Federal Register Vol. 81, No.192,

I. Statutory Background

Under section 513 of the Federal Food, Drug, and Cosmetic Act (the FD&C Act) (21 U.S.C. 360c), FDA must classify devices into one of three regulatory classes: Class I, class II, or class III. FDA classification of a device is determined by the amount of regulation necessary to provide a reasonable assurance of the safety and effectiveness of the device. Under the Medical Device Amendments of 1976 (1976 amendments) (Pub. L. 94-295), as amended by the Safe Medical Devices Act of 1990 (Pub. L. 101-629), devices are to be classified into class I (general controls) if there is information showing that the general controls of the FD&C Act are sufficient to assure safety and effectiveness; into class II (special controls) if general controls, by themselves, are insufficient to provide reasonable assurance of safety and effectiveness, but there is sufficient information to establish special controls to provide such assurance; and into class III (premarket approval) if there is insufficient information to support classifying a device into class I or class II and the device is a life sustaining or life supporting device, or is for a use which is of substantial importance in preventing impairment of human health or presents a potential unreasonable risk of illness or injury.

Section 510(k) of the FD&C Act (21 U.S.C. 360(k)) and the implementing regulations (21 CFR part 807) require persons who intend to market a device intended for human use to submit a premarket notification (510(k)) to FDA containing information that allows FDA to determine whether the device is “substantially equivalent” within the meaning of section 513(i) of the FD&C Act to a legally marketed device that does not require premarket approval (PMA).

On November 21, 1997, the President signed into law FDAMA (Pub. L. 105-115). Section 206 of FDAMA, in part, added a new section, 510(m), to the FD&C. Section 510(m)(1) of the FD&C Act requires FDA, within 60 days after enactment of FDAMA, to publish in the Federal Register a list of each type of class II device that does not require a report under section 510(k) to provide reasonable assurance of safety and effectiveness. Section 510(m) of the FD&C Act further provides that a 510(k) will no longer be required for these devices upon the date of publication of the list in the Federal Register. FDA published that list in the Federal Register of January 21, 1998 (63 FR 3142).

Section 510(m)(2) of the FD&C Act provides that 1 day after the date of publication of the list under section 510(m)(1), FDA may exempt a class II device on its own initiative or upon petition of an interested person if FDA determines that a 510(k) is not necessary to provide a reasonable assurance of the safety and effectiveness of the device. This section requires FDA to publish in the Federal Register a notice of intent to exempt a device, or of the petition, and to provide a 30-day comment period. Within 120 days of publication of this document, FDA must publish in the Federal Register its final determination regarding the exemption of the device that was the subject of the notice. If FDA fails to respond to a petition under this section within 180 days of receiving it, the petition shall be deemed granted.

FDA classified the urinary glucose (nonquantitative) test system into class II effective July 30, 1987 (52 FR 16102 at 16122, May 1, 1987). The classification for urinary glucose (nonquantitative) test system is at § 862.1340 (21 CFR 862.1340). The urinary glucose (nonquantitative) test system is identified as a device that is intended to measure glucosuria (glucose in urine). Urinary glucose (nonquantitative) measurements are used in the diagnosis and treatment of carbohydrate metabolism disorders including diabetes mellitus, hypoglycemia, and hyperglycemia. Devices under this classification regulation require premarket notification under section 510(k) of the FD&C Act.

There are a number of factors FDA may consider to determine whether a 510(k) is necessary to provide reasonable assurance of the safety and effectiveness of a class II device. These factors are discussed in the guidance the Agency issued on February 19, 1998, entitled “Procedures for Class II Device Exemptions from Premarket Notification, Guidance for Industry and CDRH Staff” (Ref. 1). Accordingly, FDA generally considers the following factors to determine whether premarket notification is necessary: (1) The device does not have a significant history of false or misleading claims or risks associated with inherent characteristics of the device; (2) characteristics of the device necessary for its safe and effective performance are well established; (3) changes in the device that could affect safety and effectiveness will either (a) be readily detectable by users by visual examination or other means such as routine testing, before causing harm, or (b) not materially increase the risk of injury, incorrect diagnosis, or ineffective treatment; and (4) any changes to the device would not be likely to result in a change in the device's classification. FDA may also consider that, even when exempting devices, these devices would still be subject to the limitations on exemptions.

On March 18, 2016, FDA received a petition requesting an exemption from premarket notification requirements for copper reduction tablet tests that are classified as class II devices under § 862.1340, urinary glucose (nonquantitative) test system, from Martin O'Connor, Germaine Laboratories, Inc. (See Docket No. FDA-2016-P-1026).

On May 4, 2016 (81 FR 26802), FDA published a notice in the Federal Register announcing that this petition had been received in accordance with section 510(m)(2) of the FD&C Act. On June 20, 2016 (81 FR 39929), FDA republished a notice of the petition due to an inadvertent error in the docket number and provided an opportunity for interested persons to submit comments on the petition by July 20, 2016. FDA received no comments regarding this petition.

FDA has completed review of the referenced petition and assessed the need for 510(k) clearance for copper reduction tablet test against the criteria laid out in section II. For the reasons described in this document, FDA has determined that premarket notification is necessary to provide a reasonable assurance of the safety and effectiveness of the copper reduction tablet tests classified under § 862.1340 and assigned the classification product code JIM. Accordingly, FDA responded to the petition by letter dated September 6, 2016, denying the petition within the 180-day timeframe under section 510(m)(2) of the FD&C Act. (See Docket No. FDA-2016-P-1026).

After reviewing the petition, FDA has determined that the petition failed to provide information to demonstrate that premarket notification is not necessary to provide a reasonable assurance of the safety and effectiveness of the device. Accordingly, FDA is denying the referenced petition for exemption from the premarket notification requirements.

With regard to the first factor (see section II, Criteria for Exemption), although there have been no medical device reports reported to the Agency in recent years, there have been numerous reports to the Agency 1 and in medical literature of risks associated with the inherent characteristics of this device, including possible device-associated deaths, serious injuries, and malfunctions such as burns, explosions of the product bottle due to heat, and consumption of the device. For instance, there have been reports in the medical literature of patients consuming the tablets because of their similarity to pills, which has led to poisoning and one report of a death. Therefore, FDA does not agree with the petitioner that the device does not have a significant history of risks associated with inherent characteristics of the device.

Additionally, failure to observe the reaction at all times after the tablet has been added to the sample is another risk associated with the inherent characteristics of the device. This can lead to a false-negative result and result in improper patient management, which can lead to serious injury or possibly death. The petition does not address how the device's inherent risks can be mitigated or controlled without premarket notification to provide a reasonable assurance of the safety and effectiveness of the device.

With regard to the second factor, the petition stated that healthcare and laboratory professionals understand the appropriate use of a copper reduction tablet test and that a definitive diagnostic or therapeutic decision should not be based on the result of this method. However, a copper reduction tablet test can be used to evaluate pediatric patients for possible hereditary metabolic disorders through detection of reducing substances. For example, although all States require mandatory newborn screening for genetic metabolic defects, clinical laboratories may still use this device as a screening test on pediatric urine samples if there are any suspicions of metabolic disease prior to receiving newborn screening results or if the newborn screening results do not match the clinical state of the newborn. Although further diagnostic testing may be performed to confirm the result(s), physicians may immediately treat the newborn relying solely on the result of this test while awaiting the results for any followup diagnostic tests. False negative results also present a safety and effectiveness concern because followup diagnostic testing may not be performed, leading to the failure to start needed treatment for the newborn. The petition failed to demonstrate that a premarket submission is not necessary to provide a reasonable assurance of the safety and effectiveness of the device for such uses, and FDA does not agree that the characteristics of the device necessary for its safe and effective use are well established.

With regard to the third factor, FDA also does not agree that changes in the device that could affect safety and effectiveness will either be readily detectable or not materially increase risks. The petition claimed that users could employ positive or negative controls to validate the reagents performance. However, while available quality control materials may contain glucose, they do not contain other reducing sugars (e.g., galactose, lactose). Therefore, such materials might not readily detect an issue with the device's safety or effectiveness in detecting other reducing sugars before causing harm. The petition argued that well-established protocols and methods could ensure there is no material increase in risk. The petition provided insufficient information to support this argument that changes in the device that could affect safety and effectiveness will either be readily detectable or not materially increase risks. Moreover, changes in the device that could affect safety and effectiveness might materially increase the risk of injury, incorrect diagnosis or ineffective treatment given the device type's intended uses. The petition also did not provide information to the contrary. The petition did not provide any relevant information regarding the fourth factor.

In addition to these four factors, FDA considers the “limitations on exemption.” Manufacturers of any commercially distributed device for which FDA has granted an exemption from the requirement of premarket notification must still submit a premarket notification to FDA prior to marketing the device when any of the limitations of exemption are exceeded. The general limitations of exemption from premarket notification contained in § 862.9 (21 CFR 862.9) are broadly applicable to in vitro diagnostic (IVD) devices classified under part 862 (21 CFR part 862). Under § 862.9, the exemption from the premarket notification requirements applies, in the case of IVD devices, only to those devices under part 862 for which misdiagnosis, as a result of using the device, would not be associated with high morbidity or mortality. FDA has previously assessed that this limitation is exceeded, and a premarket notification is necessary to provide a reasonable assurance of the safety and effectiveness of an IVD device, when such device is intended for use in screening or diagnosis of familial or acquired genetic disorders, including inborn errors of metabolism (§ 862.9(c)(2)) or intended for use in diabetes management (§ 862.9(c)(5)). The petition argued that the copper reduction tablet test is not intended for use in screening or diagnosis of familial and acquired genetic disorders, including inborn errors of metabolism, or for use in diabetes management. However, as explained previously, FDA disagrees and believes that the copper reduction tablet test described in the petition is intended for such uses and would likely exceed the limitations previously mentioned.

Accordingly, for all of the foregoing reasons, the petition failed to demonstrate that a premarket submission is not necessary to provide a reasonable assurance of the safety and effectiveness of the device intended for such uses. Therefore, FDA is issuing this order denying the petition requesting exemption for a method, metallic reduction, glucose (urinary, nonquantitative) test system in a reagent tablet format that is intended to measure glucosuria (glucose in urine) from the premarket notification requirements. Manufacturers of this device type must continue to submit and receive FDA clearance of a 510(k) before marketing their device, as well as comply with all other applicable requirements under the FD&C Act.

The following reference is on display in the Division of Dockets Management (HFA-305), Food and Drug Administration, 5630 Fishers Lane, Rm. 1061, Rockville, MD 20852, and is available for viewing by interested persons between 9 a.m. and 4 p.m., Monday through Friday; it is also available electronically at http://www.regulations.gov. FDA has verified the Web site address, as of the date this document publishes in the Federal Register, but Web sites are subject to change over time.

I. Statutory Background

Under section 513 of the Federal Food, Drug, and Cosmetic Act (the FD&C Act) (21 U.S.C. 360c), FDA must classify devices into one of three regulatory classes: Class I, class II, or class III. FDA classification of a device is determined by the amount of regulation necessary to provide a reasonable assurance of the safety and effectiveness of the device. Under the Medical Device Amendments of 1976 (1976 amendments) (Pub. L. 94-295), as amended by the Safe Medical Devices Act of 1990 (Pub. L. 101-629), devices are to be classified into class I (general controls) if there is information showing that the general controls of the FD&C Act are sufficient to assure safety and effectiveness; into class II (special controls) if general controls, by themselves, are insufficient to provide reasonable assurance of safety and effectiveness, but there is sufficient information to establish special controls to provide such assurance; and into class III (premarket approval) if there is insufficient information to support classifying a device into class I or class II and the device is a life-sustaining or life-supporting device, or is for a use which is of substantial importance in preventing impairment of human health, or presents a potential unreasonable risk of illness or injury.

Section 510(k) of the FD&C Act (21 U.S.C. 360(k)) and the implementing regulations (21 CFR part 807) require persons who intend to market a device intended for human use to submit a premarket notification (510(k)) to FDA containing information that allows FDA to determine whether the device is “substantially equivalent” within the meaning of section 513(i) of the FD&C Act to a legally marketed device that does not require premarket approval.

On November 21, 1997, the President signed into law FDAMA (Pub. L. 105-115). Section 206 of FDAMA, in part, added section 510(m) to the FD&C Act. Section 510(m)(1) of the FD&C Act requires FDA, within 60 days after enactment of FDAMA, to publish in the Federal Register a list of each type of class II device that does not require a report under section 510(k) of the FD&C Act to provide reasonable assurance of safety and effectiveness. Section 510(m) of the FD&C Act further provides that a 510(k) will no longer be required for these devices upon the date of publication of the list in the Federal Register. FDA published that list in the Federal Register of January 21, 1998 (63 FR 3142).

Section 510(m)(2) of the FD&C Act provides that 1 day after the date of publication of the list under section 510(m)(1), FDA may exempt a class II device on its own initiative or upon petition of an interested person, if FDA determines that a 510(k) is not necessary to provide reasonable assurance of the safety and effectiveness of the device. This section requires FDA to publish in the Federal Register a notice of intent to exempt a device, or of the petition, and to provide a 30-day comment period. Within 120 days of publication of this document, FDA must publish in the Federal Register its final determination regarding the exemption of the device that was the subject of the notice. If FDA fails to respond to a petition under this section within 180 days of receiving it, the petition shall be deemed granted.

FDA classified the urinary glucose (nonquantitative) test system into class II effective July 30, 1987 (52 FR 16102 at 16122, May 1, 1987). The classification for urinary glucose (nonquantitative) test system is at § 862.1340 (21 CFR 862.1340). The urinary glucose (nonquantitative) test system is identified as a device that is intended to measure glucosuria (glucose in urine). Urinary glucose (nonquantitative) measurements are used in the diagnosis and treatment of carbohydrate metabolism disorders including diabetes mellitus, hypoglycemia, and hyperglycemia. Devices under this classification regulation require premarket notification under section 510(k) of the FD&C Act.

There are a number of factors FDA may consider to determine whether a 510(k) is necessary to provide reasonable assurance of the safety and effectiveness of a class II device. These factors are discussed in the guidance the Agency issued on February 19, 1998, entitled “Procedures for Class II Device Exemptions from Premarket Notification, Guidance for Industry and CDRH Staff” (Ref. 1). Accordingly, FDA generally considers the following factors to determine whether premarket notification is necessary: (1) The device does not have a significant history of false or misleading claims or risks associated with inherent characteristics of the device; (2) characteristics of the device necessary for its safe and effective performance are well established; (3) changes in the device that could affect safety and effectiveness will either (a) be readily detectable by users by visual examination or other means such as routine testing, before causing harm, or (b) not materially increase the risk of injury, incorrect diagnosis, or ineffective treatment; and (4) any changes to the device would not be likely to result in a change in the device's classification. FDA may also consider that, even when exempting devices, these devices would still be subject to the limitations on exemptions.

On January 7, 2016, FDA received a petition requesting an exemption from premarket notification requirements for copper reduction tablet tests that are classified as class II devices under § 862.1340, urinary glucose (nonquantitative) test system, from Evelyn Mirza, Biorex Labs, LLC. (See Docket No. FDA-2016-P-0159).

On March 24, 2016 (81 FR 15728), FDA published a notice in the Federal Register announcing that this petition had been received and provided an opportunity for interested persons to submit comments on the petition by April 25, 2016, in accordance with section 510(m)(2) of the FD&C Act. FDA received no comments regarding this petition.

FDA has completed review of the previously referenced petition and assessed the need for 510(k) clearance for copper reduction tablet test against the criteria laid out in section II. For the reasons described in section IV, FDA has determined that premarket notification is necessary to provide a reasonable assurance of the safety and effectiveness of the copper reduction tablet tests classified under § 862.1340 and assigned the classification product code JIM. Accordingly, FDA responded to the petition by letter dated July 1, 2016, denying the petition within the 180-day timeframe under section 510(m)(2) of the FD&C Act. (See Docket No. FDA-2016-P-0159.)

After reviewing the petition, FDA has determined that the petition failed to provide information to demonstrate that premarket notification is not necessary to provide reasonable assurance of the safety and effectiveness of the device. Accordingly, FDA is denying the previously referenced petition for exemption from the premarket notification requirements.

With regard to the first factor (section II, Criteria for Exemption), although there have been no medical device reports reported to the Agency in recent years, there have been numerous reports to the Agency 1 and in medical literature of risks associated with the inherent characteristics of this device, including possible device-associated deaths, serious injuries, and malfunctions such as burns, explosions of the product bottle due to heat, and consumption of the device. For instance, there have been reports in the medical literature of patients consuming the tablets because of their similarity to pills, which has led to poisoning and one report of a death. Therefore, FDA does not agree with the petitioner that the use of the device is well established without any reports of patient or user injury, or that the device does not have a significant history of risks associated with inherent characteristics of the device.

Additionally, failure to observe the reaction at all times after the tablet has been added to the sample is another risk associated with the inherent characteristics of the device. This can lead to a false-negative result and result in improper patient management, which can lead to serious injury or possibly death. The petition failed to demonstrate how the device's inherent risks can be mitigated or controlled without premarket notification to provide a reasonable assurance of the safety and effectiveness of the device.

With regard to the second factor, the petition stated that a copper reduction tablet test can be used to evaluate pediatric patients for possible hereditary metabolic disorders through detection of reducing substances. For example, although all States require mandatory newborn screening for genetic metabolic defects, clinical laboratories may still use this device as a screening test on pediatric urine samples if there are any suspicions of metabolic disease prior to receiving newborn screening results or if the newborn screening results do not match the clinical state of the newborn. Although further diagnostic testing may be performed to confirm the result(s), physicians may immediately treat the newborn relying solely on the result of this test while awaiting the results for any followup diagnostic tests. False negative results also present a safety and effectiveness concern because followup diagnostic testing may not be performed, leading to the failure to start needed treatment for the newborn. The petition also stated that this device is used in the diagnosis, monitoring, and treatment of metabolic disorders such as diabetes mellitus. However, the petition failed to demonstrate that a premarket submission is not necessary to provide a reasonable assurance of the safety and effectiveness of the device for such uses, and FDA does not agree that the characteristics of the device necessary for its safe and effective use are well established.

With regard to the third factor, FDA also does not agree that changes in the device that could affect safety and effectiveness will either be readily detectable or not materially increase risks. For example, available quality control materials may contain glucose but do not contain other reducing sugars (e.g., galactose, lactose). Therefore, such materials might not readily detect an issue with the device's safety or effectiveness in detecting other reducing sugars, before causing harm. The petition provided insufficient information to support the position that changes in the device that could affect safety and effectiveness will either be readily detectable or not materially increase risks. Moreover, changes in the device that could affect safety and effectiveness might materially increase the risk of injury, incorrect diagnosis, or ineffective treatment given the device type's intended uses. The petition also did not provide information to the contrary. The petition did not provide any information regarding the fourth factor.

In addition to these four factors, FDA considers the “limitations on exemption.” Manufacturers of any commercially distributed device for which FDA has granted an exemption from the requirement of premarket notification must still submit a premarket notification to FDA prior to marketing the device when any of the limitations of exemption are exceeded. The general limitations of exemption from premarket notification contained in § 862.9 (21 CFR 862.9) are broadly applicable to in vitro diagnostic (IVD) devices classified under part 862 (21 CFR part 862). Under § 862.9, the exemption from the premarket notification requirements applies, in the case of IVD devices, only to those devices under part 862 for which misdiagnosis, as a result of using the device, would not be associated with high morbidity or mortality. FDA has previously assessed that this limitation is exceeded, and a premarket notification is necessary to provide a reasonable assurance of the safety and effectiveness of an IVD device, when such device is intended for use in screening or diagnosis of familial or acquired genetic disorders, including inborn errors of metabolism (§ 862.9(c)(2)) or intended for use in diabetes management (§ 862.9(c)(5)). The copper reduction tablet test described in the petition is intended for such uses and would likely exceed the limitations just described.

Accordingly, for all of the foregoing reasons, the petition failed to demonstrate that a premarket submission is not necessary to provide a reasonable assurance of the safety and effectiveness of the device intended for such uses. Therefore, FDA is issuing this order denying the petition requesting exemption for a method, metallic reduction, glucose (urinary, nonquantitative) test system in a reagent tablet format that is intended to measure glucosuria (glucose in urine) from the premarket notification requirements. Manufacturers of this device type must continue to submit and receive FDA clearance of a 510(k) before marketing their device, as well as comply with all other applicable requirements under the FD&C Act.

The following reference is on display in the Division of Dockets Management (HFA-305), Food and Drug Administration, 5630 Fishers Lane, Rm. 1061, Rockville, MD 20852, and is available for viewing by interested persons between 9 a.m. and 4 p.m., Monday through Friday; it is also available electronically at http://www.regulations.gov. FDA has verified the Web site address, as of the date this document publishes in the Federal Register, but Web sites are subject to change over time.

I. Background

The Consolidated and Further Continuing Appropriations Act, 2015 (Public Law 113-235, approved December 16, 2014) (2015 Appropriations Act) provided that “the Secretary shall collect fees from borrowers . . . to result in a credit subsidy cost of zero for guaranteeing” Section 108 loans. The Continuing Appropriations Act, 2016 (Public Law 114-53, approved September 30, 2015) continued the 2015 provision. This continued funding act was followed by The Consolidated Appropriations Act, 2016, Public Law 114-133, approved December 18, 2015) (2016 Appropriations Act), which had identical language regarding Section 108 credit subsidy to the 2015 Appropriations Act. The fiscal year 2017 HUD appropriations bills under consideration in the House of Representatives (H.R. 5394), and the Senate (S. 2844) also have identical language regarding the credit subsidy for the Section 108 Program, and it is expected that, when enacted, the final fiscal year 2017 appropriations act will as well.

On November 3, 2015, HUD published a final rule (80 FR 67626) following a February 5, 2015 proposed rule (80 FR 6470) that amended the Section 108 Program regulations at 24 CFR part 570 to establish additional procedures, including procedures for determining the amount of the fee and for a 30-day public comment process when HUD adopts changes to the assumptions underlying the fee calculation or if the fee structure itself raises new considerations for borrowers.

HUD is required to collect fees from Section 108 borrowers when necessary to offset the credit subsidy costs to the Federal government to guarantee Section 108 loans. Following consideration of the public comments submitted in response to HUD's February 5, 2015 proposed rule (80 FR 6469) that proposed the fee required to offset the credit subsidy costs, on November 3, 2015, HUD issued an announcement of fee (80 FR 67634) to set the fee for Section 108 loan disbursements under loan guarantee commitments awarded in FY 2016 at 2.58 percent of the principal amount of the loan.

This document sets the fee for Section 108 loan disbursements under loan guarantee commitments awarded in FY 2017 at 2.59 percent of the principal amount of the loan. This amount was proposed in the President's FY 2017 budget.1 HUD will collect this fee from borrowers of loans guaranteed under the Section 108 Program to offset the credit subsidy costs of the guaranteed loans pursuant to commitments awarded in FY 2017, as authorized by the 2017 appropriations act.

For this fee document, HUD is not changing the underlying assumptions or creating new considerations for borrowers. The calculation of the FY 2017 fee uses the same fee calculation model as the FY 2016 announcement of fee, but incorporates updated information regarding the composition of the Section 108 portfolio and the timing of the estimated future cash flows for defaults and recoveries. The calculation of the fee is also affected by the discount rates required to be used by HUD when calculating the present value of the future cash flows as part of the Federal budget process.

As described in 24 CFR 570.712(b), HUD's credit subsidy calculation is based on the amount required to fully offset the credit subsidy cost to the Federal government associated with making a Section 108 loan guarantee. As a result, HUD's credit subsidy cost calculations incorporated assumptions based on: (i) data on default frequency for municipal debt where such debt is comparable to loans in the Section 108 loan portfolio; (ii) data on recovery rates on collateral security for comparable municipal debt; (iii) the expected composition of the Section 108 portfolio by end users of the guaranteed loan funds (e.g., third party borrowers and public entities); and (iv) other factors that HUD determined were relevant to this calculation (e.g., assumptions as to loan disbursement and repayment patterns).

Taking these factors into consideration, HUD determined that the fee for disbursements made under loan guarantee commitments awarded in FY 2017 will be 2.59 percent, which will be applied only at the time of loan disbursements. Note that future documents may provide for a combination of up-front and periodic fees for loan guarantee commitments awarded in future fiscal years but, if so, will provide the public an opportunity to comment if appropriate under 24 CFR 570.712(b)(2).

The expected cost of a Section 108 loan guarantee is difficult to estimate using historical program data because there have been no defaults in the history of the program that required HUD to invoke its full faith and credit guarantee or use the credit subsidy reserved each year for future losses.2 This is due to a variety of factors, including the availability of Community Development Block Grant (CDBG) funds as security for HUD's guarantee as provided in 24 CFR 570.705(b). As authorized by Section 108 of the Housing and Community Development Act of 1974, as amended (42 U.S.C. 5308), borrowers may make payments on Section 108 loans using CDBG grant funds. Borrowers may also make Section 108 loan payments from other anticipated sources but continue to have CDBG funds available should they encounter shortfalls in the anticipated repayment source. Despite the program's history of no defaults, federal credit budgeting principles require that the availability of CDBG funds to repay the guaranteed loans cannot be assumed in the development of the credit subsidy cost estimate (see 80 FR 67629, November 3, 2015). Thus, the estimate must incorporate the risk that alternative sources are used to repay the guaranteed loan in lieu of CDBG funds, and that those sources may be insufficient. Based on the rate that CDBG funds are used annually for repayment of loan guarantees, HUD's calculation of the credit subsidy cost must take into account the possibility of future defaults if those CDBG funds were not available. The fee of 2.59 percent of the principal amount of the loan will offset the expected cost to the government due to default, financing costs, and other relevant factors. To arrive at this measure, HUD analyzed data on comparable municipal debt over an extended 16 to 23-year period. The estimated rate is based on the default and recovery rates for general purpose municipal debt and industrial development bonds. The cumulative default rates on industrial development bonds (14.62 percent) were higher than the default rates on general purpose municipal debt (0.25 percent) during the period from which the data were taken. (The recovery rates for industrial development bonds and general purpose debt were 74.76 and 90.27 percent, respectively.) These two subsectors of municipal debt were chosen because their purposes and loan terms most closely resemble those of Section 108 guaranteed loans. In this regard, Section 108 guaranteed loans can be broken down into two categories: (1) loans that finance public infrastructure and activities to support subsidized housing (other than financing new construction) and (2) other development projects (e.g., retail, commercial, industrial). The 2.59 percent fee was derived by weighting the default and recovery data for general purpose municipal debt and the data for industrial development bonds according to the expected composition of the Section 108 portfolio by corresponding project type. Based on the dollar amount of Section 108 loan guarantee commitments awarded during the period from FY 2011 through FY 2015, HUD expects that 25 percent of the Section 108 portfolio will be similar to general purpose municipal debt and 75 percent of the portfolio will be similar to industrial development bonds. In setting the fee at 2.59 percent of the principal amount of the guaranteed loan, HUD expects that the amount generated will fully offset the cost to the Federal government associated with making guarantee commitments awarded in FY 2017. Note that the FY 2017 fee represents only a .01 percent increase over the FY 2016 fee of 2.58 percent. This is due primarily to updated loan repayment patterns and discount rates used in calculating the present value of cash flows. These are variable that ordinarily are modified in the credit subsidy calculation.

This document establishes a rate that does not constitute a development decision that affects the physical condition of specific project areas or building sites. Accordingly, under 24 CFR 50.19(c)(6), this document is categorically excluded from environmental review under the National Environmental Policy Act of 1969 (42 U.S.C. 4321).

Background

This document contains final regulations that amend the Income Tax Regulations (26 CFR part 1) relating to the credit for increasing research activities (research credit) under section 41 of the Internal Revenue Code (Code). Section 41(d)(4)(E) provides that, except to the extent provided by regulations, research with respect to software that is developed by (or for the benefit of) the taxpayer primarily for internal use by the taxpayer is excluded from the definition of qualified research under section 41(d). Software that is developed for use in an activity that constitutes qualified research for purposes of section 41(d) and software that is developed for use in a production process with respect to which the general credit eligibility requirements under section 41 are satisfied are internal use software, but are not excluded under section 41(d)(4)(E) from the definition of qualified research and are not subject to these regulations.

On January 20, 2015, the Treasury Department and the IRS published in the Federal Register (80 FR 2624, January 20, 2015) a notice of proposed rulemaking (REG-153656-03, 2015-5 IRB 566) under section 41 (the proposed regulations) relating to the research credit. Comments responding to the proposed regulations were received and a public hearing was held on April 17, 2015. After consideration of all of the comments received, these final regulations adopt the proposed regulations as revised by this Treasury decision.

The proposed regulations provided that software is developed by (or for the benefit of) the taxpayer primarily for internal use if the software is developed by the taxpayer for use in general and administrative functions that facilitate or support the conduct of the taxpayer's trade or business. General and administrative functions, as defined in the proposed regulations, are limited to (1) financial management functions, (2) human resource management functions, and (3) support services functions. Financial management functions are functions that involve the financial management of the taxpayer and the supporting recordkeeping. Human resource management functions are functions that manage the taxpayer's workforce. Support services functions are functions that support the day-to-day operations of the taxpayer, such as data processing or facilities services.

Commenters expressed concern that the list of general and administrative functions in the proposed regulations was overly broad and included functions that do not represent “back-office” functions. In particular, the commenters noted that inventory management, marketing, legal services, and government compliance services can provide significant benefits to third parties and may be developed to enable a taxpayer to interact with third parties or to allow third parties to initiate functions or review data on the taxpayer's system. Specifically, one commenter noted that many inventory management software applications are an integral part of a taxpayer's supply chain management system and can be readily seen as part of the modern “front office.” This commenter noted that modern inventory management software usually requires interaction with a number of third party vendors to ensure the correct flow of raw materials and a corresponding flow of finished goods. Additionally, the commenter added that inventory management is inherently customer facing because it provides the proper amount of inventory to customers at the point of sale at the right time. Another commenter added that marketing is an external-facing function by nature, and software that supports marketing is necessarily intended to interact with third parties.

The Treasury Department and the IRS understand that many modern software systems perform more than back-office functions. These software systems commonly provide benefits to vendors and include functions that are customer facing. Additionally, software with functions such as marketing or inventory management may not provide solely back-office functions, but may also contain functions that enable a taxpayer to interact with third parties or to allow third parties to initiate functions or review data on the taxpayer's system. Recognizing such situations, the proposed regulations provided rules under § 1.41-4(c)(6)(iv)(C) (dual function rules) to evaluate whether software that has both back-office and front-office functions is developed primarily for internal use. The Treasury Department and the IRS continue to believe that functions such as inventory management, marketing, legal services, and government compliance services provide support to day-to-day operations of a taxpayer in carrying on business regardless of the taxpayer's industry and that the benefits that such functions may provide to third parties are collateral and secondary. In addition, the Treasury Department and the IRS believe the dual function rules in these final regulations sufficiently address these comments by allowing taxpayers to identify subsets of elements of dual function software that only enable a taxpayer to interact with third parties or allow third parties to initiate functions or review data. Accordingly, the list of general and administrative functions provided in the proposed regulations remains unchanged in the final regulations.

Another commenter referred to the tax software example in the preamble to the proposed regulations which notes that tax software developed by a company engaged in providing tax services to its customers is not used by the taxpayer in general and administrative functions even though tax is listed under § 1.41-4(c)(6)(iii)(B)(1) of the proposed regulations, as a general and administrative function. The commenter requested that we make this concept more explicit by revising § 1.41-4(c)(6)(iii)(A) of the proposed regulations and providing additional examples. As discussed in the preamble to the proposed regulations, the list of general and administrative functions is intended to target the back-office functions that most taxpayers would have regardless of the taxpayer's industry, although the characterization of a function as back office will vary depending on the facts and circumstances of the taxpayer. Because § 1.41-4(c)(6)(v) of these final regulations makes clear that the determination of whether software is developed primarily for internal use depends on the intent of the taxpayer and the facts and circumstances at the beginning of software development, the Treasury Department and the IRS believe that additional clarifying language and examples are unnecessary.

The proposed regulations provided that software is not developed primarily for internal use only if it is developed to be commercially sold, leased, licensed, or otherwise marketed to third parties, or if it is developed to enable a taxpayer to interact with third parties or to allow third parties to initiate functions or review data on the taxpayer's system. After consideration of the comments described herein, these final regulations clarify that (1) software is not developed primarily for the taxpayer's internal use if it is not developed for use in general and administrative functions that facilitate or support the conduct of the taxpayer's trade or business; and (2) software that is developed to be commercially sold, leased, licensed, or otherwise marketed to third parties and software that is developed to enable a taxpayer to interact with third parties or to allow third parties to initiate functions or review data on the taxpayer's system are examples of software that is not developed primarily for the taxpayer's internal use.

A commenter requested that § 1.41-4(c)(6)(iv)(A)(1) of the proposed regulations be revised to state that software is not developed primarily for the taxpayer's internal use if the software is developed to be commercially sold, leased, licensed, hosted, or otherwise marketed to third parties. (Emphasis added.) The commenter also recommended additional language to further define “otherwise marketed” to include transactions where the taxpayer effectively provides the functionality of the software to a third party even if there is no transfer of a copy of the software itself to such third party. The Treasury Department and the IRS understand that a taxpayer may develop software where the full functionality of that software is provided to a third party even though there is no transfer of a copy of the software. The Treasury Department and the IRS believe the phrase “software that is developed to be commercially sold, leased, licensed or otherwise marketed to third parties” is sufficiently broad to encompass hosted software and other software where there is no transfer of a copy of the software. An example has been added to further illustrate this point (Example 9 of these final regulations).

Several commenters requested clarification on the terms “interact,” “initiate,” or “review,” and recommended additional examples illustrating the terms. One commenter noted that a common example that should be clarified is whether a third party reviewing a Web site constitutes “interaction,” “initiate functions,” or “review data.” In response to these comments, the final regulations clarify that software that is developed to enable a taxpayer to interact with third parties or to allow third parties to initiate functions or review data on the taxpayer's system are examples of software that is not developed primarily for the taxpayer's internal use. In addition, these final regulations provide that the determination of whether software is internal use or developed to enable a taxpayer to interact with third parties or to allow third parties to initiate functions or review data on the taxpayer's system depends on the intent of the taxpayer and the facts and circumstances at the beginning of the software development. Accordingly, Example 3 of the proposed regulations, now designated as Example 4 in these final regulations, is revised to show that software developed with the intent of marketing via a Web site and not to allow third parties to review data on the taxpayer's system is developed for internal use because it was developed for use in a general and administrative function.

In the proposed regulations, the Treasury Department and the IRS requested comments on the appropriate definition and treatment of connectivity software that allows multiple processes running on one or more machines to interact across a network, sometimes referred to as bridging software, integration software, or middleware. The Treasury Department and the IRS received very few responses to this request for comments. One of the commenters noted that the treatment of such software is challenging because of its multi-faceted purposes; it could fall within a category in which it is not sold, does not interact with a third party, and does not perform a general and administrative function. The other commenter recommended that the regulations provide a general rule for connectivity software that is tied to the intent of the taxpayer and the facts and circumstances at the beginning of the software development and that the regulations provide examples demonstrating the rule. In addition, with respect to this category of software, the Treasury Department and the IRS understand that with wide use and availability of enterprise resource planning (ERP) software, few companies actually engage in developing connectivity software. Connectivity software is often purchased or the need for it has diminished due to the use of ERP software.

After further consideration of business practices and the limited comments received, the Treasury Department and the IRS believe that a special rule for connectivity software is not needed. The final regulations clarify that software is not developed by (or for the benefit of) the taxpayer primarily for the taxpayer's internal use if the software is not developed for use in general and administrative functions. Accordingly, any software that is not developed to be used in a general and administrative function will not be considered to be developed for internal use. This is the case even if the software is not developed to be commercially sold, leased, licensed, or otherwise marketed to third parties, or is not developed to enable a taxpayer to interact with third parties or to allow third parties to initiate functions or review data on the taxpayer's system.

Furthermore, connectivity software should not be specifically identified or categorized differently from other types of software. Whether certain software is developed to be used primarily for internal use should be based on the function the software provides, rather than the type of software. For example, connectivity software that is developed to connect a taxpayer's existing payroll software with financial budgeting software to allow an exchange of data between the two software modules would be considered to be developed for the taxpayer's internal use because the connectivity software's function is to be used in human resources and financial management functions. Accordingly, the Treasury Department and the IRS believe that the general rule in the final regulations to determine whether or not software is developed primarily for internal use already provides sufficient guidance for connectivity software. Whether software, including connectivity software, is developed for use in general and administrative functions depends upon the intent of the taxpayer and the facts and circumstances at the beginning of the software development.

The proposed regulations provided that whether software is or is not developed primarily for internal use depends upon the intent of the taxpayer and the facts and circumstances at the beginning of the software development. If a taxpayer originally develops software primarily for internal use but later makes improvements to the software with the intent to hold the improved software for commercial sale, lease, or license or to allow third parties to initiate functions or review data on the taxpayer's system, the improvements will be considered separate from the existing software and will not be considered developed primarily for internal use. Likewise, if a taxpayer originally develops software for commercial sale, lease, or license or to interact with third parties or to allow third parties to initiate functions or review data on the taxpayer's system, but later makes improvements to the software with the intent to use the software in general and administrative functions, the improvements will be considered separate from the existing software and will be considered developed primarily for internal use. After consideration of the comments described below, these final regulations retain these rules without modification.

A commenter explained that it is common for a taxpayer to initiate a software development project with one purpose in mind and to later discover that other purposes should be considered and pursued. Commenters also explained that it is common for a taxpayer to abandon its original intentions of how the software might be used. Commenters made several different recommendations, among them that the final regulations adopt a standard that allows facts at any point during the software development to be considered. Another suggested looking to the intended use of the software, and not just the improvements, as of the tax return filing date for the taxable year or the beginning of the taxable year in which the software development expenditures were incurred. One commenter further suggested that if the regulations require a determination at the beginning of the software development, the regulations should allow that determination to be rebutted with evidence about how the software is actually used when it is placed in service. Commenters also noted that taxpayers will likely have difficulty substantiating their intended use of the software at the beginning of the development process.

The Treasury Department and the IRS conclude that only a rule that generally requires that a determination be made at the beginning of software development is consistent with the intent and the purpose of section 41. Congress intended that the credit for increasing research activities would provide an incentive for greater private activity in research. That incentive nature of section 41 is promoted by taking into account a taxpayer's intent at the beginning of the software development; allowing any change in a taxpayer's intent throughout the development to support treatment as qualifying research of expenses incurred prior to that change would frustrate the purpose of the credit. Furthermore, allowing a taxpayer to redetermine the overall project's credit eligibility throughout the development which could span multiple years would provide uncertain and inconsistent treatment and impose an undue burden on both taxpayers and the IRS. Finally, the final regulations continue to provide a special rule for improvements to software that can be separately identified. This special rule would apply, for example, when a taxpayer completes a software development and then decides to improve that software by undertaking further development to the same software.

The proposed regulations provided that software developed by (or for the benefit of) the taxpayer both for use in general and administrative functions that facilitate or support the conduct of the taxpayer's trade or business and to enable a taxpayer to interact with third parties or to allow third parties to initiate functions or review data (dual function software) is presumed to be developed primarily for a taxpayer's internal use. However, this presumption is inapplicable to the extent that a taxpayer can identify a subset of elements of dual function software that only enables a taxpayer to interact with third parties or allows third parties to initiate functions or review data on the taxpayer's system (third party subset). The proposed regulations provided that if the taxpayer can identify a third party subset, the portion of qualified research expenditures allocable to such third party subset of the dual function software may be eligible for the research credit, provided all the other applicable requirements are met.

The Treasury Department and the IRS received several comments on dual function software rules. One commenter recommended changes to clarify that the dual function software rules do not apply to software developed to be commercially sold, leased, licensed, or otherwise marketed to third parties, even if such software was also developed to enable a taxpayer to interact with third parties or to allow third parties to initiate functions or review data on the taxpayer's system.

The Treasury Department and the IRS believe such clarification is unnecessary as § 1.41-4(c)(6)(iv)(C)(1) of the proposed regulations clearly defines dual function software as software that is developed by the taxpayer both for use in general and administrative functions and to enable a taxpayer to interact with third parties or to allow third parties to initiate functions or review data. Software that is developed to be commercially sold, leased, licensed, or otherwise marketed to third parties is not dual function software, even if such software was also developed to enable a taxpayer to interact with third parties or to allow third parties to initiate functions or review data on the taxpayer's system.

One commenter suggested that the “substantially all” and “shrink back” rules found in § 1.41-4(b)(2) can be easily applied to evaluate dual function software. If substantially all of the software is non-internal use, then all of the software should be considered non-internal use under the substantially all rule. Similarly, if substantially all of the software is internal use, then the software should be considered internal use. In the case where the software as a whole does not meet the substantially all rule, then the taxpayer would apply the shrink back rule and the software would be divided into subcomponents based on functionality until the non-internal use portion and the internal use portion were appropriately separated. That commenter noted that these two rules have worked for many years with little difficulty in other areas of the research credit rules and could be used equally well to address the issue of dual function software. Another commenter encouraged the addition of a rule to cover cases in which a taxpayer's dual function subset's third party use or interaction exceeds 80 percent. The commenter stated that in this circumstance, the remaining internal use is de minimis and should be disregarded and the entire development should be treated as not developed for internal use.

The shrink back rule provides that the requirements of section 41(d) and § 1.41-4(a) are to be applied first at the level of the discrete business component, that is, the product, process, computer software, technique, formula, or invention to be held for sale, lease, or license, or used by the taxpayer in a trade or business of the taxpayer. If these requirements are not met at that level, then they apply at the most significant subset of elements of the product, process, computer software, technique, formula, or invention to be held for sale, lease, or license. This shrinking back of the product is to continue until either a subset of elements of the product that satisfies the requirements is reached, or the most basic element of the product is reached and such element fails to satisfy the test.

The Treasury Department and the IRS believe that the proposed rules already apply principles similar to the shrink back rule to allow taxpayers to identify a subset of elements of dual function software that only enables a taxpayer to interact with third parties or allows third parties to initiate functions or review data on the taxpayer's system. The substantially all test referenced by the commenter is similar to the general credit eligibility requirement in section 41(d)(1)(C), which provides that in order for activities to constitute qualified research, substantially all of the activities must constitute elements of a process of experimentation that relates to a qualified purpose. Under § 1.41-4(a)(6), this substantially all requirement is satisfied only if 80 percent or more of a taxpayer's research activities, for the development or improvement of a business component, measured on a cost or other consistently applied reasonable basis, constitute elements of a process of experimentation. In contrast to the general requirement of section 41(d)(1) pertaining to qualifying research, section 41(d)(4)(E) does not apply the substantially all test when it excludes activities related to internal use software from qualifying research. Accordingly, the Treasury Department and the IRS believe the use of the substantially all test in these regulations is inappropriate, and the final regulations do not adopt the commenter's suggested approach.

Another commenter requested that the dual function rules be eliminated because the provisions are confusing and unnecessary and that trying to delineate elements of dual function software raises significant administrative issues. Similarly, another commenter noted that the concepts in the dual function rules can be confusing to taxpayers and will require additional recordkeeping by taxpayers. According to this commenter, most taxpayers do not differentiate their software applications by “third party interactions” or generally track such interactions. One commenter similarly stated that § 1.41-4(c)(6)(iv)(C) of the proposed regulations fails to take into account that software systems cannot always be broken into mutually exclusive subsets enabling only internal use or third party functionality.

Regarding the presumption that dual function software is developed for internal use, a commenter stated that such presumption is contrary to the intent of the statute. One commenter recommended that the presumption should be replaced with a primary purpose test, consistent with the statutory language that looks to whether software is developed “primarily” for internal use.

The Treasury Department and the IRS believe it is necessary to implement rules for dual function software as this type of software development is increasingly common in business practice. Rather than simply reiterating the “primarily” language in the statute, these regulations specifically identify the types of software functions that are considered to be primarily for internal use. A definition that specifically identifies the types of software functions that are considered to be primarily for internal use provides a clearer objective test that will provide consistency in application. The nature of software and its development has rapidly evolved over time, and the statute did not expressly address the treatment of dual function software. In conjunction with crafting a narrow definition of internal use, the Treasury Department and the IRS believe that the dual function software rules in the proposed regulations strike an appropriate balance between the administrative burdens and compliance concerns relating to claiming the research credit for activities relating to software. Thus, these final regulations retain the dual function rules. These final regulations are applicable to taxable years beginning on or after the date of their publication in the Federal Register. Taxpayers have been aware of the proposed rules and have had the opportunity to begin maintaining the necessary documentation to establish their entitlement to research credits under these rules.

The proposed regulations provided taxpayers with a safe harbor to apply to dual function software if there remains a subset of elements of dual function software (dual function subset) after the third party subset has been identified. The safe harbor allows a taxpayer to include 25 percent of the qualified research expenditures of the dual function subset in computing the amount of the taxpayer's credit, provided that the taxpayer's research activities related to the dual function subset constitute qualified research and the use of the dual function subset by third parties or by the taxpayer to interact with third parties is reasonably anticipated to constitute at least 10 percent of the dual function subset's use.

Some commenters requested that the safe harbor be removed from the regulations. Specifically, one commenter stated that the burdens associated with the safe harbor may be greater than its benefits and noted the multiple steps that a taxpayer must take to determine if it meets the safe harbor. Another commenter noted that the safe harbor complicates the administration of the credit for both taxpayers and the IRS.

Another commenter noted that the safe harbor potentially penalizes the taxpayer with the inequitable result of allowing only 25 percent of the qualified research expenditures. According to the commenter, given that a taxpayer must document anticipated use, it should then follow that the portion of software treated as third party facing should mirror this analysis. In other words, the proportion anticipated to be third party facing should be the proportion of software that is not developed primarily for internal use.

After careful consideration, the final regulations do not adopt these comments. However, the safe harbor has been modified to clarify that the safe harbor can be applied to the dual function software or the dual function subset after the application of § 1.41-4(c)(6)(vi)(B) of the final regulations. The safe harbor is not a requirement but an option available for taxpayers who cannot identify a third party subset, or after identification of a third party subset, still have a dual function subset. Without the safe harbor, dual function software or a dual function subset would be presumed to be internal use and the taxpayer would have to demonstrate that the research with respect to the dual function software or dual function subset meets the high threshold of innovation test in addition to the general eligibility requirements under section 41(d)(1). The safe harbor provides a benefit, not a detriment, to taxpayers, provided the dual function software or dual function subset's use by third parties is anticipated to be at least 10 percent of the total use. Taxpayers who consider it too burdensome to comply with the requirements of the safe harbor can choose not to rely upon it.

Several commenters noted concerns with the time of determination for the application of the safe harbor. A commenter noted that determining the percentage of third party use based upon an estimate made at the beginning of software development imposes an undue administrative burden and may not be an accurate reflection of the actual use once the software is released. This commenter requested that the rule be eliminated or amended to provide that a taxpayer must estimate third party use once the software is deployed. Similarly, another commenter noted that it has not been their experience that taxpayers plot out the future expected use of their software at the time the development begins with such specificity, especially given that software development is an iterative development process where functionality and expected uses rapidly evolve. Lastly, another commenter requested that, similar to the provisions for improvements to existing software, there should be a mechanism to recharacterize software over time.

While the Treasury Department and the IRS understand commenters' concerns, the final regulations do not change the requirement that the time of determination occur at the beginning of the software development. As discussed herein, the Treasury Department and the IRS continue to believe that the rule requiring that a determination be made at the beginning of the software development is most accurate and appropriate given Congress' intent that the research credit serve as an incentive to conduct qualifying research rather than an unanticipated reward for doing so.

In the proposed regulations, the Treasury Department and the IRS invited comments on the administrability of measuring the reasonably anticipated use of software by taxpayers to interact with third parties and by third parties to initiate functions or review data based on reasonable methods (such as processing time, amount of data transfer, number of software user interface screens, number of third party initiated functions, and other objective, reasonable methods) and whether the regulations should include specific reasonable methods and examples.

A commenter recommended that due to the wide range of taxpayers that will be subject to these regulations, the final regulations should not provide overly detailed examples of “reasonable methods.” This commenter noted that it should be clear that any examples of reasonable methods are for illustrative purposes only and any reasonable method may be acceptable. Another commenter recommended the adoption of the phrase “within each industry” to ensure that the application of the objective, reasonable method takes into account unique aspects of all taxpayers within given industries.

The Treasury Department and the IRS agree that it is unrealistic to impose one specific method that will be used to measure reasonably anticipated use due to the variety of industries that are subject to the final regulations. Therefore, the final regulations provide that any objective, reasonable method within the taxpayer's industry may be used for purposes of the safe harbor.

The proposed regulations provided that the term “third party” means any corporation, trade or business, or other person that is not treated as a single taxpayer with the taxpayer pursuant to section 41(f). A commenter raised concerns and requested that the Treasury Department and the IRS reconsider whether it is appropriate to apply the controlled group standard under section 41(f). The commenter contended that this third party definition would potentially deny a research credit to some software for artificial reasons. The commenter further noted that if the regulations do not modify the third party definition, taxpayers should at least have an opportunity to demonstrate that software provided to a member of the controlled group is not internal use software based on the facts and circumstances.

The Treasury Department and the IRS continue to believe that the use of the controlled group standard under section 41(f) is appropriate. A well established, objective standard is essential and using the standard in section 41(f) is consistent with the reference to section 41(f) in section 41(b)(2) relating to in-house research expenditures and in § 1.41-6(a)(3)(ii) relating to the definition of controlled group for purposes of aggregating expenditures.

The proposed regulations also provided that third parties do not include any persons that use the software to support the taxpayer's general and administrative functions that facilitate or support the conduct of the taxpayer's trade or business, e.g., the taxpayer's own vendors. A commenter contended that excluding any person that uses a taxpayer's software to support a general and administrative function from the definition of third party creates confusion and blurs a well-conceived, objective measurement. This commenter believes the term third party suggests a person who is external to the organization or a person who is not an employee. The Treasury Department and the IRS note that the statute provides a higher standard for internal use software, in part, because the benefits of such software are intended primarily for the taxpayer developing it. Where a taxpayer develops software for internal use, any benefit to others, such as vendors or those who provide support services to the taxpayer, is collateral and secondary. Accordingly, the final regulations do not adopt these comments requesting a change to the definition of third party.

The proposed regulations provided that certain internal use software is eligible for the research credit if the software satisfies the high threshold of innovation test, the three parts of which are (1) software is innovative in that the software would result in a reduction in cost or improvement in speed or other measurable improvement, that is substantial and economically significant, if the development is or would have been successful; (2) software development involves significant economic risk in that the taxpayer commits substantial resources to the development and there is a substantial uncertainty, because of technical risk, that such resources would be recovered within a reasonable period; and (3) software is not commercially available for use by the taxpayer in that the software cannot be purchased, leased, or licensed and used for the intended purpose without modifications that would satisfy the innovation and significant economic risk requirements. The proposed regulations further provided that substantial uncertainty exists if, at the beginning of the taxpayer's activities, the information available to the taxpayer does not establish the capability or method for developing or improving the software.

Several commenters requested that the final regulations include design uncertainty in the definition of technical risk for purposes of meeting the significant economic risk test. Commenters noted that both sections 174 and 41 have long included the concept of design uncertainty. Commenters also raised concerns that the statute and regulations do not define the concepts of capability, methodology, and design uncertainty. Commenters further explained that these three types of uncertainties are inherently related to each other, and it is often difficult for taxpayers to clearly state or describe which type of uncertainty they face.

The use of the word “substantial” before “uncertainty” in the significant economic risk test for internal use software indicates a higher threshold of uncertainty than that required for business components that are not internal use software. While there may be design uncertainty in the development of internal use software, substantial uncertainty generally exists only when there is also uncertainty in regard to the capability or method of achieving the intended result. However, the Treasury Department and the IRS understand that it is difficult to delineate the types of technical uncertainties and attempting to do so may lead to unnecessary burdens on both taxpayers and the IRS. Furthermore, the appropriate design uncertainty of internal use software may be inextricably linked to substantial uncertainty regarding capability or method. The focus of the significant economic risk test should be on the level of uncertainty that exists and not the types of uncertainty. For these reasons, the final regulations remove the reference to capability and method uncertainty. However, the Treasury Department and the IRS believe that internal use software research activities that involve only uncertainty related to appropriate design, and not capability or methodology, would rarely qualify as having substantial uncertainty for purposes of the high threshold of innovation test.

A commenter requested that the final regulations provide further explanation or examples on what constitutes “substantial resources” or a “reasonable time period” for purposes of meeting the significant economic risk test. The Treasury Department and the IRS believe that whether the amount of resources committed is substantial or whether substantial resources would be recovered within a reasonable time period are factual determinations to be resolved based on the taxpayer's facts and circumstances and, therefore, further explanation or examples would be too specific and not helpful. Accordingly, the final regulations do not adopt these comments.

Another commenter requested deletion of the statement, “[i]t is not always necessary to have a revolutionary discovery or creation of new technologies such as a new programming language, operating system, architecture, or algorithm to satisfy the high threshold of innovation test.” The commenter is concerned that the sentence can be read to imply that in some situations it will be necessary to have a revolutionary discovery to qualify internal use software for the research credit. The Treasury Department and the IRS did not intend the inclusion of this statement to have the interpretation suggested or taken by the commenter. Accordingly, the Treasury Department and the IRS agree that this statement should be removed from the final regulations because a revolutionary discovery is not required to meet the high threshold of innovation test.

Furthermore, the Treasury Department and the IRS are revising §§ 1.41-4(c)(6)(i) and (ii) of the proposed regulations to clarify that the internal use software rules under § 1.41-4(c)(6) do not apply to (1) software developed for use in an activity that constitutes qualified research, (2) software developed for use in a production process to which the requirements of section 41(d)(1) are met, and (3) a new or improved package of software and hardware developed together by the taxpayer as a single product. Accordingly, under the final regulations, the high threshold of innovation test applies only to the software developed for use in general and administrative functions that facilitate or support the conduct of the taxpayer's trade or business and to dual function software.

Section 1.41-4(a)(8) of the proposed regulations provided six new examples illustrating the application of the process of experimentation requirement to software under section 41(d)(1)(C).

One commenter noted that the examples appear to suggest a presumption that activities related to developing web design or ERP software do not meet the process of experimentation requirement. This commenter requested that the final regulations clearly state the reasons for such presumption. The proposed regulations and these final regulations do not establish a presumption against a particular type of software; rather these examples focus on the facts and circumstances surrounding activities to determine whether they involve a process of experimentation.

Another commenter requested that the final regulations include additional examples demonstrating fact patterns that do not initially qualify as a process of experimentation but where a change in facts introduces technical uncertainty that requires a process of experimentation. The final regulations could provide examples describing a particular change in facts that would introduce technical uncertainty and require a process of experimentation; however, because the examples are very factual and would differ based on a taxpayer's business, we do not think more examples would provide the clarification that the commenter is seeking. Accordingly, the final regulations do not include additional examples to address this comment.

Section 1.41-4(a)(8), Example 6, of the proposed regulations analyzed whether activities related to selecting a commercial software vendor with object-oriented functions and selecting and incorporating the specific functions into new software developed by X involved conducting a process of experimentation.

One commenter noted that the use of certain terms in Example 6, such as “develop,” “evaluate,” and “determine” suggest that the process of experimentation criteria may be met and recommended changes to clearly show that a purchase, installation, and selection from pre-determined categories do not meet a process of experimentation. We disagree with the commenter because the use or nonuse of certain terms is not an implication that the process of experimentation criteria has or has not been met. This example is intended to show that the process of experimentation requirement is not met regardless of the terms used. Accordingly, the final regulations do not adopt this comment.

Section 1.41-4(a)(8), Example 7, of the proposed regulations analyzed whether when developing software, activities relating to X's decision to use a separate server to distribute the workload across each of the web servers and X's decision that a round robin workload distribution algorithm is appropriate for its needs involved conducting a process of experimentation.

Two commenters recommended removing Example 7. One commenter believed that the example did not provide any clarification. The other commenter stated that the example shows a failure to meet the technical uncertainty requirement under section 174, rather than a process of experimentation. While the Treasury Department and the IRS agree with the commenter that activities under section 174 must be for the purpose of discovering information that would eliminate uncertainties, Example 7 is intended to demonstrate the process of experimentation requirement under section 41(d). The example shows a taxpayer's failure to meet the process of experimentation requirement under section 41(d)(1) because the use of a technique or design, such as a round robin workload distribution algorithm, does not qualify where the taxpayer did not conduct a process of evaluating alternatives intended to eliminate uncertainty regarding the development of software. Accordingly, the final regulations do not adopt these comments.

Section 1.41-4(a)(8), Example 8, of the proposed regulations analyzed whether X's activities relating to design and systematic testing and evaluation of several different algorithms in the development of load balancing software involved conducting a process of experimentation.

One commenter recommended that all references to the terms “dynamic” and “highly volatile” be removed because the commenter believes the terms provide no additional value and that they suggest that the nature of X's business environment has some bearing on the performance of qualified research. The Treasury Department and the IRS disagree and the final regulations do not adopt the commenter's recommendation because we believe the nature of a taxpayer's business environment can be a valuable indicator of circumstances that may result in the necessary uncertainty required for a process of experimentation.

Another commenter requested that for both Example 8 and Example 10, the Treasury Department and the IRS provide clarification by applying the high threshold of innovation test once the software is determined to be internal use software. Additionally, this commenter requested that the final regulations provide an additional example addressing this process. The Treasury Department and the IRS note that the examples are added to illustrate only the application of a process of experimentation to software research. They are not meant to address the high threshold of innovation test; those examples were provided under § 1.41-4(c)(6)(vi) of the proposed regulations. Furthermore, a comprehensive example that applies the rules contained in § 1.41-4(c)(6) would require more developed facts and layers of analysis and would be better suited for a different type of published guidance than these final regulations. Accordingly, the final regulations do not adopt these comments.

Section 1.41-4(a)(8), Example 9, of the proposed regulations analyzed whether X's activities relating to the installation of an ERP system involved a process of experimentation.

Two commenters requested deletion of the phrase “routine programming” in Example 9 because the term is subjective, immeasurable, and inconsistent with Suder v. Commissioner, T.C. Memo 2014-201. One commenter also stated that taxpayers may confront uncertainty about the appropriate design of the configuration of an ERP system, and the example does not address this technical uncertainty. The Treasury Department and the IRS did not intend to illustrate in this example the types of uncertainty that must be eliminated to satisfy the process of experimentation requirement under section 41(d)(1). Rather, this example demonstrates a taxpayer's failure to meet the process of experimentation requirement under section 41(d)(1) because X did not conduct a process of evaluating alternatives in order to eliminate uncertainty regarding the development of the ERP software. Accordingly, the Treasury Department and the IRS believe further clarification of these examples is unnecessary. Furthermore, the Tax Court's decision in Suder is not inconsistent with Example 9 because in Suder the court did not address whether “routine programming” could meet the process of experimentation requirement.

The proposed regulations provided examples illustrating the provisions contained in § 1.41-4(c)(6) of the proposed regulations.

Section 1.41-4(c)(6)(vi), Example 3, of the proposed regulations analyzed whether software that is developed for a Web site that provides general information about the taxpayer's business, and which does not enable a taxpayer to interact with third parties or allow third parties to initiate functions or review data, is internal use software.

One commenter disagreed with the characterization of the facts in Example 3 which illustrates a support services function. The commenter believes that the software is dual function software that is developed to allow a third party to review data and to be used in marketing. The Treasury Department and the IRS disagree with the commenter's characterization of Example 3. The example demonstrates that the software is intended to serve marketing purposes and thus is developed to be used in general and administrative functions. Changes were made to clarify this example which is designated as Example 4 of the final regulations.

Section 1.41-4(c)(6)(vi), Example 6, of the proposed regulations analyzed the definition of third parties, specifically whether software that is developed to allow its users to upload and modify photographs at no charge allows third parties to initiate functions on the taxpayer's system.

A commenter believed the example is an important example that comes to the correct conclusion, but the commenter believed it is not a particularly good fact pattern to illustrate the third party interaction exclusion. Specifically, the commenter requested changes to the conclusion of the example to show that the advertising software is developed for use in a marketing function to an unrelated third party.

The purpose of the example is to illustrate the third party definition and to demonstrate whether the software is developed to allow third parties to initiate functions or review data. The example is not meant to address which, if any, general and administrative function applies to the software. Accordingly, the final regulations do not adopt this comment. However, other changes were made to clarify Example 6 of the proposed regulations, which is designated as Example 8 of the final regulations.

Some commenters requested that the final regulations apply retroactively back to 1986, while one commenter requested that the final regulations apply retroactively back to 2004 to give software development equal treatment with all other types of qualified research as defined under TD 9104 (69 FR 22). After further consideration, the effective date in the proposed regulations is generally retained with slight modifications. These final regulations are prospective and apply to taxable years beginning on or after the date of publication of this Treasury decision in the Federal Register.

Retroactive application of these final regulations may provide an unfair advantage to taxpayers whose prior taxable years are not closed by the statute of limitations. Furthermore, retroactively determining whether taxpayers engaged in research activities does not further the purpose of section 41 which is to encourage taxpayers to engage in qualifying research activities within the United States and would impose a significant administrative burden on the IRS.

Section 41(d)(4)(E) provides that, except to the extent provided by regulations, research with respect to computer software that is developed by (or for the benefit of) the taxpayer primarily for internal use by the taxpayer is excluded from the definition of qualified research under section 41(d). The nature of software and its development has rapidly evolved over time. Recognizing the evolving nature of software technology and its role in business practices, these final regulations more narrowly define internal use software than the rules that apply for prior periods. These final regulations are not, and should not be viewed as, an interpretation of prior regulatory guidance. Software not developed for internal use under these final regulations, such as software developed to enable a taxpayer to interact with third parties, may or may not have been internal use software under prior law.

The proposed regulations provided that the 2004 ANPRM (published in the Federal Register (69 FR 43)) is withdrawn effective for taxable years beginning on or after January 20, 2015, the date the proposed regulations were published in the Federal Register (80 FR 2624). For taxable years ending before January 20, 2015, taxpayers may choose to follow either all of the internal use software provisions of § 1.41-4(c)(6) in the final regulations published on January 3, 2001 in the Federal Register (TD 8930; 66 FR 280) or all of the internal use software provisions of § 1.41-4(c)(6) contained in the proposed regulations (REG-112991-01) published on December 26, 2001 in the Federal Register (66 FR 66362). In addition, the IRS will not challenge return positions consistent with all of paragraph (c)(6) of these final regulations or all of paragraph (c)(6) of the proposed regulations for any taxable year that both ends on or after January 20, 2015, the date the proposed regulations were published in the Federal Register (80 FR 2624), and begins before October 4, 2016.

Some commenters noted the administrative difficulties of applying the duty of consistency rule under section 41(c)(6)(A) and requested guidance on how to comply with the consistency rule.

The duty of consistency is a statutory requirement and existing regulations under §§ 1.41-3(d) and 1.41-9(c) provide sufficient guidance for taxpayers to follow. In computing the research credit, qualified research expenses and gross receipts must be determined on a basis consistent with the definition of qualified research expenses and gross receipts for the credit year. These final regulations do not modify this existing law. Section 1.41-3(d) provides that in computing the credit for increasing research activities, qualified research expenses and gross receipts taken into account in computing a taxpayer's fixed-base percentage and a taxpayer's base amount must be determined on a basis consistent with the definition of qualified research expenses and gross receipts for the credit year, without regard to the law in effect for the taxable years taken into account in computing the fixed-base percentage or the base amount. Section 1.41-3(d) also provides examples illustrating the requirement. Current section 1.41-9(c) contains similar rules. Accordingly, the final regulations do not adopt the commenters' suggestions concerning the duty of consistency.

Certain IRS regulations, including this one, are exempt from the requirements of Executive Order 12866, as supplemented and reaffirmed by Executive Order 13563. Therefore, a regulatory impact assessment is not required. It 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, and because the regulations do not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Code, the notice of proposed rulemaking was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business, and no comments were received.

The principal author of these regulations is Martha M. Garcia, Office of the Associate Chief Counsel (Passthroughs and Special Industries), IRS. However, other personnel from the Treasury Department and the IRS participated in their development.

Accordingly, 26 CFR part 1 is amended as follows:

Purpose: This final rule responds to public comments to the interim final rule published on October 2, 2015. This rule implements statutory requirements for DoD contractors and subcontractors to report cyber incidents that result in an actual or potentially adverse effect on a covered contractor information system or covered defense information residing therein, or on a contractor's ability to provide operationally critical support. The mandatory reporting applies to all forms of agreements between DoD and DIB companies (contracts, grants, cooperative agreements, other transaction agreements, technology investment agreements, and any other type of legal instrument or agreement). The revisions provided are part of DoD's efforts to establish a single reporting mechanism for such cyber incidents on unclassified DoD contractor networks or information systems. Reporting under this rule does not abrogate the contractor's responsibility for any other applicable cyber incident reporting requirement. Cyber incident reporting involving classified information on classified contractor systems will be in accordance with the National Industrial Security Program Operating Manual (DoD-M 5220.22 (http://dtic.mil/whs/directives/corres/pdf/522022M.pdf)).

The rule also addresses the voluntary DIB CS information sharing program that is outside the scope of the mandatory reporting requirements. By modifying the eligibility criteria for the DIB CS program, the rule enables greater participation in the voluntary program. Expanding participation in the DIB CS program is part of DoD's comprehensive approach to counter cyber threats through information sharing between the Government and DIB participants.

Benefits: The DIB CS program allows eligible DIB participants to receive Government furnished information and cyber threat information from other DIB participants, thereby providing greater insights into adversarial activity targeting the DIB. The program builds trust between DoD and DIB and provides a collaborative environment for participating companies and DoD to share actionable unclassified cyber threat information that may be used to bolster cybersecurity posture. The program also offers access to government classified cyber threat information to better understand the threat, as well as providing technical assistance from the DoD Cyber Crime Center (DC3) including analyst-to-analyst exchanges, mitigation and remediation strategies, and best practices. Through cyber incident reporting and voluntary cyber threat information sharing, both DoD and the DIB have a better understanding of adversary actions and the impact on DoD information and warfighting capabilities.

Related Regulations: The definitions in the rule are consistent with Controlled Unclassified Information as used by the National Archives and Records Administration pursuant to Executive Order (E.O.) 13556 “Controlled Unclassified Information” (November 4, 2010) and 32 Code of Federal Regulations (CFR) 2002, “Controlled Unclassified Information” (September 14, 2016). The rule is also harmonized with Defense Federal Acquisition Regulation Supplement (DFARS) Case 2013-D018, “Network Penetration Reporting and Contracting for Cloud Services” and FAR Case 2011-020, “Basic Safeguarding of Contractor Information Systems.”

Authorities: The mandatory cyber incident reporting requirements support implementation of sections 391, 393, and 2224 of Title 10, United States Code (U.S.C); the Federal Information Security Modernization Act (FISMA), codified at 44 U.S.C. 3551 et seq.; and 50 U.S.C. 3330(e), and the Intelligence Authorization Act for Fiscal Year 2014. Cyber threat information sharing activities under this rule fulfill important elements of DoD's critical infrastructure protection responsibilities, as the sector specific agency for the DIB (see Presidential Policy Directive 21 (PPD-21), “Critical Infrastructure Security and Resilience,” available at https://www.whitehouse.gov/the-press-office/2013/02/12/presidential-policy-directive-critical-infrastructure-security-and-resil).

Associated Costs: Under this rule, contractors will incur costs associated with identifying and analyzing cyber incidents and their impact on covered defense information, or a contractor's ability to provide operationally critical support, and reporting those incidents to DoD. Contractors must obtain DoD-approved medium assurance certificates to ensure authentication and identification when reporting cyber incidents to DoD. Medium assurance certificates are individually issued digital identity credentials used to ensure the identity of the user in online environments. Certificates typically cost about $175 each. If a contractor submits five cyber incident reports and participates in the voluntary DIB CS program, the annual cost to the contractor is estimated at $1,045. If the contractor elects to receive classified information electronically, the cost to establish the capability is approximately $4,500. The Government incurs cost to collect and analyze cyber incident information and develop trends and other analysis products, analyze malicious software, analyze media, onboard new companies into the voluntary DIB CS information sharing program, and facilitate collaboration activities related to the cyber threat information sharing.

Cybersecurity and Privacy: A foundational element of the mandatory reporting requirements, as well as the voluntary DIB CS program, is the recognition that the information being shared between the parties includes extremely sensitive information that requires protection. For additional information regarding the Government's safeguarding of information received from the contractors that require protection, see the Privacy Impact Assessment (PIA) for DoD's DIB Cybersecurity Activities located at http://dodcio.defense.gov/IntheNews/PrivacyImpactAssessments.aspx. The PIA provides detailed procedures for handling personally identifiable information (PII), attributional information about the strengths or vulnerabilities of specific covered contractor information systems, information providing a perceived or real competitive advantage on future procurement action, and contractor information marked as proprietary or commercial or financial information.

DoD published an interim final rule on October 2, 2015 (80 FR 59581). Twenty-eight comments were received and reviewed by DoD in the development of this final rule. A discussion of the comments received and changes made to the rule as a result of those comments follows:

Comment: One respondent recommended that the rule be clarified to confirm the requirements in the rule are prospective to be implemented in new agreements or in modifying an existing agreement.

Response: There should be no confusion regarding the prospective effect and effective date of the rule, nor is there basis to infer or interpret the rule as being intended to apply retroactively or otherwise to mandate the modification of pre-existing agreements; however, DoD agrees that the rule enables the option to modify such pre-existing agreements where deemed appropriate. No change is made to the rule.

Comment: One respondent expressed concern about being unable to locate the text of Section 941 of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2013 in the U.S. Code.

Response: Section 941 of NDAA for FY13 has been codified at 10 U.S.C. 393 and all citations to this law have been updated accordingly.

Comment: One respondent recommended regularly conducting and releasing PIAs.

Response: DoD updates PIAs in accordance with DoD regulations and policy. DoD revised the PIA and published it in October 2015 (see http://dodcio.defense.gov/IntheNews/PrivacyImpactAssessments.aspx). No change is made to the rule.

Comment: Two respondents recommended publishing a report on the program's privacy implications and addressing personal information in internal contractor systems and that DoD address special procedures and protections for personal information.

Response: DIB CS program activities are in compliance with DoD and national policies for collecting, handling, safeguarding, and sharing sensitive information in accordance with DoD Directive 5400.11, “DoD Privacy Program” and 5400.11- Regulation, “Department of Defense Privacy Program,” which prescribes uniform procedures for implementation of and compliance with the DoD Privacy Program. Also, as noted in the immediately preceding response, the PIA for this program is also publicly available at http://dodcio.defense.gov/IntheNews/PrivacyImpactAssessments.aspx. In addition, DoD submits a privacy and civil liberties assessment of the DIB CS voluntary program for the annual Privacy and Civil Liberties Assessment Report required by E.O. 13636. No change is made to the rule.

Comment: One respondent stated that contractors are faced with multiple and sometimes conflicting reporting requirements for reporting cyber incidents from across the Government and even within DoD, and asserts that these reporting requirements should be clearly set forth in agreements with the Government. The respondent did not specifically identify any other cyber incident reporting requirements that might conflict with this rule.

Response: This rule consolidates and streamlines mandatory cyber incident reporting requirements and procedures originating from multiple separate statutory bases (e.g., 10 U.S.C. 391 and 393, and 50 U.S.C. 3330(e))—however, reporting under these procedures in no way abrogates the contractor's responsibility to meet other cyber incident reporting requirements that may be applicable based on other contract requirements, or other U.S. Government statutory or regulatory requirements (see § 236.4(p)). DoD is working to streamline reporting procedures within the Department, including by designating the DoD Cyber Crime Center (DC3) as the single DoD focal point for receiving cyber incident reporting affecting unclassified networks of DoD contractors. No change is made to the rule.

Comment: One respondent recommended that Congress repeal the requirement to establish procedures for mandatory cyber incident reporting.

Response: This rule implements mandatory statutory requirements for mandatory cyber incident reporting set forth in 10 U.S.C. 391 and 393 (§ 236.4(b)-(d)). No change is made to the rule.

Comment: Two respondents questioned the Department's use of specific terms and definitions in the rule. One respondent stated that “a violation of security policy of a system” that is a subset of the definition of “compromise” is very broad and could result in over reporting and overwhelming DoD's resources. Another respondent recommended that the scope of the rule should be narrowed to only information that relates to a “successful penetration.”

Response: The rule leverages established definitions from the Committee on National Security Systems Instruction No. 4009, “National Information (IA) Assurance Glossary,” (https://www.ncsc.gov/nittf/docs/CNSSI-4009_National_Information_Assurance.pdf). The term “successful penetration” is not in the CNSS glossary. However, the rule uses the established terms “cyber incident” and “compromise” from the CNSS glossary, which are widely accepted and understood Government definitions. Adhering to this definition will not overwhelm DoD resources. No change is made to the rule.

Comment: One respondent stated that the four categories of covered defense information are unclear and will hamper timely reporting.

Response: The definition of covered defense information has been clarified to more closely align with, and leverage, the Controlled Unclassified Information (CUI) Registry at http://www.archives.gov/cui/registry/category-list.html (§ 236.2).

Comment: One respondent stated the scope of a cyber incident “affecting the contractor's ability to provide operationally critical support” is so vague that it may result in over reporting.

Response: DoD designates the supplies or services that qualify as operationally critical support, and is developing procedures to ensure that contractors are notified when they are providing supplies or services designated as operationally critical support. If the contractor is unclear as to what specific supplies or services being provided have been designated as operationally critical, the contractor should request clarification from the DoD point of contact (e.g., contracting officer or agreements officer) for the agreement(s) governing the activity in question. No change is made to the rule.

Comment: One respondent stated that it is not clear why the rule now distinguishes information “created by or for DoD” from information “not created by DoD.”

Response: The distinction regarding whether information has been created by or for DoD originates from that distinction being an element of the underlying statutes that are implemented in this rule (e.g., 10 U.S.C. 391 and 393). The distinction is made in a variety of contexts—generally to reinforce the underlying reason for requiring the contractor to share information with DoD (e.g., as it relates to a potential compromise of information created by or for DoD in support of a DoD program), and to minimize the requirement to share or provide access to information that is not related to DoD programs or activities (e.g., except as necessary for forensics analysis regarding an incident in which DoD information may have been compromised). No change is made to the rule.

Comment: One respondent requested clarification of the purpose of, “Applicability and Order of Precedence,” and the meaning of the phrase “applicable laws and regulations” in § 236.4 of this rule.

Response: Section 236.4(a) mandates that the cyber incident reporting requirements of this rule be incorporated into all relevant types of agreements between DoD, but recognizes that in some cases an individual agreement may have terms or conditions that may be inconsistent with this rule, and allows the terms of the agreement to take precedence over the requirements of this rule only when the terms of the agreement “are authorized to have been included in the agreement in accordance with applicable laws and regulations.” The laws and regulations that are applicable to any individual agreement will depend on the nature and context of the agreement. For example, in the context of procurement contracts, the requirements of this rule are implemented through Defense Federal Acquisition Regulation Supplement (DFARS) Subpart 204.73, “Safeguarding Covered Defense Information and Cyber Incident Reporting,” and its associated clauses (e.g., DFARS 252.204-7009, and -7012). However, the FAR and DFARS also permit deviations from otherwise prescribed contract requirements under certain conditions, but not including cases when the deviation would be “precluded by law, executive order, or regulation” (see FAR 1.402). No change is made to the rule.

Comment: One respondent recommended that the phrase “all applicable agreements” in § 236.4(a) be clarified to identify the agreements that DoD intends to be covered by the rule.

Response: Section 236.4(a) has been revised to clarify that the rule applies to “all forms of agreements (e.g., contracts, grants, cooperative agreements, other transaction agreements, technology investment agreements, and any other type of legal instrument or agreement).” For example, these requirements are implemented for DoD procurement contracts through DFARS Subpart 204.73 and its associated clauses (e.g., DFARS 252.204-7009, and -7012).

Comment: One respondent raised issue about the practicality of the 72 hour reporting requirement.

Response: Timeliness in reporting cyber incidents is a key element in cybersecurity and provides the clearest understanding of the cyber threat targeting DoD information and the ability of companies to provide operationally critical support. The 72 hour reporting standard has been a part of the DIB CS program since it was first established as a pilot activity in 2008, and throughout its evolution into a permanent program and ultimate codification in the CFR in 2012. Based on this history, the 72 hour period has proven to be an effective balance of the need for timely reporting while recognizing the challenges inherent in the initial phases of investigating a cyber incident. Contractors should report available information within the 72 hour period and provide updates if more information becomes available. No change is made to the rule.

Comment: One respondent questioned the reporting by subcontractors and how DoD intends to enforce flow down of the clause and does DoD consider Internet Service Providers (ISPs) to fall in the category of subcontractors.

Response: Section 236.4(d) of the rule has been revised to clarify that contractors must flow down the reporting requirements to “subcontractors that are providing operationally critical support or for which subcontract performance will involve a covered contractor information system.” Whether these requirements would be required to flow down to an ISP would depend on whether the particular service(s) being provided would meet the flowdown criteria, and the implementation of these requirements for any specific type of agreement (e.g., for procurement contracts governed by the DFARS) may provide additional guidance regarding flowdown. The contractor should consult with the DoD point of contact for the relevant agreement (e.g., contracting officer or agreements officer) when it is uncertain if the requirements should flow down. Section 236.4(d) has been revised.

Comment: One respondent recommended that the rule establish what information a contractor must share with the Government under mandatory reporting.

Response: Contractors are required to report in accordance with § 236.4(b). A list of the reporting fields can be found at http://dibnet.dod.mil. These reporting fields include the statutory requirements set forth in 10 U.S.C. 391 and 393, including but not limited to an assessment of the impact of the cyber incident, description of the technique or method used, summary of information compromised. No change is made to the rule.

Comment: One respondent commented that the rule does not provide any mechanism for a contractor to raise concerns about, object to, or limit the data being provided due to its sensitivity.

Response: This rule implements mandatory information sharing requirements of 10 U.S.C. 391 and 393 by requiring DoD contractors to report key information regarding cyber incidents, and to provide access to equipment or information enabling DoD to conduct forensic analysis to determine if or how DoD information was impacted in a cyber incident. The rule's implementation of these requirements is tailored to minimize the sharing of unnecessary information (whether sensitive or not), including by carefully tailoring the information required in the initial incident reports (§ 236.4(c)), by expressly limiting the scope of the requirement to provide DoD with access to additional information to only such information that is “necessary to conduct a forensic analysis,” and by affirmatively requiring the Government to safeguard any contractor attributional/proprietary information that has been shared (or derived from information that has been shared) against any unauthorized access or use. In the event that the contractor believes that there is information that meets the criteria for mandatory reporting, but the contractor desires not to share that information due to its sensitivity, then the contractor should immediately raise that issue to the DoD point of contact (e.g., contracting officer or agreements officer) for the agreement(s) governing the activity in question, and if necessary, follow the dispute resolution procedures that are applicable to the agreement(s). No change is made to the rule.

Comment: One respondent asked how DoD will safeguard any contractor data provided as part of media once in DoD's possession, and what are the recourses for contractors in the event of a breach of those safeguards.

Response: DoD uses a wide variety of mechanisms to safeguard all forms of sensitive information, including information received from contractors, to ensure that information is accessed, used, and shared only with authorized persons for authorized purposes. For example, the DIB CS PIA addresses how PII and other sensitive information will be protected. No change is made to the rule.

Comment: One respondent stated that the rule lacks sufficient protections for contractor sensitive information that is provided to government support contractors, and the rule should provide such protections consistent with 10 U.S.C. 2320(f)(2) and DFARS 252.227-7025, “Limitations on the Use or Disclosure of Government-Furnished Information Marked with Restrictive Legends.”

Response: Responsibilities of government support contractors to protect sensitive information received from other contractors under this rule are addressed in § 236.4(m)(5) and are largely consistent with, although not identical to, the statutory provision and DFARS Clause cited by the commenter. In addition, the support contractor providing support for DoD's activities under this rule may also qualify as a “covered Government support contractor” under the cited DFARS clause, and thereby would already be subject to the cited DFARS clause. No change is made to the rule.

Comment: One respondent stated the information shared with the Government should only be used for cybersecurity purposes.

Response: 10 U.S.C. 391 and 393 provide specific authorization for sharing information received in cyber incident reports for a range of important activities that include, but are not limited to, cybersecurity activities (see § 236.4(m)(1)-(5)). Limiting the sharing of information to cybersecurity purposes only would be inconsistent with the statutory framework and would unnecessarily limit the use of information for critical activities such as law enforcement, counterintelligence, and national security. No change is made to the rule.

Comment: One respondent stated the rule provides no limitations on DoD's ability to share information with third-party contractors. It also imposes a confidentiality obligation upon receiving contractors but does not address measures needed to mitigate any potential conflicts of interest stemming from third-party access.

Response: Section 236.4(m)(5) authorizes sharing with government support contractors that are “directly supporting” Government activities under this rule, and applies a comprehensive set of use and non-disclosure restrictions and responsibilities for those government support contractors to safeguard the information they receive, including prohibiting the support contractor from using the information for any other purpose, making the reporting contractor a third-party beneficiary of the non-disclosure agreement with direct remedies for any breach of the restrictions by the support contractor. No change is made to the rule.

Comment: One respondent recommended the proposed rule should establish requirements for companies to remove PII before sharing with the Government and for the Government to remove upon receipt.

Response: The DIB CS program has implemented procedures to minimize the collection and sharing of PII. Companies are always asked to remove unnecessary PII, and only share information if it is relevant to a cyber incident (e.g., for forensics or cyber intrusion damage assessment). The PIA for DoD's DIB CS Activities provides procedures on how the Government handles PII, as well as other forms of sensitive contractor information (e.g., contractor attributional/proprietary). The PIA was updated and published in October 2015 (http://dodcio.defense.gov/IntheNews/PrivacyImpactAssessments.aspx). No change is made to the rule.

Comment: One respondent stated the rule places burden on the contractor to mark information as, “contractor attributional/proprietary,” but if it is not marked and subsequently submitted in response to request for images at the time of the cyber incident, Government must ensure, in absence of marking, obligation to protect information as contractor/attributional/proprietary.

Response: The rule requires that, to the maximum extent practicable, the contractor shall identify and mark attributional/proprietary information, but it does not condition the Government's safeguarding of such information on that identification or marking. The Government has established procedures for receiving, evaluating, anonymizing, safeguarding and sharing of such reported information in connection with cyber incidents involving contractor information and information systems. The DIB CS PIA provides more details regarding processes for handling PII and other sensitive information. No change is made to the rule.

Comment: One respondent stated that the rule should include provisions for liability protection.

Response: Liability protections established by 10 U.S.C. 391 and 393 became effective after the publication of the interim rule. The regulatory implementation of these new statutory elements will be addressed through future rulemaking activities to ensure the opportunity for public comment.

Comment: One respondent recommended expanding the number of commercial service providers under the Enhanced Cybersecurity Service (ECS) program, as part of the DIB CS program.

Response: The ECS program is managed by the Department of Homeland Security (DHS). Recommendations regarding ECS should be forwarded to DHS at [email protected]. No change is made to the rule.

Comment: One respondent cautioned against expanding the types of companies eligible for the DIB CS program until addressing all relevant operational, privacy, and security concerns. This expansion could encompass companies who provide services and products to the general public and current defense contractors who are not currently eligible to participate in the program.

Response: DoD has established eligibility requirements (§ 236.7) for participation in the DIB CS program and thus any future expansion or revision of this eligibility criteria will be accomplished in accordance with federal rulemaking requirements to allow for public review and comment. No change is made to the rule.

Comment: One respondent expressed concern about the burden of cost due to increased participation in the DIB CS program.

Response: The burden of cost for companies participating in the DIB CS program has been reduced. Under the revised rule, DoD removed the requirement for DIB CS participants to obtain access to DoD's secure voice and transmission systems supporting the program. All companies participating in the DIB CS program are still required to have a DoD-approved medium assurance certificate to enable encrypted unclassified information sharing between the Government and DIB CS participants. The cost of a DoD-approved medium assurance certificate has not changed and is approximately $175. No change is made to the rule.

Executive Orders 12866 and 13563 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, distribute 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,” although not economically significant, under section 3(f) of Executive Order 12866. Accordingly, the rule has been reviewed by the Office of Management and Budget (OMB).

It has been determined that this rule is not a “major” rule under 5 U.S.C. 801, enacted by Public Law 104-121, because it will not result in an annual effect on the economy of $100 million or more; a major increase in costs or prices for consumers, individual industries, Federal, State, or local Government agencies, or geographic regions; or significant adverse effects on competition, employment, investment, productivity, innovation, or on the ability of United States-based enterprises to compete with foreign-based enterprises in domestic and export markets.

It has been determined that this rule does not contain a Federal mandate that may result in expenditure by State, local and tribal Governments, in aggregate, or by the private sector, of $100 million or more in any one year.

It has been certified that this rule is not subject to the Regulatory Flexibility Act (5 U.S.C. Ch. 6) because it would not, if promulgated, have a significant economic impact on a substantial number of small entities. Therefore, the Regulatory Flexibility Act, as amended, does not require us to prepare a regulatory flexibility analysis.

This rule does contain reporting requirements under the Paperwork Reduction Act (PRA) of 1995. The collection requirements were published in the preamble of the interim final rule that was published on October 2, 2015 (80 FR 59581) for public comment. No comments were received for these collections. The Office of Management and Budget (OMB) Control Numbers are: 0704-0489, “DoD's Defense Industrial Base (DIB) Cybersecurity (CS) Activities Cyber Incident Reporting,” and 0704-0490, “DoD's Defense Industrial Base (DIB) Cybersecurity (CS) Program Points of Contact (POC) Information.”

It has been determined that this rule does not have federalism implications, as set forth in Executive Order 13132. This rule does not have substantial direct effects on:

(a) The States;

(b) The relationship between the National Government and the States; or

(c) The distribution of power and responsibilities among the various levels of Government.

Accordingly, the interim final rule published at 80 FR 59581 on October 2, 2015, is adopted as a final rule with the following changes:

On May 23, 2016, Louisiana Delta Adventures notified the Coast Guard that it will be conducting a paddle boat race from 10 a.m. to 2 p.m. on October 15, 2016. The paddle boats are to be launched from a boat ramp near mile marker 173.0 at D'Arbonne cutoff in the Ouachita River northwest of West Monroe, LA, and will proceed approximately 7.5 miles downriver to mile maker 166.5 near the Red River Market, Monroe, LA.

The Coast Guard has established special local regulations for similar events and determined that conducting paddle boat races in this portion of navigable waterway, paired with other activities and waterways usage in the area, presents potential safety hazards requiring this regulatory action.

The Coast Guard is issuing this temporary final rule without prior notice and opportunity to comment pursuant to authority under section 4(a) of the Administrative Procedure Act (APA) (5 U.S.C. 553(b)). This provision authorizes an agency to issue a rule without prior notice and opportunity to comment when the agency, for good cause, finds that those procedures are “impracticable, unnecessary, or contrary to the public interest.” Under 5 U.S.C. 553(b)(B), the Coast Guard finds that good cause exists for not publishing a notice of proposed rulemaking (NPRM) with respect to this rule because doing so would be impracticable. Although the event sponsor submitted an initial application for a marine event on May 23, 2016, final details of the event were not known to the Captain of the Port Memphis (COTP) until late August of 2016. This action is necessary to provide for the safety of life on navigable waters during the marine event. It is impracticable to publish an NPRM because we must establish this safety zone by October 15, 2016.

We are issuing this rule, and under 5 U.S.C. 553(d)(3), the Coast Guard finds that good cause exists for making it effective less than 30 days after publication in the Federal Register. For the same reasons discussed in the preceding paragraph, waiting for a 30 day notice period to run would be impracticable.

The Coast Guard is issuing this rule under authority in 33 U.S.C. 1233. The COTP has determined that potential hazards posed to participants of a paddle boat race in this section of river would be a safety concern for anyone transiting the river from mile marker 173 to 166.5. The purpose of this rulemaking is to ensure the safety of event participants and other waterway users in U.S. navigable waters within mile marker 173 to 166.5 before, during, and after the scheduled event.

This rule establishes a special local regulation from 10 a.m. until 2 p.m. on October 15, 2016. In light of the aforementioned hazards, the COTP has determined that a special local regulation is necessary to protect spectators, vessels, and participants. The special local regulation will encompass the following waterway: All waters of the Ouachita River between mile markers 173 and 166.5 in the vicinity of Monroe, LA.

The COTP or a designated on-scene representative will permit vessels to transit the area on a case-by-case basis. Commercial vessel operators desiring to transit through the regulated area must contact the COTP before doing so. The COTP or a designated on-scene representative may be contacted via VHF Channel 16 or by telephone at 1-866-777-2784. During enforcement, all vessels are to proceed at slowest speed for safe navigation while transiting the regulated area.

We developed this rule after considering numerous statutes and Executive orders related to rulemaking. Below we summarize our analyses based on a number of these statutes and Executive orders and we discuss First Amendment rights of protestors.

Executive Orders (E.O.) 12866 and 13563 direct agencies to assess the costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits. E.O. 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This rule has not been designated a “significant regulatory action,” under E.O. 12866. Accordingly, it has not been reviewed by the Office of Management and Budget.

The Coast Guard's use of this special local regulation will be only four hours in duration on a Saturday, and it is designed to minimize the impact on navigation. Moreover, vessels may transit through the area affected by this special local regulation at a minimum speed for safe navigation as approved by the COTP on a case-by-case basis. Overall, the Coast Guard expects minimal impact to vessel movement from the enforcement of this special local regulation.

The Regulatory Flexibility Act of 1980, 5 U.S.C. 601-612, as amended, requires Federal agencies to consider the potential impact of regulations on small entities during rulemaking. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities.

This rule will affect the following entities, some of which might be small entities: The owners or operators of vessels intending to transit or anchor in this portion of the Ouachita River in the vicinity of Monroe, LA between 10 a.m. and 2 p.m. on October 15, 2016.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this rule. If the rule will affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact the person listed in the FOR FURTHER INFORMATION CONTACT section. The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard.

This rule will not call for a new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

A rule has implications for federalism under E.O. 13132, Federalism, if it has a substantial direct effect 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. We have analyzed this rule under that Order and have determined that it is consistent with the fundamental federalism principles and preemption requirements described in E.O. 13132.

Also, this rule does not have tribal implications under E.O. 13175, Consultation and Coordination with Indian Tribal Governments, because it will not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes. If you believe this rule has implications for federalism or Indian tribes, please contact the person listed in the FOR FURTHER INFORMATION CONTACT section.

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 (adjusted for inflation) or more in any one year. Though this rule will not result in such expenditure, we do discuss the effects of this rule elsewhere in this preamble.

We have analyzed this rule under Department of Homeland Security Management Directive 023-01 and Commandant Instruction M16475.lD, which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (42 U.S.C. 4321-4370f), and have made a preliminary determination that this action is one of a category of actions that do not individually or cumulatively have a significant effect on the human environment. This rule involves the establishment of a special local regulation lasting four hours. Such actions are categorically excluded from further review under paragraph 34(h) of Figure 2-1 of the Commandant Instruction. An environmental analysis checklist and Categorical Exclusion Determination are available in the docket where indicated under ADDRESSES. We seek any comments or information that may lead to the discovery of a significant environmental impact from this rule.

The Coast Guard respects the First Amendment rights of protesters. Protesters are asked to contact the person listed in the FOR FURTHER INFORMATION CONTACT section to coordinate protest activities so that your message can be received without jeopardizing the safety or security of people, places, or vessels.

For the reasons discussed in the preamble, the Coast Guard amends 33 CFR part 100 as follows:

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

Table 1 lists the rules addressed by this action with the dates that they were adopted by the local air agencies and submitted by the California Air Resources Board (CARB).

On April 19, 2016, the EPA determined that the submittal for SMAQMD Rule 442 met the completeness criteria in 40 CFR part 51, appendix V, which must be met before formal EPA review. On January 19, 2016, the EPA determined that the submittals for SDCAPCD Rules 67.0 and 67.0.1 met the completeness criteria.

There are no previous versions of Rule 67.0.1 in the SIP. We approved earlier versions of Rule 442 into the SIP on November 9, 1998 (63 FR 60214) and Rule 67.0 on June 20, 2013 (78 FR 37130).

VOCs help produce ground-level ozone, smog and particulate matter (PM), which harm human health and the environment. Section 110(a) of the CAA requires states to submit regulations that control VOC emissions. Architectural coatings are applied to stationary structures and their accessories. They include house paints, stains, industrial maintenance coatings, traffic coatings, and many other products. VOCs are emitted from the coatings during application and curing, and from the associated solvents used for thinning and clean-up. SMAQMD Rule 442 controls VOC emissions from architectural coatings by establishing VOC limits on any architectural coating supplied, sold, offered for sale or manufactured for use within the SMAQMD. Rule 442 was revised to align SMAQMD's architectural coatings practices and VOC limits with those contained in CARB's “2007 Suggested Control Measures for Architectural Coatings” (SCM),1 which are more stringent and make use of newer coating categories than the previous version of Rule 442.

Similarly, SDCAPCD Rule 67.0.1 was adopted to align SDCAPCD's architectural coatings practices and VOC limits with those contained in CARB's SCM. Rule 67.0.1 replaces SDCAPCD Rule 67.0, which was rescinded. SDCAPCD elected to make these changes in a new rule, rather than in revisions to Rule 67.0, “due to the large number of revisions to existing Rule 67.0 that would be necessary to reflect the 2007 SCM.” 2

Throughout this document, “we,” “us,” and “our” means the EPA.

The background for this action is discussed in detail in our June 3, 2016 proposal (81 FR 35674). In that rulemaking action, we proposed to approve portions of Louisiana's SIP submittals pertaining to requirements of CAA sections 110(a)(1) and 110(a)(2) of the 2006 PM2.5, 2008 Pb, 2008 O3, 2010 NO2, 2010 SO2 and 2012 PM2.5 NAAQS. CAA Section 110(a)(1) requires states to submit a revised i-SIP within three years after the promulgation of a new or revised NAAQS. The submission must provide for the “implementation, maintenance, and enforcement” of the NAAQS. We received substantive comments from the Sierra Club during the comment period on our Notice of Proposed Rulemaking (NPR). A synopsis of the comments and our responses are provided below.

Comment 1: Sierra Club states that the plain language of section 110(a)(2)(A) of the CAA, legislative history of the CAA, case law, EPA regulations, and legislative and regulatory interpretations made previously by EPA in rulemakings require the inclusion of enforceable emission limits in an i-SIP to prevent NAAQS exceedances in areas not designated nonattainment. Sierra Club asserts that EPA must disapprove Louisiana's proposed i-SIP because it is in violation of CAA section 110(a)(2)(A) in that the i-SIP fails to include enforceable emission limitations necessary to ensure attainment and maintenance of the NAAQS. The Commenter also states that the Louisiana i-SIP revision fails to comport with CAA requirements for SIPs to establish enforceable emission limits that are adequate to prohibit NAAQS exceedances in areas not designated nonattainment.

The Commenter also states that, on its face, the CAA requires i-SIPs “to be adequate to prevent exceedances of the NAAQS.” In support, the Commenter quotes the language in section 110(a)(1) which requires states to adopt a plan for implementation, maintenance, and enforcement of the NAAQS and the language in section 110(a)(2)(A) which the Commenter interprets to require i-SIPs to include enforceable emissions limitations that are sufficient to ensure maintenance of the NAAQS. Sierra Club notes the CAA definition of emission limit and reads these provisions together to require “enforceable emission limits on source emissions sufficient to ensure maintenance of the NAAQS.”

Response 1: EPA disagrees that section 110 is clear “on its face” and must be read in the manner suggested by Sierra Club in the context of i-SIP submissions. As we have previously explained in response to Sierra Club's similar comments in our previous actions on Virginia's 2008 ozone NAAQS i-SIP (see, 79 FR 17043, 17047 March 27, 2014), Virginia's 2010 SO2 NAAQS i-SIP (see, 80 FR 11557 March 4, 2015), West Virginia's 2010 SO2 i-SIP (see, 79 FR 62022 October 16, 2014), Pennsylvania's 2008 Ozone and 2010 SO2 NAAQS i-SIP (see, 80 FR 46494 August 5, 2015), and New Hampshire's SO2 NAAQS i-SIP (see, 81 FR 44542 July 8, 2016), CAA Section 110 is only one provision that is part of the multi-faceted structure governing implementation of the NAAQS program under the CAA, as amended in 1990, and it must be read in the context of not only that structure, but also of the historical evolution of that structure.

Infrastructure SIPs are general planning SIPs, consistent with the CAA as understood in light of its history and structure. When Congress enacted the CAA in 1970, it did not include provisions requiring states and the EPA to label areas as attainment or nonattainment. Rather, states were required to include all areas of the state in “air quality control regions” (AQCRs) and section 110 set forth the core substantive planning provisions for these AQCRs. At that time, Congress anticipated that states would be able to address air pollution quickly by complying with the very general planning provisions in section 110 and bring all areas into compliance with a new NAAQS within five years. Moreover, at that time, section 110(a)(2)(A)(i) specified that the section 110 plan provide for “attainment” of the NAAQS and section 110(a)(2)(B) specified that the plan must include “emission limitations, schedules, and timetables for compliance with such limitations, and such other measures as may be necessary to insure attainment and maintenance [of the NAAQS].”

In 1977, Congress recognized that the existing structure was not sufficient and many areas were still violating the NAAQS. At that time, Congress for the first time added provisions requiring that states and EPA identify whether areas of a state were violating the NAAQS (i.e., were nonattainment) or were meeting the NAAQS (i.e., were attainment/unclassifiable) and established specific planning requirements in section 172 for areas not meeting the NAAQS. In 1990, many areas still had air quality not meeting the NAAQS and Congress again amended the CAA and added yet another layer of more prescriptive planning requirements for each of the NAAQS. At that same time, Congress modified section 110 to remove references to the section 110 SIP providing for attainment, including removing pre-existing section 110(a)(2)(A) in its entirety and renumbering subparagraph (B) as section 110(a)(2)(A). Additionally, Congress replaced the clause “as may be necessary to insure attainment and maintenance [of the NAAQS]” with “as may be necessary or appropriate to meet the applicable requirements of this chapter.” Thus, the CAA has significantly evolved in the more than 40 years since it was originally enacted. While at one time section 110 of the CAA did provide the only detailed SIP planning provisions for states and specified that such plans must provide for attainment of the NAAQS, under the structure of the current CAA, section 110 is only the initial stepping-stone in the planning process for a specific NAAQS. More detailed, later-enacted provisions govern the substantive planning process, including planning for attainment of the NAAQS. CAA section 110 is only one provision that is part of the multi-faceted structure governing implementation of the NAAQS program under the CAA, as amended in 1990, and it must be read in the context of that structure and the historical evolution of that structure. In light of the revisions to section 110 since 1970 and the later-promulgated and more specific planning requirements of the CAA, the requirement in section 110(a)(2)(A) of the CAA that the plan provide for “implementation, maintenance and enforcement” means that the state must demonstrate that it has the necessary tools to implement and enforce a NAAQS, such as adequate state personnel and the legal authority for an enforcement program. It is Part D of title I of the CAA that contains numerous requirements for the NAAQS attainment planning process, including the requirement for enforceable emissions limitations, and such other control measures, means or techniques, as well as schedules and timetables for compliance, as may be necessary or appropriate to provide for the attainment of the NAAQS. After a nonattainment designation is made, the Administrator establishes a plan submission schedule with which the state must comply. The schedule may include submission dates up to three years after the nonattainment designation has been made. The state must, within the schedule provided by the Administrator, submit a plan that meets Part D's requirements. The general requirements of CAA section 110(a)(1) and the listing of elements in CAA section 110(a)(2) require review of each and every provision of a state's existing SIP against all requirements in the CAA and the 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. The requirement for emission limitations in section 110 means that the state may rely on measures already in place to address the pollutant at issue or any new control measures that the state may choose to submit to meet the requirements in section 110. Finally, as EPA has stated in the 2013 Infrastructure SIP Guidance 1 which specifically provides guidance to states in addressing the 2010 SO2 NAAQS, “[t]he conceptual purpose of an i-SIP submission is to assure that the air agency's SIP contains the necessary structural requirements for the new or revised NAAQS, whether by establishing that the SIP already contains the necessary provisions, by making a substantive SIP revision to update the SIP, or both.” Infrastructure SIP Guidance at p. 1-2.2 Infrastructure SIP submissions are not required to include enforceable emissions limitations and schedules for compliance with the NAAQS, as suggested by the Commenter. Louisiana appropriately demonstrated that it has the “structural requirements” to implement the NAAQS for the pollutants addressed in this rule in its infrastructure SIP submission.

Comment 2: Sierra Club cites two excerpts from the legislative history of the 1970 CAA claiming they support an interpretation that SIP revisions under CAA Section 110 must include emissions limitations sufficient to show maintenance of the NAAQS in all areas of Louisiana. Sierra Club also contends that the legislative history of the CAA supports the interpretation that i-SIPs under section 110(a)(2) must include enforceable emission limitations, citing the Senate Committee Report and the subsequent Senate Conference Report accompanying the 1970 CAA.

Response 2: As noted above, the CAA, as enacted in 1970, including its legislative history, cannot be read in isolation from the later amendments that refined that structure and deleted relevant language from CAA Section 110 concerning demonstrating attainment. See also, 79 FR at 17043, 80 FR 11557, 79 FR 62022, 80 FR 46494 (responding to comments on various other i-SIPs). In any event, the two excerpts of legislative history the Sierra Club cites merely provide that states should include enforceable emission limits in their SIPs and they do not mention or otherwise address whether states are required to impose additional emission limitations or control measures as part of the i-SIP submission, as opposed to requirements for other types of SIP submissions such as attainment plans required under section 110(a)(2)(I). The proposed rule and the Technical Support Document (TSD) for it explain why the Louisiana SIP includes sufficient enforceable emissions limitations for the purposes of the infrastructure SIP submission.

Comment 3: Sierra Club also cites to several cases which have interpreted various parts of the CAA. Sierra Club claims these cases support their contention that section 110(a)(2)(A) requires i-SIPs submissions to contain enforceable emissions limits in order to prevent exceedances of the NAAQS in areas not designated nonattainment. Sierra Club first cites to language in Train v. NRDC, 421 U.S. 60, 78 (1975), addressing the requirement for “emission limitations” and stating that emission limitations “are specific rules to which operators of pollution sources are subject, and which, if enforced, should result in ambient air which meet the national standards.” Sierra Club also cites to Pennsylvania Dept. of Envtl. Resources v. EPA, 932 F.2d 269, 272 (3d Cir. 1991) for the proposition that the CAA directs EPA to withhold approval of a SIP where it does not ensure maintenance of the NAAQS, and to Mision Industrial, Inc. v. EPA, 547 F.2d 123, 129 (1st Cir. 1976), which quoted section 110(a)(2)(B) of the CAA of 1970. The commenter states that the 1990 Amendments do not alter how courts have interpreted the requirements of section 110, quoting Alaska Dept. of Envtl. Conservation v. EPA, 540 U.S. 461, 470 (2004) which in turn quoted section 110(a)(2)(A) of the CAA and also stated that “SIPs must include certain measures Congress specified” to ensure attainment of the NAAQS. The Commenter also quotes several additional opinions in this vein. Mont. Sulphur & Chem. Co. v. EPA, 666 F.3d 1174, 1180 (9th Cir. 2012) (“The Clean Air Act directs states to develop implementation plans—SIPs—that `assure' attainment and maintenance of [NAAQS] through enforceable emissions limitations”); Hall v. EPA 273 F.3d 1146, 1153 (9th Cir. 2001) (“Each State must submit a [SIP] that specif[ies] the manner in which [NAAQS] will be achieved and maintained within each air quality control region in the State”); Conn. Fund for Env't, Inc. v. EPA, 696 F.2d 169, 172 (D.C. Cir. 1982) (CAA requires SIPs to contain “measures necessary to ensure attainment and maintenance of NAAQS”). Finally, Sierra Club cites Mich. Dept. of Envtl. Quality v. Browner, 230 F.3d 181 (6th Cir. 2000) for the proposition that EPA may not approve a SIP revision that does not demonstrate how the rules would not interfere with attainment and maintenance of the NAAQS.

Response 3: None of the cases Sierra Club cites support its contention that section 110(a)(2)(A) requires i-SIP submissions to include detailed plans providing for attainment and maintenance of the NAAQS in all areas of the state, nor do they shed light on the present day requirements of section 110(a)(2)(A). With the exception of Train, none of the cases the Commenter cites specifically concerned the interpretation of CAA section 110(a)(2)(A) (or section 110(a)(2)(B) of the pre-1990 Act). Rather, the courts reference section 110(a)(2)(A) (or section 110(a)(2)(B) of the pre-1990 CAA) in the background sections of decisions in the context of a challenge to an EPA action on revisions to a SIP that were required and approved as meeting other provisions of the CAA or in the context of an enforcement action.

In Train, the Court was addressing a state revision to an attainment plan submission made pursuant to section 110 of the CAA, the sole statutory provision at that time addressing such submissions. The issue in that case concerned whether changes to requirements that would occur before attainment was required were variances that should be addressed pursuant to the provision governing SIP revisions or were “postponements” that must be addressed under section 110(f) of the CAA of 1970, which contained prescriptive criteria. The Court concluded that EPA reasonably interpreted section 110(f) not to restrict a state's choice of the mix of control measures needed to attain the NAAQS, so long as the state met other applicable requirements of the CAA, and that revisions to SIPs that would not impact attainment of the NAAQS by the attainment date were not subject to the limits of section 110(f). Thus the issue was not whether the specific SIP at issue needs to provide for attainment or whether emissions limits are needed as part of the SIP; rather the issue was which statutory provision governed when the state wanted to revise the emission limits in its SIP if such revision would not impact attainment or maintenance of the NAAQS.

Pennsylvania Dept. of Envtl. Resources was also decided based on the pre-1990 provision of the CAA. At issue was whether EPA properly rejected a revision to an approved SIP where the inventories relied on by the state for the updated submission had gaps. The Court quoted section 110(a)(2)(B) of the pre-1990 CAA in support of EPA's disapproval, but did not provide any interpretation of that provision. This decision did not address the question at issue in this action, i.e., what a state must include in an i-SIP submission for the purposes of section 110(a)(2)(A).Yet, even if the Court had interpreted that provision, EPA notes that it was modified by Congress in 1990; thus, this decision has little bearing on the present issue here.

At issue in Mision Industrial, was the definition of “emissions limitation”, not whether section 110 requires the State to demonstrate how all areas of the State will attain and maintain the NAAQS as part of the State's i-SIP submission. The language from the opinion the Commenter quotes does not interpret but rather merely describes section 110(a)(2)(A). Sierra Club does not raise any concerns about whether the measures relied on by the State in the i-SIP submission are “emissions limitations” within the definition provided by the Act and the decision in this case has no bearing here.3

In Mont. Sulphur & Chem. Co., 666 F.3d 1174, the Court was reviewing a federal implementation plan (FIP) that EPA promulgated after a long history of the State failing to submit an adequate SIP in response to EPA's finding under section 110(k)(5) that the previously approved SIP was substantially inadequate to attain or maintain the NAAQS, which triggered the State's duty to submit a new SIP detailing how it would remedy that deficiency and the measures that would be put in place to attain the NAAQS. The Court cited generally to sections 107 and 110(a)(2)(A) of the CAA for the proposition that SIPs should assure attainment and maintenance of NAAQS through emission limitations, but this language was not part of the Court's holding in the case. The holding in Mont. Sulphur focused on whether EPA's finding of SIP inadequacy, disapproval of the State's responsive attainment demonstration, and adoption of a remedial FIP were lawful.

The Commenter suggests that Alaska Dept. of Envtl. Conservation, 540 U.S. 461, stands for the proposition that the 1990 CAA Amendments do not alter how courts interpret section 110. This claim is inaccurate. Rather, the Court quoted section 110(a)(2)(A), which, as noted previously, differs from the pre-1990 version of that provision and the court makes no mention of the changed language. Furthermore, Sierra Club also quotes the Court's statement that “SIPs must include certain measures Congress specified,” but that statement specifically referenced the requirement in section 110(a)(2)(C), which requires an enforcement program and a program for the regulation of the modification and construction of any stationary sources. Notably, at issue in that case was the State's “new source” permitting program, not what is required for an i-SIP submission for purposes of CAA section 110(a)(2)(A).

Two of the cases Sierra Club cites, Mich. Dept. of Envtl. Quality, 230 F.3d 181, 183, 185 and Hall, 273 F.3d 1146, 1153 interpret CAA section 110(l), the provision governing “revisions” to plans, and not the initial plan submission requirement under section 110(a)(2) for a new or revised NAAQS, such as the i-SIP submissions at issue in this instance. Neither case, however, addressed the question at issue here, i.e., what states are required to address for purposes of an infrastructure SIP submission for purposes of section 110(a)(2)(A).

Finally, in Conn. Fund for Env't, Inc. v. EPA, the D.C. Circuit was reviewing EPA action on a control measure SIP provision which adjusted the percent of sulfur permissible in fuel oil. 696 F.2d 169 (D.C. Cir. 1982). The D.C. Circuit focused on whether EPA needed to evaluate effects of the SIP revision on one pollutant or effects of changes on all possible pollutants; therefore, the D.C. Circuit did not address required measures for i-SIPs and nothing in the opinion addressed whether i-SIP submissions need to contain measures to ensure attainment and maintenance of the NAAQS.

EPA's position is that none of these court cases addressed required measures for i-SIP submission and therefore nothing in the opinions addressed whether the state's i-SIP submission must contain measures to ensure attainment and maintenance of the NAAQS.

Comment 4: Sierra Club cites to 40 CFR 51.112(a), which provides that “[e]ach plan must demonstrate that the measures, rules and regulations contained in it are adequate to provide for the timely attainment and maintenance of the [NAAQS].” Sierra Club asserts that this regulation requires all SIPs to include emissions limits necessary to ensure attainment of the NAAQS. Sierra Club states that “[a]lthough these regulations were developed before the Clean Air Act separated i-SIPs from nonattainment SIPs—a process that began with the 1977 amendments and was completed by the 1990 amendments—the regulations apply to [i]-SIPs.” Sierra Club relies on a statement in the preamble to the 1986 action restructuring and consolidating provisions in part 51, in which EPA stated that “[i]t is beyond the scope of th[is] rulemaking to address the provisions of Part D of the Act . . .” 51 FR 40656, 40656 (November 7, 1986).

Response 4: Sierra Club's reliance on 40 CFR 51.112 to support its argument that i-SIPs must contain emission limits “adequate to prohibit NAAQS exceedances” and adequate or sufficient to ensure the maintenance of the NAAQS is incorrect. As an initial matter, EPA notes and the Sierra Club recognizes this regulatory provision was initially promulgated and “restructured and consolidated” prior to the CAA Amendments of 1990, in which Congress removed all references to “attainment” in section 110(a)(2)(A). And, it is clear that 40 CFR 51.112 directly applies to state SIP submissions that are specifically required to attain the NAAQS in nonattainment areas. These regulatory requirements apply when states are developing “control strategy” SIPs under other provisions of the CAA, such as attainment plans required for various NAAQS in Part D and maintenance plans required in section 175A. Sierra Club's suggestion that these provisions must apply to section 110 i-SIPs because in the preamble to EPA's action “restructuring and consolidating” provisions in part 51, we stated that the new attainment demonstration provisions in the 1977 Amendments to the CAA were “beyond the scope” of the rulemaking.4

Although EPA was explicit that it was not establishing requirements interpreting the provisions of new “Part D” of the CAA, it is clear that the regulations being restructured and consolidated were intended to address control strategy plans. In the preamble, EPA clearly stated that 40 CFR 51.112 was replacing 40 CFR 51.13 (“Control strategy: SOX and PM (portion)”), 51.14 (“Control strategy: CO, HC, OX and NO2 (portion)”), 51.80 (“Demonstration of attainment: Pb (portion)”), and 51.82 (“Air quality data (portion)”). Id. at 40660. Thus, the present-day 40 CFR 51.112 contains consolidated provisions that are focused on control strategy SIPs, and the i-SIP is not such a plan.

Comment 5: Sierra Club also references two prior EPA rulemaking actions where EPA disapproved or proposed to disapprove SIPs and claimed these were actions in which EPA relied on section 110(a)(2)(A) and 40 CFR 51.112 to reject i-SIPs. The Sierra Club first points to a 2006 partial approval and partial disapproval of revisions to Missouri's existing plan addressing the SO2 NAAQS. In that action, EPA cited section 110(a)(2)(A) as the basis disapproving a revision to the state plan on the basis that the State failed to demonstrate the SIP was sufficient to ensure maintenance of the SO2 NAAQS after revision of an emission limit. EPA also cited to 40 CFR 51.112, stating it requires that a plan demonstrates the rules in a SIP are adequate to attain the NAAQS. Second, Sierra Club cites a 2013 disapproval of a revision to the SO2 SIP for Indiana, where the revision removed an emission limit that applied to a specific emissions source at a facility in the State. See, 78 FR 17157, 17158 (March 20, 2013) (proposed rule on Indiana SO2 SIP) and 78 FR 78720, 78721 (December 27, 2013) (final rule on Indiana SO2 SIP). In its proposed disapproval, EPA relied on 40 CFR 51.112(a) in proposing to reject the revision, stating that the State had not demonstrated that the emission limit was “redundant, unnecessary, or that its removal would not result in or allow an increase in actual SO2 emissions.” EPA further stated in that proposed disapproval that the State had not demonstrated that removal of the limit would not “affect the validity of the emission rates used in the existing attainment demonstration.”

Response 5: EPA does not agree that the two prior actions referenced by Sierra Club establish how EPA reviews i-SIP submissions. It is clear from both the final Missouri rule and the proposed and final Indiana rule that EPA was not reviewing initial i-SIP submissions under section 110 of the CAA, but rather reviewing revisions that would make an already approved SIP designed to demonstrate attainment of the NAAQS less stringent. EPA's partial approval and partial disapproval of revisions to restrictions on emissions of sulfur compounds for the Missouri SIP in 71 FR 12623 addressed a control strategy SIP submission, and not an i-SIP submission. The Indiana action provides even less support for the Sierra Club's position since the EPA was reviewing a completely different requirement than that listed in CAA section 110(a)(2)(A). Rather, in that case, the State had an approved SO2 attainment plan which already included a specific emissions limitation for sources and was seeking to remove provisions from the SIP that it relied on as part of the modeled attainment demonstration. See, 78 FR 78720. EPA proposed that the State had failed to demonstrate under section 110(l) of the CAA that the SIP revision would not result in increased SO2 emissions and thus would interfere with attainment of the NAAQS. See, 78 FR 17157. Nothing in that proposed or final rulemaking addresses the necessary content of the initial i-SIP submission for a new or revised NAAQS. Rather, it is simply applying the clear statutory requirement that a state must demonstrate why a revision to an approved attainment plan will not interfere with attainment of the NAAQS.

As discussed in detail in the TSD and proposed rule, EPA finds the Louisiana SIP meets the appropriate and relevant structural requirements of section 110(a)(2) of the CAA, that it will aid in attaining and/or maintaining the NAAQS, and that the State demonstrated that it has the necessary tools to implement and enforce the NAAQS.

Comment 6: Citing section 110(a)(2)(A) of the CAA, Sierra Club contends that EPA may not approve Louisiana's proposed i-SIP because it does not include enforceable NAAQS, including a 1-hour SO2 emission limit, for sources that they claim are currently allowed to cause “NAAQS exceedances.” Sierra Club also asserts the proposed i-SIP fails to include other required measures to ensure attainment and maintenance of the NAAQS in areas not designated nonattainment as Sierra Club claims is required by section 110(a)(2)(A). Sierra Club argues that an i-SIP must ensure, through state-wide regulations or source specific requirements, proper mass limitations and short term averaging on specific large sources of pollutants such as power plants. Sierra Club states that emission limits are especially important for meeting the 1-hour SO2 NAAQS because SO2 impacts are strongly source-oriented. Sierra Club states coal-fired electric generating units (EGUs) are large contributors to SO2 emissions, but contends Louisiana did not demonstrate that emissions allowed by the proposed i-SIP from such large sources of SO2 will ensure compliance with the 2010 1-hour SO2 NAAQS. They stated that the proposed i-SIP would allow major sources to continue operating with present emission limits. Sierra Club then refers to air dispersion modeling it conducted for two coal-fired EGUs in Louisiana, Cleco Power's Dolet Hills Power Station and Entergy's Big Cajun II Generating Station. Further, Sierra Club claims that the results of the air dispersion modeling it conducted employing EPA's AERMOD program for modeling used the plants' allowable and maximum emissions and showed the plants could cause exceedances of the 2010 SO2 NAAQS with either allowable or maximum emissions.5 Based on the modeling, Sierra Club claims the Louisiana's SO2 i-SIP submittal authorizes the two EGUs to cause exceedances of the NAAQS with allowable and maximum emission rates and therefore the i-SIP fails to include adequate enforceable emission limitations or other required measures for sources of SO2 sufficient to ensure attainment and maintenance of the 2010 SO2 NAAQS. Sierra Club therefore asserts EPA must disapprove Louisiana's proposed SIP revision. In addition, Sierra Club asserts “EPA must impose additional emission limits on the plants that ensure attainment and maintenance of the NAAQS at all times.”

Response 6: As explained in previous responses above, section 110(a)(2)(A) of the CAA requires states to submit i-SIPs that reflect the first step in their planning for attainment and maintenance of a new or revised NAAQS. These i-SIP revisions should contain a demonstration that the state has the available tools and authority to develop and implement plans to attain and maintain the NAAQS and show that the SIP has enforceable control measures. In light of the structure of the CAA, EPA's long-standing position regarding i-SIPs is that they are general planning SIPs to ensure that the state has adequate resources and authority to implement a NAAQS in general throughout the state. These i-SIP submissions are not detailed attainment and maintenance plans for each individual area of the state. States may rely on measures already in place to address the pollutant at issue or any new control measures that the state may choose to submit.

As stated in response to a previous comment, EPA asserts that section 110 of the CAA is only one provision that is part of the multi-faceted structure governing implementation of the NAAQS program under the CAA, as amended in 1990, and it must be read in the context of not only that structure, but also of the historical evolution of that structure. In light of the revisions to CAA section 110 since 1970 and the later-promulgated and more specific planning requirements of the CAA, section 110(a)(2)(A) does not require that an i-SIP contain enforceable emissions limits that will aid in attaining and/or maintaining the NAAQS. The i-SIPs required by CAA section 110(a) are not the appropriate place to require emission limits demonstrating future attainment with a NAAQS. Part D of title I of the CAA contains numerous requirements for the NAAQS attainment planning process. These requirements include enforceable emissions limitations, and such other control measures, means or techniques, as well as schedules and timetables for compliance, as may be necessary or appropriate to provide for the attainment of the NAAQS. States have up to three years from the date of a nonattainment designation to submit a SIP meeting Part D's requirements. Louisiana's submittal was submitted to comply with the requirements outlined in CAA section 110(a), not Part D. As discussed above, the state may rely on measures already in place to address the pollutant at issue or any new control measures that the state may choose to submit. Finally, as EPA stated in the Infrastructure SIP Guidance, which specifically provides guidance to states in addressing the NAAQS, “[t]he conceptual purpose of an i-SIP submission is to assure that the air agency's SIP contains the necessary structural requirements for the new or revised NAAQS, whether by establishing that the SIP already contains the necessary provisions, by making a substantive SIP revision to update the SIP, or both.” 2013 Infrastructure SIP Guidance at p. 2.

On April 12, 2012, EPA explained its expectations regarding the 2010 SO2 NAAQS via letters to each of the states. EPA communicated in the April 2012 letters that all states were expected to submit SIPs meeting the “infrastructure” SIP requirements under section 110(a)(2) of the CAA by June 2013. At the time, EPA was undertaking a stakeholder outreach process to continue to develop possible approaches for determining attainment status under the SO2 NAAQS and implementing this NAAQS. EPA was abundantly clear in the April 2012 letters that EPA did not expect states to submit substantive attainment demonstrations or modeling demonstrations showing attainment for areas not designated nonattainment in i-SIP submission due in June 2013. Although EPA had previously suggested in its 2010 SO2 NAAQS preamble and in prior draft implementation guidance in 2011 that states should, in the unique SO2 context, use the section 110(a) SIP process as the vehicle for demonstrating attainment of the NAAQS, this approach was never adopted as a binding requirement and was subsequently discarded in the April 2012 letters to states. The April 2012 letters recommended states focus i-SIPs due in June 2013, such as Louisiana's SO2 i-SIP submission, on traditional “infrastructure elements” in section 110(a)(1) and (2), rather than on modeling demonstrations for future attainment for areas not designated as nonattainment. In February of 2016, EPA issued non-binding guidance for states to use in conducting, if they choose, additional analysis to support designations for the 2010 1-hour SO2 NAAQS. SO 2 NAAQS Designations Modeling Technical Assistance Document, EPA Office of Air and Radiation and Office of Air Quality Planning and Standards, February 2016, available at https://www.epa.gov/so2-pollution/technical-assistance-documents-implementing-2010-sulfur-dioxide-standard.

Therefore, EPA asserts that SIP revisions for SO2 nonattainment areas including measures and modeling demonstrating attainment are due by the dates statutorily prescribed under subpart 5 under part D of Title I of CAA. Those submissions are due no later than 18 months after an area is designed nonattainment for SO2, under CAA section 191(a). Thus, the CAA directs states to submit these SIP requirements for nonattainment areas on a separate schedule from the “structural requirements” of 110(a)(2) which are due within three years of adoption or revision of a NAAQS. The i-SIP submission requirement does not move up the date for any required submission of a CAA Title I part D plan for areas designated nonattainment for the new NAAQS. Thus, elements relating to demonstrating attainment for areas not attaining the NAAQS are not required for i-SIP submissions, and the CAA does not provide explicit requirements for demonstrating attainment for areas that have not yet been designated regarding attainment with a particular NAAQS.

The proper inquiry at this juncture is whether Louisiana has met the basic structural SIP requirements applicable at the point in time that the SIP was submitted. Emissions limitations and other control measures needed to attain the NAAQS in areas designated nonattainment for that NAAQS are due on a different schedule from the section 110 infrastructure elements. A state, like Louisiana, may choose to reference pre-existing SIP emission limits approved by EPA as meeting CAA Title I of part D plans for previous NAAQS in an i-SIP submission for purposes of CAA section 110(a)(2)(A).

The requirements for emission reduction measures for an area designated nonattainment for the 2010 primary SO2 NAAQS are in sections 172 and 191-192 of the CAA, and therefore, the appropriate avenue for implementing requirements for necessary emission limitations for demonstrating attainment with the 2010 SO2 NAAQS is through the attainment planning process contemplated by those sections of the CAA. LDEQ is required to bring St. Bernard Parish into compliance with the 1-hour standard as expeditiously as practicable, but no later than, October 4, 2018. The appropriate time for examining necessity of emission limits on specific sources is within the attainment planning process. When the St. Bernard Parish SO2 attainment demonstration is submitted by the State, EPA will take action on it in a separate rulemaking. In separate future actions, EPA intends to address the designations for all other areas for which EPA has yet to issue designations. See, e.g., 79 FR 27446 (May 13, 2014) (proposing process and timetables by which state air agencies would characterize air quality around SO2 sources through ambient monitoring and/or air quality modeling techniques and submit such data to the EPA). As previously stated, EPA's position is that the submitted i-SIPs should be evaluated on whether Louisiana has met the basic structural SIP requirements applicable at the point in time that the SIP was submitted. Utilizing the i-SIP process to require the substantive elements contained elsewhere in the CAA, as detailed above, would be disruptive and premature absent exceptional circumstances and would interfere with a state's planning process. See, In the Matter of EME Homer City Generation LP and First Energy Generation Corp., Order on Petitions Numbers III-2012-06, III-2012-07, and III-2013-01 (July 30, 2014) (hereafter, Homer City/Mansfield Order) at 10-19 (finding Pennsylvania SIP did not require imposition of SO2 emission limits on sources independent of the part D nonattainment planning process contemplated by the CAA). The history of the CAA, and intent of Congress for the CAA as described above, demonstrate clearly that it is within the section 172 and general part D nonattainment planning process that Louisiana must include additional SO2 emission limits on sources in order to demonstrate future attainment, where needed, for any areas in Louisiana or other states that may be designated nonattainment now or in the future, in order to attain the 2010 1-hour SO2 or other NAAQS.

Sierra Club's reliance on 40 CFR 51.112 to support its argument that i-SIPs must contain emission limits adequate to provide for timely attainment and maintenance of the standard is also unsupported. As explained above, EPA notes this regulatory provision clearly applies to plans specifically designed to attain the NAAQS and not to i-SIPs which show the states have in place structural requirements necessary to implement the NAAQS. Therefore, EPA finds 40 CFR 51.112 inapplicable to its analysis of Louisiana's i-SIP submission.

Regarding the air dispersion modeling conducted by Sierra Club pursuant to AERMOD for the coal-fired EGUs, including Cleco Power's Dolet Hills Power Station and Entergy's Big Cajun II Generating Station, EPA is not in this action making a determination regarding the air quality status in the area where these EGUs are located, and is not evaluating whether emissions applicable to these EGUs are adequate to attain and maintain the NAAQS. Consequently, EPA does not find the modeling information relevant for review of an infrastructure SIP for purposes of section 110(a)(2)(A). When additional areas in Louisiana are designated under the 2010 1-hour SO2 NAAQS, and if any additional areas in Louisiana are designated nonattainment in the future, any potential future modeling submitted by the State with designations or attainment demonstrations would need to account for any new emissions limitations Louisiana develops to support such designation or demonstration. While EPA has extensively discussed the use of modeling for attainment demonstration purposes and for designations, EPA has recommended that such modeling was not needed for the SO2 infrastructure SIPs for the 2010 1-hour SO2 NAAQS for purposes of section 110(a)(2)(A), which are not actions in which EPA makes determinations regarding current air quality status.6 See April 12, 2012, letters to states and 2012 Draft White Paper.

In conclusion, EPA disagrees with Sierra Club's assertions that EPA must disapprove Louisiana's i-SIP submission because it does not establish specific enforceable NAAQS emission limits, and specifically enforceable emission limits for SO2, either on coal-fired EGUs or other large SO2 sources, in order to demonstrate attainment and maintenance with the NAAQS.

Comment 7: Sierra Club asserts that modeling is the appropriate tool for evaluating adequacy of i-SIPs and ensuring attainment and maintenance of the 2010 SO2 NAAQS. The Commenter refers to EPA's historic use of air dispersion modeling for attainment designations as well as “SIP revisions.” The Commenter states that in prior EPA statements the Agency has said it used modeling for designations and attainment demonstrations, including statements in the 2010 SO2 NAAQS preamble, EPA's 2012 Draft White Paper for Discussion on Implementing the 2010 SO2 NAAQS, and a 1994 SO2 Guideline Document, as modeling could better address the source-specific impacts of SO2 emissions and historic challenges from monitoring SO2 emissions.

The Commenter discusses statements made by EPA staff regarding (1) the use of modeling and monitoring in setting emission limitations, (2) determining ambient concentrations as a result of a source's emissions, (3) discussing performance of AERMOD as a model, including if AERMOD is capable of predicting whether the NAAQS is attained, and (4) whether individual sources contribute to SO2 NAAQS violations. Sierra Club cites to EPA's history of employing air dispersion modeling for increment compliance verifications in the permitting process for the Prevention of Significant Deterioration (PSD) program which is required in part C of title I of the CAA.

Sierra Club asserts EPA's use of air dispersion modeling was upheld in GenOn REMA, LLC v. EPA, 722 F.3d 513 (3rd Cir. 2013) where an EGU challenged EPA's use of CAA section 126 to impose SO2 emission limits on a source due to cross-state impacts. The Commenter claims the Third Circuit in GenOn REMA upheld EPA's actions after examining the record which included EPA's air dispersion modeling of the one source as well as other data.

The Commenter cites to Vehicle Mfrs. Ass'n v. State Farm Mut. Auto Ins. Co., 463 U.S. 29, 43 (1983) and NRDC v. EPA, 571 F.3d 1245, 1254 (D.C. Cir. 2009) for the general proposition that it would be arbitrary and capricious for an agency to ignore an aspect of an issue placed before it and that an agency must consider information presented during notice-and-comment rulemaking.

Finally, Sierra Club claims that Louisiana's proposed i-SIP lacks emission limitations informed by air dispersion modeling and therefore fails to ensure Louisiana will achieve and maintain the SO2 NAAQS. Sierra Club claims EPA must require adequate, 1-hour SO2 emission limits in the i-SIP that show no exceedances of NAAQS when modeled.

Response 7: EPA agrees with Sierra Club that air dispersion modeling, including the use of AERMOD, can be an important tool for SO2 designations under CAA section 107, and also as part of attainment planning under CAA sections 172 and 191-192. EPA agrees that prior EPA statements, EPA guidance, and case law support the use of air dispersion modeling in the SO2 designations process and attainment demonstration SIP process, as well as in analyses of whether existing approved SIPs remain adequate to show attainment and maintenance of the SO2 NAAQS. However, EPA disagrees with the Commenter that EPA must disapprove the Louisiana i-SIP for its alleged failure to include source-specific SO2 emission limits that show no exceedances of the NAAQS when modeled.

As discussed above and in the 2013 Infrastructure SIP Guidance, the conceptual purpose of an i-SIP submission is to assure that the air agency's SIP contains the necessary structural requirements for the new or revised NAAQS and that the i-SIP submission process provides an opportunity to review the basic structural requirements of the Agency's air quality management program in light of the new or revised NAAQS. See, Infrastructure SIP Guidance at p. 2. The attainment planning process detailed in part D of the CAA, including sections 172 and 191-192, is the appropriate place for the state to evaluate measures needed to bring SO2 nonattainment areas into attainment with the 2010 SO2 NAAQS and to impose additional emission limitations such as SO2 emission limits on specific sources.

EPA had initially recommended that states submit substantive attainment demonstration SIPs based on air quality modeling in the final 2010 SO2 NAAQS preamble (75 FR 35520) and in subsequent draft guidance issued in September 2011 for the section 110(a) SIPs due in June 2013 in order to show how areas expected to be designated as unclassifiable would attain and maintain the NAAQS. These initial statements in the preamble and 2011 draft guidance were based on EPA's expectation at the time; that by June 2012, most areas would initially be designated as unclassifiable due to limitations in the scope of the ambient monitoring network and the short time available before which states could conduct modeling to support designations recommendations in 2011. However, after conducting extensive stakeholder outreach and receiving comments from the states regarding these initial statements and the timeline for implementing the NAAQS, EPA subsequently stated in the April 12, 2012 letters and in the 2012 Draft White Paper that EPA was clarifying its implementation position and was no longer requiring such attainment demonstrations supported by air dispersion modeling for unclassifiable areas (which had not yet been designated) to be included in the June 2013 i-SIPs. EPA then reaffirmed this position in the February 6, 2013 memorandum, “Next Steps for Area Designations and Implementation of the Sulfur Dioxide National Ambient Air Quality Standard.” As previously mentioned, EPA had stated in the preamble to the NAAQS and in the prior 2011 draft guidance that EPA intended to develop and seek public comment on guidance for modeling and development of SO2 SIPs for sections 110, 172 and 191-192 of the CAA. After receiving such further comment, EPA has now issued guidance for the SO2 nonattainment area SIPs due pursuant to sections 172 and 191-192 and proposed a process for further characterization of areas with larger SO2 sources, which could include use of air dispersion modeling. See, April 23, 2014 Guidance for 1-Hour SO 2 Nonattainment Area SIP Submissions and 79 FR 27446 (proposing process and timetables for gathering additional information on impacts from larger SO2 sources informed through ambient monitoring and/or air quality modeling). EPA issued non-binding guidance for states to use in conducting, if they choose, additional analysis to support designations for the 2010 1-hour SO2 NAAQS. SO 2 NAAQS Designations Modeling Technical Assistance Document, EPA Office of Air and Radiation and Office of Air Quality Planning and Standards, February 2016, available at https://www.epa.gov/so2-pollution/technical-assistance-documents-implementing-2010-sulfur-dioxide-standard.

While EPA guidance for SO2 attainment SIPs and the proposed process for further characterizing SO2 emissions from larger sources both discuss the use of air dispersion modeling, EPA's 2013 Infrastructure SIP Guidance did not suggest that states use air dispersion modeling to inform emission limitations for section 110(a)(2)(A) to ensure no exceedances of the NAAQS when sources are modeled, nor does the CAA or Code of Federal Regulations require that they do. Therefore, as discussed previously, the Louisiana i-SIP submittal contains the structural requirements to address elements in section 110(a)(2) as discussed in detail in the TSD accompanying the proposed approval. I-SIPs are general planning SIPs that ensure that a state has adequate resources and authority to implement a new or revised NAAQS. I-SIP submissions are not intended to act or fulfill the obligations of a detailed attainment and/or maintenance plan for each individual area of the state that is not attaining the NAAQS. While i-SIPs must address modeling authorities in general for section 110(a)(2)(K), this section requires i-SIPs to provide the state's authority for air quality modeling and for submission of modeling data to EPA, not specific air dispersion modeling. In the TSD for this rulemaking action, EPA provided a detailed explanation of Louisiana's ability and authority to conduct air quality modeling when required and its authority to submit modeling data to EPA.

EPA finds Sierra Club's discussion of case law, guidance, and EPA staff statements regarding advantages of AERMOD as an air dispersion model to be irrelevant to the analysis of Louisiana's i-SIP as this is not an attainment SIP required to demonstrate attainment of the 2010 SO2 NAAQS pursuant to sections 172 or 192. In addition, Sierra Club's comments relating to EPA's use of AERMOD or modeling in general in SO2 designations pursuant to section 107 are likewise irrelevant as EPA's present approval of Louisiana's i-SIP is unrelated to the section 107 designations process nor is EPA's action on this i-SIP related to any nonattainment new source review (NNSR) or PSD permit program issue. As outlined in the August 23, 2010 clarification memo, “Applicability of Appendix W Modeling Guidance for the 1-hour SO2 National Ambient Air Quality Standard” (U.S. EPA, 2010a), AERMOD is the preferred model for single source modeling to address the 2010 1-hour SO2 NAAQS as part of the NNSR/PSD permit programs. Therefore, as attainment SIPs, designations, and NNSR/PSD actions are outside the scope of a required i-SIP submission for SO2 NAAQS for section 110(a), EPA provides no further response to the Commenter's discussion of air dispersion modeling for these applications. If Sierra Club resubmits its SO2 air dispersion modeling for the Louisiana's EGUs, or updated modeling information in the appropriate context, e.g., for designations, attainment SIPs, major source permitting, EPA will address the resubmitted modeling or updated modeling in the appropriate future context.

The Commenter correctly noted that the Third Circuit upheld EPA's Section 126 Order imposing SO2 emissions limitations on an EGU pursuant to CAA section 126. GenOn REMA, LLC v. EPA, 722 F.3d 513. Pursuant to CAA section 126, any state or political subdivision may petition EPA for a finding that any major source or group of stationary sources emits, or would emit, any air pollutant in violation of the prohibition of section 110(a)(2)(D)(i)(I) which relates to significant contributions to nonattainment or maintenance in another state. The Third Circuit upheld EPA's authority under CAA section 126 and found EPA's actions neither arbitrary nor capricious after reviewing EPA's supporting docket which included air dispersion modeling as well as ambient air monitoring data showing violations of the NAAQS. The Sierra Club appears to have cited to this matter to demonstrate EPA's use of modeling for certain aspects of the CAA. EPA agrees with the Commenter regarding the appropriate role air dispersion modeling has for SO2 NAAQS designations, attainment SIPs, and demonstrating significant contributions to interstate transport. However, EPA's approval of Louisiana's i-SIP submission is based on our determination that Louisiana has the required structural requirements pursuant to CAA section 110(a)(2) in accordance with our explanation of the intent for i-SIP submissions as discussed in the 2013 Infrastructure SIP Guidance. Therefore, while air dispersion modeling may be appropriate for consideration in certain circumstances, EPA does not find air dispersion modeling of the NAAQS to be a required element before approval of i-SIP submission for CAA section 110(a) or specifically for 110(a)(2)(A) of the Act. Thus, EPA disagrees with the Commenter that EPA must require additional emission limitations in this Louisiana or other i-SIPs informed by air dispersion modeling and demonstrating attainment and maintenance of the NAAQS.

In its comments, Sierra Club relies on Motor Vehicle Mfrs. Ass'n and NRDC v. EPA to support its comments that EPA must consider the Sierra Club's modeling data on the Dolet Hills Power Station and Big Cajun II Generating Station based on administrative law principles regarding consideration of comments provided during a rulemaking process. EPA asserts that it has considered the modeling as well as all the submitted comments of Sierra Club. However, as discussed in detail in the responses above, the i-SIPs required by CAA section 110(a) are not the appropriate place to require emission limits demonstrating future attainment with a NAAQS, and as such EPA is not explicitly considering the modeling results provided by the Sierra Club insofar as they support the contention that enforceable emissions limitations are a required part of an i-SIP submission.

While i-SIP submissions are not required to contain emission limits, as suggested by the Commenter, EPA does recognize that in the past, states have used i-SIP submittals as a `vehicle' for incorporating regulatory revisions or source-specific emission limits into the state's plan. See, 78 FR 73442 (December 6, 2013) (approving regulations Maryland submitted for incorporation into the SIP along with the 2008 Ozone i-SIP to address ethics requirements for State Boards in sections 128 and 110(a)(2)(E)(ii)). While these SIP revisions are intended to help the state meet the requirements of section 110(a)(2), these “ride-along” SIP revisions are not intended to signify that all i-SIP submittals should have similar regulatory revisions or source-specific emission limits. Rather, the regulatory provisions and source-specific emission limits the state relies on when showing compliance with CAA section 110(a)(2) have likely already been incorporated into the state's SIP prior to each new i-SIP submission; in some cases this was done for entirely separate CAA requirements, such as attainment plans required under section 172, or for previous NAAQS.

Comment 8: Sierra Club asserts that EPA may not approve the Louisiana proposed i-SIP submission because it fails to include enforceable emission limitations with a 1-hour averaging time that applies at all times. The Sierra Club cite to CAA section 302(k) which requires emission limits to apply on a continuous basis. The Commenter claims EPA has stated that 1-hour averaging times are necessary for the 2010 SO2 NAAQS citing to a February 3, 2011, EPA Region 7 letter to the Kansas Department of Health and Environment regarding the need for 1-hour SO2 emission limits in a PSD permit, an EPA Environmental Hearing Board (EHB) decision rejecting use of a 3-hour averaging time for a SO2 limit in a PSD permit, and EPA's disapproval of a Missouri SIP which relied on annual averaging for SO2 emission rates.7

Sierra Club also contends that i-SIPs approved by EPA must include monitoring of SO2 emission limits on a continuous basis using a continuous emission monitor system or systems (CEMS) and cites to section 110(a)(2)(F) which requires a SIP to establish a system to monitor emissions from stationary sources and to require submission of periodic emission reports. Sierra Club contends i-SIPs must require such SO2 CEMS to monitor SO2 sources regardless of whether sources have control technology installed to ensure limits are protective of the NAAQS. Thus, Sierra Club contends EPA must require enforceable emission limits, applicable at all times, with 1-hour averaging periods, monitored continuously with CEMS of large sources of SO2 emissions, and therefore must disapprove Louisiana's i-SIP which Sierra Club claims fails to require emission limits with adequate averaging times.

Response 8: St. Bernard Parish was designated nonattainment effective October 4, 2013. LDEQ is required to bring St. Bernard Parish into compliance with the 1-hour standard as expeditiously as practicable, but no later than October 4, 2018. When the attainment demonstration SIP is submitted by the State, we will take action on it in a separate rulemaking action. The appropriate time for examining necessity of 1-hour SO2 emission limits on specific sources is within the attainment planning SIP rulemaking process. As such, EPA disagrees that we must disapprove the proposed Louisiana i-SIP because the submittal does not contain enforceable SO2 emission limitations with 1-hour averaging periods that apply at all times, along with requiring CEMS, as the State has addressed its SO2 nonattainment designation in another more appropriate document pursuant to section 107 of the CAA.8 As explained in detail in previous responses, the purpose of the i-SIP is to ensure that a state has the structural capability to attain and maintain the NAAQS and thus, additional SO2 emission limitations demonstrating future attainment and maintenance of the 2010 NAAQS are not required for such i-SIPs.9 Likewise, EPA need not address, for the purpose of approving Louisiana's i-SIP, whether CEMS or some other appropriate monitoring of SO2 emissions is necessary to demonstrate compliance with emission limits in order to show future attainment of the 2010 SO2 NAAQS as such SO2 emission limits and an attainment demonstration are not a prerequisite to EPA's approval of this or most other i-SIP submissions.10 Therefore, because EPA finds Louisiana's i-SIP submission approvable without the additional SO2 emission limitations showing future attainment of the NAAQS, EPA finds the issues of appropriate averaging periods and monitoring requirements for such future limitations not relevant at this time.

Sierra Club has cited to prior EPA discussion on emission limitations required in PSD permits (from an EAB decision and EPA's letter to Kansas' permitting authority) pursuant to part C of the CAA, which is neither relevant nor applicable to section 110 i-SIPs. In addition, as previously discussed, EPA disapproval of the 2006 Missouri SIP was a disapproval relating to a control strategy SIP required pursuant to part D attainment planning and is likewise not relevant to the analysis of i-SIP requirements.

EPA has explained in the TSD supporting this rulemaking action how the Louisiana SIP meets requirements in section 110(a)(2)(F) related to monitoring. Thus, EPA finds Louisiana has the authority and responsibility to monitor air quality for the relevant NAAQS pollutants at appropriate locations and to submit data to EPA in a timely manner in accordance with 110(a)(2)(F) and the Infrastructure SIP Guidance.11 See, Infrastructure SIP Guidance at p. 45-46.

Comment 9: The Commenter alleges the Louisiana SIP contains exemption provisions for periods of startup and “operating adjustments” as well as variance provisions for “exceptional circumstances” which would cause undue hardship. See LAC 33:III.1507, 917, and 1505 (2012), respectively. The Commenter notes that NAAQS must be enforced at all times and sources cannot be granted variances under any circumstances, even startup, shutdown and malfunction, and cites EPA's recent SIP Call to 39 states. See State Implementation Plans: Response to Petition for Rulemaking; Findings of Substantial Inadequacy; and SIP Calls to Amend Provisions Applying to Excess Emissions During Periods of Startup, Shutdown, and Malfunctions; Final Rule, 80 FR 33840 (June 12, 2015). The Commenter claims that LDEQ must remove such provisions from the existing Louisiana SIP rules in order to properly comply with the infrastructure requirements for the 2010 SO2 NAAQS.

Response 9: EPA disagrees with the Commenter that EPA is required to address all potential deficiencies that may exist in the Louisiana SIP in the context of evaluating an infrastructure SIP submission. In particular, an action on a state's infrastructure SIP submission is not necessarily the appropriate type of action in which to address possible deficiencies in a state's existing SIP rules related to excess emissions from sources during periods of startup, shutdown, or malfunction. It is not reasonable to read the general requirements of CAA section 110(a)(1) and the listing of elements in CAA section 110(a)(2) as requiring review of each and every provision of a state's existing SIP against all requirements in the CAA and the 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. In addition, EPA notes that the CAA provides other avenues and mechanisms to address specific substantive deficiencies in existing SIPs. For example, CAA section 110(k)(5) authorizes EPA to issue a SIP call whenever EPA determines a state's SIP is substantially inadequate to attain or maintain the NAAQS, to mitigate interstate transport, or to otherwise comply with the CAA. As noted by the Commenter, EPA has recently issued a SIP call to Louisiana requiring the removal of the exemption provision in LAC 33:III.1507. EPA is working closely with LDEQ to addressing the substantial inadequacies EPA identified in specific Louisiana SIP rules. See 80 FR 33967 (June 12, 2015). LDEQ is required to submit a revised SIP addressing the substantial inadequacies by November 22, 2016. EPA emphasizes that by approving Louisiana's i-SIP submission, EPA is not approving or reapproving any potentially deficient provisions that exist in the current SIP that relate to excess emissions. Furthermore, EPA's determination that an action on a state's infrastructure SIP submission is not the appropriate time and place to address all potential existing SIP deficiencies does not preclude EPA's subsequent reliance on provisions in CAA section 110(a)(2) as part of the basis for action to correct those deficiencies at a later time.

Comment 10: The Sierra Club claims EPA must disapprove the proposed i-SIP for the 2008 ozone NAAQS for its failure to include enforceable measures on sources of volatile organic compounds (VOCs) and nitrogen oxides (NOX) to ensure attainment and maintenance of the NAAQS in areas not designated nonattainment and to ensure compliance with section 110(a)(2)(A) for the 2008 and future ozone NAAQS. The commenter specifically mentions EGUs as well as the oil and gas production industry as sources needing additional controls as they are major sources of ozone precursors. The Sierra Club claims stringent emission limits must apply at all times to ensure all areas in Louisiana attain and maintain the ozone NAAQS. The Commenter claims the ozone precursors can be reduced cost-effectively through installation of selective catalytic reductions (“SCR”) technology at EGUs. The commenter claims that Louisiana's EGUs do not use SCRs adequately to prevent ozone exceedances.

In addition, the Commenter asserts that the Louisiana i-SIP must contain emission limits that include mass limitations and short term averaging periods on certain large sources of NOX such as power plants. These emission limits must apply at all times, to ensure that all areas of Louisiana attain and maintain the 2008 t8-hour ozone NAAQS. The Commenter also contends that adding control devices and emission limits on EGUs are a “cost effective option to reduce NOX pollution and attain and maintain the 2008 ozone NAAQS.”

Finally, the Commenter states“[d]espite knowing that Louisiana is on the precipice of exceeding the ozone NAAQS, LDEQ is taking insufficient action to limit ozone concentrations and fails to demonstrate how it plans to address these significant ozone and ozone precursors. Consequently, EPA must disapprove the state's i-SIP.”

Response 10: EPA has addressed in detail in prior responses above the Commenter's general arguments that the statutory language, legislative history, case law, EPA regulations, and prior rulemaking actions by EPA mandate the interpretation it advocates—i.e., that i-SIPs must ensure attainment and maintenance of the NAAQS. EPA's position is that the i-SIP submissions required by CAA section 110(a) are not the appropriate place to require emission limits demonstrating future attainment with a NAAQS as is explained more thoroughly in an above response. Moreover, the CAA recognizes and has provisions to address changes in air quality over time. These include provisions providing for redesignation in CAA section 107(d) and provisions in CAA section 110(k)(5) allowing EPA to call on the state to revise its SIP, as appropriate. Finally, EPA appreciates the Commenter's information regarding EGU NOX control measures and reduction efficiencies as well as emissions limitations applicable to new or modified EGUs which were set during the PSD or NSR permit process. Additional NOX regulations on emissions from the EGUs would likely reduce ozone levels further in one or more areas in Louisiana. Congress established the CAA such that each state has primary responsibility for assuring air quality within the state and each state is first given the opportunity to determine an emission reduction program for its areas subject to EPA approval, with such approval dependent upon whether the SIP as a whole meets the applicable requirements of the CAA. See Virginia v. EPA, 108 F.3d at 1410. The State could choose to consider additional control measures for NOX at EGUs to ensure attainment and maintenance of the ozone NAAQS as Louisiana moves forward to meet the more prescriptive planning requirements of the CAA in the future. However, as we have explained, the State is not required to regulate such sources for the purposes of meeting the i-SIP requirements of CAA section 110(a)(2).

In addition, emission limits with the shorter-term averaging rates suggested by the Commenter could be considered within the CAA Title I part D planning process to ensure attainment and maintenance of the 2008 NAAQS. As EPA finds Louisiana's NOX and VOC provisions presently in the SIP sufficient for infrastructure SIP purposes and specifically for CAA section 110(a)(2)(A), further consideration of the averaging times is not appropriate or relevant at this time. Thus, EPA disagrees with the Commenter that Louisiana's i-SIP must be disapproved for failure to contain sufficient measures to ensure attainment and maintenance of the 2008 ozone NAAQS.

Comment 11: The Sierra Club alleges that the proposed i-SIP does not address sources significantly contributing to nonattainment or interfering with maintenance of the NAAQS in other states as required by section 110(a)(2)(D)(i)(I) of the CAA, and states EPA must therefore disapprove the i-SIP. Sierra Club claims its modeling shows that emissions from Dolet Hills and Big Cajun II are contributing to exceedances in other states. Sierra Club states that the CAA requires i-SIPs to address cross-state air pollution. The Commenter argues that Louisiana has not done so and that EPA must disapprove the proposed infrastructure. The Commenter references the recent Supreme Court decision, EPA v. EME Homer City Generation, L.P. et al, 134 S. Ct. 1584 (2014), which supports the states' mandatory duty to address cross-state pollution under section 110(a)(2)(D)(i)(I).

Response 11: The Sierra Club commented that Louisiana's i-SIP fails to address any cross-state impacts that are due to sources within the State. However in the proposed rulemaking for this final rule, EPA did address and propose to approve the good neighbor provisions in section 110(a)(2)(D)(i)(I) for the 2008 Pb and 2010 NO2 NAAQS,12 and we are finalizing those provisions in this rulemaking. The portion of the State's SIP addressing the good neighbor provision for the 2006 PM2.5 was approved on April 15, 2014 (79 FR 21142) and the 2008 ozone was disapproved August 12, 2016 (81 FR 53308). EPA will be addressing 110(a)(2)(D)(i)(I) for 2010 SO2 and the 2012 PM2.5 NAAQS in future actions. Thus, the comments relating to the substance and approvability of Louisiana's good neighbor provision in its 2010 SO2 and the 2012 PM2.5 NAAQS i-SIP submission are not relevant to this rulemaking action. As stated herein and in the NPR, EPA will take later, separate action on Louisiana's 2010 SO2 and the 2012 PM2.5 NAAQS i-SIP submissions to address section 110(a)(2)(D)(i)(I).

The statutory language in the CAA supports our ability to approve Louisiana's NAAQS i-SIP submissions while taking later, separate action on the portion of the SIP submittals which address Louisiana's obligation to address section 110(a)(2)(D)(i)(I). Section 110(k)(3) of the CAA authorizes EPA to approve a plan in full, disapprove it in full, or approve it in part and disapprove it in part, depending on the extent to which such plan meets the requirements of the CAA. This authority to approve the states' SIP revisions in separable parts was included in the 1990 Amendments to the CAA to overrule a decision in the Court of Appeals for the Ninth Circuit holding that EPA could not approve individual measures in a plan submission without either approving or disapproving the plan as a whole. See, S. Rep. No. 101-228, at 22, 1990 U.S.C.C.A.N. 3385, 3408 (discussing the express overruling of Abramowitz v. EPA, 832 F.2d 1071 (9th Cir. 1987)).

As such, EPA has the authority under section 110(k)(3), to use our discretion to approve or conditionally approve individual elements of Louisiana's infrastructure submission for NAAQS, separate and apart from any action with respect to the requirements of section 110(a)(2)(D)(i)(I). EPA views discrete i-SIP requirements, such as the requirements of 110(a)(2)(D)(i)(I), as severable from the other infrastructure elements and section 110(k)(3) allows us to act on individual severable measures in a plan submission. The commenter raises no compelling legal or environmental rationale for an alternate interpretation. Nothing in the Supreme Court's April 2014 decision in EME Homer City alters our interpretation that we may act on individual severable measures including the requirements of section 110(a)(2)(D)(i)(I) in a SIP submission. See, EPA v. EME Homer City Generation, L.P.,134 S. Ct. 1584 (2014) (affirming a state's obligation to submit a SIP revision addressing section 110(a)(2)(D)(i)(I) independent of EPA's action finding significant contribution or interference with maintenance).

EPA's proposed approval of the Louisiana's i-SIP submission for NAAQS for the portions described in the NPR was therefore appropriate.

EPA is approving i-SIP submissions from Louisiana submitted on May 16, 2011, October 10, 2011, June 4, 2013, and December 17, 2015, certifying that the State's current i-SIP is sufficient to meet the required infrastructure elements under sections 110(a)(1) and 110(a)(2) for the 2006 PM2.5, 2008 Pb, 2008 ozone, 2010 NO2, 2010 SO2 and 2012 PM2.5 with exception of certain aspects relating to CAA section 110(a)(2)(D)(i)(I) for the 2008 ozone, 2010 SO2 and 2012 PM2.5 and disapproval for the visibility protection portion of CAA section 110(a)(2)(D)(i)(II) for all pollutants except the 2008 Pb NAAQS. The elements in which no action is taken, or for which disapproval was given will be or have been addressed in other actions. Please see the Table 1 below.

This final action is not a “significant regulatory action” and was therefore not submitted to the Office of Management and Budget for review.

This final action does not impose an information collection burden under the PRA because it does not contain any information collection activities.

I certify that this action will not have a significant economic impact on a substantial number of small entities under the RFA. This action merely approves or disapproves a SIP submission as not meeting the CAA.

This action does not contain any unfunded mandate as described in UMRA, 2 U.S.C. 1531-1538, and does not significantly or uniquely affect small governments. The action imposes no enforceable duty on any state, local or tribal governments or the private sector.

This action does not have federalism implications. It will not have substantial direct effects on the states, on the relationship between the national government and the states, or on the distribution of power and responsibilities among the various levels of government.

This action does not have tribal implications as specified in Executive Order 13175. This action does not apply on any Indian reservation land, any other area where EPA or an Indian tribe has demonstrated that a tribe has jurisdiction, or non-reservation areas of Indian country. Thus, Executive Order 13175 does not apply to this action.

EPA interprets Executive Order 13045 as applying only to those regulatory actions that concern environmental health or safety risks that EPA has reason to believe may disproportionately affect children, per the definition of “covered regulatory action” in section 2-202 of the Executive Order. This action is not subject to Executive Order 13045 because it merely approves or disapproves a SIP submission as not meeting the CAA.

This action is not subject to Executive Order 13211, because it is not a significant regulatory action under Executive Order 12866.

This rulemaking does not involve technical standards.

EPA believes the human health or environmental risk addressed by this action will not have potential disproportionately high and adverse human health or environmental effects on minority, low-income or indigenous populations. This action merely approves or disapproves a SIP submission as not meeting the CAA requirements.

The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this action and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register. A major rule cannot take effect until 60 days after it is published in the Federal Register. This action is not a “major rule” as defined by 5 U.S.C. 804(2).

Under section 307(b)(1) of the CAA, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by December 5, 2016. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this action for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements. (See section 307(b)(2).)

40 CFR part 52 is amended as follows:

The General Services Administration (GSA) is amending the General Services Administration Acquisition Regulation (GSAR) to make editorial changes to align acquisition thresholds with the Federal Acquisition Regulation (FAR). There are no significant content changes resulting from this case.

GSAR section 503.1004(a) is updated to remove the duplicative and unnecessary language regarding the outdated $5,000,000 FAR threshold for including FAR 52.203-14, Display of Hotline Poster(s). The remaining text regarding the $1,000,000 threshold for disaster assistance funds is retained with minor edits.

Contract GSAR clauses 552.219-71, Notice to Offerors of Subcontracting Plan Requirements, and 552.219-72, Preparation, Submission and Negotiation of Subcontracting Plans, are updated to remove reference to the acquisition threshold of $650,000 and the language is restructured to no longer state the threshold but rather direct the reader to FAR 52.219-9 which clearly addresses the thresholds for subcontracting plans. By referencing back to the FAR, future inflation updates will not require amendments to the GSAR.

GSAR clause 552.270-13, Proposals for Adjustment, is updated to replace “$500,000” with “$750,000.” Referencing the FAR for the threshold to prevent future updates was not an alternative.

41 U.S.C. 1707, Publication of proposed regulations, applies to the publication of the General Services Administration Acquisition Regulation. Paragraph (a)(1) of the statute requires that a procurement policy, regulation, procedure or form including amendment or modification thereof must be published for public comment if it has either a significant effect beyond the internal operating procedures of the agency issuing the policy, regulation, procedure, or form or has a significant cost or administrative impact on contractor or offerors. This final rule is not required to be published for public comment because it contains minor editorial updates without changing the meaning of content. The changes do not have a significant impact on the public.

Executive Orders (E.O.s) 12866 and 13563 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). E.O. 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This is not a significant regulatory action and, therefore, was not subject to review under Section 6(b) of E.O. 12866, Regulatory Planning and Review, dated September 30, 1993. This rule is not a major rule under 5 U.S.C. 804.

The Regulatory Flexibility Analysis does not apply to this rule because this final rule does not constitute a significant GSAR revision and 41 U.S.C. 1707 does not require publication for public comment.

The final rule does not contain any information collection requirements that require approval of the Office of Management and Budget under the Paperwork Reduction Act (44 U.S.C. chapter 35).

Therefore, GSA is amending 48 CFR parts 503 and 552 as set forth below:

Legal Basis for the Rulemaking

Congress delegated certain powers to regulate interstate commerce to the United States Department of Transportation (DOT or Department) in numerous pieces of legislation, most notably in section 6 of the Department of Transportation Act (DOT Act) (Pub. L. 85-670, 80 Stat. 931 (1966)). Section 55 of the DOT Act transferred to the Department the authority of the former Interstate Commerce Commission (ICC) to regulate the qualifications and maximum hours-of-service of employees, the safety of operations, and the equipment of motor carriers in interstate commerce. See 49 United States Code (U.S.C.) 104. This authority, first granted to the ICC in the Motor Carrier Act of 1935 (Pub. L. 74-255, 49 Stat. 543, Aug. 9, 1935), now appears in 49 U.S.C. chapter 315. The regulations issued under this authority became known as the Federal Motor Carrier Safety Regulations (FMCSRs), appearing generally at 49 CFR parts 350-399. The administrative powers to enforce chapter 315 were also transferred from the ICC to the DOT in 1966 and appear in 49 U.S.C. chapter 5. The Secretary of the DOT (Secretary) delegated oversight of these provisions to the Federal Highway Administration (FHWA), a predecessor agency of FMCSA. The FMCSA Administrator has been delegated authority under 49 CFR 1.87 to carry out the motor carrier functions vested in the Secretary.

Between 1984 and 1999, a number of statutes added to FHWA's authority. Various statutes authorize the enforcement of the FMCSRs, the Hazardous Materials Regulations (HMRs), and the Commercial Regulations, and provide both civil and criminal penalties for violations of these requirements. These statutes include the Motor Carrier Safety Act of 1984 (Pub. L. 98-554, 98 Stat. 2832, Oct. 30, 1984), codified at 49 U.S.C. chapter 311, subchapter III (MCSA); the Commercial Motor Vehicle Safety Act of 1986 (Pub. L. 99-570, 100 Stat. 3207-170, Oct. 27, 1986), codified at 49 U.S.C. chapter 313; the Hazardous Materials Transportation Uniform Safety Act of 1990, as amended (Pub. L. 101-615, 104 Stat. 3244, Nov. 16, 1990), codified at 49 U.S.C. chapter 51; and the ICCTA of 1995 (Pub. L. 104-88, 109 Stat. 803, Dec. 29, 1995), codified at 49 U.S.C. chapters 131-149.

The Motor Carrier Safety Improvement Act of 1999 (MCSIA) (Pub. L. 106-159, 113 Stat. 1748, Dec. 9, 1999) established FMCSA as a new operating administration within DOT, effective January 1, 2000. The motor carrier safety responsibilities previously assigned to both ICC and FHWA are now assigned to FMCSA.

Congress expanded, modified, and amended FMCSA's authority in the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001 (Pub. L. 107-56, 115 Stat. 272, Oct. 26, 2001), SAFETEA-LU (Pub. L. 109-59, 119 Stat. 1144, Aug. 10, 2005), the SAFETEA-LU Technical Corrections Act of 2008 (Pub. L. 110-244, 122 Stat. 1572, June 6, 2008), and the Moving Ahead for Progress in the 21st Century Act (MAP-21) (Pub. L. 112-141, 126 Stat. 405, July 6, 2012).

The specific regulations amended by this rule are based on the statutes detailed above. Generally, the legal authority for each of those provisions was explained when the requirement was originally adopted and is noted at the beginning of each part in title 49 of the CFR. Title 49 CFR subtitle B, chapter III, contains all of the FMCSRs.

The Administrative Procedure Act (APA) (5 U.S.C. 551-706) specifically provides exceptions to its notice and public comment rulemaking procedures where the Agency finds there is good cause (and incorporates the finding and a brief statement of reasons therefore in the rules issued) to dispense with them. Generally, good cause exists where the Agency determines that notice and public procedures are impractical, unnecessary, or contrary to the public interest (5 U.S.C. 553(b)(3)(B)). The amendments made in this final rule merely correct inadvertent errors and omissions, remove or update obsolete references, and make minor changes to improve clarity and consistency. The technical amendments do not impose any new requirements, nor do they make any substantive changes to the CFR. For these reasons, FMCSA finds good cause that notice and public comment on this final rule is unnecessary.

The APA also allows agencies to make rules effective upon publication with good cause (5 U.S.C. 553(d)(3)), instead of requiring publication 30 days prior to the effective date. For the reasons already stated, FMCSA finds there is good cause for this rule to be effective on the date of publication in the Federal Register.

FMCSA is aware of the regulatory reform requirements imposed by section 5202 of the Fixing America's Surface Transportation Act (FAST Act) (Pub. L. 114-94, 129 Stat. 1312, at 1534, Dec. 4, 2015) concerning public participation in FMCSA rulemaking (49 U.S.C. 31136(g)). These requirements pertain to certain major rules,1 but because this final rule is not major, they are not applicable. In any event, the Agency finds that, for the reasons stated below, publication of an advance notice of proposed rulemaking under 49 U.S.C. 31136(g)(1)(A), or a negotiated rulemaking under 49 U.S.C. 31136(g)(1)(B), is unnecessary and contrary to the public interest in accordance with the waiver provision in 49 U.S.C. 31136(g)(3).

This document makes editorial changes to correct inaccurate references and citations, improve clarity, and fix errors. The reasons for each of these minor revisions are set out below, in a section-by-section description of the changes. These amendments do not impose any new requirements.

This set of amendments removes all remaining instances of the term “common” and “contract” as required by the ICCTA and SAFETEA-LU. Many instances of these terms were removed in the FMCSA Unified Registration System (URS) final rules published in 2013, 2015, and 2016,2 and this rule removes the remaining instances found in 49 CFR chapter III, subchapter B. This rule does not make any substantive changes to the affected regulations, except to remove eight obsolete provisions. Four of the provisions relate to the use of the terms “common” and “contract” and certain property-carrier routing requirements eliminated by the ICCTA. The other four obsolete provisions relate to a Congressionally-sunset emergency commercial driver's license grant, a pre-2014 medical exam schedule, outdated medical forms, and an obsolete reporting requirement.

FMCSA is adding “for-hire, non-exempt” to many rules to ensure motor carriers know the rules are only applicable to for-hire, non-exempt motor carriers, similar to the amendments being made in the URS final rules.

Use of the term “non-exempt” in these sections and other technical amendments related to the use of the terms “common” and “contract” below is to ensure motor carriers exempted by Congress from jurisdiction under 49 U.S.C. subtitle IV, part B, and specifically sec. 13506, do not feel compelled to comply with the amended rule text. FMCSA has discovered over the years that many for-hire, exempt 3 motor carriers and their drivers (such as livestock, grain, and produce haulers), mistakenly believe that 49 U.S.C. subtitle IV, part B (secs. 13101 through 14916), are mandatory requirements applicable to their operations.

For-hire motor carriers transporting commodities, or agreeing to transport brokered loads of commodities, that are listed by statutes, FMCSA regulations, and FMCSA administrative rulings, as exempt from 49 U.S.C. subtitle IV, part B, are not subject to non-safety related rules administered by FMCSA. Such for-hire, exempt motor carriers thus are not required to comply with the following rules that are authorized under 49 U.S.C. subtitle IV, part B:

• Annual economic reporting requirements in part 369;

• Receipts and bills of lading in part 373;

• Loss and damage claim requirements in part 370;

• Property broker requirements in part 371;

• Passenger carrier regulations in part 374;

• Household goods transportation regulations in part 375;

• Lease and interchange of vehicle rules in part 376;

• Payment of transportation charge rules in part 377;

• Overcharge, duplicate payment, and overcollection claims in part 378; and

• Preservation of records in part 379.

Motor carriers and shippers should be aware of the italicized text below related to contract carriage operations, “. . . A carrier providing transportation or service subject to jurisdiction under chapter 135 may enter into a contract with a shipper, . . . to provide specified services under specified rates and conditions. If the shipper and carrier, in writing, expressly waive any or all rights and remedies under this part for the transportation covered by the contract, the transportation provided under the contract shall not be subject to the waived rights and remedies and may not be subsequently challenged on the ground that it violates the waived rights and remedies . . .” 4 [emphasis added]

The statutory reference to the waiver of “any or all rights and remedies” allows a shipper and a motor carrier to negotiate and enter into a private contract that establishes selected rights and remedies different from the general “motor carrier” rights and remedies otherwise provided under 49 U.S.C. 14101, 14706, and other statutes. The waiver provision gives the carrier and shipper the flexibility to select the rights and remedies they wish to establish by contract. They can choose to leave in place other rights and remedies to be governed by statutes and regulations applicable to “motor carriers.”“. . . New 49 U.S.C. 14101 (Providing transportation and service), taken from existing 49 U.S.C. 11101, would continue the basic common carrier obligation to provide transportation or service on reasonable request and to provide safe and adequate service, equipment, and facilities. It would expressly allow carriers to enter contracts for specific shipments (other than for residential household goods movements arranged and paid for directly by the householder) under which both parties may waive their ICA rights and remedies.” 5

Under 49 U.S.C. 30141(a)(1)(A), a motor vehicle that was not originally manufactured to conform to all applicable FMVSS shall be refused admission into the United States unless NHTSA has decided that the motor vehicle is substantially similar to a motor vehicle originally manufactured for importation into and sale in the United States, certified under 49 U.S.C. 30115, and of the same model year as the model of the motor vehicle to be compared, and is capable of being readily altered to conform to all applicable FMVSS. Where there is no substantially similar U.S.-certified motor vehicle, 49 U.S.C. 30141(a)(1)(B) permits a nonconforming motor vehicle to be admitted into the United States if its safety features comply with, or are capable of being altered to comply with, all applicable FMVSS based on destructive test data or such other evidence as the Secretary of Transportation decides to be adequate.

Under 49 U.S.C. 30141(a)(1), import eligibility decisions may be made “on the initiative of the Secretary of Transportation or on petition of a manufacturer or importer registered under [49 U.S.C. 30141(c)].” The Secretary's authority to make these decisions has been delegated to NHTSA. The agency publishes notices of eligibility decisions as they are made.

Under 49 U.S.C. 30141(b)(2), a list of all vehicles for which import eligibility decisions have been made must be published annually in the Federal Register. On October 1, 1996, NHTSA added the list as an appendix to 49 CFR part 593, the regulations that establish procedures for import eligibility decisions (61 FR 51242). As described in the notice, NHTSA took that action to ensure that the list is more widely disseminated to government personnel who oversee vehicle imports and to interested members of the public. See 61 FR 51242-43. In the notice, NHTSA expressed its intention to annually revise the list as published in the appendix to include any additional vehicles decided by the agency to be eligible for importation since the list was last published. See 61 FR 51243. The agency stated that issuance of the document announcing these revisions will fulfill the annual publication requirements of 49 U.S.C. 30141(b)(2). Ibid.

Executive Order 12866, “Regulatory Planning and Review” (58 FR 51735, October 4, 1993), provides for making determinations about whether a regulatory action is “significant” and therefore subject to Office of Management and Budget (OMB) review and to the requirements of the Executive Order. The Executive Order defines a “significant regulatory action” as one that is likely to result in a rule that may:

(1) Have an annual effect on the economy of $100 million or more or adversely affects in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or Tribal governments or communities;

(2) Create a serious inconsistency or otherwise interfere with an action taken or planned by another agency;

(3) Materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or

(4) Raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order. This rule will not have any of these effects and was not reviewed under Executive Order 12866. It is not significant within the meaning of the DOT Regulatory Policies and Procedures. The effect of this rule is not to impose new requirements. Instead it provides a summary compilation of decisions on import eligibility that have already been made and does not involve new decisions. This rule will not impose any additional burden on any person. Accordingly, the agency believes that the preparation of a regulatory evaluation is not warranted for this rule.

We have not conducted an evaluation of the impacts of this rule under the National Environmental Policy Act. This rule does not impose any change that would result in any impacts to the quality of the human environment. Accordingly, no environmental assessment is required.

Pursuant to the Regulatory Flexibility Act, we have considered the impacts of this rule on small entities (5 U.S.C. Sec. 601 et seq.). I certify that this rule will not have a significant economic impact upon a substantial number of small entities within the context of the Regulatory Flexibility Act. The following is our statement providing the factual basis for the certification (5 U.S.C. Sec. 605(b)). This rule will not have any significant economic impact on a substantial number of small businesses because the rule merely furnishes information by revising the list in the Code of Federal Regulations of vehicles for which import eligibility decisions have previously been made. Accordingly, we have not prepared a Final Regulatory Flexibility Analysis.

Executive Order 13132 requires NHTSA to develop an accountable process to ensure “meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications.” Executive Order 13132 defines the term “Policies that have federalism implications” to include regulations that have “substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.” Under Executive Order 13132, NHTSA may not issue a regulation that has federalism implications, that imposes substantial direct compliance costs, and that is not required by statute, unless the Federal government provides the funds necessary to pay the direct compliance costs incurred by State and local governments, or NHTSA consults with State and local officials early in the process of developing the regulation.

This rule will have no direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government as specified in Executive Order 13132. Thus, the requirements of section 6 of the Executive Order do not apply to this rule.

The Unfunded Mandates Reform Act of 1995 (Public Law 104-4) requires agencies to prepare a written assessment of the costs, benefits and other effects of proposed or final rules that include a Federal mandate likely to result in the expenditure by State, local or tribal governments, in the aggregate, or by the private sector, of more than $100 million annually. This rule will not result in additional expenditures by State, local or tribal governments or by any members of the private sector. Therefore, the agency has not prepared an economic assessment pursuant to the Unfunded Mandates Reform Act.

Under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.), a person is not required to respond to a collection of information by a Federal agency unless the collection displays a valid OMB control number. This rule does not impose any new collection of information requirements for which a 5 CFR part 1320 clearance must be obtained. DOT previously submitted to OMB and OMB approved the collection of information associated with the vehicle importation program in OMB Clearance No. 2127-0002.

Pursuant to Executive Order 12988, “Civil Justice Reform,” we have considered whether this rule has any retroactive effect. We conclude that it will not have such an effect.

Executive Order 12866 requires each agency to write all rules in plain language. Application of the principles of plain language includes consideration of the following questions:

Under the National Technology and Transfer and Advancement Act of 1995 (Public Law 104-113), “all Federal agencies and departments shall use technical standards that are developed or adopted by voluntary consensus standards bodies, using such technical standards as a means to carry out policy objectives or activities determined by the agencies and departments.” This rule does not require the use of any technical standards.

Anyone is able to search the electronic form of all comments received into any of our dockets by the name of the individual submitting the comment (or signing the comment, if submitted on behalf of an association, business, labor union, etc.). You may review DOT's complete Privacy Act Statement in the Federal Register published on April 11, 2000 (Volume 65, Number 70; Pages 19477-78).

This rule is not subject to Executive Order 13045 because it is not “economically significant” as defined under Executive Order 12866, and does not concern an environmental, health, or safety risk that NHTSA has reason to believe may have a disproportionate effect on children.

NHTSA finds that prior notice and opportunity for comment are unnecessary under 5 U.S.C. 553(b)(3)(B) because this action does not impose any regulatory requirements. This rule merely revises the list of vehicles not originally manufactured to conform to the FMVSS that NHTSA has decided to be eligible for importation into the United States since the last list was published in September, 2015.

In addition, so that the list of vehicles for which import eligibility decisions have been made may be included in the next edition of 49 CFR parts 572 to 999, which is due for revision on October 1, 2016, good cause exists to dispense with the requirement in 5 U.S.C. 553(d) for the effective date of the rule to be delayed for at least 30 days following its publication.

In consideration of the foregoing, part 593 of Title 49 of the Code of Federal Regulations is amended as follows: