Unknown. Final rule

53,325 words·~242 min read·/register/2007/08/02/07-3754

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

--- schema: federal-register doc_type: fedreg source_file: FR-2007-08-02.xml --- 72 148 Thursday, August 2, 2007 Contents Agriculture Agriculture Department See Animal and Plant Health Inspection Service See Food Safety and Inspection Service See Forest Service See Rural Utilities Service NOTICES Agency information collection activities; proposals, submissions, and approvals, 42370 E7-15010 Animal Animal and Plant Health Inspection Service PROPOSED RULES Exportation and importation of animals and animal products:

Noncompetitive entertainment horses from countries affected with contagious equine metritis; temporary importation, 42318-42326 E7-14994 NOTICES Agency information collection activities; proposals, submissions, and approvals, 42370-42373 E7-14988 E7-15008 E7-15009 Environmental statements; availability, etc.: Nonregulated status determinations— Monsanto Co.; soybean genetically engineered for glyphosate herbicide tolerance, 42373-42375 E7-15001 Meetings: Foreign Animal and Poultry Diseases, Secretary's Advisory Committee, 42375 E7-14987 Centers Centers for Disease Control and Prevention NOTICES Agency information collection activities; proposals, submissions, and approvals, 42413-42415 E7-15020 E7-15027 Centers Centers for Medicare & Medicaid Services RULES Medicare:

Ambulatory surgical centers; 2007 CY; revised payment system policies, 42470-42626 07-3490 PROPOSED RULES Medicare: Hospital outpatient prospective payment system and 2008 CY payment rates; ambulatory service center procedures, 42628-43129 07-3509 Civil Civil Rights Commission NOTICES Meetings; State advisory committees: Illinois, 42381-42382 E7-15028 Coast Guard Coast Guard RULES Drawbridge operations: Maryland, 42306-42307 E7-14936 Ports and waterways safety; regulated navigation areas, safety zones, security zones, etc.:

New River, Jacksonville, NC, 42307-42309 E7-14939 Vessel documentation and measurement: Instrument recording, 42310-42313 E7-14938 Commerce Commerce Department See Foreign-Trade Zones Board See International Trade Administration See National Oceanic and Atmospheric Administration Commodity Commodity Futures Trading Commission RULES National Futures Association decisions in disciplinary, membership, registration, and member responsibility actions: Service by facsimile

(fax)or electronic means (email), 42276-42277 E7-14922 Corporation Corporation for National and Community Service NOTICES Agency information collection activities; proposals, submissions, and approvals, 42401-42402 E7-14944 Defense Defense Acquisition Regulations System RULES Acquisition regulations: Berry Amendment notification requirement, 42315 E7-14904 Berry Amendment restrictions; clothing materials and components covered, 42315-42316 E7-14898 Limitations on tiered evaluation of offers, 42313-42315 E7-14906 Technical amendments, 42313 E7-14897 PROPOSED RULES Acquisition regulations: Cost-reimbursement contracts for services; payments, 42366-42367 E7-14921 Item identification and valuation clause update, 42367-42369 E7-14896 Defense Defense Department See Defense Acquisition Regulations System RULES Protection of archaeological resources; uniform regulations; CFR part reinstated, 42298-42306 E7-14811 NOTICES Meetings: National Security Education Board Group of Advisors, 42402 07-3763 Education Education Department NOTICES Agency information collection activities; proposals, submissions, and approvals, 42402-42403 E7-15016 Meetings: Reading First Advisory Committee, 42403 07-3758 Employment Employment and Training Administration NOTICES Adjustment assistance; applications, determinations, etc.: Circa 1801 Doblin, 42432-42433 E7-15006 Maytag Corp., 42434 E7-15002 Freightliner et al., 42430-42431 E7-14996 Independent Steel Castings Co., 42431-42432 E7-14998 International Automotive Components Group, 42433 E7-15004 Joan Fabrics Corp., 42432 E7-14995 E7-14997 Mastercraft Fabrics, LLC, 42433-42434 E7-15003 McCormick & Co., Inc., 42434 E7-15000 Performance Machine et al., 42435-42436 E7-15007 Visteon Systems, LLC, 42436-42437 E7-15005 Wyeth Pharmaceuticals, 42437 E7-14999 Aliens; permanent employment in U.S.; labor certification: Potential non-compliance reports receipt; e-mail address establishment, 42437 E7-14989 Energy Energy Department See Federal Energy Regulatory Commission EPA Environmental Protection Agency PROPOSED RULES Air quality implementation plans; approval and promulgation; various States; air quality planning purposes; designation of areas: Georgia, 42354-42363 E7-14983 Air quality implementation plans; approval and promulgation; various States: Florida, 42344-42347 E7-14981 Georgia, 42347-42354 E7-15055 NOTICES Agency information collection activities; proposals, submissions, and approvals, 42409-42411 E7-14984 Executive Executive Office of the President See Management and Budget Office See Trade Representative, Office of United States FAA Federal Aviation Administration RULES Airworthiness standards: Special conditions— Centex Aerospace, Inc.; Cirrus Design Corp. Model SR22 airplane, 42274-42276 E7-14933 PROPOSED RULES Airworthiness directives: Boeing, 42326-42328 E7-15025 Empresa Brasileira de Aeronautica S.A. (EMBRAER), 42328-42330 E7-15026 NOTICES Aeronautical land-use assurance; waivers: Orlando Executive Airport, FL, 42464-42465 07-3756 FBI Federal Bureau of Investigation NOTICES Agency information collection activities; proposals, submissions, and approvals, 42429 E7-14951 Federal Energy Federal Energy Regulatory Commission RULES Electric utilities (Federal Power Act): Section 203 transactions; supplemental policy statement, 42277-42290 E7-14956 PROPOSED RULES Practice and procedure: Filing via Internet, 42330-42335 E7-14724 NOTICES Electric rate and corporate regulation combined filings, 42406-42408 E7-14957 Off-the record communications, 42409 E7-14958 *Applications, hearings, determinations, etc.:* ArcLight Energy Marketing, LLC, 42403-42404 E7-14962 Barclays Capital Energy, Inc., 42404 E7-14964 Glacial Energy of Maryland, Inc., 42404-42405 E7-14961 Glacial Ridge Wind Power LLC et al., 42408-42409 E7-14960 Leaf River Energy Center LLC, 42405-42406 E7-14959 UNS Electric, Inc., 42406 E7-14963 Windy Hill Gas Storage, LLC, 42406 E7-14965 Federal Reserve Federal Reserve System NOTICES Banks and bank holding companies: Change in bank control, 42411 E7-14903 Formations, acquisitions, and mergers, E7-14902 42411-42412 E7-14979 Fish Fish and Wildlife Service NOTICES Endangered and threatened species: Louisiana black bear, etc.; 5-year reviews, 42425-42426 E7-15023 Recovery plans— Vermilion darter, 42426-42427 E7-15024 Endangered and threatened species permit applications, determinations, etc., 42424-42425 E7-15015 Food Food and Drug Administration RULES Animal drugs, feeds, and related products: Emodepside and praziquantel, 42291 E7-14945 Oxytetracycline hydrochloride injection, 42290-42291 E7-14950 NOTICES Reports and guidance documents; availability, etc.: Animal drug user fee rates and payment procedures for

(FY)2008, 42415-42419 07-3782 Food Food Safety and Inspection Service NOTICES Meetings: Meat and Poultry Inspection National Advisory Committee, 42375-42376 07-3783 MISSING FOR: Foreign-Trade Zones Board Foreign-Trade Zones Board NOTICES *Applications, hearings, determinations, etc.:* Puerto Rico Merck Sharpe & Dohme Quimica De Puerto Rico, Inc.; pharmaceutical manufacturing facility, 42382 E7-15030 Forest Forest Service NOTICES Environmental statements; notice of intent: Colville National Forest, WA, 42376-42378 07-3771 Meetings: Resource Advisory Committees— Glenn/Colusa County, 42378 07-3765 Siskiyou County, 42378 07-3772 Reports and guidance documents; availability, etc.: Continental Divide National Scenic Trail; policy directive, 42378-42381 07-3770 Health Health and Human Services Department See Centers for Disease Control and Prevention See Centers for Medicare & Medicaid Services See Food and Drug Administration See Health Resources and Services Administration See Substance Abuse and Mental Health Services Administration NOTICES Agency information collection activities; proposals, submissions, and approvals, 42412 E7-14978 Reports and guidance documents; availability, etc.: American Health Information Community Successor White Paper; implementation, 42412-42413 07-3768 Health Health Resources and Services Administration NOTICES Agency information collection activities; proposals, submissions, and approvals, 42419-42420 E7-14928 Meetings: Rural Health and Human Services National Advisory Committee, 42420 E7-14927 Homeland Homeland Security Department See Coast Guard Housing Housing and Urban Development Department NOTICES Agency information collection activities; proposals, submissions, and approvals, E7-14940 42422-42423 E7-14941 Privacy Act; systems of records, 42423-42424 E7-14942 Interior Interior Department See Fish and Wildlife Service See Land Management Bureau See Reclamation Bureau IRS Internal Revenue Service RULES Estate and gift taxes: Generation-skipping transfer tax purposes; qualified severance of trust, 42291-42298 E7-14852 PROPOSED RULES Estate and gift taxes: Generation-skipping transfer tax purposes; severance of trust, 42340-42344 E7-14850 Income taxes: Type III supporting organizations that are not functionally integrated; payout requirements, 42335-42339 E7-14925 International International Trade Administration NOTICES Antidumping: Ball bearings and parts from— Germany, 42385-42386 E7-15031 Brake rotors from— China, 42386-42390 E7-15037 Fresh garlic from— China, 42390 E7-14919 Fufuryl alcohol from— Thailand, 42390-42392 07-3764 Hand trucks and parts from— China, 42392-42393 E7-14923 Silicomanganese from— Various countries, 42393-42395 E7-14947 Stainless steel bar from— Spain, 42395-42396 E7-15039 Wooden bedroom furniture from— China, 42396-42398 E7-14953 Antidumping and countervailing duties: Administrative review requests, 42383-42384 E7-14948 Five year (sunset) reviews— Advance notification, 42382-42383 07-3767 Honey from— Argentina and China, 42384-42385 E7-14918 Countervailing duties: Circular welded carbon quality steel pipe from— China, 42399 E7-15032 Hot-rolled carbon steel products from— India, 42399-42400 E7-15017 Tariff rate quotas: Cotton shirting fabric, 42400 E7-15035 *Applications, hearings, determinations, etc.:* Methodist Hospitals of Dallas et al., 42398-42399 E7-14926 Justice Justice Department See Federal Bureau of Investigation See Justice Programs Office Justice Justice Programs Office NOTICES Agency information collection activities; proposals, submissions, and approvals, 42429-42430 E7-14949 Labor Labor Department See Employment and Training Administration Land Land Management Bureau NOTICES Alaska Native claims selection: Doyon, Ltd., 42427 E7-15019 Meetings: Resource Advisory Councils— Northwest California, 42427-42428 07-3766 Legal Legal Services Corporation PROPOSED RULES Aliens; legal assistance restrictions: Negotiated Rulemaking Working Group solicitations; withdrawn; legal assistance to citizens of Micronesia, Marshall Islands, and Palau residing in U.S., 42363-42366 E7-15043 Management Management and Budget Office NOTICES Reports and guidance documents; availability, etc.: Federal financial assistance-related forms amended to include universal identifier, 42444-42445 E7-15044 National Credit National Credit Union Administration RULES Credit unions: Records preservation program and appendices; record retention guidelines; catastrophic act preparedness guidelines, 42271-42274 E7-14851 NOAA National Oceanic and Atmospheric Administration RULES Ocean and coastal resource management: Marine sanctuaries— Channel Islands National Marine Sanctuary, CA; correction, 42316-42317 07-3754 PROPOSED RULES Fishery conservation and management: Alaska; fisheries of Exclusive Economic Zone— Bering Sea and Aleutian Islands groundfish, crab, salmon, and scallop; correction, 42369 E7-15045 NOTICES Endangered and threatened species permit applications, determinations, etc., 42401 E7-15050 Grants and cooperative agreements; availability, etc.: Monkfish Research Set-Aside Program, 42400-42401 E7-14934 Nuclear Nuclear Regulatory Commission NOTICES Environmental statements; availability, etc.: Entergy Nuclear Operations, Inc., 42440 E7-15051 Michigan Environmental Quality Department, 42440-42442 E7-15040 Regulatory guides; issuance, availability, and withdrawal, 42442 E7-15036 Reports and guidance documents; availability, etc.: Materials licensing program consolidated guidance— medical use licenses, 42442-42444 E7-15049 *Applications, hearings, determinations, etc.:* Tennessee Valley Authority, 42437-42438 E7-15047 University of Pittsburgh, 42438-42440 E7-15046 Office Office of Management and Budget See Management and Budget Office Office of U.S. Trade Office of United States Trade Representative See Trade Representative, Office of United States Postal Postal Service NOTICES Meetings; Sunshine Act, 42445 07-3785 Reclamation Reclamation Bureau NOTICES Environmental statements; notice of intent: San Joaquin River Restoration Program, CA, 42428-42429 E7-15029 RUS Rural Utilities Service NOTICES Agency information collection activities; proposals, submissions, and approvals, 42381 E7-14974 Environmental statements; availability, etc.: Norborne Baseload Plant, MO; correction, 42467 Z7-13299 SEC Securities and Exchange Commission NOTICES Investment Company Act of 1940: BISYS Group, Inc., et al., 42449-42450 E7-15022 HealthShares, Inc., et al., 42447-42449 E7-15021 Portico Funds, Inc., et al., 42445-42447 E7-14913 Self-regulatory organizations; proposed rule changes: Boston Stock Exchange, Inc., 42450-42452 E7-14915 International Securities Exchange, LLC, 42452-42453 E7-14916 New York Stock Exchange LLC, 42453-42459 E7-14914 E7-14990 E7-14993 NYSE Arca, Inc., E7-14991 42459-42462 E7-14992 SBA Small Business Administration NOTICES Disaster loan areas: Kansas, 42462 E7-14976 Missouri, 42462 E7-14970 Nebraska, 42462-42463 E7-15042 New York, 42463 E7-15038 North Dakota, 42463 E7-14968 Oklahoma, 42463-42464 E7-14969 Texas, 42464 E7-14967 State State Department NOTICES Culturally significant objects imported for exhibition: Taddeo and Federico Zuccaro, 42464 E7-15041 Substance Substance Abuse and Mental Health Services Administration NOTICES Agency information collection activities; proposals, submissions, and approvals, 42420-42422 E7-14985 07-3769 Surface Surface Transportation Board NOTICES Railroad operation, acquisition, construction, etc.: Norfolk Southern Railway Co., 42465-42466 E7-14975 Trade Trade Representative, Office of United States NOTICES North American Free Trade Agreement (NAFTA): Mexico; warehouse goods entered or withdrawn from warehouse for consumption; effective date, 42445 E7-15034 Transportation Transportation Department See Federal Aviation Administration See Surface Transportation Board Treasury Treasury Department See Internal Revenue Service Separate Parts In This Issue Part II Health and Human Services Department, Centers for Medicare & Medicaid Services, 42470-42626 07-3490 Part III Health and Human Services Department, Centers for Medicare & Medicaid Services, 42628-43129 07-3509 Reader Aids Consult the Reader Aids section at the end of this issue for phone numbers, online resources, finding aids, reminders, and notice of recently enacted public laws. To subscribe to the Federal Register Table of Contents LISTSERV electronic mailing list, go to http://listserv.access.gpo.gov and select Online mailing list archives, FEDREGTOC-L, Join or leave the list (or change settings); then follow the instructions. 72 148 Thursday, August 2, 2007 Rules and Regulations NATIONAL CREDIT UNION ADMINISTRATION 12 CFR Parts 748 and 749 RIN 3133-AD24 Records Preservation Program and Appendices—Record Retention Guidelines; Catastrophic Act Preparedness Guidelines AGENCY: National Credit Union Administration (NCUA). ACTION: Final rule. SUMMARY: NCUA is issuing a final rule to amend its regulations regarding a federally-insured credit union's obligation to maintain a records preservation program. The final rule clarifies the meaning of catastrophic act and the requirements for preserving vital records. The agency also provides a new Appendix B that offers guidelines for developing a program to prepare for a catastrophic act. NCUA believes the revised rule language and new appendix will facilitate the recovery of essential operations after a catastrophic act resulting in continued member confidence in the credit union system. DATES: This rule is effective September 4, 2007. FOR FURTHER INFORMATION CONTACT: Andrew Healey, Program Officer, Division of Supervision, Office of Examination and Insurance, at

(703)518-6360 or Linda K. Dent, Staff Attorney, Office of General Counsel, at

(703)518-6540. SUPPLEMENTARY INFORMATION: Background On March 15, 2007, the NCUA Board (Board) requested comments on proposed amendments to parts 748 and 749 addressing catastrophic act events, vital records preservation, and vital member services restoration. The agency's previous experiences with catastrophic acts underscored the importance of preserving vital records and swiftly restoring vital member services. In particular, NCUA's review of events in the aftermath of hurricanes Katrina and Rita demonstrated the need for advance planning and preparation to respond to a catastrophic act successfully. In reviewing these experiences, the Board determined the most immediate issues for credit unions and their members concerned access to funds and account information, access to facilities, and locating and communicating with staff. The proposed amendments drew from these experiences to identify program elements the Board considered essential to restoring vital records and member services. While many of these elements are covered in previous NCUA guidance issued to federally-insured credit unions on disaster recovery planning, the Board wants to ensure that credit unions are maintaining sufficient plans and safeguards to preserve vital records. The Board believes the regulatory changes are necessary to ensure credit unions establish certain minimum standards for preserving vital records. The Board also believes the recommendations and guidance offered, concerning restoring vital member services and development of a program to prepare for a catastrophic act, provide important information about maintaining member services and confidence in the credit union system if a catastrophic act occurs. Summary of Comments The Board received twelve comments on the proposed regulation: Four from natural person credit unions, one corporate credit union, two national trade associations, and five state trade associations. While all commenters generally supported the overall purpose of the proposed changes, about half of them offered recommendations on the definitions for catastrophic act, vital member services, and vital records, and the proposed new Appendix B to Part 749. Comments for these items were mixed and are discussed in further detail below. Section 748.1(b). Catastrophic Act Report The Board proposed to revise the definition of catastrophic act to include any event, natural or otherwise, causing an interruption in vital member services for more than two business days. Seven commenters recommended additional changes: Four commenters believe the definition should clarify what constitutes a business day; two commenters suggested including cross-references to relevant definitions in parts 748 and 749; and one commenter felt the definition of catastrophic act should focus only on whether a loss of vital member services has occurred without regard to whether physical damage has occurred. Section 748.1(b) previously required a credit union to file a report when a catastrophic act caused physical damage to its facilities. The proposed rule retained this requirement but added that a catastrophic act would include an interruption in vital member services lasting for more than two consecutive business days, regardless of whether physical damage is present. In the final rule, the Board has substituted the word “disaster” for “event” and added the word “causing” before “an interruption” to address concerns that relatively minor events could be construed to trigger the need to file a report and, also, clarifying the causal link between a disaster and an interruption in vital member services. The Board believes these changes are consistent with the usual and customary meaning of the word catastrophe. These changes also reinforce the Board's view that the reporting requirement applies only to a disaster as opposed to a circumstance where physical damage or a business closing occurs but is not disaster-related. The Board believes adding a definition of business day is unnecessary and could be cumbersome because the hours and days of operations vary significantly among credit unions. The word “consecutive” has been added to the regulation so the requirement to submit a report due to an interruption in vital member services caused by a disaster will be triggered when the interruption is “projected to last more than two consecutive business days.” Two consecutive business days means full consecutive days on which a credit union would normally be open for business. For example, if a credit union, normally operating Monday through Friday from 9 a.m. to 5 p.m., shuts early on Thursday because a hurricane has caused a loss of power, the credit union must file a report only if it is unable to provide vital member services, through any of its delivery channels, by 9:00 am on Tuesday. Finally, as suggested in the comments, the Board also included a cross-reference to the definition of vital member services in part 749. Part 749 Vital Member Services Six commenters generally supported the proposed definition, while two of the commenters addressing this subject suggested including a clarification that vital member services can be provided by any means or delivery channel. The Board believes the additional clarification is unnecessary as the final rule does not restrict the manner in which vital member services are provided. Vital Records Eight commenters provided comments on the proposed definition: Four were in support of the proposed change and four recommended changes. Two of the recommendations, one from a national trade association and the other from a state trade association, expressed concern about the rule's impact on small, non-automated credit unions and recommended flexibility, or exemption, for such institutions. The Board is not persuaded an exemption for small credit unions is warranted; this is discussed below in the section on the Regulatory Flexibility Act. Another recommendation suggested the Board include the general ledger as a vital record. This is unnecessary because the content of the general ledger is contained in the records designated as vital; the Board notes credit unions are free to classify additional records as vital if they choose. As proposed, vital records is defined to include a “list of share, deposit, and loan balances for each member's account as of the most recent business day,” and another recommendation was that the phrase “as of the most recent business day” would be clearer if the word “completed” were added before “business” or the phrase “day of normal operations” was substituted for “business day.” To clarify, the Board has revised the phrase to read “as of the close of the most recent business day.” This means the credit union must have this record as of the close of the most recent day the credit union was open for business. The Board is aware of some concern about the level of detail required in the records log, particularly where records may be stored in an electronic format and various individuals may be involved in scanning paper records for storage. This provision is re-worded slightly in the amendment but substantively unchanged from previous requirements; the Board believes recording this information is not unduly burdensome and ensures accountability for this important function. The log can take various forms, for example, a data processing system log. Where various persons may be involved in preparing records for storage, whether in an electronic format or otherwise, the log should identify who is responsible, as stated in the regulation, for “sending the record to storage.” Appendix B—Catastrophic Act Preparedness Guidelines Nine commenters expressed an opinion on whether to include a new Appendix B in the regulation: Three supported including it and six recommended against it. Five of the six commenters that opposed including the appendix felt sufficient guidance already existed. One of these five, a national trade association, also expressed a concern that including the appendix and other recommendations in the regulation would cause examiners and credit union staff to misconstrue the guidance as being enforceable like a regulation. The sixth commenter felt it would be more appropriate to integrate the guidance into the regulation. The Board has weighed the fact the guidance is available from other sources and the potential for confusion regarding enforceability of a regulation versus guidance. The Board believes the benefit to credit unions in having the guidance in proximity to the regulatory requirement will enhance access to the guidance and will facilitate compliance. The Board believes including specific words like “recommended” and “guidance” means, as a legal matter, that the guidance is just that—guidance—and is not enforceable as a regulation. These words clarify and minimize, to the extent linguistically possible, the potential for misinterpretation. NCUA, as a matter of its supervisory obligation to protect the interests of credit union members and the National Credit Union Share Insurance Fund, offers guidance to help federally-insured credit unions meet their obligation to protect their operations. Federally-insured credit unions may choose to meet this obligation through other alternatives appropriate for their operations. Regulatory Procedures Regulatory Flexibility Act The Regulatory Flexibility Act requires NCUA to prepare an analysis to describe any significant economic impact a proposed rule may have on a substantial number of small credit unions (those under $10 million in assets). This proposed rule modifies a preexisting requirement for federally-insured credit unions to file reports of catastrophic acts and to have a vital records preservation program. The requirement to maintain vital records as of the most recent business day versus the existing month-end requirement may pose some burden for non-automated credit unions. There are approximately 122 non-automated credit unions or approximately 3.3% of all small credit unions. The NCUA has determined and certifies that this proposed rule, if adopted, will not have a significant economic impact on a substantial number of small credit unions. Accordingly, the NCUA has determined that an RFA analysis is not required. Paperwork Reduction Act The changes involve information collection requirements. As required by the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)), NCUA submitted a copy of the proposed rule as part of an information collection package to the Office of Management and Budget

(OMB)for its review. OMB has approved this collection as a revision to an existing collection, OMB Control Number 3133-0032. Executive Order 13132 Executive Order 13132 encourages independent regulatory agencies to consider the impact of their regulatory actions on state and local interests. In adherence to fundamental federalism principles, NCUA, an independent regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies with the executive order. This proposed rule, if adopted, will not have substantial direct effects on the states, on the relationship between the national government and states, or on the distribution of power and responsibilities among the various levels of government. NCUA has determined the proposed rule does not constitute a policy that has federalism implications for purposes of the executive order. Treasury and General Government Appropriations Act, 1999 NCUA has determined that the proposed rule will not affect family well-being within the meaning of section 654 of the Treasury and General Appropriations Act, 1999, Public Law 105-277, 112 Stat. 2681 (1998). List of Subjects 12 CFR Part 748 Credit Unions, Reporting and record keeping requirements. 12 CFR Part 749 Credit Unions, Reporting and record keeping requirements. By the National Credit Union Administration Board on July 26, 2007. Mary Rupp, Secretary of the Board. For the reasons set forth in the preamble, the Board amends 12 CFR parts 748 and 749 as set forth below. Accordingly, NCUA amends 12 CFR parts 748 and 749 as follows: PART 748—SECURITY PROGRAM, REPORT OF SUSPECTED CRIMES, SUSPICIOUS TRANSACTIONS, CATASTROPHIC ACTS AND BANK SECRECY ACT COMPLIANCE 1. The authority citation for part 748 continues to read as follows: Authority: 12 U.S.C. 1766(a) and 1786(q); 15 U.S.C. 6801 and 6805(b); 31 U.S.C. 5311 and 5318. 2. Amend § 748.1 by revising the second sentence of paragraph

(b)to read as follows: § 748.1 Filing of reports.

(b)* * * A catastrophic act is any disaster, natural or otherwise, resulting in physical destruction or damage to the credit union or causing an interruption in vital member services, as defined in § 749.1 of this chapter, projected to last more than two consecutive business days. * * * PART 749—RECORDS PRESERVATION PROGRAM AND APPENDICES—RECORD RETENTION GUIDELINES; CATASTROPHIC ACT PREPAREDNESS GUIDELINES 1. The authority citation for part 749 continues to read as follows: Authority: 12 U.S.C. 1766, 1783 and 1789; 15 U.S.C. 7001(d). 2. Amend part 749 by revising the part heading as set forth above. 3. Revise § 749.0 to read as follows: § 749.0 Purpose and scope.

(a)This part describes the obligations of all federally-insured credit unions to maintain a records preservation program to identify, store and reconstruct vital records in the event that the credit union's records are destroyed and provides recommendations for restoring vital member services. All credit unions must have a written program that includes plans for safeguarding records and reconstructing vital records. To complement these plans, it is recommended a credit union develop a method for restoring vital member services in the event of a catastrophic act as defined in § 748.1(b) of this chapter. Additionally, the regulation establishes flexibility in the format credit unions may use for maintaining writings, records or information required by other NCUA regulations.

(b)Appendix A to this part provides guidance concerning the appropriate length of time credit unions should retain various types of operational records. Appendix B to this part also provides guidance for developing a program for responding to a catastrophic act to ensure duplicate vital records can be used for restoration of vital member services. 4. Revise § 749.1 to read as follows: § 749.1 Definitions. For purposes of this part: *Vital member services* mean informational account inquiries, share withdrawals and deposits, and loan payments and disbursements. *Vital records* refer to the following records:

(a)A list of share, deposit, and loan balances for each member's account as of the close of the most recent business day that:

(1)Shows each balance individually identified by a name or number;

(2)Lists multiple loans of one account separately; and

(3)Contains information sufficient to enable the credit union to locate each member, such as address and telephone number.

(b)A financial report, which lists all of the credit union's asset and liability accounts and bank reconcilements, current as of the most recent month-end.

(c)A list of the credit union's accounts at financial institutions, insurance policies, and investments along with related contact information, current as of the most recent month-end.

(d)Emergency contact information for employees, officials, regulatory offices, and vendors used to support vital records. 5. Revise § 749.2 to read as follows: § 749.2 Vital records preservation program. The board of directors of a credit union is responsible for establishing a vital records preservation program within 6 months after its insurance certificate is issued. The program must be in writing and contain procedures for maintaining duplicate vital records at a vital records center. The procedures must include: designated staff responsible for vital records preservation, a schedule for the storage and destruction of records, and a records preservation log detailing for each record stored, its name, storage location, storage date, and name of the person sending the record for storage. It is recommended credit unions include in these procedures a method for using duplicate records to restore vital member services in the event of catastrophic act. Credit unions which have some or all of their records maintained by an off-site data processor are considered to be in compliance for the storage of those records if the service agreement specifies the data processor safeguards against the simultaneous destruction of production and back-up information. 6. Revise § 749.3 to read as follows: § 749.3 Vital records center. A vital records center is defined as a storage facility, which may include another federally-insured credit union, at any location far enough from the credit union's offices to avoid the simultaneous loss of both sets of records in the event of a catastrophic act. A credit union must maintain or contract with a third party to maintain any equipment or software for its vital records center necessary to access records. 7. Revise § 749.4 to read as follows: § 749.4 Format for vital records preservation. Preserved records may be in any format that can be used to reconstruct the credit union's records. The format used must accurately reflect the information in the record, remain accessible to all persons entitled to access by statute, regulation or rule of law, and be capable of reproduction by transmission, printing, or otherwise. 8. Revise § 749.5 to read as follows: § 749.5 Format for records required by other NCUA regulations. Where NCUA regulations require credit unions to retain certain writings, records or information, credit unions may use any format that accurately reflects the information in the record, is accessible to all persons entitled to access by statute, regulation or rule of law, and is capable of being reproduced by transmission, printing, or otherwise. The credit union must maintain the necessary equipment or software to permit an examiner to access the records during the examination process. 9. Add new Appendix B to part 749 to read as follows: Appendix B to Part 749—Catastrophic Act Preparedness Guidelines Credit unions often look to NCUA for guidance on preparing for a catastrophic act. While NCUA has minimal regulation in this area, 1 as an aid to credit unions it is publishing this appendix of suggested guidelines. It is recommended that all credit unions develop a program to prepare for a catastrophic act. The program should be developed with oversight and approval of the board of directors. It is recommended the program address the following five elements: 1 See 12 CFR 748.1(b) concerning a FICU's reporting of any catastrophic act that occurs at its office to its regional director and 12 CFR 749.3 concerning the location of a FICU's vital records center to avoid the simultaneous loss of both sets of records in the event of disaster.

(1)A business impact analysis to evaluate potential threats;

(2)A risk assessment to determine critical systems and necessary resources;

(3)A written plan addressing: i. Persons with authority to enact the plan; ii. Preservation and ability to restore vital records; iii. A method for restoring vital member services through identification of alternate operating location(s) or mediums to provide services, such as telephone centers, shared service centers, agreements with other credit unions, or other appropriate methods; iv. Communication methods for employees and members; v. Notification of regulators as addressed in 12 CFR 748.1(b); vi. Training and documentation of training to ensure all employees and volunteer officials are aware of procedures to follow in the event of destruction of vital records or loss of vital member services; and vii. Testing procedures, including a means for documenting the testing results.

(4)Internal controls for reviewing the plan at least annually and for revising the plan as circumstances warrant, for example, to address changes in the credit union's operations; and

(5)Annual testing. [FR Doc. E7-14851 Filed 8-1-07; 8:45 am] BILLING CODE 7535-01-P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 23 [Docket No. CE261; Special Conditions No. 23-201-SC] Special Conditions: Centex Aerospace, Inc.; Cirrus Design Corporation Model SR22; Installation of a Full Authority Digital Engine Control (FADEC) Engine AGENCY: Federal Aviation Administration (FAA), DOT. ACTION: Final special conditions; request for comments. SUMMARY: These special conditions are issued for the Cirrus Design Corporation, Model SR22 airplane as modified by Centex Aerospace, Inc. This airplane as modified by Centex Aerospace, Inc. will have a novel or unusual design feature(s) associated with the installation of a full authority digital engine control (FADEC) engine. The applicable airworthiness regulations do not contain adequate or appropriate safety standards for this design feature. These special conditions contain the additional safety standards that the Administrator considers necessary to establish a level of safety equivalent to that established by the existing airworthiness standards. DATES: The effective date of these special conditions is July 26, 2007. Comments must be received on or before September 4, 2007. ADDRESSES: Mail two copies of your comments to: Federal Aviation Administration, Regional Counsel, ACE-7, Attn: Rules Docket No. CE261, 901 Locust, Kansas City, MO 64106. You may deliver two copies to the Regional Counsel at the above address. Mark your comments: Docket No. CE261. You may inspect comments in the Rules Docket weekdays, except Federal holidays, between 7:30 a.m. and 4 p.m. FOR FURTHER INFORMATION CONTACT: Peter L. Rouse, Federal Aviation Administration, Small Airplane Directorate, Aircraft Certification Service, 901 Locust, Room 301, Kansas City, MO 64106; telephone

(816)329-4135; facsimile

(816)329-4090. SUPPLEMENTARY INFORMATION: The FAA has determined that notice and opportunity for prior public comment hereon are impracticable because these procedures would significantly delay issuance of the approval design and thus delivery of the affected aircraft. In addition, the substance of these special conditions has been subject to the public comment process in several prior instances with no substantive comments received. The FAA therefore finds that good cause exists for making these special conditions effective upon issuance. Comments Invited We invite interested people to take part in this rulemaking by sending written comments, data, or views. The most helpful comments reference a specific portion of the special conditions, explain the reason for any recommended change, and include supporting data. We ask that you send us two copies of written comments. We will file in the docket all comments we receive, as well as a report summarizing each substantive public contact with FAA personnel about these special conditions. You can inspect the docket before and after the comment closing date. If you wish to review the docket in person, go to the address in the ADDRESSES section of this preamble between 7:30 a.m. and 4 p.m., Monday through Friday, except Federal holidays. We will consider all comments we receive by the closing date for comments. We will consider comments filed late if it is possible to do so without incurring expense or delay. We may change these special conditions based on the comments we receive. If you want us to let you know we received your comments on these special conditions, send us a pre-addressed, stamped postcard on which the docket number appears. We will stamp the date on the postcard and mail it back to you. Background On, March 15, 2004, Centex Aerospace, Inc. applied for a supplemental type certificate for the Cirrus Model SR22 to install a full authority digital engine control in the Cirrus Model SR22. CenTex Aerospace, Inc. plans to install a Teledyne Continental Motors model IOF-550-N engine in a Cirrus Design Corporation Model SR-22 airplane. This type certified engine, approved under FAA Type Certificate E3SO; Revision 7, dated February 4, 2002, incorporates Full Authority Digital Electronic Controls (FADEC) fuel and ignition control system. Even though the engine control system is certificated as part of the engine and does not interface or share data with any of the airplane systems, the installation of an engine with an electronic control system requires evaluation due to critical environmental effects and possible effects on or by other airplane systems. For example, indirect effects of lightning, radio interference with other airplane electronic systems, shared engine and airplane data and power sources. The Cirrus SR 22 is currently approved under Type Certificate No. A00009CH. The Cirrus SR-22 is a 3,400 pound single-engine, four-place, fixed-gear airplane powered by a 310 hp reciprocating engine. It has a conventional tractor configuration and utilizes composites for the structure. Some unique features of the SR-22 include sidestick controls and a ballistic recovery system, and a single combination throttle/propeller control lever. The considerations for installation of digital electronic engine control systems were not envisaged and are not adequately addressed in 14 CFR part 23. The regulatory requirements in 14 CFR part 23 for evaluating the installation of complex systems, including electronic systems and critical environmental effects, are contained in § 23.1309. However, when § 23.1309 was developed, the use of highly airframe integrated electronic control systems for engines was not envisioned. Therefore, the § 23.1309 requirements were not applicable to systems certificated as part of the engine (reference § 23.1309(f)(1)). The parts of the system that are not certificated with the engine could be evaluated using the criteria of § 23.1309. However, the integral nature of systems such as these makes it unfeasible to evaluate the airplane portion of the system without including the engine portion of the system. Section 23.1309(f)(1) prevents complete evaluation of the installed airplane system since evaluation of the engine system's effects is not required. Type Certification Basis Under the provisions of § 21.101, Centex Aerospace, Inc. must show that the Cirrus Design Corporation Model SR22, as changed, continues to meet the applicable provisions of the regulations incorporated by reference in Type Certificate No. A00009CH, or the applicable regulations in effect on the date of application for the change. The regulations incorporated by reference in the type certificate are commonly referred to as the “original type certification basis.” The regulations incorporated by reference in Type Certificate No. A00009CH are as follows: Model SR22: Part 23 of the Federal Aviation Regulations effective February 1, 1965, as amended by 23-1 through 23-53, except as follows: 23.301 through Amendment 47 23.855, 23.1326, 23.1359, not applicable Federal Aviation Regulations 36 dated December 1, 1969, as amended by current amendment as of the date of type Certification. Equivalent Safety Items: Equivalent Levels of Safety finding (ACE-96-5) made per the provisions of 14 CFR part 23, § 23.221; Refer to FAA ELOS letter dated June 10, 1998 for models SR20, SR22. Equivalent Levels of Safety finding (ACE-00-09) made per the provisions of 14 CFR part 23, §§ 23.1143(g) and 23.1147(b); Refer to FAA ELOS letter dated September 11, 2000, for model SR22. Special Conditions: 23-ACE-88 for ballistic parachute 23-134-SC for protection of systems for High Intensity Radiated Fields

(HIRF)23-163-SC for inflatable restraint system In addition, if the regulations incorporated by reference do not provide adequate standards regarding the change, the applicant must comply with certain regulations in effect on the date of application for the change. If the Administrator finds that the applicable airworthiness regulations (i.e., 14 CFR part 23, § 23.1309) do not contain adequate or appropriate safety standards for the Model SR22 because of a novel or unusual design feature, special conditions are prescribed under the provisions of § 21.16. The FAA issues special conditions, as defined in § 11.19, under § 11.38 and they become part of the type certification basis under § 21.101. Special conditions are initially applicable to the model for which they are issued. Should the applicant apply for a supplemental type certificate to modify any other model included on the same type certificate to incorporate the same novel or unusual design feature, the special conditions would also apply to the other model. Novel or Unusual Design Features The Centex Aerospace, Inc. modified Cirrus Model SR22 will incorporate the following novel or unusual design features: An engine that includes an electronic control system with Full Authority Digital Engine control (FADEC) capability. Discussion The regulatory requirements in 14 CFR part 23 for evaluating the installation of complex systems, including electronic systems and critical environmental effects, are contained in § 23.1309. However, when § 23.1309 was developed, the use of electronic control systems for engines were not envisioned. Therefore, the § 23.1309 requirements were not applicable to systems certificated as part of the engine (reference § 23.1309(f)(1)). Although the parts of the system that are not certificated with the engine could be evaluated using the criteria of § 23.1309, the integral nature of systems such as these makes it unfeasible to evaluate the airplane portion of the system without including the engine portion of the system. However, § 23.1309(f)(1) again prevents complete evaluation of the installed airplane system since evaluation of the engine system's effects is not required. The Policy Statement; Installation of Electronic Engine Control for Reciprocating Engine, PS-ACE100-2004-10024, states: The current Small Airplane Directorate Standards Office policy on EEC installation in small airplanes, under § 23.1309, has been to issue two special conditions. The first special condition applies § 23.1309(a) through

(e)to the propulsion system installation. The second special condition is protection of the EEC from exposure to HIRF. The evaluation should be limited to the interfaces of the engine/control system and verification that none of the assumptions made for part 33 certification of the engine are invalidated by the installation. The analysis should not extend into data submitted and approved as part of the engine certification program. The Lightning and HIRF certification requirements for design and installation approval of electronic equipment are presented in 14 CFR part 23, § 23.1309, and Advisory Circular

(AC)23.1309-1C and AC 23-17A. However, a typical misinterpretation is that the concepts in AC 23.1309-1C can be applied to engine control systems to reduce the certification requirements for single engine airplanes. The EEC is certified as part of the engine design certification, the certification requirements for engine control systems must be driven by 14 CFR part 33 and the two advisory circulars; AC 33.28-1 and AC 33.28-2. Both of those Advisory Circulars clearly state that electronic engine controls must provide the same level of safety as traditional mechanical engine controls. We believe the EEC systems have additional failure modes that were not present in purely mechanical engine controls. To ensure an equivalent level of safety, the FAA position has always been: EEC System with catastrophic and hazardous failure conditions, without an acceptable conventional engine control backup, lightning and HIRF protection levels are required to be certified to the levels for catastrophic failure conditions. The environmental certification tests are normally conducted with the appropriate category and level of RTCA/DO-160. For HIRF, it is at the environment in the notice or category W of section 20 of RTCA/DO-160. For indirect effects of lightning, it is at the appropriate category and level for pin injection tests and multiple stroke and multiple burst tests of section 22 of RTCA/DO-160. When appropriate, engine certification data may be used when showing compliance with this requirement. However, the effects of the installation on this data must be addressed. The applicant will comply with the following special condition: The installation of the electronic engine control system must comply with the requirements of § 23.1309(a) through

(e)at Amendment 23-49. The intent of this requirement is not to reevaluate the inherent hardware reliability of the control itself, but rather determine the effects, including environmental effects addressed in § 23.1309(e), on the airplane systems and engine control system when installing the control on the airplane. When appropriate, engine certification data may be used when showing compliance with this requirement; however, the effects of the installation on this data must be addressed. With respect to compliance with § 23.1309(e), the levels required for compliance shall be at the levels for catastrophic failure conditions. Applicability As discussed above, these special conditions are applicable to the Cirrus Model SR22 as modified by Centex Aerospace, Inc. Should Centex Aerospace, Inc. apply at a later date for a supplemental type certificate to modify any other model included on Type Certificate No. A00009CH, to incorporate the same novel or unusual design feature, the special conditions would apply to that model as well. Conclusion This action affects only certain novel or unusual design features on one model of airplane. It is not a rule of general applicability and affects only the applicant who applied to the FAA for approval of these features on the airplane. The substance of these special conditions has been subjected to the notice and comment period in several prior instances and has been derived without substantive change from those previously issued. It is unlikely that prior public comment would result in a significant change from the substance contained herein. Therefore, because a delay would significantly affect the certification of the airplane, which is imminent, the FAA has determined that prior public notice and comment are unnecessary and impracticable, and good cause exists for adopting these special conditions upon issuance. The FAA is requesting comments to allow interested persons to submit views that may not have been submitted in response to the prior opportunities for comment described above. List of Subjects in 14 CFR Part 23 Aircraft, Aviation safety, Signs and symbols. Citation The authority citation for these special conditions is as follows: Authority: 49 U.S.C. 106(g), 40113 and 44701; 14 CFR 21.16 and 21.101; and 14 CFR 11.38 and 11.19. The Special Conditions Accordingly, pursuant to the authority delegated to me by the Administrator, the following special conditions are issued as part of the type certification basis for the Cirrus Model SR22 airplanes as modified by Centex Aerospace, Inc. 1. Electronic Engine Control System The installation of the electronic engine control system must comply with the requirements of § 23.1309(a) through

(202)418-5128. SUPPLEMENTARY INFORMATION: On October 9, 1990, the Commission adopted Part 171 to establish standards and procedures for its review of decisions of registered futures associations such as the National Futures Association (“NFA”) in disciplinary actions, membership denial actions, registration actions and member responsibility actions. 55 FR 41061. From the time Part 171 was promulgated until now, Commission Rule 171.9(b) provides only for service by personal delivery (effective upon receipt) or service by mail (effective upon deposit). On May 22, 2007, the NFA asked the Commission to amend language to Rule 171.9(b), to allow service by fax and e-mail. In proposing the amendment, NFA cited three supporting arguments:

(1)To avoid undue delay (due to cautionary procedures adopted in the post-September 11 climate, postal mail to U.S. government agencies is often delayed and thus is not as effective as it used to be prior to September 11);

(2)to take advantage of technological means of service, which will be faster and less costly than the mails;

(3)to streamline procedures. NFA cites Commission Rules under 17 CFR Part 10, which allows for service of documents by fax in enforcement proceedings. In addition, it cites its own rules governing arbitration, compliance and disciplinary cases as allowing service by both fax and e-mail. Thus, NFA asserts, to allow service by fax and e-mail in Part 171 would make the process more efficient. After reviewing NFA's proposed amended language and its justifications for the proposal, the Commission has decided to adopt NFA's request in its entirety. Amending the 17 CFR 171.9(b) to allow for service by fax and e-mail will(a) enhance the efficiency of proceedings under Part 171; and

(b)comport with the various capabilities of today's changing world. Related Matters A. No Notice Is Required Under 5 U.S.C. 553 The Commission has determined that this amendment to Part 171 is exempt from the provisions of the Administrative Procedure Act, 5 U.S.C. 553, which generally require notice of proposed rulemaking and provide other opportunities for public participation. However, 5 U.S.C. 553 gives an agency discretion not to provide notice for “rules of agency organization, procedure, or practice.” Notice and public procedure are unnecessary in this case. The proposed amendment, if made effective immediately, will actually promote efficiency and facilitate the Commission's core mission. For the above reasons, the notice requirements under 5 U.S.C. 553 are inapplicable. B. Regulatory Flexibility Act The Regulatory Flexibility Act (“RFA”), 5 U.S.C. 601 *et seq.* , requires agencies with rulemaking authority to consider the impact those rules will have on small businesses. With respect to persons seeking Commission reviews of NFA adjudicatory decisions, the amendments will impose no additional regulatory burden. Commission review of NFA disciplinary and membership denial actions has been carried out pursuant to 17 CFR Part 171 since 1990. These amendments to 17 CFR 171.9(b) do not present any significant changes and will in fact ease the regulatory burden by providing more options, greater certainty and predictability concerning manners of service under Part 171. Accordingly, the Acting Chairman, on behalf of the Commission, hereby certifies, pursuant to 5 U.S.C. 605(b), that the amendments will not have a significant economic impact on a substantial number of small businesses. C. Paperwork Reduction Act The amendments to Part 171 rules do not impose a burden within the meaning and intent of the Paperwork Reduction Act of 1980, 44 U.S.C. 3501, *et seq.* D. Cost-Benefit Analysis Section 15(a) of the Commodity Exchange Act, 7 U.S.C. 19(a), requires the Commission to consider the costs and benefits of its action before issuing a new regulation. Section 15(a) further specifies that costs and benefits shall be evaluated in light of five broad areas of market and public concern:

(1)Protection of market participants and the public;

(2)efficiency, competitiveness, and financial integrity of futures markets;

(3)price discovery;

(4)sound risk management practices; and

(5)other public interest considerations. Accordingly, the Commission can, in its discretion, give greater weight to any one of the five enumerated areas of concern and can, in its discretion, determine that notwithstanding its costs, a particular rule is necessary or appropriate to protect the public interest or to effectuate any of the provisions, or accomplish any of the purposes, of the Commodity Exchange Act. The amendments to Part 171 will not create any significant change in the Commission's appellate process or impose new burdens or costs thereon. In fact, the amendments should enhance the protection of market participants and the public by making service more certain, faster and cheaper. After considering these above factors, the Commission has determined to amend Part 171, as set forth below. List of Subjects in 17 CFR Part 171 Administrative practice and procedure, Commodity exchanges, Commodity futures. In consideration of the following, and pursuant to authority contained in the Commodity Exchange Act, the Commission hereby amends chapter I of title 17 of the Code of Federal Regulations to read as follows: PART 171-RULES RELATING TO REVIEW OF NATIONAL FUTURES ASSOCIATION DECISIONS IN DISCIPLINARY, MEMBERSHIP DENIAL, REGISTRATION AND MEMBER RESPONSIBILITY ACTIONS 1. The authority citation for Part 171 continues to read as follows: Authority: 7 U.S.C. 4a, 12a, and 21. 2. Section 171.9 is amended by revising paragraph

(b)to read as follows: § 171.9 Service

(b)*Manner of Service:* Service may be made by personal delivery (effective upon receipt), mail (effective upon deposit), facsimile (effective upon receipt) or electronic mail (effective upon receipt). When service is effected by mail, the time within which the person served may respond thereto shall be increased by five days. Parties who consent to accepting service of documents by electronic means in the underlying NFA action also consent to accepting service by the same means in proceedings under this Part 171. Issued in Washington, DC on the 26th of July 2007, by the Commission. Eileen A. Donovan, Acting Secretary of the Commission. [FR Doc. E7-14922 Filed 8-1-07; 8:45 am] BILLING CODE 6351-01-P DEPARTMENT OF ENERGY Federal Energy Regulatory Commission 18 CFR Part 33 [Docket No. PL07-1-000] FPA Section 203 Supplemental Policy Statement Issued July 20, 2007. AGENCY: Federal Energy Regulatory Commission, DOE. ACTION: Policy statement. SUMMARY: The Federal Energy Regulatory Commission is providing guidance regarding future implementation of section 203 of the Federal Power Act. In the Supplemental Policy Statement the Commission adopts policies and provides clarifications intended to continue the encouragement of beneficial utility industry investment while also providing for effective customer protections, including working in a complementary fashion with the states in protecting customers. DATES: *Effective Date:* This Supplemental Policy Statement is effective July 20, 2007. 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. 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: Before Commissioners: Joseph T. Kelliher, Chairman; Suedeen G. Kelly, Marc Spitzer, Philip D. Moeller, and Jon Wellinghoff. FPA Section 203 Supplemental Policy Statement 1. The Commission is issuing this Policy Statement as a supplement to the Commission's rulemakings issued in 2006 to implement provisions of the Energy Policy Act of 2005 1 and also as a supplement to its 1996 Merger Policy Statement. 2 The 2006 rulemakings addressed amendments to the Commission's corporate review authority under section 203 of the Federal Power Act (FPA), 3 the repeal of the Public Utility Holding Company Act of 1935 4 and the enactment of the Public Utility Holding Company Act of 2005. 5 Based on our experience in implementing the new laws thus far, and on the two technical conferences in which industry participants and state commissioners provided input on key issues, including the protection of captive customers against inappropriate cross-subsidization and the need to provide sufficient flexibility to encourage industry investment that benefits customers, the Commission finds that it is appropriate to provide guidance in this Policy Statement regarding future implementation of section 203. We clarify that this Policy Statement supplements, and does not replace, any part of the Commission's 1996 Merger Policy Statement. 1 Pub. L. 109-58, 119 Stat. 594

(2005)(EPAct 2005). 2 *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

(1996)(1996 Merger Policy Statement), *reconsideration denied,* Order No. 592-A, 62 FR 33341 (June 19, 1997), 79 FERC ¶ 61,321 (1997). 3 16 U.S.C. 824b (2000), amended by EPAct 2005, Pub. L. No. 109-58, 1289, 119 Stat. 594, 982-83 (2005). *See also 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 16 U.S.C. 79a *et seq.* (PUHCA 1935). 5 EPAct 2005, Pub. L. 109-58, 1261, *et seq.,* 119 Stat. 594, 972-78 (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). 2. This Policy Statement 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, 2006 and March 8, 2007 technical conferences regarding section 203 and PUHCA 2005. In addition, in separate orders, the Commission is concurrently issuing a Notice of Proposed Rulemaking proposing to grant a limited blanket authorization for certain dispositions of jurisdictional facilities under FPA section 203(a)(1) 6 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. 7 6 *Blanket Authorization Under FPA Section 203,* 120 FERC ¶ 61,062

(2007)(issued in Docket No. RM07-21-000) (Blanket Authorization NOPR). 7 *Cross-Subsidization Restrictions on Affiliate Transactions,* 120 FERC ¶ 61,061(2007) (issued in Docket No. RM07-15-000) (Affiliate Transactions NOPR). I. Background 3. In 1996, the Commission issued the 1996 Merger Policy Statement updating and clarifying the Commission's procedures, criteria and policies concerning public utility mergers under section 203 of the FPA. 8 The purpose of the 1996 Merger Policy Statement was to ensure that mergers are consistent with the public interest and to provide greater certainty and expedition in the Commission's analysis of merger applications. The 1996 Merger Policy Statement refined and modified the Commission's merger policy “in light of dramatic and continuing changes in the electric power industry and corresponding changes in the regulation of that industry.” 9 8 *Supra* note 2. 9 1996 Merger Policy Statement, FERC Stats. & Regs. ¶ 31,044, at 30,110. 4. In the 1996 Merger Policy Statement, the Commission set out the three factors it generally considers when analyzing whether a proposed section 203 transaction 10 is consistent with the public interest: effect on competition, effect on rates, and effect on regulation. In 2000, the Commission issued the Filing Requirements Rule, 11 which updated the filing requirements under 18 CFR Part 33 of the Commission's regulations for section 203 applications. Among other things, the Filing Requirements Rule codified the Commission's screening approach to quickly identify mergers that may raise horizontal competitive concerns, provided specific filing requirements consistent with Appendix A of the 1996 Merger Policy Statement, established guidelines for vertical competitive analysis, and set forth filing requirements for mergers that potentially raise vertical market power concerns. The revised filing requirements are in effect today, as recently modified (discussed below), and they assist the Commission in determining whether section 203 transactions are consistent with the public interest, provide more certainty to applicants regarding what showings must be made to satisfy the Commission's concerns under section 203, and expedite the Commission's review of such applications. 10 Although the Commission applies these factors to all section 203 transactions, not just mergers, the filing requirements and the level of detail required may differ. 1996 Merger Policy Statement, FERC States & Regs. ¶ 31,044, at 30,113 n.7. *See also* 18 CFR 2.26 (codifying the 1996 Merger Policy Statement). 11 *Revised Filing Requirements Under Part 33 of the Commission's Regulations,* Order No. 642, 65 FR 70984 (Nov. 28, 2000), FERC Stats. & Regs. ¶ 31,111

(2000)(Filing Requirements Rule), *order on reh'g,* Order No. 642-A, 66 FR 16121 (Mar. 23, 2001), 94 FERC ¶ 61,289

(2001)( *codified* at 18 CFR Part 33). 5. The scope of the Commission's section 203 review was expanded by EPAct 2005. 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 encumbrance of utility assets; 12 and

(3)imposes statutory deadlines for acting on mergers and other jurisdictional transactions. 12 Section 203(a)(4) is not an absolute prohibition on the creoss-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. 6. 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. 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 by facilitating market liquidity. Some commenters in the rulemaking proceeding urged the Commission to grant additional blanket authorizations. Other commenters argued that the Commission should adopt additional generic rules to guard against inappropriate cross-subsidization associated with the mergers. Certain 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 reevaluate 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 PUHCA 2005. 7. 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 Natural Gas Act (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 13 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. 13 *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). 8. 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 PUHCA 1935 and new authorities given to the Commission in EPAct 2005). 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. II. Discussion 9. Based on the Commission's experiences thus far in implementing amended section 203, the input received through the Order No. 669 rulemaking proceeding, and the comments received in response to the December 7 and March 8 Technical Conferences, the Commission finds that additional clarification and guidance regarding our section 203 policy are warranted. The Commission will provide certain clarifications and guidance concerning:

(1)The information that must be filed as part of section 203 applications for transactions that do not raise cross-subsidization concerns;

(2)the types of applicant commitments and ring-fencing measures that, if offered, might address cross-subsidization concerns; 14

(3)the scope of blanket authorizations under sections 203(a)(1) and 203(a)(2);

(4)what constitutes a disposition of control of jurisdictional facilities for purposes of section 203; and

(5)the Commission's Appendix A analysis. 14 When “cross-subsidization” occurs, some of the costs of dealings between affiliated regulated and unregulated companies are borne by the regulated utility affiliate. The costs might be passed on to captive customers through the rates of the regulated affiliate. “Ring-fencing” employs various techniques to separate and protect the financial assets and ratings of the regulated utility from the business risks of other members of the holding company family, including bankruptcy of the parent or its affiliates. These techniques could preclude some types of transactions that involve cross-subsidization. 10. We note that amended section 203 and PUHCA 2005 did not become effective until February 2006. The Commission thus has had only 18 months' experience under the new laws. Therefore, we will continue to monitor the issues that arise under section 203, including cross-subsidization issues, and re-evaluate our regulatory approach as appropriate. The Commission's goals are to provide sufficient flexibility to adopt customer protections as needed, work in a complementary fashion with the states in protecting customers, appropriately address the need for regulatory certainty with respect to jurisdictional transactions, and address ways to allow beneficial utility industry investment that does not harm captive customers. 15 15 As indicated below, the Commission does not propose actions on all of the issues raised by commenters. For example, the Commission is not proposing changes to its regulations that would require:

(1)Codification of specific requirements for cash management programs and money pool agreements;

(2)codification of additional information reporting requirements (through section 203 applications or through routine reporting requirements); or

(3)additional, generic actions pursuant to the Commission's NGA authority. Based on the types of filings made since Order Nos. 667 and 669 became effective and the comments raised at the technical conferences, we do not believe further actions on these particular issues are warranted at this time. Moreover, we note that certain commenters recommended that the Commission provide a list on its website of all jurisdictional public utilities (including qualifying facilities and exempt wholesale generators), foreign utility companies, transmitting utilities, electric utilities, electric utility companies, and holding companies (as those terms are defined under EPAct 2005 and PUHCA 2005) for use by market participants in their regulatory compliance monitoring efforts and as they consider whether to acquire or hold the securities of companies, the acquisition or holding of which might or might not be subject to FPA section 203 or PUHCA 2005. While the Commission declines to rule on this issue in the context of a policy statement, it will explore the feasibility of making some of this information publicly available on its website. A. The Commission's Cross-Subsidization Concerns and Exhibit M Requirements 11. At the December 7 Technical Conference, a number of commenters asserted that a vast majority of section 203 transactions pose no threat of cross-subsidization but nonetheless, the Commission's regulations require applicants to provide “an explanation, with appropriate evidentiary support for such explanation * * * of how applicants are providing assurance * * * that the proposed transaction will not result in, at the time of the transaction or in the future, cross-subsidization of a non-utility associate company or pledge or encumbrance of utility assets for the benefit of an associate company * * *.” 16 16 The explanation, to be provided as Exhibit M to a section 203 application, includes: “Disclosure of existing pledges and/or encumbrances of utility assets; and a detailed showing that the transaction will not result in: any transfer of facilities between a traditional public utility associate company that has captive customers or that owns or provides transmission service over jurisdictional transmission facilities, and an associate company; any new issuance of securities by a traditional public utility associate company that has captive customers or that owns or provides transmission service over jurisdictional transmission facilities, for the benefit of an associate company; any new pledge or encumbrance of assets of a traditional public utility associate company that has captive customers or that owns or provides transmission service over jurisdictional transmission facilities, for the benefit of an associate company; or any new affiliate contract between a non-utility associate company and a traditional public utility associate company that has captive customers or that owns or provides transmission service over jurisdictional transmission facilities, other than non-power goods and services agreements subject to review under sections 205 and 206 of the Federal Power Act; or if no such assurance can be provided, an explanation of how such cross-subsidization, pledge, or encumbrance will be consistent with the public interest.” 18 CFR 33.2(j)(1)-(2). 12. Several commenters argued that it is not clear how to provide the explanation required under Exhibit M for transactions in which cross-subsidization is not possible, is precluded by existing safeguards or is reduced to a very low possibility. Thus, they urged the Commission to establish criteria to identify “safe harbors” or classes of transactions that clearly do not raise cross-subsidization concerns. They contended that such an approach will enhance regulatory certainty by letting parties know up front that with these types of transactions, there is no risk of additional restrictions being imposed by the Commission. 13. The Commission's focus generally has been on preventing a transfer of benefits from a public utility's captive customers to shareholders of the public utility's holding company due to an intra-system transaction that involves electric power or energy, generation facilities, or non-power goods and services. 17 Concerns arise in a number of circumstances, including where a market-regulated affiliate ( *e.g.,* a power seller with market-based rates) or a non-utility affiliate provides power or goods and services to a franchised public utility with captive customers, as well as the circumstance in which the franchised public utility with captive customers provides power or non-power goods and services to the market-regulated or non-utility affiliate. For instance, a franchised public utility with captive customers may purchase power from its marketing affiliate at a price above market or sell power to its marketing affiliate at below-market prices, thus transferring benefits from customers to shareholders of the holding company. Further, customers may be harmed if the franchised public utility purchases non-power goods and services from an affiliate at above-market prices or sells non-power goods and services to an affiliate at less than market value and seeks to recover the overcharges or the undercharges through rates for service to captive customers. 18 Concerns may also arise with respect to intra-corporate financing transactions that may encumber franchised public utility assets in favor of a market-regulated or non-utility affiliate. The Commission's regulatory concern with this particular form of cross-subsidization is with the potential adverse impact of the internal finance transaction on the rates of a franchised public utility with captive customers. 17 Order No. 669, FERC Stats. & Regs. ¶ 31,200 at P 147. 18 *Transactions Subject to FPA Section 203,* 70 FR 58636 (Oct. 7, 2005) FERC Stats. & Regs. ¶ 32,589 at P 47 (2005. In the concurrent Affiliate Transactions NOPR, *supra* note 7, the Commission is proposing to extend the affiliate abuse restrictions to apply to all franchised public utilities with captive customers and their market-regulated power sales affiliates and non-utility affiliates. 1. “Safe Harbors” for Meeting Exhibit M Requirements for Certain Transactions 14. Since the February 2006 effective date of the FPA section 203 amendments, the Commission has gained sufficient experience in implementing the cross-subsidization provision of FPA section 203(a)(4) to provide policy guidance on the cross-subsidization demonstration required by Exhibit M. As described above, there are many instances where cross-subsidization can occur, but our focus is on the specific requirements under section 203(a)(4) and the Order No. 669 rulemaking proceeding—inappropriate cross-subsidization of non-utility or market-regulated affiliates or the pledge or encumbrance of utility assets for the benefit of an associate company. The concern arises in a corporate structure that has at least one franchised public utility with captive customers and one or more non-utility affiliates or market-regulated utility affiliates ( *i.e.,* utilities regulated on a market rather than a cost basis). These types of relationships provide opportunities for cross-subsidization in routine transactions between affiliates in addition to more significant transactions such as transfers of utility assets, encumbrance of utility assets, new affiliate contracts, and issuance of securities by affiliates (that usually receive more public scrutiny or regulatory attention). 15. Where these affiliate relationships do not exist, that is, where a transaction involves only market-regulated and/or non-utility affiliated entities or is a bona fide, arm's-length, bargained-for exchange, then the transaction is not likely to result in inappropriate cross-subsidization and the detailed explanation and evidentiary support required by Exhibit M may not be warranted. 16. Accordingly, for purposes of compliance with Exhibit M, the Commission will recognize three classes of transactions that are unlikely to raise the cross-subsidization concerns described in the Order No. 669 rulemaking proceeding. These, in effect, are “safe harbors” for meeting the section 203 cross-subsidization demonstration, absent concerns identified by the Commission or evidence from interveners that there is a cross-subsidy problem based on the particular circumstances presented. 17. The first class of transactions includes those transactions where the applicant shows that a franchised public utility with captive customers is not involved. If no captive customers are involved, then there is no potential for harm to customers. Therefore, compliance with Exhibit M could be a showing that no franchised public utility with captive customers 19 is involved in the transaction. 19 The Commission has defined “captive customers,” for purposes of FPA section 203, to mean “any wholesale or retaile electric energy customers served under cost-based regulation.” 18 CFR 33.1(b)(5). 18. The second class of transactions includes those transactions that are subject to review by a state commission. The Commission, in the context of specific mergers or other corporate transactions, intends to defer to state commissions where the state adopts or has in place ring-fencing measures to protect customers against inappropriate cross-subsidization or the encumbrance of utility assets for the benefit of the “unregulated” affiliates. Therefore, compliance with Exhibit M could be satisfied with a showing that the proposed transaction complies with specific state regulatory protections against inappropriate cross-subsidization by captive customers. If a state does not have the authority to impose cross-subsidization protections, however, the transaction would not qualify for this safe harbor. 19. The third class of transactions are those involving only non-affiliates. Where a franchised public utility transacts only with nonaffiliated entities, the potential for inappropriate cross-subsidization of a non-utility associate company or the pledge or encumbrance of utility assets for the benefit of an associate company generally is not present. Therefore, compliance with Exhibit M could be satisfied with a showing that a public utility transacts only with nonaffiliated entities. This category includes a transfer of assets between a public utility and non-affiliates, but does not include mergers with, or acquisitions of, public utilities. 20. After review of a section 203 application relying on any of these “safe harbors,” if the Commission finds that the applicant has failed to make a sufficient showing that it meets the criteria described above, then the application will be deemed to be deficient and a new Exhibit M will be required. 2. Other Means of Addressing Cross-Subsidization Concerns 21. Intra-corporate financing transactions may raise cross-subsidization concerns if the assets of a franchised public utility with captive customers are used to finance its market-regulated utility affiliates or non-utility affiliates or their activities. In the December 7 Technical Conference, several commenters noted that their states had implemented ring-fencing measures to mitigate potential risks of cross-subsidization but that many states had not. These commenters suggested that the Commission implement safeguards to mitigate risks in the absence of state regulation (although not necessarily on a generic basis, relying on the states where the state has already taken such measures). Most commenters urged the Commission to continue to review whether potential mergers required additional protections on a case-by-case basis. Representatives of the state commissions, including the Oregon Public Utility Commission, Wisconsin Public Service Commission and Missouri Public Service Commission, recommended that the Commission only act where there is a demonstrable gap in state authority. None supported adoption of federal, mandatory ring-fencing conditions. Some commenters did not oppose the establishment of guidelines on the kinds of protections that might be appropriate in different cases. 20 20 *See, e.g.,* Comments of Clifford M. Naeve, December 7 Technical Conference, Tr. 91-92; Comments of Joseph G. Sauvage, December 7 Technical Conference, Tr. 56-58. 22. American Public Power Association and the National Rural Electric Cooperative Association argued that the Commission adopt regulations with minimum cross-subsidization safeguards that would apply in all cases, and also provide an exhaustive menu of additional cross-subsidization safeguards, including ring-fencing measures, that applicants might propose or that the Commission might impose in appropriate cases. They proposed that the Commission codify its code of conduct requirements in the regulations and that these restrictions be made applicable to all traditional public utilities and their unregulated affiliates. 23. The Commission agrees that it is appropriate to codify in our regulations code of conduct affiliate restrictions to prevent cross-subsidization involving power and non-power goods and services transactions and to make those prophylactic restrictions applicable to all traditional (franchised) public utilities (not just public utilities seeking section 203 approval) and their transactions with power sellers as well as non-utility affiliates. Accordingly, contemporaneous with this Policy Statement, we are instituting a Notice of Proposed Rulemaking to do this. However, with respect to additional restrictions that may be appropriate for section 203 applicants, such as ring-fencing restrictions, the Commission does not believe it is necessary or appropriate to mandate generic one-size-fits-all protections for all section 203 applicants. Rather, the Commission will examine the facts and circumstances of each transaction and determine on a case-by-case basis whether additional protections against inappropriate cross-subsidization or encumbrances of utility assets are necessary. As noted above, part of our approach will involve review of whether state commissions have authority to impose cross-subsidy protections or have in place such protections. The Commission, as a general matter, intends to defer to state-adopted protections unless they can be shown to be inadequate to protect wholesale customers. This deference is appropriate because retail customers typically represent the vast majority of load served by a franchised public utility, and ring-fencing measures typically affect the entire corporation, thereby protecting both retail and wholesale customers. If it can be shown, however, that these measures are inadequate to protect wholesale customers in a given case, the Commission may adopt supplemental protections as appropriate. Finally, we emphasize that, consistent with section 203 and the Commission's regulations, all section 203 applicants must demonstrate that a proposed transaction will not result in inappropriate cross-subsidization of non-utility associate companies or the inappropriate pledge or encumbrance of utility assets for the benefit of an associate company, either through meeting one of the safe harbor demonstrations, proposing its own ring-fencing or other protections to prevent cross-subsidization, or demonstrating that there are no potential cross-subsidy issues associated with the proposed transaction. 24. With respect to guidance to applicants that do not make the “safe harbor” demonstration or do not demonstrate that cross-subsidy issues are not present, one way to make the demonstration required by Exhibit M would be to propose ring-fencing measures. For example, a ring-fencing structure related to internal corporate financings, *i.e.,* money pool or cash management transactions, could include some or all of the following elements depending on the circumstances:

(1)The holding company participates in the money pool as a lender only and it does not borrow from the subsidiaries with captive customers;

(2)where the holding company system includes more than one public utility, the money pool for subsidiaries with captive customers is separate from the money pool for all other subsidiaries;

(3)all money pool transactions are short-term (one year or less), and payable on demand to the public utility;

(4)the interest rate formula is set according to a known index and recognizes that internal and external funds may be loaned into the money pool;

(5)loan transactions are made pro rata from those offering funds on the date of the transactions;

(6)the formula for distributing interest income realized from the money pool to money pool members is publicly disclosed; and

(7)the money pool administrator is required to maintain records of daily money pool transactions for examination by the Commission by transaction date, lender, borrower, amount, and interest rate(s). 21 We clarify that the forms of ring-fencing protections listed herein are simply examples of protections that the Commission would consider in evaluating proposed ring-fencing measures. Appropriate ring-fencing measures will depend on the facts presented and the specifics of an applicant's corporate structure and must be evaluated on a case-by-case basis. Further, as noted earlier, to the extent a state commission imposes specific ring-fencing measures, the Commission will defer to those measures absent evidence that additional measures are needed to protect wholesale customers. 21 These ring-fencing measures are among those requirements typically approved by the Securities and Exchange Commission

(SEC)and/or adopted by state commissions. 25. The Commission also notes that if it approves a transaction under section 203 (with or without ring-fencing measures), the Commission retains authority under section 203(b) to later impose additional cross-subsidy protections or modify any previously approved measures. Further, irrespective of any link to the section 203 transaction, the Commission retains ongoing authority under section 206 of the FPA 22 to modify rates, contracts and practices that may result in inappropriate cross-subsidization or encumbrances of utility assets (and, if appropriate, to require new practices). 22 16 U.S.C. 824e. 3. Future Case-Specific Informational Filings 26. Given that the Commission often issues its order in a section 203 proceeding before the state proceedings are completed, the Commission may grant authorization under section 203 before the relevant state commission issues an order specifying any state-required cross-subsidy or ring fencing protections. In such circumstances, as appropriate, the Commission in the context of individual section 203 authorizations will require applicants to file with the Commission a copy of any subsequent state orders. Such copy would be filed in the Commission's section 203 proceeding docket as an informational filing, and the applicant would also provide copies to the intervenors in the Commission's section 203 proceedings. B. Blanket Authorizations Under Sections 203(a)(1) and 203(a)(2) and Clarifications Regarding Jurisdictional Transactions 27. Through the Order No. 669 rulemaking proceeding, the Commission granted certain blanket authorizations on a generic basis under section 203. 23 Participants at the December 7 Technical Conference addressed whether additional blanket authorizations were warranted. Specifically, commenters discussed under what circumstances the Commission should grant a blanket authorization under section 203(a)(1) (which applies to public utilities' dispositions of jurisdictional facilities) to parallel the Order No. 669 blanket authorizations under section 203(a)(2) (which, among other things, applies to holding companies' acquisitions of securities of public utilities with jurisdictional facilities). The section 203 blanket authorizations under Order No. 669 allow a holding company to acquire the voting securities of 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. What most commenters seek is a parallel blanket authorization under section 203(a)(1) for the public utilities in such transactions to “dispose” of their facilities to the holding company, *i.e.,* a blanket authorization for transactions that

(1)involve or permit transfers (dispositions) of up to 10 percent of a public utility's voting stock, or

(2)involve a transfer of up to 10 percent of the voting stock of a holding company that directly or indirectly owns or controls a public utility. Alternatively, they seek clarification that certain transactions are not jurisdictional. 23 18 CFR 33.1(c) 28. Several commenters supported modification of the rules to grant such a parallel blanket authorization under 203(a)(1). In addition, Mirant Corporation (Mirant) argued that section 203(a)(1) should not apply at all to stock transactions in the secondary market involving the corporate parent. Mirant maintained that if the Commission continues to apply section 203(a)(1) to equity transfers of upstream ownership interests in public utilities that result in either a direct or indirect change in control over the underlying public utility, there would be a substantial and unnecessary overlap between sections 203(a)(1) and 203(a)(2). The Goldman Sachs Group, Inc. (Goldman) added that financial investors need certainty on whether particular transactions in the secondary market would require prior Commission approval under section 203(a)(1). Goldman also argued for a blanket authorization under section 203(a)(2) for the acquisition of voting securities by firms acting in a fiduciary capacity. 29. Edison Electric Institute

(EEI)argued for a blanket authorization for internal corporate reorganizations under both sections 203(a)(1) and 203(a)(2) for transfer of assets from one non-traditional utility subsidiary, such as an exempt wholesale generator, to another non-traditional utility subsidiary. 30. The Financial Institutions Energy Group

(FIEG)24 requested that the Commission clarify that transactions that do not affect control do not, in fact, require approval under section 203(a)(1). Alternatively, FIEG argued that there are several types of transactions under which no change of control is involved and, therefore, the Commission should provide blanket authorizations under both section 203(a)(1) and section 203(a)(2). FIEG asserted that such transactions include:

(1)Acquisitions of voting securities that would give the acquiring entity less than 10 percent ownership of outstanding voting securities;

(2)acquisitions of up to 20 percent of the voting interests in a public utility where the acquirer is eligible to file with the SEC a Schedule 13G demonstrating no intent to exercise control over the entity whose securities are being acquired;

(3)acquisitions involving securities held for lending, hedging, underwriting and/or fiduciary purposes. FIEG also argued that a blanket authorization should be granted for transactions in which a public utility or a holding company is acquiring or assigning 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. 24 Members of FIEG include: Bank of America, N.A, Barclays Bank PLC, Bear Energy LP, Citigroup Energy Inc., Credit Suisse Energy LLC (a subsidiary of Credit Suisse), Deutche Bank AG, J. Aron & Company (a subsidiary of The Goldman Sachs Group), JPMorgan Chase & Co., Lehman Brothers Commodity Services Inc. (a subsidiary of Lehman Brothers Holding Inc.), Merrill Lynch Commodities, Inc., Morgan Stanley Capital Group Inc., Société Générale, and UBS Energy LLC (a subsidiary of UBS AG). 31. In support of its requests for clarification and expanded blanket authorizations, FIEG states that shares and other interests in public utilities are bought, sold and traded on a regular basis and that an active market for a public utility's shares is important to its ability to raise capital. FIEG explains that if a passive or non-controlling investor must seek prior Commission approval for transactions, the trading process is slowed, resulting in a less efficient market for the company's shares. According to FIEG, such inefficiencies chill participation in the industry and reduce needed market liquidity. 32. Several commenters also urged the Commission to provide greater clarity on what constitutes a passive investment for which no Commission authorization is required under section 203(a)(1). 33. The Commission agrees that greater industry investment and market liquidity are important goals. However, blanket authorizations under section 203 cannot be granted lightly, particularly generic authorizations. Because it is an *ex ante* determination as to the appropriateness of a category of transactions under section 203 and a counterparty is not yet identified, a blanket authorization can be granted only when the Commission can be assured that the statutory standards will be met, including ensuring that the interests of captive customers are safeguarded and that public utility assets are protected under all circumstances. It is under this paradigm that we provide the following guidance with respect to the section 203 blanket authorizations. 34. First, we will grant in part and deny in part requests for blanket authorizations under section 203(a)(1) to parallel those previously granted under section 203(a)(2). The Commission recognizes that, in some circumstances, the lack of a blanket authorization under section 203(a)(1) can lessen the practical effectiveness of the blanket authorizations previously granted under section 203(a)(2). Accordingly, in a Notice of Proposed Rulemaking issued contemporaneous with this Policy Statement, the Commission is proposing a limited blanket authorization under section 203(a)(1) under which a public utility would be “pre-authorized” to dispose of less than 10 percent of its securities to a public utility holding company but only if, after the disposition, the holding company and any associate or affiliated company in aggregate will own less than 10 percent of that public utility. 25 The Commission believes that this narrow blanket authorization will provide appropriate relief to investors and at the same time ensure that utility assets and captive customers are protected. 25 Blanket Authorization NOPR, *supra* note 6. 35. The Commission will continue to consider broader requests for blanket authorizations under section 203(a)(1) on a *case-specific* basis, 26 taking into account all other authorizations that have been granted and whether those authorizations, in conjunction with a blanket authorization under section 203(a)(1), would raise concerns. While the Commission, as discussed above, has determined that additional generic blanket authorizations for public utilities' dispositions of jurisdictional assets are not warranted at this time (other than the blanket authorizations discussed in the accompanying NOPR), we expect that in many circumstances individual blanket authorizations can be granted. Such an individual, situation-specific, *ex ante* blanket authorization will provide some of the certainty that is sought by the industry and investors. At the same time, this approach will allow the Commission to assess specific circumstances, to place time limits on blanket authorizations if appropriate (subject to possible renewal), to monitor industry activity, and to adapt the use of blanket authorizations over time as we gain further experience with financial institution investments in particular. Further, we do not rule out the possibility that groups of similarly situated holding companies, such as financial institutions, can make joint filings seeking common blanket authorizations under section 203(a)(1) or section 203(a)(2); however, they would need to clearly demonstrate on the record that there would be no adverse impact on captive customers or the public interest if the authorizations were granted. 26 Order No. 669-A, FERC Stats. & Regs. ¶ 31,214 at P 103; Order No. 669-B, FERC Stats. & Regs. ¶ 31,225 at P 43. 36. In response to requests that the Commission clarify that secondary market transactions involving public utilities do not require approval under section 203(a)(1)(A) (which provides that a public utility may not sell, lease “or otherwise dispose” of the whole of its jurisdictional facilities or any part hereof without prior Commission approval), we so clarify. Secondary market transactions, for purposes of this discussion, are purchases or sales of the securities of a public utility or its upstream holding company by a third-party investor. Thus, such transactions do not include the securities' initial issuance or reacquisition by the issuer. Thousands of shares of the stock of a public utility or public utility holding company may be traded on a daily basis by non-public utility third parties, particularly if the stock is widely held and publicly traded. As noted by Mirant, EEI and members of FIEG in their comments, neither a public utility holding company nor a public utility subsidiary of the holding company are themselves parties to these transactions and they cannot know in advance what trading will occur or whether direct or indirect “control” over the public utility is being acquired. It would be virtually impossible in such circumstances for the public utility or holding company to know what is occurring before the fact and we do not interpret section 203(a)(1)(A) to be triggered for these secondary trades. Accordingly, neither public utilities nor public utility holding companies have an obligation to seek approval of a “disposition” of public utility jurisdictional facilities for such trades. 27 27 If the acquirer of securities in the secondary market is a public utility holding company, however, it may have an obligation to file for approval under section 203(a)(2). If the acquirer is another public utility, it may also have to file under section 203(a)(1)(C) (no public utility may purchase securities of another public utility if over $10 million in value). 37. In addition, we clarify that transactions that do not transfer control of a public utility do not fall within the “or otherwise dispose” language of section 203(a)(1)(A) and thus do not require approval under section 203(a)(1)(A) (assuming there is no sale or lease of the facilities). As indicated in our discussion of what constitutes a disposition of control for purposes of the Commission's section 203 analysis, 28 while the Commission cannot make an *ex ante* determination regarding what is control for purposes of the Commission's section 203 analysis absent facts of a specific case, the Commission is setting forth herein certain guidelines regarding what has been deemed to be (or not to be) control. This clarification addresses many of the concerns raised by commenters regarding acquisitions involving securities held for lending, hedging, underwriting and/or fiduciary purposes. If such transactions do not result in a transfer of control and there is no sale or lease of the facilities taking place, then section 203(a)(1)(A) is not triggered. This should assist applicants in determining the need for prior authorization under section 203. 28 *See infra* section II.C. 38. With respect to the request for a generic blanket authorization for internal corporate reorganizations under both sections 203(a)(1) and 203(a)(2) for the transfer of assets from one non-traditional utility subsidiary 29 to another non-traditional utility subsidiary, the Commission cannot be certain of the impact of such transactions on utility affiliates on a generic basis and, therefore, will not grant a blanket authorization at this time. The Commission will consider case-specific blanket authorizations (with appropriate reporting requirements) on a case-by-case basis. 29 For example, power marketers, exempt wholesale generators, or qualifying facilities. 39. The Commission also denies the request for a generic blanket authorization under section 203(a)(2) for non-bank fiduciaries subject to the jurisdiction of the SEC. The Commission finds that we need further experience in this area before granting a blanket authorization on a generic basis. However, the Commission is willing to consider such requests on a holding company-specific basis or from similarly situated holding companies, such as similarly situated financial institutions. Any such applications would need to demonstrate in sufficient detail that applicants would not be able to control public utilities and that there would be no adverse impact on captive customers or the public interest if the authorizations were granted. As discussed above with respect to section 203(a)(1) authorizations, this type of approach would allow the Commission to assess specific circumstances, to place time limits on blanket authorizations if appropriate (subject to possible renewal), to monitor industry activity, and to adapt the use of blanket authorizations over time as we gain further experience. 40. 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 in the Blanket Authorization NOPR on whether a generic blanket authorization under section 203(a)(1) is warranted 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. 41. We also decline to grant a generic blanket authorization under sections 203(a)(1) and 203(a)(2) for acquisitions of up to 20 percent of the voting interests in a public utility where the acquirer is eligible to file with the SEC a Schedule 13G, which demonstrates no intent to exercise control over the entity whose securities are being acquired. While the Commission may consider eligibility to file a Schedule 13G with the SEC as part of an indication that an entity will not be able to assert control over a public utility, the Commission will not accept Schedule 13G eligibility as a definitive statement regarding control. The Commission will consider Schedule 13G eligibility as one factor in the analysis of whether an entity can assert control over a public utility. 30 30 *See, e.g.* , *Capital Research and Management Company,* 116 FERC ¶ 61,267 (2006). C. Disposition of “Control” of Jurisdictional Facilities 42. Several commenters have asked the Commission to provide guidance on what constitutes a disposition of “control” of jurisdictional facilities under section 203. Most recently, this request is being pressed by the investment community, which seeks further clarification regarding the scope of the Commission's regulatory authority, and greater regulatory certainty as to when section 203 review is required. 43. We will provide guidance here, but emphasize that the determination of whether there is a disposition of control must be based on all circumstances. In other words, the decision must be made on a fact-specific basis. As discussed further below, while our case law under section 201 provides guidance on the factors that may result in control, no single factor or factors necessarily results in control. The electric industry remains a dynamic, developing industry, and no bright-line standard will encompass all relevant factors and possibilities that may occur now or in the future. 31 31 *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 174

(2007)(Market-Based Rate Final Rule). 44. We note that much of the Commission's precedent in this area was developed based on concerns that there could be a jurisdictional void if the Commission did not interpret broadly what constitutes a disposition of “control” of public utility facilities under FPA section 203. The Commission was particularly concerned about the creation of holding companies and holding company acquisitions that could result in an indirect change of control of the jurisdictional facilities of public utilities, without Commission review. In EPAct 2005, however, Congress has filled any jurisdictional void involving public utility holding companies by amending section 203 to specifically give the Commission authority over certain holding company acquisitions and mergers involving FPA public utilities. Thus, the Commission's pre-EPAct 2005 precedent should be read with this context in mind. 1. Precedent Discussing Dispositions of Control 45. Section 203 requires prior Commission approval if a public utility seeks to sell, lease, or otherwise dispose of jurisdictional facilities. As previously noted, the Commission has interpreted the “or otherwise dispose” language of section 203(a)(1) to include transfers of “control” of jurisdictional facilities. Additionally, prior Commission approval is required for any public utility that seeks to directly or indirectly merge or consolidate the whole of its jurisdictional facilities, or any part thereof, with the facilities of another person, “by any means whatsoever.” 32 As interpreted by the Commission, the requirement to obtain the Commission's approval under the “merge or consolidate” clause depends on whether the public utility's facilities are subject to the jurisdiction of the Commission and whether the transaction directly or indirectly would result in a change of “control” of the facilities. 33 32 While the section 203(a)(1) requirements for obtaining Commission authorization do not use the word “control” in the statutory text, section 203(a)(4) provides that the Commission must approve a proposed “disposition, consolidation, acquisition, or *change in control* ” (emphasis added) if the statutory criteria are met. 33 *PDI Stoneman, Inc.* , 104 FERC ¶ 61,270, at P 13

(2003)( *PDI Stoneman* ). 46. In *Enova Corporation* , the Commission explained that the purpose of section 203 is to provide a mechanism for maintaining oversight of the facilities of public utilities and to prevent transfers of control over those facilities that would harm consumers or that would inhibit the Commission's ability to secure the maintenance of adequate service and the coordination in the public interest of jurisdictional facilities. 34 The Commission determined that it cannot definitively identify every combination of entities or disposition of assets that may trigger jurisdiction under section 203, since it cannot anticipate every type of restructuring that might occur. The Commission stressed that its concern was with changes in control, including direct or indirect mergers that affect jurisdictional facilities. It said that it must be flexible in responding to industry restructuring if it is to discharge its statutory responsibility “to secure the maintenance of adequate service and the coordination in the public interest of facilities subject to the jurisdiction of the Commission.” 35 34 *Enova Corporation* , 79 FERC ¶ 61,107, at 61,489

(1997)( *Enova* ) ( *citing* pre-EPAct 2005 section 203(b)). 35 *Id* . at 61,496. 47. Noting in *Enova* that the FPA did not provide definitions for the terms “dispose” or “control,” the Commission stated that those terms should not be read narrowly because to do so would result in a jurisdictional void in which certain types of corporate transactions could escape Commission oversight. While section 203 applies to changes or transfers in the proprietary interests of a public utility, 36 not all transactions under section 203 involve a change in control of a public utility. If no change in control results from the transaction, it is not likely to adversely affect competition, rates or regulation, or result in cross-subsidization. 36 *See Atlantic City Electric Company* v. *FERC* , 295 F.3d 1, 12 (D.C. Cir. 2002). 48. Our guidance concerning what constitutes a disposition of control of jurisdictional facilities for purposes of section 203 requires a discussion of what constitutes control of a public utility since a public utility is a person that owns or operates jurisdictional facilities. In *Enova* , the Commission cited the definition of control that has been in its accounting regulations since 1937. Under that definition, control means: the possession, directly or indirectly, of the power to direct or cause the direction of management and policies of a company, whether such power is exercised through one or more intermediary companies, or alone, or in conjunction with, or pursuant to an agreement, and whether such power is established through a majority or minority ownership or voting of securities, common directors, officers, or stockholders, voting trusts, holding trusts, associated companies, contract or any other direct or indirect means. 37 37 *Enova* , 79 FERC at 61,492 ( *citing* 18 CFR Part 101, Definitions 5.B). This definition is identical to that found in the current regulations. In addition, for purposes of its Standards of Conduct for Transmission Providers, the Commission states that “control” “includes, but is not limited to, the possession, directly or indirectly and whether acting alone or in conjunction with others, of the authority to direct or cause the direction of the management or policies of a company.” 18 CFR 358.3(c). 49. The Commission has also discussed certain elements of control in cases concerning whether an entity is a public utility under section 201. 38 In those cases, the Commission linked “decision-making” and “dominion and control” in determining whether an entity is a “public utility.” The Commission also noted that the reference to “operates [jurisdictional] facilities” in the definition of public utility in section 201(e) of the FPA refers “to the person who has control and decision-making authority concerning the operation of facilities.” 39 38 Section 201(b)(1) describes the activities that are subject to the jurisdiction of the Commission: “* * * the transmission of electric energy in interstate commerce and * * * the sale of electric energy at wholesale in interstate commerce * * *” The section further describes the facilities that are jurisdictional: “The Commission shall have jurisdiction over all facilities for such transmission or sale of electric energy, * * *” with certain exceptions not relevant here. In section 201(e), the term “public utility” is defined as “any person who owns or operates facilities subject to the jurisdiction of the Commission under this Part (other than facilities subject to such jurisdiction solely by reason of [certain specified FPA sections]).” 16 U.S.C. 824, *amended by* EPAct 2005, Pub. L. 109-58, 1295. 39 *Enova* , 79 FERC at 61,492 (citing *Bechtel Power Corp.* , 60 FERC ¶ 61,156

(1992)( *Bechtel Power* )). 50. In a case in which the Commission disclaimed jurisdiction under section 201(e) over financial institutions that took title to facilities as part of a leveraged lease transaction, the Commission based its decision that the lessor/owner was not a public utility under section 201 on the following factors (which it found in a previous but analogous situation):

(1)The financial institutions that held legal title were not operating the facilities;

(2)none of the parties taking title to the facilities were in the business of producing or selling electric power; and

(3)all had a principal business other than that of a public utility. 40 As part of its finding that the lessor/owner did not operate the facility, the Commission interpreted the word “operates” as referring to the person who has control and decision-making authority concerning the operation of the facility, *i.e.* , *not* a person who merely performs specific services that are ordered and directed by another party. 40 *Bechtel Power* , 60 FERC at 61,572 ( *citing Pacific Power & Light Co.* , 3 FERC ¶ 61,119 (1978); *Public Service Company of New Mexico* , 29 FERC ¶ 61,387 (1984); *United Illuminating Company* , 29 FERC ¶ 61,270 (1984)). 51. We note that “control” has been found even where that control is not absolute or unfettered. In a case involving a complex holding company corporate structure, the Commission deemed an investment adviser subsidiary to be a public utility because of its participation in wholesale transactions. The Commission found that the investment adviser had control over the wholesale contracts to be executed under the power marketer's market-based rate schedule because the combination of the following three factors translated into control:

(1)The sole discretion to enter into contracts;

(2)the exclusive ownership of the intellectual property on which contracts will be based; and

(3)the intention that the investment adviser will recommend the contracts into which the power marketer subsidiary would enter. 41 41 *D.E. Shaw Plasma Power, L.L.C.* , 102 FERC ¶ 61,265, at P 33

(2003)( *Shaw* ). 52. The Commission cited its decisions in *Bechtel* and *Shaw* as providing guidance on whether a nominal manager of a generating company actually exercised sufficient control to be deemed the operator and, hence, a public utility. 42 Based in part on those cases, in *Beck* , the Commission found that a manager was a controlling entity where he:

(1)Effectively governed the physical operation of the jurisdictional facility; and

(2)effectively served as the decision-maker in the sales of wholesale power. While the application in that case described a series of companies, at least five contracts (all of which either directly affected or were negotiated by the manager), and a trustee in addition to the manager, the Commission concluded that the manager was the controlling entity because he had the substantive decision-making authority regarding the jurisdictional assets, the market-based rate tariff and a full requirements purchase agreement. The Commission made this finding even though some of the manager's actions were subject to the approval of the trustee in certain circumstances, *e.g.* , if the transaction exceeded $1 million in value. 42 *R.W. Beck Plant Management, Ltd.* , 109 FERC ¶ 61,315

(2004)( *Beck* ). 53. More recently, in the Market-Based Rate Final Rule, in providing guidance on what contractual arrangements convey control over a public utility, we explained that we will consider the totality of circumstances and attach the presumption of control when an entity can affect the ability of capacity to reach the market. We further explained that our guiding principle is that an entity controls the facilities of another when it controls the decision-making over sales of electric energy, including discretion as to how and when power generated by these facilities will be sold. 43 43 Market-Based Rate Final Rule, FERC Stats. & Regs. ¶ 31,252 at P 176. 54. Investments in public utilities that do not convey control may in some cases be considered to be passive investments not subject to section 203(a)(1)(A) (unless there is a sale or lease of the facilities). The Commission has found an investment to be passive if, among other things,

(1)the acquired interest does not give the acquiring entity authority to manage, direct or control the day-to-day wholesale power sales activities, or the transmission in interstate commerce activities, of the jurisdictional entity; 44 and

(2)the acquired interest gives the acquiring entity only limited rights ( *e.g.* , veto and/or consent rights necessary to protect its economic investment interests, where those rights will not affect the ability of the jurisdictional public utility to conduct jurisdictional activities); 45 and

(3)the acquiring entity has a principal business other than that of producing, selling, or transmitting electric power. 46 44 *See Milford Power Company, LLC,* 118 FERC ¶ 61,093, at P 35 n.21 (2007). 45 *See Shaw,* 102 FERC ¶ 61,265 at P 15. 46 *See Metropolitan Life Insurance Company,* 113 FERC ¶ 61,300, at P 6 (2005). 55. We emphasize that the circumstances that convey control in section 203 analysis vary depending on a variety of factors, including the transaction structure, the nature of voting rights and/or contractual rights and obligations conveyed in the transaction. For example, in *PDI Stoneman,* the Commission considered the acquisition of facilities through three transactions, over approximately seven years, in which the applicant's resulting ownership shares at issue at the end of each of the three transactions went from one-third to two-thirds to 100 percent of the voting stock. The applicant claimed that control never vested until the third transaction because of a “supermajority” provision in the operating agreement that required approval by 80 percent of the voting stock for a range of decisions, including the sale of electricity from the plant. The Commission focused on the market-based rate schedule and concluded that the first transaction may have transferred control over that jurisdictional asset because, even with one-third of the voting stock, the applicant had the authority to influence all significant decisions, including the sale of power from the plant. Further, the Commission ruled that the material change in the proportion of interests after the second transaction resulted in a change of control. 47 47 *PDI Stoneman,* 104 FERC ¶ 61,270 at P 15-17. 56. While the purpose of the above discussion is to provide guidance on what, based on past precedent, constitutes a change of control for purposes of section 203, the burden remains upon the entities involved in a proposed transaction to decide whether they need to obtain Commission authorization under section 203 to undertake a proposed transaction. 2. General Guideline Regarding What Is Not a Transfer of Control 57. Based on the industry's need for further guidance on what may or may not constitute a transfer of control of jurisdictional facilities under section 203, and for greater regulatory certainty in undertaking utility investments, the Commission's general policy in future cases will be to presume that a transfer of less than 10 percent of a public utility's holdings is not a transfer of control if:

(1)After the transaction, the acquirer and its affiliates and associate companies, directly or indirectly, in aggregate will own less than 10 percent of such public utility; and

(2)the facts and circumstances do not indicate that such companies would be able to directly or indirectly exercise a controlling influence over the management or policies of the public utility. The Commission will apply this policy on a case-by-case basis. Further, if holding companies or other acquirers believe that facts and circumstances prevent them from exercising control even if they own 10 percent or more of a public utility, they may seek to make such a demonstration to the Commission. 58. This 10 percent threshold is consistent with the definition of “holding company” under section 1262(8)(A) of PUHCA 2005 (at which point a company may be in control of a subsidiary public utility). It 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, as well as the proposed section 203(a)(1) blanket authorization in the contemporaneous Notice of Proposed Rulemaking. 48 Further, the Commission has employed a rebuttable presumption in the context of its Standards of Conduct for Transmission Providers that ownership of 10 percent or more of voting interests creates a rebuttable presumption of control. 49 48 Blanket Authorization NOPR, *supra* note 6. In *The Goldman Sachs Group, Inc.,* 114 FERC ¶ 61,118 ( *Goldman* ), *order on reh'g,* 115 FERC ¶ 61,303 (2006), the Commission held that, under section 203(a)(2), subsidiaries that are not themselves holding companies are not required to seek authorization from the Commission to purchase, acquire, or take “covered” securities. Covered securities relate to

(1)acquisitions of securities worth more than $10 million, and

(2)acquisitions of securities of a transmitting utility, an electric company, or a holding company in a holding company system that includes a transmitting utility, or an electric utility company. The Commission also held that subsidiaries' securities acquisitions are not attributable to the upstream holding company. Thus, the upstream holding company also is not required to seek section 203(a)(2) authorization for its subsidiaries' acquisitions. This does not mean that authorization may not be required under other provisions of section 203. For example, if a non-utility subsidiary acquires securities of a public utility, that public utility must obtain section 203(a)(1)(A) authorization if the transaction results in a transfer of control of facilities valued at more than $10 million. Further, if each of a number of non-utility subsidiaries acquires, for example, up to 9.99 percent of the same public utility (in order to avoid becoming a holding company and/or avoid a transfer of control to a single one of the subsidiaries), it is possible that the public utility disposition of securities to several companies under common control could, taken as a whole, result in a transfer of control. Finally, irrespective of the dollar amount of the transaction, an indirect merger or consolidation could occur and require approval under section 203(a)(1)(B). *Goldman,* 114 FERC ¶ 61,118 at P 13-15. Thus, while the Commission's policy as a general matter will be to presume that a transfer of control is not likely where ownership in a public utility is less than 10 percent, the burden is on the entities to file under section 203 if this threshold is met. The Commission will continue to review the facts and circumstances of transactions on a case-by-case basis. 49 18 CFR 358.3(c). D. The Commission's Appendix A Analysis 1. Appendix A Policy and Case History 59. The 1996 Merger Policy Statement uses an analytical screen (Appendix A analysis) to allow early identification of transactions that clearly do not raise competitive concerns. 50 As discussed below, the Commission does not believe modifications to its Appendix A analysis are warranted at this time. However, the Commission will provide certain clarifications in light of the concerns raised by commenters in the Order No. 669 rulemaking proceeding and the March 8 Technical Conference. 50 As part of the screen analysis, applicants must define the relevant products sold by the merging entities, identify the customers and potential suppliers in the geographic markets that are likely to be affected by the proposed transaction, and measure the concentration in those markets. Using the Delivered Price Test to identify alternative competing suppliers, the concentration of potential suppliers included in the defined market is then measured by the Herfindahl-Hirschman Index

(HHI)and used as a screen to determine which transactions clearly do not raise market power concerns. 1996 Merger Policy Statement, FERC Stats. & Regs. ¶ 31,044 at 30,119-20. 60. In horizontal mergers, if an applicant fails the Competitive Analysis Screen (one piece of the Appendix A analysis), the Commission's analysis focuses on the merger's effect on the merged firm's ability and incentive to withhold output in order to drive up the market price. The ability to withhold output depends on the amount of marginal capacity controlled by the merged firm, and the incentive to do so depends on the amount of infra-marginal capacity that could benefit from higher prices. For example, in a horizontal merger combining a company with significant baseload capacity with a company owning capacity on the margin under many season/load conditions, the theory of competitive harm would be that the combination of the “ability” assets with one company's existing “incentive” assets would increase the likelihood of the company exercising market power. Proper mitigation would address the harm to competition by reducing the merged firm's “ability” assets or its “incentive” assets through divestiture or some other method. In *Commonwealth Edison Company,* we discussed both the ability and the incentive of the merged firm to withhold output. We found that despite screen failures, the merger would not harm competition in the relevant wholesale markets and therefore did not require any mitigation: An examination of market supply conditions shows three reasons why a profitable withholding strategy by ComEd would be unlikely:

(a)For most hours during the year, the supply curve is relatively flat, so withholding capacity would not significantly raise the market price;

(b)for those hours during which it could successfully raise the market price, ComEd would have to forgo sales from its low-cost nuclear capacity; and

(c)ComEd's only generation is nuclear which is difficult to ramp down or up so as to withhold output during the most profitable time periods. 51 51 *Commonwealth Edison Company,* 91 FERC ¶ 61,036, at 61,133 n.42 (2000). 61. The Commission also examines the possibility of competitive harm in vertical mergers. In the first stage of the analysis, the Commission requires applicants to calculate the post-merger concentration in both the upstream and downstream markets to determine whether the upstream and downstream markets are highly concentrated, because highly concentrated upstream and downstream markets are necessary, but not sufficient, conditions for a vertical foreclosure strategy to be effective. If both of those necessary conditions are present, then the second stage of the analysis focuses on whether the merger creates or enhances the ability or incentive of the merged firm to exercise vertical market power through vertical foreclosure or raising rivals' costs. 52 52 *See* Filing Requirements Rule, FERC Stats. & Regs. ¶ 31,111 at 31,910-11. 62. For example, in *AEP/CSW,* the Commission found—without relying solely on changes in HHI statistics—that the merger of two vertically integrated utilities with both transmission and generation assets would harm competition by enhancing the ability and incentive for the merged firm to use control of its transmission assets to frustrate competitors' access to relevant markets. The Commission therefore required that AEP turn over control of its transmission facilities to a Commission-approved Regional Transmission Operator and, in the interim, be subject to market monitoring by an independent entity and have an independent entity calculate and post the available transfer capacity on AEP's transmission system. 53 53 *American Electric Power Company and Central and Southwest Corporation,* Opinion No. 442, 90 FERC ¶ 61,242, at 61,788-90 ( *AEP/CSW* ), *order on reh'g,* Opinion No. 442-A, 91 FERC ¶ 61,129 (2000), *appeal denied sub nom., Wabash Valley Power Association, Inc.* v. *FERC,* 268 F.3d 1105 (D.C. Cir. 2001). 63. We will continue to analyze mergers (both horizontal and vertical) and other section 203 applications by focusing on a transaction's effect on the company's ability and incentive to exercise market power, and thus harm competition. We expect applicants and intervenors to frame their arguments in this manner. 2. Issues Raised at the March 8 Technical Conference a. The Role of HHIs in the Appendix A Analysis 64. Some commenters argued that the Commission was overly focused on the HHI statistic, which measures concentration, and asked that the Commission look at competitive effects of section 203 transactions that are not apparent from the assessment of concentration. 54 54 *See, e.g.,* Comments of Darren Bush, March 8 Technical Conference, Tr. 23; Comments of Mark Hegedus, March 8 Technical conference, Tr. 94-95; Comments of Diana Moss, March 8 Technical Conference, Tr. 101; Comments of Mark J. Niefer, March 8 Technical Conference, Tr. 108. 65. In fact, as noted above, the Commission does look beyond the change in HHI in its analysis of the effect on competition in both horizontal and vertical mergers. The change in HHI serves as a screen to identify those transactions that could potentially harm competition. If the screen is failed, then, as discussed in paragraph 59 above, the Commission examines the factors that could affect competition in the relevant market. Specifically, in these circumstances the Commission typically considers a case-specific theory of competitive harm, which includes, but is not limited to, an analysis of the merged firm's ability and incentive to withhold output in order to drive up prices. Again, and as noted above, the Commission has discussed its consideration of such factors in cases such as *Commonwealth Edison Company.* Further, the Filing Requirements Rule requires applicants failing the screen to address market conditions beyond the change in HHI: The facts of each case ( *e.g.* , market conditions, such as demand and supply elasticity, ease of entry and market rules, as well as technical conditions, such as the types of generation involved) determine whether the merger would harm competition. When there is a screen failure, applicants must provide evidence of relevant market conditions that indicate a lack of a competitive problem or they should propose mitigation. 55 55 Filing Requirements Rule, FERC Stats. & Regs. ¶ 31, 111 at 31, 897. Moreover, even where an applicant passes the HHI screen, the Commission also considers intervenor theories of competitive harm. b. Commission-Developed Computer Simulation Model 66. Some commenters stated that the Commission should develop and internally run its own computer simulation model, similar to what is done by the U.S. Department of Justice

(DOJ)and the Federal Trade Commission (FTC). Dr. Frankena asserted that using a computer simulation model would be more reliable than our alleged practice of relying exclusively on applicants to perform the current Appendix A analysis. Mr. Hegedus advocated the use of regional models in concert with the process the Commission proposed in the market-based rate rulemaking proceeding and other proceedings involving market power issues. Dr. Moss suggested using an in-house model in a more limited way, as a consistency check on submissions rather than as a formal evaluative tool. Dr. Neifer stated that models are among the many types of evidence the DOJ considers in evaluating a merger. For example, the DOJ uses simple models that evaluate the costs and benefits of the merger as well as more complex ones that model a firm's decision to operate a generating unit in the markets at issue. 67. Other commenters argued that the costs for the Commission to develop and run its own computer simulation model would exceed any related benefits. Mr. Baliff argued that it would be difficult to use any model unless it were generally accepted, well known, and accessible to all so that applicants could know whether their proposed transactions passed muster. In addition, different models focus on different decisions—bidding decisions, supply decisions, pricing decisions—and some or all of these may be relevant. Mr. Hegedus argued that the Commission should develop regional models to analyze mergers based on the information available from its analyses of market-based rate authorizations and through its Office of Enforcement. 68. We will not develop and run our own computer simulation model in lieu of or in addition to the Delivered Price Test model that we already require applicants to perform as part of the Competitive Analysis Screen. While advocates of computer simulation models believe that such models would more accurately analyze the effect on competition, and some believe they will allow better coordination with other Commission programs involving market power issues, these advocates have not demonstrated how the Commission's use of an internal model would have altered any Commission determinations on previous section 203 applications. While the benefits of a Commission-internal computer simulation model have not been well-defined or quantified, we believe that the costs of such a modeling requirement in time and resources to applicants, intervenors, and Commission staff would be likely to exceed any benefits. 69. It also should be emphasized that those who advocate use of an internal modeling overlook important differences between Commission proceedings under section 203 and the processes used by the DOJ and the FTC to review mergers and acquisitions. The Commission's process of reviewing mergers and acquisitions under section 203 is a public one. An application is filed publicly, all interested parties have the ability to comment, and the Commission decides the case based on the public record. Our Appendix A analysis facilitates this public process by requiring the submission of a transparent market power study, using standardized assumptions and criteria, that is available for review and comment by all interested parties, including state commissions and customers, and, importantly, can be replicated by them in the limited time period available for public comment. Similarly, when mitigation measures are necessary in Commission proceedings, they are based on the public record and available for comment by all interested parties. 70. By contrast, the DOJ and the FTC use largely informal and non-public processes for reviewing transactions subject to their jurisdiction. Their meetings with applicants are not noticed to the public and are less formal in nature. This provides the DOJ and the FTC greater flexibility to use, among other things, internal modeling tools that may not be easily replicated or other methodological approaches that are stylized to an individual case. In DOJ and FTC proceedings, staff and applicants can engage in extensive informal communications to discuss and address data, methodological and other disputes that are associated with these more stylized approaches. Similarly, when mitigation is required, staff and applicants can design such mitigation measures in a non-public manner. In sum, these more informal processes, while entirely appropriate in the context of DOJ and FTC review of mergers and transactions, simply cannot be replicated by the Commission given the due process and other considerations relevant in proceedings under section 203 of the FPA. 71. We also note that some commenters urging the Commission to develop and run its own internal computer simulation model are mistakenly assuming that the current process is flawed because applicants can file merger impact studies using their own methodologies and assumptions. On the contrary, in the 1996 Merger Policy Statement, in the Filing Requirements Rule and in many subsequent orders interpreting those issuances, the Commission has carefully set forth the requirements of how the Commission's adopted study methodology, the Delivered Price Test, must be performed and what assumptions the Commission will accept as reasonable. If applicants fail to perform the studies according to the Commission's prescribed methodology, or their studies are based on faulty assumptions or use questionable data inputs, then those studies are required to be amended or supplemented with additional data. 56 In some cases the Commission has required that new studies be conducted which conform to the Commission's standards. Thus, contrary to the view of some commenters, neither the Commission nor intervenors are disadvantaged by our current policy of requiring applicants to perform the merger impact studies, nor is the Commission subject to manipulation by applicants who can allegedly game the studies to their own benefit. Studies which do not conform to the Commission's explicit requirements are either rejected or required to be revised until they do conform, and intervenors have opportunity in every merger proceeding to inform the Commission if they believe that something in the applicant's study is amiss. 56 For example, in *Entergy Gulf States, Inc.,* Commission Staff was unable to verify the results of applicants' model performing the Competitive Analysis Screen, and sent the applicants a deficiency letter identifying the error in the input data and requiring the applicants to submit the corrected data. *Entergy Gulf States, Inc.,* Docket No. EC07-70-000, at 1 (Apr. 6, 2007) (unpublished deficiency letter). 72. Specifically, merger applicants must submit the model and all of the data inputs necessary for completing the Competitive Analysis Screen in any section 203 Application requiring a complete Appendix A analysis. 57 In those cases, Commission staff reviews the data supplied and runs the applicants' models to check the accuracy of the results and the sensitivity of the results to changes in the underlying assumptions. In addition, the models and input data are available to intervenors in the proceeding, who can also verify the accuracy of the results and perform sensitivity tests. 57 In cases involving a *de minimis* amount of generation being combined in the relevant geographic market, applicants are not required to perform a complete Appendix A analysis. 73. A complete Competitive Screen Analysis submission provides sufficient information to identify those transactions that may harm competition. The data submitted includes a valuable intermediate calculation: A supply curve of all the generators that can possibly serve the area, and whether those generators are dispatched given transmission constraints. Finding the supply curve requires an estimate of suppliers' generation costs, including fuel costs, operation and maintenance costs, heat rates, and emissions costs; competitive market prices; transmission prices; and transmission import constraints. 58 Whether the Commission grants the merger application with or without conditions, rejects it, or sets it for hearing, the Commission can determine whether the application presents any competitive issues because the current Competitive Analysis Screen is sufficiently precise to make such a determination. 58 *See* 1996 Merger Policy Statement, FERC Stats. & Regs. ¶ 31,044 at 30,130-33 (discussion of the delivered price test). 74. In summary, there has been no showing that a Commission-internal computer simulation model is needed, both in light of these burdens as well as because the study that the Commission already requires applicants to perform is adequate to measure the potential for competitive harm associated with section 203 dispositions. And, as noted above, the Commission is diligent in ensuring that applicants conduct the Competitive Analysis Screen properly, including using reasonable assumptions and data inputs. c. Adding Hart-Scott-Rodino Information to the Section 203 Record 75. Some commenters suggested that the Commission require applicants to file all materials submitted to the DOJ and the FTC in their Hart-Scott-Rodino

(HSR)filings. Other commenters noted that such a filing would create confidentiality concerns due to the public nature of the Commission's section 203 proceedings. We also share those concerns. Unlike the DOJ and the FTC, who can keep any of the information confidential, our proceedings require a public record, and our decisions must be based on evidence that is available to the parties of record in the proceeding. We permit applicants to request confidentiality for certain documents and file a protective order to allow intervenors to view those documents. However, we cannot maintain the same degree of confidentiality as do the DOJ and the FTC. 59 The HSR filings often contain highly sensitive proprietary documents such as the companies' price forecasts, pricing analyses, and pricing decisions. 60 Access to such valuable commercial information could not only harm the merging companies, it could also harm competition in wholesale electricity markets by facilitating coordination by competitors, who would have a better understanding of each other's pricing strategies and competitive objectives. 59 As Mark J. Niefer noted, “the [Antitrust] Division [of the DOJ] is precluded from sharing much of the information it gathers to analyze a merger” and “[e]xcept in very limited circumstances, information provided to the Division * * * may not be disclosed to others without the consent of the producing party.” Comments of Mark J. Niefer, March 8 Technical Conference, Tr. 106-07. 60 *See* Federal Trade Commission, Introductory Guide III to the Premerger Notification Program, Model Request for Additional Information and Documentary Material (Second Request) (revised May 2007), available at *http://www.ftc.gov/bc/hsr/introguides/guide3.pdf.* d. Alternatives to Trial-Type Hearings 76. Some commenters suggested that the Commission use alternatives to trial-type evidentiary hearing procedures, including technical conferences and paper hearings with limited periods of discovery and additional data requests. 77. Given the statutory deadlines faced by the Commission on section 203 applications, 61 we believe that holding an evidentiary hearing generally will not be feasible, depending on the issues in dispute. Therefore, in cases that present complicated factual disputes, we will consider alternatives such as paper hearings with a limited period of discovery, so that we can develop a complete record. 61 Under revised section 203, the Commission must act within 180 days of a complete application, and with good cause may extend the deadline another 180 days. If not, the authorization is granted by law. e. Attribution of Generation Under Contract 78. Some commenters also requested clarification on how generation under contract should be attributed in the analysis of market concentration. Specifically, they asked whether the generation should be attributed to the party with operational control of the generation facility or to the party with the economic interest in the capacity. 79. The determination on whether a long-term generation contract should be attributed to the purchaser of power or the seller depends on the party with operational control, which depends upon the specific contract. Therefore, we have required that applicants file information about whether their long-term generation contracts confer operational control over generation resources to the purchaser. Our practice has been to attribute contracted capacity to the purchaser if such a contract confers operational control over the generation to the purchaser. 62 We will continue this practice, and require applicants to file purchase and sales data, including information on whether the terms and conditions of purchase contracts confer operational control over generation to the purchaser. However, if an applicant fails the Competitive Analysis Screen, we will consider arguments regarding the ability and incentive of the merged firm to exercise market power, and therefore consider the merged firm's contractual positions as well as its physical control of generation. 62 *See* Filing Requirements Rule, FERC Stats. & Regs. ¶ 31,111 at 31,888. III. Information Collection Statement 80. The Office of Management and Budget's

(OMB)regulations require that OMB approve certain information collection and data retention requirements imposed by agency rules. 63 In this supplemental policy statement, the Commission is providing guidance regarding future implementation of FPA section 203. The Commission is not imposing any additional information collection requirement upon the public. The Commission is not proposing any changes to its current regulations. Accordingly, there should be no impact on the current reporting burden associated with an individual section 203 application. The Commission also does not expect the total number of section 203 applications to be affected by this Supplemental Policy Statement. However, the Commission will submit for informational purposes only a copy of this Supplemental Policy Statement to OMB. 63 5 CFR 1320. *Burden Estimate:* The Public Reporting and records retention burden for section 203 applications is 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 Supplemental Policy Statement provides guidance regarding future implementation of FPA section 203. The Commission is not proposing any changes to its current regulations. *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 existing information burden estimate. 81. 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 Supplemental Policy Statement 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* ]. IV. Environmental Analysis 82. 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. 64 The Commission has categorically excluded certain actions from this requirement as not having a significant effect on the human environment. 65 The Supplemental Policy Statement is categorically excluded as it addresses actions under section 203. 66 Accordingly, no environmental assessment is necessary and none has been prepared in this Supplemental Policy Statement. 64 *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). 65 18 CFR 380.4. 66 *See* 18 CFR 380.4(a)(16). V. Regulatory Flexibility Act Certification 83. The Regulatory Flexibility Act of 1980

(RFA)67 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. 68 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. 67 5 U.S.C. 601-12. 68 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. 84. Most filing companies regulated by the Commission do not fall within the RFA's definition of small entity. 69 Further, as noted above, the Supplemental Policy Statement does not propose any changes to the Commission's current regulations under section 203; therefore there is no change in how the Commission's regulations under section 203 affect small entities. Therefore, the Commission certifies that the Supplemental Policy Statement will not have a significant economic impact on a substantial number of small entities. As a result, no regulatory flexibility analysis is required. 69 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. VI. Document Availability 85. 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. 86. 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. 87. 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.* VII. Effective Date and Congressional Notification 88. This Supplemental Policy Statement is effective July 20, 2007. The Commission has determined that, consistent with the discussion above with regard to information collection and the RFA, this policy statement also is not a “major rule” as defined in section 351 of the Small Business Regulatory Enforcement Fairness Act of 1996. The Commission will submit this Supplemental Policy Statement to both houses of Congress and to the General Accounting Office. List of Subjects in 18 CFR Part 33 Electric utilities, Reporting and recordkeeping requirements, Securities. By the Commission. Kimberly D. Bose, Secretary. [FR Doc. E7-14956 Filed 8-1-07; 8:45 am] BILLING CODE 6717-01-P DEPARTMENT OF HEALTH AND HUMAN SERVICES Food and Drug Administration 21 CFR Part 522 Implantation or Injectable Dosage Form New Animal Drugs; Oxytetracycline Hydrochloride Injection AGENCY: Food and Drug Administration, HHS. ACTION: Final rule. SUMMARY: The Food and Drug Administration

(FDA)is amending the animal drug regulations to reflect approval of an abbreviated new animal drug application (ANADA) filed by Norbrook Laboratories, Ltd. The ANADA provides for use of an oxytetracycline hydrochloride injectable solution in beef cattle, beef calves, nonlactating dairy cattle, and dairy calves for the treatment of various bacterial diseases. DATES: This rule is effective August 2, 2007. FOR FURTHER INFORMATION CONTACT: John K. Harshman, Center for Veterinary Medicine (HFV-104), Food and Drug Administration, 7500 Standish Pl., Rockville, MD 20855, 301-827-0169, e-mail: *john.harshman@fda.hhs.gov* . SUPPLEMENTARY INFORMATION: Norbrook Laboratories, Ltd., Station Works, Newry BT35 6JP, Northern Ireland, filed ANADA 200-452 that provides for use of OXYTET 10 (oxytetracycline hydrochloride) Injection in beef cattle, beef calves, nonlactating dairy cattle, and dairy calves for the treatment of various bacterial diseases. Norbrook Laboratories, Ltd.'s OXYTET 10 Injection is approved as a generic copy of Boehringer Ingelheim Vetmedica, Inc.'s, MEDAMYCIN Injectable approved under NADA 108-963. The ANADA is approved as of June 27, 2007, and the regulations are amended in 21 CFR 522.1662a to reflect the approval. In accordance with the freedom of information provisions of 21 CFR part 20 and 21 CFR 514.11(e)(2)(ii), a summary of safety and effectiveness data and information submitted to support approval of this application may be seen in the Division of Dockets Management (HFA-305), Food and Drug Administration, 5630 Fishers Lane, rm. 1061, Rockville, MD 20852, between 9 a.m. and 4 p.m., Monday through Friday. FDA has determined under 21 CFR 25.33(a)(1) that this action is of a type that does not individually or cumulatively have a significant effect on the human environment. Therefore, neither an environmental assessment nor an environmental impact statement is required. This rule does not meet the definition of “rule” in 5 U.S.C. 804(3)(A) because it is a rule of “particular applicability.” Therefore, it is not subject to the congressional review requirements in 5 U.S.C. 801-808. List of Subjects in 21 CFR Part 522 Animal drugs. Therefore, under the Federal Food, Drug, and Cosmetic Act and under authority delegated to the Commissioner of Food and Drugs and redelegated to the Center for Veterinary Medicine, 21 CFR part 522 is amended as follows: PART 522—IMPLANTATION OR INJECTABLE DOSAGE FORM NEW ANIMAL DRUGS 1. The authority citation for 21 CFR part 522 continues to read as follows: Authority: 21 U.S.C. 360b. 2. Section 522.1662a is amended by revising paragraph (h)(2) to read as follows: § 522.1662a Oxytetracycline hydrochloride injection.

(h)* * *

(2)*Sponsors* . See No. 000010 in § 510.600(c) of this chapter for use of 50 and 100 milligrams per milliliter solution; and Nos. 055529 and 059130 in § 510.600(c) for use of 100 milligrams per milliliter solution. Dated: July 17, 2007. Stephen F. Sundlof, Director, Center for Veterinary Medicine. [FR Doc. E7-14950 Filed 8-1-07; 8:45 am] BILLING CODE 4160-01-S DEPARTMENT OF HEALTH AND HUMAN SERVICES Food and Drug Administration 21 CFR Part 524 Ophthalmic and Topical Dosage Form New Animal Drugs; Emodepside and Praziquantel AGENCY: Food and Drug Administration, HHS. ACTION: Final rule. SUMMARY: The Food and Drug Administration

(FDA)is amending the animal drug regulations to reflect approval of a new animal drug application

(NADA)filed by Bayer HealthCare LLC. The NADA provides for veterinary prescription use of an emodepside and praziquantel topical solution on cats for the treatment and control of infections by several internal parasites. DATES: This rule is effective August 2, 2007. FOR FURTHER INFORMATION CONTACT: Melanie R. Berson, Center for Veterinary Medicine (HFV-110), Food and Drug Administration, 7500 Standish Pl., Rockville, MD 20855; 301-827-7540; e-mail: *melanie.berson@fda.hhs.gov* . SUPPLEMENTARY INFORMATION: Bayer HealthCare LLC, Animal Health Division, P.O. Box 390, Shawnee Mission, KS 66201, filed NADA 141-275 that provides for veterinary prescription use of PROFENDER (emodepside and praziquantel) Topical Solution for the treatment and control of infections by several internal parasites of cats. The NADA is approved as of June 29, 2007, and the regulations are amended in 21 CFR part 524 by adding § 524.775 to reflect the approval. In accordance with the freedom of information provisions of 21 CFR part 20 and 21 CFR 514.11(e)(2)(ii), a summary of safety and effectiveness data and information submitted to support approval of this application may be seen in the Division of Dockets Management (HFA-305), Food and Drug Administration, 5630 Fishers Lane, rm. 1061, Rockville, MD 20852, between 9 a.m. and 4 p.m., Monday through Friday. Under section 512(c)(2)(F)(ii) of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 360b(c)(2)(F)(ii)), this approval qualifies for 3 years of marketing exclusivity beginning on the date of the approval. The agency has determined under 21 CFR 25.33(d)(1) that this action is of a type that does not individually or cumulatively have a significant effect on the human environment. Therefore, neither an environmental assessment nor an environmental impact statement is required. This rule does not meet the definition of “rule” in 5 U.S.C. 804(3)(A) because it is a rule of “particular applicability.” Therefore, it is not subject to the congressional review requirements in 5 U.S.C. 801-808. List of Subjects in 21 CFR Part 524 Animal drugs. Therefore, under the Federal Food, Drug, and Cosmetic Act and under authority delegated to the Commissioner of Food and Drugs and redelegated to the Center for Veterinary Medicine, 21 CFR part 524 is amended as follows: PART 524—OPHTHALMIC AND TOPICAL DOSAGE FORM NEW ANIMAL DRUGS 1. The authority citation for 21 CFR part 524 continues to read as follows: Authority: 21 U.S.C. 360b. 2. Add § 524.775 to read as follows: § 524.775 Emodepside and praziquantel.

(a)*Specifications* . Each milliliter of solution contains 21.4 milligrams

(mg)emodepside and 85.7 mg praziquantel.

(b)*Sponsor* . See No. 000859 in § 510.600(c) of this chapter.

(c)*Conditions of use in cats* —(1) *Amount* . The recommended minimum dose is 1.36 mg/pound

(lb)(3 mg/kilogram (kg)) emodepside and 5.45 mg/lb (12 mg/kg) praziquantel applied as a single topical dose.

(2)*Indications for use* . For the treatment and control of hookworm infections caused by *Ancylostoma tubaeforme* (adults, immature adults, and fourth stage larvae), roundworm infections caused by *Toxocara cati* (adults and fourth stage larvae), and tapeworm infections caused by *Dipylidium caninum* (adults) and *Taenia taeniaeformis* (adults).

(3)*Limitations* . Federal law restricts this drug to use by or on the order of a licensed veterinarian. Dated: July 17, 2007. Stephen F. Sundlof, Director, Center for Veterinary Medicine. [FR Doc. E7-14945 Filed 8-1-07; 8:45 am] BILLING CODE 4160-01-S DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Parts 1, 26, and 602 [TD 9348] RIN 1545-BC50 Qualified Severance of a Trust for Generation-Skipping Transfer

(GST)Tax Purposes AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Final regulations. SUMMARY: This document contains final regulations providing guidance regarding the qualified severance of a trust for generation-skipping transfer

(GST)tax purposes under section 2642(a)(3) of the Internal Revenue Code (Code), which was added to the Code by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). The regulations will affect trusts that are subject to the GST tax. DATES: *Effective Date:* The regulations are effective August 2, 2007. *Applicability Date:* For dates of applicability, see § 26.2642-6(k)(1) and § 26.2642-6(k)(2). FOR FURTHER INFORMATION CONTACT: Mayer R. Samuels,

(202)622-3090 (not a toll-free number). SUPPLEMENTARY INFORMATION: Paperwork Reduction Act The collection of information contained in these final regulations has been previously reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) under control number 1545-1902. The collection of information in these final regulations is in § 26.2642-6(e). This information is requested by the IRS to identify whether a trust is exempt from the GST tax. This information is required to determine whether the amount of tax has been calculated correctly. The respondents are trustees of trusts that are being severed. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid control number assigned by the Office of Management and Budget. The estimated average annual burden per respondent/recordkeeper is .5 hours per respondent. Comments concerning the accuracy of this burden estimate should be sent to the Internal Revenue Service, Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP, Washington, DC 20224 and the Office of Management and Budget, Attn: Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503. Books or records relating to this collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103. Background Section 2642(a)(3) was added to the Internal Revenue Code by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), Public Law 107-16 (115 Stat. 38 (2001)). Under section 2642(a)(3), if a trust is divided into two or more trusts in a “qualified severance,” the resulting trusts will be recognized as separate trusts for GST tax purposes. In many cases, a qualified severance of a trust will facilitate the most efficient and effective use of the transferor's GST tax exemption. The GST tax exemption is each person's lifetime exemption that may be allocated to a generation-skipping transfer. If the transfer is made in trust, allocation of the donor's GST tax exemption reduces the trust's inclusion ratio, which in turn determines the amount of GST tax imposed on any generation-skipping transfer made with regard to the trust. On August 24, 2004, the IRS published in the **Federal Register** a notice of proposed rulemaking (REG-145987-03, 2004-39 IRB 519, 69 FR 51967), providing rules under section 2642(a)(3) regarding the qualified severance of a trust for GST tax purposes. The IRS received written and oral comments responding to the notice of proposed rulemaking. No public hearing was requested or held. After consideration of all the comments, the proposed regulations are adopted as amended by this Treasury decision, and the corresponding proposed regulations are removed. The comments and revisions to the proposed regulations are discussed below. In addition, additional proposed regulations are being issued contemporaneously with these final regulations in order to respond to certain comments that the Treasury Department and the IRS believe merit further consideration in proposed regulations. Summary of Comments The proposed regulations take the position that the severance rules contained in § 26.2654-1(b) of the regulations were superseded by the enactment of section 2642(a)(3), and therefore that § 26.2654-1(b) is no longer effective. However, many commentators noted that sections 2654(b) and 2642(a)(3) address different situations, and they suggested that section 2642(a)(3) was intended to supplement, rather than to replace, section 2654(b), and to thereby provide more flexibility in severing trusts for GST tax purposes. The commentators noted that section 2642(a)(3) qualified severances are effective prospectively from the date of severance and thus, that section only addresses severances that typically would occur after an irrevocable trust (whether inter vivos or testamentary) has been in existence for a period of time. In contrast, § 26.2654-1(b) addresses only severances of testamentary trusts and revocable inter vivos trusts included in the transferor's gross estate, and a severance satisfying § 26.2654-1(b) is effective retroactively to the date of death. Section 26.2654-1(b) provides for the recognition of severances of separate shares of such trusts, and of discretionary severances that, although not provided for in the governing instrument, are necessary to fully utilize available tax benefits (for example, the reverse qualified terminable interest property election under section 2652(a)(3)). To fulfill the purpose of these severances (generally, efficient utilization and allocation of the decedent's GST exemption), the severance must be effective retroactive to the date of death. Thus, section 2642(a)(3) and § 26.2654-1(b) address different circumstances. In response to these comments, the final regulations do not supersede § 26.2654-1(b). Rather, § 26.2654-1(b) is retained, but, as explained hereafter, is proposed to be amended as described in a notice of proposed rulemaking issued contemporaneously with these final regulations. Subject to those proposed changes, § 26.2654-1(b) will continue to provide rules for mandatory and discretionary severances of trusts includible in the transferor's gross estate, effective retroactively to the transferor's date of death. The final regulations under § 26.2642-6 generally provide rules for the qualified severance of a trust (whether or not includible in the transferor's gross estate) if the severance will be effective only prospectively from the date of severance. One commentator requested that the regulations provide that separate trusts, created as the result of a mandated division of a single trust that is effective under state law, be recognized prospectively as separate trusts for certain GST tax purposes, even if the severance does not satisfy the requirements of a qualified severance. This comment will be addressed in the proposed regulations under section 2642, issued contemporaneously with these final regulations. One commentator requested that the regulations provide additional flexibility in severing a trust that has an inclusion ratio between zero and one. Specifically, the commentator requested that the final regulations permit the qualified severance of a trust into one or more separate resulting trusts, as long as one or more of the resulting trusts, in the aggregate, would receive a fractional share of the total value of the original trust's assets that equals the applicable fraction of the original trust. In such a qualified severance, the resulting trust or trusts receiving this fractional share would each have an inclusion ratio of zero, and each of the other resulting trusts would have an inclusion ratio of one. This comment will be addressed in the proposed regulations under section 2642, issued contemporaneously with these final regulations. In response to comments, the final regulations continue to require that, in notifying the IRS of the severance of a trust, the words “Qualified Severance” should appear at the top of Form 706-GS(T), “Generation-Skipping Transfer Tax Return for Terminations,” but the use of red ink for that purpose is not required. One commentator questioned the requirement in the proposed regulations that any non-pro rata funding of trusts resulting from a qualified severance must be based on the value of the trust assets as of the date of funding. The commentator pointed out that, in many cases, the funding of trusts resulting from a qualified severance will take place over a period of time, rather than on one specific date. Accordingly, under the final regulations, the non-pro rata funding of trusts resulting from a qualified severance must be achieved by applying the appropriate fraction or percentage to the total value of the trust assets as of the “date of severance.” The term “date of severance” is defined as the date selected for determining the value of the trust assets (whether selected on a discretionary basis or by a court order), provided that funding is commenced immediately and occurs within a reasonable time before or after the selected date of severance. For this purpose, a reasonable time may differ depending upon the type of asset involved, but in no event may be more than 90 days. Several commentators requested that the regulations address the severance of a trust that was irrevocable on September 25, 1985, but with respect to which an addition was made to the trust after September 25, 1985. For purposes of determining the inclusion ratio with respect to such a trust, § 26.2601-1(b)(1)(iv)(A) provides that the trust is deemed to consist of two portions, one portion not subject to GST tax (the non-chapter 13 portion) with an inclusion ratio of zero, and one portion subject to GST tax (the chapter 13 portion) with an inclusion ratio determined under section 2642. In response to these comments, the final regulations provide guidance regarding a qualified severance of the chapter 13 portion of these trusts. The proposed regulations include a mandatory reporting requirement, without which a severance would not constitute a qualified severance. One commentator noted that, in some situations, it may be advantageous to sever a trust but to avoid qualification under section 2642(a)(3) as a qualified severance. The Treasury Department and the IRS believe that the qualified severance rules were not intended to be optional; that is, able to be employed or avoided depending upon the tax consequences of a particular severance. Therefore, under the final regulations, the reporting provisions do not constitute a requirement for qualified severance status, but each severance should be reported to ensure that the provisions of Chapter 13 of the Code may be properly applied with regard to the trusts. One commentator noted that § 1.1001-1(h)(1) of the proposed regulations provides favorable income tax treatment only with respect to a qualified severance. The commentator requested that the regulations also address the income tax treatment of all other trust modifications and severances. The commentator noted that the failure to address, for example, the income tax consequences of severances that are not qualified severances for GST tax purposes implies that such severances are taxable events for income tax purposes. In response to these comments, the category of severances to which § 1.1001-1(h)(1) will apply has been broadened. No inference should be drawn with respect to the income tax consequences under section 1001 of any severance that is not described in § 1.1001-1(h)(1). Commentators noted that some qualified severances may result in a taxable termination or taxable distribution, for example, if after the severance, one of the resulting trusts is a skip person. The final regulations clarify that, if the qualified severance itself results in a GST taxable event, the taxable event is treated as occurring immediately after the severance. As a result, if the resulting trust that is a skip person is also the trust that has a zero inclusion ratio after the severance, then no GST tax will result from the taxable event that is deemed to occur after the severance. An example was added illustrating this rule. Finally, in response to comments, an example has been added addressing the qualified severance rules in the case of a trust where the beneficiary is granted a contingent testamentary general power of appointment that is dependent upon the trust's inclusion ratio. Special Analyses It has been determined that this Treasury decision 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. It is hereby certified that the collection of information in these regulations will not have a significant economic impact on a substantial number of small entities. This certification is based upon the fact that the collection of information imposed by this regulation is not significant as reflected in the estimated burden of information collection for, which is 0.5 hours per respondent, and that few trustees are likely to be small entities. Therefore, a Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the Code, the notice of proposed rulemaking preceding these regulations was submitted to the Small Business Administration for comment on their impact on small business. Drafting Information The principal author of these final regulations is Mayer R. Samuels, Office of the Associate Chief Counsel (Passthroughs and Special Industries), IRS. Other personnel from the IRS and the Treasury Department participated in their development. List of Subjects 26 CFR Part 1 Income taxes, Reporting and recordkeeping requirements. 26 CFR Part 26 Estate taxes, Reporting and recordkeeping requirements. 26 CFR Part 602 Reporting and recordkeeping requirements. Adoption of Amendments to the Regulations Accordingly, 26 CFR parts 1, 26 and 602 are amended as follows: PART 1—INCOME TAXES **Paragraph 1** . The authority citation for part 1 continues to read in part as follows: Authority: 26 U.S.C. 7805 * * * **Par. 2** . In § 1.1001-1, paragraph

(h)is added to read as follows: § 1.1001-1 Computation of gain or loss.

(h)*Severances of trusts* —(1) *In general* . The severance of a trust (including without limitation a severance that meets the requirements of § 26.2642-6 or of § 26.2654-1(b) of this chapter) is not an exchange of property for other property differing materially either in kind or in extent if—

(i)An applicable state statute or the governing instrument authorizes or directs the trustee to sever the trust; and

(ii)Any non-pro rata funding of the separate trusts resulting from the severance (including non-pro rata funding as described in § 26.2642-6(d)(4) or § 26.2654-1(b)(1)(ii)(C) of this chapter), whether mandatory or in the discretion of the trustee, is authorized by an applicable state statute or the governing instrument.

(2)*Effective/applicability date* . This paragraph

(h)applies to severances occurring on or after August 2, 2007. Taxpayers may apply this paragraph

(h)to severances occurring on or after August 24, 2004, and before August 2, 2007. PART 26—GENERATION-SKIPPING TRANSFER TAX REGULATIONS UNDER THE TAX REFORM ACT OF 1986 **Par. 3** . The authority citation for part 26 is amended by adding an entry in numerical order to read, in part, as follows: Authority: 26 U.S.C. 7805 * * * Section 26.2642-6 also issued under 26 U.S.C. 2642. * * * **Par. 4** . In § 26.2600-1, the table of contents is amended by adding entries for §§ 26.2642-6 and 26.2654-1(c) to read as follows: § 26.2600-1 Table of contents. § 26.2642-6 Qualified severance.

(a)In general.

(b)Qualified severance defined.

(c)Effective date of qualified severance.

(d)Requirements for a qualified severance.

(e)Reporting a qualified severance.

(f)Time for making a qualified severance.

(g)Trusts that were irrevocable on September 25, 1985.

(1)In general.

(2)Trusts in receipt of a post-September 25, 1985, addition.

(h)[Reserved]

(i)[Reserved]

(j)Examples.

(k)Effective date.

(1)In general.

(2)Transition rule. § 26.2654-1 Certain trusts treated as separate trusts.

(c)Cross reference. **Par. 5** . Section 26.2642-6 is added to read as follows: § 26.2642-6 Qualified severance.

(a)*In general* . If a trust is divided in a qualified severance into two or more trusts, the separate trusts resulting from the severance will be treated as separate trusts for generation-skipping transfer

(GST)tax purposes and the inclusion ratio of each new resulting trust may differ from the inclusion ratio of the original trust. Because the post-severance resulting trusts are treated as separate trusts for GST tax purposes, certain actions with respect to one resulting trust will generally have no GST tax impact with respect to the other resulting trust(s). For example, GST exemption allocated to one resulting trust will not impact on the inclusion ratio of the other resulting trust(s); a GST tax election made with respect to one resulting trust will not apply to the other resulting trust(s); the occurrence of a taxable distribution or termination with regard to a particular resulting trust will not have any GST tax impact on any other trust resulting from that severance. In general, the rules in this section are applicable only for purposes of the GST tax and are not applicable in determining, for example, whether the resulting trusts may file separate income tax returns or whether the severance may result in a gift subject to gift tax, may cause any trust to be included in the gross estate of a beneficiary, or may result in a realization of gain for purposes of section 1001. See § 1.1001-1(h) of this chapter for rules relating to whether a qualified severance will constitute an exchange of property for other property differing materially either in kind or in extent.

(b)*Qualified severance defined* . A qualified severance is a division of a trust (other than a division described in § 26.2654-1(b)) into two or more separate trusts that meets each of the requirements in paragraph

(d)of this section.

(c)*Effective date of qualified severance* . A qualified severance is applicable as of the date of the severance, as defined in § 26.2642-6(d)(3), and the resulting trusts are treated as separate trusts for GST tax purposes as of that date.

(d)*Requirements for a qualified severance* . For purposes of this section, a qualified severance must satisfy each of the following requirements:

(1)The single trust is severed pursuant to the terms of the governing instrument, or pursuant to applicable local law.

(2)The severance is effective under local law.

(3)The date of severance is either the date selected by the trustee as of which the trust assets are to be valued in order to determine the funding of the resulting trusts, or the court-imposed date of funding in the case of an order of the local court with jurisdiction over the trust ordering the trustee to fund the resulting trusts on or as of a specific date. For a date to satisfy the definition in the preceding sentence, however, the funding must be commenced immediately upon, and funding must occur within a reasonable time (but in no event more than 90 days) after, the selected valuation date.

(4)The single trust (original trust) is severed on a fractional basis, such that each new trust (resulting trust) is funded with a fraction or percentage of the original trust, and the sum of those fractions or percentages is one or one hundred percent, respectively. For this purpose, the fraction or percentage may be determined by means of a formula (for example, that fraction of the trust the numerator of which is equal to the transferor's unused GST tax exemption, and the denominator of which is the fair market value of the original trust's assets on the date of severance). The severance of a trust based on a pecuniary amount does not satisfy this requirement. For example, the severance of a trust is not a qualified severance if the trust is divided into two trusts, with one trust to be funded with $1,500,000 and the other trust to be funded with the balance of the original trust's assets. With respect to the particular assets to be distributed to each resulting trust, each resulting trust may be funded with the appropriate fraction or percentage (pro rata portion) of each asset held by the original trust. Alternatively, the assets may be divided among the resulting trusts on a non pro rata basis, based on the fair market value of the assets on the date of severance. However, if funded on a non pro rata basis, each resulting trust must be funded by applying the appropriate fraction or percentage to the total fair market value of the trust assets as of the date of severance.

(5)The terms of the resulting trusts must provide, in the aggregate, for the same succession of interests of beneficiaries as are provided in the original trust. This requirement is satisfied if the beneficiaries of the separate resulting trusts and the interests of the beneficiaries with respect to the separate trusts, when the separate trusts are viewed collectively, are the same as the beneficiaries and their respective beneficial interests with respect to the original trust before severance. With respect to trusts from which discretionary distributions may be made to any one or more beneficiaries on a non-pro rata basis, this requirement is satisfied if—

(i)The terms of each of the resulting trusts are the same as the terms of the original trust (even though each permissible distributee of the original trust is not a beneficiary of all of the resulting trusts);

(ii)Each beneficiary's interest in the resulting trusts (collectively) equals the beneficiary's interest in the original trust, determined by the terms of the trust instrument or, if none, on a per-capita basis. For example, in the case of the severance of a discretionary trust established for the benefit of A, B, and C and their descendants with the remainder to be divided equally among those three families, this requirement is satisfied if the trust is divided into three separate trusts of equal value with one trust established for the benefit of A and A's descendants, one trust for the benefit of B and B's descendants, and one trust for the benefit of C and C's descendants;

(iii)The severance does not shift a beneficial interest in the trust to any beneficiary in a lower generation (as determined under section 2651) than the person or persons who held the beneficial interest in the original trust; and

(iv)The severance does not extend the time for the vesting of any beneficial interest in the trust beyond the period provided for in (or applicable to) the original trust.

(6)In the case of a qualified severance of a trust with an inclusion ratio as defined in § 26.2642-1 of either one or zero, each trust resulting from the severance will have an inclusion ratio equal to the inclusion ratio of the original trust.

(7)In the case of a qualified severance occurring after GST tax exemption has been allocated to the trust (whether by an affirmative allocation, a deemed allocation, or an automatic allocation pursuant to the rules contained in section 2632), if the trust has an inclusion ratio as defined in § 26.2642-1 that is greater than zero and less than one, then the trust must be severed initially into two trusts. One resulting trust must receive that fractional share of the total value of the original trust as of the date of severance that is equal to the applicable fraction, as defined in § 26.2642-1(b) and (c), used to determine the inclusion ratio of the original trust immediately before the severance. The other resulting trust must receive that fractional share of the total value of the original trust as of the date of severance that is equal to the excess of one over the fractional share described in the preceding sentence. The trust receiving the fractional share equal to the applicable fraction shall have an inclusion ratio of zero, and the other trust shall have an inclusion ratio of one. If the applicable fraction with respect to the original trust is .50, then, with respect to the two equal trusts resulting from the severance, the Trustee may designate which of the resulting trusts will have an inclusion ratio of zero and which will have an inclusion ratio of one. Each separate trust resulting from the severance then may be further divided in accordance with the rules of this section. See paragraph (j), *Example 7* of this section.

(e)*Reporting a qualified severance* —(1) *In general.* A qualified severance is reported by filing Form 706-GS(T), “Generation-Skipping Transfer Tax Return for Terminations,” (or such other form as may be provided from time to time by the Internal Revenue Service

(IRS)for the purpose of reporting a qualified severance). Unless otherwise provided in the applicable form or instructions, the IRS requests that the filer write “Qualified Severance” at the top of the form and attach a Notice of Qualified Severance (Notice). The return and attached Notice should be filed by April 15th of the year immediately following the year during which the severance occurred or by the last day of the period covered by an extension of time, if an extension of time is granted, to file such form.

(2)*Information concerning the original trust* . The Notice should provide, with respect to the original trust that was severed—

(i)The name of the transferor;

(ii)The name and date of creation of the original trust;

(iii)The tax identification number of the original trust; and

(iv)The inclusion ratio before the severance.

(3)*Information concerning each new trust* . The Notice should provide, with respect to each of the resulting trusts created by the severance—

(i)The name and tax identification number of the trust;

(ii)The date of severance (within the meaning of paragraph

(c)of this section);

(iii)The fraction of the total assets of the original trust received by the resulting trust;

(iv)Other details explaining the basis for the funding of the resulting trust (a fraction of the total fair market value of the assets on the date of severance, or a fraction of each asset); and

(v)The inclusion ratio.

(f)*Time for making a qualified severance.*

(1)A qualified severance of a trust may occur at any time prior to the termination of the trust. Thus, provided that the separate resulting trusts continue in existence after the severance, a qualified severance may occur either before or after—

(i)GST tax exemption has been allocated to the trust;

(ii)A taxable event has occurred with respect to the trust; or

(iii)An addition has been made to the trust.

(2)Because a qualified severance is effective as of the date of severance, a qualified severance has no effect on a taxable termination as defined in section 2612(a) or a taxable distribution as defined in section 2612(b) that occurred prior to the date of severance. A qualified severance shall be deemed to occur before a taxable termination or a taxable distribution that occurs by reason of the qualified severance. See paragraph

(j)*Example 8* of this section.

(g)*Trusts that were irrevocable on September 25, 1985* —(1) *In general.* See § 26.2601-1(b)(4) for rules regarding severances and other actions with respect to trusts that were irrevocable on September 25, 1985.

(2)*Trusts in receipt of a post-September 25, 1985, addition.* A trust described in § 26.2601-1(b)(1)(iv)(A) that is deemed for GST tax purposes to consist of one separate share not subject to GST tax (the non-chapter 13 portion) with an inclusion ratio of zero, and one separate share subject to GST tax (the chapter 13 portion) with an inclusion ratio determined under section 2642, may be severed into two trusts in accordance with § 26.2654-1(a)(3). One resulting trust will hold the non-chapter 13 portion of the original trust (the non-chapter 13 trust) and will not be subject to GST tax, and the other resulting trust will hold the chapter 13 portion of the original trust (the chapter 13 trust) and will have the same inclusion ratio as the chapter 13 portion immediately prior to the severance. The chapter 13 trust may be further divided in a qualified severance in accordance with the rules of this section. The non-chapter 13 trust may be further divided in accordance with the rules of § 26.2601-1(b)(4).

(h)[Reserved].

(i)[Reserved].

(j)*Examples.* The rules of this section are illustrated by the following examples: Example 1. *Succession of interests.* T dies in 2006. T's will establishes a testamentary trust (Trust) providing that income is to be paid to T's sister, S, for her life. On S's death, one-half of the corpus is to be paid to T's child, C (or to C's estate if C fails to survive S), and one-half of the corpus is to be paid to T's grandchild, GC (or to GC's estate if GC fails to survive S). On the Form 706, “United States Estate (and Generation-Skipping Transfer) Tax Return,” filed for T's estate, T's executor allocates all of T's available GST tax exemption to other transfers and trusts, such that Trust's inclusion ratio is 1. Subsequent to filing the Form 706 in 2007 and in accordance with applicable state law, the trustee divides Trust into two separate trusts, Trust 1 and Trust 2, with each trust receiving 50 percent of the value of the assets of the original trust as of the date of severance. Trust 1 provides that trust income is to be paid to S for life with remainder to C or C's estate, and Trust 2 provides that trust income is to be paid to S for life with remainder to GC or GC's estate. Because Trust 1 and Trust 2 provide for the same succession of interests in the aggregate as provided in the original trust, the severance constitutes a qualified severance, provided that all other requirements of section 2642(a)(3) and this section are satisfied. Example 2. *Succession of interests in discretionary trust.* In 2006, T establishes Trust, an irrevocable trust providing that income may be paid from time to time in such amounts as the trustee deems advisable to any one or more members of the group consisting of T's children (A and B) and their respective descendants. In addition, the trustee may distribute corpus to any trust beneficiary in such amounts as the trustee deems advisable. On the death of the last to die of A and B, the trust is to terminate and the corpus is to be distributed in two equal shares, one share to the then-living descendants of each child, per stirpes. T elects, under section 2632(c)(5), to not have the automatic allocation rules contained in section 2632(c) apply with respect to T's transfers to Trust, and T does not otherwise allocate GST tax exemption with respect to Trust. As a result, Trust has an inclusion ratio of one. In 2008, the trustee of Trust, pursuant to applicable state law, divides Trust into two equal but separate trusts, Trust 1 and Trust 2, each of which has terms identical to the terms of Trust except for the identity of the beneficiaries. Trust 1 and Trust 2 each has an inclusion ratio of one. Trust 1 provides that income is to be paid in such amounts as the trustee deems advisable to A and A's descendants. In addition, the trustee may distribute corpus to any trust beneficiary in such amounts as the trustee deems advisable. On the death of A, Trust 1 is to terminate and the corpus is to be distributed to the then-living descendants of A, per stirpes, but, if A dies with no living descendants, the principal will be added to Trust 2. Trust 2 contains identical provisions, except that B and B's descendants are the trust beneficiaries and, if B dies with no living descendants, the principal will be added to Trust 1. Trust 1 and Trust 2 in the aggregate provide for the same beneficiaries and the same succession of interests as provided in Trust, and the severance does not shift any beneficial interest to a beneficiary who occupies a lower generation than the person or persons who held the beneficial interest in Trust. Accordingly, the severance constitutes a qualified severance, provided that all other requirements of section 2642(a)(3) and this section are satisfied. Example 3. *Severance based on actuarial value of beneficial interests.* In 2004, T establishes Trust, an irrevocable trust providing that income is to be paid to T's child C during C's lifetime. Upon C's death, Trust is to terminate and the assets of Trust are to be paid to GC, C's child, if living, or, if GC is not then living, to GC's estate. T properly elects, under section 2632(c)(5), to not have the automatic allocation rules contained in section 2632(c) apply with respect to T's transfers to Trust, and T does not otherwise allocate GST tax exemption with respect to Trust. Thus, Trust has an inclusion ratio of one. In 2008, the trustee of Trust, pursuant to applicable state law, divides Trust into two separate trusts, Trust 1 for the benefit of C (and on C's death to C's estate), and Trust 2 for the benefit of GC (and on GC's death to GC's estate). The document severing Trust directs that Trust 1 is to be funded with an amount equal to the actuarial value of C's interest in Trust prior to the severance, determined under section 7520 of the Internal Revenue Code. Similarly, Trust 2 is to be funded with an amount equal to the actuarial value of GC's interest in Trust prior to the severance, determined under section 7520. Trust 1 and Trust 2 do not provide for the same succession of interests as provided under the terms of the original trust. Therefore, the severance is not a qualified severance. Example 4. *Severance of a trust with a 50% inclusion ratio.* On September 1, 2006, T transfers $100,000 to a trust for the benefit of T's grandchild, GC. On a timely filed Form 709, “United States Gift (and Generation-Skipping Transfer) Tax Return,” reporting the transfer, T allocates all of T's remaining GST tax exemption ($50,000) to the trust. As a result of the allocation, the applicable fraction with respect to the trust is .50 [$50,000 (the amount of GST tax exemption allocated to the trust) divided by $100,000 (the value of the property transferred to the trust)]. The inclusion ratio with respect to the trust is .50 [1−.50]. In 2007, pursuant to authority granted under applicable state law, the trustee severs the trust into two trusts, Trust 1 and Trust 2, each of which is identical to the original trust and each of which receives a 50 percent fractional share of the total value of the original trust, valued as of the date of severance. Because the applicable fraction with respect to the original trust is .50 and the trust is severed into two equal trusts, the trustee may designate which resulting trust has an inclusion ratio of one, and which resulting trust has an inclusion ratio of zero. Accordingly, in the Notice of Qualified Severance reporting the severance, the trustee designates Trust 1 as having an inclusion ratio of zero, and Trust 2 as having an inclusion ratio of one. The severance constitutes a qualified severance, provided that all other requirements of section 2642(a)(3) and this section are satisfied. Example 5. *Funding of severed trusts on a non-pro rata basis.* T's will establishes a testamentary trust (Trust) for the benefit of T's descendants, to be funded with T's stock in Corporation A and Corporation B, both publicly traded stocks. T dies on May 1, 2004, at which time the Corporation A stock included in T's gross estate has a fair market value of $100,000 and the stock of Corporation B included in T's gross estate has a fair market value of $200,000. On a timely filed Form 706, T's executor allocates all of T's remaining GST tax exemption ($270,000) to Trust. As a result of the allocation, the applicable fraction with respect to Trust is .90 [$270,000 (the amount of GST tax exemption allocated to the trust) divided by $300,000 (the value of the property transferred to the trust)]. The inclusion ratio with respect to Trust is .10 [1−.90]. On August 1, 2008, in accordance with applicable local law, the trustee executes a document severing Trust into two trusts, Trust 1 and Trust 2, each of which is identical to Trust. The instrument designates August 3, 2008, as the date of severance (within the meaning of paragraph (d)(3) of this section). The terms of the instrument severing Trust provide that Trust 1 is to be funded on a non-pro rata basis with assets having a fair market value on the date of severance equal to 90% of the value of Trust's assets on that date, and Trust 2 is to be funded with assets having a fair market value on the date of severance equal to 10% of the value of Trust's assets on that date. On August 3, 2008, the value of the Trust assets totals $500,000, consisting of Corporation A stock worth $450,000 and Corporation B stock worth $50,000. On August 4, 2008, the trustee takes all action necessary to transfer all of the Corporation A stock to Trust 1 and to transfer all of the Corporation B stock to Trust 2. On August 6, 2008, the stock transfers are completed and the stock is received by the appropriate resulting trust. Accordingly, Trust 1 is funded with assets having a value equal to 90% of the value of Trust as of the date of severance, August 3, 2008, and Trust 2 is funded with assets having a value equal to 10% of the value of Trust as of the date of severance. Therefore, the severance constitutes a qualified severance, provided that all other requirements of section 2642(a)(3) and this section are satisfied. Trust 1 will have an inclusion ratio of zero and Trust 2 will have an inclusion ratio of one. Example 6. [Reserved]. Example 7. *Statutory qualified severance.* T dies on October 1, 2004. T's will establishes a testamentary trust (Trust) to be funded with $1,000,000. Trust income is to be paid to T's child, S, for S's life. The trustee may also distribute trust corpus from time to time, in equal or unequal shares, for the benefit of any one or more members of the group consisting of S and T's three grandchildren (GC1, GC2, and GC3). On S's death, Trust is to terminate and the assets are to be divided equally among GC1, GC2, and GC3 (or their respective then-living descendants, per stirpes). On a timely filed Form 706, T's executor allocates all of T's remaining GST tax exemption ($300,000) to Trust. As a result of the allocation, the applicable fraction with respect to the trust is .30 [$300,000 (the amount of GST tax exemption allocated to the trust) divided by $1,000,000 (the value of the property transferred to the trust)]. The inclusion ratio with respect to the trust is .70 [1−.30]. On June 1, 2007, the trustee determines that it is in the best interest of the beneficiaries to sever Trust to provide a separate trust for each of T's three grandchildren and their respective families. The trustee severs Trust into two trusts, Trust 1 and Trust 2, each with terms and beneficiaries identical to Trust and thus each providing that trust income is to be paid to S for life, trust principal may be distributed for the benefit of any or all members of the group consisting of S and T's grandchildren, and, on S's death, the trust is to terminate and the assets are to be divided equally among GC1, GC2, and GC3 (or their respective then-living descendants, per stirpes). The instrument severing Trust provides that Trust 1 is to receive 30% of Trust's assets and Trust 2 is to receive 70% of Trust's assets. Further, each such trust is to be funded with a pro rata portion of each asset held in Trust. The trustee then severs Trust 1 into three equal trusts, Trust GC1, Trust GC2, and Trust GC3. Each trust is named for a grandchild of T and provides that trust income is to be paid to S for life, trust principal may be distributed for the benefit of S and T's grandchild for whom the trust is named, and, on S's death, the trust is to terminate and the trust proceeds distributed to the respective grandchild for whom the trust is named. If that grandchild has predeceased the termination date, the trust proceeds are to be distributed to that grandchild's then-living descendants, per stirpes, or, if none, then equally to the other two trusts resulting from the severance of Trust 1. Each such resulting trust is to be funded with a pro rata portion of each Trust 1 asset. The trustee also severs Trust 2 in a similar manner, into Trust GC1(2), Trust GC2(2), and Trust GC3(2). The severance of Trust into Trust 1 and Trust 2, the severance of Trust 1 into Trust GC1, Trust GC2, Trust GC3, and the severance of Trust 2 into Trust GC1(2), Trust GC2(2) and Trust GC3(2), constitute qualified severances, provided that all other requirements of section 2642(a)(3) and this section are satisfied with respect to each severance. Trust GC1, Trust GC2, Trust GC3 will each have an inclusion ratio of zero and Trust GC1(2), Trust GC2(2), and Trust GC3(2) will each have an inclusion ratio of one. Example 8. *Qualified severance deemed to precede a taxable termination.* In 2004, T establishes an inter vivos irrevocable trust (Trust) for a term of 10 years providing that Trust income is to be paid annually in equal shares to T's child C and T's grandchild GC (the child of another then-living child of T). If either C or GC dies prior to the expiration of the 10-year term, the deceased beneficiary's share of Trust's income is to be paid to that beneficiary's then-living descendants, per stirpes, for the balance of the trust term. At the expiration of the 10-year trust term, the corpus is to be distributed equally to C and GC; if either C or GC is not then living, then such decedent's share is to be distributed instead to such decedent's then-living descendants, per stirpes. T allocates T's GST tax exemption to Trust such that Trust's applicable fraction is .50 and Trust's inclusion ratio is .50 [1−.50]. In 2006, pursuant to applicable state law, the trustee severs the trust into two equal trusts, Trust 1 and Trust 2. The instrument severing Trust provides that Trust 1 is to receive 50% of the Trust assets, and Trust 2 is to receive 50% of Trust's assets. Both resulting trusts are identical to Trust, except that each has different beneficiaries: C and C's descendants are designated as the beneficiaries of Trust 1, and GC and GC's descendants are designated as the beneficiaries of Trust 2. The severance constitutes a qualified severance, provided all other requirements of section 2642(a)(3) and this section are satisfied. Because the applicable fraction with respect to Trust is .50 and Trust was severed into two equal trusts, the trustee may designate which resulting trust has an inclusion ratio of one, and which has an inclusion ratio of zero. Accordingly, in the Notice of Qualified Severance reporting the severance, the trustee designates Trust 1 as having an inclusion ratio of one, and Trust 2 as having an inclusion ratio of zero. Because Trust 2 is a skip person under section 2613, the severance of Trust resulting in the distribution of 50% of Trust's corpus to Trust 2 would constitute a taxable termination or distribution (as described in section 2612(a)) of that 50% of Trust for GST tax purposes, but for the rule that a qualified severance is deemed to precede a taxable termination that is caused by the qualified severance. Thus, no GST tax will be due with regard to the creation and funding of Trust 2 because the inclusion ratio of Trust 2 is zero. Example 9. [Reserved]. Example 10. *Beneficiary's interest dependent on inclusion ratio.* On August 8, 2006, T transfers $1,000,000 to Trust and timely allocates $400,000 of T's remaining GST tax exemption to Trust. As a result of the allocation, the applicable fraction with respect to Trust is .40 [$400,000 divided by $1,000,000] and Trust's inclusion ratio is .60 [1−.40]. Trust provides that all income of Trust will be paid annually to C, T's child, for life. On C's death, the corpus is to pass in accordance with C's exercise of a testamentary limited power to appoint the corpus of Trust to C's lineal descendants. However, Trust provides that if, at the time of C's death, Trust's inclusion ratio is greater than zero, then C may also appoint that fraction of the trust corpus equal to the inclusion ratio to the creditors of C's estate. On May 3, 2008, pursuant to authority granted under applicable state law, the trustee severs Trust into two trusts. Trust 1 is funded with 40% of Trust's assets, and Trust 2 is funded with 60% of Trust's assets in accordance with the requirements of this section. Both Trust 1 and Trust 2 provide that all income of Trust will be paid annually to C during C's life. On C's death, Trust 1 corpus is to pass in accordance with C's exercise of a testamentary limited power to appoint the corpus to C's lineal descendants. Trust 2 is to pass in accordance with C's exercise of a testamentary power to appoint the corpus of Trust to C's lineal descendants and to the creditors of C's estate. The severance constitutes a qualified severance, provided that all other requirements of section 2642(a)(3) and this section are satisfied. No additional contribution or allocation of GST tax exemption is made to either Trust 1 or Trust 2 prior to C's death. Accordingly, the inclusion ratio with respect to Trust 1 is zero. The inclusion ratio with respect to Trust 2 is one until C's death, at which time C will become the transferor of Trust 2 for GST tax purposes. (Some or all of C's GST tax exemption may be allocated to Trust 2 upon C's death.) Example 11. *Date of severance.* Trust is an irrevocable trust that has both skip person and non-skip person beneficiaries. Trust holds two parcels of real estate, Property A and Property B, stock in Company X, a publicly traded company, and cash. On June 16, 2008, the local court with jurisdiction over Trust issues an order, pursuant to the trustee's petition authorized under state law, severing Trust into two resulting trusts of equal value, Trust 1 and Trust 2. The court order directs that Property A will be distributed to Trust 1 and Property B will be distributed to Trust 2, and that an appropriate amount of stock and cash will be distributed to each trust such that the total value of property distributed to each trust as of the date of severance will be equal. The court order does not mandate a particular date of funding. Trustee receives notice of the court order on June 24, and selects July 16, 2008, as the date of severance. On June 26, 2008, Trustee commences the process of transferring title to Property A and Property B to the appropriate resulting trust(s), which process is completed on July 8, 2008. Also on June 26, the Trustee hires a professional appraiser to value Property A and Property B as of the date of severance and receives the appraisal report on Friday, October 3, 2008. On Monday, October 6, 2008, Trustee commences the process of transferring to Trust 1 and Trust 2 the appropriate amount of Company X stock valued as of July 16, 2008, and that transfer (as well as the transfer of Trust's cash) is completed by October 9, 2008. Under the facts presented, the funding of Trust 1 and Trust 2 occurred within 90 days of the date of severance selected by the trustee, and within a reasonable time after the date of severance taking into account the nature of the assets involved and the need to obtain an appraisal. Accordingly, the date of severance for purposes of this section is July 16, 2008, the resulting trusts are to be funded based on the value of the original trust assets as of that date, and the severance is a qualified severance assuming that all other requirements of section 2642(a)(3) and this section are met. (However, if Trust had contained only marketable securities and cash, then in order to satisfy the reasonable time requirement, the stock transfer would have to have been commenced, and generally completed, immediately after the date of severance, and the cash distribution would have to have been made at the same time.)

(k)*Effective/applicability date* —(1) *In general.* This section applies to severances occurring on or after August 2, 2007.

(2)*Transition rule.* In the case of a qualified severance occurring after December 31, 2000, and before August 2, 2007, taxpayers may rely on any reasonable interpretation of section 2642(a)(3) as long as reasonable notice concerning the qualified severance and identification of the trusts involved has been given to the IRS. For this purpose, the proposed regulations (69 FR 51967) are treated as a reasonable interpretation of the statute. For purposes of the reporting provisions of § 26.2642-6(e), notice to the IRS should be mailed by the due date of the gift tax return (including extensions granted) for gifts made during the year in which the severance occurred. If no gift tax return is filed, notice to the IRS should be mailed by April 15th of the year immediately following the year during which the severance occurred. For severances occurring between December 31, 2000, and January 1, 2007, notification should be mailed to the IRS as soon as reasonably practicable after August 2, 2007, if sufficient notice has not already been given. **Par. 6** . Section 26.2654-1 is amended by adding paragraphs (b)(4) *Example 3* and

(c)to read as follows: § 26.2654-1 Certain trusts treated as separate trusts.

(b)* * *

(4)*Examples.* * * * Example 3. *Formula severance.* T's will establishes a testamentary marital trust (Trust) that meets the requirements of qualified terminable interest property

(QTIP)if an election under section 2056(b)(7) is made. Trust provides that all trust income is to be paid to T's spouse for life. On the spouse's death, the trust corpus is to be held in further trust for the benefit of T's then-living descendants. On T's date of death in January of 2004, T's unused GST tax exemption is $1,200,000, and T's will includes $200,000 of bequests to T's grandchildren. Prior to the due date for filing the Form 706, “United States Estate (and Generation-Skipping Transfer) Tax Return,” for T's estate, T's executor, pursuant to applicable state law, divides Trust into two separate trusts, Trust 1 and Trust 2. Trust 1 is to be funded with that fraction of the Trust assets, the numerator of which is $1,000,000, and the denominator of which is the value of the Trust assets as finally determined for federal estate tax purposes. Trust 2 is to be funded with that fraction of the Trust assets, the numerator of which is the excess of the Trust assets over $1,000,000, and the denominator of which is the value of the Trust assets as finally determined for federal estate tax purposes. On the Form 706 filed for the estate, T's executor makes a QTIP election under section 2056(b)(7) with respect to Trust 1 and Trust 2 and a “reverse” QTIP election under section 2652(a)(3) with respect to Trust 1. Further, T's executor allocates $200,000 of T's available GST tax exemption to the bequests to T's grandchildren, and the balance of T's exemption ($1,000,000) to Trust 1. If the requirements of paragraph

(b)of this section are otherwise satisfied, Trust 1 and Trust 2 are recognized as separate trusts for GST tax purposes. Accordingly, the “reverse” QTIP election and allocation of GST tax exemption with respect to Trust 1 are recognized and effective for generation-skipping transfer tax purposes.

(c)*Cross reference.* For rules applicable to the qualified severance of trusts (whether or not includible in the transferor's gross estate), see § 26.2642-6. PART 602—OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT **Par. 7** . The authority citation for part 602 continues to read as follows: Authority: 26 U.S.C. 7805. **Par. 8** . In § 602.101, paragraph

(b)is amended by adding entries in numerical order to the table to read as follows: § 602.101 OMB Control numbers.

(b)* * * CFR part or section where identified and described Current OMB Control No. * * * * * 1.1001-1 1545-1902 * * * * * 26.2642-6 1545-1902 * * * * * 26.2654-1 1545-1902 * * * * * Linda E. Stiff, Acting Deputy Commissioner for Services and Enforcement. Approved: July 24, 2007. Eric Solomon, Assistant Secretary of the Treasury (Tax Policy). [FR Doc. E7-14852 Filed 8-1-07; 8:45 am] BILLING CODE 4830-01-P DEPARTMENT OF DEFENSE Office of the Secretary 32 CFR Part 229 Protection of Archaeological Resources: Uniform Regulations AGENCY: Department of Defense. ACTION: Final rule. SUMMARY: This rule reinstates 32 CFR part 229, “Protection of Archaeological Resources: Uniform Regulations,” which was inadvertently removed by the Department of Defense in 2006. Except for certain formatting updates, the requirements in this document are consistent with those removed in 2006. DATES: *Effective Date:* This rule is effective August 2, 2007. FOR FURTHER INFORMATION CONTACT: Ms. Maureen Sullivan, OSD, 703 604 5419, *Maureen.sullivan@osd.mil.* SUPPLEMENTARY INFORMATION: On Friday, March 10, 2006 (71 FR 12280), the Department of Defense removed 32 CFR part 229. This was done because the corresponding DoD issuance, DoD Directive 4710.1, was canceled and removed from the DoD Directives System. The current corresponding issuance is DoD Instruction 4715.3, Environmental Conservation Program, issued May 3, 1996. List of Subjects in 32 CFR Part 229 Administrative practice and procedure, Historic preservation, Indians—lands, Penalties, Public lands, Reporting and recordkeeping requirements. Accordingly, subchapter M of title 32 of the Code of Federal Regulations, is amended to add part 229 to read as follows: PART 229—PROTECTION OF ARCHAEOLOGICAL RESOURCES: UNIFORM REGULATIONS Sec. 229.1 Purpose. 229.2 Authority. 229.3 Definitions. 229.4 Prohibited acts and criminal penalties. 229.5 Permit requirements and exceptions. 229.6 Application for permits and information collection. 229.7 Notification to Indian tribes of possible harm to, or destruction of, sites on public lands having religious or cultural importance. 229.8 Issuance of permits. 229.9 Terms and conditions of permits. 229.10 Suspension and revocation of permits. 229.11 Appeals relating to permits. 229.12 Relationship to section 106 of the National Historic Preservation Act. 229.13 Custody of archaeological resources. 229.14 Determination of archaeological or commercial value and cost of restoration and repair. 229.15 Assessment of civil penalties. 229.16 Civil penalty amounts. 229.17 Other penalties and rewards. 229.18 Confidentiality of archaeological resource information. 229.19 Report. 229.20 Public awareness programs. 229.21 Surveys and schedules. Note: The information collection and reporting requirements in this part were approved by the Office of Management and Budget under control number 1024-0037. Authority: Pub. L. 96-95, 93 Stat. 721, as amended, 102 Stat. 2983 (16 U.S.C. 470aa-mm) Sec. 10(a). Related Authority: Pub. L. 59-209, 34 Stat. 225 (16 U.S.C. 432, 433); Pub. L. 86-523, 74 Stat. 220, 221 (16 U.S.C. 469), as amended, 88 Stat. 174 (1974); Pub. L. 89-665, 80 Stat. 915 (16 U.S.C. 470a-t), as amended, 84 Stat. 204 (1970), 87 Stat. 139 (1973), 90 Stat. 1320 (1976), 92 Stat. 3467 (1978), 94 Stat. 2987 (1980); Pub. L. 95-341, 92 Stat. 469 (42 U.S.C. 1996). § 229.1 Purpose.

(a)The regulations in this part implement provisions of the Archaeological Resources Protection Act of 1979, as amended (16 U.S.C. 470aa-mm) by establishing the uniform definitions, standards, and procedures to be followed by all Federal land managers in providing protection for archaeological resources, located on public lands and Indian lands of the United States. These regulations enable Federal land managers to protect archaeological resources, taking into consideration provisions of the American Indian Religious Freedom Act (92 Stat. 469; 42 U.S.C. 1996), through permits authorizing excavation and/or removal of archaeological resources, through civil penalties for unauthorized excavation and/or removal, through provisions for the preservation of archaeological resource collections and data, and through provisions for ensuring confidentiality of information about archaeological resources when disclosure would threaten the archaeological resources.

(b)The regulations in this part do not impose any new restrictions on activities permitted under other laws, authorities, and regulations relating to mining, mineral leasing, reclamation, and other multiple uses of the public lands. § 229.2 Authority.

(a)The regulations in this part are promulgated pursuant to section 10(a) of the Archaeological Resources Protection Act of 1979 (16 U.S.C. 470ii), which requires that the Secretaries of the Interior, Agriculture and Defense and the Chairman of the Board of the Tennessee Valley Authority jointly develop uniform rules and regulations for carrying out the purposes of the Act.

(b)In addition to the regulations in this part, section 10(b) of the Act (16 U.S.C. 470ii) provides that each Federal land manager shall promulgate such rules and regulations, consistent with the uniform rules and regulations in this part, as may be necessary for carrying out the purposes of the Act. § 229.3 Definitions. As used for purposes of this part:

(a)*Archaeological resource* means any material remains of human life or activities which are at least 100 years of age, and which are of archaeological interest.

(1)*Of archaeological interest* means capable of providing scientific or humanistic understandings of past human behavior, cultural adaptation, and related topics through the application of scientific or scholarly techniques such as controlled observation, contextual measurement, controlled collection, analysis, interpretation and explanation.

(2)*Material remains* means physical evidence of human habitation, occupation, use, or activity, including the site, location, or context in which such evidence is situated.

(3)The following classes of material remains (and illustrative examples), if they are at least 100 years of age, are of archaeological interest and shall be considered archaeological resources unless determined otherwise pursuant to paragraph (a)(4) or (a)(5) of this section:

(i)Surface or subsurface structures, shelters, facilities, or features (including, but not limited to, domestic structures, storage structures, cooking structures, ceremonial structures, artificial mounds, earthworks, fortifications, canals, reservoirs, horticultural/agricultural gardens or fields, bedrock mortars or grinding surfaces, rock alignments, cairns, trails, borrow pits, cooking pits, refuse pits, burial pits or graves, hearths, kilns, post molds, wall trenches, middens);

(ii)Surface or subsurface artifact concentrations or scatters;

(iii)Whole or fragmentary tools, implements, containers, weapons and weapon projectiles, clothing, and ornaments (including, but not limited to, pottery and other ceramics, cordage, basketry and other weaving, bottles and other glassware, bone, ivory, shell, metal, wood, hide, feathers, pigments, and flaked, ground, or pecked stone);

(iv)By-products, waste products, or debris resulting from manufacture or use of human-made or natural materials;

(v)Organic waste (including, but not limited to, vegetal and animal remains, coprolites);

(vi)Human remains (including, but not limited to, bone, teeth, mummified flesh, burials, cremations);

(vii)Rock carvings, rock paintings, intaglios and other works of artistic or symbolic representation;

(viii)Rockshelters and caves or portions thereof containing any of the above material remains;

(ix)All portions of shipwrecks (including, but not limited to, armaments, apparel, tackle, cargo);

(x)Any portion or piece of any of the foregoing.

(4)The following material remains shall not be considered of archaeological interest, and shall not be considered to be archaeological resources for purposes of the Act and this part, unless found in a direct physical relationship with archaeological resources as defined in this section:

(i)Paleontological remains;

(ii)Coins, bullets, and unworked minerals and rocks.

(5)The Federal land manager may determine that certain material remains, in specified areas under the Federal land manager's jurisdiction, and under specified circumstances, are not or are no longer of archaeological interest and are not to be considered archaeological resources under this part. Any determination made pursuant to this subparagraph shall be documented. Such determination shall in no way affect the Federal land manager's obligations under other applicable laws or regulations.

(6)For the disposition following lawful removal or excavations of Native American human remains and “cultural items”, as defined by the Native American Graves Protection and Repatriation Act (NAGPRA; Pub. L. 101-601; 104 Stat. 3050; 25 U.S.C. 3001-13), the Federal land manager is referred to NAGPRA and its implementing regulations.

(b)*Arrowhead* means any projectile point which appears to have been designed for use with an arrow.

(c)*Federal land manager* means:

(1)With respect to any public lands, the secretary of the department, or the head of any other agency or instrumentality of the United States, having primary management authority over such lands, including persons to whom such management authority has been officially delegated;

(2)In the case of Indian lands, or any public lands with respect to which no department, agency or instrumentality has primary management authority, such term means the Secretary of the Interior;

(3)The Secretary of the Interior, when the head of any other agency or instrumentality has, pursuant to section 3(2) of the Act and with the consent of the Secretary of the Interior, delegated to the Secretary of the Interior the responsibilities (in whole or in part) in this part.

(d)*Public lands* means:

(1)Lands which are owned and administered by the United States as part of the national park system, the national wildlife refuge system, or the national forest system; and

(2)All other lands the fee title to which is held by the United States, except lands on the Outer Continental Shelf, lands under the jurisdiction of the Smithsonian Institution, and Indian lands.

(e)*Indian lands* means lands of Indian tribes, or Indian individuals, which are either held in trust by the United States or subject to a restriction against alienation imposed by the United States, except for subsurface interests not owned or controlled by an Indian tribe or Indian individual.

(f)*Indian tribe as defined in the Act* means any Indian tribe, band, nation, or other organized group or community, including any Alaska village or regional or village corporation as defined in, or established pursuant to, the Alaska Native Claims Settlement Act (85 Stat. 688). In order to clarify this statutory definition for purposes of this part, “Indian tribe” means:

(1)Any tribal entity which is included in the annual list of recognized tribes published in the **Federal Register** by the Secretary of the Interior pursuant to 25 CFR part 54;

(2)Any other tribal entity acknowledged by the Secretary of the Interior pursuant to 25 CFR part 54 since the most recent publication of the annual list; and

(3)Any Alaska Native village or regional or village corporation as defined in or established pursuant to the Alaska Native Claims Settlement Act (85 Stat. 688), and any Alaska Native village or tribe which is recognized by the Secretary of the Interior as eligible for services provided by the Bureau of Indian Affairs.

(g)*Person* means an individual, corporation, partnership, trust, institution, association, or any other private entity, or any officer, employee, agent, department, or instrumentality of the United States, or of any Indian tribe, or of any State or political subdivision thereof.

(h)*State* means any of the fifty states, the District of Columbia, Puerto Rico, Guam, and the Virgin Islands.

(i)*Act* means the Archaeological Resources Protection Act of 1979 (16 U.S.C. 470aa-mm). § 229.4 Prohibited acts and criminal penalties.

(a)Under section 6(a) of the Act, no person may excavate, remove, damage, or otherwise alter or deface, or attempt to excavate, remove, damage, or otherwise alter or deface any archaeological resource located on public lands or Indian lands unless such activity is pursuant to a permit issued under § 229.8 or exempted by § 229.5(b) of this part.

(b)No person may sell, purchase, exchange, transport, or receive any archaeological resource, if such resource was excavated or removed in violation of:

(1)The prohibitions contained in paragraph

(a)of this section; or

(2)Any provision, rule, regulation, ordinance, or permit in effect under any other provision of Federal law.

(c)Under section

(d)of the Act, any person who knowingly violates or counsels, procures, solicits, or employs any other person to violate any prohibition contained in section 6 (a), (b), or

(c)of the Act will, upon conviction, be fined not more than $10,000.00 or imprisoned not more than one year, or both: provided, however, that if the commercial or archaeological value of the archaeological resources involved and the cost of restoration and repair of such resources exceeds the sum of $500.00, such person will be fined not more than $20,000.00 or imprisoned not more than two years, or both. In the case of a second or subsequent such violation upon conviction such person will be fined not more than $100,000.00, or imprisoned not more than 5 years, or both. § 229.5 Permit requirements and exceptions.

(a)Any person proposing to excavate and/or remove archaeological resources from public lands or Indian lands, and to carry out activities associated with such excavation and/or removal, shall apply to the Federal land manager for a permit for the proposed work, and shall not begin the proposed work until a permit has been issued. The Federal land manager may issue a permit to any qualified person, subject to appropriate terms and conditions, provided that the person applying for a permit meets conditions in § 229.8(a) of this part.

(b)Exceptions:

(1)No permit shall be required under this part for any person conducting activities on the public lands under other permits, leases, licenses, or entitlements for use, when those activities are exclusively for purposes other than the excavation and/or removal of archaeological resources, even though those activities might incidentally result in the disturbance of archaeological resources. General earth-moving excavation conducted under a permit or other authorization shall not be construed to mean excavation and/or removal as used in this part. This exception does not, however, affect the Federal land manager's responsibility to comply with other authorities which protect archaeological resources prior to approving permits, leases, licenses, or entitlements for use; any excavation and/or removal of archaeological resources required for compliance with those authorities shall be conducted in accordance with the permit requirements of this part.

(2)No permit shall be required under this part for any person collecting for private purposes any rock, coin, bullet, or mineral which is not an archaeological resource as defined in this part, provided that such collecting does not result in disturbance of any archaeological resource.

(3)No permit shall be required under this part or under section 3 of the Act of June 8, 1906 (16 U.S.C. 432), for the excavation or removal by any Indian tribe or member thereof of any archaeological resource located on Indian lands of such Indian tribe, except that in the absence of tribal law regulating the excavation or removal or archaeological resources on Indian lands, an individual tribal member shall be required to obtain a permit under this part;

(4)No permit shall be required under this part for any person to carry out any archaeological activity authorized by a permit issued under section 3 of the Act of June 8, 1906 (16 U.S.C. 432), before the enactment of the Archaeological Resources Protection Act of 1979. Such permit shall remain in effect according to its terms and conditions until expiration.

(5)No permit shall be required under section 3 of the Act of June 8, 1906 (16 U.S.C. 432) for any archaeological work for which a permit is issued under this part.

(c)Persons carrying out official agency duties under the Federal land manager's direction, associated with the management of archaeological resources, need not follow the permit application procedures of § 229.6. However, the Federal land manager shall insure that provisions of § 229.8 and § 229.9 have been met by other documented means, and that any official duties which might result in harm to or destruction of any Indian tribal religious or cultural site, as determined by the Federal land manager, have been the subject of consideration under § 229.7.

(d)Upon the written request of the Governor of any State, on behalf of the State or its educational institutions, the Federal land manager shall issue a permit, subject to the provisions of §§ 229.5(b)(5), 229.7, 229.8(a)(3), (4), (5), (6), and (7), 229.9, 229.10, 229.12, and 229.13(a) to such Governor or to such designee as the Governor deems qualified to carry out the intent of the Act, for purposes of conducting archaeological research, excavating and/or removing archaeological resources, and safeguarding and preserving any materials and data collected in a university, museum, or other scientific or educational institution approved by the Federal land manager.

(e)Under other statutory, regulatory, or administrative authorities governing the use of public lands and Indian lands, authorizations may be required for activities which do not require a permit under this part. Any person wishing to conduct on public lands or Indian lands any activities related to but believed to fall outside the scope of this part should consult with the Federal land manager, for the purpose of determining whether any authorization is required, prior to beginning such activities. § 229.6 Application for permits and information collection.

(a)Any person may apply to the appropriate Federal land manager for a permit to excavate and/or remove archaeological resources from public lands or Indian lands and to carry out activities associated with such excavation and/or removal.

(b)Each application for a permit shall include:

(1)The nature and extent of the work proposed, including how and why it is proposed to be conducted, proposed time of performance, locational maps, and proposed outlet for public written dissemination of the results.

(2)The name and address of the individual(s) proposed to be responsible for conducting the work, institutional affiliation, if any, and evidence of education, training, and experience in accord with the minimal qualifications listed in § 229.8(a).

(3)The name and address of the individual(s), if different from the individual(s) named in paragraph (b)(2) of this section, proposed to be responsible for carrying out the terms and conditions of the permit.

(4)Evidence of the applicant's ability to initiate, conduct, and complete the proposed work, including evidence of logistical support and laboratory facilities.

(5)Where the application is for the excavation and/or removal of archaeological resources on public lands, the names of the university, museum, or other scientific or educational institution in which the applicant proposes to store all collections, and copies of records, data, photographs, and other documents derived from the proposed work. Applicants shall submit written certification, signed by an authorized official of the institution, of willingness to assume curatorial responsibility for the collections, records, data, photographs and other documents and to safeguard and preserve these materials as property of the United States.

(6)Where the application is for the excavation and/or removal of archaeological resources on Indian lands, the name of the university, museum, or other scientific or educational institution in which the applicant proposes to store copies of records, data, photographs, and other documents derived from the proposed work, and all collections in the event the Indian owners do not wish to take custody or otherwise dispose of the archaeological resources. Applicants shall submit written certification, signed by an authorized official of the institution, or willingness to assume curatorial responsibility for the collections, if applicable, and/or the records, data, photographs, and other documents derived from the proposed work.

(c)The Federal land manager may require additional information, pertinent to land management responsibilities, to be included in the application for permit and shall so inform the applicant.

(d)*Paperwork Reduction Act.* The information collection requirement contained in this section of these regulations has been approved by the Office of Management and Budget under 44 U.S.C. 3501 *et seq.* and assigned clearance number 1024-0037. The purpose of the information collection is to meet statutory and administrative requirements in the public interest. The information will be used to assist Federal land managers in determining that applicants for permits are qualified, that the work proposed would further archaeological knowledge, that archaeological resources and associated records and data will be properly preserved, and that the permitted activity would not conflict with the management of the public lands involved. Response to the information requirement is necessary in order for an applicant to obtain a benefit. § 229.7 Notification to Indian tribes of possible harm to, or destruction of, sites on public lands having religious or cultural importance.

(a)If the issuance of a permit under this part may result in harm to, or destruction of, any Indian tribal religious or cultural site on public lands, as determined by the Federal land manager, at least 30 days before issuing such a permit the Federal land manager shall notify any Indian tribe which may consider the site as having religious or cultural importance. Such notice shall not be deemed a disclosure to the public for purposes of section 9 of the Act.

(1)Notice by the Federal land manager to any Indian tribe shall be sent to the chief executive officer or other designated official of the tribe. Indian tribes are encouraged to designate a tribal official to be the focal point for any notification and discussion between the tribe and the Federal land manager.

(2)The Federal land manager may provide notice to any other Native American group that is known by the Federal land manager to consider sites potentially affected as being of religious or cultural importance.

(3)Upon request during the 30-day period, the Federal land manager may meet with official representatives of any Indian tribe or group to discuss their interests, including ways to avoid or mitigate potential harm or destruction such as excluding sites from the permit area. Any mitigation measures which are adopted shall be incorporated into the terms and conditions of the permit under § 229.9.

(4)When the Federal land manager determines that a permit applied for under this part must be issued immediately because of an imminent threat of loss or destruction of an archaeological resource, the Federal land manager shall so notify the appropriate tribe. (b)(1) In order to identify sites of religious or cultural importance, the Federal land manager shall seek to identify all Indian tribes having aboriginal or historic ties to the lands under the Federal land manager's jurisdiction and seek to determine, from the chief executive officer or other designated official of any such tribe, the location and nature of specific sites of religious or cultural importance so that such information may be on file for land management purposes. Information on sites eligible for or included in the National Register of Historic Places may be withheld from public disclosure pursuant to section 304 of the Act of October 15, 1966, as amended (16 U.S.C. 470w-3).

(2)If the Federal land manager becomes aware of a Native American group that is not an Indian tribe as defined in this part but has aboriginal or historic ties to public lands under the Federal land manager's jurisdiction, the Federal land manager may seek to communicate with official representatives of that group to obtain information on sites they may consider to be of religious or cultural importance.

(3)The Federal land manager may enter into agreement with any Indian tribe or other Native American group for determining locations for which such tribe or group wishes to receive notice under this section.

(4)The Federal land manager should also seek to determine, in consultation with official representatives of Indian tribes or other Native American groups, what circumstances should be the subject of special notification to the tribe or group after a permit has been issued. Circumstances calling for notification might include the discovery of human remains. When circumstances for special notification have been determined by the Federal land manager, the Federal land manager will include a requirement in the terms and conditions of permits, under § 229.9(c), for permittees to notify the Federal land manager immediately upon the occurrence of such circumstances. Following the permittee's notification, the Federal land manager will notify and consult with the tribe or group as appropriate. In cases involving Native American human remains and other “cultural items”, as defined by NAGPRA, the Federal land manager is referred to NAGPRA and its implementing § 229.8 Issuance of permits.

(a)The Federal land manager may issue a permit, for a specified period of time appropriate to the work to be conducted, upon determining that:

(1)The applicant is appropriately qualified, as evidenced by training, education, and/or experience, and possesses demonstrable competence in archaeological theory and methods, and in collecting, handling, analyzing, evaluating, and reporting archaeological data, relative to the type and scope of the work proposed, and also meets the following minimum qualifications:

(i)A graduate degree in anthropology or archaeology, or equivalent training and experience;

(ii)The demonstrated ability to plan, equip, staff, organize, and supervise activity of the type and scope proposed;

(iii)The demonstrated ability to carry research to completion, as evidenced by timely completion of theses, research reports, or similar documents;

(iv)Completion of at least 16 months of professional experience and/or specialized training in archaeological field, laboratory, or library research, administration, or management, including at least 4 months experience and/or specialized training in the kind of activity the individual proposes to conduct under authority of a permit; and

(v)Applicants proposing to engage in historical archaeology should have had at least one year of experience in research concerning archaeological resources of the historic period. Applicants proposing to engage in prehistoric archaeology should have had at least one year of experience in research concerning archaeological resources of the prehistoric period.

(2)The proposed work is to be undertaken for the purpose of furthering archaeological knowledge in the public interest, which may include but need not be limited to, scientific or scholarly research, and preservation of archaeological data;

(3)The proposed work, including time, scope, location, and purpose, is not inconsistent with any management plan or established policy, objectives, or requirements applicable to the management of the public lands concerned;

(4)Where the proposed work consists of archaeological survey and/or data recovery undertaken in accordance with other approved uses of the public lands or Indian lands, and the proposed work has been agreed to in writing by the Federal land manager pursuant to section 106 of the National Historic Preservation Act (16 U.S.C. 470f), paragraphs

(2)and

(3)shall be deemed satisfied by the prior approval.

(5)Written consent has been obtained, for work proposed on Indian lands, from the Indian landowner and the Indian tribe having jurisdiction over such lands;

(6)Evidence is submitted to the Federal land manager that any university, museum, or other scientific or educational institution proposed in the application as the repository possesses adequate curatorial capability for safeguarding and preserving the archaeological resources and all associated records; and

(7)The applicant has certified that, not later than 90 days after the date the final report is submitted to the Federal land manager, the following will be delivered to the appropriate official of the approved university, museum, or other scientific or educational institution, which shall be named in the permit:

(i)All artifacts, samples, collections, and copies of records, data, photographs, and other documents resulting from work conducted under the requested permit where the permit is for the excavation and/or removal of archaeological resources from public lands.

(ii)All artifacts, samples and collections resulting from work under the requested permit for which the custody or disposition is not undertaken by the Indian owners, and copies of records, data, photographs, and other documents resulting from work conducted under the requested permit, where the permit is for the excavation and/or removal of archaeological resources from Indian lands.

(b)When the area of the proposed work would cross jurisdictional boundaries, so that permit applications must be submitted to more than one Federal land manager, the Federal land manager shall coordinate the review and evaluation of applications and the issuance of permits. § 229.9 Terms and conditions of permits.

(a)In all permits issued, the Federal land manager shall specify:

(1)The nature and extent of work allowed and required under the permit, including the time, duration, scope, location, and purpose of the work;

(2)The name of the individual(s) responsible for conducting the work and, if different, the name of the individual(s) responsible for carrying out the terms and conditions of the permit;

(3)The name of any university, museum, or other scientific or educational institutions in which any collected materials and data shall be deposited; and

(4)Reporting requirements.

(b)The Federal land manager may specify such terms and conditions as deemed necessary, consistent with this part, to protect public safety and other values and/or resources, to secure work areas, to safeguard other legitimate land uses, and to limit activities incidental to work authorized under a permit.

(c)The Federal land manager shall include in permits issued for archaeological work on Indian lands such terms and conditions as may be requested by the Indian landowner and the Indian tribe having jurisdiction over the lands, and for archaeological work on public lands shall include such terms and conditions as may have been developed pursuant to § 229.7.

(d)Initiation of work or other activities under the authority of a permit signifies the permittee's acceptance of the terms and conditions of the permit.

(e)The permittee shall not be released from requirements of a permit until all outstanding obligations have been satisfied, whether or not the term of the permit has expired.

(f)The permittee may request that the Federal land manager extend or modify a permit.

(g)The permittee's performance under any permit issued for a period greater than 1 year shall be subject to review by the Federal land manager, at least annually. § 229.10 Suspension and revocation of permits.

(a)*Suspension or revocation for cause.*

(1)The Federal land manager may suspend a permit issued pursuant to this part upon determining that the permittee has failed to meet any of the terms and conditions of the permit or has violated any prohibition of the Act or § 229.4. The Federal land manager shall provide written notice to the permittee of the suspension, the cause thereof, and the requirements which must be met before the suspension will be removed.

(2)The Federal land manager may revoke a permit upon assessment of a civil penalty under § 229.15 upon the permittee's conviction under section 6 of the Act, or upon determining that the permittee has failed after notice under this section to correct the situation which led to suspension of the permit.

(b)*Suspension or revocation for management purposes.* The Federal land manager may suspend or revoke a permit, without liability to the United States, its agents, or employees, when continuation of work under the permit would be in conflict with management requirements not in effect when the permit was issued. The Federal land manager shall provide written notice to the permittee stating the nature of and basis for the suspension or revocation. § 229.11 Appeals relating to permits. Any affected person may appeal permit issuance, denial of permit issuance, suspension, revocation, and terms and conditions of a permit through existing administrative appeal procedures, or through procedures which may be established by the Federal land manager pursuant to section 10(b) of the Act and this part. § 229.12 Relationship to section 106 of the National Historic Preservation Act. Issuance of a permit in accordance with the Act and this part does not constitute an undertaking requiring compliance with section 106 of the Act of October 15, 1966 (16 U.S.C. 470f). However, the mere issuance of such a permit does not excuse the Federal land manager from compliance with section 106 where otherwise required. § 229.13 Custody of archaeological resources.

(a)Archaeological resources excavated or removed from the public lands remain the property of the United States.

(b)Archaeological resources excavated or removed from Indian lands remain the property of the Indian or Indian tribe having rights of ownership over such resources.

(c)The Secretary of the Interior may promulgate regulations providing for the exchange of archaeological resources among suitable universities, museums, or other scientific or educational institutions, for the ultimate disposition of archaeological resources, and for standards by which archaeological resources shall be preserved and maintained, when such resources have been excavated or removed from public lands and Indian lands.

(d)In the absence of regulations referenced in paragraph

(c)of this section, the Federal land manager may provide for the exchange of archaeological resources among suitable universities, museums, or other scientific or educational institutions, when such resources have been excavated or removed from public lands under the authority of a permit issued by the Federal land manager.

(e)Notwithstanding the provisions of paragraphs

(a)through

(d)of this section, the Federal land manager will follow the procedures required by NAGPRA and its implementing regulations for determining the disposition of Native American human remains and other “cultural items”, as defined by NAGPRA, that have been excavated, removed, or discovered on public lands. § 229.14 Determination of archaeological or commercial value and cost of restoration and repair.

(a)*Archaeological value.* For purposes of this part, the archaeological value of any archaeological resource involved in a violation of the prohibitions in § 229.4 of this part or conditions of a permit issued pursuant to this part shall be the value of the information associated with the archaeological resource. This value shall be appraised in terms of the costs of the retrieval of the scientific information which would have been obtainable prior to the violation. These costs may include, but need not be limited to, the cost of preparing a research design, conducting field work, carrying out laboratory analysis, and preparing reports as would be necessary to realize the information potential.

(b)*Commercial value.* For purposes of this part, the commercial value of any archaeological resource involved in a violation of the prohibitions in § 229.4 of this part or conditions of a permit issued pursuant to this part shall be its fair market value. Where the violation has resulted in damage to the archaeological resource, the fair market value should be determined using the condition of the archaeological resource prior to the violation, to the extent that its prior condition can be ascertained.

(c)*Cost of restoration and repair.* For purposes of this part, the cost of restoration and repair of archaeological resources damaged as a result of a violation of prohibitions or conditions pursuant to this part, shall be the sum of the costs already incurred for emergency restoration or repair work, plus those costs projected to be necessary to complete restoration and repair, which may include, but need not be limited to, the costs of the following:

(1)Reconstruction of the archaeological resource;

(2)Stabilization of the archaeological resource;

(3)Ground contour reconstruction and surface stabilization;

(4)Research necessary to carry out reconstruction or stabilization;

(5)Physical barriers or other protective devices, necessitated by the disturbance of the archaeological resource, to protect it from further disturbance;

(6)Examination and analysis of the archaeological resource including recording remaining archaeological information, where necessitated by disturbance, in order to salvage remaining values which cannot be otherwise conserved;

(7)Reinterment of human remains in accordance with religious custom and State, local, or tribal law, where appropriate, as determined by the Federal land manager.

(8)Preparation of reports relating to any of the above activities. § 229.15 Assessment of civil penalties.

(a)The Federal land manager may assess a civil penalty against any person who has violated any prohibition contained in § 229.4 or who has violated any term or condition included in a permit issued in accordance with the Act and this part.

(b)*Notice of violation.* The Federal land manager shall serve a notice of violation upon any person believed to be subject to a civil penalty, either in person or by registered or certified mail (return receipt requested). The Federal land manager shall include in the notice:

(1)A concise statement of the facts believed to show a violation;

(2)A specific reference to the provision(s) of this part or to a permit issued pursuant to this part allegedly violated;

(3)The amount of penalty proposed to be assessed, including any initial proposal to mitigate or remit where appropriate, or a statement that notice of a proposed penalty amount will be served after the damages associated with the alleged violation have been ascertained;

(4)Notification of the right to file a petition for relief pursuant to paragraph

(d)of this section, or to await the Federal land manager's notice of assessment, and to request a hearing in accordance with paragraph

(g)of this section. The notice shall also inform the person of the right to seek judicial review of any final administrative decision assessing a civil penalty.

(c)The person served with a notice of violation shall have 45 calendar days from the date of its service (or the date of service of a proposed penalty amount, if later) in which to respond. During this time the person may:

(1)Seek informal discussions with the Federal land manager;

(2)File a petition for relief in accordance with paragraph

(d)of this section;

(3)Take no action and await the Federal land manager's notice of assessment;

(4)Accept in writing or by payment the proposed penalty, or any mitigation or remission offered in the notice. Acceptance of the proposed penalty or mitigation or remission shall be deemed a waiver of the notice of assessment and of the right to request a hearing under paragraph

(g)of this section.

(d)*Petition for relief.* The person served with a notice of violation may request that no penalty be assessed or that the amount be reduced, by filing a petition for relief with the Federal land manager within 45 calendar days of the date of service of the notice of violation (or of a proposed penalty amount, if later). The petition shall be in writing and signed by the person served with the notice of violation. If the person is a corporation, the petition must be signed by an officer authorized to sign such documents. The petition shall set forth in full the legal or factual basis for the requested relief.

(e)*Assessment of penalty.*

(1)The Federal land manager shall assess a civil penalty upon expiration of the period for filing a petition for relief, upon completion of review of any petition filed, or upon completion of informal discussions, whichever is later.

(2)The Federal land manager shall take into consideration all available information, including information provided pursuant to paragraphs

(c)and

(d)of this section or furnished upon further request by the Federal land manager.

(3)If the facts warrant a conclusion that no violation has occurred, the Federal land manager shall so notify the person served with a notice of violation, and no penalty shall be assessed.

(4)Where the facts warrant a conclusion that a violation has occurred, the Federal land manager shall determine a penalty amount in accordance with § 229.16.

(f)*Notice of assessment.* The Federal land manager shall notify the person served with a notice of violation of the penalty amount assessed by serving a written notice of assessment, either in person or by registered or certified mail (return receipt requested). The Federal land manager shall include in the notice of assessment:

(1)The facts and conclusions from which it was determined that a violation did occur;

(2)The basis in § 229.16 for determining the penalty amount assessed and/or any offer to mitigate or remit the penalty; and

(3)Notification of the right to request a hearing, including the procedures to be followed, and to seek judicial review of any final administrative decision assessing a civil penalty.

(g)*Hearings.*

(1)Except where the right to request a hearing is deemed to have been waived as provided in paragraph (c)(4) of this section, the person served with a notice of assessment may file a written request for a hearing with the adjudicatory body specified in the notice. The person shall enclose with the request for hearing a copy of the notice of assessment, and shall deliver the request as specified in the notice of assessment, personally or by registered or certified mail (return receipt requested).

(2)Failure to deliver a written request for a hearing within 45 days of the date of service of the notice of assessment shall be deemed a waiver of the right to a hearing.

(3)Any hearing conducted pursuant to this section shall be held in accordance with 5 U.S.C. 554. In any such hearing, the amount of civil penalty assessed shall be determined in accordance with this part, and shall not be limited by the amount assessed by the Federal land manager under paragraph

(f)of this section or any offer of mitigation or remission made by the Federal land manager.

(h)*Final administrative decision.*

(1)Where the person served with a notice of violation has accepted the penalty pursuant to paragraph (c)(4) of this section, the notice of violation shall constitute the final administrative decision;

(2)Where the person served with a notice of assessment has not filed a timely request for a hearing pursuant to paragraph (g)(1) of this section, the notice of assessment shall constitute the final administrative decision;

(3)Where the person served with a notice of assessment has filed a timely request for a hearing pursuant to paragraph (g)(1) of this section, the decision resulting from the hearing or any applicable administrative appeal therefrom shall constitute the final administrative decision.

(i)*Payment of penalty.*

(1)The person assessed a civil penalty shall have 45 calendar days from the date of issuance of the final administrative decision in which to make full payment of the penalty assessed, unless a timely request for appeal has been filed with a U.S. District Court as provided in section 7(b)(1) of the Act.

(2)Upon failure to pay the penalty, the Federal land manager may request the Attorney General to institute a civil action to collect the penalty in a U.S. District Court for any district in which the person assessed a civil penalty is found, resides, or transacts business. Where the Federal land manager is not represented by the Attorney General, a civil action may be initiated directly by the Federal land manager.

(j)*Other remedies not waived.* Assessment of a penalty under this section shall not be deemed a waiver of the right to pursue other available legal or administrative remedies. § 229.16 Civil penalty amounts.

(a)*Maximum amount of penalty.*

(1)Where the person being assessed a civil penalty has not committed any previous violation of any prohibition in § 229.4 or of any term or condition included in a permit issued pursuant to this part, the maximum amount of the penalty shall be the full cost of restoration and repair of archaeological resources damaged plus the archaeological or commercial value of archaeological resources destroyed or not recovered.

(2)Where the person being assessed a civil penalty has committed any previous violation of any prohibition in § 229.4 or of any term or condition included in a permit issued pursuant to this part, the maximum amount of the penalty shall be double the cost of restoration and repair plus double the archaeological or commercial value of archaeological resources destroyed or not recovered.

(3)Violations limited to the removal of arrowheads located on the surface of the ground shall not be subject to the penalties prescribed in this section.

(b)*Determination of penalty amount, mitigation, and remission.* The Federal land manager may assess a penalty amount less than the maximum amount of penalty and may offer to mitigate or remit the penalty.

(1)Determination of the penalty amount and/or a proposal to mitigate or remit the penalty may be based upon any of the following factors:

(i)Agreement by the person being assessed a civil penalty to return to the Federal land manager archaeological resources removed from public lands or Indian lands;

(ii)Agreement by the person being assessed a civil penalty to assist the Federal land manager in activity to preserve, restore, or otherwise contribute to the protection and study of archaeological resources on public lands or Indian lands;

(iii)Agreement by the person being assessed a civil penalty to provide information which will assist in the detection, prevention, or prosecution of violations of the Act or this part;

(iv)Demonstration of hardship or inability to pay, provided that this factor shall only be considered when the person being assessed a civil penalty has not been found to have previously violated the regulations in this part;

(v)Determination that the person being assessed a civil penalty did not willfully commit the violation;

(vi)Determination that the proposed penalty would constitute excessive punishment under the circumstances;

(vii)Determination of other mitigating circumstances appropriate to consideration in reaching a fair and expeditious assessment.

(2)When the penalty is for a violation on Indian lands, the Federal land manager shall consult with and consider the interests of the Indian landowner and the Indian tribe having jurisdiction over the Indian lands prior to proposing to mitigate or remit the penalty.

(3)When the penalty is for a violation which may have had an effect on a known Indian tribal religious or cultural site on public lands, the Federal land manager should consult with and consider the interests of the affected tribe(s) prior to proposing to mitigate or remit the penalty. § 229.17 Other penalties and rewards.

(a)Section 6 of the Act contains criminal prohibitions and provisions for criminal penalties. Section 8(b) of the Act provides that archaeological resources, vehicles, or equipment involved in a violation may be subject to forfeiture.

(b)Section 8(a) of the Act provides for rewards to be made to persons who furnish information which leads to conviction for a criminal violation or to assessment of a civil penalty. The Federal land manager may certify to the Secretary of the Treasury that a person is eligible to receive payment. Officers and employees of Federal, State, or local government who furnish information or render service in the performance of their official duties, and persons who have provided information under § 229.16(b)(1)(iii) shall not be certified eligible to receive payment of rewards.

(c)In cases involving Indian lands, all civil penalty monies and any item forfeited under the provisions of this section shall be transferred to the appropriate Indian or Indian tribe. § 229.18 Confidentiality of archaeological resource information.

(a)The Federal land manager shall not make available to the public, under subchapter II of chapter 5 of title 5 of the U.S. Code or any other provision of law, information concerning the nature and location of any archaeological resource, with the following exceptions:

(1)The Federal land manager may make information available, provided that the disclosure will further the purposes of the Act and this part, or the Act of June 27, 1960, as amended (16 U.S.C. 469-469c), without risking harm to the archaeological resource or to the site in which it is located.

(2)The Federal land manager shall make information available, when the Governor of any State has submitted to the Federal land manager a written request for information, concerning the archaeological resources within the requesting Governor's State, provided that the request includes:

(i)The specific archaeological resource or area about which information is sought;

(ii)The purpose for which the information is sought; and

(iii)The Governor's written commitment to adequately protect the confidentiality of the information.

(b)[Reserved] § 229.19 Report.

(a)Each Federal land manager, when requested by the Secretary of the Interior, will submit such information as is necessary to enable the Secretary to comply with section 13 of the Act and comprehensively report on activities carried out under provisions of the Act.

(b)The Secretary of the Interior will include in the annual comprehensive report, submitted to the Committee on Interior and Insular Affairs of the United States House of Representatives and to the Committee on Energy and Natural Resources of the United States Senate under section 13 of the Act, information on public awareness programs submitted by each Federal land manager under § 229.20(b). Such submittal will fulfill the Federal land manager's responsibility under section 10(c) of the Act to report on public awareness programs.

(c)The comprehensive report by the Secretary of the Interior also will include information on the activities carried out under section 14 of the Act. Each Federal land manager, when requested by the Secretary, will submit any available information on surveys and schedules and suspected violations in order to enable the Secretary to summarize in the comprehensive report actions taken pursuant to section 14 of the Act. § 229.20 Public awareness programs.

(a)Each Federal land manager will establish a program to increase public awareness of the need to protect important archaeological resources located on public and Indian lands. Educational activities required by section 10(c) of the Act should be incorporated into other current agency public education and interpretation programs where appropriate.

(b)Each Federal land manager annually will submit to the Secretary of the Interior the relevant information on public awareness activities required by section 10(c) of the Act for inclusion in the comprehensive report on activities required by section 13 of the Act. § 229.21 Surveys and schedules.

(a)The Secretaries of the Interior, Agriculture, and Defense and the Chairman of the Board of the Tennessee Valley Authority will develop plans for surveying lands under each agency's control to determine the nature and extent of archaeological resources pursuant to section 14(a) of the Act. Such activities should be consistent with Federal agency planning policies and other historic preservation program responsibilities required by 16 U.S.C. 470 *et seq.* Survey plans prepared under this section will be designed to comply with the purpose of the Act regarding the protection of archaeological resources.

(b)The Secretaries of the Interior, Agriculture, and Defense and the Chairman of the Tennessee Valley Authority will prepare schedules for surveying lands under each agency's control that are likely to contain the most scientifically valuable archaeological resources pursuant to section 14(b) of the Act. Such schedules will be developed based on objectives and information identified in survey plans described in paragraph

(a)of this section and implemented systematically to cover areas where the most scientifically valuable archaeological resources are likely to exist.

(c)Guidance for the activities undertaken as part of paragraphs

(a)through

(b)of this section is provided by the Secretary of the Interior's Standards and Guidelines for Archeology and Historic Preservation.

(d)Other Federal land managing agencies are encouraged to develop plans for surveying lands under their jurisdictions and prepare schedules for surveying to improve protection and management of archaeological resources.

(e)The Secretaries of the Interior, Agriculture, and Defense and the Chairman of the Tennessee Valley Authority will develop a system for documenting and reporting suspected violations of the various provisions of the Act. This system will reference a set of procedures for use by officers, employees, or agents of Federal agencies to assist them in recognizing violations, documenting relevant evidence, and reporting assembled information to the appropriate authorities. Methods employed to document and report such violations should be compatible with existing agency reporting systems for documenting violations of other appropriate Federal statutes and regulations. Summary information to be included in the Secretary's comprehensive report will be based upon the system developed by each Federal land manager for documenting suspected violations. Dated: July 25, 2007. L.M. Bynum, Alternate OSD Federal Register Liaison Officer, DoD. [FR Doc. E7-14811 Filed 8-1-07; 8:45 am] BILLING CODE 5001-06-P DEPARTMENT OF HOMELAND SECURITY Coast Guard 33 CFR Part 117 [CGD05-07-025] RIN 1625-AA09 Drawbridge Operation Regulations; Wicomico River (North Prong), Salisbury, MD AGENCY: Coast Guard, DHS. ACTION: Final rule. SUMMARY: The Coast Guard is changing the drawbridge operation regulations of two Maryland Department of Transportation

(MDOT)bridges: The Main Street and U.S. 50 Bridges, at mile 22.4, across Wicomico River (North Prong) in Salisbury, MD. This final rule will allow the bridges to open on signal if four hours advance notice is given and eliminate the continual attendance of draw tender services while still providing the reasonable needs of navigation. DATES: This rule is effective September 4, 2007. ADDRESSES: Comments and material received from the public, as well as documents indicated in this preamble as being available in the docket, are part of docket CGD05-07-025 and are available for inspection or copying at Commander (dpb), Fifth Coast Guard District, Federal Building, 1st Floor, 431 Crawford Street, Portsmouth, VA 23704-5004 between 8 a.m. and 4 p.m., Monday through Friday, except Federal holidays. The Fifth Coast Guard District maintains the public docket for this rulemaking. FOR FURTHER INFORMATION CONTACT: Waverly W. Gregory, Jr., Bridge Administrator, Fifth Coast Guard District, at

(757)398-6222. SUPPLEMENTARY INFORMATION: Regulatory History On April 5, 2007, we published a notice of proposed rulemaking

(NPRM)entitled “Drawbridge Operation Regulations; Wicomico River (North Prong), Salisbury, MD” in the ** Federal Register** (72 FR 16752). We received no comments on the proposed rule. No public meeting was requested, and none was held. Background and Purpose The State Highway Administration (SHA), a division under MDOT, is responsible for the operation of both the Main Street and U.S. 50 Bridges, at mile 22.4, across Wicomico River in Salisbury. SHA requested advance notification for vessel openings and a reduction in draw tender services due to the infrequency of requests for vessel openings of the drawbridges. The Main Street and U.S. 50 Bridges have vertical clearances of four feet, above mean high water, in the closed-to-navigation position. The existing operating regulations for these drawbridges are set out in 33 CFR § 117.579, which requires the draws to open on signal, except from 7 a.m. to 9 a.m., from 12 noon to 1 p.m. and from 4 p.m. to 6 p.m., the draw need not be opened for the passage of vessels, except for tugs with tows, if at least three hours of advance notice is given, and the reason for passage through the bridges during a closure period is due to delay caused by inclement weather or other emergency or unforeseen circumstances. Bridge opening data supplied by SHA revealed a significant decrease in yearly openings. In the past three years from 2004 to 2006, the bridges opened for vessels 522, 282 and 157 times, respectively. Due to the infrequency of requests for vessel openings of the drawbridges, SHA requested to change the current operating regulations by requiring the draw spans to open on signal if at least four hours notice is given year-round by calling the contact telephone number at

(410)430-7561. Discussion of Comments and Changes The Coast Guard did not receive any comments on the NPRM. Therefore, no changes were made to the final rule. Discussion of Rule The Coast Guard is amending 33 CFR 117.579, which governs the Main Street and U.S. 50 Bridges, by revising the paragraph to read that the draws shall open on signal if at least four hours notice is given by calling the telephone contact number at

(410)430-7461. Under this revision, there will no longer be closure periods. All vessels will be required to provide at least four hours notice. Regulatory Evaluation This rule is not a “significant regulatory action” under section 3(f) of Executive Order 12866, Regulatory Planning and Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. The Office of Management and Budget has not reviewed it under that Order. It is not “significant” under the regulatory policies and procedures of the Department of Homeland Security (DHS). This conclusion is based on the fact that these changes have only a minimal impact on maritime traffic transiting the bridges. Mariners will no longer have to wait for closure periods to end, which will allow them to plan their trips without requiring a stop, so long as the four hour notice is provided. Small Entities Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we have considered whether this rule would have a significant economic impact on a substantial number of small entities. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. The Coast Guard certifies under 5 U.S.C. 605(b) that this rule would not have a significant economic impact on a substantial number of small entities. This conclusion is based on the fact the rule would not have a significant economic impact on a substantial number of small entities because the rule relieves restrictions to the movement of navigation, as mariners will no longer have to wait for closure periods to end, which will allow them to plan their trips without requiring a stop, so long as the four hour notice is provided. Assistance for Small Entities Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this rule so that they can better evaluate its effects on them and participate in the rulemaking process. No assistance was requested from any small entity. Collection of Information This rule calls for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520.). Federalism A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on State or local governments and would either preempt State law or impose a substantial direct cost of compliance on them. We have analyzed this rule under that Order and have determined that it does not have implications for federalism. Unfunded Mandates Reform Act The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 or more in any one year. Though this rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble. Taking of Private Property This rule will not effect a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights. Civil Justice Reform This rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminates ambiguity, and reduce burden. Protection of Children We have analyzed this rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and would not create an environmental risk to health or risk to safety that might disproportionately affect children. Indian Tribal Governments This rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it would not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes. Energy Effects We have analyzed this rule under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use. We have determined that it is not a “significant energy action” under that order because it is not a “significant regulatory action” under Executive Order 12866 and is not likely to have a significant adverse effect on the supply, distribution, or use of energy. The Administrator of the Office of Information and Regulatory Affairs has not designated it as a significant energy action. Therefore, it does not require a Statement of Energy Effects under Executive Order 13211. Technical Standards The National Technology Transfer and Advancement Act (NTTAA) (15 U.S.C. 272 note) directs agencies to use voluntary consensus standards in their regulatory activities unless the agency provides Congress, through the Office of Management and Budget, with an explanation of why using these standards would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards (e.g., specifications of materials, performance, design, or operation; test methods; sampling procedures; and related management systems practices) that are developed or adopted by voluntary consensus standards bodies. This rule does not use technical standards. Therefore, we did not consider the use of voluntary consensus standards. Environment We have analyzed this rule under Commandant Instruction M16475.1D and Department of Homeland Security Management Directive 5100.1, which guide the Coast Guard in complying with the National Environmental Policy Act of 1969

(NEPA)(42 U.S.C. 4321-4370f), and have concluded that there are no factors in this case that would limit the use of a categorical exclusion under section 2.B.2 of the Instruction. Therefore, this rule is categorically excluded, under figure 2-1, paragraph (32)(e) of the Instruction, from further environmental documentation because it has been determined that the promulgation of operating regulations for drawbridges are categorically excluded. List of Subjects in 33 CFR Part 117 Bridges. For the reasons discussed in the preamble, the Coast Guard amends 33 CFR part 117 as follows: PART 117—DRAWBRIDGE OPERATION REGULATIONS 1. The authority citation for part 117 continues to read as follows: Authority: 33 U.S.C. 499; Department of Homeland Security Delegation No. 0170.1; 33 CFR 1.05-1(g); section 117.255 also issued under the authority of Pub. L. 102-587, 106 Stat. 5039. 2. Revise § 117.579 to read as follows: § 117.579 Wicomico River (North Prong). The draws of the Main Street and U.S. 50 bridges, mile 22.4, Salisbury, Maryland shall open on signal if at least four hours notice is given by calling the telephone contact number at

(410)430-7461. Dated: July 24, 2007. Fred M. Rosa, Jr., Rear Admiral, United States Coast Guard, Commander, Fifth Coast Guard District. [FR Doc. E7-14936 Filed 8-1-07; 8:45 am] BILLING CODE 4910-15-P DEPARTMENT OF HOMELAND SECURITY Coast Guard 33 CFR Part 165 [Docket No. COTP North Carolina CGD05-07-071] RIN 1625-AA00 Safety Zone for Marine Events; New River, Jacksonville, NC AGENCY: Coast Guard, DHS. ACTION: Temporary final rule. SUMMARY: The Coast Guard is establishing a temporary Safety Zone during the “National Night Out”, an event to be held August 7, 2007 on the New River, Jacksonville, North Carolina. This safety zone is necessary to provide for the safety of life on navigable waters during the event. This action is intended to temporarily restrict vessel traffic in the New River to accommodate a Helicopter Search and Rescue demonstration and a fireworks display. DATES: This rule is effective from 5:30 p.m. to 10 p.m. on August 7, 2007. ADDRESSES: Documents indicated in this preamble as being available in the docket are part of docket CGD05-07-071 and are available for inspection or copying at Commander (dpi), Fifth Coast Guard District, 431 Crawford Street, Portsmouth, Virginia 23704-5004, between 9 a.m. and 2 p.m., Monday through Friday, except Federal holidays. FOR FURTHER INFORMATION CONTACT: D. M. Sens, Project Manager, Inspections and Investigations Branch, at

(757)398-6204. SUPPLEMENTARY INFORMATION: Regulatory Information We did not publish a notice of proposed rulemaking

(NPRM)for this regulation. Under 5 U.S.C. 553(b)(B), the Coast Guard finds that good cause exists for not publishing an NPRM. Publishing an NPRM would be impracticable and contrary to public interest because immediate action is needed to minimize potential danger to the public during the event. The necessary information to determine whether the marine event poses a threat to persons and vessels was not provided to the Coast Guard in sufficient time to publish an NPRM. The potential dangers posed by the helicopter demonstration and pyrotechnic fireworks display, make a safety zone necessary to provide for the safety of spectator craft and other vessels transiting the event area. The Coast Guard will issue a broadcast notice to mariners to advise mariners of the restriction and on scene Coast Guard and local law enforcement vessels will also provide notice to mariners. Under 5 U.S.C. 553(d)(3) and for the same reasons, the Coast Guard finds that good cause exists for making this rule effective less than 30 days after publication in the **Federal Register** . Delaying the effective date would be contrary to the public interest, because immediate action is needed to ensure the safety of the event participants, spectator craft and other vessels transiting the event area. Advance notifications will be made to users of the New River, via marine information broadcasts, local notice to mariners, commercial radio stations and area newspapers. Background and Purpose On August 7, 2007, the Jacksonville Police Department will sponsor the “National Night Out” Helicopter Search and Rescue

(SAR)demonstration and fireworks display. These events will take place on the New River near position 34°44′45″ N 077°26′18″ W. The Helicopter SAR Demonstration will consist of a basket hoist from a Coast Guard small boat. The fireworks display will be launched from shore and will have a fallout area over the waters of the New River. The safety zone is necessary to safe guard the SAR demonstration team as well as the spectator fleet expected by the sponsor. Due to the need for vessel control during these events, vessel traffic will be temporarily restricted to provide for the safety of SAR demonstration team, spectators and transiting vessels. Discussion of Rule The Coast Guard is establishing a safety zone on specified waters of the New River, Jacksonville, North Carolina. The regulated area includes all waters within a 300 yard radius of position 34°44′45″ N 077°26′18″ W or approximately one half nautical mile south of the Hwy 17 bridge, Jacksonville, North Carolina. The safety zone will be in effect from 5:30 p.m. to 10 p.m. on August 7, 2007. The effect will be to restrict general navigation in the regulated area during the SAR demonstration and the fireworks display. Except for persons or vessels authorized by the Coast Guard Patrol Commander, no person or vessel may enter or remain in the regulated area during the enforcement period. The Patrol Commander will notify the public of specific enforcement times by Marine Radio Safety Broadcast. These regulations are needed to control vessel traffic during the event to enhance the safety of participants, spectators and transiting vessels. Regulatory Evaluation This rule is not a “significant regulatory action” under section 3(f) of Executive Order 12866, Regulatory Planning and Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. The Office of Management and Budget has not reviewed it under that Order. Although this regulation restricts vessel traffic from transiting the New River, near Jacksonville, North Carolina during the event, the effect of this regulation will not be significant due to the limited duration that the safety zone will be in effect and the extensive advance notifications that will be made to the maritime community via marine information broadcasts and area newspapers so mariners can adjust their plans accordingly. Small Entities Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we have considered whether this rule would have a significant economic impact on a substantial number of small entities. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities. This rule will affect the following entities, some of which may be small entities: The owners or operators of vessels intending to transit the New River, near Jacksonville, North Carolina during the event. This rule will not have a significant economic impact on a substantial number of small entities for the following reasons. This rule will be in effect for only a short period, from 5:30 p.m. to 10 p.m. on August 7, 2007. Before the enforcement period, we will issue maritime advisories so mariners can adjust their plans accordingly. Assistance for Small Entities Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this proposed rule so that they can better evaluate its effects on them and participate in the rulemaking. If the rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact the address listed under ADDRESSES . Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247). The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard. Collection of Information This rule calls for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). Federalism A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on State or local governments and would either preempt State law or impose a substantial direct cost of compliance on them. We have analyzed this rule under that Order and have determined that it does not have implications for federalism. Unfunded Mandates Reform Act The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 or more in any one year. Though this rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble. Taking of Private Property This rule will not effect a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights. Civil Justice Reform This rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden. Protection of Children We have analyzed this rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and does not create an environmental risk to health or risk to safety that may disproportionately affect children. Indian Tribal Governments This rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes. Energy Effects We have analyzed this rule under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use. We have determined that it is not a “significant energy action” under that order because it is not a “significant regulatory action” under Executive Order 12866 and is not likely to have a significant adverse effect on the supply, distribution, or use of energy. The Administrator of the Office of Information and Regulatory Affairs has not designated it as a significant energy action. Therefore, it does not require a Statement of Energy Effects under Executive Order 13211. Technical Standards The National Technology Transfer and Advancement Act (NTTAA) (15 U.S.C. 272 note) directs agencies to use voluntary consensus standards in their regulatory activities unless the agency provides Congress, through the Office of Management and Budget, with an explanation of why using these standards would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards (e.g., specifications of materials, performance, design, or operation; test methods; sampling procedures; and related management systems practices) that are developed or adopted by voluntary consensus standards bodies. This rule does not use technical standards. Therefore, we did not consider the use of voluntary consensus standards. Environment We have analyzed this rule under Commandant Instruction M16475.lD and Department of Homeland Security Management Directive 5100.1, which guide the Coast Guard in complying with the National Environmental Policy Act of 1969

(NEPA)(42 U.S.C. 4321-4370f), and have concluded that there are no factors in this case that would limit the use of a categorical exclusion under section 2.B.2 of the Instruction. Therefore, this rule is categorically excluded, under figure 2-1, paragraph (34)(g), of the Instruction, from further environmental documentation. A final “Environmental Analysis Check List” and a final “Categorical Exclusion Determination” will be available in the docket where indicated under ADDRESSES . List of Subjects in 33 CFR Part 165 Harbors, Marine safety, Navigation (water), Reporting and recordkeeping requirements, Security measures, Waterways. For the reasons discussed in the preamble, the Coast Guard amends 33 CFR part 165 as follows: PART 165—REGULATED NAVIGATION AREAS AND LIMITED ACCESS AREAS 1. The authority citation for part 165 continues to read as follows: Authority: 33 U.S.C. 1226, 1231; 46 U.S.C. Chapter 701; 50 U.S.C. 191, 195; 33 CFR 1.05-1(g), 6.04-1, 6.04-6 and 160.5; Pub. L. 107-295, 116 Stat. 2064; Department of Homeland Security Delegation No. 0170.1. 2. Add temporary § 165.T05-071 to read as follows: § 165.T05-071 Safety zone; New River, approximate one half mile south of the HWY 17 Bridge, south of Jacksonville, North Carolina.

(a)*Regulated area.* The regulated area includes all waters within a 300 yard radius of position 34°44′45″ North 077°26′18″ West, approximately one half nautical mile south of the HWY 17 bridge, Jacksonville, North Carolina. All coordinates reference Datum NAD 1983.

(b)*Definitions. Coast Guard Patrol Commander* means a commissioned, warrant, or petty officer of the Coast Guard who has been designated by the Commander, Coast Guard Sector North Carolina.

(2)*Official Patrol* means any vessel assigned or approved by Commander, Coast Guard Sector North Carolina with a commissioned, warrant, or petty officer on board and displaying a Coast Guard ensign.

(c)*Safety Zone regulations.*

(1)Except for persons or vessels authorized by the Coast Guard Patrol Commander, no person or vessel may enter or remain in the regulated area.

(2)The operator of any vessel in the regulated area shall:

(i)Stop the vessel immediately when directed to do so by any Official Patrol.

(ii)Proceed as directed by any official patrol.

(d)*Enforcement period.* This section will be enforced from 5:30 p.m. to 10 p.m. on August 7, 2007. Dated: July 9, 2007. William D. Lee, Captain of the Port, Coast Guard Sector North Carolina. [FR Doc. E7-14939 Filed 8-1-07; 8:45 am] BILLING CODE 4910-15-P DEPARTMENT OF HOMELAND SECURITY Coast Guard 46 CFR Part 67 [USCG-2007-28098] RIN 1625-AB18 Vessel Documentation; Recording of Instruments AGENCY: Coast Guard, DHS. ACTION: Direct final rule; request for comments. SUMMARY: By this direct final rule, the Coast Guard is amending the vessel documentation regulations to eliminate the requirement to provide certain original documents to the National Vessel Documentation Center

(NVDC)for recording, and to eliminate the additional fee for filing by facsimile. We are undertaking this rulemaking to conform our business practices with similar functions provided by other governmental entities and to allow our customers to avail themselves of better service through electronic filing. This rulemaking is expected to improve efficiency at the NVDC and permit the use of improved information collection technology. DATES: This rule is effective October 31, 2007, unless an adverse comment, or notice of intent to submit an adverse comment, reaches the Docket Management Facility on or before October 1, 2007. If an adverse comment, or notice of intent to submit an adverse comment, is received, we will withdraw this direct final rule and publish a timely notice of withdrawal in the **Federal Register** . ADDRESSES: You may submit comments identified by Coast Guard docket number USCG-2007-28098 to the Docket Management Facility at the U.S. Department of Transportation. To avoid duplication, please use only one of the following methods:

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

(2)*Mail:* Docket Management Facility (M-30), U.S. Department of Transportation, West Building, Ground Floor, Room W12-140, 1200 New Jersey Avenue, SE., Washington, DC 20590.

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

(4)*Delivery:* Room W12-140 on the Ground Floor of the West Building, 1200 New Jersey Avenue, SE., Washington, DC 20590, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The telephone number is 202-366-9329.

(5)*Federal eRulemaking Portal: http://www.regulations.gov.* FOR FURTHER INFORMATION CONTACT: If you have questions on this rule, call Mr. Thomas L. Willis, Director, National Vessel Documentation Center, U.S. Coast Guard, telephone 304-271-2506. If you have questions on viewing or submitting material to the docket, call Renee V. Wright, Program Manager, Docket Operations, telephone 202-366-9826. SUPPLEMENTARY INFORMATION: *Submitting comments:* If you submit a comment, please include your name and address, identify the docket number for this rulemaking (USCG-2007-28098), indicate the specific section of this document to which each comment applies, and give the reason for each comment. You may submit your comments and material by electronic means, mail, fax, or delivery to the Docket Management Facility at the address under ADDRESSES ; but please submit your comments and material by only one means. If you submit them by mail or delivery, submit them in an unbound format, no larger than 8 1/2 by 11 inches, suitable for copying and electronic filing. If you submit them by mail and would like to know that they reached the Facility, please enclose a stamped, self-addressed postcard or envelope. We will consider all comments and material received during the comment period. We may change this rule in view of them. *Viewing comments and documents:* To view comments, as well as documents mentioned in this preamble as being available in the docket, go to *http://dms.dot.gov* at any time, click on “Simple Search,” enter the last five digits of the docket number for this rulemaking, and click on “Search.” You may also visit the Docket Management Facility in Room W12-140 on the ground floor of the DOT West Building, 1200 New Jersey Avenue, SE., Washington, DC 20590, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. *Privacy Act:* Anyone can search the electronic form of all comments received into any of our dockets by the name of the individual submitting the comment (or signing the comment, if submitted on behalf of an association, business, labor union, etc.). You may review the Department of Transportation's Privacy Act Statement in the **Federal Register** published on April 11, 2000 (65 FR 19477), or you may visit *http://dms.dot.gov.* Regulatory Information We are publishing a direct final rule under 33 CFR 1.05-55 because we do not expect an adverse comment. If no adverse comment or notice of intent to submit an adverse comment is received by October 1, 2007, this rule will become effective as stated in the DATES section. In that case, approximately 30 days before the effective date, we will publish a document in the **Federal Register** stating that no adverse comment was received and confirming that this rule will become effective as scheduled. However, if we receive an adverse comment or notice of intent to submit an adverse comment, we will publish a document in the **Federal Register** announcing the withdrawal of all or part of this direct final rule. If an adverse comment applies only to part of this rule (e.g., to an amendment, a paragraph, or a section) and it is possible to remove that part without defeating the purpose of this rule, we may adopt, as final, those parts of this rule on which no adverse comment was received. We will withdraw the part of this rule that was the subject of an adverse comment. If we decide to proceed with a rulemaking following receipt of an adverse comment, we will publish a separate notice of proposed rulemaking

(NPRM)and provide a new opportunity for comment. A comment is considered “adverse” if the comment explains why this rule or a part of this rule would be inappropriate, including a challenge to its underlying premise or approach, or would be ineffective or unacceptable without a change. Background and Purpose We are undertaking this rulemaking to conform our business practices with similar functions provided by other governmental entities and to allow our customers to avail themselves of better service through electronic filing. It will also permit implementation of the Electronic Signature Act in maritime financial transactions. In addition, we are eliminating the need for multiple copies of instruments to conform to changing business practices within the Coast Guard. The Coast Guard records bills of sale, mortgages, and related instruments in accordance with the provisions of Chapter 313 of Title 46 of the U.S. Code. This is similar to service provided by county registries of deeds for real estate. However, unlike county registries, the Coast Guard requires the submission of an originally signed instrument accompanied by one or more copies. In addition, it has kept originally signed instruments and returned the copy or copies after annotating them with information about the recording. In 1982, the Coast Guard promulgated a rule which required original instruments to be provided (47 FR 27490, June 24, 1982). The Coast Guard reaffirmed that rule in 1993, following codification of the Ship Mortgage Act (58 FR 60256, November 15, 1993). The Coast Guard's practice and regulation was further buttressed in 1996 when Congress enacted section 305 of Public Law 104-324 providing clear authority to accept instruments by electronic means, but requiring submission of the originals within ten days of the electronic filing. However, after enactment of the Electronic Signatures in Global and National Commerce Act, Public Law 106-229, Congress in 2002 amended section 31321((a)(4) of Title 46, U.S. Code, by repealing the requirement to present original instruments within ten days following electronic filing (Pub. L. 107-295, section 420). (See also, 15 U.S.C. 7031 encouraging the use of electronic signatures and the elimination of paper-based obstacles to electronic transactions.) In 2006, the Coast Guard began scanning all instruments into an electronic data base from which copies may be printed. Providing a copy from the data base rather than annotating a copy provided by the submitter is a better business practice for two primary reasons. First, it is no longer necessary to track copies of paperwork through the office. More importantly, however, it ensures that the copy returned to the submitter is a true copy of what appears in the electronic data base and not something that merely appears to be a true copy. Discussion of Rule Section 67.209 is amended to eliminate the need to submit originally signed instruments plus a copy. Section 67.219 is amended to eliminate the need to submit original instruments after filing by facsimile. Section 67.218 is a new section providing procedures for filing by submitting the instrument in Portable Document Filing, commonly referred to as “pdf”. The fee for filing by facsimile is deleted. Instruments may be submitted to the National Vessel Documentation Center for filing by e-mailing them as .pdf attachments to *NVDC.pdf.filing@uscg.mil.* Regulatory Evaluation This rule is not a “significant regulatory action” under section 3(f) of Executive Order 12866 and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. The Office of Management and Budget has not reviewed it under that Order. We expect the economic impact of this rule to be so minimal that a full Regulatory Evaluation is unnecessary. There are no new costs or requirements associated with this rule. Although persons filing instruments need send only a single copy, the savings are insignificant. Small Entities Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we have considered whether this rule would have a significant economic impact on a substantial number of small entities. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. This rule will affect the following small entities: Small businesses, individuals, nonprofit organizations, and municipal governments currently owning documented vessels or seeking to document vessels in the future; brokers, attorneys, and law offices providing vessel documentation services; small shipbuilders building vessels which are subsequently documented; boat dealers selling vessels of at least five

(5)net tons in size; and lending institutions engaging in preferred mortgage financing. The changes in this rulemaking are procedural and administrative in nature. The changes are technical amendments which the affected small entities should have little difficulty understanding or adopting into their business practices. Moreover, there are no new reporting, recordkeeping or other requirements for compliance. Therefore, the Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities. If, however, you think that your business qualifies as a small entity and that this proposal will have a significant impact on your business, please submit a comment [see “ ADDRESSES ”] explaining why you think your business qualifies and in what way and to what degree this rulemaking will economically affect your business. Comments submitted in response to this finding will be evaluated under the criteria in the “Regulatory Information” section of this preamble. Assistance for Small Entities Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this rule so that they can better evaluate its effects on them and participate in the rulemaking. If the rule will affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please consult Mr. Thomas L. Willis, Director of the National Vessel Documentation Center, 792 TJ Jackson Drive, Falling Waters, WV 25419, telephone 304 271-2400. The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard. Collection of Information This rule calls for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). Additionally, the Coast Guard estimates this rule will result in no change to the information collection burden associated with the existing collection of information entitled, “Vessel Documentation,” Office of Management and Budget Control Number 1625-0027, which expires on January 31, 2010. Federalism A rule has implications for federalism under Executive Order 13132, Federalism, if the rule has a substantial direct effect on State or local governments and would either preempt State law or impose a substantial direct cost of compliance on them. We have analyzed this rule under that Order and have determined that it does not have implications for federalism. Unfunded Mandates Reform Act The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 or more in any one year. Though this rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble. Taking of Private Property This rule will not effect a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights. Civil Justice Reform This rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden. Protection of Children We have analyzed this rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and does not create an environmental risk to health or risk to safety that may disproportionately affect children. Indian Tribal Governments This rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes. Energy Effects We have analyzed this rule under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use. We have determined that it is not a “significant energy action” under that order because it is not a “significant regulatory action” under Executive Order 12866 and is not likely to have a significant adverse effect on the supply, distribution, or use of energy. The Administrator of the Office of Information and Regulatory Affairs has not designated it as a significant energy action. Therefore, it does not require a Statement of Energy Effects under Executive Order 13211. Technical Standards The National Technology Transfer and Advancement Act (NTTAA) (15 U.S.C. 272 note) directs agencies to use voluntary consensus standards in their regulatory activities unless the agency provides Congress, through the Office of Management and Budget, with an explanation of why using these standards would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards (e.g., specifications of materials, performance, design, or operation; test methods; sampling procedures; and related management systems practices) that are developed or adopted by voluntary consensus standards bodies. This rule does not use technical standards. Therefore, we did not consider the use of voluntary consensus standards. Environment We have analyzed this rule under Commandant Instruction M16475.lD, which guides the Coast Guard in complying with the National Environmental Policy Act of 1969 (NEPA)(42 U.S.C. 4321-4370f), and have concluded that there are no factors in this case that would limit the use of a categorical exclusion under section 2.B.2 of the Instruction. Therefore, this rule is categorically excluded, under figure 2-1, paragraph (34)(d), of the Instruction from further environmental documentation. These regulations concern the documentation of vessels. Under figure 2-1, paragraph (34)(d), of the Instruction, an “Environmental Analysis Check List” and a “Categorical Exclusion Determination” are not required for this rule. List of Subjects in 46 CFR Part 67 Reporting and recordkeeping requirements, Vessels. For the reasons discussed in the preamble, the Coast Guard amends 46 CFR part 67 as follows: Title 46—Shipping PART 67—DOCUMENTATION OF VESSELS 1. The authority citation for part 67 continues to read as follows: Authority: 14 U.S.C. 1664; 31 U.S.C. 9701; 42 U.S.C. 9118; 46 U.S.C. 2103, 2107, 2110, 12106, 12120, 12122; 46 U.S.C. app. 841a, 876; Department of Homeland Delegation No. 0170.1. 2. Revise § 67.209 to read as follows: § 67.209 No original instrument requirement. A copy of the original signed and acknowledged instrument must be presented. The original instrument itself may be presented but is not required. The copy may be delivered to the National Vessel Documentation Center or transmitted by facsimile or in portable document format (.pdf) in accordance with the procedures in §§ 67.218 and 67.219 of this part. Signatures may be affixed manually or digitally. 3. Add new § 67.218 to subpart O to read as follows: § 67.218 Optional filing of instruments in portable document format as attachments to electronic mail.

(a)Any instrument identified as eligible for filing and recording under § 67.200 may be submitted in portable document format (.pdf) as an attachment to electronic mail (e-mail) for filing at the National Vessel Documentation Center. The e-mail address to be used for instrument filing may be obtained from the National Vessel Documentation Center Web site. If the instrument submitted for filing in .pdf format pertains to a vessel that is not a currently documented vessel, a completed Application for Initial Issue, Exchange, or Replacement Certificate of Documentation, or Return to Documentation (form CG-1258) or a letter application for deletion from documentation must already be on file with the National Vessel Documentation Center or must be submitted in .pdf format with the instrument being submitted in .pdf format for filing.

(b)All instruments submitted for filing in .pdf format must be clearly legible, be submitted from 8 1/2 inch by 11 inch paper in not less than 10-point type size, and submitted as an attachment to e-mail.

(c)The e-mail required by paragraph

(b)should indicate:

(1)The name, address, telephone number, and e-mail address of the person submitting the instrument for filing in .pdf format;

(2)The number of pages submitted for filing in .pdf format; and

(3)The name of the vessel, official number or hull identification number of the vessel(s), and the name(s) of the owner(s) of the vessel(s) to which the instrument relates.

(d)The filing of any instrument submitted for filing in .pdf format is terminated and the instrument will be returned to the submitter if the instrument is subject to termination for any cause under § 67.217(a). 4. Revise § 67.219 to read as follows: § 67.219 Optional filing of instruments by facsimile.

(a)Any instrument identified as eligible for filing and recording under § 67.200 may be submitted for filing to the National Vessel Documentation Center by facsimile at

(304)271-2405. If the instrument submitted by facsimile for filing pertains to a vessel that is not a currently documented vessel, a completed Application for Initial Issue, Exchange, or Replacement Certificate of Documentation, or Return to Documentation (form CG-1258) or a letter application for deletion from documentation must already be on file with the National Vessel Documentation Center or must be submitted by facsimile with the instrument being submitted by facsimile for filing.

(b)All instruments submitted by facsimile for filing must be clearly legible, be submitted from 81/2 inch by 11 inch paper in not less than 10-point type size, and accompanied by a cover sheet.

(c)The cover sheet required by paragraph

(b)should indicate:

(1)The name, address, telephone number, and facsimile telephone number of the person submitting the instrument by facsimile;

(2)The number of pages submitted by facsimile; and

(3)The name of the vessel, official number or hull identification number of the vessel(s), and the name(s) of the owner(s) of the vessel(s) to which the instrument relates.

(d)The filing of any instrument submitted by facsimile is terminated and the instrument will be returned to the submitter if the instrument is subject to termination for any cause under § 67.217(a). § 67.540 [Removed] 5. Remove § 67.540. § 67.550 [Amended] 6. Amend § 67.550 by removing from Table 67.550-Fees, the entry reading: “Facsimile submission handling Subpart O 2.00 1 .” Dated: July 26, 2007. J.G. Lantz, Acting Assistant Commandant For Prevention, U.S. Coast Guard. [FR Doc. E7-14938 Filed 8-1-07; 8:45 am] BILLING CODE 4910-15-P DEPARTMENT OF DEFENSE Defense Acquisition Regulations System 48 CFR Parts 202 and 204 Defense Federal Acquisition Regulation Supplement; Technical Amendments AGENCY: Defense Acquisition Regulations System, Department of Defense (DoD). ACTION: Final rule. SUMMARY: DoD is making technical amendments to the Defense Federal Acquisition Regulation Supplement (DFARS) to update organization names, office symbols, and an Internet address. DATES: *Effective Date:* August 2, 2007. FOR FURTHER INFORMATION CONTACT: Ms. Michele Peterson, Defense Acquisition Regulations System, OUSD(AT&L)DPAP(DARS), IMD 3C132, 3062 Defense Pentagon, Washington, DC 20301-3062. Telephone

(703)602-0311; facsimile

(703)602-7887. SUPPLEMENTARY INFORMATION: This final rule amends DFARS text as follows: • *Section 202.101.* Updates the lists of Army and Defense Logistics Agency contracting activities. • *Section 204.7005.* Updates the Internet address for DoD order code assignment listings, and updates the office symbol for the Air Force order code monitor. List of Subjects in 48 CFR Parts 202 and 204 Government procurement. Michele P. Peterson, Editor, Defense Acquisition Regulations System. Therefore, 48 CFR Parts 202 and 204 are amended as follows: PART 202—DEFINITIONS OF WORDS AND TERMS 1. The authority citation for 48 CFR Parts 202 and 204 continues to read as follows: Authority: 41 U.S.C. 421 and 48 CFR Chapter 1. 2. Section 202.101 is amended in the definition of “Contracting activity” as follows: a. By revising the list with the heading “ARMY”; and b. Under the heading “DEFENSE LOGISTICS AGENCY”, by removing “Office of the Deputy Director, Logistics Operations” and adding in its place “Acquisition Management Directorate”. The revised list reads as follows: 202.101 Definitions. Army Headquarters, U.S. Army Contracting Agency Joint Contracting Command—Iraq/Afghanistan National Guard Bureau Program Executive Office for Simulation, Training, and Instrumentation U.S. Army Aviation and Missile Command U.S. Army Communications-Electronics Command U.S. Army Corps of Engineers U.S. Army Intelligence and Security Command U.S. Army Joint Munitions and Lethality Life Cycle Management Command U.S. Army Materiel Command, Office of Command Contracting U.S. Army Medical Command U.S. Army Medical Research and Materiel Command U.S. Army Military Surface Deployment and Distribution Command U.S. Army Research, Development, and Engineering Command U.S. Army Space and Missile Defense Command U.S. Army Sustainment Command U.S. Army Tank-Automotive and Armaments Command PART 204—ADMINISTRATIVE MATTERS § 204.7005 [Amended] 3. Section 204.7005 is amended as follows: a. In paragraph (c), by removing “Air Force: SAF/AQCX” and adding in its place “Air Force: SAF/AQCI”; and b. In paragraph

(d)by removing “ *http://www.acq.osd.mil/dpap/dfars/ordercode.htm* ” and adding in its place “ *http://www.acq.osd.mil/dpap/dars/ordercodes/index.htm”* . [FR Doc. E7-14897 Filed 8-1-07; 8:45 am] BILLING CODE 5001-08-P DEPARTMENT OF DEFENSE Defense Acquisition Regulations System 48 CFR Parts 202, 210, 213, 215, and 219 RIN 0750-AF36 Defense Federal Acquisition Regulation Supplement; Limitations on Tiered Evaluation of Offers (DFARS Case 2006-D009) AGENCY: Defense Acquisition Regulations System, Department of Defense (DoD). ACTION: Final rule. SUMMARY: DoD has adopted as final, with changes, an interim rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to implement Section 816 of the National Defense Authorization Act for Fiscal Year 2006. Section 816 requires DoD to prescribe guidance on the use of tiered evaluation of offers for contracts and for task or delivery orders under contracts. DATES: *Effective Date:* August 2, 2007. FOR FURTHER INFORMATION CONTACT: Ms. Deborah Tronic, Defense Acquisition Regulations System, OUSD(AT&L)DPAP(DARS), IMD 3C132, 3062 Defense Pentagon, Washington, DC 20301-3062. Telephone

(703)602-0289; facsimile

(703)602-7887. Please cite DFARS Case 2006-D009. SUPPLEMENTARY INFORMATION: A. Background DoD published an interim rule at 71 FR 53042 on September 8, 2006, to implement Section 816 of the National Defense Authorization Act for Fiscal Year 2006 (Pub. L. 109-163). Section 816 requires DoD to prescribe guidance on the use of tiered evaluation of offers for contracts and for task or delivery orders under contracts. The guidance must include a prohibition on the use of tiered evaluation of offers unless the contracting officer

(1)has conducted market research in accordance with Part 10 of the Federal Acquisition Regulation (FAR);

(2)is unable, after conducting market research, to determine whether or not a sufficient number of qualified small businesses are available to justify limiting competition for the contract or order; and

(3)includes in the contract file a written explanation of why the contracting officer was unable to make the determination. Four sources submitted comments on the interim rule. A discussion of the comments is provided below. In addition to the changes addressed in the DoD response to Comment 1, the final rule revises section 213.106-1-70 to provide a cross-reference to section 215.203-70, instead of duplicating the text found in that section. 1. *Comment:* The rule failed to include an explicit prohibition. *DoD Response:* While DoD believes that stating the actions that the contracting officer must take before using tiered evaluation is an implied prohibition, the final rule contains amendments at 215.203-70 to explicitly prohibit the contracting officer from using tiered evaluation unless those actions have been taken. 2. *Comment:* Defining the technique of tiered evaluation in the DFARS legitimizes the use of tiered evaluation. *DoD Response:* The statute does not completely prohibit the use of tiered evaluation; it requires that certain actions be taken before this technique may be used. To permit an understanding of the statutory requirements, the technique must first be defined. 3. *Comment:* FAR Part 10 already requires the market research required by the statute, and no additional research is necessary. *DoD Response:* DoD agrees that the FAR already requires agencies to conduct market research appropriate to the circumstances before soliciting offers for acquisitions in excess of the simplified acquisition threshold and, when necessary and cost-effective, below the simplified acquisition threshold. However, DoD believes the additional language in DFARS Part 210 is appropriate to reinforce the statutory requirement for market research before conducting a tiered evaluation of offers. 4. *Comment:* The phrase “appropriate to the circumstances” at DFARS 210.001(a)(i), with regard to requirements for conducting market research, should be deleted. Although the phrase is consistent with the FAR, it is not in the statute being implemented and creates ambiguity. *DoD Response:* The text at DFARS 210.001 is consistent with both the statute and FAR Part 10. The statute prohibits the use of tiered evaluation of offers unless, among other things, the contracting officer has conducted market research in accordance with Part 10 of the FAR. The implementing DFARS language reflects the policy in FAR Part 10, requiring the conduct of market research “appropriate to the circumstances.” The DFARS language recognizes that there are many ways to conduct market research, and that the methods employed should be those that will be effective for the particular acquisition. 5. *Comment:* The rule states that the tiered evaluation of offers order of precedence shall be consistent with FAR Part 19. However, FAR Part 19 does not provide an “order of precedence” among the various small business goals. *DoD Response:* FAR Part 19 does not specifically state an order of precedence. However, it does provide direction on the circumstances under which acquisitions may or must be set aside for various categories of small businesses. For example, FAR 19.1305 states that the contracting officer must consider HUBZone set-asides for acquisitions at a certain dollar level before considering small business set-asides. DoD believes that, in establishing an order of precedence in a tiered evaluation of offers, that order of precedence must be consistent with the direction in FAR Part 19. 6. *Comment:* Guidance to the contracting officer can be addressed in the Procedures, Guidance, and Information (PGI), consistent with the law. *DoD Response:* PGI guidance to supplement this rule is considered unnecessary at this time. 7. *Comment:* The rule should include coverage stating that a large business involved in an 8(a) mentor-protege agreement shall not offer itself as a large business in competition against the 8(a) mentor-protege agreement. In a recent cascading set-aside, a large business offered itself as a large entity, as a subcontractor to a small business, and as a mentor in an 8(a) mentor-protege joint venture. *DoD Response:* The issue of a mentor firm competing against a protege firm is not specific to tiered evaluation of offers. Therefore, the final rule contains no change relating to this comment. This rule was not subject to Office of Management and Budget review under Executive Order 12866, dated September 30, 1993. B. Regulatory Flexibility Act DoD certifies that this final rule will not have a significant economic impact on a substantial number of small entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, *et seq.* , because the rule relates to market research and documentation requirements performed by the Government. C. Paperwork Reduction Act The Paperwork Reduction Act does not apply, because the rule does not impose any information collection requirements that require the approval of the Office of Management and Budget under 44 U.S.C. 3501, *et seq.* List of Subjects in 48 CFR Parts 202, 210, 213, 215, and 219 Government procurement. Michele P. Peterson, Editor, Defense Acquisition Regulations System. Accordingly, the interim rule amending 48 CFR parts 202, 210, 213, 215, and 219, which was published at 71 FR 53042 on September 8, 2006, is adopted as a final rule with the following changes: 1. The authority citation for 48 CFR parts 202, 210, 213, 215, and 219 continues to read as follows: Authority: 41 U.S.C. 421 and 48 CFR Chapter 1. PART 213—SIMPLIFIED ACQUISITION PROCEDURES 2. Section 213.106-1-70 is revised to read as follows: 213.106-1-70 Soliciting competition—tiered evaluation of offers. See limitations on the use of tiered evaluation of offers at 215.203-70. PART 215—CONTRACTING BY NEGOTIATION 3. Section 215.203-70 is amended by revising paragraph

(c)introductory text, paragraph (c)(1) introductory text, and paragraph (c)(2) to read as follows: 215.203-70 Requests for proposals—tiered evaluation of offers.

(c)The contracting officer is prohibited from issuing a solicitation with a tiered evaluation of offers unless—

(1)The contracting officer conducts market research, in accordance with FAR Part 10 and Part 210, to determine—

(2)If the contracting officer cannot determine whether the criteria in paragraph (c)(1) of this section are met, the contracting officer includes a written explanation in the contract file as to why such a determination could not be made (Section 816 of Public Law 109-163). [FR Doc. E7-14906 Filed 8-1-07; 8:45 am] BILLING CODE 5001-08-P DEPARTMENT OF DEFENSE Defense Acquisition Regulations System 48 CFR Parts 205 and 225 RIN 0750-AF33 Defense Federal Acquisition Regulation Supplement; Berry Amendment Notification Requirement (DFARS Case 2006-D006) AGENCY: Defense Acquisition Regulations System, Department of Defense (DoD). ACTION: Final rule. SUMMARY: DoD has adopted as final, without change, an interim rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to implement Section 833(a) of the National Defense Authorization Act for Fiscal Year 2006. Section 833(a) requires the posting of a notice on the FedBizOpps Internet site, when certain exceptions to domestic source requirements apply to an acquisition. DATES: *Effective Date:* August 2, 2007. FOR FURTHER INFORMATION CONTACT: Ms. Amy Williams, Defense Acquisition Regulations System, OUSD(AT&L)DPAP(DARS), IMD 3C132, 3062 Defense Pentagon, Washington, DC 20301-3062. Telephone

(703)602-0328; facsimile

(703)602-7887. Please cite DFARS Case 2006-D006. SUPPLEMENTARY INFORMATION: A. Background DoD published an interim rule at 71 FR 58536 on October 4, 2006, to implement Section 833(a) of the National Defense Authorization Act for Fiscal Year 2006 (Pub. L. 109-163). Section 833(a) amended 10 U.S.C. 2533a to add a requirement for the posting of a notice on the FedBizOpps Internet site, within 7 days after award of a contract exceeding the simplified acquisition threshold, for the acquisition of

(1)certain clothing, fiber, yarn, or fabric items, when DoD has determined that adequate domestic items are not available; or

(2)chemical warfare protective clothing, when an exception to domestic source requirements applies because the acquisition furthers an agreement with a qualifying country. One source submitted comments on the interim rule, as discussed below. *Comments:* The respondent strongly supported the initiative to insert transparency into the process of waiving domestic source requirements. Although the law allows posting within 7 days after contract award, the respondent encouraged a more immediate notice to industry, preferably before contract award. The respondent also suggested that there should be a permanent posting of current domestic nonavailability determinations, so that industry (especially a company just entering the contracting arena) would have information regarding the materials or components for which a waiver has been granted. The respondent recommended that this information be available in an easily accessible and permanent location to permit better compliance with domestic source requirements. *DoD Response:* When drafting the interim rule, DoD determined that the least burdensome approach for posting the notice would be to make it part of the synopsis that is published after contract award in accordance with FAR 5.301. Therefore, the final rule continues to provide for posting of the notice within 7 days after contract award, consistent with the statutory provisions. A listing of current domestic nonavailability determinations is available on the Defense Procurement and Acquisition Policy Web site, at *http://www.acq.osd.mil/dpap/paic/dnad.htm.* This rule was not subject to Office of Management and Budget review under Executive Order 12866, dated September 30, 1993. B. Regulatory Flexibility Act DoD certifies that this final rule will not have a significant economic impact on a substantial number of small entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, *et seq.* , because the rule relates to a notification requirement that is performed by the Government. C. Paperwork Reduction Act The Paperwork Reduction Act does not apply, because the rule does not impose any information collection requirements that require the approval of the Office of Management and Budget under 44 U.S.C. 3501, *et seq.* List of Subjects in 48 CFR Parts 205 and 225 Government procurement. Michele P. Peterson, Editor, Defense Acquisition Regulations System. Interim Rule Adopted as Final Without Change Accordingly, the interim rule amending 48 CFR Parts 205 and 225, which was published at 71 FR 58536 on October 4, 2006, is adopted as a final rule without change. [FR Doc. E7-14904 Filed 8-1-07; 8:45 am] BILLING CODE 5001-08-P DEPARTMENT OF DEFENSE Defense Acquisition Regulations System 48 CFR Parts 225 and 252 RIN 0750-AF54 Defense Federal Acquisition Regulation Supplement; Berry Amendment Restrictions—Clothing Materials and Components Covered (DFARS Case 2006-D031) AGENCY: Defense Acquisition Regulations System, Department of Defense (DoD). ACTION: Final rule. SUMMARY: DoD has adopted as final, without change, an interim rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to implement Section 833(b) of the National Defense Authorization Act for Fiscal Year 2006. Section 833(b) expands the foreign source restrictions applicable to the acquisition of clothing to also include clothing materials and components, other than sensors, electronics, or other items added to, and not normally associated with, clothing and the materials and components thereof. DATES: *Effective Date:* August 2, 2007. FOR FURTHER INFORMATION CONTACT: Ms. Amy Williams, Defense Acquisition Regulations System, OUSD(AT&L)DPAP(DARS), IMD 3C132, 3062 Defense Pentagon, Washington, DC 20301-3062. Telephone

(703)602-0328; facsimile

(703)602-7887. Please cite DFARS Case 2006-D031. SUPPLEMENTARY INFORMATION: A. Background DoD published an interim rule at 72 FR 2637 on January 22, 2007, to implement Section 833(b) of the National Defense Authorization Act for Fiscal Year 2006 (Public Law 109-163). Section 833(b) amended 10 U.S.C. 2533a (the Berry Amendment) to expand the foreign source restrictions applicable to the acquisition of clothing to also include clothing materials and components, other than sensors, electronics, or other items added to, and not normally associated with, clothing and the materials and components thereof. DoD received no comments on the interim rule. Therefore, DoD has adopted the interim rule as a final rule without change. This rule was not subject to Office of Management and Budget review under Executive Order 12866, dated September 30, 1993. B. Regulatory Flexibility Act DoD has prepared a final regulatory flexibility analysis consistent with 5 U.S.C. 604. A copy of the analysis may be obtained from the point of contact specified herein. The analysis is summarized as follows: The objective of the rule is to provide for the acquisition of clothing, and clothing materials and components, from domestic sources in accordance with statutory requirements. The rule applies to entities interested in receiving DoD contracts or subcontracts for the acquisition of clothing. Based on data collected through the DoD contract action reporting system, DoD awarded 6,072 contract actions relating to the acquisition of clothing items during fiscal year 2005. These actions had a total dollar value of $1.868 billion and involved 1,110 contractors. Of these actions, 4,087 totaling $.81 billion involved 906 contractors that were small business concerns. This rule may have a positive impact on small businesses that manufacture clothing materials and components, by reducing foreign competition. However, the rule could have a negative impact on small businesses that have been using foreign components in the manufacture of clothing products. C. Paperwork Reduction Act The Paperwork Reduction Act does not apply, because the rule does not impose any information collection requirements that require the approval of the Office of Management and Budget under 44 U.S.C. 3501, *et seq.* List of Subjects in 48 CFR Parts 225 and 252 Government procurement. Michele P. Peterson, Editor, Defense Acquisition Regulations System. Interim Rule Adopted as Final Without Change Accordingly, the interim rule amending 48 CFR Parts 225 and 252, which was published at 72 FR 2637 on January 22, 2007, is adopted as a final rule without change. [FR Doc. E7-14898 Filed 8-1-07; 8:45 am] BILLING CODE 5001-08-P DEPARTMENT OF COMMERCE National Oceanic and Atmospheric Administration 15 CFR Part 922 [Docket No. 0612242956-7411-02] RIN 0648-AT18 Establishment of Marine Reserves and a Marine Conservation Area Within the Channel Islands National Marine Sanctuary; Correction AGENCY: National Marine Sanctuary Program (NMSP), National Ocean Service (NOS), National Oceanic and Atmospheric Administration (NOAA), Department of Commerce (DOC). ACTION: Final rule; correction. SUMMARY: NOAA published a final rule on May 24, 2007 that established marine reserves and a marine conservation area in the Channel Islands Natioal Marine Sanctuary. That document contained a few clerical and printing errors. This document corrects and clarifies those three errors. DATES: Pursuant to section 304(b) of the National Marine Sanctuaries Act, the final rule published on May 24, 2007 and the revised terms of designation shall take effect and become final after the close of a review period of 45 days of continuous session of Congress, that began on May 24, 2007. This correction only makes three non-substantive corrections and clarifications to that rule and does not change the calculation of the effective date. Announcement of the effective date of the final rule will be published in the **Federal Register** at a later date. FOR FURTHER INFORMATION CONTACT: Sean Hastings,

(805)884-1472; e-mail: *Sean.Hastings@noaa.gov.* SUPPLEMENTARY INFORMATION: NOAA published a document in the **Federal Register** on May 24, 2007 (72 FR 29208) establishing marine reserves and a marine conservation area in the Channel Islands National Marine Sanctuary. There was a printing error that requires clarification and two clerical errors that are being corrected by this document as described below. Clarification of Changes to the Designation Document The printing error affected the way in which the changes to the original designation document were portrayed to the reader. They did not, however, affect the substance of the actual revision. The following clarifies for the reader the changes that were made to the designation document by the May 24, 2007 **Federal Register** notice. In this notice, certain conventions have been used to highlight the revisions that were made via the preamble to the May 24, 2007 rule. New language is shown inside boldfaced arrows while language that was deleted is set off with bold-faced brackets: Beginning of Revised Designation Document Preamble Under the authority of the Marine Protection, Research and Sanctuaries Act of 1972, Pub. L. 92-532, (the Act) the waters surrounding the northern Channel Islands and Santa Barbara Island are hereby designated a Marine Sanctuary for the purposes of preserving and protecting this unique and fragile ecological community. Article 1. Effect of Designation Within the area designated as the Channel Islands National Marine Sanctuary (the Sanctuary), described in Article 2, the Act authorizes the promulgation of such regulations as are reasonable and necessary to protect the values of the Sanctuary. Article 4 of this Designation lists those activities which may require regulation, but the listing of any activity does not by itself prohibit or restrict it. Restrictions or prohibitions may be accomplished only through regulation, and additional activities may be regulated only by amending Article 4. Article 2. Description of the Area The Sanctuary consists of an area of the waters off the coast of California, of approximately [1252.5] >1,128< square nautical miles [(nm)] >(nmi)< adjacent to the northern Channel Islands and Santa Barbara Island seaward to a distance of [6nm] >approximately 6 nmi<. The precise boundaries are defined by regulation. Article 3. Characteristics of the Area That Give it Particular Value The Sanctuary is located in an area of upwelling and in a transition zone between the cold waters of the California Current and the warmer Southern California Countercurrent. Consequently, the Sanctuary contains an exceptionally rich and diverse biota, including 30 species of marine mammals and several endangered species of marine mammals and sea birds. The Sanctuary will provide recreational experiences and scientific research opportunities and generally will have special value as an ecological, recreational, and esthetic resource. Article 4. Scope of Regulation Section 1. Activities Subject to Regulation In order to protect the distinctive values of the Sanctuary, the following activities may be regulated within the Sanctuary to the extent necessary to ensure the protection and preservation of its marine features and the ecological, recreational, and esthetic value of the area: a. Hydrocarbon operations b. Discharging or depositing any substance c. Dredging or alteration of, or construction on, the seabed d. Navigation of vessels except fishing vessels or vessels [travelling] >traveling< within a Vessel Traffic Separation Scheme or Port Access Route designated by the Coast Guard outside of 1 nmi from any island e. Disturbing marine mammals or birds by overflights below 1000 feet f. Removing or otherwise deliberately harming cultural or historical resources >g. Within a marine reserve, marine park, or marine conservation area, harvesting, removing, taking, injuring, destroying, possessing, collecting, moving, or causing the loss of any Sanctuary resource, including living or dead organisms or historical resources, or attempting any of these activities h. Within a marine reserve, marine park, or marine conservation area, possessing fishing gear< Section 2. Consistency With International Law The regulations governing the activities listed in Section 1 of this article will apply to foreign flag vessels and persons not citizens of the United States only to the extent consistent with recognized principles of international law including treaties and international agreements to which the United States is signatory. Section 3. Emergency Regulations Where essential to prevent immediate, serious and irreversible damage to the ecosystem of the area, activities other than those listed in Section 1 may be regulated within the limits of the Act on an emergency basis for an interim period not to exceed 120 days, during which an appropriate amendment of this article would be proposed in accordance with the procedures specified in Article 6. Article 5. Relation to Other Regulatory Programs Section 1. Fishing The regulation of fishing is not authorized under Article 4>, except within portions of the Sanctuary designated as marine reserves, marine parks, or marine conservation areas established pursuant to the goals and objectives of the Sanctuary and within the scope of the State of California's Final Environmental Document “Marine Protected Areas in NOAA's Channel Islands National Marine Sanctuary” (California Department of Fish and Game, October 2002), certified by the California Fish and Game Commission<. However, fishing vessels may be regulated with respect to discharges in accordance with Article 4, Section 1, paragraph

(b)and aircraft conducting kelp bed surveys below 1000 feet can be regulated in accordance with Article 4, Section 1, paragraph (e). All regulatory programs pertaining to fishing, including particularly regulations promulgated under the California Fish and Game Code and Fishery Management Plans promulgated under the Fishery Conservation and Management Act of 1976, 16 U.S.C. 1801 et seq., shall remain in effect. All permits, licenses and other authorizations issued pursuant thereto shall be valid within the Sanctuary unless authorizing any activity prohibited by any regulation implementing Article 4. Fishing as used in this article and in Article 4 includes kelp harvesting. Section 2. Defense Activities The regulation of those activities listed in Article 4 shall not prohibit any activity conducted by the Department of Defense that is essential for national defense or because of emergency. Such activities shall be consistent with the regulations to the maximum extent practicable. Section 3. Other Programs All applicable regulatory programs shall remain in effect and all permits, licenses and other authorizations issued pursuant thereto shall be valid within the Sanctuary unless authorizing any activity prohibited by any regulation implementing Article 4. The Sanctuary regulations shall set forth any necessary certification procedures. Article 6. Alterations to This Designation This Designation can be altered only in accordance with the same procedures by which it has been made, including public hearings, consultation with interested federal and state agencies and the Pacific Regional Fishery Management Council, and approval by the President of the United States. End of Revised Designation Document Corrections In FR Doc. E7-10096 (published on May 24, 2007) make the following corrections: 1. Amend instruction number eight (page 29233) to read: “Add Appendix B and Appendix C to subpart G to read as follows:” 2. Amend the heading for Appendix C to read: “Appendix C to Subpart G of Part 922—Marine Conservation Area Boundary” Dated: July 26, 2007. Elizabeth R. Scheffler, Chief Financial Officer, Chief Administrator Officer, National Ocean Service. [FR Doc. 07-3754 Filed 8-1-07; 8:45 am]

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