Rules and Regulations. Final rule

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BILLING CODE 3410-02-P DEPARTMENT OF ENERGY 10 CFR Part 626 RIN 1901-AB16 Procedures for the Acquisition of Petroleum for the Strategic Petroleum Reserve AGENCY: Office of Petroleum Reserves, Department of Energy. ACTION: Final rule. SUMMARY: The Energy Policy Act of 2005 (EPAct 2005) directs the Secretary of Energy (Secretary) to develop procedures for the acquisition of petroleum for the Strategic Petroleum Reserve

(SPR)in appropriate circumstances. On April 24, 2006, the Department of Energy

(DOE)published proposed procedures in the **Federal Register** for public comment. Today DOE is issuing the final rule governing procedures for the acquisition of petroleum for the SPR, including acquisition by direct purchase and transfer of royalty oil from the Department of the Interior (DOI). The final rule also has provisions concerning the deferral of scheduled deliveries of petroleum for the SPR. With the exception of some minor clarification changes and definitional and editorial adjustments, these final procedures are substantially the same as those proposed. DATES: *Effective Date:* This final rule is effective December 8, 2006. FOR FURTHER INFORMATION CONTACT: Lynnette le Mat, Director, Operations and Readiness, Office of Petroleum Reserves, Office of Fossil Energy, FE-43, U.S. Department of Energy, 1000 Independence Ave., SW., Washington, DC 20585,

(202)586-4398. SUPPLEMENTARY INFORMATION: Table of Contents I. Introduction A. Background B. The Energy Policy Act of 2005 II. Discussion of the Comments and Changes to Proposed Procedures III. Final Acquisition Procedures A. Discussion of Acquisition Principles B. Vehicles for Petroleum Acquisition IV. Regulatory Review I. Introduction A. Background The Strategic Petroleum Reserve was established pursuant to the Energy Policy and Conservation Act

(EPCA)(42 U.S.C. 6201 *et seq.* ) to store petroleum to diminish the impact on the United States of disruptions in petroleum supplies and to carry out the obligations of the United States under the International Energy Program. EPCA authorizes the Secretary of Energy to acquire petroleum for storage in the SPR by a variety of methods. Since its authorization, the Federal Government has created six crude oil storage sites and has subsequently decommissioned two of the six. The SPR currently consists of underground storage caverns located in the four Government-owned sites. The locations are Bryan Mound and Big Hill in Texas and West Hackberry and Bayou Choctaw in Louisiana. These four storage locations have salt dome caverns with 727 million barrels of useable storage capacity. Over the last thirty years, the Government has acquired approximately 800 million barrels of petroleum for the SPR. Over 100 million barrels of oil have been withdrawn from the SPR for sale or exchange. The inventory reached its highest level of 700.7 million barrels in August 2005 before the drawdown, exchange and sale of 20.8 million barrels in the aftermath of Hurricane Katrina. Crude oil was initially acquired for the SPR by direct purchases on the open market. Through a 1977 Interagency Agreement, the Department of Defense served as DOE's agent to acquire crude oil using appropriated funds to attempt to meet a series of target fill rates specified by Congress. Petroleum was acquired through a combination of spot market purchases and term contracts, including a matching purchase and sale involving the Government's share of production from the Naval Petroleum Reserve in California. Except for various pauses occasioned by geopolitical events, such as Desert Storm in 1991, direct purchases continued with the Defense Fuel Supply Center (currently the Defense Energy Support Center) functioning as DOE's acquisition agent through 1994, at which time funds from direct appropriations and receipts from sales in 1990 and 1991 were exhausted. In December 1981, DOE entered into the first of a series of four country-to-country contracts with Petroleos Mexicanos (PEMEX), the state-owned oil company of Mexico. These term contracts—under which deliveries of approximately 220 million barrels of petroleum were completed in 1990—employed commercial market terms and were priced according to a formula indexed to prices of globally-traded petroleum. In 1996, in a series of congressionally-mandated sales, an aggregate 28 million barrels of SPR inventory were sold to fund SPR programmatic requirements and for general deficit reduction purposes. Subsequently, pursuant to a 1999 Memorandum of Understanding

(MOU)between the DOI and DOE, DOE initiated a program to replace the 28 million barrels by the transfer to DOE of crude oil royalties collected in-kind on production from Federal leases in the Gulf of Mexico Outer Continental Shelf. Under this MOU, DOE contracted with commercial entities to receive the royalty oil at offshore production facilities and transfer it to the SPR, either directly or by exchange for other crude oil meeting SPR quality specifications. In 1998, in order to improve the efficiency of drawdown operations at the Bryan Mound site, DOE conducted a competition under the exchange authority in EPCA to trade crude oil of one type for another type of superior quality. Although this resulted in a net decrease in the number of barrels in inventory, the upgrade in oil quality maintained the value of the Government's assets and enhanced emergency response capabilities. In the fall of 2000, again under the EPCA exchange authority, DOE conducted a time exchange of oil from the SPR. Through open competition, DOE entered into agreements with nine companies to exchange 30 million barrels of oil. Under these agreements, oil delivered to companies from SPR sites was to be repaid the following year with oil of comparable quality and quantity, plus additional premium barrels paid as interest. In November 2001, the Administration announced it would extend the royalty-in-kind program to fill the SPR to a level of 700 million barrels. To accomplish this, a new MOU was signed with DOI, and DOE issued a series of competitive solicitations for six-month terms, similar to those used previously to acquire 28 million barrels. At various times since 1999, when the market moved into steep backwardation (prices are progressively lower in succeeding delivery months than in earlier months), suppliers under both the time exchange and royalty-in-kind transfer programs requested that contractually scheduled deliveries to the SPR be delayed. DOE granted these deferral requests through individual negotiations for the future return of the originally scheduled barrels plus additional premium barrels. In addition, there have been periods when catastrophic events, most recently severe weather, have prompted requests for emergency time exchanges of oil from the SPR. These emergency time exchanges have been conducted in a manner similar to deferred deliveries, in that the exchanged oil is returned plus additional barrels as a premium. B. EPAct 2005 Section 159 of EPCA (42 U.S.C. 6239) authorizes the Secretary to acquire petroleum products for storage in the SPR by purchase, exchange, or otherwise, subject to the provisions of section 160. The acquisition authority in section 160(b) of EPCA requires that the Secretary, to the greatest extent practicable, acquire petroleum products for the SPR in a manner consistent with the following objectives: Minimization of the cost of the SPR, minimization of the Nation's vulnerability to a severe energy supply interruption, minimization of the impact of such acquisition upon supply levels and market forces, and encouragement of competition in the petroleum industry. In addition, section 301(e)(2)(A) of EPAct 2005 amends EPCA by adding a new subsection

(c)to section 160. Subsection

(c)directs the Secretary to develop, with public notice and opportunity for comment, procedures consistent with the objectives of section 160 to acquire petroleum for the SPR. Such procedures must take into account the need to:

(1)Maximize overall domestic supply of crude oil (including quantities stored in private sector inventories);

(2)Avoid incurring excessive cost or appreciably affecting the price of petroleum products to consumers;

(3)Minimize the costs to DOI and DOE in acquiring such petroleum products (including foregone revenues to the Treasury when petroleum products for the SPR are obtained through the royalty-in-kind program);

(4)Protect national security;

(5)Avoid adversely affecting current and futures prices, supplies, and inventories of oil; and

(6)Address other factors that the Secretary determines to be appropriate. Section 301(e)(2)(B) of EPAct 2005 further provides that the procedures developed under section 160(c) shall include procedures and criteria for the review of requests for the deferrals of scheduled deliveries. Consistent with the principles set forth in EPCA and the requirements and objectives of EPAct 2005, DOE is issuing this final rule establishing procedures for oil acquisition by direct purchase and by royalty oil transfers from DOI, including procedures to address deferrals of scheduled deliveries. These acquisition procedures will be effective thirty

(30)days after the publication of this final rule in the **Federal Register** . However, the President has directed DOE to defer filling the SPR for the summer of 2006. Therefore, DOE has no current plans to utilize these procedures to enter into the market to acquire additional oil supplies for the SPR. II. Discussion of the Comments and Changes to Proposed Procedures As previously mentioned, DOE published a notice of proposed rulemaking in the **Federal Register** on April 24, 2006 (78 FR 20909) and requested public comments on the proposed procedures. In response to the request for comments, three comments were received, one from an anonymous member of the general public, one from a trade association and one from a refiner. The general public comment was not directed specifically at the proposed SPR acquisition regulations. It simply encouraged DOE to look for more effective measures to deter disruptions in the U.S oil supply. The trade association comment recommended that DOE should establish procedures to acquire oil for the SPR when prices are low in order to minimize the effect on present and future market conditions and petroleum product prices. It suggested that the proposed procedures be modified to provide that DOE would not acquire oil for the SPR or would delay acquisition transactions when prices exceed a fixed percentage from the median monthly average for a specified period. Spec-ifically, it recommended setting this trigger at a 40 percent differential using the prior ten year period. Generally, DOE does not support tying the acquisition of oil for the SPR or deferral of transactions to a specific pricing trigger. DOE believes that such trigger mechanisms do not always reflect the true state of petroleum markets or necessitate activities related to petroleum stockpiles. Use of a predetermined calculation raises definitional issues and questions as to accuracy and timeliness of data, questions as to whether the market is experiencing sustained trends versus anomalies, and questions as to what would be the appropriate action when calculations no longer exceed thresholds. DOE prefers to retain the flexibility to achieve the statutory objectives through the management of acquisition activities only after a careful review of a number of market indicators. For these reasons, DOE has not accepted this recommendation. Finally, the refiner comment suggested that the wording for termination of contracts in proposed section 626.5(d)(2) be clarified. The comment wanted clarification that the Government would be liable for any reasonable costs incurred by suppliers in the performance of valid contracts for the delivery of SPR oil prior to termination or deferral of such contracts. The comment suggested using language modified from the termination provisions of the SPR price competitive sales regulations in 10 CFR Part 625. DOE agrees with the intent of this recommendation and has modified the language of sections 626.5(d)(2) and 626.8(c)(1) accordingly. The procedures adopted in section 626.1 do not represent actual terms and conditions to be contained in contracts for the acquisition of SPR petroleum. The definition of Contracting Officer in section 626.2 was modified to more clearly define the responsibilities of the Contracting Officer. III. Final Acquisition Procedures A. Discussion of Acquisition Principles DOE will consider a wide range of factors consonant with the objectives set forth in section 160

(b)of EPCA and the new section 160

(c)added by EPAct 2005. DOE will give careful and deliberative consideration of these factors prior to acquisition of petroleum for the SPR or deferral of scheduled deliveries. While the mission of the SPR is to provide energy security by storing substantial quantities of petroleum, the acquisition of petroleum to meet this long term objective must be conducted using the criteria set forth in EPCA, as amended by the EPAct 2005. When acquiring petroleum, whether by purchase or royalty transfer, DOE will seek to balance the objectives of assuring adequate security and minimizing impact to the petroleum market. To this end, DOE will consider various factors that may be affecting market fundamentals, current and projected SPR and commercial receipt capabilities, and the geopolitical climate. Whether acquiring by purchase or royalty transfer, DOE will seek to maximize the overall domestic supply of crude oil. Assuming the necessary authorizations and appropriations have been made, DOE decisions on crude oil acquisition will take into consideration the current level of the SPR and private inventories, national and regional import dependency, the outlook for international and domestic production levels, oil acquisition by other stockpiling entities, the added security value of the marginal barrel in storage, incipient disruptions of supply or refining capability, the level of market volatility, the demand and supply elasticity to price changes, logistics and economics of petroleum movement, and any other considerations that may be pertinent to the balance of petroleum supply and demand. More indirect considerations, such as monetary policy, the current and projected rate of economic growth, and impacts on specific domestic market segments, as well as foreign policy considerations may also be pertinent to near-term acquisition strategy. All of these factors are recognized as having an impact, at some level, on U.S. energy security. The timing of DOE entry into the market, its sustained presence, and the quantities sought will all be sensitive to these factors. DOE will remain aware of the extent to which the SPR fill rate and prices paid for its own acquisitions will impact supply availability and prices for other market participants. DOE will strive to avoid incurring excessive cost or appreciably affecting the price of petroleum products to consumers by analyzing market activity for crude oil and related commodities and prices of oil for delivery in future months, as well as the perceived availability of near term and forward supplies. For purchases or exchanges, DOE will ensure the use of commercially reasonable terms and conditions. B. Vehicles for Petroleum Acquisition DOE may acquire oil for the SPR through direct purchase, the transfer of royalty-in-kind oil, through deferrals and exchanges, or other means authorized in sections 159 and 160 of EPCA. In order to acquire oil, DOE may enter into agreements with other Federal agencies with relevant expertise and resources to acquire oil for the SPR consistent with the provisions of 10 CFR Part 626. 1. Direct Purchases Use of the direct purchase method for oil acquisition is contingent upon the availability of funds. If funds are made available, DOE would provide public notice of its intent to issue a solicitation for the acquisition of crude oil. The quantity and quality of oil to be purchased would be identified in the solicitation. When acquiring by direct purchase, DOE would use competitive solicitations to assure that prices paid are fair and reasonable in a global market, and in line with contemporaneous commercial transactions for comparable quality crude oils. The use of open, continuous solicitations that allow entry into price and delivery negotiations would enable DOE to increase the rate of purchases if price volatility reduces prices below trend and offers the opportunity to reduce the average cost of oil acquisition. Under these procedures, DOE also may decrease the rate of purchase if volatility or future price projections indicate a delay would result in better acquisition prices and less stress on seasonal petroleum markets. DOE's decision to enter the market, delay purchases or defer deliveries would follow the careful analysis of the effect of such a decision on current and futures prices, supplies and inventories of oil. 2. Royalty-in-Kind Transfers DOI is responsible for collecting royalties on production from leases on Federally-owned properties. DOI, on behalf of the Federal Government, receives royalties of a defined percentage of the amount or value of the oil produced from the leases. Royalties taken “in kind”, in the oil itself, may be transferred to the SPR pursuant to agreement between DOE and DOI for the transfer of royalty oil. Such transfers are conducted in coordination with the Minerals Management Service of DOI. Under the royalty-in-kind acquisition method in this rule, DOE may take the royalty oil directly from DOI and place it in the SPR if it is of suitable quality and transportation logistics are amenable for direct transfer. DOE expects this would be a small proportion of the total oil transferred. However, in most cases, DOE will competitively solicit suppliers to deliver oil of comparable value to the SPR in exchange for the receipt of royalty-in-kind oil. In these competitive exchange agreements, the suppliers are bound by contract to provide oil of suitable quality to the SPR. When using royalty production to fill the SPR, DOE would minimize the cost to the DOI and DOE through its analysis of royalty values, as well as a comparative analysis of the relative market values of crude oil offered in a competitive exchange. Both agencies will encourage the direct transfer of royalty oil to the SPR when in the Government's interest. 3. Deferrals DOE may defer scheduled deliveries to the SPR for the purpose of obtaining additional crude oil. Under the rule, DOE could defer scheduled crude oil deliveries to the SPR to a later date in exchange for a premium, which would be paid to DOE in oil. The precise amount of that premium would be negotiated with the contractor by a DOE contracting officer. The determination of an appropriate premium would take into consideration the length of deferral as well as prevailing market conditions. 4. Exceptions to Applicability The procedures do not apply to the following transactions during which oil may be acquired:

(1)Country-to-country oil purchases;

(2)facility leases with payments in oil; and

(3)contracts for oil not owned by the United States as provided for by section 171 of EPCA. These excluded transactions generally are not conducted primarily for the acquisition of oil by DOE. IV. Regulatory Review A. Executive Order 12866 Today's rule has been determined to be a “significant regulatory action” under Executive Order 12866, “Regulatory Planning and Review,” 58 FR 51735 (October 4, 1993). Accordingly, this action was subject to review under that Executive Order by the Office of Information and Regulatory Affairs of the Office of Management and Budget. B. National Environmental Policy Act DOE has determined that this rule is covered under the Categorical Exclusion found in the Department's National Environmental Policy Act regulations at paragraph A.6 of Appendix A to Subpart D, 10 CFR part 1021, which applies to rulemakings that are strictly procedural. Accordingly, neither an environmental assessment nor an environmental impact statement is required. C. Regulatory Flexibility Act The Regulatory Flexibility Act (5 U.S.C. 601 *et seq.* ) requires preparation of an initial regulatory flexibility analysis for any rule that by law must be proposed for public comment, unless the agency certifies that the rule, if promulgated, will not have a significant economic impact on a substantial number of small entities. As required by Executive Order 13272, “Proper Consideration of Small Entities in Agency Rulemaking,” 67 FR 53461 (August 16, 2002), DOE published procedures and policies on February 19, 2003, to ensure that the potential impacts of its rules on small entities are properly considered during the rulemaking process (68 FR 7990). DOE has made its procedures and policies available on the Office of General Counsel's Web site: *http://www.gc.doe.gov.* DOE has reviewed today's procedures under the provisions of the Regulatory Flexibility Act and the procedures and policies published on February 19, 2003. These procedures would not directly affect small businesses or other small entities. The procedures would apply only to individuals who are engaged in the acquisition of petroleum products for the Strategic Petroleum Reserve. On the basis of the foregoing, DOE certifies that the procedures, if implemented would not have a significant economic impact on a substantial number of small entities. Accordingly, DOE has not prepared a regulatory flexibility analysis for this rulemaking. DOE's certification and supporting statement of factual basis will be provided to the Chief Counsel for Advocacy of the Small Business Administration pursuant to 5 U.S.C. 605(b). D. Paperwork Reduction Act This rule would not impose any new collection of information subject to review and approval by the Office of Management and Budget

(OMB)under the Paperwork Reduction Act (PRA), 44 U.S.C. 3501 *et seq.* E. Unfunded Mandates Reform Act of 1995 The Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) generally requires Federal agencies to examine closely the impacts of regulatory actions on State, local, and tribal governments. Subsection 101(5) of title I of that law defines a Federal intergovernmental mandate to include any regulation that would impose upon State, local, or tribal governments an enforceable duty, except a condition of Federal assistance or a duty arising from participating in a voluntary federal program. Title II of that law requires each Federal agency to assess the effects of Federal regulatory actions on State, local, and tribal governments, in the aggregate, or to the private sector, other than to the extent such actions merely incorporate requirements specifically set forth in a statute. Section 202 of that title requires a Federal agency to perform a detailed assessment of the anticipated costs and benefits of any rule that includes a Federal mandate which may result in costs to State, local, or tribal governments, or to the private sector, of $100 million or more. Section 204 of that title requires each agency that proposes a rule containing a significant Federal intergovernmental mandate to develop an effective process for obtaining meaningful and timely input from elected officers of State, local, and tribal governments. These procedures would not impose a Federal mandate on State, local or tribal governments. The rule would not result in the expenditure by State, local, and tribal governments in the aggregate, or by the private sector, of $100 million or more in any one year. Accordingly, no assessment or analysis is required under the Unfunded Mandates Reform Act of 1995. F. Treasury and General Government Appropriations Act, 1999 Section 654 of the Treasury and General Government Appropriations Act, 1999 (Pub. L. 105-277) requires Federal agencies to issue a Family Policymaking Assessment for any rule that may affect family well being. These procedures apply only to Federal employees involved in the acquisition of petroleum products for the SPR. While some of these individuals may be members of a family, the rule would not have any impact on the autonomy or integrity of the family as an institution. Accordingly, DOE has concluded that it is not necessary to prepare a Family Policymaking Assessment. G. Executive Order 13132 Executive Order 13132, “Federalism,” 64 FR 43255 (August 4, 1999) imposes certain requirements on agencies formulating and implementing policies or regulations that preempt State law or that have federalism implications. Agencies are required to examine the constitutional and statutory authority supporting any action that would limit the policymaking discretion of the States and carefully assess the necessity for such actions. DOE has examined this rule and has determined that it would not preempt State law and would not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. No further action is required by Executive Order 13132. H. Executive Order 12988 With respect to the review of existing regulations and the promulgation of new regulations, section 3(a) of Executive Order 12988, “Civil Justice Reform,” 61 FR 4729 (February 7, 1996), imposes on Executive agencies the general duty to adhere to the following requirements:

(1)Eliminate drafting errors and ambiguity;

(2)write regulations to minimize litigation; and

(3)provide a clear legal standard for affected conduct rather than a general standard and promote simplification and burden reduction. With regard to the review required by section 3(a), section 3(b) of Executive Order 12988 specifically requires that Executive agencies make every reasonable effort to ensure that the regulation:

(1)Clearly specifies the preemptive effect, if any;

(2)clearly specifies any effect on existing Federal law or regulation;

(3)provides a clear legal standard for affected conduct while promoting simplification and burden reduction;

(4)specifies the retroactive effect, if any;

(5)adequately defines key terms; and

(6)addresses other important issues affecting clarity and general draftsmanship under any guidelines issued by the Attorney General. Section 3(c) of Executive Order 12988 requires Executive agencies to review regulations in light of applicable standards in section 3(a) and section 3(b) to determine whether they are met or it is unreasonable to meet one or more of them. DOE has completed the required review and determined that, to the extent permitted by law, the procedures meet the relevant standards of Executive Order 12988. I. Treasury and General Government Appropriations Act, 2001 The Treasury and General Government Appropriations Act, 2001 (44 U.S.C. 3516 note) provides for agencies to review most disseminations of information to the public under guidelines established by each agency pursuant to general guidelines issued by OMB. OMB's guidelines were published at 67 FR 8452 (February 22, 2002), and DOE's guidelines were published at 67 FR 62446 (October 7, 2002). DOE has reviewed today's notice under the OMB and DOE guidelines and has concluded that it is consistent with applicable policies in those guidelines. J. Executive Order 13211 Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use,” 66 FR 28355 (May 22, 2001) requires Federal agencies to prepare and submit to the Office of Information and Regulatory Affairs (OIRA), Office of Management and Budget, a Statement of Energy Effects for any proposed significant energy action. A “significant energy action” is defined as any action by an agency that promulgated or is expected to lead to promulgation of a final rule, and that:

(1)Is a significant regulatory action under Executive Order 12866, or any successor order; and

(2)is likely to have a significant adverse effect on the supply, distribution, or use of energy, or

(3)is designated by the Administrator of OIRA as a significant energy action. For any proposed significant energy action, the agency must give a detailed statement of any adverse effects on energy supply, distribution, or use should the proposal be implemented, and of reasonable alternatives to the action and their expected benefits on energy supply, distribution, and use. Today's regulatory action would not have an adverse effect on the supply, distribution, or use of energy and, therefore, is not a significant energy action. Accordingly, DOE has not prepared a Statement of Energy Effects. K. Congressional Notification As required by 5 U.S.C. 801, DOE will submit to Congress a report regarding the issuance of today's final rule prior to the effective date set forth at the outset of this notice. The report will state that it has been determined that the rule is not a “major rule” as defined by 5 U.S.C. 801(2). L. Approval by the Office of the Secretary The Secretary has approved the issuance of this notice of final rulemaking. List of Subjects in 10 CFR Part 626 Government contracts, Oil and gas reserves, Strategic and critical materials. Issued in Washington, DC on November 1, 2006. Jeffrey D. Jarrett, Assistant Secretary for Fossil Energy. For the reasons stated in the preamble, DOE hereby amends chapter II of title 10 of the Code of Federal Regulations by adding a new part 626 as set forth below: PART 626—PROCEDURES FOR ACQUISITION OF PETROLEUM FOR THE STRATEGIC PETROLEUM RESERVE Sec. 626.1 Purpose. 626.2 Definitions. 626.3 Applicability. 626.4 General acquisition strategy. 626.5 Acquisition procedures-general. 626.6 Acquiring oil by direct purchase. 626.7 Royalty transfer and exchange. 626.8 Deferrals of contractually scheduled deliveries. Authority: 42 U.S.C. 6240(c); 42 U.S.C. 7101, *et seq.* § 626.1 Purpose. This part establishes the procedures for acquiring petroleum for, and deferring contractually scheduled deliveries to, the Strategic Petroleum Reserve. The procedures do not represent actual terms and conditions to be contained in the contracts for the acquisition of SPR petroleum. § 626.2 Definitions. *Backwardation* means a market situation in which prices are progressively lower in succeeding delivery months than in earlier months. *Contango* means a market situation in which prices are progressively higher in the succeeding delivery months than in earlier months. *Contract* means the agreement under which DOE acquires SPR petroleum, consisting of the solicitation, the contract form signed by both parties, the successful offer, and any subsequent modifications, including those granting requests for deferrals. *Contracting Officer* means a person with the authority to enter into, administer, and/or terminate contracts and make related determinations and findings, including entering into sales contracts on behalf of the Government. The term includes certain authorized representatives of the Contracting Officer acting within the limits of their authority as delegated by the Contracting Officer. *DEAR* means the Department of Energy Acquisition Regulation. *Deferral* means a process whereby petroleum scheduled for delivery to the SPR in a specific contract period is rescheduled for later delivery, outside of that period and encompasses the future delivery of the originally scheduled quantity plus an in-kind premium. *DOE* means the Department of Energy. *DOI* means the Department of the Interior. *Exchange* means a process whereby petroleum owned by or due to the SPR is provided to a person or contractor in return for petroleum of comparable quality plus a premium quantity of petroleum delivered to the SPR in the future, or when SPR petroleum is traded for petroleum of a different quality for operational reasons based on the relative values of the quantities traded. *FAR* means the Federal Acquisition Regulation. *Government* means the United States Government, and includes DOE as its representative. *International Energy Program* means the program established by the Agreement on an International Energy Program, signed by the United States on November 18, 1974, including any subsequent amendments and additions to that Agreement. *OPR* means the Office of Petroleum Reserves within the DOE Office of Fossil Energy, whose responsibilities include the operation of the Strategic Petroleum Reserve. *Petroleum* means crude oil, residual fuel oil, or any refined product (including any natural gas liquid, and any natural gas liquid product) owned, or contracted for, by DOE and in storage in any permanent SPR facility, or temporarily stored in other storage facilities. *Secretary* means the Secretary of Energy. *Strategic Petroleum Reserve* or *SPR* means the DOE program established by Title I, Part B, of the Energy Policy and Conservation Act, 42 U.S.C. 6201 *et seq.* § 626.3 Applicability. The procedures in this part apply to the acquisition of petroleum by DOE for the Strategic Petroleum Reserve through direct purchase or transfer of royalty-in-kind oil, as well as to deferrals of contractually scheduled deliveries. § 626.4 General acquisition strategy.

(a)*Criteria for commencing acquisition* . To reduce the potential for negative impacts from market participation, DOE shall review the following factors prior to commencing acquisition of petroleum for the SPR:

(1)The current inventory of the SPR;

(2)The current level of private inventories;

(3)Days of net import protection;

(4)Current price levels for crude oil and related commodities;

(5)The outlook for international and domestic production levels;

(6)Existing or potential disruptions in supply or refining capability;

(7)The level of market volatility;

(8)Futures market price differentials for crude oil and related commodities; and

(9)Any other factor the consideration of which the Secretary deems to be necessary or appropriate.

(b)*Review of rate of acquisition.* DOE shall review the appropriate rate of oil acquisition each time an open market acquisition has been suspended for more than three months, and every six months in the case of ongoing or suspended royalty-in-kind transfers.

(c)*Acquisition through other Federal agencies.* DOE may enter into arrangements with another Federal agency for that agency to acquire oil for the SPR on behalf of DOE. § 626.5 Acquisition procedures—general.

(a)*Notice of acquisition.*

(1)Except when DOE has determined there is good cause to do otherwise, DOE shall provide advance public notice of its intent to acquire petroleum for the SPR. The notice of acquisition is usually in the form of a solicitation. DOE shall state in the notice of acquisition the general terms and details of DOE's crude oil acquisition and, to the extent feasible, shall inform the public of its overall fill goals, so that they may be factored into market participants' plans and activities.

(2)The notice of acquisition generally states:

(i)The method of acquisition to be employed;

(ii)The time that the solicitations will be open;

(iii)The quantity of oil that is sought;

(iv)The minimum crude oil quality requirements;

(v)The acceptable delivery locations; and

(vi)The necessary instructions for the offer process.

(b)*Method of acquisition.*

(1)DOE shall define the method of crude oil acquisition, direct purchase or royalty-in-kind transfer and exchange, in the notice of acquisition.

(2)DOE shall determine the method of crude oil acquisition after taking into account the availability of appropriated funds, current market conditions, the availability of oil from the Department of the Interior, and other considerations DOE deems to be relevant.

(c)*Solicitation.*

(1)To secure the economic benefit and security of a diversified base of potential suppliers of petroleum to the SPR, DOE shall maintain a listing, developed through on-line registration and personal contact, of interested suppliers. Upon the issuance of a solicitation, DOE shall notify potential suppliers via their registered e-mail addresses.

(2)DOE shall make the solicitation publicly available on the Web sites of the DOE Office of Fossil Energy *http://www.fe.doe.gov/programs/reserves* and the OPR *http://www.spr.doe.gov.*

(d)*Timing and duration of solicitation.*

(1)DOE shall determine crude oil requirements on nominal six-month cycles, and shall review and update these requirements prior to each solicitation cycle.

(2)DOE may terminate all solicitations and contracts pertaining to the acquisition of crude oil at the convenience of the Government, and in such event shall not be responsible for any costs incurred by suppliers, other than costs for oil delivered to the SPR and for reasonable, customary, and applicable costs incurred by the supplier in the performance of a valid contract for delivery before the effective date of termination of such contract. In no event shall the Government be liable for consequential damages or the contractor's lost profits as a result of such termination.

(e)*Quality.*

(1)DOE shall define minimum crude oil quality specifications for the SPR. DOE shall include such specifications in acquisition solicitations, and shall make them available on the Web sites of the DOE Office of Fossil Energy *http://www.fe.doe.gov/programs/reserves* and the OPR *http://www.spr.doe.gov.*

(2)DOE shall periodically review the quality specifications to ensure, to the greatest extent practicable, the crude oil mix in storage matches the demand of the United States refining system.

(f)*Quantity.* In determining the quantities of oil to be delivered to the SPR, DOE shall:

(1)Take into consideration market conditions and the availability of transportation systems; and

(2)Seek to avoid adversely affecting other market participants or crude oil market fundamentals.

(g)*Offer and evaluation procedures.*

(1)Each solicitation shall provide necessary instructions on offer format and submission procedures. The details of the offer, evaluation and award procedures may vary depending on the method of acquisition.

(2)DOE shall use relative crude values and time differentials to the maximum extent practicable to manage acquisition and delivery schedules to reduce acquisition costs.

(3)DOE shall evaluate offers based on prevailing market prices of specific crude oils, and shall award contracts on a competitive basis.

(4)Whether acquisition is by direct purchase or royalty transfer and exchange on a term contract basis, DOE shall use a price index to account for fluctuations in absolute and relative market prices at the time of delivery to reduce market risk to all parties throughout the contract term.

(h)*Scheduling and delivery.*

(1)Except as provided in paragraph (h)(4) of this section, DOE shall accept offers for crude oil delivered to specified SPR storage sites via pipeline or as waterborne cargos delivered to the terminals serving those sites.

(2)Except as provided in paragraph (h)(4) of this section, DOE shall generally establish schedules that allow for evenly spaced deliveries of economically-sized marine and pipeline shipments within the constraints of SPR site and commercial facilities receipt capabilities.

(3)DOE shall strive to maximize U.S. flag carrier utilization through the terms of its supply contracts.

(4)DOE reserves the right to accept offers for other methods of delivery if, in DOE's sole judgment, market conditions and logistical constraints require such other methods. § 626.6 Acquiring oil by direct purchase.

(a)*General.* For the direct purchase of crude oil, DOE shall, through certified contracting officers, conduct crude oil acquisitions in accordance with the FAR and the DEAR.

(b)*Acquisition strategy.*

(1)DOE solicitations:

(i)May be either continuously open or fixed for a period of time (usually no longer than 6 months); and

(ii)May provide either for prompt delivery or for delivery at future dates.

(2)DOE may alter the acquisition plan to take advantage of differentials in prices for different qualities of oil, based on a consideration of the availability of storage capacity in the SPR sites, the logistics of changing delivery streams, and the availability of ships, pipelines and terminals to move and receive the oil.

(3)Based on the market analysis described in paragraph

(d)of this section, DOE may refuse offers or suspend the acquisition process on the basis of Government estimates that project substantially lower oil prices in the future than those contained in offers. If DOE determines there is a high probability that the cost to the Government can be reduced without significantly affecting national energy security goals, DOE may either contract for delivery at a future date or delay purchases to take advantage of projected future lower prices. Conversely, DOE may increase the rate of purchases if prices fall below recent price trends or futures markets present a significant contango and prices offer the opportunity to reduce the average cost of oil acquisitions in anticipation of higher prices.

(4)Based on the market analysis described in paragraph

(d)of this section, DOE may refuse offers, decrease the rate of purchase, or suspend the acquisition process if DOE determines acquisition will add significant upward pressure to prices either regionally or on a world-wide basis. DOE may consider recent price changes, private inventory levels, oil acquisition by other stockpiling entities, the outlook for world oil production, incipient disruptions of supply or refining capability, logistical problems for moving petroleum products, macroeconomic factors, and any other considerations that may be pertinent to the balance of petroleum supply and demand.

(c)*Fill requirements determination.* DOE shall develop SPR fill requirements for each solicitation based on an assessment of national energy security goals, the availability of storage capacity, and the need for specific grades and quantities of crude oil.

(d)*Market analysis.*

(1)DOE shall establish a market value for each crude type to be acquired based on a market analysis at the time of contract award.

(2)In conducting the market analysis, DOE may use prices on futures markets, spot markets, recent price movements, current and projected shipping rates, forecasts by the DOE Energy Information Administration, and any other analytic tools available to DOE to determine the most desirable purchase profile.

(3)A market analysis may also consider recent price changes, private inventory levels, oil acquisition by other stockpiling entities, the outlook for world oil production, incipient disruptions of supply or refining capability, logistical problems for moving petroleum products, macroeconomic factors, and any other considerations that may be pertinent to the balance of petroleum supply and demand.

(e)*Evaluation of offers.*

(1)DOE shall evaluate offers using:

(i)The criteria and requirements stated in the solicitation; and

(ii)The market analysis under paragraph

(d)of this section.

(2)DOE shall require financial guarantees from contractors, in the form of a letter of credit or equivalent financial assurance. § 626.7 Royalty transfer and exchange.

(a)*General.* DOE shall conduct royalty transfers pursuant to an agreement between DOE and DOI for the transfer of royalty oil.

(b)*Acquisition strategy.*

(1)DOE and DOI shall select a royalty volume from specified leases for transfer usually over six-month periods.

(2)If logistics and crude oil quality are compatible with SPR receipt capabilities and requirements respectively, DOE may take the royalty oil directly from DOI and place it in SPR storage sites. Otherwise, DOE may competitively solicit suppliers to deliver oil of comparable value to the SPR in exchange for the receipt of royalty-in-kind oil.

(3)If, based on the market analysis described in paragraph

(d)of this section, DOE determines there is a high probability that the cost to the Government can be reduced without significantly affecting national energy security goals, DOE may contract for delivery at a future date in expectation of lower prices and a higher quantity of oil in exchange. Conversely, it may schedule deliveries at an earlier date under the contract in anticipation of higher prices at later dates.

(4)Based on the market analysis in paragraph

(d)of this section, DOE may, after consultation with DOI, suspend the transfer of royalty oil to DOE if it appears the added demand for oil will add significant upward pressure to prices either regionally or on a world-wide basis.

(c)*Fill requirements determination.* DOE shall develop SPR fill requirements for each solicitation based on an assessment of national energy security goals, the availability of royalty oil and storage capacity, and need for specific grades and quantities of crude oil.

(d)*Market analysis.*

(1)DOE may use prices on futures markets, spot markets, recent price movements, current and projected shipping rates, forecasts by the DOE Energy Information Administration, and any other analytic tools to determine the most desirable acquisition profile.

(2)A market analysis may also consider recent price changes, private inventory levels, oil acquisition by other stockpiling entities, the outlook for world oil production, incipient disruptions of supply or refining capability, logistical problems for moving petroleum products, macroeconomic factors, and any other considerations that may be pertinent to the balance of petroleum supply and demand.

(e)*Evaluation of royalty exchange offers.*

(1)DOE shall evaluate offers using:

(i)The criteria and requirements stated in the solicitation; and

(ii)The market analysis under paragraph

(d)of this section.

(2)DOE shall require financial guarantees from contractors in the form of a letter of credit or equivalent financial assurance. § 626.8 Deferrals of contractually scheduled deliveries.

(a)*General.*

(1)DOE prefers to take deliveries of petroleum for the SPR at times scheduled under applicable contracts. However, in the event the market is distorted by disruption to supply or other factors, DOE may defer scheduled deliveries or request or entertain deferral requests from contractors.

(2)A contractor seeking to defer scheduled deliveries of oil to the SPR may submit a deferral request to DOE.

(b)*Deferral criteria.* DOE shall only grant a deferral request for negotiation under paragraph

(c)of this section if it determines that DOE can receive a premium for the deferral paid in additional barrels of oil and, based on DOE's deferral analysis, that at least one of the following conditions exists:

(1)DOE can reduce the cost of its oil acquisition per barrel and increase the volume of oil being delivered to the SPR by means of the premium barrels required by the deferral process.

(2)DOE anticipates private inventories are approaching a point where unscheduled outages may occur.

(3)There is evidence that refineries are reducing their run rates for lack of feedstock.

(4)There is an unanticipated disruption to crude oil supply.

(c)*Negotiating terms.*

(1)If DOE decides to negotiate a deferral of deliveries, DOE shall estimate the market value of the deferral and establish a strategy for negotiating with suppliers the minimum percentage of the market value to be taken by the Government. During these negotiations, if the deferral request was initiated by DOE, DOE may consider any reasonable, customary, and applicable costs already incurred by the supplier in the performance of a valid contract for delivery. In no event shall such consideration account for any consequential damages or lost profits suffered by the supplier as a result of such deferral.

(2)DOE shall only agree to amend the contract if the negotiation results in an agreement to give the Government a fair and reasonable share of the market value. [FR Doc. E6-18786 Filed 11-7-06; 8:45 am] BILLING CODE 6450-01-P FARM CREDIT ADMINISTRATION 12 CFR Parts 611, 612, 613, 614, and 615 RIN 3052-AC15 Organization; Standards of Conduct and Referral of Known or Suspected Criminal Violations; Eligibility and Scope of Financing; Loan Policies and Operations; Funding and Fiscal Affairs, Loan Policies and Operations, and Funding Operations; Regulatory Burden AGENCY: Farm Credit Administration (FCA). ACTION: Final rule. SUMMARY: This final rule is intended to reduce regulatory burden on the Farm Credit System (FCS or System) by repealing or revising five regulations. The final rule also corrects eight outdated and erroneous cross-references in five regulation sections. These revisions provide System banks and associations with greater flexibility concerning stock ownership of service corporations, employee reporting under standards of conduct rules, domestic lending to cooperatives, and real property evaluations for certain business loans. DATES: *Effective Date:* These regulations will be effective 30 days after publication in the **Federal Register** during which either or both houses of Congress are in session. We will publish a notice of the effective date in the **Federal Register** . FOR FURTHER INFORMATION CONTACT: Jacqueline R. Melvin, Associate Policy Analyst, Office of Regulatory Policy, Farm Credit Administration, McLean, VA 22102-5090,

(703)883-4414, TTY

(703)883-4434; or Howard I. Rubin, Senior Counsel, Office of General Counsel, Farm Credit Administration, McLean, VA 22102-5090,

(703)883-4020, TTY

(703)883-4020. SUPPLEMENTARY INFORMATION: I. Objective The objective of this rule is to reduce regulatory burden by repealing and/or revising regulations and correcting outdated and erroneous regulations. II. Background On March 28, 2006, we invited the public to comment on five proposed changes to our regulations. *See* 71 FR 15343. The comment period was scheduled to close on May 30, 2006. However, on May 26, 2006, the Independent Community Bankers of America requested that the FCA extend the comment period. On June 15, 2006, we reopened the comment period until July 17, 2006. *See* 71 FR 34549. We also published a separate notice in the **Federal Register** on March 28, 2006, explaining how we addressed or will address comments we received as part of the 2003 solicitation, including the reasons why we are not changing certain regulations at this time. *See* 71 FR 15413. Our proposed rule addressed the following issues: A. *Service corporations.* Clarifying that service corporations are not required to offer stock to every System bank and association. B. *Standards of conduct.* Allowing new System employees to report to the Standards of Conduct official within 5 days after starting employment. C. *Cooperative eligibility.* Eliminating the 10-percent limitation on dividends in determining a cooperative's eligibility to borrow from a title III System lender. D. *Appraisal requirements.* Eliminating a requirement for a Uniform Standards of Professional Appraisal Practices (USPAP) compliant real property appraisal for business loans between $250,000 and $1 million. E. *Bankers' acceptance financing.* Repealing an outdated regulation pertaining to the purchase of bankers' acceptances by the Federal Farm Credit Banks Funding Corporation from an agricultural credit bank. We also proposed to correct outdated and erroneous cross-references affecting two regulations governing title III lending. III. Comments Received We received 275 comment letters. Overall, supporters aligned with the System commented favoring our five proposed amendments, while those aligned with non-System lenders commented opposing two of our proposed amendments. Additionally, our proposed amendment pertaining to cooperative eligibility rules were supported by three independent groups, the National Council of Farm Credit Cooperatives, the Minnesota Association of Cooperatives, and the Iowa Institute for Cooperatives. Comments from five System banks, 59 System associations and the Farm Credit Council, on behalf of its members, urged FCA to move forward on its five proposed amendments. Also, in response to our 2003 regulatory burden solicitation, some System supporters asked that we implement changes on all regulations for which we received comments. As stated in section II above, we addressed the 2003 solicitation comments in a separate notice in the **Federal Register** on March 28, 2006. Comments from 129 commercial banks, eight individuals and, on behalf of their members, the Independent Community Bankers of America, the Independent Bankers of Colorado, the Independent Bankers of Minnesota, and the Community Bankers of Wisconsin opposed our proposed amendments to eliminate:

(1)The 10-percent dividend limitation on cooperatives borrowing from a title III System lender; and

(2)the requirement for a USPAP-compliant appraisal on certain business loans. After careful consideration of all the comments, we are adopting all five proposed amendments as final without change. In this final rule, we also make eight technical and conforming changes to five regulation sections governing title III System lenders; six changes are made to correct outdated and erroneous cross-references and two changes are made to remove references to deleted § 614.4710. Three of the cross-reference changes were part of our proposed rule and are adopted without change. We also made five additional technical and conforming changes in the final rule. We find that publishing a notice and asking for public comment on these changes is unnecessary and impractical because they are not substantive and merely correct and update cross-references in other related parts of our rules. IV. Section-by-Section Discussion of Comments to the Five Amendments A. Section 611.1135—Incorporation of Service Corporations We proposed to amend the relevant sentence of § 611.1135(b) to clarify that service corporations are not required to offer stock to every System bank and association. We did not receive any specific comments on this proposal. We are adopting this proposal as final. B. Section 612.2155—Employee Reporting We proposed to amend § 612.2155(d) to require a newly hired employee to complete a standards of conduct report not later than 5 business days after the new employee's start date. We did not receive any specific comments on this proposal. We are adopting this proposal as final. C. Section 613.3100—Domestic Lending—Banks Operating Under Title III of the Farm Credit Act Section 3.8(a) of the Farm Credit Act of 1971, as amended (Act), 1 provides that an agricultural or aquatic cooperative (that meets statutory minimum levels of farmer ownership and business with members) is eligible for financing from a title III System lender if it conforms to either of the two following requirements: 1 12 U.S.C. 2129(a).

(1)No member of the association is allowed more than one vote because of the amount of stock or membership capital he may own therein; or

(2)Does not pay dividends on stock or membership capital in excess of such per centum per annum as may be approved under regulations of the Farm Credit Administration * * *. 2 2 As discussed below, even if one of these eligibility requirements is met, the Act has other requirements that must also be satisfied in order for a cooperative to borrow from a title III System lender. Current § 613.3100(b)(1)(iii) provides that an eligible cooperative must comply with one of the following two conditions:

(A)No member of the cooperative shall have more than one vote because of the amount of stock or membership capital owned therein; or

(B)The cooperative restricts dividends on stock or membership capital to 10 percent per year or the maximum percentage per year permitted by applicable state law, whichever is less. We proposed to delete the 10-percent limitation, allowing state law to govern compliance with the dividend requirement. Commenters who supported the amendment stated that the amendment would be of significant benefit as cooperatives continue to develop new ownership structures and capital plans. Other commenters stated changes to the eligibility provisions in title III of the Act will be necessary for System lenders to serve new farmer-owned businesses being created under state laws. These commenters further noted the limited effect of the regulatory change, stating that the 80-percent farmer voting control requirement contained in the Act remains a more serious obstacle for cooperatives. Commenters who opposed the amendment asserted that the Act requires the FCA to set the dividend limit and that FCA cannot defer this authority and responsibility to the states. These commenters stated that FCA's proposal was therefore arbitrary and capricious. After careful consideration of these comments, we conclude that it is appropriate to adopt the proposed section as final for the following four reasons. First, we note that Congress gave FCA substantial discretion in this area. Unlike section 3.8(a)(1), (a)(3), and (a)(4) of the Act, which prescribe very specific eligibility requirements for cooperatives, section 3.8(a)(2) of the Act leaves the determination of the maximum dividend percentage solely to the discretion of FCA. It is an appropriate use of discretion for FCA to look to another authoritative source of applicable law—state law—in setting this limit. Moreover, our existing rule—10 percent per year or the maximum percentage per year permitted by applicable state law, whichever is less—already generally defers to state law because most states have an 8-percent limit. Second, FCA's reference to state law is not “arbitrary” in this context because cooperatives that borrow from a title III System lender are usually a form of a state-chartered corporation whose organization and operations are governed by state law. Compliance with state law—for corporate formation requirements—always impacts the eligibility of a “legal entity” to borrow from the System. Therefore, we believe that it is reasonable for FCA to defer to state law—an external authoritative source—in adopting this cooperative eligibility rule. Third, we disagree with commenters who stated that FCA should look to the Capper-Volstead Act's limitations on cooperative dividends. As we noted in the proposed rule's preamble, in the Farm Credit Act of 1971, Congress specifically eliminated the former Farm Credit law's reference to the Capper-Volstead Act (and its 8-percent dividend limitation) in providing for cooperative eligibility. Therefore, Capper-Volstead Act limitations are irrelevant and their application to FCS eligibility arguably violates congressional intent. Fourth, after careful consideration of comments to the contrary, we conclude that FCA's proposed amendment would not have sweeping adverse effects and would not allow lending to all types of cooperatives. The Act specifically limits eligibility to agricultural cooperatives that meet very specific farmer ownership and business with members' requirements. Nothing in this rule alters those requirements. Moreover, three non-System organizations representing cooperatives commented that the proposed rule would benefit agricultural cooperatives and their farmer members. For the reasons stated above, we are adopting the proposed amendment as final. D. Section 614.4265—Real Property Evaluations We proposed to eliminate the requirement for a USPAP-compliant real property appraisal for business loans between $250,000 and $1 million that are not otherwise exempt under our rules. Supporting commenters stated that the existing requirement is unduly burdensome and places System lenders at a competitive disadvantage because non-System lenders are not required to perform USPAP-compliant appraisals for these types of business loans. Commenters further added that the existing requirement does not necessarily ensure greater safety and soundness because a similar level of analysis is required for collateral evaluations. Opposing commenters asserted that the deletion of the proposed amendment could create numerous safety and soundness problems because FCA does not have other safeguards in place like other Federal financial regulators. They stated that the Office of the Comptroller of the Currency's

(OCC)regulations 3 provide safeguards that do not exist in FCA's regulations. 3 *See* 12 CFR 34.62 (addressing loan portfolio management and expertise on local markets). FCA believes that our regulations provide safeguards that are comparable to other financial regulators. Part 614, subpart F (“Collateral Evaluation Requirements”) of our regulations requires well-defined and effective collateral evaluation policies and standards which cover areas such as: • Criteria for when USPAP collateral appraisals are required rather than a collateral evaluation; • Accounting for market trends, volatility, and types of credit; • Using an unbiased and qualified evaluator; • Collateral evaluation standards found in § 614.4250 addressing such items as market value, highest and best use, and income-producing capacity; • Evaluation requirements found in § 614.4260 addressing such items as appraiser certifications; • Real property evaluations found in § 614.4265 addressing such items as the approach used and debt-servicing capacity; • Personal and intangible property evaluations found in § 614.4266 addressing such items as comparisons of value, and USPAP Competency and Ethics Provisions; and • Professional association membership. Some commenters asserted that FCA's appraisal regulations pertaining to independence standards are not as stringent as the OCC regulations in 12 CFR 34.45. FCA finds that its regulations on appraisal independence are as stringent as those of other regulators. Multiple FCA regulation sections address independence, such as: • Section 614.4255, which is devoted exclusively to “Independence Requirements,” outlines clear prohibitions for directors, officers, employees, real estate appraisers, and fee appraisers. In addition, this section prohibits persons performing a collateral evaluation from involvement in credit decisions. • Section 614.4240(n) defines qualified evaluators as persons who are competent, reputable, impartial, and have demonstrated sufficient training and experience. • Section 614.4245(a)(3) requires System institution policies and standards to ensure that collateral evaluations are completed by a qualified evaluator in an unbiased manner. Commenters also contended that removing the USPAP requirement could result in “inflated land values.” We believe that removing this requirement will not inflate collateral values and thus, will not adversely impact the System's safety and soundness. For business loans under $1 million, real property evaluations will be required. Section 614.4265 contains specific requirements of those real property evaluations such as: • Determining market value that considers approaches using income capitalization, sales comparisons, and/or costs. • Evaluating and documenting the income and debt-servicing capacity for the property and operation for transaction values over $250,000. • Identifying nonagricultural influences. Several commenters stated that Federal Reserve Regulation Y generally requires “outside” appraisals for transactions over $250,000, and that FCA's requirement should be the same. We believe our requirements are essentially the same. Regulation Y at 12 CFR 225.63(a)(1) requires appraisals by a state-certified or licensed appraiser for non-business loan transactions with values more than $250,000. FCA's requirements at § 614.4260(b)(1) also require appraisals by a state-certified or licensed appraiser for non-business loan transactions over $250,000. Regulation Y at 12 CFR 225.63(a)(5) requires an appraisal by a state-certified or licensed appraiser for a business loan transaction over $1 million. Section 614.4260(c)(2) also requires an appraisal by a state-certified or licensed appraiser for a business loan transaction over $1 million. Several commenters stated that FCA's proposal regarding appraisal requirements for business loans was not comparable to other Federal financial regulators. FCA finds that its requirements are very similar to those of other regulators. The amendment will make our regulations more comparable to the: • Federal Reserve's regulation at 12 CFR 225.63(a)(5). • Federal Deposit Insurance Corporation's regulation at 12 CFR 323.3(a)(5). • Office of Thrift Supervision's regulation at 12 CFR 464.3(a)(5). • OCC's regulation at 12 CFR 34.43(a)(5). For the reasons stated above, we are adopting the proposed amendment as final. E. Section 614.4710—Bankers' Acceptance Financing We proposed to delete § 614.4710, pertaining to bankers' acceptance financing, in its entirety. We did not receive any specific comments on this proposal. We are adopting this proposal as final. V. Regulatory Flexibility Act Pursuant to section 605(b) of the Regulatory Flexibility Act (5 U.S.C. 601 *et seq.* ), FCA hereby certifies that the final rule will not have a significant economic impact on a substantial number of small entities. Each of the banks in the Farm Credit System, considered together with its affiliated associations, has assets and annual income in excess of the amounts that would qualify them as small entities. Therefore, FCS institutions are not “small entities” as defined in the Regulatory Flexibility Act. List of Subjects 12 CFR Part 611 Agriculture, Banks, banking, Rural areas. 12 CFR Part 612 Agriculture, Banks, banking, Conflicts of interest, Crime, Investigations, Rural areas. 12 CFR Part 613 Agriculture, Banks, banking, Credit, Rural areas. 12 CFR Part 614 Agriculture, Banks, banking, Foreign trade, Reporting and recordkeeping requirements, Rural areas. 12 CFR Part 615 Accounting, Agriculture, Banks, banking, Government securities, Investments, Rural areas. For the reasons stated in the preamble, parts 611, 612, 613, 614, and 615 of chapter VI, title 12 of the Code of Federal Regulations are amended as follows: PART 611—ORGANIZATION 1. The authority citation for part 611 is revised to read as follows: Authority: Secs. 1.3, 1.4, 1.13, 2.0, 2.1, 2.10, 2.11, 3.0, 3.2, 3.21, 4.12, 4.12A, 4.15, 4.20, 4.21, 5.9, 5.10, 5.17, 6.9, 6.26, 7.0-7.13, 8.5(e) of the Farm Credit Act (12 U.S.C. 2011, 2012, 2021, 2071, 2072, 2091, 2092, 2121, 2123, 2142, 2183, 2184, 2203, 2208, 2209, 2243, 2244, 2252, 2278a-9, 2278b-6, 2279a-2279f-1, 2279aa-5(e)); secs. 411 and 412 of Pub. L. 100-233, 101 Stat. 1568, 1638; secs. 409 and 414 of Pub. L. 100-399, 102 Stat. 989, 1003, and 1004. Subpart I—Service Organizations 2. Amend § 611.1135 by revising paragraph

(b)to read as follows: § 611.1135 Incorporation of service corporations.

(b)*Who may own equities in your service corporation?*

(1)Your service corporation may only issue voting and non-voting stock to:

(i)One or more Farm Credit banks and associations; and

(ii)Persons that are not Farm Credit banks or associations, provided that at least 80 percent of the voting stock is at all times held by Farm Credit banks or associations.

(2)For the purposes of this subpart, we define persons as individuals or legal entities organized under the laws of the United States or any state or territory thereof. PART 612—STANDARDS OF CONDUCT AND REFERRAL OF KNOWN OR SUSPECTED CRIMINAL VIOLATIONS 3. The authority citation for part 612 continues to read as follows: Authority: Secs. 5.9, 5.17, 5.19 of the Farm Credit Act (12 U.S.C. 2243, 2252, 2254). Subpart A—Standards of Conduct 4. Amend 612.2155 by revising paragraph

(d)to read as follows: § 612.2155 Employee reporting.

(d)A newly hired employee shall report matters required to be reported in paragraphs (a), (b), and

(c)of this section to the Standards of Conduct Official 5 business days after starting employment and thereafter shall comply with the requirements of this section. PART 613—ELIGIBILITY AND SCOPE OF FINANCING 5. The authority citation for part 613 continues to read as follows: Authority: Secs. 1.5, 1.7, 1.9, 1.10, 1.11, 2.2, 2.4, 2.12, 3.1, 3.7, 3.8, 3.22, 4.18A, 4.25, 4.26, 4.27, 5.9, 5.17 of the Farm Credit Act (12 U.S.C. 2013, 2015, 2017, 2018, 2019, 2073, 2075, 2093, 2122, 2128, 2129, 2143, 2206a, 2211, 2212, 2213, 2243, 2252). Subpart B—Financing for Banks Operating Under Title III of the Farm Credit Act 6. Amend § 613.3100 by revising paragraphs (b)(1)(iii)(B) and (d)(1) to read as follows: § 613.3100 Domestic lending.

(b)* * *

(1)* * *

(iii)* * *

(A)* * *

(B)The cooperative restricts dividends on stock or membership capital to the maximum percentage per year permitted by applicable state law.

(d)*Water and waste disposal facilities—*

(1)*Eligibility.* A cooperative or a public agency, quasi-public agency, body, or other public or private entity that, under the authority of state or local law, establishes and operates water and waste disposal facilities in a rural area, as that term is defined by paragraph (a)(4) of this section, is eligible to borrow from a bank for cooperatives or an agricultural credit bank. PART 614—LOAN POLICIES AND OPERATIONS 7. The authority citation for part 614 continues to read as follows: Authority: 42 U.S.C. 4012a, 4104a, 4104b, 4106, and 4128; secs. 1.3, 1.5, 1.6, 1.7, 1.9, 1.10, 1.11, 2.0, 2.2, 2.3, 2.4, 2.10, 2.12, 2.13, 2.15, 3.0, 3.1, 3.3, 3.7, 3.8, 3.10, 3.20, 3.28, 4.12, 4.12A, 4.13B, 4.14, 4.14A, 4.14C, 4.14D, 4.14E, 4.18, 4.18A, 4.19, 4.25, 4.26, 4.27, 4.28, 4.36, 4.37, 5.9, 5.10, 5.17, 7.0, 7.2, 7.6, 7.8, 7.12, 7.13, 8.0, 8.5 of the Farm Credit Act (12 U.S.C. 2011, 2013, 2014, 2015, 2017, 2018, 2019, 2071, 2073, 2074, 2075, 2091, 2093, 2094, 2097, 2121, 2122, 2124, 2128, 2129, 2131, 2141, 2149, 2183, 2184, 2201, 2202, 2202a, 2202c, 2202d, 2202e, 2206, 2206a, 2207, 2211, 2212, 2213, 2214, 2219a, 2219b, 2243, 2244, 2252, 2279a, 2279a-2, 2279b, 2279c-1, 2279f, 2279f-1, 2279aa, 2279aa-5); sec. 413 of Pub. L. 100-233, 101 Stat. 1568, 1639. Subpart A—Lending Authorities 8. Amend § 614.4010 by revising paragraphs (d)(1) and (d)(2) to read as follows: § 614.4010 Agricultural credit banks.

(d)* * *

(1)Eligible cooperatives, as defined in § 613.3100(b)(1), in accordance with §§ 614.4200, 614.4231, 614.4232, 614.4233, and subpart Q of part 614;

(2)Other eligible entities, as defined in § 613.3100(b)(2), in accordance with §§ 614.4200, 614.4231, and 614.4232; § 614.4020 [Amended] 9. Amend § 614.4020 by: a. Removing the reference “§ 613.3110” and adding in its place, the reference “§ 613.3100(b)(1)” in paragraph (a)(1); and b. Removing the reference “§ 613.3110(c)” and adding in its place, the reference “§ 613.3100(b)(2)” in paragraph (a)(2). Subpart F—Collateral Evaluation Requirements § 614.4265 [Amended] 10. Amend § 614.4265 by removing paragraph

(c)and redesignating paragraphs (d), (e), (f), (g), and

(h)as (c), (d), (e), (f), and (g), respectively. Subpart J—Lending and Leasing Limits 11. Amend § 614.4355 by: a. Revising paragraph (a)(8) to read as follows; and b. Removing the reference “§ 614.4321” and adding in its place, the reference “§ 614.4720” in paragraph (a)(9). § 614.4355 Banks for cooperatives.

(a)* * *

(8)Commodity loans qualifying under § 614.4231: 50 percent. Subpart Q—Banks for Cooperatives and Agricultural Credit Banks Financing International Trade § 614.4710 [Removed] 12. Remove and reserve § 614.4710. PART 615—FUNDING AND FISCAL AFFAIRS, LOAN POLICIES AND OPERATIONS, AND FUNDING OPERATIONS 13. The authority citation for part 615 continues to read as follows: Authority: Secs. 1.5, 1.7, 1.10, 1.11, 1.12, 2.2, 2.3, 2.4, 2.5, 2.12, 3.1, 3.7, 3.11, 3.25, 4.3, 4.3A, 4.9, 4.14B, 4.25, 5.9, 5.17, 6.20, 6.26, 8.0, 8.3, 8.4, 8.6, 8.7, 8.8, 8.10, 8.12 of the Farm Credit Act (12 U.S.C. 2013, 2015, 2018, 2019, 2020, 2073, 2074, 2075, 2076, 2093, 2122, 2128, 2132, 2146, 2154, 2154a, 2160, 2202b, 2211, 2243, 2252, 2278b, 2278b-6, 2279aa, 2279aa-3, 2279aa-4, 2279aa-6, 2279aa-7, 2279aa-8, 2279aa-10, 2279aa-12); sec. 301(a) of Pub. L. 100-233, 101 Stat. 1568, 1608. Subpart Q—Bankers' Acceptances 14. Revise § 615.5550 to read as follows: § 615.5550 Bankers' acceptances. Banks for cooperatives may rediscount with other purchasers the acceptances they have created. The bank for cooperatives' board of directors, under established policies, may delegate this authority to management. Dated: November 3, 2006. Roland E. Smith, Secretary, Farm Credit Administration Board. [FR Doc. E6-18841 Filed 11-7-06; 8:45 am] BILLING CODE 6705-01-P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 39 [Docket No. FAA-2006-25582; Directorate Identifier 2006-CE-42-AD; Amendment 39-14813; AD 2006-23-01] RIN 2120-AA64 Airworthiness Directives; Pilatus Aircraft Ltd. Model PC-7 Airplanes AGENCY: Federal Aviation Administration (FAA), DOT. ACTION: Final rule. SUMMARY: The FAA adopts a new airworthiness directive

(AD)for certain Pilatus Aircraft Ltd. (Pilatus) Model PC-7 airplanes. This AD requires you to do repetitive eddy-current, non-destructive inspections of the nose skin and adjacent structure above the left and right main landing gear bay and repetitive visual inspections of the forward support structure of the floor panel for crack damage. If you find any crack damage, this AD requires you to contact Pilatus to obtain a repair solution and incorporate the repair. This AD results from mandatory continuing airworthiness information

(MCAI)issued by the airworthiness authority for Switzerland. We are issuing this AD to detect and correct cracks in the nose skin and adjacent structure above the left and right main landing gear bay and in the forward support structure of the floor panel. Crack propagation in certain areas could lead to failure of the main wing torsion box, which could result in loss of control. DATES: This AD becomes effective on December 13, 2006. As of December 13, 2006, the Director of the Federal Register approved the incorporation by reference of certain publications listed in the regulation. ADDRESSES: To get the service information identified in this AD, contact Pilatus Aircraft Ltd., Customer Liaison Manager, CH-6371 Stans, Switzerland; telephone: +41 41 619 63 19; fax: +41 41 619 6224. To view the AD docket, go to the Docket Management Facility, U.S. Department of Transportation, 400 Seventh Street, SW., Nassif Building, Room PL-401, Washington, DC 20590-0001 or on the Internet at *http://dms.dot.gov.* The docket number is FAA-2006-25582; Directorate Identifier 2006-CE-42-AD. FOR FURTHER INFORMATION CONTACT: Doug Rudolph, Aerospace Engineer, FAA, Small Airplane Directorate, 901 Locust, Room 301, Kansas City, Missouri 64106; telephone:

(816)329-4059; fax:

(816)329-4090. SUPPLEMENTARY INFORMATION: Discussion On September 11, 2006, we issued a proposal to amend part 39 of the Federal Aviation Regulations (14 CFR part 39) to include an AD that would apply to certain Pilatus Model PC-7 airplanes. This proposal was published in the **Federal Register** as a notice of proposed rulemaking

(NPRM)on September 15, 2006 (71 FR 54441). The NPRM proposed to require you to do repetitive eddy-current, non-destructive inspections of the nose skin and adjacent structure above the left and right main landing gear bay and repetitive visual inspections of the forward support structure of the floor panel for crack damage. If crack damage is found, the NPRM proposed to require you to contact Pilatus to obtain a repair solution and incorporate the repair. Comments We provided the public the opportunity to participate in developing this AD. The following presents the comments received on the proposal and FAA's response to each comment: We received one comment from Pilatus Aircraft in favor of the proposed AD. Comment Issue No. 1: Publish the Manufacturer Service Information Jack Buster with the Modification and Replacement Parts Association (MARPA) provides comments on the MCAI AD process pertaining to how the FAA addresses publishing manufacturer service information as part of a proposed AD action. The commenter states that the proposed rule attempts to require compliance with a public law by reference to a private writing (as referenced in paragraph

(e)of the proposed AD). The commenter would like the FAA to incorporate by reference

(IBR)the Pilatus service bulletin. We agree with Mr. Buster. However, we do not IBR any document in a proposed AD action, instead we IBR the document in the final rule. Since we are issuing the proposal as a final rule AD action, Pilatus PC-7 Service Bulletin No. 57-009, dated January 29, 2004, is incorporated by reference. Comment Issue No. 2: Availability of IBR Documents in the Docket Management System

(DMS)Mr. Buster requests IBR documents be made available to the public by publication in the **Federal Register** or in the DMS. We are currently reviewing issues surrounding the posting of service bulletins in the Department of Transportation's DMS as part of the AD docket. Once we have thoroughly examined all aspects of this issue and have made a final determination, we will consider whether our current practice needs to be revised. Conclusion We have carefully reviewed the available data and determined that air safety and the public interest require adopting the AD as proposed except for minor editorial corrections. We have determined that these minor corrections: • Are consistent with the intent that was proposed in the NPRM for correcting the unsafe condition; and • Do not add any additional burden upon the public than was already proposed in the NPRM. Differences Between the FOCA AD, the Service Information, and This AD The FOCA AD HB-2006-374, effective date August 2, 2006, allows continued flight if cracks are found in the nose skin that do not exceed certain limits. The applicable service bulletin specifies repair of the nose skin only if cracks are found exceeding limits illustrated in Pilatus PC-7 Service Bulletin No. 57-009, dated January 29, 2004, as does FOCA AD HB-2006-374, effective date August 2, 2006. This AD does not allow continued flight if any crack is found. The FAA policy is to disallow airplane operation when known cracks exist in primary structure, unless the ability to sustain ultimate load with these cracks is proven. The nose skin is considered primary structure, and the FAA has not received any analysis to prove that ultimate load can be sustained with cracks in this area. The requirements of this AD take precedence over the provisions in the service information. Costs of Compliance We estimate that this AD affects 10 airplanes in the U.S. registry. We estimate the following costs to accomplish the inspection: Labor cost Parts cost Total cost per airplane Total cost on U.S. operators 3 work-hours × $80 per hour = $240 No parts required $240 $2,400 Any required “upon-condition” repairs will vary depending upon the damage found. Based on this, we have no way of determining the potential repair costs for each airplane or the number of airplanes that will need the repairs based on the result of the inspections. Authority for This Rulemaking Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, Section 106 describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority. We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this AD. Regulatory Findings We have determined that this AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. For the reasons discussed above, I certify that this AD: 1. Is not a “significant regulatory action” under Executive Order 12866; 2. Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and 3. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. We prepared a summary of the costs to comply with this AD (and other information as included in the Regulatory Evaluation) and placed it in the AD Docket. You may get a copy of this summary by sending a request to us at the address listed under ADDRESSES . Include “Docket No. FAA-2006-25582; Directorate Identifier 2006-CE-42-AD” in your request. List of Subjects in 14 CFR Part 39 Air transportation, Aircraft, Aviation safety, Incorporation by reference, Safety. Adoption of the Amendment Accordingly, under the authority delegated to me by the Administrator, the Federal Aviation Administration amends part 39 of the Federal Aviation Regulations (14 CFR part 39) as follows: PART 39—AIRWORTHINESS DIRECTIVES 1. The authority citation for part 39 continues to read as follows: Authority: 49 U.S.C. 106(g), 40113, 44701. § 39.13 [Amended] 2. FAA amends § 39.13 by adding a new AD to read as follows: **2006-23-01 Pilatus Aircraft Ltd.:** Amendment 39-14813; Docket No. FAA-2006-25582; Directorate Identifier 2006-CE-42-AD. Effective Date

(a)This AD becomes effective on December 13, 2006. Affected ADs

(b)None. Applicability

(c)This AD applies to Model PC-7 airplanes, manufacturer serial numbers 101 through 618 inclusive, that are certificated in any category. Unsafe Condition

(d)This AD is the result of mandatory continuing airworthiness information

(MCAI)issued by the airworthiness authority for Switzerland. The actions specified in this AD are intended to detect and correct cracks in the nose skin and adjacent structure above the left and right main landing gear bay and in the forward support structure of the floor panel. Crack propagation in certain areas could lead to failure of the main wing torsion box. This failure could result in loss of control. Compliance

(e)To address this problem, you must do the following: Actions Compliance Procedures

(1)Inspect:

(i)The forward area of the floor panel and the related structure for cracks using magnified, visual methods.

(ii)The nose skin and adjacent structure above the left and right main landing gear bay for cracks using eddy-current, non-destructive methods Initially inspect within the next 150 hours time-in-service or 6 calendar months, whichever occurs first, after December 13, 2006 (the effective date of this AD), unless already done. Repetitively inspect thereafter at intervals specified in paragraph 2.B. of Pilatus PC-7 Aircraft Maintenance Manual

(AMM)05-10-00, dated March 4, 2005 Do the initial inspection following Pilatus PC-7 Service Bulletin No. 57-009, dated January 29, 2004. Do the repetitive inspections following the procedures in AMM 57-10-03, dated March 4, 2005, and AMM 05-30-05, dated February 28, 2006.

(2)If crack damage is found during any inspection required by paragraph (e)(1) of this AD, obtain an FAA-approved repair solution from the manufacturer through the FAA at the address specified in paragraph

(f)of this AD and incorporate the repair Before further flight after any inspection in which crack damage is found. Further flight with crack damage is not permitted. After incorporating the repair, repetitively inspect as specified in paragraph (e)(1) of this AD Obtain an FAA-approved repair solution from the manufacturer through the FAA at the address specified in paragraph

(f)of this AD and incorporate the repair. Alternative Methods of Compliance (AMOCs)

(f)The Manager, Standards Staff, FAA, Small Airplane Directorate, Attn: Doug Rudolph, Aerospace Engineer, 901 Locust, Room 301, Kansas City, Missouri 64106; telephone:

(816)329-4059; fax:

(816)329-4090, has the authority to approve AMOCs for this AD, if requested using the procedures found in 14 CFR 39.19. Related Information

(g)The Federal Office for Civil Aviation Swiss AD HB-2006-374, effective date August 2, 2006, also addresses the subject of this AD. Material Incorporated by Reference

(h)You must use Pilatus PC-7 Service Bulletin No. 57-009, dated January 29, 2004, to do the actions required by this AD, unless the AD specifies otherwise.

(1)The Director of the Federal Register approved the incorporation by reference of this service information under 5 U.S.C. 552(a) and 1 CFR part 51.

(2)For service information identified in this AD, contact Pilatus Aircraft Ltd., Customer Liaison Manager, CH-6371 Stans, Switzerland; telephone: +41 41 619 63 19; fax: +41 41 619 6224.

(AD)for certain Raytheon Aircraft Company

(RAC)(formerly Beech) Models C90A, B200, B200C, B300, and B300C airplanes. This AD requires you to inspect the flight controls for improper assembly or damage, and if any improperly assembled or damaged flight controls are found, take corrective action. This AD results from a report of inspections of several affected airplanes with improperly assembled or damaged flight controls. We are issuing this AD to detect and correct improperly assembled or damaged flight controls, which could result in an unsafe condition by reducing capabilities of the flight controls and lead to loss of control of the airplane. DATES: This AD becomes effective on December 13, 2006. As of December 13, 2006, the Director of the Federal Register approved the incorporation by reference of certain publications listed in the regulation. ADDRESSES: To get the service information identified in this AD, contact Raytheon Aircraft Company, P.O. Box 85, Wichita, Kansas 67201-0085; telephone:

(800)429-5372 or

(316)676-3140. To view the AD docket, go to the Docket Management Facility; U.S. Department of Transportation, 400 Seventh Street, SW., Nassif Building, Room PL-401, Washington, DC 20590-001 or on the Internet at *http://dms.dot.gov.* The docket number is FAA-2006-25157; Directorate Identifier 2006-CE-34-AD. FOR FURTHER INFORMATION CONTACT: Chris B. Morgan, Aerospace Engineer, FAA, Wichita Aircraft Certification Office, 1801 Airport Road, Wichita, Kansas 67209; telephone:

(316)946-4154; facsimile:

(316)946-4107. SUPPLEMENTARY INFORMATION: Discussion On July 24, 2006, we issued a proposal to amend part 39 of the Federal Aviation Regulations (14 CFR part 39) to include an AD that would apply to certain RAC Models C90A, B200, B200C, B300, and B300C airplanes. This proposal was published in the **Federal Register** as a notice of proposed rulemaking

(NPRM)on July 31, 2006 (71 FR 43083). The NPRM proposed to require you to inspect the flight controls for improper assembly or damage, and if any improperly assembled or damaged flight controls are found, take corrective action. Comments We gave the public the opportunity to participate in developing this AD. We have considered the comments received. Jack Buster with the Modification and Replacement Parts Association provides comments on the AD process pertaining to how the FAA addresses publishing manufacturer service information as part of a proposed AD action. The commenter states that the proposed rule attempts to require compliance with a public law by reference to a private writing (as referenced in paragraph

(e)of the proposed AD). The commenter would like the FAA to incorporate by reference

(IBR)the RAC service bulletin. We agree with Mr. Buster. However, we do not IBR any document in a proposed AD action, instead we IBR the document in the final rule. Since we are issuing the proposal as a final rule AD action, Raytheon Aircraft Company Mandatory Service Bulletin Number SB 27-3761, Issued: February 2006, is incorporated by reference. Mr. Buster requests IBR documents be made available to the public by publication in the **Federal Register** or in the Docket Management System (DMS). We are currently reviewing issues surrounding the posting of service bulletins in the Department of Transportation's DMS as part of the AD docket. Once we have thoroughly examined all aspects of this issue and have made a final determination, we will consider whether our current practice needs to be revised. Conclusion We have carefully reviewed the available data and determined that air safety and the public interest require adopting the AD as proposed except for minor editorial corrections. We have determined that these minor corrections: • Are consistent with the intent that was proposed in the NPRM for correcting the unsafe condition; and • Do not add any additional burden upon the public than was already proposed in the NPRM. Costs of Compliance We estimate that this AD affects 135 airplanes in the U.S. registry. We estimate the following costs to do the inspection: Labor cost Parts cost Total cost per airplane Total cost on U.S. operators 80 work-hours × $80 per hour = $6,400 Not applicable $6,400 $864,000 We have no way of determining the number of airplanes that may need any corrective action that would be required based on the results of the inspection. Authority for This Rulemaking Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, Section 106 describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority. We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this AD. Regulatory Findings We have determined that this AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. For the reasons discussed above, I certify that this AD: 1. Is not a “significant regulatory action” under Executive Order 12866; 2. Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and 3. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. We prepared a summary of the costs to comply with this AD (and other information as included in the Regulatory Evaluation) and placed it in the AD Docket. You may get a copy of this summary by sending a request to us at the address listed under ADDRESSES . Include “Docket No. FAA-2006-25157; Directorate Identifier 2006-CE-34-AD” in your request. List of Subjects in 14 CFR Part 39 Air transportation, Aircraft, Aviation safety, Incorporation by reference, Safety. Adoption of the Amendment Accordingly, under the authority delegated to me by the Administrator, the Federal Aviation Administration amends part 39 of the Federal Aviation Regulations (14 CFR part 39) as follows: PART 39—AIRWORTHINESS DIRECTIVES 1. The authority citation for part 39 continues to read as follows: Authority: 49 U.S.C. 106(g), 40113, 44701. § 39.13 [Amended] 2. FAA amends § 39.13 by adding a new AD to read as follows: **2006-23-02 Raytheon Aircraft Company (Formerly Beech):** Amendment 39-14814; Docket No. FAA-2006-25157; Directorate Identifier 2006-CE-34-AD. Effective Date

(a)This AD becomes effective on December 13, 2006. Affected ADs

(b)None. Applicability

(c)This AD affects the following airplane models and serial numbers that are certificated in any category: Model Serial Nos. C90A LJ-1697 through LJ-1726, LJ-1728, LJ-1729, and LJ-1731 through LJ-1739. B200 BB-1827 through BB-1912. B200C BL-148 and BL-149. B300 FL-379 through FL-423, FL-426, FL-428 through FL-450, and FL-452. B300C FM-11. Unsafe Condition

(d)This AD results from a report of inspections of several affected airplanes with improperly assembled or damaged flight controls. We are issuing this AD to detect and correct improperly assembled or damaged flight controls, which could result in an unsafe condition by reducing capabilities of the flight control and lead to loss of control of the airplanes. Compliance

(e)To address this problem, you must do the following: Actions Compliance Procedures

(1)Inspect the entire flight control system for improper assembly and any damage At whichever of the following occurs first:

(i)Within 100 hours time-in-service after December 13, 2006 (the effective date of this AD); or Follow Raytheon Aircraft Company Mandatory Service Bulletin Number SB 27-3761, Issued: February 2006.

(ii)At the next annual inspection that occurs at least 30 days after December 13, 2006 (the effective date of this AD).

(2)If you find any improperly assembled or damaged flight controls as a result of the inspection required by paragraph (e)(1) of this AD, take corrective action as specified in the service information Before further flight after the inspection required by paragraph (e)(1) of this AD Follow Raytheon Aircraft Company Mandatory Service Bulletin Number SB 27-3761, Issued: February 2006. Alternative Methods of Compliance (AMOCs)

(f)The Manager, Wichita Aircraft Certification Office (ACO), FAA, ATTN: Chris B. Morgan, Aerospace Engineer, FAA, Wichita ACO, 1801 Airport Road, Wichita, Kansas 67209; telephone:

(316)946-4154; facsimile:

(316)946-4107, has the authority to approve AMOCs for this AD, if requested using the procedures found in 14 CFR 39.19. Material Incorporated by Reference

(g)You must use Raytheon Aircraft Company Mandatory Service Bulletin Number SB 27-3761, Issued: February 2006, to do the actions required by this AD, unless the AD specifies otherwise.

(1)The Director of the Federal Register approved the incorporation by reference of this service information under 5 U.S.C. 552(a) and 1 CFR part 51.

(2)For service information identified in this AD, contact Raytheon Aircraft Company, P.O. Box 85, Wichita, Kansas 67201-0085; telephone:

(800)429-5372 or

(316)676-3140.

(AD)for the products listed above. This AD results from mandatory continuing airworthiness information

(MCAI)issued by the aviation authority of another country to identify and correct an unsafe condition on an aviation product. The MCAI describes the unsafe condition as during production installation of the Garmin G1000 supplemental type certificate

(STC)some parts of the installed fuel system indicating system were contaminated with particles from the manufacturing process. This AD requires actions that are intended to address the unsafe condition described in the MCAI. DATES: This AD becomes effective November 28, 2006. The Director of the Federal Register approved the incorporation by reference of Diamond Aircraft Industries GmbH Mandatory Service Bulletin No. MSB-40-048/2, Revision 2, dated September 26, 2006; and Work Instruction WI-MSB-40.048/2, Revision 2, dated September 26, 2006, listed in this AD as of November 28, 2006. We must receive comments on this AD by December 8, 2006. ADDRESSES: You may send comments by any of the following methods: • *DOT Docket Web Site:* Go to *http://dms.dot.gov* and follow the instructions for sending your comments electronically. • *Fax:*

(202)493-2251. • *Mail:* Docket Management Facility, U.S. Department of Transportation, 400 Seventh Street, SW., Nassif Building, Room PL-401, Washington, DC 20590-0001. • *Hand Delivery:* Room PL-401 on the plaza level of the Nassif Building, 400 Seventh Street, SW., Washington, DC, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. • *Federal eRulemaking Portal:* *http://www.regulations.gov.* Follow the instructions for submitting comments. Examining the AD Docket You may examine the AD docket on the Internet at *http://dms.dot.gov* ; or in person at the Docket Management Facility between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The AD docket contains this AD, the regulatory evaluation, any comments received, and other information. The street address for the Docket Office (telephone

(800)647-5227) is in the ADDRESSES section. Comments will be available in the AD docket shortly after receipt. FOR FURTHER INFORMATION CONTACT: Sarjapur Nagarajan, Aerospace Engineer, 901 Locust, Room 301, Kansas City, Missouri 64106; telephone:

(816)329-4145; fax:

(816)329-4090. SUPPLEMENTARY INFORMATION: Streamlined Issuance of AD The FAA is implementing a new process for streamlining the issuance of ADs related to MCAI. The streamlined process will allow us to adopt MCAI safety requirements in a more efficient manner and will reduce safety risks to the public. This process continues to follow all FAA AD issuance processes to meet legal, economic, Administrative Procedure Act, and **Federal Register** requirements. We also continue to meet our technical decision-making responsibilities to identify and correct unsafe conditions on U.S.-certificated products. This AD references the MCAI and related service information that we considered in forming the engineering basis to correct the unsafe condition. The AD contains text copied from the MCAI and for this reason might not follow our plain language principles. Discussion The European Aviation Safety Agency (EASA), which is the aviation authority for the European Union (EU), has issued Emergency Airworthiness Directive No.: 2006-0295-E, dated September 26, 2006 (referred to after this as “the MCAI”), to correct an unsafe condition for the specified products. The MCAI states that the aircraft manufacturer has identified that during production installation of the Garmin G1000 STC some parts of the installed fuel system indicating system were contaminated with particles from the manufacturing process. If not corrected, this fuel system contamination may lead to improper engine operation, power loss or in-flight engine failure. The MCAI requires you to do a one time special inspection and recertification for the effected airplanes. You may obtain further information by examining the MCAI in the AD docket. Relevant Service Information Diamond Aircraft Industries GmbH has issued Mandatory Service Bulletin No. MSB-40-048/2, Revision 2, dated September 26, 2006; and Work Instruction WI-MSB-40.048/2, Revision 2, dated September 26, 2006. The actions described in this service information are intended to correct the unsafe condition identified in the MCAI. FAA's Determination and Requirements of the AD This product has been approved by the aviation authority of another country, and is approved for operation in the United States. Pursuant to our bilateral agreement with this State of Design Authority, they have notified us of the unsafe condition described in the MCAI and service information referenced above. We are issuing this AD because we evaluated all information provided by the State of Design Authority and determined the unsafe condition exists and is likely to exist or develop on other products of the same type design. Differences Between This AD and the MCAI or Service Information We have reviewed the MCAI and related service information and, in general, agree with their substance. But we might have found it necessary to use different words from those in the MCAI to ensure the AD is clear for U.S. operators and is enforceable. In making these changes, we do not intend to differ substantively from the information provided in the MCAI and related service information. We might have also required different actions in this AD from those in the MCAI in order to follow FAA policies. Any such differences are described in a separate paragraph of the AD. These requirements take precedence over those copied from the MCAI. FAA's Determination of the Effective Date An unsafe condition exists that requires the immediate adoption of this AD. The FAA has found that the risk to the flying public justifies waiving notice and comment prior to adoption of this rule because the fuel system contamination may lead to improper engine operation, power loss or in-flight engine failure. Therefore, we determined that notice and opportunity for public comment before issuing this AD are impracticable and that good cause exists for making this amendment effective in fewer than 30 days. Comments Invited This AD is a final rule that involves requirements affecting flight safety, and we did not precede it by notice and opportunity for public comment. We invite you to send any written relevant data, views, or arguments about this AD. Send your comments to an address listed under the ADDRESSES section. Include “Docket No. FAA-2006-26165; Directorate Identifier 2006-CE-57-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this AD. We will consider all comments received by the closing date and may amend this AD because of those comments. We will post all comments we receive, without change, to *http://dms.dot.gov,* including any personal information you provide. We will also post a report summarizing each substantive verbal contact we receive about this AD. Authority for This Rulemaking Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. “Subtitle VII: Aviation Programs,” describes in more detail the scope of the Agency's authority. We are issuing this rulemaking under the authority described in “Subtitle VII, Part A, Subpart III, Section 44701: General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action. Regulatory Findings We determined that this AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. For the reasons discussed above, I certify that this AD:

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

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

(3)Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. We prepared a regulatory evaluation of the estimated costs to comply with this AD and placed it in the AD docket. List of Subjects in 14 CFR Part 39 Air transportation, Aircraft, Aviation safety, Incorporation by reference, Safety. Adoption of the Amendment Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows: PART 39—AIRWORTHINESS DIRECTIVES 1. The authority citation for part 39 continues to read as follows: Authority: 49 U.S.C. 106(g), 40113, 44701. § 39.13 [Amended] 2. The FAA amends § 39.13 by adding the following new AD: **2006-23-04 Diamond Aircraft Industries GmbH** : Amendment 39-14816; Docket No. FAA-2006-26165; Directorate Identifier 2006-CE-57-AD. Effective Date

(a)This airworthiness directive

(AD)becomes effective November 28, 2006. Affected ADs

(b)None. Applicability

(c)This AD applies to Model DA 40 airplanes equipped with Garmin G1000 supplemental type certificate

(STC)SA01254WI, serial numbers 40.448 through 40.673, excluding 40.538, 40.590, 40.641, 40.642, 40.644, 40.651, 40.654, 40.655, and 40.699, certificated in any category. Reason

(d)The mandatory continuing airworthiness information

(MCAI)states that the aircraft manufacturer has identified that during production installation of the Garmin G1000 STC some parts of the installed fuel system indicating system were contaminated with particles from the manufacturing process. If not corrected, this may lead to improper engine operation, power loss or in-flight engine failure. The MCAI requires you to do a one time special inspection and recertification for the effected airplanes. Actions and Compliance

(e)Prior to further flight, unless already done, inspect engine fuel system for possible contamination of fuel per Diamond Aircraft Industries GmbH Mandatory Service Bulletin No. MSB 40-048/2, Revision 2, dated September 26, 2006; and Work Instruction WI-MSB-40.048/2, Revision 2, dated September 26, 2006. FAA AD Differences **Note:** This AD differs from the MCAI and/or service information as follows: No differences. Other FAA AD Provisions

(f)The following provisions also apply to this AD:

(1)*Alternative Methods of Compliance (AMOCs):* The Manager, Standards Staff, FAA, ATTN: Sarjapur Nagarajan, Aerospace Safety Engineer, FAA, Small Airplane Directorate, 901 Locust, Room 301, Kansas City, Missouri 64106; telephone:

(816)329-4145; fax:

(816)329-4090, has the authority to approve AMOCs for this AD, if requested using the procedures found in 14 CFR 39.19.

(2)*Airworthy Product:* For any requirement in this AD to obtain corrective actions from a manufacturer or other source, use these actions if they are FAA-approved. Corrective actions are considered FAA-approved if they are approved by the State of Design Authority (or their delegated agent). You are required to assure the product is airworthy before it is returned to service.

(3)*Reporting Requirements:* For any reporting requirement in this AD, under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501 *et seq* .), the Office of Management and Budget

(OMB)has approved the information collection requirements and has assigned OMB Control Number 2120-0056. Related Information

(g)Refer to European Aviation Safety Agency

(EASA)Emergency Airworthiness Directive No.: 2006-0295-E, dated September 26, 2006; Diamond Aircraft Industries GmbH Mandatory Service Bulletin No. MSB-40-048/2, Revision 2, dated September 26, 2006; and Diamond Aircraft Industries GmbH Work Instruction WI-MSB-40.048/2, Revision 2, dated September 26, 2006, for related information. Material Incorporated by Reference

(h)You must use Diamond Aircraft Industries GmbH Mandatory Service Bulletin No. MSB-40-048/2, Revision 2, dated September 26, 2006; and Diamond Aircraft Industries GmbH Work instruction WI-MSB-40.048/2, Revision 2, dated September 26, 2006, to do the actions required by this AD, unless the AD specifies otherwise.

(1)The Director of the Federal Register approved the incorporation by reference of this service information under 5 U.S.C. 552(a) and 1 CFR part 51.

(2)For service information identified in this AD, contact Diamond Aircraft Industries GmbH, N.A. Otto-Straβe 2, A-2700 Wiener Neustadt, Germany; telephone +43 2622 26700; fax +43 2622 26780.

(3)You may review copies at the FAA, Central Region, Office of the Regional Counsel, 901 Locust, Kansas City, Missouri 64106; or at the National Archives and Records Administration (NARA). For information on the availability of this material at NARA, call 202-741-6030, or go to: *http://www.archives.gov/federal-register/cfr/ibr-locations.html.* Issued in Kansas City, Missouri on October 30, 2006. Kim Smith, Manager, Small Airplane Directorate, Aircraft Certification Service. [FR Doc. E6-18732 Filed 11-7-06; 8:45 am] BILLING CODE 4910-13-P SECURITIES AND EXCHANGE COMMISSION 17 CFR Parts 200 and 240 [Release Nos. 34-54684; IC-27542; File No. S7-11-05] RIN 3235-AJ50 Amendments to the Tender Offer Best-Price Rules AGENCY: Securities and Exchange Commission. ACTION: Final rule. SUMMARY: We are adopting amendments to the language of the third-party and issuer tender offer best-price rules to clarify that the provisions apply only with respect to the consideration offered and paid for securities tendered in a tender offer. We also are amending the third-party and issuer tender offer best-price rules to provide that any consideration that is offered and paid according to employment compensation, severance or other employee benefit arrangements entered into with security holders of the subject company that meet certain requirements will not be prohibited by the rules. Finally, we are amending the third-party and issuer tender offer best-price rules to provide a safe harbor provision so that arrangements that are approved by certain independent directors of either the subject company's or the bidder's board of directors, as applicable, will not be prohibited by the rules. These amendments are intended to make it clear that the best-price rule was not intended to capture employment compensation, severance or other employee benefit arrangements. We are also making a technical amendment to correct a cross-reference in the rules that govern the ability to delegate authority for purposes of granting exemptions under the best-price rule. DATES: *Effective Date:* December 8, 2006. FOR FURTHER INFORMATION CONTACT: Brian V. Breheny, Chief, or Mara L. Ransom, Special Counsel, Office of Mergers and Acquisitions, Division of Corporation Finance, at

(202)551-3440. SUPPLEMENTARY INFORMATION: We are adopting amendments to Rule 13e-4 1 and Rule 14d-10 2 under the Securities Exchange Act of 1934 3 and making certain technical changes to a delegated authority rule that is affected by the amendments to the best-price rule. 4 1 17 CFR 240.13e-4. 2 17 CFR 240.14d-10. 3 15 U.S.C. 78a *et seq.* 4 17 CFR 200.30-1. I. Background A. Introduction and Summary On December 16, 2005, we proposed changes to the issuer and third-party tender offer best-price rules 5 to make it clear that the best-price rule generally was not intended to apply to compensatory arrangements. 6 We believed that these amendments were necessary to alleviate the uncertainty that the various interpretations of the best-price rule by courts have produced. We also intended that the amendments would reduce a regulatory disincentive to structuring an acquisition of securities as a tender offer, as compared to a statutory merger, to which the best-price rule does not apply. 7 We received 11 comment letters on the proposed amendments. 8 In general, commenters supported our proposed changes to the tender offer best-price rule and believed that the proposed changes, if adopted, would meet our objectives. We did, however, receive a number of comments with regard to specific aspects of the proposed changes. The changes we adopt today are, in most respects, consistent with those proposed on December 16, 2005, but include certain revisions made in response to concerns raised by commenters. 5 For purposes of this release, unless otherwise indicated, our references to the “tender offer best-price rule” or the “best-price rule” are intended to refer to both Exchange Act Rule 13e-4(f)(8)(ii) (17 CFR 240.13e-4(f)(8)(ii)) and Exchange Act Rule 14d-10(a)(2) (17 CFR 240.14d-10(a)(2)). 6 Amendments to the Tender Offer Best-Price Rule, Release No. 34-52968 (Dec. 22, 2005) [70 FR 76116] (the “Proposing Release”). 7 Statutory mergers are also known as “long-form” or unitary mergers, the requirements of which are governed generally by applicable State law. 8 The public comments we received are available for inspection in our Public Reference Room at 100 F Street, NE., Washington DC 20549 in File No. S7-11-05, or may be viewed at *http://www.sec.gov/rules/proposed/s71105.shtml.* The amendments to the best-price rule will change the language of the rule to clarify that the provisions of the rule apply only with respect to the consideration offered and paid for securities tendered in a tender offer. The amendments are premised on our view that the best-price rule was never intended to apply to consideration paid pursuant to arrangements, including employment compensation, severance or other employee benefit arrangements, entered into with security holders of the subject company, so long as the consideration paid pursuant to such arrangements was not to acquire their securities. 9 Accordingly, the amendments provide that consideration offered and paid according to employment compensation, severance or other employee benefit arrangements entered into with security holders of the subject company of a tender offer, where the arrangements meet certain requirements, are not prohibited by the best-price rule. 9 *See* the definition of “subject company” at Exchange Act Rule 14d-1(g)(7) (17 CFR 240.14d-1(g)(7)). The amendments also provide for a non-exclusive safe harbor, which states that arrangements, and any consideration offered and paid according to such arrangements, that are approved by either a compensation committee of the subject company's board of directors or a committee performing similar functions, regardless of whether the subject company is a party to the arrangement, are not prohibited by the best-price rules. Alternatively, if the bidder is a party to the arrangement, the arrangement may be approved by either a compensation committee or a committee performing similar functions of the bidder's board of directors. 10 In order to satisfy the safe harbor, we have provided certain alternatives for bidders or subject companies, as applicable, that do not have a compensation committee or that are foreign private issuers. 11 10 *See* the definition of “bidder” at Exchange Act Rule 14d-1(g)(2) (17 CFR 240.14d-1(g)(2)). 11 *See* the definition of “foreign private issuer” at Rule 405 of the Securities Act of 1933 (17 CFR 230.405). The principal changes from the proposals, as discussed in detail below, are: • For purposes of the exemption and the safe harbor, the persons who may enter into an employment compensation, severance or other employee benefit arrangement have been expanded to include all security holders of the subject company, as opposed to only employees and directors of the subject company; • The requirements of the exemption have been modified; • The approval of the directors of the subject company will satisfy the safe harbor requirements, regardless of whether the subject company is a party to the arrangement; • A special committee of the board of directors of the subject company or the bidder, as applicable, comprised solely of independent members and formed to consider and approve the arrangement may approve the arrangement and satisfy the safe harbor requirements if the subject company's or bidder's board of directors, as applicable, does not have a compensation committee or a committee of the board of directors that performs functions similar to a compensation committee or if none of the members of those committees is independent; • The approving directors do not need to determine that the arrangements meet the additional requirements of the compensation arrangement exemption to qualify for the safe harbor; • The safe harbor provides certain accommodations for foreign private issuers; • A new instruction provides that a determination by the board of directors that the board members approving an arrangement are independent in accordance with the provisions of the safe harbor will satisfy the independence requirements of the safe harbor; and • The exemption and safe harbor are included as part of the issuer, as well as third-party, best-price rule. B. History of the Best-Price Rule and the Reasons for Today's Amendments Section 14(d)(7) of the Exchange Act 12 requires equal treatment of security holders. 13 Based on the objectives of the Williams Act 14 and the protections afforded by Section 14(d)(7), the Commission adopted Rules 13e-4(f)(8) and 14d-10 in 1986. 15 These rules codified the positions that both an issuer tender offer and a third-party tender offer must be open to all holders of the class of securities subject to the tender offer (commonly referred to as the “all-holders rule”) and that all security holders must be paid the highest consideration paid to any security holder (commonly referred to as the “best-price rule”). 16 The rules provided that no one may “make a tender offer unless:

(1)[T]he tender offer is open to all security holders of the class of securities subject to the tender offer; and

(2)[t]he consideration paid to any security holder pursuant to the tender offer is the highest consideration paid to any other security holder during such tender offer.” 17 12 15 U.S.C. 78n(d)(7). 13 The statute and rules governing third-party tender offers apply to tender offers for more than 5 per cent of any class of any equity security registered pursuant to Section 12 of the Exchange Act, or any equity security of an insurance company that would have been required to be registered but for the exemption contained in Section 12(g)(2)(G) of the Exchange Act, or any equity security issued by a closed-end investment company registered under the Investment Company Act of 1940. *See* Section 14(d)(1) of the Exchange Act. 14 Pub. L. No. 90-439, 82 Stat. 454 (1968). 15 *See* Amendments to Tender Offer Rules: All-Holders and Best-Price, Release No. 34-23421 (July 17, 1986) [51 FR 25873]. 16 *Id.* 17 Exchange Act Rules 13e-4(f)(8) (17 CFR 240.13e-4(f)(8)) and 14d-10(a) (17 CFR 240.14d-10(a)). Since the adoption of these rules, the best-price rule has been the basis for litigation brought in connection with tender offers in which it is claimed that the rule was violated as a result of the bidder entering into new agreements or arrangements, or adopting the subject company's pre-existing agreements or arrangements, with security holders of the subject company. 18 When ruling on these best-price rule claims, courts generally have employed either an “integral-part test” or a “bright-line test” to determine whether the arrangement violates the best-price rule. 18 *See, e.g., Epstein* v. *MCA, Inc.* , 50 F.3d 644 (9th Cir. 1995), *rev'd on other grounds sub nom.* ; *Matsushita Elec. Indus. Co.* v. *Epstein* , 516 U.S. 367 (1996); *Lerro* v. *Quaker Oats Co.* , 84 F.3d 239 (7th Cir. 1996); *Walker* v. *Shield Acquisition Corp.* , 145 F. Supp.2d 1360 (N.D. Ga. 2001). The integral-part test states that the best-price rule applies to all integral elements of a tender offer, including employment compensation, severance and other employee benefit arrangements or commercial arrangements that are deemed to be part of the tender offer, regardless of whether the arrangements are executed and performed outside of the time that the tender offer formally commences and expires. 19 Courts following the integral-part test have ruled that agreements or arrangements made with security holders that constituted an “integral part” of the tender offer violate the best-price rule. 20 19 *See Epstein* , 50 F.3d 644; *Perera* v. *Chiron Corp.* , 1996 U.S. Dist. LEXIS 22503 (N.D. Cal. 1996); *Padilla* v. *MedPartners, Inc.* , 1998 U.S. Dist. LEXIS 22839 (C.D. Cal. 1998); *Millionerrors Inv. Club* v. *General Elec. Co.* , 2000 U.S. Dist. LEXIS 4778 (W.D. Pa. 2000); *Maxick* v. *Cadence Design Sys., Inc.* , 2000 U.S. Dist. LEXIS 14099 (N.D. Cal. 2000); *McMichael* v. *United States Filter Corp.* , 2001 U.S. Dist. LEXIS 3918 (C.D. Cal. 2001); *Karlin* v. *Alcatel, S.A.* , 2001 U.S. Dist. LEXIS 12349 (C.D. Cal. 2001); *Harris* v. *Intel Corp.* , 2002 U.S. Dist. LEXIS 13796 (N.D. Cal. 2002); *Cummings* v. *Koninklijke Philips Elec., N.V.* , 2002 U.S. Dist. LEXIS 23383 (N.D. Cal. 2002); *In re: Luxottica Group S.p.A.* , 293 F. Supp.2d 224 (E.D. N.Y. 2003). 20 *Id.* The bright-line test, on the other hand, States that the best-price rule applies only to arrangements executed and performed between the time a tender offer formally commences 21 and expires. 22 Jurisdictions following the bright-line test have held that agreements or arrangements with security holders of the subject company do not violate the best-price rule if they are not executed and performed “during the tender offer.” 23 21 *See* Exchange Act Rule 13e-4(a)(4) (17 CFR 240.13e-4(a)(4)) and Exchange Act Rule 14d-2 (17 CFR 240.14d-2) (relating to procedures for formal commencement of tender offers). 22 *See Lerro* , 84 F.3d 239; *Gerber* v. *Computer Assoc. Int'l, Inc.* , 303 F.3d 126 (2d Cir. 2002); *In re: Digital Island Securities Litig.* , 357 F.3d 322 (3d Cir. 2004); *Walker* v. *Shield Acquisition Corp.* , 145 F. Supp.2d 1360 (N.D. Ga. 2001); *Susquehanna Capital Group* v. *Rite Aid Corp.* , 2002 U.S. Dist. LEXIS 18290 (E.D. Pa. 2002); *Katt* v. *Titan Acquisitions, Inc.* , 244 F. Supp.2d 841 (M.D. Tenn. 2003). 23 *Id.* These differing interpretations of the best-price rule have made using a tender offer acquisition structure unattractive because of the potential liability of bidders for claims alleging that compensation payments violate the best-price rule. 24 This potential liability is heightened by the possibility that claimants can choose to bring a claim in a jurisdiction that recognizes an interpretation of the best-price rule that suits the claimant's case. These differing interpretations do not best serve the interests of security holders and have resulted in a regulatory disincentive to structuring an acquisition of securities as a tender offer, as compared to a statutory merger, to which the best-price rule does not apply. We believe that the interests of security holders are better served when all acquisition structures are viable options. 25 We intend for the amendments we are adopting today to alleviate this regulatory disincentive. 24 Commenters cited the judicial interpretations as one reason for the decline in the use of tender offers and some indicated that they do not recommend the use of tender offers if other acquisition structures are available. *See, e.g.* , the letters from the American Bar Association, Business Law Section, Committee on Federal Regulation of Securities (“ABA”); Cravath, Swaine & Moore LLP, Davis Polk & Wardwell, Latham & Watkins LLP, Simpson Thacher & Bartlett LLP, Skadden, Arps, Slate, Meagher & Flom LLP, Sullivan & Cromwell LLP, and Wachtell, Lipton, Rosen & Katz (“Law Firm Group”); and Association of the Bar of the City of New York, Special Committee on Mergers, Acquisitions and Corporate Control Contests (“NYCBA”). 25 As we indicated in the Proposing Release, at the time we adopted Regulation M-A (17 CFR 229.1000-229.1016) we stated that “[o]ur goals in proposing and adopting these changes are to * * * harmonize inconsistent disclosure requirements and alleviate unnecessary burdens associated with the compliance process * * * ”). C. Overview of the Proposed Amendments As we discussed in the Proposing Release, we do not believe that the best-price rule should be subject to a strict temporal test because such a test lends itself to abuse. However, we also do not believe that all payments that are conditioned on or otherwise somehow related to a tender offer, including payments under compensatory or commercial arrangements that are made to persons who happen to be security holders, whether made before, during or after the tender offer period, should be subject to the best-price rule. Accordingly, we proposed amendments to the best-price rule that did not follow the approach of either the integral-part or the bright-line test. Instead, we proposed to change the language of the best-price rule so that only consideration paid to security holders for securities tendered into a tender offer will be evaluated when determining the highest consideration paid to any other security holder for securities tendered into the tender offer. Our proposed amendments to the third-party tender offer best-price rule also acknowledged that critical personnel decisions often are required to be made concurrently with decisions regarding whether to pursue a transaction with the subject company in a tender offer. We believed, and continue to believe, that these decisions generally are made independently from the consideration paid for securities tendered in the tender offer. We therefore proposed a specific exemption from the third-party tender offer best-price rule for consideration offered and paid according to employment compensation, severance or other employee benefit arrangements entered into with employees and directors of the subject company of a tender offer where the amounts payable under the arrangements meet certain requirements. We also proposed a safe harbor to the exemption from the third-party tender offer best-price rule for consideration offered and paid according to certain employment compensation, severance or other employee benefit arrangements that were approved by either the compensation committee or a committee performing similar functions as the compensation committee of the board of directors of either the subject company or bidder, depending on which entity was a party to the arrangement. II. Amendments to the Best-Price Rule A. Amendments to the Basic Standard in Exchange Act Rules 13e-4(f)(8)(ii) and 14d-10(a)(2) 1. Discussion We proposed amendments to the issuer and third-party best-price rule to address the uncertainty that the various court interpretations have produced while ensuring that the intent of the best-price rule—equal treatment of security holders—is satisfied. The amendments revise the best-price rule to state that no one may make a tender offer unless “[t]he consideration paid to any security holder for securities tendered in the tender offer is the highest consideration paid to any other security holder for securities tendered in the tender offer.” The clause “for securities tendered in the tender offer” would replace the clauses “pursuant to the tender offer” and “during such tender offer,” as the rule previously read, to clarify the intent of the best-price rule. Today, we adopt these changes as proposed. 2. Comments Regarding the Proposed Amendments to the Basic Standard in Exchange Act Rules 13e-4(f)(8)(ii) and 14d-10(a)(2) Although commenters generally favored the proposals, certain commenters expressed some concerns regarding the proposed amendments. 26 These commenters were of the view that the proposed changes likely would alter the bright-line precedent that has been established by courts. Specifically, one commenter indicated that the removal of the phrase “during the tender offer” would be used to argue that payments made at any time are for “securities tendered in” the tender offer, which would expand the application and, therefore, the potential claims that could be made under the best-price rule. 27 We believe that the amendments we are adopting today, as discussed in more detail below, will provide sufficient certainty in assuring that payments made with respect to compensatory arrangements will not be captured by the best-price rule such that any temporal certainty that may previously have been present under the “bright-line test” will no longer be necessary. As stated above, we also do not believe that the best-price rule should be subject to a strict temporal test, which could provide opportunities for evasion of the rule. 26 *See, e.g.* , letters from ABA; Dechert LLP (“Dechert”); and Law Firm Group. 27 Letter from Law Firm Group. As we articulated in the Proposing Release, the flexible concept of a tender offer is consistent with the purpose of the best-price rule, in that it prevents bidders from impermissibly circumventing the rule by limiting the application of the rule to stated dates. 28 The best-price rule was not intended to apply to all payments made to persons who happen to be security holders of a subject company, whether made before, during or after the formal tender offer period. Further, the amendments that we are adopting today will remove the potentially expansive concept of consideration paid “pursuant to” the tender offer in order to focus the analysis as to whether the consideration to which the best-price rule would apply was paid “for securities tendered in” the tender offer. 28 *See* note 21 above. In response to questions that we posed about whether employees and directors who enter into arrangements with the bidder or subject company and do not tender their securities into a tender offer will avoid the strictures of the best-price rule as proposed, commenters generally agreed that no violation of the best-price rule should occur under these circumstances. 29 Commenters believed that this outcome was appropriate. We agree, because the best-price rule would not be applicable in these instances. 29 *See, e.g.* , letters from ABA; Jason A. Gonzalez (“Gonzalez”); and Law Firm Group. B. Exemption for Consideration Offered and Paid Pursuant to Compensatory Arrangements 1. Discussion We are adopting an amendment to the issuer and third-party best-price rules so that consideration offered and paid pursuant to employment compensation, severance or other employee benefit arrangements that are entered into with security holders of the subject company and that meet certain substantive requirements are not prohibited by the best-price rules. 30 We believe that amounts paid pursuant to arrangements meeting the requirements of this provision should not be considered when calculating the price paid for tendered securities. 30 The exemption and safe harbor were proposed as amendments to Rule 14d-10(c) of the third-party tender offer rules. The exemption and the safe harbor are adopted as new Rules 14d-10(d)(1) and 14d-10(d)(2), respectively, and Rules 13e-4(f)(12)(i) and 13e-4(f)(12)(ii), respectively. Because we are inserting the exemption and safe harbor into an existing subparagraph (and redesignating old subparagraph

(d)as (e), etc.), we are also making a technical change to reflect this redesignation in the rules that govern the ability to delegate authority for purposes of granting exemptions under the best-price rule. We have revised the proposed exemption for compensatory arrangements that meet specified substantive requirements to address a number of the comments received. We have expanded the persons who may enter into an employment compensation, severance or other employee benefit arrangement to include all security holders of the subject company, as opposed to only employees and directors of the subject company. We are also extending this exemption to issuer tender offers. 31 Finally, we have modified the requirements of the exemption so that the amounts to be paid pursuant to an arrangement will have to be “paid or granted as compensation for past services performed, future services to be performed, or future services to be refrained from performing, by the security holder (and matters incidental thereto)” and may “not [be] calculated based on the number of securities tendered or to be tendered in the tender offer by the security holder.” 31 The term “issuer tender offer,” as defined in Rule 13e-4(a)(2) (17 CFR 240.13e-4(a)(2)), refers to a tender offer for, or a request or invitation for tenders of, any class of equity security, made by the issuer or an affiliate of such issuer of the class of such equity security. For purposes of this release, all references to “subject company,” as defined for purposes of the third-party tender offer rules are intended to refer to “issuer,” for purposes of the issuer tender offer rules. Similarly, all references to “bidder,” as defined for purposes of the third-party tender offer rules are intended to refer to an “issuer” and “affiliate,” for purposes of the issuer tender offer rules. 2. Comments Regarding the Compensatory Arrangement Exemption a. Parties to the Arrangement As proposed, the exemption would have applied to employment compensation, severance or other employee benefit arrangements entered into with employees or directors of the subject company. We solicited comment regarding whether the exemption should be restricted to such persons. Commenters believed that the exemption should be expanded and suggested expansion of the exemption to encompass consultants, 32 independent contractors, 33 employees or directors of the bidder, 34 and/or any security holder of the subject company. 35 Commenters were of the view that it would be appropriate to expand the class of persons because arrangements entered into with the expanded class of persons are, like those entered into with employees and directors, intended to cover compensation for past services or incentives for future services and not tied to the number of shares to be tendered. 36 We agree and have expanded the exemption to apply to any security holder of the subject company. While, as a practical matter, the challenges to the best-price rule to date have focused primarily on employment compensation, severance and other employee benefit arrangements with employees or directors of the subject company, we believe that the role of the person who is a party to the arrangement is irrelevant. 32 *See, e.g.* , letters from Law Firm Group and Shearman & Sterling LLP (“Shearman”). 33 Letter from New York State Bar Association, Business Law Section, Committee on Securities Regulation (“NYSBA”). 34 *See, e.g.* , letters from Gonzalez and Society of Corporate Secretaries & Governance Professionals, Securities Law Committee (“SCSGP”). 35 *See, e.g.* , letters from ABA and Dechert. 36 *See, e.g.* , letter from SCSGP. b. Types of Arrangements Covered by the Exemption In the Proposing Release, we asked whether we should expand the exemption to include commercial arrangements, in addition to employment compensation, severance or other employee benefit arrangements. Several commenters favored extending the exemption to commercial arrangements. 37 In doing so, commenters generally argued that it is not uncommon for security holders of the subject company of a tender offer to enter into commercial arrangements with the bidder and, absent a specific exemption, such arrangements could be (and have been) challenged under the best-price rule. 38 Other commenters suggested that providing an express exemption for employment compensation, severance or other employee benefit arrangements but not providing a similar exemption for commercial arrangements may undermine our objectives in adopting these amendments. 39 37 *See, e.g.* , letters from ABA; Dechert; Intel Corporation (“Intel”); NYCBA; NYSBA; SCSGP; and Securities Industry Association, Capital Markets Committee (“SIA”). 38 *See, e.g.* , letters from Dechert, Intel and NYCBA. 39 *See, e.g.* , letter from NYSBA. We do not believe that it is appropriate to provide a separate exemption for commercial arrangements. As is reflected in an instruction to the exemption, which is adopted as proposed, 40 the fact that the exemption extends to employment compensation, severance or other employee benefit arrangements does not mean that an arrangement of any other nature, including a commercial arrangement, with a security holder should be treated as consideration paid for securities tendered in a tender offer. This instruction should alleviate the concerns raised by commenters about whether the perceived exclusivity of the exemption will create an unintended inference. 41 Also, because of the wide variety of potential commercial arrangements that could be negotiated at the time of a tender offer we are presently unable to craft a specific exemption for commercial arrangements—unlike the language of the compensation arrangement exemption—that could be tailored to be functional while assuring security holders of the intended benefits of the best-price rule. 40 As noted in Section II.C.2.d., the instruction now applies to both the exemption and the safe harbor. 41 Further, the best-price rule does not apply if a security holder refrains from tendering into a tender offer. *See* Section II.A.2. above. In the Proposing Release, we also asked whether we should consider adopting a *de minimis* exception to the best-price rule whereby holders of a certain percentage of securities of the subject company would be exempt from the application of the best-price rule. Some commenters were in favor of a *de minimis* exception, although the commenters had differing views as to the percentage to be applied to the exception, to whom the exception would apply and what types of arrangements should be available under the exception. 42 We determined that it would not be appropriate to implement a *de minimis* exception because it could undermine the protections of the best-price rule. 42 Letters from ABA; Law Firm Group; NYCBA; NYSBA; SCSGP; and SIA. In the Proposing Release, we also asked whether the proposed exemption should provide a definition or provide examples of what we mean when we refer to “employment compensation, severance or other employee benefit arrangements.” Commenters were mixed in their preference as to whether or not defining the phrase or offering examples would be helpful, although most did not believe it would be necessary. 43 Some commenters expressed the view that if the phrase was defined and an employment compensation, severance or other employee benefit arrangement did not fall squarely within the definition or list of examples, potential bidders might opt to use a transaction structure other than a tender offer. 44 Others stated that the phrase “employment compensation, severance or other employee benefit arrangement” uses terms that are generally understood and an attempt to define the phrase or provide examples would raise questions of interpretation. 45 We agree and generally believe that providing a definition or a list of examples is not necessary and would invite confusion. 43 *See, e.g.* , letters from ABA; Intel; Law Firm Group; and SCSGP. 44 *See, e.g.* , letter from Intel. 45 *See, e.g.* , letters from ABA and SCSGP. c. Additional Requirements of the Exemption We proposed that, for purposes of satisfying the exemption, the amounts to be paid pursuant to an arrangement would have to relate “solely to past services performed or future services to be performed or refrained from performing, by the employee or director (and matters incidental thereto)” and could “not [be] based on the number of securities the employee or director owns or tenders.” As we explained in the Proposing Release, we included these requirements so that the amounts paid pursuant to employment compensation, severance or other employee benefit arrangements were based on legitimate compensatory reasons. 46 We also believed that it was not appropriate to permit the exemption of any payments to be made that were proportional to or otherwise based on the number of securities held by the security holder because such a relationship between the payment and the securities tendered presented the type of situation the best-price rule was adopted to guard against. 46 Proposing Release at Section II.B.1. Most of the commenters believed that excluding employment compensation, severance or other employee benefit arrangements from the application of the best-price rule would provide certainty and address the issues raised by the current legal precedent. 47 A number of commenters suggested, however, that we remove the requirements of the exemption. 48 These commenters generally were concerned that the courts would scrutinize whether the requirements were satisfied, resulting in the substitution of one set of disputed facts for another. 49 Commenters also were concerned that it might be difficult to determine whether or not the requirements have been met, given that it would require the ability to discern the intent of the parties at the time the arrangement was made. 50 At least one commenter also expressed the concern that the requirements might unnecessarily circumscribe the availability of the exemption. 51 47 *See, e.g.* , letters from Dechert; Law Firm Group; and NYCBA. 48 *See, e.g.* , letters from ABA; Dechert; Law Firm Group; NYCBA; and SIA. 49 *See, e.g.* , letters from ABA; Dechert; Law Firm Group; and SIA. 50 *See, e.g.* , letter from Dechert. 51 *See, e.g.* , letter from Shearman. We have considered these comments and determined to retain the requirements with certain modifications. While we recognize that it may be difficult to determine in all instances whether or not the requirements have been satisfied, we believe making the exemption available without the requirements might subject the exemption to abuse. These requirements are designed to prevent the compensation being paid or granted under an arrangement from being for securities tendered in the tender offer. 52 52 Some commenters asked us to confirm whether any compensatory arrangement that is conditioned upon the security holder, who is a party to the arrangement, tendering securities into the tender offer would render the arrangement less likely to be one that should fall within the exemption or whether it is objectionable for the compensatory arrangement to be conditioned upon consummation of the tender offer. We believe that conditioning an arrangement on a security holder tendering securities into the tender offer would most likely violate one or both of the requirements of the exemption. We do not believe that conditioning an arrangement on the completion or consummation of the tender offer, without any requirements as to the security holder who is a party to the arrangement tendering shares in the tender offer, is relevant to a determination as to whether the exemption is available. i. Requirement That the Amount Payable Under the Compensatory Arrangement Is Being Paid or Granted as Compensation With respect to the first requirement, some commenters asked that we remove the reference to “solely” in order to avoid language that might unnecessarily circumscribe the availability of the exemption. 53 We agree and have substituted the first clause that read “relate solely to” with “is being paid or granted as compensation for” to clarify that it was our intent to provide an exemption only for employment compensation, severance or other employee benefit arrangements for which there is a legitimate compensatory purpose. 53 *See, e.g.* , letters from SCSGP and Shearman. One commenter also asked that we consider using a term other than “services” to avoid the possibility that certain forms of consideration, which may be paid or granted pursuant to the arrangements, would not meet the requirements of the exemption. 54 The commenter was concerned that the use of the term “services” might exclude those arrangements that called for compensation to be paid that was unconventional, such as the purchase of assets owned or used by an employee or director. We considered this concern and note that this requirement is intended only to require that the consideration paid is for services performed or to be performed or to be refrained from being performed—not to restrict the forms of consideration to be paid under an arrangement. We believe that the inclusion of the phrase “and matters incidental thereto” also should provide flexibility to cover other service-related compensation. 54 Letter from NYCBA. ii. Requirement That the Amount Payable Under the Compensatory Arrangement Is Not Calculated Based on the Number of Securities Tendered With respect to the second requirement, several commenters expressed concern as to whether we intended for employment compensation, severance or other employee benefit arrangements that are in the form of equity-based awards to be captured by this requirement. 55 Because equity-based awards are almost always based on the number of securities “owned or tendered,” commenters argued that the grant of equity-based awards or the modification of previously granted equity-based awards generally would fall outside of the compensation arrangement exemption to the best-price rule by virtue of failing to meet this second requirement. They suggested that we clarify the intent of the requirement. For similar reasons, commenters also suggested that we remove the reference to securities “owned” and refocus the provisions of this requirement on securities “tendered.” 56 We believe that we have addressed these concerns by adding the word “calculated” before “based” and replacing “owns or tenders” with “tendered or to be tendered” so that the exemption now requires that the arrangement “not [be] calculated based on the number of securities tendered or to be tendered * * * ” We believe these changes address the concerns raised by commenters and clarify that we did not intend for equity-based employment compensation, severance or other employee benefit arrangements that are premised on legitimate compensatory reasons to fall outside this exemption from the best-price rule. 55 *See, e.g.* , letters from ABA; NYCBA; and SIA. 56 *See, e.g.* , letter from ABA. C. Arrangements Approved by Independent Directors 1. Discussion We proposed a safe harbor from the third-party tender offer best-price rule for consideration offered and paid according to employment compensation, severance or other employee benefit arrangements entered into with employees and directors of the subject company that are approved by certain committees of the subject company's or bidder's board of directors. As we stated in the Proposing Release, we believe that the fiduciary duty requirements of board members, coupled with significant advances in the independence requirements for compensation committee members and recent advances in corporate governance, provide safeguards to allow employment compensation, severance or other employee benefit arrangements that are approved by independent compensation committee members and groups of independent board members to be exempt from the best-price rule. 57 As proposed, this provision would have operated as a safe harbor within the broader proposed exemption that included the two requirements discussed above. As we noted in the Proposing Release, we believed that providing such a safe harbor would provide increased certainty to bidders and subject companies in connection with the application of the best-price rule. We also believed that the proposed safe harbor struck the proper balance between the need for certainty in planning and structuring proposed acquisitions and the statutory purposes of the best-price rule. Most of the commenters agreed that providing the safe harbor was a good idea, although some commenters suggested certain changes to the provisions of the safe harbor to address issues on which we requested comment or that commenters identified. 58 57 *See, e.g.* , New York Stock Exchange, Inc. and National Association of Securities Dealers, Inc. Order Approving Proposed Rule Changes, Release No. 34-48745 (Nov. 4, 2003) [68 FR 64154] and Section 303A.05 of the New York Stock Exchange's Listed Company Manual (requiring the compensation committee to be comprised solely of independent directors). 58 *See* the discussion at Section II.C.2. below. We are adopting the safe harbor provision with certain modifications. First, we added the safe harbor to both the issuer and third-party tender offer best-price rules. Next, we amended the language of the safe harbor so that arrangements can be approved by either a compensation committee or a committee performing similar functions of the subject company's board of directors, regardless of whether the subject company is a party to the arrangement. Alternatively, if the bidder is a party to the arrangement, the arrangement may be approved by either a compensation committee or a committee performing similar functions of the board of directors of the bidder. In the case of issuer tender offers, arrangements must be approved by either a compensation committee of the issuer's board of directors or a committee performing similar functions, regardless of whether the issuer is a party to the arrangement. Alternatively, if an affiliate is a party to the arrangement, the arrangement may be approved by either a compensation committee or a committee performing similar functions of the board of directors of the affiliate. We are also amending the safe harbor to allow a special committee of the approving entity formed to consider and approve the arrangement to approve the arrangement and meet the requirements of the safe harbor if the approving entity does not have a compensation committee or a committee of the board of directors that performs functions similar to a compensation committee or if all the members of either of those committees are not independent. All of the members of the committee used to approve an arrangement must be independent, as defined. 59 We have made certain accommodations to these requirements for foreign private issuers, as discussed below. 59 Therefore, it is not necessary for the entire compensation committee of the bidder or subject company to approve the arrangement and, in fact, a subcommittee of this committee may approve the arrangement, so long as the subcommittee is comprised entirely of members that are independent in accordance with the requirements of the listing standards. *See* the related discussion at Section II.C.2.b. and note 72 below. Most of the commenters believed that providing the safe harbor would create certainty in an otherwise uncertain environment caused by the legal precedent that has evolved in this area. 60 In this regard, commenters were of the view that the safe harbor should provide as much certainty as possible, while still retaining a certain amount of flexibility so as to allow parties to be able to take advantage of it. 61 Commenters provided significant specific guidance regarding the operation of the proposed safe harbor and offered suggestions regarding the most effective means of accomplishing its purpose. The safe harbor we are adopting today has been revised from the proposal to address the following concerns, as discussed in further detail below: 60 *See, e.g.* , letters from ABA, Dechert and NYCBA. 61 *See, e.g.* , letters from Law Firm Group and NYCBA. • The approval of the directors of the subject company will satisfy the safe harbor requirements, regardless of whether the subject company is a party to the arrangement; 62 62 Alternatively, as adopted, the safe harbor is available where the arrangement is approved by the bidder's board of directors, but only if the bidder is a party to the arrangement. • A special committee of the board of directors of the subject company or the bidder, as applicable, comprised solely of independent members and formed to consider and approve the arrangement may approve the arrangement and satisfy the safe harbor requirements if the subject company's or bidder's board of directors, as applicable, does not have a compensation committee or a committee of the board of directors that performs functions similar to a compensation committee or if none of the members of such committees is independent; • Foreign private issuers may have the arrangement approved by any members of the board of directors or any committee of the board of directors authorized to approve the arrangement under the laws or regulations of their home country, and the members of the board or committee need not be independent in accordance with the U.S. listing standards but must be independent in accordance with the laws, regulations, codes or standards of their home country; • The approving directors do not need to determine that the arrangements meet the additional requirements of the compensation arrangement exemption; • A new instruction provides that a determination by the board of directors that the board members approving an arrangement are independent in accordance with the provisions of the safe harbor will satisfy the independence requirements of the safe harbor; and • We have expanded the safe harbor to apply to issuer, in addition to third-party, tender offers. 2. Comments Regarding the Safe Harbor a. The Committee Approval Required i. Approving Party As proposed, for purposes of satisfying the safe harbor, an arrangement would have needed to be approved by the applicable committee of the board of directors of either the subject company or the bidder, depending on whether the subject company or bidder is a party to the arrangement. We requested comment on whether the safe harbor could be modified to work better with State law protections. Several commenters advocated that the safe harbor provide that the arrangement may be approved by the applicable committee of the subject company, regardless of whether the subject company is a party to the arrangement. 63 We agree with these comments and have followed this approach in the amendments we are adopting. We believe the duties owed by the subject company's board members to the security holders subject to a tender offer provide certain protections of security holder interests regardless of whether the subject company is a party to the arrangement because the subject company's directors have a duty to act in the best interests of the security holders of the subject company. Also, this provides additional flexibility to parties wanting to take advantage of the safe harbor; bidders that, for whatever reason, do not have a compensation committee with independent directors will be able to rely upon the safe harbor by allowing the subject company to approve the compensation arrangement whether or not the bidder is a party to the arrangement. The safe harbor adopted today also allows approval by the applicable committee of the bidder's board of directors only if the bidder is a party to the arrangement. The amendments to the issuer tender offer rules follow a similar approach with respect to the approval required by the directors of the issuer or an affiliate of the issuer. 63 *See* , *e.g.* , letters from ABA; Dechert; Law Firm Group; NYCBA; and SIA. ii. Approving Body The proposed safe harbor would have allowed a compensation committee or a committee performing similar functions comprised solely of independent members of the board of directors to approve the arrangement. The safe harbor adopted today includes this provision. In the Proposing Release, we sought comment as to whether certain entities ( *e.g.* , small business issuers, foreign private issuers) may not have established compensation committees or committees performing similar functions such that the safe harbor may not be available to them. Commenters suggested we expand the approving body to include, among others, the entire board of directors or another duly authorized committee of the board. 64 64 *See* , *e.g.* , letters from ABA; Dechert; Law Firm Group; NYCBA; NYSBA; and SIA. In response to these comments, the safe harbor adopted today has been expanded in two respects. First, the safe harbor allows a special committee of the board of directors of the subject company or the bidder, as applicable, comprised solely of independent members and formed to consider and approve the arrangement, to approve the arrangement and satisfy the safe harbor if the subject company's or bidder's board of directors, as applicable, does not have a compensation committee or a committee that performs functions similar to a compensation committee or does have one of these committees but none of its members is independent. The safe harbor adopted today also has been expanded to allow foreign private issuers to obtain the approval by any or all members of the board of directors or any committee of the board of directors authorized to approve the arrangement under the laws or regulations of the home country of the approving party. We believe that expanding the safe harbor to include approvals by a special committee comprised of independent directors and the accommodation for foreign private issuers is appropriate for purposes of the best-price rule. Allowing a special committee, in lieu of a compensation or similar committee, to approve the compensatory arrangement provides additional flexibility to parties who want to rely on the safe harbor. Further, because the members of the special committee would have to be independent, we believe the approval by a special committee should not compromise investor protection. 65 65 State law also creates an incentive for board members to be disinterested from the transaction. *See* , *e.g.* , 8 Del. C. section 144 and *Weinberger* v. *UOP, Inc.* , 457 A.2d 701 (Del. 1983). The accommodation for foreign private issuers is appropriate because those issuers may not have compensation or similar committees. Deferring to the laws and regulations of the home country of foreign private issuers makes it more likely that they will avail themselves of the safe harbor and, consequently, conduct tender offers that will include U.S. security holders. b. Determining Independence In the Proposing Release, we solicited comment regarding the appropriateness of relying on the independence standards for compensation committee members as defined in the listing standards. One commenter suggested that we rely upon State law duties of directors because the approving body is already relying upon State law standards of fiduciary duties in approving the arrangement. 66 Other commenters suggested that codifying an independence definition similar to other definitions provided in some Exchange Act rules—as opposed to relying upon a definition that is determined by reference to the listing standards, as we have in other Exchange Act rules—would be a better approach because this would provide a consistent definition. 67 We disagree and are adopting the provisions related to the independence standards as proposed, with an accommodation for foreign private issuers. We believe this approach is appropriate because the definitions under the listing standards have previously been approved by us and are consistent with the approach we have followed in the past. 68 In addition, the amendments, as adopted, clarify that a director of a registered closed-end investment company is considered to be independent if the director is not an “interested person” of the investment company, as defined in Section 2(a)(19) of the Investment Company Act of 1940. 69 This clarification is necessary because compensation committee listing standards typically do not apply to registered investment companies. 70 66 *See* letter from Dechert. 67 *See* , *e.g.* , letter from Shearman, which refers to Rule 16b-3(d), but we presume that the commenter is referring to the definition of “Non-Employee Director” provided in Exchange Act Rule 16b-3(b)(3) (17 CFR 240.16b-3(b)(3)). 68 *See* , *e.g.* , Item 407 of Regulations S-B and S-K (17 CFR 228.407 and 17 CFR 229.407) as adopted in Executive Compensation and Related Person Disclosure, Release No. 33-8732A (Aug. 29, 2006) [71 FR 53158] and Self-Regulatory Organizations; New York Stock Exchange, Inc. and National Association of Securities Dealers, Inc. Order Approving Proposed Rule Changes, Release No. 34-48745 (Nov. 4, 2003) [68 FR 64154]. 69 15 U.S.C. 80a-2(a)(19). 70 *See* , *e.g.* , Section 801 of the American Stock Exchange Company Guide; NASDAQ Rule 4350(a)(2); and, Section 303A.00 of the New York Stock Exchange's Listed Company Manual. The amendments do not require that the approving body of a foreign private issuer be comprised of members that are independent as defined in the listing standards. While foreign private issuers may rely on the listing standards when determining independence for purposes of the new rule, those issuers will have the alternative of determining the independence of the members of the board or committee approving a compensatory arrangement for purposes of the safe harbor in accordance with home country laws, regulations, codes and standards. We believe this accommodation is appropriate because foreign private issuers may not be subject to the listing standard's independence provisions as they relate to compensation committees and should be provided with the flexibility to rely on home country laws, regulations, codes and standards in adhering to independence standards. We recognize that foreign private issuers may be subject to regulatory schemes and structures that differ from those that apply to U.S. issuers and that some of these schemes and structures may have a definition that is not consistent with the definition of independence contained in U.S. listing standards. Nevertheless, we are comfortable with this approach and believe that it balances the premise of the safe harbor—approval of arrangements by independent board members—against the potential that local independence standards differ drastically from the listing standard's definitions. We also received comments regarding the possibility that a member of an existing compensation committee or a committee that performs functions similar to a compensation committee may not be independent for purposes of a particular tender offer. 71 Recusal by a member of the approving body from considering and approving the arrangement under those circumstances in accordance with State or local law or the listing standards would not eliminate the availability of the safe harbor. 72 71 *See* , *e.g.* , letter from SCSGP. 72 A bidder or subject company's standing compensation committee may include multiple board members, each of whom has qualified as independent in accordance with the requirements of the applicable listing standards. The safe harbor does not require that each of the members of a company's standing compensation committee participate in the consideration and approval of an arrangement. In the Proposing Release, we requested comment regarding whether the language of the proposed amendments provided sufficient certainty and clarity. Some commenters stated that the safe harbor should be clarified to state that a conclusion by the board of directors that each member of the approving committee is independent should be sufficient to determine conclusively that such committee members meet the applicable independence requirements. 73 We have added an instruction to the safe harbor that a determination by the bidder's or the subject company's board of directors, as applicable, that the members of the committee approving an arrangement are independent in accordance with the provisions of the safe harbor will satisfy the requirements of the safe harbor. We believe that clarifying this point is consistent with the provisions of the safe harbor and the intent of the best-price rule. 73 *See* , *e.g.* , letters from Law Firm Group and NYCBA. c. Procedural Aspects of the Approval of Arrangements We proposed that, for purposes of satisfying the safe harbor, an arrangement needed to be approved by the applicable committee as meeting the additional requirements of the proposed compensation arrangement exemption—specifically, that the amount to be paid pursuant to a compensatory arrangement must “relate[] solely to past services performed or future services to be performed or refrained from performing, by the employee or director (and matters incidental thereto) and [may not be] based on the number of securities the employee or director owns or tenders.” We solicited comment on the appropriateness of these requirements. Commenters believed that requiring the committee to consider these additional factors was unnecessary and could potentially lead to confusion regarding the application of the safe harbor. 74 We agree with these comments, and the safe harbor adopted today does not require that the approving committee consider these requirements. The language of the safe harbor adopted today does require that the independent directors approve the arrangement as an employment compensation, severance or other employee benefit arrangement. We believe this procedural requirement is necessary so directors understand that by approving an arrangement and thereby satisfying the requirements of the safe harbor, they are determining that the arrangement is compensatory. 75 74 *See* the discussion at Section II.B.2.c. above. 75 This procedural requirement is not intended to affect the State law or listing standard approval or documentation requirements for matters considered by the board of directors or committees of the board of directors. In response to our request for comment, many commenters expressed the view that committee approval of specific arrangements, as compared to approval of plans or programs, with security holders of a subject company should not be required by the proposed safe harbor. 76 We have not made changes in response to these comments, as we believe they are inconsistent with a basic premise of the safe harbor, which is that individuals vested with the fiduciary responsibility for approving compensation arrangements will consider and approve arrangements with security holders of the subject company of a tender offer and, therefore, the best-price rule need not apply. Based on this premise, directors would need to have knowledge of the specific arrangements with security holders and the related tender offer when the approval is given. Of course, the corporate procedures for obtaining and documenting such approval remain matters of State law and the requirements of the safe harbor do not limit the ability of the independent directors to approve multiple specific arrangements or stock grants generally. 76 *See* , *e.g.* , letters from ABA; Intel; Law Firm Group; NYCBA; SCSGP; and Shearman. Many commenters requested that the timing of the required approval of arrangements by the committee and the ability of committees to reapprove or ratify arrangements originally approved before the consideration of a specific transaction or the effectiveness of these rule changes be clarified. We have not proposed changes to the safe harbor to address these comments, as we do not believe it is necessary to address such procedural issues in the rule itself. We do note, however, that the revised best-price rule states that “[t]he consideration paid to any security holder for securities tendered in the tender offer [shall be] the highest consideration paid to any other security holder for securities tendered in the tender offer” and, as such, approval pursuant to the provisions of the safe harbor would need to be received before the consideration is paid in the tender offer. We also note that the requirements of the safe harbor do not prohibit ratification of arrangements provided that the tender offer consideration has not been paid yet. d. Challenges to the Applicability of the Safe Harbor Commenters requested clarification of the proposed safe harbor to provide that any finding of a violation of fiduciary duties by the board would not nullify the application of the safe harbor. 77 We have not adopted changes to the safe harbor to address these comments. A violation of State law fiduciary duties would not have any impact on the availability of the safe harbor, as remedies are generally available for such allegations under State law. 77 *See* , *e.g.* , letters from Intel and SIA. We have also expanded the application of the proposed instruction that no inference should be drawn that consideration paid pursuant to arrangements other than compensation arrangements, such as commercial arrangements, constitutes consideration paid for securities tendered in the tender offer. The adopted instruction now relates to both the exemption and the safe harbor. The fact that directors approve an arrangement as an employment compensation, severance or other employee benefit arrangement in order to meet the requirements of the safe harbor should not raise an inference that consideration paid or to be paid pursuant to other arrangements that may be entered into with security holders of the subject company constitutes consideration paid for securities tendered in a tender offer. We also received comments about whether the language of the safe harbor was potentially ambiguous and whether the safe harbor was self-operating. 78 In order to address these comments, we adopted the exemption and the safe harbor as new sections of the third-party and issuer best-price rules. 79 We also amended the language of the safe harbor so that it is clear that the negotiation, execution and amendment of, and any payments made or to be made or benefits granted or to be granted according to, arrangements approved pursuant to the safe harbor are not prohibited by the best-price rule. 78 *See* , *e.g.* , letter from Dechert. 79 *See* note 30 above. e. Application of the Safe Harbor to the Issuer Best-Price Rule In the Proposing Release, we proposed to add the safe harbor to the third-party best-price rule but did not propose an analogous safe harbor to the issuer best-price rule. To date it does not appear that claims of a violation of the best-price rule have been made under the issuer tender offer rules. Commenters, however, were unanimous in their request that we extend the safe harbor to the issuer best-price rule. 80 They reasoned that the need to enter into employment compensation, severance or other employee benefit arrangements also arises during issuer tender offers because similar issues of severance and retention often are present, especially in restructuring and recapitalization transactions. 81 Commenters also believed that there appeared to be no compelling reason to distinguish between the issuer and third-party best-price rules, especially because doing so might have unintended consequences. 82 We agree and the amendments we are adopting today add the safe harbor to the issuer best-price rule at Rule 13e-4(f)(12). 80 *See* , *e.g.* , letters from ABA; Dechert; Gonzalez; Intel; Law Firm Group; NYCBA; NYSBA; Perkins Coie LLP (“Perkins”); SCSGP; Shearman; and SIA. 81 *See* , *e.g.* , letters from ABA; Intel; and SCSGP. 82 *See* , *e.g.* , Law Firm Group; SCSGP; and SIA. III. Paperwork Reduction Act We have not prepared a submission to the Office of Management and Budget under the Paperwork Reduction Act of 1995 because the proposals do not impose any new recordkeeping or information collection requirements, or other collections of information requiring the approval of the Office of Management and Budget. IV. Cost-Benefit Analysis A. Background On December 16, 2005, we proposed amendments to the best-price rule to clarify that the best-price rule applies only with respect to the consideration offered and paid for securities tendered in a tender offer. We also proposed that the rule exclude employment compensation, severance and other employee benefit arrangements between subject company employees or directors and the subject company or bidder from the application of the best-price rule, as long as the compensatory arrangements meet certain requirements. Finally, we proposed an accompanying safe harbor to the exemption for those compensatory arrangements that were approved by a compensation committee (or a committee performing similar functions) of either the bidder or the subject company, depending upon who was a party to the arrangement. We are adopting the amendments substantially as proposed. First, we are adopting the amendment to the language of the best-price rule that clarifies that the provisions of the rule apply only with respect to the consideration offered and paid for securities tendered in a tender offer. We also are amending the third-party and issuer tender offer best-price rules to provide that any consideration that is offered and paid according to employment compensation, severance or other employee benefit arrangements entered into with security holders of the subject company that meet certain requirements will not be prohibited by the rules. Finally, we are amending the third-party and issuer tender offer best-price rules to provide a safe harbor provision so that arrangements that are approved by the independent directors of either the subject company's or the bidder's board of directors, as applicable, will not be prohibited by the rules. We expect that these amendments will make it clear that the best-price rule was not intended to capture compensatory arrangements. The amendments also are intended to alleviate the reluctance bidders and subject companies have expressed in planning and structuring transactions as tender offers due to differing judicial interpretations of the best-price rule that have been rendered by courts to date. We also want to diminish a regulatory disincentive against structuring transactions as tender offers, as compared to statutory mergers, to which the best-price rule does not apply. We recognize that the amendments may create costs and benefits to parties engaging in tender offers and to the economy as a whole. We have identified those costs and benefits below. B. Benefits The amendments to the rule will benefit investors most directly through their intended effect of lowering the costs of tender offer transactions that arise from the risk of litigation under the current case law. Bidders and subject companies are expected to respond with increased tender offer activity as a result of choosing to structure an acquisition as a tender offer, rather than a statutory merger. Some benefits from lower litigation-related costs are expected to arise in each instance, depending on the cost of the litigation risk that would be borne otherwise. This cost would likely continue to persist as a regulatory obstacle in the absence of the amendment; such cost would deter the use of tender offers relative to statutory mergers and the conduct of acquisitions as tender offers that would not occur otherwise. The magnitude of the benefit from the amendment will thus partly depend on the magnitude of the substitution into tender offers and any tender offer-related increase in acquisition activity generally. In the Proposing Release, we requested comment on the magnitude of these and other potential benefits of the proposed amendments. We received no direct response to this request. Commenters also did not indicate that the judicial interpretations of the best-price rule were preventing potential acquisitions from proceeding in any form. Commenters did indicate that the judicial interpretations of the best-price rule were causing transactions to proceed as statutory mergers, as opposed to tender offers. Accordingly, we do not expect the amended best-price rule to materially impact the number of transactions that occur overall, but rather the form in which the transaction takes place. 83 83 Under the assumption that the amendments do not have a material impact on the number of overall acquisitions conducted annually, an estimate of the potential increase in tender offers can be obtained from an estimate of the potential decline in statutory mergers, expressed as a fraction of the total. For example, if 5% of the transactions that would otherwise be conducted as statutory mergers will now be conducted as tender offers, an estimated 35.7% increase in the number of tender offers might result annually (based upon the number of statutory mergers and tender offers that have taken place over the last 10 years). The comments that we received on the proposed amendments are consistent with the view that benefits would occur through a reduction in the litigation-related cost of conducting tender offers, leading to an increased incentive to undertake tender offers. As to the regulatory incentives to conduct statutory mergers as compared to tender offers, one commenter indicated that the economic efficiencies of using tender offers, as compared to mergers, have been lost because of the potential liability associated with conducting a tender offer that may be subject to a lawsuit where a compensatory arrangement is involved. 84 This commenter endorsed the objectives of the amendments to the best-price rule. Several commenters also indicated generally that the amendments would meet the objectives of the best-price rule. 85 Others expressed their support by indicating that the amendments would provide clarity and certainty to participants in tender offers, particularly regarding the perceived litigation risk that has been present in the best-price rule. 86 Almost all of the commenters suggested additional changes to the amendments, particularly with respect to the exemption and safe harbor from the best-price rule. 84 *See, e.g.,* letter from Law Firm Group (citing the benefit of the relatively shorter amount of time that it takes to conduct a tender offer (30 days) as compared to mergers (90-120 days)). Similar support for the fact that tender offers, as compared to mergers, provide the benefit of time can be found in the letters from ABA, Dechert and SIA. Other benefits of tender offers include the fact that management support is not necessary for the bidder to acquire the target company ( *i.e.* , individuals make their own investment decision) and control by a bidder may be obtained without necessarily purchasing all of the outstanding securities of the target company. *See* Eleanor M. Fox and Byron E. Fox, *Corporate Acquisitions and Mergers* (2006 ed.) at 5E-6. 85 *See, e.g.,* letters from ABA and NYCBA. 86 *See, e.g.* , letters from Dechert; SCSGP; and Shearman. The litigation-related costs that the amendment would eliminate stem from diverging court interpretations of the best-price rule that have emerged in the past decade. The best-price rule has been interpreted as requiring, in some courts, that the amounts paid pursuant to compensation arrangements be included as part of the consideration paid to security holders in the tender offer either because the compensation was offered or paid during a tender offer and, in other courts, because the compensatory arrangement constituted an “integral part” of the tender offer. These interpretations have made parties reluctant to structure acquisitions as tender offers for fear of exposure to potential liability. We believe it is appropriate to amend the best-price rule to clarify this point now, rather than to wait and see how the courts might interpret the rule in the future. These amendments are thus intended to eliminate a regulatory obstacle to the use of tender offers as a viable alternative to statutory mergers for parties who wish to conduct an acquisition. We believe that the interests of security holders are better served when all acquisition structures are viable options. 87 We recognize that the application of our exemption and safe harbor is limited to compensatory arrangements. Parties who wish to enter into arrangements that are not compensatory in nature may continue to be reluctant to engage in tender offers. In these situations, parties may choose to engage in a statutory merger, as opposed to a tender offer, to accomplish an acquisition because the litigation risk continues to be too great. While we do not intend for arrangements entered into with security holders that are not compensatory to be presumed to be in violation of the best-price rule, 88 we also believe that it is appropriate to limit our exemption and safe harbor to arrangements that are compensatory in nature. 87 A disincentive against structuring transactions as tender offers has potential negative consequences to acquirors and security holders. *See* prior note 84 for a discussion of some of the benefits of tender offers. 88 The rule, as adopted, includes the proposed instruction to this effect. Depending upon the jurisdiction in which a best-price rule claim has been brought, the potential costs to bidders as a result of certain of the judicial interpretations of the best-price rule have been substantial. An intended benefit of our amendments will be to assist parties in reducing their exposure to potential costs arising from allegations of best-price rule violations. These potential costs include, among others, the cost of litigation to defend against alleged violations of the best-price rule. 89 We believe bidders will be less likely to be subject to a claim because our amendments provide an exception to the best-price rule for compensatory arrangements without the loss of the basic protections that the rule is designed to provide to security holders. 89 In sixteen published judicial opinions over the last ten years, approximately half were decided in favor of the plaintiff with the other half being decided in favor of the defendant. Extrapolating from these opinions, we assume an average of three claims per year are brought, that one claim is settled per year, that the costs of defending all three actions would total no more than $10 million per year (based on the staff's estimate of attorney's fees), and that the costs associated with settling one such action would be $15 million (based on historical data). *See, e.g., Technology Briefing Software: Computer Associates Ordered to Pay $11 Million* , The N.Y. Times, Sept. 6, 2002 at C6 and *$18.25 Million Settlement Approved in Litigation Resulting From Take-Over* , Securities Class Action Reporter, March 15, 2006 at 17. Based on these assumptions, the annual cost savings would be approximately $25 million. C. Costs The best-price rule prohibits certain conduct in connection with a tender offer. In this regard, the amendments to the best-price rule do not add any new requirements. Rather, the amendments clarify that certain conduct is not prohibited by the rule and add means by which parties can comply, via an exemption or a safe harbor provision, with the rule. Continued compliance with the best-price rule can be achieved in the same manner and by the same persons responsible for compliance under the rule in effect before our amendments today. Reliance upon the exemption or the safe harbor, however, may entail additional costs. We discuss these additional costs below. We do not believe these costs are substantial. The amendments seek to modify the language of the existing best-price rule to remove the reference to “during.” Some commenters have indicated that the effect of this change would be to expand the potential timeframe in which litigants could argue that a best-price rule violation has occurred. 90 If the commenter's concerns were realized, it is possible claims that the best-price rule has been violated might continue to be brought, only under a different, potentially more expansive, theory. We do not believe that a temporal limitation in the best-price rule is appropriate because such a strict timeframe might lend itself to abuse. Further, we believe that the amendments providing for the exemption and the safe harbor to the best-price rule provide sufficient certainty to parties desiring to engage in a tender offer such that any concern regarding continued litigation under the best-price rule as a result of the removal of “during” is reduced. 90 *See, e.g.* , letters from ABA; Dechert; and Law Firm Group. The exemption and the safe harbor adopted today provide that, presuming certain requirements are met, consideration paid pursuant to certain arrangements will not be prohibited by the best-price rules. Parties may be able to challenge whether the provisions of the exemption or the safe harbor have been met. Complying with the conditions of the exemption and safe harbor, therefore, may be a cost of complying with the best-price rule. To the extent parties choose to rely upon the safe harbor, bidders and/or subject companies, in the case of third-party tender offers, or issuers and/or affiliates, in the case of issuer tender offers, may need to take extra steps—such as obtaining approval of the compensatory arrangement by directors—to comply with the safe harbor. However, most bidders, issuers, affiliates and subject companies are already required to have a compensation committee or a committee performing similar functions, so the cost of forming, organizing and convening a committee should be a cost that already is being incurred by most bidders, issuers, affiliates or subject companies. Companies without such a committee will incur a cost, most likely in the form of legal fees. Further, bidders, issuers, affiliates or subject companies may already have their compensation committee or a committee performing similar functions approve specific employment compensation, severance or other employee benefit arrangements in the ordinary course of performing its duties. These bidders, issuers, affiliates or subject companies would not incur additional costs to comply with the amended best-price rule and, even if they are not already engaging their committees to perform this function, the costs should be limited to the time and expense associated with reviewing the specific arrangement and holding a meeting of the committee. With respect to subject company approval, it is possible that subject company directors may already be reviewing arrangements executed in connection with negotiated acquisitions 91 in order to meet their State law fiduciary duties when considering and determining whether to recommend the transaction to the security holders of the subject company. 92 91 *See, e.g.* , Item 1012(a) of Regulation M-A (17 CFR 229.1012(a)), which requires a statement as to whether the subject company is advising security holders in a third-party tender offer to accept or reject the tender offer or to take other action. 92 *See, e.g.* , letters from ABA and SIA. To the extent parties choose to rely upon the exemption, we recognize there may be similar costs associated with adhering to the exemption. While we have not dictated the manner or method by which we expect the parties to meet the requirements of the exemption, we expect that, at the very least, it will take the parties time to make a determination as to whether the compensatory arrangement meets the requirements of the exemption. The time it takes for the parties to make this determination is a cost but we believe that the cost should be minimal. Under the amendments, some compensatory arrangements may qualify for the safe harbor provision with approval by a committee of the bidder's board. Since the bidder's board does not typically owe a fiduciary duty to security holders of the subject company, the amendments could impose costs on security holders of the subject company by making it possible for transactions to occur without safeguards associated with directors' fiduciary duties. However, such costs are likely to be limited because they would be dependent upon the ability of security holders of the subject company to anticipate such transactions and contract in advance of the transaction with management, employees, or other security holders of the subject company. In addition, such costs may be limited to the extent that other rights of action, such as litigation in State courts, exist for security holders in the subject company. Finally, the rule may introduce costs associated with new litigation risks. It is possible that the amended best-price rule will simply shift the litigation to State law; security holders may claim that directors have breached their fiduciary duties in approving the compensatory arrangement. 93 In addition, or alternatively, they may claim that the provisions of the exemption or safe harbor were not satisfied. Whether a successful claim can be made against members of the board of directors for breach of their fiduciary duties or for failure to satisfy the provisions of the exemption or safe harbor is uncertain. As a result, the potential costs associated with identifying the alleged illegal behavior and bringing a claim of liability could be imposed on potential plaintiffs. We note that commenters, when asked about shifting litigation to State law issues, did not object, so long as no remedy would be available under the best-price rule. 94 93 We requested comment about whether this potential outcome should impact the structure of the amendments to the best-price rule. Certain commenters noted that the fiduciary duties owed by the bidder's directors to the bidder's security holders would guide their actions and, therefore, provide some level of protection. *See, e.g.* , the ABA letter. 94 *See, e.g.* , letters from Law Firm Group and NYCBA. D. Small Business Issuers Although the amended rules apply to small business issuers, we do not anticipate any disproportionate impact on small business issuers. Like other issuers, small business issuers should incur relatively minor compliance costs, and should find it unnecessary to hire extra personnel. It is possible that the safe harbor, for the reasons mentioned above, will cause small business issuers in particular to incur some cost due to the establishment of an appropriate approving body and the time and expense of reviewing the compensatory arrangement and convening a meeting. This is because small business issuers are less likely to have the pre-existing infrastructure in place. But we do not believe that these costs are unreasonable in order to ensure that the purpose of the best-price rule is met. Further, the exemption and safe harbor available under the amended rules are non-exclusive methods of complying with the best-price rule so any additional costs incurred are voluntary. The issues of equal treatment among security holders in the context of tender offers affect small business issuers as much as they affect larger issuers. Thus, we do not believe that applying the amendments to small business issuers would be inconsistent with the policies underlying the small business issuer disclosure system. V. Consideration of Burden on Competition and Promotion of Efficiency, Competition and Capital Formation Section 3(f) of the Exchange Act 95 and Section 2(c) of the Investment Company Act 96 require the Commission, whenever it engages in rulemaking, to consider or determine if an action is necessary or appropriate in the public interest and to consider whether the action would promote efficiency, competition, and capital formation. In addition, Section 23(a)(2) of the Exchange Act requires the Commission, when making rules under the Exchange Act, to consider the impact such rules would have on competition. 97 Exchange Act Section 23(a)(2) prohibits the Commission from adopting any rule that would impose a burden on competition not necessary or appropriate in furtherance of the purposes of the Exchange Act. 95 15 U.S.C. 78c(f). 96 15 U.S.C. 80a-2(c). 97 15 U.S.C. 78w(a)(2). The amendments to the best-price rule are intended to improve market efficiency by providing greater clarity to bidders, subject companies and security holders as to the situations in which compliance with the best-price rule has been met. Courts rendering decisions arising from allegations of a violation of the best-price rule have differed in their approach to resolving these claims and the resulting uncertainty has left parties who want to engage in a tender offer unsure about how to proceed. The amendments are intended to clarify the application of the best-price rule where employment compensation, severance or other employee benefit arrangements have been or are expected to be entered into in contemplation of an acquisition of securities that is structured as a tender offer. Specifically, the amendments provide for an exemption and a safe harbor provision from the best-price rule for certain arrangements that either meet certain requirements or that are approved by independent directors. The resulting clarity should make the determination as to whether to engage in a tender offer a more viable one for bidders, issuers, affiliates and subject companies, resulting in a positive effect upon market efficiency. As to the impact on competition, the amendments to the best-price rule are intended to have a positive impact on competition among the alternative mechanisms for completing acquisitions. Bidders desiring to acquire another entity by conducting a tender offer would have the benefit of the amendments to the best-price rule that delineate the instances in which the negotiation or execution of employment compensation, severance or other employee benefit arrangements would not run afoul of the requirements of the best-price rule. Previously, the existence of compensatory arrangements might have caused parties to hesitate before engaging in a tender offer in order to weigh the potential benefits of the acquisition carefully against the potential for liability for a best-price rule violation. Ultimately, the parties may have declined to pursue a tender offer as an alternative to a statutory merger in completing the transaction. The amendments, however, are designed to alleviate the need to hesitate and, therefore, increase competition between these alternative acquisition mechanisms. Having more acquisition structures available to parties contemplating an acquisition is a positive effect of the rule upon competition. We acknowledge the possibility that, because bidders, issuers, affiliates and subject companies may desire to take advantage of the safe harbor to the best-price rule where arrangements approved by an appropriate approving body of directors meet the requirements of the safe harbor and therefore consideration paid pursuant to such arrangement are not prohibited by the rule, those bidders, issuers, affiliates and subject companies may need to reevaluate whether they have an approving body and adequate policies and procedures in place to take advantage of the safe harbor. Such an evaluation could place a limitation on the ability of the parties to move quickly and efficiently in pursuing an acquisition, which could diminish the beneficial effect on market efficiency and competition. We believe, however, that the approval of directors is an important step in the availability of the safe harbor and, therefore, any increased efforts or costs that need to be expended to comply with the safe harbor are appropriate to provide equal treatment of security holders. Further, we believe that we have provided sufficient flexibility in the operation of the safe harbor to ease this potential impact. We also have provided an exemption that does not require director approval. The amendments should promote capital formation, as they are intended to significantly reduce the uncertainty caused by the varying judicial interpretations of the best-price rule. The clarifications to the best-price rule are expected to have the effect of alleviating regulatory disincentives to structuring an acquisition of securities as a tender offer, as compared to a statutory merger, where the best-price rule is inapplicable. It is difficult to estimate the magnitude of these effects, if or when they would occur, and the extent to which they will be offset by the costs of the amendments, nor have we received comments on their likely magnitude. We requested comment on these matters in the Proposing Release. We received no comments in response to these specific requests, but some comments touched on these issues. Commenters generally expressed support for the proposal to amend the best-price rule, given the structural impediments to the use of tender offers as a result of the case law that has developed. 98 They generally believed that the amendments would provide clarity and greater certainty to the tender offer process. 99 98 *See, e.g.,* letter from Law Firm Group. 99 *See, e.g.,* letters from ABA and NYCBA. VI. Final Regulatory Flexibility Act Analysis This Final Regulatory Flexibility Act Analysis has been prepared in accordance with the Regulatory Flexibility Act. This analysis relates to proposed revisions to the tender offer best-price rule under the Exchange Act to clarify that the rule applies only with respect to the consideration offered and paid for securities tendered in an issuer or third-party tender offer and should not apply to consideration offered and paid according to employment compensation, severance or other employee benefit arrangements entered into with security holders of the subject company. The amendments provide an exemption and safe harbor from the strictures of the best-price rule for arrangements that meet certain criteria or that are approved by independent directors, respectively. A. Reasons for the Proposed Amendments The best-price rule was adopted originally to provide fair and equal treatment of all security holders of the class of securities that are the subject of a tender offer by requiring that the consideration paid to any security holder is the highest paid to any other security holder in the tender offer. We proposed amendments to the best-price rule on December 16, 2005. The amendments we adopt today are, in most respects, consistent with the proposed amendments but include certain revisions made in response to concerns raised by commenters. The objectives of the changes are as follows: First, we want to make it clear that compensatory arrangements between security holders and the subject company or bidder are not captured by the application of the best-price rule. We believe that amounts paid pursuant to employment compensation, severance or other employee benefit arrangements should not be included in the consideration paid for tendered securities. These payments are made for a different purpose, to provide compensation in exchange for services rendered or in connection with severance or similar events. Second, since the adoption of the best-price rule, it has been the basis for litigation brought in connection with tender offers in which it is claimed that the best-price rule was violated as a result of the bidder in a tender offer entering into new, or adopting the subject company's pre-existing, employment compensation, severance or other employee benefit arrangements with security holders of the subject company. In the process of resolving these claims, courts have interpreted the best-price rule in different ways. We are adopting changes to the rule to alleviate the uncertainty that the various interpretations of the best-price rule by courts have produced. Finally, we want to reduce the regulatory disincentive to structure acquisitions of securities in the form of tender offers, as compared to statutory mergers, to which the best-price rule does not apply. We understand that the prospect of the uncertain application of the best-price rule that has arisen as a result of the case law has made parties averse to the use of tender offers as a means to accomplish extraordinary transactions, and we believe the amendments to the rule will reduce this aversion to the use of tender offers. B. Significant Issues Raised by Public Comment An Initial Regulatory Flexibility Analysis was prepared in accordance with the Regulatory Flexibility Act in connection with the Proposing Release, and we solicited comments on any impact the proposed changes might have on any aspect of our IRFA. We did not receive any public comments that responded directly to the IRFA or that dealt directly with the proposal's impact on small business issuers. C. Small Entities Subject to the Proposed Rules The changes to the best-price rule will affect issuers that are small businesses. Exchange Act Rule 0-10(a) 100 defines an issuer, other than an investment company, to be a “small business” or “small organization” for purposes of the Regulatory Flexibility Act if it had total assets of $5 million or less on the last day of its most recent fiscal year. An investment company is considered to be a “small business” or “small organization” if it, together with other investment companies in the same group of related investment companies, has net assets of $50 million or less as of the end of its most recent fiscal year. 101 These are the types of entities that we refer to as small entities in this discussion. We estimate that there are approximately 2,500 public issuers, other than investment companies, that may be considered small businesses. We estimate that there are approximately 230 investment companies that may be considered small businesses. Of these 230 investment companies that may be considered small businesses, we estimate that 94 are closed-end investment companies, including closed-end investment companies electing to be treated as business development companies, as defined in Section 2(a)(48) of the Investment Company Act, 102 that may be affected by the proposed amendments. 100 17 CFR 240.0-10(a). 101 17 CFR 270.0-10. 102 15 U.S.C. 80a-2(a)(48). The Commission received a total of 412 issuer and 141 third-party tender offer schedules in its 2006 fiscal year. We estimate that half of the 14 issuer tender offer schedules were filed by subject companies that were small business issuers and the other half were filed by investment companies that are small businesses as that term is defined for purposes of the Regulatory Flexibility Act. 103 We further estimate that 18 of the third-party tender offer schedules received by the Commission in its 2006 fiscal year were tender offers where the target companies were small business issuers. 104 We note that our use of small business issuers is a broader category of issuers than small entities. Therefore, we believe that the amendments are likely to affect a limited number of small business issuers and, for the same reason, an even smaller number of small entities that are reporting companies. 103 A small business issuer is defined as a company that, among other things, has revenues of less than $25,000,000. *See* Securities Act Rule 405 (17 CFR 230.405). 104 No investment company that is a small business, as that term is defined for purposes of the Regulatory Flexibility Act, conducted a third-part tender offer in the 2006 fiscal year of the Commission. We requested comment on the number of small entities that would be impacted by our proposals, including any available empirical data. We received no responses to our request. D. Reporting, Recordkeeping and Other Compliance Requirements The amendments to the best-price rule are expected to result in relatively small costs to all bidders and subject companies, large or small. Even before our proposed amendments, the best-price rule required bidders to pay any security holder pursuant to the tender offer the highest consideration paid to any other security holder for securities tendered in the tender offer. Therefore, the changes to the best-price rule should not impose significant additional costs, if any, and should not require any specialized professional skills. The task of complying with the changes could be performed by the same person or group of persons responsible for compliance under the rules that were in effect before today's amendments at a minimal incremental cost. We understand that the exemption and safe harbor from the best-price rule may impose extra steps on the bidder and/or subject company to comply with the exemption and safe harbor, and such compliance could entail new costs. For example, with respect to the safe harbor for compensatory arrangements that are approved by the directors of the bidder or subject company, most bidders and subject companies already are required to have a compensation committee or a committee performing similar functions, so the cost of forming and organizing a committee should be a cost that already is being incurred by the bidder or subject company. This is particularly the case where the bidder or subject company either has a class of securities listed on a registered national securities exchange or on an automated inter-dealer quotation system of a national securities association because the listing standards of each generally impose certain requirements regarding the formation and composition of the members of the board of directors and its committees. Small entities or organizations may be less likely to have a class of securities listed on a registered national securities exchange or on an automated inter-dealer quotation system of a national securities association. As a result, it is possible that small entities or organizations will be less likely to have the pre-existing infrastructure in place for a compensation committee or a committee performing similar functions to approve employment compensation, severance or other employee benefit arrangements. Such small entities or organizations likely will incur additional costs to take advantage of this safe harbor. The cost, however, should be limited to the expense of organizing a committee, reviewing the specific arrangement and holding a meeting of the committee. We believe these costs are appropriate to promote equal treatment of security holders in the application of the best-price rule. With respect to the exemption for compensatory arrangements that meet certain requirements, all bidders or subject companies that choose to avail themselves of this exemption will need to make a determination as to whether the arrangement at issue meets the requirements. This determination likely will entail additional costs, even if only in the form of the additional time it will take to make this determination. However, the amendments do not mandate any particular method or procedure that a bidder or subject company must follow in making this determination. Both the exemption and the safe harbor, however, are optional provisions and serve as non-exclusive methods to ensure compliance with the best-price rule. This means that bidders and subject companies that are small entities or organizations will not be required to take advantage of the provision, so any additional expenses that may be incurred, if any, would be optional on the part of the small entity or organization. We acknowledge, however, that the cost of foregoing the application of the exemption or safe harbor might be significant if there is a risk of potential liability where a compensatory arrangement is found to violate the best-price rule and the cost of that violation is expected to be greater than the cost of complying with the exemption or safe harbor. In that circumstance, entities would be likely to structure transactions as statutory mergers. E. Agency Action To Minimize Effect on Small Entities The Regulatory Flexibility Act directs us to consider significant alternatives that would accomplish the stated objectives while minimizing any significant adverse impact on small entities or organizations. In connection with the proposals, we considered the following alternatives: 1. Establishing different compliance or reporting requirements or timetables that take into account the resources of small entities; 2. The clarification, consolidation, or simplification of the compliance or reporting requirements for small entities; 3. The use of performance rather than design standards; and 4. An exemption for small entities from coverage of the best-price rule, or any part thereof, for small entities. We have considered a variety of reforms to achieve our regulatory objectives. However, we believe that the original intent of the best-price rule, to require equal treatment of security holders, would not be served by a best-price rule that applied only to bidders and subject companies of a certain size. Further, we believe that uniform rules applicable to all bidders and subject companies, regardless of size, are necessary to alleviate the uncertainty that the parties to tender offers face. Therefore, the establishment of different requirements for small entities would not be practicable, nor would it be in the public interest. For similar reasons, the clarification, consolidation or simplification of the compliance and reporting requirements for small entities also would not be practicable. Although the best-price rule generally employs performance standards rather than design standards, the amendments to the rule would implement certain design standards in order to clarify that the rule should not apply where employment compensation, severance or other employee benefit arrangements are made or will be made or have been granted or will be granted, as long as they have been approved by the directors of an appropriate approving body of either the bidder or the subject company. We intend for the implementation of design standards, in this case, to be more useful to bidders and subject companies because the circumstances in which the best-price rule would likely be inapplicable will be delineated clearly. This should provide greater certainty in the application of the rule and the enforcement of the application of the rule. Therefore, implementing design rather than performance standards in the application of the rule appears to be more effective in promoting compliance with the rule, as amended. As discussed above, most bidders and subject companies that engage in tender offers and are subject to the best-price rule are not small entities or organizations, as defined for purposes of the Regulatory Flexibility Act. Further, where small entities are bidders and/or subject companies in the tender offer, the proposed changes to the best-price rule, in general, and the invocation of the exemption or safe harbor, in particular, impose minimal additional costs or burdens. Therefore, exempting small entities from the best-price rule altogether would not be justified in this context. VII. Statutory Basis The amendments to the best-price rule are adopted pursuant to Sections 3(b), 13, 14, 23(a) and 36 of the Exchange Act, as amended, and Section 23(c) of the Investment Company Act, as amended. The amendments to the Rules of Practice are adopted pursuant to Section 19 of the Securities Act, as amended and Sections 4A, 19 and 23 of the Exchange Act, as amended. VIII. Text of the Rules and Amendments List of Subjects 17 CFR Part 200 Administrative practice and procedure; Authority delegations (Government Agencies). 17 CFR Part 240 Reporting and recordkeeping requirements, Securities. In accordance with the foregoing, the Securities and Exchange Commission amends Title 17, chapter II of the Code of Federal Regulations as follows: PART 200—ORGANIZATION; CONDUCT AND ETHICS; AND INFORMATION AND REQUESTS 1. The general authority citation for part 200, subpart A is revised to read as follows: Authority: 15 U.S.C. 77o, 77s, 77sss, 78d, 78d-1, 78d-2, 78w, 78 *ll* (d), 78mm, 80a-37, 80b-11, and 7202, unless otherwise noted. 2. Amend § 200.30-1 (e)(11) by removing the phrase “pursuant to Rule 14d-10(e) (§ 240.14d-10(e) of this chapter)” and by adding the phrase “pursuant to Rule 14d-10(f) (§ 240.14d-10(f) of this chapter)” in its place. PART 240—GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 1934 3. The general authority citation for part 240 is revised to read as follows: Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 78j, 78j-1, 78k, 78k-1, 78 *l* , 78m, 78n, 78o, 78p, 78q, 78s, 78u-5, 78w, 78x, 78 *ll* , 78mm, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, and 7201 *et seq.* ; and 18 U.S.C. 1350, unless otherwise noted. 4. Amend § 240.13e-4 by revising paragraph (f)(8)(ii), redesignating paragraph (f)(12) as paragraph (f)(13) and adding new paragraph (f)(12) to read as follows: § 240.13e-4 Tender offers by issuers.

(f)* * *

(8)* * *

(ii)The consideration paid to any security holder for securities tendered in the tender offer is the highest consideration paid to any other security holder for securities tendered in the tender offer. (12)(i) Paragraph (f)(8)(ii) of this section shall not prohibit the negotiation, execution or amendment of an employment compensation, severance or other employee benefit arrangement, or payments made or to be made or benefits granted or to be granted according to such an arrangement, with respect to any security holder of the issuer, where the amount payable under the arrangement:

(A)Is being paid or granted as compensation for past services performed, future services to be performed, or future services to be refrained from performing, by the security holder (and matters incidental thereto); and

(B)Is not calculated based on the number of securities tendered or to be tendered in the tender offer by the security holder.

(ii)The provisions of paragraph (f)(12)(i) of this section shall be satisfied and, therefore, pursuant to this non-exclusive safe harbor, the negotiation, execution or amendment of an arrangement and any payments made or to be made or benefits granted or to be granted according to that arrangement shall not be prohibited by paragraph (f)(8)(ii) of this section, if the arrangement is approved as an employment compensation, severance or other employee benefit arrangement solely by independent directors as follows:

(A)The compensation committee or a committee of the board of directors that performs functions similar to a compensation committee of the issuer approves the arrangement, regardless of whether the issuer is a party to the arrangement, or, if an affiliate is a party to the arrangement, the compensation committee or a committee of the board of directors that performs functions similar to a compensation committee of the affiliate approves the arrangement; or

(B)If the issuer's or affiliate's board of directors, as applicable, does not have a compensation committee or a committee of the board of directors that performs functions similar to a compensation committee or if none of the members of the issuer's or affiliate's compensation committee or committee that performs functions similar to a compensation committee is independent, a special committee of the board of directors formed to consider and approve the arrangement approves the arrangement; or

(C)If the issuer or affiliate, as applicable, is a foreign private issuer, any or all members of the board of directors or any committee of the board of directors authorized to approve employment compensation, severance or other employee benefit arrangements under the laws or regulations of the home country approves the arrangement. *Instructions to paragraph (f)(12)(ii):* For purposes of determining whether the members of the committee approving an arrangement in accordance with the provisions of paragraph (f)(12)(ii) of this section are independent, the following provisions shall apply: 1. If the issuer or affiliate, as applicable, is a listed issuer (as defined in § 240.10A-3 of this chapter) whose securities are listed either on a national securities exchange registered pursuant to section 6(a) of the Exchange Act (15 U.S.C. 78f(a)) or in an inter-dealer quotation system of a national securities association registered pursuant to section 15A(a) of the Exchange Act (15 U.S.C. 78o-3(a)) that has independence requirements for compensation committee members that have been approved by the Commission (as those requirements may be modified or supplemented), apply the issuer's or affiliate's definition of independence that it uses for determining that the members of the compensation committee are independent in compliance with the listing standards applicable to compensation committee members of the listed issuer. 2. If the issuer or affiliate, as applicable, is not a listed issuer (as defined in § 240.10A-3 of this chapter), apply the independence requirements for compensation committee members of a national securities exchange registered pursuant to section 6(a) of the Exchange Act (15 U.S.C. 78f(a)) or an inter-dealer quotation system of a national securities association registered pursuant to section 15A(a) of the Exchange Act (15 U.S.C. 78o-3(a)) that have been approved by the Commission (as those requirements may be modified or supplemented). Whatever definition the issuer or affiliate, as applicable, chooses, it must apply that definition consistently to all members of the committee approving the arrangement. 3. Notwithstanding Instructions 1 and 2 to paragraph (f)(12)(ii), if the issuer or affiliate, as applicable, is a closed-end investment company registered under the Investment Company Act of 1940, a director is considered to be independent if the director is not, other than in his or her capacity as a member of the board of directors or any board committee, an “interested person” of the investment company, as defined in section 2(a)(19) of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(19)). 4. If the issuer or affiliate, as applicable, is a foreign private issuer, apply either the independence standards set forth in Instructions 1 and 2 to paragraph (f)(12)(ii) or the independence requirements of the laws, regulations, codes or standards of the home country of the issuer or affiliate, as applicable, for members of the board of directors or the committee of the board of directors approving the arrangement. 5. A determination by the issuer's or affiliate's board of directors, as applicable, that the members of the board of directors or the committee of the board of directors, as applicable, approving an arrangement in accordance with the provisions of paragraph (f)(12)(ii) are independent in accordance with the provisions of this instruction to paragraph (f)(12)(ii) shall satisfy the independence requirements of paragraph (f)(12)(ii). *Instruction to paragraph (f)(12):* The fact that the provisions of paragraph (f)(12) of this section extend only to employment compensation, severance and other employee benefit arrangements and not to other arrangements, such as commercial arrangements, does not raise any inference that a payment under any such other arrangement constitutes consideration paid for securities in a tender offer. 5. Amend § 240.14d-10 by revising paragraph (a)(2), redesignating paragraphs

(d)and

(e)as paragraphs

(e)and

(f)and adding new paragraph

(d)to read as follows: § 240.14d-10 Equal treatment of security holders.

(a)* * *

(2)The consideration paid to any security holder for securities tendered in the tender offer is the highest consideration paid to any other security holder for securities tendered in the tender offer. (d)(1) Paragraph (a)(2) of this section shall not prohibit the negotiation, execution or amendment of an employment compensation, severance or other employee benefit arrangement, or payments made or to be made or benefits granted or to be granted according to such an arrangement, with respect to any security holder of the subject company, where the amount payable under the arrangement:

(i)Is being paid or granted as compensation for past services performed, future services to be performed, or future services to be refrained from performing, by the security holder (and matters incidental thereto); and

(ii)Is not calculated based on the number of securities tendered or to be tendered in the tender offer by the security holder.

(2)The provisions of paragraph (d)(1) of this section shall be satisfied and, therefore, pursuant to this non-exclusive safe harbor, the negotiation, execution or amendment of an arrangement and any payments made or to be made or benefits granted or to be granted according to that arrangement shall not be prohibited by paragraph (a)(2) of this section, if the arrangement is approved as an employment compensation, severance or other employee benefit arrangement solely by independent directors as follows:

(i)The compensation committee or a committee of the board of directors that performs functions similar to a compensation committee of the subject company approves the arrangement, regardless of whether the subject company is a party to the arrangement, or, if the bidder is a party to the arrangement, the compensation committee or a committee of the board of directors that performs functions similar to a compensation committee of the bidder approves the arrangement; or

(ii)If the subject company's or bidder's board of directors, as applicable, does not have a compensation committee or a committee of the board of directors that performs functions similar to a compensation committee or if none of the members of the subject company's or bidder's compensation committee or committee that performs functions similar to a compensation committee is independent, a special committee of the board of directors formed to consider and approve the arrangement approves the arrangement; or

(iii)If the subject company or bidder, as applicable, is a foreign private issuer, any or all members of the board of directors or any committee of the board of directors authorized to approve employment compensation, severance or other employee benefit arrangements under the laws or regulations of the home country approves the arrangement. *Instructions to paragraph (d)(2):* For purposes of determining whether the members of the committee approving an arrangement in accordance with the provisions of paragraph (d)(2) of this section are independent, the following provisions shall apply: 1. If the bidder or subject company, as applicable, is a listed issuer (as defined in § 240.10A-3 of this chapter) whose securities are listed either on a national securities exchange registered pursuant to section 6(a) of the Exchange Act (15 U.S.C. 78f(a)) or in an inter-dealer quotation system of a national securities association registered pursuant to section 15A(a) of the Exchange Act (15 U.S.C. 78o-3(a)) that has independence requirements for compensation committee members that have been approved by the Commission (as those requirements may be modified or supplemented), apply the bidder's or subject company's definition of independence that it uses for determining that the members of the compensation committee are independent in compliance with the listing standards applicable to compensation committee members of the listed issuer. 2. If the bidder or subject company, as applicable, is not a listed issuer (as defined in § 240.10A-3 of this chapter), apply the independence requirements for compensation committee members of a national securities exchange registered pursuant to section 6(a) of the Exchange Act (15 U.S.C. 78f(a)) or an inter-dealer quotation system of a national securities association registered pursuant to section 15A(a) of the Exchange Act (15 U.S.C. 78o-3(a)) that have been approved by the Commission (as those requirements may be modified or supplemented). Whatever definition the bidder or subject company, as applicable, chooses, it must apply that definition consistently to all members of the committee approving the arrangement. 3. Notwithstanding Instructions 1 and 2 to paragraph (d)(2), if the bidder or subject company, as applicable, is a closed-end investment company registered under the Investment Company Act of 1940, a director is considered to be independent if the director is not, other than in his or her capacity as a member of the board of directors or any board committee, an “interested person” of the investment company, as defined in section 2(a)(19) of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(19)). 4. If the bidder or the subject company, as applicable, is a foreign private issuer, apply either the independence standards set forth in Instructions 1 and 2 to paragraph (d)(2) or the independence requirements of the laws, regulations, codes or standards of the home country of the bidder or subject company, as applicable, for members of the board of directors or the committee of the board of directors approving the arrangement. 5. A determination by the bidder's or the subject company's board of directors, as applicable, that the members of the board of directors or the committee of the board of directors, as applicable, approving an arrangement in accordance with the provisions of paragraph (d)(2) are independent in accordance with the provisions of this instruction to paragraph (d)(2) shall satisfy the independence requirements of paragraph (d)(2). *Instruction to paragraph (d):* The fact that the provisions of paragraph

(d)of this section extend only to employment compensation, severance and other employee benefit arrangements and not to other arrangements, such as commercial arrangements, does not raise any inference that a payment under any such other arrangement constitutes consideration paid for securities in a tender offer. Dated: November 1, 2006. By the Commission. Nancy M. Morris, Secretary. [FR Doc. E6-18815 Filed 11-7-06; 8:45 am] BILLING CODE 8011-01-P DEPARTMENT OF THE TREASURY Alcohol and Tobacco Tax and Trade Bureau 27 CFR Part 9 [T.D. TTB-54; Re: Notice No. 54] RIN 1513-AA89 Establishment of the Tracy Hills Viticultural Area (2003R-508P) AGENCY: Alcohol and Tobacco Tax and Trade Bureau, Treasury. ACTION: Final rule; Treasury decision. SUMMARY: This Treasury decision establishes the 39,200-acre Tracy Hills viticultural area in San Joaquin and Stanislaus Counties, California, approximately 55 miles east-southeast of San Francisco. We designate viticultural areas to allow vintners to better describe the origin of their wines and to allow consumers to better identify wines they may purchase. DATES: *Effective Dates:* December 8, 2006. FOR FURTHER INFORMATION CONTACT: N.A. Sutton, Regulations and Rulings Division, Alcohol and Tobacco Tax and Trade Bureau, 925 Lakeville St., No. 158, Petaluma, CA 94952; phone 415-271-1254. SUPPLEMENTARY INFORMATION: Background on Viticultural Areas TTB Authority Section 105(e) of the Federal Alcohol Administration Act (the FAA Act, 27 U.S.C. 201 *et seq.* ) requires that alcohol beverage labels provide consumers with adequate information regarding product identity and prohibits the use of misleading information on those labels. The FAA Act also authorizes the Secretary of the Treasury to issue regulations to carry out its provisions. The Alcohol and Tobacco Tax and Trade Bureau

(TTB)administers these regulations. Part 4 of the TTB regulations (27 CFR part 4) allows the establishment of definitive viticultural areas and the use of their names as appellations of origin on wine labels and in wine advertisements. Part 9 of the TTB regulations (27 CFR part 9) contains the list of approved viticultural areas. Definition Section 4.25(e)(1)(i) of the TTB regulations (27 CFR 4.25(e)(1)(i)) defines a viticultural area for American wine as a delimited grape-growing region distinguishable by geographical features, the boundaries of which have been recognized and defined in part 9 of the regulations. These designations allow vintners and consumers to attribute a given quality, reputation, or other characteristic of a wine made from grapes grown in an area to its geographical origin. The establishment of viticultural areas allows vintners to describe more accurately the origin of their wines to consumers and helps consumers to identify wines they may purchase. Establishment of a viticultural area is neither an approval nor an endorsement by TTB of the wine produced in that area. Requirements Section 4.25(e)(2) of the TTB regulations outlines the procedure for proposing an American viticultural area and provides that any interested party may petition TTB to establish a grape-growing region as a viticultural area. Section 9.3(b) of the TTB regulations requires the petition to include— • Evidence that the proposed viticultural area is locally and/or nationally known by the name specified in the petition; • Historical or current evidence that supports setting the boundary of the proposed viticultural area as the petition specifies; • Evidence relating to the geographical features, such as climate, soils, elevation, and physical features, that distinguish the proposed viticultural area from surrounding areas; • A description of the specific boundary of the proposed viticultural area, based on features found on United States Geological Survey

(USGS)maps; and • A copy of the appropriate USGS map(s) with the proposed viticultural area's boundary prominently marked. Tracy Hills Petition and Rulemaking General Background TTB received a petition from Sara Schorske of Compliance Service of America, Inc., filed on behalf of the Brown family, owners of a vineyard near Tracy, California. The petition proposed the establishment of the 39,200-acre “Tracy Hills” viticultural area south and southwest of the city of Tracy, California, in southern San Joaquin and northern Stanislaus Counties. Located approximately 55 miles east-southeast of San Francisco, the proposed Tracy Hills viticultural area currently encompasses 1,005 acres of vineyards. The proposed area is not within, nor does it include, any other proposed or established viticultural area. Originally, the petitioner submitted the name “Mt. Oso” for this proposed viticultural area. However, after an initial review of the petition, TTB concluded and advised the petitioner that the submitted evidence did not demonstrate, as required by § 9.3(b)(1) of the TTB regulations, that the proposed viticultural area is locally or nationally known as Mt. Oso. In response, the petitioner amended the petition to propose use of the name “Tracy Hills” for the proposed viticultural area. The petitioner also revised the proposed viticultural area's western boundary and submitted additional evidence to support the amended petition. We summarize below the information submitted in support of the petition. Name Evidence The petitioner states that the name “Tracy,” which is used to identify the city of Tracy, California, and its surrounding agricultural land, together with the geographical modifier “Hills,” accurately describes and identifies the proposed Tracy Hills viticultural area. Stating that the name “Tracy Hills” is “locally and nationally associated with the proposed area,” the petition discusses the rationale for the Tracy Hills name and offers examples of its use for the land within the proposed viticultural area. The petition includes copies of eight newspaper articles from the Tracy Press featuring petitioner Jeff Brown's Mt. Oso Vineyards or wines made from its grapes. The articles list the vineyard's location as Tracy, demonstrating, according to the petition, the close association between the proposed area's vineyards and the “Tracy” name. However, the petition states that the use of “Tracy” alone for the proposed viticultural area does not accurately describe the area and would mislead consumers about the specific location of the area. The proposed viticultural area includes only a small part of the land within the Tracy city limits, and it does not include all the land surrounding the city of Tracy. Due to differences in climate, soil, water table levels, and slope, the land north, east, and southeast of Tracy is excluded from the proposed viticultural area. Therefore, the petitioner emphasizes that it would be misleading and inaccurate to name the proposed viticultural area “Tracy,” without adding “Hills” as a modifier. In support of this usage, the petitioner cites the use of “Valley” as a modifier in the names of the Napa Valley viticultural area (27 CFR 9.23), which surrounds the city of Napa, and the Temecula Valley viticultural area (27 CFR 9.50), which lies outside the city of Temecula in southern California. To further support the use of the proposed “Tracy Hills” name, the petitioner notes that the foothills of the Coast Range southwest of the city of Tracy are informally called “the Tracy Hills,” the lower elevations of which are included within the proposed viticultural area. The petition provides examples of the name's association with the proposed area. The petition states that “Tracy Hills” is the name of a large real estate development located on the southwest side of the city of Tracy along either side of Interstate 580 (I-580). Part of the Tracy Hills development, the petition notes, is within the northern portion of the proposed Tracy Hills viticultural area. In 1998, the city of Tracy annexed the development, according to an article in the Stockton Record of July 7, 2004, “Council Delays Tracy Hills Vote,” included in the revised petition. The revised petition also included copies of, or statements from, Federal Government environmental reports from the early 1990's, a 1999 Sierra Club newsletter, and newspaper articles from the Sacramento Bee and the Tracy Press that all discuss the Tracy Hills real estate development and its location, growth, and impact on local water resources. Also, the petition includes evidence of other references to the Tracy Hills name. For example, the petition includes a map of the proposed Northern California Passenger Rail Network. This map shows a future high-speed railroad line running through Altamont Pass and, east of the pass, a “Tracy Hills” station within the Tracy Hills development. The petition also includes information about the “Tracy Hills Ride,” sponsored by the San Joaquin Valley Rangers, a family horse/mule club ( *http://www.sjvr.org* ). This horseback ride begins and ends within the proposed viticultural area along State Highway 132 (Bird Road), according to club information included in the petition. A 1995 NASCAR publication, the petition states, places the reopened Altamont Raceway “in the Tracy hills,” while a September 29, 2003, East Bay Business Times article titled “Sutter, Kaiser Build Up Valley Presence,” notes that a donor gave 20 acres “in the Tracy hills” for a hospital. Boundary Evidence Located south and southwest of the city of Tracy in southern San Joaquin and northern Stanislaus Counties, California, the proposed Tracy Hills viticultural area largely lies between State Route 33 to the east and I-580 to the west, with a portion of the area reaching west of the interstate into the foothills of the Diablo Mountains. The proposed area is about 15 miles long northwest to southeast and about 5 miles wide east to west. The portion of the Tracy Hills real estate development appropriate for viticulture, the petitioner explains, is included in the northern region of the proposed Tracy Hills viticultural area. Other parts of the proposed viticultural area lie within the San Joaquin Valley's rural agricultural lands to the southwest and south of the city of Tracy, according to the provided USGS maps and the California State Automobile Association Central California map of May 2001. Distinguishing Features The boundary of the proposed Tracy Hills viticultural area, according to the petitioner, encompasses viticultural features that distinguish the proposed viticultural area from the regions north, east, and southeast of the city of Tracy. According to the petitioner, these distinguishing features include the proposed area's slope, soils, and microclimate. Slope The proposed Tracy Hills viticultural area is nestled between the lower elevations of the floor of the San Joaquin River Valley to the east and the steeper terrain of the Diablo Range to the west; it has east-sloping terrain, as shown on the provided USGS maps. The proposed viticultural area boundary encompasses a 400-foot change in elevation and includes streams, most of a northern, east-sloping alluvial fan and part of a southern, east-sloping alluvial fan, and plains along the proposed southern boundary line, according to the petitioner and the provided USGS maps. The alluvial fans are between Lone Tree and Hospital Creeks and between Hospital Creek and Ingram Canyon Road, which parallels an unnamed intermittent creek. The petitioner notes that the 100-to 500-foot elevation within the proposed Tracy Hills viticultural area is distinct from the surrounding areas. To the west of the proposed boundary line are the significantly higher elevations and steep terrain of the Diablo Range, as noted on USGS maps of the area. To the north and east, nearly at sea level, are the flood plains along the San Joaquin River. The proposed southern boundary line, according to the written boundary description and the Solyo Quadrangle USGS map, includes a straight line connecting the 500-foot elevation, to the southwest, with Hamilton Road on the valley floor. Hamilton Road eventually connects with McCracken Road at the proposed southeast corner. Soils The petitioner states that soils in the proposed Tracy Hills viticultural area formed predominantly in alluvium washed from the higher areas in the Diablo Range, beyond the proposed boundary. Although similar to the soils to the south, the petitioner explains, the alluvial soils of the proposed viticultural area are distinct from the soils formed in sedimentary rocks of the mountains to the west, the organic, peat soils to the north, and the heavy clay soils to the east. Microclimate The petitioner states that the proposed Tracy Hills viticultural area has a distinctive microclimate, contrasting with the climate of the surrounding region. The proposed viticultural area, the petition states, is located within the rain shadow of Mt. Oso, which is located southwest of the proposed area, in the Diablo Mountains. The effect of the rain shadow is to give the proposed viticultural area a drier climate with less fog, dew, frost, and hail. Beyond the proposed boundary to the west, north, and south, the distinctive differences in geography and proximity to the Altamont Pass create a wetter, windier climate, according to the petition. Notice of Proposed Rulemaking and Comments Received On December 7, 2005, TTB published in the **Federal Register** (70 FR 72733) Notice No. 54 regarding the proposed establishment of the Tracy Hills viticultural area. We received one comment in response to that notice. The comment supported establishment of the Tracy Hills viticultural area, expressing potential increased value for wine grapes grown in the area and prevention of urban sprawl. TTB Finding After review of the petition and the comment received, TTB finds that the evidence submitted supports the establishment of the proposed viticultural area. Therefore, under the authority of the Federal Alcohol Administration Act and part 4 of our regulations, we establish the “Tracy Hills” viticultural area in San Joaquin and Stanislaus Counties, California, effective 30 days from the publication date of this document. Boundary Description See the narrative boundary description of the viticultural area in the regulatory text published at the end of this document. Maps The maps for determining the boundary of the viticultural area are listed below in the regulatory text. Impact on Current Wine Labels Part 4 of the TTB regulations prohibits any label reference on a wine that indicates or implies an origin other than the wine's true place of origin. With the establishment of this viticultural area and its inclusion in part 9 of the TTB regulations, its name, “Tracy Hills,” is recognized under 27 CFR 4.39(i)(3) as a name of viticultural significance. The text of the new regulation clarifies this point. Consequently, wine bottlers using “Tracy Hills” in a brand name, including a trademark, or in another label reference as to the origin of the wine, must ensure that the product is eligible to use the viticultural area's name as an appellation of origin. For a wine to be eligible to use as an appellation of origin a viticultural area name or other term specified as being viticulturally significant in part 9 of the TTB regulations, at least 85 percent of the wine must be derived from grapes grown within the area represented by that name or other term, and the wine must meet the other conditions listed in 27 CFR 4.25(e)(3). If the wine is not eligible to use the viticultural area name or other term as an appellation of origin and that name or term appears in the brand name, then the label is not in compliance and the bottler must change the brand name and obtain approval of a new label. Similarly, if the viticultural area name or other term appears in another reference on the label in a misleading manner, the bottler would have to obtain approval of a new label. Different rules apply if a wine has a brand name containing a viticultural area name that was used as a brand name on a label approved before July 7, 1986. See 27 CFR 4.39(i)(2) for details. Regulatory Flexibility Act We certify that this regulation will not have a significant economic impact on a substantial number of small entities. This regulation imposes no new reporting, recordkeeping, or other administrative requirement. Any benefit derived from the use of a viticultural area name is the result of a proprietor's efforts and consumer acceptance of wines from that area. Therefore, no regulatory flexibility analysis is required. Executive Order 12866 This rule is not a significant regulatory action as defined by Executive Order 12866, 58 FR 51735. Therefore, it requires no regulatory assessment. Drafting Information N.A. Sutton of the Regulations and Rulings Division drafted this document. List of Subjects in 27 CFR Part 9 Wine. The Regulatory Amendment For the reasons discussed in the preamble, we amend 27 CFR, chapter 1, part 9, as follows: PART 9—AMERICAN VITICULTURAL AREAS 1. The authority citation for part 9 continues to read as follows: Authority: 27 U.S.C. 205. Subpart C—Approved American Viticultural Areas 2. Subpart C is amended by adding § 9.204 to read as follows: § 9. 204 Tracy Hills.

(a)*Tracy Hills.* The name of the viticultural area described in this section is “Tracy Hills”. For purposes of part 4 of this chapter, “Tracy Hills” is a term of viticultural significance.

(b)*Approved maps.* The appropriate maps for determining the boundary of the Tracy Hills viticultural area are five USGS 1:24,000-scale, topographic maps. They are titled:

(1)Tracy, Calif., 1954, photorevised 1981;

(2)Vernalis, CA, 1991;

(3)Solyo, Calif., 1953, photorevised 1971, photoinspected 1978;

(4)Lone Tree Creek, Calif., 1955, photorevised 1971; and

(5)Midway Calif., 1953, photorevised 1980.

(c)*Boundary.* The Tracy Hills viticultural area is located in southwestern San Joaquin County and northwestern Stanislaus County in the State of California. The boundary of the Tracy Hills viticultural area is as described below.

(1)The beginning point is on the Tracy map at the intersection of the Delta-Mendota Canal and Lammers Ferry Road, along the western boundary line of section 6, T3S/R5E. From the beginning point, proceed 0.4 mile generally southeast along the Delta-Mendota Canal to its intersection with the Western Pacific Railway line along the southern boundary line of section 6, T3S/R5E (Tracy map); then

(2)Proceed 5.6 miles straight east along the Western Pacific Railway line and then along Linne Road to the intersection of Linne Road and Lehman Road, along the northern boundary line of section 12, T3S/R5E (Vernalis map); then

(3)Proceed 1.5 miles straight south and then east along Lehman Road to its intersection with Bird Road at the southeast corner of section 12, T3S/R5E (Vernalis map); then

(4)Proceed 1 mile straight south along Bird Road to its intersection with Durham Ferry Road at the southeast corner of section 13, T3S/R5E (Vernalis map); then

(5)Proceed 1.9 miles straight east along Durham Ferry Road to its intersection with State Highway 33 along the northern boundary line of section 20, T3S/R6E (Vernalis map); then

(6)Proceed 5.1 miles straight southeast along State Highway 33, passing the hamlet of Vernalis, to the highway's intersection with McCracken Road along the eastern boundary of section 2, T4S/R6E (Solyo map); then

(7)Proceed 3.4 miles straight south along McCracken Road to its intersection with Hamilton Road at the southeast corner of section 23, T4S/R6E (Solyo map); then

(8)Proceed 2.4 miles straight west along the southern boundary lines of sections 23, 22, and 21, T4S/R6E, crossing the Delta-Mendota Canal and the California Aqueduct, to the junction of the southern boundary of section 21, the 500-foot elevation line, and the westernmost transmission line, (Solyo map); then

(9)Proceed 4.2 miles generally northwest along the meandering 500-foot elevation line to section 18, T4S/R6E, where the 500-foot elevation line crosses all the transmission lines and then continues northwest a short distance to the easternmost transmission line in the northwest quadrant of section 18, T4S/R6E, (Solyo map); then

(10)Proceed 8.45 miles straight northwest along the easternmost transmission line, crossing from the Solyo map, over the Lone Tree Creek map, to the Tracy map, and continue to the transmission line's intersection with the western boundary of section 19, T3S/R5W, about 0.7 mile north-northeast of Black Butte (Tracy map); then

(11)Proceed in a straight line 2 miles northwest to this line's intersection with the 500-foot elevation line, immediately north of an unimproved dirt road, just north of the midpoint of the western boundary line of section 12, T3S/R4E (Tracy map); then

(12)Proceed 0.65 mile straight north along the western boundaries of section 12 and then section 1 to the section 1 line's intersection with Interstate Highway 580 (I-580), section 1, T3S/R4E (Tracy map); then

(13)Proceed 0.8 mile straight northwest along I-580 to its intersection with the Western Pacific Railway line in section 2, T3S/R4E (Midway map); then

(14)Proceed easterly 0.7 mile along the Western Pacific Railway line to its intersection with the eastern boundary line of section 2, T3S/R4E (Tracy map); and

(15)Proceed east for 1 mile in a straight line, returning to the beginning point. Signed September 7, 2006. John J. Manfreda, Administrator. Approved: September 23, 2006. Timothy E. Skud, Deputy Assistant Secretary, (Tax, Trade, and Tariff Policy). [FR Doc. E6-18894 Filed 11-7-06; 8:45 am] BILLING CODE 4810-31-P DEPARTMENT OF HOMELAND SECURITY Coast Guard 33 CFR Part 117 [CGD07-06-019] RIN 1625-AA09 Drawbridge Operation Regulations; S.E. Third Avenue, Andrews Avenue, Marshall/Seventh Avenue and Davie Boulevard/S.W. Twelfth Street bridges, New River and New River South Fork, Miles 1.4, 2.3, 2.7, and 0.9 at Fort Lauderdale, FL AGENCY: Coast Guard, DHS. ACTION: Final rule. SUMMARY: The Coast Guard is changing the operating regulation governing the operation of the SE. Third Avenue, Andrews Avenue and Marshal (Seventh Avenue) bridges across the New River, miles 1.4, 2.3, and 2.7 and the regulations governing the operation of the Davie Boulevard (SW. Twelfth Street) bridge across the New River, South Fork, mile 0.9, Fort Lauderdale, Broward County, Florida. DATES: This rule is effective December 8, 2006. ADDRESSES: Comments and material received from the public, as well as documents indicated in this preamble as being available in the docket, are part of docket (CGD07-06-019) and are available for inspection or copying at Commander (dpb), Seventh Coast Guard District, 909 SE. 1st Avenue, Room 432, Miami, Florida 33131-3050 between 8 a.m. and 4:30 p.m., Monday through Friday, except Federal holidays. FOR FURTHER INFORMATION CONTACT: Mr. Michael Lieberum, Seventh Coast Guard District, Bridge Branch, telephone number 305-415-6744. SUPPLEMENTARY INFORMATION: Regulatory Information On June 22, 2006, we published a notice of proposed rulemaking

(NPRM)entitled Drawbridge Operation Regulations; SE. Third Avenue, Andrews Avenue, Marshall/Seventh Avenue and Davie Boulevard/SW. Twelfth Street bridges, New River and New River South Fork, Miles 1.4, 2.3, 2.7, and 0.9 at Fort Lauderdale, FL in the **Federal Register** (71 FR 35852). We received one comment in favor of the proposed rule. Background and Purpose The current regulations governing the operation of the S.E. Third Avenue and Andrews Avenue bridges are published in 33 CFR 117.313. They require the draw of the SE. Third Avenue bridge, mile 1.4 at Fort Lauderdale, to open on signal; except that, from 7:30 a.m. to 8:30 a.m. and 4:30 p.m. to 5:30 p.m. Monday through Friday, the draw need not be opened for the passage of vessels. Public vessels of the United States, regularly scheduled cruise vessels, tugs with tows, and vessels in distress shall be passed at any time. The draw of the Andrews Avenue bridge, mile 2.3 at Fort Lauderdale, is required to open on signal; however, the draw need not be opened for upbound vessels when the draw of the Florida East Coast railroad bridge, mile 2.5 at Fort Lauderdale, is in the closed position for the passage of a train. The current regulation governing the operation of the Davie Boulevard (SW. Twelfth Street) bridge is published in 33 CFR 117.315 and requires the bridge to open on signal except that, from 7:30 a.m. to 8:30 a.m. and 4:30 p.m. to 5:30 p.m. Monday through Friday, the draw need not be opened for the passage of vessels. Public vessels of the United States, regularly scheduled cruise vessels, tugs with tows, and vessels in distress shall be passed through the draw as soon as possible. The City of Fort Lauderdale requested that the Coast Guard change the operating regulations for four bridges on the New River and New River, South Fork, that we consider adding an additional half-hour to the morning and afternoon curfew hours to the SE. Third Avenue and the Davie Boulevard (SW. Twelfth Street) bridges, and that we change the operating regulations of the Andrews Avenue and Marshal (Seventh Avenue) bridges to include these curfew periods. The City of Fort Lauderdale contended that changing these periods to allow, from 7:30 a.m. to 9 a.m. and 4:30 p.m. to 6 p.m., Monday through Friday, except Federal holidays, the draw not to be opened for the passage of vessels, will help alleviate the existing vehicle traffic delays. Discussion of Comments and Changes The Coast Guard received one response to the Notice of Proposed Rulemaking. This response consisted of a letter from Broward County stating that they believe the change will be beneficial. No changes have been made to this final rule. Regulatory Evaluation This rule is not a “significant regulatory action” under section 3(f) of Executive Order 12866, Regulatory Planning and Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. The Office of Management and Budget has not reviewed it under that Order. We expect the economic impact of this rule to be so minimal that a full Regulatory Evaluation under the policies and procedures of DHS is unnecessary, because the rule will allow for bridge openings before and after the curfew times. Small Entities Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we have considered whether this rule would have a significant economic impact on a substantial number of small entities. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities, because the regulations provide for openings before and after the curfew times. Assistance for Small Entities Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we offered to assist small entities in understanding the rule so that they could better evaluate its effects on them and participate in the rulemaking process. Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247). Collection of Information This rule calls for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). Federalism A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on State or local governments and would either preempt State law or impose a substantial direct cost of compliance on them. We have analyzed this rule under that Order and have determined that it does not have implications for federalism. Unfunded Mandates Reform Act The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 or more in any one year. Though this rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble. Taking of Private Property This rule will not affect a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights. Civil Justice Reform This rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden. Protection of Children We have analyzed this rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and would not create an environmental risk to health or risk to safety that might disproportionately affect children. Indian Tribal Governments This rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes. Energy Effects We have analyzed this rule under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use. We have determined that it is not a “significant energy action” under that order because it is not a “significant regulatory action” under Executive Order 12866 and is not likely to have a significant adverse effect on the supply, distribution, or use of energy. The Administrator of the Office of Information and Regulatory Affairs has not designated it as a significant energy action. Therefore, it does not require a Statement of Energy Effects under Executive Order 13211. Technical Standards The National Technology Transfer and Advancement Act (NTTAA) (15 U.S.C. 272 note) directs agencies to use voluntary consensus standards in their regulatory activities unless the agency provides Congress, through the Office of Management and Budget, with an explanation of why using these standards would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards (e.g., specifications of materials, performance, design, or operation; test methods; sampling procedures; and related management systems practices) that are developed or adopted by voluntary consensus standards bodies. This rule does not use technical standards. Therefore, we did not consider the use of voluntary consensus standards. Environment We have analyzed this rule under Commandant Instruction M16475.lD, and Department of Homeland Security Management Directive 5100.1, which guides the Coast Guard in complying with the National Environmental Policy Act of 1969

(NEPA)(42 U.S.C. 4321-4370f), and have concluded that there are no factors in this case that would limit the use of a categorical exclusion under section 2.B.2 of the Instruction. Therefore, this rule is categorically excluded, under figure 2-1, paragraph (32)(e) of the Instruction, from further environmental documentation. List of Subjects in 33 CFR Part 117 Bridges. For the reasons discussed in the preamble, the Coast Guard amends 33 CFR part 117 as follows: PART 117—DRAWBRIDGE OPERATION REGULATIONS 1. The authority citation for part 117 continues to read as follows: Authority: 33 U.S.C. 499; Department of Homeland Security Delegation No. 0170.1; 33 CFR 1.05-1(g); section 117.255 also issued under the authority of Pub. L. 102-587, 106 Stat. 5039. 2. Revise § 117.313 to read as follows: § 117.313 New River.

(a)The draw of the S.E. Third Avenue bridge, mile 1.4 at Fort Lauderdale shall open on signal; except that, from 7:30 a.m. to 9 a.m. and 4:30 p.m. to 6 p.m., Monday through Friday, except Federal holidays, the draw need not open. Public vessels of the United States, tugs with tows, and vessels in distress shall be passed at any time.

(b)The draw of the Andrews Avenue bridge, mile 2.3 at Fort Lauderdale, shall open on signal; except that, from 7:30 a.m. to 9 a.m. and 4:30 p.m. to 6 p.m., Monday through Friday, except Federal holidays, the draw need not open. The draw need not open for inbound vessels when the draw of the Florida East Coast Railroad bridge, mile 2.5 at Fort Lauderdale is in the closed position for the passage of a train. Public vessels of the United States, tugs with tows, and vessels in distress shall be passed at any time.

(c)The draw of the Marshal (Seventh Avenue) bridge, mile 2.7 at Fort Lauderdale shall open on signal; except that, from 7:30 a.m. to 9 a.m. and 4:30 p.m. to 6 p.m., Monday through Friday, except Federal holidays, the draw need not open. Public vessels of the United States, tugs with tows, and vessels in distress shall be passed at any time. 3. Revise § 117.315(a) to read as follows: § 117.315 New River, South Fork.

(a)The draw of the Davie Boulevard (SW. Twelfth Street) bridge, mile 0.9 at Fort Lauderdale shall open on signal; except that, from 7:30 a.m. to 9 a.m. and 4:30 p.m. to 6 p.m., Monday through Friday, except Federal holidays, the draw need not open. Public vessels of the United States, tugs with tows, and vessels in distress shall be passed at any time. Dated: October 24, 2006. D.W. Kunkel, Rear Admiral, U.S. Coast Guard, Commander, Seventh Coast Guard District. [FR Doc. E6-18801 Filed 11-7-06; 8:45 am] BILLING CODE 4910-15-P ENVIRONMENTAL PROTECTION AGENCY 40 CFR Part 52 [EPA-R07-OAR-2006-0836; FRL-8240-6] Approval and Promulgation of Implementation Plans; State of Iowa AGENCY: Environmental Protection Agency (EPA). ACTION: Direct final rule. SUMMARY: EPA is approving a State Implementation Plan

(SIP)revision submitted by the state of Iowa. This revision will update Code of Federal Regulation

(CFR)amendment dates, make a clarification to the state air quality rules for laundry activities listed under construction permit exemptions, and adopt the American Meteorological Society/Environmental Protection Agency Regulatory Model (AERMOD). The SIP revisions are necessary for consistency with Federal regulations. DATES: This direct final rule will be effective January 8, 2007, without further notice, unless EPA receives adverse comment by December 8, 2006. If adverse comment is received, EPA will publish a timely withdrawal of the direct final rule in the **Federal Register** informing the public that the rule will not take effect. ADDRESSES: Submit your comments, identified by Docket ID No. EPA-R07-OAR-2006-0836, by one of the following methods: 1. *http://www.regulations.gov.* Follow the on-line instructions for submitting comments. 2. *E-mail:* *Hamilton.heather@epa.gov.* 3. *Mail:* Heather Hamilton, Environmental Protection Agency, Air Planning and Development Branch, 901 North 5th Street, Kansas City, Kansas 66101. 5. *Hand Delivery or Courier:* Deliver your comments to Heather Hamilton, Environmental Protection Agency, Air Planning and Development Branch, 901 North 5th Street, Kansas City, Kansas 66101. *Instructions:* Direct your comments to Docket ID No. EPA-R07-OAR-2006-0836. EPA's policy is that all comments received will be included in the public docket without change and may be made available online at *http://www.regulations.gov,* including any personal information provided, unless the comment includes information claimed to be Confidential Business Information

(CBI)or other information whose disclosure is restricted by statute. Do not submit through *http://www.regulations.gov* or e-mail information that you consider to be CBI or otherwise protected. The *http://www.regulations.gov* website is an “anonymous access” system, which means EPA will not know your identity or contact information unless you provide it in the body of your comment. If you send an e-mail comment directly to EPA without going through *http://www.regulations.gov,* your e-mail address will be automatically captured and included as part of the comment that is placed in the public docket and made available on the Internet. If you submit an electronic comment, EPA recommends that you include your name and other contact information in the body of your comment and with any disk or CD-ROM you submit. If EPA cannot read your comment due to technical difficulties and cannot contact you for clarification, EPA may not be able to consider your comment. Electronic files should avoid the use of special characters, any form of encryption, and be free of any defects or viruses. *Docket:* All documents in the electronic docket are listed in the *http://www.regulations.gov* index. Although listed in the index, some information is not publicly available, *i.e.* , CBI or other information whose disclosure is restricted by statute. Certain other material, such as copyrighted material, is not placed on the Internet and will be publicly available only in hard copy form. Publicly available docket materials are available either electronically in *http://www.regulations.gov* or in hard copy at the Environmental Protection Agency, Air Planning and Development Branch, 901 North 5th Street, Kansas City, Kansas 66101. The Regional Office's official hours of business are Monday through Friday, 8 to 4:30 excluding Federal holidays. The interested persons wanting to examine these documents should make an appointment with the office at least 24 hours in advance. FOR FURTHER INFORMATION CONTACT: Heather Hamilton at

(913)551-7039, or by e-mail at *Hamilton.heather@epa.gov.* SUPPLEMENTARY INFORMATION: Throughout this document whenever “we,” “us,” or “our” is used, we mean EPA. This section provides additional information by addressing the following questions: What is a SIP? What is the Federal approval process for a SIP? What does Federal approval of a state regulation mean to me? What is being addressed in this document? Have the requirements for approval of a SIP been met? What action is EPA taking? What is a SIP? Section 110 of the Clean Air Act

(CAA)requires states to develop air pollution regulations and control strategies to ensure that state air quality meets the national ambient air quality standards established by EPA. These ambient standards are established under section 109 of the CAA, and they currently address six criteria pollutants. These pollutants are: carbon monoxide, nitrogen dioxide, ozone, lead, particulate matter, and sulfur dioxide. Each state must submit these regulations and control strategies to us for approval and incorporation into the Federally-enforceable SIP. Each Federally-approved SIP protects air quality primarily by addressing air pollution at its point of origin. These SIPs can be extensive, containing state regulations or other enforceable documents and supporting information such as emission inventories, monitoring networks, and modeling demonstrations. What is the Federal approval process for a SIP? In order for state regulations to be incorporated into the Federally-enforceable SIP, states must formally adopt the regulations and control strategies consistent with state and Federal requirements. This process generally includes a public notice, public hearing, public comment period, and a formal adoption by a state-authorized rulemaking body. Once a state rule, regulation, or control strategy is adopted, the state submits it to us for inclusion into the SIP. We must provide public notice and seek additional public comment regarding the proposed Federal action on the state submission. If adverse comments are received, they must be addressed prior to any final Federal action by us. All state regulations and supporting information approved by EPA under section 110 of the CAA are incorporated into the Federally-approved SIP. Records of such SIP actions are maintained in the Code of Federal Regulations

(CFR)at title 40, part 52, entitled “Approval and Promulgation of Implementation Plans.” The actual state regulations which are approved are not reproduced in their entirety in the CFR outright but are “incorporated by reference,” which means that we have approved a given state regulation with a specific effective date. What does Federal approval of a state regulation mean to me? Enforcement of the state regulation before and after it is incorporated into the Federally-approved SIP is primarily a state responsibility. However, after the regulation is Federally approved, we are authorized to take enforcement action against violators. Citizens are also offered legal recourse to address violations as described in section 304 of the CAA. What is being addressed in this document? EPA is approving revisions to the SIP for the State of Iowa. These revisions became state effective on August 23, 2006. A revision is being made to amend paragraph 22.1(1)“b” (New or reconstructed major sources of hazardous air pollutants) to update the reference to the Federal rule in 40 CFR part 63 from April 15, 2002, to April 22, 2004. A clarification is being made to the exemption from construction permitting ((22.1(2)“x”(5)) for laundry activities located at stationary sources. The revision clarifies that laundry activities using dry cleaning equipment or steam boilers are not exempt. A revision to amend subrule 22.4(1) updates the reference to EPA's modeling guidelines in 40 CFR part 51, Appendix W. This revision changes the Appendix W reference from August 12, 1996, to November 9, 2005. The main purpose of the update is to include the promulgation of the American Meteorological Society/Environment Protection Agency Regulatory Model (AERMOD), which replaces the ISC3 model. Federal regulation requires that AERMOD be implemented by December 9, 2006. The State of Iowa also submitted revisions to the Iowa Operating Permits program; however, minor corrections need to be made and approved by the Environmental Protection Commission. Therefore, EPA will not act on the Operating Permits program revisions at this time. Have the requirements for approval of a SIP been met? The state submittal has met the public notice requirements for SIP submissions in accordance with 40 CFR 51.102. The submittal also satisfied the completeness criteria of 40 CFR part 51, appendix V. In addition, as explained above and in more detail in the technical support document which is part of this docket, the revision meets the substantive SIP requirements of the CAA, including section 110 and implementing regulations. What action is EPA taking? EPA is approving revisions to the SIP submitted by the state of Iowa. The Iowa Administrative Code, Chapter 22, subrule 22.1(1)“b” is changed to update the CFR amendment dates; subrule 22.1(2)“x”(5) is amended to clarify an exemption from construction permitting, and 22.4(1) amends the SIP to include AERMOD as the preferred guideline model. We are processing this action as a direct final action because the revisions make routine changes to the existing rules which are noncontroversial. Therefore, we do not anticipate any adverse comments. Please note that if EPA receives adverse comment on part of this rule and if that part can be severed from the remainder of the rule, EPA may adopt as final those parts of the rule that are not the subject of an adverse comment. Statutory and Executive Order Reviews Under Executive Order 12866 (58 FR 51735, October 4, 1993), this action is not a “significant regulatory action” and therefore is not subject to review by the Office of Management and Budget. For this reason, this action is also not subject to Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001). This action merely approves state law as meeting Federal requirements and imposes no additional requirements beyond those imposed by state law. Accordingly, the Administrator certifies that this rule will not have a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 *et seq.* ). Because this rule approves pre-existing requirements under state law and does not impose any additional enforceable duty beyond that required by state law, it does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4). This rule also does not have tribal implications because it will not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes, as specified by Executive Order 13175 (65 FR 67249, November 9, 2000). This action also does not have Federalism implications because it does not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132 (64 FR 43255, August 10, 1999). This action merely approves a state rule implementing a Federal standard, and does not alter the relationship or the distribution of power and responsibilities established in the CAA. This rule also is not subject to Executive Order 13045, “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997), because it is not economically significant. In reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the CAA. In this context, in the absence of a prior existing requirement for the State to use voluntary consensus standards (VCS), EPA has no authority to disapprove a SIP submission for failure to use VCS. It would thus be inconsistent with applicable law for EPA, when it reviews a SIP submission, to use VCS in place of a SIP submission that otherwise satisfies the provisions of the CAA. Thus, the requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) do not apply. This rule does not impose an information collection burden under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 *et seq.* ). The Congressional Review Act, 5 U.S.C. 801 *et seq.* , as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the **Federal Register** . A major rule cannot take effect until 60 days after it is published in the **Federal Register** . This action is not a “major rule” as defined by 5 U.S.C. 804(2). Under section 307(b)(1) of the Clean Air Act, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by January 8, 2007. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this rule for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements. (See section 307(b)(2).) List of Subjects in 40 CFR Part 52 Environmental protection, Air pollution control, Carbon monoxide, Incorporation by reference, Intergovernmental relations, Lead, Nitrogen dioxide, Ozone, Particulate matter, Reporting and recordkeeping requirements, Sulfur oxides, Volatile organic compounds. Dated: October 31, 2006. John B. Askew, Regional Administrator, Region 7. Chapter I, title 40 of the Code of Federal Regulations is amended as follows: PART 52—[AMENDED] 1. The authority citation for part 52 continues to read as follows: Authority: 42 U.S.C. 7401 *et seq.* Subpart Q—Iowa 2. In § 52.820 the table in paragraph

(c)is amended by revising the entries for 567-22.1 and 567-22.4 to read as follows: § 52.820 Identification of plan.

(c)* * * EPA-Approved Iowa Regulations Iowa citation Title State effective date EPA approval date Explanation Iowa Department of Natural Resources Environmental Protection Commission [567] * * * * * * * Chapter 22—Controlling Pollution 567-22.1 Permits Required for New or Existing Stationary Sources 8/23/06 11/8/2006, [insert FR page number where the document begins]. * * * * * * * 567-22.4 Special Requirements for Major Stationary Sources Located in Areas Designated Attainment or Unclassified

(PSD)8/23/06 11/8/2006, [insert FR page number where the document begins]. * * * * * * * [FR Doc. E6-18845 Filed 11-7-06; 8:45 am] BILLING CODE 6560-50-P ENVIRONMENTAL PROTECTION AGENCY 40 CFR Part 52 [EPA-OAR-R05-2005-OH-0005; FRL-8228-2] Approval and Promulgation of Implementation Plans; Ohio Particulate Matter AGENCY: Environmental Protection Agency (EPA). ACTION: Final rule. SUMMARY: EPA is taking final action on a variety of revisions to particulate matter regulations submitted by Ohio on July 18, 2000. EPA is approving revisions to the form of opacity limits for utility and steel mill storage piles and roadways. EPA is approving a modest realignment of emission limits in the Cleveland area within the constraints of a revised modeled attainment demonstration. EPA is approving formalization of existing requirements for continuous emission monitoring for certain types of facilities, criteria for the state to issue equivalent visible emission limits, and revised limits for stationary internal combustion engines. However, EPA is disapproving authority for revising emission limits for Ford Motor's Cleveland Casting Plant via Title V permit modifications. Also, EPA is deferring action on equivalent visible emission limit rules to solicit comment on certain ramifications of its proposed approval. DATES: This final rule is effective on December 8, 2006. ADDRESSES: EPA has established a docket for this action under Docket ID No. EPA-R05-OAR-2005-OH-0005. All documents in the docket are listed on the *www.regulations.gov* Web site. Publicly available docket materials are available either electronically through *www.regulations.gov* or in hard copy at the Environmental Protection Agency, Region 5, Air and Radiation Division, 77 West Jackson Boulevard, Chicago, Illinois 60604. This facility is open from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding Federal holidays. We recommend that you telephone John Summerhays at

(312)886-6067 before visiting the Region 5 office. FOR FURTHER INFORMATION CONTACT: John Summerhays, Environmental Scientist, Criteria Pollutant Section, Air Programs Branch (AR-18J), EPA Region 5, 77 West Jackson Boulevard, Chicago, Illinois 60604,

(312)886-6067, *summerhays.john@epa.gov* . SUPPLEMENTARY INFORMATION: This document is organized as follows: I. Does This Action Apply to Me? II. Summary of State Submittal and Proposed Rulemakings III. Response to Comments IV. Final EPA Action V. Statutory and Executive Order Reviews I. Does This Action Apply to Me? This action applies to you if you are interested in the emission limitations applicable to airborne particulate matter in the State of Ohio. This action especially applies to you if you are interested in the emission limitations applicable to utility and iron and steel manufacturing sources in Ohio and to Ford Motor Company's Cleveland Casting Plant, to which most of the limit revisions addressed in this notice apply. II. Summary of State Submittal and Proposed Rulemakings Ohio adopted major revisions to its particulate matter regulations in 1991, addressing requirements of the Clean Air Act amendments of 1977 and 1990. Ohio has submitted and EPA has approved those regulations (see 59 FR 27464, May 27, 1994, and 61 FR 29662, June 12, 1996). However, several companies appealed those regulations to the State's Environmental Review Board. As a result of lengthy discussions aimed at resolving these appeals, Ohio adopted an assortment of revisions to its particulate matter regulations on December 17, 1997. Ohio submitted the revised regulations to EPA on July 18, 2000. EPA proposed action in two parts, published respectively on December 2, 2002, at 67 FR 71515, and on August 9, 2005, at 70 FR 46127. The first notice addressed most of the State's submittal. That notice proposed to approve:

(1)A redesign of the limits on visible emissions from roadways and storage pile operations at utility storage piles;

(2)a similar redesign of the visible emission limits for roadways and storage piles at iron and steel facilities;

(3)criteria for determining the appropriate visible emissions limit for cases where a source meets its mass emission limit but cannot comply with the standard visible emissions limit, with provision that the State may establish alternate visible emission limits according to these criteria without need for review by EPA;

(4)requirements for continuous emission monitoring systems for a range of sources, and

(5)miscellaneous other revisions. This notice proposed to disapprove provisions by which Ford could modify its emission limits via amendments to its Title V permit prior to EPA approval of a State Implementation Plan

(SIP)revision. The second notice of proposed rulemaking proposed to approve modification of the limits for several facilities in Cuyahoga County (the Cleveland area), including Ford, LTV, and General Chemical. Further description of the State submittal and EPA's evaluation of the submittal and its proposed action are provided in the respective notices. The rules addressed in this rulemaking are rules that were effective in Ohio on January 31, 1998. Ohio subsequently adopted and submitted further revisions to their particulate matter regulations, effective April 14, 2003, which modify the opacity limitations for large coal-fired boilers and which make miscellaneous minor revisions. Those further revisions are being addressed in separate rulemaking, including proposed rulemaking published on June 27, 2005, and are not addressed here. III. Response to Comments EPA received one set of comments, from Ford Motor Company dated January 31, 2003. These comments objected to EPA's proposed action, published on December 2, 2002, proposing to disapprove a provision for Ford Motor Company to obtain revised emission limits for its Cleveland Casting Plant by means of Title V permit revisions or by new source permit. EPA received no other comments on either notice of proposed rulemaking. The following paragraphs describe Ford Motor Company's comments and provide EPA's response to those comments. For convenience, the remainder of this notice will refer to the commenter as Ford and will refer to the pertinent facility as the Cleveland Casting Plant. *Comment:* Ford described its Cleveland Casting Plant at length. Later in its comment letter, Ford described the plant and its pollution control systems as complex and subject to frequent changes as production demands change. These descriptions support comments that Ford must have an expeditious process to obtain reconfigured emission limits to accommodate periodic plant reconfigurations. *Response:* EPA understands the complexity of the Cleveland Casting Plant. A more detailed discussion of Ford's comments and EPA views on the need for expeditious changes in limits is provided below. *Comment:* Ford delineates a history of State and federal rulemaking on Ohio particulate matter issues relevant to the Cleveland Casting Plant. *Response:* In most respects the history is an accurate chronology of the identified rulemakings. One factual inaccuracy in the chronology is the statement that Ohio adopted the rules adopted in December 1996 and submitted them to EPA “shortly thereafter”; in fact, the rules were adopted in December 1997 and were not submitted until July 2000. A few additional elements of the chronology in the comment also warrant note. EPA proposed rulemaking on a portion of Ohio's July 2000 submittal on December 2, 2002. As stated in that notice of proposed rulemaking, at 67 FR 71516, “[b]ased on discussions with USEPA, Ohio is conducting a further assessment of whether the revised limits in Cuyahoga County suffice to assure attainment of the annual particulate matter standard. USEPA is deferring action on these revisions pending receipt of this further assessment.” Ohio provided further materials on February 12, 2003, January 7, 2004, February 1, 2005, and April 21, 2005. EPA then proposed to approve the Cuyahoga County limits on August 9, 2005. This expanded chronology illustrates several points. First, attainment demonstrations can raise significant issues, such that in this case Ohio was providing supplemental material over a period of more than two years. Second, this chronology is directly relevant to the Cleveland Casting Plant, since some of the supplemental material directly pertains to this facility. Third, had EPA taken earlier action, that action presumably would have been to disapprove the limits due to inadequate support, including the limits being sought by Ford. Comment: Section III.A of Ford's comments states, “The flexibility in OAC 3745-17-12(I)(50) and

(51)is critical to the ongoing viability of the Casting Plant.” Ford highlights the complexity of its Cleveland Casting Plant. Ford provides a conceptual example involving two processes (labeled Process A and Process B) and two emission control systems (labeled Collector C and Collector D), noting in the example that emissions from Process A may go mostly to Collector C but may also in part to Collector D, and similarly the emissions from Process B may go partly to both collectors. Ford states as part of this example that the emission limits in the SIP reflect the existing configuration of the distribution of emissions from various processes to the various control devices. Ford states that even if, for example, Process B shut down, such that it would be more efficient to shut Collector D down and route all Process A emissions to Collector C, the SIP would prohibit that, and Ford would be required to continue operating Collector D until a SIP revision was completed. Ford makes a few additional comments in this section of its comment letter. Ford mentions its participation in EPA's Energy Star program for energy efficiency and its commitment to pollution prevention as an implementer of the ISO 14001 program. Ford highlights its view that the revisions made under this process have no detrimental environmental effect, because the revised limits must provide for attainment just as the existing SIP does. Ford further notes that the process in Rule 3745-17-12(I)(50) and

(51)do in fact provide for the opportunity for EPA, Ohio EPA, and the public to review and comment on potential revisions, and the process is simply more streamlined than “traditional SIP revisions.” *Response:* EPA does not dispute Ford's statements that the Cleveland Casting Plant is a complex facility with numerous emitting processes connected in a complex array to numerous control systems. EPA also does not dispute Ford's statements that shifts in production demands require periodic reconfigurations in plant processes. However, EPA disagrees with Ford's view that the SIP requires and can only be written in a manner that requires a specific plant configuration, and EPA disagrees with Ford's conclusion that these circumstances warrant a process that circumvents standard SIP review. The limits for the Cleveland Casting Plant in the Ohio SIP have various formats; some limits regulate pounds per hour for a specific emission unit, some limits regulate pounds per hour for a group of emission units, a few limits regulate mass per cubic foot of exhaust gas for one or multiple emission units, and certain limits regulate the hours per day that selected units may operate. In a handful of cases, the rules specify the control system that shall be used for the identified emission unit(s). As is discussed below, EPA approved these limits but did not and does not mandate the use of any particular format so long as the limit is enforceable and helps provide for attainment. Ford does not provide a rationale for its statement that the SIP requires a specific mode of operation. In particular, Ford's presentation of its example does not support the claim that the SIP mandates continued operation of Collector D even after shutdown of the Process A that is the principal source of emissions controlled by Collector D. This is a critical shortcoming in Ford's comments, since this statement is a fundamental basis for Ford's argument that an expeditious process for altering SIP limits is needed to accommodate changes in operations at the Cleveland Casting Plant. Despite Ford's failure to justify its statement that the SIP requires a specific mode of operation, EPA analyzed this statement further. First, EPA examined this statement conceptually in the context of Ford's illustrative example. In the example, Ford claims that the SIP would require continued operation of Collector D even after the shutdown of Process B, and that routing all of Process A emissions to Collector C would violate the SIP. EPA examined the rules it proposed to approve and found no cases in which the rules require operation of a control device that is not receiving emissions. Also, while EPA identified cases in which the rules direct Ford to route emissions from a process to a particular collector, EPA finds no cases in which the rules direct Ford to route emissions from a process to multiple control devices, and EPA found no rules prohibiting Ford from routing zero emissions to a particular collector. Thus, EPA finds no cases in which the rules prohibit routing all emissions from a process to a single collector but instead mandate that a portion of the emissions be routed to a second collector that might otherwise be shut down. In a few cases, the rules do require that all emissions from identified processes be routed to a particular collector. These cases are discussed below. Continuing its examination of Ford's example, EPA assessed whether continued operation of Collector D might be indirectly required in order to achieve emission reduction requirements. Two scenarios warrant consideration:

(1)Collector C has the capacity to control successfully all of Process A's emissions, and

(2)Collector C does not have the capacity to control successfully all of Process A's emissions. (“Control successfully” here means satisfying the emission limits that apply to Collector C.) In the first scenario, routing all of Process A's emissions to Collector C would create no violation of the SIP. In the second scenario, Ford would be violating the SIP. Ford has several options for remedying such a violation. Ford could improve Collector C so that it can successfully control all of Process A's emissions. Ford could reroute the requisite fraction of Process A's emissions to some other collector with the capacity to control that fraction of Process A's emissions. (Such rerouting is permissible under the SIP in virtually all cases.) Over the longer run, Ford could propose a control strategy based on highly effective control devices that maximize the company's flexibility to increase operations at individual processes and still remain within emission limits needed to assure attainment. Similarly, unlike prior State rulemakings, Ford could recommend rules that would eliminate those few cases in which emissions from specified processes are directed to be controlled by specified control equipment. Ford has not addressed these options for increasing its flexibility for operating the Cleveland Casting Plant in compliance with SIP limits. Therefore, Ford has not demonstrated that the desired flexibility in plant operations while complying with SIP limits can only be achieved by being granted an expedited process for revising SIP limits. In observing that SIP revisions can be time consuming, Ford makes reference to the length of time involved in the present rulemaking completed by today's notice. EPA has several responses. First, as noted previously, and contrary to Ford's chronology, Ohio did not submit the rule package until July 2000. EPA assumes that Ohio used the time between rule adoption and package submittal to prepare materials to support the submittal and justify EPA approval. In fact, EPA's December 2002 rulemaking deferred action on the portion of the submittal addressing Cleveland area limits for the express purpose of soliciting further information regarding these limits. The limits at issue included limits for the Cleveland Casting Plant, and the supporting information that Ohio provided in January 2004 for the Cleveland Casting Plant (along with information for other facilities that Ohio provided in February 2005) provided critical justification for the August 2005 proposed action and today's final action to approve the revisions to emission limits at the Cleveland Casting Plant that are included in Ohio's submittal. EPA commends Ford for implementing the ISO 14001 program and participating in EPA's Energy Star program. However, these actions by Ford do not support allowing changes to applicable limits without proper SIP review. Regarding the brief comments here on the review process, a later section of this notice reviews these comments together with the more elaborate comments on the subject that Ford made elsewhere in its letter. *Comment:* Ford provides several comments under the heading “US EPA's rationale for the proposed disapproval is unsupported by the text of the preamble.” Ford characterizes EPA's concern as being “based almost exclusively on two interrelated points:

(1)A concern that authorizing revisions to the applicable emission limitations by the mechanism specified in OAC 3745-17-12(I)(50) and

(51)would not satisfy the criteria in section 110 of the Act, and

(2)a belief that issuing a Title V permit with an alternative emission limit would somehow revise the SIP.” Ford states, “Both of these concerns are unfounded.” As a subheading under the above heading, Ford states “Both OAC 3745-17-12(I)(50) and

(51)meet the criteria of section 110 of the Clean Air Act for inclusion in the SIP. If OAC 3745-17-12(I)(50) is approved as part of the SIP, the establishment of alternative emission limits pursuant to that rule does not modify the SIP.” Ford summarizes the SIP requirements under Clean Air Act section 110(a)(2). Ford states, “The language in OAC 3745-17-12(I)(50) and

(51)satisfies all of these requirements.” Ford finds that EPA's notice of proposed rulemaking does not disagree; Ford observes that “Instead, the preamble focuses on permits to be issued under OAC 3745-17-12(I)(50) * * * [and] expresses a concern that [such a permit] would somehow impermissibly revise the SIP.” Ford continues, “Nothing in the regulations at issue allows Ohio EPA or Ford to deviate from the Section 110 requirements concerning SIP revisions * * *. [I]f OAC 3745-17-12(I)(50) is approved as part of the SIP, the SIP would expressly permit the creation of alternative emission limits. Establishing alternative emission limits * * * pursuant to the requirements of OAC 3745-17-12(I)(50) *would not be a revision of the SIP.* ” [emphasis in original] *Response:* Possibly the most important requirement of section 110 is the requirement that the SIP provide for attainment of the air quality standards. This action approves a set of specific limits for the Cleveland Casting Plant and other Cleveland area facilities that EPA is satisfied will assure attainment of the applicable particulate matter standards (specifically the standards for particles nominally 10 micrometers and smaller, known as PM 10 ). The provisions of OAC 3745-17-12(I)(50) that Ford supports state, “Compliance with an alternative emission limitation or control requirement in effect pursuant to this paragraph shall not constitute a violation of paragraph

(I)of this rule * * *.” That is, the rule supported by Ford would allow the facility to violate limits that help assure that Cleveland will attain the air quality standards. Although the rule dictates that the alternative limits must have been demonstrated to provide for attainment, the rule provides a process that shortchanges EPA's statutory role in reviewing whether the alternate limits in fact assure attainment. Indeed, this rule must be considered to authorize establishment of alternative limits that EPA after proper review would find inadequate to assure attainment. Consequently, approval of this rule would result in a SIP that no longer assures attainment of the air quality standards, in clear contravention of section 110 of the Clean Air Act. Ford argues at length that upon approval of OAC 3745-17-12(I)(50), the establishment of alternative limits in accordance with that paragraph would not revise the SIP. This argument is not germane, because it disputes a mischaracterized, transformed version of EPA's rationale. EPA's notice of proposed rulemaking focuses on the changes to emission limitations that would be involved in use of the rule which Ford supports. In substantive terms, OAC 3745-17-12(I)(50) would authorize Ohio to permit Ford to violate some of the limits in the SIP, so long as Ford is complying with alternate limits established by permit. In Title V terms, the emission limits are quintessential “applicable requirements” that must be identified in the Title V permit. EPA's notice of proposed rulemaking in a few places uses a shorthand description of the problem, describing the Ohio rule as in effect revising the SIP through use of Title V permits. Ford's objection to this shorthand description of the problem overlooks the substantive point that Ohio's rule would impermissibly use Title V permits to alter SIP emission limits, or more precisely would use Title V permits to render moot some of the emission limits in the SIP and to establish alternative limits that effectively replace the SIP limits. Under the Clean Air Act, this is not allowable. Ford is addressing a hypothetical question, i.e., with a hypothesized SIP that contains the provisions of OAC 3745-17-12(I)(50), whether use of those provisions to establish new limitations and render moot some of the existing SIP emission limitations would constitute a revision to the SIP. Ford's question is tantamount to asking, “If provisions in the SIP authorized revision of core SIP elements (i.e. emission limitations), would it constitute a SIP revision to implement those provisions to revise those SIP elements?” EPA need not resolve this hypothetical question, because EPA may not approve provisions that would authorize Ohio to make unenforceable some of the limitations established to help assure attainment. By extension, Ford's rationale could be interpreted to suggest that rules approved into the SIP need not contain any specific emission limitations, and that it should suffice for all of the specific emission limitations to be established as part of a Title V permit, so long as a requirement exists for such limits to be demonstrated to provide for attainment. EPA clearly objects to such an approach. The Clean Air Act requires SIPs to contain specific, enforceable emission limits providing for attainment, and EPA may not approve a plan that mandates but does not specify such limits. Furthermore, the Clean Air Act clearly delineates the process by which such limits are to be established and revised, a process that OAC 3745-17-12(I)(50) would shortchange. *Comment:* Ford states, “US EPA has recognized the need for ‘SIP Flexibility.’ ” Ford attached a letter from EPA to Ohio that addresses negotiations regarding SIP flexibility that ultimately led to Ohio's adoption of OAC 3745-17-12(I)(50). Ford quotes from this letter to demonstrate that EPA acknowledges the need for flexibility for Ford to obtain alternative limits “following relatively expeditious U.S. EPA review.” Ford states, “While U.S. EPA indicated that the Ford-Ohio EPA approach to providing flexibility deviated slightly from U.S. EPA's ‘traditional policy' on ‘director's discretion,' U.S. EPA never indicated that the approach did not meet the criteria of Section 110.” Ford notes that EPA anticipated issuing a SIP Flexibility Policy offering such expeditious limit revisions, observes that the policy was apparently never issued, but nevertheless urges EPA to approve OAC 3745-17-12(I)(50) for purposes of providing such flexibility. *Response:* As Ford suspects, EPA has not issued the revised policy on SIP flexibility that the quoted letter anticipated. Thus, EPA reviewed OAC 3745-17-12(I)(50) in light of existing policy, including “traditional policy” on “director's discretion.” The term “director's discretion” denotes state rule provisions which authorize state agencies to establish or revise source requirements in the SIP without needing approval from EPA. This term is generally applied in cases where the source requirements are significant, and EPA policy states that such provisions shortchange necessary EPA review and cannot be approved. Ford mischaracterizes EPA's statements regarding director's discretion. Far from indicating that the deviations from director's discretion policy are “slight,” EPA's letter stated: “Ford's proposal deviates from USEPA's traditional policy on ‘director's discretion' in several important respects.” EPA then identified three specific deficiencies, in brief that the proposal allows revisions without affirmative EPA concurrence, allows only a short review period, and does not address various identified issues regarding enforcement of revised limits. Since OAC 3745-17-12(I)(50) fundamentally retains the same pertinent features as the proposal (with only a modest lengthening of the still brief EPA review period), OAC 3745-17-12(I)(50) contains these same deficiencies. Ford does not comment on these identified deficiencies, and EPA continues to believe that these deficiencies warrant disapproval of OAC 3745-17-12(I)(50). The history of the limits in OAC 3745-17-12(I) provides perspective on the degree of operational flexibility inherent in these limits. OAC 3745-17-12(I), as adopted in May 1991, included three options recommended by Ford. One of these options was labeled “the cupola dust collection upgrade plan” and involved improvements in pollution control equipment which would accommodate expanded production by the Cleveland Casting Plant. The other two options involved less production and less aggressive efforts at emissions control. The option ultimately recommended by Ford, and adopted by Ohio in November 1991, reflects one of these latter options. All three options involve numerous limits on the number of hours of operation of major processes at the Cleveland Casting Plant, presumably designed to match the alternate projections of plant operations. Since EPA's guidance for PM 10 attainment demonstrations mandates assuring attainment even with full allowable emissions, limits on operating hours serve as an alternative to tighter limits on emissions as a means of requiring attainment level daily emission rates. Thus, the attainment plan that Ford recommended may be viewed as reflecting Ford's preferences as to the mix of limits on emission control levels and limits on operations. EPA's letter identifies various means by which Ford could obtain the desired flexibility without bypassing EPA's statutory SIP review process. The letter states: For example, Ford should investigate strategies that apply a more uniform set of limitations that would address a broader range of operational configurations. Similarly, Ford should investigate strategies that mix further controls with less restrictive sets of operation limitations. Such approaches should be fully investigated as means of allowing Ford the flexibility to make modest operational changes while still providing adequate review of changes that could significantly affect air quality. Ford does not comment on these approaches. EPA remains convinced that Ford has multiple options for obtaining the flexibility it desires without bypassing EPA's statutory process for reviewing revisions to limits established to assure attainment. *Comment:* Ford makes a series of comments under the heading “US EPA's White Paper Number 2 Supports the Creation of Alternative Emission Limits.” Ford observes that this white paper provides for inclusion of alternative emission limits in Title V operating permits. Ford quotes from the white paper: States may revise their SIP's to provide for establishing equally stringent alternatives to specific requirements set forth in the SIP without the need for additional source-specific SIP revisions. To allow alternatives to the otherwise-applicable SIP requirements ( *i.e.* , emissions limitations, test methods, monitoring, and recordkeeping) the State would include language in SIP's to provide substantive criteria governing the State's exercise of the alternative requirement authority. Ford further quotes language from the white paper that describes a sample set of SIP language that would provide the process for implementing such a provision. Ford observes that the process in OAC 3745-17-12(I)(50) parallels this approach suggested in EPA's white paper. Ford notes that EPA's Title V permit rules, specifically at 40 CFR 70.6(a)(1)(iii), “provide a mechanism for states to establish alternative emission limits.” Ford quotes language in Ohio's Title V rules (at OAC 3745-77-0(A)(1)(c)) that it believes “tracks 40 CFR 70.6(a)” and authorizes Ohio to establish alternative emission limits “[i]f the applicable implementation plan so provides”. Given that EPA approved these Ohio Title V rules, and given that EPA “advocated alternative emission limits in White Paper 2,” Ford finds EPA's proposed disapproval of OAC 3745-17-12(I)(50) and

(51)to be “arbitrary and unreasonable.” *Response:* White Paper Number 2 indeed provides the options for states to use Title V permits to “establish *equally stringent alternatives to specific requirements set forth in the SIP* ” (emphasis added). However, Ford is seeking for Ohio to have broader authority to make more revisions than is contemplated in the white paper. If Ford were merely seeking the option to establish replacement limits that for each emission point were equally stringent to the existing SIP limit, then there would be no need for OAC 3745-17-12(I)(50) to require modeling to demonstrate that the alternatives provide for attainment. Instead, Ford is clearly seeking for Ohio to have the authority to use Title V permits to set less stringent limits for some emission points and more stringent limits on other sources. Indeed, OAC 3745-17-12(I)(50) expressly provides that Ford need not meet the existing SIP limits so long as it is meeting the alternative limits in a permit, a provision that clearly anticipates some replacement limits being less stringent than the corresponding specific requirements of the current SIP. Thus, the language of White Paper Number 2 as quoted by Ford does not provide for the types of revisions to limits that Ford is contemplating. Ford may believe that White Paper Number 2 may be construed to encourage use of Title V permits to establish sets of limits that collectively are equivalent to a set of limits in the SIP. Ford would presumably argue that any combination of limits for the Cleveland Casting Plant that suitable modeling shows to provide for attainment may be considered equivalent to the attainment plan limits in the SIP. However, the language of the white paper as quoted by Ford makes clear that revisions that may arguably be collectively equivalent but do not provide equivalence for each individual limit are outside the scope of this white paper. Conceptually, the Clean Air Act provides complementary but distinct roles and processes for establishing limits under Title I and compiling limits under Title V. Title I establishes a variety of requirements, including the requirement for emission limits and other limitations sufficient to provide for attainment. Title I further provides a process by which states must submit such limitations to EPA, EPA is to evaluate the completeness of submittals, and then EPA is granted 12 months to review and rulemaking on complete submittals. Title V, by contrast, provides for permits that tabulate the existing SIP requirements that apply to an existing source, following a more expedited process based on the statutory presumption that these permits will not be altering the limitations or other provisions by which the state has met Title I requirements. EPA believes that Title V permits provide a suitable mechanism for certain limited housekeeping operations such as clarification of existing limits or recordkeeping requirements for a specific site, and establishing periodic compliance monitoring. OAC 3745-17-12(I)(50) is fundamentally contrary to the Clean Air Act in seeking to authorize potentially sweeping revisions in the limitations Ford is subject to for Title I purposes based on a process designed for the far more narrow purposes of Title V. Ford's comments focus on the timetable for review of SIP revisions versus for review of Title V and new source permits, and so this was a focus of EPA's review of Ford's comments. However, another important distinction between these two review processes is the consequences of EPA inaction. In permit review, if EPA chooses not to review a permit, the state may issue the permit. However, under Section 110(k), if EPA takes no action on a SIP revision request, the SIP is not revised. This contrast reflects a statutory distinction between the level of review needed to compile applicable requirements (or, for new sources, to set specific limitations in accordance with established rule requirements) and the level of review needed to establish or revise those requirements. Thus, the fact that OAC 3745-17-12(I)(50) would provide for revisions to take effect unless EPA acts to object is a serious deficiency of this rule. *Comment:* Ford states that it undertakes frequent alterations of the Cleveland Casting Plant that, if OAC 3745-17-12(I)(50) is disapproved, would require SIP revisions. To illustrate this point, Ford provided as an attachment to its comments an annotated copy of OAC 3745-17-12(I) that delineates relevant revisions to the facility. *Response:* An examination of the alterations identified by Ford shows that a majority of the identified changes are shutdowns of specific emission units. Clearly, emission units that are shut down and have zero emissions are complying with the applicable emission limits. Thus, Ford has no need of a SIP revision to accommodate these plant alterations. The next most common type of alteration identified by Ford in this comment is a change in the description of an emission unit. For example, the emission unit identified in the rule as P909 is apparently now identified as P413, with no change and no apparent request for a change in the emission limit. For other examples as well, Ford provides no evidence that changes in the unit description signify any increase in emissions or any kind of violation of any emissions limit or other limitation. Some of the noted alterations are modifications of sources, which presumably were subject to the new source review process. New source review provides its own process for assuring that plant modifications do not cause violations of air quality standards, a process that maintains or if necessary lowers the limit on other sources to provide continued attainment. Ford does not need a separate process to address such source modifications. Furthermore, Ford's descriptions suggest that even in these cases there was no increase in emissions or emission limits at any emission point. Ford identifies a handful of additional plant alterations in the comment. Some alterations involve control of previously uncontrolled emissions, which as expected apparently does not result in Ford exceeding any emission limits or otherwise emitting more at any emission point. Other alterations involve rerouting of emissions, again with no apparent increase in allowable emissions at any emission point or violation of any limitations. In summary, none of the plant changes identified by Ford appears to result in any emission increase at any location or to make compliance with any limit any more difficult. Also, Ford has not identified any other plant alterations that they have foregone due to concerns about complying with existing limits. Thus, Ford's information on plant alterations indicated no need for revisions of the SIP limits that are being approved today. Therefore, it appears the information on plant alterations does not support Ford's claim that frequent modifications of the Cleveland Casting Plant require an expedited process for revising applicable emission limits. *Comment:* Ford makes a series of comments under a heading “US EPA's proposed disapproval would create significant practical difficulties for all involved.” First, Ford states, “Since Ohio EPA adopted OAC 3745-17-12(I)(50) and

(51)in 1996, Ford has availed itself of the flexibility provisions in that rule many times.” Ford asserts that “[d]isapproving this rule results in the need to revise the SIP to address these changes [in operations at the Cleveland Casting Plant].” Ford comments that it “prepared its Title V permit application based on the revised emissions limits that have resulted * * *.” Finally, Ford expresses the view that “site-specific SIP requirements, such as the ones applicable to Ford, should not require more scrutiny than is given to a typical new source construction permit or a facility-wide Title V operating permit.” Ford recommends instead that EPA accept use of these permitting approaches that would apply the “same level scrutiny” to revisions of limits for the Cleveland Casting Plant. *Response:* As discussed above, although Ford provided an extensive delineation of plant alterations that do not require limit revisions, Ford has not identified any specific SIP limits that the Cleveland Casting Plant, operated as Ford would like to operate it, would violate in the absence of a SIP revision. Thus, even if EPA were to accept Ford's view that an intended operational mode that violates SIP limits translates into a need for a SIP revision, it appears that operation in such a mode has not occurred in the last several years. Ford presumably understands that in the absence of a SIP revision, EPA judges compliance with the existing SIP. By claiming to have availed itself of “flexibility” in the State rule, Ford would appear to be claiming that it is violating the SIP. However, given the nature of the plant alterations described by Ford, it is not clear that such violations have occurred. Ford makes an interesting recommendation, for EPA to address site-specific SIP revisions according to the same process as new source permits or Title V permits. However, this recommendation overlooks the distinctions in the nature of the issues that arise in these varying contexts. Title V permits are intended primarily simply to compile existing applicable requirements, so that these permits are expected not to raise fundamental issues about how the state is assuring attainment. While new source permits occasionally raise issues about assurance of attainment, these permits generally focus on other requirements, notably including control technology requirements and offset requirements (in nonattainment areas), that minimize the potential for attainment planning issues to arise. It is for this reason that the Clean Air Act and EPA's implementing regulations identify distinct review processes for existing source and new source permits versus for attainment plans, allowing permit review under an expedited timetable and allowing issuance in the absence of EPA objection but authorizing much longer review of attainment plans and providing that such revisions occur only with affirmative EPA action. *Comment:* Ford concludes that establishment of a streamlined mechanism for establishing alternate emission limits “is what White Paper 2 anticipated.” Further, “[i]t is what the Title V rules provide for. It is logical and reasonable, and is supported by both science and law.” Ford continues: “Conservative modeling analyses and available ambient air quality monitoring data confirm that the PM-10 emission limits applicable to Ford's operations will ensure ongoing attainment.” Under these circumstances, Ford urges that EPA approve OAC 3745-17-12(I) in its entirety. *Response:* EPA concludes that actions that alter the emission limits must be subject to the full SIP review provided for in Clean Air Act section 110(k). The existence of a requirement for a modeled attainment demonstration does not lessen the need for EPA to review each attainment demonstration on a case by case basis. EPA may not shortchange this review by allowing alteration of the applicable limits by a Title V or a new source permitting process. IV. Final EPA Action EPA is approving most elements of Ohio's particulate matter SIP revisions submitted July 18, 2000. EPA is approving revisions in Rule 3745-17-01 and 3745-17-11 that revise limits for stationary internal combustion engines. EPA is approving revisions to Rule 3745-17-03, which include revisions to test methods associated with various rules identified in the paragraphs that follow. This rule, in particular Rule 3745-17-03(C), also requires that sources subject to Appendix P of 40 CFR 51 install, satisfactorily operate, and report results from continuous emission monitoring systems. In conjunction with this action, EPA is removing from the SIP the now-expired permits that Ohio previously submitted to satisfy Appendix P. EPA is approving revisions to Rule 3745-17-04, requiring immediate compliance with the newly adopted limitations in other rules being approved. EPA is approving revisions to Rule 3745-17-07 which, in combination with test method revisions in Rule 3745-17-03, provide a reformulated but equivalent set of limitations on fugitive dust from iron and steel and from utility facilities. EPA is also approving revisions in Rule 3745-17-07(B)(9) and (B)(10), related provisions in Rule 3745-17-08 (providing revised limits on fugitive dust at the Ford facility), and Rule 3745-17-11(B)(6) that specify emission limits for the Cleveland Casting Plant and for the ISG facility. EPA is approving most of the revisions in Rule 3745-17-12, including all of the Cuyahoga County emission limits contained in this rule. EPA is approving revisions to Rule 3745-17-13, which replace fugitive emission limitations for the Wheeling-Pittsburgh Steel Company facility with requirements that the facility follow specified practices to limit fugitive emissions. EPA is approving revisions to Rule 3745-17-14 that bring this rule into conformance with the approved contingency plan. (The approved rule also excludes a guidance statement that was not previously part of the SIP.) EPA is disapproving Rule 3745-17-12(I)(50) and 3745-17-12(I)(51), which would allow Ohio to incorporate a revised set of emission limits for Ford Motor Company's Cleveland Casting Plant into either a Title V permit or a new source permit. EPA has concluded that this type of revision to applicable limitations must be subject to the review process under section 110 of the Clean Air Act for revisions to state implementation plans. Final disapproval of these paragraphs does not start any sanctions clock. This submittal was not needed to meet any provision of the Clean Air Act. Disapproval of these paragraphs simply prevents the addition of these paragraphs to Ohio's state implementation plan and does not constitute a plan deficiency that under section 179 of the Clean Air Act would need to be remedied to avoid sanctions. EPA is deferring action on revisions in Rule 3745-17-07 relating to equivalent visible emissions limits. These revisions provide detailed criteria for issuance of such limits, and provide that limits that Ohio issues in accordance with these criteria need not be subject to formal EPA review to alter the federally enforceable limits. EPA intends to publish a separate proposed rulemaking notice soliciting comment on the ramifications of these revisions for previously approved equivalent visible emission limits. V. Statutory and Executive Order Reviews Executive Order 12866: Regulatory Planning and Review Under Executive Order 12866 (58 FR 51735, October 4, 1993), this action is not a “significant regulatory action” and therefore is not subject to review by the Office of Management and Budget. Executive Order 13211: Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use Because it is not a “significant regulatory action” under Executive Order 12866 or a “significant energy action,” this action is also not subject to Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001). Regulatory Flexibility Act This action merely approves state law as meeting federal requirements and imposes no additional requirements beyond those imposed by state law. Accordingly, the Administrator certifies that this rule will not have a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 *et seq.* ). Unfunded Mandates Reform Act Because this rule approves pre-existing requirements under state law and does not impose any additional enforceable duty beyond that required by state law, it does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4). Executive Order 13175: Consultation and Coordination With Indian Tribal Governments This rule also does not have tribal implications because it will not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes, as specified by Executive Order 13175 (65 FR 67249, November 9, 2000). Executive Order 13132: Federalism This action also does not have Federalism implications because it does not have substantial direct effects on the states, on the relationship between the national government and the states, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132 (64 FR 43255, August 10, 1999). This action merely approves a state rule implementing a federal standard, and does not alter the relationship or the distribution of power and responsibilities established in the Clean Air Act. Executive Order 13045: Protection of Children From Environmental Health Risks and Safety Risks This rule also is not subject to Executive Order 13045 “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997), because it is not economically significant. National Technology Transfer Advancement Act In reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the Clean Air Act. In this context, in the absence of a prior existing requirement for the state to use voluntary consensus standards (VCS), EPA has no authority to disapprove a SIP submission for failure to use VCS. It would thus be inconsistent with applicable law for EPA, when it reviews a SIP submission, to use VCS in place of a SIP submission that otherwise satisfies the provisions of the Clean Air Act. Thus, the requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) do not apply. Paperwork Reduction Act This rule does not impose an information collection burden under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 *et seq.* ). Congressional Review Act The Congressional Review Act, 5 U.S.C. 801 *et seq.* , as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the **Federal Register** . A major rule cannot take effect until 60 days after it is published in the **Federal Register** . This action is not a “major rule” as defined by 5 U.S.C. 804(2). Under Section 307(b)(1) of the Clean Air Act, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by January 8, 2007. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this rule for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements. ( *See* Section 307(b)(2).) List of Subjects in 40 CFR Part 52 Environmental protection, Air pollution control, Incorporation by reference, Intergovernmental relations, Particulate matter, Reporting and recordkeeping requirements. Dated: September 19, 2006. Gary Gulezian, Acting Regional Administrator, Region 5. For the reasons stated in the preamble, part 52, chapter I, title 40 of the Code of Federal Regulations is amended as follows: PART 52—[AMENDED] 1. The authority citation for part 52 continues to read as follows: Authority: 42 U.S.C. 7401 *et seq.* Subpart KK—Ohio 2. Section 52.1870 is amended by adding paragraph (c)(134) and removing and reserving paragraph (c)(88) to read as follows: § 52.1870 Identification of plan.

(c)* * *

(134)On July 18, 2000, the Ohio Environmental Protection Agency submitted revised rules for particulate matter. Ohio adopted these revisions to address State-level appeals by various industry groups of rules that the State adopted in 1995 that EPA approved in 1996. The revisions provide reformulated limitations on fugitive emissions from storage piles and plant roadways, selected revisions to emission limits in the Cleveland area, provisions for Ohio to follow specified criteria to issue replicable equivalent visible emission limits, the correction of limits for stationary combustion engines, and requirements for continuous emissions monitoring as mandated by 40 CFR part 51, Appendix P. The State's submittal also included modeling to demonstrate that the revised Cleveland area emission limits continue to provide for attainment of the PM 10 standards. EPA is disapproving two paragraphs that would allow revision of limits applicable to Ford Motor Company's Cleveland Casting Plant through permit revisions without the full EPA review provided in the Clean Air Act. EPA is also deferring action on revisions relating to equivalent visible emission limits.

(i)Incorporation by reference.

(A)The following rules in Ohio Administrative Code Chapter 3745-17 as effective January 31, 1998: Rule OAC 3745-17-01, entitled Definitions, Rule OAC 3745-17-03, entitled Measurement methods and procedures, Rule OAC 3745-17-04, entitled Compliance time schedules, Rule OAC 3745-17-07, entitled Control of visible particulate emissions from stationary sources (except for revisions to paragraphs C and D), Rule OAC 3745-17-08, entitled Restriction of emission of fugitive dust, Rule OAC 3745-17-11, entitled Restrictions on particulate emissions from industrial processes, Rule OAC 3745-17-13, entitled Additional restrictions on particulate emissions from specific air contaminant sources in Jefferson county, and OAC 3745-17-14, entitled Contingency plan requirements for Cuyahoga and Jefferson counties.

(B)Rule OAC 3745-17-12, entitled Additional restrictions on particulate emissions from specific air contaminant sources in Cuyahoga county, as effective on January 31, 1998, except for paragraphs (I)(50) and (I)(51).

(ii)Additional material.

(A)Letter from Robert Hodanbosi, Chief of Ohio EPA's Division of Air Pollution Control, to EPA, dated February 12, 2003.

(B)Telefax from Tom Kalman, Ohio EPA, to EPA, dated January 7, 2004, providing supplemental documentation of emissions estimates for Ford's Cleveland Casting Plant.

(C)Memorandum from Tom Kalman, Ohio EPA to EPA, dated February 1, 2005, providing further supplemental documentation of emission estimates.

(D)E-mail from Bill Spires, Ohio EPA to EPA, dated April 21, 2005, providing further modeling analyses. [FR Doc. E6-18788 Filed 11-7-06; 8:45 am] BILLING CODE 6560-50-P FEDERAL COMMUNICATIONS COMMISSION 47 CFR Part 51 [WC Docket No. 06-132, FCC 06-132] Petition of Mid-Rivers Telephone Cooperative, Inc. AGENCY: Federal Communications Commission. ACTION: Final rule. SUMMARY: In this document the Commission concludes that Mid-Rivers Telephone Cooperative, Inc. (Mid-Rivers) should be treated as an incumbent local exchange carrier

(LEC)in the Terry, Montana local exchange (Terry exchange). The Commission also concludes that Mid-Rivers' operations in the Terry exchange should remain subject to existing competitive LEC regulation for interstate purposes pending further Commission action. In addition, the Commission concludes that Qwest, the legacy incumbent LEC in the Terry exchange, should be subject to non-dominant regulation for its interstate telecommunications services in that exchange pending further action. DATES: Effective October 11, 2006. FOR FURTHER INFORMATION CONTACT: Adam Kirschenbaum,

(202)418-7280, Competition Policy Division, Wireline Competition Bureau. For additional information concerning the Paperwork Reduction Act information collection requirements contained in this document, contact Judith B. Herman at 202-418-0214, or via the Internet at *PRA@fcc.gov.* SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report and Order (Order) in WC Docket No. 02-78, adopted August 31, 2006, and released October 11, 2006. The complete text of this document is available for inspection and copying during normal business hours in the FCC Reference Information Center, Portals II, 445 12th Street, SW., Room CY-A257, Washington, DC 20554, telephone

(800)378-3160 or

(202)863-2893, facsimile

(202)863-2898, or via e-mail at *http://www.bcpiweb.com.* It is also available on the Commission's Web site at *http://www.fcc.gov.* People with Disabilities: Contact the FCC to request materials in accessible formats (Braille, large print, electronic files, audio format, etc.) by e-mail at *fcc504@fcc.gov* or call the Consumer and Governmental Affairs Bureau at

(202)418-0531 (voice),

(202)418-7365 (TTY). Synopsis of the Report and Order The Commission concludes that Mid-Rivers satisfies the three-part test in section 251(h)(2) and should be treated as an incumbent LEC for purposes of section 251. Specifically, the Commission finds that the Terry exchange is the appropriate area for consideration under section 251(h)(2)(A), that Mid-Rivers occupies a market position comparable to that of a traditional legacy incumbent LEC in the Terry exchange, that Mid-Rivers has “substantially replaced” Qwest in the Terry exchange, and that treating Mid-Rivers as an incumbent LEC for purposes of section 251 in the Terry exchange is consistent with the public interest. The Commission expects that the treatment of Mid-Rivers as an incumbent LEC for purposes of access charges, universal service support and other purposes will be addressed, as appropriate, in conjunction with the study area boundary waiver request that Mid-Rivers has stated it plans to file. Thus, Mid-Rivers remains subject to existing competitive LEC non-dominant regulation for its interstate telecommunications services pending further Commission action. Further, the Commission reduces the extent of regulation applicable to Qwest's interstate services in the Terry exchange. In the Notice of Proposed Rulemaking, 69 FR 69573, November 30, 2004, the Commission sought comment on the appropriate regulatory treatment of Qwest if the Commission found Mid-Rivers to be an incumbent LEC under section 251(h)(2). In light of the record in the proceeding, the Commission concludes that Qwest should be treated as a non-dominant carrier in the Terry exchange for purposes of its interstate service offerings. If Qwest chooses, however, it may continue to operate pursuant to dominant carrier regulation since this might be more convenient for administrative purposes given the very small number of lines involved. If Qwest operates under non-dominant carrier regulation in the Terry exchange, to preserve the status quo pending further agency action, the Commission caps Qwest's carrier-to-carrier interstate switched exchange access rates in the Terry exchange at their level on the date the Commission adopted this Order. Qwest may, however, lower these rates subject to compliance with non-dominant carrier regulatory requirements. Additionally, Qwest may request additional deregulation in the Terry exchange by filing a formal petition for forbearance consistent with the relevant Commission rules, although it has not yet done so. Paperwork Reduction Act This document does not contain new information collection requirements subject to the Paperwork Reduction Act of 1995 (PRA), Public Law 104-13. In addition, therefore, it does not contain any new or modified “information collection burden for small business concerns with fewer than 25 employees,” pursuant to the Small Business Paperwork Relief Act of 2002, Public Law 107-198, see 44 U.S.C. 3506(c)(4). Final Regulatory Flexibility Analysis As required by the Regulatory Flexibility Act of 1980, as amended (RFA), an Initial Regulatory Flexibility Analysis

(IRFA)was incorporated in the Notice of Proposed Rulemaking, 69 FR 69573, November 30, 2004. The Commission received no comments regarding the IRFA. In conformance with the RFA, we certify that the rules adopted herein will not have a significant economic impact on a substantial number of small entities. See 5 U.S.C. 605(b). Our rule treating Mid-Rivers as an incumbent LEC pursuant to section 251(h)(2) will affect only Mid-Rivers directly. Even if Mid-Rivers can be classified as a small entity, it does not constitute a “substantial number of small entities” for purposes of the RFA. In addition, we accord non-dominant carrier status to Qwest's interstate telecommunications operations in the Terry exchange and cap Qwest's carrier-to-carrier switched access rates in the Terry exchange at their levels as of the date of adoption of this Order. We note that Qwest is not a small entity. In addition, it appears that our actions with regard to Qwest fall outside the scope of the RFA because they are rules of particular applicability involving rates and pricing. See generally 5 U.S.C. 601(2). Ordering Clauses Accordingly, *It is ordered,* pursuant to section 251(h)(2) of the Communications Act of 1934, as amended, 47 U.S.C. 251(h)(2), and § 51.223 of the Commission's rules, 47 CFR 51.2223, that Mid-Rivers Telephone Cooperative, Inc. will be treated as an incumbent local exchange carrier for purposes of section 251 in the Terry, Montana exchange, as described herein. *It is Further Ordered* that Qwest is relieved of its dominant carrier status for its interstate telecommunications services in the Terry exchange as described herein. *It is Further Ordered* that the Commission's Consumer and Governmental Affairs Bureau, Reference Information Center, shall send a copy of this Report and Order, including the Final Regulatory Flexibility Certification, to the Chief Counsel for Advocacy of the Small Business Administration. Federal Communications Commission. Marlene H. Dortch, Secretary. [FR Doc. E6-18770 Filed 11-7-06; 8:45 am] BILLING CODE 6712-01-P FEDERAL COMMUNICATIONS COMMISSION 47 CFR Part 73 [DA 06-2061; MB Docket No. 06-50; RM-11316] Radio Broadcasting Services; Carrizo Springs, TX AGENCY: Federal Communications Commission. ACTION: Final rule. SUMMARY: This document grants a petition for rulemaking filed by Jeraldine Anderson d/b/a Carrizo Springs Broadcasting requesting the allotment of Channel 295A at Carrizo Springs, Texas. The coordinates for Channel 295A at Carrizo Springs, Texas, are 28-27-00 NL and 99-50-30 WL. There is a site restriction 8.1 kilometers (5.1 miles) south of the community. A counterproposal filed by Linda Crawford is dismissed as defective. DATES: Effective December 4, 2006 ADDRESSES: Secretary, Federal Communications Commission, 445 Twelfth Street, SW., Washington, DC 20554. FOR FURTHER INFORMATION CONTACT: Victoria M. McCauley, Media Bureau,

(202)418-2180. SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's *Report and Order,* MB Docket No. 06-50, adopted October 18, 2006, and released October 20, 2006. The *Notice of Proposed Rulemaking* proposed the allotment of Channel 295A at Carrizo Springs, Texas. 71 FR 14444, March 22, 2006. The full text of this Commission decision is available for inspection and copying during normal business hours in the FCC's Reference Information Center at Portals II, CY-A257, 445 Twelfth Street, SW., Washington, DC. This document may also be purchased from the Commission's duplicating contractors, Best Copy and Printing, Inc., 445 12th Street, SW, Room CY-B402, Washington, DC 20054, telephone 800-378-3160 or *http://www.BCPIWEB.com.* The Commission will send a copy of this *Report and Order* in a report to be sent to Congress and the Government Accountability Office pursuant to the Congressional Review Act, see 5 U.S.C. 801(a)(1)(A). List of Subjects in 47 CFR Part 73 Radio, Radio broadcasting. For the reasons discussed in the preamble, the Federal Communications Commission amends 47 CFR part 73 as follows: PART 73—RADIO BROADCAST SERVICES 1. The authority citation for part 73 continues to read as follows: Authority: 47 U.S.C. 154, 303, 334 and 336. § 73.202 [Amended] 2. Section 73.202(b), the Table of FM Allotments under Texas, is amended by adding Channel 295A at Carrizo Springs, Texas. Federal Communications Commission. John A. Karousos, Assistant Chief, Audio Division, Media Bureau. [FR Doc. E6-18693 Filed 11-7-06; 8:45 am] BILLING CODE 6712-01-P 71 216 Wednesday, November 8, 2006 Proposed Rules DEPARTMENT OF AGRICULTURE Agricultural Marketing Service 7 CFR Part 46 [Docket Number FV05-373] RIN 0581-AC53 Amendments to Regulations Under the Perishable Agricultural Commodities Act

(PACA)To Ensure Trust Protection for Produce Sellers When Using Electronic Invoicing or Other Billing Statements AGENCY: Agricultural Marketing Service, USDA. ACTION: Proposed rule. SUMMARY: The Department of Agriculture

(USDA)is proposing to amend the regulations under the Perishable Agricultural Commodities Act

(PACA)to ensure that the status of sellers of perishable agricultural commodities as trust creditors is protected when electronic data interchange

(EDI)or other forms of electronic commerce are used to invoice buyers. Specifically, the proposed amendments would require a buyer licensed under the PACA or his third party representative to accept the PACA trust notice submitted to it by a seller on a paper, electronic invoice, or other billing statement. In addition, the buyer must allow sufficient data space for the required trust language regardless of the billing medium. Finally, any failure, act or omission inconsistent with this responsibility is unlawful and a violation of the PACA. Comments are being sought from the public, but in particular, from buyers and sellers of fruit and vegetables and vendors/software developers of electronic billing systems. DATES: Written or electronic comments received by January 8, 2007 will be considered prior to issuance of a final rule. ADDRESSES: You may submit written or electronic comments to:

(1)PACA Trust Comments, AMS, F&V Programs, PACA Branch, 1400 Independence Avenue, SW., Room 2095-S, Stop 0242, Washington, DC 20250-0242

(2)Fax: 202-720-8868.

(3)E-mail comments to *Dexter.Thomas@usda.gov* .

(4)Internet: *http://www.regulations.gov* . *Instructions:* All comments will become a matter of public record and should be identified as “PACA Trust Comments.” Comments will be available for public inspection at the Agricultural Marketing Service at the above address or over the Agency's Web site at: *http://www.ams.usda.gov/paca* . Web site questions can be addressed to the PACA Webmaster, *Dexter.Thomas@usda.gov* . FOR FURTHER INFORMATION CONTACT: Karla Whalen, Section Head, Trade Practices Section, or Phyllis Hall, Senior Marketing Specialist, Trade Practices Section, 202-720-6873. SUPPLEMENTARY INFORMATION: Background of PACA and Trust Provisions The Perishable Agricultural Commodities Act

(PACA)establishes a code of fair trading practices in the marketing of fresh and frozen fruits and vegetables in interstate and foreign commerce. The PACA protects growers, shippers, distributors, and retailers dealing in those commodities by prohibiting unfair and fraudulent trade practices. The law also provides a forum to adjudicate or mediate commercial disputes. Licensees who violate the PACA may have their license suspended or revoked, and principals of such a licensee are restricted from employment or operating in the produce industry for a period of time. The PACA also imposes a statutory trust for the benefit of unpaid suppliers or sellers on perishable agricultural commodities received and accepted but not yet paid for, and may encumber products derived from those commodities, and any receivables or proceeds due from the sale of those commodities or products. USDA's Agricultural Marketing Service

(AMS)administers and enforces the PACA. In the case of a business failure or bankruptcy of an entity subject to PACA, the debtor's inventory and receivables (PACA trust assets) are not property of the estate and are not available for general distribution until the claims of PACA creditors who have preserved their trust rights have been satisfied. Because of the statutory trust provision, PACA trust creditors who have preserved their trust rights with the appropriate written notices, including sellers outside of the United States, have a far greater chance of recovering the money owed to them should an entity subject to PACA go out of business. The PACA trust provisions protect producers and the majority of firms trading in fruits and vegetables as each buyer of perishable agricultural commodities in the marketing chain becomes a seller in its own turn. In 1995, the PACA was amended to provide that licensed sellers of fresh and frozen fruits and vegetables may provide notice to buyers of their intention to preserve trust benefits by including specific language on invoice and billing documentation. The required language reads: “The perishable agricultural commodities listed on this invoice are sold subject to the statutory trust authorized by section 5(c) of the Perishable Agricultural Commodities Act, 1930 (7 U.S.C. 499e(c)). The seller of these commodities retains a trust claim over these commodities, all inventories of food or other products derived from these commodities, and any receivables or proceeds from the sale of these commodities until full payment is received.” (7 U.S.C. 499e(c)(4)). Amendment of PACA Regulations To Allow for Electronic Invoicing The PACA regulations (7 CFR 46.46(a)(5)) were amended in 1997 to state that electronic transmissions are considered “ordinary and usual billing and invoicing statements” within the meaning of Section 5(c)(4) of the PACA. Under current regulations, unpaid PACA licensed sellers or suppliers of fresh and frozen fruits and vegetables may provide notice to buyers of their intention to preserve their trust rights by including the specified language contained in Section 5(c)(4) of the PACA on their billing or invoice statements, whether paper documentation or electronic transmissions. Alternatively, as provided in the PACA and regulations, sellers (licensed or non-licensed) may satisfy the notice requirement by sending the buyer a separate detailed notice of their intent to preserve trust benefits within thirty

(30)days of payment default. Whichever method of notice is used to preserve trust benefits, in order to claim the benefit of the trust, payment terms may not exceed 30 days from date of acceptance. Since the amendment to the regulations, a number of produce sellers have voiced concern that their PACA trust rights may not be preserved if:

(1)The buyer/buyer's agent either willfully or through oversight does not receive the entire electronic transmission ( *i.e.* , electronic invoice);

(2)the buyer/buyer's agent does not download the trust information;

(3)the buyer/buyer's agent does not opt to receive the information;

(4)the buyer/buyer's agent does not buy the data field that allows the inclusion of the trust language; or

(5)the EDI service provider does not translate the field that contains the trust language. Additional concerns have been expressed that the alternate method of trust notice ( *i.e.* , separate trust notice letter) is not being accepted by some buyers who require electronic invoicing. Others in the industry have expressed concern about being charged a fee by the buyer to accept the notice to preserve their trust benefits with an electronic invoice, a paper invoice, or separate trust notice. Advanced Notice of Proposed Rulemaking AMS published an Advanced Notice of Proposed Rulemaking in the **Federal Register** on January 30, 2006, (71 FR 4831) seeking comments on whether, and if so, how to amend the PACA regulations to address industry concerns regarding electronic invoicing. The Advance Notice of Proposed Rulemaking invited comments on:

(1)The types of problems that may need to be addressed by new regulatory language;

(2)any technological barriers and solutions;

(3)any additional costs likely to be associated with appropriate regulations, and opinions regarding who should bear such costs;

(4)whether the Agency should by regulation define electronic invoicing methods that must be made available by licensed buyers, ( *e.g.* , creating a separate field for trust notice language in electronic invoices);

(5)whether buyers should be required to accept separate notices ( *i.e.* , electronic or paper PACA trust) without restriction or charge; and

(6)other related issues and suggestions. The comment period ended on March 16, 2006. Discussion of Comments During the comment period, AMS received 65 comments. Sixty-two comments favor amending the regulations to clarify electronic invoicing practices so that sellers have the same protection when using electronic invoicing as that afforded through traditional paper invoices. Two comments suggest creating a blanket trust notice. One comment did not believe that regulatory action was necessary. The major subject areas of these comments are discussed below. Modifying Regulations Necessary To Preserve Trust Protection Of the sixty-two comments in favor of amending the regulations, fifty-one comments were basically identical in form and substance. These comments were submitted by growers/shippers of fresh fruits and vegetables. They encourage AMS to amend the regulations to clarify that shippers have the same statutory trust protections when invoicing electronically as when invoicing using traditional paper invoices. Comments also state that the regulations need to be changed to adapt to evolving industry practices and provide protection to shippers when invoicing electronically. These commentors did not give suggestions on how to modify the regulations. There has been uncertainty industry-wide about electronic billing and the assurance of statutory trust protection. The 1997 amendment to the PACA regulations serves to accommodate changes in the marketplace as well as advances in technology. However, the industry has continued to express concern about the potential danger that a notice seeking to perfect trust rights may not be effective if the shipper/seller is invoicing electronically. There is strong industry support for changing the regulations to eliminate this perceived risk and to avoid a potential challenge to trust protection in light of recent produce company bankruptcies in the tens of millions of dollars. AMS agrees with the commentors that the regulations should be modified to clarify that shippers are provided the same statutory trust protection whether they invoice electronically or use paper documentation and to ensure that buyers/receivers do not hinder the sellers' claim of trust protection. Mandatory Acceptance of Trust Language Another issue addressed by a number of commentors is whether the buyer must be required to accept, or should be deemed to have accepted the trust language in its electronic transactions. Comments from fifty-one growers/shippers of fresh fruit and vegetables support modifying the regulations so that it is mandatory and not discretionary for a buyer to accept the trust notifications received from its sellers. Specific comments are detailed below. One trade association supports modifying the regulations to protect sellers who invoice electronically and to allow coverage under the trust on all electronic transmissions. This commentor further states that it should be mandatory, not discretionary, for the buyer to accept the notice to preserve trust benefits whether received on paper or electronically. One trade association believes that any new regulation should ensure that the trust protection language included on an electronic invoice be considered as accepted whether or not the customer or a third party service provider elects to receive, relay or download such language and that all of the seller's electronic invoices to its customer shall be subject to trust protection. This commentor believes a new regulation need only establish a mechanism for the seller to notify the buyer of its intent to preserve its trust rights. Another trade association explains that a seller cannot be sure the trust notice transmits to the buyer when using electronic invoices because some buyers have expressed a desire to avoid including the required language in the electronic billing format. This commentor states that the PACA requires growers' agents to preserve trust benefits but that they are confronted with billing systems that fail to provide assurance of the transmission of the trust notice. One shipper maintains that its buyers require it to exclusively invoice electronically and will not accept paper invoices. This commentor believes the trust language is being dropped or excluded at the buyer's discretion from the electronic invoice program. One law firm explains that while current PACA regulations provide that sellers can preserve their trust rights by including the trust language on their electronic invoices, some purchasers are not allowing a field for the trust language in their electronic format. This commentor further explains that a few buyers are not allowing the sellers to send any paper documentation related to the sales and are charging the sellers a fee if paper documents are sent, thus inhibiting the sellers from preserving their trust rights. Finally, one trade association noted that the intent of Congress when creating the PACA trust was to protect the sellers of produce. We agree that the PACA requires any buyer operating subject to the Act to accept the trust notifications received from its seller/supplier whether they be in paper or electronic format. However, the seller must meet the statute's requirements for preserving its trust benefit, including using the specific language required by the statute. If invoicing electronically, the seller must be able to verify that the electronic invoice was sent to the buyer and that it contained the PACA trust notice. The amended regulations provide assurance to the sellers that they will have the same protection when invoicing electronically as through traditional paper invoices whether or not the buyer accepts the trust notice. Failure To Accept Trust Notices Is an Unfair Practice Another issue raised by a number of commentors is that the buyer's failure to accept the trust language should be considered an unfair trade practice. Some specific comments on this topic follow. One trade association believes that since electronic billing serves as an ordinary and usual billing method, action to defeat the trust by blocking the transmission of the trust language would be a violation of a buyer's duty. One trade association asserts that a buyer's attempt to inhibit the seller's effort to preserve PACA rights by creating a billing system that does not accept the mandated language, would be an unfair trade practice. Another trade association believes that attempts at trust avoidance should be considered failure to maintain the trust or failure to perform other express or implied specifications or duties. Further, this commentor states that actions which attempt to undermine perfection of the trust should be considered a failure to maintain the trust as much as dissolution of trust assets. We agree that any attempt to preclude the seller from preserving its trust rights is an unfair trade practice and a violation of Section 2(4) of the PACA. The requirements of the PACA trust cannot be lawfully circumvented through the use of a technological change in how a business invoices for the purchase and sale of fruits and vegetables. As one commentor states: “No technology should impair the trust or change the way buyers and sellers use the trust.” This commentor further states that: “* * * technologies must enable sellers to notify buyers of trust benefits preservation, and they must do so in such a way that sellers can comply fully, including being able to show that they have filed a notice (either electronically or documentary) to preserve trust rights with the buyers.” Trust Protection When Using a Third Party An additional subject addressed in a few comments was the effectiveness of enforcing the trust when either the buyer or the seller uses a third party agent or service provider. Since all of the information contained on the electronic invoice is not flowing directly from the seller to the buyer when a seller is using a third party vendor, one commentor expressed concern that the buyer could argue that the seller did not preserve its trust rights because the trust language was not sent directly to the buyer. This commentor also asserts that some buyers or their third party vendors may be stripping out the statutory trust language from electronic invoices. Therefore, the commentor argues that when the sellers send the trust preservation notice electronically to the third party vendor, the buyer could potentially argue that the seller did not preserve its trust rights because the buyer did not actually receive the trust language. When a buyer uses a third party vendor or agent on its behalf to facilitate the electronic invoicing process, the third party vendor, acting as the buyer's agent receives the trust notice on behalf of the purchaser. Trust protection logically flows to and from the principals directing the transactions. The law requires certain actions of the seller to preserve its rights and obligates the buyer to hold all inventories of food or other products derived from perishable agricultural commodities, and any receivables or proceeds from the sale of such commodities or products in trust for the benefit of all unpaid suppliers or sellers of such commodities or agents involved in the transaction, until full payment has been received. Although buyers may generally hold these trust assets in a floating trust without specific identification, sellers may seek the establishment of a trust account to prevent dissipation of the trust upon a proper showing in a court action brought on the trust. As both buyer and seller often use agents in produce transactions, the proposed amendment to the regulation permits the giving and receiving of the required notice through such third party agents or electronic service providers. Thus, the proposed amendment to the regulation assures that a purchaser utilizing a third party agent or service provider does not negate the perfection of the trust, because the purchaser itself does not receive the notice. If the purchaser's agent, acting for and on behalf of the purchaser receives the notice, then the purchaser has received the notice. Trading Partner Agreements A few comments suggest that to facilitate the preservation of trust protection through electronic commerce, the regulation should allow for a trading partner agreement to cover all transactions between the parties under the trust. For instance, one commentor suggests creating a blanket trust notice in a Trading Partner Agreement (TPA). The commentor explains that this type of agreement is signed before parties begin exchanging information electronically and essentially takes care of the language found on various documents (including invoices) and therefore would reduce costs on electronic transactions since the charges are based on the number of characters transmitted. This commentor wants USDA to determine if a TPA can be considered binding under the PACA and applicable to all electronic transactions. Another commentor suggests that USDA create a TPA drafted specifically to preserve the seller's trust rights. The commentor explains that the content of the TPA should be developed by USDA with no clause in it for renewal. The commentor suggests the regulation be clear that the receiver does not have the right to refuse to enter into a TPA. This blanket trust notice or Trading Partner Agreement suggestion may not be adopted, however, since the statutory language that creates the PACA trust expressly sets forth the two permitted methods of preserving trust interests by written notice. (See 7 U.S.C. 499e(c)(3)(4).) Either the required language must be on each sales invoice or other billing statement issued by a PACA licensee, or there must be a written notice filed after single or multiple transactions that is timely [within 30 days of the date payment is due in transactions without extended payment terms] to each transaction for all transactions to be protected. Financial Impact/Costs Several commentors point out that protection under the trust is critical to the financial well-being of sellers. The issue of the cost of trust protection through electronic commerce was addressed by a number of commentors. One of the commentors believes it is critical that AMS become actively involved in proposing new regulatory language that provides a secure, predictable and consistent manner by which sellers may preserve their trust rights. This commentor states that it is critically important that businesses have a clear-cut, low-cost method of preserving PACA trust rights in electronic transactions and sees no technological barriers and no increased costs to buyers or sellers since the technology is already in place. This commentor believes that no financial barriers should be placed upon sellers either through regulation or from buyers in order to preserve their PACA trust rights. Another commentor asserts that PACA must set forth clear and unambiguous rules and regulations to protect the seller. This commentor argues that this clarity will then lower costs. This and other commentors believe that Congress intended the trust to favor sellers over buyers, in effect, imposing costs on buyers to protect sellers. AMS believes it is unwise for the amended regulation to define for the industry how to manage the cost of their business dealings. Each business and transacting party must make its own decision as to when to enter into a transaction and how best to cover the costs of such a deal. Suggested Language for Amending the Regulations Comments by three trade associations and two distributors offer strong support for modifying and streamlining the regulations for electronic invoicing practices. They advocate keeping the regulations as simple as possible. They suggest almost identical language to amend the regulations at Section 46.46(f)(3). The first is as follows: “Licensees may choose an alternative method of preserving trust benefits from the requirements described in paragraphs (f)(1) and

(2)of this section. Licensees may use their invoice or other billing statement to preserve trust benefits. The alternative method requires that the licensee's invoice or other billing statement, whether documentary or electronic, contain the following statement at the time of mailing or transmission to the buyer, irrespective of whether or not the buyer provides a field for including such statement or downloads, receives, or accepts such statement.” Another commentor suggests amending the regulations as follows: “* * * the licensee's invoice or other billing statement, whether documentary or electronic, contain the following statement at the time of mailing or transmission to the buyer, regardless of whether or not the buyer downloads, receives, or accepts such statement.” While each of these suggested amendments to the regulatios has merit, USDA is suggesting slightly different language as noted in the proposed revisions to follow. Executive Orders 12866 and 12988 This proposed rule has been determined to be not significant for the purposes of Executive Order 12866, and therefore, has not been reviewed by the Office of Management and Budget. This proposed rule has been reviewed under Executive Order 12988, Civil Justice Reform, and is not intended to have retroactive effect. This proposed rule will not preempt any State or local laws, regulations, or policies, unless they present an irreconcilable conflict with this rule. There are no administrative procedures that must be exhausted prior to any judicial challenge to the provisions of this proposed rule. Effects on Small Businesses Pursuant to requirements set forth in the Regulatory Flexibility Act

(RFA)(5 U.S.C. 601 *et seq.* ), AMS has considered the economic impact of this proposed rule on small entities. The purpose of the RFA is to fit regulatory actions to the scale of businesses subject to such actions in order that small businesses will not be unduly or disproportionately burdened. Small agricultural service firms have been defined by the Small Business Administration

(SBA)(13 CFR 121.601) as those whose annual receipts are less than $5,000,000. There are approximately 15,000 firms licensed under the PACA, many of which could be classified as small entities. The proposed regulation clarifies how to preserve the trust benefit when using electronic invoicing. The use of electronic invoicing would provide companies an electronic alternative to paper documentation to give notice of intent to preserve trust rights, thereby reducing the time and expense associated with preserving trust rights under the PACA. Given the preceding discussion, AMS has made an initial determination that the provisions of this proposed rule would not have a significant economic impact on a substantial number of small entities. Paperwork Reduction Act In accordance with OMB regulations (5 CFR part 1320) that implement the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35), the information collection and recordkeeping requirements that are covered by this proposed rule were approved under OMB number 0581-0031 on October 5, 2004, and expire on October 31, 2007. E-Government Act Compliance AMS is committed to complying with the E-Government Act, to promote the use of the Internet and other information technologies to provide increased opportunities for citizen access to Government information and services, and for other purposes. Proposed Changes Under the Act it is the responsibility of the seller to preserve its trust benefits, and we agree that the buyer must accept the trust language if the seller attempts to preserve its trust rights. Based upon full consideration of the comments received during the comment period, the concerns of industry members and AMS about enforceability of trust protection through electronic commerce, changes in the technological nature of produce transactions, as well as the desire to avoid enforcement problems if a produce firm using an electronic billing system goes bankrupt, AMS is proposing to amend the PACA regulations to require buyers or their intermediaries to accept the PACA trust statement submitted by a seller on a paper or electronic invoice or other billing statement. Further, any failure, act or omission which is inconsistent with this responsibility is unlawful and a violation of Section 2 of the PACA. List of Subjects in 7 CFR Part 46 Agricultural commodities, Brokers, Investigations, Penalties, Reporting and recordkeeping requirements. For the reasons set forth in the preamble, AMS proposes to amend 7 CFR part 46 as follows: PART 46—[AMENDED] 1. The authority citation for part 46 continues to read as follows: Authority: Sec. 15, 46 Stat. 537; 7 U.S.C. 499o. 2. In § 46.46, paragraph (f)(3) introductory text is revised and new paragraphs (f)(4) and

(5)are added to read as follows: § 46.46 Statutory trust.

(f)* * *

(3)Licensees may choose an alternate method of preserving trust benefits from the requirements described in paragraphs (f)(1) and

(2)of this section. Licensees may use their invoice or other billing statement as defined in paragraph (a)(5) of this section, whether in documentary or electronic form, to preserve trust benefits. Alternately, the licensee's invoice or other billing statement, given to the buyer, must contain:

(4)If the invoice or other billing statement is in electronic form, the licensee has met its requirement of giving the buyer notice of intent to preserve trust benefits on the face of the invoice or other billing statement if the electronic invoice or other billing statement containing the statement set forth in paragraph (f)(3)(i) is sent to the buyer and the electronic transmission can be verified. The licensee will be deemed to have given notice to the buyer of its intent to preserve trust benefits if the licensee can verify that the electronic invoice or other billing statement was sent to a third party electronic transaction vendor designated by the buyer. The licensee will have met the requirement of giving the buyer written notice of intent to preserve trust benefits using electronic means if it can verify that the electronic data invoice or other billing statement was transmitted to the buyer, or its designated electronic transaction vendor, irrespective of whether or not the buyer or third party vendor downloads or accepts the trust statement.

(5)If a buyer conducts its transactions in perishable agricultural commodities using an electronic system, the buyer or its third party electronic vendor must allow sufficient space for the seller to include the required trust statement of intent to preserve trust benefits in the buyer's electronic invoices or other billing statement forms. A buyer or its designated third party electronic vendor must accept a seller's notice of intent to preserve benefits under the trust using the required trust statement, whether in documentary or electronic form, as set forth in paragraphs

(d)and

(f)of this section. Any act or omission which is inconsistent with this responsibility is unlawful and in violation of Section 2 of the Act (7 U.S.C. 499b). Dated: November 3, 2006. Lloyd C. Day, Administrator, Agricultural Marketing Service. [FR Doc. E6-18826 Filed 11-7-06; 8:45 am] BILLING CODE 3410-02-P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 39 [Docket No. FAA-2005-22039; Directorate Identifier 2005-NE-33-AD] RIN 2120-AA64 Airworthiness Directives; Turbomeca S.A. Arrius 2F Turboshaft Engines AGENCY: Federal Aviation Administration (FAA), Department of Transportation (DOT). ACTION: Notice of proposed rulemaking (NPRM). SUMMARY: The FAA proposes to revise an existing airworthiness directive

(AD)for Turbomeca S.A. Arrius 2F turboshaft engines. That AD currently requires replacing certain O-rings on the check valve piston in the lubrication unit, at repetitive intervals. This proposed AD would require the same actions except reduce the applicability from all Turbomeca S.A. Arrius 2F turboshaft engines, to Turbomeca S.A. Arrius 2F turboshaft engines that have not incorporated modification Tf75. This proposed AD results from Turbomeca S.A. introducing a check valve piston design requiring no O-ring. We are proposing this AD to prevent an uncommanded in-flight shutdown of the engine, which could result in a forced autorotation landing and damage to the helicopter. DATES: We must receive any comments on this proposed AD by January 8, 2007. ADDRESSES: Use one of the following addresses to comment on this proposed AD. • *DOT Docket Web site:* Go to *http://dms.dot.gov* and follow the instructions for sending your comments electronically. • *Government-wide rulemaking Web site:* Go to *http://www.regulations.gov* and follow the instructions for sending your comments electronically. • *Mail:* Docket Management Facility; U.S. Department of Transportation, 400 Seventh Street, SW., Nassif Building, Room PL-401, Washington, DC 20590-0001. • *Fax:*

(202)493-2251. • *Hand Delivery:* Room PL-401 on the plaza level of the Nassif Building, 400 Seventh Street, SW., Washington, DC, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. Contact Turbomeca S.A., 40220 Tarnos, France; telephone 33 05 59 74 40 00, fax 33 05 59 74 45 15, for the service information identified in this AD. FOR FURTHER INFORMATION CONTACT: Christopher Spinney, Aerospace Engineer, Engine Certification Office, FAA, Engine and Propeller Directorate, 12 New England Executive Park, Burlington, MA 01803, telephone

(781)238-7175; fax

(781)238-7199. SUPPLEMENTARY INFORMATION: Comments Invited We invite you to send any written relevant data, views, or arguments regarding this proposal. Send your comments to an address listed under ADDRESSES . Include “Docket No. FAA-2005-22039; Directorate Identifier 2005-NE-33-AD” in the subject line of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of the proposed AD. We will consider all comments received by the closing date and may amend the proposed AD in light of those comments. We will post all comments we receive, without change, to *http://dms.dot.gov,* including any personal information you provide. We will also post a report summarizing each substantive verbal contact with FAA personnel concerning this proposed AD. Using the search function of the DMS Web site, anyone can find and read the comments in any of our dockets, including the name of the individual who sent the comment (or signed the comment on behalf of an association, business, labor union, etc.). You may review the DOT's complete Privacy Act Statement in the **Federal Register** published on April 11, 2000 (65 FR 19477-78) or you may visit *http://dms.dot.gov.* Examining the AD Docket You may examine the docket that contains the proposal, any comments received and any final disposition in person at the DMS Docket Office between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The Docket Office (telephone

(800)647-5227) is located on the plaza level of the Department of Transportation Nassif Building at the street address stated in ADDRESSES . Comments will be available in the AD docket shortly after the DMS receives them. Discussion On August 17, 2005, we issued AD 2005-17-17, Amendment 39-14328 (70 FR 50164, August 26, 2005). That AD requires replacing certain O-rings on the check valve piston in the lubrication unit, at repetitive intervals. That AD resulted from an uncommanded in-flight engine shutdown

(IFSD)of an Arrius 2F engine, resulting in the forced landing of a Eurocopter EC120B helicopter. Investigation of the engine found that an interruption of engine lubrication due to excessive swelling of the check valve O-ring in the lubrication unit caused the IFSD. The amount of swelling of the O-ring depends on the class of oil used, standard

(STD)or high-thermal stability (HTS), and the engine operating time. Actions Since AD 2005-17-17 Was Issued Since AD 2005-17-17 was issued, Turbomeca S.A. issued Service Bulletin

(SB)No. 319 79 4075, dated February 27, 2006, that introduces modification Tf75. That modification replaces the check valve piston with a piston not requiring the O-ring. Arrius 2F engines with modification Tf75 incorporated, no longer need repetitive replacements of a check-valve piston O-ring, because there is no O-ring installed. Relevant Service Information We have reviewed and approved the technical contents of Turbomeca S.A. SB No. 319 79 4802, dated April 3, 2006, that describes procedures for replacing the O-ring on the check valve piston in the lubrication unit on Arrius 2F engines that have not incorporated modification Tf75. EASA classified this service bulletin as mandatory and issued AD No. 2006-0141, dated May 29, 2006, in order to ensure the airworthiness of these engines in Europe. Bilateral Agreement Information This engine model is manufactured in France and is type certificated for operation in the United States under the provisions of Section 21.29 of the Federal Aviation Regulations (14 CFR 21.29) and the applicable bilateral airworthiness agreement. In keeping with this bilateral airworthiness agreement, EASA kept us informed of the situation described above. We have examined the findings of EASA, reviewed all available information, and determined that AD action is necessary for products of this type design that are certificated for operation in the United States. FAA's Determination and Requirements of the Proposed AD We have evaluated all pertinent information and identified an unsafe condition that is likely to exist or develop on other products of this same type design. We are proposing this AD, which would require replacing certain O-rings on the check valve piston in the lubrication unit, at repetitive intervals on Arrius 2F turboshaft engines that have not incorporated modification Tf75. The proposed AD would require that you do these actions using the service information described previously. Costs of Compliance We estimate that this proposed AD would affect about 124 engines installed on airplanes of U.S. registry. We also estimate that it would take about 1 work-hour per engine to perform the proposed actions, and that the average labor rate is $80 per work-hour. Required parts would cost about $100 per engine. Based on these figures, we estimate the cost of the proposed AD on U.S. operators, for one O-ring replacement to be $22,320 for the fleet, or $180 per engine. Authority for This Rulemaking Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, Section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the Agency's authority. We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action. Regulatory Findings We have determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government. For the reasons discussed above, I certify that the proposed regulation: 1. Is not a “significant regulatory action” under Executive Order 12866; 2. Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and 3. Would not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. We prepared a regulatory evaluation of the estimated costs to comply with this proposed AD. See the ADDRESSES section for a location to examine the regulatory evaluation. List of Subjects in 14 CFR Part 39 Air transportation, Aircraft, Aviation safety, Safety. The Proposed Amendment Accordingly, under the authority delegated to me by the Administrator, the Federal Aviation Administration proposes to amend 14 CFR part 39 as follows: PART 39—AIRWORTHINESS DIRECTIVES 1. The authority citation for part 39 continues to read as follows: Authority: 49 U.S.C. 106(g), 40113, 44701. § 39.13 [Amended] 2. The FAA amends § 39.13 by removing Amendment 39-14238 (70 FR 50164, August 26, 2005) and by adding a new airworthiness directive, to read as follows: **Turbomeca S.A.:** Docket No. FAA-2005-22039; Directorate Identifier 2005-NE-33-AD. Comments Due Date

(a)The Federal Aviation Administration

(FAA)must receive comments on this airworthiness directive

(AD)action by January 8, 2007. Affected ADs

(b)This AD revises AD 2005-17-17. Applicability

(c)This AD applies to Turbomeca S.A. Arrius 2F turboshaft engines that have not incorporated modification Tf75. These engines are installed on, but not limited to, Eurocopter EC120B helicopters. Unsafe Condition

(d)This AD results from Turbomeca S.A. introducing a check valve piston design requiring no O-ring. We are issuing this AD to prevent an uncommanded in-flight shutdown of the engine, which could result in a forced autorotation landing and damage to the helicopter. Compliance

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

(f)Replace the O-ring on the check valve piston in the lubrication unit at the intervals specified in Table 1 of this AD. Use the “Instructions to be Incorporated,” 2.A. through 2.C.

(2)of Turbomeca Alert Service Bulletin No. A319 79 4802, dated April 3, 2006, to replace the O-ring. Table 1.—Compliance Times for O-ring Replacement If the class of oil is . . .* Then replace the O-ring by the later of . . . Thereafter, replace the O-ring within . . .

(1)HTS or unknown 300 hours time-since-new

(TSN)or 50 hours after the effective date of this AD 300 hours time-since-last replacement (TSR).

(2)STD 450 hours TSN or 50 hours after the effective date of this AD 500 hours TSR. Alternative Methods of Compliance

(g)The Manager, Engine Certification Office, has the authority to approve alternative methods of compliance for this AD if requested using the procedures found in 14 CFR 39.19. Related Information

(h)European Aviation Safety Agency airworthiness directive No. 2006-0141, dated May 29, 2006, also addresses the subject of this AD. Issued in Burlington, Massachusetts, on November 1, 2006. Peter A. White, Acting Manager, Engine and Propeller Directorate, Aircraft Certification Service. [FR Doc. E6-18839 Filed 11-7-06; 8:45 am] BILLING CODE 4910-13-P DEPARTMENT OF THE TREASURY Alcohol and Tobacco Tax and Trade Bureau 27 CFR Part 9 [Notice No. 68] RIN 1513-AB26 Proposed Establishment of the Tulocay Viticultural Area (2006R-009P) AGENCY: Alcohol and Tobacco Tax and Trade Bureau, Treasury. ACTION: Notice of proposed rulemaking. SUMMARY: The Alcohol and Tobacco Tax and Trade Bureau proposes to establish the 11,200-acre Tulocay viticultural area in Napa County, California. The proposed viticultural area lies totally within the Napa Valley viticultural area and the larger, multi-county North Coast viticultural area. We designate viticultural areas to allow vintners to better describe the origin of their wines and to allow consumers to better identify wines they may purchase. We invite comments on this proposed addition to our regulations. DATES: We must receive written comments on or before January 8, 2007. ADDRESSES: You may send comments to any of the following addresses: • Director, Regulations and Rulings Division, Alcohol and Tobacco Tax and Trade Bureau, Attn: Notice No. 68, P.O. Box 14412, Washington, DC 20044-4412. • 202-927-8525 (facsimile). • *nprm@ttb.gov* (e-mail). • *http://www.ttb.gov/regulations_laws/all_rulemaking.shtml.* An online comment form is posted with this notice on our Web site. • *http://www.regulations.gov* (Federal e-rulemaking portal; follow instructions for submitting comments). You may view copies of this notice, the petition, the appropriate maps, and any comments we receive about this proposal by appointment at the TTB Information Resource Center, 1310 G Street, NW., Washington, DC 20220. To make an appointment, call 202-927-2400. You may also access copies of the notice and comments online at *http://www.ttb.gov/regulations_laws/all_rulemaking.shtml.* See the Public Participation section of this notice for specific instructions and requirements for submitting comments, and for information on how to request a public hearing. FOR FURTHER INFORMATION CONTACT: N. A. Sutton, Regulations and Rulings Division, Alcohol and Tobacco Tax and Trade Bureau, 925 Lakeville St., No. 158, Petaluma, CA 94952; phone 415-271-1254. SUPPLEMENTARY INFORMATION: Background on Viticultural Areas TTB Authority Section 105(e) of the Federal Alcohol Administration Act (the FAA Act, 27 U.S.C. 201 *et seq.* ) requires that alcohol beverage labels provide consumers with adequate information regarding product identity and prohibits the use of misleading information on those labels. The FAA Act also authorizes the Secretary of the Treasury to issue regulations to carry out its provisions. The Alcohol and Tobacco Tax and Trade Bureau

(USGS)maps; and • A copy of the appropriate USGS map(s) with the proposed viticultural area's boundary prominently marked. Tulocay Petition TTB received a petition from Aaron Pott, a winemaker in Quintessa, and Marshall Newman of Newman Communications, on behalf of the vintners and grape growers in the Tulocay region of Napa Valley, California, proposing the establishment of the Tulocay viticultural area. The proposed Tulocay viticultural area, according to regional maps and petition information, lies 45 miles east of the Pacific Ocean and 16 miles north of San Pablo Bay. It encompasses 11,200 acres—900 acres of which are dedicated to commercial vineyards, according to the petitioners. The proposed Tulocay viticultural area is located between four established viticultural areas: The Oak Knoll District of Napa Valley viticultural area to the northwest, the Wild Horse Valley and Solano County Green Valley viticultural areas to the east, and the Los Carneros viticultural area to the southwest. The proposed Tulocay boundary does not overlap any of these four viticultural areas and is totally within the boundaries of the Napa Valley and North Coast viticultural areas. We summarize below the supporting evidence submitted with the petition. Name Evidence Both the “Tulocay” and “Tulucay” spellings have been used since the middle 1800s and, according to the petitioners, reflect the same geographical place name in Napa County. The petitioners use the “Tulocay” spelling for this viticultural area petition. The history of the “Tulocay” name, the petitioners explain, originates with an American Indian village in the area. “California Place Names,” by Erwin G. Gudde, originally published in 1949 and revised in 1998, spells the name as “Tulucay” and refers to “tulkays” and “ulucas” as names of inhabitants of the American Indian village. “Old Napa Valley—The History to 1900,” by Lin Weber, published in 1998, states that the “Tulucay” name comes from an old Wintun American Indian settlement in the area. In 1841, Cayetano Juarez named his 8,866-acre Napa area land grant as “Tulucay Rancho.” “Tulucay, the Past is Father of the Present,” by Viviene Juarez Rose, includes a description of the 1844 Tulocay adobe construction, as provided by Domitila Juarez Metcalf, who was the daughter of Cayetano Juarez. The Juarez Adobe, according to the petitioners, remains standing today and is used as a restaurant. Also, Tulocay Creek, thought to be named by Cayetano Juarez, runs south of the Juarez Adobe. In 1858, according to the Napa Record newspaper, Juarez deeded 48 acres of his land grant for a cemetery in Tulocay. Today the Tulocay Cemetery serves as a Napa Valley non-sectarian cemetery. The cemetery name, the petitioners explain, reflects the historical significance of the “Tulocay” name to the region. A County of Napa, California, map dated 1876 identifies “Rancho Tulucay” to the east of the town of Napa. Also, a 1902 United States Coast and Geodetic Survey regional topographic map shows the Tulucay land grant. Further, three USGS topographic maps label the region as “Tulocay:” The 1:100,000-scale metric of Napa, California, dated 1983; the Mt. George Quadrangle map, photoinspected in 1973; and the Napa Quadrangle map, photorevised in 1980. Boundary Evidence The history of winemaking in the Tulocay region dates to the 1860s, according to documentation provided in the petition. “The Historical and Descriptive Sketchbook of Napa, Sonoma, Lake and Mendocino,” written by C.A. Menefee and published in 1873, describes a large vineyard area four miles northeast of the City of Napa, to the east of the Tulocay land grant. The vineyard, the petitioners explain, passed through several ownerships, and continued producing grapes until at least 1954. Also, Palaz Vineyard and Silverado Vineyards more recently replanted grapes in the same vineyard area. The modern revival of grape growing in the Tulocay region, the petitioners state, started in 1968 with the Hayes Vineyard near the center of the proposed Tulocay viticultural area. Other Tulocay region vineyard plantings include Olive Hill in 1973, Farella-Park in 1979, Caldwell in 1982, and Sarco in 1992. The boundaries of the proposed Tulocay viticultural area, according to the petitioners, include about 65 percent of the original Tulocay land grant. The petitioners explain that the long viticultural history and distinctive geography of the Tulocay region fail to coincide exactly with the boundaries of the original Tulocay land grant. The petitioners include only the Tulocay lands that meet historic and distinguishing features criteria appropriate for the proposed viticultural area. The proposed viticultural area boundary line, according to the petitioners, safeguards the viticultural integrity and uniformity of the distinguishing features of the Tulocay grape-growing region. The proposed Tulocay viticultural area is nestled in the southeastern region of the Napa Valley viticultural area, between the City of Napa at the Napa River and the western Solano County line along the western ridgeline of the Vaca Range. The boundary line determination for the proposed Tulocay viticultural area includes careful petitioner consideration of surrounding established viticultural areas, each with a distinctive name, history, and set of distinguishing features. The eastern proposed Tulocay viticultural area boundary line incorporates a combination of generally straight lines between unnamed western Vaca Range peaks and portions of the Napa-Solano County line, as noted in the written boundary description. With two small modifications to keep the proposed Tulocay viticultural area totally within Napa County, the proposed boundary line corresponds closely to, without overlapping, the Wild Horse Valley and Solano County Green Valley viticultural areas' western boundary lines, according to the written boundary descriptions. The proposed Tulocay eastern boundary line defines the extent of the “Tulocay” geographical name recognition, the petitioners explain. Also, the proposed line includes all the vineyards on the historic Woodward/Hagen/Cedar Knoll property and the Farella-Park Vineyard, which are important to Tulocay's modern viticultural claim. The southern proposed Tulocay viticultural area boundary line, as noted in the written boundary description, uses a straight southeast-to-northwest line from an unnamed 1,686-foot peak to Imola Avenue, and then continues west on Imola Avenue to the Napa River. The proposed southern boundary line takes in Caldwell Vineyards, a part of Tulocay's modern viticultural history, according to the petitioners. Also, immediately beyond the proposed southern boundary line sits an imposing east-west transverse ridge that climatically isolates the Tulocay region from the full impact of the marine influence of San Pablo Bay. The transverse ridge also separates Tulocay from a floodplain with differing soils and climate, and from the Napa River's transition to a broad slough. The petitioners note that it is difficult to use the complex terrain of the transverse ridge to develop a precise and sensible southern boundary line for the proposed Tulocay viticultural area. Accordingly, the petitioners use a straight line between two map points and a portion of Imola Avenue to define the southern limits of the proposed area. The western proposed Tulocay viticultural area boundary line relies on the Napa River and Milliken Creek to connect Imola Avenue on the south to Monticello Road on the north, according to the written boundary description and the Napa USGS map. Also, the proposed western boundary line closely reflects the western Tulocay land grant line, and includes the historic Tulocay Cemetery and the Juarez Adobe. The northern proposed Tulocay viticultural area boundary line uses Monticello Road and a straight line from the road's intersection with a 400-foot contour line to the peak of Mt. George, as noted in the written boundary description. Much of the length of the proposed north boundary line follows the ridge line separating Sarco Creek on the south from MiIliken Creek on the north, the petitioners explain. Also, the proposed northern boundary line includes Tulocay's historical vineyards and the northernmost limit of its distinctive climate. Distinguishing Features The proposed Tulocay viticultural area's distinguishing features, as described in the petition, include climate, soil, and geography. Steve Newman, a meteorologist at Earth Environment Service, prepared documentation for the climate section of this petition. Sidney W. Davis, a professional soil scientist at Davis Consulting Earth Scientists, prepared documentation for the geology, geography, and soil sections of the petition. Climate The geographical location and terrain configuration of the proposed Tulocay viticultural area create a unique microclimate within Napa Valley. The Tulocay region growing season climate gets more sun and sustained heat than the foggy Napa Valley flatlands to the south and west, but less than the more northern areas of Napa Valley. Also, in the Napa Valley area, the daily summer heating and cooling patterns are based on the cold marine air and fog drawn onshore and north from the San Pablo Bay through the flatlands, small valleys, and gaps in higher terrain. Tulocay, which climatically contrasts to its southern neighbors, the Los Carneros and Suscol Creek regions within Napa Valley, sits apart in a fog-protected partial basin with high ridges. The Los Carneros and Suscol Creek terrains include predominantly flat, open topography, allowing unprotected and full summertime exposures to the cooling fog influence of San Pablo Bay, the petitioners explain. Also, the open terrain geographically contrasts with the protective ridges that partially surround Tulocay's basin landform. The Tulocay viticultural Climate Region II classification averages between 2,750 and 3,000 total degree-days annually, based on a heat summation system. (One degree day accumulates for each degree that a day's mean temperature is above 50 degrees Fahrenheit, which is the minimum temperature required for grapevine growth; see “General Viticulture,” Albert J. Winkler, University of California Press, 1975.) Documentation by Mr. Newman and information from “General Viticulture” provide a basis for the climate tables below. The first table defines each of the five climate regions by annual number of degree-days. The second table shows the heat summation range of Napa Valley by climate region, comparing the Tulocay area to other Napa Valley regions. Climate region Heat summations by degree-days I Less than 2,500. II 2,501 to 3,000. III 3,001 to 3,500. IV 3,501 to 4,000. V 4,001 or more. Climatic region Area of Napa Valley Location in Napa Valley I Los Carneros South. I Suscol Creek South. II Tulocay Southeast. II Oak Knoll South central. III Oakville North central. III St. Helena Northwest. III Calistoga Northwest. The table above shows Napa Valley growing season temperatures, south to north, that span from Climate Region I to Region III. Mr. Newman's documentation demonstrates the climatic variability of the Napa Valley viticultural area based on distances from the cooling influence of the San Pablo Bay and the varying open or protective topography. In the morning, the cooling marine fog in the Tulocay region usually burns off by about 10 a.m. giving way to sunshine, which occurs one to two hours earlier than in the foggier Los Carneros and Suscol Creek areas to the south and west. The transverse ridge south of Tulocay serves as a dividing line between the geographic isolation of Tulocay and the cooler and foggier open terrain to its south and west in the Los Carneros region, Mr. Newman explains. In the afternoon the inland heat of the Napa Valley region draws the foggy, marine air off the Pacific Ocean, through the Golden Gate and San Francisco Bay, and north across San Pablo Bay into Napa Valley, according to Mr. Newman's description. The Bay's cooling marine influence, wind, and fog permeate the Los Carneros and Suscol Creek areas before traveling north and up the Napa Valley. Between 2:30 p.m. and 3 p.m., the cooling breezes draw over Tulocay's western low ridge and southwest gap. Mr. Newman explains that the Tulocay region remains breezy, cool and sunny in the later afternoon, with fog developing in the evening hours. Also, the rest of Napa Valley to the north receives the cooling marine air later in the afternoon than the Tulocay region. In summary, Mr. Newman states that Tulocay enjoys a warmer and sunnier summer growing season than the cooler and foggier neighboring areas to the south and west, but a cooler, less sunny growing season than areas to the north. Also, the Tulocay fog gives way to sunshine earlier in the day, and the cooling marine winds arrive later in the day than the fogs in the Los Carneros and Suscol Creek regions to the south and west. Tulocay's ample sunshine, moderate warmth, and brief durations of the maximum temperatures during the summer, combine to create a unique grape-growing climate. Geology The western ridge of the Vaca Range, which is also the eastern proposed Tulocay viticultural area boundary line, consists of Sonoma Volcanics (pyroclastic rocks), according to the “Geologic Map of the Santa Rosa Quadrangle,” by Wagner and Bortugno, published in 1982. The Sonoma Volcanics, according to the geologic map, extend both north and south of the proposed Tulocay viticultural area boundary line. Mr. Davis adds that valley fill is superimposed on top of the volcanic materials to the west, with predominantly uplifted and folded marine sediments to the east. The center of the proposed Tulocay viticultural area, according to Mr. Davis, sits on a horseshoe-shaped valley cut into volcanic rock and backfilled with alluvial deposits. Also, the western- most part of the proposed viticultural area includes a remnant island, or highland of volcanic rock, to the east of the Napa River. Geography The Tulocay area sits in a partial basin landform. The basin geography includes a low ridge along Monticello Road at the proposed north boundary line; a high ridge from the Vaca Range along the proposed east boundary line; a high transverse ridge to the immediate south of the proposed boundary line; a small, low elevation opening to the southwest for Tulocay Creek; and a river and adjoining creek along the proposed western boundary line, according to Mr. Davis' description. The elevations of the proposed Tulocay viticultural area, according to USGS maps of the region, vary from about 10 feet at the Napa River shoreline to 1,800 feet at the northeast corner of the proposed viticultural area along the western ridge of the Vaca Range. The Tulocay crescent-shaped landform, an area with low and gentle topography, faces erosion from small watersheds, according to the petitioners. The Sarco, Kreuse, and Tulocay creeks flow east to west and through the proposed viticultural area into the Napa River, according to the USGS maps. The Tulocay area slopes are generally west-southwest, Mr. Davis states, with a lesser number of east-northeast facing slopes that provide for variability in soil development. Soils Soils in the proposed Tulocay viticultural area develop primarily from the volcanic parent materials and related weathering products, according to Mr. Davis. The soils form through stream deposition and gravitational processes, possibly from a combination of river terraces and landslide deposits. Also, the soils develop in a xeric climate, noted for moist, cool winters and warm, dry summers. The proposed Tulocay viticultural area includes 17 soils map units, representing a combination of 10 individual soil series, according to the “Soil Survey of Napa County,” published in 1978 by the United States Department of Agriculture (USDA), Soil Conservation Service (SCS). The table below lists the predominant parent materials, landforms and soil series' associations of the proposed Tulocay viticultural area. Parent materials Landform Soil series association Alluvial Flood plains Bale-Cole-Yolo (deeper than 60 inches, poorly to well-drained). Alluvial Terraces Haire-Coombs (deeper than 60 inches, well-drained with moderately acid topsoil over strongly acid subsoil). Volcanic Uplands Kidd-Hambright-Sobrante-Guenoc-Forward (depth ranges from less than 12 inches to more than 60 inches, well-drained, and moderately acid). The proposed Tulocay viticultural area dominant soils associations include terrace soils (Haire-Coombs association) and upland soils (Kidd-Hambright-Sobrante-Guenoc-Forward association) in almost equal percentages. Also, the low-lying alluvial soils (Bale-Cole-Yolo association) exist to a minor extent in the Tulocay area. Prominent soil features of the proposed Tulocay viticultural area include significant amounts of allophone, imoglolite, and ferrihydrite with high phosphate retention, according to Mr. Davis. Also, andic soil properties, found in the residual soils, come from the weathering of volcanic parent materials. Thick and dark topsoil (Mollisols) prominently blankets the area with high organic carbon content, providing soil fertility and a nutrient reservoir for sustainable and reliable long-term viticulture, Mr. Davis explains. Mr. Davis states that the regions surrounding the proposed Tulocay viticultural area include soil types different from those found within the proposed boundary. To the north the soils predominantly include residual upland types, with a small percentage of alluvial soils. To the east, along the west-facing steep mountain slopes of the Vaca Range, the shallow soils cover hard bedrock. To the south the soils include heavy texture clays derived from marine, feldspar-rich sandstone. To the west, the Napa River and Milliken Creek create an environment of low-lying flood plain soils. The Tulocay soils composition develops entirely from residual volcanic parent material and its secondary weathering products, a rare occurrence in a California viticultural area, according to Mr. Davis. Also, the unique Tulocay soils include well-drained, volcanically-influenced, and organic matter-rich properties. Mr. Davis concludes that the Tulocay dominant soil characteristics and prevalent properties distinguish the proposed viticultural area from other areas of the region. Comparison of the Proposed Tulocay Viticultural Area to the Established Napa Valley Viticultural Area The 11,200-acre proposed Tulocay viticultural area sits entirely within the larger Napa Valley viticultural area, according to the petitioners. The Tulocay proposed boundary land space occupies about three percent of the Napa Valley viticultural area. The climate of the Tulocay region, according to Mr. Newman, includes the lack of degree-day variation, in contrast to the larger Napa Valley viticultural area. Mr. Newman explains that the Tulocay area experiences Climate Region II degree-days during the growing season, while Napa Valley areas to the south, and closer to the San Pablo Bay, experience cooler Climate Region I degree-days. Napa Valley regions to the north of Tulocay and the City of Napa experience warmer Climate Region III degree-days. The partial basin geography of the Tulocay region, according to Mr. Newman, provides protective climatic boundaries. Also, to the southwest of the Tulocay region lies the relatively flat Los Carneros area in close proximity to the San Pablo Bay. The northern regions of the Napa Valley, according to topographical maps of the area, include a relatively flat, narrow valley floor and mountain ranges on the east and west sides. The soils of the Tulocay region, Mr. Davis explains, include residual volcanic parent material and secondary weathering products. Also, the soil features include well-drained, volcanically-influenced and organic matter-rich properties that create a growing environment for nutrient-rich, sustainable viticulture. The petitioner emphasizes that the Tulocay viticultural area petition documents the history, geographical name identification, and distinguishing viticultural features of the small Tulocay region without detracting from the well-known Napa Valley name and distinctive winegrowing elements. TTB believes that the previous establishment of 14 other viticultural areas completely or partially within the boundary of the 400,000-acre Napa Valley viticultural area provides evidence of its wide spectrum of distinguishing features. TTB concludes that this petition to establish the 11,200-acre Tulocay viticultural area merits consideration and public comment as invited in this notice. Boundary Description See the narrative boundary description of the petitioned-for viticultural area in the proposed regulatory text published at the end of this notice. Maps The petitioners provided the required maps, and we list them below in the proposed regulatory text. Impact on Current Wine Labels Part 4 of the TTB regulations prohibits any label reference on a wine that indicates or implies an origin other than the wine's true place of origin. If we establish this proposed viticultural area, its name, “Tulocay,” will be recognized as a name of viticultural significance under 27 CFR 4.39(i)(3). The text of the proposed regulation clarifies this point. Consequently, wine bottlers using “Tulocay” in a brand name, including a trademark, or in another label reference as to the origin of the wine, will have to ensure that the product is eligible to use the viticultural area's name as an appellation of origin. The proposed part 9 regulatory text set forth in this document specifies the “Tulocay” name as a term of viticultural significance for purposes of part 4 of the TTB regulations. Additionally, because an alternate spelling of “Tulocay” appears in the petition and is cited in this notice as evidence of the area name, TTB wishes to clarify that the establishment of this viticultural area as “Tulocay” precludes the use of the alternate spelling “Tulucay.” Thus, the name “Tulucay” will not be permitted in any reference as to the origin of the wine. For a wine to be eligible to use as an appellation of origin a viticultural area name or other term specified as being viticulturally significant in part 9 of the TTB regulations, at least 85 percent of the wine must be derived from grapes grown within the area represented by that name or other term, and the wine must meet the other conditions listed in 27 CFR 4.25(e)(3). If the wine is not eligible to use the viticultural area name or other term as an appellation of origin and that name or other term appears in the brand name, then the label is not in compliance and the bottler must change the brand name and obtain approval of a new label. Similarly, if the viticultural area name or other term appears in another reference on the label in a misleading manner, the bottler would have to obtain approval of a new label. Accordingly, if a new label or a previously approved label uses the name “Tulocay” for a wine that does not meet the 85 percent standard, the new label will not be approved, and the previously approved label will be subject to revocation, upon the effective date of the approval of the Tulocay viticultural area. Different rules apply if a wine has a brand name containing a viticultural area name or other viticulturally significant term that was used as a brand name on a label approved before July 7, 1986. See 27 CFR 4.39(i)(2) for details. Public Participation Comments Invited We invite comments from interested members of the public on whether we should establish the proposed viticultural area. We also are interested in receiving comments on the sufficiency and accuracy of the name, boundary, climate, and other required information submitted in support of the petition. Please provide any available specific information in support of your comments. Because of the potential impact of the establishment of the proposed Tulocay viticultural area on wine labels that includes the word “Tulocay” as discussed above under Impact on Current Wine Labels, we are particularly interested in comments regarding whether there will be a conflict between the proposed area name and currently used brand names, including any brand names using the alternative spelling “Tulucay.” If a commenter believes that a conflict will arise, the comment should describe the nature of that conflict, including any negative economic impact that approval of the proposed viticultural area will have on an existing viticultural enterprise. We are also interested in receiving suggestions for ways to avoid any conflicts, for example by adopting a modified or different name for the viticultural area. Submitting Comments Please submit your comments by the closing date shown above in this notice. Your comments must include this notice number and your name and mailing address. Your comments must be legible and written in language acceptable for public disclosure. We do not acknowledge receipt of comments, and we consider all comments as originals. You may submit comments in one of five ways: • *Mail:* You may send written comments to TTB at the address listed in the ADDRESSES section. • *Facsimile:* You may submit comments by facsimile transmission to 202-927-8525. Faxed comments must—

(1)Be on 8.5- by 11-inch paper;

(2)Contain a legible, written signature; and

(3)Be no more than five pages long. This limitation assures electronic access to our equipment. We will not accept faxed comments that exceed five pages. • *E-mail:* You may e-mail comments to *nprm@ttb.gov.* Comments transmitted by electronic mail must—

(1)Contain your e-mail address;

(2)Reference this notice number on the subject line; and

(3)Be legible when printed on 8.5- by 11-inch paper. • *Online form:* We provide a comment form with the online copy of this notice on our Web site at *http://www.ttb.gov/regulations_laws/all_rulemaking.shtml.* Select the “Send comments via e-mail” link under this notice number. • *Federal e-rulemaking portal:* To submit comments to us via the Federal e-rulemaking portal, visit *http://www.regulations.gov* and follow the instructions for submitting comments. You may also write to the Administrator before the comment closing date to ask for a public hearing. The Administrator reserves the right to determine whether to hold a public hearing. Confidentiality All submitted material is part of the public record and subject to disclosure. Do not enclose any material in your comments that you consider confidential or inappropriate for public disclosure. Public Disclosure You may view copies of this notice, the petition, the appropriate maps, and any comments we receive by appointment at the TTB Information Resource Center at 1310 G Street, NW., Washington, DC 20220. You may also obtain copies at 20 cents per 8.5- x 11-inch page. Contact our information specialist at the above address or by telephone at 202-927-2400 to schedule an appointment or to request copies of comments. For your convenience, we will post this notice and any comments we receive on this proposal on the TTB Web site. We may omit voluminous attachments or material that we consider unsuitable for posting. In all cases, the full comment will be available in the TTB Information Resource Center. To access the online copy of this notice and the submitted comments, visit *http://www.ttb.gov/regulations_laws/all_rulemaking.shtml.* Select the “View Comments” link under this notice number to view the posted comments. Regulatory Flexibility Act We certify that this proposed regulation, if adopted, would not have a significant economic impact on a substantial number of small entities. The proposed regulation imposes no new reporting, recordkeeping, or other administrative requirement. Any benefit derived from the use of a viticultural area name would be the result of a proprietor's efforts and consumer acceptance of wines from that area. Therefore, no regulatory flexibility analysis is required. Executive Order 12866 This proposed rule is not a significant regulatory action as defined by Executive Order 12866, 58 FR 51735. Therefore, it requires no regulatory assessment. Drafting Information N.A. Sutton of the Regulations and Rulings Division drafted this notice. List of Subjects in 27 CFR Part 9 Wine. Proposed Regulatory Amendment For the reasons discussed in the preamble, we propose to amend title 27, chapter 1, part 9, Code of Federal Regulations, as follows: PART 9—AMERICAN VITICULTURAL AREAS 1. The authority citation for part 9 continues to read as follows: Authority: 27 U.S.C. 205. Subpart C—Approved American Viticultural Areas 2. Amend subpart C by adding § 9.______ to read as follows: § 9.______ Tulocay.

(a)*Name.* The name of the viticultural area described in this section is “Tulocay”. For purposes of part 4 of this chapter, “Tulocay” is a term of viticultural significance.

(b)*Approved maps.* The appropriate maps for determining the boundary of the Tulocay viticultural area are two United States Geological Survey 1:24,000 scale topographic maps. They are titled:

(1)Mt. George Quadrangle, California, 1951, Photoinspected 1973; and

(2)Napa Quadrangle, California-Napa Co., 1951, Photorevised 1980.

(c)*Boundary.* The Tulocay viticultural area is located in Napa County, California. The boundary of the Tulocay viticultural area is as described below:

(1)The beginning point is on the Mt. George map at the 1,877-foot peak of Mt George, section 29, T6N/R3W;

(2)From the beginning point, proceed 0.4 mile straight southeast to the intersection of the 1,400-foot elevation line and an unnamed intermittent creek, feeding northeast into Leonia Lakes, section 29, T6N/R3W; then

(3)Proceed 0.45 mile straight east-southeast to the intersection of the 1,380-foot elevation line and an unnamed, unimproved dirt road and then continue in the same straight line of direction to the section 29 east boundary line, T6N/R3W, Mt. George Quadrangle; then

(4)Proceed 0.6 mile straight south-southeast to the unnamed 1,804-foot elevation point in the northwest quadrant of section 33, T6N/R3W, Mt. George Quadrangle; then

(5)Proceed southerly in a straight line for 0.95 mile to the corner of the Napa-Solano County line at the 1,731-foot elevation point on the T6N/T5N boundary line, R3W, Mt. George Quadrangle; then

(6)Proceed southerly for 0.3 mile along the Napa-Solano County line to its intersection with a 1,600-foot pinnacle that straddles the county line, section 4, T5N/R3W, Mt. George Quadrangle; then

(7)Proceed southerly in a straight line for 0.9 mile to the 1,480-foot elevation point along the section 9 north boundary line, T5N/R3W, Mt. George Quadrangle; then

(8)Continue southerly in a straight line for 1.3 miles to the 1,351-foot elevation point, section 16, T5N/R3W, Mt. George Quadrangle; then

(9)Proceed 0.85 mile straight southwest to the corner of the Napa-Solano County line immediately inside of the section 17 south boundary line, T5N/R3W, Mt. George Quadrangle; then

(10)Proceed southwesterly for 0.7 mile along the Napa-Solano County line to its intersection with the 1,686-foot elevation peak, east of Sugarloaf, section 20, T5N/R3W, Mt. George Quadrangle; then

(11)Proceed northwesterly in a straight line for 2.1 miles to the 90-degree turn of Imola Avenue at the 136-foot elevation point, section 13, T5N/R4W, Mt. George Quadrangle; then

(12)Proceed west for 2.1 miles along Imola Avenue, crossing onto the Napa map, to its intersection with the Napa River at the Maxwell Bridge, T5N/R4W, Napa Quadrangle;

(13)Proceed northerly (upstream) for 3.2 miles along the Napa River to its intersection with Milliken Creek, T6N/R4W, Napa Quadrangle; then

(14)Continue northerly (upstream) for 0.75 mile along Milliken Creek to its intersection with Monticello Road, T6N/R4W, Napa Quadrangle; then

(15)Proceed northeasterly for 2.4 miles along Monticello Road, crossing onto the Mt. George map, to its intersection with the section 19 west boundary line, T6N/R3W; and

(16)Proceed east-southeasterly in a straight line for 1.4 miles and return to the beginning point at the 1,877-foot peak of Mt. George. Signed: October 13, 2006. John J. Manfreda, Administrator. [FR Doc. E6-18891 Filed 11-7-06; 8:45 am] BILLING CODE 4810-31-P DEPARTMENT OF THE TREASURY Alcohol and Tobacco Tax and Trade Bureau 27 CFR Part 9 [Notice No. 67] RIN 1513-AB19 Proposed Establishment of the Lehigh Valley Viticultural Area (2005R-415P) AGENCY: Alcohol and Tobacco Tax and Trade Bureau, Treasury. ACTION: Notice of proposed rulemaking. SUMMARY: The Alcohol and Tobacco Tax and Trade Bureau proposes to establish the 1,888 square mile Lehigh Valley viticultural area in southeastern Pennsylvania in portions of Lehigh, Northampton, Berks, Schuylkill, Carbon, and Monroe Counties. We designate viticultural areas to allow vintners to better describe the origin of their wines and to allow consumers to better identify wines they may purchase. We invite comments on this proposed addition to our regulations. DATES: We must receive written comments on or before January 8, 2007. ADDRESSES: You may send comments to any of the following addresses: • Director, Regulations and Rulings Division, Alcohol and Tobacco Tax and Trade Bureau, *Attn:* Notice No. 67, P.O. Box 14412, Washington, DC 20044-4412. • 202-927-8525 (facsimile). • *nprm@ttb.gov* (e-mail). • *http://www.ttb.gov/wine/wine_rulemaking.shtml.* An online comment form is posted with this notice on our Web site. • *http://www.regulations.gov* (Federal e-rulemaking portal; follow instructions for submitting comments). You may view copies of this notice, the petition, the appropriate maps, and any comments we receive about this proposal by appointment at the TTB Information Resource Center, 1310 G Street, NW., Washington, DC 20220. To make an appointment, call 202-927-2400. You may also access copies of the notice and comments online at *http://www.ttb.gov/wine/wine_rulemaking.shtml.* See the Public Participation section of this notice for specific instructions and requirements for submitting comments, and for information on how to request a public hearing. FOR FURTHER INFORMATION CONTACT: N. A. Sutton, Regulations and Rulings Division, Alcohol and Tobacco Tax and Trade Bureau, 925 Lakeville St., No. 158, Petaluma, CA 94952; phone 415-271-1254. SUPPLEMENTARY INFORMATION: Background on Viticultural Areas TTB Authority Section 105(e) of the Federal Alcohol Administration Act (FAA Act), 27 U.S.C. 205(e), authorizes the Secretary of the Treasury to prescribe regulations for the labeling of wine, distilled spirits, and malt beverages. The FAA Act provides that these regulations should, among other things, prohibit consumer deception and the use of misleading statements on labels, and ensure that labels provide the consumer with adequate information as to the identity and quality of the product. The Alcohol and Tobacco Tax and Trade Bureau

(TTB)administers the regulations promulgated under the FAA Act. Part 4 of the TTB regulations (27 CFR part 4) allows the establishment of definitive viticultural areas and the use of their names as appellations of origin on wine labels and in wine advertisements. Part 9 of the TTB regulations (27 CFR part 9) contains the list of approved viticultural areas. Definition Section 4.25(e)(1)(i) of the TTB regulations (27 CFR 4.25(e)(1)(i)) defines a viticultural area for American wine as a delimited grape-growing region distinguishable by geographic features, the boundaries of which have been recognized and defined in part 9 of the regulations. These designations allow vintners and consumers to attribute a given quality, reputation, or other characteristic of a wine made from grapes grown in an area to its geographic origin. The establishment of viticultural areas allows vintners to describe more accurately the origin of their wines to consumers and helps consumers to identify wines they may purchase. Establishment of a viticultural area is neither an approval nor an endorsement by TTB of the wine produced in that area. Requirements Section 4.25(e)(2) of the TTB regulations outlines the procedure for proposing an American viticultural area and provides that any interested party may petition TTB to establish a grape-growing region as a viticultural area. Section 9.3(b) of the TTB regulations requires the petition to include— • Evidence that the proposed viticultural area is locally and/or nationally known by the name specified in the petition; • Historical or current evidence that supports setting the boundary of the proposed viticultural area as the petition specifies; • Evidence relating to the geographic features, such as climate, soils, elevation, and physical features that distinguish the proposed viticultural area from surrounding areas; • A description of the specific boundary of the proposed viticultural area, based on features found on United States Geological Survey

(USGS)maps; and • A copy of the appropriate USGS map(s) with the proposed viticultural area's boundary prominently marked. Lehigh Valley Petition John Skrip III, chairman of the Lehigh Wine Trail Appellation Committee submitted a petition to TTB proposing the establishment of the 1,888 square mile “Lehigh Valley” viticultural area in southeastern Pennsylvania. The proposed area is located approximately 45 miles north-northwest of Philadelphia and includes portions of Lehigh, Northampton, Berks, Schuylkill, Carbon, and Monroe Counties. TTB notes that the proposed Lehigh Valley viticultural area does not overlap any other viticultural area. As of 2005, the proposed viticultural area included 9 wineries and 13 vineyards with 220 acres devoted to viticulture, according to the petitioner. The petitioner notes that the distinguishing features of the proposed viticultural area include its rolling hills and a similar agricultural climate throughout. The evidence submitted with the petition is summarized below. Name Evidence The petitioner explains that Lehigh Valley derives its name from the Lehigh River, which flows through the proposed viticultural area and into the Delaware River at Easton, Pennsylvania. The petitioner states that the word “Lehigh” originated with the Delaware Indians in the 1600s, who named the area “Lechauwekink,” meaning an area with river forks. The petitioner notes that through a series of translations of the original Indian name, the name “Lehigh” now identifies the area. The petitioner also notes that the “Lehigh Valley” name applies to a much larger area than the immediate region bordering the Lehigh River and is, in fact, associated with the entire proposed viticultural area. The petitioner provides evidence for the use of the Lehigh or Lehigh Valley name throughout the proposed viticultural area by cities, schools, the National Highway System, and businesses. For example, Lehigh Street is a major thoroughfare in the city of Allentown, Lehigh University is located on the outskirts of Bethlehem, and the Lehigh Tunnel was constructed on the Northeast Extension of the Pennsylvania Turnpike, just north of the Lehigh County line. Also, two pages of the Lehigh Valley telephone book include nine columns of businesses located within the proposed viticultural area the use “Lehigh Valley” as part of the company name. The petition also includes brochures for inns, golf courses, covered bridges, a chamber orchestra, and a wine trail that use the Lehigh Valley name. The January 11, 2005, edition of the Bethlehem, Pennsylvania, Express-Times newspaper claims on its front page that it is “The Lehigh Valley's fastest growing newspaper.” An article in the business section of the March 31, 2002, edition of the Allentown Morning Call newspaper discusses the economic development of the Lehigh Valley area. The article notes that six community organizations incorporated “Lehigh Valley” in their names between 1984 and 2002, including the Lehigh Valley Convention and Visitors Bureau, American Red Cross of the Greater Lehigh Valley, United Way of Greater Lehigh Valley, and the Lehigh Valley Chamber of Commerce. In addition, the petitioner provides copies of two regional magazines, “Lehigh Valley Style,” dated March/April 2003, and “Lehigh Valley,” dated July/August 2004. The “Lehigh Valley” magazine includes a full page advertisement for the Lehigh Valley Hospital in Allentown, Pennsylvania. Other petitioner evidence includes a toll receipt for the Lehigh Valley exit of the Pennsylvania Turnpike extension (Interstate 476) and a copy of the home page from the Lehigh Valley International Airport Web site. A U.S. post office and mail distribution center located off Route 22 between Allentown and Bethlehem is referred to as the Lehigh Valley Post Office, according to the petitioner. Boundary Evidence The proposed Lehigh Valley viticultural area encompasses the Lehigh River valley from the town of Jim Thorpe to the river's mouth at Easton, as well as the regions to the northeast and southwest of the immediate river valley. In addition to the Lehigh River valley, the proposed viticultural area includes portions of the Schuylkill River valley in the southwest and the Brodhead River valley in the northeast. The proposed area also includes all or portions of the cities of Stroudsburg, Easton, Bethlehem, Allentown, and Reading, Pennsylvania. Commercial grape growing started in the proposed Lehigh Valley viticultural area in 1974, the petitioner explains, when Vynecrest Winery and Clover Hill Winery started planting grapes. Two years later, Franklin Hill Winery planted grapes near Bangor in Northampton County. In shape, the proposed viticultural area is a southwest to northeast oriented rectangle. The petitioner states that the proposed boundary is 92 miles along its northern side, 24 miles along its eastern side, 56 miles along its southern side, and 28 miles along its western side. Along the proposed viticultural area's northern boundary, a long Appalachian ridge, including Second Mountain and Wildcat Mountain in Schuylkill County, Mauch Chunk Ridge, Bear Mountain, and Call Mountain in Carbon County, and a series of lower hills in Monroe County, separates the proposed area from the cooler mountains of northeastern Pennsylvania. To the east, between Stroudsburg and Easton, the Delaware River separates Pennsylvania from New Jersey and marks the eastern limit of the proposed Lehigh Valley viticultural area. The petitioner notes that the region of northwestern New Jersey bordering the proposed area is not considered part of the Lehigh Valley region. To the southeast, another long Appalachian mountain ridge, South Mountain separates the proposed viticultural area from the immediate Philadelphia region. To the west, the southwestern Berks County and Schuylkill County lines separate the Lehigh Valley region from the counties of south-central Pennsylvania, which is considered a separate geographical region of the State according to the petitioner. Distinguishing Features The distinguishing features of the proposed Lehigh Valley viticultural area, according to the petitioner, include its rolling hills and a similar agricultural climate throughout. These features contrast with the regions to the north and south of the proposed viticultural area, according to the petitioner. To document these differences, the petitioner uses data collected from 1961 to 1996 by the United States Department of Agriculture

(USDA)and its Natural Resources Conservation Service (NRCS). In addition, the petitioner submitted maps of Pennsylvania with information on soil moisture, soil temperature, frost-free periods, and agro-climatic regions. Climate The agricultural-climatic features of the proposed Lehigh Valley viticultural area include heat accumulation measurements of 2,601 to 3,000 annual degree days and an annual moisture surplus of 351 to 450 millimeters of water, as shown on the Agro-Climate Regions of Pennsylvania map submitted with the petition. (As a measurement of heat accumulation during the growing season, one degree day accumulates for each degree Fahrenheit that a day's average temperature is above 50 degrees, which is the minimum temperature required for grapevine growth. See “General Viticulture,” by Albert J. Winkler, University of California Press, 1974.) The USGS and the NRCS integrates degree-days and annual moisture surplus data to identify regions of relatively homogeneous heat and moisture characteristics related to crop production. This information is shown on the Agro-Climate Regions of Pennsylvania map submitted with the petition and is summarized in the table below. Lehigh Valley Area Degree Day and Water Balances North of Lehigh Valley Region Lehigh Valley Area South of Lehigh Valley Region Growing season degree-days 1,801-2,600 2,601-3,000 3,001-3,400 Annual water balance (surplus) 451-550 351-450 351-450 The petitioner presents annual temperature data collected from 1975 to 2004 at three airports—one to the north of the proposed viticultural area, one to the south of the proposed area, and one within the proposed area. The data, as summarized in the table below, shows differences in average annual precipitation and temperatures, with a warming trend from north to south. Lehigh Valley Area Climatic Temperature Data Averages 1975-2004 Fahrenheit temperatures Wilkes-Barre Scranton Airport (25 miles north of Lehigh Valley) Lehigh Valley Airport (within the proposed viticultural area) Philadelphia International Airport (45 miles south of Lehigh Valley) Average High 58.8° 61.5° 64.4° Average Mean 49.7° 51.7° 55.4° Average Low 40.6° 42° 46.6° Maximum High 94.4° 96.5° 97.3° Minimum Low −4.2° 0.7° 5.2° Frequency of days below 5° 14 7 3 Average rain in inches 37.5″ 43.6″ 41.6″ The proposed Lehigh Valley viticultural area's warmer growing season ranges from 161 to 180 consecutive frost-free days, with the proposed area's southern portion having fewer days with frost than its northern portion, according to the Frost-Free Period of Pennsylvania Landscapes map submitted with the petition. A frost-free period, based on 32 degrees Fahrenheit or above, the petitioner explains, represents the consecutive days from the final killing frost in the spring to the first killing frost in the fall. This 161- to 180-day timeframe defines the length of the regional growing season for most agronomic crops. The region north of the proposed viticultural area, the petitioner states, is cooler during the growing season, with 1,801 to 2,600 degree days of heat accumulation. The region to the north also is wetter, with an annual moisture surplus of 451 to 550 millimeters of water. The higher elevations to the north of the Lehigh Valley region create a climate with cooler temperatures and more soil moisture retention. As evidence, the petitioner submitted the Agro-Climate Regions of Pennsylvania map, which shows a distinctively cooler and wetter climate north of the proposed Lehigh Valley viticultural area. Also, the meteorological data collected during the years 1975 to 2004 from the Wilkes-Barre Scranton International Airport, located 25 miles north of the proposed viticultural area, shows consistently lower temperatures than are found in the proposed viticultural area, with twice as many days dipping below 5 degrees Fahrenheit annually. The petitioner describes the area to the south of the proposed viticultural area as marginally, yet consistently, warmer. Meteorological information included in the petition from the Philadelphia International Airport, 45 miles south of the Lehigh Valley, confirms that temperatures to the south of the proposed area are warmer by an average of 4 degrees Fahrenheit. The petitioner also explains that to the south of the proposed area the warmer temperatures, combined with different soils, create a longer grape-growing season and mature grapes with lower acidities and different flavors than those of the proposed Lehigh Valley viticultural area. Areas to the east and west of the proposed Lehigh Valley viticultural area are, for geopolitical and social reasons, considered to be outside of the Lehigh Valley. Across the Delaware River to the east of the proposed viticultural area is the State of New Jersey. The petitioner states that the residents of this New Jersey region do not consider themselves to be a part of the Lehigh Valley region of Pennsylvania. The region to the west of the proposed viticultural area also is not considered to be part of the Lehigh Valley, according to the petitioner. The counties to the west of the proposed area considered by most to be part of south-central Pennsylvania, which is often called “Pennsylvania Dutch Country.” Topography The topography of the proposed Lehigh Valley viticultural area largely consists of rolling hills with elevations generally between 500 feet and 1000 feet, according to the petitioner and the USGS maps provided. Creeks and several rivers meander through the region, while lakes dot the landscape, as shown on the USGS maps of the region. Also, a small portion of the proposed northeastern boundary area, along the foothills of the Blue Mountain range, rises to the 1,600-foot contour line. The Appalachian National Scenic Trail meanders through the proposed area's higher elevations, as shown on the USGS maps. Beyond the northern boundary of the proposed viticultural area, the terrain transitions from the lower, rolling hills of the Lehigh Valley to higher foothills and mountains with elevations ranging from 1,000 feet to 1,900 feet. While the region southeast of the proposed viticultural area begins on the heights of South Mountain, the region quickly falls to the lower and flatter elevations of the Delaware River valley. Soils The petitioner states that the soils within the proposed Lehigh Valley viticultural area are mainly based on shale, sandstone, and siltstone. A 1972 Soil Conservation Service publication, General Soil Map—Pennsylvania, verifies that the area contains shale, sandstone, and siltstone. Soils to the south of the proposed area, according to the petitioner, are based on schist, gneiss, and porcelanite, rather than shale, limestone, and sandstone. According to data submitted by the petitioner, a lack of soil moisture during the growing season puts the proposed Lehigh Valley viticultural area in the Typic Udic moisture regime (less than 90 days of drying), as determined by USGS and NRCS data and shown on the Soil Moistures Regimes of Pennsylvania Landscapes map. The petitioner explains that the region typically has a June through August dry season when the grape vines rely on stored moisture rather than rain. The estimated annual mean soil temperature of the proposed viticultural area is Typic Mesic, ranging from 10.5 degrees Centigrade, or 50.9 degrees Fahrenheit, to 12.0 degrees Centigrade, or 54 degrees Fahrenheit. This information is based on temperatures at 20 inches below the soil surface and shown on the Soil Moistures Regimes of Pennsylvania Landscapes map. Geology The geology of the proposed Lehigh Valley viticultural area, as depicted on the Geologic Map of Pennsylvania, Commonwealth of Pennsylvania, Conservation and Natural Resources, Bureau of Topographic and Geologic Survey, revised in 2000, includes Ordovician features in the south and Permian features in the north. The Ordovician geology, predominantly shale, limestone, dolomite, and sandstone, dates back 430 million to 500 million years. The Permian geology, dating back 250 million to 290 million years, consists of coal, in addition to the sandstone, shale, and limestone that is similar to that found in the Ordovician geology to the south of the proposed viticultural area. Boundary Description See the narrative boundary description of the petitioned-for viticultural area in the proposed regulatory text published at the end of this notice. Maps The petitioner provided the required maps, and we list them below in the proposed regulatory text. Impact on Current Wine Labels Part 4 of the TTB regulations prohibits any label reference on a wine that indicates or implies an origin other than the wine's true place of origin. If we establish this proposed viticultural area, its name, “Lehigh Valley,” will be recognized as a name of viticultural significance. Also, based on the evidence available to us, we find that “Lehigh” alone is locally and/or nationally known as referring to the area in the State of Pennsylvania encompassed by the proposed Lehigh Valley viticultural area. (See 27 CFR 4.39(i)(3), which provides that a name has viticultural significance when determined by a TTB officer.) Therefore, the proposed part 9 regulatory text set forth in this document specifies both “Lehigh Valley” and “Lehigh” as terms of viticultural significance for purposes of part 4 of the TTB regulations. If this proposed text is adopted as a final rule, wine bottlers using “Lehigh Valley” or “Lehigh” in a brand name, including a trademark, or in another label reference as to the origin of the wine, will have to ensure that the product is eligible to claim the proposed Lehigh Valley viticultural area as an appellation of origin. For a wine to be eligible to use as an appellation of origin a viticultural area name or other term specified as being viticulturally significant in part 9 of the TTB regulations, at least 85 percent of the wine must be derived from grapes grown within the area represented by that name or other term, and the wine must meet the other conditions listed in 27 CFR 4.25(e)(3). If the wine is not eligible to use as an appellation of origin a viticultural area name or other viticulturally significant term that appears in the brand name, then the label is not in compliance and the bottler must change the brand name and obtain approval of a new label. Similarly, if the viticultural area name or other viticulturally significant term appears in another reference on the label in a misleading manner, the bottler would have to obtain approval of a new label. Accordingly, if a new label or a previously approved label uses the name “Lehigh Valley” or “Lehigh” for a wine that does not meet the 85 percent standard, the new label will not be approved, and the previously approved label will be subject to revocation, upon the effective date of the approval of the Lehigh Valley viticultural area. Different rules apply if a wine has a brand name containing a viticultural area name or other viticulturally significant term that was used as a brand name on a label approved before July 7, 1986. See 27 CFR 4.39(i)(2) for details. Public Participation Comments Invited We invite comments from interested members of the public on whether we should establish the proposed viticultural area. We also are interested in receiving comments on the sufficiency and accuracy of the name, climatic, boundary, and other required information submitted in support of the petition. Please provide any available specific information in support of your comments. In addition, we are interested in receiving comments on the proposal to identify “Lehigh” standing alone as a term of viticultural significance. Because of the potential impact on approved wine labels from the proposed establishment of the Lehigh Valley viticultural area and the determination that “Lehigh” standing alone is viticulturally significant, as discussed above under Impact on Current Wine Labels, we are particularly interested in comments regarding potential conflicts between “Lehigh Valley” or “Lehigh” and existing brand names. If a commenter believes that a conflict will arise, the comment should describe the nature of that conflict, including any anticipated negative economic impact that approval of the proposed viticultural area will have on an existing viticultural enterprise. We also invite suggestions for ways to avoid any conflicts, for example by adopting a modified or different name for the viticultural area. Submitting Comments Please submit your comments by the closing date shown above in this notice. Your comments must include this notice number and your name and mailing address. Your comments must be legible and written in language acceptable for public disclosure. We do not acknowledge receipt of comments, and we consider all comments as originals. You may submit comments in one of five ways: • *Mail:* You may send written comments to TTB at the address listed in the ADDRESSES section. • *Facsimile:* You may submit comments by facsimile transmission to 202-927-8525. Faxed comments must—

(1)Be on 8.5- by 11-inch paper;

(2)Contain a legible, written signature; and

(1)Contain your e-mail address;

(2)Reference this notice number on the subject line; and

(3)Be legible when printed on 8.5- by 11-inch paper. • *Online form:* We provide a comment form with the online copy of this notice on our Web site at *http://www.ttb.gov/wine/wine_rulemaking.shtml* . Select the “Send comments via e-mail” link under this notice number. • *Federal e-rulemaking portal:* To submit comments to us via the Federal e-rulemaking portal, visit *http://www.regulations.gov* and follow the instructions for submitting comments. You may also write to the Administrator before the comment closing date to ask for a public hearing. The Administrator reserves the right to determine whether to hold a public hearing. Confidentiality All submitted material is part of the public record and subject to disclosure. Do not enclose any material in your comments that you consider confidential or inappropriate for public disclosure. Public Disclosure You may view copies of this notice, the petition, the appropriate maps, and any comments we receive by appointment at the TTB Information Resource Center at 1310 G Street, NW., Washington, DC 20220. You may also obtain copies at 20 cents per 8.5- x 11-inch page. Contact the TTB information specialist at the above address or by telephone at 202-927-2400 to schedule an appointment or to request copies of comments. We will post this notice and any comments we receive on this proposal on the TTB Web site. All name and address information submitted with comments will be posted, including e-mail addresses. We may omit voluminous attachments or material that we consider unsuitable for posting. In all cases, the full comment will be available in the TTB Information Resource Center. To access the online copy of this notice and the submitted comments, visit *http://www.ttb.gov/wine/wine_rulemaking.shtml.* Select the “View Comments” link under this notice number to view the posted comments. Regulatory Flexibility Act We certify that this proposed regulation, if adopted, would not have a significant economic impact on a substantial number of small entities. The proposed regulation imposes no new reporting, recordkeeping, or other administrative requirement. Any benefit derived from the use of a viticultural area name would be the result of a proprietor's efforts and consumer acceptance of wines from that area. Therefore, no regulatory flexibility analysis is required. Executive Order 12866 This proposed rule is not a significant regulatory action as defined by Executive Order 12866, 58 FR 51735. Therefore, it requires no regulatory assessment. Drafting Information N.A. Sutton of the Regulations and Rulings Division drafted this notice. List of Subjects in 27 CFR Part 9 Wine. Proposed Regulatory Amendment For the reasons discussed in the preamble, we propose to amend 27 CFR, chapter 1, part 9, as follows: PART 9—AMERICAN VITICULTURAL AREAS 1. The authority citation for part 9 continues to read as follows: Authority: 27 U.S.C. 205. 2. Subpart C is amended by adding § 9.______ to read as follows: Subpart C—Approved American Viticultural Areas § 9.______ Lehigh Valley.

(a)*Name.* The name of the viticultural area described in this section is “Lehigh Valley”. For purposes of part 4 of this chapter, “Lehigh Valley” and “Lehigh” are terms of viticultural significance.

(b)*Approved maps.* The seven United Stages Geological Survey 1:50,000 scale topographic maps used to determine the boundary of the Lehigh Valley viticultural area are titled:

(1)Berks County, Pennsylvania, 1978;

(2)Schuylkill County (West Half), Pennsylvania, 1979;

(3)Schuylkill County (East Half), Pennsylvania, 1979;

(4)Carbon County, Pennsylvania, 1991;

(5)Monroe County, Pennsylvania, 1980;

(6)Northampton County, Pennsylvania, 1981; and

(7)Lehigh County, Pennsylvania, 1987.

(c)*Boundary.* The Lehigh Valley viticultural area is located in portions of Lehigh, Northampton, Berks, Schuylkill, Carbon, and Monroe Counties, Pennsylvania. The boundary of the proposed Lehigh Valley viticultural area is as described below:

(1)The beginning point is on the Berks County map at the intersection of the Berks-Lancaster County line and the single-track Conrail rail line located near Cacoosing Creek in South Heidelberg Township;

(2)From the beginning point, proceed northwest along the Berks County line and, crossing onto the Schuylkill County (West Half) map, continue northwest along the Schuylkill-Lebanon County line to the county line's intersection with the northern boundary of Pine Grove township; then

(3)Proceed northeast along the northern boundary of Pine Grove, Washington, and Wayne townships and, crossing onto the Schuylkill County (East Half) map, continue along the township boundary to the northeast corner of Wayne township, then

(4)Proceed east-northeasterly in a straight line to the confluence of Beaver Creek and Cold Run at the northeast corner of State Game Lands No. 222 in Walker township; then

(5)Proceed north-northeasterly in a straight line to the 1,402-foot elevation point on Wildcat Mountain in Walker township; then

(6)Proceed easterly in a straight line, crossing onto the Carbon County map, and continue to Bench Mark

(BM)1032 located on Highway 902, south of the village of Bloomingdale; then

(7)Proceed east-northeasterly in a straight line to BM 555 located immediately east of the Lehigh River in the city of Jim Thorpe; then

(8)Proceed east-northeasterly in a straight line to the northern most point of Lehighton Reservoir; then

(9)Proceed east-northeasterly in a straight line to the western end of the dam at the Penn Forest Reservoir; then

(10)Proceed easterly in a straight line and, crossing onto the Monroe County map, continue to the 847-foot elevation point located at the intersection of Highway 534 and an unnamed road locally known as Dotters Corner Road in Polk township; then

(11)Proceed east-northeasterly in a straight line to the intersection of Highway 115 and an unnamed secondary road locally known as Astolat Road immediately north of the village of Effort; then

(12)Proceed east-northeasterly in a straight line to St. Johns Cemetery, located along Appenzell Creek northwest of the village of Neola; then

(13)Proceed straight northeast to the intersection of Interstate 80 and an unnamed road locally known as Hamilton Turnpike at the town of Bartonsville; then

(14)Proceed east-southeast along Interstate 80 through Stroudsburg to the west bank of the Delaware River; then

(15)Proceed south (downstream) along the west bank of the Delaware River, and, crossing onto the Northampton map, continue south along the west bank of the Delaware River to the mouth of Lehigh River at Easton; then

(16)Proceed southwesterly (upstream) along the south bank of the Lehigh River, and crossing onto the Lehigh County map, continue along the south bank of the Lehigh River to the mouth of Jordan Creek in Allentown; then

(17)Proceed westerly (upstream) along Jordan Creek to the first railroad bridge over the creek, and then, following the Conrail rail line on that bridge, proceed southerly along the Conrail rail line (paralleling Trout Creek at first) through Emmaus, Macungie, and Alburtis, and continue along the rail line to the Lehigh-Berks County line; then

(18)Crossing onto the Berks County map, continue southerly along the Conrail rail line through Mertztown, Topton, Lyons, Fleetwood, Blandon, and Muhlenburg to the Conrail rail bridge across the Schuylkill river in Reading; then

(19)Following the Conrail rail line on the Schuylkill River bridge, proceed southerly along the rail line through Wyomissing to the rail line's junction with a single-track Conrail rail line in Sinking Springs; then

(20)From the Conrail rail line junction in Sinking Springs, follow the single track Conrail rail line through Montello, Fritztown, and Vinemont, and return to the beginning point. Signed: October 5, 2006. John J. Manfreda, Administrator. [FR Doc. E6-18895 Filed 11-7-06; 8:45 am] BILLING CODE 4810-31-P DEPARTMENT OF HOMELAND SECURITY Coast Guard 33 CFR Part 117 [CGD07-05-097] RIN 1625-AA09 Drawbridge Operation Regulations; Gulf Intracoastal Waterway, Anna Maria, FL AGENCY: Coast Guard, DHS. ACTION: Supplemental notice of proposed rulemaking. SUMMARY: The Coast Guard is proposing a supplemental change to its notice of proposed rulemaking for modifying the Cortez and Anna Maria drawbridge operating regulations. This supplemental notice of proposed rulemaking is necessary to address written concerns from the public regarding the original notice of proposed rulemaking and oral comments received during a public meeting. Additionally, city officials from Anna Maria, Brandenton Beach and Longboat Key contributed their input to this rulemaking in an effort to relieve vehicular congestion on the above bridges. DATES: Comments and related material must reach the Coast Guard on or before December 8, 2006 ADDRESSES: You may mail comments and related material to Commander (dpb), Seventh Coast Guard District, 909 SE 1st Avenue, Room 432, Miami, Florida 33131-3050. Commander

(dpb)maintains the public docket for this rulemaking. Comments and material received from the public, as well as documents indicated in this preamble as being available in the docket, will become part of this docket and will be available for inspection or copying at Commander (dpb), Seventh Coast Guard District, 909 SE 1st Avenue, Room 432, Miami, Florida 33131-3050 between 8 a.m. and 4:30 p.m., Monday through Friday, except Federal holidays. FOR FURTHER INFORMATION CONTACT: Mr. Michael Lieberum, Seventh Coast Guard District, Bridge Branch, telephone number 305-415-6744. SUPPLEMENTARY INFORMATION: Request for Comments We encourage you to participate in this rulemaking by submitting comments and related material. If you do so, please include your name and address, identify the docket number for this rulemaking [CGD07-05-097], indicate the specific section of this document to which each comment applies, and give the reason for each comment. Please submit all comments and related material in an unbound format, no larger than 8 by 11 inches, suitable for copying. If you would like to know they reached us, please enclose a stamped, self-addressed postcard or envelope. We will consider all comments and material received during the comment period. We may change this proposed rule in view of them. Public Meeting We do not now plan to hold another public meeting. But you may submit a request for a meeting by writing to Bridge Branch, Seventh Coast Guard District at the address under ADDRESSES explaining why one would be beneficial. If we determine that one would aid this rulemaking, we will hold one at a time and place announced by a later notice in the **Federal Register.** Background and Purpose The existing regulations of the Cortez (SR 684) Bridge, mile 87.4, and Anna Maria (SR 64) Bridge, mile 89.2 at Anna Maria, published in 33 CFR 117.287(d)(1) and

(2)require the draws to open on signal, except that from 7 a.m. to 6 p.m., the draws need open only on the hour, twenty minutes past the hour and forty minutes past the hour if vessels are present. On June 1, 2005, the city officials of Holmes Beach, in cooperation with the cities of Anna Maria and Bradenton Beach and the Town of Longboat Key, requested that the Coast Guard review the existing regulations governing the operation of the Cortez and Anna Maria Bridges due to their concern that the current drawbridge regulations were not meeting the needs of vehicle traffic. On August 16, 2005, we published a notice of proposed rulemaking

(NPRM)entitled Drawbridge Operation Regulations; Gulf Intracoastal Waterway, Anna Maria, FL in the **Federal Register** (70 FR 48091). We received 30 comments on the proposed rule. A public meeting was held on March 29, 2006, in Holmes Beach, Florida. Approximately 40 people attended the meeting and 15 people provided oral comments. On May 15, 2006, based on comments received from the public, the Mayors of the Cities of Anna Maria, Bradenton Beach and Holmes Beach unanimously agreed to request the bridge openings be restricted to half-hour openings from January 15th through May 15th each year. Discussion of Comments and Changes The Coast Guard received a total of 45 comments to the Notice of Proposed Rulemaking and the Public Meeting. The responses were supplied by 30 written comments and 15 oral comments. A few of the commenters, both verbal and written, commented on several different aspects of the proposed regulation. We received 18 responses in favor of the proposal, 7 comments against the morning and afternoon curfew hours, 6 comments against the nighttime closures, 2 comments requested staggered hours between the two bridges rather than both opening on the same schedule, 6 comments for changes in the winter season only and 9 comments against the proposed 30-minute schedules. Two comments suggested that there should be no regulations on these bridges and they should open on demand. Discussion of Proposed Rule This proposed rule would require the Cortez (SR 684) and Anna Maria (SR 64) bridges, miles 87.4 and 89.2, at Anna Maria to open on signal, except that from May 16 through January 14, from 6 a.m. to 7 p.m., the draw need open only on the hour, twenty minutes past the hour and forty minutes past the hour. From January 15 through May 15, the draws need open only on the hour and half-hour from 6 a.m. to 7 p.m. The objective of this revision is to improve vehicle traffic flow on SR 684 and SR 64, especially during peak periods of increased road congestion. Regulatory Evaluation This proposed rule is not a “significant regulatory action” under section 3(f) of Executive Order 12866, Regulatory Planning and Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. The Office of Management and Budget has not reviewed it under that Order. It is not “significant” under the regulatory policies and procedures of the Department of Homeland Security. We expect the economic impact of this proposed rule to be so minimal that a full Regulatory Evaluation is unnecessary. This is because vessel traffic will still be able to transit the Intracoastal Waterway in the vicinity of the Cortez and Anna Maria bridges pursuant to the revised openings schedule. Small Entities Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we have considered whether this proposed rule would have a significant economic impact on a substantial number of small entities. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. The Coast Guard certifies under 5 U.S.C. 605(b) that this proposed rule would not have a significant economic impact on a substantial number of small entities. This proposed rule would affect the following entities, some of which may be small entities: The owners or operators of vessels needing to transit the Intracoastal Waterway in the vicinity of the Cortez and Anna Maria bridges, persons intending to drive over the bridges, and nearby business owners. The revision to the openings schedule would not have a significant impact on a substantial number of small entities. Vehicle traffic and small business owners in the area might benefit from the improved traffic flow that regularly scheduled openings will offer this area. Although bridge openings will be less frequent, vessel traffic will still be able to transit the Intracoastal Waterway in the vicinity of the Cortez and Anna Maria bridges pursuant to the revised openings schedule. If you think that your business, organization, or governmental jurisdiction qualifies as a small entity and that this rule would have a significant economic impact on it, please submit a comment to the Seventh Coast Guard District Bridge Branch at the address under ADDRESSES explaining why you think it qualifies and how and to what degree this proposed rule would economically affect it. Assistance for Small Entities Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this proposed rule so that they can better evaluate its effects on them and participate in the rulemaking. If the rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact the Seventh Coast Guard District Bridge Branch at the address under ADDRESSES. The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard. Collection of Information This proposed rule would call for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520.). Federalism A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on State or local governments and would either preempt State law or impose a substantial direct cost of compliance on them. We have analyzed this proposed rule under that Order and have determined that it does not have implications for federalism. Unfunded Mandates Reform Act The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 or more in any one year. Though this proposed rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble. Taking of Private Property This proposed rule would not affect a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights. Civil Justice Reform This proposed rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden. Protection of Children We have analyzed this proposed rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and would not create an environmental risk to health or risk to safety that might disproportionately affect children. Indian Tribal Governments This proposed rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it would not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes. Energy Effects We have analyzed this proposed rule under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use. We have determined that it is not a “significant energy action” under that order because it is not a “significant regulatory action” under Executive Order 12866 and is not likely to have a significant adverse effect on the supply, distribution, or use of energy. The Administrator of the Office of Information and Regulatory Affairs has not designated it as a significant energy action. Therefore, it does not require a Statement of Energy Effects under Executive Order 13211. Technical Standards The National Technology Transfer and Advancement Act (NTTAA) (15 U.S.C. 272 note) directs agencies to use voluntary consensus standards in their regulatory activities unless the agency provides Congress, through the Office of Management and Budget, with an explanation of why using these standards would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards (e.g., specifications of materials, performance, design, or operation; test methods; sampling procedures; and related management systems practices) that are developed or adopted by voluntary consensus standards bodies. This proposed rule does not use technical standards. Therefore, we did not consider the use of voluntary consensus standards. Environment We have analyzed this proposed rule under Commandant Instruction M16475.lD, and Department of Homeland Security Management Directive 5100.1, which guides the Coast Guard in complying with the National Environmental Policy Act of 1969

(NEPA)(42 U.S.C. 4321-4370f), and have made a preliminary determination that there are no factors in this case that would limit the use of a categorical exclusion under section 2.B.2 of the Instruction. Therefore, we believe that this rule should be categorically excluded, under figure 2-1, paragraph (32)(e), of the Instruction, from further environmental documentation. Under figure 2-1,paragraph (32)(e), of the Instruction, an “Environmental Analysis Check List” and a “Categorical Exclusion Determination” are not required for this rule. However, comments on this section will be considered before the final rule. List of Subjects in 33 CFR Part 117 Bridges. For the reasons discussed in the preamble, the Coast Guard proposes to amend 33 CFR part 117 as follows: PART 117—DRAWBRIDGE OPERATION REGULATIONS 1. The authority citation for part 117 continues to read as follows: Authority: 33 U.S.C. 499; Department of Homeland Security Delegation No. 0170.1; 33 CFR 1.05-1(g); section 117.255 also issued under the authority of Pub. L. 102-587, 106 Stat. 5039. 2. Revise § 117.287(d)(1) and

(2)to read as follows: § 117.287 Gulf Intracoastal Waterway. (d)(1) Cortez (SR 684) Bridge, mile 87.4. The draw shall open on signal, except that from 6 a.m. to 7 p.m., the draw need only open on the hour, 20-minutes after the hour, and 40-minutes after the hour. From January 15 to May 15, from 6 a.m. to 7 p.m., the draw need only open on the hour and half-hour.

(2)Anna Maria (SR 64) (Manatee Avenue West) Bridge, mile 89.2. The draw shall open on signal, except that from 6 a.m. to 7 p.m., the draw need only open on the hour, 20-minutes after the hour, and 40-minutes after the hour. From January 15 to May 15, from 6 a.m. to 7 p.m., the draw need only open on the hour and half-hour. Dated: October 24, 2006. D.W. Kunkel, Rear Admiral, U.S. Coast Guard, Commander, Seventh Coast Guard District. [FR Doc. E6-18799 Filed 11-7-06; 8:45 am] BILLING CODE 4910-15-P DEPARTMENT OF HOMELAND SECURITY Coast Guard 33 CFR Part 151 [USCG-2006-26136] Potential Revision of Mandatory Ballast Water Management Reporting Requirements AGENCY: Coast Guard, DHS. ACTION: Notice; request for public comments. SUMMARY: The Coast Guard requests public comments on our current ballast water management reporting and recordkeeping requirements. To provide additional opportunity for public comment, public meetings will be held in the Great Lakes and Gulf of Mexico regions. All stakeholders and interested parties are encouraged to submit comments to the docket and to attend a public meeting in or near their region. DATES: Comments and related material must reach the Docket Management Facility on or before March 16, 2007. ADDRESSES: You may submit comments identified by Coast Guard docket number USCG-2006-26136 to the Docket Management Facility at the U.S. Department of Transportation. To avoid duplication, please use only one of the following methods:

(1)*Web Site: http://dms.dot.gov* .

(2)*Mail:* Docket Management Facility, U.S. Department of Transportation, 400 Seventh Street, SW., Washington, DC 20590-0001.

(3)*Fax:* 202-493-2251.

(4)*Delivery:* Room PL-401 on the Plaza level of the Nassif Building, 400 Seventh Street, SW., Washington, DC, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The telephone number is 202-366-9329. FOR FURTHER INFORMATION CONTACT: If you have questions on this notice, contact LT Heather St. Pierre, Project Manager, Environmental Standards Division, Coast Guard, via telephone at 202-372-1432 or via e-mail at *Heather.J.St.Pierre@uscg.mil.* If you have questions on viewing or submitting material to the docket, call Renee V. Wright, Program Manager, Docket Operations, telephone 202-493-0402. SUPPLEMENTARY INFORMATION: Request for Comments All comments received will be posted, without change, to *http://dms.dot.gov* and will include any personal information you have provided. We have an agreement with the Department of Transportation

(DOT)to use the Docket Management Facility. Please see DOT's “Privacy Act” paragraph below. *Submitting comments:* If you submit a comment, please include your name and address, identify the docket number for this notice (USCG-2006-26136) and give the reason for each comment. You may submit your comments by electronic means, mail, fax, or delivery to the Docket Management Facility at the address under ADDRESSES ; but please submit your comments by only one means. If you submit them by mail or delivery, submit them in an unbound format, no larger than 8 1/2 by 11 inches, suitable for copying and electronic filing. If you submit them by mail and would like to know that they reached the Facility, please enclose a stamped, self-addressed postcard or envelope. We will consider all comments received during the comment period. *Viewing comments and documents:* To view comments, go to *http://dms.dot.gov* at any time, click on “Simple Search,” enter the last five digits of the docket number for this notice, and click on “Search.” You may also visit the Docket Management Facility in room PL-401 on the Plaza level of the Nassif Building, 400 Seventh Street, SW., Washington, DC, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. Privacy Act: Anyone can search the electronic form of all comments received into any of our dockets by the name of the individual submitting the comment (or signing the comment, if submitted on behalf of an association, business, labor union, etc.). You may review the Department of Transportation's Privacy Act Statement in the **Federal Register** published on April 11, 2000 (65 FR 19477), or you may visit *http://dms.dot.gov.* Background and Purpose In accordance with the Nonindigenous Aquatic Nuisance Prevention and Control Act of 1990 (as reauthorized and amended by the National Invasive Species Act of 1996 (NISA)), the Coast Guard promulgated ballast water management

(BWM)regulations in 33 CFR part 151, subparts C and D. As part of NISA, Congress authorized the Coast Guard to require BWM reporting and recordkeeping so that we can monitor discharge trends and practices as well as monitor compliance with BWM regulations. Subpart C of 33 CFR part 151 applies to vessels carrying ballast water after operating outside of the U.S. Exclusive Economic Zone

(EEZ)that enter the Snell Lock at Massena, New York, or vessels that navigate north of the George Washington Bridge on the Hudson River. In accordance with 33 CFR 151.1516 and 151.2041(b)(1)-(2), vessels entering the Great Lakes or Hudson River, north of the George Washington Bridge, must submit BWM reports at least 24 hours prior to arrival. The regulations in subpart D apply to all vessels, foreign and domestic, equipped with ballast tanks that operate in U.S. waters and are bound for U.S. ports or places. 33 CFR 151.2041 contains specific BWM reporting requirements. To accompany these regulations, we also published Navigation and Vessel Inspection Circular

(NVIC)07-04, entitled “Ballast Water Management for the Control of Aquatic Nuisance Species in the Waters of the United States” and change 1 to this guidance document. NVIC 07-04 also provides additional guidance on the equivalent reporting program for vessels operating exclusively within the EEZ (as established in 33 CFR 151.2043), allowing approved vessels to submit reports on a monthly basis, as opposed to the standard schedule required by 33 CFR 151.2041. These BWM reporting requirements are currently being reviewed for potential revisions. In this review process, the Coast Guard is interested in receiving comments on current reporting and recordkeeping requirements contained in the mandatory BWM regulations in 33 CFR part 151, subparts C and D. Specifically, the Coast Guard is seeking public comments on the current ballast water management reporting submission requirements, including comments on vessel types currently required to submit ballast water management reporting forms. Also, the Coast Guard is seeking comments on the ballast water reporting form itself to determine whether or not the form should be updated. Comments submitted to the docket may or may not be used to amend these ballast water management reporting requirements. The Coast Guard plans to hold two public meetings associated with this notice to provide additional opportunities for public comment. These meetings are planned to be held during the week of March 12, 2007; one meeting will be held in the Great Lakes region and the other in the Gulf of Mexico. Specific information on these meetings will be published in the **Federal Register** as a separate follow-on notice. All stakeholders and interested parties are encouraged to submit comments to the docket and to attend a public meeting in or near their region. Dated: November 3, 2006. J.G. Lantz, Director of National and International Standards, Assistant Commandant for Prevention, U.S. Coast Guard. [FR Doc. E6-18903 Filed 11-7-06; 8:45 am] BILLING CODE 4910-15-P DEPARTMENT OF THE INTERIOR National Park Service 36 CFR Chapter 1 Negotiated Rulemaking Advisory Committee for Dog Management at Golden Gate National Recreation Area ACTION: Notice of meeting cancellation. Notice is hereby given, in accordance with the Federal Advisory Committee Act (Pub. L. 92-463, 86 Stat. 770, 5 U.S.C. App. 1, section 10), of cancellation of the Wednesday, November 8, 2006 meeting of the Negotiated Rulemaking Advisory Committee for Dog Management at Golden Gate National Recreation Area (GGNRA) beginning at 3 p.m. in the Conference Center at Fort Mason Center in San Francisco which was published in the **Federal Register** on Wednesday, October 11, 2006, 71 FR 59697. The meeting is cancelled due to a change in schedule of the Negotiated Rulemaking Advisory Committee and will be rescheduled. FOR FURTHER INFORMATION CONTACT: Go to the *www.parkplanning.nps.gov.goga* and select *Negotiated Rulemaking for Dog Management at GGNRA* or call the project information line at 415-561-4728. Dated: October 31, 2006. Bernard C. Fagan, Acting Chief, Office of Policy. [FR Doc. 06-9109 Filed 11-7-06; 8:45 am]

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