Rules and Regulations. Notice of public listening session
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/register/2007/11/02/07-5508A research copy — for the controlling text, always check the official state or federal source. Not legal advice.
BILLING CODE 4910-22-M DEPARTMENT OF TRANSPORTATION Federal Motor Carrier Safety Administration [Docket No. FMCSA-2004-18898] Comprehensive Safety Analysis 2010 Initiative AGENCY: Federal Motor Carrier Safety Administration, DOT. ACTION: Notice of public listening session. SUMMARY: The Federal Motor Carrier Safety Administration (FMCSA) announces a public listening session to obtain feedback from interested parties on the Agency's Comprehensive Safety Analysis 2010 (CSA 2010) initiative, a comprehensive review, analysis, and restructuring of FMCSA's current commercial motor carrier safety and enforcement programs.
FMCSA will use the listening session to brief participants on the direction and progress of CSA 2010, and obtain feedback from its partners and stakeholders. FMCSA also requests comments on the CSA 2010 operational model described in this notice. DATES: The Public Listening Session will be held on December 4, 2007, from 8 a.m. to 3:30 p.m. Participant registration will be from 8 a.m. to 9 a.m. Written comments must be received by January 31, 2008. *Location:* The Public Listening Session will be held near Dallas at the Sheraton Arlington Hotel, 1500 Convention Center Drive, Arlington, Texas 76011.
The phone number is 817-261-8200. ADDRESSES: You may submit comments identified by FDMS Docket ID Number FMCSA-2004-18898 and by any of the following methods: *Federal eRulemaking Portal:* Go to *http://www.regulations.gov.* Follow the online instructions for submitting comments. Alternatively, you can file comments using the following methods: *Mail:* Docket Management Facility: U.S. Department of Transportation, 1200 New Jersey Avenue, SE., Room W12-140, Washington, DC 20590. *Hand Delivery or Courier:* West Building Ground Floor, Room W12-140, 1200 New Jersey Avenue, SE., between 9 a.m. and 5 p.m.
ET, Monday through Friday, except Federal holidays. *Fax:* 202-493-2251. FOR FURTHER INFORMATION CONTACT: Cathy McNair, Program Manager Assistant, CSA 2010,
(202)366-0790. SUPPLEMENTARY INFORMATION: *Format of Listening Session:* During the Public Listening Session, FMCSA will describe its progress on CSA 2010 to date. FMCSA will accept comments on the CSA 2010 operational model and any additional information FMCSA should consider for the success of the CSA 2010 initiative. The session will include a morning plenary session (9 a.m.), and three facilitated breakout sessions. Each breakout session will be run three consecutive times so that all attendees will have the opportunity to participate in all three sessions. Each session will run for 90 minutes, beginning at 10:15 a.m., 12:15 p.m., and 2 p.m. This will allow 15 minutes between each breakout session and 30 minutes for lunch. The three breakout sessions will address specific aspects of the CSA 2010 initiative:
(1)Safety Measurement System,
(2)Safety Fitness Determination, and
(3)Operational Model Test. Attendees will have the opportunity to comment, as well as hear the comments of other stakeholders. *Registration information and instructions:* To attend the listening session, attendees can register online at *http://www.fmcsa.dot.gov/csa2010-register.* In addition to registration information, the registration Web site provides additional details about the agenda. If there are any questions, or if an attendee prefers to register via telephone, please contact the registration help desk at
(301)495-8458. *Instructions for submitting written comments:* Comments regarding CSA 2010 can be filed with the Federal Docket Management System (FDMS). For detailed instructions on submitting comments see ADDRESSES section above. All submissions must include the Agency name and docket identification number for this notice. Note that all comments received will be posted to *http://www.regulations.gov,* including any personal information provided. Please see the Privacy Act heading for further information. *Docket:* For access to the docket to read background documents or comments received, go to *http://www.regulations.gov.* Follow the online instructions for accessing the dockets. *Privacy Act:* Anyone is able to search the electronic form of all comments received into any of our dockets by the name of the individual submitting the comment (or of the person signing the comment, if submitted on behalf of an association, business, labor union, etc.). You may review the Department of Transportation's complete Privacy Act Statement in the **Federal Register** published on April 11, 2000 (65 FR 19477; Apr. 11, 2000). Background In August 2004, FMCSA embarked on CSA 2010—a comprehensive review and analysis of the FMCSA motor vehicle safety compliance and enforcement programs (69 FR 51748, August 20, 2004). The goal of CSA 2010 is the development and deployment of a new operational model, a new approach to using FMCSA resources to identify drivers and motor carriers that pose safety problems and to intervene to address those problems as soon as they become apparent. FMCSA understands how important it is to the success of this initiative to obtain feedback from its partners and stakeholders and other interested parties. The Agency held a series of public listening sessions on CSA 2010 in September and October of 2004. These sessions were designed to collect public input regarding ways FMCSA could improve its process of monitoring and assessing the safety performance of the motor carrier industry. The majority of participants supported the Agency's goal of improving the current safety fitness determination process through the CSA 2010 initiative. For further information on the public listening sessions held in 2004, visit the FMCSA Web site at *http://www.fmcsa.dot.gov/* (click on the CSA2010 link) and see the final report, “Comprehensive Safety Analysis Listening Sessions.” On November 16, 2006, FMCSA held another listening session to gather information and feedback on CSA 2010 from its partners and stakeholders (71 FR 61131, October 17, 2006). The session was held in Washington, DC, with close to 100 attendees that included a cross-section of Federal, state, and local government agencies, motor carriers, industry associations, insurance and consulting firms, and safety advocacy groups. The event included a plenary session and four breakout sessions, which described four major aspects of CSA 2010:
(1)Measurement,
(2)Safety Fitness Determination,
(3)Intervention Selection and Entity Characteristics, and
(4)Safety Data and Tracking, Evaluation and Data Validation. Participants at each of the breakout sessions provided valuable information, which FMCSA has taken into account during its continued development of the CSA 2010 operational model. For further information on the public listening sessions held in 2006, visit FDMS Docket Identification Number FMCSA-2004-18898 at *http://www.regulations.gov* and see the final report, “Comprehensive Safety Analysis 2010, 2006 Listening Session.” The purpose of the December 2007 public listening session is for FMCSA to brief its stakeholders and partners on the progress that has been made since the listening session in 2006. FMCSA plans to hold additional CSA 2010 listening sessions to continue the process of updating its partners and stakeholders and receive feedback. Current Operational Model and Its Limitations FMCSA currently collects several kinds of data on motor carriers, including Federal and state information on crashes and roadside inspections, and enforcement actions. FMCSA uses the data to
(1)determine which motor carriers should be selected for on-site compliance reviews, and
(2)determine the safety fitness of motor carriers. Currently FMCSA employs SafeStat, an analytical process that evaluates the safety status of individual motor carriers. SafeStat uses data from a variety of state and Federal sources to measure the relative safety performance and compliance of individual motor carriers in four Safety Evaluation Areas (SEAs): Accident, Driver, Vehicle, and Safety Management. SafeStat is currently used by the FMCSA to identify and prioritize motor carriers for on-site compliance reviews
(CRs)and roadside inspections. For a full description of the SafeStat methodology, visit the FMCSA Web site at: *http://ai.fmcsa.dot.gov.* FMCSA issues a safety fitness determination and a corresponding safety rating as a result of an on-site compliance review (CR). The CR assesses whether a motor carrier's safety management controls are functioning effectively to ensure acceptable compliance with the safety fitness standard found at 49 CFR 385.5. Currently, the safety ratings that can result from a CR are Satisfactory, Conditional, or Unsatisfactory. FMCSA may take enforcement actions against a motor carrier as a result of the CR. A significant limitation of this process is that a motor carrier's safety rating generally cannot change without the conduct of an additional compliance review. As a result, the meaning of a motor carrier's safety rating in terms of being a current assessment of its safety diminishes over time and may be misleading to those that might incorrectly interpret it as a reflection of a motor carrier's current safety status. FMCSA compliance and safety programs improve and promote safety performance. However, despite increases in the motor carrier population, as well as increased programmatic responsibilities, Agency resources available for these efforts have remained relatively constant over time. Further compounding this limitation in the current process is the fact that the full CR is generally deployed at a carrier's place of business as a one-size-fits-all tool to address what may not be a comprehensive safety problem. In its present structure, the FMCSA compliance review program is resource intensive and reaches only a small percentage of motor carriers. On-site CRs take one safety investigator an average of 3 to 4 days to complete, and are used to determine a motor carrier's safety fitness. At present staffing levels, FMCSA can perform CRs on only a small portion of the 700,000 active interstate motor carriers. These factors have made it increasingly challenging to make sustained improvements to motor carrier safety using existing intervention programs and measurement systems. Moreover, in recent years the decline in the rate of large truck and bus fatalities per 100 million vehicle miles traveled has leveled off. For these reasons, along with improvements in the quality of data available to FMCSA and improved ways to measure carrier safety, FMCSA is exploring ways through CSA 2010 to improve its current process for monitoring, assessing, and enforcing the safety performance of motor carriers and drivers. The Agency believes that CSA 2010 has the potential to achieve a greater reduction in large truck and bus crashes, and that additional Agency resources would impact this potential crash reduction even more. Comprehensive Safety Analysis 2010 CSA 2010 is a major FMCSA initiative to improve the effectiveness of the Agency's compliance and enforcement programs. Its ultimate goal is to achieve a greater reduction in large truck and bus crashes, injuries, and fatalities, while making efficient use of the resources of FMCSA and its state partners. In contrast to the Agency's current operational model, CSA 2010 is characterized by
(1)a more comprehensive measurement system,
(2)a safety fitness determination methodology that is based on performance data and not necessarily tied to an on-site compliance review, and
(3)a broader array of progressive interventions. FMCSA believes that CSA 2010 will help the Agency assess the safety performance of a greater segment of the industry and intervene with more carriers to change unsafe behavior earlier. FMCSA has made significant progress in its development of the CSA 2010 operational model, and is planning on launching a field test of the model beginning in January 2008. There are four major components to CSA 2010:
(1)Measurement,
(2)Interventions,
(3)Safety Fitness Determination, and
(4)Information Technology. Each component and its status are described below. While the Agency requests comments on all aspects of the CSA 2010 operational model, there are three specific areas that will be the subjects of the breakout sessions during the upcoming listening session:
(1)Safety Measurement System,
(2)Safety Fitness Determination, and
(3)Operational Model Test. The illustration below demonstrates how the major components of CSA 2010 would work together. In developing the new model FMCSA continues to strive for flexibility, efficiency, effectiveness, innovation, and equity. EN02NO07.010 *Safety Measurement System* —The role of the Safety Measurement System
(SMS)within the CSA 2010 operational model is to monitor and quantify the safety performance of motor carriers and drivers through data available in the Motor Carrier Management Information System (MCMIS). Under CSA 2010 these data would include violations found during roadside inspections, traffic enforcement, and the intervention process (discussed below), as well as crashes. SMS would group data into seven Behavioral Analysis Safety Improvement Categories (BASICs), each of which includes regulatory requirements for both motor carriers and drivers. *Unsafe Driving* —The operation of commercial motor vehicles in a dangerous or careless manner. Example violations include speeding, reckless driving, improper lane change, and inattention. *Fatigued Driving* —The operation of commercial motor vehicles by drivers in non-compliance with the hours-of-service
(HOS)regulations. This BASIC focuses on violations of the HOS regulations including violations of driving time limits, driving after reaching on-duty time limits, and failure to maintain complete and accurate log books. This BASIC is not intended to suggest that the Agency has determined that the driver was actually fatigued. Also, instances related to the Fatigued Driving BASIC are distinguished from incidents where unconsciousness or inability to react is brought about by the use of alcohol, drugs, or other controlled substances. *Driver Fitness* —The operation of commercial motor vehicles
(CMV)by drivers who are unfit to operate a CMV due to lack of training or medical qualifications. Example violations include failure to have a valid and appropriate commercial driver's license and being medically unqualified to operate a CMV. *Controlled Substances and Alcohol* —The operation of CMVs by drivers who are in possession of alcohol or illegal drugs, or impaired due to alcohol, illegal drugs, or misuse of prescription or over-the-counter medications. Example violations include the use or possession of controlled substances or alcohol. *Vehicle Maintenance* —Commercial motor vehicle failure due to improper or inadequate maintenance. Example violations include brakes, lights, and other mechanical defects, and failure to make required repairs. *Improper Loading/Cargo Securement* —CMV incidents resulting from shifting loads, spilled or dropped cargo, and unsafe handling of hazardous materials. Example violations include improper load securement, cargo retention, and hazardous material handling. *Crash* —Histories or patterns of crash involvement, including frequency and severity. It is based on information from state-reported crashes. FMCSA developed the BASICs under the premise that CMV crashes can ultimately be traced to the behavior of motor carriers and drivers. The categories are derived from the existing FMCSA regulatory structure, the Large Truck Crash Causation Study, and other analyses and studies conducted by the Agency. Four principal steps would be used to assess entity (motor carrier or driver) performance in each BASIC. First, relevant inspection, violation, and crash data from the Motor Carrier Management Information System would be attributed to an entity to create a safety event history. Second, each entity's violations and crashes would be classified into a BASIC. Third, these data would then be time weighted, severity weighted, normalized, and peer grouped to form a quantifiable measure for the entity in each BASIC. In addition, the Safety Measurement System would employ data sufficiency standards to ensure there are enough data to produce meaningful measures of safety performance. Finally, based on a comparison of each entity's BASIC measure to those of its peers, a rank and percentile would be assigned. The motor carrier's score in each BASIC would be based on data from the past 24-months. These steps are illustrated below in Figure 2. EN02NO07.011 FMCSA anticipates using the SMS results in CSA 2010 to identify and monitor entities with safety problems with respect to its BASICs for inclusion in the intervention process (described below under Interventions). Also, in cases where the SMS results are robust enough to indicate strong crash risk to the public, FMCSA anticipates applying these results along with other factors that could lead to a proposed Unfit safety fitness determination (described below under Safety Fitness Determination). Thus, FMCSA would establish thresholds for each BASIC to trigger the intervention process and play a role in adverse safety fitness determinations. FMCSA is designing two Safety Measurement Systems—one for carriers, Carrier Safety Measurement System (CSMS), and one for drivers, Driver Safety Measurement System (DSMS). Both systems are in the prototype stage and will be used to support the operational model test discussed below. FMCSA plans to demonstrate the Safety Measurement System during the upcoming listening session. There are six important differences between the SMS and the Agency's current measurement system, SafeStat: 1. SMS is organized by seven specific behaviors (BASICs) while SafeStat is organized into four general Safety Evaluation Areas (SEAs). 2. SMS identifies safety problems in the same structure in which CSA 2010 addresses those problems, while SafeStat prioritizes carriers for a one-size-fits-all compliance review. 3. SMS uses all safety-based inspection violations while SafeStat uses only out-of-service violations and selected moving violations. 4. SMS uses risk-based violation weightings while SafeStat does not. 5. SMS impacts the safety fitness determination of an entity, while SafeStat has no impact on an entity's safety fitness rating. 6. SMS assesses individual drivers and carriers, while SafeStat assesses only carriers. *Interventions* —Over the past year FMCSA has made considerable progress in developing the system of interventions that would be used under CSA 2010. It provides a broad array of tools that would be used in a systematic way to intervene with a carrier and its drivers, depending on the BASIC measures identified by the Safety Measurement System. The interventions are designed to be progressive, increasing in severity and interaction with motor carriers and their drivers. The goal is to use the interventions to reach a larger segment of the motor carrier industry, and to change unsafe behavior early: *Warning Letter* —The warning letter would be sent to a motor carrier when its safety performance data exceeds the Safety Measurement System threshold for intervention in one or more BASICs. The letter would advise the motor carrier of the apparent safety problems, and the potential consequences of continued operation in that way. It would also refer the motor carrier to Web-based educational tools and information for self improvement, and the letter would provide the motor carrier with instructions on how to challenge the underlying safety data if the motor carrier believes the data is in error. *Targeted Roadside Inspection* —The warning letter would also trigger targeted roadside inspection. The same information on deficient BASICs described in the warning letter would be reflected in roadside information software used by roadside inspectors. This would enable them to monitor the status of those safety problems with that motor carrier, and confirm their existence or correction. This would also help improve the overall effectiveness of roadside inspections. *Off-Site Investigation* —The off-site investigation would enable FMCSA and its state partners to evaluate safety problems without the cost of sending enforcement officials to a motor carrier's place of business. It would involve requests for documentation from the carrier and third-parties, and constitute a desktop review of available information to determine the nature and extent of identified safety problems. The off-site investigation would be triggered by persistent safety problems, or those severe enough to warrant investigation. *Focused On-Site Investigation* —The focused on-site investigation would take place at the motor carrier's place of business, and would be employed when the carrier exhibits a persistent safety problem in one area. It would enable FMCSA and its state partners to focus on the identified safety problem without spending time and resources where no other safety problems have been identified. It would involve reviewing records, interviewing personnel, analyzing practices, and identifying corrective actions. The focused on-site investigation could be triggered by a continuing deficient or worsening BASIC, or a fatal crash or complaint. *Comprehensive On-Site Investigation* —The comprehensive on-site investigation would also take place at the motor carrier's place of business. It would be employed when the carrier exhibits broad and complex safety problems through multiple deficient BASICs, and would be similar to the compliance review conducted under the Agency's current operational model. The comprehensive on-site investigation could be triggered by continuing deficient or worsening multiple BASICs, or a fatal crash or complaint. *Cooperative Safety Plan* —The cooperative safety plan
(CSP)could be triggered after investigation reveals safety problems for which the motor carrier expresses a *willingness to remedy* . It could be used to support safety improvements before the levying of fines. It would be a structured plan developed and implemented voluntarily by the motor carrier. The CSP would be the motor carrier's action plan to address safety problems. The Agency would monitor the carrier's safety performance, and increase intervention if performance does not improve. *Notice of Violation* —The purpose of the notice of violation would be to increase the motor carrier's awareness of enforcement intent on the part of the Agency. It could be useful where the violation is immediately correctable. It would put the carrier on notice of specific regulatory violations. The motor carrier would then have to provide evidence of corrective action, or successfully challenge the identified safety violations. The notice of violation could provide the motor carrier with motivation to change unsafe behavior to avoid a fine. *Notice of Claim* —The purpose of the notice of claim is to deter severe or persistent unsafe behavior. It is issued as a formal document and served on the violator to compel compliance. The notice of claim would be triggered by evidence of a severe regulatory violation or history of violations, sufficient to justify assessment of penalties. *Settlement Agreement* —The purpose of the settlement agreement is to contractually bind the motor carrier to take actions to improve safety. The motor carrier is given the opportunity to enter into the settlement agreement to avoid fines or suspension of operations. The settlement agreement identifies the consequences to the motor carrier if it does not take the agreed upon action and return to compliance. The agreement would allow the carrier to avoid significant penalties by committing to major safety improvements, for example, with the understanding that failure to comply with the terms of the settlement agreement would result in the immediate imposition of the maximum penalty that would otherwise have been levied. *Unfit Suspension* —A motor carrier is placed out of business. While the above interventions are presented in their logical sequence of severity, it is important to note that FMCSA and its state partners would not necessarily follow this sequence for each carrier. Instead, factors such as carrier history, level of safety performance, motor carrier characteristics, and investigative discretion could influence the intervention selected to encourage change in unsafe behavior. Another distinguishing feature of CSA 2010 is the investigative process. Under CSA 2010 one of the primary goals during the intervention process would be to identify the root cause of the safety problem under investigation. FMCSA believes that identifying the root causes would in many cases help motor carriers and drivers apply the most effective corrective actions. At the same time, however, it is important to note that FMCSA is a Federal enforcement agency, and that ultimately it is the responsibility of motor carriers and drivers to know, understand, and comply with all applicable safety regulations. Finally, the new intervention process would also require that areas of essential motor carrier safety management be subject to sampling of motor carrier records. These data could impact a carrier's safety fitness determination, as described below under Safety Fitness Determination. The specific regulatory areas that would be subject to such sampling are listed below in Table 2. *Safety Fitness Determination* —Under 49 U.S.C. 31144, FMCSA is required to “maintain by regulation a procedure for determining the safety fitness of an owner or operator.” Under the Agency's current operational model, FMCSA uses the compliance review process to issue motor carrier safety ratings, which can be Satisfactory, Conditional, or Unsatisfactory, defined under 49 CFR part 385. Under CSA 2010, safety fitness determinations would be based on safety performance data, and would not necessarily require an on-site investigation like today's compliance review. FMCSA believes that this approach would enable the Agency to assess the safety performance of a greater segment of the motor carrier industry, and make formal safety fitness determinations that are available to the public and more reflective of a motor carrier's current performance. During the November 2006 listening session, FMCSA discussed the concept of changing the safety fitness determination methodology from the current three tier system of Satisfactory-Conditional-Unsatisfactory to a two tier system of Continue Operation or Unfit. FMCSA pointed out that:
(1)The governing legislation requires only that the Agency determine the safety fitness of an owner or operator,
(2)the two-tier approach seemed simpler, and
(3)it would move away from use of the term Satisfactory. That term can be misperceived by the public as FMCSA approval of a carrier, when in fact the Agency has simply found no patterns of violations during the most recent CR that rise to the Conditional or Unsatisfactory level. Under the Agency's current operational model, the term Satisfactory can also remain with a motor carrier for several years even though its safety performance may have deteriorated. Since November 2006, FMCSA has made significant progress in developing a preliminary CSA 2010 safety fitness determination methodology. Under this methodology, FMCSA has dropped the concept of having a two-tier system in favor of the three-tier system. This change is based in large part on comments received in response to last year's public listening session. There were substantial comments indicating the need to make a distinction among carriers within the Continue Operation category, so that the public would know about those carriers with which the Agency is intervening; and to make it clear that sub-par performance, even in a single behavior area, would be identified with an adverse safety fitness determination. After considering these comments, FMCSA has tentatively decided to use the three-tier approach in this CSA 2010 safety fitness determination methodology. However, for purposes of this methodology, the Agency is considering changing the three-tier terminology from Satisfactory-Conditional-Unsatisfactory to Continue Operation-Marginal-Unfit. The Agency believes that this terminology might eliminate the public's possible misperception associated with the term Satisfactory. The term Marginal has been substituted for Conditional because it may be more meaningful in conveying the message, “marginal in safety performance.” Likewise the term Unfit may convey a clearer message than the term Unsatisfactory, especially given the Transportation Equity Act for the 21st Century (TEA 21) requirement concerning Unfit motor carriers (65 FR 50919 dated August 22, 2000). Under this methodology, there would be four major factors that could impact a motor carrier's safety fitness determination:
(1)Roadside inspections results as assessed by the Safety Management System
(SMS)through stand alone or non-stand alone BASICs,
(2)a verifiable crash rate,
(3)where essential safety management violations are 10 percent or more of records checked during the intervention process, and
(4)fifteen violations which FMCSA believes are so fundamental to ensuring safety that no motor carrier should be allowed to operate if any of these violations are found and not immediately corrected. Factors (1), (2), and
(3)would align within the seven BASICs referenced above in the Safety Measurement System. These same factors would be applied to a set of safety fitness criteria to determine a BASIC failure. A carrier's SMS measures and verifiable crash rate in Factors
(1)and (2), respectively, would be applied to a set of Unfit thresholds to determine a BASIC failure. These thresholds would be based on the carrier's absolute BASIC measures and crash rate, as opposed to the relative percentile rankings from the SMS. Carriers that have received interventions resulting in violations in the areas of essential motor carrier safety management that equal or exceed a 10% violation rate of records check will also result in a BASIC failure. Table 1 below illustrates how these BASIC failures would interact to determine a motor carrier's safety fitness: Table 1.—Preliminary CSA 2010 Safety Fitness Determination Methodology *Stand Alone BASICs:* Unsafe Driving Fatigued Driving Non-Stand Alone *BASICs:* Driver Fitness Drug/Alcohol Cargo Securement Vehicle Maintenance Verifiable Crash Rate Fifteen Fundamental Violations Safety Fitness Determination *Number of BASICs:*
(1)With SMS measure above Unfit threshold, or
(2)Where essential safety management violations are 10 percent or more of records checked *Number of BASICs:*
(1)With SMS measure or verifiable crash rate above Unfit threshold, or
(2)Where essential safety management violations are 10 percent or more of records checked. See Table 3 below Continue Operation. Marginal. Unfit. 1 Unfit. 0 Greater than 1 Unfit. 0 0 1 Unfit. 0 1 0 Marginal. 0 0 0 Continue Operation. The above methodology makes a distinction between “stand alone” and “non-stand alone” BASICs. For the “stand alone” BASICs a failure in only one of them would result in a proposed Unfit status, whereas for the “non-stand alone” BASICs a failure in more than one of them would be required for the proposed Unfit status. The rationale for this distinction is that, although each of the BASICs applies to both carriers and drivers, the “stand alone” BASICs are more directly related to driver behavior. Recent research indicates that driver behavior is a major contributing factor in causing crashes. In particular, an effectiveness study on the Safety Management System has shown that carriers with past poor performance in the Unsafe Driving or Fatigue Driving BASICs were subsequently involved in crashes at a considerably higher rate than the overall crash rate of the motor carrier population. FMCSA believes that this preliminary safety fitness determination methodology would allow the Agency to assess the safety performance of a larger segment of the motor carrier industry. In contrast to the Agency's current methodology, this approach is not tied to an on-site compliance review and it takes into account virtually all of the safety regulations. FMCSA would issue safety fitness determinations on all motor carriers for which it has sufficient data. These would be updated monthly and made available to the public. *Information Technology* —Information technology
(IT)is the fourth major component of CSA 2010, and COMPASS is the Agency's major IT modernization initiative. CSA 2010 is coordinating closely with the COMPASS program so that the timelines of both programs are synchronized as much as possible. With respect to CSA 2010, COMPASS will track and update the safety performance data from regulated entities as they are received, link relevant data to the correct entity, validate the data, and provide the mechanisms for correcting data. COMPASS will also support the intervention process as FMCSA and its state partners gather safety performance data on motor carriers and drivers. Operational Model Test FMCSA is planning to field test the new CSA 2010 operational model (Op-Model) beginning in January 2008. The purpose of the test is to determine both the feasibility and effectiveness of the new CSA 2010 interventions and Safety Management System. During the Op-Model test, FMCSA will not be providing any regulatory relief. Motor carriers will not actually be rated under the CSA 2010 safety fitness determination methodology, because that methodology must yet be implemented through rulemaking. Instead, a motor carrier in the Op-Model test with poor safety performance, and found to be unresponsive to the new CSA 2010 interventions, would undergo a compliance review and be rated in accordance with the Agency's current compliance and enforcement process and be subject to fines, penalties, and other actions to bring about compliance. The test will take place in four states: Colorado, Georgia, Missouri, and New Jersey, which will provide one test state for each of the four FMCSA Service Centers. FMCSA anticipates that this geographic and demographic diversity will help provide a representative cross-section of the motor carrier population. Approximately ten percent of the total number of active carriers and power units in the U.S. are based in these four states. Carriers that are domiciled in these four states will be assigned to one of three groups: *Current Process Group:* This is a small number of carriers that is excluded from the test, as discussed below. *Test Group:* This is approximately 1/2 of the remaining carriers. *Control Group:* This is approximately 1/2 of the remaining carriers. Carriers in the Current Process Group include the following: *Carriers that have had a compliance review within the past 18 months* . This should help avoid the question of whether a carrier's performance improvement was due to a CSA 2010 intervention or the compliance review. *SafeStat category A/B carriers* . This exclusion would ensure that FMCSA complies with relevant mandates and policies to perform compliance reviews on category A and B motor carriers. It would also help focus the test on carriers with mediocre performance which are not currently being reached. Roadside and accident data that feed the CSA 2010 operational model are already being used and applied to A and B carriers. *Chameleon carriers* . These are carriers that attempt to evade enforcement actions or out-of-service orders by re-registering as new entrants and operating under new DOT numbers. Once identified, these carriers would be removed and subject to current compliance and enforcement actions. The carriers that are thus excluded will continue to be subject to current processes, including compliance reviews. These exclusions are designed to ensure that the two remaining groups of carriers (test and control) are similar in characteristics for evaluation purposes. After the exclusions described above are made, FMCSA plans to randomly divide the remaining motor carriers domiciled in the test states into two equal sized groups—a test group and a control group. The control group would be addressed through the Agency's current operational model, which involves the use of SafeStat to identify motor carriers for compliance reviews and any required enforcement actions. Those motor carriers in the test group would receive CSA 2010 interventions based on information provided by the Safety Measurement System. Again, motor carries in the test group with poor safety performance, and found to be unresponsive to the new CSA 2010 interventions, would undergo a compliance review and be rated in accordance with the Agency's current compliance and enforcement process. FMCSA anticipates that the number of such carriers would be relatively low, since SafeStat A/B carriers will be initially excluded from the test. However, as the test progresses, FMCSA is considering adding SafeStat A/B motor carriers to the test. Including A/B carriers would help demonstrate the effectiveness of the new interventions on the group of carriers that FMCSA traditionally targets. It may be that with some of the less time-consuming CSA 2010 interventions, FMCSA could reach A/B carriers more quickly than they would otherwise be reached using the compliance review process. If the new interventions are effective, the carrier could be moved off of the A/B list, thereby eliminating the need for a compliance review. If, however, the carrier does not respond, it would be removed from the test and undergo the traditional compliance review and any necessary enforcement action. The Agency plans to begin the test in January 2008. The test would have two phases. Phase I would be a six-month startup phase where only three BASICs would be measured: Unsafe Driving, Fatigued Driving, and Vehicle Maintenance. This would allow time for the test to become fully operational by June 2008, when the remaining BASICs would be added. The test is scheduled to run for 30 months into mid-2010, at which time FMCSA is targeting full CSA 2010 implementation. The thirty-month timeframe is designed to provide sufficient data for statistical purposes with results evaluated at periodic intervals. It is anticipated that full implementation of CSA 2010 could take place through the addition of more states when the safety fitness determination rulemaking is completed. Of course, the Agency will consider the results of the ongoing Op-Model test in fine tuning the rulemaking through notice and comment. Likewise, comments received during the rulemaking will be considered for any needed course correction during the Op-Model test. Initially, the results will likely be more qualitative than quantitative. However, as the test progresses and more data are gathered, the Agency anticipates being able to make quantitative evaluations of the effectiveness of CSA 2010. As with any planned activity, FMCSA will continue to fine tune its plans for the Op-Model test until it commences in January 2008. FMCSA plans to use approximately 30 Federal and state investigators to carry out the new CSA 2010 interventions in the test group. Training for the investigators involved in the test group is planned for late January 2008, after which the Op-Model test will immediately begin. Comments Requested FMCSA requests comments from all interested parties on the CSA 2010 program elements described in this notice. FMCSA is particularly interested in comments related to the Safety Measurement System, interventions, preliminary safety fitness determination methodology, and operational model test. Commenters are requested to provide supporting rationale and data wherever possible. Table 2.—Areas of Essential Motor Carrier Safety Management 1. Scheduling a run which would necessitate the vehicle being operated at speeds in excess of those prescribed (§ 392.6). 2. Operating a motor vehicle not in accordance with the laws, ordinances, and regulations of the jurisdiction in which it is being operated (§ 392.2)(Safety related violations only). 3. No operating authority (392.9a(a). 4. False reports of records of duty status (§ 395.8(e)). 5. Requiring or permitting driver to drive more than 11 hours (§ 395.3(a)(1)). 6. Requiring or permitting passenger CMV driver to drive more than 10 hours (§ 395.5(a)(1)). 7. Requiring or permitting driver to drive after 14 hours on duty (§ 395.3(a)(2)). 8. Requiring or permitting passenger CMV driver to drive after 15 hours on duty (§ 395.5(a)(2)). 9. Requiring or permitting driver to drive after 60 hours on duty in 7 days (§ 395.3(b)(1)). 10. Requiring or permitting driver to drive after 70 hours on duty in 8 days (§ 395.3(b)(2)). 11. Requiring or permitting passenger CMV driver to drive after 60 hours on duty in 7 days (§ 395.5(b)(1)). 12. Requiring or permitting passenger CMV driver to drive after 70 hours on duty in 8 days (§ 395.5(b)(2)). 13. Requiring or permitting short-haul property CMV driver to drive after 16 hours on duty (§ 395.1(o)). 14. No records of duty status (§ 395.8(a)). 15. Failing to submit record of duty status within 13 days (§ 395.8(i)). 16. Failing to preserve records of duty status for 6 months (§ 395.8(k)). 17. Failing to preserve supporting documents (§ 395.8(k)). 18. Fraudulent or intentional alteration of a supporting document (§ 395.8(k)). 19. Requiring or permitting driver to drive after 70 hours in 7 days (Alaska)(§ 395.1(h)(1)(iii)). 20. Requiring or permitting driver to drive after 80 hours on duty in 8 days (Alaska)(395.1(h)(1)(iv)). 21. Requiring or permitting driver to drive more than 15 hours (Alaska)(§ 395.1(h)(1)(i)). 22. Requiring or permitting driver to drive after being on duty 20 hours (Alaska)(§ 395.1(h)(1)(ii)). 23. Requiring or permitting passenger CMV driver to drive more than 15 hours (Alaska). ( § 395.1(h)(2)(i)). 24. Requiring or permitting passenger CMV driver to drive after 20 hours on duty (Alaska)( § 395.1(h)(2)(ii)). 25. Requiring or permitting passenger CMV driver to drive after 80 hours on duty in 8 days (Alaska)( § 395.1(h)(2)(iv)). 26. Requiring or permitting passenger CMV driver to drive after 70 hours on duty in 7 days (Alaska)(395.1(h)(2)(iii)). 27. Failing to investigate driver's background (§ 391.23(a)). 28. Failing to maintain driver qualification file on each driver employed (§ 391.51(a))(Use current guidance of no element of DQ file requirements found). 29. Operating a CMV without a valid CDL (§ 383.23(a))(Safety related loss only). 30. Failing to train hazardous material employees as required (§ 172.704(a) & § 177.800(c)). 31. Using a driver not medically re-examined each 24 months (§ 391.45(b)(1)). 32. Using a driver not medically examined and certified (§ 391.45(a)). 33. Using a driver before receiving a negative pre-employment result (§ 382.301(a)). 34. Failing to perform random alcohol tests at the applicable rate (§ 382.305(b)(1)). 35. Failing to perform random controlled substance tests at the applicable rate (§ 382.305(b)(2)). 36. Using a driver without a return to duty test (§ 382.309). 37. Failing to keep minimum records of inspection and maintenance (§ 396.3(b)). 38. Requiring or permitting a driver to drive without the vehicle's cargo being properly distributed and adequately secured (§ 392.9(a)(1)). 39. Transporting a HM without preparing a shipping paper (§ 172.200(a) & § 177.817(a))(no shipping paper at all). 40. Transporting HM in a package with an identifiable release of HM (§ 173.24). 41. Loading a cargo tank with an HM which exceeds the maximum weight of lading marked on the specification plate (§ 173.24b(d)(2)). 42. Loading HM not in accordance with the separation and segregation table (§ 173.30/177.848(d)). 43. Transporting HM in an unauthorized cargo tank (§ 173.33(a)). 44. Transporting or loading two or more materials in a cargo tank motor vehicle which resulted in an unsafe condition (§ 173.33(a)(2)). 45. Transporting a hazardous material in a cargo tank motor vehicle which has a dangerous reaction when in contact with the tank (§ 173.33(b)(1)). 46. Transporting an unacceptable HM shipment (§ 177.801). 47. Failing to attend a cargo tank during loading/unloading (§ 177.834(i)). 48. Offering a cargo tank which has not successfully completed a test or inspection which has become due (§ 180.407(a)). 49. Failing to test and inspect a cargo tank which has been in an accident and has been damaged (§ 180.407(b)(2)). 50. Failing to conduct a pressure test on a cargo tank which has been out of HM service for one year or more (§ 180.407(b)(3)). 51. Failing to test and inspect a cargo tank which has been modified (§ 180.407(b)(4)). 52. Failing to conduct a test or inspection on a cargo tank when required by DOT (§ 180.407(b)(5)). 53. Failing to periodically test and inspect a cargo tank (§ 180.407(c)). Table 3.—Fundamental Violations 1. Failing to implement an alcohol and/or controlled substance testing program (§ 382.115(a) or (b)). 2. Using a driver who has refused to submit to an alcohol or controlled substances test required under part 382 (§ 382.211). 3. Using a driver known to have tested positive for a controlled substance (§ 382.215). 4. Knowingly allowing, requiring, permitting, or authorizing an employee with a commercial driver's license which is suspended, revoked, or canceled by a state or who is disqualified to operate a commercial motor vehicle as defined in Part 383. (§ 383.37(a)). 5. Knowingly allowing, requiring, permitting, or authorizing a driver who is disqualified to drive a commercial motor vehicle (§ 383.51(a)). 6. Operating a motor vehicle transporting property without having in effect the required minimum levels of financial responsibility coverage (§ 387.7(a)). 7. Using a disqualified driver (§ 391.15(a)). 8. Using a physically unqualified driver (§ 391.11(b)(4)). 9. Failing to require a driver to make a record of duty status (§ 395.8(a)) (Complete lack of any records of duty status). 10. Requiring or permitting the operation of a motor vehicle declared “out-of-service” before repairs are made (§ 396.9(c)(2)). 11. Using a commercial motor vehicle not periodically inspected (§ 396.17(a)). (Complete lack of any periodic inspections). 12. Operating a passenger carrying vehicle without having in effect the required minimum levels of financial responsibility (§ 387.31(a)). 13. Failing to implement a random controlled substances and/or an alcohol testing program (§ 382.305). 14. Failing to correct out-of-service defects listed by a driver in a driver vehicle inspection report before the vehicle is operated again (§ 396.11(c)). 15. Transporting a forbidden material (§ 177.801). Issued on: October 30, 2007. John H. Hill, Administrator. [FR Doc. E7-21671 Filed 11-1-07; 8:45 am] BILLING CODE 4910-EX-P DEPARTMENT OF TRANSPORTATION Federal Transit Administration Notice of Limitation on Claims Against Proposed Public Transportation Projects AGENCY: Federal Transit Administration (FTA), DOT. ACTION: Notice of Limitation on Claims. SUMMARY: This notice announces final environmental actions taken by the Federal Transit Administration
(FTA)for public transportation projects in the following metropolitan areas: Orlando, Florida; Miami, Florida; Salt Lake City, Utah; San Francisco, California; and Binghamton, New York. The purpose of this notice is to announce publicly the environmental decisions by FTA on the subject projects and to activate the limitation on any claims that may challenge these final environmental actions. DATES: By this notice, FTA is advising the public of final agency actions subject to Title 23, United States Code (U.S.C.), section 139(l). A claim seeking judicial review of the FTA actions announced herein for the listed public transportation projects will be barred unless the claim is filed on or before April 30, 2008. FOR FURTHER INFORMATION CONTACT: Joseph Ossi, Environmental Protection Specialist, Office of Planning and Environment, 202-366-1613, or Christopher Van Wyk, Office of Chief Counsel, 202-366-1733. FTA is located at 1200 New Jersey Avenue, SE., Washington, DC 20590. Office hours are from 9 a.m. to 5:30 p.m., e.t., Monday through Friday, except Federal holidays. SUPPLEMENTARY INFORMATION: Notice is hereby given that FTA has taken final agency actions by issuing certain approvals for the public transportation projects listed below. The actions on these projects, as well as the laws under which such actions were taken, are described in the documentation issued in connection with the project to comply with the National Environmental Policy Act (NEPA), and in other documents in the FTA administrative record for the project. The final agency environmental decision documents—Records of Decision
(RODs)or Findings of No Significant Impact (FONSIs)—for the listed projects are available online at *http://www.fta.dot.gov/planning/environment/planning_environment_documents.html* or may be obtained by contacting the FTA Regional Office for the metropolitan area where the project is located. Contact information for the FTA Regional Offices may be found at *http://www.fta.dot.gov.* This notice applies to all FTA decisions on the listed projects as of the issuance date of this notice and all laws under which such actions were taken, including, but not limited to, the National Environmental Policy Act
(NEPA)[42 U.S.C. 4321-4375], Section 4(f) of the Department of Transportation Act of 1966 [49 U.S.C. 303], Section 106 of the National Historic Preservation Act [16 U.S.C. 470f], and the Clean Air Act [42 U.S.C. 7401-7671q]. The projects and actions that are the subject of this notice are: 1. *Project name and location:* Central Florida Commuter Rail; Orlando, Florida. *Project sponsor:* Florida Department of Transportation. *Project description:* The Central Florida Commuter Rail project extends 61 miles along the A-line rail corridor of CSX Transportation from the Deland Amtrak station in Volusia County, through downtown Orlando, to Poinciana Industrial Park in Osceola County. Bi-directional commuter rail service would be provided at a total of 16 stations using diesel multiple units
(DMUs)in two-or three-car consists operating on 15 minute headways in the peak hours and 60 minute headways during the midday, off-peak hours. Other infrastructure improvements of the project include: A new signalization system, 42 miles of new second track, 16 platform stations of which 11 stations have parking facilities with a total of 4300 spaces, a DMU vehicle storage and maintenance facility, and two end-of-line layover facilities. The project would be built in phases. *Final agency actions:* FONSI signed on April 27, 2007; Section 106 Finding of No Adverse Effect; project-level Air Quality Conformity determination; finding of no significant encroachment on floodplains in accordance with Executive Order 11988; finding of no practicable alternative to new construction in wetlands in accordance with Executive Order 11990; and consultation with the U.S. Department of the Interior
(DOI)under Section 7 of the Endangered Species Act, resulting in DOI's issuance of a Biological Opinion. *Supporting documentation:* Central Florida Commuter Rail Transit North/South Corridor Project: Environmental Assessment issued in December 2006. 2. *Project name and location:* Miami North Corridor Metrorail Extension; Miami, Florida. *Project sponsor:* Miami-Dade County Transit (MDT). *Project description:* The project consists of the design and construction of a 9.5-mile heavy rail transit extension of the existing Miami Metrorail system from NW 76th Street to NW 215th Street on or adjacent to NW 27th Avenue. The project is a dual-track, fixed guideway that would be exclusively elevated in the right of way of NW 27th Avenue or in an exclusive MDT-owned right of way adjacent to NW 27th Avenue. The project includes seven new stations of which six stations are configured as center-platform and one as side-platform. *Final agency actions:* ROD signed on April 26, 2007; Section 106 Finding of No Adverse Effect; project-level Air Quality Conformity determination; finding of no disproportionately high and adverse human health or environmental effects on minority and low-income populations in accordance with Executive Order 12898; and finding of no significant encroachment on floodplains in accordance with Executive Order 11988. *Supporting documentation:* Final Environmental Impact Statement: Miami North Corridor issued on March 9, 2007. 3. *Project name and location:* Mid-Jordan Transit Corridor Project; Salt Lake City, Utah. *Project sponsor:* Utah Transit Authority (UTA). *Project description:* The project consists of a 10.6-mile light rail transit
(LRT)extension branching from the existing TRAX line between Sandy and Salt Lake City at 6400 South in Murray in Salt Lake County and proceeding to the new Daybreak Development in South Jordan via the cities of Murray, Midvale, West Jordan and South Jordan. Two new tracks will be constructed along the existing Union Pacific Railroad
(UPRR)Bingham Branch corridor from the existing 6400 South/Fashion Place West Station to a new terminal station in Daybreak at approximately 11400 South. The project includes station improvements at the existing 6400 South/Fashion Place West station and nine new stations at Bingham Junction (Midvale Slag Site), Gardner Village, Redwood (West Jordan City Hall), 2700 West, Bangerter (South Station Development), 4800 West, 5600 West, Daybreak North, and Daybreak South. These stations will include feeder bus facilities and 4,200 park-and-ride spaces to be constructed in phases over time by the year 2030. The LRT will use both of the new tracks during transit operating hours, typically from 5 AM to midnight. Freight trains will operate on the same tracks during non-LRT hours. *Final agency actions:* ROD signed on September 24, 2007; Section 4(f) finding; Section 106 Memorandum of Agreement; project-level air quality conformity determination; finding of no practicable alternative to significant encroachment into floodplains in accordance with Executive Order 11988. *Supporting documentation:* Final Environmental Impact Statement: Mid-Jordan Transit Corridor Project issued on July 27, 2007. 4. *Project name and location:* Ed Roberts Campus Project; Berkeley, California. *Project sponsor:* San Francisco Bay Area Rapid Transit District
(BART)and the Ed Roberts Campus (ERC). *Project description:* BART and ERC will construct a transit-oriented development on the eastern parking lot of the BART Ashby station in Berkeley. The 3.6-acre parking lot occupies the southern three quarters of the block bounded by Essex Street on the north, Woolsey Street on the south, Adeline on the west, and Tremont on the east. The project includes subdividing the site to construct an 86,000-square-foot, two-story office building, with its principal pedestrian entry at street level on Adeline Street and a separate parking lot for the office building. The office building will occupy the western 1.5 acres of the existing parking lot. The 250 parking spaces for BART customers in the existing parking lot will be replaced by a parking structure with 187 parking spaces. The Ed Roberts Campus incorporates universal design standards that are intended to provide equal access to all people, regardless of their level of ability. The office building will provide tenant spaces for nine disability organizations, a computer lab, a child care center, a fitness center and a caf. *Final agency actions:* FONSI signed on October 1, 2007 and Section 106 Finding of No Adverse Effect. *Supporting documentation:* Environmental Assessment developed in accordance with the NEPA regulation of the U.S. Department of Housing and Urban Development, issued in May 2006 and adopted by FTA in October 2007. 5. *Project name and location:* Binghamton Intermodal Transit Terminal; Binghamton, New York. *Project sponsor:* Broome County, New York. *Project description:* The project consists of the following elements: An 18,000-square-foot building to provide a weather-protected passenger waiting area, ticketing, restrooms, telephones, and other amenities; short-term parking for up to 50 vehicles; 12 bus bays for Broome County Transit buses and 14 bus bays for intercity buses; approximately 1,800 square feet of green space; bicycle storage; and a taxi loading area. The project involves the acquisition of 12 parcels of land, the complete demolition of three existing buildings and the partial demolition of a fourth historic building, the Greyhound Terminal building, to make room for the construction of the new facility. The exterior wall and historic fade on the Chenango Street
(east)side of the existing Greyhound Terminal will be retained, rehabilitated and incorporated into the design of the new facility. *Final agency actions:* FONSI signed on June 27, 2007; Section 106 Programmatic Agreement; and finding of no disproportionately high and adverse human health or environmental effects on minority and low-income populations, in accordance with Executive Order 12898. *Supporting documentation:* Environmental Assessment issued in February 2007. Issued on: October 26, 2007. Susan Borinsky, Associate Administrator for Planning and Environment, Washington, DC. [FR Doc. E7-21564 Filed 11-1-07; 8:45 am] BILLING CODE 4910-57-P DEPARTMENT OF TRANSPORTATION Maritime Administration [USCG-2006-26009] Calypso LNG LLC, Calypso Liquefied Natural Gas Deepwater Port License Application; Preparation of Environmental Impact Statement AGENCY: Maritime Administration, DOT. ACTION: Notice of availability; notice of public meeting; request for comments. SUMMARY: The Maritime Administration (MARAD) and the Coast Guard announce the availability of the Draft Environmental Impact Statement
(DEIS)for the Calypso LNG LLC, Calypso Natural Gas Deepwater Port (Calypso) license application. The application describes a project that would be located in the Federal waters of the Outer Continental Shelf in the OCS NG 17-06 (Bahamas) lease area, approximately 8 to 10 miles off the east coast of Florida to the northeast of Port Everglades, in a water depth of 800 to 950 feet. The Coast Guard and MARAD request public comments on the DEIS. Publication of this notice begins a 45-day comment period and provides information on how to participate in the process. DATES: The public meeting in Fort Lauderdale, FL will be held on November 28, 2007. The public meeting will be held from 6:30 p.m. to 8:30 p.m. and will be preceded by an informational open house from 5 p.m. to 6 p.m. The public meeting may end earlier or later than the stated time, depending on the number of commenters wishing to speak. Material submitted in response to the request for comments on the DEIS must reach the Federal Docket Management Facility by December 17, 2007. ADDRESSES: The open house and public meeting will be held at: Courtyard by Marriott, North Fort Lauderdale, 2440 W. Cypress Creek Road, Fort Lauderdale, Florida 33309; telephone: 954-772-7770. The DEIS, the application, and associated documentation are available for viewing at the Federal Docket Management System Web site: *http://regulations.gov* under docket number 26009. The Federal Docket Management System replaces the DOT Docket Management System. Migration to the new system began on October 1, 2007. The DEIS is also available at public libraries in Fort Lauderdale area (Broward County Library which is a federal depository library and Riverland Library in Fort Lauderdale; Dania Beach Library—Paul DeMaio Branch in Dania Beach; Davie/Cooper City Library in Davie; Helen B. Hoffman Plantation Library and West Regional Library in Plantation; Hollywood Library in Hollywood, and Pembroke Pines Library in Pembroke Pines) and Florida State University Marine Laboratory in Sopchoppy, Florida. Docket submissions for USCG-2006-26009 should be addressed to: Department of Transportation, Docket Management Facility, 1200 New Jersey Avenue, SE., West Building, Ground Floor, Room W12-140, Washington, DC 20590-0001. The Federal Docket Management Facility accepts hand-delivered submissions, and makes docket contents available for public inspection and copying at this address between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The Facility telephone number is 202-366-9329, the fax number is 202-493-2251, and the Web site for electronic submissions or for electronic access to docket contents is *http://regulations.gov.* FOR FURTHER INFORMATION CONTACT: Mary K. Jager, U.S. Coast Guard, telephone: 202-372-1454, e-mail: *Mary.K.Jager@uscg.mil.* If you have questions on viewing the docket, call Renee V. Wright, Program Manager, Docket Operations, telephone: 202-493-0402, e-mail: *renee.wright@dot.gov.* SUPPLEMENTARY INFORMATION: Public Hearing and Open House We invite you to learn about the proposed deepwater port at an informational open house, and to comment at a public meeting on the proposed action and the evaluation contained in the DEIS. In order to allow everyone a chance to speak at the public meeting, we may limit speaker time, or extend the meeting hours, or both. You must identify yourself, and any organization you represent, by name. Your remarks will be recorded or transcribed for inclusion in the public docket. Written material may be submitted at the public meeting, either in place of or in addition to speaking. Written material must include your name and address, and will be included in the public docket. Public docket materials will be made available to the public on the Federal Docket Management System (FDMS). See “Request for Comments” for information about FDMS and your rights under the Privacy Act. The public meeting location will be wheelchair-accessible. If you plan to attend the open house or public meeting, and need special assistance such as sign language interpretation or other reasonable accommodation, please notify the Coast Guard (see FOR FURTHER INFORMATION CONTACT ) at least three
(3)business days in advance. Include your contact information as well as information about your specific needs. Request for Comments We request public comments or other relevant information on the DEIS. The public hearing is not the only opportunity to comment. In addition to or in place of attending a meeting, comments may be submitted to the Federal Docket Management Facility during the public comment period (see DATES ). We will consider all comments and material received during the comment period for the DEIS. We will announce the availability of the Final EIS
(FEIS)and once again provide the opportunity to review and comment. To receive notice of the FEIS, contact representatives at the public meeting or the Coast Guard representative identified in FOR FURTHER INFORMATION CONTACT . Submissions must include: • Docket number USCG-2006-26009. • Your name and address. Submit comments or material using only one of the following methods: • Electronic submission to FDMS, *http://regulations.gov* . • Fax, mail, or hand delivery to the Docket Management Facility (see ADDRESSES ). Faxed or hand delivered submissions must be unbound, no larger than 8 1/2 by 11 inches, and suitable for copying and electronic scanning. Mailed submissions requiring confirmation of receipt should include a stamped, self-addressed postcard or envelope. Regardless of the method used for submitting comments or material, all submissions will be posted, without change, to the FDMS Web site ( *http://regulations.gov* ), and will include any personal information provided. Therefore, submitting this information makes it public. Please read the Privacy Act notice that is available on the FDMS Web site, or the Department of Transportation Privacy Act Statement that appeared in the **Federal Register** on April 11, 2000 (65 FR 19477). Docket submissions may be viewed at the Federal Docket Management Facility (see ADDRESSES ), or electronically on the FDMS Web site. Background Information about deepwater ports, the statutes, and regulations governing their licensing, and the receipt of the current application for a liquefied natural gas
(LNG)deepwater port appears in Volume 71 FR 65031, Monday, November 6, 2006. The Notice of Intent to Prepare an EIS for the proposed action was published in the **Federal Register** in Volume 71 FR 67422, Tuesday, November 21, 2006. The DEIS, application materials and associated comments are available on the docket. Information from the “Summary of the Application” from previous **Federal Register** notices is included below for your convenience. Proposed Action and Alternatives The proposed action requiring environmental review is the Federal licensing action of the proposed deepwater port described in “Summary of the Application” below. The alternatives to licensing decision on the proposed port are:
(i)Licensing as proposed
(ii)licensing with conditions (including conditions designed to mitigate environmental, safety and security impacts), and
(iii)denying the license, which for purposes of environmental review is the “no-action” alternative. Alternates examined under NEPA are more fully discussed in the DEIS. The Coast Guard and MARAD are the lead Federal agencies for the preparation of the EIS. Address any questions about the proposed action or the DEIS to the Coast Guard project manager identified in FOR FURTHER INFORMATION CONTACT . Summary of the Application Calypso LNG LLC, proposes to own, construct, and operate a deepwater port, named Calypso, in the Federal waters of the Outer Continental Shelf in the OCS NG 17-06 (Bahamas) lease area, approximately 8 to 10 miles off the east coast of Florida, to the northeast of Port Everglades, in a water depth of approximately 800 to 950 feet. Calypso would consist of a permanently moored unloading buoy system with two
(2)submersible buoys separated by a distance of approximately three
(3)miles. Each unloading buoy would be permanently secured to eight
(8)or nine
(9)mooring lines, consisting of wire rope, chain, and buoyancy elements, each attached to anchor points on the sea bed. Anchor points would consist of a combination of suction piles and gravity anchors. The buoys would be designed to moor and unload
(i)transport and regasification vessels
(TRVs)and
(ii)a storage and regasification ship (SRS). TRVs would be drawn from the existing and future global fleet as compatible with the unloading buoy system. A TRV would moor at the east buoy for four
(4)to seven
(7)days. When empty it would disconnect from the buoy and leave the port, followed by another full TRV that would arrive and connect to the buoy. The SRS would be a specialized, purpose built LNG carrier designed to accept LNG from conventional LNG carriers from the existing and future global fleet. The SRS would normally remain attached to its mooring buoy. To sustain continuous vaporization, the SRS' cargo tanks would be refilled approximately every two
(2)to four
(4)days by LNG carriers. The SRS would detach from the buoy if threatened by a severe storm, such as a hurricane, and move under its own power to safety; then return and reconnect to the buoy and continue operations once the storm danger passed. Both vessels would be equipped to vaporize LNG cargo to natural gas through an onboard closed loop shell-and-tube vaporization system, and to odorize and meter gas for send-out by means of the unloading buoy to conventional subsea pipelines. The mooring buoys would be connected through the hull of the vessels to specially designed turrets that would enable the vessel to weathervane or rotate in response to prevailing winds, waves, and the current directions. When the vessels are not present the buoys would be submerged approximately 100 feet below the surface. The unloading buoys would connect through flexible risers and two
(2)approximately 2.5 mile long 30-inch flow lines located on the seabed that would connect directly to the Calypso pipeline, a Federal Energy Regulatory Commission
(FERC)permitted pipeline, yet to be constructed which would then connect to existing onshore pipeline system. The Calypso would be capable of delivering natural gas in a continuous flow by having at least one TRV or the SRS regasifying at all times. The system would be designed so that a TRV and the SRS can regasify simultaneously for concurrent unloading of natural gas. Calypso would have an average throughput capacity of approximately 1.1 billion standard cubic feet per day (bcsfd) and a peak delivery capacity of 1.9 bcsfd. Existing onshore delivery systems would be utilized and no new construction of onshore pipelines or LNG storage facilities are included as part of the proposed deepwater port. Existing shore based infrastructure will be used to facilitate movement of personnel, equipment, supplies, and disposable materials between the Terminal and shore. Construction of the deepwater port would be expected to take three
(3)years should a license be issued. The deepwater port, if licensed, would be designed, constructed and operated in accordance with applicable codes and standards and would have an expected operating life of approximately 25 years. Privacy Act The electronic form of all comments received into the Federal Docket Management System can be searched by the name of the individual submitting the comment (or signing the comment, if submitted on behalf of an association, business, labor union, etc.). The DOT Privacy Act Statement can be viewed in the **Federal Register** published on April 11, 2000 (Volume 65, Number 70, pages 19477-78) or you may visit *http://regulations.gov* . (Authority: 49 CFR 1.66) By Order of the Maritime Administrator. Dated: October 29, 2007. Murray A. Bloom, Acting Secretary, Maritime Administration. [FR Doc. E7-21602 Filed 11-1-07; 8:45 am] BILLING CODE 4910-81-P DEPARTMENT OF TRANSPORTATION Surface Transportation Board [STB Finance Docket No. 35084] Kansas City Terminal Railway Company—Acquisition Exemption—BNSF Railway Company Kansas City Terminal Railway Company (KCT), a Class III rail carrier, has filed a verified notice of exemption under 49 CFR 1150.41 to acquire by purchase from BNSF Railway Company approximately 5.5 miles of rail line, extending from milepost 5.78 near Sheffield Junction to the end of the track at milepost 11.23 near Blue Valley, in Jackson County, MO. This transaction is related to the concurrently filed notice of exemption in STB Finance Docket No. 35085, *Kansas City Transportation Company LLC—Lease and Operation Exemption—Kansas City Terminal Railway Company,* wherein Kansas City Transportation Company LLC seeks to lease from KCT and to operate the line that KCT is purchasing from BNSF. Based on projected revenues for the line, KCT expects to remain a Class III rail carrier after consummation of the proposed transaction. KCT certifies that its projected annual revenues as a result of this transaction will not result in the creation of a Class II or Class I rail carrier. Because the projected annual revenues of the line, together with KCT's projected annual revenue, will exceed $5 million, KCT certified, on September 21, 2007, that it had sent the required notice of the transaction to the national and local offices with employees on the affected lines and posted a copy of the notice at the workplace of the employees on the affected lines on September 20, 2007. KCT states that it intends to consummate the transaction on or after November 20, 2007. The earliest this transaction may be consummated is November 20, 2007, the effective date of the exemption (60 days after KCT certified its compliance with the labor notice requirements of 49 CFR 1150.42(e)). If the notice contains false or misleading information, the exemption is void *ab initio.* Petitions to revoke the exemption under 49 U.S.C. 10502(d) may be filed at any time. The filing of a petition to revoke will not automatically stay the transaction. Petitions for stay must be filed no later than November 13, 2007 (at least 7 days before the exemption becomes effective). An original and 10 copies of all pleadings, referring to STB Finance Docket No. 35084, must be filed with the Surface Transportation Board, 395 E Street, SW., Washington, DC 20423-0001. In addition, one copy of each pleading must be served on Michael J. Barron, Jr., Fletcher & Sippel LLC, 29 North Wacker Drive, Suite 920, Chicago, IL 60606-2832. Board decisions and notices are available on our Web site at *http://www.stb.dot.gov.* Decided: October 30, 2007. By the Board, David M. Konschnik, Director, Office of Proceedings. Vernon A. Williams, Secretary. [FR Doc. E7-21568 Filed 11-1-07; 8:45 am] BILLING CODE 4915-01-P DEPARTMENT OF TRANSPORTATION Surface Transportation Board [STB Finance Docket No. 35085] Kansas City Transportation Company LLC—Lease and Operation Exemption—Kansas City Terminal Railway Company Kansas City Transportation Company LLC (KCTL), a Class III rail carrier, has filed a verified notice of exemption under 49 CFR 1150.41 to lease from Kansas City Terminal Railway Company
(KCT)and operate approximately 5.5 miles of rail line from milepost 5.78 near Sheffield Junction to the end of the line at milepost 11.23 near Blue Valley, in Jackson County, MO. This transaction is related to the concurrently filed notice of exemption in STB Finance Docket No. 35084, *Kansas City Terminal Railway Company—Acquisition Exemption—BNSF Railway Company,* wherein KCT, the owner of KCTL, seeks to acquire by purchase from BNSF Railway Company the 5.5 miles of rail line described above. Based on projected revenues for the line, KCTL expects to remain a Class III rail carrier after consummation of the proposed transaction. KCTL certifies that its projected annual revenues as a result of this transaction will not result in the creation of a Class II or Class I rail carrier. Because the projected annual revenues of the line, together with KCTL's projected annual revenue, will exceed $5 million, KCTL certified, on September 21, 2007, that it had served the required notice of the transaction on the national offices of the labor unions for those employees affected on the lines and posted such notice at the workplace of the employees on the affected lines on September 20, 2007. KCTL states that it intends to consummate the transaction on November 20, 2007. The earliest this transaction may be consummated is November 20, 2007, (the effective date of the exemption (60 days after KCTL certified its compliance with the labor notice requirements of 49 CFR 1150.42(e))). KCTL also states that, upon authorization of this transaction, it plans to enter into a service agreement with Kaw River Railroad, Inc. (Kaw River), under which Kaw River would provide certain railroad operating services on this 5.5-mile line. KCTL states that Kaw River is not seeking separate authority to operate as a common carrier over the line. In publishing this notice, the Board takes no position on whether Kaw River would need to obtain Board authority to provide services pursuant to this agreement with KCTL. Given the Board's conclusions in *Kansas City Transportation Company LLC—Lease and Assignment of Lease Exemption—Kansas City Terminal Railway Company and Kaw River Railroad, Inc.,* STB Finance Docket No. 34830 (STB served May 23, 2007), and KCTL's recognition of those conclusions in this proceeding, Kaw River should file a notice of exemption to operate pursuant to the agreement and simultaneously file a motion to dismiss if it believes that authority is not needed. If the verified notice contains false or misleading information, the exemption is void *ab initio.* Petitions to revoke the exemption under 49 U.S.C. 10502(d) may be filed at any time. The filing of a petition to revoke will not automatically stay the transaction. Petitions for stay must be filed no later than November 13, 2007 (at least 7 days before the exemption becomes effective). An original and 10 copies of all pleadings, referring to STB Finance Docket No. 35085, must be filed with the Surface Transportation Board, 395 E Street, SW., Washington, DC 20423-0001. In addition, a copy of each pleading must be served on Michael J. Barron, Jr., Fletcher & Sippel LLC, 29 North Wacker Drive, Suite 920, Chicago, IL 60606-2832. Board decisions and notices are available on our Web site at *http://www.stb.dot.gov.* Decided: October 30, 2007. By the Board, David M. Konschnik, Director, Office of Proceedings. Vernon A. Williams, Secretary. [FR Doc. E7-21570 Filed 11-1-07; 8:45 am] BILLING CODE 4915-01-P DEPARTMENT OF TRANSPORTATION Surface Transportation Board [STB Finance Docket No. 35090] JP Rail, Inc.—Lease and Operation Exemption—NAT Industries, Inc. JP Rail, Inc. (JP Rail), a Class III rail carrier, has filed a verified notice of exemption under 49 CFR 1150.41 to lease from NAT Industries, Inc.
(NAT)and to operate approximately 1 mile of track in Carroll Township, PA, known as the Donora Line (the Line), formerly operated by NAT as private industrial track. JP Rail states that it will hold itself out to provide common carrier rail freight service over the Line, and that it plans to serve customers originating traffic at JP Rail's Pleasantville, NJ facility and also to market its service to “local” customers. According to JP Rail, the traffic would comprise construction and demolition materials (C&D), which would be transported from Pleasantville by Norfolk Southern Railway Company to a connection with the Line at milepost ML40 in Carroll Township. JP Rail would then transport the C&D over the Line for subsequent transloading into trucks for movement to “Westmoreland Waste's landfill,” approximately 3 miles from Carroll Township. JP Rail states that this operation is intended to be temporary until a permanent rail unloading facility can be constructed on Westmoreland Waste's site and its landfill permit amended to allow for rail traffic. Finally, JP Rail asserts that the proposed transaction is exempt from environmental review under 49 CFR 1105.6(c)(2)(i) and from historic review under 49 CFR 1105.8(b)(1). JP Rail certifies that its projected revenues as a result of the transaction will not result in the creation of a Class II or Class I rail carrier and will not exceed $5 million. Because of outstanding questions regarding the proposal, the Board, through the Director of the Office of Proceedings, in a decision served October 26, 2007, directed JP Rail to file supplemental information describing in more detail its anticipated operations and supporting its claim that environmental review is not warranted. The Board also directed JP Rail to serve a copy of its verified notice and the October 26 decision on appropriate federal, state, and local entities and stated that the effective date of the exemption would be delayed until December 6, 2007, to allow time for those parties to participate, if they wish. Therefore, the earliest this transaction may be consummated is December 6, 2007, the effective date of the exemption (50 days after the exemption was filed). If the verified notice contains false or misleading information, the exemption is void *ab initio* . Petitions to revoke the exemption under 49 U.S.C. 10502(d) may be filed at any time. The filing of a petition to revoke will not automatically stay the transaction. Petitions for stay must be filed no later than November 29, 2007 (at least 7 days before the exemption becomes effective). An original and 10 copies of all pleadings, referring to STB Finance Docket No. 35090, must be filed with the Surface Transportation Board, 395 E Street, SW., Washington, DC 20423-0001. Also, a copy of each pleading must be served on John D. Heffner, 1750 K Street, NW., Suite 350, Washington, DC 20006. Board decisions and notices are available on our Web site at *http://www.stb.dot.gov.* Decided: October 26, 2007. By the Board, David M. Konschnik, Director, Office of Proceedings. Vernon A. Williams, Secretary. [FR Doc. E7-21566 Filed 11-1-07; 8:45 am] BILLING CODE 4915-01-P DEPARTMENT OF THE TREASURY Internal Revenue Service Advisory Group to the Commissioner of Internal Revenue; Renewal of Charter AGENCY: Internal Revenue Service (IRS), Treasury. SUMMARY: The Charter for the Advisory Committee on Tax Exempt and Government Entities
(ACT)has been renewed for a two-year period beginning July 13, 2007. FOR FURTHER INFORMATION CONTACT: Steven J. Pyrek, TE/GE Communications and Liaison, 202-283-9966 (not a toll-free number). SUPPLEMENTARY INFORMATION: Notice is hereby given under section 10(a)(2) of the Federal Advisory Committee Act, 5 U.S.C. App. (1988), and with the approval of the Secretary of the Treasury to announce the renewal of the Advisory Committee on Tax Exempt and Government Entities (ACT). The primary purpose of the ACT is to provide an organized public forum for senior Internal Revenue Service executives and representatives of the public to discuss relevant tax administration issues. As an advisory body designed to focus on broad policy matters, the ACT reviews existing tax policy and/or makes recommendations with respect to emerging tax administration issues. The ACT suggests operational improvements, offers constructive observations regarding current or proposed IRS policies, programs, and procedures, and suggests improvements with respect to issues having substantive effect on Federal tax administration. Conveying the public's perception of IRS activities to Internal Revenue Service executives, the ACT comprises individuals who bring substantial, disparate experience and diverse backgrounds. Membership is balanced to include representation from employee plans, exempt organizations, tax-exempt bonds, and Federal, State, local, and Indian tribal governments. Dated: October 24, 2007. Steven J. Pyrek, Director, Communications & Liaison, Tax Exempt and Government Entities. [FR Doc. E7-21345 Filed 11-1-07; 8:45 am] BILLING CODE 4830-01-P 72 212 Friday, November 2, 2007 CORRECTIONS Aaron Siegel DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT 24 CFR Part 3285 [Docket No. FR-4928-F-02] RIN 2502-AI25 Model Manufactured Home Installation Standards Correction In rule document 07-5004 beginning on page 59338 in the issue of Friday, October 19, 2007 make the following correction: §3285.702 [Corrected] On page 59390, Figure A to §3285.702 is reprinted as shown below: ER19OC07.021 [FR Doc. C7-5004 Filed 11-1-07; 8:45 am] BILLING CODE 1505-01-D 72 212 Friday, November 2, 2007 Proposed Rules Part II Federal Deposit Insurance Corporation 12 CFR Parts 308 and 363 Annual Independent Audits and Reporting Requirements; Proposed Rule FEDERAL DEPOSIT INSURANCE CORPORATION 12 CFR Parts 308 and 363 RIN 3064-AD21 Annual Independent Audits and Reporting Requirements AGENCY: Federal Deposit Insurance Corporation (FDIC). ACTION: Notice of proposed rulemaking. SUMMARY: Section 36 of the Federal Deposit Insurance Act (FDI Act) and the FDIC's implementing regulations (part 363) set forth annual independent audit and reporting requirements for insured depository institutions with $500 million or more in total assets. Given changes in the industry, certain sound audit, reporting, and audit committee practices incorporated in the Sarbanes-Oxley Act of 2002 (SOX); and the FDIC's experience in administering part 363, the FDIC is proposing to amend part 363 of its regulations. These amendments are designed to further the objectives of section 36 by incorporating these sound practices into part 363 and to provide clearer and more complete guidance to institutions and independent public accountants concerning compliance with the requirements of section 36 and part 363. As required by section 36, the FDIC has consulted with the other federal banking agencies. The FDIC is also proposing a technical amendment to its rules and procedures (part 308, subpart U) for the removal, suspension, or debarment of accountants and accounting firms. DATES: Comments must be received on or before January 31, 2008. ADDRESSES: You may submit comments by any of the following methods: • *Agency Web Site: http://www.fdic.gov/regulations/laws/federal.* Follow instructions for submitting comments on the Agency Web Site. • *E-mail: Comments@FDIC.gov.* Include “Part 363—Independent Audits and Reporting Requirements” in the subject line of the message. • *Mail:* Robert E. Feldman, Executive Secretary, Attention: Comments, Federal Deposit Insurance Corporation, 550 17th Street, NW., Washington, DC 20429. • *Hand Delivery/Courier:* Guard station at the rear of the 550 17th Street Building (located on F Street) on business days between 7 a.m. and 5 p.m. • *Federal eRulemaking Portal: http://www.regulations.gov.* Follow the instructions for submitting comments. *Public Inspection:* All comments received will be posted without change to *http://www.fdic.gov/regulations/laws/federal* including any personal information provided. Comments may be inspected and photocopied in the FDIC Public Information Center, 3501 North Fairfax Drive, Room E-1002, Arlington, VA 22226, between 9 a.m. and 5 p.m. on business days. Paper copies of public comments may be ordered from the Public Information Center by telephone at
(877)275-3342 or
(703)562-2200. FOR FURTHER INFORMATION CONTACT: Harrison E. Greene, Jr., Senior Policy Analyst (Bank Accounting), Division of Supervision and Consumer Protection, at *hgreene@fdic.gov* or
(202)898-8905; or Michelle Borzillo, Counsel, Supervision and Legislation Section, Legal Division, at *mborzillo@fdic.gov* or
(202)898-7400. SUPPLEMENTARY INFORMATION: I. Executive Summary Section 36 of the Federal Deposit Insurance Act (FDI Act) and the FDIC's implementing regulations (part 363) are generally intended to facilitate early identification of problems in financial management at insured depository institutions with total assets above certain thresholds through annual independent audits, assessments of the effectiveness of internal control over financial reporting and compliance with designated laws and regulations, the establishment of independent audit committees, and related reporting requirements. The asset-size threshold for internal control assessments is $1 billion and the threshold for the other requirements is $500 million. Given changes in the industry, certain sound audit, reporting, and audit committee practices incorporated in the Sarbanes-Oxley Act of 2002 (SOX); and the FDIC's experience in administering part 363, the FDIC is proposing to amend part 363 of its regulations. These amendments are designed to further the objectives of section 36 by incorporating these sound practices into part 363 and to provide clearer and more complete guidance to institutions and independent public accountants concerning compliance with the requirements of section 36 and part 363. The most significant revisions included in the proposed amendments would:
(1)Require management and the independent public accountant to identify the internal control framework used to evaluate internal control over financial reporting and disclose all identified material weaknesses;
(2)extend the time period for a non-public institution to file its Part 363 Annual Report by 30 days and replace the 30-day extensions of the filing deadline that may be granted if an institution (public or non-public) is confronted with extraordinary circumstances beyond its reasonable control with a late filing notification requirement that would have general applicability;
(3)provide relief from the annual reporting requirements for institutions that are merged out of existence before the filing deadline;
(4)provide relief from reporting on internal control over financial reporting for businesses acquired during the fiscal year;
(5)require management's assessment of compliance with designated safety and soundness laws and regulations to state management's conclusion regarding compliance and disclose any noncompliance with such laws and regulations;
(6)clarify the independence standards with which independent public accountants must comply and enhance the enforceability of compliance with these standards;
(7)specify that the duties of the audit committee include the appointment, compensation, and oversight of the independent public accountant;
(8)require audit committees to ensure that audit engagement letters do not contain unsafe and unsound limitation of liability provisions and require institutions to file copies of these letters;
(9)require certain communications by independent public accountants to audit committees and establish retention requirements for audit working papers;
(10)require boards of directors to adopt written criteria for evaluating an audit committee member's independence and provide expanded guidance for boards of directors to use in determining independence;
(11)require the total assets of a holding company's insured depository institution subsidiaries to comprise 75 percent or more of the holding company's consolidated total assets in order for an institution to comply with part 363 at the holding company level; and
(12)provide illustrative management reports to assist institutions in complying with the annual reporting requirements. The FDIC is also proposing to amend its rules and procedures (part 308, subpart U) for the removal, suspension, or debarment of accountants and accounting firms from performing audit services required by section 36 of the FDI Act by specifying where an accountant or accounting firm should file required notices of orders and actions with the FDIC. II. Background Section 112 of the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) added section 36, “Early Identification of Needed Improvements in Financial Management,” to the FDI Act (12 U.S.C. 1831m). Section 36 is generally intended to facilitate early identification of problems in financial management at insured depository institutions above a certain asset size threshold (covered institutions) through annual independent audits, assessments of the effectiveness of internal control over financial reporting and compliance with designated laws and regulations, and related reporting requirements. Section 36 also includes requirements for audit committees at these insured depository institutions. Section 36 grants the FDIC discretion to set the asset size threshold for compliance with these statutory requirements, but it states that the threshold cannot be less than $150 million. Sections 36(d) and
(f)also obligate the FDIC to consult with the other federal banking agencies in implementing these sections of the FDI Act, and the FDIC has performed the required consultation. Part 363 of the FDIC's regulations (12 CFR part 363) implements section 36 of the FDI Act. When it adopted part 363 in 1993, the FDIC stated that it was setting the asset size threshold at $500 million rather than the $150 million specified in section 36 to mitigate the financial burden of compliance with section 36 consistent with safety and soundness. In selecting $500 million in total assets as the size threshold, the FDIC noted that approximately 1,000 of the then nearly 14,000 FDIC-insured institutions would be subject to part 363. These covered institutions held approximately 75 percent of the assets of insured institutions at that time. By imposing the audit, reporting, and audit committee requirements of part 363 on institutions with this percentage of the industry's assets, the FDIC intended to ensure that the Congress's objectives for achieving sound financial management at insured institutions when it enacted section 36 would be focused on those institutions posing the greatest potential risk to the insurance funds then administered by the FDIC. Today, due to consolidation in the banking and thrift industry and the effects of inflation, approximately 1,300 of the more than 8,600 insured institutions have $500 million or more in total assets and are therefore subject to part 363. These covered institutions hold approximately 91 percent of the assets of insured institutions. Until its most recent amendments, part 363 required each covered institution to submit to the FDIC and other appropriate federal and state supervisory agencies an annual report comprised of audited financial statements, a statement of management's responsibilities, assessments by management of the effectiveness of internal control over financial reporting and compliance with designated laws and regulations, and an independent public accountant's attestation report on internal control over financial reporting. In addition, part 363 provided that each covered institution must establish an independent audit committee of its board of directors comprised of outside directors who are independent of management of the institution. Part 363 also includes Guidelines and Interpretations (Appendix A to part 363), which are intended to assist institutions and independent public accountants in understanding and complying with section 36 and part 363. In November 2005, the FDIC amended its part 363 annual audit and reporting requirements and audit committee requirements. The amendments raised the asset-size threshold from $500 million to $1 billion for the assessments of internal control over financial reporting by management and the independent public accountant. All of the other audit and reporting requirements of part 363 continued to apply to all institutions with $500 million or more in total assets. Also, for covered institutions with between $500 million and $1 billion in total assets, the amendments required only a majority, rather than all, of the members of the audit committee, who must be outside directors, to be independent of management. III. Discussion and Section-by-Section Analysis of Proposed Amendments When it amended part 363 in November 2005, the FDIC noted that it had identified other aspects of part 363 that may warrant revision in light of changes in the industry and the passage of SOX. Given the number of proposed changes to part 363 and its Guidelines and Interpretations and to enable readers and commenters to more easily understand the context of these proposed changes, this notice includes the entire text of part 363 as it is proposed to be amended, not just the text of proposed amendments. Also, the following “Table of Proposed Changes to Part 363 and Appendices” is intended to assist readers and commenters in determining which sections of part 363 would be affected by this proposal. Table of Proposed Changes to Part 363 and Appendices Unchanged Revised New Reserved Part 363—Annual Independent Audits and Reporting Requirements Table of Contents X OMB Control Number § 363.0 X Scope § 363.1(a) X § 363.1(b)(1) X § 363.1(b)(2) X § 363.1(b)(3) X § 363.1(c) X § 363.1(d) X Annual Reporting Requirements § 363.2(a) X § 363.2(b) X § 363.2(b)(1) X § 363.2(b)(2) X § 363.2(b)(3) X § 363.2(c) X Independent Public Accountant § 363.3(a) X § 363.3(b) X § 363.3(c) X § 363.3(d) X § 363.3(e) X § 363.3(f) X § 363.3(g) X Filing and Notice Requirements § 363.4(a) X § 363.4(b) X § 363.4(c) X § 363.4(d) X § 363.4(e) X § 363.4(f) X Audit Committees § 363.5(a) X § 363.5(b) X § 363.5(c) X Appendix A to Part 363—Guidelines and Interpretations Table of Contents X Introduction X Scope (§ 363.1) Guideline 1 X Guideline 2 X Guideline 3 X Guideline 4 X Guideline 4A X Annual Reporting Requirements (§ 363.2) Guideline 5 X Guideline 5A X Guideline 6 X Guideline 7 X Guideline 8 X Guideline 8A X Guideline 8B X Guideline 9 X Guideline 10 X Guideline 11 X Guideline 12 X Role of Independent Public Accountant (§ 363.3) Guideline 13 X Guideline 14 X Guideline 15 X Guideline 16 X Guideline 17 X Guideline 18 X Guideline 19 X Guideline 20 X Guideline 21 X Filing and Notice Requirements (§ 363.4) Guideline 22 X Guideline 23 X Guideline 24 X Guideline 25 X Guideline 26 X Audit Committees (§ 363.5) Guideline 27 X Guideline 28 X Guideline 29 X Guideline 30 X Guideline 31 X Guideline 32 X Guideline 33 X Guideline 34 X Guideline 35 X Other Guideline 36 X Table 1 to Appendix A—Designated Federal Laws and Regulations X Appendix B—Illustrative Management Reports X A. Scope (§ 363.1 and Guidelines 1-4A) 1. Applicability The FDIC is proposing to amend § 363.1(a) to more clearly state that part 363 applies to any insured depository institution that has consolidated total assets of $500 million or more at the beginning of its fiscal year. For example, if an institution has a December 31 fiscal year end and its consolidated total assets were $600 million as January 1, 2007, the institution would be subject to the annual reporting requirements of part 363 and would have to file a Part 363 Annual Report for the fiscal year ending December 31, 2007. Also, the institution would become subject to the other reporting requirements as well as the audit committee requirements of part 363 on January 1, 2007. 2. Compliance by Subsidiaries of Holding Companies At present, an insured depository institution that is a subsidiary of a holding company may use consolidated holding company financial statements to satisfy the audited financial statements requirement of part 363 regardless of whether the assets of the insured depository institution subsidiary or subsidiaries of the holding company represent substantially all or only a minor portion of the holding company's consolidated total assets. When the assets of insured depository institution subsidiaries do not comprise a substantial portion of a holding company's consolidated total assets, the FDIC staff has found that the holding company's consolidated financial statements, including the accompanying notes to the financial statements, do not tend to provide sufficient information that is indicative of the financial position and results of operations of these institutions. Also, when the insured depository institution subsidiaries do not contribute significantly to the holding company's financial position and results of operations, the extent of audit coverage given to these institutions in the audit of the consolidated holding company may be limited. Such limited audit coverage would not be consistent with the purpose and intent of section 36 of the FDI Act, which focuses on insured depository institutions rather than holding companies. In this situation, the assurance that would be provided by an independent audit performed substantially at the level of the insured depository institution subsidiaries is not otherwise available. Therefore, given the differing characteristics of the holding companies that own insured depository institutions as well as the relationship of an insured depository institution's total assets to the consolidated total assets of its parent holding company, and in keeping with the intent and purpose of section 36 of the FDI Act, the FDIC is proposing to amend §§ 363.1(b)(1) and
(2)by revising the criteria for determining whether the audited financial statements requirement and the other requirements of part 363 may be satisfied at a holding company level. More specifically, to comply with the requirements of part 363 at the top-tier or any other mid-tier holding company level, the consolidated total assets of the insured depository institution (or the consolidated total assets of all insured depository institutions, regardless of size, if the top-tier or mid-tier holding company owns or controls more than one insured depository institution) would have to comprise 75 percent or more of the consolidated total assets of the top-tier or mid-tier holding company. The FDIC believes that this percentage-of-assets threshold should ensure that the extent of independent audit work performed at the insured depository institution level is sufficient to satisfy the intent of section 36 of the FDI Act, that is, the early identification of needed improvements in financial management at insured institutions. At the same time, this threshold would continue to provide flexibility to the vast majority of covered institutions that are part of a holding company structure with respect to the level at which they may comply with part 363. When determining an appropriate percentage-of-assets threshold for compliance with part 363 at a holding company level, the FDIC considered the range of percentage-of-assets ratios for insured institutions that are part of a holding company structure. The vast majority of insured institutions subject to part 363 that are in a holding company structure are subsidiaries of organizations where the assets of the insured depository institution subsidiaries of the holding company comprise 90 percent or more of the holding company's consolidated total assets. Of the remaining institutions subject to part 363 that are in a holding company structure, most are subsidiaries of organizations where the assets of the insured institutions comprise either between 75 and 90 percent or less than 25 percent of the top-tier parent company's consolidated total assets. Smaller numbers of institutions are subsidiaries of organizations where the assets of the insured institutions comprise from 25 to 50 percent or from 50 to 75 percent of the top-tier parent company's consolidated total assets. However, in a number of cases where the insured institution subsidiaries comprise less than 75 percent of the top-tier holding company's consolidated total assets, the insured institution subsidiaries that are subject to part 363 currently comply with the regulation at a mid-tier holding company level where the assets of the insured institution subsidiaries comprise 90 percent or more of the mid-tier holding company's consolidated total assets. Thus, these institutions would not need to change how they comply with part 363 in response to the establishment of the proposed 75 percent threshold, provided they continue to comply at the same mid-tier holding company level and this holding company continues to meet the 75 percent threshold. The FDIC recognizes that those institutions currently complying with part 363 at the holding company level that will not meet the proposed 75 percent of consolidated total assets threshold will incur additional costs from having to comply with the regulation at the institution level or at a suitable mid-tier holding company level. Nevertheless, the FDIC believes that the introduction of this percentage-of-assets threshold strikes an appropriate balance between insured institution financial data and audit coverage and the cost of compliance with part 363. As a related matter, guideline 3 to part 363, *Compliance by Holding Company Subsidiaries* , states that when a holding company submits audited consolidated financial statements and other reports or notices required by part 363 on behalf of any subsidiary institution, an accompanying cover letter should identify all subsidiary institutions to which the statements, reports, or other notices pertain. Because many cover letters received by the FDIC have not sufficiently identified these subsidiary institutions, the FDIC is proposing to amend guideline 3 to clarify what information should be included in the cover letter. For example, for a Part 363 Annual Report, the cover letter should identify the subsidiary institutions subject to part 363 included in the holding company's consolidated financial statements and state whether the other annual report requirements are being satisfied for these institutions at the holding company level or at the institution level. 3. Financial Reporting The FDIC is proposing to add a new § 363.1(c) and a new guideline 4A, *Financial Reporting,* to specify that “financial reporting” includes both financial statements prepared in accordance with generally accepted accounting principles and those prepared for regulatory reporting purposes. Also, as proposed, guideline 4A would clarify that financial statements prepared for regulatory reporting purposes consist of the schedules equivalent to the basic financial statements that are included in an institution's appropriate regulatory report and that financial statements prepared for regulatory reporting purposes do not include regulatory reports prepared by a non-bank subsidiary of a holding company or an institution. For example, if a bank holding company or an insured depository institution owns an insurance subsidiary, financial statements prepared for regulatory reporting purposes would not include any regulatory reports that the insurance subsidiary is required to submit to its appropriate insurance regulatory agency. These proposed amendments are consistent with explanatory guidance issued by the FDIC on this subject in December 1994 after reviewing the Part 363 Annual Reports submitted earlier that year, which was the first time these annual reports were required to be filed with the FDIC. 1 1 See FDIC Financial Institution Letter
(FIL)86-94, dated December 23, 1994. 4. Definitions The FDIC is proposing to add § 363.1(d), *Definitions,* to define several common terms used in part 363 and the guidelines. B. Annual Reporting Requirements (§ 363.2 and Guidelines 5-12) 1. Audited Financial Statements Consistent with sound management practices and the objective of internal control over financial reporting, the FDIC is proposing to amend § 363.2(a) to require that the annual financial statements reflect all material correcting adjustments identified by the independent public accountant. Financial statements issued by insured depository institutions that are public companies or by their parent holding companies that are public companies are already subject to such a requirement pursuant to section 401 of SOX. The FDIC believes this requirement should also apply to institutions subject to part 363 that are not public companies. 2. Management Report Contents Based on its review of management reports filed pursuant to part 363, the FDIC has noted differences in the content of these reports and insufficient information regarding the results of the assessments that management must perform. When management has identified material weaknesses in internal control over financial reporting or noncompliance with designated safety and soundness laws and regulations, these weaknesses and noncompliance have not always been disclosed. In addition, management's assessment of internal control over financial reporting has often failed to disclose the internal control framework used to perform the assessment of the effectiveness of these controls. It is not always evident from management's report whether controls over the preparation of the regulatory financial statements have been included within the scope of management's assessment. The omission of this information from an institution's management report reduces the usefulness of the report as a means of identifying needed improvements in financial management, which is the objective of section 36 of the FDI Act. The FDIC notes that the regulations adopted by the Securities and Exchange Commission
(SEC)in 2003 implementing the requirement in section 404 of SOX for a management report on internal control over financial reporting requires the identification of the internal control framework management used to evaluate the effectiveness of these controls and the disclosure of any identified material weakness. Accordingly, to provide clearer guidance on what should be included in the management report, the FDIC is proposing to expand § 363.2(b). As proposed, § 363.2(b) would require management's assessment of compliance with the designated safety and soundness laws and regulations to include a clear statement as to management's conclusion regarding compliance and disclose any noncompliance with such laws and regulations. In addition, amended § 363.2(b) would require management's assessment of internal control over financial reporting to identify the internal control framework that management used to make its evaluation, include a statement that the evaluation included controls over the preparation of regulatory financial statements, include a clear statement as to management's conclusion regarding the effectiveness of internal control over financial reporting, disclose all material weaknesses identified by management, and preclude management from concluding that internal control over financial reporting is effective if there are any material weaknesses. Because part 363 and its guidelines provide only limited guidance concerning the contents of the management report and the related signature requirements for this report, institutions and auditors have expressed interest in examples of acceptable reports. Therefore, to assist management of insured depository institutions in complying with the annual reporting requirements of § 363.2, the FDIC is proposing to add “Appendix B to Part 363—Illustrative Management Reports.” Proposed Appendix B would provide guidance regarding reporting scenarios that satisfy the annual reporting requirements of part 363, illustrative management reports, and an illustrative cover letter for use when an institution complies with the annual reporting requirements at the holding company level. The use of the wording in the illustrative management reports and cover letter would not be required. Regarding management's responsibility for assessing compliance with the designated safety and soundness laws and regulations, the FDIC is proposing to revise and update Table 1 to Appendix A of part 363 to reflect changes in these safety and soundness laws and regulations that have occurred since this table was last revised in 1997. 3. Management Report Signatures Section 36(b)(2) of the FDI Act requires an institution's management report to be signed by the chief executive officer and the chief accounting officer or chief financial officer. In its reviews of management reports, the FDIC has encountered inconsistencies between the level at which the management report components are being satisfied (insured depository institution level versus holding company level) and the corporate level of the officers who are signing the management report. More specifically, management reports are often not signed by the officers at the appropriate corporate level when the audited financial statements requirement is satisfied at the holding company level or when one or more of the components of the management report is satisfied at the holding company level and the remaining components of the management report are satisfied at the insured depository institution level. As a result, the FDIC believes institutions would benefit from clearer guidance regarding who must sign the management report. Therefore, the FDIC is proposing to add § 363.2(c) to specify which corporate officers must sign the management report and also the level of the corporate signers (i.e., insured depository institution level or the holding company level). 4. Institutions Merged Out of Existence Currently, part 363 does not exempt an institution that is merged out of existence after the end of its fiscal year but before the deadline for filing its Part 363 Annual Report from filing an annual report. Such institutions typically submit a written request for relief from the annual report filing requirement and the request is approved by the FDIC. To reduce regulatory burden and provide certainty for merging institutions, the FDIC is proposing to add guideline 5A, *Institutions Merged Out of Existence,* to explicitly provide relief from filing a Part 363 Annual Report to an institution that is merged out of existence after the end of its fiscal year, but before the deadline for filing its Part 363 Annual Report. However, a covered institution that is acquired after the end of its fiscal year, but retains its separate corporate existence rather than being merged out of existence, would continue to be required to file a part 363 Annual Report for that fiscal year. 5. Management's Assessment of the Effectiveness of Internal Control Over Financial Reporting The FDIC has publicly advised institutions with $1 billion or more in total assets that are public companies or subsidiaries of public companies that they have considerable flexibility in determining how best to satisfy the SEC's requirements for management's assessment of internal control over financial reporting which implement section 404 of SOX, and the FDIC's requirements in part 363. 2 The reporting flexibility available to institutions subject to both the section 404 and the part 363 requirements was initially described in the preamble to the SEC's section 404 final rule release (68 FR 36642, June 18, 2003). This final rule release explained that the flexible reporting approach described in the preamble had been developed by the SEC staff in consultation with the staff of the federal banking agencies. To codify this reporting flexibility in part 363, the FDIC is proposing to add guideline 8A, *Management's Assessment of the Effectiveness of Internal Control Over Financial Reporting.* For an institution with $1 billion or more in total assets that is subject to both part 363 and the SEC's rules implementing section 404 of SOX (or whose parent holding company is subject to section 404 provided the condition in § 363.1(b)(2) is met), the proposed guideline describes two options for complying with the filing requirements regarding management's report on internal control over financial reporting. These options are to prepare
(1)a separate report to satisfy the FDIC's part 363 requirements and prepare a separate report to satisfy the SEC's section 404 requirements, or
(2)a single report that satisfies all of the FDIC's part 363 requirements and all of the SEC's section 404 requirements. 2 70 FR 71231, November 28, 2005; 70 FR 44295, August 2, 2005; FDIC Financial Institution Letter
(FIL)137-2004, December 21, 2004. 6. Internal Control Reports for Acquired Businesses Currently, under the reporting requirements of part 363, both management's and the related independent public accountant's evaluation of an institution's internal control over financial reporting must include controls at an institution in its entirety, including all of its consolidated businesses, including businesses that were recently acquired. However, the FDIC recognizes that it may not always be possible for management to conduct an evaluation of the internal control over financial reporting of an acquired business in the period between the consummation date of the acquisition and the due date of management's internal control evaluation. For public companies subject to the internal control reporting requirements of section 404 of SOX, the SEC staff has also acknowledged that conducting an internal control evaluation of such an acquired business may not always be possible. This led the SEC staff to provide guidance to public companies stating that the staff would not object to the exclusion of the acquired business from management's evaluation of internal control over financial reporting, provided certain disclosures are made and other conditions are met. 3 The FDIC has received several written requests from institutions subject to the internal control reporting requirements of part 363 concerning their ability to exclude recently acquired businesses from the scope of management's internal control evaluation as of the end of the year of the acquisition. The FDIC staff has granted such requests for relief subject to the same disclosure parameters and other conditions that are laid out in the SEC staff's guidance on this matter. 3 See Question 3 in the SEC staff's *Frequently Asked Questions on Management's Report on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports* at *http://www.sec.gov/info/accountants/controlfaq1004.htm.* To reduce regulatory burden, including the burden of submitting written requests to the FDIC, and provide certainty to institutions, the FDIC is proposing to add guideline 8B, *Internal Control Reports for Acquired Businesses,* to explicitly provide relief from the reporting requirements regarding internal control over financial reporting related to business acquisitions made by an institution during its fiscal year. As proposed and consistent with the SEC staff's guidance, guideline 8B would permit management's evaluation of internal control over financial reporting to exclude internal control over financial reporting for the acquired business, provided management's report identifies the acquired business, states that the acquired business is excluded from management's evaluation of internal control over financial reporting, and indicates the significance of the acquired business to the institution's consolidated financial statements. Also, proposed guideline 8B would clarify that if the acquired business is an insured depository institution that is subject to part 363 and it is not merged out of existence before the deadline for filing its Part 363 Annual Report, the acquired business (institution) must continue to comply with all of the applicable requirements of part 363. 7. Standards for Internal Control At present, guideline 10, *Standards for Internal Control* , provides that each institution should determine its own standards for establishing, maintaining, and assessing the effectiveness of its internal control over financial reporting. However, the guideline does not describe the characteristics of a suitable internal control framework. Accordingly, the FDIC is proposing to amend guideline 10 to provide guidance regarding the attributes of a suitable internal control framework to be used by management in its evaluation of an institution's internal control over financial reporting. Recognizing that a significant percentage of institutions subject to part 363 or their parent holding companies are also subject to the internal control reporting requirements of section 404 of SOX, the attributes described in amended guideline 10 are consistent with the attributes the SEC described in the preamble to the SEC's section 404 final rule release (68 FR 36648, June 18, 2003). The FDIC believes that a framework with these attributes is appropriate for all institutions whether or not they are public companies. C. Independent Public Accountant (§ 363.3 and Guidelines 13-21) 1. Internal Control Over Financial Reporting As with its experience in reviewing the portion of the management report in which management provides its assessment of the effectiveness of the institution's internal control over financial reporting, the FDIC has found some independent public accountants' internal control attestation reports to be less than sufficiently informative. Such attestation reports are, therefore, inconsistent with the objectives of section 36 of the FDI Act. As a consequence, the FDIC is proposing to amend § 363.3(b), which governs the independent public accountant's report on internal control over financial reporting, to specify that, consistent with generally accepted standards for attestation engagements, the Public Company Accounting Oversight Board's (PCAOB) auditing standards, and related PCAOB staff implementation guidance, the accountant's report must: • Not be dated prior to the date of management's report on its assessment of the effectiveness of internal control over financial reporting; • Identify the internal control framework that the accountant used to make the evaluation (which must be the same as the internal control framework used by management); • Include a statement that the accountant's evaluation included controls over the preparation of regulatory financial statements; • Include a clear statement as to the accountant's conclusion regarding the effectiveness of internal control over financial reporting; • Disclose all material weaknesses identified by the accountant; and • Conclude that internal control is ineffective if there are any material weaknesses. The FDIC is also proposing to amend guideline 18, *Attestation Report* , to be consistent with § 363.3(b)(2) by reiterating that the attestation report on internal control over financial reporting should include a statement as to regulatory reporting. 2. Communications With Audit Committee According to section 204 of SOX, an accountant who audits a public company's financial statements should report on a timely basis to the company's audit committee:
(1)All critical accounting policies,
(2)alternative accounting treatments discussed with management, and
(3)written communications provided to management, such as a management letter or schedule of unadjusted differences. These reporting requirements are intended to strengthen the relationship between the audit committee and the accountant. The FDIC has previously stated that effective communication between the accountant who audits the institution's financial statements and the institution's audit committee assists the audit committee in carrying out its responsibilities. For this reason, the FDIC encouraged institutions, regardless of whether they are public companies or not, to arrange with their accountant to institute these reporting practices. 4 Requirements that are similar, but not identical, to those set forth in section 204 apply to accountants who audit the financial statements of entities that are not public. 5 Therefore, consistent with current best practices and standards for audits of both public and non-public entities, the FDIC is proposing to amend part 363 by adding § 363.3(d), *Communications with audit committee* , to set a uniform minimum requirement for such communication. As proposed, § 363.3(d) would require the independent public accountant to report the information identified in section 204 of SOX to the audit committee. 4 See FDIC Financial Institution Letter
(FIL)17-2003, dated March 5, 2003. 5 See Statement on Auditing Standards No. 114, *The Auditor's Communication With Those Charged With Governance* , December 2006. 3. Retention of Working Papers Section 36(g)(3)(A) of the FDI Act states that an independent public accountant who performs audit services required by section 36 must agree to provide related working papers to the FDIC, any appropriate federal banking agency, and any state bank supervisor. However, when seeking to review audit working papers, the FDIC has previously encountered situations where the working papers had been retained for only a limited number of years. The SEC's rules and the PCAOB's auditing standards implementing sections 802 and 103 of SOX, respectively, now specify a 7-year retention period for audit working papers. The American Institute of Certified Public Accountants' (AICPA) auditing standards provide that the retention period for audit working papers should not be shorter than five years. 6 Since the retention period applicable to audits of public companies is seven years, the FDIC believes that a uniform retention period should apply to audits of all institutions subject to part 363. Accordingly, consistent with the current practices and professional standards for audits of both public and non-public entities, the FDIC is proposing to amend part 363 by adding § 363.3(e), *Retention of working papers.* As proposed, § 363.3(e) would require the independent public accountant to retain the working papers related to its audit of the financial statements and, if applicable, its evaluation of internal control over financial reporting for seven years. 6 See Statement on Auditing Standards No. 103, *Audit Documentation* , December 2006. 4. Independence Section 36 of the FDI Act states that an “independent public accountant” must perform the audit and attestation services required by section 36 but it does not define “independent,” leaving this to the FDIC's rulemaking authority. As adopted by the FDIC in 1993, part 363 includes guideline 14, *Independence,* which identifies the independence standards applicable to accountants performing services under section 36 and part 363. In 2003, the agencies jointly issued rules of practice to implement the enforcement provisions of section 36(g)(4), which authorize the FDIC or an appropriate federal banking agency to remove, suspend, or bar an accountant, for good cause, from performing audit and attestation services for institutions subject to section 36 and part 363. 7 To enhance the enforceability of the independence standards with which an accountant must comply for purposes of part 363, the FDIC is proposing to move the independence requirements for independent public accountants from guideline 14, *Independence* , to new § 363.3(f), *Independence* . As proposed, § 363.3(f) would also clarify that the independent public accountant must comply with the independence standards and interpretations of the PCAOB that have been approved by the SEC in addition to the independence standards and interpretations of the AICPA and the SEC. 7 68 FR 48256, August 13, 2003. 5. Peer Reviews Section 36(g)(3)(A)(ii) of the FDI Act requires an independent public accountant to have received a peer review or be enrolled in a peer review program that meets acceptable guidelines. At present, guideline 15 to part 363 provides that to be acceptable, a peer review should, among other things, be generally consistent with AICPA standards. Since part 363 was originally adopted, the PCAOB has been created and conducts inspections of registered public accounting firms, some of which audit insured depository institutions subject to part 363 or their parent holding companies. These inspections serve a similar purpose as peer reviews. In addition, the PCAOB issues reports on its inspections of these accounting firms. In response to this development and in light of the agencies' issuance of rules of practice implementing the enforcement provisions of section 36, as mentioned above, the FDIC is proposing to add new § 363.3(g) on peer reviews. The FDIC would move the requirements for peer reviews and retention of the peer review working papers from guideline 15, *Peer Reviews* , to § 363.3(g). In addition, the requirements for filing peer review reports would be moved to new § 363.3(g) from guideline 16, *Filing Peer Review Reports* . As proposed, § 363.3(g) would also clarify that acceptable peer reviews include peer reviews performed in accordance with the AICPA's Peer Review Standards and inspections conducted by the PCAOB. It would also provide that the FDIC would not make available for public inspection the portion of any peer review report and inspection report determined to be nonpublic by the AICPA and the PCAOB, respectively. Finally, the FDIC is proposing to revise guideline 15 to explain that a peer review, other than a PCAOB inspection, should be generally consistent with AICPA Peer Review Standards. 6. Notice of Termination Guideline 26, *Notices Concerning Accountants* , permits an institution that is a public company or a subsidiary of a public company to satisfy the requirement for filing a notice of termination of its independent public accountant by using its current report ( *e.g.* , SEC Form 8-K) concerning a change in accountant to satisfy the similar notice requirements of part 363. To reduce regulatory burden and provide flexibility to the independent public accountant of such an institution, the FDIC is proposing to amend guideline 20, *Notice of Termination* , to permit the independent public accountant to satisfy the requirement to file a notice of termination of its services in a similar manner. As proposed, the independent public accountant generally could satisfy the part 363 notice requirement by
(1)submitting the letter it provided to management to be filed with the institution's or the holding company's current report filed with the SEC or the appropriate federal banking agency or
(2)relying on the institution's or the holding company's current report filed by management with the FDIC that includes the independent public accountant's notice of termination of its services, provided the independent public accountant confirms that management has filed a current report that includes the accountant's letter to satisfy the requirements of § 363.3(c). D. Filing and Notice Requirements (§ 363.4 and Guidelines 22-26) 1. Annual Reporting Currently, the annual reporting requirements of part 363 require each insured depository institution to file its Part 363 Annual Report within 90 days after the end of its fiscal year. Part 363 also requires each institution to file the independent public accountant's report on the audited financial statements and, if applicable, the accountant's attestation report on management's assessment of internal control over financial reporting, both of which are components of the Part 363 Annual Report, within 15 days of receipt by the institution, which can present a conflict with the annual report filing requirement. The FDIC is also aware of the impact that earlier filing deadlines established by the SEC for annual reports filed by certain public companies under the federal securities laws ( *e.g.* , SEC Form 10-K) and more robust auditing standards related to internal control over financial reporting have had on the management of institutions, on the resources of independent public accountants, and on auditing costs. To reduce cost and burden, the FDIC is proposing to amend § 363.4(a) by extending the time period within which an insured depository institution that is not a public company or a subsidiary of a public company must file its Part 363 Annual Report from within 90 days to within 120 days after the end of its fiscal year. An insured depository institution that is a public company, or that is a subsidiary of a public company that meets certain criteria, would continue to be required to file its Part 363 Annual Report within 90 days after the end of its fiscal year, which is consistent with the maximum time frame that public companies have for filing annual reports under the federal securities laws. The FDIC would also eliminate the ambiguity in § 363.4 concerning the filing deadline for the components of the Part 363 Annual Report that are prepared by the independent public accountant. An insured depository institution with consolidated total assets of less than $1 billion that is a public company or a subsidiary of a public company is required to file management's assessment of the effectiveness of internal control over financial reporting with the SEC or the appropriate federal banking agency in accordance with the compliance dates of the SEC's rules implementing section 404 of SOX. Management's findings and conclusions with respect to internal control over financial reporting, as disclosed in the assessment that management files with the SEC or the appropriate federal banking agency, provide information that would aid in meeting the objective of section 36 of the FDI Act. Therefore, the FDIC is proposing to add a provision to § 363.4(a) that would require an institution of this size to submit a copy of management's section 404 internal control assessment with its Part 363 Annual Report, but this assessment will not be considered part of the institution's Part 363 Annual Report. 2. Independent Public Accountant's Reports Section 36(h)(2)(A) of the FDI Act and § 363.4(c) require an institution to file a copy of any management letter or other report issued by its independent public accountant that pertains to the financial statement audit and the attestation on internal control over financial reporting within 15 days after receipt by the institution. The FDIC's experience in administering part 363 indicates that institutions are often uncertain as to which types of reports they receive from their independent public accountant must be submitted to the FDIC, the appropriate federal banking agency, and any appropriate state bank supervisor pursuant to this filing requirement. As stated above, this uncertainty extends to this 15-day filing requirement and its relationship to the filing deadline for the Part 363 Annual Report. To clarify the requirements for the filing of accountants' reports, the FDIC is proposing to amend § 363.4(c), *Independent public accountant's letters and reports* , by providing examples of the types of reports issued by an institution's independent public accountant, except for the accountant's reports that are required to be included in the institution's Part 363 Annual Report, that are to be filed within 15 days after receipt. Guideline 25, *Independent Accountant's Reports* , would be deleted because it would be redundant and no longer needed. In *the Interagency Advisory on the Unsafe and Unsound Use of Limitation of Liability Provisions in External Audit Engagement Letters* , the federal banking agencies expressed their concerns about limitation of liability provisions included in external audit engagement letters and advised institutions against entering into engagement letters containing such provisions. 8 To enable the FDIC to timely review institutions' engagement letters with their independent public accountants, the FDIC is also proposing to amend § 363.4(c) to require institutions to file copies of audit engagement letters, including any related agreements and amendments, with the FDIC, the appropriate federal banking agency, and any appropriate state bank supervisor within 15 days of acceptance by the institution. 8 71 FR 6847, February 9, 2006. 3. Notification of Late Filing Guideline 23, *Relief from Filing Deadlines* , currently provides that in the occasional event that an institution is confronted with extraordinary circumstances beyond its reasonable control that justifies an extension of the deadline for filing its Part 363 Annual Report or another required report or notice, the institution may submit a written request for an extension of the filing deadline of not more than 30 days that explains the reasons for the request. Such a request may be granted for good cause. Over the last several years, the reasons set forth in the requests for extensions of time for filing Part 363 Annual Reports that have been submitted to the FDIC generally did not represent extraordinary circumstances beyond the institution's reasonable control, the standard currently set forth in guideline 23. Also, several extension requests were repeats of requests from the same institutions from the previous year. Based upon this experience and given the proposed amendment to § 363.4(a) to extend the filing deadline for Part 363 Annual Reports for non-public institutions from 90 to 120 days, the FDIC is proposing to replace the extensions of time for filing reports that are available only in extraordinary circumstances under guideline 23 with a new § 363.4(e), *Notification of late filing.* In place of filing extensions that have limited applicability, this new section would be applicable to all institutions and would require an institution that is unable to timely file all or any portion of its Part 363 Annual Report or any other report or notice to submit a written notice of late filing before the filing deadline for the report or notice. The late filing notice shall disclose the institution's inability to timely file all or specified portions of its Part 363 Annual Report or other report or notice, the reasons therefore in reasonable detail, and the date when the report or notice will be filed. The FDIC is also proposing to amend guideline 23 by changing its focus from extension requests to late filing notices consistent with the approach taken in new § 363.4(e). Amended guideline 23 would explain that submitting a late filing notice would not cure the apparent violation of part 363 arising from an institution's failure to timely file a Part 363 Annual Report or any other required report or notice. The supervisory response to such an apparent violation would take into account the facts and circumstances surrounding an institution's delay in filing. As proposed, guideline 23 would also provide that, if the late filing applies to only a portion of the Part 363 Annual Report or any other report or notice, the components of the report or notice that have been completed should be filed within the prescribed filing period accompanied by either a cover letter that indicates which components are omitted or a combined late filing notice and cover letter. 4. Place for Filing Current guideline 22 identifies the office of the FDIC, the appropriate federal banking agency, and the appropriate state bank supervisor to which reports and notices (other than peer review reports) required by part 363 are to be filed. Nevertheless, the FDIC has found that some institutions submit required reports and notices to incorrect locations. The FDIC staff also receives questions from institutions asking where reports and notices should be filed. To make the information as to where Part 363 Annual Reports, written notices of late filing, and other reports and notices (except peer review reports) are to be filed more prominent, the FDIC is proposing to move this information from guideline 22, *Place for Filing* , to a new § 363.4(f), *Place for filing.* E. Audit Committees (§ 363.5 and Guidelines 27-35) 1. Composition Section 36(g)(1) of the FDI Act and § 363.5(a) require each insured depository institution subject to part 363 to have an independent audit committee comprised entirely of outside directors. As defined in § 363.5(a)(3), in general, an outside director is a director who is not an officer or employee of the institution or any affiliate of the institution. In addition, the outside directors who serve on the audit committee must be “independent of management,” although a minority of the audit committee members of institutions with $500 million or more but less than $1 billion in total assets need not be “independent of management.” According to guideline 27, *Composition* , each institution's board of directors is responsible for determining at least annually whether existing and potential audit committee members satisfy the requirements governing audit committee composition. Guidelines 28 and 29 set forth certain factors for boards of directors to consider in determining whether an outside director is “independent of management.” In order for a board of directors to perform its evaluation of audit committee members in a consistent, effective, and reviewable manner, the FDIC believes the board should be guided by an approved policy or set of criteria that identifies the factors to be taken into account by the board. Accordingly, the FDIC is proposing to amend guideline 27 to state that an institution's board of directors should maintain and use an approved set of written criteria for evaluating audit committee member independence and that the results of and basis for the board's determination with respect to each existing and potential audit committee member should be recorded in the board's minutes. Guideline 30, *Holding Company Audit Committees* , provides guidance for complying with the audit committee requirements of part 363 at the holding company level. The FDIC is proposing to amend guideline 30 for consistency with the proposed revisions to the holding company provisions of § 363.1(b) and to reflect the difference in the audit committee composition requirements in § 363.5(a) for institutions with more than and less than $1 billion in total assets. 2. “Independent of Management” Considerations Guideline 28, *“Independent of Management”* Considerations, identifies five factors for a board of directors to consider when determining the independence of an outside director. Guideline 29, *Lack of Independence* , states that a director who owns or controls 10 percent or more of any class of the institution's voting securities should not be considered “independent of management.” The FDIC has found that some of the factors in guideline 28 are so general that they fail to provide meaningful guidance to boards of directors. At the same time, many of the institutions subject to part 363 or their parent holding companies are public companies with securities listed on a national securities exchange. Under the SEC's Rule 10A-3 (17 CFR § 240.10A-3), each audit committee member of a listed issuer must be a director of the issuer and must otherwise be independent. The listing standards of the national securities exchange must set forth the criteria for determining the independence of directors who are to serve on a listed issuer's audit committee. Based on its review, the FDIC believes that the independence criteria for audit committee members included in the listing standards of the national securities exchanges, together with the FDIC's existing stock ownership criterion in guideline 29, represent an appropriate framework for determining whether an outside director is “independent of management” for purposes of part 363. Furthermore, for an institution whose audit committee members or whose parent holding company's audit committee members, if the holding company meets the holding company provisions of § 363.1(b), are subject to the listing standards of a national securities exchange, allowing the institution to use these standards for part 363 purposes will reduce the institution's burden. Therefore, the FDIC is proposing to combine guidelines 28 and 29 and provide expanded guidance for an institution's board of directors to use in its assessment of an outside director's relationship to the institution for the purposes of making “independent of management” determinations regarding audit committee members. For example, the proposed amendment to guideline 28 includes a list of criteria that an institution's board of directors should consider when determining whether an outside director would be considered “independent of management.” In developing the proposed list of criteria, the FDIC considered the portion of the listing standards of the national securities exchanges that apply to audit committees. An institution's board of directors may also conclude that it should consider additional criteria that may be appropriate in its particular circumstances. As an alternative to the listed criteria, proposed guideline 28 would permit an institution that is a public company or that is a subsidiary of a public company, when the holding company provisions of § 363.1(b) are met, to apply the audit committee provisions of the listing standards of the national securities exchange on which the public institution or its public parent company is listed for purposes of determining audit committee member independence. Similarly, all other institutions, including those that are not public companies, may elect to use the audit committee provisions of the listing standards of a national securities exchange or association for determining audit committee member independence. 3. Duties According to section 36(g)(1)(B) of the FDI Act and § 363.5(a), an audit committee's duties include reviewing the basis for the Part 363 Annual Report with both management and the independent public accountant. Guideline 31 further provides that the audit committee's duties should be appropriate to the size of the institution and the complexity of its operations and it identifies additional duties that could be appropriate for the audit committee. These additional duties include discussing with management the selection and termination of the institution's independent public accountant. In addition, guideline 26 provides that, before engaging an independent public accountant, an institution should review and satisfy itself that the accountant is in compliance with the required qualifications set forth in guidelines 13 through 15, including the accountant's independence and receipt of a peer review. Under section 301 of SOX, the audit committee of each public company listed on a national securities exchange or association must be responsible for the appointment, compensation, and oversight of the accounting firm engaged to prepare or issue an audit report or perform related work. As the SEC noted when it adopted its final rule implementing section 301, “the auditing process may be compromised when a company's outside auditors view their responsibility as serving the company's management rather than its full board of directors or audit committee. This may occur if the auditor views management as the employer with hiring, firing and compensating powers. Under these conditions, the auditor may not have the appropriate incentive to raise concerns and conduct an objective review. * * * One way to help promote auditor independence, then, is for the auditor to be hired, evaluated and, if necessary, terminated by the audit committee.” Because the intent and purpose of section 36 of the FDI Act is the early identification of needed improvements in financial management, it is critical for the accountants that perform audit and attestation services for insured depository institutions subject to section 36 to have an appropriate incentive to raise concerns and conduct an objective review. In this regard, the FDIC believes it is a sound corporate governance practice for an institution's audit committee, rather than its management, to be responsible for the appointment, compensation, and oversight of the accountant, regardless of whether the institution is a public company. Therefore, the FDIC is proposing to amend § 363.5(a), *Composition and duties* , and guideline 31, *Duties* , to specify that, in addition to reviewing with management and the independent public accountant the basis for the reports issued under part 363, the duties of the audit committee include the appointment, compensation, and oversight of the independent public accountant who performs services required under part 363. In order to discharge these duties with respect to the independent public accountant, the audit committee should also review and satisfy itself as to the independent public accountant's compliance with the independence, peer review, and other qualifications under part 363. Additionally, the audit committee should be familiar with and ensure management's compliance with the requirement to file notices concerning the engagement, resignation, or dismissal of an independent public accountant. The FDIC is proposing to include these duties in guideline 31. 4. Independent Public Accountant Engagement Letters In response to an observed increase in the types and frequency of provisions in financial institutions' external audit engagement letters that limit the auditors' liability, the federal banking agencies issued an *Interagency Advisory on the Unsafe and Unsound Use of Limitation of Liability Provisions in External Audit Engagement Letters* (Interagency Advisory) in February 2006. 9 When they issued the Interagency Advisory, the agencies stated their belief that when institutions agree to limit their external auditors' liability in provisions in engagement letters, such provisions may weaken the external auditors' objectivity, impartiality, and performance, which may reduce the reliability of audits and thereby raise safety and soundness concerns. The reliability of audits is central to achieving the intent and purpose of section 36 of the FDI Act. Therefore, the FDIC is proposing to add § 363.5(c), *Independent public accountant engagement letters* , and amend guideline 31, *Duties* , to incorporate the principal provisions of the Interagency Advisory. 9 See 71 FR 6847, February 9, 2006, and FDIC Financial Institution Letter
(FIL)13-2006, issued on the same date. The Federal Financial Institutions Examination Council on behalf of the agencies issued the Interagency Advisory in proposed form for public comment on May 10, 2005 (70 FR 24576). As proposed, § 363.5(c) and guideline 31 would require the audit committee to ensure that audit engagement letters and any related agreements with the independent public accountant for services to be performed under part 363 do not contain any limitation of liability provisions that:
(1)Indemnify the independent public accountant against claims made by third parties;
(2)hold harmless or release the independent public accountant from liability for claims or potential claims that might be asserted by the client insured depository institution, other than claims for punitive damages; or
(3)limit the remedies available to the client insured depository institution. Consistent with the Interagency Advisory, the proposed amendment would not preclude the use of alternative dispute resolution agreements and jury trial waivers. 5. Transition Period for Forming and Restructuring Audit Committees When an insured depository institution first exceeds the $500 million total assets threshold and becomes subject to part 363, particularly an institution with few shareholders, the FDIC has observed that, in some cases, such an institution encounters difficulty in satisfying the requirements governing the composition of the independent audit committee. If the board of directors lacks a sufficient number of outside directors who are independent of management to serve on the audit committee, the board members must identify and attract qualified individuals in their community who would be willing to become directors and audit committee members and who would be “independent of management.” The lack of guidance in part 363 on the amount of time in which an institution must bring its audit committee into compliance with the requirements governing its composition when an institution first becomes subject to part 363 further complicates this process. This lack of guidance on the time frame for attaining compliance also affects the other two asset-size thresholds applicable to audit committee composition. To provide both clarity and regulatory relief, the FDIC is proposing to replace outdated guideline 35, which dealt with compliance with the audit committee requirements of part 363 when the regulation took effect in 1993, with a revised guideline 35, “ *Transition Period for Forming and Restructuring Audit Committees* .” As proposed, guideline 35 would provide a one-year transition period for forming or restructuring the audit committee when an institution first becomes subject to part 363, when an institution's assets first reach the$1 billion asset-size threshold, and when an institution's assets first reach the $3 billion asset-size threshold. The proposed revised guideline would state that, when an institution first crosses one of these three thresholds based on its total assets at the beginning of its fiscal year, no regulatory action would be taken if the institution forms or restructures its audit committee to comply with the applicable requirements governing the composition of the committee by the end of that fiscal year, provided the institution complied with any applicable audit committee requirements for its preceding fiscal year. F. Other Changes to Part 363 The FDIC also proposes to make other changes to part 363 to improve its clarity, readability, and consistency of language, and to correct or eliminate outdated terms, references, and provisions in the regulation and appendix A. G. Proposed Amendment to Part 308, Subpart U In August 2003, pursuant to section 36(g)(4) of the FDI Act, the FDIC and the other federal banking agencies jointly issued final rules governing their authority to take disciplinary actions against independent public accountants and accounting firms that perform audit and attestation services required by section 36. 10 Under the final rules, certain violations of law, negligent conduct, reckless violation of professional standards, or lack of qualifications to perform auditing services may be considered good cause to remove, suspend, or bar an accountant or firm from providing audit and attestation services for institutions subject to section 36. The rules also prohibit an accountant or accounting firm from performing these services if the accountant or firm has been removed, suspended, or debarred by one of the agencies, or if the SEC or PCAOB takes certain disciplinary actions against the accountant or firm. Additionally, the final rules require an accountant or an accounting firm to provide the agencies with written notification of the accountant's or firm's removal, suspension, or debarment. Part 308, subpart U, of the FDIC's rules and regulations implements the requirements of section 36(g)(4) of the FDI Act for institutions that are supervised by the FDIC. The FDIC is proposing to amend § 308.604(c) to identify the FDIC location where an accountant or accounting firm should file required notices of orders and actions regarding removal, suspension, or debarment. 10 See 68 FR 48256, April 13, 2003, and the FDIC's Financial Institution Letter
(FIL)FIL-66-2006, dated August 18, 2003. IV. Request for Comments The FDIC welcomes comments on all aspects of this proposal. In particular, the FDIC invites comments on the following: 1. As proposed, the rule would require management's assessment of compliance with designated safety and soundness laws and regulations to include a clear statement as to management's conclusion regarding compliance and disclose any noncompliance with such laws and regulations. The designated safety and soundness laws and regulations relate to loans to insiders and dividend restrictions. Management's assessment of compliance is included in the management report within the Part 363 Annual Report, which is available for public inspection. Should the disclosure of instances of noncompliance with these designated laws and regulations be made available for public inspection or should the FDIC designate such disclosure as privileged and confidential and not available to the public? 2. As proposed, the rule would require the total assets of a holding company's insured depository institution subsidiaries to comprise 75 percent or more of the holding company's consolidated total assets as of the beginning of its fiscal year in order for an institution to comply with part 363 at the holding company level. The holding company could be the institution's top-tier or any mid-tier holding company that meets the 75 percent threshold. Considering the costs and benefits of a threshold, is 75 percent or more of consolidated total assets an appropriate threshold? If not, what would be an appropriate threshold to use for compliance with part 363 at a holding company level? V. Solicitation of Comments on Use of Plain Language Section 722 of the Gramm-Leach-Bliley Act, Pub. L. 106-102, sec. 722, 113 Stat. 1338, 1471 (Nov. 12, 1999), requires the federal banking agencies to use plain language in all proposed and final rules published after January 1, 2000. We invite your comments on how to make this proposal easier to understand. For example: • Have we organized the material to suit your needs? If not, how could this material be better organized? • Are the requirements in the proposed regulation clearly stated? If not, how could the regulation be more clearly stated? • Does the proposed regulation contain language or jargon that is not clear? If so, which language requires clarification? • Would a different format (grouping and order of sections, use of headings, paragraphing) make the regulation easier to understand? If so, what changes to the format would make the regulation easier to understand? • What else could we do to make the regulation easier to understand? VI. Solicitation of Comments on Impact on Community Banks The FDIC seeks comments on the impact of this proposal on community banks. The FDIC recognizes that community banks operate with more limited resources than larger institutions and may present a different risk profile. Thus, the FDIC specifically requests comments on the impact of the proposal on community banks' current resources, including personnel, and whether the goals of the proposed rule could be achieved, for community banks, through an alternative approach. VII. Regulatory Flexibility Act Analysis The Regulatory Flexibility Act
(RFA)requires that each federal agency either certify that a proposed rule would not, if adopted in final form, have a significant economic impact on a substantial number of small entities or prepare an initial regulatory flexibility analysis
(IRFA)of the proposal and publish the analysis for comment. See 5 U.S.C. 603, 605. The Small Business Administration
(SBA)defines small banks as those with less than $165 million in assets. Because this rule expressly exempts insured depository institutions having assets of less than $500 million, it is inapplicable to small entities as defined by the SBA. Therefore, it is certified that this proposed rule would not have a significant economic impact on a substantial number of small entities. VIII. Paperwork Reduction Act This proposed rule would revise a collection of information that has been reviewed and approved by the Office of Management and Budget
(OMB)under control number 3064-0113, pursuant to the Paperwork Reduction Act (44 U.S.C. 3501 *et seq* ). The principal revisions that bear on the collection of information under part 363 are the extension of the filing deadline for the Part 363 Annual Report from 90 to 120 days after the end of the fiscal year for an institution that is not a public company or a subsidiary of a public company, the replacement of 30-day extension requests (when an institution is confronted with extraordinary circumstances beyond its reasonable control) with late filing notices (regardless of the reason), the modification of the criteria governing the acceptability of reports at the holding company level rather than at the institution level, the expanded guidance on the content of the management report and the independent public accountant's internal control attestation report, the board of directors' use of an approved set of written criteria for determining whether an audit committee member is an outside director and is “independent of management,” and the new guidelines for institutions merged out of existence and for internal control reports for acquired businesses. It is anticipated that the overall effect of these changes will be a small burden increase for affected insured institutions. Comments are invited on:
(a)Whether this collection of information is necessary for the proper performance of the FDIC's functions, including whether the information has practical utility;
(b)the accuracy of the estimates of the burden of the information collection;
(c)ways to enhance the quality, utility, and clarity of the information to be collected; and
(d)ways to minimize the burden of the information collection on respondents, including through the use of automated collection techniques or other forms of information technology. Comments should be addressed to Steven F. Hanft, Paperwork Clearance Officer, Room F-1062, Federal Deposit Insurance Corporation, 550 17th Street, NW., Washington, DC 20429, with copies to the OMB desk officer for the FDIC by mail to the Office of Information and Regulatory Affairs, U.S. Office of Management and Budget, New Executive Office Building, Room 10235, 725 17th Street, NW., Washington, DC 20503 or by fax to
(202)395-6974. The paperwork burden associated with this rule was last reviewed in 2005. At that time, the FDIC estimated the burden of this information collection to be 65,612 hours for FDIC-supervised institutions. Before giving effect to the proposed amendments, the estimated burden would be 79,721 hours, an adjustment of 14,109 hours attributable to an increase in the number of FDIC-supervised institutions subject to part 363. If the revisions in this proposed rule are implemented, the resulting estimated reporting burden for the collection of information would be 83,599 hours, a program increase of 3,878 hours over the adjusted burden of 79,721 hours. The most significant component of the increase is attributable to the proposed revised requirements related to audit committee composition. *Number of Respondents:* 5,230. *Total Annual Responses:* 16,231. *Total Annual Burden Hours:* 83,599. List of Subjects 12 CFR Part 308 Administrative practice and procedure, Bank deposit insurance, Banks, banking, Claims, Crime, Equal access to justice, Investigations, Lawyers, Penalties, State nonmember banks. 12 CFR Part 363 Accounting, Administrative practice and procedure, Banks, banking, Reporting and recordkeeping requirements. For the reasons set forth in the preamble, the Board of Directors of the FDIC proposes to amend title 12, chapter III, of the Code of Federal Regulations as follows: PART 308—RULES OF PRACTICE AND PROCEDURE 1. The authority citation for part 308 continues to read as follows: Authority: 5 U.S.C. 504, 554-557; 12 U.S.C. 93(b), 164, 505, 1815(e), 1817, 1818, 1820, 1828, 1829, 1829b, 1831i, 1831m(g)(4), 1831o, 1831p-1, 1832(c), 1884(b), 1972, 3102, 3108(a), 3349, 3909, 4717; 15 U.S.C. 78(h) and (i), 78o-4(c), 78o-5, 78q-1, 78s, 78u, 78u-2, 78u-3 and 78w, 6801(b), 6805(b)(1); 28 U.S.C. 2461 note; 31 U.S.C. 330, 5321; 42 U.S.C. 4012a; Sec. 3100(s), Pub. L. 104-134, 110 Stat. 1321-358. Subpart U—Removal, Suspension, and Debarment of Accountants From Performing Audit Services 2. Revise § 308.604(c) to read as follows: § 308.604 Notice of removal, suspension, or debarment.
(c)*Timing and place of notice* . Written notice required by this paragraph shall be given no later than 15 calendar days following the effective date of an order or action, or 15 calendar days before an accountant or accounting firm accepts an engagement to provide audit services, whichever date is earlier. The written notice must be filed by the independent public accountant or accounting firm with the FDIC, Accounting and Securities Disclosure Section, 550 17th Street, NW., Washington, DC 20429. 3. Revise part 363 to read as follows: PART 363—ANNUAL INDEPENDENT AUDITS AND REPORTING REQUIREMENTS Sec. 363.0 OMB control number. 363.1 Scope and definitions. 363.2 Annual reporting requirements. 363.3 Independent public accountant. 363.4 Filing and notice requirements. 363.5 Audit committees. Appendix A to Part 363—Guidelines and Interpretations Appendix B to Part 363—Illustrative Management Reports Authority: 12 U.S.C. 1831m. § 363.0 OMB control number. The information collection requirements in this part have been approved by the Office of Management and Budget under OMB control number 3064-0113. § 363.1 Scope and definitions.
(a)*Applicability* . This part applies to any insured depository institution with respect to any fiscal year in which its consolidated total assets at the beginning of such fiscal year are $500 million or more. The requirements specified in this part are in addition to any other statutory and regulatory requirements otherwise applicable to an insured depository institution.
(b)*Compliance by subsidiaries of holding companies* .
(1)The audited financial statements requirement of § 363.2(a) for any fiscal year may be satisfied for an insured depository institution that is a subsidiary of a holding company by audited consolidated financial statements of the top-tier or any mid-tier holding company provided that the consolidated total assets of the insured depository institution (or the consolidated total assets of all insured depository institutions, regardless of size, if the holding company owns or controls more than one insured depository institution) comprise 75 percent or more of the consolidated total assets of the holding company at the beginning of its fiscal year.
(2)The other requirements of this part for an insured depository institution that is a subsidiary of a holding company may be satisfied by the top-tier or any mid-tier holding company if the insured depository institution meets the criterion specified in § 363.1(b)(1) and if:
(i)The services and functions comparable to those required of the insured depository institution by this part are provided at the holding company level; and
(ii)The insured depository institution has as of the beginning of its fiscal year:
(A)Total assets of less than $5 billion; or
(B)Total assets of $5 billion or more and a composite CAMELS rating of 1 or 2.
(3)The appropriate federal banking agency may revoke the exception in paragraph (b)(2) of this section for any institution with total assets in excess of $9 billion for any period of time during which the appropriate federal banking agency determines that the institution's exemption would create a significant risk to the Deposit Insurance Fund.
(c)*Financial reporting* . For purposes of the management report requirement of § 363.2(b) and the internal control reporting requirement of § 363.3(b), “financial reporting” includes both financial statements prepared in accordance with generally accepted accounting principles and those prepared for regulatory reporting purposes.
(d)*Definitions* . For purposes of this part, the following definitions apply:
(1)*AICPA* means the American Institute of Certified Public Accountants.
(2)*GAAP* means generally accepted accounting principles.
(3)*PCAOB* means the Public Company Accounting Oversight Board.
(4)*Public company* means an insured depository institution or other company that has a class of securities registered with the U.S. Securities and Exchange Commission or the appropriate federal banking agency under Section 12 of the Securities Exchange Act of 1934.
(5)*SEC* means the U.S. Securities and Exchange Commission.
(6)*SOX* means the Sarbanes-Oxley Act of 2002. § 363.2 Annual reporting requirements.
(a)*Audited financial statements* . Each insured depository institution shall prepare annual financial statements in accordance with GAAP, which shall be audited by an independent public accountant. The annual financial statements must reflect all material correcting adjustments identified by the independent public accountant.
(b)*Management report* . Each insured depository institution annually shall prepare, as of the end of the institution's most recent fiscal year, a management report that must contain the following:
(1)A statement of management's responsibilities for preparing the institution's annual financial statements, for establishing and maintaining an adequate internal control structure and procedures for financial reporting, and for complying with laws and regulations relating to safety and soundness that are designated by the FDIC and the appropriate federal banking agency;
(2)An assessment by management of the insured depository institution's compliance with such laws and regulations during such fiscal year. The assessment must state management's conclusion as to whether the insured depository institution has complied with the designated safety and soundness laws and regulations during the fiscal year and disclose any noncompliance with these laws and regulations; and
(3)For an insured depository institution with consolidated total assets of $1 billion or more at the beginning of such fiscal year, an assessment by management of the effectiveness of such internal control structure and procedures as of the end of such fiscal year that must include the following:
(i)A statement identifying the internal control framework 1 used by management to evaluate the effectiveness of the insured depository institution's internal control over financial reporting; 1 In the United States, the Committee of Sponsoring Organizations
(COSO)of the Treadway Commission has published *Internal Control* — *Integrated Framework* , including an addendum on safeguarding assets. Known as the COSO report, this publication provides a suitable and available framework for purposes of management's assessment.
(ii)A statement that the assessment included controls over the preparation of regulatory financial statements in accordance with regulatory reporting instructions including identification of such regulatory reporting instructions; and
(iii)A statement expressing management's conclusion as to whether the insured depository institution's internal control over financial reporting is effective. Management must disclose all material weaknesses in internal control over financial reporting, if any, that it has identified. Management is precluded from concluding that the insured depository institution's internal control over financial reporting is effective if there are one or more material weaknesses.
(c)*Management report signatures* . Subject to the criteria specified in § 363.1(b):
(1)If the audited financial statements requirement specified in § 363.2(a) is satisfied at the insured depository institution level and the management report requirement specified in § 363.2(b) is satisfied in its entirety at the insured depository institution level, the management report must be signed by the chief executive officer and the chief accounting officer or chief financial officer of the insured depository institution;
(2)If the audited financial statements requirement specified in § 363.2(a) is satisfied at the holding company level and the management report requirement specified in § 363.2(b) is satisfied in its entirety at the holding company level, the management report must be signed by the chief executive officer and the chief accounting officer or chief financial officer of the holding company; and
(3)If the audited financial statements requirement specified in § 363.2(a) is satisfied at the holding company level and:
(i)The management report requirement specified in § 363.2(b) is satisfied in its entirety at the insured depository institution level; or
(ii)One or more of the components of the management report specified in § 363.2(b) is satisfied at the holding company level and the remaining components of the management report are satisfied at the insured depository institution level, the management report must be signed by the chief executive officers and the chief accounting officers or chief financial officers of both the holding company and the insured depository institution and the management report must clearly indicate the level (institution or holding company) at which each of its components is being satisfied. § 363.3 Independent public accountant.
(a)*Annual audit of financial statements* . Each insured depository institution shall engage an independent public accountant to audit and report on its annual financial statements in accordance with GAAP and section 37 of the Federal Deposit Insurance Act (12 U.S.C. 1831n). The scope of the audit engagement shall be sufficient to permit such accountant to determine and report whether the financial statements are presented fairly and in accordance with GAAP.
(b)*Internal control over financial reporting* . For each insured depository institution with total assets of $1 billion or more at the beginning of the institution's fiscal year, the independent public accountant who audits the institution's financial statements shall examine, attest to, and report separately on, the assertion of management concerning the effectiveness of the institution's internal control structure and procedures for financial reporting. The attestation and report shall be made in accordance with generally accepted standards for attestation engagements or the PCAOB's auditing standards, if applicable. The accountant's report must not be dated prior to the date of the management report and management's assessment of the effectiveness of internal control over financial reporting. The accountant's report must include the following:
(1)A statement identifying the internal control framework used by the independent public accountant, which must be the same as the internal control framework used by management, to evaluate the effectiveness of the insured depository institution's internal control over financial reporting;
(2)A statement that the independent public accountant's evaluation included controls over the preparation of regulatory financial statements in accordance with regulatory reporting instructions including identification of such regulatory reporting instructions; and
(3)A statement expressing the independent public accountant's conclusion as to whether the insured depository institution's internal control over financial reporting is effective. The report must disclose all material weaknesses in internal control over financial reporting that the independent public accountant has identified. The independent public accountant is precluded from concluding that the insured depository institution's internal control over financial reporting is effective if there are one or more material weaknesses.
(c)*Notice by accountant of termination of services* . An independent public accountant performing an audit under this part who ceases to be the accountant for an insured depository institution shall notify the FDIC and the appropriate federal banking agency in writing of such termination within 15 days after the occurrence of such event, and set forth in reasonable detail the reasons for such termination. The written notice shall be filed at the place identified in § 363.4(f).
(d)*Communications with audit committee* . The independent public accountant must report the following on a timely basis to the audit committee:
(1)All critical accounting policies used by the insured depository institution,
(2)Alternative accounting treatments the independent public accountant has discussed with management, and
(3)Other written communications the independent public accountant has provided to management, such as a management letter or schedule of unadjusted differences.
(e)*Retention of working papers* . The independent public accountant must retain the working papers related to the audit of the insured depository institution's financial statements and, if applicable, the evaluation of the institution's internal control over financial reporting for seven years, unless a longer period of time is required by law.
(f)*Independence* . The independent public accountant must comply with the independence standards and interpretations of the AICPA, the SEC, and the PCAOB.
(g)*Peer reviews* .
(1)Prior to commencing any services for an insured depository institution under this part, the independent public accountant must have received a peer review, or be enrolled in a peer review program, that meets acceptable guidelines. Acceptable peer reviews include peer reviews performed in accordance with the AICPA's Peer Review Standards and inspections conducted by the PCAOB.
(2)Within 15 days of receiving notification that a peer review has been accepted or a PCAOB inspection report has been issued, or before commencing any audit under this part, whichever is earlier, the independent public accountant must file two copies of the most recent peer review report and the most recent PCAOB inspection report, if any, accompanied by any letters of comments, response, and acceptance, with the FDIC, Accounting and Securities Disclosure Section, 550 17th Street NW., Washington, DC 20429, if the report has not already been filed. Except for the portions of any peer review report and inspection report determined to be nonpublic by the AICPA and the PCAOB, respectively, the report will be made available for public inspection by the FDIC. § 363.4 Filing and notice requirements.
(a)*Part 363 Annual Report* .
(1)Each insured depository institution shall file with each of the FDIC, the appropriate federal banking agency, and any appropriate state bank supervisor, two copies of its Part 363 Annual Report. A Part 363 Annual Report must contain audited comparative annual financial statements, the independent public accountant's report thereon, a management report, and, if applicable, the independent public accountant's attestation report on management's assessment concerning the institution's internal control structure and procedures for financial reporting as required by §§ 363.2(a), 363.3(a), 363.2(b), and 363.3(b), respectively.
(2)Subject to the criteria specified in § 363.1(b), each insured depository institution with consolidated total assets of less than $1 billion as of the beginning of its fiscal year that is required to file, or whose parent holding company is required to file, management's assessment of the effectiveness of internal control over financial reporting with the SEC or the appropriate federal banking agency in accordance with section 404 of SOX must submit a copy of such assessment to the FDIC, the appropriate federal banking agency, and any appropriate state bank supervisor with its Part 363 Annual Report as additional information. This assessment will not be considered part of the institution's Part 363 Annual Report.
(i)Each insured depository institution that is neither a public company nor a subsidiary of a public company that meets the criterion specified in § 363.1(b)(1) shall file its Part 363 Annual Report within 120 days after the end of its fiscal year.
(ii)Each insured depository institution that is a public company or a subsidiary of public company that meets the criterion specified in § 363.1(b)(1) shall file its Part 363 Annual Report within 90 days after the end of its fiscal year.
(b)*Public availability* . The annual report in paragraph (a)(1) of this section shall be available for public inspection.
(c)*Independent public accountant's letters and reports* .
(1)Except for the independent public accountant's reports that are included in its Part 363 Annual Report, each insured depository institution shall file with the FDIC, the appropriate federal banking agency, and any appropriate state bank supervisor, a copy of any management letter or other report issued by its independent public accountant with respect to such institution and the services provided by such accountant pursuant to this part within 15 days after receipt. Such reports include, but are not limited to:
(i)Any written communication regarding matters that are required to be communicated to the audit committee (for example, critical accounting policies, alternative accounting treatments discussed with management, and any schedule of unadjusted differences),
(ii)Any written communication of significant deficiencies and material weaknesses in internal control required by the AICPA's or the PCAOB's auditing standards;
(iii)For institutions with total assets of less than $1 billion as of the beginning of their fiscal year that are public companies or subsidiaries of public companies that meet the criterion specified in § 363.1(b)(1), any independent public accountant's report on the audit of internal control over financial reporting required by section 404 of SOX and the PCAOB's auditing standards; and
(iv)For all institutions that are public companies or subsidiaries of public companies that meet the criterion specified in § 363.1(b)(1), any independent public accountant's written communication of all deficiencies in internal control over financial reporting that are of a lesser magnitude than significant deficiencies required by the PCAOB's auditing standards.
(2)Each insured depository institution shall file with the FDIC, the appropriate federal banking agency, and any appropriate state bank supervisor, a copy of any audit engagement letter, including any related agreements and amendments, within 15 days of acceptance by the institution.
(d)*Notice of engagement or change of accountants* . Each insured depository institution shall provide, within 15 days after the occurrence of any such event, written notice to the FDIC, the appropriate federal banking agency, and any appropriate state bank supervisor of the engagement of an independent public accountant, or the resignation or dismissal of the independent public accountant previously engaged. The notice shall include a statement of the reasons for any such resignation or dismissal in reasonable detail.
(e)*Notification of late filing* . No extensions of time for filing reports required by § 363.4 shall be granted. An insured depository institution that is unable to timely file all or any portion of its Part 363 Annual Report or any other report or notice required by § 363.4 shall submit a written notice of late filing to the FDIC, the appropriate federal banking agency, and any appropriate state bank supervisor. The notice shall disclose the institution's inability to timely file all or specified portions of its Part 363 Annual Report or any other report or notice and the reasons therefore in reasonable detail. The late filing notice shall also state the date when the report or notice will be filed. The written notice shall be filed on or before the deadline for filing the Part 363 Annual Report or any other report or notice, as appropriate.
(f)*Place for filing* . The Part 363 Annual Report, any written notification of late filing, and any other report or notice required by § 363.4 should be filed as follows:
(1)FDIC: Appropriate FDIC Regional or Area Office (Division of Supervision and Consumer Protection), *i.e.,* the FDIC regional or area office in the FDIC region or area that is responsible for monitoring the institution or, in the case of a subsidiary institution of a holding company, the consolidated company. A filing made on behalf of several covered institutions owned by the same parent holding company should be accompanied by a transmittal letter identifying all of the institutions covered.
(2)Office of the Comptroller of the Currency (OCC): Appropriate OCC Supervisory Office.
(3)Federal Reserve: Appropriate Federal Reserve Bank.
(4)Office of Thrift Supervision (OTS): Appropriate OTS District Office.
(5)State bank supervisor: The filing office of the appropriate state bank supervisor. § 363.5 Audit committees.
(a)*Composition and duties* . Each insured depository institution shall establish an audit committee of its board of directors, the composition of which complies with paragraphs (a)(1), (2), and
(3)of this section. The duties of the audit committee shall include the appointment, compensation, and oversight of the independent public accountant who performs services required under this part, and reviewing with management and the independent public accountant the basis for the reports issued under this part.
(1)Each insured depository institution with total assets of $1 billion or more as of the beginning of its fiscal year shall establish an independent audit committee of its board of directors, the members of which shall be outside directors who are independent of management of the institution.
(2)Each insured depository institution with total assets of $500 million or more but less than $1 billion as of the beginning of its fiscal year shall establish an audit committee of its board of directors, the members of which shall be outside directors, the majority of whom shall be independent of management of the institution. The appropriate Federal banking agency may, by order or regulation, permit the audit committee of such an insured depository institution to be made up of less than a majority of outside directors who are independent of management, if the agency determines that the institution has encountered hardships in retaining and recruiting a sufficient number of competent outside directors to serve on the audit committee of the institution.
(3)An outside director is a director who is not, and within the preceding fiscal year has not been, an officer or employee of the institution or any affiliate of the institution.
(b)*Committees of large institutions* . The audit committee of any insured depository institution that has total assets of more than $3 billion, measured as of the beginning of each fiscal year, shall include members with banking or related financial management expertise, have access to its own outside counsel, and not include any large customers of the institution. If a large institution is a subsidiary of a holding company and relies on the audit committee of the holding company to comply with this rule, the holding company's audit committee shall not include any members who are large customers of the subsidiary institution.
(c)*Independent public accountant engagement letters* .
(1)In performing its duties with respect to the appointment of the institution's independent public accountant, the audit committee shall ensure that engagement letters and any related agreements with the independent public accountant for services to be performed under this part do not contain any limitation of liability provisions that:
(i)Indemnify the independent public accountant against claims made by third parties;
(ii)Hold harmless or release the independent public accountant from liability for claims or potential claims that might be asserted by the client insured depository institution, other than claims for punitive damages; or
(iii)Limit the remedies available to the client insured depository institution.
(2)Alternative dispute resolution agreements and jury trial waiver provisions are not precluded provided that they do not incorporate any limitation of liability provisions set forth in paragraph (c)(1) of this section. Appendix A to Part 363—Guidelines and Interpretations Table of Contents Introduction Scope of Rule (§ 363.1) 1. Measuring Total Assets 2. Insured Branches of Foreign Banks 3. Compliance by Holding Company Subsidiaries 4. Comparable Services and Functions 4A. Financial Reporting Annual Reporting Requirements (§ 363.2) 5. Annual Financial Statements 5A. Institutions Merged out of Existence 6. Holding Company Statements 7. Insured Branches of Foreign Banks 8. Management Report 8A. Management's Assessment of the Effectiveness of Internal Control over Financial Reporting 8B. Internal Control Reports for Acquired Businesses 9. Safeguarding of Assets 10. Standards for Internal Control 11. Service Organizations 12. Compliance with Laws and Regulations Role of Independent Public Accountant (§ 363.3) 13. General Qualifications 14. Reserved 15. Peer Review Guidelines 16. Reserved 17. Information to be Provided to the Independent Public Accountant 18. Attestation Report and Management Letter 19. Reviews with Audit Committee and Management 20. Notice of Termination 21. Reliance on Internal Auditors Filing and Notice Requirements (§ 363.4) 22. Reserved 23. Notification of Late Filing 24. Public Availability 25. Reserved 26. Notices Concerning Accountants Audit Committees (§ 363.5) 27. Composition 28. “Independent of Management” Considerations 29. Reserved 30. Holding Company Audit Committees 31. Duties 32. Banking or Related Financial Management Expertise 33. Large Customers 34. Access to Counsel 35. Transition Period for Forming and Restructuring Audit Committees Other 36. Modifications of Guidelines Introduction Congress added section 36, “Early Identification of Needed Improvements in Financial Management” (section 36), to the Federal Deposit Insurance Act (FDI Act) in 1991. The FDIC Board of Directors adopted 12 CFR part 363 of its rules and regulations (the Rule) to implement those provisions of section 36 that require rulemaking. The FDIC also approved these “Guidelines and Interpretations” (the Guidelines) and directed that they be published with the Rule to facilitate a better understanding of, and full compliance with, the provisions of section 36. Although not contained in the Rule itself, some of the guidance offered restates or refers to statutory requirements of section 36 and is therefore mandatory. If that is the case, the statutory provision is cited. Furthermore, upon adopting the Rule, the FDIC reiterated its belief that every insured depository institution, regardless of its size or charter, should have an annual audit of its financial statements performed by an independent public accountant, and should establish an audit committee comprised entirely of outside directors. The following Guidelines reflect the views of the FDIC concerning the interpretation of section 36. The Guidelines are intended to assist insured depository institutions (institutions), their boards of directors, and their advisors, including their independent public accountants and legal counsel, and to clarify section 36 and the Rule. It is recognized that reliance on the Guidelines may result in compliance with section 36 and the Rule which may vary from institution to institution. Terms which are not explained in the Guidelines have the meanings given them in the Rule, the FDI Act, or professional accounting and auditing literature. Scope of Rule (§ 363.1) 1. *Measuring Total Assets.* To determine whether this part applies, an institution should use total assets as reported on its most recent Report of Condition (Call Report) or Thrift Financial Report (TFR), the date of which coincides with the end of its preceding fiscal year. If its fiscal year ends on a date other than the end of a calendar quarter, it should use its Call Report or TFR for the quarter end immediately preceding the end of its fiscal year. 2. *Insured Branches of Foreign Banks.* Unlike other institutions, insured branches of foreign banks are not separately incorporated or capitalized. To determine whether this part applies, an insured branch should measure claims on non-related parties reported on its Report of Assets and Liabilities of U.S. Branches and Agencies of Foreign Banks (form FFIEC 002). 3. *Compliance by Holding Company Subsidiaries.* Audited consolidated financial statements and other reports or notices required by this part that are submitted by a holding company for any subsidiary institution should be accompanied by a cover letter identifying all subsidiary institutions subject to part 363 that are included in the holding company's submission. When submitting a Part 363 Annual Report, the cover letter should identify all subsidiary institutions subject to part 363 included in the consolidated financial statements and state whether the other annual report requirements ( *i.e.* , management's statement of responsibilities, management's assessment of compliance with designated safety and soundness laws and regulations, and, if applicable, management's assessment of the effectiveness of internal control over financial reporting and the independent public accountant's attestation report on management's internal control assessment) are being satisfied for these institutions at the holding company level or at the institution level. An institution filing holding company consolidated financial statements as permitted by § 363.1(b)(1) also may report on changes in its independent public accountant on a holding company basis. An institution that does not meet the criteria in § 363.1(b)(2) must satisfy the remaining provisions of this part on an individual institution basis and maintain its own audit committee. Subject to the criteria in §§ 363.1(b)(1) and (2), a multi-tiered holding company may satisfy all of the requirements of this part at the top-tier or any mid-tier holding company level. 4. *Comparable Services and Functions.* Services and functions will be considered “comparable” to those required by this part if the holding company:
(a)Prepares reports used by the subsidiary institution to meet the requirements of this part;
(b)Has an audit committee that meets the requirements of this part appropriate to its largest subsidiary institution; and
(c)Prepares and submits management's assessment of compliance with the Designated Laws defined in guideline 12 and, if applicable, management's assessment of the effectiveness of internal control over financial reporting based on information concerning the relevant activities and operations of those subsidiary institutions within the scope of the Rule. 4A. *Financial Reporting.*
(a)For purposes of this part, “financial reporting” includes financial statements prepared under GAAP and those prepared for regulatory reporting purposes. Financial statements prepared for regulatory reporting purposes consist of the schedules equivalent to the basic financial statements that are included in an institution's appropriate regulatory report, e.g., the bank Consolidated Reports of Condition and Income (Call Report) and the Thrift Financial Report (TFR).
(b)Financial statements prepared for regulatory reporting purposes do not include regulatory reports prepared by a non-bank subsidiary of a holding company or an institution. For example, if a bank holding company or an insured depository institution owns an insurance subsidiary, financial statements prepared for regulatory reporting purposes would not include any regulatory reports that the insurance subsidiary is required to submit to its appropriate insurance regulatory agency. Annual Reporting Requirements (§ 363.2) 5. *Annual Financial Statements.* Each institution should prepare comparative annual consolidated financial statements (balance sheets and statements of income, changes in equity capital, and cash flows, with accompanying footnote disclosures) in accordance with GAAP for each of its two most recent fiscal years. Statements for the earlier year may be presented on an unaudited basis if the institution was not subject to this part for that year and audited statements were not prepared. 5A. *Institutions Merged Out of Existence.* An institution that is merged out of existence after the end of its fiscal year, but before the deadline for filing its Part 363 Annual Report (120 days after the end of its fiscal year for an institution that is neither a public company nor a subsidiary of a public company that meets the criterion specified in § 363.1(b)(1), and 90 days after the end of its fiscal year for an institution that is a public company or a subsidiary of a public company that meets the criterion specified in § 363.1(b)(1)), is not required to file a Part 363 Annual Report for the last fiscal year of its existence. 6. *Holding Company Statements.* Subject to the criterion specified in § 363.1(b)(1), subsidiary institutions may file copies of their holding company's audited financial statements filed with the SEC or prepared for their FR Y-6 Annual Report under the Bank Holding Company Act of 1956 to satisfy the audited financial statements requirement of § 363.2(a). 7. *Insured Branches of Foreign Banks.* An insured branch of a foreign bank should satisfy the financial statements requirement by filing one of the following for the two preceding fiscal years:
(a)Audited balance sheets, disclosing information about financial instruments with off-balance-sheet risk;
(b)Schedules RAL and L of form FFIEC 002, prepared and audited on the basis of the instructions for its preparation; or
(c)With written approval of the appropriate federal banking agency, consolidated financial statements of the parent bank. 8. *Management Report.* Management should perform its own investigation and review of the effectiveness of internal controls and compliance with the Designated Laws defined in guideline 12. Management also should maintain records of its determinations and assessments until the next federal safety and soundness examination, or such later date as specified by the FDIC or appropriate federal banking agency. Management should provide in its assessment of the effectiveness of internal controls, or supplementally, sufficient information to enable the accountant to report on its assertions. The management report of an insured branch of a foreign bank should be signed by the branch's managing official if the branch does not have a chief executive or financial officer. 8A. *Management's Assessment of the Effectiveness of Internal Control over Financial Reporting.* An institution with $1 billion or more in total assets as of the beginning of its fiscal year that is subject to both part 363 and the SEC's rules implementing section 404 of SOX (as well as a public holding company permitted under the holding company exception in § 363.1(b)(2) to file an internal control report on behalf of a subsidiary institution or institutions with $1 billion or more in total assets) can choose either of the following two options for filing management's report on internal control over financial reporting.
(i)Management can prepare two separate reports on the institution's or the holding company's internal control over financial reporting to satisfy the FDIC's part 363 requirements and the SEC's section 404 requirements; or
(ii)Management can prepare a single report on internal control over financial reporting provided that it satisfies all of the FDIC's part 363 requirements and all of the SEC's section 404 requirements. 8B. *Internal Control Reports for Acquired Businesses.* Generally, the FDIC expects management's and the related independent public accountant's report on an institution's internal control over financial reporting to include controls at an institution in its entirety, including all of its consolidated entities. However, it may not always be possible for management to conduct an assessment of the internal control over financial reporting of an acquired business in the period between the consummation date of the acquisition and the due date of management's internal control assessment.
(a)In such instances, the acquired business's internal control structure and procedures for financial reporting may be excluded from management's assessment report and the accountant's attestation report on internal control over financial reporting. However, the FDIC expects management's assessment report to identify the acquired business, state that the acquired business is excluded, and indicate the significance of this business to the institution's consolidated financial statements. Notwithstanding management's exclusion of the acquired business's internal control from its assessment, management should disclose any material change to the institution's internal control over financial reporting due to the acquisition of this business. Also, management may not omit the assessment of the acquired business's internal control from more than one annual part 363 assessment report on internal control over financial reporting. When the acquired business's internal control over financial reporting is excluded from management's assessment, the independent public accountant may likewise exclude this acquired business's internal control over financial reporting from the accountant's evaluation of internal control over financial reporting.
(b)If the acquired business is or has a consolidated subsidiary that is an insured depository institution subject to part 363 and the institution is not merged out of existence before the deadline for filing its Part 363 Annual Report (120 days after the end of its fiscal year for an institution that is neither a public company nor a subsidiary of a public company that meets the criterion specified in § 363.1(b)(1), and 90 days after the end of its fiscal year for an institution that is a public company or a subsidiary of a public company that meets the criterion specified in § 363.1(b)(1)), the acquired institution must continue to comply with all of the applicable requirements of part 363, including filing its Part 363 Annual Report. 9. *Safeguarding of Assets.* “Safeguarding of assets,” as the term relates to internal control policies and procedures regarding financial reporting and which has precedent in accounting and auditing literature, should be encompassed in the management report and the independent public accountant's attestation discussed in guideline 18. Testing the existence of and compliance with internal controls on the management of assets, including loan underwriting and documentation, represents a reasonable implementation of section 36. The FDIC expects such internal controls to be encompassed by the assertion in the management report, but the term “safeguarding of assets” need not be specifically stated. The FDIC does not require the accountant to attest to the adequacy of safeguards, but does require the accountant to determine whether safeguarding policies exist. 2 2 It is management's responsibility to establish policies concerning underwriting and asset management and to make credit decisions. The auditor's role is to test compliance with management's policies relating to financial report. 10. *Standards for Internal Control.* The management of each insured depository institution with $1 billion or more in total assets as of the beginning of its fiscal year should base its assessment of the effectiveness of the institution's internal control over financial reporting on a suitable, recognized control framework established by a body of experts that followed due-process procedures, including the broad distribution of the framework for public comment. In addition to being available to users of management's reports, a framework is suitable only when it: • Is free from bias; • Permits reasonably consistent qualitative and quantitative measurements of an insured depository institution's internal control over financial reporting; • Is sufficiently complete so that those relevant factors that would alter a conclusion about the effectiveness of an insured depository institution's internal control over financial reporting are not omitted; and • Is relevant to an evaluation of internal control over financial reporting. In the United States, *Internal Control—Integrated Framework* , including its addendum on safeguarding assets, which was published by the Committee of Sponsoring Organizations of the Treadway Commission, and is known as the COSO report, provides a suitable and recognized framework for purposes of management's assessment. Other suitable frameworks have been published in other countries or may be developed in the future. Such other suitable frameworks may be used by management and the institution's independent public accountant in assessments, attestations, and audits of internal control over financial reporting. 11. *Service Organizations.* Although service organizations should be considered in determining if internal controls are adequate, an institution's independent public accountant, its management, and its audit committee should exercise independent judgment concerning that determination. Onsite reviews of service organizations may not be necessary to prepare the report required by the Rule, and the FDIC does not intend that the Rule establish any such requirement. 12. *Compliance with Laws and Regulations.* The designated laws and regulations are the federal laws and regulations concerning loans to insiders and the federal and state laws and regulations concerning dividend restrictions (the Designated Laws). Table 1 to this Appendix A lists the designated federal laws and regulations pertaining to insider loans and dividend restrictions that are applicable to each type of institution. Role of Independent Public Accountant (§ 363.3) 13. *General Qualifications.* To provide audit and attest services to insured depository institutions, an independent public accountant should be registered or licensed to practice as a public accountant, and be in good standing, under the laws of the state or other political subdivision of the United States in which the home office of the institution (or the insured branch of a foreign bank) is located. As required by section 36(g)(3)(A)(i), the accountant must agree to provide copies of any working papers, policies, and procedures relating to services performed under this part. 14. [Reserved.] 15. *Peer Review Guidelines.* The following peer review guidelines are acceptable:
(a)The external peer review should be conducted by an organization independent of the accountant or firm being reviewed, as frequently as is consistent with professional accounting practices;
(b)The peer review (other than a PCAOB inspection) should be generally consistent with AICPA Peer Review Standards; and
(c)The review should include, if available, at least one audit on an insured depository institution or consolidated depository institution holding company. 16. [Reserved.] 17. *Information to be Provided to the Independent Public Accountant.* Attention is directed to section 36(h) which requires institutions to provide specified information to their accountants. An institution also should provide its accountant with copies of any notice that the institution's capital category is being changed or reclassified under section 38 of the FDI Act, and any correspondence from the appropriate federal banking agency concerning compliance with this part. 18. *Attestation Report and Management Report.* The independent public accountant should provide the institution with any management letter and, if applicable, an internal control attestation report (as required by section 36(c)(1)) at the conclusion of the audit. The independent public accountant's attestation report on internal control over financial reporting must specifically include a statement as to regulatory reporting. If a holding company subsidiary relies on its holding company management report, the accountant may attest to and report on the management's assertions in one report, without reporting separately on each subsidiary covered by the Rule. The FDIC has determined that management letters are exempt from public disclosure. 19. *Reviews with Audit Committee and Management.* The independent public accountant should meet with the institution's audit committee to review the accountant's reports required by this part before they are filed. It also may be appropriate for the accountant to review its findings with the institution's board of directors and management. 20. *Notice of Termination.* The notice of termination required by § 363.3(c) should state whether the independent public accountant agrees with the assertions contained in any notice filed by the institution under § 363.4(d), and whether the institution's notice discloses all relevant reasons for the accountant's termination. Subject to the criteria specified in § 363.1(b)(1) regarding compliance with the audited financial statements requirement at the holding company level, the independent public accountant for an insured depository institution that is a public company and files reports with its appropriate federal banking agency, or is a subsidiary of a public company that files reports with the SEC, may submit the letter it furnished to management to be filed with the institution's or the holding company's current report ( *e.g.* , SEC Form 8-K) concerning a change in accountant to satisfy the notice requirements of § 363.3(c). Alternatively, if the independent public accountant confirms that management has filed a current report ( *e.g.* , SEC Form 8-K) concerning a change in accountant that satisfies the notice requirements of § 363.4(d) and includes an independent public accountant's letter that satisfies the requirements of § 363.3(c), the independent public accountant may rely on the current report ( *e.g.* , SEC Form 8-K) filed with the FDIC by management concerning a change in accountant to satisfy the notice requirements of § 363.3(c). 21. *Reliance on Internal Auditors.* Nothing in this part or this appendix is intended to preclude the ability of the independent public accountant to rely on the work of an institution's internal auditor. Filing and Notice Requirements (§ 363.4) 22. [Reserved.] 23. *Notification of Late Filing.*
(a)An institution's submission of a written notice of late filing does not cure the requirement to timely file the Part 363 Annual Report or other reports or notices required by § 363.4. An institution's failure to timely file is considered an apparent violation of part 363.
(b)If the late filing notice submitted pursuant to § 363.4(e) relates only to a portion of a Part 363 Annual Report or any other report or notice, the insured depository institution should file the other components of the report or notice within the prescribed filing period together with a cover letter that indicates which components of its Part 363 Annual Report or other report or notice are omitted. An institution may combine the written late filing notice and the cover letter into a single notice that is submitted together with the other components of the report or notice that are being timely filed. 24. *Public Availability.* Each institution's Part 363 Annual Report should be available for public inspection at its main and branch offices no later than 15 days after it is filed with the FDIC. Alternatively, an institution may elect to mail one copy of its Part 363 Annual Report to any person who requests it. The Part 363 Annual Report should remain available to the public until the Part 363 Annual Report for the next year is available. An institution may use its Part 363 Annual Report under this part to meet the annual disclosure statement required by 12 CFR 350.3, if the institution satisfies all other requirements of 12 CFR part 350. 25. [Reserved.] 26. *Notices Concerning Accountants.* With respect to any selection, change, or termination of an independent public accountant, an institution's management and audit committee should be familiar with the notice requirements in § 363.4(d) and guideline 20, and management should send a copy of any notice required under § 363.4(d) to the independent public accountant when it is filed with the FDIC. An insured depository institution that is a public company and files reports required under the federal securities laws with its appropriate federal banking agency, or is a subsidiary of a public company that files such reports with the SEC, may use its current report ( *e.g.* , SEC Form 8-K) concerning a change in accountant to satisfy the notice requirements of § 363.4(d) subject to the criterion of § 363.1(b)(1) regarding compliance with the audited financial statements requirement at the holding company level. Audit Committees (§ 363.5) 27. *Composition.* The board of directors of each institution should determine whether each existing or potential audit committee member meets the requirements of section 36 and this part. To do so, the board of directors should maintain an approved set of written criteria for determining whether a director who is to serve on the audit committee is an outside director (as defined in § 363.5(a)(3)) and is independent of management. At least annually, the board of each institution should apply these criteria and determine whether each existing or potential audit committee member is an outside director. In addition, at least annually, the board of an institution with $1 billion or more in total assets at the beginning of its fiscal year should determine whether all existing and potential audit committee members are “independent of management of the institution” and the board of an institution with total assets of $500 million or more but less than $1 billion as of the beginning of its fiscal year should determine whether the majority of all existing and potential audit committee members are “independent of management of the institution.” The minutes of the board of directors should contain the results of and the basis for its determinations with respect to each existing and potential audit committee member. Because an insured branch of a foreign bank does not have a separate board of directors, the FDIC will not apply the audit committee requirements to such branch. However, any such branch is encouraged to make a reasonable good faith effort to see that similar duties are performed by persons whose experience is generally consistent with the Rule's requirements for an institution the size of the insured branch. 28. “ *Independent of Management” Considerations.* It is not possible to anticipate, or explicitly provide for, all circumstances that might signal potential conflicts of interest in, or that might bear on, an outside director's relationship to an insured depository institution and whether the outside director should be deemed “independent of management.” When assessing an outside director's relationship with an institution, the board of directors should consider the issue not merely from the standpoint of the director himself or herself, but also from the standpoint of persons or organizations with which the director has an affiliation. These relationships can include, but are not limited to, commercial, banking, consulting, charitable, and family relationships. The board of directors should apply its approved set of written criteria for determining whether existing and potential members of the audit committee are outside directors and whether they are “independent of management.” To assist boards of directors in fulfilling this requirement, paragraphs
(a)through
(d)of this guideline provide guidance for determining whether audit committee members are “independent of management.”
(a)Notwithstanding the criteria set forth in paragraphs (b), (c), and
(d)of this guideline, if an outside director, either directly or indirectly, owns or controls, or has owned or controlled within the preceding fiscal year, 10 percent or more of any outstanding class of voting securities of the institution, the outside director will not be considered “independent of management.”
(b)The following list sets forth additional criteria, that, at a minimum, a board of directors should consider when determining whether an outside director is “independent of management.” The board of directors may conclude that additional criteria are also relevant to this determination in light of the particular circumstances of its institution. Accordingly, an outside director will not be considered “independent of management” if:
(1)The director serves, or has served within the last three years, as a consultant, advisor, promoter, underwriter, legal counsel, or trustee of or to the institution or its affiliates.
(2)The director has been, within the last three years, an employee of the institution or any of its affiliates or an immediate family member is, or has been within the last three years, an executive officer of the institution or any of its affiliates.
(3)The director has participated in the preparation of the financial statements of the institution or any of its affiliates at any time during the last three years.
(4)The director has received, or has an immediate family member who has received, during any twelve-month period within the last three years, more than $60,000 in direct or indirect compensation from the institution or any of its affiliates other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service). Direct compensation also would not include compensation received by the director for former service as an interim chairman or interim chief executive officer. Indirect compensation includes payments to spouses and children as well as organizations that provide financial services to the institution or any of its affiliates in which the director is a partner or principal.
(5)The director or an immediate family member is a current partner of a firm that performs internal or external auditing services for the institution or any of its affiliates; the director is a current employee of such a firm; the director has an immediate family member who is a current employee of such a firm and who participates in the firm's audit, assurance, or tax compliance practice; or the director or an immediate family member was within the last three years (but no longer is) a partner or employee of such a firm and personally worked on the audit of the insured depository institution or any of its affiliates within that time.
(6)The director or an immediate family member is, or has been within the last three years, employed as an executive officer of another entity where any of the present executive officers of the institution or any of its affiliates at the same time serves or served on that entity's compensation committee.
(7)The director is a current employee, or an immediate family member is a current executive officer, of an entity that has made payments to, or received payments from, the institution or any of its affiliates for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $200 thousand, or 5 percent of such entity's consolidated gross revenues. This would include payments made by the institution or any of its affiliates to not-for-profit entities where the director is an executive officer or where an immediate family member of the director is an executive officer.
(8)For purposes of paragraph
(b)of this guideline, the following definitions apply:
(i)An “immediate family member” includes a person's spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law, and anyone (other than domestic employees) who shares such person's home.
(ii)The term affiliate of, or a person affiliated with, a specified person, means a person or entity that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified.
(c)An insured depository institution that is a public company and a listed issuer (as defined in Rule 10A-3 of the Securities Exchange Act of 1934 (Exchange Act)), or is a subsidiary of a public company that meets the criterion specified in § 363.1(b)(1) and is a listed issuer, may use the definition of audit committee member independence set forth in the listing standards applicable to the public institution or its public company parent.
(d)All other insured depository institutions may use the definition of audit committee member independence set forth in the listing standards of a national securities exchange that is registered with the SEC pursuant to section 6 of the Exchange Act or a national securities association that is registered with the SEC pursuant to section 15A(a) of the Exchange Act. 29. [Reserved.] 30. *Holding Company Audit Committees.*
(a)When an insured depository institution satisfies the requirements for the holding company exception specified in §§ 363.1(b)(1) and (2), the audit committee requirement of this part may be satisfied by the audit committee of the top-tier or any mid-tier holding company. Members of the audit committee of the holding company should meet all the membership requirements applicable to the largest subsidiary depository institution subject to part 363 and should perform all the duties of the audit committee of a subsidiary institution subject to part 363, even if the holding company directors are not directors of the institution.
(b)When an insured depository institution subsidiary with total assets of $1 billion or more as of the beginning of its fiscal year does not meet the requirements for the holding company exception specified in §§ 363.1(b)(1) and
(2)or maintains its own separate audit committee to satisfy the requirements of this part, the members of the audit committee of the top-tier or any mid-tier holding company may serve on the audit committee of the subsidiary institution if they are otherwise independent of management of the subsidiary institution, and, if applicable, meet any other requirements for a large subsidiary institution covered by this part.
(c)When an insured depository institution with total assets of $500 million or more but less than $1 billion as of the beginning of its fiscal year does not meet the requirements for the holding company exception specified in §§ 363.1(b)(1) and
(2)or maintains its own separate audit committee to satisfy the requirements of this part, the members of the audit committee of the top-tier or any mid-tier holding company may serve on the audit committee of the subsidiary institution provided a majority of its audit committee members are independent of management of the subsidiary institution.
(d)Officers and employees of a top-tier or any mid-tier holding company may not serve on the audit committee of its subsidiary institutions. 31. *Duties.* The audit committee should perform all duties determined by the institution's board of directors, and it should maintain minutes and other relevant records of its meetings and decisions. The duties of the audit committee should be appropriate to the size of the institution and the complexity of its operations, and, at a minimum, should include the appointment, compensation, and oversight of the independent public accountant; reviewing with management and the independent public accountant the basis for their respective reports issued under §§ 363.2(a) and
(b)and §§ 363.3(a) and (b); reviewing and satisfying itself as to the independent public accountant's compliance with the required qualifications for independent public accountants set forth in §§ 363.3(f) and
(g)and guidelines 13 through16; ensuring that audit engagement letters comply with the provisions of § 363.5(c) before engaging an independent public accountant; being familiar with the notice requirements in § 363.4(d) and guideline 20 regarding the selection, change, or termination of an independent public accountant; and ensuring that management sends a copy of any notice required under § 363.4(d) to the independent public accountant when it is filed with the FDIC. Appropriate additional duties could include:
(a)Reviewing with management and the independent public accountant the scope of services required by the audit, significant accounting policies, and audit conclusions regarding significant accounting estimates;
(b)Reviewing with management and the accountant their assessments of the effectiveness of internal control over financial reporting, and the resolution of identified material weaknesses and significant deficiencies in internal control over financial reporting, including the prevention or detection of management override or compromise of the internal control system;
(c)Reviewing with management the institution's compliance with the designated laws and regulations identified in guideline 12;
(d)Discussing with management and the independent public accountant any significant disagreements between management and the independent public accountant; and
(e)Overseeing the internal audit function. 32. *Banking or Related Financial Management Expertise.* At least two members of the audit committee of a large institution shall have “banking or related financial management expertise” as required by section 36(g)(1)(C)(i). This determination is to be made by the board of directors of the insured depository institution. A person will be considered to have such required expertise if the person has significant executive, professional, educational, or regulatory experience in financial, auditing, accounting, or banking matters as determined by the board of directors. Significant experience as an officer or member of the board of directors or audit committee of a financial services company would satisfy these criteria. 33. *Large Customers.* Any individual or entity (including a controlling person of any such entity) which, in the determination of the board of directors, has such significant direct or indirect credit or other relationships with the institution, the termination of which likely would materially and adversely affect the institution's financial condition or results of operations, should be considered a “large customer” for purposes of § 363.5(b). 34. *Access to Counsel.* The audit committee should be able to retain counsel at its discretion without prior permission of the institution's board of directors or its management. Section 36 does not preclude advice from the institution's internal counsel or regular outside counsel. It also does not require retaining or consulting counsel, but if the committee elects to do either, it also may elect to consider issues affecting the counsel's independence. Such issues would include whether to retain or consult only counsel not concurrently representing the institution or any affiliate, and whether to place limitations on any counsel representing the institution concerning matters in which such counsel previously participated personally and substantially as outside counsel to the committee. 35. *Transition Period for Forming and Restructuring Audit Committees.*
(a)When an insured depository institution's total assets at the beginning of its fiscal year are $500 million or more for the first time and it thereby becomes subject to part 363, no regulatory action will be taken if the institution forms or restructures its audit committee to comply with § 363.5(a)(2) by the end of that fiscal year.
(b)When an insured depository institution's total assets at the beginning of its fiscal year are $1 billion or more for the first time, no regulatory action will be taken if the institution forms or restructures its audit committee to comply with § 363.5(a)(1) by the end of that fiscal year, provided that the composition of its audit committee meets the requirements specified in § 363.5(a)(2) at the beginning of that fiscal year, if such requirements were applicable.
(c)When an insured depository institution's total assets at the beginning of its fiscal year are $3 billion or more for the first time, no regulatory action will be taken if the institution forms or restructures its audit committee to comply with § 363.5(b) by the end of that fiscal year, provided that the composition of its audit committee meets the requirements specified in § 363.5(a)(1) at the beginning of that fiscal year, if such requirements were applicable. Other 36. *Modifications of Guidelines.* The FDIC's Board of Directors has delegated to the Director of the FDIC's Division of Supervision and Consumer Protection authority to make and publish in the **Federal Register** minor technical amendments to the Guidelines in this appendix, in consultation with the other appropriate federal banking agencies, to reflect the practical experience gained from implementation of this part. It is not anticipated any such modification would be effective until affected institutions have been given reasonable advance notice of the modification. Any material modification or amendment will be subject to review and approval of the FDIC Board of Directors. Table 1 to Appendix A Designated Federal Laws and Regulations Applicable to National banks State member banks State non-member banks Savings associations Insider Loans—Parts and/or Sections of Title 12 of the United States Code 375a Loans to Executive Officers of Banks √ √
(A)375b Extensions of Credit to Executive Officers, Directors, and Principal Shareholders of Banks √ √
(A)1468(b) Extensions of Credit to Executive Officers, Directors, and Principal Shareholders √ 1828(j)(2) Extensions of Credit to Officers, Directors, and Principal Shareholders √ 1828(j)(3)(B) Extensions of Credit to Officers, Directors, and Principal Shareholders
(C)Parts and/or Sections of Title 12 of the Code of Federal Regulations 31 Extensions of Credit to Insiders √ 32 Lending Limits √ 215 Loans to Executive Officers, Directors, and Principal Shareholders of Member Banks √ √
(E)337.3 Limits on Extensions of Credit to Executive Officers, Directors, and Principal Shareholders of Insured Nonmember Banks √ 563.43 Loans by Savings Associations to Their Executive Officers, Directors, and Principal Shareholders √ Dividend Restrictions—Parts and/or Sections of Title 12 of the United States Code 56 Prohibition on Withdrawal of Capital and Unearned Dividends √ √ 60 Dividends and Surplus Fund √ √ 1467a(f) Declaration of Dividend √ 1831o(d)(1) Prompt Corrective Action—Capital Distributions Restricted √ √ √ √ Parts and/or Sections of Title 12 of the Code of Federal Regulations 5 Subpart E Payment of Dividends √ 6.6 Prompt Corrective Action—Restrictions on Undercapitalized Institutions √ 208.5 Dividends and Other Distributions √ 208.45 Prompt Corrective Action—Restrictions on Undercapitalized Institutions √ 325.105 Prompt Corrective Action—Restrictions on Undercapitalized Institutions √ 563 Subpart E Capital Distributions √ 565.6 Prompt Corrective Action—Restrictions on Undercapitalized Institutions √ A. Subsections
(g)and
(h)of section 22 of the Federal Reserve Act [12 U.S.C. 375a, 375b]. B. Applies only to insured federal branches of foreign banks. C. Applies only to insured state branches of foreign banks. D. See 12 CFR 337.3. E. See 12 CFR 563.43. Appendix B to Part 363—Illustrative Management Reports Table of Contents 1. General 2. Reporting Scenarios for Institutions that are Holding Company Subsidiaries 3. Illustrative Management Report—Statement of Management's Responsibilities 4. Illustrative Management Report—Management's Assessment of Compliance with Laws and Regulations 5. Illustrative Management Report—Management's Assessment of Internal Control Over Financial Reporting 6. Illustrative Management Report—Combined Statement of Management's Responsibilities, Management's Assessment of Compliance with Laws and Regulations, and Management's Assessment of the Effectiveness of Internal Control Over Financial Reporting 7. Illustrative Cover Letter—Compliance by Holding Company Subsidiaries 1. *General.* The reporting scenarios, illustrative management reports, and the cover letter (when complying at the holding company level) in Appendix B to part 363 are intended to assist managements of insured depository institutions in complying with the annual reporting requirements of § 363.2 and guideline 3, *Compliance by Holding Company Subsidiaries,* of Appendix A to part 363. However, use of the wording in the illustrative management reports and cover letter is not required. The managements of insured depository institutions are encouraged to tailor their management reports and cover letters to fit their particular circumstances and avoid the use of “boilerplate” language. Terms that are not explained in Appendix B have the meanings given them in part 363, the FDI Act, or professional accounting and auditing literature. Instructions to the preparer of the management reports are shown in brackets within the illustrative reports. 2. *Reporting Scenarios for Institutions that are Holding Company Subsidiaries.*
(a)Subject to the criteria specified in § 363.1(b), an insured depository institution that is a subsidiary of a holding company has flexibility in satisfying the reporting requirements of part 363. When reporting at the holding company level, the management report should identify those subsidiary institutions that are subject to part 363 and the extent to which they are included in the scope of the management report. The following reporting scenarios reflect how an insured depository institution that meets the criteria set forth in § 363.1(b) could satisfy the annual reporting requirements of § 363.2. Other reporting scenarios are possible.
(i)An institution that is a subsidiary of a holding company may satisfy the requirements for audited financial statements, management's statement of responsibilities, management's assessment of the institution's compliance with laws and regulations, management's assessment of the effectiveness of internal control over financial reporting (if applicable), and the independent public accountant's attestation on management's assertion as to the effectiveness of internal control over financial reporting (if applicable) at the insured depository institution level.
(ii)An institution that is a subsidiary of a holding company may satisfy the requirements for audited financial statements, management's statement of responsibilities, management's assessment of the institution's compliance with laws and regulations, management's assessment of the effectiveness of internal control over financial reporting (if applicable), and the independent public accountant's attestation on management's assertion as to the effectiveness of internal control over financial reporting (if applicable) at the holding company level.
(iii)An institution that is a subsidiary of a holding company may satisfy the requirement for audited financial statements at the holding company level and may satisfy the requirements for management's statement of responsibilities, management's assessment of the institution's compliance with laws and regulations, management's assessment of the effectiveness of internal control over financial reporting (if applicable), and the independent public accountant's attestation on management's assertion as to the effectiveness of internal control over financial reporting (if applicable) at the insured depository institution level.
(iv)An institution that is a subsidiary of a holding company may satisfy the requirements for audited financial statements, management's statement of responsibilities, and management's assessment of the institution's compliance with laws and regulations at the insured depository institution level and may satisfy the requirements for the assessment by management of the effectiveness of internal control over financial reporting (if applicable), and the independent public accountant's attestation on management's assertion as to the effectiveness of internal control over financial reporting (if applicable) at the holding company level.
(b)For an institution with total assets of $1 billion or more as of the beginning of its fiscal year, the assessment by management of the effectiveness of internal control over financial reporting and the independent public accountant's attestation on management's assertion as to the effectiveness of internal control over financial reporting (if applicable) must both be performed at the same level, i.e., either at the insured depository institution level or at the holding company level.
(c)Financial statements prepared for regulatory reporting purposes encompass the schedules equivalent to the basic financial statements in an institution's appropriate regulatory report, e.g., the bank Consolidated Reports of Condition and Income (Call Report) and the Thrift Financial Report (TFR). When internal control assessments and attestations are performed at the holding company level, the FDIC believes that holding companies have flexibility in interpreting “financial reporting” as it relates to “regulatory reporting” and has not objected to several reporting approaches employed by holding companies to cover “regulatory reporting.” Certain holding companies have had management's assessment and the accountant's attestation cover the schedules equivalent to the basic financial statements that are included in the appropriate regulatory report, e.g., Call Report and the TFR, of each subsidiary institution subject to part 363. Other holding companies have had management's assessment and the accountant's attestation cover the schedules equivalent to the basic financial statements that are included in the holding company's year-end regulatory report (FR Y-9C report) to the Federal Reserve Board. 3. *Illustrative Management Report—Statement of Management's Responsibilities.* The following illustrative statements of management's responsibilities satisfy the requirements of § 363.2(b)(1).
(a)Statement Made at Insured Depository Institution Level To: The Board of Directors and Audit Committee, ABC Depository Institution Re: Statement of Management's Responsibilities The management of ABC Depository Institution (the “Institution”) is responsible for preparing the Institution's annual financial statements in accordance with generally accepted accounting principles; for establishing and maintaining an adequate internal control structure and procedures for financial reporting, including controls over the preparation of regulatory financial statements in accordance with the instructions for regulatory reporting [specify the regulatory reporting instructions]; and for complying with laws and regulations relating to safety and soundness that are designated by the FDIC and the appropriate federal banking agency [specify the appropriate federal banking agency, if applicable]. ABC Depository Institution John Doe, Chief Executive Officer Date: Jane Doe, Chief Financial Officer Date:
(b)Statement Made at Holding Company Level To: The Board of Directors and Audit Committee BCD Holding Company Re: Statement of Management's Responsibilities The management of BCD Holding Company (the “Company”) is responsible for preparing the Company's annual financial statements in accordance with generally accepted accounting principles; for establishing and maintaining an adequate internal control structure and procedures for financial reporting, including controls over the preparation of regulatory financial statements in accordance with the instructions for regulatory reporting [specify the regulatory reporting instructions]; and for complying with laws and regulations relating to safety and soundness that are designated by the FDIC and the appropriate federal banking agency [specify the appropriate federal banking agency, if applicable]. The following subsidiary institutions of the Company that are subject to Part 363 are included in the scope of this management report: [Identify the subsidiary institutions.] BCD Holding Company John Doe, Chief Executive Officer Date: Jane Doe, Chief Financial Officer Date: 4. *Illustrative Management Report—Management's Assessment of Compliance with Laws and Regulations.* The following illustrative reports of management's assessment of compliance with laws and regulations satisfy the requirements of § 363.2(b)(2).
(a)Statement Made at Insured Depository Institution Level—Compliance To: The Board of Directors and Audit Committee, ABC Depository Institution Re: Management's Assessment of Compliance with Laws and Regulations The management of ABC Depository Institution (the “Institution”) has assessed the Institution's compliance with the laws and regulations relating to safety and soundness that are designated by the FDIC and the appropriate federal banking agency [specify the appropriate federal banking agency, if applicable] during the fiscal year that ended on December 31, 20XX. Based upon its assessment, management has concluded that the Institution complied with the laws and regulations relating to safety and soundness that are designated by the FDIC and the appropriate federal banking agency [specify the appropriate federal banking agency, if applicable] during the fiscal year that ended on December 31, 20XX. ABC Depository Institution John Doe, Chief Executive Officer Date: Jane Doe, Chief Financial Officer Date:
(b)Statement Made at Insured Depository Institution Level—Noncompliance To: The Board of Directors and Audit Committee, ABC Depository Institution Re: Management's Assessment of Compliance with Laws and Regulations The management of ABC Depository Institution (the “Institution”) has assessed the Institution's compliance with the laws and regulations relating to safety and soundness that are designated by the FDIC and the appropriate federal banking agency [specify the appropriate federal banking agency, if applicable] during the fiscal year that ended on December 31, 20XX. Because of the noncompliance during the fiscal year that ended on December 31, 20XX, with the laws and regulations relating to safety and soundness noted below, management has determined that the Institution did not comply with the laws and regulations relating to safety and soundness that are designated by the FDIC and the appropriate federal banking agency [specify the appropriate federal banking agency, if applicable] during the fiscal year that ended on December 31, 20XX. [Identify and describe the instance or instances of noncompliance with the laws and regulations relating to safety and soundness.] ABC Depository Institution John Doe, Chief Executive Officer Date: Jane Doe, Chief Financial Officer Date:
(c)Statement Made at Holding Company Level—Compliance To: The Board of Directors and Audit Committee, BCD Holding Company Re: Management's Assessment of Compliance with Laws and Regulations The management of BCD Holding Company (the “Company”) has assessed the Company's compliance with the laws and regulations relating to safety and soundness that are designated by the FDIC and the appropriate federal banking agency [specify the appropriate federal banking agency, if applicable] during the fiscal year that ended on December 31, 20XX. Based upon its assessment, management has concluded that the Company complied with the laws and regulations relating to safety and soundness that are designated by the FDIC and the appropriate federal banking agency [specify appropriate federal banking agency, if applicable] during the fiscal year that ended on December 31, 20XX. The following subsidiary institutions of the Company that are subject to Part 363 are included in the scope of management's assessment of compliance with laws and regulations: [Identify the subsidiary institutions.] BCD Holding Company John Doe, Chief Executive Officer Date: Jane Doe, Chief Financial Officer Date:
(d)Statement Made at Holding Company Level—Noncompliance To: The Board of Directors and Audit Committee, BCD Holding Company Re: Management's Assessment of Compliance with Laws and Regulations The management of BCD Holding Company (the “Company”) has assessed the Company's compliance with the laws and regulations relating to safety and soundness that are designated by the FDIC and the appropriate federal banking agency [specify the appropriate federal banking agency, if applicable] during the fiscal year that ended on December 31, 20XX. The following subsidiary institutions of the Company that are subject to Part 363 are included in the scope of management's assessment of compliance with laws and regulations: [Identify the subsidiary institutions.] Because of the noncompliance during the fiscal year that ended on December 31, 20XX, with the laws and regulations relating to safety and soundness noted below, management has determined that the Company did not comply with the laws and regulations relating to safety and soundness that are designated by the FDIC and the appropriate federal banking agency [specify the appropriate federal banking agency, if applicable] during the fiscal year that ended on December 31, 20XX. [Identify and describe the instance or instances of noncompliance with the laws and regulations relating to safety and soundness.] BCD Holding Company John Doe, Chief Executive Officer Date: Jane Doe, Chief Financial Officer Date: 5. *Illustrative Management Report—Management's Assessment of Internal Control Over Financial Reporting* . The following illustrative reports of management's assessment of internal control over financial reporting satisfy the requirements of § 363.2(b)(3).
(a)Statement Made at Insured Depository Institution Level—No Material Weaknesses To: The Board of Directors and Audit Committee, ABC Depository Institution Re: Management's Assessment of Internal Control Over Financial Reporting ABC Depository Institution's (the “Institution”) internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, including those prepared for regulatory reporting purposes [specify the regulatory reports]. The Institution's internal control over financial reporting includes those policies and procedures that
(1)pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Institution;
(2)provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Institution are being made only in accordance with authorizations of management and directors of the Institution; and
(3)provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Institution's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate. Management assessed the effectiveness of the Institution's internal control over financial reporting, including controls over preparation of regulatory financial statements in accordance with the instructions for regulatory reporting [specify the regulatory reporting instructions], as of December 31, 20XX, based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework. Based on that assessment, management concluded that, as of December 31, 20XX, the Institution's internal control over financial reporting, including controls over preparation of regulatory financial statements in accordance with the instructions for regulatory reporting [specify the regulatory reporting instructions], is effective based on the criteria established in Internal Control—Integrated Framework. Management's assessment of the effectiveness of internal control over financial reporting, including controls over the preparation of regulatory financial statements in accordance with the instructions for regulatory reporting [specify the regulatory reporting instructions], as of December 31, 20XX, has been audited by [name of auditing firm], an independent public accounting firm, as stated in their report dated March XX, 20XX. ABC Depository Institution John Doe, Chief Executive Officer Date: Jane Doe, Chief Financial Officer Date:
(b)Statement Made at Insured Depository Institution Level—One or More Material Weaknesses To: The Board of Directors and Audit Committee, ABC Depository Institution Re: Management's Assessment of Internal Control Over Financial Reporting ABC Depository Institution's (the “Institution”) internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, including those prepared for regulatory reporting purposes [specify the regulatory reports]. The Institution's internal control over financial reporting includes those policies and procedures that
(1)pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Institution;
(2)provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Institution are being made only in accordance with authorizations of management and directors of the Institution; and
(3)provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Institution's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate. Management assessed the effectiveness of the Institution's internal control over financial reporting, including controls over the preparation of regulatory financial statements in accordance with the instructions for regulatory reporting [specify the regulatory reporting instructions], as of December 31, 20XX, based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework. Because of the material weakness (or weaknesses) noted below, management determined that the Institution's internal control over financial reporting, including controls over the preparation of regulatory financial statements in accordance with the instructions for regulatory reporting [specify the regulatory reporting instructions], was not effective as of December 31, 20XX. [Identify and describe the material weakness or weaknesses.] Management's assessment of the effectiveness of internal control over financial reporting, including controls over the preparation of regulatory financial statements in accordance with the instructions for regulatory reporting [specify the regulatory reporting instructions], as of December 31, 20XX, has been audited by [name of auditing firm], an independent public accounting firm, as stated in their report dated March XX, 20XX. ABC Depository Institution John Doe, Chief Executive Officer Date: Jane Doe, Chief Financial Officer Date:
(c)Statement Made at Holding Company Level—No Material Weaknesses To: The Board of Directors and Audit Committee, BCD Holding Company Re: Management's Assessment of Internal Control Over Financial Reporting BCD Holding Company's (the “Company”) internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, including those prepared for regulatory reporting purposes [specify the regulatory reports]. The Company's internal control over financial reporting includes those policies and procedures that
(1)pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
(2)provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
(3)provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate. Management assessed the effectiveness of the Company's internal control over financial reporting, including controls over the preparation of regulatory financial statements in accordance with the instructions for regulatory reporting [specify the regulatory reporting instructions], as of December 31, 20XX, based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework. Based on that assessment, management concluded that, as of December 31, 20XX, the Company's internal control over financial reporting, including controls over the preparation of regulatory financial statements in accordance with the instructions for regulatory reporting [specify the regulatory reporting instructions], is effective based on the criteria established in Internal Control—Integrated Framework. The following subsidiary institutions of the Company that are subject to Part 363 are included in the scope of this assessment of internal control over financial reporting: [Identify the subsidiary institutions.] Management's assessment of the effectiveness of internal control over financial reporting, including controls over the preparation of regulatory financial statements in accordance with the instructions for regulatory reporting [specify the regulatory reporting instructions], as of December 31, 20XX, has been audited by [name of auditing firm], an independent public accounting firm, as stated in their report dated March XX, 20XX. BCD Holding Company John Doe, Chief Executive Officer Date: Jane Doe, Chief Financial Officer Date:
(d)Statement Made at Holding Company Level—One or More Material Weaknesses To: The Board of Directors and Audit Committee, BCD Holding Company Re: Management's Assessment of Internal Control Over Financial Reporting BCD Holding Company's (the “Company”) internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, including those prepared for regulatory reporting purposes [specify the regulatory reports]. The Company's internal control over financial reporting includes those policies and procedures that
(1)pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
(2)provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
(3)provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate. Management assessed the effectiveness of the Company's internal control over financial reporting, including controls over the preparation of regulatory financial statements in accordance with the instructions for regulatory reporting [specify the regulatory reporting instructions], as of December 31, 20XX, based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework. Because of the material weakness (or weaknesses) noted below, management determined that the Company's internal control over financial reporting, including controls over the preparation of regulatory financial statements in accordance with the instructions for regulatory reporting [specify the regulatory reporting instructions], was not effective as of December 31, 20XX. The following subsidiary institutions of the Company that are subject to Part 363 are included in the scope of this assessment of internal control over financial reporting: [Identify the subsidiary institutions.] [Identify and describe the material weakness or weaknesses.] Management's assessment of the effectiveness of internal control over financial reporting, including controls over the preparation of regulatory financial statements in accordance with the instructions for regulatory reporting [specify the regulatory reporting instructions], as of December 31, 20XX, has been audited by [name of auditing firm], an independent public accounting firm, as stated in their report dated March XX, 20XX. BCD Holding Company John Doe, Chief Executive Officer Date: Jane Doe, Chief Financial Officer Date: 6. *Illustrative Management Report—Combined Statement of Management's Responsibilities, Management's Assessment of Compliance with Laws and Regulations, and Management's Assessment of the Effectiveness of Internal Control Over Financial Reporting,* if applicable. The following illustrative management reports satisfy the requirements of §§ 363.2(b)(1), (2), and (3).
(a)Management Report Made at Insured Depository Institution Level—Compliance with Laws and Regulations and No Material Weaknesses in Internal Control Over Financial Reporting To: The Board of Directors and Audit Committee, ABC Depository Institution Re: Management Report Statement of Management's Responsibilities The management of ABC Depository Institution (the “Institution”) is responsible for preparing the Institution's annual financial statements in accordance with generally accepted accounting principles; for establishing and maintaining an adequate internal control structure and procedures for financial reporting, including controls over the preparation of regulatory financial statements in accordance with the instructions for regulatory reporting [specify the regulatory reporting instructions]; and for complying with laws and regulations relating to safety and soundness that are designated by the FDIC and the appropriate federal banking agency [specify the appropriate federal banking agency, if applicable]. Management's Assessment of Compliance With Laws and Regulations Management of ABC Depository Institution (the “Institution”) has assessed the Institution's compliance with the laws and regulations relating to safety and soundness that are designated by the FDIC and the appropriate federal banking agency [specify the appropriate federal banking agency, if applicable] during the fiscal year that ended on December 31, 20XX. Based upon its assessment, management has concluded that the Institution complied with the laws and regulations relating to safety and soundness that are designated by the FDIC and the appropriate federal banking agency (specify the appropriate federal banking agency, if applicable) during the fiscal year that ended on December 31, 20XX. Management's Assessment of Internal Control Over Financial Reporting ABC Depository Institution's (the “Institution”) internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, including those prepared for regulatory reporting purposes [specify the regulatory reports]. The Institution's internal control over financial reporting includes those policies and procedures that
(1)pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Institution;
(2)provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Institution are being made only in accordance with authorizations of management and directors of the Institution; and
(3)provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Institution's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate. Management assessed the effectiveness of the Institution's internal control over financial reporting, including controls over the preparation of regulatory financial statements in accordance with the instructions for regulatory reporting [specify the regulatory reporting instructions], as of December 31, 20XX, based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework. Based on that assessment, management concluded that, as of December 31, 20XX, the Institution's internal control over financial reporting, including controls over the preparation of regulatory financial statements in accordance with the instructions for regulatory reporting [specify the regulatory reporting instructions], is effective based on the criteria established in Internal Control—Integrated Framework. Management's assessment of the effectiveness of internal control over financial reporting, including controls over the preparation of regulatory financial statements in accordance with the instructions for regulatory reporting [specify the regulatory reporting instructions], as of December 31, 20XX, has been audited by [name of auditing firm], an independent public accounting firm, as stated in their report dated March XX, 20XX. ABC Depository Institution John Doe, Chief Executive Officer Date: Jane Doe, Chief Financial Officer Date:
(b)Management Report Made at Holding Company Level—Compliance with Laws and Regulations and No Material Weaknesses in Internal Control Over Financial Reporting To: The Board of Directors and Audit Committee, BCD Holding Company Re: Management Report Statement of Management's Responsibilities The management of BCD Holding Company (the “Company”) is responsible for preparing the Company's annual financial statements in accordance with generally accepted accounting principles; for establishing and maintaining an adequate internal control structure and procedures for financial reporting, including controls over the preparation of regulatory financial statements in accordance with the instructions for regulatory reporting [specify the regulatory reporting instructions]; and for complying with laws and regulations relating to safety and soundness that are designated by the FDIC and the appropriate federal banking agency [specify the appropriate federal banking agency, if applicable]. The following subsidiary institutions of the Company that are subject to Part 363 are included in the scope of this management report, management's assessment of compliance with laws and regulations, and management's assessment of internal control over financial reporting: [Identify the subsidiary institutions.] Management's Assessment of Compliance With Laws and Regulations Management of BCD Holding Company (the “Company”) has assessed the Company's compliance with the laws and regulations relating to safety and soundness that are designated by the FDIC and the appropriate federal banking agency [specify the appropriate federal banking agency, if applicable] during the fiscal year that ended on December 31, 20XX. Based upon its assessment, management has concluded that the Company complied with the laws and regulations relating to safety and soundness that are designated by the FDIC and the appropriate federal banking agency [specify appropriate federal banking agency, if applicable] during the fiscal year that ended on December 31, 20XX. Management's Assessment of Internal Control Over Financial Reporting BCD Holding Company's (the “Company”) internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, including those prepared for regulatory reporting purposes [specify the regulatory reports]. The Company's internal control over financial reporting includes those policies and procedures that
(1)pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
(2)provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
(3)provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate. Management assessed the effectiveness of the Company's internal control over financial reporting, including controls over the preparation of regulatory financial statements in accordance with the instructions for regulatory reporting [specify the regulatory reporting instructions], as of December 31, 20XX, based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework. Based on that assessment, management concluded that, as of December 31, 20XX, the Company's internal control over financial reporting, including controls over the preparation of regulatory financial statements in accordance with the instructions for regulatory reporting [specify the regulatory reporting instructions], is effective based on the criteria established in Internal Control—Integrated Framework. Management's assessment of the effectiveness of internal control over financial reporting, including controls over the preparation of regulatory financial statements in accordance with the instructions for regulatory reporting [specify the regulatory reporting instructions], as of December 31, 20XX, has been audited by [name of auditing firm], an independent public accounting firm, as stated in their report dated March XX, 20XX. BCD Holding Company John Doe, Chief Executive Officer Date: Jane Doe, Chief Financial Officer Date: 7. *Illustrative Cover Letter—Compliance by Holding Company Subsidiaries.* The following illustrative cover letter satisfies the requirements of guideline 3, *Compliance by Holding Company Subsidiaries,* of Appendix A to part 363. To: (Appropriate FDIC Regional or Area Office) Division of Supervision and Consumer Protection, FDIC, and (Appropriate District or Regional Office of the Primary Federal Regulator(s), if not the FDIC), and (Appropriate State Bank Supervisor(s), if applicable) Dear [Insert addressees]: BCD Holding Company (the “Company”) is filing two copies of the Part 363 Annual Report for the fiscal year ended December 31, 20XX, on behalf of its insured depository institution subsidiaries listed in the chart below that are subject to Part 363. The Part 363 Annual Report contains audited comparative annual financial statements, the independent public accountant's report on the audited financial statements, management's statement of responsibilities, management's assessment of compliance with laws and regulations, and [if applicable] management's assessment of and the independent public accountant's attestation report on internal controls over financial reporting. The chart below also indicates the level (institution or holding company) at which the requirements of Part 363 are being satisfied. The Company's insured depository institution subsidiary that complies with all of the Part 363 annual reporting requirements at the institution level has filed [or will file] its Part 363 Annual Report separately. Institutions subject to part 363 Audited financial statements Management's statement of responsibilities Management's assessment of compliance with laws and regulations Management's internal control assessment Independent auditor's internal control attestation report ABC Depository Institution HC Level HC Level HC Level HC Level HC Level. DEF Depository Institution HC Level Institution Level Institution Level Institution Level Institution Level. If you have any questions regarding the annual report [or reports] of the Company's insured depository institution subsidiaries subject to part 363 or if you need any further information, you may contact me at 987-654-3210. BCD Holding Company Date: [Insert officer's name and title.] By order of the Board of Directors. Dated at Washington, DC, this 16th day of October, 2007. Federal Deposit Insurance Corporation. Robert E. Feldman, Executive Secretary. [FR Doc. E7-21168 Filed 11-1-07; 8:45 am] BILLING CODE 6714-01-P 72 212 Friday, November 2, 2007 Rules and Regulations Part III Environmental Protection Agency 40 CFR Part 52 Federal Implementation Plans for the Clean Air Interstate Rule: Automatic Withdrawal Provisions; Final Rule ENVIRONMENTAL PROTECTION AGENCY 40 CFR Part 52 [EPA-HQ-0AR-2007-0510; FRL-8485-7] Federal Implementation Plans for the Clean Air Interstate Rule: Automatic Withdrawal Provisions AGENCY: Environmental Protection Agency (EPA). ACTION: Direct final rule. SUMMARY: EPA is taking direct final action to amend the Federal Implementation Plans
(FIPs)for the Clean Air Interstate Rule
(CAIR)to provide for automatic withdrawal of the CAIR FIPs in a State upon the effective date of EPA's approval of a full State implementation plan
(SIP)revision meeting the CAIR requirements. All CAIR States are required to revise their SIPs to include control measures to reduce the emissions of nitrogen oxides (NO <sup>X</sup> ) and/or sulfur dioxide (SO <sup>2</sup> ). The EPA issued the CAIR FIPs on April 28, 2006 as a backstop to implement the CAIR in each CAIR State until that State has an EPA-approved CAIR SIP in place to achieve the required reductions. In the FIP rulemaking, EPA stated it would withdraw the FIPs in a State in coordination with the approval of the CAIR SIP for that State. In this action EPA makes the FIP withdrawal in a State automatic upon approval of the State's full CAIR SIP and to the extent of that approval. EPA believes it is appropriate for the FIP withdrawal to be automatic because to the extent EPA approves the State's full CAIR SIP, this corrects that deficiency that provided the basis for EPA's promulgation of the FIPs in that State. DATES: The direct final rule is effective on January 16, 2008 without further notice, unless EPA receives adverse comment by December 17, 2007. If EPA receives adverse comment, we will publish a timely withdrawal in the **Federal Register** informing the public that the rule will not take effect. *Public Hearing:* If anyone contacts EPA requesting to speak at a public hearing by November 13, 2007, EPA will hold a public hearing on November 19, 2007 in Research Triangle Park, North Carolina. ADDRESSES: Submit your comments, identified by Docket ID No. EPA-HQ-OAR-2007-0510, by one of the following methods: • *http://www.regulations.gov:* Follow the on-line instructions for submitting comments. • *E-mail: a-and-r-Docket@epa.gov* . Attention Docket ID No. EPA-HQ-OAR-2007-0510. • *Fax:*
(202)566-9744. Attention Docket ID No. EPA-HQ-OAR-2007-0510. • *Mail:* EPA Docket Center, EPA West (Air Docket), Attention Docket ID No. EPA-HQ-OAR-2007-0510, Environmental Protection Agency, Mailcode: 6102T, 1200 Pennsylvania Ave., NW., Washington, DC 20460. • *Hand Delivery:* EPA Docket Center (Air Docket), Attention Docket ID No. EPA-HQ-OAR-2007-0510, Environmental Protection Agency, 1301 Constitution Avenue, NW., Room 3334; Washington, DC. Such deliveries are only accepted during the Docket's normal hours of operation, and special arrangements should be made for deliveries of boxed information. *Instructions:* Direct your comments to Docket ID No. EPA-HQ-OAR-2007-0510. EPA's policy is that all comments received will be included in the public docket without change and may be made available online at *http://www.regulations.gov* , including any personal information provided, unless the comment includes information claimed to be Confidential Business Information
(CBI)or other information whose disclosure is restricted by statute. Do not submit information that you consider to be CBI or otherwise protected through *www.regulations.gov* or e-mail. The *http://www.regulations.gov* Web site is an “anonymous access” system, which means EPA will not know your identity or contact information unless you provide it in the body of your comment. If you send an e-mail comment directly to EPA without going through *www.regulations.gov* your e-mail address will be automatically captured and included as part of the comment that is placed in the public docket and made available on the Internet. If you submit an electronic comment, EPA recommends that you include your name and other contact information in the body of your comment and with any disk or CD-ROM you submit. If EPA cannot read your comment due to technical difficulties and cannot contact you for clarification, EPA may not be able to consider your comment. Electronic files should avoid the use of special characters and any form of encryption, and be free of any defects or viruses. For additional information about EPA's public docket visit the EPA Docket Center homepage at *http://www.epa.gov/epahome/dockets.htm* . *Docket:* All documents in the docket are listed in the *http://www.regulations.gov* index. Although listed in the index, some information is not publicly available, e.g., CBI or other information whose disclosure is restricted by statute. Certain other material, such as copyrighted material, will be publicly available only in hard copy. Publicly available docket materials are available either electronically in *http://www.regulations.gov* or in hard copy at the EPA Docket Center, EPA/DC, EPA West, Room 3334, 1301 Constitution Ave., NW., Washington, DC. The Public Reading Room is open from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding legal holidays. The telephone number for the Public Reading Room is
(202)566-1744, and the telephone number for the EPA Docket Center is
(202)566-1742. Rulemaking actions related to the CAIR and the CAIR FIPs are also available at the EPA's CAIR Web site at *http://www.epa.gov/cair* . FOR FURTHER INFORMATION CONTACT: Carla Oldham, Air Quality Planning Division, Office of Air Quality Planning and Standards, mail code C539-04, Environmental Protection Agency, Research Triangle Park, North Carolina 27711; telephone number: 919-541-3347; fax number: 919-541-0824; e-mail address: *oldham.carla@epa.gov* . SUPPLEMENTARY INFORMATION: Outline I. Why Is EPA Using a Direct Final Rule? II. Does This Action Apply to Me? III. What Should I Consider As I Prepare My Comments? IV. What Are the Details for the Potential Public Hearing? V. Availability of Related Information VI. What Is the Background for This Action? VII. What Is This Direct Final Rule? VIII. Statutory and Executive Order Reviews A. Executive Order 12866: Regulatory Planning and Review B. Paperwork Reduction Act C. Regulatory Flexibility Act D. Unfunded Mandates Reform Act E. Executive Order 13132: Federalism F. Executive Order 13175: Consultation and Coordination With Indian Tribal Governments G. Executive Order 13045: Protection of Children From Environmental Health and Safety Risks H. Executive Order 13211: Actions That Significantly Affect Energy Supply, Distribution, or Use I. National Technology Transfer Advancement Act J. Executive Order 12898: Federal Actions To Address Environmental Justice in Minority Populations and Low-Income Populations K. Congressional Review Act L. Judicial Review I. Why Is EPA Using a Direct Final Rule? EPA is publishing this rule without a prior proposed rule because we view this as a noncontroversial action and anticipate no adverse comment. Under this rule, the CAIR FIPs in a given State will be automatically withdrawn when, and to the extent, EPA approves a full CAIR SIP for that State. The FIP will not be withdrawn until the State's full CAIR SIP is effective. EPA's authority to promulgate the CAIR FIPs was based on EPA's prior findings that the existing SIPs did not adequately address interstate transport (71 FR 25328, 25338; April 28, 2006). To the extent the full CAIR SIP is approved for a given State, this corrects this deficiency and thus eliminates the basis for the FIPs for that State. Therefore, EPA believes that, following the approval of the full CAIR SIP, the Agency must withdraw the FIPs to the extent of the approval. Further, in the rulemaking promulgating the CAIR FIPs, EPA provided public notice that the withdrawal of the FIPs would be a necessary consequence of the SIP approval. Id. at 25340. Nonetheless, in the “Proposed Rules” section of this **Federal Register** , we are publishing a separate document that will serve as the proposed rule for this FIP withdrawal final rule action if relevant adverse comments are received on this direct final rule. We will not institute a second comment period on this action. Any parties interested in commenting on that parallel proposal must do so at this time. For further information about commenting on this rule, see the ADDRESSES section of this document. If EPA receives adverse comment, we will publish a timely withdrawal in the **Federal Register** informing the public that this direct final rule will not take effect. We would address all public comments in any subsequent final rule based on the proposed rule. II. Does This Action Apply to Me? This action does not impose any control requirements. It amends the CAIR FIPs to provide for automatic withdrawal of the CAIR FIPs in a State upon the effective date of EPA's approval of the CAIR SIP for the State. EPA promulgated the CAIR FIPs on April 28, 2006 (71 FR 25328). Categories and entities potentially regulated by the CAIR FIPs include the following: Category NAICS code 1 Examples of potentially regulated entities Industry 221112 Fossil fuel-fired electric utility steam generating units. Federal government 2 221122 Fossil fuel-fired electric utility steam generating units owned by the Federal government. State/local/Tribal government 2 221122 Fossil fuel-fired electric utility steam generating units owned by municipalities. 921150 Fossil fuel-fired electric utility steam generating units in Indian Country. 1 North American Industry Classification System. 2 Federal, State, or local government-owned and operated establishments are classified according to the activity in which they are engaged. This table is not intended to be exhaustive, but rather provides a guide for readers regarding entities likely to be regulated by the CAIR FIPs. To determine whether your facility is affected by the CAIR FIPs, you should examine the definitions and applicability criteria in 40 CFR 97.102, 97.104, 97.105, 97.202, 97.204, 97.205, 97.302, 97.304, and 97.305. If you have any questions regarding the applicability of the CAIR FIPs to a particular entity, consult the person listed in the preceding section under FOR FURTHER INFORMATION CONTACT . III. What Should I Consider as I Prepare My Comments? A. Submitting CBI Do not submit this information to EPA through *www.regulations.gov* or e-mail. Clearly mark the part or all of the information that you claim to be CBI. For CBI information in a disk or CD-ROM that you mail to EPA, mark the outside of the disk or CD-ROM as CBI and then identify electronically within the disk or CD-ROM the specific information that is claimed as CBI. In addition to one complete version of the comment that includes information claimed as CBI, a copy of the comment that does not contain the information claimed as CBI must be submitted for inclusion in the public docket. Information so marked will not be disclosed except in accordance with procedures set forth in 40 CFR part 2. B. Tips for Preparing Your Comments When submitting comments, remember to: • Identify the rulemaking by docket number and other identifying information (subject heading, **Federal Register** date and page number). • Follow directions—The agency may ask you to respond to specific questions or organize comments by referencing a Code of Federal Regulations
(CFR)part or section number. • Explain why you agree or disagree; suggest alternatives and substitute language for your requested changes. • Describe any assumptions and provide any technical information and/or data that you used. • If you estimate potential costs or burdens, explain how you arrived at your estimate in sufficient detail to allow for it to be reproduced. • Provide specific examples to illustrate your concerns, and suggest alternatives. • Explain your views as clearly as possible, avoiding the use of profanity or personal threats. • Make sure to submit your comments by the comment period deadline identified. IV. What Are the Details for the Potential Public Hearing? If anyone contacts EPA by November 13, 2007, requesting to speak at a public hearing on this action, EPA will hold a public hearing on November 19, 2007 in Research Triangle Park, North Carolina. The EPA will not hold a hearing if one is not requested. Please check EPA's Web page at *www.epa.gov/cair* on November 14, 2007 for the announcement of whether the hearing will be held. If there is a public hearing, it will be held at the EPA, Building C, 109 T.W. Alexander Drive, Research Triangle Park, North Carolina, 27709; the room number will be announced on the CAIR Web site at *www.epa.gov/cair.* Because this is a U.S. government facility, everyone planning to attend the public hearing, if one is held, should be prepared to show valid picture identification to the security staff in order to gain access to the meeting room. If held, the public hearing will begin at 10 a.m. and continue until 5 p.m., if necessary, depending on the number of speakers. The EPA may end the hearing early if all registered speakers have had an opportunity to speak, but no earlier than 2 p.m. Persons wishing to present oral testimony that have not made arrangements in advance should register by 2 p.m. the day of the hearing. Oral testimony will be limited to 5 minutes per commenter. The EPA encourages commenters to provide written versions of their oral testimonies either electronically (on computer disk or CD-ROM) or in paper copy. Verbatim transcripts and written statements will be included in the rulemaking docket. If you want to request a hearing and present oral testimony at the hearing, you should notify, on or before November 13, 2007, Pam Long, EPA, Office of Air Quality Planning and Standards, Air Quality Policy Division, C504-03, Research Triangle Park, NC 27711, telephone
(919)541-0641, e-mail *long.pam@epa.gov.* The hearing will be strictly limited to the subject matter of the proposal, the scope of which is discussed below. Any member of the public may file a written comment by the close of the comment period. Written comments should be submitted to Docket ID No. EPA-HQ-OAR 2007-0510 at the addresses given above for submittal of comments. If a hearing is held, the hearing schedule, including the list of speakers, will be posted on EPA's Web page at *www.epa.gov/cair.* A verbatim transcript of the hearing, if held, and written comments will be made available for copying during normal working hours at the EPA Docket Center address given above for inspection of documents. V. Availability of Related Information The official record for this rulemaking, as well as the public version, has been established under Docket ID No. EPA-HQ-OAR-2007-0510 (including comments and data submitted electronically as described below). A public version of this record, including printed, paper versions of electronic comments, which does not include any information claimed as CBI, is available for inspection from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding legal holidays. The official rulemaking record is located at the address provided in ADDRESSES at the beginning of this document. In addition, the **Federal Register** rulemaking actions and associated documents are located at *www.epa.gov/cair* . The docket for the rulemaking that promulgated the CAIR FIPs Rule is EPA-HQ-OAR-2004-0076. The rulemaking docket for the related CAIR (full title, “Rule to Reduce Interstate Transport of Fine Particulate Matter and Ozone”) is EPA-HQ-OAR-2003-0053. The CAIR FIPs and the CAIR **Federal Register** rulemaking actions and associated documents are also located at *http://www.epa.gov/cair.* VI. What Is the Background for This Action? In a final rule published on April 25, 2005 (70 FR 21147), effective May 25, 2005, EPA made national findings that States had failed to submit SIPs required under section 110(a)(2)(D)(i) of the CAA to address interstate transport with respect to the PM 2.5 and 8-hour ozone NAAQS. These SIPs were due in July 2000, 3 years after the promulgation of the 1997 PM <sup>2.5</sup> and 8-hour ozone NAAQS. The national findings started a 2-year clock for EPA to promulgate FIPs to address the requirements of section 110(a)(2)(D)(i) in all the States. Under section 110(c)(1), EPA may issue a FIP for any such State any time after such findings are made and must do so unless a SIP revision correcting the deficiency is approved by EPA before the FIP is promulgated. On May 12, 2005 (70 FR 25162), EPA issued the CAIR, in which it determined that emissions from 28 States and the District of Columbia (collectively, CAIR States) are contributing significantly to nonattainment of the fine particle (PM <sup>2.5</sup> ) and/or 8-hour ozone national ambient air quality standards (NAAQS) in downwind States. The CAIR also determined the levels of NO <sup>X</sup> and SO <sup>2</sup> emissions reduction requirements necessary for CAIR-affected States to eliminate their significant contribution to downwind nonattainment of the 8-hour ozone and PM <sup>2.5</sup> NAAQS. ( *See also* CAIR revisions on April 28, 2006; 71 FR 25328 and December 13, 2006; 71 FR 74792.) NO <sup>X</sup> emissions are precursors to 8-hour and PM <sup>2.5</sup> ; SO <sup>2</sup> emissions are precursors to PM <sup>2.5</sup> . All CAIR States were required to submit their SIPs to satisfy the CAIR requirements by September 11, 2006. For States subject to the CAIR requirements, an approved CAIR SIP will satisfy, to the extent it is approved, the section 110(a)(2)(D)(i) requirements discussed in the April 25, 2005 findings action. In a final rule published on April 28, 2006 (71 FR 25328), EPA promulgated FIPs as a backstop to implement the CAIR requirements in all CAIR States. As the control requirement for the FIPs, EPA adopted the model trading rules for EGUs that EPA provided in CAIR as a control option for States, with minor changes to account for Federal rather than State implementation. The FIPs will regulate EGUs in the affected States and achieve the emissions reduction requirements established by the CAIR until States have EPA-approved SIPs to achieve the reductions. In the FIP preamble, EPA stated it would withdraw the FIPs in a State in coordination with the approval of the CAIR SIP for that State. To the extent EPA approves a full CAIR SIP for a State, this eliminates the basis for CAIR FIP for the State, which EPA promulgated as a result of the April 25, 2005 findings. In promulgating the FIPs, EPA explained that the FIPs do not limit the options available to States to meet the requirements of the CAIR. EPA explained that it intended to avoid taking any steps to implement FIP requirements that could impact a State's ability to regulate their sources in a different manner until a year after the CAIR SIP submission deadline (71 FR 25330-25331). EPA further explained that States could replace the FIPs requirements at a later time. The CAIR FIPs also provide that States may submit “abbreviated” SIP revisions to replace or supplement specific elements of the FIPs, leaving the remainder of the overall FIPs in place, rather than submitting full CAIR SIP revisions that replace the FIPs. The abbreviated SIP revisions, when approved, will automatically replace or supplement the corresponding CAIR FIP provisions. ( *See* 71 FR at 25345-25346 for further details.) The automatic withdrawal provisions of this rule only apply to EPA approval of full CAIR SIPs. This rule does not affect the interaction between the abbreviated CAIR SIP provisions and the CAIR FIPs (which remain in place following approval of an abbreviated SIP). VII. What Is This Direct Final Rule? In this direct final rule, EPA is revising the CAIR FIPs to provide that the FIPs will be automatically withdrawn in a State upon the effective date of EPA's approval of the State's full CAIR SIP and to the extent of that approval. If EPA only partially approves the State's full CAIR SIP submittal, then the FIP will be automatically withdrawn only to the extent of the partial approval. If EPA conditionally approves a full CAIR SIP, this automatic withdrawal provision will have no impact on the FIP, which will remain in place pending further action by EPA. If necessary, in any action approving a full CAIR SIP, EPA will provide additional details regarding the effect of the approval action on the status of the FIPs in that State. One scenario under which EPA might partially approve and partially disapprove a SIP involves full CAIR SIPs on which EPA takes final action after EPA has already begun allocating NO <sup>X</sup> allowances under the FIP. For example, if the State submits a SIP that adopts the model cap-and-trade programs for EGUs and EPA takes final action on the SIP after EPA has allocated NO <sup>X</sup> allowances for 2009 under the FIP, but before it has allocated any other allowances, EPA likely would disapprove the portions of the SIP relating to the allocation of 2009 NO <sup>X</sup> allowances. The disapproval of the 2009 NO <sup>X</sup> allocations would be necessary to prevent excess and duplicative NO <sup>X</sup> allowances from entering the trading program. (See Section VI.F.1. of the CAIR FIPs Rule for the schedule for recording NO <sup>X</sup> allocations in sources' accounts (71 FR 25352)) Under this scenario, because EPA would disapprove the portions of the full CAIR SIP relating to the allocation of 2009 NO <sup>X</sup> allowances, the corresponding portions of the FIP providing EPA with authority to allocate 2009 NO <sup>X</sup> allowances (including the authority to allocate NO <sup>X</sup> allowances from the new unit set-aside, which would not be allocated by EPA until early 2009) would remain in place. However, EPA would approve the remainder of the SIP if it were found to be adequate, and thus the remainder of the FIP would be automatically withdrawn. There would be no penalties or negative consequences for the State associated with this partial SIP disapproval, and the State would not need to take any further corrective SIP action. EPA does not anticipate conditionally approving any full CAIR SIPs. However, should EPA do so, EPA will address the impact of the conditional approval on the status of the CAIR FIPs in that State at that time. At this time, EPA is not proposing to automatically withdraw the FIP for a State based on conditional approval of a SIP for that State because a conditional approval carries the risk that it will convert to a disapproval in 1 year if the State does not address the specified conditions by that time. The EPA believes it is appropriate to make the CAIR FIP withdrawal automatic in a State upon the effective date of the approval of the State's full CAIR SIP because once EPA approves a State's full CAIR SIP, EPA no longer has authority for the CAIR FIP in that State to the extent of that approval. Once the full CAIR SIP is effective and sources in the State are subject to the SIP, EPA's withdrawal of the appropriate portions of the CAIR FIPs has no practical consequences. Further, making the FIP withdrawal automatic upon full CAIR SIP approval will provide immediate clarity to affected sources as to their control requirements and conserve Agency resources that would otherwise be needed to conduct numerous nondiscretionary, noncontroversial FIP withdrawal rulemakings. VIII. Statutory and Executive Order Reviews A. Executive Order 12866: Regulatory Planning and Review This action is not a “significant regulatory action” under the terms of Executive Order 12866 (58 FR 51735, October 4, 1993) and is therefore not subject to review under the Executive Order. B. Paperwork Reduction Act This action does not impose any new information collection burden. This action amends the CAIR FIPs to provide for automatic withdrawal of the CAIR FIPs in a State once the State's CAIR SIP is in place. EPA believes that the Paperwork Reduction Act (44 U.S.C. 3501 *et seq.* ) requirements of the existing CAIR FIPs rule are satisfied through the Information Collection Request
(ICR)(EPA ICR number 2152.02; OMB control number 2060-0570) submitted to the OMB for review and approval as part of the CAIR (70 FR 25162-25405) and approved by the OMB in September 2005. A copy of the OMB approved Information Collection Request
(ICR)may be obtained from Susan Auby, Collection Strategies Division; U.S. Environmental Protection Agency (2822T); 1200 Pennsylvania Ave., NW., Washington, DC 20460 or by calling
(202)566-1672. Burden means the total time, effort, or financial resources expended by persons to generate, maintain, retain, or disclose or provide information to or for a Federal agency. This includes the time needed to review instructions; develop, acquire, install, and utilize technology and systems for the purposes of collecting, validating, and verifying information, processing and maintaining information, and disclosing and providing information; adjust the existing ways to comply with any previously applicable instructions and requirements; train personnel to be able to respond to a collection of information; search data sources; complete and review the collection of information; and transmit or otherwise disclose the information. An agency may not conduct or sponsor, and a person is not required to respond to a collection of information unless it displays a currently valid OMB control number. The OMB control numbers for EPA's regulations in 40 CFR are listed in 40 CFR part 9. C. Regulatory Flexibility Act The Regulatory Flexibility Act
(RFA)generally requires an agency to prepare a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements under the Administrative Procedure Act or any other statute unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. Small entities include small businesses, small organizations, and small governmental jurisdictions. For purposes of assessing the impacts of this rule on small entities, small entity is defined as:
(1)A small business “as defined by the Small Business Administration's
(SBA)regulations at 13 CFR 121.201;”
(2)a small governmental jurisdiction that is a government of a city, county, town, school district or special district with a population of less than 50,000; and
(3)a small organization that is any not-for-profit enterprise which is independently owned and operated and is not dominant in its field. After considering the economic impacts of this direct final rule on small entities, I certify that this action will not have a significant economic impact on a substantial number of small entities. This direct final rule does not impose new requirements on any entities, but instead provides for the automatic withdrawal of the CAIR FIPs in certain circumstances. Thus, it does not impose any requirements on small entities. D. Unfunded Mandates Reform Act Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), P.L. 104-4, establishes requirements for Federal agencies to assess the effects of their regulatory actions on State, local, and tribal governments and the private sector. Under section 202 of the UMRA, EPA generally must prepare a written statement, including a cost-benefit analysis, for proposed and final rules with “Federal mandates” that may result in expenditures to State, local, and tribal governments, in the aggregate, or to the private sector, of $100 million or more in any 1 year. Before promulgating an EPA rule for which a written statement is needed, section 205 of the UMRA generally requires EPA to identify and consider a reasonable number of regulatory alternatives and adopt the least costly, most cost-effective or least burdensome alternative that achieves the objectives of the rule. The provisions of section 205 do not apply when they are inconsistent with applicable law. Moreover, section 205 allows EPA to adopt an alternative other than the least costly, most cost-effective or least burdensome alternative if the Administrator publishes with the final rule an explanation why that alternative was not adopted. Before EPA establishes any regulatory requirements that may significantly or uniquely affect small governments, including tribal governments, it must have developed under section 203 of the UMRA a small government agency plan. The plan must provide for notifying potentially affected small governments, enabling officials of affected small governments to have meaningful and timely input in the development of EPA regulatory proposals with significant Federal intergovernmental mandates, and informing, educating, and advising small governments on compliance with the regulatory requirements. This rule contains no Federal mandates (under the regulatory provisions of Title II of the UMRA) for State, local, or tribal governments or the private sector. The rule imposes no enforceable duty on any State, local or tribal governments or the private sector; but would provide automatic withdrawal of the CAIR FIPs in certain circumstances. Thus, this rule is not subject to the requirements of sections 202 and 205 of the UMRA. E. Executive Order 13132: Federalism Executive Order 13132, entitled “Federalism” (64 FR 43255, August 10, 1999), requires EPA to develop an accountable process to ensure “meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications.” “Policies that have federalism implications” is defined in the Executive Order to include regulations that have “substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.” This final rule does not have federalism implications. It will not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132. This rule imposes no enforceable duty on any State, local or tribal governments or the private sector. Thus, Executive Order 13132 does not apply to this rule. F. Executive Order 13175: Consultation and Coordination With Indian Tribal Governments Executive Order 13175, entitled “Consultation and Coordination with Indian Tribal Governments” (65 FR 67249, November 9, 2000), requires EPA to develop an accountable process to ensure “meaningful and timely input by tribal officials in the development of regulatory policies that have tribal implications.” This direct final rule does not have tribal implications, as specified in Executive Order 13175 because it imposes no enforceable duty on any State, local or tribal governments or the private sector. Thus, Executive Order 13175 does not apply to this rule. G. Executive Order 13045: Protection of Children From Environmental Health and Safety Risks Executive Order 13045: “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997) applies to any rule that:
(1)Is determined to be “economically significant” as defined under Executive Order 12866, and
(2)concerns an environmental health or safety risk that EPA has reason to believe may have a disproportionate effect on children. If the regulatory action meets both criteria, the Agency must evaluate the environmental health or safety effects of the planned rule on children, and explain why the planned regulation is preferable to other potentially effective and reasonably feasible alternatives considered by the Agency. EPA interprets Executive Order 13045 as applying only to those regulatory actions that are based on health or safety risks, such that the analysis required under section 5-501 of the Order has the potential to influence the regulation. This rule is not subject to Executive Order 13045 because it does not establish an environmental standard intended to mitigate health or safety risks. H. Executive Order 13211: Actions That Significantly Affect Energy Supply, Distribution, or Use This rule is not subject to Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355 (May 22, 2001)) because it is not a significant regulatory action under Executive Order 12866. I. National Technology Transfer Advancement Act Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (“NTTAA”), Public Law No. 104-113, 12(d) (15 U.S.C. 272 note) directs EPA to use voluntary consensus standards in its regulatory activities unless to do so would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards (e.g., materials specifications, test methods, sampling procedures, and business practices) that are developed or adopted by voluntary consensus standards bodies. The NTTAA directs EPA to provide Congress, through OMB, explanations when the Agency decides not to use available and applicable voluntary consensus standards. This direct final rulemaking does not involve technical standards. Therefore, EPA did not consider the use of any voluntary consensus standards. J. Executive Order 12898: Federal Actions To Address Environmental Justice in Minority Populations and Low-Income Populations Executive Order 12898 (59 FR 7629 (Feb. 16, 1994)) establishes federal executive policy on environmental justice. Its main provision directs Federal agencies, to the greatest extent practicable and permitted by law, to make environmental justice part of their mission by identifying and addressing, as appropriate, disproportionately high and adverse human health or environmental effects of their programs, policies, and activities on minority populations and low-income populations in the United States. EPA has determined that this final rule will not have disproportionately high and adverse human health or environmental effects on minority or low-income populations because it does not affect the level of protection provided to human health or the environment. This rule imposes no enforceable duty on any State, local or tribal governments or the private sector. It will neither increase nor decrease environmental protection. K. Congressional Review Act The Congressional Review Act, 5 U.S.C. 801 *et seq.* , as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the **Federal Register** . A Major rule cannot take effect until 60 days after it is published in the **Federal Register** . This action is not a “major rule” as defined by 5 U.S.C. 804(2). This rule will be effective January 16, 2008. L. Judicial Review Under CAA section 307(b), judicial review of this final action is available only by filing a petition for review in the U.S. Court of Appeals for the District of Columbia Circuit on or before January 2, 2008. Under CAA section 307(d)(7)(B), only those objections to the final rule that were raised with specificity during the period for public comment may be raised during judicial review. Moreover, under CAA section 307(b)(2), the requirements established by this final rule may not be challenged separately in any civil or criminal proceedings brought by EPA to enforce these requirements. List of Subjects in 40 CFR Part 52 Environmental protection, Administrative practice and procedure, Air pollution control, Electric utilities, Intergovernmental relations, Nitrogen oxides, Ozone, Particulate matter, Reporting and recordkeeping requirements, Sulfur dioxide. Dated: October 17, 2007. Stephen L. Johnson, Administrator. For the reasons set forth in the preamble, part 52 of chapter I of title 40 of the Code of Federal Regulations is amended as follows: PART 52—[AMENDED] 1. The authority citation for part 52 continues to read as follows: Authority: 42 U.S.C. 7401 et seq. Subpart A—General Provisions 2. Section 52.35 is revised to read as follows: § 52.35 What are the requirements of the Federal Implementation Plans
(FIPs)for the Clean Air Interstate Rule
(CAIR)relating to emissions of nitrogen oxides? (a)(1) The Federal CAIR NO X Annual Trading Program provisions of part 97 of this chapter constitute the Clean Air Interstate Rule Federal Implementation Plan provisions that relate to annual emissions of nitrogen oxides (NO <sup>X</sup> ). Each State that is described in § 51.123(c)(1) and
(2)of this chapter received a finding by the Administrator that the State failed to submit a State Implementation Plan
(SIP)to satisfy the requirements of section 110(a)(2)(D)(i)(I) of the Clean Air Act for the PM <sup>2.5</sup> NAAQS. The provisions of subparts AA through II of part 97 of this chapter, regarding the CAIR NO <sup>X</sup> Annual Trading Program, apply to the sources in each of these States that has not promulgated a SIP approved by the Administrator as correcting that deficiency. Following promulgation of an approval by the Administrator of a State's SIP as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to NO <sup>X</sup> under § 51.123 of this chapter, these provisions of part 97 of this chapter will no longer apply to the sources in that State, except to the extent the Administrator's approval of the SIP is partial or conditional or unless such approval is under § 51.123(p) of this chapter.
(2)Notwithstanding any provisions of paragraph (a)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated any CAIR NO <sup>X</sup> allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> allowances for those years shall continue to apply, unless the Administrator approves a SIP that provides for the allocation of the remaining CAIR NO <sup>X</sup> allowances for those years. (b)(1) The Federal CAIR NO <sup>X</sup> Ozone Season Trading Program provisions of part 97 of this chapter constitute the Clean Air Interstate Rule Federal Implementation Plan provisions that relate to emissions of nitrogen oxides (NO <sup>X</sup> ) during the ozone season, as defined in § 97.302 of this chapter. Each State that is described in § 51.123(c)(1) and
(3)of this chapter received a finding by the Administrator that the State failed to submit a State Implementation Plan
(SIP)to satisfy the requirements of section 110(a)(2)(D)(i)(I) of the Clean Air Act for the 8-hour ozone NAAQS. The provisions of subparts AAAA through IIII of part 97 of this chapter, regarding the CAIR NO <sup>X</sup> Ozone Season Trading Program, apply to sources in each of these States that has not promulgated a SIP revision approved by the Administrator as correcting that deficiency. Following promulgation of an approval by the Administrator of a State's SIP as meeting the requirements of CAIR for ozone relating to NO <sup>X</sup> under § 51.123 of this chapter, these provisions of part 97 of this chapter will no longer apply to sources in that State, except to the extent the Administrator's approval of the SIP is partial or conditional or unless such approval is under § 51.123(ee) of this chapter.
(2)Notwithstanding any provisions of paragraph (b)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated any CAIR NO <sup>X</sup> Ozone Season allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> Ozone Season allowances for those years shall continue to apply, unless the Administrator approves a SIP that provides for the allocation of the remaining CAIR NO <sup>X</sup> Ozone Season allowances for those years.
(c)The provisions of this section do not invalidate or otherwise affect the obligations of States, emissions sources, or other responsible entities with respect to all portions of plans approved or promulgated under this part or the obligations of States under the requirements of §§ 51.123 and 51.125 of this chapter. (d)(1) The States with SIPs approved by the Administrator as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to NO <sup>X</sup> under § 51.123(o) of this chapter are: [STATE NAME].
(2)The States with SIPs approved by the Administrator as meeting the requirements of CAIR for ozone relating to NO <sup>X</sup> under § 51.123(aa) of this chapter, are: [STATE NAME]. 3. Section 52.36 is revised to read as follows: § 52.36 What are the requirements of the Federal Implementation Plans
(FIPs)for the Clean Air Interstate Rule
(CAIR)relating to emissions of sulfur dioxide?
(a)The Federal CAIR SO2 Trading Program provisions of part 97 of this chapter constitute the Clean Air Interstate Rule Federal Implementation Plan provisions for emissions of sulfur dioxide (SO <sup>2</sup> ). Each State that is described in § 51.124(c) of this chapter is subject to a finding by the Administrator that the State failed to submit a State Implementation Plan
(SIP)to satisfy the requirements of section 110(a)(2)(D)(i)(I) of the Clean Air Act for the PM <sup>2.5</sup> NAAQS. The provisions of subparts AAA through III of part 97 of this chapter, regarding the CAIR SO <sup>2</sup> Trading Program, apply to sources in each of these States that has not promulgated a SIP revision approved by the Administrator as correcting that deficiency. Following promulgation of an approval by the Administrator of a State's SIP as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to SO <sup>2</sup> under § 51.124 of this chapter, these provisions of part 97 of this chapter will no longer apply to sources in that State, except to the extent the Administrator's approval of the SIP is partial or conditional or unless such approval is under § 51.124(r) of this chapter.
(b)The provisions of this section do not invalidate or otherwise affect the obligations of States, emissions sources, or other responsible entities with respect to all portions of plans approved or promulgated under this part or the obligations of States under the requirements of §§ 51.124 and 51.125 of this chapter.
(c)The States with SIPs approved by the Administrator as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to SO <sup>2</sup> under § 51.124(o) of this chapter are: [STATE NAME] Subpart B—Alabama 4. Section 52.54 is revised to read as follows: § 52.54 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of nitrogen oxides? (a)(1) The owner and operator of each source located within the State of Alabama and for which requirements are set forth under the Federal CAIR NO <sup>X</sup> Annual Trading Program in subparts AA through II of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Alabama State Implementation Plan
(SIP)as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to NO <sup>X</sup> under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(p) of this chapter.
(2)Notwithstanding any provisions of paragraph (a)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO <sup>X</sup> allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO <sup>X</sup> allowances for those years. (b)(1) The owner and operator of each NO <sup>X</sup> source located within the State of Alabama and for which requirements are set forth under the Federal CAIR NO <sup>X</sup> Ozone Season Trading Program in subparts AAAA through IIII of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Alabama State Implementation Plan
(SIP)as meeting the requirements of CAIR for ozone relating to NO <sup>X</sup> under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(ee) of this chapter.
(2)Notwithstanding any provisions of paragraph (b)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO <sup>X</sup> Ozone Season allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> Ozone Season allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO <sup>X</sup> Ozone Season allowances for those years. 5. Section 52.55 is revised to read as follows: § 52.55 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of sulfur dioxide? The owner and operator of each SO <sup>2</sup> source located within the State of Alabama and for which requirements are set forth under the Federal CAIR SO <sup>2</sup> Trading Program in subparts AAA through III of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Alabama State Implementation Plan as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to SO <sup>2</sup> under § 51.124 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.124(r) of this chapter. Subpart E—Arkansas 6. Section 52.184 is revised to read as follows: § 52.184 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of nitrogen oxides? (a)(1) The owner and operator of each NO <sup>X</sup> source located within the State of Arkansas and for which requirements are set forth under the Federal CAIR NO <sup>X</sup> Ozone Season Trading Program in subparts AAAA through IIII of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Arkansas State Implementation Plan
(SIP)as meeting the requirements of CAIR for ozone relating to NO <sup>X</sup> under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(ee) of this chapter.
(2)Notwithstanding any provisions of paragraph (a)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO <sup>X</sup> Ozone Season allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> Ozone Season allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO <sup>X</sup> Ozone Season allowances for those years.
(b)[Reserved] Subpart H—Connecticut 7. Section 52.386 is revised to read as follows: § 52.386 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of nitrogen oxides? (a)(1) The owner and operator of each NO <sup>X</sup> source located within the State of Connecticut and for which requirements are set forth under the Federal CAIR NO <sup>X</sup> Ozone Season Trading Program in subparts AAAA through IIII of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Connecticut State Implementation Plan
(SIP)as meeting the requirements of CAIR for ozone relating to NO <sup>X</sup> under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(ee) of this chapter.
(2)Notwithstanding any provisions of paragraph (a)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO <sup>X</sup> Ozone Season allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> Ozone Season allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO <sup>X</sup> Ozone Season allowances for those years.
(b)[Reserved] Subpart I—Delaware 8. Section 52.440 is revised to read as follows: § 52.440 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of nitrogen oxides? (a)(1) The owner and operator of each source located within the State of Delaware and for which requirements are set forth under the Federal CAIR NO <sup>X</sup> Annual Trading Program in subparts AA through II of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Delaware State Implementation Plan
(SIP)as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to NO <sup>X</sup> under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(p) of this chapter.
(2)Notwithstanding any provisions of paragraph (a)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO <sup>X</sup> allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO <sup>X</sup> allowances for those years. (b)(1) The owner and operator of each NO <sup>X</sup> source located within the State of Delaware and for which requirements are set forth under the Federal CAIR NO <sup>X</sup> Ozone Season Trading Program in subparts AAAA through IIII of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Delaware State Implementation Plan
(SIP)as meeting the requirements of CAIR for ozone relating to NO <sup>X</sup> under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(ee) of this chapter.
(2)Notwithstanding any provisions of paragraph (b)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO <sup>X</sup> Ozone Season allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> Ozone Season allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO <sup>X</sup> Ozone Season allowances for those years. 9. Section 52.441 is revised to read as follows: § 52.441 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of sulfur dioxide? The owner and operator of each SO <sup>2</sup> source located within the State of Delaware and for which requirements are set forth under the Federal CAIR SO <sup>2</sup> Trading Program in subparts AAA through III of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Delaware State Implementation Plan as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to SO <sup>2</sup> under § 51.124 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.124(r) of this chapter. Subpart J—District of Columbia 10. Section 52.484 is revised to read as follows: § 52.484 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of nitrogen oxides? (a)(1) The owner and operator of each source located within the District of Columbia and for which requirements are set forth under the Federal CAIR NO <sup>X</sup> Annual Trading Program in subparts AA through II of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the District of Columbia State Implementation Plan
(SIP)as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to NO <sup>X</sup> under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(p) of this chapter.
(2)Notwithstanding any provisions of paragraph (a)(1) of this section, if, at the time of such approval of the District of Columbia's SIP, the Administrator has already allocated CAIR NO <sup>X</sup> allowances to sources in the District of Columbia for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO <sup>X</sup> allowances for those years. (b)(1) The owner and operator of each NO <sup>X</sup> source located within the District of Columbia and for which requirements are set forth under the Federal CAIR NO <sup>X</sup> Ozone Season Trading Program in subparts AAAA through IIII of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the District of Columbia State Implementation Plan
(SIP)as meeting the requirements of CAIR for ozone relating to NO <sup>X</sup> under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(ee) of this chapter.
(2)Notwithstanding any provisions of paragraph (b)(1) of this section, if, at the time of such approval of the District of Columbia's SIP, the Administrator has already allocated CAIR NO <sup>X</sup> Ozone Season allowances to sources in the District of Columbia for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> Ozone Season allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO <sup>X</sup> Ozone Season allowances for those years. 11. Section 52.485 is revised to read as follows: § 52.485 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of sulfur dioxide? The owner and operator of each SO <sup>2</sup> source located within the District of Columbia and for which requirements are set forth under the Federal CAIR SO <sup>2</sup> Trading Program in subparts AAA through III of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the District of Columbia State Implementation Plan as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to SO <sup>2</sup> under § 51.124 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.124(r) of this chapter. Subpart K—Florida 12. Section 52.540 is revised to read as follows: § 52.540 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of nitrogen oxides? (a)(1) The owner and operator of each source located within the State of Florida and for which requirements are set forth under the Federal CAIR NO <sup>X</sup> Annual Trading Program in subparts AA through II of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Florida State Implementation Plan
(SIP)as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to NO <sup>X</sup> under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(p) of this chapter.
(2)Notwithstanding any provisions of paragraph (a)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO <sup>X</sup> allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO <sup>X</sup> allowances for those years. (b)(1) The owner and operator of each NO <sup>X</sup> source located within the State of Florida and for which requirements are set forth under the Federal CAIR NO <sup>X</sup> Ozone Season Trading Program in subparts AAAA through IIII of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Florida State Implementation Plan
(SIP)as meeting the requirements of CAIR for ozone relating to NO <sup>X</sup> under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(ee) of this chapter.
(2)Notwithstanding any provisions of paragraph (b)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO <sup>X</sup> Ozone Season allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> Ozone Season allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO <sup>X</sup> Ozone Season allowances for those years. 13. Section 52.541 is revised to read as follows: § 52.541 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of sulfur dioxide? The owner and operator of each SO <sup>2</sup> source located within the State of Florida and for which requirements are set forth under the Federal CAIR SO <sup>2</sup> Trading Program in subparts AAA through III of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Florida State Implementation Plan as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to SO <sup>2</sup> under § 51.124 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.124(r) of this chapter. Subpart L—Georgia 14. Section 52.584 is revised to read as follows: § 52.584 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of nitrogen oxides? (a)(1) The owner and operator of each source located within the State of Georgia and for which requirements are set forth under the Federal CAIR NO <sup>X</sup> Annual Trading Program in subparts AA through II of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Georgia State Implementation Plan
(SIP)as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to NO <sup>X</sup> under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(p) of this chapter.
(2)Notwithstanding any provisions of paragraph (a)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO <sup>X</sup> allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO <sup>X</sup> allowances for those years.
(b)[Reserved] 15. Section 52.585 is revised to read as follows: § 52.585 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of sulfur dioxide? The owner and operator of each SO <sup>2</sup> source located within the State of Georgia and for which requirements are set forth under the Federal CAIR SO <sup>2</sup> Trading Program in subparts AAA through III of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Georgia State Implementation Plan as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to SO <sup>2</sup> under § 51.124 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.124(r) of this chapter. Subpart O—Illinois 16. Section 52.745 is revised to read as follows: § 52.745 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of nitrogen oxides? (a)(1) The owner and operator of each source located within the State of Illinois and for which requirements are set forth under the Federal CAIR NO <sup>X</sup> Annual Trading Program in subparts AA through II of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Illinois State Implementation Plan
(SIP)as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to NO <sup>X</sup> under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(p) of this chapter.
(2)Notwithstanding any provisions of paragraph (a)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO <sup>X</sup> allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO <sup>X</sup> allowances for those years. (b)(1) The owner and operator of each NO <sup>X</sup> source located within the State of Illinois and for which requirements are set forth under the Federal CAIR NO <sup>X</sup> Ozone Season Trading Program in subparts AAAA through IIII of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Illinois State Implementation Plan
(SIP)as meeting the requirements of CAIR for ozone relating to NO <sup>X</sup> under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(ee) of this chapter.
(2)Notwithstanding any provisions of paragraph (b)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO <sup>X</sup> Ozone Season allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> Ozone Season allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO <sup>X</sup> Ozone Season allowances for those years. 17. Section 52.746 is revised to read as follows: § 52.746 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of sulfur dioxide? The owner and operator of each SO <sup>2</sup> source located within the State of Illinois and for which requirements are set forth under the Federal CAIR SO <sup>2</sup> Trading Program in subparts AAA through III of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Illinois State Implementation Plan as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to SO <sup>2</sup> under § 51.124 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.124(r) of this chapter. Subpart P—Indiana 18. Section 52.789 is revised to read as follows: § 52.789 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of nitrogen oxides? (a)(1) The owner and operator of each source located within the State of Indiana and for which requirements are set forth under the Federal CAIR NO <sup>X</sup> Annual Trading Program in subparts AA through II of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Indiana State Implementation Plan
(SIP)as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to NO <sup>X</sup> under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(p) of this chapter.
(2)Notwithstanding any provisions of paragraph (a)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO <sup>X</sup> allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO <sup>X</sup> allowances for those years. (b)(1) The owner and operator of each NO <sup>X</sup> source located within the State of Indiana and for which requirements are set forth under the Federal CAIR NO <sup>X</sup> Ozone Season Trading Program in subparts AAAA through IIII of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Indiana State Implementation Plan
(SIP)as meeting the requirements of CAIR for ozone relating to NO <sup>X</sup> under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(ee) of this chapter.
(2)Notwithstanding any provisions of paragraph (b)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO <sup>X</sup> Ozone Season allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> Ozone Season allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO <sup>X</sup> Ozone Season allowances for those years. 19. Section 52.790 is revised to read as follows: § 52.790 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of sulfur dioxide? The owner and operator of each SO <sup>2</sup> source located within the State of Indiana and for which requirements are set forth under the Federal CAIR SO <sup>2</sup> Trading Program in subparts AAA through III of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Indiana State Implementation Plan as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to SO <sup>2</sup> under § 51.124 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.124(r) of this chapter. Subpart Q—Iowa 20. Section 52.840 is revised to read as follows: § 52.840 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of nitrogen oxides? (a)(1) The owner and operator of each source located within the State of Iowa and for which requirements are set forth under the Federal CAIR NO <sup>X</sup> Annual Trading Program in subparts AA through II of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Iowa State Implementation Plan
(SIP)as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to NO <sup>X</sup> under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(p) of this chapter.
(2)Notwithstanding any provisions of paragraph (a)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO <sup>X</sup> allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO <sup>X</sup> allowances for those years. (b)(1) The owner and operator of each NO <sup>X</sup> source located within the State of Iowa and for which requirements are set forth under the Federal CAIR NO <sup>X</sup> Ozone Season Trading Program in subparts AAAA through IIII of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Iowa State Implementation Plan
(SIP)as meeting the requirements of CAIR for ozone relating to NO <sup>X</sup> under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(ee) of this chapter.
(2)Notwithstanding any provisions of paragraph (b)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO <sup>X</sup> Ozone Season allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> Ozone Season allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO <sup>X</sup> Ozone Season allowances for those years. 21. Section 52.841 is revised to read as follows: § 52.841 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of sulfur dioxide? The owner and operator of each SO <sup>2</sup> source located within the State of Iowa and for which requirements are set forth under the Federal CAIR SO <sup>2</sup> Trading Program in subparts AAA through III of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Iowa State Implementation Plan as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to SO <sup>2</sup> under § 51.124 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.124(r) of this chapter. Subpart S—Kentucky 22. Section 52.940 is revised to read as follows: § 52.940 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of nitrogen oxides? (a)(1) The owner and operator of each source located within the State of Kentucky and for which requirements are set forth under the Federal CAIR NO <sup>X</sup> Annual Trading Program in subparts AA through II of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Kentucky State Implementation Plan
(SIP)as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to NO <sup>X</sup> under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(p) of this chapter.
(2)Notwithstanding any provisions of paragraph (a)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO <sup>X</sup> allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO <sup>X</sup> allowances for those years. (b)(1) The owner and operator of each NO <sup>X</sup> source located within the State of Kentucky and for which requirements are set forth under the Federal CAIR NO <sup>X</sup> Ozone Season Trading Program in subparts AAAA through IIII of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Kentucky State Implementation Plan
(SIP)as meeting the requirements of CAIR for ozone relating to NO <sup>X</sup> under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(ee) of this chapter.
(2)Notwithstanding any provisions of paragraph (b)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO <sup>X</sup> Ozone Season allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> Ozone Season allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO <sup>X</sup> Ozone Season allowances for those years. 23. Section 52.941 is revised to read as follows: § 52.941 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of sulfur dioxide? The owner and operator of each SO <sup>2</sup> source located within the State of Kentucky and for which requirements are set forth under the Federal CAIR SO <sup>2</sup> Trading Program in subparts AAA through III of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Kentucky State Implementation Plan as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to SO <sup>2</sup> under § 51.124 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.124(r) of this chapter. Subpart T—Louisiana 24. Section 52.984 is revised to read as follows: § 52.984 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of nitrogen oxides? (a)(1) The owner and operator of each source located within the State of Louisiana and for which requirements are set forth under the Federal CAIR NO <sup>X</sup> Annual Trading Program in subparts AA through II of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Louisiana State Implementation Plan
(SIP)as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to NO <sup>X</sup> under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(p) of this chapter.
(2)Notwithstanding any provisions of paragraph (a)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO <sup>X</sup> allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO <sup>X</sup> allowances for those years. (b)(1) The owner and operator of each NO <sup>X</sup> source located within the State of Louisiana and for which requirements are set forth under the Federal CAIR NO <sup>X</sup> Ozone Season Trading Program in subparts AAAA through IIII of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Louisiana State Implementation Plan
(SIP)as meeting the requirements of CAIR for ozone relating to NO <sup>X</sup> under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(ee) of this chapter.
(2)Notwithstanding any provisions of paragraph (b)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO <sup>X</sup> Ozone Season allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> Ozone Season allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO <sup>X</sup> Ozone Season allowances for those years. 25. Section 52.985 is revised to read as follows: § 52.985 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of sulfur dioxide? The owner and operator of each SO 2 source located within the State of Louisiana and for which requirements are set forth under the Federal CAIR SO 2 Trading Program in subparts AAA through III of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Louisiana State Implementation Plan as meeting the requirements of CAIR for PM 2.5 relating to SO 2 under § 51.124 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.124(r) of this chapter. Subpart V—Maryland 26. Section 52.1084 is revised to read as follows: § 52.1084 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of nitrogen oxides? (a)(1) The owner and operator of each source located within the State of Maryland and for which requirements are set forth under the Federal CAIR NO X Annual Trading Program in subparts AA through II of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Maryland State Implementation Plan
(SIP)as meeting the requirements of CAIR for PM 2.5 relating to NO X under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(p) of this chapter.
(2)Notwithstanding any provisions of paragraph (a)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO X allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO X allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO X allowances for those years. (b)(1) The owner and operator of each NO X source located within the State of Maryland and for which requirements are set forth under the Federal CAIR NO X Ozone Season Trading Program in subparts AAAA through IIII of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Maryland State Implementation Plan
(SIP)as meeting the requirements of CAIR for ozone relating to NO X under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(ee) of this chapter.
(2)Notwithstanding any provisions of paragraph (b)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO X Ozone Season allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO X Ozone Season allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO X Ozone Season allowances for those years. 27. Section 52.1085 is revised to read as follows: § 52.1085 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of sulfur dioxide? The owner and operator of each SO <sup>2</sup> source located within the State of Maryland and for which requirements are set forth under the Federal CAIR SO <sup>2</sup> Trading Program in subparts AAA through III of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Maryland State Implementation Plan as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to SO <sup>2</sup> under § 51.124 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.124(r) of this chapter. Subpart W—Massachusetts 28. Section 52.1140 is revised to read as follows: § 52.1140 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of nitrogen oxides? (a)(1) The owner and operator of each NO <sup>X</sup> source located within the State of Massachusetts and for which requirements are set forth under the Federal CAIR NO <sup>X</sup> Ozone Season Trading Program in subparts AAAA through IIII of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Massachusetts State Implementation Plan
(SIP)as meeting the requirements of CAIR for ozone relating to NO <sup>X</sup> under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(ee) of this chapter.
(2)Notwithstanding any provisions of paragraph (a)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO <sup>X</sup> Ozone Season allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> Ozone Season allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO <sup>X</sup> Ozone Season allowances for those years.
(b)[Reserved] Subpart X—Michigan 29. Section 52.1186 is revised to read as follows: § 52.1186 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of nitrogen oxides? (a)(1) The owner and operator of each source located within the State of Michigan and for which requirements are set forth under the Federal CAIR NO <sup>X</sup> Annual Trading Program in subparts AA through II of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Michigan State Implementation Plan
(SIP)as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to NO <sup>X</sup> under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(p) of this chapter.
(2)Notwithstanding any provisions of paragraph (a)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO <sup>X</sup> allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO <sup>X</sup> allowances for those years. (b)(1) The owner and operator of each NO <sup>X</sup> source located within the State of Michigan and for which requirements are set forth under the Federal CAIR NO <sup>X</sup> Ozone Season Trading Program in subparts AAAA through IIII of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Michigan State Implementation Plan
(SIP)as meeting the requirements of CAIR for ozone relating to NO <sup>X</sup> under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(ee) of this chapter.
(2)Notwithstanding any provisions of paragraph (b)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO <sup>X</sup> Ozone Season allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> Ozone Season allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO <sup>X</sup> Ozone Season allowances for those years. 30. Section 52.1187 is revised to read as follows: § 52.1187 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of sulfur dioxide? The owner and operator of each SO <sup>2</sup> source located within the State of Michigan and for which requirements are set forth under the Federal CAIR SO <sup>2</sup> Trading Program in subparts AAA through III of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Michigan State Implementation Plan as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to SO <sup>2</sup> under § 51.124 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.124(r) of this chapter. Subpart Y—Minnesota 31. Section 52.1240 is revised to read as follows: § 52.1240 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of nitrogen oxides? (a)(1) The owner and operator of each source located within the State of Minnesota and for which requirements are set forth under the Federal CAIR NO <sup>X</sup> Annual Trading Program in subparts AA through II of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Minnesota State Implementation Plan
(SIP)as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to NO <sup>X</sup> under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(p) of this chapter.
(2)Notwithstanding any provisions of paragraph (a)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO <sup>X</sup> allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO <sup>X</sup> allowances for those years. 32. Section 52.1241 is revised to read as follows: § 52.1241 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of sulfur dioxide? The owner and operator of each SO <sup>2</sup> source located within the State of Minnesota and for which requirements are set forth under the Federal CAIR SO <sup>2</sup> Trading Program in subparts AAA through III of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Minnesota State Implementation Plan as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to SO <sup>2</sup> under § 51.124 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.124(r) of this chapter. Subpart Z—Mississippi 33. Section 52.1284 is revised to read as follows: § 52.1284 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of nitrogen oxides? (a)(1) The owner and operator of each source located within the State of Mississippi and for which requirements are set forth under the Federal CAIR NO <sup>X</sup> Annual Trading Program in subparts AA through II of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Mississippi State Implementation Plan
(SIP)as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to NO <sup>X</sup> under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(p) of this chapter.
(2)Notwithstanding any provisions of paragraph (a)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO <sup>X</sup> allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO <sup>X</sup> allowances for those years. (b)(1) The owner and operator of each NO <sup>X</sup> source located within the State of Mississippi and for which requirements are set forth under the Federal CAIR NO <sup>X</sup> Ozone Season Trading Program in subparts AAAA through IIII of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Mississippi State Implementation Plan
(SIP)as meeting the requirements of CAIR for ozone relating to NO <sup>X</sup> under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(ee) of this chapter.
(2)Notwithstanding any provisions of paragraph (b)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO <sup>X</sup> Ozone Season allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> Ozone Season allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO <sup>X</sup> Ozone Season allowances for those years. 34. Section 52.1285 is revised to read as follows: § 52.1285 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of sulfur dioxide? The owner and operator of each SO <sup>2</sup> source located within the State of Mississippi and for which requirements are set forth under the Federal CAIR SO <sup>2</sup> Trading Program in subparts AAA through III of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Mississippi State Implementation Plan as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to SO <sup>2</sup> under § 51.124 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.124(r) of this chapter. Subpart AA—Missouri 35. Section 52.1341 is revised to read as follows: § 52.1341 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of nitrogen oxides? (a)(1) The owner and operator of each source located within the State of Missouri and for which requirements are set forth under the Federal CAIR NO <sup>X</sup> Annual Trading Program in subparts AA through II of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Missouri State Implementation Plan
(SIP)as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to NO <sup>X</sup> under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(p) of this chapter.
(2)Notwithstanding any provisions of paragraph (a)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO <sup>X</sup> allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO <sup>X</sup> allowances for those years. (b)(1) The owner and operator of each NO <sup>X</sup> source located within the State of Missouri and for which requirements are set forth under the Federal CAIR NO <sup>X</sup> Ozone Season Trading Program in subparts AAAA through IIII of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Missouri State Implementation Plan
(SIP)as meeting the requirements of CAIR for ozone relating to NO <sup>X</sup> under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(ee) of this chapter.
(2)Notwithstanding any provisions of paragraph (b)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO <sup>X</sup> Ozone Season allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> Ozone Season allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO <sup>X</sup> Ozone Season allowances for those years. 36. Section 52.1342 is revised to read as follows: § 52.1342 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of sulfur dioxide? The owner and operator of each SO <sup>2</sup> source located within the State of Missouri and for which requirements are set forth under the Federal CAIR SO <sup>2</sup> Trading Program in subparts AAA through III of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Missouri State Implementation Plan as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to SO <sup>2</sup> under § 51.124 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.124(r) of this chapter. Subpart FF—New Jersey 37. Section 52.1584 is revised to read as follows: § 52.1584 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of nitrogen oxides? (a)(1) The owner and operator of each source located within the State of New Jersey and for which requirements are set forth under the Federal CAIR NO <sup>X</sup> Annual Trading Program in subparts AA through II of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the New Jersey State Implementation Plan
(SIP)as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to NO <sup>X</sup> under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(p) of this chapter.
(2)Notwithstanding any provisions of paragraph (a)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO <sup>X</sup> allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO <sup>X</sup> allowances for those years. (b)(1) The owner and operator of each NO <sup>X</sup> source located within the State of New Jersey and for which requirements are set forth under the Federal CAIR NO <sup>X</sup> Ozone Season Trading Program in subparts AAAA through IIII of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the New Jersey State Implementation Plan
(SIP)as meeting the requirements of CAIR for ozone relating to NO <sup>X</sup> under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(ee) of this chapter.
(2)Notwithstanding any provisions of paragraph (b)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO <sup>X</sup> Ozone Season allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> Ozone Season allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO <sup>X</sup> Ozone Season allowances for those years. 38. Section 52.1585 is revised to read as follows: § 52.1585 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of sulfur dioxide? The owner and operator of each SO <sup>2</sup> source located within the State of New Jersey and for which requirements are set forth under the Federal CAIR SO <sup>2</sup> Trading Program in subparts AAA through III of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the New Jersey State Implementation Plan as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to SO <sup>2</sup> under § 51.124 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.124(r) of this chapter. Subpart HH—New York 39. Section 52.1684 is revised to read as follows: § 52.1684 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of nitrogen oxides? (a)(1) The owner and operator of each source located within the State of New York and for which requirements are set forth under the Federal CAIR NO <sup>X</sup> Annual Trading Program in subparts AA through II of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the New York State Implementation Plan
(SIP)as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to NO <sup>X</sup> under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(p) of this chapter.
(2)Notwithstanding any provisions of paragraph (a)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO <sup>X</sup> allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO <sup>X</sup> allowances for those years. (b)(1) The owner and operator of each NO <sup>X</sup> source located within the State of New York and for which requirements are set forth under the Federal CAIR NO <sup>X</sup> Ozone Season Trading Program in subparts AAAA through IIII of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the New York State Implementation Plan
(SIP)as meeting the requirements of CAIR for ozone relating to NO <sup>X</sup> under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(ee) of this chapter.
(2)Notwithstanding any provisions of paragraph (b)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO <sup>X</sup> Ozone Season allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> Ozone Season allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO <sup>X</sup> Ozone Season allowances for those years. 40. Section 52.1685 is revised to read as follows: § 52.1685 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of sulfur dioxide? The owner and operator of each SO <sup>2</sup> source located within the State of New York and for which requirements are set forth under the Federal CAIR SO <sup>2</sup> Trading Program in subparts AAA through III of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the New York State Implementation Plan as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to SO <sup>2</sup> under § 51.124 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.124(r) of this chapter. Subpart II—North Carolina 41. Section 52.1784 is revised to read as follows: § 52.1784 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of nitrogen oxides? (a)(1) The owner and operator of each source located within the State of North Carolina and for which requirements are set forth under the Federal CAIR NO <sup>X</sup> Annual Trading Program in subparts AA through II of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the North Carolina State Implementation Plan
(SIP)as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to NO <sup>X</sup> under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(p) of this chapter.
(2)Notwithstanding any provisions of paragraph (a)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO <sup>X</sup> allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO <sup>X</sup> allowances for those years. (b)(1) The owner and operator of each NO <sup>X</sup> source located within the State of North Carolina and for which requirements are set forth under the Federal CAIR NO <sup>X</sup> Ozone Season Trading Program in subparts AAAA through IIII of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the North Carolina State Implementation Plan
(SIP)as meeting the requirements of CAIR for ozone relating to NO <sup>X</sup> under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(ee) of this chapter.
(2)Notwithstanding any provisions of paragraph (b)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO <sup>X</sup> Ozone Season allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> Ozone Season allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO <sup>X</sup> Ozone Season allowances for those years. 42. Section 52.1785 is revised to read as follows: § 52.1785 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of sulfur dioxide? The owner and operator of each SO <sup>2</sup> source located within the State of North Carolina and for which requirements are set forth under the Federal CAIR SO <sup>2</sup> Trading Program in subparts AAA through III of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the North Carolina State Implementation Plan as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to SO <sup>2</sup> under § 51.124 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.124(r) of this chapter. Subpart KK—Ohio 43. Section 52.1891 is revised to read as follows: § 52.1891 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of nitrogen oxides? (a)(1) The owner and operator of each source located within the State of Ohio and for which requirements are set forth under the Federal CAIR NO <sup>X</sup> Annual Trading Program in subparts AA through II of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Ohio State Implementation Plan
(SIP)as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to NO <sup>X</sup> under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(p) of this chapter.
(2)Notwithstanding any provisions of paragraph (a)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO <sup>X</sup> allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO <sup>X</sup> allowances for those years. (b)(1) The owner and operator of each NO <sup>X</sup> source located within the State of Ohio and for which requirements are set forth under the Federal CAIR NO <sup>X</sup> Ozone Season Trading Program in subparts AAAA through IIII of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Ohio State Implementation Plan
(SIP)as meeting the requirements of CAIR for ozone relating to NO <sup>X</sup> under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(ee) of this chapter.
(2)Notwithstanding any provisions of paragraph (b)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO <sup>X</sup> Ozone Season allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> Ozone Season allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO <sup>X</sup> Ozone Season allowances for those years. 44. Section 52.1892 is revised to read as follows: § 52.1892 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of sulfur dioxide? The owner and operator of each SO <sup>2</sup> source located within the State of Ohio and for which requirements are set forth under the Federal CAIR SO <sup>2</sup> Trading Program in subparts AAA through III of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Ohio State Implementation Plan as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to SO <sup>2</sup> under § 51.124 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.124(r) of this chapter. Subpart NN—Pennsylvania 45. Section 52.2040 is revised to read as follows: § 52.2040 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of nitrogen oxides? (a)(1) The owner and operator of each source located within the State of Pennsylvania and for which requirements are set forth under the Federal CAIR NO X Annual Trading Program in subparts AA through II of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Pennsylvania State Implementation Plan
(SIP)as meeting the requirements of CAIR for PM 2.5 relating to NO X under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(p) of this chapter.
(2)Notwithstanding any provisions of paragraph (a)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO X allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO X allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO X allowances for those years. (b)(1) The owner and operator of each NO X source located within the State of Pennsylvania and for which requirements are set forth under the Federal CAIR NO X Ozone Season Trading Program in subparts AAAA through IIII of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Pennsylvania State Implementation Plan
(SIP)as meeting the requirements of CAIR for ozone relating to NO X under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(ee) of this chapter.
(2)Notwithstanding any provisions of paragraph (b)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO X Ozone Season allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO X Ozone Season allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO X Ozone Season allowances for those years. 46. Section 52.2041 is revised to read as follows: § 52.2041 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of sulfur dioxide? The owner and operator of each SO 2 source located within the State of Pennsylvania and for which requirements are set forth under the Federal CAIR SO 2 Trading Program in subparts AAA through III of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Pennsylvania State Implementation Plan as meeting the requirements of CAIR for PM 2.5 relating to SO 2 under § 51.124 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.124(r) of this chapter. Subpart PP—South Carolina 47. Section 52.2140 is revised to read as follows: § 52.2140 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of nitrogen oxides? (a)(1) The owner and operator of each source located within the State of South Carolina and for which requirements are set forth under the Federal CAIR NO X Annual Trading Program in subparts AA through II of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the South Carolina State Implementation Plan
(SIP)as meeting the requirements of CAIR for PM 2.5 relating to NO X under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(p) of this chapter.
(2)Notwithstanding any provisions of paragraph (a)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO X allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO X allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO X allowances for those years. (b)(1) The owner and operator of each NO X source located within the State of South Carolina and for which requirements are set forth under the Federal CAIR NO X Ozone Season Trading Program in subparts AAAA through IIII of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the South Carolina State Implementation Plan
(SIP)as meeting the requirements of CAIR for ozone relating to NO X under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(ee) of this chapter.
(2)Notwithstanding any provisions of paragraph (b)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO X Ozone Season allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO X Ozone Season allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO X Ozone Season allowances for those years. 48. Section 52.2141 is revised to read as follows: § 52.2141 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of sulfur dioxide? The owner and operator of each SO 2 source located within the State of South Carolina and for which requirements are set forth under the Federal CAIR SO 2 Trading Program in subparts AAA through III of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the South Carolina State Implementation Plan as meeting the requirements of CAIR for PM 2.5 relating to SO 2 under § 51.124 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.124(r) of this chapter. Subpart RR—Tennessee 49. Section 52.2240 is revised to read as follows: § 52.2240 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of nitrogen oxides? (a)(1) The owner and operator of each source located within the State of Tennessee and for which requirements are set forth under the Federal CAIR NO X Annual Trading Program in subparts AA through II of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Tennessee State Implementation Plan
(SIP)as meeting the requirements of CAIR for PM 2.5 relating to NO X under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(p) of this chapter.
(2)Notwithstanding any provisions of paragraph (a)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO <sup>X</sup> allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO <sup>X</sup> allowances for those years. (b)(1) The owner and operator of each NO <sup>X</sup> source located within the State of Tennessee and for which requirements are set forth under the Federal CAIR NO <sup>X</sup> Ozone Season Trading Program in subparts AAAA through IIII of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Tennessee State Implementation Plan
(SIP)as meeting the requirements of CAIR for ozone relating to NO <sup>X</sup> under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(ee) of this chapter.
(2)Notwithstanding any provisions of paragraph (b)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO <sup>X</sup> Ozone Season allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> Ozone Season allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO <sup>X</sup> Ozone Season allowances for those years. 50. Section 52.2241 is revised to read as follows: § 52.2241 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of sulfur dioxide? The owner and operator of each SO <sup>2</sup> source located within the State of Tennessee and for which requirements are set forth under the Federal CAIR SO <sup>2</sup> Trading Program in subparts AAA through III of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Tennessee State Implementation Plan as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to SO <sup>2</sup> under § 51.124 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.124(r) of this chapter. Subpart SS—Texas 51. Section 52.2283 is revised to read as follows: § 52.2283 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of nitrogen oxides? (a)(1) The owner and operator of each source located within the State of Texas and for which requirements are set forth under the Federal CAIR NO <sup>X</sup> Annual Trading Program in subparts AA through II of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Texas State Implementation Plan
(SIP)as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to NO <sup>X</sup> under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(p) of this chapter.
(2)Notwithstanding any provisions of paragraph (a)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO <sup>X</sup> allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO <sup>X</sup> allowances for those years.
(b)[Reserved] 52. Section 52.2284 is revised to read as follows: § 52.2284 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of sulfur dioxide? The owner and operator of each SO <sup>2</sup> source located within the State of Texas and for which requirements are set forth under the Federal CAIR SO <sup>2</sup> Trading Program in subparts AAA through III of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Texas State Implementation Plan as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to SO <sup>2</sup> under § 51.124 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.124(r) of this chapter. Subpart VV—Virginia 53. Section 52.2440 is revised to read as follows: § 52.2440 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of nitrogen oxides? (a)(1) The owner and operator of each source located within the State of Virginia and for which requirements are set forth under the Federal CAIR NO <sup>X</sup> Annual Trading Program in subparts AA through II of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Virginia State Implementation Plan
(SIP)as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to NO <sup>X</sup> under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(p) of this chapter.
(2)Notwithstanding any provisions of paragraph (a)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO <sup>X</sup> allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO <sup>X</sup> allowances for those years. (b)(1) The owner and operator of each NO <sup>X</sup> source located within the State of Virginia and for which requirements are set forth under the Federal CAIR NO <sup>X</sup> Ozone Season Trading Program in subparts AAAA through IIII of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Virginia State Implementation Plan
(SIP)as meeting the requirements of CAIR for ozone relating to NO <sup>X</sup> under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(ee) of this chapter.
(2)Notwithstanding any provisions of paragraph (b)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO <sup>X</sup> Ozone Season allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> Ozone Season allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO <sup>X</sup> Ozone Season allowances for those years. 54. Section 52.2441 is revised to read as follows: § 52.2441 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of sulfur dioxide? The owner and operator of each SO <sup>2</sup> source located within the State of Virginia and for which requirements are set forth under the Federal CAIR SO <sup>2</sup> Trading Program in subparts AAA through III of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Virginia State Implementation Plan as meeting the requirements of CAIR for PM2.5 relating to SO <sup>2</sup> under § 51.124 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.124(r) of this chapter. Subpart XX—West Virginia 55. Section 52.2540 is revised to read as follows: § 52.2540 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of nitrogen oxides? (a)(1) The owner and operator of each source located within the State of West Virginia and for which requirements are set forth under the Federal CAIR NO <sup>X</sup> Annual Trading Program in subparts AA through II of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the West Virginia State Implementation Plan
(SIP)as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to NO <sup>X</sup> under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(p) of this chapter.
(2)Notwithstanding any provisions of paragraph (a)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO <sup>X</sup> allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO <sup>X</sup> allowances for those years. (b)(1) The owner and operator of each NO <sup>X</sup> source located within the State of West Virginia and for which requirements are set forth under the Federal CAIR NO <sup>X</sup> Ozone Season Trading Program in subparts AAAA through IIII of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the West Virginia State Implementation Plan
(SIP)as meeting the requirements of CAIR for ozone relating to NO <sup>X</sup> under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(ee) of this chapter.
(2)Notwithstanding any provisions of paragraph (b)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO <sup>X</sup> Ozone Season allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> Ozone Season allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO <sup>X</sup> Ozone Season allowances for those years. 56. Section 52.2541 is revised to read as follows: § 52.2541 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of sulfur dioxide? The owner and operator of each SO <sup>2</sup> source located within the State of West Virginia and for which requirements are set forth under the Federal CAIR SO <sup>2</sup> Trading Program in subparts AAA through III of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the West Virginia State Implementation Plan as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to SO <sup>2</sup> under § 51.124 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.124(r) of this chapter. Subpart YY—Wisconsin 57. Section 52.2587 is revised to read as follows: § 52.2587 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of nitrogen oxides? (a)(1) The owner and operator of each source located within the State of Wisconsin and for which requirements are set forth under the Federal CAIR NO <sup>X</sup> Annual Trading Program in subparts AA through II of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Wisconsin State Implementation Plan
(SIP)as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to NO <sup>X</sup> under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(p) of this chapter.
(2)Notwithstanding any provisions of paragraph (a)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO <sup>X</sup> allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO <sup>X</sup> allowances for those years. (b)(1) The owner and operator of each NO <sup>X</sup> source located within the State of Wisconsin and for which requirements are set forth under the Federal CAIR NO <sup>X</sup> Ozone Season Trading Program in subparts AAAA through IIII of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Wisconsin State Implementation Plan
(SIP)as meeting the requirements of CAIR for ozone relating to NO <sup>X</sup> under § 51.123 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.123(ee) of this chapter.
(2)Notwithstanding any provisions of paragraph (b)(1) of this section, if, at the time of such approval of the State's SIP, the Administrator has already allocated CAIR NO <sup>X</sup> Ozone Season allowances to sources in the State for any years, the provisions of part 97 of this chapter authorizing the Administrator to complete the allocation of CAIR NO <sup>X</sup> Ozone Season allowances for those years shall continue to apply, unless the Administrator approves a SIP provision that provides for the allocation of the remaining CAIR NO <sup>X</sup> Ozone Season allowances for those years. 58. Section 52.2588 is revised to read as follows: § 52.2588 Interstate pollutant transport provisions; What are the FIP requirements for decreases in emissions of sulfur dioxide? The owner and operator of each SO <sup>2</sup> source located within the State of Wisconsin and for which requirements are set forth under the Federal CAIR SO <sup>2</sup> Trading Program in subparts AAA through III of part 97 of this chapter must comply with such applicable requirements. The obligation to comply with these requirements in part 97 of this chapter will be eliminated by the promulgation of an approval by the Administrator of a revision to the Wisconsin State Implementation Plan as meeting the requirements of CAIR for PM <sup>2.5</sup> relating to SO <sup>2</sup> under § 51.124 of this chapter, except to the extent the Administrator's approval is partial or conditional or unless such approval is under § 51.124(r) of this chapter. [FR Doc. E7-20849 Filed 11-1-07; 8:45 am] BILLING CODE 6560-50-P 72 212 Friday, November 2, 2007 Notices Part IV Federal Communications Commission Auction of 700 MHz Band Licenses Scheduled for January 24, 2008; Notice and Filing Requirements, Minimum Opening Bids, Reserved Prices, Upfront Payments and Other Procedures for Auctions 73 and 76; Notice FEDERAL COMMUNICATIONS COMMISSION [AU Docket No. 07-157; Report No. AUC-07-73-B (Auctions 73 and 76); DA 07-4171] Auction of 700 MHz Band Licenses Scheduled for January 24, 2008; Notice and Filing Requirements, Minimum Opening Bids, Reserved Prices, Upfront Payments and Other Procedures for Auctions 73 and 76 AGENCY: Federal Communications Commission. ACTION: Notice. SUMMARY: This document announces the procedures and minimum opening bids for the upcoming auction of certain 700 MHz Band Licenses (Auctions 73 and 76). This document is intended to familiarize prospective bidders with the procedures and minimum opening bids for these auctions. DATES: Applications to participate in 700 MHz Band Licenses Auctions 73 and 76 must be filed before 6 p.m. ET on December 3, 2007. Bidding for Auction No. 73 is scheduled to begin on January 24, 2008. Contingent subsequent bidding in Auction 76, if necessary, will begin on a date to be announced after Auction 73 has closed. FOR FURTHER INFORMATION CONTACT: Wireless Telecommunications Bureau, Auctions Spectrum and Access Division: For legal questions: Scott Mackoul, Stephen Johnson or Howard Davenport at
(202)418-0660. For general auction questions: Lisa Stover at
(717)338-2868. Mobility Division: For service rule questions: Erin McGraft (legal), Keith Harper (engineering) and Denise Walter (licensing) at
(202)418-0620. To request materials in accessible formats (Braille, large print, electronic files or audio format) for people with disabilities, send an e-mail to *fcc504@fcc.gov* or call the Consumer and Governmental Affairs Bureau at
(202)418-0530 or
(202)418-0432 (TTY). SUPPLEMENTARY INFORMATION: This is a summary of the *Auctions 73 and 76 Procedures Public Notice* released on October 5, 2007. The complete text of the *Auctions 73 and 76 Procedures Public Notice,* including attachments, as well as related Commission documents are available for public inspection and copying from 8 a.m. to 4:30 p.m. Eastern Time
(ET)Monday through Thursday or from 8 a.m. to 11:30 a.m. on Friday at the FCC Reference Information Center, Portals II, 445 12th Street, SW., Room CY-A257, Washington, DC 20554. On October 19, 2007, a Public Notice was released announcing a change in the date of the bidders' seminar for Auctions 73 and 76 from November 19, 2007 to November 20, 2007. The *Auctions 73 and 76 Procedures Public Notice* and related Commission documents may also be purchased from the Commission's duplicating contractor, Best Copy and Printing, Inc. (BCPI), Portals II, 445 12th Street, SW., Room CY-B402, Washington, DC, 20554, telephone 202-488-5300, facsimile 202-488-5563, or Web site: *http://www.BCPIWEB.com.* When ordering documents from BCPI, please provide the appropriate FCC document number, for example, DA 07-4171 for the *Auctions 73 and 76 Procedures Public Notice.* The *Auctions 73 and 76 Procedures Public Notice* and related documents are also available on the Internet at the Commission's Web site: *http://wireless.fcc.gov/auctions/73/.* I. General Information A. Introduction 1. The Wireless Telecommunications Bureau (the Bureau) announces the procedures and minimum opening bid amounts for the upcoming auction of licenses for services in the 698-806 MHz band (700 MHz Band) scheduled to begin on January 24, 2008. This auction is designated as Auction 73. Auction 73 will offer 700 MHz Band licenses for initial bidding and the 700 MHz Band licenses may be offered in contingent subsequent bidding. In the event that any licenses are offered in contingent subsequent bidding, that event will be designated as Auction 76. On August 17, 2007, in accordance with Section 309(j)(3) of the Communications Act of 1934, as amended, the Bureau released a public notice seeking comment on competitive bidding procedures for both the initial bidding and the contingent subsequent bidding for *700 MHz Band licenses.* Interested parties submitted 12 comments and 8 reply comments in response to the *700 MHz Auction Public Notice,* 72 FR 48272, August 23, 2007, as well as a number of *ex parte* communications. 2. In the *700 MHz Auction Public Notice,* the Bureau proposed to include all available, commercial 700 MHz Band licenses (1,099 licenses) for initial bidding in Auction 73 using the Commission's standard simultaneous multiple-round
(SMR)auction format for the A, B, D, and E block licenses and an auction design with hierarchical package bidding
(HPB)for the C Block licenses. The *700 MHz Auction Public Notice* also proposed procedures for the contingent subsequent bidding, now designated Auction 76, on licenses for spectrum associated with any initially offered licenses for which the Auction 73 results do not satisfy applicable reserve prices. Based on the record and after considering comments provided in response to the *700 MHz Auction Public Notice,* the Bureau hereby announces the final procedures for Auctions 73 and Auction 76. 3. The *Auctions 73 and 76 Procedures Public Notice* provides, among other things, procedures for the following:
(1)Anonymous bidding, to enhance competition by safeguarding against potential anti-competitive auction strategies;
(2)package bidding, to enable bidders trying to combine multiple C Block licenses to place bids on packages of those licenses;
(3)block-specific aggregate reserve prices, to help assure that the public recovers a portion of the value of the spectrum resource; and
(4)prompt subsequent bidding in Auction 76, to offer licenses for relevant block(s) in the event Auction 73 results do not satisfy applicable reserve prices. 4. *Anonymous Bidding.* In the *700 MHz Second Report and Order,* 65 FR 17594, April, 4, 2000, the Commission found that the public interest would be served if the auction for new 700 MHz Band licenses is conducted using anonymous (or limited information) bidding procedures, regardless of any pre-auction measurement of likely auction competition. Such information procedures are intended to reduce the potential for anti-competitive bidding behavior, including bidding activity that aims to prevent the entry of new competitors. Having proposed and sought comment on more detailed procedures for employing anonymous bidding for the upcoming auction, the Bureau now announces the anonymous bidding procedures. 5. *Package Bidding for C Block Licenses.* The Commission also determined in the *700 MHz Second Report and Order* that providing for package bidding for C Block licenses would serve the public interest. The Commission found that package bidding for these licenses should facilitate the entry of entities seeking to create a nationwide footprint and whose business plans require the economies of scale that only can be obtained with nationwide operation. At Commission direction, the Bureau previously proposed and sought comment on detailed procedures for implementing package bidding for the C Block licenses and not for licenses in the other blocks to be auctioned. In the *Auctions 73 and 76 Procedures Public Notice,* the Bureau detailed the process for package bidding for the C Block licenses. 6. *Block-Specific Aggregate Reserve Prices.* The Commission also decided to provide for aggregate reserve prices for licenses authorizing the use of each block of the commercial 700 MHz Band yet to be licensed. The Commission concluded that, consistent with its statutory mandate, disclosed reserve prices would promote the recovery of a portion of the value of the public spectrum resource. The Commission directed the Bureau to adopt aggregate reserve prices reflecting the potential market value of this spectrum based on a variety of factors including, but not limited to, the characteristics of this band and the auction prices of other recently auctioned licenses, such as licenses for Advanced Wireless Services in the 1710-1755 MHz and 2110-2155 MHz bands (AWS-1). Accordingly, the Bureau proposed and sought comment on the following block-specific aggregate reserve prices: Block A, $1.807380 billion; Block B, $1.374426 billion; Block C, $4.637854 billion; Block D, $1.330000 billion; Block E, $0.903690 billion. Further, the Bureau proposed that if the sum of the provisionally winning bids for the licenses in a block does not satisfy the relevant aggregate reserve price, none of the relevant licenses for the particular block will be assigned based on the auction results. In the *Auctions 73 and 76 Procedures Public Notice,* the Bureau adopted this proposal. 7. *Auction 76 Overview.* The Commission decided that, if licenses initially offered for the A, B, C, or E Blocks are not assigned because the auction results do not satisfy the applicable aggregate reserve price(s) for those licenses, the Commission promptly will offer alternative licenses for those blocks. More specifically, the Commission will offer licenses for the A, B, and E Blocks subject to alternative performance requirements. With respect to the C Block, the Commission will offer alternative licenses without the open platform conditions and based on different geographic areas and spectrum bandwidth. If the D Block license is not assigned because the auction results do not satisfy the D Block reserve price, the Commission may re-offer that license subject to the same rules or reconsider the applicable rules. For administrative purposes, the Bureau will designate as Auction 76 any subsequent bidding for alternative licenses for the A, B, C or E Blocks or for the D Block license that occurs because Auction 73 results for licenses initially offered for the relevant blocks do not satisfy the applicable aggregate reserve price(s). In the *Auctions 73 and 76 Procedures Public Notice,* the Bureau announced detailed procedures for conducting Auction 76, if necessary. 8. The Commission will conduct bidding in Auction 73 and any contingent subsequent bidding in Auction 76 for 700 MHz Band licenses as a single auction to the extent possible, given the strong public interest in promptly assigning all 700 MHz Band licenses for recovered analog spectrum and the related nature of the licenses being offered in Auctions 73 and 76. Thus, pursuant to the *700 MHz Second Report and Order,* the Bureau will permit only qualified bidders in the initial auction to participate in the contingent subsequent auction. To enable a prompt start to Auction 76 after Auction 73, applicants must select any licenses on which they may bid in Auction 76 by the deadline for filing their Auction 73 application. Applicants must select those licenses by submitting a separate abbreviated short-form application to participate in Auction 76. The abbreviated Auction 76 application must be filed together with the applicant's standard application for Auction 73, following procedures described in the *Auctions 73 and 76 Procedures Public Notice.* In the event that Auction 76 takes place, bidder identity and other information on the applicant's completed Auction 73 short-form application will be combined with the licenses selected in the abbreviated Auction 76 application to create the applicant's Auction 76 application. This process will minimize the time period between auctions by eliminating any need for applicants to take time following Auction 73 to file new applications or select additional licenses, and for the Commission to review newly-filed short-form applications. Applicants in Auction 76, however, will have an opportunity after Auction 73 to obtain additional eligibility for any licenses offered in Auction 76 by supplementing their upfront monies on deposit with the Commission pursuant to the procedures as provided for in the *700 MHz Second Report and Order.* 9. The Bureau also will use the Auction 73 design in Auction 76, including an aggregate reserve price for each block that matches the applicable initial reserve price. In the event that alternative licenses for the C Block are offered for Blocks C1 and C2, the Bureau will conduct package bidding for the C2 Block only, using the pre-determined packages. Alternative licenses for Blocks C1 and C2 will be subject to reserve prices. There will be a joint aggregate reserve price equal to the initial auction C Block aggregate reserve price, and separate aggregate reserve prices for the C1 and C2 Blocks that add to the joint aggregate reserve price. Licenses in both blocks will be assigned if the joint aggregate reserve price is met. If the joint aggregate reserve price is not met but one of the block-specific reserve prices is met, licenses in the block for which the reserve price is met will be assigned. Licenses in the other block will not be assigned. This will assure the aggregate reserve price in the initial auction continues to apply while maximizing the opportunity for licenses for either Block C1 or C2 to be assigned. i. Background of Proceeding 10. The Commission is offering the licenses in Auction 73 consistent with the requirements of the Digital Television Transition and Public Safety Act of 2005 (DTV Act). Pursuant to the DTV Act the Commission must conduct the auction of licenses for recovered analog spectrum by commencing the bidding not later than January 28, 2008. A number of incumbent broadcasters are licensed and operating on these frequencies (TV Channels 52-53, 56-58, 60-62, and 65-67) and adjacent channels. ii. Licenses To Be Offered in Auction 73 11. Auction 73 will offer a total of 1,099 licenses: 176 Economic Area
(EA)licenses in each of the A and E Blocks, 734 Cellular Market Area
(CMA)licenses in the B Block, 12 Regional Economic Area Grouping
(REAG)licenses in the C Block, and one nationwide license, to be used as part of the 700 MHz Public/Private Partnership, in the D Block. B. Rules and Disclaimers i. Relevant Authority 12. Prospective applicants must familiarize themselves thoroughly with the Commission's general competitive bidding rules set forth in Title 47, part 1, of the CFR, including recent amendments and clarifications; rules relating to the 700 MHz Band contained in Title 47, part 27, of the CFR; rules relating to the public/private partnership applicable to the D Block contained in Title 47, part 90, of the CFR; and rules relating to applications, environment, practice and procedure contained in Title 47, part 1, of the CFR. Prospective applicants must also be thoroughly familiar with the procedures, terms and conditions (terms) contained in the *Auctions 73 and 76 Procedures Public Notice* and the Commission's decisions in proceedings regarding competitive bidding procedures, application requirements, and obligations of Commission licensees. For example, among other Commission orders, prospective bidders should be familiar with the *700 MHz First Report and Order,* 65 FR 3139, January 20, 2000, and the *700 MHz Second Report and Order.* 13. The terms contained in the Commission's rules, relevant orders, and public notices are not negotiable. The Commission may amend or supplement the information contained in its public notices at any time, and will issue public notices to convey any new or supplemental information to applicants. It is the responsibility of all applicants to remain current with all Commission rules and with all public notices pertaining to Auctions 73 and 76. ii. Prohibition of Collusion; Compliance With Antitrust Laws 14. To ensure the competitiveness of the auction process, § 1.2105(c) of the Commission's rules prohibits auction applicants for licenses in any of the same geographic license areas from communicating with each other about bids, bidding strategies, or settlements 9 unless such applicants have identified each other on their short-form applications (FCC Forms 175) as parties with whom they have entered into agreements pursuant to § 1.2105(a)(2)(viii). a. Entities Subject to Anti-Collusion Rule 15. The anti-collusion rule will apply to any applicants that submit short-form applications for Auctions 73 or 76 and select licenses in the same or overlapping CMAs, EAs, REAGs or the nationwide license in the D Block. For example, assume that one applicant applies for a REAG license and a second applicant applies for an EA license covering any area within that REAG. The two entities will have applied for licenses covering the same geographic areas and would be precluded from communicating with each other under the rule. The rule also applies where one applicant has selected a license in Auction 73 and another applicant selects a license in Auction 76 that covers any of the same geographic area. In addition, the rule precludes applicants that apply to bid for the nationwide license in the D Block, or all the licenses in any other block, from communicating with all other applicants. Thus, applicants that have applied for licenses covering the same markets (unless they have identified each other on their FCC Form 175 applications as parties with whom they have entered into agreements under § 1.2105(a)(2)(viii)) must affirmatively avoid all communications with or disclosures to each other that affect or have the potential to affect bids or bidding strategy, which may include communications regarding the post-auction market structure. This prohibition applies to all applicants regardless of whether such applicants become qualified bidders or actually bid. Information concerning applicants' license selections will not be available to the public. Therefore, the Commission will inform each applicant by letter of the identity of each of the other applicants that has applied for licenses covering any of the same geographic areas as the licenses that it has selected in its short-form application. 16. For purposes of this prohibition, § 1.2105(c)(7)(i) defines applicant as including all officers and directors of the entity submitting a short-form application to participate in the auction, all controlling interests of that entity, as well as all holders of partnership and other ownership interests and any stock interest amounting to 10 percent or more of the entity, or outstanding stock, or outstanding voting stock of the entity submitting a short-form application. 17. Entities and parties subject to the anti-collusion rule should take special care in circumstances where their employees may receive information directly or indirectly from a competing applicant relating to any competing applicant's bids or bidding strategies. In situations where the anti-collusion rule views the same person as the applicant with respect to two different entities filing competing applications, under Bureau precedent the bids and bidding strategies of one applicant are necessarily conveyed to the other and, absent a disclosed bidding agreement, an apparent violation of the anti-collusion rule occurs. The Bureau has not addressed situations where employees who do not qualify as the applicant, (e.g., are not officers or directors) receive information regarding a competing applicant's bids or bidding strategies and whether that information might be deemed to necessarily convey to the applicant. The Bureau notes that the exception to the anti-collusion rule providing that non-controlling interest holders may have interests in more than one competing bidder without violating the anti-collusion rule, provided specified conditions are met (including a certification that no prohibited communications have occurred or will occur), does not extend to controlling interest holders. b. Prohibition Applies Until Down Payment Deadline 18. Section 1.2105(c)'s anti-collusion prohibition begins at the short-form application filing deadline and ends at the down payment deadline after the auction. In recognition of the related nature of the initial auction and any contingent auction of alternative licenses, the Commission concluded in the *700 MHz Second Report and Order* that the provisions of the anti-collusion rule would continue to apply until the down payment deadline for the subsequent auction. 19. Some commenters argue that the Bureau should allow applicants to opt-out from the anti-collusion prohibition in the event Auction 76 is conducted. A commenter proposed that an applicant that has no intention to bid in the subsequent auction could inform the Commission of its intent in writing with a certification that its decision is not based on any discussion with other competing bidders of auction strategy or post-auction market structure. As one commenter acknowledges, changing the application of the rule in this way is beyond the Bureau's delegated authority and beyond the scope of this non-rulemaking proceeding and would require action by the Commission to reconsider its determination in the *700 MHz Second Report and Order* . Thus, the Bureau is unable to adopt the proposed opt-out certification procedure. If it is necessary to conduct Auction 76, the provisions of the anti-collusion rule will apply to all applicants until the down payment deadline, which will occur after the close of bidding on licenses offered in Auction 76. c. Prohibited Communications 20. Prospective applicants for upcoming Auctions 73 and 76 and other parties that may be engaged in discussion with such prospective applicants are cautioned of the need to comply with the Commission's anti-collusion rule, § 1.2105(c). The anti-collusion rule prohibits not only a communication about an applicant's own bids or bidding strategy, but also a communication of another applicant's bids or bidding strategy. While the anti-collusion rule provisions do not prohibit business negotiations among auction applicants, applicants must remain vigilant so as not to communicate directly or indirectly information that affects, or could affect, bids or bidding strategy, or the negotiation of settlement agreements. 21. The Commission remains vigilant about prohibited communications taking place in other situations. For example, the Commission has warned that prohibited communications concerning bids and bidding strategies may include communications regarding capital calls or requests for additional funds in support of bids or bidding strategies to the extent such communications convey information concerning the bids and bidding strategies directly or indirectly. 22. Applicants are hereby placed on notice that public disclosure of information relating to bidder interests and bidder identities that is confidential in both Auctions 73 and 76 at the time of disclosure may violate the anti-collusion rule. This is so even though similar types of information were revealed prior to and during other Commission auctions subject to different information procedures. Bidders should use caution in their dealings with other parties, such as members of the press, financial analysts, or others who might become a conduit for the communication of prohibited bidding information. For example, where limited information disclosure procedures are in place, as for Auctions 73 and 76, a qualified bidder's statement to the press that it has lost bidding eligibility and stopped bidding in the auction could give rise to a finding of an anti-collusion rule violation. Similarly, an applicant's public statement of intent not to participate in Auction 76 bidding could also violate the rule. 23. Applicants for licenses for any of the same geographic license areas must not communicate directly or indirectly about bids or bidding strategy. Accordingly, such applicants are encouraged not to use the same individual as an authorized bidder. A violation of the anti-collusion rule could occur if an individual acts as the authorized bidder for two or more competing applicants, and conveys information concerning the substance of bids or bidding strategies between such applicants. Also, if the authorized bidders are different individuals employed by the same organization (e.g., law firm or engineering firm or consulting firm), a violation similarly could occur. In such a case, at a minimum, applicants should certify on their applications that precautionary steps have been taken to prevent communication between authorized bidders and that applicants and their bidding agents will comply with the anti-collusion rule. A violation of the anti-collusion rule could occur in other contexts, such as an individual serving as an officer for two or more applicants. Moreover, the Commission has found a violation of the anti-collusion rule where a bidder used the Commission's bidding system to disclose its bidding strategy in a manner that explicitly invited other auction participants to cooperate and collaborate in specific markets, and has placed auction participants on notice that the use of its bidding system to disclose market information to competitors will not be tolerated and will subject bidders to sanctions. 24. In addition, when completing short-form applications, applicants should avoid any statements or disclosures that may violate the Commission's anti-collusion rule, particularly in light of the Commission's procedures for limited information. Specifically, applicants should avoid including any information in their short-form applications that might convey information regarding their license selection, such as using applicant names that refer to licenses being offered, referring to certain licenses or markets in describing bidding agreements, or including any information in attachments that may otherwise disclose applicants' license selections. d. Disclosure of Bidding Agreements and Arrangements 25. The Commission's rules do not prohibit applicants from entering into otherwise lawful bidding agreements before filing their short-form applications, as long as they disclose the existence of the agreement(s) in their short-form application. If parties agree in principle on all material terms prior to the short-form filing deadline, each party to the agreement must identify the other party or parties to the agreement on its short-form application under § 1.2105(c), even if the agreement has not been reduced to writing. If the parties have not agreed in principle by the short-form filing deadline, they should not include the names of parties to discussions on their applications, and they may not continue negotiations, discussions or communications with any other applicants for licenses covering any of the same or overlapping geographic areas after the short-form filing deadline. e. Anti-Collusion Certification 26. By electronically submitting a short-form application following the electronic filing procedures set forth in Attachments D and E to the *Auctions 73 and 76 Procedures Public Notice* , each applicant certifies its compliance with § 1.2105(c). However, the Bureau cautions that merely filing a certifying statement as part of an application will not outweigh specific evidence that collusive behavior has occurred, nor will it preclude the initiation of an investigation when warranted. The Commission has stated that it intends to scrutinize carefully any instances in which bidding patterns suggest that collusion may be occurring. Any applicant found to have violated the anti-collusion rule may be subject to sanctions. f. Antitrust Laws 27. Applicants are also reminded that, regardless of compliance with the Commission's rules, they remain subject to the antitrust laws, which are designed to prevent anticompetitive behavior in the marketplace. Compliance with the disclosure requirements of the Commission's anti-collusion rule will not insulate a party from enforcement of the antitrust laws. For instance, a violation of the antitrust laws could arise out of actions taking place well before any party submits a short-form application. The Commission has cited a number of examples of potentially anticompetitive actions that would be prohibited under antitrust laws: For example, actual or potential competitors may not agree to divide territories horizontally in order to minimize competition, regardless of whether they split a market in which they both do business, or whether they merely reserve one market for one and another for the other. Similarly, the Bureau has long reminded potential applicants and others that even where the applicant discloses parties with whom it has reached an agreement on the short-form application, thereby permitting discussions with those parties, the applicant is nevertheless subject to existing antitrust laws. To the extent the Commission becomes aware of specific allegations that suggest that violations of the federal antitrust laws may have occurred, the Commission may refer such allegations to the United States Department of Justice for investigation. If an applicant is found to have violated the antitrust laws or the Commission's rules in connection with its participation in the competitive bidding process, it may be subject to forfeiture of its upfront payment, down payment, or full bid amount and may be prohibited from participating in future auctions, among other sanctions. 28. One commenter urges the Commission to adopt an auction rule that states that a bidder cannot release any bidding information to the public during the course of the auction, and provide notice that all parties remain subject to the antitrust laws. As another commenter points out, however, the Commission has consistently provided such guidance in prior auctions. The Bureau does so again here: All parties remain subject to the antitrust laws. g. Duty to Report Prohibited Communications 29. If an applicant makes or receives a communication that appears to violate the anti-collusion rule, it must report such communication in writing to the Commission immediately and in no case later than five business days after the communication occurs. The Commission recently clarified that each applicant's obligation to report any such communication continues beyond the five-day period after the communication is made, even if the report is not made within the five day period. 30. Section 1.65 of the Commission's rules requires an applicant to maintain the accuracy and completeness of information furnished in its pending application and to notify the Commission within 30 days of any substantial change that may be of decisional significance to that application. Thus, § 1.65 requires an auction applicant to notify the Commission of any substantial change to the information or certifications included in its pending short-form application. Applicants are therefore required by § 1.65 to report to the Commission any communications they have made to or received from another applicant after the short-form filing deadline that affect or have the potential to affect bids or bidding strategy unless such communications are made to or received from parties to agreements identified under § 1.2105(a)(2)(viii). 31. Applicants must be aware that failure to comply with the Commission's rules can result in enforcement action. h. Winning Bidders Must Disclose Terms of Agreements 32. Applicants that are winning bidders will be required to disclose in their long-form applications the specific terms, conditions, and parties involved in any bidding consortia, joint ventures, partnerships, and other arrangements entered into relating to the competitive bidding process. i. Additional Information Concerning Anti-Collusion Rule 33. A summary listing of documents issued by the Commission and the Bureau addressing the application of the anti-collusion rule may be found in Attachment I of the *Auctions 73 and 76 Procedures Public Notice* . These documents are available on the Commission's auction anti-collusion Web page. iii. Protection of Incumbent Operations 34. A number of incumbent broadcasters are licensed and operating on these frequencies (TV Channels 52-53, 56-58, 60-62, and 65-67) and adjacent channels. In accordance with the Commission's rules, 700 MHz Band licensees must protect analog and digital TV incumbents from harmful interference through February 17, 2009, the end of the DTV transition period. After February 17, 2009, 700 MHz licensees must continue to operate in accordance with the Commission's rules to reduce the potential for interference to public reception of the signals of DTV broadcast stations transmitting on DTV Channel 51. These limitations may restrict the ability of such geographic area licensees to use certain portions of the electromagnetic spectrum or provide service to some parts of their geographic license areas. 35. In the *700 MHz Second Report and Order* , the Commission grandfathered an incumbent guard band B Block licensee in Major Economic Areas
(MEAs)21 and 39 at 761-763 MHz and 791-793 MHz of the D Block. The new D Block licensee will be authorized on a secondary basis at 761-763 MHz and 791-793 MHz in these markets, and it may not cause interference to the primary operations of the grandfathered licensee. If the grandfathered licensee, or a successor or assignee, cancels either of the grandfathered licenses, or if either license cancels automatically, is terminated by the Commission, or expires, then the licensed geographic area will revert to the D Block licensee automatically. a. International Coordination 36. Potential bidders seeking licenses for geographic areas that are near the Canadian or Mexican borders are subject to international agreements with Canada and Mexico. Pursuant to these agreements, the U.S. must protect the signals of Canadian and Mexican television broadcast stations located in the border area. Unless otherwise modified by international treaty, licensees must not cause interference to, and must accept harmful interference from, television broadcast operations in Mexico and Canada. Further, until such time as existing agreements are replaced or modified to reflect the new uses, licensees in the band will be subject to existing agreements. b. Quiet Zones 37. 700 MHz Band licensees must protect the radio quiet zones set forth in the Commission's rules. Licensees are cautioned that they must receive the appropriate approvals directly from the relevant quiet zone entity prior to operating within the areas described in the Commission's rules. iv. Due Diligence 38. The Bureau cautions potential applicants formulating their bidding strategies to investigate and consider the extent to which 700 MHz Band frequencies are occupied. Applicants and their investors should also understand that Commission rules and requirements place limitations on the ability of 700 MHz Band licensees to use this spectrum. There are a number of incumbent broadcast television licensees already licensed and operating in the band that will be subject to the upcoming auction. Geographic area licensees operating on the spectrum associated with Channels 52-53, 56-58, 60-62, and 65-67 must comply with the co-channel and the adjacent channel provision of § 27.60 of the Commission's rules. These limitations may restrict the ability of such geographic area licensees to use certain portions of the electromagnetic spectrum or provide service to certain areas in their geographic license areas. For example, bidders should become familiar with any petitions or other pleadings filed in response to the *700 MHz First Report and Order, 700 MHz Second Report and Order* , and any other orders that have been or may be released affecting the 700 MHz Band. 39. Potential bidders are reminded that they are solely responsible for investigating and evaluating all technical and marketplace factors that may have a bearing on the value of 700 MHz Band licenses. The FCC makes no representations or warranties about the use of this spectrum for particular services. Applicants should be aware that an FCC auction represents an opportunity to become an FCC licensee in the 700 MHz Band subject to certain conditions and regulations. An FCC auction does not constitute an endorsement by the FCC of any particular service, technology, or product, nor does an FCC license constitute a guarantee of business success. Applicants should perform their individual due diligence before proceeding as they would with any new business venture. 40. Potential bidders are strongly encouraged to conduct their own research prior to the beginning of bidding in Auction 73 in order to determine the existence of any pending legislative, administrative or judicial proceedings that might affect their decision regarding participation in the auction, including any subsequent auction (if necessary). Participants in Auctions 73 and 76 are strongly encouraged to continue such research throughout the auction. In addition, potential bidders should perform technical analyses sufficient to assure themselves that, should they prevail in competitive bidding for a specific license, they will be able to build and operate facilities that will fully comply with the Commission's technical and legal requirements as well as other applicable Federal, state, and local laws. 41. Applicants should also be aware that certain pending and future proceedings, including rulemaking proceedings or petitions for rulemaking, applications (including those for modification), requests for special temporary authority, waiver requests, petitions to deny, petitions for reconsideration, informal oppositions, and applications for review, before the Commission may relate to particular applicants or incumbent licensees or the licenses available in Auctions 73 and 76. For example, bidders should note that petitions have been filed for reconsideration of certain decisions made in the *700 MHz First Report and Order* and the *700 MHz Second Report and Order* . In addition, applicants should be aware that the Commission has sought comment on a range of proposals concerning consumer education about the DTV transition, including the possible imposition of reporting requirements on winning bidders for 700 MHz band licenses. Of course, pending and future judicial proceedings may relate to particular applicants or incumbent licensees, or the licenses available in Auctions 73 and 76. Prospective bidders are responsible for assessing the likelihood of the various possible outcomes, and considering their potential impact on spectrum licenses available in Auctions 73 and 76. 42. Applicants should perform due diligence to identify and consider all proceedings that may affect the spectrum licenses being auctioned and that could have an impact on the availability of spectrum for Auction 73. In addition, although the Commission may continue to act on various pending applications, informal objections, petitions, and other requests for Commission relief, some of these matters may not be resolved by the beginning of bidding in the auction. 43. Applicants are solely responsible for identifying associated risks and for investigating and evaluating the degree to which such matters may affect their ability to bid on, otherwise acquire, or make use of licenses being offered. 44. Applicants may use the licensing database for the Media Bureau on the Internet in order to determine which frequencies are already licensed to incumbent licensees. Licensing records for the Media Bureau are contained in the Media Bureau's Consolidated Data Base System
(CDBS)and may be researched on the Internet at *http://www.fcc.gov/mb/cdbs.html* . Potential bidders should direct questions regarding the search capabilities of CDBS to the Media Bureau help line at
(202)418-2662, or via e-mail at *cdbshelp@fcc.gov* . 45. The Commission makes no representations or guarantees regarding the accuracy or completeness of information in its databases or any third party databases, including, for example, court docketing systems. To the extent the Commission's databases may not include all information deemed necessary or desirable by an applicant, applicants may obtain or verify such information from independent sources or assume the risk of any incompleteness or inaccuracy in said databases. Furthermore, the Commission makes no representations or guarantees regarding the accuracy or completeness of information that has been provided by incumbent licensees and incorporated into its databases. 46. Potential applicants are strongly encouraged to physically inspect any prospective sites located in, or near, the geographic area for which they plan to bid, and also to familiarize themselves with the environmental review obligations. v. Use of Integrated Spectrum Auction System 47. The Commission will make available a browser-based bidding system to allow bidders to participate in Auction 73 over the Internet using the Commission's Integrated Spectrum Auction System (ISAS or FCC Auction System). The Commission makes no warranty 21 whatsoever with respect to the FCC Auction System. In no event shall the Commission, or any of its officers, employees or agents, be liable for any damages whatsoever (including, but not limited to, loss of business profits, business interruption, loss of business information, or any other loss) arising out of or relating to the existence, furnishing, functioning or use of the FCC Auction System that is accessible to qualified bidders in connection with Auctions 73 and 76. Moreover, no obligation or liability will arise out of the Commission's technical, programming or other advice or service provided in connection with the FCC Auction System. vi. Fraud Alert 48. As is the case with many business investment opportunities, some unscrupulous entrepreneurs may attempt to use Auction 73 to deceive and defraud unsuspecting investors. Information about deceptive telemarketing investment schemes is available from the Commission as well as the FTC and SEC. Complaints about specific deceptive telemarketing investment schemes should be directed to the FTC, the SEC, or the National Fraud Information Center at
(800)876-7060. vii. Environmental Review Requirements 49. Licensees must comply with the Commission's rules regarding implementation of the National Environmental Policy Act and other federal environmental statutes. The construction of a wireless antenna facility is a federal action and the licensee must comply with the Commission's environmental rules for each such facility. The Commission's environmental rules require, among other things, that the licensee consult with expert agencies having environmental responsibilities, including the U.S. Fish and Wildlife Service, the State Historic Preservation Office, the Army Corps of Engineers and the Federal Emergency Management Agency (through the local authority with jurisdiction over floodplains). In assessing the effect of facilities construction on historic properties, the licensee must follow the provisions of the Nationwide Programmatic Agreement Regarding the Section 106 National Historic Preservation Act Review Process. The licensee must prepare environmental assessments for facilities that may have a significant impact in or on wilderness areas, wildlife preserves, threatened or endangered species or designated critical habitats, historical or archaeological sites, Indian religious sites, floodplains, and surface features. The licensee also must prepare environmental assessments for facilities that include high intensity white lights in residential neighborhoods or excessive radio frequency emission. C. Auction Specifics i. Auction 73 Start Date 50. Bidding in Auction 73 will begin on Thursday, January 24, 2008. 51. This change of the previously-announced start date for Auction 73 will provide interested parties with additional time after this announcement of competitive bidding procedures to develop business plans, assess market conditions, and evaluate the availability of equipment for new 700 MHz Band services. 52. Some commenters had sought a postponement of the previously-announced start date until January 25 or 28, 2008. Pursuant to the Congressional mandate, the Commission must conduct the auction of licenses for recovered analog spectrum in the 700 MHz Band by commencing the bidding not later than January 28, 2008. Starting the auction on the statutory deadline for commencing the auction, or one business day prior to the deadline would provide insufficient time to address unexpected matters that might arise just prior to the start of bidding. 53. The initial schedule for bidding will be announced by public notice at least one week before the start of the auction. Moreover, unless otherwise announced, bidding on all licenses and packages will be conducted on each business day until bidding has stopped on all licenses and packages. ii. Auction Title 54. The auction in which the 700 MHz Band licenses will initially be offered is designated as Auction 73—700 MHz Band. In the event that any licenses, including alternative licenses, are offered in contingent subsequent bidding, that will be designated as Auction 76. iii. Bidding Methodology 55. The bidding methodology for Auction 73 will be simultaneous multiple round
(SMR)bidding for the A, B, D, and E Block licenses and an auction design with hierarchical package bidding
(HPB)for the C Block licenses. The Commission will conduct Auctions 73 and 76 over the Internet using the FCC Auction System, and telephonic bidding will be available as well. Qualified bidders are permitted to bid electronically via the Internet or by telephone. All telephone calls are recorded. iv. Pre-Auction Dates and Deadlines 56. The following dates and deadlines apply: Auction Seminar November 20, 2007. Auction 73 and 76 Short-Form Application (FCC Form 175) Filing Window Opens November 19, 2007; 12 noon ET. Auction 73 and 76 Short-Form Application (FCC Form 175) Filing Window Deadline December 3, 2007; prior to 6 p.m. ET. Auction 73 Upfront Payments (via wire transfer) December 28, 2007; 6 p.m. ET. Mock Auction January 18, 2008. Auction 73 Begins January 24, 2008. 57. If contingent subsequent bidding is necessary, the Bureau intends to announce the start date for Auction 76 and the deadline for additional upfront payments within five business days after the end of bidding in Auction 73. The Bureau expects that Auction 76 would begin within three weeks of that announcement. v. Requirements for Participation in Auction 73 and 76 58. Those wishing to participate in Auction 73 and 76 (should any subsequent auction become necessary), must:
(1)For Auction 73, submit a short-form application (FCC Form 175) electronically prior to 6 p.m. ET, December 3, 2007, following the electronic filing procedures set forth in Attachment D to the *Auctions 73 and 76 Procedures Public Notice;*
(2)for Auction 76, submit short-form applications (FCC Form 175) electronically prior to 6 p.m. ET, December 3, 2007, for each auction following the electronic filing procedures set forth in Attachments D and E to the *Auctions 73 and 76 Procedures Public Notice.* Bidding in Auction 76 is open only to applicants that qualify to participate in Auction 73, and that comply with all of the requirements for participating in Auction 76, including submitting a separate short-form application;
(3)for Auction 73, submit a sufficient upfront payment and an FCC Remittance Advice Form (FCC Form 159) by 6 p.m. ET, December 28, 2007, following the procedures and instructions set forth in Attachment F to the *Auctions 73 and 76 Procedures Public Notice;*
(4)for Auction 76 (if necessary), submit a sufficient upfront payment and an FCC Remittance Advice Form (FCC Form 159) by the deadline to be announced following the end of bidding in Auction 73; and
(5)comply with all provisions outlined in this Public Notice and applicable Commission rules. D. Other Issues Raised by Commenters 59. Two commenters raised issues that are unrelated to those raised in the *700 MHz Auction Public Notice.* One commenter proposes that the Commission should require that all licenses offered in Auction 73 be made available to public safety personnel for priority use during critical emergencies. The commenter also suggests that such a requirement be considered in the event of a contingent auction, if any. Another commenter urges the Commission to require applicants to disclose on their short-form applications whether winning the licenses they have selected would cause their spectrum holdings to exceed 70 MHz of spectrum in the markets of the selected licenses. In the event that any applicants indicate that their spectrum holdings would exceed this amount, the commenter proposed that their short-form applications should be dismissed before the commencement of Auction 73. The commenter also requests that the Commission investigate alleged violations of the Commission's *ex parte* rules by a wireless company concerning policy on the open platform provisions for C Block licenses, and proposes excluding that company from Auction 73 as a possible sanction for violating the Commission's rules. 60. These issues are outside the scope of this non-rulemaking proceeding, which is confined to establishing competitive bidding procedures for Auction 73. The Bureau notes that some of these issues have been presented to the Commission in petitions for reconsideration of the *700 MHz Second Report and Order* and will be addressed in that proceeding. II. Short-Form Application (FCC Form 175) Requirements 61. Entities seeking licenses available in Auction 73 must file a short-form application electronically via the FCC Auction System prior to 6 p.m. ET on December 3, 2007, following the procedures prescribed in Attachment D to the *Auctions 73 and 76 Procedures Public Notice.* Applicants filing a short-form application are subject to the Commission's anti-collusion rules beginning on the deadline for filing. For Auctions 73 and 76, applicants filing a short-form application for Auction 73 will remain subject to the Commission's anti-collusion rules through the completion of Auction 76, if conducted. If an applicant claims eligibility for a bidding credit, the information provided in its FCC Form 175 will be used in determining whether the applicant is eligible for the claimed bidding credit. Applicants bear full responsibility for submitting accurate, complete and timely short-form applications. All applicants must certify on their short-form applications under penalty of perjury that they are legally, technically, financially and otherwise qualified to hold a license. Applicants should read the instructions set forth in Attachment D to the *Auctions 73 and 76 Procedures Public Notice* carefully and should consult 26 the Commission's rules to ensure that all the information that is required under the Commission's rules is included with their short-form applications. 62. Entities seeking licenses that may be offered in Auction 76, if Auction 76 is conducted, must file electronically via the FCC Auction System prior to 6 p.m. ET on December 3, 2007 both a short-form application for Auction 73, following the procedures prescribed in Attachment D to the *Auctions 73 and 76 Procedures Public Notice* , and an abbreviated short-form application for Auction 76, following the procedures prescribed in Attachment E to the *Auctions 73 and 76 Procedures Public Notice* . Applicants filing short-form applications for both Auctions 73 and 76 are subject to the Commission's anti-collusion rules beginning on the deadline for filing both applications. 63. To streamline the application process, other than license selection requirements, all relevant information for the application to participate in Auction 76 must be submitted as part of the application to participate in Auction 73. The Auction 76 abbreviated application will request—and will accept—only information that the FCC Auction System requires in order to enable applicants to submit license selections for Auction 76. For example, applicants seeking to submit information regarding bidding agreements with respect to licenses offered in Auction 76 will not be able to access the bidding agreement screens that are usually part of the short-form application in the Auction 76 abbreviated application. Instead, such applicants must submit information regarding those agreements as part of their Auction 73 short-form application. 64. To comply with FCC Auction System requirements, however, applicants will be required to repeat some information submitted in their Auction 73 application, e.g., their FCC Registration Number (FRN), their name and address, certification of the form's contents, etc. As noted in the procedures for filing the abbreviated short-form application for Auction 76, applicants must provide the same information submitted in their application for Auction 73 as they provide in their Auction 76 application. Most importantly, if an entity wishes to submit a short-form application for Auction 76, it must do so using the same FRN that it uses for its short-form application for Auction 73. In addition, the same person must certify both applications, as the certification applies to information submitted in both applications. 65. An entity may not submit more than one short-form application for Auction 73. Similarly, an entity may not submit more than one short-form application for Auction 76. If a party submits multiple short-form applications for either Auction 73 or Auction 76, only one application for each will be accepted for filing. 66. Applicants also should note that submission of a short-form application (and any amendments thereto) constitutes a representation by the certifying official that he or she is an authorized representative of the applicant, that he or she has read the form's instructions and certifications, and that the contents of the application, its certifications, and any attachments are true and correct. Applicants are not permitted to make major modifications to their applications; such impermissible changes include a change of the certifying official to the application. Submission of a false certification to the Commission may result in penalties, including monetary forfeitures, license forfeitures, ineligibility to participate in future auctions, and/or criminal prosecution. A. Preferences for Small Businesses and Others i. Size Standards for Bidding Credits 67. A bidding credit represents the amount by which a bidder's winning bid will be discounted. For Auction 73 and Auction 76, bidding credits will be available to small businesses and very small businesses, and consortia thereof, as follows:
(1)A bidder with attributed average annual gross revenues that exceed $15 million and do not exceed $40 million for the preceding three years (small business) will receive a 15 percent discount on its winning bid; and
(2)a bidder with attributed average annual gross revenues that do not exceed $15 million for the preceding three years (very small business) will receive a 25 percent discount on its winning bid. 68. Bidding credits are not cumulative; a qualifying applicant receives either the 15 percent or 25 percent bidding credit on its winning bid, but not both. 69. Every applicant that claims eligibility for a bidding credit as either a small business or a very small business, or a consortium of small businesses or very small businesses, will be required to provide information regarding revenues attributable to the applicant, its affiliates, its controlling interests, and the affiliates of its controlling interests on its FCC Form 175 short-form application for Auction 73 to establish that it satisfies the applicable eligibility requirement. An applicant's disclosure of this information in the short-form application for Auction 73 will become part of the applicant's Auction 76 application, in the event the Commission conducts Auction 76. Accordingly, applicants are not required—and will not be able to—submit this information in their abbreviated Auction 76 application. Applicants claiming eligibility as a designated entity in Auction 73 and Auction 76 should review carefully the *CSEA/Part 1 Report and Order* , 71 FR 6992, February 10, 2006, the *Designated Entity Second Report and Order* , 71 FR 26245, May 5, 2006, and the *Order on Reconsideration of the Designated Entity Second Report and Order* , 71 FR 34272, June 14, 2006. In that connection, the Commission adopted rules governing eligibility for designated entity benefits in the *Designated Entity Second Report and Order* . The Commission's rules regarding applicants seeking eligibility for designated entity benefits require the disclosure of:
(1)All parties with which the applicant has entered into arrangements for the lease or resale (including wholesale agreements) of any of the capacity of any of the applicant's spectrum; and
(2)the gross revenues, separately and in the aggregate, of entities with which the applicant has an attributable material relationship, as defined in § 1.2110(b)(3)(iv)(B). 70. The Commission has adopted a narrow exemption from the attribution rule for the officers and directors of a rural telephone cooperative pursuant to which the gross revenues of the affiliates of the cooperative's officers and directors are not attributed to the applicant. An applicant (or controlling interest) seeking to claim this exemption must include in its short-form application a certification that it is validly organized under the most closely applicable organizing statute for a cooperative, and that such organization is reflected in its articles of incorporation, bylaws, and/or other relevant organic documents. Applicants seeking to claim this exemption must meet all of the conditions specified in § 1.2110(b)(3)(iii) of the Commission's rules. Additional guidance on completing the FCC Form 175 to claim this exemption may be found in Attachment D to the *Auctions 73 and 76 Procedures Public Notice* . ii. Tribal Lands Bidding Credit 71. To encourage the growth of wireless services in federally recognized tribal lands, the Commission has implemented a tribal lands bidding credit. Applicants do not provide information regarding tribal lands bidding credits on their FCC Form 175 short-form applications. Instead, winning bidders may apply for the tribal lands bidding credit after the auction when they file their FCC Form 601 long-form applications. iii. Installment Payments 72. Installment payment plans will not be available in Auction 73 or in Auction 76. B. License Selection 73. An applicant must select the initially offered licenses on which it wants to bid individually or as part of a pre-defined package in Auction 73 from the Eligible Licenses list on its short-form application for Auction 73. An applicant interested in bidding on licenses in the contingent subsequent auction must select those licenses from the Eligible Licenses list on its short-form application for Auction 76. Applicants will be able to bid on pre-defined packages of initially offered C Block licenses and alternative C2 Block licenses, if offered in subsequent bidding, pursuant to the package bidding procedures, only if they have selected all the individual licenses that comprise the relevant package on their respective short-form applications. 74. To assist applicants in identifying licenses of interest that will be available in Auctions 73 and 76, FCC Form 175 will include a filtering mechanism that allows an applicant to filter the Eligible Licenses list. The applicant will make selections for one or more of the filter criteria and the system will produce a list of licenses satisfying the specified criteria. The applicant may select all the licenses in the customized list or select individual licenses from the list. Applicants also will be able to select licenses from one customized list and then create additional customized lists to select additional licenses. 75. Applicants will not be able to change their license selections for either Auction 73 or Auction 76 after the short-form application filing deadline. Applicants interested in participating in Auctions 73 and 76 must have selected license(s) available in the respective auction by the short-form application deadline. Applicants must confirm their license selections before the deadline for submitting FCC Form 175. The FCC Auction System will not accept bids from an applicant on individual licenses that the applicant has not selected on its FCC Form 175. In addition, the FCC Auction System will not accept bids from an applicant on a pre-defined hierarchical package unless the applicant selected on its FCC Form 175 all the individual licenses that comprise the package. C. Disclosure of Bidding Arrangements 76. Applicants will be required to identify in their short-form application for Auction 73 all parties with whom they have entered into any agreements, arrangements, or understandings of any kind relating to the licenses being auctioned in Auctions 73 and 76, including any agreements relating to post-auction market structure. The agreements identified in the short-form application for Auction 73 will become part of the applicant's Auction 76 application, in the event the 31 Commission conducts Auction 76. Accordingly, applicants are not required—and will not be able to—disclose bidding agreements in their abbreviated Auction 76 application. 77. Applicants also will be required to certify under penalty of perjury in their short-form applications that they have not entered and will not enter into any explicit or implicit agreements, arrangements or understandings of any kind with any parties, other than those identified in the application to participate in Auction 73, regarding the amount of their bids, bidding strategies, or the particular licenses on which they will or will not bid. If an applicant has had discussions, but has not reached an agreement by the short-form application filing deadline, it would not include the names of parties to the discussions on its application and may not continue such discussions with any applicants after the deadline. 78. After the filing of short-form applications, the Commission's rules do not prohibit a party holding a non-controlling, attributable interest in one applicant from acquiring an ownership interest in or entering into a joint bidding arrangement with other applicants, provided that:
(1)The attributable interest holder certifies that it has not and will not communicate with any party concerning the bids or bidding strategies of more than one of the applicants in which it holds an attributable interest, or with which it has entered into a joint bidding arrangement; and
(2)the arrangements do not result in a change in control of any of the applicants. While the anti-collusion rules do not prohibit non-auction-related business negotiations among auction applicants, applicants are reminded that certain discussions or exchanges could touch upon impermissible subject matters because they may convey pricing information and bidding strategies. Compliance with the disclosure requirements of the Commission's anti-collusion rule will not insulate a party from enforcement of the antitrust laws. D. Ownership Disclosure Requirements 79. All applicants must comply with the uniform part 1 ownership disclosure standards and provide information required by § 1.2105 and 1.2112 of the Commission's rules. Specifically, in completing the short-form application for Auction 73, applicants will be required to fully disclose information on the real party or parties-in-interest and ownership structure of the applicant. The ownership disclosure standards for the short-form application are prescribed in § 1.2105 and 1.2112 of the Commission's rules. Each applicant is responsible for information submitted in its short-form application being complete and accurate. An applicant's disclosure of ownership information in the short-form application for Auction 73 will become part of the applicant's Auction 76 application, in the event the Commission conducts Auction 76. Accordingly, applicants are not required—and will not be able to—submit ownership disclosure information in their abbreviated Auction 76 application. 80. An applicant's most current ownership information on file with the Commission, if in an electronic format compatible with the short-form application (FCC Form 175) (such as information submitted in an online FCC Form 602 or in an FCC Form 175 filed for a previous auction using ISAS) will automatically be entered into the applicant's short-form application. An applicant is responsible for ensuring that the information submitted in its short-form application for Auction 73 is complete and accurate. Accordingly, applicants should carefully review any information automatically entered to confirm that it is complete and accurate as of the deadline for filing the short-form application. Applicants can update any information that was entered automatically and needs to be changed directly in the short-form application. E. Bidding Credit Revenue Disclosures 81. To determine which applicants qualify for bidding credits as small businesses or very small businesses, the Commission considers the gross revenues of the applicant, its affiliates, its controlling interests, and the affiliates of its controlling interests. Therefore, entities applying to bid as small businesses or very small businesses (or consortia of small businesses or very small businesses) will be required to disclose on their short-form applications for Auction 73 the gross revenues of the preceding three years for each of the following:
(1)The applicant;
(2)its 33 affiliates;
(3)its controlling interests; and
(4)the affiliates of its controlling interests. Certification that the average annual gross revenues of such entities and individuals for the preceding three years do not exceed the applicable limit is not sufficient. Applicants must also disclose the gross revenues of the entities with which they have attributable material relationships, as defined by the Commission's rules. Additionally, if an applicant is applying as a consortium of small businesses or very small businesses, this information must be provided for each consortium member. An applicant's disclosure of bidding credit revenue information in the short-form application for Auction 73 will become part of the applicant's Auction 76 application, in the event the Commission conducts Auction 76. Accordingly, applicants are not required and will not be able to submit bidding credit revenue information in their abbreviated Auction 76 application. 82. Controlling interests of an applicant include individuals and entities with either *de facto* or *de jure* control of the applicant. Typically, ownership of at least 50.1 percent of an entity's voting stock evidences *de jure* control. *De facto* control is determined on a case-by-case basis. The following are some common indicia of *de facto* control:
(1)The entity constitutes or appoints more than 50 percent of the board of directors or management committee;
(2)the entity has authority to appoint, promote, demote, and fire senior executives that control the day-to-day activities of the licensee; and
(3)the entity plays an integral role in management decisions. 83. Officers and directors of an applicant are also considered to have controlling interest in the applicant. The Commission does not impose specific equity requirements on controlling interest holders. Once the principals or entities with a controlling interest are determined, only the revenues of those principals or entities; the affiliates of those principals or entities; the applicant and its affiliates; and any parties having an attributable material relationship with the applicant will be counted in determining small business eligibility. 84. In the *Designated Entity Second Report and Order* , the Commission adopted material relationship rules. The Commission now requires the consideration of certain leasing and resale (including wholesale) relationships—material relationships—in determining designated entity eligibility. Material relationships fall into two categories: impermissible and attributable. An applicant or licensee has an impermissible material relationship when it has agreements with one or more other entities for the lease or resale (including under a wholesale agreement) of, on a cumulative basis, more than 50 percent of the spectrum capacity of any of its licenses. If an applicant or a licensee has an impermissible material relationship, it is, as a result,
(1)ineligible for the award of designated entity benefits, and
(2)subject to unjust enrichment on a license-bylicense basis. 85. An applicant or licensee has an attributable material relationship when it has one or more agreements with any individual entity for the lease or resale (including under a wholesale agreement) of, on a cumulative basis, more than 25 percent of the spectrum capacity of any individual license held by the applicant or licensee. The attributable material relationship will cause the gross revenues and, if applicable, total assets of that entity and its attributable interest holders to be attributed to the applicant or licensee for the purposes of determining the applicant's or licensee's
(1)eligibility for designated entity benefits and
(2)liability for unjust enrichment on a license-by-license basis. 86. The Commission grandfathered material relationships in existence before the release of the *Designated Entity Second Report and Order* , meaning that those preexisting relationships would not alone cause the Commission to examine a designated entity's ongoing eligibility for benefits or its liability for unjust enrichment. The Commission did not, however, grandfather preexisting material relationships for determinations of an applicant's or licensee's designated entity eligibility for future auctions or in the context of future assignments, transfers of control, spectrum leases, or other reportable eligibility events. Rather, the occurrence of any of those 35 eligibility events after the release date of the *Designated Entity Second Report and Order* triggers a reexamination of the applicant's or licensee's designated entity eligibility, taking into account all existing material relationships, including those previously grandfathered. 87. In recent years the Commission has also made other modifications to its rules governing the attribution of gross revenues for purposes of determining small business eligibility. These changes include exempting the gross revenues of the affiliates of a rural telephone cooperative's officers and directors from attribution to the applicant if certain specified conditions are met. The Commission has also clarified that, in calculating an applicant's gross revenues under the controlling interest standard, it will not attribute the personal net worth, including personal income, of its officers and directors to the applicant. 88. A consortium of small businesses or very small businesses is a conglomerate organization composed of two or more entities, each of which individually satisfies the definition of a small business or very small business as those terms are defined in the service-specific rules. Thus, each member of a consortium of small or very small businesses that applies to participate in Auction 73 must individually meet the definition of small business or very small business adopted by the Commission for the 700 MHz Band. Each consortium member must disclose its gross revenues along with those of its affiliates, its controlling interests, the affiliates of its controlling interests, and any entities having an attributable material relationship with the member. Although the gross revenues of the consortium members will not be aggregated for purposes of determining the consortium's eligibility as a small business or very small business, this information must be provided to ensure that each individual consortium member qualifies for any bidding credit awarded to the consortium. F. Provisions Regarding Former and Current Defaulters 89. Each applicant must state under penalty of perjury on its short-form application whether or not the applicant, its affiliates, its controlling interests, and the affiliates of its 36 controlling interests, as defined by § 1.2110, have ever been in default on any Commission licenses or have ever been delinquent on any non-tax debt owed to any Federal agency. In addition, each applicant must certify under penalty of perjury on its short-form application that, as of the short-form filing deadline, the applicant, its affiliates, its controlling interests, and the affiliates of its controlling interests, as defined by § 1.2110, are not in default on any payment for Commission licenses (including down payments) and that they are not delinquent on any non-tax debt owed to any Federal agency. Prospective applicants are reminded that submission of a false certification to the Commission is a serious matter that may result in severe penalties, including monetary forfeitures, license revocations, exclusion from participation in future auctions, and/or criminal prosecution. These statements and certifications are prerequisites to submitting an application in the FCC Auction System. Accordingly, applicants seeking licenses that may be offered in Auction 76 will be required to make these statements and certifications in both their short-form application for Auction 73 and their abbreviated Auction 76 application. 90. Former defaulters—i.e., applicants, including any of their affiliates, any of their controlling interests, or any of the affiliates of their controlling interests, that in the past have defaulted on any Commission licenses or been delinquent on any non-tax debt owed to any Federal agency, but that have since remedied all such defaults and cured all of their outstanding non-tax delinquencies—are eligible to bid in Auctions 73 and 76, provided that they are otherwise qualified. Former defaulters are required to pay upfront payments that are fifty percent more than the normal upfront payment amounts. 91. Current defaulters—i.e., applicants, including any of their affiliates, any of their controlling interests, or any of the affiliates of their controlling interests, that are in default on any payment for any Commission licenses (including down payments) or are delinquent on any non-tax debt owed to any Federal agency as of the filing deadline for short-form applications—are not eligible to bid in either Auction 73 or Auction 76. 92. Applicants are encouraged to review the Bureau's previous guidance on default and delinquency disclosure requirements in the context of the short-form application process. For example, it has been determined that to the extent that Commission rules permit late payment of regulatory or application fees accompanied by late fees, such debts will become delinquent for purposes of § 1.2105(a) and 1.2106(a) only after the expiration of a final payment deadline. Therefore, with respect to regulatory or application fees, the provisions of § 1.2105(a) and 1.2106(a) regarding default and delinquency in connection with competitive bidding are limited to circumstances in which the relevant party has not complied with a final Commission payment deadline. 93. The Commission considers outstanding debts owed to the United States Government, in any amount, to be a serious matter. The Commission adopted rules, including a provision referred to as the red light rule, that implement the Commission's obligations under the Debt Collection Improvement Act of 1996, which governs the collection of claims owed to the United States. Under the red light rule, the Commission will not process applications and other requests for benefits filed by parties that have outstanding debts owed to the Commission. In the same rulemaking order, the Commission explicitly declared, however, that the Commission's competitive bidding rules are not affected by the red light rule. As a consequence, the Commission's adoption of the red light rule does not alter the applicability of any of the Commission's competitive bidding rules, including the provisions and certifications of § 1.2105 and 1.2106, with regard to current and former defaults or delinquencies. Applicants are reminded, however, that the Commission's Red Light Display System, which provides information regarding debts owed to the Commission, may not be determinative of an auction applicant's ability to comply with the default and delinquency disclosure requirements of § 1.2105. Thus, while the red light rule ultimately may prevent the processing of long-form 38 applications by auction winners, an auction applicant's red light status is not necessarily determinative of its eligibility to participate in an auction or of its upfront payment obligation. 94. Prospective applicants should note that any long-form applications filed after the close of competitive bidding will be reviewed for compliance with the Commission's red light rule, and such review may result in the dismissal of a winning bidder's long-form application. G. Other Information 95. Applicants owned by members of minority groups and/or women, as defined in § 1.2110(c)(3), may identify themselves in filling out their short-form applications regarding this status. This applicant status information is collected for statistical purposes only and assists the Commission in monitoring the participation of designated entities in its auctions. H. Minor Modifications to Short-Form Applications (FCC Form 175) 96. Applicants are not permitted to make major modifications to their short-form applications (e.g., change their license selections, change control of the applicant, change the certifying official, or change their size to claim eligibility for a higher bidding credit) after the short-form application deadline. Thus, any change in control of an applicant, resulting from a merger for example, will be considered a major modification to the applicant's FCC Form 175, which will consequently be dismissed. 97. Applicants are, however, permitted to make only minor changes to their FCC Form 175 after the short-form application deadline. Permissible minor changes include, for example, deletion and addition of authorized bidders (to a maximum of three) and revision of addresses and telephone numbers of the applicants and their contact persons. 98. If an applicant wishes to make permissible minor changes to its short-form application, such changes should be made electronically to its Auction 73 short-form application using the FCC Auction System. Applicants should not make changes to short-form applications 39 associated with Auction 76. Applicants are reminded to click on the SUBMIT button in the FCC Auction System for the changes to be submitted and considered by the Commission. After the revised application has been submitted, a confirmation page will be displayed that states the submission time and date, along with a unique file number. 99. In addition, during those periods outside of the initial and resubmission filing windows (i.e., when an applicant cannot electronically update its FCC Form 175), an applicant should submit a letter briefly summarizing the changes and subsequently update its short-form applications in ISAS as soon as possible. After the filing window has closed, the auction system will not permit applicants to make certain changes, such as legal classification and bidding credit. Any letter describing changes to an applicant's short-form application should be submitted by electronic mail to the following address: *auction73@fcc.gov* . The electronic mail summarizing the changes must include a subject or caption referring to Auction 73 and the name of the applicant (e.g., RE: Changes to Auction 73 Short-Form Application of ABC Corp.), and should not reference Auction 76. 100. Applicants must not submit application-specific material through the Commission's Electronic Comment Filing System (ECFS). I. Maintaining Current Information in Short-Form Applications (FCC Form 175) 101. Section 1.65 of the Commission's rules requires an applicant to maintain the accuracy and completeness of information furnished in its pending application and to notify the Commission within 30 days of any substantial change that may be of decisional significance to that application. Changes that cause a loss of or reduction in eligibility for a bidding credit must be reported immediately. If an amendment reporting substantial changes is a major amendment as defined by § 1.2105, the major amendment will not be accepted and may result in the dismissal of the short-form application. 102. After the short-form filing deadline, applicants may make only minor changes to their short-form applications, such as deleting or adding authorized bidders (to a maximum of three). Applicants must click on the SUBMIT button in the FCC Auction System for the changes to be submitted and considered by the Commission. In addition, applicants must submit a letter, briefly summarizing the changes, by electronic mail at the following address: *auction73@fcc.gov* . The electronic mail summarizing the changes must include a subject or caption referring to Auction 73 and the name of the applicant. Applicants must not submit application-specific material through ECFS. III. Pre-Auction Procedures A. Auction Seminar—November 20, 2007 103. On Tuesday November 20, 2007, the FCC will sponsor a free seminar for parties interested in participating in Auctions 73 and 76 at the FCC headquarters, located at 445 12th Street, SW., Washington, DC. The seminar will provide attendees with information about pre-auction procedures, completing FCC Form 175, auction conduct, the FCC Auction System, auction rules, and the 700 MHz Band service rules. The seminar will also provide an opportunity for prospective bidders to ask questions of FCC staff concerning the auction, auction procedures, filing requirements and other matters related to Auctions 73 and 76. 104. To register, please provide the information listed on the Auctions 73 and 76 Public Notice released October 19, 2007 (DA 07-4236), by fax
(717)338-2850, e-mail *Auchelp@fcc.gov* or telephone
(717)338-2868 to the FCC by Friday, November 16, 2007. For individuals who are unable to attend, an Audio/Video webcast of this seminar will be available from the FCC's Auction 73 Web page at *http://wireless.fcc.gov/auctions/73/* . B. Short-Form Applications (FCC Form 175)—Due Prior to 6 p.m. ET on December 3, 2007 105. In order to be eligible to bid in Auction 73 or Auction 76, applicants must first follow the procedures set forth in Attachments D and E to the *Auctions 73 and 76 Procedures Public Notice* to submit an FCC Form 175 application electronically via the FCC Auction System. The application must be received at the Commission prior to 6 p.m. ET on December 3, 2007. Late applications will not be accepted. There is no application fee required when filing an FCC Form 175, but an applicant must submit an upfront payment to be eligible to bid. 106. Applications may generally be filed at any time beginning at noon ET on November 19, 2007, and the filing window will close prior to 6 p.m. ET on December 3, 2007. Applicants are strongly encouraged to file early and are responsible for allowing adequate time for filing their applications. Applicants may update or amend their applications multiple times until the filing deadline on December 3, 2007. 107. Applicants must always click on the SUBMIT button on the Certify & Submit screen of the electronic form to successfully submit or modify their FCC Form 175. Any form that is not submitted will not be reviewed by the FCC. Additional information about accessing, completing, and viewing the FCC Form 175 is included in Attachments D and E of the *Auctions 73 and 76 Procedures Public Notice* . FCC Auctions Technical Support is available at
(877)480-3200, or
(202)414-1255 (text telephone (TTY)); hours of service are Monday through Friday, from 8 a.m. to 6 p.m. ET. C. Application Processing and Minor Corrections 108. After the deadline for filing short-form applications, the Commission will process all timely submitted applications to determine which are acceptable for filing, and subsequently will issue a public notice identifying:
(1)Those applications accepted for filing;
(2)those applications rejected; and
(3)those applications which have minor defects that may be corrected, and the deadline for resubmitting corrected applications. 109. After the December 3, 2007, short-form filing deadline, applicants may make only minor corrections to their applications. Applicants will not be permitted to make major modifications to their applications (e.g., change their license selections, change control of the applicant, change certifying official, or change their size to claim eligibility for a higher bidding credit). Accordingly, applicants interested in participating in any potential contingent subsequent bidding must have selected license(s) available in the initial bidding as well as licenses that may be available in contingent subsequent bidding, including alternative licenses, by the deadline for submitting their application to participate in Auction 73. FCC personnel will communicate regarding a short-form application only with an applicant's contact person or certifying official, as designated on the applicant's FCC Form 175, unless the applicant's certifying official or contact person notifies the Commission in writing that applicant's counsel or other representative is authorized to speak on its behalf. D. Upfront Payments—Due December 28, 2007 110. In order to be eligible to bid in Auction 73 and any contingent subsequent auction, applicants must submit an upfront payment accompanied by an FCC Remittance Advice Form (FCC Form 159). Only applicants that become qualified bidders in Auction 73, by, among other things, making upfront payments to be eligible to bid in Auction 73, will be eligible to participate in any contingent subsequent auction. However, qualified bidders in Auction 73 will be permitted to make additional upfront payments with respect to licenses being offered in any contingent subsequent auction at a later date. After completing the FCC Form 175, filers will have access to an electronic version of the FCC Form 159 that can be printed and sent by facsimile to Mellon Bank in Pittsburgh, PA. All upfront payments for Auction 73 must be received in the proper account at Mellon Bank by 6 p.m. ET on December 28, 2007. i. Making Upfront Payments by Wire Transfer 111. Wire transfer payments for Auction 73 must be received by 6 p.m. ET on December 28, 2007. No other payment method is acceptable. To avoid untimely payments, applicants should discuss arrangements (including bank closing schedules) with their banker several days before they plan to make the wire transfer, and allow sufficient time for the transfer to be initiated and completed before the deadline. The BNF and Lockbox number are specific to the upfront payments for Auction 73. Do not use BNF or Lockbox numbers from previous auctions. Wire transfer information for Auction 76 will be made available in a future public notice. 112. At least one hour before placing the order for the wire transfer (but on the same business day), applicants must send by facsimile a completed FCC Form 159 (Revised 2/03) to Mellon Bank at
(412)209-6045. On the cover sheet of the facsimile, write Wire Transfer—Auction Payment for Auction 73. In order to meet the Commission's upfront payment deadline, an applicant's payment must be credited to the Commission's account before the deadline. Applicants are responsible for obtaining confirmation from their financial institution that Mellon Bank has timely received their upfront payment and deposited it in the proper account. 113. Please note that:
(1)All payments must be made in U.S. dollars;
(2)all payments must be made by wire transfer;
(3)upfront payments for Auction 73 go to a lockbox number different from the lockboxes used in previous FCC auctions, and different from the lockbox number to be used for post-auction payments; and
(4)failure to deliver the upfront payment as instructed by the December 28, 2007, deadline will result in dismissal of the application and disqualification from participation in the auction as well as ineligibility for participation in any contingent subsequent bidding for 700 MHz Band licenses. ii. FCC Form 159 114. A completed FCC Remittance Advice Form (FCC Form 159, Revised 2/03) must be sent by facsimile to Mellon Bank to accompany each upfront payment. Proper completion of FCC Form 159 (Revised 2/03) is critical to ensuring correct crediting of upfront payments. Detailed instructions for completion of FCC Form 159 are included in Attachment F to the *Auctions 73 and 76 Procedures Public Notice* . An electronic pre-filled version of the FCC Form 159 is available after submitting the FCC Form 175. Payors using a pre-filled FCC Form 159 are responsible for ensuring that all of the information on the form, including payment amounts, is accurate. The FCC Form 159 can be completed electronically, but must be filed with Mellon Bank via facsimile. iii. Upfront Payments and Bidding Eligibility 115. In the *700 MHz Auction Public Notice* , the Bureau proposed that the amount of the upfront payment would determine a bidder's initial bidding eligibility, the maximum number of bidding units on which a bidder may place bids. In addition, consistent with the Commission's direction in the *700 MHz Second Report and Order* , the Bureau proposed that qualified bidders in Auction 73 would have an opportunity to submit additional upfront payments to obtain bidding eligibility for licenses in any contingent subsequent auction (Auction 76). 116. Under the Bureau's proposal, in order to bid on a particular license or package, qualified bidders must have selected the license(s) on FCC Form 175 and must have a current eligibility level that meets or exceeds the number of bidding units assigned to that license or package. For a package, the bidding units are calculated by adding together the bidding units of the individual licenses that make up the package. At a minimum, therefore, an applicant's total upfront payment must be enough to establish eligibility to bid on at least one of the licenses selected on its FCC Form 175 for Auction 73, or else the applicant will not be eligible to participate in Auction 73 or in Auction 76. An applicant does not have to make an upfront 45 payment to cover all licenses the applicant selected on its FCC Form 175, but rather to cover the maximum number of bidding units that are associated with licenses on which the bidder wishes to place bids and hold provisionally winning bids (via bids on licenses and/or packages) at any given time in Auction 73. If contingent subsequent bidding is necessary, qualified bidders for Auction 73 will be given an opportunity to supplement their upfront payments in order to increase their bidding eligibility for Auction 76. 117. In the *700 MHz Auction Public Notice* , the Bureau proposed to calculate upfront payments as follows:
(1)For licenses covering CMAs in the 50 states in which the licenses offered in Auction 66 were sold, $0.05 per MHz per population (MHz-pop) for Metropolitan Statistical Area
(MSA)licenses and $0.03/MHz-pop for Rural Service Area
(RSA)licenses;
(2)for licenses covering EAs in the 50 states in which the corresponding licenses in both EA blocks offered in Auction 66 were sold, the sum of $0.05/MHz-pop for counties contained within an MSA and $0.03/MHz-pop for counties contained within an RSA;
(3)for licenses covering REAGs in the 50 states in which the corresponding licenses in all three REAG blocks offered in Auction 66 were sold, the sum of $0.05/MHz-pop for counties contained within an MSA and $0.03/MHz-pop for counties contained within an RSA; (4)for licenses covering geographic areas for which an Auction 66 license was unsold, $0.01/MHz-pop; (5)for licenses covering the Gulf of Mexico, $1,000 per MHz; and
(6)for all remaining licenses, $0.01/MHz-pop. For all licenses, the results of the above calculations are subject to a minimum of $500 per license and are rounded using its standard rounding procedure. 118. The Bureau set forth the specific upfront payments and bidding units for each license in Attachment A of the *700 MHz Auction Public Notice* and sought comment on this proposal. The Bureau did not receive any comments in response to the proposed upfront payments, or on its proposal that the upfront payment amount would determine a bidder's initial bidding eligibility. Therefore, the Bureau adopt the upfront payments and bidding units for each 46 license in Auction 73 as proposed and set forth in Attachment A of the *Auctions 73 and 76 Procedures Public Notice* . 119. In calculating its upfront payment amount, an applicant interested in bidding only on individual licenses should determine the maximum number of bidding units on which it may wish to be active (bid on or hold provisionally winning bids on) in any single round in Auction 73, and submit an upfront payment amount covering that number of bidding units. Applicants interested in bidding on packages should determine their upfront payment amount by calculating the sum of bidding units associated with each discrete license they wish to include in new bids (package or individual bids) or have included in provisionally winning bids in any single round. The bidding units associated with a given license, even if the license is included in more than one bid, will be counted only once per bidder per round. In order to make this calculation, an applicant should add together the upfront payments for all licenses comprising all combinations of licenses and packages of licenses on which it seeks to be active in any given round. If a bidder has enough eligibility to bid on certain licenses, it can place bids on the licenses individually and on packages containing those licenses without needing additional eligibility. For example, if licenses A, B, and C each have 10,000 bidding units, and a bidder wishes in a single round to be able to bid on licenses A, B, and C individually and on packages AB and ABC, the bidder needs 30,000 bidding units of eligibility. Applicants should check their calculations carefully, as there is no provision for increasing a bidder's eligibility for Auction 73 after the upfront payment deadline. 120. The Bureau reiterates that, in the event it is necessary to conduct Auction 76, bidders will have an opportunity to supplement their upfront payments in order to increase their bidding eligibility for Auction 76. The instructions and deadline for doing so would be announced within five business days after the end of bidding in Auction 73. 121. For Auction 73 and any contingent subsequent auction, former defaulters must calculate their upfront payment for all licenses and packages by multiplying the number of bidding units on which they wish to be active by 1.5. In order to calculate the number of bidding units to assign to former defaulters, the Commission will divide the upfront payment received by 1.5 and round the result up to the nearest bidding unit. iv. Applicant's Wire Transfer Information for Purposes of Refunds of Upfront Payments 122. To ensure that refunds of upfront payments are processed in an expeditious manner, the Commission is requesting that all pertinent information be supplied to the FCC. Applicants can provide the information electronically during the initial short-form application filing window after the form has been submitted. Applicants are reminded that information submitted as part of an FCC Form 175 will be available to the public; for that reason, wire transfer information should not be included in an FCC Form 175. E. Auction Registration 123. Approximately ten days before the auction, the FCC will issue a public notice announcing all qualified bidders for Auction 73. Qualified bidders are those applicants whose FCC Form 175 applications have been accepted for filing and have timely submitted upfront payments sufficient to make them eligible to bid on license(s) initially offered in Auction 73. 124. All qualified bidders are automatically registered for the auction. Registration materials will be distributed prior to the auction by overnight mail. The mailing will be sent only to the contact person at the contact address listed in the FCC Form 175 and will include the SecurID ® tokens that will be required to place bids, the Integrated Spectrum Auction System
(ISAS)Bidder's Guide, and the Auction Bidder Line phone number. 125. Qualified bidders that do not receive this registration mailing will not be able to submit bids. Therefore, any qualified bidder that has not received this mailing by noon on Tuesday, January 15, 2008, should call
(717)338-2868. Receipt of this registration mailing is critical to participating in the auction, and each applicant is responsible for ensuring it has received all of the registration material. 126. In the event that SecurID ® tokens are lost or damaged, only a person who has been designated as an authorized bidder, the contact person, or the certifying official on the applicant's short-form application may request replacement registration material. Qualified bidders requiring the replacement of these items must call Technical Support at
(877)480-3201 or
(202)414-1255 (TTY). F. Remote Electronic Bidding 127. The Commission will conduct Auctions 73 and 76 over the Internet and telephonic bidding will be available as well. Qualified bidders are permitted to bid electronically and telephonically. Each applicant should indicate its bidding preference—electronic or telephonic—on the FCC Form 175. In either case, each authorized bidder must have its own SecurID ® token, which the FCC will provide at no charge. Each applicant with one authorized bidder will be issued two SecurID ® tokens, while applicants with two or three authorized bidders will be issued three tokens. For security purposes, the SecurID ® tokens, the telephonic bidding telephone number, and the Integrated Spectrum Auction System
(ISAS)Bidder's Guide are only mailed to the contact person at the contact address listed on the FCC Form 175. Please note that each SecurID ® token is tailored to a specific auction; therefore, SecurID ® tokens issued for other auctions or obtained from a source other than the FCC will not work for Auction 73. In the event that it is necessary to conduct Auction 76, qualified bidders for Auction 76 will use the same SecurID ® tokens as they used for Auction 73. 128. Please note that the SecurID ® tokens can be recycled, and the Bureau encourages bidders to return the tokens to the FCC. The Bureau will provide pre-addressed envelopes that bidders may use to return the tokens once the auction is closed. G. Mock Auction—January 18, 2008 129. All qualified bidders will be eligible to participate in a mock auction on Friday, January 18, 2008. The mock auction will enable applicants to become familiar with the FCC Auction System prior to the auction. Participation by all bidders is strongly recommended. Details will be announced by public notice. IV. Auction 73 130. The first round of bidding for Auction 73 will begin on Thursday, January 24, 2008. The initial bidding schedule will be announced in a public notice listing the qualified bidders, which is to be released approximately 10 days before the start of the auction. A. Auction 73 Structure i. Simultaneous Multiple Round Auction With Package Bidding on C Block Licenses 131. In the *700 MHz Auction Public Notice* , the Bureau proposed using the Commission's standard simultaneous multiple-round
(SMR)auction format for the A, B, D, and E Block licenses, while enabling package bidding for C Block licenses using an auction design with hierarchical package bidding (HPB). An SMR-HPB auction format offers every license for bid at the same time and consists of successive bidding rounds in which eligible bidders may place bids on individual licenses and on certain pre-defined packages of specified licenses, which, for Auction 73, only include C Block licenses. A bidder may bid on, and potentially win, any number of licenses and/or packages. Typically, bidding remains open on all licenses until bidding stops on every license, unless an alternative version of the stopping rule is invoked. 132. The *700 MHz Auction Public Notice* proposed pre-defined packages for C Block licenses according to a hierarchical structure. The initial level consists of individual licenses, and the next level consists of non-overlapping packages of those licenses, such that a given license is included only once in each level. The winning set of bids could therefore consist of bids from various levels as long as each license is included in only one winning bid. The Bureau proposed to accept individual bids on C Block licenses for REAGs 1-12 (Level 1) and package bids on the following combinations of C Block REAG licenses (Level 2):
(1)REAGs 1-8 (the 50 States package);
(2)REAGs 10 and 12, comprising Puerto Rico, the U.S. Virgin Islands and the Gulf of Mexico (the Atlantic package); and
(3)REAGs 9 and 11, comprising the U.S. Pacific territories (the Pacific package). 133. The Bureau also sought comment on alternative levels or alternative ways of packaging licenses within levels. Additionally, the Bureau proposed to conduct the auction using standard SMR procedures for all of the licenses, including the C Block licenses in the event that currently unforeseen difficulties make it impracticable to implement package bidding. 134. The majority of commenters support package bidding for C Block licenses either in general or for the HPB auction format specifically. Some commenters, however, urge the Bureau to abandon package bidding for Auction 73 under the unforeseen difficulties exception to the Commission's directive to use package bidding for the C Block licenses. These parties assert that the SMR-HPB format is too complex, will disadvantage bidders interested in only individual licenses, and will not be fully understood by bidders or implemented by the Bureau in time for the start of the auction. When the Commission directed the Bureau to adopt package bidding for the C Block, it noted that package bidding minimizes exposure risk for applicants whose business plans require the economies of scale that only can be obtained with nationwide operation, but would not preclude the participation of entities wishing to bid on individual licenses. The HPB auction format was chosen in part because it mitigates issues inherent in some other package bidding formats that give bidders interested in large packages an advantage over bidders interested in individual licenses. Of course, to the extent that providing bidders the option of package bidding favors those bidders seeking packages over those seeking individual licenses, the Bureau notes that the same argument could be applied in reverse to the other 1,087 licenses in Auction 73 that bidders will not have the option to package in order to decrease their exposure risk. After review of the record, the Bureau concluded that considerations raised in the comments opposing package bidding are not the kinds of unforeseen difficulties regarding the feasibility of package bidding for the C Block licenses that the Commission envisioned in the *700 MHz Second Report and Order* . 135. Therefore, the Bureau concludes that the SMR format for A, B, E and D Block licenses, and the HPB auction format for the C Block licenses, will best meet the needs of bidders in Auction 73, and therefore adopt them as proposed. As is typical with both formats, bids will be accepted on all individual licenses and on pre-defined packages of licenses in each round of the auction until bidding stops on every license, allowing bidders to take advantage of synergies that exist among licenses. 136. With regard to the proposed pre-defined packages for C Block licenses, the Bureau declines to adopt the alternate packages suggested by two commenters. One commenter asserts that it sees value in adopting a 12 REAG package or even allowing bidders to choose their own package. The second commenter proposed adopting packages of regions larger than REAGs (e.g., East, Midwest, West Coast) and a package of only the lower 48 States. The commenter bases its proposal for a lower 48 State package on the premise that prospective nationwide bidders have limited interest in Hawaii and Alaska, and that these states would be better served if they are not included in a nationwide package. The State of Hawaii submitted reply comments challenging the assertion that nationwide carriers have little interest in providing coverage to Hawaii, noting several major carriers already do in fact operate in Hawaii. The State of Hawaii also asserts that any nationwide package without Hawaii and Alaska unfairly discriminates against these states and its inhabitants, which would not only be inconsistent with the Communications Act, but also with Commission precedent. The commenter also suggests that the Bureau eliminate the Atlantic and Pacific packages on the grounds that bidders would not obtain any benefits from bidding on the licenses as packages. The Bureau sees no disadvantages to including the packages. 137. The Commission adopted package bidding for C Block licenses to reduce the exposure problem that might otherwise inhibit bidders seeking to create a nationwide footprint. At the same time, the Commission directed the Bureau to implement package bidding without imposing disadvantages on parties that wish to bid on individual licenses comprising the nationwide footprint. The Bureau finds that offering three packages—the 50 States, Atlantic, and Pacific packages—meets this balance by reducing exposure risk of bidders seeking to provide nationwide coverage without disadvantaging those bidders seeking individual licenses. Therefore, the Bureau adopts the pre-defined packages as proposed in the *700 MHz Auction Public Notice* . ii. Information Available to Bidders Before and During the Auctions 138. In the *700 MHz Second Report and Order* , the Commission found that the public interest would be served if the auction for new 700 MHz Band licenses is conducted using anonymous (or limited information) bidding procedures, regardless of any pre-auction measurement of likely auction competition. Such information procedures are intended to reduce the potential for anti-competitive bidding behavior, including bidding activity that aims to prevent the entry of new competitors. The Commission therefore directed the Bureau to propose and seek comment on more detailed procedures for employing anonymous bidding for the 700 MHz auction. 139. In the *700 MHz Auction Public Notice* , the Bureau proposed to withhold, until after the close of bidding, public release of
(1)bidders' license selections on their short-form applications,
(2)the amounts of bidders' upfront payments and bidding eligibility, and
(3)information that may reveal the identities of bidders placing bids and taking other bidding-related actions. In contrast to procedures implemented for anonymous bidding in past auctions, and consistent with the *700 MHz Second Report and Order* , the Bureau proposed to withhold this information irrespective of any pre-auction measurement of likely auction competition. 140. Commenters generally support the proposal to implement limited information disclosure procedures for the 700 MHz auction, though they differ on the disclosure of specific data elements. Some commenters suggest that the Commission should inform bidders of the license(s) or license block(s) for which an overlap occurs with other applicants, citing fundamental differences between the different 700 MHz license blocks and the particular needs of small and rural bidders to better identify those bidders interested in nationwide/open access licenses. A commenter opposes disclosure of this information. The Bureau finds that revealing information on license blocks selected by competing applicants would be inconsistent with the goals of limiting information disclosure. Thus, the Bureau will not release information on licenses or license blocks selected until after the close of bidding. 141. Commenters also recommend releasing each bidder's upfront payment amount and initial bidding eligibility before the auction on the grounds that this information would help small companies better gauge the level of competition. Some entities also seek disclosure of an aggregate eligibility ratio after each round. A commenter advocates releasing the total number of active bidders and, for each license and package, the number of bids and amount of the bids after each round. While these parties contend that release of this information would not facilitate anticompetitive practices and would not disclose bidder identities, the Bureau disagrees. As a commenter notes, release of bidder eligibility before the auction could be used by incumbents to block new entrants or for other strategic purposes. Similarly, a commenter contends that release of this information weakens anonymous bidding. This information could potentially be used to discern the identities of individual bidders. Moreover, the Bureau is particularly concerned that release of such information could foster anticompetitive bidding activity, particularly in light of the use of reserve prices in this auction. 142. Two commenters urge the Commission to release names of auction applicants and provide access to the ownership information in applicants' short form applications. This information has been made publicly available in past auctions even where limited information procedures have been implemented. The Bureau plans to continue to make available the names of applicants and their ownership information, as release of that information is necessary for other applicants to comply with the anti-collusion rules and does not undermine the purpose of its anonymous bidding procedures. To enable applicants to comply with the Commission's anti-collusion rules, once the Bureau has conducted its initial review of applications to participate in Auction 73 and Auction 76, each applicant will receive a letter that lists the other applicants in Auction 73 and Auction 76 that have applied for licenses in any of the same geographic areas as the applicant. 143. The Bureau adopts the proposals set out in the *700 MHz Auction Public Notice* . Thus, the Bureau will disclose after the conclusion of each round the amount of every bid placed and whether a bid was withdrawn. More generally, the Bureau will disclose, after the conclusion of each round, all relevant information about all bids placed, withdrawn, or dropped except for the identities of the bidders performing the actions and the net amounts of the bids placed, withdrawn, or dropped. As in past auctions conducted with limited information procedures, for each license the Bureau will indicate the minimum acceptable bid amount for the next round and whether the license has a provisionally winning bid. After each round, the Bureau will also release for each license the number of bidders that placed a bid on the license. Furthermore, the Bureau will indicate whether any proactive waivers were submitted in each round, and the Bureau will release the stage transition percentage—the percentages of licenses (as measured in bidding units) on which there were new bids—for the round. In addition, after each round, bidders logged in to the FCC Auction System will be able to see whether their own bids are provisionally winning. The Bureau will provide samples of publicly-available and bidder-specific (non-public) results files prior to the start of the auction. 144. Several commenters argue that information about the initial auction results (for Auction 73) should not be withheld in the event that a contingent auction (Auction 76) must be conducted. Some commenters urge disclosure of initial auction results for blocks that meet their reserve prices before the contingent auction, claiming that such information may be necessary to meet Securities and Exchange Commission and other regulatory requirements, to allow bidders to communicate with financial institutions, and to facilitate network build-out. Similarly, other commenters favor allowing bidders to announce that they won licenses in a block that has met its reserve price if required by law or regulation. These parties do not, however, cite any specific regulatory requirements that would compel such disclosures, and the Bureau is not aware of any such regulations. To the extent that any such requirements are related to winning bidders' payments, the Bureau notes that if Auction 76 were to be held, winning bidders in Auction 73 of licenses in the A, B, C, or E Blocks will not be required to make down payments until after the subsequent bidding. The Bureau finds that premature disclosure to financial institutions, vendors, and others of identities of successful bidders in Auction 73 would undermine the purposes of the limited information procedures. 145. Regarding Auction 76 and the timing of information disclosure, the Bureau adopts its proposal not to release until after the close of bidding in both auctions:
(a)Information on the winning bidders for licenses in blocks for which the reserve price was met in the first auction,
(b)information on bidder license selections and eligibility, and
(c)any other information that may reveal the identities of bidders placing bids and taking other bidding-related actions on licenses in all blocks. For the D Block, however, in the event there is a winning bidder for the D Block license in Auction 73, the Bureau will make public before the close of bidding in an Auction 76 only such information as may be necessary to proceed with promptly facilitating the D Block winner's obligations to negotiate a Network Sharing Agreement with the national Public Safety Broadband Licensee in the adjacent spectrum block. 146. Commenting parties also urge the Commission to allow applicants to opt-out of Auction 76 in order to be free of anti-collusion prohibition, so long as bidder certifies that its decision has not been based on discussion with other parties concerning auction strategy or post-auction market structure. As one commenter acknowledges, reversal of the Commission's determination on this issue would need to be addressed by full Commission. As such, the Bureau cannot implement such a change in this proceeding. 147. *Other Issues* . The Bureau concluded in the rulemaking proceeding that the information disclosure procedures established for this auction will not interfere with the administration of or compliance with the Commission's anti-collusion rule. Section 1.2105(c)(1) of the Commission's rules provides that after the short-form application filing deadline, all applicants for licenses in any of the same geographic license areas are prohibited from disclosing to each other in any manner the substance of bids or bidding strategies until after the down payment deadline, subject to specified exceptions. When limited information procedures are not in effect for a particular auction, each applicant's selection of licenses has been publicly available through the Commission's online short-form application database. In Auction 73 and Auction 76, however, the Commission will not disclose information regarding license selection or the amounts of bidders” upfront payments and bidding eligibility. As in the past, the Commission will disclose the other portions of applicants” short-form applications, through its online database and certain application-based information through public notices. Thus, even without information regarding license selection, applicants would be able to comply with § 1.2105(c) by not disclosing bids or bidding strategies to any other applicants in the auction. This approach, however, could inhibit otherwise lawful communications with applicants for licenses in other geographic license areas, which the Commission's anti-collusion rule permits. 148. Consequently, the Bureau will notify separately each applicant with short-form applications to participate in a pending auction whether applicants in Auction 73 and Auction 76 have applied for licenses in any of the same geographic areas as that applicant. Specifically, after the Bureau conducts its initial review of applications to participate in Auction 73 and Auction 76, each applicant with a pending short-form application will receive a letter that lists the applicants in Auction 73 and Auction 76 that have applied for licenses in any of the same geographic areas as the applicant. The list will identify the Auction 73 and Auction 76 applicant(s) by name but will not list the license selections of the Auction 73 and Auction 76 applicant(s). As in past auctions, additional information regarding applicants in Auction 73 and Auction 76 that is needed to comply with § 1.2105(c), *e.g.* , the identities of controlling interest(s) in an applicant and ownership interests greater than ten percent, will be available through the publicly accessible online short-form application database. 149. When completing short-form applications, applicants should avoid any statements or disclosures that may violate the Commission's anti-collusion rule, particularly in light of the Commission's procedures regarding the availability of certain information in Auction 73 and Auction 76. While applicants” license selection will not be disclosed until after Auction 73 and Auction 76 close, the Commission will disclose other portions of short-form applications through its on-line database and public notices. Accordingly, applicants should avoid including any information in their short-form applications that might convey information regarding license selections. For example, applicants should avoid using applicant names that refer to licenses being offered, referring to certain licenses or markets in describing bidding agreements, or including any information in attachments that may otherwise disclose applicants” license selections. If an applicant is found to have violated the Commission's rules or antitrust laws in connection with its participation in the competitive bidding process, the applicant may be subject to various sanctions, including forfeiture of its upfront payment, down payment, or full bid amount and prohibition from participating in future auctions. iii. Eligibility and Activity Rules 150. The Bureau will use upfront payments to determine initial (maximum) eligibility (as measured in bidding units) for Auction 73. The amount of the upfront payment submitted by a bidder determines initial bidding eligibility, the maximum number of bidding units on which a bidder may be active. Each license is assigned a specific number of bidding units listed in Attachment A of the *Auctions 73 and 76 Procedures Public Notice* . Bidding units for a given license do not change as prices rise during the auction. A bidder's upfront payment is not attributed to specific licenses or packages. Rather, a bidder may place bids on any of the licenses selected on its FCC Form 175 as long as the total number of bidding units associated with those licenses does not exceed its current eligibility. Eligibility cannot be increased during Auction 73; it can only remain the same or decrease. Thus, in calculating its upfront payment amount, an applicant must determine the maximum number of bidding units it may wish to bid on or hold provisionally winning bids on in any single round, and submit an upfront payment amount covering that total number of bidding units. At a minimum, an applicant's upfront payment must cover the bidding units for at least one of the licenses it selected on its FCC Form 175 for Auction 73. The total upfront payment does not affect the total dollar amount a bidder may bid on any given license or package of licenses. 151. A bidder is eligible to bid on a package of licenses if it selected all the licenses in the package on its FCC Form 175 and has sufficient eligibility. The bidding units for a package are calculated by adding together the bidding units of the individual licenses that make up the package. 152. In order to ensure that an auction closes within a reasonable period of time, an activity rule requires bidders to bid actively throughout the auction, rather than wait until late in the auction before participating. Bidders are required to be active on a specific minimum percentage of their current bidding eligibility during each round of the auction. 153. A bidder's activity level in a round is the sum of the bidding units associated with any licenses covered by new and provisionally winning bids. The bidding units associated with a given license will be counted only once in a bidder's activity calculation for the round, even if the bidder places a bid on the license and a bid on a package containing the license. For example, consider two licenses, A and B, each having 10,000 bidding units. Assuming a bidder bids on license A as well as the package AB in a given round, the bidder's activity would be 20,000 bidding units, calculated as the sum of the bidding units of licenses A and B. Note that the bidding units for license A are not counted twice. A bidder is considered active on a license in the current round if it is either the provisionally winning bidder at the end of the previous bidding round and does not withdraw the provisionally winning bid in the current round, or if it submits a bid in the current round. 154. The minimum required activity is expressed as a percentage of the bidder's current eligibility, and increases by stage as the auction progresses. Because these procedures have proven successful in maintaining the pace of previous auctions, the Commission adopts them for Auction 73. Failure to maintain the requisite activity level will result in the use of an activity rule waiver, if any remain, or a reduction in the bidder's eligibility, possibly curtailing or eliminating the bidder's ability to place additional bids in the auction. 155. With package bidding in the C Block, it is possible that a bidder may have an activity level that exceeds its eligibility, since the FCC Auction System considers bids placed in 60 previous rounds when determining the provisionally winning set. If a non-winning bid placed in a previous round later becomes provisionally winning, the bidder will receive activity for the newly provisionally winning bid. When added to the activity for the bidder's provisionally winning bids from the previous round and its new bids—which were limited by the bidder's current bidding eligibility—the total activity may exceed the bidder's current bidding eligibility. If this occurs, the bidder's current bidding eligibility will not increase to accommodate the additional activity. In subsequent rounds, the bidder will not be permitted to place new bids if its total activity from provisionally winning bids exceeds its bidding eligibility. 156. A commenter argues that the Bureau should allow bidders limited additional eligibility so that they can continue to bid on licenses or packages that become provisionally winning in later rounds. The Bureau finds that allowing maximum eligibility to be increased in this way may provide an incentive for bidders to intentionally place bids that are likely to become provisionally winning in later rounds, so as to increase their eligibility outside of the usual pre-auction process that requires them to purchase eligibility with upfront payments. Thus, the Bureau will not modify its procedures as suggested. 157. A commenter proposes that the Bureau modify the activity rules to reduce the difference between the number of bidding units associated with the C Block licenses and the bidding units associated with the D Block license. It maintains that the C and D Blocks are in many ways substitutes, but notes that since the C Block has a bandwidth of 22 MHz compared to 10 MHz for the D Block, the C Block has many more bidding units. The commenter contends that because of the activity rule, the effect of this difference is to harm bidders that alternatively bid in the C and D Blocks. It therefore favors the modification of the activity rules through the attribution of a total bandwidth of 22 MHz to the D Block. The commenter maintains that this would enable bidders to freely alternate between the C and D Blocks, increasing auction efficiency and revenues. Another commenter criticizes this proposal on several grounds, including arguing that the proposal would depart from established auction practice and is inconsistent with the reserve prices. The Bureau declines to adopt the proposal. The Bureau finds that its current method of determining bidding units, combined with its activity and eligibility rules, offer bidders adequate opportunities to change bidding strategies. iv. Auction Stages 158. In the *700 MHz Auction Public Notice* , the Bureau proposed to conduct the auction in two stages and employ an activity rule. The Bureau further proposed that, in each round of Stage One, a bidder desiring to maintain its current bidding eligibility would be required to be active on licenses representing at least 80 percent of its current bidding eligibility. Finally, the Bureau proposed that in each round of Stage Two, a bidder desiring to maintain its current bidding eligibility would be required to be active on at least 95 percent of its current bidding eligibility. 159. Some commenters favor the addition of a third stage with either a reduced eligibility threshold (before the two proposed stages) or a higher threshold (after the two proposed stages). According to a commenter small and regional bidders need time to acquaint themselves with the many new features and procedures in Auction 73. Therefore, the commenter proposes creating a new Stage One with a 60 percent activity threshold and moving the 80 percent and 95 percent activity thresholds to Stages Two and Three, respectively. While some other commenters support adopting a 60 percent activity threshold for Stage One, one commenter opposes any minimum activity level decrease and instead proposes a Stage Three with a 98 percent activity threshold. 160. The Bureau finds that adding a new initial first stage with a lower eligibility threshold is at this time unnecessary. When determining the bidding schedule, the Bureau needs to balance the desirability of concluding the auction reasonably swiftly with the benefit in giving bidders sufficient time for placing bids during rounds and for analysis between rounds. The Bureau finds no compelling reason to create a new first stage that requires only a 60 percent eligibility requirement. Such a lower activity requirement would unnecessarily prolong the auction by allowing bidders to postpone bidding activity until the later rounds of the auction. Establishing an 80 percent activity threshold to start the auction, and retaining the discretion to make changes as circumstances warrant represents the best compromise between allowing auction participants time to learn from the information revealed in the auction, and requiring them to participate actively throughout the auction. 161. The Bureau likewise sees no need to establish, at this time, a third stage with a 98 percent eligibility requirement, finding that a 95 percent threshold should be a sufficiently high activity requirement for the final stage of the auction. In past auctions, the Bureau established three stages using 80 percent, 90 percent, and 98 percent activity requirements. In many of these auctions, however, implementing Stage Two had little effect in terms of increasing bidding activity, and Stage Three was implemented shortly thereafter. Based on this experience, the Bureau has generally moved away from three-stage auctions in favor of two-stage auctions. Moreover, a 95 percent threshold allows bidders a little more flexibility in fulfilling their activity requirements during the final stage of the auction. Therefore, the Bureau declines to establish a 98 percent activity threshold at this time. The Bureau has the discretion to further alter the activity requirements before and/or during the auction as circumstances warrant, and also has other mechanisms by which it may influence the speed of an auction. The Bureau finds that, for now, two stages for an activity requirement adequately balances the desire to conclude the auction quickly with giving sufficient time for bidders to consider the status of the bidding and to place bids. Therefore, the Bureau adopts the two stages. 162. Stage One: During the first stage of the auction, a bidder desiring to maintain its current bidding eligibility will be required to be active on licenses representing at least 80 percent of its current bidding eligibility in each bidding round. Failure to maintain the required activity level will result in the use of an activity rule waiver or, if the bidder has no activity rule waivers remaining, a reduction in the bidder's bidding eligibility in the next round. During Stage One, reduced eligibility for the next round will be calculated by multiplying the bidder's current round activity (the sum of bidding units of the bidder's provisionally winning bids and bids during the current round) by five-fourths (5/4). 163. Stage Two: During the second stage of the auction, a bidder desiring to maintain its current bidding eligibility is required to be active on 95 percent of its current bidding eligibility. Failure to maintain the required activity level will result in the use of an activity rule waiver or, if the bidder has no activity rule waivers remaining, a reduction in the bidder's bidding eligibility in the next round. During Stage Two, reduced eligibility for the next round will be calculated by multiplying the bidder's current round activity (the sum of bidding units of the bidder's provisionally winning bids and bids during the current round) by twenty-nineteenths (20/19). Since activity requirements increase in Stage Two, bidders must carefully check their activity during the first round following a stage transition to ensure that they are meeting the increased activity requirement. This is especially critical for bidders that have provisionally winning bids and do not plan to submit new bids. In past auctions, some bidders have inadvertently lost bidding eligibility or used an activity rule waiver because they did not re-verify their activity status at stage transitions. Bidders may check their activity against the required activity level by logging into the FCC Auction System. 164. Because the foregoing procedures have proven successful in maintaining the proper pace in previous auctions, the Bureau adopts them for Auction 73. v. Stage Transitions 165. In the *700 MHz Auction Public Notice* , the Bureau proposed that the auction would advance to the next stage ( *i.e.* , from Stage One to Stage Two) after considering a variety of measures of auction activity, including, but not limited to, the percentages of licenses (as measured in bidding units) on which there are new bids, the number of new bids, and the increase in revenue. The Bureau further proposed that the Bureau would retain the discretion to change the activity requirements during the auction. For example, the Bureau could decide not to transition to Stage Two if it believes the auction is progressing satisfactorily under the Stage One activity requirement, or to transition to Stage Two with an activity requirement that is higher or lower than the 95 percent. The Bureau proposed to alert bidders of stage advancements by announcement during the auction. 166. The Bureau adopts this proposal for stage transitions. Thus, the auction will start in Stage One. The Bureau will regulate the pace of the auction by announcement. The Bureau retains the discretion to transition the auction to Stage Two, add an additional stage with a higher activity requirement, not to transition to Stage Two, or to transition to Stage Two with an activity requirement that is higher or lower than 95 percent. This determination will be based on a variety of measures of auction activity, including, but not limited to, the number of new bids and the percentages of licenses (as measured in bidding units) on which there are new bids. vi. Activity Rule Waivers 167. In the *700 MHz Auction Public Notice* , the Bureau proposed that each bidder in the auction be provided with three activity rule waivers. Commenters proposed two variations on the Bureau's proposal regarding activity rule waivers. The Bureau declines to adopt these alternatives and adopts the proposed three activity rule waivers per bidder. 168. One commenter advocates providing bidders with two additional activity rule waivers to allow more time for decision-making during the auction. The commenter suggests that the two additional waivers would provide bidders, especially those that are consortia, greater flexibility during the auction. Another commenter opposes any additional activity rule waivers because, it argues, no clear connection exists between having additional waivers and decision-making. The Bureau agrees with the opposing commenter that the request for additional waivers does not demonstrate why the proposed three waivers are insufficient, or why consortia might have a greater need for flexibility than any other bidder. The Bureau is satisfied that providing three waivers over the course of the auction will give bidders a sufficient number of waivers and flexibility, while also safeguarding the integrity of the auction. 169. Another commenter proposes a limit on activity rule waivers for bidders that are closely affiliated. That commenter expresses concern with bidders entering more than one entity in the auction in order to receive more than standard three activity rule waivers, allowing it to preserve bidding eligibility for later in the auction. The commenter proposes a total limit of three activity rule waivers for all closely affiliated applicants, *i.e.* , under common control, applying for overlapping licenses. Still another commenter disagrees noting that, while affiliated bidders may get twice the number of waivers, they would use them twice as fast as a single bidder in rounds in which they were not bidding. The Bureau agrees with the other commenter that no clear advantage seems possible. The Bureau also adds that entities are prohibited from submitting more than one application. This measure prevents bidders from entering multiple entities while permitting legitimate business plans that entail common control among more than one applicant. 170. Therefore, the Bureau adopts its proposal to provide bidders with three activity rule waivers. Bidders may use an activity rule waiver in any round during the course of the auction. Use of an activity rule waiver preserves the bidder's current bidding eligibility despite the bidder's activity in the current round being below the required minimum activity level. An activity rule waiver applies to an entire round of bidding and not to a particular license. Activity rule waivers can be either applied proactively by the bidder (a proactive waiver) or applied automatically by the FCC Auction System (an automatic waiver) and are principally a mechanism for auction participants to avoid the loss of bidding eligibility in the event that exigent circumstances prevent them from placing a bid in a particular round. 171. The FCC Auction System assumes that bidders with insufficient activity would prefer to apply an activity rule waiver (if available) rather than lose bidding eligibility. Therefore, the system will automatically apply a waiver at the end of any bidding round where a bidder's activity level is below the minimum required unless:
(1)There are no activity rule waivers available; or
(2)the bidder overrides the automatic application of a waiver by reducing eligibility. If a bidder has no waivers remaining and does not satisfy the activity requirement, the FCC Auction System will permanently reduce the bidder's eligibility, possibly curtailing or eliminating the bidder's ability to place additional bids in the auction. 172. A bidder with insufficient activity that wants to reduce its bidding eligibility rather than use an activity rule waiver must affirmatively override the automatic waiver mechanism during the bidding round by using the reduce eligibility function in the FCC Auction System. In this case, the bidder's eligibility is permanently reduced to bring the bidder into compliance with the activity rules. Once eligibility has been reduced, a bidder will not be permitted to regain its lost bidding eligibility even if the round has not yet ended. 173. Finally, a bidder may apply an activity rule waiver proactively as a means to keep the auction open without placing a bid. If a bidder proactively applies an activity waiver (using the apply waiver function in the FCC Auction System) during a bidding round in which no bids are placed or withdrawn, the auction will remain open and the bidder's eligibility will be preserved. However, an automatic waiver applied by the FCC Auction System in a round in which there are no new bids, withdrawals, or proactive waivers will not keep the auction open. A bidder cannot submit a proactive waiver after submitting a bid in a round, and submitting a proactive waiver will preclude a bidder from placing any bids in that round. It is important for bidders to understand that applying a waiver is irreversible. Once a bidder submits a proactive waiver, the bidder cannot unsubmit the waiver even if the round has not yet ended. vii. Auction Stopping Rules 174. For Auction 73, the Bureau proposed to employ a simultaneous stopping rule approach. A simultaneous stopping rule means that all licenses remain available for bidding until bidding closes simultaneously on all licenses. More specifically, bidding will close simultaneously on all licenses and packages after the first round in which no bidder submits any new bids, applies a proactive waiver, or withdraws any provisionally winning bids. 175. The Bureau also sought comment on alternative versions of the simultaneous stopping rule for Auction 73: *Option 1* . The auction would close for all licenses after the first round in which no bidder applies a waiver, withdraws a provisionally winning bid, or places any new bids on any license or package on which it is not the provisionally winning bidder. Thus, absent any other bidding activity, a bidder placing a new bid on a license or a package of licenses for which it is the provisionally winning bidder would not keep the auction open under this modified stopping rule; *Option 2* . The auction would end after a specified number of additional rounds. If the Bureau invokes this special stopping rule, it will accept bids in the specified final round(s) and the auction will close; and *Option 3* . The auction would remain open even if no bidder places any new bids, applies a proactive waiver, or withdraws any provisionally winning bids in a round. In this event, the effect will be the same as if a bidder had applied a waiver. Thus, the activity rule will apply as usual, and a bidder with insufficient activity will either use an activity rule waiver (if it has any left) or lose bidding eligibility. 176. The Bureau proposed to exercise these options only in circumstances such as where the auction is proceeding unusually slowly or quickly, where there is minimal overall bidding activity, or where it appears likely that the auction will not close within a reasonable period of time or will close prematurely, *e.g.* , before bidders have had an adequate opportunity to satisfy any applicable reserve prices. The Bureau noted that before exercising these options, it is likely to attempt to increase the pace of the auction by, for example, changing the number of bidding rounds per day and/or changing the minimum acceptable bids. 177. One commenter advocates explicitly adopting an alternate stopping rule that would give bidders one final opportunity to place bids that would meet the reserve prices. The commenter believes adopting this measure will curb any incentive by some to bid in such a way to avoid the reserves being met. Another commenter opposes the proposal, given the unique nature of this auction and the complexity of the eligibility management issues. 178. The Bureau finds that the stopping rules as proposed are appropriate for Auction 73. The Bureau's experience in prior auctions demonstrates that these stopping rules balance interests of administrative efficiency and maximum bidder participation. Therefore, Auction 73 will begin under the simultaneous stopping rule approach. 179. While the Bureau declines to adopt any of the alternate stopping rules at this time, the Bureau retains the discretion to employ the alternative versions of the stopping rule, with or without prior announcement during the auction. The Bureau will not, however, employ the first alternative ( *i.e.* , Option 1) until the reserve prices have been met. This will allow bidders to continue to place new bids even if they are the provisional winning bidders. Bidders, therefore, will continue to have the opportunity to place bids until the reserve prices are met. viii. Auction Delay, Suspension, or Cancellation 180. In the *700 MHz Auction Public Notice* , the Bureau proposed that, by public notice or by announcement during the auction, the Bureau may delay, suspend, or cancel the auction in the event of natural disaster, technical obstacle, administrative or weather necessity, evidence of an auction security breach or unlawful bidding activity, or for any other reason that affects the fair and efficient conduct of competitive bidding. The Bureau received no comment on this issue. 181. Because the Bureau's approach to notification of delay during an auction has proven effective in resolving exigent circumstances in previous auctions, the Bureau adopts its proposed rules regarding auction delay, suspension, or cancellation. By public notice or by announcement during the auction, the Bureau may delay, suspend, or cancel the auction in the event of natural disaster, technical obstacle, administrative or weather necessity, evidence of an auction security breach or unlawful bidding activity, or for any other reason that affects the fair and efficient conduct of competitive bidding. In such cases, the Bureau, in its sole discretion, may elect to resume the auction starting from the beginning of the current round, resume the auction starting from some previous round, or cancel the auction in its entirety. Network interruption may cause the Bureau to delay or suspend the auction. The Bureau emphasize that exercise of this authority is solely within the discretion of the Bureau, and its use is not intended to be a substitute for situations in which bidders may wish to apply their activity rule waivers. B. Bidding Procedures i. Round Structure 182. The initial schedule of bidding rounds will be announced in the public notice listing the qualified bidders, which is released approximately 10 days before the start of the auction. Each bidding round is followed by the release of round results. Multiple bidding rounds may be conducted in a given day. Details regarding round results formats and locations will also be included in the qualified bidders public notice. 183. The Bureau has discretion to change the bidding schedule in order to foster an auction pace that reasonably balances speed with the bidders” need to study round results and adjust their bidding strategies. The Bureau may increase or decrease the amount of time for the bidding rounds, the amount of time between rounds, or the number of rounds per day, depending upon bidding activity and other factors. 184. A commenter advocates limiting the number of rounds per day in the first phase (Stage One) of Auction 73. More than four rounds in the auction's early stage would place substantial strains on consortia's more deliberate decision-making processes. The commenter, however, suggests lifting the limit for Stage Two. Another commenter opposes limiting the number of rounds per day. The Bureau agrees with the opposing commenter that lifting the limited for Stage Two fails to demonstrate why consortia would be disadvantaged vis-à-vis other bidders unless Stage One had a maximum of four rounds per day. The Bureau add that the commenter does not provide any rationale why, if a limit were necessary to allow effective decision-making amongst consortia members, it would not hold true in Stage Two of the auction, particularly when the stakes are even higher. Therefore, the Bureau declines to adopt any limit on rounds per day. Rather, the Bureau will continue to exercise discretion with regard to the number of rounds per day under the particular circumstances of the auction. ii. Reserve Price and Minimum Opening Bids 185. Section 309(j) of the Communications Act of 1934, as amended, calls upon the Commission to prescribe methods by which a reasonable reserve price will be required or a minimum opening bid established when applications for FCC licenses are subject to auction (i.e., because they are mutually exclusive), unless the Commission determines that a reserve price or minimum opening bid is not in the public interest. Consistent with this mandate, the Commission directed the Bureau to seek comment on the use of a minimum opening bid and/or reserve price prior to the start of each auction. Among other factors, the Bureau must consider the amount of spectrum being auctioned, levels of incumbency, the availability of technology to provide service, the size of the geographic service areas, the extent of interference with other spectrum bands, and any other relevant factors that could have an impact on the spectrum being auctioned. The Commission concluded that the Bureau should have the discretion to employ either or both of these mechanisms for future auctions. a. Reserve Price 186. In the *700 MHz Second Report and Order,* the Commission concluded that establishing separate aggregate reserve prices for all the licenses in each block of the 700 MHz Band spectrum to be offered in Auction 73 will serve the public interest. More specifically, the Commission directed the Bureau to adopt and publicly disclose block-specific aggregate reserve prices, pursuant to its existing delegated authority and the regular pre-auction process and consistent with the Commission's conclusions in the *700 MHz Second Report and Order.* In the *700 MHz Auction Public Notice,* the Bureau proposed that the sum of the provisionally winning gross bids for all licenses in each block must equal or exceed the disclosed aggregate reserve price for the block before the Commission will assign licenses in that block. More specifically, the Bureau proposed the following block-specific aggregate reserve prices to be used under this proposal: Block A, $1.807380 billion; Block B, $1.374426 billion; Block C, $4.637854 billion; Block D, $1.330000 billion; Block E, $0.903690 billion. The Bureau adopts this proposal. 187. *Background.* In the *700 MHz Second Report and Order,* the Commission concluded that the block-specific aggregate prices should reflect current assessments of the potential market value of licenses for the 700 MHz Band. The Commission directed that this assessment be based on various factors including, but not limited to, the characteristics of this band and the value of other recently auctioned licenses, such as licenses for Advanced Wireless Services. The Commission reasoned that using AWS-1 auction results might be an appropriate guide for setting block-specific reserve prices reflecting a conservative estimate of final market value. Spectrum in the 700 MHz Band possesses superior propagation characteristics to AWS-1 spectrum. In addition, as of February 18, 2009, the 700 MHz Band spectrum will be unencumbered, while full access to AWS-1 spectrum requires the relocation of both Government and commercial incumbent users. Thus, other factors aside, 700 MHz Band licenses with comparable geographic service areas and bandwidth should have a higher market value than AWS-1 licenses. 188. The Commission expressly noted that the detailed rules regarding the D Block license, the D Block licensee's required construction of a network to be shared by public safety service users, and the resulting limitations on the flexibility of the D Block licensee, should be given weight in assessing the D Block's potential market value. Based solely on geographic area and spectrum block size, AWS-1 auction results might suggest a D Block reserve price of $1.7 billion. However, in light of the D Block license conditions essential to the public safety purpose of the public/private partnership, it might be appropriate to expect bidders to bid only about 75 percent to 80 percent of such an amount, or about $1.33 billion. In addition, when determining relative valuation of other blocks, the Bureau should consider the relative valuation of differing blocks in the recent auction of AWS-1 licenses. 189. The Commission further noted that in setting block-specific reserve prices, the Bureau should also give consideration to Congress's view as to the value of the spectrum, as reflected in Congressional mandates regarding the uses for revenues from this auction. 190. *Comments.* A commenter contends that the proposed reserve prices are excessive and proposes an alternative set of reserve prices roughly equal to one-fifth the reserve prices proposed by the Bureau. The commenter asserts that the Bureau's proposed reserve price represent an estimate of final license values and that establishing such a reserve, particularly in light of the potential subsequent auction of alternative licenses, is misguided. The commenter further argues that the Bureau's reliance on bidding for AWS licenses is misplaced in that it does not take into account subsequent changes in the credit markets or significant differences between AWS licenses and 700 MHz licenses, which should reduce the relative value of the 700 MHz licenses. 191. In reply, and in opposition to the comments, two commenters echo the Commission's observation that that the value of the 700 MHz licenses in fact should be greater than the AWS licenses and contend that the Bureau's proposed reserve prices reflect a conservative estimate of the likely value of the 700 MHz licenses. As one commenter notes, attempts to take into account the fluctuating state of the credit market are not appropriate, given the degree of uncertainty inherent in such attempts. While another commenter notes that the Bureau's proposal takes into account conditions placed on the various blocks of 700 MHz spectrum. Finally, the same commenter notes that the proposed reserves are consistent with Congressional expectations. 192. *Discussion.* The Bureau does not find the commenters arguments for reducing the proposed reserve prices persuasive. The commenter errs in asserting that the Bureau's proposed reserves seek to estimate the final value of the licenses. The Bureau has not attempted to determine the value of the licenses but will rely on the auction process to do so. Rather, pursuant to statutory mandate and Commission direction, the Bureau proposed reserve prices intended to represent a likely low end of the licenses' potential value, in order to assure that the public recovers a portion of the value of the public spectrum resource. Consistent with the guidance of the Commission, the Bureau adopts the proposal and will use the following block-specific aggregate reserve prices for Auction 73: Block A, $1.807380 billion; Block B, $1.374426 billion; Block C, $4.637854 billion; Block D, $1.330000 billion; Block E, $0.903690 billion. Together, these block-specific aggregate reserves sum to $10.053350 billion. 193. The D Block reserve price of $1.33 billion is discounted from an amount based more closely on AWS-1 bids because of the unique service rules and related obligations imposed upon the D Block licensee. For the A, B, C, and E Blocks, the Bureau based the reserve prices on the respective market value reflected in AWS-1 bids, adding one percent, and rounding to the nearest thousand dollars. Because of the value-enhancing propagation characteristics and relatively unencumbered nature of the 700 MHz Band spectrum, the Bureau believes these are conservative estimates, at the low end of the spectrum's potential value. Given this approach, there is no need to further reduce the proposed reserves based on the specific rules applicable to licenses for the A, B, C, and E Blocks. 194. As proposed in the *700 MHz Auction Public Notice,* the Bureau will use gross bid amounts rather than net bid amounts in determining whether the block-specific reserve prices have been met. No commenter suggested any alternative to this aspect of the Bureau's reserve price procedures. Anonymous bidding procedures that will be used in Auction 73 preclude disclosing the identity of bidders and the net amounts of bids made until after the close of bidding. Consequently, if net bids determined whether or not reserves had been met, publicly disclosing whether reserves had been met might inadvertently disclose whether applicants eligible for bidding credits held certain provisionally winning bids, potentially disclosing the identity of the bidders. For example, presuming net bids determined whether or not the reserve is met, for the reserve not to be met when the provisionally winning bid on the D Block license is for $1.5 billion dollars, the party making the bid must be an applicant eligible for a bidding credit. Depending on the number of parties eligible for a bidding credit competing for the D Block license, this information might disclose the identity of the provisionally winning bidder, thwarting the Commission's anonymous bidding procedures. Moreover, net bid amounts, unlike gross bid amounts, may decline even as the gross bids increase. For example, a party not eligible for a bidding credit might hold a provisionally winning bid of $1.4 billion on the D Block license, in which case the reserve would be met. However, in the next round, a party eligible for a bidding credit might place a provisionally winning bid of $1.5 billion, increasing the value bid for the license. However, because the party eligible for a bidding credit might have a net bid less than the reserve, now the reserve would not be met. The Bureau believes that it serves the public interest for bidders to know when the reserve is met and to know that once a reserve is met that fact will not change. This certainty will give bidders greater confidence in the significance of their bids and therefore may enhance competition. For these reasons, the Bureau will use gross bid amounts rather than net bid amounts in determining whether block-specific reserve prices have been met. 195. The Bureau will count the gross amount of any withdrawn bids for licenses toward meeting the reserve prices for several reasons. First, withdrawn bids presumably reflect sincere valuations of the license, notwithstanding the withdrawal and the reserve is intended to measure that valuation. Second, counting withdrawn bids assures that once a reserve is met that fact will not change. Third, if the Bureau did not count withdrawn bids, bidders could attempt to use bid withdrawals as a strategic mechanism to prevent auction results from satisfying a reserve in order to force an auction of alternative licenses. 196. The Commission's rules and the procedures for Auction 73 allow each bidder one round in which the bidder may withdraw provisionally winning bids for licenses not subject to package bidding. Allowing bidders to withdraw provisionally winning bids enables bidders to respond to price discovery as the auction develops by adopting alternative plans, thereby encouraging bidders to compete at early stages in the auction. Accordingly, the Bureau presumes that bids placed and withdrawn reflect bidders' sincere valuations of the relevant licenses. Consistent with this presumption, the Commission's rules require bidders to cover any shortfall if a subsequent winning bid for a license is less than a withdrawn provisionally winning bid. 197. Second, counting withdrawn bids is essential to assuring that once a reserve price is met, that fact does not change. With regards to bid withdrawals, when a bid is withdrawn, there is no provisionally winning bid on that license until a new high bid is placed on it in a subsequent round. Accordingly, if the Bureau does not count withdrawn bids, then the amount counted for a particular license toward meeting the reserve price could drop from whatever the withdrawn bid is to zero. For example, if a provisionally winning bid on the D Block license of $2.66 billion is withdrawn and only a provisionally winning high bid is counted toward the reserve, the reserve will not be met, notwithstanding the fact that a round before there was a provisionally winning bid in an amount equal to twice the reserve. 198. Third, if the Bureau does not count a withdrawn bid toward meeting the reserve, the Bureau would allow a bidder's decision to withdraw a bid to affect whether or not the reserve price has been met. As the foregoing example indicates, a bidder could outbid rivals for a license in amounts far in excess of the reserve and then, at the last minute, withdraw its bid in an attempt to prevent the auction results from meeting the applicable reserve price. If the withdrawing bidder's competitors had moved to other blocks due to the withdrawn bid, they may no longer have an interest or the budget to return and bid again on the license subject to the withdrawal. In that event, the withdrawal might succeed at preventing the reserve from being met and at forcing an auction of alternative licenses. 199. The Bureau will count the gross amount of either the provisionally winning bid on a license, or on a package that includes the license, or, if higher, the highest withdrawn provisionally winning bid on a license when determining whether a reserve price has been met. The Bureau will not count more than one bid per license, be it a provisionally winning or withdrawn bid, towards meeting the relevant reserve price. In the case of licenses with multiple withdrawn bids or a withdrawn bid and a provisionally winning bid, the Bureau will count the highest of the gross bid amounts toward the reserve price. Other than the gross amounts of withdrawn bids, licenses without provisionally winning bids will not count towards meeting a reserve price. 200. Finally, the Bureau will issue an announcement in the FCC Auction System stating that a reserve has been met immediately following the first round in which that occurs. Both the registered bidders and the general public will be able to view such announcements through the Commission's Web site. The current total of relevant provisionally winning bids may not determine whether or not the reserve has been met, given that the Bureau also will count withdrawn bids toward meeting the reserve. By making an announcement when the reserve is met, the Bureau will free auction observers and participants therefore from a need to monitor withdrawn bids over the course of the auction in order to determine whether the reserve has been met and avoid any uncertainty. b. Minimum Opening Bids 201. In addition to proposing aggregate reserve prices, the Bureau proposed in the *700 MHz Auction Public Notice* to establish minimum opening bids for each license, while retaining discretion to lower the minimum opening bids. Specifically, for Auction 73, the Bureau proposed to calculate minimum opening bid amounts as follows:
(1)For licenses covering geographic areas in the 50 states for which all of the corresponding licenses offered in Auction 66 for the exact same geographic area were sold, 25 percent of the dollars per MHz per population (MHz-pop) of the net amounts of the Auction 66 winning bids for licenses covering the same geographic license area, subject to a minimum of $0.03/MHz-pop;
(2)for licenses covering geographic areas for which a corresponding Auction 66 license was unsold, $0.01/MHz-pop;
(3)for licenses covering the Gulf of Mexico, $1,000 per MHz; and (4)for all remaining licenses, $0.01/MHz-pop. For all licenses, the results of the above calculations are subject to a minimum of $500 per license and are rounded using the Bureau's standard rounding procedure. The Bureau proposed to calculate the minimum opening bid for any package as the sum of the minimum opening bids for the licenses in the package. The Bureau sought comment on this proposal and, in the alternative, whether, consistent with Section 309(j), the public interest would be served by having no minimum opening bids. 202. The Bureau received a range of comments concerning the proposed minimum opening bids. One commenter supports the Bureau's proposed method for establishing minimum opening bid amounts. However, another commenter advocates calculating minimum opening bids on the same basis that was used for Auction 66, rather than on one that uses the winning bids from that auction. A third commenter opposes using minimum opening bids based on Auction 66 results, arguing that the 700 MHz Band spectrum is not readily comparable to that offered in Auction 66. It maintains that some prices in that auction resulted from one-time bidding wars, so that RSA minimum opening bids based on these prices would be overly high and harm small and rural carriers. A commenter also contends that the proposed minimum opening bids would discourage these carriers from participating. It proposes that the minimum opening bids from Auction 66 should generally be used. In addition, the same commenter claims that reducing the minimum opening bids would prevent the auction from proceeding at too rapid a pace. RTG agrees that the proposed minimum opening bids for some RSAs are too high, and proposes that these be reduced to either the same level as the upfront payments or capped at 25 percent of the median net high bid for all RSAs sold in Auction 66. Another commenter generally criticizes as arbitrary the proposals to lower the minimum opening bids to the value of the upfront payments, but agrees that certain RSA minimum opening bids may be overly high. A commenter expresses support for the argument that reducing the minimum opening bids will make the auction less likely to proceed overly quickly. 203. The Bureau finds that the minimum opening bid amounts proposed in the *700 MHz Auction Public Notice* are generally appropriate. While the record indicates that the proposed minimum opening bid amounts are higher than many parties would like, the proposed amounts better enable the Commission to meet the statutory objective of recovering for the public a portion of the value of the spectrum resource made available for commercial use. The proposed minimum opening bid amounts also will help the Commission meet its statutory deadlines for auctioning this spectrum. 204. In response to comments, however, the Bureau modifies the proposed minimum opening bids for certain rural licenses. The Bureau recognize concerns commenters raised regarding proposed minimum opening bids and the potential for some licenses, particularly those in rural areas, to remain unsold after the auction. Thus, for RSA licenses only (CMAs 307-734), minimum opening bids will not be greater than $0.10/MHz-pop. Accordingly, the Bureau adopts the revised minimum opening bid amounts and set the minimum opening bids using the revised formulas as follows:
(1)For licenses covering geographic areas in the 50 states for which all of the corresponding licenses offered in Auction 66 for the exact same geographic area were sold, 25 percent of the dollars per MHz per population (MHz-pop) of the net amounts of the Auction 66 winning bids for licenses covering the same geographic license area, subject to a minimum of $0.03/MHz-pop, for RSA licenses only, subject to a maximum of $0.10/MHz-pop;
(2)for licenses covering geographic areas for which a corresponding Auction 66 license was unsold, $0.01/MHz-pop; (3)for licenses covering the Gulf of Mexico, $1,000 per MHz; and
(4)for all remaining licenses, $0.01/MHz-pop. 205. Two commenters suggest that the minimum opening bid for the D Block should be set at its reserve price since it is only one license and will not be assigned if the reserve is not met. Another commenter opposes this suggestion, arguing that setting the D Block minimum opening bid at the reserve bid would deny bidders the opportunity to determine the relative value of the D Block, and may even hurt the winning bidder's ability to finance its bid for the D Block. The Bureau agrees that there may be value, to bidders and others, in accepting bids for the D Block short of the reserve. Therefore, the Bureau adopts the minimum opening bid for the D Block as proposed in the *700 MHz Auction Public Notice.* 206. The Commission did not receive any comments addressing the proposal that the Bureau retain the discretion to reduce minimum opening bid amounts. The Bureau adopts this proposal. The minimum opening bid amounts are reducible at the discretion of the Bureau. The Bureau emphasize, however, that such discretion will be exercised, if at all, sparingly and early in the auction, i.e., before bidders lose all activity waivers. During the course of the auction, the Bureau will not entertain requests to reduce the minimum opening bid amount on specific licenses or packages. 207. The specific minimum opening bid amounts for each license available in Auction 73 calculated pursuant to the procedures set forth in Attachment A of the *Auctions 73 and 76 Procedures Public Notice.* iii. Bid Amounts 208. In the *700 MHz Auction Public Notice,* the Bureau proposed that in each round, eligible bidders be able to place a bid on a given license or package using one or more predefined bid amounts. Under the proposal, the FCC Auction System interface will list the acceptable bid amounts for each license or package. A commenter proposed best and final bid procedures to allow bidders a chance to enter their own bid amounts, if they wish to bid more for a license but less than the minimum acceptable bid increment would require. The commenter believes adopting a best and final bid procedure would give bidders a better opportunity to bid up to the full amount of their final license valuations. Two commenters oppose creating this best and final bid procedure because it may encourage gaming the auction system and would be unfair to bidders that have a provisionally winning bid. The Bureau recognize that there may be circumstances under which the proposed procedure could enhance the economical efficiency of the auction, but find that the costs in terms of increased auction complexity and opportunity for anti-competitive signaling would outweigh the benefits in Auction 73. The Bureau adopts the proposal set out in the *700 MHz Auction Public Notice.* 209. *Minimum Acceptable Bids.* Under the Bureau's proposed procedures, the first of the acceptable bid amounts is called the minimum acceptable bid amount. The minimum acceptable bid amount for a license will be equal to its minimum opening bid amount until there is a provisionally winning bid for the license or package that includes the license. The minimum acceptable bid amount for a package will be the sum of the minimum acceptable bid amounts for the licenses in the package. Minimum acceptable bids are calculated based on current price estimates and an activity-based formula. 210. *Current Price Estimates.* Under the proposed HPB auction procedures, after there is a provisionally winning bid for a license, the FCC will determine a current price estimate
(CPE)for each license in each round as a basis for calculating minimum acceptable bids. For non-C Block licenses the CPE will be the provisionally winning bid amount, so that minimum acceptable bids are based on provisionally winning bid amounts, as in an SMR auction without package bidding. For licenses in the C Block subject to HPB, if a bid on an individual license is provisionally winning, the CPE for that license will be the provisionally winning bid amount. If a package bid is provisionally winning, the CPEs for individual licenses in the package will be constructed by scaling up the bids on individual licenses so that the sum of the license CPEs equals the provisionally winning package bid. Bids are scaled up by adding shares to the highest bid received so far in the auction for each license in the package. These shares are proportional to the bidding units associated with each license relative to the total number of bidding units in the package. The proposed mechanism for determining CPEs in an HPB auction format is described in more detail in Attachment H of the *Auctions 73 and 76 Procedures Public Notice* . 211. Commenters disagree on the method for calculating the CPEs for C Block packages. One commenter suggests using current high bids as weights when scaling up bids. Another commenter advocates using provisionally winning bids, not bidding units, to determine CPEs for C Block bids while other commenters support the Bureaus proposed method of calculating CPEs. 212. The Bureau does not agree that it should scale up license prices using current bid amounts, since doing so may encourage undesirable strategic bidding. Bidders would have an incentive to bid up the prices of other licenses while holding back on the licenses they are interested in, in order to force other license prices to bear a larger share of the shortfall. 213. The Bureau also declines to adopt the suggestions of commenters that it base the minimum acceptable bids for C Block REAG licenses directly on the highest bids for those licenses. Scaling up the minimum acceptable bid amounts for licenses in a package, so that the sum of bids on individual licenses equals the minimum acceptable bid on the package, mitigates the coordination or threshold problem that may face bidders trying to compete with a large package bid in a package bidding auction. Absent such a procedure, package bid prices could become disproportionately large relative to the prices for the package components, making it difficult for bidders on the individual licenses to compete with the package bid, especially since bidders on the individual licenses may bid cautiously, hoping that bidders on other licenses will make up the difference required to catch up with the package bid. 214. The Bureau does not believe that the proposed method of calculating CPEs is overly complex. In fact, the Bureau will use HPB in part because the mechanism for calculating CPEs is significantly simpler than other package bidding pricing mechanisms that adequately address coordination issues. 215. *Activity-Based Formula.* Under the Bureau's proposal, once CPEs are calculated, minimum acceptable bids are then determined for each license as the amount of the CPE plus a percentage of the CPE. The percentage is calculated using the activity-based formula. In general, the percentage will be higher when many bidders are bidding on a license, or on a package containing a license, than when few bidders are bidding on a license. 216. The percentage of the provisionally winning bid used to establish the minimum acceptable bid amount (the additional percentage) is calculated at the end of each round, based on an activity index which is a weighted average of
(a)the number of distinct bidders placing a bid on the license, including package bids, in that round, and
(b)the activity index from the prior round. Specifically, the activity index is equal to a weighting factor times the number of bidders placing a bid covering the license in the most recent bidding round plus one minus the weighting factor times the activity index from the prior round. The additional percentage is determined as one plus the activity index times a minimum percentage amount, with the result not to exceed a given maximum. The additional percentage is then multiplied by the CPE amount to obtain the minimum acceptable bid for the next round. 217. The Bureau proposed initially to set the weighting factor at 0.5, the minimum percentage (floor) at 0.1 (10%), and the maximum percentage (ceiling) at 0.2 (20%). At these initial settings, the minimum acceptable bid for a license will be between ten percent and twenty percent higher than the CPE (which for non-C Block licenses will equal the provisionally winning bid), depending upon the bidding activity covering the license. Equations and examples are shown in Attachment G of the *Auctions 73 and 76 Procedures Public Notice.* 218. A number of commenters addressed the activity-based formula to calculate minimum acceptable bids. One advocates increasing the activity weight factor from 0.5 to, for example, 0.75, so that the current round's activity has more weight in determining the next rounds minimum acceptable bid and further advocates modifying the minimum acceptable bid formula by decreasing the floor from the proposed 10 percent to 5 percent, and decreasing the ceiling from the proposed 20 percent to 10 percent. Other commenters express support for the change in floor and ceiling percentages. 219. In the *700 MHz Auction Public Notice* , the Bureau notes that it retains discretion to limit the absolute amount by which a minimum acceptable bid for a license may increase over the previous provisionally winning bid—for example, the Bureau could set a $10 million cap on increases in minimum acceptable bid amounts over provisionally winning bids—and the Bureau sought comment on the circumstances under which the Bureau should employ such a limit. A commenter suggested a cap on bid increments of $150 million per license per round would help avoid problems associated with bids rising more quickly than bidders, especially new entrants, can obtain approval for the additional funds, and would not delay the auction significantly. 220. The Bureau recognize bidder concerns that very rapid increases in minimum acceptable bids may potentially discourage bidder participation, inhibit price discovery, and create bid approval issues, especially since the minimum opening bids in Auction 73 are higher than were the Bureau's starting bids, for example, in Auction 66. At the same time, since the licenses initially offered in Auction 73 will not be sold unless reserve prices are met, it will be useful for the auction to move at a reasonably fast pace at least until reserve prices are satisfied. The Bureau reiterates that it has the discretion to modify minimum acceptable bid amounts—by changing the activity-based formula parameters or by imposing or modifying a cap on the dollar amount of bid increments—as it sees fit during the auction. Taking commenter concerns into account, the Bureau determined that it will retain initial floor and ceiling parameters at 10 and 20 percent, respectively, as proposed, but the Bureau will begin the auction with a $100 million cap on the amount of the bid increment. That is, minimum acceptable bids for the next round generally will be between 10 and 20 percent higher than provisionally winning bids, but they will not exceed provisionally winning bids by more than $100 million dollars. 221. *Additional Bid Amounts.* Any additional bid amounts are calculated using the minimum acceptable bid amount and a bid increment percentage. The first additional acceptable bid amount equals the minimum acceptable bid amount times one plus the bid increment percentage, rounded. If, for example, the bid increment percentage is ten percent, the calculation is (minimum acceptable bid amount) * (1 + 0. 1), rounded, or (minimum acceptable bid amount) * 1. 1, rounded; the second additional acceptable bid amount equals the minimum acceptable bid amount times one plus two times the bid increment percentage, rounded, or (minimum acceptable bid amount) * 1.2, rounded; etc. The Bureau will round the results of these calculations and the minimum acceptable bid calculations using the Bureau's standard rounding procedures. 222. For Auction 73, the Bureau proposed to set the bid increment percentage at 0. 1, so that any additional bid amounts above the minimum acceptable bid would each be 10 percent 85 higher. For non-C Block licenses, the Bureau proposed to begin the auction with one acceptable bid amount per license (the minimum acceptable bid amount). For C Block licenses subject to HPB, the Bureau proposed to begin the auction with three acceptable bid amounts per license (the minimum acceptable bid amount and two additional bid amounts) and one acceptable bid amount per package (the minimum acceptable bid amount and no additional bid amounts). 223. The Bureau received no comments on its proposal to set the bid increment percentage at 0.1. The Bureaus adopts the proposal to begin the auction with a bid increment percentage of 0.1. 224. Several commenters, however, advocate providing more than one acceptable bid amount per license for the non-C Block licenses. The Bureau is not persuaded that additional bid amounts provide bidders with significantly more flexibility to express their valuations. The Bureau experience with past auctions indicates that bidders rarely use multiple increment bids as the commenters suggest—to express their final valuations more precisely—but more frequently use jump bids as a means of signaling other bidders. As noted in the *700 MHz Auction Public Notice* , the Bureau proposed that bidders on licenses in the C Block be able to make multiple increment bids to ensure that bidders on individual licenses can effectively compete with package bids, even when there are not individual bids on one or more of the licenses in the package. Absent that need for multiple increment bids in the non-package bidding blocks, the Bureau will not modify its proposal. Therefore, the Bureau will begin the auction with one acceptable bid amount for each non-C Block license and C Block packages and three acceptable bid amounts for each C Block license. 225. The Bureau retains the discretion to change the minimum acceptable bid amounts, the additional bid amounts, the dollar cap on bid increments, the number of acceptable bid amounts, and the parameters of the formulas used to calculate minimum acceptable bid 86 amounts and additional bid amounts if it determines that circumstances so dictate. Further, the Bureau retains the discretion to do so on a license-by-license and package-by-package basis. iv. Provisionally Winning Bids 226. At the end of each bidding round, a provisionally winning bid will be determined based on which combination of bids together provides the greatest aggregate gross amount. Provisionally winning bids at the end of the auction become the winning bids, provided that applicable reserve prices are met. For the 1,087 licenses not subject to package bidding, the FCC Auction System determines a provisionally winning bid for each license based on the highest bid amount received for the license, taking into account the bids placed in the round and the provisionally winning bids from the previous round. For licenses in the C Block subject to HPB, the FCC Auction System will determine which combination of individual and package bids yields the highest aggregate gross bid amount, taking into consideration each bidder's highest bid on each license or package submitted up to that point in the auction. These bids become the provisionally winning bids for the round. Bidders are reminded that provisionally winning bids count toward activity for purposes of the activity rule. 227. In order to determine which combination of bids on licenses and/or packages yields the highest aggregate bid amount in a HPB auction, the FCC Auction System compares aggregate bid amounts across the various levels in a recursive process. It first compares, for each package in the second level, the sum of the highest individual license bids from the first level with the highest bids on packages in the second level containing those licenses. Those bids that generate the maximum total bid amounts become provisionally winning. Attachment H of the *Auctions 73 and 76 Procedures Public Notice* provides additional detail on this procedure. 228. In the *700 MHz Auction Public Notice* , the Bureau proposed to break ties randomly. A commenter suggests that because there will be at most a single acceptable bid amount for all but the individual C Block licenses, there will be multiple ties, and that therefore, 87 the Bureau should consider alternate means of breaking ties. Another commenter opposes this proposal, arguing that adopting such a procedure for breaking ties would result in bidders feeling pressure to submit their bids hastily which would raise bidding costs, increase the potential for bidding errors, and discourage proper analysis and review before submitting bids. 229. In previous FCC auctions, even though up to nine acceptable bid amounts were permitted, multiple increment bids accounted for only a small fraction of the total number of bids placed. The Bureau does not expect that the frequency of tied bids will be significantly different than in past auctions, and the Bureau does not adopt any changes to its tie-breaking procedures. Hence, the Bureau adopts the proposal. The FCC Auction System will assign a random number to each license in each bid upon submission. In the event of ties among bids that generate the highest aggregate gross bid amount, the set of bids with the highest sum of random numbers becomes provisionally winning. Bidders, regardless of whether they hold a provisionally winning bid, can submit higher bids in subsequent rounds. However, if the auction were to end with no other bids being placed, the winning bidder would be the one that placed the provisionally winning bid. 230. All bidding will take place remotely either through the FCC Auction System or by telephonic bidding. There will be no on-site bidding during Auction 73. Please note that telephonic bid assistants are required to use a script when entering bids placed by telephone. Telephonic bidders are therefore reminded to allow sufficient time to bid by placing their calls well in advance of the close of a round. The length of a call to place a telephonic bid may vary; please allow a minimum of ten minutes. 231. A bidder's ability to bid on specific licenses or packages of licenses is determined by two factors:
(1)The licenses selected on the bidder's FCC Form 175; and
(2)the bidder's eligibility. The bid submission screens will allow bidders to submit bids on only those licenses the bidder selected on its FCC Form 175. 232. In order to access the bidding function of the FCC Auction System, bidders must be logged in during the bidding round using the passcode generated by the SecurID® token and a personal identification number
(PIN)created by the bidder. Bidders are strongly encouraged to print a round summary for each round after they have completed all of their activity for that round. 233. In each round, eligible bidders will be able to place bids on a given license or package in one or more pre-defined bid amounts. For each license and package, the FCC Auction System will list the acceptable bid amounts in a drop-down box. Bidders use the drop-down box to select from among the acceptable bid amounts. The FCC Auction System also includes an upload function that allows bidders to upload text files containing bid information. 234. Until a bid has been placed on a license or a package that includes the license, the minimum acceptable bid amount for that license will be equal to its minimum opening bid amount. Once there are bids on a license or a package that includes the license, minimum acceptable bids for a license. 235. During a round, an eligible bidder may submit bids for as many licenses as it wishes, remove bids placed in the current bidding round, withdraw provisionally winning bids from previous rounds (in blocks without package bidding), drop non-provisionally winning bids (C-Block licenses or packages), or permanently reduce eligibility. If a bidder submits multiple bids for the same license or package in the same round—multiple bids on the exact same license or package, not one bid on a package and one bid on a license in that package—the system takes the last bid entered as that bidder's bid for the round. Bidders should note that the bidding units associated with licenses for which the bidder has removed, dropped, or withdrawn its bid do not count towards the bidder's current activity. 236. For licenses subject to package bidding in HPB, the FCC Auction System considers each bidder's highest bid on each license or package when determining the 89 provisionally winning bids. Consequently, for licenses in the C Block, an individual license or package bid that does not become a provisionally winning bid at the conclusion of the round in which it was placed may become a provisionally winning bid at the conclusion of a subsequent round. This may occur even if the bidder does not have the bidding eligibility to cover the newly-provisionally winning bid. This contrasts with the SMR procedure used for licenses not subject to package bidding, in which only provisionally winning bids from the previous round and bids placed during the round are considered when determining provisionally winning bids. 237. A commenter requests that the Bureau clarify that a bidder can win a license or package that becomes provisionally winning, after not having been part of the winning set in the previous rounds; the Bureau clarifies that point here. Another commenter opposes allowing a bidder to win licenses with bidding units exceeding its eligibility at the auction's end. The commenters argue that winning reactivated bids may force bidders to win more licenses than they can afford. The Bureau does not accept the proposal that it not allow bidders to win licenses with bidding units that exceed its eligibility. The Bureau recognizes that occasionally bidders may need to change bid strategies as prices rise. Accordingly, the Bureau provide limited opportunities for bidders to withdraw and drop bids, which if used carefully, allow bidders to avoid winning licenses they no longer wish to win. Thus, the Bureau finds that the requested restriction on winning bids that exceed eligibility is unnecessary to protect bidders from winning more than they wish to win. 238. The Bureau encourages bidders on licenses and packages in the C Block to bear in mind that their highest bid on each package or license will be considered every time the FCC Auction System determines a new set of provisionally winning bids. This feature allows bidders on individual licenses to compete more effectively with package bids, since their individual license bid can combine with bids on other individual licenses placed in previous rounds, and stabilizes CPEs. Bidders will be able to evaluate the extent to which a bid placed in a previous 90 round is likely to become winning by comparing the bid to the other considered bids for the license or package. 239. Finally, bidders are cautioned to select their bid amounts carefully because bidders that withdraw a provisionally winning bid from a previous round, even if the bid was mistakenly or erroneously made, are subject to bid withdrawal payments. v. Bid Removal, Bid Withdrawal, and Dropped Bids 240. In the *700 MHz Auction Public Notice* , the Commission proposed bid removal, bid withdrawal, and dropped bids procedures. The Bureau sought comment on permitting a bidder to remove a bid before the close of the round in which the bid was placed. With respect to bid withdrawals, the Commission proposed limiting each bidder to withdrawals of provisionally winning bids on licenses not subject to package bidding (i.e., all licenses except in the C Block) in no more than two rounds during the course of the auction. The Bureau further proposed that bidders be able to drop non-provisionally winning bids on packages and on licenses subject to package bidding in no more than one round of the auction. 241. *Bid Removal.* Before the close of a bidding round, a bidder has the option of removing any bids placed in that round. By using the remove bids function in the FCC Auction System, a bidder may effectively unsubmit any bid placed within that round. A bidder removing a bid placed in the same round is not subject to withdrawal payments. Removing a bid will affect a bidder's activity for the round in which it is removed, i.e., a bid that is removed does not count toward bidding activity. These procedures will enhance bidder flexibility during the auction, and therefore the Bureau adopts them for Auction 73. 242. *Bid Withdrawal.* Once a round closes, a bidder may no longer remove a bid. However, in a later round, a bidder may withdraw provisionally winning bids from previous rounds for non-C Block licenses using the withdraw bids function in the FCC Auction System. A 91 provisionally winning bidder that withdraws its provisionally winning bid from a previous round during the auction is subject to the bid withdrawal payments specified in 47 CFR 1.2104(g). Once a withdrawal is submitted during a round, that withdrawal cannot be unsubmitted even if the round has not yet ended. 243. If a provisionally winning bid is withdrawn, the minimum acceptable bid amount will equal the amount of the second highest bid received for the license, which may be less than, or in the case of tied bids, equal to, the amount of the withdrawn bid. The Commission will serve as a place holder provisionally winning bidder on the license until a new bid is submitted on that license. 244. The *700 MHz Auction Public Notice* proposed limiting each bidder to withdrawals in no more than two rounds during the course of the auction. The round in which withdrawals are used would be at each bidder's discretion. The Bureau received no comments on the number of proposed withdrawal rounds. 245. The Bureau has decided, in contrast to the proposal in the *700 MHz Auction Public Notice* , to limit each bidder to withdrawing bids in only one round of the auction. In recent auctions, the Bureau has detected bidder conduct that, arguably, may have constituted anticompetitive behavior through the use of bid withdrawals. While continuing to recognize that bid withdrawals may reduce risk associated with efforts to secure various licenses in combination, analysis of previous auctions indicates that bidders rarely need two withdrawal rounds to avoid aggregation risk. Therefore, the Bureau concluded that, for Auction 73, adoption of a limit on the use of withdrawals to one round per bidder will better balance the need for bidding flexibility with the goal of discouraging anti-competitive bidding behavior. The Bureau will therefore limit the number of rounds in which bidders may place withdrawals to one round. 246. The Bureau received a number of comments and replies addressing the proposal not to allow withdrawals on provisionally winning bids for licenses in the C Block. One commenter urges that bidders on C Block licenses should have the same withdrawal options as other bidders. It asserts that this would reduce the exposure risk concerns for C Block bidders. Another commenter asserts that the Bureau's proposal to not allow withdrawals on C Block licenses creates major financial risks for bidders. A third commenter contends that the proposed bid withdrawal rules should be modified, because they could discourage bidding in the C Block and restrict bidders from seeking alternative licenses in later rounds of the auction. A commenter maintains that the highest bids on individual C Block REAG licenses should be subject to standard bid withdrawal rules, rather than those for dropped bids. 247. The Bureau proposed not to permit withdrawals of provisionally winning bids in the C Block because, with package bidding, a withdrawn bid can affect the composition of the provisionally winning set of bids, thus affecting the status of the bids of other bidders. In addition, under the mechanism used to determine CPEs in HPB, a withdrawn bid can affect the prices of other licenses. In SMR, in contrast, license-by-license bidding ensures that a withdrawn bid affects only the status of the bidder placing the withdrawal. Since bidders would be able to use withdrawals in the C Block to affect other bidders, permitting withdrawals would facilitate undesirable strategic bidding behavior. Therefore, to avoid the potential for gaming, the Bureau maintains its position not to permit withdrawals of provisionally winning bids in the C Block. 248. A commenter suggests that withdrawals not be permitted in the D Block. Because the D Block license is nationwide, bidders do not face the risk of winning an incomplete aggregation of licenses in the block. The Bureau will permit that each bidder have only one round in which to withdraw bids, but it does not impose a special prohibition on withdrawals in the D Block, recognizing that D Block bidders may also need to consider their financial commitment to bids in the C Block, where they are unable to withdraw provisionally winning bids. 249. *Dropped Bids.* A bid for a package or a license in the C Block can become provisionally winning many rounds after it was placed, since HPB considers bids made in previous rounds when determining provisionally winning bids. These non-provisionally winning bids are useful to the auction since they enhance the ability of bidders interested in single licenses or smaller packages to combine their bids with the bids of others to compete with a large package bid, and they provide stability to the process for determining current price estimates. It may be the case, however, that a bidder wishes to focus on alternative licenses instead, and no longer wishes to win one of its previous bids. In order to allow bidders to opt out of non-provisionally winning bids that they no longer wish to win, the Bureau proposed that under HPB, for licenses subject to package bidding, bidders be allowed a limited number of opportunities to drop non-provisionally winning bids from further consideration in the auction. 250. Eliminating non-provisionally winning bids from consideration may affect the current price estimates of other licenses, thereby affecting other bidders. This ability to affect the bids of other bidders may lead to undesirable strategic use of dropped bids. Therefore, the *700 MHz Auction Public Notice* proposed to permit bidders to drop non-provisionally winning bids on packages and on licenses subject to package bidding in no more than one round of the auction. To discourage bidders from dropping bids in order to disadvantage their competitors, the *700 MHz Auction Public Notice* also proposed the following restrictions on the circumstances under which bids may be dropped and on the bidder's subsequent bidding activity:
(1)A bidder that is a provisionally winning bidder on a package will not be permitted to drop bids on licenses that are included in the package;
(2)a bidder that drops its bids on a license or package will not be permitted to submit further bids on that particular license or package during the auction; and
(3)a bidder that drops its bids on a license will not be permitted to submit any bids on packages containing that license for the duration of the auction. 251. Under these proposals, if a bidder drops a bid on a package, it will be permitted to bid individually on the licenses in the package. When a bid is dropped, all of the bidder's previous bids on that license or package are removed from consideration. 252. No payments are associated with dropped bids. The round in which a bidder may drop non-provisionally winning bids from consideration will be at the bidder's discretion. The Bureau sought comment on these proposals, and on the possibilities of not allowing dropped bids, of allowing dropped bids not subject to all the restrictions proposed, and of imposing other restrictions than proposed. 253. The Bureau received a number of comments and reply comments addressing dropped bids. Several entities favor permitting bidders to re-bid on licenses they previously dropped, some also suggested that dropped bids should be subject to withdrawal payments that the Bureau should consider disallowing dropped bids, and that dropped bids should be announced in advance. A commenter argues that permitting dropped bids in only one round favors package bidders, and may discourage bidders interested in individual licenses from competing in the C Block. 254. Another commenter maintains that the individual C Block REAG licenses should be subject to standard bid withdrawal rules, rather than those for dropped bids. It also proposes that bidders that are outbid on individual REAG C Block licenses should not be committed to their bids if the higher bidder withdraws or drops its bid. Instead, the commenter recommends that the individual license should revert to the Commission with a minimum acceptable bid equal to the second highest bid price. 255. The Bureau also received several requests for clarification of its intended procedures with respect to dropped bids. A commenter suggests that the Bureau allow bidders who drop a package bid to be able to bid on the individual licenses in the dropped package. The Bureau clarifies that this is its intention. The Bureau is not persuaded that it should modify the 95 proposed procedures on dropped bids. Dropped bid procedures in a package bidding environment must be designed to avoid creating disadvantages for other bidders—intentionally or unintentionally—when bids are pulled out of consideration, and the Bureau's rules are designed with that goal in mind. For example, since withdrawn provisionally winning bids can affect the winning bids of other bidders, the Bureau permit drops on non-provisionally winning bids only. Because it is more difficult for bidders on individual licenses to compete against a package bid when only current round bids are considered, the Bureau considers bids placed in all rounds, including after a bid is dropped, in order not to give an undue advantage to package bidders. 256. In addition, the Bureau finds that these dropped bids procedures, and HPB procedures in general, strike a careful balance between permitting bidders adequate bidding flexibility and discouraging insincere and anti-competitive bidding behavior. For example, the prohibition against rebidding on a license that has been dropped will keep bidders from strategically shifting off of a license so that its price will fall relative to the other licenses competing against a package bid, and then rebidding at a lower relative price. The Bureau adopts the proposal to permit bidders on licenses and packages in the C Block to drop non-provisionally winning bids during any one round of the auction. 257. *Calculation of Bid Withdrawal Payment.* Generally, the Commission imposes payments on bidders that withdraw high bids during the course of an auction. If a bidder withdraws its bid and there is no higher bid in the same or subsequent auction(s), the bidder that withdrew its bid is responsible for the difference between its withdrawn bid and the provisionally winning bid in the same or subsequent auction(s). In Auction 73, if a bid is withdrawn on a license in a block that does not meet the reserve price in the initial auction, withdrawal payments will be based on the provisionally winning bid or bids for the license in Auction 76, or in any subsequent auction, consistent with the Bureau's usual withdrawal payment rule. In the case of multiple bid withdrawals on a single license, within the same or subsequent auctions(s), the 96 payment for each bid withdrawal will be calculated based on the sequence of bid withdrawals and the amounts withdrawn. No withdrawal payment will be assessed for a withdrawn bid if either the subsequent winning bid or any subsequent intervening withdrawn bid, in either the same or subsequent auctions(s), equals or exceeds that withdrawn bid. Thus, a bidder that withdraws a bid will not be responsible for any final withdrawal payment if there is a subsequent higher bid in the same or subsequent auction(s). 258. Section 1.2104(g)(1) of the rules sets forth the payment obligations of a bidder that withdraws a high bid on a license during the course of an auction, and provides for the assessment of interim bid withdrawal payments. No interim bid withdrawal payments will be assessed until the conclusion of Auction 76. In the *700 MHz Auction Public Notice,* the Bureau proposed to establish the percentage at ten percent (10%) for the 700 MHz Band auction and sought comment on the proposal. 259. The Bureau received no comments on this issue and adopts its proposal. The Commission will assess an interim withdrawal payment equal to ten percent (10%) of the amount of the withdrawn bids. The ten percent (10%) interim payment will be applied toward any final bid withdrawal payment that will be assessed after subsequent auction of the license. Assessing an interim bid withdrawal payment ensures that the Commission receives a minimal withdrawal payment pending assessment of any final withdrawal payment. vi. Round Results 260. Limited information about the results of a round will be made public after the conclusion of the round. Specifically, after a round closes, the Bureau will make available for each license, its current provisionally winning bid amount, the minimum acceptable bid amount for the following round, the amounts of all bids placed on the license during the round, and whether the license is FCC held. If the license is provisionally winning and part of a larger package additional details regarding the package that contains the specific license will be 97 available. The system will also provide an entire license history detailing all activity that has taken place on a license with the ability to sort by round number. The reports will be publicly accessible. Moreover, after the auction, the Bureau will make available complete reports of all bids placed during each round of the auction, including bidder identities. vii. Auction Announcements 261. The Commission will use auction announcements to announce items such as schedule changes and stage transitions. All auction announcements will be available by clicking a link in the FCC Auction System. V. Auction 76 262. In the *700 MHz Second Report and Order* , the Commission noted the strong public interest in promptly assigning all 700 MHz Band licenses for recovered analog spectrum. Accordingly, the Commission concluded that if licenses for the A, B, C or E Blocks are not assigned because the auction results do not satisfy the applicable aggregate reserve price(s) in Auction 73, the public interest will be served by offering alternative licenses for the relevant blocks in a subsequent auction, as soon as possible after the initial auction. Similarly, if the license for the D Block is not assigned because the reserve price for that license is not met, the license for the D Block may be offered again. For administrative purposes, the Bureau designates any such subsequent bidding as Auction 76. 263. As detailed in the *700 MHz Second Report and Order* , any alternative A, B and E Block licenses will be subject to alternative performance requirements. Alternative C Block licenses will be based on different geographic areas and spectrum bandwidth. In addition, the alternative C Block licenses will not be subject to the open platform conditions applicable to the licenses initially offered for the C Block. 264. The Commission concluded that the public interest in prompt licensing of 700 MHz spectrum and the related nature of licenses in Auctions 73 and 76 made it appropriate to adopt auction procedures treating Auctions 73 and 76 as a single auction for purposes of assessing bidders' qualifications and applying the Commission's anti-collusion rule. The Commission directed the Bureau to permit only qualified bidders in Auction 73, to participate in Auction 76, and to use the same auction design, including the applicable aggregate reserve price(s), insofar as possible. The Commission also required the Bureau to establish procedures that give applicants an opportunity to obtain bidding eligibility specifically for licenses offered in a contingent subsequent auction. Accordingly, the Bureau sought comment on specific procedures for contingent subsequent bidding. Generally, the Bureau will apply the Commission's competitive bidding rules with a presumption that Auctions 73 and 76 should be considered to be a single auction, subject to explicit exceptions when necessary. With the following detailed exceptions, the Bureau will apply all of the previously discussed procedures for Auction 73 to Auction 76. A. Announcement of Auction 76 265. If, at the close of bidding in Auction 73, the aggregate reserve price for any block has not been met, the Bureau will issue an announcement that bidding in Auction 73 has closed and that Auction 76 will commence on a date not later than three weeks following the announcement. The announcement of Auction 76 will establish the deadline by which Auction 73 qualified bidders that selected licenses to be offered in Auction 76 may obtain additional bidding eligibility for Auction 76 by supplementing their upfront payments, if necessary. In the event that the reserve price for the D Block license is met during Auction 73, a Closing Public Notice will be released with respect to the D Block. In the event that Auction 73 results meet the reserve prices in all blocks, the Bureau will proceed to issue a Closing Public Notice and Auction 76 will not be held. B. Licenses To Be Offered 266. Any licenses in the A, B, D and E Blocks available in Auction 76 will cover the same geographic areas and frequencies as such licenses offered in Auction 73. However, the alternative C Block will include C1 Block licenses offered in each of the 176 EAs and C2 Block licenses offered in each of the 12 REAGs. A complete list of licenses that may be available in Auction 76 is included as Attachment B of the *Auctions 73 and 76 Procedures Public Notice.* C. Auction Structure i. Licenses for Blocks A, B, D and/or E 267. If Auction 76 offers licenses in blocks not subject to package bidding in Auction 73—Blocks A, B, D, and/or E—those block will not be subject to package bidding in Auction 76, and will be offered using the Commission's standard SMR auction design. The procedures applicable to the auction will be the same with respect to licenses for Blocks A, B, D and E in Auction 73. ii. Alternative Licenses for C Block—Available Packages 268. In the *700 MHz Auction Comment Public Notice* , the Bureau sought comment on whether to accept package bids for alternative licenses for the C Block using the HPB auction design for the initial C Block licenses. One commenter proposed that package bids be accepted on three potential packages, one package of all C1 Block licenses, one package of all C2 Block licenses, and one package of all C 1 and C2 Block licenses. Two other commenters argue against accepting any package bids for alternative C Block licenses, contending that the complexity that they believe should preclude package bidding with respect to the original 12 C Block licenses will be further exacerbated should the Commission offer 188 alternative C1 and C2 Block licenses in subsequent bidding. 269. The Bureau concluded that it will use non-package bidding SMR procedures for licenses in the C1 Block and HPB package bidding procedures for C2 Block licenses. This approach balances the Commission's interest in providing opportunities for new entrants competing on a nationwide basis with its goal of offering alternative licenses that may be of greater interest to a different mix of bidders, including smaller entities. 270. Accordingly, if there is subsequent bidding on alternative licenses in the C Block, the Bureau will employ the HPB auction design for the C2 Block only, with package bids accepted on the packages. The procedures applicable to the HPB auction of C2 Block licenses will be the same as those with respect to C Block licenses in Auction 73, subject to the differences. 271. Licenses in the C1 Block will be auctioned using the SMR auction procedures for licenses in Blocks A, B, D and E in auctions 73 and 76. Bids for alternative C1 Block licenses will be accepted on individual EA Block licenses only. 272. With respect to C2 Block licenses, bids will be accepted on individual REAG licenses, and on three packages, consisting of a package of REAGs 1-8 (the 50 States), REAGs 10 & 12 (the Atlantic territories), and REAGs 9 & 11 (the Pacific territories). The hierarchical package structure for the C2 licenses is the same as was adopted for the C Block licenses in auction 73. D. Bidder Qualification 273. As directed by the Commission, only applicants found qualified to bid in Auction 73 may be eligible to bid in Auction 76. To be eligible to bid in Auction 76, an Auction 73 qualified bidder also must have selected a license offered in Auction 76 on the abbreviated Auction 76 application filed together with its application to participate in Auction 73. The announcement that Auction 73 bidding has ended without one or more aggregate reserve prices 101 being met also will announce the deadline by which such bidders may submit supplemental upfront payments to purchase bidding eligibility in the subsequent auction. 274. In response to the *700 MHz Auction Public Notice* , a commenter contends that the Commission's treatment of Auction 73 and any contingent subsequent auction as a single auction for purposes of the Commission's anti-collusion rule requires that applicants select all licenses in which they may be interested, including potential alternative licenses, prior to bidding in Auction 73. The commenter contends that this result is compelled by the § 1.2105(b)(2) of the Commission's competitive bidding rules, which prohibits changes in license selection after the initial application filing deadline. Moreover, the commenter contends that requiring applicants to select potential alternative licenses prior to Auction 73 will limit the amount of time required between Auction 73 and any contingent subsequent auction. 275. Given the presumption that Auction 73 and any contingent subsequent bidding on licenses should be treated as a single auction, the Bureau has concluded that applicants should select both licenses offered in Auction 73 and licenses that may be offered in Auction 76 by the initial deadline for filing an application to participate in Auction 73. The Bureau concluded that bidders will be able to make informed selections prior to Auction 73 of licenses, including alternative licenses that may be offered in contingent subsequent bidding. Bidders will have the opportunity to obtain additional bidding eligibility for licenses to be offered subsequently. These procedures will enable contingent subsequent bidding, if necessary, to proceed with minimal delay. i. Bidder Status 276. To participate in Auction 76, a potential bidder must:
(1)Have become qualified to bid for at least one license offered in Auction 73 by selecting license(s) offered in Auction 73 and making an upfront payment sufficient to establish eligibility to bid for at least one of those license(s), and
(2)file an abbreviated Auction 76 application and selected at least one license offered in Auction 76. Qualified bidders in Auction 73 need not bid on the licenses offered in Auction 73 in order to be able to become qualified to participate in Auction 76. ii. Auction 76 Initial Bidding Eligibility 277. For Auction 76, qualified bidders will have their initial bidding eligibility based on their initial bidding eligibility in Auction 73 and will also have an opportunity to purchase additional bidding eligibility. However, qualified bidders” initial bidding eligibility for Auction 73 will be reduced for Auction 76 if they hold winning bids for any licenses offered in Auction 73 in blocks for which the reserve price was met in Auction 73. For winning bidders of licenses in the A, B, C, or E Blocks, the amount of the reduction will be equal to the number of bidding units associated with the licenses won. For the winning bidder of the D Block license, the amount of the reduction will be equal to the amount of any withdrawal payment owed for withdrawn bid(s) on the D Block license plus the amount of the net winning bid for the D Block license, up to the amount of the winning bidder's initial Auction 73 bidding eligibility. iii. Supplementing Upfront Payments To Obtain Additional Eligibility 278. All bidders qualified to participate in Auction 76 will have an opportunity to purchase additional bidding eligibility. Bidders will be able to purchase additional bidding eligibility for licenses to be offered in Auction 76 by supplementing their upfront payments pursuant to the procedures for making upfront payments by wire transfer set forth in the *Auction 73 and 76 Procedures Public Notice* , subject to a schedule to be announced following the close of bidding in Auction 73. iv. Continuing Applicability of the Anti-Collusion Rule 279. In the *700 MHz Second Report and Order* , the Commission directed the Bureau to adopt any procedures that may enhance the effectiveness of an auction of licenses in Auction 73 or any contingent subsequent auction. In part, the Commission found that the Commission's anti-collusion rule should treat Auction 73 and any such subsequent auction as a single auction, given the related nature of the auctions. Accordingly, the applicable down payment deadline marking the end of the anti-collusion period for Auction 73 and any subsequent auction shall be the down payment deadline established following the close of the subsequent auction. E. Bidding Procedures i. Aggregate Reserve Prices 280. As required by the Commission, the licenses in subsequent bidding will be subject to the same aggregate reserve price(s) applicable in the initial auction. A commenter argues in its comments that the licenses in the second auction should not be subject to any reserve prices because using a reserve price in the contingent subsequent auction runs the risk that the licenses will not be awarded prior to the June 30, 2008, statutory deadline for filing auction proceeds. As a commenter acknowledges in its comments, the Commission decision in the *700 MHz Second Report and Order* is binding, absent reconsideration of that Order by the Commission as a whole. Consequently, the commenters proposal is beyond the scope of the present non-rulemaking auctions procedures process. 281. In the *700 MHz Second Report and Order,* the Commission noted that the Bureau has delegated authority to determine how to allocate the C Block reserve price upon auction of alternative licenses. Accordingly, in the *700 MHz Auction Comment Public Notice,* the Bureau proposed to apply the C Block aggregate reserve price of $4.637854 billion to all of the alternative C Block licenses. That is, the sum of the gross bid amounts on the C1 and C2 Block licenses must equal or exceed $4.637854 billion in order to meet the reserve price. No commenters addressed this proposal. 282. The Bureau adopts its proposal, with one additional feature. In the event that the sum of the gross bid amounts on the C1 and C2 Block licenses does not meet the reserve price 104 covering both blocks, the Bureau then will apportion the aggregate reserve price between the two blocks based on their respective bandwidth and apply those aggregate reserve prices to the respective blocks separately. More specifically, if the aggregate reserve price of $4.637854 billion covering both Blocks C1 and C2 is not met, the Commission nevertheless will assign licenses for the respective block based on the auction results if the gross bid amounts on the C 1 Block licenses exceed $2.529739 billion or the gross bid amounts on the C2 Block licenses exceed $2.108115 billion. Applying these separate aggregate reserve prices will increase the likelihood that licenses will be assigned for the respective blocks in the contingent subsequent auction, while continuing to apply the aggregate reserve price from the initial auction to each block in proportion to the megahertz in each block. ii. Minimum Opening Bids 283. For Auction 76, the Bureau will calculate minimum opening bid amounts on a license-by-license basis using the same approach as in Auction 73, drawing on the Auction 66 prices that were bid on licenses for the exact same geographic areas. For any licenses that may be offered in Auction 76, including alternative C1 and C2 Block licenses, minimum opening bids are set forth in Attachment B of the *Auction 73 and 76 Procedures Public Notice.* F. Additional Procedures 284. In the *700 MHz Auction Comment Public Notice,* pursuant to Commission direction, the Bureau sought comment on the possibility of denying bidding eligibility in a contingent subsequent auction based on bidder behavior in Auction 73, if that behavior appeared designed to thwart the assignment of licenses. Specifically, the Bureau proposed that bidders defaulting on winning bids in Auction 73 should be denied eligibility in any subsequent auction. The Bureau declines to restrict the circumstances under which it might deny bidding eligibility in a contingent subsequent auction to an otherwise qualified bidder. The Commission retains the authority to sanction bidders that are found to have violated the antitrust laws or the 105 Commission's rules in connection with competitive bidding by requiring forfeiture of any upfront payments, down payment or full bid amounts, and by prohibiting the bidders participation in future auctions. The Commission intends to make full use of this authority, including banning participation in a contingent subsequent auction, with respect to bidders that seek to thwart the assignment of licenses in Auction 73. VI. Post-Auction Procedures A. Considerations Relating to Certain Post-Auction Payment Rules i. Apportioning Package Bids 285. In package bidding, when a bidder places an all-or-nothing bid on a package of licenses, there will be no identifiable bid amounts on the individual licenses that comprise the package. However, the Commission's competitive bidding rules and procedures assume that the amount of each bid on an individual license always is known. For example, rules for calculating the amount of small business, new entrant, or tribal land bidding credits presume that the winning bid on the license is known. Similarly, in determining the amount of a default or withdrawal payment, which involves a comparison between the withdrawing or defaulting bidder's bid and a subsequent bid, the rules assume that there are bid amounts for individual licenses. Accordingly, the Commission recently adopted a rule providing that, in advance of each auction with package bidding, the Commission shall establish a methodology for determining how to estimate the price or bid on an individual license included in a package of licenses. 286. The Bureau proposed to apportion package bids when regulatory calculations require individual license bid amounts by dividing the package bid amount among the licenses comprising the package in proportion to the number of bidding units for each license. Alternatively, the Bureau proposed to use the final round CPEs for each license to apportion package bids. The Bureau sought comment on these proposals. 287. A commenter suggests that the Bureau use a measure more closely related to relative license values, such as minimum opening bid amounts, to apportion package bid amounts among the licenses in the package. The Bureau accepts the commenter's recommendation that relative license values be used to apportion package bids, but rather than use a pre-auction estimate of value such as minimum opening bids, the Bureau will use the final CPEs of the licenses in the package, as in its alternative proposal. Final CPEs will reflect relative prices as determined in Auction 73. Therefore, when regulatory calculations require individual license bid amounts, the Bureau will divide the package bid amount among the licenses comprising the package in proportion to the final round CPEs for the licenses. ii. Interim Withdrawal Payment Percentage 288. In general, the Commission's rules provide that a bidder that withdraws a bid during an auction is subject to a withdrawal payment equal to the difference between the amount of the withdrawn bid and the amount of the winning bid in the same or a subsequent auction. However, if a license for which a bid has been withdrawn does not receive a subsequent higher bid or winning bid in the same auction, the final withdrawal payment cannot be calculated until a corresponding license receives a higher bid or winning bid in a subsequent auction. When that final payment cannot yet be calculated, the bidder responsible for the withdrawn bid is assessed an interim bid withdrawal payment, which will be applied toward any final bid withdrawal payment that is ultimately assessed. 289. The Commission recently amended its rules to provide that in advance of the auction, the Commission shall establish a percentage between three percent and twenty percent of the withdrawn bid to be assessed as an interim bid withdrawal payment. When it adopted the new rule, the Commission indicated that it would consider the nature of the service and the inventory of the licenses being offered when determining the level of the interim withdrawal payment in a particular auction. 290. In the *700 MHz Auction Public Notice,* the Bureau noted that the 700 MHz auction will offer licenses under several different geographic licensing schemes and bandwidth sizes, and it found that bidders may have a legitimate interest in using withdrawals to facilitate their efforts to aggregate licenses across potentially substitutable blocks of licenses not subject to package bidding. The Bureau also observed that the likely significant bid amounts for licenses in this auction (and resulting absolute value of withdrawal payments) will in themselves serve as a deterrent to unnecessary withdrawals. Therefore, the Bureau did not propose to set the interim bid withdrawal payment at the maximum rate of twenty percent. At the same time, the Bureau noted that a rate above the minimum three percent will help deter undesirable strategic use of withdrawals. Specifically, the Bureau proposed to establish an interim bid withdrawal payment of ten percent of the withdrawn bid in the 700 MHz auction and sought comment on this issue. 291. No commenters suggested any alternative to the Bureau's proposed percentage for interim withdrawal payments. For the reasons set forth above and in the *700 MHz Auction Public Notice,* the Bureau adopts its proposal. The Commission will assess an interim withdrawal payment equal to ten percent (10%) of the amount of the withdrawn bids. The ten percent (10%) interim payment will be applied toward any final bid withdrawal payment that will be assessed after subsequent auction of the license. Assessing an interim bid withdrawal payment ensures that the Commission receives a minimal withdrawal payment pending assessment of any final withdrawal payment. Section 1.2104(g) provides specific examples showing application of the bid withdrawal payment rule. iii. Additional Default Payment Percentage 292. Any winning bidder that defaults or is disqualified after the close of an auction (i.e., fails to remit the required down payment within the prescribed period of time, fails to submit a timely long-form application, fails to make full payment, or is otherwise disqualified) is liable for a default payment under § 1.2104(g)(2) of the Commission's rules. This payment consists of a deficiency payment, equal to the difference between the amount of the bidder's bid and the amount of the winning bid the next time a license covering the same spectrum is won in an auction, plus an additional payment equal to a percentage of the defaulter's bid or of the subsequent winning bid, whichever is less. Until recently this additional payment for non-combinatorial auctions has been set at three percent of the defaulter's bid or of the subsequent winning bid, whichever is less. 293. The percentage of the bid that a defaulting bidder must pay in addition to the deficiency will depend on the auction format ultimately chosen for a particular auction. In non-package auctions, the amount can range from three percent up to a maximum of twenty percent, established in advance of the auction and based on the nature of the service and the inventory of the licenses being offered. In auctions with package bidding, the additional payment is set, pursuant to § 1.2104(g)(2)(ii), at 25 percent of the applicable bid. This higher level reflects the fact that a defaulted winning bid in an auction with package bidding may have affected which other bids were winning other licenses. 294. The Bureau proposed to establish an additional default payment of fifteen percent with respect to bids on licenses in Blocks A, B, D, and E, which are not subject to package bidding. As previously noted by the Commission, defaults weaken the integrity of the auction process and impede the deployment of service to the public, and an additional default payment of more than three percent will be more effective in deterring defaults. Moreover, the Bureau concluded an additional default payment greater than ten percent, which the Commission has established in several recent auctions, is appropriate for the 700 MHz auction. Because no licenses in Blocks A, B, or E will be sold unless the aggregate reserve price for that block is met, bidders may have an additional incentive to bid on a license and later default (after determination that the reserve price has been met), in order to help ensure that the reserve price is met and other initial licenses in the block are assigned. The Bureau concluded that a higher additional default 109 payment will help deter such behavior. With respect to the D Block, for which there is a single nationwide license that will not be assigned unless the D Block reserve price is met, a default by the winning bidder will delay the especially time-sensitive process of establishing a public-private partnership for the provision of public safety services. Given the unusually large public interest benefits of timely licensing the D Block, the Bureau proposed to deter defaults by imposing a higher additional default payment in that block as well. Accordingly, it proposed an additional default payment of fifteen percent on licenses in the A, B, D, and E Blocks. The Bureau sought comment on this proposal. The Bureau stated that for licenses in the C Block, because they are subject to package bidding, the additional default payment will be twenty-five percent as set forth in § 1.2104(g)(2)(ii). This additional default payment will apply to all bids for packages and for licenses that are subject to package bidding. 295. While no comments were filed in response to the *700 MHz Auction Public Notice* focused on the appropriate percentage for the additional default payments, a commenter proposed in its comments that the Commission impose no default penalty in connection with any defaults on a winning bid for the D Block license. The commenter's argument focused particularly on a scenario where the winning bidder is unable to negotiate a Network Sharing Agreement with the Public Safety Licensee, even while negotiating in good faith. Another commenter opposed this proposal in its reply because it runs counter to the Commission's decision in the *700 MHz Second Report and Order,* which held that [i]n the event that the long-form application filed by the winning bidder for the D Block license is denied, the winning bidder of the D Block licenses will be deemed to have defaulted * * * [and] it will be liable for the default payment set forth in the Commission's competitive bidding rules. Accordingly, the commenter's proposal is beyond the scope of the current non-rulemaking auction procedures process. 296. The Bureau adopts its proposal and sets the additional default payment percentage at fifteen percent of the defaulted bid for licenses in the A, B, D and E Blocks. Pursuant to existing Commission rules regarding licenses subject to package bidding, the additional default payment percentage will be twenty-five percent of the defaulted bid for licenses in the C Block. These percentages are appropriate to reduce the risk that bidders may default on their winning bids. B. Down Payments 297. After bidding has ended in Auction 73 and Auction 76, the Commission will issue a public notice declaring the auction(s) closed and identifying winning bidders, down payments and final payments due. In addition, if the D Block bidding satisfies the reserve price and there is a winning bidder for the D Block license in Auction 73, the Commission will issue a public notice identifying the winning bidder, down payments and final payments due after bidding ends in Auction 73, even if Auction 76 will be held for licenses in any other block(s). 298. Within ten business days after release of the auction closing notice, each winning bidder must submit sufficient funds (in addition to its upfront payment) to bring its total amount of money on deposit with the Commission for licenses offered in Auction 73 and Auction 76 to 20 percent of the net amount of its winning bids (gross bids less any applicable small business or very small business bidding credits). C. Final Payments 299. Each winning bidder will be required to submit the balance of the net amount of its winning bids within 10 business days after the applicable deadline for submitting down payments. D. Long-Form Application (FCC Form 601) 300. Within ten business days after release of the auction closing notice, winning bidders must electronically submit a properly completed long-form application (FCC Form 601) for each license won through Auction 73 and/or Auction 76. Winning bidders that are small 111 businesses or very small businesses must demonstrate their eligibility for a small business or very small business bidding credit. Further filing instructions will be provided to auction winners at the close of the auction. 301. The *CSEA/Part 1 Report and Order,* 71 FR 6214, February 7, 2006, modified the procedure by which a consortium that is a winning bidder in Auction 73 and/or Auction 76 will apply for a license. In particular,
(a)each member or group of members of a winning consortium seeking separate licenses will be required to file a separate long-form application for its respective license(s) and, in the case of a license to be partitioned or disaggregated, the member or group filing the applicable long-form application shall provide the parties' partitioning or disaggregation agreement in its long-form application;
(b)two or more consortium members seeking to be licensed together shall first form a legal business entity; and
(c)any such entity must meet the applicable eligibility requirements for small business status. Applicants applying as consortia should review the *CSEA/Part 1 Report and Order* in detail and monitor any relevant future proceedings to understand how the members of the consortia will apply for a license in the event they are winning bidders. E. Ownership Disclosure Information Report (FCC Form 602) 302. At the time it submits its long-form application (FCC Form 601), each winning bidder also must comply with the ownership reporting requirements as set forth in 47 CFR 1.913, 1.919, and 1.2112. An ownership disclosure record is automatically created in ULS for any applicant that submits an FCC Form 175. However, winning bidders will be required to review and confirm that it is complete and accurate as of the date of filing Form 601. Further instructions will be provided to winning bidders at the close of the auction. F. Tribal Lands Bidding Credit 303. A winning bidder that intends to use its license(s) to deploy facilities and provide services to federally recognized tribal lands that are unserved by any telecommunications carrier or that have a wireline penetration rate equal to or below 85 percent is eligible to receive a tribal lands bidding credit as set forth in 47 CFR 1.2107 and 1.2110(f). A tribal lands bidding credit is in addition to, and separate from, any other bidding credit for which a winning bidder may qualify. 304. Unlike other bidding credits that are requested prior to the auction, a winning bidder applies for the tribal lands bidding credit after winning the auction when it files its long-form application (FCC Form 601). When initially filing the long-form application, the winning bidder will be required to advise the Commission whether it intends to seek a tribal lands bidding credit, for each license won in the auction, by checking the designated box(es). After stating its intent to seek a tribal lands bidding credit, the applicant will have 180 days from the close of the long-form filing window to amend its application to select the specific tribal lands to be served and provide the required tribal government certifications. Licensees receiving a tribal lands bidding credit are subject to performance criteria as set forth in 47 CFR 1.2110(f)(3)(vi). 305. For additional information on the tribal lands bidding credit, including how the amount of the credit is calculated, applicants should review the Commission's rule making proceeding regarding tribal lands bidding credits and related public notices. Relevant documents can be viewed on the Commission's Web site by going to *http://wireless.fcc.gov/auctions* and clicking on the Tribal Land Credits link. G. Default and Disqualification 306. Any winning bidder that defaults or is disqualified after the close of the auction (i.e., fails to remit the required down payment within the prescribed period of time, fails to submit a timely long-form application, fails to make full payment, or is otherwise disqualified) will be subject to the payments described in 47 CFR 1.2104(g)(2). The payments include both a deficiency payment, equal to the difference between the amount of the bidder's bid and the amount of the winning bid the next time a license covering the same spectrum is won in an auction, plus an additional payment equal to a percentage of the defaulter's bid or of the subsequent winning bid, whichever is less. 307. Pursuant to recent modifications to the rule governing default payments, the percentage of the applicable bid to be assessed as an additional payment for defaults in a particular auction is established in advance of the auction. Accordingly, in the *700 MHz Auction Public Notice,* the Bureau proposed to set the additional default payment for the auction of 700 MHz Band licenses at fifteen percent of the applicable bid with respect to bids on licenses in Blocks A, B, D, and E, which are not subject to package bidding. For licenses in the C Block, because they are subject to package bidding, the additional default payment will be twenty-five percent as set forth in § 1.2104(g)(2)(ii). 308. The Commission will apportion package bids when regulatory calculations require individual license bid amounts by dividing the package bid amount among the licenses comprising the package in proportion to the final round CPEs for the licenses. Accordingly, in the event that a winning bidder defaults on a package bid for C Block licenses and the licenses subsequently are won individually or in a different combination, the Bureau will apportion the defaulted package bid for the C Block licenses based on the ratio of the bidding units for the relevant licenses to the bidding units for the entire package. 309. The Bureau adopted its proposal and sets the additional default payment for the auction of 700 MHz Band licenses at fifteen percent of the applicable bid for licenses in Blocks A, B, D, and E and at twenty-five percent of the applicable bid for Block C packages and licenses. 310. Finally, the Bureau notes that in the event of a default, the Commission may re-auction the license or offer it to the next highest bidder (in descending order) at its final bid amount. In addition, if a default or disqualification involves gross misconduct, misrepresentation, or bad faith by an applicant, the Commission may declare the applicant and its principals ineligible to bid in future auctions, and may take any other action that it deems necessary, including institution of proceedings to revoke any existing licenses held by the applicant. H. Refund of Remaining Upfront Payment Balance 311. The Commission received two sets of comments addressing the refund of upfront payments. One commenter urges that the Commission clarify that it will promptly refund upfront payments after the close of the initial auction, prior to Auction 76. It maintains that this would promote full participation in the auction. Another commenter advocates the adoption of procedures for the refund of upfront payments, and other deposits, after they are deposited in the Digital Television Transition and Public Safety Fund on June 30, 2008, pursuant to the DTV Act. The commenter argues that the lack of such procedures would discourage the participation of potential applicants. 312. The Commission concluded that Auction 73 and Auction 76 are a single auction event for purposes of the Commission's anti-collusion rule. Applicants in Auction 73 are prohibited from communicating bids or bidding strategies prior to the conclusion of Auction 76. Disclosing the activity of applicants in Auction 73 or Auction 76 by providing for refunds of upfront payments prior to the conclusion of Auction 76 would conflict with this conclusion. As a practical matter, the Bureau notes that applicants in any Commission auction must take into account the fact that the Commission's auctions are of indefinite duration. Thus, even if Auction 76 should not prove necessary, applicants cannot reasonably expect the return of funds by any specific date and therefore cannot reasonably require that funds be refunded immediately after the Commission announces that it will make alternative licenses available for Auction 76. Moreover, bidders in Auction 73 subject to any liabilities arising from Auction 73 may not have the extent of their liability determined prior to the close of Auction 76. For example a bidder that withdrew a provisionally winning bid in Auction 73 would be subject to a determination of the extent of its liability only after the conclusion of Auction 76. The Commission has never provided for refunds of upfront payments to such bidders. In the past, the Commission has provided for refunds of upfront payment to bidders that have no auction liabilities and no remaining bidding eligibility prior to the competition of an auction. Nevertheless, the Commission has not made any such refunds in auctions subject to anonymous bidding. For all of these reasons, the Bureau concluded that bidders reasonably should be required to maintain their upfront payments in Auction 73 and Auction 76 on deposit with the Commission until the conclusion of any contingent subsequent auction. 313. All upfront payments submitted by applicants in Auction 73 and all upfront payments submitted by Auction 73 qualified bidders in connection with Auction 76 may be available to be refunded after the conclusion of any contingent subsequent auction; subject to any required payments (i.e. winning bid, deficiency, withdrawal, and/or default payments). All refunds will be returned to the payer of record, as identified on the FCC Form 159, unless the payer submits written authorization instructing otherwise. 314. Bidders are encouraged to file their refund information electronically using the Refund Information icon found on the *Auction Application Manager* page or through the Wire Transfer for Refund Purposes link available in various locations throughout the FCC Auction System. If an applicant has completed the refund instructions electronically, the refund will be sent automatically. If an applicant has not completed the refund instructions electronically, the applicant may send a written request for the refund, including wire transfer instructions and FCC Registration Number
(FRN)by facsimile to the Auctions Accounting Group at
(202)418-2843 or by mail to: Federal Communications Commission, Financial Operations Center, Auctions Accounting Group, Gail Glasser, 445 12th Street, SW., Room 1-C864, Washington, DC 20554. Federal Communications Commission. Gary D. Michaels, Deputy Chief, Auctions and Spectrum Access Division, WTB. [FR Doc. E7-21528 Filed 11-1-07; 8:45 am] BILLING CODE 6712-01-P 117 72 212 Friday, November 2, 2007 Presidential Documents Part V The President Proclamation 8195—National Adoption Month, 2007 Proclamation 8196—National American Indian Heritage Month, 2007 Proclamation 8197—National Family Caregivers Month, 2007 Proclamation 8198—National Hospice Month, 2007 Proclamation 8199—Veterans Day, 2007 Title 3— The President Proclamation 8195 of October 31, 2007 National Adoption Month, 2007 By the President of the United States of America A Proclamation During National Adoption Month, we recognize the adoptive and foster families who have shared their homes and hearts with children in need, and we encourage more Americans to consider adopting young people of all ages. Families who adopt show the generous spirit of our Nation. Every child desires a permanent home, and when parents adopt a child to love as their own, lives are forever changed. For parents, the decision to adopt a child is among life's greatest and happiest turning points. On November 17, families across the country will celebrate National Adoption Day by finalizing their adoptions, and each one of these homes will be richer for the addition of new family members. My Administration is committed to promoting adoption of children of all ages. We are working to bring together more children with loving, adoptive parents through the Collaboration to AdoptUsKids at adoptuskids.org and by providing States with financial assistance through the Adoption Incentives Program. The Promoting Safe and Stable Families Program helps improve care and services to children and families and ensure more young people in America have a caring, secure, and permanent home. Together, these efforts are building a brighter future for our youth. During National Adoption Month, we honor adoptive and foster parents as they raise children of conviction and character. By accepting the gift of these children, parents are helping shape lives and contributing to the strength of our great Nation. NOW, THEREFORE, I, GEORGE W. BUSH, President of the United States of America, by virtue of the authority vested in me by the Constitution and laws of the United States, do hereby proclaim November 2007 as National Adoption Month. I call upon all Americans to observe this month with appropriate programs and activities to honor adoptive families and to participate in efforts to find permanent homes for waiting children. IN WITNESS WHEREOF, I have hereunto set my hand this thirty-first day of October, in the year of our Lord two thousand seven, and of the Independence of the United States of America the two hundred and thirty-second. GWBOLD.EPS [FR Doc. 07-5508 Filed 11-1-07; 9:38 am]
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30 references not yet in our index
- 49 CFR 385.5
- 49 CFR 385
- 42 USC 4321-4375
- 42 USC 7401-7671q
- 49 CFR 1.66
- 49 CFR 1150.41
- 49 CFR 1150.42(e)
- 49 CFR 1105.6(c)(2)(i)
- 49 CFR 1105.8(b)(1)
- 24 CFR 3285
- 12 CFR 363
- 17 CFR 240.10
- Pub. L. 106-102
- 113 Stat. 1338
- 12 CFR 308
- 15 USC 78(h)
- Pub. L. 104-134
- 12 CFR 350.3
- 12 CFR 350
- 12 CFR 563.43
- 40 CFR 52
- 40 CFR 97.102
- 40 CFR 2
- 40 CFR 9
- Pub. L. 104-113
- 47 CFR 1.2104(g)
- 47 CFR 1.913
- 47 CFR 1.2107
- 47 CFR 1.2110(f)(3)(vi)
- 47 CFR 1.2104(g)(2)
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