Federal Register Vol. 80, No.215,

The FDIC maintains a fund in order to assure the agency's capacity to meet its obligations as insurer of deposits and receiver of failed banks.1 The FDIC considers the adequacy of the DIF in terms of the reserve ratio, which is equal to the DIF balance divided by estimated insured deposits. A higher minimum reserve ratio reduces the risk that losses from bank failures during a downturn will exhaust the DIF and reduces the risk of large, procyclical increases in deposit insurance assessments to maintain a positive DIF balance.

The Dodd-Frank Act, enacted on July 21, 2010, contained several provisions to strengthen the DIF.2 Among other things, it: (1) Raised the minimum reserve ratio for the DIF to 1.35 percent (from the former minimum of 1.15 percent); 3 (2) required that the reserve ratio reach 1.35 percent by September 30, 2020; 4 and (3) required that, in setting assessments, the FDIC “offset the effect of [the increase in the minimum reserve ratio] on insured depository institutions with total consolidated assets of less than $10,000,000,000.” 5

Both the Dodd-Frank Act and the FDI Act grant the FDIC broad authority to implement the requirement to achieve the 1.35 percent minimum reserve ratio. In particular, under the Dodd-Frank Act, the FDIC is authorized to take such steps as may be necessary for the reserve ratio to reach 1.35 percent by September 30, 2020. Furthermore, under the FDIC's assessment authority in the FDI Act, the FDIC may impose special assessments in an amount determined to be necessary for any purpose that the FDIC may deem necessary.6

In the FDIC's view, the Dodd-Frank Act requirement to raise the reserve ratio to the minimum of 1.35 percent by September 30, 2020 reflects the importance of building the DIF in a timely manner to withstand future economic shocks. Increasing the reserve ratio faster reduces the likelihood of procyclical assessments, a key policy goal of the FDIC that is supported in the academic literature and acknowledged by banks.7 In meeting the requirements of the Dodd-Frank Act, the FDIC considered the tradeoff between building the DIF sooner rather than later and the potential cost of higher additional assessments for banks with $10 billion or more in assets.

The purpose of the NPR is to meet the Dodd-Frank Act requirements in a manner that appropriately balances several considerations, including the goal of reaching the minimum reserve ratio reasonably promptly in order to strengthen the fund and reduce the risk of pro-cyclical assessments, the goal of maintaining stable and predictable assessments for banks over time, and the projected effects on bank capital and earnings. The proposed primary mechanism described below for meeting the statutory requirements—surcharges on regular assessments—would ensure that the reserve ratio reaches 1.35 percent without inordinate delay (in 2018) and would ensure that assessments are allocated equitably among banks responsible for the cost of these requirements.

The Dodd-Frank Act gave the FDIC greater discretion to manage the DIF than it had previously, including greater discretion in setting the target reserve ratio, or designated reserve ratio (DRR), which the FDIC must set annually.8 The FDIC Board of Directors (Board) has set a 2 percent DRR for each year starting with 2011.9 The Board views the 2 percent DRR as a long-term goal.

By statute, the FDIC also operates under a Restoration Plan while the reserve ratio remains below 1.35 percent.10 The Restoration Plan, originally adopted in 2008 and subsequently revised, is designed to ensure that the reserve ratio will reach 1.35 percent by September 30, 2020.11

In February 2011, the FDIC adopted a final rule that, among other things, contained a schedule of deposit insurance assessment rates that apply to regular assessments that banks pay. The FDIC noted when it adopted these rates that, because of the requirement making banks with $10 billion or more in assets responsible for increasing the reserve ratio from 1.15 percent to 1.35 percent, “assessment rates applicable to all insured depository institutions need only be set high enough to reach 1.15 percent” before the statutory deadline of September 30, 2020.12 The February 2011 final rule left to a later date the method for assessing banks with $10 billion or more in assets for the amount needed to reach 1.35 percent.13

The FDIC also adopted a schedule of lower regular assessment rates in the February 2011 final rule that will go into effect once the reserve ratio of the DIF reaches 1.15 percent.14 These lower regular assessment rates will apply to all banks' regular assessments. Regular assessments paid under the schedule of lower rates are intended to raise the reserve ratio gradually to the long-term goal of 2 percent.

In the FDIC's most recent semiannual update of the DIF's loss and income projections in October 2015, the FDIC projects that, under the current assessment rate schedule, the DIF reserve ratio is most likely to reach 1.15 percent in the first quarter of 2016, but may reach that level as early as the fourth quarter of this year.

To implement the requirements of the Dodd-Frank Act, and pursuant to the FDIC's authority in section 7 of the FDI Act,15 the FDIC proposes to add a surcharge to the regular assessments of banks with $10 billion or more in assets. The surcharge would begin the quarter after the DIF reserve ratio first reaches or exceeds 1.15 percent and would continue until the reserve ratio first reaches or exceeds 1.35 percent, but no later than the fourth quarter of 2018.16 The FDIC would notify those banks that would be subject to the surcharge in any quarter and the amount of such surcharge within the timeframe that applies to notification of regular assessment amounts.17

The FDIC proposes an annual surcharge rate of 4.5 basis points, which it expects will be sufficient to raise the reserve ratio from 1.15 percent to 1.35 percent in 8 quarters, before the end of 2018.

The banks subject to the surcharge (large banks) would be determined each quarter based on whether the bank was a “large institution” or “highly complex institution” for purposes of that quarter's regular assessments; however, an insured branch of a foreign bank whose assets as reported in its most recent quarterly Report of Assets and Liabilities of U.S. Branches and Agencies of Foreign Banks equaled or exceeded $10 billion would also be a large bank.18 19 20

A notice of proposed rulemaking that appeared in the Federal Register on Thursday, August 13, 2015 (80 FR 48472) announced that written and electronic comments and requests for a public hearing must be received by November 12, 2015. In order to provide the public with a sufficient opportunity to submit comments, the due date to receive electronic comments and requests for a public hearing has been extended to Monday, January 11, 2016.

An Advanced Notice of Proposed Rulemaking was provided with a 60-day comment period which ended on July 12, 2013. We received comments from 39 commenters; the issues raised by these comments have been considered in drafting this proposed rule. We thank all commenters for their participation in this process. The bases for the proposed amendments are as follows.

Within § 74.1, VA proposes to create two new terms and amend or remove several definitions. New terms; “daily business operations” and “Permanent caregiver” would be added. The term “daily business operations” would replace “Day-to-day management” and “day-to-day operations” both of which would be removed; these definitions would be merged in order to simplify amendments made to § 74.4 while ensuring statutory requirements are still enforced/imposed. In addition, Permanent caregiver would be incorporated into § 74.1 whereas previously the concept and terminology was referenced in the regulation, most clearly at § 74.4(g)(1), but not defined. The term would be changed to permanent caregiver and references to personal caregiver would be removed. This amendment would create a definition which would account for definitions of similar and related terms found in 13 CFR 125.8(c), 13 CFR 125.8(d), 38 CFR 3.340(b), and 38 CFR 71.30. This change is intended to take multiple requirements, found throughout regulation, and synthesize them into a single cohesive definition. For purposes of this Part, a requirement that the applicant provide an explanatory statement which states the nexus between the veteran's disability and the need for the permanent caregiver to manage the concern would be added to assist in program administration.

The following terms would be amended:

The term Center for Veterans Enterprise would be changed to revise Center for Verification and Evaluation (CVE) to reflect the name change effectuated at 78 FR 59861, September 30, 2013. The definition of CVE would be further amended to reflect the change to the functions of this office.

Joint venture would be amended to contain project and time restrictions utilized by other set-aside programs. VA has also added language to clearly address the current policy by indicating that at least one venturer must be a Veteran Owned Small Business (VOSB).

The definition of Office of Small and Disadvantaged Business Utilization would be amended to more accurately convey the role fulfilled by this office with respect to VOSB matters.

Participant would be amended to emphasize CVE's role in verifying status.

Primary industry classification would be amended to make a technical change to use the acronym NAICS as it had already been spelled out and properly noted in a parenthetical earlier in the definition.

Principal place of business would be amended to make a technical change, specifically the term “day-to-day operation” would be removed and replaced by “daily business operations” in accordance with the amended term from earlier in the definitions section.

Service-disabled veteran would be amended as the current definition has led to confusion regarding the documentation necessary to establish a service-connected disability. This change would also help increase program efficiency by specifically referencing BIRLS, the system that allows CVE to quickly and accurately determine veteran status.

Service-disabled veteran-owned small business concern would be amended to remove reference to Reservists or members of the National Guard. This reference is appropriately addressed by the amended definition of Veteran. The word spouse would be removed in the first sentence and the word “the” would be added before “permanent caregiver”. This change would clarify for the public and potential participants the situations under which a permanent caregiver, previously referred to as a personal caregiver or spouse, would be able to maintain VOSB eligibility on behalf of a veteran. In the amended regulation, the requirements one must meet to serve as a permanent caregiver would be clearly defined. In order to avoid fraud, waste and abuse any spouse seeking to stand in for a veteran with permanent and severe disability would have to meet these same requirements. Therefore, the reference to spouse, separately from permanent caregiver, would be redundant and potentially confusing. Due to the use of the term “veteran” as opposed to “veteran or service-disabled veteran” throughout the amended regulation, a new last sentence would be added to clearly state that this change did not alter the requirements for an SDVOSB.

Small business concern would be amended to make a technical change removing the word “is” simply for clarity.

Surviving Spouse would be amended to make a technical change, specifically the Veterans Benefits Administration would be abbreviated as VBA.

The definition for unconditional ownership would be removed; the concept of ownership as required for this program would be addressed only in § 74.3(b) to avoid any conflict in the interpretation of the meaning.

Verification eligibility period would be amended to reflect the increased period for eligibility—which was changed from 12 months to 2 years; this amendment was established via 77 FR 38181, June 27, 2012. Additionally a technical change would amend the reference to Center for Veterans Enterprise by replacing it with the abbreviation CVE. A final technical change would replace the word “year” with “eligibility period” to agree with the change in the first sentence.

Veteran would be amended to add a reference to VBA. This revised definition is meant to be inclusive of all persons who served on active duty and were discharged or released under conditions other than dishonorable. Historically the program has had an issue wherein applicants who did in fact qualify as veterans under the statutory definition, did not meet the standards outlined in § 74.1. This change is not intended to create a new class of veteran, but rather to clarify that those who are eligible under the applicable statutes will be found eligible for participation in this program.

Veterans Affairs Acquisition Regulation is amended to remove Veterans Affairs and refer to VA as this is previously defined within the section.

Section 74.2 would be amended by revising paragraphs (a)-(e) and adding new paragraphs (f) and (g). In both 2010 and 2012, GAO published reports tasking VA with reducing potential instances of fraud, waste and abuse. VA has found in its administration of the verification program that the use of the procedures identified in § 74.2(e) best protects VA acquisition integrity and diminishes ongoing exposure to fraud, waste and abuse. Therefore, for such limited situations as identified in § 74.2, and only in these limited instances, VA finds that immediate removal from public listing is warranted in order to protect the integrity of VA procurement. Accordingly, the amendments to § 74.2 would serve to more comprehensively outline the circumstances under which a participant would be found ineligible for the VOSB Verification program

Section 74.2(a) would be amended to add the clause “submitted required supplemental documentation at http://www.VetBiz.gov,” to clearly explicate the key steps necessary for an application and verification. Additionally, a technical change would be made to use the abbreviated form “CVE” for consistency.

Section 74.2 (b) would be amended to support the current policy use of good character to address the potential impact of criminal activity on eligibility and thus to better protect the government from fraud, waste and abuse. The title would be amended to reference the System for Award Management (SAM), which has replaced the Excluded Parties List System. Additionally, the language of the first sentence would be amended to address the impact of 38 U.S.C. 8127(g)(3), which now provides VA authority to exclude all principals in the business concern. Accordingly, the language of § 74.2 would be amended to provide notice that the debarment of any individual holding an ownership and control interest in the concern will impact the concern's eligibility.

Section 74.2(c) would be amended by adding the phrase “false statements or information” to reference the title and provide further clarification on the eligibility requirements. The removal provision would be additionally reworded to clarify the current policy interpretation that removal is immediate. Finally a technical change would remove “the” before CVE in the last sentence.

Section 74.2(d) would be amended by including tax liens and unresolved debts owed to various governmental entities outside of the Federal government as financial obligations that would disqualify an applicant for inclusion in the Vetbiz VIP database. The title would be additionally amended to reflect this change.

Section 74.2(e) would be amended to clarify the consequences of SBA protest decisions and other negative findings. “Other negative findings” was additionally clarified by specifically referencing status protest decisions pursuant to 48 CFR 819.307. The title of this section would be accordingly amended to clarify this section is not limited to SBA decisions. In order to properly effectuate the provisions of the amended 48 CFR 819.307, § 74.2(e) would be amended to allow for immediate removal. The final sentence would be amended to take into account “other negative findings.”

Section 74.2(f) would be added to better effectuate the licensure requirement previously found in § 74.21(9). Through administration of the program, VA has determined that continued inclusion of concerns who fail to obtain and keep current required licenses creates a significant risk to the procurement process. Therefore, immediate removal from the VetBiz VIP database is warranted to protect the agency from fraud, waste and abuse.

Section 74.2(g) would be added to specifically reference SAM registration. SAM is a consolidated listing of previous databases and was not in existence at the time the original regulation was created and therefore was not referenced. Registration through SAM is required by 48 CFR 4.1200 (supplemented by 48 CFR 804.1102).

Section 74.3(a) would be amended to simplify the title in order to avoid the potential for confusion. A technical change would remove the reference service-disabled Veteran. Reference to both veterans and service-disabled veterans in the regulation has proven to cause confusion for some applicants. By referencing only veterans, and making a change to the definition of service-disabled veteran owned small business, that confusion would be eliminated. The reference to employee stock ownership plans (ESOPs) would also be removed. Through years of program administration it has become clear that this exception does not fit within the verification program. ESOPs have changed in ways making evaluation very difficult. It is not clear how this exception benefits the veteran owner. Concerns having ESOPs could still be verified, so long as they meet all of the ownership requirements set forth in the regulation.

Section 74.3(b) would be amended to directly address the concerns of VA in balancing commercially reasonable business practices against procurement integrity. Section 74.3(b) as it is currently written is considered by many in the veteran community to be unduly burdensome. VA considered these concerns and addressed them by proposing to limit the scope of unconditional ownership, accepting commercially reasonable conditions and excluding only those that create a significant risk of fraud, waste and abuse. The new language would outline the concept of commercially reasonable business practices and how they will be evaluated by the program. The exception for conditions after death or incapacity would remain unchanged. Section 74.3(b)(1) would be added to explain the process by which CVE will evaluate the commercial reasonability of conditions. This would be done on a case-by-case basis. Section 74.3(b)(2) would be added separately as the scenario addressed, regarding absence of fully vested interests, relates to a significant risk for fraud, waste and abuse, which would therefore bespecifically exempted from the commercial reasonability analysis described in § 74.3(b)(1).

Section 74.3(c) would be amended by numerous technical changes. Specifically, subparagraphs (1), (2), and (3) would be removed from paragraph (b) and redesignated in new paragraph (c). Additional technical change to new paragraph (c) would remove references to “unconditional” as the requirements of this paragraph apply to all aspects of ownership. The reference to service-disabled veteran would be removed to conform with changes outlined in the explanation of § 74.3(a). Language would be added to paragraphs 74.3(c) (2) and (3) to align with a similar statement in paragraph (1) expressing how ownership must be demonstrated.

Section 74.3(c) would be redesignated as § 74.3(d) to account for new § 74.3(c) having been added. A technical change would remove the reference to service-disabled veteran to conform with changes outlined in the explanation of § 74.3(a).

Section 74.3(d) would be redesignated as § 74.3(e) to account for addition of new § 74.3(c). A technical change would remove the reference to service-disabled veteran to conform with changes outlined in the explanation of § 74.3(a). The clause relating to joint venture profit distribution would be removed from this section. This requirement would be now addressed in § 74.5. Section 74.4(d)(5) (redesignated § 74.4(e)(4)) would be amended to change “should” to “must” in order to create an enforceable requirement.

Section 74.3(e) would be redesignated as § 74.3(f) to account for addition of new § 74.3(c). A technical change would remove the reference to service-disabled veteran to conform with changes outlined in the explanation of § 74.3(a). Section 74.3(e)(1) would be amended by a technical change to replace “application” with “VA Form 0877” in order to clarify the requirement and conform language to the rest of the regulation. Section 74.3(e)(1) would be changed to add a 30-day time period for submission of new application after a change in ownership. This change would provide the agency the ability to definitively and accurately track changes of ownership. By adding a time period for new application, the program would be better able to comply with its statutory mandate of verifying that all concerns listed in the VIP Database meet the ownership and control requirement of the regulation.

Section 74.3(e)(3) would be amended by a technical change to replace “application” with “VA Form 0877” in order to clarify the requirement and conform language to the rest of the regulation.

Section 74.3(e)(4) would be amended to add a reference to § 74.14 to demonstrate the potential impact of change of ownership on the eligibility period.

Section 74.3(f) would be removed in its entirety. In administering the program, this requirement was found to be unduly burdensome on veterans. CVE has also found that implementation of this provision does not significantly reduce the risk of fraud, waste and abuse in the program.

Section 74.4(a) would be amended to align with the changes made to definitions in § 74.1. The term “day-to-day management” would be removed as described above, and this would require the language of § 74.4(a) to be revised. The second sentence is moved from § 74.4(b) for organizational purposes and clarity.

Section 74.4(b) would be amended to align with the changes made to definitions in § 74.1. The term “day-to-day management” would be removed as descried above, and this would require the language of § 74.4(b) to be revised. The last sentence would be amended to add a reference to § 74.4(j)(2) in order to properly identify the paragraph which establishes this requirement.

Section 74.4(c)(1) would be amended by technical change to remove “or service-disabled veterans” to eliminate confusion. Veteran classification issues are already addressed in § 74.1 as described above. The second and third sentences would be edited to clarify that the requirements apply only to Veteran owners, as opposed to non-Veteran owners of the concern. Section 74.4(c)(2) would be amended by technical change to redesingatelist as (c)(3). Section 74.4(c)(3) would be amended by technical change to be listed as (c)(2). The new organization would more logically group related concepts. Section 74.4(c)(4) would be amended by a technical change to be listed as § 74.4(d). This amendment would make it clear that this requirement applies to all aspects of control, not just those detailed in § 74.4(c). An additional technical change would amend the reference to paragraph (f) to paragraph (h) to correspond with redesignating of sections described below.

Section 74.4(e) would be amended and reorganized. VA would reorganize this provision, as well as following paragraphs of § 74.4 to clarify that there are certain control requirements that apply to all business entities, while others apply to specific business types (e.g. Corporation, LLC, Partnership). This new organization would clearly lay out the generally applicable standards in paragraph (e) and then move to the specific requirements for different business types in the following paragraphs. In the current version of the regulation, these general and specific requirements exist, but are not laid out in a logical and clear manner.

A new provision would be added in at § 74.4(e) in order to describe the general control requirements outlined in the explanation above. A reference to “extraordinary business decisions” would be added at § 74.4(e)(1) and (3) to clarify existing program policy. This exception would protect the minority owners of firms thereby encouraging investment and participation in veteran owned businesses. Section 74.4(d) would be redesignated as § 74.4(f) to account for addition of new § 74.4(d) and § 74.4(e). Language would be added to refer to § 74.4(e)(1) to assimilate the exception created therein. Section 74.4(e) would be redesignated as § 74.4(g) to account for addition of new § 74.4(d) and § 74.4(e). Language would be added to refer to § 74.4(e)(1) to assimilate the exception created therein. Section 74.4(f) would be redesignated as § 74.4(h) to account for the addition of new § 74.4(d) and § 74.4(e). Section 74.4(f) is would also be amended to account for the general requirements of 74.4(e) and to emphasize the specific criterion relating only to incorporations. Section 74.4(f) (new § 74.4(h) would also be amended to succinctly and clearly encapsulate the exception created in existing § 74.4(f)(1) (i), (ii), and (iii), and referenced in § 74.4(c)(4). The language “at any time for any reason” would be added to focus the provision on commercially reasonable business structures. VA intends these changes to simplify requirements relating to control and delete redundancies. Section 74.4(g) and its associated subparagraphs would be redesignated as § 74.4(i). It would be further amended by technical change to remove the word “such” from the second sentence in order to clarify that these limitations apply to all non-Veterans. This change would help to guard against fraud. The term “personal caregiver” would be changed to “permanent caregiver” to be consistent with the definition added to § 74.1. Section 74.4(g)(3), redesignated as § 74.4(i)(3), would be amended to replace the word “salary” with “compensation” in order to be consistent. Additionally, in order to reflect current program policy, the word “dividends” would be replaced by the word “distributions” with regard to sources of compensation. This reference would be moved to directly follow the word “compensation” for clarity. Section 74.4(i) would be redesignated as § 74.4(j) with conforming and clarifying changes.

Section 74.5 would be revised to include joint ventures. The language would be reworded to clearly establish that 38 CFR part 74 does not supersede 13 CFR part 121 with respect to size determinations. A paragraph (b) would be added to specifically address eligibility of joint ventures. Subparagraph (b)(2) would be moved from its previous placement in 38 CFR 74.3(d)(2) for organization and to address all joint venture issues in one section. Additionally, the language would be edited in order to clarify that the VOSB entity, rather than the individual Veteran owner(s), must be entitled to the distribution. Subparagraphs (b)(1) and (b)(3) would be added to provide notice of the requirements outlined elsewhere in VA Regulation (819.7003).

Section 74.10 would be amended to remove reference to physical address for CVE. Addresses or methods for submission may change over time, and this change allows CVE to make reasonable and necessary adjustments without the need for amendment of the regulation.

Section 74.11 would be amended by a technical change to redesignate paragraphs (c)-(g) to account for addition of new paragraph (c). Additionally, “Center for Veterans Enterprise” would be changed to “CVE” in paragraph (a). Finally, “[t]he CVE” would be changed to “CVE” in paragraph (a).

Section 74.11(c) would be added to address the potential circumstances created if CVE does not receive all requested documentation. As a result of statutory changes, the program now must certify applicants prior to admission in the database. In order to comply with the statute, VA requests documentation to demonstrate eligibility. This paragraph would put the public on notice that failure to adequately respond to these document requests may render CVE unable to verify the eligibility of a concern and therefore may result in denial. The original § 74.11(c) would be redesignated as § 74.11(d) and would be amended by a technical change to insert a reference to the newly added paragraph (c). Additionally, the reference to paragraph (d) would be changed to paragraph (e) to account for redesignating. The term “totality of circumstances” would be added to clarify long standing CVE interpretation and procedure. References to § 74.11(b) and § 74.13(a) would be added to highlight all applicable exceptions. Finally, a last sentence would be added to clarify in the regulatory text longstanding VA policy that the applicant bears the burden of establishing VOSB status.

Section 74.11(d) would be redesignated as § 74.11(e). The third sentence would be removed as it refers to withdrawal or removal of verified status. This issue is addressed in 38 CFR 74.21, which specifically deals with how participants can exit the VetBiz VIP database. Therefore, the removal would help to eliminate redundancy and reduce the likelihood of confusion. Current § 74.11(e) would be redesignated as § 74.11(f), and § 74.11(f) would be redesignated as § 74.11(g).

The revised § 74.11(e) would consist of subparagraphs (1) and (2). Subparagraph (1) would continue to provide notice of the requirement for participants to provide notice to CVE of changed circumstances. Subparagraph (2) would specify that bankruptcy is a changed circumstance, and the section would include requirements to protect the agency through the bankruptcy process.

Current section 74.11(g) would be redesignated as § 74.11(h). A second sentence would be added to increase program efficiency by ensuring that applicants provide updated contact information. This would allow the program to use the most efficient methods to dispatch determinations and ensure that applicants will receive determinations in a timely manner.

Section 74.12 would be amended to expand the list of required documentation in order to provide notice of documentation that is routinely requested by CVE. This amended list would include documents previously referenced by § 74.20(b). While the documents would still be required for examination as described in § 74.20(b), they also are initially required for the application. As the application is a concern's first exposure with the process, VA finds this list would be more appropriately placed in this section to put the public on notice of the documentary requirements. Additionally, “electronic form” would be changed to “VA Form 0877” throughout for clarity. Similarly, “attachments” would be changed to “supplemental documentation” throughout. Finally, the last two sentences would be combined and slightly reworded for clarity.

Section 74.13(a) would be amended to modify the start of the relevant 30-day time period. This change would provide the agency the ability to definitively and accurately track the request for reconsideration proceedings. Additionally, this change would provide the agency the ability to control the regulatory time period and consistently apply the subsequent provisions of the paragraph. The instructions for submission of a request for reconsideration would be changed to indicate that all instructions for proper submission will be found in the denial decision. Addresses or methods for submission may change over time, and this change would allow CVE to make reasonable and necessary adjustments without the need for amendment of the regulation. A sentence stating that the applicant may submit additional or amended documentation would be added to clarify existing program policy. Finally, the last sentence would be removed due to redundancy with the first sentence of paragraph (b).

Section 74.13(d) would be amended to change “or” to “and” in the first sentence to accurately reflect the actions taken by CVE in these situations. Additionally, information regarding how an applicant can request a formal size determination from the SBA would be removed as individual business concerns cannot request formal size determinations. In an instance where CVE denies for size issues, CVE would request a formal size determination directly, and the company would be eligible to submit a request for reconsideration. A conforming amendment would be made to § 74.13(e). Section 74.13(g) would be amended to add a sentence to increase program efficiency by ensuring that applicants provide updated contact information. This would allow the program to use the most efficient methods to dispatch determinations and ensure that applicants will receive the determinations in a timely manner.

Section 74.14 would be amended to include notices of verified status cancellation in the list of determinations that trigger a waiting period before a concern may submit a new verification application. This appears to have been an omission in the prior version of the regulation. Additionally, the waiting period would be expanded from 6 months to 12 months. The program has instituted several procedures to assist applicants to identify and address easily correctable issues that render the applicant ineligible. The class of notices listed in § 74.14 are generally issued to applicants with substantial issues causing ineligibility. The 12-month waiting period would ensure that applicants will be motivated to avail themselves of the resources provided by CVE and allow sufficient time for ineligible concerns to address significant issues. Additionally, this would increase the efficiency of the program by reducing the number of applications submitted by concerns that do not conform to the verification guidelines.

The current text of § 74.14, as amended, would be designated as § 74.14(a) and new provisions would be added in § 74.14(b) providing for immediate removal of ineligible participants from the VetBiz VIP verification database. VA only intends, to the extent practicable, to list as verified in the VetBiz VIP database concerns which currently meet verification requirements. This would serve the important purpose of assisting COs in the procurement process by ensuring the database only includes concerns that are eligible for award of set aside procurements.

Section 74.15(a) would be split into paragraphs (a), (b), and (c). A technical change would be made to what would be redesignated as § 74.15(a) to improve specificity. A change would be made to what would be redesignated as § 74.15(b) to require participants to inform CVE within 30 days of changes affecting eligibility, consistent with § 74.3(f)(1). A substantive change would be made to the list that would be redesignated as § 74.15(c), which would be expanded to include all situations in which the eligibility period may be shortened. Section 74.15(b) would be removed because it dealt with affiliation. Section 74.5 would state that the SBA will make determinations on affiliation. Therefore, any shortening of the eligibility period due to an affiliation determination would result from an SBA determination. This scenario would be addressed by § 74.2(e), and is referenced appropriately at what would be designated § 74.15(c). Finally, paragraphs (c), (d), and (e) would be redesignated as (d), (e) and (f) respectively.

Section 74.20(b) would be amended by minor technical changes in the first three sentences for simplicity and clarification. In the first sentence, the phrase, “or parts of the program examination” would be removed. In the second sentence, “location” would be changed to “location(s).” In the third sentence, the word “[e]xaminers” is changed to “CVE.” Section 74.12, “[w]hat must a concern submit to apply for VetBiz VIP Verification Program,” would fully address the required documentation necessary for verification and therefore the complete list would be removed from § 74.20 in order to avoid redundancy and confusion.

Section 74.21 would be extensively reordered for clarity and to conform with changes made to other sections of the regulatory text. Section 74.21(a) would be amended by a technical change to remove reference to the “verified' status button” in order to reflect the current graphical user interface of the VIP database. Additionally, “Vendor Information Pages” would be changed to “VIP.” Section 74.21(b) would include a technical edit, “Vendor Information Pages” changed to “VIP.” Section 74.21(c) would be added to reference the immediate removal provisions established by and clarified in § 74.2. Previous § 74.21(c) and associated subparagraphs would be redesignated as § 74.21(d) and associated subparagraphs. Additionally, reference to the “'verified' status button” would be removed to reflect the current graphical user interface of the database. Section 74.21(c)(5) would be removed as involuntary exclusions would now be addressed in § 74.2. Section 74.21(c)(6) would be redesignated as § 74.21(d)(5) to account for deletion of (c)(5). Additionally, the phrase “or its agents” would be added to clarify who may request documents. Section 74.21(c)(7) would be redesignated as § 74.21(d)(6) to account for deletion of (c)(5). Section 74.21(c)(8) would be removed as the action addressed by that provision would now be addressed in § 74.2. Section 74.21(c)(9) would be removed as the provision would now be included in § 74.2 as a grounds for immediate removal. Section 74.21(c)(10) would be redesignated as § 74.21(d)(7). The term “application” would be removed as VA Form 0877 reflects current program requirements. 60 days would be changed to 30 days to conform with revised § 74.3(f)(1) of this part. Section 74.21(e) would be added as notice to the public that failure to report changed circumstances within 30 days is in and of itself good cause to initiate cancellation proceedings.

Section 74.22(a) would be amended to base the start of the relevant 30-day time period on the date on which CVE sent notice of proposed cancellation of verified status. This change would provide the agency the ability to definitively and accurately track the cancellation proceedings. Additionally, this change would provide the agency the ability to control the regulatory time period and consistently apply the subsequent provisions of the paragraph. section 74.22(e) would be amended by a technical change to replace “Office of Small and Disadvantaged Business Utilization” with ”OSDBU.”

Section 74.25 would be amended by a technical change to replace “Department” with “VA.” Additionally, the provision would be revised to expand the pool of individuals required to provide personally identifiable information.

Section 74.26 would be amended by technical change to reflect the amended title of § 74.12.

Section 74.27 would be amended to reword the first sentence to specify that all documents submitted to the program, not only those used to complete applications, will be stored electronically. Additionally, “VetBiz Vendor Information Pages” would be changed to “CVE” in order to clearly denote who will be in possession of the documents and responsible for their retention. The location reference would be removed due to the electronic nature of the records to be maintained by the program. The second sentence would be revised to indicate that any owner information provided will be compared to any available records. Finally, references to records management procedures to be followed and procedures governing data breaches would be added.

Section 74.28 would be amended to abbreviate references to VA and CVE.

Section 74.29 would be amended to refer to VA's records management procedures, which would govern, absent a timely written request from the Government Accountability Office.

The Code of Federal Regulations, as proposed to be revised by this rulemaking, would represent the exclusive legal authority on this subject. No contrary rules or procedures would be authorized. All VA guidance would be read to conform with the rule finally adopted if possible or, if not possible, such guidance would be superseded.

This proposed rule contains no provision constituting a collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521).

The Secretary hereby certifies that this proposed rule would not have a significant economic impact on a substantial number of small entities as they are defined in the Regulatory Flexibility Act (5 U.S.C. 601-612). This proposed rule would generally be small business neutral, as it would apply only to applying for verified status in the VetBiz.gov Vendor Information Pages (VIP) database. The proposed regulation would merely seek to clarify and streamline the existing rule and would add no additional burdens or restrictions on applicants or participants with regard to the VA VOSB Verification Program. The overall impact of the proposed rule would be of benefit to small businesses owned by veterans or service-disabled veterans. VA estimates the cost to an individual business to be less than $100.00 for 70-75 percent of the businesses seeking verification, and the average cost to the entire population of veterans seeking to become verified is less than $325.00 on average. On this basis, the Secretary certifies that the adoption of this proposed rule would not have a significant economic impact on a substantial number of small entities as they are defined in the Regulatory Flexibility Act. Therefore, under 5 U.S.C. 605(b), this rulemaking is exempt from the initial and final regulatory flexibility analysis requirements of §§ 603 and 604.

Executive Orders 12866 and 13563 direct agencies to assess the costs and benefits of available regulatory alternatives and, when regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, and other advantages, distributive impacts and equity). Executive Order 13563 (Improving Regulation and Regulatory Review) emphasizes the importance of quantifying both costs and benefits, reducing costs, harmonizing rules, and promoting flexibility. Executive Order 12866 (Regulatory Planning and Review) defines a “significant regulatory action,” which requires review by the Office of Management and Budget (OMB), as “any regulatory action that is likely to result in a rule that may: (1) Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities; (2) Create a serious inconsistency or otherwise interfere with an action taken or planned by another agency; (3) Materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) Raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in this Executive Order.”

The economic, interagency, budgetary, legal, and policy implications of this regulatory action have been examined, and it has been determined not to be a significant regulatory action under Executive Order 12866.

The Unfunded Mandates Reform Act of 1995 requires, at 2 U.S.C. 1532, that agencies prepare an assessment of anticipated costs and benefits before issuing any rule that may result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more (adjusted annually for inflation) in any one year. This proposed rule would have no such effect on State, local, and tribal governments, or on the private sector.

This proposed rule would affect the verification guidelines of veteran-owned small businesses, for which there is no Catalog of Federal Domestic Assistance program number.

The Secretary of Veterans Affairs, or designee, approved this document and authorized the undersigned to sign and submit the document to the Office of the Federal Register for publication electronically as an official document of the Department of Veterans Affairs. Robert L. Nabors II, Chief of Staff, Department of Veterans Affairs, approved this document on October 20, 2015, for publication.

For the reasons set forth in the preamble, we propose to amend 38 CFR part 74 as follows:

This proposal addresses the following local rule: Placer County Air Pollution Control District Rule 515 Stationary Rail Yard Control Emission Reduction Credits. In the Rules and Regulations section of this Federal Register, we are approving this local rule in a direct final action without prior proposal because we believe this SIP revision is not controversial. If we receive adverse comments, however, we will publish a timely withdrawal of the direct final rule and address the comments in subsequent action based on this proposed rule.

We do not plan to open a second comment period, so anyone interested in commenting should do so at this time. If we do not receive adverse comments, no further activity is planned. For further information, please see the direct final action.

Organization of this document. The information presented in this preamble is organized as follows:

On July 11, 2006, the EPA promulgated standards of performance for stationary CI internal combustion engines (71 FR 39154). These standards, known as new source performance standards (NSPS), implement section 111(b) of the Clean Air Act (CAA), and are issued for categories of sources that cause, or contribute significantly to, air pollution that may reasonably be anticipated to endanger public health or welfare. The standards apply to new stationary sources of emissions, i.e., sources whose construction, reconstruction, or modification begins after a standard for those sources is proposed. The NSPS for stationary CI internal combustion engines established limits on emissions of particulate matter (PM), nitrogen oxides (NOX), carbon monoxide (CO) and non-methane hydrocarbons (NMHC). The emission standards are generally modeled after the EPA's standards for nonroad and marine diesel engines. The nonroad CI engine standards are phased in over several years and have Tiers with increasing levels of stringency. The engine model year in which the Tiers take effect varies for different size ranges of engines. The Tier 4 final standards for new stationary non-emergency and nonroad CI engines generally begin with either the 2014 or 2015 model year.

In 2011, the EPA finalized revisions to the NSPS for stationary CI engines that amended the standards for engines with a displacement greater than 10 liters per cylinder, and also for engines located in remote areas of Alaska (76 FR 37954). In this action, the EPA is proposing amendments to the NSPS regarding performance inducements for Tier 4 engines and the criteria for defining remote areas of Alaska. The proposed amendments are discussed below.

Many Tier 4 final engines are equipped by the engine manufacturer with selective catalytic reduction (SCR) to reduce emissions of NOX. The consumable reactant in an SCR system is typically supplied as a solution of urea in water known as diesel exhaust fluid (DEF). Engines equipped with SCR generally include controls that limit the function of the engines if they are operated without DEF, or if the engine's electronic control module cannot otherwise confirm that the SCR system is properly operating. Such controls are generally called “inducements” because they induce the operator to properly maintain the SCR emission control system. In normal circumstances, if inducements begin, the engine operator is expected to perform any necessary maintenance to avoid shutdown. Manufacturers as well as owners and operators of nonroad and stationary CI Tier 4 certified engines have raised concerns regarding the inducements being triggered and engines shutting down during emergency situations. Triggers could include a temporary supply shortage of DEF, a freeze warning, a blocked DEF hose, or a disconnected or faulty DEF pump or sensor. These inducements can be triggered because of an actual emission problem (such as a blocked DEF line or an empty DEF tank), or because of a sensor problem that reports a false positive problem even though the emission controls are still functioning properly. While the EPA is confident that DEF is now widely available and easily obtainable across the United States, the EPA is concerned that in emergency circumstances, such as the aftermath of storms like Hurricane Sandy or Hurricane Katrina, there may be a possibility of temporary disruptions in DEF supply, disruptions in communications between operators and service centers, or delays in response time for engine repair service. In an emergency situation, allowing inducements to impact engine performance may endanger human lives for engines that are providing life-saving emergency service, such as engines providing emergency power for a hospital. As an example, the Johns Hopkins Health System indicated that the availability of emergency power “can be the difference between life and death for critically ill patients. Disruption of emergency power for any reason could have catastrophic results for patients in surgery, for patients on respirators, and for patients receiving medical gases, to name a few.” (See Docket ID No. EPA-HQ-OAR-2014-0866.)

The EPA's existing nonroad and stationary engine compliance regulations in 40 CFR 1068.101(b)(1)(ii) allow operators to temporarily disable or remove emission controls to address emergency situations, with a limited exemption from the prohibition that normally applies for tampering with certified engines.1 However, until recently, the regulations did not allow manufacturers to design the emission controls to be disabled or removed in emergency situations. With modern electronically controlled engines, many emission controls are integrated into the engine's control software, and there is no way for the operator to selectively disable emission control software, while maintaining engine function. In order to permit engine manufacturers to design the emission controls to be disabled or removed in emergency situations, the EPA amended the emission standards for nonroad CI engines to allow manufacturers of nonroad CI engines to give operators the means to temporarily override inducements while operating in emergency situations (79 FR 46356, August 8, 2014). At that time, the EPA indicated that the amendments did not apply to stationary CI engines. Engine manufacturers and owners and operators of stationary CI engines have indicated that it would be appropriate to extend the provisions to stationary CI engines, since they can also be used in emergency situations, and many engines are dual-certified for both nonroad and stationary use. To address concerns about stationary CI engines shutting down during emergency situations and endangering human lives, the EPA is proposing in this action to allow manufacturers of stationary CI engines certified to the Tier 4 standards to give operators the means to temporarily override inducements while operating in qualified emergency situations. The EPA is also proposing to require engine operators to meet the Tier 1 emission standard in 40 CFR 89.112 that applies to the engine's rated power during the qualified emergency situation. The specific amendments the EPA is proposing are discussed in more detail below. If adopted, these provisions will make available stationary engines that will allow operators to use the flexibility already provided under 40 CFR 1068.101(b)(1)(ii) to ensure that emission controls will not impede the engine from providing life-saving emergency service. The flexibility the EPA is adopting is very narrow and contains several provisions to ensure the need for the relief.

As discussed previously, on August 8, 2014, the EPA promulgated provisions allowing manufacturers of nonroad engines certified to the emission standards in 40 CFR part 1039 to give operators the means to temporarily override emission control inducements while operating in emergency situations, such as those where operation of the engine is needed to protect human life (79 FR 46356). These provisions, which are codified in 40 CFR 1039.665, allow for auxiliary emission control devices (AECDs) that help to ensure proper function of engines in emergency situations. AECDs are any element of design that senses temperature, motive speed, engine revolutions per minute, transmission gear, or any other parameter for the purpose of activating, modulating, delaying, or deactivating the operation of any part of the emission control system. The provisions of 40 CFR 1039.665 allow the engine manufacturer to include a dormant feature in the engine's control software that could be activated to override emission control inducements. In this action, the EPA is proposing to adopt those same provisions for stationary CI engines certified to the standards in 40 CFR part 1039 and used in qualified emergency situations. It is important to emphasize that the EPA is confident that Tier 4 engines will function properly in the vast majority of emergency situations. Thus, the EPA expects that AECDs allowed under this proposed provision will rarely be activated. The EPA is proposing this provision merely as a precaution to ensure that stationary CI engines can continue to operate in emergencies.

The proposed amendments allow engine manufacturers to design into their stationary CI engines a dormant AECD that can be activated for up to 120 engine hours per use during a qualified emergency situation to prevent emission controls from interfering with engine operation. The EPA is proposing that engine manufacturers can offer, and operators can request, re-activations of the AECD for additional time in increments of 120 engine hours in cases of a prolonged emergency situation. During the emergency situation, the engine must meet the Tier 1 emission standard in 40 CFR 89.112 that applies to the engine's rated power. Operators activating the AECD will be required to report the incident to the engine manufacturers, and engine manufacturers will submit an annual report to the EPA summarizing the use of these AECDs during the prior year. These proposed amendments are discussed in more detail below.

The EPA is proposing to use the definition of qualified emergency situation established in the August 8, 2014, amendments for nonroad engines. This definition is found in the introductory text to 40 CFR 1039.665, and specifies that a qualified emergency situation is one in which the condition of an engine's emission controls poses a significant direct or indirect risk to human life. An example of a direct risk would be an emission control condition that inhibits the performance of an engine being used to rescue a person from a life-threatening situation (for example, providing power to a medical facility during an emergency situation). An example of an indirect risk would be an emission control condition that inhibits the performance of an engine being used to provide electrical power to a data center that routes “911” emergency response telecommunications.

Section 1039.665 specifies provisions allowing for AECDs that are necessary to ensure proper function of engines and equipment in emergency situations. It also includes specific criteria that the engine manufacturer must meet to ensure that any adverse environmental impacts are minimized. These criteria are:

• The AECD must be designed so that it cannot be activated more than once without the specific permission of the certificate holder. Reactivation of the AECD must require the input of a temporary code or equivalent security feature.

• The AECD must become inactive within 120 engine hours of becoming active. The engine must also include a feature that allows the operator to deactivate the AECD once the emergency is over.

• The manufacturer must show that the AECD deactivates emission controls (such as inducement strategies) only to the extent necessary to address the expected emergency situation.

• The engine controls must be configured to record in non-volatile electronic memory the total number of activations of the AECD for each engine.

• The manufacturer must take appropriate additional steps to induce operators to report AECD activation and request resetting of the AECD. The EPA recommends including one or more persistent visible and/or audible alarms that are active from the point when the AECD is activated to the point when it is reset.

• The manufacturer must provide purchasers with instructions on how to activate the AECD in emergency situations, as well as information about penalties for abuse.

The EPA is proposing to require stationary CI engines to meet different emission standards for the very narrow period of operation where there is an emergency situation with a risk to human life and the owner or operator is warned that the inducement is about to occur. The EPA is proposing that the emission standards that apply when the AECD is activated during the qualified emergency situation are the Tier 1 standards in 40 CFR 89.112. Engine manufacturers indicated that meeting the Tier 2 or 3 standards in 40 CFR 89.112 is not feasible because the base engine used in Tier 4 configurations does not have exhaust gas recirculation (EGR), which is the engine design technology used to meet the Tier 2 and 3 standards. The EGR is not needed for Tier 4 because NOX is controlled by the SCR.2 The Tier 1 requirement applies only when there is a qualified emergency situation and bypass of inducements is necessary to ensure continued operation of the engine. Once the emergency situation has ended and the AECD is deactivated, the engine must comply with the otherwise applicable emission standard specified in 40 CFR 60.4202. Engine manufacturers must provide data demonstrating that the engine complies with the Tier 1 standard when the AECD is activated when applying for certification of an engine equipped with an AECD.

Manufacturers may ask for approval of the use of emergency AECDs at any time; however, the EPA encourages manufacturers to obtain preliminary approval before submitting an application for certification. Otherwise, the EPA's review of the AECD, which may include many unique features, may delay the approval of the application for certification.

The manufacturer is required to keep records to document the use of emergency AECDs until the end of the calendar year 5 years after the onset of the relevant emergency situation. The manufacturer must submit an annual compliance report to the EPA within 90 calendar days of the end of each calendar year in which it authorizes use of an AECD. The annual report must include a description of each AECD activation and copies of the reports submitted by owners or operators (or statements that an owner or operator did not submit a report, to the extent of the manufacturer's knowledge). If an owner or operator fails to report the use of an emergency AECD to the manufacturer, the manufacturer, to the extent it has been made aware of the AECD activation, must send written notification to the operator that failure to meet the submission requirements may subject the operator to penalties.

Owners or operators who purchase engines with this dormant feature will receive instructions from the engine manufacturer on how to activate the AECD in qualified emergency situations, as well as information about penalties for abuse. The EPA would consider appropriate use of this feature to be during a situation where operation of a stationary CI engine is needed to protect human life (or where impaired operation poses a significant direct or indirect risk to human life), and temporarily overriding emission controls enables full operation of the equipment. The EPA is adopting this provision to give operators the means to obtain short-term relief one time without the need to contact the engine manufacturer or the EPA. In a qualified emergency situation, delaying the activation to obtain approval could put lives at risk, and would be unacceptable. However, the EPA retains the authority to evaluate, after the fact, whether it was reasonable to judge that there was a significant risk to human life to justify the activation of the AECD. Where the EPA determines that it was not reasonable to judge (1) that there was a significant risk to human life; or (2) that the emission control strategy was curtailing the ability of the engine to perform, the owner or operator may be subject to penalties for tampering with emission controls. The owner or operator requirements also include a specific prohibition on operating the engine with the AECD beyond the time reasonably needed for such operation. The owner or operator may also be subject to penalties for tampering if they continue to operate the engine with the AECD once the emergency situation has ended or the problem causing the emission control strategy to interfere with the performance of the engine has been or can reasonably be fixed. Nevertheless, the EPA will consider the totality of the circumstances when assessing penalties, and retain discretion to reduce penalties where the EPA determines that an owner or operator acted in good faith.

The owner or operator must send a written report to the engine manufacturer within 60 calendar days after activating an emergency AECD. If any consecutive reactivations occur, this report is still due 60 calendar days from the first activation. The report must include:

• Contact name, mail and email addresses, and telephone number for the responsible company or entity.

• A description of the emergency situation, the location of the engine during the emergency, and the contact information for an official who can verify the emergency situation (such as a county sheriff, fire marshal, or hospital administrator).

• The reason for AECD activation during the emergency situation, such as the lack of DEF, or the failure of an emission-related sensor when the engine was needed to respond to an emergency situation.

• The engine's serial number (or equivalent).

• A description of the extent and duration of the engine operation while the AECD was active, including a statement describing whether or not the AECD was manually deactivated after the emergency situation ended.

Paragraph 1039.665(g) specifies that failure to provide this information to the engine manufacturer within the deadline is improper use of the AECD and is prohibited.

The 2006 final NSPS for CI internal combustion engines included a provision that allowed the state of Alaska to submit for EPA approval through rulemaking process an alternative plan for implementing the requirements of the NSPS for public-sector electric utilities located in rural areas of Alaska not accessible by the Federal Aid Highway System (FAHS). The alternative plan was required to be based on the requirements of section 111 of the CAA, including any increased risks to human health and the environment, and was also required to be based on the unique circumstances related to remote power generation, climatic conditions, and serious economic impacts resulting from implementation of the final NSPS.

The EPA communicated with officials from the state of Alaska on several occasions following the promulgation of the 2006 final rule. On October 31, 2008, the EPA received Alaska's request for several revisions to the NSPS as it pertained to engines located in the remote part of Alaska not served by the FAHS.3 After reviewing the information provided by the state of Alaska, the EPA agreed that the circumstances in remote Alaska required special rules. On June 28, 2011, the EPA promulgated several amendments for engines used in remote Alaska (76 FR 37954). The amendments of relevance for this action are as follows:

• Exempting all pre-2014 model year engines from diesel fuel sulfur requirements;

• Allowing owners and operators of stationary CI engines located in remote areas of Alaska to use engines certified to marine engine standards, rather than land-based nonroad engine standards;

• Removing requirements to meet emission standards that would necessitate the use of aftertreatment devices for NOX, in particular, SCR, for engines used in remote Alaska (emission standards that are not based on the use of aftertreatment devices for NOX do apply);

• Removing requirements to meet emission standards that would necessitate the use of aftertreatment devices for PM until the 2014 model year; and

• Allowing the blending of used lubricating oil, in volumes of up to 1.75 percent of the total fuel, if the sulfur content of the used lubricating oil is less than 200 parts per million (ppm) and the used lubricating oil is “on-spec,” i.e., it meets the on-specification levels and properties of 40 CFR 279.11.

In support of its October 31, 2008, request, the state of Alaska noted that remote communities in Alaska that are not accessible by the FAHS rely on diesel engines and fuel for electricity. These communities are scattered over long distances in remote areas and are not connected to population centers by road or power grid. These communities are located in the most severe arctic environments in the United States.

The state of Alaska noted that remote villages in Alaska use combined heat and power cogeneration plants, which are vital to their economy, given the high cost of fuel and the substantial need for heat in that climate. Heat recovery systems are used with diesel engines in remote communities to provide heat to community facilities and schools. Marine-jacketed diesel engines are used wherever possible because of their superior heat recovery and thermal efficiency. The state of Alaska indicated that they have noticed great reductions in heat recovery when using Tier 3 non-marine engines. The state noted that reductions in fuel efficiency will lead to greater fuel use and greater emissions from burning extra heating oil. The EPA agreed with the state that there are significant benefits from using marine engines, and finalized a revision allowing engines in remote Alaska to use marine-certified engines. However, as the state of Alaska noted, marine-certified engines, particularly those below 800 horsepower (HP), are not required to meet more stringent requirements for reduction of PM emissions, which is the most significant pollutant of concern in these areas. Therefore, the EPA required that owners and operators of 2014 model year and later engines in remote areas of Alaska must either be certified to Tier 4 standards (whether land-based nonroad or marine) or must install PM reduction technologies on their engines to achieve at least 85 percent reduction in PM.

The original request from the state of Alaska noted particular concern with NOX standards that would likely entail the use of SCR in remote Alaska. NOX reductions are particularly important in areas where ozone is a concern, because NOX is a precursor to ozone. However, the state of Alaska, and remote Alaska in particular, does not have any significant ozone problems. Moreover, the use of SCR entails the supply, storage, and use of a DEF that needs to be used properly in order to achieve the expected emissions reductions, and that may have additional operational problems in remote arctic climates. As noted above, these villages are scattered over long distances in remote areas and are not connected to population centers by road or power grid. The villages are located in the most severe arctic environments in the United States and they rely on stationary diesel engines and fuel for electricity and heating, and these engines need to be in working condition, particularly in the winter. The availability of DEF in remote villages may be an issue, which is notable given the importance of the stationary engines in these villages. Furthermore, the costs for the acquisition, storage, and handling of the DEF are greater than for engines located elsewhere in the United States due to the remote location and severe arctic climate of the villages. In order to maintain proper availability of the DEF during the harsh winter months, new heated storage vessels may be needed at each engine facility, further increasing the compliance costs for these remote villages. Given the issues that would need to be addressed if SCR were required, and the associated costs of this technology when analyzed under NSPS guidelines, the EPA agreed with the state of Alaska's argument that it is inappropriate to require such standards for stationary engines in remote Alaska 4 and amended the NSPS for stationary CI internal combustion engines to specify that owners and operators of new stationary engines in remote areas of Alaska do not have to meet the Tier 4 standards for NOX. However, owners and operators of model year 2014 and later engines that do not meet the Tier 4 p.m. standards would be required to use PM aftertreatment that achieves PM reductions of at least 85 percent. The use of PM aftertreatment will also achieve reductions in CO and NMHC.

Finally, regarding allowing owners and operators to blend up to 1.75 percent used oil into the fuel system, the state noted that there are no permitted used oil disposal facilities in remote Alaskan communities. The state has developed a cost-effective and reliable used-oil blending system that is currently being used in many remote Alaskan communities, disposing of the oil in an environmentally beneficial manner and capturing the energy content of the used oil. The absence of allowable blending would necessitate the shipping out of the used oil and would risk improper disposal and storage, as well as spills. According to the state, blending waste oil at 1.75 percent or less will keep the fuel within American Society for Testing and Materials (ASTM) specifications if the sulfur content of the waste oil is below 200 ppm. The state acknowledged the need for engines equipped with aftertreatment devices to use fuel meeting the sulfur requirements. The EPA agreed that the limited blending of used oil into the diesel fuel used by stationary engines in remote Alaska is an environmentally beneficial manner of disposing of such oil and is of little to no concern when kept within appropriate limits. Therefore, the EPA finalized amendments that permit the blending of fuel oil at such levels for engines in remote Alaska. The used oil must be “on-spec,” i.e., it must meet the on-specification levels and properties in 40 CFR 279.11.

On November 28, 2014, the EPA received a new request from the state of Alaska, which can be found in the docket for this rulemaking. The request asked that the EPA revise the criteria for remote areas of Alaska, which were established in the 2011 amendments as areas that are not accessible by the FAHS, to also include areas that are accessible by the FAHS, but face similar challenges to areas that are not accessible. The letter recommended that the EPA adopt the same definition for remote areas of Alaska in the NSPS that was adopted in the 2013 amendments to the National Emission Standards for Hazardous Air Pollutants (NESHAP) for Reciprocating Internal Combustion Engines (RICE), which can be found at 40 CFR part 63, subpart ZZZZ. The RICE NESHAP definition specifies that engines in areas that are accessible by the FAHS can be considered remote if each of the following conditions is met: (1) The only connection to the FAHS is through the Alaska Marine Highway System, or the stationary CI engine operation is within an isolated grid in Alaska that is not connected to the statewide electrical grid referred to as the Alaska Railbelt Grid; (2) at least 10 percent of the power generated by the engine on an annual basis is used for residential purposes; and (3) the generating capacity of the facility is less than 12 megawatts, or the engine is used exclusively for backup power for renewable energy.5

The state of Alaska provided information in a March 2, 2015, letter to the EPA to show that the communities in these additional FAHS-accessible areas face similar challenges to the communities in areas that are not accessible by the FAHS, and that the concerns that led to the 2011 amendments to the NSPS are also valid for the additional areas. As discussed previously, these challenges include inaccessibility, expense for DEF transport and storage, risk of engine shutdown, shortage of trained operators, and availability and cost of Tier 4 engines. The state noted that some of the communities are only accessible by road for a few months each year, or only by weekly ferry service; the alternative travel method is by floatplane. Thus, the delivery of DEF and the travel for engine service technicians to these areas would be much more costly than for areas that are not remote. The need to heat the DEF in the communities with a severe arctic climate would divert heat that is routinely used for space heating. Communities in these areas rely on diesel engines for electricity and heating, similar to the communities that are in areas that are not accessible by the FAHS, and failure of the engine to operate due to a shortage of DEF could present a risk to human life. The communities also have difficulty finding and retaining trained operators for the engines and aftertreatment devices, according to the state of Alaska.6

This is a summary of the Commission's Notice of Proposed Rulemaking in GN Docket No. 15-236, FCC 15-137, adopted and released on October 22, 2015. The full text of this document is available for inspection and copying during normal business hours in the FCC Reference Center, 445 12th Street SW., Washington, DC 20554. The document also is available for download over the Internet at http://transition.fcc.gov/Daily_Releases/Daily_Business/2015/db1027/FCC-15-137A1.pdf.

Pursuant to §§ 1.415, 1.419, interested parties may file comments and reply comments on or before the dates indicated above. Comments may be filed using the Commission's Electronic Comment Filing System (ECFS). See Electronic Filing of Documents in Rulemaking Proceedings, 63 FR 24121 (1998).

• Electronic Filers: Comments may be filed electronically using the Internet by accessing the Commission's ECFS Web site at http://apps.fcc.gov/ecfs/.

• Paper Filers: Parties who choose to file by paper must file an original and one copy of each filing. If more than one docket or rulemaking number appears in the caption of this proceeding, filers must submit two additional copies for each additional docket or rulemaking number. Filings can be sent by hand or messenger delivery, by commercial overnight courier, or by first-class or overnight U.S. Postal Service mail. All filings must be addressed to the Commission's Secretary, Office of the Secretary, Federal Communications Commission.

• All hand-delivered or messenger-delivered paper filings for the Commission's Secretary must be delivered to FCC Headquarters at 445 12th St. SW., Room TW-A325, Washington, DC 20554. The filing hours are 8:00 a.m. to 7:00 p.m. All hand deliveries must be held together with rubber bands or fasteners. Any envelopes and boxes must be disposed of before entering the building.

• Commercial overnight mail (other than U.S. Postal Service Express Mail and Priority Mail) must be sent to 9300 East Hampton Drive, Capitol Heights, MD 20743.

• U.S. Postal Service first-class, Express, and Priority mail must be addressed to 445 12th Street SW., Washington DC 20554.

1. The Notice of Proposed Rulemaking (NPRM) proposes to simplify the foreign ownership approval process for broadcast licensees by extending the streamlined rules and procedures developed for foreign ownership reviews for common carrier and certain aeronautical licensees under section 310(b)(4) of the Communications Act of 1934, as amended (the Act), 47 U.S.C. 310(b)(4), to the broadcast context. For ease of reference, the NPRM refers to broadcast, common carrier, aeronautical en route and aeronautical fixed radio station applicants and licensees (including broadcast permittees) and to common carrier spectrum lessees collectively as “licensees” unless the context warrants otherwise. The NPRM also uses the term “common carrier” or “common carrier licensees” to encompass common carrier, aeronautical en route and aeronautical fixed radio station applicants and licensees unless the context applies only to common carrier licensees. “Spectrum lessees” are defined in section 1.9003 of Part 1, Subpart X, 47 CFR 1.9003. The NPRM also refers to aeronautical en route and aeronautical fixed licensees collectively as “aeronautical” licensees. In using this shorthand, the NPRM does not include other types of aeronautical radio station licenses issued by the Commission.

2. The changes proposed in the NPRM will facilitate investment from new sources of capital at a time of growing need for capital investment in this important sector of our nation's economy. The Commission believes that adopting a standardized filing and review process for broadcast licensees' requests to exceed the 25 percent foreign ownership benchmark in section 310(b)(4), as the Commission has done for common carrier licensees, will also provide the broadcast sector with greater transparency, more predictability, and will reduce regulatory burdens and costs.

3. Specifically, the NPRM proposes to extend the foreign ownership rules and procedures established in the 2013 Foreign Ownership Second Report and Order 1 to broadcast licensees, with certain modifications to tailor them to this context. The NPRM also seeks comment on whether and how to revise the methodology a licensee should use to assess its compliance with the 25 percent foreign ownership benchmark in section 310(b)(4) in order to reduce regulatory burdens on applicants and licensees. Finally, the NPRM makes several proposals to clarify and update existing policies and procedures for broadcast, common carrier and aeronautical licensees.

4. Section 310(b)(4) of the Act establishes a 25 percent benchmark for investment by foreign individuals, governments, and corporations in U.S.-organized entities that directly or indirectly control a U.S. broadcast, common carrier, or aeronautical radio licensee. Licensees request Commission approval of their controlling U.S. parents' foreign ownership under section 310(b)(4) by filing a petition for declaratory ruling. For the Commission to make the public interest findings required by that section of the Act, licensees file the petition and obtain Commission approval before direct or indirect foreign ownership of their U.S. parent companies exceeds 25 percent. The Commission assesses, in each particular case, whether the foreign interests presented for approval by the licensee are in the public interest, consistent with the Commission's section 310(b)(4) policy framework. The Commission's public interest analysis also considers any national security, law enforcement, foreign policy or trade policy issues that may be raised by the foreign ownership. The Commission coordinates as necessary and appropriate with the relevant Executive Branch agencies and affords appropriate deference to their expertise on these issues.

5. To the extent the Commission adopts the NPRM's proposal to incorporate broadcast licensees into the regulatory framework for foreign ownership of common carrier licensees, with certain modifications applicable to broadcast licensees, the Commission proposes to codify the final rules in Part 1, subpart T, at sections 1.5000 through 1.5004, 47 CFR 1.5000-1.5004, and to remove sections 1.990 through 1.994, 47 CFR 1.990-1.994, from Part 1, subpart F. The NPRM generally refers to the rules by their current section numbers, but also refers as appropriate to the proposed rule sections.

6. In this NPRM, the Commission proposes to extend the foreign ownership rules and procedures applicable to common carrier licensees to broadcast licensees, with certain exceptions and proposed modifications. Specifically, the NPRM proposes to incorporate broadcast licensees into the Commission's rules that apply to petitions filed under section 310(b)(4) of the Act. The NPRM seeks comment on these proposals, as well as on any alternatives that commenters believe the Commission should consider. With respect to each proposal or proposed alternative, commenters should discuss, and, if possible, quantify, the likely costs and benefits of the proposal or proposed alternative.

7. In the 2013 Broadcast Clarification Order, the Commission signaled that it might elect to create a standardized review process for broadcast licensees similar to that adopted in the common carrier context to streamline procedures.2 The Commission's subsequent experience with the 2015 Pandora Declaratory Ruling 3 illustrated a need for greater clarity and certainty in the foreign ownership context for broadcasters, as well as those seeking to acquire broadcast interests. The Commission believes that broadcasters can benefit from the streamlining measures that are applied to common carrier licensees that seek to exceed the 25 percent foreign ownership benchmark in section 310(b)(4). Furthermore, streamlining the Commission's filing and review processes may have the added benefit of attracting financial investment from new sources of capital for broadcasters.

8. The NPRM tentatively concludes that the considerations underlying the adoption of the foreign ownership rules applicable to section 310(b)(4) petitions for common carrier licensees are generally applicable to broadcast licensees. The Commission's experience applying these rules in the common carrier context demonstrates that the process is efficient and that filers are benefitting from the formal guidance. Moreover, the rules ensure that the Commission is able to satisfy its obligations under section 310(b) with respect to foreign ownership, while coordinating applications and petitions with the Executive Branch, as needed. The NPRM proposes to apply these principles in the broadcast context and seeks comment on this approach. Commenters are encouraged to review the proposed rules, provide comment on the application of these rules to the broadcast sector, and propose alternative approaches that would promote the public interest.

9. Significantly, under the proposed rules, a petitioner would be able to request (1) approval of up to 100 percent aggregate foreign ownership (voting and/or equity) by unnamed and future foreign investors in the controlling U.S. parent of a broadcast licensee, subject to certain conditions; (2) approval for any named foreign investor that proposes to acquire a less than 100 percent controlling interest to increase the interest to 100 percent at some time in the future; and (3) approval for any non-controlling named foreign investor to increase its voting and/or equity interest up to and including a non-controlling interest of 49.99 percent at some time in the future. Moreover, a petitioner would only need to obtain specific approval of foreign investors (i.e., individuals, entities, or a “group” of foreign individuals or entities) that hold or would hold, directly or indirectly, more than five percent, and in certain circumstances, more than ten percent of the U.S. parent's equity and/or voting interests, or a controlling interest in the U.S. parent. The Commission will continue to coordinate as necessary and appropriate with the Executive Branch regarding all petitions for declaratory ruling filed under section 310(b).

10. The Commission believes that applying these rules to broadcast licensees in the context of section 310(b)(4) petitions will help improve access to capital from foreign investors and promote regulatory flexibility; preserve the Commission's statutory obligation, in consultation with the relevant Executive Branch agencies, to ensure that foreign ownership above the 25 percent benchmark serves the public interest; reduce uncertainty regarding the treatment of foreign investment in broadcast properties; and reduce burdens on filers by providing a streamlined, uniform process.

11. Disclosable Interest Holders. Section 1.991(e)-(g) of the rules requires all section 310(b) petitions for declaratory ruling regarding proposed foreign investment in a common carrier licensee to contain the name, address, citizenship and principal business(es) of any individual or entity, regardless of citizenship, that directly or indirectly holds or would hold, after effectuation of any planned ownership changes described in the petition, at least ten percent of the equity or voting interests in the controlling U.S. parent of the petitioning common carrier licensee or a controlling interest. The Commission adopted the ten percent threshold to ensure consistency with the ownership disclosure requirements that apply to most common carrier applicants under the Commission's licensing rules, while preserving a meaningful opportunity for the Executive Branch agencies to review petitions for national security, law enforcement, foreign policy, and trade policy concerns. The NPRM proposes to adopt a similar approach for broadcast licensees subject to the modifications described below.

12. Rather than adopt the ten percent disclosable threshold for broadcast licensees, the Commission proposes to require that broadcast entities disclose their ownership interests based on the current attribution rules and policies applicable to broadcast licensees. The Commission's media attribution rules seek to identify those interests in or relationships to licensees that confer on their holders a degree of influence or control such that the holders have a realistic potential to affect the programming decisions of licensees or other core operating functions. Given the distinct nature of the services provided by common carriers and broadcast stations, different attribution standards apply to these services. For example, as noted above, the ownership disclosure requirements applicable to most common carriers require the disclosure of all ten percent interest holders (voting and equity); the broadcast attribution rules, however, generally require the attribution of individuals or entities that hold five percent or more of the voting stock, while non-voting stock interests are typically not attributable. The Commission believes that consistency with its broadcast attribution rules would ensure certainty and efficiency for broadcast firms with foreign ownership interests. Additionally, broadcast industry filers are familiar with the Commission's media attribution rules and are already required to disclose such interest holders on various Commission forms and applications (e.g., FCC Form 323, Ownership Report for Commercial Broadcast Stations). Given that familiarity, the Commission believes it would pose an undue hardship to establish a different disclosure threshold for broadcasters. The NPRM seeks comment on this proposal.

13. Specific Approval of Named Foreign Investors. Section 1.991(i) of the rules requires a common carrier licensee filing a section 310(b)(4) petition to identify and request specific approval for any foreign individual or entity, or “group” of foreign individuals or entities, that holds or would hold directly, or indirectly through one or more intervening U.S.- or foreign-organized entities, more than five percent of the U.S. parent's total outstanding capital stock (equity) and/or voting stock, or a controlling interest. In addition, as a condition of the initial ruling, and with respect to any future interests that may be acquired by foreign investors, section 1.994(a)(1) similarly requires the licensee to file a new petition to obtain prior approval before any foreign individual, entity, or “group” not previously approved acquires a greater-than-five percent interest in the U.S. parent that does not qualify as exempt under section 1.991(i)(3). In circumstances where a foreign-organized entity requires specific approval, the petition must include the information specified in section 1.991(j), including the name and citizenship of any individual or entity that holds, or would hold, directly and/or indirectly, through one or more intervening entities, ten percent or more of the equity interests and/or voting interests, or a controlling interest, in the foreign entity for which the petitioner requests specific approval. The NPRM proposes to adopt a similar approach for broadcast licensees subject to the modifications described below.

14. Consistent with the NPRM's proposal regarding disclosable interest holders in general, the Commission does not believe that it would be appropriate to require broadcast petitioners to use the ten percent standard specified in section 1.991(j)(ii)(2) for petitions filed by common carrier. Instead, the NPRM proposes again to rely on the attribution standards set out in section 73.3555 applicable to broadcast stations to determine which individuals and entities should be listed for each foreign entity for which the broadcast licensee seeks specific approval. The Commission believes that consistency with the broadcast attribution rules and the familiarity of broadcasters with these rules support such an approach. The NPRM seeks comment on this proposal.

15. Insulation Criteria. For broadcast licensees, the NPRM proposes to rely on the broadcast insulation criteria set forth in the broadcast rules, rather than those applied in the common carrier context. The insulation criteria for broadcasters are governed by Note 2(f) of section 73.3555. Under the broadcast attribution rules governing partnership and limited liability company (LLC) interests, all general partners and non-insulated limited partnership and LLC interests are attributable. An exception from attribution applies only to those limited partners and LLC interest holders that meet the Commission's insulation criteria and certify that they are not materially involved in the management or operations of the entity's media interests. While there are many similarities in the insulation criteria under section 1.993 and Note 2(f) of section 73.3555, the broadcast criteria contain elements that are specific to media-related activities and reflect the distinct nature of broadcast operations.

16. The Commission believes consistency with its broadcast insulation policies under its attribution rules is appropriate to apply in the foreign ownership context. Broadcast entities are already familiar with these insulation criteria, and those entities that have insulated certain interests have already executed their organizational documents based on these criteria. Adopting different criteria in this context may require these entities to revise and re-execute their organizational documents, renegotiate the roles of insulated interest holders, and operate pursuant to multiple insulation standards when seeking approval of foreign ownership above the 25 percent benchmark in section 310(b)(4). If the Commission were to adopt different criteria, what would the costs associated with applying the common carrier foreign ownership insulation criteria be for broadcasters? Are there any public interest benefits that would exceed such costs? Are there alternative insulation criteria for broadcast entities that might be more appropriate in the context of the Commission's foreign ownership review pursuant to section 310(b)(4)? Would the benefits of imposing any alternative criteria exceed the cost of compliance? The NPRM seeks comment on these issues.

17. Service-Specific Rulings. Foreign ownership rulings issued to common carrier licensees cover, unless otherwise specified in a particular ruling, any common carrier radio service in any geographic location regardless of the particular wireless service(s) (e.g., Personal Communications Service) and geographic service area(s) authorized under the petitioner's existing license(s). Such rulings may also be issued when an applicant seeks authority in a contemporaneously filed application for an initial license or for consent to acquire licenses by transfer or assignment. The NPRM seeks comment on whether there are considerations unique to broadcasting that suggest a different approach.

18. The Commission has noted in the past the important distinctions between common carrier services and broadcast media in the context of the public interest analysis under section 310(b)(4). For example, the Commission has noted that, while common carrier licenses are passive in nature and confer no control over the content of transmissions, broadcast transmissions have been found to present additional concerns because broadcasters exercise control over the content that they air. The Commission's approach to the benchmark for foreign investments in broadcast licensees has reflected “heightened concern for foreign influence over or control over broadcast licensees which exercise editorial discretion over the content of their transmissions.”

19. Given these considerations, the NPRM seeks comment on how the Commission's process should be adapted, if at all, to address service-specific rulings. The foreign ownership rules that currently apply to common carrier licensees allow a ruling for such licensees that applies to all types of common carrier wireless services, e.g., satellite, CMRS, microwave, AWS. In addition, the rulings are not geographic specific. Thus, a licensee does not need separate rulings to provide service in the conterminous United States and Puerto Rico. However, given the foregoing issues, a broadcast ruling may require different parameters. The NPRM seeks comment on whether the Commission should issue rulings on a service and/or geographic basis. For example, to which services would a ruling apply? If a licensee has a ruling covering television licenses, would it need a new ruling if it later sought to acquire AM radio station licenses? Would a licensee with a ruling for an AM radio station in a small market require a new ruling if it sought to acquire a national chain of radio stations or additional stations in that small market?

20. Similar questions arise if a common carrier licensee seeks to acquire a broadcast licensee. Would a ruling for common carrier licenses apply prospectively to broadcast licenses that the licensee sought to acquire? Given that the NPRM proposes to adopt differing requirements depending on service (e.g., different disclosable interest holders), how would such differences be reconciled if, for example, a common carrier ruling also were to cover the subsequent acquisition of a television station? The NPRM tentatively concludes that entities should not be required to provide the disclosable interest information for both common carrier and broadcast licensees if they propose to provide only one of those types of services, and that the Commission should conduct its public interest analysis for all services only where the applicant is to hold licenses as both common carrier and broadcaster. The NPRM seeks comment on this issue, including whether there is significant interest in the marketplace for entities with foreign ownership to hold both common carrier and broadcast licenses.

21. Filing and Processing of Broadcast Petitions. Section 1.990(b) of the rules provides that petitions for declaratory ruling shall be filed electronically through the International Bureau Filing System (IBFS). For broadcast petitions, however, the NPRM proposes that petitions for declaratory ruling be filed electronically as an attachment to the underlying applications for a construction permit or an assignment or transfer of control that are electronically filed through the Commission's Consolidated Database System (CDBS) or any successor database. As is the current procedure, such applications would be placed on a CDBS-generated public notice denoting that the application is “accepted for filing.” This public notice initiates the formal processing of the application, provides notice to interested members of the public who may wish to support or oppose the application, and triggers the legal timeframe for the filing of petitions to deny. Such a petition for declaratory ruling would separately receive a Media Bureau docket number for public notice and comment, in addition to the CDBS-generated public notice on the associated application.

22. The NPRM also proposes that, in the absence of an underlying broadcast construction permit, assignment or transfer application, the broadcast petitioner would file its petition for declaratory ruling electronically with the Commission's Office of the Secretary via the Commission's Electronic Comment Filing System (ECFS) as a non-docketed filing. The petition will subsequently receive a Media Bureau docket number and a public notice seeking comment will be released. The petition would be reviewed and, after consultation with the relevant Executive Branch agencies, a decision issued. This proposal will facilitate an efficient, predictable filing and processing scheme for broadcast petitions for declaratory ruling whether or not those petitions are accompanied by a construction permit, or an assignment or transfer application. Broadcasters are familiar with both the Commission's CDBS and ECFS filing systems and, as such, the Commission expects implementation of these filing and notice measures will provide regulatory consistency. The NPRM seeks comment on this proposal.

23. Methodology for Assessing Compliance with Section 310(b)(4). The NPRM proposes to adopt a rule applicable to U.S. public companies that would specify the information upon which a licensee's controlling U.S. parent may rely for purposes of determining its aggregate level of foreign ownership. Such a rule should provide greater clarity for U.S. public companies and reduce the burden of determining their aggregate levels of foreign ownership given the difficulties in ascertaining the citizenship of their shareholders. The NPRM seeks comment on adoption of such a rule, including the type of information that would likely be known to a U.S. public company in the normal course of business. The NPRM also seeks comment on specific alternative proposals to accomplish the Commission's goal of providing licensees with a more workable means of ensuring compliance with section 310(b)(4).

24. In the 2015 Pandora Declaratory Ruling proceeding, the National Association of Broadcasters (NAB) and the Multicultural Media and Telecommunications Council (MMTC) raised concerns that the Commission's policies for calculating levels of foreign ownership in broadcast entities are “outdated” and should be modified to comport with current securities laws regarding widely-traded public entities. MMTC stated that broadcasters that are public companies need flexible, practical, and efficient means to estimate foreign ownership to comply with section 310(b)(4), which would attract new foreign capital that will be needed to help minority broadcasters “overcome a severe lack of access to domestic capital.” NAB also contended that the present policies tend to frustrate efforts to attract capital to broadcast firms. MMTC and NAB raise important issues, and the Commission stated in the 2015 Pandora Declaratory Ruling that it would examine whether it is appropriate to revise the methodology for assessing broadcaster compliance with section 310(b)(4). These issues are not limited to broadcast licensees and also affect common carrier licensees' compliance with section 310(b)(4). Thus the NPRM seeks to address the practices used by any licensee in order to ensure compliance with section 310(b)(4). In addition, the NPRM seeks comment on whether any changes that the Commission makes regarding what licensees need to do to ensure compliance with section 310(b)(4) should also apply to ensuring compliance with section 310(b)(3).

25. NAB maintains that the Commission's compliance policies are outdated, in part, because they pertain to regulations of some 40 years ago when Securities and Exchange Commission (SEC) regulations related to physically holding stock certificates. The current practice involves holding shares of publicly traded companies in “street name” (i.e., the broker holding legal title to a share on behalf of the beneficial owner). NAB notes that SEC rules specifically limit brokers from providing companies with shareholder information without shareholder permission, and, as such, widely-traded public entities have “little recourse” if the shareholder decides to remain anonymous. According to NAB, in light of current industry practices and SEC rules, the Commission cannot rationally assume that all unidentified shareholders are foreign. NAB claims that as many as 70 to 80 percent of publicly traded shares are held in street name, and that it is unlikely that the majority of shareholders are aware of, or care, if a brokerage firm holds their securities in street name.

26. Since the issuance of the 2015 Pandora Declaratory Ruling, the Commission has further considered the regulatory hurdles to certifying compliance with foreign ownership limits and for requesting Commission approval to exceed the statutory benchmark of 25 percent foreign ownership. In particular, the Commission notes the unique burdens its processes may exert on widely-held publicly traded companies, which do not necessarily have adequate means to ascertain and certify the citizenship of their shareholders. The Commission's aim is to provide licensees with greater flexibility in their regulatory filings and certifications.

27. The NPRM seeks comment on what steps licensees should take to track their foreign ownership to ensure compliance with section 310(b)(4). Privately-held companies, partnerships and LLCs should have knowledge of all of their owners, and should be able to track their foreign ownership relatively easily. The NPRM seeks comment on the Commission's view that privately-held entities should have knowledge of the citizenship of their owners. The NPRM also seeks comment on whether it is appropriate to adopt any measures to facilitate their ability to demonstrate compliance with section 310(b)(4), including any or all of the proposals described in this NPRM.

28. Publicly-traded companies face a more complicated challenge to demonstrate compliance with section 310 (b)(4). As NAB notes, most shares of publicly-traded companies are now held in street name and it can be difficult for the licensee to determine the citizenship of the beneficial owner of those shares. While publicly traded companies can undertake surveys of their shareholders' equity and voting interests, those surveys may not be able to ascertain the beneficial shareholders' citizenship. The Commission believes a U.S.-organized public company should, however, know, or can be expected to know, information about certain shareholders. For example, U.S.-organized public companies should know about the shareholders that are required to disclose their ownership pursuant to SEC rules—generally, those shareholders with greater than five percent ownership and institutional investors with greater than ten percent ownership. The NPRM states that the companies should also know the ownership of the shares registered with the company and the shares held by officers and directors. Are there other types of shares about which a U.S. public company could be expected to know?

29. The NPRM seeks comment on the Commission's authority to provide licensees with greater flexibility to demonstrate compliance with section 310(b)(4). The NPRM specifically seeks comment on whether it would be consistent with the Commission's obligations under section 310(b)(4) to permit a licensee with a U.S.-organized public company in its ownership chain to rely solely on ownership information that is known or reasonably should be known to the public company to determine whether the licensee is in compliance with the foreign ownership benchmark in section 310(b)(4). If the Commission adopts this proposed approach, are there policy or legal reasons to limit its availability to U.S.-organized public companies, and/or companies for which a certain percentage of their officers and directors are U.S. citizens? What amount or type of shareholder data should licensees be required to produce to satisfy their “best efforts” to comply with section 310(b)(4)? Should equity and voting ownership in the U.S. public company be treated the same or, for example, should there be a different, greater obligation to know the voting ownership? Additionally, should the Commission accept shareholder street addresses, alone, as a proxy for citizenship? If the Commission were to adopt such an approach, would there be circumstances under which street addresses, without more, would not be an acceptable method of certifying foreign ownership levels? Finally, the NPRM seeks comment on how frequently a company should be required to assess the extent of its foreign ownership if the Commission were to adopt this approach.

30. The NPRM also requests comment on alternatives to the Commission's proposed approach, such as the guidance provided in the 2015 Pandora Declaratory Ruling. In that proceeding, the Commission instructed Pandora on several methods for determining and certifying its foreign citizenship levels, including making changes to organizational documents. Further, Pandora committed to certify on a biennial basis its foreign ownership levels using measures, among others: Using The Depository Trust Corporation (DTC) SEG-100 or equivalent program; monitoring shares held by current and former officers and directors; monitoring relevant SEC filings, obtaining a non-objecting beneficial owner (NOBO) list, and requesting that all NOBOs provide citizenship information; and making reasonable efforts to secure the cooperation of the relevant financial intermediaries in obtaining citizenship information. The Commission stated that, consistent with existing compliance practices, it expected Pandora Media to use sources other than shareholder mailing addresses or corporate headquarters locations.

31. The NPRM seeks comment on whether the use of street addresses, coupled with participation in SEG-100, would provide the Commission with sufficient information to discharge its public interest obligations pertaining to foreign ownership in broadcast licensees, while affording a more workable approach that may reduce the burden on publicly-traded companies. The NPRM observes that, under SEG-100, stock issuers approach DTC and request that their publicly traded securities be included in the program. DTC then updates its notations as to those requiring SEG-100 treatment and notifies all DTC participants that they must apply SEG-100 procedures to trades in the restricted company's stock. DTC participants are obligated to make inquiries of their account holders and to place the shares of such holders who are non-citizens in the DTC participant's segregated account. The NPRM asks commenters to raise any additional substantive and procedural issues that should be considered in modifying and supplementing the Commission's processes with regard to compliance with the broadcast foreign ownership rules and policies.

32. The NPRM also solicits comment on NAB's suggestion that the Commission eliminate the presumption that unidentified shareholders be counted as foreign. In light of the difficulties public companies now face in obtaining information about their domestic as well as foreign shareholders, as the record in the Pandora proceeding indicated, the Commission seeks comment on alternatives to this presumption. If the Commission were to change this presumption, should applicants be allowed to extrapolate foreign ownership percentages based on known shareholders? For example, if ten percent of the identified shares are owned by foreign owners, should the Commission presume that ten percent of the unidentified shares are held by foreign owners? Alternatively, should the Commission extrapolate using a multiple? If so, what should that multiple be? Should there be an upper limit on the relative number of unknown shareholders that can be estimated under any such approach?

33. In addition, is there a legal and policy basis for concluding in this proceeding, under section 310(b)(4), that the public interest would be served by permitting small foreign equity and/or voting interests in U.S. public companies—e.g., equity or voting interests that are not required to be reported under SEC Rule 13d-1, 17 CFR 240.13d-1,—without the Commission's individual review and approval, even in circumstances where the U.S. public company may have aggregate foreign ownership (or aggregate foreign and unknown ownership) exceeding 25 percent? If so, does that basis extend to a finding that the public interest would be served by permitting a U.S. public company to have up to an aggregate less than 50 percent (or some higher level) non-controlling foreign investment, even with individual investments that may be required to be reported under SEC Rule 13d-1, without individual review and approval? The NPRM seeks comment on these approaches and asks commenters to provide any other suggestions.

34. Corrections and Clarifications of Existing Rules. The Commission takes this opportunity to make certain technical corrections to the foreign ownership rules and seeks comment on proposed clarifying changes, as well as on any other changes commenters may suggest to improve the structure and clarity of the rules.

35. First, in section 1.5001 of the proposed rules, which lists the required contents of petitions for declaratory ruling, the NPRM proposes to include a cross-reference to section 1.5000(c), the requirement that each applicant, licensee, or spectrum lessee filing a section 310(b) petition for declaratory ruling certify to the information contained in the petition in accordance with the provisions of section 1.16 of the rules. The Commission has found that it is not uncommon for petitions to be filed without the required certification. The NPRM therefore includes in proposed rule section 1.5001(l) a cross-reference to the certification requirement to highlight to filers this critical aspect of the rules.

36. Second, the NPRM proposes to include two Notes in section 1.5001(i) of the proposed rules to clarify that certain foreign interests of five percent or less may require specific approval in circumstances where there is direct or indirect foreign investment in the U.S. parent in the form of uninsulated partnership interests or uninsulated interests held by members of an LLC. Many limited partners and LLC members hold small equity interests in their respective companies with control of these companies residing in the general partner or managing member, respectively. However, for purposes of identifying foreign interests that require specific approval (and for determining a common carrier licensee's disclosable U.S. and foreign interest holders), uninsulated partners and uninsulated LLC members are deemed to hold the same voting interest as the partnership or LLC holds in the company situated in the next lower tier of the licensee's vertical ownership chain. Depending on the particular ownership structure presented in the petition, an uninsulated foreign limited partner or uninsulated LLC member may require specific approval because the voting interest it is deemed to hold in the U.S. parent exceeds five percent and, because it is an uninsulated voting interest, it does not qualify as exempt from the specific approval requirements. The NPRM requests comment on the proposed language and placement of these Notes, which are intended to improve the clarity of the specific approval requirements as recodified in section 1.5001(i) of the rules.

37. Third, the NPRM seeks comment on whether Commission precedent supports the inclusion of additional permissible voting or consent rights in the list of investor protections where the rights do not, in themselves, result in a limited partnership or LLC interest being deemed uninsulated within the meaning of that section. Similarly, the NPRM requests comment on whether Commission precedent supports the inclusion of additional permissible minority shareholder protections.

38. Finally, the NPRM proposes to correct two cross-references, and to make additional clarifying changes.

39. Transition Issues. Consistent with the approach adopted in the 2013 Foreign Ownership Second Report and Order, the NPRM proposes that any changes adopted in this proceeding be applied prospectively. The NPRM proposes that existing foreign ownership rulings issued prior to the effective date of the rules adopted in this proceeding shall remain in effect. Specifically, as is currently the case under the Commission's foreign ownership rules for common carrier licensees, licensees subject to an existing ruling as of the effective date of the rules adopted in this proceeding would be required to continue to comply with any general and specific terms and conditions of their rulings, including Commission rules and policies in effect at the time the ruling was issued. The NPRM proposes that such licensees may, however, request a new ruling under any revised rules, but they are not required to do so. The NPRM tentatively concludes that this approach is appropriate because it will afford the Commission and the relevant Executive Branch agencies an opportunity to evaluate the potential effects of applying the new rules to licensees that are subject to an existing ruling. The NPRM seeks comment on this approach and on how to treat any requests for declaratory ruling that are pending before the Commission as of the effective date of the rules adopted in this proceeding. Should the Commission review these requests under the rules adopted in this proceeding? Are there other transition issues that the Commission should address?

40. The NPRM reminds common carrier licensees with an existing foreign ownership ruling of their obligation to seek a new ruling before they exceed the parameters of their rulings, including those rulings issued prior to August 9, 2013, the effective date of the rules adopted in the 2013 Foreign Ownership Second Report and Order. The NPRM notes, in particular, that a licensee's ruling issued prior to August 9, 2013, may be limited in scope to the particular wireless service(s) and geographic service area(s) of the licenses or spectrum leasing arrangements referenced in the petition for declaratory ruling. The Commission's decision in the 2013 Foreign Ownership Second Report and Order to eliminate its practice of issuing rulings on a service- and geographic-specific basis did not apply retroactively to rulings issued prior to the effective date of the rules adopted in that proceeding. Failure to meet a condition of a foreign ownership ruling may result in monetary sanctions or other enforcement action by the Commission.

41. Other Reforms to Foreign Ownership Review. Finally, the NPRM invites comment on any additional reforms that could further streamline Commission review of foreign ownership and bring its foreign and domestic investment review processes into closer alignment, while ensuring that important national security, law enforcement, foreign policy, trade policy and other public policy goals continue to be met. For example, are there certain types of applications that could be reviewed in a more streamlined manner than the proposals outlined in the NPRM? The Commission seeks comment on these and any other proposals that would streamline its process for analyzing foreign ownership under section 310(b)(4), while also serving its public interest goals.

42. This document contains proposed new and modified information collection requirements. The Commission, as a part of its continuing effort to reduce paperwork burdens, invites the general public and the Office of Management and Budget (OMB) to comment on the information collection requirements contained in this document, as required by the Paperwork Reduction Act of 1995 (PRA), Public Law 104-13. In addition, pursuant to the Small Business Paperwork Relief Act of 2002, Public Law 107-198, see 44 U.S.C. 3506(c)(4), the Commission seeks specific comment on how it might “further reduce the information collection burden for small business concerns with fewer than 25 employees.”

43. The Regulatory Flexibility Act of 1980, as amended (RFA),4 requires that an initial regulatory flexibility analysis be prepared for notice-and-comment rule making proceedings, unless the agency certifies that “the rule will not, if promulgated, have a significant economic impact on a substantial number of small entities.” 5 The RFA generally defines the term “small entity” as having the same meaning as the terms “small business,” “small organization,” and “small governmental jurisdiction.” 6 In addition, the term “small business” has the same meaning as the term “small business concern” under the Small Business Act.7 A “small business concern” is one which: (1) is independently owned and operated; (2) is not dominant in its field of operation; and (3) satisfies any additional criteria established by the Small Business Administration (SBA).

44. In the NPRM, the Commission seeks comment on proposed changes and other options to incorporate broadcast licenses into the Commission's rules and procedures for analyzing foreign ownership of common carrier and aeronautical radio licensees under section 310(b)(4) of the Act, 47 U.S.C. 310(b)(4), and to clarify certain aspects of those rules and procedures for broadcast, common carrier and aeronautical licensees while continuing to ensure that the Commission has the information it needs to carry out its statutory duties. The proposals in the NPRM are designed to reduce to the extent possible the regulatory costs and burdens imposed on broadcast, wireless common carrier and aeronautical applicants, licensees, and spectrum lessees; provide greater transparency and more predictability with respect to the Commission's filing requirements and review process; and facilitate investment from new sources of capital, while continuing to protect important interests related to national security, law enforcement, foreign policy, and trade policy.

45. The Commission estimates that the rule changes discussed in the NPRM, if adopted, would result in a reduction in the time and expense associated with filing section 310(b)(4) petitions for declaratory ruling by broadcast licensees. For example, the NPRM proposes that U.S. parent companies of broadcast licensees that seek Commission approval to exceed the 25 percent foreign ownership benchmark in section 310(b)(4) include in their petitions requests for specific approval only of foreign investors that would hold a direct or indirect equity and/or voting interest in the U.S. parent that exceeds five percent (or exceeds ten percent in certain circumstances), or a controlling interest. Another proposal would, if adopted, allow the U.S. parent to request specific approval for any non-controlling foreign investors named in the section 310(b)(4) petition to increase their direct or indirect equity and/or voting interests in the U.S. parent at any time after issuance of the section 310(b)(4) ruling, up to and including a non-controlling 49.99 percent equity and/or voting interest. Similarly, the U.S. parent would be permitted to request specific approval for any named foreign investor that proposed to acquire a controlling interest of less than 100 percent to increase the interest to 100 percent at some future time. The NPRM also seeks comment on measures the Commission can take to reduce the costs and burdens associated with licensees' efforts to ensure that they remain in compliance with the statutory foreign ownership requirements, which apply broadly to broadcast, common carrier, aeronautical en route and aeronautical fixed radio licensees.

46. The Commission believes that the streamlining proposals and other options on which the Commission seeks comment in the NPRM will reduce costs and burdens currently imposed on licensees, including those licensees that are small entities, and accelerate the foreign ownership review process, while continuing to ensure that the Commission has the information it needs to carry out its statutory duties. Therefore, the Commission certifies that the proposals in the NPRM, if adopted, will not have a significant economic impact on a substantial number of small entities.8 The Commission will send a copy of the NPRM, including a copy of this Initial Regulatory Flexibility Certification, to the Chief Counsel for Advocacy of the SBA.9 This initial certification will also be published in the Federal Register.10

47. It is ordered that, pursuant to the authority contained in 47 U.S.C. Sections 151, 152, 154(i), 154(j), 211, 303(r), 309, 310 and 403, this Notice of Proposed Rulemaking is adopted.

48. It is further ordered that notice is hereby given of the proposed regulatory changes to Commission policy and rules described in this Notice of Proposed Rulemaking and that comment is sought on these proposals.

49. It is further ordered that the Commission's Consumer and Governmental Affairs Bureau, Reference Information Center, shall send a copy of this Notice of Proposed Rulemaking, including the Initial Regulatory Flexibility Certification, to the Chief Counsel for Advocacy of the Small Business Administration.

For the reasons discussed in the preamble, the Federal Communications Commission proposes to amend 47 CFR parts 1, 25, 73, and 74 as follows: