Federal Register Vol. 81, No.249,

The Office of Personnel Management (OPM) is issuing a final rule to extend coverage, rights, and benefits under the Federal Employees Health Benefits (FEHB) Program to certain employees of certain Indian tribal employers.

Section 10221 of the Patient Protection and Affordable Care Act (Pub. L. 111-148) incorporated, amended, and enacted the entire text of S. 1790 as reported on December 16, 2009 by the Senate Committee on Indian Affairs. Bill S. 1790 revised and extended the Indian Health Care Improvement Act (IHCIA), including adding a new section 409. Under IHCIA section 409, an Indian tribe or tribal organization carrying out programs under the Indian Self-Determination and Education Assistance Act (ISDEAA), or an urban Indian organization carrying out programs under title V of IHCIA, is entitled to purchase coverage, rights, and benefits under the FEHB Program for their employees.

In 2011 and 2012, OPM consulted with tribal groups to develop sub-regulatory guidance 1 relating to IHCIA section 409. Tribal employers began purchasing FEHB coverage, rights, and benefits for their employees on March 22, 2012, with an insurance coverage effective date of May 1, 2012.

On August 31, 2016, OPM issued a Notice of Proposed Rulemaking (NPRM) (81 FR 59907) codifying previously issued guidance to adopt the FEHB Program, as set forth in 5 U.S.C. chapter 89 and its implementing regulations, for employees of certain tribal employers with slight variations to meet the needs of the tribal population (the Tribal FEHB Program). OPM proposed to amend title 5 of the Code of Federal Regulations (CFR) part 890 to add new subpart N, setting forth the conditions for coverage, rights, and benefits under the FEHB Program for employees of certain Indian tribal employers. The proposed rule had a 60 day comment period during which OPM received 2 comments. This final rule adopts subpart N, as proposed, with one clarification as noted below.

OPM received comments from two tribal employers that have elected to participate in the FEHB Program.

One commenter expressed concern about the lack of consultation with a specific tribal entity, on the same basis as Indian tribes under Executive Order No. 13175, prior to the publication of the NPRM.

OPM has engaged in regular and meaningful consultation and collaboration with all tribal officials, including a representative from this specific tribal entity during the tribal consultative process in 2011 and 2012.

OPM published a series of policy papers 2 regarding the implementation of the Tribal FEHB Program. Tribes, tribal organizations, and urban Indian organizations were given an opportunity to provide feedback on these papers at outreach events and tribal conferences and meetings. Written feedback was also accepted.

A Tribal Technical Workgroup 3 was established to support the implementation of the Tribal FEHB Program and was composed of tribal human resource representatives and OPM operational and policy staff. The primary purpose of the workgroup was to ensure system requirements for enrollment processing were completed according to the needs of tribal employers.

OPM representatives have attended more than 20 tribal conferences and meetings to provide information and consultation about the Tribal FEHB Program since its inception. In addition, OPM has hosted training sessions for interested tribes and tribal organizations on numerous occasions.

Tribal Benefits Administration Letters (TBAL) are released and distributed to participating tribal employers regularly, just as they are for Federal agencies. Questions following the release of a TBAL are directed to OPM's dedicated Tribal Desk. The Tribal Desk is available during regular business hours and questions are answered by OPM staff who administer the program. OPM has created direct lines of communication and fostered collaboration between tribal employers and OPM employees.

When important program changes occur, OPM issues Dear Tribal Leader Letters (DTLL) to notify tribes, tribal organizations and urban Indian organizations. An example was the DTLL 4 issued describing the revision of the original “all-or-nothing” policy. The original policy had required a tribal employer to enroll all of their billing units. Due to concerns raised by tribal employers, OPM amended that policy to allow tribal employers to select which of their billing units will receive FEHB and which will not. As a result, interest in FEHB enrollment has increased.

OPM views its ongoing engagement with tribal employers, participating in the FEHB Program, as a form of consultation. OPM also considers the public comment period for the NPRM as an important consultation period. Upon publication of the NPRM, OPM sent an email message to all Tribal Benefits Officers alerting them of the publication of the proposed rule and the process for submitting formal comments. A DTLL will also be issued in tandem with the publication of this final rule. OPM will continue to provide assistance to tribal employers even after the final rule is in effect.

OPM also believes that steady enrollment increases in the Tribal FEHB Program, with an average of about 25 percent per year since the first year, is another indicator suggesting that tribal employers and employees are satisfied with current policies, now codified in this final rule.

A second commenter was generally pleased with the proposed rule, but made two recommendations. First, the commenter recommended that OPM reconsider the limitation at § 890.1407(a) prohibiting tribal employers from accessing FEHB if the tribal employer contributes toward an alternative employer-sponsored health insurance plan (e.g., tribal self-insured coverage) for tribal employees within the billing unit(s) for which the employer seeks to purchase coverage, with the exception of a collectively bargained alternative plan. The commenter noted that, in certain instances, there may be limitations in FEHB plans related to network adequacy, cultural competency, contracting issues, or other health reasons. In order to keep tribal employees' plan options and participation rules aligned with those of Federal employees and maintain the stability of the FEHB risk pool, we decline to adopt the commenter's first recommendation.

A second recommendation by the commenter was a suggestion that OPM waive FEHB co-payments for tribal employees when they are served by health programs operated by the Indian Health Service (IHS), Indian tribes, tribal organizations, and urban Indian organizations (as those terms are defined in § 1603 of the IHCIA). The commenter also requested OPM require FEHB plans pay the cost of co-payments if a tribal employee is furnished an item or service directly by the IHS, an Indian tribe, tribal organization, or urban Indian organization. To support its recommendations, the commenter references § 1402(d) of the Patient Protection and Affordable Care Act. However, this provision relates to individual coverage in the health insurance exchanges and not employer-sponsored insurance such as FEHB. Therefore, the regulatory text has not been changed.

OPM is clarifying that different portions of a tribal employer's payment are credited in different ways. One portion of a tribal employer's payment consists of the premium payment, i.e., the sum of the tribal employer's share of premium plus the tribal employees' share of premium due for the enrollment, in the aggregate, of the tribal employer's tribal employees. A second portion of the tribal employer's payment consists of the administrative fee. OPM clarifies that only the premium payment is deposited to the Employees Health Benefits Fund. Accordingly, OPM has revised §§ 890.1403, 890.1410(f), and 890.1413(d) and (e).

OPM is also revising § 890.1407 to express existing policy more clearly: A tribal employer may neither contribute towards, nor offer, an alternative employer-sponsored health insurance plan for tribal employees within the billing unit(s) for which the employer seeks to purchase FEHB coverage, with the exception of a collectively bargained alternative plan.

OPM is also making a technical correction to § 890.1404 by moving language appearing previously in subparagraph (e)(2) to new paragraph (f).

Finally, OPM is correcting a typographical error at § 890.1411(c) by changing the term “following” to “follows.”

This final rule establishes how FEHB enrollment under the Tribal FEHB Program will be administered, including eligibility, tribal employer and tribal employee contribution to premiums, the process by which tribal employers will access the program, the process by which tribal employees will elect coverage, and circumstances for termination and cancellation of enrollment. Where practicable, this regulation provides for the administration of benefits by and for tribal employers and tribal employees in the same manner as these benefits are administered by and for Federal agencies and Federal employees. There may be some instances for which there is no established procedure in place for the Federal Government, such as the procedure and timeline by which tribal employers certify entitlement to purchase FEHB. When there are no established procedures in place, OPM has established a procedure.

Section 890.1402 defines several terms used in the new subpart N of part 890. This section also includes a series of deemed references. Defining these terms and identifying deemed references are necessary to make clear how OPM will modify and apply existing regulations to govern tribal employers' purchase of FEHB for tribal employees.

This final rule refers to tribes, tribal organizations, and urban Indian organizations that are entitled to access insurance under IHCIA section 409 as “tribal employers.” Moreover, because the term “employee” as used in 5 U.S.C. chapter 89 is a statutorily defined term, OPM refers to a tribal employer's employees who are eligible to enroll in FEHB as “tribal employees.” 5

The new subpart N refers to and incorporates many other subparts of part 890 that govern how the FEHB Program functions. The deemed references make it clear that references to statutory terms such as “employee” and other terms used throughout part 890 will be deemed references to “tribal employee” and other terms, as appropriate, in context, to govern tribal employers' purchase of FEHB for its tribal employees.

Entitlement to offer FEHB coverage, rights, and benefits will be available to any tribe, tribal organization, or urban Indian organization carrying out at least one of the programs under the ISDEAA or title V of the IHCIA as specified in section 409 of the IHCIA. The terms “tribe,” “tribal organization,” and “urban Indian organization” are defined in the IHCIA. Those definitions, set forth below, are incorporated by reference in the regulatory text at § 890.1402, which defines the term “tribal employer.” The term “tribal employer” is used to refer to any of these entities that fulfill the requirements to be entitled to purchase FEHB for its employees.

A tribe is any Indian tribe, band, nation, or other organized group or community, including any Alaska Native village or group or regional or village corporation as defined in or established pursuant to the Alaska Native Claims Settlement Act (85 Stat. 688) [43 U.S.C.A. 1601 et seq.], which is recognized as eligible for the special programs and services provided by the United States to Indians because of their status as Indians. 25 U.S.C. 1603(14).

A tribal organization is the recognized governing body of any Indian tribe; any legally established organization of Indians which is controlled, sanctioned, or chartered by such governing body or which is democratically elected by the adult members of the Indian community to be served by such organization and which includes the maximum participation of Indians in all phases of its activities: That in any case in which a contract is let or grant made to an organization to perform services benefiting more than one Indian tribe, the approval of each such Indian tribe shall be a prerequisite to the letting or making of such contract or grant. 25 U.S.C. 1603(26), incorporating by reference 25 U.S.C. 450b(l) (definition of “tribal organization”).

An urban Indian organization is a non-profit corporate body situated in an urban center, governed by an urban Indian controlled board of directors, and providing for the maximum participation of all interested Indian groups and individuals, which body is capable of legally cooperating with other public and private entities for the purpose of performing the activities described in section 1653(a) of this title. 25 U.S.C. 1603(29).

For purposes of this regulation, tribes and tribal organizations carrying out at least one program under the ISDEAA, and urban Indian organizations carrying out at least one program under title V of the IHCIA, are entitled to purchase FEHB for their employees. If the tribal employer ceases to carry out one of these programs, entitlement to purchase FEHB ceases at the end of the calendar year in which the tribal employer ceased to carry out one of those programs.

If OPM determines that a tribal employer is not entitled to purchase FEHB, the tribal employer may appeal that decision to OPM. OPM retains sole authority for deciding entitlement.

OPM has defined the term “tribal employee” in § 890.1402 broadly to mean a common law employee of a tribal employer. This section incorporates the regulatory standard under the Federal employment tax regulations (which, for this purpose, includes Federal Insurance Contributions Act tax and Federal income tax withholding) that generally provide that an individual is a common law employee if the tribal employer has the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work but also as to the details and means by which that result is accomplished. This determination is based on all the facts and circumstances. The section then indicates that this determination is to be guided by a list of 20 factors 6 developed by the Internal Revenue Service (IRS), or any future guidance the IRS releases related to the common law employee relationship for Federal employment tax purposes. Because OPM expects tribal employers to treat tribal employees consistently for purposes of Federal employment taxation and access to Federal insurance, the tribal employer's determination of common law employee status for purposes of eligibility for FEHB must be consistent with any determination of common law employee status made by the tribal employer for Federal employment tax purposes.

OPM recognizes that there may be cases in which a tribal employer has determined that a worker is not a common law employee for purposes of establishing a Federal employment tax obligation, and the tribal employer meets all the requirements for relief from Federal employment taxes under § 530 of the Revenue Act of 1978 with respect to such worker. Under these circumstances, as long as the tribal employer continues to meet the requirements for such relief, OPM will defer to the tribal employer's reasonable determination that its worker is not a common law employee for purposes of eligibility to enroll in FEHB.

OPM recognizes that there may be very limited cases in which a tribal employer has determined that a worker is a common law employee but has also determined that no Federal employment taxes are due with respect to the worker. Under these circumstances, OPM will defer to the tribal employer's reasonable determination that the worker is a common law employee for purposes of eligibility to enroll in FEHB.

Each tribal employer entitled to access Federal insurance will be able to offer FEHB coverage, rights, and benefits to all of its tribal employees, not just those carrying out functions under the ISDEAA or IHCIA title V programs. OPM has determined that tribal employees (who, by definition, are common law employees) engaged in governmental or commercial operations, such as casino or hospitality operations, will be eligible to enroll in FEHB if it is purchased by their tribal employer. As discussed below, individuals who retire from employment with a tribal employer lose their status as tribal employees upon retirement and their enrollment will terminate.

A tribal employer carrying out programs under the ISDEAA or title V of the IHCIA may purchase FEHB for employees of one or more billing units carrying out programs or activities under their contract. Once a tribal employer has enrolled at least one billing unit carrying out programs or activities under ISDEAA or IHCIA, the tribal employer may enroll one or more billing units that are not carrying out programs or activities under ISDEAA or IHCIA. Section 890.1405 establishes that all eligible full-time and part-time tribal employees of each participating billing unit of a tribal employer must be offered the opportunity to enroll in FEHB. Intermittent, seasonal, and temporary tribal employees will be treated similarly to intermittent, seasonal and temporary Federal employees. However, under § 890.102(k), the tribal employer may choose not to extend coverage to certain intermittent, seasonal, and temporary employees if written notification is provided to the Director of OPM.

Tribal employers may not segment tribal employee populations by offering a different set of health benefits to different groups of tribal employees within a single billing unit. An exception to this rule is if tribal employees within a billing unit are offered alternative coverage as part of a collective bargaining agreement.

As described in § 890.1405(e), family members of tribal employees will be eligible for coverage in FEHB under substantially the same terms as family members of Federal employees. One exception is that former spouses of tribal employees may not enroll in FEHB under the Civil Service Retirement Spouse Equity Act. This is because Spouse Equity coverage is linked to the former spouse's entitlement to a portion of a Federal employee's annuity. Another exception is that if the tribal employee dies while employed, a surviving spouse cannot continue FEHB enrollment or enroll in his or her own right, unless the surviving spouse is also FEHB-eligible through his or her employment. This is because continuing FEHB eligibility for surviving spouses of Federal employees is linked to a survivor annuity.

Section 890.1406 states that correction of enrollment errors will take place according to the same terms as for Federal employees. Requirements for tribal employees' appeals of eligibility and enrollment decisions are described in § 890.1415.

Section 890.1403 explains that a tribal employer is entitled to purchase FEHB if premium payments are currently deposited in the Employees Health Benefits Fund, as required by the authorizing statute, and if it timely pays administrative fees. This section provides that a premium payment will be considered “currently deposited” if it is received by the Employees Health Benefits Fund before, during, or within fourteen days after the end of the calendar month covered by the premium payment. Likewise, an administrative fee will be considered “timely paid” if it is received before, during, or within fourteen days after the end of the calendar month covered by the administrative fee.

Section 890.1413 describes how payments will work for tribal employers participating in FEHB. Tribal employer and tribal employee contributions for FEHB will be handled similarly for tribal employees as for Federal employees, with the tribal employer responsible for contributing a share of premium that is at least equivalent to the share of premium that the Federal Government contributes for Federal employees. The percentage contribution requirements are described in 5 U.S.C. 8906. The FEHB contributions for part-time tribal employees working between 16 and 32 hours per week may be pro-rated in accordance with the terms applicable to part-time Federal employees. FEHB enrollment for tribal employees on unpaid leave may be continued in a manner similar to Federal employees on unpaid leave under § 890.502(b), as long as the full premium is paid.

The tribal employer's FEHB contribution percentage must equal or exceed the contribution that the Federal Government would make each month for a Federal employee for the same plan. Tribal employers may elect to pay a greater tribal employer contribution, but may not pay a lesser amount than the Federal Government contribution for each plan. There is no cap on the percentage of premium that a tribal employer may contribute. The tribal employer may vary the contribution by type of enrollment (self only, self plus one, self and family) but must treat tribal employees in a uniform manner. As an example, a tribal employer could contribute 100 percent for all tribal employees in self only or self plus one enrollments and 90 percent for all tribal employees in self and family enrollments. Tribal employers may not vary the tribal employer contribution in order to encourage or discourage enrollment in any particular plan or plan option. Tribal employers may choose to vary the contribution amounts for each billing unit, provided each billing unit meets the requirements set forth above.

In addition, the tribal employer is required to pay an administrative fee, in an amount set by OPM each year, for each tribal employee's enrollment on a monthly basis. This fee covers the costs of a paymaster to perform the collection and remittance functions that is performed for Federal employees by Federal payroll offices. The paymaster is the entity designated by OPM as responsible for receiving FEHB premiums from the tribal employer, forwarding premiums to the Employees Health Benefits Fund, and maintaining enrollment records for all participating tribal employers. Tribal employers may not charge this fee to tribal employees. The total aggregate amount for tribal employees' and tribal employer's share of the premium, and the administrative fee must be available for receipt by the paymaster on an agreed upon date set in the agreement with the tribal employer.

Section 890.1404 establishes a process by which tribal employers may demonstrate entitlement and elect to purchase FEHB for their tribal employees. The tribal employer must notify OPM by email or telephone of the intention to purchase FEHB. Through an agreement described in § 890.1404(b), OPM will confirm the following:

(1) The tribal employer's contact information;

(2) The date that FEHB coverage will begin;

(3) The approximate number of tribal employees eligible to enroll;

(4) The tribal employer's agreement not to make available to FEHB-eligible tribal employees alternate tribal employer-sponsored health insurance coverage concurrent with FEHB;

(5) The tribal employer is entitled to participate in FEHB by carrying out at least one program under ISDEAA or title V of IHCIA;

(6) The tribal employer's acknowledgement that participation in FEHB makes the tribal employer subject to Federal Government audit with respect to such participation and to OPM authority to direct the administration of the program;

(7) The tribal employer's agreement to establish or identify an independent dispute resolution panel to adjudicate appeals of determinations made by a tribal employer regarding an individual's status as a tribal employee;

(8) The tribal employer's agreement to supply necessary enrollment information, payment of the tribal employer and tribal employee share of premium and payment of an administrative fee to the paymaster;

(9) The tribal employer's agreement to notify OPM in the event that the tribal employer is no longer carrying out at least one program under the ISDEAA or title V of IHCIA; and

(10) The tribal employer's agreement to abide by other terms and conditions of participation.

Section 890.1404(c) allows a tribal employer to elect to purchase FEHB at any time. The election to purchase FEHB will commit the tribal employer to purchase FEHB at least through the remainder of the calendar year in which the election is made. Elections will be automatically renewable year to year unless revoked by the tribal employer or terminated by OPM. Section 890.1404(d) allows a tribal employer to revoke its election to purchase FEHB with 60 days' notice to OPM. If a tribal employer revokes an election to purchase FEHB, that tribal employer may only re-elect to purchase FEHB during the first annual open enrollment season that occurs at least twelve months after the election is revoked. If the tribal employer revokes an election to participate a second time, the tribal employer may only re-elect to purchase FEHB during the first open season that falls at least twenty-four months after the second revocation. Section 890.1404(e) states that OPM maintains final authority to determine entitlement of a tribal employer to purchase FEHB. Section 890.1404(f) states that if a tribe, tribal organization or urban Indian organization believes it has been improperly denied the entitlement to purchase FEHB, it may appeal the denial to OPM.

A tribal employer that begins to carry out a program under ISDEAA or title V of IHCIA after this rule is effective may notify OPM of its intention to purchase benefits after the entitlement is established. Section 890.1407 states that a tribal employer electing to purchase FEHB for its employees may not concurrently make contributions toward, or offer, an alternative employer-sponsored health insurance plan for tribal employees within the billing unit(s) for which the employer seeks to purchase FEHB coverage, with the exception of a collectively bargained alternative plan. A stand-alone dental, vision, or disability plan is not considered alternative health insurance. A tribal employee may have other comprehensive health care insurance coverage, as long as it is not provided by or purchased through the tribal employer.

Section 890.1405(f) establishes that eligibility to enroll in FEHB does not cause any tribal employee to be identified or characterized as a Federal employee, nor does it convey any additional rights or privileges of Federal employment. There may be circumstances in which a tribal employee is also an FEHB-eligible Federal employee. In such a case, the tribal employee may participate in FEHB through either employer. A tribal employee who is also a Federal employee cannot enroll in FEHB through both employers. FEHB enrollments may be transferred between Federal employing offices and tribal employers in a similar manner as transfer of enrollments between Federal agencies.

Section 890.1405 describes tribal employee eligibility for enrollment in FEHB. Tribal employees will be able to enroll in FEHB after an agreement between the tribal employer and OPM is signed. The effective date of coverage will be decided by the tribal employer and OPM. A third party paymaster will handle payroll functions including remitting tribal employer and tribal employee contributions to FEHB premiums.

The enrollment process for tribal employees into FEHB is described in § 890.1407. Tribal employers must establish an initial enrollment opportunity for tribal employees. After that initial enrollment opportunity, for plan years during which a tribal employer's election to offer FEHB is in place, the FEHB enrollment period for tribal employees will be the same as for Federal employees—up to 60 days after becoming a new tribal employee or changing to an eligible position, during the annual open season, or 31 days before and up to 60 days after experiencing a qualifying life event. The effective date of enrollment for tribal employees will be the same as for Federal employees under parts 890 or 892, depending on premium conversion status. Upon enrollment in the FEHB Program, tribal employees will choose among the same nationwide and local FEHB plans that are available to Federal employees.

Section 890.1408 describes the circumstances under which a tribal employee may change enrollment type, plan, or option. These changes are allowed and will take effect under the same circumstances as for Federal employees. Changes may be restricted if the tribal employer has a premium conversion plan in effect (pre-tax treatment of premiums) and the tribal employee has elected premium conversion.

Section 890.1409 establishes that a tribal employee may cancel his or her FEHB coverage or decrease his or her enrollment only under the same circumstances as a Federal employee. If the tribal employee has elected premium conversion, this cancellation or change is restricted.

Section 890.1410 establishes that FEHB enrollment will terminate when employment with the tribal employer ends due to resignation, dismissal, or retirement, or when the tribal employer discontinues its purchase of FEHB. Termination of enrollment does not refer to a voluntary cancellation by the tribal employee during a period of continued employment. Upon termination of enrollment, the tribal employee will receive a 31-day temporary extension of coverage without premium contribution from the tribal employee or tribal employer and will have an opportunity to convert to an individual policy. Tribal employees whose FEHB enrollment terminates due to separation from tribal employment (unless the separation is for gross misconduct) are also eligible for temporary continuation of FEHB coverage (TCC), described at 5 U.S.C. 8905a and 5 CFR part 890, subpart K.

If an FEHB enrollment is terminated due to the death of the tribal employee, the tribal employee's spouse and covered children are entitled to a 31-day temporary extension of coverage and opportunity to convert to an individual policy. Covered children, if any, may elect TCC and may cover the tribal employee's surviving spouse as a member of family.

Section 890.1410(f) establishes that insufficient payment from the tribal employer to the paymaster can result in termination of enrollment for all of the tribal employer's tribal employees affected by the paymaster's failure to obtain current deposit. In such a case, FEHB enrollment for all affected tribal employees will be terminated according to a process determined by OPM. The FEHB enrollment of all tribal employees affected by the paymaster's failure to obtain current deposit will be terminated effective as of midnight on the last day of the month for which premium payment was received. These tribal employees will be entitled to a 31-day temporary extension of coverage without additional premium contribution and the opportunity to convert to an individual policy. In the event that a tribal employer elects to purchase FEHB and does not pay premiums for the first month in which payment is due, no 31-day temporary extension of coverage or opportunity to convert to an individual policy will be provided. Termination of enrollment due to non-payment of premiums in either case will not result in an opportunity to enroll in TCC since current tribal employees do not meet the conditions for TCC enrollment. Tribal employers will have full responsibility for communicating notice of termination of enrollment, and accompanying rights and obligations, to their tribal employees. Any outstanding premium due for coverage in arrears will be treated as a debt owed solely by the tribal employer.

Tribal employees and certain family members whose FEHB coverage terminates under certain circumstances can elect to purchase temporary continuation of coverage (TCC) for up to 18 or 36 months. Section 890.1411 establishes the criteria for TCC participation for tribal employees and their family members. In general, tribal employees who are enrolled in FEHB and separate from tribal employment, except for reasons of gross misconduct, may elect to purchase TCC. Certain formerly covered family members, including children or stepchildren who no longer meet the requirements of a covered family member, and former spouses, may elect TCC. The surviving spouse of a deceased enrollee who was enrolled in FEHB is not eligible to elect TCC, but may be covered by the TCC enrollment of an eligible child. The administrative fee is the same as would apply to a former Federal employee enrolled in TCC. The administrative fee described in § 890.1413(e) would not apply to a TCC enrollment of a tribal employee or family member.

Section 890.1412 establishes that a tribal employee in non-pay status or with insufficient pay to cover the premium costs may continue FEHB enrollment for up to 365 days. Tribal employees in non-pay status due to uniformed service are entitled to continue FEHB enrollment for up to 24 months. After termination, the tribal employee and covered family members are entitled to a 31-day temporary extension of coverage without premium contribution, and conversion to an individual policy.

Section 890.1412 also establishes that a temporary tribal employee who has insufficient pay to cover the employee share of FEHB premiums may choose a less expensive plan. If the tribal employee does not or cannot move to a less expensive plan, the FEHB enrollment will be terminated and the enrollee is entitled to a 31-day temporary extension of coverage without premium contribution and may convert to an individual policy.

If a tribal employee moves from an FEHB-eligible to a FEHB ineligible position, the FEHB enrollment can continue if there has not been a break in service of more than 3 days. If there has been a break in service of longer than 3 days, FEHB enrollment will terminate at midnight of the last day of the pay period in which the employment status changed. Such a tribal employee will be entitled to a 31-day temporary extension of coverage without premium contribution and may convert to an individual policy.

Section 890.1414 describes the responsibilities of the tribal employer. These include premium payment, eligibility determinations, enrollment, establishment of appeals process, communications regarding FEHB, and notification requirements.

Section 890.1415 requires that a tribal employer establish or identify an independent panel to resolve disputes about eligibility of individuals for FEHB enrollment. This panel must be authorized to adjudicate such disputes and enforce eligibility and enrollment determinations. The tribal employer must inform tribal employees of this avenue for dispute resolution. Decisions of the independent panel must be written, a record of evidence considered by the panel must be retained and available for OPM review, and the panel decisions remain subject to final OPM authority.

Section 890.1416 describes the procedures for: (1) Filing claims for payment or service; and (2) invoking the provisions for court review of disputed claims. Both situations will follow the established procedures for Federal employees.

Section 890.1417 states that an FEHB enrollment cannot be continued into retirement from employment with a tribal employer. This is a statutory requirement as the law entitles tribal employers to purchase FEHB for employees, but it does not extend that entitlement to permit tribal employers to purchase FEHB for retirees.

A Federal annuitant may continue FEHB into retirement and any enrollment in, or coverage as a family member under FEHB during employment with a tribal employer will count toward the “5-year rule.” The “5-year rule” generally requires 5 years of pre-retirement FEHB enrollment or coverage as a family member in order to continue FEHB into retirement. Section 890.1417 further states that a Federal annuitant who has continued FEHB into retirement and who begins post-retirement employment with a tribal employer that has elected to purchase FEHB may transfer the FEHB enrollment with his or her Federal retirement system to an enrollment with the tribal employer in a similar manner as that used for Federal annuitants re-employed by Federal agencies.

Section 890.1418 establishes that tribal employees who are not also Federal employees, but are receiving worker's compensation benefits in leave without pay status for more than 365 days under programs run by the U.S. Department of Labor, may not be enrolled in FEHB.

OPM has examined the impact of this final rule as required by Executive Order 12866 and Executive Order 13563, which directs 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), and based on that analysis, it has determined that it is an economically significant rule. A regulatory impact analysis must be prepared for economically significant rules.

Section 10221 of the Patient Protection and Affordable Care Act incorporated and enacted S. 1790, the Indian Health Care Improvement Reauthorization and Extension Act of 2009, resulting in the addition of section 409 to the IHCIA. Section 409 allows tribes, tribal organizations and urban Indian organizations carrying out specific programs under Federal law to purchase the rights and benefits of the FEHB Program for their employees. As the administrator of the FEHB, OPM has extended eligibility to entitled tribal employees within the meaning of section 409. Federal regulations are necessary to protect the interests of all stakeholders, memorialize processes and procedures, and provide transparency.

The costs, benefits and transfers assessed in remaining portions of this regulatory impact analysis reflect existing FEHB coverage of tribal employees. This analysis is consistent with the guidance provided in OMB Circular A-4.

Health insurance coverage improves access to health care services, including preventive services, improves clinical outcomes, financial security, and decreases uncompensated care.7 Although section 409 extends FEHB to employees of tribes, tribal organizations, and urban Indian organizations regardless of their status as tribal members, the authorizing legislation for this regulation falls under 25 U.S.C. Chapter 18, which clearly outlines congressional intent to “maintain and improve the health of the Indians” and identifies providing “the resources, processes, and structure that will enable Indian tribes and tribal members to obtain the quantity and quality of health care services and opportunities that will eradicate the health disparities between Indians and the general population of the United States” as a major national goal of the United States (§ 1601). Thus, the following section discusses the benefits of extending health insurance to tribal members, rather than to tribal employees in general.

While the exact benefits of health insurance are difficult to quantify, evidence supports that American Indians and Alaska Natives could benefit more from health insurance than the average population. According to a 2013 Kaiser Family Foundation report, American Indians and Alaska Natives were more likely than other nonelderly adult Americans to report being in fair or poor health, being overweight or obese, having diabetes and cardiovascular disease, and experiencing frequent mental distress.8 They had limited access to employer-sponsored coverage because more were unemployed or in low-wage jobs that did not offer health benefits. Almost a third of them were uninsured. More than 90 percent had incomes below 400 percent and 60 percent had incomes below 138 percent of the Federal poverty level. The infant mortality rate was 150 percent higher for Native American infants than white infants, and the suicide rate for Native Americans was two and a half times the national rate.9

IHS, which provides services through a network of hospitals, clinics, and health stations to about 2.2 million American Indians and Alaska Natives, has historically been underfunded. Access to services varies significantly by location and funds are insufficient to meet health care needs. According to the Federal Disparity Index, in 2010 the IHS funds covered less than 60 percent of those needed to pay for coverage equivalent to that of Federal employees.10

Health services not available through direct care must be purchased through the Purchased/Referred Care (PRC) (formerly Contract Health Services) 11 program. Some estimates indicate that the PRC program has lost at least $778 million due to unfunded medical inflation and population growth between 1992 and 2008.12 This has resulted in allocating of health care services using the PRC medical priority system, in which many patients cannot receive care unless they are in a priority status. In FY 2007, this under-funding resulted in a backlog of over 300,000 health services that were not provided because there was not enough funding. Unfortunately, the denied/deferred services report understates the need of PRC resources due to data limitations and the fact that many tribes no longer report deferred or denied services because of the expense involved in tracking.

The sources referenced above illustrate the health disparities specific to the Native American population. Expanding healthcare access to this group not only addresses this disparity and generates benefits to the individual, but also generates societal benefits in the form of decreased healthcare costs for chronic illnesses, increased employee productivity, and a healthier population that are the result of expanding access to healthcare to any group.

In the following section, costs associated with this rule are analyzed for the following groups:

1. Tribal employers;

2. Tribal employees;

3. The Tribal Insurance Processing System (TIPS—the system used by the current paymaster);

4. OPM; and

5. FEHB carriers.

Most of the costs described below either result in a direct benefit to the individual or are transfers from one group to another. For example, costs incurred by tribal employees (premiums, deductibles, copays, etc.) result in individual benefits in the form of improved health outcomes. Costs incurred by tribal employers to cover premiums are a benefit to tribal employees. OPM has determined that the total dollar amounts do meet the threshold for this to be considered an economically significant rule.

OPM analyzed actual fiscal year 2015 enrollment data for the over 16,000 tribal employees then enrolled in the FEHB Program and found the annual cost of enrollment to be $168.5 million. This includes both premiums and the administrative fee added to each tribal FEHB enrollment. The administrative fee covers the costs of program administration for the paymaster.13 A per member per month (cost per month for each covered individual) cost of approximately $413 was calculated.14

Premiums in the FEHB Program have increased between 3-6 percent each year for the last 5 years, below increases in the commercial market. As enrollment increases, total spending on premium costs will increase. However, the administrative fee will most likely decrease as administrative costs are spread among a growing number of enrollments.

To cover the cost of program administration, this final rule includes an administrative fee assessed on a per contract basis, paid by the tribal employer.15 OPM has contracted with a paymaster to develop and maintain TIPS, an online portal for the input of enrollment data and transmission to carriers.

For fiscal year 2015, the administrative fee was $15.15 per contract; for fiscal year 2016 it is $12. This fee is adjusted to align with actual programmatic costs. As enrollment increases, this cost will go down as the costs of maintaining TIPS will be spread among more enrollments.

The cost of coverage for each tribal employer depends upon the number of enrollees covered, the health plans selected by those enrollees, and the portion of the premium paid by the employer.

For fiscal year 2015, the largest number of employees enrolled for one tribal employer was just under 4,000 and the smallest tribal employers have just one employee enrolled.16 The majority of participating tribal employers had fewer than 150 employees enrolled, with a program-wide median of 71 enrolled employees.

The average cost per enrollment in the program, including the administrative fee, is estimated at approximately $10,172.17

Tribal employers are required by this rule to contribute to the premium for tribal employees at least the same as the Federal government does for its employees and may contribute more, up to 100 percent of the premium costs. The Federal government contribution is statutorily defined as the lesser of 72 percent of the weighted average of all premiums or 75 percent of the plan premium.18 This averages out to approximately 70 percent paid by the employer, program-wide.

Based on averages for fiscal year 2015, a tribal employer may pay from just over $7,000 to over $40 million, depending on the number of tribal employees covered and percentage of premium contributed by the tribal employer. Of course, actual costs will vary based on plan selection.

Tribal employers assess the cost of participating and recognize that participation in the FEHB Program is a business decision made by the employers themselves. It often is a decision made by comparing the cost of other forms of health coverage and coverage through the FEHB Program. For those tribes that choose to participate it can be assumed that the benefits outweigh the costs of participation.

Costs for tribal employees depend upon the plan selected, enrollment type, and the percentage of premium contributed by the tribal employer. Based on FY15 data, the average cost for an annual enrollment is approximately $10,035 19 with an average annual employee contribution of approximately $3,011. The actual tribal employee contribution varies based on the tribal employer contribution towards the premium.

Other costs such as co-payments, deductibles, and coinsurance are also the responsibility of the tribal employee, to the extent that such cost sharing is not otherwise prohibited by Federal law. These costs differ based on plan selection and utilization. Individual enrollment in the FEHB Program is voluntary so it can be assumed that the benefits to the individual of enrolling in tribal employer-sponsored coverage outweigh the costs of enrollment.

Annual costs for administering TIPS, incurred by the paymaster, are described in the chart below. These costs are covered by the administrative fee paid by tribal employers.

Implementation of the Tribal FEHB Program began in fiscal year 2011. In addition to policy development and tribal consultation costs, OPM contracted with a paymaster to develop an electronic enrollment portal for tribal employers. Development of TIPS cost approximately $3.9 million. OPM received approximately $3 million in funds from the Department of Health and Human Services' (HHS) Health Insurance Reform Implementation Fund and covered the remaining costs from funds appropriated to OPM.

OPM continues to incur costs associated with managing the Tribal FEHB Program. These costs are not covered by the administrative fee included in each tribal enrollment. See the chart below for Full Time Equivalent (FTE) in FY2012 through FY2015.

The impact on carriers is relatively small, as tribal enrollments are a very small percentage of the over 4 million FEHB enrollments. Premiums cover claims costs, administrative costs, plus a small profit known as the service charge.

While this rule meets the thresholds in Executive Orders 12866 and 13563 to be deemed an economically significant rule, many of the associated costs constitute transfers among involved parties. Under the provisions of this rule, participation in the FEHB Program is voluntary for both tribal employers and tribal employees. This, in conjunction with the relationship between costs incurred and the benefits of offering coverage, indicates that the benefits of this rule outweigh the costs.

I certify that these regulations would not have a significant economic impact on a substantial number of small entities because they establish a voluntary program for certain Indian tribal employers.

We have examined this rule in accordance with Executive Order 13132, Federalism, and have determined that this rule will not have any negative impact on the rights, roles, and responsibilities of State, local, or Tribal governments.

For the reasons set forth in the preamble, OPM amends 5 CFR part 890 as follows:

In SECY-16-0009, “Recommendations Resulting from the Integrated Prioritization and Re-Baselining of Agency Activities,” dated January 31, 2016 (ADAMS Accession No. ML16028A208), the NRC staff requested Commission approval to implement recommendations on work to be shed, de-prioritized, or performed with fewer resources. Two of the items listed to be shed (i.e., discontinued) were the rulemakings that would have amended the radiation protection regulations in part 20 of title 10 of the Code of Federal Regulations (10 CFR), and the reactor effluents regulations in 10 CFR part 50, appendix I. In the Staff Requirements Memorandum (SRM) for SECY-16-0009, dated April 13, 2016 (ADAMS Accession No. ML16104A158), the Commission approved discontinuing the two rulemaking activities and directed the NRC staff to publish a Federal Register notice to inform the public that the rulemakings are being discontinued.

A discussion of the NRC's decision to discontinue these two rulemaking activities is provided in Sections III and IV of this document.

When the NRC staff identifies a rulemaking activity that can be discontinued, the NRC staff requests approval from the Commission to discontinue it. The Commission provides its decision in an SRM. If the Commission approves discontinuing the rulemaking activity, the NRC staff will inform the public of the Commission's decision.

A rulemaking activity may be discontinued at any stage in the rulemaking process. For a rulemaking activity that has received public comments, the NRC staff will consider those comments before discontinuing the rulemaking activity; however, the NRC staff will not provide individual comment responses.

After Commission approval to discontinue a rulemaking activity, the NRC staff will update the next edition of the Unified Agenda to indicate that the rulemaking is discontinued. The rulemaking activity will appear in the completed actions section of that edition of the Unified Agenda but will not appear in future editions.

The NRC staff provided an analysis of the potential need to update the radiation protection regulation in SECY-08-0197, “Options to Revise Radiation Protection Regulations and Guidance with Respect to the 2007 Recommendations of the International Commission on Radiological Protection,” dated December 18, 2008 (ADAMS Accession No. ML091310193), to the Commission. SECY-08-0197 presented the regulatory options of more closely aligning the NRC's radiation protection regulatory framework (primarily set forth in 10 CFR part 20) with the 2007 recommendations of the International Commission on Radiological Protection (ICRP) contained in ICRP Publication 103. In the SRM for SECY-08-0197, dated April 2, 2009 (ADAMS Accession No. ML090920103), the Commission approved the NRC staff's recommendation to begin engagement with stakeholders and interested parties to initiate development of the technical basis 1 for a possible revision of the NRC's radiation protection regulations, as appropriate and where scientifically justified, to achieve greater alignment with the recommendations in ICRP Publication 103.

After extensive stakeholder engagement, the NRC staff determined that an additional evaluation of the substantive policy issues was needed. This additional policy evaluation was provided as SECY-12-0064, “Recommendations for Policy and Technical Direction to Revise Radiation Protection Regulations and Guidance,” dated April 25, 2012 (ADAMS Accession No. ML121020108). The paper summarized the NRC staff's interactions with stakeholders as directed by the SRM for SECY-08-0197, and provided recommendations for potential revisions to the NRC's radiation protection regulations.

In the SRM for SECY-12-0064, dated December 17, 2012 (ADAMS Accession No. ML12352A133), the Commission approved in part and disapproved in part the NRC staff's recommendations. Specifically, the Commission approved the NRC staff's development of a draft regulatory basis for a revision to 10 CFR part 20 to align with the most recent methodology and terminology for dose assessment in ICRP Publication 103, including consideration of any conforming changes to all NRC regulations. The Commission directed the NRC staff to develop improvements in the NRC's guidance for those segments of the regulated community that would benefit from more effective implementation of the As Low As is Reasonably Achievable (ALARA) strategies and programs to comply with regulatory requirements. The Commission also directed the NRC staff to continue discussions with stakeholders regarding dose limits for the lens of the eye and the embryo/fetus.

In addition, the Commission directed the NRC staff to continue discussions with stakeholders on alternative approaches to deal with individual protection at or near the current dose limit. Finally, the Commission directed the NRC staff to improve reporting of occupational exposure by the NRC and Agreement State licensees to the NRC's Radiation Exposure Information Reporting System database. In the SRM for SECY-12-0064, the Commission disapproved the NRC staff's recommendations to develop a draft regulatory basis to reduce the occupational total effective dose equivalent from 5 rem (50 mSv) per year to 2 rem (20 mSv) per year. The Commission also disapproved the elimination of traditional or “English” dose units to measure radiation exposure from the NRC's regulations. Rather, the Commission directed the continuation of the use of both traditional and International System (SI) units in the NRC's regulations.

In response to the Commission's direction in the SRM for SECY-12-0064, the NRC staff published an advance notice of proposed rulemaking (ANPR) in the Federal Register (79 FR 43284; July 25, 2014), to obtain input from members of the public and other stakeholders on the development of a regulatory basis that would support potential changes to the NRC's current radiation protection regulations. The ANPR stated that the NRC's goal was to achieve greater alignment between the NRC's radiation protection regulations and the recommendations contained in ICRP Publication 103, primarily with respect to the recommendations concerning dose assessment methodology and terminology.

The NRC received over 90 individual comment letters and almost 3,000 form letters on the 10 CFR part 20 ANPR. Although some comments supported a potential revision of the NRC's regulations to align more closely with ICRP Publication 103 methodology and terminology for dose assessment, the majority of comments did not support revising the 10 CFR part 20 regulations. The major reasons given for not revising the NRC's regulations were the following: (1) The NRC's current regulations remain protective of both occupational workers and members of the public; (2) the ICRP Publication 103 recommendations propose measures that go beyond what is needed to provide adequate protection and are unlikely to yield a substantial increase in safety that is justified in light of its cost; (3) the industry's current operating procedures and practices protect both occupational workers and members of the public and go beyond the applicable regulatory requirements; (4) amending the applicable regulations would place significant resource burdens on licensees resulting in costly modifications to existing facilities that would result in little, if any, improvement in occupational or public radiological safety; (5) the cumulative effect of regulation (CER) resulting from the changes described in the ANPR for 10 CFR part 20, in conjunction with the prospective U.S. Department of Environmental Protection Agency's (EPA) changes to 40 CFR part 190 and to 10 CFR part 50, appendix I, will place substantial resource burdens on licensees, while yielding little or no additional protection of occupational workers or the public; and (6) the NRC actions are premature without the publication of the peer approved implementation documents for the ICRP Publication 103 recommendations.

While some commenters supported the changes described in the ANPR to more closely align with the ICRP Publication 103 methodology and terminology, these commenters also acknowledged that consideration should be given to the resource burden associated with implementation. Some commenters supported the incorporation of the ICRP Publication 103 dose methodology in the form of revisions to include the weighting factors for eight organs, which are the colon, stomach, bladder, liver, esophagus, skin, brain, and salivary glands, but did not support changes to the current NRC dose terminology. On the other hand, one commenter indicated that terminology should be adopted in order to be consistent with the terminology used by the U.S. Department of Energy, as revised in 2007, but use of the updated methodology should be delayed until the updated dose coefficients are published by ICRP. Finally, one commenter supported revision of 10 CFR part 20 to align more closely with ICRP Publication 103 methodology and terminology, but acknowledged that the realignment may result in little, if any, improvement in occupational or public safety.

As explained in SECY-16-0009, the additional resource expenditure in this area did not result in a recommendation for a revised rule. The current NRC regulatory framework continues to provide adequate protection of the health and safety of workers, the public, and the environment. In addition, a majority of the comments submitted and meeting feedback from stakeholders did not support the proposed changes. Therefore, the NRC staff believes that there is minimal adverse impact on the NRC's mission, principles, or values by discontinuing this rulemaking. In the SRM for SECY-16-0009, the Commission approved the NRC staff's recommendation to discontinue this rulemaking.

The NRC published an ANPR in the Federal Register (80 FR 25237; May 4, 2015), to obtain input from members of the public and other stakeholders on the development of a regulatory basis for a potential revision to 10 CFR part 50, appendix I, the NRC's regulations for licensees of light water cooled reactors to meet the ALARA standard with respect to radioactive effluents from such reactor sites. The publication of the 10 CFR part 50, appendix I, ANPR was also in response to the Commission's direction in the SRM for SECY-12-0064, which stated that the NRC staff should, along with the development of the draft regulatory basis for the 10 CFR part 20 regulations, engage in a parallel effort to develop a draft regulatory basis for aligning the 10 CFR part 50, appendix I, design objectives with the most recent terminology and dose-related methodology published in ICRP Publication 103. In the ANPR, the NRC staff identified specific questions and issues with respect to a possible revision of 10 CFR part 50, appendix I, and related guidance. The NRC staff planned to consider public and other stakeholder input on these questions and issues to develop the regulatory basis.

The NRC received 20 comment letters on the 10 CFR part 50, appendix I, ANPR. The comments, in addition to feedback from the August 24, 2015, NRC public meeting held in Rockville, MD, included the following: (1) The potential revisions will result in intangible benefits such as transparency in the regulatory process, consistent terminology and methodology, and comparison of technologies and operations across international borders and environmental media; (2) implementation of the potential revisions will result in a resource burden; (3) the potential revisions are unlikely to be cost-beneficial with little to no incremental improvement in the health and safety of occupational workers, the public, or the environment; (4) in lieu of the potential revisions, limited changes in the NRC guidance to address changes in methodology and terminology would require fewer licensee resources; and (5) should the NRC proceed with rulemaking, consideration of on-going work on the accuracy of the effluent doses to members of the public could further inform the proposed rulemaking.

Overall, the commenters recognized a need to update the NRC's regulations based on the advances in science and technology; however, the implementation costs would be a significant burden to the industry that would not be justified by improvements in public and occupational protection. In addition, some commenters provided additional options for the NRC to consider, should it continue with rulemaking, including limited scope updates to existing NRC guidance.

As explained in SECY-16-0009, the staff recommended that this rulemaking activity be discontinued because during the development of the regulatory basis for the proposed rule change, the staff determined that the regulations do not require changes at this time. Therefore, based on this determination and consideration of the comments received, the NRC staff believes that there is minimal adverse impact on the NRC's mission, principles, or values by discontinuing this rulemaking. In the SRM for SECY-16-0009, the Commission approved the NRC staff's recommendation to discontinue this rulemaking.

The NRC is no longer pursuing the revisions to regulations in 10 CFR part 20 and 10 CFR part 50, appendix I, for the reasons discussed in this document. In the next edition of the Unified Agenda, the NRC will update the entry for these rulemaking activities and reference this document to indicate that they are no longer being pursued. These rulemaking activities will appear in the completed actions section of that edition of the Unified Agenda but will not appear in future editions. If the NRC decides to pursue similar or related rulemaking activities in the future, it will inform the public through new rulemaking entries in the Unified Agenda.

I. Policy Objectives

The Final Rule changes the maximum limit for CMPs according to inflation as mandated by Congress in the 2015 Adjustment Act.1 The intended effect of annually adjusting maximum civil money penalties in accordance with changes in the Consumer Price Index is to minimize any distortion in the real value of those maximums due to inflation, thereby promoting a more consistent deterrent effect in the structure of CMPs. The Final Rule also amends the FDIC's rules of practice and procedure under 12 CFR part 308 to remove a technical error found at 12 CFR 308.132(c).

The FDIC assesses CMPs under section 8(i) of the Federal Deposit Insurance Act (FDIA), 12 U.S.C. 1818, and a variety of other statutes.2 Congress established maximum penalties that could be assessed under these statutes. In many cases, these statutes contain multiple penalty tiers, permitting the assessment of penalties at various levels depending upon the severity of the misconduct at issue.3

In 1990, Congress determined that the assessment of CMPs plays “an important role in deterring violations and furthering the policy goals embodied in such laws and regulations” and concluded that “the impact of many civil monetary penalties has been and is diminished due to the effect of inflation.” 4 Consequently, Congress required federal agencies with authority to impose CMPs to periodically adjust by rulemaking the maximum CMPs which these agencies were authorized to impose in order to “maintain the deterrent effect of civil monetary penalties and promote compliance with the law.” 5 Under the 1990 Adjustment Act, the FDIC adjusted its CMP amounts every four years.6

In 2015, Congress revised the process by which federal agencies adjust applicable CMPs for inflation.7 Under the 2015 Adjustment Act, the FDIC is required to (1) adjust the CMP levels with an initial catch-up adjustment through an interim final rulemaking and (2) make subsequent annual adjustments for inflation.8 The initial and subsequent adjustments apply to all CMPs covered by the 2015 Adjustment Act.9 The FDIC published its interim final rulemaking—containing the initial catch-up adjustments—on June 29, 2016.10 The 2015 Adjustment Act requires subsequent annual adjustments to be made by January 15 of each year.11

Although the 2015 Adjustment Act increases the maximum penalty that may be assessed under each applicable statute, the FDIC possesses discretion to impose CMP amounts below the maximum level in accordance with the severity of the misconduct at issue. When making a determination as to the appropriate level of any given penalty, the FDIC is guided by statutory factors set forth in section 8(i)(2)(G) of the FDIA, 12 U.S.C. 1818(i)(2)(G), and those factors identified in the Interagency Policy Statement Regarding the Assessment of CMPs by the Federal Financial Institutions Regulatory Agencies. 12 Such factors include, but are not limited to, the gravity and duration of the misconduct, and the intent related to the misconduct.

While the 2015 Adjustment Act required the FDIC to initially adjust its maximum CMP amounts through an interim final rulemaking, for subsequent adjustments, the FDIC “shall adjust [CMPs] and shall make the adjustment notwithstanding section 553 of title 5, United States Code” (the Administrative Procedure Act).13 The FDIC, therefore, is not obligated to publish the subsequent adjustments through notice-and-comment rulemaking, and the FDIC is publishing the adjustments through a final rule.

Moreover, the FDIC is correcting a technical error found at 12 CFR 308.132(c). During the last CMP-adjustment process, the FDIC sought to revise 12 CFR 308.132(c) to articulate the FDIC Board's authority to assess CMPs. The FDIC also intended to transfer the substance of current 12 CFR 308.132(c)(2) through 12 CFR 308.132(c)(3)(xvii) to current 12 CFR 308.132(d), and to remove the now-duplicative language of 12 CFR 308.132(c)(2) through 12 CFR 308.132(c)(3)(xvii). The Final Rule amends 12 CFR 308.132(c) accordingly by removing 12 CFR 308.132(c)(2) through 12 CFR 308.132(c)(3)(xvii) and retitling current 12 CFR 308.132(c)(1).

The FDIC believes that all of these changes are technical and ministerial in character, and therefore, the FDIC is not soliciting public comment on the changes.

The Final Rule modifies the maximum limit for CMPs according to inflation as mandated by Congress in the 2015 Adjustment Act. The 2015 Adjustment Act directs federal agencies to follow guidance issued by the Office of Management and Budget (OMB) on December 16, 2016 (OMB Guidance), when calculating new maximum penalty levels.14 The adjustments are to be based on the percent change between the Consumer Price Index for all Urban Consumers (CPI-U) 15 for October 2015 and the October 2016 CPI-U.

In keeping with the OMB Guidance, the FDIC multiplied each of its CMP amounts by the relevant inflation factor.16 After applying the multiplier, the FDIC rounded each penalty level to the nearest dollar. In making these calculations, the FDIC consulted with staff from the Office of the Comptroller of the Currency, the Board of Governors for the Federal Reserve System, the National Credit Union Administration, and the Bureau of Consumer Financial Protection to ensure that the FDIC's calculations and adjustments are consistent with those being proposed by other federal financial regulators for the same statutes.

The following chart displays the adjusted CMP amounts for each CMP identified in 12 CFR part 308.17 The following chart reflects the maximum CMP amounts that may be assessed after January 15, 2017—the effective date of the 2017 annual adjustment—including assessments whose associated violations occurred on or after November 2, 2015.18

The CMP Adjustments are expected to more precisely adjust CMP maximums relative to inflation. These adjustments are expected to minimize any year-to-year distortions in the real value of the CMP maximums. These adjustments will promote a more consistent deterrent effect in the structure of CMPs. As previously noted, the FDIC retains discretion to impose CMP amounts below the maximum level. The actual number and size of CMPs assessed in the future will depend on the propensity and severity of the violations committed by banks and institution-affiliated parties, as well as the particular statute that is at issue. Such future violations cannot be reliably forecast. It is expected that the FDIC will continue to exercise its discretion to impose CMPs that are appropriate to their severity.

The 2015 Adjustment Act will likely result in a minimal increase in administrative costs for the FDIC in order to establish new inflation-adjusted maximum CMPs each year. Because these calculations are relatively simple, the number of labor hours necessary to perform this task is likely to be insignificant relative to total enforcement labor hours for the Corporation.

The 2015 Adjustment Act mandates the frequency of the inflation adjustment and the measure of inflation to be used in making these adjustments. This statute also provides that the FDIC is not required to proceed through notice-and-comment rulemaking under the Administrative Procedure Act in making annual CMP adjustments. Therefore, the FDIC has not considered alternatives to the CMP Adjustments.

The 2015 Adjustment Act requires the FDIC to adjust its maximum CMP amounts “notwithstanding section 553 of title 5, United States Code,” 19 and provides the specific adjustments to be made. Moreover, the CMP Adjustments and the revisions to the CFR are ministerial and technical; therefore, the FDIC is not required to complete a notice-and-comment rulemaking process prior to making the adjustments.

Section 302 of the Riegle Community Development and Regulatory Improvement Act 20 generally requires that regulations prescribed by federal banking agencies which impose additional reporting, disclosures, or other new requirements on insured depository institutions take effect on the first day of a calendar quarter unless the regulation is required to take effect on another date pursuant to another act of Congress or the agency determines for good cause that the regulation should become effective on an earlier date.

This Final Rule does not impose any new or additional reporting, disclosures, or other requirements on insured depository institutions. Therefore, the Final Rule is not subject to the requirements of this statute.

An initial regulatory flexibility analysis under the Regulatory Flexibility Act 21 (RFA) is required only when an agency must publish a general notice of proposed rulemaking. As noted above, the FDIC determined that publication of a notice of proposed rulemaking is not necessary for the Final Rule. Accordingly, the RFA does not require an initial regulatory flexibility analysis. Nevertheless, the FDIC considered the likely impact of Final Rule on small entities. From 2011 through 2015, on average, only 1.6 percent of FDIC-supervised institutions were ordered to pay a CMP each year. Accordingly, the FDIC believes that the Final Rule will not have a significant impact on a substantial number of small entities.

The OMB has determined that the Final Rule is not a “major rule” within the meaning of the relevant sections of the Small Business Regulatory Enforcement Act of 1996 (SBREFA).22 As required by SBREFA, the FDIC will submit the Final Rule and other appropriate reports to Congress and the Government Accountability Office for review.

The FDIC determined that the Final Rule will not affect family wellbeing within the meaning of section 654 of the Omnibus Consolidated and Emergency Supplemental Appropriations Act, 1999.23

The Final Rule does not create any new, or revise any existing, collections of information under section 3504(h) of the Paperwork Reduction Act of 1980.24 Consequently, no information collection request will be submitted to the OMB for review.

Section 722 of the Gramm-Leach-Bliley Act requires the FDIC to use plain language in all proposed and final rules published after January 1, 2000.25 Accordingly, the FDIC has attempted to write the Final Rule in clear and comprehensible language.

I. Background Information

The SBIC Program is an SBA financing program authorized under Title III of the Small Business Investment Act of 1958, 15 U.S.C. 681 et seq. Congress created the Small Business Investment Company (SBIC) program to “stimulate and supplement the flow of private equity capital and long-term loan funds, which small-business concerns need for the sound financing of their business operations and for their growth, expansion, and modernization, and which are not available in adequate supply . . . .” 15 U.S.C. 661. Congress intended that the program “be carried out in such manner as to insure the maximum participation of private financing sources.” Id. In accordance with that policy, SBA does not invest directly in small businesses. Rather, through the SBIC Program, SBA licenses and provides debenture leverage (Leverage) to SBICs. SBICs are privately-owned and professionally managed for-profit investment funds that make loans to, and investments in, qualified small businesses using a combination of privately raised capital and Leverage guaranteed by SBA. SBA will guarantee the repayment of debentures issued by an SBIC based on the amount of qualifying private capital raised by an SBIC up to a maximum amount of $150 million in Leverage.

SBICs are generally prohibited from investing in passive businesses under the Small Business Investment Act of 1958. Prior to this final rule, the SBIC program regulations provided for the following two exceptions that allowed an SBIC to structure an investment utilizing a passive small business as a pass-through:

A. “Holding company exception”—§ 107.720(b)(2): This exception provides conditions under which an SBIC may structure an investment through up to two levels of passive entities to make an investment in a non-passive business that is a subsidiary of the passive business directly financed by the SBIC. The regulation defines a subsidiary company as one in which the financed passive business directly or indirectly owns at least 50% of the outstanding voting securities. As an example, this exception allows an SBIC to finance ABC Holdings 1, a passive small business, with the proceeds flowing through ABC Holdings 2, another passive small business, and then to ABC Manufacturing, a non-passive small business in which ABC Holdings 1 owns directly or indirectly at least 50% of the outstanding voting securities.

B. “Blocker corporation exception”—§ 107.720(b)(3): This exception enables a partnership SBIC, with SBA's prior approval, to provide financing to a small business through a passive, wholly-owned C corporation, but only if a direct financing would cause one or more of the SBIC's investors to incur Unrelated Business Taxable Income (UBTI). A passive C corporation formed under the second exception is commonly known as a blocker corporation.

On October 5, 2015, SBA published a proposed rule (80 FR 60077) to further expand the permitted use of passive businesses, provide clarification with regard to investments in such businesses, and make minor technical clarifications. SBA received three comments on the proposed rule, not including one comment that generally questioned the fairness of the Act as a whole and did not provide any specific comments on the rule. The three comments pertinent to the rule are addressed in Section II.

Section II also discusses a conforming regulatory change to implement Section 521 of the Consolidated Appropriations Act, 2016 which increased the maximum leverage available to two or more SBICs under common control from $225 million to $350 million.

1. Changes to Holding Company Exception § 107.720(b)(2): SBA proposed revisions to § 107.720(b)(2) to explicitly permit an SBIC to form and finance a passive business that will either pass the proceeds through to or use the proceeds to acquire all or part of a non-passive business. These changes were intended to codify SBA's existing interpretation of the regulations.

SBA received 2 comments on § 107.720(b)(2) indicating that the proposed changes would be more effective if the passive business directly financed was not required to own at least 50 percent of the underlying active business. Commenters suggested that SBICs be allowed to structure investments using passive investment vehicles “irrespective of the number of parent entities involved so long as the parent entities in question directly or indirectly own or control at least 50 percent of the voting or economic interests of the active business.” SBA received similar comments as part of the rulemaking process when it last proposed expanding the permitted use of passive businesses. SBA reconsidered these previous suggestions in developing this current rule; however, in light of the additional protections added in this final rule (see the discussion of § 107.720(b)(4) in paragraph II.A.3 of this preamble), neither set of comments was adopted. Although the new § 107.720(b)(4) should help address some of SBA's credit concerns, SBA believes that controlling ownership provisions are needed to facilitate access to information and records needed to effectively monitor these transactions and to aid in the recovery of assets in the event of a default. SBA also continues to maintain its position that effective monitoring of transactions with unlimited levels of passive companies would require resources well beyond those available to the Agency. Proposed § 107.720(b)(2) is adopted without change.

2. Changes to Blocker Corporation Exception—§ 107.720(b)(3): The proposed rule also included the following changes to § 107.720(b)(3):

a. Removing the requirement to obtain SBA's prior approval to form a blocker corporation;

b. Permitting an SBIC to form a blocker corporation to enable any foreign investors to avoid effectively connected income (ECI) under the Internal Revenue Code;

c. Permitting a blocker corporation to provide financing to a second passive small business that passes the proceeds through to a non-passive small business in which it owns at least 50 percent of the outstanding voting securities (effectively permitting an investment structured with two levels of passive companies, one of which is the blocker corporation); and

d. Removing outdated language indicating that an SBIC's ownership of a blocker corporation formed under § 107.720(b)(3) will not constitute a violation of § 107.865(a). This provision was rendered unnecessary by a rule change in 2002 (67 FR 64789) that revised § 107.865(a) to permit an SBIC to exercise control over a small business for up to seven years without SBA approval.

SBA received comments on proposed § 107.720(b)(3) as discussed below:

a. Regulated Investment Company (RIC) Exception. All 3 commenters asked that the regulations provide an additional exception for SBICs that are wholly owned subsidiaries of Business Development Companies (BDCs). A BDC typically elects to be taxed as a RIC pursuant to Subchapter M of the Internal Revenue Code of 1986. In general, a RIC is not subject to U.S. federal income taxes on income and gains that it distributes to stockholders, provided that it satisfies certain minimum distribution requirements. To qualify as a RIC, a BDC must satisfy certain source of income and asset-diversification tests; among other things, a RIC must generally derive at least 90% of its gross income for each taxable year from certain types of investment. In particular, the commenters explained that equity interests in pass-through tax entities generate operating income that, if received or deemed received directly by a BDC, could disqualify the BDC from maintaining RIC status, and therefore, such interests must often be held through a blocker corporation. The commenters requested that § 107.720(b)(3) be revised to permit an SBIC to form a blocker corporation to avoid adverse tax consequences to an investor that has elected to be taxed as a RIC. This final rule adopts the suggestion.

b. Blocker Entity Form of Organization. SBA also received two comments suggesting that non-corporate forms of organization should be permitted for blocker entities. The commenters explained that these structures are often “more streamlined in terms of corporate formalities than a C corporation” and suggested the regulations allow “any entity that elects to be taxed as a corporation for Federal income tax purposes.” SBA considered this suggestion to be overly broad, but partially adopted this suggestion in the final rule by allowing a blocker entity to be structured as an LLC that elects to be taxed as a corporation.

c. Two Level Holding Company Financing. Two commenters indicated that § 107.720(b)(3) should allow SBICs to structure a financing with a blocker entity and then two levels of passive holding companies as defined in § 107.720(b)(2). The commenters stated that the proposed rule puts an SBIC that requires a blocker entity to accommodate its investors at a disadvantage compared to other SBICs that do not require a blocker entity, since the blocker entity can only finance a single passive business entity that in turn makes an investment into an active business. For example, an SBIC with a foreign investor would not be able to participate in a financing that is structured as a two-level passive business financing under 107.720(b)(2), if they also needed a separate passive business to serve as a blocker entity in order to avoid effectively connected income. However, SBA believes that one of the other passive businesses permitted under § 107.720(b)(2) could possibly be used as a blocker. The commenters' suggestion would effectively permit up to three levels of passive businesses between the SBIC and the operating business. SBA did not adopt this suggestion because additional levels of passive businesses impose a burden on SBA as regulator and increase the Agency's credit risk. SBA believes that two levels of passive businesses under either exception should provide SBICs with sufficient flexibility to operate successfully.

d. SBA did not receive any comments on the proposed change to § 107.720(b)(3) regarding the removal of outdated language. This rule adopts the change as proposed.

3. Additional Passive Business Guidance—§ 107.720(b)(4): The proposed rule identified SBA's concerns with regard to passive investments, including making sure the financing dollars go to the eligible non-passive small business, fees being charged at each passive business level, and SBA's ability to access passive business financial records, especially in the case of a defaulting SBIC. To address these concerns, SBA proposed making the the following changes in new § 107.720(b)(4), which would apply to any eligible passive investment made under § 107.720(b)(2) or (b)(3):

a. “Substantially All” Definition. Clarifying the meaning of “substantially all” in § 107.720(b)(2) and (b)(3) to mean 99 percent of the financing proceeds after deduction of actual application fees, closing fees, and expense reimbursements, which may not exceed those permitted under § 107.860.

b. Fee Requirements. Requiring fees charged by an SBIC or its Associate under §§ 107.860 and 107.900 to not exceed those permitted if the SBIC had directly financed the eligible Small Business and requiring any such fees received by an SBIC's Associate to be paid to the SBIC in cash within 30 days of receipt.

c. “Portfolio Concern” Clarification. Clarifying that both passive and non-passive businesses included in a financing are “Portfolio Concerns” and therefore subject to record keeping and reporting obligations with respect to any “Portfolio Concern,” defined in § 107.50 as “a Small Business Assisted by a Licensee.”

SBA received 3 comments on proposed § 107.720(b)(4) as discussed below:

a. “Substantially All” Definition. Commenters suggested that the definition of “substantially all” be lowered to 95 percent of the proceeds instead of 99% of the proceeds because they were concerned that the 99 percent threshold “may be too limiting and pose issues in deal structuring.” SBA did not adopt this comment. The definition already excludes allowable fees and expense reimbursements permitted under §§ 107.860 and 107.900, and SBA believes that a 95 percent threshold could result in excessive expenses being charged in the passive businesses that is diverted from the intended operating business. Although this percentage may seem inconsequential, 4% of a $20 million financing represents $800,000 that could be diverted from the operating business.

b. Fee Requirements. Two commenters suggested removing the requirement that fees received by an Associate must be paid over in cash to the SBIC. They noted that SBIC program policy guidance known as TechNote 7a, which provides guidelines concerning allowable management expenses for leveraged SBICs (see www.sba.gov/sbicpolicy), already requires that 100% of fees collected under § 107.860 or § 107.900 must benefit the SBIC, either by being paid directly to the SBIC or (if paid to an Associate) through a corresponding reduction in the management fee paid by the SBIC, typically called a “management fee offset.” Commenters also indicated that management fee offsets have tax advantages relative to other approaches. Although SBA recognizes that management fee offsets can provide tax advantages, SBA did not adopt this suggestion because of the difficulty in monitoring investments utilizing passive businesses and identifying fees associated with each passive business in addition to those paid by the operating business.

c. “Portfolio Concern” Clarification. Two commenters indicated that the clarification of Portfolio Concern should be revised to apply only “for the purposes of this part 107.720” to avoid any unintended effects arising from the use of the term “Portfolio Concern” in other sections of the regulations. The commenters indicated that this adjustment would still allow SBA to retain the necessary information rights contemplated by the proposed rule. A search for the term “Portfolio Concern” within the regulations identified the following instances.

• § 107.50 defines “Portfolio Concern” as “a Small Business Assisted by a Licensee.”

• §§ 107.600-107.660 describe record keeping and information requirements, including those for a Portfolio Concern.

• § 107.730 discusses conflicts of interest with regards to Portfolio Concerns.

• § 107.760 discusses how a change in size or activity affect the Licensee with regards to a Portfolio Concern.

• § 107.850 discusses restrictions on redemption of Equity Securities of a Portfolio Concern.

SBA believes that all of the requirements in these sections are applicable to passive business financings. Therefore, this suggestion was not adopted.

4. Section 107.610 Required certifications for Loans and Investments. The proposed rule also added a certification requirement to § 107.610 to require an SBIC that finances a business under § 107.720(b)(3) to certify as to the qualifying basis for such financing. The certification replaces the requirement for SBA prior approval of the formation and financing of a blocker corporation.

Although SBA received no comments on proposed § 107.610, because SBA adopted the suggestion to allow SBICs that are BDC subsidiaries to form blocker entities in order to maintain the BDC's RIC status under § 107.720 (b)(3), the language in the final rule adds compliance with this tax election as a permissible basis for a passive business formed under § 107.720(b)(3).

SBA also proposed the following technical changes to the regulations.

1. Section 107.50 Definition of terms. Changing “Associates's” to “Associate's”.

2. Section 107.210 Minimum capital requirements for Licensees. Modifying paragraph (a) of § 107.210 to allow both Leverageable Capital and Regulatory Capital to fall below the stated minimums if the reductions are performed in accordance with an SBA-approved wind-up plan per § 107.590(c), to conform with SBA's current oversight practices.

3. Section 107.503 Licensee's adoption of an approved valuation policy. Changing the last sentence of § 107.503(a) to indicate that valuation guidelines for SBICs may be obtained from the SBIC program's public Web site, www.sba.gov/inv.

4. Section 107.630 Requirement for Licensees to file financial statements with SBA (Form 468). Removing current § 107.630(d), which provides a mailing address for submission of SBA Form 468, and re-designating paragraph (e) as paragraph (d). These instructions are no longer necessary because SBICs submit this information electronically using the SBA's web-based application.

5. Section 107.1100 Types of Leverage and application procedures. Correcting the misspelling of “Yu” to “You” and removing paragraph (c) which identifies where to send Leverage applications. This paragraph is unnecessary because the application forms provide these instructions.

None of the comments SBA received in response to the proposed rule were related to these technical changes. The final rule incorporates these changes as proposed.

Section 521 of the Consolidated Appropriations Act, 2016, Public Law 114-113, 129 Stat. 2242, (December 22, 2015) amended section 303(b)(2) of the Small Business Investment Act of 1958 to increase the maximum amount of Leverage available to two or more SBICs under Common Control from $225 million to $350 million. SBA defines Common Control to mean a condition where two or more persons, either through ownership, management, contract, or otherwise, are under the control of one group or person. Under 13 CFR 107.50, SBA presumes that two or more SBICs are under Common Control if, among other things, they have common officers, directors, or general partners. Currently, 13 CFR 107.1150(b) limits two or more SBICs under Common Control to the maximum aggregate amount of outstanding Leverage of $225 million, which amount is subject to further limitations under SBA's credit policies. Solely as a conforming change, this rule increases the maximum amount set forth in the regulation from $225 million to $350 million. This statutory change was not addressed previously because it had not yet been enacted when the rule was proposed. Now that it has, the technical change is necessary to avoid public confusion and ensure consistency between the regulations and the current law.

The Office of Management and Budget has determined that this rule is not a “significant” regulatory action under Executive Order 12866. This is also not a “major” rule under the Congressional Review Act, 5 U.S.C. 801, et seq.

This action meets applicable standards set forth in section 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden. The action does not have retroactive or presumptive effect.

The final rule would not have substantial direct effects on the States, or the distribution of power and responsibilities among the various levels of government. Therefore, for the purposes of Executive Order 13132, Federalism, SBA determines that this rule has no federalism implications warranting the preparation of a federalism assessment.

This final rule was developed in response to comments received on previously proposed amendments to these regulations on investments in passive businesses. See 78 FR 77377 (December 23, 2013). SBA received one set of comments on that rule that suggested changes to further liberalize permitted financings to passive businesses under Sec. 107.720(b). In response to the comment, SBA indicated in the final rule (79 FR 62819) that it would further consider the suggested changes in a future rulemaking. As part of that reconsideration, SBA discussed the comments with industry representatives and solicited additional comments in the proposed rule published in October 2015 at 80 FR 60077. This final rule reflects the input received from those public outreach efforts.

SBA has determined that this rule would impose additional reporting and recordkeeping requirements under the Paperwork Reduction Act. In particular, this rule implements changes to the Portfolio Financing Report, SBA Form 1031 (OMB Control Number 3245-0078), to clarify information to be reported in Parts A, B, and C of the form. The changes, described in detail below, also include designating current Part D as Part F and adding new Parts D and E.

The title, description of respondents, description of the information collection and the changes to it are discussed below with an estimate of the revised annual burden. Included in the estimate is the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing each collection of information.

Title: Portfolio Financing Report, SBA Form 1031 (OMB Control Number 3245-0078).

Summary: SBA Form 1031 is a currently approved information collection. SBA regulations, specifically § 107.640, require all SBICs to submit a Portfolio Financing Report using SBA Form 1031 for each financing that an SBIC provides to a Small Business Concern within 30 days after closing an investment. SBA uses the information provided on Form 1031 to evaluate SBIC compliance with regulatory requirements. The form is also SBA's primary source of information for compiling statistics on the SBIC program as a provider of capital to small businesses. The proposed rule (80 FR 60077) invited the public to provide comments on the following changes to SBA Form 1031:

(1) Clarifying the SBIC should report the non-passive Small Business Concern information in the Form 1031. SBA has noted that SBICs sometimes report data on the passive Small Business Concern rather than the non-passive Small Business Concern when reporting financing information. SBA has clarified that the SBIC should report data on the non-passive Small Business Concern when reporting information on financings using passive businesses in the Form 1031 Part A—the Small Business Concern; Part B—the pre-financing data; and Part C—the financing information, with the exception of the financing dollars in Question 29. The amount of financing dollars provided by the SBIC should be the total amount of such financing, regardless of whether the dollars were provided directly or indirectly to the non-passive business concern. Example: The SBIC provides $5 million in equity to ABC Holding Corporation, which passes $4.98 million to the non-passive business, Acme Manufacturing LLC. In addition, the SBIC provides $5 million in debt directly to Acme Manufacturing LLC. The SBIC would report information on Acme Manufacturing LLC in Parts A, B, and C. However, the total financing dollars would be reported as $5 million in equity and $5 million in debt for a total of $10 million in total financing dollars.

(2) Identifying financings using one or more passive businesses. SBA has added a question on whether the financing utilizes one or more passive businesses as part of the financing, to help SBA identify these financings.

(3) Adding information on passive business financings to aid in regulatory compliance monitoring. SBA has also added a requirement for SBICs to upload a file in Portable Document Format (PDF) that contains the following information, which SBA will use to help assess whether the financing meets regulatory compliance:

(a) Qualifying exception: Identification of the passive business exception under which the financing is made (i.e., § 107.720(b)(2) Exception for pass-through of proceeds to subsidiary, or § 107.720(b)(3) Exception for certain Partnership Licensees). If the SBIC indicates that the financing is made under § 107.720(b)(3), it would also indicate the qualifying basis for the financing (i.e., financing would cause an investor in the fund to incur unrelated business taxable income or effectively connected income or to receive non-qualifying income for a regulated investment company).

(b) Passive Business Entities: Identification of the name and employer ID number for each passive business entity used within the financing. This is needed so that SBA can identify all Portfolio Concerns involved in the financing.

(c) Financing Structure Description: A description of the financing structure, including the flow of the money between the SBIC and the non-passive Small Business Concern that receives the proceeds (including amounts and types of securities between each entity), and the ownership from the SBIC through each entity to the non-passive Small Business Concern. This information will help SBA assess that the Small Business Concern receives “substantially all” the financing dollars and the ownership percentages are in compliance with the regulations. This will also help SBA with SBICs transferred to the Office of Liquidation to identify the structure of the financing and aid in recovery of SBA leverage.

(4) Impact Fund Policy Initiative: Finally, a new Part D, consisting of two questions concerning whether the investment is a fund-identified impact investment or SBA-identified impact investment has been added to the Form. This change provides a vehicle for SBICs licensed to participate in SBA's Impact Investment Fund (Impact SBICs to more clearly report whether they are reporting on an SBA-identified impact investment or a Fund-identified impact investment. The Impact Investment Fund was launched in April 2011 as part of President Obama's Start-Up America Initiative. See, [https://www.sba.gov/about-sba/sba-initiatives/startup-america/about-startup-america.] The initiative was amended in September 2014 to allow Impact SBICs to invest in self-identified impact investments. [https://www.sba.gov/sites/default/files/articles/SBA%20Impact%20Investment%20Fund%20Policy%20-%20September%202014_1.pdf or https://www.sba.gov/content/new-2014-expanding-sbas-impact-fund] While Impact SBICs, like all SBICS use Form 1031 to report on their financings, SBA has determined that it would be beneficial to Impact SBICs if SBA Form 1031 were to include questions specifically targeted towards impact investments.

SBA did not receive any comments on the changes; therefore, they are adopted as proposed.

Description of Respondents and Burden: There are approximately 299 licensed SBICs. All of these SBICs are required to submit SBA Form 1031 for each financing. The current estimated number of responses (i.e., number of financings) is 2,021 based on a recent three year period (FY 2012 through 2014). The current estimate indicates that it takes approximately 12 minutes to complete the form, for a total annual burden of 404 hours.

Neither the number of respondents nor the number of responses per year is expected to be affected by this rule. However, SBA estimates a slight increase in the burden hour as a result of the additional reporting in new Parts D (Impact Investments) and Part E (Passive Business).

Impact Fund Reporting. This reporting is expected to have minimal impact. The estimated eight SBICs making impact investments would complete new Part D an estimated total 56 times annually. At an estimated 2 minutes per response, this additional reporting would add 2 hours to the annual burden for Form 1031.

Passive Business Reporting. SBA believes that the SBIC should be able to provide the passive business information since it should be readily available as part of the financing. SBA estimates that providing the information will take on average an additional 30 minutes for those financings utilizing passive businesses, with no incremental burden for those financings that do not use a passive business. SBA estimates that about 12% of the annual responses relate to passive businesses financings (based on financing data in 2014). Based on the number of SBICs reporting such financings the total estimated annual hour burden resulting from new Part E reporting would be 122.

Therefore the total estimated annual hour burden for all SBICs submitting SBA Form 1031s in a year would be 528 hours.

The current cost estimate for completing SBA Form 1031 uses a rate of $35 per hour for an accounting manager to fill out the form. Using that same rate, the cost per form would change from $7 per form to $9.14 per form. However, SBA has increased its estimate of an hourly rate for an accounting manager to $43 per hour (estimated using www1.salary.com/Accounting-Manager-hourly-wages.html in July 2015), which rate results in a new cost per form of $11.23 for an aggregate cost of $22,704 for the 2,021 estimated responses.

This final rule also identifies information that an SBIC must maintain in its files to support the required changes. SBA believes that the SBICs should already be maintaining this information since a passive business by definition is a Portfolio Concern and the SBIC should be maintaining all documents needed to support each financing. The rule makes this expectation explicit. Furthermore, currently, an SBIC must maintain this information for it to effectively monitor and evaluate an investment that uses a passive business to finance a non-passive business. Therefore, SBA does not believe this recordkeeping requirement increases the burden.

The rule also requires a certification under § 107.610 when the SBIC makes a financing using the exemption in § 107.720(b)(3). This includes maintaining records supporting the certification. Since this regulation effectively replaces the requirement for SBICs to seek prior SBA approval and maintain these records, SBA does not believe this change will increase the burden.

The Regulatory Flexibility Act (RFA), 5 U.S.C. 601, requires administrative agencies to consider the effect of their actions on small entities, small non-profit businesses, and small local governments. Pursuant to the RFA, when an agency issues a rule, the agency must prepare an Initial Regulatory Flexibility Act (IRFA) analysis which describes whether the impact of the rule will have a significant economic impact on a substantial number of small entities. However, Section 605 of the RFA allows an agency to certify a rule, in lieu of preparing an IRFA, if the rulemaking is not expected to have a significant economic impact on a substantial number of small entities. This rule would affect all SBICs, of which there are currently close to 300. SBA estimates that approximately 75 percent of these SBICs are small entities. Therefore, SBA has determined that this rule would have an impact on a substantial number of small entities. However, SBA has determined that the economic impact on entities affected by the rule would not be significant. As discussed under the Paperwork Reduction Act section, SBICs would need to provide descriptions of the transactions in the Form 1031, which based on the estimate would cost each SBIC approximately $28 per year. The changes in the passive business regulation provide SBICs with additional flexibility to employ transaction structures commonly used by private equity or venture capital funds that are not SBICs.

SBA asserts that the economic impact of the rule, if any, would be minimal and beneficial to small SBICs. Accordingly, the Administrator of the SBA certifies that this rule would not have a significant economic impact on a substantial number of small entities.

For the reasons stated in the preamble, the Small Business Administration amends 13 CFR part 107 as follows:

Comments Invited

This AD is a final rule that involves requirements affecting flight safety, and we did not provide you with notice and an opportunity to provide your comments prior to it becoming effective. However, we invite you to participate in this rulemaking by submitting written comments, data, or views. We also invite comments relating to the economic, environmental, energy, or federalism impacts that resulted from adopting this AD. The most helpful comments reference a specific portion of the AD, explain the reason for any recommended change, and include supporting data. To ensure the docket does not contain duplicate comments, commenters should send only one copy of written comments, or if comments are filed electronically, commenters should submit them only one time. We will file in the docket all comments that we receive, as well as a report summarizing each substantive public contact with FAA personnel concerning this rulemaking during the comment period. We will consider all the comments we receive and may conduct additional rulemaking based on those comments.

On November 16, 2016, we issued Emergency AD 2016-24-51 to correct an unsafe condition on Sikorsky Model S-92A helicopters with a TR pitch change shaft (TRPCS) assembly part number (P/N) 92358-06303-041 or P/N 92358-06303-042. Emergency AD 2016-24-51 was sent previously to all known U.S. owners and operators of these helicopters. Emergency AD 2016-24-51 requires removing TRPCS assemblies with less than 5 hours time-in-service (TIS) since new or overhaul from service. Emergency AD 2016-24-51 also requires, for TRPCS assemblies with between 5 and 80 hours TIS since new or overhaul, borescope inspecting the TRPCS bearings and inspecting the angular contact bearing to determine whether there is free rotation, purged grease with metal particles, nicks or dents, or a cut, tear, or distortion on the bearing seal. If the bearings do not pass these inspections, Emergency AD 2016-24-51 requires replacing the TRPCS assembly.

Emergency AD 2016-24-51 was prompted by a report of an operator losing TR control while in a hover. A preliminary investigation determined that binding in the TRPCS assembly double row angular contact bearing (bearing) resulted in reduced TR control. The investigation also found signs of excessive heat, which is an indicator of a binding bearing. Because binding will result in bearing failure rapidly, we limited Emergency AD 2016-24-51 to TRPCS assemblies with less than 80 hours time-in-service (TIS). The actions in Emergency AD 2016-24-51 are intended to detect a binding bearing and prevent loss of TR control and possible loss of control of the helicopter.

We are issuing this AD because we evaluated all the relevant information and determined the unsafe condition described previously is likely to exist or develop in other products of the same type design.

We reviewed Sikorsky Alert Service Bulletin 92-64-009, Basic Issue, dated November 2, 2016 (ASB 92-64-009). ASB 92-64-009 describes procedures for inspecting the TRPCS and bearing assemblies for damaged bearings and seals, purged grease with any metallic particles from the bearings, radial play in the bearings, and correct installation of the white Teflon seals, snap rings, and cotter pin.

For helicopters with a TRPCS assembly P/N 92358-06303-041 or P/N 92358-06303-042 with less than 80 hours TIS installed, this AD requires:

• Removing from service TRPCS assemblies with less than 5 hours TIS since new or overhaul;

• For TRPCS assemblies with 5 or more hours TIS since new or overhaul, borescope inspecting the TRPCS bearing for damaged, incorrectly installed, or missing seals and inspecting the angular contact bearing for free rotation, purged grease with metallic particles, and damaged seals. If the TRPCS assembly has less than 10 hours TIS, performing a ground operation until the TRPCS assembly accumulates 10 hours TIS before performing the inspection on the angular contact bearing; and

• Replacing the TRPCS assembly if there is a missing, damaged, or incorrectly installed seal, snap ring, or cotter pin or if the bearing does not rotate freely, or if there is any purged grease with metallic particles.

This AD does not apply to helicopters with a TRPCS assembly manufactured or overhauled on or after November 3, 2016.

ASB 92-64-009 requires operators to contact Sikorsky if there are any discrepancies, and this AD does not. ASB 92-64-009 allows 20 hours TIS to perform the visual bearing inspection if the borescope inspection has already been performed, while this AD allows 20 hours TIS for TRPCS assemblies with 15 or more hours TIS.

We estimate that this AD will affect 80 helicopters of U.S. Registry.

We estimate that operators may incur the following costs in order to comply with this AD. At an average labor rate of $85 per hour, borescope and visually inspecting the TRPCS assembly will require 16 work-hours, for a cost per helicopter of $1,360 and a cost of $108,800 for the U.S. fleet. If required, replacing a TRPCS assembly will require 16 work-hours and required parts will cost $4,000, for a cost per helicopter of $5,360.

According to Sikorsky's service information, some of the costs of this AD may be covered under warranty, thereby reducing the cost impact on affected individuals. We do not control warranty coverage by Sikorsky. Accordingly, we have included all costs in our cost estimate.

Providing an opportunity for public comments prior to adopting these AD requirements would delay implementing the safety actions needed to correct this known unsafe condition. Therefore, we found and continue to find that the risk to the flying public justifies waiving notice and comment prior to the adoption of this rule because the previously described unsafe condition can result in loss of TR control and certain actions must be accomplished before further flight or within 20 hours TIS, a very short interval for these helicopters.

Since it was found that immediate corrective action was required, notice and opportunity for prior public comments before issuing this AD were impracticable and contrary to public interest and good cause existed to make the AD effective immediately by Emergency AD 2016-24-51, issued on November 16, 2016, to all known U.S. owners and operators of these helicopters. These conditions still exists and the AD is hereby published in the Federal Register as an amendment to section 39.13 of the Federal Aviation Regulations (14 CFR 39.13) to make it effective to all persons.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. “Subtitle VII: Aviation Programs,” describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in “Subtitle VII, Part A, Subpart III, Section 44701: General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

We determined that this AD will not have federalism implications under Executive Order 13132. This AD will not have 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.

For the reasons discussed, I certify that this AD:

1. Is not a “significant regulatory action” under Executive Order 12866;

2. Is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979);

3. Will not affect intrastate aviation in Alaska to the extent that it justifies making a regulatory distinction; and

4. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

We prepared an economic evaluation of the estimated costs to comply with this AD and placed it in the AD docket.

Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:

Authority for this Rulemaking

The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the United States Code. Subtitle I, Section 106 describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority. This rulemaking is promulgated under the authority described in Subtitle VII, Part A, Subpart I, Section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it establishes controlled airspace at Healy River Airport, Healy, AK.

On October 14, 2016, the FAA published in the Federal Register a notice of proposed rulemaking (NPRM) to establish Class E airspace extending upward from 700 feet above the surface at Healy River Airport, Healy, AK. (81 FR 71017) Docket FAA-2016-9159. Interested parties were invited to participate in this rulemaking effort by submitting written comments on the proposal to the FAA. One comment was received from Greysen Harlow supporting the proposal.

Class E airspace designations are published in paragraph 6005 of FAA Order 7400.11A, dated August 3, 2016, and effective September 15, 2016, which is incorporated by reference in 14 CFR part 71.1. The Class E airspace designation listed in this document will be published subsequently in the Order.

This document amends FAA Order 7400.11A, Airspace Designations and Reporting Points, dated August 3, 2016, and effective September 15, 2016. FAA Order 7400.11A is publicly available as listed in the ADDRESSES section of this document. FAA Order 7400.11A lists Class A, B, C, D, and E airspace areas, air traffic service routes, and reporting points.

This amendment to Title 14, Code of Federal Regulations (14 CFR) part 71 establishes Class E airspace extending upward from 700 feet above the surface within a 3.5-mile radius of Healy River Airport, with segments extending from the 3.5-mile radius to 11.5 miles northwest of the airport, and 10.5 miles south of the airport. This airspace is established to accommodate new RNAV Global Positioning System standard instrument approach and departure procedures developed for IFR operations the airport.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current, is non-controversial and unlikely to result in adverse or negative comments. It, therefore: (1) Is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a Regulatory Evaluation as the anticipated impact is so minimal. Since this is a routine matter that only affects air traffic procedures and air navigation, it is certified that this rule, when promulgated, does not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

The FAA has determined that this action qualifies for categorical exclusion under the National Environmental Policy Act in accordance with FAA Order 1050.1F, “Environmental Impacts: Policies and Procedures,” paragraph 5-6.5a. This airspace action is not expected to cause any potentially significant environmental impacts, and no extraordinary circumstances exist that warrant preparation of an environmental assessment.

In consideration of the foregoing, the Federal Aviation Administration amends 14 CFR part 71 as follows:

Authority for This Rulemaking

The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the United States Code. Subtitle I, Section 106 describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority. This rulemaking is promulgated under the authority described in Subtitle VII, Part A, Subpart I, Section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it amends Class E airspace at the Blue Mesa VOR/DME, Blue Mesa, CO.

On August 8, 2016, the FAA published in the Federal Register a notice of proposed rulemaking (NPRM) to amend Class E airspace extending upward from 1,200 feet above the surface at Blue Mesa, CO (81 FR 52369) Docket FAA-2016-7043. Interested parties were invited to participate in this rulemaking effort by submitting written comments on the proposal to the FAA. No comments were received.

Class E airspace designations are published in paragraph 6006 of FAA Order 7400.11A, dated August 3, 2016, and effective September 15, 2016, which is incorporated by reference in 14 CFR part 71.1. The Class E airspace designation listed in this document will be published subsequently in the Order.

This document amends FAA Order 7400.11A, Airspace Designations and Reporting Points, dated August 3, 2016, and effective September 15, 2016. FAA Order 7400.11A is publicly available as listed in the ADDRESSES section of this document. FAA Order 7400.11A lists Class A, B, C, D, and E airspace areas, air traffic service routes, and reporting points.

The FAA is amending Title 14 Code of Federal Regulations (14 CFR) Part 71 by modifying Class E En route domestic airspace extending upward from 1,200 feet above the surface in the vicinity of the Blue Mesa VOR/DME, Blue Mesa, CO. One small airspace area northwest, near Montrose, CO, and one small airspace area southeast, near Trinidad, CO, are added for the safety and management of IFR operations, specifically point-to-point, en route operations outside of the established airway structure, and Air Traffic Control vectoring services.

Class E airspace designations are published in paragraph 6006 of FAA Order 7400.11A, dated August, and effective September 15, 2016, which is incorporated by reference in 14 CFR 71.1. The Class E airspace designations listed in this document will be published subsequently in the Order.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current, is non-controversial and unlikely to result in adverse or negative comments. It, therefore: (1) Is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a Regulatory Evaluation as the anticipated impact is so minimal. Since this is a routine matter that only affects air traffic procedures and air navigation, it is certified that this rule, when promulgated, does not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

The FAA has determined that this action qualifies for categorical exclusion under the National Environmental Policy Act in accordance with FAA Order 1050.1F, “Environmental Impacts: Policies and Procedures,” paragraph 5-6.5a. This airspace action is not expected to cause any potentially significant environmental impacts, and no extraordinary circumstances exist that warrant preparation of an environmental assessment.

In consideration of the foregoing, the Federal Aviation Administration amends 14 CFR part 71 as follows:

Authority for This Rulemaking

The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the United States Code. Subtitle I, Section 106 describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority. This rulemaking is promulgated under the authority described in Subtitle VII, Part A, Subpart I, Section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it modifies controlled airspace at Kahului Airport, Kahului, HI.

On August 12, 2016, the FAA published in the Federal Register a notice of proposed rulemaking (NPRM) to modify Class E airspace at Kahului Airport, Kahului, HI (81 FR 53342) Docket No. FAA-2014-1068. Interested parties were invited to participate in this rulemaking effort by submitting written comments on the proposal to the FAA. No comments were received.

Class E airspace designations are published in paragraph 6003 and 6005, respectively, of FAA Order 7400.11A, dated August 3, 2016, and effective September 15, 2016, which is incorporated by reference in 14 CFR part 71.1. The Class E airspace designation listed in this document will be published subsequently in the Order.

This document amends FAA Order 7400.11A, Airspace Designations and Reporting Points, dated August 3, 2016, and effective September 15, 2016. FAA Order 7400.11A is publicly available as listed in the ADDRESSES section of this document. FAA Order 7400.11A lists Class A, B, C, D, and E airspace areas, air traffic service routes, and reporting points.

The FAA is amending Title 14 Code of Federal Regulations (14 CFR) Part 71 by modifying the Kahului Airport, Kahului, HI, Class E airspace area designated as an extension to a Class C surface area, to include that area within 3 miles each side of the airport 203° bearing extending from the airport 5-mile radius to 7 miles southwest of the airport, and removing the extension to the northeast as it is no longer required.

This action also modifies the Class E airspace area extending upward from 700 feet above the surface by slightly expanding that airspace within 3.6 miles each side of the 038° bearing from the airport extending from the 5-mile radius to 11.7 miles northeast of the airport. This modification is necessary to contain IFR arrival operations descending below 1,500 feet above the surface, and IFR departure operations below 1,200 feet above the surface. Also, the Maui VORTAC navigation aid is removed from the legal descriptions in the Class E airspace areas noted above. Changes to the available instrument flight procedures, advances in GPS mapping accuracy, and a reliance on precise geographic coordinates to define airport and airspace reference points have made this action necessary for the safety and management of Instrument Flight Rules (IFR) operations at the airport.

Class E airspace designations are published in paragraphs 6003, and 6005, respectively, of FAA Order 7400.11A, dated August 3, 2016, and effective September 15, 2016, which is incorporated by reference in 14 CFR 71.1. The Class E airspace designations listed in this document will be published subsequently in the Order.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current, is non-controversial and unlikely to result in adverse or negative comments. It, therefore: (1) Is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a Regulatory Evaluation as the anticipated impact is so minimal. Since this is a routine matter that only affects air traffic procedures and air navigation, it is certified that this rule, when promulgated, does not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

The FAA has determined that this action qualifies for categorical exclusion under the National Environmental Policy Act in accordance with FAA Order 1050.1F, “Environmental Impacts: Policies and Procedures,” paragraph 5-6.5a. This airspace action is not expected to cause any potentially significant environmental impacts, and no extraordinary circumstances exist that warrant preparation of an environmental assessment.

In consideration of the foregoing, the Federal Aviation Administration amends 14 CFR part 71 as follows:

Authority for This Rulemaking

The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the United States Code. Subtitle I, Section 106 describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority. This rulemaking is promulgated under the authority described in Subtitle VII, Part A, Subpart I, Section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it amends Class E airspace descriptions at Cedar City Regional Airport, Cedar City, UT.

The FAA identified that Cedar City Regional Airport and the geographic coordinates of the airport's ARP listed in the Class E airspace legal descriptions above are not coincidental with the FAA's aeronautical database. Also, in accordance with FAA policy, the FAA has changed the Cedar City VOR/DME name to the Enoch VOR/DME, to avoid any potential confusion resulting from an off-airport navigation aid with the same name as the associated airport.

Class E airspace designations are published in paragraph 6002 and 6005, respectively, of FAA Order 7400.11A dated August 3, 2016, and effective September 15, 2016, which is incorporated by reference in 14 CFR part 71.1. The Class E airspace designations listed in this document will be published subsequently in the Order.

This document amends FAA Order 7400.11A dated August 3, 2016, and effective September 15, 2016, which is incorporated by reference in 14 CFR part 71.1. FAA Order 7400.11A is publicly available as listed in the ADDRESSES section of this document. FAA Order 7400.11A lists Class A, B, C, D, and E airspace areas, air traffic service routes, and reporting points.

This action amends the legal descriptions for Class E surface area airspace and Class E airspace upward from 700 feet above the surface to correct the airport name to Cedar City Regional Airport, Cedar City, UT, (formerly Cedar City Municipal Airport), and geographic coordinates from (lat. 37°42′06″ N., long. 113°05′53″ W.) to (lat. 37°42′03″ N., long. 113°05′56″ W.) to coincide with the FAA's aeronautical database. This action also corrects the navigation aid noted in the Class E surface area airspace legal description from the Cedar City VOR/DME to the Enoch VOR/DME. This is an administrative change and does not affect the boundaries, altitudes, or operating requirements of the airspace, therefore, notice and public procedure under 5 U.S.C. 553(b) is unnecessary.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current, is non-controversial and unlikely to result in adverse or negative comments. It, therefore: (1) Is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that only affects air traffic procedures and air navigation, it is certified that this rule, when promulgated, does not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

The FAA has determined that this action qualifies for categorical exclusion under the National Environmental Policy Act in accordance with FAA Order 1050.1F, “Environmental Impacts: Policies and Procedures,” paragraph 5-6.5a. This airspace action is not expected to cause any potentially significant environmental impacts, and no extraordinary circumstances exists that warrant preparation of an environmental assessment.

In consideration of the foregoing, the Federal Aviation Administration amends 14 CFR part 71 as follows:

Background

The Federal Civil Penalties Inflation Adjustment Act of 1990 (Pub. L. 101-410; 28 U.S.C. 2461), as amended by the Debt Collection Improvement Act of 1996 (Pub. L. 104-134), provided for agencies' adjustments for inflation to CMPs to ensure that CMPs continue to maintain their deterrent value and that CMPs due to the Federal Government were properly accounted for and collected. On October 24, 1996, November 1, 2000, December 14, 2004, December 11, 2008, and December 7, 2012, the Department of Commerce published in the Federal Register a schedule of CMPs adjusted for inflation as required by law.

A CMP is defined as any penalty, fine, or other sanction that:

1. Is for a specific monetary amount as provided by Federal law, or has a maximum amount provided for by Federal law; and,

2. Is assessed or enforced by an agency pursuant to Federal law; and,

3. Is assessed or enforced pursuant to an administrative proceeding or a civil action in the Federal courts.

On November 2, 2015, the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (Section 701 of Pub. L. 114-74) further amended the Federal Civil Penalties Inflation Adjustment Act of 1990 to improve the effectiveness of CMPs and to maintain their deterrent effect. This amendment requires agencies to: (1) Adjust the CMP levels in effect as of November 2, 2015, with initial catch up adjustments for inflation through a final rulemaking that shall take effect no later than August 1, 2016; and (2) make subsequent annual adjustments for inflation to CMPs that shall take effect not later than January 15.

The Department of Commerce's initial catch up adjustments for inflation to CMPs were published in the Federal Register on June 7, 2016, and the new CMP levels became effective July 7, 2016.

The Department of Commerce's 2017 adjustments for inflation to CMPs apply only to CMPs with a dollar amount, and will not apply to CMPs written as functions of violations. These 2017 adjustments for inflation to CMPs apply only to those CMPs, including those whose associated violation predated such adjustment, which are assessed by the Department of Commerce after the effective date of the new CMP level.

This regulation adjusts for inflation CMPs that are provided by law within the jurisdiction of the Department of Commerce. The actual CMP assessed for a particular violation is dependent upon a variety of factors. For example, the National Oceanic and Atmospheric Administration's (NOAA) Policy for the Assessment of Civil Administrative Penalties and Permit Sanctions (Penalty Policy), a compilation of NOAA internal guidelines that are used when assessing CMPs for violations for most of the statutes NOAA enforces, will be interpreted in a manner consistent with this regulation to maintain the deterrent effect of the CMPs. The CMP ranges in the Penalty Policy are intended to aid enforcement attorneys in determining the appropriate CMP to assess for a particular violation. The Penalty Policy is maintained and made available to the public on NOAA's Office of the General Counsel, Enforcement Section Web site at: http://www.gc.noaa.gov/enforce-office3.html.

The Department of Commerce's 2017 adjustments for inflation to CMPs set forth in this regulation were determined pursuant to the revised methodology prescribed by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015, which requires the maximum CMP, or the minimum and maximum CMP, as applicable, to be increased by the cost-of-living adjustment. The term “cost-of-living adjustment” is defined by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015. For the 2017 adjustments for inflation to CMPs, the cost-of-living adjustment is the percentage for each CMP by which the Consumer Price Index for the month of October 2016 exceeds the Consumer Price Index for the month of October 2015.

Pursuant to 5 U.S.C. 553(b)B, there is good cause to issue this rule without prior public notice or opportunity for public comment because it would be impracticable and unnecessary. The Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (Section 701(b)) requires agencies, effective 2017, to make annual adjustments for inflation to CMPs notwithstanding section 553 of title 5, United States Code. Additionally, the methodology used, effective 2017, for adjusting CMPs for inflation is given by statute, with no discretion provided to agencies regarding the substance of the adjustments for inflation to CMPs. The Department of Commerce is charged only with performing ministerial computations to determine the dollar amount of adjustments for inflation to CMPs. Accordingly, prior public notice and an opportunity for public comment are not required for this rule.

The provisions of the Paperwork Reduction Act of 1995, Public Law 104-13, 44 U.S.C. Chapter 35, and its implementing regulations, 5 CFR part 1320, do not apply to this rule because there are no new or revised recordkeeping or reporting requirements.

This rule is not a significant regulatory action as that term is defined in Executive Order 12866.

Because notice of proposed rulemaking and opportunity for comment are not required pursuant to 5 U.S.C. 553, or any other law, the analytical requirements of the Regulatory Flexibility act (5 U.S.C. 601, et seq.) are inapplicable. Therefore, a regulatory flexibility analysis is not required and has not been prepared.

Background

NMFS manages U.S. groundfish fisheries of the GOA under the GOA FMP. The North Pacific Fishery Management Council (Council) prepared, and the Secretary of Commerce (Secretary) approved, the GOA FMP under the authority of the Magnuson-Stevens Fishery Conservation and Management Act (Magnuson-Stevens Act), 16 U.S.C. 1801 et seq. Regulations governing U.S. fisheries and implementing the GOA FMP appear at 50 CFR parts 600 and 679. Sablefish (Anoplopoma fimbria) is managed as a groundfish species under the GOA FMP.

The International Pacific Halibut Commission (IPHC) and NMFS manage fishing for Pacific halibut (Hippoglossus stenolepis) through regulations at 50 CFR part 300, subpart E, established under authority of the Northern Pacific Halibut Act of 1982 (Halibut Act), 16 U.S.C. 773-773k. The IPHC regulations are subject to acceptance by the Secretary of State with concurrence from the Secretary. After acceptance by the Secretary of State and the Secretary, NMFS publishes the annual management measures in the Federal Register pursuant to 50 CFR 300.62. The final rule implementing the 2016 annual management measures published March 16, 2016 (81 FR 14000). The Halibut Act, at section 773c(c), also authorizes the Council to develop halibut fishery regulations, including limited access regulations, that are in addition to, and not in conflict with, approved IPHC regulations.

The IFQ Program was implemented in 1995 (58 FR 59375, November 9, 1993). Under the IFQ Program, access to the non-trawl sablefish and halibut fisheries is limited to those persons holding quota share. The IFQ Program allocates sablefish and halibut harvesting privileges among U.S. fishermen. NMFS manages the IFQ Program pursuant to regulations at 50 CFR part 679 and 50 CFR part 300 under the authority of section 773c of the Halibut Act and section 303(b) of the Magnuson-Stevens Act. The proposed rule to implement Amendment 101 (81 FR 55408, August 19, 2016) and Sections 3.1 and 4.5 of the Analysis (see ADDRESSES) provide additional information on the IFQ Program and the GOA sablefish IFQ fishery.

The Council recommended Amendment 101 to amend provisions of the GOA FMP applicable to the sablefish IFQ fishery. The Council also recommended implementing regulations applicable to the sablefish IFQ fisheries. FMP amendments and regulations developed by the Council may be implemented by NMFS only after approval by the Secretary. This final rule also includes regulations developed by the Council under the Halibut Act to authorize harvest of halibut IFQ caught incidentally in longline pot gear used in the GOA sablefish IFQ fishery. Halibut fishery regulations developed by the Council may be implemented by NMFS only after approval of the Secretary in consultation with the United States Coast Guard.

NMFS published a Notice of Availability for Amendment 101 in the Federal Register on August 8, 2016 (81 FR 52394), with comments through October 7, 2016. The Secretary approved Amendment 101 on November 4, 2016, after accounting for information, views, and comment from interested persons, and determining that Amendment 101 is consistent with the GOA FMP, the Magnuson-Stevens Act, and other applicable law. NMFS published a proposed rule to implement Amendment 101 for the sablefish IFQ fisheries and regulations to authorize harvest of halibut IFQ caught in longline pot gear used in the GOA sablefish IFQ fishery on August 19, 2016 (81 FR 55408), with comments invited through September 19, 2016. NMFS received 15 comment letters containing 29 unique substantive comments on the FMP amendment and proposed rule. NMFS summarizes and responds to these comments in the Comments and Responses section of this preamble.

A detailed review of the provisions of Amendment 101, the proposed regulations to implement Amendment 101 and to authorize harvest of halibut IFQ caught in longline pot gear used in the GOA sablefish IFQ fishery, and the rationale for these regulations is provided in the preamble to the proposed rule (81 FR 55408, August 19, 2016) and is briefly summarized in this final rule preamble.

Amendment 101 and this final rule apply to the sablefish IFQ fisheries in the GOA. The IFQ fisheries are prosecuted in accordance with catch limits established by regulatory area. The regulatory areas for the sablefish IFQ fishery in the GOA are the Southeast Outside District of the GOA (SEO), West Yakutat District of the GOA (WY), Central GOA (CGOA), and Western GOA (WGOA). The sablefish regulatory areas are defined and shown in Figure 14 to part 679. This preamble refers to these areas collectively as sablefish areas.

This final rule implements provisions that affect halibut IFQ fisheries in the GOA. The halibut regulatory areas (halibut areas) are defined by the IPHC, described in Section 6 of the annual management measures (81 FR 14000, March 16, 2016), and shown in Figure 15 to part 679. The halibut areas in the GOA include Areas 2C, 3A, 3B, and part of Area 4A. All of these areas except Area 4A are completely contained in the GOA. The portion of Area 4A in waters south of the Aleutian Islands, west of Area 3B and east of 170° W. longitude, is included in the WGOA sablefish area. This area includes the western part of the WGOA sablefish area and a small strip along the eastern border (east of 170° W. longitude) of the Aleutian Islands sablefish area in the Bering Sea and Aleutian Islands Management Area (BSAI). This final rule applies to the harvest of halibut IFQ when a vessel operator is using longline pot gear to fish sablefish IFQ in all areas of the GOA. For additional information on the sablefish and halibut areas in the GOA see the proposed rule (81 FR 55408, August 19, 2016) and Figure 1 and Figure 11 in the Analysis.

This final rule revises regulations to add longline pot gear as a new authorized gear for catcher vessels and catcher/processors participating in the GOA sablefish IFQ fishery. Prior to this final rule, § 679.2 authorized vessels in the GOA sablefish IFQ fishery to use only longline gear (e.g., hook-and-line gear). Longline pot gear is pot gear with a stationary, buoyed, and anchored line with two or more pots attached. Longline pot gear is often deployed as a series of many pots attached together in a “string” of gear. For additional information on longline gear and longline pot gear, see the definition of Authorized Fishing Gear in § 679.2. For information on the history of gear use in the sablefish fishery in the GOA, see the proposed rule (81 FR 55408, August 19, 2016) and Section 2.1.1 of the Analysis.

Beginning in 2009, the Council and NMFS received reports from sablefish IFQ fishermen that depredation was adversely impacting the sablefish IFQ fleet in the GOA. The reports indicated that whales were removing or damaging sablefish caught on hook-and-line gear (depredation) before the gear was retrieved. Depredation has been observed on sablefish longline surveys. Sperm whale depredation is most common in the SEO, WY, and CGOA sablefish areas and killer whale depredation is most common in the WGOA and BSAI. Section 3.4.1.1 of the Analysis provides the most recent information on depredation in the sablefish IFQ fishery, and Figure 17 in the Analysis shows a map of observed depredation on sablefish longline surveys.

Participants in the GOA sablefish IFQ fishery told the Council and NMFS that authorizing longline pot gear in the GOA sablefish IFQ fishery would reduce the adverse impacts of depredation for those vessel operators who choose to switch from hook-and-line gear. Depredation negatively impacts the sablefish IFQ fleet through reduced catch rates and increased operating costs. Depredation also has negative consequences for whales through increased risk of vessel strike, gear entanglement, and altered foraging strategies. Longline pot gear prevents depredation because whales cannot remove or damage sablefish enclosed in a pot. The Council and NMFS determined that interactions with whales throughout the GOA could affect the ability of sablefish IFQ permit holders to harvest sablefish by reducing catch per unit of effort and decreasing fishing costs. Section 1.2 of the Analysis provides additional information on the Council's development and recommendation of Amendment 101 and this final rule.

The following sections describe: (1) The sablefish IFQ fishery provisions implemented with Amendment 101 and this final rule, (2) the changes from proposed to final rule, and (3) NMFS' response to comments.

The objective of Amendment 101 and this final rule is to improve efficiency in harvesting sablefish IFQ and reduce adverse economic impacts on harvesters that occur from depredation. Amendment 101 and this final rule will also mitigate impacts on sablefish IFQ harvesters using hook-and-line gear by minimizing the potential for interactions between hook-and-line gear and longline pot gear. Finally, Amendment 101 and this final rule will reduce whale and seabird interactions with fishing gear in the GOA sablefish IFQ fishery.

This final rule implements regulations for the sablefish IFQ fisheries in the GOA and regulations to authorize harvest of halibut IFQ caught incidentally in longline pot gear used in the GOA sablefish IFQ fishery.

This final rule revises regulations at 50 CFR parts 300 and 679 to (1) authorize longline pot gear in the GOA sablefish IFQ fishery, (2) minimize the potential for gear conflicts and fishing grounds preemption, and (3) require retention of halibut IFQ caught in longline pot gear used in the GOA sablefish IFQ fishery. This final rule also includes additional regulatory revisions to facilitate the administration, monitoring, and enforcement of these provisions. This section describes the changes to current regulations implemented by this final rule.

This final rule revises §§ 300.61, 679.2, 679.24, and 679.42 to authorize longline pot gear for use in the GOA sablefish IFQ fishery. Additionally, this final rule revises the definition of “Fixed gear” under the definition of “Authorized fishing gear” at § 679.2(4)(i) to include longline pot gear as an authorized gear in the GOA sablefish IFQ fishery and as an authorized gear for halibut IFQ harvested in halibut areas in the GOA. Fixed gear is a general term that describes the multiple gear types allowed to fish sablefish IFQ and halibut IFQ under the IFQ Program and is referred to throughout 50 CFR part 679. This final rule adds § 679.42(b)(1)(i) to further clarify that trawl gear is not authorized for use in the sablefish and halibut IFQ fisheries in the GOA and the BSAI. This final rule also adds § 679.42(b)(1)(ii) to clarify that pot-and-line gear is not authorized for use in the GOA sablefish IFQ fishery. Pot-and-line gear is pot gear with a stationary, buoyed line with a single pot attached.

This final rule revises the definition of “Fishing” at § 300.61 to specify that the use of longline pot gear in any halibut area in the GOA to harvest halibut IFQ will be subject to halibut regulations at part 300. This final rule also revises the definition of “IFQ halibut” at § 300.61 to specify that halibut IFQ may be harvested with longline pot gear while commercial fishing in any halibut area in the GOA. As described in the Require Retention of Halibut IFQ Caught in Longline Pot Gear Used in the GOA Sablefish IFQ Fishery section below, this final rule also adds § 679.42(l)(6) to require a vessel operator using longline pot gear in the GOA sablefish IFQ fishery to retain legal size (32 inches or greater) halibut caught incidentally if any IFQ permit holder on board has sufficient halibut IFQ pounds for the retained halibut for that halibut area.

This final rule revises Table 15 to part 679 to specify that authorized gear for sablefish IFQ harvested from any GOA reporting area includes longline pot gear in addition to all longline gear (i.e., hook-and-line, jig, troll, and handline). This final rule also revises the table to specify that authorized gear for halibut harvest in the GOA is fishing gear composed of lines with hooks attached and longline pot gear.

This final rule adds provisions at § 679.42(l) to minimize the potential for gear conflicts and grounds preemption and to create general requirements for using longline pot gear in the GOA sablefish IFQ fishery.

This final rule establishes pot limits in each GOA sablefish area at § 679.42(l)(5) and requirements for vessel operators to request pot tags from NMFS at § 679.42(l)(3). Under this final rule, a vessel operator must annually request pot tags from NMFS by submitting a complete IFQ Sablefish Longline Pot Gear: Vessel Registration and Request for Pot Gear Tags form, which will be available on the NMFS Alaska Region Web site at https://alaskafisheries.noaa.gov/. NMFS will issue the number of requested tags up to the pot limit authorized at § 679.42(l)(5)(ii) in a sablefish area. The vessel owner requesting pot tags must specify the vessel to which NMFS will assign the pot tags. Pot tags must be assigned to only one vessel each year. A valid pot tag that is assigned to the vessel must be attached to each pot on board the vessel before the vessel departs port to fish in the GOA sablefish IFQ fishery.

This final rule adds specific requirements for longline pot gear deployment and retrieval in the GOA sablefish IFQ fishery. This final rule implements § 679.24(a)(3) to require a vessel operator to mark each end of a set of longline pot gear with a cluster of four or more marker buoys, including one hard buoy marked with the capital letters “LP,” a flag mounted on a pole, and a radar reflector. This requirement is in addition to current requirements at § 679.24(a)(1) and (2) for all hook-and-line, longline pot, and pot-and-line marker buoys to be marked with the vessel's Federal Fisheries Permit (FFP) number or Alaska Department of Fish and Game (ADF&G) vessel registration number.

Under this final rule, a vessel operator may deploy longline pot gear in the GOA sablefish IFQ fishery only during the sablefish fishing period specified in § 679.23(g)(1). NMFS annually establishes the sablefish fishing period to correspond with the halibut fishing period established by the IPHC. Prior to this final rule, regulations at § 679.23(g)(2) authorized an IFQ permit holder to retain sablefish outside of the established fishing period if the permit holder had unused IFQ for the specified sablefish area. This final rule revises § 679.23(g)(2) to specify that IFQ permit holders using longline pot gear in the GOA are not authorized to retain sablefish outside of the established fishing period even if the IFQ permit holder has unused IFQ.

This final rule adds § 679.42(l)(5)(iii) to establish gear retrieval requirements for longline pot gear in each GOA sablefish area. This final rule requires a vessel operator using longline pot gear to redeploy longline pot gear within a certain amount of time after being deployed, or to remove the gear from the fishing grounds when making a sablefish landing.

This final rule allows multiple vessels to use the same longline pot gear during one fishing season but prevents use of the same longline pot gear simultaneously. To prevent use of the same longline pot gear simultaneously, this final rule adds § 679.42(l)(5)(iv) to require a vessel operator to: (1) Remove longline pot gear assigned to the vessel and deployed to fish sablefish IFQ from the fishing grounds, (2) return the gear to port, and (3) remove the pot tags that are assigned to that vessel from each pot before the gear may be used on another vessel. The operator of the second vessel is required to attach pot tags assigned to his or her vessel to each pot before deploying the gear to fish for GOA sablefish IFQ. This final rule requires that only one set of the appropriate vessel-specific pot tags may be attached to the pots at any time.

This final rule revises the definition of “IFQ halibut” in § 679.2 to specify that halibut IFQ may be harvested with longline pot gear while commercial fishing in any halibut area in the GOA. Additionally, this rule adds § 679.42(l)(6) to require a vessel operator using longline pot gear in the GOA sablefish IFQ fishery to retain legal size halibut caught incidentally if any IFQ permit holder on board has sufficient halibut IFQ pounds for the retained halibut for that halibut area. Additionally, this final rule revises § 679.7(a)(13) to specify the requirements for handling and release of halibut that apply to vessels using longline pot gear in the GOA sablefish IFQ fishery.

This final rule adds § 679.42(l)(7) to require a vessel operator using longline pot gear in the GOA sablefish IFQ fishery to comply with logbook reporting requirements at § 679.5(c) and vessel monitoring system (VMS) requirements at § 679.42(k).

The following table describes the revisions to § 679.5.

This final rule revises § 679.7(a)(6) to prohibit deployment of longline pot gear in the GOA outside of the sablefish fishing period. Additionally, this final rule revises § 679.7(a)(6)(i) to clarify that vessels in the halibut IFQ fishery are subject to gear deployment requirements specified by the IPHC in the annual management measures pursuant to § 300.62.

This final rule prohibits a vessel operator in the GOA from using longline pot gear to harvest sablefish IFQ or halibut IFQ in the GOA sablefish areas without having an operating VMS on board the vessel. Additionally, this final rule revises § 679.42(k)(2)(ii) to require a vessel operator using longline pot gear to fish sablefish IFQ in the GOA to contact NMFS to confirm that VMS transmissions are being received from the vessel. The vessel operator is required to receive a VMS confirmation number from NMFS before fishing in the sablefish IFQ fishery.

This final rule revises § 679.20(a)(4) to replace an incorrect reference to the sablefish total allowable catch (TAC) allocation to hook-and-line gear with the correct reference to fixed gear, as defined at § 679.2, which includes hook-and-line and longline pot gear. This final rule does not change the percent of the TAC allocated to the sablefish IFQ fishery in the GOA. NMFS will continue to allocate 95 percent of the sablefish TAC in the Eastern GOA sablefish area, which includes the SEO and WY, to vessels using fixed gear, and allocate 80 percent of the sablefish TACs in each of the CGOA and WGOA sablefish areas to vessels using fixed gear.

This final rule revises § 679.42(b)(2) to specify that an operator of a vessel using hook-and-line gear to harvest sablefish IFQ, halibut IFQ, or halibut Community Development Quota (CDQ) must comply with seabird avoidance measures set forth in § 679.24(e). This final rule clarifies that vessel operators using longline pot gear in the GOA sablefish IFQ fishery are not required to comply with seabird avoidance measures under this final rule.

This final rule revises § 679.51(a), which contains requirements for vessels in the partial coverage category of the North Pacific Groundfish and Halibut Observer Program. This final rule removes a specific reference to hook-and-line gear for vessels fishing for halibut. This revision is needed because this final rule authorizes the retention of halibut IFQ by vessels using longline pot gear in the GOA. It is not necessary to specify authorized gear for halibut IFQ in § 679.51(a) because § 679.50(a)(3) currently states that, for purposes of subpart E, when the term halibut is used it refers to both halibut IFQ and halibut CDQ, and the authorized gear for halibut is specified in § 679.2.

NMFS made four changes to this final rule. The first change is in response to comments received on the proposed rule. NMFS added § 679.42(l)(5)(i)(C) to specify that the gear retrieval requirements in § 679.42 (l)(5)(iii) and (iv) apply to all longline pot gear that is assigned to a vessel and deployed to fish sablefish IFQ and to all other fishing equipment attached to longline pot gear that is deployed in the water by the vessel to fish sablefish IFQ. This final rule also specifies that “all other fishing equipment attached to longline pot gear” includes, but is not limited to, equipment used to mark longline pot gear as required in this final rule at § 679.24(a)(3). This change is described in more detail in the response to Comment 23 in the Comments and Responses section below.

The second change clarifies the definition of Authorized Fishing Gear at § 679.2 (4)(iv) to specify that this final rule authorizes a person using longline pot gear to retain halibut in the GOA if the vessel operator is fishing for IFQ sablefish in accordance with the provisions established at § 679.42(l) for the use of longline pot gear. These provisions establish area-specific pot limits and gear retrieval requirements in addition to requirements for using pot tags and marking longline pot gear on the fishing grounds. This change clarifies that authorization of longline pot gear for halibut is limited to longline pot gear used in the GOA sablefish IFQ fishery in accordance with § 679.42(l) and does not apply to other groundfish fisheries in the GOA.

The third change clarifies § 679.42(l)(6)(i)(A) to specify that a vessel operator using longline pot gear in the GOA sablefish IFQ fishery must retain legal size halibut if the halibut is caught in the GOA sablefish IFQ fishery in accordance with the provisions established at § 679.42(l) for the use of longline pot gear and an IFQ permit holder on board the vessel has unused halibut IFQ for the appropriate regulatory area and vessel category. As described for the second change to this final rule in the previous paragraph, this change clarifies that the requirement to retain halibut caught in longline pot gear used in the GOA sablefish IFQ fishery in accordance with § 679.42(l) is limited to the GOA sablefish IFQ fishery and does not apply to other groundfish fisheries in the GOA.

The fourth change replaces “and” with “or” in § 679.7(f)(18)(i) in this final rule. This change clarifies that it is prohibited for a vessel operator to deploy, conduct fishing with, retrieve, or retain IFQ sablefish or IFQ halibut from longline pot gear in the GOA either in excess of the pot limits specified in § 679.42(l)(5)(ii) or without a pot tag attached to each pot in accordance with § 679.42(l)(4). The proposed rule incorrectly specified that a vessel operator would be in violation of § 679.7(f)(18) only if he or she deployed, conducted fishing with, or retrieved longline pot gear in the GOA in excess of the pot limits specified and without a pot tag attached to each pot. Changing “and” to “or” in § 679.7(f)(18)(i) in this final rule is necessary to implement the Council's and NMFS' intent that vessel operators are required to comply with both the pot limit and pot tag requirements, and that failure to comply with either of these requirements would be a violation of the regulations.

NMFS received 15 comment letters containing 29 specific comments, which are summarized and responded to below. The commenters consisted of individuals, sablefish IFQ fishery participants and industry groups representing fishermen using hook-and-line gear in the GOA, and an environmental organization.

Comment 1: I do not support this action because sablefish is being overharvested and this is having negative impacts on marine mammals. NMFS should ban all fishing in this area and cut the sablefish quota to zero.

Response: NMFS disagrees. Sablefish is not subject to overfishing, is not overfished, and TACs are set in a precautionary manner. The current harvest specifications process and authorities for in-season management prevent overfishing and provide for the GOA sablefish IFQ fishery to achieve optimum yield on a continuing basis. As described in the proposed rule and Section 3.1.1.2 of the Analysis, under Amendment 101 and this final rule, harvest of sablefish IFQ will be authorized only during the sablefish fishing period specified at § 679.23(g)(1) and established by the Council and NMFS through the annual harvest specifications (81 FR 14740, March 18, 2016). Amendment 101 and this final rule do not change conservation and management of the GOA sablefish fishery.

Section 3.4 of the Analysis describes that the current GOA groundfish fisheries, which includes the sablefish IFQ fishery, do not have an adverse impact on marine mammals. The Council and NMFS considered the impacts of Amendment 101 and this final rule on marine mammals and determined that they do not have an effect on marine mammals beyond those already expected from the GOA groundfish fisheries (see the response to Comment 2).

Comment 2: NMFS should prepare an environmental impact statement (EIS) for Amendment 101 because of its potential effect on humpback whales and North Pacific right whales. The draft EA is inadequate because it fails to analyze potential impacts of sablefish pot gear in the GOA on marine mammals that are listed as endangered under the Endangered Species Act (ESA), specifically humpback whales (Megaptera novaeangliae) and North Pacific right whales (Eubalaena japonica).

Response: NMFS prepared a draft EA to determine whether the environmental impact of the proposed action was significant. Section 3.4 of the draft EA discussed the impact of the proposed action on marine mammals. In response to this comment, NMFS has revised this section of the EA to provide additional information on North Pacific right whales and humpback whales. Based on the analysis in the final EA, NMFS continues to conclude that Amendment 101 and this final rule will not have a significant impact on the human environment, including humpback whales and North Pacific right whales. Therefore, NMFS is not required to prepare an EIS under the requirements of the National Environmental Policy Act.

Comment 3: There is evidence of pot fishing gear entangling Atlantic right whales and humpback whales. NMFS should consider using entanglement information from other fisheries outside of Alaska as a proxy for potential impacts of the proposed action on North Pacific right whales.

Response: Section 3.4 of the EA presents information on observations of marine mammal entanglements in Alaska. NMFS considered entanglement information from similar fisheries using pot gear in the GOA and Bering Sea as these fisheries are likely more analogous to the GOA sablefish IFQ longline pot gear fishery than fisheries in other regions where potential interactions between fisheries and marine mammal species may differ from interactions in Alaska. Species distribution and abundance information from the GOA provides more informative indications as to the probability of fishery interactions with marine mammals than data from other regions or oceans. While fishery interactions and entanglements of right whales are known to occur in the North Atlantic, no North Pacific right whale interactions are known to have occurred in the North Pacific fisheries despite considerable fishing effort. Therefore, NMFS disagrees that the North Atlantic data are a more reasonable proxy than the best available data on fishery interactions with North Pacific right whales in the North Pacific fisheries.

Comment 4: NMFS must consult under section 7 of the ESA and publish a biological opinion including an incidental take statement for ESA-listed species likely to interact with longline pot gear in the GOA sablefish fishery. The commenter states that due to the absence of a biological opinion on the effect of the proposed action on ESA-listed species, the draft EA does not provide the public with a complete documentation of the environmental impacts associated with this action. The commenter states that NMFS should reopen the public comment period if this consultation, or any other ongoing analysis that may affect NMFS' decision-making process, adds critical new information to the record.

Response: NMFS revised Section 3.4 of the EA to summarize information on ESA section 7 consultations (consultations) that have been conducted to assess the effects of the GOA groundfish fisheries on ESA-listed species. Although the EA describes these consultations, the results of these consultations have been publicly available on the NMFS Alaska Region Web site at: www.alaskafisheries.noaa.gov. Amendment 101 and this final rule do not modify the GOA groundfish fisheries in a manner that will cause effects on listed species or designated critical habitat that have not been considered in previous consultations. Based on the information in section 3.4.1.2 of the analysis, the overall likelihood of entanglement of listed marine mammals in longline pot gear is no greater than the likelihood of listed marine mammal entanglement in the hook-and-line gear currently used in the sablefish IFQ fishery.

The summary of information available in Section 3.4 of the EA does not affect NMFS' decision-making process or add critical new information to the record that would require NMFS to publish a new proposed rule or extend the public comment period.

Comment 5: NMFS should analyze whether a negligible impact determination (NID) is appropriate for the GOA sablefish IFQ longline pot gear fishery under the Marine Mammal Protection Act (MMPA) because of its similarity to the sablefish pot fishery along the west coast of the United States (California, Oregon, and Washington).

Response: NMFS publishes an annual List of Fisheries (LOF) in which all commercial fisheries in the United States are categorized according to the level of serious injury and mortality to marine mammals relative to the health of each marine mammal stock. Category I fisheries are considered to have the greatest impact on a marine mammal stock's health, Category II fisheries have some impact on a marine mammal stock's health, and Category III fisheries have the least impact. These categories are used to make management decisions, as needed, to monitor and adjust fisheries' impacts on marine mammal populations. Under MMPA section 118, participants in Category I through III commercial fisheries are granted an exemption from the MMPA prohibition on incidental takes of marine mammal not listed as threatened or endangered under the ESA. NMFS will include the GOA sablefish IFQ longline pot gear fishery in the 2018 LOF analysis to place this fishery in the appropriate LOF category. In the meantime, once this final rule becomes effective, the new GOA sablefish IFQ logline pot gear fishery will be automatically considered a Category II fishery, as directed by regulation (50 CFR 229.2).

Permits authorizing the incidental take of ESA-listed species in U.S. commercial fisheries may be granted under MMPA section 101(a)(5)(E). One criterion required to issue such permits is a NID. A NID is issued if NMFS determines that all commercial fisheries identified in the annual LOF, collectively, have a negligible impact on any ESA-listed marine mammal stock for which a take permit is proposed to be issued. A negligible impact is defined (50 CFR 216.103) as an impact resulting from the specified activity that cannot be reasonably expected to, and is not reasonably likely to, adversely affect the species or stock through effects on annual rates of recruitment or survival.

NMFS issued a NID for fishery impacts on marine mammals in Alaska on June 23, 2016, and NMFS issued permits under the authority of section 101(a)(5)(E) of the MMPA for the incidental taking of ESA-listed species effective for a three-year period (June 23, 2016, 81 FR 40870). Because the new GOA sablefish IFQ longline pot gear fishery has not yet commenced, information is not available to make a NID on the impacts of this fishery on ESA-listed marine mammals in Alaska. The use of the U.S. west coast sablefish pot fishery as a surrogate for the GOA sablefish IFQ longline pot gear fishery in a NID, as suggested by the comment, would be inappropriate due to differences in geography, fishery operations, and marine mammal species distribution. Information on marine mammal interactions with the new GOA sablefish IFQ longline pot gear fishery will be incorporated and considered when NMFS begins analysis during the review of the current NID applicable to Alaskan fisheries.

Comment 6: The commenter urges NMFS to set aside areas in the GOA where pot gear is prohibited in order to protect the North Pacific right whale from entanglement. The commenter states that the North Pacific right whale population is estimated to be very low, and that any serious injury or mortality would have population level effects. The commenter urged NMFS to close North Pacific right whale critical habitat in the GOA to minimize the extent of fishing gear interactions.

Response: As summarized in Section 3.4 of the EA, NMFS has concluded that this action is not likely to affect the North Pacific right whale or its designated critical habitat in a manner or to an extent not already considered in prior ESA section 7 consultations on the GOA groundfish fisheries. In 2006, NMFS determined that the GOA groundfish fisheries are not likely to adversely affect right whales. NMFS reaffirmed this determination when critical habitat was designated for the North Pacific right whale in 2008. There are no recorded instances of North Pacific right whale entanglements with hook-and-line gear or longline pot gear in the Alaska groundfish fishery. Section 3.4.1.2 of the EA analyzes the potential overlap of the sablefish fishery with areas of known North Pacific right whale observations and critical habitat. The analysis found that the sablefish fishery occurs at depths much deeper than designated North Pacific right whale critical habitat, so neither the hook-and-line gear nor the longline pot gear sablefish fishery is likely to adversely affect North Pacific right whales or the designated critical habitat. Based on this analysis, NMFS concludes that there is likely to be no overlap between GOA sablefish longline pot gear and North Pacific right whale critical habitat. The commenter's proposal to close North Pacific right whale critical habitat to longline pot gear in the GOA sablefish IFQ fishery to protect North Pacific right whales from entanglement is not supported by the available data.

Comment 7: The use of pot gear in the GOA sablefish fishery is likely to entangle humpback whales based on comparisons to the sablefish pot fisheries operating off the west coast of the U.S. and in the BSAI. The EA must consider entanglement of humpback whales in the analysis of cumulative impacts. The use of sablefish pot gear in the GOA is likely to increase entanglements for the Hawaii, Mexico, and western North Pacific humpback whale ESA-listed distinct population segments and moderately reduce population size or growth rate.

Response: NMFS revised Section 3.4 of the EA to describe the anticipated effects of longline pot gear in the GOA sablefish IFQ fishery, including entanglement of marine mammals, in response to this comment. The analysis shows there were no documented marine mammal interactions in the Bering Sea IFQ sablefish longline pot fishery or the BSAI Pacific cod longline pot fishery from 2008 through 2012. Based on this best available data for longline pot gear in the BSAI sablefish IFQ pot fishery and in other existing longline pot fisheries in the GOA, NMFS determines that the longline pot gear that may be deployed under the final rule in lieu of hook-and-line gear is not likely to increase the risk of entanglements of humpback whales relative to status quo. Based on the information in the analysis, NMFS determined that the GOA groundfish fisheries are not likely to have population-level effects on humpback whales.

Comment 8: The biological opinions prepared for the west coast sablefish pot fishery include terms and conditions to mitigate potential entanglement with whales that should be required by NMFS for the GOA sablefish pot fishery. These terms and conditions include electronic monitoring and logbook reporting requirements to report lost gear, a database to track fishery effort, analysis on the magnitude of lost pot gear and factors that may influence loss, and analysis of gear deployment and overlap with large whale migrations of aggregations.

Response: Many of the monitoring requirements and analyses referenced by the commenter in the biological opinions assessing the west coast sablefish pot fishery are addressed through existing regulations, or are required under this final rule. This final rule also includes additional monitoring provisions.

This final rule requires the use of logbooks to record data on pot gear deployment and loss at § 679.5(c). Specifically, a vessel operator using longline pot gear in the GOA must record the length of a longline pot set, the size of the pot, the spacing of pots, number of pots set, number of pots lost, and number of pots left on the fishing grounds still fishing, in addition to the other information required under current regulations. Additionally, this final rule at § 679.42(k) requires a vessel operator to use a VMS while using longline pot gear to fish for sablefish in the GOA. VMS monitors the location and movement of commercial fishing vessels in Federal fisheries off Alaska. Further, a vessel operator using longline pot gear in the GOA is subject to observer coverage under the North Pacific Groundfish and Halibut Observer Program.

NMFS has developed analytical tools and databases to analyze all fishery data that NMFS collects, including the new data collected under this final rule. NMFS is able to assess the amount of catch, effort, and areas where longline pot gear is deployed in the GOA sablefish IFQ fishery with existing analytic methods. NMFS will have the fishery data necessary to compare longline pot gear deployment with available information on areas of large whale migrations. The Council and NMFS are currently analyzing the use of electronic monitoring for pot gear. Under a separate analytical and regulatory process, the Council and NMFS may consider the use of electronic monitoring for vessels using longline pot gear in the GOA sablefish IFQ fishery.

Comment 9: Measures to protect Atlantic right whales from entanglement by pot gear have been recommended by the Marine Mammal Commission, and those should be considered by NMFS for the GOA sablefish pot fishery. These measures include gear marking requirements, and closing areas likely to be used by Atlantic right whales. NMFS also should consider the applicability of mitigation measures suggested in the Atlantic Large Whale Take Reduction Plan to the GOA sablefish pot fishery.

Response: This final rule implements additional gear marking requirements for vessels using longline pot gear in the GOA sablefish IFQ fishery. Under this final rule at § 679.24(a), each vessel operator must attach a cluster of four or more marker buoys, a flag mounted on a pole, and a radar reflector to each end of a longline pot set. This final rule requires vessel operators to add the initials “LP” for “Longline Pot” to one hard buoy in the buoy cluster in addition to the FFP number of the vessel deploying the gear, or the ADF&G vessel registration number. This will distinguish buoys for hook-and-line gear from buoys for longline pot gear. As stated in the response to Comment 6, closing areas to the use of longline pot gear in the GOA sablefish IFQ fishery is unnecessary. Section 3.4 of the EA summarizes the history of ESA section 7 consultations conducted for GOA groundfish fisheries. Based on these conclusions, additional management measures such as those described by the Atlantic Large Whale Take Reduction Plan do not appear to be applicable or warranted. However, if information becomes available that indicates whales are interacting with this fishery, NMFS will take appropriate measures pursuant to the MMPA and, for listed whales, the ESA.

Comment 10: NMFS should prohibit the use of hook-and-line gear in the sablefish fishery in favor of longline pot gear. NMFS should not allow fishermen to continue to use the gear just because they have made economic investments in using that harvesting method. NMFS must achieve maximum sustainable yield from the sablefish fishery with the greatest harvesting efficiency and lowest impact to the environment, and hook-and-line gear does not achieve this due to current levels of depredation and interactions with whales and seabirds. Furthermore, hook-and-line gear is inefficient from a fuel and manpower perspective because it requires constantly retrieving the lines. Longline pot gear allows pots to soak on the fishing grounds and provides for more efficient catch of fish because smaller fish can swim out of the pot and whales cannot get to the sablefish inside the pots. More efficient harvest benefits the end consumer because they can purchase fish at lower cost.

Response: Amendment 101 and this final rule are intended to balance multiple objectives: Improve harvesting efficiency and reduce adverse economic impacts from depredation to harvesters in the sablefish IFQ fishery, mitigate impacts on sablefish IFQ fishermen using hook-and-line gear by minimizing the potential for interactions between hook-and-line gear and longline pot gear, and reduce sablefish IFQ fishery whale and seabird interactions with fishing gear. Amendment 101 and this final rule balance these objectives consistent with the requirements of the Magnuson-Stevens Act.

Amendment 101 and this final rule are consistent with National Standard 1 of the Magnuson-Stevens Act, which requires conservation and management measures to prevent overfishing while achieving optimum yield on a continuing basis (section 301(a) of the Magnuson-Stevens Act). Optimum yield is based on maximum sustainable yield, reduced as appropriate for social and economic factors for the relevant fishery (81 FR 71858, October 18, 2016). The Council and NMFS achieve optimum yield in the GOA sablefish IFQ fishery by establishing annual catch limits at sustainable levels and establishing management measures for the fishery that meet a number of social and economic goals, including maintaining a diverse fleet of fishing vessels and a broad distribution of economic benefits to fishermen, processors, and communities that participate in the fishery (see Sections 3.1 and 4.5 of the Analysis). As described in the response to Comment 1, Amendment 101 and this final rule do not change the current process for establishing annual catch limits or the management measures that have been established to meet specific social and economic goals for the GOA sablefish IFQ fishery.

As described in the response to Comment 1, the proposed rule, and Sections 3.4 and 3.5 of the Analysis, the Council and NMFS have determined that the current GOA sablefish IFQ fishery prosecuted with hook-and-line gear does not adversely affect whales and seabirds. Amendment 101 and this final rule do not change the management measures established for the hook-and-line sablefish IFQ fishery in the GOA that are intended to reduce fishery interactions with whales and seabirds.

The proposed rule and Section 2.1.1 of the Analysis describe that sablefish can be caught efficiently with hook-and-line and pot gear. In recommending Amendment 101 and this final rule, the Council and NMFS recognized that hook-and-line gear will continue to be an effective harvesting method for many vessels in the sablefish IFQ fishery. Authorizing fishermen to use longline pot or hook-and-line gear in the GOA sablefish IFQ fishery provides each vessel operator with the choice to determine which type of gear is appropriate for their operation and gives them the flexibility to determine the most cost effective method for harvesting sablefish IFQ. The proposed rule and Section 4.9.2 of the Analysis describe that the costs of converting to longline pot gear can be substantial, and some vessels in the sablefish IFQ fishery will not be able to convert because of vessel length or other factors. Amendment 101 and this final rule balance the needs of sablefish IFQ fishery participants by providing vessel operators with the opportunity to use longline pot gear if it would benefit their harvesting operation by reducing interactions with whales.

NMFS acknowledges that while the costs of harvesting operations could impact the price that consumers pay for sablefish in the market, fishing gear is just one cost component for a harvesting operation. NMFS does not have information indicating the sablefish harvested with longline pot gear will result in reduced consumer prices relative to sablefish caught with hook-and-line gear.

Comment 11: NMFS received comments that provided general support for Amendment 101, but noted specific concerns about the proposed rule. One commenter supported the authorization of longline pot gear in the GOA sablefish IFQ fishery to improve efficiency in harvesting sablefish, reduce adverse economic impacts on harvesters that occur from depredation, and reduce fishery interactions with whales. The commenter stated that a large number of vessels in the sablefish IFQ fleet will not be able to use the gear because the economic cost of converting to pots is uncertain and potentially substantial. The commenter stated that vessels that are 50 feet LOA or less generally cannot use longline pot gear because they cannot safely carry, deploy, and retrieve pots. The commenter expressed concern that the introduction of longline pot gear could result in gear conflicts and grounds preemption and disadvantage vessels that continue to use hook-and-line gear by reducing the amount of available fishing grounds and increasing the costs of harvesting sablefish IFQ for these vessels.

One commenter acknowledged that the use of longline pot gear likely would reduce depredation, but opposed the reintroduction of longline pot gear to the GOA sablefish fishing grounds, particularly in the SEO and WY. The commenter stated that the potential negative impacts of introducing longline pot gear on vessel operators that continue to use hook-and-line gear would outweigh the benefits because the proposed rule did not contain adequate measures to mitigate the negative impacts of introducing longline pot gear to the GOA sablefish IFQ fishery.

Response: NMFS acknowledges the general support for Amendment 101. As described in the response to Comment 10, Amendment 101 and this final rule are intended to balance multiple objectives: Improve harvesting efficiency and reduce adverse economic impacts from depredation to harvesters in the sablefish IFQ fishery, mitigate impacts on sablefish IFQ fishermen using hook-and-line gear by minimizing the potential for interactions between hook-and-line gear and longline pot gear, and reduce sablefish IFQ fishery whale and seabird interactions with fishing gear.

The proposed rule (81 FR 55408, August 19, 2016) and the Analysis (see ADDRESSES) describe that the Council and NMFS considered the impacts of this action on vessels that continue to use hook-and-line gear. Although it is not possible to know how many sablefish fishermen will choose to use longline pot gear instead of hook-and-line gear in the GOA, the Council and NMFS considered information in the Analysis and public testimony to determine that the likelihood of gear conflicts and grounds preemption under Amendment 101 and this final rule is low.

Section 4.10 of the Analysis indicates that the Council recognized that pot gear had previously been permitted in the GOA sablefish fishery but was prohibited in 1985 by Amendment 14 to the GOA FMP (50 FR 43193, October 24, 1985). During deliberation on Amendment 101 and this final rule, the Council noted that its decision to prohibit pot gear in Amendment 14 was based on fishery data and scientific information on depredation that is not reflective of the present fishery. Reports and observations of depredation of hook-and-line gear have increased since 1985 (see Section 3.4 of the Analysis), and the fishery has been managed under the Halibut and Sablefish IFQ Program since 1995. The existing management program for the fishery provides substantially more flexibility on when and where to harvest sablefish and allows for coordination and cooperation within the fleet. In addition, all fishermen have an economic incentive to avoid gear conflicts on the fishing grounds because these conflicts can result in costs through lost gear and lost fishing time (see Section 4.10 of the Analysis).

In spite of these factors mitigating the potential for gear conflicts, the Council and NMFS received public testimony noting the potential negative impacts of authorizing longline pot gear on vessels that continue to use hook-and-line gear. As a result, the Council recommended and NMFS included area-specific management measures in this final rule to address these concerns. These management measures are discussed in detail in the proposed rule, and in Sections 4.9.3, 4.9.4, and 4.9.5 of the Analysis. These area-specific management measures were developed with input from the Sablefish Gear Committee that included participants in the sablefish IFQ fishery. Input from the Sablefish Gear Committee, the Council's advisory bodies, public testimony, and the Analysis were used to develop the area-specific management measures implemented in this final rule to meet the Council's objective to provide an opportunity for fishermen to use longline pot gear while minimizing the potential for negative impacts on vessels that use hook-and-line gear.

The proposed rule and Section 4.9.2 of the Analysis describe that it is highly likely that a portion of the existing GOA sablefish IFQ fleet will continue to use hook-and-line gear, due to cost constraints, vessel size constraints, or both. NMFS agrees with the commenters that the costs of reconfiguration likely will be prohibitive for many vessel operators and this outcome is supported by the proposed rule and Section 4.9.8.1 of the Analysis. The proposed rule and the Analysis also describe the feasibility of converting to longline pot gear with respect to vessel size. Section 4.9.8.1 of the Analysis notes that based on information from other groundfish pot fisheries, vessels less than 50 feet LOA may be less likely to use longline pot gear in the GOA sablefish IFQ fishery than larger vessels. After considering this information, the Council determined and NMFS agrees that the number of vessels that convert to longline pot gear is likely to be small in comparison to those that will continue using hook-and-line gear, which will reduce the potential for gear conflicts and grounds preemption under Amendment 101 and this final rule.

The proposed rule and Section 4.10 of the Analysis describe that in recommending Amendment 101 and this final rule the Council expressed its intent to monitor the use of longline pot gear in the GOA sablefish IFQ fishery to determine if Amendment 101 and this final rule are meeting its objectives. The Council requested that NMFS provide an annual report on the use of longline pot gear in the GOA sablefish IFQ fishery following implementation of this final rule. The Council also indicated that it will conduct a review of the effects of authorizing longline pot gear three years following implementation of this final rule. The Council stated that the intent of the review is to evaluate the impacts of this action on sablefish harvesting, depredation, and vessels that continue to harvest sablefish with hook-and-line gear. During deliberation on Amendment 101 and this final rule, the Council specifically noted that its three-year review will evaluate whether the use of longline pot gear has impacted fishing community participation in the fishery or prices of sablefish quota share that might adversely affect new entrants or small-scale operators looking to grow their business. This review will provide the Council and NMFS the opportunity to assess potential gear conflicts under this final rule. Nothing in Amendment 101 or this final rule would preclude the Council and NMFS from considering action to further reduce gear conflicts through a subsequent action if the review indicates that such action is necessary.

Comment 12: We think there is substantial risk for conflicts between longline pot and hook-and-line gear under Amendment 101 and the proposed rule. There is widespread evidence of past gear conflicts based on previous Council actions to prohibit longline pot gear as described in the proposed rule preamble. Although these conflicts occurred before the IFQ Program was implemented, they also occurred when the sablefish season was open throughout the spring and summer in the early 1980s.

The foreign fishing fleets (active prior to the 1980s) lost or abandoned a substantial amount of pot gear in the SEO many years ago and despite continued efforts by the fishing fleet to remove it from the fishing grounds, the lost and abandoned pot gear continues to preempt grounds off Sitka. Longline gear set near these lost pots still on occasion drift to tangle with the lost pots. Attempts to retrieve gear tangled with these pots are dangerous, with tremendous strain on the boat trying to haul the gear, and the end result is more lost gear and lost fish.

Letters submitted to the Pacific Fishery Management Council provide evidence of present gear conflicts, safety issues, and grounds preemption driven by the entrance of three boats using longline pot gear in what has historically been hook-and-line grounds. This issue is clearly important because the Council's Sablefish Gear Committee spent most of its time talking about gear conflicts and how to minimize anticipated conflicts.

Response: The Council and NMFS carefully considered the impacts of gear conflicts and grounds preemption when developing Amendment 101 and this final rule, including input from the Council's Sablefish Gear Committee, its advisory bodies, and public testimony. Section 2.1.1 of the Analysis and the final rule to implement Amendment 14 to the GOA FMP (50 FR 43193, October 24, 1985) describe the issues summarized in the comment. As described in the response to Comment 11, the Council and NMFS believe that management under the IFQ Program has substantially changed the likelihood of gear conflicts, grounds preemption, and safety issues overall in the sablefish IFQ fishery, and particularly related to the introduction of longline pot gear.

The proposed rule and Section 5.1 of the Analysis describe that the Council and NMFS carefully considered the impacts of Amendment 101 and this final rule on the safety of human life at sea, consistent with National Standard 10 of the Magnuson-Stevens Act. The impacts of Amendment 101 and this final rule on safety are also considered in Section 4 of the Analysis. While some participants in the hook-and-line fleet raised safety concerns to the Council and NMFS related to carrying longline pot gear on small vessels, the use of longline pot gear will be voluntary, not mandatory, under this final rule. Section 2.4 of the Analysis describes that the Council and NMFS considered the impacts of this action on safety in developing the requirements for vessels to use longline pot gear instead of pot-and-line gear at § 679.2 and the gear retrieval requirements at § 679.42(l)(5)(iii).

The response to Comment 11 details the management measures included in this final rule to minimize the potential for gear conflicts and grounds preemption. This final rule limits the amount of longline pot gear that may be deployed to limit potential gear conflicts on an area-specific basis, and defines the maximum amount of time that longline pot gear may be left on the fishing grounds in the WY, CGOA and WGOA. This final rule requires vessels fishing in the SEO to remove their longline pot gear from the fishing grounds when making a delivery. In developing that recommendation for the SEO, the Council noted that SEO sablefish fishing grounds are limited relative to other areas, and allowing longline pot gear to be left on the grounds when a vessel leaves the fishing grounds to make a delivery may create safety hazards by increasing the likelihood of gear conflict relative to other areas in the GOA.

In addition, the Council recommended and NMFS is implementing gear marking requirements in this final rule at § 679.24(a)(3) to make longline pot gear more visible on the fishing grounds to further minimize the potential for gear conflicts and grounds preemption, which promotes safety for all vessels.

The Council recommended and this final rule implements gear deployment and retrieval requirements that balance the objectives of Amendment 101 and this final rule.

Comment 13: We believe the Council and NMFS should not allow the use of longline pot gear throughout the GOA throughout the entire year. The Analysis repeatedly states that the impacts of allowing pots into the sablefish fishery are poorly understood. We request that the proposed rule be amended to prohibit the use of longline pot gear in the SEO and WY during April and again between August 15 and September 15 to provide two months of the year in which hook-and-line fishermen could harvest sablefish without the potential for gear conflicts or grounds preemption.

Response: NMFS did not change this final rule in response to this comment. This final rule authorizes longline pot gear at any time during the GOA sablefish IFQ season authorized by § 679.23(g). The Council and NMFS considered and rejected a prohibition on the use of longline pot gear in the SEO during specific months of the year as part of this action. As described in Section 2.4 of the Analysis, it is likely that the prohibition will have an undetermined impact on some sablefish IFQ fishermen using longline pot or hook-and-line gear that was not considered in the development of Amendment 101 or the proposed rule. Therefore, NMFS did not change this final rule in response to this comment.

Comment 14: We believe conservation arguments relative to whale predation have been exaggerated and our significant experience with sperm whale interactions with the sablefish fishery informs our conclusions. We think that proponents of Amendment 101 have overstated the negative impacts of depredation on the sablefish survey and on catch accounting in the sablefish fishery. The sablefish stock is neither overfished nor subject to overfishing. Studies on loss to sperm whale depredation in the commercial hook-and-line fisheries in Alaska is estimated at 2.2 percent of total groundfish catch based on visual evidence of torn or partial fish, which is likely a low estimate, but is still the best available information.

The Analysis identifies a number of unknown potential impacts on the use of longline pot gear on both the sablefish survey (conflicts between the survey and pots have occurred in the past) and potential impacts on the sablefish stock of increased harvest with pots. The Analysis notes that sablefish length and possibly age composition information would be needed for harvests in pot gear before the stock assessment authors could evaluate the potential effects of introducing pot gear on the sablefish stock and stock assessment. These unknowns argue for a cautious, phased-in and experimental approach to allowing this new gear type.

Response: NMFS disagrees. The Council and NMFS considered the information in Section 4.8.1 of the Analysis and public testimony to determine that depredation is negatively impacting harvesting efficiency for some vessel operators. The Council determined and NMFS agrees that allowing vessel operators to voluntarily use longline pot gear could address the negative impacts described in the Analysis and in public testimony.

The Analysis describes that killer whale interactions are most common in the BSAI and the WGOA, while sperm whale interactions are most common in the CGOA, WY, and SEO. Section 3.4.1.1 of the Analysis provides best available information on depredation in this fishery. While depredation events are difficult to observe, fishery participants have testified to the Council that depredation continues to be a major cost to the sablefish IFQ fishery, and appears to be occurring more frequently. Industry groups have tested gear modifications to limit the impact of depredation on hook-and-line gear catch per unit effort, and reported those efforts to the Sablefish Gear Committee and the Council. Nevertheless, depredation continues to result in lost sablefish catch, increased fishing time as vessel operators wait for whales to leave the area before hauling gear, or increased time and fuel to relocate to avoid whales. Section 4.7 of the Analysis includes a summary of efforts to mitigate depredation in Alaska and elsewhere.

NMFS agrees with the commenter that the sablefish stock is not overfished and is not subject to overfishing. The Council and NMFS considered the impacts of Amendment 101 and this final rule on the sablefish stock. The proposed rule and Section 3.1.1.2 of the Analysis describe that Amendment 101 and this final rule are not expected to have significant impacts on the sablefish stock. The Analysis describes that although some benefit likely will occur because unaccounted fishing mortality due to depredation will be reduced as sablefish IFQ fishermen voluntarily switch from hook-and-line longline gear to longline pot gear, the potential impact of reduced depredation may be difficult to measure given overall trends in sablefish recruitment.

Section 3.1.1.2 of the Analysis notes that the sablefish stock assessment authors considered the impacts of the introduction of longline pot gear on the sablefish stock assessment. The stock assessment authors considered whether the fish size selectivity of longline pot gear would be different from hook-and-line gear using information from the BSAI, where pot gear has been authorized in the sablefish IFQ fishery since 2008 (73 FR 28733, May 19, 2008). Some evidence exists to suggest a difference in the length frequency of sablefish caught with pot gear compared to hook-and-line gear, with hook-and-line gear producing slightly larger sablefish on average (see Figure 6 in Section 3.1.1.2 of the Analysis). However, the Analysis concludes that this difference in sizes was observed at the BSAI area-wide level and the size differences likely can be attributed to differences in sablefish sizes among sub-areas of the BSAI. The Analysis also notes that longline pot and hook-and-line gear are set at similar depths in the BSAI and the sex ratio of the catch is comparable for both gears. After considering this information, the sablefish stock assessment authors determined that the difference in lengths selected by longline pot and hook-and-line gear is not significant enough to affect population recruitment. Overall, existing evidence does not suggest that the introduction of longline gear pot under Amendment 101 and this final rule will impact the annual sablefish stock assessment.

NMFS notes that this final rule does not change observer coverage requirements for vessels fishing in the sablefish IFQ fisheries (§§ 679.50 through 679.55). Therefore, NMFS will collect information on length and age composition for sablefish caught in longline pot gear in the GOA sablefish IFQ fishery, and this information will be used in the annual assessment to determine that status of the sablefish stock.

Comment 15: The proposed rule cites reduced catch per unit effort as a result of depredation. We note that the catch per unit effort is currently more than twice as high in the SEO as it is in the WGOA, which indicates that depredation may not be negatively impacting catch per unit effort in some areas, and authorizing longline pot gear may not be necessary in those areas.

Response: NMFS agrees that it is not possible to determine if Amendment 101 and this final rule will increase sablefish catch per unit effort for those vessels that use longline pot gear relative to vessels that use hook-and-line gear. Section 4.9.2 of the Analysis describes that the relative benefit of using longline pot gear fishing as opposed to hook-and-line gear is either unclear or is conditional on factors that cannot be forecasted in the Analysis because longline pot gear has been prohibited in the fishery for many years. Those external factors include the local biomass distribution of sablefish in the future, changes in future product markets, and the future behavior of marine mammals, particularly depredating whales. Based on available information, the Analysis does not definitively state whether fishing with longline pot gear will generate a higher sablefish catch per unit effort in the GOA. The Analysis also notes that catch per unit effort is likely to differ across GOA management areas.

The Council received public testimony from sablefish fishermen in all areas of the GOA indicating that depredation had reduced catch per unit effort and increased costs for their fishing operations. The Council determined and NMFS agrees that Amendment 101 and this final rule will improve harvesting efficiency and reduce adverse economic impacts from depredation to harvesters in all GOA sablefish areas (see Section 4.10 of the Analysis).

Comment 16: The proposed rule states that groundfish bycatch and the incidental catch of seabirds may be reduced by authorizing the use of longline pot gear. The SEO sablefish hook-and-line fleet has collaborated since 2009 to reduce rockfish bycatch, and we are expanding bycatch avoidance to include other species. Bycatch in the sablefish hook-and-line fishery is primarily grenadiers and sharks, which are not target fisheries and are harvested in amounts well below the biological limits established for these species. Longline pot gear can also result in bycatch of some species, and NMFS should evaluate the potential bycatch of octopus by vessels using longline pot gear in the sablefish fishery.

Although pots are likely to reduce seabird takes, hook-and-line fisheries in the GOA typically account for only 10 percent to 20 percent of overall incidental catch of seabirds in the BSAI and GOA groundfish fisheries. The incidental catch of seabirds has been reduced significantly by the use of streamer lines in the hook-and-line fishery.

Response: NMFS agrees with the commenter that the sablefish IFQ fleet has taken positive steps to reduce rockfish bycatch and interactions with seabirds. As described in the response to Comment 14, Amendment 101 and this final rule do not change the observer coverage requirements for GOA sablefish IFQ fishery participants. NMFS collects information on bycatch and seabird interactions through the North Pacific Observer Program and will continue to do so for vessels participating in the GOA sablefish fishery, including vessels in the longline pot fishery, following implementation of this final rule.

Comment 17: We believe that Amendment 101 and the proposed rule are inconsistent with National Standard 8 because they fail to provide for the sustained participation of fishery dependent communities. The Council and NMFS must preserve the historic hook-and-line gear, small boat nature of the GOA sablefish fleet in general and in the SEO in particular. Because relatively more IFQ is fished by small boats in the SEO and WY relative to the CGOA and WGOA, it is clear that the introduction of pots in these areas will reduce the fishing grounds available to these small boats using hook-and-line gear and therefore reduce the number of hook-and-line vessels that can participate in the fishery. Eliminating small vessels from this historically important fishery will negatively impact communities in the SEO and WY. The geographic, social, and economic characteristics of the SEO sablefish fishery demand different considerations for the SEO and WY, and we urge NMFS to provide for the sustained participation of these fishery dependent communities by rejecting Amendment 101 and the proposed rule.

Response: NMFS has determined that Amendment 101 and this final rule are consistent with National Standard 8. As described in the response to Comment 11, the Council developed this action based on input from its Sablefish Gear Committee, its advisory bodies, public testimony, and the Analysis. Amendment 101 and this final rule balance the needs of sablefish fishermen who want to use longline pot gear and those who will continue to use hook-and-line gear.

Section 5.1 of the Analysis describes that the Council's objectives for this action implicitly recognize the importance of the sablefish fishery to GOA fishing communities and their residents. Amendment 101 and this final rule could reduce depredation and interactions, reduce bycatch of some species, reduce incidental catch of seabirds, and improve the long-term management of the resource by providing another harvesting option that likely will increase harvesting efficiency. Amendment 101 and this final rule are structured in a manner that does not inherently disadvantage fishery participants who choose not to switch from hook-and-line to longline pot gear. This final rule implements area-specific pot limits, gear redeployment and removal requirements, gear marking, and recordkeeping reporting requirements intended to minimize the potential for gear conflicts and grounds preemption.

Section 4.9.8 of the Analysis describes the impacts of Amendment 101 and this final rule on individual harvesters and fishing communities. The Analysis did not identify adverse impacts on individual harvesters or fishing communities because it does not anticipate a significant shift in the communities to which sablefish products are delivered, or from which sablefish vessels depart. The Analysis notes that Amendment 101 and this final rule will not alter the IFQ Program management measures that are designed to maintain a diverse fleet to benefit individual fishermen and communities that participate in the GOA sablefish IFQ fishery. These measures include area-specific quota share and IFQ, different quota share and IFQ allocations for vessel size categories, quota share use caps, and vessel IFQ caps.

Comment 18: The proposed rule and Analysis do not discuss how this action may displace crew or change the current composition of the fleet. The Council and NMFS have always placed a high priority on maintaining the benefits of the IFQ fisheries for small fishing communities. The current trend of quota share-holders hiring a master to harvest their IFQ provides more revenues for quota share-holders, but does not benefit other participants in the fishery such as hired skippers and crew members because more of the fishery revenues are going to quota share-holders. Amendment 101 will make this worse by allowing the hired master practice to continue and delay new entry into the fishery.

Response: This final rule does not change current regulations at § 679.42(c) that require the holder of sablefish catcher vessel quota share to be on board the vessel when their sablefish IFQ is harvested unless the quota share holder is eligible to hire a master or lease the IFQ under limited exceptions to the owner on board requirement.

Section 4.9.8.1 of the Analysis describes the potential for fleet consolidation following implementation of Amendment 101 and this final rule. The Analysis describes that if longline pot gear becomes the dominant gear in the sablefish IFQ fishery, it is possible that depredation would be concentrated on vessels that continue to use hook-and-line gear. This increased concentration could increase costs for these participants and, in the extreme, reduce profitability from fishing with hook-and-line gear. If profitability is substantially reduced, some operators that are unable to convert to longline pot gear might choose to sell their sablefish quota share, which could lead to consolidation in the fleet. However, as described in Section 4.9.2 of the Analysis and in the response to Comment 11, it is unlikely that a substantial number of vessel operators will switch to longline pot gear for economic or operational reasons. This makes it unlikely that Amendment 101 will cause fleet consolidation in the GOA sablefish IFQ fishery.

Comment 19: Most small boats will not be able to convert to longline pot gear. Any sperm whales present while gear is being hauled will concentrate effort on those vessels that continue to use hook-and-line gear, with no overall reduction in depredation. Since a reduction in depredation is the primary goal of this action and the least likely to be achieved in the SEO where the majority of the boats are small, NMFS must balance this low chance of success against the high likelihood of gear conflicts and grounds preemption associated with allowing pots.

Response: Section 4.11 of the Analysis notes that fishery participants who are not able to fish longline pot gear on their vessels—due to either economic or operational constraints—would not experience the benefits of reduced depredation from Amendment 101 and this final rule. The Analysis notes it is possible that these fishery participants could experience greater rates of depredation as the sablefish hooked on hook-and-line gear becomes concentrated on fewer vessels in a given area. Therefore, the Analysis describes that this action could result in some distributional impacts in the fishery. The Analysis notes that these potential impacts could affect smaller vessels in the sablefish IFQ fleet, though some large vessels may also find it difficult to convert to pot gear.

Section 4.9.8.1 of the Analysis describes that the Council received public testimony expressing concern that increased concentration of depredation onto remaining hook-and-line gear and fleet consolidation were more likely in the SEO area due to the more constrained fishing grounds. The Council and NMFS determined that these outcomes were unlikely based on the estimated cost for converting a vessel to use longline pot gear (see Section 4.9.2 of the Analysis). As described in the response to Comment 11, the majority of fishermen in the SEO are not likely to switch to longline pot gear and would continue to use hook-and-line gear in the sablefish IFQ fishery.

As described in the response to Comment 11, it is not possible to determine how many vessels will use longline pot gear, but the existing economic and operations constraints of converting to longline pot gear make it likely that a limited number of vessels will convert under this action. Based on this information, the Council determined and NMFS agrees that the impacts on vessels that continue to use hook-and-line gear likely will be limited. Nevertheless, this final rule includes a number of provisions to mitigate the potential negative impacts on sablefish IFQ fishery participants that continue to use hook-and-line gear.

Comment 20: Four commenters recommended revisions to the proposed pot limits at § 679.42(l)(5)(ii). The commenters indicated that these revisions were necessary to minimize the potential negative impacts on fishery participants that continue to use hook-and-line gear. The commenters recommended that NMFS implement a limit of 120 pots in the CGOA and WGOA, instead of the proposed limit of 300 pots for these areas. The commenters suggested that allowing a vessel to deploy up to 300 pots was not equitable because it would disadvantage vessels that use hook-and-line gear by allowing a vessel using longline pot gear to have a larger “footprint,” or the amount of gear deployed on the sablefish fishing grounds, than vessels using hook-and-line gear.

Response: NMFS did not change this final rule in response to this comment. In the development of Amendment 101 and this final rule, the Council and NMFS considered a range of options for pot limits, including the specific requirements recommended by the commenters (see Sections 4.9.3 and 4.9.4 of the Analysis). The Council recommended, and NMFS is implementing, the pot limits at § 679.42(l)(5)(ii) and gear retrieval requirements at § 679.42(l)(5)(iii) after reviewing the Analysis and receiving input from the Sablefish Gear Committee, the Council's advisory bodies, and public testimony. The Council and NMFS also considered that current regulations do not limit the amount of hook-and-line gear that may be used by a vessel in the sablefish IFQ fishery.

As described in the response to Comment 11, the Council and NMFS reviewed this information and determined that the likelihood of gear conflicts and grounds preemption is low under Amendment 101 and this final rule. However, the Council and NMFS recognize that the likelihood of gear conflicts and grounds preemption is not possible to determine with certainty. Several stakeholders requested that the Council recommend specific measures to address this uncertainty and further minimize the likelihood of gear conflicts and grounds preemption. This final rule implements the measures recommended by the Council.

The proposed rule and Section 4.9.3 of the Analysis describe that the Council recommended area-specific pot limits to account for the physical nature of the sablefish fishing grounds and the composition of the IFQ sablefish fleet in each sablefish area. The Council also considered public testimony on the number of pots that vessels in the GOA could feasibly deploy in the sablefish IFQ fishery.

Section 4.9.3 of the Analysis shows that the Council considered options for pot limits that ranged from 60 to 400 pots for each sablefish area. Considering area-specific pot limits allowed the Council to develop pot limits that are appropriate for the make-up of the fleet and the physical nature of the fishing grounds in each sablefish area. The Council determined that smaller pot limits are appropriate in the SEO and WY because the fishing grounds are spatially concentrated and the potential for grounds preemption may be greater. The Council also determined that smaller pot limits are appropriate for the SEO because the local fleet has a historically participating component of small, short-range vessels lacking the capacity to deploy and retrieve longline pots or pack a large hold of sablefish for an extended period. The proposed rule and Section 4.9.8.1 of the Analysis show that approximately 30 percent of sablefish IFQ fishermen in the SEO use vessels 50 feet (15.2 m) or less LOA.

The Council determined and NMFS agrees that larger pot limits are appropriate in the CGOA and WGOA because Section 4.5.4.3 of the Analysis and public testimony indicated there are relatively more options for productive fishing grounds in the CGOA and WGOA than in the SEO and WY. In addition, Section 4.5.2 of the Analysis shows that the average size of vessels participating in the CGOA and WGOA is larger and these vessels can deploy more pots than vessels used in the SEO and WY. The Council received public testimony that a pot limit of 300 in the CGOA and WGOA would allow vessel operators in these areas to deploy enough pots to efficiently harvest sablefish IFQ while maintaining an overall limit on the number of pots that can be deployed by one vessel.

In recommending pot limits for each GOA sablefish area, the Council and NMFS balanced the objectives to minimize the potential for gear conflicts and grounds preemption and improve harvesting efficiency of sablefish IFQ by authorizing longline pot gear. Section 4.9.3 of the Analysis describes that limiting the number of pots a vessel can use reduces operational efficiency if the limit is lower than what a vessel operator deems optimal for his or her vessel. A pot limit that is too low might increase variable fishing costs such as fuel and time. If the limit is too low, there may be little or no incentive for vessel owners to purchase new longline pot gear and invest in vessel reconfigurations. The Council and NMFS used the best available information to determine that the pot limits implemented by this final rule achieve the objectives of this action.

Comment 21: Five commenters recommended revisions to the proposed gear retrieval requirements at § 679.42(l)(5)(iii). The commenters indicated that these revisions were necessary to minimize the potential negative impacts on fishery participants that continue to use hook-and-line gear. The commenters did not support the requirements at § 679.42(l)(5)(iii)(C) and (D) for vessel operators using longline pot gear to redeploy or remove their longline pot gear within five days after deployment in the WY and within seven days after deployment in the CGOA and WGOA. These commenters recommend that NMFS extend the requirement for vessels in the SEO at § 679.42(l)(5)(iii)(A) to remove longline pot gear when leaving the fishing grounds to make a landing in the WY, CGOA, and WGOA. The commenters were concerned that allowing the gear to stay on the fishing grounds between landings in the WY, CGOA, and WGOA would preempt fishing grounds for use by vessels using hook-and-line gear and could result in lost gear due to inclement weather. In addition, one commenter was concerned that the proposed gear retrieval requirements for the WY, CGOA, and WGOA would allow multiple vessel operators to share longline pot gear and preempt fishing grounds for long periods.

Response: NMFS did not change this final rule in response to this comment. The proposed rule and Section 4.10 of the Analysis describe that the Council considered the Analysis and public testimony when recommending the gear retrieval requirements for the WY, CGOA, and WGOA. The Council and NMFS determined that the fishing grounds are less constrained in the WY, CGOA, and WGOA relative to the SEO due to fewer IFQ holders, larger fishing grounds, or both. Therefore, the Council and NMFS determined that it was not necessary to require fishermen using longline pot gear in these areas to remove their gear from the fishing grounds when making a landing. The Council and NMFS based this decision on testimony from operators in these areas indicating that fishing vessels were much further from port in these areas relative to the SEO and requiring a vessel to return to and retrieve its gear by a certain day could, in some circumstances, force vessels to operate in unsafe or unfavorable conditions. Aside from weather, limiting the amount of time that gear may be deployed (soak time) could reduce a vessel operator's ability to fish an optimal gear rotation if the vessel's longline pot gear is spaced out over a large geographical area, or if the vessel operator determines that a particularly long soak time yields larger fish in that area. Based on this public testimony and the pot soak times in the BSAI sablefish fishery presented in Section 4.8.2 of the Analysis, the Council determined that requiring vessel operators to tend their gear within a maximum period would meet its objective to minimize the potential for longline pot gear to be left unattended on the fishing grounds for an extended period of time in these areas.

This final rule implements regulations at § 679.42(l)(5)(iv) applicable to vessel operators who want to share longline pot gear during the fishing season to help reduce operating costs. To minimize the potential for grounds preemption by multiple vessels using the same longline pot gear, this final rule allows multiple vessels to use the same longline pot gear during one fishing season but prohibits use of the same longline pot gear simultaneously. In order for more than one vessel to use the same longline pot gear, this final rule requires a vessel operator to remove longline pot gear from the fishing grounds, return the gear to port, and remove the pot tags assigned to the vessel before pot tags assigned to another vessel are attached to the pots and used on that vessel in the GOA sablefish IFQ fishery.

The Council and NMFS determined that vessel operators using longline pot gear have an incentive to reduce the likelihood of gear conflicts, or lost gear because fishing gear is expensive to purchase and replace (see Section 4.8.2 of the Analysis). This final rule establishes specific gear retrieval requirements to provide an additional incentive for operators using longline pot gear to closely monitor the amount of time their gear is left on the grounds and further minimize potential for gear conflicts or grounds preemption. The Council recommended and NMFS is implementing these provisions to balance the objectives of this action to improve harvesting efficiency and reduce depredation with the further objective to minimize potential negative impacts on fishermen that continue to use hook-and-line gear.

Comment 22: The proposed requirement for vessel operators to leave longline pot gear on the fishing grounds for no more than five days in the WY and CGOA and seven days in the WGOA will be difficult to enforce.

Response: The proposed rule and Sections 4.9.3.2, 4.9.4.1, 4.9.5.1, and 4.9.6.1 of the Analysis describe enforcement considerations for provisions of this final rule that are intended to minimize gear conflicts and grounds preemption. The Council considered the methods that would be used to enforce the restrictions on use of longline pot gear in the GOA sablefish IFQ fishery and advice from its Enforcement Committee.

This final rule implements three additional recordkeeping and reporting requirements to monitor and enforce provisions that are intended to minimize gear conflicts and grounds preemption. First, § 679.5(c)(3)(B) requires all vessel operators using longline pot gear in the GOA sablefish IFQ fishery to report specific information in logbooks about fishing gear used and catch for all sablefish IFQ fishing trips. Second, § 679.42(k)(2) requires all vessel operators using longline pot gear in the GOA sablefish IFQ fishery to have an operating VMS while fishing for sablefish IFQ. Third, this final rule adds additional Prior Notice of Landing (PNOL) reporting requirements at § 679.5(l)(1)(iii) for vessel operators using longline pot gear in the GOA sablefish IFQ fishery. These tools will provide NMFS with information on vessel activity during the sablefish fishing season. The Council and NMFS determined that these requirements will provide sufficient monitoring and enforcement information to meet the Council's objectives for this action.

Comment 23: NMFS should revise the final rule to clarify that vessels using longline pot gear in the SEO must remove all longline pots in addition to anchors, buoys, buoy line, flags, and any other gear from the fishing grounds when they leave the grounds to make a delivery. As proposed, the rule only requires vessels using longline pot gear to remove pots from the grounds, allowing other components of a pot longline string to remain in the water and preempt fishing grounds.

Response: NMFS revised this final rule to address this comment. This final rule adds § 679.42(l)(5)(i)(C) to specify that the gear retrieval and removal requirements in § 679.42 (l)(5)(iii) and (iv) apply to all longline pot gear that is assigned to a vessel and deployed to fish IFQ sablefish and to all other fishing equipment attached to longline pot gear that is deployed by the vessel to fish IFQ sablefish in the GOA. This final rule also specifies that all other fishing equipment attached to longline pot gear includes, but is not limited to, equipment used to mark longline pot gear as required in this final rule at § 679.24(a)(3).

Although the Council and NMFS determined that the potential for grounds preemption is low under this final rule (see response to Comment 11), NMFS agrees with the commenter that the gear retrieval and removal requirements in the proposed rule applied to “longline pot” gear. Section 679.2 defines longline pot as “a stationary, buoyed, and anchored line with two or more pots attached.” This definition does not include buoys, flags, or radar reflectors that must be used to mark longline pot gear in this final rule (§ 679.24(a)(3)) or other equipment that vessel operators may use to mark their gear. Although it is unlikely that vessel operators will remove only pots and leave other equipment to preempt fishing grounds as suggested by the commenter, NMFS agrees that the intent of this final rule is to require vessel operators using longline gear to retrieve or remove all fishing gear from the fishing grounds to minimize the potential for gear conflicts and grounds preemption. This revision to this final rule clarifies that the gear retrieval and removal requirements apply to all pots and associated equipment deployed by a vessel using longline pot gear in all sablefish areas of the GOA.

Comment 24: Allowing longline pot gear to stay on the fishing grounds between landings is not consistent with the intent of the owner onboard requirement of the IFQ Program. Section 679.42(c) requires most holders of sablefish catcher vessel IFQ to be on board the vessel on which their IFQ is harvested and present during the landing. Authorizing longline pot gear to stay on the fishing grounds while a vessel makes a landing in the WY, CGOA, or WGOA would be inconsistent with current operations of hook-and-line vessels and could allow vessel operators to set gear while the IFQ permit holder is not on board the vessel.

Under the proposed rule, a vessel operator in the WY, CGOA, or WGOA could deploy pots on the fishing grounds, leave the fishing grounds to pick up an IFQ permit holder in port, and then retrieve the pot gear and collect the sablefish while the IFQ permit holder is on board the vessel. Hook-and-line gear is not generally left on the fishing grounds unattended, so the proposed rule would allow a longline pot gear vessel to operate differently than a hook-and-line vessel.

Response: This final rule is consistent with the IFQ permit holder on board requirements at § 679.42(c). This final rule does not change the requirement for an IFQ permit holder to be aboard the vessel at all times during the fishing trip while his or her IFQ is harvested and to be present during the landing. This final rule does not change the definition of “fishing trip” at § 679.2 for purposes of the IFQ Program, which is the period beginning when a vessel operator commences harvesting IFQ species and ending when the vessel operator lands any species. Therefore, all IFQ permit holders subject to the permit holder on board requirements must be on board the vessel during the entire fishing trip whether the vessel is using longline pot or hook-and-line gear.

Comment 25: Longline pot gear should not have a larger footprint than hook-and-line gear. We recommend revising the rule to require that a longline pot set be no more than 9 miles from end to end. This would allow each vessel to have an average of three sets of longline gear that would be from 2.5 to 3 miles in length and would limit the length of a set of longline pot gear to correspond to the footprint of a hook-and-line set.

Response: NMFS did not change this final rule in response to this comment. The pot limits implemented by this final rule limit the amount of longline pot gear that a fishing vessel can use in the GOA sablefish IFQ fishery (see the response to Comment 20). The Council and NMFS determined that additional limits on the amount of longline pot gear that could be deployed are not necessary to meet the objectives of this final rule.

Section 4.9.3 of the Analysis describes that the pot limits specified in § 679.42(l)(5)(ii) limit the amount of longline pot gear that each vessel may deploy, which limits the footprint of that vessel on the fishing grounds. The Analysis describes that the Sablefish Gear Committee estimated that a vessel deploying from 180 to 300 longline pots would cover grounds similar to a hook-and-line set in the sablefish fishery, or approximately 10 to 12 miles. The Analysis also notes that current regulations do not limit the amount of hook-and-line gear that a vessel fishing IFQ sablefish may deploy. Based on information in the Analysis, the Council and NMFS determined that it is possible that the footprint of longline pot gear used by some vessels could be greater than the footprint of hook-and-line gear used by other vessels under this final rule. The Analysis describes that the Sablefish Gear Committee reviewed available information on the likely length of longline pot gear sets on the fishing grounds and considered whether gear specifications in addition to pot limits were necessary to minimize the potential for gear conflicts and grounds preemption. The Sablefish Gear Committee, Council, and NMFS considered the potential impacts of additional gear specifications on operations and monitoring and enforcement, and determined that additional gear specifications were not necessary to meet the objectives of this action. In addition, additional gear specifications could unnecessarily constrain individual fishing operations and reduce harvesting efficiency.

Comment 26: We do not support the proposed gear marking requirements because each vessel operator should be able to use the gear marking equipment that best meets the specifications of their operation. The proposed requirement to mark gear with buoys, a flag, and radar detector on each end of a longline pot set creates a large amount of surface area and makes it more likely that the wind or waves could catch the marking equipment and move the gear from the deployed location. This increases the likelihood of lost gear on the fishing grounds. In some areas, vessels using hook-and-line gear do not mark their gear with flagpoles or radar reflectors due to the known gear loss that results from a combination of wind and tide. While we believe that each vessel operator should have the discretion to determine what gear marking equipment is appropriate for their vessel, it is important that any vessel on the fishing grounds can differentiate between a hook-and-line and longline pot gear set. We recommend revising the rule to require that the end of a longline pot set be marked with one yellow hard buoy a minimum of 13 inches in diameter and marked with an “LP” and the vessel name.

Response: NMFS did not change this final rule in response to this comment. This final rule maintains current regulations at § 679.24(a) that require all vessel operators using hook-and-line and pot gear (including longline pot gear) to mark buoys carried on board or used by the vessel to be marked with the vessel's Federal fisheries permit number or ADF&G vessel registration number. This regulation also specifies that the markings must be a specified size, shall be visible above the water line, and shall be maintained so the markings are clearly visible.

This final rule implements the following additional gear marking requirements: Each vessel operator using longline pot gear in the GOA sablefish IFQ fishery must attach a cluster of four or more marker buoys, a flag mounted on a pole, and a radar reflector to each end of a longline pot set.

The Council received recommendations from the Sablefish Gear Committee, its advisory bodies, and public testimony to develop the gear marking requirements implemented by this final rule. The Council and NMFS considered a broad suite of gear marking options during the development of Amendment 101 and this final rule. Section 4.9.5 of the Analysis describes the options considered, and Section 4.10 describes the anticipated impacts of the additional gear marking requirements implemented by this final rule.

The Council received public testimony that the marking requirements implemented by this final rule would enhance the visibility of the ends of a longline pot gear set to other vessels that are on the fishing grounds. As described in Section 4.9.5 of the Analysis, public testimony indicated that the gear marking equipment required by this final rule is commonly used by vessel operators that deploy pot gear in fisheries in Alaska and requiring the use of this equipment would not impose a substantial cost on vessel operators using longline pot gear in the GOA sablefish IFQ fishery. Section 4.9.5 of the Analysis describes public testimony indicating that using buoy clusters could be a viable method to keep surface gear from being submerged during strong tides and would minimize the potential for longline pot gear to move a substantial distance from its deployed location. The testimony indicated that buoy clusters add buoyancy to surface gear by putting additional buoys on the main anchor line. The Analysis also describes that requiring a vessel operator to use a flag mounted on a pole and a radar reflector to mark each end of a longline pot gear set would enhance the visibility of the location of the gear and minimize the potential for gear conflicts. This was supported by public testimony from vessel operators who indicated they planned to use longline pots in the GOA sablefish IFQ fishery.

As described in the response to Comment 11, the Council intends to review the use of longline pot gear in the GOA sablefish IFQ fishery three years after the implementation of this final rule. NMFS anticipates that if the gear marking requirements in this final rule impose substantial costs on vessel operators or could be revised to better meet the Council's objectives, the Council will consider potential changes to the gear marking requirements in the future.

Comment 27: Vessels using longline pot gear should be equipped with a 25 watt, Class A Automatic Identification System (AIS) to enable other boats to identify and communicate with the vessel about the location of their deployed longline pot gear.

Response: Section 4.9.5 of the Analysis describes that the Council and NMFS considered an option to require both ends of a longline pot set in the GOA sablefish IFQ fishery to be marked with buoys, flagpoles, and a transponder that is compatible with a location and identification system such as AIS. Gear transponders could allow a fishery participant to view the location of deployed gear in order to avoid setting gear in the same area. Additional information on the AIS technology, application, approximate cost, and relevant regulations are described in Appendix 2 of the Analysis.

Section 4.9.4 of the Analysis describes the key challenges involved in requiring the use of AIS as a buoy transponder. The challenges include limited operational time due to limited battery capacity, potentially inadequate seaworthiness, and the requirement for regulatory approval by the United States Coast Guard and international oversight bodies. The Analysis notes that implementing a longline pot gear tracking system using technology such as AIS or a scannable pot tag to locate longline pot gear on the fishing grounds is beyond the scope of available NMFS resources in the Alaska Region. In addition, anecdotal reports suggest that AIS or other scannable systems may not be effective in all weather and sea conditions (e.g., signals can be blocked or greatly attenuated in high seas). Section 4.9.4.1 of the Analysis concludes that given that these factors and that the total costs of fitting longline pot gear can be substantial, gear tracking systems, including AIS, are not appropriate at this time.

The Analysis describes that the Council did not adopt the option to require AIS transponders in this final rule due to the current challenges related to using AIS transponders in the GOA sablefish IFQ fishery and stakeholder willingness to pursue a voluntary program to report longline pot gear locations (see the response to Comment 29). The Council intends to review the use of longline pot gear three years following implementation of this final rule. This review will provide an opportunity for the Council and NMFS to evaluate whether additional gear marking requirements may be necessary for longline pot gear in the future.

Comment 28: The proposed rule incorrectly claims on page 55416 (81 FR 55408, August 19, 2016) that “most vessel operators in the GOA sablefish IFQ fishery are currently required to complete logbooks.” This is incorrect because vessels less than 60 feet in length are exempt from logbook reporting requirements and the median vessel length in the sablefish IFQ fleet is less than 60 feet. The proposed rule discriminates against vessels that choose to use pot gear because it would require vessels less than 60 feet LOA to complete a logbook. The proposed rule would require all vessels using longline pot gear in the GOA sablefish IFQ fishery to complete a logbook. The rule should be revised to require all vessels in the sablefish IFQ fishery to complete a logbook for consistency with the requirements for the halibut IFQ fishery. The same vessel operators that are declining to complete a logbook for sablefish are completing logbooks for their halibut fishing. Recordkeeping and reporting requirements cannot be inequitably applied to one gear type over another. All users have an obligation to supply information on their catch of this public resource to the stock assessment scientists.

Response: NMFS did not change this final rule in response to this comment. NMFS agrees with the commenter that the statement on page 55416 (81 FR 55408, August 19, 2016) of the proposed rule preamble is incorrect. Notwithstanding that it is a misstatement, as explained below, the misstatement does not require revisions to this final rule.

The statement on page 55416 of the proposed rule preamble should have stated that most vessel operators in the GOA sablefish IFQ fishery currently complete logbooks. The commenter is correct that most vessels in the sablefish IFQ fleet are less than 60 feet (18.3m) LOA, and these vessels are not required to complete a logbook (§ 679.5(a)(4)(i)). In 2015, 85 percent of the vessels participating in the BSAI and GOA sablefish IFQ fishery were less than 60 feet LOA. While these vessels are not required to complete a logbook for sablefish fishing, Section 4.9.3.2 of the Analysis notes that many vessel operators voluntarily complete and submit logbooks. Logbook participation increased sharply in 2004 in all areas primarily because the IPHC collects, edits, and enters logbooks electronically. In 2015, 68 percent of the 252 vessels less than 60 feet LOA in the sablefish IFQ fishery submitted logbooks.

The Council and NMFS determined that this final rule should include a requirement for all vessels using longline pot gear in the GOA sablefish IFQ fishery to complete a logbook. The proposed rule and Section 4.9 of the Analysis describe that NMFS uses logbooks to collect detailed information from vessel operators participating in the IFQ fisheries. The proposed rule and Analysis also describe that NMFS will use logbooks as one tool to monitor and enforce the management measures in this final rule intended to minimize the potential for gear conflicts and grounds preemption, such as the gear redeployment and removal requirements.

This final rule adds a requirement at § 679.5(c)(3)(i)(B) for an operator of a vessel using longline pot gear in the GOA sablefish IFQ fishery to report in a Daily Fishing Logbook (for catcher vessels) or Daily Cumulative Production Logbook (for catcher/processors) the number of pots and location of longline pot sets deployed on a fishing trip. This final rule removes the exemption from the logbook submission requirements for the operator of a vessel less than 60 feet LOA using longline pot gear in the GOA sablefish IFQ fishery. While this is a new regulatory requirement for these vessels, Section 4.9.3.2 of the Analysis explains that many operators of vessels less than 60 feet (18.3 m) in the sablefish IFQ fishery voluntarily complete and submit logbooks. Therefore, the Council and NMFS anticipate this additional reporting requirement will not negatively impact operators of vessels less than 60 feet (18.3 m) that choose to use longline pot gear.

Comment 29: We suggest that the coordinates of lost pots reported to NMFS are posted and available for the public to access. This will allow vessel operators using hook-and-line gear to avoid setting gear on lost pots and losing gear in those areas.

Response: Section 4.9.4.1 of the Analysis describes that the Council and NMFS considered and rejected a requirement for vessel operators to report the coordinates of lost longline pot gear to NMFS in an electronic form for release to the public. The Council and NMFS did not adopt this option for two reasons. First, the coordinates of lost longline pot gear pots are confidential under section 402(b) of the Magnuson-Stevens Act and potentially other laws, as well. Second, NMFS cannot enforce a requirement to report the loss of longline pot gear because it is not possible to verify that fishing gear is lost.

Section 4.9.4 of the Analysis describes a proposal for a voluntary pot gear reporting program for vessels that use longline pot gear in the GOA sablefish IFQ fishery. GOA sablefish IFQ fishery participants who advocated before the Council for the ability to use longline pot gear presented the proposal to assure the Council of their ability and willingness to report the location of longline pot gear on the fishing grounds, in as close to real-time as is practicable, and without placing additional cost burdens on the hook-and-line fleet. These proponents presented a voluntary measure in the form of a written agreement that would set out expectations of, and best practices by, those who opt to use longline pot gear.

While the Council did not recommend the formalization of a voluntary pot gear reporting program in its recommendation of Amendment 101 and this final rule, Section 4.10 of the Analysis describes that the Council encouraged fishery participants to work cooperatively to develop electronic reporting protocols for reporting the location of pots being fished and/or pots left on the fishing grounds, as well as any other methods that may enhance the GOA sablefish IFQ longline pot fishery. The Council determined and NMFS agrees that the expressed willingness of fishermen who intend to use longline pot gear to work beyond the gear specifications and gear retrieval requirements specified in this final rule, combined with the Council's commitment to review the use of longline pot gear three years after implementation of this final rule, will minimize the potential for gear conflicts and grounds preemption.

This final rule requires vessel operators using longline pot gear to report the number of lost pots to NMFS in the vessel's PNOL submitted prior to landing. In addition, if a vessel operator loses pots and intends to replace those pots to harvest IFQ sablefish, they must request replacement pot tags from NMFS consistent with the requirements at § 679.42(l)(3)(iii). The vessel owner will be required to provide NMFS with the pot tag numbers that were lost and describe the circumstances under which the pot tags were lost.

The Administrator, Alaska Region, NMFS, determined that this rule is necessary for the conservation and management of the GOA sablefish IFQ fishery and that it is consistent with the Magnuson-Stevens Act, the Halibut Act, and other applicable law.

This final rule has been determined to be not significant for the purposes of Executive Order 12866.

Section 212 of the Small Business Regulatory Enforcement Fairness Act of 1996 states that, for each rule or group of related rules for which an agency is required to prepare a final regulatory flexibility analysis, the agency shall publish one or more guides to assist small entities in complying with the rule, and shall designate such publications as “small entity compliance guides.” The agency shall explain the actions a small entity is required to take to comply with a rule or group of rules. The preamble to the proposed rule (81 FR 55408, August 19, 2016) and the preamble to this final rule serve as the small entity compliance guide for this action.

Section 604 of the Regulatory Flexibility Act (RFA) requires an agency to prepare a final regulatory flexibility analysis (FRFA) after being required by that section or any other law to publish a general notice of proposed rulemaking and when an agency promulgates a final rule under section 553 of Title 5 of the U.S. Code. The following paragraphs constitute the FRFA for this action.

This FRFA incorporates the Initial Regulatory Flexibility Analysis (IRFA) (see ADDRESSES) and the summary of the IRFA in the proposed rule (81 FR 55408, August 19, 2016), a summary of the significant issues raised by the public comments, NMFS' responses to those comments, and a summary of the analyses completed to support the action. The FRFA describes the impacts on small entities, which are defined in the IRFA for this action and not repeated here. Analytical requirements for the FRFA are described in the RFA, section 604(a)(1) through (6). The FRFA must contain:

1. A statement of the need for, and objectives of, the rule;

2. A statement of the significant issues raised by the public comments in response to the IRFA, a statement of the assessment of the agency of such issues, and a statement of any changes made in the proposed rule as a result of such comments;

3. The response of the agency to any comments filed by the Chief Counsel for Advocacy of the Small Business Administration (SBA) in response to the proposed rule, and a detailed statement of any change made to the proposed rule in the final rule as a result of the comments;

4. A description and an estimate of the number of small entities to which the rule will apply, or an explanation of why no such estimate is available;

5. A description of the projected reporting, recordkeeping, and other compliance requirements of the rule, including an estimate of the classes of small entities which will be subject to the requirement and the type of professional skills necessary for preparation of the report or record; and

6. A description of the steps the agency has taken to minimize the significant economic impact on small entities consistent with the stated objectives of applicable statutes, including a statement of the factual, policy, and legal reasons for selecting the alternative adopted in the final rule and why each one of the other significant alternatives to the rule considered by the agency which affect the impact on small entities was rejected.

The “universe” of entities to be considered in a FRFA generally includes only those small entities that can reasonably be expected to be directly regulated by the action. If the effects of the rule fall primarily on a distinct segment of the industry, or portion thereof (e.g., user group, gear type, geographic area), that segment will be considered the universe for purposes of this analysis.

In preparing a FRFA, an agency may provide either a quantifiable or numerical description of the effects of a rule (and alternatives to the rule), or more general descriptive statements, if quantification is not practicable or reliable.

A statement of the need for and objectives of this rule is contained earlier in the preamble and is not repeated here. This FRFA incorporates the IRFA (see ADDRESSES) and the summary of the IRFA in the proposed rule (81 FR 55408, August 19, 2016), a summary of the significant issues raised by the public comments, NMFS' responses to those comments, and a summary of the analyses completed to support the action.

NMFS published the proposed rule to implement Amendment 101 on August 19, 2016 (81 FR 55408), with comments invited through September 19, 2016. An IRFA was prepared and summarized in the Classification section of the preamble to the proposed rule. No comments were received that raised significant issues in response to the IRFA specifically; therefore, no changes were made to this rule as a result of comments on the IRFA. NMFS received several comments on the potential impacts of this final rule on the operators of sablefish vessels that cannot convert to longline pot gear due to economic or operational constraints. Several comments expressed concerns about the impacts of this action on small fishing operations that will continue to use hook-and-line gear to fish for sablefish in specific areas of the GOA. NMFS summarized and responded to these comments in the section above titled “Comments and Responses.” The Chief Counsel for Advocacy of the SBA did not file any comments on the proposed rule.

NMFS estimates that there are a total of 310 small catcher vessels and 1 small catcher/processor that participate in the GOA sablefish IFQ fishery using hook-and-line gear. These entities will be directly regulated by this rule because they will be subject to the requirements for using longline pot gear if they choose to use longline pot gear in the GOA sablefish IFQ fishery. Thus, NMFS estimates that 311 small entities are directly regulated by this rule.

Several aspects of this rule directly regulate small entities. Small entities will be required to comply with the requirements for using longline pot gear in the GOA sablefish IFQ fishery, which include using only longline pot gear, pot limits, and gear retrieval and gear marking requirements. Authorizing longline pot gear in this rule provides an opportunity for small entities to choose whether to use longline pot gear to increase harvesting efficiencies and reduce operating costs in the GOA sablefish IFQ fishery.

Based on public testimony to the Council and NMFS, and Section 4.9 of the Analysis, the requirements for using pot gear are not expected to adversely impact small entities because each entity can choose to use longline pot gear or continue to use hook-and-line gear. In addition, the requirements for using longline pot gear are not expected to unduly restrict sablefish harvesting operations. The Council and NMFS considered requirements that would impose larger costs on directly regulated small entities. These alternatives included requiring all vessels to remove gear from the fishing grounds each time the vessel made a landing and requiring more sophisticated and costly satellite-based gear marking systems. The Council and NMFS determined that these additional requirements were not necessary to meet the objectives of this action. These additional requirements could adversely impact small entities by reducing sablefish harvesting efficiency and increasing sablefish harvesting costs, contrary to the intent of this rule. This rule implements pot limits and gear retrieval and gear marking requirements that meet the objectives of this action while minimizing adverse impacts on fishery participants.

Small entities will be required to comply with additional recordkeeping and reporting requirements under this rule if they choose to use longline pot gear in the GOA sablefish IFQ fishery. Section 4.9 of the Analysis notes that directly regulated small entities using longline pot gear will be required to request pot tags from NMFS, maintain and submit logbooks to NMFS, have an operating VMS on board the vessel, and report additional information in a PNOL. The Analysis notes that these additional recordkeeping and reporting requirements are not expected to adversely impact directly regulated small entities because the costs of complying with these requirements is de minimis to total gross fishing revenue. In addition, NMFS anticipates that many of the vessels that choose to use longline pot gear under this rule currently comply with the logbook and VMS reporting requirements when participating in the sablefish IFQ fishery and in other fisheries. The Council and NMFS considered alternatives to implement additional requirements to report locations of deployed and lost gear in an electronic database to reduce the likelihood that sablefish IFQ fishery participants would deploy fishing gear in these locations. The Analysis describes that the information reported in the electronic database would be confidential under section 402(b) of the Magnuson-Stevens Act and could not be provided to participants in the sablefish IFQ fishery to meet the intended purpose. The Council and NMFS determined that these additional requirements were not necessary to meet the objectives of this action. This rule meets the objectives of this action while minimizing the reporting burden for fishery participants.

Thus, there are no significant alternatives to this rule that accomplish the objectives to authorize longline pot gear in the GOA sablefish IFQ fishery and minimize adverse economic impacts on small entities.

The recordkeeping, reporting, and other compliance requirements will be increased slightly under this rule. This rule contains new requirements for vessels participating in the longline pot fishery for sablefish IFQ in the GOA.

Prior to this final rule, NMFS required catcher vessel operators, catcher/processor operators, buying station operators, tender vessels, mothership operators, shoreside processor managers, and stationary floating processor managers to record and report all FMP species in logbooks, forms, eLandings, and eLogbooks. This rule revises regulations to require all vessels using longline pot gear in the GOA sablefish IFQ fishery to report information on fishery participation in logbooks, forms, and eLandings.

NMFS currently requires vessels in the BSAI to have an operating VMS on board the vessel while participating in the sablefish IFQ fishery. This rule revises regulations to extend this requirement to vessels using longline pot gear in the GOA sablefish IFQ fishery.

NMFS currently requires all vessels in the sablefish and halibut IFQ fisheries to submit a PNOL to NMFS. This rule revises regulations to require vessels using longline pot gear in the GOA sablefish IFQ fishery to report the number of pots deployed, the number of pots lost, and the number of pots left deployed on the fishing grounds in the PNOL, in addition to other required information.

This rule contains collection-of-information requirements subject to the Paperwork Reduction Act (PRA) and which have been approved by the Office of Management and Budget (OMB). The collections are listed below by OMB control number.

Public reporting burden is estimated to average 35 minutes per individual response for Catcher Vessel Longline and Pot Gear Daily Fishing Logbook; and 50 minutes for Catcher/processor Longline and Pot Gear Daily Cumulative Production Logbook.

Public reporting burden is estimated to average 15 minutes per individual response for Prior Notice of Landing.

Public reporting burden is estimated to average 15 minutes per individual response to mark longline pot gear; 15 minutes for IFQ Sablefish Longline Pot Gear: Vessel Registration and Request for Pot Gear Tags; and 15 minutes for IFQ Sablefish Longline Pot Gear: Request for Replacement of Longline Pot Gear Tags.

Public reporting burden is estimated to average 2 hours per individual response for VMS operation; and 12 minutes for VMS check-in report.

The cost recovery program is mentioned in this rule. The cost to implement and manage the sablefish IFQ longline pot gear fishery, including the cost of the pot tags, will be included in the annual calculation of NMFS' recoverable costs. These costs will be part of the total management and enforcement costs used in the calculation of the annual fee percentage. For example, when the pot gear tags are ordered, the payment of those tags is charged 100 percent to the IFQ Program for cost recovery purposes. This rule will not change the process that harvesters use to pay cost recovery fees.

The public reporting burden includes the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information.

Send comments regarding these burden estimates or any other aspect of this data collection, including suggestions for reducing the burden, to NMFS (see ADDRESSES), and by email to [email protected], or fax to 202-395-5806.

Notwithstanding any other provision of the law, no person is required to respond to, nor shall any person be subject to a penalty for failure to comply with, a collection of information subject to the requirements of the PRA, unless that collection of information displays a currently valid OMB control number. All currently approved NOAA collections of information may be viewed at: http://www.cio.noaa.gov/services_programs/prasubs.html.

For the reasons set out in the preamble, NMFS amends 15 CFR part 902 and 50 CFR parts 300 and 679 as follows:

We are making technical corrections to Rule 12g-1 1 under the Exchange Act.2

For the reasons set out above, title 17, chapter II of the Code of Federal Regulations is amended as follows:

On December 31, 2013, the Treasury Department and the IRS published final and temporary regulations (2013 temporary regulations) under sections 1291, 1298, 6038, and 6046 (T.D. 9650) in the Federal Register (78 FR 79602, as corrected at 79 FR 26836). On the same date, the Treasury Department and the IRS published a notice of proposed rulemaking (REG-140974-11) in the Federal Register (78 FR 79650, as corrected at 79 FR 27230) cross-referencing the 2013 temporary regulations (2013 proposed regulations). No public hearing was requested or held. Written comments were received, and are available at www.regulations.gov or upon request.

On April 28, 2014, the Treasury Department and the IRS issued Notice 2014-28 (2014-18 I.R.B. 990), which announced that the regulations under section 1291 would provide that a United States person that owns stock of a PFIC through a tax-exempt organization or account is not treated as a shareholder of the PFIC with respect to the stock. In addition, on September 29, 2014, the Treasury Department and the IRS issued Notice 2014-51 (2014-40 I.R.B. 594), which announced that the regulations under section 1298 would provide guidance concerning United States persons that own stock in a PFIC that is marked to market under a provision of chapter 1 of the Code other than section 1296.

This Treasury decision adopts the 2013 proposed regulations with the changes described below as final regulations, including implementing the rules described in Notice 2014-28 and Notice 2014-51, and removes the corresponding 2013 temporary regulations.

The final regulations retain the basic approach and structure of the 2013 temporary regulations, with certain revisions. This Summary of Comments and Explanation of Revisions section discusses those revisions as well as comments received in response to the solicitation of comments in the notice of proposed rulemaking accompanying the 2013 temporary regulations. Several comments were received that did not pertain to the rules in the 2013 temporary regulations. These comments are beyond the scope of this rulemaking and are not addressed in this preamble. The Treasury Department and the IRS will consider these comments in connection with any future guidance projects addressing the issues discussed in the comments.

As described in Notice 2014-28, the application of the PFIC rules to a United States person treated as owning stock of a PFIC through a tax-exempt organization or account described in § 1.1298-1(c)(1) would be inconsistent with the tax policies underlying the PFIC rules and the treatment of tax-exempt organizations and accounts. For example, applying the PFIC rules to a United States person that owns stock of a PFIC through an individual retirement account (IRA) described in section 408(a) would be inconsistent with the principle of deferred taxation provided by IRAs. Notice 2014-28 provides that the regulations incorporating the guidance described in the notice will be effective for taxable years of United States persons that own stock of a PFIC through a tax-exempt organization or account ending on or after December 31, 2013.

The final regulations modify the definition of shareholder in § 1.1291-1 as announced in Notice 2014-28. Under new § 1.1291-1(e)(2), a United States person is not treated as a shareholder of a PFIC to the extent the person owns PFIC stock through a tax-exempt organization or account described in § 1.1298-1(c)(1).

On April 1, 1992 (57 FR 11024) the Treasury Department and the IRS issued proposed regulations (1992 proposed regulations) that, among other things, included rules for determining when a United States person is treated as indirectly owning stock of a PFIC. Consistent with section 1298(a)(2)(A), § 1.1291-1(b)(8)(ii)(A) of the 1992 proposed regulations provided that a United States person who directly or indirectly owns 50 percent or more in value of the stock of a foreign corporation that is not a PFIC is considered to own a proportionate amount (by value) of any stock (including PFIC stock) owned directly or indirectly by the foreign corporation. Thus, for example, if a United States person owned 100 percent of the shares of FC, a foreign corporation that is not a PFIC but that owns 50 shares of a PFIC, the United States person would be treated as indirectly owning the 50 PFIC shares under § 1.1291-1(b)(8)(ii)(A) of the 1992 proposed regulations.

By contrast, section 1298(a)(1)(B) provides that PFIC stock owned by a domestic corporation (which generally would be treated as a PFIC shareholder itself) is not attributed to any other person, except to the extent provided in regulations. Pursuant to this grant of regulatory authority, § 1.1291-1(b)(8)(ii)(C) of the 1992 proposed regulations provided that, if stock of a section 1291 fund was not treated as owned indirectly by a United States person under the other attribution rules provided in the proposed regulations, but would be treated as owned by a United States person if the ownership rule of § 1.1291-1(b)(8)(ii)(A) of the 1992 proposed regulations applied to domestic corporations (in addition to foreign corporations), then the stock of the section 1291 fund would be considered as owned by such United States person.

Both § 1.1291-1(b)(8)(ii)(A) and (C) of the 1992 proposed regulations were withdrawn and reissued under the 2013 temporary regulations as § 1.1291-1T(b)(8)(ii)(A) and (C), respectively.

The purpose of § 1.1291-1(b)(8)(ii)(C) of the 1992 proposed regulations and § 1.1291-1T(b)(8)(ii)(C), as explained in the preamble to the 1992 proposed regulations, was to attribute stock through a domestic C corporation in certain circumstances if, absent such attribution, the stock of a PFIC would not be treated as owned by any United States person. In particular, because § 1.1291-1T(b)(8)(ii)(A) provides that a United States person who directly or indirectly owns 50 percent or more in value of the stock of a foreign corporation that is not a PFIC is considered to own a proportionate amount (by value) of any stock owned directly or indirectly by the foreign corporation, without § 1.1291-1T(b)(8)(ii)(C), a United States person could interpose a domestic C corporation into an ownership structure to avoid shareholder status with respect to stock of a PFIC that the United States person indirectly owned through one or more foreign corporations that were not PFICs. In other words, § 1.1291-1T(b)(8)(ii)(C) provides guidance as to when a United States person is treated as indirectly owning stock of a foreign corporation through a domestic corporation for purposes of § 1.1291-1T(b)(8)(ii)(A).

For example, assume that A, a United States person, owns 49 percent of the stock of FC1, a foreign corporation that is not a PFIC, and separately all the stock of DC, a domestic corporation that is not an S corporation. DC, in turn, owns the remaining 51 percent of the stock of FC1, and FC1 owns 100 shares of stock in a PFIC (which is not a controlled foreign corporation within the meaning of section 957(a)). DC is an indirect shareholder with respect to 51 percent of the PFIC stock held by FC1 under § 1.1291-1T(b)(8)(ii)(A). Absent the application of § 1.1291-1T(b)(8)(ii)(C), because A directly or indirectly owns less than 50 percent of the value of the stock of FC1 and thus § 1.1291-1T(b)(8)(ii)(A) does not apply, A would not be treated as an indirect shareholder with respect to any of the PFIC stock directly owned by FC1 when, from an economic perspective, A indirectly owns all the PFIC stock held by FC1. Therefore, without a rule treating A as owning DC's stock in FC1, the remaining 49 percent of the PFIC stock held by FC1 would not be treated as owned by any United States person.

On the other hand, the literal language of § 1.1291-1T(b)(8)(ii)(C) could have been interpreted to create overlapping ownership by two or more United States persons in the same stock of a section 1291 fund. Thus, in the foregoing example, A may have been considered as owning 100 percent of the stock of FC1, and therefore as indirectly owning all 100 shares of the PFIC stock held by FC1, even though 51 of those shares are considered indirectly owned by DC, a United States person. This outcome is inconsistent with the intended purpose of the rule to attribute stock through a domestic C corporation in certain circumstances if, absent such attribution, the stock of a PFIC would not be treated as owned by any United States person.

To address this concern, the final regulations include a non-duplication rule. Specifically, the final regulations provide under § 1.1291-1(b)(8)(ii)(C)(1) that, solely for purposes of determining whether a person owns 50 percent or more in value of the stock of a foreign corporation that is not a PFIC under § 1.1291-1(b)(8)(ii)(A), a person who directly or indirectly owns 50 percent or more in value of the stock of a domestic corporation is considered to own a proportionate amount (by value) of any stock owned directly or indirectly by the domestic corporation. However, the non-duplication rule in § 1.1291-1(b)(8)(ii)(C)(2) states that a United States person will not be treated, as a result of applying § 1.1291-1(b)(8)(ii)(C)(1), as owning (other than for purposes of determining whether a person satisfies the ownership threshold of § 1.1291-1(b)(8)(ii)(A)) stock of a PFIC that is directly owned or considered owned indirectly under § 1.1291-1(b)(8) by another United States person (determined without regard to § 1.1291-1(b)(8)(ii)(C)(1)).

Applying the non-duplication rule to the example above, to the extent that the 51 shares of PFIC stock are indirectly owned by DC (a United States person) under § 1.1291-1(b)(8)(ii)(A), those shares are not also treated as indirectly owned by A (other than for purposes of determining whether A satisfies the ownership threshold of § 1.1291-1(b)(8)(ii)(A)). Only the remaining 49 shares of PFIC stock are considered to be indirectly owned by A.

Lastly, the final regulations make two additional clarifications with respect to this rule. First, the final regulations clarify, under § 1.1291-1(b)(8)(ii)(C)(3), that the ownership rule of § 1.1291-1(b)(8)(ii)(C)(1) does not apply to stock owned directly or indirectly by an S corporation; rather, the indirect ownership rule under § 1.1291-1(b)(8)(iii)(B) applies in those instances. Second, the final regulations clarify that the attribution rule in § 1.1291-1(b)(8)(ii)(C) applies to all PFICs and not only section 1291 funds, in order to ensure that United States persons who are treated as indirect shareholders of PFICs are permitted to make qualified electing fund elections under section 1295.

A number of comments requested that the final regulations expand the exceptions to section 1298(f) reporting provided in the 2013 temporary regulations or add new exceptions.

Two comments requested an exception to section 1298(f) reporting for PFIC stock that is marked to market under a provision of chapter 1 of the Code other than section 1296 (a non-section 1296 MTM provision), such as section 475(f). In response to these comments, the Treasury Department and the IRS issued Notice 2014-51, which announced that the regulations under section 1298 would be amended to provide that United States persons that own stock in a PFIC that is marked to market under a non-section 1296 MTM regime generally are not subject to section 1298(f) reporting. In addition, the notice states that the regulations would provide that a shareholder's PFIC stock that is marked to market under a non-section 1296 MTM provision is not taken into account in determining whether the shareholder qualifies for the exceptions from reporting set forth in § 1.1298-1T(c)(2)(i)(A)(1) or (c)(2)(iii), which generally exempt certain shareholders from certain section 1298(f) reporting requirements when their aggregate PFIC holdings do not exceed $25,000 (or, $50,000 in the case of a shareholder that files a joint return). Notice 2014-51 states that the regulations that incorporate the guidance described in the notice would be effective for taxable years of shareholders ending on or after December 31, 2013.

The final regulations, in accordance with Notice 2014-51, add § 1.1298-1(c)(3), which provides that United States persons that own PFIC stock that is marked to market under a non-section 1296 MTM provision are not subject to section 1298(f) reporting unless they are subject to section 1291 under the coordination rule in § 1.1291-1(c)(4)(ii). Generally, under § 1.1291-1(c)(4)(ii), when a United States person's PFIC stock is marked to market under a non-section 1296 MTM provision in a taxable year after the year in which the United States person acquired the stock, the United States person is subject to section 1291 for the first taxable year in which the United States person marks to market the PFIC stock. Thus, the United States person is subject to section 1291 with respect to any unrealized gain in the stock as of the last day of the first taxable year in which the stock is marked to market, as if the person disposed of the stock on that day. See § 1.1291-1(c)(4)(ii) and § 1.1296-1(i)(2) and (3).

Also consistent with Notice 2014-51, the final regulations add § 1.1298-1(c)(2)(ii)(C), pursuant to which a United States person's PFIC stock that is marked to market under a non-section 1296 MTM provision is not taken into account in determining whether the person qualifies for the exceptions from section 1298(f) reporting set forth in § 1.1298-1(c)(2)(i)(A)(1) or (c)(2)(iii), provided that the rules of § 1.1296-1(i)(2) and (3) do not apply with respect to the PFIC stock pursuant to § 1.1291-1(c)(4)(ii) for the taxable year. See Section B.7 of this preamble for a description of these exceptions.

A comment requested that the final regulations add a new exception from the section 1298(f) filing requirements for domestic partnerships in which all of the partners are tax-exempt organizations (or other partnerships, all of the partners of which are tax-exempt organizations) that are not subject to the PFIC rules with respect to a PFIC held by the partnership because any income derived with respect to the PFIC would not be taxable to the tax-exempt partners under subchapter F of Subtitle A of the Code. The comment pointed out that a tax-exempt organization is subject to section 1298(f) reporting with respect to PFIC stock under § 1.1298-1(c)(1) only if the income derived by the organization with respect to the PFIC stock would be taxable to the organization under subchapter F of Subtitle A of the Code. However, under the 2013 temporary regulations, a domestic partnership (such as a domestic partnership that exclusively pools the funds of tax-exempt organizations to invest in PFICs) is required to file a Form 8621 with respect to PFIC stock even when none of its partners are subject to the PFIC rules with respect to the PFIC stock.

Requiring reporting under section 1298(f) by a domestic partnership when none of its direct and indirect owners are subject to the PFIC rules may result in undue compliance costs and burdens. Accordingly, consistent with the exception in § 1.1298-1(c)(1), the final regulations adopt and expand upon this comment and provide a final rule in § 1.1298-1(c)(6) that exempts a domestic partnership from section 1298(f) reporting with respect to an interest in a PFIC for a taxable year when none of its direct or indirect partners are required to file Form 8621 (or successor form) with respect to the PFIC interest under section 1298(f) and these regulations because the partners are not subject to the PFIC rules.

Thus, for example, if all the partners of a domestic partnership are tax-exempt organizations exempt from PFIC taxation under § 1.1291-1(e) with respect to PFIC stock held by the partnership, and accordingly are exempt from reporting pursuant to § 1.1298-1(c)(1), the partnership, in turn, is exempt from filing Form 8621 under section 1298(f) with respect to the PFIC stock held by the partnership. Likewise, if all the partners of a domestic partnership are foreign corporations that are not considered to be shareholders under § 1.1291-1(b)(7) of PFIC stock held by the partnership, and no United States person is an indirect shareholder of the PFIC stock under § 1.1291-1(b)(8), the partnership, in turn, is exempt from filing Form 8621 under section 1298(f) with respect to the PFIC stock held by the partnership.

In contrast, a domestic partnership is not exempt from filing Form 8621 under § 1.1298-1(c)(6) with respect to stock it holds in a section 1291 fund when some or all of its partners are exempt from filing Form 8621 with respect to that stock but otherwise would be subject to tax on distributions on, or dispositions of, that stock. PFIC information reporting by the domestic partnership in these circumstances is appropriate because it furthers PFIC tax compliance and enforcement.

In general, § 1.1298-1T(b)(3)(ii) exempts a United States person from section 1298(f) reporting with respect to PFIC stock that is owned by the United States person through a foreign trust that is a foreign pension fund operated principally to provide pension or retirement benefits, when, pursuant to the provisions of a U.S. income tax treaty, the income earned by the pension fund may be taxed as the income of the United States person only when, and to the extent, the income is paid to, or for the benefit of, the United States person.

As a threshold matter, this rule applies only when the United States person owns the PFIC through a foreign pension fund that is treated as a foreign trust under section 7701(a)(31)(B). However, the applicable provisions of U.S. income tax treaties apply generally to foreign pension funds, regardless of whether the foreign pension fund is treated as a trust for U.S. income tax purposes.

The Treasury Department and the IRS have concluded that the treaty-based exception in § 1.1298-1T(b)(3)(ii) should be expanded to apply to PFICs held by United States persons through all applicable foreign pension funds (or equivalents, such as exempt pension trusts or pension schemes referred to in certain U.S. income tax treaties), regardless of their entity classification for U.S. income tax purposes. Accordingly, the final regulations revise the treaty-based exception for PFIC stock held by a United States person through certain foreign pension funds under § 1.1298-1T(b)(3)(ii) to eliminate the requirement that the foreign pension fund be treated as a foreign trust under section 7701(a)(31)(B). The final rule, which is renumbered § 1.1298-1(c)(4), clarifies that a foreign pension fund (or equivalent) covered by this exception may be any type of arrangement, including but not limited to one of the arrangements listed in § 1.1298-1(c)(4). The final rule also applies in the case of an income tax treaty that provides the relevant benefit by election (or other procedure), such as under paragraph 7 of Article 18 of the U.S.-Canada income tax treaty, to the extent that the election is in effect (or other procedure properly satisfied).

A comment requested that an exception from the section 1298(f) filing requirements be added for dual resident taxpayers who are treated as residents of another country (treaty country) pursuant to an income tax treaty between the United States and the treaty country. In general, a “dual resident taxpayer” is an individual who is considered a resident of the United States under the Code, and is also considered a resident of a treaty country under the treaty country's internal laws. § 301.7701(b)-7(a)(1). Certain U.S. income tax treaties contain provisions that resolve the conflicting claims of residence by both countries (tie-breaker rules), pursuant to which dual resident taxpayers are treated as residents of only one country for purposes of income taxation. A dual resident taxpayer may claim the benefit of treatment as a resident of a treaty country for U.S. income tax purposes under a tie-breaker rule of an applicable treaty provision by timely filing Form 8833, “Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b),” with an appropriate income tax return, such as Form 1040NR, “U.S. Nonresident Alien Income Tax Return.” § 301.7701(b)-7(b) and (c). A dual resident taxpayer who properly claims this benefit is taxed as a nonresident alien (as defined in section 7701(b)(1)(B)) for U.S. income tax purposes.

Nonresident aliens are not subject to tax under the PFIC provisions (sections 1291 through 1298) because the PFIC rules apply only to “United States persons,” and nonresident aliens are not United States persons within the meaning of section 7701(a)(30). However, dual resident taxpayers treated as residents of a treaty country for U.S. income tax purposes generally are treated as United States residents under the Code for purposes other than the computation of their income tax liability. § 301.7701(b)-7(a)(3). Accordingly, dual resident taxpayers who are treated as residents of a treaty country under a tie-breaker rule and who own PFICs are subject to the section 1298(f) reporting rules set forth in the 2013 temporary regulations even though they are not subject to tax under the PFIC provisions.

The requirement to file Form 8621 under section 1298(f) increases taxpayer awareness of, and compliance with, the PFIC rules. However, because dual resident taxpayers treated as nonresident aliens for purposes of computing their U.S. tax liability are not subject to tax under the PFIC rules, section 1298(f) reporting by these dual resident taxpayers is not essential to the enforcement of the PFIC provisions. Thus, the Treasury Department and the IRS have determined that it is appropriate to provide an exception from the section 1298(f) reporting rules for dual resident taxpayers who are treated as residents of a treaty country, and, accordingly, not subject to tax under the PFIC provisions.

Accordingly, the final regulations add § 1.1298-1(c)(5), which sets forth an exception from section 1298(f) reporting for a dual resident taxpayer for a taxable year, or the portion of a taxable year, during which the dual resident taxpayer determines any U.S. income tax liability as a nonresident alien under § 301.7701(b)-7, and complies with the filing requirements of § 301.7701(b)-7(b) and (c) and, if applicable, § 1.6012-1(b)(2)(ii)(b) (applicable when the dual resident taxpayer is treated as a resident of the treaty country on the last day of the taxable year), or § 1.6012-1(b)(2)(ii)(a) (applicable when the dual resident taxpayer is treated as a resident of the United States on the last day of the taxable year). This new section 1298(f) reporting exception is consistent with § 1.6038D-2(e), which generally exempts a dual resident taxpayer who is taxed as a nonresident alien from section 6038D reporting for a taxable year, or the portion of a taxable year, during which the taxpayer is treated as a nonresident alien and properly files Form 8833.

Under the 2013 temporary regulations, a shareholder who owns stock in a section 1291 fund for only a short period of time during a year, and does not recognize an excess distribution (or gain treated as an excess distribution) with respect to the section 1291 fund during the year may still have a filing obligation under section 1298(f). Assume, for example, that during a shareholder's taxable year, its section 1291 fund (upper-tier PFIC) acquires all of the stock of another section 1291 fund (lower-tier PFIC), which is liquidated into the upper-tier PFIC a few days after it is acquired. The lower-tier PFIC does not make any distributions to the upper-tier PFIC before the liquidation, and the upper-tier PFIC does not recognize any gain upon the liquidation of the lower-tier PFIC. On the last day of its taxable year, the shareholder owns PFIC stock with a value of more than $25,000, and thus the exception in § 1.1298-1T(c)(2) is not applicable. (See Section B.7 of this preamble for an explanation of the reporting exception in § 1.1298-1T(c)(2).) Accordingly, under the 2013 temporary regulations, the shareholder is required to report its ownership in the lower-tier PFIC, even though it only owned the PFIC for a few days during the year and did not recognize any income with respect to the PFIC.

The Treasury Department and the IRS have concluded that compliance with, and enforcement of, the PFIC regime would not be adversely impacted by allowing a reporting exception for transitory ownership of section 1291 funds when there is no taxation under section 1291 with respect to the short period of ownership. Thus, the final regulations provide an exception for section 1298(f) reporting for certain shareholders with respect to PFICs that were owned for a short period of time during which no PFIC taxation was imposed on the shareholders. Specifically, under § 1.1298-1(c)(7), a shareholder is not required to file a Form 8621 under section 1298(f) with respect to stock of a section 1291 fund that it acquired either during its taxable year or the immediately preceding year, when the shareholder (i) does not own any stock of the section 1291 fund for more than 30 days during the period beginning 29 days before the first day of the shareholder's taxable year and ending 29 days after the close of the shareholder's taxable year and (ii) did not receive an excess distribution (including gain treated as an excess distribution) with respect to the section 1291 fund.

A bona fide resident (within the meaning of section 937(a)) of a possession of the United States (U.S. territories) (namely, American Samoa, Guam, the Northern Mariana Islands, Puerto Rico, and the United States Virgin Islands) may include an individual who is also a United States person, and thus the bona fide resident may be a shareholder of a PFIC.

Under the 2013 temporary regulations, the general section 1298(f) reporting requirements in § 1.1298-1T(b)(1) apply regardless of whether a shareholder is required to file a U.S. income tax return. As a result, under the 2013 temporary regulations, bona fide residents of U.S. territories who were shareholders of PFICs were subject to the section 1298(f) filing requirements set forth in the 2013 temporary regulations even when they were not required to file a U.S. income tax return. As described in greater detail in this Section B.6, the final regulations change this result for bona fide residents of Guam, the Northern Mariana Islands, and the United States Virgin Islands and, as provided in § 1.1298-1(h)(1), the final regulations apply to taxable years ending on or after the issuance of the 2013 temporary regulations.

Three of the five U.S. territories (Guam, the Northern Mariana Islands, and the United States Virgin Islands) have a mirror code system of taxation, which means that their income tax laws generally are identical to the Code (except for the substitution of the name of the relevant territory for the term “United States,” where appropriate). Bona fide residents of U.S. territories that are mirror code jurisdictions have no income tax obligation (or related filing obligation) with the United States provided, generally, that they properly report income and fully pay their income tax liability to the tax administration of their respective U.S. territory. See sections 932 and 935. Thus, for example, a bona fide resident of Guam who is a shareholder of a PFIC would generally not have a U.S. income tax obligation even in a year when the shareholder is treated as receiving an excess distribution (or recognizing gain treated as an excess distribution) with respect to the PFIC.

Bona fide residents of non-mirror code jurisdictions (American Samoa and Puerto Rico) generally exclude territory-source income from U.S. federal gross income under sections 931 and 933, respectively. (American Samoa currently is the only territory to which section 931 applies because it is the only territory that has entered into an implementing agreement under sections 1271(b) and 1277(b) of the Tax Reform Act of 1986.) However, unlike mirror code jurisdictions, these bona fide residents generally are subject to U.S. income taxation, and have a related income tax return filing requirement with the United States, to the extent they have non-territory-source income or income from amounts paid for services performed as an employee of the United States or any agency thereof. See sections 931(a) and (d) and 933. Further, under the 1992 proposed regulations, certain excess distributions (or gains treated as excess distributions) from a PFIC would be exempt from taxation with respect to a shareholder who is a bona fide resident of Puerto Rico if the amounts distributed were derived from sources in Puerto Rico. Section 1.1291-1(f) of the 1992 proposed regulations. Accordingly, for example, if a bona fide resident of Puerto Rico is a shareholder of a PFIC and is treated as receiving an excess distribution (or recognizing gain treated as an excess distribution) with respect to the PFIC that is from sources outside of Puerto Rico, such shareholder would be subject to U.S. income tax under the PFIC provisions with respect to such amounts.

The Treasury Department and the IRS have concluded that relieving section 1298(f) reporting for PFIC stock held by an individual who is a bona fide resident of a U.S. territory that is a mirror code jurisdiction who is not required to file a U.S. income tax return for one or more taxable years would not adversely impact tax enforcement efforts related to PFICs. This is because such individuals are not subject to U.S. income tax in such years, given that they have properly reported income and fully paid their income tax liability to the tax administration of their respective U.S. territory, and it is unlikely such individuals will ever be subject to tax under the PFIC provisions in the years they receive excess distributions (or recognize gain treated as excess distributions). As a result, these final regulations add § 1.1298-1(c)(8) to provide an exception from reporting under section 1298(f) for a taxable year in which the individual is a bona fide resident of Guam, the Northern Mariana Islands, or the United States Virgin Islands and is not required to file a U.S. income tax return.

However, no exception from reporting is provided with respect to bona fide residents of Puerto Rico and American Samoa. Bona fide residents of Puerto Rico and American Samoa who are not required to file U.S. income tax returns in a given year may still be subject to tax under the PFIC provisions if they are shareholders of a PFIC and receive excess distributions (or recognize gain treated as excess distributions) in a later year. Thus, PFIC information reporting by these individuals can reasonably be expected to further PFIC tax compliance and enforcement.

Under § 1.1298-1T(c)(2)(i), a shareholder generally is not required to file Form 8621 with respect to a section 1291 fund when the shareholder is not treated as receiving an excess distribution (or recognizing gain treated as an excess distribution) with respect to the section 1291 fund stock, and, as of the last day of the shareholder's taxable year, either the value of all PFIC stock considered owned by the shareholder is $25,000 (or $50,000 for shareholders that file a joint return) or less, or, if the stock of the section 1291 fund is owned indirectly, the value of the indirectly owned stock is $5,000 or less. Stock in a PFIC that is indirectly owned through another PFIC or United States person that is a shareholder of the PFIC is not taken into account in determining if the $25,000 (or $50,000 for joint returns) threshold is met. § 1.1298-1T(c)(2)(ii).

A comment generally requested that the reporting exception thresholds in § 1.1298-1T(c)(2)(i) be increased for U.S. individuals living abroad. The apparent concern underlying the comment is the commenter's view that such persons often are not aware of the PFIC provisions. The Treasury Department and the IRS have determined that adopting an exception to the reporting requirements on this basis would adversely affect compliance with, and enforcement of, the PFIC provisions, because such individuals remain subject to tax under section 1291 regardless of the value of their PFIC stock, and a benefit of requiring reporting with respect to a section 1291 fund in a year in which a shareholder is not subject to tax under section 1291 is to enhance the shareholder's awareness of the PFIC requirements with respect to the section 1291 fund. The Treasury Department and the IRS proposed the dollar amounts for the reporting exception thresholds in the 2013 temporary regulations in order to balance administrative burdens with compliance and enforcement concerns. No comments were submitted that recommended a specific higher dollar amount or that provided a basis, consistent with the purposes of the PFIC provisions, for increasing the monetary thresholds. Accordingly, the final regulations do not increase the monetary thresholds for these exceptions.

A separate comment requested that the reporting exceptions under § 1.1298-1T(c)(2) be expanded to apply when a United States person recognizes an excess distribution under section 1291 in a taxable year with respect to one or more PFICs, to the extent the PFICs are indirectly held through domestic pass-through entities and the total excess distribution income from the PFICs in the taxable year is less than $1,000, indexed for inflation. The comment explained that many United States persons hold indirect interests in section 1291 funds, particularly through partnerships, that generate only small amounts of excess distribution income, and exempting reporting for these PFIC shareholders would simplify PFIC reporting compliance. However, the section 1291 rules apply when a PFIC shareholder receives (or is treated as receiving) an excess distribution, regardless of the dollar amount of the excess distribution. After consideration of this comment, the Treasury Department and the IRS concluded that the request should not be adopted because of the potential for such a reporting exception to reduce compliance with the substantive section 1291 rules.

Section 1.1298-1T(d) generally provides that a United States person required to file Form 8621 under section 1298(f) with respect to a PFIC for a taxable year must attach the form to the person's U.S. income tax return (or information return, if applicable) for the relevant taxable year. The instructions for Form 8621 further provide that a United States person who is required to file Form 8621 for a taxable year in which the person does not file an income tax return (or other return) must send the Form 8621 to the IRS at a mailing addressed designated in the instructions.

These final regulations clarify how a United States person files a Form 8621 (or successor form) when the United States person is not otherwise required to file a U.S. income tax return (or information return, if applicable). Section 1.1298-1(d) of the final regulations states that a United States person that is not otherwise required to file a U.S. income tax return must file the Form 8621 (or successor form) in accordance with the instructions for the form.

A comment requested that the final regulations allow a “protective” Form 8621 to be filed under section 1298(f) with respect to a foreign corporation when a shareholder is unsure of its PFIC status due to factors beyond the control of the shareholder that prevent access to the books and records of the corporation necessary to make a PFIC determination. The purpose of the protective filing is to defer any potential section 1298(f) filing requirements so that the assessment period for the shareholder's entire return under section 6501(c)(8) would not be suspended if the foreign corporation is subsequently determined to have been a PFIC in the year to which the protective filing relates. The comment proposed that if the foreign corporation subsequently is determined to be a PFIC for a taxable year for which the protective filing was made, the shareholder would be subject to PFIC taxation in that year, and thus would be required to file Form 8621 for that year.

The failure to file Form 8621 to properly report PFIC information under section 1298(f) for a taxable year suspends the period of limitation on assessment under section 6501(c)(8)(A) with respect to any tax return, event, or period to which the information relates until three years after the information is reported. However, if the failure to file the information is due to reasonable cause and not willful neglect, the period of limitation on assessment under section 6501(c)(8)(B) is suspended only with respect to items related to such failure. The Treasury Department and the IRS have concluded that the reasonable cause exception under section 6501(c)(8)(B) provides appropriate relief for a failure to file Form 8621. When a taxpayer can establish reasonable cause for a failure to file Form 8621, the assessment period is suspended only with respect to items related to the PFIC that were required to be reported on the Form 8621. Thus, the recommendation to add a protective filing rule to the final regulations is not adopted.

Two comments requested that the final regulations allow a United States person to file a consolidated Form 8621 that would include all of the person's PFICs and relevant information on a supporting schedule attached to the Form 8621. One of the comments explained that foreign investment partnerships commonly hold multiple PFIC investments, and, in such cases, a United States person who is a partner in the foreign partnership is required to file multiple Forms 8621 to report each underlying PFIC. This comment further noted that at least two commonly used commercial tax return preparation products, as of 2012, did not allow for electronic filing of a Form 1040 containing more than five Forms 8621, which is contrary to the IRS's goal of increasing e-filings of tax returns.

The Treasury Department and the IRS have concluded that the expenditures needed to redesign and reprogram the IRS's processing system to gather, compile, and cross-reference information from a consolidated Form 8621 outweigh the marginal administrative burden for United States persons to file a separate Form 8621 with respect to each of their PFICs. Accordingly, the final regulations do not adopt the comment to permit consolidated filings.

The final regulations adopt the 2013 temporary regulations with respect to the removal of the requirement under sections 6038 and 6046 that certain United States persons file a statement in circumstances where the United States person qualifies for the constructive ownership exception, with certain clarifying changes to the language of the regulations.

Notice 2014-28, 2014-18 I.R.B. 990, is obsolete as of December 28, 2016.

Notice 2014-51, 2014-40 I.R.B. 594, is obsolete as of December 28, 2016.

Certain IRS regulations, including these, are exempt from the requirements of Executive Order 12866, as supplemented and reaffirmed by Executive Order 13563. Therefore, a regulatory assessment is not required. Pursuant to section 7805(f) of the Code, the notice of proposed rulemaking preceding these regulations was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small businesses.

It is hereby certified that the collection of information in these regulations will not have a significant economic impact on a substantial number of small entities within the meaning of section 601(6) of the Regulatory Flexibility Act (5 U.S.C. chapter 6). This certification is based on the fact that most small entities do not own an interest in a PFIC. Moreover, those small entities that are shareholders of a PFIC generally either make a qualified electing fund election under section 1295 or make a mark to market election under section 1296 and were therefore required to file Form 8621 with respect to the PFIC stock under the rules that preceded the 2013 temporary regulations. Thus, there is a limited class of small entities that are PFIC shareholders that were required to file Forms 8621 under the 2013 temporary regulations and that were not required to do so prior to the issuance of those regulations. The final regulations, as compared to the 2013 temporary regulations, provide additional exceptions that exempt certain PFIC shareholders, some of which could include certain small entities, from filing Form 8621. Accordingly, the collection of information required by these final regulations does not affect a substantial number of small entities.

Further, the collection of information required under these final regulations will not have a significant economic impact on a substantial number of small entities because neither the time nor the costs necessary for shareholders to comply with the collection of information requirements is significant. Therefore, a Regulatory Flexibility Analysis under the Regulatory Flexibility Act is not required.

The principal author of these regulations is Stephen M. Peng of the Office of Associate Chief Counsel (International). However, other personnel from the Treasury Department and the IRS participated in their development.

Accordingly, 26 CFR part 1 is amended as follows:

The final regulations (TD 9792) that are the subject of this correction are under sections 954 and 956 of the Internal Revenue Code.

As published, the final regulations (TD 9792) contain errors that may prove to be misleading and are in need of clarification.

Accordingly, the final regulations (TD 9792), that are the subject of FR Doc. 2016-26425, are corrected as follows:

1. On page 76499, third column, in the preamble, the eighth line from the bottom of the last paragraph, the language “generally is consistent with § 1.956-” is corrected to read “generally is consistent with existing § 1.956-”.

2. On page 76500, first column, in the preamble, the fourth line from the top of the page, the language “that is not included in the final or” is corrected to read “that is not included in the existing final or”.

3. On page 76500, first column, in the preamble, the seventh line in the first full paragraph, the language “§ 1.956-2(a)(3) nor proposed § 1.956-” is corrected to read “existing § 1.956-2(a)(3) nor proposed § 1.956-”.

4. On page 76500, first column, in the preamble, the eighth line in the first full paragraph, the language “4(b) include the limitation. A comment” is corrected to read “4(b) includes the limitation. A comment”.

5. On page 76500, third column, in the preamble, the eleventh line from the top of the first full paragraph, the language is corrected to read “book-up”.

6. On page 76501, first column, in the preamble, the eighth line of the first full paragraph, the language is corrected to read “§ 1.956-4(b)(2)(ii)”.

The final regulations (TD 9792) that are the subject of these corrections are under sections 954 and 956 of the Internal Revenue Code.

As published, the final regulations (TD 9792) contain errors that may prove to be misleading and are in need of clarification.

Accordingly, 26 CFR part 1 is corrected by making the following correcting amendments:

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

On September 16, 2016, the EPA proposed to approve the following rules into the California SIP. 81 FR 63732.

We proposed to approve these rules because we determined that they complied with the relevant CAA requirements. Our proposed action contains more information on the rules and our evaluation.

The EPA's proposed action provided a 30-day public comment period. During this period, we received one comment regarding EPA's proposed approval of Rule 1153.1 that was submitted anonymously.

Comment: The comment generally supports EPA's proposal to approve Rule 1153.1. The commenter acknowledges Rule 1153.1 was designed to address delays in emission reduction technology development. However, the comment letter expressed a concern regarding the exemption for units with daily NOX emissions of 1 pound per day or less. The commenter states, “burners could be replaced with larger emission burners and it could easily go unknown by the enforcing agency.” Additionally, the commenter makes a recommendation for “a testing schedule that is less strict for the small emission burners compared to the larger ones.”

Response: The EPA appreciates the comment letter's general support of our approval of Rule 1153.1. The exemption discussed in the comment is found in section (g)(2) of Rule 1153.1. Sections (g)(2)(A)-(g)(2)(E) of Rule 1153.1 describe the documentation required of units with daily NOX emissions of 1 pound per day or less. These requirements ensure the exempted units are rated at a heat input capacity of less than 325,000 BTU per hour, comply with a permit condition limiting NOX emissions to 1 pound per day or less, and keep daily records of unit operation and fuel gas consumption. Because of these requirements, we disagree that the enforcing agency would not know about these units. The rule exempts these units from requirements to comply with the limits for larger units and testing requirements associated with those units. The testing required is used to confirm compliance with the limits in Table 1 of the rule. If the commenter's recommendation for a less strict testing schedule were implemented for the smaller units, it is unclear what would be tested, since the exempted units do not have emissions limits in the rule to comply with. As noted above, the comment letter generally supports our approval of Rule 1153.1 and does not request or recommend any specific changes to our proposed action. The comment letter recognizes that Rule 1153.1 will decrease NOX emissions. For these reasons, the EPA is finalizing its proposed approval of Rule 1153.1 without change based on the comment.

No comments were submitted that change our assessment of the rules as described in our proposed action. Therefore, as authorized in section 110(k)(3) of the Act, the EPA is fully approving these rules into the California SIP.

In this rule, the EPA is finalizing regulatory text that includes incorporation by reference. In accordance with requirements of 1 CFR 51.5, the EPA is finalizing the incorporation by reference of the SCAQMD rules described in the amendments to 40 CFR part 52 set forth below. The EPA has made, and will continue to make, these documents available through www.regulations.gov and at the EPA Region IX Office (please contact the person identified in the FOR FURTHER INFORMATION CONTACT section of this preamble for more information).

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

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

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

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

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

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

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

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

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

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

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

The 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. The 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 Clean Air Act, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by February 27, 2017. 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)).

Part 52, Chapter I, Title 40 of the Code of Federal Regulations is amended as follows:

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

On September 13, 2016 (81 FR 62849), the EPA proposed to approve the following rule into the California SIP.

We proposed to approve this rule because we determined that it complied with the relevant CAA requirements. Our proposed action contains more information on the rule and our evaluation.

The EPA's proposed action provided a 30-day public comment period. During this period, we received one comment that was submitted anonymously.

Comment: The comment begins, “I don't see why this would not be approved right away,” and generally supports the EPA's proposal to approve Rule 433. The comment also includes general statements and questions such as “the fact that `Indian' is still the term being used in this proposed rule is troublesome,” “it would be nice to see them go above and beyond the EPA's suggested guidelines,” “what does this mean for the Indigenous land,” “who is in charge of regulation,” “how will this alter the particle [sic] matters given off by this lakebed,” “what happened to cause this lakebed to behave in such a way . . . shouldn't that be looked into instead of altering the way nature is now,” and “instead of being a reactive society we should be more proactive and investigate into `unintended consequences' more so than we do now.”

Response: The comment generally supports EPA's proposed approval of Rule 433. The comment does not provide specific information related to the basis for EPA's proposed approval and does not request any changes to our proposed action. In addition, most of the statements and questions in the comment are not relevant to EPA's action approving Rule 433 or are outside of the scope of this action. For those reasons, the EPA is finalizing its proposed approval of Rule 433 without change based on the comment.

No comments were submitted that change our assessment of the rule as described in our proposed action. Therefore, as authorized in section 110(k)(3) of the Act, the EPA is fully approving this rule into the California SIP.

In this rule, the EPA is finalizing regulatory text that includes incorporation by reference. In accordance with requirements of 1 CFR 51.5, the EPA is finalizing the incorporation by reference of the GBUAPCD rule described in the amendments to 40 CFR part 52 set forth below. The EPA has made, and will continue to make, these documents available through www.regulations.gov and at the EPA Region IX Office (please contact the person identified in the FOR FURTHER INFORMATION CONTACT section of this preamble for more information).

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

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

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

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

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

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

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

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

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

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

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

The 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. The 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 Clean Air Act, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by February 27, 2017. 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)).

Part 52, Chapter I, Title 40 of the Code of Federal Regulations is amended as follows:

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

The Illinois Environmental Protection Agency (IEPA) submitted a revision to the Illinois SIP to EPA for approval on August 9, 2016. The SIP revision excludes the chemical compound 2-amino-2-methyl-1-propanol (AMP) from the definition of VOM or VOC at 35 IAC Part 211, Subpart B, Section 211.7150(a).

The Illinois Pollution Control Board (IPCB) held a public hearing on the proposed SIP revision on January 8, 2015. There were no public comments received at the public hearing. IPCB received one comment from the American Coatings Association in a letter dated December 16, 2014, supporting the exemption of AMP from the Illinois regulated VOCs. IPCB adopted the amendment to 35 IAC 211.7150(a) on March 5, 2015. IPCB also adopted minor administrative changes such as alphabetizing compound names, adding a subpart heading previously omitted, and replacing the word “above” with “of this Section” in 35 IAC 211.7150(d) for ease of cross-referencing within a section of the regulations.

In 2012, EPA received a petition requesting that AMP be exempted from VOC control based on its low reactivity to ethane. On March 27, 2014 (79 FR 17037), EPA responded to the petition by amending 40 CFR 51.100(s)(1) to exclude this chemical compound from the definition of VOC for purposes of preparing SIPs to attain the national ambient air quality standard for ozone under title I of the CAA (78 FR 9823). Based on the mass maximum incremental reactivity value for the compound being equal to or less than that of ethane, EPA concluded that this compound makes negligible contributions to tropospheric ozone formation. (79 FR 17037). Additionally, EPA considered risks not related to tropospheric ozone associated with currently allowed uses of the chemical to be acceptable. EPA's action became effective on June 25, 2014. IEPA's SIP revision is consistent with EPA's action amending the definition of VOC at 40 CFR 51.100(s).

EPA is approving into the Illinois SIP revisions to 35 IAC 211 contained in the August 9, 2016, submittal. We are publishing this action without prior proposal because we view this as a noncontroversial amendment and anticipate no adverse comments. However, in the proposed rules section of this Federal Register publication, we are publishing a separate document that will serve as the proposal to approve the state plan if relevant adverse written comments are filed. This rule will be effective February 27, 2017 without further notice unless we receive relevant adverse written comments by January 27, 2017. If we receive such comments, we will withdraw this action before the effective date by publishing a subsequent document that will withdraw the final action. All public comments received will then be addressed in a subsequent final rule based on the proposed action. EPA will not institute a second comment period. Any parties interested in commenting on this action should do so at this time. Please note that if EPA receives adverse comment on an amendment, paragraph, or section of this rule and if that provision may be severed from the remainder of the rule, EPA may adopt as final those provisions of the rule that are not the subject of an adverse comment. If we do not receive any comments, this action will be effective February 27, 2017.

In this rule, EPA is finalizing regulatory text that includes incorporation by reference. In accordance with requirements of 1 CFR 51.5, EPA is finalizing the incorporation by reference of the Illinois Regulations described in the amendments to 40 CFR part 52 set forth below. EPA has made, and will continue to make, these documents generally available through www.regulations.gov, and/or at the National Archives and Records Administration (NARA), and/or at the EPA Region 5 Office (please contact the person identified in the FOR FURTHER INFORMATION CONTACT section of this preamble for more information). For information on the availability of this material at NARA, go to: www.archives.gov/federal-register/cfr/ibr-locations.html.

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

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

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

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

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

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

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

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

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

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

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

The 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 February 27, 2017. 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. Parties with objections to this direct final rule are encouraged to file a comment in response to the parallel notice of proposed rulemaking for this action published in the proposed rules section of today's Federal Register, rather than file an immediate petition for judicial review of this direct final rule, so that EPA can withdraw this direct final rule and address the comment in the proposed rulemaking. 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:

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

Section 128 of the CAA requires SIPs to comply with the requirements regarding State Boards. Section 110(a)(2)(E)(ii) of the CAA also references these requirements. Section 128(a) of the CAA requires SIPs to contain provisions that: (1) Any board or body which approves permits or enforcement orders under the CAA have at least a majority of its members represent the public interest and not derive any significant portion of their income from persons subject to permits or enforcement orders under the CAA; and (2) any potential conflict of interest by members of such board or body or the head of an executive agency with similar powers be adequately disclosed.

The requirements of CAA section 128(a)(1) are not applicable to Louisiana because it does not have any board or body which approves air quality permits or enforcement orders. The requirements of CAA section 128(a)(2), however, are applicable to Louisiana because LDEQ's cabinet level Secretary (i.e., the head of an executive agency) makes the referenced decisions. Under Louisiana Revised Statutes at Title 30; Subtitle 2. Environmental Quality; Chapter 2; Department of Environmental Quality, and Chapter 3; Louisiana Air Control Law, the Secretary of the Louisiana Department of Environmental Quality (LDEQ), has the power and duty to, among other things, grant or deny air quality related permits.

On April 30, 1997 Louisiana submitted a SIP revision that contains revisions to the Louisiana Revised Statutes for inclusion into the SIP. The revisions that are necessary for inclusion into the State's SIP address the requirements of CAA section 128 in relation to State Boards/Head of Executive Agency and Conflicts of Interest/Disclosure. The specific Louisiana statutes governing the relevant CAA section 128 requirements are found in Title 42, Chapter 15 Code of Governmental Ethics and Title 30 Minerals, Oil, Gas and Environmental Quality, Subtitle 2, Environmental Quality, as detailed below: The relevant provisions of those Titles in the Louisiana SIP to meet these CAA requirements are the following: Louisiana Revised Statutes at Title 30; Chapter 2 Sections 2014.1(A)-(D): Permit review; Prohibition; Title 42; Chapter 15: Code of Governmental Ethics; Part 1, General Provisions, Section 1102 Definitions, Section 1102(3) “Agency Head;” Section 1102(13) “Immediate Family;” Section 1102(22)(a) “Thing of Economic Value;” Section 1102(19) “Public Servant;” Section 1102(23), “Transaction involving governmental entity;” Section 1112 “Participation in Certain Transaction Involving the Governmental Entity;” Sections 1114(A)(1)-(4) and (C) “Financial disclosure.”

CAA section 128 requires that each state's SIP demonstrate how State Boards or the head of an executive agency who approves CAA permits or enforcement orders disclose any potential conflicts of interest. The LDEQ Secretary is subject to the requirements of the relevant conflict of interest and disclosure provisions as the head of an Executive Agency.

LDEQ approves all CAA permits and enforcement orders in Louisiana. LDEQ is an executive agency that acts through its Secretary. LDEQ submits that public disclosure of any potential conflict in the SIP as required by CAA sections 128 and 110(a)(2)(E)(ii) pursuant to the requirements that if such person derives anything of economic value that such person should be aware, he/she must disclose specified elements under Title 42; Chapter 15: Code of Governmental Ethics; Section 1114(A)(1)-(4) and (C) “Financial disclosure.” In addition, if the Secretary of LDEQ receives or had received, during the previous two years, a significant portion of income directly or indirectly from a permit applicant, among other specified prohibitions, such individual must be recused from the permit approval process for that permit under Title 30; Chapter 2, Sections 2014.1(A)-(D): Permit review; Prohibition. The SIP revision through submittal of these relevant revised statutes demonstrates that Louisiana complies with the requirements of CAA sections 128 and 110(a)(2)(E)(ii).

It is necessary to act on the above-cited provisions to meet the requirements of the CAA Section 128 which sets forth requirements for State Boards and Agency Head and Conflicts of Interest/Disclosure. We find that the cited provisions are approvable and meet the requirements of CAA Section 128. This submittal included other Louisiana Revised Statutes that are unnecessary for inclusion into the Louisiana SIP as they do not relate to the CAA 128 and the Conflict of Interest/Disclosure provisions and thus not relevant for inclusion into the SIP.

We are also approving a ministerial change to remove language from 40 CFR part 52.2270(e) concerning Title 40: Chapter 12, EPA Approved Statutes in the Louisiana SIP. This will correct a citation that was included in the CFR when the format of part 52 was converted and was not previously approved into the SIP.

We are approving revisions to the Louisiana SIP that contain several provisions of the Louisiana Revised Statutes to update the federally approved Louisiana SIP. Those are the following: Louisiana Revised Statutes at Title 30; Chapter 2 Sections 2014.1(A)-(D): Permit review; Prohibition; Title 42; Chapter 15: Code of Governmental Ethics; Part 1, General Provisions, Section 1102 Definitions, Section 1102(3) “Agency Head;” Section 1102(13) “Immediate Family;” Section 1102(22)(a) “Thing of Economic Value;” Section 1102(19) “Public Servant;” Section 1102(23), “Transaction involving governmental entity;” Section 1112 “Participation in Certain Transaction Involving the Governmental Entity;” Sections 1114(A)(1)-(4) and (C) “Financial disclosure.” We are also approving a ministerial change to remove language from 40 CFR part 52.2270(e).

The EPA is publishing this rule without prior proposal because we view this as a non-controversial amendment and anticipate no adverse comments. However, in the proposed rules section of this Federal Register publication, we are publishing a separate document that will serve as the proposal to approve the SIP revision if relevant adverse comments are received. This rule will be effective on February 27, 2017 without further notice unless we receive relevant adverse comment by January 27, 2017. If we receive relevant adverse comments, we will publish a timely withdrawal in the Federal Register informing the public that the rule will not take effect. We will address all public comments in a subsequent final rule based on the proposed rule. We will not institute a second comment period on this action. Any parties interested in commenting must do so now. Please note that if we receive relevant adverse comment on an amendment, paragraph, or section of this rule and if that provision may be severed from the remainder of the rule, we may adopt as final those provisions of the rule that are not the subject of an adverse comment.

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

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

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

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

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

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

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

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

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

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

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

The 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. The EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register. A major rule cannot take effect until 60 days after it is published in the Federal Register. This action is not a “major rule” as defined by 5 U.S.C. 804(2).

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 February 27, 2017. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this rule 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).)

Samuel Coleman was designated the Acting Regional Administrator on December 21, 2016 through the order of succession outlined in Regional Order R6-1110.1, a copy of which is included in the docket for this action.

40 CFR part 52 is amended as follows:

On October 28, 2016, EPA published Kentucky's Class II primacy approval via a direct final rule with a parallel proposal. The EPA stated in the direct final rule that if we received adverse comment, the direct final rule would not take effect and we would publish a timely withdrawal in the Federal Register. During the 30-day comment period, which ended on November 28, 2016, the EPA received three adverse comment letters questioning Kentucky's capacity to run the Class II program, along with some technical concerns regarding the state's program. As a result, EPA withdrew the direct final rule in the Federal Register in a separate notice on December 28, 2016, Insert Federal Register Citation. As stated in the direct final rule and the parallel proposed rule, EPA indicated that it will address the public comments in any subsequent final action, which will be based on the parallel proposed rule, and will not institute a second comment period on this action.

EPA has responded in detail to the public comments received and has placed the response to comment document in the docket for this action. A summary of the comments received and EPA response can be found in section V of this action.

This table is intended to be a guide for readers regarding entities likely to be regulated by this action. This table lists the types of entities that EPA is now aware could potentially be regulated by this action. If you have questions regarding the applicability of this action to a particular entity, consult the persons listed in the preceding FOR FURTHER INFORMATION CONTACT section.

The state applied to EPA for primacy (primary implementation and enforcement authority) under section 1425 of the SDWA, 42 U.S.C. Sections 300h-4, for all Class II injection wells within the state except those on Indian lands. EPA approves the Commonwealth of Kentucky's UIC Program primacy application for these Class II injection wells by rule, as required under the SDWA, finding that it represents an “effective” program to prevent underground injection activities that endanger USDWs. Accordingly, EPA codifies the state's program in the Code of Federal Regulations (CFR) at 40 CFR part 147, under the authority of the SDWA, sections 1425, 42 U.S.C. 300h-4.

EPA's approval is based on a legal and technical review of the state's primacy application as directed at 40 CFR part 145 and the requirements for state permitting and compliance evaluation programs, enforcement authority and information sharing to determine that the state's program is effective. EPA oversees the state's administration of the UIC program; part of the agency's oversight responsibility requires quarterly reports of non-compliance and annual UIC performance reports pursuant to 40 CFR 144.8. The Memorandum of Agreement between EPA and the Commonwealth of Kentucky, signed by the Regional Administrator on October 20, 2015, provides EPA with the opportunity to review and comment on all permits. Under section 1422 of the SDWA, EPA continues to administer the UIC program for Class I, III, IV, V and VI injection wells in the state and all wells on Indian lands (if any such lands exist in the state in the future).

As part of the primacy application requirements, the state held a public hearing on the state's intent to apply for primacy. The hearing was held on September 23, 2014, in the city of Frankfort, Kentucky. Both oral and written comments received for the hearing were generally supportive of the state pursuing primacy for the UIC Class II injection well program.

On November 10, 2015, EPA published a notice of the state's application in the Federal Register (80 FR 69629). This notice provided a comment period and that a public hearing would be held if requested. EPA received one comment during the comment period, and no requests for a public hearing. An anonymous commenter suggested the state agency give permission to construct these Class II wells so that energy dependency and job creation remain domestic and that extraction of oil and gas resources be done in an environmentally sound manner. EPA determined that the issue was outside the scope of the UIC program and not relevant as to whether the state's regulations are effective to manage the UIC Class II injection well program in accordance with section 1425 of the Safe Drinking Water Act.

This final rule amends 40 CFR part 147 and incorporates by reference EPA-approved state statutes and regulations. The provisions of the Commonwealth of Kentucky Code that contain standards, requirements and procedures applicable to owners or operators of UIC Class II wells are incorporated by reference into 40 CFR part 147. Any provisions incorporated by reference, as well as all permit conditions or permit denials issued pursuant to such provisions, will be enforceable by EPA pursuant to the SDWA, section 1423 and 40 CFR 147.1(e).

In order to better serve the public, the agency is reformatting the codification of the EPA-approved state statutes and regulations. Instead of codifying the Commonwealth of Kentucky's Statutes and Regulations as separate paragraphs in the text of 40 CFR part 147, EPA is now codifying a binder that contains the “EPA-Approved Commonwealth of Kentucky Safe Drinking Water Act § 1425 Underground Injection Control (UIC) Program Statutes and Regulations for Class II wells.” This binder will be incorporated by reference into 40 CFR part 147 and available at www.regulations.gov in the docket for this rule. The agency is also codifying a table listing the “EPA-Approved Commonwealth of Kentucky Safe Drinking Water Act § 1425 Underground Injection Control (UIC) Program Statutes and Regulations for Class II wells” in 40 CFR part 147.

Commenters believe that Kentucky does not have adequate resources to implement the Class II UIC Program. Kentucky is planning on filling two new positions once primacy is granted. Kentucky has 16 inspectors as compared to EPA's 2 full-time inspectors. EPA evaluated proposed resources and determined that they are adequate for an effective program to prevent endangerment to USDWs.

One commenter does not believe that Kentucky has the same regulatory requirements as the EPA for providing public participation in the permitting process. The commenter has concerns that the public was not provided access to the draft permit or statement of basis and that Kentucky was not required to provide a written response to comments received during the public comment period. For primacy approval under Section 1425, the state's regulations do not have to be as stringent as the federal regulations; therefore, Kentucky's public notice process does not need to mirror EPA's public notice process. Kentucky's public notice, which is included in the Program Description, provides the opportunity to request a copy of the draft permit and statement of basis. Commenters and those that attend a public hearing are notified if their comments do not result in a change to the final permit. An additional public notice is issued if comments do result in a change to the final permit. The public notice also provides an opportunity to petition the state for review of the permit and any conditions therein. Accordingly, the EPA has determined that Kentucky's administrative permitting procedures are effective for protecting USDWs.

One commenter is concerned that Kentucky does not have criteria for the applicant to use in determining whether the minimum 1/4 mile fixed radius area of review around the project or an evaluation of a zone of endangering influence (ZEI) is required to ensure that USDWs are not endangered. The commenter is also concerned that it is the applicant, not the agency, that is required to make the determination on whether a ZEI is appropriate. With respect to the commenter's first concern, the state's regulations are not inconsistent with the federal regulations, which similarly lack criteria for determining whether to use fixed radius or ZEI for the area of review, providing only that the permit writer may solicit input from well owners/operators as to which method is most appropriate. 40 CFR 146.6. With respect to the commenter's concern about the applicant, not the agency, selecting the method, this is not entirely consistent with EPA's Class II regulations, which require this determination to be made by the agency. However, a state applying for primacy under SDWA section 1425 is required to demonstrate only that its regulations are “effective,” not that they are equivalent to the federal regulations. EPA guidance on state submissions under SDWA section 1425 provides that an “effective” state program would be expected to incorporate an area of review of not less than 1/4 mile, or a ZEI in lieu of this fixed radius. Kentucky has included both the fixed radius and ZEI methods as options, which goes beyond the recommendations provided in the guidance, and is consistent with the two options provided in EPA's regulations. Moreover, under the state's proposed program, the applicant has the burden of proof to provide information to the state to ensure that the injection operation does not endanger a USDW. Kentucky has stated in its response to comments that it has statutory authority to require owners/operators of Class II wells to ensure that their operations do not endanger any USDWs, which could include the authority to require the applicant to calculate the area of review based on the ZEI method, if necessary to prevent endangerment to USDWs.

Commenters are concerned with how the state would regulate hydraulic fracturing activities. Under the SDWA, only wells that use diesel fuels for hydraulic fracturing are subject to regulation under the federal underground injection control program. Therefore, this Class II UIC primacy approval would give the state primacy only over this small subset of hydraulic fracturing wells. To the extent that there are any such wells, they would be subject to Kentucky's Class II program regulations, which EPA has found to be effective to prevent endangerment to USDWs. In addition, Kentucky has indicated in its application that it will consider, as appropriate, EPA's permitting guidance on diesel fuels hydraulic fracturing in regulating these wells. The state has regulatory authority over all other types of hydraulic fracturing.

This action is exempt from review by the Office of Management and Budget (OMB) because OMB has determined that the approval of state UIC primacy for Class II rules are not significant regulatory actions.

This action does not impose any new information collection burden. EPA determined that there is no need for an Information Collection Request under the Paperwork Reduction Act because this final rule does not impose any new federal reporting or recordkeeping requirements. Reporting or recordkeeping requirements are based on the Commonwealth of Kentucky's UIC Regulations, and the state is not subject to the Paperwork Reduction Act. However, OMB has previously approved the information collection requirements contained in the existing UIC regulations at 40 CFR parts 144-148 for SDWA section 1422 states and also for section 1425 states under the provisions of the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. and assigned OMB control number 2040-0042. The OMB control numbers for EPA's regulations in 40 CFR are listed in 40 CFR part 9.

I certify that this action will not have a significant economic impact on a substantial number of small entities under the RFA. In making this determination, the impact of concern is any significant adverse economic impact on small entities. An agency may certify that a rule will not have a significant economic impact on a substantial number of small entities if the rule relieves regulatory burden, has no net burden or otherwise has a positive economic effect on the small entities subject to the rule. This action does not impose any new requirements on any regulated entities. It simply codifies the Commonwealth of Kentucky's UIC Program regulations, which meets the effectiveness standard under SDWA section 1425 for regulating a Class II well program. I have therefore concluded that this action will have no net regulatory burden for any directly regulated small entities.

This action does not contain an unfunded mandate as described in UMRA, 2 U.S.C. 1521-1538. 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 as explained in section V.C. 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 approves a state action as explained in section V.C.

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 because the rule does not change the level of protection provided to human health or the environment.

This action is subject to the CRA, and EPA will submit a rule report to each House of the Congress and to the Comptroller General of the United States. This action is not a “major rule” as defined by 5 U.S.C. 804(2).

For the reasons set out in the preamble, title 40 of the Code of Federal Regulations is amended as follows:

Because EPA received adverse comment, we are withdrawing the direct final rule approving the Commonwealth of Kentucky's Underground Injection Control Class II (UIC).

Program for primacy, published on October 28, 2016. We stated in that direct final rule that if we received adverse comment by November 28, 2016, the direct final rule would not take effect and we would publish a timely withdrawal in the Federal Register. We subsequently received adverse comment on that direct final rule. We will address those comments in any subsequent final action, which will be based on the parallel proposed rule also published on October 28, 2016 (81 FR 75006). As stated in the direct final rule and the parallel proposed rule, we will not institute a second comment period on this action.

Accordingly, the direct final rule published on October 28, 2016, (81 FR 74927) is withdrawn effective December 28, 2016.

You may be potentially affected by this action if you are an agricultural producer, food manufacturer, or pesticide manufacturer. The following list of North American Industrial Classification System (NAICS) codes is not intended to be exhaustive, but rather provides a guide to help readers determine whether this document applies to them. Potentially affected entities may include:

• Crop production (NAICS code 111).

• Animal production (NAICS code 112).

• Food manufacturing (NAICS code 311).

• Pesticide manufacturing (NAICS code 32532).

You may access a frequently updated electronic version of 40 CFR part 180 through the Government Printing Office's e-CFR site at http://www.ecfr.gov/cgi-bin/text-idx?&c=ecfr&tpl=/ecfrbrowse/Title40/40tab_02.tpl.

Under FFDCA section 408(g), 21 U.S.C. 346a, any person may file an objection to any aspect of this regulation and may also request a hearing on those objections. You must file your objection or request a hearing on this regulation in accordance with the instructions provided in 40 CFR part 178. To ensure proper receipt by EPA, you must identify docket ID number EPA-HQ-OPP-2015-0776 and EPA-HQ-OPP-2015-0831 in the subject line on the first page of your submission. All objections and requests for a hearing must be in writing, and must be received by the Hearing Clerk on or before February 27, 2017. Addresses for mail and hand delivery of objections and hearing requests are provided in 40 CFR 178.25(b).

In addition to filing an objection or hearing request with the Hearing Clerk as described in 40 CFR part 178, please submit a copy of the filing (excluding any Confidential Business Information (CBI)) for inclusion in the public docket. Information not marked confidential pursuant to 40 CFR part 2 may be disclosed publicly by EPA without prior notice. Submit the non-CBI copy of your objection or hearing request, identified by docket ID number EPA-HQ-OPP-2015-0776 and EPA-HQ-OPP-2015-0831, by one of the following methods:

• Federal eRulemaking Portal: http://www.regulations.gov. Follow the online instructions for submitting comments. Do not submit electronically any information you consider to be CBI or other information whose disclosure is restricted by statute.

• Mail: OPP Docket, Environmental Protection Agency Docket Center (EPA/DC), (28221T), 1200 Pennsylvania Ave. NW., Washington, DC 20460-0001.

• Hand Delivery: To make special arrangements for hand delivery or delivery of boxed information, please follow the instructions at http://www.epa.gov/dockets/contacts.html.

Additional instructions on commenting or visiting the docket, along with more information about dockets generally, is available at http://www.epa.gov/dockets.

In the Federal Register of March 16, 2016 (81 FR 14030) (FRL-9942-86), EPA issued a document pursuant to FFDCA section 408, 21 U.S.C. 346a, announcing the filing of two pesticide petitions (PP IN-10848 & PP IN-10850) by Jeneil Biosurfactant Company, 400 N. Dekora Woods Blvd., Saukville, WI 53080. The petitions requested that 40 CFR 180.910 be amended by establishing two exemptions from the requirement of a tolerance: One for residues of methyl isobutyrate (CAS Reg. No. 547-63-7) (PP IN-10848) and one for isobutyl isobutyrate (CAS Reg. No. 97-85-8) (PP IN-10850), when used as inert ingredients (solvents) applied to growing crops or raw agricultural commodities after harvest. That document referenced a summary of each petition prepared by Jeneil Biosurfactant Company, the petitioner, which are available in the respective dockets (PP IN-10848 in docket ID number EPA-HQ-OPP-2015-0776 and PP IN-10850 in docket ID number EPA-HQ-OPP-2015-0831), http://www.regulations.gov. Comments were received in response to the notice of filing, requesting the denial of these petitions based only generally on a concern for the use of “toxic chemicals” in or on food. Because the commenters did not provide any information upon which to evaluate these specific inert ingredient tolerance exemptions and because EPA has determined that such exemptions would be safe, EPA is not denying the petition as requested.

Inert ingredients are all ingredients that are not active ingredients as defined in 40 CFR 153.125 and include, but are not limited to, the following types of ingredients (except when they have a pesticidal efficacy of their own): Solvents such as alcohols and hydrocarbons; surfactants such as polyoxyethylene polymers and fatty acids; carriers such as clay and diatomaceous earth; thickeners such as carrageenan and modified cellulose; wetting, spreading, and dispersing agents; propellants in aerosol dispensers; microencapsulating agents; and emulsifiers. The term “inert” is not intended to imply nontoxicity; the ingredient may or may not be chemically active. Generally, EPA has exempted inert ingredients from the requirement of a tolerance based on the low toxicity of the individual inert ingredients.

Section 408(c)(2)(A)(i) of FFDCA allows EPA to establish an exemption from the requirement for a tolerance (the legal limit for a pesticide chemical residue in or on a food) only if EPA determines that the exemption is “safe.” Section 408(c)(2)(A)(ii) of FFDCA defines “safe” to mean that “there is a reasonable certainty that no harm will result from aggregate exposure to the pesticide chemical residue, including all anticipated dietary exposures and all other exposures for which there is reliable information.” This includes exposure through drinking water and in residential settings, but does not include occupational exposure. Section 408(b)(2)(C) of FFDCA requires EPA to give special consideration to exposure of infants and children to the pesticide chemical residue and to “ensure that there is a reasonable certainty that no harm will result to infants and children from aggregate exposure to the pesticide chemical residue. . . .”

EPA establishes exemptions from the requirement of a tolerance only in those cases where it can be clearly demonstrated that aggregate exposure to pesticide chemical residues under reasonably foreseeable circumstances will pose no appreciable risks to human health. In order to determine the risks from aggregate exposure to pesticide inert ingredients, the Agency considers the toxicity of the inert in conjunction with possible exposure to residues of the inert ingredient through food, drinking water, and through other exposures that occur as a result of pesticide use in residential settings. If EPA is able to determine that a finite tolerance is not necessary to ensure that there is a reasonable certainty that no harm will result from aggregate exposure to the inert ingredient, an exemption from the requirement of a tolerance may be established.

Consistent with FFDCA section 408(c)(2)(A), and the factors specified in FFDCA section 408(c)(2)(B), EPA has reviewed the available scientific data and other relevant information in support of this action. EPA has sufficient data to assess the hazards of and to make a determination on aggregate exposure for methyl isobutyrate and isobutyl isobutyrate including exposure resulting from the exemption established by this action. EPA's assessment of exposures and risks associated with methyl isobutyrate and isobutyl isobutyrate follows.

EPA has evaluated the available toxicity data and considered their validity, completeness, and reliability as well as the relationship of the results of the studies to human risk. EPA has also considered available information concerning the variability of the sensitivities of major identifiable subgroups of consumers, including infants and children. Specific information on the studies received and the nature of the adverse effects caused by methyl isobutyrate and isobutyl isobutyrate as well as the no-observed-adverse-effect-level (NOAEL) and the lowest-observed-adverse-effect-level (LOAEL) from the toxicity studies are discussed in this unit.

Methyl isobutyrate and isobutyl isobutyrate are rapidly metabolized through hydrolysis to form an alcohol and carboxylic acid in the body. Many of the supporting data for methyl isobutyrate comes directly from the closely related and similarly metabolized compound isobutyl isobutyrate. Where separate information for methyl isobutyrate and isobutyl isobutyrate is available, the studies will be presented along with information for their common metabolite isobutanol.

An LD50 value of 16,000 milligrams/kilogram body weight (mg/kg bw) was determined in rats for methyl isobutyrate. The LC50 of methyl isobutyrate was 25.5 milligrams per Liter (mg/L) in mice. The acute oral LD50 for isobutyl isobutyrate value in rats and mice was >6,400 mg/kg. The acute inhalation LC50 (6 hour exposure duration) was between 3.88 and 31.94 mg/L isobutyl isobutyrate in rats. The dermal LD50 value for isobutyl isobutyrate in guinea pigs was >8,550 mg/kg.

No repeat-dose studies of methyl isobutyrate were identified in a search of the toxicological literature. In an 18-week oral gavage study in rats with isobutyl isobutyrate, there were no treatment related effects in hematology, clinical chemistry parameters, urinalysis, histological examination, behavior, appearance, body weight, or food/water consumption. The NOAEL was 1,000 mg/kg/day; the highest dose tested. In a 90-day oral toxicity study in rats with isobutanol, treatment related effects were seen only at 1,000 mg/kg bw/day, and included hypoactivity, which was significant during week one and decreased markedly after week 4, and lower body weight gain (18% below that of control rats) in males during week one. The NOAEL was 316 mg/kg bw/day.

In a 90-day study toxicity study in rats exposed to isobutanol in drinking water, no effects on body weight, food/water consumption, and clinical signs of toxicity and organ weights (livers, kidneys, adrenal glands, and testes) were observed at doses up to 1,450 mg/kg/day. The NOAEL for isobutanol was 1,450 mg/kg/day.

In a 90-day isobutanol inhalation study, no differences were found in body weight, food consumption, ophthalmoscopic examination, clinical observation, clinical chemistry, neurobehavioral observations, organ weights, gross pathology, and histopathology. The NOAEL for repeat-dose effects including neurotoxicity was 2,500 ppm.

In two prenatal developmental toxicity studies via inhalation, female rats and Himalayan rabbits were exposed to vapor of isobutanol. In rats, no mortality or significant differences in clinical signs, body weight development, or gross pathology between controls and treated groups and no effects on development were noted. The maternal and developmental rat NOAELs were 3,030 ppm. In rabbits, no mortality or significant differences in clinical signs, body weight development, or gross pathology between controls and treated groups and no effects on development were noted. The maternal no observed adverse effect level (NOAEL) for rabbits was 758 ppm. Fetuses exhibited no signs of developmental changes in response to isobutanol. Therefore, the developmental NOAEL was 3,030 ppm, the highest dose.

In a 2-generation reproduction study in rats with isobutanol via inhalation, no exposure-related effects were observed on F0 and F1 parental survival or on F0 and F1 reproductive performance, body weights, food consumption and food efficiency in males or females. The NOAEL for isobutanol for parental systemic, reproductive and neonatal toxicity is 2,500 ppm (7,380 mg/m3 the maximum concentrations exposed).

There were no adequate studies on the carcinogenic potential of methyl isobutyrate or isobutanol isobutyrate. Methyl isobutyrate did not significantly induce chromosome loss in mitotically growing Saccharomyces cerevisiae. The structurally similar isobutyl isobutyrate did not induce reverse mutations at concentrations as high as 5,000 microgram/milliliter (ug/mL). An evaluation of the structure of methyl isobutyrate for alerts to genotoxicity yields no identifiable structures of concern. Based on negative results in genotoxicity assays and an extensive history of exposure to isobutyl isobutyrate, carcinogenic potential of this compound is likely to be low. Methyl isobutyrate was not genotoxic in one study and it does not contain reactive substructures of concern and isobutyl isobutyrate was also negative in genotoxic assays and in extensive exposure history; therefore the carcinogenic potential of both compounds is low.

Metabolism of aliphatic esters such as methyl isobutyrate and isobutyl isobutyrate proceeds rapidly through hydrolysis to form an alcohol and carboxylic acid. These are reactions of the carboxylesterases or esterases, which predominate in hepatocytes but are present in most tissues throughout the body, including small intestine, colon, kidney, trachea and lung. Hydrolysis of methyl isobutyrate is extensive and will form methanol and isobutyric acid. Isobutyric acid is metabolized to propionic acid which, in turn, is converted to succinic acid and ultimately to glucose and glycogen. Methanol is oxidized and excreted ultimately as CO2 and water. In male rats injected intravenously with isobutyl isobutyrate, the parent compound decreased rapidly in blood and was undetected after 166 seconds. The half-life was calculated at 11.1 seconds. Isobutanol and isobutyric acid levels increased rapidly, with the acid consistently higher than the alcohol, suggesting that the former is a metabolic product of the alcohol in addition to the parent compound. Isobutyric acid will be conjugated and excreted or will undergo β-oxidation in the fatty acid metabolic pathway.

Once a pesticide's toxicological profile is determined, EPA identifies toxicological points of departure (POD) and levels of concern to use in evaluating the risk posed by human exposure to the pesticide. For hazards that have a threshold below which there is no appreciable risk, the toxicological POD is used as the basis for derivation of reference values for risk assessment. PODs are developed based on a careful analysis of the doses in each toxicological study to determine the dose at which no adverse effects are observed (the NOAEL) and the lowest dose at which adverse effects of concern are identified (the LOAEL). Uncertainty/safety factors are used in conjunction with the POD to calculate a safe exposure level—generally referred to as a population-adjusted dose (PAD) or a reference dose (RfD)—and a safe margin of exposure (MOE). For non-threshold risks, the Agency assumes that any amount of exposure will lead to some degree of risk. Thus, the Agency estimates risk in terms of the probability of an occurrence of the adverse effect expected in a lifetime. For more information on the general principles EPA uses in risk characterization and a complete description of the risk assessment process, see http://www.epa.gov/pesticides/factsheets/riskassess.htm.

EPA has not identified any toxicological points of departure for assessing methyl isobutyrate and isobutyl isobutyrate. On the basis of the metabolism of as methyl isobutyrate and isobutyl isobutyrate proceeding rapidly through hydrolysis to form an alcohol and carboxylic acid and ultimately to glucose and glycogen, low acute toxicity for animals via the dermal, inhalation, and oral routes of exposure, and low toxicity of the metabolite isobutyl alcohol, no adverse effect is expected from methyl isobutyrate and isobutyl isobutyrate as a result of exposure by any route.

1. Dietary exposure from food and feed uses. In evaluating dietary exposure to methyl isobutyrate and isobutyl isobutyrate, EPA considered exposure under the proposed exemption from the requirement of a tolerance. EPA assessed dietary exposures from methyl isobutyrate and isobutyl isobutyrate in food as follows:

Acute and chronic dietary assessments take into account exposure estimates from dietary consumption of food and drinking water. Because no adverse effects attributable to a single or repeat exposures to methyl isobutyrate and isobutyl isobutyrate were seen in the toxicity databases, quantitative dietary risk assessments are not appropriate. Due to expected use of methyl isobutyrate and isobutyl isobutyrate in pesticide formulations applied to growing crops and raw agricultural commodities after harvest, it is reasonable to expect that there will be some exposure to these substances from their use in pesticide products. In addition, FDA has approved the use of methyl isobutyrate and isobutyl isobutyrate as synthetic flavoring substances in food for direct human consumption (21 CFR 172.515), so there is expected to be additional dietary exposure to these substances from non-pesticidal sources.

2. Dietary exposure from drinking water. For the purpose of the screening level dietary risk assessment to support this request for an exemption from the requirement of a tolerance for methyl isobutyrate and isobutyl isobutyrate, a conservative drinking water concentration value would normally be included in dietary exposure screening level model. However, because no adverse effects attributable to a single or repeat exposures to methyl isobutyrate and isobutyl isobutyrate were seen in the toxicity databases, quantitative dietary risk assessments are not appropriate.

3. From non-dietary exposure. The term “residential exposure” is used in this document to refer to non-occupational, non-dietary exposure (e.g., textiles (clothing and diapers), carpets, swimming pools, and hard surface disinfection on walls, floors, tables).

It is possible that methyl isobutyrate or isobutyl may be used as an inert ingredient in pesticide products that may result in residential exposures, although no residential uses are currently proposed.

4. Cumulative effects from substances with a common mechanism of toxicity. Section 408(b)(2)(D)(v) of FFDCA requires that, when considering whether to establish, modify, or revoke a tolerance or exemption from a tolerance, the Agency consider “available information” concerning the cumulative effects of a particular pesticide's residues and “other substances that have a common mechanism of toxicity.”

Because methyl isobutyrate and isobutyl isobutyrate do not have a toxic mode of action or a mechanism of toxicity, this provision does not apply.

1. In general. Section 408(b)(2)(C) of FFDCA provides that EPA shall apply an additional tenfold (10X) margin of safety for infants and children in the case of threshold effects to account for prenatal and postnatal toxicity and the completeness of the database on toxicity and exposure unless EPA determines based on reliable data that a different margin of safety will be safe for infants and children. This additional margin of safety is commonly referred to as the FQPA Safety Factor (SF). In applying this provision, EPA either retains the default value of 10X, or uses a different additional safety factor when reliable data available to EPA support the choice of a different factor.

Because methyl isobutyrate and isobutyl isobutyrate do not have threshold effects and because of the lack of safety factors needed for this qualitative assessment, this provision does not apply to the assessment of methyl isobutyrate and isobutyl isobutyrate.

Determination of safety section. Based on the lack of any endpoints of concern, EPA concludes that there is a reasonable certainty that no harm will result to the general population or to infants and children from aggregate exposure to methyl isobutyrate and isobutyl isobutyrate residues.

An analytical method is not required for enforcement purposes since the Agency is establishing an exemption from the requirement of a tolerance without any numerical limitation.

Therefore, exemptions from the requirement of a tolerance are established under 40 CFR 180.910 for methyl isobutyrate (CAS Reg. No. 547-63-7) and isobutyl isobutyrate (CAS Reg. No. 97-85-8) when used as inert ingredients (solvents) in pesticide formulations applied to growing crops or raw agricultural commodities after harvest.

This action establishes exemptions from the requirement of a tolerance under FFDCA section 408(d) in response to a petition submitted to the Agency. The Office of Management and Budget (OMB) has exempted these types of actions from review under Executive Order 12866, entitled “Regulatory Planning and Review” (58 FR 51735, October 4, 1993). Because this action has been exempted from review under Executive Order 12866, this action is not subject to Executive Order 13211, entitled “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001) or Executive Order 13045, entitled “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997). This action does not contain any information collections subject to OMB approval under the Paperwork Reduction Act (PRA) (44 U.S.C. 3501 et seq.), nor does it require any special considerations under Executive Order 12898, entitled “Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations” (59 FR 7629, February 16, 1994).

Since tolerances and exemptions that are established on the basis of a petition under FFDCA section 408(d), such as the exemptions in this final rule, do not require the issuance of a proposed rule, the requirements of the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.), do not apply.

This action directly regulates growers, food processors, food handlers, and food retailers, not States or tribes, nor does this action alter the relationships or distribution of power and responsibilities established by Congress in the preemption provisions of FFDCA section 408(n)(4). As such, the Agency has determined that this action will not have a substantial direct effect on States or tribal governments, on the relationship between the national government and the States or tribal governments, or on the distribution of power and responsibilities among the various levels of government or between the Federal Government and Indian tribes. Thus, the Agency has determined that Executive Order 13132, entitled “Federalism” (64 FR 43255, August 10, 1999) and Executive Order 13175, entitled “Consultation and Coordination with Indian Tribal Governments” (65 FR 67249, November 9, 2000) do not apply to this action. In addition, this action does not impose any enforceable duty or contain any unfunded mandate as described under Title II of the Unfunded Mandates Reform Act (UMRA) (2 U.S.C. 1501 et seq.).

This action does not involve any technical standards that would require Agency consideration of voluntary consensus standards pursuant to section 12(d) of the National Technology Transfer and Advancement Act (NTTAA) (15 U.S.C. 272 note).

Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.), EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register. This action is not a “major rule” as defined by 5 U.S.C. 804(2).

Therefore, 40 CFR chapter I is amended as follows:

I. Background on CAFE Penalties and Interim Final Rule

The National Highway Traffic Safety Administration (NHTSA) administers Corporate Average Fuel Economy (CAFE) standards under 49 U.S.C. 32901 et seq. Vehicle manufacturers that produce passenger cars and light trucks for sale in the United States are subject to these standards,1 and are subject to civil penalties for failure to meet the standards.2 Manufacturers generally meet the standards by applying technology to their vehicles to improve their fleet-wide fuel economy, but may also apply credits earned from over-compliance with standards in another year or purchased from another manufacturer. If a manufacturer does not have credits to apply, and does not apply sufficient fuel economy-improving technologies to their vehicles to meet their fleet-wide standards, then that manufacturer is liable for civil penalties.3

Congress has prescribed the formula for calculating a civil penalty for violation of a CAFE standard. That formula multiplies the penalty rate times the number of tenths-of-a-mile-per-gallon by which a non-compliant fleet falls short of an applicable CAFE standard, times the number of vehicles in that non-compliant fleet.4 For many years, the penalty rate has been $5.50 per tenth-of-a-mile-per-gallon. As an illustration, assume that Manufacturer A produced 1,000,000 light trucks in model year 2010. Assume further that A has a light truck standard of 20 mpg for MY 2010, and an achieved light truck average fuel economy level of 19.7 mpg in that model year. If A has no credits to apply, then A's assessed civil penalty under this historical penalty rate would be:

The Federal Civil Penalties Inflation Adjustment Act Improvements Act (November 2, 2015) (the “Act”) prescribed an inflation adjustment for many civil monetary penalties, including CAFE's civil penalty rate. In that Act, Congress generally required Federal agencies that administer civil monetary penalties to make an initial “catch-up” adjustment for inflation through an interim final rule by July 1, 2016, and then to make subsequent annual adjustments for inflation (see Pub. L. 114-74, Sec. 701). NHTSA developed an interim final rule (IFR) implementing the Agency's responsibilities under that Act, and that IFR published in the Federal Register on July 5, 2016. The NHTSA IFR included adjustments for all civil monetary penalties administered by the Agency, including those prescribed by the CAFE program. In accordance with the Act and OMB guidance, the updated penalty rate increased from $5.50 per tenth of a mile per gallon (mpg) to $14 per tenth of an mpg.5 NHTSA stated in implementation guidance that it issued following the IFR that the Agency intended to apply the $14 rate to any penalties assessed on and after August 4, 2016, beginning with penalties applicable to violations for MY 2015, and also applying to any violations from prior model years that resulted from recalculation of a manufacturer's previous CAFE levels.6

The Auto Alliance and Global Automakers jointly petitioned NHTSA for reconsideration of the interim final rule with regard to the inflation adjustment for CAFE non-compliance penalties (hereafter, the Alliance and Global petition will be referred to as the “Industry Petition”) on August 1, 2016. The Industry Petition asked that NHTSA not apply the penalty increase to non-compliances associated with “model years that have already been completed or for which a company's compliance plan has already been set.” Specifically, the Industry Petition stated that:

In the alternative, the Industry Petition requested that if NHTSA decided to apply the penalty increase to MYs 2014-2018, the Agency should recalculate the adjusted penalty rate using 2007 as the “base year” for calculating the inflation adjustment. As another alternative, the Industry Petition sought a finding that immediately increasing the penalty to $14 would cause a “negative economic impact,” thereby requiring a smaller initial penalty increase. See Public Law 114-74, Sec. 701(c) (providing for an exception to the otherwise-applicable penalty increase, if the Agency finds through a rulemaking proceeding that the increase would cause a “negative economic impact,” a term that the statute does not define).7

The Center for Biological Diversity (CBD) petitioned NHTSA on October 1, 2015, just over a month prior to passage of the Act, to conduct a rulemaking to raise the civil penalty rate for CAFE standard violations under NHTSA's then-existing statutory authority. The CBD petition stated correctly that NHTSA had not adjusted the $5.50 civil penalty rate for inflation since 1997, and requested that the Agency follow the procedure laid out at 49 U.S.C. 32912(c) to undertake a rulemaking to raise the amount to the maximum then allowed by Congress, $10 per tenth-of-an-mpg. A month later, Congress changed the statutory landscape by enacting the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015.

Having carefully considered the issues raised by the petitioners, NHTSA will grant the Industry Petition in part and deny it in part. Beginning with model year 2019, NHTSA will apply the full penalty prescribed by the Federal Civil Penalties Inflation Adjustment Improvements Act of 2015. NHTSA is required by the Act to continue adjusting the civil penalty for inflation each year, so the penalty rate applicable to MY 2019 and after fleets will be $14 per tenth-of-an-mpg, plus any adjustment(s) for inflation that occur between now and a violation's assessment. The Agency concludes that this decision also effectively addresses the issue raised by the CBD Petition. The discussion below presents the Agency's analysis and conclusion.

NHTSA agrees with the Industry Petitioners that applying the $14 civil penalty rate to violations of CAFE standards in model years prior to the enactment of the Act would not result in additional fuel savings, and thus would seem to impose retroactive punishment without accomplishing Congress' specific intent in establishing the civil penalty provision of the Energy Policy and Conservation Act (“EPCA”). Model years typically begin prior to their respective calendar year. By November 2, 2015 (the date of enactment of the civil penalties adjustment Act), nearly all manufacturers subject to the CAFE standards had completed both model years 2014 and 2015, and no further vehicles in those model years were being produced in significant numbers. This argument is even stronger considering that all manufacturers would have completed these model years prior to July 5, 2016, the date of the IFR. If all the vehicles for a model year have already been produced, then there is no way for their manufacturers to raise the fuel economy level of those vehicles in order to avoid higher penalty rates for non-compliance.

In the specific context of EPCA as amended, the purpose of civil penalties for non-compliance is to encourage manufacturers to comply with the CAFE standards. See 49 CFR 578.2 (section addressing penalties states that a “purpose of this part is to effectuate the remedial impact of civil penalties and to foster compliance with the law”); see generally, 49 U.S.C. 32911-32912; United States v. General Motors, 385 F.Supp. 598, 604 (D.D.C. 1974), vacated on other grounds, 527 F.2d 853 (D.C. Cir. 1975) (“The policy of the Act with regard to civil penalties is clearly to discourage noncompliance”). Assuming that higher civil penalty rates are intended, in the particular context of CAFE, to provide greater incentives for manufacturers to comply with applicable standards, then raising penalty rates for model years already completed and thus unchangeable would be not only retroactive,8 but incapable of serving the purpose of causing greater compliance with CAFE standards. Based on the governing statutory framework and the specific CAFE regulatory scheme, NHTSA believes that Congress would not have intended retroactive application of an inflation adjustment to overcome this core substantive purpose and intent of EPCA. This analysis compels the conclusion that applying an increased penalty rate to MYs 2014 and 2015 would not be appropriate, nor would applying it to MY 2016, which was underway by November 2, 2015 and over halfway complete by July 5, 2016.9

The Industry Petition asserts that manufacturers have set their product and compliance plans for MY 2017 and 2018 based on the CAFE penalty provisions in place prior to July 2016, and that it is too late at this juncture to make significant changes to those plans and avoid non-compliances (for the manufacturers already intending not to comply). The Agency determined above that it is not appropriate to apply an increased penalty rate to CAFE non-compliance in past model years, i.e., MY 2016 and before, which could not be changed in response to a higher penalty rate. The next question presented by the Industry Petition is how to address future model years' vehicles whose fuel economy levels cannot be changed at this juncture.

For immediate future model years (i.e., 2017 and 2018), the theoretical possibility exists that manufacturers could respond to a higher penalty rate by increasing their fleet fuel economy and thus achieving CAFE compliance or mitigating their non-compliance. However, because of industry design, development, and production cycles, vehicle designs (including drivetrains, which are where many fuel economy improvements are made) are often fixed years in advance, making adjustments to fleet fuel economy difficult without a lead time of multiple years.

Here, the Industry Petitioners assert that their plans for what technology to put on which MYs 2017 and 2018 vehicles are, at the point the IFR was issued, fixed and inalterable. NHTSA takes manufacturers' product cycles into account when NHTSA sets fuel economy standards. For example, because NHTSA recognizes that manufacturers' product and compliance plans are difficult to alter significantly for years ahead of a given model year,10 the Agency includes product cadence in its assessment of CAFE standards, by limiting application of technology in its analytical model to years in which vehicles are refreshed or redesigned. NHTSA believes that this approach facilitates continued fuel economy improvements over the longer term by accounting for the fact that manufacturers will seek to make improvements when and where they are most cost-effective.

In an analogous context, EPCA provides that when DOT amends a fuel economy standard to make it more stringent, that new standard must be promulgated “at least 18 months before the beginning of the model year to which the amendment applies.” 49 U.S.C. 32902(a)(2). The 18 months' notice requirement for increases in fuel economy standards represents a congressional acknowledgement of the importance of advance notice to vehicle manufacturers to allow them the lead time necessary to adjust their product plans, designs, and compliance plans to address changes in fuel economy standards. Similarly here, affording manufacturers lead time to adjust their products and compliance plans helps them to account for such an increase in the civil penalty amount. In this unique case, the 18-month lead time for increases in the stringency of fuel economy standards provides a reasonable proxy for appropriate advance notice of the application of substantially increased—here nearly tripled—civil penalties.

Given that NHTSA issued the IFR in July 2016, 18 months from that date would be January 2018, which would encompass MY 2017 for most manufacturers and models and part of MY 2018. Based on the Industry Petition, comments, and agency expertise, NHTSA believes that, in this instance, applying the adjusted penalties only for MY 2019 and after provides a reasonable amount of lead time for manufacturers to adjust their plans and products to take into account the substantial change in penalty level.

For future model years for which the vehicles to be produced and their technologies are essentially fixed (i.e., MYs 2017-2018), it is conceivable that some manufacturers might be able to change production volumes of certain lower- or higher-fuel-economy models, which could help them to reduce or avoid CAFE non-compliance penalties. However, in this particular instance, compelling such a result through the immediate application of higher penalty rates to product design decisions that have already been made and cannot be changed would be contrary to a fundamental congressional purpose of the CAFE program. The Energy Independence and Security Act (EISA) amendments of 2007 required that fuel economy standards be attribute-based, demonstrating congressional intent that the CAFE program be responsive to consumer demand. See 49 U.S.C. 32902(b)(3). Applying higher civil penalty rates in a way that would force manufacturers to disregard consumer demand (e.g., by restricting the availability of vehicles that consumers want) would be inconsistent with that fundamental statutory command. Providing some lead time, as here, mitigates that concern.

In order to reconcile competing statutory objectives in the unique context of multi-year vehicle product cycles, NHTSA will grant the Industry Petition insofar as it seeks to apply the penalty increase only for model years 2019 and after. For CAFE standard non-compliances that occur(ed) for model years 2014-2018, NHTSA intends to assess civil penalties at the rate of $5.50 per tenth of an mpg. Beginning with model year 2019, NHTSA will apply the full penalty prescribed by the Federal Civil Penalties Inflation Adjustment Improvements Act of 2015. NHTSA is required by the Act to continue adjusting the civil penalty for inflation each year, so the penalty rate applicable to MY-2019-and-after fleets will be $14 per tenth-of-an-mpg, plus any adjustment(s) for inflation that occur between now and then. See Public Law 114-74, Sec. 701(b)(2).

NHTSA believes this approach appropriately harmonizes the two congressional directives of adjusting civil penalties to account for inflation and maintaining attribute-based, consumer-demand-focused standards, applied in the context of the presumption against retroactive application of statutes. See, e.g., Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 208. This decision increases civil penalties starting with the model year that manufacturers, in this particular instance, are reasonably able to design and produce vehicles in response to the increased penalties. See Industry Petition at 4-6 (seeking application of the adjusted civil penalties only to MY 2019 and after).

In summary, NHTSA partially grants the Industry Petition for Reconsideration insofar as it seeks implementation of the civil penalties adjustment only to MY 2019 and after, and denies the Industry Petition in all other respects.

This action also effectively responds to the petition for rulemaking from CBD to increase the civil penalty rate as permitted by EPCA/EISA. The civil penalty rate beginning in MY 2019 will be substantially higher than the CBD petition requested, and NHTSA believes that the increased penalty will accomplish CBD's goal of encouraging manufacturers to apply more fuel-saving technologies to their vehicles in those future model years. To the extent that the CBD Petition requests an earlier penalty rate increase, it is denied for the reasons set forth in this decision.

NHTSA has considered the impact of this rulemaking action under Executive Order 12866, Executive Order 13563, and the Department of Transportation's regulatory policies and procedures. This rulemaking document was not reviewed under Executive Order 12866 or Executive Order 13563, and has been determined not to be “significant” under the Department of Transportation's regulatory policies and procedures and the policies of the Office of Management and Budget.

NHTSA has also considered the impacts of this rule under the Regulatory Flexibility Act. I certify that this rule will not have a significant impact on a substantial number of small entities. The following provides the factual basis for this certification under 5 U.S.C. 605(b). The amendments only affect manufacturers of motor vehicles. Low-volume manufacturers can petition NHTSA for an alternate CAFE standard under 49 CFR part 525, which lessens the impacts of this rulemaking on small businesses by allowing them to avoid liability for potential penalties under 49 CFR 578.6(h)(2). Small organizations and governmental jurisdictions will not be significantly affected as the price of motor vehicles and equipment ought not change as the result of this rule.

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.” “Policies that have federalism implications” is defined in the Executive Order to include regulations that have “substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.” Under Executive Order 13132, the agency may not issue a regulation with 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 the agency consults with State and local governments early in the process of developing the proposed regulation.

This rule will not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132. The reason is that this rule applies to motor vehicle manufacturers. Thus, the requirements of Section 6 of the Executive Order do not apply.

The Unfunded Mandates Reform Act of 1995, Public Law 104-4, requires agencies to prepare a written assessment of the cost, 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. Because NHTSA does not believe that this rule will necessarily have a $100 million effect, no Unfunded Mandates assessment will be prepared.

This rule does not have a retroactive or preemptive effect. Judicial review of this rule may be obtained pursuant to 5 U.S.C. 702. That section does not require that a petition for reconsideration be filed prior to seeking judicial review.

In accordance with the Paperwork Reduction Act of 1980, we state that there are no requirements for information collection associated with this rulemaking action.

Please note that 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 (65 FR 19477-78) or you may visit https://www.transportation.gov/privacy.

In consideration of the foregoing, 49 CFR part 578 is amended as set forth below.

The regulations at 50 CFR 648.86(o) authorize the Regional Administrator to adjust the possession and trip limits for common pool vessels in order to prevent the overharvest and facilitate utilization of the common pool quotas. As of December 1, 2016, the common pool had caught less than 5 percent of its sub-annual catch limit (ACL) of Southern New England/Mid-Atlantic (SNE/MA) yellowtail flounder. We project that a moderate increase in the possession and trip limit for SNE/MA yellowtail flounder will result in greater fishing opportunities and little risk of exceeding the common pool sub-ACL of that stock in the current fishing year. To allow the common pool fishery to catch more of its quota for this stock, effective December 22, 2016, the possession and trip limit of SNE/MA yellowtail flounder for all common pool vessels of 250 lb (113.4 kg) per day-at-sea (DAS), and 500 lb (226.8 kg) per trip is increased, to 500 lb (226.8 kg) per DAS, and 1,000 lb (453.6 kg) per trip. It is unlawful for any common pool vessel to exceed the new possession and trip limits.

On November 15, 2016, we reduced possession and trip limits for Georges Bank (GB) cod to prevent an overage of the common pool's quota for the stock. These reduced possession and trip limits were set to expire on December 31, 2016, and return to the initial limits set by Framework Adjustment 55 to the Northeast Multispecies Fishery Management Plan (FMP). We project that if the current possession and trip limits were to expire there will likely be a significant overage of the common pool quota for this stock before the end of the fishing year. As of December 1, 2016, the common pool had caught approximately 76 percent of its sub-ACL of GB cod. To prevent the common pool fishery from exceeding its quota for this stock during the remainder of the fishing year, effective January 1, 2017, the possession and trip limits for GB cod will remain at the current limits (see Table 1) instead of returning to the initial limits set by Framework Adjustment 55 to the Northeast Multispecies FMP. We are also setting a new 25-lb (11.3-kg) per trip GB cod trip limit on common pool vessels fishing with a small vessel category permit. As a result, effective January 1, 2017, it is unlawful for a common pool vessel to exceed the possession and trip limits listed in Table 1.

Weekly quota monitoring reports for the common pool fishery can be found on our Web site at: http://www.greateratlantic.fisheries.noaa.gov/ro/fso/MultiMonReports.htm. We will continue to monitor common pool catch through vessel trip reports, dealer-reported landings, vessel monitoring system catch reports and other available information and, if necessary, we will make additional adjustments to common pool management measures.

This action is required by 50 CFR part 648 and is exempt from review under Executive Order 12866.

The Assistant Administrator for Fisheries, NOAA, finds good cause pursuant to 5 U.S.C. 553(b)(B) and 5 U.S.C. 553(d)(3) to waive prior notice and the opportunity for public comment and the 30-day delayed effectiveness period because it would be impracticable and contrary to the public interest.

The regulations at § 648.86(o) authorize the Regional Administrator to adjust the Northeast multispecies possession and trip limits for common pool vessels to prevent the overharvest and facilitate utilization of common pool sub-ACLs. The catch data used to justify increasing the SNE/MA yellowtail flounder possession and trip limits and maintaining current possession and trip limits for GB cod only recently became available. The possession and trip limit increase implemented through this action allows for increased harvest of SNE/MA yellowtail flounder, to help ensure that the fishery may achieve the optimum yield (OY) for this stock. As a result, the time necessary to provide for prior notice and comment, and a 30-day delay in effectiveness, would prevent us from increasing the possession and trip limit for SNE/MA yellowtail flounder in a timely manner, which could prevent the fishery from achieving the OY. Further, the same delay would prevent us from implementing measures to prevent overutilization of the GB cod sub-ACL, leading to further negative impacts on the fishery. Either outcome would undermine management objectives of the Northeast Multispecies FMP and cause unnecessary negative economic impacts to the common pool fishery. There is additional good cause to waive the delayed effective period because this action in part relieves restrictions on fishing vessels by increasing a trip limit on SNE/MA yellowtail flounder and also limits regulatory confusion by maintaining status quo restrictions to more effectively prevent overharvest of the GB cod sub-ACL.

The Atlantic herring harvest in the United States is managed under the FMP developed by the New England Fishery Management Council (Council). The FMP divides the stock-wide herring annual catch limit (ACL) among three management areas, one of which has two sub-areas. It divides Area 1 (located in the Gulf of Maine (GOM)) into an inshore section (Area 1A) and an offshore section (Area 1B). Area 2 is located in the coastal waters between Massachusetts and North Carolina, and Area 3 is on Georges Bank (GB). The FMP considers the herring stock complex to be a single stock, but there are inshore (GOM) and offshore (GB) stock components. The GOM and GB stock components segregate during spawning and mix during feeding and migration. Each management area has its own sub-ACL to allow greater control of the fishing mortality on each stock component.

NMFS issued a final rule that implemented Amendment 4 to the FMP (76 FR 11373, March 2, 2011) to address ACL and accountability measure (AM) requirements. As a way to account for ACL/sub-ACL overages in the herring fishery, Amendment 4 established an AM that requires NMFS to deduct any ACL/sub-ACL overages from the corresponding ACL/sub-ACL in the year following the catch overage determination. Amendment 4 also specified that NMFS will announce overage deductions in the Federal Register prior to the start of the fishing year, if possible.

NMFS also published a final rule implementing Framework 2 to the FMP and the 2013-2015 specifications for the herring fishery on October 4, 2013 (78 FR 61828). Among other measures, Framework 2 allowed for the carryover of unharvested allocations (underages) in the year immediately following the catch determination. Up to 10 percent of each sub-ACL may be carried over and added to the following year's sub-ACL, provided total catch did not exceed the stock-wide ACL. The carryover provision allows a sub-ACL increase for a management area, but it does not allow a corresponding increase to the stock-wide ACL.

NMFS published the 2016-2018 specifications for the herring fishery on November 1, 2016 (81 FR 75731). Table 1 outlines the 2017 herring sub-ACLs, minus deductions for research set-aside catch (RSA), that will be effective on January 1, 2017. RSA equal to 3 percent of each sub-ACL has been awarded to two research projects.

NMFS completed the 2015 catch determination in December 2016, and determined that the herring fishery caught less than its allocated catch in 2015 in all four herring management areas (Areas 1A, 1B, 2, and 3). As a result, this action carries over unharvested 2015 catch to the 2017 herring sub-ACL in all four areas. This carryover equals to the amount of each area's underages (or up to ten percent of the allocated 2015 sub-ACL, whichever is less) for Areas 1A, 1B, 2, and 3. Table 2 provides catch details for 2015 and corresponding adjustments for 2017 sub-ACLs.

NMFS calculated the amount of herring landings in 2015 based on dealer reports (Federal and state) of herring purchases, supplemented by vessel trip reports (VTRs) and vessel monitoring system (VMS) reports (Federal and State of Maine) of herring landings. NMFS generally uses dealer reports to estimate herring landings. However, if the amount of herring reported via VTR exceeded the amount of herring reported by the dealer by 10 percent or more, NMFS assumes the dealer report for that trip was in error and uses the VTR report instead. NMFS assigns herring landings to individual herring management areas using VMS reports or using latitude and longitude coordinates from VTR reports when a VMS report is not available. NMFS uses recent fishing activity to assign landings to a management area if dealer reports do not have a corresponding VTR or VMS catch report.

NMFS estimates herring discards by extrapolating discards from herring trips observed by the Northeast Fisheries Observer Program to all herring trips (observed and unobserved) according to gear and herring management area. Because RSA is removed from management area sub-ACLs at the beginning of the fishery year, NMFS tracks RSA catch but does not count it towards the herring sub-ACLs.

Pursuant to section 304(b)(1)(A) of the Magnuson-Stevens Fishery Conservation and Management Act (MSA), the NMFS Assistant Administrator has determined that this final rule is consistent with the FMP, other provisions of the MSA, and other applicable law.

Pursuant to 5 U.S.C. 553(b)(B), there is good cause to waive prior notice and an opportunity for public comment on this action. Notice and comment are impracticable and contrary to the public interest because a delay would potentially impair achievement of the management plan's objectives of preventing overfishing and achieving optimum yield due by impairing a vessel's ability to harvest available catch allocations. Allowing for prior notice and public comment on this adjustment is also impracticable because regulations require notification of adjustments, if possible, before the herring fishing year begins on January 1, 2017. Further, this is a nondiscretionary action required by provisions of Amendment 4 and Framework 2, which were previously subject to public notice and comment. The adjustments required by these regulations are formulaic. This action simply effectuates these mandatory calculations. The proposed and final rules for Framework 2 and Amendment 4 explained the need and likelihood for adjustments to the sub-ACLs based on final catch amounts. Framework 2, specifically, provided prior notice of the need to distribute carryover catch. These actions provided a full opportunity for the public to comment on the substance and process of this action.

For the same reasons as noted above, there is good cause under 5 U.S.C. 553(d)(3) to waive the 30-day delay in effective date and make the rule effective upon publication in the Federal Register. To prevent confusion and potential overharvests, it will be in the best interest of the fleet and the herring resource to set the adjusted sub-ACLs as soon as possible. Two areas are currently closed due to seasonal closures and will open on either May 1 (i.e., Management Areas 1B) or June 1 (i.e., Management Area 1A). Management Areas 2 and 3 are already open and subject to a lower catch limit until NMFS implements this action. The adjustments in this notice increase the amount of catch available to fishermen. Putting in place the adjusted sub-ACLs as soon as possible will provide the fleet with an opportunity to develop their business plans in sufficient time to facilitate their full harvest of available catch in the open areas.

This action is required by 50 CFR part 648 subpart K and is exempt from review under Executive Order 12866.

This final rule does not contain a collection-of-information requirement for purposes of the Paperwork Reduction Act.

Because prior notice and opportunity for public comment are not required for this rule by 5 U.S.C. 553, or any other law, the analytical requirements of the Regulatory Flexibility Act, 5 U.S.C. 601 et seq., are inapplicable.