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Code · REGISTER · 2007-07-31 · Federal Energy Regulatory Commission, DOE · Rules and Regulations

Rules and Regulations. Notice of proposed rulemaking

61,635 words·~280 min read·/register/2007/07/31/07-3678

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BILLING CODE 4910-62-P 72 146 Tuesday, July 31, 2007 Proposed Rules DEPARTMENT OF ENERGY Federal Energy Regulatory Commission 18 CFR Part 33 [Docket No. RM07-21-000] Blanket Authorization Under FPA Section 203 July 20, 2007. AGENCY: Federal Energy Regulatory Commission, DOE. ACTION: Notice of proposed rulemaking. SUMMARY: The Federal Energy Regulatory Commission (Commission) is proposing to amend its regulations pursuant to section 203 of the Federal Power Act
(FPA)to provide for a limited blanket authorization under FPA section 203(a)(1). The Commission seeks public comment on the rules and amended regulations proposed herein. The Commission also seeks comment on whether it should grant an additional blanket authorization for certain acquisitions or dispositions of jurisdictional contracts. DATES: Comments are due August 30, 2007. ADDRESSES: You may submit comments identified in Docket No. RM07-21-000, by one of the following methods: *Agency Web Site: http://www.ferc.gov* . Follow the instructions for submitting comments via the eFiling link found in the Comment Procedures section of the preamble. *Mail:* Commenters unable to file comments electronically must mail or hand deliver an original and 14 copies of their comments to the Federal Energy Regulatory Commission, Secretary of the Commission, 888 First Street, NE., Washington, DC 20426. Please refer to the Comment Procedures section of the preamble for additional information on how to file paper comments. FOR FURTHER INFORMATION CONTACT: Carla Urquhart (Legal Information), Office of the General Counsel, Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426,
(202)502-8496. Roshini Thayaparan (Legal Information), Office of the General Counsel, Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426,
(202)502-6857. Andrew P. Mosier, Jr. (Technical Information), Office of Energy Markets and Reliability, Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426,
(202)502-6274. SUPPLEMENTARY INFORMATION: I. Introduction 1. Pursuant to section 203 of the Federal Power Act (FPA), 1 the Commission is proposing to amend its regulations to revise Part 33 of Title 18 of the Code of Federal Regulations
(CFR)to provide for an additional blanket authorization under FPA section 203(a)(1). The Commission seeks public comment on the proposed rule. 1 16 U.S.C. 824b, *amended by* Energy Policy Act of 2005, Pub. L. 109-58, 1289, 119 Stat. 594, 982-83
(2005)(EPAct 2005). II. Background 2. EPAct 2005 expanded the scope of the corporate transactions subject to the Commission's review under section 203 of the FPA. Among other things, amended section 203:
(1)Expands the Commission's review authority to include authority over certain holding company mergers and acquisitions, as well as certain public utility acquisitions of generating facilities;
(2)requires that, prior to approving a disposition under section 203, the Commission must determine that the transaction would not result in inappropriate cross-subsidization of non-utility affiliates or the pledge or encumbrance of utility assets; 2 and
(3)imposes statutory deadlines for acting on mergers and other jurisdictional transactions. 2 Section 203(a)(4) is not an absolute prohibition on the cross-subsidization of a non-utility associate company or the pledge or encumbrance of utility assets for the benefit of an associate company. If the Commission determines that the cross-subsidization, pledge or encumbrance will be consistent with the public interest, such action may be permitted. 3. Through the Order No. 669 rulemaking proceeding, the Commission promulgated regulations adopting certain modifications to 18 CFR 2.26 and Part 33 to implement amended section 203. 3 The Commission also provided blanket authorizations for certain transactions subject to section 203. These blanket authorizations were crafted to ensure that there is no harm to captive utility customers, but sought to accommodate investments in the electric utility industry and market liquidity. Some commenters in the rulemaking proceeding argued that the Commission should have granted additional blanket authorizations that would benefit the marketplace and not harm customers. Other commenters argued that the Commission should adopt additional generic rules to guard against inappropriate cross-subsidization associated with the mergers. Yet other commenters argued that the Commission should modify its competitive analysis for mergers, which has been in place for 10 years. The Commission stated that it would re-evaluate these and other issues at a future technical conference on the Commission's section 203 regulations as well as certain issues raised in the Order No. 667 rulemaking proceeding implementing the Public Utility Holding Company Act of 2005. 4 3 *Transactions Subject to FPA Section 203* , Order No. 669, 71 FR 1348 (Jan. 6, 2006), FERC Stats. & Regs. ¶ 31,200 (2005), *order on reh'g* , Order No. 669-A, 71 FR 28422 (May 16, 2006), FERC Stats. & Regs. ¶ 31,214, *order on reh'g* , Order No. 669-B, 71 FR 42579 (July 27, 2006), FERC Stats. & Regs. ¶ 31,225 (2006). 4 EPAct 2005, Pub. L. 109-58, 1261, *et seq.* , 119 Stat. 594, 972-78
(2005)(PUHCA 2005). *See also Repeal of the Public Utility Holding Company Act of 1935 and Enactment of the Public Utility Holding Company Act of 2005* , Order No. 667, 70 FR 75592 (Dec. 20, 2005), FERC Stats. & Regs. ¶ 31,197 (2005), *order on reh'g* , Order No. 667-A, 71 FR 28446 (May 16, 2006), FERC Stats. & Regs. ¶ 31,213, *order on reh'g* , Order No. 667-B, 71 FR 42750 (July 28, 2006), FERC Stats. & Regs. ¶ 31,224 (2006), *order on reh'g* , Order No. 667-C, 72 FR 8277 (Feb. 26, 2007), 118 FERC ¶ 61,133 (2007). These issues included matters related to inappropriate cross-subsidization and pledges or encumbrance of utility assets, whether our current merger policy should be revised, and whether additional exemptions, different reporting requirements, or other regulatory action (under PUHCA 2005 or the FPA or Natural Gas Act (NGA)) needed to be considered. 4. On December 7, 2006, the Commission held a technical conference (December 7 Technical Conference) to discuss several of the issues that arose in the Order No. 667 and Order No. 669 rulemaking proceedings. The December 7 Technical Conference discussed a range of topics. The first panel discussed whether there are additional actions, under the FPA or the NGA, that the Commission should take to supplement the protections against cross-subsidization that were implemented in the Order No. 667 and Order No. 669 rulemaking proceedings. The second panel discussed whether, and if so how, the Commission should modify its Cash Management Rule 5 in light of PUHCA 2005 and whether the Commission should codify specific safeguards that must be adopted for cash management programs and money pool agreements and transactions. The third panel discussed whether modifications to the specific exemptions, waivers and blanket authorizations set forth in the Order No. 667 and Order No. 669 rulemaking proceedings are warranted. Post-technical conference comments were accepted. 5 *Regulation of Cash Management Practices* , Order No. 634, 68 FR 40500 (July 8, 2003), FERC Stats. & Regs. ¶ 31,145, *revised* , Order No. 634-A, 68 FR 61993 (Oct. 31, 2003), FERC Stats. & Regs. ¶ 31,152
(2003)(Cash Management Rule). 5. On March 8, 2007, the Commission held a second technical conference (March 8 Technical Conference) to discuss whether the Commission's section 203 policy should be revised and, in particular, whether the Commission's Appendix A merger analysis is sufficient to identify market power concerns in today's electric industry market environment. The first panel discussed whether the Appendix A analysis is appropriate to analyze a merger's effect on competition, given the changes that have occurred in the industry ( *e.g.* , the development of Regional Transmission Organizations (RTOs)) and statutory changes ( *e.g.* , as a result of the repeal of the Public Utility Holding Company Act of 1935 6 and new authorities given to the Commission in EPAct 2005 7 ). The second panel assessed the factors the Commission uses in reviewing mergers and the coordination between the Commission and other agencies (including state commissions) with merger review responsibility. 6 16 U.S.C. 79a *et seq.* (PUHCA 1935). 7 These include new authorities through amended FPA section 203 as well as PUHCA 2005. 6. This Notice of Proposed Rulemaking is one of three actions being taken based on the Commission's experience implementing amended FPA section 203 and PUHCA 2005, as well as the record from the Commission's December 7 and March 8 Technical Conferences regarding section 203 and PUHCA 2005. In this docket, the Commission is proposing to grant an additional blanket authorization for certain dispositions of jurisdictional facilities under FPA section 203(a)(1). In addition, in separate orders, the Commission is concurrently issuing a section 203 Supplemental Policy Statement 8 and a Notice of Proposed Rulemaking proposing to codify restrictions on affiliate transactions between franchised public utilities with captive customers and their market-regulated power sales affiliates or non-utility affiliates. 9 The proposed changes to the regulations in this proceeding are discussed below. 8 *FPA Section 203 Supplemental Policy Statement,* 119 FERC ¶ 61,060
(2007)(issued in Docket No. PL07-1-000). 9 *Cross-Subsidization Restrictions on Affiliate Transactions,* 119 FERC ¶ 61,061
(2007)(issued in Docket No. RM07-15-000). III. Discussion 7. The Commission proposes to amend 18 CFR part 33 (Applications Under Federal Power Act Section 203) to provide for an additional blanket authorization under FPA section 203(a)(1). 8. In the Order No. 669 rulemaking proceeding, the Commission set forth several blanket authorizations under which participants to FPA section 203-jurisdictional transactions need not seek *ex ante* Commission approval. These authorizations included a blanket authorization under section 203(a)(2) under which certain holding companies may acquire the voting securities of a public utility if the acquisition would give the holding company less than 10 percent ownership of the outstanding voting securities of such public utility. 10 The Commission found in Order No. 669 that several classes of transactions covered by amended section 203(a)(2) would not harm competition or captive customers, including acquisitions of voting securities that would give the acquiring entity not more than 9.99 percent ownership of the outstanding voting securities of the acquired utility or company. 11 While parties sought an additional blanket authorization under section 203(a)(1) to parallel that provided under section 203(a)(2), the Commission could not make a determination with respect to section 203(a)(1) at that time. Specifically, with regard to the request for parallel blanket authorization under section 203(a)(1) for equity ownership interests in public utilities that result in a change in control over the underlying public utility, we found in Order No. 669-A that such a blanket authorization would not address the “[c]oncerns with control, markets and protections of captive customers or customers receiving transmission service over jurisdictional transmission facilities” 12 implicated by section 203(a)(1). However, in Order No. 669-B, in response to comments that the lack of a parallel section 203(a)(1) authorization could thwart utility investment, the Commission stated that this issue would be included in the forthcoming technical conferences. 13 10 The section 203(a)(2) blanket authorization states: Any holding company in a holding company system that includes a transmitting utility or an electric utility is granted a blanket authorization under section 203(a)(2) of the Federal Power Act to purchase, acquire, or take: * * *
(ii)Any voting security in a transmitting utility, an electric utility company, or a holding company in a holding company system that includes a transmitting utility or an electric utility company if, after the acquisition, the holding company will own less than 10 percent of the outstanding voting securities. 18 CFR 33.1(c)(2)(ii). Because a “transmitting utility” or “electric utility company” may also be a “public utility” as defined in the FPA, the public utility may need to obtain separate authorization for the same transaction under FPA section 203(a)(1), which requires authorization for public utilities to dispose of jurisdictional facilities. 11 Order No. 669, FERC Stats. & Regs. ¶ 31,200 at P 141. 12 Order No. 669-A, FERC Stats. & Regs. ¶ 31,214 at P 103. 13 Order No. 669-B, FERC Stats. & Regs. ¶ 31,225 at P 26. 9. Based on the record from the technical conferences (including both oral and written comments) and the Commission's experience under amended section 203 to date, the Commission proposes to provide for a limited blanket authorization to public utilities under section 203(a)(1). This blanket authorization would work in conjunction with the blanket authorization granted to holding companies under section 203(a)(2) in 18 CFR 33.1(c)(2)(ii). 14 Under this limited blanket authorization, a public utility would be pre-authorized to dispose of less than 10 percent of its voting securities to a public utility holding company but only if, after the disposition, the holding company and any associate company *in aggregate* will own less than 10 percent of that public utility. We note that this proposed blanket authorization would not entirely “parallel” the section 203(a)(2) authorization since the section 203(a)(2) authorization does not contain the “in aggregate” limitation. However, we believe this limitation would provide better protection against possible transfer of “control” of a public utility. We seek comment on this limitation. 14 *See supra* note 10. 10. The Commission believes that the disposition of such limited voting interests (less than 10 percent), with the proposed “in aggregate” restriction and the existing reporting requirements applicable to holding companies, 15 will not harm competition or captive customers. Moreover, this 10 percent threshold is consistent with the definition of “holding company” under section 1262(8)(A) of PUHCA 2005. Under that definition, any company that has the power to vote *10 percent or more* of the securities of a public utility company (or a holding company of a public utility company) triggers holding company status and thus is presumed to raise sufficient concerns about controlling influence over a subsidiary public utility that regulatory oversight is needed. The 10 percent threshold is also consistent with the blanket authorization granted under section 203(a)(2) in the Order No. 669 rulemaking proceeding, under which holding companies are pre-authorized to acquire up to 9.99 percent of voting securities of a public utility. 15 *See,* *e.g.* , 18 CFR 33.1(c)(4) (requiring the filing of Securities and Exchange Commission
(SEC)Schedule 13D, Schedule 13G, and Form 13F, if applicable); 18 CFR 35.42(a) (effective 60 days after publication in the **Federal Register** of *Market-Based Rates For Wholesale Sales Of Electric Energy, Capacity And Ancillary Services By Public Utilities,* Order No. 697, 72 FR 39903 (July 20, 2007), FERC Stats. & Regs. ¶ 31,252 (2007)) (requiring a notification of any change in status that would reflect a departure from the characteristics the Commission relied upon in granting market-based rate authority); 18 CFR 366.4(a) (requiring Form FERC-65 (notification of holding company status)). 11. As noted, as part of the existing “parallel” blanket authorization under section 203(a)(2), the Commission already requires the holding company to provide to the Commission copies of any Schedule 13D, Schedule 13G and Form 13F at the same time and on the same basis, as filed with the SEC in connection with any securities purchased, acquired or taken pursuant to the blanket authorization under section 203(a)(2) provided in § 33.1(c)(2) of the Commission's regulations. 16 Importantly, a Schedule 13 filer must acquire the subject securities “in the ordinary course of his business and not with the purpose nor with the effect of changing or influencing the control of the issuer, nor in connection with or as a participant in any transaction having such purpose or effect” over entities whose securities it holds. 17 It is also required to file a notification with the SEC of any acquisition of beneficial ownership of more than five percent of a class of equity securities. 18 Because we already receive these filings from the holding company, we propose not to require additional reporting on the part of individual public utilities to duplicate the reporting of information we are already getting about the same transaction. However, we seek comments on whether any additional reporting by the public utility should be required. 16 18 CFR 33.1(c)(4). 17 17 CFR 240.13d-1(b)(1)(i). 18 17 CFR 240.13d-1(a). 12. Further, we seek comment on whether the blanket authorization under section 203(a)(1), proposed herein, should be extended to the transfer of securities by a public utility to a holding company granted a blanket authorization under section 203(a)(2) in §§ 33.1(c)(8), 19 33.1(c)(9), 20 and 33.1(c)(10) 21 of the Commission's regulations. 19 18 CFR 33.1(c)(8) (granting a blanket authorization under section 203(a)(2) to a person that is a holding company solely with respect to one or more exempt wholesale generators (EWGs), foreign utility companies (FUCOs), or qualifying facilities
(QFs)to acquire the securities of additional EWGs, FUCOs, or QFs). 20 18 CFR 33.1(c)(9) (granting a conditional blanket authorization under section 203(a)(2) to a holding company, or a subsidiary of that company, that is regulated by the Board of Governors of the Federal Reserve Bank or by the Office of the Comptroller of the Currency, under the Bank Holding Company Act of 1956 as amended by the Gramm-Leach-Bliley Act of 1999). 21 18 CFR 33.1(c)(10) (granting a limited blanket authorization under section 203(a)(2) to a holding company, or a subsidiary of that company, for the acquisition of securities of a public utility or a holding company that includes a public utility for purposes of underwriting activities or hedging transactions). 13. In addition, certain participants to the technical conferences argue that a blanket authorization under section 203(a)(1) should be granted for transactions in which a public utility or a holding company is acquiring or disposing of a jurisdictional contract where the acquirer does not have captive customers and the contract does not convey control over the operation of a generation or transmission facility. These commenters argue that, because acquisition of these contracts cannot create competitive or rate concerns, the Commission should grant blanket authorization under section 203(a)(1) for such transactions. Because the specific request for blanket authorization may present concerns where the transferor has captive customers, we seek comment on whether the Commission should grant a generic blanket authorization under section 203(a)(1) for the acquisition or disposition of a jurisdictional contract where neither the acquirer nor transferor has captive customers and the contract does not convey control over the operation of a generation or transmission facility. IV. Information Collection Statement 14. The Office of Management and Budget's
(OMB)regulations require that OMB approve certain information collection and data retention requirements imposed by agency rules. 22 Therefore, the Commission is submitting the proposed modifications to its information collections to OMB for review and approval in accordance with section 3507(d) of the Paperwork Reduction Act of 1995. 23 22 5 CFR part 1320. 23 44 U.S.C. 3507(d). 15. The Commission is proposing amendments to the Commission's regulations to provide for a limited blanket authorization under FPA section 203(a)(1). The regulations that the Commission proposes should have a minimal impact on the current reporting burden associated with an individual application, as they do not substantially change the filing requirements with which section 203 applicants must currently comply. Further, the Commission does not expect the total number of section 203 applications under amended section 203 to increase, but rather expects the total number of section 203 applications to decrease. This is due to the proposed rule providing for a category of jurisdictional transactions for which the Commission would not require applications seeking before-the-fact approval. This would reduce the burden on the electric industry, because it will reduce the number of applications that need to be made with the Commission. 16. Comments are solicited on the Commission's need for this information, whether the information will have practical utility, the accuracy of provided burden estimates, ways to enhance the quality, utility, and clarity of the information to be collected, and any suggested methods for minimizing respondents' burden, including the use of automated information techniques. *Burden Estimate:* The Public Reporting and records retention burden for the proposed reporting requirements and the records retention requirement are as follows. *Title:* FERC-519, “Application Under the Federal Power Act, Section 203”. *Action:* Revised Collection. *OMB Control No:* 1902-0082. The applicant will not be penalized for failure to respond to this information collection unless the information collection displays a valid OMB control number or the Commission has provided justification as to why the control number should not be displayed. *Respondents:* Businesses or other for profit. *Frequency of Responses:* N/A. *Necessity of the Information:* This proposed rule proposes codification of a limited blanket authorization under FPA section 203(a)(1), providing for a category of jurisdictional transactions under section 203(a)(1) for which the Commission would not require applications seeking before-the-fact approval. *Internal Review:* The Commission has conducted an internal review of the public reporting burden associated with the collection of information and assured itself, by means of internal review, that there is specific, objective support for its information burden estimate. 17. Interested persons may obtain information on the reporting requirements by contacting: Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426 [Attention: Michael Miller, Office of the Executive Director, Phone
(202)502-8415, fax
(202)273-0873, e-mail: *michael.miller@ferc.gov* ]. Comments on the requirements of the proposed rule may also be sent to the Office of Information and Regulatory Affairs, Office of Management and Budget, Washington, DC 20503 [Attention: Desk Officer for the Federal Energy Regulatory Commission, fax
(202)395-7285, e-mail *oira_submission@omb.eop.gov* ]. V. Environmental Analysis 18. The Commission is required to prepare an Environmental Assessment or an Environmental Impact Statement for any action that may have a significant adverse effect on the human environment. 24 The Commission has categorically excluded certain actions from this requirement as not having a significant effect on the human environment. 25 The proposed regulations are categorically excluded as they address actions under section 203. 26 Accordingly, no environmental assessment is necessary and none has been prepared in this NOPR. 24 *Regulations Implementing the National Environmental Policy Act* , Order No. 486, 52 FR 47897 (Dec. 17, 1987), FERC Stats. & Regs., Regulations Preambles 1986-1990 ¶ 30,783 (1987). 25 18 CFR 380.4. 26 *See* 18 CFR 380.4(a)(16). VI. Regulatory Flexibility Act Certification 19. The Regulatory Flexibility Act of 1980
(RFA)27 requires agencies to prepare certain statements, descriptions and analyses of proposed rules that will have a significant economic impact on a substantial number of small entities. 28 However, the RFA does not define “significant” or “substantial.” Instead, the RFA leaves it up to an agency to determine the effect of its regulations on small entities. 27 5 U.S.C. 601-12. 28 The RFA definition of “small entity” refers to the definition provided in the Small Business Act, which defines a “small business concern” as a business that is independently owned and operated and that is not dominant in its field of operation. 15 U.S.C. 632. The Small Business Size Standards component of the North American Industry Classification System defines a small electric utility as one that, including its affiliates, is primarily engaged in the generation, transmission, and/or distribution of electric energy for sale and whose total electric output for the preceding fiscal year did not exceed 4 million MWh. 13 CFR 121.201. 20. Most filing companies regulated by the Commission do not fall within the RFA's definition of small entity. 29 Moreover, as noted above, this proposed rule proposes codification of a limited blanket authorization under FPA section 203(a)(1), providing for a category of jurisdictional transactions under section 203(a)(1) for which the Commission would not require before-the-fact approval. Thus, filing requirements are reduced by the rule. Therefore, the Commission certifies that the proposed rule will not have a significant economic impact on a substantial number of small entities. As a result, no regulatory flexibility analysis is required. 29 5 U.S.C. 601(3), *citing* to section 3 of the Small Business Act, 15 U.S.C. 632. Section 3 of the Small Business Act defines a “small-business concern” as a business which is independently owned and operated and which is not dominant in its field of operation. VII. Comment Procedures 21. The Commission invites interested persons to submit comments on the matters and issues proposed in this notice, including any related matters or alternative proposals that commenters may wish to discuss. Comments are due August 30, 2007. Comments must refer to Docket No. RM07-21-000, and must include the commenter's name, the organization they represent, if applicable, and their address in their comments. Comments may be filed either in electronic or paper format. 22. Comments may be filed electronically via the eFiling link on the Commission's Web site at *http://www.ferc.gov* . The Commission accepts most standard word processing formats, but requests commenters to submit comments in a text-searchable format rather than a scanned image format. Commenters filing electronically do not need to make a paper filing. Commenters that are not able to file comments electronically must send an original and 14 copies of their comments to: Federal Energy Regulatory Commission, Secretary of the Commission, 888 First Street, NE., Washington, DC 20426. 23. All comments will be placed in the Commission's public files and may be viewed, printed, or downloaded remotely as described in the Document Availability section below. Commenters on this proposal are not required to serve copies of their comments on other commenters. VIII. Document Availability 24. In addition to publishing the full text of this document in the **Federal Register** , the Commission provides all interested persons an opportunity to view and/or print the contents of this document via the Internet through the Commission's Home Page ( *http://www.ferc.gov* ) and in the Commission's Public Reference Room during normal business hours (8:30 a.m. to 5 p.m. Eastern time) at 888 First Street, NE., Room 2A, Washington, DC 20426. 25. From the Commission's Home Page on the Internet, this information is available in the Commission's document management system, eLibrary. The full text of this document is available on eLibrary in PDF and Microsoft Word format for viewing, printing, and/or downloading. To access this document in eLibrary, type the docket number (excluding the last three digits of the docket number), in the docket number field. 26. User assistance is available for eLibrary and the Commission's Web site during normal business hours. For assistance, please contact FERC Online Support at
(202)502-6652 (toll-free at 1-866-208-3676) or e-mail at ferconlinesupport@ferc.gov, or the Public Reference Room at
(202)502-8371, TTY
(202)502-8659. E-mail the Public Reference Room at *public.referenceroom@ferc.gov* . List of Subjects in 18 CFR Part 33 Electric utilities, Reporting and recordkeeping requirements, Securities. By direction of the Commission. Kimberly D. Bose, Secretary. In consideration of the foregoing, the Commission proposes to amend Part 33, Chapter I, Title 18, Code of Federal Regulations, as follows: PART 33—APPLICATIONS UNDER FEDERAL POWER ACT SECTION 203 1. The authority citation for part 33 continues to read as follows: Authority: 16 U.S.C. 791a-825r, 2601-2645; 31 U.S.C. 9701; 42 U.S.C. 7101-7352; Pub. L. 109-58, 119 Stat. 594. 2. In § 33.1, paragraph (c)(12) is added to read as follows: § 33.1 Applicability, definitions, and blanket authorizations.
(c)* * *
(12)A public utility is granted a blanket authorization under section 203(a)(1) of the Federal Power Act to transfer its outstanding voting securities to any holding company granted blanket authorizations in paragraph (c)(2)(ii) of this section if, after the transfer, the holding company and any of its associate or affiliate companies in aggregate will own less than 10 percent of the outstanding voting interests of such public utility. [FR Doc. E7-14619 Filed 7-30-07; 8:45 am] BILLING CODE 6717-01-P DEPARTMENT OF ENERGY Federal Energy Regulatory Commission 18 CFR Part 35 [Docket No. RM07-15-000] Cross-Subsidization Restrictions on Affiliate Transactions July 20, 2007. AGENCY: Federal Energy Regulatory Commission, DOE. ACTION: Notice of proposed rulemaking. SUMMARY: The Federal Energy Regulatory Commission (Commission) is proposing to amend its regulations pursuant to sections 205 and 206 of the Federal Power Act to codify restrictions on affiliate transactions between franchised public utilities with captive customers and their market-regulated power sales affiliates or non-utility affiliates. The Commission seeks public comment on the rules and amended regulations proposed herein. DATES: *Comment Date:* Comments are due August 30, 2007. ADDRESSES: You may submit comments identified in Docket No. RM07-15-000, by one of the following methods: *Agency Web site: http://www.ferc.gov.* Follow the instructions for submitting comments via the eFiling link found in the Comment Procedures section of the preamble. *Mail:* Commenters unable to file comments electronically must mail or hand deliver an original and 14 copies of their comments to the Federal Energy Regulatory Commission, Secretary of the Commission, 888 First Street, NE., Washington, DC 20426. Please refer to the Comment Procedures section of the preamble for additional information on how to file paper comments. FOR FURTHER INFORMATION CONTACT: Carla Urquhart (Legal Information), Office of the General Counsel, Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426,
(202)502-8496. Roshini Thayaparan (Legal Information), Office of the General Counsel, Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426,
(202)502-6857. David Hunger (Technical Information), Office of Energy Markets and Reliability, Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426,
(202)502-8148. Stuart Fischer (Technical Information), Office of Enforcement, Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426,
(202)502-8517. SUPPLEMENTARY INFORMATION: I. Introduction 1. Pursuant to sections 205 and 206 of the Federal Power Act (FPA), 1 the Commission is proposing to amend its regulations to revise Part 35 of Title 18 of the Code of Federal Regulations
(CFR)to codify affiliate restrictions that would be applicable to all power and non-power goods and services transactions between franchised public utilities with captive customers and their market-regulated power sales and non-utility affiliates. 2 The Commission's goal in proposing these prophylactic restrictions is to protect against inappropriate cross-subsidization of market-regulated and unregulated activities by the captive customers of public utilities. The proposed restrictions are based upon those already imposed by the Commission in the context of certain FPA section 203 3 and 205 approvals, but expand the transactions and entities to which they apply. 4 The Commission seeks public comment on the proposed rules. 1 16 U.S.C. 824d, 824e. 2 For purposes of this Notice of Proposed Rulemaking, a “market-regulated” power sales affiliate means any power sales affiliate, other than a franchised public utility, whose power sales are regulated in whole or in part on a market basis. This would include, *e.g.* , a power marketer, exempt wholesale generator, qualifying facility or other power seller affiliate permitted to make some or all of its power sales at market-based rates. A “non-utility” affiliate would include an affiliate that is not in the power sales or transmission business, *e.g.* , a coal mining company, construction company, real estate company, energy-related technology company, communications systems company, among others. While the Commission, in previous documents, has referred to both categories of affiliates as “non-regulated,” consistent with the discussion on cross-subsidization issues in our recent Market-Based Rate Final Rule, we believe the term “market-regulated” more accurately describes power sellers with market-based rates since they remain subject to regulation. *Market-Based Rates For Wholesale Sales Of Electric Energy, Capacity And Ancillary Services By Public Utilities,* Order No. 697, 72 FR 39903 (July 20, 2007), FERC Stats. & Regs. ¶ 31,252, at P 490
(2007)(Market-Based Rate Final Rule). Accordingly, we have modified our terminology in this Notice of Proposed Rulemaking. 3 16 U.S.C. 824b, *amended by* Energy Policy Act of 2005, Pub. L. 109-58, 1289, 119 Stat. 594, 982-83
(2005)(EPAct 2005). 4 This Notice of Proposed Rulemaking is one of three actions being taken based on the Commission's experience implementing amended FPA section 203 and the Public Utility Holding Company Act of 2005, EPAct 2005, Pub. L. No. 109-58, 1261, *et seq.* , 119 Stat. 594, 972-78
(2005)(PUHCA 2005), as well as the record from the Commission's December 7, 2006 and March 8, 2007 technical conferences regarding Section 203 and PUHCA 2005. In addition, in separate orders, the Commission is concurrently issuing a section 203 Supplemental Policy Statement, *FPA Section 203 Supplemental Policy Statement* , 120 FERC ¶ 61,060
(2007)(issued in Docket No. PL07-1-000), and a Notice of Proposed Rulemaking proposing to grant a limited blanket authorization for certain dispositions of jurisdictional facilities under FPA section 203(a)(1), *Blanket Authorization Under FPA Section 203* , 120 FERC ¶ 61,062
(2007)(issued in Docket No. RM07-21-000). II. Background 2. The Commission requires public utilities to implement codes of conduct with regard to affiliate transactions where an entity seeks market-based rate authorization. The Commission also imposes codes of conduct on entities seeking merger authorization under section 203 of the FPA. The discussion below summarizes the Commission's existing practices in these two areas. A. Affiliate Transactions in the Context of Market-Based Rate Authorizations 1. Historical Approach 3. The Commission began considering proposals for market-based pricing of wholesale power sales and attendant cross-subsidy issues in 1988. At that time, the Commission acted on market-based rate proposals filed by various wholesale suppliers on a case-by-case basis. In doing so, the Commission considered whether there was evidence of affiliate abuse or reciprocal dealing involving the seller or its affiliates. 5 As the Commission explained, “[t]he Commission's concern with the potential for affiliate abuse is that a utility with a monopoly franchise may have an economic incentive to exercise market power through its affiliate dealings.” 6 The Commission also stated its concern that a franchised public utility and an affiliate may be able to transact in ways that transfer benefits from the captive customers of the franchised public utility to the affiliate and its shareholders. 7 Where a franchised public utility makes a power sale to an affiliate, the Commission is concerned that such a sale could be made at a rate that is too low, in effect, transferring the difference between the market price and the lower rate from captive customers to the market-regulated affiliated entity. Where a power seller with market-based rates makes power sales to an affiliated franchised public utility, the concern is that such sales could be made at a rate that is too high, which would give an undue profit to the affiliated entity at the expense of the franchised public utility's captive customers. 8 In determining whether to allow power sales affiliate transactions, the Commission, over time, has adopted several methods, all of which have focused on ensuring that captive customers are adequately protected against affiliate abuse. 5 *See Heartland Energy Services Inc.,* 68 FERC ¶ 61,223, at 62,062
(1994)( *Heartland* ) (discussing the potential for abuse in the case of affiliated power marketers); *Commonwealth Atlantic Limited Partnership,* 51 FERC ¶ 61,368, at 62,245
(1990)(discussing potential for reciprocal dealing if a buyer agrees to pay more for power from a seller in return for that seller (or its affiliates) paying more for power from that buyer (or its affiliates)). The other three “prongs” of the Commission's “four-prong” analysis include:
(1)Whether the seller and its affiliates lack, or have adequately mitigated, market power in generation;
(2)whether the seller and its affiliates lack, or have adequately mitigated, market power in transmission; and
(3)whether the seller or its affiliates can erect other barriers to entry. *See* Market-Based Rate Final Rule, FERC Stats. & Regs. ¶ 31,252 at P 7. These additional “prongs” are not directly at issue in this proceeding. 6 *Boston Edison Company Re: Edgar Electric Energy Co.,* 55 FERC ¶ 61,382, at 62,137 n.56
(1991)( *Edgar* ). *See also TECO Power Services Corp.,* 52 FERC ¶ 61,191, at 61,697 n.41, *order on reh'g,* 53 FERC ¶ 61,202
(1990)(“The Commission has determined that self dealing may arise in transactions between affiliates because affiliates have incentives to offer terms to one another which are more favorable than those available to other market participants.”). 7 *See, e.g., Heartland* , 68 FERC at 62,062. 8 The Commission has found that a transaction between two non-traditional utility affiliates (such as power marketers, exempt wholesale generators, or qualifying facilities) does not raise the same concern about cross-subsidization because neither has a franchised service territory and therefore has no captive customers. As the Commission has explained, no matter how sales are conducted between non-traditional affiliates, profits or losses ultimately affect only the shareholders. *FirstEnergy Generation Corporation,* 94 FERC ¶ 61,177, at 61,613 (2001); *USGen Power Services, L.P.,* 73 FERC ¶ 61,302, at 61,846 (1995). With respect to affiliate power sales, the Commission has also developed guidelines on how to determine whether a transaction is above suspicion and captive customers are protected, as well as guidelines for competitive solicitation processes. *See Edgar,* 55 FERC at 62,167-69; *Allegheny Energy Supply Company, LLC,* 108 FERC ¶ 61,082, at 61,417 (2004). 4. Just as the Commission has expressed concern about the potential for affiliate abuse in connection with power sales between affiliates, it also has recognized that there may be a potential for affiliate abuse through other means, such as the pricing of non-power goods and services or the sharing of market information between affiliates. 9 The same concerns about giving undue profits to affiliated “unregulated” entities and shareholders, discussed above with respect to power sales, also apply with respect to non-power goods and services transactions. 9 *See, e.g., Potomac Electric Power Company,* 93 FERC ¶ 61,240, at 61,782 (2000); *Heartland,* 68 FERC at 62,062-63. 5. Accordingly, the Commission's policy for many years has been to require that, as a condition of market-based rate authorization, applicants adopt a code of conduct applicable to non-power goods and services transactions between regulated and non-regulated affiliated power sellers. The Commission has also required that applicants include a provision in their market-based rate tariffs prohibiting power sales between regulated and non-regulated affiliated power sellers without first receiving authorization of the transaction under section 205 of the FPA. 10 10 *Aquila, Inc.,* 101 FERC ¶ 61,331, at P 12 (2002). 6. The purpose of the market-based rate code of conduct is to safeguard against affiliate abuse by protecting against the possible diversion of benefits or profits from franchised public utilities ( *i.e.* , traditional public utilities with captive ratepayers) to an affiliated entity for the benefit of shareholders. The Commission has waived the market-based rate code of conduct requirement in cases where there are no captive customers, and thus no potential for affiliate abuse, or where the Commission finds that such customers are adequately protected against affiliate abuse. 11 In such cases, however, the Commission directed the utilities to notify the Commission should they acquire captive customers in the future and expressly reserved the right to reimpose the market-based rate code of conduct requirement. 11 *See, e.g., CMS Marketing, Services and Trading Co.,* 95 FERC ¶ 61,308, at 62,051
(2001)(granting request for cancellation of code of conduct where wholesale contracts, as amended, “cannot be used as a vehicle for cross-subsidization of affiliate power sales or sales of non-power goods and services”); *Alcoa Inc.,* 88 FERC ¶ 61,045, at 61,119
(1999)(waiving code of conduct requirement where there were no captive customers); *Green Power Partners I LLC,* 88 FERC ¶ 61,005, at 61,010-11
(1999)(waiving code of conduct requirement where there are no captive wholesale customers and retail customers may choose alternative power suppliers under retail access program). 2. The Market-Based Rate Final Rule 7. In the Commission's recent Market-Based Rate Final Rule, among other things, the Commission codified in the regulations at 18 CFR part 35, subpart H, an explicit requirement that any seller with market-based rate authority must comply with the affiliate power sales restrictions and other affiliate restrictions. Compliance on an ongoing basis is a condition of retaining market-based rate authority. The Market-Based Rate Final Rule retains the policy that wholesale sales of power between a franchised public utility and any of its market-regulated power sales affiliates must be pre-approved by the Commission. It also adopts uniform affiliate restrictions governing power sales, sales of non-power goods and services, separation of functions, and information sharing between franchised public utilities with captive customers and their market-regulated power sales affiliates. 12 The power and non-power goods and services restrictions, however, apply only to transactions involving two power sellers. They do not apply to transactions between a franchised public utility and a non-utility affiliate. 12 Market-Based Rate Final Rule, FERC Stats. & Regs. ¶ 31,252 at P 23. B. Affiliate Transactions Under Section 203 1. Before EPAct 2005 8. The Commission has also addressed cross-subsidization issues in the context of section 203 merger applications. Prior to EPAct 2005, the Commission's policy was to condition its approval of certain section 203 mergers on the applicants' agreement to abide by certain restrictions on non-power goods and services transactions between a merged company's utility and non-utility or market-regulated subsidiaries. The condition was imposed on those mergers involving registered holding companies under the Public Utility Holding Company Act of 1935 13 in order to find that the merger would not adversely affect federal regulation. 14 That requirement grew out of judicial determinations that, when a merger would create or involve a registered holding company, the actions of the Securities and Exchange Commission
(SEC)may preclude the Commission from asserting jurisdiction over the non-power transactions between subsidiaries of that holding company. 15 Under *Ohio Power,* if the SEC approved an affiliate contract involving special purpose subsidiary goods or services at cost, the Commission had to allow pass-through of the costs in jurisdictional rates even if the public utility purchasing the goods or services could have obtained them at a lower market price from a non-affiliate. 16 For over a decade following the *Ohio Power* decision, the Commission required that, to gain section 203 approval of a proposed merger without a hearing, if the transaction would create a registered holding company under the PUHCA 1935, applicants must agree to waive the *Ohio Power* immunity and abide by the Commission's policy on intra-system transactions for non-power goods and services. 17 13 16 U.S.C. 79a *et seq.* (PUHCA 1935). EPAct 2005 repealed PUHCA 1935. EPAct 2005, Pub. L. No. 109-58, 1263. 14 *See, e.g., Niagara Mohawk Holdings, Inc.,* 95 FERC ¶ 61,381, at 62,414, *order on reh'g,* 96 FERC ¶ 61,144 (2001). 15 *See Ohio Power Co.* v. *FERC,* 954 F.2d 779, 782-86 (D.C. Cir.), *cert. denied sub nom., Arcadia* v. *Ohio Power Co.,* 506 U.S. 981
(1992)( *Ohio Power* ). 16 The Commission's policy since the mid-1990s has been that where the regulated public utility has provided non-power goods or services to the non-regulated affiliate, the public utility provides the goods or services at the higher of cost or market. A non-regulated affiliate that sells non-power goods or services to an affiliate with captive customers may not sell at higher than market price. This is often referred to as the “market” standard. These standards were articulated in the Commission's 1996 Merger Policy Statement. *Inquiry Concerning the Commission's Merger Policy Under the Federal Power Act: Policy Statement,* Order No. 592, 61 FR 68595 (Dec. 30, 1996), FERC Stats. & Regs. ¶ 31,044, at 30,124-25
(1996)(1996 Merger Policy Statement), *reconsideration denied,* Order No. 592-A, 62 FR 33341 (June 19, 1997), 79 FERC ¶ 61,321 (1997). 17 *Public Service Company of Colorado,* 75 FERC ¶ 61,325, at 62,046 (1996); 1996 Merger Policy Statement, FERC Stats. & Regs. ¶ 31,044 at 30,124-25. 2. After EPAct 2005 9. Because EPAct 2005 repealed PUHCA 1935, certain activities of previously-registered holding companies that were previously subject to SEC regulation, including intra-system affiliate transactions, are no longer exempt from this Commission's full regulatory review. In particular, the Commission's conditions and policies under FPA sections 205 and 206 with respect to non-power goods and services transactions between holding company affiliates may now be applied to all public utilities that are members of holding companies, whether in the context of a section 203 merger proceeding or the context of a section 205-206 rate proceeding. 18 In addition, the Commission has authority to review allocation of service company costs among members of holding companies that have public utilities with captive customers. 18 The provisions of PUHCA 1935 that formed the basis for *Ohio Power* are no longer in effect, thus removing the *Ohio Power* limitation on our oversight of non-power transactions. Further, FPA section 318, which provided for SEC preemption in certain circumstances where there was a conflict between SEC PUHCA 1935 regulation and Commission regulation, was repealed. 10. In the Order No. 669 rulemaking proceedings, 19 which revised the Commission's regulations pursuant to amended section 203, the Commission continued its past approach with respect to affiliate abuse restrictions involving power and non-power goods and services transactions, in the context of section 203 applications. 20 However, the Commission made two additional clarifications. 19 *Transactions Subject to FPA Section 203,* Order No. 669, 71 FR 1348 (Jan. 6, 2006), FERC Stats. & Regs. ¶ 31,200 (2005), *order on reh'g,* Order No. 669-A, 71 FR 28422 (May 16, 2006), FERC Stats. & Regs. ¶ 31,214, *order on reh'g,* Order No. 669-B, 71 FR 42579 (July 27, 2006), FERC Stats. & Regs. ¶ 31,225 (2006). 20 Amended section 203(a)(4) does add to the Commission's merger analysis the explicit requirement that the Commission find that any proposed transaction will not result in cross-subsidization of a non-utility associate company or the pledge or encumbrance of utility assets for the benefit of an associate company, unless that cross-subsidization, pledge, or encumbrance will be consistent with the public interest. 11. First, in its implementation of regulations pursuant to PUHCA 2005, 21 the Commission discussed one exception to the traditional standards articulated in the 1996 Merger Policy Statement. In the Order No. 667 rulemaking proceeding, 22 the Commission explained that there are two circumstances in which the at-cost or market standards may arise in the context of the Commission's jurisdictional responsibilities:
(1)The Commission's review of the costs of non-power goods and services provided by a traditional, centralized service company to public utilities within the holding company system; and
(2)when a service company that is a special-purpose company within a holding company provides non-power goods or services to one or more public utilities in the same holding company system. Under both scenarios, the similar concerns regarding affiliate abuse arise: “[w]hether the public utility's costs incurred in purchasing from the affiliate are prudently incurred and just and reasonable, and whether non-regulated affiliates purchasing non-power goods and services from the same special-purpose company are receiving preferential treatment vis-à-vis the public utility.” 23 In Order No. 667, the Commission exempted traditional, centralized service companies, which at that time were using the SEC's “at-cost” standard, from complying with the Commission's market standard for their sales of non-power goods and services to regulated affiliates and created a rebuttable presumption that costs incurred under at-cost pricing for such services are reasonable. 24 However, with respect to non-power goods and services transactions between holding company affiliates other than traditional, centralized service companies, *i.e.* , service companies that are non-regulated, special-purpose affiliates, such as a fuel supply company or a construction company, the Commission continued with its prior practice. 25 21 PUHCA 2005 is primarily a books and records access statute and does not give the Commission any new substantive authorities, other than the requirement that the Commission review and authorize certain non-power goods and services cost allocations among holding company members upon request. EPAct 2005, Pub. L. No. 109-58, 1275. 22 *Repeal of the Public Utility Holding Company Act of 1935 and Enactment of the Public Utility Holding Company Act of 2005,* Order No. 667, 70 FR 75592 (Dec. 20, 2005), FERC Stats. & Regs. ¶ 31,197 (2005), *order on reh'g,* Order No. 667-A, 71 FR 28446 (May 16, 2006), FERC Stats. & Regs. ¶ 31,213, *order on reh'g,* Order No. 667-B, 71 FR 42750 (July 28, 2006), FERC Stats. & Regs. ¶ 31,224 (2006), *order on reh'g,* 72 FR 8277 (Feb. 26, 2007), 118 FERC ¶ 61,133 (2007). 23 Order No. 667, FERC Stats. & Regs. ¶ 31,197 at P 168. 24 *Id.* P 169. 25 Order No. 667 states, in relevant part: First, with respect to sales from a public utility to a non-regulated, affiliated special-purpose company, we agree * * * that the price should be no less than cost, *i.e.* , the higher of cost or market; otherwise, a public utility could attempt to game the system and forego profits it could otherwise obtain by selling to a non-affiliate, to the benefit of its non-regulated affiliate who receives a good or service at a below-market price. When the situation is reversed, *i.e.* , the non-regulated, affiliated special-purpose company is providing non-power goods and services to the public utility affiliate, the Commission will continue to apply its market standard. The non-regulated, affiliated special-purpose company may not sell to its public utility affiliate at a price above the market price. We believe that such transactions involving such non-regulated, affiliated special-purpose companies pose a greater risk of inappropriate cross-subsidization and adverse effects on jurisdictional rates. *Id.* P 171. 12. Second, in recent section 203 merger proceedings, the Commission has extended the applicability of the code of conduct restrictions previously applied only to registered holding companies. In *National Grid plc,* 26 the Commission announced that it would require all merging parties to abide by a code of conduct containing specific provisions regarding power and non-power goods and services transactions between the utility subsidiaries and their affiliates: 26 117 FERC ¶ 61,080
(2006)( *National Grid* ). Implementation of the Code of Conduct for all utility subsidiaries of the merged company, as required by our decision here, will address both power and non-power goods and services transactions between the utility subsidiaries and their affiliates. The Code of Conduct to be implemented by the merged company shall
(1)require our approval of all power sales by a utility to an affiliate,
(2)require a utility with captive customers to provide non-power goods or services to a non-utility or “non-regulated utility” affiliate at a price that is the higher of cost or market price,
(3)prohibit a non-utility or non-regulated utility affiliate from providing non-power goods or services to a utility affiliate with captive customers at a price above market price, and
(4)prohibit a centralized service company from providing non-power services to a utility affiliate with captive customers at a price above cost. These requirements protect a utility's captive customers against inappropriate cross-subsidization of non-utility or non-regulated utility affiliates by ensuring that the utility with captive customers neither recovers too little for goods and services that the utility provides to an affiliate nor pays too much for goods and services that the utility receives from an affiliate. Implementation of these requirements provides a prophylactic mechanism to ensure that the merger will not result in cross-subsidization of non-utility or non-regulated utility companies in the same holding company system and therefore meets the requirement of section 203(a)(4) that a merger not result in inappropriate cross-subsidization of a non-utility associate company. 27 27 *Id.* P 66 (internal citations removed). 13. While these affiliate restrictions are broad in terms of transactions covered (covering transactions between power sales affiliates as well as transactions between power sales affiliates and non-utility affiliates) and have been extended within the context of section 203 approvals, they do not apply to public utilities that do not need to seek section 203 merger approval. III. Discussion 14. Historically, section 205 rate review has been the primary mechanism by which the Commission disallowed as imprudent or unjust and unreasonable the costs incurred by a franchised public utility in purchasing power or non-power goods and services from a non-utility or power sales affiliate when the utility could have purchased such power or non-power goods and services from a non-affiliated entity. However, as discussed above, the Commission's policy over the years has been to develop prophylactic affiliate cross-subsidy restrictions in the context of blanket market-based rate authorizations under FPA section 205 and merger proceedings under section 203. We believe prophylactic restrictions setting forth the standards under which affiliates may transact are superior to relying exclusively on after-the-fact rate reviews of costs already incurred. Further, it would be virtually impossible for the Commission to individually pre-approve every power and non-power goods and services transaction given the volume of transactions that occur on a daily basis. The affiliate restrictions the Commission has previously imposed in individual cases involving market-based rate applicants and merger applicants allow public utilities to know up-front the standards under which they may transact with affiliates; and, if they do not follow those standards, they are at risk for full refunds plus interest, or other remedial action. 15. Accordingly, to provide better assurance against inappropriate cross-subsidization, we believe it is appropriate to continue imposing affiliate restrictions, to expand the coverage of those restrictions, and to codify them in our regulations. As noted above, there is a gap in coverage of the restrictions as they are currently imposed. Specifically, the restrictions imposed on section 205 market-based rate applicants do not cover non-power goods and services transactions between a franchised public utility and non-utilities; they cover only transactions between power sales affiliates and are imposed only on the market-based rate applicants. Additionally, while the restrictions imposed on section 203 applicants cover transactions between a franchised public utility and market-regulated power sales affiliates as well as non-utility affiliates, they apply only to merger applicants; they do not apply to other section 203 applicants and do not apply to public utilities that do not require any section 203 authorization. 28 Finally, while the preamble to Order No. 667 discussed the Commission's pricing policy on affiliate non-power goods and services transactions, including pricing of non-power goods and services provided by centralized service companies, the pricing policy (which technically is a ratemaking policy rather than a PUHCA 2005 issue) was not codified in the regulations. 28 *See supra* P 12. 16. To address this gap in coverage, the uniform affiliate restrictions that the Commission proposes to implement would be applicable to all franchised public utilities with captive customers and their market-regulated and non-utility affiliates and would address both power and non-power goods and services transactions between the utility and its affiliates. Specifically, they would:
(1)Require the Commission's approval of all power sales by a franchised utility with captive customers to a market-regulated power sales affiliate;
(2)require a franchised public utility with captive customers to provide non-power goods and services to a market-regulated power sales affiliate or a non-utility affiliate at a price that is the higher of cost or market price;
(3)prohibit a franchised public utility with captive customers from purchasing non-power goods or services from a market-regulated power sales affiliate or a non-utility affiliate at a price above market price (with the exception of (4)); and
(4)prohibit a franchised public utility with captive customers from receiving non-power services from a centralized service company at a price above cost. These restrictions will help the Commission meet the requirement of amended section 203(a)(4) that a transaction not result in the inappropriate cross-subsidization of a non-utility associate company and, moreover, help us assure just and reasonable rates and the protection of captive customers for all public utilities pursuant to sections 205 and 206 of the FPA, irrespective of whether they need approval of a section 203 transactions. 17. We note that there is overlap in the affiliate restrictions proposed herein and those that were recently adopted in the Market-Based Rate Final Rule. However, as discussed above, those restrictions apply only to market-based rate applicants and only to transactions between power sales affiliates. The restrictions herein are consistent with, and in some instances mirror, those imposed in the Market-Based Rate Final Rule. We believe any overlap is appropriate and necessary to ensure that all franchised public utilities with captive customers have the same restrictions imposed on them. We also note that we are proposing one additional restriction that is not covered in the Market-Based Rate Final Rule, but which has been imposed on section 203 merger applicants. That restriction would prohibit a centralized service company from providing non-power goods and services to a franchised public utility with captive customers at a price above cost. This implements the findings made in Order No. 667 and, by codifying it in the regulations along with the other affiliate restrictions, will eliminate any gaps in coverage and ensure uniformity in the restrictions being applied. 18. The Commission seeks comments on these proposed affiliate cross-subsidy restrictions. We also seek comment on whether the Commission should impose any after-the-fact reporting requirements on transactions covered by the restrictions and, if so, what they should be. In this regard, we note that the Commission already receives reporting of public utility affiliate power sales transactions through Electric Quarterly Reports and we see no need to duplicate existing power sales reporting. However, we are particularly interested in: Whether any reporting requirements regarding affiliate non-power goods and services transactions should be imposed; whether such reporting, if it were to be required, should be on a yearly basis or within some other time frame, and what specific information should be reported; whether states already require such reporting; and the burdens that any reporting requirements would impose. Although the Commission has authority to review such transactions through auditing and in individual section 205 rate proceedings, we seek comment on the general usefulness of additional reporting requirements. IV. Information Collection Statement 19. The Office of Management and Budget's
(OMB)regulations require that OMB approve information collection requirements imposed by agency rules. 29 The Commission is proposing amendments to the Commission's regulations to codify restrictions on affiliate transactions between franchised public utilities with captive customers and their market-regulated power sales affiliates or non-utility affiliates. The Commission is not imposing an information collection requirement upon the public. However, the Commission will submit for informational purposes only a copy of this rulemaking to OMB. 29 5 CFR 1320. V. Environmental Analysis 20. The Commission is required to prepare an Environmental Assessment or an Environmental Impact Statement for any action that may have a significant adverse effect on the human environment. 30 The Commission has categorically excluded certain actions from this requirement as not having a significant effect on the human environment. 31 The proposed regulations are categorically excluded as they address rate filings submitted under sections 205 and 206 of the FPA. 32 Accordingly, no environmental assessment is necessary and none has been prepared in this NOPR. 30 *Regulations Implementing the National Environmental Policy Act,* Order No. 486, 52 FR 47897 (Dec. 17, 1987), FERC Stats. & Regs., Regulations Preambles, 1986-1990, ¶ 30,783 (1987). 31 18 CFR 380.4. 32 *See* 18 CFR 380.4(a)(15). VI. Regulatory Flexibility Act Certification 21. The Regulatory Flexibility Act of 1980
(RFA)33 requires agencies to prepare certain statements, descriptions, and analyses of proposed rules that will have significant economic impact on a substantial number of small entities. 34 Agencies are not required to make such an analysis if a rule would not have such an effect. 33 5 U.S.C. 601-12. 34 The RFA definition of “small entity” refers to the definition provided in the Small Business Act, which defines a “small business concern” as a business that is independently owned and operated and that is not dominant in its field of operation. 15 U.S.C. 632. The Small Business Size Standards component of the North American Industry Classification System defines a small electric utility as one that, including its affiliates, is primarily engaged in the generation, transmission, and/or distribution of electric energy for sale and whose total electric output for the preceding fiscal year did not exceed 4 million MWh. 13 CFR 121.201. 22. The proposed rule will be applicable to franchised public utilities with captive customers. Most such companies regulated by the Commission do not fall within the RFA's definition of small entity. 35 Therefore, the Commission certifies the proposed rule will not have a significant economic impact on a substantial number of small entities. As a result, no regulatory flexibility analysis is required. 35 5 U.S.C. 601(3), citing to section 3 of the Small Business Act, 15 U.S.C. 632. Section 3 of the Small Business Act defines a “small-business concern” as a business which is independently owned and operated and which is not dominant in its field of operation. VII. Comment Procedures 23. The Commission invites interested persons to submit comments on the matters and issues proposed in this notice, including any related matters or alternative proposals that commenters may wish to discuss. Comments are due August 30, 2007. Comments must refer to Docket No. RM07-15-000, and must include the commenter's name, the organization they represent, if applicable, and their address in their comments. Comments may be filed either in electronic or paper format. 24. Comments may be filed electronically via the eFiling link on the Commission's Web site at *http://www.ferc.gov.* The Commission accepts most standard word processing formats, but requests commenters to submit comments in a text-searchable format rather than a scanned image format. Commenters filing electronically do not need to make a paper filing. Commenters that are not able to file comments electronically must send an original and 14 copies of their comments to: Federal Energy Regulatory Commission, Secretary of the Commission, 888 First Street, NE., Washington, DC 20426. 25. All comments will be placed in the Commission's public files and may be viewed, printed, or downloaded remotely as described in the Document Availability section below. Commenters on this proposal are not required to serve copies of their comments on other commenters. VIII. Document Availability 26. In addition to publishing the full text of this document in the **Federal Register** , the Commission provides all interested persons an opportunity to view and/or print the contents of this document via the Internet through the Commission's Home Page ( *http://www.ferc.gov* ) and in the Commission's Public Reference Room during normal business hours (8:30 a.m. to 5 p.m. Eastern time) at 888 First Street, NE., Room 2A, Washington DC 20426. 27. From the Commission's Home Page on the Internet, this information is available in the Commission's document management system, eLibrary. The full text of this document is available on eLibrary in PDF and Microsoft Word format for viewing, printing, and/or downloading. To access this document in eLibrary, type the docket number (excluding the last three digits of the docket number), in the docket number field. 28. User assistance is available for eLibrary and the Commission's website during normal business hours. For assistance, please contact FERC Online Support at
(202)502-6652 (toll-free at 1-866-208-3676) or e-mail at *ferconlinesupport@ferc.gov,* or the Public Reference Room at
(202)502-8371, TTY
(202)502-8659. E-mail the Public Reference Room at *public.referenceroom@ferc.gov.* List of Subjects in 18 CFR Part 35 Electric power rates, Electric utilities, Reporting and recordkeeping requirements. By direction of the Commission. Kimberly D. Bose, Secretary. In consideration of the foregoing, the Commission proposes to amend Part 35, Chapter I, Title 18, Code of Federal Regulations, as follows: PART 35—FILING OF RATE SCHEDULES AND TARIFFS 1. The authority citation for part 35 continues to read as follows: Authority: 16 U.S.C. 791a-825r, 2601-2645; 31 U.S.C. 9701; 42 U.S.C. 7101-7352. 2. Subpart I is added to read as follows: Subpart I—Cross-Subsidization Restrictions on Affiliate Transactions Sec. 35.43 Generally. 35.44 Protections against affiliate cross-subsidization. Subpart I—Cross-Subsidization Restrictions on Affiliate Transactions § 35.43 Generally.
(a)For purposes of this subpart:
(1)*Captive customers* means any wholesale or retail electric energy customers served under cost-based regulation.
(2)*Franchised public utility* means a public utility with a franchised service obligation under state law.
(3)*Market-regulated power sales affiliate* means any power seller affiliate other than a franchised public utility, including a power marketer, exempt wholesale generator, qualifying facility or other power seller affiliate, whose power sales are regulated in whole or in part on a market-rate basis.
(4)*Non-utility affiliate* means any affiliate that is not in the power sales or transmission business.
(b)The provisions of this subpart apply to all franchised public utilities with captive customers. § 35.44 Protections against affiliate cross-subsidization.
(a)*Restriction on affiliate sales of electric energy.* No wholesale sale of electric energy may be made between a franchised public utility with captive customers and a market-regulated power sales affiliate without first receiving Commission authorization for the transaction under section 205 of the Federal Power Act.
(b)*Non-power goods or services.*
(1)Unless otherwise permitted by Commission rule or order, sales of any non-power goods or services by a franchised public utility with captive customers, including sales made to or through its affiliated exempt wholesale generators or qualifying facilities, to a market-regulated power sales affiliate or non-utility affiliate, must be at the higher of cost or market price.
(2)Unless otherwise permitted by Commission rule or order, and except as permitted by paragraph (b)(3) of this section, a franchised public utility with captive customers may not purchase or receive non-power goods and services from a market-regulated power sales affiliate or a non-utility affiliate at a price above market.
(3)A franchised public utility with captive customers may not purchase or receive non-power goods and services from a centralized service company at a price above cost. [FR Doc. E7-14618 Filed 7-30-07; 8:45 am] BILLING CODE 6717-01-P SOCIAL SECURITY ADMINISTRATION 20 CFR Parts 404, 405, and 416 [Docket No. SSA 2007-0053] RIN 0960-AG54 Compassionate Allowances AGENCY: Social Security Administration (SSA). ACTION: Advance notice of proposed rulemaking. SUMMARY: Under titles II and XVI of the Social Security Act (the Act), we pay benefits to individuals who meet our rules for entitlement and have medically determinable physical or mental impairments that are severe enough to meet the definition of disability in the Act. The rules for determining disability can be very complicated, but some individuals have such serious medical conditions that their conditions obviously meet our disability standards. To address these individuals' needs, we strive to provide not only responsive, but also compassionate, public service that ensures the most severely disabled in our society who meet the Act's requirements are awarded benefits quickly. To that end, we are investigating methods of making “compassionate allowances” by quickly identifying individuals with obvious disabilities. The purpose of this notice is to give you an opportunity to send us comments about what standards we should use for compassionate allowances, methods we might use to identify compassionate allowances, and suggestions for how to implement those standards and methods. DATES: To be sure that your comments are considered, we must receive them by October 1, 2007. ADDRESSES: You may give us your comments by: Internet through the Federal eRulemaking Portal at *http://www.regulations.gov;* e-mail to regulations@ssa.gov; telefax to
(410)966-2830; or letter to the Commissioner of Social Security, P.O. Box 17703, Baltimore, MD 21235-7703. You may also deliver them to the Office of Regulations, Social Security Administration, 960 Altmeyer Building, 6401 Security Boulevard, Baltimore, MD 21235-6401, between 8 a.m. and 4:30 p.m. on regular business days. Comments are posted on the Federal eRulemaking Portal, or you may inspect them on regular business days by making arrangements with the contact person shown in this preamble. FOR FURTHER INFORMATION CONTACT: James Julian, Director, Office of Compassionate Allowances and Listings Improvements, Social Security Administration, 4470 Annex Building, 6401 Security Boulevard, Baltimore, MD 21235-6401,
(410)965-4015. For information on eligibility or filing for benefits, call our national toll-free number 1-800-772-1213 or TTY 1-800-325-0778, or visit our Internet Web site, Social Security Online, at *http://www.socialsecurity.gov.* SUPPLEMENTARY INFORMATION: Electronic Version The electronic file of this document is available on the date of publication in the **Federal Register** at *http://www.gpoaccess.gov/fr/index.html.* Sequential Evaluation Process for Determining Disability We use a five-step “sequential evaluation process” to decide whether an individual is disabled, but will stop at any point in the process at which we are able to make a disability determination. At step one, we determine whether an individual is currently engaged in substantial gainful activity. If not, we then move to step two and determine whether the individual has a “severe” impairment or combination of impairments significantly limiting the ability to perform basic work activities. At step three, we compare the individual's impairment(s) to those in the Listing of Impairments in appendix 1 of subpart P of part 404 of our regulations (listing). If the impairment does not meet or equal in severity a listing, at step four, we assess the individual's residual functional capacity to determine if the individual can do any past relevant work. Finally, at step five, we determine whether other work exists in significant numbers that such an individual can perform, considering the individual's residual functional capacity, age, education, and work experience. We use different sequential evaluation processes for children and for individuals already receiving benefits when we determine whether they are still disabled. See §§ 404.1594, 416.924, 416.994, and 416.994a of our regulations. Current Examples of Compassionate Allowances In making disability determinations, we already apply screening methods that identify and assist some of the most obviously disabled individuals. Some of our current screening methods include: 1. *Presumptive Disability/Presumptive Blindness.* Under the Act, an individual, including a child, applying for supplemental security income
(SSI)based on disability or blindness, may receive up to 6 months of payments before we make a formal determination of disability or blindness if we determine that he or she is presumptively disabled or blind (PD/PB) and meets all other eligibility requirements. Generally, our field offices are authorized to make a PD/PB finding only for certain impairments that are readily observable or that can be easily confirmed; however, the State agencies that make initial disability determinations for us may make a PD/PB finding in any case where there is a strong likelihood that the claim will be allowed on formal determination. 2. *Terminal Illness.* We expedite the determinations of all disability cases in which there is an indication of a terminal illness (TERI). We may identify a claim as a TERI case when an individual alleges a terminal illness, when there is an allegation or diagnosis of AIDS, when an individual is receiving hospice care, or when medical records indicate that an individual has an impairment that is untreatable. 3. *Quick Disability Determinations (QDD).* Through the QDD process, we screen claims for special assignment within the State agencies so that they may allow the claims quickly, often within less than 10 days. We use a complex computer screening tool at the time an individual files his or her application for disability benefits to identify some cases that are likely to qualify with evidence we can obtain quickly. The screening tool searches the application and other documents for key words in identifying a claim as a likely QDD. 4. *The Listing of Impairments.* As described above, at the third step of the “sequential evaluation process” that we use for determining disability, we consider whether an individual's impairment meets or medically equals the criteria of a listing. When an individual's impairment meets or medically equals the criteria of any listed impairment, we find the individual disabled without considering residual functional capacity, age, education, or work experience. Examples of some listing-level impairments that qualify for favorable determinations with minimal medical evidence establishing the diagnosis include: • Hemipelvectomy (sections 1.05D and 101.05D), • Non-mosaic Down syndrome (sections 10.06 and 110.06), • Catastrophic congenital anomalies, such as anencephaly and cri du chat (deletion 5p) syndrome (section 110.08), • Amyotrophic lateral sclerosis (section 11.10), • Acute leukemia (sections 13.06A and 113.06A), • Small-cell carcinoma of a lung (section 13.14B), • Carcinoma (except islet cell carcinoma) of the pancreas (section 13.20A), and • Major organ transplants, such as heart, liver, or lungs (various sections). There are also some impairments that qualify for favorable determinations under a listing based solely on objective medical evidence but with criteria for clinical or laboratory findings demonstrating the severity of the impairment. However, this evidence is also generally minimal. For example: • Impairment of visual acuity (statutory blindness) with remaining vision in the better eye after best correction of 20/200 or less (section 2.02 and 102.02A), • Cystic fibrosis with specified levels of forced expiratory volume
(FEV1)(sections 3.04A and 103.04A), • Any symptomatic congenital heart disease with cyanosis at rest and a specified hematocrit or arterial oxygen level (sections 4.06A and 104.06A), • Any chronic renal (kidney) disease requiring chronic hemodialysis or peritoneal dialysis (sections 6.02A and 106.02A), and • Many inoperable cancers and cancers with distant metastases (various provisions in sections 14.00 and 114.00). Examples of Other Compassionate Allowances That We Are Considering In addition to these methods of identifying compassionate allowances, we are considering the creation of an extensive list of impairments that we can allow quickly with minimal objective medical evidence that is based on clinical signs or laboratory findings or a combination of both. We believe that we could use certain listed impairments, such as those described above, as a starting point for a much longer list of impairments that could be allowed based on established diagnoses alone (supported by objective medical evidence) or based on diagnoses that have reached certain points in their progression that would be considered disabling. We would not limit, however, the compilation of conditions to those already covered by our listing. We would incorporate any conditions that should be allowed quickly with minimal, but sufficient, objective medical evidence. As such, the list of qualifying conditions would be specific and extensive. Additionally, although we already have some policies and procedures for identifying the most obviously disabled individuals quickly, we are investigating methods for identifying compassionate allowances by perhaps starting with a specific allegation or through the use of a computer system that is able to search key words included in an electronic disability folder. Because the health care industry is capturing more and more clinical information in structured electronic formats using standardized codesets, we also are interested in your ideas about whether and how we can use that information for identifying compassionate allowances. Many, although by no means all, of the individuals who would qualify for a compassionate allowance will have impairments that are expected to result in death and need immediate decisions on their claims. It is our hope that compassionate allowances will not only bring faster benefits to individuals in need, but that they will also help to quicken the processing time of those claims that must be processed through our existing procedures. Request for Comments Please provide us with any comments and suggestions you have about new standards and identification methods for compassionate allowances. The following questions raise issues that you may wish to consider. Feel free to raise other questions, thoughts, or comments. • Do you have any ideas for how we can better identify impairments that can quickly be allowed without going through the entire disability determination process? • Do you have any ideas for different standards we should be using in our effort to provide compassionate assistance to individuals with the most serious impairments? • What is the minimum amount of medical evidence we should accept to support a compassionate allowance finding? • What procedures should we follow in our Social Security field offices, the State agencies, and the Office of Disability Adjudication and Review to identify compassionate allowances? • How can we best take advantage of clinical information captured electronically using standardized codes to specify the nature of the impairment? • What do you think about our idea of a more extensive and specific list of impairments based on established diagnoses? • What should the *general* criteria for inclusion on such a list be? • What *specific* impairment(s) or kinds of impairments do you believe we should include on such a list, and what specific criteria for inclusion should we use for those impairments (including specific standardized codes if appropriate)? • How should the rules or procedures for such a list be structured; for example, should we include a list of all of the diagnoses in the regulations, or should we have the list on SSA's Internet site or somewhere else? • What sources should we consult to create such a list; for example, our Listing of Impairments, the latest edition of the World Health Organization's *International Classification of Diseases* (ICD), and the latest edition of the American Psychiatric Association's *Diagnostic and Statistical Manual of Mental Disorders* (DSM)? Are there individuals and organizations we should also be consulting? • How should we keep the list up to date? • We intend to undertake special outreach efforts in order to encourage public discussion regarding potential methods and standards for identifying compassionate allowances, including periodic quarterly hearings. What methods should we use for community outreach, and where should the outreach take place? We will not respond directly to comments you send us because of this notice. After we consider your comments in response to this notice, we will decide whether and how to revise the rules we use to determine disability. If we propose specific revisions to the rules, we will publish a notice of proposed rulemaking
(NPRM)in the **Federal Register** . In accordance with the usual rulemaking procedures we follow, you will have a chance to comment on the revisions we propose when we publish the NPRM, and we will summarize and respond to the significant comments on the NPRM in the preamble to any final rules. List of Subjects 20 CFR Part 404 Administrative practice and procedure, Blind, Disability benefits, Old-Age, Survivors and Disability Insurance, Reporting and recordkeeping requirements, Social Security. 20 CFR Part 405 Administrative practice and procedure; Blind, Disability benefits; Old-Age, Survivors, and Disability Insurance, Public assistance programs, Reporting and recordkeeping requirements, Social Security, Supplemental Security Income (SSI). 20 CFR Part 416 Administrative practice and procedure, Aged, Blind, Disability benefits, Public assistance programs, Reporting and recordkeeping requirements, Supplemental Security Income (SSI). Dated: July 24, 2007. Michael J. Astrue, Commissioner of Social Security. [FR Doc. E7-14686 Filed 7-30-07; 8:45 am] BILLING CODE 4191-02-P DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1 [REG-118719-07] RIN 1545-BG65 Diversification Requirements for Variable Annuity, Endowment, and Life Insurance Contracts AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Notice of proposed rulemaking. SUMMARY: This document proposes changes to the regulations concerning the diversification requirements of section 817(h) of the Internal Revenue Code (Code). The proposed changes would expand the list of holders whose beneficial interests in an investment company, partnership, or trust do not prevent a segregated asset account from looking through to the assets of the investment company, partnership, or trust, to satisfy the requirements of section 817(h). The proposed regulations also would remove the sentence in § 1.817-5(a)(2) that provides that the payment required to remedy an inadvertent diversification failure must be based on the tax that would have been owed by the policyholders if they were treated as receiving the income on the contract. These proposed regulations would affect insurance companies that issue variable contracts and would affect policyholders who purchase such contracts. DATES: Written or electronic comments and requests for a public hearing must be received by October 29, 2007. ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-118719-07), room 5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-118719-07), Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue, NW., Washington, DC, or sent electronically, via the Federal eRulemaking Portal at *http://www.regulations.gov/* (IRS REG-118719-07). FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, James Polfer, at
(202)622-3970 (not a toll-free number). Concerning submissions of comments, the hearing, and/or to be placed on the building access list to attend the hearing, e-mail *Richard A. Hurst@irscousel.treas.gov* . SUPPLEMENTARY INFORMATION: Background Section 817(d) defines a variable contract for purposes of part I of subchapter L of the Code (sections 801-818). For a contract to be a variable contract, it must provide for the allocation of all or a part of the amounts received under the contract to an account that, pursuant to state law or regulation, is segregated from the general asset accounts of the issuing insurance company. In addition, for a life insurance contract to be a variable contract, it must qualify as a life insurance contract for Federal income tax purposes, and the amount of the death benefits (or the period of coverage) must be adjusted on the basis of the investment return and the market value of the segregated asset account; for an annuity contract to be a variable contract, it must provide for the payment of annuities, and the amounts paid in, or the amount paid out, must reflect the investment return and the market value of the segregated asset account; for a contract that provides funding of insurance on retired lives to be a variable contract, the amounts paid in, or the amounts paid out, must reflect the investment return and the market value of the segregated asset account. Section 817(h)(1) provides that a variable contract that is based on a segregated asset account is not treated as an annuity, endowment, or life insurance contract unless the segregated asset account is adequately diversified in accordance with regulations prescribed by the Secretary. If a segregated asset account is not adequately diversified for a calendar quarter, then the contracts supported by that segregated asset account are not treated as annuity, endowment, or life insurance contracts for that period and subsequent periods, even if the segregated asset account is adequately diversified in those subsequent periods. Under § 1.817-5(a), if a segregated asset account is not adequately diversified, income earned by that segregated asset account is treated as ordinary income received or accrued by the policyholders. Section 1.817-5(a)(2) provides conditions an issuer of a variable contract must satisfy in order to correct an inadvertent failure to diversify. Rev. Proc. 92-25, 1992-1 CB 741, see § 601.601(d)(2) of this chapter, sets forth in more detail the procedure by which an issuer may request the relief described in § 1.817-5(a)(2). Congress enacted the diversification requirements of section 817(h) to “discourage the use of tax-preferred variable annuity and variable life insurance primarily as investment vehicles.” H.R. Conf. Rep. No. 98-861, at 1055 (1984). In section 817(h)(1), Congress granted the Secretary broad regulatory authority to develop rules to carry out this intent. Congress directed that these standards be imposed because “by limiting a customer's ability to select specific investments underlying a variable contract, [adequate diversification] will help ensure that a customer's primary motivation in purchasing the contract is more likely to be the traditional economic protections provided by annuities and life insurance.” S. Prt. 98-169, Vol. I at 546 (1984). A primary directive from Congress to Treasury in enacting the standards was to “deny annuity or life insurance treatment for investments that are publicly available to investors.” H.R. Conf. Rep. No. 98-861, at 1055 (1984). Section 817(h)(4) provides a look-through rule under which taxpayers do not treat the interest in a regulated investment company
(RIC)or trust as a single asset of the segregated asset account but rather apply the diversification tests by taking into account the assets of the RIC or trust. Section 817(h) further provides that the look-through rule applies only if all of the beneficial interests in a RIC or trust are held by one or more insurance companies (or affiliated companies) in their general account or segregated asset accounts, or by fund managers (or affiliated companies) in connection with the creation or management of the RIC or trust. Under § 1.817-5(f)(1), if look-through treatment is available, a beneficial interest in a RIC, real estate investment trust, partnership, or trust that is treated under sections 671 through 679 as owned by the grantor or another person (“investment company, partnership or trust”) is not treated as a single investment of a segregated asset account for purposes of testing diversification. Instead, a pro rata portion of each asset of the investment company, partnership, or trust is treated as an asset of the segregated asset account. Section 1.817-5(f)(2)(i) provides that the look-through rule applies to any investment company, partnership, or trust if
(1)All the beneficial interests in the investment company, partnership, or trust are held by one or more segregated asset accounts of one or more insurance companies; and
(2)public access to the investment company, partnership, or trust is available exclusively through the purchase of a variable contract (except as otherwise permitted in § 1.817-5(f)(3)). Under § 1.817-5(f)(3), look-through treatment is not prevented by reason of beneficial interests in an investment company, partnership, or trust that are:
(1)Held by the general account of a life insurance company or a corporation related to a life insurance company, but only if the return on such interests is computed in the same manner as the return on an interest held by a segregated asset account is computed, there is no intent to sell such interests to the public, and a segregated asset account of such life insurance company also holds or will hold a beneficial interest in the investment company, partnership, or trust;
(2)Held by the manager, or a corporation related to the manager, of the investment company, partnership or trust, but only if the holding of the interests is in connection with the creation or management of the investment company, partnership or trust, the return on such interest is computed in the same manner as the return on an interest held by a segregated asset account is computed, and there is no intent to sell such interests to the public;
(3)Held by the trustee of a qualified pension or retirement plan; or
(4)Held by the public, or treated as owned by the policyholders pursuant to Rev. Rul. 81-225, see § 601.601(d)(2) of this chapter, but only if
(A)the investment company, partnership or trust was closed to the public in accordance with Rev. Rul. 82-55, 1982-1 CB 12, see § 601.601(d)(2) of this chapter, or
(B)all the assets of the segregated asset account are attributable to premium payments made by policyholders before September 26, 1981, to premium payments made in connection with a qualified pension or retirement plan, or to any combination of such premium payments. Explanation of Provisions This document contains proposed amendments to 26 CFR part 1 under section 817(h). The amendments would remove the sentence from § 1.817-5(a)(2) which provides that the amount required to be paid to remedy an inadvertent failure to diversify must be based on the tax that would have been owed by the policyholders if they were treated as receiving the income on the contract for the period or periods of nondiversification. The amendments also would expand the list of permitted investors in § 1.817-5(f)(3) to include
(i)Qualified tuition programs as defined in section 529,
(ii)trustees of foreign pension plans established and maintained outside the United States, primarily for the benefit of individuals, substantially all of whom are nonresident aliens, and
(iii)accounts that, pursuant to Puerto Rican law or regulation, are segregated from the general asset accounts of the life insurance companies that own the accounts, provided the requirements of section 817(d) and
(h)are satisfied (without regard to the requirement the accounts be segregated pursuant to “State” law or regulation). Reasons for Change 1. Proposed Amendment to § 1.817-5(a)(2) (Remedy for Inadvertent Nondiversification The proposed regulations would remove the sentence in § 1.817-5(a)(2) that provides that the payment required to remedy an inadvertent diversification failure must be based on the tax that would have been owed by the policyholders if they were treated as receiving the income on the contract. In Notice 2007-15, 2007-7 I.R.B. 503 (February 12, 2007), the IRS requested comments on how various correction procedures, including those described in § 1.817-5(a)(2) and Rev. Proc. 92-25, may be improved. Section 5.03(e) and
(f)of the Notice specifically requested comments on the computation of the amounts required to be paid under these correction procedures. Moreover, in the past, the provision in § 1.817-5(a)(2) of the amount required to be paid has caused confusion about the scope of the IRS's authority to provide for amounts that depart from the plain language of the regulation. See, for example, Notice 2000-9, 2000-1 C.B. 449 (reduced amount applied for a limited period of time in the case of failures due to investments in U.S. Treasury securities). See § 601.601(d)(2) of this chapter. Even with the proposed modification of § 1.817-5(a)(2), the amount required to be paid to remedy an inadvertent failure to diversify remains the amount set forth in Rev. Proc. 92-25, section 4.02. The modification of § 1.817-5(a)(2) will preserve flexibility, however, should the IRS choose to modify this amount by publication in the Internal Revenue Bulletin in response to comments on Notice 2007-15. 2. Expansion of List of Permitted Investors Under § 1.817-5(f)(3) On July 30, 2003, the Treasury Department and the IRS published a notice of proposed rulemaking (REG-163974-02, 2003-2 CB 595) under section 817 in the **Federal Register** (68 FR 44689), proposing to remove a specific rule that applied to nonregistered partnerships for purposes of testing diversification. Written comments were received both on the proposed regulations and on the need for further guidance under section 817 more generally. Comments on the proposed regulations were taken into account in final regulations (T.D. 9185, 2005-1 CB 752) that were published March 1, 2005 in the **Federal Register** (70 FR 9869). Comments on section 817 more generally covered a broad range of issues. Two of those issues have since been addressed by revenue ruling. See Rev. Rul. 2005-7, 2005-1 CB 464 (concerning application of the look-through rule in the case of tiered regulated investment companies); Rev. Rul. 2007-7, 2007-7 I.R.B. 468 (February 12, 2007) (concluding that an interest held by a permitted investor is not treated as an interest held by the general public for purposes of Rev. Rul. 2003-92, 2003-2 CB 350). These proposed regulations would expand the list of permitted investors in § 1.817-5(f)(3) to include two categories of holders that were the subject of comments in 2003:
(i)Qualified tuition programs as defined in section 529, and
(ii)trustees of pension or retirement plans established and maintained outside of the United States primarily for the benefit of individuals substantially all of whom are nonresident aliens. Section 529 provides for the exemption from Federal income tax of qualified tuition programs. The term “qualified tuition program” means a program established and maintained by a state or agency or instrumentality thereof or by one or more eligible educational institutions
(A)Under which a person
(i)May purchase tuition credits or certificates on behalf of a designated beneficiary which entitle the beneficiary to the waiver or payment of qualified higher education expenses of the beneficiary, or
(ii)in the case of a program established and maintained by a State or agency or instrumentality thereof, may make contributions to an account which is established for the purpose of meeting the qualified higher education expenses of the designated beneficiary of the account, and
(B)which meets the other requirements of section 529(b). The Treasury Department and the IRS agree with the 2003 commentators that permitting qualified tuition programs and certain trustees of foreign pension plans to own a beneficial interest in an investment company, partnership, or trust that is also owned by one or more segregated asset accounts would be consistent with the purpose and operation of section 817(h). In addition, neither qualified tuition programs nor the foreign pension plans that are described in the proposed regulations present the possibility of investment by the general public, as that term is used in Rev. Rul. 81-225, 1981-2 CB 12, and Rev. Rul. 2003-92. See also Rev. Rul. 2007-7. The inclusion of qualified tuition programs in the list of permitted investors in § 1.817-5(f)(3) does not relieve those programs of the need to satisfy all requirements of section 529 and the regulations under that section. In particular, the inclusion of such programs does not imply that an investment in a single investment company, partnership, or trust satisfying the minimum diversification requirements of § 1.817-5(b) would necessarily be treated as a permitted investment under section 529, whether as a “broad-based investment strategy” within the meaning of Notice 2001-55, 2001-2 C.B. 299 or otherwise. The Treasury Department and the IRS will continue to evaluate other comments received in this area for future guidance by publication in the Internal Revenue Bulletin. Finally, the proposed regulations would expand the list of permitted investors in § 1.817-5(f)(3) to include investment by an account which, pursuant to Puerto Rican law or regulation, is segregated from the general asset accounts of the life insurance company that owns the account, provided the requirements of section 817(d) and
(h)are satisfied (without regard to the requirement that the account be segregated pursuant to “State” law or regulation). The Treasury Department and the IRS have received a number of requests for guidance interpreting the term “variable contract” to include a contract issued by a Puerto Rican company, based on accounts that are segregated under Puerto Rican law or regulation. One reason for these requests is to ensure that a beneficial interest held by a Puerto Rican company in an investment company, partnership, or trust does not prevent look-through treatment for the other holders of an interest in the same investment, company, partnership, or trust under § 1.817-5(f)(2). The Treasury Department and the IRS believe that expanding the list of permitted investors as proposed would address this issue without implicating the interpretive question of what constitutes a “State” within the meaning of sections 817(d) and 7701(a)(10). Proposed Effective Date The Treasury Department and the IRS intend these regulations to be effective on the date the final regulations are published in the **Federal Register** . Special Analyses It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and because the regulations do not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Internal Revenue Code, the notice of proposed rulemaking will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business. Comments and Public Hearing Before these proposed regulations are adopted as final regulations, consideration will be given to any written (a signed original and eight
(8)copies) or electronic comments that are timely submitted to the IRS. In addition to comments on the proposed regulations more generally, the Treasury Department and the IRS specifically request comments on
(i)the clarity of the proposed regulations and how they can be made easier to understand; and
(ii)whether rules similar to those proposed to apply to accounts that are segregated pursuant to Puerto Rican law or regulation should apply to accounts that are segregated pursuant to the laws or regulations of other territories. All comments will be available for public inspection and copying. A public hearing may be scheduled if requested in writing by any person that timely submits written or electronic comments. If a public hearing is scheduled, notice of the date, time, and place for the hearing will be published in the **Federal Register** . Drafting Information The principal author of these proposed regulations is James Polfer, Office of the Associate Chief Counsel (Financial Institutions and Products), Internal Revenue Service. However, personnel from other offices of the Treasury Department and the IRS participated in their development. List of Subjects in 26 CFR Part 1 Income taxes, Reporting and recordkeeping requirements. Proposed Amendments to the Regulations Accordingly, 26 CFR part 1 is proposed to be amended as follows: PART 1—INCOME TAX **Paragraph 1.** The authority citation for part 1 is amended by adding an entry in numerical order to read in part as follows: Authority: 26 U.S.C. 7805 * * * Section 1.817-5 also issued under 26 U.S.C. 817(h). * * * **Par. 2.** Section 1.817-5 is amended as follows: 1. The last sentence of paragraph (a)(2)(iii) is removed. 2. Paragraph (f)(3)(iii) is revised. 3. Paragraph (f)(3)(iv) is redesignated as paragraph (f)(3)(vii). 4. New paragraphs (f)(3)(iv) through
(vi)are added. The revisions and additions read as follows: § 1.817-5 Diversification requirements for variable annuity, endowment, and life insurance contracts.
(f)* * *
(3)* * *
(iii)Held by the trustee of a qualified pension or retirement plan;
(iv)Held by a qualified tuition program as defined in section 529;
(v)Held by the trustee of a pension plan established and maintained outside of the United States, as defined in section 7701(a)(9), primarily for the benefit of individuals substantially all of whom are nonresident aliens, as defined in section 7701(b)(1)(B);
(vi)Held by an account which, pursuant to Puerto Rican law or regulation, is segregated from the general asset accounts of the life insurance company that owns the account, provided the requirements of section 817(d) and
(h)are satisfied. Solely for purposes of this paragraph (f)(3)(vi), the requirement under section 817(d)(1) that the account be segregated pursuant to State law or regulation shall be disregarded; or Kevin M. Brown, Deputy Commissioner for Services and Enforcement. [FR Doc. E7-14620 Filed 7-30-07; 8:45 am] BILLING CODE 4830-01-P DEPARTMENT OF DEFENSE Department of the Army; Corps of Engineers 33 CFR Part 334 Naval Restricted Area, Port Townsend, Indian Island, Walan Point, WA AGENCY: U.S. Army Corps of Engineers, DoD. ACTION: Notice of proposed rulemaking and request for comments. SUMMARY: The U.S. Army Corps of Engineers (Corps) is proposing to amend its regulations for the restricted area established in the waters of Port Townsend Bay off Puget Sound adjacent to Naval Magazine Indian Island, Jefferson County, Washington. The amendments will enable the affected units of the United States military to enhance safety and security around an active military establishment. The regulations are necessary to safeguard military vessels and United States government facilities from sabotage and other subversive acts, accidents, or incidents of similar nature. The regulations are also necessary to protect the public from potentially hazardous conditions that may exist as a result of military use of the area. DATES: Written comments must be submitted on or before August 30, 2007. ADDRESSES: You may submit comments, identified by docket number COE-2007-0020, by any of the following methods: Federal eRulemaking Portal: *http://www.regulations.gov.* Follow the instructions for submitting comments. *E-mail:* *david.b.olson@usace.army.mil.* Include the docket number COE-2007-0020 in the subject line of the message. *Mail:* U.S. Army Corps of Engineers, Attn: CECW-CO (David B. Olson), 441 G Street, NW., Washington, DC 20314-1000. *Hand Delivery/Courier:* Due to security requirements, we cannot receive comments by hand delivery or courier. *Instructions:* Direct your comments to docket number COE-2007-0020. All comments received will be included in the public docket without change and may be made available on-line at *http://www.regulations.gov,* including any personal information provided, unless the commenter indicates that the comment includes information claimed to be Confidential Business Information
(CBI)or other information whose disclosure is restricted by statute. Do not submit information that you consider to be CBI, or otherwise protected, through *regulations.gov* or e-mail. The *regulations.gov* Web site is an anonymous access system, which means we will not know your identity or contact information unless you provide it in the body of your comment. If you send an e-mail directly to the Corps without going through *regulations.gov* , your e-mail address will be automatically captured and included as part of the comment that is placed in the public docket and made available on the Internet. If you submit an electronic comment, we recommend that you include your name and other contact information in the body of your comment and with any disk or CD-ROM you submit. If we cannot read your comment because of technical difficulties and cannot contact you for clarification, we may not be able to consider your comment. Electronic comments should avoid the use of any special characters, any form of encryption, and be free of any defects or viruses. *Docket:* For access to the docket to read background documents or comments received, go to *www.regulations.gov.* All documents in the docket are listed. Although listed in the index, some information is not publicly available, such as 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. Consideration will be given to all comments received within 30 days of the date of publication of this notice. FOR FURTHER INFORMATION CONTACT: Mr. David Olson, Headquarters, Operations and Regulatory Community of Practice, Washington, DC at 202-761-4922; Ms. Michelle Walker, Regulatory Branch Chief, U.S. Army Corps of Engineers, Seattle District, Northwest Division, at 206-764-6915; or Ms. Koko Ekendiz of the Regulatory Branch, U.S. Army Corps of Engineers, Seattle District, at 206-764-6878. SUPPLEMENTARY INFORMATION: Pursuant to its authorities in Section 7 of the Rivers and Harbors Act of 1917 (40 Stat. 266; 33 U.S.C. 1) and Chapter XIX of the Army Appropriations Act of 1919 (40 Stat. 892; 33 U.S.C. 3) the Corps is proposing to amend the restricted area regulations in 33 CFR part 334 by modifying the area at § 334.1270. The proposed modification to this existing restricted area is described below. This request has been made to increase safety and security of naval operations at Naval Magazine, Indian Island. In addition to the publication of the proposed rule, the Seattle District Engineer is concurrently soliciting public comment on the proposed rule by distribution of a public notice to all known interested parties. Procedural Requirements a. *Review Under Executive Order 12866.* This proposed rule is issued with respect to a military function of the United States and the provisions of Executive Order 12866 do not apply. b. *Review Under the Regulatory Flexibility Act.* This proposed rule has been reviewed under the Regulatory Flexibility Act (Pub. L. 96-354, 5 U.S.C. 601) which requires the preparation of a regulatory flexibility analysis for any regulation that will have a significant economic impact on a substantial number of small entities (i.e., small businesses and small governments). The Corps expects that the proposed modification to the existing restricted area would have practically no economic impact on the public, and would create no anticipated navigational hazard or interference with existing waterway traffic. c. *Review Under the National Environmental Policy Act.* The Corps has concluded, based on the minor nature of the proposed rule, that the addition of and amendment to a restricted area, if adopted, will not be a major federal action having a significant impact on the quality of the human environment, and preparation of an environmental impact statement is not required. An environmental assessment will be prepared after all comments have been received and considered. After it is prepared, the environmental assessment may be reviewed at the district office listed at the end of the FOR FURTHER INFORMATION CONTACT , above. d. *Unfunded Mandates Act.* The proposed rule does not impose an enforceable duty among the private sector and, therefore, is not a Federal private sector mandate and is not subject to the requirements of Section 202 or 205 of the Unfunded Mandates Reform Act (Pub. L. 104-4). We have also found under Section 203 of the Act, that small governments will not be significantly or uniquely affected by this rulemaking. List of Subjects in 33 CFR Part 334 Danger zones, Marine safety, Navigation (water), Restricted areas, Waterways. For the reasons set out in the preamble, the Corps proposes to amend a portion of 33 CFR part 334 as follows: PART 334—DANGER ZONE AND RESTRICTED AREA REGULATIONS 1. The authority citation for 33 CFR part 334 continues to read as follows: Authority: 40 Stat. 266 (33 U.S.C. 1) and 40 Stat. 892 (33 U.S.C. 3). 2. Amend § 334.1270 by revising paragraphs
(a)and
(b)and adding paragraph
(c)to read as follows: § 334.1270 Port Townsend, Indian Island, Walan Point; naval restricted area.
(a)*The area.* The waters of Port Townsend Bay bounded by a line commencing on the north shore of Walan Point at latitude 48°04′42″ North, longitude 122°44′30″ West (Point A); thence to latitude 48°04″50″ North, longitude 122°44′38″ West (Point B); thence to latitude 48°04′52″ North, latitude 122°44′57″ West (Point C); thence to latitude 48°04′44″ North, longitude 122°45′12″ West (Point D); thence to latitude 48°04′26″ North, longitude 122°45′21″ West (Point E); thence to latitude 48°04′10″ North, longitude 122°45′15″ West (Point F); thence to latitude 48°04′07″ North, longitude 122°44′49″ West (Point G); thence to a point on the Walan Point shoreline at latitude 48°04′16″ North, longitude 122°44′37″ West (Point H).
(b)*The regulations.* This area is for the exclusive use of the U.S. Navy. No person, vessel, craft, article or thing shall enter the area without permission from the enforcing agency. The restriction shall apply during periods when ship loading and/or pier operations preclude safe entry. The periods will be identified by flying a red flag from the ship and/or pier.
(c)*Enforcement.* The regulation in this section shall be enforced by Commander, Navy Region Northwest and such agencies and persons as he/she shall designate. Dated: July 25, 2007. Mark Sudol, Acting Chief, Operations, Directorate of Civil Works. [FR Doc. E7-14650 Filed 7-30-07; 8:45 am] BILLING CODE 3710-92-P DEPARTMENT OF DEFENSE Department of the Army; Corps of Engineers 33 CFR Part 334 Naval Restricted Area, Manchester Fuel Depot, WA; and Naval Restricted Areas, Sinclair Inlet, WA AGENCY: U.S. Army Corps of Engineers, DoD. ACTION: Notice of proposed rulemaking and request for comments. SUMMARY: The U.S. Army Corps of Engineers (Corps) is proposing to amend its regulations to establish a restricted area in the waters of Puget Sound adjacent to the Manchester Fuel Depot near Manchester, Kitsap County, Washington. The Corps is also proposing to amend the existing regulations that established the restricted areas in the waters of Sinclair Inlet, Puget Sound adjacent to Naval Base Kitsap Bremerton, Kitsap County, Washington. The proposed amendments will enable the affected units of the United States military to enhance safety and security around active military establishments. The regulations are necessary to safeguard military vessels and United States government facilities from sabotage and other subversive acts, accidents, or incidents of similar nature. The regulations are also necessary to protect the public from potentially hazardous conditions that may exist as a result of military use of the area. DATES: Written comments must be submitted on or before August 30, 2007. ADDRESSES: You may submit comments, identified by docket number COE-2007-0019, by any of the following methods: *Federal eRulemaking Portal: http://www.regulations.gov* . Follow the instructions for submitting comments. *E-mail: david.b.olson@usace.army.mil* . Include the docket number COE-2007-0019 in the subject line of the message. *Mail:* U.S. Army Corps of Engineers, Attn: CECW-CO (David B. Olson), 441 G Street, NW., Washington, DC 20314-1000. *Hand Delivery/Courier:* Due to security requirements, we cannot receive comments by hand delivery or courier. *Instructions:* Direct your comments to docket number COE-2007-0019. All comments received will be included in the public docket without change and may be made available on-line at *http://www.regulations.gov* , including any personal information provided, unless the commenter indicates that the comment includes information claimed to be Confidential Business Information
(CBI)or other information whose disclosure is restricted by statute. Do not submit information that you consider to be CBI, or otherwise protected, through *regulations.gov* or e-mail. The *regulations.gov* Web site is an anonymous access system, which means we will not know your identity or contact information unless you provide it in the body of your comment. If you send an e-mail directly to the Corps without going through *regulations.gov* , your e-mail address will be automatically captured and included as part of the comment that is placed in the public docket and made available on the Internet. If you submit an electronic comment, we recommend that you include your name and other contact information in the body of your comment and with any disk or CD-ROM you submit. If we cannot read your comment because of technical difficulties and cannot contact you for clarification, we may not be able to consider your comment. Electronic comments should avoid the use of any special characters, any form of encryption, and be free of any defects or viruses. *Docket:* For access to the docket to read background documents or comments received, go to *www.regulations.gov* . All documents in the docket are listed. Although listed in the index, some information is not publicly available, such as 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. Consideration will be given to all comments received within 30 days of the date of publication of this notice. FOR FURTHER INFORMATION CONTACT: Mr. David Olson, Headquarters, Operations and Regulatory Community of Practice, at 202-761-4922; Ms. Michelle Walker, Regulatory Branch Chief, U.S. Army Corps of Engineers, Seattle District, Northwest Division, at 206-764-6915; or Ms. Koko Ekendiz of the Regulatory Branch, U.S. Army Corps of Engineers, Seattle District, at 206-764-6878. SUPPLEMENTARY INFORMATION: Pursuant to its authorities in Section 7 of the Rivers and Harbors Act of 1917 (40 Stat. 266; 33 U.S.C. 1) and Chapter XIX of the Army Appropriations Act of 1919 (40 Stat. 892; 33 U.S.C. 3) the Corps is proposing to add a new regulation at 33 CFR 334.1244 to establish a restricted area that would surround the Manchester Fuel Depot pier during times of active fueling. The restricted area would establish a no-entry zone around the fueling pier during active fueling. The U.S. Navy would alert the public by utilizing flashing lights on the pier. Under the same authorities noted above, the Corps is also proposing to amend the restricted area regulations in 33 CFR part 334 by modifying the areas at § 334.1240. The proposed modifications to the existing restricted areas are described below. This request has been made to clarify that Washington State Ferries on established routes are exempt from the restrictions for Area 1, disestablish a portion of Area 2 by the Washington State Ferry terminal, and enlarge a portion of Area 2 near Mooring E. In addition to the publication of these proposed rules, the Seattle District Engineer is concurrently soliciting public comment on the proposed rules by distribution of a public notice to all known interested parties. Procedural Requirements a. *Review Under Executive Order 12866.* These proposed rules were issued with respect to a military function of the United States and the provisions of Executive Order 12866 do not apply. *b. Review Under the Regulatory Flexibility Act.* These proposed rules have been reviewed under the Regulatory Flexibility Act (Pub. L. 96-354, 5 U.S.C. 601) which requires the preparation of a regulatory flexibility analysis for any regulation that will have a significant economic impact on a substantial number of small entities (i.e., small businesses and small governments). The Corps expects that the addition of, and proposed modification to, the existing restricted areas would have practically no economic impact on the public, and would create no anticipated navigational hazard or interference with existing waterway traffic. Accordingly, it is certified that this proposal if adopted, will not have a significant economic impact on a substantial number of small entities. c. *Review Under the National Environmental Policy Act.* The Corps has concluded, based on the minor nature of the proposed rules, that the establishment of a new restricted area at Manchester and amendments to the restricted areas in Sinclair Inlet, if adopted, would not be a major federal action having a significant impact on the quality of the human environment, and preparation of an environmental impact statement is not required. An environmental assessment will be prepared after the public notice period is closed and all comments have been received and considered. After it is prepared, it may be reviewed at the District office listed at the end of the FOR FURTHER INFORMATION CONTACT , above. d. *Unfunded Mandates Act.* These proposed rules do not impose an enforceable duty among the private sector and, therefore, are not a Federal private sector mandate and are not subject to the requirements of Section 202 or 205 of the Unfunded Mandates Reform Act (Pub. L. 104-4). We have also found under Section 203 of the Act that small governments will not be significantly or uniquely affected by this rulemaking. List of Subjects in 33 CFR Part 334 Danger zones, Marine safety, Navigation (water), Restricted areas, Waterways. For the reasons set out in the preamble, the Corps proposes to amend 33 CFR part 334 as follows: PART 334—DANGER ZONE AND RESTRICTED AREA REGULATIONS 1. The authority citation for 33 CFR part 334 continues to read as follows: Authority: 40 Stat. 266 (33 U.S.C. 1) and 40 Stat. 892 (33 U.S.C. 3). 2. Amend § 334.1240 by revising paragraphs
(a)and
(b)to read as follows: § 334.1240 Sinclair Inlet; naval restricted areas.
(a)*Sinclair Inlet: naval restricted areas* —(1) *Area No. 1.* All the waters of Sinclair Inlet westerly of a line drawn from the Bremerton Ferry Landing at latitude 47°33′48″ North, longitude 122°37′23″ West on the north shore of Sinclair Inlet; and latitude 47°32′52″ North, longitude 122°36′58″ West, on the south shore of Sinclair Inlet.
(2)*Area No. 2.* That area of Sinclair Inlet to the north and west of an area bounded by a line commencing at latitude 47°33′40″ North, longitude 122°37′32″ West (Point A); thence south to latitude 47°33′36″ North, longitude 122°37′30″ West (Point B); thence southwest to latitude 47°33′23″ North, longitude 122°37′45″ West (Point C); thence southwest to latitude 47°33′19″ North, longitude 122°38′12″ West (Point D); thence southwest to latitude 47°33′10″ North, longitude 122°38′19″ West (Point E); thence southwest to latitude 47°33′07″ North, longitude 122°38′29″ West (Point F); thence southwest to latitude 47°33′04″ North, longitude 122°39′07″ West (Point G); thence west to the north shore of Sinclair Inlet at latitude 47°33′04.11″ North, longitude 122°39′41.92″ West (Point H).
(3)*The regulations* —(i) *Area No. 1.* No vessel of more than, or equal to, 100 gross tons shall enter the area or navigate therein without permission from the enforcing agency, except Washington State Ferries on established routes.
(ii)*Area No. 2.* This area is for the exclusive use of the United States Navy. No person, vessel, craft, article or thing, except those under supervision of military or naval authority shall enter this area without permission from the enforcing agency.
(b)*Enforcement.* The regulation in this section shall be enforced by the Commander, Navy Region Northwest, and such agencies and persons as he/she shall designate. 3. Add § 334.1244 to read as follows: § 334.1244 Puget Sound, Manchester Fuel Depot, Manchester, Washington; Naval Restricted Area.
(a)*The area.* The waters of Puget Sound surrounding the Manchester Fuel Depot Point A, a point along the northern shoreline of the Manchester Fuel Depot at latitude 47°33′55″ North, longitude 122°31′55″ West; thence to latitude 47°33′37″ North, longitude 122°31′50″ West (Point B); thence to latitude 47°33′32″ North, longitude 122°32′06″ West (Point C); thence to latitude 47°33′45.9″ North, longitude 122°32′16.04″ West (Point D), a point in Puget Sound on the southern shoreline of the Manchester Fuel Depot.
(b)*The regulations.* No person, vessel, craft, article or thing except those under the supervision of the military or naval authority shall enter the area without the permission of the enforcing agency or his/her designees. The restriction shall apply during periods when a ship is loading and/or pier operations preclude safe entry. The restricted periods will be identified by the use of quick-flashing beacon lights, which are mounted on poles at the end of the main fuel pier on the north side of Orchard Point at the entrance of Rich Passage. Entry into the area is prohibited when the quick-flashing beacons are in a flashing mode.
(c)*Enforcement.* The regulation in this section shall be enforced by the Commander, Navy Region Northwest, and such agencies and persons as he/she shall designate. Dated: July 25, 2007. Mark Sudol, Acting Chief, Operations, Directorate of Civil Works. [FR Doc. E7-14652 Filed 7-30-07; 8:45 am] BILLING CODE 3710-92-P ENVIRONMENTAL PROTECTION AGENCY 40 CFR Part 52 [EPA-R09-OAR-2007-AZ-0295; FRL-8443-6] Approval and Promulgation of Implementation Plans; States of Arizona and Nevada; Interstate Transport of Pollution AGENCY: Environmental Protection Agency (EPA). ACTION: Proposed rule. SUMMARY: EPA is proposing to approve state implementation plans submitted by the States of Arizona and Nevada that address interstate transport with respect to the 8-hour ozone and fine particulate matter national ambient air quality standards. In so doing, EPA has determined that the plans submitted by Arizona and Nevada and approved herein satisfy requirements under Clean Air Act section 110(a)(2)(D)(i) for each State to submit a plan containing adequate provisions to prohibit interstate transport with respect to the standards for 8-hour ozone and fine particulate matter. EPA is proposing this action pursuant to those provisions of the Clean Air Act that obligate the Agency to take action on submittals of state implementation plans. The effect of this proposal would be to approve the Arizona and Nevada state implementation plans addressing interstate transport with respect to the 8-hour ozone and fine particulate standards and to eliminate obligations on the Agency to promulgate Federal Implementation Plans for these States addressing this same requirement. DATES: Any comments on this proposal must arrive by August 30, 2007. ADDRESSES: Submit your comments, identified by Docket ID No. EPA-R09-OAR-2007-AZ-0295 by one of the following methods: • *Federal eRulemaking portal: http://www.regulations.gov.* Follow the on-line instructions for submitting comments. • *E-mail: tax.wienke@epa.gov.* • *Fax:*
(415)947-3579 (please alert the individual listed in the FOR FURTHER INFORMATION CONTACT if you are faxing comments). • *Mail:* Wienke Tax, Office of Air Planning, Environmental Protection Agency (EPA), Region IX, Mailcode AIR-2, 75 Hawthorne Street, San Francisco, California 94105-3901. • *Hand Delivery:* Wienke Tax, Office of Air Planning, Environmental Protection Agency (EPA), Region IX, Mailcode AIR-2, 75 Hawthorne Street, San Francisco, California 94105-3901. Such deliveries are only accepted Monday through Friday, 8 a.m. to 4:55 p.m., excluding federal holidays. Special arrangements should be made for deliveries of boxed information. *Instructions:* Direct your comments to Docket ID No. EPA-R09-OAR-2007-AZ-0295. EPA's policy is that all comments received will be included in the public docket without change and may be made available online at *http://www.regulations.gov,* including any personal information provided, unless the comment includes information claimed to be Confidential Business Information
(CBI)or other information whose disclosure is restricted by statute. Do not submit information that you consider to be CBI or otherwise protected through *http://www.regulations.gov* or e-mail. The *http://www.regulations.gov* Web site is an “anonymous access” system, which means EPA will not know your identity or contact information unless you provide it in the body of your comment. If you send an e-mail comment directly to EPA, without going through *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. For additional information about EPA's public docket visit the EPA Docket Center homepage at *http://www.epa.gov/epahome/dockets.htm.* *Docket:* All documents in the docket are listed in the *http://www.regulations.gov* index. Although listed in the index, some information is not publicly available, *e.g.* , CBI or other information whose disclosure is restricted by statute. Certain other material, such as copyrighted material, will be publicly available only in hard copy form. Publicly available docket materials are available either electronically in *http://www.regulations.gov* or in hard copy at the Office of Air Planning, Environmental Protection Agency (EPA), Region IX, Mailcode AIR-2, 75 Hawthorne Street, San Francisco, California 94105-3901. EPA requests that if at all possible, you contact the individual listed in the FOR FURTHER INFORMATION CONTACT section to view the hard copy of the docket. You may view the hard copy of the docket Monday through Friday, 8 a.m. to 4 p.m., excluding federal holidays. FOR FURTHER INFORMATION CONTACT: For Arizona issues, contact Wienke Tax, Office of Air Planning, U.S. Environmental Protection Agency, Region IX,
(520)622-1622, e-mail: *tax.wienke@epa.gov.* For Nevada issues, contact Karina O'Connor, Office of Air Planning, U.S. Environmental Protection Agency, Region IX,
(775)833-1276, *oconnor.karina@epa.gov.* SUPPLEMENTARY INFORMATION: Throughout this document, wherever “we,” “us,” or “our” is used, we mean the EPA. EPA is proposing to approve state implementation plans submitted by the States of Arizona and Nevada that address interstate transport with respect to the 8-hour ozone and fine particulate matter national ambient air quality standards. In so doing, EPA has determined that the plans submitted by Arizona and Nevada and approved herein satisfy requirements under Clean Air Act section 110(a)(2)(D)(i) for each State to submit a plan containing adequate provisions to prohibit interstate transport with respect to the standards for 8-hour ozone and fine particulate matter. The effect of this proposal would be to approve the Arizona and Nevada state implementation plans addressing interstate transport with respect to the 8-hour ozone and fine particulate standards and to eliminate obligations on the Agency to promulgate Federal Implementation Plans for these States addressing this same requirement. In the Rules and Regulations section of this **Federal Register** , we are taking direct final action to take these actions because we believe that they are not controversial. If we receive adverse comments, however, we will publish a timely withdrawal of the direct final rule and address the comments in subsequent action based on this proposed rule. We do not plan to open a second comment period, so anyone interested in commenting should do so at this time. If we do not receive comments, no further activity is planned. For further information on this proposal and the rationale underlying our proposed action, please see the direct final rule. Dated: June 11, 2007. Laura Yoshii, Acting Regional Administrator, Region IX. [FR Doc. E7-14475 Filed 7-30-07; 8:45 am] BILLING CODE 6560-50-P ENVIRONMENTAL PROTECTION AGENCY 40 CFR Parts 52 and 81 [EPA-R05-OAR-2007-0173; FRL-8448-1] Determination of Attainment, Approval and Promulgation of Implementation Plans and Designation of Areas for Air Quality Planning Purposes; Indiana; Redesignation of Central Indiana To Attainment of the 8-Hour Ozone Standard AGENCY: Environmental Protection Agency (EPA). ACTION: Proposed rule. SUMMARY: On March 26, 2007, the Indiana Department of Environmental Management
(IDEM)submitted a request for EPA approval of a redesignation of Boone, Hamilton, Hancock, Hendricks, Johnson, Madison, Marion, Morgan, and Shelby Counties (the Central Indiana Area) to attainment of the 8-hour ozone National Ambient Air Quality Standard (NAAQS). IDEM also requested EPA approval of an ozone maintenance plan for this area as a revision of the Indiana State Implementation Plan (SIP). EPA proposes to determine that the Central Indiana Area has attained the 8-hour ozone NAAQS. EPA proposes to approve Indiana's request to redesignate the Central Indiana Area to attainment of the 8-hour ozone NAAQS and to approve the State's ozone maintenance plan for this area as a revision of the Indiana SIP. Finally, EPA proposes to approve Volatile Organic Compounds
(VOC)and Nitrogen Oxides (NO <sup>X</sup> ) Motor Vehicle Emission Budgets (MVEBs) for the Central Indiana Area, as supported by the ozone maintenance plan for this area, for purposes of transportation conformity determinations. DATES: Comments must be received on or before August 30, 2007. ADDRESSES: Submit your comments, identified by Docket ID No. EPA-R05-OAR-2007-0173, by one of the following methods: • *http://www.regulations.gov:* Follow the on-line instructions for submitting comments. • *E-mail: mooney.john@epa.gov.* • *Fax:*
(312)886-5824. • *Mail:* John M. Mooney, Chief, Criteria Pollutant Section, Air Programs Branch (AR-18J), U.S. Environmental Protection Agency, 77 West Jackson Boulevard, Chicago, Illinois 60604. • *Hand Delivery:* John M. Mooney, Chief, Criteria Pollutant Section, Air Programs Branch (AR-18J), U.S. Environmental Protection Agency, 77 West Jackson Boulevard, Chicago, Illinois. Such deliveries are only accepted during the Regional Office's normal hours of operation, and special arrangements should be made for deliveries of boxed information. The Regional Office's official hours of operation are Monday through Friday, 8:30 a.m. to 4:30 p.m., excluding Federal holidays. *Instructions:* Direct your comments to Docket ID No. EPA-R05-OAR-2007-0173. EPA's policy is that all comments received will be included in the public docket without change and may be made available online at *http://www.regulations.gov,* including any personal information provided, unless the comment includes information claimed to be Confidential Business Information
(CBI)or other information whose disclosure is restricted by statute. Do not submit information that you consider to be CBI, or otherwise protected, through www.regulations.gov or e-mail. The www.regulations.gov Web site is an “anonymous access” system, which means EPA will not know your identity or contact information unless you provide it in the body of your comment. If you send an e-mail comment directly to EPA without going through www.regulations.gov, your e-mail address will be automatically captured and included as part of the comment that is placed in the public docket and made available on the Internet. If you submit an electronic comment, EPA recommends that you include your name and other contact information in the body of your comment and with any disk or CD-ROM you submit. If EPA cannot read your comment due to technical difficulties and cannot contact you for clarification, EPA may not be able to consider your comment. Electronic files should avoid the use of special characters and any form of encryption, and should be free of any defects or viruses. For additional instructions on submitting comments, go to section I of the SUPPLEMENTARY INFORMATION section of this document. *Docket:* All documents in the docket are listed in the www.regulations.gov index. Although listed in the index, some information is not publicly available, e.g., CBI or other information whose disclosure is restricted by statute. Certain other material, such as copyrighted material, will be publicly available only in hardcopy. Publicly available docket materials are available either electronically in www.regulations.gov or in hardcopy 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. It is recommended that you telephone Edward Doty, Environmental Scientist, at
(312)886-6057, before visiting the Region 5 office. FOR FURTHER INFORMATION CONTACT: Edward Doty, Environmental Scientist, Criteria Pollutant Section, Air Programs Branch (AR-18J), Environmental Protection Agency, Region 5, 77 West Jackson Boulevard, Chicago, Illinois 60604,
(312)886-6057, *doty.edward@epa.gov.* SUPPLEMENTARY INFORMATION: Throughout this proposed rule whenever “we,” “us,” or “our” is used, we mean the EPA. This supplementary information section is arranged as follows: I. What Action is EPA Proposing to Take? II. What is the Background for This Action? A. General Background Information B. What is the Impact of December 22, 2006, and June 8, 2007, United States Court of Appeals Decisions Regarding EPA's Phase 1 Implementation Rule? 1. Summary of Court Decision 2. Requirements Under the 8-Hour Ozone Standard 3. Requirements Under the 1-Hour Ozone Standard III. What are the Criteria for Redesignations to Attainment? IV. What Are EPA's Analyses and Opinions of the State's Requests and What Are the Bases for EPA's Proposed Action? A. Has the Central Indiana Area Attained the 8-Hour Ozone NAAQS? B. Has the State of Indiana Committed to Maintain the Ozone Monitoring System in the Central Indiana Area? C. Have the Central Indiana Area and the State of Indiana Met All of the Applicable Requirements of Section 110 and Part D of the Clean Air Act, and Does the Central Indiana Area Have a Fully Approved SIP Under Section 110(k) of the Clean Air Act? 1. The Central Indiana Area Has Met All Applicable Requirements of Section 110 and Part D of the Clean Air Act a. Section 110 and General SIP Requirements b. Part D SIP Requirements c. Part D, Subpart 1 SIP Requirements d. Section 176 Conformity Requirements e. Part D New Source Review
(NSR)Requirements 2. The Central Indiana Area Has a Fully Approved SIP Under Section 110(k) of the Clean Air Act
(CAA)D. Are the Air Quality Improvements in the Central Indiana Area Due to Permanent and Enforceable Emission Reductions Resulting from the Implementation of the Indiana SIP and Applicable Federal Air Pollution Control Regulations and Other Permanent and Enforceable Emission Reductions? E. Does the Central Indiana Area Have a Fully Approvable Ozone Maintenance Plan Pursuant to Section 175A of the CAA? 1. What Is Required in an Ozone Maintenance Plan? 2. What Are the Attainment Emission Inventories for the Central Indiana Area? a. Point Sources b. Area Sources c. On-Road Mobile Sources d. Non-Road Mobile Sources 3. Has the State Demonstrated Maintenance of the Ozone Standard in the Central Indiana Area? 4. What Is the Contingency Plan for the Central Indiana Area? 5. Has the State Committed to Update the Ozone Maintenance Plan in Eight Years After the Redesignation of the Central Indiana Area to Attainment of the 8-Hour Ozone NAAQS? V. Has the State Adopted Acceptable Motor Vehicle Emissions Budgets for the End Year of the Ozone Maintenance Period Which Can Be Used to Support Conformity Determinations? A. How Are the Motor Vehicle Emission Budgets Developed, and What Are the Motor Vehicle Emission Budgets for the Central Indiana Area? B. Are the MVEBs Approvable? VI. What Are the Effects of EPA's Proposed Actions? VII. Statutory and Executive Order Reviews I. What Action Is EPA Proposing to Take? We are proposing to take several related actions for the Central Indiana Area (Boone, Hamilton, Hancock, Hendricks, Johnson, Madison, Marion, Morgan, and Shelby Counties). First, we are proposing to determine that this area has attained the 8-hour ozone NAAQS. Second, we are proposing to approve Indiana's ozone maintenance plan for this area as a revision of the Indiana SIP. The maintenance plan is designed to keep this area in attainment of the 8-hour ozone NAAQS through 2020. Third, as supported by and consistent with the ozone maintenance plan, we are proposing to approve the 2006 and 2020 VOC and NO <sup>X</sup> MVEBs (54.32 tons VOC/day and 106.19 tons NO <sup>X</sup> /day in 2006, and 29.52 tons VOC/day and 35.69 tons NO <sup>X</sup> /day in 2020) for the nine counties in the Central Indiana Area for transportation conformity determination purposes. Finally, we are proposing to approve the redesignation of the Central Indiana Area to attainment of the 8-hour ozone NAAQS. II. What Is the Background for This Action? A. General Background Information EPA has determined that ground-level ozone is detrimental to human health. On July 18, 1997, EPA promulgated an 8-hour ozone NAAQS (62 FR 38856) of 0.08 parts per million parts of air (0.08 ppm) (80 parts per billion (ppb)). 1 This 8-hour ozone standard replaced a prior 1-hour ozone NAAQS, which was promulgated on February 8, 1979 (44 FR 8202), and which EPA revoked on June 15, 2005 (69 FR 23858). 1 This standard is violated in an area when any ozone monitor in the area (or in its nearby downwind environs) records 8-hour ozone concentrations with a three-year average of the annual fourth-highest daily maximum 8-hour ozone concentrations equaling or exceeding 85 ppb. See 40 CFR 50.10. Ground-level ozone is generally not emitted directly by emission sources. Rather, emitted NO <sup>X</sup> and VOC react in the presence of sunlight to form ground-level ozone along with other secondary compounds. NO <sup>X</sup> and VOC are referred to as “ozone precursors.” Control of ground-level ozone concentrations is achieved through controlling VOC and NO <sup>X</sup> emissions. Section 107 of the CAA requires EPA to designate as nonattainment any area that violates the 8-hour ozone NAAQS. A **Federal Register** notice promulgating 8-hour ozone designations and classifications was published on April 30, 2004 (69 FR 23857). The CAA contains two sets of provisions—subpart 1 and subpart 2—that address planning and emission control requirements for nonattainment areas. Both are found in title I, part D of the CAA. Subpart 1 contains general, less prescriptive requirements for all nonattainment areas for any pollutant governed by a NAAQS. Subpart 2 contains more specific requirements for certain ozone nonattainment areas, and applies to ozone nonattainment areas classified under section 181 of the CAA. In the April 30, 2004, designation rulemaking, EPA divided 8-hour ozone nonattainment areas into the categories of subpart 1 nonattainment (“basic” nonattainment) and subpart 2 nonattainment (“classified” nonattainment). EPA based this division on the areas’ 8-hour ozone design values (i.e., on the three-year averages of the annual fourth-highest daily maximum 8-hour ozone concentrations at the worst-case monitoring sites in the designated areas) and on their 1-hour ozone design values (i.e., on the fourth-highest daily maximum 1-hour ozone concentrations over the three-year period at the worst-case monitoring sites in the designated areas) 2 using ozone data from the period of 2001-2003. EPA classified 8-hour ozone nonattainment areas with 1-hour ozone design values equaling or exceeding 121 ppb as subpart 2, classified nonattainment areas. EPA classified all other 8-hour nonattainment areas as subpart 1, basic nonattainment areas. The basis for area classification was defined in a separate April 30, 2004, final rule (the Phase 1 implementation rule) (69 FR 23951). In the April 30, 2004, ozone designation/classification rulemaking, EPA designated the Central Indiana Area, as a subpart 1, basic nonattainment area for the 8-hour ozone NAAQS. 2 The 8-hour ozone design value and the 1-hour ozone design value for each area were not necessarily recorded at the same monitoring site. The worst-case monitoring site for each ozone concentration averaging time was considered for each area. On March 26, 2007, the State of Indiana requested redesignation of the Central Indiana Area to attainment of the 8-hour ozone NAAQS based on ozone data collected in this area during the period of 2004-2006. B. What Is the Impact of December 22, 2006, and June 8, 2007, United States Court of Appeals Decisions Regarding EPA's Phase 1 Implementation Rule? 1. Summary of Court Decision On December 22, 2006, the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) vacated EPA's Phase 1 implementation rule for the 8-hour ozone standard (69 FR 23951, April 30, 2004). *South Coast Air Quality Management Dist.* v. *EPA,* 472 F.3d 882 (DC Cir. 2006). On June 8, 2007, in *South Coast Air Quality Management Dist.* v. *EPA,* Docket No. 04-1201, in response to several petitions for rehearing, the DC Circuit clarified that the Phase 1 rule was vacated only with regard to those parts of the rule that had been successfully challenged. Therefore, the Phase 1 rule provisions related to classifications for areas currently classified under subpart 2 of title I, part D of the CAA as 8-hour nonattainment areas, the 8-hour attainment dates and the timing of emissions reductions needed for attainment of the 8-hour ozone NAAQS remain effective. The June 8th decision left intact the Court's rejection of EPA's reasons for implementing the 8-hour standard in certain nonattainment areas under subpart 1 in lieu of subpart 2. By limiting the vacatur, the Court let stand EPA's revocation of the 1-hour ozone standard and those anti-backsliding provisions of the Phase 1 rule that had not been successfully challenged. The June 8th decision reaffirmed the December 22, 2006, decision that EPA had improperly failed to retain measures required for 1-hour nonattainment areas under the anti-backsliding provisions of the regulations:
(1)Nonattainment area New Source Review
(NSR)requirements based on an area's 1-hour nonattainment classification;
(2)section 185 penalty fees for 1-hour severe and extreme nonattainment areas; and,
(3)measures to be implemented pursuant to section 172(c)(9) or 182(c)(9) of the CAA, on the contingency of an area not making reasonable further progress toward attainment of the 1-hour NAAQS, or for failure to attain that NAAQS. In addition, the June 8th decision clarified that the Court's reference to conformity requirements for anti-backsliding purposes was limited to requiring the continued use of 1-hour motor vehicle emission budgets until 8-hour budgets are available for 8-hour conformity determinations, which is already required under EPA's conformity regulations. The Court, thus, clarified that 1-hour conformity determinations are not required for anti-backsliding purposes. This section sets forth EPA's views on the potential effect of the Court's rulings on this proposed redesignation action. For the reasons set forth below, EPA does not believe that the Court's rulings alter any requirements relevant to this redesignation action so as to preclude redesignation, and do not prevent EPA from proposing or ultimately finalizing this redesignation. EPA believes that the Court's December 22, 2006, and June 8, 2007, decisions impose no impediment to moving forward with redesignation of this area to attainment, because even in light of the Court's decisions, redesignation is appropriate under the relevant redesignation provisions of the CAA and longstanding policies regarding redesignation requests. 2. Requirements Under the 8-Hour Ozone Standard With respect to the 8-hour ozone standard, EPA notes that the Court's ruling rejected EPA's reasons for classifying areas under subpart 1 for the 8-hour ozone standard, and remanded that matter to the EPA. Consequently, it is possible that the Central Indiana Area could, during a remand to EPA, be reclassified under subpart 2. Although any future decision by EPA to classify this area under subpart 2 might trigger additional future requirements for this area, EPA believes that this does not mean that redesignation of the area cannot now go forward. This belief is based upon
(1)EPA's longstanding policy of evaluating redesignation requests in accordance with the requirements due at the time the redesignation request is submitted; and,
(2)consideration of the inequity of applying retroactively any future requirements. First, at the time the redesignation request was submitted by the State, the Central Indiana Area was classified under subpart 1 and was obligated to meet only subpart 1 requirements. Under EPA's longstanding interpretation of section 107(d)(3)(E) of the CAA, to qualify for redesignation, states requesting redesignation to attainment must meet only the relevant SIP requirements that came due prior to the submittal of a complete redesignation request. September 4, 1992, Calcagni memorandum (“Procedures for Processing Requests to Redesignate Areas to Attainment,” Memorandum from John Calcagni, Director, Air Quality Management Division). See also September 17, 1993, Michael Shapiro memorandum, 60 FR 12459, 12465-66 (March 7, 1995) (redesignation of Detroit-Ann Arbor), and *Sierra Club* v. *EPA* , 375 F.3d 537 (7th Cir. 2004), which upheld this interpretation. See, e.g. also 68 FR 25418, 25424, 25427 (May 12, 2003) (redesignation of St. Louis). Moreover, it would be inequitable to retroactively apply any new SIP requirements that were not applicable at the time the redesignation request was submitted. The DC Circuit has recognized the inequity in such retroactive rulemaking. See *Sierra Club* v. *Whitman* , 285 F.3d 63 (DC Cir. 2002), in which the DC Circuit upheld a District Court's ruling refusing to make retroactive an EPA determination of nonattainment that was past the statutory due date. Such a determination would have resulted in the imposition of additional requirements on the area. The Court stated: “Although EPA failed to make the nonattainment determination within the statutory timeframe, Sierra Club's proposed solution only makes the situation worse. Retroactive relief would likely impose large costs on the States, which would face fines and suits for not implementing air pollution prevention plans in 1997, even though they were not on notice at the time.” *Id.* at 68. Similarly, here it would be unfair to penalize the area by applying to it, for purposes of redesignation, additional SIP requirements under subpart 2 that were not in effect at the time the State submitted its redesignation request. 3. Requirements Under the 1-Hour Ozone Standard With respect to the requirements under the 1-hour ozone standard, we note that the Central Indiana Area was made up of two types of areas relative to the 1-hour ozone standard at the time the 8-hour ozone standard was promulgated. First, Marion County was an ozone maintenance area, having been previously designated as a nonattainment area under the 1-hour ozone standard and having subsequently been redesignated to attainment of the 1-hour ozone standard. Second, all remaining Counties in the Central Indiana Area were designated as attainment/unclassifiable areas under the 1-hour ozone standard, having never been designated as 1-hour ozone nonattainment areas. The Court's ruling on EPA's Phase 1 rule does not impact redesignation requests for either of these types of areas. First, because Boone, Hamilton, Hancock, Hendricks, Johnson, Madison, Morgan, and Shelby Counties were designated as attainment/unclassifiable under the 1-hour ozone standard, and were never designated nonattainment for the 1-hour ozone standard, there are no outstanding 1-hour ozone nonattainment requirements that these counties would be required to meet. Thus, we find that the Court's ruling does not result in any additional 1-hour requirements for purposes of redesignation. Second, with respect to the 1-hour ozone standard requirements for Marion County, this area was an attainment area subject to a Clean Air Act section 175A maintenance plan under the 1-hour ozone standard. The Court's decisions do not impact redesignation requests for these types of areas, except to the extent that the Court in its June 8th decision clarified that for those areas with 1-hour motor vehicle emissions budgets in their 1-hour ozone maintenance plans, anti-backsliding requires that those 1-hour budgets must be used for 8-hour conformity determinations until replaced by 8-hour budgets. To meet this requirement, conformity determinations in such areas must continue to comply with the applicable requirements of EPA's conformity regulations at 40 CFR part 93. The Court clarified that 1-hour conformity determinations are not required for anti-backsliding purposes. With respect to the three other anti-backsliding provisions for the 1-hour ozone standard that the Court found were not properly retained, Marion County is an attainment area subject to a maintenance plan for the 1-hour ozone standard, and the NSR, contingency measures (pursuant to section 172(c)(9) or 182(c)(9)), and fee provision requirements no longer apply to this area because it has been redesignated to attainment of the 1-hour ozone standard. Thus, the decision in *South Coast Air Quality Management Dist* . should not preclude EPA from finalizing the redesignation of this area. III. What Are the Criteria for Redesignations to Attainment? The CAA provides the basic requirements for redesignating a nonattainment area to attainment. Specifically, section 107(d)(3)(E) of the CAA authorizes the EPA to redesignate an area to attainment of the NAAQS provided that:
(1)The Administrator determines that the area has attained the applicable NAAQS based on current air quality data;
(2)the Administrator has fully approved an applicable SIP for the area under section 110(k) of the CAA;
(3)the Administrator determines that the improvement in air quality is due to permanent and enforceable emission reductions resulting from implementation of the applicable SIP, Federal air pollution control regulations, and other permanent and enforceable emission reductions;
(4)the Administrator has fully approved a maintenance plan for the area meeting the requirements of section 175A of the CAA; and,
(5)the State containing the area has met all requirements applicable to the area under section 110 and part D of the CAA. EPA provided guidance on redesignations in the General Preamble for the Implementation of Title I of the CAA Amendments of 1900 on April 16, 1992 (57 FR 13498), and supplemented this guidance on April 28, 1992 (57 FR 18070). The two main policy guidelines affecting the review of ozone redesignation requests are the following: “Procedures for Processing Requests to Redesignate Areas to Attainment,” Memorandum from John Calcagni, Director, Air Quality Management Division, September 4, 1992 (the September 4, 1992 Calcagni memorandum); and, “Reasonable Further Progress, Attainment Demonstration, and Related Requirements for Ozone Nonattainment Areas Meeting the Ozone National Ambient Air Quality Standard,” Memorandum from John S. Seitz, Director, Office of Air Quality Planning and Standards, May 10, 1995 (the May 10, 1995 Seitz memorandum). For additional policy guidelines used in the review of ozone redesignation requests, see our proposed rule for the redesignation of the Evansville, Indiana ozone nonattainment area at 70 FR 53606 (September 9, 2005). IV. What Are EPA's Analyses and Opinions of the State's Requests and What Are the Bases for EPA's Proposed Action? EPA is proposing to:
(1)Determine that the Central Indiana Area has attained the 8-hour ozone standard;
(2)approve the ozone maintenance plan for the Central Indiana Area and the VOC and NO <sup>X</sup> MVEBs supported by the maintenance plan; and,
(3)approve the redesignation of the Central Indiana Area to attainment of the 8-hour ozone NAAQS. The bases for our proposed determination and approvals follow. A. Has the Central Indiana Area Attained the 8-Hour Ozone NAAQS? For ozone, an area may be considered to be attaining the 8-hour ozone NAAQS if there are no violations of the NAAQS, as determined in accordance with 40 CFR 50.10 and appendix I, based on the most recent three complete, consecutive calendar years of quality-assured air quality monitoring data at all ozone monitoring sites in the area and in its nearby downwind environs. To attain this standard, the average of the annual fourth-high daily maximum 8-hour average ozone concentrations measured and recorded at each monitor (the monitoring site's ozone design value) within the area and in its nearby downwind environs over the most recent three-year period must not exceed the ozone standard. Based on an ozone data rounding convention described in 40 CFR 50, appendix I, the 8-hour ozone standard is attained if the area's ozone design value 3 is 0.084 ppm (84 ppb) or less. The data must be collected and quality-assured in accordance with 40 CFR 58, and must be recorded in EPA's Air Quality System (AQS). The ozone monitors generally should have remained at the same locations for the duration of the monitoring period required to demonstrate attainment (for three years or more). The data supporting attainment of the standard must be complete in accordance with 40 CFR 50, appendix I. 3 The worst-case monitoring site-specific ozone design value in the area and in its nearby downwind environs. As part of the ozone redesignation request, IDEM submitted summarized 2004-2006 peak 8-hour ozone monitoring data for the Central Indiana Area. These ozone concentrations are part of the quality-assured ozone data recorded in the Air Quality System. The annual fourth-high 8-hour daily maximum concentrations for each year, along with the three-year averages, 4 are summarized in Table 1. 4 Three-year averages are specified for the last year of each three-year period and specify the monitoring site design values. Table 1.—Annual Fourth-High Daily Maximum 8-Hour Ozone Concentrations in Parts per Million
(ppm)Site Id County Site name Year Percent observations ozone season Fourth-high concentration Three-year average 18-011-0001 Boone Whitestown 2004 100 0.072 Whitestown 2005 100 0.082 Whitestown 2006 100 0.080 0.078 18-057-1001 Hamilton Noblesville 2004 99 0.075 Noblesville 2005 99 0.087 Noblesville 2006 100 0.077 0.079 18-059-0003 Hancock Fortville 2004 100 0.072 Fortville 2005 99 0.080 Fortville 2006 99 0.075 0.075 18-063-0004 Hendricks Avon 2004 100 0.071 Avon 2005 100 0.078 Avon 2006 100 0.073 0.074 18-081-0002 Johnson Trafalgar 2004 100 0.073 Trafalgar 2005 100 0.077 Trafalgar 2006 98 0.078 0.076 18-095-0010 Madison Emporia 2004 100 0.072 Emporia 2005 100 0.078 Emporia 2006 97 0.073 0.074 18-097-0050 Marion Ft. Benjamin Harrison 2004 99 0.073 Ft. Benjamin Harrison 2005 99 0.080 Ft. Benjamin Harrison 2006 100 0.076 0.076 18-097-0057 Marion Harding St. 2004 100 0.066 Harding St. 2005 100 0.081 Harding St. 2006 93 0.076 0.074 18-097-0042 Marion Mann Road 2004 99 0.065 Mann Road 2005 100 0.076 Mann Road 2006 98 0.074 0.071 18-097-0073 Marion Naval Air Warfare Center 2004 100 0.071 Naval Air Warfare Center 2005 100 0.080 Naval Air Warfare Center 2006 93 0.072 0.074 18-109-0005 Morgan Monrovia 2004 99 0.072 Monrovia 2005 100 0.078 Monrovia 2006 100 0.077 0.075 18-145-0001 Shelby Fairland 2004 99 0.071 Fairland 2005 100 0.080 Fairland 2006 98 0.073 0.074 The above data show that, during the period of 2004-2006, no violations of the 8-hour ozone standard were recorded in the Central Indiana Area. In addition, we find that the ozone data for the years considered meet data completeness requirements of 40 CFR part 50, appendix I. Based on these data, we conclude and find that the Central Indiana Area has attained the 8-hour ozone NAAQS. B. Has the State of Indiana Committed To Maintain the Ozone Monitoring System in the Central Indiana Area? IDEM commits to maintain the ozone monitoring network in the Central Indiana Area during the ozone maintenance period. Any necessary changes in the ozone monitoring system will be discussed in advance with the EPA. This commitment is acceptable. C. Have the Central Indiana Area and the State of Indiana Met All of the Applicable Requirements of Section 110 and Part D of the Clean Air Act, and Does the Central Indiana Area Have a Fully Approved SIP Under Section 110(k) of the Clean Air Act? We have determined that the Central Indiana Area and the State of Indiana have met all currently applicable SIP requirements for the Central Indiana Area, including the requirements under section 110 of the CAA (general SIP requirements) and the requirements under subpart 1 part D of title I of the CAA (requirements specific to all ozone nonattainment areas). See section 107(d)(3)(E)(v) of the CAA. In addition, EPA has fully approved the pertinent elements of the Indiana SIP. See section 107(d)(3)(E)(ii) of the CAA. We note that SIPs must be fully approved only with respect to currently applicable requirements of the CAA, which were those CAA requirements applicable to the Central Indiana Area at the time the State of Indiana submitted the final, complete ozone redesignation request for this area, March 26, 2007. 1. The Central Indiana Area Has Met All Applicable Requirements of Section 110 and Part D of the Clean Air Act The September 4, 1992, Calcagni memorandum describes EPA's interpretation of section 107(d)(3)(E) of the CAA. To qualify for redesignation of an area to attainment under this interpretation, the State and the area must meet the relevant CAA requirements that come due prior to the State's submittal of a complete redesignation request for the area. See also the September 17, 1993, Michael Shapiro memorandum and 66 FR 12459, 12465-12466 (March 7, 1995, redesignating Detroit-Ann Arbor, Michigan to attainment of the 1-hour ozone NAAQS). Applicable requirements of the CAA that come due subsequent to the State's submittal of a complete redesignation request remain applicable until a redesignation of the area to attainment of the standard is approved, but are not required as prerequisites to redesignation. See section 175A(c) of the CAA. *Sierra Club* v. *EPA* , 375 F.3d 537 (7th Cir. 2004). See also 66 FR 25424, 25427 (May 12, 2003, redesignation of the St. Louis/East St. Louis area to attainment of the 1-hour ozone NAAQS). a. Section 110 and General SIP Requirements Section 110(a) of title I of the CAA contains the general requirements for a SIP, which include: enforceable emission limitations and other emission control measures, means, or techniques; provisions for the establishment and operation of appropriate devices necessary to collect data on ambient air quality; programs to enforce the emission limitations; submittal of a SIP that has been adopted by the State after reasonable public notice and a hearing; implementation of a source permit program; provisions for the implementation of part C requirements (Prevention of Significant Deterioration (PSD)) and part D requirements (NSR for new sources or major source modifications); criteria for stationary source emission control measures, monitoring, and reporting; provisions for air quality modeling; and provisions for public and local agency participation. SIP requirements and elements are discussed in the following EPA documents: “Procedures for Processing Requests to Redesignate Areas to Attainment,” Memorandum from John Calcagni, Director, Air Quality Management Division, September 4, 1992; “State Implementation Plan
(SIP)Actions Submitted in Response to Clean Air Act
(CAA)Deadlines,” Memorandum from John Calcagni, Director, Air Quality Management Division, October 28, 1992; and “State Implementation Plan
(SIP)Requirements for Areas Submitting Requests for Redesignation to Attainment of the Ozone and Carbon Monoxide
(CO)National Ambient Air Quality Standards (NAAQS) on or after November 15, 1992,” Memorandum from Michael H. Shapiro, Acting Assistant Administrator, September 17, 1993. See also other guidance documents listed above. Section 110(a)(2)(D) of the CAA requires SIPs to contain certain measures to prevent sources in a State from significantly contributing to air quality problems in another State. To implement this provision, EPA required States to establish programs to address transport of air pollutants (NO <sup>X</sup> SIP call and Clean Air InterState Rule (CAIR)). EPA has also found, generally, that States have not submitted SIPs under section 110(a)(1) of the CAA to meet the interstate transport requirements of section 110(a)(2)(D)(i) of the CAA (70 FR 21147, April 25, 2005). However, the section 110(a)(2)(D) requirements for a State are not linked with a particular area's designation. EPA believes that the requirements linked with a particular area's nonattainment designation and classification are the relevant measures to evaluate in reviewing a redesignation request. The transport SIP submittal requirements, where applicable, continue to apply to a State regardless of the designation of any one particular area in the State. We believe that these requirements should not be construed to be applicable requirements for purposes of redesignation. Further, we believe that the other section 110 elements described above that are not connected with nonattainment plan submissions and that are not linked with an area's attainment status are also not applicable requirements for purposes of redesignation. A State remains subject to these requirements after an area is redesignated to attainment. We conclude that only the section 110 and part D requirements which are linked with an area's designation and classification are the relevant measures for evaluating this aspect of a redesignation request. This approach is consistent with EPA's existing policy on applicability of conformity and oxygenated fuels requirements for redesignation purposes, as well as with section 184 ozone transport requirements. See: Reading, Pennsylvania proposed and final rulemakings (61 FR 53174-53176, October 10, 1996 and 62 FR 24826, May 7, 1997); Cleveland-Akron-Lorain, Ohio final rulemaking (61 FR 20458, May 7, 1996); and Tampa, Florida final rulemaking (60 FR 62748, December 7, 1995). See also the discussion on this issue in the Cincinnati, Ohio ozone redesignation (65 FR 37890, June 19, 2000), and the Pittsburgh, Pennsylvania ozone redesignation (66 FR 50399, October 19, 2001). We believe that section 110 elements not linked to the area's nonattainment status are not applicable for purposes of redesignation. Nonetheless, we also note that EPA has previously approved provisions in the Indiana SIP addressing section 110 elements under the 1-hour ozone standard. We have analyzed the Indiana SIP as codified in 40 CFR part 52, subpart P and have determined that it is consistent with the requirements of section 110(a)(2) of the CAA. The SIP, which has been adopted after reasonable public notice and hearing, contains enforceable emission limitations; requires monitoring, compiling, and analyzing ambient air quality data; requires preconstruction review of new major stationary sources and major modifications of existing sources; provisions for adequate funding, staff, and associated resources necessary to implement its requirements; requires stationary source emissions monitoring and reporting; and otherwise satisfies the applicable requirements of section 110(a)(2). b. Part D SIP Requirements EPA has determined that the Indiana SIP meets applicable SIP requirements under part D of the CAA. Under part D, an area's classification—either subpart 1 or subpart 2 (marginal, moderate, serious, severe, and extreme)—indicates the requirements to which it will be subject. Subpart 1 of part D, found in sections 172-176 of the CAA, sets forth the basic nonattainment area plan requirements applicable to all nonattainment areas. Subpart 2 of part D, found in section 182 of the CAA, establishes additional specific requirements depending on the area's nonattainment classification. Since the Central Indiana Area is designated as a subpart 1 nonattainment area for the 8-hour ozone standard, the subpart 2 part D requirements do not apply to these Counties. c. Part D, Subpart 1 SIP Requirements For purposes of evaluating this redesignation request, the applicable subpart 1 part D requirements are contained in sections 172(c)(1)-(9) and 176. A thorough discussion of the requirements of section 172 can be found in the General Preamble for Implementation of Title I (57 FR 13498). See also 68 FR 4852-4853, an ozone redesignation notice of proposed rulemaking for the St. Louis area, for a discussion of section 172 requirements. No requirements for the 8-hour ozone standard under part D, subpart 1 of the CAA came due for the Central Indiana Area prior to when the State submitted the complete ozone redesignation request. For example, the requirement for an ozone attainment demonstration, as contained in section 172(c)(1), was not yet due when the State submitted the ozone redesignation request for these counties, nor were the requirements for Reasonably Available Control Measures
(RACM)and Reasonably Available Control Technology
(RACT)(section 172(c)(1)), Reasonable Further Progress
(RFP)(section 172(c)(2)), and attainment plan and RFP contingency measures (section 172(c)(9)). All of these SIP elements are required for submittal after Indiana submitted the complete, adopted ozone redesignation request and maintenance plan for the Central Indiana Area. Therefore, none of the part D requirements for the 8-hour ozone standard are considered to be applicable to the Central Indiana Area for purposes of redesignation. d. Section 176 Conformity Requirements Section 176(c) of the CAA requires States to establish criteria and procedures to ensure that Federally-supported or funded activities, including highway projects, conform to the air planning goals in the applicable SIP. The requirement to determine conformity applies to transportation plans, programs, and projects developed, funded, or approved under Title 23 U.S.C. and the Federal Transit Act (transportation conformity), as well as to all other Federally-supported or funded projects (general conformity). State conformity SIP revisions must be consistent with Federal conformity regulations that the CAA required the EPA to promulgate. As with other part D requirements, EPA interprets the conformity requirements as not applying for purposes of evaluating the ozone redesignation request under section 107(d) of the CAA. In addition, please note that conformity rules are required for areas that are redesignated to attainment of a NAAQS, and that Federal conformity rules apply where State rules have not been approved. See *Wall* v. *EPA* , 265 F.3d 426 (6th Cir. 2001). See also 60 FR 62748 (December 7, 1995) (Tampa, Florida). e. Part D New Source Review
(NSR)Requirements EPA has determined that areas being redesignated need not comply with the requirement that a NSR program be approved prior to redesignation, provided that the area demonstrates maintenance of the standard without emission reductions from part D NSR, since Prevention of Significant Deterioration
(PSD)requirements will apply after redesignation. A more detailed rationale for this view is described in a memorandum from Mary Nichols, Assistant Administrator for Air and Radiation, dated October 14, 1994, entitled, “Part D New Source Review Requirements for Areas Requesting Redesignation to Attainment.” Indiana has demonstrated that the Central Indiana Area will be able to maintain the 8-hour ozone standard without part D NSR in effect, and therefore, we conclude that the State need not have a fully approved part D NSR program prior to approval of the redesignation request. The State's PSD program will become effective in the Central Indiana Area upon redesignation to attainment. See rulemakings for Detroit, Michigan (60 FR 12467-12468, March 7, 1995); Cleveland-Akron-Lorain, Ohio (61 FR 20458, 20469-20470, May 7, 1996); Louisville, Kentucky (66 FR 53665, October 23, 2001); Grand Rapids, Michigan (61 FR 31834-31837, June 21, 1996). We conclude that the Central Indiana Area has satisfied all applicable requirements under section 110 and part D of the CAA to the extent that these requirements apply for purposes of reviewing the State's ozone redesignation request. 2. The Central Indiana Area Has a Fully Approved SIP Under Section 110(k) of the Clean Air Act
(CAA)EPA has fully approved the Indiana SIP for the Central Indiana Area under section 110(k) of the CAA for all applicable requirements. EPA may rely on prior SIP approvals in approving a redesignation request (See the September 4, 1992, John Calcagni memorandum, page 3; *Southwestern Pennsylvania Growth Alliance* v. *Browner,* 144 F.3d 984, 989-990 (6th Cir. 1998); and, *Wall* v. *EPA* , 265 F.3d 426 (6th Cir. 2001)), plus any additional measures it may approve in conjunction with a redesignation action. See 68 FR 25426 (May 12, 2003). Since the passage of the CAA of 1970, Indiana has adopted and submitted, and EPA has fully approved, provisions addressing the various required SIP elements applicable to the Central Indiana Area for purposes of ozone redesignation. No SIP provisions relevant to the Central Indiana Area are currently disapproved, conditionally approved, or partially approved. As indicated above, EPA believes that the section 110 elements not connected with nonattainment plan submissions and not linked to the area's nonattainment status are not applicable requirements for purposes of review of the State's redesignation request. EPA believes that approval of section 110 SIP elements under the 1-hour ozone standard satisfies the prerequisite for approval of the ozone redesignation request for purposes of attaining and maintaining the 8-hour ozone standard. EPA also believes that since the part D requirements for the 8-hour ozone standard did not become due prior to Indiana's submittal of the final, complete redesignation request, they also are not applicable requirements for purposes of redesignation. D. Are the Air Quality Improvements in the Central Indiana Area Due to Permanent and Enforceable Emission Reductions Resulting From the Implementation of the Indiana SIP and Applicable Federal Air Pollution Control Regulations and Other Permanent and Enforceable Emission Reductions? We believe that the State of Indiana has adequately demonstrated that the observed air quality improvements in the Central Indiana Area are due to permanent and enforceable emission reductions resulting from the implementation of the SIP, Federal measures, and other State-adopted measures. In making this demonstration, the State has documented the changes in VOC and NO <sup>X</sup> emissions from anthropogenic (man-made or man-based) sources in the Central Indiana Area and the changes in NO <sup>X</sup> emissions from Electric Generating Units
(EGUs)Statewide occurring over the period of 1999-2005. This period includes 2002, an ozone standard violation year, and 2005, the year in the middle of the 2004-2006 attainment period. The State has also identified the emission control regulations that have been implemented in the Central Indiana Area and that have contributed to attainment of the ozone standard. Table 2 summarizes the VOC and NO <sup>X</sup> emissions totals from the anthropogenic sources in the Central Indiana Area for 1999, 2002, and 2005 as documented in the State's redesignation request. Table 3 summarizes the NO <sup>X</sup> emissions trend for EGUs in the Central Indiana Area, and Table 4 summarizes the NO <sup>X</sup> emissions trend for EGUs Statewide. Table 2.—VOC and NO <sup>X</sup> Emissions Totals in the Central Indiana Area in Tons per Summer Day Year VOC NO <sup>X</sup> 1999 290.84 293.15 2002 249.67 264.69 2005 199.25 220.18 Table 3.—NO <sup>X</sup> Emissions Totals for EGUs in the Central Indiana Area in Tons per Ozone Season (April-September) Year NO <sup>X</sup> emissions 1999 31,815 2000 25,028 2001 27,394 2002 22,661 2003 17,984 2004 11,798 2005 10,591 Table 4.—NO <sup>X</sup> Emissions Totals for EGUs in Indiana Statewide In Tons per Ozone Season Year NO <sup>X</sup> emissions 1999 149,827 2000 133,881 2001 136,052 2002 113,996 2003 99,283 2004 66,568 2005 55,486 Information in the above tables indicates that both VOC and NO <sup>X</sup> emissions significantly decreased in the Central Indiana Area between 2002 and 2005. In particular, the NO <sup>X</sup> emissions from EGUs in this area significantly decreased during this period due to the implementation of EPA's NO <sup>X</sup> SIP call and acid rain control requirements. As discussed further below, these emission reductions are primarily due to the implementation of permanent and enforceable emission controls, which are believed to have significantly contributed to the attainment of the 8-hour ozone standard in this area. The Statewide NO <sup>X</sup> emission reductions for EGUs are believed to have significantly reduced ozone transport into the Central Indiana Area, further reducing the peak ozone concentrations in this area. These emission reductions are primarily due to the implementation of the State's NO <sup>X</sup> emission control rules stemming from EPA's NO <sup>X</sup> SIP call and acid rain control requirements. These NO <sup>X</sup> emission control rules are permanent and enforceable. We agree with the State that these NO <sup>X</sup> control rules have significantly reduced ozone levels in and ozone transport to the Central Indiana Area. Besides the NO <sup>X</sup> SIP call regulations, IDEM notes that the following VOC emission control regulations have been implemented in the Central Indiana Area (“IAC” is the Indiana Administrative Code): 326 IAC 8-1-6 Best Available Control Technology
(BACT)for non-specific sources 326 IAC 8-2 Surface Coating Emission Limitations 326 IAC 8-3 Organic Solvent Degreasing Operation Controls 326 IAC 8-4 Petroleum Sources Controls 326 IAC 8-5 Miscellaneous Operations Controls 326 IAC 8-6 Organic Solvent Emission Limitations 326 IAC 8-8.1-1 Municipal Solid Waste Landfills Not Located in Clark, Floyd, Lake and Porter Counties Controls. In addition, because EPA had initially designated Marion County as nonattainment under the 1-hour ozone standard, VOC sources that existed after July 1, 1990, in Marion County are also subject to RACT rules. Sources in the surrounding Counties (Boone, Hancock, Hamilton, Johnson, Morgan, and Shelby Counties) are subject to portions of 326 IAC 8-4 (326 IAC 8-4-4 through 8-4-7 and 8-4-9) that do not apply Statewide. These emission control requirements have led to reduced VOC emissions in the Central Indiana Area. Finally, the State notes that several nationwide rules have been implemented (or will be implemented in the near future), resulting in VOC and NO <sup>X</sup> emission reductions subsequent to 2002 in the Central Indiana Area and Statewide. These emission reduction rules include:
(a)Tier II emission standards for vehicles and gasoline sulfur standards;
(b)heavy-duty diesel engine standard and low-sulfur diesel fuel standards; and,
(c)Clean Air Non-road Diesel Rule. These emission reduction rules will provide additional emission reductions in the future. The State commits to maintain existing emission control measures after the redesignation of the Central Indiana Area to attainment of the 8-hour ozone NAAQS. If an emission control rule must be changed, the State will submit the rule change as a requested SIP revision to the EPA. IDEM maintains that it has the legal authority and necessary resources to enforce any violations of the existing emission control rules. E. Does the Central Indiana Area Have a Fully Approvable Ozone Maintenance Plan Pursuant to Section 175A of the CAA? In conjunction with its request to redesignate the Central Indiana Area to attainment of the 8-hour ozone NAAQS, Indiana submitted a SIP revision request to provide for maintenance of the 8-hour ozone NAAQS in the Central Indiana Area through 2020, exceeding the 10 year minimum maintenance period required by the CAA. 1. What Is Required in an Ozone Maintenance Plan? Section 175A of the CAA sets forth the required elements of air quality maintenance plans for areas seeking redesignation to attainment of a NAAQS. Under section 175A, a maintenance plan must demonstrate continued attainment of the applicable NAAQS for at least 10 years after the Administrator approves the redesignation to attainment. Eight years after the redesignation, the State must submit a revised maintenance plan which demonstrates that maintenance of the standard will continue for 10 years following the initial 10-year maintenance period. The maintenance plan must commit the State to submit this revised maintenance plan to the EPA. To address the possibility of future NAAQS violations, the maintenance plan must contain such contingency measures, with a schedule for implementation, as EPA deems necessary, to assure prompt correction of any future NAAQS violations. The September 4, 1992, John Calcagni memorandum provides additional guidance on the content of maintenance plans. An ozone maintenance plan should, at minimum, address the following items:
(1)The attainment VOC and NO <sup>X</sup> emissions inventories;
(2)a maintenance demonstration showing maintenance for the first 10 years of the maintenance period;
(3)a commitment to maintain the existing monitoring network;
(4)factors and procedures to be used for verification of continued attainment; and,
(5)a contingency plan to prevent and/or correct a future violation of the NAAQS. 2. What Are the Attainment Emission Inventories for the Central Indiana Area? IDEM estimated future VOC and NO <sup>X</sup> emissions for the Central Indiana Area for 2010, 2015, and 2020 to compare with the 2005 VOC and NO <sup>X</sup> emissions for this area and to demonstrate maintenance of the ozone standard in this area. Future emissions were estimated for point (significant stationary sources), area (smaller point and/or widely distributed stationary sources), on-road mobile, and non-road mobile sources for this area. To develop the 2010, 2015, and 2020 emissions, IDEM projected the 2002 base year emissions applying various source category-specific growth factors and emission control factors or growth estimates collected directly from the sources. The following summarizes the procedures and data sources used by IDEM to derive the projected emissions. a. Point Sources The primary source of point source information for the base period, 2002, was facility-specific emissions and source activity data collected annually by the State for inclusion in IDEM's annual emissions statement database. This information includes emissions, process rates, source operating schedules, emissions control data, and other relevant source information. Emission growth factors and future emission control factors provided by the Lake Michigan Air Directors Consortium (LADCO) were used to project the point source VOC and non-EGU NO <sup>X</sup> emissions to 2005, 2010, 2015, and 2020. The NO <sup>X</sup> emissions from EGUs were projected based on the EGU NO <sup>X</sup> emission budget contained in the Indiana NO <sup>X</sup> rule. b. Area Sources Area sources are those sources which are generally small, numerous, and have not been inventoried as specific point, mobile, or non-road mobile sources. The emissions for these sources are generally calculated using various surrogates, such as population by county, estimates of employees in various occupational groups, etc., and grouped by general source types. The area source emissions are typically defined at the county level. IDEM developed area source emissions for a 2002 periodic emissions inventory submitted to the EPA. The surrogate data used to derive these emissions were grown to 2005, 2010, 2015, and 2020. The projected surrogates or other assumed annual growth rates were used to calculate the projected VOC and NO <sup>X</sup> emissions for each area source type. c. On-Road Mobile Sources On-road mobile source emissions were calculated using the MOBILE 6.2 emission factor model and other mobile source data, including estimated traffic levels and vehicle type and age distribution data, extracted from the area's travel-demand model. d. Non-Road Mobile Sources Non-road mobile source emissions were based on emissions in the 2002 National Emissions Inventory (NEI). The 2005, 2010, 2015, and 2020 non-road mobile source emissions were grown from the 2002 NEI emissions. To address concerns about the accuracy of the emissions derived for some of the non-road mobile source categories in EPA's non-road emissions model, LADCO contracted with several companies to review the base data used in the emissions model. A contractor also estimated emissions for two non-road source categories not included in EPA's non-road emissions model, commercial marine vessels and railroads. Recreational motorboat emissions were significantly updated. The equipment population and spatial surrogate data for other source types were also significantly updated. A new non-road estimation model was also provided by the EPA for the 2002 emissions analysis. The updated 2002 emissions were used to project the emissions to 2005, 2010, 2015, and 2020. 3. Has the State Demonstrated Maintenance of the Ozone Standard in the Central Indiana Area? As part of the redesignation request submittal, IDEM requested a revision of the Indiana SIP to incorporate an ozone maintenance plan for the Central Indiana Area as required under section 175A of the CAA. The maintenance plan demonstrates maintenance of the 8-hour ozone NAAQS through 2020 by documenting the attainment year
(2005)and future VOC and NO <sup>X</sup> emissions. Indiana has shown that VOC and NO <sup>X</sup> emissions will remain below the attainment year levels through 2020. An ozone maintenance demonstration need not be based on ozone modeling. See *Wall* v. *EPA* , 265 F.3d 426 (6th Cir. 2001), *Sierra Club* v. *EPA* , 375 F.3d 537 (7th Cir. 2004). See also 66 FR 53094, 53099-53100 (October 19, 2001), and 68 FR 25430-25432 (May 12, 2003). Table 5 summarizes the VOC and NO <sup>X</sup> emissions projected to occur in the entire Central Indiana Area during the demonstrated maintenance period. The State of Indiana chose 2020 as a maintenance year to meet the 10-year maintenance requirement of the CAA, allowing several years for the EPA to complete the redesignation rulemaking process. The State also chose 2010 and 2015 as interim years to demonstrate that VOC and NO <sup>X</sup> emissions will remain below the attainment year levels throughout the maintenance period. Table 5.—VOC and NO <sup>X</sup> Emissions In the Central Indiana Area During the Ozone Maintenance Period in Tons per Summer Day Source sector 2005 2010 2015 2020 VOC Emissions Area 94.85 99.29 106.31 100.81 Point 13.54 14.34 16.00 14.85 Non-Road Mobile 30.36 28.77 24.06 25.29 On-Road Mobile 60.50 44.19 35.33 26.47 Total 199.25 186.59 181.70 167.42 NO <sup>X</sup> Emissions Area 24.26 22.39 23.12 22.74 Point 56.63 33.31 32.41 32.77 Non-Road Mobile 22.55 33.05 24.06 18.36 On-Road Mobile 116.74 78.40 55.42 32.45 Total 220.18 167.15 135.01 106.32 IDEM notes that the State's EGU NO <sup>X</sup> emissions control rules stemming from EPA's NO <sup>X</sup> SIP call and CAIR, to be implemented primarily after 2006, will further lower NO <sup>X</sup> emissions throughout the State of Indiana and upwind of the Central Indiana Area. This will result in reduced ozone and ozone precursor transport into the Central Indiana Area, and will support maintenance of the8-hour ozone NAAQS in this area. The emissions projections for the Central Indiana Area lead to the conclusion that this area should maintain the 8-hour ozone NAAQS throughout the required 10-year maintenance period and through 2020. The projected decreases in local VOC and local and regional NO <sup>X</sup> emissions indicate that peak ozone levels in the Central Indiana Area may further decline during the maintenance period. We conclude that IDEM has successfully demonstrated that the8-hour ozone standard will be maintained in the Central Indiana Area. 4. What Is the Contingency Plan for the Central Indiana Area? Section 175A of the CAA requires that a maintenance plan include such contingency measures as EPA deems necessary to assure that the State will promptly correct a violation of the NAAQS that might occur after redesignation. The maintenance plan must identify the contingency measures to be considered for possible adoption, a schedule and procedure for adoption and implementation of the selected contingency measures, and a time limit for action by the State. The State should also identify specific indicators to be used to determine when the contingency measures need to be adopted and implemented. The maintenance plan must include a commitment that the State will continue to implement all emission control measures that were included in the SIP before the redesignation of the area to attainment. See section 175A(d) of the CAA. As required by the CAA, Indiana has adopted a contingency plan to address possible future ozone air quality problems in the Central Indiana Area. The contingency plan has two levels of actions/responses depending on whether a violation of the 8-hour ozone standard is only threatened (Warning Level Response) or has actually occurred or appears to be imminent (Action Level Response). A Warning Level Response will be triggered whenever an annual (1-year) fourth-high monitored 8-hour ozone concentration of 0.089 ppm occurs in a single ozone season, or a 2-year average fourth-high monitored 8-hour ozone concentration of 0.085 ppm or higher occurs within the Central Indiana maintenance area (within the Central Indiana Area). A Warning Level Response will consist of a study to determine whether the high ozone concentration indicates a trend toward higher ozone values or whether emissions appear to be increasing. The study will determine if the trend toward high ozone concentrations is likely to continue. If so, the emission control measures necessary to reverse the trend, taking into consideration ease and timing of implementation and economic and social considerations, will be adopted and implemented. Implementation of necessary emission controls will take place no later than 12 months from the conclusion of the most recent ozone season (September 30). An Action Level Response will be triggered when a violation of the 8-hour ozone standard is monitored, when the three-year average annual fourth-high daily maximum 8-hour concentration is 0.085 ppm or higher at any monitor, in the Central Indiana Area. In the event that an Action Level Response is triggered and is not found to be due to an exceptional event, malfunction, or noncompliance with a permit condition or rule requirement, IDEM will determine the additional emission control measures needed to assure future attainment of the ozone NAAQS. Emission control measures that can be implemented in a short time will be selected in order to be in place within 18 months from the close of the ozone season in which the Action Level Response is triggered. Assuming that new emission controls are needed, if a new emission control measure is already promulgated and scheduled to be implemented at the Federal or State level and that control measure is determined to be sufficient to address the upward trend in ozone concentrations, additional local emission control measures may be unnecessary. The State will submit to EPA an analysis to demonstrate that the proposed emission control measures are adequate to return the area to attainment or to correct the air quality trend. The selection of emission control measures for implementation will be based on cost-effectiveness, emission reduction potential, economic and social considerations, and other factors that IDEM deems appropriate. IDEM will solicit input from interested and affected persons in the maintenance area prior to selecting appropriate contingency measures. IDEM has not specified a definitive list of measures that will be considered and may consider emission control measures not included in the list of potential emission control measures summarized in the ozone maintenance plan. The ozone maintenance plan lists the following emission control measures as possible contingency measures that have been selected and reviewed by the Central Indiana Air Quality Advisory Group (a group of industrial representatives, individuals, and local government representatives from the Central Indiana Area): • Lower Reid vapor pressure gasoline; • Broader geographic applicability of existing emission control requirements; • Tightening of RACT on existing sources covered by EPA control technique guidelines issued in response to the 1990 Clean Air Act revisions; • Application of RACT to smaller existing sources; • Vehicle inspection/maintenance program; • One or more transportation control measure sufficient to achieve at least a half of a percent (0.5 percent) reduction of actual area-wide VOC emissions. Transportation control measures will be selected from the following based on the factors discussed above and after consultation with the affected local governments:
(a)Trip reduction programs, including employer-based transportation management plans, area-wide rideshare programs, work schedule changes, and telecommuting;
(b)Transit improvements;
(c)Traffic flow improvements; and,
(d)Other new or innovative transportation measures; • Alternative fuel and diesel retrofit programs for fleet vehicle operations; • VOC or NO <sup>X</sup> emission offsets for new and modified major sources; • VOC or NO <sup>X</sup> emission offsets for new and modified minor sources; • Increase the ratio of emission offsets required for new sources; and, • VOC or NO <sup>X</sup> emission controls on new minor sources. No contingency measure will be implemented without providing the opportunity for public participation in the selection process, during which the relative costs and benefits of individual emission control measures will be evaluated. 5. Has the State Committed to Update the Ozone Maintenance Plan in Eight Years After the Redesignation of the Central Indiana Area to Attainment of the 8-Hour Ozone NAAQS? As required by section 175A(b) of the CAA, the State commits to review the maintenance plan 8 years after redesignation of the Central Indiana Area and to submit a revised maintenance plan to the EPA extending the maintenance period for 10 years beyond the initial 10-year maintenance period. We find Indiana's ozone maintenance demonstration, contingency plan, and commitment to update the maintenance plan to be acceptable. V. Has the State Adopted Acceptable Motor Vehicle Emissions Budgets for the End Year of the Ozone Maintenance Period Which Can Be Used To Support Conformity Determinations? A. How Are the Motor Vehicle Emission Budgets Developed, and What Are the Motor Vehicle Emission Budgets for the Central Indiana Area? Under the CAA, States are required to submit, at various times, SIP revisions and ozone maintenance plans for applicable areas (for ozone nonattainment areas and for areas seeking redesignations to attainment of the ozone standard or revising existing ozone maintenance plans). These emission control SIP revisions (e.g., reasonable further progress and attainment SIP revisions), including ozone maintenance plans, must create MVEBs based on on-road mobile source emissions that are allocated to highway and transit vehicle use and that, together with emissions from all other sources in the area, will provide for attainment or maintenance of the ozone NAAQS. Under 40 CFR part 93, MVEBs for an area seeking a redesignation to attainment of the NAAQS are established for the last year of the maintenance period (for the maintenance demonstration year). The MVEBs serve as ceilings on mobile source emissions from an area's planned transportation system, and are used to test planned transportation system changes or projects to assure compliance with the emission limits assumed in the SIP. The MVEB concept is further explained in the preamble to the November 24, 1993, transportation conformity rule (58 FR 62188). The preamble also describes how to establish the MVEBs in the SIP and how to revise the MVEBs if needed. Under section 176(c) of the CAA, new transportation projects, such as the construction of new highways, must “conform” to (i.e., be consistent with) the part of the SIP that addresses emissions from cars, trucks, and other on-road vehicles. Conformity to the SIP means that transportation activities should not cause new air quality standard violations, or delay timely attainment of the NAAQS. If a transportation plan does not conform, most new transportation projects that would expand the vehicle capacity of the roadways cannot go forward. Regulations at 40 CFR part 93 set forth EPA's policy, criteria, and procedures for demonstrating and assuring conformity of transportation activities to a SIP. When reviewing SIP revisions containing MVEBs, including attainment strategies, rate-of-progress plans, and maintenance plans, EPA must find that the MVEBs are “adequate” for use in determining transportation conformity. Once EPA finds the submitted MVEBs to be adequate for transportation conformity purposes, the MVEBs are used by State and Federal agencies in determining whether proposed transportation projects conform to the SIPs as required by section 176(c) of the CAA. EPA's substantive criteria for determining the adequacy of MVEBs are specified in 40 CFR 93.118(e)(4). EPA's process of determining adequacy of MVEBs consists of three basic steps:
(1)Providing public notification of a SIP submission;
(2)providing the public the opportunity to comment on the MVEBs during a public comment period; and
(3)making a finding of adequacy. The process of determining the adequacy of submitted SIP MVEBs was initially outlined in EPA's May 14, 1999, guidance, “Conformity Guidance on Implementation of March 2, 1999, Conformity Court Decision.” This guidance was finalized in the Transportation Conformity Rule Amendments for the “New 8-Hour Ozone and PM2.5 National Ambient Air Quality Standards and Miscellaneous Rule Amendments—Response to Court Decision and Additional Rule Change” published on July 1, 2004 (69 FR 40004). EPA follows this guidance and rulemaking in making its adequacy determinations. The Transportation Conformity Rule, in 40 CFR 93.118(f), provides for adequacy findings through two mechanisms. First, 40 CFR 93.118(f)(1) provides for posting a notice to the EPA conformity Web site at: *http://www.epa.gov/otaq/Stateresources/transconf/adequacy.htm* and providing a 30-day public comment period. Second, a mechanism is described in 40 CFR 93.118(f)(2) which provides that EPA can review the adequacy of an implementation plan submission simultaneously with its review of the implementation plan itself. The Central Indiana Area ozone maintenance plan contains VOC and NO <sup>X</sup> MVEBs for 2006 and 2020. An interagency group of consultation partners chose to include MVEBs for 2006 to assist in streamlining the transportation conformity process. The year 2006 was chosen because it represents one of the years the Central Indiana Area attained the 8-hour ozone standard and because the travel demand models used in transportation planning contain a defined mobile source network for 2006. The 2006 MVEBs are 54.32 tons VOC/day and 106.19 tons NO <sup>X</sup> /day. The 2020 MVEBs are 29.52 tons VOC/day and 35.69 tons NO <sup>X</sup> /day. Note that the 2020 MVEBs contain safety margins (emission levels exceeding the on-road mobile source emissions levels actually projected for the area and included in the maintenance demonstration). See the 2020 on-road mobile source emissions specified in Table 5 above. The State is applying safety margins in specifying the 2020 MVEBs to accommodate the assumptions and associated potential estimate errors that are factored into the projection of future emission estimates. Since assumptions change over time or are shown to be incorrect, some errors may actually occur in estimated future emissions. Therefore, it is reasonable, if not necessary, to incorporate safety margins into the setting of MVEBs. A “margin of safety” is the difference between the attainment level emissions from all sources and the projected levels of emissions from all sources in the maintenance plan for the maintenance year. As noted in Table 5 above, the Central Indiana Area is projected to have a VOC margin of safety of 31.83 tons/day and a NO <sup>X</sup> margin of safety of 113.86 tons/day in 2020. These margins of safety significantly exceed the safety margins incorporated into the 2020 MVEBs (the 2020 MVEB VOC safety margin is 3.05 tons/day and the 2020 MVEB NO <sup>X</sup> safety margin is 3.24 tons/day, the differences between the 2020 MVEBs and the projected on-road mobile source emissions). Therefore, the safety margins incorporated into the 2020 MVEBs will not threaten maintenance of the 8-hour ozone standard in the Central Indiana Area. No safety margins were applied to the 2006 MVEBs. These MVEBs are the on-road mobile emission estimates for this year. B. Are the MVEBs Approvable? EPA, through this rulemaking, is proposing to approve the 2006 and 2020 MVEBs for use in demonstrating transportation conformity in the Central Indiana Area because EPA has determined that the MVEBs are consistent with the emission control measures and future emissions projected in the SIP and because the Central Indiana Area can maintain attainment of the 8-hour ozone NAAQS for the required maintenance period with on-road mobile source emissions at the levels of the MVEBs. The VOC and NO <sup>X</sup> MVEBs are approvable because they maintain the total emissions for the Central Indiana Area at or below the attainment year emission levels, as required by the transportation conformity regulations. VI. What Are the Effects of EPA's Proposed Actions? Approval of the redesignation request would change the official designation of Boone, Hamilton, Hancock, Hendricks, Johnson, Madison, Marion, Morgan, and Shelby Counties, Indiana for the 8-hour ozone NAAQS, found at 40 CFR part 81, from nonattainment to attainment. Final rulemaking approving the redesignation request would incorporate into the Indiana SIP a plan for maintaining the ozone NAAQS through 2020 in these Counties. The maintenance plan includes contingency measures to remedy possible future violations of the 8-hour ozone NAAQS, and establishes 2006 and 2020 MVEBs for these counties. VII. Statutory and Executive Order Reviews Executive Order 12866: Regulatory Planning and Review Under Executive Order 12866 (58 FR 51735, September 30, 1993), this action is not a “significant regulatory action”, and therefore, is not subject to review by the Office of Management and Budget. Paperwork Reduction Act This proposed 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.* ). Regulatory Flexibility Act This proposed action merely proposes to approve State law as meeting Federal requirements and imposes no additional requirements beyond those imposed by State law. Accordingly, the Administrator certifies that this proposed 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 proposes to approve 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 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 proposes to approve 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 13175: Consultation and Coordination With Indian Tribal Governments This proposed 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 13045: Protection of Children From Environmental Health and Safety Risks This proposed 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. Executive Order 13211: Actions That Significantly Affect Energy Supply, Distribution, or Use Because it is not a “significant regulatory action” under Executive Order 12866 or a “significant regulatory 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). National Technology Transfer Advancement Act Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (NTTAA), 15 U.S.C. 272, requires Federal agencies to use technical standards that are developed or adopted by voluntary consensus to carry out policy objectives, so long as such standards are not inconsistent with applicable law or otherwise impractical. In reviewing SIP submissions, EPA's role is to approve State choices, provided that they meet the criteria of the Clean Air Act. Absent a prior existing requirement for the State to use voluntary consensus standards, EPA has no authority to disapprove a SIP submission for failure to use such standards, and it would thus be inconsistent with applicable law for EPA to use voluntary consensus standards in place of a program submission that otherwise satisfies the provisions of the Clean Air Act. Therefore, the requirements of section 12(d) of the NTTA do not apply. List of Subjects 40 CFR Part 52 Environmental protection, Air pollution control, Intergovernmental regulations, Nitrogen dioxide, Ozone, Volatile organic compounds. 40 CFR Part 81 Air pollution control, Environmental protection, National parks, Wilderness areas. Dated: July 23, 2007. Bharat Mathur, Acting Regional Administrator, Region 5. [FR Doc. E7-14741 Filed 7-30-07; 8:45 am] BILLING CODE 6560-50-P ENVIRONMENTAL PROTECTION AGENCY 40 CFR Parts 52 and 97 [EPA-R05-OAR-2007-0405; FRL-8446-5] Approval of Implementation Plans; Wisconsin; Clean Air Interstate Rule AGENCY: Environmental Protection Agency (EPA). ACTION: Proposed rule. SUMMARY: EPA is proposing to partially approve and partially disapprove a revision to the Wisconsin State Implementation Plan
(SIP)submitted on June 19, 2007. This revision incorporates provisions related to the implementation of EPA's Clean Air Interstate Rule (CAIR), promulgated on May 12, 2005, and subsequently revised on April 28, 2006, and December 13, 2006, and the CAIR Federal Implementation Plan
(FIP)which concerns sulfur dioxide (SO 2 ), oxides of nitrogen (NO <sup>X</sup> ) annual, and NO <sup>X</sup> ozone season emissions for the State of Wisconsin, promulgated on April 28, 2006, and subsequently revised December 13, 2006. EPA is not proposing to make any changes to the CAIR FIP, but is proposing, to the extent EPA approves Wisconsin's SIP revision, to amend the appropriate appendices in the CAIR FIP trading rules simply to note that approval. The SIP revision that EPA is proposing to approve is an abbreviated SIP revision that addresses the methodology to be used to allocate annual and ozone season NO <sup>X</sup> allowances under the CAIR FIP, except for allowances in the compliance supplement pool. The portions of Wisconsin's submittal (those associated with the compliance supplement pool and Superior Environmental Performance) that EPA is proposing to disapprove are inconsistent with CAIR and/or otherwise inappropriate to include in a CAIR SIP and must, therefore, be disapproved. DATES: Comments must be received on or before August 30, 2007. ADDRESSES: Submit your comments, identified by Docket ID No. EPA-R05-OAR-2007-0405, by one of the following methods: 1. *http://www.regulations.gov:* Follow the on-line instructions for submitting comments. 2. *E-mail: mooney.john@epa.gov.* 3. *Fax:*
(312)886-5824. 4. *Mail:* John M. Mooney, Chief, Criteria Pollutant Section, Air Programs Branch (AR-18J), U.S. Environmental Protection Agency, 77 West Jackson Boulevard, Chicago, Illinois 60604. 5. *Hand Delivery:* John M. Mooney, Chief, Criteria Pollutant Section, Air Programs Branch (AR-18J), U.S. Environmental Protection Agency, 77 West Jackson Boulevard, Chicago, Illinois 60604. Such deliveries are only accepted during the Regional Office normal hours of operation, and special arrangements should be made for deliveries of boxed information. The Regional Office official hours of business are Monday through Friday, 8:30 a.m. to 4:30 p.m. excluding Federal holidays. *Instructions:* Direct your comments to Docket ID No. EPA-R05-OAR-2007-0405. EPA's policy is that all comments received will be included in the public docket without change and may be made available online at *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 *www.regulations.gov* or e-mail, information that you consider to be CBI or otherwise protected. The *www.regulations.gov* Web site is an “anonymous access” system, which means EPA will not know your identity or contact information unless you provide it in the body of your comment. If you send an e-mail comment directly to EPA without going through *www.regulations.gov,* your e-mail address will be automatically captured and included as part of the comment that is placed in the public docket and made available on the Internet. If you submit an electronic comment, EPA recommends that you include your name and other contact information in the body of your comment and with any disk or CD-ROM you submit. If EPA cannot read your comment due to technical difficulties and cannot contact you for clarification, EPA may not be able to consider your comment. Electronic files should avoid the use of special characters and any form of encryption and should be free of any defects or viruses. For additional information about EPA's public docket, visit the EPA Docket Center homepage at *http://www.epa.gov/epahome/dockets.htm.* *Docket:* All documents in the electronic docket are listed in the *www.regulations.gov* index. Although listed in the index, some information is not publicly available, *i.e.,* CBI or other information the disclosure of which 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 *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 legal holidays. We recommend that you telephone Douglas Aburano, Environmental Engineer, at
(312)353-6960, before visiting the Region 5 office. FOR FURTHER INFORMATION CONTACT: Douglas Aburano, Environmental Engineer, Criteria Pollutant Section, Air Programs Branch (AR-18J), Environmental Protection Agency, Region 5, 77 West Jackson Boulevard, Chicago, Illinois 60604,
(312)353-6960, *aburano.douglas@epa.gov.* SUPPLEMENTARY INFORMATION: Table of Contents I. What Action Is EPA Proposing To Take? II. What Is the Regulatory History of CAIR and the CAIR FIPs? III. What Are the General Requirements of CAIR and the CAIR FIPs? IV. What Are the Types of CAIR SIP Submittals? V. Analysis of Wisconsin's CAIR SIP Submittal A. Nature of Wisconsin's Submittal B. Summary of Wisconsin's Rules C. State Budgets for Allowance Allocations D. CAIR Cap-and-Trade Programs E. Applicability Provisions for Non-EGU NO <sup>X</sup> SIP Call Sources F. NO <sup>X</sup> Allowance Allocations G. Allocation of Allowances From Compliance Supplement Pool
(CSP)H. Individual Opt-In Units I. Additional Provisions Found in Wisconsin's Abbreviated CAIR SIP Submittal VI. Proposed Action VII. Statutory and Executive Order Reviews I. What Action Is EPA Proposing to Take? CAIR SIP Partial Approval and Partial Disapproval EPA is proposing to partially approve and partially disapprove a revision to Wisconsin's SIP, submitted on June 19, 2007, which would modify the application of certain provisions of the CAIR FIP concerning SO <sup>2</sup> , NO <sup>X</sup> annual and NO <sup>X</sup> ozone season emissions. (As discussed below, this less comprehensive CAIR SIP is termed an abbreviated SIP.) Wisconsin is subject to the CAIR FIP that implements the CAIR requirements by requiring certain EGUs to participate in the EPA-administered Federal CAIR SO 2 , NO <sup>X</sup> annual, and NO <sup>X</sup> ozone season cap-and-trade programs. The SIP revision provides a methodology for allocating NO <sup>X</sup> allowances for the NO <sup>X</sup> annual and NO <sup>X</sup> ozone season trading programs. The CAIR FIP provides that this methodology, if approved as EPA is proposing, will be used to allocate NO <sup>X</sup> allowances to sources in Wisconsin, instead of the Federal allocation methodology otherwise provided in the FIP. The SIP revision also provides a methodology for allocating the CSP in the CAIR NO <sup>X</sup> annual trading program. Consistent with the flexibility provided in the FIP, these provisions, if approved, will be used to replace or supplement, as appropriate, the corresponding provisions in the CAIR FIP for Wisconsin. EPA is not proposing to make any changes to the CAIR FIP, but is proposing, to the extent EPA approves Wisconsin's SIP revision, to amend the appropriate appendices in the CAIR FIP trading rules simply to note that approval. EPA is proposing to disapprove a portion of Wisconsin's submittal. Certain separable provisions of Wisconsin's abbreviated SIP are not approvable. These provisions include NR 432.04 “Compliance supplement pool” and NR 432.08 “Superior environmental performance.” As discussed below, NR 432.04 includes provisions that would be inconsistent with CAIR. NR 432.08 would grant regulatory flexibility to sources that voluntarily reduce emissions beyond what is required under State and Federal regulations. The scope of regulatory flexibility provided by NR 432.08 is ambiguous. To the extent this flexibility relates to state-only regulatory requirements, the regulatory provisions are not appropriately included in a SIP. To the extent this flexibility relates to Federal requirements reflected in state regulations, this type of flexibility is not allowed under CAIR, and it is inappropriate to simply assume that other Federal requirements allow such flexibility. Therefore, the regulatory flexibility provisions cannot be included in Wisconsin's CAIR abbreviated SIP revision and cannot be approved. II. What Is the Regulatory History of CAIR and the CAIR FIPs? The CAIR was published by EPA on May 12, 2005 (70 FR 25162). In this rule, EPA determined that 28 states and the District of Columbia contribute significantly to nonattainment and interfere with maintenance of the NAAQS for fine particles (PM 2.5 ) and/or 8-hour ozone in downwind states in the eastern part of the country. As a result, EPA required those upwind states to revise their SIPs to include control measures that reduce emissions of SO 2 , which is a precursor to PM 2.5 formation, and/or NO <sup>X</sup> , which is a precursor to both ozone and PM 2.5 formation. For jurisdictions that contribute significantly to downwind PM 2.5 nonattainment, CAIR sets annual statewide emission reduction requirements (i.e., budgets) for SO 2 and annual statewide emission reduction requirements for NO <sup>X</sup> . Similarly, for jurisdictions that contribute significantly to 8-hour ozone nonattainment, CAIR sets statewide emission reduction requirements for NO <sup>X</sup> for the ozone season (May 1st to September 30th). Under CAIR, states may implement these emission budgets by participating in the EPA-administered cap-and-trade programs or by adopting any other control measures. CAIR sets forth what subject states must include in SIPs to address the requirements of section 110(a)(2)(D) of the Clean Air Act
(CAA)with regard to interstate transport with respect to the 8-hour ozone and PM 2.5 NAAQS. EPA made national findings, effective May 25, 2005, that the states had failed to submit SIPs meeting the requirements of section 110(a)(2)(D). The SIPs were due in July 2000, three years after the promulgation of the 8-hour ozone and PM 2.5 NAAQS. These findings started a two-year clock for EPA to promulgate a FIP to address the requirements of section 110(a)(2)(D). Under CAA section 110(c)(1), EPA may issue a FIP anytime after such findings are made and must do so within two years unless a SIP revision correcting the deficiency is approved by EPA before the FIP is promulgated. On April 28, 2006, EPA promulgated FIPs for all states covered by CAIR in order to ensure the emissions reductions required by CAIR are achieved on schedule. Each CAIR state is subject to the FIPs until the state fully adopts, and EPA approves, a SIP revision meeting the requirements of CAIR. The CAIR FIPs require certain EGUs to participate in the EPA-administered CAIR SO 2 , NO <sup>X</sup> annual, and NO <sup>X</sup> ozone-season model trading programs, as appropriate. The CAIR FIP SO 2 , NO <sup>X</sup> annual, and NO <sup>X</sup> ozone season trading programs impose essentially the same requirements as, and are integrated with, the respective CAIR SIP trading programs. The integration of the CAIR FIP and SIP trading programs means that these trading programs will work together to effectively create a single trading program for each regulated pollutant (SO 2 , NO <sup>X</sup> annual, and NO <sup>X</sup> ozone season) in all states covered by CAIR FIP or SIP trading program for that pollutant. The CAIR FIPs also allow states to submit abbreviated SIP revisions that, if approved by EPA, will automatically replace or supplement the corresponding CAIR FIP provisions (e.g., the methodology for allocating NO <sup>X</sup> allowances to sources in the state), while the CAIR FIP remains in place for all other provisions. On April 28, 2006, EPA published two more CAIR-related final rules that added the States of Delaware and New Jersey to the list of states subject to CAIR for PM 2.5 and announced EPA's final decisions on reconsideration of five issues without making any substantive changes to the CAIR requirements. III. What Are the General Requirements of CAIR and the CAIR FIPs? CAIR establishes statewide emission budgets for SO 2 and NO <sup>X</sup> and is to be implemented in two phases. The first phase of NO <sup>X</sup> reductions starts in 2009 and continues through 2014, while the first phase of SO 2 reductions starts in 2010 and continues through 2014. The second phase of reductions for both NO <sup>X</sup> and SO 2 starts in 2015 and continues thereafter. CAIR requires states to implement the budgets by either:
(1)Requiring EGUs to participate in the EPA-administered cap-and-trade programs; or,
(2)adopting other control measures of the state's choosing and demonstrating that such control measures will result in compliance with the applicable state SO 2 and NO <sup>X</sup> budgets. The May 12, 2005, and April 28, 2006, CAIR rules provide model rules that states must adopt (with certain limited changes, if desired), if they want to participate in the EPA-administered trading programs. With two exceptions, only states that choose to meet the requirements of CAIR through methods that exclusively regulate EGUs are allowed to participate in the EPA-administered trading programs. One exception is for states that adopt the opt-in provisions of the model rules to allow non-EGUs individually to opt into the EPA-administered trading programs. The other exception is for states that include all non-EGUs from their NO <sup>X</sup> SIP Call trading programs in their CAIR NO <sup>X</sup> ozone season trading programs. IV. What Are the Types of CAIR SIP Submittals? States have the flexibility to choose the type of control measures they will use to meet the requirements of CAIR. EPA anticipates that most states will choose to meet the CAIR requirements by selecting an option that requires EGUs to participate in the EPA-administered CAIR cap-and-trade programs. For such states, EPA has provided two approaches for submitting and obtaining approval for CAIR SIP revisions. States may submit full SIP revisions that adopt the model CAIR cap-and-trade rules. If approved, these SIP revisions will fully replace the CAIR FIPs. Alternatively, states may submit abbreviated SIP revisions. These SIP revisions will not replace the CAIR FIPs; however, the CAIR FIPs provide that, when approved, the provisions in these abbreviated SIP revisions will be used instead of, or in conjunction with, as appropriate, the corresponding provisions of the CAIR FIPs ( *e.g.* , the NO <sup>X</sup> allowance allocation methodology). A state submitting an abbreviated SIP revision may submit limited SIP revisions to tailor the CAIR FIP cap-and-trade program as it applies in their state. Specifically, an abbreviated SIP revision may establish certain applicability and allowance allocation provisions that will be used instead of, or in conjunction with, the corresponding provisions in the CAIR FIP rules in that state. Specifically, the abbreviated SIP revisions may: 1. Include NO <sup>X</sup> SIP Call trading sources that are not EGUs under CAIR in the CAIR FIP NO <sup>X</sup> ozone season trading program; 2. Provide for allocation of NO <sup>X</sup> annual or NO <sup>X</sup> ozone season allowances by the state, rather than the Administrator, using a methodology chosen by the state; 3. Provide for allocation of NO <sup>X</sup> annual allowances from the CSP by the state, rather than by the Administrator, using the state's choice of allowed, alternative methodologies; or 4. Allow units that are not otherwise CAIR units to opt individually into the CAIR FIP cap-and-trade programs under the opt-in provisions in the CAIR FIP rules. With approval of an abbreviated SIP revision, the CAIR FIP remains in place, as tailored to sources in the state by that approved SIP revision. Abbreviated SIP revisions can be submitted in lieu of, or as part of, CAIR full SIP revisions. States may want to designate part of their full SIP as an abbreviated SIP for EPA to act on first when the timing of the state's submission might not provide EPA with sufficient time to approve the full SIP prior to the deadline for recording NO <sup>X</sup> allocations. This will help ensure that the elements of the trading programs where flexibility is allowed are implemented according to the state's decisions. Submission of an abbreviated SIP revision does not preclude future submission of a CAIR full SIP revision. In this case, the June 19, 2007, submittal from Wisconsin has been submitted as an abbreviated SIP revision. V. Analysis of Wisconsin's CAIR SIP Submittal A. Nature of Wisconsin's Submittal On June 19, 2007, Wisconsin submitted a request to process their draft rules for addressing CAIR requirements. The Wisconsin Department of Natural Resources
(WDNR)held hearings on these proposed rules on October 10 and October 12, 2006. The 30-day public comment period for the proposed rules ended on October 23, 2006. B. Summary of Wisconsin's Rules Chapter NR 432 of the Wisconsin Administrative Code Chapters Related to Air Pollution Control, entitled “Allocation of Clean Air Interstate Rule NO <sup>X</sup> Allowances,” includes provisions addressing utility emissions of NO <sup>X</sup> . These rules are designed to address the requirements of the CAIR. Chapter NR 432 includes eight subparts: 1. NR 432.01 Applicability; purpose 2. NR 432.02 Definitions 3. NR 432.03 CAIR NO <sup>X</sup> allowance allocation 4. NR 432.04 Compliance supplement pool 5. NR 432.05 CAIR NO <sup>X</sup> ozone season allowance allocation 6. NR 432.06 Timing requirements for allocations of CAIR NO <sup>X</sup> allowances and CAIR NO <sup>X</sup> ozone season allowances 7. NR 432.07 CAIR renewable units 8. NR 432.08 Superior environmental performance Subchapter NR 432.01 entitled, “Applicability; purpose” consolidates the applicability and purpose section for both the annual and ozone season trading programs. While the FIP already contains an applicability section, the state is required to adopt this section to satisfy its own rulemaking requirements. Wisconsin is adopting the applicability section to apply only to the allocation methodology in their rule but this does not affect the applicability of the CAIR FIP. Subchapter NR 432.02 entitled, “Definitions” adopts many of the CAIR FIP definitions but is rewritten in a format to conform to the state's regulatory writing style requirements. While the FIP already contains a definitions section, the state is required to adopt this section to satisfy its own rulemaking requirements. Wisconsin is adopting the definition section to apply only to the allocation methodology in their rule but this does not affect the applicability of the CAIR FIP. Additionally, WDNR has added definitions not found in the CAIR FIP. These definitions are included to address the fact that Wisconsin's rule allocates allowances to renewable energy sources, which the FIP does not do, and to address the fact that Wisconsin allocates allowances to emitting sources based on energy output rather than heat input. The CAIR FIP uses a heat input based allocation methodology. Subchapter NR 432.03 entitled, “CAIR NO <sup>X</sup> allowance allocation” contains the state's annual NO <sup>X</sup> allowance allocation methodology. The state rule uses gross electrical output as the basis for calculating the number of allowances existing sources should be allocated. Also included in the allocation methodology are renewable energy units. Subchapter NR 432.04 entitled, “Compliance supplement pool” allocates a limited number of allowances to sources that make early reductions and to sources that can make a demonstration that electric reliability will be compromised. Subchapter NR 432.05 entitled, “CAIR NO <sup>X</sup> ozone season allowance allocation” contains the state's ozone season NO <sup>X</sup> allowance allocation methodology. The state rule uses gross electrical output as the basis for calculating the number of allowances existing sources that should be allocated. Also included in the allocation methodology are renewable energy units. Subchapter NR 432.06 entitled, “Timing requirements for allocations of CAIR NO <sup>X</sup> allowances and CAIR NO <sup>X</sup> ozone season allowances” consolidates the timing requirements for issuance of NO <sup>X</sup> allowances for both the annual and ozone season programs. Subchapter NR 432.07 entitled, “CAIR renewable units” was added by Wisconsin to address renewable energy units. Under the CAIR FIP, EPA did not allocate allowances for renewable energy units. Wisconsin has chosen to allocate both NO <sup>X</sup> annual and NO <sup>X</sup> ozone season allowances to renewable units. NR 432.07 requires renewable units to comply with the same trading requirements that the regulated EGUs comply with, such as designating an account representative who represents the unit in any trading activity, and establishing accounts for the NO <sup>X</sup> trading programs and the process for requesting NO <sup>X</sup> allowances. Subchapter NR 432.08 entitled, “Superior environmental performance” offers regulatory flexibility to sources that enter into voluntary agreements to reduce emissions of NO <sup>X</sup> , SO <sup>2</sup> , mercury, carbon dioxide, or heavy metals beyond levels required by Federal and state laws. C. State Budgets for Allowance Allocations The CAIR NO <sup>X</sup> annual and ozone season budgets were developed from historical heat input data for EGUs. Using these data, EPA calculated annual and ozone season regional heat input values, which were multiplied by 0.15 lb/mmBtu for phase 1, and 0.125 lb/mmBtu for phase 2, to obtain regional NO <sup>X</sup> budgets for 2009-2014 and for 2015 and thereafter, respectively. EPA derived the state NO <sup>X</sup> annual and NO <sup>X</sup> ozone season budgets from the regional budgets using state heat input data adjusted by fuel factors. The CAIR state SO <sup>2</sup> budgets were derived by discounting the tonnage of emissions authorized by annual allowance allocations under the Acid Rain Program under Title IV of the CAA. Under CAIR, each allowance allocated under the Acid Rain Program for the years in phase 1 of CAIR (2010 through 2014) authorizes 0.5 ton of SO <sup>2</sup> emissions in the CAIR trading program, and each Acid Rain Program allowance allocated for the years in phase 2 of CAIR (2015 and thereafter) authorizes 0.35 ton of SO <sup>2</sup> emissions in the CAIR trading program. The CAIR FIP established the budgets for Wisconsin as 40,759 tons for NO <sup>X</sup> annual emissions for 2009-2014, 33,966 tons for NO <sup>X</sup> annual emissions for 2015 and beyond, 17,987 tons for NO <sup>X</sup> ozone season emissions for 2010-2014, 14,989 tons for NO <sup>X</sup> ozone season emissions for 2015 and beyond, 87,264 tons for SO <sup>2</sup> emissions for 2010-2014, and 61,085 tons for SO <sup>2</sup> emissions for 2015 and beyond. Wisconsin's SIP revision, proposed for approval in today's action, does not affect these budgets, which are total amounts of allowances available for allocation for each year under the EPA-administered cap-and-trade programs under the CAIR FIP. In short, the abbreviated SIP revision only affects allocations of allowances under the established budgets. D. CAIR Cap-and-Trade Programs The CAIR NO <sup>X</sup> annual and NO <sup>X</sup> ozone season FIPs both largely mirror the structure of the NO <sup>X</sup> SIP Call model trading rule in 40 CFR part 96, subparts A through I. While the provisions of the NO <sup>X</sup> annual and NO <sup>X</sup> ozone season FIPs are similar, there are some differences. For example, the NO <sup>X</sup> annual FIP (but not the NO <sup>X</sup> ozone season FIP) provides for a CSP, which is discussed below and under which allowances may be awarded for early reductions of NO <sup>X</sup> annual emissions. As a further example, the NO <sup>X</sup> ozone season FIP reflects the fact that the CAIR NO <sup>X</sup> ozone season trading program replaces the NO <sup>X</sup> SIP Call trading program after the 2008 ozone season and is coordinated with the NO <sup>X</sup> SIP Call program. The NO <sup>X</sup> ozone season FIP provides incentives for early emissions reductions by allowing banked, pre-2009 NO <sup>X</sup> SIP Call allowances to be used for compliance in the CAIR NO <sup>X</sup> ozone-season trading program. In addition, states have the option of continuing to meet their NO <sup>X</sup> SIP Call requirement by participating in the CAIR NO <sup>X</sup> ozone season trading program and including all their NO <sup>X</sup> SIP Call trading sources in that program. The provisions of the CAIR SO <sup>2</sup> FIP are also similar to the provisions of the NO <sup>X</sup> annual and ozone season FIPs. However, the SO <sup>2</sup> FIP is coordinated with the ongoing Acid Rain SO <sup>2</sup> cap-and-trade program under CAA Title IV. The SO <sup>2</sup> FIP uses the Title IV allowances for compliance, with each allowance allocated for 2010-2014 authorizing only 0.50 ton of emissions and each allowance allocated for 2015 and thereafter authorizing only 0.35 ton of emissions. Banked Title IV allowances allocated for years before 2010 can be used at any time in the CAIR SO <sup>2</sup> cap-and-trade program, with each such allowance authorizing 1 ton of emissions. Title IV allowances are to be freely transferable among sources covered by the Acid Rain Program and sources covered by the CAIR SO <sup>2</sup> cap-and-trade program. EPA used the CAIR model trading rules as the basis for the trading programs in the CAIR FIPs. The CAIR FIP trading rules are virtually identical to the CAIR model trading rules, with changes made to account for federal rather than state implementation. The CAIR model SO <sup>2</sup> , NO <sup>X</sup> annual, and NO <sup>X</sup> ozone season trading rules and the respective CAIR FIP trading rules are designed to work together as integrated SO <sup>2</sup> , NO <sup>X</sup> annual, and NO <sup>X</sup> ozone season trading programs. Wisconsin is subject to the CAIR FIP for ozone and PM <sup>2.5</sup> , and the CAIR FIP trading programs for SO <sup>2</sup> , NO <sup>X</sup> annual, and NO <sup>X</sup> ozone season apply to sources in Wisconsin. Consistent with the flexibility it gives to states, the CAIR FIP provides that states may submit abbreviated SIP revisions that will replace or supplement, as appropriate, certain provisions of the CAIR FIP trading programs. The June 19, 2007 submission of Wisconsin is such an abbreviated SIP revision. E. Applicability Provisions for Non-EGU NO <sup>X</sup> SIP Call Sources In general, the CAIR FIP trading programs apply to any stationary, fossil-fuel-fired boiler or stationary, fossil-fuel-fired combustion turbine serving at any time, since the latter of November 15, 1990, or the start-up of the unit's combustion chamber, a generator with nameplate capacity of more than 25 MWe producing electricity for sale. States have the option of bringing in, for the CAIR NO <sup>X</sup> ozone season program only, those units in the state's NO <sup>X</sup> SIP Call trading program that are not EGUs as defined under CAIR. EPA advises states exercising this option to use provisions for applicability that are substantively identical to the provisions in 40 CFR 96.304, and add the applicability provisions in the state's NO <sup>X</sup> SIP Call trading rule for non-EGUs to the applicability provisions in 40 CFR 96.304, in order to include in the CAIR NO <sup>X</sup> ozone season trading program all units required to be in the state's NO <sup>X</sup> SIP Call trading program that are not already included under 40 CFR 96.304. Under this option, the CAIR NO <sup>X</sup> ozone season program must cover all large industrial boilers and combustion turbines, as well as any small EGUs ( *i.e.* units serving a generator with a nameplate capacity of 25 MWe or less), that the state currently requires to be in the NO <sup>X</sup> SIP Call trading program. Because Wisconsin was not included in the NO <sup>X</sup> SIP Call trading program, Wisconsin did not have an option of expanding the applicability provisions of the CAIR NO <sup>X</sup> ozone season trading program. F. NO <sup>X</sup> Allowance Allocations Under the NO <sup>X</sup> allowance allocation methodology in the CAIR model trading rules and in the CAIR FIP, NO <sup>X</sup> annual and NO <sup>X</sup> ozone season allowances are allocated to units that have operated for five years, based on heat input data from a three-year period that are adjusted for fuel type by using fuel factors of 1.0 for coal, 0.6 for oil, and 0.4 for other fuels. The CAIR model trading rules and the CAIR FIP also provide a new unit set-aside from which units without five years of operation are allocated allowances based on the units' prior year emissions. The CAIR FIP provides states the flexibility to establish a different NO <sup>X</sup> allowance allocation methodology that will be used to allocate allowances to sources in the states if certain requirements are met concerning the timing of submission of units' allocations to the Administrator for recordation and the total amount of allowances allocated for each control period. In adopting alternative NO <sup>X</sup> allowance allocation methodologies, states have flexibility with regard to: 1. The cost to recipients of the allowances, which may be distributed for free or auctioned; 2. The frequency of allocations; 3. The basis for allocating allowances, which may be distributed, for example, based on historical heat input or electric and thermal output; and 4. The use of allowance set-asides and, if used, their size. Consistent with the flexibility given to states in the CAIR FIP, Wisconsin has chosen to replace the provisions of the CAIR NO <sup>X</sup> annual FIP concerning the allocation of NO <sup>X</sup> annual allowances with its own methodology. NR 432.03 contains the provisions for the NO <sup>X</sup> annual allowance distribution methodology Wisconsin has adopted. Wisconsin has chosen to distribute NO <sup>X</sup> annual allowances based upon gross electrical output. Where the CAIR FIP allocates allowances to NO <sup>X</sup> emitting sources only and does so on a fuel-weighted basis (as mentioned above), Wisconsin's rule eliminates that fuel weighting and allocates allowances to renewable energy units as well. For units that have operated for five or more consecutive years, the three highest annual amounts of the unit's gross electrical output will be the basis for determining that unit's allocations. Wisconsin has created a new unit set-aside for sources that have fewer than five years of operating data. The new unit set-aside is equal to seven percent of the total trading budget. The number of NO <sup>X</sup> annual allocations a new unit can request from the new unit set-aside is limited by the number of the unit's total tons of NO <sup>X</sup> emissions during the calendar year immediately before the calendar year of the request. Updating of unit baselines for allocation purposes occurs every five years beginning in 2011. The initial allocation of allowances for the years 2009-2014 is set forth in NR 432.03. Consistent with the flexibility given to states in the CAIR FIP, Wisconsin has chosen to replace the provisions of the CAIR NO <sup>X</sup> ozone season FIP concerning allowance allocations with their own methodology. NR 432.05 contains the provisions for the NO <sup>X</sup> ozone season allowance distribution methodology Wisconsin has adopted. Wisconsin has chosen to distribute NO <sup>X</sup> ozone season allowances based upon gross electrical output where the CAIR FIP allocates allowances to NO <sup>X</sup> emitting sources only and does so on a fuel-weighted basis (as mentioned above); Wisconsin's rule eliminates that fuel weighting and allocates allowances to renewable energy units as well. For units that have operated for five or more consecutive years, the three highest ozone season amounts of the unit's gross electrical output will be the basis for determining that unit's allocations. Wisconsin has created a new unit set-aside for sources that have fewer than five years of operating data. The new unit set-aside is equal to seven percent of the total trading budget. The number of NO <sup>X</sup> ozone season allocations a new unit can request from the new unit set-aside is limited by the number of the unit's total tons of NO <sup>X</sup> emissions during the ozone season immediately before the calendar year of the request. Updating of unit baselines for allocation purposes occurs every five years beginning in 2011. The initial allocation of allowances for the years 2009-2014 is set forth in NR 432.05. Since Wisconsin has chosen to allocate both NO <sup>X</sup> annual and NO <sup>X</sup> ozone season allowances to renewable energy units, the state has adopted provisions specifically for these sources to comply with. These provisions are found in NR 432.07 which requires renewable units to comply with the same trading requirements that the regulated EGUs comply with, such as designating an account representative who represents the unit in any trading activity, and establishing accounts for the NO <sup>X</sup> trading programs and the process for requesting NO <sup>X</sup> allowances. G. Allocation of NO <sup>X</sup> Allowances From the Compliance Supplement Pool The CSP provides an incentive for early reductions in NO <sup>X</sup> annual emissions. The CSP consists of 200,000 CAIR NO <sup>X</sup> annual allowances of vintage 2009 for the entire CAIR region, and a state's share of the CSP is based upon the state's share of the projected emission reductions under CAIR. States may distribute CSP allowances, one allowance for each ton of early reduction, to sources that make NO <sup>X</sup> reductions during 2007 or 2008 beyond what is required by any applicable state or Federal emission limitation. States also may distribute CSP allowances based upon a demonstration of need for an extension of the 2009 deadline for implementing emission controls. The CAIR NO <sup>X</sup> annual FIP establishes specific methodologies for allocations of CSP allowances. States may choose an allowed, alternative CSP allocation methodology to be used to allocate CSP allowances to sources in those states. *See* 40 CFR 51.123(p)(2) (requiring that State CSP provisions be consistent with the model rule at 40 CFR 96.143, the FIP at 40 CFR 97.143, or CAIR at 40 CFR 51.123(e)(4)). Consistent with the flexibility given to states in the FIP, Wisconsin has chosen to modify the provisions of the CAIR NO <sup>X</sup> annual FIP concerning the allocation of allowances from the CSP. NR 432.04 contains the provisions Wisconsin has adopted for distribution of the CSP. Wisconsin has chosen to distribute CSP allowances based on early reduction credits or based on the need to avoid undue risk to electric reliability. The first methodology based on early reduction credits essentially mirrors the FIP's early reduction credit methodology. The description in Wisconsin's rule of the second methodology based on need is somewhat unclear. EPA interprets the provision to require a demonstration that a unit cannot avoid undue risk to electric reliability if it keeps its emissions in 2009 from exceeding its 2009 allowance allocation. Even if the unit could obtain additional allowances to cover emissions above its allocation, and thereby comply with the requirement to hold allowances covering emissions, the unit could be given CSP allowances. In contrast, EPA's CSP provisions in the model rule, the FIP, and CAIR require a demonstration that, without being given CSP allowances, a unit cannot avoid undue risk while keeping its 2009 emissions from exceeding *all* the allowances it holds, both its 2009 allowance allocations and other allowances it can obtain for compliance. Thus, Wisconsin's provision is inconsistent with EPA's CSP provisions. Moreover, since Wisconsin's entire CSP is available for units meeting either the early reduction credit or the undue risk criteria, the early reduction credit and undue risk provisions cannot be administered separately, and the Wisconsin CSP must be administered by a single agency. Consequently, EPA proposes to disapprove all of Wisconsin's CSP provisions. This portion of Wisconsin's SIP submittal is separable from the rest of the submittal and can be disapproved without compromising the integrity of the portion where we are proposing approval. In the absence of approved CSP provisions in an abbreviated CAIR SIP, the FIP provisions for the allocation of CSP allowances would continue to apply. Therefore, with the disapproval of Wisconsin's CSP provisions providing for distribution of the CSP the FIP CSP provisions would continue to apply in Wisconsin. H. Individual Opt-In Units The opt-in provisions allow for certain non-EGUs ( *i.e.* , boilers, combustion turbines, and other stationary fossil-fuel-fired devices) that do not meet the applicability criteria for a CAIR trading program to participate voluntarily in ( *i.e.* , opt into) the CAIR trading program. A non-EGU may opt into one or more of the CAIR trading programs. In order to qualify to opt into a CAIR trading program, a unit must vent all emissions through a stack and be able to meet monitoring, recordkeeping, and recording requirements of 40 CFR part 75. The owners and operators seeking to opt a unit into a CAIR trading program must apply for a CAIR opt-in permit. If the unit is issued a CAIR opt-in permit, the unit becomes a CAIR unit, is allocated allowances, and must meet the same allowance-holding and emissions monitoring and reporting requirements as other units subject to the CAIR trading program. The opt-in provisions provide for two methodologies for allocating allowances for opt-in units, one methodology that applies to opt-in units in general and a second methodology that allocates allowances only to opt-in units that the owners and operators intend to repower before January 1, 2015. States have several options concerning the opt-in provisions. The rules for each of the CAIR FIP trading programs include opt-in provisions that are essentially the same as those in the respective CAIR SIP model rules, except that the CAIR FIP opt-in provisions become effective in a state only if the state's abbreviated SIP revision adopts the opt-in provisions. The state may adopt the opt-in provisions entirely or may adopt them but exclude one of the allowance allocation methodologies. The state also has the option of not adopting any opt-in provisions in the abbreviated SIP revision and thereby providing for the CAIR FIP trading program to be implemented in the state without the ability for units to opt into the program. Consistent with the flexibility given to states in the FIP, Wisconsin has chosen not to allow non-EGUs meeting certain requirements to participate in the CAIR NO <sup>X</sup> annual trading program. Consistent with the flexibility given to states in the FIP, Wisconsin has chosen not to permit non-EGUs meeting certain requirements to participate in the CAIR NO <sup>X</sup> ozone season trading program. Consistent with the flexibility given to states in the FIPs, Wisconsin has chosen not to allow certain non-EGUs to opt into the CAIR SO <sup>2</sup> trading program. I. Additional Provisions Found in Wisconsin's Abbreviated CAIR SIP Submittal In addition to the already mentioned portions of Wisconsin's rules that have been submitted as part of the abbreviated CAIR SIP, Wisconsin has two other provisions. NR 432.06 describes the timing requirements for allocating both NO <sup>X</sup> annual allowances and NO <sup>X</sup> ozone season allowances. These requirements are consistent with the timing requirements for allocating allowances under an abbreviated SIP scenario found in 40 CFR 51.123 and are, therefore, being proposed for approval. NR 432.08 would allow sources to make voluntary reductions beyond state and Federal requirements in exchange for regulatory flexibility. For the reasons discussed above, we are proposing to disapprove this portion of Wisconsin's CAIR abbreviated SIP. This portion is separable from the rest of Wisconsin's SIP submittal and can be disapproved without compromising the integrity of the portion where we are proposing approval. VI. Proposed Action EPA is proposing to partially approve and partially disapprove Wisconsin's abbreviated CAIR SIP revision submitted on June 19, 2007. Wisconsin is covered by the CAIR FIP, which requires participation in the EPA-administered CAIR FIP cap-and-trade programs for SO <sup>2</sup> , NO <sup>X</sup> annual, and NO <sup>X</sup> ozone season emissions. Under this abbreviated SIP revision and consistent with the flexibility given to states in the FIP, Wisconsin adopts provisions for allocating allowances under the CAIR FIP NO <sup>X</sup> annual and NO <sup>X</sup> ozone season trading programs. As provided for in the CAIR FIP, these provisions in the abbreviated SIP revision will replace or supplement the corresponding provisions of the CAIR FIP in Wisconsin. These provisions in Wisconsin's abbreviated SIP revision meet the applicable requirements in 40 CFR 51.123(p) and (ee), with regard to NO <sup>X</sup> annual and NO <sup>X</sup> ozone season emissions. EPA is not proposing to make any changes to the CAIR FIP, but is proposing, to the extent EPA approves Wisconsin's SIP revision, to amend the appropriate appendices in the CAIR FIP trading rules simply to note that approval. Wisconsin's submittal also contains provisions that are inconsistent with requirements concerning the CSP and that grant unacceptable regulatory flexibility to some sources. EPA is proposing to disapprove these portions of Wisconsin's rule. We are able to propose disapproval of these specific portions of Wisconsin's submittal because they are separable from the rest of Wisconsin's submittal and disapproving only these parts has no effect on the rest of the submittal that we are proposing to approve. VII. 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 proposes to approve state law as meeting Federal requirements and would impose no additional requirements beyond those imposed by state law. Accordingly, the Administrator certifies that this proposed rule would 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 action proposes to approve pre-existing requirements under state law and would 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 (Public Law 104-4). This proposal also does not have tribal implications 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, as specified by Executive Order 13175 (65 FR 67249, November 9, 2000). This proposed action also does not have Federalism implications because it would not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132 (64 FR 43255, August 10, 1999). This action merely proposes to approve a State rule implementing a Federal standard and to amend the appropriate appendices in the CAIR FIP trading rules to note that approval. It does not alter the relationship or the distribution of power and responsibilities established in the Clean Air Act. This proposed 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 would approve a State rule implementing a Federal Standard. 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 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. This proposed rule would not impose an information collection burden under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 *et seq.* ). List of Subjects 40 CFR Part 52 Environmental protection, Air pollution control, Electric utilities, Intergovernmental relations, Nitrogen oxides, Ozone, Particulate matter, Reporting and recordkeeping requirements, Sulfur dioxide. 40 CFR Part 97 Environmental protection, Air pollution control, Electric utilities, Intergovernmental relations, Nitrogen oxides, Ozone, Particulate matter, Reporting and recordkeeping requirements, Sulfur dioxide. Dated: July 18, 2007. Bharat Mathur, Acting Regional Administrator, Region 5. [FR Doc. E7-14465 Filed 7-30-07; 8:45 am] BILLING CODE 6560-50-P DEPARTMENT OF HEALTH AND HUMAN SERVICES Centers for Disease Control and Prevention 42 CFR Part 71 RIN 0920-AA03 Foreign Quarantine Regulations, Proposed Revision of HHS/CDC Animal-Importation Regulations AGENCY: Centers for Disease Control and Prevention, HHS. ACTION: Advance notice of proposed rulemaking. SUMMARY: The Centers for Disease Control and Prevention
(CDC)within the U.S. Department of Health and Human Services
(HHS)is issuing this Advance Notice of Proposed Rulemaking (ANPRM) to begin the process of revising the regulations that cover the importation of dogs and cats (42 CFR 71.51), including by extending these regulations to cover domesticated ferrets. This ANPRM will also address the importation of African rodents (42 CFR 71.56) into the United States. HHS/CDC is also considering the need for additional regulations to prevent the introduction of zoonotic diseases into the United States. The input received from stakeholders and other interested parties via the ANPRM process will lead to a Notice of Proposed Rulemaking (NPRM), with the aim of improving HHS's ability to prevent importation of communicable diseases into the United States. The scope of this ANPRM does not include the non-human primate regulations (42 CFR 71.53). DATES: To be assured consideration, written comments must be received on or before October 1, 2007. ADDRESSES: You may submit written comments to the following address: U.S. Department of Health and Human Services, Centers for Disease Control and Prevention, Division of Global Migration and Quarantine, ATTN: Animal Importation Regulations, 1600 Clifton Road, N.E., (E03), Atlanta, GA 30333. Comments will be available for public inspection Monday through Friday, except for legal holidays, from 9 a.m. until 5 p.m. at 1600 Clifton Road, NE., Atlanta, GA 30333. Please call ahead to 1-866-694-4867 and ask for a representative in the Division of Global Migration and Quarantine to schedule your visit. You may also submit written comments electronically via the Internet at *http://www.regulations.gov* or via e-mail to *animalimportcomments@cdc.gov* . Electronic comments may be viewed at *http://wwwn.cdc.gov/publiccomments/* . CDC's general policy for comments and other submissions from members of the public is to make these submissions available for public viewing on the Internet as they are received and without change, including any personal identifiers or contact information. You can download an electronic version of the ANPRM at *http://www.regulations.gov* . CDC has also posted the ANPRM and related materials to its Web site at *http://www.cdc.gov/ncidod/dq* . FOR FURTHER INFORMATION CONTACT: Dr. Robert Mullan,
(404)639-4537. SUPPLEMENTARY INFORMATION: Zoonoses are diseases that are transmissible from animals to people. The prevention of zoonoses in humans poses special challenges, and requires consideration of the role of animals in disease transmission. For example, domesticated animals such as dogs and cats can carry rabies, and wild exotic animals can carry a variety of known and emerging zoonotic pathogens. Under Section 361 of the Public Health Service Act (42 U.S.C. 264), HHS/CDC is responsible for regulations to prevent the introduction, transmission, and spread of communicable diseases from foreign countries into the United States, and from one U.S. State or possession into another. HHS/CDC recently published a Notice of Proposed Rulemaking to revise its foreign and interstate quarantine regulations in 42 CFR, Parts 70 and 71. Under its statutory authority, HHS/CDC may regulate the importation of animals into the United States that pose a health risk to humans. The Food and Drug Administration
(FDA)within HHS also has regulatory authority under the Public Health Service Act to make and enforce regulations to prevent the introduction, transmission, or spread of communicable diseases. Within the U.S. Department of Agriculture (USDA), the Animal and Plant Health Inspection Service (APHIS) has the authority to regulate the importation of animals; its focus is primarily on animal-welfare issues and diseases of veterinary and agricultural importance. In addition, the Office of Law Enforcement within the U.S. Fish and Wildlife Service
(FWS)of the U.S. Department of the Interior
(DOI)regulates the entry of some shipments of animals to ensure compliance with U.S. laws and international agreements that protect endangered species. HHS/CDC currently regulates the importation of dogs and cats into the United States to prevent the entry of zoonotic diseases through 42 CFR 71.51. Dogs and cats are subject to inspection at ports of entry for evidence of infectious diseases transmissible to humans. If a dog or cat appears to be ill, inspectors may require further examination by a licensed veterinarian. In addition, HHS/CDC provides additional restrictions on the importation of dogs to prevent the entry of rabies. Rabies is a virus that causes a fatal disease in humans and animals, especially dogs. In the United States, widespread mandatory vaccination of dogs has eliminated canine strains of rabies, and dramatically reduced the number of human cases in this country. However, canine strains of rabies remain a serious health threat in many other countries, and preventing the entry of animals infected with this strain of rabies into the United States is an important public-health priority. HHS/CDC currently regulates the importation of dogs into the United States by requiring rabies vaccination and the confinement of most dogs for up to 30 days after vaccination, principally to prevent the importation of rabies. Recently, HHS/CDC has received reports of large-volume shipments of puppies intended for immediate re-sale. These animals often appear younger than the age on their accompanying documents, and their vaccination status is questionable. Although a veterinary examination can assess many common zoonotic diseases of dogs, current regulations do not require dogs to be accompanied by a standard international health certificate signed by a licensed veterinary authority in the country of origin or means of unique identification for these animals. In addition, current regulations do not require rabies vaccination for cats, which are highly susceptible to canine strains of rabies virus, and can also transmit the infection to humans. Furthermore, current regulations do not require rabies vaccination or inspection for ferrets, which are domesticated pet carnivores that are also highly susceptible to canine strains of rabies. Thus, the current regulations might not be sufficient to prevent the entry of canine strains of rabies into the United States. Zoonotic pathogens are important not only because of the known illnesses they cause, which can move to new parts of the world, but also because of new human diseases that can arise from animal sources. In 2003, an outbreak of Severe Acute Respiratory Syndrome
(SARS)in humans spread worldwide, and the initial transmission to humans was linked to civet cats sold for food in marketplaces in China. The emergence of SARS in humans following exposure to wild animals is an example of how a previously unrecognized zoonotic disease can quickly cause unexpected illness in human populations. HHS/CDC believes many animals imported into the United States for the commercial pet trade represent a risk to human health. In 2003, an outbreak of monkeypox occurred in the United States, and involved 37 confirmed human cases. HHS/CDC ultimately traced back the outbreak of monkeypox, through infected prairie dogs, to the importation of African rodents. However, our investigators could not identify many potentially infected animals associated with this outbreak, because no accurate records were available to trace their movements. This outbreak eventually led to publication of 42 CFR 71.56, which prohibited the importation of all African rodents into the United States, except as approved by the Director of HHS/CDC for scientific, exhibition, or educational purposes. This outbreak illustrates the possibility of animals as sources of human infections, and the special risk associated with keeping wild animals as pets. The importation of wild animals poses a health risk because most shipments involve a high volume of animals, most of which are wild-caught and not captive-raised. Many shipments also include different species co-mingled or kept in close proximity in confined spaces, conditions ideal for the transmission of disease. For most species, there is no screening for the presence of infectious diseases prior to shipment, and no holding or testing is required on entry into the United States, which creates an opportunity for the widespread exposure of humans to pathogens these animals could be harboring. High mortality rates among some animals, such as rodents, are common, and current U.S. statutes and regulations do not require importers to have diagnostic necropsies performed to determine whether the mortality is from a pathogen that could have an adverse effect on public health. Some imported animals are also known reservoirs or vectors of communicable diseases of public-health significance. HHS/CDC has taken actions to prevent the introduction, transmission, and spread of specific communicable diseases into the United States, including monkeypox, SARS, and avian influenza. 42 CFR 71.56 prohibits the importation of African rodents, except as approved by the Director of HHS/CDC for scientific, exhibition, or educational purposes. HHS/CDC has issued an order to ban the importation of civets, because of concerns over the importation of SARS-coronavirus. HHS/CDC has also issued orders to ban the importation of birds and bird products from specific countries with highly pathogenic avian influenza H5N1; these orders mirror similar regulatory actions taken by USDA/APHIS to prevent the importation of birds with avian influenza H5N1. These actions might not be sufficient to fully prevent the introduction of zoonotic diseases into the United States, because they are limited to specific species and regions. HHS/CDC believes a number of approaches could further limit the transmission of zoonotic diseases. Potential solutions to this problem include screening animals with reliable laboratory tests, treating the animals empirically for known diseases, or quarantining the animals upon entry into the United States for the duration of an incubation period or duration of transmissibility. Many of those solutions, however, are currently not feasible or practical to employ on the large volume of imported animals. In addition, the control measures cannot prevent new or emerging pathogens or infections for which no laboratory tests or no empiric treatments exist, when practical experiences regarding a species' susceptibility are lacking, when incubation periods are unknown, or when the infections are subclinical. In these instances, import restrictions of a wider range of species than currently regulated could be the only effective means of preventing the introduction of exotic infections into this country. On May 18, 2006, HHS/CDC hosted a public meeting on the subject of infectious-disease threats associated with the importation and trade of exotic animals. Stakeholders submitted a variety of positions and views to the public meeting. Of the 22 statements received for consideration, seven indicated a measure of support for increased restrictions on the importation and sale of exotic species, while 15 expressed support for alternatives to regulatory or legal restrictions, or opposition to possible restrictions. HHS/CDC posted a summary of this meeting in the **Federal Register** of August 7, 2006 (71 FR 44,698). Advance Notice of Proposed Rulemaking for Animal Importations Before considering whether to engage in rulemaking, HHS/CDC is seeking input and background information from stakeholders, including pet owners, veterinarians, animal breeders and importers, retailers and distributors, U.S. State agricultural and public-health veterinarians, medical epidemiologists, infectious-disease internists, animal-welfare and conservation groups, research facilities, zoological societies, animal transporters, and other Federal, State, and local agencies on various issues relating to the potential application of revisions to the current rules. This process will allow HHS/CDC to consider the scope of any proposed changes. HHS/CDC is requesting comments from stakeholders on the issues and questions below, pertaining to regulations on the importation into the United States of dogs, cats, and ferrets, as well as other animals. We request input on the economic, regulatory, management, social, health, and political impact any changes would have on the various stakeholder groups. We also request stakeholder groups to provide data to substantiate their claims of any positive or negative impact of any changes in the regulation. In addition, HHS/CDC solicits any additional comments from interested parties that could meaningfully inform the process of adjusting the current regulations. Dog, Cat, and Ferret Regulations Should HHS/CDC extend the regulations that currently cover dogs and cats to also cover domesticated ferrets? Should HHS/CDC establish a minimum age for the importation of dogs, cats, and ferrets into the United States? If so, at what age and why? Should the minimum age differ for cats, dogs, and ferrets? Should HHS/CDC establish a requirement for the estimation of age by a licensed veterinarian? Should rabies vaccination be a requirement for entry into the United States for all dogs, cats, and ferrets? What documentation would suffice as proof of vaccination? Should HHS/CDC require serologic evidence of immunity? What timeframe of vaccination would be appropriate? Should dogs, cats, and ferrets imported for research purposes be considered exempt from rabies vaccination requirements if vaccination would interfere with the intended research? Should HHS/CDC require each dog, cat, and ferret to have a valid international health certificate signed by a veterinary authority in the country of origin as a condition for entry into the United States? Are there particular international health certificates that should be used as a model? Would such a requirement be financially feasible for the importer? What diseases should a health examination and issuance of a health certificate cover? What are the perceived benefits or shortcomings of health certificates with respect to accurately reflecting a dog, cat, or ferret's true health status? How can these certificates be made difficult to falsify? Are there other methods that can demonstrate the health of the animal? Would a requirement for all dogs, cats, and ferrets imported into the United States to have a unique identifier, such as a tattoo or microchip, as endorsed by the American Veterinary Medical Association, reduce the likelihood of fraudulent vaccination claims and health certificates? Would identifiers unique to each animal assist officials in locating and tracking dogs, cats, and ferrets during public-health investigations? How might the uniqueness of identifiers be assured if they are administered in other countries? What are some possible difficulties associated with requiring a unique identifier for each dog, cat, or ferret? Who would read the identifier? Should a database of identifiers for imported dogs, cats, and ferrets be maintained, and if so, who would maintain it? What is the impact of the cost of identification measures? Are there alternative identification methods? To facilitate the implementation of these regulations, should HHS/CDC restrict the importation of dogs, cats, and ferrets to only those ports of entry staffed by HHS/CDC personnel? These quarantine stations are located in Atlanta, GA; Miami, FL; Chicago, IL; New York City, NY; Honolulu, HI; San Francisco, CA; Los Angeles, CA; Seattle, WA; Newark, NJ; Washington, DC; Dallas, TX; El Paso, TX; Houston, TX; Anchorage, AK; Boston, MA; Detroit, MI; Minneapolis, MN; San Diego, CA; Philadelphia, PA; and San Juan, PR. What impact would limiting the importation of dogs, cats, and ferrets to certain ports potentially have on pet owners and the pet industry? Many countries allow dogs, cats, and ferrets with appropriate documentation and vaccination history to accompany travelers. Is there a need for possible exemptions to importation requirements for dogs, cats, and ferrets that are traveling with their owners abroad and returning to the United States? Is there a need for other types of exemptions for dogs, cats, and ferrets? Should HHS/CDC consider additional requirements that might reduce the risk of importing communicable diseases from dogs, cats, and ferrets into the United States, and make the implementation of these regulations more feasible and effective at ports of entry? For firms and other entities potentially affected by the options discussed in the ANPRM, what types of negative (or positive) impacts could occur? What types of businesses and other entities would the options affect? What provisions would have the greatest impact? How would the revenues and costs of affected businesses change under the various approaches discussed in the ANPRM? For example, what percent of revenues are these options likely to affect in the short, medium, and long term ( *e.g.* , one year, 10 years, and 30 years)? How could HHS/CDC reduce or avoid the impact on small entities, and how would any changes to reduce impact on small entities affect the potential effectiveness of the rules? Other Animal Regulations (Including African Rodents Currently Regulated Under 42 CFR 71.56) HHS/CDC's current approach to controlling zoonotic disease threats has been to issue emergency orders or rules prohibiting importation of implicated animals. These actions are usually taken after an outbreak occurs, rather than to proactively prevent outbreaks from known high-risk animals. Given that this approach might not be sufficient to prevent fully the introduction of many zoonotic diseases, should HHS/CDC establish a regulation that maintains a list of species or categories of high-risk animals for which importation is restricted ( *e.g.* either prohibited from entry, or subject to certain entry and permitting requirements)? If so, how would the types of animals included on such a list be determined? Should these regulations be based on broad taxonomic groupings ( *e.g.* , all rodents), or should they list individual species? Should HHS/CDC consider issuing these restrictions on a limited geographical basis ( *i.e.* , certain countries or regions), or more broadly? If HHS/CDC were to prohibit certain subsets of animals from entry, how would personnel at ports of entry accurately identify animals, considering that many species of concern are difficult to identify or distinguish from each other? Should the revised rules focus on restricting the importation of diseases not already present in the United States, or should they also cover enzootic diseases that may pose a health risk (ex. salmonellosis)? What data sources should HHS/CDC use to determine a prioritized list of covered diseases? Should HHS/CDC require shipments of restricted animals to enter a port staffed with HHS/CDC personnel? These quarantine stations appear in the above section on the regulations that cover dogs, cats, and ferrets. What impact would limiting the importation of restricted animals to certain ports potentially have on pet owners, the pet industry, and the scientific research community? What impact will changing these regulations to include other species of animals have on the U.S. market for rearing these animals domestically? What impact will changing the regulations have on the illegal trade of restricted animal species? Should HHS/CDC subject restricted animals to a quarantine period to cover the risks of diseases that have established incubation periods, as well as to allow assessment of the animals' general health status? Should there be quarantine exemptions for laboratory animals certified as being free of pathogens of concern? If a quarantine period is permitted, should animals that become ill or die during quarantine be required to have diagnostic tests or necropsies conducted to rule out communicable diseases of human health concern? Should such a requirement be mandatory, or should diagnostic tests or necropsies be ordered at the discretion of HHS/CDC? Who should bear the costs of the required diagnostic tests or necropsies? How might changes to these regulations affect current practices regarding the tracking and handling of animals? What are ways to improve record-keeping for these animals to allow more rapid tracking during public-health investigations? For firms and other entities potentially affected by the options discussed in the ANPRM, what types of negative (or positive) impacts could occur? What types of businesses and other entities would the options affect? What provisions would have the greatest impact? How would their revenues and costs change under the various approaches discussed in the ANPRM? For example, what percent of revenues are these options likely to affect in the short, medium, and long term ( *e.g.* , one year, 10 years, and 30 years)? Please provide suggestions about how HHS/CDC could reduce or avoid the impact on small entities, and how those changes would affect the potential effectiveness of the rules. References 1. Regulations on the importation of dogs and cats (42 CFR 71.51): *http://a257.g.akamaitech.net/7/257/2422/05dec20031700/edocket.access.gpo.gov/cfr_2003/octqtr/42cfr71.51.htm* . 2. Other animal-importation regulations (42 CFR 71.56) and orders: a. *http://edocket.access.gpo.gov/2003/03-27557.htm* b. *http://www.cdc.gov/ncidod/monkeypox/animals.htm* c. *http://www.cdc.gov/flu/avian/outbreaks/embargo.htm* d. *http://www.cdc.gov/ncidod/sars/civetembargo.htm* Dated: April 16, 2007. Michael Leavitt, Secretary. Editorial Note: This document was received at the Office of the Federal Register on July 25, 2007. [FR Doc. E7-14623 Filed 7-30-07; 8:45 am] BILLING CODE 4163-18-P DEPARTMENT OF THE INTERIOR Fish and Wildlife Service 50 CFR Part 17 RIN 1018-AV25 Endangered and Threatened Wildlife and Plants; Designation of Critical Habitat for the Devils River Minnow AGENCY: Fish and Wildlife Service, Interior. ACTION: Proposed rule. SUMMARY: We, the U.S. Fish and Wildlife Service (Service), propose to designate critical habitat for the Devils River minnow ( *Dionda diaboli* ) under the Endangered Species Act of 1973, as amended (Act). In total, approximately 73.5 stream kilometers
(km)(45.7 stream miles (mi)) are within the boundaries of the proposed critical habitat designation. The proposed critical habitat is located along streams in Val Verde and Kinney Counties, Texas. DATES: We will accept comments from all interested parties until October 1, 2007. We must receive requests for public hearings, in writing, at the address shown in the ADDRESSES section by September 14, 2007. ADDRESSES: If you wish to comment on the proposed rule, you may submit your comments and materials by any one of several methods: 1. You may mail or hand-deliver written comments and information to Adam Zerrenner, Field Supervisor, U.S. Fish and Wildlife Service, Austin Ecological Services Field Office, 10711 Burnet Road, Suite 200, Austin, TX 78758. 2. You may send comments by electronic mail (e-mail) to *fw2_drm@fws.gov.* Please see the Public Comments Solicited section below for file format and other information about electronic filing. 3. You may fax your comments to the attention of Adam Zerrenner at 512-490-0974. 4. You may go to the Federal eRulemaking Portal: *http://www.regulations.gov.* Follow the instructions for submitting comments. Comments and materials received, as well as supporting documentation used in the preparation of this proposed rule, will be available for public inspection, by appointment, during normal business hours at the Austin Ecological Services Field Office, 10711 Burnet Road, Suite 200, Austin, TX 78758; telephone 512-490-0057. FOR FURTHER INFORMATION CONTACT: Adam Zerrenner, Field Supervisor, Austin Ecological Services Field Office, 10711 Burnet Road, Suite 200, Austin, TX 78758; telephone 512-490-0057; facsimile 512-490-0974. Persons who use a telecommunications device for the deaf
(TDD)may call the Federal Information Relay Service
(FIRS)at 800-877-8339, 7 days a week and 24 hours a day. SUPPLEMENTARY INFORMATION: Public Comments Solicited We intend that any final action resulting from this proposal will be as accurate and as effective as possible. Therefore, comments or suggestions from the public, other concerned governmental agencies, the scientific community, industry, or any other interested party concerning this proposed rule are hereby solicited. Comments particularly are sought concerning:
(1)The reasons habitat should or should not be designated as critical habitat under section 4 of the Act (16 U.S.C. 1531 *et seq.* ), including whether the benefit of designation would outweigh any threats to the species caused by designation such that the designation of critical habitat is prudent;
(2)Specific information on the amount and distribution of Devils River minnow habitat, what areas should be included in the designation that were occupied at the time of listing that contain the features that are essential for the conservation of the species and why, and what areas that were not occupied at the listing are essential to the conservation of the species and why;
(3)Information on the status of the Devils River minnow in Sycamore Creek and Las Moras Creek watersheds and information that indicates whether or not these areas should be considered essential to the conservation of the species;
(4)Land use designations and current or planned activities in the subject areas and their possible impacts on proposed critical habitat;
(5)Any foreseeable economic, national security, or other potential impacts resulting from the proposed designation and, in particular, any impacts on small entities and information about the benefits of including or excluding any areas that exhibit those impacts; and
(6)Whether our approach to designating critical habitat could be improved or modified in any way to provide for greater public participation and understanding, or to assist us in accommodating public concerns and comments. You may submit comments and materials concerning this proposal by one of several methods (see ADDRESSES ). Please include “Attn: Devils River minnow” in your e-mail subject header and your name and return address in the body of your message. If you do not receive a confirmation from the system that we have received your message, contact us directly by calling our Austin Ecological Services Field Office at 512-490-0057. Please note that comments must be received by the date specified in the DATES section in order to be considered and that the e-mail address *fw2_drm@fws.gov* will be closed out at the termination of the public comment period. Before including your address, phone number, e-mail address, or other personal identifying information in your comment, you should be aware that your entire comment—including your personal identifying information—may be made publicly available at any time. While you can ask us in your comment to withhold your personal identifying information from public review, we cannot guarantee that we will be able to do so. Background It is our intent to discuss only those topics directly relevant to the designation of critical habitat in this proposed rule. For more information on the Devils River minnow, refer to the final listing rule published in the **Federal Register** on October 20, 1999 (64 FR 56596) or the 2005 Devils River Minnow Recovery Plan available online at *http://www.fws.gov/endangered/.* More detailed information on Devils River minnow biology and ecology that is directly relevant to designation of critical habitat is discussed under the Primary Constituent Elements section below. Description and Taxonomy The Devils River minnow ( *Dionda diaboli* Hubbs and Brown) is a small fish first collected in 1951 (Hubbs and Brown 1956, p. 70). The Devils River minnow is recognized as a distinct species by the American Fisheries Society (Nelson *et al.* 2004, p. 70). Taxonomic validity is based on morphology (Hubbs and Brown 1956, p. 69), genetic markers (Mayden *et al.* 1992, p. 722), and chromosome differences (Gold *et al.* 1992, p. 221). Adult Devils River minnows reach sizes of 25-53 millimeters
(mm)(1.0-2.1 inches (in)) standard length. The fish has a wedge-shaped spot near the tail and a pronounced lateral stripe extending through the eye to the snout but without reaching the lower lip. The species has a narrow head and prominent dark markings on the scale pockets of the body above the lateral line, producing a crosshatched appearance when viewed from above (Hubbs and Brown 1956, pp. 69-70). The species occurs with other minnows, such as the closely related manantial roundnose minnow ( *Dionda argentosa* ). Distribution and Habitat The Devils River minnow is limited to short stretches of spring-fed stream tributaries of the Rio Grande in southwestern Texas and northeastern Mexico (Garrett *et al.* 1992, p. 259). In the United States, the fish has never been found outside of five streams in Val Verde and Kinney Counties, Texas. The Devils River minnow currently occurs in stretches of the Devils River, San Felipe Creek, and Pinto Creek. It has been extirpated from Las Moras Creek and has not been collected from Sycamore Creek since 1989 (Garrett *et al.* 1992, pp. 261-267; Garrett *et al.* 2004, p. 435). There is little information available on the status of the Devils River minnow in Mexico. Historically, it was known to occur in the Río San Carlos and several streams in the Río Salado Drainage, in the State of Coahuila. Regulations at 50 CFR 424.12(h) state that critical habitat shall not be designated within foreign countries or in other areas outside of United States jurisdiction. As such, geographical areas supporting the Devils River minnow in Mexico are not included in the proposed critical habitat designation. The Devils River minnow is found only in spring-fed streams (Brune 1981, pp. 274-275, 450-454; Garrett *et al.* 1992, p. 259) with shallow to moderate depths and slow to moderate water velocity over gravel substrates. Within these streams, Devils River minnows are most often found within or nearby emergent aquatic plants (Garrett *et al.* 2004, p. 437) or near similar structures created by stream bank vegetation that extends into the water (Lopez-Fernandez and Winemiller 2005, p. 249). Previous Federal Actions The Devils River minnow was listed as threatened on October 20, 1999 (64 FR 56596). Critical habitat was not designated for this species at the time of listing (64 FR 56606). On October 5, 2005, the Forest Guardians, Center for Biological Diversity, and Save Our Springs Alliance filed suit against the Service for failure to designate critical habitat for this species ( *Forest Guardians et al.* v. *Hall* 2005). On June 28, 2006, a settlement was reached that requires the Service to re-evaluate our original prudenct determination. The settlement stipulated that, if prudent, a proposed rule would be submitted to the **Federal Register** for publication on or before July 31, 2007, and a final rule by July 31, 2008. This proposed rule complies with the settlement agreement and with section 4(b)(2) of the Act. For more information on previous Federal actions concerning the Devils River minnow, refer to the final listing rule published in the **Federal Register** on October 20, 1999 (64 FR 56598). Critical Habitat Critical habitat is defined in section 3 of the Act as
(i)the specific areas within the geographical area occupied by a species, at the time it is listed in accordance with the Act, on which are found those physical or biological features
(I)essential to the conservation of the species and
(II)that may require special management considerations or protection; and
(ii)specific areas outside the geographical area occupied by a species at the time it is listed, upon a determination that such areas are essential for the conservation of the species. Conservation, as defined under section 3 of the Act means to use and the use of all methods and procedures that are necessary to bring any endangered species or threatened species to the point at which the measures provided pursuant to the Act are no longer necessary. Critical habitat receives protection under section 7(a)(2) of the Act through the prohibition against destruction or adverse modification of critical habitat with regard to actions carried out, funded, or authorized by a Federal agency. Section 7 of the Act requires consultation on Federal actions that may affect critical habitat. The designation of critical habitat does not affect land ownership or establish a refuge, wilderness, reserve, preserve, or other conservation area. Such designation does not allow government or public access to private lands. Section 7(a)(2) of the Act is a purely protective measure and does not require implementation of restoration, recovery, or enhancement measures. To be included in a critical habitat designation, the habitat within the geographical area occupied by the species must first have features that are essential to the conservation of the species. Critical habitat designations identify, to the extent known using the best scientific data available, habitat areas that provide essential life cycle needs of the species (i.e., areas on which are found the primary constituent elements, as defined at 50 CFR 424.12(b)). Occupied habitat that contains the features essential to the conservation of the species meets the definition of critical habitat only if the essential features thereon may require special management considerations or protection. Thus, we do not include areas where existing management is sufficient to conserve the species. (As discussed below, such areas may also be excluded from critical habitat pursuant to section 4(b)(2) of the Act.) Unoccupied areas can be designated as critical habitat. However, when the best available scientific data do not demonstrate that the conservation needs of the species require additional areas, we will not designate critical habitat in areas outside the geographical area occupied by the species. Section 4 of the Act requires that we designate critical habitat on the basis of the best scientific and commercial data available. Further, the Service's Policy on Information Standards Under the Endangered Species Act, published in the **Federal Register** on July 1, 1994 (59 FR 34271), and Section 515 of the Treasury and General Government Appropriations Act for Fiscal Year 2001 (P.L. 106-554; H.R. 5658), and the associated Information Quality Guidelines issued by the Service, provide criteria, establish procedures, and provide guidance to ensure that decisions made by the Service represent the best scientific data available. They require Service biologists to the extent consistent with the Act and with the use of the best scientific data available, to use primary and original sources of information as the basis for recommendations to designate critical habitat. When determining which areas are critical habitat, a primary source of information is generally the listing package for the species. Additional information sources include the recovery plan for the species, articles in peer-reviewed journals, conservation plans developed by States and counties, scientific status surveys and studies, biological assessments, or other unpublished materials and expert opinion or personal knowledge. All information is used in accordance with the provisions of Section 515 of the Treasury and General Government Appropriations Act for Fiscal Year 2001 (P.L. 106-554; H.R. 5658) and the associated Information Quality Guidelines issued by the Service. Habitat is often dynamic, and species may move from one area to another over time. Furthermore, we recognize that designation of critical habitat may not include all of the habitat areas that may eventually be determined to be necessary for the recovery of the species. For these reasons, critical habitat designations do not signal that habitat outside the designation is unimportant or may not be required for recovery. Areas that support populations, but are outside the critical habitat designation, will continue to be subject to conservation actions implemented under section 7(a)(1) of the Act and to the regulatory protections afforded by the section 7(a)(2) jeopardy standard, as determined on the basis of the best available information at the time of the action. Federally funded or permitted projects affecting listed species outside their designated critical habitat areas may still result in jeopardy findings in some cases. Similarly, critical habitat designations made on the basis of the best available information at the time of designation will not control the direction and substance of future recovery plans, habitat conservation plans, or other species conservation planning efforts if new information available to these planning efforts calls for a different outcome. Methods As required by section 4(b) of the Act, we use the best scientific data available in determining areas occupied at the time of listing that contain the features essential to the conservation of the Devils River minnow, and areas unoccupied at the time of listing that are essential to the conservation of the Devils River minnow, or both. In designating critical habitat for the Devils River minnow, we reviewed the relevant information available, including peer-reviewed journal articles, unpublished reports, the Devils River Minnow Recovery Plan, the final listing rule, and unpublished materials (such as expert opinions). In February 2006, we sent information requests to a large number of experts and stakeholders (such as private landowners, Texas state government agencies, other Federal agencies, local governments, and nongovernmental organizations). We have also reviewed available information that pertains to the habitat requirements of this species. We used a wide variety of sources of information, such as material included in reports submitted during section 7 consultations; research published in peer-reviewed articles and presented in academic theses; research proposals and correspondence from technical experts; data and reports from other State and Federal agencies; unpublished data such as field notes and personal observations from field biologists; and regional Geographic Information System
(GIS)coverages, including geodatabases provided by partner organizations, such as the City of Del Rio and The Nature Conservancy. We are proposing to designate critical habitat for the Devils River minnow in areas that were occupied at the time of listing, and that contain the physical and biological features essential to the conservation of the species arranged in the quantity and spatial characteristics necessary for conservation (see “Criteria Used to Identify Critical Habitat” section below). We are also proposing to designate critical habitat in areas unoccupied at the time of listing and determined to be essential to the conservation of the Devils River minnow. Primary Constituent Elements In accordance with section 3(5)(A)(i) of the Act and regulations at 50 CFR 424.12, in determining which areas to propose as critical habitat, we consider those physical and biological features (primary constituent elements) that are essential to the conservation of the species, and within areas occupied by the species at the time of listing, that may require special management considerations and protection. These include, but are not limited to, space for individual and population growth and for normal behavior; food, water, air, light, minerals, or other nutritional or physiological requirements; cover or shelter; sites for breeding, reproduction, and rearing (or development) of offspring; and habitats that are protected from disturbance or are representative of the historic geographical and ecological distributions of a species. The specific physical and biological features essential to the conservation of the Devils River minnow, primary constituent elements (PCEs), are derived from the biological needs of the species as understood from studies of its biology and ecology, including but not limited to, Edwards *et al.* (2004), Garrett *et al.* (1992), Garrett *et al.* (2004), Gibson *et al.* (2004), Harrell (1978), Hubbs (2001), Hubbs and Garrett (1990), Lopez-Fernandez and Winemiller (2005), Valdes Cantu and Winemiller (1997), and Winemiller (2003). Space for Individual and Population Growth, Normal Behavior, and Cover The Devils River minnow is a fish that occurs only in aquatic environments of small to mid-sized streams that are tributaries to the Rio Grande. The species spends its full life cycle within streams. The stream environment provides all of the space necessary to allow for individual and population growth, food, cover, and normal behaviors of the species. Quantitative studies of the specific micro-habitats used by any life stages of Devils River minnow in the wild have not been conducted. Studies of fish habitat within its range have found too few individuals of Devils River minnow to analyze specific habitat associations (Garrett *et al.* 1992, p. 266; Valdes Cantu and Winemiller 1997, p. 268; Robertson and Winemiller 2003, p. 119). However, observational studies have been conducted throughout its limited range that qualitatively defined stream conditions where Devils River minnows have been collected. General habitat descriptions of areas where Devils River minnow have been found include the following: “the area where spring runs enter the river” (Hubbs and Garrett 1990, p. 448); “channels of fast-flowing water over gravel bottoms” (Garrett *et al.* 1992, p. 259); “associated with water willow ( *Justicia americana* ) and other aquatic macrophytes over a gravel-cobble substrate” (Garrett *et al.* 2004, p. 437) (macrophytes are plants large enough to be seen without a microscope); and “stream seeps” at sites that “had abundant riparian vegetation overhanging the banks” (Lopez-Fernandez and Winemiller 2005, p. 249). We based our determinations of the PCEs on the physical and biological features that have been measured in streams where Devils River minnow occur. a. Water Depth and Velocity. Flowing water within streams is critical to provide living space for the Devils River minnow. All of the streams where the Devils River minnow is found are supported by springs that derive their discharge from underground aquifers, either the Edwards Aquifer or the Edwards-Trinity Aquifer (Brune 1981, pp. 274-277, 449-456; Edwards *et al.* 2004, p. 256; Garrett *et al.* 1992, p. 261; Garrett *et al.* 2004, p. 439; Hubbs and Garrett 1990, p. 448; Lopez-Fernandez and Winemiller 2005, p. 249). The Devils River minnow has been associated within the stream channel with areas with slow to moderate velocities between 10 and 40 centimeters (cm)/second (4 and 16 inches (in)/second) (Winemiller 2003, p. 13). The Devils River minnow is usually found in areas with shallow to moderate water depths between about 10 cm (4 in) and 1.5 meters (4.9 feet (ft)) (Garrett *et al.* 2004, p. 436). Appropriate water depths and velocities are required physical features for Devils River minnows to complete all life history functions. b. Cover. The presence of vegetative structure appears to be particularly important for the Devils River minnow. Garrett *et al.* (2004, p. 437) states that the species is most often found associated with emergent or submerged vegetation. Lopez-Fernandez and Winemiller (2005, p. 249) also found the Devils River minnow associated with stream banks having riparian vegetation that overhangs into the water column, presumably providing similar structure for the fish to use as cover. The structure provided by vegetation likely serves as cover for predator avoidance by the Devils River minnow and as a source of food where algae and other microorganisms may be attached. In controlled experiments in an artificial stream setting, minnows in the *Dionda* genus (the experiment did not distinguished between the Devils River minnow and the closely related manantial roundnose minnow) were found consistently associated with plants, and, in the presence of a predator, sought shelter in plant substrate habitat (Thomas 2001, p. 8). Also, laboratory observations by Gibson *et al.* (2004, p. 42) suggested that spawning only occurred when structure was provided in aquaria. Instream vegetative structure is an important biological feature for the Devils River minnow to avoid predation and complete other normal behaviors, such as feeding and spawning. c. Substrates. The Devils River minnow is most often associated with substrates (stream bottom) described as gravel and cobble (Garrett *et al.* 2004, p. 436). Lopez-Fernandez and Winemiller (2005, p. 248) found the Devils River minnow associated with areas where the amounts of fine sediment on stream bottoms were low (less than 65 percent stream bottom coverage) (Winemiller 2003, p. 13) and where there was low or moderate amounts of substrate embeddedness. The term embeddedness is defined by Sylte and Fischenich (2003, p. 1) as the degree to which fine sediments surround coarse substrates on the surface of a streambed. Low levels of substrate embeddedness and low amounts of fine sediment are physical stream features that provide interstitial spaces where microorganisms grow. These microorganisms are a component of the diet of the Devils River minnow (Lopez-Fernandez and Winemiller 2005, p. 250). We estimate substrate sizes for gravel-cobble between 2 and 10 cm (0.8 and 4 in) in diameter (Cummins 1962, p. 495) are important for supporting food sources for the Devils River minnow. d. Stream Channel. The Devils River minnow occurs in the waters of stream channels that flow out of the Edwards Plateau of Texas. The streams contain a variety of mesohabitats for fish that are temporally and spatially dynamic (Harrell 1978, p. 60-61; Robertson and Winemiller 2003, p. 115). Mesohabitat types are stream conditions with different combinations of depth, velocity, and substrate, such as pools (stream reaches with low velocity and deep water), riffles (stream reaches with moderate velocity and shallow depths and some turbulence due to high gradient), runs (stream reaches with moderate depths and moderate velocities and a uniformly, flat stream bottom), and backwaters (areas in streams with little or no velocities along stream margins) (Parasiewicz 2001, p. 7). These physical conditions in stream channels are mainly formed by large flood events that shape the banks and alter stream beds. Healthy stream ecosystems require intact natural stream banks (composed of sediments, rocks, and native vegetation) and stream beds (dynamically fluctuating from silt, sand, gravel, cobble, and bedrock). These physical features allow natural ecological processes in stream ecosystems to maintain habitat for Devils River minnow behaviors of feeding, breeding, and seeking shelter. Devils River minnow may move up and downstream to use diverse mesohabitats during different seasons and life stages, which could partially explain the highly variable sampling results assessing abundance of the fish (Garrett *et al.* 2002, p. 478). However, it is unknown to what extent Devils River minnow may move within occupied stream segments because no research on movement has been conducted. Linear movement (upstream or downstream) within streams may be important to allow fishes to complete life history functions and adjust to resource abundance, but this linear movement may often be underestimated due to limited biological studies (Fausch *et al.* 2002, p. 490). The Devils River minnow occurs in relatively short stream segments and, therefore, needs to be able to move within the stream unimpeded to prevent population fragmentation. Food The Devils River minnow, like other minnows in the *Dionda* genus, has a long coiled gut for digesting algae and plants. Lopez-Fernandez and Winemiller (2005, p. 250) noted that Devils River minnow graze on algae attached to stream substrates (such as gravel, rocks, submerged plants, woody debris) and associated microorganisms. Thomas (2001, p. 13) observed minnows in the *Dionda* genus (the experiment did not distinguish between Devils River minnow and the closely related manatial roundnose minnow) feeding extensively on filamentous algae growing on rocks and plants in an artificial stream experiment. The specific components of the Devils River minnow diet have not been investigated, but a study is underway to identify stomach contents of the Devils River minnow in San Felipe Creek (Texas Parks and Wildlife Department
(TPWD)2006, p. 1). An abundant aquatic food base is an essential biological feature for conservation of Devils River minnow. Water Quality The Devils River minnow occurs in spring-fed streams originating from groundwater. The aquifers that support these streams are of high quality, free of pollution and most human-caused impacts (Plateau Water Planning Group
(PWPG)2006, p. 5-9). This region of Texas has limited human development that would compromise water quality of the streams where Devils River minnows occur (San Felipe Creek may be an exception, see “Special Management Considerations or Protection” below). The watersheds are largely rural and have been altered to some extent by livestock grazing (cattle, sheep, and goats) for many decades (Brune 1981, p. 449). As part of state-wide water planning efforts, the TPWD proposed that all five streams within the range of the Devils River minnow (Devils River, San Felipe Creek, Sycamore Creek, Pinto Creek, and Las Moras Creek) be considered “ecologically significant stream segments” for their biological function, hydrological function, exceptional aquatic life, and high aesthetic value (El-Hage and Moulton 2001, pp. 28-36, 45-49). No specific studies have been conducted to determine water quality preferences or tolerances for Devils River minnow. However, because the species now occurs in only three streams, observations of water quality conditions in these streams are used to evaluate the needed water quality parameters for critical habitat. In addition, laboratory studies by Gibson et al. (2004, pp. 44-46) and Gibson and Fries (2005, pp. 299-303) have also provided useful information for the water quality conditions in captivity for Devils River minnow. a. Water temperature. Water temperatures from groundwater discharge at these springs are considered constant (Hubbs 2001, p. 324). However, water temperatures downstream from springs vary daily and seasonally (Hubbs 2001, p. 324). Water temperatures have been measured in these stream segments to range from about 17 °C (degrees Celsius) to 29 °C (63 °F (degrees Fahrenheit) to 85 °F). Temperatures in the Devils River ranged from 17 °C to 27 °C (63 °F to 81 °F) (Lopez-Fernandez and Winemiller 2005, p. 248; Hubbs 2001, p. 312). Measurements in San Felipe Creek have ranged from 19 °C to 24 °C (66 °F to 75 °F) (Hubbs 2001, p. 311; Winemiller 2003, p. 13). Gibson and Fries (2005, p. 296) had successful spawning by Devils River minnows at temperatures from about 18 °C to 24 °C (64 °F to 75 °F). Higher water temperatures are rare in Devils River minnow habitat, but temperatures up to 29 °C (84 °F) were recorded in Pinto Creek (Garrett *et al.* 2004, p. 437). This stream segment has the lowest flow of those known to contain the Devils River minnow, resulting in higher temperatures. Maintaining water temperatures within an acceptable range in small streams is an essential physical feature for the Devils River minnow to allow for survival and reproduction. b. Water chemistry. Researchers have noted the need for high-quality water in habitats supporting the Devils River minnow (Garrett 2003, p. 155). Field studies at sites where Devils River minnow have been collected in conjunction with water quality measurements have documented that habitats contain the following water chemistry: dissolved oxygen levels are greater than 5.0 mg/l (milligrams per liter) (Hubbs 2001, p. 312; Winemiller 2003, p. 13; Gibson *et al.* 2004, p. 44); pH ranges between 7.0 and 8.2 (Garrett *et al.* 2004, p. 440; Hubbs 2001, p. 312; Winemiller 2003, p. 13); conductivity is less than 0.7 mS/cm (microseimens per centimeter) and salinity is less than 1 ppt (part per thousand) (Hubbs 2001, p. 312; Winemiller 2003, p. 13; Garrett *et al.* 2004, p. 440; Gibson *et al.* 2004, p. 45); and ammonia levels are less than 0.4 mg/l (Hubbs 2001, p. 312; Garrett *et al.* 2004, p. 440). Streams with water chemistry within the observed ranges are essential physical features to provide habitat for normal behaviors of Devils River minnow. Garrett *et al.* (2004, pp. 439-440) highlighted the conservation implications of water quality when describing the distribution of Devils River minnow in Pinto Creek. The species is abundant in upstream portions of the creek and is abruptly absent at and downstream from the Highway 90 Bridge crossing. A different aquifer (Austin Chalk) feeds the lower portion of the creek (Ashworth and Stein 2005, p. 19), which results in changes in water quality (lower measurements of water temperature, pH, ammonia, and salinity). Garrett *et al.* (2004, p. 439) found that the change in water quality also coincided with the occurrence of different fish species that were more tolerant of lower values for these water quality parameters. c. Pollution. The Devils River minnow occurs only in habitats that are generally free of human-caused pollution. Garrett *et al.* (1992, pp. 266-267) suspected that the addition of chlorine to Las Moras Creek for the maintenance of a recreational swimming pool may have played a role in the extirpation of Devils River minnow from that system. Unnatural addition of pollutants such as copper, arsenic, mercury, and cadmium; human and animal waste products; pesticides; suspended sediments; petroleum compounds and gasoline or diesel fuels will alter habitat functions and threaten the continued existence of Devils River minnow. Fish, particularly herbivores and bottom-feeders, such as the Devils River minnow, are susceptible to the detrimental effects of aquatic pollutants (Buzan 1997, p. 4). Areas with waters free of pollution are essential physical features to allow normal behaviors and growth of the Devils River minnow and to maintain healthy populations of its food sources. Sites for Breeding, Reproduction, and Rearing of Offspring The specific sites and habitat associated with Devils River minnow breeding and reproduction have not been documented in the wild. However, Gibson *et al.*
(2004)studied preferred conditions for spawning by Devils River minnow in a laboratory setting. Gibson *et al.* (2004, pp. 45-46) documented that the species is a broadcast spawner (they release eggs and sperm into the open water), over unprepared substrates (they don't build nests), and males display some territorial behavior. Broadcast spawning is the most common reproductive method in minnows (Johnston 1999, p. 22; Johnston and Page 1992, p. 604). Fertilized eggs of Devils River minnow were slightly adhesive (or became more adhesive with time) and tended to stick to gravels just below the surface of the substrate (Gibson *et al.* 2004, p. 46). The eggs can hatch less than one week after deposition (Gibson 2007, p. 1). There was little seasonality in spawning periods observed (Gibson *et al.* 2004, p. 45-46), which is consistent with a species that lives in a relatively stable temperature environment, such as spring-fed streams with low seasonal temperature variations. Based on this information, it is likely the species can spawn during most of the year. This is supported by Garrett *et al.* (2004, p. 437), who observed distinct breeding coloration of Devils River minnow (blue sheen on the head and yellow tint on body) in Pinto Creek in December 2001, and Winemiller (2003, p. 16), who found juveniles from early spring to late fall in San Felipe Creek. a. Substrate. Gibson and Fries (2005, p. 299) found that Devils River minnow preferred gravel for spawning substrate, with size ranging mostly from 2 to 3 cm in diameter (0.8 to 1.2 in). Gravel and rock substrates are required physical features for spawning (depositing, incubating, and hatching) of Devils River minnow eggs. b. Cover. In laboratory experiments, Devils River minnow spawned in tanks with live potted plants ( *Vallisnaria* spp. and *Justicia spp.* ); however, eggs were never found on the plants or other parts of the tank (Gibson *et al.* 2004, pp. 42, 43, 46). The plants apparently served as cover for the fish and allowed favorable conditions for spawning to occur. This condition is supported by observations in the wild that associate Devils River minnow with aquatic habitats where vegetative structure is present. This vegetative structure is a biological feature that is important for reproduction of Devils River minnow. Habitat Protected From Disturbance or Representative of the Historic Geographical and Ecological Distribution of a Species a. Nonnative species. The introduction and spread of nonnative species have been identified as major factors in the continuing decline of native fishes throughout North America (Moyle *et al.* 1986, pp. 415-416) and particularly in the southwestern United States (Miller 1961, p. 397; Miller 1977, pp. 376-377). Williams *et al.* (1989, p. 1) concluded that nonnative species were a causal factor in 68 percent of the fish extinctions in North America in the last 100 years. For 70 percent of those fish still extant, but considered to be endangered or threatened, introduced nonnative species are a primary cause of the decline (Lassuy 1995, p. 392). Nonnative species have been referenced as a cause of decline in native Texas fishes as well (Anderson *et al.* 1995, p. 319; Hubbs 1990, p. 89; Hubbs *et al.* 1991, p. 2). Aquatic nonnative species are introduced and spread into new areas through a variety of mechanisms, intentional and accidental, authorized and unauthorized. Mechanisms for nonnative fish dispersal in Texas include sport fish stocking (intentional and inadvertent, non-target species), aquaculture escapes, aquarium releases, and bait bucket releases (release of fish used as bait by anglers) (Howells 2001, p. 1). Within the range of the Devils River minnow, nonnative aquatic species of potential concern include: armored (or suckermouth) catfish ( *Hypostomus* sp.) in San Felipe Creek (Lopez-Fernandez and Winemiller 2005, pp. 246-251); smallmouth bass ( *Micropterus dolomieu* ) in the Devils River (Thomas 2001, p. 1); African cichlid ( *Oreochromis aureus* ) in San Felipe Creek (Lopez-Fernandez and Winemiller 2005, p. 249) and Devils River (Garrett *et al.* 1992, p. 266); Asian snail ( *Melanoides tuberculata* ) and associated parasites (McDermott 2000, pp. 13-14); and Asian bivalve mollusk ( *Corbicula* sp.) (Winemiller 2003, p. 25) in San Felipe Creek. Effects from nonnative species can include predation, competition for resources, altering of habitat, changing of fish assemblages (combinations of species), or transmission of harmful diseases or parasites (Aquatic Nuisance Species Task Force 1994, pp. 51-59; Baxter *et al.* 2004, p. 2656; Howells 2001, pp. 17-18; Light and Marchetti 2007, pp. 442-444; Moyle *et al.* 1986, pp. 416-418). Studies have found effects from the armored catfish in San Felipe Creek, most likely due to competition for food (Lopez-Fernandez and Winemiller 2005, p. 250). The persistence of Devils River minnow in its natural range of habitats is dependent on areas that are devoid of harmful nonnative aquatic species or where nonnative aquatic species are at levels that allow healthy populations of the Devils River minnow. The absence of harmful nonnative species is an essential biological feature for conservation of the Devils River minnow. b. Hydrology. Natural stream flow regimes (both quantity and timing) are vital components to maintain ecological integrity in stream ecosystems (Poff *et al.* 1997, p. 769; Resh *et al.* 1988, pp. 443-444). Aquatic organisms, like the Devils River minnow, have specific adaptations to use the environmental conditions provided by natural flowing systems and the highly variable stream flow patterns (Lytle and Poff 2004, p. 94). As with other streams in the arid southwestern United States, streams where the Devils River minnow occurs can have large fluctuations in stream flow levels. In Texas, streams are characterized by high variation between large flood flows and extended period of low flows (Jones 1991, p. 513). Base flows in streams containing Devils River minnow are generally maintained by constant spring flows (Ashworth and Stein 2005, p. 4), but in periods of drought, especially in combination with groundwater withdrawals, portions of stream segments can be periodically dewatered. The occurrence of intermittent stream segments within the range of the Devils River minnow is most common in Pinto Creek (Ashworth and Stein 2005, Figure 13; Uliana 2005, p. 4; Allan 2006, p. 1). Although portions of stream segments included in this proposed designation may experience short periods of low or no flows (causing dry sections of stream), they are still important because the Devils River minnow is adapted to stream systems with some fluctuating water levels. Fish cannot persist in dewatered areas (Hubbs 1990, p. 89). However, Devils River minnows will use dewatered areas that are subsequently wetted as connective corridors between occupied or seasonally occupied habitat. Fausch *et al.* (2002, p. 490) notes in a review of movement of fishes related to metapopulation dynamics that, “Even small fishes may move long distances to repopulate rewetted habitats.” Preventing habitat fragmentation of fish populations is important in reducing extinction risks in rare species (Fagan 2002, p. 3255). Areas within stream courses that may be periodically dewatered but that serve as connective corridors between occupied or seasonally occupied habitat and through which the species may move when the habitat is wetted are important physical features of Devils River minnow habitat. Flooding is also a large part of the natural hydrology of streams within the range of Devils River minnow. Large floods have been shown to alter fish community structure and fish habitat use in the Devils River (Harrell 1978, p. 67) and in San Felipe Creek (Garrett and Edwards 2003, p. 787; Winemiller 2003, p. 12). Pearsons *et al.* (1992, p. 427) states that “Flooding is one of the most important abiotic factors that structure biotic assemblages in streams.” Floods provide flushing flows that remove fine sediments from gravel and provide spawning substrates for species like the Devils River minnow (Instream Flow Council 2002, p. 103; Poff *et al.* 1997, p. 775). Flooding is the physical mechanism that shapes stream channels by a process known as scour and fill, where some areas are scoured of fine sediments while fine sediments are redeposited in other areas (Gordon *et al.* 1992, pp. 304-305; Poff *et al.* 1997, pp. 771-772). This dynamic process is fundamental to maintaining habitat diversity in streams that ensure healthy ecosystem function (Lytle and Poff 2004, pp. 96-99; Poff *et al.* 1997, pp. 774-777). Allowing natural stream flows, particularly during flood events, is an essential physical feature to maintain stream habitats for Devils River minnow. Primary Constituent Elements for the Devils River Minnow Under the Act and its implementing regulations, we are required to identify the physical and biological features
(PCEs)within the geographical area occupied by the species, which may require special management considerations or protections. Based on the above needs and our current knowledge of the life history, biology, and ecology of the species, we have determined that the Devils River minnow's PCEs are: 1. Streams characterized by: a. Areas with slow to moderate water velocities between 10 and 40 cm/second (4 and 16 in/second) in shallow to moderate water depths between approximately 10 cm (4 in) and 1.5 m (4.9 ft), near vegetative structure, such as emergent or submerged vegetation or stream bank riparian vegetation that overhangs into the water column; b. Gravel and cobble substrates ranging in size between 2 and 10 cm (0.8 and 4 in) with low or moderate amounts of fine sediment (less than 65 percent stream bottom coverage) and low or moderate amounts of substrate embeddedness; and c. Pool, riffle, run, and backwater components free of artificial instream structures that would prevent movement of fish upstream or downstream. 2. High-quality water provided by permanent, natural flows from groundwater spring and seeps characterized by: a. Temperature ranging between 17 °C and 29 °C (63 °F and 84 °F); b. Dissolved oxygen levels greater than 5.0 mg/l; c. Neutral pH ranging between 7.0 and 8.2; d. Conductivity less than 0.7 mS/cm and salinity less than 1 ppt; e. Ammonia levels less than 0.4 mg/l; and f. No or minimal pollutant levels for copper, arsenic, mercury, and cadmium; human and animal waste products; pesticides; fertilizers; suspended sediments; petroleum compounds and gasoline or diesel fuels. 3. Abundant aquatic food base consisting of algae attached to stream substrates and other associated microorganisms. 4. Aquatic stream habitat either devoid of nonnative aquatic species (including fish, plants, and invertebrates) or in which such nonnative aquatic species are at levels that allow for healthy populations of Devils River minnows. 5. Areas within stream courses that may be periodically dewatered for short time periods, during seasonal droughts, but otherwise serve as connective corridors between occupied or seasonally occupied areas through which the species moves when the area is wetted. This proposed designation is designed for the conservation of PCEs necessary to support the life history functions that were the basis for the proposal and the areas containing those PCEs. Because not all life history functions require all the PCEs, not all proposed critical habitat will contain all the PCEs. Special Management Considerations or Protections When designating critical habitat, we assess whether the occupied areas contain the features essential to the conservation of the species that may require special management considerations or protections. We provide a summary discussion below of the special management needs for the stream segments we have identified as occupied at the time of listing (Devils River and San Felipe Creek) and the area considered to be essential for the conservation of the Devils River minnow (Pinto Creek). For additional information regarding the threats to the Devils River minnow and the needed management strategies to address those threats, see the Devils River Minnow Recovery Plan (Service 2005, pp. 1.7-1—1.7-7; 1.8-1—1.8-4; 2.5-1—2.5-5). The following special management needs apply to all three stream segments, Devils River, San Felipe Creek, and Pinto Creek, and will be further discussed for each stream segment in the Proposed Critical Habitat Designation below. a. Groundwater management. The waters that produce all three stream segments issue from springs that are supported by underground aquifers, generally some portion of the Edwards Trinity Aquifer (Ashworth and Stein 2005, pp.16-33; Barker and Ardis 1996, pp. B5-B6; Brune 1981, pp. 274-277, 449-456; Green *et al.* 2006, pp. 28-29; LBG-Guyton Associates 2001, pp. 5-6; PWPG 2006, pp. 3-5, 3-6, 3-30). Regional groundwater flow in this area is generally from north to south (Ashworth and Stein 2005, Figure 8). This aquifer is currently pumped to provide water for human uses including agricultural, municipal, and industrial (Ashworth and Stein 2005, p.1; Green *et al.* 2006, pp. 28-29; LBG-Guyton Associates 2001, pp. 22-27; PWPG 2006, pp. 3-14, 3-15). Some parts of this aquifer have already experienced large water level declines due to a combination of pumping withdrawals and regional drought (Barker and Ardis 1996, p. B50). There are a number of preliminary project plans to significantly increase the amount of groundwater pumped in this area to export it to other metropolitan centers (HDR Engineering Inc. 2001, p. 1-1; Khorzad 2002, p. 19; PWPG 2006, pp. 4-54). If the aquifers are pumped beyond their ability to sustain levels that support spring flows, these streams will no longer provide habitat for the Devils River minnow (Ashworth and Stein 2005, p.34; Edwards *et al.* 2004, p. 256; Garrett *et al.* 2004, pp. 439-440). Flow reductions can have indirect effects on fishes by impacting thermal regimes because higher water flow buffers against temperature oscillations (Hubbs 1990, p. 89). Groundwater pumping that could affect stream flows within the Devils River minnow's range is subject to limited management control. State agencies do not control groundwater. Groundwater resources in Texas are under the “Rule of Capture,” and groundwater use is not regulated by any State agency (Holladay 2006, p. 2; Potter 2004, p. 9). The rule of capture essentially provides that groundwater is a privately owned resource and, absent malice or willful waste, landowners have the right to take all the water they can capture under their land without liability to neighboring landowners, even if in so doing they deprive their neighbors of the water's use (Holladay 2006, p. 2; Potter 2004, p. 1). Local groundwater conservation districts are the method for groundwater management in Texas (Caroom and Maxwell 2004, pp. 41-42; Holladay 2006, p. 3). Most districts are created by action of the Texas Legislature (Lesikar *et al.* 2002, p. 13). The regulations adopted by local groundwater conservation districts vary across the State and often reflect local decisions based on regional preferences, geologic limitations, and the needs of citizens (Holladay 2006, p. 3). The Kinney County Groundwater Conservation District is a local authority with some regulatory control over the pumping and use of groundwater resources in Kinney County (Brock and Sanger 2003, p. 42-44). Currently, there is no groundwater district in Val Verde County. It is not known whether groundwater districts, such as the one in Kinney County, will limit groundwater use and exportation to allow for conservation of surface water flows for environmental needs (Brock and Sanger 2003, p. 42-44; Caroom and Maxwell 2004, p. 47-48; Marbury and Kelly 2005, p. 9). The regional water plan for this area recognizes that groundwater needs to be managed for the benefit of spring flows (PWPG 2006, p. 3-30) and that groundwater use should be limited so that “base flows of rivers and streams are not significantly affected beyond a level that would be anticipated due to naturally occurring conditions” (Ashworth and Stein 2005, p. 34; PWPG 2006, p. 3-8). Special management efforts are needed across the range of the Devils River minnow to ensure that aquifers are used in a manner that will sustain spring flows and provide water as an essential physical feature for the species. b. Nonnative species. Controlling existing nonnative species and preventing the release of new nonnative species are special management actions needed across the range of the Devils River minnow. The best tool for preventing new releases is education of the public on the problems associated with nonnative species (Aquatic Nuisance Species Task Force 1994, pp. 16-17). Current nonnative species issues have been cited for possible impacts to the Devils River (smallmouth bass) and San Felipe Creek (armored catfish) (Lopez-Fernandez and Winemiller 2005, p. 247; Thomas 2001, p. 1; Robertson and Winemiller 2001, p. 220). The armored catfish may already be impacting Devils River minnows in San Felipe Creek through competition for common food resources of attached algae and associated microorganisms (Lopez-Fernandez and Winemiller 2005, p. 250). Hoover *et al.* (2004, pp. 6-7) suggest that nonnative catfishes in the family Loricaridae, like armored catfish, will impact stream systems and native fishes by competing for food with other herbivores, changing plant communities, bank erosion due to burrowing in stream banks for spawning, and incidentally ingesting fish eggs. Problem nonnative species have not been documented in Pinto Creek. Please see the above discussion in “Habitat Protected From Disturbance or Representative of the Historic Geographical and Ecological Distribution of a Species” for additional discussion of nonnative species. c. Pollution. Special management actions are needed to prevent point and nonpoint sources of pollution entering in the stream systems where the Devils River minnow occurs. Devils River and Pinto Creek are generally free of threats from obvious sources of pollution. San Felipe Creek is in an urban environment where threats from human-caused pollution are substantial. Potential for spill or discharge of toxic materials is an inherent threat in urban environments. In addition, there are little to few current controls in the City of Del Rio to minimize the pollutants that will run off into the creek during rainfall events from streets, parking lots, roof tops, and maintained lawns from private yards and the golf course (Winemiller 2003, p. 27). All of these surfaces will contribute pollutants (for example, fertilizers, pesticides, herbicides, petroleum products) to the creek and potentially impact biological functions of the Devils River minnow. In addition, trash is often dumped into or near the creek and can be a source of pollutants. Special management by the City of Del Rio is needed (City of Del Rio 2006, p. 13) to institute best management practices for controlling pollution sources that enter the creek and maintain the water quality at a level necessary to support Devils River minnow. d. Stream channel alterations. The stream channels in the three streams where Devils River minnow occurs should be maintained in natural conditions, free of instream obstructions to fish movement and with intact stream banks of native vegetation. Devils River and Pinto Creek are generally free of stream channel alterations; however, San Felipe Creek has been altered by diversion dams, bridges, and armoring of stream banks (replacing native vegetation and soils with rock or concrete). Special management is needed in all three occupied streams to protect the integrity of the stream channels for the conservation of Devils River minnow habitat. Criteria Used To Identify Critical Habitat We are proposing to designate critical habitat for the Devils River minnow in areas that were occupied at the time of listing and contain sufficient PCEs to support life history functions essential for the conservation of the species, which may require special management considerations or protection. Critical habitat is also being proposed for areas not considered occupied at the time of listing, but subsequently discovered to be occupied and essential for the conservation of the Devils River minnow. Critical habitat is designated based on sufficient PCEs being present to support the life processes of the species. Some areas contain all PCEs and support multiple life processes. Some areas contain only a portion of the PCEs necessary to support the particular use of that habitat. a. Range. We evaluated the geographical range of the Devils River minnow, as described in the Recovery Plan (Service 2005, p. 1.4.1.1.4.5). There are five stream segments in the United States (all in Texas) that have ever been known to have been occupied by the Devils River minnow:
(1)The Devils River (Val Verde County) from Beaver Lake downstream to near the confluence with the Rio Grande;
(2)San Felipe Creek (Val Verde County) from the headsprings on the Lowe Ranch to downstream of the City of Del Rio;
(3)Sycamore Creek (Val Verde/Kinney county boundary), only documented from the Highway 277 Bridge crossing;
(4)Pinto Creek (Kinney County) from Pinto Springs downstream to 0.5 stream km (0.3 stream mi) upstream of the Highway 90 Bridge crossing; and
(5)Las Moras Creek (Kinney County), only documented from the Las Moras Spring in the City of Brackettville. Each of these five stream segments has (or formerly had) isolated populations of Devils River minnow separated by long distances, unsuitable habitat, and/or large dams that prevent fish movements. Although each of these streams is a tributary to the Rio Grande, we do not expect any contemporary exchange of individuals between these stream segments. The Devils River minnow is generally associated with upstream reaches of these streams, and connectivity would require movement through downstream reaches, through the Rio Grande, and back upstream through uninhabited reaches. The Devils River minnow has not been documented in the Rio Grande, or any other of its tributaries in the United States in modern times (Contreras-Balderas *et al.* 2002, pp. 228-240; Edwards *et al.* 2002, p. 123; Garrett *et al.* 1992, pp. 261-265; Hoagstrom 2003, p. 95; Hubbs 1957, p. 93; Hubbs 1990, p. 90; Hubbs *et al.* 1991, p. 18; Treviño-Robinson 1959, p. 255). These stream reaches are considered unsuitable habitat (Garrett *et al.* 1992, p. 261) because the aquatic habitat is very different (larger volume, higher suspended sediments, different suite of native fishes) than the streams where the Devils River minnow is found. The presence of Amistad Reservoir and Dam has further isolated the Devils River stream segment from the other stream segments. While some exchange of individuals could have occurred across a geologic time scale, any natural exchange of individual Devils River minnows between currently occupied stream segments in modern times is unlikely because of habitat changes in the Rio Grande, nonnative species, and potential instream barriers. Lack of access to private property can limit opportunities to sample for the presence of Devils River minnow (such as occurred on Pinto Creek, see Garrett *et al.* (2004), p. 436) and may limit our ability to accurately determine the full range of the species. However, we do not expect any additional streams outside of the geographical range of the species to be occupied. There could be additional stream segments within the known range that may be found to be occupied during future surveys, but the best available information at this time supports only these five stream segments known to be or to have been occupied by Devils River minnow in the United States. b. Occupancy. For the purpose of this critical habitat designation, we consider a stream segment to be occupied if Devils River minnow has been found to be present by species experts within the last 10 years, or where the stream segment is directly connected to a segment with documented occupancy within the last 10 years (see Proposed Critical Habitat Designation for additional occupancy information). The life expectancy of Devils River minnow is assumed to be about 3 years, although individuals have lived 5 years in captivity (Gibson 2006, p. 1). Ten years is estimated to represent a time period that provides for at least three generations and should allow for an adequate time to detect occupancy. Most stream segments have not been surveyed with a high degree of frequency, and this species can be difficult to detect, as even multiple samples within a short time in the same location by the same researcher can yield different results (Garrett *et al.* 2002, p. 478). We have assessed the occupancy of stream segments based on the best survey information available. c. Areas occupied at the time of listing. At the time the Devils River minnow was listed as a threatened species, it was only confirmed to occur at two sites on the Devils River (small tributaries) and in San Felipe Creek in Del Rio, Texas (64 FR 56597). This species is reasonably expected to move throughout connected stream reaches, based on past and recent collection records from these streams (Garrett *et al.* 2002, p. 478). Therefore, we determine there are two stream segments that were occupied at the time of listing:
(1)Devils River from Pecan Springs to downstream of Dolan Falls (Garrett 2006a, p. 4; Garrett 2007, p. 1); and
(2)San Felipe Creek from the Head Spring to downstream through the City of Del Rio (Garrett 2006b, p. 1; Garrett 2007, p.1). The full extent of both stream segments is considered occupied, as surveys in the last 10 years have confirmed the species presence in the streams and the unit consists of contiguous habitat that allows fish movement throughout the stream. d. Primary constituent elements. We are proposing to designate the stream segments that were occupied at the time of listing and contain sufficient PCEs to support life history functions essential for the conservation of the species. Both of the stream segments occupied at the time of listing (Devils River and San Felipe Creek) contain sufficient PCEs to support life history functions essential for the conservation of the Devils River minnow. e. Areas not occupied at time of listing. Section 3(5)(A)(ii) of the Act allows for critical habitat to be designated in areas outside the geographical area occupied by the species at the time it is listed if those areas are essential for the conservation of the species. Three stream segments historically occupied by Devils River minnow but not considered occupied at the time of listing include Sycamore Creek, Pinto Creek, and Las Moras Creek. Sycamore Creek and Las Moras Creek are not currently occupied by the Devils River minnow. The last known occurrence of the species in these stream segments was 1989 for Sycamore Creek (Garrett *et al.* 1992, p. 265) and 1955 for Las Moras Creek (Garrett *et al.* 1992, p. 266; Hubbs and Brown 1956, pp. 70-71). Although recent publications continue to list Sycamore Creek as a stream where Devils River minnow may still occur (Garrett *et al.* 2004, p. 435; Lopez-Fernandez and Winemiller, p. 247), we have a high degree of uncertainty as to the status of the fish in Sycamore Creek. Collections in 1999 and 2002 from the area of last known occurrence (in 1989) did not yield Devils River minnow (G. Garrett, TPWD, unpublished data 2002). In addition, Garrett *et al.*
(1992)surveyed portions of Mud Creek (a tributary to Sycamore Creek) in 1989 but found no Devils River minnow. Additional surveys are needed to determine the current status of the fish in the Sycamore Creek watershed. Devils River minnow has not been collected from Las Moras Creek since the 1950s and is believed to be extirpated from the Las Moras Creek drainage. This conclusion is based on the absence of the species in sampling efforts from the late 1970s to 2002 (Smith and Miller 1986; Hubbs *et al.* 1991; Garrett *et al.* 1992; G. Garrett, unpublished data 2002). Restoring Devils River minnow to Sycamore Creek and Las Moras Creek may be important to achieve recovery goals for the species and optimize the chances of long-term species conservation (Service 2005, pp. 2.1-1—2.2-3). Recovery criteria for Devils River minnow include having stable or increasing populations in both Sycamore Creek and Las Moras Creek, if reestablishment in Las Moras Creek is scientifically feasible. However, the feasibility of restoring populations in these areas is uncertain and the recovery plan advises additional assessment and landowner willingness will be necessary in both areas before restoration could occur. Therefore, based on the lack of information regarding the species status in Sycamore Creek, uncertainty of the potential for restoration in either stream segment, and the absence of data to demonstrate that the streams possess the PCEs, for the purposes of critical habitat designation, we have not included Sycamore Creek and Las Moras Creek in the proposed critical habitat designation. Due to the importance of these stream segments to the recovery of Devils River minnow, we solicit additional information and comments from interested parties on the distribution of Devils River minnow, specifically in the Sycamore Creek and Las Moras Creek watersheds. Information received, as well as supporting documentation will be used in the consideration of Sycamore Creek and Las Moras Creek's inclusion in the final critical habitat designation. We may consider including Sycamore Creek and Las Moras Creek in our critical habitat designation if we receive additional information during the public comment period that leads to a determination that these stream segments are essential to the conservation of Devils River minnow. At the time of listing in 1999, previous fish surveys in Pinto Creek were limited to the locations of public access at highway bridge crossings and did not find the species present (Garrett *et al.* 1992, p. 260). In 2001, fish surveys in upstream areas of Pinto Creek discovered the previously unknown population of Devils River minnow (Garrett *et al.* 2004, p. 436-439). The species has been confirmed to occur from just upstream of the Highway 90 Bridge crossing upstream to the origin of Pinto Creek at Pinto Springs (Garrett *et al.* 2004, p. 438-439). Since this stream segment is isolated from other occupied areas, this stream segment was likely occupied at the time of listing, but appropriate surveys had not been conducted to verify it. We find that the Pinto Creek stream segment is essential to the conservation of the Devils River minnow because preliminary analysis have shown significant genetic variation between Devils River minnow populations in Pinto Creek and the Devils River (Service 2006, p. 15). Also Pinto Creek provides the best source of Devils River minnows (due to proximity and habitat similarity) to implement possible future recovery actions if reestablishing the species into nearby Las Moras Creek proves feasible (Garrett *et al.* 2004, p. 440). f. Lateral Extent. The areas designated as critical habitat are designed to provide sufficient areas for breeding, non-breeding adults and rearing of juvenile Devils River minnow. In general, the PCEs of critical habitat for Devils River minnow include the spring heads and the wetted channel during average flow conditions of the stream segments. The Devils River minnow evolved in streams maintained by consistent flows from groundwater springs that varied little seasonally. Episodic floods, sometimes very large floods, are important for maintenance of the natural stream channel and fish communities (Harrell 1978, p. 67; Valdes Cantu and Winemiller 1997, pp. 276-277); however, the streams do not have a regular seasonal pattern of flooding. As a result, the life history of the Devils River minnow is not dependent on high flow events and the inundation of overbank areas. Therefore, the floodplain is not known to contain the features essential for the species' conservation and is not included in the proposed critical habitat designation. We propose that this critical habitat designation include a lateral extent that is limited to the normal wetted channel of the streams proposed for inclusion. For the purposes of this proposal, the wetted channel is considered the width of the stream channel at bankfull stage. Bankfull stage is the height when stream flows just fill the stream to its banks before water spills out onto the adjacent floodplain (Gordon *et al.* 1992, pp. 305-307). The stream discharge that reaches bankfull stage occurs 1 or 2 days each year and has a recurrence interval that averages 1.5 years (Leopold 1994, pp. 129-141). This lateral extent will encompass the immediate streamside vegetation that can extend into the water column and provide vegetative structure, one of the PCEs. Summary. We are proposing to designate critical habitat in areas that we have determined were occupied at the time of listing, and that contain sufficient PCEs to support life history functions essential for the conservation of the species. Stream segments are proposed for designation based on sufficient PCEs being present to support the life processes of the species. Some stream segments contain all PCEs and support multiple life processes. Some stream segments contain only a portion of the PCEs necessary to support the particular use of that habitat. For stream segments that were not occupied at the time of listing, we evaluated whether those areas were essential to the conservation of the Devils River minnow. We find that two stream segments were occupied at the time of listing and contain sufficient PCEs to support life history functions essential for the conservation of the species:
(1)Devils River from Pecan Springs to downstream of Dolan Falls, including short stretches of two tributaries, Phillips Creek and Dolan Creek, and
(2)San Felipe Creek from the headsprings downstream through the City of Del Rio, include the outflow channels of East and West Sandia springs. We find that a third stream segment, Pinto Creek from Pinto Springs downstream to the Highway 90 Bridge crossing, was not known to be occupied at the time of listing, but was subsequently discovered to be occupied and is now considered to be essential for the conservation of the Devils River minnow for the reasons discussed above. Within this proposed rule, the critical habitat boundary is limited to bankfull width of the stream segments proposed for inclusion, at the height in which stream flows just fill the stream to its banks before water spills out onto the adjacent floodplain. The scale of the critical habitat maps prepared under the parameters for publication within the Code of Federal Regulations may not reflect the exclusion of developed areas such as buildings, paved areas, and other structures that lack PCEs for the Devils River minnow. Any such structures and the land under them inside critical habitat boundaries shown on the maps of this proposed rule are not proposed for designation as critical habitat. Therefore, Federal actions limited to these areas would not trigger section 7 consultation, unless they affect the species or PCEs in adjacent critical habitat. Proposed Critical Habitat Designation We are proposing three units as critical habitat for the Devils River minnow. The three units are:
(1)Devils River Unit;
(2)San Felipe Creek Unit; and
(3)Pinto Creek Unit. All three areas are currently occupied by the Devils River minnow and constitute our best assessment of areas that meet the definition of critical habitat for the species. The proposed critical habitat areas include the stream channels up to bankfull width within the identified stream reaches. The stream beds of perennial streams and navigable waters (stream beds of at least 30 ft wide) in Texas are generally owned by the State, in trust for the public, while the lands alongside the streams can be privately owned (Riddell 1997, p. 7). We presume that the stream beds for all three stream segments being proposed for critical habitat are considered public. All distances reported in this proposal are estimated stream lengths calculated using geographic information system computer software (ArcGIS) approximating the stream channel (reported in stream km and stream mi). Stream channel lines were based on the National Hydrography Dataset and 7.5' topographic quadrangle maps obtained from the U.S. Geological Survey. We made some minor adjustments using the 2004 National Agriculture Imagery Program digital orthophotos obtained from the Texas Natural Resources Information System. The approximate length of each stream segment for each proposed critical habitat unit is shown in Table 1. Table 1.—Proposed Critical Habitat Units for the Devils River Minnow Critical habitat unit * Total stream km (stream mi) 1. Devils River Unit (includes Philips and Dolan creeks) 47.0 (29.2) 2. San Felipe Creek Unit (includes outflow of East and West springs) 9.0 (5.6) 3. Pinto Creek Unit 17.5 (10.9) Total 73.5 (45.7) * The stream beds of all three units being proposed for critical habitat are considered public, and owned by the state of Texas. The proposed critical habitat designation for Devils River minnow includes a total of 73.5 stream km (45.7 stream mi). Below, we provide brief descriptions of the three units, and reasons why each meets the definition of critical habitat for the Devils River minnow. Unit 1: Devils River Unit Proposed Unit 1 consists of approximately 43.6 stream km (27.1 stream mi) of the Devils River; 1.1 stream km (0.7 stream mi) of Phillips Creek; and 2.3 stream km (1.4 stream mi) of Dolan Creek. Phillips Creek and Dolan Creek are small tributaries to the Devils River that contain PCEs and are occupied by the Devils River minnow. The proposed upstream boundary on the Devils River is at Pecan Springs. The proposed downstream boundary on the Devils River is 3.6 stream km (2.2 stream mi) below Dolan Falls. Phillips Creek is included from the confluence with the Devils River to a point 1.1 stream km (0.7 stream mi) upstream. Dolan Creek is included from the confluence with the Devils River 2.3 stream km (1.4 stream mi) upstream to Dolan Springs. Including all three streams, the total distance in the proposed critical habitat in the Devils River Unit is approximately 47.0 stream km (29.2 stream mi). For specific coordinates of the boundaries for proposed critical habitat designation, please reference the unit descriptions in the Proposed Regulation Promulgation section below. The Devils River minnow was originally described from this unit in the 1950s (Hubbs and Brown 1956, p. 70) and it has been continually occupied ever since (Harrell 1978, pp. 64, 67; Garrett *et al.* 1992, p. 261, Service 2005, Appendix A). The Devils River minnow occupied this unit at the time of listing, though at only a few locations. Subsequent surveys by TPWD have established current occupancy of this entire unit (Service 2005, Appendix A). The proposed upstream boundary of critical habitat represents the beginning of the permanent flow of the river (De La Cruz 2004, p. 1). The proposed downstream boundary, 3.6 stream km (2.2 stream mi) downstream of Dolan Falls, represents the downstream extent of collections of the Devils River minnow by TPWD (Garrett 2007, p. 1). The Devils River Unit contains one or more of the PCEs essential for conservation of the Devils River minnow. Special management in the Devils River Unit may be needed to control groundwater pumping to ensure spring flows are maintained and to prevent the introduction of nonnative species. See additional discussion above in the Special Management Considerations or Protections section. Areas proposed as critical habitat for Devils River minnow do not include lands adjacent to the stream channels. However, land ownership adjacent to the streams in the Devils River Unit is primarily private. Private ownership of the area includes The Nature Conservancy's 1,943-ha (4,800-ac) Dolan Falls Preserve, which also includes river frontage on the Devils River and Dolan Creek. The Nature Conservancy has owned this area since 1991 (The Nature Conservancy 2004, 9). The Nature Conservancy also holds conservation easements on about 66,800 ha (about 165,000 ac) of private land along the Devils River or in the Devils River watershed (McWilliams 2006, p. 1). The only public land adjacent to the streams of this unit is the State-owned Devils River State Natural Area (DRSNA) managed by the TPWD. Proposed critical habitat within the DRSNA includes about 1.6 stream km (1.0 stream mi) along the east bank of the Devils River and about 1.9 stream km (1.17 stream mi) along both banks of a portion of Dolan Creek. Yet, these adjacent public lands are not included in the proposed critical habitat designation. Unit 2: San Felipe Creek Unit Proposed Unit 2 consists of approximately 7.9 stream km (4.9 stream mi) on San Felipe Creek; 0.8 stream km (0.5 stream mi) of the outflow of San Felipe Springs West; and 0.3 stream km (0.2 stream mi) of the outflow of San Felipe Springs East. The proposed upstream boundary on San Felipe Creek is the Head Springs located about 1.1 stream km (0.7 stream mi) upstream of the Jap Lowe Bridge crossing. The proposed downstream boundary on San Felipe Creek is in the City of Del Rio 0.8 stream km (0.5 stream mi) downstream of the Academy Street Bridge crossing. The proposed unit includes the outflow channels of two springs San Felipe Springs West and San Felipe Springs East. These channels are included in the proposed critical habitat from their spring origin downstream to the confluence with San Felipe Creek. Including all three streams, the total distance in the proposed critical habitat in the San Felipe Creek Unit is approximately 9.0 stream km (5.6 stream mi). For specific coordinates of the boundaries for proposed critical habitat designation, please reference the unit descriptions in the Proposed Regulation Promulgation section below. San Felipe Creek was occupied by the Devils River minnow at the time of listing and is still occupied (Hubbs and Brown 1956, p. 70; Garrett *et al.* 1992, pp. 261, 265; Service 2005, Appendix A; Lopez-Fernandez and Winemiller 2005, p. 249). Although limited survey data is available, we consider the entire unit occupied as the habitat is contiguous, allowing fish to move throughout the unit (Garrett 2006b, p. 1). The proposed boundaries of critical habitat include all areas where TPWD has collected Devils River minnow within the San Felipe Creek Unit (Garrett 2007, p. 1). The San Felipe Creek Unit contains one or more of the PCEs essential for conservation of the Devils River minnow. There are several unnatural barriers to fish movement that may currently segment the reaches within the City of Del Rio. Portions of the stream banks in the City have been significantly altered by arming with concrete and the invasion of an exotic cane ( *Arundo donax* ). However, much of the riparian area remains a functional part of the stream ecosystem, contributing to the physical and biological features of Devils River minnow habitat. Water quality in San Felipe Creek has been a concern due to the urban environment through which much of the creek flows. Potential for spill or discharge of toxic materials is an inherent threat in urban environments (City of Del Rio 2006, p. 13). The threats to the San Felipe Creek Unit that require special management include the potential for large-scale groundwater withdrawal and exportation that would impact spring flows, pollution from urban runoff, nonnative vegetation on stream banks, other nonnative species (such as the armored catfish), and potential new nonnative species introductions into the stream. Land ownership adjacent to the streams banks being proposed as critical habitat within the San Felipe Creek Unit includes private ranch lands from the Head Springs downstream to the City of Del Rio. Within the city limits, the City owns various tracts of land along the stream. Some of these areas are developed as public use parks and others have been recently obtained through a buyout program from the Federal Emergency Management Agency following damages from the 1998 flood (City of Del Rio 2006, pp. 5-6). Most of the City-owned property along the river appears to be on the east bank of the creek, while the west bank is primarily private-owned residences. The San Felipe Springs East and West and their immediate outflow channels are on a golf course, privately owned by the San Felipe Country Club. In all, we estimate that the City of Del Rio owns about 1.1 stream km (0.7 stream mi) along both banks of the creek and spring outflow channels, mainly located downstream of the Highway 90 Bridge. Through the remainder of the City, we estimated the City owns about 2.2 stream km (1.4 stream mi) along the east bank of San Felipe Creek in parcels fragmented by private holdings. These private and city-owned lands are not included in the proposed critical habitat designation. Unit 3: Pinto Creek Unit Proposed Unit 3 consists of approximately 17.5 stream km (10.9 stream mi) on Pinto Creek. The proposed upstream boundary is Pinto Springs. The proposed downstream boundary is 100 m (330 ft) upstream of the Highway 90 Bridge crossing of Pinto Creek. For specific coordinates of the boundaries for proposed critical habitat designation, please reference the unit descriptions in the Proposed Regulation Promulgation section below. Pinto Creek was not considered occupied by Devils River minnow at the time of listing; however, Devils River minnows were documented in 2001 in upstream reaches of the creek where fish surveys had not been previously conducted (Garrett *et al.* 2004, p. 437). The Pinto Creek Unit is essential for the conservation of the Devils River minnow because fish from this stream show significant genetic variation from other populations (Service 2006, p. 15). Because of it's proximity to Las Moras Creek and the genetic variation from the more western population, fish from Pinto Creek would be the likely source population for possible future reintroduction into formerly occupied areas (Garrett *et al.* 2004, p. 440). The proposed boundaries of critical habitat represent all the areas within Pinto Creek where Devils River minnow has been collected (Garrett *et al.* 2004, p. 437-438). Further, the Pinto Creek Unit contains one or more of the PCEs essential for conservation of the Devils River minnow. The main threat to the Pinto Creek Unit that requires special management is the potential for large-scale groundwater withdrawal and exportation that would significantly impact spring flows. While nonnative species are not currently known to be a problem in Pinto Creek, preventing nonnative species from being introduced into the stream is an additional threat needing special management. Land ownership adjacent to the Pinto Creek unit is all private ranches; however, these private lands are not included in the proposed critical habitat designation. Effects of Critical Habitat Designation Section 7 Consultation Section 7(a)(2) of the Act requires Federal agencies, including the Service, to ensure that actions they fund, authorize, or carry out are not likely to destroy or adversely modify critical habitat. Decisions by the 5th and 9th Circuit Court of Appeals have invalidated our definition of “destruction or adverse modification” (50 CFR 402.02) (see *Gifford Pinchot Task Force* v. *U.S. Fish and Wildlife Service* , 378 F.3d 1059 (9th Cir. 2004) and *Sierra Club* v. *U.S. Fish and Wildlife Service* *et al.* , 245 F.3d 434, 442F (5th Cir. 2001)), and we do not rely on this regulatory definition when analyzing whether an action is likely to destroy or adversely modify critical habitat. Under current national policy and the statutory provisions of the Act, we determine destruction or adverse modification is determined on the basis of whether, with implementation of the proposed Federal action, the affected critical habitat would remain functional (or retain the current ability for the PCEs to be functionally established) to serve its intended conservation role for the species. Section 7(a)(4) of the Act requires Federal agencies to confer with the Service on any action that is likely to jeopardize the continued existence of a species proposed for listing or result in destruction or adverse modification of proposed critical habitat. This is a procedural requirement only, as any conservation recommendations in a conference report or opinion are strictly advisory. However, once a species proposed for listing becomes listed, or proposed critical habitat is designated as final, the full prohibitions of section 7(a)(2) apply to any discretionary Federal action. The primary utility of the conference procedures is to allow a Federal agency to maximize its opportunity to adequately consider species proposed for listing and proposed critical habitat and to avoid potential delays in implementing their proposed action because of the section 7(a)(2) compliance process, should we list those species or designate critical habitat. We may conduct conferences either informally or formally. We typically use informal conferences as a means of providing advisory conservation recommendations to assist the agency in eliminating conflicts that the proposed action may cause. We typically use formal conferences when we or the Federal agency believes the proposed action is likely to jeopardize the continued existence of the species proposed for listing or adversely modify proposed critical habitat. We generally provide the results of an informal conference in a conference report, while we provide the results of a formal conference in a conference opinion. We typically prepare conference opinions on proposed species or critical habitat in accordance with procedures contained at 50 CFR 402.14, as if the proposed species were already listed or the proposed critical habitat was already designated. We may adopt the conference opinion as the biological opinion when the species is listed or the critical habitat is designated, if no substantial new information or changes in the action alter the content of the opinion (see 50 CFR 402.10(d)). If a species is listed or critical habitat is designated, section 7(a)(2) of the Act requires Federal agencies to ensure that activities they authorize, fund, or carry out are not likely to jeopardize the continued existence of the species or to destroy or adversely modify its critical habitat. If a Federal action may affect a listed species or its critical habitat, the responsible Federal agency (action agency) must enter into consultation with us. As a result of this consultation, we document compliance with the requirements of section 7(a)(2) through our issuance of:
(1)A concurrence letter for Federal actions that may affect, but are not likely to adversely affect, listed species or critical habitat; or
(2)a biological opinion for Federal actions that may affect, and are likely to adversely affect, listed species or critical habitat. When we issue a biological opinion concluding that a project is likely to jeopardize the continued existence of a listed species or destroy or adversely modify critical habitat, we also provide reasonable and prudent alternatives to the project, if any are identifiable. “Reasonable and prudent alternatives” are defined at 50 CFR 402.02 as alternative actions identified during consultation that can be implemented in a manner consistent with the intended purpose of the action, that can be implemented consistent with the scope of the Federal agency's legal authority and jurisdiction, that are economically and technologically feasible, and that would, in the Director's opinion, avoid jeopardizing the continued existence of the listed species or destroying or adversely modifying critical habitat. Reasonable and prudent alternatives can vary from slight project modifications to extensive redesign or relocation of the project. Costs associated with implementing a reasonable and prudent alternative are similarly variable. Regulations at 50 CFR 402.16 require Federal agencies to reinitiate consultation on previously reviewed actions in instances where we have listed a new species or subsequently designated critical habitat that may be affected and the Federal agency has retained discretionary involvement or control over the action (or the agency's discretionary involvement or control is authorized by law). Consequently, some Federal agencies may request reinitiation of consultation with us on actions for which formal consultation has been completed, if those actions may affect subsequently listed species or designated critical habitat. Federal activities that may affect the Devils River minnow or its designated critical habitat will require section 7 consultation under the Act. Activities on State, Tribal, local, or private lands requiring a Federal permit (such as a permit from the U.S. Army Corps of Engineers under section 404 of the Clean Water Act (33 U.S.C. 1251 *et seq.* ) or a permit under section 10(a)(1)(B) of the Act from the Service) or involving some other Federal action (such as funding from the Federal Highway Administration, Federal Aviation Administration, or the Federal Emergency Management Agency) are also subject to the section 7 consultation process. Federal actions not affecting listed species or critical habitat, and actions on State, Tribal, local or private lands that are not federally funded, authorized, or permitted, do not require section 7 consultations. There are no Federal lands in the areas being proposed for critical habitat for Devils River minnow. Laughlin Air Force Base is located east of the City of Del Rio and obtains its municipal water from the City (which ultimately is withdrawn from the two San Felipe Springs). The Amistad National Recreation Area, located around Amistad Reservoir, is owned by the National Park Service and includes the downstream portions of the Devils River, but is not included in the proposed critical habitat designation. Since the Devils River minnow was listed in 1999, two section 7 consultations have occurred, both of which were associated with San Felipe Creek. One informal consultation was completed in 2001 with the Environmental Protection Agency for funding through the Texas Water Development Board to the City of Del Rio to upgrade the City's water treatment and distribution facilities. The other (formal) consultation was completed in 2006 with the Federal Highway Administration, through the Texas Department of Transportation, to replace the Beddell Avenue Bridge over San Felipe Creek. Based on this consultation history, we anticipate few future Federal actions within the area proposed for critical habitat for Devils River minnow. Application of the “Adverse Modification” Standard for Actions Involving Effects to the Critical Habitat of the Devils River Minnow For the reasons described in the Director's December 9, 2004 memorandum, the key factor related to the adverse modification determination is whether, with implementation of the proposed Federal action, the affected critical habitat would continue to serve its intended conservation role for the species, or would retain its current ability for the PCEs to be functionally established. Activities that may destroy or adversely modify critical habitat are those that alter the PCEs to an extent that appreciably reduces the conservation value of critical habitat for the Devils River minnow is appreciably reduced. Section 4(b)(8) of the Act requires us to briefly evaluate and describe, in any proposed or final regulation that designates critical habitat, those activities involving a Federal action that may destroy or adversely modify such habitat, or that may be affected by such designation. Activities that, when carried out, funded, or authorized by a Federal agency, may affect critical habitat and therefore would result in consultation for the Devils River minnow include, but are not limited to: 6
(1)Actions that would alter the natural flow regime, particularly the reduction of spring flows. These activities could include, but are not limited to, excessive groundwater pumping (significantly greater than current levels), water diversions from streams, and stream impoundments. These activities could reduce the amount of available habitat and space for normal behaviors of Devils River minnow, alter water quality as an indirect effect of reduced flows, alter the mesohabitat (pools, riffles, and runs) conditions necessary for Devils River minnow life history functions, and alter fish community dynamics to unnaturally favor species other than the Devils River minnow.
(2)Actions that would reduce native aquatic vegetation or native vegetation along stream banks. These activities could include, but are not limited to, channelization of the stream, armoring stream banks (replacing native vegetation and soils with rock or concrete), dredging the stream bottom, introducing nonnative plants that would replace native vegetation, or introducing herbivorous nonnative species. Loss of aquatic vegetation would eliminate an important structural component of Devils River minnow habitat and could reduce the amount of available habitat for reproduction, growth, and feeding.
(3)Actions that would significantly alter water quality or introduce pollutants into streams. Such activities could include, but are not limited to, release of chemicals, biological pollutants, or heated effluents (liquid waste products) into the surface water or connected groundwater at a point source or by dispersed release (non-point source). Sources of pollutants also include, but are not limited to, storm water runoff from urban development without adequate storm water controls; spill of hazardous chemicals into the creek or groundwater; or groundwater contamination by improperly drilled or maintained oil or gas wells. These activities could alter water conditions that are beyond the tolerances of the Devils River minnow or their food source and could result in direct or cumulative adverse effects to these individuals and their life cycles.
(4)Actions that would significantly increase sediment deposition within the stream channel. Such activities could include, but are not limited to, excessive sedimentation from livestock grazing, road construction, channel alteration, brush clearing, off-road vehicle use, and other watershed and floodplain disturbances. These activities could eliminate or reduce the habitat necessary for the reproduction of Devils River minnow and could reduce the availability of food sources by affecting light penetration into the water column, filling in of stream beds with silt, or increasing the embeddedness of stream bottoms that reduces algae availability.
(5)Actions that would significantly alter channel shape or geometry. Such activities could include, but are not limited to, channelization, impoundment, armoring stream banks, road and bridge construction, mining, dredging, and destruction of riparian vegetation. These activities may alter the natural pattern of available mesohabitats (pools, riffles, and runs). These actions can reduce the amount of habitat available for Devils River minnow to complete its normal life cycle and can give other species, especially nonnative species, competitive advantages. These actions can also lead to increased sedimentation and degradation in water quality to levels that are beyond the tolerances of the fish or their food sources. Exclusions Application of Section 4(b)(2) of the Act Section 4(b)(2) of the Act states that critical habitat shall be designated, and revised, on the basis of the best available scientific data after taking into consideration the economic impact, national security impact, and any other relevant impact, of specifying any particular area as critical habitat. The Secretary may exclude an area from critical habitat if he determines that the benefits of such exclusion outweigh the benefits of specifying such area as part of the critical habitat, unless he determines, based on the best scientific data available, that the failure to designate such area as critical habitat will result in the extinction of the species. In making that determination, the Congressional record is clear that the Secretary is afforded broad discretion regarding which factor(s) to use and how much weight to give to any factor. Under section 4(b)(2) of the Act, in considering whether to exclude a particular area from the designation, we must identify the benefits of including the area in the designation, identify the benefits of excluding the area from the designation, and then determine whether the benefits of exclusion outweigh the benefits of inclusion. If an exclusion is contemplated, then we must determine whether excluding the area would result in the extinction of the species. In the following sections, we address a number of general issues that are relevant to the exclusions we considered. In addition, the Service is conducting an economic analysis of the impacts of the proposed critical habitat designation and related factors, which will be available for public review and comment when it is complete. Based on public comment on that document, the proposed designation itself, and the information in the final economic analysis, additional areas beyond those identified in this assessment may be excluded from critical habitat by the Secretary under the provisions of section 4(b)(2) of the Act. This is provided for in the Act and in our implementing regulations at 50 CFR 424.19. Under section 4(b)(2) of the Act, we must consider all relevant impacts, including economic ones. The Service considers a number of factors in its section 4(b)(2) analysis. For example, the Service considers whether there are lands owned or managed by the Department of Defense
(DOD)where there might be a national security impact. We also consider whether the landowners have developed any conservation plans for the area, or whether there are conservation partnerships that would be encouraged by an area being designated as, or excluded from critical habitat. We look at any Tribal issues, and consider the government-to-government relationship of the United States with Tribal entities. We also consider any social or economic impacts that might occur because of the designation. In this instance, we have determined that the lands within the proposed designation of critical habitat for Devils River minnow are not owned or managed by the Department of Defense, and the proposed designation does not include any Tribal lands or trust resources. At this time, we are not proposing any areas for exclusion from the final critical habitat designation under section 4(b)(2) of the Act; however, there are several ongoing conservation efforts related to habitat maintenance for the Devils River minnow (for example, see Garrett 2003, pp. 155-158; Karges 2003, pp. 147-148). Discussed below are conservation efforts and management plans that we may consider in our analysis of the benefits of inclusion and benefits of exclusion for certain proposed units from the final designation of critical habitat. Ongoing Conservation Efforts for Consideration Under Section 4(b)(2) of the Act
(1)Conservation Area Plan and Conservation Easements by The Nature Conservancy in the Devils River watershed. The Nature Conservancy has a very active conservation program in the Devils River watershed (Karges 2003, pp. 147-148). The Nature Conservancy has developed a Conservation Area Plan for the Devils River with goals of the plan including balancing the relative abundance of native and nonnative fish species and maintaining or enhancing the condition and beauty of riparian gallery woodlands (The Nature Conservancy 2004, p. 6). Rivers, streams, and springs are recognized as viable conservation elements whose function can likely be sustained within natural variations, as long as large-scale groundwater mining does not occur (The Nature Conservancy 2004, pp. 18-19). The Nature Conservancy owns about 1,943 ha (4,800 ac) and holds conservation easements on about 66,800 ha (about 165,000 ac) of private land in the Devils River watershed (McWilliams 2006, p. 1).
(2)Management plans by the City of Del Rio and the San Felipe Creek Country Club. In 2003, the City of Del Rio and the San Felipe Creek Country Club each signed management plans for the protection of San Felipe Creek (Service 2005, Appendix C). The mission of the City's plan is to “preserve and conserve the natural and cultural resources of the San Felipe Creek for the use and enjoyment of the present and future generations of Del Rio citizens and visitors.” Proposed actions include: converting lands obtained along the creek following the 1998 flood into passive parks; minimizing use of pesticides and fertilizers on City-owned lands along the creek; discouraging commercial development along the creek; preserving the natural water flow to the greatest extent possible; preserving stream banks in a natural state with buffer zones of native vegetation; public education; litter removal; and removal of nonnative plants, such as the river cane. The City has recently drafted a San Felipe Creek Master Plan (City of Del Rio, 2006, p.1) and intends to complete development of the plan in 2007. The Management Plan for San Felipe Country Club in Del Rio included objectives “to use environmentally sensitive techniques for managing and maintaining a high quality golf course for the benefit of users while also promoting natural diversity, and to protect and enhance the quality of San Felipe Creek and San Felipe Springs for the benefit of the Devils River minnow and the entire creek and riparian ecosystem.” Management actions included establishing no-mow buffer zones, using environmentally sensitive pest management solutions through an Integrated Pest Management Program, using fertilizers judiciously; removing noxious vegetation, maintaining out of play areas as native habitat, using irrigation water wisely, and retaining runoff from parking lots.
(3)Kinney County Groundwater Conservation District. The Kinney County Groundwater Conservation District exists for the management of groundwater resources in Kinney County. This District passed its initial rules in 2002 (and modified them in 2003) and is continuing to support groundwater research to determine aquifer boundaries and groundwater availability in Kinney County.
(4)Watershed management planning. TPWD has initiated development of a stakeholder-lead watershed management plan for the range of the Devils River minnow in Val Verde and Kinney Counties. The intent of the plan is to protect, enhance, or restore essential habitat throughout the range of the federally threatened Devils River minnow and other species of concern in this area, and will define actions that will result in maintaining or increasing populations of these fishes. The plan has not yet been completed. Economics An analysis of the economic impacts of proposing critical habitat for the Devils River minnow is being prepared. We will announce the availability of the draft economic analysis as soon as it is completed, at which time we will seek public review and comment. At that time, copies of the draft economic analysis will be available for downloading from the Internet at *http://www.fws.gov/southwest/es/Library/,* or by contacting the Austin Ecological Services Field Office directly (see ADDRESSES ). Peer Review In accordance with our joint policy published in the **Federal Register** on July 1, 1994 (59 FR 34270), we will seek the expert opinions of at least three appropriate and independent specialists regarding this proposed rule. The purpose of such review is to ensure that our critical habitat designation is based on scientifically sound data, assumptions, and analyses. We will send copies of this proposed rule to these peer reviewers immediately following publication in the **Federal Register** . We will invite these peer reviewers to comment during the public comment period on the specific assumptions and conclusions regarding the proposed designation of critical habitat. We will consider all comments and information received during the comment period on this proposed rule during preparation of a final rulemaking determination. Accordingly, the final decision may differ from this proposal. Public Hearings The Act provides for one or more public hearings on this proposal, if requested. Under section 4(b)(5)(e) of the Act, requests for public hearings must be made in writing at least 45 days following the publication of the proposed rule. We will schedule public hearings on this proposal, if any are requested, and announce the dates, times, and places of those hearings in the **Federal Register** and local newspapers at least 15 days prior to the first hearing. Persons needing reasonable accommodations to attend and participate in the public hearings should contact Adam Zerrenner, Field Supervisor, Austin Ecological Services Field Office at
(512)490-0057 as soon as possible. To allow sufficient time to process requests, please call no later than one week before the hearing date. Information regarding the proposal is available in alternative formats upon request. Clarity of the Rule Executive Order 12866 (Regulatory Planning and Review) requires each agency to write regulations and notices that are easy to understand. We invite your comments on how to make this proposed rule easier to understand, including answers to questions such as the following:
(1)Are the requirements in the proposed rule clearly stated?
(2)Does the proposed rule contain technical jargon that interferes with the clarity?
(3)Does the format of the proposed rule (grouping and order of the sections, use of headings, paragraphing, and so forth) aid or reduce its clarity?
(4)Is the description of the notice in the SUPPLEMENTARY INFORMATION section of the preamble helpful in understanding the proposed rule?
(5)What else could we do to make this proposed rule easier to understand? Send a copy of any comments on how we could make this proposed rule easier to understand to: Office of Regulatory Affairs, Department of the Interior, Room 7229, 1849 C Street, NW., Washington, DC 20240. You may e-mail your comments to this address: *Exsec@ios.doi.gov* . Required Determinations Regulatory Planning and Review In accordance with Executive Order 12866, this document is a significant rule in that it may raise novel legal and policy issues, but it is not anticipated to have an annual effect on the economy of $100 million or more or affect the economy in a material way. Due to the tight timeline for publication in the **Federal Register** , the Office of Management and Budget
(OMB)has not formally reviewed this rule. We are preparing a draft economic analysis of this proposed action, which will be available for public comment, to determine the economic consequences of designating the specific area as critical habitat. This economic analysis also will be used to determine compliance with Executive Order 12866, Regulatory Flexibility Act, Small Business Regulatory Enforcement Fairness Act, Executive Order 12630, Executive Order 13211, and Executive Order 12875. Further, Executive Order 12866 directs Federal Agencies promulgating regulations to evaluate regulatory alternatives (Office of Management and Budget, Circular A-4, September 17, 2003). Pursuant to Circular A-4, once it has been determined that the Federal regulatory action is appropriate, then the agency will need to consider alternative regulatory approaches. Since the determination of critical habitat is a statutory requirement under the Act, we must then evaluate alternative regulatory approaches, where feasible, when promulgating a designation of critical habitat. In developing our designations of critical habitat, we consider economic impacts, impacts to national security, and other relevant impacts under section 4(b)(2) of the Act. Based on the discretion allowable under this provision, we may exclude any particular area from the designation of critical habitat provided that the benefits of such exclusion outweigh the benefits of specifying the area as critical habitat and that such exclusion would not result in the extinction of the species. As such, we believe that the evaluation of the inclusion or exclusion of particular areas, or combination thereof, in a designation constitutes our regulatory alternative analysis. The availability of the draft economic analysis will be announced in the **Federal Register** and in local newspapers so that it is available for public review and comments. The draft economic analysis can be obtained from our Web site at *http://www.fws.gov/southwest/es/Library/* , or by contacting the Austin Ecological Services Field Office directly (see ADDRESSES ). Regulatory Flexibility Act (5 U.S.C. 601 et seq.) Under the Regulatory Flexibility Act (5 U.S.C. 601 *et seq.* , as amended by the Small Business Regulatory Enforcement Fairness Act (SBREFA) of 1996), whenever an agency is required to publish a notice of rulemaking for any proposed or final rule, it must prepare and make available for public comment a regulatory flexibility analysis that describes the effects of the rule on small entities (small businesses, small organizations, and small government jurisdictions). However, no regulatory flexibility analysis is required if the head of the agency certifies the rule will not have a significant economic impact on a substantial number of small entities. The SBREFA amended the Regulatory Flexibility Act
(RFA)to require Federal agencies to provide a statement of the factual basis for certifying that the rule will not have a significant economic impact on a substantial number of small entities. At this time, the Service lacks the available economic information necessary to provide an adequate factual basis for the required RFA finding. Therefore, the RFA finding is deferred until we complete the draft economic analysis under section 4(b)(2) of the Act and Executive Order 12866. This draft economic analysis will provide the required factual basis for the RFA finding. Upon completion of the draft economic analysis, the Service will publish a notice of availability of the draft economic analysis of the proposed designation and reopen the public comment period for the proposed designation. The Service will include with the notice of availability, as appropriate, an initial regulatory flexibility analysis or a certification that the rule will not have a significant economic impact on a substantial number of small entities accompanied by the factual basis for that determination. The Service has concluded that deferring the RFA finding until completion of the draft economic analysis is necessary to meet the purposes and requirements of the RFA. Deferring the RFA finding in this manner will ensure that the Service makes a sufficiently informed determination based on adequate economic information and provides the necessary opportunity for public comment. Unfunded Mandates Reform Act (2 U.S.C. 1501 et seq.) In accordance with the Unfunded Mandates Reform Act (2 U.S.C. 1501), the Service makes the following findings:
(a)This rule would not produce a Federal mandate. In general, a Federal mandate is a provision in legislation, statute, or regulation that would impose an enforceable duty upon State, local, or Tribal governments, or the private sector and includes both “Federal intergovernmental mandates” and “Federal private sector mandates.” These terms are defined in 2 U.S.C. 658(5)-(7). “Federal intergovernmental mandate” includes a regulation that “would impose an enforceable duty upon State, local, or tribal governments” with two exceptions. It excludes “a condition of Federal assistance.” It also excludes “a duty arising from participation in a voluntary Federal program,” unless the regulation “relates to a then-existing Federal program under which $500,000,000 or more is provided annually to State, local, and tribal governments under entitlement authority,” if the provision would “increase the stringency of conditions of assistance” or “place caps upon, or otherwise decrease, the Federal Government's responsibility to provide funding,” and the State, local, or Tribal governments “lack authority” to adjust accordingly. At the time of enactment, these entitlement programs were: Medicaid; AFDC work programs; Child Nutrition; Food Stamps; Social Services Block Grants; Vocational Rehabilitation State Grants; Foster Care, Adoption Assistance, and Independent Living; Family Support Welfare Services; and Child Support Enforcement. “Federal private sector mandate” includes a regulation that “would impose an enforceable duty upon the private sector, except
(i)a condition of Federal assistance or
(ii)a duty arising from participation in a voluntary Federal program.” The designation of critical habitat does not impose a legally binding duty on non-Federal government entities or private parties. Under the Act, the only regulatory effect is that Federal agencies must ensure that their actions do not destroy or adversely modify critical habitat under section 7. While non-Federal entities that receive Federal funding, assistance, or permits, or that otherwise require approval or authorization from a Federal agency for an action may be indirectly impacted by the designation of critical habitat, the legally binding duty to avoid destruction or adverse modification of critical habitat rests squarely on the Federal agency. Furthermore, to the extent that non-Federal entities are indirectly impacted because they receive Federal assistance or participate in a voluntary Federal aid program, the Unfunded Mandates Reform Act would not apply, nor would critical habitat shift the costs of the large entitlement programs listed above on to State governments.
(b)We do not believe that this rule would significantly or uniquely affect small governments because it would not produce a Federal mandate of $100 million or greater in any year; that is, it is not a “significant regulatory action” under the Unfunded Mandates Reform Act. We do not anticipate that the designation of critical habitat will impose obligations on State or local governments. As such, a Small Government Agency Plan is not required. However, we will further evaluate this issue as we conduct our economic analysis and revise this assessment if appropriate. Executive Order 13211 On May 18, 2001, the President issued an Executive Order (E.O. 13211; Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use) on regulations that significantly affect energy supply, distribution, and use. Executive Order 13211 requires agencies to prepare Statements of Energy Effects when undertaking certain actions. While this proposed rule to designate critical habitat for the Devils River minnow is a significant regulatory action under Executive Order 12866, it is not expected to significantly affect energy supplies, distribution, or use. Therefore, this action is not a significant energy action, and no Statement of Energy Effects is required. Takings In accordance with Executive Order 12630 (“Government Actions and Interference with Constitutionally Protected Private Property Rights”), we have analyzed the potential takings implications of designating critical habitat for the Devils River minnow in a takings implications assessment. The takings implications assessment concludes that this designation of critical habitat for the Devils River minnow would not pose significant takings implications. Federalism In accordance with Executive Order 13132 (Federalism), the rule would not have significant Federalism effects. A Federalism assessment is not required. In keeping with Department of the Interior and Department of Commerce policy, we requested information from, and coordinated development of, this proposed critical habitat designation with appropriate State resource agencies in Texas. The designation of critical habitat in areas currently occupied by the Devils River minnow imposes no additional restrictions to those currently in place and, therefore, has little incremental impact on State and local governments and their activities. The designation may have some benefit to these governments in that the areas that contain the features essential to the conservation of the species are more clearly defined, and the PCEs of the habitat necessary to the conservation of the species are specifically identified. While making this definition and identification does not alter where and what federally sponsored activities may occur, it may assist these local governments in long-range planning (rather than have these governments wait for case-by-case section 7 consultations to occur). Civil Justice Reform In accordance with Executive Order 12988 (Civil Justice Reform), the Office of the Solicitor has determined that the rule does not unduly burden the judicial system and meets the requirements of sections 3(a) and 3(b)(2) of the Order. We have proposed designating critical habitat in accordance with the provisions of the Act. This proposed rule uses standard property descriptions and identifies the PCEs within the designated areas to assist the public in understanding the habitat needs of the Devils River minnow. Paperwork Reduction Act of 1995 (44 U.S.C. 3501 *et seq.* ) This rule does not contain any new collections of information that require approval by OMB under the Paperwork Reduction Act. This rule will not impose recordkeeping or reporting requirements on State or local governments, individuals, businesses, or organizations. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number. National Environmental Policy Act It is our position that, outside the Tenth Circuit, we do not need to prepare environmental analyses as defined by the NEPA in connection with designating critical habitat under the Act. We published a notice outlining our reasons for this determination in the **Federal Register** on October 25, 1983 (48 FR 49244). This assertion was upheld in the courts of the Ninth Circuit ( *Douglas County* v. *Babbitt* , 48 F.3d 1495 (9th Cir. Ore. 1995), cert. denied 116 S. Ct. 698 (1996)).] Government-to-Government Relationship With Tribes In accordance with the President's memorandum of April 29, 1994, “Government-to-Government Relations with Native American Tribal Governments” (59 FR 22951), Executive Order 13175, and the Department of Interior's manual at 512 DM 2, we readily acknowledge our responsibility to communicate meaningfully with recognized Federal Tribes on a government-to-government basis. We have determined that there are no tribal lands occupied at the time of listing that contain the features essential for the conservation of Devils River minnow, and no Tribal lands that are unoccupied areas that are essential for the conservation of the Devils River minnow. Therefore, we are not proposing to designate critical habitat for the Devils River minnow on Tribal lands. References Cited A complete list of all references cited in this rulemaking is available upon request from the Field Supervisor, Austin Ecological Services Field Office (see ADDRESSES ). Author(s) The primary author of this package is the Austin Ecological Services Field Office. List of Subjects in 50 CFR Part 17 Endangered and threatened species, Exports, Imports, Reporting and recordkeeping requirements, Transportation. Proposed Regulation Promulgation Accordingly, we propose to amend part 17, subchapter B of chapter I, title 50 of the Code of Federal Regulations, as set forth below: PART 17—[AMENDED] 1. The authority citation for part 17 continues to read as follows: Authority: 16 U.S.C. 1361-1407; 16 U.S.C. 1531-1544; 16 U.S.C. 4201-4245; Pub. L. 99-625, 100 Stat. 3500; unless otherwise noted. 2. In § 17.11(h), revise the entry for “Minnow, Devils River” under “FISHES” to read as follows: § 17.11 Endangered and threatened wildlife.
(h)* * * Species Common name Scientific name Historic range Vertebrate population where endangered or threatened Status When listed Critical habitat Special range * * * * * * * **Fishes** * * * * * * * Minnow, Devils River *Dionda diaboli* U.S.A., TX, Mexico Entire T 669 17.95(e) NA * * * * * * * 3. In § 17.95(e), add an entry for “Devils River Minnow ( *Dionda diaboli* )” in the same alphabetical order that the species appears in the table at § 17.11(h) to read as follows: § 17.95 Critical habitat—fish and wildlife.
(e)Fishes. Devils River Minnow ( *Dionda diaboli* )
(1)Critical habitat units are depicted for Val Verde County and Kinney County, Texas, on the maps below.
(2)The primary constituent elements of critical habitat for the Devils River minnow are the following habitat components:
(i)Streams characterized by:
(A)Areas with slow to moderate water velocities between 10 and 40 cm/second (4 and 16 in/second) in shallow to moderate water depths between approximately 10 cm (4 in) and 1.5 m (4.9 ft), near vegetative structure, such as emergent or submerged vegetation or stream bank riparian vegetation that overhangs into the water column;
(B)Gravel and cobble substrates ranging in size between 2 and 10 cm (0.8 and 4 in) with low or moderate amounts of fine sediment (less than 65 percent stream bottom coverage) and low or moderate amounts of substrate embeddedness; and
(C)Pool, riffle, run, and backwater components free of artificial instream structures that would prevent movement of fish upstream or downstream.
(ii)High-quality water provided by permanent, natural flows from groundwater spring and seeps characterized by:
(A)Temperature ranging between 17 °C and 29 °C (63 °F and 84 °F);
(B)Dissolved oxygen levels greater than 5.0 mg/l;
(C)Neutral pH ranging between 7.0 and 8.2;
(D)Conductivity less than 0.7 mS/cm and salinity less than 1 ppt;
(E)Ammonia levels less than 0.4 mg/l; and
(F)No or minimal pollutant levels for copper, arsenic, mercury, and cadmium; human and animal waste products; pesticides; fertilizers; suspended sediments; petroleum compounds and gasoline or diesel fuels.
(iii)An abundant aquatic food base consisting of algae attached to stream substrates and other associated microorganisms.
(iv)An aquatic stream habitat either devoid of nonnative aquatic species (including fish, plants, and invertebrates) or in which such nonnative aquatic species are at levels that allow for healthy populations of Devils River minnows.
(v)Areas within stream courses that may be periodically dewatered for short time periods, during seasonal droughts, but otherwise as connective corridors between occupied or seasonally occupied areas through which the species moves when the area is wetted.
(3)Critical habitat does not include manmade structures (such as buildings, aqueducts, airports, roads, and other paved areas) and the land on which they are located existing on the effective date of this rule and not containing one or more of the primary constituent elements.
(4)*Critical habitat map units.* Data layers defining map units were created in ArcGIS using the National Hydrography Dataset and 7.5' topographic quadrangle maps obtained from U.S. Geological Survey to approximate stream channels and calculate distances (stream km and stream mi). We made some minor adjustments to stream channels using the 2004 National Agriculture Imagery Program digital orthophotos obtained from the Texas Natural Resources Information System. For each critical habitat unit, the upstream and downstream boundaries are described as paired geographic coordinates X, Y (meters E, meters N, UTM Zone 14, referenced to North American Horizontal Datum 1983). Additionally, critical habitat areas include the stream channels within the identified stream reaches and areas within these reaches up to the bankfull width.
(5)Note: Overview of critical habitat units for the Devils River minnow (Map 1) follows: BILLING CODE 4310-55-P EP31JY07.000
(6)Unit 1: Devils River Unit, Val Verde County, Texas.
(i)Unit 1 consists of approximately 43.6 stream km (27.1 stream mi) of the Devils River; 1.1 stream km (0.7 stream mi) of Phillips Creek; and 2.3 stream km (1.4 stream mi) of Dolan Creek. The upstream boundary on the Devils River is at Pecan Springs (UTM 289432E, 3327875W). The downstream boundary on the Devils River is 3.6 stream km (2.2 stream mi) below Dolan Falls (UTM 306454E, 3304426N). Phillips Creek is included from the confluence with the Devils River to a point 1.1 stream km (0.7 stream mi) upstream (UTM 295544E, 3316112N). Dolan Creek is included from the confluence with the Devils River to a point 2.3 stream km (1.4 stream mi) upstream to Dolan Springs (UTM 308084E, 3309223N). Including all three streams, the total distance in Unit 1 is approximately 47.0 stream km (29.2 stream mi).
(ii)Note: Map of Unit 1, Devils River Unit, (Map 2) follows: EP31JY07.001
(7)Unit 2: San Felipe Creek Unit, Val Verde County, Texas.
(i)Unit 2 consists of approximately 7.9 stream km (4.9 stream mi) on San Felipe Creek; 0.8 stream km (0.5 stream mi) of the outflow of San Felipe Springs West; and 0.3 stream km (0.2 stream mi) of the outflow of San Felipe Springs East. The upstream boundary on San Felipe Creek is the Head Springs (UTM 318813E, 3253702N) located about 1.1 stream km (0.7 stream mi) upstream of the Jap Lowe Bridge crossing. The downstream boundary on San Felipe Creek is in the City of Del Rio 0.8 stream km (0.5 stream mi) downstream of the Academy Street Bridge crossing (UTM 316317E, 3248147N). This unit includes the outflow channels from the origin of the two springs, San Felipe Springs West (UTM 317039E, 3250850N) and San Felipe Springs East (UTM 317212E, 250825N), downstream to the confluence with San Felipe Creek. Including all three streams, the total distance in Unit 2 is approximately 9.0 stream km (5.6 stream mi).
(ii)Note: Map of Unit 2, San Felipe Creek Unit, (Map 3) follows: EP31JY07.002
(8)Unit 3: Pinto Creek Unit, Kinney County, Texas.
(i)Unit 3 consists of approximately 17.5 stream km (10.9 stream mi) on Pinto Creek. The upstream boundary is Pinto Springs (UTM 359372E, 3254422N). The downstream boundary is 100 m (330 ft) upstream of the Highway 90 Bridge crossing of Pinto Creek (UTM 351163E, 3246179N).
(ii)Note: Map of Unit 3, Pinto Creek Unit, (Map 4) follows: EP31JY07.003 Dated: July 19, 2007. Todd Willens, Acting Assistant Secretary for Fish and Wildlife and Parks. [FR Doc. 07-3678 Filed 7-30-07; 8:45 am]
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  • 18 CFR 33
  • Pub. L. 109-58
  • 119 Stat. 594
  • 17 CFR 240.13
  • 5 CFR 1320
  • 5 USC 601-12
  • 16 USC 791a-825r
  • 42 USC 7101-7352
  • 18 CFR 35
  • 954 F.2d 779
  • 506 U.S. 981
  • 20 CFR 404
  • 20 CFR 405
  • 20 CFR 416
  • 26 CFR 1
  • Rev. Proc. 92-25
  • Rev. Rul. 81-225
  • Rev. Rul. 82-55
  • T.D. 9185
  • Rev. Rul. 2005-7
  • Rev. Rul. 2007-7
  • Rev. Rul. 2003-92
  • 33 CFR 334
  • 40 Stat. 266
  • 40 Stat. 892
  • Pub. L. 96-354
  • Pub. L. 104-4
  • 40 CFR 52
  • 472 F.3d 882
  • 375 F.3d 537
  • 285 F.3d 63
  • 40 CFR 93
  • 40 CFR 50
  • 40 CFR 58
  • 265 F.3d 426
  • 144 F.3d 984
  • 40 CFR 93.118(e)(4)
  • 40 CFR 93.118(f)
  • 40 CFR 93.118(f)(1)
  • 40 CFR 93.118(f)(2)
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C.F.R.§ 366.4
U.S.C.§ 3507
C.F.R.§ 380.4
U.S.C.§ 632
F. App'x954 F.2d 779
SCOTUS506 U.S. 981
F. App'x472 F.3d 882
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