Notices. Amendment 1

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BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-54153; File No. SR-CBOE-2006-63] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Its Marketing Fee Program July 14, 2006. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on June 30, 2006, the Chicago Board Options Exchange, Incorporated (“CBOE” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange.

The CBOE has designated this proposal as one establishing or changing a due, fee, or other charge imposed by the CBOE under Section 19(b)(3)(A)(ii) of the Act 3 and Rule 19b-4(f)(2) thereunder, 4 which renders the proposal effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 15 U.S.C. 78s(b)(3)(A)(ii). 4 17 CFR 240.19b-4(f)(2). I.

Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The CBOE proposes to amend its marketing fee program. Below is the text of the proposed rule change. Proposed new language is in *italics* ; deleted language is in [brackets]. Chicago Board Options Exchange, Inc. Fees Schedule June [2] *30* , 2006 1. No Change. 2. MARKETING FEE (6)(16)—$.65 3.-4. No Change. Footnotes: (1)-(5) No Change.

(6)The Marketing Fee will be assessed only on transactions of Market-Makers, RMMs, e-DPMs, DPMs, and LMMs resulting from orders for less than 1,000 contracts

(i)from payment accepting firms, or

(ii)that have designated a “Preferred Market-Maker” under CBOE Rule 8.13 at the rate of $.65 per contract on all classes of equity options, options on HOLDRs, options on SPDRs, options on DIA, options on NDX, and options on RUT. The fee will not apply to: Market-Maker-to-Market-Maker transactions including transactions resulting from orders from non-member market-makers; transactions resulting from inbound P/A orders or a transaction resulting from the execution of an order against the DPM's account if an order directly related to that order is represented and executed through the Linkage Plan using the DPM's account; transactions resulting from accommodation liquidations (cabinet trades); and transactions resulting from dividend strategies, merger strategies, and short stock interest strategies as defined in footnote 13 of this Fees Schedule. This fee shall not apply to index options and options on ETFs (other than options on SPDRs, options on DIA, options on NDX, and options on RUT). A Preferred Market-Maker will only be given access to the marketing fee funds generated from a Preferred order if the Preferred Market-Maker has an appointment in the class in which the Preferred order is received and executed. *DPM/LMM Rebate/Carryover Process.* If less than 80% of the marketing fee funds *collected in a given month* are paid out by the DPM/LMM [or Preferred Market-Maker in a given month], then the Exchange would refund such surplus at the end of the month on a pro rata basis based upon contributions made by the Market-Makers, RMMs, e-DPMs, DPMs and LMMs *in that month.* However, if 80% or more of the [accumulated] funds *collected* in a given month are paid out by the DPM/LMM [or Preferred Market-Maker], there will not be a rebate for that month and the *excess* funds will [carry over and will] be included in [the] *an* Excess [p] *P* ool of funds to be used by the DPM/LMM [or Preferred Market-Maker the following] *in subsequent* month *s* . *The total balance of the Excess Pool of funds cannot exceed $25,000, and if in any month the balance were to exceed $25,000, the funds in excess of $25,000 would be refunded* [At the end of each quarter, the Exchange would then refund any surplus, if any,] on a pro rata basis based upon contributions made by the Market-Makers, RMMs, DPMs, e-DPMs and LMMs *in that month.* * Preferred Market-Maker Rebate/Carryover Process. If less than 80% of the marketing fee funds are paid out by the Preferred Market-Maker in a given month, then the Exchange would refund such surplus at the end of the month on a pro rata basis based upon contributions made by the Market-Makers, RMMs, e-DPMs, DPMs and LMMs in that month. However, if 80% or more of the accumulated funds in a given month are paid out by the Preferred Market-Maker, there will not be a rebate for that month and the funds will carry over and will be included in the pool of funds to be used by the Preferred Market-Maker the following month. At the end of each quarter, the Exchange would then refund any surplus, if any, on a pro rata basis based upon contributions made by the Market-Makers, RMMs, DPMs, e-DPMs and LMMs in the final month of the quarter. * CBOE's marketing fee program as described above will be in effect until June 2, 2007. Remainder of Fees Schedule—No change. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change, and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The CBOE has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The CBOE proposes to amend its marketing fee to modify the manner in which marketing fee funds collected during a calendar quarter are refunded. The CBOE states that its marketing fee currently provides that if less than 80% of the marketing fee funds are paid out by the DPM/LMM or Preferred Market-Maker in a given month, then the Exchange would refund such surplus at the end of the month on a pro rata basis based upon contributions made by the Market-Makers, RMMs, e-DPMs, DPMs, and LMMs. However, if 80% or more of the accumulated funds in a given month are paid out by the DPM/LMM or Preferred Market-Maker, there will not be a rebate for that month and the funds will carry over and will be included in the pool of funds to be used by the DPM/LMM or Preferred Market-Maker the following month. At the end of each quarter, the Exchange would then refund any surplus, if any, on a pro rata basis based upon contributions made by the Market-Makers, RMMs, DPMs, e-DPMs, and LMMs. The CBOE states that the purpose of this rule change is to modify the rebate process as it relates to DPMs. As amended, if less than 80% of the marketing fee funds collected in a given month are paid out by the DPM/LMM, then the Exchange would refund such surplus at the end of the month on a pro rata basis based upon contributions made by the Market-Makers, RMMs, e-DPMs, DPMs, and LMMs in that month. However, if 80% or more of the funds collected in a given month are paid out by the DPM/LMM, there would not be a rebate for that month and the excess funds would be included in an excess pool (“Excess Pool”) of funds to be used by the DPM/LMM in subsequent months. The CBOE states that the total balance of the Excess Pool of funds could not exceed $25,000, and if in any month the balance were to exceed $25,000, the funds in excess of $25,000 would be refunded on a pro rata basis based upon contributions made by the Market-Makers, RMMs, DPMs, e-DPMs, and LMMs in that month. As before, in the event a DPM/LMM is also marked as a Preferred Market-Maker on a particular order, the funds collected from the order will be allocated to the DPM in its capacity as a DPM and not as a Preferred Market-Maker. The Exchange states that the rebate and carryover process for Preferred Market-Makers will continue to operate on a quarterly basis. However, CBOE proposes to make one clarification to the rebate process for Preferred Market-Makers in the text of the Fees Schedule to make it consistent with the current process and procedure for rebating excess funds. As noted above, if less than 80% of the marketing fee funds are paid out by the Preferred Market-Maker in a given month, then the Exchange would refund such surplus at the end of the month on a pro rata basis based upon contributions made by the Market-Makers, RMMs, e-DPMs, DPMs, and LMMs. CBOE states that it refunds the money based on the contributions made by these market participants in that specific month. If there are surplus funds at the end of the quarter, CBOE represents that it refunds the money on a pro rata basis based upon contributions made by the Market-Makers, RMMs, e-DPMs, DPMs, and LMMs in the final month of the quarter. CBOE believes that refunding surplus funds to market participants on a pro rata basis based upon contributions made in the final month of the quarter, as opposed to based upon contributions made during the preceding three months, would be an equitable allocation of dues and fees due to the manner in which the marketing fee funds collected are paid out and how CBOE accounts for the funds on a month-to-month basis. For example, if at least 80%, but less than 100%, of the funds collected in the 1st month of a quarter is paid out, the balance that carries over to the 2nd month is paid out first in that 2nd month. Similarly, if at least 80%, but less than 100%, of the funds collected in the 2nd month is paid out, the balance that carries over to the 3rd month is paid out first in that 3rd month. As a result, any surplus of funds at the end of the quarter (the 3rd month) was contributed by the Market-Makers, RMMs, e-DPMs, DPMs, and LMMs who were assessed the fee in that month. CBOE states that it is not amending its marketing fee program in any other respects. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act, 5 in general, and furthers the objectives of Section 6(b)(4) of the Act, 6 in particular, in that it is designed to provide for the equitable allocation of reasonable dues, fees, and other charges among CBOE members. 5 15 U.S.C. 78f(b). 6 15 U.S.C. 78f(b)(4). B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange neither solicited nor received comments on the proposal. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing proposed rule change has been designated as a fee change pursuant to Section 19(b)(3)(A)(ii) of the Act 7 and Rule 19b-4(f)(2) 8 thereunder, because it establishes or changes a due, fee, or other charge imposed by the Exchange. Accordingly, the proposal will take effect upon filing with the Commission. At any time within 60 days of the filing of such proposed rule change the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. 7 15 U.S.C. 78s(b)(3)(A)(ii). 8 17 CFR 240.19b-4(f)(2). IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov.* Please include File Number SR-CBOE-2006-63 on the subject line. Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-CBOE-2006-63. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room. Copies of such filing also will be available for inspection and copying at the principal office of the CBOE. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-CBOE-2006-63 and should be submitted on or before August 11, 2006. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 9 9 17 CFR 200.30-3(a)(12). Jill M. Peterson, Assistant Secretary. [FR Doc. E6-11568 Filed 7-20-06; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-54147; File No. SR-CBOE-2006-64] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Extend Two Pilot Programs Until July 18, 2007 Related to the Exchange's Automated Improvement Mechanism July 14, 2006. Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on July 6, 2006, the Chicago Board Options Exchange, Incorporated (“Exchange” or “CBOE”) filed with the Securities and Exchange Commission (the “Commission”) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Exchange filed the proposed rule change pursuant to section 19(b)(3)(A) of the Act 3 and Rule 19b-4(f)(6) thereunder, 4 which renders the proposed rule change effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 15 U.S.C. 78s(b)(3)(A). 4 17 CFR 240.19b-4(f)(6). I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change CBOE proposes to extend two pilot programs related to the Exchange's Automated Improvement Mechanism (“AIM”) for one year, until July 18, 2007. The text of the proposed rule change is available on the Exchange's Web site ( *http://www.cboe.com* ), at the Exchange's Office of the Secretary, and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in Sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose In February 2006, CBOE obtained approval of a filing adopting the AIM auction process. 5 AIM exposes certain orders electronically to an auction process to provide such orders with the opportunity to receive an execution at an improved price. The AIM auction is available only for orders that an Exchange member represents as agent and for which a second order of the same size as the “Agency Order” (and on the opposite side of the market) is also submitted (effectively stopping the Agency Order at a given price). 5 *See* Securities Exchange Act Release No. 53222 (February 3, 2006), 71 FR 7069 (February 10, 2006). Two components of AIM were approved on a pilot basis:

(1)That there is no minimum size requirement for orders to be eligible for the auction, and

(2)that the auction will conclude prematurely anytime there is a quote lock on the Exchange pursuant to Exchange Rule 6.45A(d). 6 In connection with the pilot programs, the Exchange has been submitting to the Commission monthly reports providing detailed AIM auction and order execution data. Extending the pilots for an additional year will allow the Commission more time to consider the impact of the pilot programs on AIM order executions. The proposed rule change merely extends the duration of the pilot programs until July 18, 2007. 6 That rule relates to situations where a Market-Maker's quote interacts with the quote of another CBOE Market-Maker ( *i.e.* , when internal quotes lock). 2. Statutory Basis The Exchange believes the proposed rule change is consistent with section 6(b) of the Act, 7 in general, and furthers the objectives of section 6(b)(5) of the Act, 8 in particular, in that it is designed to allow the Commission additional time to evaluate the AIM pilot programs, remove impediments to and perfect the mechanism of a free and open market and a national market system, and protect investors and the public interest. 7 15 U.S.C. 78f(b). 8 15 U.S.C. 78f(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition CBOE does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange neither solicited nor received comments on the proposal. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not:

(i)Significantly affect the protection of investors or the public interest;

(ii)impose any significant burden on competition; and

(iii)by its terms, become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest, it has become effective pursuant to section 19(b)(3)(A) of the Act 9 and Rule 19b-4(f)(6) thereunder. 10 9 15 U.S.C. 78s(b)(3)(A). 10 17 CFR 240.19b-4(f)(6). A proposed rule change filed under Rule 19b-4(f)(6) normally may not become operative prior to 30 days after the date of filing. However, Rule 19b-4(f)(6)(iii) 11 permits the Commission to designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has requested that the Commission waive the 30-day operative delay and designate the proposed rule change immediately operative upon filing. The Commission believes that waiver of the 30-day operative delay is consistent with the protection of investors and the public interest because it would allow the pilots to continue without interruption until July 18, 2007. For this reason, the Commission designates the proposal to be effective and operative upon filing with the Commission. 12 11 17 CFR 240.19b-4(f)(6)(iii). 12 For purposes only of waiving the 30-day operative delay, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov* . Please include File Number SR-CBOE-2006-64 on the subject line. Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-CBOE-2006-64. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room. Copies of such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-CBOE-2006-64 and should be submitted on or before August 11, 2006. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 13 13 17 CFR 200.30-3(a)(12). Jill M. Peterson, Assistant Secretary. [FR Doc. E6-11572 Filed 7-20-06; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-54152; File No. SR-ISE-2006-36] Self-Regulatory Organizations; International Securities Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Payment for Order Flow Fee Changes July 14, 2006. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on July 3, 2006, the International Securities Exchange, Inc. (“ISE” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The ISE has designated this proposal as one changing a fee imposed by the ISE under Section 19(b)(3)(A)(ii) of the Act 3 and Rule 19b-4(f)(2) thereunder, 4 which renders the proposal effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 15 U.S.C. 78s(b)(3)(A)(ii). 4 17 CFR 240.19b-4(f)(2). I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The ISE proposes to amend its Schedule of Fees regarding the payment for order flow fees collected by the Exchange. The text of the proposed rule change is available on the ISE's Web site at *http://www.iseoptions.com,* at the principal office of the Exchange, and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the ISE included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The ISE has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The ISE is proposing to amend its Schedule of Fees regarding the payment for order flow (“PFOF”) fees collected by the Exchange. The Exchange states that it currently operates a PFOF program as approved by the Commission. 5 The PFOF program is funded through a fee, currently set at $0.55 per contract, paid by Exchange market makers for each customer contract they execute. Currently, all funds collected by the Exchange are administered by specified market makers. 6 PFOF fees collected by the Exchange that are not distributed are rebated back to the market makers. 5 *See* Securities Exchange Act Release No. 43833 (January 10, 2001), 66 FR 7822 (January 25, 2001) (SR-ISE-00-10). 6 The Exchange states that initially only Primary Market Makers administered PFOF pools. However, the Exchange recently amended its PFOF program to allow a Competitive Market Maker (“CMM”) to administer the PFOF funds collected by the Exchange with respect to orders in a group of options classes preferenced to that CMM. *See* Securities Exchange Act Release No. 53127 (January 13, 2006), 71 FR 3582 (January 23, 2006) (SR-ISE-2005-57). The Exchange proposes to increase its PFOF fee to $0.65 per contract to match the fee that the Chicago Board Options Exchange, Incorporated (“CBOE”), under the PFOF program it administers, currently charges its members. Additionally, the Exchange states that Complex Orders 7 are currently exempt from the ISE's PFOF fee. The Exchange represents that other options exchanges, however, notably CBOE, do not provide a similar exception. Accordingly, and also for competitive reasons, the Exchange proposes to charge a PFOF fee on Complex Orders traded on the ISE. 7 *See* Securities Exchange Act Release No. 46646 (October 11, 2002), 67 FR 64428 (October 18, 2002) (Approving SR-ISE-2002-20, ISE's Complex Order Rule, on a permanent basis). The ISE states that it is committed to matching other exchanges' PFOF programs in order to maintain its competitive position. The ISE states that its Board has provided management with delegated authority to increase the ISE's PFOF fee further in the event that increases in the PFOF fee of other exchanges present competitive challenges to the ISE. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act 8 in general, and furthers the objectives of Section 6(b)(4) of the Act 9 in particular, in that it is an equitable allocation of reasonable dues, fees, and other charges among ISE members and other persons using its facilities. 8 15 U.S.C. 78f(b). 9 15 U.S.C. 78f(b)(4). B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange has not solicited, and does not intend to solicit, comments on this proposed rule change. The Exchange has not received any unsolicited written comments from members or other interested parties. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing proposed rule change has been designated as a fee change pursuant to Section 19(b)(3)(A)(ii) of the Act 10 and Rule 19b-4(f)(2) 11 thereunder, because it establishes or changes a due, fee, or other charge imposed by the Exchange. Accordingly, the proposal will take effect upon filing with the Commission. At any time within 60 days of the filing of such proposed rule change the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. 10 15 U.S.C. 78s(b)(3)(A)(ii). 11 17 CFR 240.19b-4(f)(2). IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov* . Please include File Number SR-ISE-2006-36 on the subject line. Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-9303. All submissions should refer to File Number SR-ISE-2006-36. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room. Copies of such filing also will be available for inspection and copying at the principal office of the ISE. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-ISE-2006-36 and should be submitted on or before August 11, 2006. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 12 12 17 CFR 200.30-3(a)(12). Jill M. Peterson, Assistant Secretary. [FR Doc. E6-11570 Filed 7-20-06; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-54151; File No. SR-ISE-2006-27] Self-Regulatory Organizations; International Securities Exchange, Inc.; Order Granting Approval of Proposed Rule Change Relating to Automatic Execution of Non-Customer Orders July 14, 2006. On May 15, 2006, the International Securities Exchange, Inc. (“ISE” or “Exchange”), filed with the Securities and Exchange Commission (“Commission”) a proposed rule change pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) 1 and Rule 19b-4 thereunder, 2 to amend ISE Rule 714 to provide that incoming Non-Customer Orders 3 would not be automatically executed at prices that are inferior to the best bid or offer disseminated by another national securities exchange (“NBBO”) and that Non-Customer Orders that are not automatically executed would be rejected. The proposed rule change also would clarify the handling of Public Customer Orders 4 that are not automatically executed and update the rule text to conform with the Exchange's current handling of “fill-or-kill” orders. The proposed rule change was published for comment in the **Federal Register** on June 14, 2006. 5 The Commission received no comments on the proposal. This order approves the proposed rule change. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 *See* ISE Rule 100(a)(23). 4 *See* ISE Rule 100(a)(33). 5 *See* Securities Exchange Act Release No. 53946 (June 6, 2006), 71 FR 34406 (“Notice”). The Commission has reviewed carefully the proposed rule change and finds that it is consistent with the requirements of section 6 of the Act 6 and the rules and regulations thereunder applicable to a national securities exchange. 7 In particular, the Commission finds that the proposed rule change is consistent with section 6(b)(5) of the Act, 8 which requires, among other things, that the rules of an exchange be designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. 6 15 U.S.C. 78f. 7 In approving this proposal, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 8 15 U.S.C. 78f(b)(5). In particular, the Commission believes that the proposed change should help to prevent Non-Customer Orders from automatically trading at prices that are inferior to the NBBO. The Commission also believes that the proposed rule change provides clarity with respect to the handling of Public Customer Orders and Non-Customer Orders when such orders are not automatically executed—Public Customer Orders would be handled by the Primary Market Maker pursuant to ISE Rule 803(c) and Non-Customer Orders would be automatically rejected. The Commission further believes that the proposed change relating to “fill-or-kill” orders clarifies for investors and market participants how such orders will be handled by the Exchange. The Commission notes that the Exchange represents that the proposed rule change with respect to the handling of Non-Customer Orders requires the Exchange to implement a systems change that will be implemented by early September 2006. Therefore, this part of the proposed rule change will not be operative until such systems change is implemented. 9 9 The Exchange represents in the Notice that it would issue a Regulatory Information Circular notifying members at least five days prior to the operative date of the rule change. *It is therefore ordered,* pursuant to section 19(b)(2) of the Act, 10 that the proposed rule change (SR-ISE-2006-27) is approved. 10 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 11 11 17 CFR 200.30-3(a)(12). Jill M. Peterson, Assistant Secretary. [FR Doc. E6-11571 Filed 7-20-06; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-54146; File No. SR-ISE-2006-39] Self-Regulatory Organizations; International Securities Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to a One-Year Pilot Extension Until July 18, 2007 for the Price Improvement Mechanism July 14, 2006. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on July 12, 2006, the International Securities Exchange, Inc. (“Exchange” or “ISE”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I and II below, which items have been prepared by the Exchange. The Exchange filed the proposed rule change pursuant to Section 19(b)(3)(A) of the Act 3 and Rule 19b-4(f)(6) thereunder, 4 which renders the proposed rule change effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 15 U.S.C. 78s(b)(3)(A). 4 17 CFR 240.19b-4(f)(6). I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to extend the Pilot Periods contained in paragraphs .03 and .05 of the Supplemental Material to Exchange Rule 723. The text of the proposed rule change is available on the Exchange's Web site ( *http://www.iseoptions.com* ), at the Exchange's Office of the Secretary, and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The pilot periods provided in paragraphs .03 and .05 of the Supplementary Material to ISE Rule 723 expire on July 18, 2006. 5 Paragraph .03 provides that there is no minimum size requirement for orders to be eligible for the Price Improvement Mechanism. Paragraph .05 concerns the termination of the exposure period by unrelated orders. The Exchange proposes to extend these pilots for an additional year to give the Exchange and the Commission additional time to evaluate the effects of the provisions before requesting permanent approval of the rules. 5 *See* Securities Exchange Act Release Nos. 50819 (December 8, 2004), 69 FR 75093 (December 15, 2004); and 52027 (July 13, 2005), 70 FR 41804 (July 20, 2005). 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b)(5) of the Act 6 in that it is designed to promote just and equitable principles of trade, remove impediments to and perfect the mechanisms of a free and open market and a national market system and, in general, to protect investors and the public interest. Since the Price Improvement Mechanism has only been operating for a relatively short period of time, the Exchange believes it is appropriate to extend the pilot periods to provide the Exchange and the Commission more data upon which to evaluate the rules. 6 15 U.S.C. 78f(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition The proposed rule change does not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others The Exchange has not solicited, and does not intend to solicit, comments on this proposed rule change. The Exchange has not received any written comments from members or other interested parties. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not:

(i)Significantly affect the protection of investors or the public interest;

(ii)impose any significant burden on competition; and

(i)Does not significantly affect the protection of investors or the public interest;

(ii)does not impose any significant burden on competition; and

(iii)does not become operative for 30 days after the date of the filing, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act 9 and Rule 19b-4(f)(6) thereunder. 10 9 15 U.S.C. 78s(b)(3)(A). 10 17 CFR 240.19b-4(f)(6). Pursuant to Rule 19b-4(f)(6)(iii) under the Act, the Exchange is required to give the Commission written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has requested that the Commission waive the 5-day pre-filing notice requirement. The Commission has determined to waive this requirement. A proposed rule change filed under Rule 19b-4(f)(6) 11 normally does not become operative prior to thirty days after the date of filing. NYSE requests that the Commission waive the 30-day operative delay, as specified in Rule 19b-4(f)(6)(iii), and designate the proposed rule change to become operative immediately. The Commission hereby grants the request. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest because the extension will give the Exchange time to fully study the future viability of CTs and RCMMs in order to improve their market. 12 For these reasons, the Commission designates the proposed rule change as effective and operative immediately. 11 *Id.* 12 For purposes only of waiving the operative delay for this proposal, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. *See* 15 U.S.C. 78c(f). At any time within 60 days of the filing of the proposed rule change, the Commission may summarily abrogate such proposed rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov.* Please include File Number SR-NYSE-2006-48 on the subject line. Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-NYSE-2006-48. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-NYSE-2006-48 and should be submitted on or before August 11, 2006. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 13 13 17 CFR 200.30-3(a)(12). Jill M. Peterson, Assistant Secretary. [FR Doc. E6-11569 Filed 7-20-06; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-54142; File No. SR-NYSE-2006-46] Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Revise Equity Transaction Fees and to Exempt Specialist Firms From ETF Transaction Fees July 13, 2006. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on July 10, 2006, the New York Stock Exchange LLC (“Exchange” or “NYSE”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Exchange has designated this proposal as one establishing or changing a due, fee, or other charge imposed by the Exchange under Section 19(b)(3)(A)(ii) of the Act 3 and Rule 19b-4(f)(2) thereunder, 4 which renders the proposed rule change effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 15 U.S.C. 78s(b)(3)(A)(ii). 4 17 CFR 240.19b-4(f)(2). I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes

(i)to revise the fees it charges to its member organizations in connection with transactions in equity securities, and

(ii)to exempt specialist firms from the fees it charges to its member organizations in connection with transactions in Exchange Traded Fund (“ETF”) securities. The fee changes will take effect on August 1, 2006. The text of the proposed rule change is available on NYSE's Web site ( *http://www.nyse.com* ), at NYSE's principal office, and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes

(i)to revise the fees it charges to its member organizations in connection with transactions in equity securities, and

(ii)to exempt specialist firms from the fees it charges to its member organizations in connection with transactions in ETF securities. The fee changes will take effect on August 1, 2006. The amended section of the 2006 Exchange Price List was filed with the Commission as Exhibit 5 to the proposed rule filing. The fee changes are also described below. The Exchange proposes to implement a more simplified transaction fee structure for equities that it believes will make its fees more transparent and will distribute costs more equitably across our customer base. In place of the current policy of charging a variable fee on equity transactions depending on the number of shares traded, the Exchange intends to implement a flat fee of $0.00025 per share, which will continue to be subject to the current $80 per transaction cap. System trades (trades executed electronically) for less than 2,100 shares, which were previously exempt from Exchange transaction fees, will be subject to the same $0.00025 per share fee as all other equity transactions. The Exchange is also eliminating the 1.2% rebate on floor brokerage (fees a member organization receives from another member organization for which it executes a transaction) previously paid to the member organization that had paid the floor brokerage. Monthly equity transaction fees are currently capped at the lesser of:

(i)$600,000 per month or

(ii)2% of the member organization's self-reported monthly net commissions. 5 The Exchange proposes to increase the cap, for the first time since 2003, from $600,000 to $750,000 per month and to eliminate the 2% cap alternative, which has been in place since 1981. The Exchange believes that doing so will enable it to grow its trading revenues over time, as it will be able to charge fees on certain transactions that are currently free because a significant number of member organizations routinely exceed the 2% cap. Since trading volume has increased substantially since 2003, the average fee per share executed by member organizations paying the $600,000 cap has deceased significantly over that period. The proposed increase is intended to raise the average fee per share paid by member organizations that pay under the cap to a level that is closer to the historical average paid by those member organizations. Raising the cap to $750,000 compensates the Exchange for additional system usage, but continues to reward customers that significantly enhance the NYSE liquidity pool. 5 A member organization's net commissions are calculated as the difference between gross commissions charged and commissions payable to other members. Under the Exchange's historical structure as a member-owned New York not-for-profit corporation, the 2% fee cap was a requirement of Article X, Section 4 of the Exchange's constitution. At the annual members' meeting of the Exchange on April 7, 2005, the members of the Exchange adopted an amendment to Article X, Section 4 to eliminate the 2% cap. The Exchange's membership at the time of its 2005 annual meeting was composed largely of representatives of the Exchange's current member organizations. As such, while the Exchange is no longer a member-owned not-for-profit corporation, the Exchange's member organizations have previously accepted the removal of the 2% cap. The constitutional amendment approved by the members at the 2005 annual members' meeting specified that the Exchange's board would determine the effective date of the removal of the 2% cap. Although approved last year by the members, the Exchange has not implemented the elimination of the cap to this point as it had always intended to do so in conjunction with a broader revision of Exchange pricing. The 2% cap was originally introduced in 1981 when the Exchange first moved away from charging members a fee based on their net commissions and introduced the variable, transaction-related fee structure in use today. The cap was intended to alleviate concerns of certain members at that time that the variable fee structure would result in substantially higher fees, thereby rendering trading activity unprofitable. However, as a result of the dramatic reduction in commission rates, a shift to business models not based on commissions, and a greater emphasis on principal trading as a source of revenue since 1981, many member organizations who continue to pay transaction fees based on the 2% cap currently pay disproportionately low transaction fees. The Exchange believes that the elimination of the 2% cap will allow it to more equitably allocate fees among member organizations based on system usage rates. Since the implementation of the decimalization of equities trading in 2001 and the growing influence of program and algorithmic trading, there has been an increasing trend towards smaller order sizes. The average execution size on the Exchange is now less than 600 shares per trade. System orders constituted 72% of the Exchange's equity trading volume in the first six months of 2006, and in the week of June 26, 2006, 95% of system orders were for less than 2,100 shares. The Exchange expects even more trades to be executed in the form of system orders as its hybrid market initiative is fully implemented. In light of this trend, it is not a sustainable business model for the Exchange to continue to exempt these trades from fees. Given the Exchange's investment in technology and system redundancy, it is essential that the Exchange generate revenue from this large and growing aspect of the equities trading business. The Exchange proposes to exempt specialists from the fees payable with respect to transactions in ETF securities. This is consistent with the Exchange's current policy of charging no fees in connection with trading by specialists in equity securities. The Exchange believes that the specialists are paying a sufficient amount for their transactions through the specialist trading privilege fee in connection with each stock or ETF for which they act as specialist. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act 6 in general and furthers the objectives of Section 6(b)(4) 7 in particular in that it is intended to provide for the equitable allocation of reasonable dues, fees, and other charges among its members and other persons using its facilities. 6 15 U.S.C. 78f(b). 7 15 U.S.C. 78f(b)(4). B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange has carefully considered the impact of the proposed fee changes on member organizations and does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purpose of the Act. The proposed fee changes are not designed to adversely impact any particular business model or any individual member organization or category of member organizations. In contrast with the current pricing system, under which some trades are completely free of charge, all trades will be charged the same $0.00025 per share fee. The $750,000 fee cap is a bulk discount to attract more business to the Exchange, which furthers competition among markets and is consistent with the Exchange's own historical fee structure and general industry practice. The Exchange's fee cap has not been changed in response to the large growth in trading volume since it was last increased in 2003, so the average fee per share executed by member organizations paying the cap has deceased significantly over that period. The proposed increase is intended to raise the average fee per share paid by member organizations that pay under the cap to a level that is closer to the historical average paid by those member organizations. The Exchange has received written comments from two parties on the proposed rule change. 8 In addition, the Exchange has been provided with a letter that was submitted directly to the Commission. 9 The commenters argue that subjecting system trades of less than 2,100 shares to the same per share fee as all other transactions is unfairly discriminatory to smaller member organizations and smaller investors. 10 Moreover, they believe the proposed pricing will be advantageous to large member organizations whose fee obligations will be limited by the monthly cap. 11 One letter also notes that member organizations will lose the benefit of the cap of 2% of monthly commissions. 12 8 *See* letter from Mark D. Fitterman, Partner, Morgan, Lewis & Bockius LLP, to John A. Thain, CEO, and Catherine R. Kinney, President and Co-COO, NYSE Group, Inc., dated June 27, 2006 (on behalf of Jeffries Execution Services, Inc.) (“Jeffries Letter”); and e-mail from Joseph McCaffrey, CEO and Managing LLC Member, Bay Crest Partners, LLC, to Bob Airo, Vice President, and Laura Morrison, Managing Director, NYSE Group, dated July 6, 2006 (“Bay Crest Letter”). 9 *See* letter from Mark D. Fitterman, Partner, Morgan, Lewis & Bockius LLP, to Nancy M. Morris, Secretary, Commission, dated June 30, 2006 (on behalf of RBC Capital Markets Corporation) (“RBC Letter”). 10 * See* Jeffries Letter at 2; RBC Letter at *passim.* 11 *See* Jeffries Letter at 2; RBC Letter at 1; Bay Crest Letter at *passim.* 12 *See* RBC Letter at 2. The Exchange does not believe that it is anticompetitive or discriminatory to impose fees on system orders for less than 2,100 shares. The average execution size on the Exchange is now less than 600 shares per trade and the Exchange expects even more trades to be executed in the form of system orders as its hybrid market initiative is fully implemented. System orders constituted 72% of the Exchange's equity trading volume in the first six months of 2006, and in the week of June 26, 2006, 95% of system orders were for less than 2,100 shares. This increasing trend towards smaller order sizes is largely attributable to changes in trading behavior in response to the introduction of the decimalization of equities trading in 2001 and the growing influence of program and algorithmic trading. In light of this trend, it is not a sustainable business model for the Exchange to continue to exempt these trades from fees. Given the Exchange's investment in technology and system redundancy, it is essential that the Exchange generate revenue from this large and growing aspect of the equities trading business. The dramatic reduction in commission rates, a shift to business models not based on commissions, and a greater emphasis on principal trading as a source of revenue since the introduction of the 2% cap in 1981 has allowed many member organizations who continue to pay transaction fees based on the 2% cap to pay disproportionately low transaction fees. Rather than seeking to discriminatorily increase the fees levied on those member organizations, the Exchange is actually eliminating the 2% cap so as to more equitably allocate fees among member organizations. The Exchange has examined the impact of the proposed fee changes on its member organizations by analyzing how much each member organization would pay based on its trading activity for the second half of 2005. The small number of member organizations that currently pay the Exchange's $600,000 fee cap would all reach the new $750,000 cap and would therefore pay $150,000 more in fees per month. The majority of member organizations would pay more in fees under the proposed fee structure. As is clear from these statistics, the Exchange is not seeking to discriminate in favor of the largest member organizations or against those that are smaller. Rather, the impact of the fee changes on a particular member organization will result from a number of variables, including its business model and the volume of trades it sends to the Exchange. *C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received from Members, Participants or Others* 13 13 The Commission notes that subsequent to the filing of this proposed rule change, the Commission received a comment letter from Lek Securities Corporation, a NYSE member. *See* letter from Samuel F. Lek, CEO, Lek Securities Corporation, to Nancy M. Morris, Secretary, Commission, dated July 6, 2006. The Exchange has not solicited written comments on the proposed rule change and has received the two written comments and the letter addressed to the Commission described above. 14 The letters focus primarily on the commenters' belief that the proposed fees are anticompetitive, which is discussed in Section II.B. above. In addition, two commenters argued that it is inappropriate for the proposed fee changes to be filed for immediate effectiveness pursuant to Section 19(b)(3)(A) of the Act 15 and that the filing should be subject to the public notice and comment process of Section 19(b)(1) of the Act 16 prior to becoming effective. 17 The Exchange believes it is appropriate to file the proposed fee changes for immediate effectiveness pursuant to Section 19(b)(3)(A) of the Act. Pursuant to Section 19(b)(3)(A)(ii) of the Act 18 and Rule 19b-4(f)(2) thereunder, 19 a proposed rule change may take effect upon filing with the Commission if properly designated by the self-regulatory organization as establishing or changing a due, fee, or other charge applicable to a member. The proposed fee changes are of the type contemplated by Rule 19b-4(f)(2) and it has been the Exchange's consistent historical practice to file such fee changes for immediate effectiveness. The Exchange does not believe that there is any reason to do otherwise in this instance. 14 *See supra* notes 8 and 9 and accompanying text. 15 15 U.S.C. 78s(b)(3)(A). 16 15 U.S.C. 78s(b)(1). 17 *See* Jeffries Letter at 3; RBC Letter at 2. 18 15 U.S.C. 78s(b)(3)(A)(ii). 19 17 CFR 240.19b-4(f)(2). One letter asks why the Exchange has determined to exempt specialists from fees in connection with their trades in ETF securities. 20 This is consistent with the Exchange's current policy of charging no fees in connection with trading by specialists in equity securities. The Exchange believes that the specialists are paying a sufficient amount for their transactions through the specialist trading privilege fee in connection with each stock or ETF for which they act as specialist. 20 *See* RBC Letter at 2. Two commenters claim that member organizations have had little notice of the proposed changes and a limited ability to provide input. 21 The Exchange notes that the elimination of the 2% cap, which is the most significant change, was voted on by the membership at the Exchange's April 2005 annual meeting. Member organizations were clearly aware from that time that the Exchange intended to eliminate the cap. Furthermore, the Exchange has communicated with member organizations since mid-2005 about its intention to undertake a significant revision of its pricing structure, soliciting member organizations' views on a number of proposed pricing structures since then. Indeed, the changes the commenters oppose have been among those the Exchange has discussed openly with member organizations during that period. 21 *See* Jeffries Letter at 1; RBC Letter at 2. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing proposed rule change has become effective upon filing pursuant to Section 19(b)(3)(A) of the Act 22 and Rule 19b-4(f)(2) 23 thereunder because it establishes or changes a due, fee, or other charge imposed by the Exchange. At any time within 60 days of the filing of the proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. 22 15 U.S.C. 78s(b)(3)(A). 23 17 CFR 19b-4(f)(2). IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov.* Please include File No. SR-NYSE-2006-46 on the subject line. Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-NYSE-2006-46. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commissions Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room. Copies of such filing also will be available for inspection and copying at the principal office of the NYSE. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-NYSE-2006-46 and should be submitted on or before August 11, 2006. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 24 24 17 CFR 200.30-3(a)(12). Jill M. Peterson, Assistant Secretary. [FR Doc. E6-11575 Filed 7-20-06; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-54150; File No. SR-NYSE-2006-36] Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Proposed Rule Change and Amendment Nos. 1 and 2 Thereto Relating to Exchange Rule 70 To Provide Floor Brokers With the Ability To Enter Discretionary Instructions and/or Pegging Instructions With Respect to Floor Broker Agency Interest Files (e-Quotes) July 14, 2006. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on May 16, 2006, the New York Stock Exchange LLC (“NYSE” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. On June 14, 2006, NYSE filed Amendment No. 1 to the proposed rule change. 3 On July 11, 2006, NYSE filed Amendment No. 2 to the proposed rule change. 4 The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 In Amendment No. 1, NYSE proposed additional changes and clarifications to the proposal. 4 Amendment No. 2 supersedes and replaces the original proposed rule change and Amendment No. 1 in its entirety. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Exchange Rule 70 to reflect that Floor brokers will have the ability to enter discretionary instructions (“d-Quotes”) with respect to their Floor broker agency interest files (“e-Quotes”) and that their e-Quotes and d-Quotes will be able to peg to the Exchange best bid and offer. The Exchange also proposes to amend NYSE Rules 70.20, 123(e), 104, and 1000. Below is the text of the proposed rule change, as amended. Proposed new language is *italicized;* proposed deletions are in brackets. Bids and Offers Rule 70 .20 (a)(i) With respect to orders he or she is representing on the Floor, a Floor broker may place within the Display Book® system broker agency interest files at multiple price points on both sides of the market at or outside the Exchange best bid and offer with respect to each security trading in the [location(s) comprising the] Crowd such Floor broker is a part of, [with respect to orders he or she is representing on the Floor,] except that the agency interest files shall not include any customer interest that restricts the specialist's ability to be on parity pursuant to Exchange Rules 104.10(6)(i)(C) and 108(a). * Broker agency interest files shall also be referred to as “e-Quotes SM ”. *

(b)All Floor broker agency interest placed within files in the Display Book® system at the same price *and on the same side* shall be on parity with each other, except agency interest that establishes the Exchange best bid or offer shall be entitled to priority in accordance with Exchange Rule 72. No Floor broker agency interest placed within files in the Display Book® system shall be entitled to precedence based on size. (j)(i) Floor broker agency interest placed within files may participate in the opening *and closing* trades in accordance with Exchange policies and procedures governing the open *and close* .

(k)The ability of a Floor broker to have reserve interest will not be available during the open and during the close. *During the close, a Floor broker's reserve interest, if any, will be added to the size of his or her displayed agency (“e-Quoted”) interest* . The ability of a Floor broker to exclude volume from aggregated agency interest information available to the specialist will not be available during the open. Floor broker agency interest excluded from the aggregate agency interest information available to the specialist will not participate in the close. .25 Discretionary Instructions for Bids and Offers Represented via Floor Broker Agency Interest Files (e-Quotes SM ) *(a)(i) A Floor broker may enter discretionary instructions as to size and/or price with respect to his or her e-Quotes (“discretionary e-Quotes” or “d-Quotes”). The discretionary instructions relate to the price at which the d-Quote may trade and the number of shares to which the discretionary price instructions apply.* *

(ii)Discretionary instructions are active only when the e-Quote is at or joins the existing Exchange best bid or best offer or would establish a new Exchange best bid or offer. * *(iii) Discretionary instructions are active only with respect to automatic executions. Discretionary instructions are not active with respect to the opening and closing transactions.* *(iv) Discretionary instructions will be applied only if all d-Quoting prerequisites are met. Otherwise, the d-Quote will be handled as a regular e-Quote, notwithstanding the fact that the Floor broker has designated the e-Quote as a d-Quote. For example, to be considered a discretionary e-Quote, an e-Quote must have a discretionary price range.* *(v) The requirements for e-Quotes apply to d-Quotes, including the requirement that the Floor broker be in the Crowd* . *(vi) A Floor broker may have multiple d-Quotes, with different discretionary price and size limitations, on the same side of the market. Such multiple d-Quotes do not compete with each other for executions. Trading volume is allocated by Floor broker, not number of d-Quotes participating in an execution.* *(vii) Discretionary instructions apply to both displayed and reserve interest, including reserve interest that is excluded from the aggregate reserve size visible to the specialist on the Floor.* *(viii) Neither the specialist on the Floor nor the specialist system employing algorithms will have access to the discretionary instructions entered by Floor brokers with respect to their e-Quotes.*

(b)Price Discretion *(i) A Floor broker may set a discretionary price range within the Exchange best bid and offer that specifies the prices at which they are willing to trade. This discretion will be used, as necessary, to initiate or participate in a trade with an incoming order capable of trading at a price within the discretionary price range.* *(ii) The minimum price range for a discretionary e-Quote is the minimum price variation set forth in Exchange Rule 62.* *(iii) Floor brokers may specify that price discretion applies to all or only a portion of their d-Quote. Price discretion is necessary for d-Quotes. Therefore, if price discretion is provided for only a portion of the d-Quote, the residual will be treated as an e-Quote.* *(iv) When price discretion is used, d-Quotes trade first from reserve volume, if any, and then from displayed volume.*

(c)Discretionary Size *(i) A Floor broker may designate the amount of his or her e-Quote volume to which discretionary price instructions shall apply.* *(ii) A Floor broker may designate a minimum and/or maximum size of contra-side volume with which it is willing to trade using discretionary price instructions.* *(iii) Only displayed interest will be used by Exchange systems to determine whether the size of contra-side volume is within the d-Quote's discretionary size range. Contra-side reserve and other interest at the possible execution price will not be considered by Exchange systems when making this determination.* *(iv) Interest displayed by other market centers at the price at which a d-Quote may trade will not be considered by Exchange systems when determining if the d-Quote's minimum and/or maximum size range is met, unless the Floor broker designates that such away volume should be included in this determination.* *(v) An increase or reduction in the size associated with a particular price that brings the contra-side volume within a d-Quote's minimum or maximum discretionary size parameter, will trigger an execution of that d-Quote.* *(vi) Once the total amount of a Floor broker's discretionary volume has been executed, the d-Quote's discretionary price instructions will become inactive and the remainder of that d-Quote will be treated as an e-Quote.*

(d)Executions of Discretionary e-Quotes *(i) The goal of discretionary e-Quoting is to secure the largest execution for the d-Quote, using the least amount of price discretion. In so doing, d-Quotes may often improve the execution price of incoming orders. Conversely, if no discretion is necessary to accomplish a trade, none will be used.* *(A) Future executions that may occur, such as those resulting from the execution of elected contra-side CAP-DI orders, will not be considered in determining when, and to what extent, price discretion is necessary to accomplish a trade.* *(ii) Discretionary e-Quotes will automatically execute against a contra-side order that enters the Display Book ® system if the order's price is within the discretionary price range and the order's size meets any minimum or maximum size requirements that have been set for the d-Quote.* *(iii) Discretionary e-Quotes from different Floor brokers on the same side of the market with the same price instructions trade on parity after interest entitled to priority is executed.* *(iv) Same-side d-Quotes from different Floor brokers compete for an execution, with the most aggressive price range (e.g. three cents vs. two cents) establishing the execution price. If an incoming order remains unfilled at that price, executions within the less aggressive price range may then occur.* *(v) Discretionary e-Quotes compete with same-side specialist algorithmic trading messages targeting incoming orders. If the price of d-Quotes and specialist trading messages are the same, the d-Quotes and the specialist messages will trade on parity.* *(vi) Discretionary e-Quotes from Floor brokers on opposite sides of the market will be able to trade with each other. The d-Quote that arrived at the Display Book® system last will use the most discretion necessary to effect a trade, except as provided below.* *(A) When a protected bid or offer, as defined in Section 242.600(b)(57) of Regulation NMS (“Reg. NMS”), is published by another market center at a price that is better than the price at which contra-side d-Quotes would trade in accordance with

(vi)above, the following applies:* *(1) the amount of discretion necessary to permit a trade on the Exchange consistent with the Order Protection Rule (Section 242.611 of Reg. NMS) (“OPR”) will be used; or* *(2) such portion of the appropriate d-Quote as is necessary will be automatically routed in accordance with OPR in order to permit a trade to occur on the Exchange.* *(vii) As with all executions on the Exchange, executions involving d-Quotes will comply with OPR.* *(viii) Discretionary e-Quotes may provide price improvement to and trade with an incoming contra-side specialist algorithmic trading message to “hit bid/take offer,” just as they can with any other marketable incoming interest.* *(ix) Discretionary e-Quotes may initiate sweeps in accordance with and to the extent provided by Exchange Rules 1000-1004, but only to the extent of their price and volume discretion. Discretionary e-Quotes may participate in sweeps initiated by other orders but, in such cases, their discretionary instructions are not active.* *(A) d-Quotes will not trade at a price that would trigger a liquidity replenishment point (“LRP”) as defined in Exchange Rule 1000. Accordingly, a sweep involving a d-Quote will always stop at least one cent before an LRP price.* .26 Pegging for d-Quotes and e-Quotes *(i) An e-Quote, other than a tick-sensitive e-Quote, may be set to provide that it will be available for execution at the Exchange best bid (for an e-Quote that represents a buy order) or at the Exchange best offer (for an e-Quote that represents a sell order) as the Exchange best bid or offer changes, so long as the Exchange best bid or offer is at or within the e-Quote's limit price.* *(ii) A d-Quote may also employ pegging.* *(iii) Pegging is only active when auto-quoting is active.* *(iv) Pegging e-Quotes and d-Quotes trade on parity with other interest at the Exchange best bid or offer after interest entitled to priority is executed.* *(v) Pegging is reactive. An e-Quote or d-Quote will not establish the Exchange best bid or best offer as a result of pegging.* *(vi) Price priority cannot be established by pegging, although existence of pegging instructions does not preclude an e-Quote or d-Quote from having priority* . *(vii) Pegging e-Quotes and d-Quotes peg only to other non-pegging interest within the pegging range selected by the Floor broker.* *(viii) An e-Quote or d-Quote will not sustain the Exchange best bid or best offer as a result of pegging if there is no other non-pegged interest at that price and such price is not the e-Quote's or d-Quote's limit price.* *(A) If the lowest quotable price established by the Floor broker for a pegging e-Quote or d-Quote to buy is the Exchange best bid and all other interest at that price cancels or is executed, the pegging e-Quote or d-Quote will remain displayed at that best bid price.* *(B) If the highest quotable price established by the Floor broker for a pegging e-Quote or d-Quote to sell is the Exchange best offer and all other interest at that price cancels or is executed, the pegging e-Quote or d-Quote will remain displayed at that best offer price.* *(ix) A Floor broker may establish a price range for an e-Quote or d-Quote, beyond which the pegging function will not be available (“quote,” “ceiling” and “floor” prices).* *(A) The “quote price” is the lowest price to which a buy e-Quote or d-Quote may peg or the highest price to which a sell e-Quote or d-Quote may peg.* *(B) The “ceiling price” is the highest price to which a buy-side e-Quote or d-Quote may peg.* *(C) The “floor price” is the lowest price to which a sell-side e-Quote or d-Quote may peg.* *(D) A quote, ceiling and floor price may be at a price other than the limit price of the order that is being e-Quoted or d-Quoted, but may not be inconsistent with the order's limit.* *(x) As long as the Exchange best bid is at or within the pegging price range selected by the Floor broker with respect to a buy-side e-Quote or d-Quote, or the Exchange best offer is within the price range selected by the Floor broker with respect to a sell-side e-Quote or d-Quote, the pegging e-Quote or d-Quote will join such best bid or best offer as it is auto quoted.* *(xi) If the Floor broker does not designate a pegging range, but has instructed that his or her e-Quote or d-Quote shall peg, the e-Quote or d-Quote will peg to the Exchange best bid (offer) as long as such bid (offer) is within the limit of the order that is being e-Quoted or d-Quoted.* *(xii) As an e-Quote or d-Quote pegs, its discretionary price range, if any, moves along with it, subject to any floor or ceiling price set by the Floor broker.* *(A) If the Exchange best bid is higher than the ceiling price of a pegging buy-side e-Quote or d-Quote, the e-Quote or d-Quote will remain at its quote price or the highest price at which there is other interest within its pegging price range, whichever is higher (consistent with the limit price of the order underlying the e-Quote or d-Quote).* *(B) If the Exchange best offer is lower than the floor price of a pegging sell-side e-Quote or d-Quote, the e-Quote or d-Quote will remain at its quote price or the lowest price at which there is other interest within its pegging price range, whichever is lower (consistent with the limit price of the order underlying the e-Quote or d-Quote).* *(C) If the Exchange best bid or best offer returns to a price within the pegging price range selected by the Floor broker, the e-Quote or d-Quote will once again peg to the Exchange best bid or best offer.* *(xiii) A Floor broker may establish a minimum and/or maximum size of same-side volume to which his or her e-Quote or d-Quote will peg. Other pegging e-Quote or d-Quote volume will not be considered in determining whether the volume parameters set by the Floor broker have been met.* Dealings by Specialists Rule 104

(c)*(ix) Specialist algorithmically-generated messages will compete with or trade along with same-side discretionary e-Quotes * SM *in the manner described in Exchange Rule 70.25.* Record of Orders Rule 123

(e)System Entry Required 8. Any limit price, [and/or] stop price *, discretionary price range, discretionary volume range, discretionary quote price, pegging ceiling price, pegging floor price and/or whether discretionary instructions are active in connection with interest displayed by other market centers;* The Floor member must identify which orders or portions thereof are being made part of the Floor broker agency interest file *and, with respect to such orders or portions thereof, what discretionary and/or pegging instructions, if any, have been assigned* pursuant to such procedures as required by the Exchange. NYSE Direct+® Automatic Executions Rule 1000

(D)After trading with the Exchange published best bid (offer), the unfilled balance of any incoming commitment to trade received through ITS shall be automatically cancelled, as described in Rule 13 (definition of immediate or cancel order). (iii)(A) During a sweep, the residual shall trade with the orders on the Display Book® and any broker agency interest files and/or specialist interest file capable of execution in accordance with Exchange rules, at a single price, such price being the best price at which such orders and files can trade with the residual to the extent possible, (“clean-up price”). *A discretionary e-Quote shall participate in a sweep in accordance with and to the extent allowed by Exchange Rule 70.25(d)(ix).* II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change, and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose Exchange Rule 70.20 was initially approved by the Commission on December 14, 2005, 5 as part of a pilot permitting the implementation of Phase 1 of the NYSE HYBRID MARKET SM (“Hybrid Market”) and was permanently approved by the Commission on March 22, 2006. 6 5 *See* Securities Exchange Act Release No. 52954 (December 14, 2005), 70 FR 75519 (December 20, 2005). 6 *See* Securities Exchange Act Release No. 53539 (March 22, 2006), 71 FR 16353 (March 31, 2006). In order to fully participate in the Hybrid Market, Floor brokers have been given the ability to electronically represent their customers' orders by placing their trading interest at or outside the Exchange best bid and offer in Floor broker agency interest files within the Display Book ® system 7 (“NYSE e-Quotes SM ” or “e-Quotes”). 8 7 The Display Book ® system (“Display Book” or “book”) is an order management and execution facility that receives and displays orders to the specialist and provides a mechanism to execute and report transactions and publish the results to the Consolidated Tape. In addition, the Display Book is connected to a variety of other Exchange systems for the purposes of comparison, surveillance, and reporting information to customers and other market data and national market systems ( *i.e.* , the Intermarket Trading System, Consolidated Tape Association, Consolidated Quotation System, etc.). 8 *See* Exchange Rule 70.20. The following proposed changes are being made to clarify certain of Rule 70.20's provisions in response to questions that have arisen since the rule has been in effect: 1. Rule 70.20(a)(i): Duplicative language has been deleted. 2. Rule 70.20(b): The phrase “and on the same side” has been added to clarify which orders trade on parity pursuant to this provision. 3. Rule 70.20(j)(i): Reference to “the close” has been added to clarify that Floor broker agency interest files participate on the open and close in accordance with the policies and procedures of the Exchange. 4. Rule 70.20(k): A sentence has been added to clarify how a Floor broker's reserve interest will be handled on the close. To further replicate in the Hybrid Market the manner in which Floor brokers utilize their judgment in quoting and trading on behalf of customers' orders today, the Exchange is proposing to provide Floor brokers with the ability to enter discretionary trading and/or pegging (discretionary quoting) instructions for their e-Quotes (“NYSE d-Quotes SM ” or “d-Quotes”). Discretionary instructions for e-Quotes and pegging will give Floor brokers additional tools to compete with other interest, including the specialists' algorithmic trading and quoting ability. These proposed discretionary features and pegging will facilitate the ability of Floor brokers to participate in trades that they would not be able to reach in the Hybrid Market. Discretionary Trading Instructions In the mostly-manual pre-Hybrid Market, Floor brokers had an opportunity to make trading decisions with respect to arriving orders. In a more electronic trading environment, the Floor broker may not have that opportunity. While e-Quotes enable Floor brokers' customer interest to participate in automatic executions at the Exchange best bid and offer (“BBO”) and in sweeps, they do not initiate trades with incoming orders at prices better than the BBO. In other words, currently, e-Quotes do not provide Floor brokers with the means to express a price range within which they are willing to actively trade. Thus, the proposed changes will provide Floor brokers with the ability not only to quote in an attempt to draw interest, but, at the same time, initiate trades with contra-side interest able to trade at prices at or within the BBO. By using d-Quotes, a Floor broker may set a discretionary price range and a discretionary size range. Discretionary size can apply to the amount of an e-Quote to which discretionary instructions apply and/or to the amount of contra-side volume with which the d-Quote is willing to trade, as described below. Discretionary instructions are only active when the e-Quote is at the BBO. Neither the specialist on the Floor nor the specialist system employing algorithms will have access to the discretionary instructions entered by the Floor broker. Price Discretion Discretionary instructions for e-Quotes will allow Floor brokers to set a price range for their d-Quotes within which they are willing to initiate or participate in a trade. This discretion will be used, as necessary, to initiate or participate in a trade with an incoming order capable of trading at a price within the discretionary range. Discretionary price instructions may apply to all or part of a d-Quote. For example, the BBO is .05 bid, offered at .10. A Floor broker enters a d-Quote at .10, with price discretion of .04. A limit order to buy at .06 enters the market. The d-Quote will use its four cents of price discretion and initiate a trade at .06. When a d-Quote is competing with same-side quoted or trading interest ( *i.e.* , displayed interest at the BBO, other d-Quotes, or a same-side specialist algorithmic trading message, such as to provide price improvement), if the d-Quote can get a larger allocation by providing an additional penny (or more) of price improvement and the discretionary instructions permit the d-Quote to trade at that price, it will do so. Volume Discretion Floor brokers may designate that discretionary instructions apply only to a portion of their e-Quote. For example, a Floor broker may specify that only 20,000 shares of a 50,000-share e-Quote may use price discretion. The remaining 30,000-shares would be handled as a regular e-Quote, *i.e.* , one without discretionary instructions. Floor brokers who use e-Quoting price discretion may also set a minimum and/or maximum size limit with respect to the size of contra-side interest with which it is willing to trade using price discretion. This allows for more specific order management by preventing the d-Quote from trading with opposite side interest that the Floor broker has judged to be too little or too great in the context of the order or orders he or she is managing. For example, the BBO is .05 bid, offered at .10. A Floor broker e-Quotes stock at .10, with price discretion of .04 and minimum/maximum volume discretion of 1,000/10,000 shares. A limit order to buy 500 shares at .06 enters the market. No trade will occur, even though a trade at .06 is within the d-Quote's price discretion range, because the incoming order size is below the d-Quote's minimum discretionary volume size. A new best bid of .06 will be auto-quoted. An order to buy 1,500 shares at .06 enters the market. The d-Quote will initiate a transaction, selling 2,000 shares at .06, as the size available to trade at .06 is now within the d-Quote's discretionary volume parameters. Similarly, a sufficient reduction in the size of a bid or offer that was previously larger than the maximum discretionary volume will trigger an execution of a discretionary d-Quote. Only published contra-side volume is considered when determining whether such volume is within the d-Quote's discretionary volume range. Reserve and other interest at the possible execution price is not considered, as it is not displayed. Interest displayed by other market centers at the price at which a d-Quote may trade is not considered when determining if the minimum volume range is met, unless the Floor broker electronically designates that such away volume should be included in this determination. Pegging In the Hybrid Market, a Floor broker needs to be represented in the BBO in order to participate in automatic executions. The e-Quotes provide Floor brokers with the mechanism to be part of the quote. However, in a more automated environment, the BBO may change rapidly and the e-Quoting process, as it currently exists, may not be sufficient to enable Floor brokers to stay with a quickly changing quote. The proposed pegging function will allow Floor brokers to keep their interest in the quote, even as the quote moves. Floor brokers will be able to designate a range to which their e-Quotes and d-Quotes will peg and, as long as the BBO is within that range, the e-Quote and d-Quote will be included. Buy side e-Quotes and d-Quotes will peg to the best bid, and sell side e-Quotes and d-Quotes will peg to the best offer. In addition, pegging e-Quotes and d-Quotes may set a minimum and/or maximum size of same-side volume to which his or her e-Quote or d-Quote will peg. Pegging e-Quotes and d-Quotes may set a “quote price” specifying the lowest price to which a buy-side e-Quote or d-Quote may peg and the highest price to which a sell-side e-Quote or d-Quote may peg. A “ceiling price” may be set to establish the highest price to which a buy-side e-Quote or d-Quote may peg, and a “floor price” may be set to establish the lowest price to which a sell-side e-Quote or d-Quote may peg. The quote, ceiling and floor prices must be at or within the limit price of the order being e-Quoted or d-Quoted. A pegging d-Quote's price discretion range will move along with the d-Quote as it pegs. Pegging is a separate type of discretionary instruction and may occur with e-Quotes and/or with d-Quotes using discretionary price instructions. Example A Floor broker is representing an order to buy 4,000 shares of XYZ with a limit of .97, not-held. 9 He decides to electronically represent this order as a d-Quote, with a quote price of .92 and with price discretion of .02, in the hope of obtaining a better execution price for his customer. This means that the Floor broker is willing to participate in an execution at the following prices: .92, .93 and .94. Further, he has decided to display 1,000 shares, with 3,000 in reserve. In addition, the Floor broker has decided to have this order peg, with minimum and maximum volume sizes of 500 and 8,000 shares respectively. The Floor broker has set the ceiling price at .97. This means that as long as the Exchange best bid is a minimum of 500 shares and no more than 8,000 shares, the d-Quote would peg to any Exchange best bid at or between .92 and .97 9 A “not held” order is a market or limit order that gives the Floor broker both time and price discretion to attempt to get the best possible price for the customer. The Exchange best bid becomes 2,000 shares bid for .94. As this is within the minimum and maximum pegging size range, the order will peg to the .94 bid, increasing the displayed size at that price to 3,000 shares (2,000 shares that established that price and the d-Quote's displayed 1,000 shares). The Exchange best bid then becomes 300 shares bid for .95. The d-Quote will not peg to that best bid, as its size is below the minimum pegging size designated by the Floor broker. If an additional 400 shares is added to the best bid as a result of other interest at that price, the d-Quote will peg to it, increasing the displayed size to 1,700 shares. Similarly, if the displayed volume at .95 increased from 300 shares to 10,000 shares (instead of 700 shares), the d-Quote would not peg to that price, as 10,000 shares is more than the maximum pegging size selected by the Floor broker (which was 8,000 shares, as noted above). Again, if the displayed volume at .95 decreases to 6,000 shares, for example, as a result of a trade at that price, the d-Quote will peg to the .95 bid, as the displayed volume size is now lower than the maximum selected by the Floor broker. 7,000 shares will be bid at .95, with the d-Quote's 3,000 shares in reserve. As the d-Quote pegs, it continues to be able to use its price discretion of .02 to effect a trade. Accordingly, if 7,000 shares is bid at .95, comprised of 6,000 shares of other interest and 1,000 shares of the d-Quote (with 3,000 shares of the d-Quote in reserve at .95) and the Exchange best offer is .97 for 1,700 shares, the d-Quote will initiate an execution, trading 1,700 shares at .97. The d-Quote's reserve size will be decremented by the amount of the trade, leaving 1,300 shares to buy in reserve, with 1,000 shares displayed. The best bid continues to be .95, so the d-Quote remains pegged at that price. The displayed volume at .95 continues to be 7,000 shares, including the displayed portion of the d-Quote (1,000 shares). General Principles Covering Discretionary e-Quotes and Pegging The following describes in more detail the general principles governing d-Quotes ( *i.e.* , an e-Quote with discretionary trading and/or pegging instructions): • Discretionary instructions relate to the price at which the d-Quote may trade and the number of shares to which the discretionary price instructions apply. • The goal of discretionary trading is to secure the largest execution for the d-Quote, using the least amount of price discretion. In so doing, d-Quotes may often improve the execution price of incoming orders. Conversely, if no discretion is necessary to accomplish a trade, none will be used. • Discretionary instructions are only active when the d-Quote is at the BBO. • Neither the specialist on the Floor nor the specialist system employing algorithms will have access to the discretionary instructions entered by the Floor broker. • Specialists will not have the ability to enter discretionary trading or pegging instructions on behalf of a Floor broker. • The minimum price range for a d-Quote is the minimum price variation set forth in Rule 62. • The requirements for e-Quoting apply to the d-Quote, including the requirement that the Floor broker be in the Crowd. • Discretionary instructions apply to displayed and reserve size, including reserve interest that is excluded from the aggregate volume visible to the specialist on the Floor. • When price discretion is used, d-Quotes trade first from reserve volume, if any, and then from displayed volume. • Once the total amount of a Floor broker's discretionary volume has been executed, the d-Quote's price instructions will become inactive and the remainder of that d-Quote will be treated as an e-Quote. • Discretionary instructions are only applicable to automatic executions; they are not utilized in manual transactions. • Discretionary instructions may be entered for all e-Quotes, however, these instructions are only active when the e-Quote is at or joins the existing Exchange BBO or would establish a new Exchange BBO. • Multiple same-side d-Quotes from different Floor brokers will compete for an execution with the most aggressive price range ( *e.g.* , three cents vs. two cents) establishing the execution price. If the incoming order remains unfilled at that price, executions within the less aggressive price range may occur. • d-Quotes with the same discretionary price instructions on the same side will trade on parity, after any interest entitled to priority. • d-Quotes on opposite sides of the market will be able to trade with each other. The d-Quote that arrived last will use the most discretion, if necessary, to effect a trade. • d-Quotes will compete with same-side specialist algorithmic trading messages targeting incoming orders. If the price of d-Quotes and the trading messages are the same, the d-Quotes and the specialist messages will trade on parity. • If a d-Quote is competing with same-side quoted or trading interest, including a same-side specialist algorithmic trading message ( *i.e.* , to provide price improvement) and the d-Quote can get a larger allocation by providing an additional penny of price improvement (or other applicable minimum price variation), generally, it will do so. • d-Quotes may price improve and trade with an incoming contra-side specialist algorithmically-generated message to “hit bid/take offer,” just as they can with any other marketable incoming interest. • d-Quotes may initiate sweeps, but only to the extent of their price and volume discretion. d-Quotes may participate in sweeps initiated by other orders, but their discretionary instructions will not be active. • A sweep involving a d-Quote will always stop at least one cent (or other applicable minimum price variation) before a liquidity replenishment point is reached. • Executions involving d-Quotes will comply with the Regulation NMS Order Protection Rule (“OPR”). 10 10 *See* 17 CFR 242.611. • When a better price is displayed by an away market and such price is in the middle of contra-side d-Quotes, the amount of price discretion extended to a participating d-Quote will be adjusted to permit a trade consistent with Reg. NMS OPR requirements. • Discretionary instructions will be applied only if all d-Quoting prerequisites are met. Otherwise, the d-Quote will be handled as a regular e-Quote, notwithstanding the fact that the Floor broker has designated the e-Quote as a d-Quote. • When price discretion is used, d-Quotes trade first from reserve volume, then from published volume. When no price discretion is used, the e-Quote's published volume trades first. • Floor brokers may specify that price discretion applies to all or only a portion of their d-Quote. Price discretion is necessary for d-Quotes. Therefore, if price discretion is provided for only a portion of the d-Quote, the residual will be treated as an e-Quote. • Floor brokers may have more than one e-Quote/d-Quote per side and price. Trading volume is allocated by broker, not e-Quote/d-Quote, in accordance with Exchange rules. • Pegging e-Quotes and d-Quotes may set a “quote price” specifying the lowest price to which a buy-side e-Quote or d-Quote may peg and the highest price to which a sell-side e-Quote or d-Quote may peg. A “ceiling price” may be set to establish the highest price to which a buy-side e-Quote or d-Quote may peg, and a “floor price” may be set to establish the lowest price to which a sell-side e-Quote or d-Quote may peg. The quote, ceiling, and floor prices must be at or within the limit price of the order being e-Quoted or d-Quoted. • Pegging will not establish a new BBO and it will not generally sustain a BBO when there is no other interest at that price. If the BBO is the lowest quotable price established by the Floor broker for a pegging buy-side e-Quote or d-Quote or the highest quotable price established by the Floor broker for a sell-side pegging e-Quote or d-Quote and all other interest at that price cancels or is executed, the pegging e-Quote or d-Quote will remain displayed at such BBO. • Pegging will only occur at prices within the pegging price range designated by the Floor broker. • Pegging applies to the entire e-Quote/d-Quote volume. • Pegging is reactive and moves in both directions. • Pegging e-Quotes and d-Quotes peg only to other non-pegging interest within the pegging range selected by the Floor broker. • Pegging is available only when auto-quoting is on. • Price priority cannot be established by pegging, although the existence of pegging instructions does not preclude an e-Quote or a d-Quote from having priority. • Pegging e-Quotes and d-Quotes trade on parity with other interest on the same side at the Exchange best bid or offer after interest entitled to priority. • Discretionary trading and pegging is not available for tick-sensitive e-Quotes. • An e-Quote may have either or both discretionary trading and pegging instructions. • As an e-Quote or d-Quote pegs, its discretionary price range, if any, moves along with it, subject to any floor or ceiling price set by the Floor broker. • Pegging e-Quotes and d-Quotes may establish a minimum and/or maximum size of same-side volume to which it will peg. Other pegging e-Quote or d-Quote volume will not be considered in determining whether the volume parameters set by the Floor broker have been met. Other Rule Changes Rule 104 Rule 104(c)(ix) has been amended to reflect that a specialist's algorithmically-generated messages will compete with or trade along with same side d-Quote as described in NYSE Rule 70.25. Rule 123 Exchange Rule 123(e)(8) which requires the entry of certain order information into the Exchange's Front End Systemic Capture (FESC”) system before such order can be represented, has been amended to add certain required terms regarding e-Quotes and d-Quotes. Rule 1000 Rule 1000(d)(iii) which governs sweeps has been amended to reflect that d-Quotes will participate in sweeps in the manner described in NYSE Rule 70.25(d)(ix). Implementation Plans At present, the Exchange plans to implement proposed Rules 70.25 and 70.26 as part of Phase 3 of the Hybrid Market. The Exchange will consult with the Commission with respect to any change to this implementation plan. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b)(5) of the Act 11 because it is designed to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. 11 15 U.S.C. 78f(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others The Exchange has neither solicited nor received written comments on the proposed rule change. The Exchange has received one comment letter on the proposed rule change and will respond to it after the comment period has concluded. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 35 days of the date of publication of this notice in the **Federal Register** or within such longer period

(i)as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or

(ii)as to which the self-regulatory organization consents, the Commission will:

(A)By order approve such proposed rule change, or

(B)Institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov.* Please include File Number SR-NYSE-2006-36 on the subject line. Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-NYSE-2006-36. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room. Copies of such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-NYSE-2006-36 and should be submitted on or before August 11, 2006. 12 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 12 Jill M. Peterson, Assistant Secretary. [FR Doc. E6-11581 Filed 7-20-06; 8:45 am] BILLING CODE 8010-01-P SMALL BUSINESS ADMINISTRATION [Disaster Declaration #10528] California Disaster #CA-00034 Declaration of Economic Injury AGENCY: Small Business Administration. ACTION: Amendment 1. SUMMARY: This is an amendment of the Economic Injury Disaster Loan

(EIDL)declaration for the State of California; Disaster # CA-00034 dated 7/6/2006. *Incident:* Fishery Resource Disaster. *Incident Period:* 1/1/2001 through 12/31/2005. *Effective Date:* 7/6/2006. *EIDL Loan Application Deadline Date:* 4/6/2007. ADDRESSES: Submit completed loan applications to: Small Business Administration National Processing and Disbursement Center, 14925 Kingsport Road Fort Worth, TX 76155. FOR FURTHER INFORMATION CONTACT: A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street, SW., Suite 6050, Washington, DC 20416. SUPPLEMENTARY INFORMATION: The notice of the Economic Injury Disaster Loan declaration for the fishery resource disaster under 308(b) of Interjurisdictional Fisheries Act of 1986, as amended, to help West Coast fishing communities in Oregon and California as determined by the Secretary of Commerce, is hereby amended to include the following areas as adversely affected by the disaster. Primary Counties: San Luis Obispo, Santa Barbara. Contiguous Counties: California: Kern, Ventura. All other information in the original declaration remains unchanged. (Catalog of Federal Domestic Assistance Numbers 59002) Herbert L. Mitchell, Associate Administrator for Disaster Assistance. [FR Doc. E6-11586 Filed 7-20-06; 8:45 am] BILLING CODE 8025-01-P SMALL BUSINESS ADMINISTRATION [Disaster Declaration #10513 and #10514] Connecticut Disaster #CT-00005 AGENCY: Small Business Administration. ACTION: Notice. SUMMARY: This is a notice of an Administrative declaration of a disaster for the State of Connecticut dated 7/13/2006. *Incident:* Severe Storms and Flooding. *Incident Period:* 6/2/2006. *Effective Date:* 7/13/2006. *Physical Loan Application Deadline Date:* 9/11/2006. *Economic Injury

(EIDL)Loan Application Deadline Date:* 4/13/2007. ADDRESSES: Submit completed loan applications to: Small Business Administration National Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155. FOR FURTHER INFORMATION CONTACT: A. Escobar, Office of Disaster Assistance, Small Business Administration, 409 3rd Street, SW., Suite 6050, Washington, DC 20416. SUPPLEMENTARY INFORMATION: Notice is hereby given that as a result of the Administrator's disaster declaration applications for disaster loans may be filed at the address listed above or other locally announced locations. *The following areas have been determined to be adversely affected by the disaster:* Primary Counties: New Haven. Contiguous Counties: Connecticut: Fairfield, Hartford, Litchfield, Middlesex. Percent *The Interest Rates are:* Homeowners with Credit Available Elsewhere 5.875 Homeowners without Credit Available Elsewhere 2.937 Businesses with Credit Available Elsewhere 7.763 Businesses & Small Agricultural Cooperatives without Credit Available Elsewhere 4.000 Other (Including Non-profit Organizations) with Credit Available Elsewhere 5.000 Businesses and Non-profit Organizations without Credit Available Elsewhere 4.000 The number assigned to this disaster for physical damage is 10513 6 and for economic injury is 10514 0. The State which received an EIDL Declaration # is Connecticut. (Catalog of Federal Domestic Assistance Numbers 59002 and 59008) Dated: July 13, 2006. Steven C. Preston, Administrator. [FR Doc. E6-11587 Filed 7-20-06; 8:45 am] BILLING CODE 8025-01-P SMALL BUSINESS ADMINISTRATION [Disaster Declaration #10517 and #10518] Delaware Disaster #DE-00001 AGENCY: Small Business Administration. ACTION: Notice. SUMMARY: This is a notice of an Administrative declaration of a disaster for the State of Delaware dated 7/13/2006. *Incident:* Severe Storms and Flooding. *Incident Period:* 6/25/2006. *Effective Date:* 7/13/2006. *Physical Loan Application Deadline Date:* 9/11/2006. *Economic Injury

(EIDL)Loan Application Deadline Date:* 4/13/2007. ADDRESSES: Submit completed loan applications to: Small Business Administration National Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155. FOR FURTHER INFORMATION CONTACT: A. Escobar, Office of Disaster Assistance, Small Business Administration, 409 3rd Street, SW., Suite 6050, Washington, DC 20416. SUPPLEMENTARY INFORMATION: Notice is hereby given that as a result of the Administrator's disaster declaration applications for disaster loans may be filed at the address listed above or other locally announced locations. *The following areas have been determined to be adversely affected by the disaster:* Primary Counties: Sussex. Contiguous Counties: Delaware: Kent; Maryland: Caroline, Dorchester, Wicomico, Worcester. Percent *The Interest Rates are:* Homeowners with Credit Available Elsewhere 5.875 Homeowners without Credit Available Elsewhere 2.937 Businesses with Credit Available Elsewhere 7.763 Businesses & Small Agricultural Cooperatives without Credit Available Elsewhere 4.000 Other (Including Non-profit Organizations) with Credit Available Elsewhere 5.000 Businesses and Non-profit Organizations without Credit Available Elsewhere 4.000 The number assigned to this disaster for physical damage is 10517 6 and for economic injury is 10518 0. The States which received an EIDL Declaration # are Delaware, Maryland. (Catalog of Federal Domestic Assistance Numbers 59002 and 59008) Dated: July 13, 2006. Steven C. Preston, Administrator. [FR Doc. E6-11588 Filed 7-20-06; 8:45 am] BILLING CODE 8025-01-P SMALL BUSINESS ADMINISTRATION [Disaster Declaration #10523 and #10524] Maryland Disaster #MD-00002 AGENCY: Small Business Administration ACTION: Notice. SUMMARY: This is a notice of an Administrative declaration of a disaster for the State of Maryland dated 07/13/2006. *Incident:* Severe Storms and Flooding. *Incident Period:* 6/22/2006 through 6/28/2006. *Effective Date:* 7/13/2006. *Physical Loan Application Deadline Date:* 9/11/2006. *Economic Injury

(EIDL)Loan Application Deadline Date:* 4/13/2007. ADDRESSES: Submit completed loan applications to: Small Business Administration National Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155. FOR FURTHER INFORMATION CONTACT: A. Escobar, Office of Disaster Assistance, Small Business Administration, 409 3rd Street, SW., Suite 6050, Washington, DC 20416. SUPPLEMENTARY INFORMATION: Notice is hereby given that as a result of the Administrator's disaster declaration applications for disaster loans may be filed at the address listed above or other locally announced locations. *The following areas have been determined to be adversely affected by the disaster:* Primary Counties: Dorchester. Contiguous Counties: Delaware: Sussex; Maryland: Caroline, Somerset, Talbot, Wicomico. *The Interest Rates are:* Percent Homeowners with Credit Available Elsewhere 5.875 Homeowners Without Credit Available Elsewhere 2.937 Businesses with Credit Available Elsewhere 7.763 Businesses & Small Agricultural Cooperatives Without Credit Available Elsewhere 4.000 Other (Including Non-profit Organizations) with Credit Available Elsewhere 5.000 Businesses and Non-profit Organizations Without Credit Available Elsewhere 4.000 The number assigned to this disaster for physical damage is 10523 6 and for economic injury is 10524 0. The States which received an EIDL Declaration # are Maryland, Delaware. (Catalog of Federal Domestic Assistance Numbers 59002 and 59008). Dated: July 13, 2006. Steven C. Preston, Administrator. [FR Doc. E6-11585 Filed 7-20-06; 8:45 am] BILLING CODE 8025-01-P SMALL BUSINESS ADMINISTRATION [Disaster Declaration #10527] Oregon Disaster #OR-00013 Declaration of Economic Injury AGENCY: Small Business Administration. ACTION: Amendment 1. SUMMARY: This is an amendment of the Economic Injury Disaster Loan

(EIDL)declaration for the State of Oregon; Disaster #OR-00013 dated 7/6/2006. *Incident:* Fishery Resource Disaster. *Incident Period:* 1/1/2001 through 12/31/2005. *Effective Date:* 7/6/2006. *EIDL Loan Application Deadline Date:* 4/6/2007. ADDRESSES: Submit completed loan applications to: Small Business Administration National Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155. FOR FURTHER INFORMATION CONTACT: A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street, SW., Suite 6050, Washington, DC 20416. SUPPLEMENTARY INFORMATION: The notice of the Economic Injury Disaster Loan declaration for the fishery resource disaster under 308(b) of Interjurisdictional Fisheries Act of 1986, as amended, to help West Coast fishing communities in Oregon and California as determined by the Secretary of Commerce, is hereby amended to include the following areas as adversely affected by the disaster. Primary Counties: Clatsop. Contiguous Counties: Washington: Wahiakum. All other information in the original declaration remains unchanged. (Catalog of Federal Domestic Assistance Numbers 59002) Herbert L. Mitchell, Associate Administrator for Disaster Assistance. [FR Doc. E6-11589 Filed 7-20-06; 8:45 am] BILLING CODE 8025-01-P DEPARTMENT OF STATE [Public Notice 5471] STATE-36 Security Records *Summary:* Notice is hereby given that the Department of State proposes to alter an existing system of records, STATE-36, pursuant to the Provisions of the Privacy Act of 1974, as amended (5 U.S.C.(r)), and the Office of Management and Budget Circular No. A-130, Appendix I. The Department's report was filed with the Office of Management and Budget on June 1, 2006. It is proposed that the current system will retain the name “Security Records.” It is also proposed that due to the expanded scope of the current system, the altered system description will include revisions and/or additions to the following sections: System Location; Categories of Individuals covered by the System; Authority for Maintenance of the System; and Routine Uses of Records Maintained in the System, Including Categories of Users and Purposes of such Uses. Changes to the existing system description are proposed in order to reflect more accurately the Bureau of Diplomatic Security's recordkeeping system, the Authority establishing its existence and responsibilities, and the uses and users of the system. Any persons interested in commenting on the altered system of records may do so by submitting comments in writing to Margaret P. Grafeld, Director; Office of Information Programs and Services; A/RPS/IPS; Department of State, SA-2; Washington, DC 20522-6001. This system of records will be effective 40 days from the date of publication, unless we receive comments that will result in a contrary determination. This altered system description, “Security Records, STATE-36 will read as set forth below. Dated: May 31, 2006. Frank Coulter, Acting Assistant Secretary for the Bureau of Administration, Department of State. STATE-36 System Name: Security Records. Security Classification: Unclassified and Classified. System Location: Department of State, Bureau of Diplomatic Security, State Annex 1, 2401 E Street, NW., Washington, DC 20037; State Annex 7, 7943-59 Cluny Court, Springfield, VA 22153; State Annex 11, 2216 Gallows Road, Cedar Hill, Fairfax, VA 22222; State Annex 11A 2222 Gallows Road, Fairfax, VA 22222; State Annex 11B, 2230 Gallows Road, Fairfax, VA 22222; State Annex 14, 1400 Wilson Blvd., Arlington, VA 22209; State Annex 20, 1801 North Lynn Street, Washington, DC 20522-2008; State Annex 24, 5800 Barclay Drive, Springfield, VA 22315; State Annex 31, 7942 Angus Court, Bays G&H, Springfield, VA 22150; State Annex 33, 3507 International Place, Federal Building, NW., Washington, DC 20008; State Annex 42, 4020 Arlington Blvd., George P. Shultz (NFATC), Rosslyn, VA 22204-1500; Harry S Truman Building, 2201 C Street, NW., Washington, DC 20520; various field offices throughout the U.S.; and overseas at some U.S. Embassies, U.S. Consulates General, and U.S. Consulates. Categories of Individuals Covered By the System: Present and former employees of the Department of State including Diplomatic Security Special Agents; applicants for Department employment who have been or are presently being investigated for security clearance; contractors working for the Department; interns and detailees to the Department; individuals requiring access to the official Department of State premises who have undergone or are undergoing security clearance; some passport and visa applicants concerning matters of adjudication; individuals involved in matters of passport and visa fraud; individuals involved in unauthorized access to classified information; prospective alien spouses of American personnel of the Department of State; individuals or groups whose activities have a potential bearing on the security of Departmental or Foreign Service operations, including those involved in criminal or terrorist activity; visitors to the Department of State main building, (Harry S Truman Building) to its domestic annexes, field offices, missions, and to the United States embassies and consulates and missions overseas; and all other individuals requiring access to official Department of State premises who have undergone or are undergoing a security clearance. Other files include individuals issued security violations or infractions cyber security violations or cyber security infractions; litigants in civil suits and criminal prosecutions of interest to the Bureau of Diplomatic Security; individuals who have Department building passes; uniformed security officers; individuals named in congressional inquiries to the Bureau of Diplomatic security; individuals subject to investigations conducted abroad on behalf of other Federal agencies; individuals whose activities other agencies believe may have a bearing on U.S. foreign policy interests. Authority for Maintenance of the System: 5 U.S.C. 301 (Management of Executive Agencies);

(b)5 U.S.C. 7311 (Suitability, Security, and Conduct);

(d)U.S.C. 1104 (Aliens and Nationality—passport and visa fraud investigations);

(e)18 U.S.C. 111 (Crimes and Criminal Procedures) (Assaulting, resisting, or impeding certain officers or employees);

(f)18 U.S.C. 112 (Protection of foreign officials, official guests, and internationally protected persons);

(g)18 U.S.C. 201 (Bribery of public officials and witnesses);

(h)18 U.S.C. 202 (Bribery, Graft, and Conflicts of Interest-Definitions);

(i)18 U.S.C. 1114 (Protection of officers and employees of the U.S.);

(j)18 U.S.C. 1116 (Murder or manslaughter of foreign officials, official guests, or internationally protected persons);

(k)18 U.S.C. 1117 (Conspiracy to murder);

(l)18 U.S.C. 1541-1546 (Issuance without authority, false statement in application and use of passport, forgery or false use of passport, misuse of passport, safe conduct violation, fraud and misuse of visas, permits, and other documents);

(m)22 U.S.C. 211a (Foreign Relations and Intercourse) (Authority to grant, issue, and verify passports);

(n)22 U.S.C. 842, 846, 911 (Duties of Officers and Employees and Foreign Service Officers) (Repealed, but applicable to past records);

(o)22 U.S.C. 2454 (Administration);

(p)22 U.S.C. 2651a (Organization of the Department of State);

(q)22 U.S.C. 2658 (Rules and regulations; promulgation by Secretary; delegation of authority) (applicable to past records);

(r)22 U.S.C. 2267 (Empowered security officers of the Department of State and Foreign Service to make arrests without warrant) (Repealed, but applicable to past records);

(s)22 U.S.C. 2709 (Special Agents);

(t)22 U.S.C. 2712 (Authority to control certain terrorism-related services);

(u)22 U.S.C. 3921 (Management of service);

(v)22 U.S.C. 4802, 4804(3)(D) (Diplomatic Security) (generally) and (Responsibilities of Assistant Secretary for Diplomatic Security) (generally) (Repealed, but applicable to past records);

(w)22 U.S.C. 4831-4835 (Accountability review, accountability review board, procedures, findings and recommendations by a board, relation to other proceedings);

(x)44 U.S.C. 3101 (Federal Records Act of 1950, Sec. 506(a) as amended) (applicable to past records);

(y)Executive Order 10450 (Security requirements for government employment);

(z)Executive Order 12107, Title 5 (Relating to the Civil Service Commission and Labor-Management in the Federal Service);

(aa)Executive Order 12958 and its predecessor orders (National Security Information);

(bb)Executive Order 12968 (Access to Classified Information);

(cc)22 CFR Subchapter M (International Traffic in Arms) (applicable to past records);

(dd)40 U.S.C. Chapter 10 (Federal Property and Administrative Services Act (1949));

(ee)31 U.S.C. (Tax Code);

(ff)Pub. L. 99-399, 8/27/86; (Omnibus Diplomatic Security and Antiterrorism Act of 1986, as amended);

(gg)Pub. L. 99-529, 10/24/86 (Special Foreign Assistance Act of 1986, concerns Haiti) (applicable to past records);

(hh)Pub. L. 100-124, Section 155a (concerns special security program for Department employees responsible for security at certain posts) (applicable to past records);

(ii)Pub. L. 100-202, 12/22/87 (Appropriations for Departments of Commerce, Justice, and State) (applicable to past records);

(jj)Pub. L. 100-461, 10/1/88 (Foreign Operations, Export Financing, and Related Programs Appropriations Act);

(kk)Pub. L. 102-138, 10/28/91 (Foreign Relations Authorization Act, Fiscal Years 1992 and 1993) (applicable to past records);

(ll)Pub. L. 107-56, 115 Stat. 272, 10/26/2001 (USA PATRIOT Act); (Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism);

(mm)Pub. L. 108-066, 117 Stat.650, 4/30/2003 (PROTECT Act) (Prosecutorial Remedies and Other Tools to end the Exploitation of Children Today Act of 2003);

(nn)Executive Order 12356 (National Security Information) applicable to past records);

(oo)Executive Order 9397 (Numbering System for Federal Accounts Relating to Individual Persons);

(pp)HSPD-12, 7/24/2004 (Homeland Security Presidential Directive);

(qq)Executive Order 13356, 8/27/04 (Strengthening the Sharing of Terrorism Information to Protect Americans);

(rr)Pub. L. 108-458 (Sect. 1016) (Intelligence Reform and Terrorism Prevention Act of 2004). Categories of Records in the System: Investigatory material relating to any category of individual described above, including case files containing items such as applications for passports and employment, photographs, fingerprints, birth certificates, credit checks, intelligence reports, security evaluations and clearances, other agency reports and informant reports; legal case pleadings and files; evidence materials collected during investigations; security violation files; training reports; weapons assignment data base; firing proficiency scores; availability for special protective assignments; language proficiency scores; intelligence reports; counterintelligence material; counterterrorism material; internal Departmental memoranda; internal personnel, fiscal, and other administrative documents. For Visitors: Name; Date of birth; Citizenship; ID type; ID number; temporary badge number; host's name; office symbol; room number; and telephone number; for all others: Name; date and place of birth; home address; employer; employer's address; badge number; home and office telephone numbers; Social Security Account Number; specific areas and times of authorized accessibility; escort authority; status and level of security clearance; issuing agency and issue date; and for all individuals: date and times of building entrance and exit. Additionally, security files contain information needed to provide protective services for the Secretary of State and visiting foreign dignitaries; and to protect the Department's official facilities. There are also information copies of investigations of individuals conducted abroad on behalf of other Federal agencies. Finally, security files contain documents and reports furnished to the Department by other agencies concerning individuals whose activities the other agencies believe may have a bearing on U.S. foreign policy interests. Routine Uses of Records Maintained in the System, Including Categories of Users and Purposes of Such Uses: The information in the Security Records is used by: Department of State officials in the administration of their responsibilities; Appropriate Committees of the Congress in furtherance of their respective oversight functions; Department of the Treasury; U.S. Office of Personnel Management; Agency for International Development; U.S. Information Agency (past records); Department of Commerce; Peace Corps; Arms Control and Disarmament Agency (past records); U.S. Secret Service; Immigration and Naturalization Service; Department of Defense; Central Intelligence Agency; Department of Justice; Federal Bureau of Investigation; National Security Agency; Drug Enforcement Administration; National Counter Terrorism Center; and other Federal agencies inquiring pursuant to law or Executive Order in order to make a determination of general suitability for employment or retention in employment, to grant a contract or issue a license, grant, or security clearance; any Federal, State, municipal, foreign or international law enforcement or other relevant agency or organization for law enforcement or counterterrorism purposes: Threat alerts and analyses, protective intelligence and counterintelligence information, information relevant for screening purposes, and other law enforcement and terrorism-related information as needed by appropriate agencies of the Federal Government, states, or municipalities, or foreign or international governments or agencies. Any other agency or Department of the Federal Government pursuant to statutory intelligence responsibilities or other lawful purposes; any other agency or Department of the Executive Branch having oversight or review authority with regard to its investigative responsibilities; a Federal, State, local, foreign, or international agency or other public authority that investigates, prosecutes or assists in investigation, prosecution or violation of criminal law or enforces, implements or assists in enforcement or implementation of statute, rule, regulation or order; a Federal, State, local or foreign agency or other public authority or professional organization maintaining civil, criminal, and other relevant enforcement or pertinent records such as current licenses; information may be given to a customer reporting agency:

(1)In order to obtain information, relevant enforcement records or other pertinent records such as current licenses or

(2)to obtain information relevant to an agency investigation, a decision concerning the hiring or retention of an employee or other personnel action, the issuance of a security clearance or the initiation of administrative, civil, or criminal action; Officials of the Department of other government agencies in the letting of a contract, issuance of a license, grant or other benefit, and the establishment of a claim; any private or public source, witness, or subject from which information is requested in the course of a legitimate agency investigation or other inquiry to the extent necessary to identify an individual; to inform a source, witness or subject of the nature and purpose of the investigation or other inquiry; and to identify the information requested; an attorney or other designated representative of any source, witness or subject described in paragraph

(j)of the Privacy Act only to the extent that the information would be provided to that category of individual itself in the course of an investigation or other inquiry; by a Federal agency following a response to its subpoena or to a prosecution request that such record be released for the purpose of its introduction to a grand jury. Relevant information may be disclosed from this system to the news media and general public where there exists a legitimate public interest, e.g., to assist in the location of Federal fugitives, to provide notification of arrests, and where necessary for protection from imminent threat to life or property. Also see “Routine Uses” of Prefatory Statement published in the **Federal Register.** Policies and Practices For Storing, Retrieving, Accessing, Retaining, and Disposing of Records in the System: Storage: Hard copy, microfilm, microfiche, tape recordings, electronic media, and photographs. Retrievability: The system is accessed by individual name, personal identifier, case number, badge number, and Social Security Account Number (for other than visitors), as well as by each “category of record in the system”; but the files may be grouped for the convenience of the user by type, country code, group name, subject, contract number, weapons serial number, or building pass number. Safeguards: All employees of the Department of State have undergone a thorough personnel security background investigation. Access to the Department of State building and its annexes is controlled by security guards and admission is limited to those individuals possessing a valid identification card or individuals under proper escort. Access to Annex 20 also has security access controls (code entrances) and/or security alarm systems. All records containing personal information are maintained in secured file cabinets or in restricted areas, access to which is limited to authorized personnel. Access to computerized files is password-protected and under the direct supervision of the system manager. The system manager has the capability of printing audit trails of access from the computer media, thereby permitting regular *ad hoc* monitoring of computer usage. Retention And Disposal: Retention of those records varies depending upon the specific kind of record involved. The records are retired or destroyed in accordance with published schedules of the Department of State and as approved by the National Archives and Records Administration. More specific information may be obtained by writing to the Director, Office of Information Programs and Services (A/RPS/IPS), SA-2, Department of State, Washington, DC 20522-6001. System Manager and Address: Principal Deputy Assistant Secretary for Diplomatic Security and Director for the Diplomatic Security Service; Department of State, SA-20, 23rd Floor, 1801 North Lynn Street, Washington, DC 20522-2008 for the Harry S. Truman Building, domestic annexes, field offices and missions; Security Officers at respective U.S. Embassies, Consulates, and missions overseas. Notification Procedure: Individuals who have reason to believe that the Bureau of Diplomatic Security may have security/investigative records pertaining to themselves should write to the Director; Office of Information Programs and Services; A/RPS/IPS, SA-2, Department of State, Washington, DC 20522-6001. The individual must specify that he/she wishes the Security Records to be checked. At a minimum, the individual must include: Name; date and place of birth; current mailing address and zip code; signature; and a brief description of the circumstances which may have caused the creation of the record. Record Access and Amendment Procedures: Individuals who wish to gain access to or amend records pertaining to themselves should write to the Director; Office of Information Programs and Services (address above). Record Source Categories: These records contain information obtained from the individual; persons having knowledge of the individual; persons having knowledge of incidents or other matters of investigative interest to the Department; other U.S. law enforcement agencies and court systems; pertinent records of other Federal, State, or local agencies or foreign governments; pertinent records of private firms or organizations; the intelligence community; and other public sources. The records also contain information obtained from interviews, review of records, and other authorized investigative techniques. Systems Exempted From Certain Provisions of the Act: Records originated by another agency when that agency has determined that the record is exempt under 5 U.S.C. 552a(j). Also, records contained within this system of records are exempted from 5 U.S.C. 552a(c)(3) and (4), (d), (e)(1), (2), (3), and (e)(4)(G), (H), and (I), and

(f)to the extent they meet the criteria of section (j)(2) of the Act. See 22 CFR 171.36. [FR Doc. E6-11627 Filed 7-20-06; 8:45 am] BILLING CODE 4710-24-P DEPARTMENT OF STATE [Public Notice 5472] STATE-68 Office of the Coordinator for Reconstruction and Stabilization Records *Summary:* Notice is hereby given that the Department of State proposes to create a new system of records, STATE-68, pursuant to the Provisions of the Privacy Act of 1974, as amended (5 U.S.C.(r)), and the Office of Management and Budget Circular No. A-130, Appendix I. The Department's report was filed with the Office of Management and Budget on June 1, 2006. It is proposed that the new system will be named “Office of the Coordinator for Reconstruction and Stabilization Records.” This system description is proposed in order to reflect more accurately the Office of the Coordinator for Reconstruction and Stabilization's recordkeeping system, activities and operations. Any persons interested in commenting on this new system of records may do so by submitting comments in writing to Margaret P. Grafeld, Director; Office of Information Programs and Services; A/RPS/IPS; Department of State, SA-2; Washington, DC 20522-6001. This system of records will be effective 40 days from the date of publication, unless we receive comments that will result in a contrary determination. This new system description, “Office of the Coordinator for Reconstruction and Stabilization Records, STATE-68” will read as set forth below. Dated: May 31, 2006. Frank Coulter, Acting Assistant Secretary for the Bureau of Administration, Department of State. STATE-68 SYSTEM NAME: Office of the Coordinator for Reconstruction and Stabilization Records. SECURITY CLASSIFICATION: Unclassified. SYSTEM LOCATION: Department of State; SA-3; 2121 Virginia Avenue, NW.; Washington, DC 20520. CATEGORIES OF INDIVIDUALS COVERED BY THE SYSTEM: Individuals who have been involved in reconstruction and stabilization activities as an effort to develop lessons learned from past experience; and, individuals who wish to volunteer for potential future overseas reconstruction and stabilization activities; either in a management function based in Washington, DC or in a foreign deployment providing direct support. AUTHORITY FOR MAINTENANCE OF THE SYSTEM: Pub. L. 108-447, Div B, Title IV, § 408, 118 Stat. 2904 (Consolidated Appropriations Act, 2005). CATEGORIES OF RECORDS IN THE SYSTEM: We will be collecting forms from individuals who are have expressed interest in deploying overseas or domestically in support of Reconstruction and Stabilization efforts of the U.S. Government. The individuals could be selected to participate in various response mechanisms that the office is developing, such as the Active Response Corps. Additional forms will collect information from individuals who have served overseas in support of Reconstruction and Stabilization efforts as part of a lessons learned database. These individuals will not be expressing interest in redeploying but rather in sharing their experiences to assist in the U.S. Government effort to determine what did and did not work in past or current operations. ROUTINE USES OF RECORDS MAINTAINED IN THE SYSTEM, INCLUDING CATEGORIES OF USERS AND PURPOSES OF SUCH USES: The information in this system will be used to help the office carry out its mandate to lead coordinate and institutionalize stabilization and reconstruction activities of the United States Government. The records shall be compiled and used to develop lessons learned from experiences of individuals in reconstruction and stabilization activities, these individuals will not be expressing interest in redeploying but rather in sharing their experiences to assist in the U.S. Government effort to determine what did and did not work in past or current operations. Additional uses will be to select individuals who have expressed an interest in deploying overseas or domestically in support of Reconstruction and Stabilization efforts of the U.S. Government. The individuals could be selected to participate in various response mechanisms that the office is developing, such as the Active Response Corps. POLICIES AND PRACTICES FOR STORING, RETRIEVING, ACCESSING, RETAINING AND DISPOSING OF RECORDS IN THE SYSTEM: STORAGE: Electronic media; hard copy. RETRIEVABILITY: Individual name, designated specialty in reconstruction and stabilization operations. SAFEGUARDS: All employees of the Department of State have undergone a thorough personnel security background investigation. Access to the Department of State building and the annexes is controlled by security guards, and admission is limited to those individuals possessing a valid identification card or individuals under proper escort. All records containing personal information are maintained in secured filing cabinets or in restricted areas, access to which is limited to authorized personnel. Access to electronic files is password-protected and under the direct supervision of the system manager. The system manager has the capability of printing audit trails of access from the computer media, thereby permitting regular and ad hoc monitoring of computer usage. RETENTION AND DISPOSAL: These records will be maintained with published record disposition schedules of the Department of State as approved by the National Archives and Records Administration. More specific information may be obtained by writing to the Director, Office of Information Programs and Services, A/RPS/IPS, SA-2, Department of State, Washington, DC 20522-8100. SYSTEM MANAGER AND ADDRESS: Office of the Coordinator for Reconstruction and Stabilization; Department of State; SA-3; 2121 Virginia Avenue, NW.; Washington, DC 20520. NOTIFICATION PROCEDURE: Individuals who have reason to believe that the Office of the Coordinator for Reconstruction and Stabilization might have records pertaining to them should write to the Director, Office of Information Programs and Services, A/RPS/IPS, SA-2, Department of State, Washington, DC 20522-8100. The individual must specify that he or she wishes the records of the Office of the Coordinator for Reconstruction and Stabilization to be checked. At a minimum, the individual should include: Name; date and place of birth; preferably his/her Social Security Number; current mailing address and zip code; signature; a brief description of the circumstances that caused the creation of the record (including the city and/or country and the approximate dates) which gives the individual cause to believe that the Office of the Coordinator for Reconstruction and Stabilization has records pertaining to him or her. RECORD ACCESS AND AMENDMENT PROCEDURES: Individuals who wish to gain access to or to amend records pertaining to them should write to the Director, Office of Information Programs and Services (address above). RECORD SOURCE CATEGORIES: These records contain information that is obtained from the individual who is the subject of the records. SYSTEMS EXEMPTED FROM CERTAIN PROVISIONS OF THE ACT: Pursuant to 5 U.S.C. 552a(k)(6) records in this system of records may be exempted from 5 U.S.C. 552a(c)(3).(d).(e)(l).(e)(4)(G). (H). and

(I)and (f). L/LM will review at clearance per Brian Egan. [FR Doc. E6-11632 Filed 7-20-06; 8:45 am] BILLING CODE 4710-24-P DEPARTMENT OF TRANSPORTATION Federal Transit Administration Preparation of an Environmental Impact Statement on Transit Improvements for the Gold Line Corridor AGENCY: Federal Transit Administration (FTA), U.S. Department of Transportation. ACTION: Notice of intent to Prepare an Environmental Impact Statement (EIS). SUMMARY: The Federal Transit Administration

(FTA)and the Denver Regional Transportation District (RTD), in cooperation with the U.S. Army Corps of Engineers (USACE) and the Colorado Department of Transportation (CDOT), will prepare an Environmental Impact Statement

(EIS)to evaluate the impacts of rail transit improvements for the Gold Line Corridor which extends from downtown Denver, Colorado west to Ward Road in Wheat Ridge, Colorado. The EIS will be prepared in accordance with regulations implementing the National Environmental Policy Act (NEPA), as well as provisions of the recently enacted Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy of Users. The purpose of this Notice of Intent is to alert interested parties regarding the plan to prepare the EIS, to provide information on the nature of the proposed transit project, to invite participation in the EIS process, including comments on the scope of the EIS proposed in this notice, and to announce that public scoping meetings will be conducted. DATES: Written comments on the scope of the EIS should be sent to Dave Hollis, RTD Project Manager, by September 25, 2006. Public scoping meetings will be held on August 22nd and 23rd from 5:30 p.m. to 8:15 p.m. at the locations indicated below. An interagency scoping meeting will be scheduled after agencies with an interest in the proposed project have been identified. ADDRESSES: Written comments on the scope of the EIS should be sent to Dave Hollis, Gold Line Corridor Project Manager, Denver Regional Transportation District (RTD), 1560 Broadway, Suite 700, Denver, CO 80202. Comments may also be offered at the public scoping meetings. The addresses for the public scoping meetings are as follows: *Tuesday, August 22* , Arvada Center, 6901 Wadsworth Blvd., Arvada, CO 80003. *Wednesday, August 23* , Highlands Masonic Center, 3550 Federal Blvd., Denver, CO 80211. For more information for special assistance needs for the scoping meetings, please contact Dave Hollis at

(303)299-2404 at least 48 hours before the meeting. All meetings will be conducted in wheelchair accessible locations. FOR FURTHER INFORMATION CONTACT: Mr. David Beckhouse, Community Planner, Federal Transit Administration, Region VIII, 12300 West Dakota Ave., Suite 310, Lakewood, CO 80228-2583,

(720)963-3306. SUPPLEMENTARY INFORMATION: *The Proposed Project:* The project extends 11 miles from Denver Union Station

(DUS)in downtown Denver to Wheat Ridge. The project proposes stations at W. 38th Avenue, Pecos Street, Federal Boulevard, Sheridan Boulevard, Olde Town, Arvada Ridge, and Ward Road. *Purposes of and Need for the Proposed Project:* The Gold Line area is forecast to be one of the fastest growing areas of the region over the next 20 years. Growth rates for both population and employment are forecast to increase significantly by 2030. Congestion along north I-25 and I-70 West is already severe, with forecasts indicating increasing severity and duration of congestion. In addition to increasing congestion, access through and from the corridor area to other areas in the metro region is difficult. Many roadways are not continuous, requiring circuitous travel. Existing transit service in the area is minimal and often requires a transfer in Downtown Denver for service to other areas. The project will provide a new rail transportation facility to improve local and regional mobility and accessibility for the west metropolitan area. This transit project is included as part of RTD's FasTracks Program, a 12-year comprehensive plan for transit service and facilities in the Denver region. The FasTracks Plan is a $4.7 billion program that was endorsed by the voters of the Denver metropolitan area in 2004. The voters of the region approved an increase in the regional sales and use tax from 0.6% to 1.0% in order to provide for the expedited build out of the transit system. FasTracks includes a funding plan for 119 new miles of rail transit, 18 miles of bus rapid transit, 21,000 new spaces in park n Rides and significant improvements to the bus system. The FasTracks projects have been adopted in the current Denver area Regional Transportation Plan. *Alternatives:* The NEPA scoping process will include an evaluation of the results of the MIS conducted by RTD between 1998 and 2000 as well as the Three Corridors Scoping Study that was completed in October 2005. The locally preferred alternative

(LPA)of the MIS was LRT on the BNSF alignment (or Gold Line alignment) from DUS to Ward Road. These recommendations were approved by the Denver Regional Council of Governments and included in the fiscally constrained Regional Transportation Plan

(RTP)and the MetroVision 2030 Master Plan. FTA and RTD propose that the EIS evaluate the following alternatives: The No-Action alternative is the option of implementing nothing more than the existing and committed road and transit improvements. The Transportation System Management

(TSM)alternative includes various transportation improvements beyond the existing and committed projects plus enhanced bus transit service in the Gold Line Corridor. The MIS LPA will be evaluated as the proposed project. The EIS will also consider any additional reasonable alternatives identified during scoping that provide similar transportation benefits while reducing or avoiding adverse impacts. *The EIS Process and the Role of Participating Agencies and the Public:* The purpose of the EIS process is to explore in a public setting potentially significant effects of implementing the proposed action and alternatives on the physical, human, and natural environment. Areas of investigation include, but are not limited to, land use, development potential, land acquisition and displacements, historic resources, visual and aesthetic qualities, air quality, noise and vibration, energy use, safety and security, and ecosystems, including threatened and endangered species. Measures to avoid, minimize, or mitigate any significant adverse impacts will be identified. Regulations implementing NEPA, as well as provisions of the recently enacted Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU), call for public involvement in the EIS process. Section 6002 of SAFETEA-LU requires that FTA and RTD do the following:

(1)Extend an invitation to other Federal and non-Federal agencies and Indian tribes that may have an interest in the proposed project to become “participating agencies,”

(2)provide an opportunity for involvement by participating agencies and the public in helping to define the purpose and need for a proposed project, as well as the range of alternatives for consideration in the impact statement, and

(3)establish a plan for coordinating public and agency participation in and comment on the environmental review process. An invitation to become a participating agency, with the scoping information packet appended, will be extended to other Federal and non-Federal agencies and Indian tribes that may have an interest in the proposed project. It is possible that we may not be able to identify all Federal and non-Federal agencies and Indian tribes that may have such an interest. Any Federal or non-Federal agency or Indian tribe interested in the proposed project that does not receive an invitation to become a participating agency should notify at the earliest opportunity the Project Manager identified above under ADDRESSES . A comprehensive public involvement program will be developed and a public and agency involvement Coordination Plan will be created. The program will include outreach to local and county officials and community and civic groups; a public scoping process to define the issues of concern among all parties interested in the project; organizing periodic meetings with various local agencies, organizations and committees; a public hearing on release of the draft environmental impact statement (DEIS); and development and distribution of project newsletters. The purposes of and need for the proposed project have been preliminarily identified in this notice. We invite the public and participating agencies to consider the preliminary statement of purposes of and need for the proposed project, as well as the alternatives proposed for consideration. Suggestions for modifications to the statement of purposes of and need for the proposed project and any other alternatives that meet the purposes of and need for the proposed project are welcomed and will be given serious consideration. Comments on potentially significant environmental impacts that may be associated with the proposed project and alternatives are also welcomed. There will be additional opportunities to participate in the scoping process at the public meetings announced in this notice. In accordance with 23 CFR 771.105(a) and 771.133, FTA will comply with all Federal environmental laws, regulations, and executive orders applicable to the proposed project during the environmental review process to the maximum extent practicable. These requirements include, but are not limited to, the regulations of the Council on Environmental Quality and FTA implementing NEPA (40 CFR parts 1500-1508, and 23 CFR part 771), the project-level air quality conformity regulation of the U.S. Environmental Protection Agency

(EPA)(40 CFR part 93), the section 404(b)(1) guidelines of EPA (40 CFR part 230), the regulation implementing section 106 of the National Historic Preservation Act (36 CFR part 800), the regulation implementing section 7 of the Endangered Species Act (50 CFR part 402), section 4(f) of the DOT Act (23 CFR 771.135), and Executive Orders 12898 on environmental justice, 11988 on floodplain management, and 11990 on wetlands. In accordance with 36 CFR 800.8(c), RTD will utilize the NEPA/Section 106 merger process for documentation to comply with section 106. RTD will utilize the Memorandum of Agreement between the FTA, Region VIII and the U.S. Army Corps of Engineers (USACE), dated January, 2006 for documentation to comply with section 404 mandates. In addition, RTD may seek Section 5309 New Starts funding for the project. As provided in the FTA New Starts regulation (49 CFR part 611), New Starts funding requires the submission of certain specific information to FTA to support a request to initiate preliminary engineering, which is normally done in conjunction with the NEPA process. Issued on: July 13, 2006. Lee O. Waddleton, Regional Administrator, Region VIII, Federal Transit Administration. [FR Doc. E6-11629 Filed 7-20-06; 8:45 am] BILLING CODE 4910-57-P DEPARTMENT OF TRANSPORTATION National Highway Traffic Safety Administration [Docket Nos. NHTSA-2003-15428 and NHTSA-2003-16401] Decision That Nonconforming 2002 Through 2004 Smart Car Fortwo Coupe and Cabriolet (Including Trim Levels Passion, Pulse and Pure) Passenger Cars Are Eligible for Importation AGENCY: National Highway Traffic Safety Administration, DOT. ACTION: Notice of decision by the National Highway Traffic Safety Administration that nonconforming 2002 through 2004 Smart Car Fortwo Coupe and Cabriolet (including trim levels Passion, Pulse and Pure) passenger cars are eligible for importation. SUMMARY: This notice announces the decision by NHTSA that 2002 through 2004 Smart Car Fortwo Coupe and Cabriolet (including trim levels Passion, Pulse and Pure) passenger cars not originally manufactured to comply with all applicable Federal motor vehicle safety standards (FMVSS) are eligible for importation into the United States because they have safety features that comply with, or are capable of being altered to comply with, all applicable FMVSS. DATES: This decision was effective January 1, 2004. The agency notified the petitioners at that time that the subject vehicles are eligible for importation. This document provides public notice of the eligibility decision. FOR FURTHER INFORMATION CONTACT: Coleman Sachs, Office of Vehicle Safety Compliance, NHTSA (202-366-3151). SUPPLEMENTARY INFORMATION: Background Under 49 U.S.C. 30141(a)(1)(A), a motor vehicle that was not originally manufactured to conform to all applicable FMVSS shall be refused admission into the United States unless NHTSA has decided that the motor vehicle is substantially similar to a motor vehicle originally manufactured for importation into and sale in the United States, certified as required under 49 U.S.C. 30115, and of the same model year as the model of the motor vehicle to be compared, and is capable of being readily altered to conform to all applicable FMVSS. Where there is no substantially similar U.S.-certified motor vehicle, 49 U.S.C. 30141(a)(1)(B) permits a nonconforming motor vehicle to be admitted into the United States if its safety features comply with, or are capable of being altered to comply with, all applicable FMVSS based on destructive test data or such other evidence that NHTSA decides to be adequate. Petitions for eligibility decisions may be submitted by either manufacturers or importers who have registered with NHTSA pursuant to 49 CFR part 592. As specified in 49 CFR 593.7, NHTSA publishes notice in the **Federal Register** of each petition that it receives, and affords interested persons an opportunity to comment on the petition. At the close of the comment period, NHTSA decides, on the basis of the petition and any comments that it has received, whether the vehicle is eligible for importation. The agency then publishes this decision in the **Federal Register** . J.K. Technologies, LLC of Baltimore, Maryland (“JK”) (Registered Importer 90-006) and G&K Automotive Conversion, Inc. of Santa Ana, California (“G&K”) (Registered Importer 90-007) separately petitioned NHTSA to decide whether certain Smart Car Fortwo Coupe and Cabriolet passenger cars are eligible for importation into the United States. NHTSA published notice of the JK petition on June 20, 2003 (68 FR 37040) and of the G&K petition on November 3, 2003 (68 FR 62343), to afford an opportunity for public comment. The reader is referred to those notices for a thorough description of the petitions. After considering the two petitions, NHTSA decided to issue a single eligibility decision covering all vehicle model years and configurations that were the subject of those petitions. Two substantive comments were received in response to the notice published on the JK petition. No comments were received in response to the notice on the G&K petition. The comments and NHTSA's analysis are set forth below for each of the issues raised in the comments, as well as issues identified by NHTSA in its review of the two petitions. Thomas Heidermann of Smart Automobile, Inc., through its counsel, Ginsburg & Hlywa, submitted a comment contending that JK had failed to demonstrate that the subject vehicles comply with, or are capable of being modified to comply with FMVSS Nos. 108 *Lamps, Reflective Devices, and Associated Equipment,* 206 *Door Locks and Door Retention Components,* 214 *Side Impact Protection,* and *301 Fuel System Integrity.* JK filed with the agency a request for confidentially under 49 CFR part 512, *Confidential Business Information,* seeking to protect from public disclosure most of the data, views and arguments that it had submitted as part of its petition. Consequently, test data and reports that were part of that submission were not originally posted to the public docket. After NHTSA's Office of Chief Counsel decided to deny confidentially to the test data and reports submitted by JK for FMVSS Nos. 108, 206, 214, and 301, as well as other standards, the materials were posted to the public docket under docket number NHTSA-2003-15428. An anonymous commenter argued that confidentiality should not be granted to the test procedures and test results submitted by JK. As previously stated, those materials were not accorded confidentiality by the agency. Each of the two petitions claimed that the subject vehicles were originally manufactured to conform to Standard Nos. 103 *Defrosting and Defogging Systems,* 104 *Windshield Wiping and Washing Systems,* 106 *Brake Hoses,* 109 *New Pneumatic Tires,* 116 *Brake Fluid,* 118 *Power Window Systems,* 124 *Accelerator Control Systems,* 202 *Head Restraints,* 205 *Glazing Materials,* 207 *Seating Systems,* 210 *Seat Belt Assembly Anchorages,* 212 *Windshield Retention,* and 219 *Windshield Zone Intrusion.* NHTSA concluded that sufficient data, views, and arguments were submitted in the aggregate by the two petitioners to establish that the vehicles do conform to these standards as originally manufactured. The two petitions did initially differ with regard to their claims that the subject vehicles could be modified to conform to the standards specified below. However, sufficient data, views, and arguments were ultimately submitted by the two petitioners to establish in the aggregate that the vehicles could be modified to conform to these standards. The differences between the two petitions, as well as NHTSA's analysis of their contents, are described below with regard to each standard for which alterations were identified as being required.

(1)FMVSS No. 101 Controls and Displays *Alterations identified in JK petition:*

(a)Inscription of the word “Brake” on the dash in place of the international ECE warning symbol;

(b)replacement of the speedometer with one that reads in miles per hour. The petitioner stated that it has fabricated a new instrument cluster face for the vehicles, available only through J.K. Technologies, which will allow the vehicles to achieve compliance with the standard. *Alterations identified in G&K petition:*

(a)Inscription of the word “Brake” and a seat belt warning symbol on the dash;

(b)modification of the speedometer to read in miles per hour. The petitioner stated that the controls and displays are visible and accessible to the driver while restrained by a lap and shoulder belt, that controls for the headlamps, the windshield defrosting and defogging system, and the windshield wiping system and panel are all identified, and that all required controls are illuminated. NHTSA's Analysis The modifications that JK and G&K identified as needed to conform the vehicles to the standard would not prelude the vehicles from being deemed eligible for importation. Conformity packages submitted for vehicles imported under the decision must demonstrate that the vehicle is equipped with components that allow it to achieve compliance with the standard. Any modification or replacement of components necessary to meet the requirements of the standard must be shown to bring the vehicle into compliance. Such proof must be submitted by an RI as part of any conformity package submitted for nonconforming 2002 through 2004 Smart Car Fortwo Coupe and Cabriolet passenger cars.

(2)FMVSS No. 102 Transmission Shift Lever Sequence, Starter Interlock, and Transmission Breaking Effect *Alterations identified in JK petition:* Installation of a redesigned starter interlock assembly, available only through J.K. Technologies, which was designed to allow the vehicles to comply with Standard No. 114, will also achieve compliance with Standard No. 102. The petition did not describe how this assembly was redesigned. *Alterations identified in G&K petition:* Modification of the shift lever markings, the shift pattern, the starter interlock, and the automatic transmission braking effect to achieve compliance with this standard. The petition did not describe these modifications, for which G&K claimed confidentiality. NHTSA's Analysis The modifications that JK and G&K identified as needed to conform the vehicles to the standard would not prelude the vehicles from being deemed eligible for importation. Conformity packages submitted for vehicles imported under the decision must demonstrate that the vehicle is equipped with components that allow it to achieve compliance with the standard. Any modification or replacement of components necessary to meet the requirements of the standard must be shown to bring the vehicle into compliance. Such proof must be submitted by an RI as part of any conformity package submitted for nonconforming 2002 through 2004 Smart Car Fortwo Coupe and Cabriolet passenger cars.

(3)FMVSS No. 108 Lamps, Reflective Devices, and Associated Equipment *Alterations identified in JK petition:* Modification of the headlamp and marker light systems to meet this standard. These modifications are not described in the petition. *Alterations identified in G&K petition:*

(a)Modification of the headlamp to meet the standard and

(b)installation of side markers. The petition did not describe these modifications, for which G&K claimed confidentiality. In a letter to NHTSA dated March 21, 2005, G&K stated that the headlamps will be replaced with U.S.-model components that have been certified as meeting all applicable requirements of FMVSS No. 108. In a letter dated May 16, 2005, G&K stated that the turn signal lamps will also be replaced with U.S.-model components that have been certified as meeting all applicable requirements of the standard. NHTSA's Analysis The modifications that JK and G&K identified as needed to conform the vehicles to the standard would not prelude the vehicles from being deemed eligible for importation. Conformity packages submitted for vehicles imported under the decision must demonstrate that the vehicle is equipped with components that allow it to achieve compliance with the standard. Any modification or replacement of components necessary to meet the requirements of the standard must be shown to bring the vehicle into compliance. Such proof must be submitted by an RI as part of any conformity package submitted for nonconforming 2002 through 2004 Smart Car Fortwo Coupe and Cabriolet passenger cars.

(4)FMVSS No. 110 Tire Selection and Rims *Alterations identified in JK petition:* Installation of a tire information placard as part of the certification label to be affixed to the vehicles upon the completion of required modifications to achieve conformity with applicable standards. *Alterations identified in G&K petition:* Installation of a tire information placard. NHTSA's Analysis NHTSA has determined that the installation of a tire information placard to meet the requirements of the standard would not prelude the vehicles from being deemed eligible for importation.

(5)FMVSS No. 111 Rearview Mirrors *Alterations identified in JK petition:* Replacement of the passenger side rearview mirror with a mirror fabricated by, and available only through, J.K. Technologies, which will have the required warning statement on the mirror's face. *Alterations identified in G&K petition:* Inscription of the required warning statement on the face of the passenger side rearview mirror. NHTSA's Analysis NHTSA has determined that the installation of a replacement passenger side mirror or the modification of the existing mirror to meet the requirements of the standard would not prelude the vehicles from being deemed eligible for importation.

(6)FMVSS No. 114 Theft Protection *Alterations identified in JK petition:* Installation of a redesigned starter interlock assembly to meet this standard. The petition did not describe how the assembly was redesigned. *Alterations identified in G&K petition:* Modification of the key locking system to meet this standard. The petition did not describe these modifications, for which G&K claimed confidentiality. NHTSA's Analysis The modifications that JK and G&K identified as needed to conform the vehicles to the standard would not prelude the vehicles from being deemed eligible for importation. Conformity packages submitted for vehicles imported under the decision must demonstrate that the vehicle is equipped with components that allow it to achieve compliance with the standard. Any modification or replacement of components necessary to meet the requirements of the standard must be shown to bring the vehicle into compliance. Such proof must be submitted by an RI as part of any conformity package submitted for nonconforming 2002 through 2004 Smart Car Fortwo Coupe and Cabriolet passenger cars.

(7)FMVSS No. 135 Passenger Car Brake Systems *JK petition:* The vehicles conform to the standard as manufactured. *Alterations identified in G&K petition:* Modification of the hydraulic brake system and the parking brake system through the installation of components available only from G&K. The petition did not describe these modifications, for which G&K claimed confidentiality. In a letter dated March 21, 2005, G&K stated that no modifications were made to the vehicle prior to its FMVSS No. 135 testing. NHTSA's Analysis NHTSA has concluded that the subject vehicles were shown to meet the requirements of the standard as originally manufactured.

(8)FMVSS No. 201 Occupant Protection in Interior Impact *Alterations identified in JK petition:* Replacement of interior components with components fabricated by, and available only through, J.K. Technologies. JK claimed confidentiality with respect to these modifications. *Alterations identified in G&K petition:* Replacement of interior components with components fabricated by, and available only through, G&K. The petition did not describe these components or their manner of installation. G&K claimed confidentiality with respect to these modifications. NHTSA's Analysis The modifications that JK and G&K identified as needed to conform the vehicles to the standard would not prelude the vehicles from being deemed eligible for importation. Conformity packages submitted for vehicles imported under the decision must demonstrate that the vehicle is equipped with components that allow it to achieve compliance with the standard. Any modification or replacement of components necessary to meet the requirements of the standard must be shown to bring the vehicle into compliance. Such proof must be submitted by an RI as part of any conformity package submitted for nonconforming 2002 through 2004 Smart Car Fortwo Coupe and Cabriolet passenger cars.

(9)FMVSS No. 204 Steering Control Rearward Displacement *Alterations identified in JK petition:* Modification of the steering shaft to meet the standard. This modification is not described in the petition. *G&K petition:* The vehicles must be modified to meet the standard. The petition did not describe these modifications, for which G&K claimed confidentiality. In a letter dated March 21, 2005, G&K stated that no modifications were made to the vehicle prior to its FMVSS No. 204 testing. NHTSA's Analysis NHTSA concluded that the subject vehicles were shown to meet the requirements of the standard as originally manufactured.

(10)FMVSS No. 206 Door Locks and Door Retention Components *JK petition:* The vehicle conforms to the standard as originally manufactured. *Alterations identified in G&K petition:* Modification of the door locks and door retention components to meet the standard. The petition did not describe these modifications, for which G&K claimed confidentiality. In a letter dated March 21, 2005, G&K stated that no modifications were made to the vehicle prior to its FMVSS No. 206 testing. NHTSA's Analysis NHTSA concluded that the subject vehicles were shown to meet the requirements of the standard as originally manufactured.

(11)FMVSS No. 208 Occupant Crash Protection *Alterations identified in JK petition:* The vehicles must be modified to meet this standard. These modifications were not described in the petition. *Alterations identified in G&K petition:* The vehicles must be modified to meet this standard. The petition did not describe these modifications, for which G&K claimed confidentiality. In a letter dated March 21, 2005, G&K stated that the air bags were not removed or replaced prior to its FMVSS No. 208 testing. NHTSA's Analysis The modifications that JK and G&K identified as needed to conform the vehicles to the standard would not prelude the vehicles from being deemed eligible for importation. Conformity packages submitted for vehicles imported under the decision must demonstrate that the vehicle is equipped with components that allow it to achieve compliance with the standard. Any modification or replacement of components necessary to meet the requirements of the standard must be shown to bring the vehicle into compliance. Such proof must be submitted by an RI as part of any conformity package submitted for nonconforming 2002 through 2004 Smart Car Fortwo Coupe and Cabriolet passenger cars.

(12)FMVSS No. 209 Seat Belt Assemblies *Alterations identified in JK petition:* Modification of the seat belt systems to accommodate a seat belt switch. This modification was not described in the petition. *Alterations identified in G&K petition:* Modification of the seat belt systems to meet this standard. The petition did not describe the modification, for which G&K claimed confidentiality. NHTSA's Analysis The modifications that JK and G&K identified as needed to conform the vehicles to the standard would not prelude the vehicles from being deemed eligible for importation. Conformity packages submitted for vehicles imported under the decision must demonstrate that the vehicle is equipped with components that allow it to achieve compliance with the standard. Any modification or replacement of components necessary to meet the requirements of the standard must be shown to bring the vehicle into compliance. Such proof must be submitted by an RI as part of any conformity package submitted for nonconforming 2002 through 2004 Smart Car Fortwo Coupe and Cabriolet passenger cars.

(13)FMVSS No. 214 Side Impact Protection *Alterations identified in JK petition:* Modification of the vehicles' A-pillars, B-pillars, and doors. These modifications are not described in the petition. *Alterations identified in G&K petition:* Modification of the vehicles through the installation of components available only from G&K. The petition did not describe the modifications, for which G&K claimed confidentiality. NHTSA's Analysis The modifications that JK and G&K identified as needed to conform the vehicles to the standard would not prelude the vehicles from being deemed eligible for importation. Conformity packages submitted for vehicles imported under the decision must demonstrate that the vehicle is equipped with components that allow it to achieve compliance with the standard. Any modification or replacement of components necessary to meet the requirements of the standard must be shown to bring the vehicle into compliance. Such proof must be submitted by an RI as part of any conformity package submitted for nonconforming 2002 through 2004 Smart Car Fortwo Coupe and Cabriolet passenger cars.

(14)FMVSS No. 216 Roof Crush Resistance *JK petition:* The vehicles conform to this standard as originally manufactured. *Alterations identified in G&K petition:* The vehicles must be modified to meet this standard. The petition did not describe these modifications, for which G&K claimed confidentiality. In a letter dated March 21, 2005, G&K stated that no modifications were made to the vehicle prior to FMVSS No. 216 testing. NHTSA's Analysis NHTSA has concluded that the subject vehicles were shown to meet the requirements of the standard as originally manufactured.

(15)FMVSS No. 225 Child Restraint Anchorage Systems *JK petition:* The petition did not identify any modifications required to conform the vehicles to the standard. *Alterations identified in G&K petition:* Installation of a U.S.-model tether anchorage behind the passenger seat on coupe models is needed to achieve conformity. NHTSA's Analysis The modifications that G&K identified as needed to conform the vehicles to the standard would not prelude the vehicles from being deemed eligible for importation. Conformity packages submitted for vehicles imported under the decision must demonstrate that the vehicle is equipped with components that allow it to achieve compliance with the standard. Any modification or replacement of components necessary to meet the requirements of the standard must be shown to bring the vehicle into compliance. Such proof must be submitted by an RI as part of any conformity package submitted for nonconforming 2002 through 2004 Smart Car Fortwo Coupe and Cabriolet passenger cars.

(16)FMVSS No. 301 Fuel System Integrity *Alterations identified in JK petition:* Modification of the vehicles' fuel system to meet this standard. JK stated that fuel spillage problems are controlled by the evaporative and ORVR systems, which have a rollover and check valve incorporated into their design and have been proven in testing. *Alterations identified in G&K petition:* Modification of the vehicles' fuel system through the installation of components available only from G&K. The petition did not describe these modifications, for which G&K claimed confidentiality. NHTSA's Analysis The modifications identified as needed to conform the vehicles to the standard would not prelude the vehicle from being deemed eligible for importation. Conformity packages submitted for vehicles imported under the decision must demonstrate that the vehicle is equipped with components that allow it to achieve compliance with the standard. Any modification or replacement of components necessary to meet the requirements of the standard must be shown to bring the vehicle into compliance. Such proof must be submitted by an RI as part of any conformity package submitted for nonconforming 2002 through 2004 Smart Car Fortwo Coupe and Cabriolet passenger cars.

(17)FMVSS No. 302 Flammability of Interior Materials *JK petition:* The vehicles conform to the standard as originally manufactured. *Alterations identified in G&K petition:* Interior materials and components covered by the standard must be treated with a product available only from G&K. G&K claimed confidentiality with respect to these modifications. NHTSA's Analysis The modifications that G&K identified as needed to conform the vehicles to the standard would not prelude the vehicles from being deemed eligible for importation. Conformity packages submitted for vehicles imported under the decision must demonstrate that the vehicle is equipped with components that allow it to achieve compliance with the standard. Any modification or replacement of components necessary to meet the requirements of the standard must be shown to bring the vehicle into compliance. Such proof must be submitted by an RI as part of any conformity package submitted for nonconforming 2002 through 2004 Smart Car Fortwo Coupe and Cabriolet passenger cars.

(10)49 CFR Part 581 Bumper Standard *Alterations identified in JK petition:* Modification of the bumper system to comply with the Bumper Standard found in 49 CFR part 581. The petition did not describe the modifications. *Alterations identified in G&K petition:* Modification of the bumper system through installation of components available only from G&K. The petition did not describe the modifications. NHTSA's Analysis The modifications that G&K identified as needed to conform the vehicles to the standard would not prelude the vehicles from being deemed eligible for importation. The agency notes that Bumper Standard compliance issues are not directly relevant to an import eligibility decision, as such a decision is to be based on the capability of a non-U.S. certified vehicle to be altered to conform to the FMVSS, and the Bumper Standard is not an FMVSS. However, because a vehicle that is not originally manufactured to comply with the Bumper Standard must be modified to comply with the standard before it can be admitted permanently into the United States, conformance with the Bumper Standard must be shown in the conformity package submitted to NHTSA to allow release of the DOT conformance bond furnished at the time of vehicle importation. Conclusion In view of the above considerations, NHTSA decided to grant the petitions. Vehicle Eligibility Number for Subject Vehicles The importer of a vehicle admissible under any final decision must indicate on the form HS-7 accompanying entry the appropriate vehicle eligibility number indicating that the vehicle is eligible for entry. VCP-27 is the vehicle eligibility number assigned to nonconforming 2002 through 2004 Smart Car Fortwo Coupe and Cabriolet (including trim levels Passion, Pulse and Pure) passenger cars admissible under this notice of final decision. Final Decision Accordingly, on the basis of the foregoing, NHTSA decided that 2002 through 2004 Smart Car Fortwo Coupe and Cabriolet (including trim levels Passion, Pulse and Pure) passenger cars that were not originally manufactured to comply with all applicable Federal motor vehicle safety standards are eligible for importation into the United States because they have safety features that comply with, or are capable of being altered to comply with, all applicable Federal motor vehicle safety standards. Authority: 49 U.S.C. 30141(a)(1)(A) and (b)(1); 49 CFR 593.8; delegations of authority at 49 CFR 1.50 and 501.8. Claude H. Harris, Director, Office of Vehicle Safety Compliance. [FR Doc. E6-11634 Filed 7-20-06; 8:45 am] BILLING CODE 4910-59-P DEPARTMENT OF TRANSPORTATION Surface Transportation Board Notice and Request for Comments ACTION: Notice and request for comments. SUMMARY: The Surface Transportation Board (Board), as part of its continuing effort to reduce paperwork burdens, and as required by the Paperwork Reduction Act of 1995, 44 U.S.C. 3501 *et seq.* (PRA), gives notice that the Board will seek from the Office of Management and Budget

(OMB)an extension of approval for the currently approved collection of rail system diagram maps. The Board is seeking comments from rail carriers that have recently filed amended or new system diagram maps (or, in the case of small carriers, the alternative narrative description of rail system) concerning

(1)whether the particular collection of information is necessary for the proper performance of the functions of the Board, including whether the collection has practical utility;

(2)the accuracy of the Board's burden estimates;

(3)ways to enhance the quality, utility, and clarity of the information collected; and

(4)ways to minimize the burden of the collection of information on the respondents, including the use of automated collection techniques or other forms of information technology when appropriate. Submitted comments will be summarized and included in the Board's request for OMB approval. Description of Collection *Title:* System Diagram Maps. *OMB Control Number:* 2140-0003. *Form Number:* None. *Type of Review:* Extension without change. *Respondents:* Common carrier freight railroads that are either new or reporting changes in the status of one or more of their rail lines. *Number of Respondents:* 4. *Estimated Time per Response:* 4.5 hours, based on average time reported in informal survey of respondents conducted in 2003. *Frequency of Response:* 1. *Total Annual Burden Hours:* 18 hours. *Total Annual “Non-Hour Burden” Cost:* None have been identified. *Needs and Uses:* Under 49 CFR 1152.10-1152.13, all railroads subject to the Board's jurisdiction are required to keep current system diagram maps on file, or alternatively in the case of a Class III carrier (a carrier with assets of not more than $20 million in 1991 dollars), to submit the same information in narrative form. The information sought in this collection identifies all lines in a particular railroad's system, categorized to indicate the likelihood that service on a particular line will be abandoned and/or whether service on a line is currently provided under the financial assistance provisions of 49 U.S.C. 10904. Carriers are obligated to amend these maps as the need to change the category of any particular line arises. The Board uses this information to facilitate informed decision making, and this information, which is available to the public from the carrier by request, 49 CFR 1152.12(c)(3), may serve as notice to the shipping public of the carrier's intent to abandon or retain a line. DATES: Persons wishing to comment on this information collection should submit comments by September 19, 2006. ADDRESSES: Direct all comments to Marilyn Levitt, Surface Transportation Board, Room 614, 1925 K Street, NW., Washington, DC 20423 or *levittm@stb.dot.gov* or by fax at

(202)565-9001. When submitting comments, refer to the OMB number and title of the information collection. FOR FURTHER INFORMATION CONTACT: Barbara G. Saddler,

(202)565-1656. Requests for a copy of the regulations pertaining to this information collection may be obtained by contacting Barbara G. Saddler at

(202)565-1656 or *saddlerb@stb.dot.gov* . SUPPLEMENTARY INFORMATION: Under the PRA, a Federal agency conducting or sponsoring a collection of information must display a currently valid OMB control number. Collection of information, which is defined in 44 U.S.C. 3502(3) and 5 CFR 1320.3(c), includes agency requirements that persons submit reports, keep records, or provide information to the agency, third parties, or the public. Under section 3506(c)(2)(A) of the PRA, Federal agencies are required to provide a 60-day notice and comment period through publication in the **Federal Register** concerning each proposed collection of information, including each proposed extension of an existing collection of information, before submitting the collection to OMB for approval. Dated: July 21, 2006. Vernon A. Williams, Secretary. [FR Doc. E6-11592 Filed 7-20-06; 8:45 am] BILLING CODE 4915-01-P 71 140 Friday, July 21, 2006 Proposed Rules Part II Department of the Interior Minerals Management Service 30 CFR Parts 202, 206, 210, 217, and 218 Bureau of Land Management 43 CFR Parts 3200 and 3280 Royalty Management—Geothermal Resources; and Minerals Management—Oil and Gas Leasing; Proposed Rules DEPARTMENT OF THE INTERIOR Minerals Management Service 30 CFR Parts 202, 206, 210, 217, and 218 RIN 1010-AD32 Geothermal Valuation AGENCY: Minerals Management Service (MMS), Interior. ACTION: Proposed rule. SUMMARY: The MMS is proposing new regulations implementing the provisions of the Energy Policy Act of 2005 (EPAct) governing the payment of royalty on geothermal resources produced from Federal leases and the payment of direct use fees in lieu of royalties. The EPAct provisions amend the Geothermal Steam Act of 1970 (GSA). The new regulations would amend the current MMS geothermal royalty valuation regulations and simplify the royalty calculations for geothermal resources for leases issued under the EPAct and leases whose terms are modified under the EPAct. The new regulations would also amend various related provisions in the MMS rules. DATES: Comments must be submitted on or before September 19, 2006. ADDRESSES: You may submit comments on the rulemaking by any of the following methods listed below. Please use the Regulation Identifier Number

(RIN)1010-AD32 in your message. See also Public Comment Procedure under Procedural Matters: • Federal eRulemaking Portal: *http://www.regulations.gov.* Follow the instructions on the Web site for submitting comments. • E-mail: *mrm.comments@mms.gov.* Please include “Attn: RIN 1010-AD32” and your name and return address in your Internet message. If you do not receive a confirmation that we have received your Internet message, call the contact person listed below. • Regular U.S. Mail: Minerals Management Service, Minerals Revenue Management, Chief of Staff Office—Denver, P.O. Box 25165, MS 302B2, Denver, Colorado 80225-0165. • Overnight mail, courier, or hand-delivery: Minerals Management Service, Minerals Revenue Management, Building 85, Room A-614, West 6th Ave. and Kipling Blvd., Denver Federal Center, Denver, Colorado 80225. *Information Collection Request

(ICR)Comments:* Submit written comments by either fax

(202)395-6566 or e-mail ( *OIRA_Docket@omb.eop.gov* ) directly to the Office of Information and Regulatory Affairs, Office of Management and Budget (OMB), Attention: Desk Officer for the Department of the Interior [OMB Control Number ICR 1010-NEW) as it relates to the proposed geothermal valuation rule]. Please also send a copy of your comments to MMS via e-mail at *mrm.comments@mms.gov.* Include the title of the information collection and the OMB control number in the “Attention” line of your comment. Also include your name and return address. If you do not receive a confirmation that we have received your e-mail, contact Sharron Gebhardt at

(303)231-3211. You may also mail a copy of your comments to Sharron Gebhardt, Lead Regulatory Specialist, Minerals Management Service, Minerals Revenue Management, P.O. Box 25165, MS 302B2, Denver, Colorado 80225. If you use an overnight courier service or wish to hand-deliver your comments, our courier address is Building 85, Room A-614, Denver Federal Center, West 6th Ave. and Kipling Blvd., Denver, Colorado 80225. FOR FURTHER INFORMATION CONTACT: Sharron Gebhardt, Lead Regulatory Specialist, Minerals Revenue Management (MRM), MMS, telephone

(303)231-3211, fax

(303)231-3781, or e-mail *sharron.gebhardt@mms.gov.* The principal authors of this rule are Sarah L. Inderbitzin of the Office of the Solicitor and Herb Black of MRM, MMS, Department of the Interior. SUPPLEMENTARY INFORMATION: I. Background A. Pre-EPAct Statutory Provisions and Current Regulations Under the GSA (30 U.S.C. 1001 *et seq.* ) before its amendment by the EPAct (Pub. L. No. 109-58, 119 Stat. 594), geothermal leases were issued with a reserved royalty of not less than 10 percent and not more than 15 percent “of the amount or *value of steam,* or any other form of heat or energy derived from production under the lease and sold or utilized by the lessee * * *.” 30 U.S.C. 1004(a) (emphasis added). The leases further provide for a royalty of not less than 5 percent “of the value of any byproduct derived from production under the lease * * *.” 30 U.S.C. 1004(b). The GSA further grants the Secretary broad rulemaking authority. 30 U.S.C. 1023. The lease instruments also reserved to the Secretary the authority to establish the value of geothermal production or byproducts for royalty purposes. Under these provisions, the current rules for valuing geothermal resources for royalty purposes at 30 CFR 206.350-206.358 were promulgated in 1991. Currently, there are 50 producing Federal geothermal leases in Utah, New Mexico, California, and Nevada. These leases comprise 15 electrical generation projects and 2 direct use projects (an onion drying plant and a project that uses geothermal heat to preheat boiler water). Royalty revenues from Federal geothermal leases totaled approximately $11,000,000 in 2004. Fifty percent of those revenues go to the states in which the leases are located (30 U.S.C. 191(a)). The current royalty valuation methods for geothermal resources are grouped first by usage, *i.e.* , electrical generation, direct use, and byproducts. Within each usage category, valuation methods are grouped by the method of disposition of the resources, *i.e.* , arm's-length (unaffiliated) sales, non-arm's-length sales, and no sales. In an earlier effort to streamline the MMS geothermal regulations, on October 28, 2004, MMS's Royalty Policy Committee

(RPC)formed the Geothermal Valuation Subcommittee (Subcommittee) to address the MMS geothermal royalty valuation regulations in an effort to simplify the regulations and reduce administrative costs to the geothermal industry. The Subcommittee was comprised of members from one industry association, several geothermal producers, two of the major states affected, and MMS employees. A representative of the Bureau of Land Management

(BLM)served as technical advisor to the Subcommittee. The RPC requested that the Subcommittee work together to develop more efficient royalty valuation methods that will ensure a fair return to the Federal Government as well as encourage geothermal development. The Subcommittee prepared a report and submitted it to the RPC, and on May 26, 2005, the RPC accepted the Subcommittee's recommendations. B. The EPAct On August 8, 2005, the President signed into law the EPAct, Pub. L. 109-58, 119 Stat. 595. Sections 221 through 237 of the EPAct, entitled the “John Rishel Geothermal Steam Act Amendments,” amended the GSA, 30 U.S.C. 1001 *et seq.* (1970). Congress enacted the EPAct geothermal amendments to encourage geothermal production through regulatory streamlining and incentives. S. Rep. No. 78, 109th Cong., 1st Sess. (2005). This proposed rule would implement the EPAct provisions. It also would incorporate most of the Subcommittee's concepts, with modifications necessary to comply with the EPAct. This proposed rule: • For 30 CFR part 206, subpart H:

(1)Explains the general royalty calculation and payment, direct use fee, and royalty valuation provisions of this subpart;

(2)defines which leases the subpart applies to;

(3)provides definitions of terms used in the subpart;

(4)proposes some changes to conform to plain English writing; and

(5)proposes changes necessary to implement provisions of the EPAct. • For 30 CFR parts 202, 210, 217, and 218:

(1)Proposes changes necessary to implement provisions of the EPAct; and

(2)reflect the proposed amendments to 30 CFR part 206, subpart H. II. Explanation of Proposed Amendments Before reading the additional explanatory information below, please turn to the proposed rule language that we would codify in the Code of Federal Regulations

(CFR)if this rule is finalized as written. The rule language immediately follows the “List of Subjects in 30 CFR parts 202, 206, 210, 217, and 218.” When you have read the rule thoroughly, please return to the preamble discussion below. The preamble contains additional information about the proposed rule, such as why we defined a term in a certain manner, why we chose a certain procedure, and how we interpret the law this rule implements. A. Section-by-Section Analysis of 30 CFR Part 202—Royalties, Subpart H—Geothermal Resources The MMS proposes to amend 30 CFR 202.351 and 202.353 in several respects. First, we rewrote those sections in plain English, added the term “fees” where applicable to reflect the fees in lieu of royalties that proposed 30 CFR 206.356(b) would prescribe. We also have referred to 30 CFR part 206, subpart H, where appropriate. Second, paragraph 202.351(a) currently states that all royalties must be paid “in-value.” In this context, the term “in-value” refers to payment in money, not to royalty valuation. Because the EPAct now allows lessees a credit against royalties owed on geothermal resources for delivery of electricity “in-kind” to states and counties that would receive a portion of royalty revenues, and to avoid confusion in situations where MMS will not be determining royalty value, we would revise the provision in paragraph

(a)to read: “Except for the amount credited against royalties for in-kind deliveries of electricity to a state or county under 30 CFR 218.306, you must pay royalties and direct use fees in money.” Finally, we would add a new subparagraph 202.353(b)(3) which states that lessees may report the quantity of direct use resources in “Millions of pounds to the nearest million pounds of geothermal fluid produced if valuation is in terms of mass.” Like the other quantity reporting requirements in this section, “to the nearest whole” means that if you produce 1,500,000.00 pounds of the geothermal resource, you would report the quantity as 2 million (2,000,000.00) pounds. Likewise, if you produce 1,499,000.00 pounds, you would report 1 million (1,000,000.00) pounds. B. Section-by-Section Analysis of 30 CFR Part 206—Product Valuation, Subpart H—Geothermal Resources What is the purpose of this subpart? (Proposed § 206.350) Paragraph

(a)of this section would explain what leases are subject to this subpart. This subpart would be applicable to all geothermal resources produced from Federal geothermal leases issued under the GSA, as amended by the EPAct. It also would explain that the purpose of this subpart is to prescribe how to calculate royalties and fees on geothermal production. Paragraph

(b)would explain that MMS may audit and adjust all royalty and fee payments. Paragraph

(c)would ensure that if the regulations in this subpart are inconsistent with a statute, settlement agreement, written agreement, or lease provision, then that provision, not the regulation, will govern to the extent of the inconsistency. This is particularly important in this proposed rulemaking to ensure that the provisions of the negotiated valuation agreements MMS and lessees entered into prior to this rulemaking remain unaffected by this rulemaking. What definitions apply to this subpart? (Proposed § 206.351) This section would explain the definitions applicable to this subpart. For purposes of discussion, this preamble will discuss only new or modified definitions, except modifications to existing language to use plain English that do not make substantive changes. The MMS proposes to add a definition of the term *affiliate* and revise the definition of the term *arm's-length contract* to be identical to the June 2000 Federal crude oil valuation rule published March 15, 2000 (65 FR 14022), and the March 2005 Federal gas valuation rule published March 10, 2005 (70 FR 11869) (collectively “Federal oil and gas valuation rules”), and to conform the geothermal valuation rule with the D.C. Circuit's holding in *National Mining Association* v. *Department of the Interior,* 177 F.3d 1 (D.C. Cir. 1999). As in the Federal oil and gas valuation rules, MMS is proposing to define the term *affiliate* separately from the term *arm's length-contract* . We believe this clarifies and simplifies the definitions and should promote better understanding of both *arm's-length contract* and *affiliate* . For a full explanation of the reasons for this proposed change to the definitions, see the discussion in the preamble to the June 2000 final crude oil valuation rule at 65 FR 14039-14040. The MMS also proposes to add definitions of *allowance* and *byproduct transportation allowance* to this subpart. In the EPAct, Congress added a provision regarding the royalty rate applicable to those byproducts that are minerals specified in the Mineral Leasing Act of 1920, 30 U.S.C. 181. The EPAct provision was silent regarding other byproducts, which therefore are not affected. The proposed definition of *byproducts* includes both those that are minerals identified in 30 U.S.C. 181 and those that are not. The proposed rule also would define three classes of leases, because the royalty calculation method a lessee must use depends on the type of lease. A *Class I lease* would mean

(1)a lease BLM issued under the GSA before August 8, 2005, which the lessee does not elect to convert to a Class II lease (defined below) under BLM's proposed rule at 43 CFR 3212.25, or

(2)a lease BLM issued in response to a lease application that was pending on August 8, 2005, which the lessee does not elect to convert to a Class II lease under BLM's proposed regulations at 43 CFR 3200.8. A *Class II lease* would mean a geothermal lease BLM issued on or after the effective date of the final BLM regulation under 43 CFR parts 3203, 3204, or 3205, except for a lease issued in response to an application that was pending on August 8, 2005, which the lessee elects not to convert to a Class II lease under 43 CFR 3200.8. A *Class III lease* would mean a Class I lease that the lessee converts to a Class II lease under 43 CFR 3212.25. In the EPAct, Congress enacted the new definition of direct use discussed below. Part of that definition included the term *commercial production of electricity,* but did not define that term. Other sections of the EPAct (see the new 30 U.S.C. 1004(b), added by EPAct § 223(a), and new 30 U.S.C. 1003(f), added by EPAct § 223(b)) use the term *commercial generation of electricity* . The two terms appear from the statutory context to have the same meaning. Therefore, *commercial production or generation of electricity* would mean generation of electricity that is sold or is subject to sale, including the electricity that is required to convert geothermal energy into electrical energy for sale. As a technical amendment, § 236(g) of the EPAct defined *direct use* to mean the use of geothermal resources from Class I, II, or III leases “for commercial, residential, agricultural, public facilities, or other energy needs, other than the commercial production of electricity.” Thus, we are proposing to use that definition, but substituting the word “generation” for “production” for consistency and accuracy. We propose to change *direct utilization facility* in the current rule to *direct use facility* to conform to the new definition of *direct use.* The definition of *lease* would remain the same as in the existing rule. *Lessee (you)* would mean any person to whom the United States issues a geothermal lease, and any person who has been assigned an obligation to make royalty, fee, or other payments required by the lease. This would include any person who has an interest in a geothermal lease as well as an operator or payor who has no interest in the lease but who has assumed the royalty, fee, or other payment responsibility. The term *lessee* also would include any affiliate of the lessee that uses the geothermal resource to generate electricity, in a direct use process, or to recover byproducts, or any affiliate that sells or transports lease production. We added the lessee's affiliate to the definition to eliminate the need to have separate regulations for non-arm's-length sales or use of geothermal resources without sale. We changed the definition of *marketable condition* to more closely conform to the definition contained in other subparts of part 206. Thus, *marketable condition* would mean lease products that are sufficiently free from impurities and otherwise in a condition that they will be accepted by a purchaser under a sales contract typical for the disposition of such lease products produced from the field or area. *Plant parasitic electricity* would be defined to mean the amount of electricity used to run a power plant. This term has always been in the definition of *plant tailgate electricity* . Therefore, for clarity, we propose to define it in this rulemaking. *Public purpose* would mean a program carried out by a state, tribal, or local government for the purpose of providing facilities or services for the benefit of the public in connection with, but not limited to, public health, safety, or welfare, other than the commercial generation of electricity. Use of lands or facilities for habitation, cultivation, trade, or manufacturing is permissible only when necessary for and integral to (i.e., an essential part of) the public purpose. This is the same definition the Department has already promulgated under 43 CFR 2740.0-5. As discussed further in our comments to new § 206.366 below, in the EPAct § 223(a), Congress authorized the Secretary to charge nominal fees for a state, tribal, or local government lessee's use of geothermal resources without sale for “public purposes.” We added this definition because Congress did not define *public purpose.* The Department did not define *public safety or welfare* in 43 CFR part 2740. Therefore, we propose to use the definition already used by the Federal Government in its Federal Property Management Regulations found at 41 CFR part 102-37, Appendix C. Those regulations state that *public safety* or *welfare* means a program carried out or promoted by a public agency for public purposes involving, directly or indirectly, protection, safety, and law enforcement activities, and the criminal justice system of a given political area. Public safety programs may include, but are not limited to, those carried out by:

(1)Public police departments;

(2)Sheriffs' offices;

(3)The courts;

(4)Penal and correctional institutions (including juvenile facilities);

(5)State and local civil defense organizations; and

(6)Fire departments and rescue squads (including volunteer fire departments and rescue squads supported in whole or in part with public funds). How do I calculate the royalty due on geothermal resources used for commercial generation of electricity? (Proposed § 206.352) This section would explain how you must calculate the royalty due on geothermal resources used to generate electricity. Paragraph

(a)would apply to Class I, II, and III leases where the lessee sold the geothermal resources at arm's length and the purchaser uses the resource to generate electricity. (The MMS presently knows of no such current situations, but we anticipate the possibility that some lessees may enter into such arrangements in the future.) The RPC recommended that in such instances, the lessee should pay a royalty based on a royalty rate in the lease multiplied by the gross proceeds the lessee derives from the sale of geothermal resources. The RPC recommended no change in royalty valuation under the current rules or in royalty rates for new or existing leases. The EPAct is silent regarding the situation where the lessee sells the *resource* to an unaffiliated purchaser that produces electricity, rather than producing the electricity itself. Therefore, we are proposing to accept the RPC recommendations to base royalties for existing (Class I), new (Class II), and converted or pending application (Class III) leases, on the gross proceeds from the sale of the geothermal resource to the arm's-length purchaser. For non-arm's length-sales of geothermal resources used for electrical generation, the RPC recommended that MMS negotiate with each lessee to determine the value of the geothermal resources sold under non-arm's-length or no sales situations. Although lessees may still request such a methodology under § 206.364 of this subpart, we believe it is much simpler, and more consistent with the EPAct and the Federal oil and gas valuation rules, to base royalties on the gross proceeds from the affiliate's sale of the geothermal resource. As explained above, the gross proceeds accruing to the lessee would include the lessee's affiliate's arm's-length sale of the geothermal resource. This eliminates the necessity of examining “comparable arm's-length contracts” when the lessee transfers to its affiliate, and the affiliate then sells the resource at arm's length. It also eliminates the need for a geothermal netback procedure wherein the lessee would have the burden of determining the value of the geothermal resource based on the sales of electricity by an unrelated purchaser. Paragraph

(b)would explain how to value a geothermal resource for each class of lease in “no sales” situations, i.e, where you or your affiliate use the geothermal resource in your own power plant for the generation and sale of electricity. The RPC did not address this situation, so we kept the current rule language for Class I leases, with some modifications discussed below, and followed the EPAct for Class II and III leases. Thus, under subparagraph (b)(1), for Class I leases, the royalty on geothermal resources produced would be determined in accordance with the first applicable of the following paragraphs:

(1)The gross proceeds accruing from the arm's-length sale of the electricity less applicable deductions determined under §§ 206.353 and 206.354 times the royalty rate in the lease. This is essentially the old geothermal netback procedure. However, it is less burdensome because a lessee who generates and sells electricity will have all of the necessary information. Furthermore, as explained above, because an affiliate's arm's-length sale of electricity is the lessee's gross proceeds, there is no need to distinguish between arm's-length and non-arm's-length sales. Finally, this subparagraph also would explain that under no circumstances shall the deductions reduce the royalty value of the geothermal resource to zero; or

(2)A royalty determined by any other valuation method approved by MMS under § 206.364. Subparagraph

(2)would apply to Class II leases. In EPAct § 224(a)(1), Congress prescribed a royalty on electricity produced using geothermal resources, other than direct use of geothermal resources of:

(1)Not less than 1 percent and not more than 2.5 percent of the gross proceeds from the sale of electricity produced from such geothermal resources during the first 10 years of production under the lease; and

(2)Not less than 2 and not more than 5 percent of the gross proceeds from the sale of electricity produced from such geothermal resources during each year after such 10-year period. Congress also specified that any regulation implementing EPAct § 224(a)(1) should seek:

(1)To provide lessees a simplified administrative system;

(2)to encourage new development; and

(3)to achieve the same level of royalty revenues over a 10-year period as the regulation in effect on the date of enactment of this subsection. Therefore, for Class II leases, MMS is proposing a simple methodology where the royalty on geothermal resources produced would be your gross proceeds from the sale of electricity for the production month multiplied by the royalty rate BLM prescribed for your lease under proposed 43 CFR 3211.17, its regulation implementing § 224(a)(1) of the EPAct. Because the royalty rate BLM prescribes will take into account achieving the same level of royalty revenues over a 10-year period as the regulation in effect on the date of enactment of the EPAct, it will have taken into account any possible deductions that would have been available under the current regulations and should achieve the same level of royalty revenues over the next 10 years as the current regulations. Accordingly, this paragraph of the proposed regulation would not allow any deductions. In addition, because this proposal greatly simplifies the valuation methodology, it should encourage new development. Subparagraph

(3)would apply to Class III leases. For Class III leases, in EPAct § 224(e)(1)(b), Congress prescribed that royalties be computed on a percentage of the gross proceeds from the sale of electricity, at a royalty rate that is expected to yield total royalty payments equivalent to payments that would have been received for comparable production under the royalty rate in effect for the lease before the date of enactment of this subsection. Thus, we are proposing to require you to calculate the royalty on geothermal resources produced as your gross proceeds from the sale of electricity for the production month multiplied by the royalty rate BLM calculated for your lease under proposed 43 CFR 3211.17. The royalty rate BLM calculates will be expected to yield total royalty payments equivalent to payments that would have been received for comparable production under the royalty rate in effect for the lease before the date of enactment of the EPAct. Accordingly, that royalty rate will take into account any deductions you were taking prior to the EPAct's enactment. As a result, you would not be allowed to reduce your gross proceeds by any deductions under this subparagraph. How do I determine transmission deductions? (Proposed § 206.353) This section would explain how to determine your transmission deductions. We have streamlined and rewritten the current rule in plain English. The MMS also proposes to amend § 206.353 in two other respects. First, just as we did in the Federal oil and gas valuation rules, we propose to eliminate the requirement that the lessee report its transmission deduction using a separate line entry on the Form MMS-2014. That requirement is no longer relevant because the Form MMS-2014 has been revised. While you still would report the transmission deduction in a discrete field, it would not be strictly on a separate line from associated sales transaction data. The proposal would revise the regulation accordingly. Second, we also would delete the final paragraph

(f)of § 206.353. That paragraph provided for a one-time refund of royalties based on the royalty value of actual dismantlement costs of a transmission line in excess of income value from salvage at the completion of dismantlement and salvage operations. This provision has never been used and is complicated administratively. Therefore, we propose to delete it. This would result in renumbering the section with the corresponding new paragraph (f). How do I determine generating deductions? (Proposed § 206.354) This section would explain that if you determine the value of your geothermal resource under § 206.352(b)(1)(i) of this subpart, you may deduct your reasonable actual costs incurred to generate electricity from the plant tailgate value of the electricity (usually the transmission-reduced value of the delivered electricity). We propose to rewrite the current rule in plain English form. We also would delete the final paragraph

(f)of § 206.354(f). That paragraph provided for a one-time refund of royalties based on the royalty value of actual dismantlement costs of a power plant in excess of income value from salvage at the completion of dismantlement and salvage operations. This provision has never been used and is complicated administratively. Therefore, we propose to delete it. How do I calculate royalty due on geothermal resources I sell arm's length to a purchaser for direct use? (Proposed § 206.355) This section would explain how to calculate royalty on geothermal resources if you sell geothermal resources produced from Class I, II, or III leases at arm's length to a purchaser for direct use. The EPAct did not address such transactions. Therefore, we are proposing that in such instances, the royalty on the geothermal resource would be the gross proceeds accruing to you from the sale of the geothermal resource to the arm's-length purchaser times the royalty rate in your lease or that BLM prescribes under proposed 43 CFR 3211.18. We believe this valuation methodology would best meet Congress' goals that any regulation implementing EPAct § 224(a)(1) should:

(1)provide lessees a simplified administrative system;

(2)encourage new development; and

(3)achieve the same level of royalty revenues over a 10-year period as the regulation in effect on the date of enactment of this subsection. How do I calculate royalty due on geothermal resources I use for direct use purposes? (Proposed § 206.356). This section would explain how a lessee must calculate royalty on a geothermal resource it uses itself for direct use purposes, i.e., that it does not sell. The Subcommittee recommended that for existing leases, MMS, in consultation with BLM, should develop and publish a royalty schedule every 3 years for lessees to use to determine the royalties due on direct use operations. The Subcommittee also recommended that the royalty schedule be based on the wellhead (inlet) temperature and an “assumed” fixed outlet temperature of 130 °F. In addition, the Subcommittee recommended that the lessee would meter wellhead (inlet) temperature and monthly production and use the published royalty schedule to determine monthly royalties due. The Subcommittee used the following equation to develop a royalty schedule for determining royalty due as a function of temperature of the geothermal resource used for direct use: where: EP21JY06.000 R Tin = royalty due as a function of inlet temperature, $/10 6 gallons ρ = water density at inlet temperature, lbms/gallon T in = measured inlet temperature, °F T out = established proxy outlet temperature 130 °F e = boiler efficiency factor for coal (75 percent) P prbc = 3-year historical average of Powder River Basin coal ($/MMBtu) F rr = lease royalty rate. However, in the EPAct, Congress did not change the royalty provisions for existing leases. Therefore, for Class I leases, we are proposing to keep the existing regulations with minor plain English modifications. In § 223(a) of the EPAct, for Class II leases, and § 224(e), for Class III leases, Congress did direct the Secretary to: Establish a schedule of fees, in lieu of royalties for geothermal resources, that a lessee or its affiliate—

(A)Uses for a purpose other than the commercial generation of electricity; and

(B)Does not sell. Congress also stated that the schedule of fees:

(A)May be based on the quantity or thermal content, or both, of geothermal resources used;

(B)Shall ensure a fair return to the United States for use of the resource; and

(C)Shall encourage development of the resource. Thus, in paragraph (b), for Class II and Class III leases, we are proposing that lessees calculate the fee for geothermal resources they use for direct use by multiplying the appropriate fee from the following schedule in subparagraph (b)(1) of this section by the number of gallons or pounds they produce from the direct use lease each month. Direct Use Fee Schedule [Hot water] If your average monthly inlet temperature (°F) is At least . . . But less than . . . Your fees are . . . ($/million gallons) ($/million pounds) 130 140 2.524 0.307 140 150 7.549 0.921 150 160 12.543 1.536 160 170 17.503 2.150 170 180 22.426 2.764 180 190 27.310 3.379 190 200 32.153 3.993 200 210 36.955 4.607 210 220 41.710 5.221 220 230 46.417 5.836 230 240 51.075 6.450 240 250 55.682 7.064 250 260 60.236 7.679 260 270 64.736 8.293 270 280 69.176 8.907 280 290 73.558 9.521 290 300 77.876 10.136 300 310 82.133 10.750 310 320 86.328 11.364 320 330 90.445 11.979 330 340 94.501 12.593 340 350 98.481 13.207 350 360 102.387 13.821 Under subparagraph (b)(1)(i), for direct use lease geothermal resources with an average monthly inlet temperature of 130 °F or less, you would have to pay only the lease rental. This proposed fee schedule uses the methodology the Subcommittee recommended to develop the schedule of fees, but updated the schedule to reflect current Powder River Basin coal prices. The MMS, in consultation with BLM, also made two modifications to the formula the Subcommittee recommended. First, we expressed royalty due in dollars ($) per million (10 6 ) *gallons* and dollars ($) per million (10 6 ) *pounds* to correspond with BLM geothermal resource measurement requirements in 43 CFR part 3275. We also changed the boiler efficiency factor from 75 percent to 70 percent to correspond to MMS regulations at 30 CFR 206.355(c)(1)(ii). In addition, rather than updating the schedule every 3 years, MMS is retaining the flexibility to, in consultation with BLM, develop and publish a revised fee schedule in the **Federal Register** as needed. In addition, as the Subcommittee report stated, BLM did a further study of actual outlet temperatures at direct use facilities and found that 130 °F was more representative than the initial RPC estimate of 120 °F. Therefore, we are changing the assumed outlet temperature in the fee schedule to 130 °F. We believe this proposal meets Congress' directives because it is based on the quantity and thermal content of the geothermal resource. In addition, we believe it will encourage development of geothermal resources because of the simplified valuation methodology and resultant administrative savings. We also believe that it will ensure a “fair return” to the United States for the use of the resource. “A fair return is one which, under prudent and economical management, is just and reasonable to both the public and the utility.” *Mississippi Power & Light Co.* v. *Mississippi Ex Rel. Moore* , 487 U.S. 354, 366

(1988)(quoting *Southern Bell Tel. & Tel. Co.* v. *Mississippi Public Service Comm'n* , 237 Miss. 157, 241, 113 So. 2d 622, 656 (1959); *Mississippi Public Service Comm'n* v. *Mississippi Power Co.* , 429 So. 2d 883 (Miss. 1983). In this instance, to determine fair value, the BLM representative of the Subcommittee performed an analysis to determine the feasibility of using binary electrical generation values as a basis for valuing direct use of Federal geothermal resources. The Subcommittee was attempting to find a fair royalty value for direct use facilities. Direct use facilities use lower temperature geothermal resources than most geothermal power plants. However, binary power plants use the lowest temperature geothermal resources of any geothermal power plants. Therefore, binary power plants value was selected to be the most comparable to direct use facilities' geothermal value. The results of the Subcommittee's analysis concluded that the bottom of the binary value range was the lowest value when compared to various direct use valuation methods. In addition, the study showed that the binary valuation (approximately $0.28/MMBtu—$0.77/MMBtu) was comparable to alternative fuel valuation using Powder River Basin coal spot prices published by Energy Information Administration of the Department of Energy (approximately $0.30/MMBtu). The Subcommittee then compared the value of Powder River coal spot prices to wood chips and natural gas prices for sample months from years 1997 through 2002. After further deliberations, the Subcommittee recommended that MMS use the 3-year historical average of published Powder River Basin coal spot prices to develop the fee schedule for direct use basically because of its continuity of value and public availability. We welcome comments on the methodology used to develop the fee schedule and the use of published Powder River Basin coal spot prices to derive a “fair return” for the resource. Paragraph (b)(3) would implement § 223(c) of the EPAct to allow retroactive application of the fee schedule to any existing (Class I) lease that converts to an EPAct (Class III) lease. This paragraph would explain that the schedule of fees established under paragraph (b)(1) will apply to any Class III lease with respect to any royalty payments previously paid, when the lease was a Class I lease, that were due and owing, and were paid, on or after July 16, 2003. If you use this provision and owe additional monies based on the fee schedule, you would have to pay the difference plus interest on that difference computed under 30 CFR 218.302. If you use this provision and overpaid royalties based on the fee schedule, you would be entitled to a refund or credit from MMS of 50 percent of the overpaid royalties. You would be restricted to a refund of 50 percent of the royalties because, under § 223(c) of the EPAct, MMS may not refund royalties paid to a state under 30 U.S.C. 1019 before the date of enactment of the EPAct. However, § 223(c) did not exempt states from refunds of late payment interest previously paid on overpaid royalties under 30 U.S.C. 191a. Therefore, you would be entitled to a refund or credit of any late payment interest that you previously paid on overpaid royalties. How do I calculate royalty due on byproducts? (Proposed § 206.357) Neither the Subcommittee nor the EPAct addressed valuation of byproducts. Therefore, MMS is retaining the current valuation methodology and applying it to byproducts produced from Class I, II, or III leases. The MMS made some modifications for plain English purposes. Also, in paragraph (a), like the gross proceeds provisions discussed above, the gross proceeds accruing to affiliate would be the gross proceeds accruing to the lessee where the affiliate makes the first arm's-length sale of the byproducts, less any applicable byproduct transportation allowances determined under §§ 206.358 and 206.359 of this subpart. The MMS is proposing to renumber the current byproduct transportation allowance regulations at 30 CFR 206.357 and 206.358 to new §§ 206.358 and 206.359. What records must I keep to support my calculations of royalty or fees under this subpart? (Proposed § 206.360) How will MMS determine whether my royalty value, gross proceeds, or fees are correct? (Proposed § 206.361) What are my responsibilities to place production into marketable condition and to market production? (Proposed § 206.362) When is an MMS audit, review, reconciliation, monitoring, or other like process considered final? (Proposed § 206.363) Does MMS protect information I provide? (Proposed § 206.365) The MMS is proposing amendments to the text of its recordkeeping, gross proceeds, marketable condition and marketing, audit, and confidentiality requirements and procedures to apply principles in the context of geothermal royalties and fees that are consistent with the Federal oil and gas royalty regulations. In addition, like those rules, rather than repeat the requirements or procedures in each applicable section of this rule, MMS is proposing to have these sections apply to this entire subpart. However, the substantive requirements remain unchanged. How do I request a value or gross proceeds determination? (Proposed § 206.364) To be consistent with the Federal oil and gas valuation rules, MMS is proposing to provide a procedure for valuation or gross proceeds determinations regarding geothermal resources produced from Class I leases and for byproducts produced from Class I, II, or III leases that is more than simply nonbinding guidance. The proposed rule would provide that you may request a value or gross proceeds determination from MMS. (Your request would have to identify all leases involved, the record title or operating rights owners, and the operators or payors for those leases, and explain all relevant facts.) The MMS could either:

(1)Issue a determination signed by the Assistant Secretary, Land and Minerals Management; or

(2)Issue a determination by MMS; or

(3)Decline to provide a determination. A determination signed by the Assistant Secretary, Land and Minerals Management, would be binding on both you and MMS until the Assistant Secretary modifies or rescinds it. It also would be the final action of the Department and subject to judicial review under the Administrative Procedure Act, 5 U.S.C. 701-706. In contrast, a determination MMS issued would be binding on MMS and delegated states, but not on you, with respect to the specific situation addressed in the determination, unless the MMS or the Assistant Secretary modifies or rescinds it. A determination by MMS would not be an appealable decision or order under 30 CFR part 290, subpart B. However, if you received an order requiring you to pay royalty on the same basis as the determination, you could appeal that order under 30 CFR part 290, subpart B. Further discussion of determinations can be found in the 2000 Federal oil valuation regulation published March 15, 2000 (65 FR 14022). What is the nominal fee that a state, tribal, or local government lessee must pay for the use of geothermal resources? (Proposed § 206.366) Section 223(a) of the EPAct directs the Secretary to charge “nominal fees” if a state, tribal, or local government lessee uses a geothermal resource without sale and for public purposes other than commercial generation of electricity. This section implements that provision and explains that a “nominal fee” means a slight or *de minimis* fee. The MMS is not publishing a schedule of fees for this section so that it has the flexibility to calculate appropriate nominal fees on a case-by-case basis. C. Section-by-Section Analysis of 30 CFR Part 210—Forms and Reports, Subpart H—Geothermal Resources We propose to delete § 210.352 because MMS no longer requires payor information forms. D. Section-by-Section Analysis of 30 CFR Part 217—Audits and Inspections, Subpart H-Geothermal Resources This subpart is currently reserved. Therefore, as part of this rulemaking, to be consistent with requirements for other mineral leases, MMS proposes to add new §§ 217.300 through 217.302. Audit or Review of Records. (Proposed § 217.300) This section would provide that the Secretary, or his/her authorized representative, shall initiate and conduct audits or reviews relating to the scope, nature, and extent of compliance by lessees, operators, revenue payors, and other persons with rental, royalty, fees, and other payment requirements on a Federal geothermal lease. Audits or reviews would also relate to compliance with applicable regulations and orders. All audits or reviews would be conducted in accordance with this notice and other requirements of 30 U.S.C. 1717. Lease Account Reconciliations (Proposed § 217.301) This section would provide that specific lease account reconciliations shall be performed with priority being given to reconciling those lease accounts specifically identified by a state as having significant potential for underpayment. Definitions (Proposed § 217.302) This section would provide that terms used in this subpart shall have the same meaning as in 30 U.S.C. 1702. E. Section-by-Section Analysis of 30 CFR Part 218—Collection of Royalties, Rentals, Bonuses and Other Monies Due the Federal Government and Credits and Incentives Due Lessees, Subpart F—Geothermal Resources In § 230 of the EPAct, Congress authorized lessees to credit annual rentals paid against royalties. To implement EPAct § 230, MMS proposes to add new sections 218.303 through 218.307 to this subpart. May I credit rental towards royalty? (Proposed § 218.303) Proposed section 218.303 would provide that if you pay your annual rental for your lease before the first day of the year for which the annual rental is owed and the annual rental you paid is less than or equal to the royalty you owe that year, then you could credit the annual rental that you paid toward the royalty due for that lease year at any time during that lease year. For example, if you paid $1,000 in rental for the 7th lease year and during that year you owe $50,000 in production royalty, then you could deduct the rental ($1,000) from the monthly royalty due for any month during the 7th lease year, resulting in a net production royalty payment of $49,000 for that year. On the other hand, if the annual rental you paid is more than the royalty you owe that year, then you would not pay royalty during that lease year. For example, if you paid $1,000 in rental for the 7th lease year and during that year you owe $500 in production royalty, then you would not owe any production royalty. However, the rule would also provide that you may not apply any annual rental paid in excess of the royalty due for a particular lease year as a credit against royalties due for production in a future year. May I credit rental towards direct use fees? (Proposed § 218.304) This section would provide that you may not credit annual rental towards direct use fees you are required to pay that year under 30 CFR 206.356(b). Congress did not authorize crediting rentals against fees in the EPAct. Therefore, you would have to pay the direct use fees in addition to the annual rental due. How do I pay advanced royalties I owe under 43 CFR 3212.15(a)? (Proposed § 218.305) In § 232 of the EPAct, Congress mandated that if a lessee ceases production for any reason, the lessee must pay advanced royalties in lieu of production royalties to maintain the lease. Therefore, proposed section 218.305 would explain that if you must pay advanced royalties to retain your lease under BLM regulations at 43 CFR 3212. [MRM1] 15(a), then you would have to pay an advanced royalty monthly equal to the average monthly royalty you paid under 30 CFR part 206, subpart H, for the last 3 years the lease was producing. If your lease has been producing for less than 3 years, then you would use the average monthly royalty payment for the entire period your lease has been producing continuously. You would have to ensure that MMS receives your advanced royalty payment before the first day of each month for which production has ceased. You could credit any advanced royalty you pay against your future production royalties recouped after your lease resumes production. You could not reduce the amount of any production royalty paid for any year below zero. For example, assume that you paid $12,000 in production royalties annually in 2004, 2005, and 2006, and you plan to cease production on January 1, 2007. Your advanced royalty would be $1,000 (($12,000 × 3) / 36) and would be due before January 1, 2007. Also, assume that you paid $12,000 ($1,000 × 12) in advanced royalty from January 1, 2007, through December 31, 2007, and resumed production January 1, 2008. Furthermore, assume that in January 2008, your production royalties due were $1,500. You could recoup $1,500 of the $12,000 as payment for the $1,500 in production royalties due. You also could continue to recoup the $10,500 balance of advanced royalties paid ($12,000 − $1,500) against future production royalties paid. May I receive a credit against production royalties for in-kind deliveries of electricity I provide under contract to a state or county government? (Proposed § 218.306) Section 224(a) of the EPAct authorizes MMS to provide lessees with credits against part of the royalty due for in-kind deliveries of electricity that lessees provide to states or counties under contracts the Secretary approves. Therefore, proposed § 218.306 in paragraph

(a)would explain if you both deliver electricity in kind to a state or county and pay production royalties, then you may receive a credit against production royalties for electricity that you deliver in kind under contract to a state or county government. It also would explain that you may receive a credit only if three conditions are met. First, the state or county to which you provide electricity is a state or county that would receive a portion of your royalties under 30 U.S.C. 191 or 30 U.S.C 1019, except as otherwise provided under the Mineral Leasing Act for Acquired Lands, 30 U.S.C. 355, because your lease is located in that state or county. If your lease is located in more than one state or county, the revenues are paid to the respective states or counties based on each state's or county's proportionate share of the total acres in the lease. For example, assume you have a 1,000 acre lease. Also, assume that half of your lease is in Nevada and half is in California. If you provide electricity to California, you would be entitled to a credit only against the royalty in value due for the 500 acres located in California. Second, MMS would have to approve in advance your contract with the state or county to which you are providing in-kind electricity. Third, your contract would have to provide that you will use the wholesale value of the electricity for the area where your lease is located to establish the specific methodology to determine the amount of the credit. Paragraph

(b)would provide that the maximum credit you may take is equal to the portion of the royalty revenue that MMS would have paid to the state or county that is a party to the contract had you paid royalty in money on all the electricity you delivered to the state or county based on the wholesale value of the electricity. You would have to pay in money any royalty amount that is not offset by the credit allowed under this section, calculated based on the wholesale value of the electricity. For example, assume that you have a geothermal lease in New Mexico and that you delivered 10,000 megawatt-hours of electricity in a month to New Mexico under a contract MMS approved. Furthermore, assume that the wholesale value of megawatt-hours in the area where your lease is located is $30.00 per megawatt-hour that month. If you had paid royalties in money on the basis of that wholesale value, and further assuming that you have a Class I lease with a 10-percent royalty rate, you would have paid $30,000 to MMS. The MMS then would have paid 50 percent of that amount ($15,000) to the State of New Mexico. You would be entitled to a credit of $15,000 against the amount you would otherwise owe to MMS when royalty is calculated on that basis. You would have to pay the remaining $15,000 to MMS in money. Paragraph

(c)would explain that the electricity the state or county government receives from you would satisfy the Secretary's payment obligation to the state or county under 30 U.S.C. 191 or 30 U.S.C. 1019. Thus, using the same example, the 10,000 kilowatt hours you delivered to New Mexico would satisfy the Secretary's payment obligation to that state that month under 30 U.S.C. 191 and 30 U.S.C. 1019, and MMS would not pay any part of the $1,500 that you paid in money to the state. How do I pay royalties due for my existing leases that qualify for near-term production incentives under 43 CFR part 3212? (Proposed § 218.307) To implement § 224(c) of the EPAct, MMS proposes to add § 218.307. This section would explain that if you qualify for a production incentive under BLM regulations at 43 CFR part 3212 (§§ 3212.18 through 3212.24), then you would pay 50 percent of the amount of the total royalty that would otherwise be due under 30 CFR part 206, subpart H. For example, if you qualified for a production incentive and you owed $1,000 in royalties under 30 CFR part 206, subpart H, then you would pay $500 in royalties (50 percent of $1,000). III. Procedural Matters 1. Public Comment Policy Our practice is to make comments, including names and home addresses of respondents, available for public review during regular business hours and on our Web site at *http://www.mrm.mms.gov/Laws_R_D/FRNotices/FRHome.htm.* Individual respondents may request that we withhold their home address from the rulemaking record, which we will honor to the extent allowable by law. There also may be circumstances in which we would withhold from the rulemaking record a respondent's identity, as allowable by law. If you wish us to withhold your name and/or address, you must state this prominently at the beginning of your comments. However, we will not consider anonymous 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. 2. Summary Cost and Royalty Impact Data Of the proposed changes to the geothermal valuation regulations outlined above, only a few will have a royalty impact on industry, States, or the Federal Government. This section addresses those changes and discusses the extent of their impacts. There are no “Costs and Benefits,” under the meaning identified by OMB, as a result of the proposed rule. However, there are certain estimated royalty effects of the proposed rule to all potentially affected groups: industry, States and local governments, and the Federal Government. These are summarized below. There are no associated costs, to industry or to the Federal Government, of administering the proposed rule. Of the proposed changes that have royalty cost impacts, three will result in royalty decreases for industry, States, and MMS. One will result in an increase to the counties with producing Federal geothermal leases. The net impact of the six changes will result in an expected overall royalty revenue decrease of $4,101,583 to the Federal Government, a corresponding increase to counties of $4,071,583, and a decrease of $30,000 in royalties to the States. We have evaluated potential effects on federally recognized Indian tribes and have determined that the changes we are proposing for Federal leases would not apply to and currently would not have an impact on Indian leases. In addition, this proposed rule does not have tribal implications that impose substantial direct compliance costs on Indian tribal governments. A. Industry

(1)*Royalty Impacts.

(a)No Change in Royalties—Electrical Generation.* Because the EPAct mandates that the royalty revenues received by MMS should be the same as what would have been received under the valuation methods of the current regulations, there would be no revenue impact for electrical generation projects. Electrical generation lessees that remain under the current regulations would pay the same royalties as they have been paying all along. Electrical generation lessees who modify their leases to the new regulation's percentage of gross proceeds method should pay the same level of royalties as they have paid under the current regulations. New lessees would have royalty rates determined by BLM that should result in the same level of royalties for 10 years as they would have paid under the current regulations. *(b) Net Decrease in Royalties—Direct Use—Estimated at $60,000.* Current direct use lessees who do not sell the geothermal resources would have the option to convert their leases to the new fee schedule, which would result in a reduction of $60,000 per year from the current level of royalties, a 95-percent reduction. In addition, all new direct use lessees who do not sell the geothermal resources under the new regulations would use the same fee schedule, also paying about 95 percent less than they would have under the current regulations. *(2) Administrative Costs.* The MMS has determined that there are no expected administrative cost changes. B. State and Local Governments

(1)*Royalty Impacts—State Governments.

(a)Net Decrease in Royalties—Direct Use—Estimated at $30,000.* The MMS estimates that States impacted by this rule would receive the same royalties as they do currently for electrical generation leases. However, because of the 95-percent decrease in revenue collected from direct use leases, States who receive a share of that revenue under 30 U.S.C. 191 would be impacted by the revenue decrease. It is unknown how this would affect the counties because the States distribute royalty revenues to their counties directly without MMS involvement. The new fee schedule would result in approximately 95-percent reduction in royalties paid to States from direct use projects. The MMS estimates the reduction to be $30,000 per year. *(2) Administrative Costs—State Governments.* The MMS has determined that there are no expected administrative cost changes for State governments. *(3) Royalty Impacts—Local Governments.

(a)Net Increase in Royalties—Estimated at $4,071,583.* The EPAct mandates a new distribution of 25 percent of royalties to the counties. This 25 percent would cut the Federal share in half from 50 percent to 25 percent, and leaves the States' share as 50 percent. The counties would receive a new 25-percent distribution of total geothermal royalty revenue under the EPAct, which would increase their revenues by $4,071,583 per year from the Federal Government. Prior to the EPAct, MMS distributed 50 percent of the geothermal royalties to the States and retained 50 percent for the Federal Government. The EPAct now mandates that MMS directly distribute 25 percent of geothermal royalties to the counties that contain producing geothermal Federal leases. This 25-percent county share is taken from the Federal share, cutting it in half, to 25 percent of the total geothermal royalties. The State distribution of 50 percent would remain unchanged under the EPAct. *(4) Administrative Costs—Local Governments.* This rule would not impose any additional burden on local governments. The counties where geothermal facilities are located on Federal leases would receive a new distribution of 25 percent of the total geothermal royalties for the first time directly from the Federal Government, whereas in the past it was left up to the States to distribute geothermal royalty revenues to the counties. It is not known exactly how much geothermal royalty revenue is distributed to counties by the States, as it is up to each State to do this distribution and is not currently under MMS control. C. Federal Government The total combined royalty impact on the Federal Government would be a decrease of $4,101,583 ($4,071,583 for electrical generation and $30,000 for direct use). *(1) Royalty Impacts

(a)Net Decrease in Royalties—Electrical Generation—Estimated at $4,071,583.* The Federal Government would be impacted by a net overall decrease in royalties as a result of the proposed changes to the regulations governing the new distribution of 25 percent of total royalties to the counties and the new direct use fee schedule. The net impact on the Federal Government would be a decrease of approximately $4,071,583 for electrical generation. *(b) Net Decrease in Royalties—Direct Use—Estimated at $30,000.* The Federal Government would also be impacted by the 95-percent decrease in revenues from direct use leases due to the proposed direct use fee schedule. The MMS estimates the reduction to be $30,000 per year. *(2) Administrative Costs—Federal Government.* The MMS does not expect any administrative cost changes for the Federal Government. D. Summary of Costs and Royalty Impacts to Industry, State and Local Governments, and the Federal Government In the table below, a negative number means a reduction in payment or receipt of royalties or a reduction in costs. A positive number means an increase in payment or receipt of royalties or an increase in costs. The net expected change in royalty impact is the sum of the royalty increases and decreases. If no costs are represented for administrative or royalty impacts, then the increase, decrease and net values impacts are all zero. Summary of expected Costs and Royalty Impacts Description Costs and royalty increases or royalty decreases First year Subsequent years A. Industry Royalty Decrease from Direct Use Fee Schedule −$60,000 −$60,000 Net Expected Change in Royalty (direct use fee) Payments from Industry −60,000 −60,000 B. State and Local Governments State: Royalty Decrease to State Governments −30,000 −30,000 Local Governments (counties): Royalty Increase to counties +4,071,583 4,071,583 Net Expected Change in Royalty Payments to State and Local Governments +4,041,583 +4,041,583 C. Federal Government Royalty Decrease from 25 percent Royalty Disbursement to Counties −4,071,583 −4,071,583 Royalty Decrease from New Direct Use Fee Schedule Implementation −30,000 −30,000 Net Expected Change in Royalty Payments to Federal Government −4,101,583 −4,101,583 3. Regulatory Planning and Review, Executive Order 12866 In accordance with the criteria in Executive Order 12866, this proposed rule is not a significant regulatory action. The Office of Management and Budget

(OMB)makes the final determination under Executive Order 12866. a. This proposed rule would not have an annual effect of $100 million or adversely affect an economic sector, productivity, jobs, the environment, or other units of Government. b. This proposed rule would not create inconsistencies with other agencies' actions. c. This proposed rule would not materially affect entitlements, grants, user fees, loan programs, or the rights and obligations of their recipients. d. This proposed rule would not raise novel legal or policy issues. Under the criteria in Executive Order 12866, this proposed rule is not an economically significant regulatory action as it does not exceed the $100 million threshold. 4. Regulatory Flexibility Act The Department of the Interior certifies that this proposed rule would not have a significant economic effect on a substantial number of small entities as defined under the Regulatory Flexibility Act (5 U.S.C. 601 *et seq.* ). An initial Regulatory Flexibility Analysis is not required. Accordingly, a Small Entity Compliance Guide is not required. *Your comments are important* . The Small Business and Agricultural Regulatory Enforcement Ombudsman and 10 Regional Fairness Boards were established to receive comments from small businesses about Federal agency enforcement actions. The Ombudsman will annually evaluate the enforcement activities and rate each agency's responsiveness to small business. You may comment to the Small Business Administration without fear of retaliation. Disciplinary action for retaliation by an MMS employee may include suspension or termination from employment with the Department of the Interior. 5. Small Business Regulatory Enforcement Act (SBREFA) This proposed rule is not a major rule under 5 U.S.C. 804(2), the Small Business Regulatory Enforcement Fairness Act. This proposed rule: a. Would not have an annual effect on the economy of $100 million or more. b. Would not cause a major increase in costs or prices for consumers, individual industries, Federal, state, or local government agencies, or geographic regions. c. Would 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. 6. Unfunded Mandates Reform Act In accordance with the Unfunded Mandates Reform Act (2 U.S.C. 1501 *et seq.* ): a. This proposed rule would not “significantly or uniquely” affect small governments. Therefore, a Small Government Agency Plan is not required. b. This proposed rule would not produce a Federal mandate of $100 million or greater in any year, i.e., it would not be a “significant regulatory action” under the Unfunded Mandates Reform Act. The analysis prepared for Executive Order 12866 meets the requirements of the Unfunded Mandates Reform Act. 7. Governmental Actions and Interference With Constitutionally Protected Property Rights (Takings), Executive Order 12630 In accordance with Executive Order 12630, this proposed rule does not have significant takings implications. A takings implication assessment is not required. 8. Federalism, Executive Order 13132 In accordance with Executive Order 13132, this proposed rule would not have federalism implications; hence, a federalism assessment is not required. It would not substantially and directly affect the relationship between the Federal and state governments. The management of Federal leases is the responsibility of the Secretary of the Interior. Royalties collected from Federal leases are shared with state governments on a percentage basis as prescribed by law. This proposed rule would not alter any lease management or royalty value sharing provisions. It would determine the value of production for royalty value computation purposes only. This proposed rule would not impose costs on states or localities. 9. Civil Justice Reform, Executive Order 12988 In accordance with Executive Order 12988, the Office of the Solicitor has determined that this proposed rule would not unduly burden the judicial system and meets the exception requirements of §§ 3(a) and 3(b)(2) of the Order. 10. Paperwork Reduction Act of 1995

(PRA)This proposed rule, RIN 1010-AD32, would contain new information collection requirements. The title of the new information collection request

(ICR)is “30 CFR Parts 202, 206, 210, 217, and 218—Valuation of Geothermal Resources.” The intent of this proposed rulemaking is to change the methodology for geothermal royalty valuation and simplify these calculations for both direct use and electrical generation purposes. We have submitted an ICR to OMB for review and approval under § 3507(d) of the PRA. When this rule becomes effective, we will prepare the required OMB Forms and transfer the burden hours to their respective primary collections. As part of our continuing effort to reduce paperwork and respondent burden, we will invite the public and other Federal agencies to comment on any aspect of the reporting burden through the information collection process. Submit written comments by either fax

(202)395-6566 or e-mail ( *OIRA_Docket@omb.eop.gov* ) directly to the Office of Information and Regulatory Affairs, OMB, Attention: Desk Officer for the Department of the Interior [OMB Control Number ICR 1010-New, as it relates to the proposed geothermal valuation rule]. Also submit copies of written comments to Sharron L. Gebhardt, Lead Regulatory Specialist, Minerals Management Service, Minerals Revenue Management, P.O. Box 25165, MS 302B2, Denver, Colorado 80225. If you use an overnight courier service, our courier address is Building 85, Room A-614, Denver Federal Center, W. 6th Ave., and Kipling Blvd., Denver, Colorado 80225. You may also e-mail your comments to us at *mrm.comments@mms.gov* . Include the title of the information collection and the OMB control number in the “Attention” line of your comment. Also include your name and return address. If you do not receive a confirmation that we have received your e-mail, contact Sharron Gebhardt at

(303)231-3211. The OMB has up to 60 days to approve or disapprove this collection of information but may respond after 30 days. Therefore, public comments should be submitted to OMB within 30 days in order to assure their maximum consideration. However, we will consider all comments received during the comment period for this notice of proposed rulemaking. This ICR has a new collection of regulatory information for a total program change of 174 burden hours. The proposed rule uses Form-MMS 2014, which is covered in ICR 1010-0140 (expires October 31, 2006). See the following chart for burden hours by CFR citation: Burden Breakdown 30 CFR Parts 202, 206, 210, 217, and 218 Reporting and recordkeeping requirement Hour burden Average number of annual responses Annual burden hours Part 202—Royalties Subpart H—Geothermal Resources § 202.353 Measurement standards for reporting and paying royalties. 202.353

(a)For geothermal resources used to generate electricity, you must report the quantity on which royalty is due on Form MMS-2014 * * *

(b)For geothermal resources used in direct use processes, you must report the quantity on which royalty or fee is due on Form MMS-2014 * * *

(c)For byproducts, you must report the quantity on which royalty is due on Form MMS-2014 * * *

(d)For commercially demineralized water, you must report the quantity on which royalty is due on Form MMS-2014 * * * Burden covered under OMB Control Number 1010-0140 (expires October 31, 2006).

(e)You must maintain quality measurements for audit purposes. The Office of Regulatory Affairs

(ORA)determined that the audit process is not covered by the PRA because MMS staff asks non-standard questions to resolve exceptions. Part 206—Product Valuation Subpart H—Geothermal Resources § 206.352 How do I calculate the royalty due on geothermal resources used for commercial generation of electricity? 206.352; (b)(1)(ii) A royalty determined by any other reasonable method approved by MMS under § 206.364 of this subpart 1 1 1 § 206.353 How do I determine transmission deductions? 206.353 (c)(2)(i)(A) such purchase as necessary * * * The ORA determined that the audit process is not covered by the PRA because MMS staff asks non-standard questions to resolve exceptions (d)(9) Any other directly allocable and attributable operating expense which you can document, including * * * The ORA determined that the audit process is not covered by the PRA because MMS staff asks non-standard questions to resolve exceptions

(e)Allowable maintenance expenses include: * * *

(4)Other directly allocable and attributable maintenance expenses, which you can document. The ORA determined that the audit process is not covered by the PRA because MMS staff asks non-standard questions to resolve exceptions.

(g)To compute costs associated with capital investment * * * the lessee may not later elect to change to the other alternative without MMS approval. 1 1 1

(h)To compute depreciation you may elect * * * you may not change methods without MMS approval. 1 1 1

(l)* * * In conducting reviews and audits, MMS may require you to submit arm's-length transmission contracts, production agreements, operating agreements, and related documents The ORA determined that the audit process is not covered by the PRA because MMS staff asks non-standard questions to resolve exceptions.

(l)* * * Recordkeeping requirements are found at part 212 of this chapter Burden hours covered under OMB Control Number 1010-0140 (expires October 31, 2006).

(n)In conducting reviews and audits, MMS may require you to submit all data used to calculate the deduction. You must comply with any such requirements within the time MMS specifies The ORA determined that the audit process is not covered by the PRA because MMS staff asks non-standard questions to resolve exceptions.

(n)Recordkeeping requirements are found at part 212 of this chapter Burden hours covered under OMB Control Number 1010-0140 (expires October 31, 2006). (o)(2) You must submit corrected Forms MMS-2014 to reflect adjustments to royalty payments in accordance with MMS instructions Burden hours covered under OMB Control Number 1010-0140 (expires October 31, 2006). § 206.354 How Do I Determine Generating Deductions? 206.354 (b)(1)(ii) You must redetermine your generating costs annually * * * you may not later elect to use a different deduction period without MMS approval 1 1 1 (c)(2)(i)(A) The purchase is necessary * * * The ORA determined that the audit process is not covered by the PRA because MMS staff asks non-standard questions to resolve exceptions. (d)(9) Any other directly allocable and attributable operating expense which you can document, including * * * The ORA determined that the audit process is not covered by the PRA because MMS staff asks non-standard questions to resolve exceptions.

(e)Allowable maintenance expenses include: * * *

(4)Other directly allocable and attributable maintenance expenses, which you can document The ORA determined that the audit process is not covered by the PRA because MMS staff asks non-standard questions to resolve exceptions.

(g)* * * After a lessee has elected to use either method, the lessee may not later elect to change to the other alternative without MMS approval 1 1 1

(h)To compute depreciation, you may elect to use either a straight-line depreciation method based on the life of the geothermal project, usually the term of the electricity sales contract or other depreciation period acceptable to MMS, or a unit-of-production method. After you make an election, you may not change methods without MMS approval 1 1 1 (l)(1) * * * In conducting reviews and audits MMS may require you to submit arm's-length power plant contracts * * * The ORA determined that the audit process is not covered by the PRA because MMS staff asks non-standard questions to resolve exceptions. (l)(1) * * * Recordkeeping requirements are found at part 212 of this chapter Burden hours covered under OMB Control Number 1010-0140 (expires October 31, 2006). (l)(3) * * * The MMS may require you to submit all data used to calculate the deduction The ORA determined that the audit process is not covered by the PRA because MMS staff asks non-standard questions to resolve exceptions. (l)(3) * * * Recordkeeping requirements are found at part 212 of this chapter Burden hours covered under OMB Control Number 1010-0140 (expires October 31, 2006). (m)(2) You must submit corrected Forms-2014 to reflect adjustments to royalty payments in accordance with MMS instructions Burden hours covered under OMB Control Number 1010-0140 (expires October 31, 2006). § 206.356 How do I calculate royalty due on geothermal resources I use for direct use purposes? 206.356 (a)(1) The weighted average of the gross proceeds * * * In evaluating the acceptability of arm's-length contracts * * * 1 1 1 (a)(2) * * * The efficiency of the alternative energy source shall be * * * or proposed by the lessee and approved MMS 48 2 96 (a)(3) A royalty determined by * * * approved by MMS * * * 1 1 1 (b)(3) * * * you must provide MMS data showing the amount of geothermal production in pounds or gallons of geothermal fluid to input into the fee schedule * * * 1 1 1

(c)For geothermal resources other than hot water, MMS will determine fees on a case-by-case basis 1 1 1 § 206.357 How do I calculate royalty due on byproducts? 206.357

(c)A value determined by any other reasonable valuation method approved by MMS. 1 1 1 § 206.358 What are byproduct transportation allowances? 206.358

(d)Reporting requirements.

(1)Arm's-length contracts.

(i)You must use a discrete field on Form MMS-2014 to notify MMS of a transportation allowance Burden hours covered under OMB Control Number 1010-0140 (expires October 31, 2006). (d)(1)(ii) In conducting reviews and audits, MMS may require you to submit * * * The ORA determined that the audit process is not covered by the PRA because MMS staff asks non-standard questions to resolve exceptions. (d)(1)(ii) Recordkeeping requirements are found at part 212 of this chapter Burden hours covered under OMB Control Number 1010-0140 (expires October 31, 2006). (d)(2) Non-arm's-length or no contract.

(i)You must use a discrete field on Form MMS-2014 to notify MMS of a transportation allowance Burden hours covered under OMB Control Number 1010-0140 (expires October 31, 2006). (d)(2)(iii) In conducting reviews and audits, MMS may require you to submit * * * The ORA determined that the audit process is not covered by the PRA because MMS staff asks non-standard questions to resolve exceptions. (d)(2)(iii) Recordkeeping requirements are found at part 212 of this chapter Burden hours covered under OMB Control Number 1010-0140 (expires October 31, 2006). (e)(2) You must submit corrected Form MMS-2014 to reflect adjustments to royalty payments in accordance with MMS instructions Burden hours covered under OMB Control Number 1010-0140 (expires October 31, 2006).

(h)If MMS reviews or audits your royalty payments, you must make available to authorized MMS representatives or to other authorized persons all transportation contracts and all other information as may be necessary to support a byproduct transportation allowance The ORA determined that the audit process is not covered by the PRA because MMS staff asks non-standard questions to resolve exceptions § 206.359 How do I determine byproduct transportation allowances? 206.359 (a)(2) * * * MMS will require you to determine the * * * MMS will notify you and give you an opportunity to provide written information justifying your transportation costs The ORA determined that the audit process is not covered by the PRA because MMS staff asks non-standard questions to resolve exceptions. (c)(2)(i)(A) The purchase is necessary * * * The ORA determined that the audit process is not covered by the PRA because MMS staff asks non-standard questions to resolve exceptions. (d)(9) Any other directly allocable and attributable operating expense which you can document, including * * * The ORA determined that the audit process is not covered by the PRA because MMS staff asks non-standard questions to resolve exceptions

(e)Allowable maintenance expenses include:* * *

(4)Other directly allocable and attributable maintenance expenses, which you can document.* * * The ORA determined that the audit process is not covered by the PRA because MMS staff asks non-standard questions to resolve exceptions

(g)To compute costs * * * the lessee may not later elect to change to the other alternative without MMS approval.* * * 1 1 1

(h)To compute depreciation * * * After you make an election, you may not change methods without MMS approval. 1 1 1 § 206.360 What records must I keep to support my calculations of royalty or fees under this subpart? 206.360 * * * you must retain all data relevant * * * Burden hours covered under OMB Control Number 1010-0140 (expires October 31, 2006). Recordkeeping requirements are found in part 212 of this chapter. Burden hours covered under OMB Control Number 1010-0140 (expires October 31, 2006). You must be able to show:

(1)How you calculated * * *

(2)How you complied * * *

(b)Upon request, you must submit all data to MMS. The ORA determined that the audit process is not covered by the PRA because MMS staff asks non-standard questions to resolve exceptions. § 206.361 How will MMS determine whether my royalty, gross proceeds or fees are correct? 206.361

(b)* * * MMS may require you to increase the gross proceeds to reflect * * * MMS may require you to use another valuation method * * * MMS will notify you to give you an opportunity to provide written information justifying your gross proceeds * * * The ORA determined that the audit process is not covered by the PRA because MMS staff asks non-standard questions to resolve exceptions.

(c)For arm's-length sales, you have the burden of demonstrating * * * The ORA determined that the audit process is not covered by the PRA because MMS staff asks non-standard questions to resolve exceptions.

(d)The MMS may require you to certify that the provisions in your sales contract include * * * The ORA determined that the audit process is not covered by the PRA because MMS staff asks non-standard questions to resolve exceptions. (f)(2) Contract revisions or amendments you make must be in writing and signed by all parties to the contract. 1 1 1 § 206.364 How do I request a value or gross proceeds determination? 206.364

(a)You may request a value determination from MMS. * * Your request must:

(1)Be in writing * * * 3 20 60 Part 210—Forms and Reports Subpart H—Geothermal Resources § 210.352 Payor information forms. 210.352 The Payor Information Form * * *

(f)Abandonment of a lease. * * * The payor information form was discontinued through reengineering by 2001. This rule removes geothermal references to the form from the Code of Federal Regulations. There are no current burden hours. Part 217—Audits and Inspections Subpart G—Geothermal Resources § 217.300 Audits or review of records. 217.300 The Secretary, or his/her authorized representative shall initiate and conduct audits or reviews relating * * * Audits or reviews will also relate to compliance * * * All audits or reviews will be conducted in accordance with * * * The ORA determined that the audit process is not covered by the PRA because MMS staff asks non-standard questions to resolve exceptions. PART 218—Collection of royalties, rentals, bonuses and other monies due the Federal Government and Credits and Incentives Due Lessees Subpart F—Geothermal Resources § 218.306 May I receive a credit against production royalties for in-kind deliveries of electricity I provide under contract to a state or county government? 218.306 (a)(2) MMS approves in advance your contract * * * 4 1 4 Burden Hour Total 37 174 *Public Comment Policy.* The PRA (44 U.S.C. 3501 et seq.) provides that 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. Before submitting an ICR to OMB, PRA § 3506(c)(2)(A) requires each agency “* * * to provide notice * * * and otherwise consult with members of the public and affected agencies concerning each proposed collection of information * * *.” Agencies must specifically solicit comments to:

(a)Evaluate whether the proposed collection of information is necessary for the agency to perform its duties, including whether the information is useful;

(b)evaluate the accuracy of the agency's estimate of the burden of the proposed collection of information;

(c)enhance the quality, usefulness, and clarity of the information to be collected; and

(d)minimize the burden on the respondents, including the use of automated collection techniques or other forms of information technology. The PRA also requires agencies to estimate the total annual reporting “non-hour cost” burden to respondents or recordkeepers resulting from the collection of information. If you have costs to generate, maintain, and disclose this information, you should comment and provide your total capital and startup cost components or annual operation, maintenance, and purchase of service components. You should describe the methods you use to estimate major cost factors, including system and technology acquisition, expected useful life of capital equipment, discount rate(s), and the period over which you incur costs. Capital and startup costs include, among other items, computers and software you purchase to prepare for collecting information; monitoring, sampling, and testing equipment; and record storage facilities. Generally, your estimates should not include equipment or services purchased:

(i)Before October 1, 1995;

(ii)to comply with requirements not associated with the information collection;

(iii)for reasons other than to provide information or keep records for the Government; or

(iv)as part of customary and usual business or private practices. We will summarize written responses to this proposed information collection and address them in our final rule. We will provide a copy of the ICR to you without charge upon request, and the ICR will also be posted on our Web site at *www.mrm.mms.gov/Laws_R_D/FRNotices/FRInfColl.htm.* We will post all comments in response to this proposed information collection on our Web site at *www.mrm.mms.gov/Laws_R_D/InfoColl/InfoColCom.htm.* We will also make copies of the comments available for public review, including names and addresses of respondents, during regular business hours at our offices in Lakewood, Colorado. Individual respondents may request that we withhold their home address from the public record, which we will honor to the extent allowable by law. There also may be circumstances in which we would withhold from the rulemaking record a respondent's identity, as allowable by law. If you request that we withhold your name and/or address, state this prominently at the beginning of your comment. However, we will not consider anonymous 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. 11. National Environmental Policy Act

(NEPA)This proposed rule deals with financial matters and would have no direct effect on MMS decisions on environmental activities. Pursuant to 516 DM 2.3A (2), Section 1.10 of 516 DM 2, Appendix 1 excludes from documentation in an environmental assessment or impact statement “policies, directives, regulations and guidelines of an administrative, financial, legal, technical or procedural nature; or the environmental effects of which are too broad, speculative, or conjectural to lend themselves to meaningful analysis and will be subject later to the NEPA process, either collectively or case-by-case.” Section 1.3 of the same appendix clarifies that royalties and audits are considered to be routine financial transactions that are subject to categorical exclusion from the NEPA process. 12. Government-to-Government Relationship With Tribes In accordance with the President's memorandum of April 29, 1994, “Government-to-Government Relations with Native American Tribal Governments” (59 FR 22951) and Department Manual 512 DM 2, we have evaluated potential effects on federally recognized Indian tribes and have determined that the changes we are proposing for Federal leases do not apply to and would not have an impact on Indian leases. 13. Effects on the Nation's Energy Supply, Executive Order 13211 In accordance with Executive Order 13211, this regulation would not have a significant adverse effect on the Nation's energy supply, distribution, or use. The proposed changes primarily involve royalty valuation of geothermal production to simplify royalty valuation, hence, any impact to the way industry does business should be positive, and as the EPAct directs, should encourage energy development and marketing. The proposed rule would not otherwise impact energy supply, distribution, or use. 14. Consultation and Coordination With Indian Tribal Governments, Executive Order 13175 In accordance with Executive Order 13175, we have evaluated this proposed rule and determined that it has no potential effects on federally recognized Indian tribes. This proposed rule does not have tribal implications that impose substantial direct compliance costs on Indian tribal governments. 15. Clarity of This Regulation Executive Order 12866 requires each agency to write regulations that are easy to understand. We invite your comments on how to make this rule easier to understand, including answers to questions such as the following:

(1)Are the requirements in the rule clearly stated?

(2)Does the rule contain technical language or jargon that interferes with its clarity?

(3)Does the format of the rule (grouping and order of sections, use of headings, paragraphing, etc.) aid or reduce its clarity?

(4)Would the rule be easier to understand if it were divided into more (but shorter) sections? (A “section” appears in bold type and is preceded by the symbol § and a numbered heading; for example, § 204.200 What is the purpose of this part?)

(5)Is the description of the rule in the SUPPLEMENTARY INFORMATION section of the preamble helpful in understanding the proposed rule? What else could we do to make the rule easier to understand? Send a copy of any comments that concern how we could make this rule easier to understand to: Office of Regulatory Affairs, Department of the Interior, Room 7229, 1849 C Street, NW., Washington, DC 20240. You may also e-mail the comments to this address: *Exsec@ios.doi.gov.* List of Subjects in 30 CFR Parts 202, 206, 210, 217, and 218 Geothermal, valuation, royalty, Energy Policy Act of 2005, direct use, arm's length. Dated: June 28, 2006. R. M. “Johnnie” Burton, Director, Minerals Management Service, Exercising the delegated authority of the Assistant Secretary of Land and Minerals Management. For the reasons stated in the preamble, the Minerals Management Service proposes to amend 30 CFR parts 202, 206, 210, and 218 as set forth below: PART 202—ROYALTIES 1. The authority for part 202 continues to read as follows: Authority: 5 U.S.C. 301 *et seq.* ; 25 U.S.C. 396 *et seq.* , 396a *et seq.* , 2101 *et seq.* ; 30 U.S.C. 181 *et seq.* , 351 *et seq.* , 1001 *et seq.* ; 1701 *et seq.* ; 31 U.S.C. 9701; 43 U.S.C. 1301 *et seq.* ; 1331 *et seq.* , 1801 *et seq.* Subpart H—Geothermal Resources 2. Revise § 202.351 to read as follows: § 202.351 Royalties on geothermal resources. (a)(1) Royalties on geothermal resources, including byproducts, shall be at the royalty rate(s) specified in the lease, unless the Secretary of the Interior temporarily waives, suspends, or reduces that rate(s). Royalty value is determined under 30 CFR part 206, subpart H.

(2)Fees in lieu of royalties on geothermal resources are prescribed in 30 CFR part 206, subpart H.

(3)Except for the amount credited against royalties for in-kind deliveries of electricity to a state or county under 30 CFR 218.306, you must pay royalties and direct use fees in money. (b)(1) Royalties or fees are due on all geothermal resources, except those specified in paragraph (b)(2) of this section, that are produced from a lease and that are sold or used by the lessee or are reasonably susceptible to sale or use by the lessee. (2)(i) Geothermal resources that are unavoidably lost, as determined by the Bureau of Land Management (BLM), and geothermal resources that are reinjected prior to use on or off the lease, as approved by BLM, are not subject to royalty or direct use fees.

(ii)The Minerals Management Service

(MMS)will allow free of royalty or fees a reasonable amount of geothermal energy necessary to generate electricity for internal power plant operations or to generate electricity returned to the lease for lease operations. If a power plant uses geothermal production from more than one lease, or uses unitized or communitized production, only that proportionate share of each lease's production (actual or allocated) necessary to operate the power plant may be used royalty free.

(iii)MMS will also allow royalty-free a reasonable amount of commercially demineralized water necessary for power plant operations or otherwise used on or for the benefit of the lease.

(3)Royalties on byproducts are due at the time the recovered byproduct is used, sold, or otherwise finally disposed of. Byproducts produced and added to stockpiles or inventory do not require payment of royalty until the byproducts are sold, utilized, or otherwise finally disposed of. The MMS may ask BLM to increase the lease bond to protect the lessor's interest when BLM determines that stockpiles or inventories become excessive.

(c)If BLM determines that geothermal resources (including byproducts) were avoidably lost or wasted from the lease, or that geothermal resources (including byproducts) were drained from the lease for which compensatory royalty (or compensatory fees in lieu of compensatory royalty) are due, the value of those geothermal resources, or the royalty or fees owed, shall be determined under 30 CFR part 206, subpart H.

(d)If a lessee receives insurance or other compensation for unavoidably lost geothermal resources (including byproducts), royalties at the rates specified in the lease (or fees in lieu of royalties) are due on the amount of, or as a result of, that compensation. This paragraph shall not apply to compensation through self-insurance. 3. Revise § 202.353 to read as follows: § 202.353 Measurement standards for reporting and paying royalties.

(a)For geothermal resources used to generate electricity, you must report the quantity on which royalty is due on Form MMS-2014 (Report of Sales and Royalty Remittance) as follows:

(1)For geothermal resources for which royalty is calculated under 30 CFR 206.352(a), (b)(2), and (b)(3), you must report quantities in:

(i)Kilowatt-hours to the nearest whole kilowatt-hour if the contract specifies payment in terms of generated electricity;

(ii)Thousands of pounds to the nearest whole thousand pounds if the contract for the geothermal resources specifies payment in terms of weight; or

(iii)Millions of Btu's to the nearest whole million Btu if the sales contract for the geothermal resources specifies payment in terms of heat or thermal energy.

(2)For geothermal resources for which royalty is calculated under 30 CFR 206.352(b)(1), you must report the quantities in kilowatt-hours to the nearest whole kilowatt-hour.

(b)For geothermal resources used in direct use processes, you must report the quantity on which royalty or fee is due on Form MMS-2014 in:

(1)Millions of Btu's to the nearest whole million Btu if valuation is in terms of thermal energy used or displaced;

(2)Millions of gallons to the nearest million gallons of geothermal fluid produced if valuation is in terms of volume;

(3)Millions of pounds to the nearest million pounds of geothermal fluid produced if valuation is in terms of mass; or

(4)Any other measurement unit MMS approves for valuation and reporting purposes.

(c)For byproducts, you must report the quantity on which royalty is due on Form MMS-2014 consistent with MMS-established reporting standards.

(d)For commercially demineralized water, you must report the quantity on which royalty is due on Form MMS-2014 in hundreds of gallons to the nearest hundred gallon.

(e)You need not report the quality of geothermal resources, including byproducts, to MMS. You must maintain quality measurements for audit purposes. Quality measurements include, but are not limited to:

(1)Temperatures and chemical analyses for fluid geothermal resources; and

(2)Chemical analyses, weight percent, or other purity measurements for byproducts. PART 206—PRODUCT VALUATION 4. The authority for part 206 continues to read as follows: Authority: 5 U.S.C. 301 *et seq.* ; 25 U.S.C. 396 *et seq.* , 396a *et seq.* , 2101 *et seq.* ; 30 U.S.C. 181 *et seq.* , 351 *et seq.* , 1001 *et seq.* ; 1701 *et seq.* ; 31 U.S.C. 9701; 43 U.S.C. 1301 *et seq.* ; 1331 *et seq.* , 1801 *et seq.* 5-6. Revise subpart H to read as follows: Subpart H—Geothermal Resources Sec. 206.350 What is the purpose of this subpart? 206.351 What definitions apply to this subpart? 206.352 How do I calculate the royalty due on geothermal resources used for commercial generation of electricity? 206.353 How do I determine transmission deductions? 206.354 How do I determine generating deductions? 206.355 How do I calculate royalty due on geothermal resources I sell arm's-length to a purchaser for direct use? 206.356 How do I calculate royalty due on geothermal resources I use for direct use purposes? 206.357 How do I calculate royalty due on byproducts? 206.358 What are byproduct transportation allowances? 206.359 How do I determine byproduct transportation allowances? 206.360 What records must I keep to support my calculations of royalty or fees under this subpart? 206.361 How will MMS determine whether my royalty value, gross proceeds, or fees are correct? 206.362 What are my responsibilities to place production into marketable condition and to market production? 206.363 When is an MMS audit, review, reconciliation, monitoring, or other like process considered final? 206.364 How do I request a value or gross proceeds determination? 206.365 Does MMS protect information I provide? 206.366 What is the nominal fee that a state, tribal, or local government lessee must pay for the use of geothermal resources? Subpart H—Geothermal Resources § 206.350 What is the purpose of this subpart?

(a)This subpart applies to all geothermal resources produced from Federal geothermal leases issued pursuant to the Geothermal Steam Act of 1970 (GSA), as amended by the Energy Policy Act of 2005 (EPAct) (30 U.S.C. 1001 *et seq.* ). The purposes of this subpart are to prescribe how to calculate royalties and fees for geothermal production.

(b)MMS may audit and adjust all royalty and fee payments.

(c)If the regulations in this subpart are inconsistent with:

(1)A Federal statute;

(2)A settlement agreement between the United States and a lessee resulting from administrative or judicial litigation;

(3)A written agreement between the lessee and the MMS Director or Assistant Secretary, Land and Minerals Management of the Department of the Interior, establishing a method to determine the royalty from any lease that MMS expects at least would approximate the value or royalty established under this subpart, including a value or gross proceeds determination under § 206.364 of this subpart; or

(4)An express provision of a geothermal lease subject to this subpart, then the statute, settlement agreement, written agreement, or lease provision will govern to the extent of the inconsistency. § 206.351 What definitions apply to this subpart? *Affiliate* means a person who controls, is controlled by, or is under common control with another person. For purposes of this subpart:

(1)Ownership or common ownership of more than 50 percent of the voting securities, or instruments of ownership, or other forms of ownership, of another person constitutes control. Ownership of less than 10 percent constitutes a presumption of noncontrol that MMS may rebut.

(2)If there is ownership or common ownership of 10 through 50 percent of the voting securities or instruments of ownership, or other forms of ownership of another person, MMS will consider the following factors in determining whether there is control under the circumstances of a particular case:

(i)The extent to which there are common officers or directors;

(ii)With respect to the voting securities, or instruments of ownership, or other forms of ownership: the percentage of ownership or common ownership, the relative percentage of ownership or common ownership compared to the percentage(s) of ownership by other persons, whether a person is the greatest single owner, or whether there is an opposing voting bloc of greater ownership;

(iii)Operation of a lease, plant, pipeline, or other facility;

(iv)The extent of participation by other owners in operations and day-to-day management of a lease, plant, pipeline, or other facility; and

(v)Other evidence of power to exercise control over or common control with another person.

(3)Regardless of any percentage of ownership or common ownership, relatives, either by blood or marriage, are affiliates. *Allowance* means a deduction in determining value for royalty purposes. *Arm's-length contract* means a contract or agreement between independent persons who are not affiliates and who have opposing economic interests regarding that contract. To be considered arm's length for any production month, a contract must satisfy this definition for that month, as well as when the contract was executed. *Audit* means a review, conducted in accordance with generally accepted accounting and auditing standards, of royalty or fee payment compliance activities of lessees or other interest holders who pay royalties, fees, rents, or bonuses on Federal geothermal leases. *Byproduct (or mineral)* means products or minerals (exclusive of oil, hydrocarbon gas, and helium), found in solution or in association with geothermal steam, that no person would extract and produce by themselves because they are worth less than 75 percent of the value of the geothermal steam or because extraction and production would be too difficult. *Byproduct recovery facility* means a facility where byproducts are placed in marketable condition. *Byproduct transportation allowance* means an allowance for the reasonable, actual costs of moving byproducts to a point of sale or delivery off the lease, unit area, or communitized area, or away from a byproduct recovery facility. The byproduct transportation allowance does not include gathering costs. You must report a byproduct transportation allowance as a separate discrete field on the Form MMS-2014. *Class I lease means:*

(1)A lease that BLM issued under the GSA before August 8, 2005, for which the lessee does not elect to convert to a Class II lease under 43 CFR 3212.25; or

(2)A lease issued in response to an application that was pending on August 8, 2005, for which the lessee does not elect to convert to a Class II lease under 43 CFR 3200.8. *Class II lease* means a geothermal lease that BLM issued on or after [effective date of final BLM regulation] under 43 CFR subparts 3203, 3204, or 3205, except for a lease issued in response to an application that was pending on August 8, 2005, which the lessee elects not to convert to a Class II lease under 43 CFR 3200.8. *Class III lease* means a Class I lease that the lessee converts to a Class II lease under 43 CFR 3212.25. *Commercial production or generation of electricity* means generation of electricity that is sold or is subject to sale, including the electricity or energy that is required to convert geothermal energy into electrical energy for sale. *Contract* means any oral or written agreement, including amendments or revisions thereto, between two or more persons and enforceable by law that with due consideration creates an obligation. *Deduction* means a subtraction the lessee uses to determine the value of geothermal resources produced from a Class I lease that the lessee uses to generate electricity. *Delivered electricity* means the amount of electricity in kilowatt-hours delivered to the purchaser. *Direct use* means the utilization of geothermal resources for commercial, residential, agricultural, public facilities, or other energy needs, other than the commercial generation of electricity. *Direct use facility* means a facility that uses the heat or other energy of the geothermal resource for direct use purposes. *Electrical facility* means a power plant or other facility that uses a geothermal resource to generate electricity. *Field* means the land surface vertically projected over a subsurface geothermal reservoir encompassing at least the outermost boundaries of all geothermal accumulations known to be within that reservoir. Geothermal fields are usually given names and their official boundaries are often designated by regulatory agencies in the respective states in which the fields are located. *Gathering* means the efficient movement of lease production from the wellhead to the point of utilization. *Generating deduction* means a deduction for the lessee's reasonable, actual costs of generating plant tailgate electricity. *Geothermal resources* mean:

(1)All products of geothermal processes, including indigenous steam, hot water, and hot brines;

(2)Steam and other gases, hot water, and hot brines resulting from water, gas, or other fluids artificially introduced into geothermal formations;

(3)Heat or other associated energy found in geothermal formations; and

(4)Any byproducts. *Gross proceeds* (for royalty payment purposes) means the total monies and other consideration accruing to a geothermal lessee for the sale of electricity or of the geothermal resource. Gross proceeds includes, but is not limited to:

(1)Payments to the lessee for certain services such as effluent injection, field operation and maintenance, drilling or workover of wells, or field gathering to the extent that the lessee is obligated to perform such functions at no cost to the Federal Government;

(2)Reimbursements for production taxes and other taxes. Tax reimbursements are part of gross proceeds accruing to a lessee even though the Federal royalty interest may be exempt from taxation; and

(3)Any monies and other consideration, including the forms of consideration identified in this paragraph, to which a lessee is contractually or legally entitled but which it does not seek to collect through reasonable efforts. *Lease* means a geothermal lease issued under the authority of the GSA, unless the context indicates otherwise. *Lessee (you)* means any person to whom the United States issues a geothermal lease, and any person who has been assigned an obligation to make royalty, fee, or other payments required by the lease. This includes any person who has an interest in a geothermal lease as well as an operator or payor who has no interest in the lease but who has assumed the royalty, fee, or other payment responsibility. This also includes any affiliate of the lessee that uses the geothermal resource to generate electricity, in a direct use process, or to recover byproducts, or any affiliate that sells or transports lease production. *Marketable condition* means lease products that are sufficiently free from impurities and otherwise in a condition that they will be accepted by a purchaser under a sales contract typical for the disposition from the field or area of such lease products. *Person* means any individual, firm, corporation, association, partnership, consortium, or joint venture (when established as a separate entity). *Plant parasitic electricity* means electricity used to run a power plant. *Plant tailgate electricity* means the amount of electricity in kilowatt-hours generated by a power plant exclusive of plant parasitic electricity, but inclusive of any electricity generated by the power plant and returned to the lease for lease operations. Plant tailgate electricity should be measured at, or calculated for, the high voltage side of the transformer in the plant switchyard. *Point of utilization* means the power plant or direct use facility in which the geothermal resource is utilized. *Public purpose* means a program carried out by a state, tribal, or local government for the purpose of providing facilities or services for the benefit of the public in connection with, but not limited to, public health, safety or welfare, other than the commercial generation of electricity. Use of lands or facilities for habitation, cultivation, trade or manufacturing is permissible only when necessary for and integral to ( *i.e.* , an essential part of) the public purpose. *Public safety or welfare* means a program carried out or promoted by a public agency for public purposes involving, directly or indirectly, protection, safety, and law enforcement activities, and the criminal justice system of a given political area. Public safety or welfare may include, but are not limited to, those carried out by:

(1)Public police departments;

(2)Sheriffs' offices;

(3)The courts;

(4)Penal and correctional institutions (including juvenile facilities);

(5)State and local civil defense organizations; and

(6)Fire departments and rescue squads (including volunteer fire departments and rescue squads supported in whole or in part with public funds). *Reasonable alternative fuel* means a conventional fuel (such as coal, oil, gas, or wood) that would normally be used as a source of heat in direct-use operations. *Secretary* means the Secretary of the Department of the Interior or any person duly authorized to exercise the powers vested in that office. *Transmission deduction* means a deduction for the lessee's reasonable actual costs incurred to wheel or transmit the electricity from the lessee's power plant to the purchaser's delivery point. *Wheeling* means the transmission of electricity from a power plant to the point of delivery. § 206.352 How do I calculate the royalty due on geothermal resources used for commercial generation of electricity?

(a)If you sold geothermal resources produced from Class I, II, and III leases at arm's length that the purchaser uses to generate electricity, then the royalty on the geothermal resources is the gross proceeds accruing to you from the sale of the geothermal resource to the arm's-length purchaser times the royalty rate in your lease or that BLM prescribes or calculates under 43 CFR 3211.17. See § 206.361 for additional provisions applicable to determining gross proceeds under arm's-length sales.

(b)If you use the geothermal resource in your own power plant for the generation and sale of electricity:

(1)For Class I leases, you must determine the royalty on geothermal resources produced in accordance with the first applicable of the following paragraphs:

(i)The gross proceeds accruing to you for the arm's-length sale of the electricity less applicable deductions determined under § 206.353 and § 206.354 of this part times the royalty rate in your lease. See § 206.361 for additional provisions applicable to determining gross proceeds under arm's-length sales. Under no circumstances shall the deductions reduce the royalty of the geothermal resource to zero; or

(ii)A royalty determined by any other reasonable method approved by MMS under § 206.364 of this subpart.

(2)For Class II leases, the royalty on geothermal resources produced is your gross proceeds from the sale of electricity for the production month multiplied by the royalty rate BLM prescribed for your lease under 43 CFR 3211.17. See § 206.361 for additional provisions applicable to determining gross proceeds under arm's-length sales. You may not reduce gross proceeds by any deductions.

(3)For Class III leases, the royalty on geothermal resources produced is your gross proceeds from the sale of electricity for the production month multiplied by the royalty rate BLM calculated for your lease under 43 CFR 3211.17. See § 206.361 for additional provisions applicable to determining gross proceeds under arm's-length sales. You may not reduce gross proceeds by any deductions. § 206.353 How do I determine transmission deductions?

(a)If you determine the value of your geothermal resources under § 206.352(b)(1)(i) of this subpart, you may subtract a transmission deduction from the gross proceeds you received for the sale of electricity to determine the plant tailgate value of the electricity.

(1)The transmission deduction consists of either or both of two components:

(i)Transmission line costs as determined under paragraph

(b)of this section; and

(ii)Wheeling costs if the electricity is transmitted across a third-party's transmission line under an arm's-length wheeling agreement.

(2)You may deduct the actual costs you (including your affiliate(s)) incur for transmitting electricity under your arm's-length wheeling contract.

(b)To determine your transmission-line cost, you must follow the requirements of paragraphs (b)(1) and (b)(2) of this section.

(1)Base transmission-line costs on your actual costs associated with the construction and operation of a transmission line for the purpose of transmitting electricity attributable and allocable to your power plant utilizing Federal geothermal resources.

(i)You must determine the monthly transmission line cost component of the transmission deduction by multiplying the annual transmission-line cost rate (in dollars per kilowatt-hour) by the amount of electricity delivered for the reporting month.

(ii)You must redetermine the transmission line cost rate annually at the beginning of the same month of the year in which the transmission line was placed into service, the same month of the year in which the power plant was placed into service; or at your option, at a time concurrent with the beginning of your annual corporate accounting period. However, the period you select must coincide with the same period you chose for the generating deduction under § 206.354(b)(1). After you choose a deduction period, you may not later elect to use a different deduction period without MMS approval.

(2)Base your transmission-line costs on your actual costs for transmission during the reporting period, including:

(i)Operating and maintenance expenses under paragraphs

(d)and

(e)of this section;

(ii)Overhead under paragraph

(f)of this section; and either

(iii)Depreciation under paragraphs

(g)and

(h)of this section; and a return on undepreciated capital investment under paragraphs

(g)and

(i)of this section or

(iv)A return on the capital investment in the transmission line under paragraphs

(g)and

(j)of this section. (c)(1) Allowable capital costs under paragraph

(b)of this section are generally those for depreciable fixed assets (including costs of delivery and installation of capital equipment) which are an integral part of the transmission line. (2)(i) You may include a return on capital you invested in the purchase of real estate for transmission facilities if:

(A)Such purchase is necessary; and

(B)The surface is not part of the Federal lease.

(ii)The rate of return shall be the same rate determined under paragraph

(k)of this section.

(d)Allowable operating expenses include:

(1)Operations supervision and engineering;

(2)Operations labor;

(3)Fuel;

(4)Utilities;

(5)Materials;

(6)Ad valorem property taxes;

(7)Rent;

(8)Supplies; and

(9)Any other directly allocable and attributable operating or maintenance expense which you can document.

(e)Allowable maintenance expenses include:

(1)Maintenance of the transmission line;

(2)Maintenance of equipment;

(3)Maintenance labor; and

(4)Other directly allocable and attributable maintenance expenses, which you can document.

(f)Overhead directly attributable and allocable to the operation and maintenance of the transmission line is an allowable expense. State and Federal income taxes and severance taxes and other fees, including royalties, are not allowable expenses.

(g)To compute costs associated with capital investment, a lessee may use either depreciation with a return on undepreciated capital investment, or a return on capital investment in the transmission line. After a lessee has elected to use either method, the lessee may not later elect to change to the other alternative without MMS approval.

(h)To compute depreciation, you may elect to use either a straight-line depreciation method based on the life of equipment or on the life of the reserves which the transmission line services, or a return on capital investment method. After you make an election, you may not change methods without MMS approval. With or without a change in ownership, you may depreciate a transmission line only once.

(i)To calculate a return on undepreciated capital investment, multiply the remaining undepreciated capital balance as of the beginning of the period for which you are calculating the transmission deduction by the rate of return provided in paragraph

(k)of this section.

(j)To compute a return on capital investment in the transmission line, multiply the allowable capital investment in the transmission line by the rate of return determined pursuant to paragraph

(k)of this section. There is no allowance for depreciation.

(k)The rate of return must be 2.0 times the industrial rate associated with Standard & Poor's BBB rating. The BBB rate must be the monthly average rate as published in Standard & Poor's Bond Guide for the first month for which the allowance is applicable. Redetermine the rate at the beginning of each subsequent calendar year.

(l)Calculate the deduction for transmission costs based on your cost of transmitting electricity through each individual transmission line. In conducting reviews and audits, MMS may require you to submit arm's-length transmission contracts, production agreements, operating agreements, and related documents. You must comply with any such requirements within the time MMS specifies. Recordkeeping requirements are found at part 212 of this chapter.

(m)For new transmission facilities or arrangements, base your initial deduction on estimates of allowable electricity transmission costs for the applicable period. Use the most recently available operations data for the transmission line or, if such data are not available, use estimates based on data for similar transmission lines. Paragraph

(o)of this section will apply when you amend your report based on your actual costs.

(n)In conducting reviews and audits, MMS may require you to submit all data used to calculate the deduction. You must comply with any such requirements within the time MMS specifies. Recordkeeping requirements are found at part 212 of this chapter.

(o)If your actual transmission deduction differs from your estimate under § 206.352(a)(1), you must submit corrected Forms MMS-2014 according to MMS instructions. You then must make payments or may receive a refund or credit as shown in the following table: If your actual transmission deduction is . . . Then . . .

(1)Less than the amount you estimated and used to calculate royalties under § 206.352(a)(1) during the reporting period you must pay:

(i)Additional royalties retroactive to the first month of the reporting period; and

(ii)Interest computed under 30 CFR 218.302.

(2)Greater than the amount you estimated and used to calculate royalties under § 206.352(a)(1) you are entitled to a refund or credit without interest.

(p)Under no circumstances shall the transmission deduction plus the generating deduction reduce the royalty value of the geothermal resource to zero. § 206.354 How do I determine generating deductions?

(a)If you determine the value of your geothermal resources under § 206.352(b)(1)(i) of this subpart, you may take a generating deduction. If you take a generating deduction, you must deduct your reasonable actual costs incurred to generate electricity from the plant tailgate value of the electricity (usually the transmission-reduced value of the delivered electricity). You may deduct the actual costs you incur for generating electricity under your arm's-length power plant contract. (b)(1) You must base your generating costs deduction on your actual annual costs associated with the construction and operation of a geothermal power plant.

(i)You must determine your monthly generating deduction by multiplying the annual generating cost rate (in dollars per kilowatt-hour) by the amount of plant tailgate electricity measured (or computed) for the reporting month. The generating cost rate is determined from the annual amount of your plant tailgate electricity.

(ii)You must redetermine your generating cost rate annually at the beginning of the same month of the year in which the power plant was placed into service or, at your option, at a time concurrent with the beginning of your annual corporate accounting period. However, the period you select must coincide with the same period chosen for the transmission deduction under § 206.353(b)(1). After you choose a deduction period, you may not later elect to use a different deduction period without MMS approval.

(2)Base your generating costs on your actual power plant costs during the reporting period, including:

(i)Operating and maintenance expenses under paragraphs

(d)and

(e)of this section;

(ii)Overhead under paragraph

(f)of this section; and either

(iii)Depreciation under paragraphs

(g)and

(h)of this section and a return on undepreciated capital investment under paragraph

(g)and

(i)of this section; or

(iv)a return on capital investment in the power plant under paragraphs

(g)and

(j)of this section. (c)(1) Allowable capital costs under paragraph

(b)of this section are generally those for depreciable fixed assets (including costs of delivery and installation of capital equipment) which are an integral part of the power plant or are required by the design specifications of the power conversion cycle. (2)(i) You may include a return on capital you invested in the purchase of real estate for a power plant site if: (A)The purchase is necessary; and,

(B)The surface is not part of the Federal lease.

(ii)The rate of return shall be the same rate determined under paragraph

(k)of this section.

(3)You may not deduct the costs of gathering systems and other production-related facilities.

(d)Allowable operating expenses include:

(1)Operations supervision and engineering;

(2)Operations labor;

(3)Auxiliary fuel and/or utilities used to operate the power plant during down time;

(4)Utilities;

(5)Materials;

(6)Ad valorem property taxes;

(7)Rent;

(8)Supplies; and

(9)Any other directly allocable and attributable operating expense.

(e)Allowable maintenance expenses include:

(1)Maintenance of the power plant;

(2)Maintenance of equipment;

(3)Maintenance labor; and

(4)Other directly allocable and attributable maintenance expenses.

(f)Overhead directly attributable and allocable to the operation and maintenance of the power plant is an allowable expense. State and Federal income taxes and severance taxes and other fees, including royalties, are not allowable expenses.

(g)To compute costs associated with capital investment, a lessee may use either depreciation with a return on undepreciated capital investment, or a return on capital investment in the power plant. After a lessee has elected to use either method, the lessee may not later elect to change to the other alternative without MMS approval.

(i)To calculate a return on undepreciated capital investment, multiply the remaining undepreciated capital balance as of the beginning of the period for which you are calculating the generating deduction allowance by the rate of return provided in paragraph

(k)of this section.

(j)To compute a return on capital investment in the power plant, multiply the allowable capital investment in the power plant by the rate of return determined pursuant to paragraph

(k)of this section. There is no allowance for depreciation.

(k)The rate of return must be 2.0 times the industrial rate associated with Standard & Poor's BBB rating. The BBB rate must be the monthly average rate as published in Standard & Poor's Bond Guide for the first month for which the allowance is applicable. You must redetermine the rate at the beginning of each subsequent calendar year.

(l)Calculate the deduction for generating costs based on your cost of generating electricity through each individual power plant.

(1)In conducting reviews and audits, MMS may require you to submit arm's-length power plant contracts, production agreements, operating agreements, and related documents. You must comply with any such requirements within the time MMS specifies. Recordkeeping requirements are found at part 212 of this chapter.

(2)For new power plants or arrangements, base your initial deduction on estimates of allowable electricity generation costs for the applicable period. Use the most recently available operations data for the power plant or, if such data are not available, use estimates based on data for similar power plants. Paragraph

(m)of this section will apply when you amend your report based on your actual costs.

(3)In conducting reviews and audits, MMS may require you to submit all data used to calculate the deduction. You must comply with any such requirements within the time MMS specifies. Recordkeeping requirements are found at part 212 of this chapter.

(m)If your actual generating deduction at the end of the annual reporting period is different from your estimated payment, you must submit corrected Forms MMS-2014 to reflect adjustments to royalty payments in accordance with MMS instructions. You then must make payments or may receive a refund or credit as shown in the following table: If your actual generating deduction is . . . Then . . .

(1)Less than the amount you estimated and used to calculate royalties under § 206.352(a)(1) during the reporting period you must pay:

(i)Additional royalties retroactive to the first month of the reporting period; and

(ii)Interest computed under 30 CFR 218.302.

(2)Greater than the amount you estimated and used to calculate royalties under § 206.352(a)(1) you are entitled to a refund or credit without interest.

(n)Under no circumstances shall the transmission deduction plus the generating deduction reduce the royalty value of the geothermal resource to zero. § 206.355 How do I calculate royalty due on geothermal resources I sell arm's-length to a purchaser for direct use? If you sell geothermal resources produced from Class I, II, or III leases at arm's-length to a purchaser for direct use, then the royalty on the geothermal resource is the gross proceeds accruing to you from the sale of the geothermal resource to the arm's-length purchaser times the royalty rate in your lease or that BLM prescribes under 43 CFR 3211.18. See § 206.361 for additional provisions applicable to determining gross proceeds under arm's-length sales. § 206.356 How do I calculate royalty due on geothermal resources I use for direct use purposes? If you use the geothermal resource for direct use:

(a)For Class I leases, you must determine the royalty due on geothermal resources in accordance with the first applicable of the following three paragraphs.

(1)The weighted average of the gross proceeds established in arm's-length contracts for the purchase of significant quantities of geothermal resources to operate the lessee's same direct-use facility times the royalty rate in your lease. In evaluating the acceptability of arm's-length contracts, the following factors shall be considered: Time of execution, duration, terms, volume, quality of resource, and such other factors as may be appropriate to reflect the value of the resource.

(2)The equivalent value of the least expensive, reasonable alternative energy source

(fuel)times the royalty rate in your lease. The equivalent value of the least expensive, reasonable alternative energy source shall be based on the amount of thermal energy that would otherwise be used by the direct use facility in place of the geothermal resource. That amount of thermal energy (in Btu's) displaced by the geothermal resource shall be determined by the equation: EP21JY06.001 Where h in is the enthalpy in Btu's/lb at the direct use facility inlet (based on measured inlet temperature), h out is the enthalpy in Btu's/lb at the facility outlet (based on measured outlet temperature), density is in lbs/cu ft based on inlet temperature, the factor 0.133681 (cu ft/gal) converts gallons to cubic feet, and volume is the quantity of geothermal fluid in gallons produced at the wellhead or measured at an approved point. The efficiency of the alternative energy source shall be 0.7 for coal and 0.8 for oil, natural gas, and other fuels derived from oil and natural gas, or an efficiency factor proposed by the lessee and approved by MMS. The methods of measuring resource parameters (temperature, volume, etc.) and the frequency of computing and accumulating the amount of thermal energy displaced shall be determined and approved by BLM.

(3)A royalty determined by any other reasonable method approved by MMS or the Assistant Secretary, Land and Minerals Management of the Department of the Interior, under § 206.364 of this part.

(b)For hot water produced from Class II and Class III leases, you must multiply the appropriate fee from the schedule in subparagraph (b)(1) of this section by the number of gallons or pounds you produce from the direct use lease each month.

(1)You must use the following fee schedule to calculate fees due under this section: Direct Use Fee Schedule [Hot water] If your average monthly inlet temperature (°F) is At least . . . But less than . . . Your fees are . . . ($/million gallons) ($/million pounds) 130 140 2.524 0.307 140 150 7.549 0.921 150 160 12.543 1.536 160 170 17.503 2.150 170 180 22.426 2.764 180 190 27.310 3.379 190 200 32.153 3.993 200 210 36.955 4.607 210 220 41.710 5.221 220 230 46.417 5.836 230 240 51.075 6.450 240 250 55.682 7.064 250 260 60.236 7.679 260 270 64.736 8.293 270 280 69.176 8.907 280 290 73.558 9.521 290 300 77.876 10.136 300 310 82.133 10.750 310 320 86.328 11.364 320 330 90.445 11.979 330 340 94.501 12.593 340 350 98.481 13.207 350 360 102.387 13.821

(i)For direct use geothermal resources with an average monthly inlet temperature of 130 °F or less, you must only pay the lease rental.

(ii)The MMS, in consultation with BLM, will develop and publish a revised fee schedule in the **Federal Register** , as needed.

(iii)The MMS, in consultation with BLM, will calculate revised fees schedules using the following formulas: For reporting on a volume basis: EP21JY06.002 For reporting on a mass basis: EP21JY06.003 Where: R V = Royalty due as a function produced volume in the fee schedule, expressed as dollars ($) per million (10 6 ) gallons; R m = Royalty due as a function of produced mass in the fee schedule, expressed as dollars ($) per million (10 6 ) pounds; ρ = Water density at inlet temperature expressed as lbs per gallon; T in = Measured inlet temperature in °F (as required by BLM under 43 CFR part 3275); T out = Established assumed outlet temperature of 130 °F; e = Boiler Efficiency Factor for coal of 70%; P prbc = The three year historical average of Powder River Basin spot coal prices, as published by the Energy Information Administration, in dollars ($) per MMBtu; F rr = The assumed Lease Royalty Rate of 10%

(2)The fee that you report is subject to monitoring, review, and audit.

(3)The schedule of fees established under this paragraph will apply to any Class III lease with respect to any royalty payments previously made when the lease was a Class I lease that were due and owing, and were paid, on or after July 16, 2003. To use this provision, you must provide MMS data showing the amount of geothermal production in pounds or gallons of geothermal fluid to input into the fee schedule (see 43 CFR part 3276).

(i)If the royalties you previously paid are less than the fees due under this section, then you must pay the difference. You must pay interest on that difference computed under 30 CFR 218.302.

(ii)If the royalties you previously paid are more than the fees due under this section, then you are entitled to a refund or credit from MMS of fifty percent of the overpaid royalties. You are also entitled to a refund or credit of any interest that you paid on the overpaid royalties.

(c)For geothermal resources other than hot water, MMS will determine fees on a case-by-case basis. § 206.357 How do I calculate royalty due on byproducts? If you sell byproducts, then you must determine the royalty due on the byproducts produced from Class I, II, or III leases in accordance with the first applicable of the following paragraphs:

(a)The gross proceeds accruing to you for the arm's-length sale of the byproducts, less any applicable byproduct transportation allowances determined under §§ 206.357 and 206.358 times the royalty rate in your lease or that BLM prescribes under 43 CFR 3211.19. See § 206.361 for additional provisions applicable to determining gross proceeds;

(b)Other relevant matters including, but not limited to, published or publicly available spot-market prices, or information submitted by the lessee concerning circumstances unique to a particular lease operation or the saleability of certain byproducts; or

(c)A value determined by any other reasonable valuation method approved by MMS. § 206.358 What are byproduct transportation allowances?

(a)When you determine the value of byproducts at a point off the geothermal lease, unit, or participating area, you are allowed a deduction in determining value, for royalty purposes, for your reasonable, actual costs incurred to:

(1)Transport the byproducts from a Federal lease, unit, or participating area to a sales point or point of delivery that is off the lease, unit, or participating area; or

(2)Transport the byproducts from a Federal lease, unit, or participating area, or from a geothermal use facility to a byproduct recovery facility when that byproduct recovery facility is off the lease, unit, or participating area and, if applicable, from the recovery facility to a sales point or point of delivery off the lease, unit, or participating area.

(b)Costs for transporting geothermal fluids from the lease to the geothermal use facility, whether on or off the lease, shall not be included in the byproduct transportation allowance. (c)(1) When you transport byproducts from a lease, unit, participating area, or geothermal use facility to a byproduct recovery facility, you are not required to allocate transportation costs between the quantity of marketable byproducts and the rejected waste material. The byproduct transportation allowance is authorized for the total production that is transported. You must express byproduct transportation allowances as a cost per unit of marketable byproducts transported.

(2)For byproducts that are extracted on the lease, unit, participating area, or at the geothermal use facility, the byproduct transportation allowance is authorized for the total byproduct that is transported to a point of sale off the lease, unit, or participating area. You must express byproduct transportation allowances as a cost per unit of byproduct transported.

(3)Transportation costs shall be authorized as allowances only when the transported byproduct is sold, delivered, or otherwise utilized by the lessee and royalties are reported and paid.

(d)*Reporting requirements* —(1) *Arm's-length contracts.*

(i)You must use a discrete field on Form MMS-2014 to notify MMS of a transportation allowance.

(ii)In conducting reviews and audits, MMS may require you to submit arm's-length transportation contracts, production agreements, operating agreements, and related documents. You must comply with any such requirements within the time MMS specifies. Recordkeeping requirements are found at part 212 of this chapter.

(2)*Non-arm's-length or no contract.*

(i)You must use a discrete field on Form MMS-2014 to notify MMS of a transportation allowance.

(ii)For new transportation facilities or arrangements, base your initial deduction on estimates of allowable byproduct transportation costs for the applicable period. Use the most recently available operations data for the transportation system or, if such data are not available, use estimates based on data for similar transportation systems. Paragraph

(e)of this section will apply when you amend your report based on your actual costs.

(iii)In conducting reviews and audits, MMS may require you to submit all data used to calculate the deduction. You must comply with any such requirements within the time MMS specifies. Recordkeeping requirements are found at part 212 of this chapter. (e)(1) If the actual transmission deduction you determined at the end of the annual reporting period is:

(i)Less than the amount you estimated and used to calculate royalties under § 206.356(a) during the reporting period, then you must pay additional royalties retroactive to the first month of the reporting period, plus interest computed under 30 CFR 218.302; or

(ii)Greater than the amount you estimated and used to calculate royalties under § 206.356(a) you are entitled to a refund or credit without interest.

(2)You must submit corrected Forms MMS-2014 to reflect adjustments to royalty payments in accordance with MMS instructions.

(f)Byproduct transportation allowances are subject to monitoring, review, and audit. If, after a review and/or audit, MMS determines that you have improperly determined a byproduct transportation allowance authorized by this section, then:

(1)You must pay any additional royalties plus interest determined in accordance with 30 CFR 218.302; or

(2)You are entitled to a refund or credit without interest.

(g)If you commingled byproducts produced from Federal and non-Federal leases for transportation, you may not disproportionately allocate transportation costs to Federal lease production.

(a)For transportation costs you incur under an arm's-length contract, the transportation allowance shall be the reasonable, actual costs you incurred for transporting the byproducts under that contract, subject to monitoring, review, audit, and possible future adjustments. You may deduct costs incurred under an arm's-length transportation contract without prior MMS approval.

(1)In conducting reviews and audits, MMS will examine whether the contract reflects more than the consideration actually transferred either directly or indirectly from you to the transporter for the transportation. If the contract reflects more than the total consideration you paid, MMS may require you to determine the byproduct transportation allowance under paragraph

(b)of this section.

(2)If MMS determines that the consideration you paid under an arm's-length byproduct transportation contract does not reflect the reasonable value of the transportation because of misconduct by or between the contracting parties, or because you otherwise have breached your duty to the lessor to market the production for the mutual benefit of the lessee and the lessor, MMS will require you to determine the byproduct transportation allowance under paragraph

(b)of this section. When MMS determines that the value of the transportation may be unreasonable, MMS will notify you and give you an opportunity to provide written information justifying your transportation costs.

(3)Where your payments for transportation under an arm's-length contract are not established on a dollars-per-unit basis, you must convert whatever consideration you paid to a dollar value equivalent for the purposes of this section.

(b)For transportation costs you incur; *i.e.* , where you perform transportation services for yourself, you must base the byproduct transportation allowance on your reasonable actual costs.

(1)All byproduct transportation allowances deducted under this paragraph are subject to monitoring, review, audit, and possible future adjustment. You may deduct transportation costs incurred under this paragraph without prior MMS approval.

(2)You must base the byproduct transportation allowance on your reasonable actual costs for transportation during the reporting period, including:

(i)Operating and maintenance expenses under paragraphs

(d)and

(e)of this section;

(ii)Overhead under paragraph

(f)of this section; and either

(iii)Depreciation under paragraphs

(g)and

(h)of this section and a return on undepreciated capital investment under paragraphs

(g)and

(i)of this section; or

(iv)a return on capital investment in the transportation system under paragraphs

(g)and

(j)of this section. (c)(1) Allowable capital costs under paragraph

(b)of this section are generally those for depreciable fixed assets (including costs of delivery and installation of capital equipment) which are an integral part of the transportation system. (2)(i) You may include a return on capital you invested in the purchase of real estate to locate the byproduct transportation facilities if:

(A)The purchase is necessary; and

(B)The surface is not part of a Federal lease.

(ii)The rate of return shall be the same rate determined in paragraph

(k)of this section.

(3)You may not deduct the costs of gathering systems and other production-related facilities.

(d)Allowable operating expenses include:

(1)Operations supervision and engineering;

(2)Operations labor;

(3)Fuel;

(4)Utilities;

(5)Materials;

(6)Ad valorem property taxes;

(7)Rent;

(8)Supplies; and

(9)Any other directly allocable and attributable operating expense which you can document.

(e)Allowable maintenance expenses include:

(1)Maintenance of the transportation system;

(2)Maintenance of equipment;

(3)Maintenance labor; and

(4)Other directly allocable and attributable maintenance expenses which you can document.

(f)Overhead directly attributable and allocable to the operation and maintenance of the transportation system is an allowable expense. State and Federal income taxes and severance taxes and other fees, including royalties, are not allowable expenses.

(g)To compute costs associated with capital investment, a lessee may use either paragraphs

(h)and

(i)or paragraph

(j)of this section. After a lessee has elected to use either method for a transportation system, the lessee may not later elect to change to the other alternative without MMS approval.

(h)To compute depreciation, you may elect to use either a straight-line depreciation method based on the life of the transportation system, the life of the reserves which the transmission system services, or a unit-of-production method. After you make an election, you may not change methods without MMS approval. You may not depreciate equipment below a reasonable salvage value. With or without a change in ownership, you may depreciate a transportation system only once.

(i)To calculate a return on undepreciated capital investment, multiply the remaining undepreciated capital balance as of the beginning of the period for which you are calculating the transportation allowance by the rate of return provided in paragraph

(k)of this section.

(j)To compute a return on capital investment in the transportation system, the allowed cost shall be the amount equal to the allowable capital investment in the transportation system multiplied by the rate of return determined pursuant to paragraph

(k)of this section. There is no allowance for depreciation.

(k)The rate of return must be the industrial rate associated with Standard & Poor's BBB rating. The BBB rate must be the monthly average rate as published in Standard & Poor's Bond Guide for the first month for which the allowance is applicable. You must redetermine the rate at the beginning of each subsequent calendar year.

(l)Other transportation cost determinations. Use this section when calculating transportation costs to establish value using a netback procedure or any other procedure that requires deduction of transportation costs. § 206.360 What records must I keep to support my calculations of royalty or fees under this subpart? If you determine royalties or fees for your geothermal resource under this subpart, you must retain all data relevant to the determination of the royalty value or the fee you paid. Recordkeeping requirements are found at part 212 of this chapter.

(a)You must be able to show:

(1)How you calculated the royalty value or fee you reported, including all allowable deductions; and

(2)How you complied with this subpart.

(b)Upon request, you must submit all data to MMS. § 206.361 How will MMS determine whether my royalty value, gross proceeds, or fees are correct? (a)(1) The royalties or fees that you report are subject to monitoring, review and audit. The MMS may review and audit your data, and MMS will direct you to use a different measure of royalty value, gross proceeds or fee, whichever is applicable, if it determines that the reported value, gross proceeds, or fee is inconsistent with the requirements of this subpart.

(2)If MMS directs you to use a different royalty value, measure of gross proceeds, or fee under paragraph (a)(1) of this section, then the following table applies: If the royalty or fee you paid . . . Then . . .

(i)Is less than the royalty or fee based upon the royalty value or fee established by MMS you must pay the difference plus interest on that difference computed under 30 CFR 218.302.

(ii)Is more than the royalty or fee owed based upon the royalty value, gross proceeds, or fee established by MMS you are entitled to a refund or credit without interest.

(b)When the provisions in this subpart refer to gross proceeds either for the sale of electricity or the sale of a geothermal resource, in conducting reviews and audits MMS will examine whether your sales contract reflects the total consideration actually transferred, either directly or indirectly, from the buyer to you for the geothermal resource or electricity. If MMS determines that a contract does not reflect the total consideration, or the gross proceeds accruing to you under a contract do not reflect reasonable consideration because of misconduct by or between the contracting parties, or because you otherwise have breached your duty to the lessor to market the production for the mutual benefit of the lessee and the lessor, MMS may require you to increase the gross proceeds to reflect any additional consideration. Alternatively, for Class I leases, MMS may require you to use another valuation method in the regulations applicable to dispositions other than under an arm's-length contract. The MMS will notify you to give you an opportunity to provide written information justifying your gross proceeds.

(c)For arm's-length sales, you have the burden of demonstrating that your contract is arm's length.

(d)The MMS may require you to certify that the provisions in your sales contract include all of the consideration the buyer paid you, either directly or indirectly, for the electricity or geothermal resource.

(e)Notwithstanding any other provision of this subpart, under no circumstances shall the value of production for royalty purposes under a Class I lease where the geothermal resources are sold before use be less than the gross proceeds accruing to you.

(f)Gross proceeds for the sale of electricity or for the sale of the geothermal resource shall be based on the highest price a prudent lessee can receive through legally enforceable claims under its contract.

(1)Absent contract revision or amendment, if you fail to take proper or timely action to receive prices or benefits to which you are entitled, you must pay royalty based upon that obtainable price or benefit.

(2)Contract revisions or amendments you make must be in writing and signed by all parties to the contract.

(3)If you make timely application for a price increase or benefit allowed under your contract, but the purchaser refuses and you take reasonable measures, which are documented, to force purchaser compliance, you will owe no additional royalties unless or until you receive additional monies or consideration resulting from the price increase. This paragraph (f)(3) shall not be construed to permit you to avoid its royalty payment obligation in situations where a purchaser fails to pay, in whole or in part or timely, for a quantity of geothermal resources or electricity. § 206.362 What are my responsibilities to place production into marketable condition and to market production? You must place geothermal resources and byproducts in marketable condition and market the geothermal resources or byproducts for the mutual benefit of the lessee and the lessor at no cost to the Federal Government. If you use gross proceeds under an arm's-length contract in determining royalty, you must increase those gross proceeds to the extent that the purchaser, or any other person, provides certain services that the seller normally would be responsible to perform to place the geothermal resources or byproducts in marketable condition or to market the geothermal resources or byproducts. § 206.363 When is an MMS audit, review, reconciliation, monitoring, or other like process considered final? Notwithstanding any provision in these regulations to the contrary, no audit, review, reconciliation, monitoring, or other like process that results in a redetermination by MMS of royalty or fees due under this subpart is considered final or binding as against the Federal Government or its beneficiaries until MMS formally closes the audit period in writing. § 206.364 How do I request a value or gross proceeds determination?

(a)You may request a value determination from MMS regarding any geothermal resources produced from a Class I lease or for byproducts produced from a Class I, II, or III lease. You may also request a gross proceeds determination for a Class II or III lease. Your request must:

(1)Be in writing;

(2)Identify specifically all leases involved, the record title or operating rights owners of those leases, and the designees for those leases;

(3)Completely explain all relevant facts. You must inform MMS of any changes to relevant facts that occur before we respond to your request;

(4)Include copies of all relevant documents;

(5)Provide your analysis of the issue(s), including citations to all relevant precedents (including adverse precedents); and

(6)Suggest your proposed gross proceeds calculation method.

(b)The MMS will reply to requests expeditiously. MMS may either:

(1)Issue a determination signed by the Assistant Secretary, Land and Minerals Management; or

(2)Issue a determination by MMS; or

(3)Inform you in writing that MMS will not provide a determination. Situations in which MMS typically will not provide any determination include, but are not limited to:

(i)Requests for guidance on hypothetical situations; and

(ii)Matters that are the subject of pending litigation or administrative appeals. (c)(1) A determination signed by the Assistant Secretary, Land and Minerals Management, is binding on both you and MMS until the Assistant Secretary modifies or rescinds it.

(2)After the Assistant Secretary issues a determination, you must make any adjustments in royalty payments that follow from the determination and, if you owe additional royalties, pay late payment interest under 30 CFR 218.302.

(3)A determination signed by the Assistant Secretary is the final action of the Department and is subject to judicial review under 5 U.S.C. 701-706.

(d)A determination issued by MMS is binding on MMS and delegated States, but not on you, with respect to the specific situation addressed in the determination unless the MMS (for MMS-issued determinations) or the Assistant Secretary modifies or rescinds it.

(1)A determination by MMS is not an appealable decision or order under 30 CFR part 290 subpart B.

(2)If you receive an order requiring you to pay royalty on the same basis as the determination, you may appeal that order under 30 CFR part 290 subpart B.

(e)In making a determination, MMS or the Assistant Secretary may use any of the applicable criteria in this subpart.

(f)A change in an applicable statute or regulation on which any determination is based takes precedence over the determination, regardless of whether the MMS or the Assistant Secretary modifies or rescinds the determination.

(g)The MMS or the Assistant Secretary generally will not retroactively modify or rescind a determination issued under paragraph

(d)of this section, unless:

(1)There was a misstatement or omission of material facts; or

(2)The facts subsequently developed are materially different from the facts on which the guidance was based.

(h)The MMS may make requests and replies under this section available to the public, subject to the confidentiality requirements under § 206.365. § 206.365 Does MMS protect information I provide? Certain information you submit to MMS regarding royalties or fees on geothermal resources or byproducts, including deductions and allowances, may be exempt from disclosure. To the extent applicable laws and regulations permit, MMS will keep confidential any data you submit that is privileged, confidential, or otherwise exempt from disclosure. All requests for information must be submitted under the Freedom of Information Act regulations of the Department of the Interior at 43 CFR part 2. § 206.366 What is the nominal fee that a state, tribal, or local government lessee must pay for the use of geothermal resources? If a state, tribal, or local government lessee uses a geothermal resource without sale and for public purposes—other than commercial generation of electricity—the state, tribal, or local government lessee must pay a nominal fee. A nominal fee means a slight or *de minimis* fee. MMS will determine the fee on a case-by-case basis. PART 210—FORMS AND REPORTS 7. The authority for part 210 continues to read as follows: Authority: 5 U.S.C. 301 *et seq.* ; 25 U.S.C. 396, 2107; 30 U.S.C. 189, 190, 359, 1023, 1751(a); 31 U.S.C. 3716, 9701; 43 U.S.C. 1334, 1801 *et seq.* ; and 44 U.S.C. 3506(a). Subpart H—Geothermal Resources § 210.352 [Removed] 8. Remove § 210.352. PART 218—COLLECTION OF ROYALTIES, RENTALS, BONUSES AND OTHER MONIES DUE THE FEDERAL GOVERNMENT 9. The authority for part 218 continues to read as follows: Authority: 25 U.S.C. 396 *et seq.* , 396a *et seq.* , 2101 *et seq.* ; 30 U.S.C. 181 *et seq.* , 351 *et seq.* , 1001 *et seq.* ; 1701 *et seq.* ; 31 U.S.C. 3335; 43 U.S.C. 1301 *et seq.* ; 1331 *et seq.* , and 1801 *et seq.* 10-11. Add §§ 218.303, 218.304, 218.305, 218.306, and 218.307 to subpart F to read as follows: § 218.303 May I credit rental towards royalty?

(a)If you pay your annual rental for your lease before the first day of the year for which the annual rental is owed, the provisions in the following table apply. If the annual rental you paid is . . . Then . . .

(1)Less than or equal to the royalty you are required to pay that year you may credit the annual rental that you paid toward the royalty due for that lease year at any time during that lease year.

(2)More than the royalty you are required to pay that year

(i)You will not pay royalty during that lease year; and

(ii)You may not apply any annual rental paid in excess of the royalty due for a particular lease year as a credit against royalties due for production in a future year.

(b)If portions of your lease are located both within and outside of a participating area, you may only credit the rental you paid for the portion of the lease within the participating area on a per-acre basis. § 218.304 May I credit rental towards direct use fees? You may not credit annual rental toward direct use fees you are required to pay that year under 30 CFR 206.356(b). You must pay the direct use fees in addition to the annual rental due. § 218.305 How do I pay advanced royalties I owe under BLM regulations? If you are required to pay advanced royalties under 43 CFR 3212.15(a) to retain your lease:

(a)You must pay an advanced royalty monthly equal to the average monthly royalty you paid under 30 CFR part 206, subpart H for the last 3 years the lease was producing. If your lease has been producing for less than 3 years, then use the average monthly royalty payment for the entire period your lease has been producing continuously;

(b)MMS must receive your advanced royalty payment prior to the first day of each month for which production has ceased;

(c)You may credit any advanced royalty you pay against your future production royalties recouped after your lease resumes production. You may not reduce the amount of any production royalty paid for any year below zero. § 218.306 May I receive a credit against production royalties for in-kind deliveries of electricity I provide under contract to a state or county government?

(a)You may receive a credit against production royalties for in-kind deliveries of electricity you provide under contract to a state or county government if:

(1)The state or county to which you provide electricity would receive a portion of the royalties you paid in money for the lease under 30 U.S.C. 191 or 30 U.S.C. 1019, except as otherwise provided under the Mineral Leasing Act for Acquired Lands, 30 U.S.C. 355, because your lease is located in that state or county. If your lease is located in more than one state or county, the revenues are paid to the respective states or counties based on their proportionate shares of the total acres in the lease;

(2)MMS approves in advance your contract with the state or county to which you are providing in-kind electricity; and

(3)Your contract provides that you will use the wholesale value of the electricity for the area where your lease is located to establish the specific methodology to determine the amount of the credit; and

(b)The maximum credit you may take under this section is equal to the portion of the royalty revenue that MMS would have paid to the state or county that is a party to the contract had you paid royalty in money on all of the electricity you delivered to the state or county based on the wholesale value of the electricity. You must pay in money any royalty amount that is not offset by the credit allowed under this section, calculated based on the wholesale value of the electricity.

(c)The electricity the state or county government receives from you satisfies the Secretary's payment obligation to the state or county under 30 U.S.C. 191 or 30 U.S.C. 1019. § 218.307 How do I pay royalties due for my existing leases that qualify for near-term production incentives under BLM regulations? If you qualify for a production incentive under BLM regulations at 43 CFR part 3212, your royalty due on the production BLM determines to be qualified for a production incentive is 50 percent of the amount of the total royalty that would otherwise be due under 30 CFR part 206, subpart H. [FR Doc. 06-6219 Filed 7-20-06; 8:45 am]

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