Federal Register Vol. 80, No.97,

The Energy Policy and Conservation Act of 1975 (EPCA), as amended by the American Energy Manufacturing Technical Corrections Act (AEMTCA), Public Law 112-210, requires that DOE establish a uniform efficiency descriptor and accompanying test methods for covered residential water heaters and commercial water heating equipment within one year of the enactment of AEMTCA. (42 U.S.C. 6295(e)(5)(B)) Further, beginning one year after the date of publication of DOE's final rule establishing the uniform descriptor, EPCA requires that the efficiency standards for covered water heaters to be denominated according to the uniform efficiency descriptor established in the final rule (42 U.S.C. 6295(e)(5)(D)) and that DOE develop a mathematical conversion factor for converting the measurement of efficiency for covered water heaters from the test procedures and metrics currently in effect to the new uniform energy descriptor. (42 U.S.C. 6295(e)(5)(E)(i)-(ii)). On July 11, 2014, DOE published a final rule amending the test procedure for residential and certain commercial water heaters that satisfied the AEMTCA requirements to develop a uniform efficiency descriptor to replace the existing energy factor, thermal efficiency, and standby loss metrics. 79 FR 40542. Use of the amended test procedure is required beginning on July 13, 2015, for new testing. All representations must be based on the amended test procedure as of one year after the publication of a final rule that establishes a mathematical conversion factor. On April 14, 2015, DOE published a NOPR proposing mathematical conversion factors for converting from the current efficiency metrics (i.e., energy factor for residential water heaters, and thermal efficiency and standby loss for commercial water heaters) to the uniform efficiency descriptor (i.e., uniform energy factor metric). 80 FR 20116 (April 14, 2015).

In response to the NOPR for the Conversion Factor for Test Procedures for Consumer and Certain Commercial Water Heaters, the Air-Conditioning, Heating, and Refrigeration Institute (AHRI) requested a 60-day extension to the comment period, a public meeting, and a delay in compliance date for the test procedure. AHRI stated in its request that it needed additional time to analyze the specific conversion factors and underlying analysis, review the water heater tests conducted by DOE to assess to what extent those tests reflected the range of models covered by the test procedure, and evaluate the validity of the conclusions derived from the testing conducted by DOE as provided in the conversion factors and translated energy conservation standards. After careful consideration of this request, DOE has determined that extending the public comment period by reopening to allow additional time for interested parties to submit comments and that convening a public meeting are appropriate based on the foregoing reasons. Accordingly, DOE is granting approximately 30-day comment period extension and announcing a public meeting. In this document, DOE is reopening the comment period for the NOPR for the Conversion Factor for Test Procedures for Consumer and Certain Commercial Water Heaters to midnight of June 15, 2015 and will deem any comments received by that time to be timely submitted. Also, DOE will host a public meeting on Thursday, May 28, 2015. Additional details on the public meeting are provided in the DATES and ADDRESSES sections of this document.

DOE is not extending the compliance dates, which were set by statute based on the completion of various rulemakings. The test method will have been final for a year, and manufacturers should be able to test any new basic models using that test method. Furthermore, because the energy conservation standards for residential water heaters changed earlier this year, DOE expects that very few, new basic models will be introduced in the interim between July 13, 2015, and when the conversion factor final rule is effective.

All participants will undergo security processing upon building entry. Any participant with a laptop computer or similar device (e.g., tablets), must undergo additional screening. Note that any foreign national who requests to participate in the public meeting is subject to advance security screening prior to the date of the public meeting, and such persons should contact Ms. Brenda Edwards as soon as possible at (202) 586-2945 to commence the necessary procedures.

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

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

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

In addition, you can attend the public meeting via webinar. Webinar registration information, participant instructions, and information about the capabilities available to webinar participants at: https://attendee.gotowebinar.com/register/7036563622426238210 Participants are responsible for ensuring their systems are compatible with the webinar software.

DOE published a NOPR in the Federal Register to make available and invite public comments on its analysis regarding potential energy conservation standards for certain residential furnaces. 80 FR 13120 (March 12, 2015). The document set a deadline for the submission of written comments by June 10, 2015. The American Gas Association (AGA) and the Southern California Gas Company (SoCalGas) each requested an extension of the public comment period, stating that additional time is necessary to review the published analysis in order to prepare and submit comments. After careful consideration of these requests, DOE has determined that extending the comment period to allow additional time for interested parties to submit comments is appropriate based on the foregoing reason. DOE believes that extending the comment period by 30 days will provide the public with sufficient time to submit comments responding to DOE's analysis. Accordingly, DOE is extending the comment period to midnight of July 10, 2015 and will deem any comments received (or postmarked) by that date to be timely submitted.

DOE published a NOPR in the Federal Register to make available and invite public comments on its analysis regarding potential energy conservation standards for residential boilers. 80 FR 17222 (March 31, 2015). The document set a deadline for the submission of written comments by June 1, 2015. The Air-Conditioning, Heating, and Refrigeration Institute (AHRI) and the Oil Heat Manufacturers Association each requested an extension of the public comment period, stating that additional time is necessary to review the published analysis in order to prepare and submit comments. After careful consideration of these requests, DOE has determined that extending the comment period to allow additional time for interested parties to submit comments is appropriate based on the foregoing reason. DOE believes that extending the comment period by 30 days will provide the public with sufficient time to submit comments responding to DOE's analysis. Accordingly, DOE is extending the comment period to midnight of July 1, 2015, and will deem any comments received (or postmarked) by that date to be timely submitted.

The Wassenaar Arrangement (WA) on Export Controls for Conventional Arms and Dual-Use Goods and Technologies is a group of 41 like-minded states committed to promoting responsibility and transparency in the global arms trade, and preventing destabilizing accumulations of arms. As a Participating State, the United States has committed to controlling for export all items on the WA control lists. The lists were first established in 1996 and have been revised annually thereafter. Proposals for changes to the WA control lists that achieve consensus are approved by Participating States at annual December Plenary meetings. Participating States are charged with implementing the agreed list changes as soon as possible after approval. Implementation of WA list changes ensures U.S. companies have a level playing field with their competitors in other WA member states.

In 2013, WA agreed to add the following to their list of dual-use goods: systems, equipment or components specially designed for the generation, operation or delivery of, or communication with, intrusion software; software specially designed or modified for the development or production of such systems, equipment or components; software specially designed for the generation, operation or delivery of, or communication with, intrusion software; technology required for the development of intrusion software; Internet Protocol (IP) network communications surveillance systems or equipment and test, inspection, production equipment, specially designed components therefor, and development and production software and technology therefor. BIS, the Departments of Defense and State, as well as other agencies have been discussing the best way to add these items, which we have named “cybersecurity items,” to the Commerce Control List (CCL) (Supplement No. 1 to part 774 of the Export Administration Regulations) without reducing encryption controls and while balancing the national security and foreign policy. For resource planning purposes, as well as license requirements, license exceptions, license submission requirements, and internal license reviews and processing planning purposes, this rule is published as a proposed rule.

Systems, equipment, components and software specially designed for the generation, operation or delivery of, or communication with, intrusion software include network penetration testing products that use intrusion software to identify vulnerabilities of computers and network-capable devices. Certain penetration testing products are currently classified as encryption items due to their cryptographic and/or cryptanalytic functionality. Technology for the development of intrusion software includes proprietary research on the vulnerabilities and exploitation of computers and network-capable devices. The new entry on the CCL that would control Internet Protocol (IP) network communications surveillance systems or equipment is restricted to products that perform all of the functions listed; however, the Export Administration Regulations (EAR) also prohibits the export of equipment if the exporter intends it will be combined with other equipment to comprise a system described in the new entry.

This rule proposes to add Export Control Classification Number (ECCN) 4A005 (“systems,” “equipment,” or “components” therefor, “specially designed” for the generation, operation or delivery of, or communication with, “intrusion software”) and ECCN 4D004 (“software” “specially designed” for the generation, operation or delivery of, or communication with, “intrusion software”) to the CCL. These ECCNs are proposed to be controlled for national security (NS), regional stability (RS), and anti-terrorism (AT) reasons to all destinations, except Canada. No license exceptions would be available for these items, except certain provisions of License Exception GOV, e.g., exports to or on behalf of the United States Government pursuant to § 740.11(b) of the EAR. This rule also proposes adding a License Requirement Note and a Note in the Related Controls paragraph for these ECCNs, to alert exporters to include all relevant information when submitting classification requests and licensing applications.

This rule also proposes to amend ECCN 4D001 by adding ECCN 4A005 to Items paragraph 4D001.a in order to add control of “software” “specially designed” or modified for the “development” or “production,” of equipment controlled by 4A005; adding an RS:1 license requirement paragraph for 4D001.a (as it applies to 4A005 or 4D004), removing License Exceptions TSR and STA eligibility; and adding the same explanatory License Requirement Note and Related Controls Note that would be added to ECCNs 4A005 and 4D004.

As a technical correction, this rule proposes to remove from the “Reason for control” paragraph “NP,” and from the License Requirement section the two sentences, “NP applies, unless a license exception is available. See § 742.3(b) of the EAR for information on applicable licensing review policies.” That text does not articulate any license requirement, and no nuclear non-proliferation license requirement for software classified as 4D001 is set forth elsewhere in the EAR. BIS's regular practice is to impose a license requirement for nuclear non-proliferation reasons on items that are specified on the “List of Nuclear-Related Dual-Use Equipment, Materials, Software, and Related Technology” by the Nuclear Suppliers Group. ECCN 4D001 software is not so specified.

This rule also proposes to amend ECCN 4E001 by adding a new Items paragraph 4E001.c to control “technology” “required” for the “development” of “intrusion software.” ECCN 4E001.a controls ““technology” according to the General Technology Note, for the “development,” “production,” or “use” of equipment or “software” controlled by 4A (except 4A980 or 4A994) or 4D (except 4D980, 4D993 or 4D994).” Therefore, ECCN 4E001.a would control “technology” for the newly added 4A005 and 4D004, as well as 4D001.a (for 4A005 and 4D004). This rule also proposes to add an RS:1 license requirement paragraph for 4E001.a “technology” (as it applies to 4A005, 4D001.a (as it applies to 4A005 or 4D004) or 4D004) and 4E001.c, which would require a license to export, reexport, and transfer (in-country) to all destinations, except Canada. BIS also proposes to remove License Exception Technology and Software Under Restriction (TSR) and Strategic Trade Authorization (STA) eligibility and add the same explanatory License Requirement Note and Related Controls Note added to ECCNs 4A005, 4D001 and 4D004. Also, a reference to § 772.1 is proposed to be added to ECCNs 4A005, 4D001 and 4E001 to point to the location of the “intrusion software” definition, as this rule may be of interest to many new exporters that would not otherwise know that double quoted terms in the EAR are defined in § 772.1.

Lastly, the same technical correction regarding the Nuclear Non-proliferation (NP) control is proposed for 4E001 as is proposed for 4D001, see explanation above.

Network communication traffic analysis systems are becoming an increasingly sensitive issue, which is why WA agreed to add the control of these items to the WA dual-use list. These systems are using the process of intercepting and analyzing messages to produce personal, human and social information from the communications traffic. BIS proposes to add these items in paragraph 5A001.j and group them with cybersecurity items. The license requirements for these items are proposed to under NS Column 1, RS Column 1 and AT Column 1 on the Commerce Country Chart (Supplement No. 1 to part 738 of the EAR) and would require a license for export, reexport, and transfer (in-country) to all destinations, except Canada. Only certain provisions of License Exception GOV, e.g., exports to or on behalf of the United States Government pursuant to § 740.11(b) of the EAR, would be available for these items.

The same addition of a License Requirement Note and Related Control Note is proposed for ECCNs 5A001, 5D001, and 5E001 as is proposed for ECCNs 4A005, 4D001, 4D004 and 4E001 (see explanation under 4A005 and 4D005 above).

BIS proposes to remove cybersecurity software from the mass market provision of License Exception TSU eligibility by adding a new paragraph (d)(2)(ii). This is consistent with the existing encryption exclusion.

As previously introduced and explained in the preamble, this rule proposes to add a Related Control note to ECCNs 4A005, 4D004, 4E001, 5A001, 5A002, 5D002 and 5E002 that states that cybersecurity items are classified in cybersecurity ECCNs, even if the items are designed or modified to use “cryptography” or cryptanalysis; however, all such cybersecurity items using or incorporating encryption or other “information security” functionality classified under ECCNs 5A002, 5D002, 5A992.c, 5D992.c or 5E002, must also satisfy the registration, review and reporting requirements set forth in §§ 740.17, 742.15(b) and 748.3(d) of the EAR, including submissions to the ENC Encryption Request Coordinator, Ft. Meade, MD. This note is added so that people will not be confused under which ECCN to classify their products and when a cybersecurity item is designed or modified to use “cryptography” or cryptanalysis, after the relevant Encryption Items (EI) requirements for registration and review have been separately satisfied. One effect this will have is that these cybersecurity items will not be eligible for License Exception ENC. However, BIS anticipates licensing broad authorizations to certain types of end users and destinations that will counterbalance the loss of the use of License Exception ENC.

In addition to the general information required by § 748.3(b) of the EAR and the requirement that all encryption registration and review provisions must be separately satisfied with BIS and the ENC Encryption Request Coordinator, Ft. Meade, MD, this rule proposes to add a requirement to submit specific technical information in support of applications to export, reexport, or transfer (in-country) cybersecurity items. The specified technical information is set forth in newly added paragraph (z) of Supplement No. 2 to part 748 “Unique application and submission requirements.” The Commodity Classification Application Tracking System (CCATS) number(s) or license number(s) for the cyber security item(s) must be included in the license application. If no classification or license application has been done for the cybersecurity item, then the answers to three (3) questions are to be submitted in a letter of explanation.

Also, this rule proposes that upon request from BIS, the applicant must include a copy of the sections of source code and other software (e.g., libraries and header files) that implement or invoke the controlled cybersecurity functionality.

The license review policies for cybersecurity items controlled under NS and AT will not be revised. A new license review policy for cybersecurity items is proposed under § 742.6(b) for regional stability. Cybersecurity items controlled for RS are proposed to be reviewed favorably if destined to a U.S. company or subsidiary not located in Country Group D:1 or E:1, foreign commercial partners located in Country Group A:5, government end users in Australia, Canada, New Zealand or the United Kingdom, and on a case-by-case basis to determine whether the transaction is contrary to the national security or foreign policy interests of the United States, including the foreign policy interest of promoting the observance of human rights throughout the world. Note that there is a policy of presumptive denial for items that have or support rootkit or zero-day exploit capabilities. The governments of Australia, Canada, New Zealand or the United Kingdom have partnered with the United States on cybersecurity policy and issues, which affords these countries with favorable treatment for license applications. A note that describes “foreign commercial partner” is proposed to be added to § 742.6(b). Any “information security” functionality incorporated in the cybersecurity item will also receive a focused case-by-case review for reasons of Encryption Items (EI) control.

The WA-agreed definition for “intrusion software” is proposed to be added to § 772.1 of the EAR. The definition also includes a Note that describes some items not included as “intrusion software,” e.g., hypervisors, debuggers or Software Reverse Engineering (SRE).

BIS is seeking information about the effect of this rule and would appreciate the submission of comments, and especially answers to the following questions:

1. How many additional license applications would your company be required to submit per year under the requirements of this proposed rule? If any, of those applications:

a. How many additional applications would be for products that are currently eligible for license exceptions?

b. How many additional applications would be for products that currently are classified EAR99?

2. How many deemed export, reexport or transfer (in-country) license applications would your company be required to submit per year under the requirements of this rule?

3. Would the rule have negative effects on your legitimate vulnerability research, audits, testing or screening and your company's ability to protect your own or your client's networks? If so, explain how.

4. How long would it take you to answer the questions in proposed paragraph (z) to Supplement No. 2 to part 748? Is this information you already have for your products?

* The ADDRESSES section of this proposed rule includes information about how to submit comments.

1. Executive Orders 13563 and 12866 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This rule has been designated a “significant regulatory action,” under Executive Order 12866.

2. Notwithstanding any other provision of law, no person is required to respond to, nor shall any person be subject to a penalty for failure to comply with a collection of information subject to the requirements of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) (PRA), unless that collection of information displays a currently valid Office of Management and Budget (OMB) Control Number. This rule would involve one collection of information subject to the PRA. One of the collections has been approved by OMB under control number 0694-0088, “Multi-Purpose Application,” and carries a burden hour estimate of 58 minutes for a manual or electronic submission. The additional information proposed to be required under Supplement No. 2 to part 748 paragraph (z) falls under the usual technical information that is submitted with applications to describe the abilities of the items on the license application. This information allows the licensing officer to verify the classification of the product and determine the effect it would have on U.S. national security and foreign policy. Send comments regarding these burden estimates or any other aspect of these collections of information, including suggestions for reducing the burden, to OMB Desk Officer, New Executive Office Building, Washington, DC 20503; and to Jasmeet Seehra, OMB Desk Officer, by email at [email protected] or by fax to (202) 395-7285; and to the Office of Administration, Bureau of Industry and Security, Department of Commerce, 1401 Constitution Ave. NW., Room 6622, Washington, DC 20230.

3. This rule does not contain policies with Federalism implications as that term is defined under Executive Order 13132.

4. The provisions of the Administrative Procedure Act (APA) (5 U.S.C. 553) requiring notice of proposed rulemaking, the opportunity for public participation, and a 30-day delay in effective date, are inapplicable because this regulation involves a military and foreign affairs function of the United States (5 U.S.C. 553(a)(1)). Nonetheless, BIS is providing the public with an opportunity to review and comment on this rule, despite its being exempted from that requirement of the APA. Because this rule is not required by the APA to undergo a period of notice and comment, the requirements of the Regulatory Flexibility Act, 5 U.S.C. 601 et seq., do not apply. Accordingly, no regulatory flexibility analysis is required, and none has been prepared.

BIS is interested in the potential impacts to businesses of this rule. Because most of the items impacted by this rule have encryption capabilities, BIS believes they are already being controlled under Category 5 part 2 of the EAR. Even though most encryption items are eligible for License Exception ENC and these cybersecurity items will not be eligible for License Exception ENC, BIS anticipates issuing broad licenses for these items. The impact of this rule is unknown to BIS, therefore the implementation of the Wassenaar Arrangement agreement of 2013 with regard to cybersecurity items is issued as a proposed rule with request for comments concerning the impact of the rule. Comments should be submitted to Sharron Cook, Office of Exporter Services, Bureau of Industry and Security, Department of Commerce, 14th and Pennsylvania Ave. NW., Room 2099, Washington, DC 20230 or emailed to [email protected]. Please refer to RIN 0694-AG49 in all comments and in the subject line of email comments.

Accordingly, parts 740, 742, 748, 772, and 774 of the Export Administration Regulations (15 CFR parts 730 through 774) are proposed to be amended as follows:

The revisions and addition read as follows:

Section 105 of ADUFA (ADUFA 105) amended section 512 of the FD&C Act (21 U.S.C. 360b) to require that sponsors of approved or conditionally approved applications for new animal drugs containing an antimicrobial active ingredient submit an annual report to FDA on the amount of each such ingredient in the drug that is sold or distributed for use in food-producing animals. ADUFA 105 also requires FDA to publish annual summary reports of the data it receives. In accordance with the new law, sponsors of the affected antimicrobial new animal drug products began submitting their sales and distribution data to FDA on an annual basis, and FDA published summaries of such data for each calendar year beginning with 2009. The purpose of this rulemaking is to amend the Agency's existing records and reports regulation in part 514 (21 CFR part 514) to incorporate the sales and distribution data reporting requirements specific to antimicrobial new animal drugs that were added to the FD&C Act by ADUFA 105. This proposal also includes an additional reporting provision intended to further enhance FDA's understanding of antimicrobial animal drug sales intended for use in specific food-producing animal species.

The proposed rule, if finalized, will amend the records and reports regulation in part 514 to include the following:

• Procedures relating to the submission to FDA of annual sales and distribution data reports by sponsors of approved new animal drug products sold or distributed for use in food-producing animals. The proposal includes specific reporting criteria, including the requirement that sponsors submit species-specific estimates of product sales as a percentage of total sales.

• Procedures applicable to FDA's preparation and publication of summary reports on an annual basis based on the sales and distribution data it receives from sponsors of approved antimicrobial new animal drug products. The proposal includes specific parameters for the content of the annual summary reports as well as provisions intended to protect confidential business information and national security, consistent with ADUFA 105.

• Provisions that will give sponsors of approved new animal drug products containing antimicrobial active ingredients that are sold or distributed for use in food-producing animals the opportunity to avoid duplicative reporting of product sales and distribution data to FDA under part 514.

FDA estimates one-time costs to industry from this proposed rule, if finalized, at about $138,800. FDA estimates annual costs at about $55,700. These costs equate to an estimated total annualized cost of about $75,400 at a 7 percent discount rate over 10 years and about $71,900 at a 3 percent discount rate over 10 years. The total annualized costs include the administrative cost to review the rule ($9,700), plus the cost to those sponsors who wish to avoid duplicative reporting requirements under part 514 ($4,800), plus the cost of providing the species-specific estimate of the percent of the drug product distributed domestically ($61,000).

The proposed rule would provide some flexibility for the manner in which new animal drug sponsors report the sales and distribution data under both § 514.80 and proposed § 514.87, by allowing for only one set of report submissions under certain circumstances. FDA estimates that this will reduce labor costs for new animal drug sponsors by $100,200 annually.

Another benefit of this proposed rule would be the cost savings associated with reporting monthly sales and distribution data to FDA in terms of product units rather than calculating the amount of antimicrobial active ingredients associated with these monthly product sales and distribution data. FDA estimates the calculation reductions would amount to an annual benefit of about $18,600. FDA estimates total annual benefits at about $118,800.

Section 105 of ADUFA (Pub. L. 110-316) amends section 512(l) of the FD&C Act by adding new section 512(l)(3). Section 512(l) of the FD&C Act requires sponsors of approved or conditionally approved new animal drug applications to establish and maintain records and make such reports to FDA of data and other information relating to experience with their new animal drugs as required by regulation or order. Under new section 512(l)(3) of the FD&C Act, sponsors of antimicrobial new animal drugs approved for use in food-producing animals must submit to FDA on an annual basis a report specifying the amount of each antimicrobial active ingredient in the drug that is sold or distributed for use in food-producing animals. Specifically, sponsors are required to report the amount of each antimicrobial active ingredient as follows: (1) By container size, strength, and dosage form; (2) by quantities distributed domestically and quantities exported; and (3) for each dosage form, a listing of the target animals, indications, and production classes that are specified on the approved label of the product. The information must be reported for the preceding calendar year, include separate information for each month of the calendar year, and be submitted to FDA each year no later than March 31. Section 512(l)(3) of the FD&C Act also requires FDA to publish an annual summary report of the antimicrobial drug sales and distribution data collected from the drug sponsors, and further provides that such data must be reported by antimicrobial class.

The first reporting year under new section 512(l)(3) of the FD&C Act was calendar year 2009. In accordance with the new law, sponsors of affected new animal drug products submitted their 2009 sales and distribution data to FDA by March 31, 2010, and FDA published a summary report of these data later that same year. To date, FDA has collected sales and distribution data, and published summary reports of such data, for each calendar year from 2009 through and including 2012. As noted earlier, the purpose of this rulemaking is to amend FDA's animal drug records and reports regulation at part 514 to include administrative practices and procedures for sponsors of antimicrobial new animal drugs sold or distributed for use in food-producing animals who must report annually under section 512(l)(3) of the FD&C Act, including a proposed provision intended to enhance understanding of antimicrobial new animal drug sales intended for use in specific food-producing animal species. Collecting species-specific data is expected to assist FDA in assessing antimicrobial sales trends in the major food-producing animal species and examining how such trends may relate to antimicrobial resistance. Having improved data would also support this Agency's ongoing efforts to encourage the judicious use of antimicrobials in food-producing animals to help ensure the continued availability of safe and effective antimicrobials for animals and humans.

FDA previously issued an advance notice of proposed rulemaking (ANPRM) to obtain public input on potential amendments to its animal drug records and reports regulation at part 514, including the proposed provision to require data about specific food-producing animal species discussed in this document. The comments FDA received in response to the ANPRM were considered in preparing this proposed rule.

Under current § 514.80(b)(4) of the Agency's regulations, sponsors of approved new animal drugs are required to submit a periodic drug experience report to FDA. Such reports include information regarding known adverse drug experiences, study reports from any recently conducted laboratory or clinical studies, current product labeling, and, under paragraph (b)(4)(i), product distribution data. In order to avoid duplicative reporting, FDA proposes that applicants submitting annual sales and distribution reports for antimicrobial new animal drug products under proposed § 514.87 would have the option to choose not to report distribution data under current § 514.80(b)(4)(i) for their approved applications that include these same products. However, this exemption from reporting under § 514.80(b)(4)(i) would only apply provided the following proposed conditions are met:

• Applicants would have to submit complete periodic drug experience reports under § 514.80(b)(4), including paragraph (b)(4)(i), for such applications for at least 2 full years after the date of the initial approval of their drug product application, in addition to the reporting that would be required under proposed § 514.87. Under current § 514.80(b)(4), applicants of newly approved applications must submit periodic drug experience reports every 6 months for the first 2 years and such reporting is only required annually after that. This requirement provides FDA with enhanced drug experience feedback on newly approved animal drug products for which the Agency and animal drug industry have less practical experience compared to mature animal drug products that have been marketed for 2 or more years. In contrast, proposed § 514.87, which implements recently added section 512(l)(3) of the FD&C Act, would only require sales and distribution reports for antimicrobial new animal drug products once per year. By retaining the requirement that applicants of such drug products submit complete periodic drug experience reports at 6-month intervals under § 514.80(b)(4) for 2 full years after the date of the initial approval of their drug product application, this proposal would assure that enhanced drug experience surveillance for newly approved products is maintained.

• Applicants who wish to have the option of not providing distribution data as part of the periodic drug experience reports they submit under current § 514.80(b)(4)(i) for those approved applications that include the same antimicrobial new animal drug products that are covered by the reporting requirements under proposed § 514.87 would have to assure that the beginning of the reporting period for the annual periodic drug experience reports for such applications is January 1. Under § 514.80(b)(4), the reporting period and submission deadline of yearly periodic drug experience reports is tied to the anniversary date of the drug's approval unless the applicant petitions for, and is granted, approval to change the reporting timeframes. For approved applications that have a reporting period that begins on a date other than January 1, applicants would submit a one-time request to change the submission date for their yearly (annual) periodic drug experience report such that the reporting period begins on January 1 and ends on December 31, as currently provided for in § 514.80(b)(4). Such requests may be made at any time, but, consistent with the timeframe discussed in the previous paragraph, FDA will only grant such requests after at least 2 full years have elapsed since the date of the initial approval of the subject application. In accordance with section 512(l)(3) of the FD&C Act, reporting of antimicrobial drug sales and distribution data under proposed § 514.87 would be by calendar year. The purpose of having affected applicants assure that the reporting period for their annual periodic drug experience reports begins on January 1 is so that the reporting periods for all annual reports submitted under part 514 for a particular application will be consistent and cover the same time period beginning January 1 of each year, regardless of whether submitted under § 514.80(b)(4) or proposed § 514.87.

• Once an applicant has changed the submission date to align with the reporting period for proposed § 514.87 (beginning January 1 of each year), the Agency would also expect the applicant to submit, on a one-time basis, a special drug experience report as described in current § 514.80(b)(5)(i), that would address any gaps in distribution data caused by the change in reporting periods.

• Sponsors who hold approved applications for antimicrobial new animal drugs intended for use in food-producing animals who choose not to separately report distribution data for their products under § 514.80(b)(4)(i) would have to assure that full sales and distribution data for each product approved under such applications are alternatively reported under proposed § 514.87, including products approved under such applications that are labeled only for use in nonfood-producing animals. This would assure that all distribution data for every drug product under approved applications for antimicrobial new animal drugs intended for use in food-producing animals are reported to FDA and that all such data are reported under one regulation, proposed § 514.87.

FDA also proposes to revise § 514.80(b)(4) by extending the deadline for submission of annual periodic drug experience reports from within 60 days to within 90 days of the anniversary date of the approval. For those applicants whose reporting period under § 514.80(b)(4) begins on January 1—either because the anniversary of the drug application's approval falls on that date or because the applicant petitions for, and is granted, a new submission date that aligns the reporting period under § 514.80(b)(4) with the reporting period under proposed § 514.87 (i.e., beginning January 1 of each year)—this revision would harmonize the timeframe for submitting annual periodic drug experience reports following the close of the reporting period with the 90-day timeframe sponsors have to submit annual antimicrobial animal drug sales and distribution reports for the preceding calendar year (by no later than March 31) as required by section 512(l)(3) of the FD&C Act.

Proposed paragraph (a) would reflect the requirement, under section 512(l)(3) of the FD&C Act, for each sponsor of a new animal drug product that is approved or conditionally approved and contains an antimicrobial active ingredient, to report to FDA on an annual basis the amount of each antimicrobial active ingredient in the drug product that is sold or distributed for use in food-producing animals. This includes products that are the subject of an approved new animal drug application or abbreviated new animal drug application, as well as products that are conditionally approved under section 571 of the FD&C Act (21 U.S.C. 360ccc). Proposed paragraph (a) would also incorporate the requirement from section 512(l)(3) of the FD&C Act for animal drug sponsors to capture in their sales and distribution data reports information regarding any distributor-labeled products (see section 512(l)(3)(A) of the FD&C Act).

Proposed paragraph (b) sets out what information would need to be included in the drug sponsor's annual report in order to satisfy paragraph (a). Specifically, proposed paragraph (b) would require each annual report to identify the approved or conditionally approved application for the subject antimicrobial new animal drug product and include the following product-specific information (see section 512(l)(3)(B) and (C)(iii) of the FD&C Act):

• A listing of each antimicrobial active ingredient contained in the product;

• a description of each unique marketed product by unit (i.e., container size, strength, and dosage form);

• for each such product, a listing of the target animal species, indications, and production classes that are specified on the approved label;

• for each such product, the number of units sold or distributed in the United States (i.e., domestic sales) for each month of the reporting year; and

• for each such product, the number of units sold or distributed outside the United States (i.e., quantities exported) for each month of the reporting year.

Currently, animal drug sponsors are complying with the requirements of section 512(l)(3) of the FD&C Act through a two-step process. First, they collect monthly sales and distribution data for their affected new animal drug products in terms of unit sales. Then they calculate the amount of antimicrobial active ingredients associated with those product sales and report those figures to FDA. After several years of collecting and collating sales and distribution data under section 512(l)(3) of the FD&C Act, FDA believes the most effective and efficient method for achieving the goals of this statutory provision is for animal drug sponsors to limit their annual reporting to product sales and distribution data in terms of unit sales, and then FDA can use that information to calculate the exact amounts of antimicrobial active ingredients associated with those product sales. Animal drug sponsors are very experienced at collecting and reporting accurate sales and distribution data in terms of units of product sold or distributed because of their current obligation to annually report such information to FDA in their periodic drug experience reports under § 514.80(b)(4). However, our experience has shown great variability in reporting accuracy when sponsors are asked to convert product sales data into active ingredient sales data. Such variability causes confusion for the Agency and requires more time to verify submitted data with sponsors. Therefore, FDA believes this approach will not only reduce the burden on both the sponsors and the Agency, but will greatly increase the accuracy of the final results.

The Agency also believes a “reporting by product” approach is consistent with the requirements of ADUFA 105. Section 512(l)(3)(B) of the FD&C Act acknowledges that antimicrobial active ingredients are sold and distributed as products through its requirement that sponsors report their antimicrobial data by, among other things, “container size, strength, and dosage form,” and, “for each such dosage form, a listing of the target animals, indications, and production classes that are specified on the approved label of the product.” The container size, strength, and dosage form define a unique marketed product within an approved or conditionally approved application; therefore, under this proposal, if finalized, drug sponsors subject to the ADUFA 105 reporting requirements would need to continue to provide separate antimicrobial sales and distribution data for each of these unique marketed products in their reports. With knowledge of all the unique marketed products within an approved or conditionally approved application, along with the unit sales and distribution data for each of these products, the amount of antimicrobial active ingredient associated with those sales can then be calculated. The only question is who will perform the calculations and, as noted earlier, FDA believes that the Agency is best suited to perform this function in order to maximize accuracy and efficiency.

Further, proposed paragraph (b) would require the sponsor of an approved or conditionally approved antimicrobial new animal drug product to list in its annual report the target animals, indications, and production classes that are specified on the approved label of each unique product. FDA believes this requirement is consistent with the reporting requirements added to the FD&C Act by ADUFA 105. Section 512(l)(3)(B) of the FD&C Act provides for sponsors to report their antimicrobial data by, among other things, container size, strength, and dosage form and, “for each such dosage form, a listing of the target animals, indications, and production classes that are specified on the approved label of the product.” As previously stated, the container size, strength, and dosage form define a unique marketed product within an approved or conditionally approved application. The dosage form is part of what defines a unique marketed product; thus, listing the target animals, indications, and production classes that are specified on the approved label of each unique product provides the information required by ADUFA 105.

Proposed paragraph (c) would require that each annual report to FDA provide a species-specific estimate of the percentage of each new animal drug product containing an antimicrobial active ingredient that was sold or distributed domestically for use in cattle, swine, chickens, or turkeys, but only if such animal species appears on the approved label. This provision is not intended to require animal drug sponsors to conduct studies of on-farm drug use practices. FDA believes that animal drug sponsors have access to information obtained in the ordinary course of their business (for example, through marketing activities) to estimate the percentage of annual product sales that are sold or distributed domestically for use in any of these four major food-producing species that appear on the approved product label. While certain products may be legally used in an extralabel manner, promotion of such extralabel use is prohibited, and FDA believes that drug sponsors are unlikely to possess meaningful data on the percentage of their products that may be sold for extralabel use, especially for species not on the product label. If, however, a sponsor is aware of extralabel product sales for use in any of the four major food-producing species listed on the product's label, these sales would be included in deriving the estimate reported under proposed paragraph (c) for that species.

The Agency believes having species-specific estimates of product sales and distribution for use in the four major food-producing categories of animal species (cattle, swine, chickens, turkeys) would be important in supporting efforts such as the National Antimicrobial Resistance Monitoring System (NARMS), a surveillance program that monitors trends in antimicrobial resistance among foodborne bacteria from humans, retail meats, and animals. NARMS retail meat and animal sampling focus on the same four major food-producing species proposed here. Since there is currently limited resistance data related to minor food-producing animals and companion animals, requiring estimates of these additional species would cause additional burden without clear benefit.

In order to assure that the total of the species-specific percentages reported for each product adds up to 100 percent of its sales and distribution, a fifth category for “other species/unknown” would also be included in this provision. This category would be used to capture the percentage of each new animal drug product that was sold or distributed for use in animal species other than the four major food-producing species or otherwise unknown to the reporting drug sponsor.

The following hypothetical scenarios are presented here as illustration:

• An antimicrobial product is approved for use only in cattle and swine, and the sponsor estimates that 100 percent of the annual sales were for use in cattle. In this situation, the sponsor would report: Cattle 100 percent, swine 0 percent, chickens 0 percent, turkeys 0 percent, other species/unknown 0 percent.

• An antimicrobial product is approved for use only in cattle and swine, and the sponsor estimates that 50 percent of the annual sales were for use in cattle, 30 percent were for use in swine, and 20 percent were unknown to the sponsor. In this situation, the sponsor would report: Cattle 50 percent, swine 30 percent, chickens 0 percent, turkeys 0 percent, other species/unknown 20 percent.

• An antimicrobial product is approved for use only in cattle, sheep, and dogs, and the sponsor estimates that 50 percent of the annual sales were for use in cattle, 10 percent were for use in sheep, and 40 percent were for use in dogs. Since dogs are companion animals and sheep are a minor species, sales estimates for these would be reported together in the “other species/unknown” category. Thus, in this situation, the sponsor would report: Cattle 50 percent, swine 0 percent, chickens 0 percent, turkeys 0 percent, other species/unknown 50 percent.

As noted earlier, under this proposal, sponsors who hold approved applications for antimicrobial new animal drugs intended for use in food-producing animals who choose not to separately report distribution data for their products under § 514.80(b)(4)(i) would have to assure that full sales and distribution data for each product approved under such applications are alternatively reported under proposed § 514.87, including products approved under such applications that are labeled only for use in nonfood-producing animals. In this situation, sponsors would report the species-specific estimate of sales for the products labeled only for use in nonfood-producing animals as 100 percent “other species/unknown.”

All species-specific estimates would reflect domestic sales for the entire reporting year and would not include separate information for each month of the reporting year. ADUFA 105 requires drug sponsors to report sales and distribution data to FDA broken out by month; however, antimicrobial drug products may be used at any time up to several years after distribution. The Agency considers monthly fluctuations in drug product sales to be of limited value in reflecting when products may actually be administered to animals and interpreting antimicrobial resistance trends; therefore, FDA reports yearly sales and distribution information in its annual summary reports instead of monthly amounts. The Agency believes that requiring sponsors to report monthly species-specific estimates would entail a greater burden to drug sponsors without providing meaningful information.

Most antimicrobial new animal drug products that are approved for use in food-producing animals are labeled for use in more than one animal species, in some cases five or more species. Therefore, since the antimicrobial sales and distribution data reported to FDA by drug sponsors under section 512(l)(3) of the FD& Act are derived from drug product sales, very little can be concluded about antimicrobial sales intended for use in any one particular species for products that are approved for use in more than one species. The Agency believes having species-specific estimates of product sales and distribution for use in the four major food-producing categories of animal species (cattle, swine, chickens, turkeys) would be important in supporting efforts such as NARMS, a surveillance program that tracks trends related to antimicrobial resistance in food-producing animals and humans. FDA believes that this additional sales and distribution information would be useful to better understand how the use of medically important antimicrobial drugs in food-producing animals may contribute to the emergence or selection of antimicrobial resistant bacteria. Specifically, this information could inform microbial food safety risk assessments by providing a better indication of the extent to which a drug or drug class is used in a specific food animal species by a specific route of administration. From this, it may be possible to draw conclusions about how antimicrobial sales and distribution data compare with data from NARMS. In addition, such information could further enhance FDA's ongoing activities related to slowing the development of antimicrobial resistance and is consistent with the recommendations in guidance recently issued by this Agency addressing the judicious use of medically important antimicrobial drugs in food-producing animals (Guidance for Industry #209, entitled “The Judicious Use of Medically Important Antimicrobial Drugs in Food-Producing Animals”).

Since it is likely that many sponsors would consider their species-specific sales and distribution estimates as proprietary information, and that such estimates may often be derived from proprietary marketing analyses, FDA would, as described in proposed paragraph (e), consider the species-specific information reported by individual sponsors under paragraph (c) to be confidential business information consistent with section 512(l)(3) of the FD&C Act and this Agency's regulations at 21 CFR 20.61.

Proposed paragraph (d) would incorporate the requirement specified in section 512(l)(3)(C) of the FD&C Act that each annual antimicrobial drug sales and distribution data report be submitted to FDA not later than March 31 of each year and cover the period of the preceding calendar year (see section 512(l)(3)(C)(i) and (ii) of the FD&C Act). Proposed paragraph (d) would also require that each such report be submitted to FDA using Form FDA 3744, “Antimicrobial Animal Drug Distribution Report.”

Proposed paragraph (f) would incorporate the requirement established by ADUFA 105 for FDA to publish an annual summary report of the antimicrobial drug sales and distribution data collected from drug sponsors by antimicrobial class (see section 512(l)(3)(E) of the FD&C Act). Consistent with the statute, this proposed paragraph would also require that FDA not independently report those antimicrobial classes with fewer than three distinct sponsors, and would further require that, in reporting the antimicrobial drug sales and distribution data it receives from drug sponsors, FDA must do so in a manner consistent with protecting both national security and confidential business information (see section 512(l)(3)(E)(i) and (ii) of the FD&C Act).

Proposed paragraph (f) would also require FDA to publish its annual summary report of the information it receives under this section for each calendar year by December 31 of the following year. Proposed paragraph (f) also provides that, in addition to summarizing sales and distribution data by antimicrobial drug class, the annual summary report may also include additional summaries of the data received under this section, as determined by FDA. For example, on October 2, 2014, FDA published annual summary reports that include additional data tables on the importance of each drug class in human medicine, the approved routes of administration for these antimicrobials, whether these antimicrobials are available over-the-counter or require veterinary oversight, and whether the antimicrobial drug products are approved for therapeutic purposes or for production purposes, or both therapeutic and production purposes.

Paragraph (f) also proposes that the publication of any summary data in addition to drug class would be limited by the same confidentiality and national security protections as is required by the statute, as noted previously, for the publication of summary data by drug class. Specifically, each individual datum appearing in the summary report, regardless of its classification or source, would be required to: (1) Reflect cumulative product sales and distribution data from three or more distinct sponsors of approved products that were actively sold or distributed that reporting year and (2) be reported in a manner consistent with protecting both national security and confidential business information. This approach would make it possible to present sales and distribution data in a manner consistent with the confidentiality provisions of section 512(l) of the FD&C Act.1

FDA's authority for issuing this proposed rule is provided by section 512(l) of the FD&C Act. In addition, section 701(a) of the FD&C Act (21 U.S.C. 371(a)) gives FDA general rulemaking authority to issue regulations for the efficient enforcement of the FD&C Act.

FDA has examined the impacts of the proposed rule under Executive Order 12866, Executive Order 13563, the Regulatory Flexibility Act (5 U.S.C. 601-612), and the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4). Executive Orders 12866 and 13563 direct Agencies to assess all 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, and other advantages; distributive impacts; and equity). The Agency believes that this proposed rule is not an economically significant regulatory action as defined by Executive Order 12866.

FDA has developed a preliminary regulatory impact analysis (PRIA) that presents the benefits and costs of this proposed rule to stakeholders and the government. The summary analysis of benefits and costs included in the Executive Summary of this document is drawn from the detailed PRIA, which is available at http://www.regulations.gov (Docket No. FDA-2012-N-0447), and is also available on FDA's Web site at http://www.fda.gov/AboutFDA/ReportsManualsForms/Reports/EconomicAnalyses/Default.htm.

This proposed rule contains information collection provisions that are subject to review by OMB under the PRA of 1995 (44 U.S.C. 3501-3520). A description of these provisions is given in the Description section that follows with an estimate of the annual reporting and recordkeeping burden. Included in the estimate is the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing each collection of information.

FDA invites comments on these topics: (1) Whether the proposed collection of information is necessary for the proper performance of FDA's functions, including whether the information will have practical utility; (2) the accuracy of FDA's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used; (3) ways to enhance the quality, utility, and clarity of the information to be collected; and (4) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques, when appropriate, and other forms of information technology.

Title: Section 105 of the Animal Drug User Fee Amendments of 2008 (ADUFA 105) Regulation Information Collection.

Description: The ADUFA 105 legislation was enacted to address the problem of antimicrobial resistance and to help ensure safety related to the use of antibiotics in food-producing animals.

With these concerns in mind, Congress passed and the President signed ADUFA 105 in 2008, which amended section 512 of the FD&C Act to require that sponsors of approved or conditionally approved applications for new animal drugs containing an antimicrobial active ingredient submit an annual report to FDA on the amount of each such ingredient in the drug that is sold or distributed for use in food-producing animals.

Each report must specify: (1) The amount of each antimicrobial active ingredient by container size, strength, and dosage form; (2) quantities distributed domestically and quantities exported; and (3) a listing of the target animals, indications, and production classes that are specified on the approved label of the product. The report must cover the period of the preceding calendar year and include separate information for each month of the calendar year.

ADUFA 105 also requires FDA to publish annual summary reports of the data it receives.

In accordance with the new law, sponsors of the affected antimicrobial new animal drug products have submitted their sales and distribution data to FDA, and FDA has published summaries of such data, for each calendar year since 2009.

The proposed rule, if finalized, will amend the records and reports regulation in part 514 to include the following:

• Procedures relating to the submission to FDA of annual sales and distribution data reports by sponsors of approved new animal drug products sold or distributed for use in food-producing animals. The proposal includes specific reporting criteria, including the requirement that sponsors submit species-specific estimates of product sales as a percentage of total sales.

• Procedures applicable to FDA's preparation and publication of summary reports on an annual basis based on the sales and distribution data it receives from sponsors of approved antimicrobial new animal drug products. The proposal includes specific parameters for the content of the annual summary reports as well as provisions intended to protect confidential business information and national security, consistent with ADUFA 105.

• Provisions that will give sponsors of approved new animal drug products containing antimicrobial active ingredients that are sold or distributed for use in food-producing animals the opportunity to avoid duplicative reporting of product sales and distribution data to FDA under part 514.

Description of Respondents: Animal Drug Manufacturers (Sponsors).

This proposed rule would, among other things, revise existing OMB control number 0910-0659 (expiration date November 30, 2016) for antimicrobial drug products under ADUFA 105 by codifying statutory provisions. Many of the provisions of the information collection will not be affected by the proposed rule, if finalized. Therefore, this PRA section will concentrate on the changes being proposed in this rulemaking and will describe how the paperwork reduction implications will be affected.

FDA estimates the burden of this collection of information as follows:

Because the information collection requirements of ADUFA 105 have been in effect for some time (the first report sponsors submitted was for calendar year 2009), one-time capital costs for the design of the report by firms have already occurred and need not be reported here.

In addition, the paper Form FDA 3744, the e-Form FDA 3744a, and reporting via the Electronic Submission Gateway are provided by FDA at no cost. Thus, there is no one-time capital cost for report design or forms under the provisions of the proposed rule, and FDA considers the possession of computers and Internet accessibility to be usual and customary business practices.

Table 1 provides the one-time costs for the proposed rule, if finalized, which is estimated at $138,800, about one-half of which is the unavoidable cost of reviewing the rule and developing a compliance plan. Current sponsors of approved or conditionally approved applications for antimicrobial new animal drugs sold or distributed for use in food-producing animals would need to review the rule; however, since the proposed rule would mostly codify current practices, sponsors would not require significant review time. FDA estimates that there are 34 sponsors total, 23 sponsors with active (i.e., currently marketed) applications and 11 sponsors with only inactive applications, respectively, that would need to review the rule. This would require 24 hours each for the 23 active sponsors and 1 hour each for the 11 inactive sponsors. The sponsors with inactive applications would require less time to perform the review and would not need to develop the compliance plan. FDA estimates that one-half of the active sponsors would use personnel at the general and operations manager level ($134 per hour times 24 hours times 11.5 equals approximately $36,900). The other half of active sponsors would use an industrial production manager ($109 per hour times 11.5 times 24 hours equals approximately $30,100). (Please note that both estimates are rounded to be in accordance with the PRIA.) The total cost for review by sponsors of active approved applications is estimated at about $67,000.

For the one-time, 1-hour review of the rule for the 11 sponsors of inactive approved applications, FDA assigns one-half, or 5.5 hours, at the $134 per hour adjusted rate for general and operations managers, while one-half, or 5.5 hours, is assigned at the $109 adjusted rate for industrial production managers. The total cost for the review by sponsors of inactive approved applications is estimated at about $1,300 (rounded to be in accordance with the PRIA).

FDA estimates that the total administrative costs for rule review and compliance plan development to be about $68,300 ($67,000 + $1,300).

The proposed rule would allow applicants submitting annual sales and distribution reports for antimicrobial new animal drug products under § 514.87 the option to not report distribution data under § 514.80(b)(4)(i)(A) for the approved applications that include these same products, but only provided certain conditions are met. One condition is that sponsors must ensure that the beginning of the reporting period for the annual periodic drug experience reports for such applications is January 1. For applications that currently have a reporting period that begins on a date other than January 1, applicants must request a change in reporting submission date for their annual periodic drug experience report such that the reporting period begins on January 1 and ends on December 31, as described in § 514.80(b)(4). A second, and related, condition, is that applicants that change their reporting submission date must also, on a one-time basis, submit a special drug experience report, as described in current § 514.80(b)(5)(i), that addresses any gaps in distribution data caused by the change in reporting periods.

FDA estimates that 90 percent of the sponsors currently marketing approved new animal drugs containing an antimicrobial active ingredient for use in food-producing animals would make the request to change the submission date such that the reporting period begins on January 1 and ends on December 31. There are 23 sponsors of 153 approved applications. Ninety percent of 153 applications equates to about 138 applications held by 21 sponsors. FDA estimates that it would take approximately 2 hours for personnel to meet the first two conditions, making the change of date request for each application and preparing the one-time special drug experience report for each application. This results in approximately 276 hours. At the overhead and other benefits-adjusted wage rate of about $134 per hour for general and operations managers for one-half of the hours, and at $109 per hour for industrial production managers for the other one-half of the hours, the one-time cost would be about $33,400 (rounded to be in accordance with the PRIA).

Proposed § 514.87(c) would require that each report containing the amount of antimicrobial ingredient that is sold or distributed contain a species-specific estimate of the percentage of each product that was sold or distributed domestically in the reporting year for use in any of the following animal species categories, but only for such species that appear on the approved label: Cattle, swine, chickens, turkeys. The total of the species-specific percentages reported for each product must account for 100 percent of its sales and distribution; therefore, a fifth category of “other species/unknown” must also be reported.

FDA estimates that an individual would spend about 5 hours complying with this requirement in the first year. (Subsequent years are estimated to require about 3 hours to comply.) The additional 2 hours in the first year is a one-time cost incurred as individual company personnel discuss and settle upon a method to calculate these species-specific estimates. With the labor split evenly over the two wage rates, these 2 hours amount to a one-time cost of about $37,100 for the 153 active applications.

A benefit of the proposed rule is to provide some flexibility in which new animal drug sponsors report the sales and distribution data under both § 514.80 and proposed § 514.87 by allowing sponsors to meet two separate reporting obligations under part 514 with one set of report submissions under certain circumstances. FDA estimates that 90 percent of the sponsors currently marketing approved new animal drugs containing an antimicrobial active ingredient for use in food-producing animals would make the request to change the submission date such that the reporting period begins on January 1 and ends on December 31, as provided in proposed § 514.87. These 138 approved applications (90 percent of 152) would still have to account for the costs of data collection and preparation, but they would no longer be required to include distribution data along with the other information required in the Drug Experience Report (DER) under § 514.80(b)(4)(i). FDA estimates that the time saved per application from the removal of the requirement for the distribution data in the DER could be as much as 6 hours per application. Using the same adjusted wage rates and distribution of hours by adjusted wage rates (one-half of the total hours at each rate), the annual benefit of the reduction of 138 hours times an average of $121 per hour is about $100,200.2

Another benefit of this proposed rule would be the cost savings associated with reporting monthly product sales and distribution data to FDA rather than calculating the amount of antimicrobial active ingredients associated with these monthly product sales and distribution data. Proposed § 514.87, if finalized, would eliminate the need for sponsors to perform and report calculations of the amount of antimicrobial active ingredients associated with monthly product sales and distribution data. These data have shown a wide variability in accuracy, causing additional verification efforts for FDA personnel. Therefore, it would be more efficient for sponsors (and for FDA) if sponsors were to limit their annual reporting to product sales and distribution data. This would allow FDA to calculate the exact amounts of antimicrobial active ingredients associated with those product sales. FDA estimates that this would reduce the industry reporting effort by 1 hour per application. FDA estimates that 153 approved applications for antimicrobial new animal drugs that are currently marketed would be affected by this change in policy, resulting in 153 fewer compliance hours annually. At the overhead and other benefits-adjusted wage rate of about $134 per hour for general and operations manager for one-half of the hours, and at $109 per hour for industrial production managers for the other one-half of the hours, the annual cost saving would be about $18,600 (rounded to be in accordance with the PRIA).

FDA estimates total annual benefits of this proposed rule, if finalized, at about $118,800.

As stated previously, proposed § 514.87(c) would require that each report containing the amount of antimicrobial ingredient that is sold or distributed contain a species-specific estimate of the percentage of each product that was sold or distributed domestically in the reporting year for use in any of the following animal species categories, but only for such species that appear on the approved label: Cattle, swine, chickens, turkeys. The total of the species-specific percentages reported for each product must account for 100 percent of its sales and distribution; therefore, a fifth category of “other species/unknown” must also be reported. FDA estimates that affected sponsors will require about 3 hours to comply with this provision annually. FDA estimates that 153 approved, currently marketed applications containing antimicrobial drugs as active ingredients would be affected by this change in policy, resulting in 459 additional compliance hours annually. At the overhead and other benefits-adjusted wage rate of about $134 per hour for general and operations managers for one-half of the hours, and at $109 per hour for industrial production managers for the other one-half of the hours, the additional 459 hours results in an additional annual cost of approximately $55,700 (rounded to be in accordance with the PRIA).

Data for 2012 was submitted by 23 sponsors of 153 active applications for antimicrobial new animal drug products sold or distributed for use in food-producing animals. FDA estimates that 60 hours are currently required to collect the necessary data and prepare the submission to FDA for each of the estimated one-half of active applications for which data is submitted on a paper Form FDA 3744, for a total of 4,590 hours. FDA estimates that 50 hours are required to collect the necessary data and prepare the submission to FDA for each of the estimated one-half of active applications for which data is submitted on e-Form FDA 3744a, for a total of 3,825 hours. Thus, FDA estimates a total of 8,415 burden hours are currently needed for the 23 sponsors of 153 active applications to report to FDA. At the overhead and other benefits-adjusted wage rate of about $134 per hour for general and operations managers for one-half of the hours, and at $109 per hour for industrial production managers for the other one-half of the hours, the annual cost of reporting to FDA is currently approximately $1.02 million.

FDA estimates that under the proposed rule, if finalized, affected sponsors would need 62 hours to report the necessary data on a paper Form FDA 3744 and 52 hours to report via e-Form FDA 3744a (3 additional hours for the species-specific reporting requirement minus 1 hour for cessation of the requirement to calculate the amount of antimicrobial ingredients associated with monthly product sales and distribution data). The total annual burden hours for the 23 sponsors of the 153 active applications to report under the proposed rule, if finalized would be 8,721 hours (4,743 hours for one-half of the industry using paper Form FDA 3744 and 3,978 hours for one-half of the industry using e-Form FDA 3744a), an additional 306 hours over the current hourly burden. At the overhead and other benefits-adjusted wage rate of about $134 per hour for general and operations managers for one-half of the hours, and at $109 per hour for industrial production managers for the other one-half of the hours, the total annual cost of reporting for the industry under the proposed rule, if finalized, would be approximately $1.06 million. The cost of the additional 306 hours needed to annually report under the proposed rule, if finalized, is approximately $37,100 (rounded to be in accordance with the PRIA).

The 2012 data also show 11 sponsors with only inactive applications for antimicrobial new animal drug products for use in food-producing animals. FDA estimates that sponsors of these inactive applications for antimicrobial drug products need 2 hours per application to prepare and submit a report stating that there were no products distributed for the year, a total of 196 inactive approved applications times 2 hours annually equals 392 hours. This burden estimate would not be affected by the proposed rule, if finalized, and thus is not included in the following table.

FDA will not address the recordkeeping provisions of all affected sponsors (34), who prepare 1 report per year and spend 2 hours annually maintaining those records (68 hours total), because the number of burden hours would not be affected by the proposed rule, if finalized.

To ensure that comments on information collection are received, OMB recommends that written comments be faxed to the Office of Information and Regulatory Affairs, OMB, Attn: FDA Desk Officer, FAX: 202-395-7285, or emailed to [email protected]. All comments should be identified with the title “Animal Drug User Fee Amendments (ADUFA 105) Regulation Information Collection.”

In compliance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3407(d)), the Agency has submitted the information collection provisions of this proposed rule to OMB for review. These requirements will not be effective until FDA obtains OMB approval. FDA will publish a notice concerning OMB approval of these requirements in the Federal Register.

The Agency has determined under 21 CFR 25.30(h) that this action is of a type that does not individually or cumulatively have a significant effect on the human environment. Therefore, neither an environmental assessment nor an environmental impact statement is required.

FDA has analyzed this proposed rule in accordance with the principles set forth in Executive Order 13132. FDA has determined that the proposed rule, if finalized, would not contain policies that would have substantial direct effects on the States, on the relationship between the National Government and the States, or on the distribution of power and responsibilities among the various levels of government. Accordingly, the Agency tentatively concludes that the proposed rule does not contain policies that have federalism implications as defined in the Executive order and, consequently, a federalism summary impact statement is not required.

Interested persons may submit either electronic comments regarding this document to http://www.regulations.gov or written comments to the Division of Dockets Management (see ADDRESSES). It is only necessary to send one set of comments. Identify comments with the docket number found in brackets in the heading of this document. Received comments may be seen in the Division of Dockets Management between 9 a.m. and 4 p.m., Monday through Friday, and will be posted to the docket at http://www.regulations.gov.

Therefore, under the Federal Food, Drug, and Cosmetic Act and under authority delegated to the Commissioner of Food and Drugs, it is proposed that 21 CFR part 514 be amended as follows:

The collection of information contained in this notice of proposed rulemaking has been submitted to the Office of Management and Budget for review in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)). Comments on the collection of information should be sent to the Office of Management and Budget, Attn: Desk Officer for the Department of Treasury, Office of Information and Regulatory Affairs, Washington, DC 20224. Comments on the collection of information should be received by July 20, 2015.

The Treasury Department and the IRS previously issued a comprehensive set of regulations providing guidance to banks and domestic building and loan associations (and related parties) that receive FFA. These regulations (see TD 8641) were previously approved under control number 1545-1300.

The collections of information in this proposed regulation are in §§ 1.597-2(c)(4), 1.597-4(g)(5), 1.597-6(c), and 1.597-7(c)(3). The collections of information in these regulations are necessary for the proper performance of the function of the IRS by providing relevant information concerning the deferred FFA account and the amount of income tax potentially not subject to collection. The collections also inform the IRS and certain financial institutions that certain elections in these regulations have been made. The likely recordkeepers will be banks and domestic building and loan associations (and related parties) that receive FFA.

The estimated burden is as follows:

Estimated total annual reporting and/or recordkeeping burden: 2,200 hours.

Estimated average annual burden per respondent: 4.4 hours.

Estimated number of respondents: 500.

Estimated annual frequency of responses: Once.

Comments concerning the accuracy of this burden estimate and suggestions for reducing this burden should be directed to the Office of Management and Budget, Attn: Desk Officer for the Department of Treasury, Office of Information and Regulatory Affairs, Washington DC 20503, with copies to the Internal Revenue Service, Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP, Washington, DC 20224. Any such comments should be submitted not later than July 20, 2015. Comments are specifically requested concerning:

 Whether the proposed collection of information is necessary for the proper performance of the Internal Revenue Service, including whether the information will have practical utility;

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

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

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

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

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

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

Section 597 was enacted as part of the Economic Recovery Tax Act of 1981 (Pub. L. 97-34, 95 Stat 172 (1981)) in response to the emerging savings and loan crisis. As originally enacted, section 597 provided that money or other property provided to a domestic building and loan association by the Federal Savings and Loan Insurance Corporation (“FSLIC”) was excluded from the recipient's gross income, and that such recipient was not required to make a downward adjustment to the basis of its assets.

The Technical and Miscellaneous Revenue Act of 1988 (Pub. L. 100-647, 102 Stat 3342 (1988)) modified section 597 by requiring taxpayers to reduce certain tax attributes by one-half of the amount of financial assistance received from the FSLIC or the Federal Deposit Insurance Corporation (“FDIC”). Yet troubled financial institutions still could receive half of such financial assistance without any corresponding reduction in tax attributes. These rules thus continued to allow the FSLIC and the FDIC to arrange acquisitions of troubled financial institutions by healthy financial institutions at a tax-subsidized cost. Notice 89-102 (1989-2 CB 436).

Section 1401 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (Pub. L. 101-73, 103 Stat 183 (1989)) (“FIRREA”) further amended section 597 to provide that FFA generally is treated as taxable income. Congress believed that the tax subsidy provided to troubled financial institutions was an inefficient way to provide assistance to such institutions. See H.R. Rep. No. 101-54, pt. 2, at 25 (1989). Moreover, Congress believed that a tax subsidy no longer was necessary because the provisions of FIRREA that deem FFA to be included in the troubled financial institution's income at the time the institution's assets are sold or transferred generally would cause the FFA inclusion to be offset by the institution's losses. Id. at 27.

In 1995, the Treasury Department and the IRS issued a comprehensive set of regulations (the “current regulations”) providing guidance for banks and domestic building and loan associations (“Institutions”) and their affiliates for transactions occurring in connection with the receipt of FFA. See TD 8641 (1996-1 CB 103). For these purposes, the term “Institution” includes not only a troubled financial institution, but also a financial institution that acquires the troubled institution's assets and liabilities in a transaction facilitated by “Agency” (the Resolution Trust Corporation, the FDIC, any similar instrumentality of the U.S. government, and any predecessor or successor of the foregoing (including the FSLIC)).

The current regulations reflect certain principles derived from the legislative history of FIRREA. First, FFA generally is treated as ordinary income of the troubled Institution that is being compensated for its losses through the provision of assistance. Second, an Institution should not get the tax benefit of losses for which it has been compensated with FFA. Third, the timing of the inclusion of FFA should, where feasible, match the recognition of the Institution's losses. Finally, the income tax consequences of the receipt of FFA as part of a transaction in which a healthy Institution acquires a troubled Institution should not depend on the form of the acquisition (for example, the income tax consequences should not differ depending on whether the stock or the assets of a troubled Institution are acquired).

As provided in section 597(c) and current § 1.597-1(b), “FFA” means any money or property provided by Agency to an Institution or to a direct or indirect owner of stock in an Institution under section 406(f) of the National Housing Act (12 U.S.C. 1729(f), prior to its repeal by Pub. L. 101-73), section 21A(b)(4) of the Federal Home Loan Bank Act (12 U.S.C. 1441a(b)(4), prior to its repeal by Pub. L. 111-203, 124 Stat 1376 (2010)), section 11(f) or 13(c) of the Federal Deposit Insurance Act (12 U.S.C. 1821(f), 1823(c)), or any similar provision of law.

The amount of FFA received or accrued is the amount of any money, the fair market value of any property (other than an Agency Obligation), and the issue price of any Agency Obligation. An “Agency Obligation” is a debt instrument that Agency issues to an Institution or to a direct or indirect owner thereof.

FFA includes “Loss Guarantee” payments, “Net Worth Assistance,” and certain other types of payments. A “Loss Guarantee” is an agreement pursuant to which Agency (or an entity under “Agency Control”) guarantees or agrees to pay an Institution a specified amount upon the disposition or charge-off (in whole or in part) of specific assets, an agreement pursuant to which an Institution has a right to put assets to Agency (or to an entity under “Agency Control”) at a specified price, or a similar arrangement. An Institution or entity is under “Agency Control” if Agency is conservator or receiver of the Institution or entity or if Agency has the right to appoint any of the Institution's or entity's directors. “Net Worth Assistance” is money or property that Agency provides as an integral part of certain actual or deemed transfers of assets or deposit liabilities, other than FFA that accrues after the date of the transfer (Net Worth Assistance thus does not include Loss Guarantee payments).

Other terms are defined in current §§ 1.597-1(b) or 1.597-5(a)(1). “Taxable Transfers” generally include (i) transfers of deposit liabilities (if FFA is provided) or of any asset for which Agency or an entity under Agency Control has any financial obligation (for example, pursuant to a Loss Guarantee), and (ii) certain deemed asset transfers. “Acquiring” refers to a corporation that is a transferee of the assets and liabilities of a troubled Institution in a Taxable Transfer (other than a deemed transferee in a Taxable Transfer described in current § 1.597-5(b)). A “New Entity” is the new corporation that is treated as purchasing all the assets of a troubled Institution in a Taxable Transfer described in § 1.597-5(b)). A “Consolidated Subsidiary” is a member of the consolidated group of which an Institution is a member that bears the same relationship to the Institution that the members of a consolidated group bear to their common parent under section 1504(a)(1). For additional terms not otherwise defined herein, see generally § 1.597-1(b).

Under the current regulations, FFA generally is includible as ordinary income to the recipient at the time the FFA is received or accrued in accordance with the recipient's method of accounting. Section 1.597-2(a)(1). There are three exceptions to this general rule, however. First, if Net Worth Assistance is provided to Acquiring or a New Entity, the troubled Institution is treated as having directly received such FFA immediately before the transfer, and the Net Worth Assistance is treated as an asset that is sold in the Taxable Transfer. Section 1.597-5(c)(1). The inclusion of Net Worth Assistance in the troubled Institution's income generally will be offset by the Institution's net operating losses and other losses. Second, § 1.597-2(c) limits the amount of FFA an Institution currently must include in income under certain circumstances (for example, if the Institution has insufficient net operating losses and other losses to offset the inclusion of Net Worth Assistance in income) and provides rules for the deferred inclusion in income of amounts in excess of those limits. This provision results in matching the inclusion of FFA in income with the recognition of an Institution's built-in losses. Third, under § 1.597-2(d)(2), certain amounts received pursuant to a Loss Guarantee are included in the amount realized by Acquiring with respect to an asset subject to the Loss Guarantee rather than being included directly in gross income.

The typical Agency-assisted transaction involves the sale by Agency (in its capacity as receiver) of the troubled Institution's assets and the provision of FFA to Acquiring, which agrees to assume the troubled Institution's deposit liabilities. If, instead, an Agency-assisted transaction were structured as a stock purchase, the current regulations would treat the transaction as an asset transfer under certain circumstances. A deemed asset transfer occurs if a transaction structured as a transfer of Institution or Consolidated Subsidiary stock causes an Institution or its Consolidated Subsidiary to enter or leave a consolidated group (other than pursuant to an election under § 1.597-4(g)), or if the Institution or its Consolidated Subsidiary issues sufficient stock to cause an ownership change of at least 50 percent (see § 1.597-5(b)). The foregoing rules are intended to treat an Agency-assisted acquisition of a troubled Institution as a taxable asset acquisition regardless of how the acquisition is structured. The treatment of certain stock transfers as asset transfers also fosters the matching of FFA income with a troubled Institution's losses by triggering the Institution's built-in losses.

If an Agency-assisted transaction involves an actual asset transfer, the amount realized by the transferor Institution is determined under section 1001(b) by reference to the consideration paid by Acquiring. If the transaction involves a deemed asset transfer instead, the amount realized is the grossed-up basis in the acquired stock plus the amount of liabilities assumed (plus certain other items). Section 1.597-5(c)(2).

Section 1.597-5(d)(2)(i) of the current regulations provides that the purchase price for assets acquired in a Taxable Transfer generally is allocated among the assets in the same manner as amounts are allocated among assets under § 1.338-6(b), (c)(1), and (c)(2). This means that the purchase price first is allocated to the Class I assets; then, to the extent the purchase price exceeds the value of the Class I assets, the remaining purchase price is allocated among the Class II assets in proportion to their fair market value. Any remaining purchase price after allocation to the Class II assets is then allocated in a similar method among the Class III, IV, V, VI, and VII assets seriatim.

The current regulations modify certain aspects of the section 338 allocation rules. Section 1.597-5(c)(3)(ii) treats an asset subject to a Loss Guarantee as a Class II asset with a fair market value that cannot be less than its highest guaranteed value or the highest price at which it can be put. Further, § 1.597-5(d)(2)(iii) provides that if the fair market value of the Class I and Class II assets acquired in a Taxable Transfer is greater than Acquiring's or a New Entity's purchase price for the acquired assets, then the basis of the Class I and Class II assets equals their fair market value (which, in the case of an asset subject to a Loss Guarantee, cannot be less than its highest guaranteed value or the highest price at which it can be put). The amount by which the assets' fair market value exceeds the purchase price is included ratably as ordinary income by Acquiring or a New Entity over a six-year period beginning in the year of the Taxable Transfer.

In certain situations, Agency may organize a “Bridge Bank” to hold the deposit liabilities and assets of a troubled Institution and continue its operations pending its acquisition or liquidation. In general, a Bridge Bank and its associated “Residual Entity” (the entity that remains after the troubled Institution transfers its deposit liabilities to the Bridge Bank) are treated as a single entity for income tax purposes and are treated together as the successor to the troubled Institution. Thus, for example, the transferring Institution recognizes no gain or loss on the transfer of deposit liabilities to a Bridge Bank, and the Bridge Bank succeeds to the transferring Institution's basis in any transferred assets, its other tax attributes, its Taxpayer Identification Number (“TIN”), its taxable year, and its status as a member of a consolidated group. The Bridge Bank also is responsible for filing all income tax returns and statements for this single entity and is the agent for the Residual Entity (which effectively is treated as a division of the Bridge Bank). Section 1.597-4(d) and (e).

To ensure that FFA is included in the income of the transferor Institution or its consolidated group, current § 1.597-4(f) provides that the Institution remains a member of its consolidated group regardless of its placement under Agency Control or the transfer of its deposit liabilities to a Bridge Bank, unless an election is made under § 1.597-4(g) to disaffiliate the Institution. Under § 1.597-4(g), a consolidated group may elect to exclude from the group a subsidiary member that is an Institution in Agency receivership. The election is irrevocable and requires the inclusion of a “toll charge” in the group's income (the toll charge is intended to reflect the amount the group would include in income if Agency were to provide the entire amount of FFA necessary to restore the Institution's solvency at the time of the event permitting disaffiliation). Section § 1.597-4(g)(6) further imposes a deemed election (subject to the toll charge) if members of a consolidated group deconsolidate a subsidiary Institution in contemplation of Agency Control or the receipt of FFA. After any affirmative or deemed election to disaffiliate, an Institution generally is treated as a new unaffiliated corporation that received its assets and liabilities in a section 351 transaction (and thus has no net operating or capital loss carryforwards) and that holds an account receivable for future FFA with a basis equal to the toll charge (to offset the inclusion of future FFA). Section 1.597-4(g)(4)(i). The regulations under section 597 take precedence over any conflicting provisions in the regulations under section 1502. Section 1.597-4(f)(3).

The Treasury Department and the IRS received many comments suggesting that changes be made to the current regulations under section 597. These proposed regulations address many of these comments as well as additional concerns not raised in comments. Not all comments resulted in proposed modifications to the regulations. For example, as discussed in sections 9, 10, and 11 of this preamble, the proposed regulations generally have not been modified to match non-tax accounting treatment. This preamble describes the proposed changes and also addresses certain areas in which commenters requested changes but no changes are proposed.

These regulations propose to modify and clarify the treatment of certain transactions in which FFA is provided to Institutions (and related persons). The proposed regulations remove all references to “highest guaranteed value” and provide guidance relating to the determination of assets' fair market value. In addition, the proposed regulations provide guidance regarding the transfer of property to Agency by a non-consolidated affiliate of an Institution, the ownership of assets subject to a Loss Guarantee (“Covered Assets”), and the determination of Acquiring's purchase price when it has an option to purchase additional assets. The proposed regulations also make changes to facilitate e-filing, remove the reference to former § 1.1502-76(b)(5)(ii) (which allowed a subsidiary that was a consolidated group member for 30 days or less during the group's taxable year to elect not to be included as a group member for that year), make a non-substantive change to the terminology used in § 1.597-5(b)(1) and (2) to clarify that the events resulting in a deemed acquisition of assets must occur to an Institution or a Consolidated Subsidiary of an Institution, and make a non-substantive change to the definition of Consolidated Subsidiary. In addition, there are numerous non-substantive changes that pervade all sections of the current regulations. Thus, the proposed regulations amend and restate all of §§ 1.597-1 through 1.597-7 in order to make the reading of the regulations more user-friendly. The proposed regulations make no changes to § 1.597-8.

It is common practice for Agency to provide a Loss Guarantee that does not provide for payment of a specific amount with respect to a Covered Asset, but that instead provides for reimbursement to an Institution for a percentage of its losses on Covered Assets, with the reimbursement percentage changing if a certain threshold of losses is met (a “Loss Share Agreement”). For example, assume that a guaranteed party has a pool of loans with an unpaid principal balance of $90 million and owns real estate with a book value of $10 million, and that Agency enters into a Loss Share Agreement whereby Agency will reimburse the guaranteed party zero percent of the first $20 million of losses (the “first loss tranche”) on the Covered Assets (the pool of loans and the real estate) and 80 percent of any additional losses (the “second loss tranche”) on the Covered Assets. Losses generally are determined by reference to the unpaid principal balance of a loan or the book value of an asset, not by reference to tax basis.

The Treasury Department and the IRS have received comments and inquiries from taxpayer groups asking how to calculate a Covered Asset's “highest guaranteed value” under a Loss Share Agreement. This term, which appears in §§ 1.597-3(f), 1.597-5(c)(3)(ii), and 1.597-5(f) (Example 4) of the current regulations, is not presently defined, and the Treasury Department and the IRS understand that there may be uncertainty in determining how to calculate highest guaranteed value in the absence of guidance. Moreover, commenters have observed that reliance on certain measures of highest guaranteed value may cause basis to be allocated to assets in amounts that exceed the total principal collections and Agency reimbursements that Acquiring reasonably can expect to receive.

To alleviate confusion and possible distortions created by use of the term “highest guaranteed value,” and because of the clarification of the meaning of “fair market value” (as discussed in the paragraphs that follow), the Treasury Department and the IRS have removed all references to “highest guaranteed value” from the regulations.

Taxpayers have asked whether potential Agency payments pursuant to a Loss Guarantee are included in determining the fair market value of a Covered Asset. Legislative history provides that Congress intended “that basis be allocated to the specified assets (or pool of assets) in an amount equal to their fair market value as adjusted to reflect the capital loss guarantee and income maintenance agreements applicable to those assets.” H.R. Rep. No. 101-54, pt. 2, at 28 (1989) (emphasis added). Accordingly, the proposed regulations provide that, in determining the fair market value of a Covered Asset, potential Loss Guarantee payments from Agency are included.

More specifically, the fair market value of a Covered Asset equals its “Expected Value”—the sum of (i) the amount a third party would pay for the asset absent the existence of a Loss Guarantee (the “Third-Party Price” or “TPP”), and (ii) the amount Agency would pay if the asset actually were sold for the Third-Party Price. If the amount Agency agrees to reimburse the guaranteed party is determined by a Loss Share Agreement, then for purposes of calculating the Expected Value, the amount that Agency would pay is determined by multiplying the loss (as determined under the terms of the Loss Share Agreement) that would be realized if the asset were disposed of at the Third-Party Price by the “Average Reimbursement Rate” (or “ARR”). In turn, the Average Reimbursement Rate is the percentage of losses under a Loss Share Agreement that would be reimbursed if every Covered Asset were disposed of for the Third-Party Price at the time of the Taxable Transfer. In effect, the ARR converts a multiple-tranche reimbursement into a single rate that covers all losses.

For example, assume that a guaranteed party has a pool of loans with an unpaid principal balance of $90 million and owns real estate with a book value of $10 million, and that Agency enters into a Loss Share Agreement whereby Agency will reimburse the guaranteed party zero percent of the first $20 million of losses on the pool of loans and the real estate and 80 percent of any additional losses on these Covered Assets. Further assume that the Third-Party Price is $46 million for the pool of loans and $4 million for the real estate. If all of these assets were disposed of for the $50 million Third-Party Price, the guaranteed party would have a total realized loss of $50 million ($100 million − $50 million), and Agency would reimburse the guaranteed party a total of $24 million (($20 million realized loss × 0%) + ($30 million realized loss × 80%)). Therefore, the Average Reimbursement Rate would equal 48 percent ($24 million reimbursement/$50 million realized loss). The Expected Value of the pool of loans thus would equal $67.12 million ($46 million TPP plus $21.12 million from Agency ($44 million realized loss × 48% ARR)), and the Expected Value of the real estate would equal $6.88 million ($4 million TPP plus $2.88 million from Agency ($6 million realized loss × 48% ARR)).

The Treasury Department and the IRS believe this definition of a Covered Asset's fair market value furthers Congress's intent and correctly represents the true economic value of a Covered Asset. Whether an Institution receives an amount on the disposition of an asset entirely from either the purchaser or from Agency, or whether the Institution instead receives a portion of the amount from the purchaser and the remainder from Agency, the asset is worth the same amount from the Institution's perspective. To simplify the administration of these regulations, however, the Average Reimbursement Rate is determined at the time of the Taxable Transfer and is not adjusted for any changes in Third-Party Price over the life of any asset subject to a Loss Share Agreement or the prior disposition of any asset subject to a Loss Share Agreement.

For purposes of the foregoing example, the pool of loans has been treated as if it were a single asset. However, in applying the proposed regulations, the fair market value, Third-Party Price, and Expected Value of each loan within a pool must be determined separately. The Treasury Department and the IRS request comments as to whether an Institution that holds assets subject to a Loss Guarantee should be permitted or required to “pool” those assets for valuation purposes rather than value each asset separately. The Treasury Department and the IRS also request comments about how such a pooling approach should be implemented and about valuation and other issues that may arise from pooling assets.

Under current § 1.597-2(c)(4), an Institution must establish and maintain a deferred FFA account if any FFA received by the Institution is not currently included in its income. In general terms, a deferred FFA account is necessary if an Institution has insufficient net operating losses and other losses to fully offset an FFA inclusion. For example, assume that, at the beginning of the taxable year, Institution A has assets with a value of $750 and a basis of $800 (written down from $1,000) and liabilities of $1,000. A has a $200 net operating loss from writing down its assets. Further assume that Agency provides $250 of Net Worth Assistance to Institution B in connection with B's acquisition of A's assets and liabilities. Under these circumstances, A would currently include $200 of the Net Worth Assistance in income, and A would establish a deferred FFA account for the remaining $50. As A recognizes built-in losses upon the sale of its assets, a corresponding amount of the $50 of deferred FFA (which would be offset by these losses) would be taken into account. See § 1.597-2(c)(2).

Under current § 1.597-2(d)(4)(i), if an Institution transfers money or property to Agency, the amount of money and the fair market value of the property will decrease the balance in its deferred FFA account to the extent the amount transferred exceeds the amount Agency provides in the exchange. For purposes of the foregoing rules, an Institution is treated under § 1.597-2(d)(4)(iv) as having made any transfer to Agency that was made by any other member of its consolidated group, and appropriate investment basis adjustments must be made. However, there is no corresponding provision for transfers made by a person other than the Institution if the Institution is not a member of a consolidated group.

For example, assume that Corporation X (an includible corporation within the meaning of section 1504(b)) owns all of the outstanding stock of an Institution, but X and the Institution do not join in filing a consolidated return. Further assume that Agency provides $10 million of FFA to the Institution in 2015 in exchange for a debt instrument of X (which, under § 1.597-3(b), is not treated as debt for any purposes of the Code while held by Agency); that the Institution has a deferred FFA account of $5 million at the beginning of 2016; and that, during 2016, X makes a $1 million payment on the debt instrument to Agency. Because X and the Institution do not join in filing a consolidated return, the Institution would not be able to reduce its FFA account to reflect X's payment. Moreover, because the debt instrument is not treated as debt while held by Agency, X would not be allowed a deduction for any portion of the payment to Agency.

The proposed regulations expand § 1.597-2(d)(4)(iv) by providing that an Institution is treated as having made any transfer to Agency that was made by any other member of its affiliated group, regardless of whether a consolidated return is filed. Because the affiliate is transferring property to Agency to reimburse Agency for FFA provided to the Institution, the Treasury Department and the IRS believe it is appropriate that the recipient of the FFA (in this case, the Institution) take such transfer into account in determining adjustments to its deferred FFA account, regardless of whether a consolidated return is filed. Economically, the reason for the transfer by the Institution's affiliate is the same. Appropriate adjustments must be made to reflect the affiliate's payment with respect to the Institution's FFA account.

Section 1.597-3(a) of the current regulations provides that, for all Federal income tax purposes, an Institution is treated as the owner of all Covered Assets, regardless of whether Agency otherwise would be treated as the owner under general principles of income taxation. The Treasury Department and the IRS have become aware of certain instances in which Agency has provided Loss Guarantees to an Institution for assets held by a subsidiary of the Institution that is not a member of the Institution's consolidated group (for example, a real estate investment trust (“REIT”)).

The intent behind § 1.597-3(a) of the current regulations was to prevent Agency from being considered the owner of Covered Assets even though Agency might have significant indicia of tax ownership with respect to such assets. The question of whether the Institution or its non-consolidated subsidiary should be treated as the owner of a Covered Asset was not considered because that scenario was not envisioned at the time the current regulations were promulgated. The proposed regulations modify this rule to clarify that the entity that actually holds the Covered Asset will be treated as the owner of such asset. Pursuant to proposed regulation § 1.597-2(d)(2)(ii), appropriate basis adjustments must be made to reflect the receipt of FFA by the Institution when the Covered Asset is disposed of or charged off by the asset's owner. The proposed regulations also provide that the deemed transfer of FFA by a regulated investment company (“RIC”) or a REIT to the Institution, if a deemed distribution, will not be treated as a preferential dividend for purposes of sections 561, 562, 852, or 857.

Some taxpayers have questioned how the purchase price for assets is determined when the purchase agreement provides Acquiring an option period (for example, 90 days) to decide whether it also wants to acquire the troubled Institution's physical assets (for example, branch buildings). The Treasury Department and the IRS believe that, in accord with general principles of tax law and the intent of the current regulations, the amount paid for assets subsequently acquired under an option should be integrated into the overall purchase price because the purchase of those assets relates back to, and is part of, the overall purchase agreement. The proposed regulations clarify the current regulations and update the citation in § 1.597-5(d)(1) to the final regulations under section 1060.

The proposed regulations make two changes to facilitate e-filing. First, the proposed regulations replace the requirement in current § 1.597-4(g)(5)(i)(A) that a consolidated group attach a copy of any election statement mailed to an affected Institution and the accompanying certified mail receipt to its income tax return with the requirement that the consolidated group include an election statement with its income tax return and retain a copy of certain documents in its records. Second, if an Institution without Continuing Equity (in other words, an Institution that is a Bridge Bank, in Agency receivership, or treated as a New Entity on the last day of the taxable year) is liable for income tax that is potentially not subject to collection because it would be borne by Agency, the proposed regulations replace the requirement in current § 1.597-6(c) that a consolidated group make a notation of such amount directly on the front page of its tax return with the requirement that a consolidated group include a statement providing such amount on its income tax return.

The proposed regulations remove paragraph § 1.597-4(f)(2) of the current regulations relating to a 30-day election to be excluded from the consolidated group. The 30-day election was eliminated for subsidiary members of a consolidated group that became or ceased to be members of the consolidated group on or after January 1, 1995. Therefore, the reference to such election is no longer necessary.

As noted previously, § 1.597-1(b) of the current regulations defines “Consolidated Subsidiary” to mean a member of the consolidated group of which an Institution is a member that bears the same relationship to the Institution that the members of a consolidated group bear to their common parent under section 1504(a)(1). These proposed regulations modify this definition to provide that a “Consolidated Subsidiary” is a corporation that both (i) is a member of the same consolidated group as an Institution, and (ii) would be a member of the affiliated group that would be determined under section 1504(a) if the Institution were the common parent thereof. This change is intended merely to clarify the meaning of “Consolidated Subsidiary” and is not intended to be a substantive change.

The Treasury Department and the IRS request comments as to whether the rules in these proposed regulations concerning Consolidated Subsidiaries should be expanded to apply either to (i) an Institution's subsidiaries that are “includible corporations” (within the meaning of section 1504(b)) but that are not members of the Institution's consolidated group (such as affiliated but non-consolidated subsidiaries of an Institution or subsidiaries of an Institution that is an S corporation), or (ii) an Institution's subsidiaries that are not “includible corporations” (such as REITs). Any such comments should explain which (if any) provisions in the regulations should be changed and which provisions should continue to apply solely to Consolidated Subsidiaries (as defined in the proposed regulations). Such comments also should describe the reasons for the recommended change (or for making no change). Final regulations issued pursuant to this notice of proposed rulemaking may contain a broader rule than these proposed regulations.

As noted previously, certain Taxable Transfers can result in the fair market value of Class I and Class II assets exceeding their purchase price and the inclusion of the excess in income by Acquiring or a New Entity over a six-year period. See § 1.597-5(d)(2)(iii). For example, assume that Acquiring assumes $150,000 of a troubled Institution's deposit liabilities in Year 1 in exchange for Institution's Assets 1 and 2 (which have a 10-year weighted average life) and Agency's provision of an $80,000 Loss Guarantee with respect to Asset 1 and a $100,000 Loss Guarantee with respect to Asset 2. (These Loss Guarantees are not Loss Share Agreements.) Further assume that the Third-Party Price for Assets 1 and 2 is $70,000 and $95,000, respectively. Under the current regulations, the fair market value of Assets 1 and 2 equals $80,000 and $100,000, respectively—each asset's highest guaranteed value. Under the proposed regulations, the fair market value of Assets 1 and 2 also equals $80,000 and $100,000, respectively—each asset's Expected Value. The aggregate fair market value of Assets 1 and 2 ($180,000) thus exceeds their purchase price ($150,000). At the end of Year 2, Acquiring wholly charges off Assets 1 and 2 and receives $180,000 from Agency. Under the basis-step-up and six-year-inclusion rules in § 1.597-5(d)(2)(iii), Acquiring's aggregate basis in Assets 1 and 2 upon their acquisition equals their fair market value ($180,000). Even though Assets 1 and 2 have a 10-year weighted average life, Acquiring may not depreciate these assets below $180,000 because Agency guarantees Acquiring $180,000 on the disposition of the assets. See § 1.597-3(f). Acquiring thus recognizes no gain or loss with respect to the charge-off of these assets in Year 2. Instead, Acquiring includes $5,000 in income for each of Years 1-6 ($30,000 excess of fair market value over purchase price/6 years).

One commenter suggested that the current rules may create a mismatch in the timing of a taxpayer's economic and taxable income that results in a timing benefit for, or a timing detriment to, either the taxpayer or the government, depending on the expected life of the purchased assets. For instance, in the foregoing example, Acquiring must include amounts in income over a six-year period even though Assets 1 and 2 have a 10-year weighted average life; consequently, this mismatch results in a detriment to the taxpayer. The commenter thus would eliminate the basis-step-up and six-year-inclusion rules, have Acquiring take an initial basis in the Class I and Class II assets equal to their purchase price, and then have Acquiring either (a) recognize gain upon the disposition of the assets, or (b) accrue income (and increase basis) in each year based on the weighted average life of the assets (rather than over a six-year period).

Under the commenter's first proposed approach, Acquiring's aggregate asset basis in the foregoing example would be $150,000 (the amount of liabilities assumed) rather than $180,000, and Acquiring would recognize $30,000 of gain at the end of Year 2. Under the commenter's second proposed approach, the $30,000 would be spread over 10 years; thus, Acquiring's economic and taxable income would be matched.

After consideration of the comment, these proposed regulations retain the current basis-step-up and six-year-inclusion rules. The basis-step-up and six-year-inclusion rules prevent the realization of income from being a factor in the acquirer's decision whether to retain or dispose of Covered Assets. Furthermore, these rules lock in the tax cost of the purchase, which reduces the cost of uncertainties ultimately borne by Agency.

The Treasury Department and the IRS believe that, although the current rules may be imperfect (in that sometimes there will be a benefit and other times a detriment), they are administratively efficient and they satisfy the intent of the current regulations. Accordingly, these proposed regulations retain the current rules.

Section 1.597-3(b) of the current regulations disregards any debt of or equity interests in the Institution (or any affiliates) that Agency receives in connection with a transaction in which FFA is provided while such debt or equity interests are held by Agency. One commenter supported eliminating the current rule (resulting in an Institution's debt or equity issued to Agency being included in Acquiring's purchase price) and replacing it with anti-abuse rules to address any concerns.

After consideration of the comment, these proposed regulations retain the current rules. The Treasury Department and the IRS believe that treating debt or equity interests in an Institution as having value would be inconsistent with section 597(c), which provides that all amounts provided by Agency are FFA regardless of whether Agency takes back an instrument in exchange therefor. Further, the current rule eliminates any issues for Agency and the IRS relating to valuation of the debt or equity interests.

The current regulations integrate the treatment of Loss Guarantee payments with other proceeds received with respect to Covered Assets, whereas under non-tax accounting principles a Loss Guarantee is treated as a separate asset and source of income. Commenters suggested that the tax treatment of Loss Guarantees and payments thereunder be conformed to the non-tax accounting treatment thereof. After consideration of these comments, these proposed regulations retain the current rules. The Treasury Department and the IRS believe the treatment of Loss Guarantee payments in the current and proposed regulations comports better with general income tax principles (for example, treating Loss Guarantee payments as part of the consideration received with respect to a Covered Asset is analogous to the tax treatment of insurance proceeds received with respect to other losses).

The proposed regulations will be effective on the date of publication of the Treasury decision adopting these proposed rules as final regulations in the Federal Register, except with respect to FFA provided pursuant to an agreement entered into before such date. In the latter case, the current regulations will continue to apply unless the taxpayer elects to apply the final regulations on a retroactive basis. However, the election to apply the final regulations on a retroactive basis cannot be made if the period for assessment and collection of tax has expired under the rules of section 6501 for any taxable year in which §§ 1.597-1 through 1.597-6 would affect the determination of the electing entity's or group's income, deductions, gain, loss, basis, or other items.

It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866, as supplemented by Executive Order 13563. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations. It is hereby certified that these regulations will not have a significant economic impact on a substantial number of small entities. This certification is based on the fact that the regulations apply only to transactions involving banks or domestic building and loan associations, which tend to be larger businesses. Accordingly, a Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the Code, these regulations have been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business.

Before these proposed regulations are adopted as final regulations, consideration will be given to any written comments (a signed original and eight (8) copies) or electronic comments that are submitted timely to the IRS. In addition to the specific requests for comments made elsewhere in this preamble, the Treasury Department and the IRS request comments on all aspects of the proposed rules. All comments will be available for public inspection and copying. A public hearing may be scheduled if requested in writing by any person who timely submits written comments. If a public hearing is scheduled, notice of the date, time, and place of the hearing will be published in the Federal Register.

The principal author of these proposed regulations is Russell G. Jones of the Office of Associate Chief Counsel (Corporate). However, other personnel from the Treasury Department and the IRS participated in their development.

Accordingly, 26 CFR part 1 is proposed to be amended as follows:

Section 18 of the Occupational Safety and Health Act of 1970 (the “Act”), 29 U.S.C. 667, provides that a State which desires to assume responsibility for the development and enforcement of standards relating to any occupational safety and health issue with respect to which a Federal standard has been promulgated may submit a State Plan to the Assistant Secretary of Labor for Occupational Safety and Health (“Assistant Secretary”) documenting the proposed program in detail. Regulations promulgated pursuant to the Act at 29 CFR part 1956 provide that a State may submit a State Plan for the development and enforcement of occupational safety and health standards applicable only to employers of the State and its political subdivisions (“public employers”). Under these regulations the Assistant Secretary will approve a State Plan for public employers if the Plan provides for the development and enforcement of standards relating to hazards in employment covered by the Plan which are or will be at least as effective in providing safe and healthful employment and places of employment as standards promulgated and enforced under Section 6 of the Act, giving due consideration to differences between public and private sector employment. In making this determination the Assistant Secretary will consider, among other things, the criteria and indices of effectiveness set forth in 29 CFR part 1956, subpart B. State and local government workers are excluded from Federal OSHA coverage under the Act.

Since 1971, the Maine Department of Labor, Bureau of Labor Standards (Bureau), has adopted standards and performed inspections in the public sector (State, county, and municipal employers) as outlined under the provisions of the State's existing enabling legislation: Maine Revised Statutes, Title 26: Labor and Industry. Maine began working on a State and Local Government Only State Plan in 2012 and submitted a draft Plan to OSHA in February of 2013. OSHA's review findings were detailed in various memoranda and other documents. OSHA determined that the Maine statutes, as structured, and the proposed State Plan necessitated changes in order to meet the State and Local Government Only State Plan approval criteria in 29 CFR 1956. Maine formally submitted a revised Plan applicable only to public employers for Federal approval on May 2, 2013. Over the next several months, OSHA worked with Maine in identifying areas of the proposed Plan which needed to be addressed or required clarification. In response to Federal review of the proposed State Plan, supplemental assurances, and revisions, corrections and additions to the Plan were submitted on September 4, 2013 and November 7, 2014. Further modifications were submitted by the State on December 19, 2014. Amendments to Maine Revised Statutes, Title 26 were proposed and enacted by the Maine Legislature and signed into law by the Governor in 2014. The amended legislation provides the basis for establishing a comprehensive occupational safety and health program applicable to the public employers in the State. The revised Plan has been found to be conceptually approvable as a developmental State Plan.

The Act provides for funding of up to 50% of the State Plan costs, but longstanding language in OSHA's appropriation legislation further provides that OSHA must fund “* * * no less than 50% of the costs . . . required to be incurred” by an approved State Plan. Such Federal funds to support the State Plan must be available prior to State Plan approval. The Fiscal Year 2015 Omnibus Appropriations Act includes $400,000 in additional OSHA State Plan grant funds to allow for Department of Labor approval of a Maine State Plan. After an opportunity for public comment and a hearing, should one be requested, the Assistant Secretary will approve the Maine State and Local Government Only State Plan if it is determined that the Plan meets the criteria set forth in the Act and applicable regulations at 29 CFR part 1956, subpart B. The approval of a State Plan for state and local government employers in Maine is not a significant regulatory action as defined in Executive Order 12866.

The Plan designates the Maine Department of Labor as the State agency responsible for administering the Plan throughout the State. Under the Plan's legislation, Title 26 of the Maine Revised Statutes, the Maine Department of Labor has full authority to adopt standards and regulations (through the Board of Occupational Safety and Health) and enforce and administer all laws and rules protecting the safety and health of employees of the State and its political subdivisions. Maine will adopt State standards identical to Federal occupational safety and health standards (with minor exceptions) as promulgated through March 30, 2015. The Plan also provides that future OSHA standards and revisions will be adopted by the State within six months of Federal promulgation (30 days for any emergency temporary standard) in accordance with the requirements at 29 CFR 1953.5. Title 26, Chapter 6, Section 571 of the Maine Revised Statutes includes provisions for the granting of permanent and temporary variances from State standards to public employers in terms substantially similar to the variance provisions contained in the Act. Variances may not be granted unless it is established that adequate protection is afforded employees under the terms of the variance. Title 26, Chapter 6, Section 566 and Chapter 3, Section 44 of the Maine Revised Statutes provides for inspections of covered workplaces. Title 26, Chapter 3, Subsection 50 provides for inspections in response to employee complaints. If a determination is made that an employee complaint does not warrant an inspection, the complainant will be notified in writing of such determination. Additionally, Section 44-A of Chapter 3 provides the opportunity for employer and employee representatives to accompany an inspector during an inspection for the purpose of aiding in the inspection. The Plan in Title 26, Chapter 3, Sections 42-B and 45, provides for notification to employees of their protections and obligations under the Plan by such means as a State poster, required posting of notices of violation, etc. Title 26, Chapter 6, subsection 570 provides for protection of employees against discharge or discrimination resulting from exercise of their rights under the State Acts in terms essentially identical to Section 11(c) of the Federal Act. The Plan also includes provisions for right of entry for inspection, prohibition of advance notice of inspection, and employers' obligations to maintain records and provide reports as required.

Section 46 of Title 26 contains authority for a system of first instance monetary penalties, and the State's intent is to issue monetary penalties for serious violations. The State has discretionary authority for civil penalties of up to $1,000 per day the violation continues for repeat and willful violations. Serious and other-than-serious violations may be assessed a penalty of up to $1,000 per violation and failure-to-correct violations may be assessed a penalty of up to $1,000 per day. In addition, criminal penalties can be issued to public employers who willfully violate any standard, rule or order. The Plan provides a scheme of enforcement for compelling compliance under which public employers are issued citations for any violation of standards. These citations must describe the nature of the violation, including reference to the standard, and fix a reasonable time for abatement. The Maine Plan includes the Board of Occupational Safety and Health (Board), which adopts standards, and also is an independent review authority for review of contested cases. The Director of the Bureau will remain responsible for the enforcement process, including the issuance of citations and penalties, and their defense, if contested. Public employers or their representatives who receive a citation or a proposed penalty may within 15 working days contest the citation, proposed penalty and/or abatement period and request a hearing before the Board. Any public employee or representative aggrieved by a citation or proposed penalty may within 15 working days request a hearing before the Board. Employers may also request informal review of penalties with the Bureau if the employer agrees to abate the cited hazard. The Board's decision is subject to appeal to the courts.

The State currently has a staff of two safety compliance officers and zero health compliance officers. The Bureau delivers OSHA's On-Site Consultation program to private sector employers throughout the State. Maine currently has a staff of three safety and two health consultants, who perform duties equivalent to OSHA's On-Site Consultation program, for state and local government employers. Currently, for these employers, if the state receives a health complaint, a consultant will accompany and assist the enforcement officer. The Plan provides assurances that within six months no staff will have dual roles, and the State will have a fully trained, adequate staff of two safety compliance officers and one health compliance officer for enforcement inspections, and three safety consultants and one health consultant to perform consultation services in the public sector. As new staff members are hired they will perform either enforcement or consultation functions. 29 CFR 1956.10(g) requires that State Plans for public employers provide a sufficient number of adequately trained and qualified personnel necessary for the enforcement of standards. The compliance staffing requirements (or benchmarks) for State Plans covering both the private and public sectors are established based on the “fully effective” test established in AFL-CIO v. Marshall, 570 F.2d 1030 (D.C. Cir. 1978). This staffing test, and the complicated formula used to derive benchmarks for complete private/public sector Plans, is not intended, nor is it appropriate, for application to the staffing needs of public employer only Plans. However, the State has given satisfactory assurance in its Plan that it will meet the staffing requirements of 29 CFR 1956.10. The State has also given satisfactory assurances of adequate State matching funds (50%) to support the Plan and is requesting initial Federal funding of $400,000 for a total initial program effort of $800,000. Although the State statute sets forth the general authority and scope for implementing the Maine State and Local Government Only State Plan, the Plan is developmental under the terms of 29 CFR 1956.2(b), in that specific rules, regulations, and implementing procedures must still be adopted or revised to carry out the Plan and make it structurally “at least as effective” as Federal OSHA and fully operational. The Plan sets forth a timetable for the accomplishment of these and other developmental goals within three years of Plan approval. This timetable addresses such general areas as the minor revision of existing legislation and development of procedures for the on-site public sector consultation program. Other developmental aspects include hiring and training of staff, participation in OSHA's Information System (OIS), development of a Field Operations Manual, development of an Annual Performance Plan and a Five-Year Strategic Plan and all other implementing policies, procedures, regulations and instruction necessary for the operation of an effective program.

Public comment on the Maine State and Local Government Only State Plan is hereby requested. Interested persons are invited to submit written data, views, and comments with respect to this proposed initial State Plan approval. These comments must be received on or before June 19, 2015. Written submissions must clearly identify the issues that are addressed and the positions taken with respect to each issue. The State of Maine will be afforded the opportunity to respond to each submission. The Maine Department of Labor must also publish appropriate notice within the State of Maine within five days of publication of this notice, announcing OSHA's proposal to approve a Maine State and Local Government Only State Plan, contingent on the availability of appropriated funds, and giving notice of the opportunity for public comment. Pursuant to 29 CFR 1902.13(f), interested persons may request an informal hearing concerning the proposed initial State Plan approval. Such requests also must be received on or before June 19, 2015 and may be submitted electronically, by facsimile, or by regular mail, hand delivery, express mail, messenger or courier service, as indicated under ADDRESSES above. Such requests must present particularized written objections to the proposed initial State Plan approval. Within 30 days of the close of the comment period, the Assistant Secretary will review all comments submitted; will review all hearing requests; and will schedule an informal hearing if a hearing is required to resolve substantial issues. The Assistant Secretary will, within a reasonable time after the close of the comment period or after the certification of the record if a hearing is held, publish a decision in the Federal Register. All written and oral submissions, as well as other information gathered by OSHA, will be considered in any action taken. The record of this proceeding, including written comments and requests for hearing, and all materials submitted in response to this notice and at any subsequent hearing, will be available at http://www.regulations.gov or the OSHA Docket Office at the address above.

OSHA certifies pursuant to the Regulatory Flexibility Act of 1980 (5 U.S.C. 601 et seq.) that the proposed initial approval of the Maine State Plan will not have a significant economic impact on a substantial number of small entities. By its own terms, the Plan will have no effect on private sector employment, but is limited to the State and its political subdivisions. Moreover, Title 26, Labor and Industry, of the Maine Revised Statutes, was enacted in 1971. This legislation established the Board, whose purpose is to formulate rules that shall, at a minimum, conform with federal standards of occupational safety and health, so the state program could eventually be approved as State and Local Government Only State Plan. Since 1971 the Maine program for public employers has been in operation under the Maine Department of Labor with State funding and all state and local government employers in the State have been subject to its terms. Compliance with State OSHA standards is required by State law; Federal approval of a State Plan imposes regulatory requirements only on the agency responsible for administering the State Plan. Accordingly, no new obligations would be placed on public sector employers as a result of Federal approval of the Plan.

Executive Order 13132, “Federalism,” emphasizes consultation between Federal agencies and the States and establishes specific review procedures the Federal government must follow as it carries out policies which affect state or local governments. OSHA has consulted extensively with Maine throughout the development, submission and consideration of its proposed State Plan. Although OSHA has determined that the requirements and consultation procedures provided in Executive Order 13132 are not applicable to initial approval decisions under the Act, which have no effect outside the particular State receiving the approval, OSHA has reviewed the Maine initial approval decision proposed today, and believes it is consistent with the principles and criteria set forth in the Executive Order.

David Michaels, Ph.D., MPH, Assistant Secretary of Labor for Occupational Safety and Health, U.S. Department of Labor, 200 Constitution Ave. NW., Washington, DC, authorized the preparation of this notice. OSHA is issuing this notice under the authority specified by Section 18 of the Occupational Safety and Health Act of 1970 (29 U.S.C. 667), Secretary of Labor's Order No. 1-2012 (77 FR 3912), and 29 CFR parts 1902 and 1956.

In the Final Rules section of this Federal Register, EPA is approving the State's SIP submittal as a direct final rule without prior proposal because the Agency views this as a noncontroversial submittal and anticipates no adverse comments. A detailed rationale for the approval is set forth in the direct final rule. If no adverse comments are received in response to this rule, no further activity is contemplated. If EPA receives adverse comments, the direct final rule will be withdrawn and all public comments received will be addressed in a subsequent final rule based on this proposed rule. EPA will not institute a second comment period. Any parties interested in commenting on this action should do so at this time. Please note that, if EPA receives adverse comment on an amendment, paragraph, or section of this rule and if that provision may be severed from the remainder of the rule, EPA may adopt as final those provisions of the rule that are not the subject of an adverse comment. For additional information, see the direct final rule which is located in the Rules section of this Federal Register.

Throughout this document, the terms “we,” “us,” and “our” refer to EPA.

EPA is acting upon several SIP submittals from Nevada that address the infrastructure requirements of CAA sections 110(a)(1) and 110(a)(2) for the 2008 ozone, 2010 NO2, and 2010 SO2 NAAQS. The requirement for states to make a SIP submittal of this type arises out of CAA section 110(a)(1). Pursuant to section 110(a)(1), states must make SIP submittals “within 3 years (or such shorter period as the Administrator may prescribe) after the promulgation of a national primary ambient air quality standard (or any revision thereof),” and these SIP submittals are to provide for the “implementation, maintenance, and enforcement” of such NAAQS. The statute directly imposes on states the duty to make these SIP submittals, and the requirement to make the submittals is not conditioned upon EPA's taking any action other than promulgating a new or revised NAAQS. Section 110(a)(2) includes a list of specific elements that “[e]ach such plan” submittal must address.

EPA has historically referred to these SIP submittals made for the purpose of satisfying the requirements of CAA sections 110(a)(1) and 110(a)(2) as “infrastructure SIP” submittals. Although the term “infrastructure SIP” does not appear in the CAA, EPA uses the term to distinguish this particular type of SIP submittal from submittals that are intended to satisfy other SIP requirements under the CAA, such as “nonattainment SIP” or “attainment SIP” submittals to address the nonattainment planning requirements of part D of title I of the CAA, “regional haze SIP” submittals required by EPA rule to address the visibility protection requirements of CAA section 169A, and nonattainment new source review (NSR) permit program submittals to address the permit requirements of CAA, title I, part D.

Section 110(a)(1) addresses the timing and general requirements for infrastructure SIP submittals, and section 110(a)(2) provides more details concerning the required contents of these submittals. The list of required elements provided in section 110(a)(2) contains a wide variety of disparate provisions, some of which pertain to required legal authority, some of which pertain to required substantive program provisions, and some of which pertain to requirements for both authority and substantive program provisions.1 EPA therefore believes that while the timing requirement in section 110(a)(1) is unambiguous, some of the other statutory provisions are ambiguous. In particular, EPA believes that the list of required elements for infrastructure SIP submittals provided in section 110(a)(2) contains ambiguities concerning what is required for inclusion in an infrastructure SIP submittal.

The following examples of ambiguities illustrate the need for EPA to interpret some section 110(a)(1) and section 110(a)(2) requirements with respect to infrastructure SIP submittals for a given new or revised NAAQS. One example of ambiguity is that section 110(a)(2) requires that “each” SIP submittal must meet the list of requirements therein, while EPA has long noted that this literal reading of the statute is internally inconsistent and would create a conflict with the nonattainment provisions in part D of title I of the Act, which specifically address nonattainment SIP requirements.2 Section 110(a)(2)(I) pertains to nonattainment SIP requirements and part D addresses when attainment plan SIP submittals to address nonattainment area requirements are due. For example, section 172(b) requires EPA to establish a schedule for submittal of such plans for certain pollutants when the Administrator promulgates the designation of an area as nonattainment, and section 107(d)(1)(B) allows up to two years, or in some cases three years, for such designations to be promulgated.3 This ambiguity illustrates that rather than apply all the stated requirements of section 110(a)(2) in a strict literal sense, EPA must determine which provisions of section 110(a)(2) are applicable for a particular infrastructure SIP submittal.

Another example of ambiguity within sections 110(a)(1) and 110(a)(2) with respect to infrastructure SIPs pertains to whether states must meet all of the infrastructure SIP requirements in a single SIP submittal, and whether EPA must act upon such SIP submittal in a single action. Although section 110(a)(1) directs states to submit “a plan” to meet these requirements, EPA interprets the CAA to allow states to make multiple SIP submittals separately addressing infrastructure SIP elements for the same NAAQS. If states elect to make such multiple SIP submittals to meet the infrastructure SIP requirements, EPA can elect to act on such submittals either individually or in a larger combined action.4 Similarly, EPA interprets the CAA to allow it to take action on the individual parts of one larger, comprehensive infrastructure SIP submittal for a given NAAQS without concurrent action on the entire submittal. For example, EPA has sometimes elected to act at different times on various elements and sub-elements of the same infrastructure SIP submittal.5

Ambiguities within sections 110(a)(1) and 110(a)(2) may also arise with respect to infrastructure SIP submittal requirements for different NAAQS. Thus, EPA notes that not every element of section 110(a)(2) would be relevant, or as relevant, or relevant in the same way, for each new or revised NAAQS. The states' attendant infrastructure SIP submittals for each NAAQS therefore could be different. For example, the monitoring requirements that a state might need to meet in its infrastructure SIP submittal for purposes of section 110(a)(2)(B) could be very different for different pollutants, for example because the content and scope of a state's infrastructure SIP submittal to meet this element might be very different for an entirely new NAAQS than for a minor revision to an existing NAAQS.6

EPA notes that interpretation of section 110(a)(2) is also necessary when EPA reviews other types of SIP submittals required under the CAA. Therefore, as with infrastructure SIP submittals, EPA also has to identify and interpret the relevant elements of section 110(a)(2) that logically apply to these other types of SIP submittals. For example, section 172(c)(7) requires that attainment plan SIP submittals required by part D have to meet the “applicable requirements” of section 110(a)(2). Thus, for example, attainment plan SIP submittals must meet the requirements of section 110(a)(2)(A) regarding enforceable emission limits and control measures and section 110(a)(2)(E)(i) regarding air agency resources and authority. By contrast, it is clear that attainment plan SIP submittals required by part D would not need to meet the portion of section 110(a)(2)(C) that pertains to the air quality prevention of significant deterioration (PSD) program required in part C of title I of the CAA, because PSD does not apply to a pollutant for which an area is designated nonattainment and thus subject to part D planning requirements. As this example illustrates, each type of SIP submittal may implicate some elements of section 110(a)(2) but not others.

Given the potential for ambiguity in some of the statutory language of section 110(a)(1) and section 110(a)(2), EPA believes that it is appropriate to interpret the ambiguous portions of section 110(a)(1) and section 110(a)(2) in the context of acting on a particular SIP submittal. In other words, EPA assumes that Congress could not have intended that each and every SIP submittal, regardless of the NAAQS in question or the history of SIP development for the relevant pollutant, would meet each of the requirements, or meet each of them in the same way. Therefore, EPA has adopted an approach under which it reviews infrastructure SIP submittals against the list of elements in section 110(a)(2), but only to the extent each element applies for that particular NAAQS.

Historically, EPA has elected to use guidance documents to make recommendations to states for infrastructure SIPs, in some cases conveying needed interpretations on newly arising issues and in some cases conveying interpretations that have already been developed and applied to individual SIP submittals for particular elements.7 EPA most recently issued guidance for infrastructure SIPs on September 13, 2013 (2013 Infrastructure SIP Guidance).8 EPA developed this document to provide states with up-to-date guidance for infrastructure SIPs for any new or revised NAAQS. Within this guidance, EPA describes the duty of states to make infrastructure SIP submittals to meet basic structural SIP requirements within three years of promulgation of a new or revised NAAQS. EPA also made recommendations about many specific subsections of section 110(a)(2) that are relevant in the context of infrastructure SIP submittals.9 The guidance also discusses the substantively important issues that are germane to certain subsections of section 110(a)(2). Significantly, EPA interprets sections 110(a)(1) and 110(a)(2) such that infrastructure SIP submittals need to address certain issues and need not address others. Accordingly, EPA reviews each infrastructure SIP submittal for compliance with the applicable statutory provisions of section 110(a)(2), as appropriate.

As an example, section 110(a)(2)(E)(ii) is a required element of section 110(a)(2) for infrastructure SIP submittals. Under this element, a state must meet the substantive requirements of section 128, which pertain to state boards that approve permits or enforcement orders and heads of executive agencies with similar powers. Thus, EPA reviews infrastructure SIP submittals to ensure that the state's SIP appropriately addresses the requirements of section 110(a)(2)(E)(ii) and section 128. The 2013 Infrastructure SIP Guidance explains EPA's interpretation that there may be a variety of ways by which states can appropriately address these substantive statutory requirements, depending on the structure of an individual state's permitting or enforcement program (e.g., whether permits and enforcement orders are approved by a multi-member board or by a head of an executive agency). However they are addressed by the state, the substantive requirements of section 128 are necessarily included in EPA's evaluation of infrastructure SIP submittals because section 110(a)(2)(E)(ii) explicitly requires that the state satisfy the provisions of section 128.

As another example, EPA's review of infrastructure SIP submittals with respect to the PSD program requirements in sections 110(a)(2)(C), (D)(i)(II), and (J) focuses upon the structural PSD program requirements contained in part C, title I of the Act and EPA's PSD regulations. Structural PSD program requirements include provisions necessary for the PSD program to address all regulated sources and regulated NSR pollutants, including greenhouse gases (GHGs). By contrast, structural PSD program requirements do not include provisions that are not required under EPA's regulations at 40 CFR 51.166 but are merely available as an option for the state, such as the option to provide grandfathering of complete permit applications with respect to the 2012 PM2.5 NAAQS. Accordingly, the latter optional provisions are types of provisions EPA considers irrelevant in the context of an infrastructure SIP action.

For other section 110(a)(2) elements, however, EPA's review of a state's infrastructure SIP submittal focuses on assuring that the state's SIP meets basic structural requirements. For example, section 110(a)(2)(C) includes, inter alia, the requirement that states have a program to regulate minor new sources. Thus, EPA evaluates whether the state has a SIP-approved minor NSR program and whether the program addresses the pollutants relevant to that NAAQS. In the context of acting on an infrastructure SIP submittal, however, EPA does not think it is necessary to conduct a review of each and every provision of a state's existing minor source program (i.e., already in the existing SIP) for compliance with the requirements of the CAA and EPA's regulations that pertain to such programs.

With respect to certain other issues, EPA does not believe that an action on a state's infrastructure SIP submittal is necessarily the appropriate type of action in which to address possible deficiencies in a state's existing SIP. These issues include: (i) Existing provisions related to excess emissions from sources during periods of startup, shutdown, or malfunction that may be contrary to the CAA and EPA's policies addressing such excess emissions (“SSM”); (ii) existing provisions related to “director's variance” or “director's discretion” that may be contrary to the CAA because they purport to allow revisions to SIP-approved emissions limits while limiting public process or not requiring further approval by EPA; and (iii) existing provisions for PSD programs that may be inconsistent with current requirements of EPA's “Final NSR Improvement Rule,” 67 FR 80186, December 31, 2002, as amended by 72 FR 32526, June 13, 2007 (“NSR Reform”). Thus, EPA believes it may approve an infrastructure SIP submittal without scrutinizing the totality of the existing SIP for such potentially deficient provisions and may approve the submittal even if it is aware of such existing provisions.10 It is important to note that EPA's approval of a state's infrastructure SIP submittal should not be construed as explicit or implicit re-approval of any existing potentially deficient provisions that relate to the three specific issues just described.

EPA's approach to review of infrastructure SIP submittals is to identify the CAA requirements that are logically applicable to that submittal. EPA believes that this approach to the review of a particular infrastructure SIP submittal is appropriate, because it would not be reasonable to read the general requirements of section 110(a)(1) and the list of elements in 110(a)(2) as requiring review of each and every provision of a state's existing SIP against all requirements in the CAA and EPA regulations merely for purposes of assuring that the state in question has the basic structural elements for a functioning SIP for a new or revised NAAQS. Because SIPs have grown by accretion over the decades as statutory and regulatory requirements under the CAA have evolved, they may include some outmoded provisions and historical artifacts. These provisions, while not fully up to date, nevertheless may not pose a significant problem for the purposes of “implementation, maintenance, and enforcement” of a new or revised NAAQS when EPA evaluates adequacy of the infrastructure SIP submittal. EPA believes that a better approach is for states and EPA to focus attention on those elements of section 110(a)(2) of the CAA most likely to warrant a specific SIP revision due to the promulgation of a new or revised NAAQS or other factors.

For example, EPA's 2013 Infrastructure SIP Guidance gives simpler recommendations with respect to carbon monoxide than other NAAQS pollutants to meet the visibility requirements of section 110(a)(2)(D)(i)(II), because carbon monoxide does not affect visibility. As a result, an infrastructure SIP submittal for any future new or revised NAAQS for carbon monoxide need only state this fact in order to address the visibility prong of section 110(a)(2)(D)(i)(II).

Finally, EPA believes that its approach with respect to infrastructure SIP requirements is based on a reasonable reading of sections 110(a)(1) and 110(a)(2) because the CAA provides other avenues and mechanisms to address specific substantive deficiencies in existing SIPs. These other statutory tools allow EPA to take appropriately tailored action, depending upon the nature and severity of the alleged SIP deficiency. Section 110(k)(5) authorizes EPA to issue a “SIP call” whenever the Agency determines that a state's SIP is substantially inadequate to attain or maintain the NAAQS, to mitigate interstate transport, or to otherwise comply with the CAA.11 Section 110(k)(6) authorizes EPA to correct errors in past actions, such as past approvals of SIP submittals.12 Significantly, EPA's determination that an action on a state's infrastructure SIP submittal is not the appropriate time and place to address all potential existing SIP deficiencies does not preclude EPA's subsequent reliance on provisions in section 110(a)(2) as part of the basis for action to correct those deficiencies at a later time. For example, although it may not be appropriate to require a state to eliminate all existing inappropriate director's discretion provisions in the course of acting on an infrastructure SIP submittal, EPA believes that section 110(a)(2)(A) may be among the statutory bases that EPA relies upon in the course of addressing such deficiency in a subsequent action.13

Throughout this document wherever “we,” “us,” or “our” is used, we mean the EPA.

The Act at section 110(a)(2)(C) requires states to develop and submit to the EPA for approval into the State Implementation Plan (SIP), preconstruction review and permitting programs applicable to certain new and modified stationary sources of air pollutants for attainment and nonattainment areas that cover both major and minor new sources and modifications, collectively referred to as the New Source Review (NSR) SIP. The Clean Air Act (CAA) NSR SIP program is composed of three separate programs: Prevention of Significant Deterioration (PSD), Nonattainment New Source Review (NNSR), and Minor NSR. PSD is established in part C of title I of the CAA and applies in areas that meet the National Ambient Air Quality Standards (NAAQS)—“attainment areas”—as well as areas where there is insufficient information to determine if the area meets the NAAQS—“unclassifiable areas.” The NNSR SIP program is established in part D of title I of the CAA and applies in areas that are not in attainment of the NAAQS—“nonattainment areas.” The Minor NSR SIP program addresses construction or modification activities that do not emit, or have the potential to emit, beyond certain major source thresholds, and thus do not qualify as “major” and applies regardless of the designation of the area in which a source is located. The EPA regulations governing the criteria that states must satisfy for EPA approval of the NSR programs as part of the SIP are contained in 40 CFR 51.160—51.166.

Since the EPA's last SIP approval on September 19, 2012, of PSD SIP requirements for Albuquerque-Bernalillo County,1 the State of New Mexico has submitted two revisions to the Albuquerque-Bernalillo County PSD program: (1) A SIP revision submittal dated July 26, 2013, which affects sixteen sections under 20.11.61 NMAC; and (2) a request for parallel processing of a SIP revision dated March 4, 2015, which affects two sections under 20.11.61 NMAC.

The July 26, 2013, SIP submittal contains revisions to adopt and implement: (1) the EPA's 2008 NSR PM2.5 Rule, (2) the EPA's 2010 PM2.5 PSD Increment—Significant Impact Levels (SILs)—Significant Monitoring Concentration (SMC) Rule, (3) the EPA's 2012 PM2.5 NSR Implementation Rule, (4) the EPA's 2011 Fugitives Interim Rule, (5) the EPA's 2011 Biomass Deferral Rule, and (6) the EPA's 2012 GHG Tailoring Rule Step 3 and GHG PALs Rule. The July 2013 submittal from New Mexico also contains other non-substantive revisions to the Albuquerque-Bernalillo County PSD program that are not directly associated with the incorporation of the EPA Rules. As part of this proposed rulemaking, the EPA is addressing these non-substantive revisions and the substantive revisions to the New Mexico SIP that were submitted to adopt and implement the six aforementioned rulemakings by the EPA.

On March 4, 2015, New Mexico submitted a request for the parallel processing of additional SIP revisions to the Albuquerque-Bernalillo County PSD program. This means that the EPA is proposing approval of the submitted revisions at the same time that the public comment and rulemaking process is taking place at the state and local level. These proposed revisions to part 61 are being made in response to comments the EPA provided on the July 26, 2013, SIP submittal. Specifically, the March 2015 parallel processing request contains proposed revisions to Section 7—Definitions and Section 11—Applicability. New Mexico's parallel processing request was made in accordance with paragraph 2.3.1 of appendix V to 40 CFR part 51. As part of this proposed rulemaking, the EPA is addressing the proposed revisions to the New Mexico SIP contained in the March 4, 2015, parallel processing request. As required by paragraph 2.3.2 of appendix V to 40 CFR part 51, the EPA will not take final action on the proposed revisions contained in the March 4, 2015, submittal until the final SIP revision submittal containing these revisions to the Albuquerque-Bernalillo County PSD program as a final adoption is received from New Mexico. Therefore, the EPA is proposing to approve the SIP revision request after the completion of the state public process and final submittal. More information regarding the anticipated timeline of the state's rulemaking process is contained in the TSD accompanying this proposed action.

On May 8, 2008, the EPA finalized the NSR PM2.5 Rule to implement the PM2.5 NAAQS. See 73 FR 28321. As a result of the EPA's final NSR PM2.5 Rule, states were required to submit applicable SIP revisions to the EPA no later than May 16, 2011, to address this Rule's PSD and NNSR SIP requirements. With respect to PSD permitting, the SIP revision submittals are required to meet the following PSD SIP requirements to implement the PM2.5 NAAQS: (1) Require PSD permits to address directly emitted PM2.5 and precursor pollutants; (2) establish significant emission rates for direct PM2.5 and precursor pollutants (including SO2 and NOX); and (3) account for gases that condense to form particles (condensables) in PM2.5 and PM10 emission limits in PSD permits.

Prior to the adoption of the revisions included in the July 26, 2013, SIP submittal, the Albuquerque-Bernalillo County Air Board adopted revisions to 20.11.61 NMAC to incorporate all but one of the amendments consistent with the EPA's 2008 NSR PM2.5 Rule. These revisions were approved by the EPA on September 19, 2012. See 77 FR 58032. New Mexico's July 26, 2013, SIP revision submittal incorporates the final remaining amendment to 20.11.61 NMAC to be consistent with the revisions to the federal rules at 40 CFR 51.166(i)(5) contained in the EPA's 2008 rulemaking. Specifically, the July 2013 SIP submittal amends 20.11.61 NMAC to include an additional exemption that gives the department discretion to exempt a stationary source from air monitoring requirements for a particular pollutant. The EPA finds that New Mexico's July 26, 2013, SIP revision submittal is consistent with the 2008 NSR PM2.5 Rule for PSD and meets the requirements of section 110 and part C of the CAA.

On October 20, 2010, the EPA finalized the PM2.5 PSD Increment—SILs—SMC Rule to provide additional regulatory requirements under the PSD SIP program regarding the implementation of the PM2.5 NAAQS for NSR. See 75 FR 64864. As a result, the PM2.5 PSD Increment—SILs—SMC Rule required states to submit SIP revisions to adopt the required PSD increments by July 20, 2012. Specifically, the SIP rule requires a state's submitted PSD SIP revision to adopt and submit for the EPA approval the PM2.5 increments pursuant to section 166(a) of the CAA to prevent significant deterioration of air quality in areas meeting the NAAQS. States could also discretionarily choose to adopt and submit for EPA approval SILs used as a screening tool (by a major source subject to PSD) to evaluate the impact a proposed major source or modification may have on the NAAQS or PSD increment and a SMC, (also a screening tool) used by a major source subject to PSD to determine the subsequent level of data gathering required for a PSD permit application for emissions of PM2.5. More detail on the PM2.5 PSD Increment—SILs—SMC Rule can be found in the EPA's October 20, 2010, final rule. See 75 FR 64864.

Under section 165(a)(3) of the CAA, a PSD permit applicant must demonstrate that emissions from the proposed construction and operation of a facility “will not cause, or contribute to, air pollution in excess of any maximum allowable increase or allowable concentration for any pollutant.” In other words, when a source applies for a PSD SIP permit to emit a regulated pollutant in an attainment or unclassifiable area, the permitting authority implementing the PSD SIP must determine if emissions of the regulated pollutant from the source will cause significant deterioration in air quality. Significant deterioration occurs when the amount of the new pollution exceeds the applicable PSD increment, which is the “maximum allowable increase” of an air pollutant allowed to occur above the applicable baseline concentration 2 for that pollutant. PSD increments prevent air quality in attainment and unclassifiable areas from deteriorating to the level set by the NAAQS. Therefore, an increment is the mechanism used to estimate “significant deterioration” of air quality for a pollutant in an area.

For PSD baseline purposes, a baseline area for a particular pollutant emitted from a source includes the attainment or unclassifiable/attainment area in which the source is located as well as any other attainment or unclassifiable/attainment area in which the source's emissions of that pollutant are projected (by air quality modeling) to result in an ambient pollutant increase of at least 1 μg/m3 (annual average). See 40 CFR 51.166(b)(15)(i) and (ii). Under the EPA's existing regulations, the establishment of a baseline area for any PSD increment results from the submission of the first complete PSD permit application and is based on the location of the proposed source and its emissions impact on the area. Once the baseline area is established, subsequent PSD sources locating in that area need to consider that a portion of the available increment may have already been consumed by previous emissions increases. In general, the submittal date of the first complete PSD permit application in a particular area is the operative “baseline date.” 3 On or before the date of the first complete PSD application, emissions generally are considered to be part of the baseline concentration, except for certain emissions from major stationary sources. Most emissions increases that occur after the baseline date will be counted toward the amount of increment consumed. Similarly, emissions decreases after the baseline date restore or expand the amount of increment that is available. See 75 FR 64864. As described in the PM2.5 PSD Increment—SILs—SMC Rule, pursuant to the authority under section 166(a) of the CAA the EPA promulgated numerical increments for PM2.5 as a new pollutant 4 for which the NAAQS were established after August 7, 1977,5 and derived 24-hour and annual PM2.5 increments for the three area classifications (Class I, II and III) using the “contingent safe harbor” approach. See 75 FR 64864 at 64869 and table at 40 CFR 51.166(c)(1).

In addition to PSD increments for the PM2.5 NAAQS, the PM2.5 PSD Increment—SILs—SMC Rule amended the definition at 40 CFR 51.166 and 52.21 for “major source baseline date” and “minor source baseline date” to establish the PM2.5 NAAQS specific dates (including trigger dates) associated with the implementation of PM2.5 PSD increments. See 75 FR 64864. In accordance with section 166(b) of the CAA, the EPA required the states to submit revised implementation plans adopting the PM2.5 PSD increments to the EPA for approval within 21 months from promulgation of the final rule (by July 20, 2012). Each state was responsible for determining how increment consumption and the setting of the minor source baseline date for PM2.5 would occur under its own PSD program. Regardless of when a state begins to require PM2.5 increment analysis and how it chooses to set the PM2.5 minor source baseline date, the emissions from sources subject to PSD for PM2.5 for which construction commenced after October 20, 2010, (major source baseline date) consume the PM2.5 increment and therefore should be included in the increment analyses occurring after the minor source baseline date is established for an area under the state's revised PSD SIP program.

The EPA's PM2.5 PSD Increment—SILs—SMC Rule also established SILs and SMC for the PM2.5 NAAQS to address air quality modeling and monitoring provisions for fine particle pollution in areas protected by the PSD program. The SILs and SMC are numerical values that represent thresholds of insignificant, i.e., de minimis, modeled source impacts or monitored (ambient) concentrations, respectively. The de minimis principle is grounded in a decision described by the court case Alabama Power Co. v. Costle, 636 F.2d 323, 360 (D.C. Cir. 1980). In this case reviewing the EPA's 1978 PSD regulations, the court recognized that “there is likely a basis for an implication of de minimis authority to provide exemption when the burdens of regulation yield a gain of trivial or no value.” 636 F.2d at 360. The EPA established such values for PM2.5 in the PM2.5 PSD Increment—SILs—SMC rule to be used as screening tools by a major source subject to PSD to determine the subsequent level of analysis and data gathering required for a PSD permit application for emissions of PM2.5. See 75 FR 64864. As part of the response to comments in the PM2.5 PSD Increment—SILs—SMC Rule final rulemaking, the EPA explained that the agency considers that the SILs and SMC used as de minimis thresholds for the various pollutants are useful tools that enable permitting authorities and PSD applicants to screen out “insignificant” activities; however, the fact remains that these values are not required by the Act as part of an approvable SIP program.

The PM2.5 SILs and SMC were subject to litigation before the U.S. Court of Appeals. (Sierra Club v. EPA, Case No. 10-1413, D.C. Circuit). In response to the litigation, the EPA filed a brief on April 6, 2012, which contained a request that the Court vacate and remand to the EPA portions of two PSD PM2.5 rules (40 CFR 51.166 and 40 CFR 52.21) addressing the PM2.5 SILs so that the EPA could voluntarily correct errors in those provisions. On January 22, 2013, the Court granted the EPA's request for vacature and remand of the PM2.5 SILs provisions and also vacated parts of 40 CFR 51.166 and 40 CFR 52.21 that established the PM2.5 SMC, finding that the EPA was precluded from using the PM2.5 SMC to exempt permit applicants from the statutory requirement to compile preconstruction monitoring data. As a result of the Court's decision, States should avoid including language in SIP revision submittals that are the same as or have similar effects as the vacated PM2.5 SILs and SMC language in 40 CFR 51.166 and 52.21. As stated previously, neither the PM2.5 SILs nor the PM2.5 SMC are required elements of the PSD SIP for PM2.5.

New Mexico's July 26, 2013, SIP revision submittal includes revisions to 20.11.61 NMAC that incorporate the amendments to the PSD regulations consistent with the changes in the 2010 PM2.5 PSD Increment—SILs—SMC Rule. Consistent with the January 2013 vacature and remand by the U.S. Court of Appeals for the D.C. Circuit (the D.C. Circuit), the SIP revision submittal also correctly excludes those amendments from the EPA's 2010 Rule that established the PM2.5 SILs and SMC. Therefore, the EPA finds that these revisions in the July 2013 submittal are consistent with the 2010 rulemaking and subsequent Court decision and meet the requirements of section 110 and part C of the CAA.

On October 12, 2012, the EPA finalized amendments to its rules for the CAA NSR permitting program regarding the definition of “regulated NSR pollutant.” This rulemaking clarified when condensable particulate matter should be measured. The final rule continued to require that condensable particulate matter be included as part of the emissions measurements for regulation of PM2.5/PM10. As a result of the EPA's final 2012 NSR PM2.5 Rule, the inadvertent requirement that measurements of condensable particulate matter emissions be included as part of the measurement and regulation of “particulate matter emissions” was removed.

New Mexico's July 26, 2013, SIP revision submittal includes a revision to the definition of “regulated NSR pollutant.” Specifically, the SIP revision revises this definition found at 20.11.61.7(WW) NMAC to include the clarifying language related to the condensable particulate matter portion accounted for in PM2.5 and PM10 emissions. The EPA notes that as part of the July 2013 SIP revision submittal, New Mexico did not remove the requirement for condensable particulate matter emissions to be included in particulate matter emissions. Therefore, the definition of “regulated NSR pollutant” at 20.11.61.7(WW) NMAC is more stringent than the federal definition. See 40 CFR 51.166(b)(49). The EPA finds that the revisions to the definition of “regulated NSR pollutant” in the July 26, 2013, submittal meet the federal requirements in that the definition is more stringent than the federal definition.

On March 8, 2011, the EPA issued an interim rule to stay a December 2008 rule known as the Fugitives Emissions Rule. The 2008 Rule established new provisions for how fugitive emissions should be treated for NSR permitting. The EPA's 2011 interim rule replaced the stay issued by the EPA on March 31, 2010, which inadvertently covered portions of the NSR permitting requirements that should not have been stayed. The 2011 rulemaking stayed the 2008 Fugitive Emissions Rule as originally intended and reverted the regulatory text back to the language that existed prior to those amendments, which the EPA is reconsidering in response to a 2009 Natural Resources Defense Council petition for reconsideration of the 2008 Fugitive Emissions Rule.

New Mexico's July 26, 2013, SIP revision submittal includes revisions to 20.11.61 NMAC that incorporate the amendments to the PSD regulations consistent with the changes in the 2011 Fugitives Interim Rule. The EPA finds that these revisions in the July 2013 submittal are consistent with the 2011 rulemaking and meet the requirements of section 110 and part C of the CAA.

On July 20, 2011, the EPA promulgated the Biomass Deferral Rule, which deferred, for a period of three years, the application of the PSD and title V permitting requirements to CO2 emissions from bioenergy and other biogenic stationary sources. See 76 FR 43490. On July 12, 2013, the U.S. Court of Appeals for the D.C. Circuit issued its decision to vacate the Biomass Deferral Rule. See Center for Biological Diversity v. EPA (D.C. Cir. No. 11-1101).

New Mexico's July 26, 2013, SIP revision submittal includes revisions to 20.11.61 NMAC that incorporate the 2011 Biomass Deferral Rule into the Albuquerque-Bernalillo County PSD program. However, as discussed in this proposed rulemaking, New Mexico's March 4, 2015, SIP Submittal contains revisions to update the PSD program to remove the biomass deferral, which was vacated in 2013. The EPA finds that the combined revisions from the July 2013 and March 2015 submittals are consistent with current PSD regulations with respect to the vacated Biogas Referral Rule and meet the requirements of section 110 and part C of the CAA.

On June 3, 2010, the EPA issued a final rule, known as the Tailoring Rule, which phased in permitting requirements for GHG emissions from stationary sources under the CAA PSD and title V permitting programs (75 FR 31514). For Step 1 of the Tailoring Rule, which began on January 2, 2011, PSD or title V requirements applied to sources of GHG emissions only if the sources were subject to PSD or title V “anyway” due to their emissions of non-GHG pollutants. These sources are referred to as “anyway sources.” Step 2 of the Tailoring Rule, which began on July 1, 2011, applied the PSD and title V permitting requirements under the CAA to sources that were classified as major, and, thus, required to obtain a permit, based solely on their potential GHG emissions and to modifications of otherwise major sources that required a PSD permit because they increased only GHG above applicable levels in the EPA regulations.

On July 12, 2012, the EPA promulgated the final “Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule Step 3 and GHG Plantwide Applicability Limits” (GHG Tailoring Rule Step 3 and GHG PALs).6 77 FR 41051. In the Tailoring Rule Step 3 portion of this rule, the EPA decided against further phase in of the PSD and title V requirements to apply to sources emitting lower levels of greenhouse gas emissions. Thus, the thresholds for determining PSD applicability based on emission of greenhouse gases remained the same as established in Step 2 of the Tailoring Rule. The Step 3 portions of the EPA's July 12, 2012, final rule are not relevant to today's proposed action on the New Mexico SIP revision.

The GHG PALs portion of the July 12, 2012, final rule promulgated revisions to the EPA regulations under 40 CFR part 52 for establishing PALs for GHG emissions. For a full discussion of the EPA's rationale for the GHG PALs provisions, see the notice of final rulemaking at 77 FR 41051. A PAL establishes a site-specific plantwide emission level for a pollutant that allows the source to make changes at the facility without triggering the requirements of the PSD program, provided that emissions do not exceed the PAL level. Under the EPA's interpretation of the federal PAL provisions, such PALs are already available under PSD for non-GHG pollutants and for GHGs on a mass basis, and the EPA revised the PAL regulations to allow for GHG PALs to be established on a carbon dioxide equivalent (CO2e) basis as well. See 77 FR 41052. The EPA finalized these revisions in an effort to streamline federal and SIP PSD permitting programs by allowing sources and permitting authorities to address GHGs using a PAL in a manner similar to the use of PALs for non-GHG pollutants. See 77 FR 41051, 41052.

New Mexico's July 26, 2013, and March 4, 2015, SIP revision submittals include amendments to the Albuquerque-Bernalillo County PSD program found in 20.11.61 NMAC to incorporate changes to federal PSD provisions resulting from the following EPA rulemakings: 2008 NSR PM2.5 Rule, 2010 PM2.5 PSD Increment—SILs—SMC Rule, 2012 PM2.5 PSD Implementation Rule, 2011 Fugitives Interim Rule, 2011 Biomass Deferral Rule, and 2012 GHG Tailoring Rule Step 3 and GHG PALs Rule. The July 26, 2013, SIP revisions also contains additional non-substantive revisions to 20.11.61 NMAC including formatting revisions, inclusion of acronyms, and rewording of provisions to make this Part consistent with other provisions of the NMAC.

On June 23, 2014, the United States Supreme Court, in Utility Air Regulatory Group v. Environmental Protection Agency, 7 issued a decision addressing the application of PSD permitting requirements to GHG emissions. The Supreme Court said that the EPA may not treat GHGs as an air pollutant for purposes of determining whether a source is a major source (or modification thereof) required to obtain a PSD permit. The Court also said that the EPA could continue to require that PSD permits, otherwise required based on emissions of pollutants other than GHGs, contain limitations on GHG emissions based on the application of Best Available Control Technology (BACT). The Supreme Court decision effectively upheld PSD permitting requirements for GHG emissions under Step 1 of the Tailoring Rule for “anyway sources” and invalidated PSD permitting requirements for Step 2 sources.

In accordance with the Supreme Court decision, on April 10, 2015, the D.C. Circuit issued an amended judgment vacating the regulations that implemented Step 2 of the Tailoring Rule, but not the regulations that implement Step 1 of the Tailoring Rule. A copy of the judgment is included in the docket to this rulemaking.8 The amended judgment preserves, without the need for additional rulemaking by the EPA, the application of the Best Available Control Technology (BACT) requirement to GHG emissions from sources that are required to obtain a PSD permit based on emissions of pollutants other than GHGs (“anyway” sources). The D.C. Circuit's judgment vacated the regulations at issue in the litigation, including 40 CFR 51.166(b)(48)(v), “to the extent they require a stationary source to obtain a PSD permit if greenhouse gases are the only pollutant (i) that the source emits or has the potential to emit above the applicable major source thresholds, or (ii) for which there is a significant emissions increase from a modification.”

The EPA may need to take additional steps to revise federal PSD rules in light of the Supreme Court decision and recent D.C. Circuit judgment. In addition, the EPA anticipates that many states will revise their existing SIP-approved PSD programs. The EPA is not expecting states to have revised their existing PSD program regulations at this juncture. However, the EPA is evaluating PSD program submissions to assure that the state's program correctly addresses GHGs consistent with both decisions.

New Mexico's existing approved SIP for the Albuquerque-Bernalillo County PSD program contains the greenhouse gas permitting requirements required under 40 CFR 51.166, as amended in the Tailoring Rule. As a result, the Albuquerque-Bernalillo County's SIP-approved PSD permitting program continues to require that PSD permits (otherwise required based on emissions of pollutants other than GHGs) contain limitations on GHG emissions based on the application of BACT when sources emit or increase greenhouse gases in the amount of 75,000 tons per year (tpy), measured as carbon dioxide equivalent. Although the SIP-approved Albuquerque-Bernalillo County PSD permitting program may also currently contain provisions that are no longer necessary in light of the D.C. Circuit's judgment or the Supreme Court decision, this does not prevent the EPA from approving the submission addressed in this rule. New Mexico's July 26, 2013, and March 4, 2015, SIP submissions do not add any greenhouse gas permitting requirements that are inconsistent either decision.

Likewise, this revision does add to the New Mexico SIP for the Albuquerque-Bernalillo County PSD program elements of the EPA's July 12, 2012, rule implementing Step 3 of the phase in of PSD permitting requirements for greenhouse gases described in the Tailoring Rule, which became effective on August 13, 2012. Specifically, the incorporation of the Step 3 rule provisions will allow GHG-emitting sources to obtain PALs for their GHG emissions on a CO2e basis. The GHG PAL provisions, as currently written, include some provisions that may no longer be appropriate in light of both the D.C. Circuit's judgment and the Supreme Court decision. Since the Supreme Court has determined that sources and modifications may not be defined as “major” solely on the basis of the level of greenhouse gases emitted or increased, PALs for greenhouse gases may no longer have value in some situations where a source might have triggered PSD based on greenhouse gas emissions alone. However, PALs for GHGs may still have a role to play in determining whether a modification that triggers PSD for a pollutant other than greenhouse gases should also be subject to BACT for greenhouse gases. These provisions, like the other GHG provisions discussed previously, may be revised at some future time. However, these provisions do not add new requirements for sources or modifications that only emit or increase greenhouse gases above the major source threshold or the 75,000 tpy greenhouse gas level in section 52.21(b)(49)(iv). Rather, the PALs provisions provide increased flexibility to sources that wish to address their GHG emissions in a PAL. Since this flexibility may still be valuable to sources in at least one context described above, we believe that it is appropriate to approve these provisions into the New Mexico SIP at this juncture.

As discussed in this rulemaking and the accompanying TSD, the EPA finds that the revisions to the Albuquerque-Bernalillo County PSD program contained in the July 26, 2013, and March 4, 2015, SIP revision submittals are consistent with the aforementioned the EPA rulemakings and meet the associated federal requirements. The EPA therefore proposes to find the proposed SIP revisions to be fully approvable.

The EPA is proposing to approve revisions to the Albuquerque-Bernalillo County PSD program that were submitted by New Mexico as a SIP revision on July 26, 2013, and March 4, 2015. We are proposing approval of the portions of the July 26, 2013, and March 4, 2015, submittals that revised the following sections under 20.11.61:

• 20.11.61.2 NMAC—Scope,

• 20.11.61.5 NMAC—Effective Date,

• 20.11.61.6 NMAC—Objective,

• 20.11.61.7 NMAC—Definitions,

• 20.11.61.10 NMAC—Documents,

• 20.11.61.11 NMAC—Applicability,

• 20.11.61.12 NMAC—Obligations of Owners or Operators of Sources,

• 20.11.61.14 NMAC—Control Technology Review and Innovative Control Technology,

• 20.11.61.15 NMAC—Ambient Impact Requirements,

• 20.11.61.18 NMAC—Air Quality Analysis and Monitoring Requirements,

• 20.11.61.20 NMAC—Actuals Plantwide Applicability Limits (PALs),

• 20.11.61.23 NMAC—Exclusions from Increment Consumption,

• 20.11.61.24 NMAC—Sources Impacting Federal Class I Areas-Additional Requirements,

• 20.11.61.27 NMAC—Table 2-Significant Emission Rates,

• 20.11.61.29 NMAC—Table 4-Allowable PSD Increments, and

• 20.11.61.30 NMAC—Table 5-Maximum Allowable Increases for Class I Variances.

The EPA has determined that these revisions to the New Mexico SIP's Albuquerque-Bernalillo County PSD program are approvable because the submitted rules are adopted and submitted in accordance with the CAA and are consistent with the EPA regulations regarding PSD permitting. The EPA is proposing this action under section 110 and part C of the Act.

The EPA is severing from our proposed approval action the revisions to 20.11.60 NMAC submitted on July 26, 2013, which are revisions to the Albuquerque-Bernalillo County NNSR Program and will be addressed in a separate action.

In this rule, the EPA is proposing to include in a final EPA rule regulatory text that includes incorporation by reference. In accordance with requirements of 1 CFR 51.5, the EPA is proposing to incorporate by reference the New Mexico regulations discussed in section III. of this preamble. The EPA has made, and will continue to make, these documents generally available electronically through www.regulations.gov and/or in hard copy at the appropriate EPA office (see the ADDRESSES section of this preamble for more information).

Under the CAA, the Administrator is required to approve a SIP submission that complies with the provisions of the Act and applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, the EPA's role is to approve state choices, provided that they meet the criteria of the CAA. Accordingly, this action merely proposes to approve state law as meeting Federal requirements and does not impose additional requirements beyond those imposed by state law. For that reason, this action:

• Is not a “significant regulatory action” subject to review by the Office of Management and Budget under Executive Orders 12866 (58 FR 51735, October 4, 1993) and 13563 (76 FR 3821, January 21, 2011);

• Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq.);

• Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.);

• Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4);

• Does not have Federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);

• Is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);

• Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);

• Is not subject to requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the CAA; and

• Does not provide the EPA with the discretionary authority to address, as appropriate, disproportionate human health or environmental effects, using practicable and legally permissible methods, under Executive Order 12898 (59 FR 7629, February 16, 1994).

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

The first air quality standards for PM2.5 were established on July 18, 1997 (62 FR 38652). EPA promulgated an annual standard at a level of 15 micrograms per cubic meter (μg/m3), based on a three-year average of annual mean PM2.5 concentrations (the 1997 annual PM2.5 NAAQS). In the same rulemaking action, EPA promulgated a 24-hour standard of 65 μg/m3, based on a three-year average of the 98th percentile of 24-hour concentrations.

On January 5, 2005 (70 FR 944), EPA published air quality area designations for the 1997 PM2.5 NAAQS. In that rulemaking action, EPA designated the Pittsburgh-Beaver Valley Area as nonattainment for the 1997 annual PM2.5 NAAQS. Id. at 1000. The Pittsburgh-Beaver Valley Area is comprised of Beaver, Butler, Washington, Westmoreland Counties and portions of Allegheny, Armstrong, Green and Lawrence Counties. See 40 CFR 81.339.

On October 17, 2006 (71 FR 61144), EPA retained the annual average standard at 15 μg/m3, but revised the 24-hour standard to 35 μg/m3, based again on the three-year average of the 98th percentile of 24-hour concentrations (the 2006 24-hour PM2.5 NAAQS). On November 13, 2009 (74 FR 58688), EPA published designations for the 2006 24-hour PM2.5 NAAQS, which became effective on December 14, 2009. In that rulemaking action, EPA designated the Pittsburgh-Beaver Valley Area as nonattainment for the 2006 24-hour PM2.5 NAAQS. See 40 CFR 81.339.

On October 12, 2012 (77 FR 62147) and May 2, 2014 (79 FR 25014), EPA made determinations that the Pittsburgh Area had attained the 1997 annual and 2006 24-hour PM2.5 NAAQS, respectively. Pursuant to 40 CFR 51.1004(c) and based on these determinations, the requirements for the Area to submit an attainment demonstration and associated reasonably available control measures (RACM), a reasonable further progress (RFP) plan, contingency measures, and other planning SIPs related to the attainment of either the 1997 annual or 2006 24-hour PM2.5 NAAQS were, and continue to be, suspended until such time as: the Area is redesignated to attainment for each standard, at which time the requirements no longer apply; or EPA determines that the Area has again violated any of the standards, at which time such plans are required to be submitted. On October 12, 2012 (77 FR 62147), EPA also determined in accordance with section 179(c) of the CAA, that the Pittsburgh Area attained the 1997 annual PM2.5 NAAQS by its applicable attainment date of April 5, 2010.

On December 22, 2014, the Commonwealth of Pennsylvania, through the Pennsylvania Department of Environmental Protection (PADEP), formally submitted a request to redesignate the Pittsburg-Beaver Valley Area from nonattainment to attainment for the 1997 annual and 2006 24-hour PM2.5 NAAQS. Concurrently, PADEP submitted a combined maintenance plan for the 1997 annual and 2006 24-hour PM2.5 NAAQS for the Area as a SIP revision to ensure continued attainment throughout the Area over the next 10 years. The maintenance plan includes the 2017 and 2025 PM2.5 and NOX MVEBs for the Area for the 1997 annual and 2006 24-hour PM2.5 NAAQS. The maintenance plan also includes the 2007 comprehensive emissions inventories for the 1997 annual PM2.5 NAAQS and the 2011 comprehensive emissions inventories for the 2006 24-hour PM2.5 NAAQS for PM2.5, NOX, sulfur dioxide (SO2), volatile organic compounds (VOCs), and ammonia (NH3).

In this proposed rulemaking action, EPA addresses the effects of several decisions of the United States Court of Appeals for the District of Columbia (D.C. Circuit Court) and a decision of the United States Supreme Court: (1) The D.C. Circuit Court's August 21, 2012 decision to vacate and remand to EPA the Cross-State Air Pollution Control Rule (CSAPR); (2) the Supreme Court's April 29, 2014 reversal of the vacature of CSAPR, and remand to the D.C. Circuit Court; (3) the D.C. Circuit Court's October 23, 2014 decision to lift the stay of CSAPR; and (4) the D.C. Circuit Court's January 4, 2013 decision to remand to EPA two final rules implementing the 1997 annual PM2.5 NAAQS.

The CAA provides the requirements for redesignating a nonattainment area to attainment. Specifically, section 107(d)(3)(E) of the CAA allows for redesignation providing that: (1) EPA determines that the area has attained the applicable NAAQS; (2) EPA has fully approved the applicable implementation plan for the area under section 110(k); (3) EPA determines that the improvement in air quality is due to permanent and enforceable reductions in emissions resulting from implementation of the applicable SIP and applicable Federal air pollutant control regulations and other permanent and enforceable reductions; (4) EPA has fully approved a maintenance plan for the area as meeting the requirements of section 175A of the CAA; and (5) the state containing such area has met all requirements applicable to the area under section 110 and part D of the CAA. Each of these requirements are discussed in Section V. of this proposed rulemaking action.

EPA provided guidance on redesignations in the “SIPs; General Preamble for the Implementation of Title I of the CAA Amendments of 1990,” (57 FR 13498, April 16, 1992) (the General Preamble) and has provided further guidance on processing redesignation requests in the following documents: (1) “Procedures for Processing Requests to Redesignate Areas to Attainment,” Memorandum from John Calcagni, Director, Air Quality Management Division, September 4, 1992 (hereafter referred to as the 1992 Calcagni Memorandum); (2) “SIP Actions Submitted in Response to CAA Deadlines,” Memorandum from John Calcagni, Director, Air Quality Management Division, October 28, 1992; and (3) “Part D New Source Review (Part D NSR) Requirements for Areas Requesting Redesignation to Attainment,” Memorandum from Mary D. Nichols, Assistant Administrator for Air and Radiation, October 14, 1994.

Section 175A of the CAA sets forth the elements of a maintenance plan for areas seeking redesignation from nonattainment to attainment. Under section 175A, the plan must demonstrate continued attainment of the applicable NAAQS for at least 10 years after approval of a redesignation of an area to attainment. Eight years after the redesignation, the state must submit a revised maintenance plan demonstrating that attainment will continue to be maintained for the 10 years following the initial 10-year period. To address the possibility of future NAAQS violations, the maintenance plan must contain such contingency measures, with a schedule for implementation, as EPA deems necessary to assure prompt correction of any future PM2.5 violations.

The 1992 Calcagni Memorandum provides additional guidance on the content of a maintenance plan. The Memorandum states that a maintenance plan should address the following provisions: (1) An attainment emissions inventory; (2) a maintenance demonstration showing maintenance for 10 years; (3) a commitment to maintain an ambient air quality monitoring network in accordance with 40 CFR part 58; (4) verification of continued attainment; and (5) a contingency plan to prevent or correct future violations of the NAAQS.

Under the CAA, states are required to submit, at various times, control strategy SIP revisions for nonattainment areas and maintenance plans for areas seeking redesignation to attainment for a given NAAQS. These emission control strategy SIP revisions (e.g., RFP and attainment demonstration SIP revisions) and maintenance plans also create MVEBs based on onroad mobile source emissions for the relevant criteria pollutants and/or their precursors, where appropriate, to address pollution from onroad transportation sources. The MVEBs are the portions of the total allowable emissions that are allocated to onroad vehicle use that, together with emissions from all other sources in the area, will provide attainment, RFP, or maintenance, as applicable. The budget serves as a ceiling on emissions from an area's planned transportation system. Under 40 CFR part 93, a MVEB for an area seeking a redesignation to attainment is established for the last year of the maintenance plan.

The maintenance plan for the Pittsburgh Area, comprised of Beaver, Butler, Washington, Westmoreland Counties and portions of Allegheny, Armstrong, Green and Lawrence Counties in Pennsylvania, includes the 2017 and 2025 PM2.5 and NOX MVEBs for transportation conformity purposes. The transportation conformity determination for the Area is further discussed in Section V.C. of this proposed rulemaking action and in a technical support document (TSD), “Adequacy Findings for the Motor Vehicle Emissions Budgets (MVEBs) in the 1997 Annual Fine Particulate Matter (PM2.5) National Ambient Air Quality Standard (NAAQS) and the 2006 24-Hour PM2.5 NAAQS Maintenance Plan for the Pittsburgh-Beaver Valley, Pennsylvania (PA) Nonattainment Area” (Adequacy Findings TSD), dated April 23, 2015, available on line at www.regulations.gov, Docket ID No. EPA-R03-OAR-2015-0029.

EPA is proposing to take several rulemaking actions related to the redesignation of the Pittsburgh Area to attainment for the 1997 annual and 2006 24-hour PM2.5 NAAQS. EPA is proposing to find that the Pittsburgh Area meets the requirements for redesignation of the 1997 annual and 2006 24-hour PM2.5 NAAQS under section 107(d)(3)(E) of the CAA. EPA is thus proposing to approve Pennsylvania's request to change the legal designation of the Pittsburgh-Beaver Valley Area from nonattainment to attainment for the 1997 annual and 2006 24-hour PM2.5 NAAQS. EPA is also proposing to approve the associated maintenance plan for the Pittsburgh Area as a revision to the Pennsylvania SIP for the 1997 annual and 2006 24-hour PM2.5 NAAQS, including the 2017 and 2025 PM2.5 and NOX MVEBs for the Area for transportation conformity purposes. Approval of the maintenance plan is one of the CAA criteria for redesignation of the Area to attainment for both NAAQS. Pennsylvania's combined maintenance plan is designed to ensure continued attainment of the 1997 annual and 2006 24-hour PM2.5 NAAQS in the Area for at least 10 years after redesignation.

EPA previously determined that the Pittsburgh Area attained both the 1997 annual and 2006 24-hour PM2.5 NAAQS (see 77 FR 62147 (October 12, 2012) and 79 FR 25014 (May 2, 2014)), and EPA is proposing to find that the Area continues to attain both NAAQS. In order to meet the requirements of section 172(c)(3) of the CAA, EPA is also proposing to approve the 2007 comprehensive emissions inventories for the 1997 annual PM2.5 NAAQS and the 2011 comprehensive emissions inventories for the 2006 24-hour PM2.5 NAAQS submitted with Pennsylvania's maintenance plan that includes an inventory of PM2.5, SO2, NOX, VOC, and NH3 for the Area as a revision to the Pennsylvania SIP. EPA's analysis of the proposed actions is provided in Section V. of this proposed rulemaking.

The D.C. Circuit Court and the Supreme Court have issued a number of decisions and orders regarding the status of EPA's regional trading programs for transported air pollution, the Clean Air Interstate Rule (CAIR) and CSAPR, that impact this proposed redesignation action. In 2008, the D.C. Circuit Court initially vacated CAIR, North Carolina v. EPA, 531 F.3d 896 (D.C. Cir. 2008), but ultimately remanded the rule to EPA without vacatur to preserve the environmental benefits provided by CAIR, North Carolina v. EPA, 550 F.3d 1176, 1178 (D.C. Cir. 2008). On August 8, 2011 (76 FR 48208), acting on the D.C. Circuit Court's remand, EPA promulgated CSAPR, to address interstate transport of emissions and resulting secondary air pollutants and to replace CAIR.1 CSAPR requires substantial reductions of SO2 and NOX emissions from electric generating units (EGUs) in 28 states in the Eastern United States. Implementation of CSAPR was scheduled to begin on January 1, 2012, when CSAPR's cap-and-trade programs would have superseded the CAIR cap-and-trade programs. Numerous parties filed petitions for review of CSAPR, and on December 30, 2011, the D.C. Circuit Court issued an order staying CSAPR pending resolution of the petitions and directing EPA to continue to administer CAIR. EME Homer City Generation, L.P. v. EPA, No. 11-1302 (D.C. Cir. Dec. 30, 2011), Order at 2.

On August 21, 2012, the D.C. Circuit Court issued its ruling, vacating and remanding CSAPR to EPA and once again ordering continued implementation of CAIR. EME Homer City Generation, L.P. v. EPA, 696 F.3d 7, 38 (D.C. Cir. 2012). The D.C. Circuit Court subsequently denied EPA's petition for rehearing en banc. EME Homer City Generation, L.P. v. EPA, No. 11-1302, 2013 WL 656247 (D.C. Cir. Jan. 24, 2013), at *1. EPA and other parties then petitioned the Supreme Court for a writ of certiorari, and the Supreme Court granted the petitions on June 24, 2013. EPA v. EME Homer City Generation, L.P., 133 S. Ct. 2857 (2013).

On April 29, 2014, the Supreme Court vacated and reversed the D.C. Circuit Court's decision regarding CSAPR, and remanded that decision to the D.C. Circuit Court to resolve remaining issues in accordance with its ruling. EPA v. EME Homer City Generation, L.P., 134 S. Ct. 1584 (2014). EPA moved to have the stay of CSAPR lifted by the D.C. Circuit Court in light of the Supreme Court decision. EME Homer City Generation, L.P. v. EPA, Case No. 11-1302, Document No. 1499505 (D.C. Cir. filed June 26, 2014). In its motion, EPA asked the D.C. Circuit Court to toll CSAPR's compliance deadlines by three years, so that the Phase 1 emissions budgets apply in 2015 and 2016 (instead of 2012 and 2013), and the Phase 2 emissions budgets apply in 2017 and beyond (instead of 2014 and beyond). On October 23, 2014, the D.C. Circuit Court granted EPA's motion and lifted the stay of CSAPR which was imposed on December 30, 2011. EME Homer City Generation, L.P. v. EPA, No. 11-1302 (D.C. Cir. Oct. 23, 2014), Order at 3. On December 3, 2014, EPA issued an interim final rule to clarify how EPA will implement CSAPR consistent with the D.C. Circuit Court's order granting EPA's motion requesting lifting the stay and tolling the rule's deadlines. See 79 FR 71663 (December 3, 2014) (interim final rulemaking). Consistent with that rule, EPA began implementing CSAPR on January 1, 2015.

Because CAIR was promulgated in 2005 and incentivized sources and states to begin achieving early emission reductions, the air quality data examined by EPA in issuing a final determination of attainment for the Pittsburgh Area in 2012 (October 12, 2012, 77 FR 62147) and the air quality data from the Area since 2005 necessarily reflect reductions in emissions from upwind sources as a result of CAIR, and Pennsylvania included CAIR as one of the measures that helped to bring the Area into attainment. However, modeling conducted by EPA during the CSAPR rulemaking process, which used a baseline emissions scenario that “backed out” the effects of CAIR, see 76 FR 48223, projected that the counties in the Pittsburgh Area would have design values below the 1997 annual and the 2006 24-hour PM2.5 NAAQS for 2012 and 2014 without taking into account emission reductions from CAIR or CSAPR. See Appendix B of EPA's “Air Quality Modeling Final Rule Technical Support Document,” (Pages B-57, B-58, B-85, B-86 and B-87), which is available in the docket for this proposed rulemaking action. In addition, the 2011-2013 quality-assured, quality-controlled, and certified monitoring data for the Pittsburgh Area confirms that the PM2.5 design values for the Area remained well below the 1997 annual and 2006 24-hour PM2.5 NAAQS in 2013.

The status of CSAPR is not relevant to this redesignation. CSAPR was promulgated in June 2011, and the rule was stayed by the D.C. Circuit Court just six months later, before the trading programs it created were scheduled to go into effect. As stated previously, EPA began implementing CSAPR on January 1, 2015, subsequent to the emission reductions documented in the Commonwealth's December 22, 2014 request for resedignation. Therefore, the Area's attainment of the 1997 annual or the 2006 24-hour PM2.5 NAAQS cannot have been a result of any emission reductions associated with CSAPR. In summary, neither the status of CAIR nor the current status of CSAPR affects any of the criteria for proposed approval of this redesignation request for the Pittsburgh Area.

On January 4, 2013, in NRDC v. EPA, the D.C. Circuit Court remanded to EPA the “Final Clean Air Fine Particle Implementation Rule” (72 FR 20586, April 25, 2007) and the “Implementation of the New Source Review (NSR) Program for PM2.5” final rule (73 FR 28321, May 16, 2008) (collectively, 1997 PM2.5 Implementation Rule). 706 F.3d 428 (D.C. Cir. 2013). The D.C. Circuit Court found that EPA erred in implementing the 1997 annual PM2.5 NAAQS pursuant to the general implementation provisions of subpart 1 of part D of Title I of the CAA (subpart 1), rather than the particulate-matter-specific provisions of subpart 4 of part D of Title I (subpart 4).

Prior to the January 4, 2013 decision, the states had worked towards meeting the air quality goals of the 1997 and 2006 PM2.5 NAAQS in accordance with EPA regulations and guidance derived from subpart 1 of part D of Title I of the CAA. In response to the D.C. Circuit Court's remand, EPA took this history into account by setting a new deadline for any remaining submissions that may be required for moderate nonattainment areas as a result of the D.C. Circuit Court's decision regarding the applicability of subpart 4 of part D of Title I of the CAA.

On June 2, 2014 (79 FR 31566), EPA issued a final rule, “Identification of Nonattainment Classification and Deadlines for Submission of SIP Provisions for the 1997 and 2006 PM2.5 NAAQS” (the PM2.5 Subpart 4 Classification and Deadline Rule), which identifies the classification under subpart 4 as “moderate” for areas currently designated nonattainment for the 1997 annual and/or 2006 24-hour PM2.5 NAAQS. The rule set a deadline for states to submit attainment plans and meet other subpart 4 requirements. The rule specified December 31, 2014 as the deadline for states to submit any additional attainment-related SIP elements that may be needed to meet the applicable requirements of subpart 4 for areas currently designated nonattainment for the 1997 PM2.5 and/or 2006 PM2.5 NAAQS and to submit SIPs addressing the nonattainment new source review (NSR) requirements in subpart 4.

As explained in detail in the following section, since Pennsylvania submitted its request to redesignate the Pittsburgh Area on December 22, 2014, any additional attainment-related SIP elements that may be needed for the Area to meet the applicable requirements of subpart 4 were not due at the time Pennsylvania submitted its request to redesignate the Area for the 1997 annual and 2006 24-hour PM2.5 NAAQS.

In this proposed rulemaking action, EPA addresses the effect of the D.C. Circuit Court's January 4, 2013 ruling and the June 2, 2014 PM2.5 Subpart 4 Classification and Deadline Rule on the redesignation request for the Area. EPA is proposing to determine that the D.C. Circuit Court's January 4, 2013 decision does not prevent EPA from redesignating the Area to attainment for the 1997 annual and the 2006 24-hour PM2.5 NAAQS. Even in light of the D.C. Circuit Court's decision, redesignation for this Area is appropriate under the CAA and EPA's longstanding interpretations of the CAA's provisions regarding redesignation. EPA first explains its longstanding interpretation that requirements that are imposed, or that become due, after a complete redesignation request is submitted for an area that is attaining the standard, are not applicable for purposes of evaluating a redesignation request. Second, EPA then shows that, even if EPA applies the subpart 4 requirements to the redesignation requests of the Area and disregards the provisions of its 1997 PM2.5 Implementation Rule recently remanded by the D.C. Circuit Court, Pennsylvania's request for redesignation of the Area still qualifies for approval. EPA's discussion also takes into account the effect of the D.C. Circuit Court's ruling and the June 2, 2014 PM2.5 Subpart 4 Classification and Deadline Rule on the maintenance plans of the Area, which EPA views as approvable even when subpart 4 requirements are considered.

With respect to the 1997 PM2.5 Implementation Rule, the D.C. Circuit Court's January 4, 2013 ruling rejected EPA's reasons for implementing the PM2.5 NAAQS solely in accordance with the provisions of subpart 1, and remanded that matter to EPA, so that it could address implementation of the 1997 annual PM2.5 NAAQS under subpart 4 of part D of the CAA, in addition to subpart 1. For the purposes of evaluating Pennsylvania's December 22, 2014 redesignation request for the Area, to the extent that implementation under subpart 4 would impose additional requirements for areas designated nonattainment, EPA believes that those requirements are not “applicable” for the purposes of section 107(d)(3)(E) of the CAA, and thus EPA is not required to consider subpart 4 requirements with respect to the redesignation of the area. Under its longstanding interpretation of the CAA, EPA has interpreted section 107(d)(3)(E) to mean, as a threshold matter, that the part D provisions which are “applicable” and which must be approved in order for EPA to redesignate an area include only those which came due prior to a state's submittal of a complete redesignation request. See 1992 Calcagni Memorandum. See also “SIP Requirements for Areas Submitting Requests for Redesignation to Attainment of the Ozone and Carbon Monoxide (CO) NAAQS on or after November 15, 1992,” Memorandum from Michael Shapiro, Acting Assistant Administrator, Air and Radiation, September 17, 1993 (Shapiro memorandum); Final Redesignation of Detroit-Ann Arbor, (60 FR 12459, 12465-66, March 7, 1995); Final Redesignation of St. Louis, Missouri, (68 FR 25418, 25424-27, May 12, 2003); Sierra Club v. EPA, 375 F.3d 537, 541 (7th Cir. 2004) (upholding EPA's redesignation rulemaking applying this interpretation and expressly rejecting Sierra Club's view that the meaning of “applicable” under the statute is “whatever should have been in the plan at the time of attainment rather than whatever actually was in the plan and already implemented or due at the time of attainment”).2 In this case, at the time that Pennsylvania submitted its redesignation request for the Pittsburgh Area for the 1997 annual and the 2006 24-hour PM2.5 NAAQS, the requirements under subpart 4 were not due.3

EPA's view that, for purposes of evaluating the redesignation of the Area, the subpart 4 requirements were not due at the time Pennsylvania submitted the redesignation request is in keeping with the EPA's interpretation of subpart 2 requirements for subpart 1 ozone areas redesignated subsequent to the D.C. Circuit Court's decision in South Coast Air Quality Mgmt. Dist. v. EPA, 472 F.3d 882 (D.C. Cir. 2006). In South Coast, the D.C. Circuit Court found that EPA was not permitted to implement the 1997 8-hour ozone standard solely under subpart 1, and held that EPA was required under the statute to implement the standard under the ozone-specific requirements of subpart 2 as well. Subsequent to the South Coast decision, in evaluating and acting upon redesignation requests for the 1997 8-hour ozone standard that were submitted to EPA for areas under subpart 1, EPA applied its longstanding interpretation of the CAA that “applicable requirements,” for purposes of evaluating a redesignation, are those that had been due at the time the redesignation request was submitted. See, e.g., Proposed Redesignation of Manitowoc County and Door County Nonattainment Areas (75 FR 22047, 22050, April 27, 2010). In those rulemaking actions, EPA therefore, did not consider subpart 2 requirements to be “applicable” for the purposes of evaluating whether the area should be redesignated under section 107(d)(3)(E) of the CAA.

EPA's interpretation derives from the provisions of section 107(d)(3) of the CAA. Section 107(d)(3)(E)(v) states that, for an area to be redesignated, a state must meet “all requirements `applicable' to the area under section 110 and part D.” Section 107(d)(3)(E)(ii) provides that EPA must have fully approved the “applicable” SIP for the area seeking redesignation. These two sections read together support EPA's interpretation of “applicable” as only those requirements that came due prior to submission of a complete redesignation request.

First, holding states to an ongoing obligation to adopt new CAA requirements that arose after the state submitted its redesignation request, in order to be redesignated, would make it problematic or impossible for EPA to act on redesignation requests in accordance with the 18-month deadline Congress set for EPA action in section 107(d)(3)(D). If “applicable requirements” were interpreted to be a continuing flow of requirements with no reasonable limitation, states, after submitting a redesignation request, would be forced continuously to make additional SIP submissions that in turn would require EPA to undertake further notice-and-comment rulemaking actions to act on those submissions. This would create a regime of unceasing rulemaking that would delay action on the redesignation request beyond the 18-month timeframe provided by the CAA for this purpose.

Second, a fundamental premise for redesignating a nonattainment area to attainment is that the area has attained the relevant NAAQS due to emission reductions from existing controls. Thus, an area for which a redesignation request has been submitted would have already attained the NAAQS as a result of satisfying statutory requirements that came due prior to the submission of the request. Absent a showing that unadopted and unimplemented requirements are necessary for future maintenance, it is reasonable to view the requirements applicable for purposes of evaluating the redesignation request as including only those SIP requirements that have already come due. These are the requirements that led to attainment of the NAAQS. To require, for redesignation approval, that a state also satisfy additional SIP requirements coming due after the state submits its complete redesignation request, and while EPA is reviewing it, would compel the state to do more than is necessary to attain the NAAQS, without a showing that the additional requirements are necessary for maintenance.

In the context of this redesignation, the timing and nature of the D.C. Circuit Court's January 4, 2013 decision in NRDC v. EPA, and EPA's June 2, 2014 PM2.5 Subpart 4 Classification and Deadline Rule compound the consequences of imposing requirements that come due after the redesignation request is submitted. Pennsylvania submitted its redesignation request for the 1997 annual and 2006 24-hour PM2.5 NAAQS on December 22, 2014 for the Pittsburgh Area, which is prior to the deadline by which the area is required to meet the attainment plan and other requirements pursuant to subpart 4.

To require Pennsylvania's fully-complete and pending redesignation request for the 1997 annual and 2006 24-hour PM2.5 NAAQS to comply now with requirements of subpart 4 that the D.C. Circuit Court announced only in January 2013 and for which the December 31, 2014 deadline to comply occurred subsequent to EPA's receipt of Pennsylvania's December 22, 2014 redesignation request would be to give retroactive effect to such requirements and provide Pennsylvania a unique and earlier deadline for compliance solely on the basis of submitting its redesignation request for the Area. The D.C. Circuit Court recognized the inequity of this type of retroactive impact in Sierra Club v. Whitman, 285 F.3d 63 (D.C. Cir. 2002),4 where it upheld the D.C. Circuit Court's ruling refusing to make retroactive EPA's determination that the areas did not meet their attainment deadlines. In that case, petitioners urged the D.C. Circuit Court to make EPA's nonattainment determination effective as of the date that the statute required, rather than the later date on which EPA actually made the determination. The D.C. Circuit Court rejected this view, stating that applying it “would likely impose large costs on States, which would face fines and suits for not implementing air pollution prevention plans . . . even though they were not on notice at the time.” Id. at 68. Similarly, it would be unreasonable to penalize Pennsylvania by rejecting its December 22, 2014 redesignation request for an area that EPA previously determined was attaining the 1997 annual and 2006 24-hour PM2.5 NAAQS and that met all applicable requirements known to be in effect at the time of the request. For EPA now to reject the redesignation request solely because Pennsylvania did not expressly address subpart 4 requirements which came due after receipt of such request, (and for which it had little to no notice), would inflict the same unfairness condemned by the D.C. Circuit Court in Sierra Club v. Whitman.

Even if EPA were to take the view that the D.C. Circuit Court's January 4, 2013 decision, or the June 2, 2014 PM2.5 Subpart 4 Classification and Deadline Rule, requires that, in the context of pending redesignation requests for the 1997 annual and the 2006 24-hour PM2.5 NAAQS, which were submitted prior to December 31, 2014, subpart 4 requirements must be considered as being due and in effect, EPA proposes to determine that the Area still qualifies for redesignation to attainment for the 1997 annual and the 2006 24-hour PM2.5 NAAQS. As explained subsequently, EPA believes that the redesignation request for the Area, though not expressed in terms of subpart 4 requirements, substantively meets the requirements of that subpart for purposes of redesignating the Area to attainment for the 1997 annual and the 2006 24-hour PM2.5 NAAQS.

With respect to evaluating the relevant substantive requirements of subpart 4 for purposes of redesignating the Area, EPA notes that subpart 4 incorporates components of subpart 1 of part D, which contains general air quality planning requirements for areas designated as nonattainment. See section 172(c). Subpart 4 itself contains specific planning and scheduling requirements for coarse particulate matter (PM10) 5 nonattainment areas, and under the D.C. Circuit Court's January 4, 2013 decision in NRDC v. EPA, these same statutory requirements also apply for PM2.5 nonattainment areas. EPA has longstanding general guidance that interprets the 1990 amendments to the CAA, making recommendations to states for meeting the statutory requirements for SIPs for nonattainment areas. See the General Preamble. In the General Preamble, EPA discussed the relationship of subpart 1 and subpart 4 SIP requirements, and pointed out that subpart 1 requirements were to an extent “subsumed by, or integrally related to, the more specific PM10 requirements” (57 FR 13538, April 16, 1992). The subpart 1 requirements include, among other things, provisions for attainment demonstrations, RACM, RFP, emissions inventories, and contingency measures.

For the purposes of this redesignation request, in order to identify any additional requirements which would apply under subpart 4, consistent with EPA's June 2, 2014 PM2.5 Subpart 4 Classification and Deadline Rule, EPA is considering the areas to be “moderate” PM2.5 nonattainment areas. As EPA explained in its June 2, 2014 rule, section 188 of the CAA provides that all areas designated nonattainment areas under subpart 4 are initially to be classified by operation of law as “moderate” nonattainment areas, and remain moderate nonattainment areas unless and until EPA reclassifies the area as a “serious” nonattainment area. Accordingly, EPA believes that it is appropriate to limit the evaluation of the potential impact of subpart 4 requirements to those that would be applicable to moderate nonattainment areas. Sections 189(a) and (c) of subpart 4 apply to moderate nonattainment areas and include the following: (1) An approved permit program for construction of new and modified major stationary sources (section 189(a)(1)(A)); (2) an attainment demonstration (section 189(a)(1)(B)); (3) provisions for RACM (section 189(a)(1)(C)); and (4) quantitative milestones demonstrating RFP toward attainment by the applicable attainment date (section 189(c)).

The permit requirements of subpart 4, as contained in section 189(a)(1)(A), refer to and apply the subpart 1 permit provisions requirements of sections 172 and 173 to PM10, without adding to them. Consequently, EPA believes that section 189(a)(1)(A) does not itself impose for redesignation purposes any additional requirements for moderate areas beyond those contained in subpart 1.6 In any event, in the context of redesignation, EPA has long relied on the interpretation that a fully approved nonattainment NSR program is not considered an applicable requirement for redesignation, provided the area can maintain the standard with a prevention of significant deterioration (PSD) program after redesignation. A detailed rationale for this view is described in a memorandum from Mary Nichols, Assistant Administrator for Air and Radiation, dated October 14, 1994, entitled, “Part D NSR Requirements for Areas Requesting Redesignation to Attainment.” See also rulemakings for Detroit, Michigan (60 FR 12467-12468, March 7, 1995); Cleveland-Akron-Lorain, Ohio (61 FR 20458, 20469-20470, May 7, 1996); Louisville, Kentucky (66 FR 53665, October 23, 2001); and Grand Rapids, Michigan (61 FR 31834-31837, June 21, 1996). With respect to the specific attainment planning requirements under subpart 4,7 when EPA evaluates a redesignation request under either subpart 1 or 4, any area that is attaining the PM2.5 NAAQS is viewed as having satisfied the attainment planning requirements for these subparts. For redesignations, EPA has for many years interpreted attainment-linked requirements as not applicable for areas attaining the standard. In the General Preamble, EPA stated that: “The requirements for RFP will not apply in evaluating a request for redesignation to attainment since, at a minimum, the air quality data for the area must show that the area has already attained. Showing that the State will make RFP towards attainment will, therefore, have no meaning at that point.”

The General Preamble also explained that: “[t]he section 172(c)(9) requirements are directed at ensuring RFP and attainment by the applicable date. These requirements no longer apply when an area has attained the standard and is eligible for redesignation. Furthermore, section 175A for maintenance plans . . . provides specific requirements for contingency measures that effectively supersede the requirements of section 172(c)(9) for these areas.” Id. EPA similarly stated in its 1992 Calcagni Memorandum that, “The requirements for reasonable further progress and other measures needed for attainment will not apply for redesignations because they only have meaning for areas not attaining the standard.”

It is evident that even if we were to consider the D.C. Circuit Court's January 4, 2013 decision in NRDC v. EPA, or the June 2, 2014 PM2.5 Subpart 4 Classification and Deadline Rule, to mean that attainment-related requirements specific to subpart 4 were either due prior to Pennsylvania's December 22, 2014 redesignation request and must now be imposed retroactively,8 those requirements do not apply to areas that are attaining the 1997 annual and the 2006 24-hour PM2.5 NAAQS for the purpose of evaluating pending requests to redesignate the areas to attainment. EPA has consistently enunciated this interpretation of applicable requirements under section 107(d)(3)(E) since the General Preamble was published more than twenty years ago. Courts have recognized the scope of EPA's authority to interpret “applicable requirements” in the redesignation context. See Sierra Club v. EPA, 375 F.3d 537 (7th Cir. 2004).

Moreover, even outside the context of redesignations, EPA has viewed the obligations to submit attainment-related SIP planning requirements of subpart 4 as inapplicable for areas that EPA determines are attaining the 1997 annual and 2006 24-hour PM2.5 NAAQS. EPA's prior “Clean Data Policy” rulemakings for the PM10 NAAQS, also governed by the requirements of subpart 4, explain EPA's reasoning. They describe the effects of a determination of attainment on the attainment-related SIP planning requirements of subpart 4. See “Determination of Attainment for Coso Junction Nonattainment Area,” (75 FR 27944, May 19, 2010). See also Coso Junction Proposed PM10 Redesignation, (75 FR 36023, 36027, June 24, 2010); Proposed and Final Determinations of Attainment for San Joaquin Nonattainment Area (71 FR 40952, 40954-55, July 19, 2006; and 71 FR 63641, 63643-47, October 30, 2006). In short, EPA in this context has also long concluded that to require states to meet superfluous SIP planning requirements is not necessary and not required by the CAA, so long as those areas continue to attain the relevant NAAQS.

As stated previously in this proposed rulemaking action, on October 12, 2012 (77 FR 62147) and May 2, 2014 (79 FR 25014), EPA made determinations that the Pittsburgh Area had attained the 1997 annual and 2006 24-hour PM2.5 NAAQS, respectively. Pursuant to 40 CFR 51.1004(c) and based on these determinations, the requirements for the Area to submit an attainment demonstration and associated RACM, RFP plan, contingency measures, and other planning SIPs related to the attainment of either the 1997 annual or 2006 24-hour PM2.5 NAAQS were, and continue to be, suspended until such time as: the Area is redesignated to attainment for each standard, at which time the requirements no longer apply; or EPA determines that the Area has again violated any of the standards, at which time such plans are required to be submitted. Under its longstanding interpretation, EPA is proposing to determine here that the Area meets the attainment-related plan requirements of subparts 1 and 4 for the 1997 annual and 2006 24-hour PM2.5 NAAQS. Thus, EPA is proposing to conclude that the requirements to submit an attainment demonstration under 189(a)(1)(B), a RACM determination under section 172(c)(1) and section 189(a)(1)(c), a RFP demonstration under 189(c)(1), and contingency measure requirements under section 172(c)(9) are satisfied for purposes of evaluating this redesignation request.

The D.C. Circuit Court in NRDC v. EPA remanded to EPA the two rules at issue in the case with instructions to EPA to re-promulgate them consistent with the requirements of subpart 4. EPA in this section addresses the D.C. Circuit Court's opinion with respect to PM2.5 precursors. While past implementation of subpart 4 for PM10 has allowed for control of PM10 precursors, such as NOX from major stationary, mobile, and area sources in order to attain the standard as expeditiously as practicable, section 189(e) of the CAA specifically provides that control requirements for major stationary sources of direct PM10 shall also apply to PM10 precursors from those sources, except where EPA determines that major stationary sources of such precursors “do not contribute significantly to PM10 levels which exceed the standard in the area.”

EPA's 1997 PM2.5 Implementation Rule, remanded by the D.C. Circuit Court, contained rebuttable presumptions concerning certain PM2.5 precursors applicable to attainment plans and control measures related to those plans. Specifically, in 40 CFR 51.1002, EPA provided, among other things, that a state was “not required to address VOC [and NH3] as . . . PM2.5 attainment plan precursor[s] and to evaluate sources of VOC [and NH3] emissions in the State for control measures.” EPA intended these to be rebuttable presumptions. EPA established these presumptions at the time because of uncertainties regarding the emission inventories for these pollutants and the effectiveness of specific control measures in various regions of the country in reducing PM2.5 concentrations. EPA also left open the possibility for such regulation of VOC and NH3 in specific areas where that was necessary.

The D.C. Circuit Court in its January 4, 2013 decision made reference to both section 189(e) and 40 CFR 51.1002, and stated that, “In light of our disposition, we need not address the petitioners' challenge to the presumptions in [40 CFR 51.1002] that VOCs and NH3 are not PM2.5 precursors, as subpart 4 expressly governs precursor presumptions.” NRDC v. EPA, at 27, n.10.

Elsewhere in the D.C. Circuit Court's opinion, however, the D.C. Circuit Court observed: “NH3 is a precursor to fine particulate matter, making it a precursor to both PM2.5 and PM10. For a PM10 nonattainment area governed by subpart 4, a precursor is presumptively regulated. See 42 U.S.C. 7513a(e) [section 189(e)].” Id. at 21, n.7.

For a number of reasons, the redesignation of the Pittsburgh Area for the 1997 annual and 2006 24-hour PM2.5 NAAQS is consistent with the D.C. Circuit Court's decision on this aspect of subpart 4. While the D.C. Circuit Court, citing section 189(e), stated that “for a PM10 area governed by subpart 4, a precursor is `presumptively' regulated,” the D.C. Circuit Court expressly declined to decide the specific challenge to EPA's 1997 PM2.5 Implementation Rule provisions regarding NH3 and VOC as precursors. The D.C. Circuit Court had no occasion to reach whether and how it was substantively necessary to regulate any specific precursor in a particular PM2.5 nonattainment area, and did not address what might be necessary for purposes of acting upon a redesignation request.

However, even if EPA takes the view that the requirements of subpart 4 were deemed applicable at the time the state submitted the redesignation request, and disregards the 1997 PM2.5 Implementation Rule's rebuttable presumptions regarding NH3 and VOC as PM2.5 precursors, the regulatory consequence would be to consider the need for regulation of all precursors from any sources in the Area to demonstrate attainment and to apply the section 189(e) provisions to major stationary sources of precursors. In the case of the Pittsburgh Area, EPA believes that doing so is consistent with proposing redesignation of the Area for the 1997 annual and 2006 24-hour PM2.5 NAAQS. The Area has attained the 1997 annual and 2006 24-hour PM2.5 NAAQS without any specific additional controls of NH3 and VOC emissions from any sources in the Area.

Precursors in subpart 4 are specifically regulated under the provisions of section 189(e), which requires, with important exceptions, control requirements for major stationary sources of PM10 precursors.9 Under subpart 1 and EPA's prior implementation rule, all major stationary sources of PM2.5 precursors were subject to regulation, with the exception of NH3 and VOC. Thus, EPA must address here whether additional controls of NH3 and VOC from major stationary sources are required under section 189(e) of subpart 4 in order to redesignate the Area for the 1997 annual and 2006 24-hour PM2.5 NAAQS. As explained subsequently, EPA does not believe that any additional controls of NH3 and VOC are required in the context of this redesignation.

In the General Preamble, EPA discusses its approach to implementing section 189(e). See 57 FR 13538-13542. With regard to precursor regulation under section 189(e), the General Preamble explicitly stated that control of VOC under other CAA requirements may suffice to relieve a state from the need to adopt precursor controls under section 189(e). See 57 FR 13542. EPA in this rulemaking action, proposes to determine that the Pennsylvania SIP revision has met the provisions of section 189(e) with respect to NH3 and VOC as precursors. These proposed determinations are based on EPA's findings that: (1) The Pittsburgh Area contains no major stationary sources of NH3; and (2) existing major stationary sources of VOC are adequately controlled under other provisions of the CAA regulating the ozone NAAQS.10 In the alternative, EPA proposes to determine that, under the express exception provisions of section 189(e), and in the context of the redesignation of the Area, which is attaining the 1997 annual and 2006 24-hour PM2.5 NAAQS, at present NH3 and VOC precursors from major stationary sources do not contribute significantly to levels exceeding the 1997 annual and 2006 24-hour PM2.5 NAAQS in the Area. See 57 FR 13539-42.

EPA notes that its 1997 PM2.5 Implementation Rule provisions in 40 CFR 51.1002 were not directed at evaluation of PM2.5 precursors in the context of redesignation, but at SIP plans and control measures required to bring a nonattainment area into attainment of the 1997 annual PM2.5 NAAQS. By contrast, redesignation to attainment primarily requires the nonattainment area to have already attained due to permanent and enforceable emission reductions, and to demonstrate that controls in place can continue to maintain the standard. Thus, even if we regard the D.C. Circuit Court's January 4, 2013 decision as calling for “presumptive regulation” of NH3 and VOC for PM2.5 under the attainment planning provisions of subpart 4, those provisions in and of themselves do not require additional controls of these precursors for an area that already qualifies for redesignation. Nor does EPA believe that requiring Pennsylvania to address precursors differently than it has already would result in a substantively different outcome.

Although, as EPA has emphasized, its consideration here of precursor requirements under subpart 4 is in the context of a redesignation to attainment, EPA's existing interpretation of subpart 4 requirements with respect to precursors in attainment plans for PM10 contemplates that states may develop attainment plans that regulate only those precursors that are necessary for purposes of attainment in the area in question, i.e., states may determine that only certain precursors need be regulated for attainment and control purposes.11 Courts have upheld this approach to the requirements of subpart 4 for PM10.12 EPA believes that application of this approach to PM2.5 precursors under subpart 4 is reasonable. Because the Area has already attained the 1997 annual and 2006 24-hour PM2.5 NAAQS with its current approach to regulation of PM2.5 precursors, EPA believes that it is reasonable to conclude in the context of this redesignation that there is no need to revisit an attainment control strategy with respect to the treatment of precursors. Even if the D.C. Circuit Court's decision is construed to impose an obligation, in evaluating this redesignation request, to consider additional precursors under subpart 4, it would not affect EPA's approval here of Pennsylvania's request for redesignation of the Pittsburgh Area for the 1997 annual and 2006 24-hour PM2.5 NAAQS. In the context of a redesignation, Pennsylvania has shown that the Area has attained both standards. Moreover, Pennsylvania has shown, and EPA proposes to determine, that attainment of the 1997 annual and 2006 24-hour PM2.5 NAAQS in this Area is due to permanent and enforceable emission reductions on all precursors necessary to provide for continued attainment of the standards. See Section V.A.3 of this rulemaking action. It follows logically that no further control of additional precursors is necessary. Accordingly, EPA does not view the January 4, 2013 decision of the D.C. Circuit Court as precluding redesignation of the Area to attainment for the 1997 annual and 2006 24-hour PM2.5 NAAQS at this time.

In summary, even if, prior to submitting its December 22, 2014 redesignation request, or subsequent to such submission and prior to December 31, 2014, Pennsylvania was required to address precursors for the Area under subpart 4 rather than under subpart 1, as interpreted in EPA's remanded 1997 PM2.5 Implementation Rule, EPA would still conclude that the Area had met all applicable requirements for purposes of redesignation in accordance with section 107(d)(3)(E)(ii) and (v) of the CAA.

EPA is proposing several rulemaking actions for the Pittsburgh Area: (1) To redesignate the Pittsburgh Area to attainment for the 1997 annual and 2006 24-hour PM2.5 NAAQS; (2) to approve into the Pennsylvania SIP the associated maintenance plan for the 1997 annual and 2006 24-hour PM2.5 NAAQS; and (3) to approve the 2007 comprehensive emissions inventory for the 1997 annual PM2.5 NAAQS and the 2011 comprehensive emissions inventories for the 2006 24-hour PM2.5 NAAQS to satisfy section 172(c)(3) requirement, which is one of the CAA criteria for redesignation. EPA's proposed approval of the redesignation request and maintenance plan for the 1997 annual and 2006 24-hour PM2.5 NAAQS are based upon EPA's determination that the Area continues to attain both standards, which EPA is proposing in this rulemaking action, and that all other redesignation criteria have been met for the Area. In addition, EPA is proposing to approve the 2017 and 2025 PM2.5 and NOX MVEBs included in the maintenance plan for the Pittsburgh Area for transportation conformity purposes. The following is a description of how Pennsylvania's December 22, 2014 submittal satisfies the requirements of the CAA including specifically section 107(d)(3)(E) for the 1997 annual and 2006 24-hour PM2.5 NAAQS.

On October 12, 2012 (77 FR 62147), EPA determined that the Pittsburgh Area attained the 1997 annual PM2.5 NAAQS by its applicable attainment date of April 5, 2010, based upon quality-assured and certified ambient air quality monitoring data for 2007-2009. In a separate rulemaking action dated May 2, 2014 (79 FR 25014), EPA determined that the Pittsburgh Area attained the 2006 24-hour PM2.5 NAAQS, based on quality-assured and certified ambient air quality monitoring data for 2010-2012 and 2011-2013. The basis and effect of these determinations of attainment for both the 1997 annual and 2006 24-hour PM2.5 NAAQS were discussed in the notices of the proposed (77 FR 34297 (June 11, 2012) and 78 FR 49403 (August 14, 2013), respectively) and final (77 FR 62147 and 79 FR 25014, respectively) rulemakings which determined the Area attained the 1997 annual and 2006 24-hour PM2.5 NAAQS, respectively.

EPA has reviewed the ambient air quality PM2.5 monitoring data in the Pittsburgh Area consistent with the requirements contained in 40 CFR part 50, and recorded in EPA's Air Quality System (AQS), including quality-assured, quality-controlled, and state-certified data for the monitoring periods 2008-2010, 2009-2011, 2010-2012, and 2011-2013. This data, provided in Tables 1 and 2, shows that the Area continues to attain the 1997 annual and 2006 24-hour PM2.5 NAAQS.