the Associate Administrator, Office of Lender Oversight (“AA/OLO”) within 30 days of the change. Subsection

(d)states that, to elect to participate in Pilot 2, a PCLP CDC must notify the Associate Administrator, Office of Financial Assistance (“AA/FA”) and the AA/OLO in writing and include clear documentation that it meets the requirements set forth in subsection

(b)and that its auditor meets the requirements set forth in subsection (c). Subsection

(e)would set forth the statutorily-determined Pilot 2 participation periods: participation in Pilot 2 must be by calendar quarter. Subsection

(f)would require a Pilot 2 participant to make any necessary contributions to its LLRF necessary to equal the amount determined by the independent auditor in accordance with Pilot 2 requirements or $100,000 if the amount determined by the independent auditor is less than $100,000. Subsection

(g)would set forth procedures related to the statutorily-determined Pilot 2 certification requirements applicable to the Pilot 2 participant and its auditor, and would permit the Pilot 2 participant to withdraw funds from its LLRF if the funds exceed Pilot 2 requirements. The statute states that a Pilot 2 participant which decides not to participate in the pilot in the following calendar quarter must make a contribution to its LLRF in such an amount as SBA may determine. Subsection

(g)proposes to allow a Pilot 2 participant to adjust its LLRF to meet Pilot 1 requirements within 45 days after its Pilot 2 participation or submit to SBA a proposed recontribution schedule within 30 days after its Pilot 2 participation. Subsection

(g)would give SBA the authority to reject a proposed recontribution schedule and to require the PCLP CDC to follow an SBA-determined recontribution schedule if, in its sole discretion, SBA determines that the recontribution schedule submitted by the PCLP CDC would cover the exposure related to all of its outstanding PCLP Debentures, or if the PCLP CDC fails to submit a recontribution schedule, within the 30-day time frame. Subsection

(h)would provide SBA with the authority to remove a PCLP CDC from Pilot 2 participation if that PCLP CDC fails to meet Pilot 2 requirements. In such event, subsection

(h)would authorize SBA to take actions necessary to ensure that the LLRF covers the exposure related to all of its outstanding PCLP Debentures, including, but not limited to, the right to require the PCLP CDC to follow an SBA-determined recontribution schedule. Finally, subsection

(i)would reference the statutorily created Bureau of PCLP Oversight. Under the proposed rule, the Bureau may review the Pilot 2 participant's process for analyzing the risk of loss associated with the Pilot 2 participant's outstanding PCLP Debentures (and the underlying PCLP loans) and make a determination as to whether the process is consistent with ALLL Methodologies and Documentation and in accord with GAAP, AICPA, FFIEC, and SBA Office of Lender Oversight guidance/standards. A negative determination could result in SBA finding the Pilot 2 participant ineligible to participate in Pilot 2 under proposed section 120.848(b) or serve as a basis for removal under proposed section 120.848(h). Compliance With Executive Orders 13132, 12988, and 12866, the Regulatory Flexibility Act (5 U.S.C. 601-612) and the Paperwork Reduction Act (44 U.S.C. Ch. 35) This proposed rule would not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. Therefore, for the purposes of Executive Order 13132, SBA determines that this final rule has no federalism implications warranting preparation of a federalism assessment. This proposed rule meets applicable standards set forth in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden. The proposed rule does not have retroactive or preemptive effect. The Office of Management and Budget

(OMB)has determined that this rule constitutes a significant regulatory action under Executive Order 12866. The statutory amendments to PCLP LLRF requirements (Pilot 1 and Pilot 2) revise existing PCLP LLRF requirements and require SBA to publish regulations implementing those amendments. The amendments and these regulations are intended to:

(1)Establish and test alternative LLRF concepts that may more accurately reflect the potential risks and the potential losses inherent in the PCLP;

(2)Ensure LLRF alternatives are well founded by incorporating methodologies and standards that correspond to the well established principles and standards used by commercial lenders for ALLL and that have been approved by the FFIEC and the AICPA;

(3)Free up PCLP loss reserve capital to enhance PCLP CDC operational flexibility and to support additional 504 lending as well as other local economic development activities; and

(4)Ensure each LLRF is adequate to cover the exposure related to all of the outstanding PCLP Debentures of the PCLP CDC. These objectives are embodied in two-year pilot alternative LLRF options which are to be examined and evaluated. Together with the existing LLRF requirements, these pilot alternatives represent the most reasonable and most viable LLRF alternatives, at least until additional longer term program performance data become available and provide the basis for a comprehensive broad-based assessment of the PCLP and the adequacy of its LLRFs. The two pilots are based on reasonable, prudent, and well established principles and standards, many of which have been developed and tested over the course of several decades by the commercial lending industry and have been generally accepted and codified by the Federal Financial Institutions Examination Council (FFIEC), whose member Federal agencies have various oversight responsibilities over the Nation's banking and thrift institutions. However, while these pilot concepts are based on sound loss reserve principles and standards, they are new to SBA and the PCLP. Consequently, SBA has little empirical data on the concepts and can therefore provide only broad and general estimates of their costs and benefits. Also, while these alternatives will generally reduce the amounts that PCLP CDCs must retain in their LLRFs, it should be noted that neither pilot reduces the amount a PCLP CDC must reimburse SBA as a result of a default under the PCLP, so the pilots' implications for SBA are limited to the risk that a PCLP CDC will not have adequate LLRFs or other additional resources with which to reimburse the prescribed amount to SBA. (Pilot 2 actually increases the amount the PCLP CDC must reimburse SBA as a result of a loss relating to the PCLP Debentures issued and guaranteed during the PCLP CDC's Pilot 2 participation.) Finally, while SBA recognizes that prudent lending and adequate LLRFs sufficient to control program risk are integral to the PCLP and its long-term viability, the PCLP is, as part of SBA's 504 Program, a zero subsidy loan program. As a result, any increased loss rate experienced by SBA under PCLP would translate into a change to the 504 Program's subsidy model and ultimately the fees paid by the borrowers and the lenders participating in the program; it is extremely unlikely that it would affect or increase Federal program subsidies because any increased losses are expected to be covered by increases in program fees only. Pilot 1 allows each PCLP CDC to reduce its LLRF based on the decreasing outstanding balance of its PCLP Debentures as opposed to maintaining a LLRF equal to one percent of the original amount of all of its PCLP Debentures. SBA anticipates that most if not all of the PCLP CDCs will take advantage of this option. Following discussions with the CDC industry, SBA estimates that the costs incurred by PCLP CDCs of adopting Pilot 1 would be relatively insignificant, comprising less than $1,000 for each PCLP CDC for minor modifications to internal control systems used to calculate LLRF requirements. With respect to anticipated benefits of Pilot 1 to PCLP CDCs, most (about 95 percent) of the amortized debentures issued under the PCLP are for a term of 20 years, with the vast majority of the initial debenture payments comprised of interest payments. Since its inception in FY 1997, approximately $1.3 billion in debentures have been issued under the PCLP, and about $11 million have thus aggregated in all PCLP LLRFs. SBA estimates that during the 2 years of Pilot 1, outstanding PCLP Debentures will total approximately $1.8 billion, while the amounts PCLP CDCs will be required to maintain in their LLRFs under Pilot 1 will only increase to approximately $12 million. Without the LLRF changes mandated under Pilot 1, SBA estimates that about $16 million would have otherwise been required to be maintained in the PCLP LLRFs. SBA therefore estimates that PCLP CDCs would collectively benefit under Pilot 1 with a reduction in PCLP LLRFs of about $4 million. Following discussions with PCLP CDCs, the consensus was that the freed up $4 million in LLRFs would generally be used to expand the marketing and delivery of the 504 Program, to support additional 504 lending, and to increase the local economic develop activities of the CDC. With respect to the potential costs and risks to SBA of Pilot 1, the $4 million reduction in PCLP LLRFs could represent a slight increase in the risk to SBA that PCLP LLRFs would be inadequate to reimburse SBA for 10 percent of any SBA loss. However, given the historical availability of additional assets from which PCLP CDCs could reimburse SBA, combined with the extremely low PCLP loss rate of .28 percent for the program (from program inception), SBA believes that the increased risk of non-reimbursement to SBA under Pilot 1 would be insignificant. Additionally, SBA estimates that its internal costs for modifying the calculation of PCLP LLRF requirements would be insignificant, comprising just a few hours of computer programming. Pilot 2, which also lasts 2 years, allows certain PCLP CDCs to estimate the required level of their LLRF funding using a risk-based approach. PCLP CDCs electing this option must have at least $100,000 in their respective LLRFs, and they are required to use ALLL methodologies and documentation approved by the FFIEC and AICPA, which must in turn be certified by a qualified independent auditor meeting auditor qualification requirements used by OTS. There currently are fewer than 10 PCLP CDCs that meet the requirements to participate in Pilot 2. Also, because Pilot 1 will reduce PCLP LLRF funding requirements and other CDC program enhancements recently instituted by SBA, the SBA believes very few PCLP CDCs may elect to participate in Pilot 2 during its 2-year duration. Additionally, the uncertainty about the permanence of Pilot 2 and its initial development and start up costs may also discourage participation. As a result, the aggregate costs and benefits of this 2-year pilot to the CDC industry are expected to be limited. Following discussions with industry representatives, SBA estimates that the initial costs to a PCLP CDC for developing and instituting Pilot 2's risk based LLRF methodology and reporting would be about $8,000. Thereafter, annual costs for administering the LLRF would depend on the size and complexity of the PCLP CDC's portfolio. However, for a portfolio of about 500-600 PCLP loans, which SBA judges to be an average portfolio size for PCLP CDCs that might elect this option, SBA estimates that the annual cost would be about $75,000. This includes internal costs of about $27,000 for periodically assigning and/or reassessing the risk associated with each PCLP Debenture, about $10,000 for management oversight and quality control of the risk assessment process, about $5,000 for portfolio risk management and control, about $30,000 annually to be paid to an independent auditor for the ALLL quarterly audit report, and about $1,000 for developing and transmitting to SBA the PCLP CDC's required certification regarding the adequacy of the LLRF. In addition to the costs for developing and maintaining the alternative LLRF methodology and reporting, participating PCLP CDCs, as noted above, are required to reimburse SBA for 15 percent of any SBA loss relating to Debentures issued and guaranteed during Pilot 2 participation, as opposed to the 10 percent applicable to its other PCLP Debentures. With historically low loss rates for the PCLP and following discussions with the industry, SBA estimates that the additional 5 percent reimbursement would cost a PCLP CDC with a portfolio of 500-600 loans less than $5,000 annually. With respect to the benefits to a PCLP CDC, Pilot 2 and its risk based LLRF methodology represents a new concept for SBA's 504 Program. As a result, SBA has no empirical data on how much a PCLP's LLRF could be reduced under this concept, so estimating the potential impact and benefits is difficult. However, following discussions with the industry, and based on preliminary data from simulating the application of an ALLL methodology to an existing PCLP portfolio of 500-600 504 loans, SBA estimates that a PCLP CDC participating in Pilot 2 could reduce its LLRFs from the existing LLRF requirement of about $1.8 million to about $500,000 under Pilot 2, thus freeing up about $1.3 million from the LLRF for that PCLP CDC. Similar to Pilot 1, these funds would generally be used to expand the marketing and delivery of the 504 Program, support additional 504 lending, and increase the local economic develop activities of the CDC. With respect to the potential costs and risks to SBA of Pilot 2, SBA believes that the estimated $1.3 million reduction in a typical PCLP's LLRF would only marginally increase the risk to SBA that the LLRF would be inadequate to cover PCLP CDC reimbursement obligations to SBA as required under PCLP. SBA is optimistic that the certification by an independent auditor, which meets the proposed requirements and applies AICPA and FFIEC standards and methodologies to the ALLRF, will help ensure that a LLRF calculated pursuant to Pilot 2 would be commensurate with the risk inherent in the PCLP CDC's portfolio. Additionally, as with Pilot 1, PCLP CDCs have other assets with which to reimburse SBA which, combined with the extremely low PCLP loss rate of .28 percent, will further help mitigate the risk that SBA will not be reimbursed as required. Finally, Pilot 2 is a 2-year pilot and participation is expected to be extremely limited, further controlling the risk of loss to SBA. SBA does not foresee any significant additional costs to SBA, due to the level of responsibility vested with the independent auditor. Based on the following analysis, SBA certifies that the proposed rule will not have a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (RFA), 5 U.S.C. 601. SBA has determined that CDCs fall under the SBA size standard for NAICS 522298, All Other Nondepository Credit Intermediaries, which establishes $6 million in average annual receipts as the maximum annual receipts for small entities. Approximately 5,440 credit intermediaries fall under that industry classification, about 4,990 of which are considered small. SBA's CDC Program currently comprises approximately 270 CDCs, nearly 30 of which participate in PCLP. The proposed rule addresses two pilot programs. Pilot 1 allows each PCLP CDC to reduce its LLRF based on the decreasing balance of PCLP Debentures. Although all 270 CDCs are eligible to participate in the PCLP, SBA estimates that only the 30 CDCs that currently participate in the PCLP will likely take advantage of this option. Consequently, this rule will not impact a substantial number of the small entities. Moreover, SBA does not believe that the costs associated with Pilot 1 will be significant. As noted in the cost benefits analysis, SBA estimates that the costs associated with Pilot 1 would be less than $1,000 for each PCLP CDC, which is not a significant cost. SBA believes that this cost will be offset by the $4 million aggregate reduction or a $130,000 per PCLP CDC average reduction in the LLRF requirements. Accordingly, SBA certifies that Pilot 1 will not have a significant economic impact on a substantial number of small entities. Pilot 2 allows certain qualified PCLP CDCs to fund their LLRF using a risk-based approach. SBA estimates that less than 10 PCLP CDCs currently qualify to participate in Pilot 2, and that less than five will take advantage of this option during its 2-year pilot period. SBA therefore concludes that this rule will not affect a substantial number of small entities. However, as noted above, although the annual costs associated with the program would be about $75,000, the reduction in the LLRFs requirements for those few PCLP CDCs that do elect to participate could be as much as $1.3 million each. Finally, and as also noted above, participants in Pilot 2 would be required to reimburse SBA for 15 percent of any SBA loss related to a PCLP Debenture issued and guaranteed during participation in Pilot 2; the exposure relating to its other PCLP Debentures would remain 10 percent. With an historical loss rate of .28 percent for PCLP, this additional reimbursement obligation is not expected to be significant. As such, SBA certifies that Pilot 2 will not have a significant economic impact on a substantial number of small entities. SBA has determined that the proposed rule, which comprises two pilot programs, imposes additional reporting requirements under the Paperwork Reduction Act, 44 U.S.C. Ch. 35 (PRA), with respect to Pilot 2, but no additional recordkeeping requirements for Pilot 1. SBA believes that only 5 or less PCLP CDCs will participate in Pilot 2. These participating PCLP CDCs and the auditors retained by them would be affected by the following information collections (as defined under the PRA). Auditor's Credential Information Under proposed § 120.848(c), the auditors retained by the PCLP CDCs to conduct the required Pilot 2 LLRF Certification must meet certain eligibility requirements established by SBA. The auditors and the PCLP CDCs must submit to SBA documentation regarding the auditors' credentials and qualifications for SBA's evaluation. We think that the total amount of time it would take 5 sets of auditors and PCLP CDCs to comply with this reporting requirement would be 30 hours [(5 auditors x 5 hours) + (5 PCLP CDCs x 1 hour)]. This estimated total is not annualized because, based on discussions with the industry on the average duration of relationships between CDCs and auditors, we anticipate that participants will only respond to this collection one time at the beginning of the 2-year pilot program. PCLP CDCs Application to Participate in Pilot 2 Under proposed § 120.848(b), PCLP CDCs must meet certain eligibility requirements established by SBA to participate in Pilot 2. The PCLP CDC must submit a letter to SBA notifying the Agency of its interest in and qualifications for Pilot 2. We think that the total amount of time it would take 5 PCLP CDCs to comply with this reporting requirement would be 20 hours (5 PCLP CDCs × 4 hours). This estimated total is not annualized because we anticipate that participants will only respond to this collection one time at the beginning of the 2-year pilot program. Pilot 2 LLRF Certification PCLP CDCs and their independent auditor must submit a Pilot 2 LLRF Certification, as defined by the proposed regulations, to SBA at the time of the PCLP CDC's application to participate in Pilot 2 and every quarter thereafter. SBA estimates that it would take each set of PCLP CDCs and auditors 380 hours annually to comply with this quarterly reporting requirement [(180 hours for the PCLP CDC) + (200 hours for the auditor)]. The total annual hourly burden for 5 sets of PCLP CDCs and their auditors would be 1900 hours (380 × 5). SBA believes that these 3 information collections are necessary for SBA to satisfy its statutory duty to manage and oversee Pilot 2. SBA's management functions, as outlined in Public Law 108-232 and implemented by the proposed rule, are essential to reasonably protect Pilot 2 and the Agency from the risk of waste, fraud, and mismanagement. An agency may not conduct or sponsor an information collection without prior approval from OMB. Accordingly, we are submitting the proposed information collections to OMB for review in accordance with the PRA. Comments on the proposed information collection should be sent to the Office of Management and Budget, Office of Information and Regulatory Affairs, 725 17th Street NW., Washington, DC, 20503, Attention: David Rostker, Desk Officer for SBA. List of Subjects in 13 CFR Part 120 Loan programs—business, Small businesses, Reporting and recordkeeping requirements. For the reasons stated in the preamble, SBA proposes to amend 13 CFR part 120 as follows: PART 120—BUSINESS LOANS 1. The authority citation for part 120 continues to read as follows: Authority: 15 U.S.C. 634(b)(6), and 636(a), 696(3) and 697(a)(2). 2. Revise § 120.847 to read as follows: § 120.847 Requirements for the Loan Loss Reserve Fund. (a)(1) *Definitions.* The following terms have the same meaning where they are used in §§ 120.845 through 120.848:

(i)*AA/OLO* means SBA's Associate Administrator for the Office of Lender Oversight.

(ii)*AICPA* means the American Institute of Certified Public Accountants.

(iii)*ALLL Methodologies and Documentation* means methodologies followed, and supporting documentation prepared, by a lending institution to determine the amounts of the allowance for loan and lease losses and the provisions for loan losses for a loan portfolio.

(iv)*FFIEC* means the Federal Financial Institutions Examination Council.

(v)*GAAP* means generally accepted accounting principles.

(vi)*LLRF* means the loan loss reserve funds a PCLP CDC maintains in accordance with PCLP requirements to secure its loss exposure related to all of its outstanding PCLP Debentures.

(vii)*Pilot 1* means the temporary program established pursuant to section 508(c)(6)(B) of the SBIA giving authority to a PCLP CDC to withdraw from its LLRF, in accordance with the procedures set forth in paragraph

(g)of this section, any amount in excess of 1 percent of the aggregate outstanding balances of all of its outstanding PCLP Debentures.

(viii)*Pilot 2* means the temporary program established pursuant to section 508(c)(7) of the SBIA which allows certain PCLP CDCs to maintain their respective LLRFs in accordance with a calculated risk-based approach, the terms and conditions of which are set forth in § 120.848.

(ix)*Pilot 2 Calendar Quarter* means any calendar quarter in which a PCLP CDC participates in Pilot 2.

(x)*Pilot 2 Independent Auditor* means an auditor which meets the requirements set forth in § 120.848 and is providing the auditor services related to a PCLP CDC's LLRF as described in that section.

(xi)*Pilot 2 LLRF Certification* means a certification, which the Executive Director of the PCLP CDC and its Pilot 2 Independent Auditor must sign and submit to SBA's Administrator, with copies to the AA/FA and AA/OLO, stating:

(A)The amount the PCLP CDC needs to have in its LLRF to protect the Federal Government from risk of loss as calculated in accordance with Pilot 2 requirements (accompanied by the documentation necessary for SBA to assess the basis of the certification);

(B)That an amount equal to or greater than the amount established in accordance with paragraph (a)(1)(xi)(A) of this section is in the PCLP CDC's LLRF and shall remain there until adjustments are made pursuant to a new Pilot 2 LLRF Certification (see § 120.848(f)) or pursuant to requirements and procedures applicable after a PCLP CDC's participation in Pilot 2 ends (see § 120.848(g)); and

(C)That the PCLP CDC has established and is utilizing an appropriate and effective process for analyzing the risk of loss associated with its outstanding PCLP Debentures (and the underlying PCLP loans) with ALLL Methodologies and Documentation in accord with AICPA guidelines, GAAP, and the FFIEC's Policy Statement on Allowance for Loan and Lease Losses Methodologies and Documentation for Banks and Savings Institutions dated July 2, 2001, as published in 66 FR 35629, July 6, 2001.

(xii)*Pilot 2 Participation Period* shall mean a full calendar quarter as described in § 120.848(e).

(xiii)*SBIA* means the Small Business Investment Act of 1958, as amended.

(xiv)*Specified Risk Management Benchmarks* means, for the purposes of § 120.847 and § 120.848, the following rates, as determined by SBA:

(A)Currency rate;

(B)Delinquency rate;

(C)Default rate;

(D)Liquidation rate; and

(E)Loss rate.

(2)*General.* PCLP CDCs must establish and maintain a LLRF (in one or multiple accounts) which complies with this section. A PCLP CDC must use the LLRF or other funds to cover its Exposure (as defined in paragraph

(b)of this section) relating to any loss sustained by SBA as a result of a default in the payment of principal or interest on a Debenture it issued under the PCLP (“PCLP Debenture”). PCLP CDCs must coordinate with their Lead SBA Office to ensure that the LLRF is properly established, that all necessary documentation is executed and delivered by all parties in a timely fashion, and that all required deposits are made.

(b)*PCLP CDC exposure and LLRF deposit requirements.* A PCLP CDC's “Exposure” is defined as its reimbursement obligation to SBA with respect to default in the payment of any PCLP Debenture. The amount of a PCLP CDC's Exposure is 10 percent of any loss (including attorney's fees; litigation costs; and care of collateral, appraisal and other liquidation costs and expenses) sustained by SBA as a result of a default in the payment of principal or interest on a PCLP Debenture; provided, however, that a PCLP CDC's Exposure is 15 percent for any PCLP Debenture issued during a PCLP CDC's participation in Pilot 2. If Pilot 1 and Pilot 2 terminate or otherwise cease to apply to a PCLP CDC, then, for each PCLP Debenture a PCLP CDC issues, it must follow the applicable transition procedures and timeframes to establish and maintain an LLRF equal to one percent of the original principal amount (the face amount) of the PCLP Debenture. The amount the PCLP CDC must maintain in the LLRF for each PCLP Debenture remains the same even as the principal balance of the PCLP Debenture is paid down over time. If Pilot 2 terminates or ceases to apply to a PCLP CDC, but Pilot 1 applies, then the PCLP CDC must establish and maintain an LLRF equal to one percent of the outstanding principal balances of its PCLP Debentures. (During Pilot 2 participation, Pilot 2 participants would not be affected by the termination of Pilot 1.) A PCLP CDC may not participate in Pilot 1 and Pilot 2 at the same time.

(c)*Establishing a LLRF.* The LLRF must be a deposit account (or accounts) with a federally insured depository institution selected by the PCLP CDC. A “deposit account” is a demand, time, savings, or passbook account, including a certificate of deposit

(CD)which is either uncertificated or, if certificated, non-transferable. A “deposit account” is not an investment account and must not contain securities or other investment properties. A deposit account may contain only cash and CDs credited to that account. A PCLP CDC may pool its deposits for multiple PCLP Debentures in a single account in one institution. The LLRF must be segregated from the PCLP CDC's other operating accounts. The PCLP CDC is responsible for all fees, costs and expenses incurred in connection with establishing, managing and maintaining the LLRF, including fees associated with transferring funds or early withdrawal of CDs, and related income tax expenses.

(d)*Creating and perfecting a security interest in a LLRF.* A PCLP CDC must give SBA a first priority, perfected security interest in the LLRF to secure the PCLP CDC's obligation to reimburse SBA for the PCLP CDC's Exposure under all of its outstanding PCLP Debentures. (If a PCLP CDC's LLRF is comprised of multiple deposit accounts, it must give SBA this security interest with respect to each such account.) The PCLP CDC must grant to SBA the security interest in the LLRF pursuant to a security agreement between the PCLP CDC and SBA, and a control agreement between the PCLP CDC, SBA, and the applicable depository institution. The control agreement must include provisions requiring the depository institution to follow SBA instructions regarding withdrawal from the account without a requirement for obtaining further consent from the PCLP CDC, and must restrict the PCLP CDC's ability to make withdrawals from the account without SBA consent. When establishing the LLRF, a PCLP CDC must coordinate with its Lead SBA Office to execute and deliver the required documentation. The PCLP CDC must provide to the Lead SBA Office a fully executed original of the security and control agreements. All documents must be satisfactory to SBA in both form and substance. (e)(1) *Schedule for contributions to a LLRF.* The PCLP CDC must contribute to the LLRF the required deposits for each PCLP Debenture in accordance with the following schedule:

(i)At least 50 percent of the required deposits to the LLRF on or about the date that it issues the PCLP Debenture.

(ii)At least an additional 25 percent of the required deposits to the LLRF no later than one year after it issues the PCLP Debenture.

(iii)Any remainder of the required deposits to the LLRF no later than two years after it issues the PCLP Debenture.

(2)This paragraph

(e)does not apply to a PCLP CDC while it is participating in Pilot 2 or following the LLRF transition procedures applicable to a PCLP CDC after participating in Pilot 2.

(f)*LLRF reporting requirements.* Each PCLP CDC must periodically report to SBA the amount in the LLRF in a form that will readily facilitate reconciliation of the amount maintained in the LLRF with the amount required to meet a PCLP CDC's Exposure for its entire portfolio of PCLP Debentures. (For Pilot 2 participants, the applicable amount will be the amount set forth in the last Pilot 2 LLRF Certification submitted by the participant to SBA in accordance with Pilot 2 requirements.)

(g)*Withdrawal of excess funds.* Interest and other funds in the LLRF that exceed the required minimums as set forth in paragraph

(b)of this section, within the time frames set forth in paragraph

(e)of this section, accrue to the benefit of the PCLP CDC. PCLP CDCs are authorized to withdraw excess funds, including interest, from its LLRF if such funds exceed the required minimums set forth in paragraph

(b)of this section. In addition, prior to the expiration of Pilot 1, a Pilot 1 participant may withdraw amounts from its LLRF as permitted under Pilot 1. The PCLP CDC must forward requests for withdrawals to the Lead SBA Office, which will verify the existence and amount of excess funds and notify the financial institution to transfer the excess funds to the PCLP CDC. A Pilot 2 participant may make withdrawals from its LLRF in accordance with Pilot 2 rules.

(h)*Determining SBA loss.* When a PCLP CDC has concluded the liquidation of a defaulted 504 loan made with the proceeds of a PCLP Debenture and has submitted a liquidation wrap-up report to SBA, or when SBA otherwise determines that the PCLP CDC has exhausted all reasonable collection efforts with respect to that 504 loan, SBA will determine the amount of the loss to SBA. SBA will notify the PCLP CDC of the amount of its reimbursement obligation to SBA (if any) and will explain how SBA calculated the loss.

(1)If the PCLP CDC agrees with SBA's calculations of the loss, it must reimburse SBA an amount equal to its Exposure no later than 30 days after SBA's notification to the PCLP CDC of the CDC's reimbursement obligation.

(2)If the PCLP CDC disputes SBA's calculations, it must reimburse SBA for the amount of the PCLP CDC's Exposure that is not in dispute no later than 30 days after SBA's notification to the PCLP CDC of the CDC's reimbursement obligation. No later than 30 days after SBA's notification, the PCLP CDC may submit to the AA/FA or his or her delegate a written appeal of any disagreement regarding the calculation of SBA's loss. The PCLP CDC must include with that appeal an explanation of its reasons for the disagreement. Upon the AA/FA's final decision as to the disputed amount of the loss, the PCLP CDC must promptly reimburse SBA the amount of the PCLP CDC's Exposure.

(i)*Reimbursing SBA for loss.* A PCLP CDC may use funds in the LLRF or other funds to reimburse SBA for the PCLP CDC's Exposure on a defaulted PCLP Debenture. If a PCLP CDC does not satisfy the entire reimbursement obligation within 30 days after SBA's notification to the PCLP CDC of its reimbursement obligation, then SBA may cause funds in the LLRF to be transferred to SBA in order to cover the PCLP CDC's Exposure, unless the PCLP CDC has filed an appeal under paragraph (h)(2) of this section. If the PCLP CDC has filed such an appeal, SBA may cause such a transfer of funds to SBA 30 days after, and in accordance with, the AA/FA's or his or her delegate's decision. If the LLRF does not contain sufficient funds to reimburse SBA for any unpaid Exposure with respect to any PCLP Debenture, the PCLP CDC must pay SBA the difference within 30 days after demand for payment by SBA.

(j)*Insufficient funding of LLRF.* A PCLP CDC must diligently monitor the LLRF to ensure that it contains sufficient funds to cover its Exposure for its entire portfolio of PCLP Debentures. If, at any time, the LLRF does not contain sufficient funds, the PCLP CDC must, within 30 days of the earlier of the date it becomes aware of this deficiency or the date it receives notification from SBA of this deficiency, make additional contributions to the LLRF to make up this difference. For Pilot 2 deficiencies, notification will be made by the Bureau of PCLP Oversight. The Bureau will so notify Pilot 2 participants if it determines that:

(1)The Pilot 2 Independent Auditor failed to calculate the portfolio risk and reserve amount using ALLL Methodologies and Documentation in accord with GAAP, AICPA, SBA Office of Lender Oversight, and FFIEC guidance/standards; and

(2)The LLRF is insufficient to protect the Federal Government from loss due to inadequate LLRF. The notification will state the LLRF amount that SBA has determined to be sufficient to protect the Federal Government from loss due to inadequate LLRF. § 120.848 [Redesignated] 3. Redesignate § 120.848 as § 120.849. 4. Add a new § 120.848 to read as follows: § 120.848 Pilot 2.

(a)*General.* A PCLP CDC participating in Pilot 2 must establish and maintain a LLRF (in one or multiple accounts) which complies with this section and the sections of § 120.847 not otherwise expressly noted as inapplicable to Pilot 2 participants. Pilot 2 participants must reimburse the SBA for 10 percent of any loss sustained by SBA as a result of a default in payment of principal or interest on a PCLP Debenture; provided however, such participant must reimburse SBA for 15 percent of any such loss if the PCLP Debenture was issued during the PCLP CDC's participation in Pilot 2. Notwithstanding any of the provisions of this section, a PCLP CDC may not participate in Pilot 2 after Pilot 2 terminates.

(b)*Eligibility.* A PCLP CDC is eligible to participate in Pilot 2 if SBA determines that the PCLP CDC:

(1)Has a LLRF containing at least $100,000;

(2)Has established and is utilizing an appropriate and effective process for analyzing the risk of loss associated with its outstanding PCLP Debentures (and the underlying PCLP loans) with ALLL Methodologies and Documentation in accord with AICPA guidelines, GAAP, SBA's Office of Lender Oversight guidance, and the FFIEC's Policy Statement on Allowance for Loan and Lease Losses Methodologies and Documentation for Banks and Savings Institutions dated July 2, 2001, as published in 66 FR 35629, July 6, 2001;

(3)Has retained an independent auditor that meets the requirements set forth in paragraph

(c)of this section; and

(4)Has met or exceeded 4 or more of the Specified Risk Management Benchmarks as of the most recent assessment by SBA or SBA has issued a waiver for good cause with respect to the requirement of this clause.

(c)*Independent auditor requirements.* In order to be eligible to participate in Pilot 2, the Bureau of PCLP Oversight must determine based on the documentation provided that the auditor:

(1)Is compensated by the PCLP CDC;

(2)Is an independent public accountant who:

(i)Is registered or licensed to practice as a public accountant, and is in good standing, under the laws of the state or other political subdivision of the United States in which the PCLP CDC's principal office is located,

(ii)Agrees in an engagement letter with the PCLP CDC to provide SBA with access to and copies of any work papers, policies, and procedures relating to the services performed,

(iii)Is in compliance with the AICPA Code of Professional Conduct,

(iv)Meets the independence requirements and interpretations of the Securities and Exchange Commission and its staff, and

(v)Has received, or is enrolled in, a peer review program that meets AICPA industry guidelines and standards;

(3)Has substantial experience calculating portfolio risk and reserve amounts using ALLL Methodologies and Documentation in accord with AICPA and FFIEC guidance and standards and GAAP;

(4)Has experience evaluating portfolios comparable to PCLP 504 Debenture Portfolios; and

(5)Is otherwise acceptable to SBA. (A Pilot 2 participant which changes auditors during a Pilot 2 Calendar Quarter must provide the reasons for the change to the AA/OLO within 30 days of the change.)

(d)*Pilot 2 election procedures.* A PCLP CDC may elect to participate in Pilot 2 by notifying the AA/FA and AA/OLO in writing; such notification, which must be received by SBA no less than 10 days and no more than 45 days prior to any Pilot 2 participation period for which an election is made, must include:

(1)Clear and complete documentation that the PCLP CDC meets the requirements set forth in paragraph

(b)of this section;

(2)Clear and complete documentation that the PCLP CDC's auditor meets the requirements set forth in paragraph

(c)of this section; and

(3)A Pilot 2 LLRF Certification. (e)(1) *Pilot 2 participation periods.* Following receipt of written confirmation from SBA by the PCLP CDC that it provided the documentation required in paragraph

(d)of this section, the PCLP CDC's Pilot 2 participation period will be the next full calendar quarter and any following calendar quarter for which a timely election has been made in accordance with paragraph

(d)of this section. For purposes of this section, full calendar quarters shall mean:

(i)The period which begins on January 1 and ends on March 31 of each year;

(ii)The period which begins on April 1 and ends on June 30 of each year;

(iii)The period which begins on July 1 and ends on September 30 of each year; and

(iv)The period which begins on October 1 and ends on December 31 of each year.

(2)Under no circumstances may a PCLP CDC participate in Pilot 2 after if it has been statutorily terminated.

(1)*Pilot 2 LLRF contribution requirements.* A Pilot 2 participant must maintain a LLRF in an amount sufficient to cover its Exposure as determined by its Pilot 2 Independent Auditor in accordance with this section and as set forth in the most recent Pilot 2 LLRF Certification; provided, however, that under no circumstances can the LLRF contain less than $100,000.

(2)*Pilot 2 LLRF certifications.* Pilot 2 LLRF Certifications may be made in accordance with Pilot 2 election procedures set forth in paragraph

(d)of this section; a Pilot 2 participant must increase the amount of its LLRF, and may reduce the amount of its LLRF, as appropriate in order to adjust its LLRF to accord with the most recent Pilot 2 LLRF Certification.

(g)*Recontribution requirements after Pilot 2 participation.* When a PCLP CDC does not participate in Pilot 2 in a calendar quarter following Pilot 2 participation, it must adjust the amount of its LLRF to equal 1 percent of the sum of outstanding balances of its PCLP Debentures either within 45 days after its Pilot 2 participation or in accordance with a recontribution schedule submitted by the PCLP CDC and approved by SBA. A recontribution schedule must be submitted to SBA in writing within 30 days after the end of a PCLP CDC's Pilot 2 participation and contain documentation necessary to show that the schedule would sufficiently cover its Exposure. SBA may disapprove of a recontribution schedule if, in SBA's judgment, the schedule would not cover the PCLP CDC's Exposure. In that event, SBA will revise the recontribution schedule as SBA determines is necessary to cover the PCLP CDC's Exposure (SBA-determined recontribution schedule). SBA may also require the PCLP CDC to follow an SBA-determined recontribution schedule if the PCLP CDC does not submit one within the 30-day time frame. An SBA-determined recontribution schedule will be a final agency determination.

(h)*Failure by participant to meet Pilot 2 requirements.* SBA shall have the authority to remove a Pilot 2 participant from Pilot 2 if the participant fails to meet one or more Pilot 2 requirements stated in § 120.848. In that event, SBA may, among other corrective actions it deems necessary to cause the PCLP CDC's LLRF to cover the PCLP CDC's Exposure adequately, direct a Pilot 2 participant to follow an SBA-determined recontribution schedule for its LLRF.

(1)*Bureau of PCLP Oversight.*

(i)*Establishment.* There is hereby established in the Small Business Administration a bureau to be known as the Bureau of PCLP Oversight to carry out such functions as the Administrator may from time to time designate or delegate to the Bureau of PCLP Oversight (including those described in paragraph (h)(1)(ii) of this section).

(ii)Pilot 2. The Bureau may review the Pilot 2 participant's process for analyzing the risk of loss associated with its portfolio of PCLP loans or for grading each PCLP loan made by the pilot 2 participant and make a determination as to whether the process is consistent with ALLL Methodologies and Documentation and in accord with GAAP, AICPA, SBA Office of Lender Oversight and FFIEC guidance/standards. A negative determination may result in SBA finding the Pilot 2 participant ineligible to participate in Pilot 2 under § 120.848(b). It may also serve as a basis for program removal under § 120.848(h).

(2)[Reserved]. Dated: February 3, 2006. Hector V. Barreto, Administrator. [FR Doc. E6-8039 Filed 5-25-06; 8:45 am] BILLING CODE 8025-01-P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 39 [Docket No. 2002-NM-12-AD] RIN 2120-AA64 Airworthiness Directives; Boeing Model 737-300, -400, -500, -600, -700, -700C, -800, and -900, and 747-400 Series Airplanes; and Model 757, 767, and 777 Airplanes AGENCY: Federal Aviation Administration, DOT. ACTION: Supplemental notice of proposed rulemaking; reopening of comment period. SUMMARY: This document revises an earlier proposed airworthiness directive (AD), applicable to certain Boeing Model 737-300, -400, -500, -600, -700, -700C, -800, and -900, and 747-400 series airplanes; and Model 757, 767, and 777 airplanes. The original NPRM would have required modifying the static inverter by relocating resistor R170 of the static inverter bridge assembly. This new action revises the original NPRM by adding a new requirement for modifying the static inverter by replacing resistor R170 with a new resistor and relocating the new resistor. The actions proposed by this supplemental NPRM are intended to prevent a standby static inverter from overheating, which could result in smoke in the flight deck and cabin and loss of the electrical standby power system. This action is intended to address the identified unsafe condition. DATES: Comments must be received by June 20, 2006. ADDRESSES: Submit comments in triplicate to the Federal Aviation Administration (FAA), Transport Airplane Directorate, ANM-114, Attention: Rules Docket No. 2002-NM-12-AD, 1601 Lind Avenue, SW., Renton, Washington 98055-4056. Comments may be inspected at this location between 9 a.m. and 3 p.m., Monday through Friday, except Federal holidays. Comments may be submitted via fax to

(425)227-1232. Comments may also be sent via the Internet using the following address: *9-anm-nprmcomment@faa.gov.* Comments sent via fax or the Internet must contain “Docket No. 2002-NM-12-AD” in the subject line and need not be submitted in triplicate. Comments sent via the Internet as attached electronic files must be formatted in Microsoft Word 97 or 2000 or ASCII text. The service information referenced in the proposed rule may be obtained from Boeing Commercial Airplane Group, P.O. Box 3707, Seattle, Washington 98124-2207. This information may be examined at the FAA, Transport Airplane Directorate, 1601 Lind Avenue, SW., Renton, Washington. FOR FURTHER INFORMATION CONTACT: Binh V. Tran, Aerospace Engineer, Systems and Equipment Branch, ANM-130S, FAA, Seattle Aircraft Certification Office, 1601 Lind Avenue, SW., Renton, Washington 98055-4056; telephone

(425)917-6485; fax

(425)917-6590. SUPPLEMENTARY INFORMATION: Comments Invited Interested persons are invited to participate in the making of the proposed rule by submitting such written data, views, or arguments as they may desire. Communications shall identify the Rules Docket number and be submitted in triplicate to the address specified above. All communications received on or before the closing date for comments, specified above, will be considered before taking action on the proposed rule. The proposals contained in this action may be changed in light of the comments received. Submit comments using the following format: • Organize comments issue-by-issue. For example, discuss a request to change the compliance time and a request to change the service bulletin reference as two separate issues. • For each issue, state what specific change to the proposed AD is being requested. • Include justification (e.g., reasons or data) for each request. Comments are specifically invited on the overall regulatory, economic, environmental, and energy aspects of the proposed rule. All comments submitted will be available, both before and after the closing date for comments, in the Rules Docket for examination by interested persons. A report summarizing each FAA-public contact concerned with the substance of this proposal will be filed in the Rules Docket. Commenters wishing the FAA to acknowledge receipt of their comments submitted in response to this action must submit a self-addressed, stamped postcard on which the following statement is made: “Comments to Docket Number 2002-NM-12-AD.” The postcard will be date stamped and returned to the commenter. Availability of NPRMs Any person may obtain a copy of this NPRM by submitting a request to the FAA, Transport Airplane Directorate, ANM-114, Attention: Rules Docket No. 2002-NM-12-AD, 1601 Lind Avenue, SW., Renton, Washington 98055-4056. Discussion A proposal to amend part 39 of the Federal Aviation Regulations (14 CFR part 39) with a notice of proposed rulemaking

(NPRM)to add an AD (the “original NPRM”), applicable to certain Boeing Model 737-300, -400, -500, -600, -700, -700C, -800, and -900; 747-400; 757; 767; and 777 series airplanes. The original NPRM was published in the **Federal Register** on May 17, 2002 (67 FR 35057). The original NPRM would have required modifying the static inverter by relocating resistor R170 of the static inverter bridge assembly. The original NPRM was prompted by reports that static inverters had overheated on several Boeing airplanes. That condition, if not corrected, could result in smoke in the flight deck and cabin and loss of the electrical standby power system. Actions Since Issuance of Previous Proposal Since the issuance of the original NPRM, recent in-service experience has shown that simply relocating the carbon composition-style resistor, which was installed in production until late 1999, did not prevent the overheat condition. Further evaluation of the carbon resistor has shown a failure mode that can cause the resistor to ignite, involving adjacent capacitors as well. Explanation of New Service Information Boeing has released the following service bulletins: Action Boeing service bulletin/revision level/date Airplane model/series Modification 737-24-1165, Revision 1, dated October 20, 2005 737-24A1166, Revision 1, dated October 20, 2005 737-600, -700, -700C, -800, -900. 737-300, -400, -500. Modification 747-24-2254, dated July 21, 2005 747-400, -400D, -400F. Modification 757-24-0110, dated April 28, 2005 757-24-0111, dated April 28, 2005 757-200, -200CB, -200PF. 757-300. Modification 767-24-0160, dated June 30, 2005 767-24-0161, dated June 30, 2005 767-200, -300, -300F. 767-400ER. Modification 777-24-0095, dated June 30, 2005 777-200, -300, -300ER. The modification includes inspecting to verify whether the part number of the affected static inverter is identified in the applicable service bulletin, removing any affected resistor R170 from the logic control card assembly and replacing it with a new resistor, and relocating the new resistor to the solder side of the printed circuit board. The service bulletins refer to Avionic Instruments Inc. Service Bulletin 1-002-0102-1000-24-28, Revision A, dated June 22, 2005, as an additional source of service information for modifying the static inverter. The modification includes removing resistor R170 from the logic control card assembly, replacing it with a new resistor and relocating the new resistor to the solder side of the printed circuit board, and installing a Nomex pad on the opposing bracket support plate to avoid contact between the resistor body and the support bracket. Comments on Original NPRM Due consideration has been given to the comments received in response to the original NPRM. Request To Change Static Inverter Part Number (P/N) Instead of Mod Letter Condor Airlines, British Airways (BA), and the Air Transport Association (ATA), request that the static inverter's p/n instead of the mod letter be changed. They indicate that the inventory control systems track parts only by part numbers. We acknowledge and agree with the comments provided. The Avionic Instruments Inc. Service Bulletin 1-002-0102-1000-24-24 (specified in the original NPRM) has been superseded by Service Bulletin 1-002-0102-1000-24-28, Revision A, to incorporate the part number changes as stated above. We have made no change to the supplemental NPRM in this regard. Request for Clarification of Table 1 Condor Airlines, BA, and the ATA also request clarification of which listing is correct: Table 1 of the NPRM or the Boeing service letters. They point out that Table 1 of the NPRM is different from the parts listing contained in the Boeing service letter. We agree that Table 1 of the original NPRM, as published, is misleading. Boeing service letters have been superseded by the Boeing service bulletins identified in the above section titled “Explanation of New Service Information.” This supplemental NPRM is now based on those service bulletins. Hence, Table 1 of the original NPRM has been revised in this supplemental NPRM. Request for Component AD Aloha Airlines states that the original NPRM does not specify serial numbers, and this should be a component AD. Aloha Airlines did not provide any justification for the request. We disagree because this supplemental NPRM is based on the Boeing service bulletins and the Avionic Instruments Inc. service bulletin specified in the “Explanation of Relevant Service Information” section. Therefore, we have chosen an airplane-specific AD rather than a component AD as the appropriate method to correct the problem. We have made no change to the supplemental NPRM in this regard. Request To Withdraw AD or Extend Compliance Time Northwest Airlines

(NWA)requests that the original NPRM be withdrawn, or at a minimum, that the compliance time be extended to 4 years. NWA states that the root cause of the resistor's overheat condition may not be accurately addressed. NWA also states that the manufacturer was concerned that more recent evidence indicates that a liquid substance may have leaked onto the resistor and contributed to the R170 resistor overheating condition. NWA requests that the overheating condition of R170 resistor be confirmed to determine if the cause of the excessive overheat condition is due to a liquid spill/leak. Southwest Airlines (SWA), BA, the ATA, on behalf of its member, American Airlines (AA), and Boeing also request that the compliance time be extended from 18 months to a range between 24 and 48 months. Boeing requests 42 months. The commenters indicate that this is necessary due to the manufacturer's capacity and the volume of components requiring modification. We partially agree. We disagree that the original NPRM should be withdrawn because we have received no information or evidence to indicate that a liquid substance may have leaked onto the R170 resistor and contributed to the overheating condition. We agree that the compliance time may be extended. We have determined that the compliance time may be extended from 18 to 42 months. We consider a 42-month compliance time will provide an acceptable level of safety, yet will allow operators sufficient time to process unmodified static inverters through the manufacturer's modification program without undue disruption of airline operation. We have changed paragraph

(a)of this supplemental NPRM accordingly. Request for Clarification of Part Number NWA requests clarification of whether P/N 1-001-0102-0265 requires the resistor modification. NWA indicates that, per the manufacturer, this part also requires the resistor modification. We do not agree. The number 1-001-0102-0265 is not a P/N and therefore is not identified in the applicability table. However, this supplemental NPRM overrides the original NPRM based on the service information. The affected static inverter part numbers are now listed in those service bulletins. We have made no change to the supplemental NPRM in this regard. Request To Use Unmodified Spares SWA and Boeing request that operators be allowed to use unmodified spares during the modification period. The commenters note the volume of units requiring modification versus the repair capabilities of the manufacturer. We agree that unmodified spares may be used during the modification period. Therefore, we have not included paragraph

(b)of the original NPRM in this supplemental NPRM, and we have reidentified subsequent paragraphs accordingly. Request for Clarification of FAA-Approved Service Letters Boeing points out that under “Explanation of Relevant Service Information,” the original NPRM reads as follows: “The FAA has reviewed and approved Boeing Service Letters 737-SL-24-165, 747-SL-24-058 * * *” and requests to verify whether the FAA approved those Boeing service letters. Boeing indicated that the FAA typically does not approve Boeing service letters, and Boeing has not been able to locate any such approval. We agree. We typically do not approve service letters; however, that statement was inadvertently included in the original NPRM. That section is not restated in the supplemental NPRM; therefore, we have made no change in this regard. Request To Change Cost Impact Section NWA and Avionic Instruments Inc. request that the original NPRM be revised to identify the recertification cost. The manufacturer has informed the commenters that they will be responsible for recertification and freight charges for returned units. The ATA points out that the NPRM preamble states that “warranty remedies are available for the cost of modified replacement parts and labor associated with accomplishing the action specified by the original NPRM. Therefore, the economic cost impact of the original NPRM on U.S. operators may be minimal.” The ATA requests that the original NPRM be revised to address cases where warranty remedies are not available. The ATA indicates that the removal and replacement of the inverter will require 2 elapsed hours per airplane, and the proposed modification will require 6 work hours per inverter. We agree that the cost section of the supplemental NPRM should be changed to incorporate cases where warranty remedies are not available. Additionally, the cost information specified in the original NPRM contained warranty information that is no longer used in ADs. Therefore, the cost information, below, has been revised to remove the warranty information. Explanation of Change to Costs of Compliance After the original NPRM was issued, we reviewed the figures we have used over the past several years to calculate AD costs to operators. To account for various inflationary costs in the airline industry, we find it necessary to increase the labor rate used in these calculations from $65 per work hour to $80 per work hour. The cost impact information, below, reflects this increase in the specified hourly labor rate. Explanation of Change to Applicability We have revised the applicability of the original NPRM to identify model designations as published in the most recent type certificate data sheet for the affected models. Clarification of Alternative Method of Compliance

(AMOC)Paragraph We have revised the “Alternative Methods of Compliance (AMOCs)” paragraph in this AD to clarify the appropriate procedure for notifying the principal inspector before using any approved AMOC on any airplane to which the AMOC applies. Conclusion Since a certain change expands the scope of the originally proposed rule, we have determined that it is necessary to reopen the comment period to provide additional opportunity for public comment. Changes to 14 CFR Part 39/Effect on the Proposed AD On July 10, 2002, the FAA issued a new version of 14 CFR part 39 (67 FR 47997, July 22, 2002), which governs the FAA's airworthiness directives system. The regulation now includes material that relates to altered products, special flight permits, and alternative methods of compliance (AMOCs). These changes are reflected in this supplemental NPRM. Cost Impact There are approximately 3,832 airplanes of the affected design in the worldwide fleet. We estimate that 1,882 airplanes of U.S. registry would be affected by this supplemental NPRM. The following table provides the estimated costs for U.S. operators to comply with this supplemental NPRM. Estimated Costs Action Work hours Average labor rate per hour Parts Cost per airplane Number of U.S.-registered airplanes Fleet cost Modification Up to 2 hours, depending on airplane configuration $80 $0 Between $80 and $160 1,882 Up to $301,120. The cost impact figures discussed in ADs are based on assumptions that no operator has yet accomplished any of the proposed requirements, and that no operator would accomplish those actions in the future if the supplemental NPRM were not adopted. The cost impact figures discussed in AD rulemaking actions represent only the time necessary to perform the specific actions actually required by the AD. These figures typically do not include incidental costs, such as the time required to gain access and close up, planning time, or time necessitated by other administrative actions. Authority for This Rulemaking Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the Agency's authority. We are issuing this rulemaking under the authority described in subtitle VII, part A, subpart III, section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action. Regulatory Impact The regulations proposed herein would not have a substantial direct effect on the States, on the relationship between the National Government and the States, or on the distribution of power and responsibilities among the various levels of government. Therefore, it is determined that this proposal would not have federalism implications under Executive Order 13132. For the reasons discussed above, I certify that this proposed regulation

(1)is not a “significant regulatory action” under Executive Order 12866;

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

(3)if promulgated, will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. A copy of the draft regulatory evaluation prepared for this action is contained in the Rules Docket. A copy of it may be obtained by contacting the Rules Docket at the location provided under the caption ADDRESSES . List of Subjects in 14 CFR Part 39 Air transportation, Aircraft, Aviation safety, Safety. The Proposed Amendment Accordingly, pursuant to the authority delegated to me by the Administrator, the Federal Aviation Administration proposes to amend part 39 of the Federal Aviation Regulations (14 CFR part 39) as follows: PART 39—AIRWORTHINESS DIRECTIVES 1. The authority citation for part 39 continues to read as follows: Authority: 49 U.S.C. 106(g), 40113, 44701. § 39.13 [Amended] 2. Section 39.13 is amended by adding the following new airworthiness directive: **Boeing:** Docket 2002-NM-12-AD. *Applicability:* This AD applies to the following airplanes, certificated in any category, as identified in the applicable service bulletin specified in Table 1 of this AD: Table 1.—Applicability Airplane model/series Boeing service bulletin/revision level/date 737-600, -700, -700C, -800, -900 737-24-1165, Revision 1, dated October 20, 2005. 737-300, -400, -500 737-24A1166, Revision 1, dated October 20, 2005. 747-400, -400D, -400F 747-24-2254, dated July 21, 2005. 757-200, -200CB, -200PF 757-24-0110, dated April 28, 2005. 757-300 757-24-0111, dated April 28, 2005. 767-200, -300, -300F 767-24-0160, dated June 30, 2005. 767-400ER 767-24-0161, dated June 30, 2005. 777-200, -300, -300ER 777-24-0095, dated June 30, 2005. *Compliance:* Required as indicated, unless accomplished previously. To prevent a standby static inverter from overheating, which could result in smoke in the flight deck and cabin and loss of the electrical standby power system, accomplish the following: Modification

(a)Within 42 months after the effective date of this AD: Modify the static inverter by removing resistor R170 from the logic control card assembly and replacing it with a new resistor, and relocating the new resistor to the solder side of the printed circuit board, in accordance with the Accomplishment Instructions of the applicable service bulletin specified in Table 1 of this AD. Note 1: The Boeing service bulletins specified in Table 1 of this AD refer to Avionic Instruments Inc. Service Bulletin 1-002-0102-1000-24-28, Revision A, dated June 22, 2005, as an additional source of service information for the modification required by paragraph

(a)of this AD. Alternative Methods of Compliance (b)(1) An alternative method of compliance or adjustment of the compliance time that provides an acceptable level of safety may be used if approved by the Manager, Seattle Aircraft Certification Office (ACO), FAA. Operators shall submit their requests through an appropriate FAA Principal Maintenance Inspector, who may add comments and then send it to the Manager, Seattle ACO.

(2)Before using any AMOC approved in accordance with 14 CFR 39.19 on any airplane to which the AMOC applies, notify the appropriate principal inspector in the FAA Flight Standards Certificate Holding District Office. Issued in Renton, Washington, on May 15, 2006. Kevin M. Mullin, Acting Manager, Transport Airplane Directorate, Aircraft Certification Service. [FR Doc. E6-8115 Filed 5-25-06; 8:45 am] BILLING CODE 4910-13-P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 39 [Docket No. 2004-NM-36-AD] RIN 2120-AA64 Airworthiness Directives; Empresa Brasileira de Aeronautica S.A. (EMBRAER) Model EMB-135BJ and EMB-145XR Airplanes AGENCY: Federal Aviation Administration, DOT. ACTION: Supplemental notice of proposed rulemaking; reopening of comment period. SUMMARY: This document revises an earlier supplemental notice of proposed rulemaking (NPRM), applicable to certain Empresa Brasileira de Aeronautica S.A. (EMBRAER) Model EMB-135BJ and Model EMB-145XR airplanes. The first supplemental NPRM would have required, for all airplanes, installation of an additional indication device to the clear-ice indication system. For certain airplanes, the first supplemental NPRM would also have required replacing the existing clear-ice indication lamp with a new, improved lamp. For certain other airplanes, the first supplemental NPRM would also have required modifying certain electrical connections to add an indication device to the clear-ice indication system; removing a certain placard; and re-activating the clear-ice additional indicator lamp. This new action revises the first supplemental NPRM by adding airplanes to the applicability. The actions specified by this new proposed supplemental NPRM are intended to prevent undetected build-up of clear ice on the wing surfaces, which could lead to reduced controllability of the airplane. This action is intended to address the identified unsafe condition. DATES: Comments must be received by June 20, 2006. ADDRESSES: Submit comments in triplicate to the Federal Aviation Administration (FAA), Transport Airplane Directorate, ANM-114, Attention: Rules Docket No. 2004-NM-36-AD, 1601 Lind Avenue, SW., Renton, Washington 98055-4056. Comments may be inspected at this location between 9 a.m. and 3 p.m., Monday through Friday, except Federal holidays. Comments may be submitted via fax to

(425)227-1232. Comments may also be sent via the Internet using the following address: *9-anm-nprmcomment@faa.gov.* Comments sent via fax or the Internet must contain “Docket No. 2004-NM-36-AD” in the subject line and need not be submitted in triplicate. Comments sent via the Internet as attached electronic files must be formatted in Microsoft Word 97 or 2000 or ASCII text. The service information referenced in the proposed rule may be obtained from Empresa Brasileira de Aeronautica S.A. (EMBRAER), P.O. Box 343-CEP 12.225, Sao Jose dos Campos-SP, Brazil. This information may be examined at the FAA, Transport Airplane Directorate, 1601 Lind Avenue, SW., Renton, Washington. FOR FURTHER INFORMATION CONTACT: Todd Thompson, Aerospace Engineer, International Branch, ANM-116, FAA, Transport Airplane Directorate, 1601 Lind Avenue, SW., Renton, Washington 98055-4056; telephone

(425)227-1175; fax

(425)227-1149. SUPPLEMENTARY INFORMATION: Comments Invited Interested persons are invited to participate in the making of the proposed rule by submitting such written data, views, or arguments as they may desire. Communications shall identify the Rules Docket number and be submitted in triplicate to the address specified above. All communications received on or before the closing date for comments, specified above, will be considered before taking action on the proposed rule. The proposals contained in this action may be changed in light of the comments received. Submit comments using the following format: • Organize comments issue-by-issue. For example, discuss a request to change the compliance time and a request to change the service bulletin reference as two separate issues. • For each issue, state what specific change to the proposed AD is being requested. • Include justification (e.g., reasons or data) for each request. Comments are specifically invited on the overall regulatory, economic, environmental, and energy aspects of the proposed rule. All comments submitted will be available, both before and after the closing date for comments, in the Rules Docket for examination by interested persons. A report summarizing each FAA-public contact concerned with the substance of this proposal will be filed in the Rules Docket. Commenters wishing the FAA to acknowledge receipt of their comments submitted in response to this action must submit a self-addressed, stamped postcard on which the following statement is made: “Comments to Docket Number 2004-NM-36-AD.” The postcard will be date stamped and returned to the commenter. Availability of NPRMs Any person may obtain a copy of this NPRM by submitting a request to the FAA, Transport Airplane Directorate, ANM-114, Attention: Rules Docket No. 2004-NM-36-AD, 1601 Lind Avenue, SW., Renton, Washington 98055-4056. Discussion A proposal to amend part 39 of the Federal Aviation Regulations (14 CFR part 39) to add an airworthiness directive (AD), applicable to certain Empresa Brasileira de Aeronautica S.A. (EMBRAER) Model EMB-135BJ and Model EMB-145XR series airplanes, was published as a supplemental notice of proposed rulemaking

(NPRM)(“the first supplemental NPRM”) in the **Federal Register** on June 22, 2005 (70 FR 36081). That first supplemental NPRM would have required installation of an additional indication device to the clear-ice indication system. For certain airplanes that first supplemental NPRM would also have required replacing the existing clear-ice indication lamp with a new, improved lamp. For certain other airplanes, that first supplemental NPRM would also have required modifying certain electrical connections to add an indication device to the clear-ice indication system; removing a certain placard; and re-activating the clear-ice additional indicator lamp. That first supplemental NPRM was prompted by new revisions of service information that expanded the scope of the originally proposed rule. We issued the first supplemental NPRM to prevent undetected build-up of clear ice on the wing surfaces, which could lead to reduced controllability of the airplane. Actions Since Issuance of First Supplemental NPRM EMBRAER has issued new service information, which adds airplanes to the applicability. We have reviewed EMBRAER Service Bulletin 145-30-0035, Revision 03, dated March 8, 2005, and have revised this second supplemental NPRM to refer to this new service information. In addition, due consideration has been given to the comments received in response to the first supplemental NPRM: Request To Revise Credit Paragraph EMBRAER requests that we revise paragraph

(c)of the first supplemental NPRM to remove references to EMBRAER Service Bulletin 145-30-0035, dated July 16, 2003, and Revision 01, dated September 2, 2003; and to EMBRAER Service Bulletin 145LEG-30-0002, dated September 2, 2004. EMBRAER states that it was notified of technical problems that operators experienced while accomplishing these service bulletins. These technical issues could lead to the system not operating as predicted. EMBRAER suggests that we revise paragraph

(c)of the first supplemental NPRM to allow credit only for the accomplishment of EMBRAER Service Bulletin 145-30-0035, Revision 02, dated January 6, 2005. We agree with EMBRAER for the reasons stated. We have revised paragraph

(c)of the second supplemental NPRM to include a reference only to EMBRAER Service Bulletin 145-30-0035, Revision 02. Request To List First Supplemental NPRM in Docket Management System

(DMS)Modification and Replacement Parts Association (MARPA) objects to the issuance of AD rulemaking without concurrent listing in the DMS at *http://dms.dot.gov.* MARPA requests that the first supplemental NPRM be reconfigured pursuant to the requirements for listing the action under the DMS system so that comments may be published on-line. We disagree with the commenter. On May 17, 2004, we implemented new procedures for maintaining AD dockets electronically. As of that date new AD actions are posted on DMS and assigned a docket number. However, actions that were started before that date are not posted on the DMS system. In order to post them on DMS, we would have to assign a new docket number and break the continuity of comments and changes to the action. These changes are tracked by airplane operators. We have not changed the second supplemental NPRM in this regard. Service Bulletin Availability MARPA notes that the first supplemental NPRM specifies that the clear-ice indicator lamp be replaced in accordance with a manufacturer service bulletin. MARPA also states service bulletins are proprietary documents and are difficult to obtain for those who are not aircraft owners and/or operators. MARPA states that it is not possible without reference to the service bulletin to determine precisely the lamps that are approved replacement parts. We infer that MARPA is requesting that we attach a copy of all service information to the relevant AD when we distribute it, or that we scan and post all service information on-line. As noted above, the contents of this second supplemental NPRM will not be posted on-line at DMS. However, paper copies of the service bulletins are available for anyone to review at the locations cited in the ADDRESSES paragraph of this second supplemental NPRM. No change has been made to this second supplemental NPRM in this regard. Request To Reference Parts Manufacturing Approval

(PMA)Parts MARPA also requests that the “new and improved” indicator lamp be identified in the text of the action by the manufacturer and the part number; and that the wording of the action be adjusted to embrace the possibility that alternative parts may be used in place of those prescribed in the service document. To that end, MARPA suggested that the following wording may be appropriate: “The requirements to remove or install certain part-numbered specific parts shall be interpreted broadly to include any parts approved under FAR 21.303 as replacements for the original equipment parts cited in this action. It is the responsibility of the operator to determine such extended applicability. Nothing in this action prevents or precludes the installation of alternatively approved parts.” We infer that the commenter would like the first supplemental NPRM to permit installation of any equivalent PMA parts so that it is not necessary for an operator to request approval of an alternative method of compliance

(AMOC)in order to install an “alternative” PMA part. Whether an alternative part is equivalent in adequately resolving the unsafe condition can only be determined on a case-by-case basis based on a complete understanding of the unsafe condition. We are not currently aware of any such parts. Our policy is that, in order for operators to replace a part with one that is not specified in the AD, they must request an AMOC. This is necessary so that we can make a specific determination that an alternative part is or is not susceptible to the same unsafe condition. In response to the commenter's statement regarding a conflict with 14 CFR 21.303, under which the FAA issues PMAs, this statement appears to reflect a misunderstanding of the relationship between ADs and the certification procedural regulations of part 21 of the Federal Aviation Regulations (14 CFR part 21). Those regulations, including section 21.303 of the Federal Aviation Regulations (14 CFR 21.203), are intended to ensure that aeronautical products comply with the applicable airworthiness standards. But ADs are issued when, notwithstanding those procedures, we become aware of unsafe conditions in these products or parts. Therefore, an AD takes precedence over design approvals when we identify an unsafe condition, and mandating installation of a certain part number in an AD is not at variance with section § 21.303. An AD provides a means of compliance for operators to ensure that the identified unsafe condition is addressed appropriately. For an unsafe condition attributable to a part, an AD normally identifies the replacement parts necessary to obtain that compliance. As stated in section 39.7 of the Federal Aviation Regulations (14 CFR 39.7), “Anyone who operates a product that does not meet the requirements of an applicable airworthiness directive is in violation of this section.” Unless an operator obtains approval for an AMOC, replacing a part with one not specified by an AD would make the operator subject to an enforcement action and result in a civil penalty. No change to the second supplemental NPRM is necessary in this regard. Request To Address Defective PMA Parts MARPA also requests that the first supplemental NPRM be revised to identify the defective indicator lamp by manufacturer and part number. MARPA states that it is not possible for interested parties to determine if the affected indicator lamp has an approved replacement part qualified under 14 CFR 21.303. If such a part does exist then it may suffer the same deficiencies as the original equipment manufacturer

(OEM)part and should also be replaced. MARPA states that because PMA parts usually carry different part numbers than OEM parts, the possibility exists that a defective PMA part may escape the regulatory force of the AD, thereby compromising safety. We concur with the commenter's general request that, if we know that an unsafe condition also exists in PMA parts, an AD should address those parts, as well as the OEM parts. For this second supplemental NPRM, we are not aware of other PMA parts that have a different part number. The commenter's remarks are timely in that the Transport Airplane Directorate currently is in the process of reviewing this issue as it applies to transport category airplanes. We acknowledge that there may be other ways of addressing this issue to ensure that unsafe PMA parts are identified and addressed. Once we have thoroughly examined all aspects of this issue, including input from industry, and have made a final determination, we will consider whether our policy regarding addressing PMA parts in ADs needs to be revised. We consider that to delay action would be inappropriate, since we have determined that an unsafe condition exists, and that replacement of certain parts must be accomplished to ensure continued safety. Therefore, no change has been made to the second supplemental NPRM in this regard. Clarification of AMOC Paragraph We have revised this second supplemental NPRM to clarify the appropriate procedure for notifying the principal inspector before using any approved AMOC on any airplane to which the AMOC applies. Explanation of Change to Cost Estimate After the first supplemental NPRM was issued, we reviewed the figures we have used over the past several years to calculate AD costs to operators. To account for various inflationary costs in the airline industry, we find it necessary to increase the labor rate used in these calculations from $65 per work hour to $80 per work hour. The cost impact information, below, reflects this increase in the specified hourly labor rate. Explanation of Change to Applicability We have revised the applicability of this second supplemental NPRM to identify the model designations as published in the most recent type certificate data sheet for the affected models. Conclusion Since certain changes expand the scope of the first supplemental NPRM, the FAA has determined that it is necessary to reopen the comment period to provide additional opportunity for public comment. Cost Impact The FAA estimates that about 49 airplanes of U.S. registry would be affected by this proposed AD. The average labor rate is $80 per work hour. For 41 Model EMB-145XR airplanes, it would take 16 work hours per airplane to accomplish the proposed actions. Required parts would cost between $242 and $817 per airplane. Based on these figures, the cost impact of the proposed AD on U.S. operators of Model EMB-145XR airplanes is estimated to be between $62,402 and $85,977, or between $1,522 and $2,097 per airplane. For 8 Model EMB-135BJ airplanes, it would take 16 work hours per airplane to accomplish the proposed actions. Required parts would cost between $240 and $820 per airplane. Based on these figures, the cost impact of the proposed AD on U.S. operators of Model EMB-135BJ airplanes is estimated to be between $12,160 and $16,800, or between $1,520 and $2,100 per airplane. The cost impact figures discussed above are based on assumptions that no operator has yet accomplished any of the proposed requirements of this AD action, and that no operator would accomplish those actions in the future if this AD were not adopted. The cost impact figures discussed in AD rulemaking actions represent only the time necessary to perform the specific actions actually required by the AD. These figures typically do not include incidental costs, such as the time required to gain access and close up, planning time, or time necessitated by other administrative actions. Authority for This Rulemaking Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, Section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the Agency's authority. We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action. Regulatory Impact The regulations proposed herein would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government. Therefore, it is determined that this proposal would not have federalism implications under Executive Order 13132. For the reasons discussed above, I certify that this proposed regulation

(1)is not a “significant regulatory action” under Executive Order 12866;

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

(3)if promulgated, will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. A copy of the draft regulatory evaluation prepared for this action is contained in the Rules Docket. A copy of it may be obtained by contacting the Rules Docket at the location provided under the caption ADDRESSES. List of Subjects in 14 CFR Part 39 Air transportation, Aircraft, Aviation safety, Safety. The Proposed Amendment Accordingly, pursuant to the authority delegated to me by the Administrator, the Federal Aviation Administration proposes to amend part 39 of the Federal Aviation Regulations (14 CFR part 39) as follows: PART 39—AIRWORTHINESS DIRECTIVES 1. The authority citation for part 39 continues to read as follows: Authority: 49 U.S.C. 106(g), 40113, 44701. § 39.13 [Amended] 2. Section 39.13 is amended by adding the following new airworthiness directive: **Empresa Brasileira De Aeronautica S.A. (EMBRAER):** Docket 2004-NM-36-AD. *Applicability:* Model EMB-145XR airplanes, as listed in EMBRAER Service Bulletin 145-30-0035, Revision 03, dated March 8, 2005; and Model EMB-135BJ airplanes, as listed in EMBRAER Service Bulletin 145LEG-30-0002, Revision 01, dated January 4, 2005; certificated in any category. *Compliance:* Required as indicated, unless accomplished previously. To prevent undetected build-up of clear ice on the wing surfaces, which could lead to reduced controllability of the airplane, accomplish the following: Modification of Clear-Ice Indication System

(a)For Model EMB-145XR airplanes: Within 24 months or 5,000 flight hours after the effective date of this AD, whichever comes first, perform the actions specified in paragraphs (a)(1) and (a)(2) of this AD, as applicable, in accordance with the Accomplishment Instructions of EMBRAER Service Bulletin 145-30-0035, Revision 03, dated March 3, 2005.

(1)Install complete electrical connections and provisions to add an additional indication device to the clear-ice indication system, as specified in the Accomplishment Instructions, Part I.

(2)Replace the existing clear-ice indication lamp with a new lamp having a new part number, as specified in the Accomplishment Instructions, Part II.

(b)For Model EMB-135BJ airplanes: Within 24 months or 5,000 flight hours after the effective date of this AD, whichever comes first, perform the actions of paragraphs (b)(1), (b)(2), (b)(3), and (b)(4) of this AD, as applicable, in accordance with the Accomplishment Instructions of EMBRAER Service Bulletin 145LEG-30-0002, Revision 01, dated January 4, 2005.

(1)Install complete electrical connections and provisions to add an additional indication device to the clear-ice indication system, as specified in the Accomplishment Instructions, Part I.

(2)Modify the electrical connections of factory-provisioned airplanes to add an additional indication device to the clear-ice indication system, as specified in the Accomplishment Instructions, Part II.

(3)Remove the “Clear-Ice Inoperative” placard and reactivate the clear-ice additional indicator lamp, as specified in the Accomplishment Instructions, Part III.

(4)Replace the existing clear-ice indicator lamp with a new, improved lamp having a new part number, as specified in the Accomplishment Instructions, Part IV or Part V. Actions Accomplished Per Previous Issues of Service Bulletins

(c)Actions accomplished before the effective date of this AD in accordance with EMBRAER Service Bulletin 145-30-0035, Revision 02, dated January 06, 2005, are considered acceptable for compliance with the corresponding actions specified in this AD. Alternative Methods of Compliance (d)(1) In accordance with 14 CFR 39.19, the Manager, International Branch, ANM-116, FAA, Transport Airplane Directorate, is authorized to approve alternative methods of compliance for this AD.

(2)Before using any AMOC approved in accordance with § 39.19 on any airplane to which the AMOC applies, notify the appropriate principal inspector in the FAA Flight Standards Certificate Holding District Office. Note 1: The subject of this AD is addressed in Brazilian airworthiness directive 2004-01-01, dated January 27, 2004. Issued in Renton, Washington, on May 15, 2006. Kevin M. Mullin, Acting Manager, Transport Airplane Directorate, Aircraft Certification Service. [FR Doc. E6-8117 Filed 5-25-06; 8:45 am] BILLING CODE 4910-13-P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 39 [Docket No. FAA-2006-24891; Directorate Identifier 2006-NM-080-AD] RIN 2120-AA64 Airworthiness Directives; Boeing Model 777-200, -300, and -300ER Series Airplanes AGENCY: Federal Aviation Administration (FAA), Department of Transportation (DOT). ACTION: Notice of proposed rulemaking (NPRM). SUMMARY: The FAA proposes to adopt a new airworthiness directive

(AD)for certain Boeing Model 777-200, -300, and -300ER series airplanes. This proposed AD would require replacement of the gimbal plates of the left and right outboard trailing edge flaps with improved gimbal plates and other specified actions. This proposed AD results from a broken pivot link found on the inboard support for the outboard trailing edge flap. We are proposing this AD to prevent disconnection of the drive arm from its drive gimbal, due to a broken pivot link on an outboard flap support, which could result in unexpected roll of the airplane and loss of control of the airplane. DATES: We must receive comments on this proposed AD by July 10, 2006. ADDRESSES: Use one of the following addresses to submit comments on this proposed AD. • DOT Docket Web site: Go to *http://dms.dot.gov* and follow the instructions for sending your comments electronically. • Government-wide rulemaking Web site: Go to *http://www.regulations.gov* and follow the instructions for sending your comments electronically. • Mail: Docket Management Facility, U.S. Department of Transportation, 400 Seventh Street SW., Nassif Building, room PL-401, Washington, DC 20590. • Fax:

(202)493-2251. • Hand Delivery: Room PL-401 on the plaza level of the Nassif Building, 400 Seventh Street SW., Washington, DC, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. Contact Boeing Commercial Airplanes, P.O. Box 3707, Seattle, Washington 98124-2207, for the service information identified in this proposed AD. FOR FURTHER INFORMATION CONTACT: Gary Oltman, Aerospace Engineer, Airframe Branch, ANM-120S, FAA, Seattle Aircraft Certification Office, 1601 Lind Avenue, SW., Renton, Washington 98055-4056; telephone

(425)917-6443; fax

(425)917-6590. SUPPLEMENTARY INFORMATION: Comments Invited We invite you to submit any relevant written data, views, or arguments regarding this proposed AD. Send your comments to an address listed in the ADDRESSES section. Include the docket number “FAA-2006-24891; Directorate Identifier 2006-NM-080-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of the proposed AD. We will consider all comments received by the closing date and may amend the proposed AD in light of those comments. We will post all comments we receive, without change, to *http://dms.dot.gov,* including any personal information you provide. We will also post a report summarizing each substantive verbal contact with FAA personnel concerning this proposed AD. Using the search function of that Web site, anyone can find and read the comments in any of our dockets, including the name of the individual who sent the comment (or signed the comment on behalf of an association, business, labor union, etc.). You may review DOT's complete Privacy Act Statement in the **Federal Register** published on April 11, 2000 (65 FR 19477-78), or you may visit *http://dms.dot.gov.* Examining the Docket You may examine the AD docket on the Internet at *http://dms.dot.gov,* or in person at the Docket Management Facility office between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The Docket Management Facility office (telephone

(800)647-5227) is located on the plaza level of the Nassif Building at the DOT street address stated in the ADDRESSES section. Comments will be available in the AD docket shortly after the Docket Management System receives them. Discussion We have received a report indicating that a broken pivot link was found on the inboard support for the outboard trailing edge flap on a Boeing Model 777-300 series airplane. That broken pivot link was found after an incident where, during approach, the flightcrew received the FLAPS PRIMARY and FLAPS SKEW messages, and the airplane rolled slightly to the left. The flightcrew was able to land the airplane without difficulty. Investigation revealed that a broken pivot link on outboard flap support number 2 caused an increased load on the drive arm assembly of support number 1. The increased load caused the drive arm gimbal plates to disconnect from the drive gimbal, which led to a skewed outboard flap. This condition, if not corrected, could result in unexpected roll of the airplane and loss of control of the airplane. Relevant Service Information We have reviewed Boeing Alert Service Bulletin 777-27A0073, dated March 30, 2006. The service bulletin describes procedures for replacing the gimbal plates of the left and right outboard trailing edge flaps with improved gimbal plates and doing other specified actions. The other specified actions include adjusting the gimbal plate shims, rotating the upper gimbal bushing, installing a new grease fitting, adjusting the bulkhead fitting shim, changing the flap skew detection bracket assembly, lubricating the outboard transmission, ballscrews, and gimbal of the outboard flaps, and doing the adjustment/test of the trailing edge flap system. Accomplishing the actions specified in the service information is intended to adequately address the unsafe condition. FAA's Determination and Requirements of the Proposed AD We have evaluated all pertinent information and identified an unsafe condition that is likely to exist or develop on other airplanes of this same type design. For this reason, we are proposing this AD, which would require accomplishing the actions specified in the service information described previously. Costs of Compliance There are about 546 airplanes of the affected design in the worldwide fleet. This proposed AD would affect about 145 airplanes of U.S. registry. The proposed actions would take about 153 work hours per airplane, at an average labor rate of $80 per work hour. Required parts would cost about $69,850 per airplane. Based on these figures, the estimated cost of the proposed AD for U.S. operators is $11,903,050, or $82,090 per airplane. Authority for This Rulemaking Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, Section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the Agency's authority. We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action. Regulatory Findings We have determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government. For the reasons discussed above, I certify that the proposed regulation: 1. Is not a “significant regulatory action” under Executive Order 12866; 2. Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and 3. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. We prepared a regulatory evaluation of the estimated costs to comply with this proposed AD and placed it in the AD docket. See the ADDRESSES section for a location to examine the regulatory evaluation. List of Subjects in 14 CFR Part 39 Air transportation, Aircraft, Aviation safety, Safety. The Proposed Amendment Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows: PART 39—AIRWORTHINESS DIRECTIVES 1. The authority citation for part 39 continues to read as follows: Authority: 49 U.S.C. 106(g), 40113, 44701. § 39.13 [Amended] 2. The Federal Aviation Administration

(FAA)amends § 39.13 by adding the following new airworthiness directive (AD): **BOEING** : Docket No. FAA-2006-24891; Directorate Identifier 2006-NM-080-AD. Comments Due Date

(a)The FAA must receive comments on this AD action by July 10, 2006. Affected ADs

(b)None. Applicability

(c)This AD applies to Boeing Model 777-200, -300, and -300ER series airplanes, certificated in any category; as identified in Boeing Alert Service Bulletin 777-27A0073, dated March 30, 2006. Unsafe Condition

(d)This AD results from a broken pivot link found on the inboard support for the outboard trailing edge flap. We are issuing this AD to prevent disconnection of the drive arm from its drive gimbal, due to a broken pivot link on an outboard flap support, which could result in unexpected roll of the airplane and loss of control of the airplane. Compliance

(e)You are responsible for having the actions required by this AD performed within the compliance times specified, unless the actions have already been done. Replacement of Gimbal Plates

(f)Within 24 months after the effective date of this AD, replace the gimbal plates of the left and right outboard trailing edge flaps with improved gimbal plates, and do the other specified actions before further flight after the replacement, by accomplishing all the actions specified in the Accomplishment Instructions of Boeing Alert Service Bulletin 777-27A0073, dated March 30, 2006. Parts Installation

(g)As of the effective date of this AD, no person may install a gimbal plate, part numbers 113W1112-3, 113W1112-4, 113W1212-3, and 113W1212-4, on any airplane, unless it has been modified in accordance with paragraph

(f)of this AD. Alternative Methods of Compliance (AMOCs) (h)(1) The Manager, Seattle Aircraft Certification Office (ACO), FAA, has the authority to approve AMOCs for this AD, if requested in accordance with the procedures found in 14 CFR 39.19.

(3)An AMOC that provides an acceptable level of safety may be used for any repair required by this AD, if it is approved by an Authorized Representative for the Boeing Commercial Airplanes Delegation Option Authorization Organization who has been authorized by the Manager, Seattle ACO, to make those findings. For a repair method to be approved, the repair must meet the certification basis of the airplane, and the approval must specifically refer to this AD. Issued in Renton, Washington, on May 18, 2006. Kevin M. Mullin, Acting Manager, Transport Airplane Directorate, Aircraft Certification Service. [FR Doc. E6-8123 Filed 5-25-06; 8:45 am] BILLING CODE 4910-13-P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 39 [Docket No. FAA-2005-22812; Directorate Identifier 2005-NM-134-AD] RIN 2120-AA64 Airworthiness Directives; Airbus Model A330 Airplanes and Model A340-200 and -300 Series Airplanes AGENCY: Federal Aviation Administration (FAA), Department of Transportation (DOT). ACTION: Supplemental notice of proposed rulemaking (NPRM); reopening of comment period. SUMMARY: The FAA is revising an earlier NPRM for an airworthiness directive

(AD)that applies to certain Airbus Model A330 airplanes and Model A340-200 and -300 series airplanes. The original NPRM would have required repetitive detailed inspections for cracking in the aft web of support rib 6 between certain bottom skin stringers on both wings; high frequency eddy current inspections for cracking of the attachment holes of the fuel pipes, and repair if necessary. The original NPRM also would have provided for an optional modification, which would extend a certain inspection threshold. The original NPRM resulted from a report of significant cracking found in the aft web of support rib 6 on both wings. This action revises the original NPRM by mandating, for certain airplanes, a new modification of support rib 6 on both wings, which would end the repetitive inspection requirement. This action also reduces the applicability in the original NPRM. We are proposing this supplemental NPRM to prevent cracking in the aft web of support rib 6, which could result in overloading of adjacent ribs and the surrounding wing structure and consequent reduced structural integrity of the wing. DATES: We must receive comments on this supplemental NPRM by June 20, 2006. ADDRESSES: Use one of the following addresses to submit comments on this supplemental NPRM. • DOT Docket Web site: Go to *http://dms.dot.gov* and follow the instructions for sending your comments electronically. • Government-wide rulemaking Web site: Go to *http://www.regulations.gov* and follow the instructions for sending your comments electronically. • Mail: Docket Management Facility; U.S. Department of Transportation, 400 Seventh Street SW., Nassif Building, Room PL-401, Washington, DC 20590. • Fax:

(202)493-2251. • Hand Delivery: Room PL-401 on the plaza level of the Nassif Building, 400 Seventh Street SW., Washington, DC, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. Contact Airbus, 1 Rond Point Maurice Bellonte, 31707 Blagnac Cedex, France, for the service information identified in this proposed AD. FOR FURTHER INFORMATION CONTACT: Tim Backman, Aerospace Engineer, International Branch, ANM-116, Transport Airplane Directorate, FAA, 1601 Lind Avenue, SW., Renton, Washington 98055-4056; telephone

(425)227-2797; fax

(425)227-1149. SUPPLEMENTARY INFORMATION: Comments Invited We invite you to submit any relevant written data, views, or arguments regarding this supplemental NPRM. Send your comments to an address listed in the ADDRESSES section. Include the docket number “Docket No. FAA-2005-22812; Directorate Identifier 2005-NM-134-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this supplemental NPRM. We will consider all comments received by the closing date and may amend this supplemental NPRM in light of those comments. We will post all comments submitted, without change, to *http://dms.dot.gov,* including any personal information you provide. We will also post a report summarizing each substantive verbal contact with FAA personnel concerning this supplemental NPRM. Using the search function of that Web site, anyone can find and read the comments in any of our dockets, including the name of the individual who sent the comment (or signed the comment on behalf of an association, business, labor union, etc.). You may review the DOT's complete Privacy Act Statement in the **Federal Register** published on April 11, 2000 (65 FR 19477-78), or you may visit *http://dms.dot.gov.* Examining the Docket You may examine the AD docket on the Internet at *http://dms.dot.gov,* or in person at the Docket Management Facility office between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The Docket Management Facility office (telephone

(800)647-5227) is located on the plaza level in the Nassif Building at the DOT street address stated in ADDRESSES. Comments will be available in the AD docket shortly after the Docket Management System receives them. Discussion We proposed to amend 14 CFR part 39 with a notice of proposed rulemaking

(NPRM)for an airworthiness directive

(AD)(the “original NPRM”). The original NPRM applies to certain Airbus Model A330-200, A330-300, A340-200, and A340-300 series airplanes. The original NPRM was published in the **Federal Register** on October 27, 2005 (70 FR 61927). The original NPRM proposed to require repetitive detailed inspections for cracking in the aft web of support rib 6 between certain bottom skin stringers on both wings; high frequency eddy current inspections for cracking of the attachment holes of the fuel pipes, and repair if necessary. The original NPRM also proposed to provide for an optional modification, which would extend a certain inspection threshold. The preamble to the original NPRM specified that we considered the requirements “interim action” and that the manufacturer was developing a modification to address the unsafe condition. The preamble also explained that we may consider further rulemaking if a modification is developed, approved, and available. The manufacturer now has developed such a modification, and we have determined that further rulemaking is indeed necessary; this supplemental NPRM follows from that determination. New Relevant Service Information Airbus has issued Service Bulletins A330-57-3085 (for Model A330 airplanes) and A340-57-4093 (for Model A340-200 and -300 series airplanes), both Revision 02, both dated September 29, 2005. Revision 02 is essentially the same as Revision 01 of the service bulletins, which were referenced in the original NPRM as the source of service information for accomplishing the inspections. Airbus has also issued Service Bulletins A330-57-3087 (for Model A330 airplanes) and A340-57-4095 (for Model A340-200 and -300 series airplanes), both Revision 01, both dated September 22, 2005. Revision 01 is essentially the same as the original issue of the service bulletins, which were referenced in the original NPRM as the source of service information for accomplishing the optional modification. Airbus has also issued Service Bulletins A330-57-3088 (for Model A330 airplanes) and A340-57-4096 (for Model A340-200 and -300 series airplanes), both dated September 21, 2005. The service bulletins provide procedures for a new modification of support rib 6 on both wings that eliminates the need for the repetitive inspections. The modification includes, among other things, installing a reinforcement plate and cold expanding the attachment holes for the outboard side of rib 6. Comments We have considered the following comments on the original NPRM. Request To Add New French Airworthiness Directives/Service Bulletin Airbus asks that French airworthiness directives F-2006-008 and F-2006-009, both dated January 4, 2006, be added to the supplemental NPRM. Airbus states that the French airworthiness directives mandate terminating action for the repetitive inspections specified in the original NPRM. F-2006-008 and F-2006-009 cancel the requirements in French airworthiness directives F-2005-071 and F-2005-072, both dated April 27, 2005 (referenced in the original NPRM). Northwest Airlines asks that Airbus Service Bulletin A330-57-3088 be added to the supplemental NPRM as terminating action for the repetitive inspections specified in Airbus Service Bulletin A330-57-3085, Revision 02. We agree with the commenters' requests. The Direction Ge ne rale de l'Aviation Civile (DGAC), which is the airworthiness authority for France, mandated the service information and issued French airworthiness directives F-2006-008 and F-2006-009, both dated January 4, 2006. French airworthiness directives F-2006-008 and F-2006-009, mandate a new modification of support rib 6 on both wings, and have been added to this supplemental NPRM. The French airworthiness directives require using Airbus Service Bulletins A330-57-3088 and A340-57-4096 (identified above) for accomplishing the modification. We have also added those service bulletins to this supplemental NPRM. Request to Exclude Airplanes with Airbus Modification 53883 Northwest Airlines asks that airplanes on which Airbus Modification 53883 has been incorporated in production be excluded from the applicability specified in the original NPRM. The airline provides no justification for the request. We agree to exclude the subject airplanes from the applicability section of the supplemental NPRM. French airworthiness directives F-2006-008 and F-2006-009 exclude those airplanes. Airbus Modification 53883 is the production version of the modification defined in Airbus Service Bulletins A330-57-3088 and A340-57-4096, which ends the repetitive inspections, as specified in paragraph

(n)of the supplemental NPRM. Request To Correct Typographical Error Airbus notes that there is a typographical error in paragraph

(h)of the original NPRM. Airbus states that paragraph

(h)should specify paragraph (h)(3)(i) instead of (h)(3) for the third compliance paragraph. We do not agree; the “(i)” under paragraph (h)(3) is a new paragraph, not a subparagraph of paragraph (h)(3) as the commenter noted. Request To Change Applicability Airbus asks that Model A330-302 and -303 airplanes be added to the applicability specified in the original NPRM. We agree. Whereas Model A330-302 and -303 airplanes have not yet been type certificated, FAA approval of these models is in process. We have changed the applicability in this supplemental NPRM to more closely parallel the effectivity section of the French airworthiness directives; the revised reference to Model A330 airplanes includes Model A330-302 and -303 airplanes. Explanation of Change to Costs of Compliance After the original NPRM was issued, we reviewed the figures we have used over the past several years to calculate AD costs to operators. To account for various inflationary costs in the airline industry, we find it necessary to increase the labor rate used in these calculations from $65 per work hour to $80 per work hour. The cost impact information, below, reflects this increase in the specified hourly labor rate. Explanation of Change to the Original NPRM Paragraph

(k)of the original NPRM specifies making repairs using a method approved by either the FAA or the Direction Ge rale de l'Aviation Civile (or its delegated agent). The European Aviation Safety Agency

(EASA)has assumed responsibility for the airplane models subject to this AD. Therefore, we have revised paragraph

(k)of this supplemental NPRM to specify making repairs using a method approved by either the FAA or the EASA (or its delegated agent). FAA's Determination and Proposed Requirements of the Supplemental NPRM Certain changes discussed above expand the scope of the original NPRM; therefore, we have determined that it is necessary to reopen the comment period to provide additional opportunity for public comment on this supplemental NPRM. Costs of Compliance This supplemental NPRM would affect about 25 airplanes of U.S. registry. The proposed inspections would take about 4 work hours per airplane, at an average labor rate of $80 per work hour. Based on these figures, the estimated cost of the proposed inspections for U.S. operators is $8,000, or $320 per airplane, per inspection cycle. The proposed modification of support rib 6 on the left-hand wing would take about 38 work hours per airplane, at an average labor rate of $80 per work hour. Required parts would cost about $5,020 per airplane. Based on these figures, the estimated cost of this modification on the left-hand wing on U.S. operators is $201,500, or $8,060 per airplane. The proposed modification of support rib 6 on the right-hand wing would take about 38 work hours per airplane, at an average labor rate of $80 per work hour. Required parts would cost about $5,020 per airplane. Based on these figures, the estimated cost of this modification on the right-hand wing on U.S. operators is $201,500, or $8,060 per airplane. Authority for this Rulemaking Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, Section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the Agency's authority. We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action. Regulatory Findings We have determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government. For the reasons discussed above, I certify that the proposed regulation: 1. Is not a “significant regulatory action” under Executive Order 12866; 2. Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and 3. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. We prepared a regulatory evaluation of the estimated costs to comply with this supplemental NPRM and placed it in the AD docket. See the ADDRESSES section for a location to examine the regulatory evaluation. List of Subjects in 14 CFR Part 39 Air transportation, Aircraft, Aviation safety, Safety. The Proposed Amendment Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows: PART 39—AIRWORTHINESS DIRECTIVES 1. The authority citation for part 39 continues to read as follows: Authority: 49 U.S.C. 106(g), 40113, 44701. § 39.13 [Amended] 2. The Federal Aviation Administration

(FAA)amends § 39.13 by adding the following new airworthiness directive (AD): **AIRBUS** : Docket No. FAA-2005-22812; Directorate Identifier 2005-NM-134-AD. Comments Due Date

(a)The FAA must receive comments on this AD action by June 20, 2006. Affected ADs

(b)None. Applicability

(c)This AD applies to Airbus Model A330 airplanes and Model A340-200 and -300 series airplanes, certificated in any category; on which Airbus Modification 41114 or 44599 was done during production; except those airplanes on which Airbus Modification 53883 was done during production. Unsafe Condition

(d)This AD results from a report of significant cracking found in the aft web of support rib 6 on both wings. We are issuing this AD to prevent cracking in the aft web of support rib 6, which could result in overloading of adjacent ribs and the surrounding wing structure and consequent reduced structural integrity of the wing. Compliance

(e)You are responsible for having the actions required by this AD performed within the compliance times specified, unless the actions have already been done. Note 1: For the purposes of this AD, a detailed inspection is: “An intensive examination of a specific item, installation, or assembly to detect damage, failure, or irregularity. Available lighting is normally supplemented with a direct source of good lighting at an intensity deemed appropriate. Inspection aids such as mirror, magnifying lenses, etc., may be necessary. Surface cleaning and elaborate procedures may be required.” Repetitive Inspections

(f)For Model A330 series airplanes on which Airbus Modification 53882 was not done during production: At the applicable time specified in paragraph (f)(1), (f)(2), or (f)(3) of this AD, perform a detailed inspection for cracking in the aft web of support rib 6 between bottom skin stringers 18 and 20 on both wings, and high frequency eddy current inspections for cracking of the attachment holes of the fuel pipe and fuel pipe mounting, by doing all the actions in accordance with the Accomplishment Instructions of Airbus Service Bulletin A330-57-3085, Revision 02, dated September 29, 2005. If no crack is found during the initial inspections, repeat the inspections thereafter at intervals not to exceed 8,000 flight cycles or 25,000 flight hours, whichever is first, until the terminating action specified in paragraph

(n)of this AD is done. If any crack is found during any inspection, repair as specified in paragraph

(k)of this AD, or before further flight do the terminating action specified in paragraph

(n)of this AD.

(1)For airplanes that have accumulated 7,999 or fewer total flight cycles, and 24,999 or fewer total flight hours, as of the effective date of this AD: Do the inspections at the later of the times specified in paragraphs (f)(1)(i) and (f)(1)(ii) of this AD.

(i)Before the accumulation of 8,000 total flight cycles or 25,000 total flight hours, whichever is first.

(ii)Within 8 months after the effective date of this AD.

(2)For airplanes that have accumulated 8,000 or more total flight cycles, but fewer than 10,000 total flight cycles; or 25,000 or more total flight hours, but fewer than 30,000 total flight hours; as of the effective date of this AD: Do the inspections at the later of the times specified in paragraphs (f)(2)(i) and (f)(2)(ii) of this AD.

(i)Before the accumulation of 10,000 total flight cycles or 30,000 total flight hours, whichever is first.

(ii)Within 8 months after the effective date of this AD.

(3)For airplanes that have accumulated 10,000 or more total flight cycles or 30,000 or more total flight hours as of the effective date of this AD: Do the inspections within 3 months after the effective date of this AD.

(g)For Model A330 series airplanes on which Airbus Modification 53882 was done during production or on which Airbus Service Bulletin A330-57-3087, dated February 15, 2005, or Revision 01, dated September 22, 2005, has been done: Perform the applicable inspections required by paragraph

(f)of this AD at the earliest of the initial inspection thresholds specified in Figure 4, Sheet 1, “Inspection Flow Chart” of Airbus Service Bulletin A330-57-3085, Revision 02, dated September 29, 2005; or within 6 months after the effective date of this AD, whichever is later. Repeat the inspections required by paragraph

(f)of this AD at the time specified in paragraph

(f)of this AD, until the terminating action specified in paragraph

(n)of this AD is done.

(h)For Model A340 series airplanes on which Airbus Modification 53882 was not done during production: Perform the inspections required by paragraph

(f)of this AD at the applicable time specified in paragraph (h)(1), (h)(2), or (h)(3) of this AD. Perform the inspections by doing all the actions accordance with the Accomplishment Instructions of Airbus Service Bulletin A340-57-4093, Revision 02, dated September 29, 2005. Repeat the inspections thereafter at intervals not to exceed 8,000 flight cycles or 30,200 flight hours, whichever is first, until the terminating action required by paragraph

(n)of this AD is done.

(1)For airplanes that have accumulated 7,999 or fewer total flight cycles, and 30,199 or fewer total flight hours, as of the effective date of this AD: Do the inspections at the later of the times specified in paragraphs (h)(1)(i) and (h)(1)(ii) of this AD.

(i)Before the accumulation of 8,000 total flight cycles or 30,200 total flight hours, whichever is first.

(ii)Within 8 months after the effective date of this AD.

(2)For airplanes that have accumulated 8,000 or more total flight cycles, but fewer than 10,000 total flight cycles; or 30,200 or more total flight cycles, but fewer than 43,700 total flight hours, as of the effective date of this AD: Do the inspections at the later of the times specified in paragraphs (h)(2)(i) and (h)(2)(ii) of this AD.

(i)Before the accumulation of 10,000 total flight cycles or 43,700 total flight hours, whichever is first.

(ii)Within 8 months after the effective date of this AD.

(3)For airplanes that have accumulated 10,000 or more total flight cycles or 43,700 or more total flight hours as of the effective date of this AD: Do the inspections within 3 months after the effective date of this AD.

(i)For Model A340 series airplanes on which Airbus Modification 53882 was done during production or on which Airbus Service Bulletin A340-57-4095, dated February 15, 2005, or Revision 01, dated September 22, 2005, has been done: Perform the applicable inspections required by paragraph

(f)of this AD at the earliest of the initial inspection thresholds specified in Figure 4, Sheet 1, “Inspection Flow Chart” of Airbus Service Bulletin A340-57-4093, Revision 02, dated September 29, 2005; or within 6 months after the effective date of this AD, whichever is later. Repeat the inspections required by paragraph

(f)of this AD at the time specified in paragraph

(h)of this AD, until the terminating action specified in paragraph

(n)of this AD is done. Inspections Accomplished According to Previous Issue of Service Bulletins

(j)Inspections accomplished before the effective date of this AD according to Airbus All Operator Telexes A330-57-3085 and A340-57-4093, both dated December 15, 2004; or Airbus Service Bulletins A330-57-3085 and A340-57-4093, both Revision 01, both dated March 25, 2005; are considered acceptable for compliance with the corresponding inspections specified in this AD. Repair

(k)If any cracking is found during any inspection required by this AD: Before further flight, either repair and get a schedule for subsequent inspections, according to a method approved by either the Manager, International Branch, ANM-116, Transport Airplane Directorate, FAA; or the European Aviation Safety Agency

(EASA)(or its delegated agent); or accomplish the terminating action specified in paragraph

(n)of this AD. Optional Modification

(l)Accomplishing the modification of the fuel pipe connector and the fastener holes of support rib 6 on both wings by doing all the actions specified in the Accomplishment Instructions of Airbus Service Bulletin A330-57-3087, or A340-57-4095, both dated February 15, 2005, or Revision 01, both dated September 22, 2005, as applicable, extends the interval for the next inspection to the applicable post-mod inspection threshold specified in Figure 4, Sheet 1, “Inspection Flow Chart” of Airbus Service Bulletins A330-57-3085 and A340-57-4093, both Revision 01, both dated March 25, 2005, as applicable. After accomplishing that inspection, repeat the applicable inspections required by paragraph

(f)or

(h)of this AD at the applicable repetitive inspection interval specified in Figure 4 of the Accomplishment Instructions of the service bulletin, until the terminating action specified in paragraph

(n)of this AD is done. Hard or Overweight Landing

(m)For Model A330 series airplanes with 8,000 or more total flight cycles or 25,000 or more total flight hours, and Model A340 series airplanes with 8,000 or more total flight cycles or 30,200 or more total flight hours that have not been modified in accordance with paragraph

(j)of this AD: Before further flight after any hard or overweight landing of the airplane, accomplish the applicable follow-on inspections and any applicable corrective actions according to a method approved by either the Manager, International Branch, ANM-116; or the EASA (or its delegated agent). Accomplishing the inspections in Airbus A330/A340 Airplane Maintenance Manual, Chapter 05-51-11, dated April 1, 2005, titled “Inspection After Hard/Overweight Landing—Inspection/Check,” or Airbus Technical Disposition

(TD)TD/J1/S3/00608/2005, dated April 26, 2005, titled “Inspections following hard landing, both wings,” is considered one approved method. Operators can obtain the TD from Airbus. Terminating Modification

(n)For airplanes on which support rib 6 on both wings has not been repaired in accordance with paragraph

(k)of this AD: Within 60 months after the effective date of this AD, modify the fuel pipe connector and the fastener holes of support rib 6 on both wings by doing all the actions specified in the Accomplishment Instructions of Airbus Service Bulletin A330-57-3088, or A340-57-4096, both dated September 21, 2005, as applicable. Accomplishing the modification in this paragraph ends the repetitive inspections required by this AD. Repair of support rib 6 on both wings before the effective date of this AD using repair drawing R572-57023 or R572-57026, as applicable, ends the repetitive inspections required by this AD. Alternative Methods of Compliance (AMOCs) (o)(1) The Manager, International Branch, ANM-116, has the authority to approve AMOCs for this AD, if requested in accordance with the procedures found in 14 CFR 39.19.

(p)French airworthiness directives F-2006-008 and F-2006-009, both dated January 4, 2006, also address the subject of this AD. Issued in Renton, Washington, on May 17, 2006. Kevin M. Mullin, Acting Manager, Transport Airplane Directorate, Aircraft Certification Service. [FR Doc. E6-8122 Filed 5-25-06; 8:45 am] BILLING CODE 4910-13-P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 39 [Docket No. FAA-2005-19676; Directorate Identifier 2004-NM-138-AD] RIN 2120-AA64 Airworthiness Directives; Empresa Brasileira de Aeronautica S.A. (EMBRAER) Model EMB-135BJ, -135ER, -135KE, -135KL, and -135LR Airplanes; and Model EMB-145, -145ER, -145MR, -145LR, -145XR, -145MP, and -145EP Airplanes AGENCY: Federal Aviation Administration (FAA), Department of Transportation (DOT). ACTION: Supplemental notice of proposed rulemaking (NPRM); reopening of comment period. SUMMARY: The FAA is revising an earlier NPRM for an airworthiness directive

(AD)that applies to certain EMBRAER Model EMB-135 and -145 series airplanes. The original NPRM would have required determining the torque values of the screws that attach the seat tracks to the airplane, and corrective action if necessary. The original NPRM resulted from a report of undertorqued screws. This action revises the original NPRM by referring to revised service information and expanding the applicability. We are proposing this supplemental NPRM to prevent improper torque of those screws, which in the case of a hard landing or a high deceleration impact condition could result in damage to the seat and possible subsequent injury to the passenger. DATES: We must receive comments on this supplemental NPRM by June 20, 2006. ADDRESSES: Use one of the following addresses to submit comments on this supplemental NPRM. • DOT Docket Web site: Go to *http://dms.dot.gov* and follow the instructions for sending your comments electronically. • Government-wide rulemaking Web site: Go to *http://www.regulations.gov* and follow the instructions for sending your comments electronically. • Mail: Docket Management Facility; U.S. Department of Transportation, 400 Seventh Street, SW., Nassif Building, Room PL-401, Washington, DC 20590. • Fax:

(202)493-2251. • Hand Delivery: Room PL-401 on the plaza level of the Nassif Building, 400 Seventh Street, SW., Washington, DC, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. Contact Empresa Brasileira de Aeronautica S.A. (EMBRAER), P.O. Box 343—CEP 12.225, Sao Jose dos Campos—SP, Brazil, for service information identified in this proposed AD. FOR FURTHER INFORMATION CONTACT: Todd Thompson, Aerospace Engineer, International Branch, ANM-116, Transport Airplane Directorate, FAA, 1601 Lind Avenue, SW., Renton, Washington 98055-4056; telephone

(425)227-1175; fax

(425)227-1149. SUPPLEMENTARY INFORMATION: Comments Invited We invite you to submit any relevant written data, views, or arguments regarding this supplemental NPRM. Send your comments to an address listed in the ADDRESSES section. Include the docket number “Docket No. FAA-2005-19676; Directorate Identifier 2004-NM-138-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this supplemental NPRM. We will consider all comments received by the closing date and may amend this supplemental NPRM in light of those comments. We will post all comments submitted, without change, to *http://dms.dot.gov* , including any personal information you provide. We will also post a report summarizing each substantive verbal contact with FAA personnel concerning this supplemental NPRM. Using the search function of that web site, anyone can find and read the comments in any of our dockets, including the name of the individual who sent the comment (or signed the comment on behalf of an association, business, labor union, etc.). You may review the DOT's complete Privacy Act Statement in the **Federal Register** published on April 11, 2000 (65 FR 19477-78), or you may visit *http://dms.dot.gov.* Examining the Docket You may examine the AD docket on the Internet at *http://dms.dot.gov* , or in person at the Docket Management Facility office between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The Docket Management Facility office (telephone

(NPRM)for an airworthiness directive

(AD)(the “original NPRM”). The original NPRM applies to certain EMBRAER Model EMB-135 and -145 series airplanes. The original NPRM was published in the **Federal Register** on November 24, 2004 (69 FR 68270). The original NPRM proposed to require determining the torque values of the screws that attach the seat tracks to the airplane, and corrective action if necessary. Explanation of New Service Information Since we issued the proposed AD, EMBRAER has revised Service Bulletin 145-53-0049. The proposed AD cited the original service bulletin, dated February 16, 2004. Revision 03, dated August 10, 2005: • Revises the effectivity. • Provides corrected torque values. • Reduces the number of screws to be inspected (for non-EMB-145XR airplanes only) to the passenger seat attachment point screw and the three screws immediately before and after this point. EMBRAER has also revised Service Bulletin 145LEG-53-0015. The proposed AD cited the original service bulletin, dated February 16, 2004. Revision 02, dated May 19, 2005, revises the effectivity and provides corrected torque values. Accomplishing the actions specified in the service information is intended to adequately address the unsafe condition. The Departmento de Aviacao Civil (DAC), which is the airworthiness authority for Brazil, mandated the service information and issued revised Brazilian airworthiness directive 2004-05-03R1, effective September 16, 2005, to ensure the continued airworthiness of these airplanes in Brazil. Comments We have considered the following comments on the original NPRM. Request To Clarify Required Torque Values The commenter, ExpressJet, Inc., notes a discrepancy in the torque values specified in the original version of Service Bulletin 145-53-0049 and the aircraft maintenance manual (AMM II, at 53-01-06). The commenter notes that the torque values should be the same in the service bulletin and the AMM to ensure that the standards of the AD are maintained for post-modification airplanes. We agree. As explained previously, the correct torque values are provided in revised Service Bulletins 145-53-0049 and 145LEG-53-0015. We have confirmed with the manufacturer that it would not be possible to achieve the incorrect torque values specified in the original service bulletins. We have revised this supplemental NPRM to refer to the revised service bulletins for the required actions. Request To Remove Requirement To Apply Torque Seal The same commenter requests that we remove the proposed requirement to apply the torque seal. The commenter notes that, during installation (and any subsequent removal), torque seal is applied to the face of the attachment screw and the track where the seat attachment point contacts the track. Because the seat has to slide in the track a little to position correctly, the commenter contends that any evidence of torque seal at the seat attachment point will be removed or otherwise obliterated. And if the torque seal can be so easily removed, the commenter suggests that applying it is unnecessary. ExpressJet reports that no torque seal has been found on the seat track fasteners of 25 (newly affected) airplanes in its fleet. We agree. The service bulletins merely recommend the torque seal application. We have removed this requirement from paragraph

(f)in this supplemental NPRM. Request To Revise Compliance Time The same commenter requests that the torque check be done once during the C-check, but provides no justification for the request. We disagree with the request. We have determined that the compliance time, as proposed, represents the maximum interval of time allowable for the affected airplanes to continue to safely operate before the torque check is done. Since maintenance schedules vary among operators, there would be no assurance that the torque check would be done during that maximum interval. However, according to the provisions of paragraph

(h)in this supplemental NPRM, we may approve requests to adjust the compliance time if the request includes data proving that a different compliance time would provide an acceptable level of safety. Additional Changes To Original NPRM We have revised this action to clarify the appropriate procedure for notifying the principal inspector before using any approved AMOC on any airplane to which the AMOC applies. We have revised the applicability of the original NPRM to identify model designations as published in the most recent type certificate data sheet for the affected models. After the original NPRM was issued, we reviewed the figures we have used over the past several years to calculate AD costs to operators. To account for various inflationary costs in the airline industry, we find it necessary to increase the labor rate used in these calculations from $65 per work hour to $80 per work hour. The cost impact information, below, reflects this increase in the specified hourly labor rate. FAA's Determination and Proposed Requirements of the Supplemental NPRM Certain changes discussed above expand the scope of the original NPRM; therefore, we have determined that it is necessary to reopen the comment period to provide additional opportunity for public comment on this supplemental NPRM. Costs of Compliance The following table provides the estimated costs for U.S. operators to comply with this supplemental NPRM. This supplemental NPRM would affect about 539 airplanes of U.S. registry. Estimated Costs Airplane(s) Work hours Average labor rate/hour Parts Cost/airplane EMB-135 BJ 24 $80 Minimal $1,920 Others 28 80 Minimal 2,240 Authority for This Rulemaking Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, Section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the Agency's authority. We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action. Regulatory Findings We have determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government. For the reasons discussed above, I certify that the proposed regulation: 1. Is not a “significant regulatory action” under Executive Order 12866; 2. Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and 3. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. We prepared a regulatory evaluation of the estimated costs to comply with this supplemental NPRM and placed it in the AD docket. See the ADDRESSES section for a location to examine the regulatory evaluation. List of Subjects in 14 CFR Part 39 Air transportation, Aircraft, Aviation safety, Safety. The Proposed Amendment Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows: PART 39—AIRWORTHINESS DIRECTIVES 1. The authority citation for part 39 continues to read as follows: Authority: 49 U.S.C. 106(g), 40113, 44701. § 39.13 [Amended] 2. The Federal Aviation Administration

(FAA)amends § 39.13 by adding the following new airworthiness directive (AD): **EMPRESA BRASILEIRA DE AERONAUTICA S.A. (EMBRAER):** Docket No. FAA-2005-19676; Directorate Identifier 2004-NM-138-AD. Comments Due Date

(a)The FAA must receive comments on this AD action by June 20, 2006. Affected ADs

(b)None. Applicability

(c)This AD applies to EMBRAER Model EMB-135BJ, -135ER, -135KE, -135KL, and -135LR airplanes; and EMB-145, -145ER, -145MR, -145LR, -145XR, -145MP, and -145EP airplanes; certificated in any category; as listed in EMBRAER Service Bulletin 145LEG-53-0015, Revision 02, dated May 19, 2005, or 145-53-0049, Revision 03, dated August 10, 2005. Unsafe Condition

(d)This AD was prompted by a report indicating that some screws that attach the passenger seat tracks were undertorqued. We are issuing this AD to prevent improper torque of those screws, which in the case of a hard landing or a high deceleration impact condition could result in damage to the seat and possible subsequent injury to the passenger. Compliance

(e)You are responsible for having the actions required by this AD performed within the compliance times specified, unless the actions have already been done. Inspection

(f)Within 5,000 flight hours or 36 months after the effective date of this AD, whichever occurs first, determine the torque values of the applicable screws that attach the seat tracks to the airplane. Use the Accomplishment Instructions of EMBRAER Service Bulletin 145LEG-53-0015, Revision 02, dated May 19, 2005 (for Model EMB-135BJ airplanes), or Service Bulletin 145-53-0049, Revision 03, dated August 10, 2005 (for the remaining airplanes). For any screw that has a torque value outside the limits specified in the service bulletin: Before further flight, retorque the screw in accordance with the Accomplishment Instructions of the service bulletin. Although the service bulletins recommend applying torque seal to the heads of the screws, this AD does not require that action. Credit for Prior Accomplishment

(g)Accomplishment of actions specified in the applicable service bulletin listed in Table 1 of this AD is also acceptable for compliance with the corresponding requirements of this AD. Table 1.—Credit Service Bulletins EMBRAER Service Bulletin Revision Date 145LEG-53-0015 01 September 1, 2004. 145-53-0049 01 02 September 1, 2004. November 26, 2004. Alternative Methods of Compliance (AMOCs) (h)(1) The Manager, International Branch, ANM-116, Transport Airplane Directorate, FAA, has the authority to approve AMOCs for this AD, if requested in accordance with the procedures found in 14 CFR 39.19.

(i)Brazilian airworthiness directive 2004-05-03R1, effective September 16, 2005, also addresses the subject of this AD. Issued in Renton, Washington, on May 18, 2006. Kevin M. Mullin, Acting Manager, Transport Airplane Directorate, Aircraft Certification Service. [FR Doc. E6-8121 Filed 5-25-06; 8:45 am] BILLING CODE 4910-13-P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 39 [Docket No. FAA-2004-19245; Directorate Identifier 2004-NM-108-AD] RIN 2120-AA64 Airworthiness Directives; Boeing Model 737-300, -400, -500, -600, -700, -700C, -800, and -900 Series Airplanes AGENCY: Federal Aviation Administration (FAA), Department of Transportation (DOT). ACTION: Supplemental notice of proposed rulemaking (NPRM); reopening of comment period. SUMMARY: The FAA is revising an earlier proposed airworthiness directive

(AD)for certain Boeing Model 737-300, -400, -500, -600, -700, -700C, -800, and -900 series airplanes. The original NPRM would have required modifying the wiring for the master dim and test system. For certain airplanes, the original NPRM also proposed to require related concurrent actions as necessary. The original NPRM resulted from a report that the master dim and test system circuit does not have wiring separation of the test ground signal for redundant equipment in the flight compartment. This action revises the original NPRM by adding a new concurrent action for certain airplanes, extending the compliance time, and removing certain airplanes from concurrent requirements. We are proposing this supplemental NPRM to prevent a single fault failure in flight from simulating a test condition and showing test patterns instead of the selected radio frequencies on the communications panels, which could inhibit communication between the flightcrew and the control tower, affecting the continued safe flight of the airplane. DATES: We must receive comments on this supplemental NPRM by June 20, 2006. ADDRESSES: Use one of the following addresses to submit comments on this supplemental NPRM. • *Docket Web site:* Go to *http//dms.dot.gov* and follow the instructions for sending your comments electronically. • * Government-wide rulemaking Web site:* Go to *http//www.regulations.gov* and follow the instructions for sending your comments electronically. • *Mail:* Docket Management Facility; U.S. Department of Transportation, 400 Seventh Street, SW., Nassif Building, room PL-401, Washington, DC 20590. • *Fax:*

(202)493-2251. • *Hand Delivery:* Room PL-401 on the plaza level of the Nassif Building, 400 Seventh Street, SW., Washington, DC, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. Contact Boeing Commercial Airplanes, P.O. Box 3707, Seattle, Washington 98124-2207, for service information identified in this proposed AD. FOR FURTHER INFORMATION CONTACT: Binh Tran, Aerospace Engineer, Systems and Equipment Branch, ANM-130S, FAA, Seattle Aircraft Certification Office, 1601 Lind Avenue, SW., Renton, Washington 98055-4056; telephone

(425)917-6485; fax

(425)917-6590. SUPPLEMENTARY INFORMATION: Comments Invited We invite you to submit any relevant written data, views, or arguments regarding this supplemental NPRM. Send your comments to an address listed in the ADDRESSES section. Include the docket number “Docket No. FAA-2004-19245; Directorate Identifier 2004-NM-108-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this supplemental NPRM. We will consider all comments received by the closing date and may amend this supplemental NPRM in light of those comments. We will post all comments submitted, without change, to *http//dms.dot.gov* , including any personal information you provide. We will also post a report summarizing each substantive verbal contact with FAA personnel concerning this supplemental NPRM. Using the search function of that Web site, anyone can find and read the comments in any of our dockets, including the name of the individual who sent the comment (or signed the comment on behalf of an association, business, labor union, etc.). You may review the DOT's complete Privacy Act Statement in the **Federal Register** published on April 11, 2000 (65 FR 19477-78), or you may visit *http//dms.dot.gov* . Examining the Docket You may examine the AD docket on the Internet at *http//dms.dot.gov* , or in person at the Docket Management Facility office between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The Docket Management Facility office (telephone

(800)647-5227) is located on the plaza level in the Nassif Building at the DOT street address stated in ADDRESSES . Comments will be available in the AD docket shortly after the Docket Management System receives them. Discussion We proposed to amend 14 CFR part 39 with a notice of proposed rulemaking

(NPRM)for an AD (the “original NPRM”) for certain Boeing Model 737-300, -400, -500, -600, -700, -700C, -800 and -900 series airplanes. The original NPRM was published in the **Federal Register** on October 5, 2004 (69 FR 59559). The original NPRM proposed to require modifying the wiring for the master dim and test system. For certain airplanes, the original NPRM also proposed to require related concurrent actions as necessary. Relevant Service Information We have reviewed Boeing Service Bulletin 737-33-1133, Revision 3, dated September 8, 2005. The service bulletin describes actions similar to those in Boeing Service Bulletin 737-33-1133, Revision 2, dated December 4, 2003, which was described in the original NPRM as the applicable source of service information for certain proposed actions on certain airplanes. Revision 3 also reduces the number of airplanes subject to certain actions specified in Boeing Service Bulletin 737-33-1121, Revision 1, dated December 19, 2002. The NPRM refers to 737-33-1121 as the applicable source of service information for certain concurrent actions. Boeing Special Attention Service Bulletin 737-33-1132, Revision 2, dated September 8, 2005, describes actions similar to Boeing Special Attention Service Bulletin 737-33-1132, Revision 1, dated March 4, 2004, which was described in the original NPRM as the applicable source of service information for certain proposed actions on certain other airplanes. Revision 2 also adds a concurrent action for certain airplanes. For certain airplanes, Service Bulletin 737-33-1132, Revision 2, recommends prior or concurrent accomplishment of Boeing Service Bulletin 737-23-1102, dated June 3, 1999. Service Bulletin 737-23-1102 describes procedures to replace the VHF and HF communications panels with radio control panels. Accomplishing the actions specified in the service information is intended to adequately address the unsafe condition. Comments We have considered the following comments on the original NPRM. Supportive Comment One commenter, Alaska Airlines, supports the original NPRM. Request To Delay Release of AD Pending Release of Revised Service Bulletins Boeing requests that the FAA delay issuing the AD until the release of Revision 3 of Boeing Service Bulletin 737-33-1133. The commenter states that implementing Service Bulletin 737-33-1133 at Revision 2, and implementing the associated concurrent service bulletin (Boeing Service Bulletin 737-33-1121, Revision 1, dated December 19, 2002), would require operators to perform unnecessary tasks. The commenter also points out that revising the service bulletin would help reduce the economic impact of the AD by removing the unnecessary tasks. We infer that the commenter wants the FAA to reference Revision 3 of the service bulletin. We agree to reference Boeing Service Bulletin 737-33-1133, Revision 3, dated September 8, 2005, for the reasons stated by the commenter. We have determined that this delay would have no adverse effect on safety, and that reference to Revision 3 would assist operators in complying with this supplemental NPRM. We have revised paragraph

(f)of this AD accordingly. Requests From Operators To Delay Release of the AD The Air Transport Association (ATA), on behalf of its member, Continental Airlines, requests that certain Boeing service bulletins be revised or withdrawn as referenced service bulletins. Continental states that there are multiple open issues (such as unnecessary steps for airplanes with certain different control panel configurations) and complications with those service bulletins. Continental further suggests that if the service bulletins are not revised, then the AD should be delayed until the open issues with some of the Boeing service bulletins are resolved. We agree that certain service bulletins referenced in the NPRM need revisions. Since publication of the NPRM, some of the affected service bulletins have been revised to address open issues and complications. However, we do not agree to delay the issuance of this AD until all the affected service bulletins are revised. Compliance with some of the other affected and un-revised service bulletins may involve requesting alternative methods of compliance (AMOCs), since we have determined that it could affect safety if we wait for the remaining affected service bulletins to be revised. Boeing has also advised that it does not plan to revise a few of the remaining affected service bulletins. We have revised paragraphs (f),

(g)and

(h)of this supplemental NPRM to reference these revised service bulletins as applicable. Operators are welcome to apply for an AMOC as specified in paragraph

(i)of this supplemental NPRM. Requests To Extend Compliance Time To Modify Wiring The ATA, on behalf of its members, American Airlines, United Airlines (UAL), and US Airways, requests extending the compliance time from 30 months to better match operators' heavy/base maintenance schedule. US Airways suggests a 48-month compliance time and states that the proposed 30-month compliance time doesn't match maintenance cycles. UAL also notes that the 30-month compliance time will create an increase in the time needed for C-check visits. American Airlines suggests re-wording the compliance time to “the next heavy overhaul visit” to prevent unnecessary financial hardship for the airlines. We agree to extend the compliance time. We have considered other similar actions and have determined that extending the compliance time to 48 months will not adversely affect safety. We have revised paragraph

(f)of this supplemental NPRM accordingly. We do not agree to use “the next heavy overhaul visit,” since it is an imprecise compliance time, and the definition of heavy overhaul visit can vary significantly between airplane operators. Requests To Give Credit for Airplanes Equipped With Aircraft Communication and Reporting System (ACARS) The ATA, on behalf of UAL, requests that we give credit for airplanes equipped with ACARS. UAL states that the NPRM does not give credit for those airplanes that are equipped with other means of ground communication. UAL explains that ACARS transmits data to an operator's dispatch group through the number 3 VHF system (VHF3), which is dedicated solely for ACARS usage. The frequency tuning for VHF3 is controlled by ACARS, not the VHF control panel. UAL concludes that ACARS provides an equivalent level of safety for the purposes of the NPRM since the flightcrew is still able to communicate with the ground, even if the fault occurs. We partially agree with the commenters that ACARS provides some level of communication with the ground (usually the airplane operator's dispatch or ground support office) when the fault occurs. However, assuming the operator's dispatch office is able to establish a telephone line with the relevant air traffic control

(ATC)tower or center, the delays in relaying information between the flightcrew and ATC via ACARS can be substantial. This fault also simulates a “test condition” that activates several flight annunciators, switches, and displays, so that the selected communication frequency cannot be determined from the displays. This increases the workload of the flightcrew and has an impact to the safety of the airplane during the approach and landing phase of flight. Therefore, the supplemental NPRM has not been revised to allow credit for airplanes equipped with ACARS. Request To Revise Cost Estimate The ATA, on behalf of UAL, requests that we revise the cost estimate of the modification in the NPRM. UAL states that Service Bulletin 737-33-1132 estimates the modification to take 21 work hours to complete, and the FAA estimates 14 work hours for the modification. UAL believes that the actual cost would be $1,740 per airplane whereas we estimate it at $910 per airplane. We disagree to revise the estimate of the work hours since the cost estimate includes only the time necessary to perform the specific actions actually proposed by this supplementary NPRM. The service bulletin provides a work hour estimate that includes time needed to gain access to and close up the work area. Our estimates also typically do not include incidental costs such as planning time, access/close-up time, or other incidental or administrative actions. However, since we published the original NPRM, we have revised our cost estimate of a work hour from $65 to $80 to account for the increased cost of each work hour since we last revised that cost estimate. The estimates in Cost of Compliance have been revised accordingly. Request To Revise Service Bulletins To Identify Airplanes With Enhanced Ground Proximity Warning System (EGPWS) Continental Airlines requests that Boeing Service Bulletin 737-33-1132 be revised to identify airplanes modified by Boeing's EGPWS installation service bulletins and create an additional grouping for these EGPWS-modified airplanes. The commenter states that Service Bulletin 737-33-1132 has instructions to terminate a wire (number W149-045-22) to the navigation control panel. Continental adds that the wire has already been terminated at the MMR control panel on airplanes modified by the EGPWS service bulletins. We agree that provisions need to be made for airplanes that have had EGPWS installed in accordance with the Boeing EGPWS service bulletins. Rather than revising Service Bulletin 737-33-1132 to address EGPWS modifications, Boeing has issued Service Bulletin 737-34-1924, dated October 17, 2005, to address wire changes and separation. Therefore Service Bulletin 737-33-1132 does not need to be revised. We have not changed the supplemental NPRM in this regard. However, if the commenter believes there is still potential for confusion or uncertainty, it is welcome to apply for an AMOC to use Service Bulletin 737-34-1924 in accordance with paragraph

(i)of the supplemental NPRM. Revise Service Bulletin To Remove Certain Requirements for Non-Integrated Audio Control Panels

(ACPs)Continental Airlines and Southwest Airlines request that the Boeing Service Bulletins 737-33-1133 and 737-33-1121 be revised to make installing provisional wiring for lamp test function an optional action for airplanes equipped with non-integrated ACPs. Southwest states that Boeing indicated that the wiring for the lamp test is only for fleet commonality for airplanes without integrated ACPs. Southwest believes that actions should not be mandated for the sake of fleet commonality. We agree that the provisional wiring for the lamp test function should not be required for the non-integrated ACPs. Boeing has revised Service Bulletin 737-33-1133 so that the actions of Service Bulletin 737-33-1121 will not be required concurrent action on airplanes that do not have integrated ACPs. The supplemental NPRM refers to this revised service bulletin. Request To Accommodate Airplanes With Certain Post-Delivery Wiring Changes Southwest Airlines requests that the wiring installation listed within the Boeing service bulletins for automatic direction finder

(ADF)control panels, Selective Calling on the radio communication system (SELCAL), and engine instrument system (EIS), be made optional for airplanes without ADF, SELCAL, and EIS installed. The airline states that it does not have SELCAL installed in its fleet, nor does it operate any airplanes with an EIS system, and is currently in the process of removing all ADF control panels from its fleet. We agree that such actions should be optional for those airplanes without those systems installed. However, Boeing has decided not to revise the service bulletins (Boeing Service Bulletins 737-33-1132, 737-77-1022, and 737-77-1023 for non-EIS configurations and Boeing Service Bulletin 737-33-1133 for non-SELCAL configurations) to address airplanes with these post-delivery wiring modifications. It is not feasible to address each operator's configuration in this supplemental NPRM. Operators may submit a request for an AMOC in accordance with paragraph

(i)of this supplemental NPRM. Clarification of AMOC Paragraph We have revised this supplemental NPRM to clarify the appropriate procedure for notifying the principal inspector before using any approved AMOC on any airplane to which the AMOC applies. FAA's Determination and Proposed Requirements of the Supplemental NPRM The changes discussed above expand the scope of the original NPRM; therefore, we have determined that it is necessary to reopen the comment period to provide additional opportunity for public comment on this supplemental NPRM. Costs of Compliance There are about 2,868 airplanes of the affected design in the worldwide fleet. This supplemental NPRM would affect about 1,181 airplanes of U.S. registry. The following table provides the estimated costs for U.S. operators to comply with this supplemental NPRM. Estimated Costs Boeing Service Bulletin Work hours Average labor rate per hour Parts Cost per airplane 737-33-1132, Revision 2 14 $80 Nominal $1,120 737-33-1133, Revision 3 3 80 Nominal 240 Estimated Concurrent Service Bulletin Costs Boeing service bulletin Work hours Average labor rate per hour Parts Cost per airplane Number of U.S.-registered airplanes Fleet cost 737-26A1083, Revision 1 185 $80 Between $30,000 and $36,400 Between $44,800 and $51,200 1 Between $44,800 and $51,200. 737-33-1121, Revision 1 Between 5 and 6 80 Between $200 and $340 Between $600 and $820 83 Between $49,800 and $68,060. 737-77-1022, Revision 1 72 80 No charge $5,760 4 $23,040. 737-77-1023, Revision 1 Between 1 and 3 80 Nominal Between $80 and $240 26 Between $2,080 and $6,240. 737-23-1102 77 80 $22,164 $28,324 0 No fleet cost unless an affected airplane is imported and placed on U.S. register. Authority for This Rulemaking Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, Section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the Agency's authority. We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action. Regulatory Findings We have determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government. For the reasons discussed above, I certify that the proposed regulation: 1. Is not a “significant regulatory action” under Executive Order 12866; 2. Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and 3. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. We prepared a regulatory evaluation of the estimated costs to comply with this supplemental NPRM and placed it in the AD docket. See the ADDRESSES section for a location to examine the regulatory evaluation. List of Subjects in 14 CFR Part 39 Air transportation, Aircraft, Aviation safety, Safety. The Proposed Amendment Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows: PART 39—AIRWORTHINESS DIRECTIVES 1. The authority citation for part 39 continues to read as follows: Authority: 49 U.S.C. 106(g), 40113, 44701. § 39.13 [Amended] 2. The Federal Aviation Administration

(FAA)amends § 39.13 by adding the following new airworthiness directive (AD): **Boeing** : Docket No. FAA-2004-19245; Directorate Identifier 2004-NM-108-AD. Comments Due Date

(a)The FAA must receive comments on this AD action by June 20, 2006. Affected ADs

(b)None. Applicability

(c)This AD applies to Boeing Model 737-300, -400, and -500 series airplanes identified in Boeing Special Attention Service Bulletin 737-33-1132, Revision 2, dated September 8, 2005; and Model 737-600, -700, -700C, -800, and -900 series airplanes identified in Boeing Service Bulletin 737-33-1133, Revision 3, dated September 8, 2005; certificated in any category. Unsafe Condition

(d)This AD results from a report that the master dim and test system circuit does not have wiring separation of the test ground signal for redundant equipment in the flight compartment. We are issuing this AD to prevent a single fault failure in flight from simulating a test condition and showing test patterns instead of the selected radio frequencies on the communications panels, which could inhibit communication between the flightcrew and the control tower, affecting the continued safe flight of the airplane. Compliance

(e)You are responsible for having the actions required by this AD performed within the compliance times specified, unless the actions have already been done. Modification

(f)Within 48 months after the effective date of this AD: Modify the wiring for the master dim test system in accordance with the Accomplishment Instructions of Boeing Special Attention Service Bulletin 737-33-1132, Revision 2, dated September 8, 2005 (for Model 737-300, -400, and -500 series airplanes); and Boeing Service Bulletin 737-33-1133, Revision 3, dated September 8, 2005 (for Model 737-600, -700, -700C, -800, and -900 series airplanes); as applicable. Actions Required To Be Accomplished Prior to or Concurrently With Paragraph

(f)of This AD

(g)Prior to or concurrently with accomplishment of paragraph

(f)of this AD, do the actions specified in Table 1 of this AD, as applicable. Table 1.—Prior/Concurrent Actions For— Accomplish all actions associated with— According to the Accomplishment Instructions of— Group 57 airplanes identified in Boeing Special Attention Service Bulletin 737-33-1132, Revision 2, dated September 8, 2005 Installing an engine instrument system

(EIS)and Boeing Service Bulletin 737-77-1022, Revision 1, dated October 26, 1989. Modifying the advisory system for the EIS Boeing Service Bulletin 737-77-1023, Revision 1, dated November 9, 1989. Group 37 and 46 airplanes identified in Boeing Service Bulletin 737-33-1133, Revision 3, dated September 8, 2005 Installing wiring for the test system for the audio control panel lamp Boeing Service Bulletin 737-33-1121, Revision 1, dated December 19, 2002. Group 2 airplanes identified in Boeing Service Bulletin 737-33-1121, Revision 1, dated December 19, 2002 Installing splice SP896 Boeing Service Bulletin 737-26A1083, Revision 1, dated November 15, 2001. Group 39 airplanes identified in Boeing Service Bulletin 737-33-1133, Revision 3, dated September 8, 2005 Installing a smoke detection and fire extinguishing system in the cargo compartment Boeing Service Bulletin 737-26A1083, Revision 1, dated November 15, 2001. Group 59 airplanes identified in Boeing Special Attention Service Bulletin 737-33-1132, Revision 2, dated September 8, 2005 Replacing the VHF and HF communications panels with radio control panels Boeing Service Bulletin 737-23-1102, dated June 3, 1999. Actions Accomplished per Previous Issue of Service Bulletins

(h)Actions accomplished before the effective date of this AD in accordance with the service bulletins identified in Table 2 of this AD are considered acceptable for compliance with the corresponding actions specified in this AD. Table 2.—Previous Issues of Service Bulletins Service Bulletin Revision level Date Boeing Service Bulletin 737-33-1133 Original December 19, 2002. Boeing Service Bulletin 737-33-1133 Revision 1 April 17, 2003. Boeing Service Bulletin 737-33-1133 Revision 2 December 4, 2003. Boeing Special Attention Service Bulletin 737-33-1132 Original March 20, 2003. Boeing Special Attention Service Bulletin 737-33-1132 Revision 1 March 4, 2004. Alternative Methods of Compliance (AMOCs) (i)(1) The Manager, Seattle Aircraft Certification Office (ACO), FAA, has the authority to approve AMOCs for this AD, if requested in accordance with the procedures found in 14 CFR 39.19.

(2)Before using any AMOC approved in accordance with § 39.19 on any airplane to which the AMOC applies, notify the appropriate principal inspector in the FAA Flight Standards Certificate Holding District Office. Issued in Renton, Washington, on May 15, 2006. Kevin M. Mullin, Acting Manager, Transport Airplane Dierctorate, Aircrft Certification Service. [FR Doc. E6-8120 Filed 5-25-06; 8:45 am] BILLING CODE 4910-13-P CONSUMER PRODUCT SAFETY COMMISSION 16 CFR Part 1115 Substantial Product Hazard Reports AGENCY: Consumer Product Safety Commission. ACTION: Proposed revision to interpretative rule. SUMMARY: Section 15(b) of the Consumer Product Safety Act, 15 U.S.C. 2064(b), requires manufacturers, distributors, and retailers of consumer products to report potential product hazards to the Consumer Product Safety Commission. The Commission publishes proposed revisions to its interpretative rule advising manufacturers, distributors, and retailers how to comply with the requirements of section 15(b). The proposed revisions identify certain factors the Commission and staff consider when assessing whether a product is defective or not. The proposed revisions also clarify that compliance with voluntary or mandatory product safety standards may be considered by the Commission in making certain determinations under section 15(b). 1 In addition, the Commission may consider the adoption of an interpretative regulation related to the statutory factors for the assessment of civil penalties pursuant to section 20, CPSA (15 U.S.C. 2069(b), (c)). A separate **Federal Register** notice, if approved, will be issued for public comment. 1 Commissioner Thomas H. Moore filed a statement which is available from the Office of the Secretary or on the Commission's Web site at *http://www.cpsc.gov.* DATES: The Office of the Secretary must receive written comments not later than June 26, 2006. ADDRESSES: Written comments should be captioned “Substantial Product Hazard Reports” and e-mailed to the Office of the Secretary at *cpsc-os@cpsc.gov.* Written comments may also be sent to the Office of the Secretary, Consumer Product Safety Commission, 4330 East West Highway, Bethesda, Maryland 20814 or by facsimile at

(301)504-0127. FOR FURTHER INFORMATION CONTACT: John Gibson Mullan, Assistant Executive Director, Compliance and Field Operations at

(301)504-7626. SUPPLEMENTARY INFORMATION: To provide further guidance, clarity and transparency to the regulated community on reporting obligations under section 15(b) of the Consumer Product Safety Act (CPSA), 15 U.S.C. 2064(b), the Commission proposes revisions to its interpretative rules regarding reporting of possible substantial product hazards. Section 15(b) of the CPSA requires that every manufacturer (including an importer), distributor or retailer of a consumer product who obtains information which reasonably supports the conclusion that its product fails to comply with an applicable consumer product safety rule or with a voluntary consumer product safety standard upon which the Commission has relied under section 9 of the CPSA, or contains a defect which could create a substantial product hazard as defined in section 15(a)(2) of the CPSA, or creates an unreasonable risk of serious injury or death, shall immediately inform the Commission of such failure to comply, of such defect, or of such risk, unless the manufacturer, distributor or retailer has actual knowledge that the Commission has been adequately informed. In 1978, the Commission first published an interpretative rule, 16 CFR part 1115, which explained the section 15(b) reporting requirement and provided guidance on filing section 15(b) reports. In this notice the Commission proposes revisions to the interpretative rule to clarify factors relevant to section 15(b) reporting determinations. A. Section 1115.4 Defect The first revision clarifies the Commission's definition of “defect” by adding four additional criteria Commission staff use to evaluate whether a risk of injury is the type of risk that will render a product defective, thus possibly triggering a reporting obligation under section 15(b). The rule currently states that in determining whether the risk of injury associated with a product is the type of risk which will render a product defective, the Commission and staff consider, as appropriate: The utility of the product involved; the nature of the risk of injury which the product presents; the necessity for the product; the population exposed to the product and its risk of injury; the Commission's own experience and expertise; the case law interpreting Federal and State public health and safety statutes; the case law in the area of products liability; and other factors relevant to the determination. The proposed revision adds the following factors: The obviousness of such risk; the adequacy of warnings and instructions to mitigate such risk; the role of consumer misuse of the product, and the foreseeability of such misuse. The determination of whether a product presents a risk of injury that would render it defective is a threshold issue in evaluating reporting obligations under section 15(b) of the CPSA and is one of the most critical determinations a company is required to make under the CPSA. A firm must report if it obtains information which reasonably supports the conclusion that a product it manufactures and/or distributes contains a defect which could create a substantial product hazard. 15 U.S.C. 2064(b)(2). In determining whether a product contains a defect that presents a substantial risk of injury, the Commission has explained that certain products may not be defective although they present a risk of injury because that risk is outweighed by the usefulness of the product and its ability to function properly. The classic example is a knife. The regulatory criteria for evaluating whether a product presents a risk of injury that may render it defective have been in effect since 1978. In the more than twenty years since then, the Commission and staff have evaluated hundreds of products using, as appropriate, these criteria. The Commission has concluded, based on experience and practice in applying the criteria, that the four proposed additional factors—the obviousness of such risk; the adequacy of warning and instructions to mitigate such risk; the role of consumer misuse of the product and the foreseeability of such misuse—will enable a better analysis of whether the risk of injury associated with a product is the type of risk which will render the product defective. B. Section 1115.12(g)(1)(ii) Number of Defective Products Distributed In Commerce The Commission also clarifies that in evaluating the substantial risk of injury involving a particular consumer product, it recognizes that the risk of injury from a product may decline over time as the number of products being used by consumers decreases. While there may be other factors unique to a particular product which influence the rate of the reduction, if any, of injury risk, Commission staff believes that this factor is reasonable and appropriate to consider when evaluating the impact of the number of defective products distributed in commerce, authorized by 16 CFR 1115.12(g)(1)(ii), when undertaking a substantial product hazard determination. C. Section 1115.8 Compliance With Product Safety Standards The proposed revisions also add a new § 1115.8, “Compliance with Product Safety Standards.” This section is intended to further explain how the Commission views compliance with applicable voluntary or mandatory standards, particularly in the context of decisions under section 15(b) of the CPSA. The Commission strongly encourages all firms to comply with voluntary consumer product safety standards and advises that where appropriate, compliance or non-compliance with such standards may be considered by the Commission and staff in exercising its authority under the CPSA, including when making determinations under section 15. The section also provides that compliance or non-compliance with applicable mandatory consumer product safety standards may be considered by the Commission and staff in making relevant determinations and exercising relevant federal authorities under the CPSA and other federal statutes including when making corrective action determinations under section 15 of the CPSA. The Commission is providing this guidance to emphasize that compliance with voluntary or mandatory standards are relevant considerations to the exercise of its authorities, particularly in evaluating section 15(b) obligations. The provision on voluntary standards is added to emphasize that when the Commission staff preliminarily determines whether a product presents a substantial product hazard under section 15(b) of the CPSA, the Commission staff will consider compliance with any relevant voluntary standard as part of that determination. Therefore, by this provision the Commission urges firms to consider compliance with voluntary standards in evaluating whether or not a substantial product hazard should be reported to the Commission. In the context of mandatory standards, the Commission emphasizes that the Commission will consider such compliance when making relevant determinations and exercising relevant authorities under the CPSA and other federal statutes. In particular, a product's compliance with a mandatory standard will be considered in determining whether and to what extent corrective action is necessary. This policy statement is not intended to reduce the volume of reporting to the Office of Compliance. List of Subjects in 16 CFR Part 1115 Administrative practice and procedure, Business and Industry, Consumer protection, Reporting and recordkeeping requirements. Accordingly, 16 CFR part 1115 is proposed to be amended as follows: PART 1115—SUBSTANTIAL PRODUCT HAZARD REPORTS 1. The authority citation for part 1115 continues to read as follows: Authority: 15 U.S.C. 2061, 2064, 2065, 2066(a), 2068, 2070, 2071, 2073, 2076, 2079 and 2084. 2. In § 1115.4, amend the concluding text by adding a new phrase after the phrase, “the population exposed to the product and its risk of injury;” to read as follows: § 1115.4 Defect. * * * the obviousness of such risk; the adequacy of warnings and instructions to mitigate such risk; the role of consumer misuse of the product and the foreseeability of such misuse;” * * * 3. Section 1115.8 is added to read as follows: § 1115.8 Compliance with Product Safety Standards.

(a)*Voluntary Standards.* The CPSA and other federal statutes administered by the Commission generally encourage the private sector development of, and compliance with voluntary consumer product safety standards to help protect the public from unreasonable risks of injury associated with consumer products. To support the development of such consensus standards, Commission staff participates in many voluntary standards committees and other activities. The Commission also strongly encourages all firms to comply with voluntary consumer product safety standards and considers, where appropriate, compliance or non-compliance with such standards in exercising its authorities under the CPSA and other federal statutes, including when making determinations under section 15 of the CPSA. Thus, for example, whether a product is in compliance with applicable voluntary safety standards may be relevant to the Commission staff's preliminary determination of whether that product presents a substantial product hazard under section 15 of the CPSA.

(b)*Mandatory Standards.* The CPSA requires that firms comply with all applicable mandatory consumer product safety standards and to report to the Commission any products which do not comply with either mandatory standards or voluntary standards upon which the Commission has relied. As is the case with voluntary consumer product safety standards, compliance or non-compliance with applicable mandatory safety standards may be considered by the Commission and staff in making relevant determinations and exercising relevant authorities under the CPSA and other federal statutes. Thus, for example, while compliance with a relevant mandatory product safety standard may not, of itself, relieve a firm from the need to report to the Commission a product defect that creates a substantial product hazard under section 15 of the CPSA, it will be considered by staff in making the determination of whether and what type of corrective action may be required. 4. Section 1115.12 is amended by adding a new sentence at the end of paragraph (g)(1)(ii) to read as follows: § 1115.12 Information which should be reported; evaluating substantial product hazard.

(g)* * *

(1)* * *

(ii)* * * The Commission also recognizes that the risk of injury from a product may decline over time as the number of products being used by consumers decreases. Dated: May 22, 2006. Todd A. Stevenson, Secretary , Consumer Product Safety Commission. [FR Doc. 06-4888 Filed 5-25-06; 8:45 am]

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