Federal Register Vol. 80, No.175,

On June 10, 2013, FSIS issued a proposed rule entitled “Descriptive Designation for Needle- or Blade-Tenderized (Mechanically Tenderized) Beef Products.” FR Doc. No. 2013-13669; 78 FR 34589-34604. Within the abstract of the Paperwork Reduction Act section of the preamble to the proposed rule (FR 34603), FSIS inadvertently included the phrase “that do not fall under a regulatory standard of identity” when characterizing which products would be subject to the rule.

When read as a whole, it is clear that this phrase within the Paperwork Reduction Act section of the preamble was made in error. In no other section of the preamble or in the proposed text of the rule did FSIS make such a statement. Additionally, the remainder of that section of the preamble, as well as the Information Collection Request that FSIS submitted to the Office of Management and Budget accounted for raw or partially cooked needle- or blade-tenderized beef products regardless of whether they fall under a regulatory standard of identity. Moreover, the final rule that FSIS published on May 18, 2015 (80 FR 28153), did not exempt any raw or partially cooked mechanically tenderized products that fall under a regulatory standard of identity from its provisions. FSIS is therefore correcting the clerical error in the proposed rule's Paperwork Reduction Act section.

No agency, officer, or employee of the USDA shall, on the grounds of race, color, national origin, religion, sex, gender identity, sexual orientation, disability, age, marital status, family/parental status, income derived from a public assistance program, or political beliefs, exclude from participation in, deny the benefits of, or subject to discrimination any person in the United States under any program or activity conducted by the USDA.

To file a complaint of discrimination, complete the USDA Program Discrimination Complaint Form, which may be accessed online at http://www.ocio.usda.gov/sites/default/files/docs/2012/Complain_combined_6_8_12.pdf, or write a letter signed by you or your authorized representative.

Send your completed complaint form or letter to USDA by mail, fax, or email:

Mail: U.S. Department of Agriculture, Director, Office of Adjudication, 1400 Independence Avenue SW., Washington, DC 20250-9410.

Fax: (202) 690-7442.

Email: [email protected].

Persons with disabilities who require alternative means for communication (Braille, large print, audiotape, etc.) should contact USDA's TARGET Center at (202) 720-2600 (voice and TDD).

Public awareness of all segments of rulemaking and policy development is important. Consequently, FSIS will announce it on-line through the FSIS Web page located at: http://www.fsis.usda.gov/federal-register.

FSIS also will make copies of this Federal Register publication available through the FSIS Constituent Update, which is used to provide information regarding FSIS policies, procedures, regulations, Federal Register notices, FSIS public meetings, and other types of information that could affect or would be of interest to our constituents and stakeholders. The Update is available on the FSIS Web page. Through the Web page, FSIS is able to provide information to a much broader, more diverse audience. In addition, FSIS offers an email subscription service which provides automatic and customized access to selected food safety news and information. This service is available at: http://www.fsis.usda.gov/subscribe. Options range from recalls to export information, regulations, directives, and notices. Customers can add or delete subscriptions themselves, and have the option to password-protect their accounts.

In the proposed rule, entitled Descriptive Designation for Needle- or Blade-Tenderized (Mechanically Tenderized) Beef Products (FR Doc. No. 2013-13669), beginning on page 34589 in the issue of Monday, June 10, 2013, make the following correction in the Paperwork Reduction Act section.

On page 34603, in the second column, remove “, that do not fall under a regulatory standard of identity.” and add a period after “solution”.

DOE will host public meetings and webinars on the below dates. Meetings will be hosted in room 8E-089 at DOE's Forrestal Building, unless otherwise stated.

The content of the public meetings will be limited to the items specified below:

• Proposed energy conservation standards for the two walk-in cooler and freezer equipment classes applicable to multiplex condensing refrigeration systems operating at medium and low temperatures and the four walk-in cooler and freezer equipment classes applicable to dedicated condensing refrigeration systems operating at low temperatures. See 10 CFR 431.306(e); and

• As part of the analysis considered underlying the proposed energy conservation standards mentioned, DOE will consider any comments (including any accompanying data) regarding the potential impacts of these six proposed standards on installers.

U.S. Department of Energy, Forrestal Building, 1000 Independence Avenue SW., Washington, DC 20585, Room 8E-089. Individuals will also have the opportunity to participate by webinar. To register for the webinar and receive call-in information, please register https://www1.eere.energy.gov/buildings/appliance_standards/rulemaking.aspx/ruleid/30.

Members of the public are welcome to observe the business of the meeting and, if time allows, may make oral statements during the specified period for public comment. To attend the meeting and/or to make oral statements regarding any of the items on the agenda, email [email protected] . In the email, please indicate your name, organization (if appropriate), citizenship, and contact information. Please note that foreign nationals participating in the public meeting are subject to advance security screening procedures which require advance notice prior to attendance at the public meeting. If a foreign national wishes to participate in the public meeting, please inform DOE as soon as possible by contacting Ms. Regina Washington at (202) 586-1214 or by email: [email protected] so that the necessary procedures can be completed. Anyone attending the meeting will be required to present a government photo identification, such as a passport, driver's license, or government identification. Due to the required security screening upon entry, individuals attending should arrive early to allow for the extra time needed.

Due to the REAL ID Act implemented by the Department of Homeland Security (DHS) recent changes have been made regarding ID requirements for individuals wishing to enter Federal buildings from specific states and U.S. territories. Driver's licenses from the following states or territory will not be accepted for building entry and one of the alternate forms of ID listed below will be required.

DHS has determined that regular driver's licenses (and ID cards) from the following jurisdictions are not acceptable for entry into DOE facilities: Alaska, Louisiana, New York, American Samoa, Maine, Oklahoma, Arizona, Massachusetts, Washington, and Minnesota.

Acceptable alternate forms of Photo-ID include: U.S. Passport or Passport Card; an Enhanced Driver's License or Enhanced ID-Card issued by the states of Minnesota, New York or Washington (Enhanced licenses issued by these states are clearly marked Enhanced or Enhanced Driver's License); A military ID or other Federal government issued Photo-ID card.

Docket: The docket is available for review at www.regulations.gov, including Federal Register notices, public meeting attendee lists and transcripts, comments, and other supporting documents/materials. All documents in the docket are listed in the www.regulations.gov index. However, not all documents listed in the index may be publicly available, such as information that is exempt from public disclosure.

DOE will host public meetings and webinars on the below dates from 9:00 a.m. to 5:00 p.m. Meetings will be hosted at DOE's Forrestal Building, Room 8E-089, unless otherwise stated.

The purpose of the September 10, 2015 meeting will be to discuss the content included in the proposed 10 CFR part 430, subpart B, App M1 and can be viewed here: http://energy.gov/eere/buildings/downloads/issuance-2015-08-21-energy-conservation-program-test-procedures-central-a-0.

U.S. Department of Energy, Forrestal Building, 1000 Independence Avenue SW., Washington, DC 20585, Room 8E-089. Individuals will also have the opportunity to participate by webinar. To register for the webinar and receive call-in information, please register https://www1.eere.energy.gov/buildings/appliance_standards/rulemaking.aspx/ruleid/72.

Members of the public are welcome to observe the business of the meeting and, if time allows, may make oral statements during the specified period for public comment. To attend the meeting and/or to make oral statements regarding any of the items on the agenda, email [email protected] . In the email, please indicate your name, organization (if appropriate), citizenship, and contact information. Please note that foreign nationals participating in the public meeting are subject to advance security screening procedures which require advance notice prior to attendance at the public meeting. If a foreign national wishes to participate in the public meeting, please inform DOE as soon as possible by contacting Ms. Regina Washington at (202) 586-1214 or by email: [email protected] so that the necessary procedures can be completed. Anyone attending the meeting will be required to present a government photo identification, such as a passport, driver's license, or government identification. Due to the required security screening upon entry, individuals attending should arrive early to allow for the extra time needed.

Due to the REAL ID Act implemented by the Department of Homeland Security (DHS) recent changes have been made regarding ID requirements for individuals wishing to enter Federal buildings from specific states and U.S. territories. Driver's licenses from the following states or territory will not be accepted for building entry and one of the alternate forms of ID listed below will be required.

DHS has determined that regular driver's licenses (and ID cards) from the following jurisdictions are not acceptable for entry into DOE facilities: Alaska, Louisiana, New York, American Samoa, Maine, Oklahoma, Arizona, Massachusetts, Washington, and Minnesota.

Acceptable alternate forms of Photo-ID include: U.S. Passport or Passport Card; an Enhanced Driver's License or Enhanced ID-Card issued by the states of Minnesota, New York or Washington (Enhanced licenses issued by these states are clearly marked Enhanced or Enhanced Driver's License); A military ID or other Federal government issued Photo-ID card.

Docket: The docket is available for review at www.regulations.gov, including Federal Register notices, public meeting attendee lists and transcripts, comments, and other supporting documents/materials. All documents in the docket are listed in the www.regulations.gov index. However, not all documents listed in the index may be publicly available, such as information that is exempt from public disclosure.

The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the United States Code. Subtitle I, Section 106 describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority. This rulemaking is promulgated under the authority described in Subtitile VII, Part A, Subpart I, Section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of the airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it would establish restricted airspace at Wallops Island, VA, to contain activities deemed hazardous to nonparticipating aircraft.

Interested parties are invited to participate in this proposed rulemaking by submitting such written data, views, or arguments as they may desire. Comments that provide the factual basis supporting the views and suggestions presented are particularly helpful in developing reasoned regulatory decisions on the proposal. Comments are specifically invited on the overall regulatory, aeronautical, economic, environmental, and energy-related aspects of the proposal.

Communications should identify both docket numbers (FAA Docket No. FAA-2015-2776 and Airspace Docket No. 15-AEA-5) and be submitted in triplicate to the Docket Management System (see ADDRESSES section for address and phone number). You may also submit comments through the Internet at http://www.regulations.gov.

Persons wishing the FAA to acknowledge receipt of their comments on this action must submit with those comments a self-addressed, stamped postcard on which the following statement is made: “Comments to FAA Docket No. FAA-2015-2776 and Airspace Docket No. 15-AEA-5.” The postcard will be date/time stamped and returned to the commenter.

All communications received on or before the specified closing date for comments will be considered before taking action on the proposed rule. The proposal contained in this action may be changed in light of comments received. All comments submitted will be available for examination in the public docket both before and after the closing date for comments. A report summarizing each substantive public contact with FAA personnel concerned with this rulemaking will be filed in the docket.

An electronic copy of this document may be downloaded through the Internet at http://www.regulations.gov.

You may review the public docket containing the proposal, any comments received and any final disposition in person at the Dockets Office (see ADDRESSES section for address and phone number) between 9:00 a.m. and 5:00 p.m., Monday through Friday, except Federal holidays. An informal docket may also be examined during normal business hours at the office of the Operations Support Group, Eastern Service Center, Federal Aviation Administration, 1701 Columbia Ave., College Park, GA 30337.

Persons interested in being placed on a mailing list for future NPRMs should contact the FAA's Office of Rulemaking, (202) 267-9677, for a copy of Advisory Circular No. 11-2A, Notice of Proposed Rulemaking Distribution System, which describes the application procedure.

The FAA is proposing an amendment to 14 CFR part 73 to establish three new restricted areas, designated R-6604C, R-6604D and R-6604E, at the NASA Wallops Island Flight Facility in Virginia. The new areas would abut the existing restricted areas (R-6604A and R-6604B) and be used to contain a wide variety of test activities deemed to pose a hazard to nonparticipating aircraft. These activities include, but are not limited to, high-risk test profiles by heavily modified test aircraft, testing of emitters that could induce harmful electromagnetic interference effects on nonparticipating aircraft, non-eye-safe laser firings, and external stores separation testing. The following is a general description of the proposed areas.

R-6604C would overlie the Wallops Flight Facility airfield and would be contained entirely within the Wallops Flight Facility property boundary. It would extend from the surface up to 3,500 feet mean sea level (MSL).

R-6604D would extend from 100 feet above ground level (AGL) up to 3,500 feet MSL. It would be located between the western boundary of R-6604B and VOR Federal airway V-139 and would also extend approximately 15 NM to the northeast of the R-6604A/R-6604B northern boundary.

R-6604E would extend from 700 feet AGL up to 3,500 feet MSL. It would be located between the western boundaries of R-6604A and R-6604B and VOR Federal airway V-139.

All 3 of the proposed new areas would be activated by the issuance of a Notice to Airmen (NOTAM). Specific times of designation were not proposed for R-6604C, D and E due to the variable nature of test programs.

In addition to the above, 2 points in the boundary of R-6604A that intersect a line 3 NM from the shoreline of the U.S. shoreline would be adjusted to reflect NOAA's updated calculation of the U.S. shoreline.

The configuration of the proposed restricted areas was designed to allow for activation of only that portion of the complex required for the specific test profile being conducted. As is the current practice with R-6604A and R-6604B, when the proposed restricted areas are not required by the using agency, the airspace would be returned to the controlling agency for access by other aviation users.

Note that the existing areas (R-6604A and R-6604B) will continue to be used, as in the past, for missile and rocket launches, aircraft systems development, expendable launch vehicles, lasers, RPV, and other test programs.

Color charts showing the location of the proposed restricted areas will be posted on the internet at http://www.regulations.gov. Search docket no. FAA-2015-2776 to view the charts.

The FAA has determined that this proposed regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. Therefore, this proposed regulation: (1) Is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under Department of Transportation (DOT) Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal.

Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this proposed rule, when promulgated, will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

This proposal will be subjected to an environmental analysis in accordance with FAA Order 1050.1E, “Environmental Impacts: Policies and Procedures,” prior to any FAA final regulatory action.

In consideration of the foregoing, the Federal Aviation Administration proposes to amend 14 CFR part 73 as follows:

In the Federal Register of March 3, 2014 (79 FR 11879), we published a proposed rule that would amend our labeling regulations for conventional foods and dietary supplements to provide updated nutrition information. More recently, in the Federal Register of July 27, 2015 (80 FR 44302), we reopened the comment period through September 25, 2015, for the proposed rule for the sole purpose of inviting public comments on two consumer studies being added to the administrative record. The consumer studies pertained to proposed changes to the Nutrition Facts label formats. We also issued a supplemental proposed rule (80 FR 44303) with a comment period through October 13, 2015. The supplemental proposal included two additional consumer studies pertaining to the declaration of added sugars and alternative footnote statements. We proposed text for the footnotes to be used on the Nutrition Facts label, after completing our consumer research in which we tested various footnote text options for the label, and to establish a Daily Reference Value of 10 percent of total energy intake from added sugars. The supplemental proposal also would require the declaration of the percent Daily Value for added sugars on the label and provide an additional rationale for the declaration of added sugars on the label. We explained that we were taking these actions based, in part, on the science underlying a new report released by the 2015 Dietary Guidelines Advisory Committee.

We have received some comments suggesting we are not eliciting comment on the consumer studies in the supplemental proposal published in July 2015. We clarify in this notice that: (1) The consumer studies on the added sugars declaration and the alternative footnote statements in the supplemental proposal relate to topics on which we sought comment and (2) the consumer studies on the format published in a separate notice in July 2015 were included for comment, and were placed in the docket at that time. We are now responding to additional requests for the raw data for each of these consumer studies that are relevant to the summary memoranda for the studies, also now available for comment.

We are updating the docket for the rulemaking with two additional documents: A request from the Grocery Manufacturers Association for the raw data associated with the four consumer studies described in this document, and our response to that request indicating that we will provide the raw data underlying the four consumer studies to anyone who submits a request to [email protected].

These documents may be seen by interested persons at the Division of Dockets Management, Food and Drug Administration, 5630 Fishers Lane, Rm. 1061, Rockville, MD 20852, between 9 a.m. and 4 p.m., Monday through Friday, and are available electronically at http://www.regulations.gov.

In addition, we are extending to October 13, 2015, the comment period on the two consumer studies pertaining to proposed changes to the Nutrition Facts label formats, which had been scheduled to close on September 25, 2015, to align the comment periods for all consumer studies.

We will continue to take comment on the supplemental proposed rule, including taking comment on the consumer studies on added sugars and the footnote, until October 13, 2015.

The collections of information contained in this notice of proposed rulemaking have been submitted to the Office of Management and Budget for review in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)). Comments on the collection of information should be sent to the Office of Management and Budget, Attn: Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503, and to Clearance Officer, SE:CAR:MP:T:T:SP, Washington, DC 20224. Comments on the collection of information should be received by November 9, 2015. Comments are specifically requested concerning:

Whether the proposed collections of information are necessary for the proper performance of IRS functions, including whether the information will have practical utility;

The accuracy of the estimated burden associated with the proposed collections of information;

How the quality, utility, and clarity of the information to be collected may be enhanced;

How the burden of complying with the proposed collections of information may be minimized, including through the application of automated collection techniques or other forms of information technology; and

Estimates of capital or start-up costs of operation, maintenance, and purchase of services to provide information.

The collections of information in these proposed regulations are in §§ 28.2801-4(e), 28.2801-5(d), 28.6001-1, and 28.6011-1. The collection of information requirement in proposed regulation § 28.2801-4(e) is required in order for the IRS to verify that the U.S. person who received a covered gift or covered bequest is entitled to a reduction in the section 2801 tax for certain foreign taxes paid on the transfer and, if so, the amount of such reduction. The collection of information is mandatory to obtain a benefit. The likely respondents are individuals, domestic trusts, and foreign trusts electing to be treated as domestic trusts.

The collection of information in § 28.2801-5(d) is required to notify the IRS and the U.S. persons who are beneficiaries of a foreign trust that the trust is electing to be treated as a domestic trust for purposes of section 2801. It is also required for the IRS to verify the proper amount of section 2801 tax due and to notify the beneficiaries who are U.S. citizens or residents in the event the election terminates. This alerts the IRS and the U.S. citizens and residents who are beneficiaries that the trust will be liable for payment of the section 2801 tax while the election is in effect, but that the U.S. beneficiaries will be liable for the tax if and when the election terminates. This collection of information is necessary for the proper performance of IRS functions in the collection of the section 2801 tax. This collection of information is mandatory to obtain a benefit. The likely respondents are the trustees of foreign trusts.

The collection of information in § 28.6001-1 is required for the IRS to verify the books and records pertaining to covered gifts and covered bequests and for the proper performance of IRS functions in the collection of the section 2801 tax. It is also required to verify the receipt of covered gifts and covered bequests by U.S. persons and the value of such gifts and bequests. This collection of information is mandatory. The likely respondents are individuals and trustees of trusts.

The collection of information in § 28.6011-1 is required for the IRS to verify the receipt of a covered gift or covered bequest and other information relevant to the tax imposed under section 2801. This collection of information is necessary for the proper performance of IRS functions in the collection of the section 2801 tax. This collection of information is mandatory. The likely respondents are individuals and trustees of trusts.

Estimated total annual reporting burden: 7,000 hours.

Estimated average annual burden hours per respondent: 1 hour to prepare and attach documentation to Form 708, “U.S. Return of Gifts or Bequests from Covered Expatriates,” for the reduction of tax for foreign taxes paid; 2 hours for a trustee of an electing foreign trust to make the election and notify the beneficiaries; 1 hour for the trustee of the foreign trust to prepare annual certifications; 1 hour to notify the U.S. persons who are beneficiaries of the trust that the election is terminated; and, 2 hours to prepare taxpayer records and the Form 708 to report the section 2801 tax.

Estimated number of respondents: 1,000.

Estimated annual frequency of responses: Annually or less.

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number assigned by the Office of Management and Budget.

Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103.

Section 301 of the Heroes Earnings Assistance and Relief Tax Act of 2008, Public Law 110-245 (122 Stat. 1624) (the HEART Act), added new section 877A to subtitle A of the Internal Revenue Code (Code), and new chapter 15 and new section 2801 to subtitle B, effective June 17, 2008. Prior to the addition of chapter 15, subtitle B contained chapters 11 through 14 relating to the estate tax, the gift tax, the generation-skipping transfer tax, and special valuation rules for purposes of subtitle B. New chapter 15 consists solely of section 2801.

Prior to the enactment of the HEART Act, citizens and long-term residents of the United States who expatriated to avoid U.S. taxes were subject to an alternative regime of U.S. income, estate, and gift taxes under sections 877, 2107, and 2501, respectively, for a period of 10 years following expatriation. Recognizing that citizens and residents of the United States generally are subject to estate tax on their world-wide assets at the time of death, Congress determined that it was appropriate, in the interests of tax equity, to impose a tax on U.S. citizens or residents who receive, from an expatriate, a transfer that would otherwise have escaped U.S. estate and/or gift taxes as a consequence of expatriation.

In an explanation of an earlier bill also proposing enactment of new chapter 15 and section 2801, the Report of the House Ways and Means Committee states that citizens and long-term residents of the United States have a right to physically leave the United States and relinquish their citizenship or terminate their residency. See H.R. Rep. No. 110-431 (2007). The Report states that the Committee believed that the Code should not be used to discourage individuals from relinquishing citizenship or terminating residency. At the same time, however, the Report states that the Code should not reward individuals who leave the United States. The Report concludes that an individual's decision to relinquish citizenship or terminate long-term residency should not affect the total amount of taxes imposed (that is, it should be “tax neutral”). The Report further states that, where U.S. estate or gift taxes are avoided with respect to a transfer of property to a U.S. person by reason of the expatriation of the donor, it is appropriate for the recipient to be subject to a tax similar to the donor's avoided transfer taxes.

With the enactment of sections 877A and 2801, sections 877 and 2107 apply only to individuals who relinquished United States citizenship or ceased to be lawful permanent residents prior to June 17, 2008. Section 2501 generally continues to apply to any individual, resident or nonresident, including individuals who expatriate, whether or not on or after June 17, 2008. Section 2501(a)(3) and (a)(5), however, provides special rules for expatriates subject to section 877(b), which are not applicable to individuals who expatriate on or after June 17, 2008.

Section 2801 imposes a tax (section 2801 tax) on covered gifts and covered bequests received by a citizen or resident of the United States (U.S. citizen or resident) from a covered expatriate. The section 2801 tax applies with regard to any property transferred to a U.S. citizen or resident which qualifies as a covered gift or covered bequest under section 2801, regardless of whether the property transferred was acquired by the donor or decedent covered expatriate before or after expatriation.

The value of a covered gift or covered bequest is its fair market value at the time the gift or bequest is received by the U.S. citizen or resident. A U.S. citizen or resident receiving a covered gift or covered bequest (U.S. recipient) is liable for payment of the section 2801 tax imposed under this chapter. A domestic trust that receives a covered gift or covered bequest is treated as a U.S. citizen and therefore is liable for payment of the section 2801 tax. A foreign trust may elect to be treated as a domestic trust (an electing foreign trust) for this purpose; absent this election, the trust's U.S. citizen or resident beneficiaries will be taxed as distributions are made from the trust (a non-electing foreign trust).

On July 20, 2009, the Treasury Department and the IRS issued Announcement 2009-57, 2009-29 I.R.B. 158. Announcement 2009-57 put taxpayers on notice that any covered gift or covered bequest received on or after June 17, 2008, is subject to the imposition of the section 2801 tax. Announcement 2009-57 states that the IRS intends to issue guidance under section 2801 and that the due date for reporting, filing, and payment of the tax imposed under section 2801 will be included in the guidance. The announcement further provides that the guidance the IRS intends to issue will provide a reasonable period of time between the date of issuance of the guidance and the date prescribed for the filing of the return and the payment of the tax.

On October 15, 2009, the Treasury Department and the IRS released Notice 2009-85, 2009-45 I.R.B. 598. Notice 2009-85 generally provides guidance for individuals who are subject to section 877A (added to the Code together with section 2801). With respect to gifts and bequests, section 9 of Notice 2009-85 provides that gifts or bequests from a covered expatriate on or after June 17, 2008, are subject to a transfer tax under new section 2801. Section 9 of Notice 2009-85 further provides that satisfaction of the reporting and tax obligations under section 2801 for covered gifts or covered bequests received on or after June 17, 2008, is deferred pending the issuance of separate guidance by the IRS.

The proposed regulations amend title 26 of the Code of Federal Regulations by adding part 28 (Imposition of Tax on Gifts and Bequests from Covered Expatriates) under new section 2801 of the Code. The proposed regulations are divided into seven sections.

Section 28.2801-1 of the proposed regulations sets forth the general rules of liability for the tax imposed by section 2801(a). Section 2801 imposes a tax on United States citizens or residents who receive, directly or indirectly, covered gifts or covered bequests (including distributions from foreign trusts attributable to covered gifts and covered bequests) from a covered expatriate. For purposes of section 2801, domestic trusts and foreign trusts electing to be treated as domestic trusts are treated in the same manner as U.S. citizens.

Section 28.2801-2 of the proposed regulations defines terms for purposes of new chapter 15. The proposed regulations define the term “citizen or resident of the United States” as an individual who is a citizen or resident of the United States under the estate and gift tax rules of chapter 11 and chapter 12, respectively, in subtitle B of the Code. Accordingly, whether an individual is a “resident” is based on domicile in the United States, notwithstanding that section 877A adopts the income tax definition of that term. The Treasury Department and the IRS believe that, because section 2801 imposes a tax subject to subtitle B, the tax definition of resident under subtitle B generally should apply for purposes of section 2801. See §§ 20.0-1(b)(1) and 25.2501-1(b).

The proposed regulations generally define the term “covered gift” by reference to the definition of gift for purposes of chapter 12 of subtitle B. The proposed regulations define the term “covered bequest” as any property acquired directly or indirectly because of the death of a covered expatriate. Such property generally is property that would have been includible in the gross estate of the covered expatriate under chapter 11 of subtitle B, had the covered expatriate been a U.S. citizen or resident at the time of death.

Section 2801 defines “covered expatriate” by reference to the section 877A(g)(1) definition of that term. Section 877A(g)(1) generally provides that an individual who expatriates on or after June 17, 2008, is a covered expatriate if, on the expatriation date, (1) the individual's average annual net income tax liability is greater than $124,000 (indexed for inflation) for the previous five taxable years, (2) the individual's net worth is at least $2,000,000 (not indexed), or (3) the individual fails to certify under penalty of perjury that he or she has complied with all U.S. tax obligations for the five preceding taxable years. See section 877A(g)(1); Notice 2009-85, 2009-45 I.R.B. 598. The proposed regulations provide that, if an expatriate meets the definition of a covered expatriate, the expatriate is considered a covered expatriate for purposes of section 2801 at all times after the expatriation date, except during any period beginning after the expatriation date during which such individual is subject to United States estate or gift tax as a U.S. citizen or resident.

Additionally, the proposed regulations define for purposes of section 2801 the terms “domestic trust,” “foreign trust,” “electing foreign trust,” “U.S. recipient,” “power of appointment,” and “indirect acquisition of property.”

Section 28.2801-3 addresses the rules in section 2801(e) and includes rules and several exceptions applicable to the definitions of covered gift and covered bequest. Exceptions include taxable gifts reported on a covered expatriate's timely filed gift tax return, and property included in the covered expatriate's gross estate and reported on such expatriate's timely filed estate tax return, provided that the gift or estate tax due is timely paid. Qualified disclaimers of property made by a covered expatriate are excepted from the definitions of a covered gift and covered bequest. In addition, charitable donations that would qualify for the estate or gift tax charitable deduction are excepted from the terms “covered gift” and “covered bequest.”

Section 28.2801-3(c)(4) provides that a gift or bequest to a covered expatriate's U.S. citizen spouse is excepted from the terms “covered gift” and “covered bequest” if the gift or bequest, if given by a U.S. citizen or resident, would qualify for the gift or estate tax marital deduction. In the case of a gift or bequest in trust, this means that, to the extent the gift or bequest to the trust (or to a separate share of the trust) would qualify for the estate or gift tax marital deduction, the gift or bequest is not a covered gift or covered bequest. A gift or bequest of a partial or terminable interest in property that a covered expatriate makes to his or her spouse is excepted from the definitions of a covered gift and covered bequest only to the extent that such gift or bequest is qualified terminable interest property (QTIP), as defined in section 2523(f) or section 2056(b)(7), and a valid QTIP election is made. To the extent a covered gift or covered bequest is made to a non-electing foreign trust (or to a separate share of such a trust), a distribution from the trust (or from the separate share of the trust) to the U.S. citizen spouse of the covered expatriate who funded the trust (whether in whole or in part) will not qualify for the exception. Note that gifts and bequests made by a covered expatriate to his or her noncitizen spouse are subject to an annual limit under section 2523(i). Furthermore, a bequest from a covered expatriate to his or her noncitizen surviving spouse who is a U.S. resident is not a covered bequest to the extent the bequest is made to a qualified domestic trust (QDOT) that satisfies the requirements of section 2056A and the corresponding regulations, and for which a valid QDOT election is made.

Section 28.2801-3(d) provides rules to implement section 2801(e)(4) regarding covered gifts and covered bequests made in trust, including transfers of property in trust that are subject to a general power of appointment granted by the covered expatriate. In identifying the recipient of such covered gifts and covered bequests made in trust, the proposed regulations do not adopt the gift tax rule of treating the trust beneficiary or holder of an immediate right to withdraw the property as the recipient of that property. Instead, for purposes of section 2801, the proposed regulations treat transfers in trust that constitute covered gifts and covered bequests as transfers to the trust, to be taxed under the rules in section 2801(e)(4). Specifically, the proposed regulations provide that, if a covered expatriate makes a transfer in trust and such transfer is a covered gift or covered bequest, the transfer is treated as a covered gift or covered bequest to the trust, without regard to the beneficial interests in the trust or whether any person has a general power of appointment or a power of withdrawal over trust property. Under section 2801(e)(4), the transfer to the trust will be taxed either to the trust receiving the covered gift or covered bequest, in the case of a domestic trust or electing foreign trust, or to the U.S. beneficiaries or distributees of a non-electing foreign trust as trust distributions are made.

Section 28.2801-3(e) provides two rules addressing covered gifts and covered bequests arising from powers of appointment. First, consistent with the rules in chapters 11 and 12, the proposed regulations confirm that the exercise, release, or lapse of a covered expatriate's general power of appointment for the benefit of a U.S. citizen or resident is a covered gift or covered bequest. Second, the proposed regulations provide that a covered expatriate's grant of a general power of appointment over property not held in trust is a covered gift or covered bequest to the powerholder as soon as both the power is exercisable and the transfer of the property subject to the power is irrevocable. See also § 28.2801-4(d)(5)(ii). The preceding sentence applies only for purposes of section 2801, and should not be interpreted as having any impact on the determination of whether the grant of a general power of appointment over property not in trust is a completed gift for Federal gift tax purposes, which is a question to be resolved under chapter 12 without regard to this provision.

Section 28.2801-4 provides specific rules regarding who is liable for the payment of the section 2801 tax. Generally, the U.S. citizen or resident who receives the covered gift or covered bequest is liable. Similarly, the proposed regulations provide rules explaining that a domestic trust that receives a covered gift or covered bequest is treated as a U.S. citizen and thus is liable for payment of the section 2801 tax imposed under this section. An electing foreign trust also is treated as a U.S. citizen. See §§ 28.2801-2(b) and 28.2801-5(d). However, a non-electing foreign trust is not liable for the section 2801 tax. Instead, a U.S. citizen or resident who receives a distribution from a non-electing foreign trust is liable for the section 2801 tax on the receipt of that distribution to the extent the distribution is attributable to covered gifts or covered bequests to that trust. Under section 2801(e)(4)(B)(ii), that U.S. citizen or resident may be entitled to a limited deduction under section 164 against income tax for the section 2801 tax paid on the distribution. The deduction is limited to the extent that the section 2801 tax is imposed on that portion of the distribution that is reported in the gross income of the U.S. citizen or resident. Section 28.2801-4(a)(3)(ii) of the proposed regulations describes how to compute that deduction.

Section 28.2801-4(a)(2)(ii) of the proposed regulations provides that, in the case of a domestic trust or an electing foreign trust, the trust's payment of the section 2801 tax for which the trust is liable does not result in a taxable distribution under section 2621 of the Code to any beneficiary of the trust for generation-skipping transfer (GST) tax purposes. This provision is consistent with the GST tax consequences of a trust's payment of tax, which differ depending upon whether the trust or the trust beneficiary is liable for the tax being paid.

Section 28.2801-4(a)(2)(iv) provides a special rule for certain non-electing foreign trusts that become domestic trusts (migrated foreign trusts). A migrated foreign trust will be treated solely for purposes of section 2801 as a domestic trust for the entire year during which the change from foreign trust to domestic trust occurred. The trust must file a timely Form 708 for the year in which the trust becomes a domestic trust and must report and pay the section 2801 tax on all covered gifts and covered bequests received by the trust during the year it becomes a domestic trust as well as on the portion of the trust's value attributable to any covered gifts and covered bequests received by the trust prior to the year in which it becomes a domestic trust determined as of December 31 of the year prior to the year it becomes a domestic trust.

Section 28.2801-4(a)(2)(iii) of the proposed regulations provides rules for charitable remainder trusts (CRTs), as defined in section 664, contributions to which are made by covered expatriates for the benefit of one or more charitable organizations described in section 170(c) and a U.S. citizen or resident other than such a charitable organization (non-charitable U.S. citizen or resident). Section 2801(e)(3) indicates that the value of the charitable organization's remainder interest in a CRT is excluded from the definition of a covered gift or covered bequest. The value of the interest of the non-charitable U.S. citizen or resident in such contributions to the CRT is a covered gift or covered bequest, unless otherwise excluded.

Under section 664, a CRT must be a domestic trust. Accordingly, when a covered expatriate contributes a covered gift or covered bequest to a CRT, the CRT is liable for the payment of the section 2801 tax attributable to the value of the non-charitable U.S. person's interest in the trust. Section 664(d)(1)(B) and (d)(2)(B) and § 1.664-3(a)(4) of the Income Tax Regulations provide that no amount other than the annuity or unitrust amount may be paid “to or for the use of any person other than an organization described under section 170(c).” This rule has been applied in Revenue Ruling 82-128 (1982-2 CB 71) to disqualify a trust as a CRT if the trust could be required to pay estate taxes by reason of the applicable state apportionment statute. Thus, if the CRT's liability for payment of section 2801 tax attributable to the non-charitable recipient's interest in the CRT were to be deemed comparable to the CRT's liability for payment of estate tax, the CRT would not qualify as a CRT under section 664.

A CRT's liability for payment of the section 2801 tax is distinguishable from a CRT's liability for payment of estate tax because the section 2801 tax is imposed expressly on the CRT under a federal tax statute, section 2801(e)(4)(A). In addition, the section 2801 tax is imposed on the CRT as a primary obligation of the CRT, rather than an obligation imposed on the CRT for the payment of a liability belonging to or attributable to another taxpayer. Accordingly, a CRT's payment of the section 2801 tax on the portion of each transfer to the CRT that is a covered gift or covered bequest is not a distribution to or for the use of any person within the meaning of section 664(d)(1)(B) and (d)(2)(B), and the CRT's liability for such a payment will not cause the trust to be disqualified as a CRT defined in section 664. The proposed regulations confirm that the charitable remainder interest's share of each transfer to the CRT is not a covered gift or covered bequest and provide the method for computing the net covered gifts and covered bequests that are taxable to the CRT under section 2801.

Section 28.2801-4 of the proposed regulations also provides guidance on how to compute the section 2801 tax. Generally, the section 2801 tax is determined by reducing the total amount of covered gifts and covered bequests received during the calendar year by the section 2801(c) amount, which is the dollar amount of the per-donee exclusion in effect under section 2503(b) for that calendar year ($14,000 in 2015), and then multiplying the net amount by the highest estate or gift tax rate in effect during that calendar year. The reference to section 2503(b) in section 2801 is included solely to provide a dollar amount by which to decrease the U.S. recipient's aggregate covered gifts and covered bequests received during that calendar year to determine the amount subject to the section 2801 tax; section 2801 does not incorporate the substantive rule of section 2503(b) that applies to donors of gifts under chapter 12. The resulting tax then is reduced by any estate or gift tax paid to a foreign country with regard to those transfers. See § 28.2801-4(e).

The value of a covered gift or covered bequest is the fair market value of the property on the date of its receipt by the U.S. citizen or resident. Section 28.2801-4(c) provides that the value of a covered gift is determined by applying the federal gift tax valuation principles under section 2512 and chapter 14 and the corresponding regulations. Similarly, the value of a covered bequest is determined by applying the federal estate tax valuation principles under section 2031 and chapter 14 and the corresponding regulations, but without regard to sections 2032 and 2032A.

The proposed regulations identify the date of the receipt of a covered gift or covered bequest by a U.S. citizen or resident. See § 28.2801-4(d). In general, a covered gift is received on the same date it is given for purposes of chapter 12. In general, a covered bequest is received on the date the property is distributed from the estate or the covered expatriate's revocable trust. However, in the case of property that passes by operation of law or beneficiary designation upon the covered expatriate's death, the date of receipt is the date of death. The proposed regulations provide more detail with regard to the determination of the date of receipt of covered gifts and covered bequests received from a non-electing foreign trust, those received pursuant to powers of appointment, and those received indirectly.

Section 28.2801-5 of the proposed regulations provides guidance on the treatment of foreign trusts under section 2801. If a covered gift or covered bequest is made to a foreign trust, the section 2801 tax applies to any distribution from that trust, whether of income or corpus, to a recipient that is a U.S. citizen or resident, unless the foreign trust elects to be treated as a domestic trust for purposes of section 2801. The proposed regulations define the term “distribution” broadly to include any direct, indirect, or constructive transfer from a foreign trust, including each disbursement from such a trust pursuant to the exercise, release, or lapse of a power of appointment.

The section 2801 tax applies only to the portion of a distribution from a non-electing foreign trust that is attributable to covered gifts and covered bequests contributed to the foreign trust. Section 28.2801-5(c) of the proposed regulations provides that the amount of the distribution attributable to covered gifts and covered bequests is determined by multiplying the total distribution by a ratio, as in effect at the time of the distribution, that is redetermined after each contribution to the trust. The proposed regulations explain how to compute that ratio and provide that each distribution from the foreign trust is considered to be made proportionally from the covered and non-covered portions of the trust, without any tracing with regard to particular assets. One effect of this rule is that the portion of a distribution from a foreign trust that is attributable to covered gifts and covered bequests contributed to the foreign trust includes the ratable portion of any appreciation and income that has accrued on the foreign trust's assets since the contribution of the covered gifts and covered bequests to the foreign trust.

Section 2801(e)(4)(B)(iii) provides that, solely for purposes of section 2801, a foreign trust may elect to be treated as a domestic trust. Consequently, the section 2801 tax is imposed on the electing foreign trust when it receives covered gifts and covered bequests, rather than on the U.S. trust beneficiaries when distributions are made from the trust. The election may be made for a calendar year whether or not the foreign trust received a covered gift or covered bequest during that calendar year. Section 28.2801-5(d)(3) of the proposed regulations provides guidance on the time and manner of making the election. In order for an election to be valid, the trustee of the foreign trust must satisfy several requirements. The trustee must make the election on a timely filed Form 708 and, if tax is due, timely pay the section 2801 tax (as computed under § 28.2801-5(d)(3)(iii)) by the due date of the Form 708 for that year and include a computation of how the applicable ratio and tax liability were calculated. Further, the trustee must designate and authorize a U.S. agent for purposes of section 2801, and must agree to file annually a Form 708 either to certify that no covered gifts or covered bequests were received by the foreign trust during the calendar year, or to report and, if tax is due, pay the section 2801 tax on covered gifts and covered bequests received by the foreign trust during the calendar year. The trustee also must report the portion of the trust attributable to covered gifts and covered bequests and all distributions attributable to covered gifts and covered bequests made to U.S. recipients in years prior to the year of the election. Finally, the trustee must notify the permissible U.S. distributees of the trust that the trustee is making the election to be treated as a domestic trust for purposes of section 2801.

Under § 28.2801-5(d)(3)(iii), an electing foreign trust that received covered gifts or covered bequests in prior calendar years when the election to be treated as a domestic trust was not in effect also must pay the section 2801 tax liability for all prior calendar years at the time the election is made on Form 708. Such liability is based on the fair market value of the trust attributable to covered gifts and covered bequests as of the last day of the calendar year immediately preceding the year for which the election is made, using the ratio calculated and then in effect under § 28.2801-5(c). If the trustee is unable to determine the portion of the trust attributable to covered gifts and covered bequests, then the fair market value of the entire trust as of the last day of the calendar year immediately preceding the year for which the election is made is subject to the section 2801 tax.

A valid election to be treated as a domestic trust is effective as of the beginning of the calendar year for which the Form 708 is filed. The effect of a valid election is that, as of such effective date of the election and until the election is terminated, U.S. citizens and residents receiving a distribution from that foreign trust will not be subject to section 2801 tax on that distribution. Instead, the electing foreign trust, like a domestic trust, must report and pay the section 2801 tax on each covered gift and covered bequest as it is received. The election, however, will not change the section 2801 tax liability of the U.S. recipients with regard to distributions made from the trust prior to the effective date of the election. The election has no impact outside of section 2801 on the taxation or reporting of trust distributions to U.S. persons.

If the IRS asserts that additional section 2801 tax is due from the electing foreign trust because, for example, the trust undervalued the covered gift or covered bequest or failed to report all covered gifts and covered bequests, then the IRS will notify the trustee of the foreign trust and the U.S. agent of the additional tax due on the asserted additional value or additional covered gifts or covered bequests, including any penalties and interest, and request payment by the due date identified in the IRS letter. If the trustee of the electing foreign trust and the IRS are unable to come to an agreement and the trustee fails to timely pay the additional tax and other asserted amounts, then the election is deemed to be an “imperfect election.” This means that the election terminates as of the first day of the calendar year for which the IRS asserts that the additional section 2801 tax is due. In this event, the covered gifts and covered bequests for which the return was timely filed, but only to the extent of the value on which the section 2801 tax was timely paid, are no longer considered to be covered gifts or covered bequests for purposes of determining the ratio under § 28.2801-5(c)(1), and distributions relating to such amounts will not be taxable to a U.S. citizen or resident who receives a trust distribution. However, with regard to the asserted additional value or additional covered gifts or covered bequests on which the trust did not timely pay the section 2801 tax asserted by the IRS, the foreign trust is not an electing foreign trust and thus is not the taxpayer responsible for the payment of that additional section 2801 tax. Instead, as of the effective date of the termination of the trust's election, the usual rule of section 2801(e)(4)(B) applies with regard to the taxation of distributions from foreign trusts. Specifically, the U.S. citizens or residents who receive any trust distributions on or after the effective date of the terminated election should take into consideration the additional value or additional covered gifts or covered bequests asserted by the IRS in determining the ratio under § 28.2801-5(c)(1) to be applied to such distributions. If the U.S. recipient does not take the additional value or additional covered gifts or covered bequests asserted by the IRS into consideration in computing that ratio, and the IRS challenges the computation of that ratio during its review of the U.S. recipient's Form 708 reporting the distribution, the IRS's assertion of the additional value or additional covered gifts or covered bequests then will become an issue to be resolved as part of the usual examination process for the U.S. recipient's Form 708. See § 28.2801-5(e), Example 4.

An electing foreign trust's failure to file the Form 708 on an annual basis or to timely pay its section 2801 tax terminates that foreign trust's election to be treated as a domestic trust as of the first day of the calendar year for which the certification is not timely made or for which its section 2801 tax is not timely paid. But see § 28.2801-5(d)(6) in the case of a dispute as to the amount of section 2801 tax owed by an electing foreign trust. In the event of the termination of the election, the trustee should notify the permissible U.S. distributees of the effective date of the termination and that each U.S. recipient of a distribution made from the foreign trust on or after that date is subject to the section 2801 tax to the extent the distribution is attributable to covered gifts or covered bequests. After an election is terminated, a foreign trust is not prohibited from making a new election to be treated as a domestic trust by complying with all applicable requirements.

Section 28.2801-6(a) addresses how the basis rules under sections 1014, 1015(a), and 1022 impact the determination of the U.S. recipient's basis in the covered gift or covered bequest. Unlike section 1015(d), which generally allows gift tax paid on the gift to be added to the donee's basis, section 2801 does not provide a similar basis adjustment for the payment of the section 2801 tax.

Section 28.2801-6(b) clarifies the applicability of the GST tax to certain section 2801 transfers and cross-references the GST rules.

Section 28.2801-6(c) discusses the interaction of section 2801 and the information reporting provisions of sections 6039F and 6048(c). Generally, pursuant to section 6039F and Notice 97-34, 1997-1 CB 422, a U.S. person (other than an organization described in section 501(c) and exempt from tax under section 501(a)) who receives a gift or bequest (including a covered gift or covered bequest) from a foreign person (other than through a foreign trust) must report such gift or bequest on Part IV of Form 3520, “Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts,” if the total value of such gifts and bequests exceeds a certain threshold. A U.S. citizen or resident, as defined under § 28.2801-2(b) and thus including a domestic trust as defined in § 28.2801-2(c), but not including a foreign trust that elects to be treated as a domestic trust, is included within the definition of a U.S. person for purposes of section 6039F.

Under section 6039F(c)(1)(A), if a U.S. person fails to furnish all of the information regarding the gift or bequest in accordance with the requirements of Form 3520, and any related guidance, within the time prescribed (in the case of a U.S. citizen or resident, the time for filing the Form 1040, including extensions), then, absent reasonable cause, a monthly penalty of 5 percent of the amount of the gift or bequest (not to exceed 25 percent) may be imposed until such information is furnished. In addition, the tax consequences of the receipt of such gift or bequest may be determined by the Secretary. Taxpayers should be aware that the information reported on Part IV of Form 3520, whether or not timely filed, may be considered in determining whether a U.S. citizen or resident received a covered gift or covered bequest.

Pursuant to section 6048(c) and Notice 97-34, a U.S. person must report any distributions received from a foreign trust on Part III of Form 3520. Under section 6677(a), a penalty of the greater of $10,000 or 35 percent of the gross value of the distribution may be imposed on a U.S. person who fails to timely report the distribution. A U.S. citizen or resident, as defined in § 28.2801-2(b), but not including a foreign trust that elects to be treated as a domestic trust, generally would be required to report such a distribution under section 6048(c).

Further, if adequate records are not provided to determine the treatment of such a distribution, to the extent provided in Notice 97-34, as modified by the instructions to Form 3520 and any subsequent guidance, such distribution may be treated as an accumulation distribution includible in the gross income of the distributee. Taxpayers similarly should be aware that information reported on Part III of Form 3520 may be used to determine if a U.S. citizen or resident received a trust distribution attributable to a covered gift or covered bequest.

Finally, § 28.2801-6(d) addresses the section 6662 accuracy-related penalties on underpayments of tax, the section 6651 failure to file and pay penalties, and the section 6695A penalty on substantial and gross valuation misstatements attributable to incorrect appraisals. The Treasury Department and the IRS recognize that taxpayers have had to defer their tax reporting and payment obligations with respect to covered gifts and covered bequests received after the effective date of section 2801 (as described in Notice 2009-85). Thus, there may be circumstances under which a taxpayer who received a covered gift or covered bequest in a year prior to the issuance of final regulations may have difficulty in complying with the deferred filing and payment requirements with respect to those receipts. A taxpayer who establishes that such failure in this regard is due to reasonable cause and not to willful neglect will not be subject to the section 6651 penalties for failure to file or pay. The determination of whether an exception to the other penalties applies will be made on a case-by-case basis.

Section 28.2801-7 provides guidance on the responsibility of a U.S. recipient, as defined in § 28.2801-2(e), to determine if tax under section 2801 is due. The Treasury Department and the IRS realize that, because the tax imposed by this section is imposed on the U.S. citizen or resident receiving a covered gift or covered bequest, rather than on the donor or decedent covered expatriate making the gift or bequest, U.S. taxpayers may have difficulty determining whether they are liable for any tax under section 2801. Nevertheless, the same standard of due diligence that applies to any other taxpayer to determine whether the taxpayer has a tax liability or a filing requirement also applies to U.S. citizens and residents under this section. Accordingly, it is the responsibility of each U.S. citizen or resident receiving a gift or bequest, whether directly or indirectly, from an expatriate (as defined in section 877A(g)(2)) to determine its tax obligations under section 2801. Thus, the burden is on that U.S. citizen or resident to determine whether the expatriate was a covered expatriate (as defined in section 877A(g)(1)) and, if so, whether the gift or bequest was a covered gift or covered bequest.

The Treasury Department and the IRS understand that a U.S. citizen or resident receiving a gift or bequest from an expatriate may be unable to obtain directly from the expatriate, the expatriate's attorney, the expatriate's executor, or other reliable sources the information necessary to make the above determinations. If the IRS receives a request from a U.S. citizen or resident who received a gift from an expatriate who has consented to the disclosure of certain return information to that donee, a gift from an expatriate who is deceased at the time of the request, or a bequest from an expatriate, the IRS may in certain circumstances disclose to such U.S. citizen or resident the return or return information of the donor or decedent expatriate that may assist the U.S. citizen or resident in determining whether the donor or decedent was a covered expatriate and whether the transfer was a covered gift or covered bequest. See section 6103. The types of information and requirements and procedures for requesting such information will be set forth in guidance published in the Internal Revenue Bulletin.

Although the IRS, if authorized, may disclose returns and return information upon request, the IRS will not make the determinations as to whether an expatriate from whom a gift or bequest was received was a covered expatriate or whether the gift or bequest was a covered gift or covered bequest. Furthermore, the U.S. citizen or resident receiving a gift or bequest from an expatriate may not rely on any information provided by the IRS that the U.S. citizen or resident knows or has reason to know is incorrect. These determinations are the responsibility of the U.S. citizen or resident.

The proposed regulations provide that, if a living expatriate donor does not authorize the IRS to release to a U.S. citizen or resident the donor's relevant return or return information, there is a rebuttable presumption that the expatriate donor is a covered expatriate and that each gift from that expatriate to a U.S. citizen or resident is a covered gift. A taxpayer who reasonably concludes that a gift or bequest is not subject to section 2801 and intends to rebut the presumption may choose to file a protective return to start the period for assessment of any section 2801 tax. See §§ 28.2801-7(b)(2), 28.6011-1(b).

The proposed regulations also include administrative regulations that address filing and payment due dates, returns, extension requests, and recordkeeping requirements with respect to the section 2801 tax. See §§ 28.6001-1, 28.6011-1, 28.6060-1, 28.6071-1, 28.6081-1, 28.6091-1, 28.6101-1, 28.6107-1, 28.6109-1, 28.6151-1, 28.6694-1, 28.6694-2, 28.6694-3, 28.6694-4, 28.6695-1, 28.6696-1, 28.7701-1. Section 28.6011-1(a) provides the return requirements to report the receipt of covered gifts and covered bequests from covered expatriates using Form 708.

The Treasury Department and IRS will permit the filing of a protective Form 708, unaccompanied by any payment of tax under section 2801, in limited circumstances when a U.S. citizen or resident receives a gift or bequest from an expatriate and reasonably concludes, after exercising due diligence, that the gift or bequest is not a covered gift or covered bequest from a covered expatriate. The mere absence of information confirming that the expatriate is a covered expatriate or that the gift or bequest is a covered gift or covered bequest is not a sufficient basis for a protective return. Section 28.6011-1(b)(i) provides that filing a protective Form 708, together with the required attachments, will start the period for the assessment of any section 2801 tax.

The IRS intends to issue Form 708 once these regulations are published as final regulations in the Federal Register. The IRS will provide the due date for filing Form 708 and for payment of the section 2801 tax liability in the final regulations. Consistent with Announcement 2009-57, U.S. recipients will be given a reasonable period of time after the date the final regulations are published in the Federal Register to file the Form 708 and to pay the section 2801 tax on covered gifts and covered bequests received on or after June 17, 2008, and before the date of publication of the final regulations in the Federal Register. Interest will not accrue on the section 2801 tax liability for any taxable years until the due date for payment, as specified in the final regulations, has passed.

The following publication will be obsolete when regulations finalizing these proposed regulations are published in the Federal Register:

Announcement 2009-57, 2009-29 I.R.B. 158.

Certain IRS regulations, including this one, are exempt from the requirements of Executive Order 12866, as supplemented and reaffirmed by Executive Order 13563. Therefore, a regulatory impact assessment is not required. It has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations. Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it is hereby certified that this regulation will not have a significant economic impact on a substantial number of small entities. This certification is based on the fact that this regulation does not affect small entities because it applies to individuals and certain trusts. Accordingly, a regulatory flexibility analysis is not required. Pursuant to section 7805(f) of the Code, these proposed regulations have been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small businesses.

For copies of recently issued revenue procedures, revenue rulings, notices, and other guidance published in the Internal Revenue Bulletin or Cumulative Bulletin, please visit the IRS Web site at http://www.irs.gov.

The principal authors of these regulations are Karlene Lesho and Leslie Finlow, Office of the Associate Chief Counsel (Passthroughs and Special Industries). However, other personnel from the Treasury Department and the IRS participated in their development.

Before these proposed regulations are adopted as final regulations, consideration will be given to any comments that are submitted timely to the IRS as prescribed in this preamble under the ADDRESSES heading. The Treasury Department and the IRS request comments on all aspects of the proposed regulations. In particular, comments are requested with respect to the following issues:

1. How to calculate the amount of a distribution from a foreign trust that is attributable to a covered gift or covered bequest if the U.S. recipient does not have adequate books and records or information available to make such a determination.

2. How to minimize the burden associated with a foreign trust making an election to be treated as a domestic trust while adequately securing the government's interest in collecting the tax from the foreign trust.

3. How contributions to or distributions from a non-electing foreign trust to a U.S. citizen spouse could qualify for the marital exception in section 2801(e)(3), taking into account the rules applicable to domestic trusts and foreign trusts in section 2801(e)(4).

All comments will be available at www.regulations.gov or upon request.

A public hearing has been scheduled for January 6, 2016, at 10 a.m. in the IRS Auditorium Internal Revenue Building, 1111 Constitution Avenue NW., Washington, DC. Due to building security procedures, visitors must enter at the Constitution Avenue entrance. In addition, all visitors must present photo identification to enter the building. Because of access restrictions, visitors will not be admitted beyond the immediate entrance area more than 30 minutes before the hearing starts. For more information about having your name placed on the building access list to attend the hearing, see the FOR FURTHER INFORMATION CONTACT section of this preamble.

The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who wish to present oral comments at the hearing must submit electronic or written comments and an outline of the topics to be discussed and the time to be devoted to each topic (a signed original and eight (8) copies) by December 9, 2015. A period of 10 minutes will be allotted to each person for making comments. Copies of the agenda will be available free of charge at the meeting.

Accordingly, 26 CFR chapter 1 is proposed to be amended by adding part 28 to subchapter B to read as follows:

Throughout this document whenever “we”, “us”, or “our” is used, we mean EPA. This supplementary information section is arranged as follows:

When submitting comments, remember to:

1. Identify the rulemaking by docket number and other identifying information (subject heading, Federal Register date, and page number).

2. Follow directions—EPA may ask you to respond to specific questions or organize comments by referencing a Code of Federal Regulations (CFR) part or section number.

3. Explain why you agree or disagree; suggest alternatives and substitute language for your requested changes.

4. Describe any assumptions and provide any technical information and/or data that you used.

5. If you estimate potential costs or burdens, explain how you arrived at your estimate in sufficient detail to allow for it to be reproduced.

6. Provide specific examples to illustrate your concerns, and suggest alternatives.

7. Explain your views as clearly as possible, avoiding the use of profanity or personal threats.

8. Make sure to submit your comments by the comment period deadline identified.

This rulemaking addresses a January 24, 2011, submission supplemented on June 29, 2012, from the Wisconsin Department of Natural Resources (WDNR) intended to address all applicable infrastructure requirements for the 2006 PM2.5 NAAQS.

The requirement for states to make a SIP submission of this type arises out of CAA section 110(a)(1). Pursuant to section 110(a)(1), states must make SIP submissions “within 3 years (or such shorter period as the Administrator may prescribe) after the promulgation of a national primary ambient air quality standard (or any revision thereof),” and these SIP submissions are to provide for the “implementation, maintenance, and enforcement” of such NAAQS. The statute directly imposes on states the duty to make these SIP submissions, and the requirement to make the submissions is not conditioned upon EPA's taking any action other than promulgating a new or revised NAAQS. Section 110(a)(2) includes a list of specific elements that “[e]ach such plan” submission must address.

This specific rulemaking is only taking action on a specific requirement of PSD, NOX as a precursor to ozone, which is a component under the infrastructure elements described in CAA sections 110(a)(2)(C), (D)(i)(II), and (J). The majority of the other infrastructure elements were approved in an October 29, 2012 (77 FR 65478) rulemaking.

On September 13, 2013, EPA issued “Guidance on Infrastructure State Implementation Plan (SIP) Elements under Clean Air Act Sections 110(a)(1) and 110(a)(2)” (2013 Memo). As noted in the 2013 Memo, pursuant to CAA section 110(a), states must provide reasonable notice and opportunity for public hearing for all infrastructure SIP submissions. WDNR provided public comment opportunities on both its January 24, 2011 and October 29, 2012 submittals. EPA is also soliciting comments on the specific requirement we are evaluating in this proposed rulemaking. WDNR provided a detailed synopsis of how various components of its SIP meet each of the applicable requirements in section 110(a)(2) for the 2006 PM2.5 NAAQS, as applicable. The following review only evaluates the state's submissions for PSD provisions that explicitly identify NOX as a precursor to ozone in the PSD program.

EPA's “Final Rule to Implement the 8-Hour Ozone National Ambient Air Quality Standard—Phase 2; Final Rule to Implement Certain Aspects of the 1990 Amendments Relating to New Source Review and Prevention of Significant Deterioration as They Apply in Carbon Monoxide, Particulate Matter, and Ozone NAAQS; Final Rule for Reformulated Gasoline” (Phase 2 Rule) was published on November 29, 2005 (see 70 FR 71612). Among other requirements, the Phase 2 Rule obligated states to revise their PSD programs to explicitly identify NOx as a precursor to ozone (70 FR 71612 at 71679, 71699-71700). This requirement was codified in 40 CFR 51.166.

The Phase 2 Rule required that states submit SIP revisions incorporating the requirements of the rule, including those identifying NOX as a precursor to ozone, by June 15, 2007 (see 70 FR 71612 at 71683, November 29, 2005).

During the comment period following the proposed approval for the infrastructure requirements of the 1997 ozone and PM2.5 NAAQS (76 FR 23757), two commenters observed that although EPA proposed to approve Wisconsin's infrastructure SIP as meeting the correct requirements for NOx as a precursor to ozone in the State's PSD program, Wisconsin's PSD SIP does not contain the most recent PSD program revisions required by EPA for this purpose. A subsequent review of Wisconsin's PSD SIP indicated that the commenters were correct in their assertion. Specifically, Wisconsin had not made necessary revisions to its PSD program with respect to the identification of NOX as a precursor to ozone, consistent with the explicit requirements of the Phase 2 Rule. This led EPA to disapprove Wisconsin's infrastructure SIP in June 2012 for this narrow portion of section 110(a)(2)(C) with respect to the 1997 ozone and PM2.5 (77 FR 35870).

This final disapproval triggered the requirement under section 110(c) that EPA promulgate a Federal Implementation Plan (FIP) no later than two years from the effective date of the disapproval unless the State corrects the deficiency, and the Administrator approves the plan revision before the Administrator promulgates such FIP. Wisconsin has taken multiple steps to address NOX as a precursor to ozone in its PSD rules, starting in June 2012 with a note in rule. The state followed up with rule changes, effective August 2014, and SIP approved on October 6, 2014. (79 FR 60064) Prior to the effective date of the August 2014 rules, four additional areas requiring updated language were identified by EPA. Wisconsin was too far in the rule process to add additional changes at that point. Wisconsin immediately started a new rule package to address these additional areas, but these changes will not be effective until approximately August 2016 due to the length of the administrative rule process in Wisconsin.

In our initial rulemaking on Wisconsin's 2006 PM2.5 infrastructure SIP, we did not take action on this provision because of our previous disapproval. However, a proposed consent decree 1 between the Sierra Club and EPA requires EPA to take action on this portion of Wisconsin's submittal by November 30, 2015. Today's disapproval does not trigger a new FIP clock because the missing provisions are the same as those disapproved in the 1997 ozone and PM2.5 action. The evaluation of a state's PSD program is a requirement under the elements described in section 110 (a)(2)(C) and (J), and the most common way to comply with section 110(a)(2)(D)(i)(II). Therefore, EPA is proposing to narrowly disapprove the PSD provision of NOX as a precursor to ozone in the PSD portion of these three elements.

EPA is proposing to narrowly disapprove portions of a submission from Wisconsin certifying that its current SIP is sufficient to meet required infrastructure elements. Specifically, EPA is proposing to disapprove the NOX as a precursor to ozone provisions for the PSD portions of infrastructure elements under CAA sections 110(a)(2)(C), (D)(i)(II), and (J) for the 2006 PM2.5 NAAQS.

Under Executive Order 12866 (58 FR 51735, October 4, 1993), this action is not a “significant regulatory action” and, therefore, is not subject to review by the Office of Management and Budget.

This rulemaking does not impose an information collection burden under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.).

This action merely proposes to disapprove state law as not meeting Federal requirements and imposes no additional requirements beyond those imposed by state law. Accordingly, the Administrator certifies that this proposed rule would not have a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.).

Because this rulemaking proposes to disapprove pre-existing requirements under state law and does not impose any additional enforceable duty beyond that required by state law, it does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4).

This action also does not have Federalism implications because it does not have substantial direct effects on the states, on the relationship between the national government and the states, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132 (64 FR 43255, August 10, 1999). This action merely proposes to disapprove a state rule, and does not alter the relationship or the distribution of power and responsibilities established in the CAA.

In addition, the SIP is not approved to apply on any Indian reservation land or in any other area where EPA or an Indian tribe has demonstrated that a tribe has jurisdiction. In those areas of Indian country, the proposed rule does not have tribal implications and would not impose substantial direct costs on tribal governments or preempt tribal law as specified by Executive Order 13175 (65 FR 67249, November 9, 2000).

This proposed rule also is not subject to Executive Order 13045 “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997), because it proposes to disapprove a state rule.

Because it is not a “significant regulatory action” under Executive Order 12866 or a “significant energy action,” this action is also not subject to Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001).

In reviewing state submissions, EPA's role is to approve state choices, provided that they meet the criteria of the CAA. In this context, in the absence of a prior existing requirement for the state to use voluntary consensus standards (VCS), EPA has no authority to disapprove a state submission for failure to use VCS. It would thus be inconsistent with applicable law for EPA, when it reviews a state submission, to use VCS in place of a state submission that otherwise satisfies the provisions of the CAA. Thus, the requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) do not apply.

Throughout this document whenever “we”, “us”, or “our” is used, we mean EPA. This supplementary information section is arranged as follows:

When submitting comments, remember to:

This rulemaking addresses submissions from the Connecticut Department of Energy and Environmental Protection (CT DEEP). The state submitted its infrastructure SIP for each NAAQS on the following dates: 2008 Pb—October 13, 2011; 2008 ozone—December 28, 2012; 2010 NO2—January 2, 2013; and, 2010 SO2—May 30, 2013. This rulemaking also addresses certain infrastructure SIP elements for the 1997 and 2006 PM2.5 1 NAAQS for which EPA previously issued a conditional approval. See 77 FR 63228 (October 16, 2012). The state submitted these infrastructure SIPs on September 4, 2008, and September 18, 2009, respectively. Lastly, this rulemaking addresses one infrastructure SIP element for the 1997 8-hour ozone NAAQS for which EPA previously issued a conditional approval. See 76 FR 40248 (July 8, 2011). The state submitted this infrastructure SIP on December 28, 2007.

Under sections 110(a)(1) and (2) of the CAA, states are required to submit infrastructure SIPs to ensure that their SIPs provide for implementation, maintenance, and enforcement of the NAAQS, including the 1997 and 2006 PM2.5, 2008 Pb, 2008 ozone, 2010 NO2, and 2010 SO2 NAAQS. These submissions must contain any revisions needed for meeting the applicable SIP requirements of section 110(a)(2), or certifications that their existing SIPs for the NAAQS already meet those requirements.

EPA highlighted this statutory requirement in an October 2, 2007, guidance document entitled “Guidance on SIP Elements Required Under Sections 110(a)(1) and (2) for the 1997 8-hour Ozone and PM2.5 National Ambient Air Quality Standards” (2007 Memo). On September 25, 2009, EPA issued an additional guidance document pertaining to the 2006 PM2.5 NAAQS entitled “Guidance on SIP Elements Required Under Sections 110(a)(1) and (2) for the 2006 24-Hour Fine Particle (PM2.5) National Ambient Air Quality Standards (NAAQS)” (2009 Memo), followed by the October 14, 2011, “Guidance on infrastructure SIP Elements Required Under Sections 110(a)(1) and (2) for the 2008 Lead (Pb) National Ambient Air Quality Standards (NAAQS)” (2011 Memo). Most recently, EPA issued “Guidance on Infrastructure State Implementation Plan (SIP) Elements under Clean Air Act Sections 110(a)(1) and (2)” on September 13, 2013 (2013 Memo). The SIP submissions referenced in this rulemaking pertain to the applicable requirements of section 110(a)(1) and (2) and address the 2008 Pb, 2008 ozone, 2010 NO2, and 2010 SO2 NAAQS, and to elements of Connecticut's infrastructure SIP submittals for the 1997 PM2.5 and 2006 PM2.5 NAAQS which we previously conditionally approved. See 77 FR 63228 (October 16, 2012). To the extent that the PSD program is comprehensive and non-NAAQS specific, a narrow evaluation of other NAAQS, such as the 1997 8-hour ozone NAAQS, will be included in the appropriate sections.

EPA is acting upon the SIP submissions from Connecticut that address the infrastructure requirements of CAA sections 110(a)(1) and 110(a)(2) for the 2008 Pb, 2008 ozone, 2010 NO2, and 2010 SO2 NAAQS. Additionally, we are proposing to convert conditional approvals for several infrastructure requirements for the 1997 8-hour ozone NAAQS (see 76 FR 40248 (July 8, 2011)) and for the 1997 and 2006 PM2.5 NAAQS (see 77 FR 63228 (October 16, 2012)) to full approval, proposing approval of three statutes submitted by Connecticut that support the infrastructure SIP submittals, and proposing to conditionally approve certain aspects of the infrastructure SIP which pertain to the State's PSD program.

The requirement for states to make a SIP submission of this type arises out of CAA sections 110(a)(1) and 110(a)(2). Pursuant to these sections, each state must submit a SIP that provides for the implementation, maintenance, and enforcement of each primary or secondary NAAQS. States must make such SIP submission “within 3 years (or such shorter period as the Administrator may prescribe) after the promulgation of a new or revised NAAQS.” This requirement is triggered by the promulgation of a new or revised NAAQS and is not conditioned upon EPA's taking any other action. Section 110(a)(2) includes the specific elements that “each such plan” must address.

EPA commonly refers to such SIP submissions made for the purpose of satisfying the requirements of CAA sections 110(a)(1) and 110(a)(2) as “infrastructure SIP” submissions. Although the term “infrastructure SIP” does not appear in the CAA, EPA uses the term to distinguish this particular type of SIP submission from submissions that are intended to satisfy other SIP requirements under the CAA, such as “nonattainment SIP” or “attainment plan SIP” submissions to address the planning requirements of part D of title I of the CAA.

This rulemaking will not cover three substantive areas that are not integral to acting on a state's infrastructure SIP submission: (i) Existing provisions related to excess emissions during periods of start-up, shutdown, or malfunction at sources (“SSM” emissions) that may be contrary to the CAA and EPA's policies addressing such excess emissions; (ii) existing provisions related to “director's variance” or “director's discretion” that purport to permit revisions to SIP-approved emissions limits with limited public process or without requiring further approval by EPA, that may be contrary to the CAA (“director's discretion”); and, (iii) existing provisions for PSD programs that may be inconsistent with current requirements of EPA's “Final New Source Review (NSR) Improvement Rule,” 67 FR 80186 (December 31, 2002), as amended by 72 FR 32526 (June 13, 2007) (“NSR Reform”). Instead, EPA has the authority to address each one of these substantive areas separately. A detailed history, interpretation, and rationale for EPA's approach to infrastructure SIP requirements can be found in EPA's May 13, 2014, proposed rule entitled, “Infrastructure SIP Requirements for the 2008 Lead NAAQS” in the section, “What is the scope of this rulemaking?” See 79 FR 27241 at 27242-27245 (May 13, 2014).

EPA reviews each infrastructure SIP submission for compliance with the applicable statutory provisions of section 110(a)(2), as appropriate. Historically, EPA has elected to use non-binding guidance documents to make recommendations for states' development and EPA review of infrastructure SIPs, in some cases conveying needed interpretations on newly arising issues and in some cases conveying interpretations that have already been developed and applied to individual SIP submissions for particular elements. EPA guidance applicable to these infrastructure SIP submissions is embodied in several documents. Specifically, attachment A of the 2007 Memo (Required Section 110 SIP Elements) identifies the statutory elements that states need to submit in order to satisfy the requirements for an infrastructure SIP submission. The 2009 Memo provides additional guidance for certain elements regarding the 2006 PM2.5 NAAQS, and the 2011 Memo provides guidance specific to the 2008 Pb NAAQS. Lastly, the 2013 Memo identifies and further clarifies aspects of infrastructure SIPs that are not NAAQS specific.

Pursuant to section 110(a), and as noted in the 2011 Memo and the 2013 Memo, states must provide reasonable notice and opportunity for public hearing for all infrastructure SIP submissions. CT DEEP held public hearings for each infrastructure SIP on the following dates: 2008 Pb—September 20, 2011; 2008 ozone—December 20, 2012; 2010 NO2—December 20, 2012; and, 2010 SO2—May 1, 2013. Connecticut received comments from EPA on each of its proposed infrastructure SIPs, and also received comments from a U.S. Army Regulatory Affairs Specialist on its proposed ozone and NO2 infrastructure SIPs, and from a consultant with Enhesa in Washington, DC on its proposed SO2 infrastructure SIP. EPA is also soliciting comment on our evaluation of the state's infrastructure SIP submissions in this notice of proposed rulemaking. Connecticut provided detailed synopses of how various components of its SIP meet each of the requirements in section 110(a)(2) for the 2008 Pb, 2008 ozone, 2010 NO2, and 2010 SO2 NAAQS, as applicable. The following review evaluates the state's submissions in light of section 110(a)(2) requirements and relevant EPA guidance. The review also evaluates certain infrastructure requirements for the 1997 8-hour ozone NAAQS and the 1997 and 2006 PM2.5 NAAQS for which EPA previously issued conditional approvals. See 76 FR 40248 (July 8, 2011) and 77 FR 63228 (October 16, 2012.)

This section requires SIPs to include enforceable emission limits and other control measures, means or techniques, schedules for compliance, and other related matters. However, EPA has long interpreted emission limits and control measures for attaining the standards as being due when nonattainment planning requirements are due.2 In the context of an infrastructure SIP, EPA is not evaluating the existing SIP provisions for this purpose. Instead, EPA is only evaluating whether the state's SIP has basic structural provisions for the implementation of the NAAQS.

Connecticut Public Act No. 11-80 established the Connecticut Department of Energy and Environmental Protection (CT DEEP), and Connecticut General Statutes (CGS) Section 22a-6(a)(1) provides the Commissioner of CT DEEP authority to adopt, amend or repeal environmental standards, criteria and regulations. It is under this general grant of authority that the Commissioner has adopted emissions standards and control measures for a variety of sources and pollutants. Connecticut also has SIP-approved provisions for specific pollutants. For example, CT DEEP has adopted primary and secondary ambient air quality standards for each of these pollutants in Regulations of Connecticut State Agencies (RCSA) Section 22a-174-24 as follows: For SO2, Section 22a-174-24(d); for PM2.5, Section 22a-174-24(f); for ozone, Section 22a-174-24(i); for NO2, 22a-174-24(k); and for lead, Section 22a-174-24(l). As noted in EPA's approval of Connecticut's Section 22a-174-24, Ambient Air Quality Standards, on June 24, 2015 (80 FR 36242), Connecticut's standards are consistent with the current federal NAAQS. Therefore, EPA proposes that Connecticut meets the infrastructure SIP requirements of section 110(a)(2)(A) with respect to the 2008 Pb, 2008 ozone, 2010 NO2, and 2010 SO2 NAAQS.

In addition, we previously issued a conditional approval for Connecticut's infrastructure SIP submittal made for the 1997 and 2006 PM2.5 NAAQS because portions of Connecticut's section 22a-174-24, Ambient Air Quality Standards were outdated. See 77 FR 63228 (October 16, 2012). However, as noted in our June 24, 2014 action mentioned above, Connecticut has revised their standards and they are now consistent with the federal NAAQS. In light of this, we propose to convert the conditional approval for this infrastructure requirement for the 1997 and 2006 PM2.5 NAAQS (see 77 FR 63228 (October 16, 2012)) to full approval. As previously noted, EPA is not proposing to approve or disapprove any existing state provisions or rules related to SSM or director's discretion in the context of section 110(a)(2)(A).

This section requires SIPs to include provisions to provide for establishing and operating ambient air quality monitors, collecting and analyzing ambient air quality data, and making these data available to EPA upon request. Each year, states submit annual air monitoring network plans to EPA for review and approval. EPA's review of these annual monitoring plans includes our evaluation of whether the state: (i) Monitors air quality at appropriate locations throughout the state using EPA-approved Federal Reference Methods or Federal Equivalent Method monitors; (ii) submits data to EPA's Air Quality System (AQS) in a timely manner; and, (iii) provides EPA Regional Offices with prior notification of any planned changes to monitoring sites or the network plan.

CT DEEP continues to operate a monitoring network, and EPA approved the state's 2015 Annual Air Monitoring Network Plan for PM2.5, Pb, ozone, NO2, and SO2 on July 10, 2015. Furthermore, CT DEEP populates AQS with air quality monitoring data in a timely manner, and provides EPA with prior notification when considering a change to its monitoring network or plan. EPA proposes that CT DEEP has met the infrastructure SIP requirements of section 110(a)(2)(B) with respect to the 2008 Pb, 2008 ozone, 2010 NO2, and 2010 SO2 NAAQS.

States are required to include a program providing for enforcement of all SIP measures and the regulation of construction of new or modified stationary sources to meet NSR requirements under PSD and nonattainment new source review (NNSR) programs. Part C of the CAA (sections 160-169B) addresses PSD, while part D of the CAA (sections 171-193) addresses NNSR requirements.

The evaluation of each state's submission addressing the infrastructure SIP requirements of section 110(a)(2)(C) covers the following: (i) Enforcement of SIP measures; (ii) PSD program for major sources and major modifications; and, (iii) permitting program for minor sources and minor modifications. A discussion of GHG permitting and the “Tailoring Rule” 3 is included within our evaluation of the PSD provisions of Connecticut's submittals.

CT DEEP staffs and implements an enforcement program pursuant to CGS section 22a. Specifically, CGS section 22a-6 authorizes the Commissioner of CT DEEP to inspect and investigate to ascertain whether violations of any statute, regulation, or permit may have occurred and to impose civil penalties. CGS section 22a-171 requires the Commissioner to “adopt, amend, repeal, and enforce regulations . . . and do any other act necessary to enforce the provisions of” CGS sections 22a-170 through 22a-206, which provide CT DEEP with the authority to, among other things, enforce its regulations, issue orders to correct violations of regulations or permits, impose state administrative penalties, and seek judicial relief. EPA proposes that Connecticut has met the enforcement of SIP measures requirements of section 110(a)(2)(C) with respect to the 2008 Pb, 2008 ozone, 2010 NO2, and 2010 SO2 NAAQS.

Prevention of significant deterioration (PSD) permitting requirements apply to new major sources or major modifications made to major sources, for pollutants where the area in which the source is located is in attainment with, or unclassifiable with regard to, the relevant NAAQS. CT DEEP's EPA-approved PSD rules in RCSA sections 22a-174-1, 22a-174-2a, and 22a-174-3a contain provisions that address the majority of the applicable infrastructure SIP requirements related to the 2008 Pb, 2008 ozone, 2010 NO2, and 2010 SO2 NAAQS.

EPA's “Final Rule to Implement the 8-Hour Ozone National Ambient Air Quality Standard—Phase 2; Final Rule to Implement Certain Aspects of the 1990 Amendments Relating to New Source Review and Prevention of Significant Deterioration as They Apply in Carbon Monoxide, Particulate Matter, and Ozone NAAQS; Final Rule for Reformulated Gasoline” (Phase 2 Rule) was published on November 29, 2005 (70 FR 71612). Among other requirements, the Phase 2 Rule obligated states to revise their PSD programs to explicitly identify NOX as a precursor to ozone (see 70 FR 71612 at 71679, 71699-71700 (November 29, 2005)). This requirement was codified in 40 CFR 51.166, and requires that states submit SIP revisions incorporating the requirements of the rule, including provisions that would treat nitrogen oxides (NOX) as a precursor to ozone. These SIP revisions were to have been submitted to EPA by states by June 15, 2007. See 70 FR 71612 at 71683 (November 29, 2005).

Connecticut's PSD rules do not currently contain the provisions needed to ensure that NOX be treated as a precursor to ozone, and the State's PSD rules must be changed in the future to meet this requirement. To correct this deficiency, the CT DEEP has committed, by letter dated August 5, 2015, to submit for EPA approval into the SIP provisions that meet the requirements at 40 CFR 51.166(b)(1) and (b)(2) relating to the requirement to treat NOX as a precursor pollutant to ozone. Accordingly, as we articulate further on in our discussion of this sub-element, while the majority of Connecticut's submittals pertaining to section 110(a)(2)(C) with respect to the 2008 Pb, 2008 ozone, 2010 NO2, 2010 SO2, 1997 PM2.5, and 2006 PM2.5 NAAQS are consistent with the federal requirements, we are proposing to conditionally approve Connecticut's PSD regulations as to those specific regulatory provisions that will need to be amended by Connecticut in order to treat NOX emissions as precursor emissions to ozone formation.

On October 20, 2010 (75 FR 64864), EPA issued a final rule entitled “Prevention of Significant Deterioration (PSD) for Particulate Matter Less Than 2.5 Micrometers (PM2.5)—Increments, Significant Impact Levels (SILs) and Significant Monitoring Concentration (SMC)” (2010 NSR Rule). This rule established several components for making PSD permitting determinations for PM2.5, including adding the required elements for PM2.5 into a state's existing system of “increment analysis,” which is the mechanism used in the PSD permitting program to estimate significant deterioration of ambient air quality for a pollutant in relation to new source construction or modification. The maximum allowable increment increases for different pollutants are codified in 40 CFR 51.166(c) and 40 CFR 52.21(c).

The 2010 NSR Rule described in the preceding paragraph revised the existing system for determining increment consumption by establishing a new “major source baseline date” for PM2.5 of October 20, 2010, and by establishing a trigger date for PM2.5 in relation to the definition of “minor source baseline date.” These revisions to the federal PSD rules are codified in 40 CFR 51.166(b)(14)(i)(c) and (b)(14)(ii)(c), and 52.21(b)(14)(i)(c) and (b)(14)(ii)(c). Lastly, the 2010 NSR Rule revised the definition of “baseline area” to include a level of significance of 0.3 micrograms per cubic meter, annual average, for PM2.5. This change is codified in 40 CFR 51.166(b)(15)(i) and 52.21(b)(15)(i). States were required to revise their SIPs consistent with these changes to the federal regulations.

On October 9, 2012, Connecticut submitted revisions to its PSD program incorporating two of the four changes addressed by the 2010 NSR Rule. The two changes were 1) a revised definition of “Major source baseline date” that included a date for PM2.5 specifically; and 2) the addition of the maximum allowable increment for PM2.5. EPA approved Connecticut's October 9, 2012 SIP revision on July 24, 2015 (80 FR 43960). Therefore, we propose to convert to a full approval the earlier conditional approval as it applies to these two elements of the EPA's 2010 rulemaking in the context of the infrastructure requirements for the 1997 and 2006 PM2.5 NAAQS. See 77 FR 63228 (October 16, 2012).

CT DEEP's October 9, 2012 SIP revision did not specifically address the two other changes EPA made to the PSD rules in 2010, and for the following reasons EPA did not intend for those two issues to be part of the conditional approval described in our October 16, 2012 notice. One of those changes is the requirement that a State's definition of “minor source baseline date” be amended to include a trigger date for PM2.5 emissions (see EPA's definition for “minor source baseline date” at 40 CFR 51.166(b)(14)(ii)). Instead of using a specific date, EPA's definition for minor source baseline date provides that the minor source baseline date is triggered by a state's receipt of its first complete PSD application. At the time CT DEEP made its October 9, 2012 SIP revision, it would not have been possible for the State to have amended its regulation to include a specific minor source baseline date because no source had submitted a complete PSD application for PM2.5. This is also true for CT DEEP's other infrastructure SIPs addressed in this action. This is so because CT DEEP's PSD regulations are structured in a way that uses actual specific dates based on submission of a first complete PSD application for a particular pollutant. (The approach contained in EPA's regulations is somewhat different in the sense that instead of using actual specific dates, EPA articulates the concept of a first complete PSD application as the minor source baseline date trigger.) EPA understands that CT DEEP did not receive a complete PSD application for a source subject to PSD for PM2.5 emissions until September 24, 2014. Consequently, the State could not have included an actual date in its definition of “minor source baseline date” within its October 9, 2012 SIP revision.

Although Connecticut could not establish an actual date for PM2.5 in its definition of “minor source baseline date,” at the time of its October 9, 2012 SIP revision, Connecticut is now able to revise this definition to include a specific date that is consistent with EPA's definition because a complete PSD application has been submitted to CT DEEP for a major new source of PM2.5 emissions. Accordingly, the CT DEEP has committed by letter dated August 5, 2015, to submit for EPA approval into the SIP a minor source baseline date for PM2.5 that meets the requirements at 40 CFR 51.166(b)(14)(ii)(c). Consequently, we propose to conditionally approve Connecticut's submittals for this sub-element pertaining to section 110(a)(2)(C) with respect to the 2008 Pb, 2008 ozone, 2010 NO2, and 2010 SO2 NAAQS. Consistent with our reasoning above, we are also proposing to newly conditionally approve Connecticut's submittals for this sub-element with respect to the 1997 and 2006 PM2.5 NAAQS.

The fourth change to the PSD regulations that EPA made in 2010 was to add “equal or greater than 0.3 µg/m3 (annual average) for PM2.5” to the definition of “baseline area.” This requires states to determine whether another baseline area, other than the baseline area where the PSD subject source is locating, needs to be analyzed based on the air quality impact predicted from the new PSD source. The impact on another baseline area is limited to any impacts above the defined thresholds contained within the definition of “baseline area” on another area within Connecticut. In other words, under EPA's PSD requirements the baseline area evaluation does not include within it analysis of a new source's impacts in another state.

Connecticut's current SIP and State PSD rules do not contain a definition of “baseline area.” EPA has confirmed in communications with CT DEEP that it treats the entire state as a single baseline area, which obviates the need to have a definition for this term. EPA agrees that the language EPA added to the federal definition of “baseline area” in the federal PSD requirements is not necessary in Connecticut because there is no other baseline area within the State.

Moreover, EPA has concluded that the lack of such a specific definition of “baseline area” does not in theory, and has not in fact over many years, preclude CT DEEP from ensuring that emissions from a major new source or major modification will not consume more increment than would be available or allowable even had CT DEEP adopted a definition that was exactly the same as EPA's definition of baseline area. In other words, CT DEEP has a regulatory structure that it has used over many years to ensure that increment consumption arising from new construction comports as a practical matter with federal PSD requirements and is functionally equivalent. EPA last approved CT DEEP's increment calculation methodology on February 27, 2003 (68 FR 9009).

Based on actual emissions data from the most recent National Emission Inventory emissions data base (2011), there are only 15 existing major stationary sources in Connecticut, all of which are major due to NOX emissions. None of these sources emitted 100 tons per year or more of PM10, PM2.5, or VOC emissions. Further, 10 of these NOX sources are the only such source in their city or town, two are located in Middletown, and three are located in Bridgeport. Typically, the determination of whether a new or modified source's emissions could potentially consume more than the available increment in an area depends on whether other significant sources of air emissions impact the same area. The facts described above show how unlikely this would be, even if theoretically possible. EPA has determined that the differences between Connecticut's mechanism for determining if emissions from the new or modified source will exceed the available increment and EPA's mechanism is negligible, if different at all, in terms of emissions. Connecticut's and EPAs mechanisms both take into account, in a manner sufficiently protective of air quality, consumption of available increment from nearby sources.

In addition to the above, once CT DEEP addresses the conditional approval discussed earlier regarding the State's definition of “minor source baseline date,” the impact of Connecticut's approved mechanism for determining available increment most likely will result in a more conservative or protective approach than EPA's increment structure. This is because all growth within Connecticut after September 24, 2014, that would result in any increase in PM2.5 emissions will be consuming the available increment for a new or modified source required to obtain a PSD permit for PM2.5 emissions anywhere within the State. Under EPA's mechanism for determining available increment, because there has, to date, only been a PSD application submitted for a new source that constructed in New Haven County, changes to the available increment would only be evaluated from sources in New Haven County. Put differently, EPA's mechanism would allow some of the future growth in PM2.5 emissions outside of New Haven County to be considered part of the baseline concentration and, therefore, would not consume increment elsewhere in Connecticut.

On May 16, 2008 (73 FR 28321), EPA issued the Final Rule on the “Implementation of the New Source Review (NSR) Program for Particulate Matter Less than 2.5 Micrometers (PM2.5)” (2008 NSR Rule). The 2008 NSR Rule finalized several new requirements for SIPs to address sources that directly emit PM2.5 emissions and sources that emit other pollutants that contribute to secondary PM2.5 formation. One of these requirements is for NSR permits to address pollutants responsible for the secondary formation of PM2.5, otherwise known as precursor pollutants. In the 2008 rule, EPA identified precursors to PM2.5 for the PSD program to be SO2 and NOX (unless the state demonstrates to the Administrator's satisfaction or EPA demonstrates that NOX emissions in an area are not a significant contributor to that area's ambient PM2.5 concentrations). The 2008 NSR Rule also specifies that volatile organic compounds (VOCs) are not considered to be precursors to PM2.5 in the PSD program unless the state demonstrates to the Administrator's satisfaction or EPA demonstrates that emissions of VOCs in an area are significant contributors to that area's ambient PM2.5 concentrations.

The explicit references to SO2, NOX, and VOCs as they pertain to secondary PM2.5 formation are codified at 40 CFR 51.166(b)(49)(i)(b) and 40 CFR 52.21(b)(50)(i)(b). As part of identifying pollutants that are precursors to PM2.5, the 2008 NSR Rule also required states to revise the definition of “significant” as it relates to a net emissions increase or the potential of a source to emit pollutants. Specifically, 40 CFR 51.166(b)(23)(i) and 52.21(b)(23)(i) define “significant” for PM2.5 to mean the following emissions rates: 10 tons per year (tpy) of direct PM2.5; 40 tpy of SO2; and 40 tpy of NOX (unless the state demonstrates to the Administrator's satisfaction or EPA demonstrates that NOX emissions in an area are not a significant contributor to that area's ambient PM2.5 concentrations). The deadline for states to submit SIP revisions to their PSD programs incorporating these changes was May 16, 2011. See 73 FR 28321 at 28341 (May 16, 2008).4

The 2008 NSR Rule did not require states to immediately account for gases that could condense to form particulate matter, known as “condensables”, in PM2.5 and PM10 emission limits in NSR permits. Instead, EPA determined that states had to account for PM2.5 and PM10 condensables for applicability determinations and in establishing emissions limitations for PM2.5 and PM10 in PSD permits beginning on or after January 1, 2011. See 73 FR 28321 at 28334. This requirement is codified in 40 CFR 51.166(b)(49)(i)(a) and 52.21(b)(50)(i)(a). Revisions to states' PSD programs incorporating the inclusion of condensables were required be submitted to EPA by May 16, 2011 (see 73 FR 28321 at 28341).

On October 9, 2012, Connecticut submitted revisions to its PSD program incorporating the necessary changes required by the 2008 NSR Rule with respect to provisions that explicitly identify precursors to PM2.5. EPA approved Connecticut's October 9, 2012 SIP revision on July 24, 2015 (80 FR 43960).

Connecticut's SIP-approved PSD program does not contain a specific provision that explicitly contains the language in 40 CFR 51.166(b)(49)(i) addressing the inclusion of the gaseous, condensable fraction of PM2.5 and PM10 for the purpose of PSD applicability or establishing permit emissions limits conditions.

However, by letter submitted to EPA Region 1 and dated August 5, 2015 Connecticut explained that its major stationary source preconstruction permitting program does, in fact, require inclusion of the condensable portion of PM10 and PM2.5 for PSD applicable purposes and establishing permit emissions limits and conditions, because Section 22a-174-1 of the State's regulations defines those two pollutants in terms of an amount measured at ambient air conditions. Consequently, because the gaseous, condensable portions of PM10 and PM2.5 are, in fact, condensed at ambient air conditions, Connecticut's requirements meet the corresponding federal requirements.

Therefore, we are proposing that Connecticut has met this set of requirements of section 110(a)(2)(C) for the 2008 Pb, 2008 ozone, 2010 NO2, and 2010 SO2 NAAQS regarding the requirements of EPA's 2008 NSR Rule. Additionally, we are also proposing to convert our prior conditional approval for this infrastructure requirement for the 1997 and 2006 PM2.5 NAAQS (see 77 FR 63228 (October 16, 2012)) to a full approval.

On June 23, 2014, the United States Supreme Court issued a decision addressing the application of PSD permitting requirements to GHG emissions. Utility Air Regulatory Group v. Environmental Protection Agency, 134 S.Ct. 2427. The Supreme Court said that the EPA may not treat GHGs as an air pollutant for purposes of determining whether a source is a major source required to obtain a PSD permit. The Court also said that the EPA could continue to require that PSD permits, otherwise required based on emissions of pollutants other than GHGs, contain limitations on GHG emissions based on the application of Best Available Control Technology (BACT).

In accordance with the Supreme Court decision, on April 10, 2015, the U.S. Court of Appeals for the District of Columbia Circuit (the D.C. Circuit) issued an amended judgment vacating the regulations that implemented Step 2 of the EPA's PSD and Title V Greenhouse Gas Tailoring Rule, but not the regulations that implement Step 1 of that rule. Step 1 of the Tailoring Rule covers sources that are required to obtain a PSD permit based on emissions of pollutants other than GHGs. Step 2 applied to sources that emitted only GHGs above the thresholds triggering the requirement to obtain a PSD permit. The amended judgment preserves, without the need for additional rulemaking by the EPA, the application of the BACT requirement to GHG emissions from Step 1 or “anyway” sources. With respect to Step 2 sources, the D.C. Circuit's amended judgment vacated the regulations at issue in the litigation, including 40 CFR 51.166(b)(48)(v), “to the extent they require a stationary source to obtain a PSD permit if greenhouse gases are the only pollutant (i) that the source emits or has the potential to emit above the applicable major source thresholds, or (ii) for which there is a significant emission increase from a modification.”

The EPA is planning to take additional steps to revise federal PSD rules in light of the Supreme Court opinion and subsequent D.C. Circuit judgment. Some states have begun to revise their existing SIP-approved PSD programs in light of these court decisions, and some states may prefer not to initiate this process until they have more information about the planned revisions to EPA's PSD regulations. The EPA is not expecting states to have revised their PSD programs in anticipation of the EPA's planned actions to revise its PSD program rules in response to the court decisions. For purposes of infrastructure SIP submissions, the EPA is only evaluating such submissions to assure that the state's program addresses GHGs consistent with both court decisions.

At present, the EPA has determined that Connecticut's SIP is sufficient to satisfy this sub-element of section 110(a)(2)(C) (as well as sub-elements (D)(i)(II) and (J)(iii)) with respect to GHGs. This is because the PSD permitting program previously approved by the EPA into the SIP continues to require that PSD permits issued to “anyway sources” contain limitations on GHG emissions based on the application of BACT.

The approved Connecticut PSD permitting program still contains some provisions regarding Step 2 sources that are no longer necessary in light of the Supreme Court decision and D.C. Circuit amended judgment. Nevertheless, the presence of these provisions in the previously-approved plan does not render the infrastructure SIP submission inadequate to satisfy Elements C, D (sub-element (i)(II)), and J. The SIP contains the PSD requirements for applying the BACT requirement to greenhouse gas emissions from “anyway sources” that are necessary at this time. The application of those requirements is not impeded by the presence of other previously-approved provisions regarding the permitting of Step 2 sources. Accordingly, the Supreme Court decision and subsequent D.C. Circuit judgment do not prevent the EPA's approval of Connecticut's infrastructure SIP as to the requirements of Element C (as well as sub-elements (D)(i)(II) and (J)(iii)).

For the purposes of the 2008 Pb, 2008 ozone, 2010 NO2, and 2010 SO2 NAAQS infrastructure SIPs, EPA reiterates that NSR Reform is not in the scope of these actions. Therefore, we are not taking action on existing NSR Reform regulations for Connecticut.

In summary, we are proposing to approve the majority of Connecticut's submittals for this sub-element pertaining to section 110(a)(2)(C) with respect to the 2008 Pb, 2008 ozone, 2010 NOX, and 2010 SO2 NAAQS, but to conditionally approve the aspects pertaining to treating NOX as a precursor to ozone and to establishing a minor source baseline date for PM2.5. We are also proposing to newly conditionally approve Connecticut's submittals for this sub-element with respect to the 1997 and 2006 PM2.5 NAAQS for these same PSD requirements.

To address the pre-construction regulation of the modification and construction of minor stationary sources and minor modifications of major stationary sources, an infrastructure SIP submission should identify the existing EPA-approved SIP provisions and/or include new provisions that govern the minor source pre-construction program that regulates emissions of the relevant NAAQS pollutants. EPA approved Connecticut's minor NSR program, as well as updates to that program, with the most recent approval occurring on February 28, 2003 (68 FR 9009). Since this date, Connecticut and EPA have relied on the existing minor NSR program to ensure that new and modified sources not captured by the major NSR permitting programs do not interfere with attainment and maintenance of the 2008 Pb, 2008 ozone, 2010 NO2, and 2010 SO2 NAAQS.

We are proposing to find that Connecticut has met the requirement to have a SIP approved minor new source review permit program as required under Section 110(a)(2)(C) for the 2008 Pb, 2008 ozone, 2010 NO2, and 2010 SO2 NAAQS.

This section contains a comprehensive set of air quality management elements pertaining to the transport of air pollution that states must comply with. It covers the following 5 topics, categorized as sub-elements: Sub-element 1, Contribute to nonattainment, and interference with maintenance of a NAAQS; Sub-element 2, PSD; Sub-element 3, Visibility protection; Sub-element 4, Interstate pollution abatement; and Sub-element 5, International pollution abatement. Sub-elements 1 through 3 above are found under section 110(a)(2)(D)(i) of the Act, and these items are further categorized into the 4 prongs discussed below, 2 of which are found within sub-element 1. Sub-elements 4 and 5 are found under section 110(a)(2)(D)(ii) of the Act and include provisions insuring compliance with sections 115 and 126 of the Act relating to interstate and international pollution abatement.

With respect to the 2008 Pb NAAQS, the 2011 Memo notes that the physical properties of Pb prevent it from experiencing the same travel or formation phenomena as PM2.5 or ozone. Specifically, there is a sharp decrease in Pb concentrations as the distance from a Pb source increases. Accordingly, although it may be possible for a source in a state to emit Pb at a location and in such quantities that contribute significantly to nonattainment in, or interference with maintenance by, any other state, EPA anticipates that this would be a rare situation (e.g., sources emitting large quantities of Pb in close proximity to state boundaries). The 2011 Memo suggests that the applicable interstate transport requirements of section 110(a)(2)(D)(i)(I) with respect to Pb can be met through a state's assessment as to whether or not emissions from Pb sources located in close proximity to its borders have emissions that impact a neighboring state such that they contribute significantly to nonattainment or interfere with maintenance in that state.

Connecticut's infrastructure SIP submission for the 2008 Pb NAAQS notes that there are no sources of Pb emissions located in close proximity to any of the state's borders with neighboring states. Additionally, Connecticut's submittal and the emissions data the state collects from its sources indicate that there is no single source of Pb, or group of sources, anywhere within the state that emits enough Pb to cause ambient concentrations to approach the Pb NAAQS. Our review of data within our National Emissions Inventory (NEI) database confirms this, and, therefore, we propose that Connecticut has met this set of requirements related to section 110(a)(2)(D)(i)(I) for the 2008 Pb NAAQS.

With respect to the 2010 NO2 NAAQS, on February 17, 2012, EPA designated the entire country as “unclassifiable/attainment” for this standard, explaining that this designation means that “available information does not indicate that the air quality in these areas exceeds the 2010 NO2 NAAQS.” See 77 FR 9532 (February 17, 2012). In other words, Connecticut and all neighboring states are currently designated as “unclassifiable/attainment” for the 2010 NO2 NAAQS.

NOX emissions in Fairfield and New Haven Counties in Connecticut are projected to decrease by more than 50 percent between 2007 and 2025, further reducing any impacts from Connecticut on other states. Similar reductions are expected throughout the rest of the state (see Connecticut's PM2.5 Redesignation Request and Maintenance Plan, Technical Support Document, June 22, 2012 included in the docket for this notice). Furthermore, EPA examined the design values from NO2 monitors in Connecticut and neighboring states based on data collected between 2011 and 2013. In Connecticut, the highest design value was 55 parts per billion (ppb) (versus the NO2 standard of 100 ppb) at a monitor in New Haven. The highest design values in neighboring states were 60 ppb in New York (Bronx site 360050133), 52 ppb in Massachusetts (Worcester site 250270023), and 43 ppb in Rhode Island (Providence site 440070012). EPA believes that, with the continued implementation of Connecticut's SIP-approved PSD and NNSR regulations found in RCSA section 22a-174-3a, the state's low monitored values of NO2 will continue. In other words, the NO2 emissions from Connecticut are not expected to cause or contribute to a violation of the 2010 NO2 NAAQS in another state,5 and these emissions are not likely to interfere with the maintenance of the 2010 NO2 NAAQS in another state. Therefore, EPA proposes that Connecticut has met this set of requirements related to section 110(a)(2)(D)(i)(I) for the 2010 NO2 NAAQS.

In summary, we are proposing that Connecticut has met section 110(a)(2)(D)(i)(I) for the 2008 Pb and 2010 NO2 NAAQS. Connecticut made a SIP submission with respect to section 110(a)(2)(D)(i)(I) for the 2008 ozone NAAQS on June 15, 2015 and the 2010 SO2 NAAQS on May 30, 2013. EPA is reviewing these SIP submissions and will take actions on this infrastructure requirement for both the 2008 ozone NAAQS and the 2010 SO2 NAAQS at a later date.

One aspect of section 110(a)(2)(D)(i)(II) requires SIPs to include provisions prohibiting any source or other type of emissions activity in one state from interfering with measures required to prevent significant deterioration of air quality in another state. One way for a state to meet this requirement is through a comprehensive PSD permitting program that applies to all regulated NSR pollutants and that satisfies the requirements of EPA's PSD implementation rules. As has already been discussed in the paragraphs addressing the PSD sub-element of Element C, Connecticut has satisfied the majority, though not all, of the applicable PSD implementation rule requirements.

States also have an obligation to ensure that sources located in nonattainment areas do not interfere with a neighboring state's PSD program. One way that this requirement can be satisfied is through an NNSR program consistent with the CAA that addresses any pollutants for which there is a designated nonattainment area within the state. EPA approved Connecticut's NNSR regulations on February 27, 2003 (68 FR 9009). These regulations contain provisions for how the state must treat and control sources in nonattainment areas, consistent with 40 CFR 51.165, or appendix S to 40 CFR part 51.

As noted above and in Element C, Connecticut's PSD program does not fully satisfy the requirements of EPA's PSD implementation rules, although Connecticut has committed to submit the required provisions for EPA approval by a date no later than one year from conditional approval of Connecticut's infrastructure submissions. Consequently, we are proposing to conditionally approve this sub-element for the 2008 Pb, 2008 ozone, 2010 NO2, and 2010 SO2 NAAQS. Additionally, we are proposing to convert our prior conditional approval of this sub-element as it relates to certain PSD implementation rules described under Element C above for the 1997 and 2006 PM2.5 NAAQS (see 77 FR 63228 (October 16, 2012)) to a full approval. We are also proposing to newly conditionally approve this sub-element for the 1997 and 2006 PM2.5 NAAQS for certain other implementation rule requirements for the reasons discussed under Element C above.

With regard to the applicable requirements for visibility protection of section 110(a)(2)(D)(i)(II), states are subject to visibility and regional haze program requirements under part C of the CAA (which includes sections 169A and 169B). The 2009 Memo, the 2011 Memo, and 2013 Memo state that these requirements can be satisfied by an approved SIP addressing reasonably attributable visibility impairment, if required, or an approved SIP addressing regional haze.

Connecticut's Regional Haze SIP was approved by EPA on July, 10, 2014 (79 FR 39322). Accordingly, EPA proposes that Connecticut has met the visibility protection requirements of 110(a)(2)(D)(i)(II) for the 2008 Pb NAAQS, 2008 ozone, 2010 NO2, and 2010 SO2 NAAQS.

One aspect of section 110(a)(2)(D)(ii) requires each SIP to contain adequate provisions requiring compliance with the applicable requirements of section 126 relating to interstate pollution abatement.

Section 126(a) requires new or modified sources to notify neighboring states of potential impacts from the source. The statute does not specify the method by which the source should provide the notification. States with SIP-approved PSD programs must have a provision requiring such notification by new or modified sources. A lack of such a requirement in state rules would be grounds for disapproval of this element.

EPA approved revisions to Connecticut's PSD program on July 24, 2015 (80 FR 43960), including the element pertaining to notification to neighboring states of the issuance of PSD permits. Therefore, we propose to approve Connecticut's compliance with the infrastructure SIP requirements of section 126(a) with respect to the 2008 Pb, 2008 ozone, 2010 NO2, and 2010 SO2 NAAQS. EPA also proposes to convert the previous conditional approvals for this infrastructure requirement for the 1997 and 2006 PM2.5 NAAQS (see 77 FR 63228 (October 16, 2012)) and the 1997 ozone NAAQS (see 76 FR 40255 (July 8, 2011)) to full approval. Connecticut has no obligations under any other provision of section 126.

One portion of section 110(a)(2)(D)(ii) requires each SIP to contain adequate provisions requiring compliance with the applicable requirements of section 115 relating to international pollution abatement. Connecticut does not have any pending obligations under section 115 for the 2008 Pb, 2008 ozone, 2010 NO2, or 2010 SO2 NAAQS. Therefore, EPA is proposing that Connecticut has met the applicable infrastructure SIP requirements of section 110(a)(2)(D)(ii) related to section 115 of the CAA (international pollution abatement) for the 2008 Pb, 2008 ozone, 2010 NO2, and 2010 SO2 NAAQS.

This section requires each state to provide for adequate personnel, funding, and legal authority under state law to carry out its SIP and related issues. Additionally, Section 110(a)(2)(E)(ii) requires each state to comply with the requirements with respect to state boards under section 128. Finally, section 110(a)(2)(E)(iii) requires that, where a state relies upon local or regional governments or agencies for the implementation of its SIP provisions, the state retain responsibility for ensuring adequate implementation of SIP obligations with respect to relevant NAAQS. This sub-element, however, is inapplicable to this action, because Connecticut does not rely upon local or regional governments or agencies for the implementation of its SIP provisions.

Connecticut, through its infrastructure SIP submittals, has documented that its air agency has the requisite authority and resources to carry out its SIP obligations. CGS section 22a-171 authorizes the Commissioner of the CT DEEP to enforce the state's air laws, accept and administer grants, and exercise incidental powers necessary to carry out the law. The Connecticut SIP, as originally submitted on March 3, 1972, and subsequently amended, provides additional descriptions of the organizations, staffing, funding and physical resources necessary to carry out the plan. EPA proposes that Connecticut has met the infrastructure SIP requirements of this portion of section 110(a)(2)(E) with respect to the 2008 Pb, 2008 ozone, 2010 NO2, and 2010 SO2 NAAQS.

Section 110(a)(2)(E) also requires each SIP to contain provisions that comply with the state board requirements of section 128 of the CAA. That provision contains two explicit requirements: (i) That any board or body which approves permits or enforcement orders under this chapter shall have at least a majority of members who represent the public interest and do not derive any significant portion of their income from persons subject to permits and enforcement orders under this chapter, and (ii) that any potential conflicts of interest by members of such board or body or the head of an executive agency with similar powers be adequately disclosed.

In Connecticut, no board or body approves permits or enforcement orders; these are approved by the Commissioner of CT DEEP. Thus, Connecticut is subject only to the requirements of paragraph (a)(2) of section 128 of the CAA. Infrastructure SIPs submitted by Connecticut include descriptions of conflict-of-interest provisions in CGS section 1-85, which applies to all state employees and public officials. Section 1-85 prevents the Commissioner from acting on a matter in which the Commissioner has an interest that is “in substantial conflict with the proper discharge of his duties or employment in the public interest and of his responsibilities as prescribed in the laws of” Connecticut. Connecticut submitted CGS section 1-85 for incorporation into the SIP on December 28, 2012 with its infrastructure SIP for the 2008 ozone NAAQS,6 and we are herein proposing to approve this statute into the Connecticut SIP.

Upon approval of CGS section 1-85 into the SIP, EPA proposes that Connecticut has met the applicable infrastructure SIP requirements for this section of 110(a)(2)(E) for the 2008 Pb, 2008 ozone, 2010 NO2, and 2010 SO2 NAAQS. In addition, EPA previously issued a conditional approval to Connecticut for this infrastructure requirement for the 1997 and 2006 PM2.5 NAAQS. See 77 FR 63228 (October 16, 2012). Given that Connecticut has now addressed this issue, we are also proposing to convert the prior conditional approval for this infrastructure requirement for the 1997 and 2006 PM2.5 NAAQS to full approval.

States must establish a system to monitor emissions from stationary sources and submit periodic emissions reports. Each plan shall also require the installation, maintenance, and replacement of equipment, and the implementation of other necessary steps, by owners or operators of stationary sources to monitor emissions from such sources. The state plan shall also require periodic reports on the nature and amounts of emissions and emissions-related data from such sources, and correlation of such reports by each state agency with any emission limitations or standards established pursuant to this chapter. Lastly, the reports shall be available at reasonable times for public inspection.

CGS section 22a-6(a)(5) authorizes the Commissioner to enter at all reasonable times, any public or private property (except a private residence) to investigate possible violations of any statute, regulation, order or permit. Additionally, CGS section 22a-174 authorizes the Commissioner to require periodic inspection of sources of air pollution and to require any person to maintain, and to submit to CT DEEP, certain records relating to air pollution or to the operation of facilities designed to abate air pollution. For monitoring possible air violations, CT DEEP implements RCSA section 22a-174-4, “Source monitoring, record keeping and reporting,” to require the installation, maintenance, and use of emissions monitoring devices and to require periodic reporting to the Commissioner of the nature and extent of the emissions. Section 22a-174-4 has been approved into the SIP (see 79 FR 41427 (July 16, 2014). Additionally, CT DEEP implements RCSA section 22a-175-5, “Methods for sampling, emissions testing, sample analysis, and reporting,” which provides, among other things, specific test methods to be used to demonstrate compliance with various aspects of Connecticut's air regulations, and this rule has also been approved into the SIP (see 46 FR 43418 (December 19, 1980)). Furthermore, under RCSA section 22a-174-10, emissions data are to be available to the public and are not entitled to protection as a trade secret (see 37 FR 23085 (October 28, 1972)). EPA recognizes that Connecticut routinely collects information on air emissions from its industrial sources and makes this information available to the public. EPA, therefore, proposes that Connecticut has met the infrastructure SIP requirements of section 110(a)(2)(F) with respect to the 2008 Pb, 2008 ozone, 2010 NO2, and 2010 SO2 NAAQS.

This section requires that a plan provide for authority that is analogous to what is provided in section 303 of the CAA, and adequate contingency plans to implement such authority. Section 303 of the CAA provides authority to the EPA Administrator to seek a court order to restrain any source from causing or contributing to emissions that present an “imminent and substantial endangerment to public health or welfare, or the environment.” Section 303 further authorizes the Administrator to issue “such orders as may be necessary to protect public health or welfare or the environment” in the event that “it is not practicable to assure prompt protection . . . by commencement of such civil action.”

We propose to find that Connecticut's submittals and certain state statutes provide for authority comparable to that in section 303. Connecticut's submittals specify that CGS section 22a-181, Emergency Action, authorizes the Commissioner of the CT DEEP to issue an order requiring any person to immediately reduce or discontinue air pollution as required to protect the public health or safety. In a letter dated August 5, 2015, Connecticut also specified that CGS section 22a-7 grants the Commissioner the authority, whenever he finds “that any person is causing, engaging in or maintaining, or is about to cause, engage in or maintain, any condition or activity which, in his judgment, will result in or is likely to result in imminent and substantial damage to the environment, or to public health within the jurisdiction of the commissioner under the provisions of chapter[ ] . . . 446c [Air Pollution Control] . . . [to] issue a cease and desist order in writing to such person to discontinue, abate or alleviate such condition or activity.” This section further provides the Commissioner with the authority to seek a court “to enjoin any person from violating a cease and desist order issued pursuant to [sec. 22a-7] and to compel compliance with such order.”

Section 110(a)(2)(G) also requires that, for any NAAQS, except Pb, Connecticut have an approved contingency plan for any Air Quality Control Region (AQCR) within the state that is classified as Priority I, IA, or II. A contingency plan is not required if the entire state is classified as Priority III for a particular pollutant. See 40 CFR part 51 subpart H. Classifications for the four AQCRs in Connecticut can be found at 40 CFR 52.371. Connecticut's portion of the New Jersey-New York-Connecticut Interstate AQCR is classified as a Priority I area for SOX, NO2, and ozone. In addition, Connecticut's portion of the Hartford-New Haven-Springfield Interstate AQCR is classified as a Priority I area for SOX and ozone. Consequently, Connecticut's SIP must contain an emergency contingency plan meeting the specific requirements of 40 CFR 51.151 and 51.152, as appropriate, with respect to these pollutants. As noted in Connecticut's infrastructure SIP submittals for ozone, NO2, and SO2, Connecticut has adopted “Air pollution emergency episode procedures” at RCSA section 22a-174-6. This regulation, originally numbered RCSA 19-508-6, was initially approved into the Connecticut SIP on May 31, 1972 (37 FR 23085), with amendments to the rule approved on December 23, 1980 (45 FR 84769).

As stated in Connecticut's infrastructure SIP submittals under the discussion of public notification (Element J), Connecticut also, as a matter of practice, posts on the internet daily forecasted ozone and fine particle levels through the EPA AirNow and EPA EnviroFlash systems. Information regarding these two systems is available on EPA's Web site at www.airnow.gov. Notices are sent out to EnviroFlash participants when levels are forecast to exceed the current 8-hour ozone or 24-hour PM2.5 standard. In addition, when levels are expected to exceed the ozone or PM2.5 standard in Connecticut, the media are alerted via a press release, and the National Weather Service (NWS) is alerted to issue an Air Quality Advisory through the normal NWS weather alert system.

Connecticut's participation in the AirNow and EnviroFlash programs addresses several of the public announcement and communications procedures and coordination with the National Weather Service included in the discussion of contingency plans in subpart H. See 40 CFR 51.152(a)(2), (b)(1), and (b)(3).

In addition, Connecticut's infrastructure SIP submittals reference CGS section 22a-174(c) under Element F, regarding the inspection of sources. This statute, which provides the Commissioner of CT DEEP with the authority to require periodic inspection of sources of air pollution, is also relevant under Element G, since 40 CFR 51.152(b)(2) requires each contingency plan to provide for the inspection of sources to be sure they are complying with any required emergency control actions.

Finally, with respect to Pb, we note that Pb is not explicitly included in the contingency plan requirements of subpart H. In addition, we note that there are no large sources of Pb in Connecticut. Specifically, a review of the National Emission Inventory shows that there are no sources of Pb in Connecticut that exceed EPA's reporting threshold of 0.5 tons per year. Although not expected, if that situation were to change, as noted previously, Connecticut does have general authority (e.g., CGS sections 22a-7 and 22a-181) to restrain any source from causing imminent and substantial endangerment.

Therefore, EPA proposes that Connecticut through the combination of statutes, regulations, and participation in EPA's AirNow program discussed above, has met the applicable infrastructure SIP requirements of section 110(a)(2)(G) with respect to the 2008 Pb NAAQS, 2008 ozone, 2010 NO2, and 2010 SO2 NAAQS.

This section requires states to have the authority to revise their SIPs in response to: changes in the NAAQS; availability of improved methods for attaining the NAAQS; or an EPA finding that the SIP is substantially inadequate.

Connecticut certifies that its SIP may be revised should EPA find that it is substantially inadequate to attain a standard or to comply with any additional requirements under the CAA and notes that CGS section 22a-174(d) grants the Commissioner all incidental powers necessary to control and prohibit air pollution. EPA proposes that Connecticut has met the infrastructure SIP requirements of section 110(a)(2)(H) with respect to the 2008 Pb, 2008 ozone, 2010 NO2, and 2010 SO2 NAAQS.

The CAA requires that each plan or plan revision for an area designated as a nonattainment area meet the applicable requirements of part D of the CAA. Part D relates to nonattainment areas. EPA has determined that section 110(a)(2)(I) is not applicable to the infrastructure SIP process. Instead, EPA takes action on part D attainment plans through separate processes.

The evaluation of the submissions from Connecticut with respect to the requirements of CAA section 110(a)(2)(J) are described below.

States must provide a process for consultation with local governments and Federal Land Managers (FLMs) carrying out NAAQS implementation requirements.

CGS section 22a-171, Duties of Commissioner of Energy and Environmental Protection, directs the Commissioner to consult with agencies of the United States, agencies of the state, political subdivisions and industries and any other affected groups in matters relating to air quality. Additionally, CGS section 22a-171 directs the Commissioner to initiate and supervise state-wide programs of air pollution control education and to adopt, amend, repeal and enforce air regulations. Furthermore, RCSA section 22a-174-2a, which has been approved into Connecticut's SIP (see 80 FR 43960 (July 24, 2015)), directs CT DEEP to notify relevant municipal officials and FLMs, among others, of tentative determinations by CT DEEP with respect to certain permits. In its SO2 infrastructure SIP submittal, CT DEEP submits CGS section 22a-171 for inclusion into the SIP. EPA proposes to approve this statute into the SIP and proposes that Connecticut has met the infrastructure SIP requirements of this portion of section 110(a)(2)(J) with respect to the 2008 Pb, 2008 ozone, 2010 NO2, and 2010 SO2 NAAQS.

Section 110(a)(2)(J) also requires states to notify the public if NAAQS are exceeded in an area and must enhance public awareness of measures that can be taken to prevent exceedances.

As part of the fulfillment of CGS section 22a-171, Duties of Commissioner of Energy and Environmental Protection, Connecticut issues press releases and posts warnings on its Web site advising people what they can do to help prevent NAAQS exceedances and avoid adverse health effects on poor air quality days. Connecticut is also an active partner in EPA's AirNow and Enviroflash air quality alert programs. EPA proposes that Connecticut has met the infrastructure SIP requirements of this portion of section 110(a)(2)(J) with respect to the 2008 Pb, 2008 ozone, 2010 NO2, and 2010 SO2 NAAQS.

States must meet applicable requirements of section 110(a)(2)(C) related to PSD. Connecticut's PSD program in the context of infrastructure SIPs has already been discussed in the paragraphs above addressing section 110(a)(2)(C), and EPA notes that the proposed actions for those sections are consistent with the proposed actions for this portion of section 110(a)(2)(J). Our proposed actions are reiterated below.

As noted above in Element C, Connecticut's PSD program does not fully satisfy the requirements of EPA's PSD implementation rules, although Connecticut has committed to submit the required provisions for EPA approval by a date no later than one year from conditional approval of Connecticut's infrastructure submissions. Consequently, we are proposing to conditionally approve this sub-element for the 2008 Pb, 2008 ozone, 2010 NO2, and 2010 SO2 NAAQS. Additionally, we are proposing to convert our prior conditional approval of this sub-element as it relates to certain PSD implementation rules described under Element C above for the 1997 and 2006 PM2.5 NAAQS (see 77 FR 63228 (October 16, 2012)) to a full approval. We are also proposing to newly conditionally approve this sub-element for the 1997 and 2006 PM2.5 NAAQS for certain other implementation rule requirements for the reasons discussed under Element C above.

With regard to the applicable requirements for visibility protection, states are subject to visibility and regional haze program requirements under part C of the CAA (which includes sections 169A and 169B). In the event of the establishment of a new NAAQS, however, the visibility and regional haze program requirements under part C do not change. Thus, we find that there is no new visibility obligation “triggered” under section 110(a)(2)(J) when a new NAAQS becomes effective. In other words, the visibility protection requirements of section 110(a)(2)(J) are not germane to infrastructure SIPs for the 2008 Pb, 2008 ozone, 2010 NO2, and 2010 SO2 NAAQS.

To satisfy element K, the state air agency must demonstrate that it has the authority to perform air quality modeling to predict effects on air quality of emissions of any NAAQS pollutant and submission of such data to EPA upon request.

Connecticut reviews the potential impact of major sources consistent with 40 CFR part 51, appendix W, “Guidelines on Air Quality Models.” The modeling data are sent to EPA along with the draft major permit. Pursuant to CGS section 22a-5, the Commissioner is directed to “promote and coordinate management of . . . air resources to assure their protection, enhancement and proper allocation and utilization” and to “provide for the prevention and abatement of all . . . air pollution including, but not limited to, that related to particulates, gases, dust, vapors, [and] odors.” Under RCSA section 22a-174-3a(i), Ambient Air Quality Analysis, which has been approved into the Connecticut SIP on February 27, 2003 (68 FR 3009), the Commissioner is authorized to request any owner or operator to submit an ambient air quality impact analysis using CT DEEP approved air quality models and modeling protocols. The state also collaborates with the Ozone Transport Commission (OTC), and the Mid-Atlantic Regional Air Management Association and EPA in order to perform large-scale urban airshed modeling. EPA proposes that Connecticut has met the infrastructure SIP requirements of section 110(a)(2)(K) with respect to the 2008 Pb, 2008 ozone, 2010 NO2, and 2010 SO2 NAAQS.

This section requires SIPs to mandate that each major stationary source pay permitting fees to cover the cost of reviewing, approving, implementing, and enforcing a permit.

EPA's full approval of Connecticut's Title V program became effective on May 31, 2002. See 67 FR 31966 (May 13, 2002). Before EPA can grant full approval, a state must demonstrate the ability to collect adequate fees. CGS section 22a-174(g) directs the Commissioner of CT DEEP to require the payment of a fee sufficient to cover the reasonable cost of reviewing and acting upon an application for, and monitoring compliance with, any state or federal permit, license, registration, order, or certificate. CT DEEP implements this directive through state regulations at RCSA sections 22a-174-26 and 22a-174-33, which contain specific requirements related to permit fees, including fees for Title V sources. EPA proposes that Connecticut has met the infrastructure SIP requirements of section 110(a)(2)(L) for the 2008 Pb, 2008 ozone, 2010 NO2, and 2010 SO2 NAAQS.

Pursuant to element M, states must consult with, and allow participation from, local political subdivisions affected by the SIP.

CGS section 4-168, Notice prior to action on regulations, provides a public participation process for all stakeholders that includes a minimum of a 30-day comment period and an opportunity for public hearing for all SIP-related actions. EPA proposes that Connecticut has met the infrastructure SIP requirements of section 110(a)(2)(M) with respect to the 2008 Pb, 2008 ozone, 2010 NO2, and 2010 SO2 NAAQS.

As noted above in the discussion of elements E and J, Connecticut submitted, and EPA is proposing to approve, CGS sections 1-85 and 22a-171 for approval into the SIP. In addition, in its May 30, 2013 infrastructure SIP for the 2010 SO2 NAAQS, Connecticut submitted CGS section 16a-21a “Sulfur content of home heating oil and off-road diesel fuel. Suspension of requirements for emergency,” effective July 1, 2011. EPA previously approved a prior version of this statute, which had been included as a component of Connecticut's Regional Haze SIP, into the Connecticut SIP on July 10, 2014 (79 FR 39322). The updated version of the statute includes an additional provision limiting the sulfur content of number two heating oil. The sulfur content restrictions in the updated statute are more stringent than those in the previously approved version, thus meeting the anti-backsliding requirements of CAA section 110(l). Therefore, EPA is proposing to approve the updated statute into the Connecticut SIP.

EPA is proposing to approve SIP submissions from Connecticut certifying that its current SIP is sufficient to meet the required infrastructure elements under sections 110(a)(1) and (2) for the 2008 Pb, 2008 ozone, 2010 NO2, and 2010 SO2 NAAQS, with the exception of certain aspects relating to PSD which we are proposing to conditionally approve. EPA's proposed actions regarding these infrastructure SIP requirements are contained in Table 1 below.

Executive Summary

The purpose of this rulemaking is to amend the Coast Guard's Great Lakes pilotage regulations by revising the current methodology by which the Coast Guard sets base rates for U.S. pilotage service. The legal basis for the rulemaking is provided by Great Lakes pilotage statutes in 46 U.S.C. chapter 93. The proposed changes would take effect 30 days after publication of a final rule; this would coincide closely with the start of the 2016 shipping season and be several months earlier than in past rulemakings, which set changes that took effect on August 1 of each year.

The Coast Guard is proposing a complete revision of the current methodology for two reasons. First, over many years both pilots and industry have identified certain methodology issues that they believe significantly distort ratemaking calculations. Pilot associations believe those distortions result in low rates that contribute to their difficulty in retaining pilots and attracting applicant pilots. Second, only one union's contract data has ever been made available to the Coast Guard for the purpose of determining the benchmark for pilot compensation. The union now regards that data as proprietary and will no longer disclose it to the Coast Guard. The union is not subject to our Great Lakes pilotage regulatory oversight and therefore we respect and accept their decision. However, as a result of this decision, the Coast Guard no longer has access to the detailed breakdown of compensation calculations that our current methodology relies on, and the public cannot review the union's calculations or the manner in which we apply those calculations in setting pilotage rates. Therefore, we have decided we must select another benchmark for our ratemaking purposes. In 2014, the Coast Guard's Great Lakes Pilotage Advisory Committee (GLPAC) recommended significant changes to address stakeholder issues with the current methodology and to adapt to the unavailability of benchmark contract data.1 This rulemaking would build a new ratemaking methodology around the GLPAC recommendations, the 2013 Bridge Hour Study, and numerous comments we have received over the past decade from previous rulemakings to revise this proposed methodology. Also, we believe the proposed methodology addresses the issues raised with the 2014 Appendix A Final Rule lawsuit, St. Lawrence Seaway Pilots Association, Inc., et al., v. U.S. Coast Guard. 2 The pilots successfully challenged the 2014 Appendix A Final Rule and their recommendation for target pilot compensation is discussed in this proposed rule.

As is done in the current ratemaking methodology, the proposed new methodology would follow a series of steps, which we describe in Part V. Step 1 reviews and recognizes previous operating expenses based on audits of records provided by the pilot associations. Step 2 projects each association's future operating expenses, adjusting for inflation or deflation. Step 3 projects the number of pilots needed based on each area's peak pilotage demand data and the pilot work cycle. Step 4 sets target pilot compensation using a compensation benchmark. Step 5 projects each association's return on investment by adding the projected adjusted operating expenses from Step 2 and the total target pilot compensation from Step 4 and multiplying by the preceding year's average annual rate of return for new issues of high grade corporate securities. Step 6 calculates each association's needed revenue by adding the projected adjusted operating expenses from Step 2, the total target pilot compensation from Step 4 and the projected return on investment from Step 5. Step 7 calculates initial base rates based on the preceding steps. Step 8 adjusts the Step 7 initial rates if necessary and reasonable to do so for supportable circumstances, and sets final rates.

In Part VI, the Coast Guard uses the proposed methodology described in Part V to calculate proposed base rates for the 2016 shipping season.

In Step 1 we propose accepting the independent accountant's final findings from the 2013 audits of each association's expenses.

In Step 2 we project next year's operating expenses and adjust them for inflation, using actual inflation data for 2014 and 2015 and the Federal Reserve target inflation rate as a proxy for actual 2016 inflation.

In Step 3, we determine that 50 pilots are needed next year, up from the 36 pilots we currently authorize. This number is based on data for four shipping seasons, 2010 through 2013, instead of the normal five seasons, because we do not have reliable source data for 2009 or 2014. The number is also based average pilot assignment cycle time based on our 2013 Bridge Hour Definition and Methodology Final Report though we intend to use Great Lakes Pilotage Management System (GLPMS) source data in the future.

In Step 4 we propose individual target pilot compensation of $312,500 and total target pilot compensation for 42 pilots of $13,125,000. Though we find that 50 pilots are needed over the period for which 2016 base rates would be in effect, based on our best current information we project there to be only 42 fully working and fully compensated pilots (“working pilots”) in 2016. The figures were set after considering various possible compensation benchmarks, including the compensation figures proposed by the pilot associations, and selecting 2013 Canadian Great Lakes Pilotage Authority (GLPA) registered pilot compensation as the most appropriate benchmark.

In Steps 5 and 6 we calculate the return on investment and project each pilot association's needed revenue.

In Step 7, we calculate initial base rates using the multi-year base period used above, covering the 2010 through 2013 shipping seasons.

Finally, in Step 8, we finalize the Step 7 rates, but propose imposing a temporary surcharge of $300,000 per district in 2016. The surcharge would reimburse pilot associations for the anticipated expenses of providing necessary training for current pilots and applicant pilots.

In addition to the proposed methodology revisions and proposed 2016 rates, we also propose an additional location for beginning and ending pilot assignments (a “change point”) at Iroquois Lock. This would enhance safety by mitigating fatigue associated with long pilotage runs of 10 hours or more in the St. Lawrence River.

The proposed rule would not be economically significant under E.O. 12866. It would affect 36 U.S. Great Lakes pilots, 3 pilot associations, and the owners and operators of an average of 126 vessels that journey the Great Lakes on an average 396 visits to various ports annually. The Coast Guard estimates that the proposed rate changes would result in shippers paying pilot associations a net 2016 shipping season increase from 2015 of $6,521,205. The proposed $6,521,205 represents a roughly 50% increase over the revenue the 2015 Appendix A Final Rule should generate. The Coast Guard also proposes authorizing temporary surcharges to reimburse pilot associations for training costs. These surcharges would add an estimated $900,000 in costs, for a total 2016 cost increase from 2015 of $7,421,205. Since the Coast Guard must review and prescribe rates for Great Lakes Pilotage annually, the effects are estimated as single year costs rather than annualized over a ten-year period. This rulemaking would not result in a change to Coast Guard's budget and it would not increase Federal spending. A summary of the regulatory analysis can be found in Part VII.

We encourage you to submit comments (or related material) on this rulemaking. We will consider all submissions and may adjust our final action based on your comments. Comments should be marked with docket number USCG-2015-0497 and should provide a reason for each suggestion or recommendation. You should provide personal contact information so that we can contact you if we have questions regarding your comments; but please note that all comments will be posted to the online docket without change and that any personal information you include can be searchable online (see the Federal Register Privacy Act notice regarding our public dockets, 73 FR 3316, Jan. 17, 2008).

Mailed or hand-delivered comments should be in an unbound 81/2 x 11 inch format suitable for reproduction. The Docket Management Facility will acknowledge receipt of mailed comments if you enclose a stamped, self-addressed postcard or envelope with your submission.

Documents mentioned in this proposed rule and all public comments are in our online docket at http://www.regulations.gov and can be viewed by following the Web site's instructions. You can also view the docket at the Docket Management Facility (see the mailing address under ADDRESSES) between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays.

On September 17, 2015, members of the public are invited to attend a meeting in Detroit, Michigan, at which we will answer questions and take comments on this NPRM. See DATES and ADDRESSES for further information on the meeting. A transcript of the meeting will be prepared and placed in the docket for this rulemaking.

The legal basis of this rulemaking is the Great Lakes Pilotage Act of 1960 (“the Act”),3 which requires U.S. vessels operating “on register” 4 and foreign vessels to use U.S. or Canadian registered pilots while transiting the U.S. waters of the St. Lawrence Seaway and the Great Lakes system.5 For the U.S. registered Great Lakes pilots (“pilots”), the Act requires the Secretary to “prescribe by regulation rates and charges for pilotage services, giving consideration to the public interest and the costs of providing the services.” 6 The Act requires that rates be established or reviewed and adjusted each year, not later than March 1.7 The Act requires that base rates be established by a full ratemaking at least once every 5 years, and in years when base rates are not established, they must be reviewed and, if necessary, adjusted.8 The Secretary's duties and authority under the Act have been delegated to the Coast Guard.9

The purpose of this notice of proposed rulemaking (NPRM) is to propose revisions to the annual ratemaking methodology and several Great Lakes pilotage regulations; to propose the addition of a new pilot change point; and to propose new base pilotage rates and surcharges, using the proposed revised ratemaking methodology.

The vessels affected by this NPRM are those engaged in foreign trade upon the U.S. waters of the Great Lakes. United States and Canadian “lakers,” which account for most commercial shipping on the Great Lakes, are not affected.10

The U.S. waters of the Great Lakes and the St. Lawrence Seaway are divided into three pilotage districts. Pilotage in each district is provided by an association certified by the Coast Guard Director of Great Lakes Pilotage (“the Director”) to operate a pilotage pool. The Coast Guard does not control the actual compensation that pilots receive. The actual compensation is determined by each of the three district associations, which use different compensation practices.

District One, consisting of Areas 1 and 2, includes all U.S. waters of the St. Lawrence River and Lake Ontario. District Two, consisting of Areas 4 and 5, includes all U.S. waters of Lake Erie, the Detroit River, Lake St. Clair, and the St. Clair River. District Three, consisting of Areas 6, 7, and 8, includes all U.S. waters of the St. Mary's River; Sault Ste. Marie Locks, and Lakes Huron, Michigan, and Superior. Area 3 is the Welland Canal, which is serviced exclusively by the Canadian GLPA and, accordingly, is not included in the United States pilotage rate structure. Areas 1, 5, and 7 have been designated by Presidential Proclamation, pursuant to the Act, to be waters in which pilots must, at all times, be fully engaged in the navigation of vessels in their charge. Areas 2, 4, 6, and 8 have not been so designated because they are open bodies of water. While working in those undesignated areas, pilots must “be on board and available to direct the navigation of the vessel at the discretion of and subject to the customary authority of the master.” 11

The Coast Guard is required 12 to establish new pilotage rates by March 1 of each year, employing a “full ratemaking . . . at least once every 5 years,” and an annual review and adjustment in the intervening years. Currently, the methodology for an “every 5 years” full ratemaking appears in 46 CFR part 404, appendix A, and the methodology for annual review and adjustment appears in part 404, appendix C. Definitions and formulas applicable to both methodologies appear in part 404, appendix B. We have not used the appendix C methodology since the 2011 ratemaking, and instead we have conducted a full appendix A ratemaking each year.

As we do each year, the NPRM for the 2016 ratemaking proposes new rates. In addition, this year's NPRM must also propose procedural changes to the ratemaking methodology, for two reasons.

First, each year our ratemakings draw pilot and industry comments urging fundamental changes in our current ratemaking methodology.13 Based on our review of such comments over many years, we understand that these stakeholders believe the current methodology is unnecessarily complex and based on an inaccurate understanding of how pilotage actually operates within the Great Lakes system. The stakeholders believe the methodology produces improper rates, and wide annual rate variations that frustrate long term planning. In response, in 2009 we solicited public comments to better understand stakeholder perceptions of the ratemaking methodology,14 and promised to refer those comments to the Great Lakes Pilotage Advisory Committee (GLPAC),15 a stakeholder group that advises us on Great Lakes pilotage matters, for GLPAC's review and recommendations. Ever since, we have worked closely with GLPAC to identify ways in which the methodology might be improved.

Second, we seek to ensure a safe, efficient, and reliable pilotage system for the Great Lakes and to eliminate possible barriers to achieving that goal. According to the pilot associations, the variance between projected revenue and actual revenue represents a significant challenge, because failure to achieve published revenue projections deprives them of the resources they need to provide safe, efficient, and reliable pilotage service. The associations cite challenges in making capital investments, recruiting and retaining adequately qualified pilots, achieving professional development and training schedules recommended by the American Pilots Association, updating technology, and achieving target compensation goals. The associations say that as a result, several experienced pilots have left the system, and that other desirable mariners have been discouraged from applying to become pilots. In this rulemaking, we propose specific regulatory changes intended to address these issues.

The procedural changes we propose here were discussed in general at GLPAC's public meetings on July 23 and 24, 2014. Many of the specific changes we propose in this NPRM were submitted for GLPAC consideration at those meetings, and GLPAC unanimously recommended them for adoption.16 We consider GLPAC recommendations to have significant weight because the three pilot associations members represent pilots' interest and three U.S. shipping agent members represent owners. Although foreign citizens may not serve on GLPAC and therefore the foreign vessel owners are not GLPAC members, we believe the U.S. shipping agents are aware of and can adequately represent their interests. Also, the foreign vessel owners can and do to attend GLPAC meetings and raise their concerns during each meeting's public comment period.

Please note that we propose making the following procedural and rate changes effective 30 days after publication of a final rule, almost half a year earlier than the August 1 effective date we have used in previous rulemakings. We specifically request comments on this proposed change. The change is justified for two reasons. First, the traditional August 1 date was tied to the August 1 effective date for annual changes in benchmark union contract rates. As we subsequently discuss, we are no longer using the contract in question and hence there is no inherent reason why we should continue following the traditional practice. Second, annual Great Lakes pilotage rate adjustments are required by law 17 to be set by March 1 of the year in which those adjustments take effect. By applying the normal Administrative Procedure Act effective date, 30 days following publication of a final rule,18 we will ensure that new rates will be announced prior to the usual early spring opening of the annual Great Lakes shipping season, and take effect near the opening date, thereby providing a single rate scheme for all shipping traffic affected by the adjusted rates.

We propose the following procedural changes. Please note that, for each of the amended sections in the following discussion, we propose extensive rewording in the interest of greater clarity and to remove unnecessary verbiage.

46 CFR 401.405, 401.407, and 401.410. These sections contain rate tables and additional charges for specified Great Lakes waters. These rates and charges are subject to our annual rate reviews and revisions. Currently, the rate tables calculate rates differently for each area. Most of the pilotage costs charged in designated waters are for transits between two specified points. For example, as shown in current § 401.407(b), the current charge for transiting Lake Erie between Toledo and Southeast Shoal is $2,637. However, in undesignated waters, most of the pilotage charges are set at an hourly rate. For example, current § 401.407(a) shows that the cost for 6 hours of pilotage service on the undesignated waters of Lake Erie is $934. In addition, rates are set in designated and undesignated waters for miscellaneous services like vessel docking or undocking, cancellation of service, or the use of pilot boarding points other than those specified in § 401.450.

This mixed approach complicates an otherwise simple transaction of paying for a pilot's service, either when the pilot is piloting on a vessel's bridge, or is at the vessel master's disposal to provide piloting. We propose eliminating the mixed approach in favor of setting, for each district, one hourly rate for designated waters, and another hourly rate for undesignated waters. Those rates would be different for each district based on differences across the districts in the infrastructure maintained by each district association (for example, differences in numbers and types of pilot boat, or in office arrangements) and in the distances that pilots must travel to and from assignments.

Currently, some rates published in 46 CFR part 401 are based on hours, and others are based on the distance between two geographical points. GLPAC recommended re-baselining this billing scheme by a 5-1 vote in July 2014, and we propose doing so by basing all rates on hours.19 In addition to simplifying billing, an hourly-based approach recognizes the scarcity of pilots as a resource, and charges shippers for drawing on the limited number of these trained professionals.

Proposed § 401.405 would set each district's new base hourly rates. The proposed changed to § 401.405 would replace the current text in §§ 401.407 and 401.410 so those section would be removed.

46 CFR 401.420 and 401.428. We propose amending § 401.420 (charges for a vessel's canceling, delaying, or interrupting pilotage service) and § 401.428 (charges for picking up or discharging a pilot other than at a pilot change point designated in § 401.450), and basing those charges on the applicable hourly rates we would specify in § 401.405. Billing under § 401.420 would preclude any additional charges for pilotage service during the hours in question.

We would not retain § 401.428's current per diem allowance for a pilot who is picked up or discharged at a point other than a designated change point. Instead, if the pilot is kept aboard for the convenience of or at the request of the ship, the pilot would bill the vessel for the extra time involved, at the § 401.405 hourly rates, in addition to reasonable travel costs. If the pilot is kept aboard for circumstances outside of the ship's control, for example because a pilot boat is out of service, the pilot would bill the vessel only for reasonable travel costs. Finally, we would specify that for both sections, the “reasonable travel costs” cover travel to and from the pilot's base.

In both sections we propose maintaining a similar calendar-based authorization for delays and charges associated with weather, traffic and ice. These are expected conditions at the beginning and end of the season; thus, our rate structure allows them as acceptable charges after November 30th or before May 1st each year.

46 CFR 401.450. We propose adding the Iroquois Lock in the St. Lawrence Seaway as a new pilot change point, joining those currently listed in this section. The St. Lawrence Seaway transit often requires pilots to spend more than ten hours aboard a vessel. Such long assignments contribute to pilot fatigue, and have led the National Transportation Safety Board to recommend that we amend our Great Lakes pilotage regulations to promulgate “hours-of-service rules that prevent fatigue resulting from extended hours of service, insufficient rest within a 24-hour period, and disruption of circadian rhythms.” 20 We currently authorize a pilot to request a new pilot at the Iroquois Lock for overnight assignments, but our proposed addition of the Iroquois Lock as a permanent pilot change point would further help mitigate the problem of long assignments in the St. Lawrence Seaway. We would closely monitor the impact of the proposed change on the number of pilots needed in District One.

46 CFR 403.120. We propose removing this section, which discusses notes to financial reports. Under our current financial reporting system those notes are not necessary.

46 CFR 403.300. The accuracy of our pilotage rates depends on the accuracy of our information on each pilotage association's expenses and revenue. In the past, we have had difficulty validating the accuracy of this information, because some associations did not use a uniform financial reporting system. Therefore, we would require each association to use the current Coast Guard-approved and provided financial reporting system to certify their financial data annually. Currently, we approve the GLPMS for this purpose. We would continue to require an annual audit prepared by an independent certified public accountant.

46 CFR 403.400. Currently, this section details how forms must be filled out to report pilot transaction records. Although GLPMS allows for paper reporting, in the near future it will also provide an electronic reporting feature. Therefore we would amend the section to remove language that could suggest paper reporting is required. We accept reports made in any medium supported by our currently-approved financial reporting system.

46 CFR 404.1. Currently, this section explains the purpose of part 404, and summarizes ratemaking procedures that are described in the part 404 appendices. Because the remainder of part 404 would describe our procedures in detail, we propose removing these provisions. Instead, § 404.1 would state that our intention is to provide maximum ratemaking transparency and simplicity. It would state that the goal of ratemaking is to promote safe, efficient, and reliable pilotage service on the Great Lakes, by generating for each pilotage association sufficient revenue to reimburse its necessary and reasonable operating expenses, fairly compensate trained and rested pilots, and provide an appropriate reserve to use for improvements. The section would provide for the annual audit of association expenses, which we have conducted for many years. It would also require annual audits of association revenue. Revenue audits promote transparency and help us gauge, and if necessary adjust, the way in which we try to align our revenue projections with an association's actual revenue. GLPAC endorsed revenue audits in July 2014,21 and they were first used in our 2015 ratemaking.

The section would also provide for a full ratemaking to establish base pilotage rates at least once every five years, with annual rate reviews and adjustments in the interim years, in accordance with the procedures described in part 404.

46 CFR 404.2. We would close the numbering gap between current §§ 404.1 and 404.5, and redesignate § 404.5 as § 404.2. Section 404.5 currently describes which pilot association expenses can or cannot be recognized as appropriate to recover through the charging of pilotage rates. New § 404.2 would do the same thing, and make no substantive changes except with respect to the recognition of pilot benefits as an element of pilot compensation. Current § 404.5 states that the amounts paid for benefits will be recognized to the extent benefits are included in “the most recent union contract for first mates on Great Lakes vessels.” Sufficiently detailed and itemized access to relevant union contracts is no longer available for Coast Guard or public review. Therefore, instead of linking benefits to union contracts, we would recognize pilot compensation as covering all association-paid pilot benefits, including medical and pension benefits and profit sharing.

46 CFR 404.100. We propose redesignating current § 404.10 as § 404.100. Section 404.10 currently provides a general introduction to the part 404 appendices on ratemaking methodology, but it contains no substantive requirements. It also currently describes the seven areas of the Great Lakes that are covered by the three pilotage districts, but since that information already appears in part 401, subpart D, it need not be repeated. We would replace this current content with general rules for the conduct of full ratemakings and rate reviews.

Currently, and as we have done since 2012, each year we conduct a full appendix A ratemaking to establish base pilotage rates. However, we believe establishing base rates for multi-year periods would produce more predictable rates for both pilots and industry. GLPAC recommended this approach in July 2014.22

Under our proposed multi-year approach, we would conduct full ratemakings to establish base rates at least once every 5 years, with base rate reviews and necessary adjustments in interim years.23 In the interim years the Director would review the existing rates to ensure that they continue to promote safe, efficient, and reliable pilotage service. If interim-year adjustments are needed, they would be set either through automatic annual adjustments, pre-set during the previous full ratemaking in anticipation of economic trends over the multi-year term; or to reflect U.S. Bureau of Labor Statistics (BLS) Consumer Price Index (CPI-U); or, if neither of those methods would produce appropriate adjustments, through a new full ratemaking. Reviews and adjustments would be proposed for public comment.

For a transitional period over the next several years, we would conduct annual reviews of the rate and change the base rates, as needed, to ensure the new methodology's efficacy. This would also allow time for the pilots and industry to become familiar with the new ratemaking methodology (including the new hourly billing scheme). Following the transitional period, we would propose interim-year adjustments using any of the three methods described in the preceding paragraph.

Ratemaking methodology. We propose simplifying the current appendix A ratemaking methodology, and replacing it with new §§ 404.101 through 404.108. In part, the new sections are similar to the “Steps” described in appendix A, but they would depart from those Steps in significant respects. We also propose removing current appendix B (ratemaking definitions and formulas) and appendix C (annual rate reviews; which has not been used since 2011) as these are no longer necessary. Table 1 shows how we propose to change appendix A's Steps in the new regulatory text.

In the discussion that follows, we explain how our proposed new methodology would replace each Step of the appendix A methodology. Our calculations for 2016 rates, using the proposed methodology, appear in Part VI.

46 CFR 404.101—Recognize previous operating expenses. Section 404.101 would correspond generally to current Steps 1.A and 1.B (pilot association submission of financial information and Coast Guard recognition of costs). We would describe our criteria for recognizing costs in § 404.2. The section proposes that the recognition of costs be based on independent third party audits, as has been the case for many years.

46 CFR 404.102—Project operating expenses, adjusting for inflation or deflation. Section 404.102 would correspond to current Steps 1.C and 1.D and describe, as those Steps do, how we calculate an association's projected base non-compensation operating expenses. As we do today, we would apply a cost change factor for inflation or deflation, based on BLS Midwest Region CPI-U changes, to any of the operating expenses recognized under § 404.101 that could be affected by inflation or deflation.

This NPRM proposes base rates to take effect in 2016. It considers audited pilot association expenses from 2013, the last full year for which reported and audited financial information is available. Current Step 1.C allows us to apply a cost change factor only for the first year after that (2014). This does not take into account consumer price index changes in subsequent years (2015 and 2016). In July 2014 GLPAC recommended that we take the subsequent years into account,26 and we propose doing so, using BLS, and the target inflation rate set by the Federal Reserve as a proxy for the Midwest Region CPI-U if BLS projection data is unavailable.

46 CFR 404.103—Determine number of pilots needed. Section 404.103 would correspond to current Step 2.B, which determines how many pilots are needed based on our projections of the bridge hours that pilots will serve during the upcoming shipping season. Because bridge hours represent only the time that a pilot is on board a vessel and providing basic pilotage service, pilots frequently have commented in previous years' ratemaking rules that we should also take into account necessary demands on pilot time that go beyond bridge hours. They have also commented that Step 2.B does not specify sources for our bridge hour projections and that inaccurate projections distort the rest of our ratemaking calculations. We agree and propose changing how we calculate the number of pilots needed.

Instead of projecting future bridge hours to calculate the number of pilots needed, we would rely on an average of actual past data, as recommended by GLPAC in July 2014.27 Also as recommended by GLPAC,28 we would identify the number of pilots needed to meet each shipping season's peak pilotage demand periods without interruption to service. To do this, we would determine each area's peak demand over an historical multi-year base period, and the pilot assignment cycle time to determine how many pilots would have been needed to meet that peak demand. For both determinations, we use averages to compensate for normal year-to-year fluctuation in traffic and pilot availability over the historical multi-year base period. We would divide the peak demand figures by the per-pilot cycle time to determine the number of pilots needed to meet peak demand.

Historical multi-year base period. Normally, the base period would cover the five most recent full shipping seasons, and our data source would be pilot association entries in a system approved under proposed § 403.300. Using a five year period should give us a reliable picture of recent Great Lakes traffic trends, and taking data from an approved system should ensure the use of consistent data across the three districts.

If within the five most recent seasons data are unavailable or unreliable, we would consider substituting available and reliable data from another past shipping season or from a source other than an approved system, such as pilot association submitted data or Canadian GLPA data. Examples of unavailable or unreliable data are situations where data have not been recorded in an approved system, or come from an outlier year in which traffic was abnormally low or high and so could significantly distort our calculations. Generally, a traffic distortion of significant proportion, one that we would not expect be replicated within the next decade, would form the basis of this determination. That year's NPRM would explain, for public comment, our determination that normal data sources are unavailable or unreliable, and our selection of an alternate source. We specifically request public comment on whether there is an objective standard that we can and should use in each annual ratemaking, to determine whether a particular shipping season should be treated as an “outlier.”

For our first historical multi-year base period, we do not think we have sufficient reliable data for five recent shipping seasons, and therefore we propose using only four seasons' data, as we explain in Part VI.

Base seasonal work standard. This standard is intended to ensure that we consider all the time reasonably needed for a pilot to provide safe, efficient, and reliable pilotage service. We start by recognizing that pilots must provide pilotage whenever traffic demands it, and that the timing of this traffic is often unpredictable. Current regulations ensure only a minimum 10-hour rest period between a pilot's assignments.29 Historically, peak traffic demand is concentrated at the beginning of a shipping season, to handle the traffic buildup created by the previous season's closure, and at the end of the season, when vessels seek to complete their voyages before closure. During these peak periods, pilots are often on assignment nearly continuously. However, even in off-peak months, pilots frequently provide pilotage over many weeks without any significant rest, which over time threatens to degrade their ability to provide safe service. The pilots, GLPAC, and the Coast Guard agree that proper rest is an important concern to address.

In July 2014, GLPAC recommended that we “take a serious look” at scheduling monthly 10 day recuperative rest periods for pilots.30 We believe a reasonable goal is to provide each pilot with 10 days' recuperative rest each month during the off-peak months of the season, if it is possible to do so and still meet traffic demands safely, efficiently, and reliably. A typical shipping season runs 270 or more days of availability; 10 days scheduled time off each month is line with other pilot associations that require pilot availability of 180-200 days per year. Many pilot associations work a multi-team concept of 2 weeks on followed by 2 weeks off but we find this problematic because of the compressed shipping season in the Great Lakes. Thus, we propose building into our base seasonal work standard only 200 workdays per pilot per season. The 70-day difference should facilitate a 10-day recuperative rest period for each pilot in each of the seven months (mid-April to mid-November) between peak traffic periods.

In addition, we would determine, based on our analysis of best available data 31 and for each area, the reasonably necessary average work cycle associated with each pilot assignment. We propose including in the work cycle not only the pilot assignment itself (“bridge hours”), but also time for pilot travel time from the pilot's home or other base to and from assignments (including time spent on pilot boats to and from assignments), vessel delays and detention, the 10-hour mandatory rest between assignments,32 and administrative time for district association presidents who also serve as pilots.33

Adjustment of results. Dividing peak demand figures by per-pilot assignment figures usually will result in a fractional number that we would round either up or down, as seems most reasonable, to the nearest whole integer. Area totals would be added to determine each district's needed pilots. We could also make reasonable and necessary adjustments to take into account anticipated supportable circumstances that could affect the district's need for pilotage over the years for which base pilotage rates are being established.

Needed vs. projected working pilots. In addition to showing the number of pilots needed in each district, we would also project the number of pilots we expect to be actually working full-time and fully compensated during the first shipping season of the new base period for which rates are being established. This projection becomes a key component of our calculations under proposed § 404.104. We believe the projection will closely match the first shipping season's actual pilot population, because our regulatory role gives us accurate data on the number of current applicant pilots and on the progress of those applicants through the application, training, and certificating processes,34 and because the continuous communication between the Coast Guard and the pilot association ensures that we are aware of its near-term hiring expectations.

46 CFR 404.104—Determine target pilot compensation. This step would correspond to current Steps 2.A (individual target compensation) and 2.C (total target compensation) except in three respects.

First, Step 2.A sets two different target compensation figures, one for undesignated waters and the other for designated waters. Although we propose (in § 401.405) to set different rates for each district's designated and undesignated waters, we see no reasonable basis for discriminating between the target compensation of pilots on the basis of the distinction between designated or undesignated waters. In any waters and in any district, pilots need the same skills, and therefore we propose a single individual target pilot compensation figure across all three districts.

Second, as we explained in discussing § 404.2, our compensation benchmark can no longer rely (as it does under Step 2.A) on contract compensation information that now is treated as proprietary and therefore not fully available for Coast Guard or public review. Instead, we propose considering only the most relevant current data that are available for Coast Guard and public review. Sources for such data may vary from one full ratemaking to another, and for supportable circumstances we would be able to make reasonable and necessary adjustments to the data. We review the sources we considered for this NPRM in Part VI.

Third, we propose changing the way in which Step 2.C determines total pilot compensation in each district, which currently is to multiply individual target pilot compensation by the number of pilots needed. That assumes that a district has a full complement of pilots to share the district's target compensation, and it incorrectly increases the district's total compensation when not fully staffed. This may act as a disincentive for the district to reach the full complement that we think necessary for providing safe, efficient, and reliable pilotage. Instead, we propose multiplying individual target pilot compensation by the number of pilots we project, in § 404.103, to be working full time 35 and compensated fully in the first shipping season of the new base period for which rates are being established.

46 CFR 404.105—Project return on investment. Currently, appendix A contains three complex steps related to a district association's return on investment: Steps 4 (calculation of investment base), 5 (determination of target rate of return on investment), and 6 (adjustment determination). In July 2014, GLPAC recommended eliminating Steps 4 and 6 entirely, as being unclear and having minimal effect on the final rates, and revising Step 5 as we now propose.36 We would project an association's return on investment by taking the sum of operating expenses from § 404.102 and target pilot compensation from § 404.104, and multiplying that sum by the preceding year's average annual rate of return for new high grade corporate securities (the same multiplier used in Step 5).

46 CFR 404.106—Project needed revenue. As discussed in connection with proposed § 404.105, we are not replicating the current Step 6 procedure for projecting each association's needed revenue for the next year. Instead, we propose calculating base needed revenue by adding projected base operating expenses from proposed § 404.102, the total base target pilot compensation from proposed § 404.104, and the base return on investment from proposed § 404.105. We believe this is a more transparent procedure and that it adequately projects an association's needed revenue.

46 CFR 404.107—Initially calculate base rates. This would correspond to current Step 7 of appendix A and initially set base rates for the designated and undesignated waters of each district, subject to modification or finalization under proposed § 404.108.

Currently, Step 7 takes projected revenue needed and divides it by projected revenue. The resulting rate multiplier is the percentage by which rates should be changed, subject to adjustment as explained in the last sentence of Step 7's first paragraph (we propose discussing that adjustment in § 404.108). This bases the rate multiplier on a calculation that depends on the accuracy of our revenue projection.

Instead, we propose initially calculating rates by dividing the projected needed revenue (§ 404.106) by available and reliable data for actual hours worked by pilots in each district's designated and undesignated waters during a multi-year base period. We would average this data to compensate for normal traffic fluctuation from one season to another.

As we propose for § 404.103, the base period would normally consist of the five most recent full shipping seasons. Normally, our data source would be pilot association entries in the GLPMS, or another system we would approve under proposed § 403.300. If, within the five most recent seasons, data are unavailable or unreliable, we would substitute available and reliable data from another past shipping season or from a source other than GLPMS, including pilot association data or Canadian GLPA data. For example, if data has not been recorded in a system approved under § 403.300, or comes from an outlier year in which traffic was abnormally low or high it could significantly distort our calculations; we would look to an alternative source of available shipping data.

In some years and in some districts, dividing needed revenue by the multi-year average hours could produce significantly higher rates for designated waters than for undesignated waters. This imbalance could create unnecessary financial risk to the pilot associations by focusing revenue generation too narrowly in designated waters at the expense of undesignated waters. To ensure safe, efficient, and reliable pilotage in all Great Lakes waters whether designated or undesignated, we therefore propose applying a ratio to adjust the balance between rates, limiting the designated-water rate to no more than twice the undesignated-water rate. This would correct the undesirable rate imbalance, without affecting the total needed revenue projected for each district.

46 CFR 404.108—Review and finalize rates. This would correspond to the last sentence in the first paragraph of appendix A's Step 7, which for “supportable circumstances” permits discretionary adjustments to initial rate calculations. Supportable circumstances include factors defined in current U.S.-Canadian agreements relating to Great Lakes pilotage.37 Pilots and industry have commented unfavorably on past exercises of “Step 7 discretion.” We propose specifying that any modification to the initial rates set under § 404.107 must be necessary and reasonable, as well as justified by supportable circumstances. Under proposed § 404.100, we would continue to submit any proposed adjustment for public comment, which could result in our omitting or modifying the proposed adjustment. Any adjustment would be subject to § 404.107's limitation on the disparity between rates for designated and undesignated waters.

We propose new rates and 46 CFR 401.401 surcharges for 2016. We reviewed the independent accountant's financial reports for each association's 2013 expenses and revenues. Those reports, which include pilot comments on draft versions and the accountant's response to those comments, appear in the docket.38

The following discussion applies the proposed ratemaking methodology that is discussed in section V of this preamble.

Recognize previous year's operating expenses (proposed § 404.101). We reviewed and accepted the accountant's final findings on the 2013 audits of association expenses.

Tables 2 through 4 show each association's recognized expenses.

Project next year's operating expenses, adjusting for inflation or deflation (proposed § 404.102). We based our 2014 and 2015 inflation adjustments on BLS data from the Consumer Price Index for the Midwest Region of the United States,39 and projected it for 2016 based on the target inflation rate set by the Federal Reserve.40 The adjustments are shown in Tables 5 through 7.