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Code · REGISTER · 2006-06-02 · Internal Revenue Service (IRS), Treasury · Proposed Rules

Proposed Rules. Notice of proposed rulemaking

47,510 words·~216 min read·/register/2006/06/02/06-5050

A research copy — for the controlling text, always check the official state or federal source. Not legal advice.

BILLING CODE 4910-13-M DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1 [REG-135866-02] RIN 1545-BA93 Section 1248 Attribution Principles AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Notice of proposed rulemaking. SUMMARY: This document contains proposed regulations under section 1248 of the Internal Revenue Code
(Code)that provide guidance for determining the earnings and profits attributable to stock of controlled foreign corporations (or former controlled foreign corporations) that are
(were)involved in certain nonrecognition transactions. The proposed regulations are necessary in order to supplement and clarify existing guidance in the regulations under section 1248. The proposed regulations affect persons subject to the regulations under section 1248, as well as persons to which regulations under other Code provisions, such as section 367(b), apply to the extent that those regulations incorporate the principles of the proposed regulations. In addition, the proposed regulations provide that with respect to the sale by a foreign partnership of the stock of a corporation, the partners in such foreign partnership shall be treated as selling or exchanging their proportionate share of the stock of such corporation for purposes of section 1248. DATES: Written or electronic comments and requests for a public hearing must be received by August 31, 2006. ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-135866-02), room 5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand-delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to: CC:PA:LPD:PR (REG-135866-02), Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue, NW., Washington DC or sent electronically, via the IRS Internet site at *www.irs.gov/regs* or via the Federal eRulemaking Portal at *http://www.regulations.gov* (IRS-REG-135866-02). FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, Michael Gilman at
(202)622-3850 (not a toll-free number); concerning the submissions of comments and request for hearing, Richard Hurst at *Richard.A.Hurst@irscounsel.treas.gov* (preferred) or at
(202)622-7180 (not a toll-free number). SUPPLEMENTARY INFORMATION: Background Section 1248(a) of the Code provides that certain gain recognized on the sale or exchange of stock of a foreign corporation by a United States person will be included in the gross income of that person as a dividend if:
(1)The foreign corporation was a controlled foreign corporation at any time during the five-year period ending on the date of the sale or exchange; and
(2)the United States person owned or is considered to have owned, within the meaning of section 958, 10 percent or more of the total combined voting power of the foreign corporation at any time during that five-year period (section 1248 shareholder). The amount of gain included in income as a dividend under section 1248(a) is limited to the earnings and profits attributable to the stock that is sold or exchanged which were accumulated in taxable years of the foreign corporation beginning after December 31, 1962, and during the period or periods the stock was held by the United States person while the foreign corporation was a controlled foreign corporation. A distribution treated as an exchange of stock is also included. See § 1.1248-1(b). In addition, section 1248 may also apply to certain distributions of the stock of a foreign corporation as provided under section 1248(f). The section 1248 regulations provide for both a simple case method and a complex case method for computing a controlled foreign corporation's earnings and profits attributable to stock disposed of in a transaction to which section 1248 applies. See §§ 1.1248-2 and 1.1248-3. A taxpayer may use the simple case method under § 1.1248-2, which requires few adjustments in the earnings and profits calculation under section 1248, if it meets several criteria (e.g., the foreign corporation has only one class of stock and a constant number of shares outstanding on each day of each post-1962 taxable year which falls within the relevant holding period). If these criteria are not satisfied, a taxpayer must use the complex case method under § 1.1248-3. The complex case method provides additional rules to address situations involving multiple classes of stock, changes in a shareholder's ratable share of a corporation's earnings and profits, and other complicating factors. Under § 1.1248-1(a), the period of ownership of stock of a United States person for purposes of attributing earnings and profits to that stock includes the period that the United States person actually held the stock or is considered to have held such stock pursuant to section 1223. Section 1223(1) provides that the period for which the taxpayer has held property received in an exchange, shall include the period for which the taxpayer held the property exchanged if the property received in the exchange has the same basis in whole or in part in the taxpayer's hands as the property exchanged. Section 1223(2) provides that the period for which the taxpayer is considered to have held property acquired shall include the period for which that property was held by any other person if the property acquired has the same basis in whole or in part in the taxpayer's hands as it would have in the hands of that other person. Section 1248(c)(2) generally provides that, if the United States person selling, exchanging, or distributing stock in a foreign corporation has the required ownership interest in lower-tier foreign corporations, certain earnings and profits of those lower-tier foreign corporations will be attributed to stock of the foreign corporation that the U.S. person sells, exchanges, or distributes. For this provision to apply, the United States person must have owned or be considered to have owned, within the meaning of section 958, 10 percent or more of the total combined voting power of the lower-tier foreign corporation at any time during the five-year period preceding the sale. Although section 1248(a) applies only to sales or exchanges of stock in a foreign corporation by a United States person, section 964(e) applies section 1248 principles to certain dispositions of stock in a foreign corporation by a controlled foreign corporation. Section 964(e)(1) provides that if a controlled foreign corporation that owns stock in a foreign corporation sells or exchanges such stock, gain recognized on such sale or exchange shall be included in the gross income of such controlled foreign corporation as a dividend to the same extent that it would have been included under section 1248(a) if the controlled foreign corporation were a United States person. Section 367(b) addresses certain exchanges described in sections 351, 354, 355, 356, and 361 that do not involve a transfer of property described in section 367(a). One of the underlying policies of section 367(b) is the preservation of the potential application of section 1248. See H.R. Rep. No. 94-658, 94th Cong., 1st Sess., at 242 (November 12, 1975). Regulations under section 367(b) require certain exchanging shareholders to include in income as a deemed dividend the section 1248 amount attributable to stock of a foreign corporation as a result of an acquisition by a foreign corporation of the stock or assets of a foreign corporation in an exchange described in section 351 or a reorganization described in section 368(a)(1). For example, an exchanging shareholder must include the section 1248 amount attributable to the stock exchanged in income if the exchange results in its loss of status as a section 1248 shareholder. See § 1.367(b)-4(b)(1). For this purpose, the section 1248 amount generally is determined by reference to the amount that would be included in income as a dividend under section 1248 and the regulations under that section if the stock were sold by the exchanging shareholder. See § 1.367(b)-2(c). Explanation of Provisions A. Scope The Treasury Department and the IRS believe that it is important that the section 1248 regulations make explicit that only the appropriate amount of earnings and profits are attributed to stock of a foreign corporation for purposes of section 1248 following relevant nonrecognition transactions. The proposed regulations provided in § 1.1248-8 supplement and clarify the existing rules under §§ 1.1248-2 and 1.1248-3. The results obtained under the proposed regulations are consistent with the results provided under section 1248 and the existing regulations under sections 367(b) and 1248. However, some taxpayers have raised concerns that those existing regulations may attribute an excessive amount of earnings and profits to stock after certain nonrecognition transactions. The Treasury Department and the IRS believe that this view is not a correct interpretation of the existing regulations. Nevertheless, in order to remove this uncertainty, the proposed regulations clarify how the principles of section 1248 should be applied so that a section 1248 shareholder or a foreign corporation to which section 964(e) applies includes the appropriate amount in income as a dividend upon the sale or exchange of stock of a current or former controlled foreign corporation. The proposed regulations provide rules for accurately attributing earnings and profits to stock of a foreign corporation that is received by an exchanging shareholder, or received by an acquiring corporation, pursuant to one or more restructuring transactions in which the holding period of such stock is determined by application of section 1223(1) or 1223(2), and in which the exchanging shareholder is not required, as a result of the exchange, to include in income the section 1248 amount pursuant to § 1.367(b)-4(b). The proposed regulations also provide rules for attributing earnings and profits to stock of a foreign corporation that participates in a restructuring transaction that is held by a non-exchanging shareholder in such a restructuring transaction. For purposes of the proposed regulations, a restructuring transaction is a transaction that qualifies as a nonrecognition transaction (within the meaning of section 7701(a)(45)) under section 351, 354, 356, or 361. The proposed regulations provide special rules for liquidations described in section 332 and consequently, these transactions are not included in the definition of a restructuring transaction. An exchanging shareholder is defined in the proposed regulations as a person that, in a restructuring transaction qualifying for nonrecognition under section 354, 356, or 361(a), exchanges stock of an acquired corporation for stock in either a foreign acquiring corporation or a foreign corporation that is in control of the acquiring corporation. In a restructuring transaction qualifying for nonrecognition under section 351, the proposed regulations define an exchanging shareholder as a person that exchanges property (including stock) for stock in a foreign acquiring corporation. An acquiring corporation is defined in the proposed regulations as a corporation that, in a restructuring transaction, acquires the stock or assets of an acquired corporation. For purposes of the proposed regulations, a foreign corporate shareholder is a foreign corporation that owns stock of another foreign corporation, and has a section 1248 shareholder that is also a section 1248 shareholder of the other foreign corporation. A non-exchanging shareholder is defined in the proposed regulations as a person that, at the time of the restructuring transaction, is either a section 1248 shareholder or a foreign corporate shareholder of the acquiring corporation and that is not an exchanging shareholder with respect to that corporation. The proposed regulations also set forth rules for the attribution of earnings and profits for purposes of section 1248 with respect to stock of a foreign corporation that receives assets and liabilities of a foreign corporation in a complete liquidation described in section 332 if the foreign distributee is a foreign corporate shareholder of the liquidating corporation. In addition, the proposed regulations provide that with respect to the sale by a foreign partnership of the stock of certain foreign corporations, the partners in such foreign partnership shall be treated as selling or exchanging their proportionate share of the stock of such corporations for purposes of section 1248. Finally, the proposed regulations provide additional rules to ensure the proper attribution of earnings and profits to stock of controlled foreign corporations or foreign corporate shareholders as a result of certain nonrecognition transactions. B. Attribution of Earnings and Profits to Stock in a Foreign Corporation as a Result of a Restructuring Transaction 1. Earnings and Profits Attributable to the Stock That an Exchanging Shareholder Receives Some taxpayers have expressed concern that an excessive amount of earnings and profits could be attributed to stock that an exchanging shareholder receives in a restructuring transaction under the existing section 1248 regulations through the application of the holding period rules of section 1223(1). For example, in a transaction described in section 351, a domestic corporation
(DC1)contributes property to a foreign acquiring corporation
(FA)in exchange for 80 percent of the voting stock in FA. Prior to the transaction, FA was wholly owned by another domestic corporation (DC2). Assume in the transaction that DC1 does not recognize gain under section 367(a) and the regulations under that section or include income under section 367(b) and the regulations under that section. The basis of the stock in FA received by DC1 in the transaction will be determined pursuant to section 358, and in determining DC1's holding period in the FA stock, DC1 will include, under section 1223(1), the period DC1 held the property it contributed to FA. Some taxpayers incorrectly interpret the existing section 1248 regulations to require that, if DC1 subsequently sells or exchanges the FA stock received in the restructuring transaction, the earnings and profits accumulated by FA before the transaction (i.e., before DC1's period of actual ownership of the FA stock), but within the section 1223(1) holding period, are attributed to the FA stock received and sold by DC1. This interpretation would result in the inappropriate attribution of such accumulated earnings and profits to the FA stock held by both DC2 and DC1 (if DC2 sells or exchanges its FA stock, the accumulated earnings and profits of FA that were attributed to the FA stock sold by DC1 would correctly be attributed under the existing section 1248 regulations to the FA stock held by DC2). This interpretation of the existing section 1248 regulations is not correct and any such double attribution is not intended. However, to provide greater certainty, the proposed regulations clarify that excessive attribution of earnings and profits does not occur as a result of restructuring transactions. The proposed regulations provide that where an exchanging shareholder receives, in a restructuring transaction, stock in a foreign corporation, the holding period of which is determined under section 1223(1), and the exchanging shareholder is either a section 1248 shareholder or a foreign corporate shareholder with respect to that foreign corporation immediately after the restructuring transaction, the earnings and profits attributable to the stock the exchanging shareholder receives shall be determined on the basis of the type of property exchanged. If the property exchanged is not stock of a foreign acquired corporation with respect to which the exchanging shareholder is a section 1248 shareholder or a foreign corporate shareholder immediately before the transaction, the earnings and profits attributable to the foreign corporation stock received by the exchanging shareholder shall be determined in accordance with § 1.1248-2 or § 1.1248-3 (whichever is applicable) without regard to any portion of the section 1223(1) holding period in that stock that reflects periods prior to the restructuring transaction. If, on the other hand, the property exchanged is stock in a foreign acquired corporation with respect to which the exchanging shareholder is either a section 1248 shareholder or a foreign corporate shareholder with respect to the foreign corporation immediately before the transaction, the proposed regulations provide that the earnings and profits attributable to the stock received by the exchanging shareholder shall equal the sum of the earnings and profits attributable to:
(1)The stock of the foreign acquired corporation accumulated prior to the restructuring transaction; and
(2)the stock of the foreign corporation that the exchanging shareholder receives in the restructuring transaction without regard to any portion of the section 1223(1) holding period in that stock that is prior to the restructuring transaction. The earnings and profits attributable to any portion of the section 1223(1) holding period in the foreign acquiring stock that is prior to the restructuring transaction remain attributable through the operation of the existing section 1248 regulations to the foreign acquiring stock held by non-exchanging shareholders. See proposed § 1.1248-8(b)(4) and (7), *Example 2.* The proposed regulations provide an exception to this general rule, however, in certain triangular reorganizations involving a foreign issuing corporation that controls a domestic acquiring corporation. This exception applies, for example, where a United States person
(DC)exchanges its stock in a foreign acquired corporation
(FS)for stock of a foreign issuing corporation
(FI)that controls the domestic acquiring corporation
(DA)in a restructuring transaction (i.e., a triangular reorganization described in section 368(a)(1)(B)). To prevent the attribution of FS's pre-acquisition earnings and profits to stock owned by both DC and DA, the proposed regulations provide that the earnings and profits attributable to the FI stock received by DC shall consist solely of the earnings and profits attributable to the FI stock received (determined under § 1.1248-2 or § 1.1248-3, whichever is applicable, and proposed § 1.1248-8, if applicable) without regard to any portion of DC's section 1223(1) holding period in the FI stock received that includes periods of time prior to the restructuring transaction. See proposed § 1.1248-8(b)(7), *Example 5.* As discussed in paragraph (B)(2) of this preamble, the earnings and profits attributable to the FS stock for periods before the triangular reorganization generally are attributed to the FS stock owned by DA after the transaction. 2. Earnings and Profits Attributable to Stock in a Foreign Corporation That Certain Acquiring Corporations Receive In addition to potential excessive attribution resulting from section 1223(1) holding periods discussed above, some taxpayers are concerned that an excessive amount of earnings and profits could be attributed to stock under the existing section 1248 regulations through the application of the section 1223(2) holding period rules to an acquiring corporation in a restructuring transaction. For example, in a transaction described in section 351, a foreign corporation
(FP)that owns 100 percent of the stock of another foreign corporation
(FS)and 100 percent of the stock of a domestic corporation (DC), transfers its FS stock to DC. Prior to the transaction, FP was not a section 1248 shareholder or a foreign corporate shareholder with respect to FS. DC's basis in the FS stock received by DC in the restructuring transaction will be determined pursuant to section 362, and in determining DC's holding period in the FS stock, DC will include, under section 1223(2), the period FP held the FS stock. Some taxpayers incorrectly interpret the existing section 1248 regulations to require that if DC subsequently sells or exchanges the FS stock received in the restructuring transaction, the earnings and profits accumulated by FS before the transaction ( *i.e.* , before DC's period of actual ownership of the FS stock), but within the 1223(2) holding period, are attributed to the FS stock received and sold by DC. This interpretation would result in the attribution of earnings and profits to the FS stock held by DC even though such earnings and profits were accumulated by FS when it was not a controlled foreign corporation. Such interpretation of the existing section 1248 regulations is not correct. However, to provide greater certainty, the proposed regulations clarify that excessive attribution of earnings and profits does not occur as a result of such transactions. The proposed regulations provide that where, in a restructuring transaction, an acquiring corporation receives stock in a foreign acquired corporation, the holding period of which is determined under section 1223(2), and the acquiring corporation is either a section 1248 shareholder or a foreign corporate shareholder with respect to that foreign acquired corporation immediately after the restructuring transaction, the earnings and profits attributable to the foreign acquired corporation stock that the acquiring corporation receives shall be determined depending on whether the exchanging shareholder was a section 1248 shareholder or a foreign corporate shareholder with respect to the acquired corporation. If the exchanging shareholder is neither a section 1248 shareholder nor a foreign corporate shareholder with respect to the foreign acquired corporation immediately before the restructuring transaction, the proposed regulations provide that the earnings and profits attributable to the stock of the foreign acquired corporation shall be determined in accordance with § 1.1248-2 or § 1.1248-3 (whichever is applicable) without regard to any portion of the section 1223(2) holding period in that stock that is prior to the restructuring transaction. However, in a restructuring transaction where the acquiring corporation receives stock of a foreign acquired corporation with respect to which an exchanging shareholder is either a section 1248 shareholder or a foreign corporate shareholder immediately before the transaction, the proposed regulations modify the approach discussed above in order to ensure the proper amount of earnings and profits is attributable to stock that the acquiring corporation receives. For example, assume a domestic corporation
(DC1)has owned all the stock of a foreign corporation
(FS)since its formation. In a transaction described in section 368(a)(1)(B), DC1 transfers all its FS stock to another domestic corporation (DC2), in exchange for DC2 voting stock. The section 1248 amount attributable to the FS stock is $100 but section 367(b) does not require DC1 to include it in income as a deemed dividend. See § 1.367(b)-4(a) (income inclusion rules only apply when there is a foreign acquiring corporation). If DC2 subsequently recognizes gain upon the sale or exchange of its stock in FS and if the earnings and profits attributable to that stock do not include the earnings and profits that accumulated before DC2's actual period of ownership, then those earnings and profits would escape inclusion in income as a dividend under section 1248. To ensure the proper attribution of earnings and profits in these situations, the proposed regulations provide that where the stock exchanged in the restructuring transaction is stock of a foreign corporation, with respect to which the exchanging shareholder is either a section 1248 shareholder or a foreign corporate shareholder immediately before the restructuring transaction, the earnings and profits attributable to the stock of the acquired corporation will be determined with regard to the portion of the section 1223(2) holding period in that stock that the exchanging shareholder took into account for purposes of attributing earnings and profits to that stock. See proposed § 1.1248-8(b)(7), *Example 3* and *Example 5.* 3. Earnings and Profits Attributable to Stock Held by a Non-Exchanging Shareholder The proposed regulations generally provide that the earnings and profits attributable to stock of an acquiring corporation held by a non-exchanging shareholder immediately prior to a restructuring transaction continue to be attributed to such stock, and the earnings and profits of the acquired corporation accumulated prior to the restructuring transaction attributable to the stock of an acquired corporation are not attributed to the non-exchanging shareholder's stock in the acquiring corporation. See proposed § 1.1248-8(b)(7), *Example 2* and *Example 4.* However, a special rule applies to a nonexchanging shareholder that owns stock in a foreign corporation that is both an acquiring corporation and an exchanging shareholder in the same restructuring transaction (i.e., an upstream merger). This rule is necessary because the acquiring corporation does not receive stock in exchange for its stock in the acquired corporation and, as a result, the general attribution rules in the proposed regulations would not preserve the earnings and profits attributable to such acquired corporation stock. For example, assume a domestic corporation
(DC)owns all the stock of a controlled foreign corporation (CFC1), CFC1's only asset is 79 percent of the stock of another controlled foreign corporation (CFC2), and the other 21 percent of the CFC2 stock is owned by an unrelated party (X). Pursuant to a restructuring transaction described in section 368(a)(1)(C), CFC2 transfers all its assets to CFC1. In exchange, CFC1 assumes the liabilities of CFC2 and transfers to CFC2 voting stock representing 21 percent of the stock of CFC1. CFC2 distributes the voting stock to X and liquidates. In such a transaction, the earnings and profits attributable to the CFC1 stock held by DC (i.e., the nonexchanging shareholder) shall be the sum of the earnings and profits attributable to the stock of CFC1 (i.e., the foreign acquiring corporation) immediately before the restructuring transaction (including amounts attributed under section 1248(c)(2)) and the earnings and profits attributable to the stock of CFC1 accumulated after the restructuring transaction (including amounts attributed under section 1248(c)(2)). See proposed § 1.1248-8(b)(7), *Example 8.* Cf. proposed § 1.1248-8(c) (providing similar rules for liquidations described in section 332). 4. Reduction in Earnings and Profits Attributable to Stock to Prevent Multiple Inclusions with Respect to the Same Earnings and Profits The proposed regulations require that, to the extent consistent with the principles of section 1248, adjustments to earnings and profits attributable to stock shall be made so that section 1223(1) and
(2)and the proposed regulations are applied in a manner that results in earnings and profits being taken into account only once. Accordingly, the proposed regulations provide that upon the sale by a controlled foreign corporation of stock of another foreign corporation to which earnings and profits had been attributed under the rules of the proposed regulations, proportionate reductions shall be made to the earnings and profits attributed to the stock of the selling foreign corporate shareholder owned by a section 1248 shareholder. See proposed § 1.1248-8(b)(7), *Example 7* . For example, assume a section 1248 shareholder owns 80 percent of a controlled foreign corporation
(CFC1)and an unrelated foreign person owns the remaining 20 percent of CFC1. The section 1248 shareholder receives the CFC1 stock in exchange for the stock of its wholly owned foreign subsidiary
(CFC2)in a restructuring transaction described in section 368(a)(1)(B). Immediately before the transaction, $100 of earnings and profits is attributable to the CFC2 stock owned by the section 1248 shareholder. As previously discussed, the proposed regulations provide for the attribution of the $100 of CFC2's pre-acquisition earnings and profits to the CFC1 stock received by the section 1248 shareholder in the transaction and to the CFC2 stock received by CFC1 in the transaction. Assume that CFC2 accumulates another $100 of earnings and profits after the transaction, and in a subsequent year, CFC1 sells 30 percent of its stock in CFC2. If the requirements of section 964(e) are met, CFC1 will include in its gross income as a dividend $30 of CFC2's pre-acquisition earnings and profits and $30 of CFC2's post-acquisition earnings and profits. In order to prevent the attribution of a portion of these earnings and profits to the section 1248 shareholder's stock in CFC1, the proposed regulations provide that the earnings and profits attributable to the section 1248 shareholder's stock in CFC1 will be reduced by $54, $24 (80 percent of $30) of the earnings and profits accumulated by CFC2 after the restructuring transaction and $30 of the earnings and profits accumulated by CFC2 prior to the restructuring transaction. 5. Special Rule Regarding Section 381 The proposed regulations also provide a special rule in order to avoid possible double counting of earnings and profits as a result of the operation of section 381(a) in a restructuring transaction and the proposed rules. Under section 381, an acquiring corporation succeeds to and takes into account the earnings and profits of the transferor or distributor corporation as of the close of the day of the transfer or distribution. Because the earnings and profits carry over from one corporation to another corporation at the close of the day, the same earnings and profits accumulated by the transferor or distributor corporation before the transaction could also be considered to have been accumulated by the transferee or distributee corporation after the transfer or distribution. For example, assume a domestic corporation
(DC1)owns 100 percent of controlled foreign corporation
(CFC1)that generates $100 of earnings and profits. CFC1 merges into another controlled foreign corporation
(CFC2)in a reorganization described in section 368(a)(1)(A), and DC1 receives 25 percent of the CFC2 stock in exchange for its CFC1 stock in the merger. If, for purposes of section 1248, the $100 of earnings and profits of CFC1 is attributable to the CFC2 stock received by DC1, and is also taken into account by CFC2 pursuant to section 381, the same $100 of earnings and profits would be taken into account twice. Except with respect to upstream mergers, the proposed regulations attribute the pre-acquisition earnings and profits of the transferor, where appropriate, to the stock received by the exchanging shareholder. Therefore, in order to prevent the double counting of earnings and profits, the proposed regulations provide that earnings and profits of another corporation to which the foreign corporation succeeded through the operation of section 381 will not be attributed to its stock. See proposed § 1.1248-8(b)(6) and (7), *Example 4* , and (c)(2) and (3). 6. Attribution of Earnings and Profits Following Certain Liquidations Under the existing section 1248 regulations, issues have arisen as to whether the so-called hovering deficit rule under section 381(c)(2)(B) applies for purposes of attributing earnings and profits to stock of the foreign distributee corporation following certain liquidations of foreign corporations under section 332. The hovering deficit rule generally restricts access to certain deficits in earnings and profits following section 381 transactions. The Treasury Department and the IRS believe that the hovering deficit rule should not apply in these types of section 332 liquidations because section 1248(c)(2) generally provides for the attribution of a foreign subsidiary's earnings and profits (including any deficits) to the stock of its foreign parent. Thus, the foreign parent already had, in effect, access to the deficit of the foreign subsidiary pursuant to section 1248(c)(2) prior to the section 332 liquidation. In that case, application of the hovering deficit rule is not appropriate for section 1248 purposes. Accordingly, the proposed regulations provide a special rule that clarifies application of the hovering deficit rule to a distributee foreign corporate shareholder in a section 332 liquidation. In this circumstance, the earnings and profits of the distributing foreign corporation to which the foreign distributee corporation succeeds through the operation of section 381 will not be taken into account by the foreign distributee for purposes of section 1248 and consequently, the hovering deficit rule will not apply. Instead, the proposed regulations provide a rule for attributing earnings and profits of the foreign liquidating corporation to the stock of the foreign distributee in such a liquidation that is consistent with the principles of section 1248(c)(2). In such a case, the earnings and profits attributable to the distributee stock shall be the sum of:
(1)the earnings and profits attributable to the stock of the distributee immediately before the liquidation (including amounts attributed under section 1248(c)(2)); and
(2)the earnings and profits attributable to the stock of the distributee accumulated after the liquidation (including amounts attributed under section 1248(c)(2)). See proposed § 1.1248-8(b)(7), *Example 3* , and (c). C. Sale or Exchange of Stock by a Foreign Partnership A domestic partnership is treated as a United States person for purposes of section 1248. See section 7701(a)(30)(B) and § 1.1248-1(a)(1). Accordingly, the sale by a domestic partnership of the stock of a foreign corporation is subject to section 1248(a). Section 1248 and the existing regulations do not, however, address specifically sales or exchanges of stock by foreign partnerships with United States persons as partners. The legislative history of subchapter K of the Code provides that, for purposes of interpreting Code provisions outside of that subchapter, a partnership may be treated as either an entity separate from its partners or an aggregate of its partners, depending on which characterization is more appropriate to carry out the purpose of the particular Code section under consideration. H.R. Conf. Rep. No. 2543, 83rd Cong. 2d. Sess. 59 (1954). The purpose of section 1248 is to ensure that earnings and profits of controlled foreign corporations (or former controlled foreign corporations) are taxed as a dividend when certain United States persons recognize gain on the sale or exchange of stock in such corporations. In cases in which the United States person is a partner in a foreign partnership and recognizes income on the sale of stock of a foreign corporation by such foreign partnership, the purpose of section 1248 is fulfilled only if the partnership is treated as an aggregate for section 1248 purposes. Treatment of a foreign partnership as an entity, in contrast, could result in partners in the partnership inappropriately receiving capital gain treatment on the sale by the partnership of stock of the foreign corporation. Thus, under proposed § 1.1248-1(a)(4), a foreign partnership is treated as an aggregate of its partners for purposes of section 1248(a). Under the proposed regulations, for example, the partners in a foreign partnership shall be treated as selling or exchanging their proportionate share of stock held by the foreign partnership. The proposed regulations also apply section 1248(a) in cases where the stock in a corporation that is sold or exchanged is held through tiers of foreign partnerships. This treatment of the foreign partnership as an aggregate, rather than as an entity, for purposes of applying section 1248 is necessary to reflect properly the attributable earnings and profits as a dividend. D. Removal of Rule under § 1.367(b)-2(d)(3)(ii) Limiting Amounts Attributable to Holding Periods Determined under Section 1223 Section 1.367(b)-3 requires that an exchanging shareholder, as defined in § 1.367(b)-3(b)(1), include all the earnings and profits amount (as defined generally in § 1.367(b)-2(d)) in income as a deemed dividend (with respect to its stock in the foreign acquired corporation) when a domestic corporation acquires the assets of the foreign corporation in a section 332 liquidation or a section 368(a)(1) asset acquisition. Section 1.367(b)-2(d)(3)(ii) excludes, for purposes of determining the all earnings and profits amount, amounts attributable to holding periods determined under section 1223(2) during which there was no direct or indirect ownership by a United States person. Pursuant to § 1.367(b)-2(d)(3)(i)(A)( *1* ), the all earnings and profits amount with respect to stock of a foreign corporation is determined according to the attribution principles of section 1248 and the regulations under that section. Since the rules of proposed § 1.1248-8(b)(2) conform to the rule set forth in § 1.367(b)-2(d)(3)(ii), the proposed regulations remove paragraph (d)(3)(ii) from § 1.367(b)-2. E. Revision of § 1.367(b)-4(d) Providing Rules for Subsequent Exchanges Section 1.367(b)-4 applies to an acquisition by a foreign corporation of the stock or assets of a foreign corporation in an exchange described in section 351 or a reorganization described in section 368(a)(1). If the exchange meets certain criteria, an exchanging shareholder, as defined in § 1.367(b)-4(b)(1)(i)(A), must include in income as a deemed dividend the section 1248 amount attributable to the stock that it exchanges. If in a particular exchange, income is not required to be included pursuant to § 1.367(b)-4(b), § 1.367(b)-4(d) provides rules governing the attribution of earnings and profits to the stock received by the exchanging shareholder in the non-inclusion exchange for purposes of applying section 367(b) or section 1248 to subsequent sales or exchanges of that stock. Because proposed § 1.1248-8 provides rules for the attribution of earnings and profits to stock with respect to the § 1.367(b)-4(b) non-inclusion exchanges, the proposed regulations remove the substantive rules and examples in § 1.367(b)-4(d) from the final regulations. In their place, taxpayers are referred to proposed § 1.1248-8. F. Request for Comments 1. Attribution to Stock Shareholder Receives by Gift The proposed regulations do not apply to determine the earnings and profits attributable to stock in a foreign corporation that a United States person receives as a gift. The Treasury Department and the IRS seek comments as to whether additional guidance is needed to address the attribution of earnings and profits with respect to stock of a foreign corporation that a United States person receives by gift. 2. Attribution of Earnings and Profits to Stock Shareholder Receives Under Section 355 The proposed regulations do not apply to determine the earnings and profits attributable to stock in a foreign corporation that a United States person receives in a distribution to which section 355 applies. The Treasury Department and the IRS seek comments as to whether additional guidance is needed to address the attribution of earnings and profits with respect to stock of a foreign corporation that a United States person receives in such distributions. 3. Effect on §§ 1.1248-4 and 1.1248-5 The proposed regulations do not address the interaction of proposed § 1.1248-8 with §§ 1.1248-4 and 1.1248-5. The Treasury Department and the IRS seek comments as to whether additional guidance on how the proposed regulations should affect those sections of the existing regulations. Special Analyses It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It has also been determined that section 553(b) of 5 U.S.C. chapter 5 does not apply to these regulations, and, because the regulations do not impose a collection of information on small entities, the Regulatory Flexibility Act, 5 U.S.C. chapter 6, does not apply. Pursuant to section 7805(f) of the Code, this notice of proposed rulemaking will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small businesses. Comments and Requests for a Public Hearing Before the proposed regulations are adopted as final regulations, consideration will be given to any written comments (a signed original and 8 copies) or electronic comments that are submitted timely to the IRS. The Treasury Department and the IRS request comments on the clarity of the proposed rules and how they may be made easier to understand. All comments will be made available for public inspection and copying. A public hearing will be scheduled if requested in writing by any person that submits timely written or electronic comments. If a public hearing is scheduled, notice of the date, time, and place for the public hearing will be published in the **Federal Register** . Drafting Information The principal authors of the proposed regulations are Michael I. Gilman of the Office of Associate Chief Counsel (International) and Mark R. Pollard, formerly of the Office of Associate Chief Counsel (International). However, other personnel from the Treasury Department and the IRS participated in their development. List of Subjects in 26 CFR Part 1 Income taxes, Reporting and recordkeeping requirements. Proposed Amendments to the Regulations Accordingly, 26 CFR part 1 is proposed to be amended as follows: PART 1—INCOME TAXES **Paragraph 1.** The authority citation for part 1 is amended by adding entries in numerical order to read in part as follows: Authority: 26 U.S.C. 7805 * * * Sections 1.367(b)-2(c)(1) and
(2)and (d)(3), and 1.367(b)-4(d) also issued under 26 U.S.C. 367(b)(1) and (2). * * * Sections 1.1248-1(a)(1), (4), and (5), and 1.1248-8 also issued under 26 U.S.C. 1248(a) and (c)(1) and (2). * * * § 1.367(b)-2 [Amended] **Par. 2.** Section 1.367(b)-2 is amended by: 1. Amending the last sentence of paragraph (c)(1)(ii) by removing the language “, as modified by § 1.367(b)-4(d) (as applicable)” and adding the language “. See § 1.1248-8.” in its place. 2. Removing *Example 4* in paragraph (c)(2). 3. Amending the last sentence of paragraph (d)(3)(i)(B)( *2* ) by removing the language “, as modified by paragraph (d)(3)(ii) of this section and § 1.367(b)-4(d) (as applicable)” and adding the language “. See § 1.1248-8.” in its place. 4. Removing paragraph (d)(3)(ii). 5. Redesignating paragraph (d)(3)(iii) as paragraph (d)(3)(ii). **Par. 3.** Section 1.367(b)-4(d) is revised to read as follows: § 1.367(b)-4 Acquisition of foreign corporate stock or assets by a foreign corporation in certain nonrecognition transactions.
(d)*Rules for subsequent sales or exchanges.* If an exchanging shareholder (as defined in § 1.1248-8(b)(1)(iv)) is not required to include in income as a deemed dividend the section 1248 amount under paragraph
(b)of this section in a section 367(b) exchange described in paragraph
(a)of this section (non-inclusion exchange), then, for purposes of applying section 367(b) or section 1248 to subsequent sales or exchanges, and subject to the limitation of § 1.367(b)-2(d)(3)(ii) (in the case of a transaction described in § 1.367(b)-3), the determination of the earnings and profits attributable to the stock an exchanging shareholder receives in the non-inclusion exchange shall be determined pursuant to the rules of section 1248 and the regulations under that section. **Par. 4.** Section 1.1248-1 is amended by: 1. Amending the first sentence of paragraph (a)(1) by removing the language “(or was considered as held by reason of the application of section 1223)” and adding the language “(or was considered as held by reason of the application of section 1223, taking into account § 1.1248-8)” in its place. 2. Adding a new third sentence in paragraph (a)(1). 3. Redesignating paragraph (a)(4) as paragraph (a)(5). 4. Adding new paragraph (a)(4). 5. Adding *Example 4* in newly designated paragraph (a)(5). The additions read as follows: § 1.1248-1 Treatment of gain from certain sales or exchanges of stock in certain foreign corporations.
(a)*In general.*
(1)* * * See § 1.1248-8 for additional rules regarding the attribution of earnings and profits to the stock of a foreign corporation following certain nonrecognition transactions. * * *
(4)For purposes of paragraph (a)(1) of this section, stock of a corporation that is owned by a foreign partnership shall be considered as owned proportionately by its partners. Consequently, if a foreign partnership sells or exchanges stock of a corporation, the partners in such foreign partnership shall be treated as selling or exchanging their proportionate share of the stock of such corporation. Stock considered to be owned by a partner by reason of the application of the first sentence of this paragraph (a)(4) shall, for purposes of applying such sentence, be treated as actually owned by such partner.
(5)* * * Example 4.
(i)*Facts.* X, a domestic corporation, and Y, a foreign corporation that is not a controlled foreign corporation, are partners in foreign partnership Z. X has a 60% interest in Z, and Y has a 40% interest in Z. All parties are calendar year taxpayers. On January 1, year 1, Z forms foreign corporation H, a controlled foreign corporation that conducts a business in Country C. On December 31, year 2, Z sells all of the H stock for $600 when Z's adjusted basis in the stock is $100. Therefore, Z recognizes a gain of $500 on the sale, of which $300 is allocable to X as a 60% partner. At the time of the sale, H had $300 of earnings and profits, $180 of which (i.e., 60% of $300) is attributable to X's 60% share of the H stock.
(ii)*Analysis.* Pursuant to section 1248(a) and paragraphs (a)(1) and
(4)of this section, X and Y are treated as selling 60% and 40%, respectively, of the H stock. X includes in its gross income as a dividend $180 of the gain recognized on the sale. Because Y is a foreign corporation that is not a CFC, neither section 1248 nor section 964 applies to the sale of Y's 40% share of the H stock.
(iii)*Alternative facts.* If, instead, X owned its 60% interest in Z through another foreign partnership, the result would be the same. §§ 1.1248-2, 1.1248-3, 1.1248-7 [Amended] **Par. 5.** In §§ 1.1248-2, 1.1248-3, and 1.1248-7, for each entry in the “Section” column, remove the language in the “Remove” column and add the language in the “Add” column in its place. Section Remove Add § 1.1248-2(a)(1) (or was considered to be held by reason of the application of section 1223) (or was considered to be held by reason of the application of section 1223, taking into account § 1.1248-8). § 1.1248-2(a)(2)(ii) (or is considered to have held by reason of the application of section 1223) (or is considered to have held by reason of the application of section 1223, taking into account § 1.1248-8). § 1.1248-2(a)(3) (or is considered to have held by reason of the application of section 1223) (or is considered to have held by reason of the application of section 1223, taking into account § 1.1248-8). § 1.1248-2(c)(4) (or is considered to have held by reason of the application of section 1223) (or is considered to have held by reason of the application of section 1223, taking into account § 1.1248-8). § 1.1248-2(e)(1), introductory text (or is considered to have held by reason of the application of section 1223) (or is considered to have held by reason of the application of section 1223, taking into account § 1.1248-8). § 1.1248-2(e)(2) (or is considered as held by reason of the application of section 1223) (or is considered as held by reason of the application of section 1223, taking into account § 1.1248-8). § 1.1248-2(e)(3)(i) (or is considered to have held by reason of the application of section 1223) (or is considered to have held by reason of the application of section 1223, taking into account § 1.1248-8). § 1.1248-3(a)(1) (or was considered to be held by reason of the application of section 1223) (or was considered to be held by reason of the application of section 1223, taking into account § 1.1248-8). § 1.1248-3(c)(1)(ii) (or was considered to have held by reason of the application of section 1223) (or was considered to have held by reason of the application of section 1223, taking into account § 1.1248-8). § 1.1248-3(e)(2)(i) (during the period such share, or block, was considered to be held by such person by reason of the application of section 1223) (during the period such share, or block, was considered to be held by such person by reason of the application of section 1223, taking into account § 1.1248-8). § 1.1248-3(e)(3) (during the period such share, or block, was considered to be held by such person by reason of the application of section 1223) (during the period such share, or block, was considered to be held by such person by reason of the application of section 1223, taking into account § 1.1248-8). § 1.1248-3(e)(5) (or another person who actually owned the stock during such taxable year and whose holding of the stock is attributed by reason of the application of section 1223 to the person who sold or exchanged the stock) (or another person who actually owned the stock during such taxable year and whose holding of the stock is attributed by reason of the application of section 1223, taking into account § 1.1248-8, to the person who sold or exchanged the stock). § 1.1248-3(e)(6), in both locations by reason of the application of section 1223 to such person by reason of the application of section 1223 to such person, taking into account § 1.1248-8. § 1.1248-3(f)(2)(ii) (or was considered to have held by reason of the application of section 1223) (or was considered to have held by reason of the application of section 1223, taking into account § 1.1248-8). § 1.1248-3(f)(5)(ii) (during the period such stock was considered to be held by such person by reason of the application of section 1223) (during the period such stock was considered to be held by such person by reason of the application of section 1223, taking into account § 1.1248-8). § 1.1248-3(f)(5)(iv) (during the period such share (or block) was considered to be held by such person by reason of the application of section 1223) (during the period such share (or block) was considered to be held by such person by reason of the application of section 1223, taking into account § 1.1248-8). § 1.1248-7(b)(3)(i) (or was considered to have held by reason of the application of section 1223) (or was considered to have held by reason of the application of section 1223, taking into account § 1.1248-8). § 1.1248-7(b)(3)(iii) (or is considered to have held by reason of the application of section 1223) (or is considered to have held by reason of the application of section 1223, taking into account § 1.1248-8). § 1.1248-7(b)(4) (or was considered to have held by reason of the application of section 1223) (or was considered to have held by reason of the application of section 1223, taking into account § 1.1248-8). **Par. 6.** Section 1.1248-8 is added to read as follows: § 1.1248-8 Earnings and profits attributable to stock following certain non-recognition transactions.
(a)*Scope* . This section sets forth rules for the attribution of earnings and profits for purposes of section 1248 and § 1.1248-1(a)(1) and to supplement the rules in §§ 1.1248-2 and 1.1248-3 with respect to—
(1)*Stock that an exchanging shareholder receives, or an acquiring corporation receives, in restructuring transactions* . Except as otherwise provided in this paragraph (a), stock of a foreign corporation that an exchanging shareholder receives, or an acquiring corporation receives, pursuant to a restructuring transaction (as defined in paragraph (b)(1)(vii) of this section) in which the holding period of such stock is determined by application of section 1223(1) or 1223(2), whichever is appropriate. This section shall not apply to an exchange otherwise described in this paragraph (a)(1) if, as a result of the exchange, the exchanging shareholder is required to include in income as a deemed dividend the section 1248 amount pursuant to § 1.367(b)-4(b). See paragraphs (b)(2) and
(3)of this section;
(2)*Nonexchanging shareholders* . Stock of a foreign corporation that participates in a restructuring transaction that is held by a non-exchanging shareholder (as defined in paragraph (b)(1)(vi) of this section) in the restructuring transaction. See paragraph (b)(4) of this section;
(3)*Application of section 381* . Stock of a foreign corporation that receives assets in a transfer to which section 361(a) applies in connection with a reorganization described in section 368(a)(1)(A), (C), (D), (F), or (G), or in a distribution to which section 332 applies, and to which section 381(c)(2)(A) and § 1.381(c)(2)-1(a) apply. See paragraph (b)(6) of this section; or
(4)*Section 332 liquidations* . Stock of a foreign corporation that receives the assets and liabilities of a foreign corporation in a complete liquidation described in section 332 if the foreign distributee is a foreign corporate shareholder (as defined in paragraph (b)(1)(v) of this section) of the liquidating corporation. See paragraph
(c)of this section.
(b)*Earnings and profits attributable to stock following a restructuring transaction* —(1) *Definitions* . The following definitions apply for purposes of this section—
(i)*Acquired corporation* is a corporation whose stock or assets are acquired in exchange for stock in (or stock in and other property of) either the acquiring corporation or a foreign corporation that controls, within the meaning of section 368(c), the acquiring corporation in a restructuring transaction.
(ii)*Acquiring corporation* is a corporation that acquires the stock or assets of an acquired corporation in a restructuring transaction.
(iii)*Controlled foreign corporation* is a corporation described in section 957.
(iv)*Exchanging shareholder* is a person that exchanges—
(A)In a restructuring transaction qualifying as a nonrecognition transaction within the meaning of section 7701(a)(45) and described in section 354, 356, or 361(a), stock in an acquired corporation for stock in either a foreign acquiring corporation or a foreign corporation that is in control, within the meaning of section 368(c), of an acquiring corporation (whether domestic or foreign); or
(B)In a restructuring transaction qualifying as a nonrecognition transaction within the meaning of section 7701(a)(45) and described in section 351, property (including stock) for stock in a foreign acquiring corporation.
(v)*Foreign corporate shareholder* is a foreign corporation that—
(A)Owns stock of another foreign corporation; and
(B)Has a section 1248 shareholder that is also a section 1248 shareholder of the other foreign corporation.
(vi)*Non-exchanging shareholder* is, at the time the acquiring corporation participates in a restructuring transaction, either a section 1248 shareholder or a foreign corporate shareholder of the acquiring corporation that is not an exchanging shareholder with respect to that corporation.
(vii)*Restructuring transaction* is a transaction qualifying as a nonrecognition transaction within the meaning of section 7701(a)(45) and described in section 351, 354, 356, or 361.
(viii)*Section 1248 shareholder* is any United States person that satisfies the ownership requirements of section 1248(a)(2) and § 1.1248-1(a)(2) with respect to a foreign corporation.
(2)*Earnings and profits attributable to stock that an exchanging shareholder receives in a restructuring transaction* . Where, in a restructuring transaction, an exchanging shareholder receives stock in a foreign corporation, the holding period of which is determined under section 1223(1), and the exchanging shareholder is either a section 1248 shareholder or a foreign corporate shareholder with respect to that foreign corporation immediately after the restructuring transaction, the earnings and profits attributable to the stock the exchanging shareholder receives shall be determined pursuant to the rules in paragraphs (b)(2)(i),
(ii)and
(iii)of this section.
(i)*Exchanging shareholder exchanges property that is not stock of a foreign acquired corporation with respect to which the exchanging shareholder is a section 1248 shareholder or a foreign corporate shareholder* . Where the exchanging shareholder exchanges in a restructuring transaction property that is not stock of a foreign acquired corporation with respect to which the exchanging shareholder is a section 1248 shareholder or a foreign corporate shareholder immediately before such transaction, the earnings and profits attributable to the stock that the exchanging shareholder receives in the restructuring transaction shall be determined in accordance with § 1.1248-2 or § 1.1248-3, whichever is applicable, without regard to any portion of the section 1223(1) holding period in that stock that is prior to the restructuring transaction. See paragraph (b)(7), Example 1 of this section.
(ii)*Exchanging shareholder exchanges stock of a foreign corporation with respect to which the exchanging shareholder is either a section 1248 shareholder or a foreign corporate shareholder* . Except as provided in paragraph (b)(2)(iii) of this section, where the exchanging shareholder exchanges in a restructuring transaction stock of a foreign acquired corporation with respect to which the exchanging shareholder is either a section 1248 shareholder or a foreign corporate shareholder immediately before such restructuring transaction, the earnings and profits attributable to the stock that the exchanging shareholder receives in the restructuring transaction shall be the sum of the earnings and profits attributable to—
(A)The stock of the foreign acquired corporation exchanged (determined in accordance with § 1.1248-2 or § 1.1248-3, whichever is applicable, and this section, if applicable) that was accumulated before the restructuring transaction; and
(B)The stock of the foreign corporation that the exchanging shareholder receives in the restructuring transaction (determined in accordance with § 1.1248-2 or § 1.1248-3, whichever is applicable, and this section, if applicable), without regard to any portion of the section 1223(1) holding period in that stock that is prior to the restructuring transaction. See paragraph (b)(7), *Example 2* , *Example 4* , and *Example 6* of this section.
(iii)*Exchanging shareholder receives stock in a foreign corporation that controls a domestic acquiring corporation* . Where the acquiring corporation is a domestic corporation and the exchanging shareholder receives in a restructuring transaction stock in a foreign corporation that controls (within the meaning of section 368(c)) the domestic acquiring corporation, the earnings and profits attributable to the stock that the exchanging shareholder receives in the restructuring transaction shall consist solely of the amount of earnings and profits attributable to such stock (determined in accordance with § 1.1248-2 or § 1.1248-3, whichever is applicable, and this section, if applicable) without regard to any portion of the section 1223(1) holding period in that stock that is prior to the restructuring transaction. See paragraph (b)(7), *Example 5* of this section.
(3)*Earnings and profits attributable to stock in a foreign corporation certain acquiring corporations receive in a restructuring transaction* . Where an acquiring corporation receives, in a restructuring transaction, stock in a foreign acquired corporation, the holding period of which is determined under section 1223(2), and the acquiring corporation is either a section 1248 shareholder or a foreign corporate shareholder with respect to that foreign acquired corporation immediately after the restructuring transaction, the earnings and profits attributable to the foreign acquired corporation stock that the acquiring corporation receives shall be determined pursuant to the rules in paragraphs (b)(3)(i) and
(ii)of this section.
(i)*Stock of a foreign corporation with respect to which the exchanging shareholder is neither a section 1248 shareholder nor a foreign corporate shareholder* . The earnings and profits attributable to the stock of the foreign acquired corporation that the acquiring corporation receives in a restructuring transaction where the exchanging shareholder is neither a section 1248 shareholder nor a foreign corporate shareholder with respect to that foreign acquired corporation immediately before the restructuring transaction shall be determined in accordance with § 1.1248-2 or § 1.1248-3, whichever is applicable, without regard to any portion of the section 1223(2) holding period in that stock that is prior to the restructuring transaction.
(ii)*Stock of a foreign corporation with respect to which the exchanging shareholder is either a section 1248 shareholder or a foreign corporate shareholder.* The earnings and profits attributable to the stock of a foreign acquired corporation that the acquiring corporation receives in the restructuring transaction where the exchanging shareholder is either a section 1248 shareholder or a foreign corporate shareholder with respect to that foreign corporation immediately before the restructuring transaction shall be determined in accordance with § 1.1248-2 or § 1.1248-3, whichever is applicable, with regard to the portion of the section 1223(2) holding period of the stock that the exchanging shareholder took into account for purposes of attributing earnings and profits to that stock (determined in accordance with this section). See paragraph (b)(7), *Example 3* , *Example 5* , and *Example 7* of this section.
(4)*Earnings and profits attributable to stock held by a non-exchanging shareholder in a foreign acquiring corporation* .
(i)Except to the extent paragraph (b)(4)(ii) of this section applies, see § 1.1248-2 or § 1.1248-3 (whichever is applicable) and, as applicable, paragraph (b)(6) of this section for the determination of the earnings and profits attributable to the stock held by a non-exchanging shareholder in a foreign acquiring corporation. See also paragraph (b)(7), *Example 2* and *Example 4* of this section.
(ii)Where a non-exchanging shareholder holds stock in a foreign corporation that is also an exchanging shareholder and a foreign acquiring corporation in the same restructuring transaction—
(A)The earnings and profits attributable to such stock shall be the sum of the earnings and profits attributable to the stock of such foreign corporation immediately before the restructuring transaction (including amounts attributed under section 1248(c)(2)) and the earnings and profits attributable to the stock of the foreign acquiring corporation accumulated after the restructuring transaction (including amounts attributed under section 1248(c)(2)); and
(B)Paragraph (b)(6) of this section applies. See paragraph (b)(7), *Example 8* of this section.
(iii)Where the acquiring corporation is a foreign corporate shareholder with respect to stock of a foreign acquired corporation, paragraph (b)(3) of this section shall not apply for purposes of determining the earnings and profits attributable to stock in the foreign acquiring corporation owned by a non-exchanging shareholder thereof (see section 1248(c)(2)). See paragraph (b)(7), *Example 6* of this section.
(5)*Reduction in earnings and profits attributable to stock to prevent multiple inclusions with respect to the same earnings and profits.* To the extent consistent with the principles of section 1248, adjustments to earnings and profits attributable to stock shall be made such that section 1223(1) and
(2)and this section are applied in a manner that results in earnings and profits being taken into account only once. Thus, for example, when a controlled foreign corporation sells or exchanges all or part of the stock of another foreign corporation to which earnings and profits are attributable pursuant to this paragraph
(b)or paragraph
(c)of this section, proportionate reductions shall be made to the earnings and profits attributed to the stock of the selling foreign corporate shareholder owned by a section 1248 shareholder. See paragraph (b)(7), *Example 7* of this section.
(6)*Special rule regarding section 381.* Solely for purposes of determining the earnings and profits (or deficit in earnings and profits) attributable to stock pursuant to this paragraph (b), the earnings and profits of a corporation shall not include earnings and profits that are treated as received or incurred under section 381(c)(2)(A) and § 1.381(c)(2)-1(a). See paragraph (b)(7), *Example 4* of this section.
(7)*Examples.* The application of this paragraph
(b)is illustrated by the following examples. Unless otherwise indicated, in the following examples assume that—
(i)There is no immediate gain recognition pursuant to section 367(a)(1) and the regulations under that section (either through operation of the rules or because the appropriate parties have entered into a gain recognition agreement under §§ 1.367(a)-3(b) and 1.367(a)-(8);
(ii)There is no income inclusion required pursuant to section 367(b) and the regulations under that section, and all reporting requirements in those regulations are complied with;
(iii)References to earnings and profits are to earnings and profits that would be includible in income as a dividend under section 1248 and the regulations under that section if stock to which the earnings and profits are attributable were sold or exchanged by its shareholder;
(iv)Each corporation has only a single class of stock outstanding and uses the calendar year as its taxable year; and
(v)Each transaction is unrelated to all other transactions. Example 1. *A section 351 exchange of property other than stock in a foreign corporation with respect to which the exchanging shareholder is either a section 1248 shareholder or a foreign corporate shareholder.*
(i)*Facts.* DC1, a domestic corporation, has owned all the stock of CFC, a foreign corporation, since CFC's formation on January 1, year 3. On December 31, year 5, DC2, a domestic corporation unrelated to DC1, contributes property it has held since January 1, year 1, to CFC in exchange for voting stock of CFC in a restructuring transaction that is an exchange under section 351. The property that DC2 contributes is not stock in a foreign corporation with respect to which DC2 was either a section 1248 shareholder or a foreign corporate shareholder. DC2 receives 80% of the voting stock of CFC in the restructuring transaction and its holding period in that CFC stock, determined pursuant to section 1223(1), began on January 1, year 1. CFC has $100 of accumulated earnings and profits on December 31, year 5. On December 31, year 7, when the accumulated earnings and profits of CFC are $200, DC2, a section 1248 shareholder with respect to CFC, sells its CFC stock.
(ii)*Analysis.* Under paragraph (b)(2)(i) of this section, the earnings and profits attributable to the CFC stock sold by DC2 are $80. This amount consists of none of the $100 of earnings and profits accumulated by CFC before the restructuring transaction, and 80% of the $100 of earnings and profits of CFC accumulated after the restructuring transaction. Example 2. *A section 351 exchange of controlled foreign corporation stock by a United States person for stock in a controlled foreign corporation in a restructuring transaction.*
(i)*Facts.* The facts are the same as in *Example 1* except as follows. The property that DC2 contributes is 100% of the stock in CFC2, a foreign corporation. DC2 has owned all the stock of CFC2 since CFC2's formation on January 1, year 2, and CFC2 has $200 of earnings and profits as of December 31, year 5. CFC2 does not accumulate any additional earnings and profits from December 31, year 5, to December 31, year 7. On December 31, year 7, when the accumulated earnings and profits of CFC are $200, DC2, a section 1248 shareholder with respect to CFC, sells its CFC stock. Also on that date, DC1 sells its CFC stock.
(ii)*Analysis.*
(A)*DC2 sale.* Pursuant to paragraph (b)(2)(ii) of this section, the earnings and profits attributable to the CFC stock sold by DC2 are $280. This amount consists of all of the $200 of earnings and profits of CFC2 accumulated before the restructuring transaction (see also section 1248(c)(2)), none of the $100 of earnings and profits accumulated by CFC before the restructuring transaction, and 80% of the $100 of earnings and profits of CFC accumulated after the restructuring transaction.
(B)*DC1 sale.* Pursuant to paragraph (b)(4) of this section, the earnings and profits attributable to the CFC stock sold by DC1, a non-exchanging shareholder in the restructuring transaction, are $120. This amount consists of all of the $100 of earnings and profits of CFC accumulated before the restructuring transaction, none of the $200 of earnings and profits of CFC2 accumulated before the restructuring transaction, and 20% of the $100 of earnings and profits of CFC accumulated after the restructuring transaction. Example 3. *A section 351 exchange of controlled foreign corporation stock by a United States person for stock in a domestic corporation in a restructuring transaction.*
(i)*Facts.* DC1, a domestic corporation, has owned all of the stock of CFC, a foreign corporation, since CFC's formation on January 1, year 1. DC1 has also owned all the stock of DC2, a domestic corporation, since DC2's formation on January 1, year 1. On December 31, year 2, DC1 contributes the stock of CFC to DC2 in exchange for stock in DC2 in a restructuring transaction that is an exchange described in section 351. On December 31, year 2, CFC has $100 of accumulated earnings and profits. DC2 has a basis in the CFC stock determined under section 362, and is considered to have held the CFC stock since January 1, year 1, pursuant to section 1223(2). On December 31, year 4, when the accumulated earnings and profits of CFC are still $100, DC2 sells its CFC stock.
(ii)*Analysis.* Under paragraph (b)(3)(ii) of this section, $100 of accumulated earnings and profits of CFC is attributable to the stock of CFC sold by DC2, even though DC2 did not hold the stock of CFC during the time CFC accumulated the earnings and profits. Example 4. *Acquisition of a controlled foreign corporation by a controlled foreign corporation in a reorganization described in section 368(a)(1)(C) (or section 368(a)(1)(B)).*
(i)*Facts.* DC1, a domestic corporation, has owned all the stock of CFC1, a foreign corporation, since its formation on January 1, year 1. DC2, a domestic corporation unrelated to DC1, has owned all of the stock of CFC2, a foreign corporation, since its formation on January 1, year 2. On December 31, year 3, pursuant to a restructuring transaction that is a reorganization described in section 368(a)(1)(C), CFC1 transfers all of its assets to CFC2 in exchange for 25% of the voting stock of CFC2. CFC1 distributes the CFC2 stock to DC1 and the CFC1 stock is cancelled. DC1's holding period in the CFC2 stock, determined under section 1223(1), begins on January 1, year 1. On December 31, year 3, CFC1 has $100 of accumulated earnings and profits and CFC2 has $200 of accumulated earnings and profits. CFC2 succeeds to the $100 of CFC1 accumulated earnings and profits in the reorganization under section 381. From January 1, year 4 to December 31, year 5, CFC2 incurred a deficit in earnings and profits in the amount of ($200). On December 31, year 5, both DC1 and DC2 sell their stock in CFC2.
(ii)*Analysis.*
(A)*DC1.* Pursuant to paragraph (b)(2)(ii) of this section, $50 of earnings and profits is attributable to the CFC2 stock sold by DC1. This amount consists of $100 of CFC1's earnings and profits accumulated before the restructuring transaction, reduced by 25% of CFC2's ($200) post-restructuring transaction deficit in earnings and profits. None of the $200 of CFC2's earnings and profits accumulated by CFC2 prior to the reorganization is attributed to the CFC2 stock sold by DC1. Also, none of the earnings and profits CFC2 succeeded to under section 381 is attributed to the CFC2 stock sold by DC1, pursuant to paragraph (b)(6) of this section.
(B)*DC2.* Pursuant to paragraph (b)(4) of this section, there is $50 of accumulated earnings and profits attributable to the CFC2 stock sold by DC2. This amount consists of all of the $200 of CFC2's earnings and profits accumulated by CFC2 prior to the reorganization, reduced by 75% of CFC2's deficit in earnings and profits in the amount of ($200) incurred after the restructuring transaction. None of the $100 of CFC1 accumulated earnings and profits succeeded to under section 381 is attributable to the CFC2 stock sold by DC2, pursuant to paragraph (b)(6) of this section.
(C)*Section 368(a)(1)(B) reorganization.* If, instead of DC1 acquiring its 25% interest in CFC2 pursuant to a reorganization described in section 368(a)(1)(C), DC1 had transferred the stock of CFC1 to CFC2 in exchange for 25% of the voting stock of CFC2 in a reorganization described in section 368(a)(1)(B), the results would be the same as described in paragraphs
(A)and
(B)of this *Example 4.* Example 5. *Acquisition of the stock of a foreign corporation that controls a domestic acquiring corporation in a triangular reorganization described in section 368(a)(1)(C).*
(i)*Facts.* DC1, a domestic corporation, has owned all the stock of CFC1, a foreign corporation, since its formation on January 1, year 1. CFC1 has owned all the stock of CFC2, a foreign corporation, since its formation on January 1, year 1. FC, a foreign corporation that is not a controlled foreign corporation, has owned all of the stock of DC2, a domestic corporation, since its formation on January 1, year 2. On December 31, year 3, pursuant to a restructuring transaction that was a triangular reorganization described in section 368(a)(1)(C), CFC1 transfers all of its assets, including the CFC2 stock, to DC2 in exchange for 60% of the voting stock of FC. CFC1 transferred the voting stock of FC to DC1 and the CFC1 stock was cancelled. Pursuant to section 1223(1), DC1 is considered to have held the stock of FC since January 1, year 1. Under section 1223(2), DC2 is considered to have held the stock of CFC2 since January 1, year 1. On December 31, year 3, CFC1 has $100 of earnings and profits, CFC2 has $300 of earnings and profits, and FC has $200 of earnings and profits. DC1 includes the $100 all earnings and profits amount attributable to its CFC1 stock in income as a deemed dividend under § 1.367(b)-3 upon the exchange of CFC1 stock for FC stock. Pursuant to the lower tier earning exclusion of § 1.367(b)-2(d)(3)(ii), that amount does not include the $300 of earnings and profits of CFC2. From January 1, year 4, until December 31, year 5, FC (now a controlled foreign corporation) accumulates an additional $50 of earnings and profits. From January 1, year 4 until December 31, year 5, CFC2 accumulates an additional $100 of earnings and profits. On December 31, year 5, DC1 sells its stock in FC and DC2 sells its stock in CFC2.
(ii)*Analysis.*
(A)*DC1.* Pursuant to paragraph (b)(2)(iii) of this section, there is $30 of earnings and profits attributable to the stock of FC sold by DC1. This amount consists of 60% of the $50 of earnings and profits accumulated by FC after the restructuring transaction, and none of the earnings and profits accumulated by CFC1, CFC2, or FC before the restructuring transaction.
(B)*DC2.* Pursuant to paragraph (b)(3)(ii) of this section, there is $400 of earnings and profits attributable to the stock of CFC2 sold by DC2. This amount consists of all of the earnings and profits accumulated by CFC2 during DC2's section 1223(2) holding period. Example 6. *Acquisition of the stock of a foreign corporation that controls a foreign acquiring corporation in a reorganization described in section 368(a)(1)(C).*
(i)*Facts.* DC1, a domestic corporation, has owned all the stock of CFC1, a foreign corporation, since its formation on January 1, year 1. CFC1 has owned all the stock of CFC2, a foreign corporation, since its formation on January 1, year 1. FC, a foreign corporation that is not a controlled foreign corporation, has owned all of the stock of FC2, a foreign corporation, since its formation on January 1, year 2. On December 31, year 3, pursuant to a restructuring transaction that was a triangular reorganization described in section 368(a)(1)(C), CFC1 transfers all of its assets, including the CFC2 stock, to FC2 in exchange for 60% of the voting stock of FC. CFC1 transferred the voting stock of FC to DC1 and the CFC1 stock was cancelled. Pursuant to section 1223(1), DC1 is considered to have held the stock of FC since January 1, year 1. Under section 1223(2), FC2 is considered to have held the stock of CFC2 since January 1, year 1. On December 31, year 3, CFC1 has $100 of earnings and profits, CFC2 has $300 of earnings and profits, FC has $200 of earnings and profits, and FC2 has no earnings and profits. From January 1, year 4, until December 31, year 5, FC (now a controlled foreign corporation) accumulates an additional $50 of earnings and profits. From January 1, year 4 until December 31, year 5, CFC2 accumulates an additional $100 of earnings and profits. FC2, a controlled foreign corporation after the restructuring transaction, accumulates $100 of earnings and profits from January 1, year 4, until December 31, year 5. On December 31, year 5, DC1 sells its stock in FC.
(ii)*Analysis.* Pursuant to paragraphs (b)(2)(ii) and (b)(4)(iii) of this section, there is $550 of earnings and profits attributable to the stock of FC sold by DC1. This amount consists of all $400 of the CFC1 and CFC2 earnings and profits accumulated before the restructuring transaction (see also section 1248(c)(2)), and 60% of the $250 of the earnings and profits accumulated by FC, FC2, and CFC2 after the restructuring transaction. Example 7. *Acquisition of controlled foreign corporation stock by a controlled foreign corporation in a reorganization described in section 368(a)(1)(B), followed by a sale of the acquired stock by the acquiring controlled foreign corporation.*
(i)*Facts.* DC1, a domestic corporation, has owned all of the outstanding stock of CFC1, a foreign corporation, since its formation on January 1, year 1. CFC1 has owned all of the outstanding stock of CFC3, a foreign corporation, since its formation on January 1, year 1. DC2, a domestic corporation unrelated to DC1, has owned all of the outstanding stock of CFC2, a foreign corporation, since its formation on January 1, year 2. On December 31, year 3, pursuant to a restructuring transaction that is a reorganization described in section 368(a)(1)(B), CFC1 transfers all of the stock of CFC3 to CFC2 in exchange for 40% of CFC2's stock. On December 31, year 3, CFC2 and CFC3 have, respectively, $40 and $20 of earnings and profits. On December 31, year 5, when the accumulated earnings and profits of CFC3 are $50 ($20 of earnings and profits as of December 31, year 3, plus $30 of earnings and profits generated from January 1, year 4, through December 31, year 5), CFC2 sells the stock of CFC3 in a transaction to which section 964(e) applies.
(ii)*Analysis.*
(A)*CFC2.* Pursuant to paragraph (b)(3)(ii) of this section, there is $50 of earnings and profits attributable to the CFC3 stock sold by CFC2. This amount consists of the accumulated earnings and profits attributable to CFC2's entire section 1223(2) holding period in the CFC3 stock.
(B)*CFC1, DC2, and DC1.* Under paragraph (b)(5) of this section, the earnings and profits attributable to the CFC2 stock held by CFC1 and DC2, and the earnings and profits attributable to the CFC1 stock held by DC1, will be reduced (regardless of whether CFC2 recognizes gain on its sale of CFC3 stock). ( *1* ) *CFC1.* The earnings and profits attributable to the CFC2 stock held by CFC1 will be reduced by $32, or the amount of earnings and profits as of December 31, year 5, that would have been attributable to the CFC2 stock held by CFC1 pursuant to paragraph (b)(2)(ii) of this section. This amount consists of all of the $20 of earnings and profits accumulated by CFC3 before the restructuring transaction and 40% of the $30 of earnings and profits accumulated by CFC3 after the restructuring transaction (.40 × $30 = $12). ( *2* ) *DC1.* The earnings and profits attributable to the CFC1 stock held by DC1 will also be reduced by $32, or the amount of earnings and profits that would have been attributable to the CFC1 stock held by DC1 as of December 31, year 5. ( *3* ) *DC2.* The earnings and profits attributable to the CFC2 stock held by DC2 will be reduced by $18, or the amount of earnings and profits that would have been attributable to the CFC2 stock held by DC2 as of December 31, year 5, under paragraph (b)(4) of this section. This amount consists of 60% of the $30 (.60 × $30 = $18) of earnings and profits accumulated by CFC3 after the restructuring transaction.
(C)*Partial sale by CFC2.* If, instead of selling 100% of the CFC3 stock, on December 31, year 5, CFC2 sells only 50% of its CFC3 stock, paragraph (b)(5) of this section requires CFC1 to reduce the earnings and profits of CFC3 attributable to its CFC2 stock to $16. Similarly, DC1 would be required to reduce the earnings and profits of CFC3 attributable to its CFC1 stock by $16. Paragraph (b)(5) of this section also requires DC2 to reduce the CFC3 earnings and profits attributable to its CFC2 stock by $9. These reductions occur without regard to whether CFC2 recognizes gain on its sale of CFC3 stock. Example 8. *Acquisition of the assets of a lower-tier controlled foreign corporation by an upper-tier controlled foreign corporation in a restructuring transaction described in section 368(a)(1)(C).*
(i)*Facts.* DC, a domestic corporation, has owned all the stock of CFC1, a controlled foreign corporation, since its formation on January 1, year 1. CFC1 is a holding company that has owned 79% of the stock of CFC2, a controlled foreign corporation, since its formation on January 1, year 1. The other 21% of CFC2 stock is owned by X, an unrelated party. On December 31, year 1, CFC2 has $200 of earnings and profits. On December 31, year 1, CFC1 has no accumulated earnings and profits. On December 31, year 1, pursuant to a restructuring transaction described in section 368(a)(1)(C), CFC2 transfers all its properties to CFC1. In exchange, CFC1 assumes the liabilities of CFC2 and transfers to CFC2 voting stock representing 21% of the stock of CFC1. CFC2 distributes the voting stock to X and liquidates. The liabilities assumed do not exceed 20% of the value of the properties of CFC2. From January 1, year 2, to December 31, year 3, CFC1 accumulates $100 of earnings and profits. On December 31, year 3, DC sells its CFC1 stock.
(ii)*Analysis.* Pursuant to paragraphs (b)(4)(ii) of this section, there is $237 of earnings and profits attributable to DC's CFC1 stock. This amount consists of 79% of CFC2's $200 of earnings and profits accumulated before the restructuring transaction (see section 1248(c)(2)), and 79% of CFC1's $100 of earnings and profits accumulated after the restructuring transaction. Pursuant to paragraph (b)(6) of this section, none of CFC2's $200 of earnings and profits to which CFC1 succeeded under section 381 would be attributable to DC's CFC1 stock.
(c)*Earnings and profits attributable to stock of a foreign distributee corporation that is a foreign corporate shareholder with respect to a foreign liquidating corporation—*
(1)*General rule.* If a foreign corporation (liquidating corporation) makes a distribution of property in complete liquidation under section 332 to a foreign corporation (distributee), and immediately before the liquidation the distributee was a foreign corporate shareholder with respect to the liquidating foreign corporation, the amount of earnings and profits attributable to the distributee stock, upon its subsequent sale or exchange will be determined under this paragraph (c)(1). The earnings and profits attributable will be the sum of the earnings and profits attributable to the stock of the distributee immediately before the liquidation (including amounts attributed under section 1248(c)(2)) and the earnings and profits attributable to the stock of the distributee accumulated after the liquidation (including amounts attributed under section 1248(c)(2)).
(2)*Special rule regarding section 381.* Solely for purposes of determining the earnings and profits (or deficit in earnings and profits) attributable to stock under this paragraph (c), the attributed earnings and profits of a corporation shall not include earnings and profits that are treated as received or incurred pursuant to section 381(c)(2)(A) and § 1.381(c)(2)-1(a).
(3)*Example.*
(i)*Facts.* DC, a domestic corporation, has owned all of the stock of CFC1, a foreign corporation, since its formation on January 1, year 1. CFC1 is an operating company that has owned all of the stock of CFC2, a foreign corporation, since its formation on January 1, year 1. On December 31, year 2, CFC1 has $200 of accumulated earnings and profits and CFC2 has a ($200) deficit in earnings and profits. On December 31, year 2, CFC2 distributes all of its assets and liabilities to CFC1 in a liquidation to which section 332 applies. From January 1, year 3, until December 31, year 4, CFC1 accumulates no additional earnings and profits. On December 31, year 4, DC sells its stock in CFC1.
(ii)*Analysis.* Pursuant to paragraph (c)(1) of this section, there are no earnings and profits attributable to DC's CFC1 stock. This amount consists of the sum of the earnings and profits attributable to the CFC1 stock immediately before the liquidation (100% of the $200 accumulated earnings and profits of CFC1 and 100% of CFC2's ($200) deficit in earnings and profits) and the amount of earnings and profits accumulated after the section 332 liquidation (see also section 1248(c)(2)).
(d)*Effective date.* This section applies to income inclusions that occur on or after the date these regulations are published as final regulations in the **Federal Register** . Mark E. Matthews, Deputy Commissioner for Services and Enforcement. [FR Doc. E6-8551 Filed 6-1-06; 8:45 am] BILLING CODE 4830-01-P DEPARTMENT OF THE INTERIOR Office of Surface Mining Reclamation and Enforcement 30 CFR Part 948 [WV-109-FOR] West Virginia Regulatory Program AGENCY: Office of Surface Mining Reclamation and Enforcement (OSM), Interior. ACTION: Proposed rule; public comment period and opportunity for public hearing on proposed amendment. SUMMARY: We are announcing receipt of a proposed amendment to the West Virginia regulatory program (the West Virginia program) under the Surface Mining Control and Reclamation Act of 1977 (SMCRA or the Act). West Virginia proposes to revise the Code of West Virginia (W. Va. Code) as amended by Senate Bill 461 concerning water rights and replacement, and to revise the Code of State Regulations
(CSR)as amended by Committee Substitute for House Bill 4135 by adding a postmining land use of Bio-oil Cropland, and the criteria for approving bio-oil cropland postmining land use. DATES: We will accept written comments on this amendment until 4 p.m. (local time), on July 3, 2006. If requested, we will hold a public hearing on the amendment on June 27, 2006. We will accept requests to speak at a hearing until 4 p.m. (local time), on June 19, 2006. ADDRESSES: You may submit comments, identified by WV-109-FOR, by any of the following methods: • E-mail: *chfo@osmre.gov* . Include WV-109-FOR in the subject line of the message; • Mail/Hand Delivery: Mr. Roger W. Calhoun, Director, Charleston Field Office, Office of Surface Mining Reclamation and Enforcement, 1027 Virginia Street, East, Charleston, West Virginia 25301; or • Federal eRulemaking Portal: *http://www.regulations.gov.* Follow the instructions for submitting comments. *Instructions:* All submissions received must include the agency docket number for this rulemaking. For detailed instructions on submitting comments and additional information on the rulemaking process, see the “Public Comment Procedures” heading in the SUPPLEMENTARY INFORMATION section of this document. You may also request to speak at a public hearing by any of the methods listed above or by contacting the individual listed under FOR FURTHER INFORMATION CONTACT . *Docket:* You may review copies of the West Virginia program, this amendment, a listing of any scheduled public hearings, and all written comments received in response to this document at the addresses listed below during normal business hours, Monday through Friday, excluding holidays. You may also receive one free copy of this amendment by contacting OSM's Charleston Field Office listed below. Mr. Roger W. Calhoun, Director, Charleston Field Office, Office of Surface Mining Reclamation and Enforcement, 1027 Virginia Street, East, Charleston, West Virginia 25301, Telephone:
(304)347-7158. E-mail: *chfo@osmre.gov.* West Virginia Department of Environmental Protection, 601 57th Street, SE., Charleston, WV 25304, Telephone:
(304)926-0490. In addition, you may review a copy of the amendment during regular business hours at the following locations: Office of Surface Mining Reclamation and Enforcement, Morgantown Area Office, 604 Cheat Road, Suite 150, Morgantown, West Virginia 26508, Telephone:
(304)291-4004. (By Appointment Only). Office of Surface Mining Reclamation and Enforcement, Beckley Area Office, 313 Harper Park Drive, Suite 3, Beckley, West Virginia 25801, Telephone:
(304)255-5265. FOR FURTHER INFORMATION CONTACT: Mr. Roger W. Calhoun, Director, Charleston Field Office, Telephone:
(304)347-7158. E-mail: *chfo@osmre.gov.* SUPPLEMENTARY INFORMATION: I. Background on the West Virginia Program II. Description of the Proposed Amendment III. Public Comment Procedures IV. Procedural Determinations I. Background on the West Virginia Program Section 503(a) of the Act permits a State to assume primacy for the regulation of surface coal mining and reclamation operations on non-Federal and non-Indian lands within its borders by demonstrating that its program includes, among other things, “* * * a State law which provides for the regulation of surface coal mining and reclamation operations in accordance with the requirements of the Act * * *; and rules and regulations consistent with regulations issued by the Secretary pursuant to the Act.” See 30 U.S.C. 1253(a)(1) and (7). On the basis of these criteria, the Secretary of the Interior conditionally approved the West Virginia program on January 21, 1981. You can find background information on the West Virginia program, including the Secretary's findings, the disposition of comments, and conditions of approval of the West Virginia program in the January 21, 1981, **Federal Register** (46 FR 5915). You can also find later actions concerning West Virginia's program and program amendments at 30 CFR 948.10, 948.12, 948.13, 948.15, and 948.16. II. Description of the Proposed Amendment By letter dated April 17, 2006 (Administrative Record Number WV-1462), the West Virginia Department of Environmental Protection (WVDEP) submitted an amendment to its program under SMCRA (30 U.S.C. 1201 *et seq.* ). The amendment consists of State Committee Substitute for House Bill 4135, which amends CSR 38-2 by adding a postmining land use of Bio-oil Cropland and criteria for approving bio-oil cropland as an alternative postmining land use for mountaintop removal mining operations with variances from approximate original contour. Also submitted is State Senate Bill 461, which amends W. Va. Code section 22-3-24 relating to water rights and replacement. In its submittal of the amendment, the WVDEP stated that the codified time table for water replacement is identical to the one contained in the agency's policy dated August 1995 regarding water rights and replacement that is referenced in the Thursday, March 2, 2006, **Federal Register** (71 FR 10764, 10784-85). The West Virginia Governor also signed Senate Bill 774, on April 4, 2006, which amends language concerning definitions, offices, and officers within the Department of Environmental Protection. The amendments to Senate Bill 774 are non-substantive and do not require OSM approval. Therefore, the amendments to Senate Bill 774 can take effect as provided therein on June 9, 2006. West Virginia proposes the following amendments: Senate Bill 461 Senate Bill 461, which was passed by the Legislature on March 11, 2006, and signed into law by the Governor on April 4, 2006, amends Article 3 of the West Virginia Surface Coal Mining and Reclamation Act (WVSCMRA). Specifically, section 22-3-24 concerning water rights and replacement, waiver of replacement is amended at subsection
(c)by deleting the last sentence and by adding new subsections
(d)and (h). As amended, section 22-3-24 provides as follows: 22-3-24. Water rights and replacement; waiver of replacement.
(a)Nothing in this article affects in any way the rights of any person to enforce or protect, under applicable law, the person's interest in water resources affected by a surface mining operation.
(b)Any operator shall replace the water supply of an owner of interest in real property who obtains all or part of the owner's supply of water for domestic, agricultural, industrial or other legitimate use from an underground or surface source where the supply has been affected by contamination, diminution or interruption proximately caused by the surface mining operation, unless waived by the owner.
(c)There is a rebuttable presumption that a mining operation caused damage to an owner's underground water supply if the inspector determines the following:
(1)Contamination, diminution or damage to an owner's underground water supply exists; and
(2)a preblast survey was performed, consistent with the provisions of section thirteen-a of this article, on the owner's property, including the underground water supply, that indicated that contamination, diminution or damage to the underground water supply did not exist prior to the mining conducted at the mining operation.
(d)The operator conducting the mining operation shall:
(1)Provide an emergency drinking water supply within twenty-four hours;
(2)provide temporary water supply within seventy-two hours;
(3)within thirty days begin activities to establish a permanent water supply or submit a proposal to the secretary outlining the measures and timetables to be utilized in establishing a permanent supply. The total time for providing a permanent water supply may not exceed two years. If the operator demonstrates that providing a permanent replacement water supply can not be completed within two years, the secretary may extend the time frame on [a] case-by-case basis; and
(4)pay all reasonable costs incurred by the owner in securing a water supply.
(e)An owner aggrieved under the provisions of subsections (b),
(c)or
(d)of this section may seek relief in court or pursuant to the provisions of section five, article three-a of this chapter.
(f)The director shall propose rules for legislative approval in accordance with the provisions of article three, chapter twenty-nine-a of this code to implement the requirements of this section.
(g)The provisions of subsection
(c)of this section shall not apply to the following:
(1)Underground coal mining operations;
(2)the surface operations and surface impacts incident to an underground coal mine; and
(3)the extraction of minerals by underground mining methods or the surface impacts of the underground mining methods.
(h)Notwithstanding the denial of the operator of responsibility for the damage of the owners [owner's] water supply or the status of any appeal on determination of liability for the damage to the owners [owner's] water supply, the operator may not discontinue providing the required water service until authorized by the division. Notwithstanding the provisions of subsection
(g)of this section, on and after the effective date of the amendment and reenactment of this section during the regular legislative session of two thousand six, the provisions of this section shall apply to all mining operations for water replacement claims resulting from mining operations regardless of when the claim arose. House Bill 4135 Committee Substitute for House Bill 4135, which was passed by the Legislature on March 11, 2006, and signed into law by the Governor on April 4, 2006, amends CSR 38-2 by authorizing the WVDEP to promulgate legislative rules. Subsection 38-2-7.2.e is amended by adding new paragraph 38-2-7.2.e.1. As amended, subsection 38-2-7.2.e provides as follows: 7.2.e. Cropland. Land used primarily for the production of cultivated and close-growing crops for harvest alone or in association with sod crops. Land used for facilities in support of farming operations are included; 7.2.e.1. Bio-oil Cropland. Agricultural production of renewable energy crops through long-term intensive cultivation of close-growing commercial biological oil species (such as soybeans, rapeseed or canola) for harvest and ultimate production of bio-fuels as an alternative to petroleum based fuels and other valuable products; New paragraph 38-2-7.3.d is added to provide as follows: 7.3.d. A change in postmining land use to bio-oil cropland constitutes an equal or better use of the affected land, as compared with pre-mining use for purposes of W. Va. Code 22-3-13(c) in the determination of variances of approximate original contour for mountaintop removal operations subject to section 38-2-7.8 of this rule; New subsection 38-2-7.8, concerning Bio-oil Crop Land, is added to provide as follows: 7.8. Bio-oil Crop Land. 7.8.1. Criteria for Approving Bio-oil Cropland Postmining Land Use. 7.8.1.a. An alternative postmining land use for bio-oil cropland may be approved by the secretary after consultation with the landowner and or land management agency having jurisdiction over state or Federal lands: Provided, That the following conditions have been met. 7.8.1.a.1. There is a reasonable likelihood for the achievement of bio-oil crop production (such as soybeans, rapeseed or canola) as witnessed by a contract between the landowner and a commercially viable individual or entity, binding the parties to the production of bio-oil crops for a measurement period of at least two years after the competition [completion] of all restoration activity within the permitted boundaries; 7.8.1.a.2. The bio-oil crop reclamation plan is reviewed and approved by an agronomist employed by the West Virginia Department of Agriculture. The applicants shall pay for any review under this section; 7.8.1.a.3. The use does not present any actual or probable hazard to the public health or safety or threat of water diminution or pollution; 7.8.1.a.4. Bio-oil crop production is not: 7.8.1.a.4.A. Impractical or unreasonable; 7.8.1.a.4.B. Inconsistent with applicable land use policies or plans; 7.8.1.a.4.C. Going to involve unreasonable delays in implementation; or 7.8.1.a.4.D. In violation of any applicable law. 7.8.2. Soil reconstruction specifications for bio-oil crop postmining land use shall be established by the W. Va. Department of Agriculture in consultation with the U. S. Natural Resources Conservation Service and based upon the standards of the National Cooperative Soil Survey and shall include, at a minimum, physical and chemical characteristics of reconstructed soils and soil descriptions containing soil-horizon depths, soil densities, soil pH, and other specifications such that constructed soils will have the capability of achieving levels of yield equal to, or higher that [than], those required for the production of commercial seed oils species (such as soybeans, rapeseed or canola) and meets [meet] the requirement of 14.3 of this rule. 7.8.3. Bond Release. 7.8.3.a. Phase I bond release shall not be approved until W. Va. Department of Agriculture certifies and the secretary finds that the soil meets the criteria established in this rule and has been placed in accordance with this rule. The applicants shall pay for any review under this section. 7.8.3.b. The secretary may authorize in consultation with the W. Va. Department of Agriculture, the Phase III bond release only after the applicant affirmatively demonstrates, and the secretary finds, that the reclaimed land can support bio-oil production; and there is a binding contract for production which meets the requirements of subdivision 7.8.1.a of this rule; and the requirements of paragraph 9.3.f.2 of this rule are met. The applicant shall pay for any review under this section. 7.8.3.c. Once final bond release is authorized, the permittee's responsibility for implementing the bio-oil cropland reclamation plan shall cease. III. Public Comment Procedures Under the provisions of 30 CFR 732.17(h), we are seeking your comments on whether these amendments satisfy the applicable program approval criteria of 30 CFR 732.15. If we approve these revisions, they will become part of the West Virginia program. Written Comments Send your written or electronic comments to OSM at the address given above. Your written comments should be specific, pertain only to the issues proposed in this rulemaking, and include explanations in support of your recommendations. We may not consider or respond to your comments when developing the final rule if they are received after the close of the comment period (see DATES ). We will make every attempt to log all comments into the administrative record, but comments delivered to an address other than the Charleston Field Office may not be logged in. Electronic Comments Please submit Internet comments as an ASCII, Word file avoiding the use of special characters and any form of encryption. Please also include “Attn: SATS NO. WV-109-FOR” and your name and return address in your Internet message. If you do not receive a confirmation that we have received your Internet message, contact the Charleston Field office at
(304)347-7158. Availability of Comments We will make comments, including names and addresses of respondents, available for public review during normal business hours. We will not consider anonymous comments. If individual respondents request confidentiality, we will honor their request to the extent allowable by law. Individual respondents who wish to withhold their name or address from public review, except for the city or town, must state this prominently at the beginning of their comments. We will make all submissions from organizations or businesses, and from individuals identifying themselves as representatives or officials of organizations or businesses, available for public inspection in their entirety. Public Hearing If you wish to speak at the public hearing, contact the person listed under FOR FURTHER INFORMATION CONTACT by 4 p.m. (local time), on June 19, 2006. If you are disabled and need special accommodations to attend a public hearing, contact the person listed under FOR FURTHER INFORMATION CONTACT . We will arrange the location and time of the hearing with those persons requesting the hearing. If no one requests an opportunity to speak, we will not hold a hearing. To assist the transcriber and ensure an accurate record, we request, if possible, that each person who speaks at the public hearing provide us with a written copy of his or her comments. The public hearing will continue on the specified date until everyone scheduled to speak has been given an opportunity to be heard. If you are in the audience and have not been scheduled to speak and wish to do so, you will be allowed to speak after those who have been scheduled. We will end the hearing after everyone scheduled to speak and others present in the audience who wish to speak, have been heard. Public Meeting If only one person requests an opportunity to speak, we may hold a public meeting rather than a public hearing. If you wish to meet with us to discuss the amendment, please request a meeting by contacting the person listed under FOR FURTHER INFORMATION CONTACT . All such meetings will be open to the public and, if possible, we will post notices of meetings at the locations listed under ADDRESSES . We will make a written summary of each meeting a part of the Administrative Record. IV. Procedural Determinations Executive Order 12630—Takings This rule does not have takings implications. This determination is based on the analysis performed for the counterpart Federal regulation. Executive Order 12866—Regulatory Planning and Review This rule is exempt from review by the Office of Management and Budget under Executive Order 12866. Executive Order 12988—Civil Justice Reform The Department of the Interior has conducted the reviews required by section 3 of Executive Order 12988 and has determined that this rule meets the applicable standards of subsections
(a)and
(b)of that section. However, these standards are not applicable to the actual language of State regulatory programs and program amendments because each program is drafted and promulgated by a specific State, not by OSM. Under sections 503 and 505 of SMCRA (30 U.S.C. 1253 and 1255) and the Federal regulations at 30 CFR 730.11, 732.15, and 732.17(h)(10), decisions on proposed State regulatory programs and program amendments submitted by the States must be based solely on a determination of whether the submittal is consistent with SMCRA and its implementing Federal regulations and whether the other requirements of 30 CFR parts 730, 731, and 732 have been met. Executive Order 13132—Federalism This rule does not have Federalism implications. SMCRA delineates the roles of the Federal and State governments with regard to the regulation of surface coal mining and reclamation operations. One of the purposes of SMCRA is to “establish a nationwide program to protect society and the environment from the adverse effects of surface coal mining operations.” Section 503(a)(1) of SMCRA requires that State laws regulating surface coal mining and reclamation operations be “in accordance with” the requirements of SMCRA, and section 503(a)(7) requires that State programs contain rules and regulations “consistent with” regulations issued by the Secretary pursuant to SMCRA. Executive Order 13175—Consultation and Coordination With Indian Tribal Governments In accordance with Executive Order 13175, we have evaluated the potential effects of this rule on Federally-recognized Indian tribes and have determined that the rule does not have substantial direct effects on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes. The basis for this determination is that our decision is on a State regulatory program and does not involve a Federal regulation involving Indian lands. Executive Order 13211—Regulations That Significantly Affect The Supply, Distribution, Or Use Of Energy On May 18, 2001, the President issued Executive Order 13211 which requires agencies to prepare a Statement of Energy Effects for a rule that is
(1)considered significant under Executive Order 12866, and
(2)likely to have a significant adverse effect on the supply, distribution, or use of energy. Because this rule is exempt from review under Executive Order 12866 and is not expected to have a significant adverse effect on the supply, distribution, or use of energy, a Statement of Energy Effects is not required. National Environmental Policy Act This rule does not require an environmental impact statement because section 702(d) of SMCRA (30 U.S.C. 1292(d)) provides that agency decisions on proposed State regulatory program provisions do not constitute major Federal actions within the meaning of section 102(2)(C) of the National Environmental Policy Act (42 U.S.C. 4332(2)(C)). Paperwork Reduction Act This rule does not contain information collection requirements that require approval by OMB under the Paperwork Reduction Act (44 U.S.C. 3507 *et seq.* ). Regulatory Flexibility Act The Department of the Interior certifies that this rule will not have a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 *et seq.* ). The State submittal, which is the subject of this rule, is based upon counterpart Federal regulations for which an economic analysis was prepared and certification made that such regulations would not have a significant economic effect upon a substantial number of small entities. In making the determination as to whether this rule would have a significant economic impact, the Department relied upon the data and assumptions for the counterpart Federal regulations. Small Business Regulatory Enforcement Fairness Act This rule is not a major rule under 5 U.S.C. 804(2), the Small Business Regulatory Enforcement Fairness Act. This rule:
(a)Does not have an annual effect on the economy of $100 million;
(b)Will not cause a major increase in costs or prices for consumers, individual industries, Federal, State, or local government agencies, or geographic regions; and
(c)Does not have significant adverse effects on competition, employment, investment, productivity, innovation, or the ability of U.S.-based enterprises to compete with foreign-based enterprises. This determination is based upon the analysis performed under various laws and executive orders for the counterpart Federal regulations. Unfunded Mandates This rule will not impose an unfunded mandate on State, local, or tribal governments or the private sector of $100 million or more in any given year. This determination is based upon the analysis performed under various laws and executive orders for the counterpart Federal regulations. List of Subjects in 30 CFR Part 948 Intergovernmental relations, Surface mining, Underground mining. Dated: May 11, 2006. H. Vann Weaver, Acting Regional Director, Appalachian Region. [FR Doc. E6-8620 Filed 6-1-06; 8:45 am] BILLING CODE 4310-05-P DEPARTMENT OF HOMELAND SECURITY Coast Guard 33 CFR Part 165 [CGD09-06-032] RIN 1625-AA00 Safety and Security Zones; Tall Ships Celebration 2006, Great Lakes, Cleveland, OH, Bay City, MI, Green Bay, WI, Sturgeon Bay, WI, Chicago, IL AGENCY: Coast Guard, DHS. ACTION: Notice of proposed rulemaking. SUMMARY: The Coast Guard proposes to establish safety and security zones around Tall Ships visiting the Great Lakes during Tall Ships Celebration 2006. These safety and security zones will provide for the regulation of vessel traffic in the vicinity of Tall Ships in the navigable waters of the United States. The Coast Guard is taking this action to safeguard participants and spectators from the safety hazards associated with the limited maneuverability of these tall ships and to ensure public safety during Tall Ships events. DATES: Comments and related material must reach the Coast Guard on or before June 22, 2006. ADDRESSES: You may mail comments and related material to Ninth Coast Guard District (dpw-1), 1240 E. 9th Street, Room 2069, Cleveland, OH 44199. The Ninth Coast Guard District Waterways Planning and Development Section (dpw-1) maintains the public docket for this rulemaking. Comments and material received from the public, as well as documents indicated in this preamble as being available in the docket, will become part of this docket and will be available for inspection or copying between 8 a.m. and 4 p.m., Monday through Friday, except Federal holidays. FOR FURTHER INFORMATION CONTACT: CDR K. Phillips, Waterways Planning and Development Section, Prevention Department Ninth Coast Guard District, Cleveland, OH at
(216)902-6045. SUPPLEMENTARY INFORMATION: Request for Comments We encourage you to participate in this rulemaking by submitting comments and related material. If you do so, please include your name and address, identify the docket number for this rulemaking [CGD09-06-032], indicate the specific section of this document to which each comment applies, and give the reason for each comment. Please submit all comments and related material in an unbound format, no larger than 8 1/2 by 11 inches, suitable for copying. If you would like to know that your submission reached us, please enclose a stamped, self-addressed postcard or envelope. We will consider all comments and material received during the comment period. We may change this proposed rule in view of them. Public Meeting We do not now plan to hold a public meeting. But you may submit a request for a meeting by writing to The Ninth Coast Guard District Waterways Planning and Development Section at the address under ADDRESSES explaining why one would be beneficial. If we determine that one would aid this rulemaking, we will hold one at a time and place announced by a separate notice in the **Federal Register** . Background and Purpose During the Tall Ships Celebration 2006, Tall Ships will be participating in parades and then mooring in the harbors of Cleveland, OH, Bay City, MI, Green Bay, WI, Sturgeon Bay, WI, and Chicago, IL. Safety and security zones will be established around Tall Ships participating in these events on 12:01 a.m. (local time) July 10, 2006 and terminate on 12:01 a.m. (local time) August 23, 2006. These safety and security zones are necessary to protect the public from the hazards associated with limited maneuverability of tall sailing ships and to protect the Tall Ships from potential harm. Due to the high profile nature and extensive publicity associated with this event, each Captain of the Port
(COTP)expects a large number of spectators in confined areas adjacent to and on Lake Erie, Saginaw Bay, Lake Huron, Green Bay and Lake Michigan. Therefore, the Coast Guard is proposing to implement a safety and security zone around each ship to ensure the safety of both participants and spectators in these areas. The combination of large numbers of recreational boaters, congested waterways, boaters crossing commercially transited waterways and low maneuverability of the Tall Ships could easily result in serious injuries or fatalities. Discussion of Proposed Rule Upon the navigable waters of the United States, no vessel or person is allowed within 100 yards of a Tall Ship that is underway or at anchor, unless authorized by the cognizant Captain of the Port or on-scene official patrol. When within a Tall Ship safety and security zone vessels must operate at the minimum speed necessary to maintain a safe course and must proceed as directed by the on-scene official patrol. Even if operating within a Tall Ship safety and security zone pursuant to permission from the on-scene official patrol, no vessel or person is allowed within 25 yards of a Tall Ship. In addition, upon the navigable waters of the United States, no vessel or person is allowed within 25 yards of any Tall Ship that is moored. When conditions permit, vessels constrained by their navigational draft or restricted in their ability to maneuver may be allowed by the on-scene official patrol to pass within 100 yards of a tall ship in order to ensure a safe passage in accordance with the Navigational Rules. When conditions permit, vessels that must transit via a navigable channel or waterway may be allowed by the on-scene patrol to pass within 100 yards of an anchored Tall Ship or within 25 yards of a moored Tall Ship with minimal delay consistent with security. Regulatory Evaluation This proposed rule is not a “significant regulatory action” under section 3(f) of Executive Order 12866, Regulatory Planning and Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. The Office of Management and Budget has not reviewed it under that Order. It is not “significant” under the regulatory policies and procedures of the Department of Homeland Security (DHS). We expect the economic impact of this proposed rule to be so minimal that a full Regulatory Evaluation under the regulatory policies and procedures of DHS is unnecessary. This determination is based upon the size and location of the safety and security zones and the minimal time and limited area from which vessels will be restricted. Vessels may transit through the safety zone with permission from the official on-scene patrol. Small Entities Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we have considered whether this proposed rule would have a significant economic impact on a substantial number of small entities. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. The Coast Guard certifies under 5 U.S.C. 605(b) that this proposed rule would not have a significant economic impact on a substantial number of small entities. This proposed rule would affect the following entities, some of which might be small entities: The owners or operators of vessels intending to transit or anchor in a portion of the safety and security zones. These safety and security zones will not have a significant economic impact on a substantial number of small entities for the following reasons: The zones are relatively small and vessels may transit through the safety zone with permission from the official on-scene patrol. If you think that your business, organization, or governmental jurisdiction qualifies as a small entity and that this rule would have a significant economic impact on it, please submit a comment (see ADDRESSES ) explaining why you think it qualifies and how and to what degree this rule would economically affect it. Assistance for Small Entities Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this proposed rule so that they can better evaluate its effects on them and participate in the rulemaking. If the proposed rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact CDR K. Phillips, Waterways Planning and Development Section, Ninth Coast Guard District, Cleveland, OH at
(216)902-6045. The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard. Collection of Information This proposed rule would call for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). Federalism A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on State or local governments and would either preempt State law or impose a substantial direct cost of compliance on them. We have analyzed this proposed rule under that Order and have determined that it does not have implications for federalism. Unfunded Mandates Reform Act The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 or more in any one year. Though this proposed rule would not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble. Taking of Private Property This proposed rule would not effect a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights. Civil Justice Reform This proposed rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden. Protection of Children We have analyzed this proposed rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and would not create an environmental risk to health or risk to safety that might disproportionately affect children. Indian Tribal Governments This proposed rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it would not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes. We invite your comments on how this proposed rule might impact tribal governments, even if that impact may not constitute a “tribal implication” under the Order. Energy Effects We have analyzed this proposed rule under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use. We have determined that it is not a “significant energy action” under that order because it is not a “significant regulatory action” under Executive Order 12866 and is not likely to have a significant adverse effect on the supply, distribution, or use of energy. The Administrator of the Office of Information and Regulatory Affairs has not designated it as a significant energy action. Therefore, it does not require a Statement of Energy Effects under Executive Order 13211. Technical Standards The National Technology Transfer and Advancement Act (NTTAA) (15 U.S.C. 272 note) directs agencies to use voluntary consensus standards in their regulatory activities unless the agency provides Congress, through the Office of Management and Budget, with an explanation of why using these standards would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards (e.g., specifications of materials, performance, design, or operation; test methods; sampling procedures; and related management systems practices) that are developed or adopted by voluntary consensus standards bodies. This proposed rule does not use technical standards. Therefore, we did not consider the use of voluntary consensus standards. Environment We have analyzed this proposed rule under Commandant Instruction M16475.lD, which guides the Coast Guard in complying with the National Environmental Policy Act of 1969
(NEPA)(42 U.S.C. 4321-4370f), and have made a preliminary determination that there are no factors in this case that would limit the use of a categorical exclusion under section 2.B.2 of the Instruction. Therefore, we believe that this rule should be categorically excluded, under figure 2-1, paragraph (34)(g), of the Instruction, from further environmental documentation. A preliminary “Environmental Analysis Check List” is available in the docket where indicated under ADDRESSES . Comments on this section will be considered before we make the final decision on whether the rule should be categorically excluded from further environmental review. List of Subjects in 33 CFR Part 165 Harbors, Marine safety, Navigation (water), Reporting and recordkeeping requirements, Security measures, Waterways. For the reasons discussed in the preamble, the Coast Guard proposes to amend 33 CFR part 165 as follows: PART 165—REGULATED NAVIGATION AREAS AND LIMITED ACCESS AREAS 1. The authority citation for part 165 continues to read as follows: Authority: 33 U.S.C. 1226, 1231; 46 U.S.C. Chapter 701; 50 U.S.C. 191, 195; 33 CFR 1.05-1(g), 6.04-1, 6.04-6, and 160.5; Pub. L. 107-295, 116 Stat. 2064; Department of Homeland Security Delegation No. 0170.1. 2. A new temporary § 165.T09-032 is added read as follows: § 165.T09-032 Safety and Security Zone; Huntington Cleveland Harbor Fest, Tall Ship Festival, Green Bay, Wisconsin, Sturgeon Bay, Wisconsin, Tall Ships Chicago 2006, Tall Ship Celebration, Saginaw River, Bay City, MI.
(a)Definitions. The following definitions apply to this section: *Navigation Rules* means the Navigation Rules, International and Inland (See, 1972 COLREGS and 33 U.S.C. 2001 *et seq.* ). *Official Patrol* means those persons designated by Captain of the Port Buffalo, Detroit, Sault Ste. Marie and Lake Michigan to monitor a Tall Ship safety and security zone, permit entry into the zone, give legally enforceable orders to persons or vessels within the zone and take other actions authorized by the cognizant Captain of the Port. Persons authorized in paragraph
(i)to enforce this section are designated as the Official Patrol. *Public Vessel* means vessels owned, chartered, or operated by the United States, or by a State or political subdivision thereof. *Tall Ship* means any sailing vessel participating in the 2006 Tall Ships Challenge in the Great Lakes. The following vessels are participating in the 2006 Tall Ships Challenge: Sailing Vessel (S/V) Appledore IV, S/V Denis Sullivan, S/V Appledore V, S/V Friends Good Will, S/V Highlander Sea, S/V Niagara, S/V Madeline, S/V Nina, S/V Picton Castle, S/V Pathfinder, S/V Playfiar, S/V Providence, S/V Pride of Baltimore, S/V St. Lawrence II, S/V Red Witch, S/V Royaliste, S/V Windy, S/V Unicorn, and S/V Windy II.
(b)Safety and Security zone. The following areas are safety and security zones: all navigable waters of United States located in the Ninth Coast Guard District within a 100 yard radius of any Tall Ship sailing vessel.
(c)Effective Period. This section is effective from 12:01 a.m. (local) on Wednesday July 11th, 2006 through 12:01 a.m. (local) on August, 10th 2006.
(d)Regulations. When within a Tall Ship safety and security zone all vessels must operate at the minimum speed necessary to maintain a safe course and must proceed as directed by the on-scene official patrol. No vessel or person is allowed within 25 yards of a Tall Ship that is underway, at anchor, or moored, unless authorized by the cognizant Captain of the Port, his designated representative, or on-scene official patrol.
(e)Navigation Rules. The Navigation Rules shall apply at all times within a Tall Ships security and safety zone.
(f)To request authorization to operate within 25 yards of a large passenger vessel that is underway or at anchor, contact the on-scene official patrol on VHF-FM channel 16.
(g)When conditions permit, the on-scene official patrol should:
(1)Permit vessels constrained by their navigational draft or restricted in their ability to maneuver to pass within 25 yards of a Tall Ship in order to ensure a safe passage in accordance with the Navigation Rules; and
(2)Permit vessels that must transit via a navigable channel or waterway to pass within 25 yards of a Tall Ship that is anchored or moored with minimal delay consistent with safety and security.
(h)When a Tall Ship approaches within 25 yards of any vessel that is moored or anchored, the stationary vessel must stay moored or anchored while it remains within the Tall Ship's safety and security zone unless it is either ordered by, or given permission by Captain of the Port Buffalo, Detroit, Sault Ste. Marie or Lake Michigan, his designated representative, or the on-scene official patrol to do otherwise.
(i)Enforcement. Any Coast Guard commissioned, warrant or petty officer may enforce the rules in this section.
(j)Exemption. Public vessels as defined in paragraph
(a)of this section are exempt from complying with paragraphs (b), (d), (f), (g), and
(h)of this section.
(k)Waiver. Captain of the Port Buffalo, Detroit, Sault Ste. Marie and Lake Michigan, may, within their respective Captain of the Port zones, waive any of the requirements of this section for any vessel or class of vessels upon finding that a vessel or class of vessels, operational conditions or other circumstances are such that application of this section is unnecessary or impractical for the purpose of port security, safety or environmental safety. Dated: May 23, 2006. T.W. Sparks, Captain, U.S. Coast Guard, Acting Commander, Ninth Coast Guard District. [FR Doc. E6-8610 Filed 6-1-06; 8:45 am] BILLING CODE 4910-15-P DEPARTMENT OF HOMELAND SECURITY Coast Guard 33 CFR Part 165 [COTP Prince William Sound 02-012] RIN 1625-AA87 Security Zones; Port Valdez and Valdez Narrows, Valdez, AK AGENCY: Coast Guard, DHS. ACTION: Notice of proposed rulemaking. SUMMARY: The Coast Guard proposes to revise its regulation entitled Port Valdez and Valdez Narrows, Valdez, Alaska— security zones. This change would include more accurate position information for the boundaries of tank vessels navigating on the Valdez Narrows Optimum Track Line, and establish when the Valdez Narrows Tanker Optimum Track line is activated and subject to enforcement. DATES: Comments and related material must reach the Coast Guard on or before July 3, 2006. ADDRESSES: Documents indicated in this preamble as being available in the docket will become part of this docket and will be available for inspection or copying at Marine Safety Office Valdez, 105 Clifton, Valdez, AK 99686 between 7:30 a.m. and 4:30 p.m., Monday through Friday, except Federal holidays. FOR FURTHER INFORMATION CONTACT: LT Duane Lemmon, Chief, Maritime Homeland Security Department, U.S. Coast Guard Marine Safety Office Valdez, Alaska,
(907)835-7262. SUPPLEMENTARY INFORMATION: Regulatory History The Coast Guard is taking this action to revise 33 CFR 165.1710(a)(3)(71 FR 2154, January 13, 2006) entitled Port Valdez and Valdez Narrows, Valdez, Alaska—security zones. This revision would include more accurate position information for the boundaries of tank vessels navigating on the Valdez Narrows Optimum Track Line, and establish when the Valdez Narrows Tanker Optimum Track line is activated and subject to enforcement. On November 7, 2001, we published three temporary final rules in the **Federal Register** (66 FR 56208, 56210, 56212) that created security zones effective through June 1, 2002. The section numbers and titles for these zones are— § 165.T17-003—Security zone; Trans-Alaska Pipeline Valdez Terminal Complex, Valdez, Alaska, § 165.T17-004—Security zone; Port Valdez, and § 165.T17-005—Security zones; Captain of the Port Zone, Prince William Sound, Alaska. Then on June 4, 2002, we published a temporary final rule (67 FR 38389) that established security zones to replace these security zones. That rule created temporary § 165.T17-009, entitled “Port Valdez and Valdez Narrows, Valdez, Alaska—security zone”. Then on July 31, 2002, we published a temporary final rule (67 FR 49582) that established security zones to extend the temporary security zones that would have expired. This extension was to allow for the completion of a notice-and-comment rulemaking to create permanent security zones to replace the temporary zones. On October 23, 2002, we published the notice of proposed rulemaking
(NPRM)that sought public comment on establishing permanent security zones similar to the temporary security zones (67 FR 65074). The comment period for that NPRM ended December 23, 2002. Although no comments were received that would result in changes to the proposed rule an administrative omission was found that resulted in the need to issue a supplemental notice of proposed rulemaking (SNPRM) to address a collection of information issue regarding of the proposed rule (68 FR 14935, March 27, 2003). Then on May 19, 2004, we published a Second Supplemental Notice of Proposed Rulemaking (SSNPRM)(69 FR 28871) incorporating changes to the Trans-Alaska Pipeline
(TAPS)Valdez Terminal complex (Terminal), Valdez, Alaska security zone coordinates described in the NPRM (67 FR 65074). These changes included more accurate position information for the boundaries of the security zone. The comment period for that SNPRM ended on July 30, 2004. Although no comments were received that would result in changes to the SSNPRM, we have learned over the last 3 years while enforcing the temporary security zones (see those mentioned above and 68 FR 26490 (May 16, 2003) and 68 FR 62009 (October 31, 2003)) that the TAPS Terminal security zone is actually larger than it needs to be and that a smaller zone would allow the Coast Guard to monitor and enforce the zone more effectively. To make the security zone smaller, we proposed changes to the TAPS Terminal security zone coordinates in a Third Supplemental Notice of Proposed Rulemaking (TSNPRM) (70 FR 58646, October 7, 2005). In that TSNPRM, we also proposed removing unnecessary text from the description of the Valdez Narrows, Port Valdez, Valdez, Alaska security zone in proposed 33 CFR 165.1710(a)(3). We received no comments on the proposed rule published October 7, 2005. On January, 13, 2006, we published a final rule in the **Federal Register** (71 FR 2152) that established permanent security zones encompassing the Trans-Alaska Pipeline
(TAPS)Valdez Terminal Complex, Valdez, Alaska, and TAPS tank vessels and the Valdez Narrows, Port Valdez, Alaska. These security zones are necessary to protect the TAPS Terminal and vessels from damage or injury from sabotage, destruction or other subversive acts. This rule was effective February 13, 2006. Regulatory Evaluation This proposed rule is not a “significant regulatory action” under section 3(f) of Executive Order 12866, Regulatory Planning and Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. The Office of Management and Budget has not reviewed it under that Order. It is not “significant” under the regulatory policies and procedures of the Department of Homeland Security (DHS). We expect the economic impact of this proposed rule to be so minimal that a full Regulatory Evaluation under the regulatory policies and procedures of DHS is unnecessary. Economic impact is expected to be minimal because there are alternative routes for vessels to use when the zone is enforced, permits to enter the zone are available, and the Tank Vessel Moving Security Zone is in effect for a short duration. Small Entities Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we have considered whether this proposed rule would have a significant economic impact on a substantial number of small entities. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. The Coast Guard certifies under 5 U.S.C. 605(b) that this proposed rule would not have a significant economic impact on a substantial number of small entities. The number of small entities impacted by this proposed rule is expected to be minimal because there are alternative routes for vessels to use when the zone is enforced, permission to enter the zone is available, and the Tank Vessel Moving Security Zone is in effect for a short duration. Since the time frame this proposed rule is in effect may cover commercial harvests of fish in the area, the entities most likely affected are commercial and native subsistence fishermen. The Captain of the Port will consider applications for entry into the security zone on a case-by-case basis; therefore, it is likely that very few, if any, small entities will be impacted by this proposed rule. Those interested may apply for a permit to enter the zone by contacting Marine Safety Office, Valdez at the above contact number. If you think that your business, organization, or governmental jurisdiction qualifies as a small entity and that this proposed rule would have a significant economic impact on it, please submit a comment (see ADDRESSES ) explaining why you think it qualifies and how and to what degree this proposed rule would economically affect it. Assistance for Small Entities Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Public Law 104-121), we want to assist small entities in understanding this proposed rule so that they can better evaluate its effects on them and participate in the rulemaking. If the proposed rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact LTJG Duane Lemmon, Marine Safety Office Valdez, Alaska at
(907)835-7218. Collection of Information This proposed rule would call for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). Federalism A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on State or local governments and would either preempt State law or impose a substantial direct cost of compliance on them. We have analyzed this proposed rule under that Order and have determined that it does not have implications for federalism. Unfunded Mandates Reform Act The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 or more in any one year. Though this proposed rule would not result in such an expenditure, we do discuss the effects of this proposed rule elsewhere in this preamble. Taking of Private Property This proposed rule would not effect a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights. Civil Justice Reform This proposed rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden. Protection of Children We have analyzed this proposed rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This proposed rule is not an economically significant rule and would not create an environmental risk to health or risk to safety that might disproportionately affect children. Indian Tribal Governments This proposed rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it would not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes. Energy Effects We have analyzed this proposed rule under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use. We have determined that it is not a “significant energy action” under that order because it is not a “significant regulatory action” under Executive Order 12866 and is not likely to have a significant adverse effect on the supply, distribution, or use of energy. The Administrator of the Office of Information and Regulatory Affairs has not designated it as a significant energy action. Therefore, it does not require a Statement of Energy Effects under Executive Order 13211. Technical Standards The National Technology Transfer and Advancement Act (NTTAA) (15 U.S.C. 272 note) directs agencies to use voluntary consensus standards in their regulatory activities unless the agency provides Congress, through the Office of Management and Budget, with an explanation of why using these standards would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards ( *e.g.* , specifications of materials, performance, design, or operation; test methods; sampling procedures; and related management systems practices) that are developed or adopted by voluntary consensus standards bodies. This proposed rule does not use technical standards. Therefore, we did not consider the use of voluntary consensus standards. Environment We have analyzed this proposed rule under Commandant Instruction M16475.lD, which guides the Coast Guard in complying with the National Environmental Policy Act of 1969
(NEPA)(42 U.S.C. 4321-4370f), and have concluded that there are no factors in this case that would limit the use of a categorical exclusion under section 2.B.2 of the Instruction. Therefore, this proposed rule is categorically excluded, under figure 2-1, paragraph (34)(g), of the Instruction, from further environmental documentation. This proposed rule creates no additional vessel traffic and thus imposes no additional burdens on the environment in Prince William Sound. It simply regulates vessels transiting in the Captain of the Port, Prince William Sound Zone for security purposes so that they may transit safely in the vicinity of the Port of Valdez and the TAPS Terminal. A draft “Environmental Analysis Check List” and a draft “Categorical Exclusion Determination”
(CED)are available in the docket where indicated under ADDRESSES . List of Subjects in 33 CFR Part 165 Harbors, Marine safety, Navigation (water), Reporting and recordkeeping requirements, Safety measures, Vessels, Waterways. For the reasons discussed in the preamble, the Coast Guard proposes to amend 33 CFR part 165 as follows: PART 165—REGULATED NAVIGATION AREAS AND LIMITED ACCESS AREAS 1. The authority citation for part 165 continues to read as follows: Authority: 33 U.S.C. 1226, 1231; 46 U.S.C. Chapter 701; 50 U.S.C. 191, 195; 33 CFR 1.05-1(g), 6.04-1, 6.04-6, and 160.5; Pub. L. 107-295, 116 Stat. 2064; Department of Homeland Security Delegation No. 0170.1. 2. Revise § 165.1710(a)(3) to read as follows: § 165.1710 Port Valdez and Valdez Narrows, Valdez, Alaska—security zones.
(a)* * *
(3)*Valdez Narrows, Port Valdez, Valdez, Alaska.* All waters within 200 yards of the Valdez Narrows Tanker Optimum Track line, when a tank vessel is navigating through the narrows.
(i)The Valdez Narrows Optimum Track line is a line commencing at 61°05.38′ N, 146°37.38′ W; thence south westerly to 61°04.05′ N, 146°40.05′ W; thence southerly to 61°03.00′ N, 146°41.20′ W.
(ii)This security zone encompasses all waters 200 yards either side of the Valdez Narrows Optimum Track line.
(iii)Whenever a tank vessel is navigating on the Valdez Narrows Optimum Track line, the security zone is activated and subject to enforcement. All vessels forward of a tank vessel's movement must vacate the security zone surrounding the Optimum Track line. Vessels may reenter the security zone astern of a moving vessel provided that a 200 yards separation is given, as required in paragraph (a)(2) of this section. Dated: May 8, 2006. M.S. Gardiner, Commander, United States Coast Guard, Coast Guard, Captain of the Port, Prince William Sound, Alaska. [FR Doc. E6-8544 Filed 6-1-06; 8:45 am] BILLING CODE 4910-15-P DEPARTMENT OF HOMELAND SECURITY Coast Guard 33 CFR Part 165 [CCGD05-06-054] RIN 1625-AA00 Safety Zone: Fireworks on the Bay Celebration, Chesapeake Bay, Virginia Beach, VA AGENCY: Coast Guard, DHS. ACTION: Notice of proposed rulemaking. SUMMARY: The Coast Guard is proposing the establishment of a 500-foot safety zone on the Chesapeake Bay in support of the Fireworks on the Bay Celebration. This event is will be held at First Landing State Park, Virginia Beach, VA on July 04, 2006, and if warranted due to inclement weather, July 5, 2006. This action is intended to restrict vessel traffic on Chesapeake Bay as necessary to protect mariners from the hazards associated with fireworks displays. DATES: Comments and related material must reach the Coast Guard on or before June 26, 2006. ADDRESSES: You may mail comments and related material to Commander, Sector Hampton Roads, Norfolk Federal Building, 200 Granby St., 7th Floor, Attn: Lieutenant Bill Clark, Norfolk, VA 23510. Sector Hampton Roads maintains the public docket for this rulemaking. Comments and material received from the public, as well as documents indicated in this preamble as being available in the docket, will become part of this docket and will be available for inspection or copying at the Federal Building between 9 a.m. and 2 p.m. eastern time, Monday through Friday, except Federal holidays. FOR FURTHER INFORMATION CONTACT: Lieutenant Bill Clark, Chief, Waterways Management Division, Sector Hampton Roads, at
(757)668-5580. SUPPLEMENTARY INFORMATION: Request for Comments We encourage you to participate in this rulemaking by submitting comments and related material. If you do so, please include your name and address, identify the docket number for this rulemaking CGD05-06-054 and indicate the specific section of this document to which each comment applies, and give the reason for each comment. Please submit all comments and related material in an unbound format, no larger than 8 1/2 by 11 inches, suitable for copying. If you would like to know they reached us, please enclose a stamped, self-addressed postcard or envelope. We will consider all comments and material received during the comment period. We may change this proposed rule in view of them. Public Meeting We do not plan to hold a public meeting, but you may submit a request for a meeting by writing to the United States Coast Guard at the address under ADDRESSES explaining why one would be beneficial. If we determine that one would aid this rulemaking, we will hold one at a time and place announced by a later notice in the **Federal Register** . Background and Purpose On July 4, 2006, the Fireworks on the Bay Celebration will be held on the Chesapeake Bay in Virginia Beach, VA. However, if warranted due to inclement weather, this event will be postponed until July 5, 2006. Due to the need to protect mariners and spectators from the hazards associated with the fireworks display, vessel traffic will be temporarily restricted within 500 feet of the fireworks display. Discussion of Proposed Rule The Coast Guard is establishing safety zone that encompasses all waters of Chesapeake Bay within 500 feet of position 36-55-02N/076-03-27W in the vicinity of the First Landing State Park in Virginia Beach, VA. This regulated area will be established in the interest of public safety during the Fireworks on the Bay Celebration and will be enforced from 9 p.m. to 10 p.m. eastern time, on July 4, 2006, and if warranted due to inclement weather, July 5, 2006. General navigation in the safety zone will be restricted during the event. Except for participants and vessels authorized by the Coast Guard Patrol Commander, no person or vessel may enter or remain in the regulated area. Regulatory Evaluation This proposed rule is not a “significant regulatory action” under section 3(f) of Executive Order 12866, Regulatory Planning and Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. The Office of Management and Budget has not reviewed it under that Order. It is not “significant” under the regulatory policies and procedures of the Department of Homeland Security (DHS). We expect the economic impact of this proposed rule to be so minimal that a full Regulatory Evaluation under the regulatory policies and procedures of DHS is unnecessary. Although this regulation restricts access to the regulated area, the effect of this rule will not be significant because:
(i)The safety zone will be in effect for a limited duration and
(ii)the Coast Guard will make notifications via maritime advisories so mariners can adjust their plans accordingly. Small Entities Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we have considered whether this proposed rule would have a significant economic impact on a substantial number of small entities. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. The Coast Guard certifies under 5 U.S.C. 605(b) that this proposed rule would not have a significant economic impact on a substantial number of small entities because the zone will be in place for a limited duration of time and maritime advisories will be issued allowing the mariners to adjust their plans accordingly. However, this rule may affect the following entities, some of which may be small entities: The owners and operators of vessels intending to transit or anchor in that portion of the Chesapeake Bay from 9 p.m. to 10 p.m. eastern time, on July 4, 2006 and July 5, 2006. If you think that your business, organization, or governmental jurisdiction qualifies as a small entity and that this rule would have a significant economic impact on it, please submit a comment (see ADDRESSES ) explaining why you think it qualifies and how and to what degree this rule would economically affect it. Assistance for Small Entities Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Public Law 104-121), we want to assist small entities in understanding this proposed rule so that they can better evaluate its effects on them and participate in the rulemaking. If the rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact Lieutenant Bill Clark, Chief, Waterways Management Division, Sector Hampton Roads, at
(757)668-5580. The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard. Collection of Information This proposed rule would call for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520.). Federalism A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on State or local governments and would either preempt State law or impose a substantial direct cost of compliance on them. We have analyzed this proposed rule under that Order and have determined that it does not have implications for federalism. Unfunded Mandates Reform Act The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 or more in any one year. Though this proposed rule would not result in such expenditure, we do discuss the effects of this rule elsewhere in this preamble. Taking of Private Property This proposed rule would not effect a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights. Civil Justice Reform This proposed rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden. Protection of Children We have analyzed this proposed rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and would not create an environmental risk to health or risk to safety that might disproportionately affect children. Indian Tribal Governments This proposed rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it would not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes. Energy Effects We have analyzed this proposed rule under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use. We have determined that it is not a “significant energy action” under that order because it is not a “significant regulatory action” under Executive Order 12866 and is not likely to have a significant adverse effect on the supply, distribution, or use of energy. The Administrator of the Office of Information and Regulatory Affairs has not designated it as a significant energy action. Therefore, it does not require a Statement of Energy Effects under Executive Order 13211. Technical Standards The National Technology Transfer and Advancement Act (NTTAA) (15 U.S.C. 272 note) directs agencies to use voluntary consensus standards in their regulatory activities unless the agency provides Congress, through the Office of Management and Budget, with an explanation of why using these standards would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards ( *e.g.* , specifications of materials, performance, design, or operation; test methods; sampling procedures; and related management systems practices) that are developed or adopted by voluntary consensus standards bodies. This proposed rule does not use technical standards. Therefore, we did not consider the use of voluntary consensus standards. Environment We have analyzed this proposed rule under Commandant Instruction M16475.lD, which guides the Coast Guard in complying with the National Environmental Policy Act of 1969 (NEPA)(42 U.S.C. 4321-4370f), and have made a preliminary determination that there are no factors in this case that would limit the use of a categorical exclusion under section 2.B.2 of the Instruction. Therefore, we believe that this rule should be categorically excluded, under figure 2-1, paragraph (34)(g), of the Instruction, from further environmental documentation. A preliminary “Environmental Analysis Check List” is available in the docket where indicated under ADDRESSES . Comments on this section will be considered before we make the final decision on whether this rule should be categorically excluded from further environmental review. List of Subjects in 33 CFR Part 165 Harbors, Marine safety, Navigation (water), Reporting and record keeping requirements, Security measures, and Waterways. For the reasons discussed in the preamble, the Coast Guard proposes to amend 33 CFR Part 165 Subpart C as follows: PART 165—REGULATED NAVIGATION AREAS AND LIMITED ACCESS AREAS 1. The authority citation for part 165 continues to read as follows: Authority: 33 U.S.C. 1226, 1231; 46 U.S.C. Chapter 701; 50 U.S.C. 191, 195; 33 CFR 1.05-1(g), 6.04-1, 6.04-6 and 160.5; Pub. L. 107-295, 116 Stat. 2064; Department of Homeland Security Delegation No. 0170.1 2. Add Temporary § 165.T05-054, to read as follows: § 165.T05-054 Safety Zone: Fireworks on the Bay Celebration, Chesapeake Bay, Virginia Beach, VA.
(a)*Location.* The following area is a safety zone: All waters of the Chesapeake Bay in the Captain of the Port, Hampton Roads zone as defined in 33 CFR § 3.25-10 within 500 feet of position 36-55-02N/076-03-27W in the vicinity of the First Landing State Park in Virginia Beach, VA.
(b)*Definition.* The following definition applies to this section: Captain of the Port Representative: Means any U.S. Coast Guard commissioned, warrant or petty officer who has been authorized by the Captain of the Port, Hampton Roads, Virginia to act on his behalf.
(c)*Regulation.*
(1)In accordance with the general regulations in § 165.23 of this part, entry into this safety zone is prohibited unless authorized by the Captain of the Port, Hampton Roads or the Captain of the Port Representative.
(2)The operator of any vessel in the immediate vicinity of this safety zone shall:
(i)Stop the vessel immediately upon being directed to do so by any commissioned, warrant or petty officer on shore or on board a vessel that is displaying a U.S. Coast Guard Ensign.
(ii)Proceed as directed by any commissioned, warrant or petty officer on shore or on board a vessel that is displaying a U.S. Coast Guard Ensign.
(A)The Captain of the Port, Hampton Roads and the Sector Duty Officer at Sector Hampton Roads in Portsmouth, Virginia can be contacted at telephone number
(757)668-5555 or
(757)484-8192.
(B)The Coast Guard Representatives enforcing the safety zone can be contacted on VHF-FM 13 and 16.
(d)*Effective date.* This regulation is effective from 9 p.m. to 10 p.m. eastern time, on July 4, 2006 and, if warranted due to inclement weather, July 5, 2006. Dated: May 15, 2006. Patrick B. Trapp, Captain, U.S. Coast Guard, Captain of the Port, Hampton Roads. [FR Doc. E6-8553 Filed 6-1-06; 8:45 am] BILLING CODE 4910-15-P ENVIRONMENTAL PROTECTION AGENCY 40 CFR Parts 70 and 71 [EPA-HQ-OAR-2003-0179; FRL-8178-1] RIN 2060-AN74 Proposed Rule Interpreting the Scope of Certain Monitoring Requirements for State and Federal Operating Permits Programs AGENCY: Environmental Protection Agency (EPA). ACTION: Proposed rule. SUMMARY: The purpose of this action is to request comments on a proposed interpretation of certain existing Federal air program operating permits regulations. This proposed interpretation is that certain sections of the operating permits regulations do not require or authorize permitting authorities to assess or enhance existing monitoring requirements in implementing the operating permits independent of such monitoring required or authorized in other rules. Such other rules include the monitoring requirements in existing Federal air pollution control standards and regulations implementing State requirements. We propose to interpret these sections to require that title V permits contain the monitoring provisions specified or developed under these separate sources of monitoring requirements. We also formally withdraw a September 17, 2002 **Federal Register** proposal to revise the Federal operating permits program and with this action provide an interpretation of those rules different from that set forth in the 2002 proposal. This proposed interpretation will clarify the permit content requirements and facilitate permit issuance ensuring that air pollution sources can operate and comply with requirements. DATES: Written comments must be received by July 17, 2006. ADDRESSES: Submit your comments identified by Electronic Docket ID No. EPA-HQ-OAR-2003-0179 by one of the following methods: • Federal eRulemaking Portal: *http://www.regulations.gov.* Follow the on-line instructions for submitting comments. • Fax:
(202)566-1741. • Mail: U.S. Environmental Protection Agency, EPA Docket Center (EPA/DC), Air and Radiation Docket Information Center, 1200 Pennsylvania Avenue, NW.; Mail Code: 6102T, Washington, DC 20460. • Hand Delivery: To send comments or documents through a courier service, the address to use is: EPA Docket Center, Public Reading Room, EPA West, Room B102, 1301 Constitution Avenue, NW., Washington, DC 20004. Such deliveries are accepted only during the Docket's normal hours of operation—8:30 a.m. to 4:30 p.m., Monday through Friday. Special arrangements should be made for deliveries of boxed information. *Instructions:* Direct your comments to Electronic Docket ID No. EPA-HQ-OAR-2003-0179. EPA's policy is that all comments received will be included in the public docket without change and may be made available online at *http://www.regulations.gov* including any personal information provided, unless the comment includes information claimed to be Confidential Business Information
(CBI)or other information whose disclosure is restricted by statute. Do not submit information that you consider to be CBI or otherwise to be protected through *http://www.regulations.gov* or e-mail. The Web site is an “anonymous access” system, which means we will not know your identity or contact information unless you provide it in the body of your comment. If you send an e-mail comment directly to us without going through *http://www.regulations.gov* , your e-mail address will be automatically captured and included as part of the comment that is placed in the public docket and made available on the Internet. If you submit an electronic comment, we recommend that you include your name and other contact information in the body of your comment and with any disk or CD-ROM you submit. If we cannot read your comment as a result of technical difficulties and cannot contact you for clarification, we may not be able to consider your comment. Electronic files should avoid the use of special characters or any form of encryption and be free of any defects or viruses. *Docket:* All documents in the docket are listed in the Federal Docket Management System
(FDMS)index at *http://www.regulations.gov.* Although listed in the index, some information is not publicly available ( *e.g.* , CBI) or other information whose disclosure is restricted by statute. Certain other material, such as copyrighted material, is not placed on the Internet and will be publicly available only in hard copy form. Publicly available docket materials are available either electronically at *http://www.regulations.gov* or in hard copy at the EPA Docket Center, Public Reading Room, EPA West, Room B102, 1301 Constitution Avenue, NW., Washington, DC 20004. The normal business hours are 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding Federal holidays. The telephone number is
(202)566-1742. FOR FURTHER INFORMATION CONTACT: Peter Westlin, Environmental Protection Agency, Office of Air Quality Planning and Standards, Mail code: D243-05, 109 TW Alexander Drive, Research Triangle Park, NC 27711, Telephone:
(919)541-1058. SUPPLEMENTARY INFORMATION: I. General Information A. Does This Action Affect Me? Categories and entities potentially affected by this action include facilities currently required to obtain title V permits under State, local, tribal, or Federal operating permits programs, and State, local, and tribal governments that issue such permits pursuant to approved part 70 and part 71 programs. If you have any questions regarding the applicability of this action, consult the person listed in the preceding FOR FURTHER INFORMATION CONTACT section. B. How Can I Get Copies of This Document and Other Related Information? In addition to access to information in the docket as described above, you may also access electronic copies of the proposed rule and associated information through the Technology Transfer Network
(TTN)Web site. Following the Administrator signing the notice, we will post the proposed rule on the Office of Air and Radiation's Policy and Guidance page for newly proposed or promulgated rules at *http://www.epa.gov/ttn/oarpg/.* The TTN provides an information and technology exchange in various areas of air pollution control. If more information regarding the TTN is needed, call the TTN HELP line at
(919)541-5384. You may access this **Federal Register** document electronically through the EPA Internet under the **Federal Register** listings at *http://www.epa.gov/ttn/oarpg.* You may access an electronic version of a portion of the public docket through the Federal eRulemaking Portal. Interested persons may use the electronic version of the public docket at *http://www.regulations.gov* to:
(1)Submit or view public comments,
(2)access the index listing of the contents of the official public docket, and
(3)access those documents in the public docket that are available electronically. Once in the FDMS, use the *Search for Open Regulations* field to key in the appropriate docket identification number or document title at the Keyword window. C. How Is This Preamble Organized? The information presented in this preamble is organized as follows: I. General Information A. Does This Action Affect Me? B. How Can I Get Copies of This Document and Other Related Information? C. How Is This Preamble Organized? II. Background III. What Does This Action Involve? A. Will the Regulatory Text of the Rules Change Under This Action? B. Is There a Need To Address Comments Received Concerning the September 17, 2002 Proposal? C. What Is the Correct Interpretation of §§ 70.6(c)(1) and 71.6(c)(1)? D. What are the Effects of This Action on the Pacificorp and Fort James Petitions? E. How Do We Intend To Advance Better Monitoring? IV. What Is the Policy Rationale for This Action? V. What Is the Legal Basis for This Action? VI. Statutory and Executive Order Reviews A. Executive Order 12866: Regulatory Planning and Review B. Paperwork Reduction Act C. Regulatory Flexibility Act
(RFA)D. Unfunded Mandates Reform Act E. Executive Order 13132: Federalism F. Executive Order 13175: Consultation and Coordination With Indian Tribal Governments G. Executive Order 13045: Protection of Children From Environmental Health Risks and Safety Risks H. Executive Order 13211: Actions That Significantly Affect Energy Supply, Distribution, or Use I. National Technology Transfer Advancement Act J. Executive Order 12898: Federal Actions To Address Environmental Justice in Minority Populations and Low-Income Populations II. Background EPA's State and Federal operating permits program regulations, 40 CFR parts 70 and 71, require that operating permits include applicable monitoring requirements. The “periodic monitoring” rules as described in §§ 70.6(a)(3)(i)(B) and 71.6(a)(3)(i)(B) require that [w]here the applicable requirement does not require periodic testing or instrumental or noninstrumental monitoring (which may consist of recordkeeping designed to serve as monitoring), [each title V permit must contain] periodic monitoring sufficient to yield reliable data from the relevant time period that are representative of the source's compliance with the permit, as reported pursuant to [§ 70.6(a)(3)(iii) or § 71.6(a)(3)(iii)]. Such monitoring requirements shall assure use of terms, test methods, units, averaging periods, and other statistical conventions consistent with the applicable requirement. Recordkeeping provisions may be sufficient to meet the requirements of [§ 70.6(a)(3)(i)(B) and § 71.6(a)(3)(i)(B)]. Sections 70.6(a)(3)(i)(A) and 71.6(a)(3)(i)(A) require that permits contain “[a]ll monitoring and analysis procedures or test methods required under applicable monitoring and testing requirements, including part 64 of this chapter and any other procedures and methods that may be promulgated pursuant to sections 114(a)(3) and 504(b) of the Act.” In addition, §§ 70.6(c)(1) and 71.6(c)(1) require that each title V permit contain, *“[c]onsistent with paragraph (a)(3) of this section,* compliance certification, testing, monitoring, reporting, and recordkeeping requirements sufficient to assure compliance with the terms and conditions of the permit” (emphasis added). On September 17, 2002 (67 FR 58561), we proposed to remove the introductory phrase *“[c]onsistent with paragraph (a)(3) of this section,”* from §§ 70.6(c)(1) and 71.6(c)(1) to clarify a policy we expressed in our responses to the citizen petitions regarding Pacificorp and Fort James Camas Mills facilities 1 (see discussion of these petitions below). The purpose of these revisions was to remove the introductory clause so that §§ 70.6(c)(1) and 71.6(c)(1) could be interpreted more clearly as establishing a regulatory standard for:
(1)Assessing and enhancing existing monitoring requirements, or
(2)adding new monitoring requirements separate from the application of the periodic monitoring rules. At that time, we believed the action would clarify what we viewed as the relationship between the *NRDC* and *Appalachian Power* 2 decisions regarding title V monitoring. In *Appalachian Power,* the Court held that permitting authorities may not, on the basis of the periodic monitoring rule in § 70.6(a)(3)(i)(B), require in permits that the regulated source conduct more frequent monitoring of its emissions than that provided in the applicable State or Federal standard, unless that standard “requires no periodic testing, specifies no frequency, or requires only a one-time test.” 208 F.3d at 1028. The *NRDC* decision implied that implementing parts 70 and 71 could fulfill the need to address enhanced monitoring under the Act. In *NRDC,* the Court noted that “* * * the 1990 Clean Air Act Amendments did not mandate that EPA fit all enhanced monitoring under one rule and EPA has reasonably illustrated how its enhanced monitoring program, when considered in its entirety, complies with § 114(a)(3).” 194 F.3d at 135. 1 *In the Matter of Pacificorp's Jim Bridger and Naughton Electric Utility Steam Generating Plants,* Petition No. VIII-00-1 (November 16, 2000) (Pacificorp) (available on the Internet at: *http://www.epa.gov/region07/programs/artd/air/title5/petitiondb/petitions/woc020.pdf),* and *In the Matter of Fort James Camas Mill,* Petition No. X-1999-1 (December 22, 2000) ( *Fort James* ) available on the Internet at: *http://www.epa.gov/region07/programs/artd/air/title5/petitiondb/petitions/fort_james_decision1999.pdf.* 2 *Natural Resources Defense Council* v. *EPA,* 194 F.3d 130 (DC Cir. 1999) ( *NRDC* ) and *Appalachian Power* v. *EPA,* 208 F.3d 1015 (DC Cir. 2000) ( *Appalachian Power* ). We decided following those two decisions that we could interpret §§ 70.6(c)(1) and 71.6(c)(1) as an independent source of authority for permit writers to assess and enhance monitoring requirements through the operating permits process, and adopted that interpretation in our responses to citizen petitions for the permits proposed for the Pacificorp and Fort James Camas Mills facilities, as well as in the 2002 proposed rule. Simply put, the monitoring related portions of the petitions filed in 1998 and 1999 requested not only that the permits include existing monitoring requirements, but also asked us to require permitting authorities to:
(1)Assess the sufficiency of the existing monitoring requirements beyond assessing their periodic nature, and
(2)enhance the requirements as necessary to assure compliance with permit terms and conditions. We had documented that two-part monitoring assessment and enhancement process for parts 70 and 71 in the Periodic Monitoring Guidance 3 issued in 1998; however, we subsequently withdrew the Guidance as a result of the *Appalachian Power* decision, which vacated the Guidance on the grounds that it overreached the plain language of the periodic monitoring rules, §§ 70.6(a)(3) and 71.6(a)(3). The Court said in that decision that the plain language of these sections provided that monitoring requirements could be amended via the title V permitting process only where the applicable emission standard contains no monitoring requirement, a one-time startup test, or provides no frequency for monitoring. In our orders regarding the Pacificorp and Fort James petitions, we relied on §§ 70.6(c)(1) and 71.6(c)(1), rather than the periodic monitoring rules, to authorize an independent assessment of the sufficiency of the monitoring to provide an assurance of compliance. 3 “Periodic Monitoring Guidance,” signed by Eric V. Schaffer, Director, Office of Regulatory Enforcement, and John S. Seitz, Director, Office of Air Quality Planning and Standards, September 15, 1998. The September 2002 proposal to revise §§ 70.6(c)(1) and 71.6(c)(1) by deleting the introductory clause was meant to clarify the regulations consistent with this previous interpretation. On that same day, we separately issued an interim final rule effective from September 17, 2002, until Nov. 18, 2002. 67 FR 58529 (Sept. 17, 2002). By promulgating this interim final rule, we suspended, for sixty days, the italicized prefatory language in § 70.6(c)(1) providing that all title V permits contain, *“[c]onsistent with paragraph (a)(3) of this section* compliance certification, testing, monitoring, reporting, and recordkeeping requirements sufficient to assure compliance with the terms and conditions of the permit.” 67 FR 58532. In reviewing both our September 17, 2002, proposal to include the sufficiency assessment as part of the title V operating permits program, as well as the public comments received, we decided after further reflection that the plain language of §§ 70.6(c)(1) and 71.6(c)(1) indicates that they direct permitting authorities to include monitoring under existing statutory and regulatory authorities in permits, but does not authorize or require them to assess the sufficiency of underlying monitoring requirements. Therefore, we published a final rule (69 FR 3202, January 22, 2004) in which we determined not to adopt the regulatory changes to parts 70 and 71 proposed in 2002. In the January 22, 2004 rule, we noted that the appropriate interpretation of §§ 70.6(c)(1) and 71.6(c)(1), consistent with the background and intent of parts 70 and 71, is that they do not provide a basis for requiring or authorizing review and enhancement of existing monitoring requirements in operating permits, independent of any other review and enhancement that be may required under other rules. In the January 22, 2004 notice, we identified other applicable regulatory vehicles that more appropriately address monitoring requirements other than the parts 70 and 71 general operating permits regulations and the periodic monitoring requirements. The types of monitoring requirements we referenced included:
(1)monitoring directed by applicable requirements under the Act including, but not limited to, monitoring required under 40 CFR part 64, where it applies, as well as monitoring required under Federal rules such as new source performance standards of 40 CFR part 60 (NSPS), national emissions standards for hazardous air pollutants of 40 CFR parts 61 and 63 (NESHAP), acid rain rules of 40 CFR parts 72 through 78, and State, Tribal, and Federal implementation plan rules; and
(2)such monitoring as may be required under the narrow definition of gap-filling as required under the periodic monitoring rules (§§ 70.6(a)(3)(i)(B) and 71.6(a)(3)(i)(B)). Petitioners challenged the Agency's January 22, 2004, rule on the basis that it unlawfully and arbitrarily prohibited permitting authorities from requiring additional monitoring in title V permits where existing monitoring obligations in underlying applicable requirements were not sufficient to assure source compliance. 4 On October 7, 2005, the United States Court of Appeals vacated the January 22, 2004, final rule on procedural grounds, holding that the final rule was not a “logical outgrowth” of our September 17, 2002, proposal in violation of the Administrative Procedure Act's notice-and-comment requirements. 4 *Environmental Integrity Project* v. *EPA* , 425 F.3d 992 (D.C. Cir. 2005). III. What Does This Action Involve? As mentioned in the prior section and as discussed below, we have decided to withdraw the revisions to §§ 70.6(c)(1) and 71.6(c)(1) that we proposed on September 17, 2002 (67 FR 58561). In addition, we propose for comment, based on a reasonable interpretation of the Act, that the plain language and structure of §§ 70.6(c)(1) and 71.6(c)(1) do not provide an independent basis for requiring or authorizing review and enhancement of existing monitoring in title V permits. We believe that other rules establish a basis for such review and enhancement, including:
(1)The periodic monitoring rules of parts 70 and 71 and
(2)compliance assurance monitoring of 40 CFR part 64 (62 FR 54900, October 22, 1997) where it applies. Other applicable regulatory requirements that address monitoring design and implementation, include, but are not limited to:
(1)NSPS,
(2)NESHAP,
(3)acid rain program rules, and
(4)State, tribal and Federal implementation plan rules approved under title I of the Act. In addition, we recognize and propose that there are current and future opportunities to advance monitoring through regulatory and other mechanisms more effectively than through a nonspecific requirement in §§ 70.6(c)(1) and 71.6(c)(1) of the operating permits rules that the proposed (September 17, 2002) revisions would have created. A. Will the Regulatory Text of the Rules Change Under This Action? No, this action does not change any regulatory text. B. Is There a Need To Address Comments Received Concerning the September 17, 2002 Proposal? We addressed significant comments received on the September 17, 2002, proposal in the January 22, 2004, rule and in a summary document available in the docket. While we refer to some of the comments in the discussion below, because this action withdraws the proposal, there is no further need to address the comments on the proposal. C. What Is the Correct Interpretation of §§ 70.6(c)(1) and 71.6(c)(1)? Notwithstanding the recitation in §§ 70.6(c)(1) and 71.6(c)(1) of monitoring as a permit element, we propose that the correct interpretation of §§ 70.6(c)(1) and 71.6(c)(1) is that these provisions do not establish a separate regulatory standard or basis for requiring or authorizing review and enhancement of existing monitoring independent of any review and enhancement that may be required under other portions of the rules. Instead, these paragraphs require the permitting authority to include in title V permits a number of elements ( *e.g.* , reporting, record keeping, compliance certifications) related to compliance; among these elements is the monitoring as specified in §§ 70.6(a)(3) and 71.6(a)(3) ( *i.e.* , monitoring defined by the applicable requirements and periodic monitoring, if needed). More specifically, both §§ 70.6(c)(1) and 71.6(c)(1) provide only that permits contain “monitoring * * * requirements sufficient to assure compliance with the terms and conditions of the permit.” This general language does not provide any indication of what type or frequency of monitoring is required. For monitoring, however, §§ 70.6(c)(1) and 71.6(c)(1) take on additional meaning when considered with the more detailed periodic monitoring rules in §§ 70.6(a)(3)(i)(B) and 71.6(a)(3)(i)(B), which specify that periodic monitoring must be “sufficient to yield reliable data from the relevant time period that are representative of the source's compliance with the permit,” or with the monitoring required in other provisions of §§ 70.6(a)(3) and 71.6(a)(3). This means that either the monitoring from applicable requirements or the periodic monitoring included under §§ 70.6(a)(3)(i)(B) and 71.6(a)(3)(i)(B) satisfies the compliance provisions in §§ 70.6(c)(1) and 71.6(c)(1). In summary, §§ 70.6(c)(1) and 71.6(c)(1) constitute general provisions that direct permitting authorities to include the monitoring required under *existing* statutory and regulatory authorities in title V permits along with other compliance related requirements. These provisions do not require or authorize a new and independent assessment of monitoring requirements to assure compliance. D. What Are the Effects of This Action on Pacificorp and Fort James Petitions? Our responses to the monitoring aspects of the Pacificorp and Fort James title V petitions were based on the same interpretation of § 70.6(c)(1) that we took in the September 17, 2002 proposal, under which we read that provision as requiring a sufficiency review of existing monitoring requirements. That interpretation of § 70.6(c)(1) is different than the interpretation that we propose with this action. We are proposing that §§ 70.6(c)(1) and 71.6(c)(1) should be interpreted as not establishing a separate regulatory standard or basis for requiring or authorizing review and enhancement of existing monitoring independent of any review and enhancement that may be required under §§ 70.6(a)(3) and 71.6(a)(3) or other Federal rules. In fact, even if we had applied the interpretation of § 70.6(c)(1) in the Pacificorp and Fort James citizen petitions that we propose with this action, we believe that application of that different interpretation would have had a minimal impact on our response to the petitions. In the former instance, we required an already-installed continuous opacity monitoring system
(COMS)to provide quarterly opacity data in lieu of quarterly Method 9 visible opacity readings. We note that the owners or operators would have collected the COMS data in any case and reported any excursions as other information available as part of the annual compliance certification. In the latter instance, we relied on our sufficiency monitoring interpretation of the rule in response to one of the approximately twenty monitoring provisions at issue in the Fort James permit by requiring a sufficiency review of a newly-developed control device inspection performed monthly for an annual particulate matter standard. While our request for documentation of the link between inspections and maintenance of the annual emissions limit was appropriate, our authority under the periodic monitoring rules allowed us to point out there was no frequency of monitoring specified in the standard. Thus, we did not need to comment pursuant to §§ 70.6(c)(1) and 71.6(c)(1) on the adequacy of the frequency of monitoring established by the permitting authority. Under the circumstances that we have just described, we believe that follow-up activity with regard to the Pacificorp or Fort James permits is unnecessary. If, after the public comment period, we decide to finalize the interpretation of §§ 70.6(c)(1) and 71.6(c)(1) that we propose with this action, the owners or operators of those facilities may choose to revisit these particular terms and conditions in their permits via the permit revision process or at permit renewal. Such revisions may include deleting redundant quarterly Method 9 visible opacity readings via permit streamlining 5 given that the COMS is already required and provides essentially the same data continuously. 5 40 CFR 70.6(a)(3)(i)(A). E. How Do We Intend To Advance Better Monitoring? As the Court noted in *NRDC,* EPA's enhanced monitoring program to assure compliance with applicable requirements is not, and need not be, implemented under a single rule. 194 F.3d at 135. Our enhanced monitoring program encompasses a number of regulatory and other mechanisms to improve and advance better monitoring for stationary sources subject to air emissions regulations implementing the Act. Central to the program is the development of over 90 source category-specific regulations ( *e.g.* , NESHAP regulations in 40 CFR part 63) since 1990 that address monitoring to assure compliance with emissions limitations. The program to address enhanced monitoring also includes 40 CFR part 64, the CAM rule, that requires owners or operators who rely on add-on control devices ( *e.g.* , fabric filters and scrubbers) to meet applicable emissions limits to assess existing monitoring requirements according to prescribed procedures and operating criteria. In the preamble to the CAM rulemaking (62 FR 54900, October 22, 1997), we noted that “* * * part 64 is intended to address:
(1)The requirement in title VII of the 1990 Amendments that EPA promulgate enhanced monitoring and compliance certification requirements for major sources, *and*
(2)the related requirement in title V that operating permits include monitoring, compliance certification, reporting and recordkeeping provisions to assure compliance.” (emphasis added). We clearly indicated by this statement that part 64 will address and satisfy the monitoring requirements required for those permitted facilities subject to the CAM rule. In the CAM rule, we also recognized that the basis for monitoring sufficient to assure compliance is inherent in many existing regulations. For example, we noted that “* * * monitoring of covered units and sources under some NSPS may be sufficient to meet part 64 requirements; however, the question of sufficiency of any particular monitoring requirement from a non-exempt standard will have to be determined in accordance with the requirements of part 64.” (62 FR 59940, October 22, 1997). Thus, part 64 requires the source owner or operator to design, submit, and implement new monitoring as needed to assure compliance with existing ( *e.g.* , pre-1991) regulatory requirements and, by doing so, satisfy the statute. We also are continuing to pursue the four-step strategy that we described in the January 22, 2004, rulemaking for improving existing monitoring where necessary through rulemaking actions while reducing resource-intensive, case-by-case monitoring reviews. The interpretation of §§ 70.6(c)(1) and 71.6(c)(1) that we propose with this action is a first part of that strategy. Second, on February 16, 2005 (70 FR 7905), we published a request for comment on potentially inadequate monitoring in applicable requirements and on methods to improve such monitoring. We are reviewing comments received in response to that notice and intend to take appropriate action in response. Third, we have also published a proposed rulemaking concerning the implementation of the national ambient air quality standard (NAAQS) for fine particulate matter (particulate matter with an aerodynamic diameter of less than 2.5 micrometers, or PM <sup>fine</sup> ). In conjunction with finalizing that rule, we plan to issue monitoring guidance that we intend to make available for public comment. We intend that such material would encourage States and Tribes to improve monitoring in SIPs and TIPs relative to implementing the NAAQS. Fourth, many who commented on the September 17, 2002 proposed rule raised concerns that the rules implementing EPA's enhanced monitoring program do not yet address some existing requirements. In particular, they noted that there are requirements in existing rules that are not affected by 40 CFR part 64 ( *e.g.* , units with control measures other than add-on devices), post-1990 NESHAP and NSPS, or the soon-to-be-developed SIP rules such as the PM <sup>fine</sup> implementation rules. We agree and have learned through implementing the operating permits and other regulatory programs that there continue to be opportunities to improve monitoring in existing requirements, achieve improved compliance, and assure emissions reductions. IV. What Is the Policy Rationale for This Action? This action clarifies the role that the title V permitting process plays in ensuring that the statutory monitoring requirements are met. Several policy considerations—many of which were raised in comments on the 2002 proposed rule—have motivated our decision to pursue an approach to title V monitoring that will achieve necessary improvements in the monitoring required of title V sources primarily through national rulemakings or guidance for States to revise their SIP rules, rather than through authorizing or requiring permitting authorities to perform case-by-case monitoring. First, this approach will improve the balance between the responsibility that States and other permitting authorities have for issuing and implementing title V permits and our responsibility for developing rules establishing monitoring requirements sufficient to meet the Act's monitoring requirements. The interpretation we propose would limit the authority of permitting authorities under §§ 70.6(c)(1) and 71.6(c)(1) to conduct case-by-case assessments of the sufficiency of monitoring required by other rules. We emphasize that this interpretation relative to parts 70 and 71 does not affect the State, Tribal, or other permitting agency's authority under other applicable rules to assess and impose alternative or new monitoring requirements. Such other authorities with respect to monitoring include the applicable SIP or TIP and the alternative testing and monitoring assessments and approval procedures in §§ 60.8, 60.13, 61.13, 61.14, 63.7, and 63.8. This interpretation also does not affect the development of monitoring necessary to implement other specific provisions relating to permits, including monitoring to allow for operational flexibility, monitoring under alternative scenarios, and monitoring consistent with permit streamlining ( *e.g.* , §§ 70.4(d)(3)(viii) and
(xi)and 70.6(a)(3)(i)(A)). This proposed interpretation would avoid two significant permit implementation issues arising from our previous interpretation that §§ 70.6(c)(1) and 71.6(c)(1) require an independent assessment of the adequacy of otherwise applicable monitoring requirements. First, under this previous alternative interpretation, for each draft title V permit, permitting authorities would be required to review every permit term or condition, based on applicable requirements, and determine, generally without any definitive national guidance or regulation, whether the existing monitoring requirements are sufficient to assure compliance with such terms and conditions. The complex industrial sources and other sources subject to title V are subject to numerous applicable requirements and their draft permits contain numerous terms and conditions, which means that such reviews would be time-consuming and demand that permit writers develop and maintain highly technical expertise. This proposed interpretation that §§ 70.6(c)(1) and 71.6(c)(1) do not require such additional assessments and new monitoring development would relieve many significant burdens on State, local, and Tribal permitting authorities charged with implementing the rule that the previous interpretation would have imposed. Second, under the previous interpretation, permit writers may have determined that existing monitoring would not assure compliance with the permit's terms and conditions and, in response, would have to propose new or revised monitoring to satisfy an unclear sufficiency requirement. This would have been without the benefit of an established process for determining what types of monitoring would satisfy the statutory and regulatory requirements. This approach would have required a significant level of expertise within the permitting authority and likely resulted in confusion and disagreements over the monitoring decisions made by permitting authorities. Some State and local permitting authorities have attributed delays in permit issuance to such case-by-case efforts to develop and approve monitoring for individual permits, as indicated by comments on the September 17, 2002, proposed changes to §§ 70.6(c)(1) and 71.6(c)(1). (See more detailed EPA responses to all significant comments raised on the proposal below and in a separate document placed in the docket.) In addition to the excessive burden and confusion issues outlined above, one permitting authority also indicated that such independent monitoring assessments under §§ 70.6(c)(1) and 71.6(c)(1) would likely result in relatively arbitrary and inconsistent monitoring decisions from permit to permit and make permit issuance more difficult. Thus, we believe that requiring States and other permitting authorities to assess the adequacy of all existing monitoring and, as necessary, to upgrade monitoring through the title V permitting process would place a significant, unmanageable, and unnecessary burden on those permitting authorities. We believe that this interpretation will mitigate those concerns. We also received comments from industry representatives who indicated that requiring sufficiency reviews under §§ 70.6(c)(1) and 71.6(c)(1) would have placed undue burdens on title V sources. All industry representatives who provided comments stated that the 2002 proposed rule's changes to §§ 70.6(c)(1) and 71.6(c)(1) would lead to increased burdens on States and on sources. For instance, those who commented cited several examples indicating that case-by-case monitoring assessments and development of new monitoring requirements can delay permit issuance and renewals. Furthermore, commenters suggested that using rulemaking to revise monitoring requirements will assure that the new monitoring requirements are adopted consistent with the intent of those control technology standards. Finally, we believe that this proposed interpretation of §§ 70.6(c)(1) and 71.6(c)(1) offers other advantages over the interpretation in the September 17, 2002 proposed rule. Specifically, we believe that applying a programmatic approach to reviewing, proposing, and promulgating improvements to existing monitoring requirements through Federal, State, or local rulemaking as we propose is an effective use of resources and available technical expertise. This proposed approach will be far more efficient and effective than relying on more resource-intensive, case-by-case sufficiency reviews under §§ 70.6(c)(1) and 71.6(c)(1) during the process of developing and reviewing permits. Monitoring developed through national rulemaking is also likely to result in greater consistency in monitoring requirements included in permits both within States and nationally. In addition, we expect that a national regulatory program to assess and improve potentially inadequate monitoring requirements will result in broader public input into monitoring decisions than is possible during individual permit proceedings. We believe this is true because formal national rulemaking procedures involve an opportunity for broad public comment and hearing, attracting a larger national audience of individuals more knowledgeable about technical issues specific to monitoring technologies as related to specific source categories, pollutants, and control measures. The resulting regulatory outcomes would facilitate the requirements of section 502(b)(6) of the Act for an adequate, streamlined, reasonable, and expeditious process for reviewing and implementing permit actions. Moreover, national rulemakings are more likely than individual permit proceedings to result in better consideration of potential economic impacts. For example, Executive Order 12866 provides for the following analyses:
(l)Stating the need for the proposed regulatory action;
(2)examining alternative approaches to the problem;
(3)quantifying benefits and costs and valuing them in dollar terms (where feasible); and
(4)evaluating the findings on benefits, costs, and distributional effects. Statutory or regulatory provisions or Executive Orders requiring detailed consideration of economic impacts or other burdens imposed by various types of monitoring apply to Federal rulemakings but are not required in individual permit proceedings. Thus, compared to the September 17, 2002 proposed rule's approach, the approach we propose has the added benefit of providing a greater degree of scrutiny of decisions concerning the potential economic impact of proposed monitoring requirements. We believe it is necessary and appropriate to clarify through an interpretive rule that §§ 70.6(c)(1) and 71.6(c)(1) do not authorize or require States and other permitting authorities to assess the adequacy of all existing monitoring, and, as necessary, to upgrade monitoring through the title V permitting process. We believe that the comprehensive regulatory development approach for addressing monitoring has resulted and will continue to result in development and implementation of more consistent and more effective monitoring requirements, and reduced confusion about what monitoring requirements should be imposed in individual permits. When inadequate monitoring is improved through rulemaking at the national or State level, the improved monitoring can be incorporated into title V permits with little, if any, source-specific tailoring, thereby eliminating some of the variations in monitoring determinations inherent in case-by-case reviews. More consistent monitoring requirements in permits nationally should also help to eliminate concerns about potential inequities in monitoring amongst similarly-situated sources in different jurisdictions. V. What Is the Legal Basis for This Action? Various factors have prompted EPA's decision regarding §§ 70.6(c)(1) and 71.6(c)(1). EPA believes that the plain language of §§ 70.6(c)(1), and 71.6(c)(1), which begins with the phrase “[c]onsistent with” §§ 70.6(a)(3) and 71.6(a)(3), indicates that §§ 70.6(c)(1) and 71.6(c)(1) include and gain meaning from the more specific monitoring requirements in §§ 70.6(a)(3) and 71.6(a)(3). Both §§ 70.6(c)(1) and 71.6(c)(1) provide only that permits contain “monitoring * * * requirements sufficient to assure compliance with the terms and conditions of the permit.” Read in isolation, this general language does not provide any indication of what type or frequency of monitoring is required. Yet, for monitoring, §§ 70.6(c)(1) and 71.6(c)(1) take on practical meaning when they are read together with the more detailed periodic monitoring rules, which specify that periodic monitoring must be “sufficient to yield reliable data from the relevant time period that are representative of the source's compliance with the permit,” or with other provisions of §§ 70.6(a)(3) and 71.6(a)(3). 6 Thus, the plain language and structure of §§ 70.6(c)(1) and 71.6(c)(1) and the periodic monitoring rules show that §§ 70.6(c)(1) and 71.6(c)(1) support the interpretation that we are proposing. 6 For instance, each permit must contain, with respect to monitoring,
(1)“[a]ll monitoring and analysis procedures or test methods required under applicable monitoring and testing requirements, including [the CAM rule] and any other procedures and methods that may be promulgated pursuant to sections 114(a)(3) and 504(b) of the Act,” see §§ 70.6(a)(3)(i)(A) and 71.6(a)(3)(i)(A); and
(2)“[a]s necessary, requirements concerning the use, maintenance, and, where appropriate, installation of monitoring equipment or methods.” §§ 70.6(a)(3)(i)(C) and 71.6(a)(3)(i)(C). In addition, the policy considerations discussed in section IV of this preamble support EPA's determination that our proposed interpretation of §§ 70.6(c)(1) and 71.6(c)(1) is the correct one. In sum, this approach will better balance the responsibilities of States and other permitting authorities and EPA to improve monitoring where necessary to ensure that the Act's monitoring requirements are met. Compared to 2002 proposed rule's approach, this approach will also reduce burdens on title V sources, be more efficient from a resource standpoint, result in more equitable monitoring decisions, and allow for wider, more expert public input into monitoring decisions. This interpretation of §§ 70.6(c)(1) and 71.6(c)(1) is consistent with EPA's authority under the Act and the underlying rules. Congress granted EPA broad discretion to decide how to implement the title V monitoring requirements and the “enhanced monitoring” requirement of section 114(a)(3) of the Act. 7 Two provisions of title V of the Act specifically address rulemaking concerning monitoring. First, section 502(b)(2) of the Act requires EPA to promulgate regulations establishing minimum requirements for operating permit programs, including “[m]onitoring and reporting requirements.” 42 U.S.C. 7661a(b)(2). Second, section 504(b) authorizes EPA to prescribe “procedures and methods” for monitoring “by rule.” 42 U.S.C. 7661c(b). Section 504(b) provides: “The Administrator *may by rule* prescribe procedures and methods for determining compliance and for monitoring and analysis of pollutants regulated under this Act, but continuous emissions monitoring need not be required if alternative methods are available that provide sufficiently reliable and timely information for determining compliance. * * *” (Emphasis added.) Id. 7 Section 114(a)(3) of the Act provides that “[t]he Administrator shall in the case of any person which is the owner or operator of a major stationary source, and may, in the case of any other person, require enhanced monitoring and submission of compliance certifications.” 42 U.S.C. 7414(a)(3). Other provisions of title V refer to the monitoring required in individual operating permits. Section 504(c) of the Act, which contains the most detailed statutory language concerning monitoring, requires that “[e]ach [title V permit] shall set forth inspection, entry, monitoring, compliance certification, and reporting requirements to assure compliance with the permit terms and conditions.” 42 U.S.C. 7661c(c). Section 504(c) further specifies that “[s]uch monitoring and reporting requirements shall conform to any applicable regulation under [section 504(b)]. * * *” Id. Section 504(a) more generally requires that “[e]ach [title V permit] shall include enforceable emission limitations and standards, * * * and such other conditions as are necessary to assure compliance with applicable requirements of this Act, including the requirements of the applicable implementation plan.” 42 U.S.C. 7661c(a). Thus, title V clearly authorizes the Agency to require improvements to the existing monitoring required by applicable requirements in at least two ways. Under the statute, we may require case-by-case monitoring reviews as described in the revisions to parts 70 and 71 proposed on September 17, 2002. Alternatively, we may achieve any improvements to monitoring through Federal or State rulemakings to amend the monitoring provisions of applicable requirements themselves; these amended monitoring requirements may then be incorporated into title V permits without engaging in case-by-case sufficiency monitoring reviews. This interpretation of §§ 70.6(c)(1) and 71.6(c)(1) is consistent with EPA's authority under the Act and the underlying rules. We have exercised the authority the Act provides by establishing monitoring requirements under national rules, such as 40 CFR part 64, NSPS requirements under part 60, NESHAP requirements under part 61, MACT standards under part 63, and the continuous emissions monitoring rule under the acid rain program (40 CFR part 75). Based on comments received on the 2002 proposed rule and as a matter of policy (see section IV of this preamble), we believe that that the approach we propose is preferable to an approach requiring case-by-case monitoring reviews under §§ 70.6(c)(1) and 71.6(c)(1). We believe that improving the monitoring required of title V sources by developing new standards, by revising existing Federal standards that contain inadequate monitoring, and by encouraging States to revise SIP rules that contain inadequate monitoring, will balance the responsibilities of EPA with those of the States and other permitting authorities more clearly and will result in more equitable and more efficient monitoring decisions. Our four-step approach, which includes this action, as well as developing PM <sup>fine</sup> implementation guidance, responding with appropriate regulatory and other actions resulting from comments on the advance notice of proposed rulemaking that identify existing requirements with potentially inadequate monitoring, and continuing effort to enhance monitoring through separate rulemakings including future revisions to the CAM rule, will ensure that the Act's monitoring requirements will be met. First, our renewed emphasis on establishing monitoring requirements through rulemaking gives full effect to section 504(b) of the Act, which provides that “[t]he Administrator may *by rule* prescribe procedures and methods for determining compliance and for monitoring and analysis of pollutants * * *” 42 U.S.C. 7661c(b) (emphasis added). Second, this approach also is intended to ensure that section 504(c)'s command that each title V permit “set forth * * * monitoring * * * to assure compliance with the permit terms and conditions” will be satisfied through the combination of EPA (and as necessary State) rulemakings to address monitoring, and the addition to permits of such monitoring as may be required under §§ 70.6(a)(3)(i)(B) and 71.6(a)(3)(i)(B). See 42 U.S.C. 7661c(c). Finally, satisfying the specific monitoring requirements of section 504(c) will assure that the more general requirements of section 504(a) are satisfied as to monitoring. The statutory monitoring provisions—particularly, section 504(c), which specifically requires that monitoring contained in permits to assure compliance *“shall conform to any applicable regulation under [section 504(b)]”* —clearly contemplate that monitoring in permits must reflect current regulations. We anticipate that some monitoring that appears in permits as required under existing applicable requirements could be improved; however, we believe that addressing such deficiencies through rulemaking will be the most expeditious approach to resolving such deficiencies. VI. Statutory and Executive Order Reviews A. Executive Order 12866: Regulatory Planning and Review Under Executive Order 12866 (58 FR 51735, October 4, 1993), we must determine whether a regulatory action is “significant” and therefore subject to Office of Management and Budget
(OMB)review and the requirements of the Executive Order. The Order defines a “significant regulatory action” as one that is likely to result in a rule that may: 1. Have an annual effect on the economy of $100 million or more, adversely affecting in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety in State, local, or tribal governments or communities; 2. Create a serious inconsistency or otherwise interfere with an action taken or planned by another agency; 3. Materially alter the budgetary impact of entitlement, grants, user fees, or loan programs of the rights and obligations of recipients thereof; or 4. Raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order. Under Executive Order 12866, we determined that this interpretative rule is a “significant regulatory action” because it raises important legal and policy issues. As such, we submitted this rule to OMB for review. Changes made in response to OMB suggestions or recommendations will be documented in the public record. B. Paperwork Reduction Act This action does not impose any new information collection burden and does not adopt the revision to the text of §§ 70.6(c)(1) and 71.6(c)(1) that we proposed in the September 17, 2002 notice. This action merely states that notwithstanding the recitation in §§ 70.6(c)(1) and 71.6(c)(1) of monitoring as a permit element, these provisions do not establish a separate regulatory standard or basis for requiring or authorizing review and enhancement of existing monitoring independent of any review and enhancement as may be required under §§ 70.6(a)(3) and 71.6(a)(3). The information collection requirements in the existing regulations (parts 70 and 71) were previously approved by OMB under the requirements of the Paperwork Reduction Act, 44 U.S.C. 3501 *et seq.* The existing ICR for part 70 is assigned EPA ICR number 1587.05 and OMB control number 2060-0243; for part 71, the EPA ICR number is 1713.04 and the OMB control number is 2060-0336. A copy of the OMB approved Information Collection Request
(ICR)may be obtained from Susan Auby, Collection Strategies Division; U.S. Environmental Protection Agency (2822T); 1200 Pennsylvania Ave., NW., Washington, DC 20004 or by calling
(202)566-1672. Under the Paperwork Reduction Act, burden means the total time, effort, or financial resources expended by persons to generate, maintain, retain, or disclose or provide information to or for a Federal agency. This includes the time needed to review instructions; develop, acquire, install, and utilize technology and systems for the purposes of collecting, validating, and verifying information, processing and maintaining information, and disclosing and providing information; adjust the existing ways to comply with any previously applicable instructions and requirements; train personnel to be able to respond to a collection of information; search data sources; complete and review the collection of information; and transmit or otherwise disclose the information. An agency may not conduct or sponsor, and a person is not required to respond to a collection of information unless it displays a currently valid OMB control number. The OMB control numbers for EPA's regulations in 40 CFR are listed in 40 CFR part 9. C. Regulatory Flexibility Act
(RFA)The RFA generally requires an Agency to prepare a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements under the Administrative Procedure Act or any other statute, unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. Small entities include small businesses, small not-for-profit enterprises, and small governmental jurisdictions. For purposes of assessing the impacts of this action on small entities, small entity is defined as:
(1)A small business as defined by the Small Business Administration by category of business using the North American Industrial Classification System (NAICS) and codified at 13 CFR 121.201;
(2)a small governmental jurisdiction that is a government of a city, country, town, school district, or special district with a population of less than 50,000; and
(3)a small organization that is any not-for-profit enterprise which is independently owned and operated and is not dominant in its field. After considering the economic impacts of this proposed rule on small entities, I certify that this action will not have a significant economic impact on a substantial number of small entities. The originally promulgated part 70 and part 71 rules included the text of §§ 70.6(c)(1) and 71.6(c)(1), and this proposed interpretation does not revise that text. Moreover, any burdens associated with the interpretation of §§ 70.6(c)(1) and 71.6(c)(1) proposed in this action are less than those associated with any interpretation under the proposed rule and that we may have previously enunciated. We continue to be interested in the potential impacts of the proposed rule on small entities and welcome comments on issues related to these impacts. D. Unfunded Mandates Reform Act Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public Law 104-4, establishes requirements for Federal agencies to assess the effects of their regulatory actions on State, local, and tribal governments and the private sector. Under section 202 of the UMRA, EPA must prepare a written statement, including a cost-benefit analysis, for proposed and final rules with “Federal mandates” that may result in expenditures to State, local, and tribal governments, in the aggregate, or to the private sector, of $100 million or more in any one year. Before promulgating a rule for which a written statement is needed, section 205 of the UMRA generally requires EPA to identify and consider a reasonable number of regulatory alternatives and adopt the least-costly, most cost-effective or least burdensome alternative that achieves the objectives of the rule. The provisions of section 205 do not apply where they are inconsistent with applicable law. Moreover, section 205 allows EPA to adopt an alternative other than the least-costly, most cost-effective or least burdensome alternative if the Administrator publishes with the final rule an explanation why that alternative was not adopted. Before EPA establishes any regulatory requirements that may significantly or uniquely affect small governments, including tribal governments, EPA must have developed under section 203 of the UMRA a small government agency plan. The plan must provide for notifying potentially affected small governments, enabling officials of affected small governments to have meaningful and timely input in the development of our regulatory proposals with significant Federal intergovernmental mandates, and informing, educating, and advising small governments on compliance with the regulatory requirements. This action contains no new Federal mandates (under the regulatory provisions of title II of the UMRA) for State, local, or tribal governments or the private sector. This action imposes no new enforceable duty on any State, local or tribal governments or the private sector. Rather, EPA merely states that §§ 70.6(c)(1) and 71.6(c)(1) do not establish a separate regulatory standard or basis for requiring or authorizing review and enhancement of existing monitoring, independent of any review and enhancement as may be required under the periodic monitoring rules, §§ 70.6(a)(3) and 71.6(a)(3). Therefore, this action is not subject to the requirements of sections 202 and 205 of the UMRA. In addition, EPA has determined that this action contains no new regulatory requirements that might significantly or uniquely affect small governments. With this action, EPA sets out the correct interpretation of §§ 70.6(c)(1) and 71.6(c)(1), which is that they do not require or authorize title V permitting authorities—including any small governments that may be such permitting authorities—to conduct reviews and provide enhancement of existing monitoring through case-by-case monitoring reviews of individual permits under §§ 70.6(c)(1) and 71.6(c)(1). Therefore, this action is not subject to the requirements of section 203 of the UMRA. E. Executive Order 13132: Federalism Executive Order 13132, entitled “Federalism” (64 FR 43255, August 10, 1999), requires EPA to develop an accountable process to ensure “meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications.” “Policies that have federalism implications” is defined in the Executive Order to include regulations that 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.” This action does not have any new federalism implications. The action will not have new substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132. This interpretation will not impose any new requirements. Accordingly, it will not alter the overall relationship or distribution of powers between governments for the part 70 and part 71 operating permits programs. Thus, Executive Order 13132 does not apply to this action. F. Executive Order 13175: Consultation and Coordination with Indian Tribal Governments Executive Order 13175, “Consultation and Coordination with Indian Tribal Governments” (65 FR 67249, November 6, 2000), requires EPA to develop an accountable process to ensure “meaningful and timely input by tribal officials in the development of regulatory policies that have tribal implications.” “Policies that have tribal implications” is defined in the Executive Order to include regulations that have “substantial direct effects on one or more Indian tribes, on the relationship between the Federal government and the Indian tribes, or on the distribution of power and responsibilities between the Federal government and Indian tribes.” This action does not have new tribal implications because it will not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal government and Indian tribes, or on the distribution of power and responsibilities between the Federal government and Indian tribes, as specified in Executive Order 13175. This action does not significantly or uniquely affect the communities of Indian tribal governments. As discussed above, this action imposes no new requirements that would impose compliance burdens beyond those that would already apply. Accordingly, Executive Order 13175 does not apply to this rule. G. Executive Order 13045: Protection of Children from Environmental Health Risks and Safety Risks Executive Order 13045, “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997), applies to any rule that:
(1)Is determined to be “economically significant” as defined under Executive Order 12866, and
(2)concerns an environmental health or safety risk that EPA has reason to believe may have a disproportionate effect on children. If the regulatory action meets both criteria, the Agency must evaluate the environmental health or safety effects of the planned rule on children and explain why the planned regulation is preferable to other potentially effective and reasonably feasible alternatives considered by the Agency. This action is not subject to Executive Order 13045 because it is not “economically significant” as defined under Executive Order 12866 and because it is not expected to have a disproportionate effect on children. H. Executive Order 13211: Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use This action is not a “significant energy action,” as defined in Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001), because it is not likely to have a significant adverse effect on the supply, distribution, or use of energy. This action merely withdraws the revisions to the text of §§ 70.6(c)(1) and 71.6(c)(1) proposed on September 17, 2002 and proposes for comment that these provisions do not establish a separate regulatory standard or basis for requiring or authorizing review and enhancement of existing monitoring independent of any review and enhancement of monitoring as may be required under §§ 70.6(a)(3) and 71.6(a)(3). Further, we have concluded that this action is not likely to have any adverse energy effects. I. National Technology Transfer and Advancement Act Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (NTTAA), Public Law No. 104-113, § 12(d) (15 U.S.C. § 272 note), directs EPA to use voluntary consensus standards in its regulatory activities unless to do so would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards ( *e.g.* , materials specifications, test methods, sampling procedures, and business practices) that are developed or adopted by voluntary consensus standards bodies. The NTTAA directs EPA to provide Congress, through OMB, explanations when the Agency decides not to use available and applicable voluntary consensus standards. The NTTAA does not apply to this action because it does not involve technical standards. Therefore, EPA did not consider the use of any voluntary consensus standards. J. Executive Order 12898: Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations Executive Order 12898, “Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations” (February 11, 1994), is designed to address the environmental and human health conditions of minority and low-income populations. EPA is committed to addressing environmental justice concerns and has assumed a leadership role in environmental justice initiatives to enhance environmental quality for all citizens of the United States. The Agency's goals are to ensure that no segment of the population, regardless of race, color, national origin, income, or net worth bears disproportionately high and adverse human health and environmental impacts as a result of EPA's policies, programs, and activities. Our goal is to ensure that all citizens live in clean and sustainable communities. This action merely proposes an interpretation of an existing rule and includes no changes that are expected to significantly or disproportionately impact environmental justice communities. Dated: May 25, 2006. Stephen L. Johnson, Administrator. [FR Doc. E6-8613 Filed 6-1-06; 8:45 am] BILLING CODE 6560-50-P ENVIRONMENTAL PROTECTION AGENCY 40 CFR Part 80 [EPA-HQ-OAR-2003-0216; EPA-HQ-OAR-2005-0149; FRL-8178-4] RIN 2060-AM27 and RIN 2060-AM88 Regulation of Fuel and Fuel Additives: Refiner and Importer Quality Assurance Requirements for Downstream Oxygenate Blending and Requirements for Pipeline Interface AGENCY: Environmental Protection Agency (EPA). ACTION: Notice of proposed rulemaking. SUMMARY: This proposed rule would amend the reformulated gasoline
(RFG)regulations to allow refiners and importers of reformulated gasoline blendstock for oxygenate blending, or RBOB, the option to use an alternative method of fulfilling a regulatory requirement to conduct quality assurance sampling and testing at downstream oxygenate blending facilities. This alternative method consists of a comprehensive program of quality assurance sampling and testing that would cover all terminals that blend oxygenate with RBOB in a specified reformulated gasoline covered area. The program would be carried out by an independent surveyor funded by industry. The program would be conducted pursuant to a survey plan, approved by EPA, that is calculated to achieve the same objectives as the current regulatory quality assurance requirement. This proposed rule also would largely codify existing guidance for compliance by parties that handle pipeline interface with requirements for gasoline content standards, recordkeeping, sampling and testing. The proposed rule also contains new provisions which would provide additional flexibility to these regulated parties. The proposed rule would also establish gasoline sulfur standards for transmix processors and blenders that are consistent with the sulfur standards for other entities, such as pipelines and terminals, that are downstream of refineries in the gasoline distribution system, and would clarify the requirements for transmix processors under the Mobile Source Air Toxics program. DATES: *Comments:* Comments must be received on or before July 3, 2006. Under the Paperwork Reduction Act, comments on the information collection provisions must be received by OMB on or before July 3, 2006. *Hearings:* If EPA receives a request from a person wishing to speak at a public hearing by June 19, 2006, a public hearing will be held on July 3, 2006. If a public hearing is requested, it will be held at a time and location to be announced in a subsequent **Federal Register** notice. To request to speak at a public hearing, send a request to the contact in FOR FURTHER INFORMATION CONTACT . ADDRESSES: Submit your comments, identified by Docket ID No. EPA-HQ-OAR-2003-0216 for comments on the transmix provisions, and EPA-HQ-OAR-2005-0149 for comments on the RBOB provisions, by one of the following methods: • *http://www.regulations.gov:* Follow the online instructions for submitting comments. • E-mail: *a-and-r-docket@epa.gov* . • Fax:
(202)566-1741, Attention Docket ID No. EPA-HQ-OAR-2003-0216 or EPA-HQ-OAR-2005-0149, as appropriate. • Mail: Air Docket, Docket ID No. EPA-HQ-OAR-2003-0216, or EPA-HQ-OAR-2005-0149, as appropriate, Environmental Protection Agency, Mailcode: 6102T, 1200 Pennsylvania Ave., NW., Washington, DC 20460. • Hand Delivery: EPA Docket Center, Room B102, EPA West Building, 1301 Constitution Avenue, NW., Washington, DC, Attention Air Docket ID No. EPA-HQ-OAR-2003-0216, or EPA-HQ-OAR-2005-0149, as appropriate. Such deliveries are accepted during the Docket's normal hours of operation, and special arrangements should be made for deliveries of boxed information. *Instructions:* Direct your comments to Docket ID No. EPA-HQ-OAR-2003-0216, or EPA-HQ-OAR-2005-0149, as appropriate. EPA's policy is that all comments received will be included in the public docket without change and may be made available online at *http://www.regulations.gov* , including any personal information provided, unless the comment includes information claimed to be Confidential Business Information
(CBI)or other information whose disclosure is restricted by statute. Do not submit information that you consider to be CBI or otherwise protected through www.regulations.gov. The www.regulations.gov Web site is an “anonymous access” system, which means EPA will not know your identity or contact information unless you provide it in the body of your comment. If you send an e-mail comment directly to EPA without going through www.regulations.gov your e-mail address will be automatically captured and included as part of the comment that is placed in the public docket and made available on the Internet. If you submit an electronic comment, EPA recommends that you include your name and other contact information in the body of your comment and with any disk or CD-ROM you submit. If EPA cannot read your comment due to technical difficulties and cannot contact you for clarification, EPA may not be able to consider your comment. Electronic files should avoid the use of special characters, any form of encryption, and be free of any defects or viruses. For additional information about EPA's public docket visit the EPA Docket Center homepage at *http://www.epa.gov/epahome/dockets.htm.* For additional instructions on submitting comments, go to Section I.B. of the SUPPLEMENTARY INFORMATION section of this document. *Docket:* All documents in the docket are listed in the www.regulations.gov index. Although listed in the index, some information is not publicly available, *e.g.* , CBI or other information whose disclosure is restricted by statute. Certain other material, such as copyrighted material, will be publicly available only in hard copy. Publicly available docket materials are available either electronically in *http://www.regulations.gov* or in hard copy at the Air Docket, EPA/DC, EPA West, Room B102, 1301 Constitution Ave., NW., Washington, DC. The Public Reading Room is open from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding legal holidays. The telephone number for the Public Reading Room is
(202)566-1744, and the telephone number for the Air Docket is
(202)566-1742. FOR FURTHER INFORMATION CONTACT: Chris McKenna, mailcode 6406J, Environmental Protection Agency, 1200 Pennsylvania Ave., NW., Washington, DC 20460; telephone number: 202-343-9037; fax number: 202-343-2802; e-mail address: *mckenna.chris@epa.gov* . SUPPLEMENTARY INFORMATION: For further information, please see the information provided in the direct final action that is located in the “Rules and Regulations” section of this **Federal Register** publication. In the “Rules and Regulations” section of the **Federal Register** , we are issuing these amendments to the RFG regulations as a direct final rule without prior proposal because we view them as non-controversial amendments and anticipate no adverse comment. If we receive no adverse comment, we will not take further action on this proposed rule. If we receive adverse comment, we will publish a timely withdrawal in the **Federal Register** informing the public that the portion of the direct final rule on which adverse comment was received will not take effect. Those portions of the rule on which adverse comment was not received will go into effect on the effective date noted in the DATES section. We will address all public comments in a subsequent final rule based on this proposed rule. We will not institute a second comment period on this action. Any parties interested in commenting must do so at this time. General Information A. Does This Action Apply to Me? Entities potentially affected by this action include those involved with the production or importation of gasoline motor fuel. Regulated categories and entities affected by this action include: Category NAICS codes a SIC codes b Examples of potentially regulated entities Industry 324110 2911 Petroleum Refiners. Industry 422710; 422720 5171; 5172 Gasoline Marketers and Distributors. Industry 484220; 484230 4212; 4213 Gasoline Carriers. a North American Industry Classification System (NAICS). b Standard Industrial Classification
(SIC)system code. This table is not intended to be exhaustive, but rather provides a guide for readers regarding entities likely to be regulated by this action. This table lists the types of entities that EPA is now aware could be potentially regulated by this action. Other types of entities not listed in the table could also be regulated. To determine whether your entity is regulated by this action, you should carefully examine the applicability criteria of Part 80, subparts D, E and F of title 40 of the Code of Federal Regulations. If you have any question regarding applicability of this action to a particular entity, consult the person in the preceding FOR FURTHER INFORMATION CONTACT section. B. What Should I Consider as I Prepare My Comments for EPA? 1. *Submitting CBI* . Do not submit this information to EPA through www.regulations.gov or e-mail. Clearly mark the part or all of the information that you claim to be CBI. For CBI information in a disk or CD ROM that you mail to EPA, mark the outside of the disk or CD ROM as CBI and then identify electronically within the disk or CD ROM the specific information that is claimed as CBI. In addition to one complete version of the comment that includes information claimed as CBI, a copy of the comment that does not contain the information claimed as CBI must be submitted for inclusion in the public docket. Information so marked will not be disclosed except in accordance with procedures set forth in 40 CFR part 2. 2. *Tips for Preparing Your Comments.* When submitting comments, remember to: A. Identify the rulemaking by docket number and other identifying information (subject heading, **Federal Register** date and page number). B. Follow directions—The agency may ask you to respond to specific questions or organize comments by referencing a Code of Federal Regulations
(CFR)part or section number. C. Explain why you agree or disagree; suggest alternatives and substitute language for your requested changes. D. Describe any assumptions and provide any technical information and/or data that you used. E. If you estimate potential costs or burdens, explain how you arrived at your estimate in sufficient detail to allow for it to be reproduced. F. Provide specific examples to illustrate your concerns, and suggest alternatives. G. Explain your views as clearly as possible, avoiding the use of profanity or personal threats. H. Make sure to submit your comments by the comment period deadline identified. 3. *Docket Copying Costs.* You may be charged a reasonable fee for photocopying docket materials, as provided by 40 CFR Part 2. Outline of This Preamble I. Refiner and Importer Quality Assurance Requirements for Downstream Oxygenate Blending A. Background B. Need for Action C. This Action II. Requirements for Pipeline Interface A. Background B. 1997 Notice of Proposed Rulemaking C. Pipelines D. Transmix Processors E. Transmix Blenders III. Administrative Requirements A. Executive Order 12866: Regulatory Planning and Review B. Paperwork Reduction Act C. Regulatory Flexibility Act D. Unfunded Mandates Reform Act E. Executive Order 13132: Federalism F. Executive Order 13175: Consultation and Coordination with Indian Tribal Governments G. Executive Order 13045: Protection of Children from Environmental Health and Safety Risks H. Executive Order 13211: Acts that Significantly Affect Energy Supply, Distribution, or Use I. National Technology Transfer and Advancement Act IV. Statutory Provisions and Legal Authority I. Refiner and Importer Quality Assurance Requirements for Downstream Oxygenate Blending A. Background The RFG regulations currently require RFG to contain a minimum of 2.0 weight percent oxygen. 40 CFR 80.41. To fulfill this requirement, oxygenate is added either at the refinery before the gasoline is certified by the refiner as meeting RFG requirements, or it is added downstream from the refinery at an oxygenate blending facility. As discussed in more detail below, refiners often wish to require that more than the minimum amount of oxygenate be added downstream in order to include the additional oxygenate in their emissions performance compliance calculations. Although Congress recently removed the oxygen requirement for RFG in the Clean Air Act, 1 we believe many refiners and importers may wish to continue to include oxygenate added downstream in their emissions compliance calculations. Under the current regulations, refiners must conduct a program of quality assurance testing at the downstream oxygenate blending facility in order to include the oxygenate in their compliance calculations. This proposed rule would provide an alternative QA requirement for these refiners and importers. 1 1 Energy Policy Act of 2005, Pub. L. 109-58 (HR6), section 1504(a), 119 STAT 594, 1076-1077(2005). In accordance with the Energy Policy Act, EPA has issued a rule amending the RFG regulations for California to remove the 2.0 weight percent oxygen standard (71 FR 8965 (February 22, 2006)), and has proposed a similar rule that would be applicable in the rest of the country (71 FR 9070 (February 22, 2006)). Under the current regulations, when oxygenate is to be added to produce RFG at a downstream oxygenate blending facility, refiners produce a product called reformulated gasoline blendstock for oxygenate blending, or RBOB. RBOB is certified by the refiner, or by an importer who imports RBOB, as complying with all of the RFG requirements except the minimum 2.0 weight percent oxygen requirement. The oxygenate blender is responsible for complying with the oxygen requirement when the oxygenate is added to the RBOB to produce RFG at the oxygenate blending facility. Various oxygenates may be used to fulfill the oxygen requirement. Some oxygenates, such as methyl tertiary butyl ether, or MTBE, typically are added at the refinery. However, some oxygenates, such as ethanol, have a propensity to attract water, and, as a result, cannot be added at the refinery, particularly where the finished gasoline will be traveling through a pipeline on its way to terminals and retail gasoline stations. As a result, RFG containing ethanol is typically produced by blending the ethanol with RBOB at a blending facility downstream from the refinery that produced the RBOB. Refiners and importers of RBOB are required to calculate compliance with the RFG emissions performance standards for VOC, NO <sup>X</sup> and toxics by sampling and testing a hand blended mixture of the RBOB and the type and amount of oxygenate that the refiner or importer of the RBOB designates must be added downstream. The type and amount of oxygenate to be added downstream must be indicated on the product transfer documents that accompany the gasoline when it is transferred to the downstream oxygenate blender. The oxygenate blender is required to add the type and amount of oxygenate designated on the product transfer documents. Under the current regulations, RBOB refiners and importers can designate either a specific type and specific amount of oxygenate to be added downstream, or they can designate one of two generic categories of RBOB: “any-oxygenate” RBOB or “ether-only” RBOB. 40 CFR 80.69(a)(8). Where the RBOB is designated as any-oxygenate RBOB, the refiner or importer must assume for purposes of its handblend that 2.0 weight percent ethanol will be added downstream. The downstream oxygenate blender may add any type of legal 2 oxygenate, to any-oxygenate RBOB in an amount sufficient to meet the minimum 2.0 weight percent requirement. Where the RBOB is designated as ether-only RBOB, the refiner or importer must assume for purposes of its handblend that 2.0 weight percent MTBE will be added downstream. The oxygenate blender may add any legal ether oxygenate to ether-only RBOB in an amount sufficient to meet the minimum 2.0 weight percent requirement. 2 Oxygenates that are allowed under EPA's “substantially similar” rule and any section 211(f) waiver that may apply. Where a specific type and amount of oxygenate is designated for the RBOB rather than one of the two generic designations, the regulations require the refiner or importer to conduct downstream oversight quality assurance
(QA)sampling and testing of the downstream oxygenate blending facility. 40 CFR 80.69(a)(7). This is to ensure that the specific type and amount of oxygenate that is designated, which typically is greater than the 2.0 weight percent requirement, in fact is added to the RBOB by the oxygenate blender. In addition, the refiner or importer must have a contract with the oxygenate blender which requires the blender to comply with the blending procedures specified by the RBOB refiner or importer and allows the refiner or importer to conduct the required QA sampling and testing. 40 CFR 80.69(a)(6). If the refiner or importer does not meet the contractual and quality assurance requirements and does not designate its RBOB as ether-only or any-oxygenate, the refiner or importer must assume for purposes of its handblend that 4.0 volume percent ethanol will be added to the RBOB downstream. B. Need for Action Recently, the states of New York and Connecticut promulgated state laws banning the use of MTBE in gasoline sold in these states. As a result, many refiners and importers that historically produced or imported RFG containing MTBE for the NY/CT RFG area currently produce or import RBOB for ethanol blending. Refiners in this area have indicated that, due to the complex gasoline marketplace in New York and Connecticut, it is extremely difficult, if not impossible, to track RBOB from the refinery where it is produced to the terminal where it is blended with ethanol in order to fulfill the downstream QA sampling and testing requirement. As a result, under the current regulations, refiners in the NY/CT RFG area are effectively precluded from producing an RBOB which requires a specific type and amount of oxygenate, such as 10 volume percent ethanol, and instead must produce a generic any-oxygenate RBOB, which does not require the refiner to conduct downstream QA testing at the ethanol blender facility. As discussed above, for purposes of calculating compliance with RFG emissions performance standards, these refiners may then only include in their handblends ethanol in an amount which would result in gasoline having 2.0 weight percent ethanol (approximately 5.7 volume percent ethanol.) Some refiners have indicated that they will need to produce RBOB requiring 10 volume percent ethanol, which would allow them to include 10 volume percent ethanol for purposes of compliance calculations, in order to meet emissions performance standards. As a result, these refiners have asked EPA to allow use of an alternative method of meeting the downstream QA sampling and testing requirement. For the reasons discussed below, we believe it is appropriate to provide refiners and importers who produce or import RBOB for the NY/CT RFG area with an alternative means of meeting the QA sampling and testing requirement. We also believe it is appropriate to provide this alternative to refiners and importers who produce or import gasoline RBOB for other RFG areas. As a result, this proposed rule would amend the RFG regulations to provide an alternative QA sampling and testing option which will be available to any RBOB refiner or importer in any RFG covered area. As indicated above, we believe that providing this alternative QA requirement would be appropriate even after the 2.0 weight percent minimum oxygen standard is removed. C. This Action This proposal would provide RBOB refiners and importers the option to comply with an alternative QA requirement which consists of a program of sampling and testing designed to provide oversight of all terminals that blend ethanol with RBOB for use in a specified RFG covered area. Under this option, a refiner or importer would need to either arrange to have an independent surveyor conduct a program of compliance surveys, or participate in the funding of an organization which arranges to have independent surveyor conduct a program of compliance surveys. In either event, compliance surveys would need to be carried out by an independent surveyor pursuant to a survey plan calculated to achieve the same QA objectives as the current regulatory requirement. A detailed survey plan would be submitted to EPA for approval by September 1st of the year preceding the annual averaging period in which the alternative QA sampling and testing program would be implemented. The survey plan would include a methodology for determining when the survey samples will be collected, the location of the retail outlets where the samples will be collected, the number of samples to be included in the survey, and any other elements that EPA determines are necessary to achieve the same level of quality assurance as the current QA requirement. Under this alternative QA option, the independent surveyor would be required to obtain samples at retail stations in the RFG covered area in accordance with the survey plan and have the samples tested for type and amount of oxygenate. The sampling and testing conducted under this alternative QA option would be required to be done in accordance with the provisions in §§ 80.8 and 80.46. The surveyor would obtain from the retail outlet the product transfer documents associated with the gasoline, which will provide the surveyor with information regarding the type and amount of oxygenate that the gasoline is supposed to contain, and the terminal that conducted the oxygenate blending. The surveyor would be required to notify EPA of any instance where the product transfer documents do not contain such information. If the test results show that the gasoline does not contain the type and/or the minimum amount of oxygenate indicated on the product transfer documents, the surveyor would be required to ask the terminal determined to have supplied the gasoline to produce documentation of the blending instructions from the refiner or importer of the RBOB. The surveyor would be required to notify EPA of any instances where the refiner's or importer's blending instructions indicate that the oxygenate blender did not add the type or minimum amount of oxygenate designated for the RBOB by the refinery or importer. The surveyor would be required to submit to EPA a report which includes the information and data collected during the survey, and to maintain records associated with the surveys for five years. This proposed rule would require each refiner and importer who chooses to comply with the alternative QA requirement to take all reasonable steps to ensure that parties downstream from the refiner or importer cooperate with the program by allowing the independent surveyor to collect samples, and by providing to the independent surveyor copies of product transfer documents and other information regarding the source of any gasoline received, the destination of any gasoline distributed, the oxygenate blending instructions for RBOB, and the rate the oxygenate was blended. In partial satisfaction of the “reasonable steps” requirement, the rule would require the refiner or importer to include such a requirement in contractual agreements with its branded downstream facilities. In addition, this proposed rule would require parties downstream from a refiner or importer that complies with the alternative QA requirement to include on product transfer documents the type and amount of oxygenate contained in the gasoline and identification of the oxygenate blending terminal that blended the gasoline. This proposed rule would require that the survey plan include a process for notifying all oxygenate blending terminals and other downstream parties in the affected area of the product transfer documentation requirement. Where a downstream party fails to receive notice of the product transfer requirement, the party would be required to begin complying with the product transfer requirement upon notification by EPA. We believe that use of this QA compliance alternative would result in oversight sampling and testing that is equivalent to the current regulatory QA requirement, and, in fact, may result in significantly superior QA oversight since the sampling and testing would be conducted by an independent surveyor in accordance with a comprehensive plan approved by EPA, rather than by individual refiners and importers. This rule would not have any adverse environmental impact, and would provide refiners and importers with additional flexibility in complying with the regulations. As a result, while this rulemaking was initiated in response to the compliance issues raised by refiners in the NY/CT area, we believe it is appropriate to provide this compliance alternative to refiners and importers supplying any RFG covered area. The rule, therefore, would provide this QA compliance alternative to any RBOB refiner or importer in any RFG area who either arranges to have an independent surveyor conduct a program of compliance surveys, or who participates in the funding of an organization that arranges to have an independent surveyor conduct a program of compliance surveys, in accordance with the provisions in this proposed rule. Compliance with this QA alternative would be optional. Refiners and importers may choose to comply with the existing QA requirement and not participate in a survey program. Refiners and importers who supply more than one RFG area may choose to participate in the survey program for one RFG area and comply with the existing QA requirement for another RFG area. This proposed rule would add a new paragraph (a)(11) to 40 CFR 80.69, which contains the current QA requirement. This proposed rule also would amend § 80.77 to require parties to include on product transfer documents the information required under § 80.69(a)(11) as described above. II. Requirements for Pipeline Interface A. Background Refined petroleum products that are transported by pipeline normally are pumped sequentially, as a continuous flow through the pipeline. As a result, some amount of mixing of adjacent product types normally occurs. The product in a pipeline between two adjacent volumes of petroleum product consists of a mixture of the two adjacent volumes and is called “interface.” Generally, interface is blended into the two adjoining products that created the interface. For example, half of the interface between premium and regular gasoline is blended into the premium gasoline and half into the regular gasoline (called a “fifty percent cut” or a “mid-point cut.”) However, certain product types, such as jet fuel, are not mixed with any other product type, and all of the interface that contains jet fuel is blended into the other product (called a “clean cut.”) Where interface consists of a mixture of finished fuels that cannot be cut with adjoining product so as to produce a product that meets the specifications for a fuel that can be used or sold without further processing, the interface is called “transmix”. Transmix is not blended into either of the two adjacent products transported by the pipeline, but is diverted by the pipeline as a distinct product into a separate storage tank. Transmix is generally transported via tank truck, pipeline or barge to a facility designed to separate the transmix into its fuel components. For example, where the transmix consists of gasoline and distillate fuel, the transmix may be transported to a “transmix processing” facility where the gasoline portion is separated from the distillate fuel. At locations where it is either relatively expensive or inconvenient to transport transmix to a transmix processing facility for separation, the transmix is sometimes blended into gasoline in very small amounts, typically around 0.25 volume percent of the gasoline. The reformulated gasoline
(RFG)and anti-dumping requirements apply at any facility where gasoline is produced. *See* 40 CFR 80.2(h) and (i), 80.65(a), and 80.101. Gasoline most commonly is produced by processing crude oil at refineries, but it is also produced by other processes, such as combining blendstocks or adding blendstocks to finished gasoline. Gasoline is also produced when transmix is blended into gasoline, or when transmix is separated into gasoline and distillate fuel. Transmix blending is similar to adding blendstock to gasoline where the addition of the transmix, like blendstock, may change the properties of the gasoline. Similarly, the process of separating gasoline and distillate fuel may result in gasoline with different properties than the gasoline as originally certified by the refinery. Transmix processors and transmix blenders are refiners under the RFG/anti-dumping regulations, but EPA has historically provided transmix processors and transmix blenders flexibility in complying with the refiner requirements. This proposed rule would codify some of the existing practices into EPA regulations, and would also include modifications reflecting EPA experience. B. 1997 Notice of Proposed Rulemaking On July 11, 1997, EPA proposed to add a new § 80.84 to the RFG/anti-dumping regulations at 40 CFR Part 80 to clarify the manner in which interface, including transmix, would be treated under the RFG/anti-dumping regulations. The NPRM proposed requirements for designating different combinations of gasoline in interface. The NPRM also proposed requirements for transmix processors and transmix blenders that produce either RFG or conventional gasoline. The NPRM proposed to allow parties to blend transmix into conventional gasoline provided that the transmix resulted from normal pipeline operations, and either there was no means of transporting the transmix to a transmix processor via pipeline or water, or there was an historical practice of blending transmix at the facility before 1995. The rate of transmix blending was limited to the greater of 0.25 volume percent or the demonstrated blending rate in 1994. The NPRM proposed to allow transmix to be blended into RFG provided that the transmix resulted from normal pipeline operations, there was no means of transporting the transmix to a transmix processing facility via pipeline or water, and the party was unable to blend the transmix into conventional gasoline. The rate of transmix blending into RFG was limited to a maximum of 0.25 volume percent. The NPRM also proposed requiring transmix blenders to carry out a program of periodically sampling and testing of the RFG subsequent to transmix blending to ensure that the downstream standards were met. The NPRM proposed to require transmix processors who designate the gasoline produced from the transmix (such gasoline is one type of transmix gasoline product, or TGP) as conventional gasoline to exclude the TGP from anti-dumping compliance calculations for the transmix processing facility, but to include any blendstocks added to the TGP since such blendstocks would not previously have been included in any refinery's compliance calculations. The NPRM proposed to require transmix processors who designate the gasoline produced from transmix as RFG to *include* the TGP, as well as any blendstocks used, in the RFG compliance calculations for the transmix processing facility to ensure that the gasoline produced using the transmix meets all RFG standards. Parties have been processing and blending transmix in accordance with EPA guidance which describes similar treatment of interface and transmix as that outlined in the July 11, 1997 NPRM. ( *See Reformulated Gasoline and Anti-dumping Questions and Answers* (November 12, 1996)). Our experience since the guidance was issued indicates that the approach taken in the guidance is mostly appropriate, but that some revisions are warranted. EPA is also aware, from recent discussions with several pipeline operators, that volumes of transmix may increase as pipelines begin transporting ultra-low sulfur diesel fuel. EPA had anticipated that transporting ultra-low sulfur diesel would require greater volumes of diesel to be cut as interface into other higher-sulfur distillate fuels such as heating oil and jet fuel. However, some pipelines have indicated they intend to change their product sequencing by transporting volumes of ultra-low sulfur diesel between volumes of gasoline, in order to minimize sulfur contamination of the ultra-low sulfur diesel. This change would increase the number of gasoline/diesel interfaces cut to transmix, and increase the overall volume of transmix. Pipeline operators have also indicated that transporting ultra-low sulfur diesel fuel will cause them to generate transmix at locations where they have not historically generated transmix. In this proposed rule, we are including the provisions in § 80.84, which were previously proposed in the July 11, 1997 NPRM, with certain changes made in response to the comments we received on the NPRM, as discussed below. We believe it is appropriate to include in this proposal the provisions in § 80.84 given the length of time since they were originally proposed, and to include changes made in response to prior comments. We have also added several new provisions in this proposal clarifying, and in some instances expanding, the flexibilities available to transmix processors and transmix blenders for complying with the RFG/antidumping regulations. This proposed rule also includes modest recordkeeping requirements in §§ 80.74 and 80.104 which would require parties that handle interface and transmix to keep records verifying that the requirements of § 80.84 were met. In addition, this proposed rule includes provisions for transmix processors and transmix blenders related to gasoline sulfur and air toxics. This proposed rule only addresses gasoline produced by transmix processors and transmix blenders. Distillate fuel produced by transmix processors and transmix blenders is addressed in the diesel sulfur regulations under 40 CFR part 80, subpart I. EPA believes the flexibilities available in this proposed rule are appropriate given the unique roles that transmix processors and transmix blenders fill in the petroleum products distribution system. Although transmix processors and transmix blenders are refiners under EPA's regulations, almost all of the gasoline and distillate fuel they produce is derived from fuel which has already been produced and certified by an upstream refinery. Thus, this proposed rule would allow transmix processors the flexibility to exclude from their antidumping compliance calculations conventional gasoline that they recover directly from transmix, since the conventional gasoline has already been accounted for in the compliance calculations of an upstream refinery. Similarly, this proposed rule would allow transmix processors to only have to meet the downstream sulfur standards for gasoline they recover directly from transmix, since the gasoline has already been accounted for in the compliance calculations of an upstream refinery. However, transmix processors must comply with all refiner standards at each of their transmix processing facilities for any blendstocks they add to gasoline. Lastly, this proposed rule would allow transmix blenders to blend transmix into gasoline without restriction on location or rate, provided the endpoint of the transmix-blended gasoline does not exceed 437 degrees Fahrenheit, and that the gasoline meets all applicable downstream standards. C. Pipelines This proposed rule includes designations for pipeline interface that are consistent with the designations in EPA's current guidance and the 1997 NPRM. The designations for pipeline interface are primarily intended to ensure that pipelines cut their interfaces in a manner that maintains the quality of any RFG or VOC-controlled gasoline transported by a pipeline. For example, interfaces between volumes of RFG and conventional gasoline should be cut into the conventional gasoline to maintain the quality of the RFG. Regardless of gasoline product designation, all gasoline containing interface must meet all downstream standards, including but not limited to any standards and requirements that apply downstream of the refinery in 40 CFR Part 80 and the Clean Air Act. D. Transmix Processors 1. Comments on the 1997 Notice of Proposed Rulemaking EPA received a number of comments on the 1997 NPRM regarding transmix processors. One commenter said that the definition of transmix should be changed since transmix processors and transmix blenders sometimes process or blend mixtures of fuels that were unintentionally combined in tanks. Although such mixtures are similar in composition to transmix, they do not fit the definition of transmix proposed in the 1997 NPRM, which specified that transmix must be generated in a pipeline. EPA agrees that a product that in composition is similar to transmix, and that is produced by unintentionally mixing gasoline and distillate fuel in tanks, should be afforded the same treatment as transmix product generated in a pipeline. EPA also understands that transmix may include mixtures of gasoline and distillate fuel produced through normal operational activities at pipelines and terminals, such as draining tanks, or draining piping and hoses used to transfer gasoline or distillate fuel to tanks or trucks, or from a safety relief valve discharging to protect equipment from overpressuring. As a result, § 80.84(e) in this proposed rule specifically allows such products to be covered under the transmix provisions. EPA is aware that some transmix processors and transmix blenders may also be adding feedstocks to their transmix that were not produced from normal pipeline interface, or from inadvertently mixing gasoline and distillate fuel in tanks, or through normal operational activities at pipelines and terminals. Mixing other feedstocks in transmix prior to processing may cause these other feedstocks to be inappropriately accounted for under the antidumping regulations and gasoline sulfur regulations, as discussed later. The flexibility provided in this rule extends only to transmix composed of pipeline interface, mixtures of gasoline and distillate fuel that were unintentionally combined in a tank, and mixtures of gasoline and distillate fuel produced through normal operational activities at pipelines and terminals. A transmix processor or transmix blender who adds feedstocks derived from any other sources to their transmix must comply with all the standards applicable to a refiner under EPA's regulations for all the gasoline they produce during a compliance period, including but not limited to any standards and requirements in 40 CFR parts 79, 80 and the Clean Air Act. Transmix processors that add feedstocks from any other sources should also take extra care to be sure that they are complying with Subtitle C of the Resource Conservation and Recovery Act (RCRA), 42 U.S.C. 6921-6939(e), and any state provision authorized pursuant to Section 3006 of RCRA, 42 U.S.C. 6926. One commenter said that the 1997 NPRM should clarify that the transmix processing requirements do not apply to transmix processed by a crude oil refinery where the transmix is received into a crude or other feedstock stream and is not separated before it is added to other feedstocks. EPA believes that the regulations in this proposed rule are clear in this regard, since they specifically apply to persons who separate transmix at a transmix processing facility. The term “transmix processing facility” is defined as excluding refineries that “produce gasoline by processing crude oil”. Such refineries must comply with all existing refiner requirements, and would not be eligible to take advantage of the flexibilities available in this proposed rule. Some commenters said that they do not know the source of the transmix and, therefore, would not know the original designation of the gasoline portion of the transmix ( *e.g.* , RFG, conventional gasoline, blendstocks). The commenters said that the transmix processor should not be required to track and segregate transmix generated from different types of gasoline or blendstocks. This proposed rule would not require a transmix processor to track and segregate transmix. However, § 80.65 requires the transmix processor to designate the gasoline portion ( *i.e.* , conventional gasoline, RFG, or RBOB) that is separated from the distillate fuel. One commenter said that, under previous guidance, EPA provided for the exclusion of the transmix-based portion of conventional gasoline from anti-dumping compliance calculations as an option, whereas in the 1997 NPRM, the exclusion would be mandatory. The commenter believes the exclusion should be optional. Another commenter believes that transmix processing improves the quality of the gasoline separated from transmix by removing more heavy aromatics and sulfur compounds and improving E300 distillation point, and therefore, TGP should be included in compliance calculations for conventional gasoline to give credit for the improvements. EPA agrees with the commenters, and this proposed rule would modify the 1997 NPRM to allow the exclusion of the TGP from anti-dumping compliance calculations to be optional, provided the TGP meets all of the downstream standards for conventional gasoline. However, in order to prevent transmix processors from selectively including only high quality TPG batches in their compliance calculations, while excluding those of low quality, transmix processors must consistently include or exclude TGP in their compliance calculations during each annual compliance period, with one exception. The exception occurs if transmix contains gasoline blendstocks that are derived from pipeline interface. EPA understands that some pipelines transport gasoline blendstocks, and that these pipelines may cut interfaces containing gasoline blendstock to a transmix tank. If a transmix processor produces conventional gasoline from transmix containing gasoline blendstocks and was allowed to exclude the TGP from their anti-dumping compliance calculations, the finished conventional gasoline would not be included in any refiner's anti-dumping compliance calculations. Thus, under this proposal, if a transmix processor produces conventional gasoline at a transmix processing facility from transmix containing gasoline blendstocks derived from pipeline interface, the transmix processor must consistently include all TGP produced during a compliance period in their antidumping compliance calculations for that transmix processing facility. As discussed previously, if transmix processors add any feedstocks to their transmix that were not produced from normal pipeline interface, or from inadvertently mixing gasoline and distillate fuel in tanks, or through normal operational activities at pipelines and terminals, they would need to comply with all standards applicable to refiners under EPA's regulations for all the gasoline they produce during a compliance period. This proposed rule would also require any RFG or RBOB produced by a transmix processor to be included in the RFG compliance calculations for the transmix processing facility. This proposed rule would also modify the 1997 NPRM by treating TGP as a blendstock when the transmix processor mixes the TGP with other blendstock(s) to produce conventional gasoline. In this situation, the TGP would be included in compliance calculations for the resulting conventional gasoline. We believe it is appropriate to treat TGP as a blendstock rather than as a previously certified gasoline in this situation, since the TGP is likely to have undergone changes as a result of having been interfaced with another product and separated through transmix processing. For example, one transmix processor indicated that their TGP could not be directly sold as gasoline because it does not meet standards for octane or Reid vapor pressure. This approach is consistent with the approach taken in both the 1997 NPRM and the Question and Answer guidance with regard to RFG, where TGP is required to be included in compliance calculations when it is mixed with blendstock to produce RFG. Where TGP is *sold* as a blendstock, the transmix processor would be required to *exclude* the TGP from compliance calculations, with one exception. The exception is when the transmix processor sells the TGP to an oxygenate blender as a blendstock which becomes conventional gasoline solely upon the addition of an oxygenate, such as ethanol or MTBE. In this circumstance, the transmix processor would need to include the TGP in compliance calculations. This exception would not apply if the TGP is combined with any other non-oxygenated blendstocks to produce conventional gasoline. Thus, in order for a transmix processor to properly account for any TGP sold as a blendstock in compliance calculations for a transmix processing facility, the transmix processor must clearly state on the TGP product transfer documents whether or not the TGP may only be combined with an oxygenate to produce conventional gasoline. This approach is consistent with the anti-dumping regulations at § 80.101(d)(3), which require blendstocks that become conventional gasoline solely upon the addition of an oxygenate to be included in anti-dumping compliance calculations for the refiner that produced the blendstock. Transmix processors also sometimes blend sub-octane TGP with previously certified premium gasoline
(PCG)to produce regular gasoline. EPA is proposing that transmix processors which blend sub-octane TGP with premium PCG to produce conventional gasoline must include the TGP in compliance calculations for the transmix processing facility, but may meet the sampling and testing requirements in one of three ways. First, the transmix processor may directly measure the properties of the TGP and treat each volume of TGP blended with PCG as a separate batch for purposes of compliance calculations. As a second alternative, the transmix processor may measure the volume and properties of the PCG prior to blending with the TGP, then measure the volume and properties of the gasoline subsequent to blending with the TGP, and calculate the volume and properties of the TGP by subtracting the volume and properties of the PCG from the volume and properties of the gasoline subsequent to blending. As a third alternative, the transmix processor may demonstrate compliance using the procedures in § 80.101(g)(9). Where TGP is mixed with previously certified gasoline to produce RFG or RBOB, the transmix processor must demonstrate compliance using the procedures in § 80.65(i). One commenter said that EPA should allow transmix processors to blend oxygenates and other blendstocks into transmix-based conventional gasoline to produce RFG. This proposed rule would address this comment by allowing transmix processors to treat their TGP as a blendstock, and combine the TGP with other blendstocks to produce either conventional or reformulated gasoline. In this situation, the transmix processor would be required to fulfill all the requirements and standards for RFG that apply to a refiner. 2. Issues Not Addressed in the 1997 NPRM *a. Gasoline Sulfur.* In the preamble to the gasoline sulfur regulations, EPA indicated that the Agency would establish requirements for transmix processors in a future rulemaking (65 FR 6800, February 10, 2000). Therefore, as part of this rulemaking, EPA is also including proposed requirements for transmix processors and transmix blenders under the gasoline sulfur regulations at 40 CFR part 80, subpart H. As under the RFG/anti-dumping rule, transmix processors and transmix blenders are refiners under the gasoline sulfur regulations. As a result, transmix processors and transmix blenders are subject to the refinery sulfur standards under § 80.195 of the gasoline sulfur regulations. However, for reasons discussed below, we believe it is appropriate that such parties be held to the gasoline sulfur standards applicable to downstream parties under §§ 80.210 and 80.220 of the gasoline sulfur regulations, and not be held to the more stringent refinery standards in § 80.195. As indicated above, transmix processors generally do not control their feedstock, but receive mixtures of products from upstream refineries. The gasoline portion of transmix may be relatively high in sulfur if it was originally produced by a small refiner, a refiner producing gasoline for use in the Geographic Phase-in Area (GPA), or a refiner who has been given a temporary hardship extension to produce relatively high sulfur gasoline. As a result, holding transmix processors to the downstream sulfur standards rather than the more stringent refinery standards would provide transmix processors the flexibility to recover gasoline originally produced by small refiners, refiners of GPA gasoline, or temporary hardship refiners. To ensure compliance with the applicable downstream sulfur standards, transmix processors will be required to test any gasoline produced from transmix for sulfur content. Under this proposed rule, transmix processors who add blendstocks not derived from transmix to their recovered gasoline would be required to meet all of the requirements and standards that apply to refiners under 40 CFR Part 80, subpart H, for such blendstocks. Where certain requirements are met, the transmix processor may use sulfur test results from the blendstock supplier for purposes of meeting the sampling and testing requirements under the sulfur rule. As mentioned previously, EPA has learned that some transmix processors have added feedstocks to their transmix, before the transmix is processed, that are not produced from pipeline interface, or from mixtures of gasoline and distillate fuel unintentionally combined in a tank, or from normal operations at pipelines and terminals. Under this proposal, transmix processors that use these other feedstocks would need to meet all EPA standards applicable to a refiner for all the gasoline they produce during a compliance period, including the refinery level sulfur standards in 40 CFR 80.195. These transmix processors could not utilize the flexibilities in this rule because they have chosen to use feedstocks that have not been previously accounted for by a refinery in the production of gasoline. When the transmix is processed, the previously compliant gasoline present in the transmix and the other feedstocks both distill out of the transmix together as a fungible product, and the transmix processor cannot distinguish exactly which portion of the TGP was derived from previously compliant gasoline and which was derived from other feedstocks. Thus, EPA proposes limiting the flexibility allowed by this proposed rule to gasoline produced from transmix, only if the transmix was produced from pipeline interface, or from mixtures of gasoline and distillate fuel that were unintentionally combined in a tank, or from mixtures of gasoline and distillate fuel produced from normal operational activities at pipelines and terminals. Transmix processors who add any other material to their transmix would need to comply with all EPA standards applicable to a refiner for all the gasoline they produce during a compliance period, including the refinery level sulfur standards in 40 CFR 80.195. This proposed rule would, however, allow transmix processors that produce gasoline from pipeline interface to meet the less stringent downstream gasoline sulfur standards, even if the interface contains small amounts of gasoline blendstocks that are transported via pipeline as a normal part of pipeline operations. EPA believes it is appropriate to allow transmix processors that produce gasoline from these interface mixtures to meet the downstream sulfur standards because they do not have the same level of control over their transmix as the transmix processors that intentionally introduce other feedstocks into the production process. Furthermore, because the volume of gasoline blendstocks in the transmix will be relatively small and since the gasoline will still have to meet downstream standards, EPA believes the environmental consequences of allowing these transmix processors to meet the less stringent downstream sulfur standard should be negligible. This proposed rule would add a new § 80.213 to the gasoline sulfur regulations. This section contains the additional requirements for demonstrating compliance with the gasoline sulfur rule discussed above for refiners who process or blend transmix in accordance with the provisions in § 80.84. EPA believes that the additional proposed requirements for transmix processors and transmix blenders in § 80.213 are necessary to maintain the flexibility of the current practices regarding transmix, and will not result in any adverse environmental consequences. This proposed rule would also add modest recordkeeping requirements to § 80.365 which require parties to retain records of any sampling and testing required under § 80.213. *b. Air Toxics.* The mobile source air toxics
(MSAT)rule (66 FR 17230, March 29, 2001) requires the annual average toxics performance of a refinery's or importer's gasoline to be at least as clean as the average of its gasoline during the three-year baseline period 1998-2000. The MSAT requirements apply separately to RFG and to conventional gasoline. MSAT compliance is determined from the same gasoline data used by a refiner to determine its compliance with the RFG or anti-dumping requirements. As a result, only gasoline which would be included in the RFG or anti-dumping compliance determination of a refiner is included in the refiner's MSAT baseline and compliance determinations. Most, if not all, transmix processors have unique individual MSAT baselines. Under MSAT, those with unique individual MSAT baselines (§ 80.915) are subject to their MSAT baseline up to their associated MSAT baseline volume (§ 80.850). Gasoline production above the MSAT baseline volume is subject to either the RFG toxics performance standard (§ 80.41) or to the refiner's anti-dumping standard (§ 80.91). Because these standards are equal to or less stringent than the refiner's MSAT baseline, they offer some flexibility to the refiner's overall compliance with its MSAT standard. Because gasoline demand is increasing, EPA expects that this provision will provide most refiners with some degree of MSAT compliance flexibility. The MSAT rules also provide for limited credit and deficit carryover, allowing refiners to weather slightly off years with better toxics performance in an adjacent year (§ 80.815). Finally, because all refiners are subject to MSAT standards which are typically more stringent than the RFG toxics performance standard or their individual anti-dumping standard, it is likely that the gasoline portion of the transmix is also cleaner with respect to toxics performance than it was during the baseline period 1998-2000, thus providing some immediate flexibility to transmix processors and transmix blenders. This action clarifies that any gasoline or blendstock a transmix processor includes in their RFG or anti-dumping compliance determination is also included in their MSAT compliance calculations. Also, EPA has recently proposed to replace the existing MSAT regulations with a standard that would limit the benzene content of gasoline to an annual average of 0.62 percent by volume for most refiners, beginning in 2011. See 71 FR 15803 (March 29, 2006). The proposed toxics regulations would exempt transmix processors from the new benzene standard for any gasoline they recover from transmix, but require transmix processors to meet the standard for any blendstocks they add to transmix. E. Transmix Blenders 1. Comments on the 1997 Notice of Proposed Rulemaking One commenter was concerned that the sampling and testing procedures in the 1997 NPRM for blends of transmix and RFG, which would be performed after blending the transmix, may not prevent the release of noncompliant RFG in the distribution system. For reasons discussed below, however, EPA believes that commercial standards limit transmix blending to such small percentages, that blending transmix in RFG will cause essentially no change in the emissions performance of the RFG. This proposed rule would specifically require that all gasoline produced by transmix blenders have an endpoint less than 437 degrees Fahrenheit. As described below, as a practical matter, EPA believes that this endpoint standard will effectively prevent the blending of transmix into gasoline from causing any appreciable changes in gasoline emissions performance. One commenter said that the 1996 Question and Answer guidance regarding transmix blended into conventional gasoline requires that the transmix be blended at a rate no greater than the historical rate that was used by the pipeline, whereas the NPRM provided that the transmix be blended at a rate no greater than the historical rate at the terminal or 0.25 volume percent, whichever is greater. The commenter said the NPRM did not cover a situation where, historically, transmix was moved through a pipeline to a terminal that is no longer used for blending transmix, and the transmix is currently moved through the same pipeline but blended at an intermediate terminal which historically had not been used for blending transmix. The commenter recommended that the language in the Q&A guidance, which covers this situation by allowing blending at the historical rate used by the pipeline rather than by the terminal, be adopted in the regulations. We believe the Q&A guidance is consistent with the 1997 NPRM in stating that if a pipeline stops blending transmix at a terminal, that the pipeline may not begin blending transmix at a second terminal at a rate equal to the first terminal's blending rate. The Q&A guidance states: “* * * the transmix must be present in a terminal from which there is no out-bound pipeline or water transportation by which the transmix could be transported to a transmix processor, or the pipeline's historical practice *at the terminal* [emphasis added] (the practice beginning at least before January, 1994) has been to blend all transmix into conventional gasoline without further processing.” This language indicates that the criteria regarding historical practice applies to the terminal in which the transmix was blended by the pipeline. Where a pipeline blends transmix at more than one terminal, the historical practice criterion would apply separately to each of the pipeline's terminals at which transmix is blended. However, as described below, this proposed rule would change this approach. 2. This Proposal This proposed rule would eliminate the historical practice criterion for determining amounts of transmix to be blended into conventional gasoline and the locations where this may occur, and also would eliminate the 0.25 volume percent limit for blending transmix in reformulated gasoline. This proposed rule would instead allow transmix to be blended into conventional or reformulated gasoline in any location and in any amount, provided the endpoint of the transmix-blended gasoline does not exceed 437 degrees Fahrenheit, 3 and meets all other applicable downstream standards. As EPA's diesel sulfur regulations begin phasing in, transmix will be generated at new locations. EPA believes it is appropriate to allow the flexibility to blend transmix into gasoline at locations which have not historically blended transmix, provided the endpoint of the transmix-blended gasoline does not exceed 437 degrees Fahrenheit, and the gasoline meets all other applicable downstream standards. In addition, EPA believes it is appropriate to use gasoline endpoint to regulate transmix blending because it takes into account the quality of the transmix-blended gasoline. The historical practice criterion for conventional gasoline and the 0.25 volume percent limit for RFG were crude approaches that did not account for the variability of transmix and its effect on the gasoline into which it was blended. 3 437 degrees Fahrenheit is the maximum allowable endpoint for gasoline specified in ASTM's standard for automotive spark-ignition engine fuel, D 4814-88. Gasoline endpoint is measured using ASTM D86-01. ASTM D86-01 measures the percentage of a gasoline sample that evaporates, as a function of temperature, as the sample is heated up under controlled conditions. Endpoint is the temperature at which all the volatile portion of a gasoline sample is evaporated. ASTM D4814-88 specifies a maximum allowable endpoint of 437 degrees Fahrenheit in order to limit the amount of higher-boiling point compounds that can be present in the gasoline. EPA believes that blending small percentages of transmix in gasoline should be allowed at any facility, provided the facility takes appropriate steps to ensure that the endpoint of the transmix-blended gasoline does not exceed 437 degrees Fahrenheit. Transmix typically contains significant percentages of distillate fuels such as diesel fuel or heating oil, and distillate fuels have higher boiling points and much lower octane ratings than gasoline. EPA's existing guidance regarding transmix blending reflected a concern that blending excessive amounts of transmix in gasoline could have an appreciable effect on emissions. However, EPA believes that where transmix is blended at sufficiently low percentages, such that the endpoint of the transmix-blended gasoline does not exceed 437 degrees Fahrenheit, the emissions effect of blending transmix in gasoline will be negligible. In addition to affecting gasoline endpoint and octane, blending transmix in gasoline also affects parameters in EPA's complex model, the model used to ensure that imported or produced gasoline complies with EPA standards. Although the complex model does not use gasoline endpoint or octane to predict gasoline emissions, the complex model does use several other gasoline parameters to predict gasoline emissions. These parameters include sulfur content, benzene content, aromatics content, olefin content, oxygen content, Reid vapor pressure (RVP), and two distillation points (E200 and E300). Compared to gasoline, the distillate fuel portion of transmix contains much less benzene, olefins, and oxygen (typically zero for all three parameters), has a much lower RVP, may contain a moderately greater percentage of aromatics, has significantly lower (typically zero) E200 and E300 distillation points, and may contain more sulfur. EPA is primarily concerned with the effect of transmix blending on average gasoline sulfur content. Beginning in 2006, EPA's gasoline sulfur regulations specify that all gasoline produced by most refineries or imported by each importer must contain an annual average sulfur content of 30 ppm or less, in order to help significantly reduce emissions from gasoline-powered vehicles. 4 Transmix may contain significant percentages of high sulfur distillate fuel such as heating oil, nonroad diesel or jet fuel, and blending transmix containing high sulfur distillate fuels into gasoline could cause an increase in the sulfur content of the gasoline. 4 Gasoline produced by most refineries or imported by each importer must also contain no more than 80 ppm sulfur per gallon beginning in 2006. However, EPA has allowed flexibility for some refiners to be able to produce gasoline that is higher on both an average basis and a per gallon basis through December 31, 2010. EPA believes, for two reasons, that the potential increase in gasoline sulfur due to blending transmix into gasoline would be so small, that the effect on emissions from gasoline engines would be negligible. The first reason is that the percentage of transmix that can be blended into gasoline is significantly limited by the amount of distillate fuel in the transmix. Distillate fuels have much higher boiling points than gasoline, so transmix blenders must limit the addition of transmix so that the endpoint of the transmix-blended gasoline does not exceed 437 degrees Fahrenheit. Refiners already have to meet the ASTM endpoint standard under the “substantially similar” requirements for gasoline (56 FR 5352, February 11, 1991). Consequently, transmix which contains relatively high percentages of distillate fuel must be blended into gasoline at relatively low percentages so that the endpoint of the transmix-blended gasoline does not exceed 437 degrees Fahrenheit. The second reason is that EPA anticipates that the distillate fuel portion of transmix will contain significantly less sulfur beginning June, 2006, when the sulfur standard for highway diesel fuel drops sharply from 500 to 15 parts per million (ppm). Beginning in June, 2006, EPA estimates that the national average sulfur content of transmix will drop from approximately 800 ppm to 141 ppm, using product sulfur levels and pipeline product sequencing arrangements from Chapter 7 of the Regulatory Support Document
(RSD)for the nonroad diesel sulfur regulations. Blending 0.25 volume percent transmix containing 141 ppm sulfur into gasoline raises the sulfur level of the gasoline by only approximately 0.3 ppm. Although the percentage of gasoline that is blended with transmix would be anticipated to increase under this proposed rule, EPA anticipates that transmix will be blended at no more than 0.25 volume percent on average nationwide, and that the overall average increase in gasoline sulfur from transmix blending will have a negligible impact on emissions from gasoline engines. Using EPA's model for calculating emissions from vehicle fleets for a given year (MOBILE 6.2.03), EPA estimates that blending 0.25 volume percent transmix in gasoline would change emissions of various pollutants by only −0.2 to 0.3 percent. EPA believes that the effect of blending transmix in gasoline at relatively low percentages will have a similarly small effect on other complex model parameters, such that the consequent effect on gasoline emissions will also be negligible. Since gasoline toxics emissions are primarily affected by benzene, and the distillate fuel portion of transmix typically contains no benzene, transmix-blended gasoline is not expected to produce any more toxics than gasoline which does not contain transmix. Similarly, since evaporative emissions are primarily affected by RVP, and the distillate fuel portion of transmix has a much lower RVP than gasoline, volatile emissions from transmix-blended gasoline are not expected to be any greater than volatile emissions from gasoline which does not contain transmix. EPA is aware that the physical properties of gasoline and transmix can vary due to a variety of factors, which affect the percentage of transmix that can be blended into gasoline, without causing the endpoint of the transmix-blended gasoline to exceed 437 degrees Fahrenheit. For example, gasoline that is produced for use during colder winter months often has an endpoint which is lower than the endpoint of gasoline produced during warmer summer months. Similarly, reformulated gasoline often has an endpoint which is lower than the endpoint of conventional gasoline produced during the same time of the year. Gasoline which has a relatively low endpoint compared to the ASTM standard can be blended with a greater percentage of distillate fuel without causing the endpoint of the transmix-blended gasoline to exceed 437 degrees Fahrenheit. Additionally, the properties of the transmix itself can vary widely due to the practices of the pipeline or terminal that produced the transmix. If transmix contains a relatively high percentage of gasoline, a relatively greater percentage of transmix can be blended into gasoline without causing the endpoint of the transmix-blended gasoline to exceed 437 degrees Fahrenheit, since the transmix itself is already mostly composed of gasoline. Alternatively, if transmix contains a relatively high percentage of distillate fuel, the percentage of transmix that can be blended into gasoline without causing the endpoint of the transmix-blended gasoline to exceed 437 degrees Fahrenheit is relatively low. EPA is not including any requirements in this proposed rule to list additional information on product transfer documents identifying gasoline or transmix properties. However, as described below, EPA is proposing that transmix blenders maintain a quality assurance program. EPA also understands that distillate fuel can potentially be blended more than once into the same volume of gasoline through transmix blending and other normal pipeline operations. Blending transmix multiple times into the same volume of gasoline can cause an excessive cumulative percentage of transmix to be blended into the gasoline, and cause the endpoint of the transmix-blended gasoline to exceed 437 degrees Fahrenheit. For example, a pipeline or terminal may blend transmix into gasoline, then send the gasoline to another pipeline or terminal which may blend transmix into the gasoline a second time. Similarly, as part of normal pipeline operation, pipeline operators may cut an interface between adjacent volumes of gasoline and distillate fuel directly into the gasoline volume. Cutting distillate fuel directly into gasoline has an effect on gasoline properties similar to the effect of blending transmix directly into the gasoline (gasoline endpoint increases and octane decreases). A downstream pipeline or terminal could then subsequently blend transmix into the same volume of gasoline which already contains distillate fuel from the interface cut. EPA is not including any requirements in this proposed rule to list any additional information on product transfer documents identifying whether gasoline has been blended with transmix or any distillate fuel. EPA believes that the requirement that gasoline produced by transmix blenders meet the 437 degree Fahrenheit endpoint standard will prevent any potentially deleterious effects from successive transmix blending. However, as described below, EPA is proposing that transmix blenders maintain a quality assurance program designed to ensure compliance with the endpoint standard. This proposed rule requires transmix blenders to maintain a quality assurance program that will ensure that the endpoint of transmix-blended gasoline does not exceed 437 degrees Fahrenheit, and that the transmix-blended gasoline will comply with the downstream standards for conventional or reformulated gasoline. As a part of this quality assurance program, transmix blenders must either sample and test transmix-blended gasoline at certain frequencies to determine the end-point of the gasoline, or submit a petition to EPA documenting how their quality assurance program ensures that the endpoint of their transmix-blended gasoline will not exceed 437 degrees Fahrenheit, and that the transmix-blended gasoline meets all EPA downstream standards for conventional or reformulated gasoline. III. Administrative Requirements A. Executive Order 12866: Regulatory Planning and Review Under Executive Order 12866, (58 FR 51735 (October 4, 1993)) the Agency must determine whether the regulatory action is “significant” and therefore subject to OMB review and the requirements of the Executive Order. The Order defines “significant regulatory action” as one that is likely to result in a rule that may:
(1)Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities;
(2)Create a serious inconsistency or otherwise interfere with an action taken or planned by another agency;
(3)Materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or
(4)Raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order.” It has been determined that this proposed rule does not satisfy the criteria stated above. As a result, this rule is not a “significant regulatory action” under the terms of Executive Order 12866 and is therefore not subject to OMB review. It would not have an annual effect on the economy of $100 million or more and is not expected to have any adverse economic effects as described in the Order. This proposed rule does not raise issues of consistency with the actions taken or planned by other agencies, would not materially alter the cited budgetary impacts, and does not raise any novel legal or policy issues as defined in the Order. B. Paperwork Reduction Act The modifications to the RFG information collection requirements in this rule have been submitted for approval to the Office of Management and Budget
(OMB)under the *Paperwork Reduction Act,* 44 U.S.C. 3501 *et seq.* The Information Collection Request
(ICR)document prepared by EPA has been assigned EPA ICR number 1591.21, OMB control number 2060-0277. This proposed rule addresses certain adverse impacts on refiners and importers of RBOB under the current rule and provides these refiners and importers with additional flexibility to comply with the regulations. The flexibility afforded under this rule is optional. Modest information collection requirements in the form gasoline surveys of oxygenate blending facilities are required for those parties who avail themselves of the flexibility provided in this rule. It is estimated that refiners and importers who choose this option will save, at a minimum, half of the cost they would incur if they complied with the existing QA requirements. The estimated total hourly burden per respondent for the gasoline surveys is 20 hours. The estimated total hourly burden for all respondents is 700 hours (35 respondents maximum). The estimated hourly cost is estimated to be $71 per hour. The total estimated cost per respondent for the gasoline surveys is $1,420. The total estimated cost for all respondents is $49,700. In addition, the gasoline survey requirement is estimated to require purchase of services costs to industry of approximately $220,000, assuming that refiners and importers in all potentially affected RFG areas choose the compliance option under this rule. This rule would provide flexibility for transmix processors and transmix blenders to produce gasoline under certain circumstances without having to meet all of EPA's standards for refiners. Transmix processors would be allowed to recover gasoline from transmix that does not need to be included in their compliance calculations, under certain circumstances. Transmix blenders would be provided with the additional flexibility to blend transmix at any rate and at any location, provided the endpoint of their transmix-blended gasoline does not exceed 437 degrees Fahrenheit. However, in order to ensure the endpoint of the transmix-blended gasoline does not exceed 437 degrees, transmix blenders would be required to either test every batch of transmix-blended gasoline or submit a petition to EPA documenting that they maintain an oversight program that will prevent the endpoint of transmix-blended gasoline from exceeding 437 degrees. This proposed rule would codify existing practices designed to ensure that products transported by pipelines meet existing downstream standards. EPA estimates that approximately 25 transmix blenders will submit one-time petitions for approval of their quality testing programs. One transmix blender estimated that they would need 1-2 person-weeks to prepare a petition for EPA approval. For calculating the burden and cost of this rule, EPA has estimated that the average labor cost would be $71/hour, and that each petition would take 2 person-weeks (80 hours) to prepare. Multiplying the average labor cost by the total time required to prepare each petition (80 hours) by the total number of petitions
(25)results in a total respondent cost of $142,000. The information under this rule will be collected by EPA's Transportation and Regional Programs Division, Office of Transportation and Air Quality, Office of Air and Radiation (OAR), and by EPA's Air Enforcement Division, Office of Regulatory Enforcement, Office of Enforcement and Compliance Assurance (OECA). The information collected will be used by EPA to evaluate compliance with the requirements under the RFG and antidumping programs, and gasoline sulfur program. This oversight by EPA is necessary to ensure attainment of the air quality goals of the RFG and antidumping programs, and gasoline sulfur program. Burden means the total time, effort, or financial resources expended by persons to generate, maintain, retain, or disclose or provide information to or for a Federal agency. This includes the time needed to review instructions; develop, acquire, install, and utilize technology and systems for the purposes of collecting, validating, and verifying information, processing and maintaining information, and disclosing and providing information; adjust the existing ways to comply with any previously applicable instructions and requirements; train personnel to be able to respond to a collection of information; search data sources; complete and review the collection of information; and transmit or otherwise disclose the information. An agency may not conduct or sponsor, and a person is not required to respond to a collection of information unless it displays a currently valid OMB control number. The OMB control numbers for EPA's regulations in 40 CFR are listed in 40 CFR part 9. When this ICR is approved by OMB, the Agency will publish a technical amendment to 40 CFR part 9 in the **Federal Register** to display the OMB control number for the approved information collection requirements contained in this proposed rule. C. Regulatory Flexibility Act The Regulatory Flexibility Act
(RFA)generally requires an agency to prepare a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements under the Administrative Procedure Act or any other statute unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. Small entities include small businesses, small organizations, and small governmental jurisdictions. For purposes of assessing the impacts of this proposed rule on small entities, small entity is defined as:
(1)A small business as defined by the Small Business Administration
(SBA)regulations at 13 CFR 121.201;
(2)a small governmental jurisdiction that is a government of a city, county, town, school district or special district with a population of less than 50,000; and
(3)a small organization that is any not-for-profit enterprise which is independently owned and operated and is not dominant in its field. After considering the economic impacts of this proposed rule on small entities, I certify that this action will not have a significant economic impact on a substantial number of small entities. In determining whether a rule has a significant economic impact on a substantial number of small entities, the impact of concern is any significant *adverse* economic impact on small entities, since the primary purpose of the regulatory flexibility analyses is to identify and address regulatory alternatives “which minimize any significant economic impact of the rule on small entities.” 5 U.S.C. 603 and 604. Thus, an agency may certify that a rule will not have a significant economic impact on a substantial number of small entities if the rule relieves regulatory burden, or otherwise has a positive economic effect on all of the small entities subject to the rule. This proposed rule will not have any adverse economic impact on small entities. This proposed rule would codify existing guidance for the RFG and antidumping regulations, and establish provisions in the gasoline sulfur regulations (65 FR 6698, February 10, 2000) that allow transmix processors and transmix blenders more flexibility for compliance. The proposed rule would establish gasoline sulfur standards for transmix processors and blenders that are consistent with the sulfur standards for other entities, such as pipelines and terminals, that are downstream of refineries in the gasoline distribution system, and would clarify the requirements for transmix processors under the Mobile Source Air Toxics program. This proposed rule would codify existing practices designed to ensure that products transported by pipelines meet existing downstream standards. This proposed rule would also provide refiners and importers with an alternative compliance option for fulfilling a requirement to conduct downstream sampling and testing at oxygenate blender facilities. We have, therefore, concluded that this proposed rule would relieve regulatory burden for all small entities subject to the RFG regulations. We continue to be interested in the potential impacts of the proposed rule on small entities and welcome comments on issues related to such impacts. D. Unfunded Mandates Reform Act Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public Law 104-4, establishes requirements for Federal agencies to assess the effects of their regulatory actions on State, local, and tribal governments and the private sector. Under section 202 of the UMRA, EPA generally must prepare a written statement, including a cost-benefit analysis, for proposed and final rules with “Federal mandates” that may result in expenditures to State, local, and tribal governments, in the aggregate, or to the private sector, of $100 million or more in any one year. Before promulgating an EPA rule for which a written statement is needed, section 205 of the UMRA generally requires EPA to identify and consider a reasonable number of regulatory alternatives and adopt the least costly, most cost-effective or least burdensome alternative that achieves the objectives of the rule. The provisions of section 205 do not apply when they are inconsistent with applicable law. Moreover, section 205 allows EPA to adopt an alternative other than the least costly, most cost-effective or least burdensome alternative if the Administrator publishes with the final rule an explanation why that alternative was not adopted. Before EPA establishes any regulatory requirements that may significantly or uniquely affect small governments, including tribal governments, it must have developed under section 203 of the UMRA a small government agency plan. The plan must provide for notifying potentially affected small governments, enabling officials of affected small governments to have meaningful and timely input in the development of EPA regulatory proposals with significant Federal intergovernmental mandates, and informing, educating, and advising small governments on compliance with the regulatory requirements. This proposed rule contains no Federal mandates (under the regulatory provisions of Title II of the UMRA) for State, local or tribal governments or the private sector that would result in expenditures of $100 million or more. This proposed rule provides refiners and importers of gasoline with additional flexibility in complying with regulatory requirements. As a result, this proposed rule would have the overall effect of reducing the burden of the RFG regulations on these regulated parties. This proposed rule would also codify existing practices designed to ensure that products transported by pipelines meet existing downstream standards. Therefore, the requirements of the Unfunded Mandates Act do not apply to this action. E. Executive Order 13132: Federalism Executive Order 13132, entitled “Federalism” (64 FR 43255, August 10, 1999), requires EPA to develop an accountable process to ensure “meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications.” “Policies that have federalism implications” is defined in the Executive Order to include regulations that 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.” This proposed rule does not have federalism implications. It 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, as specified in Executive Order 13132. This proposed rule would provide refiners and importers of gasoline with additional flexibility in complying with regulatory requirements. This proposed rule would also codify existing practices designed to ensure that products transported by pipelines meet existing downstream standards. The requirements of this proposed rule would be enforced by the Federal Government at the national level. Thus, Executive Order 13132 does not apply to this rule. F. Executive Order 13175: Consultation and Coordination With Indian Tribal Governments Executive Order 13175, entitled “Consultation and Coordination with Indian Tribal Governments” (65 FR 67249, November 6, 2000), requires EPA to develop an accountable process to ensure “meaningful and timely input by tribal officials in the development of regulatory policies that have tribal implications.” “Policies that have tribal implications” is defined in the Executive Order to include regulations that have “substantial direct effects on one or more Indian tribes, on the relationship between the Federal Government and the Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.” This proposed rule does not have tribal implications. It would not have substantial direct effects on tribal governments, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes, as specified in Executive Order 13175. This rule would apply to gasoline refiners and importers of gasoline. This action contains certain modifications to the federal requirements for RFG, and would not impose any enforceable duties on communities of Indian tribal governments. Thus, Executive Order 13175 does not apply to this rule. G. Executive Order 13045: Protection of Children From Environmental Health and Safety Risks Executive Order 13045: “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997) applies to any rule that:
(1)Is determined to be “economically significant” as defined under Executive Order 12866, and
(2)concerns an environmental health or safety risk that EPA has reason to believe may have a disproportionate effect on children. If the regulatory action meets both criteria, the Agency must evaluate the environmental health or safety effects of the planned rule on children, and explain why the planned regulation is preferable to other potentially effective and reasonably feasible alternatives considered by the Agency. EPA interprets Executive Order 13045 as applying only to those regulatory actions that are based on health or safety risks, such that the analysis required under the Order has the potential to influence the regulation. This proposed rule is not subject to Executive Order 13045 because it is not economically significant and does not establish an environmental standard intended to mitigate health or safety risks. H. Executive Order 13211: Acts That Significantly Affect Energy Supply, Distribution, or Use This proposed rule would not be an economically “significant energy action” as defined in Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355 (May 22, 2001)) because it would not have a significant adverse effect on the supply, distribution, or use of energy. This proposed rule will provide refiners and importers of gasoline with additional flexibility in complying with regulatory requirements. This proposed rule would also codify existing practices designed to ensure that products transported by pipelines meet existing downstream standards. As a result, this proposed rule may have a positive effect on gasoline supplies. I. National Technology Transfer and Advancement Act Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (“NTTAA”), Public Law 104-113, section 12(d) (15 U.S.C. 272 note) directs EPA to use voluntary consensus standards in its regulatory activities unless to do so would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards ( *e.g.* , materials specifications, test methods, sampling procedures, and business practices) that are developed or adopted by voluntary consensus standards bodies. The NTTAA directs EPA to provide Congress, through OMB, explanations when the Agency decides not to use available and applicable voluntary consensus standards. This proposed rule does not establish new technical standards within the meaning of the NTTAA. Therefore, EPA did not consider the use of any voluntary consensus standards. IV. Statutory Provisions and Legal Authority The statutory authority for the actions in this proposed rule comes from sections 211 and 301(a) of the CAA. For the reasons set out in the preamble, the regulatory text proposed today is set forth in the concurrent direct final rule published in today's **Federal Register** . List of Subjects in 40 CFR Part 80 Environmental protection, Air pollution control, Fuel additives, Gasoline, Imports, Incorporation by reference, Motor vehicle pollution, Reporting and recordkeeping requirements. Dated: May 25, 2006. Stephen L. Johnson, Administrator. [FR Doc. 06-5050 Filed 6-1-06; 8:45 am]
Connectionstraces to 35
Traces to 35 documents
U.S. Code
32 references not yet in our index
  • 26 CFR 1
  • 30 CFR 948
  • 33 CFR 165
  • 5 USC 601-612
  • Pub. L. 104-121
  • 44 USC 3501-3520
  • 2 USC 1531-1538
  • 42 USC 4321-4370f
  • Pub. L. 107-295
  • 33 USC 2001
  • 194 F.3d 130
  • 208 F.3d 1015
  • 40 CFR 64
  • 40 CFR 60
  • 425 F.3d 992
  • 40 CFR 70.6(a)(3)(i)(A)
  • 40 CFR 63
  • 40 CFR 75
  • 40 CFR 9
  • Pub. L. 104-4
  • Pub. L. 104-113
  • 40 CFR 80
  • 40 CFR 2
  • 40 CFR 80.41
  • Pub. L. 109-58
  • 40 CFR 80.69(a)(8)
  • 40 CFR 80.69(a)(7)
  • 40 CFR 80.69(a)(6)
  • 40 CFR 80.69
  • 40 CFR 80.2(h)
  • 42 USC 6921-6939(e)
  • 40 CFR 80.195
Citation graph
cites case law
Proposed Rules
Notice of proposed rulemaking
Fed. Reg.Notices
U.S.C.§ 7805
U.S.C.§ 367
U.S.C.§ 1248
U.S.C.§ 1253
C.F.R.§ 948.10
U.S.C.§ 1201
C.F.R.§ 732.17
C.F.R.§ 732.15
F. App'x194 F.3d 130
F. App'x208 F.3d 1015
F. App'x425 F.3d 992
Cites 67 · showing 12Cited by 0 across 0 sources
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