Federal Register Vol. 82, No.11,

Federal Register Volume 82, Issue 11 (January 18, 2017)

Page Range5331-6165
FR Document

82_FR_11
Current View
Page and SubjectPDF
82 FR 5533 - Request for Nominations for Members To Serve on National Institute of Standards and Technology Federal Advisory CommitteesPDF
82 FR 6165 - Continuation of the National Emergency With Respect to Terrorists Who Threaten To Disrupt the Middle East Peace ProcessPDF
82 FR 6159 - Establishment of the Freedom Riders National MonumentPDF
82 FR 6151 - Establishment of the Birmingham Civil Rights National MonumentPDF
82 FR 6145 - Boundary Enlargement of the Cascade-Siskiyou National MonumentPDF
82 FR 6131 - Boundary Enlargement of the California Coastal National MonumentPDF
82 FR 5331 - Recognizing Positive Actions by the Government of Sudan and Providing for the Revocation of Certain Sudan-Related SanctionsPDF
82 FR 5611 - Audit Committee Meeting: Sunshine ActPDF
82 FR 5615 - Sunshine Act MeetingPDF
82 FR 5553 - Sunshine Act Meeting NoticePDF
82 FR 5531 - Section 538 Guaranteed Rural Rental Housing Program 2017 Industry Forums-Open Teleconference and/or Web Conference MeetingsPDF
82 FR 5525 - The Scotts Co. and Monsanto Co.; Determination of Nonregulated Status of Creeping Bentgrass Genetically Engineered for Resistance to GlyphosatePDF
82 FR 5585 - Reimbursement Rates for Calendar Year 2017PDF
82 FR 5533 - Notice of National Advisory Council on Innovation and Entrepreneurship MeetingPDF
82 FR 5580 - Determination That SYMMETREL (Amantadine Hydrochloride), Syrup, 50 Milligrams/5 Milliliters, Was Not Withdrawn From Sale for Reasons of Safety or EffectivenessPDF
82 FR 5539 - Fisheries of the Exclusive Economic Zone Off Alaska; Application for an Exempted Fishing PermitPDF
82 FR 5473 - Proposed Membership of the Bureau of Indian Education Accountability Negotiated Rulemaking CommitteePDF
82 FR 5485 - Withdrawal of the Proposed Rule To Revise General Provisions; Electronic CigarettesPDF
82 FR 5600 - Atlantic Wind Lease Sale 7 (ATLW-7) for Commercial Leasing for Wind Power on the Outer Continental Shelf Offshore Kitty Hawk, North Carolina-Final Sale Notice; MMAA104000PDF
82 FR 5565 - Market Access AgreementPDF
82 FR 5628 - Determination Pursuant to the Foreign Missions ActPDF
82 FR 5590 - Agency Information Collection Activities: Refugee/Asylee Relative Petition, Form I-730; Extension, Without Change, of a Currently Approved CollectionPDF
82 FR 5482 - Safety Zones; San Francisco, CAPDF
82 FR 5577 - Change in Bank Control Notices; Acquisitions of Shares of a Bank or Bank Holding CompanyPDF
82 FR 5576 - Formations of, Acquisitions by, and Mergers of Bank Holding CompaniesPDF
82 FR 5579 - Considerations in Demonstrating Interchangeability With a Reference Product; Draft Guidance for Industry; AvailabilityPDF
82 FR 5646 - Unblocking of Specially Designated National and Blocked Person Pursuant to Executive Order 13469PDF
82 FR 5549 - Request for Information-Challenges and Opportunities for Sustainable Development of Hydropower in Undeveloped Stream Reaches of the United States; Notice of Reopening of Comment PeriodPDF
82 FR 5611 - Duke Energy Progress; Combined License Application for Shearon Harris Nuclear Power Plant Units 2 and 3PDF
82 FR 5548 - Application To Export Electric Energy; BP Energy CompanyPDF
82 FR 5549 - Application To Export Electric Energy; BP Energy CompanyPDF
82 FR 5546 - Agency Information Collection Activities; Submission to the Office of Management and Budget for Review and Approval; Comment Request; GEPA Section 427 Guidance for All Grant ApplicationsPDF
82 FR 5528 - Notice of Request for Extension of Approval of an Information Collection; Importation of Avocados From Continental SpainPDF
82 FR 5577 - Notice of Availability of the Draft Programmatic Environmental Assessment (Draft PEA) for Mosquito Control Activities Funded by HHS/CDC To Combat Zika Virus Transmission in the United StatesPDF
82 FR 5527 - Notice of Request for Extension of Approval of an Information Collection; Importation of Fresh Beans, Shelled or in Pods, From Jordan Into the Continental United StatesPDF
82 FR 5532 - Census Bureau 2020 Advisory Committee; Extension of Nominations Submission PeriodPDF
82 FR 5581 - Assessment of Abuse Potential of Drugs; Guidance for Industry; AvailabilityPDF
82 FR 5530 - Notice of Request for Extension of Approval of an Information Collection; Federally Recognized State Managed Phytosanitary ProgramPDF
82 FR 5541 - Compliance Bulletin 2016-03: Detecting and Preventing Consumer Harm From Production IncentivesPDF
82 FR 5530 - Notice of Request for Extension of Approval of an Information Collection; Cooperative Agricultural Pest SurveyPDF
82 FR 5522 - Availability of a Final Environmental Assessment and Finding of No Significant Impact for a Biological Control Agent for Giant ReedPDF
82 FR 5523 - Updates to the Biotechnology Regulatory Services BQMS ProgramPDF
82 FR 5526 - Notice of Request for Extension of Approval of an Information Collection; Importation of Emerald Ash Borer Host Material From CanadaPDF
82 FR 5529 - Notice of Request for Extension of Approval of an Information Collection; Importation of Fresh Apricots From Continental SpainPDF
82 FR 5522 - Availability of an Environmental Assessment for Field Testing a Vaccine for Use Against Infectious Bursal Disease, Marek's Disease, and Newcastle DiseasePDF
82 FR 5524 - Notice of Request for Extension of Approval of an Information Collection; Interstate Movement of Fruit From HawaiiPDF
82 FR 5599 - Notice of Filing of Plats of Survey; ArizonaPDF
82 FR 5591 - Allocations, Common Application, Waivers, and Alternative Requirements for Community Development Block Grant Disaster Recovery GranteesPDF
82 FR 5640 - Mercedes-Benz USA, LLC, Grant of Petition for Decision of Inconsequential NoncompliancePDF
82 FR 5641 - BMW Group of America, LLC, Incorporated, Receipt of Petition for Decision of Inconsequential NoncompliancePDF
82 FR 5644 - General Motors, LLC, Grant of Petition for Decision of Inconsequential NoncompliancePDF
82 FR 5638 - PACCAR, Inc., Grant of Petition for Decision of Inconsequential NoncompliancePDF
82 FR 5606 - Agency Information Collection Activities Under OMB Review; Proposed New CollectionPDF
82 FR 5599 - Notice of Availability of the Record of Decision for the Proposed Vantage to Pomona Heights 230 kV Transmission Line Project in Grant, Kittitas, and Yakima Counties, WashingtonPDF
82 FR 5584 - Agency Information Collection Activities: Proposed Collection: Public Comment Request; NURSE Corps Loan Repayment ProgramPDF
82 FR 5562 - Dominion Cove Point LNG, LP; Notice of Technical ConferencePDF
82 FR 5563 - Notice of Commission Staff AttendancePDF
82 FR 5563 - Stream Energy Massachusetts LLC; Supplemental Notice That Initial Market-Based Rate Filing Includes Request for Blanket Section 204 AuthorizationPDF
82 FR 5551 - Stream Energy Connecticut LLC; Supplemental Notice That Initial Market-Based Rate Filing Includes Request for Blanket Section 204 AuthorizationPDF
82 FR 5550 - Stream Energy Delaware LLC; Supplemental Notice That Initial Market-Based Rate Filing Includes Request for Blanket Section 204 AuthorizationPDF
82 FR 5550 - Stream Energy Indiana LLC; Supplemental Notice That Initial Market-Based Rate Filing Includes Request for Blanket Section 204 AuthorizationPDF
82 FR 5560 - Stream Energy Illinois LLC; Supplemental Notice That Initial Market-Based Rate Filing Includes Request for Blanket Section 204 AuthorizationPDF
82 FR 5556 - Stream Ohio Gas & Electric LLC; Supplemental Notice That Initial Market-Based Rate Filing Includes Request for Blanket Section 204 AuthorizationPDF
82 FR 5559 - Western Area Power Administration; Notice of FilingPDF
82 FR 5552 - Combined Notice of Filings #1PDF
82 FR 5564 - Eastern Shore Natural Gas Company; Notice of Application for Certificate of Public Convenience and NecessityPDF
82 FR 5556 - Columbia Gas Transmission L.L.C.; Notice of Schedule for Environmental Review of the Central Virginia Connector ProjectPDF
82 FR 5645 - Contracting InitiativePDF
82 FR 5595 - Renewal of the Trinity River Adaptive Management Working GroupPDF
82 FR 5578 - Agency Information Collection Activities: Submission for OMB Review; Comment RequestPDF
82 FR 5544 - Defense Science Board; Notice of Federal Advisory Committee MeetingsPDF
82 FR 5588 - Agency Information Collection Activities: Submission for OMB Review; Comment RequestPDF
82 FR 5642 - Petition for Exemption From the Federal Motor Vehicle Theft Prevention Standard; General Motors LLCPDF
82 FR 5607 - Agency Information Collection Activities; Submission for OMB Review; Comment Request; Claim for Reimbursement of Benefit Payments and Claims Expense Under the War Hazards Compensation ActPDF
82 FR 5627 - Interest RatesPDF
82 FR 5583 - The Prohibition of Distributing Free Samples of Tobacco Products; Draft Guidance for Industry; AvailabilityPDF
82 FR 5610 - Notice of Proposed Information Collection RequestsPDF
82 FR 5547 - Agency Information Collection Activities; Submission to the Office of Management and Budget for Review and Approval; Comment Request; Evaluation of the Comprehensive Technical Assistance CentersPDF
82 FR 5615 - Self-Regulatory Organizations; Bats EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Modify Fees for Connectivity and Its Communication and Routing Service Known as Bats ConnectPDF
82 FR 5619 - Self-Regulatory Organizations; Bats EDGA Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Modify Fees for Connectivity and Its Communication and Routing Service Known as Bats ConnectPDF
82 FR 5623 - Owl Rock Capital Corporation, et al.; Notice of ApplicationPDF
82 FR 5613 - Proposed Collection; Comment RequestPDF
82 FR 5561 - Combined Notice of FilingsPDF
82 FR 5596 - Information Collection Request Sent to the Office of Management and Budget (OMB) for Approval; Import of Sport-Hunted African Elephant TrophiesPDF
82 FR 5536 - Fisheries of the Gulf of Mexico and the South Atlantic; Southeast Data, Assessment, and Review (SEDAR); Pre-Workshop Webinar for Southeastern U.S. Black Grouper; Public MeetingPDF
82 FR 5627 - Notice of Determinations; Culturally Significant Objects Imported for Exhibition Determinations: “The Medici's Painter: Carlo Dolci and 17th-Century Florence” ExhibitionPDF
82 FR 5536 - Endangered Species; File Nos. 19641, 17861, 20314, 20340, 20347, 20351, 20528, 20548, and 20651PDF
82 FR 5627 - Meeting of the Interagency Task Force on Veterans Small Business DevelopmentPDF
82 FR 5608 - Notice of Proposed Information Collection Requests: Museums for All Program EvaluationPDF
82 FR 5609 - Submission for OMB Review, Comment Request, Proposed Collection: “Museums Empowered: Professional Development and Capacity Building Opportunities for Museums”-A Museums for America Special InitiativePDF
82 FR 5538 - Marine Mammals; File No. 20294PDF
82 FR 5647 - Notice of Open Public HearingPDF
82 FR 5547 - Agency Information Collection Activities; Submission to the Office of Management and Budget for Review and Approval; Comment Request; Integrated Postsecondary Education Data System (IPEDS) 2017-18 Through 2019-20PDF
82 FR 5545 - Agency Information Collection Activities; Submission to the Office of Management and Budget for Review and Approval; Comment Request; Principal Follow-Up Survey (PFS 2016-17) to the National Teacher and Principal Survey (NTPS 2015-16)PDF
82 FR 5543 - Notice of Intent To Prepare an Environmental Impact Statement in Connection With Dakota Access, LLC's Request for an Easement To Cross Lake Oahe, North DakotaPDF
82 FR 5558 - Combined Notice of Filings #1PDF
82 FR 5557 - Wheatridge Wind Energy, LLC; Notice of FilingPDF
82 FR 5559 - Records Governing Off-the-Record Communications; Public NoticePDF
82 FR 5555 - Sabine River Authority of Texas, Sabine River Authority, State of Louisiana; Notice of Application Accepted for Filing, Soliciting Comments, Motions To Intervene, and ProtestsPDF
82 FR 5561 - Stakeholder Midstream Crude Oil Pipeline, LLC; Notice of Petition for Declaratory OrderPDF
82 FR 5560 - Appleton Coated LLC; Supplemental Notice That Initial Market-Based Rate Filing Includes Request for Blanket Section 204 AuthorizationPDF
82 FR 5562 - Notice of Revocation of Market-Based Rate TariffPDF
82 FR 5556 - Notice of ComplaintPDF
82 FR 5560 - Notice of Amended ComplaintPDF
82 FR 5562 - National Fuel Gas Supply Corporation; Notice of Schedule for Environmental Review of the Proposed Line QP, Line Q, and Queen Storage ProjectPDF
82 FR 5552 - Combined Notice of Filings #2PDF
82 FR 5557 - Combined Notice of Filings #1PDF
82 FR 5551 - Combined Notice of FilingsPDF
82 FR 5646 - Sanctions Actions Pursuant to Executive Orders (E.O.s) 13722 and 13687.PDF
82 FR 5636 - Notice of Availability of Programmatic Assessment of Greenhouse Gas Emissions From Transit ProjectsPDF
82 FR 5415 - Medicaid Program; The Use of New or Increased Pass-Through Payments in Medicaid Managed Care Delivery SystemsPDF
82 FR 5499 - Hazardous Materials: Volatility of Unrefined Petroleum Products and Class 3 MaterialsPDF
82 FR 5458 - Housing Opportunity Through Modernization Act of 2016: Implementation of Various Section 8 Voucher ProvisionsPDF
82 FR 5517 - Pacific Island Fisheries; 2016 Annual Catch Limits and Accountability MeasuresPDF
82 FR 5588 - Office of the Director; Notice of Charter RenewalPDF
82 FR 5587 - National Institute of Mental Health; Notice of Closed MeetingsPDF
82 FR 5587 - National Institute of Mental Health; Notice of Closed MeetingPDF
82 FR 5587 - National Institute of Diabetes and Digestive and Kidney Diseases Notice of Closed MeetingsPDF
82 FR 5586 - National Institute of Diabetes and Digestive and Kidney Diseases Notice of Closed MeetingsPDF
82 FR 5586 - National Institute of Diabetes and Digestive and Kidney Diseases; Notice of Closed MeetingsPDF
82 FR 5586 - National Institute of Dental & Craniofacial Research; Notice of Closed MeetingsPDF
82 FR 5454 - Airworthiness Directives; Rolls-Royce plc Turbofan EnginesPDF
82 FR 5477 - Definitions of Qualified Matching Contributions and Qualified Nonelective ContributionsPDF
82 FR 5480 - Special Local Regulation; Pago Pago Harbor, American SamoaPDF
82 FR 5512 - Fisheries of the Caribbean, Gulf of Mexico, and South Atlantic; Snapper-Grouper Fishery of the South Atlantic Region; Amendment 36PDF
82 FR 5535 - Coral Reef Conservation ProgramPDF
82 FR 5597 - Notice of Intent To Prepare a Comprehensive Conservation Plan for the National Bison Range, Moiese, MontanaPDF
82 FR 5340 - Medical Qualification DeterminationsPDF
82 FR 5335 - Recruitment and Selection Through Competitive ExaminationPDF
82 FR 5485 - Confidentiality of Substance Use Disorder Patient RecordsPDF
82 FR 6052 - Confidentiality of Substance Use Disorder Patient RecordsPDF
82 FR 5533 - Fisheries of the Exclusive Economic Zone Off Alaska; Groundfish of the Gulf of Alaska; Central Gulf of Alaska Rockfish ProgramPDF
82 FR 5970 - National Performance Management Measures; Assessing Performance of the National Highway System, Freight Movement on the Interstate System, and Congestion Mitigation and Air Quality Improvement ProgramPDF
82 FR 5628 - National Public Transportation Safety PlanPDF
82 FR 5456 - Airworthiness Directives; GROB Aircraft AG GlidersPDF
82 FR 5388 - Guidance for Determining Stock Ownership; Rules Regarding Inversions and Related TransactionsPDF
82 FR 5476 - Rules Regarding Inversions and Related Transactions; Notice of Proposed Rulemaking by Cross-Reference to Temporary RegulationsPDF
82 FR 5476 - Rules Regarding Inversions and Related Transactions; Partial Withdrawal of Notice of Proposed RulemakingPDF
82 FR 5508 - International Fisheries; Pacific Tuna Fisheries; 2017 and 2018 Commercial Fishing Restrictions for Pacific Bluefin Tuna in the Eastern Pacific OceanPDF
82 FR 5429 - Pacific Island Fisheries; 2016-17 Annual Catch Limit and Accountability Measures; Main Hawaiian Islands Deep 7 BottomfishPDF
82 FR 5373 - Department of Labor Federal Civil Penalties Inflation Adjustment Act Annual Adjustments for 2017PDF
82 FR 5746 - Organic Research, Promotion, and Information OrderPDF
82 FR 5438 - Organic Research, Promotion, and Information Order; Referendum ProceduresPDF
82 FR 5577 - Request for Medicare Payment Advisory Commission NominationsPDF
82 FR 5431 - National Organic Program (NOP); Sunset 2017 Amendments to the National ListPDF
82 FR 5886 - National Performance Management Measures; Assessing Pavement Condition for the National Highway Performance Program and Bridge Condition for the National Highway Performance ProgramPDF
82 FR 5359 - Airworthiness Directives; Diamond Aircraft Industries GmbH AirplanesPDF
82 FR 5490 - Federal Acquisition Regulation: Sustainable AcquisitionPDF
82 FR 5387 - Certain Transfers of Property to Regulated Investment Companies [RICs] and Real Estate Investment Trusts [REITs]PDF
82 FR 5844 - Revisions to Rules Regarding the Evaluation of Medical EvidencePDF
82 FR 5367 - Adjustments to Civil Monetary Penalty AmountsPDF
82 FR 5365 - Airworthiness Directives; Fokker Services B.V. AirplanesPDF
82 FR 5362 - Airworthiness Directives; Airbus AirplanesPDF
82 FR 5356 - Airworthiness Directives; Airbus Defense and Space S.A. (Formerly Known as Construcciones Aeronauticas, S.A.) AirplanesPDF
82 FR 5790 - Information and Communication Technology (ICT) Standards and GuidelinesPDF
82 FR 5401 - National Emission Standards for Hazardous Air Pollutants: Ferroalloys ProductionPDF
82 FR 5445 - Regulatory Issue Summary Regarding Certificate of Compliance Corrections and RevisionsPDF
82 FR 5354 - Community Reinvestment Act RegulationsPDF
82 FR 5409 - Acequinocyl; Pesticide TolerancesPDF
82 FR 5650 - Energy Conservation Program: Energy Conservation Standards for Dedicated-Purpose Pool PumpsPDF
82 FR 5446 - Energy Conservation Program: Energy Conservation Standards for Dedicated-Purpose Pool PumpsPDF

Issue

82 11 Wednesday, January 18, 2017 Contents Agricultural Marketing Agricultural Marketing Service PROPOSED RULES National Organic Program: Sunset 2017 Amendments to National List, 5431-5438 2017-00586 Organic Research, Promotion, and Information Orders, 5438-5445, 5746-5788 2017-00599 2017-00601 Agriculture Agriculture Department See

Agricultural Marketing Service

See

Animal and Plant Health Inspection Service

See

Rural Housing Service

Animal Animal and Plant Health Inspection Service NOTICES Agency Information Collection Activities; Proposals, Submissions, and Approvals: Cooperative Agricultural Pest Survey, 5530 2017-01020 Federally Recognized State Managed Phytosanitary Program, 5530-5531 2017-01023 Importation of Avocados From Continental Spain, 5528-5529 2017-01028 Importation of Emerald Ash Borer Host Material From Canada, 5526-5527 2017-01016 Importation of Fresh Apricots From Continental Spain, 5529-5530 2017-01014 Importation of Fresh Beans, Shelled or in Pods, From Jordan Into the Continental United States, 5527-5528 2017-01026 Interstate Movement of Fruit From Hawaii, 5524-5525 2017-01009 Biotechnology Regulatory Services BQMS Program; Updates, 5523-5524 2017-01017 Determinations of Nonregulated Status: Scotts Co. and Monsanto Co., Creeping Bentgrass Genetically Engineered for Resistance to Glyphosate, 5525-5526 2017-01077 Environmental Assessments; Availability, etc.: Field Testing Vaccine for Use Against Infectious Bursal Disease, Marek's Disease, and Newcastle Disease, 5522-5523 2017-01010 Finding of No Significant Impact for Biological Control Agent for Giant Reed, 5522 2017-01018 Architectural Architectural and Transportation Barriers Compliance Board RULES Information and Communication Technology Standards and Guidelines, 5790-5841 2017-00395 Army Army Department NOTICES Environmental Impact Statements; Availability, etc.: Dakota Access, LLC's Request for Easement to Cross Lake Oahe, ND, 5543-5544 2017-00937 Consumer Financial Protection Bureau of Consumer Financial Protection NOTICES Compliance Bulletins: Detecting and Preventing Consumer Harm From Production Incentives, 5541-5543 2017-01021 Census Bureau Census Bureau NOTICES Requests for Nominations: 2020 Advisory Committee, 5532-5533 2017-01025 Centers Disease Centers for Disease Control and Prevention NOTICES Environmental Assessments; Availability, etc.: Mosquito Control Activities Funded by HHS/CDC To Combat Zika Virus Transmission in United States, 5577-5578 2017-01027 Centers Medicare Centers for Medicare & Medicaid Services RULES Medicaid Program: Use of New or Increased Pass-Through Payments in Medicaid Managed Care Delivery Systems, 5415-5429 2017-00916 NOTICES Agency Information Collection Activities; Proposals, Submissions, and Approvals, 5578 2017-00982 Coast Guard Coast Guard PROPOSED RULES Safety Zones: San Francisco, CA, 5482-5485 2017-01050 Special Local Regulations: Pago Pago Harbor, American Samoa, 5480-5482 2017-00861 Commerce Commerce Department See

Census Bureau

See

Economic Development Administration

See

National Institute of Standards and Technology

See

National Oceanic and Atmospheric Administration

Comptroller Comptroller of the Currency RULES Community Reinvestment Act Regulations, 5354-5356 2016-31928 Defense Department Defense Department See

Army Department

PROPOSED RULES Federal Acquisition Regulations: Sustainable Acquisition, 5490-5499 2017-00480 NOTICES Meetings: Defense Science Board, 5544-5545 2017-00981
Economic Development Economic Development Administration NOTICES Meetings: National Advisory Council on Innovation and Entrepreneurship, 5533 2017-01067 Education Department Education Department NOTICES Agency Information Collection Activities; Proposals, Submissions, and Approvals: Evaluation of Comprehensive Technical Assistance Centers, 5547 2017-00966 General Education Provisions Act Section 427 Guidance for All Grant Applications, 5546-5547 2017-01029 Integrated Postsecondary Education Data System 2017-18 Through 2019-20, 5547-5548 2017-00944 Principal Follow-Up Survey to National Teacher and Principal Survey, 5545-5546 2017-00943 Employee Benefits Employee Benefits Security Administration RULES Department of Labor Federal Civil Penalties Inflation Adjustment Act Annual Adjustments for 2017, 5373-5387 2017-00614 Employment and Training Employment and Training Administration RULES Department of Labor Federal Civil Penalties Inflation Adjustment Act Annual Adjustments for 2017, 5373-5387 2017-00614 Energy Department Energy Department See

Energy Efficiency and Renewable Energy Office

See

Federal Energy Regulatory Commission

RULES Energy Conservation Programs: Standards for Dedicated-Purpose Pool Pumps, 5650-5743 2016-31666 PROPOSED RULES Energy Conservation Programs: Standards for Dedicated-Purpose Pool Pumps, 5446-5454 2016-31665 NOTICES Export Electric Energy; Applications: BP Energy Co., 2017-01031 5548-5549 2017-01032
Energy Efficiency Energy Efficiency and Renewable Energy Office NOTICES Requests for Information: Challenges and Opportunities for Sustainable Development of Hydropower in Undeveloped Stream Reaches of the United States, 5549-5550 2017-01037 Environmental Protection Environmental Protection Agency RULES National Emission Standards for Hazardous Air Pollutants: Ferroalloys Production, 5401-5409 2017-00156 Pesticide Tolerances: Acequinocyl, 5409-5415 2016-31823 Farm Credit Farm Credit Administration NOTICES Market Access Agreements, 5565-5576 2017-01054 Federal Aviation Federal Aviation Administration RULES Airworthiness Directives: Airbus Airplanes, 5362-5365 2017-00408 Airbus Defense and Space S.A. (Formerly Known as Construcciones Aeronauticas, S.A.) Airplanes, 5356-5359 2017-00407 Diamond Aircraft Industries GmbH Airplanes, 5359-5362 2017-00502 Fokker Services B.V. Airplanes, 5365-5367 2017-00410 PROPOSED RULES Airworthiness Directives: GROB Aircraft AG Gliders, 5456-5458 2017-00658 Rolls-Royce plc Turbofan Engines, 5454-5456 2017-00890 Federal Deposit Federal Deposit Insurance Corporation RULES Community Reinvestment Act Regulations, 5354-5356 2016-31928 Federal Energy Federal Energy Regulatory Commission NOTICES Applications: Sabine River Authority of Texas; Sabine River Authority, State of Louisiana, 5555-5556 2017-00933 Certificates of Public Convenience and Necessity: Eastern Shore Natural Gas Co., 5564-5565 2017-00986 Combined Filings, 5551-5553, 5557-5559, 5561 2017-00924 2017-00925 2017-00926 2017-00936 2017-00961 2017-00987 Complaints: American Municipal Power, Inc. v. PJM Interconnection, LLC, 5556 2017-00929 Calpine Corp., Dynegy Inc.; Eastern Generation, LLC; Homer City Generation, LP; et al. v. PJM Interconnection, LLC, 5560-5561 2017-00928 Declaratory Orders; Petitions: Stakeholder Midstream Crude Oil Pipeline, LLC, 5561-5562 2017-00932 Environmental Assessments; Availability, etc.: Columbia Gas Transmission, LLC, 5556-5557 2017-00985 National Fuel Gas Supply Corp., 5562-5563 2017-00927 Filings: Western Area Power Administration, 5559-5560 2017-00988 Wheatridge Wind Energy, LLC, 5557 2017-00935 Initial Market-Based Rate Filings Including Requests for Blanket Section 204 Authorizations: Appleton Coated, LLC, 5560 2017-00931 Stream Energy Connecticut, LLC, 5551-5552 2017-00994 Stream Energy Delaware, LLC, 5550-5551 2017-00993 Stream Energy Illinois, LLC, 5560 2017-00991 Stream Energy Indiana, LLC, 5550 2017-00992 Stream Energy Massachusetts, LLC, 5563 2017-00995 Stream Ohio Gas and Electric, LLC, 5556 2017-00990 Meetings: Dominion Cove Point LNG, LP; Technical Conference, 5562 2017-00997 Meetings; Sunshine Act, 5553-5555 2017-01138 Records Governing Off-the-Record Communications, 5559 2017-00934 Revocations of Market-Based Rate Tariffs: Bargain Energy, LLC; CES Placerita, Inc.; DES Wholesale, LLC; et al., 5562 2017-00930 Staff Attendances, 5563-5564 2017-00996 Federal Highway Federal Highway Administration RULES National Performance Management Measures: Assessing Pavement Condition for National Highway Performance Program and Bridge Condition for National Highway Performance Program, 5886-5970 2017-00550 Assessing Performance of National Highway System, Freight Movement on Interstate System, and Congestion Mitigation and Air Quality Improvement Program, 5970-6050 2017-00681 Federal Reserve Federal Reserve System RULES Community Reinvestment Act Regulations, 5354-5356 2016-31928 NOTICES Changes in Bank Control: Acquisitions of Shares of a Bank or Bank Holding Company, 5577 2017-01046 Formations of, Acquisitions by, and Mergers of Bank Holding Companies, 5576-5577 2017-01045 Federal Transit Federal Transit Administration NOTICES National Public Transportation Safety Plan, 5628-5636 2017-00678 Programmatic Assessment of Greenhouse Gas Emissions from Transit Projects, 5636-5638 2017-00918 Fish Fish and Wildlife Service NOTICES Agency Information Collection Activities; Proposals, Submissions, and Approvals: Import of Sport-Hunted African Elephant Trophies, 5596-5597 2017-00960 Charter Renewals: Trinity River Adaptive Management Working Group, 5595-5596 2017-00983 Environmental Assessments; Availability, etc.: National Bison Range, Moiese, MT, Comprehensive Conservation Plan, 5597-5598 2017-00808 Food and Drug Food and Drug Administration NOTICES Determinations That Products Were Not Withdrawn From Sale for Reasons of Safety or Effectiveness: SYMMETREL (Amantadine Hydrochloride), Syrup, 50 milligrams/5 Milliliters, 5580-5581 2017-01064 Guidance: Assessment of Abuse Potential of Drugs, 5581-5583 2017-01024 Considerations in Demonstrating Interchangeability With Reference Product, 5579-5580 2017-01042 Prohibition of Distributing Free Samples of Tobacco Products, 5583-5584 2017-00969 Foreign Assets Foreign Assets Control Office NOTICES Blocking or Unblocking of Persons and Properties, 2017-00920 5646-5647 2017-01040 General Services General Services Administration PROPOSED RULES Federal Acquisition Regulations: Sustainable Acquisition, 5490-5499 2017-00480 Government Accountability Government Accountability Office NOTICES Request for Nominations: Medicare Payment Advisory Commission, 5577 2017-00593 Health and Human Health and Human Services Department See

Centers for Disease Control and Prevention

See

Centers for Medicare & Medicaid Services

See

Food and Drug Administration

See

Health Resources and Services Administration

See

Indian Health Service

See

National Institutes of Health

See

Substance Abuse and Mental Health Services Administration

RULES Confidentiality of Substance Use Disorder Patient Records, 6052-6127 2017-00719 PROPOSED RULES Confidentiality of Substance Use Disorder Patient Records, 5485-5490 2017-00742
Health Resources Health Resources and Services Administration NOTICES Agency Information Collection Activities; Proposals, Submissions, and Approvals: NURSE Corps Loan Repayment Program, 5584-5585 2017-00998 Homeland Homeland Security Department See

Coast Guard

See

U.S. Citizenship and Immigration Services

Housing Housing and Urban Development Department PROPOSED RULES Housing Opportunity Through Modernization Act: Implementation of Various Section 8 Voucher Provisions, 5458-5473 2017-00911 NOTICES Community Development Block Grant Disaster Recovery Grantees: Allocations, Common Application, Waivers, and Alternative Requirements, 5591-5595 2017-01007 Indian Affairs Indian Affairs Bureau PROPOSED RULES Membership of Bureau of Indian Education Accountability Negotiated Rulemaking Committee, 5473-5476 2017-01061 Indian Health Indian Health Service NOTICES Reimbursement Rates for Calendar Year 2017, 5585 2017-01075 Institute of Museum and Library Services Institute of Museum and Library Services NOTICES Agency Information Collection Activities; Proposals, Submissions, and Approvals: Museums Empowered: Professional Development and Capacity Building Opportunities for Museums—Museums for America Special Initiative, 5609-5610 2017-00953 Museums for All Program Evaluation, 5608-5609 2017-00954 Interior Interior Department See

Fish and Wildlife Service

See

Indian Affairs Bureau

See

Land Management Bureau

See

National Park Service

See

Ocean Energy Management Bureau

See

Reclamation Bureau

Internal Revenue Internal Revenue Service RULES Certain Transfers of Property to Regulated Investment Companies and Real Estate Investment Trusts, 5387-5388 2017-00479 Inversions and Related Transactions: Guidance for Determining Stock Ownership, 5388-5401 2017-00643 PROPOSED RULES Definitions of Qualified Matching Contributions and Qualified Nonelective Contributions, 5477-5480 2017-00876 Inversions and Related Transactions; Cross-Reference to Temporary Regulations, 5476-5477 2017-00637 Inversions and Related Transactions; Partial Withdrawal, 5476 2017-00636 Labor Department Labor Department See

Employee Benefits Security Administration

See

Employment and Training Administration

See

Mine Safety and Health Administration

See

Occupational Safety and Health Administration

See

Wage and Hour Division

See

Workers Compensation Programs Office

NOTICES Agency Information Collection Activities; Proposals, Submissions, and Approvals: Claim for Reimbursement of Benefit Payments and Claims Expense under War Hazards Compensation Act, 5607-5608 2017-00975
Land Land Management Bureau NOTICES Environmental Impact Statements; Availability, etc.: Vantage to Pomona Heights 230 kV Transmission Line Project in Grant, Kittitas, and Yakima Counties, WA; Record of Decision, 5599-5600 2017-01000 Plats of Surveys: Arizona, 5599 2017-01008 Mine Mine Safety and Health Administration RULES Department of Labor Federal Civil Penalties Inflation Adjustment Act Annual Adjustments for 2017, 5373-5387 2017-00614 NASA National Aeronautics and Space Administration PROPOSED RULES Federal Acquisition Regulations: Sustainable Acquisition, 5490-5499 2017-00480 National Foundation National Foundation on the Arts and the Humanities See

Institute of Museum and Library Services

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82 11 Wednesday, January 18, 2017 Rules and Regulations OFFICE OF PERSONNEL MANAGEMENT 5 CFR Parts 330, 332, and 337 RIN 3206-AN46 Recruitment and Selection Through Competitive Examination AGENCY:

U.S. Office of Personnel Management.

ACTION:

Interim rule with request for comments.

SUMMARY:

The U.S. Office of Personnel Management (OPM) is issuing an interim rule to implement the Competitive Service Act of 2015 to allow an appointing authority (i.e., the head of a Federal agency or department) to share a competitive certificate with one or more appointing authorities for the purpose of making selections of qualified candidates. The intended effect of this rule is to facilitate the hiring of top talent across Federal agencies.

DATES:

Interim rule effective February 17, 2017; comments must be received on or before March 20, 2017.

ADDRESSES:

You may submit comments through the Federal eRulemaking Portal at http://www.regulations.gov. All submissions received through the Portal must include the agency name and docket number or Regulation Identifier Number (RIN) for this proposed rulemaking.

You may also send, deliver, or fax comments to Kimberly A. Holden, Deputy Associate Director for Recruitment and Hiring, Employee Services, U.S. Office of Personnel Management, Room 6500 AI, 1900 E Street NW., Washington, DC 20415-9700; email at [email protected] or by fax at (202) 606-4430.

FOR FURTHER INFORMATION CONTACT:

Roseanna Ciarlante by telephone on (267) 932-8640, by fax at (202) 606-4430, by TTY at (202) 418-3134, or by email at [email protected]

SUPPLEMENTARY INFORMATION:

On March 18, 2016, the Competitive Service Act of 2015 (the “Act”) was enacted as Public Law 114-137. The Act allows an “appointing authority” to share a competitive certificate issued under delegated examining procedures with one or more “appointing authorities” to make an appointment to a position that is in the same occupational series, grade level (or equivalent), and duty location during the 240-day period beginning on the date of issuance of the certificate of eligibles.

Under current rules, an appointing authority may share a certificate within the bureaus and components of his or her department or agency. The current practice allows an appointing authority to expedite hiring when multiple vacancies for the same position exist throughout his or her organization. For example, suppose that the Department of Treasury headquarters human resources (HQ HR) office recruits for a Financial Management Specialist, GS-501-12, and hires two highly qualified individuals from the certificate of eligibles. Treasury's HQ HR office may currently share the certificate with its components, like the Bureau of the Fiscal Service and the Internal Revenue Service, that have identified Financial Management Specialist vacancies that need to be filled. This current practice allows these different components with the Department to leverage the recruitment efforts already undertaken by the Department.

While the Act does not define “appointing authority” for the purpose of shared certificates, its clear purpose is to expand current practice to allow an appointing authority to share his or her certificates with an appointing authority in other departments or agencies, not just within the same agency (e.g., the Department of Treasury will now be able to share certificates with the Department of Energy). Consistent with this purpose, in this interim rule, OPM refers to the “original hiring agency” and the “receiving agency” with respect to shared certificates, rather than using the more generic term “appointing authority.”

Congress's purpose in enacting the Act was to help facilitate faster hiring through the sharing of talent across the Government by permitting agencies to share resumes and select from among candidates who have competed for similar positions at another hiring agency, were assessed, and were referred by that agency. The new process will benefit agencies who may make selections from among the top rated applicants readily available, as well as applicants who through one job application may now be considered for more public service opportunities in their desired Federal occupation.

The law specifies that an appointing official can select an applicant for appointment from the certificate of another agency provided that certain conditions are met.

• The hiring agency seeking to share the certificate may share the certificate with one or more hiring agencies only if the announcement of the original position stated that the resulting certificate may be used by one or more Federal agencies, and applicants “opt-in,” electing to have their applications shared with agencies other than the agency posting the job announcement.

• An agency seeking to use another agency's certificate must provide advance notice of the available position to its own employees, give them up to 10 days to apply, and review their qualifications before it can make a selection from the certificate from the original hiring agency.

It is plain from the Act that only the original hiring agency may “share” a certificate with any other agency. But Congress did not define precisely what it means to “share” the certificate. One possible approach is that when the original hiring agency “shares” the certificate with other agencies they must simultaneously work the certificate in a coordinated fashion, accounting for declinations, failures to respond, selections, and so on as if they were integrated arms of the same employer. (This is how the process might work when a department shares a certificate among a number of its different components.) Another possible approach is that each of the other agencies may work the certificate independently, as if the certificates had been referred from the top of a register or inventory. Neither of these approaches is compelled by the text of the statute and as such OPM has determined that the most reasonable approach, and the one that best effectuates Congress's apparent purpose, is the latter of the two. A shared certificate of eligibles may be used by a receiving agency independently of other receiving agencies. Each receiving agency is responsible for establishing a unique instance of a case file to document that agency's use of the certificate. This will be helpful in the event a receiving agency must later reconstruct its hiring actions. Allowing multiple agencies to use certificates independently of one another also supports the timeliest and practical implementation of these provisions and minimizes the risk of error associated with multiple agencies simultaneously working the same certificate.

However, because of the added complexity of any “sharing” of certificates, the ability to track the distribution of certificates to receiving agencies must be a feature of these provisions. Thus, whenever the original agency shares a certificate, it must maintain a record of any agencies with whom the certificate was shared. This is important in the event any errors occur which require reconstruction of all hiring actions which flow from a certificate generated by the original agency. In this scenario, if an error occurs at the original agency, the original agency is responsible solely for notifying each succeeding receiving agency that received a shared certificate of the error. Any corrective actions or reconstructions subsequent to the original agency's would be the responsibility of each receiving agency that made a selection.

How It Will Work

The original hiring agency (i.e., the agency sharing the certificate) must issue a certificate in accordance with competitive examining procedures for a position it is seeking to fill. This includes public notice, rating and ranking, the application of veterans' preference, etc. The 240-day window (during which other Federal agencies may use the certificate of eligibles to select an individual) begins on the date the certificate is issued by the original hiring agency. OPM notes that the Competitive Service Act includes this 240-day window in 5 U.S.C. 3318, related to rule-of-three hiring, but does not expressly repeat this requirement in 5 U.S.C. 3319, related to hiring through category rating. However, the legislative history expresses congressional intent to apply the 240-day limitation to both hiring methods. See H.R. Rep. No. 114-367 (Dec. 3, 2015); S. Rep. No. 114-143 (Sept. 15, 2015). Moreover, there is no logical reason to have different expiration periods for shared certificates depending on whether the original hiring agency chooses to hire by the rule-of-three method or the category rating method, and having two different expiration periods for shared certificates could lead to confusion. For this reason we are applying the same 240-day expiration period to shared certificates under both hiring methods.

The original hiring agency can (1) make a selection and then share the certificate with one or more receiving agencies or (2) share the certificate with one or more receiving agencies after reviewing, and deciding not to hire from, its certificate of eligible applicants. OPM notes in this regard that when an agency announces a position, examines and rates applicants, and issues a certificate of eligibles, it must do so for its own hiring needs in the first instance. An agency may not generate a certificate solely for the purpose of sharing it with another agency. That would be misleading to applicants and contrary to competitive principles.

If the original hiring agency makes a selection and shares the certificate, any pass-overs of preference eligibles or objections to other eligible candidates must be resolved by that agency before the certificate may be shared with another agency. The 240-day window cannot be extended while the pass-over of a preference eligible or objection request is being resolved; the law does not permit extensions of shared certificates.

Once the above processes have been completed, the original hiring agency may share the certificate of eligibles with one or more Federal agencies. In order to share a certificate, the Delegated Examining Unit (DEU) of the original agency may transmit the certificate to a DEU of a receiving agency. The DEU of the original agency must audit the original agency's own use of the certificate in accordance with the procedures of the Delegated Examining Operations Handbook (DEOH) before the certificate is shared.

When sharing a certificate of eligibles, the original agency must include all documentation pertaining to the creation of that certificate (e.g., the job analysis, a copy of job opportunity announcement, the rating schedule, job applications, etc.) and must safeguard (i.e., redact) any personally identifiable information not required by the receiving agency to use the certificate for its intended purpose. The original agency shares the certificate of eligibles in its original form, with the names of those applicants who have been selected and those who have chosen not to “opt-in” redacted, in order to retain the original ordering of the certificate subject to these appropriate deletions.

The original agency may share a certificate in one or both of two ways: (1) Simultaneous sharing with multiple agencies; and (2) serial sharing, i.e., sharing with one agency at a time.

Simultaneous Sharing. The original agency may share the certificate with one or more agencies at the same time. Each receiving agency works the certificate independently. All selections from shared certificates must be made within 240 days of the date of the issuance of the certificate by the original agency. Each receiving agency creates its own case file for audit and reconstruction purposes, documenting its compliance with the DEOH and all applicable regulations.

Serial Sharing. Another option is for the original agency to share a certificate with just one agency at a time. Under this option, the original agency shares the certificate with the first receiving agency. The first receiving agency works the certificate and makes selections within 240 days of the date of issuance of the certificate by the original agency. After sharing the certificate with the first receiving agency, the original agency may share the certificate with a second receiving agency. The second receiving agency works the certificate and makes selections within 240 days of the date of issuance of the certificate by the original agency. Each receiving agency must create its own case file for audit and reconstruction purposes, documenting its compliance with the DEOH and all applicable regulations. This process may continue to additional receiving agencies as long as this procedure is followed and all selections are made within 240 days of the date of issuance of the certificate by the original agency.

As noted above, the processes are not exclusive, i.e., an agency may start with simultaneous sharing and subsequently permit additional sharing through a serial sharing scenario.

In the event that the original agency determines that an error was made on the original certificate, the original agency must notify all receiving agencies of the details of the error; receiving agencies are responsible for taking appropriate action to address any erroneous actions that may have occurred due to the error by the original agency.

The Internal Application Process

Before using a shared certificate, a receiving agency must consider its own employees for the position under the agency's merit promotion procedures. This includes considering individuals covered under the agency's Career Transition Assistance Program (CTAP) and the agency's reemployment priority list (RPL), where applicable, as well as other individuals for which consideration is required as part of the internal selection process. See 5 CFR part 330, subparts B and F.

The Competitive Service Act provides for notice to a receiving agency's own employees, an internal application period of no more than 10 days, and consideration of the internal applicants before a selection can be made from this shared certificate. The law does not permit an extension of this internal application period beyond 10 days.

The law also specifies that the internal application process is subject to applicable collective bargaining obligations (to the extent consistent with law). However, the Competitive Service Act does not affect the provision of the Federal Service Labor-Management Relations Statute under which management has the right to fill a position either from among properly ranked and certified candidates for promotion or from any other appropriate source, such as a competitive certificate. See 5 U.S.C. 7106(a)(2)(C); 5 CFR 330.102, 335.103(b)(4).

If a receiving agency makes a selection from among its own employees (i.e., under merit promotion procedures) the process ends with respect to that agency. But if the agency wishes to make a selection from the shared certificate (after first considering its own employees), it must first provide selection priority, where applicable, to individuals eligible under the Interagency Career Transition Assistance Program (ICTAP) who applied to the original job announcement. See 5 CFR part 330, subpart G. The agency is not required to re-advertise the position for ICTAP eligibles because the original agency has already afforded an opportunity for ICTAP eligibles to apply and be considered. This allows the agency to use a ready-made certificate of eligibles while still adhering to the provisions of part 330, subpart G.

If there are no ICTAP eligibles, a receiving agency can make a selection from the shared certificate in accordance with veterans' preference rules and the provisions governing selections under competitive examining procedures. A receiving agency may not reassess the applicants for purposes of rating/ranking. A receiving agency may seek to pass over a preference eligible, and would follow the usual rules for doing so when filling positions under competitive examining procedures.

Authorized Appointment Types

OPM is proposing to limit use of shared certificates to delegated examining for permanent and term appointments. We are excluding temporary appointments, i.e., those not to exceed one year, from these provisions because of the requirement that a receiving agency must first consider individuals from within its own workforce prior to making a selection from a shared certificate. We believe it would be inefficient to undergo this process for appointments of a very short duration.

Positions may be full-time or other than full-time (i.e., part-time, seasonal, on-call, and intermittent). As noted above, the original hiring agency must complete all of its actions on the certificate before it may be shared. As also was previously observed, the original hiring agency does not have to make a selection in order for the certificate to be shared. The original agency may share the certificate with one or more agencies.

Requirement for Appointment at a “Similar Grade Level”

A receiving hiring agency may select an individual from a shared certificate only for a position of the same occupational series, grade level, and duty location as the position advertised by the original hiring agency. The Act states that the shared certificate may also be used to select for a “similar grade level” to that for which the original hiring agency issued its certificate. OPM interprets the term “similar grade level” in this context to mean a corresponding rate or level of pay under an alternative pay system for a position excluded from the General Schedule. We do not interpret the term “similar grade level” to mean a higher or lower General Schedule grade than that for which the original hiring agency issued its certificate. It would not be efficient for an agency to use a certificate for higher-graded positions to select for lower-graded positions, and it would violate competitive principles to use a certificate for lower-graded positions to select for higher-graded positions (as different applicants would have competed if they had been aware that the vacancy could be filled at a higher level than advertised). For the same reasons OPM is not permitting the use of shared certificates to fill vacancies for positions with higher full performance levels.

Qualification Requirements

A receiving agency must verify through its job analysis that the minimum qualification requirements (including use of any selective placement factors) and competencies—or knowledge, skills, and abilities (KSAs)—assessed for the original position are appropriate for the position to be filled. This verification is necessary to establish the job-relatedness and relevance of the assessment method used, consistent with 5 CFR part 300, subpart A.

Time Limit for Applicant Selection

A receiving agency may make its selection from a shared certificate within the 240-day period beginning on the date the original hiring agency issued the certificate of eligibles (not on the date on which the original hiring agency provided the certificate to the receiving agency).

Public Notice by the Original Hiring Agency

The original hiring agency must provide public notice via a job opportunity announcement posted on www.USAJOBS.gov for the position being filled, in accordance with public notice requirements for filling jobs under the competitive examining process. The original announcement must indicate that the resulting list of eligible candidates may be shared with one or more other hiring agencies. Therefore, we are amending 5 CFR part 330 to require that if an agency is sharing a certificate of eligibles under part 332, the original hiring agency must provide notice in the job opportunity announcement that the resulting list of eligible candidates may be used by one or more other hiring agencies. The original hiring agency must provide an opportunity for applicants to “opt-in” to have their applications and other personal information shared with one or more other hiring agencies under these provisions. This allows the applicant to furnish advance written consent for disclosure of the information under the Privacy Act. See 5 U.S.C. 552a(b).

The original hiring agency may not share a certificate containing the name and personal information of an applicant unless that applicant has chosen to “opt-in” for these purposes. If an applicant chooses not to “opt-in,” his/her application materials will not be shared and the applicant will receive no further consideration when a certificate of eligibles is shared with one or more hiring agencies. His or her name will be redacted on the shared certificate.

The Receiving Agency's Notice to Internal Applicants

Before making a selection from a shared certificate, a receiving agency must notify its employees of the opportunity to apply and be considered before a selection can be made from the shared certificate and of a period of up to 10 days to apply consistent with the provisions of part 335. If the agency has RPL eligibles or CTAP eligibles, the notice must provide information about their priority.

The Receiving Agency's Notice to Shared Certificate Applicants

Before using a shared certificate, a receiving agency must notify the list of candidates of its receipt of their names and application materials and its intention of considering them for a position. A receiving agency must also inform these individuals of its obligation to consider applicants from within its own workforce who apply during the required internal application period and any other individuals the agency is required to consider (e.g., individuals eligible for consideration under the CTAP or from the RPL). The notification must include the agency, position title, series, grade level (or equivalent), and duty location.

The Receiving Agency's Selection Process

Before using a shared certificate, a receiving agency must consider its own employees for the position that the original hiring agency advertised. The receiving agency must consider individuals covered under the agency's RPL or CTAP where applicable. At this point, a receiving agency either makes a selection from among its own employees under merit promotion procedures, or it may consider applicants from the certificate of eligibles shared by the original hiring agency.

If, after considering its own employees, a receiving agency wishes to make a selection from the shared certificate, it must first provide selection priority to any external applicants who applied to the original job announcement who are ICTAP eligible. If there are no ICTAP eligibles who met the well-qualified definition, a receiving agency can make a selection from the shared certificate in accordance with veterans' preference rules and the provisions governing selections under competitive examining procedures. Upon completion of the process, a receiving agency must audit the certificate.

Objections/Pass Overs

Objections to a non-preference eligible applicant and requests to pass over an individual entitled to veterans' preference must be adjudicated on a case-by-case basis. Each case must be reviewed on its own merits. Therefore, adjudications by the original hiring agency (or the Office of Personnel Management in the case of a 30 percent or more disabled veteran) sustaining objections or granting requests to pass over do not extend to the receiving agency if a certificate is shared. A receiving agency may object to an applicant or request to pass over an individual entitled to veterans' preference on a shared certificate in accordance with the procedures outlined in the DEOH and the provisions of part 332.

Likewise, if using numerical rating, the consideration of an applicant by the original hiring agency does not count as a consideration of the applicant by a receiving agency for purposes of the three-consideration rule, 5 CFR 332.405. The three-consideration rule does not apply when using category rating.

Documentation

When sharing a certificate of eligibles, the original hiring agency must share all documentation pertaining to the creation of that certificate, including but not limited to the job analysis, testing and examination materials, the job opportunity announcement, and applications, as relevant. The original agency must safeguard any personally identifiable information not needed for effective use of the certificate by the receiving agency.

The original hiring agency and any receiving agency using a shared certificate must each maintain case file documentation for that agency's selection or selections sufficient for each agency that used the certificate to make a selection to reconstruct its own hiring actions later, if necessary. Each time a certificate is shared, each receiving agency is responsible for creating a new instance of a case file to document its use.

In the event that the original agency determines that an error was made on the original certificate, the original agency must notify all receiving agencies of the details of the error. The original hiring agency must make available, to any receiving agency that needs it, all relevant case file documents concerning the selection or selections made by the original agency, as necessary, to make full reconstruction possible. Each receiving agency would be responsible for taking appropriate action to address any erroneous actions that it took due to the error by the original agency.

Each agency is responsible for the proper selection, audit, recordkeeping, etc., of delegated examining activities. All actions taken on competitive certificates must be documented in accordance with the DEOH and all applicable regulations.

Request for Comments

OPM welcomes recommendations on rule changes to improve the administration of the Competitive Service Act of 2015 and on implementation guidance.

Technical Amendment

OPM is also amending § 337.304 to reflect the Act's renumbering of 5 U.S.C. 3319.

Waiver of Notice of Proposed Rulemaking

Section 2(d) of Public Law 114-137, the Competitive Service Act of 2015, directs the rulemaking procedure to be followed for this rule. It states that “the Director of the Office of Personnel Management shall issue an interim final rule with comment to carry out the amendments made by this section.” Therefore the general notice of proposed rulemaking typically required for rulemaking under 5 U.S.C. 553(b) is statutorily waived for this rule.

E.O. 13563 and E.O. 12866, Regulatory Review

This rule has been reviewed by the Office of Management and Budget in accordance with Executive Order 12866.

Regulatory Flexibility Act

I certify that this regulation would not have a significant economic impact on a substantial number of small entities because it affects only Federal employees.

E.O. 13132, Federalism

This regulation will not have substantial direct effects on the States, on the relationship between the National Government and the States, or on distribution of power and responsibilities among the various levels of government. Therefore, in accordance with Executive Order 13132, it is determined that this rule does not have sufficient federalism implications to warrant preparation of a Federalism Assessment.

E.O. 12988, Civil Justice Reform

This regulation meets the applicable standard set forth in section 3(a) and (b)(2) of Executive Order 12988.

Unfunded Mandates Reform Act of 1995

This rule will not result in the expenditure by State, local or tribal governments of more than $100 million annually. Thus, no written assessment of unfunded mandates is required.

Congressional Review Act

This action pertains to agency management, personnel and organization and does not substantially affect the rights or obligations of non-agency parties and, accordingly, is not a “rule” as that term is used by the Congressional Review Act (Subtitle E of the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA)). Therefore, the reporting requirement of 5 U.S.C. 801 does not apply.

Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35)

This final regulatory action will not impose any additional reporting or recordkeeping requirements under the Paperwork Reduction Act.

List of Subjects 5 CFR Part 330

Armed forces reserves, District of Columbia, Government employees.

5 CFR Part 332

Government employees.

5 CFR Part 337

Government employees.

U.S. Office of Personnel Management. Beth F. Cobert, Acting Director.

Accordingly, OPM is amending parts 330, 332, and 337 of title 5, Code of Federal Regulations, as follows:

PART 330—RECRUITMENT, SELECTION, AND PLACEMENT (GENERAL) 1. The authority citation for part 330 is revised to read as follows: Authority:

5 U.S.C. 1104, 1302, 3301, 3302, 3304, and 3330; E.O. 10577, 3 CFR, 1954-58 Comp., p. 218; Section 330.103 also issued under 5 U.S.C. 3327; Section 330.104 also issued under sec. 2(d), Pub. L. 114-137, 130 Stat. 310; Subpart B also issued under 5 U.S.C. 3315 and 8151; Section 330.401 also issued under 5 U.S.C. 3310; Subparts F and G also issued under Presidential Memorandum on Career Transition Assistance for Federal Employees, September 12, 1995; Subpart G also issued under 5 U.S.C. 8337(h) and 8456(b).

2. Add § 330.104(c) to read as follows:
§ 330.104 Requirements for vacancy announcements.

(c) If an agency is sharing a certificate of eligibles under part 332 of this chapter, the original hiring agency must provide notice in the job opportunity announcement that the resulting list of eligible candidates may be used by one or more hiring agencies, and of how the applicant may opt-in to the disclosure of his or her applicant records to other hiring agencies.

PART 332—RECRUITMENT AND SELECTION THROUGH COMPETITIVE EXAMINATION 3. The authority citation for part 332 is revised to read as follows: Authority:

5 U.S.C. 1103, 1104, 1302, 2108, 3301, 3302, 3304, 3312, 3317, 3318, 3319; sec. 2(d), Pub. L. 114-137, 130 Stat. 310; E.O. 10577, 19 FR 7521, 3 CFR, 1954-1958 Comp., p. 218.

4. Add § 332.408 to read as follows:
§ 332.408 Shared use of a competitive certificate.

(a) General authority. (1) A hiring agency may share a competitive service certificate issued under its delegated examining authority with one or more hiring agencies for a position(s) to be filled on a permanent or term basis. Positions filled on a term basis are subject to the provisions of 5 CFR part 316, subpart C. Positions may be full-time or other than full-time (i.e., part-time, seasonal, on-call, and intermittent).

(2) Another Federal agency may make a selection from a certificate shared with it under paragraph (b) of this section only after it has considered individuals it is required to consider when filling positions from within its own workforce and other internal applicants under paragraph (c) of this section.

(3) All actions taken on a shared certificate must be made within the 240-day period beginning on the date the original hiring agency issued the certificate of eligibles. This period cannot be extended.

(4) The original hiring agency and any receiving agency using a shared certificate must each maintain case file documentation sufficient for each agency to reconstruct its own use of the certificate in accordance with the Delegated Examining Operations Handbook, and must safeguard testing and examination materials, examination results, and the names of applicants from disclosure to other persons in accordance with § 300.201 of this chapter.

(5) All actions taken on competitive certificates must be done in accordance with the Delegated Examining Operations Handbook and all applicable regulations in this part and part 337 of this chapter.

(6) Agencies sharing certificates must keep records of the instances of sharing certificates and/or using shared certificates.

(b) Requirements for the original hiring agency. (1) A hiring agency may share a competitive certificate it has issued under § 332.402 (for traditional rating and ranking) or under 5 CFR 337.303 (for category rating) with one or more hiring agencies for use in filling a position(s) if:

(i) The original hiring agency intends to use the certificate for its own hiring;

(ii) The original hiring agency has provided notice within the job opportunity announcement for the original vacancy that the resulting list of eligible candidates may be used by one or more hiring agencies;

(iii) The original hiring agency has provided an opportunity for applicants to opt-in to have their applications and other personal information shared with one or more hiring agencies;

(iv) The original hiring agency's objections to eligibles or requests to pass over preference eligibles on the certificate under § 332.406 or § 337.304 of this chapter have been resolved by that agency's Delegated Examining Unit;

(v) The original hiring agency has either made a selection from the certificate or has made no selection from the certificate, and has documented its reason for non-selection; and

(vi) The Delegated Examining Unit of the original hiring agency has closed and audited the certificate in accordance with the procedures in the Delegated Examining Operations Handbook.

(2) When sharing a certificate of eligibles, the original hiring agency must share all documentation pertaining to the creation of that certificate, including but not limited to the job analysis, testing and examination materials, the job opportunity announcement, and applications, as relevant, and must safeguard any personally identifiable information not needed for effective use of the certificate by the receiving agency. The original hiring agency must share the certificate of eligibles in its original form in order to retain the original ordering of the certificate; must safeguard any personally identifiable information from unauthorized access during the transmission process; and must redact the names of applicants who did not opt-in to the shared certificate, and who therefore may not be considered by the receiving agency.

(3) The original hiring agency may share a certificate of eligibles with one or more agencies.

(4) If the original hiring agency determines that it has made an error that may affect selections by a receiving agency or agencies, it must notify each affected receiving agency.

(c) Requirements for the receiving agency—(1) Vacancies that may be filled. A receiving agency may use a shared certificate to fill a vacancy in the same occupational series, at the same grade level (or a corresponding rate or level of pay for a position excluded from the General Schedule), with the same full performance level, and in the same duty location as was listed on the original hiring agency's certificate. If the original hiring agency's certificate is for an interdisciplinary position as described in the Delegated Examining Operations Handbook, the receiving agency may use it to fill an interdisciplinary position. The receiving agency must verify through its job analysis that the minimum qualification requirements (including use of any selective placement factors) and the competencies, or knowledge, skills, and abilities, that were used for the original position are appropriate for the position to be filled.

(2) Notification to individuals who applied to the original vacancy. Before using a shared certificate, a receiving agency must notify the list of candidates of its receipt of their names and application materials and its intention of considering them for a position. The receiving agency must also inform these individuals of its requirement to consider its own employees as well as other individuals the agency is required to consider before consideration of anyone on the shared certificate. At a minimum, the notification must include the agency, position title, series, grade level or equivalent, and duty location.

(3) Consideration of internal candidates. Before making a selection from a shared certificate, a receiving agency must provide notice of its intent to fill the available position(s) to its own employees and other individuals the agency is required to consider, to provide these internal candidates the opportunity to apply consistent with the provisions of part 335 of this chapter, and to review the qualifications of the internal candidates.

(i) This notice and opportunity for internal candidates to apply is subject to applicable collective bargaining obligations (to the extent consistent with law). Nothing in this paragraph affects agencies' right to fill a position from any appropriate source under §§ 330.102 and 335.103 of this chapter.

(ii) Agencies are prohibited from providing an application period any longer than 10 days for internal candidates. This time limit cannot be waived or extended.

(iii) Before considering other candidates, a receiving agency must first provide for the consideration for selection required for individuals covered under its Career Transition Assistance Program and its Reemployment Priority List under part 330, subparts B and F, of this chapter.

(4) Selection from the shared certificate. After considering internal candidates, a receiving agency may consider candidates referred on the shared certificate.

(i) The receiving agency must consider candidates on a shared certificate independently of the actions of any other agency with which the certificate is simultaneously shared under paragraph (b)(3) of this section.

(ii) The receiving agency may not reassess the applicants for purposes of rating/ranking.

(iii) The receiving agency must provide selection priority to individuals eligible under the Interagency Career Transition Assistance Program under part 330, subpart G, of this chapter who applied to the original job announcement.

(5) Time limit on selection from a shared certificate. The receiving agency has 240 days from the date the certificate was issued (in the original hiring agency) to select individuals from the shared certificate.

(6) Limit on further sharing by the receiving agency. The receiving agency may not share or distribute the shared certificate to another Federal agency.

PART 337—EXAMINING SYSTEM 5. The authority citation for part 337 is revised to read as follows: Authority:

5 U.S.C. 1104(a)(2), 1302, 2302, 3301, 3302, 3304, 3319, 5364; 116 Stat. 2290, sec. 1413, Pub. L. 108-136, 117 Stat. 1392, as amended by sec. 853 of Pub. L. 110-181, 122 Stat. 3; sec. 2(d), Pub. L. 114-137, 130 Stat. 310; E.O. 10577, 19 FR 7521, 3 CFR, 1954-1958 Comp., p. 218.

6. Revise § 337.304 to read as follows:
§ 337.304 Veterans' preference.

In this subpart:

(a) Veterans' preference must be applied as prescribed in 5 U.S.C. 3319(b) and (c)(7);

(b) Veterans' preference points as prescribed in § 337.101 are not applied in category rating; and

(c) Sections 3319(b) and 3319(c)(7) of title 5 U.S.C. constitute veterans' preference requirements for purposes of 5 U.S.C. 2302(b)(11)(A) and (B).

[FR Doc. 2017-00800 Filed 1-17-17; 8:45 am] BILLING CODE 6325-39-P
OFFICE OF PERSONNEL MANAGEMENT 5 CFR Part 339 RIN 3206-AL14 Medical Qualification Determinations AGENCY:

U.S. Office of Personnel Management.

ACTION:

Final rule.

SUMMARY:

The U.S. Office of Personnel Management (OPM) is issuing a final rule to revise its regulations for medical qualification determinations. The revised regulations update references and language; add and modify definitions; clarify coverage and applicability; address the need for medical documentation and medical examination and/or testing for an applicant or employee whose position may or may not have medical standards and/or physical requirements; and recommend the establishment of agency medical review boards. The final rule provides agencies guidance regarding medical evaluation procedures.

DATES:

This rule is effective February 17, 2017.

FOR FURTHER INFORMATION CONTACT:

Monica Butler, by telephone at (202) 606-4209; by email at [email protected]; by fax at (202) 606-0864; or by TTY at (202) 418-3134.

SUPPLEMENTARY INFORMATION:

On December 27, 2007, OPM issued a proposed rule at 72 FR 73282 to revise regulations on medical qualification determinations. The public comment period on the proposed rule ended February 25, 2008. OPM received written comments from four agencies, a union, and an individual pertinent to the proposed rule. A discussion of the comments is provided under the respective subpart below.

The final rule also replaces the verb “shall” with “must” for added clarity and readability. Any provisions in this part using the verb “must” have the same meaning and effect as previous provisions in this part using “shall.” The final rule also adds four authority citations to clarify the scope of applicability: (1) 5 U.S.C. 3312 Preference eligibles; physical qualifications; waiver; (2) 5 U.S.C. 3318 Competitive service; selection from certificates; (3) 5 U.S.C. 3320 Excepted service; government of the District of Columbia; selection; and (4) 5 U.S.C. 3504 Preference eligibles; retention; physical qualifications; waiver.

Summary Background—Summary

The summary covers the basis for OPM issuance of the final rule and outlines the revisions that have been made to its regulations for medical qualification determinations.

Subpart A Background—Subpart A

Subpart A covers general information. The proposed subpart A added wording to clarify applicability of this regulation to excepted service positions; updated references to the Rehabilitation Act of 1973, as amended (Rehabilitation Act), and to portions of the Americans with Disabilities Act (ADA) of 1990, as amended by the ADA Amendments Act of 2008 (ADAAA), that are applicable to the Federal Government through the Rehabilitation Act; added examples to the definition in § 339.104 of “medical evaluation program”; added the definition of “medical restriction,” and separated and moved definitions of “subtle incapacitation” and “sudden incapacitation.”

In response to the comments on the proposed rule, which are discussed below, we have revised subpart A to—

(1) Retain an example regarding removal of a preference eligible in § 339.101.

(2) Replace the word “suitable” with “appropriate” in § 339.102(c) to more accurately reflect the proper administrative action that an agency may render when an individual fails to meet an established condition of employment and to avoid confusion with suitability determinations.

(3) Add language to § 339.102(c) that failure of an applicant to be examined, after a tentative job offer is extended, may result in an applicant not being considered further for the position.

(4) Add language to § 339.102(c) that failure of an applicant, who received a tentative offer of employment, to provide medical documentation requested by the agency medical review officer or related hiring agency medical or human resources personnel, following a pre-placement medical examination, may result in an applicant not being considered further for the position.

(5) Add the term “applicant” where appropriate in subpart A.

(6) Revise § 339.103 to remove the phrase “to the extent consistent with” from the section in the proposed rule on compliance with disability laws and regulations. The new language clarifies that the statutory provisions of the Rehabilitation Act and the ADA apply to actions under this section.

(7) Correct the reference to the definition of “qualified individual with a disability” in § 339.103.

(8) Clarify the definitions of “medical documentation” and “medical restriction” in § 339.104.

(9) Add the definition of “medical surveillance” in § 339.104.

(10) Clarify the definition of “physical requirement” in § 339.104.

Discussion of Comments—Subpart A Section 339.101

One agency stated that § 339.101 of the current regulation provides an example, “removal of a preference eligible employee in the excepted service under part 752,” of a situation when medical issues arise in connection with an OPM regulation that governs a particular personnel decision. The agency stated the example did not appear in the proposed rule and recommended that it be retained because the example provides clarity. OPM agrees this example assists the reader in understanding the intent of the regulation and is retaining that example in the final § 339.101.

Section 339.102

One agency proposed adding the term “physical fitness standards or testing” to § 339.102(c). The agency rationale was that this change clarifies the applicability of this provision. OPM has decided not to accept this comment. As discussed below, OPM has decided to remove the terms “physical fitness standards” and “physical fitness testing” from the final rule at this time.

One agency proposed amending the language in proposed § 339.102(c) to delete the word “suitable” and replace it with the word “indicated.” The word “suitable” was contained in the portion of the proposed rule that read failure to meet properly established medical standards or physical requirement under this part means that the applicant or employee is not qualified for the position unless a waiver or reasonable accommodation is “suitable.” The rationale of the commenter was that the word “indicated” more accurately reflected the appropriate administrative action that an agency may render when an individual fails to meet an established condition of employment. OPM agrees with the agency that the word “suitable” could lead to confusion, especially in relation to the suitability function administered by OPM pursuant to part 731 of this title. Instead of the word “indicated,” however, OPM has revised the section with the word “appropriate.” The use of the word “appropriate” makes it clear that a waiver or a reasonable accommodation under § 339.102(c) must meet certain conditions. OPM also revised the sentence to “reasonable accommodation or a waiver is appropriate” to track the order of the citations.

OPM included an additional clarification to § 339.102(c) by adding the phrase “which may include psychological” after “medical” to the sentence noting, when there are established medical standards and/or physical requirements for the position, the failure of an applicant to be examined may result in an applicant no longer being considered for the position. OPM receives frequent inquiries from agencies relative to proper handling of such instances. This clarification will enable Federal agencies to obtain applicants' cooperation with examination requirements in appropriate circumstances. This additional language also informs the reader of the possible scope of an agency-offered examination as well as the consequences of refusal to report. The provision now clearly states that such failure may be a basis for the agency to determine the applicant is not qualified when there are established medical (which may include psychological) standards and/or, physical requirements for the position.

OPM included an additional clarification to § 339.102(c) that failure of an applicant to provide medical documentation requested by the hiring agency medical or human resources personnel as part of a pre-placement medical examination also may result in an applicant not being considered further for the position. OPM receives inquiries from agencies relative to proper handling of such instances, and this clarification will enable Federal agencies to obtain applicant cooperation with appropriate examination requirements and prevent delays in filling critical vacancies. In addition, after a tentative job offer, agencies may request relevant documentation to determine whether there is a medical condition that will affect safe and efficient performance of the essential duties of the position. The clarifying language in this provision informs the reader of the consequences of failure to submit requested medical documentation.

Section 339.103

One agency requested that the definition of “qualified individual with a disability” in proposed § 339.103 be corrected, noting that the section misquoted 29 CFR 1630.2(r), which relates to the definition of direct threat. OPM agrees that the proposed rule inadvertently referenced 29 CFR 1630.2(r). OPM also notes that citing to specific regulations of other agencies within this part poses a risk of future ambiguity because the text of the cited regulations are subject to change, as has occurred with the existing provisions. The final rule has been revised to reference the definition of “qualified individual with a disability” contained within the Rehabilitation Act, as amended, and the ADA, as amended as well as their implementing regulations for the Federal sector. In interpreting the meaning of these statutes, agencies can and should refer to current regulations and guidance promulgated pursuant to these Acts, see, e.g., 29 CFR part 1630, as well as case law construing these Acts, in consultation with agency counsel.

One agency recommended the term “applicants” be added along with “employees” to § 339.103. The agency noted that 29 CFR 1630.13 included references to both applicants and employees. As revised, § 339.103 no longer makes reference to either employees or applicants. OPM still agrees, however, that including applicants in the final rule was appropriate and has revised the entire rule accordingly.

One agency recommended revising the language in proposed § 339.103 to remove the phrase “to the extent consistent with” from the section in the proposed rule on compliance with disability laws and regulations. The section stated “the Equal Employment Opportunity Commission (EEOC) has issued regulations covering the equal employment provisions of the ADA in 29 CFR part 1630, which must be followed to the extent consistent with the Rehabilitation Act.” The agency stated that under the Rehabilitation Act, agencies must follow the standards applied under title 1 of the ADA and the EEOC regulations reflect the ADA's nondiscrimination standards. OPM agrees that further clarification is needed and has amended the section to refer directly to compliance with the Rehabilitation Act, the ADA, as it applies to the Federal government, and their implementing regulations for the Federal sector. This language clarifies that the statutory, non-discrimination provisions under the Rehabilitation Act and the ADA apply to actions under this section.

One agency proposed adding three citations to the language on compliance with disability laws and regulations in § 339.103. The agency concurred with the inclusion of specific sections of the EEOC's ADA regulations within this OPM regulation and suggested three additional citations relevant to medical qualification determinations. Two other citations, 29 CFR 1614.203(a) and 29 CFR 1614.203(b), were enforcement regulations and outside of the scope of this regulation. OPM has declined to accept this change. Upon further consideration, OPM has decided to remove all references to specific regulations of other agencies, because, as occurred with the current regulations, the outside citations changed, making the cross- references in the OPM regulations difficult to interpret. To avoid perpetuating this sort of ambiguity, OPM has decided to refer directly to compliance with the non-discrimination provisions of the Rehabilitation Act, the ADA, including the ADA Amendments Act of 2008, and their implementing regulations for the Federal sector.

An individual proposed adding clarifying language to the definition of “qualified individual with a disability” in § 339.103. The rationale of the commenter was that there may be job demands (e.g., overtime work) and conditions of employment (e.g., requirement of frequent travel) that are not, of themselves, essential functions of the job. OPM did not accept this comment but has revised the definition. As noted above, the meaning of “qualified individual with a disability” comes from the Rehabilitation Act, the ADA, and their implementing regulations for the Federal sector.

One agency proposed that proposed § 339.103 be revised to include a specific reference to the definition of “direct threat” contained in the EEOC's regulations, 29 CFR 1630.2(r). The agency did not provide a supporting rationale for this revision. OPM did not adopt this suggestion because the proposed rule only inadvertently referenced 29 CFR 1630.2(r). As noted above, the final rule references the definition of “qualified individual with a disability” contained in the Rehabilitation Act, the ADA, and their implementing regulations for the Federal sector.

Section 339.104 Medical Documentation

One agency requested that OPM insert the words “as defined below” after “other appropriate practitioner” under the definition of the term “medical documentation” to alert the reader that there is a definition of the term “practitioner” in § 339.104. OPM agrees with the commenter but changed “other appropriate practitioner” to “licensed health practitioner” for clarity and inserted the words “as these terms are defined below” in the final rule to direct the reader to the applicable definitions.

One agency requested that the words “which have been obtained” be removed from the sentence under the definition of “medical documentation” in proposed § 339.104(2). The agency rationale was that the information may not have been initially provided by the applicant or employee, but the information may still be needed by the agency. Further, if the applicant or employee does not provide the information, the agency can request the applicant to obtain it, at his/her expense, in order to be considered for the position. The agency indicated that if the definition is not changed, and the agency requests the information because it may not have been obtained, the agency will have to pay the associated costs for attaining the information. OPM agrees that this is a legitimate concern and has accepted the proposed change and deleted the term “which have been obtained” from item (2) in the definition of “medical documentation” to remove any suggestion that the agency would be expected to incur any costs associated with obtaining medical information the agency deems necessary when the agency needs to request an applicant or employee to submit additional information in order for the agency to render an informed employment decision. By changing “and” to “and/or” in the appropriate places, OPM also clarified that any, but not necessarily all, of the clinical findings listed in item (2) may need to be provided.

One agency requested that the word “and” be changed to the word “or” between (6) and (7) in the list of items contained in the definition of “medical documentation” in proposed § 339.104 where it stated “an acceptable diagnosis must include the following information, or parts of this information identified by the agency as necessary and relevant to its employment decision.” The agency rationale was that the type and amount of medical information needed in each case may differ and the regulation does not require submission of documentation meeting all of the seven listed categories in this part. OPM has revised the section to insert the words “and, either of the following:” after the text for (5) and insert the word “or” between (6) and (7) to avoid any suggestion that all seven categories of information must be submitted. OPM made a similar change to item (2), by changing “and” to “and/or” to clarify and to be consistent with the opening statement of this item “including any of the following.”

Further, the same agency stated that the section conflicted with the Rehabilitation Act limitation on medical examinations because it effectively instructs agencies to obtain substantially more medical information than may be necessary to make an employment decision. OPM agrees that clarification was needed to eliminate any suggestion that documentation meeting all seven categories must be submitted. OPM has revised the section to insert the words “and, either of the following:” after the text for (5) and insert the word “or” between (6) and (7).

One agency proposed amending the language in the definition of “medical documentation” in § 339.104 to state “such medical documentation must include as much of the following types of information as is necessary and relevant to making the job-related decision for which the information is being requested.” The agency rationale was that section 102(d)(4) of the ADA provides that an employer shall not require a medical examination or make inquiry of an employee unless such examination or inquiry is job-related and consistent with business necessity. The agency further stated any requirement for information outside of this express statutory limitation violates the Rehabilitation Act. OPM has clarified this section by revising the opening sentence to state medical documentation must contain “necessary and relevant information to enable the agency to make an employment decision.” OPM is retaining the remainder of the language in this sentence to maintain consistency with generally accepted medical practice and principle as to what constitutes an acceptable medical diagnosis. By limiting the scope of the requested information, however, to what is “necessary and relevant” the sentence also is consistent with the intent of the ADA and Rehabilitation Act with regard to the scope of an employer's medical inquiry.

An individual proposed modifying the definition of “medical documentation” in § 339.104 to include new language that medical documentation should include copies of actual medical office or hospital records, in addition to a written statement from a physician. The rationale provided by the commenter was that a statement by a physician, written or oral, must be supported by clinical findings obtained through a medical history, physical examination, and appropriate tests and diagnostic procedures. OPM agrees with the commenter that medical documentation includes copies of related medical office or hospital records and has amended the section to include these additional materials. Therefore, OPM further clarified the definition by stating the medical documentation must be “dated” and contain “necessary and relevant” medical information to enable the agency to make an informed employment decision.

A union proposed clarification of the definition of “medical documentation” in § 339.104. The union stated the definition leaves agencies and supervisor's wide berth to determine what constitutes necessary or appropriate medical documentation, particularly in regards to absences. The union further stated that medical documentation for sick leave, whether extended or not, is often left to the discretion of individual supervisors. The union requested that OPM delineate the baseline for appropriate medical documentation and identify practices that should be avoided. OPM did not accept this suggestion of delineating acceptable and unacceptable forms of documentation because medical documentation needed by an agency can vary according to the situation. The modification made to the “medical documentation” definition, as noted directly above, however, now clarifies that a dated written statement from a licensed physician or practitioner should contain necessary and relevant information to enable it to make an employment decision. This revised language provides agencies with needed discretion in obtaining necessary and relevant information while preventing overly broad requests for medical records, consistent with the Rehabilitation Act and the ADA.

OPM also will seek to issue guidance from time to time as to best practices with regard to working with healthcare providers to obtain appropriate information and materials responsive to the agency's request for information necessary and relevant to making its employment decision.

Medical Evaluation Program

One agency proposed adding examples to the definition of “medical evaluation program” in § 339.104, such as age adjusted periodic medical examinations or anthrax testing for certain employees. OPM did not adopt this suggestion because “medical evaluation program” covers a broad category of medical examination and clinical and diagnostic testing procedures.

Medical Record

An individual proposed a definition for the term “medical record” and requested the inclusion of this new definition in § 339.104, indicating that a physician's written statement should be supplemented with the medical history, physical examination and related testing and diagnostic procedures. The individual stated this will aid the reviewer in assessing the validity of the diagnosis and management plan for the medical or physical condition. OPM has not incorporated this proposed definition in the final rule. As noted above, the definition for medical documentation states that an agency may request necessary and relevant information to enable it to make an employment decision. OPM believes this revised definition is appropriate to allow an agency to obtain what is needed for its decision-making process while preventing overly broad requests for medical records, consistent with the Rehabilitation Act and the ADA.

Medical Restriction

One agency noted that the definition of “medical restriction” in § 339.104 as written in the proposed rule was too narrow because it only addressed physical requirements. The agency requested that the words “physical requirements” be replaced with the words “type or duration of work or activity” in order to cover both physical and medical requirements. OPM agrees with the agency proposal and has replaced the phrase “physical requirements” with the words “type or duration of work or activity” to clarify that the definition applies broadly to a variety of activities for which the individual is limited or prevented from performing due to medical conditions and/or physical limitations.

One agency requested revising the definition of “medical restriction” in § 339.104 to eliminate the phrase “operative event” or expound upon the meaning or intent for clarification purposes. OPM agrees with the proposed agency clarification and removed the term “operative event.” OPM revised the language to state that a medical restriction is a “medical determination” that an applicant or employee is limited or prevented from performing a certain type or duration of work or activity, or motion, because of a particular medical condition or physical limitation.

An individual requested modifying the definition of “medical restriction” in § 339.104 to include language that a restriction is medically warranted if the physician can support a conclusion that there is risk-avoiding or therapeutic value associated with the restriction. The rationale of the individual was that unless there is a risk-avoiding or therapeutic value inherent in a physician's recommendation that a patient not engage in a particular kind of activity, the physician cannot justify the recommendation as medically warranted. OPM did not adopt this specific language. The modification made to the definition of “medical restriction,” as noted above, clearly defines the term without the potential confusion to a reader who may not have the medical knowledge or expertise to accurately interpret and apply the language proposed by the commenter.

Medical Standard

An individual recommended replacing the term “medical standard” with “medical qualification standard” in § 339.104 as well as the remainder of the regulations. The commenter described a “medical qualification standard” as a written description of the clinical findings associated with a health status or level of fitness below which the individual would be at an unacceptable level of potential risk for injury, harm or performance failure. OPM has not adopted the term “medical qualification standard” because its intent is covered by the existing definition. OPM has, however, revised the definition of “medical standard” for clarity. As noted in the final rule, the term “medical standard” represents the minimum medical requirements necessary for an applicant or employee to perform essential job duties as a condition of employment. By referencing the phrase “condition of employment” rather than the descriptive phrase in the proposed rule, the definition makes it clear this is an agency-established qualification standard that must be met prior to appointment and/or maintained during employment for successful performance. In addition, just inserting the term “qualifications” in the title could lead to confusion with the more general employment qualifications for Federal positions.

Medical Surveillance

One agency requested adding a new definition of “medical surveillance” to § 339.104 to clarify to the reader the distinction between medical surveillance, medical evaluation program, and medical examination and to ensure uniform application. OPM agrees that a clear understanding of the different terms is important and has incorporated a definition for “medical surveillance” into § 339.104. “Medical surveillance” is the collection and analysis of health data and trends, such as injuries or illnesses, to improve and protect the health and safety of employees. A “medical evaluation program,” however, refers to an overall program of recurring medical examinations or testing, established by written agency policy, to monitor employees whose work may subject them to significant health or safety risks due to occupational or environmental exposures.

Physical Requirement

An individual commented that the definitions of “physical requirement” and “physical fitness standard” in § 339.104 were virtually identical and suggested eliminating one of the definitions to avoid redundancy. OPM did not accept the comment but, as noted earlier, has decided to withdraw references to “physical fitness standard” and “physical fitness testing” from the regulations at this time. OPM has taken the matter of appropriate definitions of the terms “physical fitness standard” and “physical fitness testing” under further consideration. OPM did revise the definition of “physical requirement” in the final rule to provide better harmony with the underlying statute. See 5 U.S.C. 3312.

Subtle Incapacitation/Sudden Incapacitation

One agency recommended inclusion of a stand-alone definition for the term “static or well stabilized” along with the stand-alone definitions of “subtle incapacitation” and “sudden incapacitation.” In the alternative, the commenter recommended retaining all three terms only as part of the definition of the term “medical documentation” in § 339.104. The commenter believed that for consistency, these terms should appear in the same manner. OPM is not including a stand-alone definition for the term “static or well stabilized” and is retaining, with some modification, the stand-alone definitions for the terms “subtle incapacitation” and “sudden incapacitation.” As stated in § 339.104, the term “static or well stabilized” is offered only for the purpose of clarification within the definition of “medical documentation.” In this context, the term is intended to mean a medical condition that is not likely to change as a consequence of the natural progression of the condition, specifically as a result of the normal aging process, or in response to the work environment or the work itself. In contrast, the terms “subtle incapacitation” and “sudden incapacitation” remain as stand-alone definitions because they are not limited only to clarification of the definition of “medical documentation.” These terms relate to the gradual or abrupt impairment of physical or mental function and are not only medical in nature, but also relate directly to safety, performance, and/or conduct issues that may undermine the agency's commitment to maintaining a safe working environment for all employees and others. OPM revised these terms further in the final rule to make the additional related issues clear.

Subpart B Background—Subpart B

Subpart B governs medical standards, physical requirements, and medical evaluation programs. We proposed changing the title of subpart B to clarify application of this part to medical evaluation programs. The proposed subpart B added language to clarify application of part 339 to arbitrary disqualification; added “medical surveillance” to policies agencies may establish to safeguard employee health; provided an example of an immunization program; and changed “incumbents” to “employees” to clarify § 339.205. As explained above, OPM has withdrawn the physical fitness standards and physical fitness testing from the final regulation for further consideration. Consequently, these references have been removed from the title and other parts of this section, including § 339.203.

In response to the comments on the proposed rule which are discussed below, we have revised subpart B to—

(1) Correct an erroneous reference to subpart C of part 731 of this chapter in § 339.201.

(2) Add a requirement to § 339.202 that OPM approve medical standards established by agencies prior to implementation.

(3) Provide language to § 339.202 regarding performance and behavioral and personality characteristics.

(4) Add a requirement to § 339.202 that there must be a study validating medical standards to the specific occupation.

(5) Include language in § 339.204 on established timeframes for submission of medical documentation by an applicant or employee.

(6) Re-title § 339.204 as “Waiver of standards and requirements and medical review boards.”

(7) Change the term “vaccine” to “vaccination” and clarify the language relative to vaccinations in § 339.205.

(8) Change the term “candidate” to “applicant or employee” in § 339.206.

(9) Revise the reference to “substantial harm” in § 339.206 to provide that applicants and employees may be disqualified for positions based on medical history when the condition (or recurrence) would pose a significant risk of substantial harm.

(10) Change “reasonable probability of substantial harm” in § 339.206 to the ADA and Rehabilitation Act standard of “significant risk of substantial harm.”

Discussion of Comments—Subpart B Section 339.201

One agency stated there was a need to reference subpart B, rather than subpart C, of 5 CFR part 731 in § 339.201. The agency rationale was that subpart C relates to suitability action procedures, rather than the criteria authority used in making suitability determinations, which are covered in subpart B. After carefully considering the comment, OPM has decided to completely remove the reference to 5 CFR part 731 from 5 CFR 339.201. OPM has previously explained in four separate Federal Register notices that a sustained objection to an applicant, or a sustained request to pass over an applicant, is not a suitability determination. See 74 FR 30459 (June 26, 2009); 73 FR 51245 (Sept. 2, 2008); 73 FR 20149 (Apr. 15, 2008); 72 FR 2203 (Jan. 18, 2007). Regardless of whether a medical disqualification of an applicant is made under 5 U.S.C. 3312 or 3318, it is not a determination under 5 CFR part 731 that the applicant is unsuitable for employment in the competitive service. In fact, there is no suitability factor in 5 CFR part 731, subpart B, addressing medical disqualification. Further, as noted in 5 CFR part 339's authority citation, the part is issued only under rule II of E.O. 10577, as amended. It is not issued under rule V thereof, which authorizes OPM to order the removal of incumbent employees on grounds of fitness, pursuant to the President's standard-setting authority in 5 U.S.C. 3301, 3302, and 7301, and consistent with OPM's administrative authority in 5 U.S.C. 1103(a)(5)(A) and 1302(a). Accordingly, OPM also is amending § 339.201 to delete the text concerning directed removals of appointees based on physical or mental unfitness. OPM is retaining the reference to exclusion of applicants from examinations, which falls under OPM's authority in 5 U.S.C. 1302(a). OPM also is adding text to clarify that the procedures applicable to a medical disqualification under 5 U.S.C. 3312 or 3318 are in 5 CFR 339.306.

Section 339.202

An individual proposed adding language to § 339.202 relative to performance and human reliability demands. The rationale of the commenter was that the need for standards is to minimize the risk of human failure, rather than to predict successful performance. OPM agrees with the commenter's rationale but has amended the language to more plainly note the direct relationship between performance and the requirements needed to perform the duties of the position.

One agency proposed revising § 339.202 to add language regarding the requirement for OPM approval of medical standards established by agencies prior to implementation. The agency rationale was that although the current language states an agency may establish medical standards in certain circumstances, definitive language on OPM approval would provide clarity and eliminate agency questions. OPM agrees and amended the section to state that agencies are required to obtain OPM approval of all medical standards within the competitive service prior to implementation.

One agency proposed revising § 339.202 to add the requirement that there must be a study validating medical standards to that specific occupation. The agency rationale is that this section should clearly state that a medical standard for an occupation should be supported by a job analysis. OPM agrees generally with the comment and revised this section to clarify that there must be a study(ies) or evaluation(s) establishing the medical standard is job-related to one or more occupations (recognizing some medical requirements may be similar across occupations). A validation study generally is not required where there is no evidence of adverse action; therefore OPM did not wish to impose a higher legal standard here. See Uniform Guidelines on Employee Selection Procedures, 29 CFR part 1607. The “job-related” standard is consistent with the non-discrimination provisions under Part 300 of this title and Title VII. OPM made a similar change to the definition of physical requirement, as discussed below.

One agency stated that the language in parenthesis in § 339.202, “(i.e., where the agency has 50 percent or more of the position(s) in a particular occupation)”, is confusing and restrictive. OPM disagrees and has not amended this language. The regulation states that an agency may establish medical standards for positions that predominate in that agency and the parenthetical gives an example of what may constitute a predominance of a particular occupation.

Section 339.203

One agency proposed revising § 339.203 to clarify the difference between “physical requirements” and “physical fitness standards.” The agency rationale was to eliminate potential confusion concerning requirements when applying § 339.204, (re-titled “Waiver of Standards and Requirements and Medical Review Boards” to § 339.203. OPM agrees with the need to avoid confusion between these terms. Consequently, as noted above, OPM has withdrawn references to “physical fitness standards or testing” from the final rule for further consideration. This provision is revised and re-titled to “Physical requirements.”

A union proposed that in relation to the physical requirements and physical fitness standards or testing in § 339.203, OPM accept the role to carry out oversight and external validation for the positions to which agencies choose to apply a physical requirements standard. As a rationale, the union cited its experience with inconsistent use of the authority granted to agencies to establish physical requirements for individual positions without OPM approval. In addition, the union proposed that OPM further expand on procedures for the validation process. The union rationale was to provide consistency throughout the government of individuals who perform essentially the same functions, but work for different agencies. OPM has not accepted these comments. As noted, OPM has withdrawn the language related to “physical fitness standards or testing” at this time. In addition, as noted in the rule, approval by OPM remains available to agencies, but is not mandatory. Further, challenges to such policies or directives can be addressed through administrative processes or grievances or through the courts.

OPM revised this section in the final rule for the reasons noted in section 202, supra, to clarify that there must be a study(ies) or evaluation(s) that establishes the physical requirement(s) is job-related to one or more occupations (recognizing some physical requirements may be similar across occupations).

Section 339.204

One agency proposed adding to § 339.204, the waiver provision, examples of “sufficient evidence” and “additional information” that an applicant or employee may submit or any agency may obtain with regard to waiving a medical standard or physical requirement, to ensure uniform application and to provide clarity. OPM has not accepted this comment because the regulatory language is clear and the standards are best elucidated by case law.

One agency proposed including language in § 339.204 to state the established timeframe an applicant or employee has to provide sufficient medical evidence or that an agency has to obtain additional information prior to rendering a final decision. The agency was concerned the existing language implied that documentation could be supplied at any time, which could tax the agency administrative workload and affect and/or indefinitely extend the timeframe for rendering an employment decision. OPM agrees with the agency concerns and has clarified the language to state that an agency may establish timeframes, in writing, for submission of initial or additional information for consideration, with allowance for reasonable extensions.

A union proposed mandating review panels at agencies. The union rationale was that these review panels will assist agencies in determining appropriate accommodation of a disability or review of medical ineligibility determinations. OPM agrees that medical review boards can assist agencies in making determinations under this section and included language permitting agencies to establish medical review boards. Consequently, OPM has re-titled § 339.204 as “Waiver of standards and requirements and medical review boards.” At this time, however, OPM believes agencies should be given discretion in determining whether and how best to use medical review boards, so the creation of such boards is not mandatory. OPM plans to confer periodically with agencies regarding their use of medical review boards. OPM also will seek to issue guidance from time to time as to best practices with regard to the composition and use of medical review boards.

Section 339.205

An individual proposed replacing the term “vaccine” with “vaccination” and clarifying that the need for a medical evaluation program “must be clearly supported by the nature of the exposures incurred in the course of the work” in § 339.205. The commenter stated only that the need for these inclusions were “self-evident.” OPM agrees the term “vaccine” should be replaced with the term “vaccination” and amended the term to reflect the act of receiving a vaccine. OPM did not include the additional language above. The existing language conveys the same meaning and the commenter provided no supporting or convincing rationale for further change.

A union commented that although § 339.205 of the proposed rule would mandate that employees be vaccinated under certain circumstances limited to work, and although this requirement may be imposed only upon written notification, only limited guidance is provided in the regulation concerning the circumstance under which such vaccinations may be compelled. In addition, the union stated that agencies should be allowed to retroactively impose an immunization requirement on an employee only if the employee was notified of the requirement prior to acceptance of the position through the vacancy announcement or position description. OPM recognizes the need for some clarification and has amended the language to clarify that any vaccinations required by this section must be FDA-approved. OPM does not otherwise accept this comment. As noted in the rule, agencies that choose to implement one or more of the programs noted in § 339.205 must have written policies or directives. Challenges to such policies or directives can be addressed through administrative processes or grievances or through the courts.

One agency recommended that the proposed language in § 339.205 be expanded to read “this may include, but is not limited to the requirement to undergo vaccination with FDA approved vaccines (e.g., for national security reasons or in order to safely carry out an agency program.” The rationale of the agency was that the modification eliminated the possibility that an applicant or employee could challenge an agency requirement to undergo a vaccination under the contention that the FDA may have licensed the vaccination, but had not “mandated” its use.” OPM agrees with the rationale of the commenter and has amended § 339.205 to state vaccinations may include FDA-approved vaccines.

One agency requested clarification of what is meant by “mandatory vaccines” in § 339.205. Further, the agency states an example would be helpful (e.g., in the event of a pandemic flu when the position does not permit the accomplishment of work at home or in isolation). OPM has not accepted this comment. OPM has included situational examples but has not included specific vaccination examples to allow flexibility to address changes in environmental, situational, and other circumstances wherein agencies determine and document the need for certain vaccinations.

Section 339.206

An individual proposed replacing the reference to reasonable probability of substantial harm in § 339.206 with a provision that applicants and employees may be disqualified for positions only if the condition(s) at issue is disqualifying “and a recurrence would pose an unacceptable risk of injury or harm to the individual or others, or would present an unacceptable risk of human failure.” The rationale provided was that the decision in this type of situation must be based on minimum/maximum criteria, not probability criteria. The commenter also noted that if a recurrence is possible and the consequences of a recurrence are unacceptable, it does not matter how small the probability. OPM recognizes the concern of the individual and based in part on this comment and another comment described below has amended the section to read that a history of a medical condition may result in medical disqualification only if the condition is itself disqualifying, “recurrence of the condition is a reasonable medical probability, and the duties of the position are such that a recurrence of the condition would pose a significant risk to the health and safety of the applicant or employee or others that cannot be eliminated or reduced by reasonable accommodation or any other agency efforts to mitigate risk.” This revised language is clearer and consistent with the ADA, as amended, and applied through the Rehabilitation Act.

One agency recommended referring to “significant risk” of substantial harm in § 339.206 instead of “reasonable probability of substantial harm” because the latter is less exacting than the ADA and Rehabilitation Act standard of “significant risk” of substantial harm. OPM disagrees with the commenter's view as to which term is “less exacting.” OPM does agree, however, that, in order to avoid any ambiguity, § 339.206 should be consistent with the statutory language. Therefore, as discussed above, this provision has been revised.

One agency recommended changing the term “candidate” to “applicant or employee” for clarity and consistency. OPM agrees that using the phrase “applicant or employee” is clearer and should be used consistently throughout this regulation. OPM has amended § 339.206 accordingly.

One agency recommended adding an example of a disqualifying condition to § 339.206 for clarification purposes. OPM has not accepted this comment. Medical disqualifications must be made on a case-by-case, fact-based, individualized assessment prior to reaching a conclusion as to the applicant's or employee's qualifications for a particular position.

One agency recommended inclusion of a reference in § 339.206 to recent behavioral or mental health history as a subset for disqualification. The agency requested consideration of language that an individual's previous “mental health treatment shall not be a basis for a psychiatric examination or psychological assessment unless the individual has been hospitalized within the past seven years for a mental health related condition.” The agency rationale was that this seems to be an area of potential employee medical disqualifiers that does not neatly fit into a category (i.e. medical standard) that applies to positions with and without medical standards and physical requirements, and where an employee may pose substantial harm to himself and others. OPM is not adopting this approach to amending § 339.206. With respect to mental health histories, mental health conditions are evaluated to determine whether they are temporary, transient, transitional or self-limiting, as opposed to mental health difficulties that are chronic and on-going with no perceivable end in sight. While behavioral traits, personality characteristics, temperaments, attitudes and biases, may be linked to mental health problems, they in and of themselves would not normally rise to a level supporting a clinical diagnosis of a mental condition. See, e.g. Diagnostic and Statistical Manual of Mental Disorders(DSM) published by the American Psychiatric Association. Moreover, medical disqualifications based on mental health must be made on a case-by-case, fact-based, individualized assessment prior to reaching a conclusion as to the applicant's or employee's qualifications for a particular position.

Subpart C Background—Subpart C

Subpart C governs medical examinations. The proposed subpart C incorporated minor corrections in references, spelling and punctuation; added wording to clarify examinations the agency may require and provide examples of “benefits” in § 339.304; and added wording to clarify applicability of this regulation to excepted service positions when requesting a medical disqualification or a passover of a preference eligible in § 339.306.

In response to the comments on the proposed rule which are discussed below, we have revised subpart C to—

(1) Add language to § 339.301(b) regarding return to work from medically based absence in addition to reemployment from medically based absence.

(2) Revise the language in § 339.301(b)(1) to be consistent with the ADA prohibition against employers making disability inquiries or conducting medical examinations of job applicants' prior to an offer of employment.

(3) Clarify § 339.301(b)(3) to state an agency may require an individual to report for a medical examination “whenever the agency has a reasonable belief, based on objective evidence, that there is a question about an employee's continued capacity to meet the medical standards or physical requirements of a position.”

(4) Add language to § 339.301(c) relative to the Federal Employees' Compensation Act.

(5) Include language in § 339.301(e) addressing vulnerability of business operation and information systems to potential threats.

(6) Add clarifying language to § 339.301(e) relative to the licensing of physicians conducting psychiatric examinations.

(7) Add language to § 339.303(a) that an agency may establish timeframes, in writing, for submission of medical documentation, with allowances for reasonable extensions dependent on the nature of the condition and the availability of qualified physicians.

(8) Add the term “applicant” to § 339.303(a).

(9) Revise § 339.303(a) and (b) to add the requirement that an applicant or employee must furnish and authorize the release of medical documentation generated as a result of a medical examination and relevant medical documentation from his or her private physician, to authorized agency representatives.

(10) Revise § 339.303(a)(2) in relation to above to further state an employee may be subject to adverse action if he or she fails or refuses to authorize release of the above referenced medical documentation.

(11) Revise the language in § 339.303(b) to address situations where medical documentation from the applicant or employee's private physician or practitioner is contradictory to, and cannot be resolved by, documentation from the examining physician or the agency medical review officer.

(12) In § 339.304, clarify when an agency is financially responsible, versus when an applicant or employee is financially responsible, for the cost of medical examinations, testing and related documentation.

(13) Removed references to “physical fitness standards or testing” from throughout this section in light of OPM's decision, as discussed earlier, to withdraw these terms for further consideration.

Discussion of Comments—Subpart C Section 339.301

An individual proposed adding “appropriate for the purpose of obtaining and recording baseline medical information” following the term “pre-employment medical examination” in § 339.301(a). OPM did not include this language because the section is intended only to define when a routine pre-employment examination is appropriate, which is following a tentative offer of employment and only for a position with specific medical standards, physical requirements, or covered by a medical evaluation program.

An individual proposed adding language in § 339.301(b) concerning the return to work from medically based absence. The rationale provided by the individual was that if there is reason to suspect that a medical condition has caused or contributed to the failure of an employee to perform the essential functions of the position in an acceptable manner or meet the conditions of employment, including a demand for human reliability, then a complete medical evaluation may be appropriate. OPM agrees with the concerns noted by the commenter and has amended the section to include language to make clear that this provision includes employees returning to work from medically based absences.

One agency proposed revising the language in § 339.301(b)(1) to be consistent with the ADA prohibition against employers making disability inquiries or conducting medical examinations of job applicants' prior to an offer of employment. OPM agrees that revising the language would eliminate any confusion as to when disability inquiries can be made. Consequently, OPM has accepted the proposed language and amended the section to read “subsequent to a tentative offer of employment or reemployment,” rather than the previous language of “prior to appointment or selection,” to be more consistent with the Rehabilitation Act and ADA prohibition of disability inquiries or medical examinations prior to a tentative job offer.

One agency proposed revising § 339.301(b)(2) to state that regularly recurring examinations are to be limited to persons in positions affecting public safety. The agency rationale was that the language in the proposed regulation was overbroad in allowing an employer to conduct medical examinations of current employees “on a regularly recurring, periodic basis after appointment.” The agency stated that the standard that the examination be job related and consistent with business necessity applies to all employer efforts to obtain medical information from employees. Further, the agency noted that there is EEOC guidance stating that any such regularly occurring examinations should be limited to persons in positions affecting public safety. OPM did not accept this comment. As noted in the provision, this section applies to positions that have “medical standards and/or physical requirements” and must be applied in a manner consistent with disability laws. Thus, OPM intends this provision to apply to all positions that may require medical examinations due to the nature of the work and/or the vulnerability of business operation and information systems to potential threats. This includes, but is not limited to, public safety positions.

One agency proposed revising § 339.301(b)(3), which, in the proposed rule, stated that an agency may require an individual to report for a medical examination “whenever there is a direct question about an employee's continued capacity to meet the physical or medical or physical fitness requirements of a position.” The agency proposed clarifying language to define the above medical and physical components. Another agency proposed revising § 339.301(b)(3) to replace “direct question” with “reasonable belief based on objective evidence.” The agency's rationale was that the section intended to specify the circumstances under which an agency may require an employee to undergo a medical or psychiatric examination. The agency noted that the basic rule establishing when an employee examination may be required is that the requirement must be job related and consistent with business necessity. The agency proposed revising the language to read “whenever the agency has a reasonable belief based on objective evidence, that there is a question about an employee's capacity to meet the physical or medical or physical fitness requirements of a position.” OPM agrees with both comments that further clarification was appropriate and amended the section. The relevant clause now reads “whenever the agency has a reasonable belief, based on objective evidence, that there is a question about an employee's continued capacity to meet the medical standards and/or physical requirements.” An example of where this section could be triggered includes a situation where medical opinions submitted by an applicant or employee are at variance with one another or there is insufficient medical documentation.

An individual proposed clarifying the language in § 339.301(c) to state that an agency may require an employee who has applied for or is receiving continuation of pay or compensation as a result of an injury or disease “covered under the provisions of the Federal Employee's Compensation Act (FECA)” to report for an examination to determine medical limitations that may affect placement decisions. OPM agrees and has amended the section by inserting the specific reference to FECA in order to provide more definitive guidance. An examination under FECA is ordered for compensation purposes. An examination under 5 CFR 339 is ordered to determine medical limitation that may affect job placement decisions.

One agency proposed expanding § 339.301(d) to include the term “physical fitness standards or testing” to the existing terms “medical standards” or “physical requirements” for clarification purposes. OPM declines to adopt this comment. As noted previously, OPM has withdrawn these terms from the final rule for further consideration.

One agency proposed revising § 339.301(e)(1) to address when an agency may require an employee to undergo a medical or psychiatric examination. The agency states that the basic rule is that an examination requirement for employees must be job related and consistent with business necessity. The agency recommended revising the section to read “an agency may order a psychiatric examination (including a psychological assessment) only when it has a reasonable belief, based on objective evidence, that the employee appears unable to meet the physical or mental or physical fitness requirements of a position.” OPM did not accept inclusion of the proposed additional language. The existing provision limits a psychiatric examination or psychological assessment to circumstances where there is no physical-based reason for the employment-related difficulty or where such examination/assessment is an articulated condition of employment.

One agency proposed adding language relative to potential threats to Federal Government equipment and systems. The rationale provided by the agency was in relation to situations where an individual may not be a threat to individuals, but because of the nature of the position, could be a threat to agency equipment and systems. OPM agrees that threats to infrastructure by individuals is within the scope of these regulations, and has amended § 339.301(e) to include a reference to vulnerability of business operation and information systems to potential threats to enhance understanding of the need to safeguard agency information and security systems.

An individual proposed that § 339.301(e)(1)(i) be revised to state that an agency may order a psychiatric examination including a psychological assessment only when “the physician who has performed a current general medical examination that the agency has the authority to order under this section identifies a basis upon which a psychiatric examination is medically warranted.” The individual also requested clarifying § 339.301(e)(2) relative to the licensing of physicians conducting psychiatric examinations to state that a psychiatric examination or psychological assessment must be conducted in accordance with accepted professional standards “by a licensed physician certified in psychiatry by the American Board of Psychiatry and Neurology.” The rationale of the commenter was that, if a medical qualification standard for a position includes criteria for mental status and function, and there is a reason to suspect that a medical condition has caused or contributed to failure of the employee to perform the essential functions of the position, including a demand for human reliability, then a complete medical evaluation may be appropriate. The commenter further explained that such an evaluation would begin with a complete medical examination by, most likely, a specialist in internal medicine who would determine what additional specialty evaluations are medically warranted, including a psychiatric examination. OPM declines to adopt the comment related to § 339.301(e)(1)(i). OPM believes the existing language in this section clearly states when an agency may order a psychiatric examination or psychological assessment. OPM did modify the language in § 339.301(e)(2), and included references to clarify the licensing of physicians relative to psychiatric examinations. The language now states that the examination must be conducted by a licensed physician “certified in psychiatry by the American Board of Psychiatry and Neurology or the American Osteopathic Board of Psychiatry and Neurology,” “or by a licensed psychologist or clinical neuropsychologist.”

One agency proposed amending § 339.301(e) to provide that an individual's previous mental health treatment will not be a basis for a psychiatric examination or psychological assessment unless the individual has been hospitalized for a mental health related condition within the past seven years. The agency stated that there “seems to be one area of potential employee medical disqualifiers that doesn't neatly `fit' into a category . . . that applies to positions with and without medical standards and physical requirements, and where an employee may pose `substantial harm' to themselves and others . . . .” OPM is not adopting this approach to amending § 339.301(e). With respect to mental health histories, mental health conditions are evaluated to determine whether they are temporary, transient, transitional or self-limiting, as opposed to mental health difficulties that are chronic and on-going with no perceivable end in sight. While behavioral traits, personality characteristics, temperaments, attitudes and biases, may be linked to mental health problems, they in and of themselves would not normally rise to a level supporting a clinical diagnosis of a mental health condition. See, e.g. Diagnostic and Statistical Manual of Mental Disorders (DSM-5; American Psychiatric Association, 2013).

Section 339.302

An individual recommended deleting the authority to offer examinations covered in § 339.302 and retain only the section on authority to order an examination. The commenter believed there are no circumstances under which an employer needs medical information to manage an employee's duty or employment status unless there are already medical qualification standards in place for the position. OPM has not accepted this comment. This regulation clearly distinguishes situations wherein an agency can order or offer an examination.

Section 339.303

One agency stated that, in § 339.303(a) of the proposed rule, a refusal or failure to report for a medical examination ordered by the agency could result in the agency determining that the employee is not qualified for the position. The agency proposed adding the term “applicant” along with “employee” to § 339.303(a) as this section also applies to applicants. OPM agrees and has amended this section on medical examination procedures to make clear the application of this rule to both applicants and employees.

One agency recommended language be added to § 339.303 that states that employees must be given a reasonable amount of time to provide medical documentation, based upon the nature of the condition and the accessibility of qualified individuals. The agency rationale is that this change would afford a level of protection to the employee and takes into consideration accessibility and availability of appropriate healthcare providers. OPM agrees with the needed clarification and has amended § 339.303(a) to state that “an agency may establish timeframes, in writing, for submission of medical documentation, with allowances for reasonable extensions.”

One agency proposed adding language to § 339.303 requiring an applicant or employee to provide medical documentation generated as a result of a medical examination. The agency questioned whether an agency could find that an applicant or employee is not qualified for the position if the individual reported for the examination, but refused to authorize release of any resulting medical documentation to the agency. The agency also recommended adding the requirement that an individual must furnish and authorize release of relevant medical documentation from his or her private physician to authorized agency representatives. OPM agrees there is a need for clarification and has amended § 339.303 to state that refusal or failure by an applicant or employee to authorize release of any results from an agency ordered or offered medical examination, or the results of any previous medical treatments or evaluations relative to the identified issue, to authorized agency representatives, including the agency physician or independent medical specialists, may be a basis for disqualification for the position by the hiring agency. In addition, the employee may be subject to adverse action. Relevant medical documentation is needed in order for agency representatives, such as the agency physician or medical review officer, to render an informed medical and/or management decision relative to the health and safety of the applicant, employee, coworkers, and the public they serve.

One agency requested clarifying § 339.303(b) to address situations where medical documentation from the applicant or employee's private physician or practitioner is contradictory to, and cannot be resolved by, the examining physician or the agency medical review officer. OPM agrees and has amended the section to state that in situations where medical documentation of the private physician or practitioner is contradictory and cannot be resolved by the examining physician or the agency medical review officer, the agency may, at its option, pursue a third opinion from an appropriate specialist (e.g. independent medical specialist). This enables the hiring agency to make an informed management decision relative to the medical eligibility determination of an applicant or employee.

Section 339.304

Two agencies proposed revising § 339.304 to clarify circumstances where an agency is financially responsible, versus when the applicant or employee is financially responsible, for the cost of medical examinations, testing and related documentation, noting that this issue has caused confusion in the past. OPM agrees that this can be a confusing issue for managers, applicants and employees. OPM has amended the section to clearly state when an agency is responsible, and when an applicant or employee is responsible, for payment of medical examinations, related testing, and documentation.

Section 339.305

An individual proposed revising § 339.305 relative to workers compensation issues. Specifically, the individual stated the section was confusing. The individual also stated he did not understand the purpose of the communication and information interchange with the Office of Workers Compensation (OWCP) and requested to discuss the objectives further. OPM has not accepted this comment or request. This section provides that agencies must forward to OWCP copies of medical documentation and examinations of employees who are receiving or have applied for injury compensation benefits, including continuation of pay. The results of these employee evaluations are significant to the agency and to OWCP in that this information and any related periodic updates are critical to determining medical limitations that may affect job placement decisions.

The final part 339 is published in its entirety for the convenience of the reader.

E.O. 12866, Regulatory Review

This rule has been reviewed by the Office of Management and Budget in accordance with E.O. 12866.

Regulatory Flexibility Act (5 U.S.C. 601, et seq.)

I certify that these regulations would not have a significant economic impact on a substantial number of small entities because it affects only Federal agencies and employees.

E.O. 13132, Federalism

This regulation will not have substantial direct effects on the States, on the relationship between the National Government and the States, or on distribution of power and responsibilities among the various levels of government. Therefore, in accordance with Executive Order 13132, it is determined that this rule does not have sufficient federalism implications to warrant preparation of a Federalism Assessment.

Unfunded Mandates Reform Act of 1995

This rule will not result in the expenditure by State, local or tribal governments of more than $100 million annually. Thus, no written assessment of unfunded mandates is required.

Paperwork Reduction Act

These proposed regulations impose no new reporting or recordkeeping requirements subject to the Paperwork Reduction Act of 1995.

List of Subjects in 5 CFR Part 339

Equal employment opportunity, Government employees, Health, Individuals with disabilities.

U.S. Office of Personnel Management. Beth F. Colbert, Director. Accordingly, OPM is revising 5 CFR part 339 to read as follows: PART 339—MEDICAL QUALIFICATION DETERMINATIONS 1. Revise part 339 to read as follows: Subpart A—General Sec. 339.101 Coverage. 339.102 Purpose and effect. 339.103 Compliance with disability laws. 339.104 Definitions. Subpart B—Medical Standards, Physical Requirements, and Medical Evaluation Programs 339.201 Disqualification by OPM. 339.202 Medical standards. 339.203 Physical requirements 339.204 Waiver of standards and requirements and medical review boards. 339.205 Medical evaluation programs. 339.206 Disqualification on the basis of medical history. Subpart C—Medical Examinations 339.301 Authority to require an examination. 339.302 Authority to offer examinations. 339.303 Medical examination procedures. 339.304 Payment for examination. 339.305 Records and reports. 339.306 Processing medical eligibility determinations. Authority:

5 U.S.C. 1104(a), 1302(a), 3301, 3302, 3304, 3312, 3318, 3320, 3504, 5112; 39 U.S.C. 1005, Executive Order 10577, Rule II, codified as amended in 5 CFR 2.1(a).

Subpart A—General
§ 339.101 Coverage.

This part applies to—

(a) Applicants for and employees in competitive service positions; and

(b) Applicants for and employees in positions excepted from the competitive service when medical issues arise in connection with an OPM regulation that governs a particular personnel action, such as removal of a preference eligible employee in the excepted service under part 752.

§ 339.102 Purpose and effect.

(a) This part defines the circumstances under which OPM permits medical documentation to be required and examinations and/or evaluations conducted to determine the nature of a medical condition that affects safe and efficient performance.

(b) Personnel decisions based wholly or in part on the review of medical documentation, as defined below, and the results of medical examinations and evaluations must be made in accordance with appropriate sections of this part.

(c) Failure to meet medical (which may include psychological) standards and/or physical requirements established under this part means that the applicant or employee is not qualified for the position, unless reasonable accommodation or a waiver is appropriate, in accordance with §§ 339.103 and 339.204. An employee's refusal to be examined or provide medical documentation, as defined below, in accordance with a proper agency order authorized under this part, constitutes a basis for appropriate disciplinary or adverse action. After a tentative job offer of employment conditioned on completion of a medical examination, an applicant's refusal to be examined or provide medical documentation, as defined below, may result in the applicant's removal from further consideration for the position.

§ 339.103 Compliance with disability laws.

(a) The Americans with Disabilities Act (ADA) of 1990, as amended by the Amendments Act of 2008 (collectively the ADA), establishes prohibitions against discrimination and the requirements for reasonable accommodation that apply to the Federal Government through the Rehabilitation Act of 1973, as amended, 29 U.S.C. 791(f). Consequently, actions under this part must comply with the non-discrimination provisions of the Rehabilitation Act, the non-discrimination provisions of the ADA, and their implementing regulations.

(b) Use of the term “qualified” in this part must comply with the Rehabilitation Act, as amended, and the ADA, as amended. Specifically, a “qualified individual with a disability” means that the individual possess the requisite skill, experience, education, and other job-related requirements of an employment position that the individual holds or seeks, and can perform the essential functions of the position with or without reasonable accommodation.

§ 339.104 Definitions.

For purposes of this part—

Accommodation means reasonable accommodation as described in the ADA.

Arduous or hazardous positions means positions that are dangerous or physically demanding to such a degree that an employee's medical and/or physical condition is necessarily an important consideration in determining ability to perform safely and efficiently.

Medical condition means a health impairment which results from birth, injury or disease, including mental disorder.

Medical documentation or documentation of a medical condition means a copy of a dated, written and signed statement, or a dated copy of actual medical office or hospital records, from a licensed physician or other licensed health practitioner, as these terms are defined below, that contains necessary and relevant information to enable the agency to make an employment decision. To be acceptable, the diagnosis or clinical impression must be justified according to established diagnostic criteria and the conclusions and recommendations must be consistent with generally accepted professional standards. The determination that the diagnosis meets these criteria is made by or in coordination with a licensed physician or, if appropriate, a practitioner of the same discipline as the one who issued the documentation. An acceptable diagnosis must include the information identified by the agency as necessary and relevant to its employment decision. This information may include, but is not limited to, the following:

(1) The history of the medical condition(s), including references to findings from previous examinations, treatment, and responses to treatment;

(2) Clinical findings from the most recent medical evaluation, including any of the following: Findings of physical examination; results of laboratory tests; X-rays; EKGs and/or other special evaluations or diagnostic procedures; and, in the case of psychiatric examination or psychological assessment, the findings of a mental status examination and/or the results of psychological tests, if appropriate;

(3) Diagnosis, including the current clinical status;

(4) Prognosis, including plans for future treatment and an estimate of the expected date of full or partial recovery;

(5) An explanation of the impact of the medical condition(s) on overall health and activities, including the basis for any conclusion as to whether restrictions or accommodations are necessary and, if determined to be necessary, an explanation supporting that determination; and, either of the following:

(6) An explanation of the medical basis for any conclusion that indicates the likelihood that the applicant or employee will suffer sudden incapacitation or subtle incapacitation by carrying out, with or without accommodation, the tasks or duties of a specific position; or

(7) Narrative explanation of the medical basis for any conclusion that the medical condition has or has not become static or well-stabilized and the likelihood that the applicant or employee may experience sudden incapacitation or subtle incapacitation as a result of the medical condition. In this context, “static or well-stabilized” medical condition means a medical condition which is not likely to change as a consequence of the natural progression of the condition, such as a result of the normal aging process, or in response to the work environment or the work itself.

Medical evaluation program means a program of recurring medical examinations or tests established by written agency policy or directive, to safeguard the health of employees whose work may subject them or others to significant health or safety risks due to occupational or environmental exposure or demands. For example, an agency policy or directive may include medical clearances and medical surveillance to test for occupational exposure to biological, chemical, and/or radiological hazardous agents, occupational diseases, and occupational risk.

Medical restriction is a medical determination that an applicant or employee is limited, or prevented from performing a certain type or duration of work or activity (e.g., standing and/or ability to concentrate) or motion (e.g., bending, lifting, pulling), because of a particular medical condition or physical limitation. The purpose of a medical restriction is to try to prevent aggravation, acceleration, exacerbation, or permanent worsening of the medical condition or physical limitation.

Medical standard is a written description of the minimum medical requirements necessary for an applicant or employee to perform essential job duties as a condition of employment.

Medical surveillance is the on-going systematic collection and analysis of health data to improve and protect the health and safety of employees in the workplace, and to monitor for health trends both in individual workers and in population of workers. Medical surveillance can include the tracking of occupational injuries, illnesses, hazards, and exposures, as well as laboratory and examination-based medical data, in order to identify findings that could provide an early warning of, or indicate the risk for, an occupational disease. Medical surveillance also is part of compliance with those Federal and state regulations that require medical monitoring when employees use or are exposed to certain hazardous materials.

Physical requirement is a written description of job-related physical abilities that are essential for performance of the duties of a specific position.

Physician means a licensed Doctor of Medicine or Doctor of Osteopathy, or a physician who is serving on active duty in the uniformed services and is designated by the uniformed service to conduct examinations under this part.

Practitioner means a person providing health services who is not a medical doctor, but who is certified by a national organization, licensed by a State, and/or registered as a health professional to provide the health service in question.

Subtle incapacitation means gradual, initially imperceptible impairment of physical or mental function, whether reversible or not, which is likely to result in safety, performance and/or conduct issues that may undermine the agency's commitment to maintaining a safe working environment for all employees and others.

Sudden incapacitation means abrupt onset of loss of control of physical or mental function(s), whether reversible or not, which is likely to result in safety, performance or conduct issues that may undermine the agency's commitment to maintaining a safe working environment for all employees and others.

Subpart B—Medical Standards, Physical Requirements, and Medical Evaluation Programs
§ 339.201 Disqualification by OPM.

OPM must review and decide upon an agency's request to pass over a candidate, who is a preference eligible, on medical grounds pursuant to § 339.306. OPM may deny an applicant employment by reason of physical or mental unfitness for the position for which he or she has applied. An OPM decision under this section or § 339.306 is separate and distinct from a determination of disability pursuant to statutory provisions for disability retirement under the Civil Service Retirement System and the Federal Employees' Retirement System.

§ 339.202 Medical standards.

OPM may establish and/or approve medical standards for a Governmentwide occupation (i.e., an occupation common to more than one agency) or approve revisions to its established medical standards. An individual agency may establish medical standards for positions that predominate in that agency (i.e., where the agency has 50 percent or more of the positions in a particular occupation). Such standards must be justified on the basis that the duties of the positions are arduous or hazardous, or require a certain level of health status for successful performance when the nature of the positions involves a high degree of responsibility toward the public or sensitive national security concerns. The rationale for establishing the standard must be documented and supported by a study(ies) or evaluation(s) establishing the medical standard is job-related to the occupation(s). Medical standards established by agencies must be approved by OPM prior to implementation. Standards established by OPM or an agency must be:

(a) Established by written directive and uniformly applied, and

(b) Directly related to the actual performance and requirements necessary for the performance of the duties of the position.

§ 339.203 Physical requirements.

(a) An agency may establish physical requirements for individual positions without OPM approval when such requirements are considered essential for performance of the duties of a specific position. Physical requirements must be clearly supported by the actual duties of the position, documented in the position description, and supported by a study(ies) or evaluation(s) establishing physical requirement(s) is job-related to the occupation(s).

(b) An applicant or employee may not be disqualified arbitrarily on the basis of physical requirements or other criteria that do not relate specifically to performance of the duties of a specific position.

§ 339.204 Waiver of standards and requirements and medical review boards.

(a) An agency must waive a medical standard or physical requirement established under this part when an applicant or employee, unable to meet that standard or requirement, presents sufficient evidence that the applicant or employee, with or without reasonable accommodation, can perform the essential duties of the position without endangering the health and safety of the applicant or employee or others. Additional information obtained by the agency may be considered in determining whether a waiver is appropriate. An agency may establish timeframes, in writing, for submission of initial or additional information for consideration, with allowance for reasonable extensions.

(b) Agencies may, but are not required to, establish medical review boards to help the agency provide a case-by-case, fact-based, individualized assessment whenever an individual is found to not meet agency medical standards or physical requirements. An agency may also use a medical review board as a forum for a higher level of review within the agency when medical questions or issues arise. If established, the Board is expected to recommend administrative actions that are consistent with applicable law, as well as applicable and current medical practice standards of care, through the combined expertise of its members.

(c) The use and composition of a medical review board will be determined by the agency. Upon request, an agency will provide to OPM information regarding the composition and use of medical review boards. OPM may issue guidance from time to time as to best practices with respect to the composition and use of such boards.

§ 339.205 Medical evaluation programs.

Agencies may establish periodic medical examinations, medical surveillance, or immunization programs by written policies or directives to safeguard the health of employees whose work may expose them or others to significant health or safety risks due to occupational or environmental exposure or demands. This may include the requirement to undergo vaccination with products approved by the Food and Drug Administration (e.g., for national security reasons or in order to fulfill the duties of a position designated as national security sensitive). The need for a medical evaluation program must be clearly supported by the nature of the work. The specific positions covered must be identified and the applicants or employees notified in writing of the reasons for including the positions in the program.

§ 339.206 Disqualification on the basis of medical history.

An employee or applicant may not be disqualified for any position solely on the basis of medical history. For positions subject to medical standards and/or physical requirements, and for positions under medical evaluation programs, a history of a particular medical condition may result in medical disqualification only if the condition at issue is itself disqualifying, recurrence of the condition is based on reasonable medical judgment, and the duties of the position are such that a recurrence of the condition would pose a significant risk of substantial harm to the health and safety of the applicant or employee or others that cannot be eliminated or reduced by reasonable accommodation or any other agency efforts to mitigate risk.

Subpart C—Medical Examinations
§ 339.301 Authority to require an examination.

(a) A routine pre-employment medical examination is appropriate only for a position with specific medical standards and/or physical requirements, or that is covered by a medical evaluation program established under this part.

(b) Subject to § 339.103, an agency may require an applicant or employee who has applied for or occupies a position that has medical standards and/or physical requirements, or is covered by a medical evaluation program established under this part, to report for a medical examination:

(1) Subsequent to a tentative offer of employment or reemployment (including return to work from medically based absence on the basis of a medical condition);

(2) On a regularly recurring, periodic basis after appointment in accordance with § 339.205; or

(3) Whenever the agency has a reasonable belief, based on objective evidence, that there is a question about an employee's continued capacity to meet the medical standards or physical requirements of a position.

(c) An agency may require an employee who has applied for or is receiving continuation of pay or compensation as a result of an injury or disease covered under the provisions of the Federal Employees' Compensation Act to report for an examination to determine medical limitations that may affect job placement decisions.

(d) An agency may require an employee who is released from his or her competitive level in a reduction in force under part 351 of this chapter to undergo a relevant medical evaluation if the position to which the employee has assignment rights has medical standards and/or physical requirements, that are different from those required in the employee's current position.

(e)(1) An agency may order a psychiatric examination (including a psychological assessment) only when:

(i) The result of a current general medical examination that the agency has the authority to order under this section indicates no physical explanation for behavior or actions that may affect the safe and efficient performance of the applicant or employee, the safety of others, and/or the vulnerability of business operation and information systems to potential threats, or

(ii) A psychiatric examination or psychological assessment is part of the medical standards for a position having medical standards or required under a medical evaluation program established under this part.

(2) A psychiatric examination or psychological assessment authorized under paragraphs (e)(1) of this section must be conducted in accordance with accepted professional standards by a licensed physician certified in psychiatry by the American Board of Psychiatry and Neurology or the American Osteopathic Board of Psychiatry and Neurology, or by a licensed psychologist or clinical neuropsychologist, and may only be used to make inquiry into a person's mental fitness as it directly relates to successfully performing the duties of the position without significant risk to the applicant or employee or others, and/or to the vulnerability of business operation and information systems to potential threats.

§ 339.302 Authority to offer examinations.

An agency may, at its option, offer a medical examination (including a psychiatric examination or psychological assessment) in situations where the agency needs additional medical documentation to make an informed management decision. This may include situations where an employee requests, for medical reasons, a change in duty status, assignment, working conditions, or any other different treatment (including reasonable accommodation or return to work on the basis of full or partial recovery from a medical condition) or where the employee has a performance or conduct problem that may require agency action. Reasons for offering an examination must be documented. When an offer of an examination has been made by an agency and the offer has been accepted by the applicant or employee, the examination must be carried out in accordance with the authorities cited in § 339.103. The results of the examination must also be used in accordance with the authorities cited in § 339.103.

§ 339.303 Medical examination procedures.

(a) When an agency requires or offers a medical or psychiatric examination or psychological assessment under this subpart, it must inform the applicant or employee in writing of its reasons for doing so, the consequences of failure to cooperate, and the right to submit medical information from his or her private physician or practitioner. A single written notification is sufficient to cover a series of regularly recurring or periodic examinations ordered under this subpart. An agency may establish timeframes, in writing, for submission of medical documentation, with allowances for reasonable extensions.

(1) Refusal or failure to report for a medical examination ordered by the agency may be a basis for a determination that the applicant or employee is not qualified for the position. In addition, an employee may be subject to adverse action.

(2) Refusal or failure on the part of an applicant or the employee to authorize release of any results from an agency ordered or offered medical examination issued in accordance with §§ 339.301 or 339.302, or the results of any previous medical treatments or evaluations relative to the identified medical issue, to authorized agency representatives, including the agency physician or medical review officer and/or independent medical specialists, may be a basis for disqualification for the position by the hiring agency. In addition, an employee may be subject to adverse action.

(b) The agency designates the examining physician or other appropriate practitioner, but must offer the applicant or employee an opportunity to submit medical documentation from his or her private physician or practitioner for consideration in the medical examination process. The agency must review and consider all such documentation supplied by the private physician or practitioner. The applicant or employee must authorize release of this documentation to all authorized agency representatives. In situations where the medical documentation of the applicant or employee's private physician or practitioner is contradictory and cannot be resolved by the examining physician or the agency physician or medical review officer, the agency may, at its option, pursue another opinion from an appropriate specialist at agency expense. An applicant or employee also may, at his or her option, pursue another opinion from an appropriate specialist at his or her expense in the event of conflicting or contradictory medical documentation.

§ 339.304 Payment for examination.

(a) An agency must pay for all medical and/or psychological and/or psychiatric examinations required or offered by the agency under this subpart, whether conducted by the agency's physician or medical review officer, an independent medical evaluation specialist (e.g., occupational audiologist) identified by the agency, or a licensed physician or practitioner chosen by the applicant or employee. This includes special evaluations or diagnostic procedures required by an agency.

(b) Following conclusion of the initial medical, psychological, and/or psychiatric examination, the agency physician or medical review officer will render a final medical determination. In certain final medical ineligibility determinations, the agency physician or medical review officer may reference supplemental medical examination, testing or documentation, which the applicant or employee may submit to the agency for consideration and further review relative to potential medical eligibility. Under these circumstances, the applicant or employee is responsible for payment of this further examination, testing and documentation.

(c) An applicant or employee must pay to obtain all relevant medical documentation from his or her private licensed physician or required practitioners in instances where no medical examination is required or offered by the agency, but where the agency requests the applicant or employee to provide medical documentation relative to an identified medical or physical condition in question or where the agency needs medical documentation to render an informed management decision.

(d) An applicant or employee must pay for a medical examination conducted by his or her private licensed physician or practitioner where the purpose of the examination is to secure a change sought by an applicant (e.g., new employment) or by an employee (e.g., a request for change in duty status, reasonable accommodation, and/or job modification).

§ 339.305 Records and reports.

(a) Agencies will receive and maintain all medical documentation and records of examinations obtained under this part in accordance with part 293, subpart E, of this chapter.

(b) The report of an examination conducted under this subpart must be made available to the applicant or employee under the provisions of part 297 of this chapter.

(c) Agencies must forward to the Office of Workers' Compensation Programs (OWCP), Employment Standards Administration, Department of Labor, a copy of all medical documentation and reports of examinations of employees who are receiving or have applied for injury compensation benefits under 5 U.S.C. chapter 81, including continuation of pay. The agency must also report to OWCP the failure of such employees to report for examinations that the agency orders under this subpart. When the employee has applied for disability retirement, this information and any medical documentation or reports of examination must be forwarded to OPM.

§ 339.306 Processing medical eligibility determinations.

(a) In accordance with the provisions of this part, agencies are authorized to medically disqualify a nonpreference eligible. A nonpreference eligible so disqualified has a right to a higher level review of the determination within the agency.

(b) OPM must approve the sufficiency of the agency's reasons to:

(1) Medically disqualify or pass over a preference eligible in order to select a nonpreference eligible for:

(i) A competitive service position under part 332 of this chapter; or

(ii) An excepted service position in the executive branch subject to title 5, U.S. Code;

(2) Medically disqualify or pass over a 30 percent or more compensably disabled veteran for a position in the U.S. Postal Service in favor of a nonpreference eligible;

(3) Medically disqualify a 30 percent or more compensably disabled veteran for assignment to another position in a reduction in force under § 351.702(d) of this chapter; or

(4) Medically disqualify a 30 percent or more disabled veteran for noncompetitive appointment, for example, under § 316.302(b)(4) of this chapter.

[FR Doc. 2017-00804 Filed 1-17-17; 8:45 am] BILLING CODE 6325-39-P
DEPARTMENT OF THE TREASURY Office of the Comptroller of the Currency 12 CFR Parts 25 and 195 [Docket ID OCC-2016-0031] RIN 1557-AE11 FEDERAL RESERVE SYSTEM 12 CFR Part 228 [Regulation BB; Docket No. R-1554] RIN 7100-AE64 FEDERAL DEPOSIT INSURANCE CORPORATION 12 CFR Part 345 RIN 3064-AD90 Community Reinvestment Act Regulations AGENCY:

Office of the Comptroller of the Currency, Treasury (OCC); Board of Governors of the Federal Reserve System (Board); and Federal Deposit Insurance Corporation (FDIC).

ACTION:

Joint final rule; technical amendment.

SUMMARY:

The OCC, the Board, and the FDIC (collectively, the Agencies) are amending their Community Reinvestment Act (CRA) regulations to adjust the asset-size thresholds used to define “small bank” or “small savings association” and “intermediate small bank” or “intermediate small savings association.” As required by the CRA regulations, the adjustment to the threshold amount is based on the annual percentage change in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The FDIC is also amending its CRA Notice requirements to reflect two technical changes concerning the manner in which the agency will receive public comments considered in the CRA examination process.

DATES:

Effective January 18, 2017.

FOR FURTHER INFORMATION CONTACT:

OCC: Emily Boyes, Attorney, Community and Consumer Law Division, (202) 649-6350; Marta E. Stewart-Bates, Attorney, Legislative and Regulatory Activities Division, (202) 649-5490; for persons who are deaf or hard of hearing, TTY, (202) 649-5597; or Bobbie K. Kennedy, Bank Examiner, Compliance Policy Division, (202) 649-5470, Office of the Comptroller of the Currency, 400 7th Street SW., Washington, DC 20219.

Board: Amal S. Patel, Senior Supervisory Consumer Financial Services Analyst, (202) 912-7879; or Nikita Pastor, Senior Counsel, (202) 452-3667, Division of Consumer and Community Affairs, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue NW., Washington, DC 20551.

FDIC: Patience R. Singleton, Senior Policy Analyst, Supervisory Policy Branch, Division of Depositor and Consumer Protection, (202) 898-6859; or Richard M. Schwartz, Counsel, Legal Division, (202) 898-7424, Federal Deposit Insurance Corporation, 550 17th Street NW., Washington, DC 20429.

SUPPLEMENTARY INFORMATION:

Background and Description of the Joint Final Rule

The Agencies' CRA regulations establish CRA performance standards for small and intermediate small banks and savings associations. The CRA regulations define small and intermediate small banks and savings associations by reference to asset-size criteria expressed in dollar amounts, and they further require the Agencies to publish annual adjustments to these dollar figures based on the year-to-year change in the average of the CPI-W, not seasonally adjusted, for each 12-month period ending in November, with rounding to the nearest million. 12 CFR 25.12(u)(2), 195.12(u)(2), 228.12(u)(2), and 345.12(u)(2). This adjustment formula was first adopted for CRA purposes by the OCC, the Board, and the FDIC on August 2, 2005, effective September 1, 2005. 70 FR 44256 (Aug. 2, 2005). The Agencies noted that the CPI-W is also used in connection with other federal laws, such as the Home Mortgage Disclosure Act. See 12 U.S.C. 2808; 12 CFR 1003.2. On March 22, 2007, and effective July 1, 2007, the former Office of Thrift Supervision, the agency then responsible for regulating savings associations, adopted an annual adjustment formula consistent with that of the other federal banking agencies in its CRA rule previously set forth at 12 CFR 563e. 72 FR 13429 (Mar. 22, 2007).

Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act),1 effective July 21, 2011, CRA rulemaking authority for federal and state savings associations was transferred from the OTS to the OCC, and the OCC subsequently republished, at 12 CFR 195, the CRA regulations applicable to those institutions.2 In addition, the Dodd-Frank Act transferred responsibility for supervision of savings and loan holding companies and their non-depository subsidiaries from the OTS to the Board, and the Board subsequently amended its CRA regulation to reflect this transfer of supervisory authority.3

1 Public Law 111-203, 124 Stat. 1376 (2010).

2See OCC interim final rule, 76 FR 48950 (Aug. 9, 2011).

3See Board interim final rule, 76 FR 56508 (Sept. 13, 2011).

The threshold for small banks and small savings associations was revised most recently in December 2015 and became effective January 1, 2016. 80 FR 81162 (Dec. 29, 2015). The current CRA regulations provide that banks and savings associations that, as of December 31 of either of the prior two calendar years, had assets of less than $1.216 billion are small banks or small savings associations. Small banks and small savings associations with assets of at least $304 million as of December 31 of both of the prior two calendar years and less than $1.216 billion as of December 31 of either of the prior two calendar years are intermediate small banks or intermediate small savings associations. 12 CFR 25.12(u)(1), 195.12(u)(1), 228.12(u)(1), and 345.12(u)(1). This joint final rule revises these thresholds.

During the 12-month period ending November 2016, the CPI-W increased by 0.84 percent. As a result, the Agencies are revising 12 CFR 25.12(u)(1), 195.12(u)(1), 228.12(u)(1), and 345.12(u)(1) to make this annual adjustment. Beginning January 18, 2017, banks and savings associations that, as of December 31 of either of the prior two calendar years, had assets of less than $1.226 billion are small banks or small savings associations. Small banks and small savings associations with assets of at least $307 million as of December 31 of both of the prior two calendar years and less than $1.226 billion as of December 31 of either of the prior two calendar years are intermediate small banks or intermediate small savings associations. The Agencies also publish current and historical asset-size thresholds on the Web site of the Federal Financial Institutions Examination Council at http://www.ffiec.gov/cra/.

The FDIC is also amending its CRA Notice requirements located at Appendix B to Part 345. The current appendix states that Regional Managers are the proper agency officials responsible for both making available, upon request, lists of the banks scheduled for CRA examination in any particular quarter and receiving any public comment regarding the CRA performance of any of those banks. Since that language was published, a technical change was made to the responsible official's title from Regional Manager to Regional Director. In addition, since the original notice requirements were written, there has been the creation of a Web page to receive public comments electronically. The amendments made in this notice reflect those two changes. The associated changes to the CRA notice requirements will compel covered institutions to print and post the revised CRA notices in their main and branch offices.

Administrative Procedure Act and Effective Date

Under 5 U.S.C. 553(b)(B) of the Administrative Procedure Act (APA), an agency may, for good cause, find (and incorporate the finding and a brief statement of reasons therefore in the rules issued) that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.

The amendments to the regulations to adjust the asset-size thresholds for small and intermediate small banks and savings associations result from the application of a formula established by a provision in the respective CRA regulations that the Agencies previously published for comment. See 70 FR 12148 (Mar. 11, 2005), 70 FR 44256 (Aug. 2, 2005), 71 FR 67826 (Nov. 24, 2006), and 72 FR 13429 (Mar. 22, 2007). As a result, §§ 25.12(u)(1), 195.12(u)(1), 228.12(u)(1), and 345.12(u)(1) of the Agencies' respective CRA regulations are amended by adjusting the asset-size thresholds as provided for in §§ 25.12(u)(2), 195.12(u)(2), 228.12(u)(2), and 345.12(u)(2).

Accordingly, the Agencies' rules provide no discretion as to the computation or timing of the revisions to the asset-size criteria. Furthermore, revising the FDIC's CRA Notice requirements to reflect the two referenced changes to the manner in which the agency will receive public comments considered in the CRA examination process is a technical and non-substantive revision. For these reasons, the Agencies have determined that publishing a notice of proposed rulemaking and providing opportunity for public comment are unnecessary.

The effective date of this joint final rule is January 18, 2017. Under 5 U.S.C. 553(d)(3) of the APA, the required publication or service of a substantive rule shall be made not less than 30 days before its effective date, except, among other things, as provided by the agency for good cause found and published with the rule. Because this rule adjusts asset-size thresholds consistent with the procedural requirements of the CRA rules, the Agencies conclude that it is not substantive within the meaning of the APA's delayed effective date provision. Moreover, the Agencies find that there is good cause for dispensing with the delayed effective date requirement, even if it applied, because their current rules already provide notice that the small and intermediate small asset-size thresholds will be adjusted as of December 31 based on 12-month data as of the end of November each year.

Regulatory Flexibility Act

The Regulatory Flexibility Act (RFA) does not apply to a rulemaking when a general notice of proposed rulemaking is not required. 5 U.S.C. 603 and 604. As noted previously, the Agencies have determined that it is unnecessary to publish a general notice of proposed rulemaking for this joint final rule. Accordingly, the RFA's requirements relating to an initial and final regulatory flexibility analysis do not apply.

Paperwork Reduction Act of 1995

The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521) states that no agency may conduct or sponsor, nor is the respondent required to respond to, an information collection unless it displays a currently valid Office of Management and Budget (OMB) control number. The Agencies have determined that this final rule does not create any new, or revise any existing, collections of information pursuant to the Paperwork Reduction Act. Consequently, no information collection request will be submitted to the OMB for review.

Unfunded Mandates Reform Act of 1995

Section 202 of the Unfunded Mandates Reform Act of 1995 (Unfunded Mandates Act), 2 U.S.C. 1532, requires the OCC to prepare a budgetary impact statement before promulgating any final rule for which a general notice of proposed rulemaking was published. As discussed above, the OCC has determined that the publication of a general notice of proposed rulemaking is unnecessary. Accordingly, this joint final rule is not subject to section 202 of the Unfunded Mandates Act.

List of Subjects 12 CFR Part 25

Community development, Credit, Investments, National banks, Reporting and recordkeeping requirements.

12 CFR Part 195

Community development, Credit, Investments, Reporting and recordkeeping requirements, Savings associations.

12 CFR Part 228

Banks, Banking, Community development, Credit, Investments, Reporting and recordkeeping requirements.

12 CFR Part 345

Banks, Banking, Community development, Credit, Investments, Reporting and recordkeeping requirements.

Department of the Treasury Office of the Comptroller of the Currency 12 CFR Chapter I

For the reasons discussed in the preamble, the Office of Comptroller of the Currency amends 12 CFR parts 25 and 195, the Board of Governors of the Federal Reserve System amends part 228 of chapter II, and Board of Directors of the Federal Deposit Insurance Corporation amends part 345 of chapter III of title 12 of the Code of Federal Regulations as follows:

PART 25—COMMUNITY REINVESTMENT ACT AND INTERSTATE DEPOSIT PRODUCTION REGULATIONS 1. The authority citation for part 25 continues to read as follows: Authority:

12 U.S.C. 21, 22, 26, 27, 30, 36, 93a, 161, 215, 215a, 481, 1814, 1816, 1828(c), 1835a, 2901 through 2908, and 3101 through 3111.

2. Section 25.12 is amended by revising paragraph (u)(1) to read as follows:
§ 25.12 Definitions.

(u) * * *

(1) Definition. Small bank means a bank that, as of December 31 of either of the prior two calendar years, had assets of less than $1.226 billion. Intermediate small bank means a small bank with assets of at least $307 million as of December 31 of both of the prior two calendar years and less than $1.226 billion as of December 31 of either of the prior two calendar years.

PART 195—COMMUNITY REINVESTMENT 3. The authority citation for part 195 continues to read as follows: Authority:

12 U.S.C. 1462a, 1463, 1464, 1814, 1816, 1828(c), 2901 through 2908, and 5412(b)(2)(B).

4. Section 195.12 is amended by revising paragraph (u)(1) to read as follows:
§ 195.12 Definitions.

(u) * * *

(1) Definition. Small savings association means a savings association that, as of December 31 of either of the prior two calendar years, had assets of less than $1.226 billion. Intermediate small savings association means a small savings association with assets of at least $307 million as of December 31 of both of the prior two calendar years and less than $1.226 billion as of December 31 of either of the prior two calendar years.

Federal Reserve System 12 CFR Chapter II PART 228—COMMUNITY REINVESTMENT (REGULATION BB) 5. The authority citation for part 228 continues to read as follows: Authority:

12 U.S.C. 321, 325, 1828(c), 1842, 1843, 1844, and 2901 et seq.

6. Section 228.12 is amended by revising paragraph § 228.12(u)(1).

The revision is set forth below:

§ 228.12 Definitions.

(u) Small bank—(1) Definition. Small bank means a bank that, as of December 31 of either of the prior two calendar years, had assets of less than $1.226 billion. Intermediate small bank means a small bank with assets of at least $307 million as of December 31 of both of the prior two calendar years and less than $1.226 billion as of December 31 of either of the prior two calendar years.

Federal Deposit Insurance Corporation 12 CFR Chapter III PART 345—COMMUNITY REINVESTMENT 7. The authority citation for part 345 continues to read as follows: Authority:

12 U.S.C. 1814-1817, 1819-1820, 1828, 1831u and 2901-2908, 3103-3104, and 3108(a).

8. Section 345.12 is amended by revising paragraph (u)(1) to read as follows:
§ 345.12 Definitions.

(u) * * *

(1) Definition. Small bank means a bank that, as of December 31 of either of the prior two calendar years, had assets of less than $1.226 billion. Intermediate small bank means a small bank with assets of at least $307 million as of December 31 of both of the prior two calendar years and less than $1.226 billion as of December 31 of either of the prior two calendar years.

9. Appendix B to part 345 is amended by revising the fourth and fifth paragraphs of section (a) and the fifth and sixth paragraphs of section (b) to read as follows: Appendix B to Part 345—CRA Notice

(a) * *

Community Reinvestment Act Notice

At least 30 days before the beginning of each quarter, the FDIC publishes a nationwide list of the banks that are scheduled for CRA examination in that quarter. This list is available from the Regional Director, FDIC (address). You may send written comments about our performance in helping to meet community credit needs to (name and address of official at bank) and FDIC Regional Director. You may also submit comments electronically through the FDIC's Web site at www.fdic.gov/regulations/cra. Your letter, together with any response by us, will be considered by the FDIC in evaluating our CRA performance and may be made public.

You may ask to look at any comments received by the FDIC Regional Director. You may also request from the FDIC Regional Director an announcement of our applications covered by the CRA filed with the FDIC. We are an affiliate of (name of holding company), a bank holding company. You may request from the (title of responsible official), Federal Reserve Bank of _______(address) an announcement of applications covered by the CRA filed by bank holding companies.

(b) * * *

Community Reinvestment Act Notice

At least 30 days before the beginning of each quarter, the FDIC publishes a nationwide list of the banks that are scheduled for CRA examination in that quarter. This list is available from the Regional Director, FDIC (address). You may send written comments about our performance in helping to meet community credit needs to (name and address of official at bank) and the FDIC Regional Director. You may also submit comments electronically through the FDIC's Web site at www.fdic.gov/regulations/cra. Your letter, together with any response by us, will be considered by the FDIC in evaluating our CRA performance and may be made public.

You may ask to look at any comments received by the FDIC Regional Director. You may also request from the FDIC Regional Director an announcement of our applications covered by the CRA filed with the FDIC. We are an affiliate of (name of holding company), a bank holding company. You may request from the (title of responsible official), Federal Reserve Bank of _______(address) an announcement of applications covered by the CRA filed by bank holding companies.

Dated: December 16, 2016. Amy S. Friend, Senior Deputy Comptroller and Chief Counsel.

By order of the Board of Governors of the Federal Reserve System, December 28, 2016.

Robert deV. Frierson, Secretary of the Board.

By order of the Board of Directors.

Dated at Washington, DC, this 16th day of December, 2016.

Federal Deposit Insurance Corporation. Robert E. Feldman, Executive Secretary.
[FR Doc. 2016-31928 Filed 1-17-17; 8:45 am] BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P
DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 39 [Docket No. FAA-2016-9187; Directorate Identifier 2016-NM-032-AD; Amendment 39-18777; AD 2017-01-10] RIN 2120-AA64 Airworthiness Directives; Airbus Defense and Space S.A. (Formerly Known as Construcciones Aeronauticas, S.A.) Airplanes AGENCY:

Federal Aviation Administration (FAA), Department of Transportation (DOT).

ACTION:

Final rule.

SUMMARY:

We are adopting a new airworthiness directive (AD) for all Airbus Defense and Space S.A. Model C-212 airplanes. This AD was prompted by multiple reports of damaged and cracked rudder torque tube shafts. This AD requires various repetitive inspections, and corrective actions if necessary. This AD also provides a modification which terminates the repetitive inspections. We are issuing this AD to address the unsafe condition on these products.

DATES:

This AD is effective February 22, 2017.

The Director of the Federal Register approved the incorporation by reference of certain publications listed in this AD as of February 22, 2017.

ADDRESSES:

For service information identified in this final rule, contact Airbus Defense and Space, Services/Engineering Support, Avenida de Aragón 404, 28022 Madrid, Spain; telephone: +34 91 585 55 84; fax: +34 91 585 31 27; email: [email protected] You may view this referenced service information at the FAA, Transport Airplane Directorate, 1601 Lind Avenue SW., Renton, WA. For information on the availability of this material at the FAA, call 425-227-1221. It is also available on the Internet at http://www.regulations.gov by searching for and locating Docket No. FAA-2016-9187.

Examining the AD Docket

You may examine the AD docket on the Internet at http://www.regulations.gov by searching for and locating Docket No. FAA-2016-9187; or in person at the Docket Management Facility between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The AD docket contains this AD, the regulatory evaluation, any comments received, and other information. The street address for the Docket Office (telephone: 800-647-5527) is Docket Management Facility, U.S. Department of Transportation, Docket Operations, M-30, West Building Ground Floor, Room W12-140, 1200 New Jersey Avenue SE., Washington, DC 20590.

FOR FURTHER INFORMATION CONTACT:

Shahram Daneshmandi, Aerospace Engineer, International Branch, ANM-116, Transport Airplane Directorate, FAA, 1601 Lind Avenue SW., Renton, WA 98057-3356; telephone: 425-227-1112; fax: 425-227-1149.

SUPPLEMENTARY INFORMATION:

Discussion

We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 by adding an AD that would apply to all Airbus Defense and Space S.A. Model C-212 airplanes. The NPRM published in the Federal Register on October 11, 2016 (81 FR 70062). The NPRM was prompted by multiple reports of damaged and cracked rudder torque tube shafts. The NPRM proposed to require repetitive general visual and high frequency eddy current (HFEC) inspections of the inner rudder torque tube shaft for cracks, deformation, and damage; repetitive detailed inspections, and HFEC inspections, if necessary, of the inner and outer rudder torque tube shaft for cracks, deformation, and damage; and corrective actions if necessary. We are issuing this AD to detect and correct damaged and cracked rudder torque tube shafts, which could lead to structural failure of the affected rudder torque tube shaft and possible reduced control of the airplane.

The European Aviation Safety Agency (EASA), which is the Technical Agent for the Member States of the European Union, has issued EASA AD 2016-0052, dated March 14, 2016 (referred to after this as the Mandatory Continuing Airworthiness Information, or “the MCAI”), to correct an unsafe condition for all Airbus Defense and Space S.A. Model C-212 airplanes. The MCAI states:

Occurrences were reported of finding a damaged and cracked rudder torque tube shaft, Part Number (P/N) 212-46237-01. Subsequent investigation determined that this damage occurred after parking of the aeroplane during a heavy wind gust, without having set the flight control surfaces in locked position.

This condition, if not detected and corrected, could lead to structural failure of the affected rudder torque tube shaft, possibly resulting in reduced control of the aeroplane.

To address this potential unsafe condition, EADS-CASA issued Alert Operators Transmission (AOT) AOT-C212-27-0001 to provide inspection instructions, and Service Bulletin (SB) SB-212-27-0058 providing modification instructions.

For the reasons described above, this [EASA] AD requires repetitive inspections of the affected rudder torque tube shaft, and introduces an optional modification [replacement], which constitutes terminating action for those repetitive inspections.

Required actions include repetitive general visual and HFEC inspections of the inner rudder torque tube shaft for cracks, deformation, and damage; repetitive detailed inspections, and HFEC inspections, if necessary, of the inner and outer rudder torque tube shaft for cracks, deformation, and damage; a general visual inspection to verify rudder alignment if necessary; and corrective actions if necessary. Repetitive inspections are done depending on conditions (wind conditions, gust lock engagement, and rudder deviation) identified in Airbus Defense & Space Alert Operators Transmission AOT-C212-27-0001, Revision 0, dated July 15, 2015 (“AOT-C212-27-0001, Rev. 0”). Damage may include bulging, dents, peeled paint, or visible corrosion. Corrective actions include replacement of the rudder torque tube shaft with a new rudder torque tube shaft, and repair. The optional terminating action includes replacement of the rudder torque tube shaft with an improved rudder torque tube shaft. You may examine the MCAI in the AD docket on the Internet at http://www.regulations.gov by searching for and locating Docket No. FAA-2016-9187.

Comments

We gave the public the opportunity to participate in developing this AD. We received no comments on the NPRM or on the determination of the cost to the public.

Clarification of the Actions in Paragraph (g)(2) of the Proposed AD

Paragraph (g)(2) of the proposed AD specifies to do inspections “after the conditions” identified in paragraph 3.1.1.1 of AOT-C212-27-0001, Rev. 0. We have revised paragraph (g)(2) of the AD to clarify the inspections are done after any weather event that includes the conditions identified in paragraph 3.1.1.1 of AOT-C212-27-0001, Rev. 0.

Conclusion

We reviewed the relevant data and determined that air safety and the public interest require adopting this AD with the change described previously and minor editorial changes. We have determined that these minor changes:

• Are consistent with the intent that was proposed in the NPRM for correcting the unsafe condition; and

• Do not add any additional burden upon the public than was already proposed in the NPRM.

Related Service Information Under 1 CFR Part 51

We reviewed the following Airbus Defense and Space service information.

• EADS CASA Service Bulletin SB-212-27-0058, dated April 25, 2014. This service information describes procedures for replacement of the rudder torque tube shaft with an improved rudder torque tube shaft.

• AOT-C212-27-0001, Rev. 0. This service information describes procedures for general visual and HFEC inspections of the inner rudder torque tube shaft for cracks, deformation, and damage; detailed inspections, and HFEC inspections, if necessary, of the inner and outer rudder torque tube shaft for cracks, deformation, and damage; a general visual inspection to verify rudder alignment; and corrective actions, if necessary.

This service information is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in the ADDRESSES section.

Costs of Compliance

We estimate that this AD affects 49 airplanes of U.S. registry.

We estimate the following costs to comply with this AD:

Estimated Costs Action Labor cost Parts cost Cost per product Cost on U.S. operators Inspections Up to 33 work-hours × $85 per hour = $2,805 per inspection cycle $0 Up to $2,805 per inspection cycle Up to $137,445 per inspection cycle. Estimated Costs for Optional Actions Action Labor cost Parts cost Cost per product Optional modification Up to 48 work-hours × $85 per hour = $4,080 $48,729 Up to $52,809.

We have received no definitive data that will enable us to provide cost estimates for the on-condition actions and parts cost specified in this AD.

Authority for This Rulemaking

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.

Regulatory Findings

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 above, I certify that this AD:

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

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

3. Will not affect intrastate aviation in Alaska; 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.

List of Subjects in 14 CFR Part 39

Air transportation, Aircraft, Aviation safety, Incorporation by reference, Safety.

Adoption of the Amendment

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

PART 39—AIRWORTHINESS DIRECTIVES 1. The authority citation for part 39 continues to read as follows: Authority:

49 U.S.C. 106(g), 40113, 44701.

§ 39.13 [Amended]
2. The FAA amends § 39.13 by adding the following new airworthiness directive (AD): 2017-01-10 Airbus Defense and Space S.A. (Formerly Known as Construcciones Aeronauticas, S.A.): Amendment 39-18777; Docket No. FAA-2016-9187; Directorate Identifier 2016-NM-032-AD. (a) Effective Date

This AD is effective February 22, 2017.

(b) Affected ADs

None.

(c) Applicability

This AD applies to Airbus Defense and Space S.A. (formerly known as Construcciones Aeronauticas, S.A.) Model C-212-CB, C-212-CC, C-212-CD, C-212-CE, C-212-CF, C-212-DF, and C-212-DE airplanes, certificated in any category, all manufacturer serial numbers.

(d) Subject

Air Transport Association (ATA) of America Code 27, Flight controls.

(e) Reason

This AD was prompted by multiple reports of damaged and cracked rudder torque tube shafts. We are issuing this AD to detect and correct damaged and cracked rudder torque tube shafts, which could lead to structural failure of the affected rudder torque tube shaft and possible reduced control of the airplane.

(f) Compliance

Comply with this AD within the compliance times specified, unless already done.

(g) Repetitive Inspections

For airplanes equipped with a rudder torque tube shaft having part number (P/N) 212-46237-01: Do the actions specified in paragraphs (g)(1) and (g)(2) of this AD.

(1) Within 30 days after the effective date of this AD: Do general visual, detailed, and high frequency eddy current (HFEC) inspections of the inner and outer surfaces of the rudder torque tube shaft, as applicable, for cracks, deformation, and damage, in accordance with the instructions of Airbus Defense & Space Alert Operators Transmission AOT-C212-27-0001, Revision 0, dated July 15, 2015 (“AOT-C212-27-0001, Rev. 0”).

(2) Thereafter, before further flight after any weather event that includes the conditions identified in paragraph 3.1.1.1 of AOT-C212-27-0001, Rev. 0, do the applicable inspections identified for each condition.

(h) Corrective Actions

If, during any inspection required by paragraph (g) of this AD, any crack, deformation, or damage is found, before further flight do all applicable corrective actions, in accordance with AOT-C212-27-0001, Rev. 0. Where AOT-C212-27-0001, Rev. 0, specifies to contact Airbus for corrective action: Before further flight, accomplish corrective actions in accordance with the procedures specified in paragraph (k)(2) of this AD.

(i) Optional Modification

Modification of an airplane by replacing the rudder torque tube shaft P/N 212-46237-01 with an improved part, in accordance with the Accomplishment Instructions of EADS CASA Service Bulletin SB-212-27-0058, dated April 25, 2014, constitutes terminating action for the inspections required by paragraphs (g)(1) and (g)(2) of this AD for the modified airplane.

(j) Credit for Previous Actions

This paragraph provides credit for actions required by paragraphs (g) and (h) of this AD, if those actions were performed before the effective date of this AD using Airbus Military All Operator Letter (AOL) AOL-212-037, Revision 01, dated April 11, 2014.

(k) Other FAA AD Provisions

The following provisions also apply to this AD:

(1) Alternative Methods of Compliance (AMOCs): The Manager, International Branch, ANM-116, Transport Airplane Directorate, FAA, has the authority to approve AMOCs for this AD, if requested using the procedures found in 14 CFR 39.19. In accordance with 14 CFR 39.19, send your request to your principal inspector or local Flight Standards District Office, as appropriate. If sending information directly to the International Branch, send it to ATTN: Shahram Daneshmandi, Aerospace Engineer, International Branch, ANM-116, Transport Airplane Directorate, FAA, 1601 Lind Avenue SW., Renton, WA 98057-3356; telephone: 425-227-1112; fax: 425-227-1149. Information may be emailed to: [email protected] Before using any approved AMOC, notify your appropriate principal inspector, or lacking a principal inspector, the manager of the local flight standards district office/certificate holding district office.

(2) Contacting the Manufacturer: For any requirement in this AD to obtain corrective actions from a manufacturer, the action must be accomplished using a method approved by the Manager, International Branch, ANM-116, Transport Airplane Directorate, FAA; or the European Aviation Safety Agency (EASA); or EADS CASA's EASA Design Organization Approval (DOA). If approved by the DOA, the approval must include the DOA-authorized signature.

(l) Related Information

(1) Refer to Mandatory Continuing Airworthiness Information (MCAI) EASA AD 2016-0052, dated March 14, 2016, for related information. This MCAI may be found in the AD docket on the Internet at http://www.regulations.gov by searching for and locating Docket No. FAA-2016-9187.

(2) Service information identified in this AD that is not incorporated by reference is available at the addresses specified in paragraphs (m)(3) and (m)(4) of this AD.

(m) Material Incorporated by Reference

(1) The Director of the Federal Register approved the incorporation by reference (IBR) of the service information listed in this paragraph under 5 U.S.C. 552(a) and 1 CFR part 51.

(2) You must use this service information as applicable to do the actions required by this AD, unless this AD specifies otherwise.

(i) EADS CASA Service Bulletin SB-212-27-0058, dated April 25, 2014.

(ii) Airbus Defense & Space Alert Operators Transmission AOT-C212-27-0001, Revision 0, dated July 15, 2015.

(3) For service information identified in this AD, contact Airbus Defense and Space, Services/Engineering Support, Avenida de Aragón 404, 28022 Madrid, Spain; telephone: +34 91 585 55 84; fax: +34 91 585 31 27; email: [email protected]

(4) You may view this service information at the FAA, Transport Airplane Directorate, 1601 Lind Avenue SW., Renton, WA. For information on the availability of this material at the FAA, call 425-227-1221.

(5) You may view this service information that is incorporated by reference at the National Archives and Records Administration (NARA). For information on the availability of this material at NARA, call 202-741-6030, or go to: http://www.archives.gov/federal-register/cfr/ibr-locations.html.

Issued in Renton, Washington, on January 4, 2017. Michael Kaszycki, Acting Manager, Transport Airplane Directorate, Aircraft Certification Service.
[FR Doc. 2017-00407 Filed 1-17-17; 8:45 am] BILLING CODE 4910-13-P
DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 39 [Docket No. FAA-2016-9317; Directorate Identifier 2016-CE-029-AD; Amendment 39-18779; AD 2017-01-12] RIN 2120-AA64 Airworthiness Directives; Diamond Aircraft Industries GmbH Airplanes AGENCY:

Federal Aviation Administration (FAA), Department of Transportation (DOT).

ACTION:

Final rule.

SUMMARY:

We are adopting a new airworthiness directive (AD) for certain Diamond Aircraft Industries GmbH Model DA 42 airplanes. This AD results from mandatory continuing airworthiness information (MCAI) issued by an aviation authority of another country to identify and correct an unsafe condition on an aviation product. The MCAI describes the unsafe condition as an uncommanded engine shutdown during flight due to failure of the propeller regulating valve caused by hot exhaust gases escaping from fractured engine exhaust pipes. We are issuing this AD to require actions to address the unsafe condition on these products.

DATES:

This AD is effective February 22, 2017.

The Director of the Federal Register approved the incorporation by reference of certain publications listed in this AD as of February 22, 2017.

ADDRESSES:

You may examine the AD docket on the Internet at http://www.regulations.gov by searching for and locating Docket No.FAA-2016-9317; or in person at Document Management Facility, U.S. Department of Transportation, Docket Operations, M-30, West Building Ground Floor, Room W12-140, 1200 New Jersey Avenue SE., Washington, DC 20590.

For service information identified in this AD, contact Diamond Aircraft Industries GmbH, N.A. Otto-Straße 5, A-2700 Wiener Neustadt, Austria, telephone: +43 2622 26700; fax: +43 2622 26780; email: [email protected]; Internet: http://www.diamondaircraft.com. You may view this referenced service information at the FAA, Small Airplane Directorate, 901 Locust, Kansas City, Missouri 64106. For information on the availability of this material at the FAA, call (816) 329-4148. It is also available on the Internet at http://www.regulations.gov by searching for Docket No. FAA-2016-9317.

FOR FURTHER INFORMATION CONTACT:

Mike Kiesov, Aerospace Engineer, FAA, Small Airplane Directorate, 901 Locust, Room 301, Kansas City, Missouri 64106; telephone: (816) 329-4144; fax: (816) 329-4090; email: [email protected]

SUPPLEMENTARY INFORMATION:

Discussion

We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 by adding an AD that would apply to certain Diamond Aircraft Industries GmbH Model DA 42 airplanes. The NPRM was published in the Federal Register on October 25, 2016 (81 FR 73360). The NPRM proposed to correct an unsafe condition for the specified products and was based on mandatory continuing airworthiness information (MCAI) originated by an aviation authority of another country. The European Aviation Safety Agency (EASA), which is the Technical Agent for the Member States of the European Community, has issued AD No. 2016-0156R1, dated November 23, 2016 (referred to after this as “the MCAI”). The revised MCAI states:

Two cases were reported of uncommanded engine in-flight shutdown (IFSD) on DA 42 aeroplanes. Subsequent investigations identified these occurrences were due to failure of the propeller regulating valve, caused by hot exhaust gases coming from fractured engine exhaust pipes. The initiating cracks on the exhaust pipes were not detected during previous inspections, since those exhaust pipes are equipped with non-removable heat shields that do not allow inspection for certain sections of the exhaust pipe.

This condition, if not corrected, could lead to further cases of IFSD or overheat damage, possibly resulting in a forced landing, with consequent damage to the aeroplane and injury to occupants.

To address this potential unsafe condition, Diamond Aircraft Industries (DAI) developed an exhaust pipe without a directly attached integral heat shield that allows visual inspection over the entire exhaust pipe length. DAI issued Mandatory Service Bulletin (MSB) 42-120 and relevant Working Instruction (WI) WI-MSB 42-120, providing instructions to install the modified exhaust pipes. As an interim measure, an additional bracket was designed to hold the exhaust pipe in place in case of a pipe fracture.

Consequently, EASA issued AD 2016-0156, requiring replacement of the exhaust pipes with pipes having new design, and prohibiting (re)installation of the previous design pipes.

Since that AD was issued, cracks were identified on modified exhaust pipes during an inspection. Furthermore, it was determined that the additional brackets provide a level of safety equivalent to the modified exhaust pipes. Consequently, DAI revised MSB 42-120, allowing installation of the additional brackets as alternative to the installation of the modified exhaust pipes.

For the reasons described above, this AD is revised to reduce the Applicability, excluding certain post-mod aeroplanes, to allow only installation of the additional brackets as final solution and to remove the prohibition of reinstallation of unmodified exhaust pipes.

The MCAI can be found in the AD docket on the Internet at https://www.regulations.gov/document?D=FAA-2016-9317-0002. Comments

We gave the public the opportunity to participate in developing this AD. We received no comments on the NPRM or on the determination of the cost to the public.

Conclusion

We reviewed the relevant data and determined that air safety and the public interest require adopting this AD as proposed except for the changes discussed above. We have determined that these changes:

• Are consistent with the intent that was proposed in the NPRM for correcting the unsafe condition; and

• Do not add any additional burden upon the public than was already proposed in the NPRM.

Related Service Information Under 1 CFR Part 51

We reviewed Diamond Aircraft Industries GmbH Mandatory Service Bulletin MSB 42-120, dated June 24, 2016, Mandatory Service Bulletin MSB 42-120/1, dated November 10, 2016, and Work Instruction WI-MSB 42-120, dated June 24, 2016. In combination, this service information describes procedures for replacing the exhaust pipes with exhaust pipes having a new design. This service information is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in the ADDRESSES section of this AD.

Costs of Compliance

We estimate that this AD will affect 130 products of U.S. registry. We also estimate that it will take the following to comply with the requirements of this AD:

It will take about 1 work-hour per product to comply with the installation of additional exhaust clamps required by this AD. The average labor rate is $85 per work-hour. Required parts will cost about $125 per product.

Based on these figures, we estimate the cost of this AD on U.S. operators for the installation of additional exhaust clamps to be $27,300, or $210 per product.

It will take about 4 work-hours per product to comply with the exhaust pipe replacement required by this AD. The average labor rate is $85 per work-hour. Required parts will cost about $1,990 per product.

Based on these figures, we estimate the cost of this AD on U.S. operators for the exhaust pipe replacement requirement to be $302,900, or $2,330 per product.

Authority for This Rulemaking

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.

Regulatory Findings

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 above, I certify this AD:

(1) Is not a “significant regulatory action” under Executive Order 12866,

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

(3) Will not affect intrastate aviation in Alaska, 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.

Examining the AD Docket

You may examine the AD docket on the Internet at http://www.regulations.gov by searching for and locating Docket No. FAA-2016-9317; or in person at the Docket Management Facility between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The AD docket contains the NPRM, the regulatory evaluation, any comments received, and other information. The street address for the Docket Office (telephone (800) 647-5527) is in the ADDRESSES section. Comments will be available in the AD docket shortly after receipt.

List of Subjects in 14 CFR Part 39

Air transportation, Aircraft, Aviation safety, Incorporation by reference, Safety.

Adoption of the Amendment

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

PART 39—AIRWORTHINESS DIRECTIVES 1. The authority citation for part 39 continues to read as follows: Authority:

49 U.S.C. 106(g), 40113, 44701.

§ 39.13 [Amended]
2. The FAA amends § 39.13 by adding the following new AD: 2017-01-12 Diamond Aircraft Industries GmbH: Amendment 39-18779; Docket No. FAA-2016-9317; Directorate Identifier 2016-CE-029-AD. (a) Effective Date

This airworthiness directive (AD) becomes effective February 22, 2017.

(b) Affected ADs

None.

(c) Applicability

This AD applies to Diamond Aircraft Industries GmbH DA 42 airplanes, serial numbers 42.004 through 42.427 and 42.AC001 through 42.AC151, that have a TAE 125-02-99 or TAE 125-02-114 engine installed, are equipped with an exhaust pipe, DAI part number (P/N) D60-9078-06-01, or Technify P/Ns 52-7810-H0001 02, 52-7810-H0001 03, or 52-7810-H0001 04, and are certificated in any category.

(d) Subject

Air Transport Association of America (ATA) Code 78: Engine Exhaust.

(e) Reason

This AD was prompted by mandatory continuing airworthiness information (MCAI) originated by an aviation authority of another country to identify and correct an unsafe condition on an aviation product. The MCAI describes the unsafe condition as an uncommanded engine shutdown during flight due to failure of the propeller regulating valve caused by hot exhaust gases escaping from fractured engine exhaust pipes. We are issuing this AD to prevent failure of the propeller regulating valve, which could result in forced landing with consequent damage to the airplane.

(f) Actions and Compliance

Unless already done, do one of the actions in either paragraph (f)(1) or (2) of this AD. For the purpose of this AD, if the flight hours accumulated since first installation of an affected exhaust pipe is not known, use the total hours time-in-service (TIS) accumulated on the airplane.

Note 1 to paragraph (f) of this AD:

The NPRM for this AD proposed to require both the installation of clamps and the replacement of the exhaust pipes. This AD only requires one or the other.

(1) At the following compliance times, install additional exhaust pipe clamps following section III.2 of the INSTRUCTIONS section of Diamond Aircraft Industries GmbH Work Instruction WI-MSB 42-120, dated June 24, 2016, as specified in the Accomplishments/Instructions paragraph of Diamond Aircraft Industries GmbH Mandatory Service Bulletin MSB 42-120, dated June 24, 2016, or Diamond Aircraft

Industries GmbH Mandatory Service Bulletin MSB 42-120/1, dated November 10, 2016.

(i) If the affected exhaust pipe has 1,300 hours TIS or less since first installed on an airplane as of February 22, 2017 (the effective date of this AD): Before or upon accumulating 1,500 hours TIS since the affected exhaust pipe was first installed on an airplane.

(ii) If the affected exhaust pipe has more than 1,300 hours TIS since first installed on an airplane as of February 22, 2017 (the effective date of this AD): Within the next 200 hours TIS after February 22, 2017 (the effective date of this AD) or within the next 12 months after February 22, 2017 (the effective date of this AD), whichever occurs first.

(2) At the following compliance times, replace the exhaust pipes listed in paragraph (c) of this AD with an exhaust pipe DAI P/N D60-9078-06-01_01 or Technify P/N 52-7810-H0014 01 following section III.1 of the INSTRUCTIONS section of Diamond Aircraft Industries GmbH Work Instruction WI-MSB 42-120, dated June 24, 2016, as specified in the Accomplishments/Instructions paragraph of Diamond Aircraft Industries GmbH Mandatory Service Bulletin MSB 42-120, dated June 24, 2016, or Diamond Aircraft Industries GmbH Mandatory Service Bulletin MSB 42-120/1, dated November 10, 2016.

(i) If the affected exhaust pipe has 1,300 hours TIS or less since first installed on an airplane as of February 22, 2017 (the effective date of this AD): Before or upon accumulating 1,500 hours TIS since the affected exhaust pipe was first installed on an airplane.

(ii) If the affected exhaust pipe has more than 1,300 hours TIS since first installed on an airplane as of February 22, 2017 (the effective date of this AD): Within the next 200 hours TIS after February 22, 2017 (the effective date of this AD) or within the next 12 months after February 22, 2017 (the effective date of this AD), whichever occurs first.

(g) Other FAA AD Provisions

The following provisions also apply to this AD:

(1) Alternative Methods of Compliance (AMOCs): The Manager, Standards Office, FAA, has the authority to approve AMOCs for this AD, if requested using the procedures found in 14 CFR 39.19. Send information to ATTN: Mike Kiesov, Aerospace Engineer, FAA, Small Airplane Directorate, 901 Locust, Room 301, Kansas City, Missouri 64106; telephone: (816) 329-4144; fax: (816) 329-4090; email: [email protected] Before using any approved AMOC on any airplane to which the AMOC applies, notify your appropriate principal inspector (PI) in the FAA Flight Standards District Office (FSDO), or lacking a PI, your local FSDO.

(2) Airworthy Product: For any requirement in this AD to obtain corrective actions from a manufacturer or other source, use these actions if they are FAA-approved. Corrective actions are considered FAA-approved if they are approved by the State of Design Authority (or their delegated agent). You are required to assure the product is airworthy before it is returned to service.

(3) Reporting Requirements: For any reporting requirement in this AD, a federal agency may not conduct or sponsor, and a person is not required to respond to, nor shall a person be subject to a penalty for failure to comply with a collection of information subject to the requirements of the Paperwork Reduction Act unless that collection of information displays a current valid OMB Control Number. The OMB Control Number for this information collection is 2120-0056. Public reporting for this collection of information is estimated to be approximately 5 minutes per response, including the time for reviewing instructions, completing and reviewing the collection of information. All responses to this collection of information are mandatory. Comments concerning the accuracy of this burden and suggestions for reducing the burden should be directed to the FAA at: 800 Independence Ave. SW., Washington, DC 20591, Attn: Information Collection Clearance Officer, AES-200.

(h) Related Information

Refer to MCAI European Aviation Safety Agency (EASA) AD No. 2016-0156, dated August 2, 2016, for related information. You may examine the MCAI on the Internet at https://www.regulations.gov/document?D=FAA-2016-9317-0002.

(i) Material Incorporated by Reference

(1) The Director of the Federal Register approved the incorporation by reference (IBR) of the service information listed in this paragraph under 5 U.S.C. 552(a) and 1 CFR part 51.

(2) You must use this service information as applicable to do the actions required by this AD, unless this AD specifies otherwise.

(i) Diamond Aircraft Industries GmbH Mandatory Service Bulletin MSB 42-120, dated June 24, 2016.

(ii) Diamond Aircraft Industries GmbH Mandatory Service Bulletin MSB 42-120/1, dated November 10, 2016.

(iii) Diamond Aircraft Industries GmbH Work Instruction WI-MSB 42-120, dated June 24, 2016.

(3) For Diamond Aircraft Industries GmbH service information identified in this AD, contact Diamond Aircraft Industries GmbH, N.A. Otto-Straße 5, A-2700 Wiener Neustadt, Austria, telephone: +43 2622 26700; fax: +43 2622 26780; email: [email protected]; Internet: http://www.diamondaircraft.com.

(4) You may view this service information at the FAA, Small Airplane Directorate, 901 Locust, Kansas City, Missouri 64106. For information on the availability of this material at the FAA, call (816) 329-4148. In addition, you can access this service information on the Internet at http://www.regulations.gov by searching for and locating Docket No. FAA-2016-9317.

(5) You may view this service information that is incorporated by reference at the National Archives and Records Administration (NARA). For information on the availability of this material at NARA, call 202-741-6030, or go to: http://www.archives.gov/federal-register/cfr/ibr-locations.html.

Issued in Kansas City, Missouri, on January 6, 2017. Melvin Johnson, Manager, Small Airplane Directorate, Aircraft Certification Service.
[FR Doc. 2017-00502 Filed 1-17-17; 8:45 am] BILLING CODE 4910-13-P
DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 39 [Docket No. FAA-2015-0831; Directorate Identifier 2014-NM-061-AD; Amendment 39-18778; AD 2017-01-11] RIN 2120-AA64 Airworthiness Directives; Airbus Airplanes AGENCY:

Federal Aviation Administration (FAA), Department of Transportation (DOT).

ACTION:

Final rule.

SUMMARY:

We are adopting a new airworthiness directive (AD) for all Airbus Model A318 and A319 series airplanes, Model A320-211, -212, -214, -231, -232, and -233 airplanes, and Model A321 series airplanes. This AD was prompted by a report of a rupture of a main landing gear (MLG) sliding tube axle. This AD requires identification of the part number and serial number of the MLG sliding tubes; inspection of affected chromium plates and sliding tube axles for damage; and replacement of the sliding tube if necessary. We are issuing this AD to address the unsafe condition on these products.

DATES:

This AD is effective February 22, 2017.

The Director of the Federal Register approved the incorporation by reference of a certain publication listed in this AD as of February 22, 2017.

ADDRESSES:

For service information identified in this final rule, contact Airbus, Airworthiness Office—EIAS, 1 Rond Point Maurice Bellonte, 31707 Blagnac Cedex, France; telephone +33 5 61 93 36 96; fax +33 5 61 93 44 51; email [email protected]; Internet http://www.airbus.com. You may view this referenced service information at the FAA, Transport Airplane Directorate, 1601 Lind Avenue SW., Renton, WA. For information on the availability of this material at the FAA, call 425-227-1221. It is also available on the Internet at http://www.regulations.gov by searching for and locating Docket No. FAA-2015-0831.

Examining the AD Docket

You may examine the AD docket on the Internet at http://www.regulations.gov by searching for and locating Docket No. FAA-2015-0831; or in person at the Docket Management Facility between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The AD docket contains this AD, the regulatory evaluation, any comments received, and other information. The street address for the Docket Office (telephone 800-647-5527) is Docket Management Facility, U.S. Department of Transportation, Docket Operations, M-30, West Building Ground Floor, Room W12-140, 1200 New Jersey Avenue SE., Washington, DC 20590.

FOR FURTHER INFORMATION CONTACT:

Sanjay Ralhan, Aerospace Engineer, International Branch, ANM-116, Transport Airplane Directorate, FAA, 1601 Lind Avenue SW., Renton, WA 98057-3356; telephone 425-227-1405; fax 425-227-1149.

SUPPLEMENTARY INFORMATION: Discussion

We issued a supplemental notice of proposed rulemaking (SNPRM) to amend 14 CFR part 39 by adding an AD that would apply to all Airbus Model A318 and A319 series airplanes, Model A320-211, -212, -214, -231, -232, and -233 airplanes, and Model A321 series airplanes. The SNPRM published in the Federal Register on June 28, 2016 (81 FR 41886) (“the SNPRM”). We preceded the SNPRM with a notice of proposed rulemaking (NPRM) that published in the Federal Register on April 24, 2015 (80 FR 22939) (“the NPRM”). The NPRM proposed to require an inspection to identify the part number and serial number of the MLG sliding tubes installed on the airplane; an inspection of the axle on certain MLG sliding tubes for damage; and replacement of the sliding tube if necessary. The NPRM was prompted by a report of a rupture of a MLG sliding tube axle. The SNPRM proposed to remove certain service information that does not adequately address the identified unsafe condition and revise the compliance method. We are issuing this AD to detect and correct cracks in the axle and (partial) detachment of the axle and wheel from the sliding tube, which could result in failure of an MLG.

The European Aviation Safety Agency (EASA), which is the Technical Agent for the Member States of the European Union, has issued EASA Airworthiness Directive 2014-0058, dated March 11, 2014 (referred to after this as the Mandatory Continuing Airworthiness Information, or “the MCAI”), to correct an unsafe condition for all Airbus Model A318 and A319 series airplanes, Model A320-211, -212, -214, -231, -232, and -233 airplanes, and Model A321 series airplanes. The MCAI states:

A main landing gear (MLG) sliding tube axle rupture occurred in service. Investigation of the affected part showed that this failure was due to an abnormal grinding operation during overhaul by a certain maintenance and repair organization located in Singapore. A population of MLG sliding tubes was subsequently identified whose axles may have been subject to this grinding operation, which may have resulted in areas of residual stress on the axles on the MLG sliding tubes. In addition, the MSN [manufacturer serial number] of the aeroplanes which are known to have had the affected parts installed have been identified.

This condition, if not detected and corrected, could lead to cracks in the axle and (partial) detachment of axle and wheel from the sliding tube, possibly resulting in failure of a MLG with consequent damage to the aeroplane and injury to occupants.

To address this potential unsafe condition, Messier-Bugatti-Dowty, the MLG gear manufacturer, issued Service Bulletin (SB) 200-32-313 and SB 201-32-62 [both dated February 25, 2013], providing inspection instructions and criteria for removal from service of the affected MLG sliding tubes.

For the reasons described above, this [EASA] AD requires a one-time Special Detailed Inspection (SDI) of the axle on the affected MLG sliding tubes and, depending on findings, replacement of the MLG sliding tube.

The SDI includes a detailed visual inspection of the chromium plate for damage, and a Barkhausen noise inspection of the sliding tube axles for damage.

You may examine the MCAI in the AD docket on the Internet at http://www.regulations.gov by searching for and locating Docket No. FAA-2015-0831.

Comments

We gave the public the opportunity to participate in developing this AD. We received no comments on the SNPRM or on the determination of the cost to the public.

Conclusion

We reviewed the relevant data and determined that air safety and the public interest require adopting this AD as proposed except for minor editorial changes. We have determined that these minor changes:

• Are consistent with the intent that was proposed in the SNPRM for correcting the unsafe condition; and

• Do not add any additional burden upon the public than was already proposed in the SNPRM.

Related Service Information Under 1 CFR Part 51

Airbus has issued Service Bulletin A320-32-1416, including Appendix 01, dated March 10, 2014. This service information describes procedures for inspecting MLG axles and brake flanges by doing a detailed visual inspection of the chromium plates for damage, a Barkhausen noise inspection of the sliding tube axles for damage, and replacement of affected parts if necessary. This service information is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in the ADDRESSES section.

Costs of Compliance

We estimate that this AD affects 3 airplanes of U.S. registry.

We also estimate that it would take about 18 work-hours per product to comply with the basic requirements of this AD. The average labor rate is $85 per work-hour. Based on these figures, we estimate the cost of this AD on U.S. operators to be $4,590, or $1,530 per product.

In addition, we estimate that any necessary on-condition actions will take about 3 work-hours, for a cost of $255 per product. We have received no definitive data that would enable us to provide part cost estimates for the on-condition actions specified in this AD. We have no way of determining the number of aircraft that might need these actions.

Authority for This Rulemaking

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.

Regulatory Findings

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 above, I certify that this AD:

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

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

3. Will not affect intrastate aviation in Alaska; 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.

List of Subjects in 14 CFR Part 39

Air transportation, Aircraft, Aviation safety, Incorporation by reference, Safety.

Adoption of the Amendment

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

PART 39—AIRWORTHINESS DIRECTIVES 1. The authority citation for part 39 continues to read as follows: Authority:

49 U.S.C. 106(g), 40113, 44701.

§ 39.13 [Amended]
2. The FAA amends § 39.13 by adding the following new airworthiness directive (AD): 2017-01-11 Airbus: Amendment 39-18778; Docket No. FAA-2015-0831; Directorate Identifier 2014-NM-061-AD. (a) Effective Date

This AD is effective February 22, 2017.

(b) Affected ADs

None.

(c) Applicability

This AD applies to the Airbus airplanes identified in paragraphs (c)(1) through (c)(4) of this AD, certificated in any category, all manufacturer serial numbers.

(1) Airbus Model A318-111, -112, -121, and -122 airplanes.

(2) Airbus Model A319-111, -112, -113, -114, -115, -131, -132, and -133 airplanes.

(3) Airbus Model A320-211, -212, -214, -231, -232, and -233 airplanes.

(4) Airbus Model A321-111, -112, -131, -211, -212, -213, -231, and -232 airplanes.

(d) Subject

Air Transport Association (ATA) of America Code 32, Landing gear.

(e) Reason

This AD was prompted by a report of a rupture of a main landing gear (MLG) sliding tube axle. We are issuing this AD to detect and correct cracks in the axle and (partial) detachment of the axle and wheel from the sliding tube, which could result in failure of an MLG.

(f) Compliance

Comply with this AD within the compliance times specified, unless already done.

(g) MLG Sliding Tube Part Number and Serial Number Identification

Within 3 months after the effective date of this AD: Do an inspection to identify the part number and serial number of the MLG sliding tubes installed on the airplane. A review of airplane maintenance records is acceptable in lieu of this inspection if the part number and serial number of the MLG sliding tubes can be conclusively determined from that review.

(h) Identification of Airplanes Not Affected by the Requirements of Paragraph (i) of this AD

An airplane with a manufacturer serial number (MSN) not listed in figure 1 to paragraph (h) of this AD is not affected by the requirements of paragraph (i) of this AD, provided it can be determined that no MLG sliding tube having a part number and serial number listed in table 1 to paragraphs (h), (i), (k)(1), (k)(2), (l)(1), and (l)(2) of this AD has been installed on that airplane since first flight of the airplane.

Figure 1 to Paragraph (h) of This AD Affected Airplanes Listed by MSN 0179 0214 0296 0412 0558 0604 0607 0668 0704 0720 0726 0731 0754 0771 0799 0828 0841 0855 0909 0914 0925 0939 0986 1028 1030 1041 1070 1083 1093 1098 1108 1148 1294 1356 2713 2831 Table 1 to Paragraphs (h), (i), (k)(1), (k)(2), (l)(1), and (l)(2) of this AD—Affected MLG Sliding Tubes Part No. Serial No. 201160302 78B 201160302 1016B11 201160302 1144B 201371302 B4493 201371302 B4513 201371302 SS4359 201371302 B4530 201371302 B4517 201371302 B4568 201371302 B4498 201371302 4490B 201371302 B202-4598 201371302 B165-4623 201371302 B244-4766 201371302 B267-4794 201371302 B272-4813 201160302 1108B 201371304 B041-4871 201371304 B045-4869 201371304 B001-4781 201371304 B051-4892 201371304 B110-1952 201371304 B054-4891 201371304 B063-4921 201371304 B071-4911 201371304 B071-4917 201371304 B080-1933 201371304 B117-5010 201371304 B120-4989 201371304 B132-2023 201371304 B114-1956 201371304 B208-2009 201371304 B133-1947 201371304 B154-5037 201371304 B89 4952 201371304 B129-1964 201371304 B227-2010 201371304 B170-5031 201371304 B182-5047 201371304 B239-2053 201371304 B1401-2856 201371304 B1813-3142 201371304 B116-5004 201522353 B011-149 201522350 B014-25 201522350 B019-56 201522350 B019-57 201522350 B021-69 201522350 B022-60 201522353 B03-111 201522353 B03-110 201522353 B112-317 201522353 B174-351 201522353 B179-392 201383350 4377B 201383350 4393B 201383350 B1831 201383350 B1832 201383350 SS4355B 201383350 SS4400B (i) Inspections

For each MLG sliding tube identified as required by paragraph (g) of this AD, having a part number and serial number listed in table 1 to paragraphs (h), (i), (k)(1), (k)(2), (l)(1), and (l)(2) of this AD: Within 3 months after the effective date of this AD, inspect affected MLG axles and brake flanges by doing a detailed visual inspection of the chromium plates for damage, and a Barkhausen noise inspection of the sliding tube axles for damage, in accordance with the Accomplishment Instructions of Airbus Service Bulletin A320-32-1416, including Appendix 01, dated March 10, 2014. For Model A318 series airplanes, use the procedures specified for Model A319 series airplanes in Airbus Service Bulletin A320-32-1416, including Appendix 01, dated March 10, 2014.

(j) Corrective Action

If, during any inspection required by paragraph (i) of this AD, any damage is detected: Before further flight, replace the MLG sliding tube with a serviceable tube, in accordance with the Accomplishment Instructions of Airbus Service Bulletin A320-32-1416, including Appendix 01, dated March 10, 2014. For Model A318 series airplanes, use the procedures specified for Model A319 series airplanes in Airbus Service Bulletin A320-32-1416, including Appendix 01, dated March 10, 2014.

(k) Definition of Serviceable Sliding Tube

For the purpose of this AD, a serviceable sliding tube is defined as a sliding tube that meets the criterion in either paragraph (k)(1) or (k)(2) of this AD.

(1) A sliding tube having a part number and serial number not listed in table 1 to paragraphs (h), (i), (k)(1), (k)(2), (l)(1), and (l)(2) of this AD.

(2) A sliding tube having a part number and serial number listed in table 1 to paragraphs (h), (i), (k)(1), (k)(2), (l)(1), and (l)(2) of this AD that has passed the inspections required by paragraph (i) of this AD.

(l) Parts Installation Prohibitions

(1) For airplanes that have an MLG sliding tube installed that has a part number and serial number listed in table 1 to paragraphs (h), (i), (k)(1), (k)(2), (l)(1), and (l)(2) of this AD: After an airplane is returned to service following accomplishment of the actions required by paragraphs (g), (h), and (i) of this AD, no person may install on any airplane an MLG sliding tube having a part number and serial number listed in table 1 to paragraphs (h), (i), (k)(1), (k)(2), (l)(1), and (l)(2) of this AD unless that sliding tube has passed the inspection required by paragraph (i) of this AD.

(2) For airplanes that, as of the effective date of this AD, do not have an MLG sliding tube installed that has a part number and serial number listed in table 1 to paragraphs (h), (i), (k)(1), (k)(2), (l)(1), and (l)(2) of this AD: No person may install on any airplane an MLG sliding tube having a part number and serial number listed in table 1 to paragraphs (h), (i), (k)(1), (k)(2), (l)(1), and (l)(2) of this AD unless that sliding tube has passed the inspection required by paragraph (i) of this AD.

(m) Other FAA AD Provisions

The following provisions also apply to this AD:

(1) Alternative Methods of Compliance (AMOCs): The Manager, International Branch, ANM-116, Transport Airplane Directorate, FAA, has the authority to approve AMOCs for this AD, if requested using the procedures found in 14 CFR 39.19. In accordance with 14 CFR 39.19, send your request to your principal inspector or local Flight Standards District Office, as appropriate. If sending information directly to the International Branch, send it to ATTN: Sanjay Ralhan, Aerospace Engineer, International Branch, ANM-116, Transport Airplane Directorate, FAA, 1601 Lind Avenue SW., Renton, WA 98057-3356; telephone 425-227-1405; fax 425-227-1149. Information may be emailed to: [email protected] Before using any approved AMOC, notify your appropriate principal inspector, or lacking a principal inspector, the manager of the local flight standards district office/certificate holding district office. The AMOC approval letter must specifically reference this AD.

(2) Required for Compliance (RC): If any service information contains procedures or tests that are identified as RC, those procedures and tests must be done to comply with this AD; any procedures or tests that are not identified as RC are recommended. Those procedures and tests that are not identified as RC may be deviated from using accepted methods in accordance with the operator's maintenance or inspection program without obtaining approval of an AMOC, provided the procedures and tests identified as RC can be done and the airplane can be put back in an airworthy condition. Any substitutions or changes to procedures or tests identified as RC require approval of an AMOC.

(3) Contacting the Manufacturer: For any requirement in this AD to obtain corrective actions from a manufacturer, the action must be accomplished using a method approved by the Manager, International Branch, ANM-116, Transport Airplane Directorate, FAA; or the European Aviation Safety Agency (EASA); or Airbus's EASA Design Organization Approval (DOA). If approved by the DOA, the approval must include the DOA-authorized signature.

(n) Special Flight Permits

Special flight permits may be issued in accordance with sections 21.197 and 21.199 of the Federal Aviation Regulations (14 CFR 21.197 and 21.199) to operate the airplane to a location where the airplane can be modified (if the operator elects to do so), provided the MLG remains extended throughout the flight.

(o) Related Information

Refer to Mandatory Continuing Airworthiness Information (MCAI) EASA Airworthiness Directive 2014-0058, dated March 11, 2014, for related information. This MCAI may be found in the AD docket on the Internet at http://www.regulations.gov by searching for and locating Docket No. FAA-2015-0831.

(p) Material Incorporated by Reference

(1) The Director of the Federal Register approved the incorporation by reference (IBR) of the service information listed in this paragraph under 5 U.S.C. 552(a) and 1 CFR part 51.

(2) You must use this service information as applicable to do the actions required by this AD, unless this AD specifies otherwise.

(i) Airbus Service Bulletin A320-32-1416, including Appendix 01, dated March 10, 2014.

(ii) Reserved.

(3) For service information identified in this AD, contact Airbus, Airworthiness Office—EIAS, 1 Rond Point Maurice Bellonte, 31707 Blagnac Cedex, France; telephone +33 5 61 93 36 96; fax +33 5 61 93 44 51; email [email protected]; Internet http://www.airbus.com.

(4) You may view this service information at the FAA, Transport Airplane Directorate, 1601 Lind Avenue SW., Renton, WA. For information on the availability of this material at the FAA, call 425-227-1221.

(5) You may view this service information that is incorporated by reference at the National Archives and Records Administration (NARA). For information on the availability of this material at NARA, call 202-741-6030, or go to: http://www.archives.gov/federal-register/cfr/ibr-locations.html.

Issued in Renton, Washington, on January 4, 2017. Michael Kaszycki, Acting Manager, Transport Airplane Directorate, Aircraft Certification Service.
[FR Doc. 2017-00408 Filed 1-17-17; 8:45 am] BILLING CODE 4910-13-P
DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 39 [Docket No. FAA-2016-9058; Directorate Identifier 2016-NM-024-AD; Amendment 39-18771; AD 2017-01-04] RIN 2120-AA64 Airworthiness Directives; Fokker Services B.V. Airplanes AGENCY:

Federal Aviation Administration (FAA), Department of Transportation (DOT).

ACTION:

Final rule.

SUMMARY:

We are adopting a new airworthiness directive (AD) for certain Fokker Services B.V. Model F28 Mark 0100 airplanes. This AD was prompted by an analysis which determined that, for certain areas of the fuselage, the current threshold of an Airworthiness Limitations Section inspection is insufficient to detect early crack development. This AD requires one time high and low frequency eddy current inspections of the affected fuselage skin for cracks, and repair if necessary. We are issuing this AD to address the unsafe condition on these products.

DATES:

This AD is effective February 22, 2017.

The Director of the Federal Register approved the incorporation by reference of a certain publication listed in this AD as of February 22, 2017.

ADDRESSES:

For service information identified in this final rule, contact Fokker Services B.V., Technical Services Dept., P.O. Box 1357, 2130 EL Hoofddorp, the Netherlands; telephone: +31 (0)88-6280-350; fax: +31 (0)88-6280-111; email: [email protected]; Internet http://www.myfokkerfleet.com. You may view this referenced service information at the FAA, Transport Airplane Directorate, 1601 Lind Avenue SW., Renton, WA. For information on the availability of this material at the FAA, call 425-227-1221. It is also available on the Internet at http://www.regulations.gov by searching for and locating Docket No. FAA-2016-9058.

Examining the AD Docket

You may examine the AD docket on the Internet at http://www.regulations.gov by searching for and locating Docket No. FAA-2016-9058; or in person at the Docket Management Facility between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The AD docket contains this AD, the regulatory evaluation, any comments received, and other information. The street address for the Docket Office (telephone 800-647-5527) is Docket Management Facility, U.S. Department of Transportation, Docket Operations, M-30, West Building Ground Floor, Room W12-140, 1200 New Jersey Avenue SE., Washington, DC 20590.

FOR FURTHER INFORMATION CONTACT:

Tom Rodriguez, Aerospace Engineer, International Branch, ANM-116, Transport Airplane Directorate, FAA, 1601 Lind Avenue SW., Renton, WA 98057-3356; telephone 425-227-1137; fax 425 227 1149.

SUPPLEMENTARY INFORMATION: Discussion

We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 by adding an AD that would apply to certain Fokker Services B.V. Model F28 Mark 0100 airplanes. The NPRM published in the Federal Register on September 8, 2016 (81 FR 62029) (“the NPRM”). The NPRM was prompted by an analysis which determined that, for certain areas of the fuselage, the current threshold of an Airworthiness Limitations Section inspection is insufficient to detect early crack development. The NPRM proposed to require one time high and low frequency eddy current inspections of the affected fuselage skin for cracks, and repair if necessary. We are issuing this AD to detect and correct cracks in the fuselage skin; such cracking could result in reduced structural integrity of the fuselage.

The European Aviation Safety Agency (EASA), which is the Technical Agent for the Member States of the European Union, has issued EASA Airworthiness Directive Airworthiness Directive 2016-0029R1, dated November 17, 2016 (referred to after this as the Mandatory Continuing Airworthiness Information, or “the MCAI”), to correct an unsafe condition for certain Fokker Services B.V. Model F28 Mark 0100 airplanes. The MCAI states:

A complementary fatigue and damage tolerance analysis was accomplished by the design approval holder on the traffic collision avoidance system (TCAS) antenna installation on the top of the fuselage between station (STA) 6805 and STA7305. Based on the results, it was determined that for the affected area, the current 58 000 flight cycles (FC) threshold of Airworthiness Limitations Section (ALS) inspection task 533001-00-20 and 533028-00-20 (special detailed inspection of longitudinal lap joints) is insufficient to timely detect possible crack development.

This condition, if not detected and corrected, could affect the structural integrity of the fuselage in this area.

To address this potential unsafe condition, Fokker Services published Service Bulletin (SB) SBF100-53-130 to provide inspection instructions.

Consequently, EASA issued AD 2016-0029 to require a one-time inspection of the fuselage skin around the largest TCAS antenna external doubler and of the longitudinal lap joint at stringer (STR) 37 between fuselage STA6805 and STA7305.

Since that [EASA] AD was issued, it was discovered that another ALS inspection task, 533028-00-20, is also related to this subject. This [EASA] AD is revised to clarify that the inspection threshold of both ALS inspection tasks has been re-assessed. It is expected that a repetitive inspection task will be included in the ALS, which will cover only the area close to the TCAS antenna installation. For the remainder of the affected lap joint, no change is anticipated and this will therefore continue to be inspected in accordance with the existing ALS tasks.

This [EASA] AD is still considered to be an interim action and further [EASA] AD action may follow. More information on this subject can be found in Fokker Services All Operators Message AOF100.199#02.

You may examine the MCAI in the AD docket on the Internet at http://www.regulations.gov by searching for and locating Docket No. FAA-2016-9058.

Comments

We gave the public the opportunity to participate in developing this AD. We received no comments on the NPRM or on the determination of the cost to the public.

Revised MCAI AD

Since the NPRM was issued, EASA revised 2016-0029, dated March 8, 2016. EASA AD 2016-0029R1, dated November 17, 2016, clarifies that the inspection threshold of both ALS inspection tasks have been re-assessed. The revised MCAI did not result in a change to the NPRM. We have revised this AD to refer to EASA AD 2016-0029R1, dated November 17, 2016.

Conclusion

We reviewed the relevant data and determined that air safety and the public interest require adopting this AD with the change described previously and minor editorial changes. We have determined that these minor changes:

• Are consistent with the intent that was proposed in the NPRM for correcting the unsafe condition; and

• Do not add any additional burden upon the public than was already proposed in the NPRM.

Related Service Information Under 1 CFR Part 51

We reviewed Fokker Service Bulletin SBF100-53-130, dated December 1, 2015. This service information describes one time high and low frequency eddy current inspections for cracks of the fuselage skin. This service information is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in the ADDRESSES section.

Costs of Compliance

We estimate that this AD affects 8 airplanes of U.S. registry.

We estimate the following costs to comply with this AD:

Estimated Costs Action Labor cost Parts cost Cost per
  • product
  • Cost on U.S. operators
    Inspection 1 work-hour × $85 per hour = $85 $0 $85 $680

    We have received no definitive data that will enable us to provide cost estimates for the on-condition actions specified in this AD.

    Authority for This Rulemaking

    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.

    Regulatory Findings

    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 above, I certify that this AD:

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

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

    3. Will not affect intrastate aviation in Alaska; 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.

    List of Subjects in 14 CFR Part 39

    Air transportation, Aircraft, Aviation safety, Incorporation by reference, Safety.

    Adoption of the Amendment

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

    PART 39—AIRWORTHINESS DIRECTIVES 1. The authority citation for part 39 continues to read as follows: Authority:

    49 U.S.C. 106(g), 40113, 44701.

    § 39.13 [Amended]
    2. The FAA amends § 39.13 by adding the following new airworthiness directive (AD): 2017-01-04 Fokker Services B.V.: Amendment 39-18771; Docket No. FAA-2016-9058; Directorate Identifier 2016-NM 024-AD. (a) Effective Date

    This AD is effective February 22, 2017.

    (b) Affected ADs

    None.

    (c) Applicability

    This AD applies to Fokker Services B.V. Model F28 Mark 0100 airplanes, certificated in any category, serial numbers 11244 through 11407 inclusive.

    (d) Subject

    Air Transport Association (ATA) of America Code 53, Fuselage.

    (e) Reason

    This AD was prompted by an analysis which determined that, for certain areas of the fuselage, the current threshold of an Airworthiness Limitations Section inspection is insufficient to detect early crack development. We are issuing this AD to detect and correct cracks in the fuselage skin; such cracking could result in reduced structural integrity of the fuselage.

    (f) Compliance

    Comply with this AD within the compliance times specified, unless already done.

    (g) Inspection

    Within the compliance time specified in paragraphs (g)(1) and (g)(2) of this AD, as applicable, do high and low frequency eddy current inspections for cracks in the fuselage skin around the largest traffic collision avoidance system (TCAS) antenna external doubler and of the longitudinal lap joint at fuselage stringer STR37 between fuselage station (STA) STA6805 and STA7305, in accordance with the Accomplishment Instructions of Fokker Service Bulletin SBF100-53-130, dated December 1, 2015.

    (1) For airplanes having 45,000 or more total flight cycles as of the effective date of this AD, since the date of issuance of the original airworthiness certificate or the date of issuance of the original export certificate of airworthiness: Do the high and low frequency eddy current inspections within 750 flight cycles after the effective date of this AD.

    (2) For airplanes having 40,000 or more total flight cycles, but less than 45,000 total flight cycles as of the effective date of this AD, since the date of issuance of the original airworthiness certificate or the date of issuance of the original export certificate of airworthiness: Do the high and low frequency eddy current inspections within 1,500 flight cycles after the effective date of this AD.

    (h) Corrective Action

    If any crack is found during any inspection required by paragraph (g) of this AD: Before further flight, repair using a method approved by the Manager, International Branch, ANM 116, Transport Airplane Directorate, FAA; or the European Aviation Safety Agency (EASA); or Fokker B.V. Service's EASA Design Organization Approval (DOA).

    (i) Other FAA AD Provisions

    The following provisions also apply to this AD:

    (1) Alternative Methods of Compliance (AMOCs): The Manager, International Branch, ANM-116, Transport Airplane Directorate, FAA, has the authority to approve AMOCs for this AD, if requested using the procedures found in 14 CFR 39.19. In accordance with 14 CFR 39.19, send your request to your principal inspector or local Flight Standards District Office, as appropriate. If sending information directly to the International Branch, send it to ATTN: Tom Rodriguez, Aerospace Engineer, International Branch, ANM-116, Transport Airplane Directorate, FAA, 1601 Lind Avenue SW., Renton, WA 98057-3356; telephone 425-227-1137; fax 425-227-1149. Information may be emailed to: [email protected] Before using any approved AMOC, notify your appropriate principal inspector, or lacking a principal inspector, the manager of the local flight standards district office/certificate holding district office.

    (2) Contacting the Manufacturer: For any requirement in this AD to obtain corrective actions from a manufacturer, the action must be accomplished using a method approved by the Manager, International Branch, ANM-116, Transport Airplane Directorate, FAA; or EASA; or Fokker Services B.V.'s EASA DOA. If approved by the DOA, the approval must include the DOA-authorized signature.

    (j) Related Information

    Refer to Mandatory Continuing Airworthiness Information (MCAI) EASA AD 2016-0029R1, dated November 17, 2016, for related information. This MCAI may be found in the AD docket on the Internet at http://www.regulations.gov by searching for and locating Docket No. FAA-2016-9058.

    (k) Material Incorporated by Reference

    (1) The Director of the Federal Register approved the incorporation by reference (IBR) of the service information listed in this paragraph under 5 U.S.C. 552(a) and 1 CFR part 51.

    (2) You must use this service information as applicable to do the actions required by this AD, unless this AD specifies otherwise.

    (i) Fokker Service Bulletin SBF100-53-130, dated December 1, 2015.

    (ii) Reserved.

    (3) For service information identified in this AD, contact Fokker Services B.V., Technical Services Dept., P.O. Box 1357, 2130 EL Hoofddorp, the Netherlands; telephone: +31 (0)88-6280-350; fax: +31 (0)88-6280-111; email: [email protected]; Internet http://www.myfokkerfleet.com.

    (4) You may view this service information at the FAA, Transport Airplane Directorate, 1601 Lind Avenue SW., Renton, WA. For information on the availability of this material at the FAA, call 425-227-1221.

    (5) You may view this service information that is incorporated by reference at the National Archives and Records Administration (NARA). For information on the availability of this material at NARA, call 202-741-6030, or go to: http://www.archives.gov/federal-register/cfr/ibr-locations.html.

    Issued in Renton, Washington, on December 27, 2016. Jeffrey E. Duven, Manager, Transport Airplane Directorate, Aircraft Certification Service.
    [FR Doc. 2017-00410 Filed 1-17-17; 8:45 am] BILLING CODE 4910-13-P
    SECURITIES AND EXCHANGE COMMISSION 17 CFR Part 201 [Release Nos. 33-10276; 34-79749; IA-4599; IC-32414] Adjustments to Civil Monetary Penalty Amounts AGENCY:

    Securities and Exchange Commission.

    ACTION:

    Final rule.

    SUMMARY:

    The Securities and Exchange Commission (the “Commission”) is adopting a final rule to implement the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (the “2015 Act”), which amended the Federal Civil Penalties Inflation Adjustment Act of 1990 (the “Inflation Adjustment Act”), as previously amended by the Debt Collection Improvement Act of 1996 (the “DCIA”). The 2015 Act requires all agencies to annually adjust for inflation the civil monetary penalties that can be imposed under the statutes administered by the agency. Pursuant to this requirement, this final rule performs the first annual adjustment for inflation of the maximum amount of civil monetary penalties administered by the Commission under the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Company Act of 1940, the Investment Advisers Act of 1940, and certain penalties under the Sarbanes-Oxley Act of 2002. This adjustment will apply to all penalties imposed after the effective date of this final rule for violations after November 2, 2015. For violations that occurred on or before November 2, 2015, the Commission is reinstating the penalty amounts in the Commission's prior penalty adjustments performed under the DCIA.

    DATES:

    Effective Date: January 18, 2017.

    FOR FURTHER INFORMATION CONTACT:

    James A. Cappoli, Assistant General Counsel, Office of the General Counsel, at (202) 551-7923, or Stephen M. Ng, Senior Counsel, Office of the General Counsel, at (202) 551-7957.

    SUPPLEMENTARY INFORMATION: I. Background

    This final rule implements the 2015 Act,1 which amended the Inflation Adjustment Act.2 The Inflation Adjustment Act previously had been amended by the DCIA 3 to require that each federal agency adopt regulations at least once every four years that adjust for inflation the civil monetary penalties (“CMPs”) that could be imposed under the statutes administered by the agency. Pursuant to the requirements of the DCIA, the Commission previously adopted regulations in 1996, 2001, 2005, 2009, and 2013 to adjust the maximum amount of the CMPs that could be imposed under the statutes the Commission administers.4

    1 Public Law 114-74 Sec. 701, 129 Stat. 599-601 (Nov. 2, 2015), codified at 28 U.S.C. 2461 note.

    2 Public Law 101-410, 104 Stat. 890-892 (1990), codified at 28 U.S.C. 2461 note.

    3 Public Law 104-134, Title III, § 31001(s)(1), 110 Stat. 1321-373 (1996), codified at 28 U.S.C. 2461 note.

    4See Release Nos. 33-7361, 34-37912, IA-1596, IC-22310, dated November 1, 1996 (effective December 9, 1996), previously found at 17 CFR 201.1001 and Table I to Subpart E of Part 201; Release Nos. 33-7946, 34-43897, IA-1921, IC-24846, dated January 31, 2001 (effective February 2, 2001), previously found at 17 CFR 201.1002 and Table II to Subpart E of Part 201; Release Nos. 33-8530, 34-51136, IA-2348, IC-26748, dated February 9, 2005 (effective February 14, 2005), previously found at 17 CFR 201.1003 and Table III to Subpart E of Part 201; Release Nos. 33-9009, 34-59449, IA-2845, IC-28635, dated February 25, 2009 (effective March 3, 2009), previously found at 17 CFR 201.1004 and Table IV to Subpart E of Part 201; and Release Nos. 33-9387, 34-68994, IA-3557, IC-30408, dated February 27, 2013 (effective March 5, 2013), previously found at 17 CFR 201.1005 and Table V to Subpart E of Part 201.

    The 2015 Act replaces the inflation adjustment mechanism prescribed in the DCIA with a new mechanism for calculating the inflation-adjusted amount of CMPs. Each agency was first required to use this new mechanism to adjust the maximum amount of its CMPs 5 in an initial “catch-up” adjustment.6 Pursuant to this requirement, the Commission issued an interim final rule adjusting its CMPs on June 27, 2016 (the “June 2016 interim final rule”).7 After performing the catch-up adjustment, each agency must now perform annual adjustments for inflation, and publish these adjustments in the Federal Register by January 15 of each calendar year.8

    5 The 2015 Act also applies to minimum penalty amounts and penalty ranges. See 28 U.S.C. 2461 note Sec. 5(a). All of the statutes administered by the Commission, however, only include maximum penalty amounts. Thus, in this final rule, we only refer to the effect of the 2015 Act on maximum penalty amounts.

    6 28 U.S.C. 2461 note Sec. 4(b)(1); Office of Management and Budget, Implementation of the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (February 24, 2016) (“2016 OMB Guidance”) at 1, available at https://www.whitehouse.gov/sites/default/files/omb/memoranda/2016/m-16-06.pdf.

    7 Release Nos. 33-10104; 34-78156; IA-4437; IC-32162 (June 27, 2016).

    8 28 U.S.C. 2461 note Sec. 4; 2016 OMB Guidance at 4.

    A CMP is defined in relevant part as any penalty, fine, or other sanction that: (1) Is for a specific amount, or has a maximum amount, as provided by federal law; and (2) is assessed or enforced by an agency in an administrative proceeding or by a federal court pursuant to federal law.9 This definition applies to the monetary penalty provisions contained in four statutes administered by the Commission: The Securities Act of 1933; the Securities Exchange Act of 1934 (the “Exchange Act”); the Investment Company Act of 1940; and the Investment Advisers Act of 1940. In addition, the Sarbanes-Oxley Act of 2002 provides the Public Company Accounting Oversight Board (the “PCAOB”) authority to levy civil monetary penalties in its disciplinary proceedings pursuant to 15 U.S.C. 7215(c)(4)(D).10 The definition of a CMP in the Inflation Adjustment Act encompasses such civil monetary penalties.11

    9 28 U.S.C. 2461 note Sec. 3(2).

    10 15 U.S.C. 7215(c)(4)(D).

    11 The Commission may by order affirm, modify, remand, or set aside sanctions, including civil monetary penalties, imposed by the PCAOB. See Section 107(c) of the Sarbanes-Oxley Act of 2002, 15 U.S.C. 7217. The Commission may enforce such orders in federal district court pursuant to Section 21(e) of the Securities Exchange Act of 1934. As a result, penalties assessed by the PCAOB in its disciplinary proceedings are penalties “enforced” by the Commission for purposes of the Inflation Adjustment Act. See Adjustments to Civil Monetary Penalty Amounts, Release No. 33-8530 (Feb. 4, 2005) [70 FR 7606 (Feb. 14, 2005)].

    II. Adjusting the Commission's Penalty Amounts for Inflation

    This final rule implements the first of the required annual adjustments under the 2015 Act for all penalties under the Securities Act, the Exchange Act, the Investment Company Act, and the Investment Advisers Act, and certain penalties under the Sarbanes-Oxley Act.

    As the baseline in calculating these new penalty amounts, the Commission uses the penalty amounts in the Commission's June 2016 interim final rule. The penalty amounts in that interim final rule used the new inflation adjustment mechanism in the 2015 Act as part of the “catch-up adjustment” required by that Act. The Commission affirms that the amounts in the June 2016 interim final rule were correct and that the adjusted amounts were appropriate.12

    12 The 2015 Act provided that agencies could seek approval from OMB to reduce the amount of the catch-up adjustment required by the 2015 Act (a “reduced catch-up determination”) if: (1) The otherwise required increase of the maximum amount of the CMPs administered by the agency would have a negative economic impact, or (2) the social costs of adopting the otherwise required increase of the maximum amount of these CMPs would outweigh the benefits. See 28 U.S.C. 2461 note Sec. 4(c); 2016 OMB Guidance at 3. As part of the June 2016 interim final rule, the Commission determined that it was not necessary to seek a reduced catch-up adjustment determination, but requested comments on whether the Commission should reconsider this decision. See Release No. 33-10104 at 8. The Commission did not receive any comments on this topic and the Commission affirms its decision not to seek a reduced catch-up adjustment determination.

    Pursuant to the 2015 Act, the Commission now adjusts the penalty amounts in the June 2016 interim final rule by multiplying these amounts by the percentage change between the Consumer Price Index for all Urban Consumers (“CPI-U”) for October 2015, and the October 2016 CPI-U.13 OMB has provided its calculation of this multiplier (the “CPI-U Multiplier”) to agencies.14 After multiplying the June 2016 interim final rule amounts by this multiplier, the Commission must round all penalty amounts to the nearest dollar to determine the new inflation-adjusted penalty amounts.

    13 28 U.S.C. 2461 note Sec. 5.

    14 Office of Management and Budget, Implementation of the 2017 Annual Adjustment Pursuant to the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (Dec. 16, 2016) (“2017 OMB Guidance”) at 1, available at https://www.whitehouse.gov/sites/default/files/omb/memoranda/2017/m-17-11_0.pdf.

    For example, the CMP for certain insider trading violations by controlling persons under Exchange Act Section 21A(a)(3) 15 was readjusted for inflation on August 1, 2016, to $1,978,690. To determine the new CMP under this provision, the Commission multiplies the current CMP by the CPI-U Multiplier of 1.01636, and rounds to the nearest dollar. Thus, the new CMP for Exchange Act Section 21A(a)(3) is $2,011,061.

    15 15 U.S.C. 78u-1(a)(3).

    Below is the Commission's calculation of the new penalty amounts for the penalties it administers.

    U.S. code citation Civil monetary penalty description Penalty
  • amounts in
  • June 2016
  • interim
  • final rule
  • CPI-U
  • multiplier
  • New adjusted
  • penalty
  • amounts
  • 15 U.S.C. 77h-1(g) (Securities Act Sec. 8A(g)) For natural person
  • For any other person
  • $8,156
  • 81,559
  • 1.01636
  • 1.01636
  • $8,289
  • 82,893
  • For any other person/fraud 407,794 1.01636 414,466 For natural person/fraud/substantial losses or risk of losses to others or gains to self 163,118 1.01636 165,787 For any other person/fraud/substantial losses or risk of losses to others or gain to self 788,401 1.01636 801,299 15 U.S.C. 77t(d) (Securities Act Sec. 20(d)) For natural person
  • For any other person
  • 8,908
  • 89,078
  • 1.01636
  • 1.01636
  • 9,054
  • 90,535
  • For natural person/fraud 89,078 1.01636 90,535 For any other person/fraud 445,390 1.01636 452,677 For natural person/fraud/substantial losses or risk of losses to others 178,156 1.01636 181,071 For any other person/fraud/substantial losses or risk of losses to others 890,780 1.01636 905,353 15 U.S.C. 78u(d)(3) (Exchange Act Sec. 21(d)(3)) For natural person
  • For any other person
  • 8,908
  • 89,078
  • 1.01636
  • 1.01636
  • 9,054
  • 90,535
  • For natural person/fraud 89,078 1.01636 90,535 For any other person/fraud 445,390 1.01636 452,677 For natural person/fraud/substantial losses or risk of losses to others or gains to self 178,156 1.01636 181,071 For any other person/fraud/substantial losses or risk of losses to others or gain to self 890,780 1.01636 905,353 15 U.S.C. 78u-1(a)(3) (Exchange Act Sec. 21A(a)(3)) Insider Trading—controlling person 1,978,690 1.01636 2,011,061 15 U.S.C. 78u-2 (Exchange Act Sec. 21B) For natural person
  • For any other person
  • 8,908
  • 89,078
  • 1.01636
  • 1.01636
  • 9,054
  • 90,535
  • For natural person/fraud 89,078 1.01636 90,535 For any other person/fraud 445,390 1.01636 452,677 For natural person/fraud/substantial losses or risk of losses to others 178,156 1.01636 181,071 For any other person/fraud/substantial losses or risk of losses to others 890,780 1.01636 905,353 15 U.S.C. 78ff(b) (Exchange Act Sec. 32(b)) Exchange Act/failure to file information documents, reports 525 1.01636 534 15 U.S.C. 78ff(c)(1)(B) (Exchange Act Sec. 32(c)(1)(B)) Foreign Corrupt Practices—any issuer 19,787 1.01636 20,111 15 U.S.C. 78ff(c)(2)(B) (Exchange Act Sec. 32(c)(2)(B)) Foreign Corrupt Practices—any agent or stockholder acting on behalf of issuer 19,787 1.01636 20,111 15 U.S.C. 80a-9(d) (Investment Company Act Sec. 9(d)) For natural person
  • For any other person
  • 8,908
  • 89,078
  • 1.01636
  • 1.01636
  • 9,054
  • 90,535
  • For natural person/fraud 89,078 1.01636 90,535 For any other person/fraud 445,390 1.01636 452,677 For natural person/fraud/substantial losses or risk of losses to others or gains to self 178,156 1.01636 181,071 For any other person/fraud/substantial losses or risk of losses to others or gain to self 890,780 1.01636 905,353 15 U.S.C. 80a-41(e) (Investment Company Act Sec. 42(e)) For natural person
  • For any other person
  • 8,908
  • 89,078
  • 1.01636
  • 1.01636
  • 9,054
  • 90,535
  • For natural person/fraud 89,078 1.01636 90,535 For any other person/fraud 445,390 1.01636 452,677 For natural person/fraud/substantial losses or risk of losses to others 178,156 1.01636 181,071 For any other person/fraud/substantial losses or risk of losses to others 890,780 1.01636 905,353 15 U.S.C. 80b-3(i) (Investment Advisers Act Sec. 203(i)) For natural person
  • For any other person
  • 8,908
  • 89,078
  • 1.01636
  • 1.01636
  • 9,054
  • 90,535
  • For natural person/fraud 89,078 1.01636 90,535 For any other person/fraud 445,390 1.01636 452,677 For natural person/fraud/substantial losses or risk of losses to others or gains to self 178,156 1.01636 181,071 For any other person/fraud/substantial losses or risk of losses to others or gain to self 890,780 1.01636 905,353 15 U.S.C. 80b-9(e) (Investment Advisers Act Sec. 209(e)) For natural person
  • For any other person
  • 8,908
  • 89,078
  • 1.01636
  • 1.01636
  • 9,054
  • 90,535
  • For natural person/fraud 89,078 1.01636 90,535 For any other person/fraud 445,390 1.01636 452,677 For natural person/fraud/substantial losses or risk of losses to others 178,156 1.01636 181,071 For any other person/fraud/substantial losses or risk of losses to others 890,780 1.01636 905,353 15 U.S.C. 7215(c)(4)(D)(i) (Sarbanes-Oxley Act Sec. 105(c)(4)(D)(i)) For natural person
  • For any other person
  • 131,185
  • 2,623,700
  • 1.01636
  • 1.01636
  • 133,331
  • 2,666,624
  • 15 U.S.C. 7215(c)(4)(D)(ii) (Sarbanes-Oxley Act Sec. 105(c)(4)(D)(ii)) For natural person
  • For any other person
  • 983,888
  • 19,677,750
  • 1.01636
  • 1.01636
  • 999,984
  • 19,999,678
  • Pursuant to the 2015 Act, the Commission has determined that the adjusted penalty amounts in this final rule (and all penalty adjustments performed pursuant to the 2015 Act) will apply to penalties imposed after the effective date of the adjustment for violations that occurred after November 2, 2015, the 2015 Act's enactment date. Consistent with this determination, the Commission is reinstating the penalty amounts contained in its prior penalty adjustments under the DCIA for violations that occurred from December 10, 1996, through November 2, 2015.16

    16 One commenter to the June 2016 interim final rule requested that the Commission re-evaluate the application of the adjusted penalty amounts included in that interim final rule to violations that occurred before the enactment of the 2015 Act (see Ltr. from Wilmer Cutler Pickering Hale and Dorr LLP, Aug. 15, 2016). Our determination to apply the penalty amounts in this final rule to violations that occurred after November 2, 2015, renders the commenter's request moot. As explained below, the penalty amounts in this final rule supersede the penalty amounts in the June 2016 interim final rule.

    The Commission's prior penalty adjustments under the DCIA were previously included in the Code of Federal Regulations at 17 CFR 201.1001through 1005 and Tables I through V to Subpart E. In the June 2016 interim final rule, Section 201.1001 and Table I were replaced with the new penalty amounts from the interim final rule, and Sections 201.1002 through 201.1005 and Tables II to V were removed. As part of this final rule, the information in these tables will be added back into the Code of Federal Regulations. However, for ease of reference, the information in these tables will be consolidated and included in a single section (17 CFR 201.1001(a)) and Table (Table I to Section 201.1001).

    Further, each penalty adjustment performed pursuant to the 2015 Act supersedes the prior adjustments under that Act. Thus, the penalty amounts in this final rule supersede the amounts in the June 2016 interim final rule (except that for the first day this final rule is effective, the prior year's penalty amounts shall apply, see 28 U.S.C. 2461 note Sec. 6). Because of this, the amounts in the June 2016 interim final rule will be removed from the Code of Federal Regulations. The penalty amounts in this final rule, however, need only be published in the Federal Register and will not be added to the Code of Federal Regulations, in accordance with the 2015 Act and OMB guidance.17 As a result, the Commission is amending 17 CFR 201.1001 to add subsection (b) to indicate that all penalty adjustments performed under the 2015 Act will be published in the Federal Register and will be made available on the Commission's Web site.18 This framework will avoid the necessity of revising the Code of Federal Regulations every year to include the new inflation-adjusted penalty amounts. Section 201.1001(b) will also clarify that penalty adjustments performed pursuant to the 2015 Act will only apply to violations that occurred after November 2, 2015, the enactment date of the 2015 Act.

    17 28 U.S.C. 2461 note Sec. 4(a)(2); 2017 OMB Guidance at 3.

    18 The Web site will also list the penalty amounts for violations that occurred on or before November 2, 2015.

    III. Procedural and Other Matters

    The Commission is required by the 2015 Act to adjust the CMPs within its jurisdiction for inflation using a statutorily prescribed formula and the 2015 Act mandates that agencies perform this adjustment annually by January 15th of each year.19 The 2015 Act further provides that these annual adjustments shall be made “notwithstanding section 553 of title 5, United States Code.” 20 In light of this Congressional mandate, the Commission is not required to provide for public notice and comment pursuant to the notice and comment provisions of the Administrative Procedure Act.21 Under the Regulatory Flexibility Act, a regulatory flexibility analysis is required only when an agency must publish a general notice of proposed rulemaking.22 Because public notice and comment is not required for this final rule, a regulatory flexibility analysis is not required. Further, this rule does not contain any collection of information requirements as defined by the Paperwork Reduction Act of 1995 as amended.23

    19 28 U.S.C. 2461 note Sec. 4(a).

    20 28 U.S.C. 2461 note Sec. 4(b)(2).

    21 5 U.S.C. 553(b)(3)(B). This finding also satisfies the requirements of 5 U.S.C. 808(2), allowing the amendment to become effective notwithstanding the requirement of 5 U.S.C. 801 (if a federal agency finds that notice and public comment are impractical, unnecessary or contrary to the public interest, a rule shall take effect at such time as the federal agency promulgating the rule determines).

    22 5 U.S.C. 603.

    23 44 U.S.C. 3501 et. seq.

    IV. Economic Analysis  24

    24 The Commission did not receive any comments on the economic analysis in the June 2016 interim final rule.

    The Commission is sensitive to the costs and benefits that result from its rules. This regulation merely adjusts CMPs for inflation as required by the 2015 Act. It has no impact on disclosure or compliance costs. The Commission further notes that the CMPs ordered in SEC proceedings and PCAOB disciplinary proceedings in fiscal year 2016 totaled approximately $1.28 billion. The inflationary adjustment required by the 2015 Act results in the increase of the maximum amount of the CMPs administered by the Commission of 1.636%. Assuming that the Commission is successful in obtaining civil monetary penalties in fiscal year 2017 in similar proportion to that obtained in fiscal year 2016, the inflationary adjustment pursuant to this final rule would result in an increase in the CMPs ordered of approximately $21 million.

    This potential increase, however, overstates the effect of the rule. First, this figure represents the amount of penalties that could be potentially ordered, whereas the amount of penalties collected in any given year—the amount of penalties that would affect the economy—can be lower than the ordered amount. Second, the adjusted penalty amounts will not apply to all penalties ordered, but rather only to those penalties whose associated violations occurred after November 2, 2015. Third, penalties imposed in insider trading cases brought in district court are based on the profit gained or loss avoided as a result of the violation rather than by reference to a statutory dollar amount that is affected by this regulation.25 The average annual amount of penalties obtained in insider trading cases from FY 2010 through FY 2016 is $95.7 million. Third, in many cases where the Commission has obtained large civil monetary penalties, such penalties were calculated on the basis of the defendant's gross pecuniary gain rather than the maximum penalty dollar amount set by statute that will be adjusted by the proposed rule.26 In addition, the intent of the new regulation is merely to keep pace with changes in the economy, not to impose new costs. Therefore, for the instances in which CMPs affected by this rulemaking are imposed, the Commission does not believe that adjusting civil monetary penalties pursuant to the 2015 Act will significantly affect the amount of penalties it obtains beyond that necessary to keep pace with inflation.

    25 15 U.S.C. 78u-1(a)(2).

    26 For example, 15 U.S.C. 77t(d)(2)(A), after adjusting for inflation as required by the 2015 Act, provides that the amount of the penalty shall not exceed the greater of $9,054 for a natural person or $90,535 for any other person, or the gross amount of pecuniary gain to such defendant as a result of the violation.

    The benefit provided by the inflationary adjustment to the maximum CMPs is that of maintaining the level of deterrence effectuated by the CMPs, and not allowing such deterrent effect to be diminished by inflation. The costs of implementing this rule should be negligible because the only change from the current, baseline situation is determining potential penalties using a new maximum dollar amount.

    V. Statutory Basis

    The Commission is adopting these revisions to 17 CFR part 201, subpart E pursuant to the directives and authority of the Federal Civil Penalties Inflation Adjustment Act of 1990, Public Law 101-410, 104 Stat. 890-892 (1990), codified at 28 U.S.C. 2461 note, as amended.

    List of Subjects in 17 CFR Part 201

    Administrative practice and procedure, Claims, Confidential business information, Lawyers, Penalties, Securities.

    Text of Amendment

    For the reasons set forth in the preamble, part 201, title 17, chapter II of the Code of Federal Regulations is amended as follows:

    PART 201—RULES OF PRACTICE Subpart E—Adjustment of Civil Monetary Penalties 1. The authority citation for Part 201, Subpart E continues to read as follows: Authority:

    28 U.S.C. 2461 note.

    2. Revise 201.1001 to read as follows:
    § 201.1001 Adjustment of civil monetary penalties.

    (a) For violations from December 10, 1996, through November 2, 2015: As required by the Inflation Adjustment Act of 1990, as amended by the Debt Collection Improvement Act of 1996, the Commission has adjusted the maximum amounts of all civil monetary penalties it administers under the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Company Act of 1940, the Investment Advisers Act of 1940, and certain penalties under the Sarbanes-Oxley Act of 2002 for inflation in the releases and prior regulations listed in the footnotes to Table I. The penalty amounts provided in Table I apply to violations of these statutes that occurred from December 10, 1996, through November 2, 2015, with each column listing the penalty amounts for violations that occurred in a particular time frame. To determine the penalty amounts for violations that occurred prior to December 10, 1996, please refer to the applicable statutory text. To determine penalty amounts for violations after November 2, 2015, please refer to paragraph (b) of this section.

    (b) For violations after November 2, 2015: The Federal Civil Penalties Inflation Adjustment Act, as amended by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (28 U.S.C. 2461 note), requires that civil monetary penalties be adjusted on an annual basis for inflation. Pursuant to this requirement, the maximum amounts of all civil monetary penalties under the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Company Act of 1940, and the Investment Advisers Act of 1940, and certain penalties under the Sarbanes-Oxley Act of 2002 will be adjusted annually for inflation. Notice of these adjusted penalty amounts will be published by the Commission in the Federal Register on or before January 15 of each calendar year and will be available, along with the Commission's prior inflation adjustments, on the Commission's Web site at https://www.sec.gov/enforce/civil-penalties-inflation-adjustments.htm. The adjusted penalty amounts will apply to all penalties imposed after the effective date of the adjustment (for the first day the adjustment is effective, the prior year's penalty amounts shall apply), for violations that occurred after November 2, 2015. The adjusted penalty amount each year will be the larger of:

    (1) The maximum penalty amount for the previous calendar year; or

    (2) An amount adjusted for inflation, calculated by multiplying the maximum penalty amount for the previous calendar year by the percentage by which the Consumer Price Index for all Urban Consumers (CPI-U) for the month of October preceding the current calendar year exceeds the CPI-U for the month of October of the calendar year two years prior to the current calendar year, adding that amount to the amount for the previous calendar year, and rounding the total to the nearest dollar.

    Table I to 201.1001—Civil Monetary Penalty Inflation Adjustments for Violations From December 10, 1996, Through November 2, 2015 U.S. Code citation Civil monetary penalty
  • description
  • Date of violation and corresponding penalty Dec. 10, 1996-
  • Feb. 2, 2001 i
  • Feb. 3, 2001-
  • Feb. 14, 2005 ii
  • Feb. 15, 2005-
  • Mar. 3, 2009 iii
  • Mar. 4, 2009-
  • Mar. 5, 2013 iv
  • Mar. 6, 2013-
  • Nov. 2, 2015 v
  • 15 U.S.C. 77h-1(g) (Securities Act Sec. 8A(g)) For natural person
  • For any other person
  • N/A
  • N/A
  • N/A
  • N/A
  • N/A
  • N/A
  • vi $7,500
  • vi 75,000
  • $7,500
  • 80,000
  • For natural person/fraud N/A N/A N/A vi 75,000 80,000 For any other person/fraud N/A N/A N/A vi 375,000 400,000 For natural person/fraud/substantial losses or risk of losses to others or gains to self N/A N/A N/A vi 150,000 160,000 For any other person/fraud/substantial losses or risk of losses to others or gain to self N/A N/A N/A vi 725,000 775,000 15 U.S.C. 77t(d) (Securities Act Sec. 20(d)) For natural person
  • For any other person
  • $5,500
  • 55,000
  • $6,500
  • 60,000
  • $6,500
  • 65,000
  • 7,500
  • 75,000
  • 7,500
  • 80,000
  • For natural person/fraud 55,000 60,000 65,000 75,000 80,000 For any other person/fraud 275,000 300,000 325,000 375,000 400,000 For natural person/fraud/substantial losses or risk of losses to others 110,000 120,000 130,000 150,000 160,000 For any other person/fraud/substantial losses or risk of losses to others 550,000 600,000 650,000 725,000 775,000 15 U.S.C. 78u(d)(3) (Exchange Act Sec. 21(d)(3)) For natural person
  • For any other person
  • 5,500
  • 55,000
  • 6,500
  • 60,000
  • 6,500
  • 65,000
  • 7,500
  • 75,000
  • 7,500
  • 80,000
  • For natural person/fraud 55,000 60,000 65,000 75,000 80,000 For any other person/fraud 275,000 300,000 325,000 375,000 400,000 For natural person/fraud/substantial losses or risk of losses to others or gains to self 110,000 120,000 130,000 150,000 160,000 For any other person/fraud/substantial losses or risk of losses to others or gain to self 550,000 600,000 650,000 725,000 775,000 15 U.S.C. 78u-1(a)(3) (Exchange Act Sec. 21A(a)(3)) Insider Trading—controlling person 1,100,000 1,200,000 1,275,000 1,425,000 1,525,000 15 U.S.C. 78u-2 (Exchange Act Sec. 21B) For natural person
  • For any other person
  • 5,500
  • 55,000
  • 6,500
  • 60,000
  • 6,500
  • 65,000
  • 7,500
  • 75,000
  • 7,500
  • 80,000
  • For natural person/fraud 55,000 60,000 65,000 75,000 80,000 For any other person/fraud 275,000 300,000 325,000 375,000 400,000 For natural person/fraud/substantial losses or risk of losses to others 110,000 120,000 130,000 150,000 160,000 For any other person/fraud/substantial losses or risk of losses to others 550,000 600,000 650,000 725,000 775,000 15 U.S.C. 78ff(b) (Exchange Act Sec. 32(b)) Exchange Act/failure to file information documents, reports 110 110 110 110 210 15 U.S.C. 78ff(c)(1)(B) (Exchange Act Sec. 32(c)(1)(B)) Foreign Corrupt Practices—any issuer 11,000 11,000 11,000 16,000 16,000 15 U.S.C. 78ff(c)(2)(B) (Exchange Act Sec. 32(c)(2)(B)) Foreign Corrupt Practices—any agent or stockholder acting on behalf of issuer 11,000 11,000 11,000 16,000 16,000 15 U.S.C. 80a-9(d) (Investment Company Act Sec. 9(d)) For natural person
  • For any other person
  • 5,500
  • 55,000
  • 6,500
  • 60,000
  • 6,500
  • 65,000
  • 7,500
  • 75,000
  • 7,500
  • 80,000
  • For natural person/fraud 55,000 60,000 65,000 75,000 80,000 For any other person/fraud 275,000 300,000 325,000 375,000 400,000 For natural person/fraud/substantial losses or risk of losses to others or gains to self 110,000 120,000 130,000 150,000 160,000 For any other person/fraud/substantial losses or risk of losses to others or gain to self 550,000 600,000 650,000 725,000 775,000 15 U.S.C. 80a-41(e) (Investment Company Act Sec. 42(e)) For natural person
  • For any other person
  • 5,500
  • 55,000
  • 6,500
  • 60,000
  • 6,500
  • 65,000
  • 7,500
  • 75,000
  • 7,500
  • 80,000
  • For natural person/fraud 55,000 60,000 65,000 75,000 80,000 For any other person/fraud 275,000 300,000 325,000 375,000 400,000 For natural person/fraud/substantial losses or risk of losses to others 110,000 120,000 130,000 150,000 160,000 For any other person/fraud/substantial losses or risk of losses to others 550,000 600,000 650,000 725,000 775,000 15 U.S.C. 80b-3(i) (Investment Advisers Act Sec. 203(i)) For natural person
  • For any other person
  • 5,500
  • 55,000
  • 6,500
  • 60,000
  • 6,500
  • 65,000
  • 7,500
  • 75,000
  • 7,500
  • 80,000
  • For natural person/fraud 55,000 60,000 65,000 75,000 80,000 For any other person/fraud 275,000 300,000 325,000 375,000 400,000 For natural person/fraud/substantial losses or risk of losses to others or gains to self 110,000 120,000 130,000 150,000 160,000 For any other person/fraud/substantial losses or risk of losses to others or gain to self 550,000 600,000 650,000 725,000 775,000 15 U.S.C. 80b-9(e) (Investment Advisers Act Sec. 209(e)) For natural person
  • For any other person
  • 5,500
  • 55,000
  • 6,500
  • 60,000
  • 6,500
  • 65,000
  • 7,500
  • 75,000
  • 7,500
  • 80,000
  • For natural person/fraud 55,000 60,000 65,000 75,000 80,000 For any other person/fraud 275,000 300,000 325,000 375,000 400,000 For natural person/fraud/substantial losses or risk of losses to others 110,000 120,000 130,000 150,000 160,000 For any other person/fraud/substantial losses or risk of losses to others 550,000 600,000 650,000 725,000 775,000 15 U.S.C. 7215(c)(4)(D)(i) (Sarbanes-Oxley Act Sec. 105(c)(4)(D)(i)) For natural person
  • For any other person
  • N/A
  • N/A
  • vii 100,000
  • vii 2,000,000
  • 110,000
  • 2,100,000
  • 120,000
  • 2,375,000
  • 130,000
  • 2,525,000
  • 15 U.S.C. 7215(c)(4)(D)(ii) (Sarbanes-Oxley Act Sec. 105(c)(4)(D)(ii)) For natural person
  • For any other person
  • N/A
  • N/A
  • vii 750,000
  • vii 15,000,000
  • 800,000
  • 15,825,000
  • 900,000
  • 17,800,000
  • 950,000
  • 18,925,000
  • i Release Nos. 33-7361, 34-37912, IA-1596, IC-22310, dated November 1, 1996 (effective December 9, 1996), previously found at 17 CFR 201.1001 and Table I to Subpart E of Part 201. ii Release Nos. 33-7946, 34-43897, IA-1921, IC-24846, dated January 31, 2001 (effective February 2, 2001), previously found at 17 CFR 201.1002 and Table II to Subpart E of Part 201. iii Release Nos. 33-8530, 34-51136, IA-2348, IC-26748, dated February 9, 2005 (effective February 14, 2005), previously found at 17 CFR 201.1003 and Table III to Subpart E of Part 201. iv Release Nos. 33-9009, 34-59449, IA-2845, IC-28635, dated February 25, 2009 (effective March 3, 2009), previously found at 17 CFR 201.1004 and Table IV to Subpart E of Part 201. v Release Nos. 33-9387, 34-68994, IA-3557, IC-30408, dated February 27, 2013 (effective March 5, 2013), previously found at 17 CFR 201.1005 and Table V to Subpart E of Part 201. vi Effective from July 21, 2010 (enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 111-203), through March 5, 2013. vii Effective from July 30, 2002 (enactment of the Sarbanes-Oxley Act of 2002, Pub. L. 107-204), through February 14, 2005.

    By the Commission.

    January 6, 2017. Brent J. Fields, Secretary.
    [FR Doc. 2017-00421 Filed 1-13-17; 8:45 am] BILLING CODE 8011-01-P
    DEPARTMENT OF LABOR Employment and Training Administration 20 CFR Part 655 Office of Workers' Compensation Programs 20 CFR Parts 702, 725, and 726 Wage and Hour Division 29 CFR Parts 500, 501, 530, 570, 578, 579, 801, and 825 Occupational Safety and Health Administration 29 CFR Part 1903 Employee Benefits Security Administration 29 CFR Part 2560, 2575, and 2590 Mine Safety and Health Administration 30 CFR Part 100 RIN 1290-AA31 Department of Labor Federal Civil Penalties Inflation Adjustment Act Annual Adjustments for 2017 AGENCY:

    Employment and Training Administration, Office of Workers' Compensation Programs, Office of the Secretary, Wage and Hour Division, Occupational Safety and Health Administration, Employee Benefits Security Administration, and Mine Safety and Health Administration, Department of Labor.

    ACTION:

    Final rule.

    SUMMARY:

    The U.S. Department of Labor (Department) is publishing this final rule to adjust for inflation the civil monetary penalties assessed or enforced in its regulations, pursuant to the Federal Civil Penalties Inflation Adjustment Act of 1990 as amended by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (Inflation Adjustment Act). The Inflation Adjustment Act requires the Department to annually adjust its civil money penalty levels for inflation no later than January 15 of each year. The Inflation Adjustment Act provides that agencies shall adjust civil monetary penalties notwithstanding Section 553 of the Administrative Procedure Act (APA). Additionally, the Inflation Adjustment Act provides a cost-of-living formula for adjustment of the civil penalties. Accordingly, this final rule sets forth the Department's 2017 annual adjustments for inflation to its civil monetary penalties, effective January 13, 2017.

    DATES:

    This final rule is effective on January 13, 2017. As provided by the Inflation Adjustment Act, the increased penalty levels apply to any penalties assessed after the effective date of this rule.

    FOR FURTHER INFORMATION CONTACT:

    Pamela Peters, Program Analyst, U.S. Department of Labor, Room S-2312, 200 Constitution Avenue, NW., Washington, DC 20210; telephone: (202) 693-5959 (this is not a toll-free number). Copies of this final rule may be obtained in alternative formats (large print, Braille, audio tape or disc), upon request, by calling (202) 693-5959 (this is not a toll-free number). TTY/TDD callers may dial toll-free 1-877-889-5627 to obtain information or request materials in alternative formats.

    SUPPLEMENTARY INFORMATION:

    Preamble Table of Contents I. Background II. Adjustment for 2017 III. Discussion of Public Comments IV. Paperwork Reduction Act V. Administrative Procedure Act VI. Executive Order 12866: Regulatory Planning and Review, and Executive Order 13563: Improving Regulation and Regulatory Review VII. Regulatory Flexibility Act and Small Business Regulatory Enforcement Fairness Act VIII. Other Regulatory Considerations A. The Unfunded Mandates Reform Act of 1995 B. Executive Order 13132: Federalism C. Executive Order 13175: Indian Tribal Governments D. The Treasury and General Government Appropriations Act of 1999: Assessment of Federal Regulations and Policies on Families E. Executive Order 13045: Protection of Children From Environmental Health Risks and Safety Risks F. Environmental Impact Assessment G. Executive Order 13211: Energy Supply H. Executive Order 12630: Constitutionally Protected Property Rights I. Executive Order 12988: Civil Justice Reform Analysis I. Background

    On November 2, 2015, Congress enacted the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015, Public Law 114-74, 701 (Inflation Adjustment Act), which further amended the Federal Civil Penalties Inflation Adjustment Act of 1990 as previously amended by the 1996 Debt Collection Improvement Act (collectively, the “Prior Inflation Adjustment Act”), to improve the effectiveness of civil monetary penalties and to maintain their deterrent effect. The Inflation Adjustment Act required agencies to: (1) Adjust the level of civil monetary penalties with an initial “catch-up” adjustment through an interim final rule (IFR); and (2) make subsequent annual adjustments for inflation. The Department is required to publish an annual inflation adjustment no later than January 15, 2017, and by January 15 of each subsequent year.

    On July 1, 2016, the Department published an IFR that established the initial catch-up adjustment for civil penalties that the Department administers and requested comments. See 81 FR 43430 (DOL IFR). Nine comments were received on the Employment and Training Administration, Wage and Hour Division, Occupational Safety and Health Administration, and Employee Benefit Security Administration sections of the IFR, and are discussed below.

    This rule implements the annual inflation adjustment that the Department is required by the Inflation Adjustment Act to publish by January 15, 2017 for civil monetary penalties assessed or enforced in the Department's regulations.1 The Inflation Adjustment Act provides that the increased penalty levels apply to any penalties assessed after the effective date of the increase. Pursuant to the Inflation Adjustment Act, this final rule is published notwithstanding Section 553 of the APA.

    1 Civil monetary penalties under the H-2B program are addressed separately.

    II. Adjustment for 2017

    The Department has undertaken a thorough review of civil penalties administered by its various components pursuant to the Inflation Adjustment Act and in accordance with guidance issued by the Office of Management and Budget.2 The Department first identified the most recent penalty amount, which was the amount established by the catch-up adjustment as set forth in the IFR published on July 1, 2016.

    2 M-17-11, Implementation of the 2017 annual adjustment pursuant to the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (Dec 16, 2016).

    The Department is required to calculate the annual adjustment based on the Consumer Price Index for all Urban Consumers (CPI-U). Annual inflation adjustments are based on the percent change between the October CPI-U preceding the date of the adjustment, and the prior year's October CPI-U; in this case, the percent change between the October 2016 CPI-U and the October 2015 CPI-U. The cost-of-living adjustment multiplier for 2017, based on the Consumer Price Index (CPI-U) for the month of October 2016, not seasonally adjusted, is 1.01636.3 In order to complete the 2017 annual adjustment, the Department multiplied the most recent penalty amount for each applicable penalty by the multiplier, 1.01636, and rounded to the nearest dollar.

    3 OMB provided the year-over-year multiplier, rounded to 5 decimal points. Id. at 1.

    As provided by the Inflation Adjustment Act, the increased penalty levels apply to any penalties assessed after the effective date of this rule.4 Accordingly, for penalties assessed after January 13, 2017, whose associated violations occurred after November 2, 2015, the higher penalty amounts outlined in this rule will apply. The table below demonstrates the penalty amounts that apply:

    4 Appendix 1 consists of a table that provides ready access to key information about each penalty.

    Violations occurring Penalty assessed Which penalty level applies On or before November 2, 2015 On or before August 1, 2016 Pre-August 1, 2016 levels. On or before November 2, 2015 After August 1, 2016 Pre-August 1, 2016 levels. After November 2, 2015 After August 1, 2016, but on or before January 13, 2017 August 1, 2016 levels. After November 2, 2015 After January 13, 2017 January 13, 2017 levels. III. Discussion of Public Comments

    Nine organizations filed responsive comments with the Department within the public comment period for the IFR. The Department received comments from the Center for Progressive Reform (CPR); Farmworker Justice; Contractors Risk Management, Inc.; the North Carolina Department of Labor; the National Association of Heath Underwriters (NAHU); the Kentucky Labor Cabinet; the National Guestworker Alliance (NGA); the New Mexico Environment Department; and the Occupational Safety and Health State Plan Association (OSHSPA).

    Comments were received on the Employment and Training Administration, Wage and Hour Division, Occupational Safety and Health Administration, and Employee Benefit Security Administration sections of the IFR. No comments were received related to the Office of Workers' Compensation Programs, Office of the Secretary, and Mine Safety and Health Administration sections.

    The following discussion addresses the comments and the Department's responses. The Department has reviewed and considered these comments, but found none of them required a change in the penalty levels or regulatory text.

    A. Employment and Training Administration (20 CFR Part 655) and Wage and Hour Division (29 CFR Parts 500, 501, 530, 570, 578, 579, 801, 825)

    In the IFR, the Department increased the civil monetary penalties enforced by Department's Wage and Hour Division (WHD) under the Migrant and Seasonal Agricultural Worker Protection Act (MSPA), the Immigration and Nationality Act (INA) (specifically, the H-2A, D-1, and H-1B visa programs), the Fair Labor Standards Act (FLSA) (including the child labor provisions), the Employee Polygraph Protection Act, and the Family and Medical Leave Act.5 The civil monetary penalties authorized by the INA's D-1 and H-1B visa programs are reflected in the Employment and Training Administration's regulations, title 20 of the Code of Federal Regulations (CFR), but are enforced by WHD. The Department increased these civil monetary penalties pursuant to the “catch-up” adjustment formula as specified in the Inflation Adjustment Act. The Department explained each increase in the preamble to the IFR.

    5 The Department also increased civil monetary penalties provisions of the Contract Work Hours and Safety Standards Act (CWHSSA) and the Walsh-Healey Public Contracts Act (PCA), as amended. These provisions are included in regulations established by the Office of the Secretary, 29 CFR part 5 and 41 CFR part 50-201, which have been delegated to WHD for enforcement.

    The Department received two comments addressing the increase of civil monetary penalties under programs administered by the WHD. Farmworker Justice, a national advocacy organization representing migrant and seasonal farmworkers, submitted a comment addressing civil monetary penalties under MSPA, H-2A, and FLSA.6 Farmworker Justice commented that while they were pleased that the civil monetary penalties under these programs had increased, the penalties remain “woefully inadequate to deter agricultural employers from violating labor laws and should be significantly increased.” Farmworker Justice recommended that all civil monetary penalties for these programs “be raised significantly in order to have an impact on the pervasive labor law violations in agriculture.” The National Guestworker Alliance (NGA), a membership organization representing contingent workers across labor sectors, submitted a comment addressing civil monetary penalties under the H-1B visa program.7 With respect to civil monetary penalties under the H-1B visa program, the NGA commented that while it supports the increases included in the IFR, “it believes that DOL should have increased the penalt[ies]” to the “150 [percent] maximum allowed under the [Inflation Adjustment Act] to help ensure employer compliance with the regulation.”

    6 This comment also addressed civil money penalties under the Occupational Safety and Health Act (OSH Act), which is administered by the Occupational Safety and Health Administration; that portion of Farmworker Justice's comment is addressed below.

    7 This comment also addressed civil money penalties under the OSH Act; that portion of NGA's comment is addressed below.

    The Department agrees that civil monetary penalties serve an important role in deterring violations of the programs administered by the Department. Indeed, the Inflation Adjustment Act is intended to improve the effectiveness of civil monetary penalties and to maintain their deterrent effect. See DOL IFR, 81 FR at 43431. However, the Department increased civil monetary penalties under the H-1B, H-2A, FLSA, and MSPA programs in the IFR pursuant to the Inflation Adjustment Act's mandatory “catch-up” adjustment formula, which is specified in the statute and is based on inflation. For this “catch-up” adjustment, the Inflation Adjustment Act required agencies to identify, for each penalty, the year and corresponding amount(s) for which the penalty amount, the maximum penalty level, or range of minimum and maximum penalties was established (i.e., originally enacted by Congress or by regulation) or last adjusted other than pursuant to the Prior Inflation Adjustment Act. That amount became the basis of the “catch-up” adjustment, subject to a cap on any penalty increase of 150 percent of the current penalty amount as of November 2015—allowing for a total new penalty of no more than 250 percent of the November 2015 penalty amount. See Inflation Adjustment Act, Sec. 701. This cap is triggered only where the relevant calculation results in a higher penalty amount; the Inflation Adjustment Act does not permit agencies to increase civil monetary penalties up to this cap where the specified calculation results in an increase lower than 150 percent of the November 2015 penalty amount. Id.

    As explained in the preamble to the IFR, applying the “catch-up” formula required by the Inflation Adjustment Act, the civil monetary penalties under the FLSA, H-1B, H-2A, and MSPA were increased to the maximum amounts permissible under the Inflation Adjustment Act, none of which reached or exceeded the 150 percent cap. Accordingly, the Department may not further increase civil monetary penalties under these programs pursuant to the Inflation Adjustment Act, other than by making the subsequent annual adjustments for inflation.

    B. Occupational Safety and Health Administration (29 CFR Parts 1902, 1903)

    In the IFR, the Department increased the civil monetary penalties administered by the Occupational Safety and Health Administration (OSHA) to enforce provisions of the Occupational Safety & Health Act of 1970 (OSH Act), as amended, including conforming edits to the agency's State Plan regulations. The Department increased these civil monetary penalties pursuant to the “catch-up” adjustment formula as specified in the Inflation Adjustment Act. The Department explained each increase in the preamble to the IFR. The Department received four comments related to State Plans, and four comments related to the civil penalty adjustments.

    Section 18(c)(2) of the OSH Act provides that a State may assume responsibility for development and enforcement of its own occupational safety and health standards by submitting a State Plan. There were four State Plan related comments submitted in response to the DOL IFR. One was from the Occupational Safety and Health State Plan Association (OSHSPA) and three from individual State Plans (North Carolina, Kentucky and New Mexico). Responses to these four comments are discussed below.

    Section 18(c)(2) of the OSH Act requires that a State Plan “provides for the development and enforcement of safety and health standards relating to one or more safety or health issues, which standards (and the enforcement of which standards) are or will be at least as effective in providing safe and healthful employment and places of employment as the standards promulgated under section 6 which relate to the same issues. . . .” Prior to the July 1, 2016 publication of the IFR, the State Plan Indices of Effectiveness for initial approval stated that State Plans must “[p]rovide[ ] effective sanctions against employers who violate State standards and orders, such as those prescribed in the Act.” See 29 CFR 1902.4(c)(2)(xi) (2015). In the factors for determination of final approval status, the regulations require that, “[t]he State proposes penalties in a manner at least as effective as under the Federal program, including the proposing of penalties for first instance violations and the consideration of factors comparable to those required to be considered under the Federal program.” See 29 CFR 1902.37(b)(12).

    Thus, OSHA-approved State Plans must have maximum and minimum 8 penalty levels that are at least as effective as federal OSHA's per Section 18 (c)(2) of the OSH Act; See 29 CFR 1902.4(c)(2)(xi); 1902.37(b)(12). It is OSHA's long-standing position that “at least as effective,” in this context, means that State Plans must have maximum and minimum penalty levels that are at least as high as OSHA's maximum and minimum penalty levels. Therefore, all State Plans must increase their maximum and minimum penalty levels to be at least as high as OSHA's initial catch-up maximum and minimum penalty levels in 29 CFR 1903.15(d), and must thereafter increase these maximums and minimums based on inflation.

    8 The penalties increased include the range of penalties for willful citations, which includes both a minimum and a maximum.

    With the publication of the IFR, the location of OSHA's maximum and minimum penalties was moved from Section 17 of the OSH Act to 29 CFR 1903.15(d). To make it clear where the OSHA penalty levels are located, OSHA amended 29 CFR 1902.4(c)(2)(xi) to now read that State Plans must “[p]rovide[] effective sanctions against employers who violated State standards and orders, such as those prescribed in the Act and 29 CFR 1903.15(d)”(emphasis added). This change was simply to add a reference to the new location of OSHA penalty levels, in 29 CFR 1903.15(d).

    OSHSPA submitted a letter requesting that OSHA make clear that the amendment to 29 CFR 1902.4(c)(2)(xi) is not intended to require State Plans to have an identical penalty structure for assessed penalties. As explained above, State Plans have long been required to have effective sanctions as prescribed in the OSH Act. The penalty levels in the OSH Act (Section 17) have historically been OSHA's maximum and minimum penalties, while OSHA's structure or practice for assessing penalties has been developed through policy and is currently contained in OSHA's Field Operations Manual. OSHA confirms that the amendment to § 1902.4(c)(2)(xi) refers only to the location of the new maximum and minimum penalty levels in 29 CFR 1903.15(d). The change to § 1902.4(c)(2)(xi) does not expand OSHA's scope of authority or control over State Plans' penalties, nor does it alter OSHA's obligation to analyze both State Plan maximum penalties and State Plan penalty assessment structures under the “at least as effective” lens.

    The North Carolina Department of Labor submitted a comment that took issue with OSHA's amendment of 29 CFR 1902.4(c)(2)(xi), and was joined by Kentucky Labor Cabinet and the New Mexico Environment Department. The North Carolina State Plan contended that OSHA's amendment to 29 CFR 1902.4(c)(2)(xi) was in excess of the authority granted by the Bipartisan Budget Act of 2015's amendment to the Inflation Adjustment Act; not in conformance with the APA, 5 U.S.C. 553; and arbitrary, capricious, and an abuse of discretion.

    The Inflation Adjustment Act directed OSHA to increase maximum and minimum penalties through an IFR issuing without prior notice and comment rather than a change to the OSH Act. OSHA has the inherent authority to make technical amendments to its regulations to conform to Congress's direction to increase its penalty levels. With the change to the location of penalty levels to 29 CFR 1903.15(d), OSHA needed to update the reference in 29 CFR 1902.4(c)(2)(xi) to point to both the Act and the new regulation. This change was merely the addition of a reference, or pointer, to increase clarity and transparency in the State Plan Indices of effectiveness.

    The North Carolina, Kentucky and New Mexico State Plans argue that the change to 29 CFR 1902.4(c)(2)(xi) violated the APA because it was not issued through notice-and-comment rulemaking, and the good cause exception to notice-and-comment rulemaking is not applicable.

    As noted by the North Carolina State Plan, the APA exception from notice and comment applies to regulations that make minor technical amendments and non-substantive corrections. See p. 3. That comports with the APA language that notice and comment is not required where they are “impractical, unnecessary, or contrary to the public interest.” 5 U.S.C. 553(b)(3)(B). The amendment to 29 CFR 1902.4(c)(2)(xi) fits within that exception because it is a minor, technical amendment that updated the reference to the location of OSHA maximum and minimum penalty levels. It is the “at least as effective” standard in OSH Act § 18 that requires State Plans to increase their maximum and minimum penalty levels, and the amendment to 29 CFR 1902.4(c)(2)(xi) only made clear to State Plans and all other stakeholders that the maximum and minimum penalty levels that State Plans are required to be at least as effective as, are now listed under 29 CFR 1903.15(d), and are no longer in OSH Act § 17. There is no need for notice and comment on that type of “pointer” reference. See, e.g., Corrections and Technical Amendments to 16 OSHA Standards, 76 FR 80735 (Dec. 27, 2011) (updating cross-reference from “Section 101(14)” of the Comprehensive Environmental Response Compensation and Liability Act (CERCLA) to “Section 103(14)” after Congress amended CERCLA). Nonetheless, DOL did accept comments on the IFR, and several State Plans took advantage of that opportunity to file comments,

    Further, the State Plan comments argue that the change to 29 CFR 1902.4(c)(2)(xi) was arbitrary, capricious, and an abuse of discretion under the APA because it is not based on reasoned analysis. The North Carolina State Plan comment argues that OSHA should present current data to support the requirement that State Plans increase penalties to the level assessed by OSHA effective August 1, 2016 in order to be deemed “at least as effective.” Further, the North Carolina State Plan comment emphasizes that the “at least as effective” standard does not require State Plans to have programs identical to OSHA's. New Mexico joined in arguing that assessed penalty levels and injury rates are not correlated and thus penalty levels should not be part of the “at least as effective” analysis.

    In the Inflation Adjustment Act, Congress found that “(1) the power of Federal agencies to impose civil monetary penalties for violations of Federal law and regulations plays an important role in deterring violations and furthering the policy goals embodied in such laws and regulations; (2) the impact of many civil monetary penalties has been and is diminished due to the effect of inflation.” See 28 U.S.C. 2461 note, § 2(a). This finding is as applicable to State Plan penalties as it is to federal penalties.

    The regulations that OSHA adopted (29 CFR 1903.15(d)) address only the maximum and minimum penalty levels—they do not address penalties finally assessed or the methodology involved in calculating assessed penalties. The latter are matters to be determined under the “at least as effective” standard, on a case-by-case basis with each State Plan.

    OSHA has an obligation to ensure that State Plans continue to maintain maximum and minimum penalty levels that are at least as effective as OSHA's. OSHA agrees that the “at least as effective” standard does not require State Plans to be identical to OSHA. However, as acknowledged by the OSHSPA comment, historically, State Plans have matched OSHA's maximum and minimum penalties identically. In 1990, when Congress last increased OSHA's maximum and minimum penalty levels, all State Plans adopted identical penalty levels, resulting in the $7,000/$70,000 penalty levels in effect for 25 years for both OSHA and the State Plans. OSHA recognizes that the August 1, 2016 increase in OSHA's maximum and minimum penalty levels is complicated by the requirement that the penalties levels increase annually, based on the cost-of-living adjustment, but that does not mean that State Plans do not have to increase their maximum and minimum penalty levels. OSHA will assist the State Plans to make these necessary changes occur. OSHA's position has been and continues to be that State Plans must have maximum and minimum penalties that are at least as effective as OSHA's.

    The IFR updated § 1903.15 to read in part, “After, or concurrent with, the issuance of a citation, and within a reasonable time after the termination of the inspection, the Area Director shall notify the employer by certified mail or by personal service by the Compliance Safety and Health Officer of the proposed penalty in accordance with paragraph (d) of this section, or that no penalty is being proposed.” In its comments, Contractors Risk Management asked whether this means that the employer will be notified if there are no penalties proposed or no citations issued. At the closing of the inspection process, OSHA conducts a closing conference with the employer and the employee representatives to discuss the findings of the inspection. The compliance officer discusses possible courses of action an employer may take following an inspection, which could include an informal conference with OSHA or contesting citations and proposed penalties where citations and penalties are proposed. The compliance officer also discusses consultation services and employee rights. This closing conference is held regardless of whether citations and penalties are proposed.

    The IFR added § 1903.15(d) to provide the adjusted civil penalties for penalties proposed on or after August 1, 2016. Contractors Risk Management expressed concern about a case being opened before August 1, but higher penalty levied because the time OSHA takes to complete the case goes beyond August 1. The Inflation Adjustment Act mandates that the catch-up adjustment apply to any civil monetary penalty assessed after August 1, 2016, “including those whose associated violation predated such increase” See Public Law 114-74 at § 701. OSHA attempted to complete open cases prior to the August 1 conversion date. However, in some cases, citations for inspections opened prior to August 1st were not issued until after August 1, and enhanced penalties were proposed under the new rules. OSHA made every effort to inform employers, through outreach, use of our Web site, and notices to affected employers, of the changes to our penalties and the potential impact on the inspection.

    The NGA commented that it supports the increases in penalties for employer violations of the OSH Act, but believes that the Department should have increased the penalties to the 150% maximum allowed under Inflation Adjustment Act to help ensure employer compliance with the law. Farmworker Justice similarly commented that civil monetary penalties under the OSH Act should be increased. The Department agrees that civil monetary penalties serve an important role in deterring violations of the programs administered by the Department. However, the Department increased civil monetary penalties under the OSH Act in the IFR pursuant to the Inflation Adjustment Act's mandatory “catch-up” adjustment formula, which is specified in the statute and is based on inflation. For this “catch-up” adjustment, the Inflation Adjustment Act required agencies to identify, for each penalty, the year and corresponding amount(s) for which the penalty amount, the maximum penalty level, or range of minimum and maximum penalties was established (i.e., originally enacted by Congress or by regulation) or last adjusted other than pursuant to the Prior Inflation Adjustment Act. That amount became the basis of the “catch-up” adjustment, subject to a cap on any penalty increase of 150 percent of the current penalty amount as of November 2015—allowing for a total new penalty of no more than 250 percent of the November 2015 penalty amount. See Inflation Adjustment, Sec. 701. This cap is triggered only where the relevant calculation results in a higher penalty amount; the Inflation Adjustment Act does not permit agencies to increase civil monetary penalties up to this cap where the specified calculation results in an increase lower than 150 percent of the November 2015 penalty amount. Id. By applying the “catch-up” formula required by the Inflation Adjustment Act, the civil monetary penalties under the OSH Act were increased to the maximum amounts permissible under the Inflation Adjustment Act, none of which reached or exceeded the 150 percent cap.

    The Center for Progressive Reform commented that it applauds the agency for adjusting the penalties to the maximum amount permitted by the Inflation Adjustment Act, but it encourages OSHA to revise its informal settlement policies. In response to the penalty adjustments mandated by Congress, OSHA revised Chapter 6 of its Field Operations Manual. In revising the guidance, OSHA wanted to be consistent with current procedures and ensure that penalties were impactful. However, we were also mindful of the impact that these changes may have had on small businesses. To offset any undue impact, OSHA created an additional size category for businesses with 1-10 employees, and now offers a reduction of 70 percent for those smallest businesses. The informal settlement policy remains the same, but OSHA is closely monitoring the influence that the new penalties have on our contest rates, etc. to see where adjustments, if needed, may be appropriate.

    C. Employee Benefits Security Administration (29 CFR Part 2560, 2575, 2590)

    In the IFR, the Department increased the civil monetary penalties administered by the Employee Benefits Security Administration to enforce provisions of the Employee Retirement Income Security Act of 1974, as amended, (ERISA). The Department increased these civil monetary penalties as required by the “catch-up” adjustment formula specified in the Inflation Adjustment Act. Minor modifications were made to 29 CFR 2575.3 to clarify that future inflation adjustments to ERISA civil monetary penalties would be made by notice in the Federal Register without amending the code of federal regulations each year to reflect an increase in the penalty amount.

    The Department received one comment letter regarding the adjustment of the ERISA civil monetary penalties under the IFR. The commenter, the National Association of Health Underwriters (NAHU), stated that “the formula used to increase penalties was fairly applied in the IFR.” NAHU, however, questioned the “decision to impose increased penalties on employers at this time” due to the increased cost of compliance and reporting responsibilities placed on group health plans by the Patient Protection and Affordable Care Act (ACA). NAHU expressed concern “that increasing the potential penalties could have a detrimental impact on an employer's potential willingness to offer group benefits, particularly for smaller employers that have not previously offered coverage.” Most ERISA civil monetary penalties affecting group health plans are expressed in terms of “up to” or “not more than” a maximum penalty. The Department did not automatically impose the maximum penalty in the past and has no plans at this time to change its enforcement policy to maximize penalty collections following the catch-up adjustment. It is the view of the Department that neither the catch-up adjustment nor any subsequent adjustment will have the detrimental impact on group health plans suggested by NAHU. Accordingly, the unverifiable social cost of the catch-up adjustment postulated by NAHU's comment does not outweigh the benefits of increasing the ERISA civil monetary penalties by the otherwise required amount.

    Section 4(a) of the Inflation Adjustment Act states that “[n]ot later than July 1, 2016, and not later than January 15 of every year thereafter,” the head of each agency shall adjust civil monetary penalties in accordance with section 4(b). Section 4(b)(1) states that “for purposes of the first adjustment” (i.e., the catch-up adjustment) the “head of each agency shall adjust the civil monetary penalties by IFR” that “shall take effect no later than August 1, 2016.” Since the operative word of the statute is “shall,” the Department did not have the discretion to delay adjustment of the ERISA civil monetary penalties beyond August 1, 2016, except as otherwise provided by section 4(c) of the Inflation Adjustment Act.

    Under section 4(c), an agency could not delay or otherwise reduce the catch-up adjustment unless: (1) After publishing a notice of proposed rulemaking in the Federal Register, the agency determines that the increase in the penalty or penalty range would have a negative economic impact, or that the social costs of increasing the penalty would outweigh the benefits, and (2) OMB concurred with that determination. OMB advised that an agency seeking OMB's concurrence to a reduction of the required catch-up adjustment must submit the associated notice of proposed rulemaking to the Office of Information and Regulatory Affairs (OIRA) of OMB for review by May 2, 2016.9 OMB also advised that its concurrence to a reduction of the catch-up adjustment would be “rare.” 10 The Department decided not to pursue a reduction in the increase of any of the ERISA penalties, because, in the Department's view, there was no negative economic impact or a verifiable social cost resulting from the catch-up adjustment. Since the Department did not submit the requisite notice of proposed rulemaking to OIRA by May 2, 2016, the Department arguably does not have the authority to reduce a required catch-up adjustment to an ERISA penalty under section 4(c). Even if the Department currently has the authority to reduce a catch-up adjustment under section 4(c), the one comment received by the Department regarding ERISA penalties did not provide sufficient evidence of negative economic impact or social cost for the Department to seek a reduction of the increased ERISA penalties resulting from the catch-up adjustment.

    9See, OMB Mem. M-16-06 (Feb. 24, 2016), available at https://www.whitehouse.gov/sites/default/files/omb/memoranda/2016/m-16-06.pdf.

    10Id.

    IV. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) requires that the Department consider the impact of paperwork and other information collection burdens imposed on the public. The Department has determined that this final rule does not require any collection of information.

    V. Administrative Procedure Act

    The Inflation Adjustment Act provides that agencies shall annually adjust civil monetary penalties for inflation notwithstanding Section 553 of the APA. Additionally, the Inflation Adjustment Act provides a nondiscretionary cost-of-living formula for annual adjustment of the civil monetary penalties. For these reasons, the requirements in sections 553(b), (c), and (d) of the APA, relating to notice and comment and requiring that a rule be effective 30 days after publication in the Federal Register, are inapplicable.

    VI. Executive Order 12866: Regulatory Planning and Review, and Executive Order 13563: Improving Regulation and Regulatory Review

    Executive Order 12866 requires that regulatory agencies assess both the costs and benefits of significant regulatory actions. Under the Executive Order, a “significant regulatory action” is one meeting any of a number of specified conditions, including the following: Having an annual effect on the economy of $100 million or more; creating a serious inconsistency or interfering with an action of another agency; materially altering the budgetary impact of entitlements or the rights of entitlement recipients, or raising novel legal or policy issues.

    The Department has determined that this final rule is not a “significant” regulatory action and a cost-benefit and economic analysis is not required. This regulation merely adjusts civil monetary penalties in accordance with inflation as required by the Inflation Adjustment Act, and has no impact on disclosure or compliance costs. The benefit provided by the inflationary adjustment to the maximum civil monetary penalties is that of maintaining the incentive for the regulated community to comply with the laws enforced by the Department, and not allowing the incentive to be diminished by inflation.

    Executive Order 13563 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). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, reducing costs, harmonizing rules, and promoting flexibility to minimize burden.

    This final rule is exempt from the requirements of the APA because the Inflation Adjustment Act directed the Department to issue the annual adjustments without regard to Section 553 of the APA. In that context, Congress has already determined that any possible increase in costs is justified by the overall benefits of such adjustments. This final rule makes only the statutory changes outlined herein; thus there are no alternatives or further analysis required by E.O. 13563.

    VII. Regulatory Flexibility Act and Small Business Regulatory Enforcement Fairness Act

    The Regulatory Flexibility Act, 5 U.S.C. 601 et seq. (RFA), imposes certain requirements on Federal agency rules that are subject to the notice and comment requirements of the APA, 5 U.S.C. 553(b). This final rule is exempt from the requirements of the APA because the Inflation Adjustment Act directed the Department to issue the annual adjustments without regard to Section 553 of the APA. Therefore, the requirements of the RFA applicable to notices of proposed rulemaking, 5 U.S.C. 603, do not apply to this rule. Accordingly, the Department is not required to either certify that the final rule would not have a significant economic impact on a substantial number of small entities or conduct a regulatory flexibility analysis.

    VIII. Other Regulatory Considerations A. The Unfunded Mandates Reform Act of 1995

    Because the rule simply adjusts for inflation, it does not include any Federal mandate that may result in increased expenditures by State, local, or tribal governments; nor does it increase private sector expenditures by more than $100 million annually; nor does it significantly or uniquely affect small governments. Accordingly, the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1501 et seq.) requires no further agency action or analysis.

    B. Executive Order 13132: Federalism

    Section 18 of the OSH Act (29 U.S.C. 667) requires OSHA-approved State Plans to have standards and an enforcement program that are at least as effective as federal OSHA's standards and enforcement program. OSHA-approved State Plans must have maximum and minimum penalty levels that are at least as effective as federal OSHA's per Section 18 (c)(2) of the OSH Act; 29 CFR 1902.4(c)(2)(xi); 1902.37(b)(12). State Plans are required to increase their penalties in alignment with OSHA's penalty increases to maintain at least as effective penalty levels.

    State Plans are not required to impose monetary penalties on state and local government employers. See § 1956.11(c)(2)(x). Five (5) states and one territory have State Plans that cover only state and local government employees: Connecticut, Illinois, New Jersey, New York, Maine, and the Virgin Islands. Therefore, the requirements to increase the penalty levels do not apply to these State Plans. Twenty-one (21) states and one U.S. territory have State Plans that cover both private sector employees and state and local government employees: Alaska, Arizona, California, Hawaii, Indiana, Iowa, Kentucky, Maryland, Michigan, Minnesota, Nevada, New Mexico, North Carolina, Oregon, Puerto Rico, South Carolina, Tennessee, Utah, Vermont, Virginia, Washington, and Wyoming. These states must increase their penalties for private-sector employers.

    Other than as listed above, this final rule does not have federalism implications because it does not have substantial direct effects on the states, on the relationship between the national government and the states, or on the distribution of power and responsibilities among the various levels of government. Accordingly, Executive Order 13132, Federalism, requires no further agency action or analysis.

    C. Executive Order 13175: Indian Tribal Governments

    This final rule does not have “tribal implications” because it does not have substantial direct effects on one or more Indian tribes, on the relationship between the Federal government and Indian tribes, or on the distribution of power and responsibilities between the Federal government and Indian tribes. Accordingly, Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, requires no further agency action or analysis.

    D. The Treasury and General Government Appropriations Act of 1999: Assessment of Federal Regulations and Policies on Families

    This final rule will have no effect on family well-being or stability, marital commitment, parental rights or authority, or income or poverty of families and children. Accordingly, section 654 of the Treasury and General Government Appropriations Act of 1999 (5 U.S.C. 601 note) requires no further agency action, analysis, or assessment.

    E. Executive Order 13045: Protection of Children From Environmental Health Risks and Safety Risks

    This final rule will have no adverse impact on children. Accordingly, Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks, as amended by Executive Orders 13229 and 13296, requires no further agency action or analysis.

    F. Environmental Impact Assessment

    A review of this final rule in accordance with the requirements of the National Environmental Policy Act of 1969 (NEPA), 42 U.S.C. 4321 et seq.; the regulations of the Council on Environmental Quality, 40 CFR 1500 et seq.; and the Departmental NEPA procedures, 29 CFR part 11, indicates that the final rule will not have a significant impact on the quality of the human environment. As a result, there is no corresponding environmental assessment or an environmental impact statement.

    G. Executive Order 13211: Energy Supply

    This final rule has been reviewed for its impact on the supply, distribution, and use of energy because it applies, in part, to the coal mining and uranium industries. MSHA has concluded that the adjustment of civil monetary penalties to keep pace with inflation and thus maintain the incentive for operators to maintain safe and healthful workplaces is not a significant energy action because it is not likely to have a significant adverse effect on the supply, distribution, or use of energy.

    This final rule has not been identified to have other impacts on energy supply. Accordingly, Executive Order 13211 requires no further Agency action or analysis.

    H. Executive Order 12630: Constitutionally Protected Property Rights

    This final rule will not implement a policy with takings implications. Accordingly, Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights, requires no further agency action or analysis.

    I. Executive Order 12988: Civil Justice Reform Analysis

    This final rule was drafted and reviewed in accordance with Executive Order 12988, Civil Justice Reform. This final rule was written to provide a clear legal standard for affected conduct and was carefully reviewed to eliminate drafting errors and ambiguities, so as to minimize litigation and undue burden on the Federal court system. The Department has determined that this IFR meets the applicable standards provided in section 3 of Executive Order 12988.

    List of Subjects 20 CFR Part 655

    Immigration, Penalties, Labor.

    20 CFR Part 702

    Administrative practice and procedure, Longshore and harbor workers, Penalties, Reporting and recordkeeping requirements, Workers' compensation.

    20 CFR Part 725

    Administrative practice and procedure, Black lung benefits, Coal miners, Penalties, Reporting and recordkeeping requirements.

    20 CFR Part 726

    Administrative practice and procedure, Black lung benefits, Coal miners, Mines, Penalties.

    29 CFR Part 5

    Administrative practice and procedure, Construction industry, Employee benefit plans, Government contracts, Law enforcement, Minimum wages, Penalties, Reporting and recordkeeping requirements.

    29 CFR Part 500

    Administrative practice and procedure, Aliens, Housing, Insurance, Intergovernmental relations, Investigations, Migrant labor, Motor vehicle safety, Occupational safety and health, Penalties, Reporting and recordkeeping requirements, Wages, Whistleblowing.

    29 CFR Part 501

    Administrative practice and procedure, Agriculture, Aliens, Employment, Housing, Housing standards, Immigration, Labor, Migrant labor, Penalties, Transportation, Wages.

    29 CFR Part 530

    Administrative practice and procedure, Clothing, Homeworkers, Indians-arts and crafts, Penalties, Reporting and recordkeeping requirements, Surety bonds, Watches and jewelry.

    29 CFR Part 570

    Child labor, Law enforcement, Penalties.

    29 CFR Part 578

    Penalties, Wages.

    29 CFR Part 579

    Child labor, Penalties.

    29 CFR Part 801

    Administrative practice and procedure, Employment, Lie detector tests, Penalties, Reporting and recordkeeping requirements.

    29 CFR Part 825

    Administrative practice and procedure, Airmen, Employee benefit plans, Health, Health insurance, Labor management relations, Maternal and child health, Penalties, Reporting and recordkeeping requirements, Teachers.

    29 CFR Part 1903

    Intergovernmental relations, Law enforcement, Occupational Safety and Health, Penalties.

    29 CFR Part 2560

    Employee benefit plans, Employee Retirement Income Security Act, Law enforcement, Penalties, Pensions, Reporting and recordkeeping.

    29 CFR Part 2575

    Administrative practice and procedure, Employee benefit plans, Employee Retirement Income Security Act, Health care, Penalties, Pensions.

    29 CFR Part 2590

    Employee benefit plans, Employee Retirement Income Security Act, Health care, Health insurance, Penalties, Pensions, Reporting and recordkeeping.

    30 CFR Part 100

    Mine safety and health, Penalties.

    For the reasons set out in the preamble, 20 CFR chapters V and VI, 29 CFR chapters V, XVII, and XXV, and 30 CFR chapter I are amended as follows.

    Department of Labor Employment and Training Administration Title 20—Employees' Benefits PART 655—TEMPORARY EMPLOYMENT OF FOREIGN WORKERS IN THE UNITED STATES 1. The authority citation for part 655 continues to read as follows: Authority:

    Section 655.0 issued under 8 U.S.C. 1101(a)(15)(E)(iii), 1101(a)(15)(H)(i) and (ii), 8 U.S.C. 1103(a)(6), 1182(m), (n) and (t), 1184(c), (g), and (j), 1188, and 1288(c) and (d); sec. 3(c)(1), Pub. L. 101-238, 103 Stat. 2099, 2102 (8 U.S.C. 1182 note); sec. 221(a), Pub. L. 101-649, 104 Stat. 4978, 5027 (8 U.S.C. 1184 note); sec. 303(a)(8), Pub. L. 102- 232, 105 Stat. 1733, 1748 (8 U.S.C. 1101 note); sec. 323(c), Pub. L. 103-206, 107 Stat. 2428; sec. 412(e), Pub. L. 105-277, 112 Stat. 2681 (8 U.S.C. 1182 note); sec. 2(d), Pub. L. 106-95, 113 Stat. 1312, 1316 (8 U.S.C. 1182 note); 29 U.S.C. 49k; Pub. L. 107-296, 116 Stat. 2135, as amended; Pub. L. 109-423, 120 Stat. 2900; 8 CFR 214.2(h)(4)(i); and 8 CFR 214.2(h)(6)(iii).

    Subpart A issued under 8 CFR 214.2(h).

    Subpart B issued under 8 U.S.C. 1101(a)(15)(H)(ii)(a), 1184(c), and 1188; and 8 CFR 214.2(h).

    Subparts F and G issued under 8 U.S.C. 1288(c) and (d); sec. 323(c), Pub. L. 103-206, 107 Stat. 2428; and 28 U.S.C. 2461 note, Pub. L. 114-74 at section 701.

    Subparts H and I issued under 8 U.S.C. 1101(a)(15)(H)(i)(b) and (b)(1), 1182(n) and (t), and 1184(g) and (j); sec. 303(a)(8), Pub. L. 102-232, 105 Stat. 1733, 1748 (8 U.S.C. 1101 note); sec. 412(e), Pub. L. 105-277, 112 Stat. 2681; 8 CFR 214.2(h); and 28 U.S.C. 2461 note, Pub. L. 114-74 at section 701.

    Subparts L and M issued under 8 U.S.C. 1101(a)(15)(H)(i)(c) and 1182(m); sec. 2(d), Pub. L. 106-95, 113 Stat. 1312, 1316 (8 U.S.C. 1182 note); Pub. L. 109-423, 120 Stat. 2900; and 8 CFR 214.2(h).

    §§ 655.620, 655.801, and 655.810 [Amended]
    2. In the table below, for each paragraph indicated in the left column, remove the dollar amount indicated in the middle column from wherever it appears in the paragraph and add in its place the dollar amount indicated in the right column. Paragraph Remove Add § 655.620(a) $8,908 $9,054 § 655.801(b) 7,251 7,370 § 655.810(b)(1) introductory text 1,782 1,811 § 655.810(b)(2) introductory text 7,251 7,370 § 655.810(b)(3) introductory text 50,758 51,588 Department of Labor Office of Workers' Compensation Programs PART 702—ADMINISTRATION AND PROCEDURE 3. The authority citation for part 702 continues to read as follows: Authority:

    5 U.S.C. 301, and 8171 et seq.; 33 U.S.C. 901 et seq.; 42 U.S.C. 1651 et seq.; 43 U.S.C. 1333; 28 U.S.C. 2461 note (Federal Civil Penalties Inflation Adjustment Act of 1990); Pub. L. 114-74 at sec.701; Reorganization Plan No. 6 of 1950, 15 FR 3174, 64 Stat. 1263; Secretary's Order 10-2009, 74 FR 58834.

    §§ 702.204, 702.236, and 702.271 [Amended]
    4. In the table below, for each paragraph indicated in the left column, remove the dollar amount or date indicated in the middle column from wherever it appears in the paragraph and add in its place the dollar amount or date indicated in the right column. Paragraph Remove Add § 702.204 $22,587 $22,957. § 702.204 August 1, 2016 January 13, 2017. § 702.236 $275 $279. § 702.236 August 1, 2016 January 13, 2017. § 702.271(a)(2) August 1, 2016 January 13, 2017. § 702.271(a)(2) $2,259 $2,296. § 702.271(a)(2) $11,293 $11,478. PART 725—CLAIMS FOR BENEFITS UNDER PART C OF TITLE IV OF THE FEDERAL MINE SAFETY AND HEALTH ACT, AS AMENDED 5. The authority citation for part 725 continues to read as follows: Authority:

    5 U.S.C. 301; 28 U.S.C. 2461 note (Federal Civil Penalties Inflation Adjustment Act of 1990); Pub. L. 114-74 at sec. 701; Reorganization Plan No. 6 of 1950, 15 FR 3174; 30 U.S.C. 901 et seq., 902(f), 921, 932, 936; 33 U.S.C. 901 et seq.; 42 U.S.C. 405; Secretary's Order 10-2009, 74 FR 58834.

    § 725.621 [Amended]
    6. In § 725.621, amend paragraph (d) by removing “August 1, 2016” and adding in its place “January 13, 2017” and by removing “$1,375” and adding in its place “$1,397”. PART 726—BLACK LUNG BENEFITS; REQUIREMENTS FOR COAL MINE OPERATOR'S INSURANCE 7. The authority citation for part 726 continues to read as follows: Authority:

    5 U.S.C. 301; 33 U.S.C. 901 et seq., 902(f), 925, 932, 933, 934, 936; 33 U.S.C. 901 et seq.; 28 U.S.C. 2461 note (Federal Civil Penalties Inflation Adjustment Act of 1990); Pub. L. 114-74 at sec. 701; Reorganization Plan No. 6 of 1950, 15 FR 3174; Secretary's Order 10-2009, 74 FR 58834.

    § 726.302 [Amended]
    8. In the table below, for each paragraph indicated in the left column, remove the dollar amount or date indicated in the middle column from wherever it appears in the paragraph and add in its place the dollar amount or date indicated in the right column. Paragraph Remove Add § 726.302(c)(2)(i) August 1, 2016 January 13, 2017. § 726.302(c)(2)(i) $134 $136. § 726.302(c)(2)(i) 268 272. § 726.302(c)(2)(i) 402 409. § 726.302(c)(2)(i) 535 544. § 726.302(c)(4) August 1, 2016 January 13, 2017. § 726.302(c)(4) $134 $136. § 726.302(c)(5) August 1, 2016 January 13, 2017. § 726.302(c)(5) $402 $409. § 726.302(c)(6) August 1, 2016 January 13, 2017. § 726.302(c)(6) $2,750 $2,795. Department of Labor Wage and Hour Division Title 29—Labor PART 500—MIGRANT AND SEASONAL AGRICULTURAL WORKER PROTECTION 9. The authority citation for part 500 continues to read as follows: Authority:

    Pub. L. 97-470, 96 Stat. 2583 (29 U.S.C. 1801-1872); Secretary's Order No. 01-2014 (Dec. 19, 2014), 79 FR 77527 (Dec. 24, 2014); 28 U.S.C. 2461 Note (Federal Civil Penalties Inflation Adjustment Act of 1990); and Pub. L. 114-74, 129 Stat 584.

    § 500.1 [Amended]
    10. In § 500.1, amend paragraph (e) by removing “$2,355” and adding in its place “$2,394”. PART 501—ENFORCEMENT OF CONTRACTUAL OBLIGATIONS FOR TEMPORARY ALIEN AGRICULTURAL WORKERS ADMITTED UNDER SECTION 218 OF THE IMMIGRATION AND NATIONALITY ACT 11. The authority citation for part 501 continues to read as follows: Authority:

    8 U.S.C. 1101(a)(15)(H)(ii)(a), 1184(c), and 1188; 28 U.S.C. 2461 Note (Federal Civil Penalties Inflation Adjustment Act of 1990); and Pub. L. 114-74 at § 701.

    § 501.19 [Amended]
    12. In the table below, for each paragraph indicated in the left column, remove the dollar amount indicated in the middle column from wherever it appears in the paragraph and add in its place the dollar amount indicated in the right column. Paragraph Remove Add § 501.19(c) introductory text $1,631 $1,658 § 501.19(c)(1) 5,491 5,581 § 501.19(c)(2) 54,373 55,263 § 501.19(c)(4) 108,745 110,524 § 501.19(d) 5,491 5,581 § 501.19(e) 16,312 16,579 § 501.19(f) 16,312 16,579 PART 530—EMPLOYMENT OF HOMEWORKERS IN CERTAIN INDUSTRIES 13. The authority citation for part 530 continues to read as follows: Authority:

    Sec. 11, 52 Stat. 1066 (29 U.S.C. 211) as amended by sec. 9, 63 Stat. 910 (29 U.S.C. 211(d)); Secretary's Order No. 01-2014 (Dec. 19, 2014), 79 FR 77527 (Dec. 24, 2014); 28 U.S.C. 2461 note (Federal Civil Penalties Inflation Adjustment Act of 1990); Pub. L. 114-74 at sec. 701, 129 Stat 584.

    14. In § 530.302, amend paragraph (a) by removing “$989” and adding in its place “$1,005” and revise paragraph (b) to read as follows:
    § 530.302 Amounts of civil penalties.

    (b) The amount of civil money penalties shall be determined per affected homeworker within the limits set forth in the following schedule, except that no penalty shall be assessed in the case of violations which are deemed to be de minimis in nature:

    Nature of violation Penalty per affected homeworker Minor Substantial Repeated,
  • intentional or
  • knowing
  • Recordkeeping $20-201 $201-402 $402-1,005 Monetary violations 20-201 201-402 Employment of homeworkers without a certificate 201-402 402-1,005 Other violations of statutes, regulations or employer assurances 20-201 201-402 402-1,005
    PART 570—CHILD LABOR REGULATIONS, ORDERS AND STATEMENTS OF INTERPRETATION 15. The authority citation for Subpart G of part 570 continues to read as follows: Authority:

    52 Stat. 1060-1069, as amended; 29 U.S.C. 201-219; 28 U.S.C. 2461 note (Federal Civil Penalties Inflation Adjustment Act of 1990); Pub. L. 114-74 at § 701.

    § 570.140 [Amended]
    16. In § 570.140, amend paragraph (b)(1) by removing “$12,080” and adding in its place “$12,278” and paragraph (b)(2) by removing “$54,910” and adding in its place “$55,808”. PART 578—MINIMUM WAGE AND OVERTIME VIOLATIONS—CIVIL MONEY PENALTIES 17. The authority citation for part 578 continues to read as follows: Authority:

    Sec. 9, Pub. L. 101-157, 103 Stat. 938, sec. 3103, Pub. L. 101-508, 104 Stat. 1388-29 (29 U.S.C. 216(e)), Pub. L. 101-410, 104 Stat. 890 (28 U.S.C. 2461 note), as amended by Pub. L. 104-134, section 31001(s), 110 Stat. 1321-358, 1321-373, and Pub. L. 114-74, 129 Stat 584.

    § 578.3 [Amended]
    18. In § 578.3, amend paragraph (a) by removing “$1,894” and adding in its place “$1,925”. PART 579—CHILD LABOR VIOLATIONS—CIVIL MONEY PENALTIES 19. The authority citation for part 579 continues to read as follows: Authority:

    29 U.S.C. 203(l), 211, 212, 213(c), 216; Reorg. Plan No. 6 of 1950, 64 Stat. 1263, 5 U.S.C. App; secs. 25, 29, 88 Stat. 72, 76; Secretary of Labor's Order No. 01-2014 (Dec. 19, 2014), 79 FR 77527 (Dec. 24, 2014); 28 U.S.C. 2461 Note (Federal Civil Penalties Inflation Adjustment Act of 1990); and Pub. L. 114-7, 129 Stat 584.

    § 579.1 [Amended]
    20. In the table below, for each paragraph indicated in the left column, remove the dollar amount indicated in the middle column from wherever it appears in the paragraph and add in its place the dollar amount indicated in the right column. Paragraph Remove Add § 579.1(a)(1)(i)(A) $12,080 $12,278 § 579.1(a)(1)(i)(B) 54,910 55,808 § 579.1(a)(2) 1,894 1,925 PART 801—APPLICATION OF THE EMPLOYEE POLYGRAPH PROTECTION ACT OF 1988 21. The authority citation for part 801 continues to read as follows: Authority:

    Pub. L. 100-347, 102 Stat. 646, 29 U.S.C. 2001-2009; 28 U.S.C. 2461 note (Federal Civil Penalties Inflation Adjustment Act of 1990); Pub. L. 114-74 at sec. 701, 129 Stat 584.

    § 801.42 [Amended]
    22. In § 801.42, amend paragraph (a) by removing “$19,787” and adding in its place “$20,111”. PART 825—THE FAMILY AND MEDICAL LEAVE ACT OF 1993 23. The authority citation for part 825 continues to read as follows: Authority:

    29 U.S.C. 2654; 28 U.S.C. 2461 Note (Federal Civil Penalties Inflation Adjustment Act of 1990); and Pub. L. 114-74 at sec. 701.

    § 825.300 [Amended]
    24. In § 825.300 amend paragraph (a)(1) by removing “$163” and adding in its place “$166”. Department of Labor Occupational Safety and Health Administration Title 29—Labor PART 1903—INSPECTIONS, CITATIONS, AND PROPOSED PENALTIES 25. The authority citation for part 1903 continues to read as follows: Authority:

    Secs. 8 and 9 of the Occupational Safety and Health Act of 1970 (29 U.S.C. 657, 658); 5 U.S.C. 553; 28 U.S.C. 2461 note (Federal Civil Penalties Inflation Adjustment Act of 1990), as amended by Section 701, Pub. L. 114-74; Secretary of Labor's Order No. 1-2012 (77 FR 3912, Jan. 25, 2012).

    § 1903.15 [Amended]
    26. In the table below, for each paragraph indicated in the left column, remove the dollar amount or date indicated in the middle column from wherever it appears in the paragraph and add in its place the dollar amount or date indicated in the right column. Paragraph Remove Add § 1903.15(d) introductory text on or after August 1, 2016 after January 13, 2017. § 1903.15(d)(1) $8,908 $9,054. § 1903.15(d)(1) 124,709 126,749. § 1903.15(d)(2) 124,709 126,749. § 1903.15(d)(3) 12,471 12,675. § 1903.15(d)(4) 12,471 12,675. § 1903.15(d)(5) 12,471 12,675. § 1903.15(d)(6) 12,471 12,675. Department of Labor Employee Benefits Security Administration Title 29—Labor PART 2575—ADJUSTMENT OF CIVIL PENALTIES UNDER ERISA TITLE I 27. The authority citation for subpart A of 29 CFR part 2575 continues to read as follows: Authority:

    Pub. L. 101-410, 104 Stat. 890 (28 U.S.C. 2461 note), as amended by section 31001(s) of Pub. L. 104-134, 110 Stat. 1321-373, and section 701 of Pub. L. 114-74, 129 Stat. 584; 29 U.S.C 1059(b), 1132(c), 1135 and 1185d; and Secretary of Labor's Order 1-2011, 77 FR 1088 (January 9, 2012).

    28. Revise § 2575.3 to read as follows:
    § 2575.3 Subsequent adjustments to civil monetary penalties

    No later than January 15, starting in 2017, and each subsequent year, the Secretary shall adjust for inflation, as required by the Inflation Adjustment Act, the civil monetary penalties described in § 2575.2 for violations occurring on or after November 2, 2015, and any future civil monetary penalties enforceable by the Secretary under title I of ERISA. The Secretary shall publish such annual adjustments in the Federal Register notwithstanding section 553 of the Administrative Procedure Act. Future penalties or adjustments to the amount of the penalty that are enacted by statute or regulation (other than an adjustment for inflation under the Inflation Adjustment Act) will not be adjusted for inflation in the first year those penalty levels take effect. Annual inflation adjustments shall apply to penalties assessed after the date notice of the annual inflation adjustment is published in the Federal Register.

    Department of Labor Mine Safety and Health Administration Title 30—Mineral Resources PART 100—CRITERIA AND PROCEDURES FOR PROPOSED ASSESSMENT OF CIVIL PENALTIES 29. The authority citation for part 100 continues to read as follows: Authority:

    5 U.S.C. 301; 30 U.S.C. 815, 820, 957; 28 U.S.C. 2461 note (Federal Civil Penalties Inflation Adjustment Act of 1990); Pub. L. 114-74 at sec. 701;

    30. In § 100.3, amend paragraph (a)(1) introductory text by removing “$68,300” and adding in its place “$69,417” and in paragraph (g) by revising Table XIV—Penalty Conversion Table to read as follows: Table XIV—Penalty Conversion Table Points Penalty
  • ($)
  • 60 or fewer $129 61 140 62 151 63 165 64 178 65 193 66 209 67 227 68 245 69 266 70 288 71 312 72 339 73 367 74 396 75 430 76 467 77 504 78 547 79 593 80 642 81 695 82 753 83 816 84 884 85 958 86 1,038 87 1,123 88 1,218 89 1,319 90 1,429 91 1,547 92 1,676 93 1,815 94 1,967 95 2,131 96 2,308 97 2,500 98 2,709 99 2,934 100 3,179 101 3,443 102 3,730 103 4,041 104 4,377 105 4,742 106 5,137 107 5,565 108 6,029 109 6,531 110 7,075 111 7,663 112 8,303 113 8,994 114 9,743 115 10,554 116 11,433 117 12,385 118 13,417 119 14,535 120 15,745 121 17,057 122 18,477 123 20,016 124 21,684 125 23,488 126 25,445 127 27,565 128 29,861 129 32,348 130 35,042 131 37,960 132 41,122 133 44,546 134 48,099 135 51,652 136 55,206 137 58,758 138 62,311 139 65,864 140 or more 69,417
    §§ 100.4 and 100.5 [Amended]
    31. In the table below, for each paragraph indicated in the left column, remove the dollar amount indicated in the middle column from wherever it appears in the paragraph and add in its place the dollar amount indicated in the right column. Paragraph Remove Add § 100.4(a) $2,277 $2,314 § 100.4(b) 4,553 4,627 § 100.4(c) introductory text 5,692 5,785 § 100.4(c) introductory text 68,300 69,417 § 100.5(c) 7,399 7,520 § 100.5(d) 313 318 § 100.5(e) 250,433 254,530 Note:

    The following Appendix will not appear in the Code of Federal Regulations.

    Agency Law Name/description CFR citation 2016 Min penalty (rounded to nearest dollar) Max penalty (rounded to nearest
  • dollar)
  • 2017 Min penalty (rounded to nearest dollar) Max penalty (rounded to nearest
  • dollar)
  • MSHA Federal Mine Safety & Health Act of 1977 Regular Assessment 30 CFR 100.3(A) $68,300 $69,417. MSHA Federal Mine Safety & Health Act of 1977 Penalty Conversion Table 30 CFR 100.3(G) $127 68,300 $129 69,417. MSHA Federal Mine Safety & Health Act of 1977 Minimum Penalty for any order issued under 104(d)(1) of the Mine Act 30 CFR 100.4(a) 2,277 2,314 MSHA Federal Mine Safety & Health Act of 1977 Minimum penalty for any order issued under 104(d)(2) of the Mine Act 30 CFR 100.4(b) 4,553 4,627 MSHA Federal Mine Safety & Health Act of 1977 Penalty for failure to provide timely notification under 103(j) of the Mine Act 39 CFR 100.4(c) 5,692 68,300 5,785 69,417. MSHA Federal Mine Safety & Health Act of 1977 Any operator who fails to correct a violation for which a citation or order was issued under 104(a) of the Mine Act 30 CFR 100.5(C) 7,399 7,520. MSHA Federal Mine Safety & Health Act of 1977 Violation of mandatory safety standards related to smoking standards 30 CFR 100.5(D) 313 318. MSHA Federal Mine Safety & Health Act of 1977 Flagrant violations under 110(b)(2) of the Mine Act 30 CFR 100.5(e) 250,433 254,530. EBSA Employee Retirement Income Security Act Section 209(b): Failure to furnish reports (e.g., pension benefit statements) to certain former participants and beneficiaries or maintain records 29 CFR 2575.2(a) 28 28. EBSA Employee Retirement Income Security Act Section 502(c)(2)—Per day for failure/refusal to properly file plan annual report 29 CFR 2575.2(b) 2,063 $2,097. EBSA Employee Retirement Income Security Act Section 502(c)(4)—Per day for failure to disclose certain documents upon request under ERISA 101(k) and (l); failure to furnish notices under 101(j) and 514(e)(3)—each statutory recipient a separate violation 29 CFR 2575.2(c) 1,632 1,659. EBSA Employee Retirement Income Security Act Section 502(c)(5)—Per day for each failure to file annual report for Multiple Employer Welfare Arrangements (MEWAs) 29 CFR 2575.2(d) 1,502 1,527. EBSA Employee Retirement Income Security Act Section 502(c)(6)—Per day for each failure to provide Secretary of Labor requested documentation not to exceed a per-request maximum 29 CFR 2575.2(e) 147 per day, not to exceed $1,472 per request 149 per day, not to exceed $1,496 per request. EBSA Employee Retirement Income Security Act Section 502(c)(7)—Per day for each failure to provide notices of blackout periods and of right to divest employer securities—each statutory recipient a separate violation 29 CFR 2575.2(f) 131 133. EBSA Employee Retirement Income Security Act Section 502(c)(8)—Per each failure by an endangered status multiemployer plan to adopt a funding improvement plan or meet benchmarks; failure of a critical status multiemployer plan to adopt a rehabilitation plan 29 CFR 2575.2(g) 1,296 1,317. EBSA Employee Retirement Income Security Act Section 502(c)(9)(A)—Per day for each failure by an employer to inform employees of CHIP coverage opportunities under Section 701(f)(3)(B)(i)(l)—each employee a separate violation 29 CFR 2575.2(h) 110 112. EBSA Employee Retirement Income Security Act Section 502(c)(9)(B)—Per day for each failure by a plan to timely provide to any State information required to be disclosed under Section 701(f)(3)(B)(ii), as added by CHIP regarding coverage coordination—each participant/beneficiary a separate violation 29 CFR 2575.2(i) 110 112. EBSA Employee Retirement Income Security Act Section 502(c)(10)—Failure by any plan sponsor of group health plan, or any health insurance issuer offering health insurance coverage in connection with the plan, to meet the requirements of Sections 702(a)(1)(F), (b)(3), (c) or (d); or Section 701; or Section 702(b)(1) with respect to genetic information—daily per participant and beneficiary non-compliance period 29 CFR 2575.2(j)(1) 110 112. EBSA Employee Retirement Income Security Act Section 502(c)(10)—uncorrected de minimis violation 29 CFR 2575.2(j)(2) 2,745 2,790. EBSA Employee Retirement Income Security Act Section 502(c)(10)—uncorrected violations that are not de minimis 29 CFR 2575.2(j)(3) 16,473 16,742. EBSA Employee Retirement Income Security Act Section 502(c)(10)—unintentional failure maximum cap 29 CFR 2575.2(j)(4) 549,095 558,078. EBSA Employee Retirement Income Security Act Section 502(c)(12)—Per day for each failure of a CSEC plan in restoration status to adopt a restoration plan 29CFR 2575.2(k) 100 102. EBSA Employee Retirement Income Security Act Section 502(m)—Failure of fiduciary to make a proper distribution from a defined benefit plan under section 206(e) of ERISA 29 CFR 2575.2(l) 15,909 16,169. EBSA Employee Retirement Income Security Act Failure to provide Summary of Benefits Coverage under PHS Act section 2715(f), as incorporated in ERISA section 715 and 29 CFR 2590.715-2715(e) 29 CFR 2575.2(m) 1,087 1,105. OSHA Occupational Safety and Health Act Serious Violation 29 CFR 1903.15(d)(3) 12,471 12,675. OSHA Occupational Safety and Health Act Other-Than-Serious 29 CFR 1903.15(d)(4) 12,471 12,675. OSHA Occupational Safety and Health Act Willful 29 CFR 1903.15(d)(1) 8,908 124,709 9,054 126,749. OSHA Occupational Safety and Health Act Repeated 29 CFR 1903.15(d)(2) 124,709 126,749. OSHA Occupational Safety and Health Act Posting Requirement 29 CFR 1903.15(d)(6) 12,471 12,675. OSHA Occupational Safety and Health Act Failure to Abate 29 CFR 1903.15(d)(5) 12,471 12,675. WHD Family and Medical Leave Act FMLA 29 CFR 825.300(a)(1) 163 166. WHD Fair Labor Standards Act FLSA 29 CFR 578.3(a) 1,894 1,925. WHD Fair Labor Standards Act Child Labor 29 CFR 579.1(a)(2) 1,894 1,925. WHD Fair Labor Standards Act Child Labor 29 CFR 570.140(b)(1) 12,080 12,278. WHD Fair Labor Standards Act Child Labor 29 CFR 579.1(a)(1)(i)(A) 12,080 12,278. WHD Fair Labor Standards Act Child Labor that causes serious injury or death 29 CFR 570.140(b)(2) 54,910 55,808. WHD Fair Labor Standards Act Child Labor that causes serious injury or death 29 CFR 579.1(a)(1)(i)(B) 54,910 55,808. WHD Fair Labor Standards Act CL willful or repeated that causes serious injury or death 29 CFR 570.140(b)(2); 29 CFR 579.1(a)(1)(i)(B) 109,820 111,616. WHD Migrant and Seasonal Agricultural Worker Protection Act MSPA 29 CFR 500.1(e) 2,355 2,394. WHD Immigration & Nationality Act H1B 20 CFR 655.810(b)(1) 1,782 1,811. WHD Immigration & Nationality Act H1B retaliation 20 CFR 655.801(b) 7,251 7,370. WHD Immigration & Nationality Act H1B willful or discrimination 20 CFR 655.810(b)(2) 7,251 7,370. WHD Immigration & Nationality Act H1B willful that resulted in displacement of a US worker 20 CFR 655.810(b)(3) 50,758 51,588. WHD Immigration & Nationality Act D-1 20 CFR 655.620(a) 8,908 9,054. WHD Contract Work Hours and Safety Standards Act CWHSSA 29 CFR 5.5(b)(2) 25 25. WHD Contract Work Hours and Safety Standards Act CWHSSA 29 CFR 5.8(a) 25 25. WHD Walsh-Healey Public Contracts Act Walsh-Healey 41 CFR 50-201.3(e) 25 25. WHD Employee Polygraph Protection Act EPPA 29 CFR 801.42(a) 19,787 20,111 WHD Immigration & Nationality Act H2A 29 CFR 501.19(c) 1,631 1,658. WHD Immigration & Nationality Act H2A willful or discrimination 29 CFR 501.19(c)(1) 5,491 5,581. WHD Immigration & Nationality Act H2A Safety or health resulting in serious injury or death 29 CFR 501.19(c)(2) 54,373 55,263. WHD Immigration & Nationality Act H2A willful or repeated safety or health resulting in serious injury or death 29 CFR 501.19(c)(4) 108,745 110,524. WHD Immigration & Nationality Act H2A failing to cooperate in an investigation 29 CFR 501.19(d) 5,491 5,581. WHD Immigration & Nationality Act H2A displacing a US worker 29 CFR 501.19(e) 16,312 16,579. WHD Immigration & Nationality Act H2A improperly rejecting a US worker 29 CFR 501.19(f) 16,312 16,579. WHD Fair Labor Standards Act Home Worker 29 CFR 530.302(a) 989 1,005. WHD Fair Labor Standards Act Home Worker 29 CFR 530.302(b) 20 989 20 1,005. OWCP Longshore and Harbor Workers' Compensation Act Failure to file first report of injury or filing a false statement or misrepresentation in first report 20 CFR 702.204 22,587 22,957. OWCP Longshore and Harbor Workers' Compensation Act Failure to report termination of payments 20 CFR 702.236 275 279. OWCP Longshore and Harbor Workers' Compensation Act Discrimination against employees who claim compensation or testify in a LHWCA proceeding 20 CFR 702.271(a)(2) 2,259 11,293 2,296 11,478. OWCP Black Lung Benefits Act Failure to report termination of payments 20 CFR 725.621(d) 1,375 1,397. OWCP Black Lung Benefits Act Failure to file required reports 20 CFR 725.621(d) 1,375 1,397. OWCP Black Lung Benefits Act Failure to secure payment of benefits 20 CFR 726.300 2,500 2,541. OWCP Black Lung Benefits Act Failure to secure payment of benefits for mines with fewer than 25 employees 20 CFR 726.302(c)(2)(i) 134 136 OWCP Black Lung Benefits Act Failure to secure payment of benefits for mines with 25-50 employees 20 CFR 726.302(c)(2)(i) 268 272 OWCP Black Lung Benefits Act Failure to secure payment of benefits for mines with 51-100 employees 20 CFR 726.302(c)(2)(i) 402 409 OWCP Black Lung Benefits Act Failure to secure payment of benefits for mines with more than 100 employees 20 CFR 726.302(c)(2)(i) 535 544 OWCP Black Lung Benefits Act Failure to secure payment of benefits after 10th day of notice 20 CFR 726.302(c)(4) 134 136 OWCP Black Lung Benefits Act Failure to secure payment of benefits for repeat offenders 20 CFR 726.302(c)(5) 402 409 OWCP Black Lung Benefits Act Failure to secure payment of benefits 20 CFR 726.302(c)(5) 2,750 2,795.
    Signed at Washington, DC this 9th day of January, 2017. Thomas E. Perez, Secretary, U.S. Department of Labor.
    [FR Doc. 2017-00614 Filed 1-13-17; 4:15 pm] BILLING CODE 4510-HL-P
    DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1 [TD 9810] RIN 1535-BN06 Certain Transfers of Property to Regulated Investment Companies [RICs] and Real Estate Investment Trusts [REITs] AGENCY:

    Internal Revenue Service (IRS), Treasury.

    ACTION:

    Final regulations.

    SUMMARY:

    This document contains final regulations effecting the repeal of the General Utilities doctrine by the Tax Reform Act of 1986. The final regulations address the length of time during which a RIC or a REIT may be subject to corporate level tax on certain dispositions of property. The final regulations affect RICs and REITs.

    DATES:

    Effective Date: These regulations are effective January 18, 2017.

    Applicability Dates: For dates of applicability, see § 1.337(d)-7(g)(2)(iii).

    FOR FURTHER INFORMATION CONTACT:

    Austin M. Diamond-Jones, (202) 317-5363 (not a toll-free number).

    SUPPLEMENTARY INFORMATION:

    Background

    This document contains amendments to 26 CFR part 1. On June 8, 2016, the Department of the Treasury (Treasury Department) and the IRS published temporary regulations (TD 9770) under section 337(d) (temporary regulations) in the Federal Register (81 FR 36793) concerning certain transfers of property to regulated investment companies (RICs) and real estate investment trusts (REITs). A notice of proposed rulemaking cross-referencing the temporary regulations (REG-126452-15) (proposed regulations) was published in the Federal Register (81 FR 36816) on the same day. A correction to the temporary regulations was published in the Federal Register (81 FR 41800) on June 28, 2016. The Treasury Department and the IRS received one written comment in response to the proposed regulations. The comment requested a public hearing, and a hearing was held on November 9, 2016. After consideration of the written comment and the comments made at the public hearing, the proposed regulations are adopted in part and as amended by this Treasury decision, and the corresponding temporary regulations are removed in part. The revisions adopted by this Treasury decision are discussed below.

    Summary of Comments and Explanation of Revisions

    The comment requested that the temporary regulations and the proposed regulations with respect to the recognition period be immediately withdrawn and the recognition period with respect to REITs be defined with reference to the recognition period of section 1374(d)(7), which is currently a five-year period as a result of section 127(a) of the Protecting Americans Against Tax Hikes Act of 2015 (PATH Act), enacted as Division Q of the Consolidated Appropriations Act, 2016, Public Law 114-113, 129 Stat. 2422. The comment asserted that the change to the length of the recognition period in the temporary regulations and the proposed regulations was inconsistent with Congress's intent in the PATH Act and with prior administrative guidance. On October 18, 2016, the Chairmen and Ranking Members of the Ways and Means Committee of the U.S. House of Representatives and the Finance Committee of the U.S. Senate addressed a letter to the Secretary of the Treasury stating that the recognition period in the temporary regulations and the proposed regulations was inconsistent with congressional intent and the longstanding practice of treating REITs and RICs as having the same built-in gain recognition period as S corporations, currently five years. The Chairmen and Ranking Members also asked that the temporary regulations and the proposed regulations be modified to provide that REITs, RICs and S corporations are all subject to the same five-year built-in gain recognition period in order to be consistent with congressional intent and longstanding practice.

    The Treasury Department and the IRS decline to withdraw the temporary regulations and the proposed regulations relating to the recognition period but agree with the comment relating to the length of the recognition period. Accordingly, these final regulations provide that the term recognition period means the recognition period described in section 1374(d)(7), beginning, in the case of a conversion transaction that is a qualification of a C corporation as a RIC or a REIT, on the first day of the RIC's or the REIT's first taxable year, and, in the case of other conversion transactions, on the day the RIC or the REIT acquires the property. The final regulations will apply prospectively from February 17, 2017, but taxpayers may choose to apply the definition of recognition period in the final regulations, instead of the 10-year recognition period in the temporary regulations, for conversion transactions occurring on or after August 8, 2016, and on or before February 17, 2017.

    The Treasury Department and the IRS continue to study the other issues addressed in the temporary regulations and the proposed regulations, including other issues raised by the comment, and welcome further comment on those issues.

    Special Analyses

    Certain IRS regulations, including this one, are exempt from the requirements of Executive Order 12866, as supplemented by Executive Order 13653. Therefore, a regulatory assessment is not required. Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it is hereby certified that this regulation will not have a significant economic impact on a substantial number of small entities. This certification is based on the fact that this regulation will primarily affect large corporations with a substantial number of shareholders. Accordingly, a regulatory flexibility analysis is not required. Pursuant to section 7805(f) of the Internal Revenue Code, the notice of proposed rulemaking preceding this regulation was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business, and no comments were received.

    Drafting Information

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

    List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

    Adoption of Amendments to the Regulations

    Accordingly, 26 CFR part 1 is amended as follows:

    PART 1—INCOME TAXES Paragraph 1. The authority citation for part 1 continues to read in part as follows: Authority:

    26 U.S.C. 7805 * * *

    Par. 2. Section 1.337(d)-7 is amended by revising paragraphs (b)(2)(iii) and (g)(2)(iii) to read as follows:
    § 1.337(d)-7 Tax on property owned by a C corporation that becomes property of a RIC or REIT.

    (b) * * *

    (2) * * *

    (iii) Recognition period. For purposes of applying the rules of section 1374 and the regulations thereunder, as modified by paragraph (b) of this section, the term recognition period means the recognition period described in section 1374(d)(7), beginning—

    (A) In the case of a conversion transaction that is a qualification of a C corporation as a RIC or a REIT, on the first day of the RIC's or the REIT's first taxable year; and

    (B) In the case of other conversion transactions, on the day the RIC or the REIT acquires the property.

    (g) * * *

    (2) * * *

    (iii) Recognition period. Paragraphs (b)(1)(ii) and (d)(2)(iii) of this section apply to conversion transactions that occur on or after August 8, 2016. Paragraph (b)(2)(iii) of this section applies to conversion transactions that occur after February 17, 2017. For conversion transactions that occurred on or after August 8, 2016 and on or before February 17, 2017, see § 1.337(d)-7T(b)(2)(iii) in effect on August 8, 2016. However, taxpayers may apply paragraph (b)(2)(iii) of this section to conversion transactions that occurred on or after August 8, 2016 and on or before February 17, 2017. For conversion transactions that occurred on or after January 2, 2002 and before August 8, 2016, see § 1.337(d)-7 as contained in 26 CFR part 1 in effect on April 1, 2016.

    Par. 3. Section 1.337(d)-7T is amended by revising paragraphs (b)(1) through (3) and (g)(2)(iii) to read as follows:
    § 1.337(d)-7T Tax on property owned by a C corporation that becomes property of a RIC or REIT.

    (b)(1) through (3) [Reserved]. For further guidance, see § 1.337(d)-7(b)(1) through (3).

    (g) * * *

    (2) * * *

    (iii) [Reserved]. For further guidance, see § 1.337(d)-7(g)(2)(iii).

    John Dalrymple, Deputy Commissioner for Services and Enforcement. Approved: December 30, 2016. Mark J. Mazur, Assistant Secretary of the Treasury (Tax Policy).
    [FR Doc. 2017-00479 Filed 1-17-17; 8:45 am] BILLING CODE 4830-01-P
    DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1 [TD 9812] RIN 1545-BL00; 1545-BM45 Guidance for Determining Stock Ownership; Rules Regarding Inversions and Related Transactions AGENCY:

    Internal Revenue Service (IRS), Treasury.

    ACTION:

    Final regulations, temporary regulations, and removal of temporary regulations.

    SUMMARY:

    This document contains final regulations that identify certain stock of a foreign corporation that is disregarded in calculating ownership of the foreign corporation for purposes of determining whether it is a surrogate foreign corporation. These regulations also provide guidance on the effect of transfers of stock of a foreign corporation after the foreign corporation has acquired substantially all of the properties of a domestic corporation or of a trade or business of a domestic partnership. These regulations affect certain domestic corporations and partnerships (and certain parties related thereto) and foreign corporations that acquire substantially all of the properties of such domestic corporations or of the trades or businesses of such domestic partnerships. The text of the temporary regulations also serves as the text of the proposed regulations set forth in the notice of proposed rulemaking on Rules Regarding Inversions and Related Transactions in the Proposed Rules section of this issue of the Federal Register.

    DATES:

    Effective Date: These regulations are effective on January 18, 2017.

    Applicability Dates: For dates of applicability, see §§ 1.7874-4(k), 1.7874-5(e), 1.7874-7T(h), and 1.7874-10T(i).

    FOR FURTHER INFORMATION CONTACT:

    Joshua G. Rabon at (202) 317-6937 (not a toll-free number).

    SUPPLEMENTARY INFORMATION: Background

    This document contains regulations under section 7874 of the Internal Revenue Code (Code). On September 17, 2009, the Department of the Treasury (Treasury Department) and the IRS issued Notice 2009-78 (2009-40 IRB 452), which announced that regulations would be issued under section 7874 identifying certain stock of a foreign corporation that would not be taken into account for purposes of determining the ownership percentage described in section 7874(a)(2)(B)(ii) (the 2009 notice). On January 17, 2014, temporary regulations (TD 9654) were published in the Federal Register (79 FR 3094) that implemented and obsoleted the 2009 notice and provided guidance with respect to subsequent transfers of stock of a foreign corporation described in section 7874(a)(2)(B)(ii) (the 2014 temporary regulations). A notice of proposed rulemaking (REG-121534-12) cross-referencing the 2014 temporary regulations was published in the same issue of the Federal Register (79 FR 3145) (the 2014 proposed regulations). On November 19, 2015, the Treasury Department and the IRS issued Notice 2015-79 (2015-49 IRB 775), which announced, in part, that regulations would be issued to clarify certain aspects of the 2014 temporary regulations (the 2015 notice). On April 8, 2016, the Treasury Department and the IRS published temporary regulations (TD 9761) in the Federal Register (81 FR 20858) that, in part, implemented the clarifications announced in the 2015 notice and provided common definitions for purposes of certain regulations under sections 367(b), 956, 7701(l), and 7874 (the 2016 temporary regulations). A notice of proposed rulemaking (REG-135734-14) cross-referencing the 2016 temporary regulations was published in the same issue of the Federal Register (81 FR 20588) (the 2016 proposed regulations). The 2014 temporary regulations as modified by the 2016 temporary regulations are referred to in this preamble as the “temporary regulations.” No public hearing was requested or held on the 2014 proposed regulations or the 2016 proposed regulations; however, comments were received. All comments are available at www.regulations.gov or upon request. After consideration of the comments, the 2014 proposed regulations, as modified by the 2016 proposed regulations and as updated to reflect the common definitions in those regulations, are adopted as amended by this Treasury decision, and the corresponding temporary regulations are removed.

    Summary of Comments and Explanation of Revisions I. The Disqualified Stock Rule—General Approach

    A foreign corporation (foreign acquiring corporation) generally is treated as a surrogate foreign corporation under section 7874(a)(2)(B) if, pursuant to a plan (or a series of related transactions), three conditions are satisfied. First, the foreign acquiring corporation completes, after March 4, 2003, the direct or indirect acquisition of substantially all of the properties held directly or indirectly by a domestic corporation (domestic entity acquisition). Second, after the domestic entity acquisition, at least 60 percent of the stock (by vote or value) of the foreign acquiring corporation is held by former shareholders of the domestic corporation (former domestic entity shareholders) by reason of holding stock in the domestic corporation (such percentage, the ownership percentage, and the fraction used to calculate the ownership percentage, the ownership fraction). And third, after the domestic entity acquisition, the expanded affiliated group (as defined in section 7874(c)(1)) that includes the foreign acquiring corporation (EAG) does not have substantial business activities in the foreign country in which, or under the law of which, the foreign acquiring corporation is created or organized when compared to the total business activities of the EAG. Similar provisions apply if a foreign acquiring corporation acquires substantially all of the properties constituting a trade or business of a domestic partnership. The domestic corporation or the domestic partnership described in this paragraph is referred to at times in this preamble as the “domestic entity.” For other definitions used throughout this preamble but not defined in this preamble, see § 1.7874-12T (providing common definitions for purposes of certain regulations under sections 367(b), 956, 7701(l), and 7874).

    The temporary regulations provide a rule (the disqualified stock rule) that, subject to a de minimis exception, excludes disqualified stock from the denominator of the ownership fraction. In general, disqualified stock is stock of the foreign acquiring corporation that, in a transaction related to the domestic entity acquisition, is transferred in one of two types of exchanges. See Parts II.A and B of this Summary of Comments and Explanation of Revisions for the discussion of these exchanges. However, stock is disqualified stock only to the extent that the transfer of the stock in the exchange increases the fair market value of the assets of the foreign acquiring corporation or decreases the amount of its liabilities (the net asset requirement). The disqualified stock rule thus generally prevents stock of the foreign acquiring corporation that is transferred in certain transactions that increase the net assets of the foreign acquiring corporation from inappropriately increasing the denominator of the ownership fraction and thereby diluting the ownership percentage.

    Under the temporary regulations, stock may be disqualified stock regardless of whether it is, has been, or will be publicly traded. In addition, stock may be disqualified stock regardless of whether it is transferred by reason of an issuance, sale, distribution, exchange, or any other type of disposition, or whether it is transferred by the foreign acquiring corporation or another person.

    One comment suggested that disqualified stock should generally include only stock transferred by reason of an issuance by the foreign acquiring corporation. According to the comment, this would generally simplify the disqualified stock rule by obviating the need for the net asset requirement, though it noted that special rules regarding hook stock would likely be needed. The final regulations do not adopt this comment. The Treasury Department and the IRS have determined that transfers other than solely by reason of an issuance can inappropriately dilute the ownership percentage. For example, see § 1.7874-4(j) Example 6 (iii) (issuance of stock by the foreign acquiring corporation in exchange for qualified property followed by a transfer of that stock by the transferee in satisfaction of an obligation of the transferee) and § 1.7874-4(j) Example 10 (issuance of stock followed by use of the stock to satisfy an obligation). The Treasury Department and the IRS have concluded that addressing these transactions and other transactions (such as transactions involving hook stock) via special rules would largely negate the simplicity benefits of the approach recommended by the comment.

    II. Exchanges That Give Rise to Disqualified Stock A. Exchanges for Nonqualified Property 1. In General

    Disqualified stock includes stock of the foreign acquiring corporation that, in a transaction related to the domestic entity acquisition, is transferred to a person other than the domestic entity in exchange for “nonqualified property.” Nonqualified property means (i) cash or cash equivalents, (ii) marketable securities, (iii) certain obligations (as discussed in Part II.A.3 of this Summary of Comments and Explanation of Revisions), and (iv) any other property acquired with a principal purpose of avoiding the purposes of section 7874, regardless of whether the transaction involves an indirect transfer of property described in clause (i), (ii), or (iii). This preamble refers at times to the property described in clauses (i), (ii), and (iii) of the preceding sentence collectively as “specified nonqualified property” and to the property described in clause (iv) as “avoidance property.” For this purpose, marketable securities has the meaning set forth in section 453(f)(2), except that the term does not include stock of a corporation or an interest in a partnership that becomes a member of the EAG in a transaction (or series of transactions) related to the domestic entity acquisition.

    2. Different Treatment for Stock and Asset Acquisitions

    Under the temporary regulations, the extent to which stock of a foreign acquiring corporation is considered transferred in exchange for nonqualified property can differ depending on the structure of a transaction. For example, if, in a transaction related to a domestic entity acquisition, the foreign acquiring corporation acquires all the stock of another foreign corporation (foreign target corporation) in exchange for stock of the foreign acquiring corporation, then such stock of the foreign acquiring corporation would normally not be considered transferred in exchange for nonqualified property, regardless of the extent to which the properties of the foreign target corporation constitute nonqualified property, unless the stock of the foreign target corporation constitutes avoidance property. However, if the transaction were instead structured so that the foreign acquiring corporation acquires all of the properties of the foreign target corporation in exchange for stock of the foreign acquiring corporation, then such stock of the foreign acquiring corporation would be considered transferred in exchange for nonqualified property, to the extent that the properties of the foreign target corporation constitute nonqualified property. The preamble to the 2014 temporary regulations acknowledged this disparity and the decision not to harmonize the treatment of stock and asset acquisitions by, for example, applying a look-through approach to stock acquisitions. See Part C of the Explanation of Provisions section of the preamble to the 2014 temporary regulations. Nevertheless, comments requested more consistent treatment between stock and asset acquisitions, noting in particular that, when the foreign target corporation is publicly-traded, corporate and other legal considerations may dictate the structure of the transaction.

    One comment suggested that this result could be achieved when a foreign acquiring corporation acquires substantially all of the properties of a foreign target corporation by viewing the two corporations as a single combined unit for purposes of the disqualified stock rule. Under this view, properties historically held by the foreign target corporation (including nonqualified property) would not represent an infusion of value into the combined group. The comment thus asserted that, regardless of the structure of the transaction, the disqualified stock rule generally should not apply to stock attributable to such properties. The comment noted, though, that if asset acquisitions were to be treated similar to stock acquisitions, there might be a heightened need for rules, in addition to the anti-abuse rule of section 7874(c)(4), to address certain related transactions in which stock of the foreign target corporation is transferred in exchange for nonqualified property.

    After considering the comments, the Treasury Department and the IRS decline to adopt a rule treating certain asset acquisitions as stock acquisitions or to otherwise coordinate their treatment. The Treasury Department and the IRS have determined that stock of a foreign acquiring corporation attributable to any nonqualified property—whether acquired in a transaction related to the domestic entity acquisition or historically held—generally presents opportunities to inappropriately dilute the ownership percentage. For example, see, the passive assets rule of § 1.7874-7T. Thus, the Treasury Department and the IRS have concluded that a look-through approach, pursuant to which stock acquisitions would be treated similar to asset acquisitions, would be the preferable approach for harmonizing the treatment, in contrast to the comments' recommendation to treat certain assets acquisitions similar to stock acquisitions. The final regulations, however, do not implement a look-through approach out of concerns of undue complexity and administrative burden.

    Another comment recommended that, if the final regulations retain different treatment for stock and asset acquisitions, working capital of a foreign target corporation should be excluded from the definition of nonqualified property. After considering this comment, the Treasury Department and the IRS have determined that providing special rules that exclude working capital from the definition of nonqualified property would result in undue complexity and administrative burden. Notably, such special rules would have limited applicability when the foreign target corporation is a parent corporation of an affiliated group—which is often the case—because, in such a structure, working capital generally would be held by subsidiaries. Accordingly, the final regulations do not adopt the comment.

    3. Obligations Constituting Nonqualified Property

    Under the temporary regulations, nonqualified property includes an obligation owed by (i) a member of the EAG; (ii) a former domestic entity shareholder or former domestic entity partner; or (iii) a person that owns, before or after the domestic entity acquisition, stock of (or a partnership interest in) a person described in clause (i) or (ii) or that is related (within the meaning of section 267 or 707(b)) to such a person. Comments requested several modifications to this rule.

    First, a comment recommended that, if the final regulations retain different treatment for stock and asset acquisitions, they exclude certain obligations owed by a member of the EAG from the definition of nonqualified property. In particular, the comment suggested excluding intercompany obligations held by the foreign target corporation (that is, obligations owed by an affiliate of the foreign target corporation to the foreign target corporation), at least to the extent that the obligations arose in the ordinary course of the foreign target group's cash management program. The comment noted that, in these cases, had the foreign target corporation instead funded its affiliate through equity (rather than debt), stock of the foreign acquiring corporation transferred in exchange for the equity generally would not be disqualified stock. The comment questioned this disparate treatment.

    After considering the comment, the Treasury Department and the IRS have determined that transfers of stock of a foreign acquiring corporation in exchange for intercompany obligations generally do not present opportunities to inappropriately reduce the ownership fraction. Accordingly, the final regulations exclude from the definition of nonqualified property an obligation owed by a member of the EAG if the holder of the obligation immediately before the domestic entity acquisition and any related transaction (or its successor), is a member of the EAG after the domestic entity acquisition and all related transactions. § 1.7874-4(i)(2)(iii)(A).

    Another comment recommended that nonqualified property generally not include an obligation owed by a person that is only a de minimis former domestic entity shareholder or former domestic entity partner. The comment made a similar recommendation for an obligation owed by a person that, before and after the domestic entity acquisition, owns no more than a de minimis interest in any member of the EAG. The Treasury Department and the IRS agree with this comment, and the final regulations are modified accordingly. See § 1.7874-4(i)(2)(iii)(B) and (C) (providing a de minimis rule for a less than five percent ownership interest). Nevertheless, the anti-abuse rule in section 7874(c)(4) may still apply to disregard transfers of stock in exchange for such obligations.

    4. Definition of Obligation

    The temporary regulations define an obligation by reference to § 1.752-1(a)(4)(ii), which includes “any fixed or contingent obligation to make payment. . . . Obligations include, but are not limited to, debt obligations, environmental obligations, tort obligations, contract obligations, pension obligations, obligations under a short sale, and obligations under derivative financial instruments such as options, forward contracts, futures contracts, and swaps.”

    The Treasury Department and the IRS are concerned that the reference in the temporary regulations to § 1.752-1(a)(4)(ii) may cause confusion when applied outside of a partnership setting. The final regulations thus remove the reference to § 1.752-1(a)(4)(ii) and provide that an obligation for purposes of the disqualified stock rule includes any fixed or contingent obligation to make payment or provide value (such as through providing goods or services). § 1.7874-4(i)(3). No inference is intended regarding the treatment, under § 1.752-1(a)(4)(ii) or the temporary regulations, of a contractual agreement by a person to provide goods or services.

    5. Definition of Avoidance Property

    Avoidance property means any property (other than specified nonqualified property) acquired with a principal purpose of avoiding the purposes of section 7874. The 2015 notice and the 2016 temporary regulations clarified that this definition applies regardless of whether the transaction involves an indirect transfer of specified nonqualified property. One comment was received regarding this clarification.

    The comment agreed with the clarification but asserted that avoidance property should not include property that meets two conditions. First, the property (or, in cases in which the property is stock or a partnership interest, the property indirectly transferred) either (i) constitutes a trade or business within the meaning of § 1.367(a)-2(d)(2), or (ii) is related to an existing business of the foreign acquiring corporation. And, second, the property is transferred without an intention to dispose of it at a later time. After considering the comment, the Treasury Department and the IRS have determined that whether property constitutes avoidance property should in all cases depend on the principal purpose for the acquisition of the property, which cannot be determined based on an exclusive set of objective factors, such as the nature of the property or holding period. In certain circumstances, property that meets the conditions described by the comment could be acquired with a principal purpose of avoiding the purposes of section 7874. Thus, the Treasury Department and the IRS have concluded that it would be inappropriate to exclude such property from the definition of avoidance property. Consequently, the final regulations do not adopt the comment.

    B. Subsequent Transfers of Stock in Exchange for the Satisfaction or Assumption of an Obligation Associated With the Property Exchanged 1. In General

    Disqualified stock also generally includes stock of the foreign acquiring corporation that is transferred by a person (the transferor) to another person (the transferee) in exchange for property (the exchanged property) if, pursuant to the same plan (or series of related transactions), the transferee subsequently transfers the stock in exchange for the satisfaction or assumption of one or more obligations associated with the exchanged property (the associated obligation rule). The purpose of the rule is to ensure that the same amount of stock of the foreign acquiring corporation is included in the denominator of the ownership fraction in economically similar situations.

    For example, consider a situation in which a foreign acquiring corporation (FA) intends to acquire the property of a domestic entity (DT), which holds property with a fair market value of $100x and has a $25x obligation that is associated with the property. The parties could structure the domestic entity acquisition using the following steps: (i) DT transfers all of its property to FA in exchange for $75x of FA stock and FA's assumption of the $25x associated obligation, (ii) DT distributes the $75x of FA stock to its shareholders, and (iii) in a related transaction, FA issues $25x of its stock to the public for cash and uses that cash to satisfy the associated obligation. Alternatively, FA could not assume the associated obligation and could thus acquire all of DT's properties in exchange for $100x of FA stock, followed by DT using $25x of FA stock to satisfy the $25x associated obligation and distributing the remaining $75x of FA stock to its shareholders in liquidation. Under the first alternative, the $25x of FA stock issued to the public in exchange for cash (which is nonqualified property) would be excluded from the denominator of the ownership fraction. Under the second alternative, however, no FA stock would be excluded absent the associated obligation rule. Allowing a different result under the second alternative would be inappropriate because the first and second alternatives are economically similar. That is, under both alternatives, FA's value reflects the gross value of the acquired property (under the first alternative, because the amount of the associated obligation is satisfied with the cash and, under the second alternative, because FA did not assume the associated obligation), and DT's obligations have been reduced by the amount of the associated obligation. The associated obligation rule thus ensures that, as under the first alternative, $25x of FA stock is excluded from the denominator of the ownership fraction under the second alternative. The rule serves the same purpose when the transferee is a person other than the domestic entity.

    Several comments were received regarding the purpose and effect of the associated obligation rule. First, a comment noted that the rule serves an important purpose and suggested that the final regulations retain the rule. Another comment questioned the practical significance of the rule under the temporary regulations and suggested that the final regulations remove it. In particular, the comment asserted that creditors typically require obligations to be satisfied in cash, rather than stock. Moreover, the comment stated that, under the temporary regulations, the rule might not apply if, instead of using stock of the foreign acquiring corporation to satisfy an associated obligation, the transferee sold the stock for cash and then used the cash to satisfy the obligation. One comment acknowledged, however, that a plan (or series of related transactions) to satisfy obligations of the transferee using the proceeds of the sale of stock of the foreign acquiring corporation could be subject to the anti-abuse rule under section 7874(c)(4).

    After considering the comments, the Treasury Department and the IRS have determined that the associated obligation rule promotes an important policy and thus the final regulations retain the rule. The Treasury Department and the IRS also have determined that when a foreign acquiring corporation issues its stock in lieu of assuming an obligation associated with the exchanged property, the rule should not be limited to situations in which, pursuant to the same plan (or series of related transactions), the transferee uses the stock to directly satisfy the associated obligation. Rather, the Treasury Department and the IRS have concluded that the rule should generally apply if, pursuant to the same plan (or series of related transactions), the transferee uses the stock to directly or indirectly satisfy any obligation of the transferee (regardless of whether it is an associated obligation). For example, the rule should apply if the transferee sells the stock and then uses the proceeds to satisfy an amount of an obligation of the transferee equal to the amount of the associated obligation. In these cases, the transferee and the foreign acquiring corporation are in an economic position similar to the one in which they would have been had the foreign acquiring corporation assumed the associated obligation, issued stock in exchange for cash, and then used that cash to satisfy the obligation. The final regulations accordingly modify the associated obligation rule. See § 1.7874-4(c)(1)(ii)(A). In addition, the final regulations generally limit the amount of disqualified stock arising under the associated obligation rule to the proportionate share of obligations associated with the exchanged property that, pursuant to the same plan (or series of related transactions), is not assumed by the foreign acquiring corporation. See § 1.7874-4(c)(1)(ii)(B).

    2. Acquisitions of Less than Substantially All of the Property of Transferee

    A comment requested a modification of the associated obligation rule so that it applies only if the transferor acquires substantially all of the property of the transferee. The comment asserted that, when the transferor acquires only a portion (rather than substantially all) of the transferee's property, it may be difficult or burdensome to determine which obligations are associated with the exchanged property.

    The associated obligation rule addresses a concern that, absent the rule, a different amount of stock of a foreign acquiring corporation might be included in the denominator of the ownership fraction in economically similar scenarios. The Treasury Department and the IRS have determined that this concern may exist regardless of the portion of the transferee's property that is acquired. In addition, determinations concerning the association between obligations and property may be required under the Code for purposes other than applying the associated obligation rule. For example, see section 358(h)(2). Accordingly, the final regulations decline to adopt the comment.

    3. Application of Rule When Domestic Entity Is Transferee

    One comment suggested broadening the associated obligation rule to address certain cases in which the domestic entity is the transferee and the foreign acquiring corporation issues its stock in lieu of assuming any obligation of the transferee (regardless of whether it is associated with the exchanged property). For example, consider a situation in which a domestic entity (DT) has two lines of business: (i) Business A, which comprises property that, in the aggregate, has a fair market value of $90x and no obligations associated with it, and (ii) Business B, which comprises property that, in the aggregate, has a fair market value of $20x and $10x of obligations associated with it. If a foreign acquiring corporation (FA) acquires only the Business A property in exchange for $90x of FA stock, DT might use $10x of FA stock to satisfy the Business B associated obligations and distribute the remaining $80x of FA stock and the $20x of Business B property to its shareholders in liquidation. In such a case, the $10x of FA stock would not be disqualified stock under the associated obligation rule because the transferee did not retain any obligations associated with the exchanged property (the Business A property); thus, absent special rules, the stock might inappropriately dilute the ownership percentage. The comment noted that the associated obligation rule could be modified to address such cases.

    The Treasury Department and the IRS acknowledge the concern raised by the comment but decline to broaden the associated obligation rule to address it at this time. However, the Treasury Department and the IRS will monitor transactions in which the foreign acquiring corporation transfers its stock in lieu of assuming an obligation of the domestic entity and continue to study whether future guidance should broaden the rule. In addition, section 7874(c)(4) (which would disregard the transfer of the $10x of FA stock in satisfaction of the obligation if the transfer is part of a plan a principal purpose of which is to avoid the purposes of section 7874) and § 1.7874-10T (which could cause DT's distribution of the $20x of Business B assets to give rise to a non-ordinary course distribution, which, in turn, would cause the former domestic entity shareholders of DT to be deemed to receive additional FA stock for purpose of computing the ownership fraction) may apply to address the concern raised by the comment.

    III. The De Minimis Exception

    The disqualified stock rule contains a de minimis exception, which generally applies when two requirements are satisfied. First, the ownership percentage—determined without regard to the application of the disqualified stock rule, the passive assets rule of § 1.7874-7T (the passive assets rule), and the non-ordinary course distribution rule of § 1.7874-10T (the non-ordinary course distribution rule)—must be less than five (by vote and value). Second, after the domestic entity acquisition and all related transactions, former domestic entity shareholders or former domestic entity partners, in the aggregate, must own (applying the attribution rules of section 318(a) with the modifications described in section 304(c)(3)(B)) less than five percent (by vote and value) of the stock of (or a partnership interest in) any member of the EAG. When the de minimis exception applies, the disqualified stock rule does not apply and, as a result, no stock of the foreign acquiring corporation is excluded from the denominator of the ownership fraction pursuant to the rule.

    The passive assets rule and the non-ordinary course distribution rule contain similar de minimis exceptions (the three exceptions collectively, the de minimis exceptions). See §§ 1.7874-7T(c) and 1.7874-10T(d). Together, the de minimis exceptions generally prevent one or more of the disqualified stock rule, the passive assets rule, and the non-ordinary course rule from causing section 7874 to apply to a domestic entity acquisition that, given minimal actual ownership continuity, largely resembles a cash purchase by the foreign acquiring corporation of the stock of (or interests in) the domestic entity.

    Comments requested expanding the de minimis exceptions in several respects. First, comments requested increasing the ownership thresholds in the de minimis exceptions. One comment recommended a 20-percent threshold, noting that such a threshold would be generally consistent with the threshold in the internal group restructuring exception under § 1.7874-1(c)(2) (permitting up to 20 percent ownership by non-EAG members). The internal group restructuring exception, however, addresses different policies than the de minimis exceptions. In particular, the internal group restructuring exception addresses transactions in which there is no, or only a small, shift in ownership of a domestic entity to persons outside of a corporate group, whereas the de minimis exceptions address transactions in which there is almost a complete shift in ultimate ownership of a domestic entity. Moreover, the Treasury Department and the IRS have concluded that a five-percent threshold appropriately differentiates between domestic entity acquisitions that largely resemble a cash purchase and those that do not. Accordingly, the final regulations do not adopt the comment.

    Other comments requested removing the second requirement of the de minimis exceptions or, alternatively, modifying the requirement so that it looks only to stock held by reason of holding stock (or interests) of the domestic entity. The comments noted that, particularly in cases involving a publicly-traded domestic entity or a complex ownership structure, it could be difficult or burdensome to identify each former domestic entity shareholder or former domestic entity partner (including a de minimis former domestic entity shareholder or former domestic entity partner), as applicable, and then determine (taking into account the applicable attribution rules) the former domestic entity shareholders' or former domestic entity partners' collective ownership of the foreign acquiring corporation and each member of the EAG. Accordingly, the comment asserted that, at least in certain cases, uncertainty surrounding whether the second requirement is satisfied could result in taxpayers having to apply—and thus conduct the potentially complicated analyses required by—the disqualified stock rule, passive assets rule, and non-ordinary course distribution rule, notwithstanding that the domestic entity acquisition may largely resemble a purchase.

    After considering the comment, the final regulations modify each of the de minimis exceptions to provide that the second requirement is satisfied if, after the domestic entity acquisition and all related transactions, each former domestic entity shareholder or former domestic entity partner, as applicable, owns (applying the attribution rules of section 318(a) with the modifications described in section 304(c)(3)(B)) less than five percent (by vote and value) of the stock of (or a partnership interest in) each member of the EAG. § 1.7874-4(d)(1)(ii); § 1.7874-7T(c)(2); § 1.7874-10T(d)(2). The Treasury Department and the IRS have determined that limiting the second requirement to consider only the ownership of former domestic entity shareholders or former domestic entity partners (with applicable attribution rules), individually, rather than the ownership of all former domestic entity shareholders or former domestic entity partners, collectively, strikes the appropriate balance between preventing the de minimis exceptions from applying in inappropriate circumstances and addressing the practical difficulties noted in the comment.

    IV. Certain Public Offerings

    The preamble to the 2014 temporary regulations noted that the de minimis exception with respect to the disqualified stock rule may facilitate certain transactions that have the effect of converting a publicly traded domestic corporation into a publicly traded foreign corporation over time. For example, a buyer may contribute cash to a newly formed foreign acquiring corporation that uses such cash, along with the proceeds from borrowings and a small amount of its stock (often issued to the management of the domestic corporation), to acquire all of the stock of a publicly traded domestic corporation in a domestic entity acquisition. After a period of time, the buyer may sell its stock of the foreign acquiring corporation pursuant to a public offering, which may have been contemplated at the time of the domestic entity acquisition. The preamble to the 2014 regulations explained that the Treasury Department and the IRS would study these transactions and requested comments on the application of section 7874 to such transactions.

    A comment asserted that, given the number of non-tax contingencies between the domestic entity acquisition and the public offering, it would be inappropriate to apply the step-transaction doctrine or related principles to the transactions. Comments also suggested that these transactions do not violate the policies of section 7874 because the domestic entity acquisition is essentially a purchase by the foreign acquiring corporation of the stock of the publicly traded domestic corporation. Accordingly, comments recommended against new rules to address the transactions.

    After further study and consideration of the comments, the Treasury Department and the IRS decline at this time to provide special rules to address these transactions. However, section 7874(c)(4), § 1.7874-4(d)(2) (providing that the de minimis exception does not apply to disqualified stock that is transferred with a principal purpose of avoiding the purposes of section 7874), and judicial doctrines each may apply to address the concerns raised by these transactions.

    V. Additional Clarifications Requested A. Stock Included in Numerator Also Included in Denominator

    A comment requested that the Treasury Department and the IRS clarify that stock of a foreign acquiring corporation included in the numerator of the ownership fraction is also included in the denominator of the fraction, regardless of whether the stock is disqualified stock. The preamble to the temporary regulations indicated that stock described in section 7874(a)(2)(B)(ii) (by reason of stock) is never treated as disqualified stock and thus cannot be excluded from the denominator of the ownership fraction under the disqualified stock rule. See Part A of the Explanation of Provisions section of the preamble to the 2014 temporary regulations. Nevertheless, in response to the comment and for the avoidance of doubt, the final regulations clarify that by reason of stock may never be treated as disqualified stock. See § 1.7874-4(c)(1). Accordingly, the final regulations clarify that stock of the foreign acquiring corporation included in the numerator of the ownership fraction is in all cases also included in the denominator of the fraction.

    B. Treatment of partnerships

    Comments requested clarification about whether an acquisition of a partnership interest is treated similarly to an acquisition of stock for purposes of the disqualified stock rule. That is, the comment asked whether stock of a foreign acquiring corporation transferred in exchange for a partnership interest is treated as stock transferred in exchange for a proportionate share of partnership assets represented by the partnership interest (a look-through approach). The Treasury Department and the IRS confirm that a partnership interest does not constitute nonqualified property unless it is a marketable security (for example, an interest in a publicly traded partnership described in § 1.7704-1(a)(1)(i)) or is avoidance property. The definition of marketable securities in the temporary regulations excludes an interest in a partnership that becomes a member of the EAG in a transaction (or series of transactions) related to the domestic entity acquisition, an exclusion that would be unnecessary if partnership interests were subject to a look-through approach. Nevertheless, in response to the comment and for the avoidance of doubt, the definition of nonqualified property is clarified to provide that an interest in a partnership is nonqualified property only to the extent it is a marketable security or avoidance property.

    VI. The Subsequent Transfer Rule

    The temporary regulations provide a rule (the subsequent transfer rule) pursuant to which stock of a foreign corporation that is described in section 7874(a)(2)(B)(ii) (that is, by reason of stock) does not cease to be so described as a result of any subsequent transfer of the stock by the former domestic entity shareholder or former domestic entity partner that received such stock, even if the subsequent transfer is related to the domestic entity acquisition. A comment requested adding a de minimis exception to the subsequent transfer rule, similar to the three de minimis exceptions discussed in Part III of this Summary of Comments and Explanation of Revisions. For example, the comment suggested that if, pursuant to a subsequent transfer (or series of transfers) related to the domestic entity acquisition, the former domestic entity shareholders or former domestic entity partners, in the aggregate, dispose of all but a de minimis amount of stock of the foreign acquiring corporation, then the subsequent transfer rule should not apply. In such a case, the requested de minimis exception would provide that the stock received by the former domestic entity shareholders or former domestic entity partners would not be considered by reason of stock and thus would not be included in the numerator of the ownership fraction (though it generally would be included in the denominator of the ownership fraction).

    The final regulations do not adopt the comment. The de minimis exceptions, as discussed in Part III of this Summary of Comments and Explanation of Revisions, provide relief for transactions that are in substance cash purchases by the foreign acquiring corporation of the stock of (or interests in) the domestic entity. In contrast, the subsequent transfer rule applies to ensure the application of section 7874 to transactions where a foreign corporation acquires substantially all the property (directly or indirectly) of a domestic entity in exchange for stock. The ultimate use of the stock received by the former domestic entity shareholders or former domestic entity partners is irrelevant to the three-factor test established by the statute. Accordingly, the final regulations do not adopt a de minimis exception for purposes of the subsequent transfer rule.

    VII. Applicability Dates

    The final regulations generally apply to domestic entity acquisitions completed on or after September 17, 2009, to the extent described in the 2009 notice. The final regulations generally apply with respect to the remainder of the proposed rules in the 2014 proposed regulations to domestic entity acquisitions completed on or after January 16, 2014. However, see § 1.7874-4(k) for certain rules that apply only to domestic entity acquisitions completed on or after the publication of the 2015 notice or these final regulations, as applicable. Similar to the 2014 temporary regulations, these regulations provide that taxpayers may elect to apply all the rules contained in these final regulations to domestic entity acquisitions completed on or after September 17, 2009, and before January 13, 2017 (transition period), if the taxpayer applies all of the rules consistently to all domestic entity acquisitions completed during the transition period.

    No inference is intended as to the treatment of transactions under the law before the various applicability dates of these regulations. For example, these transactions could be subject to challenge under applicable provisions, including under section 7874(c)(4) or judicial doctrines such as the substance-over-form doctrine.

    Special Analyses

    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 impact assessment is not required. The Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply because the regulations do not impose a collection of information on small entities. Pursuant to section 7805(f) of the Code, the notices of proposed rulemaking that preceded this regulation were submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business. No comments were received.

    Drafting Information

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

    List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

    Adoption of Amendments to the Regulations

    Accordingly, 26 CFR part 1 is amended as follows:

    PART 1—INCOME TAXES Paragraph 1. The authority citation for part 1 is amended by adding entries in numerical order to read as follows: Authority:

    26 U.S.C. 7805 * * *

    Section 1.7874-4 also issued under 26 U.S.C. 7874(c)(6) and (g).

    Section 1.7874-5 also issued under 26 U.S.C. 7874(c)(6) and (g).

    Par. 2. Section 1.7874-4 is added to read as follows:
    § 1.7874-4 Disregard of certain stock related to the domestic entity acquisition.

    (a) Scope. This section identifies certain stock of the foreign acquiring corporation that is disregarded in determining the ownership fraction and modifies the scope of section 7874(c)(2)(B). Paragraph (b) of this section sets forth the general rule that certain stock of the foreign acquiring corporation, and only such stock, is treated as stock described in section 7874(c)(2)(B) and therefore is excluded from the denominator of the ownership fraction. Paragraph (c) of this section identifies the stock of the foreign acquiring corporation that is subject to paragraph (b) of this section. Paragraph (d) of this section provides a de minimis exception to the application of the general exclusion rule of paragraph (b) of this section. Paragraph (e) of this section provides rules for transfers of stock of the foreign acquiring corporation in satisfaction of, or in exchange for the assumption of, one or more obligations of the transferor. Paragraph (f) of this section provides rules for certain transfers of stock of the foreign acquiring corporation involving multiple properties or obligations. Paragraph (g) of this section provides rules for the treatment of partnerships, and paragraph (h) of this section provides rules addressing the interaction of this section with the expanded affiliated group rules of section 7874(c)(2)(A) and § 1.7874-1. Paragraph (i) of this section provides definitions. Paragraph (j) of this section provides examples illustrating the application of the rules of this section. Paragraph (k) of this section provides dates of applicability.

    (b) Exclusion of disqualified stock under section 7874(c)(2)(B). Except as provided in paragraph (d) of this section, disqualified stock (as determined under paragraph (c) of this section) is treated as stock described in section 7874(c)(2)(B) and therefore is not included in the denominator of the ownership fraction. Section 7874(c)(2)(B) shall not apply to exclude stock from the denominator of the ownership fraction that is not disqualified stock.

    (c) Disqualified stock—(1) General rule. Except as provided in paragraph (c)(2) of this section, disqualified stock is stock of the foreign acquiring corporation (other than stock described in § 1.7874-2(f)) that is transferred in an exchange described in paragraph (c)(1)(i) or (ii) of this section that is related to the domestic entity acquisition. This paragraph (c) applies without regard to whether the stock of the foreign acquiring corporation is publicly traded at the time of the transfer or at any other time.

    (i) Exchanged for nonqualified property. The stock is transferred to a person other than the domestic entity in exchange for nonqualified property. See Example 1, Example 2, Example 6, Example 8, and Example 9 of paragraph (j) of this section for illustrations of the application of this paragraph (c)(1)(i).

    (ii) Exchanged for property with associated obligations—(A) General rule. Subject to the limitation provided in in paragraph (c)(1)(ii)(B) of this section, the stock is transferred by a person (transferor) to another person (transferee) in exchange for property (exchanged property) and, pursuant to the same plan (or series of related transactions), the transferee subsequently transfers such stock (or, if the transferee exchanges such stock for other property, such other property) in satisfaction of, or in exchange for the assumption of, one or more obligations of the transferee or a person related (within the meaning of section 267 or 707(b)) to the transferee. See Example 6 and Example 10 of paragraph (j) of this section for illustrations of the application of paragraph (c)(1)(ii) of this section.

    (B) Limitation. The amount of stock treated as transferred in an exchange described in paragraph (c)(2)(ii)(A) of this section shall not exceed—

    (1) With respect to a transferee that is the domestic entity, the proportionate share of obligations associated with the exchanged property (determined based on the fair market value of the exchanged property relative to the fair market value of all properties with which the obligations are associated) that, pursuant to the same plan (or series of related transactions), is not assumed by the transferor.

    (2) With respect to any other transferee, the proportionate share of obligations associated with the exchanged property (determined based on the fair market value of the exchanged property relative to the fair market value of all properties with which the obligations are associated) that, pursuant to the same plan (or series of related transactions), is not assumed by the transferor, multiplied by a fraction, the numerator of which is the amount of exchanged property that is qualified property, and the denominator of which is the total amount of exchanged property.

    (C) Associated obligations. For purposes of paragraph (c)(1)(ii) of this section, an obligation is associated with property if, for example, the obligation arose from the conduct of a trade or business in which the property has been used, regardless of whether the obligation is a non-recourse obligation.

    (2) Stock transferred in an exchange that does not increase the fair market value of the assets or decrease the amount of liabilities of the foreign acquiring corporation. Stock is disqualified stock only to the extent that the transfer of the stock in the exchange increases the fair market value of the assets of the foreign acquiring corporation or decreases the amount of its liabilities. This paragraph (c)(2) is applied to an exchange without regard to any other exchange described in paragraph (c)(1)(i) or (ii) of this section or any other transaction related to the domestic entity acquisition. See Example 4 and Example 7 of paragraph (j) of this section for illustrations of the application of this paragraph (c)(2).

    (d) Exception to exclusion of disqualified stock—(1) De minimis ownership. Except as provided in paragraph (d)(2) of this section, paragraph (b) of this section does not apply if both:

    (i) The ownership percentage described in section 7874(a)(2)(B)(ii), determined without regard to the application of paragraph (b) of this section and §§ 1.7874-7T(b) and 1.7874-10T(b), is less than five (by vote and value); and

    (ii) After the domestic entity acquisition and all related transactions, each former domestic entity shareholder or former domestic entity partner, as applicable, owns (applying the attribution rules of section 318(a) with the modifications described in section 304(c)(3)(B)) less than five percent (by vote and value) of the stock of (or a partnership interest in) each member of the expanded affiliated group. See Example 5 of paragraph (j) of this section for an illustration of this paragraph (d).

    (2) Stock issued to avoid the purposes of section 7874. The exception in paragraph (d)(1) of this section does not apply to disqualified stock that is transferred in a transaction (or series of transactions) related to the domestic entity acquisition with a principal purpose of avoiding the purposes of section 7874.

    (e) Satisfaction or assumption of obligations. Except to the extent stock is treated as disqualified stock as a result of being described in paragraph (c)(1)(ii) of this section, this paragraph (e) applies if, in a transaction related to the domestic entity acquisition, stock of the foreign acquiring corporation is transferred to a person other than the domestic entity in exchange for the satisfaction or the assumption of one or more obligations of the transferor. In such a case, solely for purposes of this section, the stock of the foreign acquiring corporation is treated as if it is transferred in exchange for an amount of cash equal to the fair market value of such stock.

    (f) Transactions involving multiple properties. For purposes of this section, if stock and other property are exchanged for qualified property and nonqualified property, the stock is treated as transferred in exchange for the qualified property or nonqualified property, respectively, based on the relative fair market value of the property. See also § 1.7874-2(f)(2) (allocating stock of a foreign acquiring corporation between an interest in the domestic entity and other property).

    (g) Treatment of partnerships. For purposes of this section, if one or more members of the expanded affiliated group own, in the aggregate, more than 50 percent (by value) of the interests in a partnership, such partnership is treated as a corporation that is a member of the expanded affiliated group.

    (h) Interaction with expanded affiliated group rules. Disqualified stock that is excluded from the denominator of the ownership fraction pursuant to paragraph (b) of this section is taken into account for purposes of determining whether an entity is a member of the expanded affiliated group for purposes of applying section 7874(c)(2)(A) and § 1.7874-1(b) and determining whether a domestic entity acquisition qualifies as an internal group restructuring or results in a loss of control, as described in § 1.7874-1(c)(2) and (c)(3), respectively. However, such disqualified stock is excluded from the denominator of the ownership fraction for purposes of section 7874(a)(2)(B)(ii) regardless of whether it otherwise would be included in the denominator of the ownership fraction as a result of the application of § 1.7874-1(c). See Example 8 and Example 9 of paragraph (j) of this section for illustrations of the application of this paragraph (h).

    (i) Definitions. In addition to the definitions in § 1.7874-12T, the following definitions apply for purposes of this section:

    (1) Marketable securities has the meaning set forth in section 453(f)(2), except that the term marketable securities does not include stock of a corporation or an interest in a partnership that becomes a member of the expanded affiliated group in a transaction (or series of transactions) related to the domestic entity acquisition. See Example 4 of paragraph (j) of this section for an illustration of this paragraph (i)(1).

    (2) Nonqualified property is property described in paragraphs (i)(2)(i) through (iv) of this section. Thus, stock in a corporation or an interest in a partnership is nonqualified property to the extent provided in paragraph (i)(2)(ii) or (iv) of this section. Qualified property is property other than nonqualified property.

    (i) Cash or cash equivalents.

    (ii) Marketable securities, within the meaning of paragraph (i)(1) of this section.

    (iii) An obligation owed by any of the following:

    (A) A member of the expanded affiliated group, unless the holder of the obligation immediately before the domestic entity acquisition and any related transaction (or its successor) is a member of the expanded affiliated group after the domestic entity acquisition and all related transactions.

    (B) A former domestic entity shareholder or former domestic entity partner of the domestic entity that owns (applying the attribution rules of section 318(a) with the modifications described in section 304(c)(3)(B)) at least five percent (by vote or value) of the stock of, or partnership interests in, the domestic entity before the domestic entity acquisition.

    (C) A person that, before or after the domestic entity acquisition, either owns (applying the attribution rules of section 318(a) with the modifications described in section 304(c)(3)(B)) at least five percent (by vote or value) of the stock of (or partnership interests in) or is related (within the meaning of section 267 or 707(b)) to—

    (1) A member of the expanded affiliated group; or

    (2) A person described in paragraph (i)(2)(iii)(B) of this section. See Example 6 of paragraph (j) of this section for an illustration of this paragraph (i)(2)(iii)(C)(2).

    (iv) Any other property acquired with a principal purpose of avoiding the purposes of section 7874, regardless of whether the transaction involves an indirect transfer of property described in paragraph (i)(2)(i), (ii), or (iii) of this section. See Example 2 and Example 3 of paragraph (j) of this section for illustrations of the application of this paragraph (i)(2)(iv).

    (3) An obligation means any fixed or contingent obligation to make a payment or provide value without regard to whether the obligation is otherwise taken into account for purposes of the Internal Revenue Code. An obligation includes, but is not limited to, a debt obligation, an environmental obligation, a tort obligation, a contract obligation (including an obligation to provide goods or services), a pension obligation, an obligation under a short sale, and an obligation under derivative financial instruments such as options, forward contracts, futures contracts, and swaps. An obligation does not include any obligation treated as stock for purposes of section 7874 (see, for example, § 1.7874-2(i), which treats certain interests, including certain creditor claims, as stock).

    (4) A transfer is, with respect to stock of the foreign acquiring corporation, an issuance, sale, distribution, exchange, or any other disposition of such stock.

    (j) Examples. The following examples illustrate the application of the rules of this section. For purposes of the examples, unless otherwise indicated, assume the following facts in addition to the facts stated in the examples:

    (1) FA, FMS, FS, and FT are foreign corporations, all of which have only one class of stock issued and outstanding;

    (2) DMS and DT are domestic corporations;

    (3) P and R are corporations that may be either domestic or foreign;

    (4) PRS is a partnership with individual partners;

    (5) The de minimis ownership exception in paragraph (d)(1) of this section does not apply;

    (6) None of the shareholders or partners in the entities described in the examples are related persons with respect to each other;

    (7) All transactions described in each example occur pursuant to the same plan;

    (8) No property is acquired with a principal purpose of avoiding the purposes of section 7874;

    (9) FA, FMS, FS, and FT are tax residents in the same foreign country;

    (10) For purposes of determining the ownership fraction, no shares of FA stock are excluded from the denominator pursuant to § 1.7874-7T(b) (which disregards stock attributable to passive assets); and

    (11) For purposes of determining the ownership fraction, no shares of FA stock are treated as received by former shareholders of DT pursuant to § 1.7874-10T(b) (which disregards certain distributions).

    Example 1.

    Stock transferred in exchange for marketable securities—(i) Facts. Individual A wholly owns DT. PRS transfers marketable securities (within the meaning of paragraph (i)(1) of this section) to FA, a newly formed corporation, in exchange solely for 25 shares of FA stock. Then Individual A transfers all the DT stock to FA in exchange solely for 75 shares of FA stock.

    (ii) Analysis. Under paragraph (i)(2)(ii) of this section, the marketable securities constitute nonqualified property. Accordingly, the 25 shares of FA stock transferred by FA to PRS in exchange for the marketable securities constitute disqualified stock described in paragraph (c)(1) of this section by reason of paragraph (c)(1)(i) of this section. Paragraph (c)(2) of this section does not reduce the amount of disqualified stock described in paragraph (c)(1)(i) of this section because the transfer of FA stock in exchange for the marketable securities increases the fair market value of the assets of FA by the fair market value of the marketable securities transferred. Under paragraph (b) of this section, the 25 shares of FA stock transferred to PRS are not included in the denominator of the ownership fraction. See also section 7874(c)(4). Accordingly, the only FA stock included in the ownership fraction is the FA stock transferred to Individual A in exchange for the DT stock, and that FA stock is included in both the numerator and the denominator of the ownership fraction. Thus, the ownership fraction is 75/75.

    Example 2.

    Stock transferred in exchange for property acquired with a principal purpose of avoiding the purposes of section 7874—(i) Facts. Individual A wholly owns DT. PRS transfers marketable securities (within the meaning of paragraph (i)(1) of this section) to FT, a newly formed corporation, in exchange solely for all the FT stock. Then PRS transfers the FT stock to FA, a newly formed corporation, in exchange solely for 25 shares of FA stock. Finally, Individual A transfers all the DT stock to FA in exchange solely for 75 shares of FA stock. FA acquires the FT stock with a principal purpose of avoiding the purposes of section 7874.

    (ii) Analysis. Under paragraph (i)(2)(iv) of this section, the FT stock constitutes nonqualified property because a principal purpose of FA acquiring the FT stock is to avoid the purposes of section 7874. Accordingly, the 25 shares of FA stock transferred by FA to PRS in exchange for the FT stock constitute disqualified stock described in paragraph (c)(1) of this section by reason of paragraph (c)(1)(i) of this section. Paragraph (c)(2) of this section does not reduce the amount of disqualified stock described in paragraph (c)(1)(i) of this section because the transfer of FA stock in exchange for the FT stock increases the fair market value of FA's assets by the fair market value of the FT stock. Under paragraph (b) of this section, the 25 shares of FA stock transferred to PRS are not included in the denominator of the ownership fraction. Furthermore, even in the absence of paragraph (i)(2)(iv) of this section, the transfer of marketable securities to FT would be disregarded pursuant to section 7874(c)(4). Accordingly, the only FA stock included in the ownership fraction is the FA stock transferred to Individual A in exchange for the DT stock, and that FA stock is included in both the numerator and the denominator of the ownership fraction. Thus, the ownership fraction is 75/75.

    Example 3.

    Stock transferred in exchange for property acquired with a principal purpose of avoiding the purposes of section 7874—(i) Facts. DT is a publicly traded corporation. PRS is a foreign partnership that is unrelated to DT. PRS transfers certain business assets (PRS properties) to FA, a newly formed foreign corporation, in exchange solely for 25 shares of FA stock. The shareholders of DT transfer all of their DT stock to FA in exchange solely for the remaining 75 shares of FA stock (DT acquisition). None of the PRS properties is property described in paragraph (i)(2)(i) through (iii) of this section, but FA acquires the PRS properties with a principal purpose of avoiding the purposes of section 7874.

    (ii) Analysis. Under paragraph (i)(2)(iv) of this section, the PRS properties transferred to FA constitute nonqualified property, because FA acquires the PRS properties in a transaction related to the DT acquisition with a principal purpose of avoiding the purposes of section 7874. Accordingly, the 25 shares of FA stock transferred by FA to PRS in exchange for the PRS properties constitute disqualified stock described in paragraph (c)(1) of this section by reason of paragraph (c)(1)(i) of this section. Paragraph (c)(2) of this section does not apply to reduce the amount of disqualified stock described in paragraph (c)(1)(i) of this section because the transfer of FA stock in exchange for the PRS properties increases the fair market value of FA's assets by the fair market value of the PRS properties. Accordingly, pursuant to paragraph (b) of this section, the 25 shares of FA stock transferred to PRS in exchange for the PRS properties are not included in the denominator of the ownership fraction. Furthermore, even in the absence of paragraph (i)(2)(iv) of this section, the transfer of the PRS properties to FA would be disregarded pursuant to section 7874(c)(4). Therefore, the only FA stock included in the ownership fraction is the FA stock transferred to the former domestic entity shareholders of DT in exchange for their DT stock, and that FA stock is included in both the numerator and the denominator of the ownership fraction. Thus, the ownership fraction is 75/75.

    Example 4.

    Stock transferred in exchange for stock of a foreign corporation that becomes a member of the expanded affiliated group—(i) Facts. FT, a publicly traded corporation, forms FA, and then FA forms DMS and FMS. FMS merges with and into FT, with FT surviving the merger (FMS-FT merger). Pursuant to the FMS-FT merger, the FT shareholders exchange their FT stock solely for 100 shares of FA stock and FT becomes a wholly owned subsidiary of FA. Following the FMS-FT merger, DMS merges with and into DT, also a publicly traded corporation, with DT surviving the merger (DT acquisition). Pursuant to the DT acquisition, the DT shareholders exchange their DT stock solely for the remaining 100 shares of FA stock, and DT becomes a wholly owned subsidiary of FA. After the completion of the plan, FA wholly owns FT and DT, DMS and FMS cease to exist, and the stock of FA is publicly traded.

    (ii) Analysis. Because FT becomes a member of the expanded affiliated group that includes FA in a transaction related to the DT acquisition, the FT stock does not constitute marketable securities (within the meaning of paragraph (i)(1) of this section) and therefore does not constitute nonqualified property pursuant to paragraph (i)(2)(ii) of this section. Accordingly, no FA stock is disqualified stock described in paragraph (c)(1) of this section and therefore the FA stock transferred in exchange for the FT stock and DT stock is included in the denominator of the ownership fraction. Thus, the ownership fraction is 100/200.

    (iii) Alternative facts. The facts are the same as in paragraph (i) of this Example 4, except that, instead of undertaking the FMS-FT merger, FT merges with and into FA with FA surviving the merger (FT-FA merger). Pursuant to the FT-FA merger, the FT shareholders exchange their FT stock solely for 100 shares of FA stock. At the time of the FT-FA merger, FT does not hold nonqualified property and has no obligations. Accordingly, FA stock transferred by FA to FT in exchange for the property of FT is not disqualified stock described in paragraph (c)(1) of this section. Furthermore, pursuant to paragraph (c)(2) of this section, the 100 shares of FA stock transferred by FT to the shareholders of FT in exchange for their FT stock do not constitute disqualified stock described in paragraph (c)(1) of this section. Although the FT stock is nonqualified property (the FT stock constitutes marketable securities within the meaning of paragraph (i)(2)(ii) of this section because the stock of FT is publicly traded and FT is not a member of the expanded affiliated group that includes FA after the DT acquisition), under paragraph (c)(2) of this section, the transfer of FA stock by FT to the shareholders of FT neither increases the fair market value of the assets of FA nor decreases the liabilities of FA. Accordingly, no FA stock is disqualified stock described in paragraph (c)(1) of this section and, therefore, the FA stock transferred in exchange for the assets of FT and the DT stock is included in the denominator of the ownership fraction. Thus, the ownership fraction is 100/200.

    Example 5.

    De minimis exception—(i) Facts. Individual A wholly owns DT. The fair market value of the DT stock is $100x. PRS transfers $96x of cash to FA, a newly formed corporation, in exchange solely for 96 shares of FA stock. Then Individual A transfers the DT stock to FA in exchange for $96x of cash and 4 shares of FA stock (DT acquisition).

    (ii) Analysis. Under paragraph (i)(2)(i) of this section, cash constitutes nonqualified property. Accordingly, the 96 shares of FA stock transferred by FA to PRS in exchange for $96x of cash constitute disqualified stock described in paragraph (c)(1) of this section by reason of paragraph (c)(1)(i) of this section. Furthermore, paragraph (c)(2) of this section does not reduce the amount of disqualified stock described in paragraph (c)(1)(i) of this section because the transfer of FA stock in exchange for $96x of cash increases the fair market value of the assets of FA by $96x. However, without regard to the application of paragraph (b) of this section and §§ 1.7874-7T(b) and 1.7874-10T(b), the ownership percentage described in section 7874(a)(2)(B)(ii) would be less than 5 (by vote and value), or 4 (4/100, or 4 shares of FA stock held by Individual A by reason of owning the DT stock, determined under § 1.7874-2(f)(2), over 100 shares of FA stock outstanding after the DT acquisition). Furthermore, after the DT acquisition and all related transactions, Individual A owns less than 5% (by vote and value, applying the attribution rules of section 318(a) with the modifications described in section 304(c)(3)(B)) of the stock of FA and DT (the members of the expanded affiliated group that includes FA). Accordingly, the de minimis exception in paragraph (d)(1) of this section applies and therefore paragraph (b) of this section does not apply to exclude the FA stock transferred to PRS from the denominator of the ownership fraction. Therefore, the FA stock transferred to Individual A and PRS is included in the denominator of the ownership fraction. Thus, the ownership fraction is 4/100.

    Example 6.

    Obligation of the expanded affiliated group satisfied with stock—(i) Facts. Individual A wholly owns DT. The stock of DT held by Individual A has a fair market value of $75x. Individual A also holds an obligation of DT with a value and face amount of $25x. DT holds property with a value of $100x, and the $25x obligation is associated with the property. FA, a newly formed corporation, transfers 100 shares of FA stock to Individual A in exchange for all the DT stock and the $25x obligation of DT.

    (ii) Analysis. Under paragraph (i)(2)(iii)(A) of this section, the $25x obligation of DT constitutes nonqualified property because DT is a member of the expanded affiliated group that includes FA, and Individual A (the holder of the obligation immediately before the domestic entity acquisition and any related transaction) is not a member of the EAG after the domestic entity acquisition and all related transactions. Thus, the shares of FA stock transferred by FA to Individual A in exchange for the obligation of DT constitute disqualified stock described in paragraph (c)(1) of this section by reason of paragraph (c)(1)(i) of this section. Under § 1.7874-2(f)(2), Individual A is treated as receiving 75 shares of FA stock in exchange for the DT stock (100 x $75x/$100x) and 25 shares of FA stock in exchange for the obligation of DT (100 x $25x/$100x). Thus, 25 shares of FA stock constitute disqualified stock described in paragraph (c)(1) of this section by reason of paragraph (c)(1)(i) of this section. Paragraph (c)(2) of this section does not reduce the amount of disqualified stock described in paragraph (c)(1)(i) of this section because the transfer of FA stock for the $25x obligation increases the fair market value of FA's assets by $25x. Therefore, under paragraph (b) of this section, the 25 shares of FA stock transferred to Individual A in exchange for the obligation of DT are not included in the denominator of the ownership fraction. Accordingly, the only FA stock included in the ownership fraction is the 75 shares of FA stock transferred to Individual A in exchange for the DT stock, and that FA stock is included in both the numerator and the denominator of the ownership fraction. Thus, the ownership fraction is 75/75.

    (iii) Alternative facts. The facts are the same as in paragraph (i) of this Example 6, except that instead of acquiring the stock of DT and the $25x obligation of DT, FA acquires the $100x of property from DT in exchange solely for 100 shares of FA stock. DT distributes 75 shares of FA stock to Individual A in exchange for Individual A's DT stock and transfers 25 shares of FA stock to Individual A in satisfaction of DT's obligation to Individual A, and liquidates. The 25 shares of FA stock transferred by FA to DT in exchange for the property of DT and then transferred by DT in satisfaction of DT's obligation to Individual A constitute disqualified stock described in paragraph (c)(1) of this section by reason of paragraph (c)(1)(ii) of this section. Paragraph (c)(2) of this section does not reduce the amount of disqualified stock described in paragraph (c)(1)(ii) of this section because the transfer of FA stock in exchange for the property of DT increases the fair market value of FA's assets by $100x (although the amount of disqualified stock is limited to 25 shares of FA stock in this case). Therefore, under paragraph (b) of this section, the 25 shares of FA stock that constitute disqualified stock are not included in the denominator of the ownership fraction. Accordingly, only 75 shares of FA stock are included in the ownership fraction, and that FA stock is included in both the numerator and the denominator of the ownership fraction. Thus, the ownership fraction is 75/75.

    Example 7.

    “Over-the-top” stock transfer—(i) Facts. Individual A wholly owns DT. Individual B holds all 100 outstanding shares of FA stock. Individual C acquires 20 shares of FA stock from Individual B for cash, and then FA acquires all of the stock of DT from Individual A in exchange solely for 100 shares of FA stock.

    (ii) Analysis. Under paragraph (i)(2)(i) of this section, cash constitutes nonqualified property. Accordingly, absent the application of paragraph (c)(2) of this section, the 20 shares of FA stock transferred by Individual B to Individual C in exchange for cash would constitute disqualified stock described in paragraph (c)(1) of this section by reason of paragraph (c)(1)(i) of this section. Nevertheless, because Individual B's sale of FA stock neither increases the assets of FA nor decreases the liabilities of FA, such FA stock is not disqualified stock by reason of paragraph (c)(2) of this section. Accordingly, paragraph (b) of this section does not apply to exclude the 20 shares of FA stock sold by Individual B to Individual C, and that FA stock is included in the denominator of the ownership fraction. The 100 shares of FA stock received by Individual A are the only shares included in the numerator of the ownership fraction. Thus, the ownership fraction is 100/200.

    Example 8.

    Interaction with internal group restructuring rule—(i) Facts. P holds 85 shares of DT stock. The remaining 15 shares of DT stock are held by Individual A. P and Individual A transfer their shares of DT stock to FA, a newly formed corporation, in exchange for 85 and 15 shares of FA stock, respectively (DT acquisition), and PRS transfers $75x of cash to FA in exchange for the remaining 75 shares of FA stock.

    (ii) Analysis. Under paragraph (i)(2)(i) of this section, cash constitutes nonqualified property. Accordingly, the 75 shares of FA stock transferred by FA to PRS in exchange for $75x of cash constitute disqualified stock described in paragraph (c)(1) of this section by reason of paragraph (c)(1)(i) of this section. Furthermore, paragraph (c)(2) of this section does not reduce the amount of disqualified stock described in paragraph (c)(1)(i) of this section because the transfer of FA stock in exchange for $75x of cash increases the fair market value of the assets of FA by $75x. Therefore, under paragraph (b) of this section, the 75 shares of FA stock transferred to PRS are not included in the denominator of the ownership fraction. Although PRS's shares of FA stock are excluded from the denominator of the ownership fraction under paragraph (b) of this section, under paragraph (h) of this section, such shares of FA stock nonetheless are taken into account for purposes of determining whether P is a member of the expanded affiliated group that includes FA and for purposes of determining whether the DT acquisition qualifies as an internal group restructuring. Because P holds 48.6% of the FA stock (85/175) after the DT acquisition and all transactions related to the DT acquisition, it is not a member of the expanded affiliated group that includes FA. In addition, the DT acquisition does not qualify as an internal group restructuring described in § 1.7874-1(c)(2) because P does not hold, directly or indirectly, 80% or more of the shares of FA stock (by vote and value) after the DT acquisition and all transactions related to the DT acquisition. Therefore, the FA stock held by P (along with the FA stock held by Individual A) is included in the numerator and the denominator of the ownership fraction. Thus, the ownership fraction is 100/100.

    Example 9.

    Interaction with loss of control rule—(i) Facts. P wholly owns DT. P transfers all of its shares of DT stock to FA, a newly formed corporation, in exchange for 49 shares of FA stock (DT acquisition), and R transfers marketable securities (within the meaning of paragraph (i)(1) of this section) to FA in exchange for the remaining 51 shares of FA stock.

    (ii) Analysis. Under paragraph (i)(2)(ii) of this section, the marketable securities constitute nonqualified property. Accordingly, the shares of FA stock transferred by FA to R in exchange for the marketable securities constitute disqualified stock described in paragraph (c)(1) of this section by reason of paragraph (c)(1)(i) of this section. Paragraph (c)(2) of this section does not reduce the amount of disqualified stock described in paragraph (c)(1)(i) of this section because the transfer of FA stock in exchange for the marketable securities increases the fair market value of the assets of FA by the fair market value of the marketable securities transferred. Therefore, under paragraph (b) of this section, the shares of FA stock transferred to R are not included in the denominator of the ownership fraction. Although under paragraph (b) of this section R's shares of FA stock are excluded from the denominator of the ownership fraction, under paragraph (h) of this section, such stock is taken into account for purposes of determining whether P or R is a member of the expanded affiliated group that includes FA. Because P holds 49% of the shares of FA stock (49/100), P is not a member of the expanded affiliated group that includes FA, and P's FA stock is included in both the numerator and the denominator of the ownership fraction. Because R holds 51% of the shares of FA stock (51/100), R is a member of the expanded affiliated group that includes FA and, before taking into account § 1.7874-1(c), R's FA stock would be excluded from the numerator and denominator of the ownership fraction under section 7874(c)(2)(A) and § 1.7874-1(b). However, the DT acquisition results in a loss of control described in § 1.7874-1(c)(3) because P does not hold, in the aggregate, directly or indirectly, more than 50% of the shares of stock (by vote or value) of R, FA, or DT after the acquisition. Accordingly, the FA stock held by R would be included in the denominator of the ownership fraction under § 1.7874-1(c)(1). Nevertheless, the FA stock held by R is excluded from the denominator of the ownership fraction under paragraphs (b) and (h) of this section. Thus, the ownership fraction is 49/49.

    (iii) Alternative facts. The facts are the same as in paragraph (i) of this Example 9, except that, in exchange for 51 shares of FA stock, R transfers marketable securities (within the meaning of paragraph (i)(1) of this section) with a value equal to that of 16 shares of FA stock and qualified property (within the meaning of paragraph (i)(2) of this section) with a value equal to that of 35 shares of FA stock. Accordingly, 16 of the 51 shares of FA stock transferred to R constitute disqualified stock described in paragraph (c)(1) of this section by reason of paragraph (c)(1)(i) of this section, and 35 of such shares do not constitute disqualified stock. Paragraph (c)(2) of this section does not reduce the amount of disqualified stock described in paragraph (c)(1)(i) of this section because the transfer of FA stock in exchange for the marketable securities increases the fair market value of the assets of FA by the fair market value of the marketable securities transferred. Therefore, under paragraph (b) of this section, 16 of the 51 shares of FA stock transferred to R are not included in the denominator of the ownership fraction. Although 16 of the 51 shares of FA stock that are transferred to R are excluded from the denominator of the ownership fraction, under paragraph (h) of this section, all 51 of R's shares of FA stock are taken into account for purposes of determining whether P or R is a member of the expanded affiliated group that includes FA. Because P holds 49% of the shares of FA stock (49/100), it is not a member of the expanded affiliated group that includes FA, and its FA stock is included in both the numerator and the denominator of the ownership fraction. Because R holds 51% of the shares of FA stock (51/100), it is a member of the expanded affiliated group that includes FA and, before taking into account § 1.7874-1(c), its FA stock is excluded from the numerator and denominator of the ownership fraction under section 7874(c)(2)(A) and § 1.7874-1(b). However, the DT acquisition results in a loss of control described in § 1.7874-1(c)(3) because P does not hold, in the aggregate, directly or indirectly, more than 50% of the shares of stock (by vote or value) of R, FA, or DT after the acquisition. Accordingly, the 51 shares of FA stock held by R would be included in the denominator of the ownership fraction under § 1.7874-1(c)(1). Nevertheless, the 16 shares of FA stock that constitute disqualified stock are excluded from the denominator of the ownership fraction under paragraphs (b) and (h) of this section. In addition, the 35 shares of FA stock received by R that do not constitute disqualified stock are included in the denominator. Thus, the ownership fraction is 49/84.

    Example 10.

    Stock issued in lieu of assuming associated obligation—(i) Facts. Individual A wholly owns DT. The stock of DT has a fair market value of $100x. Individual B wholly owns FT, a foreign corporation, which conducts two businesses, Business C and Business D. Business C comprises property with a gross fair market value of $70x and $20x of associated obligations. Business D comprises property with a gross fair market value of $45x and $35x of associated obligations. Individual A transfers all of the shares of DT stock to FA, a newly formed corporation, in exchange for $100x of FA stock (DT acquisition). In transactions related to the DT acquisition, FA acquires all of the Business C property from FT in exchange for $70x of FA stock and then FT transfers $30x of the FA stock to its creditors in satisfaction of $30x of its obligations. None of the Business C property is nonqualified property.

    (ii) Analysis. Under paragraph (c)(1) of this section by reason of paragraph (c)(1)(ii) of this section, the $30x of FA stock transferred to FT (the transferee) in exchange for the Business C property (the exchanged property) and then transferred by FT in satisfaction of $30x of its obligations is disqualified stock, except to the extent limited by paragraph (c)(1)(ii)(B) of this section. Under paragraph (c)(1)(ii)(B)(1) of this section, the proportionate share of obligations associated with the exchanged property that is not assumed by FA must be determined. The proportionate share of obligations associated with the exchanged property is $20x, calculated as $20x (the obligations associated with the Business C properties) multiplied by $70x/$70x (the fair market value of the exchanged property, $70x, relative to the fair market value of all the Business C property, $70x). The proportionate share of obligations associated with the exchanged property that is not assumed by FA is $20x, calculated as the proportionate share of obligations associated with the exchanged property ($20x) less the obligations assumed by FA ($0x). Under paragraph (c)(1)(ii)(B)(2) of this section, the amount of disqualified stock is limited to the proportionate share of obligations associated with the exchanged property that is not assumed ($20x) multiplied by a fraction, which in this case is $70x/$70x (the amount of exchanged property that is qualified property, $70x, divided by the total amount of exchanged property, $70x). Accordingly, $20x of FA stock is disqualified stock under paragraph (c)(1) of this section by reason of paragraph (c)(1)(ii) of this section. Paragraph (c)(2) of this section does not reduce the amount of disqualified stock described in paragraph (c)(1)(ii) of this section because the transfer of the FA stock in exchange for the exchanged property increases the fair market value of FA's assets by $70x (although the amount of disqualified stock is limited to $20x of FA stock in this case). Therefore, under paragraph (b) of this section, the $20x of FA stock that constitutes disqualified stock is not included in the denominator of the ownership fraction. Accordingly, only $150x of FA stock is included in the denominator of the ownership fraction, calculated as the $100x of FA stock received by Individual A plus the $70x of FA stock received by FT less the $20x of FA stock that is disqualified stock. Thus, the ownership fraction is $100x/$150x. The result would be the same if, in transactions related to the DT acquisition, FT instead sold the $30x of FA stock for $30x cash and then transferred the cash in satisfaction of $30x of its obligations.

    (iii) Alternative facts. The facts are the same as in paragraph (i) of this Example 10, except that FA acquires only $42x of the Business C property in exchange for $30x of FA stock and the assumption of $12x of the obligations associated with the Business C property. Under paragraph (c)(1) of this section by reason of paragraph (c)(1)(ii) of this section, the $30x of FA stock transferred to FT (the transferee) in exchange for the Business C property (the exchanged property) and then transferred by FT in satisfaction of $30x of its obligations is disqualified stock, except to the extent limited by paragraph (c)(1)(ii)(B) of this section. Under paragraph (c)(1)(ii)(B)(1) of this section, the proportionate share of obligations associated with the exchanged property that is not assumed by FA must be determined. The proportionate share of obligations associated with the exchanged property is $12x, calculated as $20x (the obligations associated with the Business C property) multiplied by $42x/$70x (the fair market value of the exchanged property, $42x, relative to the fair market value of all the Business C property, $70x). The proportionate share of obligations associated with the exchanged property that is not assumed by FA is $0, calculated as the proportionate share of obligations associated with the exchanged property ($12x) less the obligations assumed by FA ($12x). Accordingly, as a result of the application of paragraph (c)(1)(ii)(B)(2) of this section, no FA stock is disqualified stock under paragraph (c)(1) of this section by reason of paragraph (c)(1)(ii) of this section. As a result, $130x of FA stock is included in the denominator of the ownership fraction, calculated as the $100x of FA stock received by Individual A plus the $30x of FA stock received by FT. Thus, the ownership fraction is $100x/$130x.

    (k) Applicability dates—(1) General rule. Except to the extent otherwise provided in paragraph (k) of this section, this section applies to domestic entity acquisitions completed on or after September 17, 2009. Paragraphs (i)(1) and (i)(2)(iv) of this section apply to domestic entity acquisitions completed on or after November 19, 2015. Paragraph (d)(1)(i) of this section applies to domestic entity acquisitions completed on or after April 4, 2016. Paragraphs (c)(1)(ii), (d)(1)(ii), (i)(2)(iii), and (i)(3) of this section apply to domestic entity acquisitions completed on or after January 13, 2017. For domestic entity acquisitions completed before November 19, 2015, see § 1.7874-4T(i)(6) and (i)(7)(iv) (the predecessors of paragraphs (i)(1) and (i)(2)(iv) of this section) as contained in 26 CFR part 1 revised as of April 1, 2016. For domestic entity acquisitions completed on or after September 22, 2014, and before April 4, 2016, see § 1.7874-4T(d)(1)(i) as contained in 26 CFR part 1 revised as of April 1, 2016. For domestic entity acquisitions completed before January 13, 2017, see § 1.7874-4T(c)(1)(ii), (d)(1)(ii), (i)(7)(iii) (the predecessor of paragraph (i)(2)(iii) of this section), and (i)(8) (the predecessor of paragraph (i)(3) of this section) as contained in 26 CFR part 1 revised as of April 1, 2016.

    (2) Transitional rules for domestic entity acquisitions completed on or after September 17, 2009, but before January 16, 2014. For domestic entity acquisitions completed on or after September 17, 2009, but before January 16, 2014, except as provided in paragraph (k)(3) of this section, this section shall be applied with the following modifications:

    (i) Nonqualified property does not include property described in paragraph (i)(2)(iii) of this section.

    (ii) A transfer is limited to an issuance of stock of the foreign acquiring corporation.

    (iii) The determination of whether stock of the foreign acquiring corporation is described in paragraph (c)(1) of this section is made without regard to paragraphs (c)(1)(ii), (c)(2), and (e) of this section.

    (iv) Paragraphs (d) and (h) of this section do not apply.

    (3) Election for domestic entity acquisitions completed on or after September 17, 2009, and before January 13, 2017. If, pursuant to paragraph (k)(1) or (2) of this section, a paragraph of this section would not otherwise apply to a domestic entity acquisition completed on or after September 17, 2009, and before January 13, 2017 (transition period), a taxpayer may elect to apply the paragraph if the taxpayer applies the paragraph consistently to all acquisitions completed during the transition period. The election is made by applying the paragraph to all such acquisitions on a timely filed original return (including extensions) or an amended return filed no later than six months after January 13, 2017. A separate statement or form evidencing the election need not be filed.

    1.7874-4T [Removed]
    Par. 3. Section 1.7874-4T is removed. Par. 4. Section 1.7874-5 is added to read as follows:
    § 1.7874-5 Effect of certain transfers of stock related to the acquisition.

    (a) General rule. Stock of a foreign acquiring corporation that is described in section 7874(a)(2)(B)(ii) shall not cease to be so described as a result of any subsequent transfer of the stock by the former domestic entity shareholder or former domestic entity partner that received such stock, even if the subsequent transfer is related to the domestic entity acquisition.

    (b) Example. The rule of this section is illustrated by the following example:

    Example.

    (i) Facts. Individual A wholly owns DT, a domestic corporation. FA, a newly formed foreign corporation, acquires all of the stock of DT from Individual A in exchange solely for 100 shares of FA stock. Pursuant to a binding commitment that was entered into in connection with FA's acquisition of the DT stock, Individual A sells 25 shares of FA stock to B, an unrelated person, in exchange for cash. For federal income tax purposes, the form of the steps of the transaction is respected.

    (ii) Analysis. Under § 1.7874-2(f)(1), the 100 shares of FA stock received by Individual A are stock of a foreign corporation (FA) that is held by reason of holding stock in a domestic corporation (DT). Accordingly, such stock is described in section 7874(a)(2)(B)(ii). Under paragraph (a) of this section, all 100 shares of FA stock retain their status as being described in section 7874(a)(2)(B)(ii), even though Individual A sells 25 of the 100 shares in connection with the acquisition described in section 7874(a)(2)(B)(i) pursuant to the binding commitment. Therefore, all 100 of the shares of FA stock are included in both the numerator and denominator of the ownership fraction.

    (c) Certain transfers involving expanded affiliated group members. For rules addressing whether certain stock is treated as held by members of the expanded affiliated group for purposes of applying section 7874(c)(2)(A) and § 1.7874-1, see § 1.7874-6T.

    (d) Definitions. The definitions provided in § 1.7874-12T apply for purposes of this section.

    (e) Applicability dates. This section applies to domestic entity acquisitions that are completed on or after January 16, 2014.

    § 1.7874-5T [Removed]
    Par. 5. Section 1.7874-5T is removed. Par. 6. Section 1.7874-7T is amended by revising paragraph (c)(2) and paragraph (h) to read as follows:
    § 1.7874-7T Disregard of certain stock attributable to passive assets (temporary).

    (c) * * *

    (2) After the domestic entity acquisition and all related transactions, each former domestic entity shareholder or former domestic entity partner, as applicable, owns (applying the attribution rules of section 318(a) with the modifications described in section 304(c)(3)(B)) less than five percent (by vote and value) of the stock of (or a partnership interest in) each member of the expanded affiliated group.

    (h) Applicability dates. Except as otherwise provided in this paragraph (h), this section applies to domestic entity acquisitions completed on or after September 22, 2014. Paragraph (c)(2) of this section applies to domestic entity acquisitions completed on or after January 13, 2017, and paragraphs (c)(1), (d), and (f)(2) and (4) of this section apply to domestic entity acquisitions completed on or after April 4, 2016. Paragraphs (f)(1)(i)(A)(2) and (f)(1)(i)(D) of this section, as well as the portion of paragraph (f)(1)(i)(C) of this section relating to property that gives rise to income described in section 1297(b)(2)(B), apply to domestic entity acquisitions completed on or after November 19, 2015. However, for domestic entity acquisitions completed on or after September 22, 2014, and before April 4, 2016, taxpayers may elect to apply paragraphs (c)(1), (d), and (f)(2) and (4) of this section. For domestic entity acquisitions completed on or after September 22, 2014, and before January 13, 2017, taxpayers may elect to apply paragraph (c)(2) of this section or § 1.7874-7T(c)(2) as contained in the Internal Revenue Bulletin (IRB) 2016-20 (see https://www.irs.gov/irb/2016-20_IRB/ar05.html). In addition, for domestic entity acquisitions completed on or after September 22, 2014, and before April 4, 2016, taxpayers may elect to apply paragraph (f)(2) of this section by substituting the term “expanded affiliated group” for the term “modified expanded affiliated group.” Furthermore, for domestic entity acquisitions completed on or after September 22, 2014, and before November 19, 2015, taxpayers may elect to apply paragraphs (f)(1)(i)(A)(2) and (f)(1)(i)(D) of this section, as well as the portion of paragraph (f)(1)(i)(C) of this section relating to property that gives rise to income described in section 1297(b)(2)(B).

    Par. 7. Section 1.7874-10T is amended by revising paragraph (d)(2) and paragraph (i) to read as follows:
    § 1.7874-10T Disregard of certain distributions (temporary).

    (d) * * *

    (2) After the domestic entity acquisition and all related transactions, each former domestic entity shareholder or former domestic entity partner, as applicable, owns (applying the attribution rules of section 318(a) with the modifications described in section 304(c)(3)(B)) less than five percent (by vote and value) of the stock of (or a partnership interest in) each member of the expanded affiliated group.

    (i) Applicability date. Except as otherwise provided in this paragraph (i), this section applies to domestic entity acquisitions completed on or after September 22, 2014. Paragraph (d)(2) of this section applies to domestic entity acquisitions completed on or after January 13, 2017, and paragraph (d)(1) of this section applies to domestic entity acquisitions completed on or after November 19, 2015. Paragraph (g) of this section applies to domestic entity acquisitions completed on or after April 4, 2016. However, for domestic entity acquisitions completed on or after September 22, 2014, and before November 19, 2015, taxpayers may elect to apply paragraph (d)(1) of this section. For domestic entity acquisitions completed on or after September 22, 2014, and before January 13, 2017, taxpayers may elect to apply paragraph (d)(2) of this section or § 1.7874-10T(d)(2) as contained in the Internal Revenue Bulletin (IRB) 2016-20 (see https://www.irs.gov/irb/2016-20_IRB/ar05.html). In addition, for domestic entity acquisitions completed on or after September 22, 2014, and before April 4, 2016, taxpayers may elect to determine NOCDs consistently on the basis of taxable years, in lieu of 12-month periods, in a manner consistent with the principles of this section. See paragraph (h)(5) of this section.

    Par. 8. Section 1.7874-12T is amended by revising the introductory text of paragraph (a) to read as follows:
    § 1.7874-12T Definitions (temporary).

    (a) Definitions. Except as otherwise provided, the following definitions apply for purposes of this section and §§ 1.367(b)-4T, 1.956-2T, 1.7701(l)-4T, 1.7874-2, 1.7874-2T, 1.7874-4, 1.7874-5, and 1.7874-6T through 1.7874-11T.

    §§ 1.7874-1, 1.7874-6T, 1.7874-7T, 1.7874-9T, and 1.7874-10T [Amended]
    Par. 9. For each provision listed in the table below, removing the language in the “Remove” column and adding in its place the language in the “Add” column: Provision Remove Add § 1.7874-1(c)(1), second sentence § 1.7874-4T § 1.7874-4 § 1.7874-1(c)(1), second sentence § 1.7874-4T(h) § 1.7874-4(h) § 1.7874-6T(g), Example 4(iii), first sentence § 1.7874-4T(i)(7) § 1.7874-4(i)(2) § 1.7874-7T(b)(1), first sentence § 1.7874-4T(b) § 1.7874-4(b) § 1.7874-7T(c)(1) § 1.7874-4T(b) § 1.7874-4(b) § 1.7874-7T(f)(1)(i) § 1.7874-4T(i)(7) § 1.7874-4(i)(2) § 1.7874-7T(f)(2), introductory text § 1.7874-4T(b) § 1.7874-4(b) § 1.7874-7T(f)(3)(i) § 1.7874-4T(b) § 1.7874-4(b) § 1.7874-7T(f)(3)(ii) § 1.7874-4T(b) § 1.7874-4(b) § 1.7874-7T(g), Example 1(i), penultimate sentence § 1.7874-4T(i)(7) § 1.7874-4(i)(2) § 1.7874-7T(g), Example 1(ii), first sentence § 1.7874-4T(c) § 1.7874-4(c) § 1.7874-7T(g), Example 1(ii), first sentence § 1.7874-4T(b) § 1.7874-4(b) § 1.7874-7T(g), Example 2(i), last sentence § 1.7874-4T(i)(7) § 1.7874-4(i)(2) § 1.7874-7T(g), Example 2(ii), first sentence §§ 1.7874-4T(b) and §§ 1.7874-4(b) and § 1.7874-7T(g), Example 3(i), penultimate sentence § 1.7874-4T(i)(7) § 1.7874-4(i)(2) § 1.7874-9T(e)(3), introductory text § 1.7874-4T § 1.7874-4 § 1.7874-10T(d)(1), introductory text §§ 1.7874-4T(b) and §§ 1.7874-4(b) and § 1.7874-10T(f)(3)(iii)(B) §§ 1.7874-4T and §§ 1.7874-4 and John Dalrymple, Deputy Commissioner for Services and Enforcement. Approved: December 6, 2016. Mark J. Mazur Assistant Secretary of the Treasury (Tax Policy).
    [FR Doc. 2017-00643 Filed 1-13-17; 4:15 pm] BILLING CODE 4830-01-P
    ENVIRONMENTAL PROTECTION AGENCY 40 CFR Part 63 [EPA-HQ-OAR-2010-0895; 9958-01-OAR] RIN 2060-AS90 National Emission Standards for Hazardous Air Pollutants: Ferroalloys Production AGENCY:

    Environmental Protection Agency (EPA).

    ACTION:

    Final rule; notice of final action on reconsideration.

    SUMMARY:

    This action sets forth the Environmental Protection Agency's (EPA's) final decision on the issues for which it announced reconsideration on July 12, 2016, that pertain to certain aspects of the June 30, 2015, final amendments for the Ferroalloys Production source category regulated under national emission standards for hazardous air pollutants (NESHAP). The EPA is amending the rule to allow existing facilities with positive pressure baghouses to perform visible emissions monitoring twice daily as an alternative to installing and operating bag leak detection systems (BLDS) to ensure the baghouses are operating properly. In addition, this final action explains that EPA is maintaining the requirement that facilities must use a digital camera opacity technique (DCOT) method to demonstrate compliance with opacity limits. However, this final action revises the rule such that it references the recently updated version of the DCOT method. In this action, the EPA also explains that no changes are being made regarding the rule provision that requires quarterly polycyclic aromatic hydrocarbons (PAH) emission testing for furnaces producing ferromanganese (FeMn) with an opportunity for facilities to request decreased compliance test frequency from their permitting authority after the first year. Furthermore, in this action, the EPA is denying the request for reconsideration of the PAH emission limits for both FeMn and silicomanganese (SiMn) production furnaces.

    DATES:

    This final action is effective on January 18, 2017. The incorporation by reference of certain publications listed in the rule is approved by the Director of the Federal Register as of January 18, 2017.

    ADDRESSES:

    The EPA has established a docket for this action under Docket ID No. EPA-HQ-OAR-2010-0895. All documents are listed on the http://www.regulations.gov Web site. Although listed in the index, some information is not publicly available, e.g., confidential business information or other information whose disclosure is restricted by statute. Certain other material, such as copyrighted material, is not placed on the Internet and will be publicly available only in hard copy form. Publicly available docket materials are available either electronically through http://www.regulations.gov or in hard copy at the EPA Docket Center (EPA/DC), Room 3334, EPA WJC West Building, 1301 Constitution Ave. NW., Washington, DC 20004. The Public Reading Room is open from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding legal holidays. The telephone number for the Public Reading Room is (202) 566-1744, and the telephone number for the Docket Center is (202) 566-1742.

    FOR FURTHER INFORMATION CONTACT:

    Phil Mulrine, Sector Policies and Programs Division (D243-02), Office of Air Quality Planning and Standards, Environmental Protection Agency, Research Triangle Park, North Carolina 27711; telephone number: (919) 541-5289; fax number: (919) 541-3207; email address: [email protected]

    SUPPLEMENTARY INFORMATION:

    Organization of this Document. The following outline is provided to aid in locating information in this preamble.

    I. General Information A. Does this action apply to me? B. How do I obtain a copy of this document and other related information? C. Judicial Review and Administrative Reconsideration II. Background Information III. Summary of Final Action on Issues Reconsidered A. Alternative Monitoring for Existing Positive Pressure Baghouses B. DCOT Compliance Demonstration and Revised DCOT Test Method C. Quarterly PAH Testing for Furnaces Producing FeMn IV. Denial of Petition for Reconsideration of FeMn and SiMn PAH Emission Limits V. Impacts Associated With This Final Rule A. What are the air impacts? B. What are the energy impacts? C. What are the compliance costs? D. What are the economic and employment impacts? E. What are the benefits of the final standards? VI. Statutory and Executive Order Reviews A. Executive Order 12866: Regulatory Planning and Review and Executive Order 13563: Improving Regulation and Regulatory Review B. Paperwork Reduction Act (PRA) C. Regulatory Flexibility Act (RFA) D. Unfunded Mandates Reform Act (UMRA) E. Executive Order 13132: Federalism F. Executive Order 13175: Consultation and Coordination With Indian Tribal Governments G. Executive Order 13045: Protection of Children From Environmental Health Risks and Safety Risks H. Executive Order 13211: Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use I. National Technology Transfer and Advancement Act (NTTAA) and 1 CFR Part 51 J. Executive Order 12898: Federal Actions To Address Environmental Justice in Minority Populations and Low-Income Populations K. Congressional Review Act (CRA) I. General Information A. Does this action apply to me?

    Regulated Entities. Categories and entities potentially regulated by this action are shown in Table 1 of this preamble.

    Table 1—NESHAP and Industrial Source Categories Affected By This Final Action NESHAP and source
  • category
  • NAICS a code
    Ferroalloys Production 331112 a North American Industry Classification System.

    Table 1 of this preamble is not intended to be exhaustive, but rather to provide a guide for readers regarding entities likely to be affected by the final action for the source category listed. To determine whether your facility is affected, you should examine the applicability criteria in 40 CFR part 63, subpart XXX (National Emission Standards for Hazardous Air Pollutants: Ferroalloys Production). If you have any questions regarding the applicability of this final action to a particular entity, consult either the air permitting authority for the entity or your EPA Regional representative as listed in 40 CFR 63.13 (General Provisions).

    B. How do I obtain a copy of this document and other related information?

    The docket number for this final action regarding the Ferroalloys Production NESHAP (40 CFR part 63, subpart XXX) is Docket ID No. EPA-HQ-OAR-2010-0895.

    In addition to being available in the docket, an electronic copy of this document will also be available on the World Wide Web (WWW). Following signature, a copy of this document will be posted at https://www.epa.gov/stationary-sources-air-pollution/ferromanganese-and-silicomanganese-production-national-emission.

    C. Judicial Review and Administrative Reconsideration

    Under Clean Air Act (CAA) section 307(b)(1), judicial review of this final action is available only by filing a petition for review in the United States Court of Appeals for the District of Columbia Circuit by March 20, 2017. Under CAA section 307(b)(2), the requirements established by this final rule may not be challenged separately in any civil or criminal proceedings brought by the EPA to enforce the requirements.

    Section 307(d)(7)(B) of the CAA further provides that “[o]nly an objection to a rule or procedure which was raised with reasonable specificity during the period for public comment (including any public hearing) may be raised during judicial review.” This section also provides a mechanism for the EPA to reconsider the rule “[i]f the person raising an objection can demonstrate to the Administrator that it was impracticable to raise such objection within [the period for public comment] or if the grounds for such objection arose after the period for public comment (but within the time specified for judicial review) and if such objection is of central relevance to the outcome of the rule.” Any person seeking to make such a demonstration should submit a Petition for Reconsideration to the Office of the Administrator, U.S. EPA, Room 3000, EPA WJC Building, 1200 Pennsylvania Ave. NW., Washington, DC 20460, with a copy to both the person(s) listed in the preceding FOR FURTHER INFORMATION CONTACT section, and the Associate General Counsel for the Air and Radiation Law Office, Office of General Counsel (Mail Code 2344A), U.S. EPA, 1200 Pennsylvania Ave. NW., Washington, DC 20460.

    II. Background Information

    The EPA published a final residual risk and technology review (RTR) rule for the Ferroalloys Production source category in the Federal Register on June 30, 2015 (80 FR 37366), which included, among other things, the following:

    • Revisions to the emission limits for particulate matter (PM) from stacks for the electric arc furnaces, metal oxygen refining (MOR) processes, and crushing and screening operations to minimize PM emissions from these units;

    • Emission limits for four previously unregulated hazardous air pollutants (HAP): Formaldehyde, hydrogen chloride, mercury, and PAH;

    • Requirements to capture process fugitive emissions using effective, enhanced local capture, and duct the captured emissions to control devices;

    • An average opacity limit of 8 percent during a full furnace cycle and a maximum opacity limit of 20 percent for any two consecutive 6-minute periods to ensure effective capture and control of process fugitive emissions;

    • A requirement to conduct opacity observations using the DCOT at least once per week for a full furnace cycle for each operating furnace and each MOR operation for at least 26 weeks. After 26 weeks, if all tests are compliant, facilities can decrease to monthly opacity observations;

    • A requirement to use BLDS to monitor PM emissions from all furnace baghouses; and

    • A requirement to conduct periodic performance testing to demonstrate compliance with the stack emission limits for the various HAP, including a requirement to conduct PAH performance testing every 3 months for furnaces producing FeMn with the opportunity to reduce to annual testing after the first year.

    Following promulgation of the final rule, the EPA received two petitions for reconsideration of several provisions of the NESHAP pursuant to CAA section 307(d)(7)(B). The EPA received a petition dated August 25, 2015, from Eramet Marietta Inc. (Eramet) and a petition dated August 28, 2015, from Felman Production LLC (Felman). In the petition submitted by Eramet, the company requested the EPA reconsider the following issues: (1) The requirement to conduct PAH performance testing every 3 months for furnaces producing FeMn; (2) the requirement to demonstrate compliance weekly with shop building opacity limits using the American Society for Testing and Materials (ASTM) DCOT test method; and (3) the PAH emission limits for existing furnaces producing FeMn and SiMn. In addition, Eramet requested a stay of 90 days from the effective date of the final amendments pending completion of the reconsideration proceeding. In the petition submitted by Felman, the company stated that it supported and adopted the petition submitted by Eramet and requested reconsideration of the requirement to use BLDS to monitor emissions from positive pressure baghouses. Copies of the petitions are provided in the docket (see EPA Docket ID No. EPA-HQ-OAR-2010-0895).

    On November 5, 2015, the EPA sent letters to the petitioners granting reconsideration of two issues: The PAH testing compliance frequency issue raised by Eramet and the use of BLDS on positive pressure baghouses raised by Felman. In those letters, the EPA said it was still reviewing the other issues and intended to take final action on those when it took final action on BLDS and PAH testing frequency. The agency also stated in the letters that a proposed Federal Register notice would be issued initiating the reconsideration process for the issues that the EPA is granting reconsideration. The EPA published the proposed notice of reconsideration in the Federal Register on July 12, 2016 (81 FR 45089).

    In addition to the two requirements mentioned above (i.e., PAH testing frequency for furnaces producing FeMn and the use of BLDS to monitor PM emissions from positive pressure baghouses), the EPA also granted reconsideration of a third issue in the reconsideration proposal notice (81 FR 45089): the requirement to use DCOT in accordance with ASTM D7520-13 to demonstrate compliance with shop building opacity standards. However, for each of these three requirements, after further analyses, evaluation, and consideration, we explained in the reconsideration proposal notice that we continued to believe these requirements were appropriate. Therefore, we did not propose any changes to these requirements. Instead, we provided further discussion and explanation as to why we believed it was appropriate to maintain these requirements in the rule, provided additional technical information to the record, and requested comment on the three requirements for which the EPA granted reconsideration.

    III. Summary of Final Action on Issues Reconsidered

    After reviewing and considering all the public comments received in response to the reconsideration proposal, the EPA has decided to amend the baghouse monitoring requirements to allow existing facilities with positive pressure baghouses to perform visible emissions monitoring twice daily using Method 22 as an alternative to using BLDS. In addition, although EPA is maintaining the requirement to use DCOT to demonstrate compliance with the opacity standards, this final action amends the references to the ASTM DCOT test method in the opacity monitoring requirements to the recently updated version of the method (ASTM D7520-16). The EPA is also maintaining the quarterly PAH emission testing requirement for furnaces producing FeMn with an opportunity for facilities to request decreased compliance test frequency from their permitting authority after the first year. Each of these issues is discussed in more detail in this section of the preamble.

    A. Alternative Monitoring for Existing Positive Pressure Baghouses

    In their petition for reconsideration, one petitioner (Felman) objected to the EPA's requirement to use BLDS for positive pressure baghouses. The petitioner pointed out that the EPA's own guidance 1 indicates that BLDS are not appropriate for use on a positive pressure baghouse, given the different configurations of these types of units. The petitioner commented that although the EPA stated that it had knowledge of BLDS in operation on positive pressure baghouses, the EPA did not provide any specific examples. In addition, the petitioner claimed the EPA had not evaluated the costs associated with the application of BLDS on positive pressure baghouses but instead simply estimated the cost to be comparable with BLDS for negative pressure baghouses.

    1 EPA Office of Air Quality Planning and Standards (OAQPS), Fabric Filter Bag Leak Detection Guidance, EPA-454/R-98-015, September 1997.

    In their comments on the reconsideration proposal (81 FR 45089), the petitioner stated that the EPA's supporting documents did not provide any examples of BLDS in operation on positive pressure baghouses comparable to those used at the petitioner's facility, which are low airflow and use natural-draft openings instead of stacks. The petitioner provided cost quotes from vendors of $1.1 million to install the BLDS and make the necessary structural improvements (including a catwalk system) to support the operation of the BLDS.

    In light of the petitioner's assertions, we re-evaluated the BLDS requirement for positive pressure baghouses. While we maintain that BLDS can be installed and operated on positive pressure baghouses, we agree that, due to their particular circumstances, it would be difficult to retrofit this facility based on the specific design of their positive pressure baghouses. Furthermore, we agree that installing BLDS and the associated infrastructure would not be cost effective. In our analysis for the proposal, we estimated the capital cost of installing BLDS on the three positive pressure baghouses to be $269,100, with annualized costs of $219,000. However, we did not include any additional costs for structural improvements to support BLDS on these baghouses. The petitioner provided a cost estimate of $870,000 for structural improvements to install BLDS on their three baghouses. Given this additional information, we now estimate the capital costs would be about $1.1 million, and annualized costs would be $330,000. Because of the structural modifications needed to install BLDS, the higher annualized costs and the potential technical issues on this particular control configuration at Felman, it would be unreasonable to require BLDS as the sole method for monitoring positive pressure baghouses in this rule. Nevertheless, we believe the baghouses need to be monitored on a regular basis to ensure they are operating as intended and that there are no tears or holes in the bags. Therefore, we have revised the rule to allow for an alternative monitoring method to the BLDS requirement for positive pressure baghouses used to control emissions from an electric arc furnace. We are allowing twice daily visual monitoring of the outlet of each furnace baghouse using Method 22 for evidence of any visible emissions indicating abnormal operations as an alternative to BLDS. We believe this revision will reduce the cost burden associated with monitoring the positive pressure baghouses used to control emissions from the furnaces and avoid possible technical issues, but still provide assurance that the baghouses are functioning correctly and controlling metal HAP emissions from the furnaces. More details are available in the Summary of Public Comments and Responses on Reconsideration of the Ferroalloys Production NESHAP Final Rule in the docket for this rulemaking.

    B. DCOT Compliance Demonstration and Revised DCOT Test Method

    In the June 30, 2015, final rule (80 FR 37366), we finalized opacity standards for process fugitive emissions from the furnace buildings and required the use of DCOT and the ASTM D7520-13 test method to demonstrate compliance with the opacity standards. In their petitions for reconsideration, Eramet and Felman objected to the use of DCOT in lieu of EPA Method 9 and stated that the EPA did not propose DCOT as the only method for demonstrating compliance with the opacity standards. The petitioners argued that DCOT was an unproven substitute for EPA Method 9 to measure opacity from emission sources and that variability in plume location and orientation at the ferroalloy production buildings would make DCOT infeasible at their facilities. The petitioners also noted that the ASTM test method only applies to stack openings of 7 feet in diameter or less and that DCOT is only provided by one vendor.

    In their comments on the reconsideration proposal (81 FR 45089), several commenters objected to the use of DCOT as the sole method for opacity compliance and stated that the EPA should allow the option of using EPA Method 9. The commenters argue that DCOT is limited to stationary point sources and not fugitive emissions, and they pointed out that the supporting data for DCOT are all from studies performed on stationary point sources and not long, open vent sources such as those at the Eramet facility. A few commenters had concerns with the timeliness of the opacity determinations and the accuracy of the results. The commenters were also concerned that there is currently only one vendor of DCOT and that the EPA should not choose vendors for an entire industry.

    On the other hand, a few commenters were supportive of the use of the DCOT. In the opinion of one commenter, DCOT is comparable to Method 9 observations, on all shapes, sizes, types of sources, and that DCOT is configurable with all types of cameras to tailor the implementation at the shop/building level to support cost-effective and efficient observations.

    Another commenter explained that strong monitoring, testing and compliance measures are an essential part of the emission standards, and that the use of these measures also increases the incentive for sources to comply with the standards. The commenter states that EPA's requirement for DCOT is consistent with and an important way to implement EPA's “next generation compliance.” The commenter notes that the EPA's next generation compliance policy includes, among other things, the following: (1) Use and promotion of advanced emissions/pollutant detection technology so that regulated entities, the government, and the public can more easily see pollutant discharges, environmental conditions, and noncompliance; (2) expanded transparency by making information more accessible to the public; and (3) development and use of innovative enforcement approaches (e.g., data analytics and targeting) to achieve more widespread compliance.

    Other comments and responses on DCOT can be found in the Summary of Public Comments and Responses on Reconsideration of the Ferroalloys Production NESHAP Final Rule in the docket for this rulemaking.

    Based on the information provided by the petitioners and the commenters, we re-evaluated the DCOT opacity monitoring requirement and determined that DCOT is still an appropriate method for determining opacity from the shop buildings for this source category.

    As explained in the initial proposal (76 FR 72508), supplemental proposal (79 FR 60238), and in the 2015 final rule (80 FR 37366), process fugitive emissions from the shop buildings are a significant source of risk from the production of ferroalloys. In each of these three actions, we concluded risks were unacceptable, largely driven by process fugitive emissions of air toxics metals.

    To reduce risks to acceptable levels and protect the public with an ample margin of safety, in the initial proposal, we proposed facilities would need to install and operate full building enclosures to capture and control fugitive emissions. In response to the initial proposal, industry commented that full building enclosure requirement would be very costly and difficult to implement, and suggested an alternative approach using localized capture equipment to reduce fugitive emissions from the shop buildings. Modeling of the localized capture approach indicated that similar reductions in risk could be achieved, making this option more feasible and at significantly lower cost than full building enclosure. Based on these modeling results and consideration of costs and feasibility, we proposed the localized capture approach to significantly reduce fugitive emissions from the shop buildings in the supplemental proposal (79 FR 60238), and finalized this approach in the 2015 final rule (80 FR 37366). Specifically, the final rule requires facilities to install, maintain and operate a system designed to effectively capture and control process fugitive emissions. Furthermore, for this rule, opacity standards are the main compliance approach to ensure the process fugitive emissions are effectively captured and controlled on a continuous basis, and that the public is protected with ample margin of safety. Since process fugitive emissions were the main contributor to the unacceptable risks at baseline, and since opacity is the main tool to ensure these process fugitive emissions are effectively captured and controlled and that the public is protected with an ample margin of safety, we finalized requirements for the use of DCOT to demonstrate compliance with the opacity standard in the June 30, 2015, final rule (80 FR 37366).

    The DCOT provides a photographic record of each of the opacity readings. In addition, the photographs are evaluated by a third party and the opacity is determined by the degree the plume reduces the transmitted light and obscures the background. While we believe, based on validation studies, that EPA Method 9 and DCOT provide comparable opacity results, the DCOT provides better documentation, including a permanent re-analyzable photographic record of the opacity determinations, which we believe will be beneficial to both the industry and the public. There is an advantage of having better documentation in this specific case where fugitive emissions are driving the risk from the Ferroalloys Production source category. In addition, we disagree with the commenters assertion that this methodology will not work with this source category. Fugitive emissions from this source category are emitted through roof vents at the top of the furnace buildings. Currently, the facilities in this source category use EPA Method 9 to measure opacity from the roof vents. The EPA Method 9 opacity method has procedures and requirements for determining opacity from roof vents and rectangular outlets, which are the same procedures and requirements used in the DCOT test method (ASTM D7520-16). Because the same procedures and requirements are used to measure opacity from roof vents from both these methods, we believe that opacity can be measured from this source category using the DCOT test method. Therefore, we are maintaining the requirement in the final rule that facilities in this source category must use the ASTM DCOT methodology to demonstrate compliance with the opacity standards and we are denying the petitioners' request to allow EPA Method 9 as an alternative method for determining compliance. However, we are revising the final rule language to replace the ASTM D7520-13 Standard Test Method for Determining the Opacity of a Plume in the Outdoor Ambient Atmosphere with the latest revision of the method, ASTM D7520-16. The ASTM D7520-13 method was revised by removing the stack diameter scope limitation along with editorial corrections in April 2016. We believe that this change will address the commenter's concerns specifically with the 7 foot stack diameter scope limitation in the ASTM D7520-13 method because the updated ASTM D7520-16 method has removed that limitation. However, fugitive emissions from this source category are not emitted from stacks with a diameter greater than 7 feet, but from roof vents. Therefore, we do not believe that the 7-foot diameter limitation prevented us from requiring the use of the ASTM method for measuring opacity using DCOT. As stated earlier in this section, the ASTM D7520-16 method provides the same approach for determining opacity from nontraditional point sources such as roof vents as would EPA Method 9.

    C. Quarterly PAH Testing for Furnaces Producing FeMn

    In the reconsideration proposal (81 FR 45089), the EPA also reconsidered the requirement for furnaces producing FeMn to conduct PAH performance testing every 3 months with an option following the first year, to do annual performance testing. The petitioner stated that the PAH testing frequency for furnaces producing FeMn in the supplemental proposal (79 FR 60238) was every 5 years and that the quarterly testing requirement was added in the final rule. The petitioner also noted that the change in PAH testing frequency represents an increase in compliance costs of $75,000 in the first year of implementation and an increase of $475,000 in compliance costs over the first 5 years (assuming the facility is not granted reduced frequency of testing after the first year), in comparison to the supplemental proposal PAH testing requirement. The petitioner also argued that if the EPA believes that the PAH emissions dataset is inadequate to establish a representative and reliable MACT floor, the proper solution is to collect additional data pursuant to CAA section 114(a), rather than collecting data through compliance tests. We granted reconsideration on this issue to provide an opportunity for public comment on the PAH testing frequency for furnaces producing FeMn. A summary of the comments received on this issue and the responses are provided in the Summary of Public Comments and Responses on Reconsideration of the Ferroalloys Production NESHAP Final Rule available in the docket for this rulemaking.

    As we stated in the reconsideration proposal (81 FR 45089), we received additional PAH test data just 3 weeks prior to the signature of the supplemental proposal (which we were not able to include in our analyses in time for signature of the supplemental proposal) and yet more data during the comment period for the supplemental proposal. This new data showed PAH emissions from furnaces producing FeMn were over 12 times higher in concentration than previous test reports submitted by the petitioner. As we explained in the reconsideration proposal, this data thus demonstrates that PAH emissions from furnaces producing FeMn are highly variable. Moreover, PAH emissions are a major source of cancer risks from these furnaces. In the risk assessment performed for the supplemental proposal (79 FR 60238), we estimated the maximum lifetime individual cancer risk posed by actual emissions from the ferroalloys production facilities was 20-in-1 million, with PAH contributing 49 percent of the cancer risk.

    Testing frequency is part of verification that the limit is met. Stack testing is an important tool used to determine a facility's compliance with both initial and on-going compliance with the CAA requirements. A highly variable set of measurements on which the limit is based leads to us to want more certainty about the source's compliance with the limit, and such certainty can be provided by more frequent testing. Because of the variability of the PAH emissions during FeMn production, we believe that the quarterly testing is appropriate for ensuring compliance with the emission limit and protecting human health.

    Furthermore, as we explained in the final rule and the reconsideration proposal, we believe the quarterly testing, along with the collection of process information that a facility may choose to collect voluntarily, could provide data that would help facilities learn what factors or conditions are contributing to the quantity and variation of PAH emissions. For example, we believe the collection and analyses of information about the amounts and types of input materials, types of electrodes used, electrode consumption rates, furnace temperature, and other furnace, process, or product information may help facilities understand what factors are associated with the higher PAH emissions and could provide insight regarding how to limit these emissions. Furthermore, as we described in the preamble of the final rule (80 FR 37383), if a facility decides to apply for a decreased frequency of performance testing from their permit authority, the type of information described above could be helpful input for such an application. For these reasons, the quarterly performance testing with an opportunity after the first year for facilities to request from their permitting authority a decreased frequency to annual performance testing is appropriate for ensuring compliance with the PAH emission limit and protecting human health. The option for decreased performance testing also provides an incentive for the facilities to achieve compliance with the PAH standards. Therefore, we are not making any changes to the PAH testing frequency for furnaces producing FeMn.

    IV. Denial of Petition for Reconsideration of FeMn and SiMn PAH Emission Limits

    In the final rule, the EPA set PAH limits of 0.130 milligrams per dry standard cubic meter (mg/dscm) for furnaces producing SiMn and 12 mg/dscm for furnaces producing FeMn. Both petitioners requested reconsideration of these emission limits and asserted that they did not have an opportunity to comment on the limits. The petitioners were concerned that achieving these PAH emission limits may require additional controls. The petitioners also argued with how the PAH emission limits were calculated. The petitioners claimed that the EPA used a normal data distribution to determine the upper prediction limit (UPL), but the data sets have lognormal distributions. The petitioners further claim that had the EPA used a lognormal distribution, it would have resulted in higher emission limits. In addition, one petitioner argued that EPA should not have excluded a 3-hour single test run.

    As stated in the preamble for the final rule (80 FR 37366), the PAH emission limits were re-evaluated in the final rule to include PAH test data that were received just prior to publication of the supplemental proposal and during the comment period for the supplemental proposal. The expanded PAH test data set was analyzed using the same statistical procedures from the EPA's UPL memorandum used to calculate the PAH emissions limits in the supplemental proposal. Using the statistical procedures from this memorandum (which describes the EPA's established procedures for calculating MACT floor limits), the PAH data sets were determined to have a normal distribution. Therefore, the UPL equation for calculating the 99-percent UPL was used to determine the PAH emission limit. The EPA had already provided adequate notice of the analyses and application of the UPL in the memorandum in the supplemental proposal (79 FR 60238). With regard to the 3-hour single test run the petitioner referred to in their reconsideration petition, we determined there were quality assurance and control issues with the laboratory analysis, and therefore did not include these data in the UPL analysis. The results of every valid 3-run test provided by the industry were below the final PAH limits for both FeMn and SiMn production. Therefore, we believe both facilities should be able to comply with these limits without the need for additional add-on controls. Furthermore, EPA calculated the limits using well established EPA policy and procedures. At the time the EPA published the supplemental proposal (79 FR 60238, October 6, 2014), the EPA made the existing PAH emissions data and the methodologies used to calculate the limits available for public comment. The limits in the final rule were a logical outgrowth of the limits in the supplemental proposal as EPA made no changes to the methodology used to calculate the limits and simply recalculated the limits after the addition of the newly available data with the previously received data. Therefore, we have decided to deny reconsideration of the PAH emission limits for both FeMn and SiMn production furnaces. More details are available in the Summary of Public Comments and Responses on Reconsideration of the Ferroalloys Production NESHAP Final Rule in the docket for this rulemaking.

    V. Impacts Associated With This Final Rule

    We project that this rule will result in no significant changes in costs, emission reductions or benefits. Even though there are changes to the costs, these changes are small relative to the overall costs and benefits of the 2015 final rule. However, the costs for monitoring baghouses will be lower than the costs in the final rule due to the additional option provided in this action to use visible emissions monitoring to monitor positive pressure baghouses as an alternative to installing and operating a BLDS.

    A. What are the air impacts?

    Even though we have allowed for an alternative monitoring method to the BLDS requirement for positive pressure baghouses, we believe that this change will result in no additional emissions from the baghouses used to control emissions from the furnace. Accordingly, we believe that the final rule will not result in significant changes in emissions of any of the regulated pollutants.

    B. What are the energy impacts?

    The changes to the final rule are anticipated to have minimal effect on the supply, distribution or use of energy. As previously stated, we are allowing for an alternative monitoring method to the BLDS requirement for positive pressure baghouses controlling emissions from the furnace. By allowing this alternative, we anticipate slightly lower energy usage by the one facility that uses this type of baghouse.

    C. What are the compliance costs?

    We believe there will be no significant change in compliance costs as a result of the changes to the final rule. However, as mentioned above, we anticipate that one facility will have moderately lower compliance costs due to allowing an alternative monitoring method for positive pressure baghouses. We anticipate that the alternative monitoring method will have an annual cost of $38,000, whereas the annual operating cost for a BLDS was estimated to be $219,000. Overall, we anticipate the Ferroalloys Production source category will not incur significant compliance costs or savings as a result of the changes to the final rule.

    D. What are the economic and employment impacts?

    We believe that there will be a slight economic benefit to one of the facilities due to allowing an alternative monitoring method for positive pressure baghouses. In the reconsideration proposal, we estimated the capital cost for the installation of BLDS for each facility would be $269,100 and annualized costs would be $219,000. For this final action, based on information received from the company, we now estimate capital costs for the BLDS for Felman would be $1.1 million with annualized costs of $330,000. We believe allowing an alternative monitoring method for positive pressure baghouses in this final action will reduce the cost of complying with the final rule for this facility. However, we believe this final action will not have any impacts on the price of electricity, employment or labor markets or the U.S. economy.

    E. What are the benefits of the final standards?

    We do not anticipate any emission changes, and therefore there are no direct monetized benefits or disbenefits associated with the changes to this final rule.

    VI. Statutory and Executive Order Reviews

    Additional information about these statutes and Executive Orders can be found at http://www2.epa.gov/laws-regulations/laws-and-executive-orders.

    A. Executive Order 12866: Regulatory Planning and Review and Executive Order 13563: Improving Regulation and Regulatory Review

    This action is not a significant regulatory action and was, therefore, not submitted to the Office of Management and Budget (OMB) for review.

    B. Paperwork Reduction Act (PRA)

    This action does not impose any new information collection burden under the PRA. OMB has previously approved the information collection activities contained in the existing regulations and has assigned OMB control number 2060-0676. This action adds an alternative monitoring requirement and a revised test method, but does not make revisions to the reporting requirements in the final rule. Therefore, this action does not change the information collection requirements previously finalized and, as a result, does not impose any additional burden on industry.

    C. Regulatory Flexibility Act (RFA)

    I certify that this action will not have a significant economic impact on a substantial number of small entities under the RFA. This final action will not impose any requirements on small entities. The agency has determined that neither of the companies affected by this action is considered to be a small entity.

    D. Unfunded Mandates Reform Act (UMRA)

    This action does not contain an unfunded mandate of $100 million or more as described in UMRA, 2 U.S.C. 1531-1538, and does not significantly or uniquely affect small governments. The action imposes no enforceable duty on any state, local, or tribal governments or the private sector.

    E. Executive Order 13132: Federalism

    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.

    F. Executive Order 13175: Consultation and Coordination With Indian Tribal Governments

    This action does not have tribal implications as specified in Executive Order 13175. There are no ferroalloys production facilities that are owned or operated by tribal governments. Thus, Executive Order 13175 does not apply to this action.

    G. Executive Order 13045: Protection of Children From Environmental Health Risks and Safety Risks

    This action is not subject to Executive Order 13045 because it is not economically significant as defined in Executive Order 12866, and because the EPA does not believe the environmental health or safety risks addressed by this action present a disproportionate risk to children. The health risk assessments completed for the final rule are presented in the Residual Risk Assessment for the Ferroalloys Source Category in Support of the 2015 Final Rule document, which is available in the docket for this action (EPA-HQ-OAR-2010-0895-0281), and are discussed in Section V.G of the preamble for the final rule (80 FR 37366).

    H. Executive Order 13211: Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use

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

    I. National Technology Transfer and Advancement Act (NTTAA) and 1 CFR Part 51

    This action involves technical standards. The EPA decided to use ASTM D7520-16, “Standard Test Method for Determining the Opacity of a Plume in the Outdoor Ambient Atmosphere,” for measuring opacity from the shop buildings. The ASTM D7520-16 is a method to assess opacity whereby a Digital Still Camera is used to capture a set of digital images of a plume against a contrasting background. Each image is analyzed with software that determines plume opacity by comparing a user defined portion of the plume image where opacity is being measured in comparison to the background providing the contrasting values. The Analysis Software is used to average the opacities from the series of digital images taken of the plume over a fixed period of time. The software is also used to archive the image set utilized for each opacity determination including the portion of each image selected by the operator. Each DCOT vendor shall provide training for operators of their DCOT system. The training shall include the content of the “Principles of Visual Emissions Measurements and Procedures to Evaluate those Emissions Using the Digital Camera Optical Technique (DCOT)” and a description of how to operate that specific DCOT system that passed smoke school. This standard is an acceptable alternative to EPA Method 9 and is available from the American Society for Testing and Materials, 100 Barr Harbor Drive, Post Office Box C700, West Conshohocken, PA 19428-2959. See http://www.astm.org/.

    J. Executive Order 12898: Federal Actions To Address Environmental Justice in Minority Populations and Low-Income Populations

    The EPA believes that this action does not have disproportionately high and adverse human health or environmental effects on minority populations, low-income populations and/or indigenous peoples, as specified in Executive Order 12898 (59 FR 7629, February 16, 1994). This action does not affect the level of protection provided to human health or the environment because it only provides an alternative monitoring provision and revised test method that will not affect the emission standards that were finalized on June 30, 2015.

    K. Congressional Review Act (CRA)

    This action is subject to the CRA, and the 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).

    List of Subjects in 40 CFR Part 63

    Environmental protection, Administrative practice and procedures, Air pollution control, Hazardous substances, Incorporation by reference, Intergovernmental relations, Reporting and recordkeeping requirements.

    Dated: December 28, 2016. Gina McCarthy, Administrator.

    For the reasons stated in the preamble, the Environmental Protection Agency is amending title 40, chapter I, part 63 of the Code of Federal Regulations (CFR) as follows:

    PART 63—NATIONAL EMISSION STANDARDS FOR HAZARDOUS AIR POLLUTANTS FOR SOURCE CATEGORIES 1. The authority citation for part 63 continues to read as follows: Authority:

    42 U.S.C. 7401 et seq.

    Subpart A—General Provisions 2. Section 63.14 is amended by: a. Redesignating paragraphs (h)(96) through (h)(104) as (h)(97) through (h)(105), respectively; and b. Adding new paragraph (h)(96).
    § 63.14 Incorporations by reference.

    (h) * * *

    (96) ASTM D7520-16, Standard Test Method for Determining the Opacity of a Plume in the Outdoor Ambient Atmosphere, approved April 1, 2016, IBR approved for §§ 63.1625(b).

    Subpart XXX—National Emission Standards for Hazardous Air Pollutants for Ferroalloys Production: Ferromanganese and Silicomanganese
    3. Section 63.1625 is amended by: a. Revising paragraphs (b)(9) introductory text, (b)(9)(i), (b)(9)(ii), and (b)(9)(v); and b. Revising paragraphs (d)(1)(ii) through (iv).

    The revisions read as follows:

    § 63.1625 What are the performance test and compliance requirements for new, reconstructed, and existing facilities?

    (b) * * *

    (9) ASTM D7520-16 to determine opacity (incorporated by reference, see § 63.14) with the following conditions:

    (i) During the digital camera opacity technique (DCOT) certification procedure outlined in Section 9.2 of ASTM D7520-16, you or the DCOT vendor must present the plumes in front of various backgrounds of color and contrast representing conditions anticipated during field use such as blue sky, trees and mixed backgrounds (clouds and/or a sparse tree stand).

    (ii) You must have standard operating procedures in place including daily or other frequency quality checks to ensure the equipment is within manufacturing specifications as outlined in Section 8.1 of ASTM D7520-16.

    (v) Use of this method does not provide or imply a certification or validation of any vendor's hardware or software. The onus to maintain and verify the certification and/or training of the DCOT camera, software and operator in accordance with ASTM D7520-16 and these requirements is on the facility, DCOT operator and DCOT vendor.

    (d) * * *

    (1) * * *

    (ii) You must conduct the opacity observations according to ASTM D7520-16 (incorporated by reference, see § 63.14), for a period that includes at least one complete furnace process cycle for each furnace.

    (iii) For a shop building that contains more than one furnace, you must conduct the opacity observations according to ASTM D7520-16 for a period that includes one tapping period from each furnace located in the shop building.

    (iv) You must conduct the opacity observations according to ASTM D7520-16 for a 1-hour period that includes at least one pouring for each MOR located in the shop building.

    4. Section 63.1626 is amended by: a. Revising paragraphs (c) introductory text and (c)(1); b. Redesignating paragraphs (d) through (o) as paragraphs (e) through (p), respectively; c. Adding new paragraph (d); d. Republishing the heading of redesignated paragraph (e), and revising paragraphs (e)(1), (e)(3) introductory text, (e)(4) introductory text, and (e)(4)(ii); e. Revising redesignated paragraph (h) introductory text; f. Revising redesignated paragraph (j) introductory text; g. Revising redesignated paragraph (k) introductory text; and h. Revising redesignated paragraph (p) introductory text.

    The revisions and additions read as follows:

    § 63.1626 What monitoring requirements must I meet?

    (c) For an existing positive pressure baghouse used to control emissions from an electric arc furnace that is not equipped with a bag leak detection system, you must specify in the standard operating procedures manual for inspections and routine maintenance, at a minimum, the requirements of paragraphs (c)(1) and (2) of this section.

    (1) You must visually inspect the outlet of each baghouse using Method 22 on a twice daily basis (at least 4 hours apart) for evidence of any visible emissions indicating abnormal operations and must initiate corrective actions within 1 hour of any visible emissions that indicates abnormal operation. Corrective actions shall include, at a minimum, isolating, shutting down and conducting an internal inspection of the baghouse compartment that is the source of the visible emissions that indicate abnormal operations.

    (d) For all other non-furnace baghouses that are not equipped with bag leak detection or CEMS, the procedures that you specify in the standard operating procedures manual for inspections and routine maintenance must, at a minimum, include the requirements of paragraphs (d)(1) and (2) of this section.

    (1) You must observe the baghouse outlet on a daily basis for the presence of any visible emissions.

    (2) In addition to the daily visible emissions observation, you must conduct the following activities:

    (i) Weekly confirmation that dust is being removed from hoppers through visual inspection, or equivalent means of ensuring the proper functioning of removal mechanisms.

    (ii) Daily check of compressed air supply for pulse-jet baghouses.

    (iii) An appropriate methodology for monitoring cleaning cycles to ensure proper operation.

    (iv) Monthly check of bag cleaning mechanisms for proper functioning through visual inspection or equivalent means.

    (v) Quarterly visual check of bag tension on reverse air and shaker-type baghouses to ensure that the bags are not kinked (kneed or bent) or lying on their sides. Such checks are not required for shaker-type baghouses using self-tensioning (spring loaded) devices.

    (vi) Quarterly confirmation of the physical integrity of the baghouse structure through visual inspection of the baghouse interior for air leaks.

    (vii) Semiannual inspection of fans for wear, material buildup and corrosion through visual inspection, vibration detectors, or equivalent means.

    (e) Bag leak detection system. (1) For each baghouse used to control emissions from an electric arc furnace, you must install, operate, and maintain a bag leak detection system according to paragraphs (e)(2) through (4) of this section, unless a system meeting the requirements of paragraph (p) of this section, for a CEMS and continuous emissions rate monitoring system, is installed for monitoring the concentration of particulate matter, or an existing positive pressure baghouse used to control emissions from an electric arc furnaces that is subject to paragraph (c) of this section. You may choose to install, operate, and maintain a bag leak detection system for any other baghouse in operation at the facility according to paragraphs (e)(2) through (4) of this section.

    (3) Each bag leak detection system must meet the specifications and requirements in paragraphs (e)(3)(i) through (viii) of this section.

    (4) You must include in the standard operating procedures manual required by paragraph (a) of this section a corrective action plan that specifies the procedures to be followed in the case of a bag leak detection system alarm. The corrective action plan must include, at a minimum, the procedures that you will use to determine and record the time and cause of the alarm as well as the corrective actions taken to minimize emissions as specified in paragraphs (e)(4)(i) and (ii) of this section.

    (ii) The cause of the alarm must be alleviated by taking the necessary corrective action(s) that may include, but not be limited to, those listed in paragraphs (e)(4)(ii)(A) through (F) of this section.

    (h) Shop building opacity. In order to demonstrate continuous compliance with the opacity standards in § 63.1623, you must comply with the requirements § 63.1625(d)(1) and one of the monitoring options in paragraphs (h)(1) or (2) of this section. The selected option must be consistent with that selected during the initial performance test described in § 63.1625(d)(2). Alternatively, you may use the provisions of § 63.8(f) to request approval to use an alternative monitoring method.

    (j) Requirements for sources using CMS. If you demonstrate compliance with any applicable emissions limit through use of a continuous monitoring system (CMS), where a CMS includes a continuous parameter monitoring system (CPMS) as well as a continuous emissions monitoring system (CEMS), you must develop a site-specific monitoring plan and submit this site-specific monitoring plan, if requested, at least 60 days before your initial performance evaluation (where applicable) of your CMS. Your site-specific monitoring plan must address the monitoring system design, data collection and the quality assurance and quality control elements outlined in this paragraph and in § 63.8(d). You must install, operate and maintain each CMS according to the procedures in your approved site-specific monitoring plan. Using the process described in § 63.8(f)(4), you may request approval of monitoring system quality assurance and quality control procedures alternative to those specified in paragraphs (j)(1) through (6) of this section in your site-specific monitoring plan.

    (k) If you have an operating limit that requires the use of a CPMS, you must install, operate and maintain each continuous parameter monitoring system according to the procedures in paragraphs (k)(1) through (7) of this section.

    (p) Particulate Matter CEMS. If you are using a CEMS to measure particulate matter emissions to meet requirements of this subpart, you must install, certify, operate and maintain the particulate matter CEMS as specified in paragraphs (p)(1) through (4) of this section.

    5. Section 63.1656 is amended by revising paragraphs (b)(7) introductory text, (b)(7)(i) and (ii), and (b)(7)(v) to read as follows:
    § 63.1656 Performance testing, test methods, and compliance demonstrations.

    (b) * * *

    (7) Method 9 of appendix A-4 of 40 CFR part 60 to determine opacity. ASTM D7520-16, “Standard Test Method for Determining the Opacity of a Plume in the Outdoor Ambient Atmosphere” may be used (incorporated by reference, see § 63.14) with the following conditions:

    (i) During the digital camera opacity technique (DCOT) certification procedure outlined in Section 9.2 of ASTM D7520-16, the owner or operator or the DCOT vendor must present the plumes in front of various backgrounds of color and contrast representing conditions anticipated during field use such as blue sky, trees and mixed backgrounds (clouds and/or a sparse tree stand).

    (ii) The owner or operator must also have standard operating procedures in place including daily or other frequency quality checks to ensure the equipment is within manufacturing specifications as outlined in Section 8.1 of ASTM D7520-16.

    (v) Use of this approved alternative does not provide or imply a certification or validation of any vendor's hardware or software. The onus to maintain and verify the certification and/or training of the DCOT camera, software and operator in accordance with ASTM D7520-16 and these requirements is on the facility, DCOT operator and DCOT vendor.

    [FR Doc. 2017-00156 Filed 1-17-17; 8:45 am] BILLING CODE 6560-50-P
    ENVIRONMENTAL PROTECTION AGENCY 40 CFR Part 180 [EPA-HQ-OPP-2015-0829; FRL-9956-85] Acequinocyl; Pesticide Tolerances AGENCY:

    Environmental Protection Agency (EPA).

    ACTION:

    Final rule.

    SUMMARY:

    This regulation establishes tolerances for residues of acequinocyl in or on multiple commodities which are identified and discussed later in this document. Interregional Project Number 4 (IR-4) requested these tolerances under the Federal Food, Drug, and Cosmetic Act (FFDCA).

    DATES:

    This regulation is effective January 18, 2017. Objections and requests for hearings must be received on or before March 20, 2017, and must be filed in accordance with the instructions provided in 40 CFR part 178 (see also Unit I.C. of the SUPPLEMENTARY INFORMATION).

    ADDRESSES:

    The docket for this action, identified by docket identification (ID) number EPA-HQ-OPP-2015-0829, is available at http://www.regulations.gov or at the Office of Pesticide Programs Regulatory Public Docket (OPP Docket) in the Environmental Protection Agency Docket Center (EPA/DC), West William Jefferson Clinton Bldg., Rm. 3334, 1301 Constitution Ave. NW., Washington, DC 20460-0001. The Public Reading Room is open from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding legal holidays. The telephone number for the Public Reading Room is (202) 566-1744, and the telephone number for the OPP Docket is (703) 305-5805. Please review the visitor instructions and additional information about the docket available at http://www.epa.gov/dockets.

    FOR FURTHER INFORMATION CONTACT:

    Michael Goodis, Registration Division (7505P), Office of Pesticide Programs, Environmental Protection Agency, 1200 Pennsylvania Ave. NW., Washington, DC 20460-0001; main telephone number: (703) 305-7090; email address: [email protected]

    SUPPLEMENTARY INFORMATION:

    I. General Information A. Does this action apply to me?

    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).

    B. How can I get electronic access to other related information?

    You may access a frequently updated electronic version of EPA's tolerance regulations at 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.

    C. How can I file an objection or hearing request?

    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-2015-0829 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 March 20, 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-2015-0829, 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.

    II. Summary of Petitioned-For Tolerance

    In the Federal Register of May 19, 2016 (81 FR 31581) (FRL-9946-02), EPA issued a document pursuant to FFDCA section 408(d)(3), 21 U.S.C. 346a(d)(3), announcing the filing of a pesticide petition (PP 5E8422) by Interregional Research Project Number 4 (IR-4), Rutgers University, 500 College Rd. East, Suite 201 W, Princeton, NJ 08540. The petition requested that 40 CFR 180.599 be amended by establishing tolerances for residues of the insecticide acequinocyl in or on avocado at 0.4 parts per million (ppm); bean, dry, seed at 0.03 ppm; vegetable, cucurbit, group 9 at 0.2 ppm; tea, plucked leaves at 40 ppm; cherry subgroup 12-12A at 1.0 ppm; fruit, citrus, group 10-10 at 0.20 ppm; fruit, pome, group 11-10 at 0.40 ppm; nut, tree, group 14-12 at 0.02 ppm; and vegetable, fruiting, group 8-10 at 0.70 ppm. The petition also requested that upon establishment of the above tolerances, to remove the existing tolerances for cucumber at 0.15 ppm; melon, subgroup 9A at 0.15 ppm; cherry, sweet at 0.50 ppm; cherry, tart at 1.0 ppm; fruit, citrus, group 10 at 0.20 ppm; fruit, pome, group 11 at 0.40 ppm; nut, tree, group 14 at 0.02 ppm; pistachio at 0.02 ppm; vegetable, fruiting, group 8 at 0.70 ppm; and okra at 0.70 ppm. That document referenced a summary of the petition prepared by Arysta LifeScience, the registrant, which is available in the docket, http://www.regulations.gov. Comments were received on the notice of filing. EPA's response to these comments is discussed in Unit IV.C.

    Based upon review of the data supporting the petition, EPA has modified the levels at which some of the tolerances are being established. The reason for these changes is explained in Unit IV.D.

    III. Aggregate Risk Assessment and Determination of Safety

    Section 408(b)(2)(A)(i) of FFDCA allows EPA to establish a tolerance (the legal limit for a pesticide chemical residue in or on a food) only if EPA determines that the tolerance is “safe.” Section 408(b)(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 in establishing a tolerance 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. . . .”

    Consistent with FFDCA section 408(b)(2)(D), and the factors specified in FFDCA section 408(b)(2)(D), 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 acequinocyl including exposure resulting from the tolerances established by this action. EPA's assessment of exposures and risks associated with acequinocyl follows.

    A. Toxicological Profile

    EPA has evaluated the available toxicity data and considered its 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.

    The target organs of acequinocyl are the liver (hepatocyte vacuolization, brown pigmented cells and perivascular inflammatory cells in liver) and hematopoietic system (hemorrhage, increased clotting factor times and increased platelet counts). There was no evidence of neurotoxicity and immunotoxicity and there was no evidence of carcinogenic potential in either the rat or mouse, or in the genotoxicity and mutagenicity studies.

    In rats and rabbits, there was no evidence of increased quantitative or qualitative fetal susceptibility. In both species there were clinical signs and gross necropsy findings seen in maternal animals at similar or lower doses than those producing resorptions. In rabbits, there were increased incidences of late resorptions at the highest dose tested. In the rat two-generation reproductive toxicity study, there was evidence of apparent increased quantitative postnatal susceptibility. Offspring effects at the mid- and high-doses consisted of swollen body parts, protruding eyes, clinical signs, delays in pupil development, and increased mortality occurring mainly after weaning. No parental effects were observed up to the highest dose tested; however, hematological parameters, such as changes in partial and activated partial thromboplastin times, were not measured in parental animals and changes in these parameters would have been expected at the same doses as offspring effects based on rat studies in the acequinocyl toxicological database. There were no effects on reproductive parameters.

    Specific information on the studies received and the nature of the adverse effects caused by acequinocyl as well as the no-observed-adverse-effect-level (NOAEL) and the lowest-observed-adverse-effect-level (LOAEL) from the toxicity studies can be found at http://www.regulations.gov in the document titled “Acequinocyl. Human Health Risk Assessment To Support the Petition for Tolerance for Residues in/on Dry Beans, Cucurbit Vegetables, Group 9, Avocado and Tea (Without U.S. Registration) and Crop Group Conversions for Citrus Fruit Group 10-10, Tree Nut Group 14-12, and Fruiting Vegetable Group 8-10” at page 30 in docket ID number EPA-HQ-OPP-2015-0829.

    B. Toxicological Points of Departure/Levels of Concern

    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://www2.epa.gov/pesticide-science-and-assessing-pesticide-risks/assessing-human-health-risk-pesticides.

    Since the last assessment for acequinocyl (Federal Register of April 13, 2016, (81 FR 21752) (FRL-9944-34)), the endpoints for acequinocyl were revisited and updated based upon the available data. An acute dietary endpoint for the general population has been selected to be consistent with current Agency practices. A summary of the updated toxicological endpoints for acequinocyl used for human risk assessment is shown in Table 1 of this unit.

    Table 1—Summary of Toxicological Doses and Endpoints for Acequinocyl for Use in Human Health Risk Assessment Exposure/scenario Point of departure and uncertainty/safety factors RfD, PAD, LOC for risk assessment Study and toxicological effects Acute dietary (General population including infants and children) NOAEL = 7.3 mg/kg/day UFA = 10×
  • UFH = 10×
  • FQPA SF = 1×
  • Acute RfD = 0.073 mg/kg/day
  • aPAD = 0.073 mg/kg/day
  • Reproduction and fertility effects in rats Offspring LOAEL (M/F) = 58.9 based on hemorrhagic effects, swollen body parts, protruding eyes, clinical signs, delays in pupil development and increased mortality post weaning.
    Chronic dietary (All populations) NOAEL = 2.7 mg/kg/day UFA = 10×
  • UFH = 10×
  • FQPA SF = 1×
  • Chronic RfD = 0.027 mg/kg/day
  • cPAD = 0.027 mg/kg/day
  • 18-month carcinogenicity study in mice; LOAEL = 7.0 mg/kg/day based on clinical chemistry and microscopic non-neoplastic lesions (brown pigmented cells and perivascular inflammatory cells in liver).
    Dermal short-term (1 to 30 days) Dermal study NOAEL = 200 mg/kg/day
  • UFA = 10×
  • UFH = 10×
  • FQPA SF = 1×
  • LOC for MOE = 100 28-dermal toxicity in rats.
  • LOAEL (M/F) = 1000 mg/kg/day based on increased clotting factor times in males.
  • Cancer (Oral, dermal, inhalation) Classification: Not likely to be carcinogenic to humans. FQPA SF = Food Quality Protection Act Safety Factor. LOAEL = lowest-observed-adverse-effect-level. LOC = level of concern. mg/kg/day = milligram/kilogram/day. MOE = margin of exposure. NOAEL = no-observed-adverse-effect-level. PAD = population-adjusted dose (a = acute, c = chronic). RfD = reference dose. UF = uncertainty factor. UFA = extrapolation from animal to human (interspecies). UFH = potential variation in sensitivity among members of the human population (intraspecies).
    C. Exposure Assessment

    1. Dietary exposure from food and feed uses. In evaluating dietary exposure to acequinocyl, EPA considered exposure under the petitioned-for tolerances as well as all existing acequinocyl tolerances in 40 CFR 180.599. EPA assessed dietary exposures from acequinocyl in food as follows:

    i. Acute exposure. Quantitative acute dietary exposure and risk assessments are performed for a food-use pesticide, if a toxicological study has indicated the possibility of an effect of concern occurring as a result of a 1-day or single exposure.

    Such effects were identified for acequinocyl. In estimating acute dietary exposure, EPA used food consumption information from the United States Department of Agriculture (USDA) 2003-2008 National Health and Nutrition Examination Survey, What We Eat in America, (NHANES/WWEIA). As to residue levels in food, EPA assumed tolerance level residues and 100 percent crop treated (PCT) for all proposed and registered uses.

    ii. Chronic exposure. In conducting the chronic dietary exposure assessment EPA used the food consumption data from the USDA 2003-2008 NHANES/WWEIA. As to residue levels in food, EPA assumed tolerance level residues and 100 PCT for all proposed and registered uses.

    iii. Cancer. Based on the data summarized in Unit III.A., EPA has concluded that acequinocyl does not pose a cancer risk to humans. Therefore, a dietary exposure assessment for the purpose of assessing cancer risk is unnecessary.

    iv. Anticipated residue and PCT information. EPA did not use anticipated residue or PCT information in the dietary assessment for acequinocyl. Tolerance level residues and 100 PCT were assumed for all food commodities.

    2. Dietary exposure from drinking water. The Agency used screening level water exposure models in the dietary exposure analysis and risk assessment for acequinocyl in drinking water. These simulation models take into account data on the physical, chemical, and fate/transport characteristics of acequinocyl. Further information regarding EPA drinking water models used in pesticide exposure assessment can be found at http://www2.epa.gov/pesticide-science-and-assessing-pesticide-risks/about-water-exposure-models-used-pesticide.

    Based on the Pesticide Root Zone Model/Exposure Analysis Modeling System (PRZM/EXAMS), Provisional Cranberry Model, and Screening Concentration in Ground Water (SCI-GROW) Model, the estimated drinking water concentrations (EDWCs) of acequinocyl for acute exposures are estimated to be 6.69 parts per billion (ppb) for surface water and 3.6 × 10−3 ppb for ground water, and for chronic exposures are estimated to be 6.69 ppb for surface water and ≥3.6 × 10−3 ppb for ground water.

    Modeled estimates of drinking water concentrations were directly entered into the dietary exposure model. For acute dietary risk assessment, the water concentration value of 6.69 ppb was used to assess the contribution to drinking water. For chronic dietary risk assessment, the water concentration of value 6.69 ppb was used to assess the contribution to drinking water.

    3. From non-dietary exposure. The term “residential exposure” is used in this document to refer to non-occupational, non-dietary exposure (e.g., for lawn and garden pest control, indoor pest control, termiticides, and flea and tick control on pets).

    Acequinocyl is currently registered for the following uses that could result in residential exposures: use on ornamentals for landscapes, gardens, and trees. EPA assessed residential exposure using the following assumptions: There is a potential for residential exposure associated with handler (i.e., mixing, loading and applying); however, all registered acequinocyl product labels with residential use sites (e.g., ornamentals for landscapes, gardens, and trees) require that handlers wear specific clothing (e.g., long-sleeve shirt/long pants) and/or use personal protective equipment (PPE). Therefore, the Agency has made the assumption that these products are not for homeowner use, and has not conducted a quantitative residential handler assessment.

    Only short-term post-application dermal exposure is anticipated for the registered residential uses. The quantitative exposure/risk assessment for residential post-application exposures assessed dermal exposures to adults for activities associated with gardening, dermal exposures to children (6 to <11 years old) for activities associated with playing in and around gardens and gardening, dermal exposures to adults associated with handling trees and retail plants, and dermal exposures to children (6 to <11 years old) for activities associated with playing in and around trees and retail plants.

    Further information regarding EPA standard assumptions and generic inputs for residential exposures may be found at http://www2.epa.gov/pesticide-science-and-assessing-pesticide-risks/standard-operating-procedures-residential-pesticide.

    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, 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.”

    EPA has not found acequinocyl to share a common mechanism of toxicity with any other substances, and acequinocyl does not appear to produce a toxic metabolite produced by other substances. For the purposes of this tolerance action, therefore, EPA has assumed that acequinocyl does not have a common mechanism of toxicity with other substances. For information regarding EPA's efforts to determine which chemicals have a common mechanism of toxicity and to evaluate the cumulative effects of such chemicals, see EPA's Web site at http://www2.epa.gov/pesticide-science-and-assessing-pesticide-risks/cumulative-assessment-risk-pesticides.

    D. Safety Factor for Infants and Children

    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.

    2. Prenatal and postnatal sensitivity. There is no evidence of an increased quantitative or qualitative fetal susceptibility in rats or rabbits. In isolation, there was evidence of increased quantitative offspring susceptibility in the two-generation reproductive study; however, but the concern is low since: (1) The effects in pups are well characterized with a clear NOAEL; and (2) the effects are protected for by the selected endpoints. Therefore, there are no residual uncertainties for pre-/post-natal toxicity. Additionally, taking into consideration the full database, there would be no susceptibility to offspring since assessment of parental animals in the two-generation reproductive toxicity study were limited. If additional evaluations had been performed, including all hematological measurements, then it would be expected that effects on the hematopoietic system observed in the other oral rat studies would have been seen at the same doses eliciting offspring effects. Therefore, using a weight-of-evidence approach that puts the offspring findings in the two-generation reproductive toxicity study in context with the full toxicological database, there is no concern for susceptibility to offspring since parental toxicity would be anticipated at the same dose as offspring effects.

    3. Conclusion. EPA has determined that reliable data show the safety of infants and children would be adequately protected if the FQPA SF were reduced to 1x. That decision is based on the following findings:

    i. The toxicity database for acequinocyl is complete.

    ii. There is no indication that acequinocyl is a neurotoxic chemical and there is no need for a developmental neurotoxicity study or additional UFs to account for neurotoxicity.

    iii. There is no evidence of an increased quantitative or qualitative fetal susceptibility in rats or rabbits, but in isolation there was evidence of increased quantitative offspring susceptibility in the two-generation reproductive study. However, the concern is low for the reasons outlined above in section III.D.2.

    iv. There are no residual uncertainties identified in the exposure databases. The dietary food exposure assessments were performed based on 100 PCT and tolerance-level residues. EPA made conservative (protective) assumptions in the ground and surface water modeling used to assess exposure to acequinocyl in drinking water. EPA used similarly conservative assumptions to assess post-application exposure of children. These assessments will not underestimate the exposure and risks posed by acequinocyl.

    E. Aggregate Risks and Determination of Safety

    EPA determines whether acute and chronic dietary pesticide exposures are safe by comparing aggregate exposure estimates to the acute PAD (aPAD) and chronic PAD (cPAD). For linear cancer risks, EPA calculates the lifetime probability of acquiring cancer given the estimated aggregate exposure. Short-, intermediate-, and chronic-term risks are evaluated by comparing the estimated aggregate food, water, and residential exposure to the appropriate PODs to ensure that an adequate MOE exists.

    1. Acute risk. Using the exposure assumptions discussed in this unit for acute exposure, the acute dietary exposure from food and water to acequinocyl will occupy 71% of the aPAD for children 1-2 years old, the population group receiving the greatest exposure.

    2. Chronic risk. Using the exposure assumptions described in this unit for chronic exposure, EPA has concluded that chronic exposure to acequinocyl from food and water will utilize 70% of the cPAD for children 1-2 years old, the population group receiving the greatest exposure. Based on the explanation in Unit III.C.3., regarding residential use patterns, chronic residential exposure to residues of acequinocyl is not expected.

    3. Short-term risk. Short-term aggregate exposure takes into account short-term residential exposure plus chronic exposure to food and water (considered to be a background exposure level). Acequinocyl is currently registered for uses that could result in short-term residential exposure, and the Agency has determined that it is appropriate to aggregate chronic exposure through food and water with short-term residential exposures to acequinocyl.

    Using the exposure assumptions described in this unit for short-term exposures, EPA has concluded the combined short-term food, water, and residential exposures result in aggregate MOEs of 1200 for adults and 890 for children 6-12 years old. Because EPA's level of concern for acequinocyl is a MOE of 100 or below, these MOEs are not of concern.

    4. Intermediate-term risk. Intermediate-term aggregate exposure takes into account intermediate-term residential exposure plus chronic exposure to food and water (considered to be a background exposure level).

    An intermediate-term adverse effect was identified; however, acequinocyl is not registered for any use patterns that would result in intermediate-term residential exposure. Intermediate-term risk is assessed based on intermediate-term residential exposure plus chronic dietary exposure. Because there is no intermediate-term residential exposure and chronic dietary exposure has already been assessed under the appropriately protective cPAD (which is at least as protective as the POD used to assess intermediate-term risk), no further assessment of intermediate-term risk is necessary, and EPA relies on the chronic dietary risk assessment for evaluating intermediate-term risk for acequinocyl.

    5. Aggregate cancer risk for U.S. population. Based on the lack of evidence of carcinogenicity in two adequate rodent carcinogenicity studies, acequinocyl is not expected to pose a cancer risk to humans.

    6. Determination of safety. Based on these risk assessments, 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 acequinocyl residues.

    IV. Other Considerations A. Analytical Enforcement Methodology

    Adequate enforcement methodology (two high-performance liquid chromatography methods with tandem mass-spectroscopy detection (HPLC/MS/MS) for determining residues in/on fruit and nut commodities (Morse Methods Meth-133 and Meth-135) is available to enforce the tolerance expression.

    The method may be requested from: Chief, Analytical Chemistry Branch, Environmental Science Center, 701 Mapes Rd., Ft. Meade, MD 20755-5350; telephone number: (410) 305-2905; email address: [email protected]

    B. International Residue Limits

    In making its tolerance decisions, EPA seeks to harmonize U.S. tolerances with international standards whenever possible, consistent with U.S. food safety standards and agricultural practices. EPA considers the international maximum residue limits (MRLs) established by the Codex Alimentarius Commission (Codex), as required by FFDCA section 408(b)(4). The Codex Alimentarius is a joint United Nations Food and Agriculture Organization/World Health Organization food standards program, and it is recognized as an international food safety standards-setting organization in trade agreements to which the United States is a party. EPA may establish a tolerance that is different from a Codex MRL; however, FFDCA section 408(b)(4) requires that EPA explain the reasons for departing from the Codex level.

    The Codex has not established any MRLs for acequinocyl.

    C. Response to Comments

    A comment was submitted by the Center for Biological Diversity and was primarily concerned about EPA's consideration of the impacts of acequinocyl on the environment, pollinators, and endangered species. This comment is not relevant to the Agency's evaluation of safety of the acequinocyl tolerances under section 408 of the FFDCA, which requires the Agency to evaluate the potential harms to human health, not effects on the environment.

    Two other comments were submitted in response to the Notice of Filing that stated, in part, that this chemical “should not be used at all in America or anywhere in the world” and that “no residue should be permitted on any food or other plant.” The Agency understands the commenter's concerns and recognizes that some individuals believe that pesticides should be banned on agricultural crops. However, the existing legal framework provided by section 408 of the FFDCA states that tolerances may be set when persons seeking such tolerances or exemptions have demonstrated that the pesticide meets the safety standard imposed by that statute. The citizens' comments appear to be directed at the underlying statute and not EPA's implementation of it; the citizens have made no contention that EPA has acted in violation of the statutory framework.

    D. Revisions to Petitioned-For Tolerances

    The petitioned-for tolerance of 0.4 for residues on avocado is being increased to 0.50 ppm as EPA corrected some residue levels in the field trials for degradation during storage and declared two of the trials to be replicates. The data that EPA used in Organization for Economic Co-operation and Development (OECD) Maximum Residue Limits (MRL) Tolerance Worksheet for avocado was thus slightly different from the petitioner's data. The tolerance level of 0.15 ppm for residues in dry beans is based upon the OECD MRL tolerance worksheet. The difference is based on EPA using slightly different residue levels that were corrected for degradation during storage. The tolerance level of 0.30 ppm for residues in/on cucurbit vegetables is based upon the OECD MRL tolerance worksheet. The difference is based on EPA using slightly different residue levels that were corrected for degradation during storage. The data that EPA used in MRL tolerance spreadsheet for summer squash was slightly different from the petitioner's data. Concerning the crop group conversions, the tolerance level for residues in/on citrus fruit was modified to be harmonized with the Canadian MRL.

    V. Conclusion

    Therefore, tolerances are established for residues of acequinocyl, including its metabolites and degradates, in or on avocado at 0.50 ppm; bean, dry, seed at 0.15 ppm; cherry, subgroup 12-12A at 1.0 ppm; fruit, citrus, group 10-10 at 0.35 ppm; fruit, pome, group 11-10 at 0.40 ppm; nut, tree, group 14-12 at 0.02 ppm; tea, plucked leaves at 40 ppm; vegetable, cucurbit, group 9 at 0.30 ppm; and vegetable, fruiting, group 8-10 at 0.70 ppm. In addition, the existing tolerances on cherry, sweet; cherry, tart; cucumber; fruit, citrus, group 10; fruit, pome, group 11; melon, subgroup 9A; nut, tree, group 14; okra; pistachio; and vegetable, fruiting, group 8 are removed as unnecessary since they are now covered by the new tolerances.

    VI. Statutory and Executive Order Reviews

    This action establishes tolerances 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 tolerance 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).

    VII. Congressional Review Act

    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).

    List of Subjects in 40 CFR Part 180

    Environmental protection, Administrative practice and procedure, Agricultural commodities, Pesticides and pests, Reporting and recordkeeping requirements.

    Dated: December 15, 2016. Daniel J. Rosenblatt, Acting Director, Registration Division, Office of Pesticide Programs.

    Therefore, 40 CFR chapter I is amended as follows:

    PART 180—[AMENDED] 1. The authority citation for part 180 continues to read as follows: Authority:

    21 U.S.C. 321(q), 346a and 371.

    2. In § 180.599, in the table in paragraph (a); a. Add alphabetically the entries “Avocado”; “Bean, dry, seed”; “Cherry, subgroup 12-12A”; “Fruit, citrus, group 10-10”; “Fruit, pome, group 11-10”; “Nut, tree, group 14-12”; “Tea, plucked leaves” (and a footnote); “Vegetable, cucurbit, group 9”; and “Vegetable, fruiting, group 8-10”; and b. Remove the entries for “cherry, sweet”; “cherry, tart”; “cucumber”; “fruit, citrus, group 10”; “fruit, pome, group 11”; “melon, subgroup 9A”; “nut, tree, group 14”; “okra”; “pistachio”; and “vegetable, fruiting, group 8” from the table in paragraph (a).

    The additions read as follows:

    § 180.599 Acequinocyl; tolerances for residues.

    (a) * * *

    Commodity Parts per million *    *    *    * Avocado 0.50 Bean, dry, seed 0.15 *    *    *    * Cherry, subgroup 12-12A 1.0 *    *    *    * Fruit, citrus, group 10-10 0.35 Fruit, pome, group 11-10 0.40 *    *    *    * Nut, tree, group 14-12 0.02 *    *    *    * Tea, plucked leaves 1 40 Vegetable, cucurbit, group 9 0.30 Vegetable, fruiting, group 8-10 0.70 1 There are no U.S. registrations as of January 18, 2017 for use on tea.
    [FR Doc. 2016-31823 Filed 1-17-17; 8:45 am] BILLING CODE 6560-50-P
    DEPARTMENT OF HEALTH AND HUMAN SERVICES Centers for Medicare & Medicaid Services 42 CFR Part 438 [CMS-2402-F] RIN 0938-AT10 Medicaid Program; The Use of New or Increased Pass-Through Payments in Medicaid Managed Care Delivery Systems AGENCY:

    Centers for Medicare & Medicaid Services (CMS), HHS.

    ACTION:

    Final rule.

    SUMMARY:

    This rule finalizes changes to the pass-through payment transition periods and the maximum amount of pass-through payments permitted annually during the transition periods under Medicaid managed care contract(s) and rate certification(s). This final rule prevents increases in pass-through payments and the addition of new pass-through payments beyond those in place when the pass-through payment transition periods were established, in the final Medicaid managed care regulations effective July 5, 2016.

    DATES:

    Effective Date: These regulations are effective on March 20, 2017.

    FOR FURTHER INFORMATION CONTACT:

    John Giles, (410) 786-1255.

    SUPPLEMENTARY INFORMATION:

    I. Background

    In the June 1, 2015 Federal Register (80 FR 31098), we published the “Medicaid and Children's Health Insurance Program (CHIP) Programs; Medicaid Managed Care, CHIP Delivered in Managed Care, Medicaid and CHIP Comprehensive Quality Strategies, and Revisions Related to Third Party Liability” proposed rule (“June 1, 2015 proposed rule”). As part of the actuarial soundness proposals, we proposed to define actuarially sound capitation rates as those sufficient to provide for all reasonable, appropriate, and attainable costs that are required under the terms of the contract, including furnishing of covered services and operation of the managed care plan for the duration of the contract. Among the proposals was a general rule that the state may not direct the managed care organization's (MCO's), prepaid inpatient health plan's (PIHP's), or prepaid ambulatory health plan's (PAHP's) expenditures under the contract.

    In the May 6, 2016 Federal Register (81 FR 27498), we published the “Medicaid and Children's Health Insurance Program (CHIP) Programs; Medicaid Managed Care, CHIP Delivered in Managed Care, and Revisions Related to Third Party Liability” final rule (“May 6, 2016 final rule”), which finalized the June 1, 2015 proposed rule. In the final rule, we finalized, with some revisions, the proposal which limited state direction of payments, including pass-through payments as defined below.

    In the November 22, 2016 Federal Register (81 FR 83777), we published the “Medicaid Program; The Use of New or Increased Pass-Through Payments in Medicaid Managed Care Delivery Systems” proposed rule (“November 22, 2016 proposed rule”). This rule finalizes the November 22, 2016 proposed rule as discussed below. This final rule is consistent with the intent of the May 6, 2016 final rule to provide transition periods for states that already use pass-through payments—these transition periods allow states to implement changes to existing pass-through payments over a period of time to minimize disruption and to ensure continued financial support for safety-net providers. As we discussed in the November 22, 2016 proposed rule, this final rule is also consistent with the CMCS Informational Bulletin (CIB) concerning “The Use of New or Increased Pass-Through Payments in Medicaid Managed Care Delivery Systems,” which was published on July 29, 2016.

    A. Summary of the Medicaid Managed Care May 6, 2016 Final Rule

    We finalized a policy to limit state direction of payments, including pass-through payments, at § 438.6(c) and (d) in the May 6, 2016 final rule (81 FR 27587 through 27592). Specifically, under the final rule (81 FR 27588), we defined pass-through payments at § 438.6(a) as any amount required by the state (and considered in calculating the actuarially sound capitation rate) to be added to the contracted payment rates paid by the MCO, PIHP, or PAHP to hospitals, physicians, or nursing facilities that is not for the following purposes: A specific service or benefit provided to a specific enrollee covered under the contract; a provider payment methodology permitted under § 438.6(c)(1)(i) through (iii) for services and enrollees covered under the contract; a subcapitated payment arrangement for a specific set of services and enrollees covered under the contract; graduate medical education (GME) payments; or federally-qualified health center (FQHC) or rural health clinic (RHC) wrap around payments. We noted that section 1903(m)(2)(A) of the Social Security Act (the Act) requires that capitation payments to managed care plans be actuarially sound; we interpret this requirement to mean that payments under the managed care contract must align with the provision of services to beneficiaries covered under the contract. We provided that these pass-through payments are not consistent with our regulatory standards for actuarially sound rates because they do not tie provider payments with the provision of services. The final rule contains a detailed description of the policy rationale (81 FR 27587 through 27592).

    In an effort to provide a smooth transition for network providers, to support access for the beneficiaries they serve, and to provide states and managed care plans with adequate time to design and implement payment systems that link provider reimbursement with services covered under the contract or associated quality outcomes, we finalized transition periods related to pass-through payments for the specified provider types to which states make most pass-through payments under Medicaid managed care programs: Hospitals, physicians, and nursing homes (81 FR 27590 through 27592). As finalized, § 438.6(d)(2) and (3) provide a 10-year transition period for hospitals, subject to limitations on the amount of pass-through payments. For MCO, PIHP, or PAHP contracts beginning on or after July 1, 2027, states will not be permitted to require pass-through payments for hospitals. The final rule also provides a 5-year transition period for pass-through payments to physicians and nursing facilities. For MCO, PIHP, or PAHP contracts beginning on or after July 1, 2022, states will not be permitted to require pass-through payments for physicians or nursing facilities. These transition periods provide states, network providers, and managed care plans significant time and flexibility to integrate current pass-through payment arrangements into allowable payment structures under actuarially sound capitation rates, including enhanced fee schedules or the other approaches consistent with § 438.6(c).

    As finalized in the May 6, 2016 final rule, § 438.6(d) limits the amount of pass-through payments to hospitals as a percentage of the “base amount,” which is defined in paragraph (a) and calculated under rules in paragraph (d)(2). Section 438.6(d)(3) specifies a schedule for the phased reduction of the base amount, limiting the amount of pass-through payments to hospitals. For contracts beginning on or after July 1, 2017, the state may require pass-through payments to hospitals under the contract up to 100 percent of the base amount, as defined in the final rule. For subsequent contract years (contracts beginning on or after July 1, 2018 through contracts beginning on or after July 1, 2026), the portion of the base amount available for pass-through payments decreases by 10 percentage points per year. For contracts beginning on or after July 1, 2027, no pass-through payments to hospitals are permitted. The May 6, 2016 final rule noted that nothing would prohibit a state from eliminating pass-through payments to hospitals before contracts beginning on or after July 1, 2027. However, the final rule provided for a phased reduction in the percentage of the base amount that can be used for pass-through payments, because a phased transition would support the development of permissible and accountable payment approaches while mitigating any disruption to states and providers.

    We believe that states will be able to more easily transition existing pass-through payments to physicians and nursing facilities to payment structures linked to services covered under the contract compared to the transition necessary for similar payments to hospitals. Consequently, the May 6, 2016 final rule, in § 438.6(d)(5), provided a shorter time period for eliminating pass-through payments to physicians and nursing facilities and did not prescribe a limit or phased reduction in these payments; states have the option to eliminate these payments immediately or phase down these payments over the 5 year transition period if they prefer. As noted in the May 6, 2016 final rule, the distinction between hospitals and nursing facilities and physicians was also based on the comments from stakeholders during the public comment period (81 FR 27590).

    B. Questions About the May 6, 2016 Final Rule

    Since publication of the May 6, 2016 final rule, we have received inquiries about states' ability to integrate new or increased pass-through payments into Medicaid managed care contracts. As explained in the CMCS Informational Bulletin (CIB) published on July 29, 2016,1 adding new or increased pass-through payments for hospitals, physicians, or nursing facilities complicates the required transition of these pass-through payments to permissible provider payment models.

    1 The Use of New or Increased Pass-Through Payments in Medicaid Managed Care Delivery Systems; available at https://www.medicaid.gov/federal-policy-guidance/downloads/cib072916.pdf. CMCS also noted in this CIB that it intended to further address in future rulemaking the issue of adding new or increased pass-through payments to managed care contracts.

    The transition periods under the May 6, 2016 final rule provide states, network providers, and managed care plans significant time and flexibility to move existing pass-through payment arrangements (that is, those in effect when the final rule was published) into different, permissible payment structures under actuarially sound capitation rates, including enhanced fee schedules or the other approaches consistent with § 438.6(c). We did not intend for states, after the May 6, 2016 final rule was published, to begin additional or new pass-through payments, or to increase existing pass-through payments; such actions are contrary to and undermine the policy goal of eliminating pass-through payments. We proposed in the November 22, 2016 proposed rule and finalize here that we will not permit a pass-through payment amount to exceed the lesser of the amounts calculated under paragraph (d)(3) of this final rule. For states to add new or to increase existing pass-through payments is inconsistent with longstanding CMS policy, the proposal made in the June 1, 2015 proposed rule, and the May 6, 2016 final rule, which reflects the general policy goal to effectively and efficiently transition away from pass-through payments.

    Under the May 6, 2016 final rule, we provided a delayed compliance deadline for § 438.6(c) and (d); we will enforce compliance with § 438.6(c) and (d) no later than the rating period for Medicaid managed care contracts beginning on or after July 1, 2017. Our exercise of enforcement discretion in this respect was not intended to create new opportunities for states to add or increase existing pass-through payments before July 1, 2017. This delay was intended to address concerns articulated by commenters, among them states and providers, that an abrupt end to directed pass-through payments could cause damaging disruption to safety-net providers. As discussed in the May 6, 2016 final rule and this final rule, pass-through payments are inconsistent with our interpretation and implementation of the statutory requirement for actuarially sound capitation rates because pass-through payments do not tie provider payments to the provision of services under the contract (81 FR 27588). A distinguishing characteristic of a pass-through payment is that a managed care plan is contractually required by the state to pay providers an amount that is disconnected from the amount, quality, or outcomes of services delivered to enrollees under the contract during the rating period of the contract. When managed care plans only serve as a conduit for passing payments to providers independent of delivered services, such payments reduce managed care plans' ability to control expenditures, effectively use value-based purchasing strategies, implement provider-based quality initiatives, and generally use the full capitation payment to manage the care of enrollees. The May 6, 2016 final rule made clear our position on these payments and our intent that they be eliminated from Medicaid managed care delivery systems, except for the directed payment models permitted by § 438.6(c), or the payments excluded from the definition of a pass-through payment in § 438.6(a), such as FQHC wrap payments.

    The transition periods provided under § 438.6(d) are for states to identify existing pass-through payments and begin either tying such payments directly to services and utilization covered under the contract or eliminating them completely in favor of other support mechanisms for providers that comply with the requirements in § 438.6(c). The transition periods for current pass-through payments minimize disruption to local health care systems and interruption of beneficiary access by permitting a gradual step down from current levels of pass-through payments: (1) At the schedule and subject to the limit announced in the May 6, 2016 final rule for hospitals under § 438.6(d)(3); and (2) at a schedule adopted by the state for physicians and nursing facilities under § 438.6(d)(5). By providing states, network providers, and managed care plans significant time and flexibility to integrate current pass-through payment arrangements into different payment structures (including enhanced fee schedules or the other approaches consistent with § 438.6(c)) and into actuarially sound capitation rates, we intended to address comments that the June 1, 2015 proposed rule would be unnecessarily disruptive and endanger safety-net provider systems that states have developed for Medicaid.

    Questions from states following the May 6, 2016 final rule indicated that the transition period and delayed enforcement date have caused some confusion regarding our intent for increased and new pass-through payments for contracts prior to July 1, 2017, because the final rule did not explicitly prohibit such additions or increases. While we assumed such a prohibition was implicit in the May 6, 2016 final rule, as our discussion of § 438.6(d) made clear that pass-through payments were to be discontinued, we believe that this additional rulemaking is necessary to clarify this issue in light of the recent questions. Under this final rule, we are linking pass-through payments permitted during the transition period to the aggregate amounts of pass-through payments that were in place at the time the May 6, 2016 final rule became effective on July 5, 2016, which is consistent with the intent under the May 6, 2016 final rule to phase out pass-through payments under Medicaid managed care contracts.

    II. Provisions of the Proposed Regulations and Analysis of and Responses to Public Comments

    We received 46 timely comments from the public, including comments from hospitals, hospital associations, state Medicaid agencies, Medicaid managed care plans, and other healthcare providers and associations. The following sections, arranged by subject area, are a summary of the comments we received. In response to the November 22, 2016 proposed rule, some commenters chose to raise issues that were beyond the scope of our proposals. In this final rule, we are not summarizing or responding to those comments.

    We proposed to revise § 438.6(d) to better effectuate the intent of the May 6, 2016 final rule. In the November 22, 2016 proposed rule, we first proposed to limit the availability of the transition periods in § 438.6(d)(3) and (5) (that is, the ability to continue pass-through payments for hospitals, physicians, or nursing facilities) to states that can demonstrate that they had such pass-through payments in either: (A) Managed care contract(s) and rate certification(s) for the rating period that includes July 5, 2016, and that were submitted for our review and approval on or before July 5, 2016; or (B) if the managed care contract(s) and rate certification(s) for the rating period that includes July 5, 2016 had not been submitted to us on or before July 5, 2016, the managed care contract(s) and rate certification(s) for a rating period before July 5, 2016 that had been most recently submitted to us for review and approval as of July 5, 2016.

    Second, we proposed to prohibit retroactive adjustments or amendments to managed care contract(s) and rate certification(s) to add new pass-through payments or increase existing pass-through payments defined in § 438.6(a). In the proposed rule, we noted that we would not permit a pass-through payment amount to exceed the lesser of the amounts calculated under paragraph (d)(3).

    Third, we proposed to establish a new maximum amount of permitted pass-through payments for each year of the transition period. For hospitals, a state would be limited (in the total amount of permissible pass-through payments) during each year of the transition period to the lesser of either: (A) The percentage of the base amount applicable to that contract year; or (B) the pass-through payment amount identified in proposed paragraph (d)(1)(i). Thus, the amount of pass-through payments identified by the state in order to satisfy proposed paragraph (d)(1)(i) would be compared to the amount representing the applicable percentage of the base amount that is calculated for each year of the transition period. For pass-through payments to physicians and nursing facilities, we also proposed to limit the amount of pass-through payments during the transition period to the amount of pass-through payments to physicians and nursing facilities under the contract and rate certification identified in proposed paragraph (d)(1)(i).

    In making these comparisons to the pass-through payments under the managed care contract(s) in effect for the rating period covering July 5, 2016 as identified in proposed paragraph (d)(1)(i)(A), or the rating period before July 5, 2016 as identified in proposed paragraph (d)(1)(i)(B), we noted that we would look at total pass-through payment amounts for the specified provider types. Past aggregate amounts of hospital pass-through payments will be used in determining the maximum amount for hospital pass-through payments during the transition period; past aggregate amounts of physician pass-through payments will be used in determining the maximum amount for physician pass-through payments during the transition period; and past aggregate amounts of nursing facility pass-through payments will be used in determining the maximum amount for nursing facility pass-through payments during the transition period.

    Under the November 22, 2016 proposed rule, the aggregate amounts of pass-through payments in each provider category would be used to set applicable limits for the provider type during the transition period, without regard to the specific provider(s) that received a pass-through payment. For example, if the pass-through payments in the contract identified under paragraph (d)(1)(i) were to 5 specific hospitals, the aggregate amount of pass-through payments to those hospitals would be relevant in establishing the limit during the transition period, but different hospitals could be the recipients of pass-through payments during the transition. We requested comment on our proposed approach as a whole, as well as our specific proposals to amend the existing regulation text and revise paragraph (d)(1) (adding new (d)(1)(i) and (ii)), revise paragraph (d)(3) (adding new (d)(3)(i) and (ii)), and revise paragraph (d)(5).

    A. General Comments

    Comment: Some commenters stated concerns with the overall proposal and stated that the current proposal would limit state flexibility for pass-through payments beyond what was finalized in the May 6, 2016 final rule; these commenters recommended that we not finalize the November 22, 2016 proposed rule and recommended that we ensure that states continue to have the flexibility permitted in the May 6, 2016 final rule for pass-through payments in Medicaid managed care programs.

    Response: We do not agree with commenters that states should have more flexibility in this area than this final rule provides. We believe that this final rule flows from the intent of the May 6, 2016 final rule to phase out pass-through payments under Medicaid managed care contracts and ensure that the transition periods be used by states that had pass-through payments in their MCO, PIHP, or PAHP contracts when we finalized the May 6, 2016 final rule. While we recognize that the regulation text finalized in the May 6, 2016 final rule was not explicit on this point and have taken steps to amend this final rule here to rectify that, this final rule is consistent with the policy and goals of the May 6, 2016 final rule in adopting transition periods. This final regulation maintains the significant time and flexibility provided to states, network providers, and managed care plans during the transition periods to move existing pass-through payment arrangements (those in effect when the May 6, 2016 final rule was published) into different, permissible payment structures under actuarially sound capitation rates, including enhanced fee schedules or the other approaches consistent with § 438.6(c) that tie managed care payments to services and utilization (and outcomes) covered under the contract.

    Comment: Some commenters recommended that we not finalize this rule and that we not further restrict or limit pass-through payments beyond what was included in the May 6, 2016 final rule to support safety-net providers that provide care to Medicaid managed care enrollees. These commenters stated that states and providers have already begun to plan for the transition periods beginning in July 2017 and that additional constraints will add significant burden on safety-net providers.

    Response: We do not agree that the proposed provisions, finalized here, restrict or limit states from continuing to use pass-through payments to support safety-net providers that provide care to Medicaid managed care enrollees during the transition periods adopted in the May 6, 2016 final rule. The May 6, 2016 final rule provided transition periods designed and finalized to enable affected providers, states, and managed care plans—meaning those that already had pass-through payments in place—to transition away from existing pass-through payments and limit disruption to safety-net providers. We believe such payments can be transitioned into permissible and accountable payment models that are tied to covered services, value-based payment structures, or delivery system reform initiatives without undermining access for Medicaid managed care enrollees. This rule flows from and reinforces the intent of the May 6, 2016 final rule by ensuring that the transition periods are used by states that had pass-through payments in their MCO, PIHP, or PAHP contracts when we finalized the May 6, 2016 final rule. These are the states for which we were concerned, based on the comments to the June 1, 2015 proposed rule, that an abrupt end to pass-through payments could be disruptive to their health care delivery system and safety-net providers. While we recognize that the regulation text finalized in the May 6, 2016 final rule was not explicit on this point and have taken steps to amend this final rule here to rectify that, this final rule is consistent with the policy and goals of the May 6, 2016 final rule in adopting transition periods.

    If states do not currently have pass-through payments in their managed care contracts, we believe that the transition periods are unnecessary to avoid disruption. States that do not have pass-through payments in their managed care contracts that wish to pursue delivery system and provider payment initiatives are already in a strong position to design and implement allowable payment structures under actuarially sound capitation rates, including enhanced fee schedules or the other approaches consistent with § 438.6(c) that tie managed care payments to services and utilization covered under the contract.

    We understand that states and providers have already begun to plan for the transition periods beginning in July 2017, but we do not believe that this rule will create substantially more constraints or add significant burden on safety-net providers. Under the May 6, 2016 final rule, we did not intend to permit or encourage states to add new pass-through payments or to ramp-up pass-through payments in ways that are not consistent with the elimination of pass-through payments during the transition periods. Adding new or increased pass-through payments would substantially complicate the required transition away from pass-through payments, potentially creating more disruption for safety-net providers by increasing dependence on these payments and then compressing the actual amount of time available to eliminate them.

    Comment: Some commenters recommended that the proposed rule not be finalized until the new administration has the opportunity to review and ensure that the policy in the November 22, 2016 proposed rule is consistent with the new administration's Medicaid policy and goals. These commenters stated that such an approach is congruent with the general practice and policy that significant new rules should not be issued shortly before a change in the administration.

    Response: A delay in finalizing this rule is contrary to our goals and policy so we do not accept this recommendation. This final rule flows from and reinforces the intent of the May 6, 2016 final rule to phase out pass-through payments under Medicaid managed care contracts; any delay would undermine the goals of that rule and make the transition to an actuarially sound approach more difficult. We discussed in the June 1, 2015 proposed rule, the May 6, 2016 final rule, the July 29, 2016 CIB, and the November 22, 2016 proposed rule the rationale for our position that pass-through payments are not consistent with our regulatory standards for actuarially sound rates; specifically, because they do not tie provider payments with the provision of services. While we recognize that the regulation text finalized in the May 6, 2016 final rule was not explicit on the point that this final rulemaking addresses (for example, that the transition periods were not for the initial adoption of and then elimination of new or increased pass-through payments), this final rule is consistent with the policy and goals of the May 6, 2016 final rule in adopting transition periods. This final rule is congruent with established and published policy guidance, is not a new policy being implemented at the last minute, and is timely as states prepare for the July 1, 2017 implementation date.

    In addition to comments on the proposal generally, we received comments about specific provisions in the proposal. We address and respond to those comments below.

    B. Comments on § 438.6(d)(1)

    We proposed to revise paragraph (d)(1) to clarify that a state may continue to require an MCO, PIHP, or PAHP to make pass-through payments (as defined in § 438.6(a)) to network providers that are hospitals, physicians, or nursing facilities under the contract, provided the requirements of paragraph (d) are met. We proposed retaining the regulation text that provides explicitly that states may not require MCOs, PIHPs, or PAHPs to make pass-through payments other than those permitted under paragraph (d). We received the following comments in response to our proposal to revise § 438.6(d)(1).

    Comment: Some commenters recommended that we remove the regulation text that provides explicitly that states may not require MCOs, PIHPs, or PAHPs to make pass-through payments other than those permitted under paragraph (d); these commenters recommended that we reconsider the pass-through payment policy finalized in the May 6, 2016 final rule.

    Response: Since commenters did not raise any new issues for our consideration in paragraph (d)(1), we do not agree with commenters that we should remove the regulation text that provides explicitly that states may not require MCOs, PIHPs, or PAHPs to make pass-through payments other than those permitted under paragraph (d). The May 6, 2016 final rule provided a detailed description of the policy rationale (81 FR 27587 through 27592) for why we established pass-through payment transition periods and limited pass-through payments to hospitals, physicians, and nursing facilities, and this policy rationale has not changed. With the proposal to amend the regulation text to more explicitly reflect our intent for the transition periods and the limits on pass-through payments, we did not intend to revisit our rationale for establishing the pass-through payment transition periods. We continue to believe that pass-through payments are not consistent with the statutory requirements that capitation rates be actuarially sound.

    After considering the comments, we are finalizing § 438.6(d)(1) as proposed without revision.

    C. Comments on § 438.6(d)(1)(i)

    Under proposed paragraph (d)(1)(i), a state would be able to use the transition period for pass-through payments to hospitals, physicians, or nursing facilities only if the state can demonstrate that it had pass-through payments for hospitals, physicians, or nursing facilities, respectively, in both the managed care contract(s) and rate certification(s) that meet the requirements in either proposed paragraph (d)(1)(i)(A) or (B).

    We proposed in paragraph (d)(1)(i)(A) that the managed care contract(s) and rate certification(s) must be for the rating period that includes July 5, 2016 and have been submitted for our review and approval on or before July 5, 2016. If the state had not yet submitted MCO, PIHP, or PAHP contract(s) and rate certification(s) for the rating period that includes July 5, 2016, we proposed in paragraph (d)(1)(i)(B) that the state must demonstrate that it required the MCO, PIHP, or PAHP to make pass-through payments for a rating period before July 5, 2016 in the managed care contract(s) and rate certification(s) that were most recently submitted for our review and approval as of July 5, 2016.

    We proposed to use the date July 5, 2016 for the purpose of identifying the pass-through payments in managed care contract(s) and rate certification(s) that are eligible for the pass-through payment transition period because it is consistent with the intent of the May 6, 2016 final rule that the transition period be used by states that had pass-through payments in their MCO, PIHP, or PAHP contracts when that rule was finalized. The transition period was intended to address concerns, articulated in the comments to the June 1, 2015 proposed rule, that an abrupt end to pass-through payments could be disruptive to state health care delivery systems and safety-net providers. We noted in the November 22, 2016 proposed rule that limiting the use of the transition period to states that had pass-through payments in effect as of the effective date of the May 6, 2016 final rule facilitates elimination of these types of payments. We did not intend for the May 6, 2016 final rule to incentivize or encourage states to add new pass-through payments, as we believe that these payments are inconsistent with actuarially sound rates. We received the following comments in response to our proposal to revise § 438.6(d)(1)(i), including new paragraphs (d)(1)(i)(A) and (B).

    Comment: Some commenters recommended that we not finalize paragraph (d)(1)(i) because this new provision will be administratively burdensome on states and has the potential to delay our approval of managed care contracts and rate certifications. Other commenters recommended that we add regulatory text to address scenarios in which states had not submitted managed care contracts or rate certifications to us by July 5, 2016, but states had already executed contracts with their managed care plans. These commenters recommended that we permit states to produce these executed contracts and allow these states to use these managed care contracts and rate certifications for the purpose of the transition period.

    Response: We believe that the requirements under § 438.6(d)(1)(i) will not be significantly more burdensome on states and will not cause delays in the approval of managed care contracts and rate certifications. To the contrary, we believe that the proposed requirements under § 438.6(d)(1)(i) will streamline the process for documenting and demonstrating pass-through payments and will facilitate a quicker approval process because the pass-through payments will be more transparently identified. In addition, we currently review and work with states on managed care contracts and rates, and because pass-through payments exist today, any additional burden to state or federal governments should be minimal.

    We also do not agree that additional regulatory text is necessary to address scenarios in which states had not submitted managed care contracts or rate certifications to us by July 5, 2016, but states had already executed contracts with their managed care plans. As proposed in § 438.6(d)(1)(i), we will permit states to demonstrate pass-through payments in two ways: (1) Pass-through payments for hospitals, physicians, or nursing facilities were in managed care contracts and rate certifications for the rating period that includes July 5, 2016 and were submitted for our review and approval before July 5, 2016; or (2) if the managed care contracts and rate certifications for the rating period that includes July 5, 2016 had not been submitted to us on or before July 5, 2016, pass-through payments for hospitals, physicians, or nursing facilities were in managed care contracts and rate certifications for a rating period before July 5, 2016 that had been most recently submitted for our review and approval as of July 5, 2016. We believe these requirements strike the appropriate balance between administrative simplicity and flexibility.

    Comment: Some commenters recommended that we withdraw this proposal. These commenters stated that establishing value-based payment arrangements, delivery system reform, minimum fee schedules, and payment rate increases require substantial time and attention. These commenters believed that the fact that some states had established pass-through payments before the effective date of the May 6, 2016 final rule (July 5, 2016) should not preclude other states from receiving similar reasonable flexibilities to implement permissible payment arrangements under Medicaid managed care.

    Response: We do not agree with commenters that we should withdraw this proposal. While we understand that establishing value-based payment arrangements, delivery system reform, minimum fee schedules, and payment rate increases require substantial time and attention, we see no rationale to provide transition periods for states to phase out and transition away from pass-through payments if they have not previously implemented such payments. Unlike states that already have pass-through payments in place and need to reverse those actions, states that have not already used such pass-through payments are starting from a clean slate in terms of adopting payment mechanisms and systems described in § 438.6(c). To permit new and increased pass-through payments is contrary to the policy adopted in the May 6, 2016 final rule of eliminating pass-through payments and is not consistent with our regulatory standards for actuarially sound rates. Further, encouraging or enabling states to add or increase such pass-through payments during the transition periods only exacerbates the challenges of eliminating them and transitioning to actuarially sound rates, or establishing value-based payment arrangements, delivery system reform, and fee schedule and payment rate reforms. For states with existing pass-through payments, the transition periods provide significant time and flexibility to integrate existing pass-through payment arrangements into permissible payment structures that tie provider payments to the provision of services (or outcomes) under the contract. For states that currently do not have pass-through payments in their managed care contracts that wish to pursue delivery system and provider payment initiatives, we believe such states are already in a better and superior position to design and implement allowable payment structures within actuarially sound capitation rates, including enhanced fee schedules or the other approaches consistent with § 438.6(c) that tie managed care payments to services and utilization covered under the contract.

    Comment: Some commenters did not agree with the use of the July 5, 2016 date and characterized the use of that date as finalizing a rule that applies retroactively. These commenters stated that the use of the July 5, 2016 date and retroactive rulemaking is not consistent with the intent of notice and comment rulemaking under the Administrative Procedure Act (APA) and makes it impossible for states and providers to plan for the potential impact of such rulemaking. Some commenters recommended that we withdraw the proposed rule immediately and stated that our proposals would significantly and retroactively change the compliance date for the pass-through payment phase-down and would effectively move-up the start of the phase-out period a full year from July 1, 2017 to July 5, 2016. These commenters stated that such a change in the compliance date would result in substantial new payment restrictions with little time for states and hospitals to make adjustments. These commenters stated concern that further limiting pass-through payments could adversely affect hospitals and the patients they serve.

    Response: This final rule will not and does not apply retroactively to July 5, 2016, and we have followed all notice and comment procedures for rulemaking under the APA. This final rule only affects future action of states and does not penalize or invalidate past actions taken by states, which is permissible rulemaking.2 We provided our detailed rationale in the proposed rule for using the July 5, 2016 date; we are only using the July 5, 2016 date for the purpose of identifying the pass-through payments in managed care contracts and rate certifications that are eligible for the pass-through payment transition period. That date was chosen because it is consistent with our intent that the transition period be used by states that had pass-through payments in their MCO, PIHP, or PAHP contracts when we finalized that rule. Limiting the use of the transition period to states that had pass-through payments in effect as of the effective date of the May 6, 2016 final rule (July 5, 2016) supports the policy goal of eliminating these types of payments, while ensuring that an abrupt end to pass-through payments will not be disruptive to state health care delivery systems and safety-net providers. Using this past date as the point by which to determine eligibility for the transition period eliminates the possibility that the transition period itself encourages states to create new or increase pass-through payments.

    2 Here, the rule only affects future action and limits future choices available to states. Retroactive rules “alter[ ] the past legal consequences of past actions.” Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 219, 109 S. Ct. 468 (1988) (Scalia, J., concurring) (emphasis in original). When an agency takes action to alter the future effect but not the past legal consequences of an activity, the agency has not taken a retroactive action; similarly, when agency action upsets expectations for future activity that are based on prior law, it has not taken a retroaction action. Mobile Relay Assocs. v. F.C.C., 457 F.3d 1, 10-11 (D.C. Cir. 2006).

    For commenters concerned about compliance dates, we want to clarify that this rule does not change the original compliance date for § 438.6(d) from the May 6, 2016 final rule. We will still enforce compliance with the requirements in § 438.6(d) no later than the rating period for Medicaid managed care contracts beginning on or after July 1, 2017. As discussed in the November 22, 2016 proposed rule and this final rule, our exercise of enforcement discretion in permitting delayed compliance of the May 6, 2016 final rule with § 438.6(d) was not intended to create new opportunities for states to add or increase existing pass-through payments either before or after July 1, 2017. This delay was intended to address concerns articulated by commenters, among them states and providers, that an abrupt end to directed pass-through payments could cause damaging disruption to safety-net providers. The delay was also intended to give states and managed care plans time to appropriately address any contract or rate issues needed to implement and comply with § 438.6(d). This final rule amends the parameters for the transition periods that begin with rating periods for contracts starting on or after July 1, 2017. As that date is still several months in the future, this final rule is not retroactive.

    We understand the need for states and providers to have adequate time to make adjustments in complying with the requirements at § 438.6(d)—that is why the May 6, 2016 final rule provided transition periods to phase-down pass-through payments. We agree and noted in the May 6, 2016 final rule (81 FR 27589) and the November 22, 2016 proposed rule (81 FR 83782) that the transition from one payment structure to another often requires robust provider and stakeholder engagement, agreement on approaches to care delivery and payment, establishing systems for measuring outcomes and quality, planning efforts to implement changes, and evaluating the potential impact of change on Medicaid financing mechanisms. However, for states that do not currently have pass-through payments in their managed care contracts, transition periods are unnecessary. States that do not have pass-through payments in their managed care contracts that wish to pursue delivery system and provider payment initiatives can design and implement allowable payment structures under actuarially sound capitation rates tying managed care payments to services and utilization covered under the contract without concern that modifying existing pass-through payments could potentially undermine access for Medicaid managed care enrollees or adversely impact hospitals.

    Comment: Some commenters stated that for many states, the capitation rates and contracts submitted as of or prior to July 5, 2016 were for prior rating periods when both enrollment numbers and the cost of providing care would be substantially less than the total enrollments and costs for current and future rating periods. These commenters stated that the limitation on setting pass-through payments based on a prior submitted date (July 5, 2016) of capitation rates and contracts deviates from the longstanding practice of states making retroactive adjustments and amendments to actuarially sound capitation rates. These commenters stated that the setting of an aggregate pass-through payment amount limit based on capitation rates and contracts submitted by states as of July 5, 2016 has the added effect of speeding up the transition periods established under the May 6, 2016 final rule and that states should be provided additional time to submit for our approval new managed care capitation rates, including pass-through payments, because states and providers had no notice prior to this cutoff date; some of these commenters recommended that we modify the rule to allow the use of the most recent rate year for demonstrating previous pass-through payments.

    Response: We understand that for some states, the capitation rates and contracts submitted as of or prior to July 5, 2016 would be for prior rating periods; it is for this reason that under the proposed requirements in § 438.6(d)(1)(i), we permitted states to demonstrate pass-through payments in the two ways described in paragraphs (d)(1)(i)(A) and (B).

    We do not believe that the limitation on setting pass-through payments based on a prior submitted date deviates from the practice of retroactive amendments to capitation rates. Under this final rule, we are not generally restricting states from adjusting or amending their actuarially sound capitation rates; the requirements for retroactive adjustments to capitation rates are specified at § 438.7(c)(2) and those requirements are not changed with this final rule. Since we will enforce compliance with the requirements of § 438.7(c)(2) for rating periods for contracts beginning July 1, 2017, we also note that before the May 6, 2016 final rule, states were permitted to adjust and amend actuarially sound capitation rates retroactively under § 438.6(c)(1). This final rule does not change these policies in permitting states to adjust and amend actuarially sound capitation rates retroactively.

    Under paragraph (d)(1)(ii), as proposed and as finalized, we will not approve a retroactive adjustment or amendment to managed care contracts and rate certifications to add new pass-through payments or increase existing pass-through payments, as defined in § 438.6(a). This limit only applies to retroactive adjustments to capitation rates related to new or increased pass-through payments; other retroactive adjustments to rates are not affected by this final rule. The existing policy permitting states flexibility to make other changes in capitation rates, subject to the limits on filing claims for FFP under 45 CFR 95.7 and, for contracts for rating periods after July 1, 2017, subject to the requirements in § 438.7(c)(2), remains in effect for all other changes to capitation rates.

    We also do not agree that this proposal has the added effect of speeding up the transition periods established under the May 6, 2016 final rule. We indicated in the proposed rule that we did not intend to speed up the rate of a state's phase down of pass-through payments; rather, the proposed rule intended only to prevent increases in pass-through payments and the addition of new pass-through payments beyond what was already in place when the pass-through payment limits and transition periods were finalized in the May 6, 2016 final rule. The length of the transition periods remains the same under this final rule: 10 years for hospital pass-through payments and 5 years for physician and nursing facility pass-through payments. States that were reliant on and using pass-through payments at the time we finalized the May 6, 2016 final rule will continue to be eligible for the full transition periods under this final rule. Further, this final rule will permit states to continue pass-through payments in the same amount as before the beginning of the transition period, unless and until, that amount exceeds the percentage of the base amount available for the applicable year of the transition period for hospital pass-through payments. Our amendments to § 438.6(d) only serve to prevent states from adding new pass-through payments, or increasing the total amount of pass-through payments, in the Medicaid managed care context.

    We also do not agree that states should be provided additional time to submit new managed care capitation rates to include new or increased pass-through payments, because such an approach is contrary to our policy goal of eliminating pass-through payments. We believe that limiting the use of the transition period to states that had pass-through payments in effect as of the effective date of the May 6, 2016 final rule (July 5, 2016) supports the policy goal of eliminating these types of payments, while ensuring that an abrupt end to already existing pass-through payments will not be disruptive to state health care delivery systems and safety-net providers. Using the date of July 5, 2016 as the point by which to determine eligibility for the transition period eliminates concern that the transition period itself encourages states to create new or increase pass-through payments despite our policy concerns that such payments are inconsistent with actuarial soundness and may compromise a managed care plan's ability to effectively direct care and implement quality improvement strategies.

    Comment: Some commenters recommended that we include specific regulatory text at § 438.6(d)(1)(i) to also specify that in order to use a transition period described under paragraph (d), a state must demonstrate that it had pass-through payments for hospitals, physicians, or nursing facilities “in managed care contracts and rate certifications for the rating period beginning before October 1, 2016, regardless of the date of submission to CMS, if the state can demonstrate that funding for the pass-through payment was approved by the state's legislature prior to July 5, 2016, and that corresponding supplemental payments were made under Medicaid fee-for-service (FFS) or section 1115 demonstration programs for at least 10 consecutive years prior to July 5, 2016.” These commenters stated that this language would ensure that a specific pass-through payment would meet the criteria under the proposed rule.

    Response: We understand the commenters' concerns regarding a specific pass-through payment that was recently approved by their state legislature; however, including the commenters' suggested regulatory text at § 438.6(d)(1)(i) would not comport with our policy goals. The pass-through payment transition periods included in the May 6, 2016 final rule were intended to be used by states that already had pass-through payments in place and would face significant disruption if immediate compliance with § 438.6(c) were required. Under the proposed rule and this final rule, we are linking pass-through payments permitted during the transition period to the aggregate amounts of pass-through payments that were in place at the time the May 6, 2016 final rule became effective on July 5, 2016, which is consistent with the intent under the May 6, 2016 final rule to eliminate pass-through payments but provide a transition period to limit disruption to safety net providers. Changing our proposal to include “managed care contracts and rate certifications for the rating period beginning before October 1, 2016 regardless of the date of submission to CMS” is not consistent with the rationale in the May 6, 2016 final rule or the November 22, 2016 proposed rule and would permit certain new or increased pass-through payments beyond those already in place at the time the May 6, 2016 final rule became effective on July 5, 2016.

    Further, we do not believe that we should allow new or increased pass-through payments for states with corresponding supplemental payments that were made under Medicaid FFS or section 1115 demonstration programs prior to July 5, 2016. As we have described throughout this rule, pass-through payments are not consistent with our regulatory standards for actuarially sound rates because they do not tie provider payments with the provision of services. For states with supplemental payments that were made under Medicaid FFS or section 1115 demonstration programs prior to July 5, 2016, we believe that as part of a state's transition to a managed care delivery system, the state needs to integrate such FFS supplemental payments into allowable payment structures that tie managed care payments to services and utilization covered under the contract. Integrating the FFS supplemental payments into allowable payment structures at the time of the transition will ensure that the state can hold managed care plans accountable for the cost and quality of services delivered under the contract.

    After considering the comments, we are finalizing § 438.6(d)(1)(i) as proposed without revision.

    D. Comments on § 438.6(d)(1)(ii)

    We proposed in paragraph (d)(1)(ii) that we would not approve a retroactive adjustment or amendment to managed care contract(s) and rate certification(s) to add new pass-through payments or increase existing pass-through payments defined in § 438.6(a). We noted that we would not permit a pass-through payment amount for hospitals to exceed the lesser of the amounts calculated under paragraph (d)(3) in the proposed rule. We also proposed, in paragraph (d)(5), that pass-through payment amounts to physicians and nursing facilities would be limited to the amount in place in the managed care contracts and rate certifications submitted pursuant to paragraph (d)(1)(i). We proposed paragraph (d)(1)(ii) to prevent states from undermining the policy goal of limiting the use of the transition period to states that had pass-through payments in effect as of the effective date of the May 6, 2016 final rule. This proposed change also aligns with the policy rationale under the May 6, 2016 final rule and the July 29, 2016 CMCS Informational Bulletin (CIB) by prohibiting new or increased pass-through payments in Medicaid managed care contract(s), notwithstanding the adjustments to the base amount permitted in § 438.6(d)(2). We received the following comments in response to our proposal to revise § 438.6(d)(1)(ii).

    Comment: Some commenters recommended that we address scenarios in which states are already paying pass-through payments through their managed care plans and were currently in the process of amending managed care contracts and rate certifications when the proposed rule was issued; these commenters recommended that we permit such retroactive adjustments and amendments. Some commenters provided that states have historically implemented retroactive rate adjustments to capitation rates and processed routine adjustments and amendments every year; these commenters recommended that we permit these adjustments and amendments and address how such routine activities would fit with this rule. Other commenters recommended that we permit retroactive adjustments and amendments through July 1, 2017 to account for potential increases in pass-through payments that were put into place before this rule was issued.

    Response: We do not agree that additional regulatory text is needed to address scenarios in which states are already paying pass-through payments through their managed care plans and were in the process of amending managed care contracts and rate certifications at the time of the May 6, 2016 final rule or the November 22, 2016 proposed rule. It is unclear to us what standard we could use to implement this recommendation while preventing new or increased pass-through payments. We note that § 438.6(d)(1)(ii), as proposed and as finalized here, will not be a barrier to the approval of retroactive changes to managed care contracts and rate certifications when the retroactive change does not purport to add or increase a pass-through payment to hospitals, physicians, or nursing facilities. Therefore, states that were in the process of amending contracts or rates for other purposes should not be affected by § 438.6(d)(1)(ii).

    States will need to meet the requirements in § 438.6(d)(1)(i) in order to use a transition period described in § 438.6(d). That means that states must be able to demonstrate pass-through payments in managed care contracts and rate certifications under the requirements in proposed § 438.6(d)(1)(i)(A) and (B). For commenters concerned about general adjustments and amendments unrelated to new or increased pass-through payments, this rule does not impact those routine activities that states undertake each year; the requirements in § 438.6(d)(1)(ii), as proposed and finalized here, only limit retroactive adjustments and amendments intended to add new pass-through payments or increase existing pass-through payments defined in § 438.6(a). Without this provision limiting retroactive changes to pass-through payments, a state could retroactively change a prior, submitted managed care contract and rate certification to increase or add pass-through payments and eliminate the restrictions on the use of the transition periods that were proposed in the November 22, 2016 proposed rule and finalized in this rule. Further, the adjustments to the base amount under § 438.6(d)(2) are still permitted upon finalization of this rule; therefore, the base amount will be calculated annually and increases in Medicaid and Medicare FFS rates will be taken into account even though a smaller percentage of the base amount will be available for pass-through payments. However, we would not permit a pass-through payment amount to exceed the lesser of the amounts calculated under paragraph (d)(3) in this rule. We are not generally restricting states from adjusting or amending their actuarially sound capitation rates that are unrelated to new or increased pass-through payments; the general requirements for retroactive adjustments to capitation rates are specified at § 438.7(c)(2) and those requirements are not changed with this final rule. Only contract actions to add or increase pass-through payments on a retroactive basis will be denied under § 438.6(d)(1)(ii); other retroactive rate changes will be evaluated and approved pursuant to other applicable rules adopted prior to this rulemaking.

    Finally, we do not believe that we should permit retroactive adjustments and amendments through July 1, 2017 to account for potential increases in pass-through payments that were put into place before this rule. This approach is not consistent with our policy, which has been discussed in the May 6, 2016 final rule and throughout this final rule, to eliminate pass-through payments, which are inconsistent with our regulatory standards for actuarially sound capitation rates.

    After considering the comments, we are finalizing § 438.6(d)(1)(ii) as proposed without revision.

    E. Comments on § 438.6(d)(3)

    In paragraph (d)(3), we proposed to amend the cap on the amount of pass-through payments to hospitals that may be incorporated into managed care contract(s) and rate certification(s) during the transition period for hospital payments, which will apply to rating periods for contract(s) beginning on or after July 1, 2017. Specifically, we proposed to revise § 438.6(d)(3) to require that the limit on pass-through payments each year of the transition period be the lesser of: (A) The sum of the results of paragraphs (d)(2)(i) and (ii),3 as modified under the schedule in this paragraph (d)(3); or (B) the total dollar amount of pass-through payments to hospitals identified by the state in the managed care contract(s) and rate certification(s) used to meet the requirement in paragraph (d)(1)(i). This proposed language would limit the amount of pass-through payments each contract year to the lesser of the calculation adopted in the May 6, 2016 final rule (the “base amount”), as decreased each successive year under the schedule in this paragraph (d)(3), or the total dollar amount of pass-through payments to hospitals identified by the state in managed care contract(s) and rate certification(s) described in paragraph (d)(1)(i). For example, if a state had $10 million in pass-through payments to hospitals in the contract and rate certification used to meet the requirement in paragraph (d)(1)(i), that $10 million figure would be compared each year to the base amount as reduced on the schedule described in this paragraph (d)(3); the lower number would be used to limit the total amount of pass-through payments to hospitals allowed for that specific contract year.

    3 The portion of the base amount calculated in § 438.6(d)(2)(i) is analogous to performing UPL calculations under a FFS delivery system, using payments from managed care plans for Medicaid managed care hospital services in place of the state's payments for FFS hospital services under the state plan. The portion of the base amount calculated in § 438.6(d)(2)(ii) takes into account hospital services and populations included in managed care during the rating period that includes pass-through payments which were in FFS two years prior.

    We noted that this proposed language would prevent increases of aggregate pass-through payments for hospitals during the transition period beyond what was already in place when the pass-through payment limits and transition periods were finalized in the May 6, 2016 final rule. We also noted that our proposal was not intended to speed up the rate of a state's phase down of pass-through payments; rather, the proposed rule intended to prevent increases in pass-through payments and the addition of new pass-through payments beyond what was already in place when the pass-through payment limits and transition periods were finalized given that this was the final rule's intent.

    In addition, we proposed to amend paragraph (d)(3) to provide that states must meet the requirements in paragraph (d)(1)(i) to make pass-through payments for hospitals during the transition period. We noted that this additional text was necessary to be consistent with our intent, explained above, for the proposed revisions to paragraph (d)(1). As in the May 6, 2016 final rule, we noted that pass-through payments to hospitals must be phased out no longer than on the 10-year schedule, beginning with rating periods for contracts that start on or after July 1, 2017. We proposed to add the phrase “rating periods” to be consistent with our approach in the May 6, 2016 final rule; we made this revision throughout proposed paragraphs (d)(3) and (d)(5). We received the following comments in response to our proposal to revise § 438.6(d)(3), including new paragraphs (d)(3)(i) and (ii).

    Comment: Some commenters recommended that we not finalize proposed paragraph (d)(3). Some commenters recommended that we permit increases in pass-through payments over the 10-year transition period to give states the maximum amount of flexibility in phasing down pass-through payments for hospitals. Some commenters recommended that we permit new or increased pass-through payments for states that are currently in the process of moving hospital FFS supplemental payments into managed care, or that we provide states that had received federal approval to transition to managed care before this rule, the opportunity to implement their managed care programs using the pass-through payment transition periods and amounts established in the May 6, 2016 final rule. Some commenters similarly recommended that we permit new or increased pass-through payments for states with Medicaid state plan approved UPL payments for hospitals as of July 5, 2016 and allow such states to utilize the transition periods and amounts outlined in the May 6, 2016 final rule.

    Response: We do not agree with commenters that we should not finalize proposed paragraph (d)(3). We have explained throughout this rule our rationale to prevent increases of pass-through payments for hospitals during the transition period beyond what was already in place when the pass-through payment limits and transition periods were finalized in the May 6, 2016 final rule.

    We also do not believe that we should permit increased pass-through payments through the 10-year transition period. The 10-year transition period provides states with significant flexibility and time to phase down existing pass-through payments for hospitals. We believe that we should not allow new or increased pass-through payments for states that are currently in the process of moving hospital FFS supplemental payments into managed care, and that we should not permit new or increased pass-through payments for states with Medicaid state plan approved UPL payments for hospitals as of July 5, 2016. As we have reiterated throughout this rule, pass-through payments are not consistent with our regulatory standards for actuarially sound rates because they do not tie provider payments with the provision of services. When pass-through payments guarantee a portion of a provider's payment and divorce the payment from service delivery, there is little accountability for the payment and it is more challenging for managed care plans to negotiate provider contracts with incentives focused on outcomes and managing individuals' overall care. Consequently, for states that are currently in the process of moving hospital FFS supplemental payments into managed care, we believe that integrating the FFS supplemental payments into allowable payment structures at the time of the transition will facilitate a state's ability to hold managed care plans accountable for the cost and quality of services delivered under the contract. To date, we have already provided technical assistance to states who are seeking to implement these types of allowable payment structures and remain available to provide future technical assistance. We will work with states to integrate FFS supplemental payments into allowed payment structures as states undertake transitions to managed care.

    Comment: Some commenters recommended that we withdraw all caps and limits on the “base amount” for hospitals and allow states the flexibility to adjust pass-through payment amounts to reflect significant programmatic changes and increases in the managed care population. These commenters provided that if the base amount increases from one year to the next, the “total dollar amount” limit should also be permitted to increase at the same percentage. Some commenters similarly recommended a “per-member per-month” (PMPM) basis rather than a total dollar amount limitation on the maximum amount of pass-through payments for hospitals. Other commenters stated the concern that this proposed rule is effectively limiting the maximum amount of pass-through payments to the amount in place prior to the final rule's compliance date and would give state Medicaid programs and hospitals no time to transition these payments.

    Response: We do not agree that we should withdraw all caps and limits on the base amount for hospitals, and we do not agree that the “total dollar amount” limit should be permitted to increase, or that we should permit PMPM increases, as these approaches could have the effect of permitting increased pass-through payments for hospitals, which would be counter to our stated policy goals. We believe that adopting these recommendations would complicate the required transition of pass-through payments to permissible provider payment models and delay the development of permissible and accountable payment approaches that are based on the utilization and delivery of services or the quality and outcomes of services. We also note that states can implement allowed payment structures to reflect significant programmatic changes and increases in the managed care population.

    In the June 1, 2015 proposed rule and the May 6, 2016 final rule, we discussed how the payment structures permitted under § 438.6(c) tied payments to services while permitting states to reward quality in the provision of services, assure minimum payment rates, or develop delivery system reform. One advantage of using an allowed payment mechanism to address changes in the managed care population is that such a structure would allow states and managed care plans to link payments to significant programmatic changes. Linking provider payments to utilization and outcomes under a managed care plan's control facilitates a state's ability to hold managed care plans accountable for the quality, utilization, and cost of care provided to beneficiaries.

    We agree with commenters that this final rule limits the maximum amount of pass-through payments to the amount in place on the effective date of the May 6, 2016 final rule (July 5, 2016). However, we do not agree that this final rule eliminates the transition period for existing pass-through payments. This final rule does not change the transition periods established under the May 6, 2016 final rule. This final rule provides a new maximum amount of pass-through payments for hospitals in order to prevent new or increased pass-through payments. States that were reliant on and using pass-through payments at the time we finalized the May 6, 2016 final rule will continue to be eligible for the full transition periods under this final rule. This final rule does not accelerate the transition period for states compared to the May 6, 2016 final rule.

    Comment: Some commenters stated that § 438.6(d) of the May 6, 2016 final rule allowed for specific calculations and adjustments to the base amount to determine the upper limit of pass-through payments for hospitals. These commenters stated that § 438.6(d) allowed states to account for changes in the demographics, service mix, enrollment, and utilization of Medicaid managed care beneficiaries beginning July 1, 2017. These commenters stated concerns that the proposed rule eliminates these flexibilities by artificially limiting “the total dollar amount” of pass-through payments without accounting for the permitted adjustments in the May 6, 2016 final rule.

    Response: We understand commenters' concerns regarding the base amount calculations and permitted adjustments at § 438.6(d)(2) in the May 6, 2016 final rule. This final rule does not modify the adjustments to the base amount permitted under § 438.6(d)(2); however, this final rule does not permit a pass-through payment amount to exceed the lesser of the amounts calculated under paragraph (d)(3) in this final rule, as we believe such a flexibility could have the effect of permitting increased pass-through payments for hospitals. We believe that increasing pass-through payments will complicate the required transition of pass-through payments to permissible provider payment models and delay the development of permissible and accountable payment approaches that are based on the utilization and delivery of services or the quality and outcomes of services.

    Under § 438.6(d)(2), states can account for changes in the demographics, service mix, enrollment, and utilization in their Medicaid managed care programs (see 81 FR 27591). States can also account for changes in the demographics, service mix, enrollment, and utilization through permissible payment mechanisms. One advantage of using an allowed payment mechanism to address changes in the managed care population (such as demographics, service mix, enrollment, or utilization) is that such a structure would allow states and managed care plans to link new and increased funding to the corresponding increase in services that result from the programmatic changes or increased population. Linking provider payments to utilization and outcomes under a managed care plan's control facilitates a state's ability to hold managed care plans accountable for the quality, utilization, and cost of care provided to beneficiaries. Therefore, we do not agree that the proposed rule, which is finalized here, eliminates these flexibilities. Also, as described throughout this final rule, the “total dollar amount” limit for pass-through payments was established under paragraphs (d)(3) and (d)(5) for hospitals, physicians, and nursing facilities because we did not intend states to begin additional or new pass-through payments, or to increase existing pass-through payments.

    After considering the comments, we are finalizing § 438.6(d)(3) as proposed without revision.

    F. Comments on § 438.6(d)(5)

    We proposed to revise § 438.6(d)(5) to be consistent with the proposed revisions in § 438.6(d)(1)(i) and to limit the total dollar amount of pass-through payments that is available each contract year for physicians and nursing facilities. We noted that we were not proposing to implement a phase-down for pass-through payments to physicians or nursing facilities. We proposed that for states that meet the requirements in paragraph (d)(1)(i), rating periods for contracts beginning on or after July 1, 2017 through rating periods for contracts beginning on or after July 1, 2021, may continue to require pass-through payments to physicians or nursing facilities under the MCO, PIHP, or PAHP contract; such pass-through payments may be no more than the total dollar amount of pass-through payments for each category identified in the managed care contracts and rate certifications used to meet the requirement in paragraph (d)(1)(i). We proposed to add the phrase “rating periods” to be consistent with our approach in the May 6, 2016 final rule; we made this revision throughout proposed paragraphs (d)(3) and (d)(5). We received the following comments in response to our proposal to revise § 438.6(d)(5).

    Comment: Some commenters recommended that we not finalize the “total dollar amount” limit on pass-through payments over the 5-year transition period for physicians and nursing facilities because such a limit does not recognize significant programmatic changes and increases in the managed care population. Commenters recommended that we continue to allow increases over the 5-year transition period to give states the maximum amount of flexibility in phasing down pass-through payments. Some commenters also recommended that we permit new or increased pass-through payments for states that are currently in the process of moving physician or nursing facility FFS supplemental payments into managed care, or that we provide states that had received federal approval to transition to managed care before this rule, the opportunity to implement their managed care programs using the pass-through payment transition periods and amounts established in the May 6, 2016 final rule.

    Response: As noted above, we believe the lack of an affirmative limit on pass-through payments at the total amount of prior pass-through payments identified under paragraph (d)(1)(i) will permit states to increase pass-through payments to physicians and nursing facilities, which is contrary to our policy goals for eliminating these types of payments. This final rule will encourage states to use the other, permissible payment types described in § 438.6(c) in directing payments to nursing facilities and physicians. We explained throughout this final rule our rationale for prohibiting increases of pass-through payments during the transition period beyond what was already in place when the pass-through payment limits and transition periods were finalized in the May 6, 2016 final rule. We reiterate that states can implement allowed, accountable payment structures to reflect significant programmatic changes and increases in the managed care population. One advantage of using an allowed payment mechanism to address the changes is that such a structure would allow states and managed care plans to link new and increased funding to the corresponding increased utilization resulting from the programmatic changes or increased population. Additionally, the 5-year transition period provides states with significant flexibility and time to phase down existing pass-through payments for physicians and nursing facilities.

    Consistent with our response for hospital FFS supplemental payments, we do not believe that we should allow new or increased pass-through payments for states that are currently in the process of moving physician or nursing facility FFS supplemental payments into managed care. As we have provided throughout this rule, pass-through payments are not consistent with our interpretation of the statutory requirement for actuarial soundness and our regulatory standards for actuarially sound rates because they do not tie provider payments with the provision of services. For states that are currently in the process of moving physician or nursing facility FFS supplemental payments into managed care, we believe that integrating the FFS supplemental payments into allowable payment structures at the time of the transition will ensure that the state can hold managed care plans accountable for the cost and quality of services delivered under the contract.

    We did not receive any comments on our proposal to use the phrase “rating period” in § 438.6(d)(3) and (5). After considering the comments, we are finalizing § 438.6(d)(5) as proposed without revision.

    III. Provisions of the Final Regulations

    As a result of the public comments received under the proposed rule, this final rule incorporates the provisions of the proposed rule without revision.

    IV. Collection of Information Requirements

    This final rule will not impose any new or revised information collection, reporting, recordkeeping, or third-party disclosure requirements or burden. Our revision of § 438.6(d) will not impose any new or revised IT system requirements or burden because the existing regulation at § 438.7 requires the rate certification to document special contract provisions under § 438.6. Consequently, there is no need for review by the Office of Management and Budget under the authority of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.).

    V. Regulatory Impact Analysis A. Statement of Need

    As discussed in the May 6, 2016 final rule, the proposed rule, and this final rule, we have significant concerns that pass-through payments have negative consequences for the delivery of services in the Medicaid program. The existence of pass-through payments may affect the amount that a managed care plan is willing or able to pay for the delivery of services through its base rates or fee schedule. In addition, pass-through payments may make it more difficult to implement quality initiatives or to direct beneficiaries' utilization of services to higher quality providers because a portion of the capitation rate under the contract is independent of the services delivered and outside of the managed care plan's control. Put another way, when the fee schedule for services is set below the normal market, or negotiated rate, to account for pass-through payments, moving utilization to higher quality providers can be difficult because there may not be adequate funding available to incentivize the provider to accept the increased utilization. When pass-through payments guarantee a portion of a provider's payment and divorce the payment from service delivery, it is more challenging for managed care plans to negotiate provider contracts with incentives focused on outcomes and managing individuals' overall care.

    We realize that some pass-through payments have served as a critical source of support for safety-net providers who provide care to Medicaid beneficiaries. Several commenters raised this issue in response to the June 1, 2015 proposed rule.4 Therefore, in response to some commenters' request for a delayed implementation of the limitation on directed payments and to address concerns that an abrupt end to these payments could create significant disruptions for some safety-net providers who serve Medicaid managed care enrollees, we included in the May 6, 2016 final rule a delay in the compliance date and a transition period for existing pass-through payments to hospitals, physicians, and nursing facilities. These transition periods begin with the compliance date, and were designed and finalized to enable affected providers, states, and managed care plans to transition away from existing pass-through payments. Such payments could be transitioned into payments tied to covered services, value-based payment structures, or delivery system reform initiatives without undermining access for the beneficiaries; alternatively, states could step down such payments and devise other methods to support safety-net providers to come into compliance with § 438.6(c) and (d).

    4 Available at: https://www.thefederalregister.org/fdsys/pkg/FR-2015-06-01/pdf/2015-12965.pdf.

    However, as noted previously, the transition period and delayed enforcement date caused some confusion regarding increased and new pass-through payments. The May 6, 2016 final rule inadvertently created a strong incentive for states to move swiftly to put pass-through payments into place in order to take advantage of the pass-through payment transition periods established in the May 6, 2016 final rule. Contrary to our discussion in the May 6, 2016 final rule regarding the statutory requirements in section 1903(m) of the Act and regulations for actuarially sound capitation rates, some states expressed interest in developing new and increased pass-through payments for their respective Medicaid managed care programs as a result of the May 6, 2016 final rule. In response to this interest, we published the July 29, 2016 CMCS Informational Bulletin (CIB) to quickly address questions regarding the May 6, 2016 final rule's intent regarding states' ability to increase or add new pass-through payments under Medicaid managed care plan contracts and capitation rates, and to describe our plan for monitoring the transition of pass-through payments to approaches for provider payment under Medicaid managed care programs that are based on the delivery of services, utilization, and the outcomes and quality of the delivered services.

    We noted in the CIB that the transition from one payment structure to another requires robust provider and stakeholder engagement, agreement on approaches to care delivery and payment, establishing systems for measuring outcomes and quality, planning efforts to implement changes, and evaluating the potential impact of change on Medicaid financing mechanisms. Whether implementing value-based payment structures, implementing other delivery system reform initiatives, or eliminating pass-through payments, there will be transition issues for states coming into compliance; adequately working through transition issues, including ensuring adequate base rates, is central to both delivery system reform and to strengthening access, quality, and efficiency in the Medicaid program. We stressed that the purpose and intention of the transition periods is to acknowledge that pass-through payments existed prior to the May 6, 2016 final rule and to provide states, network providers, and managed care plans time and flexibility to integrate existing pass-through payment arrangements into permissible payment structures.

    As we noted in the CIB and throughout this final rule, we believe that adding new or increased pass-through payments for hospitals, physicians, or nursing facilities, beyond what was included as of July 5, 2016, into Medicaid managed care contracts exacerbates a problematic practice that is inconsistent with our interpretation of statutory and regulatory requirements, complicates the required transition of these pass-through payments to permissible and accountable payment approaches that are based on the utilization and delivery of services to enrollees covered under the contract, or the quality and outcomes of such services, and reduces managed care plans' ability to effectively use value-based purchasing strategies and implement provider-based quality initiatives. In the CIB, we signaled the possible need, and our intent, to further address this policy in future rulemaking and link pass-through payments through the transition period to the amounts of pass-through payments in place at the time the Medicaid managed care rule was effective on July 5, 2016.

    B. Overall Impact

    We have examined the impacts of this final rule as required by Executive Order 12866 on Regulatory Planning and Review (September 30, 1993), Executive Order 13563 on Improving Regulation and Regulatory Review (January 18, 2011), the Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), section 1102(b) of the Act, section 202 of the Unfunded Mandates Reform Act of 1995 (March 22, 1995; Pub. L. 104-4), Executive Order 13132 on Federalism (August 4, 1999), and the Congressional Review Act (5 U.S.C. 804(2)).

    Executive Orders 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Section 3(f) of Executive Order 12866 defines a “significant regulatory action” as an action that is likely to result in a rule: (1) Having an annual effect on the economy of $100 million or more in any 1 year, or adversely and materially affecting a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or state, local or tribal governments or communities (also referred to as “economically significant”); (2) creating a serious inconsistency or otherwise interfering with an action taken or planned by another agency; (3) materially altering the budgetary impacts of entitlement grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) raising novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order.

    A regulatory impact analysis (RIA) must be prepared for major rules with economically significant effects ($100 million or more in any 1 year). We estimate that this final rule is “economically significant” as measured by the $100 million threshold, and hence a major rule under the Congressional Review Act.

    The May 6, 2016 final rule included a RIA (81 FR 27830). During that analysis, we did not project a significant fiscal impact for § 438.6(d). When we reviewed and analyzed the May 6, 2016 final rule, we concluded that states would have other mechanisms to build in the amounts currently provided through pass-through payments in approvable ways, such as approaches consistent with § 438.6(c). If a state was currently building in $10 million in pass-through payments to hospitals under their current managed care contracts, we assumed that the state would incorporate the $10 million into their managed care rates in permissible ways rather than spending less in Medicaid managed care. While it is possible that this would be more difficult for states with relatively larger amounts of pass-through payments, the long transition period provided under the May 6, 2016 final rule to phase out pass-through payments should help states to integrate existing pass-through payments into actuarially sound capitation rates through permissible Medicaid financing structures, including enhanced fee schedules or the other approaches consistent with § 438.6(c) that tie managed care payments to services and utilization covered under the contract.

    A number of states have integrated some form of pass-through payments into their managed care contracts for hospitals, nursing facilities, and physicians. In general, the size and number of the pass-through payments for hospitals has been more significant than for nursing facilities and physicians. We noted in the May 6, 2016 final rule (81 FR 27589) a number of reasons provided by states for using pass-through payments in their managed care contracts. As of the effective date of the May 6, 2016 final rule, we estimate that at least eight states have implemented approximately $105 million in pass-through payments for physicians annually; we estimate that at least three states have implemented approximately $50 million in pass-through payments for nursing facilities annually; and we estimate that at least 16 states have implemented approximately $3.3 billion in pass-through payments for hospitals annually. These estimates are somewhat uncertain, as before the final rule, we did not have regulatory requirements for states to document and describe pass-through payments in their managed care contracts or rate certifications. The amount of pass-through payments often represents a significant portion of the overall capitation rate under a managed care contract. We have seen pass-through payments that have represented 25 percent, or more, of the overall managed care contract and 50 percent of individual rate cells. The rationale for these pass-through payments in the development of the capitation rates is often not transparent, and it is not clear what the relationship of these pass-through payments is to the provision of services or the requirement for actuarially sound rates.

    Since the publication of the May 6, 2016 final rule, we received a formal proposal from one state regarding $250 to $275 million in pass-through payments to hospitals; we have been working with the state to identify permissible implementation options for their proposal, including under § 438.6(c), and tie such payments to the utilization and delivery of services (as well as the outcomes of delivered services). We heard informally that two additional states are working to develop pass-through payment mechanisms to increase total payments to hospitals by approximately $10 billion cumulatively. We also heard informally from one state regarding a $200 million proposal for pass-through payments to physicians. We also continue to receive inquiries from states, provider associations, and consultants who are developing formal proposals to add new pass-through payments, or increase existing pass-through payments, and incorporate such payments into Medicaid managed care rates. These state proposals have not been approved to date. While it is difficult for us to conduct a detailed quantitative analysis given this considerable uncertainty and lack of data, we believe that without this final rulemaking, states will continue to ramp-up pass-through payments in ways that are not consistent with the pass-through payment transition periods established in the May 6, 2016 final rule.

    Since we cannot produce a detailed quantitative analysis, we have developed a qualitative discussion for this RIA. We believe there are many benefits with this regulation, including consistency with our interpretation and implementation of the statutory requirements in section 1903(m) of the Act and regulations for actuarially sound capitation rates, improved transparency in rate development processes, permissible and accountable payment approaches that are based on the utilization and delivery of services to enrollees covered under the contract, or the quality and outcomes of such services, and improved support for delivery system reform that is focused on improved care and quality for Medicaid beneficiaries. We believe that the costs of this regulation to state and federal governments will not be significant; we currently review and work with states on managed care contracts and rates, and because pass-through payments exist today, any additional costs to state or federal governments should be negligible.

    Relative to the current baseline, this final rule builds on the May 6, 2016 final rule and may further reduce the likelihood of increases in or the development of new pass-through payments, which could reduce state and federal government transfers to hospitals, physicians, and nursing facilities. However, states may instead increase or develop actuarially sound payments that link provider reimbursement with services covered under the contract or associated quality outcomes. Because we lack sufficient information to forecast the eventual overall impact of the May 6, 2016 final rule on state pass-through payments, we provide only a qualitative discussion of the impact of this final rule on avoided transfers. Given the potential for avoided transfers, we believe this final rule is economically significant as defined by Executive Order 12866.

    We received the following comment on the proposed overall impact and regulatory impact analysis.

    Comment: One commenter stated concern that we did not provide, in the proposed rule and to the public, a careful and transparent analysis of the anticipated quantitative consequences of this economically significant regulatory action. This commenter recommended that we withdraw the proposed rule until such a quantitative analysis is completed.

    Response: The commenter did not provide any substantive information with which to conduct such an analysis. As stated in the proposed rule, it is difficult for us to conduct a detailed quantitative analysis given the considerable uncertainty and lack of data discussed above; however we continue to believe that without this final rulemaking, states will continue to ramp-up pass-through payments in ways that are not consistent with the pass-through payment transition periods established in the May 6, 2016 final rule. We solicited and received no substantive suggestions on doing such an analysis. Since we cannot produce a detailed quantitative analysis, we have developed a qualitative discussion for this final rule.

    After considering the comments, we are finalizing the regulatory impact analysis as proposed without revision.

    C. Anticipated Effects

    The RFA requires agencies to analyze options for regulatory relief of small businesses. For purposes of the RFA, small entities include small businesses, nonprofit organizations, and small governmental jurisdictions. Small entities are those entities, such as health care providers, having revenues between $7.5 million and $38.5 million in any 1 year. Individuals and states are not included in the definition of a small entity. We do not believe that this final rule will have a significant economic impact on a substantial number of small businesses.

    In addition, section 1102(b) of the Act requires us to prepare a regulatory impact analysis for any rule that may have a significant impact on the operations of a substantial number of small rural hospitals. This analysis must conform to the provisions of section 604 of the RFA. For purposes of section 1102(b) of the Act, we define a small rural hospital as a hospital that is located outside a Metropolitan Statistical Area and has fewer than 100 beds. We do not anticipate that the provisions in this final rule will have a substantial economic impact on small rural hospitals. We are not preparing analysis for either the RFA or section 1102(b) of the Act because we have determined, and the Secretary certifies, that this final rule will not have a significant economic impact on a substantial number of small entities or a significant impact on the operations of a substantial number of small rural hospitals in comparison to total revenues of these entities.

    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also requires that agencies assess anticipated costs and benefits before issuing any rule whose mandates require spending in any 1 year of $100 million in 1995 dollars, updated annually for inflation. In 2016, that is approximately $146 million. This final rule does not mandate any costs (beyond this threshold) resulting from (A) imposing enforceable duties on state, local, or tribal governments, or on the private sector, or (B) increasing the stringency of conditions in, or decreasing the funding of, state, local, or tribal governments under entitlement programs.

    Executive Order 13132 establishes certain requirements that an agency must meet when it issues a rule that imposes substantial direct requirements or costs on state and local governments, preempts state law, or otherwise has federalism implications. Since this final rule does not impose any costs on state or local governments, the requirements of Executive Order 13132 are not applicable. In accordance with the provisions of Executive Order 12866, this final rule was reviewed by the Office of Management and Budget.

    We did not receive comments on the proposed anticipated effects for the revisions to § 438.6(d) and finalize our analysis in this rule.

    D. Alternatives Considered

    During the development of this final rule, we assessed all regulatory alternatives and discussed in the preamble of the proposed rule a few alternatives that we considered. First, in discussing our revisions to paragraphs (d)(1)(i) and (ii) in the proposed rule, we considered linking eligibility for the transition period to those states with pass-through payments for hospitals, physicians, or nursing facilities that were in approved (not just submitted for our review and approval) managed care contract(s) and rate certification(s) only for the rating period covering July 5, 2016. We noted in the proposed rule that we believed such an approach was not administratively feasible for states or us because it did not recognize the nuances of the timing and approval processes. We believe our approach under this final rule provides the appropriate parameters and conditions for pass-through payments in managed care contract(s) and rate certification(s) during the transition period.

    Second, in discussing our revisions to paragraphs (d)(3) and (d)(5) in the proposed rule, we described that the aggregate amounts of pass-through payments in each provider category would be used to set applicable limits for the provider type during the transition period, without regard to the specific provider(s) that received a pass-through payment. We considered proposing that the state should be limited by amount and recipient during the transition period; however, this narrower policy would be more limiting than originally intended under the May 6, 2016 final rule when the pass-through payment transition periods were finalized. We requested comment on our alternative proposals.

    We did not receive comments on the alternative proposals to revise § 438.6(d) and, as noted above, are finalizing the proposed amendments to § 438.6(d).

    E. Accounting Statement

    As discussed in this RIA, the benefits, costs, and transfers of this final regulation are identified in table 1 as qualitative impacts only.

    Table 1—Accounting Statement Category Primary
  • estimate
  • Low estimate High estimate Units Year dollars Discount rate Period
  • covered
  • Notes
    Benefits Non-Quantified Benefits include: Consistency with the statutory requirements in section 1903(m) of the Act and regulations for actuarially sound capitation rates; improved transparency in rate development processes; greater incentives for payment approaches that are based on the utilization and delivery of services to enrollees covered under the contract, or the quality and outcomes of such services; and improved support for delivery system reform that is focused on improved care and quality for Medicaid beneficiaries. Costs Non-Quantified Costs to state or federal governments should be negligible. Transfers Non-Quantified Relative to the current baseline, this final rule builds on the May 6, 2016 final rule and may further reduce the likelihood of increases in or the development of new pass-through payments, which could reduce state and federal government transfers to hospitals, physicians, and nursing facilities. Given the potential for avoided transfers, we believe this final rule is economically significant as defined by Executive Order 12866.
    List of Subjects in 42 CFR Part 438

    Grant programs—health, Medicaid, Reporting and recordkeeping requirements.

    For the reasons set forth in the preamble, the Centers for Medicare & Medicaid Services amends 42 CFR chapter IV as set forth below:

    PART 438—MANAGED CARE 1. The authority citation for part 438 continues to read as follows: Authority:

    Sec. 1102 of the Social Security Act (42 U.S.C. 1302).

    2. Section 438.6 is amended by revising paragraphs (d)(1), (3), and (5) to read as follows:
    § 438.6 Special contract provisions related to payment.

    (d) * * * (1) General rule. States may continue to require MCOs, PIHPs, and PAHPs to make pass-through payments (as defined in paragraph (a) of this section) to network providers that are hospitals, physicians, or nursing facilities under the contract, provided the requirements of this paragraph (d) are met. States may not require MCOs, PIHPs, and PAHPs to make pass-through payments other than those permitted under this paragraph (d).

    (i) In order to use a transition period described in this paragraph (d), a State must demonstrate that it had pass-through payments for hospitals, physicians, or nursing facilities in:

    (A) Managed care contract(s) and rate certification(s) for the rating period that includes July 5, 2016, and were submitted for CMS review and approval on or before July 5, 2016; or

    (B) If the managed care contract(s) and rate certification(s) for the rating period that includes July 5, 2016 had not been submitted to CMS on or before July 5, 2016, the managed care contract(s) and rate certification(s) for a rating period before July 5, 2016 that had been most recently submitted for CMS review and approval as of July 5, 2016.

    (ii) CMS will not approve a retroactive adjustment or amendment, notwithstanding the adjustments to the base amount permitted in paragraph (d)(2) of this section, to managed care contract(s) and rate certification(s) to add new pass-through payments or increase existing pass-through payments defined in paragraph (a) of this section.

    (3) Schedule for the reduction of the base amount of pass-through payments for hospitals under the MCO, PIHP, or PAHP contract and maximum amount of permitted pass-through payments for each year of the transition period. For States that meet the requirement in paragraph (d)(1)(i) of this section, pass-through payments for hospitals may continue to be required under the contract but must be phased out no longer than on the 10-year schedule, beginning with rating periods for contract(s) that start on or after July 1, 2017. For rating periods for contract(s) beginning on or after July 1, 2027, the State cannot require pass-through payments for hospitals under a MCO, PIHP, or PAHP contract. Until July 1, 2027, the total dollar amount of pass-through payments to hospitals may not exceed the lesser of:

    (i) A percentage of the base amount, beginning with 100 percent for rating periods for contract(s) beginning on or after July 1, 2017, and decreasing by 10 percentage points each successive year; or

    (ii) The total dollar amount of pass-through payments to hospitals identified in the managed care contract(s) and rate certification(s) used to meet the requirement of paragraph (d)(1)(i) of this section.

    (5) Pass-through payments to physicians or nursing facilities. For States that meet the requirement in paragraph (d)(1)(i) of this section, rating periods for contract(s) beginning on or after July 1, 2017 through rating periods for contract(s) beginning on or after July 1, 2021, may continue to require pass-through payments to physicians or nursing facilities under the MCO, PIHP, or PAHP contract of no more than the total dollar amount of pass-through payments to physicians or nursing facilities, respectively, identified in the managed care contract(s) and rate certification(s) used to meet the requirement of paragraph (d)(1)(i) of this section. For rating periods for contract(s) beginning on or after July 1, 2022, the State cannot require pass-through payments for physicians or nursing facilities under a MCO, PIHP, or PAHP contract.

    Dated: January 3, 2017. Andrew M. Slavitt, Acting Administrator, Centers for Medicare & Medicaid Services. Dated: January 10, 2017. Sylvia M. Burwell, Secretary, Department of Health and Human Services.
    [FR Doc. 2017-00916 Filed 1-17-17; 8:45 am] BILLING CODE 4120-01-P
    DEPARTMENT OF COMMERCE National Oceanic and Atmospheric Administration 50 CFR Part 665 [Docket No. 160811726-6999-02] RIN 0648-XE809 Pacific Island Fisheries; 2016-17 Annual Catch Limit and Accountability Measures; Main Hawaiian Islands Deep 7 Bottomfish AGENCY:

    National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.

    ACTION:

    Final specifications.

    SUMMARY:

    In this final rule, NMFS specifies an annual catch limit (ACL) of 318,000 lb of Deep 7 bottomfish in the main Hawaiian Islands (MHI) for the 2016-17 fishing year. As an accountability measure (AM), if the ACL is projected to be reached, NMFS would close the commercial and non-commercial fisheries for MHI Deep 7 bottomfish for the remainder of the fishing year. The ACL and AM support the long-term sustainability of Hawaii bottomfish.

    DATES:

    The final specifications are effective from February 17, 2017, through August 31, 2017.

    ADDRESSES:

    The environmental assessment and finding of no significant impact for this action, identified as NOAA-NMFS-2016-0112, is available at www.regulations.gov, or from Michael D. Tosatto, Regional Administrator, NMFS Pacific Islands Region (PIR), 1845 Wasp Blvd. Bldg. 176, Honolulu, HI 96818.

    The Fishery Ecosystem Plan for the Hawaiian Archipelago is available from the Western Pacific Fishery Management Council (Council), 1164 Bishop St., Suite 1400, Honolulu, HI 96813, tel 808-522-8220, fax 808-522-8226, or www.wpcouncil.org.

    FOR FURTHER INFORMATION CONTACT:

    Sarah Ellgen, NMFS PIR Sustainable Fisheries, 808-725-5173.

    SUPPLEMENTARY INFORMATION:

    Through this action, NMFS is specifying an ACL of 318,000 lb of Deep 7 bottomfish in the MHI for the 2016-17 fishing year. The fishing year began September 1, 2016, and ends on August 31, 2017. The Council recommended this ACL, based on the best available scientific, commercial, and other information, taking into account the associated risk of overfishing. This ACL is 8,000 lb lower than the ACL that NMFS specified for the 2015-16 fishing year, and is the second annual reduction in a phased approach to lower the ACL incrementally over three years, as recommended by the Council.

    The MHI Management Subarea is the portion of U.S. Exclusive Economic Zone around the Hawaiian Archipelago east of 161°20′ W. The Deep 7 bottomfish are onaga (Etelis coruscans), ehu (E. carbunculus), gindai (Pristipomoides zonatus), kalekale (P. sieboldii), opakapaka (P. filamentosus), lehi (Aphareus rutilans), and hapuupuu (Hyporthodus quernus).

    The MHI bottomfish fishing year started September 1, 2016, and is currently open. NMFS will monitor the fishery and, if we project that the fishery will reach the ACL before August 31, 2017, we would, as an AM authorized in 50 CFR 665.4(f), close the non-commercial and commercial fisheries for Deep 7 bottomfish in Federal waters through August 31, 2017. During a fishery closure for Deep 7 bottomfish, no person may fish for, possess, or sell any of these fish in the MHI Management Subarea. There is no prohibition on fishing for, possessing, or selling other (non-Deep 7) bottomfish during such a closure. All other management measures continue to apply in the MHI bottomfish fishery. If NMFS and the Council determine that the final 2016-17 Deep 7 bottomfish catch exceeds the ACL, NMFS would reduce the Deep 7 bottomfish ACL for 2017-18 by the amount of the overage.

    You may review additional background information on this action in the preamble to the proposed specifications (81 FR 75803; November 1, 2016); we do not repeat that information here.

    Comments and Responses

    The comment period for the proposed specifications ended on November 16, 2016. NMFS received comments from four individuals, and responds, as follows:

    Comment 1: The 2016-2017 ACL serves as a precautionary measure for bottomfish stocks that supports healthy fisheries. The proposed ACL is greater than recent annual catches, so it would not significantly inconvenience fishermen.

    Response: NMFS agrees. We assessed the potential beneficial and adverse impacts of the ACL and AM on the environment, including the fishery itself, and concluded that the action is necessary to prevent overfishing while supporting the long-term sustainability of Hawaii bottomfish.

    Comment 2: We need to punish anyone who harms the ocean and any of our waters.

    Response: While the comment is not specific to the proposed action, violations of Federal fishery regulations are subject to penalties pursuant to Section 308 of the Magnuson-Stevens Fishery Conservation and Management Act (Magnuson-Stevens Act).

    Comment 3: Legislation is needed to reduce overfishing and to protect marine life in Hawaiian waters.

    Response: Federal laws and regulations already protect Hawaii fish stocks from overfishing pressure. The Magnuson-Stevens Act includes requirements for ACLs and AMs and other provisions for preventing and ending overfishing and rebuilding fisheries. Unless exempted by law, all fisheries in Federal waters must have ACLs and AMs. Fishery scientists and managers use the best scientific information available, including catch, fishing effort, biological information, etc., to determine the maximum catch that would not harm the conservation needs of the fish stock, and ACLs must be set at or below the levels that account for uncertainty about the fishery information.

    AMs are management controls to prevent ACLs from being exceeded, and to correct or mitigate overages when they occur. For the MHI bottomfish fishery, one AM would close the fishery before the scheduled end of the fishing year to prevent exceeding the ACL, and another AM would reduce next year's ACL by the amount of any overage. These measures help to ensure sustainable harvests.

    The reader may find more information on fishing regulations in Hawaii at http://www.fpir.noaa.gov/SFD/SFD_regs_index.html.

    Comment 4: The MHI Deep 7 bottomfish stock assessment does not account for fish biomass within the State of Hawaii Bottomfish Restricted Fishing Areas (BRFA), marine protected areas (MPA), and the Kahoolawe Island Reserve.

    Response: The 2011 MHI Deep 7 bottomfish stock assessment, as updated with three additional years of data, treats the MHI as a single fishing area and calculates the biomass required to produce the catch and catch per unit effort (CPUE) according to commercial fishery data. The assessment does not make a distinction between biomass inside and outside of protected areas, such as the BRFA, MPA, and Kahoolawe Island Reserve. Nevertheless, the 2011 MHI Deep 7 bottomfish stock assessment, as updated, represents the best scientific information available for this stock complex.

    NMFS and the Council are working with the State and the fishing industry to obtain accurate information needed for stock assessments, including data on bottomfish distribution, relative abundance, stock structure, size, and age. Current efforts include working with bottomfish fishermen to conduct scientific surveys using standardized fishing gears and underwater video cameras.

    Although stock assessments will likely continue to treat the MHI as a single fishing area, both the State and NMFS continue to try to quantify the effects of the BRFA, MPA, and Kahoolawe Island Reserve on unfished biomass for the MHI Deep 7 bottomfish stock. In Fall 2016, with the cooperation of the State of Hawaii and help from cooperative research fishing partners, NMFS sampled bottomfish inside these protected areas as part of a scientific survey. NMFS will take into account information from this survey in future stock assessments, as appropriate.

    Comment 5: Fishing prohibitions in BFRA and MPA result in more concentrated fishing in unrestricted areas, leading to decreased fish size and lower CPUE.

    Response: Because the State catch reporting statistical area boundaries do not match the BRFA boundaries, it is not currently possible to determine if concentrated fishing that may be occurring in unrestricted areas could lead to decreased fish size and lower CPUE in those unrestricted areas. NMFS continues to evaluate the effect of the protected areas on the MHI bottomfish stock (see response to Comment 4).

    Comment 6: The recent El Niño and unpredictable winds and seas have adversely affected the 2015-16 and 2016-17 MHI Deep 7 fishing seasons, resulting in uncaught fish. How would NMFS consider uncaught biomass in future ACLs?

    Response: Councils recommend ACLs in consideration of all relevant information and scientific recommendations concerning stock status. The newly revised National Standard 1 guidelines (81 FR 71858, October 18, 2016) allow councils to develop an acceptable biological catch control rule that would allow for changes in the catch limit to account for the carry-over of some of the unused portion of the ACL from one year to the next, in certain circumstances. The 2016-17 ACL of 318,000 lb is the second annual reduction in a three-year phased approach to prevent overfishing, while supporting the long-term sustainability of Hawaii bottomfish. Therefore, in developing future ACL recommendations, the Council could evaluate a carry-over provision for MHI Deep 7 bottomfish, if the Council determines that such a provision is appropriate and desirable.

    Comment 7: The MHI Deep 7 bottomfish fishery is experiencing ongoing problems with shark predation. How is NMFS addressing this issue?

    Response: This comment is beyond the scope of the ACL and AM specifications, and NMFS is not currently studying shark predation in the bottomfish fishery. Interested persons may inquire about the availability of fisheries research project funding through, among other sources, the Saltonstall-Kennedy Grant Program (information at http://www.fisheries.noaa.gov/mb/financial_services/skhome.htm).

    Changes From the Proposed Specifications

    There are no changes in the final specifications from the proposed specifications.

    Classification

    The Regional Administrator, NMFS PIR, determined that this action is necessary for the conservation and management of MHI Deep 7 bottomfish, and that it is consistent with the Magnuson-Stevens Act and other applicable laws.

    The Chief Counsel for Regulation of the Department of Commerce certified to the Chief Counsel for Advocacy of the Small Business Administration during the proposed specification stage that this action would not have a significant economic impact on a substantial number of small entities. NMFS published the factual basis for the certification in the proposed specifications, and does not repeat it here. NMFS did not receive comments regarding this certification. As a result, a final regulatory flexibility analysis is not required, and one was not prepared.

    This action is exempt from review under Executive Order 12866.

    Authority:

    16 U.S.C. 1801 et seq.

    Dated: January 9, 2017. Samuel D. Rauch III, Deputy Assistant Administrator for Regulatory Programs, National Marine Fisheries Service.
    [FR Doc. 2017-00622 Filed 1-17-17; 8:45 am] BILLING CODE 3510-22-P
    82 11 Wednesday, January 18, 2017 Proposed Rules DEPARTMENT OF AGRICULTURE Agricultural Marketing Service 7 CFR Part 205 [Document Number AMS-NOP-16-0052; NOP-16-03] RIN 0581-AD52 National Organic Program (NOP); Sunset 2017 Amendments to the National List AGENCY:

    Agricultural Marketing Service, USDA.

    ACTION:

    Proposed rule.

    SUMMARY:

    This proposed rule would address recommendations submitted to the Secretary of Agriculture (Secretary) by the National Organic Standards Board (NOSB) following their October 2015 meeting. These recommendations pertain to the 2017 Sunset Review of substances on the U.S. Department of Agriculture's (USDA) National List of Allowed and Prohibited Substances (National List). Consistent with the recommendations from the NOSB, this proposed rule would remove eleven substances from the National List for use in organic production and handling.

    DATES:

    Comments must be received by March 20, 2017.

    ADDRESSES:

    Interested persons may comment on the proposed rule using the following procedures:

    Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments.

    Mail: Robert Pooler, Standards Division, National Organic Program, USDA-AMS-NOP, 1400 Independence Ave. SW., Room 2642-So., Ag Stop 0268, Washington, DC 20250-0268.

    Instructions: All submissions received must include the docket number AMS-NOP-16-0052; NOP-16-03, and/or Regulatory Information Number (RIN) 0581-AD52 for this rulemaking. You should clearly indicate the topic and section number of this proposed rule to which your comment refers. You should clearly indicate whether you support the action being proposed for the substances in this proposed rule. You should clearly indicate the reason(s) for your position. You should also supply information on alternative management practices, where applicable, that support alternatives to the proposed action. You should also offer any recommended language change(s) that would be appropriate to your position. Please include relevant information and data to support your position (e.g. scientific, environmental, manufacturing, industry, impact information, etc.). Only relevant material supporting your position should be submitted. All comments received and any relevant background documents will be posted without change to http://www.regulations.gov.

    Document: For access to the document and to read background documents or comments received, go to http://www.regulations.gov. Comments submitted in response to this proposed rule will also be available for viewing in person at USDA-AMS, National Organic Program, Room 2642—South Building, 1400 Independence Ave. SW., Washington, DC, from 9 a.m. to 12 noon and from 1 p.m. to 4 p.m., Monday through Friday (except official Federal holidays). Persons wanting to visit the USDA South Building to view comments received in response to this proposed rule are requested to make an appointment in advance by calling (202) 720-3252.

    FOR FURTHER INFORMATION CONTACT:

    Robert Pooler, Standards Division, email: [email protected], Telephone: (202) 720-3252; Fax: (202) 205-7808.

    SUPPLEMENTARY INFORMATION: I. Background

    The National Organic Program (NOP) is authorized by the Organic Foods Production Act of 1990 (OFPA), as amended (7 U.S.C. 6501-6522). The USDA Agricultural Marketing Service (AMS) administers the NOP. Final regulations implementing the NOP, also referred to as the USDA organic regulations, were published December 21, 2000 (65 FR 80548), and became effective on October 21, 2002. Through these regulations, the AMS oversees national standards for the production, handling, and labeling of organically produced agricultural products. Since becoming effective, the USDA organic regulations have been frequently amended, mostly for changes to the National List in 7 CFR 205.601-205.606.

    This National List identifies the synthetic substances that may be used and the nonsynthetic substances that may not be used in organic production. The National List also identifies synthetic, nonsynthetic nonagricultural, and nonorganic agricultural substances that may be used in organic handling. The OFPA and the USDA organic regulations, as indicated in § 205.105, specifically prohibit the use of any synthetic substance in organic production and handling unless the synthetic substance is on the National List. Section 205.105 also requires that any nonorganic agricultural substance and any nonsynthetic nonagricultural substance used in organic handling appear on the National List.

    As stipulated by the OFPA, recommendations to propose amendment of the National List are developed by the NOSB, operating in accordance with the Federal Advisory Committee Act (5 U.S.C. App. 2 et seq.), to assist in the evaluation of substances to be used or not used in organic production and handling, and to advise the Secretary on the USDA organic regulations. The OFPA also requires a sunset review of all substances by the NOSB included on the National List within five years of their addition to or renewal on the list. If a listed substance is not reviewed by the NOSB and renewed by the USDA within the five-year period, its allowance or prohibition on the National List is no longer in effect. Under the authority of the OFPA, the Secretary can amend the National List through rulemaking based upon proposed amendments recommended by the NOSB.

    The NOSB's review of existing exemptions and prohibitions include the NOSB's evaluation of technical information, public comments, and supporting evidence that demonstrate whether the substance is: (a) Harmful to human health or the environment; (b) no longer necessary for organic production due to the availability of alternative wholly nonsynthetic substitute products or practices; or (c) inconsistent with organic farming and handling practices (7 U.S.C. 6517(c)).

    In accordance with the sunset review process published in the Federal Register on September 16, 2013 (78 FR 61154), this proposed rule would amend the National List to reflect 2017 sunset review recommendations submitted to the Secretary by the NOSB on October 29, 2015, to amend the National List to remove eleven substances allowed as substances used in organic production or as ingredients in or on processed products labeled as “organic.” The exemptions of each substance appearing on the National List for use in organic production and handling are evaluated by the NOSB using the evaluation criteria specified in the OFPA (7 U.S.C. 6517-6518).

    II. Overview of Proposed Amendments Nonrenewals

    At the completion of their 2017 sunset review of National List substances with five year review periods ending in 2017, the NOSB recommended the removal of eleven substances from the National List. During this sunset review, the NOSB determined that one substance exemption each in § 205.601(a), § 205.603(a), § 205.605(b) and eight substance exemptions in § 205.606 are no longer necessary for organic production or handling. AMS has reviewed and proposes to accept the eleven NOSB recommendations for removal. Based upon these NOSB recommendations, this action proposes to amend the National List to remove the exemptions for lignin sulfonate, furosemide, magnesium carbonate, Chia, dillweed oil, frozen galangal, inulin, frozen lemongrass, chipotle chile peppers, turkish bay leaves, and whey protein concentrate.

    Lignin Sulfonate

    The USDA organic regulations include an exemption on the National List for lignin sulfonate for use as a floating agent in postharvest handling at § 205.601(l)(1) as follows: Lignin sulfonate. In April 1995, lignin sulfonate was recommended by the NOSB for addition onto the National List as a plant or soil amendment for use as a chelating agent, dust suppressant, or floatation agent in organic crop production. AMS accepted this NOSB recommendation and included lignin sulfonate in the proposed rule and the final rule establishing the National Organic Program and the original National List that was published in the Federal Register on December 21, 2000 (65 FR 80548). Lignin sulfonate was included on the National List in § 205.601(j)(4) as a chelating agent, dust suppressant, or floatation agent, and in § 205.601(l)(1) as a floating agent in post-harvest handling. This proposed rule only addresses the listing of lignin sulfonate in § 205.601(l)(1). As required by OFPA, the NOSB recommended the renewal of lignin sulfonate during the 2007 and 2012 sunset reviews which was renewed by the Secretary on October 16, 2007 (72 FR 58469) and June 6, 2012 (77 FR 33290). Subsequently, the NOSB completed their 2017 sunset review of the exemption for lignin sulfonate at their October 2015 meeting. Two notices of the public meetings on the 2017 sunset review, with request for comments, were published in Federal Register on March 12, 2015 (80 FR 12975) and September 8, 2015 (80 FR 53759). The purpose of these notices was to notify the public that the lignin sulfonate exemption discussed in this proposed rule would expire on September 12, 2016, if not reviewed by the NOSB and renewed by the Secretary. During their 2017 sunset review deliberation, the NOSB considered written comments received prior to and during the public meetings on all substance exemptions included in the 2017 sunset review. These written comments can be viewed at https://www.regulations.gov by searching for the document ID numbers: AMS-NOP-15-0002 (April 2015 public meeting) and AMS-NOP-15-0037 (October 2015 public meeting). The NOSB also considered oral comments received during these public meetings. The NOSB's recommendation on lignin sulfonate is available on the NOP Web site at http://www.ams.usda.gov/nop. During their sunset review of lignin sulfonate the NOSB considered two lignin sulfonate technical reports that were requested by and developed for the NOSB in 2011 and 2013. The latter technical report reviewed lignin sulfonate use in aquaculture production. Both technical reports are available for review in the petitioned substance database on the NOP Web site, https://www.ams.usda.gov/rules-regulations/organic/national-list.

    Public comments received by the NOSB on lignin sulfonate in § 205.601(l)(1) indicated public support for removing lignin sulfonate as a floating agent in postharvest handling from the National List. Based upon these comments, the NOSB determined that the exemption for lignin sulfonate on the National List in § 205.601(l)(1) is no longer necessary or essential for organic postharvest handling. Subsequently, the NOSB recommended removal of lignin sulfonate from § 205.601(l)(1) from the National List at their October 2015 public meeting.

    AMS accepts the NOSB's recommendation on removing lignin sulfonate from the National List. This proposed rule would amend National List § 205.601 by removing the substance exemption for lignin sulfonate listed in § 205.601(l)(1). This amendment is proposed to be effective on the current sunset date for lignin sulfonate, which is June 27, 2017.

    Furosemide

    The USDA organic regulations include an exemption on the National List for furosemide for use as medical treatment at § 205.603(a)(10) as follows: Furosemide (CAS #-54-31-9) in accordance with approved labeling; except that for use under 7 CFR part 205, the NOP requires a withdrawal period of at least two-times that required by the FDA. In December 2000, furosemide was petitioned for addition to § 205.603(a) for use as a medical treatment—a diuretic that reduces edema. In May 2003, the NOSB recommended adding furosemide to the National List in § 205.603(a). The NOSB included a restrictive annotation for twice the required FDA furosemide withdrawal time within their recommendation to add furosemide to the National List.

    AMS accepted the NOSB's recommendation and furosemide was added to the National List on December 12, 2007 (72 FR 70479). As required by OFPA, the NOSB recommended the renewal of furosemide during their 2012 sunset review. The Secretary accepted the NOSB's recommendation and published a notice renewing the furosemide exemption on the National List on June 6, 2012 (77 FR 33290). Subsequently, the exemption for furosemide as included on the National List was considered during the NOSB's 2017 sunset review. Two notices of the public meetings on the 2017 sunset review with request for comments were published in Federal Register on March 12, 2015 (80 FR 12975) and September 8, 2015 (80 FR 53759). The purpose of these notices was to notify the public that the furosemide exemption discussed in this proposed rule would expire on June 27, 2017, if not reviewed by the NOSB and renewed by the Secretary.

    During their 2017 sunset review, the NOSB considered written comments received prior to and during the public meetings on all substance exemptions included in the 2017 sunset review. These written comments can be viewed at https://www.regulations.gov by searching for the document ID numbers: AMS-NOP-15-0002 (April 2015 public meeting) and AMS-NOP-15-0037 (October 2015 public meeting). The NOSB also considered oral comments received during these public meetings. The NOSB's recommendation on furosemide is available on the NOP Web site at http://www.ams.usda.gov/nop. During their sunset review of furosemide the NOSB considered a furosemide technical report that were requested by and developed for the NOSB in 2003. This technical report is available for review in the petitioned substance database on the NOP Web site, https://www.ams.usda.gov/rules-regulations/organic/national-list.

    Public comments received by the NOSB on furosemide indicated alternatives to furosemide are available to organic livestock producers. Based upon these comments, the NOSB determined that the exemption for furosemide in § 205.603(a)(10) is no longer necessary or essential for organic livestock production. Subsequently, the NOSB recommended the removal of furosemide from § 205.603(a)(10) from the National List at their October 2015 public meeting.

    AMS accepts the NOSB's recommendation on removing furosemide from the National List. This proposed rule would amend National List § 205.603 by removing the substance exemption for furosemide sulfonate listed in § 205.603(a)(10). This amendment is proposed to be effective on the current sunset date for furosemide, which is June 27, 2017.

    Magnesium Carbonate

    The USDA organic regulations include an exemption on the National List for magnesium carbonate as a synthetic ingredient for use in or on processed products at § 205.605(b) as follows: Magnesium carbonate—for use only in agricultural products labeled “made with organic (specified ingredients or food group(s)),” prohibited in agricultural products labeled “organic.” In September 1996, magnesium carbonate was petitioned for addition to the National List under § 205.605(b). The NOSB recommended that magnesium carbonate be added to the National List under § 205.605(b) with an annotation limiting its use to products labeled “made with organic (specified ingredients or food group(s))”. AMS accepted this recommendation and included magnesium carbonate in the proposed and the final rule establishing the National Organic Program and the original National List that was published in the Federal Register on December 21, 2001 (65 FR 80548). In this final rule, magnesium carbonate was included on the National List under § 205.605(b)(16).

    As required by OFPA, the NOSB recommended the renewal of magnesium carbonate during the 2007 and 2012 sunset reviews, which were renewed by the Secretary on October 16, 2007 (72 FR 58469) and June 6, 2012 (77 FR 33290). The NOSB completed their 2017 sunset review of the exemption for magnesium carbonate at their October 2015 meeting. Two notices of the public meetings on the 2017 sunset review with request for comments were published in the Federal Register on March 12, 2015 (80 FR 12975) and September 8, 2015 (80 FR 53759). The purpose of these notices was to alert the public that the exemption for magnesium carbonate would expire on June 27, 2017 if not reviewed and recommended by the NOSB and renewed by the Secretary. During their 2017 sunset review, the NOSB considered written comments received prior to and during the public meetings on all substance exemptions included in the 2017 sunset review. These written comments can be viewed at https://www.regulations.gov by searching for the document ID numbers: AMS-NOP-15-0002 (April 2015 public meeting) and AMS-NOP-15-0037 (October 2015 public meeting). The NOSB also considered oral comments received during these public meetings. The NOSB's recommendation on magnesium carbonate is available on the NOP Web site at http://www.ams.usda.gov/nop.

    Public comments received by the NOSB regarding magnesium carbonate under § 205.605 (b) indicated that the material is not a necessity and recommended its removal from the National List. Based on the review of the material and the public comments received, the NOSB determined that magnesium carbonate is no longer necessary for organic production. As a result, the NOSB recommended the removal of magnesium carbonate from the National List at their October 2015 meeting.

    AMS accepts the NOSB's recommendation to remove magnesium carbonate from the National List. This proposed rule would amend National List § 205.605 by removing the substance exemption for magnesium carbonate at § 205.605 (b). This amendment is proposed to be effective on the current sunset date for magnesium carbonate, which is June 27, 2017.

    Chia

    The USDA organic regulations include an exemption on the National List for Chia for use as an ingredient in or on processed products labeled as “organic” at § 205.606 (c) as follows: Chia (Salvia hispanica L.). In January 2007, Chia was petitioned for addition to § 205.606 as an ingredient due to the lack of availability of certified organic Chia. In April 2007, the NOSB recommended that Chia be added to the National List under § 205.606. AMS accepted this recommendation and included Chia in the proposed rule and the final rule amending the National List that was published in the Federal Register on June 27, 2007 (72 FR 35137). As required by OFPA, the NOSB recommended the renewal of Chia during the 2012 sunset review, which was renewed by the Secretary on June 6, 2012 (77 FR 33290). The NOSB completed their 2017 sunset review of the exemption for Chia at their October 2015 meeting. Two notices of the public meetings on the 2017 sunset review with request for comments were published in the Federal Register on March 12, 2015 (80 FR 12975) and September 8, 2015 (80 FR 53759). The purpose of these notices was to alert the public that the exemption for Chia would expire on June 27, 2017 if not reviewed and recommended by the NOSB and renewed by the Secretary. During their 2017 sunset review deliberation, the NOSB considered written comments received prior to and during the public meetings on all substance exemptions included in the 2017 sunset review. These written comments can be viewed at http://www.regulations.gov by searching for the document ID numbers: AMS-NOP-15-0002 (April 2015 public meeting) and AMS-NOP-15-0037 (October 2015 public meeting). The NOSB also considered oral comments received during these public meetings. The NOSB's recommendation on Chia is available on the NOP Web site at http://www.ams.usda.gov/nop.

    Regarding Chia, the NOSB requested information from the public related to (1) commercial demand, (2) commercial availability, (3) alternatives, and (4) necessity and use. Several comments from a cross-section of the organic community were received in support of delisting Chia noting its wide commercial availability. No specific comments received supported relisting or addressed commercial unavailability of Chia. Based on the review of Chia and the public comments received, the NOSB determined that this material is now widely available from organic sources. Subsequently, the NOSB recommended the removal of Chia from § 205.606 of the National List at their October 2015 meeting. AMS accepts the NOSB's recommendation to remove Chia from the National List. This proposed rule would amend National List § 205.606 by removing the substance exemption for Chia at § 205.606 (c). This amendment is proposed to be effective on the current sunset date for Chia, which is June 27, 2017.

    Dillweed Oil

    The USDA organic regulations include an exemption on the National List for dillweed oil for use as an ingredient in or on processed products labeled as “organic” at § 205.606 (e) as follows: Dillweed oil (CAS #458-37-7). In December 2006, dillweed oil was petitioned for addition to § 205.606. In April 2007, the NOSB recommended that dillweed oil be added to the National List under § 205.606. AMS accepted this recommendation and included dillweed oil in the proposed rule and the final rule amending the National List that was published in the Federal Register on June 27, 2007 (72 FR 35137). As required by OFPA, the NOSB recommended the renewal of dillweed oil during the 2012 sunset review, which was renewed by the Secretary on June 6, 2012 (77 FR 33290). The NOSB completed their 2017 sunset review of the exemption for dillweed oil at their October 2015 meeting. Two notices of the public meetings on the 2017 sunset review with request for comments were published in the Federal Register on March 12, 2015 (80 FR 12975) and September 8, 2015 (80 FR 53759). The purpose of these notices was to alert the public that the exemption for dillweed oil would expire on June 27, 2017 if not reviewed and recommended by the NOSB and renewed by the Secretary. During their 2017 sunset review, the NOSB considered written comments received prior to and during the public meetings on all substance exemptions included in the 2017 sunset review. These written comments can be viewed at http://www.regulations.gov by searching for the document ID numbers: AMS-NOP-15-0002 (April 2015 public meeting) and AMS-NOP-15-0037 (October 2015 public meeting). The NOSB also considered oral comments received during these public meetings. The NOSB's recommendation on dillweed oil is available on the NOP Web site at http://www.ams.usda.gov/nop.

    In the review of dillweed oil, the NOSB requested information from the public related to (1) commercial demand, (2) commercial availability, (3) alternatives, and (4) necessity and use. No specific comments were received that supported relisting or addressed commercial unavailability of dillweed oil. Based on the NOSB's review of dillweed oil and the public comments received, the NOSB determined that this substance is now available from organic sources. Subsequently, the NOSB recommended the removal of dillweed oil from § 205.606 of the National List at their October 2015 meeting. AMS accepts the NOSB's recommendation to remove dillweed oil from the National List. This proposed rule would amend National List § 205.606 by removing the substance exemption for dillweed oil at § 205.606 (e). This amendment is proposed to be effective on the current sunset date for dillweed oil, which is June 27, 2017.

    Galangal, Frozen

    The USDA organic regulations include an exemption on the National List for galangal for use as an ingredient in or on processed products labeled as “organic” at § 205.606 (h) as follows: Galangal (frozen). In November 2006, galangal was petitioned for addition to § 205.606. In April 2007, the NOSB recommended that galangal be added to the National List under § 205.606. AMS accepted this recommendation and included galangal in the proposed rule and the final rule amending the National List that was published in the Federal Register on June 27, 2007 (72 FR 35137). As required by OFPA, the NOSB recommended the renewal of galangal during the 2012 sunset review, which was renewed by the Secretary on June 6, 2012 (77 FR 33290). The NOSB completed their 2017 sunset review of the exemption for galangal at their October 2015 meeting. Two notices of the public meetings on the 2017 sunset review with request for comments were published in the Federal Register on March 12, 2015 (80 FR 12975) and September 8, 2015 (80 FR 53759). The purpose of these notices was to alert the public that the exemption for galangal would expire on June 27, 2017 if not reviewed and recommended by the NOSB and renewed by the Secretary. During their 2017 sunset review deliberation, the NOSB considered written comments received prior to and during the public meetings on all substance exemptions included in the 2017 sunset review. These written comments can be viewed at http://www.regulations.gov by searching for the document ID numbers: AMS-NOP-15-0002 (April 2015 public meeting) and AMS-NOP-15-0037 (October 2015 public meeting). The NOSB also considered oral comments received during these public meetings. The NOSB's recommendation on galangal is available on the NOP Web site at http://www.ams.usda.gov/nop.

    In its review of galangal, the NOSB requested information from the public related to (1) commercial demand, (2) commercial availability, (3) alternatives, and (4) necessity and use. No specific comments were received that supported relisting or addressed commercial unavailability of frozen galangal. Based on the NOSB's review of galangal and the public comments received, the NOSB determined that this material is now available from organic sources. Subsequently, the NOSB recommended the removal of galangal from § 205.606 of the National List at their October 2015 meeting. AMS accepts the NOSB's recommendation to remove galangal from the National List. This proposed rule would amend National List § 205.606 by removing the substance exemption for galangal at § 205.606 (h). This amendment is proposed to be effective on the current sunset date for galangal, which is June 27, 2017.

    Inulin—Oligofructose Enriched

    The USDA organic regulations include an exemption on the National List for inulin—oligofructose enriched, allowed as an ingredient in or on processed products labeled as “organic” in § 205.606(l) as follows: inulin—oligofructose enriched (CAS # 9005-80-5). In January 2007, inulin was petitioned for addition to § 205.606 for use as an ingredient in or on organic processed products. In April 2007, the NOSB recommended adding inulin—oligofructose enriched to the National List in § 205.606.

    AMS accepted the NOSB's recommendation and inulin—oligofructose enriched was added to the National List on June 27, 2007 (72 FR 35137). As required by OFPA, the NOSB recommended the renewal of inulin—oligofructose enriched during their 2012 sunset review. The Secretary accepted the NOSB's recommendation and published a notice renewing the inulin—oligofructose enriched exemption on the National List on June 6, 2012 (77 FR 33290). Subsequently, the exemption for inulin—oligofructose enriched on the National List was considered during the NOSB's 2017 sunset review. Two notices of the public meetings on the 2017 sunset review with request for comments were published in Federal Register on March 12, 2015 (80 FR 12975) and September 8, 2015 (80 FR 53759). The purpose of these notices was to notify the public that the inulin—oligofructose enriched exemption discussed in this proposed rule would expire on June 27, 2017, if not reviewed by the NOSB and renewed by the Secretary.

    During their 2017 sunset review, the NOSB considered written comments received prior to and during the public meetings on all substance exemptions included in the 2017 sunset review. These written comments can be viewed at https://www.regulations.gov by searching for the document ID numbers: AMS-NOP-15-0002 (April 2015 public meeting) and AMS-NOP-15-0037 (October 2015 public meeting). The NOSB also considered oral comments received during these public meetings. The NOSB's recommendation on inulin—oligofructose enriched is available on the NOP Web site at http://www.ams.usda.gov/nop. During their sunset review of inulin—oligofructose enriched the NOSB considered an inulin—oligofructose enriched technical report that was requested by and developed for the NOSB in 2015. This technical report is available for review in the petitioned substance database on the NOP Web site, https://www.ams.usda.gov/rules-regulations/organic/national-list.

    Public comments on inulin—oligofructose enriched received by the NOSB during their 2017 Sunset review indicated that organic inulin—oligofructose enriched sources are available to organic processors. Based upon these comments, the NOSB determined that the exemption for inulin—oligofructose enriched in § 205.606(l) is no longer necessary or essential for organic handling/processing. From this determination, the NOSB recommended the removal of inulin—oligofructose enriched from § 205.603(l) from the National List at their October 2015 public meeting. AMS accepts the NOSB's recommendation on removing inulin—oligofructose enriched from the National List. This proposed rule would amend National List § 205.606 by removing the substance exemption for inulin—oligofructose enriched as listed in § 205.606(l). This amendment is proposed to be effective on the current sunset date for inulin—oligofructose enriched, which is June 27, 2017.

    Lemon Grass, Frozen

    The USDA organic regulations include an exemption on the National List for lemon grass, allowed as an ingredient in or on processed products labeled as “organic” in § 205.606(p) as follows: lemon grass, frozen. In November 2006, lemon grass was petitioned for addition onto § 205.606 for use as an ingredient in or on organic processed products. In March 2007, the NOSB recommended adding lemon grass to the National List in § 205.606.

    AMS accepted the NOSB's recommendation and lemon grass was added to the National List on June 27, 2007 (72 FR 35137). As required by OFPA, the NOSB recommended the renewal of lemon grass during their 2012 sunset review. The Secretary accepted the NOSB's recommendation and published a notice renewing the lemon grass exemption on the National List on June 6, 2012 (77 FR 33290). Subsequently, the exemption for lemon grass was considered during the NOSB's 2017 sunset review. Two notices of the public meetings on the 2017 sunset review with request for comments were published in Federal Register on March 12, 2015 (80 FR 12975) and September 8, 2015 (80 FR 53759). The purpose of these notices was to notify the public that the lemon grass exemption discussed in this proposed rule would expire on June 27, 2017, if not reviewed by the NOSB and renewed by the Secretary.

    During their 2017 sunset review, the NOSB considered written comments received prior to and during the public meetings on all substance exemptions included in the 2017 sunset review. These written comments can be viewed at https://www.regulations.gov by searching for the document ID numbers: AMS-NOP-15-0002 (April 2015 public meeting) and AMS-NOP-15-0037 (October 2015 public meeting). The NOSB also considered oral comments received during these public meetings. The NOSB's recommendation on lemon grass is available on the NOP Web site at http://www.ams.usda.gov/nop. Since the NOSB has not requested the development of a technical review on lemon grass, either for the original lemon grass petition process or for sunset reviews, the NOSB did not review a technical report on lemon grass during their 2017 sunset review.

    Public comments on lemon grass received by the NOSB during their 2017 Sunset review indicated that sources of organic lemon grass are available to organic processors. Based upon these comments, the NOSB determined that the exemption for lemon grass in § 205.606(p) is no longer necessary or essential for organic handling/processing. From this determination, the NOSB recommended the removal of lemon grass from § 205.606(p) from the National List at their October 2015 public meeting. AMS accepts the NOSB's recommendation on removing lemon grass from the National List. This proposed rule would amend National List § 205.606 by removing the substance exemption for lemon grass as listed in § 205.606(p). This amendment is proposed to be effective on the current sunset date for lemon grass, which is June 27, 2017.

    Peppers (Chipotle Chile)

    The USDA organic regulations include an exemption on the National List for chipotle chile peppers for use as an ingredient in or on processed products labeled as “organic” at § 205.606 (s) as follows: Peppers (Chipotle chile). Chipotle chile peppers were petitioned for addition to § 205.606 in November 2006 and January 2007. In April 2007, the NOSB recommended that chipotle chile peppers be added to the National List under § 205.606. AMS accepted this recommendation and included chipotle chile peppers in the proposed rule and the final rule amending the National List that was published in the Federal Register on June 27, 2007 (72 FR 35137). As required by OFPA, the NOSB recommended the renewal of chipotle chile peppers during the 2012 sunset review, which was renewed by the Secretary on June 6, 2012 (77 FR 33290). The NOSB completed their 2017 sunset review of the exemption for chipotle chile peppers at their October 2015 meeting. Two notices of the public meetings on the 2017 sunset review with request for comments were published in the Federal Register on March 12, 2015 (80 FR 12975) and September 8, 2015 (80 FR 53759). The purpose of these notices was to alert the public that the exemption for chipotle chile peppers would expire on June 27, 2017 if not reviewed and recommended by the NOSB and renewed by the Secretary. During their 2017 sunset review deliberation, the NOSB considered written comments received prior to and during the public meetings on all substance exemptions included in the 2017 sunset review. These written comments can be viewed at http://www.regulations.gov by searching for the document ID numbers: AMS-NOP-15-0002 (April 2015 public meeting) and AMS-NOP-15-0037 (October 2015 public meeting). The NOSB also considered oral comments received during these public meetings. The NOSB's recommendation on chipotle chile peppers is available on the NOP Web site at http://www.ams.usda.gov/nop.

    Regarding chipotle chile, the NOSB requested information from the public related to (1) commercial demand, (2) commercial availability, (3) alternatives, and (4) necessity and use. Several comments from a cross-section of the organic community were received in support of delisting chipotle chiles noting commercial availability. No specific comments received supported relisting or addressed commercial unavailability of chipotle chiles. Based on the NOSB's review of chipotle chile peppers and the public comments received, the NOSB determined that this material is now available from organic sources. Subsequently, the NOSB recommended the removal of chipotle chile peppers from § 205.606 of the National List at their October 2015 meeting. AMS accepts the NOSB's recommendation to remove chipotle chile peppers from the National List. This proposed rule would amend National List § 205.606 by removing the substance exemption for chipotle chile peppers at § 205.606 (s). This amendment is proposed to be effective on the current sunset date for chipotle chile peppers, which is June 27, 2017.

    Turkish Bay Leaves

    The USDA organic regulations include an exemption on the National List for Turkish bay leaves, allowed as an ingredient in or on processed products labeled as “organic” in § 205.606(w) as follows: Turkish bay leaves. In November 2006, Turkish bay leaves was petitioned for addition to § 205.606 for use as an ingredient in or on organic processed products. In April 2007, the NOSB recommended adding Turkish bay leaves to the National List in § 205.606. AMS accepted the NOSB's recommendation and Turkish bay leaves was added to the National List on June 27, 2007 (72 FR 35137). As required by OFPA, the NOSB recommended the renewal of Turkish bay leaves during their 2012 sunset review. The Secretary accepted the NOSB's recommendation and published a notice renewing the Turkish bay leaves exemption on the National List on June 6, 2012 (77 FR 33290). Subsequently, the exemption for Turkish bay leaves on the National List was considered during the NOSB's 2017 sunset review. Two notices of the public meetings on the 2017 sunset review with request for comments were published in Federal Register on March 12, 2015 (80 FR 12975) and September 8, 2015 (80 FR 53759). The purpose of these notices was to notify the public that the Turkish bay leaves exemption discussed in this proposed rule would expire on June 27, 2017, if not reviewed by the NOSB and renewed by the Secretary.

    During their 2017 sunset review, the NOSB considered written comments received prior to and during the public meetings on all substance exemptions included in the 2017 sunset review. These written comments can be viewed at https://www.regulations.gov by searching for the document ID numbers: AMS-NOP-15-0002 (April 2015 public meeting) and AMS-NOP-15-0037 (October 2015 public meeting). The NOSB also considered oral comments received during these public meetings. The NOSB's recommendation on Turkish bay leaves is available on the NOP Web site at http://www.ams.usda.gov/nop. During their sunset review of Turkish bay leaves the NOSB did not review a technical report on Turkish bay leaves since the NOSB has not requested the development of a Turkish bay leaves technical report for the original petition review or any subsequent sunset reviews.

    Public comments on Turkish bay leaves received by the NOSB during their 2017 Sunset review indicated that organic Turkish bay leaves sources are available to organic handlers/processors. The original petitioner of Turkish bay leaves also commented they now use organic Turkish bay leaves for their products. Based upon these comments, the NOSB determined that the exemption for Turkish bay leaves in § 205.606(w) is no longer necessary or essential for organic handling/processing. From this determination, the NOSB recommended the removal of Turkish bay leaves from § 205.606(w) from the National List at their October 2015 public meeting. AMS accepts the NOSB's recommendation on removing Turkish bay leaves from the National List. This proposed rule would amend National List § 205.606 by removing the substance exemption for Turkish bay leaves listed in § 205.606(w). This amendment is proposed to be effective on the current sunset date for Turkish bay leaves, which is June 27, 2017.

    Whey Protein Concentrate

    The USDA organic regulations include an exemption on the National List for whey protein concentrate, allowed as an ingredient in or on processed products labeled as “organic” in § 205.606(y) as follows: whey protein concentrate. In February 2007, whey protein concentrate was petitioned for addition to § 205.606 for use as an ingredient in or on organic processed products. In April 2007, the NOSB recommended adding whey protein concentrate to the National List in § 205.606. AMS accepted the NOSB's recommendation and whey protein concentrate was added to the National List on June 27, 2007 (72 FR 35137). As required by OFPA, the NOSB recommended the renewal of whey protein concentrate during their 2012 sunset review. The Secretary accepted the NOSB's recommendation and published a notice renewing the whey protein concentrate exemption on the National List on June 6, 2012 (77 FR 33290). Subsequently, the exemption for whey protein concentrate on the National List was considered during the NOSB's 2017 sunset review. Two notices of the public meetings on the 2017 sunset review with request for comments were published in Federal Register on March 12, 2015 (80 FR 12975) and September 8, 2015 (80 FR 53759). The purpose of these notices was to notify the public that the whey protein concentrate exemption discussed in this proposed rule would expire on June 27, 2017, if not reviewed by the NOSB and renewed by the Secretary.

    During their 2017 sunset review deliberation, the NOSB considered written comments received prior to and during the public meetings on all substance exemptions included in the 2017 sunset review. These written comments can be viewed at https://www.regulations.gov by searching for the document ID numbers: AMS-NOP-15-0002 (April 2015 public meeting) and AMS-NOP-15-0037 (October 2015 public meeting). The NOSB also considered oral comments received during these public meetings. The NOSB's recommendation on whey protein concentrate is available on the NOP Web site at http://www.ams.usda.gov/nop. During their sunset review of whey protein concentrate the NOSB considered a whey protein concentrate technical report that were requested by and developed for the NOSB in 2015. This technical report is available for review in the petitioned substance database on the NOP Web site, https://www.ams.usda.gov/rules-regulations/organic/national-list.

    Public comments on whey protein concentrate received by the NOSB during their 2017 Sunset review indicated that organic whey protein concentrate sources are available to organic processors. Based upon these comments, the NOSB determined that the exemption for whey protein concentrate in § 205.606(y) is no longer necessary or essential for organic handling/processing. From this determination, the NOSB recommended the removal of whey protein concentrate from § 205.606(y) from the National List at their October 2015 public meeting. AMS accepts the NOSB's recommendation on removing whey protein concentrate from the National List. This proposed rule would amend National List § 205.606 by removing the substance exemption for whey protein concentrate listed in § 205.606(y). This amendment is proposed to be effective on the current sunset date for whey protein concentrate, which is June 27, 2017.

    III. Related Documents

    Two notices of public meetings with request for comments were published in Federal Register on March 12, 2015 (80 FR 12975) and on September 8, 2015 (80 FR 53759) in order to notify the public that the 2017 sunset review listings discussed in this proposed rule would expire on June 27, 2017, if not reviewed by the NOSB and renewed by the Secretary.

    IV. Statutory and Regulatory Authority

    OFPA, as amended (7 U.S.C. 6501-6522), authorizes the Secretary to make amendments to the National List based on proposed recommendations developed by the NOSB. Sections 6518(k)(2) and 6518(n) of OFPA authorize the NOSB to develop proposed amendments to the National List for submission to the Secretary and establish a petition process by which persons may petition the NOSB for the purpose of having substances evaluated for inclusion on or deletion from the National List. The National List petition process is implemented under § 205.607 of the USDA organic regulations. The current petition process was published on March 10, 2016 (81 FR 12680) and can be accessed through the NOP Web site at http://www.ams.usda.gov/nop.

    A. Executive Order 12866

    This action has been determined to be not significant for purposes of Executive Order 12866, and therefore, has not been reviewed by the Office of Management and Budget.

    B. Executive Order 12988

    Executive Order 12988 instructs each executive agency to adhere to certain requirements in the development of new and revised regulations in order to avoid unduly burdening the court system. This proposed rule is not intended to have a retroactive effect.

    States and local jurisdictions are preempted under OFPA from creating programs of accreditation for private persons or State officials who want to become certifying agents of organic farms or handling operations. A governing State official would have to apply to USDA to be accredited as a certifying agent, as described in section 2115(b) of OFPA (7 U.S.C. 6514(b)). States are also preempted under section 2104 through 2108 of OFPA (7 U.S.C. 6503 through 6507) from creating certification programs to certify organic farms or handling operations unless the State programs have been submitted to, and approved by, the Secretary as meeting the requirements of OFPA.

    Pursuant to section 2108(b)(2) of OFPA (7 U.S.C. 6507(b)(2)), a State organic certification program may contain additional requirements for the production and handling of organically produced agricultural products that are produced in the State and for the certification of organic farm and handling operations located within the State under certain circumstances. Such additional requirements must: (a) Further the purposes of OFPA, (b) not be inconsistent with OFPA, (c) not be discriminatory toward agricultural commodities organically produced in other States, and (d) not be effective until approved by the Secretary.

    Pursuant to section 2120(f) of OFPA (7 U.S.C. 6519(f)), this proposed rule would not alter the authority of the Secretary under the Federal Meat Inspection Act (21 U.S.C. 601-624), the Poultry Products Inspection Act (21 U.S.C. 451-471), or the Egg Products Inspection Act (21 U.S.C. 1031-1056), concerning meat, poultry, and egg products, nor any of the authorities of the Secretary of Health and Human Services under the Federal Food, Drug and Cosmetic Act (21 U.S.C. 301-399), nor the authority of the Administrator of EPA under the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. 136-136(y)).

    Section 2121 of OFPA (7 U.S.C. 6520) provides for the Secretary to establish an expedited administrative appeals procedure under which persons may appeal an action of the Secretary, the applicable governing State official, or a certifying agent under this title that adversely affects such person or is inconsistent with the organic certification program established under this title. OFPA also provides that the U.S. District Court for the district in which a person is located has jurisdiction to review the Secretary's decision.

    C. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) (5 U.S.C. 601-612) requires agencies to consider the economic impact of each rule on small entities and evaluate alternatives that would accomplish the objectives of the rule without unduly burdening small entities or erecting barriers that would restrict their ability to compete in the market. The purpose of the RFA is to fit regulatory actions to the scale of businesses subject to the action. Section 605 of the RFA allows an agency to certify a rule, in lieu of preparing an analysis, if the rulemaking is not expected to have a significant economic impact on a substantial number of small entities.

    Pursuant to the requirements set forth in the RFA, AMS performed an economic impact analysis on small entities in the final rule published in the Federal Register on December 21, 2000 (65 FR 80548). AMS has also considered the economic impact of this action on small entities. The impact on entities affected by this proposed rule would not be significant. The effect of this proposed rule would be to prohibit the use of eleven non-organic non-agricultural or non-organic agricultural substances that have limited public support and may no longer be used since alternatives to these substances may have been developed and implemented by organic producers or organic handlers (food processors). AMS concludes that the economic impact of removing lignin sulfonate, furosemide, magnesium carbonate, Chia, dillweed oil, frozen galangal, inulin, frozen lemongrass, chipotle chile peppers, Turkish bay leaves, and whey protein concentrate from the National List would be minimal to small agricultural firms since alternative products or ingredients may be commercially available. As such, these substances are proposed to be removed from the National List under this rule. Accordingly, AMS certifies that this rule will not have a significant economic impact on a substantial number of small entities.

    Small agricultural service firms, which include producers, handlers, and accredited certifying agents, have been defined by the Small Business Administration (SBA) (13 CFR 121.201) as those having annual receipts of less than $7,000,000 and small agricultural producers are defined as those having annual receipts of less than $750,000.

    According to USDA, National Agricultural Statistics Service (NASS), certified organic acreage exceeded 3.6 million acres in 2014.1 According to NOP's Accreditation and International Activities Division, the number of certified U.S. organic crop and livestock operations totaled over 21,764 in March 2016. The list of certified operations is available on the NOP Web site at http://apps.ams.usda.gov/nop/. AMS believes that most of these entities would be considered small entities under the criteria established by the SBA. U.S. sales of organic food and non-food have grown from $1 billion in 1990 to $43 billion in 2015.2 In addition, the USDA has 80 accredited certifying agents who provide certification services to producers and handlers. A complete list of names and addresses of accredited certifying agents may be found on the AMS NOP Web site, at http://www.ams.usda.gov/nop. AMS believes that most of these accredited certifying agents would be considered small entities under the criteria established by the SBA.

    1 U.S. Department of Agriculture, National Agricultural Statistics Service. 2014 Organic Survey, https://www.agcensus.usda.gov/Publications/2012/Online_Resources/Organics/organics_1_001_001.pdf.

    2 Organic Trade Association. 2015. Organic Industry Survey. www.ota.com.

    D. Paperwork Reduction Act

    No additional collection or recordkeeping requirements are imposed on the public by this proposed rule. Accordingly, OMB clearance is not required by section 350(h) of the Paperwork Reduction Act of 1995, 44 U.S.C. 3501, Chapter 35, or OMB's implementing regulations at 5 CFR part 1320.

    E. Executive Order 13175

    This proposed rule has been reviewed in accordance with the requirements of Executive Order 13175, Consultation and Coordination with Indian Tribal Governments. The review reveals that this regulation will not have substantial and direct effects on Tribal governments and will not have significant Tribal implications.

    F. General Notice of Public Rulemaking

    This proposed rule reflects recommendations submitted to the Secretary by the NOSB for substances on the National List of Allowed and Prohibited Substances that, under the Sunset review provisions of OFPA, would otherwise expire on June 27, 2017. A 60-day period for interested persons to comment on this rule is provided. Sixty days is deemed appropriate because the review of these listings was widely publicized through two NOSB meeting notices; the use or prohibition of these substances, as applicable, are critical to organic production and handling; and this rulemaking must be completed before the sunset date of June 27, 2017.

    List of Subjects in 7 CFR Part 205

    Administrative practice and procedure, Agriculture, Animals, Archives and records, Imports, Labeling, Organically produced products, Plants, Reporting and recordkeeping requirements, Seals and insignia, Soil conservation.

    For the reasons set forth in the preamble, 7 CFR part 205 is proposed to be amended as follows:

    PART 205—NATIONAL ORGANIC PROGRAM 1. The authority citation for 7 CFR part 205 continues to read as follows: Authority:

    7 U.S.C. 6501-6522.

    2. Amend § 205.601 by revising paragraph (l) to read as follows:
    § 205.601 Synthetic substances allowed for use in organic crop production.

    (l) As floating agents in postharvest handling. Sodium silicate—for tree fruit and fiber processing.

    § 205.603 [Amended]
    3. Amend § 205.603 by removing paragraph (a)(10) and redesignating paragraphs (a)(11) through (a)(23) as paragraphs (a)(10) through (a)(22).
    § 205.605 [Amended]
    4. Amend § 205.605 by removing the entry “Magnesium carbonate—for use only in agricultural products labeled “made with organic (specified ingredients or food group(s)),” prohibited in agricultural products labeled “organic” from paragraph (b).
    § 205.606 [Amended]
    5. Amend § 205.606 by removing paragraphs (c), (e), (h), (k), (o), (s), (w) and (y) and redesignating paragraphs (d), (f), (g), (i), (j),(l), (m), (n), (p), (q), (r), (t), (u) and (x) as paragraphs (c) through (q). Dated: January 9, 2017. Elanor Starmer, Administrator, Agricultural Marketing Service.
    [FR Doc. 2017-00586 Filed 1-17-17; 8:45 am] BILLING CODE 3410-02-P
    DEPARTMENT OF AGRICULTURE Agricultural Marketing Service 7 CFR Part 1255 [Document Number AMS-SC-16-0112; PR-B] RIN 0581-AD55 Organic Research, Promotion, and Information Order; Referendum Procedures AGENCY:

    Agricultural Marketing Service, Department of Agriculture.

    ACTION:

    Proposed rule.

    SUMMARY:

    This proposed rule invites comments on procedures for conducting a referendum to determine whether the issuance of a proposed Organic Research, Promotion, and Information Order (proposed Order) is favored by certified organic producers, certified organic handlers, and importers of certified organic products. The organic market includes a range of agricultural commodities such as fruits, vegetables, dairy, meat, poultry, breads, grains, snack foods, condiments, beverages, and packaged and prepared foods, as well as non-food items such as fiber (linen and clothing), personal care products, pet food, and flowers. The procedures would also be used for any subsequent referendum under the proposed Order. The proposed Order is being published separately in this issue of the Federal Register. This document also announces the Agricultural Marketing Service's (AMS) intent to request approval by the Office of Management and Budget (OMB) of new information collection requirements to implement the program.

    DATES:

    Comments must be received by March 20, 2017. Pursuant to the Paperwork Reduction Act (PRA), comments on the information collection burden that would result from this proposal must be received by March 20, 2017.

    ADDRESSES:

    Interested persons are invited to submit written comments concerning this rule. Comments may be submitted on the Internet at: http://www.regulations.gov or to the Promotion and Economics Division, Specialty Crops Program, AMS, USDA, 1400 Independence Avenue SW., Room 0632-S, Stop 0244, Washington, DC 20250-0244; facsimile: (202) 205-2800. All comments should reference the docket number and the date and page number of this issue of the Federal Register and will be made available for public inspection, including name and address, if provided, in the above office during regular business hours or it can be viewed at http://www.regulations.gov.

    Pursuant to the PRA, comments regarding the accuracy of the burden estimate, ways to minimize the burden, including the use of automated collection techniques or other forms of information technology, or any other aspect of this collection of information, should be sent to the above address. In addition, comments concerning the information collection should also be sent to the Desk Office for Agriculture, Office of Information and Regulatory Affairs, OMB, New Executive Office Building, 725 17th Street NW., Room 725, Washington, DC 20503.

    FOR FURTHER INFORMATION CONTACT:

    Heather Pichelman, Division Director, Promotion and Economics Division, Specialty Crops Programs, AMS, USDA, 1400 Independence Avenue SW., Room 0632-S, Stop 0244, Washington, DC 20250-0244; facsimile: (202) 205-2800; or electronic mail: [email protected]

    SUPPLEMENTARY INFORMATION:

    This rule is issued pursuant to the Commodity Promotion, Research, and Information Act of 1996 (7 U.S.C. 7411-7425).

    Executive Order 12866 and Executive Order 13563

    This rule has been determined to be not significant for purposes of Executive Order 12866, as supplemented by Executive Order 13563, and therefore has not been reviewed by the Office of Management and Budget (OMB).

    Executive Order 12988 What is the purpose of this action?

    This proposed rule invites comments on procedures for conducting a referendum to determine whether covered domestic certified organic producers, certified organic handlers and importers of organic products favor issuance of a proposed Order.1 Accordingly, this rule would add subpart B to part 1255 that would establish procedures for conducting the referendum. The procedures would cover definitions, voting instructions, use of subagents, ballots, the referendum report, and confidentiality of information. The U.S. Department of Agriculture (USDA) would conduct the referendum. The program would be implemented if it is favored by a majority of domestic certified organic producers, certified organic handlers and importers of organic products voting in the referendum. The procedures would be applicable for the initial referendum and future referenda under the proposed Order.

    1 For clarification, the phrase “organic products” used throughout the proposed Order and referendum procedures is synonymous with the terms: “certified products” or “certified organic products”. The words “certified organic” are used to modify the terms “certified organic handler” at section 1255.9 and “certified organic producer” at section 1255.10 for the purpose of reiterating the concept that certified products originate from certified entities.

    This document also announces AMS's intent to request approval by the OMB of new information collection requirements to implement the program. The proposed Order is being published separately in this issue of the Federal Register.

    What are the key statutes and regulations governing this action?

    This proposed rule has been reviewed under Executive Order 12988, Civil Justice Reform. It is not intended to have retroactive effect. Section 524 of the Commodity Promotion, Research, and Information Act of 1996 (7 U.S.C. 7411-7425) (Act) provides that it shall not affect or preempt any other Federal or state law authorizing promotion or research relating to an agricultural commodity.

    The Act authorizes USDA to establish agricultural commodity research and promotion orders which may include a combination of promotion, research, industry information, and consumer information activities funded by mandatory assessments. These programs are designed to maintain and expand markets and uses for agricultural commodities. To date, there are 10 commodity promotion programs (i.e., research and promotion programs or R&P programs) operating under the authority of the Act. On February 7, 2014, section 10004 of the Agricultural Act of 2014 (2014 Farm Bill) (Pub. L. 113-79) amended section 501 of the Federal Agriculture Improvement and Reform Act of 1996 (7 U.S.C. 7401), which authorizes generic commodity promotion programs under the various commodity promotion laws, to allow for an organic commodity promotion order. Specifically, the definition of “agricultural commodity” under section 513(1)(E) of the Act was amended to include “products, as a class, that are produced on a certified organic farm (as defined in 7 U.S.C. 6502); and certified to be sold or labeled as “organic” or “100 percent organic” (as defined in part 205 of title 7, Code of Federal Regulations (or a successor regulation)). Should this proposed rule become final, pursuant to section 10004 of the 2014 Farm Bill, the regulatory language currently exempting organic commodities from assessment by generic commodity promotion programs created under the various commodity promotion laws (7 U.S.C. 7401(e)) shall no longer be in effect. Such commodities would then become “dual-covered commodities”, and persons producing, handling and importing them would need to elect to pay assessments to the commodity-specific program, or the organic commodity promotion program.

    The 2014 Farm Bill amendments to the Act allowed the organic industry to submit a proposal for an organic R&P program. As the membership-based business association for the organic industry in North America, the Organic Trade Association (OTA) took on the role as a proponent group in the development of an organic R&P program proposal. OTA represents businesses across the organic supply chain and addresses all things organic, including food, fiber/textiles, personal care products, and new sectors as they develop. To develop the proposal, OTA established and collaborated with the 7-member GRO Organic Core Committee. The GRO Organic Core Committee is a subset of OTA's larger Organic Research and Promotion Program Steering Committee. It included OTA subcommittee chairs and other industry leaders who built on the outreach and input from the larger committee to guide the development of a proposed Order.

    Under section 519 of the Act, a person subject to an order may file a written petition with USDA stating that an order, any provision of an order, or any obligation imposed in connection with an order, is not established in accordance with the law, and request a modification of an order or an exemption from an order. Any petition filed challenging an order, any provision of an order, or any obligation imposed in connection with an order, shall be filed within two years after the effective date of an order, provision, or obligation subject to challenge in the petition. The petitioner will have the opportunity for a hearing on the petition. Thereafter, USDA will issue a ruling on the petition. The Act provides that the district court of the United States for any district in which the petitioner resides or conducts business shall have the jurisdiction to review a final ruling on the petition, if the petitioner files a complaint for that purpose not later than 20 days after the date of the entry of USDA's final ruling.

    What are organic products?

    To make an organic claim or use the USDA Organic Seal, the final product must follow the applicable production, handling and labeling regulations and go through the organic certification process specified at 7 CFR part 205. To become certified, producers and handlers must apply to a USDA-accredited certifying agent, develop and implement an organic system plan, and be inspected. Organic certification allows producers and handlers to sell their raw, processed, and multi-ingredient products as organic. Each production or handling operation that produces or handles crops, livestock, livestock products, or other agricultural products that are intended to be sold, labeled, or represented as “100 percent organic,” “organic,” or “made with organic (specified ingredients or food group(s))” must be certified according to the USDA organic regulations (7 CFR part 205).2

    2 USDA organic regulations at 7 CFR 205.101 provides for some exclusions and exemptions from certification. For example, a production or handling operation that sells agricultural products as “organic” but whose gross agricultural income from organic sales totals $5,000 or less annually is exempt from organic certification but must comply with the applicable organic production and handling requirements as specified at 7 CFR 205.101(a)(1).

    Who would be assessed under this program?

    Consistent with the definition of “covered person” at 7 U.S.C. 7401, which describes who may be subject to an organic commodity promotion order as “a producer, handler, marketer, or importer of an organic agricultural commodity”, the definition for “assessed entity” at section 1255.4 states that this order is applicable to any certified organic producer or certified organic handler that has gross organic sales in excess of $250,000 for the previous marketing year, any importer with a transaction value greater than $250,000 in organic products during the previous marketing year, and any voluntarily assessed entity. The proposed Order would provide for an initial assessment rate of one-tenth of one percent of net organic sales for domestic certified organic producers and certified organic handlers with gross organic sales greater than $250,000 in the previous marketing year. Net organic sales would be equal to total gross sales in certified organic products minus (a) the cost of certified organic ingredients, feed, and inputs used in the production of certified products, and (b) the cost of any non-organic agricultural ingredients used in the production of certified products.3 Certified organic handlers may also deduct the cost of certified organic products purchased from producers. Importers with transaction value that exceeds $250,000 in organic products during the prior year would remit one-tenth of one percent of the declared transaction value of those certified organic products at the time of importation. This means that importers would remit assessments to the Board upon taking ownership of the imported product.

    3 Examples of organic input costs that may be deducted from gross sales include fertilizer, lime, and soil conditioners; agricultural chemicals and other organic materials for pest control; seeds, plants, vines and trees; livestock purchased or leased; and feed purchased for livestock and poultry.

    Under the permissive terms under section 516 of the Act, the term “assessed entity” also allows orders to provide exemptions for covered persons. More specifically, certified organic producers and certified organic handlers with gross organic sales less than or equal to $250,000 of certified organic products for the previous marketing year would be exempt, and have the option to choose to pay assessments into the program as “voluntarily assessed” entities. Importers with $250,000 or less in transaction value of imported organic products during the prior marketing year are exempt from remitting assessments to the board, and could also opt to be voluntarily assessed. Finally, certified organic producers, certified organic handlers, and importers of dual-covered commodities would be eligible to apply for an exemption.4 Such entities also have the option to choose to pay assessments into the program as “voluntarily assessed” entities, which would make them eligible to participate in the referendum. The purpose of the program would be to strengthen the position of certified organic products in the marketplace, support research to benefit the organic industry, and improve access to information and data across the organic sector.

    4 The 2014 Farm Bill amendments to 7 U.S.C. 7401 also included a requirement for an organic research and promotion order to allow covered persons (which can include producers, handlers, and importers, depending upon the order) to elect whether to be assessed under the organic commodity promotion order or another applicable agricultural commodity promotion order. For example, an organic blueberry producer would have the option to pay into the blueberry program or the organic program.

    What products would be covered under this program?

    Understanding that section 7412(1)(E)(ii) of the Act specified that the scope of an “agricultural commodity” as limited to products that are “certified to be sold or labeled as “organic” or “100 percent organic”, this proposal would assess only the value added of the certified organic ingredient content of “made with organic” products rather than the entire certified product. Consequently, the scope of covered products spans a range of agricultural commodities such as fruits, vegetables, dairy, meat, poultry, breads, grains, snack foods, condiments, beverages, and packaged and prepared foods, as well as non-food items such as fiber (linen and clothing), personal care products, pet food, and flowers. While the USDA organic regulations do not detail standards specific to non-food items, items that are agricultural products (e.g., pet food) and that meet the certification requirements of the USDA organic regulations can be certified and labeled “organic”, irrespective of the end use of the product.5 There are currently 38 Harmonized Tariff Schedule (HTS) codes representative of imported organic agricultural products. These codes and their product descriptions are listed in the table below.

    5 In August 2005, the NOP issued a Policy Memorandum 11-2 to certifying agents, stating that agricultural products which meet the NOP certification standards can be certified and labeled “organic,” irrespective of the end use of the product. Policy Memo 11-2 is available on the AMS Web site in the NOP Handbook at: http://www.ams.usda.gov/rules-regulations/organic/handbook.

    HTS Code HTS Description 0409000005 NATURAL, HONEY, CERTIFIED FOR ORGANIC. 0703200005 GARLIC, FRESH WHOLE BULBS, CERTIFIED ORGANIC. 0709604015 SWT BELL PEPPER, FRT OF CAPSICUM/PIMENTA, GRNHSE, CERT ORGANIC. 0709604065 SWT BELL PEPER, OTH, FRUIT, CAPSICUM/PIMENTA, CERT ORGANIC, OTHER. 0802120005 SHELLED ALMONDS, CERTIFIED ORGANIC 0803900025 FRESH BANANAS, CERTIFIED ORGANIC 0804400020 AVOCADOS, HASS&HASS LIKE, CERTIFIED ORGANIC 0804504045 FRESH MANGOES ENTERED SEPT 1 TO MAY 31, CERTIFIED ORGANIC 0804506045 FRESH MANGOES ENTERED JUNE 1 TO AUG 31, CERTIFIED ORGANIC 0808100045 APPLES, FRESH, VALUED> $0.22 PER KG, CERTIFIED ORGANIC 0808302015 PEARS, ORGANIC, ENTERED 4/1-6/30, FRESH 0808304015 PEARS, ORGANIC, ENTERED 7/1-3/31, FRESH 0808402015 QUINCES; FRESH, APR 1 THRU JUNE 30, CERTIFIED ORGANIC 0808404015 QUINCES; ORGANIC, ENTERED 7/1-3/31, FRESH 0810400026 BLUEBERRIES, FRESH, CULTIVATED, CERTIFIED ORGANIC 0901110015 ARABICA COFFEE NOT ROAST/DECAFFEINATED, CERTIFIED ORGANIC 0901110045 COFFEE, NOT ROASTED, NOT DECAFFEINATED, OTHER, CERTIFIED ORGANIC 0901120015 COFFEE, DECAFFEINATED, NOT ROASTED, CERTIFIED ORGANIC 0901210035 COFFEE, ROASTED; NOT DECAFFEINATED, <=2KG RET CONT, CERT ORGANIC 0901210055 COFFEE, ROASTED, N/DECAFFEINATED, NOT 2KG OR LESS, CERT ORGANIC 0901220035 COFFEE, ROASTED, DECAFFEINATED, <=2KG RETAIL CONT, CERT ORGANIC 0902101015 FLAVORED GREEN TEA IMMED PACKING NOT EXCEED 3KG, CERT ORGANIC 0902109015 GREEN TEA (NOT FERM) IMMED PACKINGS NTE 3KG, N/FLVR, CERT ORGNC 0902209015 OTHER GREEN TEA (NOT FERMENTED), N/FLAVORED, CERTIFIED ORGANIC 0902300015 BLACK TEA FERMENT/PRT FRMNTED, IN TEA BAGS, <=3KG, CERT ORGANIC 0910110010 GINGER, NOT GROUND, CERTIFIED ORGANIC 1001190025 DURUM WHEAT, CERTIFIED ORGANIC, EXCEPT SEED 1005902015 CORN (MAIZE) - YELLOW DENT CORN, CERTIFIED ORGANCI 1006309015 RICE: OTHER SEMI OR WHOLLY MILLED POL/GLZ OR NOT, CERT ORGANIC 1201900010 SOYBEANS, ORGANIC, WHETHER OR NOT BROKEN, NESOI 1204000025 FLAXSEED (LINSEED), FOR USE AS OIL STOCK, W/N BROKEN, ORGANIC 1509102030 CER OR LB EX VRGN OLVE OIL N/CHEM MOD CON LT 18KG 1509102040 OLIV OIL, NOT CHEM. MOD. VIRGIN, WT<8KG, ORG, OTH THAN XTRA VIR 1509104030 OLIVE OIL, NOT CHEM MOD, VIRGIN, OTH, CERT ORG, LAB EXTRA VIRGIN 1509104040 OLIVE OIL, NOT CHEM MOD, VIRGIN, OTH CERT ORG, NT LAB EXTRA VIR 2204100065 SPARKLING WINE, OR FRESH GRAPES VALUED >$1.59 PER LITER, ORG 2204215035 RED WINE, >$1.05 PER L, ALCHL STRGTH BY VOLM <=14% CONT<=2L, ORG 2204215050 WHITEWINE >$1.05 L, ALCHOL STRNGTH BY VOLUM <=14% CONT<=2L, ORG Initial Regulatory Flexibility Act Analysis

    In accordance with the Regulatory Flexibility Act (RFA) (5 U.S.C. 601-612), AMS is required to examine the impact of the proposed rule on small entities. Accordingly, AMS has considered the economic impact of this action on these entities.

    The purpose of the RFA is to fit regulatory actions to the scale of businesses subject to such actions so that small businesses will not be disproportionately burdened. The Small Business Administration (SBA) defines, in 13 CFR part 121, small agricultural producers as those having annual receipts of no more than $750,000 and small agricultural support services firms (handlers and importers) as those having annual receipts of no more than $7.5 million.

    In 2014, there were a total of 19,466 certified organic operations in the U.S. and its territories.6 This total includes both certified organic producers and certified organic handlers. The number of operations that were certified solely as organic handlers, according to NOP, totaled 8,327 entities. The remaining 11,139 certified organic entities include operations that are certified only as producers and operations that are certified as both producers and handlers. Organic producers are also required to be certified as organic handlers in order to sell, process, or package agricultural products, except in such cases where a producer is simply selling, transporting or delivering crops or livestock to a handler (7 CFR 205.2).

    6 NOP Organic Integrity database. Available at: https://apps.ams.usda.gov/integrity/.

    Data from USDA's National Agricultural Statistics Service (NASS) 2014 Organic Survey show that about 91 percent of certified organic producers had 2014 organic sales value of $750,000 or less. Applying this proportion to the 11,139 certified organic producers referenced earlier results in 10,126 producing entities being considered small.

    There is no one catch-all definition by the SBA of what constitutes a small handler of agricultural products. Therefore, to maintain consistency with other federal programs and marketing orders, AMS defines a small handler as one which has no more than $7.5 million in annual receipts as defined by the SBA under subsector 115 of the North American Industry Classification System (NAICS), “Support Activities for Agriculture and Forestry”.7 According to the 2012 County Business Patterns and 2012 Economic Census released June 22, 2015, about 95 percent of firms classified under subsector 115 of NAICS had less than $7.5 million in annual receipts and would be considered small. Applying this proportion to the number of certified organic handlers results in an estimated 7,895 handler operations out of 8,327 being considered small under the SBA definition.

    7 U.S. Small Business Administration, “Table of Small Business Size Standards Matched to North American Industry Classification System Codes”, February 26, 2016.

    According to data from the U.S. Customs and Border Protection (CBP), there were 2,135 importers of organic products with codes in the HTS in 2014. Of these, about 98 percent had annual sales revenue of less than $7.5 million in 2014. Adding the 2,135 number of organic importers to the 19,466 combined number of certified organic producers and handlers results in a total of 21,601 operations with sales of certified organic products in the U.S. Of this total, 20,121 entities, or 93 percent, would be considered to be small under the SBA definitions.

    The Organic Industry Survey, which was carried out by the Nutrition Business Journal (NBJ) on behalf of OTA, reported 2014 retail sales of all organic commodities at $39.1 billion. Imports of the 38 organic products with HTS codes listed previously amounted to more than $1.2 billion in 2014. In 2014, NASS, which collects data on farm-level production and sales, reported total certified organic sales of nearly $5.5 billion, up 54 percent from three years previously.8

    8 National Agricultural Statistics Service, 2014 Organic Survey, U.S. Department of Agriculture (September 2015), p. 1, available at http://usda.mannlib.cornell.edu/usda/current/OrganicProduction/OrganicProduction-09-17-2015.pdf.

    This proposed rule invites comments on procedures for conducting a referendum to determine whether issuance of a proposed Order is favored by domestic certified producers, certified handlers and importers of certified organic products. Organic agricultural ingredients are used in a range of products (e.g. food items (fruits, vegetables, dairy, meat, poultry, breads, grains, snack foods, condiments, beverages, and packaged and prepared foods), and non-food items (fiber (linen and clothing), supplements, personal care products, pet food, household products, and flowers)). The procedures would also be used for any subsequent referendum under the proposed Order. USDA would conduct the referendum.

    The Act provides for alternatives within the terms of a variety of provisions. Paragraph (e) of section 518 of the Act provides three options for determining industry approval of a new research and promotion program: (1) By a majority of those persons voting; (2) by persons voting for approval who represent a majority of the volume of the agricultural commodity; or (3) by a majority of those persons voting for approval who also represent a majority of the volume of the agricultural commodity. In addition, section 518 of the Act provides for referenda to ascertain approval of an order to be conducted either prior to its going into effect or within three years after assessments first begin under an order. OTA recommended that the program be implemented if it is favored by a majority of assessed entities voting in the referendum. For example, if 10,000 certified organic producers, certified organic handlers, and importers voted in a referendum, 5,001 would have to vote in favor of the proposed Order for it to pass in the referendum. It is proposed that a single assessed entity may cast one vote in the referendum. A single entity is recognized by its individual tax identification number. This is a modification from the proponent's proposal, which recommended a single assessed entity would have one vote for each organic certificate held.

    Regarding the economic impact of this rule on affected entities, eligible domestic certified producers, certified handlers and importers of certified organic products would have the opportunity to participate in the referendum. The proposed Order would exempt: (a) Producers and handlers with gross sales of $250,000 or less of certified organic products for the previous marketing year, (b) importers with $250,000 or less in transaction value of imported organic products during the prior marketing year, and (c) certified organic producers, certified organic handlers, and importers of dual-covered commodities who select to pay into the commodity-specific program instead of the organic program. Entities under the $250,000 thresholds stated above would have the option to choose to pay assessments into the program as “voluntarily assessed” entities, which would make them eligible to participate in the referendum. Certified producers, certified handlers and importers of certified organic products exercising their exemptions would not be eligible to participate in the referendum.

    AMS used 2014 data from multiple sources, such as the USDA Economic Research Service (ERS), USDA NASS, USDA Foreign Agricultural Service (FAS), USDA National Organic Program (NOP), U.S. Customs and Border Protection (CBP), and OTA industry surveys for consistency in estimating potential assessment income at producer, handler and importer levels. Based on an assumption that there is no participation by voluntarily assessed entities, of the 11,139 producers, 8,327 handlers, and 2,135 importers, it is estimated that about 2,691 producers, 5,015 handlers, and 326 importers would pay assessments under the proposed Order and thus be eligible to vote in the referendum. Assessment revenue that would be collected at the proposed exemption level of $250,000 in gross annual revenue from organic sales would be $25.3 million.9 Of this assessment revenue, about 14 percent would come from producers, 81 percent would come from handlers, and 5 percent would be from importers. In terms of the total value of exempt sales and the total number of exempt entities at the proposed exemption level, AMS estimates that about 5 percent of gross organic sales value would be exempt, and 63 percent of certified organic producers and handlers and organic importers, combined, would be exempt. At the producer level, 12 percent of certified organic sales value would be exempt, and 76 percent of entities would be exempt. For handlers, 3 percent of certified organic sales value and 40 percent of entities would be exempt. Of the total importers of organic products, 4 percent of organic sales value would be exempt, and 85 percent of entities would be exempt.

    9 No expense data exists for handlers, so input costs have not been deducted from total sales at the handler level. This means that handler assessable sales is likely lower than what is reported; however, all assumptions made in estimating potential assessment revenue have been made to generate a conservative figure.

    Voting in the referendum is optional. If domestic certified organic producers, certified organic handlers and importers choose to vote, the burden of voting would be offset by the benefits of having the opportunity to vote on whether or not they favor the proposed program.

    Regarding alternatives, USDA considered requiring voters to vote in person at various USDA offices across the country. USDA also considered electronic voting, but the use of computers is not universal. Conducting the referendum from one central location by mail ballot would be more cost effective and reliable. USDA would provide easy access to information for potential voters through a toll free telephone line.

    This action would impose an additional reporting burden on assessed entities. Those who would be assessed would have the opportunity to complete and submit a ballot to USDA indicating whether or not they favor implementation of the proposed Order. The specific burden for the ballot is detailed later in this document in the section titled Paperwork Reduction Act. As with all Federal promotion programs, reports and forms are periodically reviewed to reduce information requirements and duplication by industry and public sector agencies. Finally, USDA has not identified any relevant Federal rules that duplicate, overlap, or conflict with this rule.

    AMS is committed to complying with the E-Government Act, to promote the use of the Internet and other information technologies to provide increased opportunities for citizen access to Government information and services, and for other purposes.

    Regarding outreach efforts, USDA would keep these individuals informed throughout the program implementation and referendum process to ensure that they are aware of and are able to participate in the program implementation process. USDA would also publicize information regarding the referendum process so that trade associations and related industry media can be kept informed.

    USDA has performed this initial RFA analysis regarding the impact of this proposed rule on small businesses.

    Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35), the referendum ballot, which represents the information collection and recordkeeping requirements that may be imposed by this rule, has been submitted to OMB for approval.

    Title: Organic Research, Promotion, and Information Order.

    OMB Number: 0581-NEW.

    Expiration Date of Approval: 3 years from OMB date of approval.

    Type of Request: New information collection for an organic research, promotion, and information program.

    Abstract: The information collection requirements in the request are essential to carry out the intent of the Act. The information collection concerns a proposal received by USDA for a national research and promotion program for the organic industry. The program would be financed by an assessment on importers and domestic certified organic producers and certified organic handlers of organic products, and would be administered by a board of industry members selected by the Secretary. The program would exempt: (a) Certified organic producers and certified organic handlers with gross sales $250,000 or less of certified organic products for the previous marketing year, (b) importers with $250,000 or less in transaction value of imported organic products during the prior marketing year, and (c) certified organic producers, certified organic handlers, and importers of dual-covered commodities, as applicable. Exports of certified organic products from the United States would also be exempt from assessments. A referendum would be held among eligible domestic certified organic producers, certified organic handlers and importers of certified organic products to determine whether they favor implementation of the program prior to it going into effect. The purpose of this program would be to: (1) Develop and finance an effective and coordinated program of research, promotion, industry information, and consumer education regarding organic commodities; and (2) maintain and expand existing markets for organic commodities.

    The information collection requirements in this rule concern the referendum that would be held to determine whether the program is favored by the industry. Domestic certified organic producers and certified organic handlers with gross organic sales greater than $250,000, importers with transaction value that exceeds $250,000 in organic products during the prior year, and “voluntarily assessed” entities would be eligible to participate in the referendum. The ballot would be completed by eligible domestic certified organic producers, certified organic handlers, and importers who want to indicate whether or not they support implementation of the program. The following burden estimate assumes 0% voluntarily assessed participation.

    Referendum Ballot

    Estimate of Burden: Public recordkeeping burden for this collection of information is estimated to average 0.25 hours per application.

    Respondents: Domestic certified organic producers, certified organic handlers, and importers.

    Estimated Number of Respondents: 8,032 (7,706 domestic producers and handlers and 326 importers).

    Estimated Number of Responses per Respondent: 1 every 7 years (0.14).

    Estimated Total Annual Burden on Respondents: 281.12 hours.

    The ballot would be added to the other information collections approved under OMB No. 0581-NEW.

    An estimated 8,032 respondents would provide information to the Board (7,706 domestic producers and handlers and 326 importers). The estimated cost of providing the information to the Board by respondents would be $9,754.99. This total has been estimated by the adding the cost of the hours required for producer and handling reporting (269.71 hours multiplied by $33.60 (the average mean hourly earnings of certified producers and handlers) and importer reporting (11.41 hours multiplied by $30.85, the average mean hourly earnings of importers). Data for computation of the hourly rate for producers and handlers (Occupation code 11-9013: Farmers, Ranchers, and other Agricultural Managers) and importers (Occupation code 13-1020: Buyers and Purchasing Agents) was obtained from the U.S. Department of Labor, Bureau of Labor Statistics.

    The proposed Order's provisions have been carefully reviewed, and every effort has been made to minimize any unnecessary recordkeeping costs or requirements, including efforts to utilize information already submitted under other programs administered by USDA and other state programs.

    Request for Public Comment Under the Paperwork Reduction Act

    Comments are invited on: (a) Whether the proposed collection of information is necessary for the proper performance of functions of the proposed Order and USDA's oversight of the proposed Order, including whether the information would have practical utility; (b) the accuracy of USDA's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used; (c) the accuracy of USDA's estimate of the principal organic production areas in the United States; (d) the accuracy of USDA's estimate of the number of domestic certified organic producers, certified organic handlers, and importers of organic products that would be covered under the program (e) ways to enhance the quality, utility, and clarity of the information to be collected; and (f) ways to minimize the burden of the collection of information on those who are to respond, including the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology.

    Comments concerning the information collection requirements contained in this action should reference OMB No. 0581-NEW. In addition, the docket number, date, and page number of this issue of the Federal Register also should be referenced. Comments should be sent to the same addresses referenced in the ADDRESSES section of this rule.

    A 60-day comment period is provided to allow interested persons to comment on this proposed information collection. All written comments received will be summarized and included in the request for OMB approval. All comments will also become a matter of public record.

    List of Subjects in 7 CFR Part 1255

    Administrative practice and procedure, Advertising, Consumer information, Marketing agreements, Organic, Promotion, Reporting and recordkeeping requirements.

    For the reasons set forth in the preamble, it is proposed that Title 7, Chapter XI of the Code of Federal Regulations, as proposed to be amended elsewhere in this issue of the Federal Register, be further amended as follows:

    PART 1255—ORGANIC RESEARCH AND PROMOTION ORDER 1. The authority citation for part 1255 continues to read as follows: Authority:

    7 U.S.C. 7411-7425; 7 U.S.C. 7401.

    2. Add Subpart B to read as follows: Subpart B—Referendum Procedures Sec. 1255.100  General. 1255.101  Definitions. 1255.102  Voting. 1255.103  Instructions. 1255.104  Subagents. 1255.105  Ballots. 1255.106  Referendum report. 1255.107  Confidential information. 1255.108  OMB Control number. Subpart B—Referendum Procedures
    § 1255.100 General.

    Referenda to determine whether eligible certified organic producers, certified organic handlers and importers of organic products favor the issuance, continuance, amendment, suspension, or termination of the Organic Research, Promotion, and Information Order shall be conducted in accordance with this subpart.

    § 1255.101 Definitions.

    For the purposes of this subpart:

    (a) Administrator means the Administrator of the Agricultural Marketing Service, with power to delegate, or any officer or employee of the U.S. Department of Agriculture to whom authority has been delegated or may hereafter be delegated to act in the Administrator's stead.

    (b) Assessed entity means any certified organic producer or certified organic handler that has gross organic sales in excess of $250,000 for the previous marketing year, any importer with a transaction value greater than $250,000 in organic products during the previous marketing year, and any voluntarily assessed entity.

    (c) Certification or certified. A determination made by a USDA-accredited certifying agent that a production or handling operation is in compliance with the Organic Foods Production Act of 1990 (7 U.S.C. 6501-6522) and the regulations in 7 CFR part 205 or to an authorized international standard, and any amendments thereto, and which is documented by a certificate of organic operation.

    (d) Certified operation. A crop or livestock production, wild-crop harvesting or handling operation, or portion of such operation that is certified by a USDA-accredited certifying agent as utilizing a system of organic production or handling as described by the Organic Foods Production Act of 1990 (7 U.S.C. 6501-6522) and the regulations in 7 CFR part 205.

    (e) Certified organic handler means a person who handles certified organic products in accordance with the definition specified in 7 CFR 205.100, the requirements specified in 7 CFR 205.270 through 7 CFR 205.272, and all other applicable requirements of part 205 and receives, sells, consigns, delivers, or transports certified organic products into the current of commerce in the United States, the District of Columbia, the Commonwealth of Puerto Rico, or any territory or possession of the United States.

    (f) Certified organic producer means a person who produces certified organic products in accordance with the definition specified in 7 CFR 205.100, the requirements specified in 7 CFR 205.202 through 7 CFR 205.207 or 7 CFR 205.236 through 7 CFR 205.240, and all other applicable requirements of part 205.

    (g) Customs or CBP means the U.S. Customs and Border Protection, an agency of the U.S. Department of Homeland Security.

    (h) Department means the U.S. Department of Agriculture or any officer or employee of the Department to whom authority has heretofore been delegated, or to whom authority may hereafter be delegated, to act in the Secretary's stead.

    (i) Dual-covered commodity means an agricultural commodity that is produced on a certified organic farm and is covered under this part and any other agricultural commodity promotion order issued under a commodity promotion law.

    (j) Gross organic sales means the total amount the person received for all organic products during the fiscal year without subtracting any costs or expenses.

    (k) Importer means any person who imports certified organic products from outside the United States for sale in the United States as a principal or as an agent, broker, or consignee of any person who produces organic products outside the United States for sale in the United States, and who is listed in the import records as the importer of record for such organic products. Organic importers can be identified through organic certificates, import certificates, HTS codes, or any other demonstration that they meet the definition above.

    (l) Ingredient. Any substance used in the preparation of an agricultural product that is still present in the final commercial product as consumed.

    (m) National Organic Program means the program authorized by the Organic Foods Production Act of 1990 (OFPA) (7 U.S.C. 6501-6522) for the purpose of implementing its provisions.

    (n) Net organic sales means total gross sales in organic products minus:

    (1) The cost of certified organic ingredients, feed, and agricultural inputs used in the production of certified products; and

    (2) The cost of any non-organic agricultural ingredients used in the production of certified products.

    (o) Order means the Organic Research, Promotion, and Information Order.

    (p) Organic means a labeling term that refers to an agricultural product produced in accordance with the Organic Foods Production Act of 1990 (OFPA) (7 U.S.C. 6501-6522) and the regulations in 7 CFR part 205.

    (q) Organic products means products produced and certified under the authority of the Organic Foods Production Act of 1990 (7 U.S.C. 6501-6522) and the regulations in 7 CFR part 205 or to an authorized international standard, and any amendments thereto.

    (r) Person means any individual, group of individuals, partnership, corporation, association, cooperative, or any other legal entity. For the purpose of this definition, the term “partnership” includes, but is not limited to:

    (1) A husband and a wife who have title to, or leasehold interest in organic production, organic handling or organic import entity as tenants in common, joint tenants, tenants by the entirety, or, under community property laws, as community property; and

    (2) So called “joint ventures” wherein one or more parties to an agreement, informal or otherwise, contributed land, facilities, capital, labor, management, equipment, or other services, or any variation of such contributions by two or more parties, so that it results in the production, handling or importation of organic products and the authority to transfer title to the organic products.

    (s) Referendum agent or agent means the individual or individuals designated by the Secretary to conduct the referendum.

    (t) United States means collectively the 50 states of the United States, the District of Columbia, the Commonwealth of Puerto Rico, and the territories and possessions of the United States.

    (u) Voluntarily assessed entity means any covered person with gross organic sales or transaction value of $250,000 or less for the previous marketing year and thus not subject to assessment under this part, but elects to participate in the Order by remitting an assessment pursuant to § 1255.52

    § 1255.102 Voting.

    (a) Each assessed entity shall be entitled to cast one ballot in the referendum. Organic importers shall be entitled to request one ballot per business entity that meets the definition of importer.

    (b) Proxy voting is not authorized, but an officer or employee of an assessed entity, or an administrator, executor, or trustee of an assessed entity may cast a ballot on behalf of such entity. Any individual so voting in a referendum shall certify that such individual is an officer or employee of the assessed entity, or an administrator, executive, or trustee of an assessed entity and that such individual has the authority to take such action. Upon request of the referendum agent, the individual shall submit adequate evidence of such authority.

    (c) Each assessed entity may cast one ballot in the referendum.

    (d) All ballots are to be cast by mail, in person at a local Farm Services Agency office, or by other means, as instructed by the Department.

    (e) All assessed entities in good standing shall be eligible to vote in a subsequent referendum. To be in good standing, an entity must carry a valid (not revoked) organic certificate and:

    (1) A dual-covered entity must demonstrate that it has paid into the organic research and promotion program for a majority of the years since the most recent referendum; or

    (2) A voluntarily-assessed entity must demonstrate that it has paid into the organic research and promotion program for a majority of the years since the most recent referendum; or

    (3) An entity must demonstrate that it attained its organic certification since the most recent referendum; or

    (4) An assessed entity that does not meet any of the above descriptions must demonstrate that it has paid into the organic research and promotion program every year since the most recent referendum.

    § 1255.103 Instructions.

    The referendum agent shall conduct the referendum, in the manner provided in this subpart, under the supervision of the Administrator. The Administrator may prescribe additional instructions, consistent with the provisions of this subpart, to govern the procedure to be followed by the referendum agent. Such agent shall:

    (a) Determine the period during which ballots may be cast;

    (b) Provide ballots and related material to be used in the referendum. The ballot shall provide for recording essential information, including that needed for ascertaining whether the person voting, or on whose behalf the vote is cast, is an assessed entity;

    (c) Give reasonable public notice of the referendum:

    (1) By using available media or public information sources, without incurring advertising expense, to publicize the dates, places, method of voting, eligibility requirements, and other pertinent information. Such sources of publicity may include, but are not limited to, print and radio; and

    (2) By such other means as the agent may deem advisable.

    (d) The Secretary must provide public notice of instructions on voting and a summary of the terms and conditions of the Order. All assessed entities may request and receive by mail a ballot. No person who claims to be an assessed entity shall be refused a ballot;

    (e) At the end of the voting period, collect, open, number, and review the ballots and tabulate the results in the presence of an agent of a third party authorized to monitor the referendum process;

    (f) Prepare a report on the referendum; and

    (g) Announce the results to the public.

    § 1255.104 Subagents.

    The referendum agent may appoint any individual or individuals necessary or desirable to assist the agent in performing such agent's functions of this subpart. Each individual so appointed may be authorized by the agent to perform any or all of the functions which, in the absence of such appointment, shall be performed by the agent.

    § 1255.105 Ballots.

    The referendum agent and subagents shall accept all ballots cast. However, if an agent or subagent deems that a ballot should be challenged for any reason, the agent or subagent shall endorse above their signature, on the ballot, a statement to the effect that such ballot was challenged, by whom challenged, the reasons therefore, the results of any investigations made with respect thereto, and the disposition thereof. Ballots deemed invalid under this subpart shall not be counted.

    § 1255.106 Referendum report.

    Except as otherwise directed, the referendum agent shall prepare and submit to the Administrator a report on the results of the referendum, the manner in which it was conducted, the extent and kind of public notice given, and other information pertinent to the analysis of the referendum and its results.

    § 1255.107 Confidential information.

    The ballots and other information or reports that reveal, or tend to reveal, the vote of any person covered under the Order and the voter list shall be strictly confidential and shall not be disclosed.

    § 1255.108 OMB control number.

    The control number assigned to the information collection requirement in this subpart by the Office of Management and Budget pursuant to the Paperwork Reduction Act of 1995, 44 U.S.C. Chapter 35 is OMB control number 0581-NEW.

    Dated: January 9, 2017. Elanor Starmer, Administrator, Agricultural Marketing Service.
    [FR Doc. 2017-00599 Filed 1-17-17; 8:45 am] BILLING CODE 3410-02-P
    NUCLEAR REGULATORY COMMISSION 10 CFR Part 72 [NRC-2016-0255] Regulatory Issue Summary Regarding Certificate of Compliance Corrections and Revisions AGENCY:

    Nuclear Regulatory Commission.

    ACTION:

    Draft regulatory issue summary; request for comment.

    SUMMARY:

    The U.S. Nuclear Regulatory Commission (NRC) is seeking public comment on draft regulatory issue summary (RIS) 2016-xx, “Administration of 10 CFR part 72 Certificate of Compliance Corrections and Revisions.” The NRC is issuing this RIS to inform addressees of the processes to revise an initial certificate of compliance (CoC) and subsequent amendments (hereafter referred to as CoCs, whether initial CoCs or subsequent amendments) to make administrative corrections and technical changes using the existing regulatory framework.

    DATES:

    Submit comments by March 20, 2017. Comments received after this date will be considered if it is practical to do so, but the Commission is able to ensure consideration only for comments received before this date.

    ADDRESSES:

    You may submit comments by any of the following methods:

    Federal Rulemaking Web site: Go to http://www.regulations.gov and search for Docket ID: NRC-2016-0255. Address questions about NRC dockets to Carol Gallagher; telephone: 301-415-3463; email: [email protected] For technical questions, contact the individual listed in the FOR FURTHER INFORMATION CONTACT section of this document.

    Mail comments to: Cindy Bladey, Office of Administration, Mail Stop: OWFN-12-H08, U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001.

    For additional direction on obtaining information and submitting comments, see “Obtaining Information and Submitting Comments” in the SUPPLEMENTARY INFORMATION section of this document.

    FOR FURTHER INFORMATION CONTACT:

    John Goshen, Office of Nuclear Material Safety and Safeguards, U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001; telephone: 301-415-6933, email: [email protected]

    SUPPLEMENTARY INFORMATION:

    I. Obtaining Information and Submitting Comments A. Obtaining Information

    Please refer to Docket ID NRC-2016-0255 when contacting the NRC about the availability of information for this action. You may obtain publicly-available information related to this action by any of the following methods:

    Federal rulemaking Web site: Go to http://www.regulations.gov and search for Docket ID NRC-2016-0255.

    NRC's Agencywide Documents Access and Management System (ADAMS): You may obtain publicly-available documents online in the ADAMS Public Documents collection at http://www.nrc.gov/reading-rm/adams.html. To begin the search, select “ADAMS Public Documents” and then select “Begin Web-based ADAMS Search.” For problems with ADAMS, please contact the NRC's Public Document Room (PDR) reference staff at 1-800-397-4209, 301-415-4737, or by email to [email protected] The RIS 2016-0255, “Administration of 10 CFR part 72 Certificate of Compliance Corrections and Revisions” is available in ADAMS under Accession No. ML14107A510.

    NRC's PDR: You may examine and purchase copies of public documents at the NRC's PDR, Room O1-F21, One White Flint North, 11555 Rockville Pike, Rockville, Maryland 20852.

    B. Submitting Comments

    Please include Docket ID NRC-2016-0255 in your comment submission.

    The NRC cautions you not to include identifying or contact information that you do not want to be publicly disclosed in your comment submission. The NRC will post all comment submissions at http://www.regulations.gov as well as enter the comment submissions into ADAMS. The NRC does not routinely edit comment submissions to remove identifying or contact information.

    If you are requesting or aggregating comments from other persons for submission to the NRC, then you should inform those persons not to include identifying or contact information that they do not want to be publicly disclosed in their comment submission. Your request should state that the NRC does not routinely edit comment submissions to remove such information before making the comment submissions available to the public or entering the comment into ADAMS.

    II. Background.

    The NRC is issuing this RIS to inform addressees of the processes to revise an initial CoC and subsequent amendments (hereafter referred to as CoCs, whether initial CoCs or subsequent amendments) to make administrative corrections and technical changes using the existing regulatory framework in 10 CFR part 72.

    The NRC issues RISs to communicate with stakeholders on a broad range of matters.

    III. Proposed Action

    The NRC is requesting public comments on the draft RIS. All comments that are to receive consideration in the final RIS must still be submitted electronically or in writing as indicated in the ADDRESSES section of this document. The NRC staff will make a final determination regarding issuance of the RIS after it considers any public comments received in response to this request.

    Dated at Rockville, Maryland, this 20th day of December 2016.

    For the Nuclear Regulatory Commission.

    John McKirgan, Chief, Spent Fuel Licensing Branch, Division of Spent Fuel Management, Office of Nuclear Material Safety and Safeguards.
    [FR Doc. 2016-31986 Filed 1-17-17; 8:45 am] BILLING CODE 7590-01-P
    DEPARTMENT OF ENERGY 10 CFR Part 431 [Docket Number EERE-2015-BT-STD-0008] RIN 1904-AD52 Energy Conservation Program: Energy Conservation Standards for Dedicated-Purpose Pool Pumps AGENCY:

    Office of Energy Efficiency and Renewable Energy, Department of Energy.

    ACTION:

    Notice of proposed rulemaking (NOPR).

    SUMMARY:

    The Energy Policy and Conservation Act of 1975 (EPCA), as amended, sets forth a variety of provisions designed to improve energy efficiency. Part C of Title III establishes the “Energy Conservation Program for Certain Industrial Equipment.” The covered equipment includes pumps. In this document, DOE proposes amended energy conservation standards for dedicated-purpose pool pumps identical to those set forth in a direct final rule published elsewhere in the Federal Register. If DOE receives an adverse comment and determines that such comment may provide a reasonable basis for withdrawing the direct final rule, DOE will publish a notice withdrawing the direct final rule and will proceed with this proposed rule.

    DATES:

    DOE will accept comments, data, and information regarding the proposed standards no later than May 8, 2017.

    Comments regarding the likely competitive impact of the proposed standard should be sent to the Department of Justice contact listed in the ADDRESSES section before February 17, 2017.

    ADDRESSES:

    If DOE withdraws the direct final rule published elsewhere in the Federal Register, DOE will hold a public meeting to allow for additional comment on this proposed rule. DOE will publish notice of any public meeting in the Federal Register.

    Instructions: Any comments submitted must identify the NOPR on Energy Conservation Standards for Dedicated-Purpose Pool Pumps, and provide docket number EERE-2015-BT-STD-0008 and/or regulatory information number (RIN) 1904-AD52. Comments may be submitted using any of the following methods:

    1) Federal eRulemaking Portal: www.regulations.gov. Follow the instructions for submitting comments.

    2) Email: [email protected] Include the docket number and/or RIN in the subject line of the message. Submit electronic comments in WordPerfect, Microsoft Word, PDF, or ASCII file format, and avoid the use of special characters or any form of encryption.

    3) Postal Mail: Appliance and Equipment Standards Program, U.S. Department of Energy, Building Technologies Office, Mailstop EE-5B, 1000 Independence Avenue SW., Washington, DC, 20585-0121. If possible, please submit all items on a compact disc (CD), in which case it is not necessary to include printed copies.

    4) Hand Delivery/Courier: Appliance and Equipment Standards Program, U.S. Department of Energy, Building Technologies Office, 950 L'Enfant Plaza, SW., 6th Floor, Washington, DC, 20024. Telephone: (202) 586-6636. If possible, please submit all items on a CD, in which case it is not necessary to include printed copies.

    No telefacsimilies (faxes) will be accepted. For detailed instructions on submitting comments and additional information on the rulemaking process, see section III of this document (“Public Participation”).

    Written comments regarding the burden-hour estimates or other aspects of the collection-of-information requirements contained in this proposed rule may be submitted to Office of Energy Efficiency and Renewable Energy through the methods listed above and by email to [email protected]

    EPCA requires the Attorney General to provide DOE a written determination of whether the proposed standard is likely to lessen competition. The U.S. Department of Justice Antitrust Division invites input from market participants and other interested persons with views on the likely competitive impact of the proposed standard. Interested persons may contact the Division at [email protected] before February 17, 2017. Please indicate in the “Subject” line of your email the title and Docket Number of this rulemaking notice.

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

    The docket Web page can be found at https://www.regulations.gov/docket?D=EERE-2015-BT-STD-0008. The docket Web page contains simple instructions on how to access all documents, including public comments, in the docket. See section III, “Public Participation,” for further information on how to submit comments through www.regulations.gov.

    FOR FURTHER INFORMATION CONTACT:

    Mr. John Cymbalsky, U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy, Building Technologies Office, EE-5B, 1000 Independence Avenue SW., Washington, DC, 20585-0121. Telephone: (202) 586-9507. Email: [email protected]

    Ms. Johanna Jochum, U.S. Department of Energy, Office of the General Counsel, GC-33, 1000 Independence Avenue SW., Washington, DC, 20585-0121. Telephone: (202) 287-6307. Email: [email protected]

    For further information on how to submit a comment, review other public comments and the docket, or participate in the public meeting, contact the Appliance and Equipment Standards Program staff at (202) 586-6636 or by email: [email protected]

    SUPPLEMENTARY INFORMATION:

    Table of Contents I. Introduction A. Authority B. Background II. Proposed Standards 1. Benefits and Burdens of Standards Considered for Dedicated-Purpose Pool Pumps 2. Summary of Annualized Benefits and Costs of the Proposed Standards III. Other Prescriptive Requirements IV. Procedural Issues and Regulatory Review V. Public Participation A. Submission of Comments B. Public Meeting VI. Approval of the Office of the Secretary I. Introduction A. Authority

    Title III, Part C 1 of the Energy Policy and Conservation Act of 1975 (EPCA), (42 U.S.C. 6311-6317, as codified) established the Energy Conservation Program for Certain Industrial Equipment, a program covering certain industrial equipment.2 “Pumps” are listed as a type of covered industrial equipment. (42 U.S.C. 6311(1)(A))

    1 For editorial reasons, upon codification in the U.S. Code, Part C was re-designated Part A-1.

    2 All references to EPCA refer to the statute as amended through the Energy Efficiency Improvement Act of 2015, Public Law 114-11 (April 30, 2015).

    While pumps are listed as a type of covered equipment, EPCA does not define the term “pump.” To address this, in January 2016, DOE published a test procedure final rule (January 2016 general pumps test procedure final rule) that established a definition for the term “pump.” 81 FR 4086, 4147 (January 25, 2016). In the December, 2016 test procedure final rule (“test procedure final rule”),3 DOE noted the applicability of the definition of “pump” and associated terms to dedicated-purpose pool pumps.

    3 See https://www1.eere.energy.gov/buildings/appliance_standards/standards.aspx?productid=41.

    Pursuant to EPCA, DOE's energy conservation program for covered equipment consists essentially of four parts: (1) Testing, (2) labeling, (3) the establishment of Federal energy conservation standards, and (4) certification and enforcement procedures. Subject to certain criteria and conditions, DOE is required to develop test procedures to measure the energy efficiency, energy use, or estimated annual operating cost of covered equipment. (42 U.S.C. 6295(o)(3)(A) and 6316(a)) Manufacturers of covered equipment must use the prescribed DOE test procedure as the basis for certifying to DOE that their equipment complies with the applicable energy conservation standards adopted under EPCA, and when making representations to the public regarding their energy use or efficiency. (42 U.S.C. 6314(d)) Similarly, DOE must use these test procedures to determine whether the equipment complies with standards adopted pursuant to EPCA. Id. The DOE test procedures for dedicated-purpose pool pumps appear at title 10 of the Code of Federal Regulations (CFR) part 431, subpart Y, appendix B.

    DOE must follow specific statutory criteria for prescribing new or amended standards for covered equipment, including dedicated-purpose pool pumps. Any new or amended standard for covered equipment must be designed to achieve the maximum improvement in energy efficiency that is technologically feasible and economically justified. (42 U.S.C. 6313(a)(6)(C), 6295(o), and 6316(a)) Furthermore, DOE may not adopt any standard that would not result in the significant conservation of energy. (42 U.S.C. 6295(o)(3)) and 6316(a)) Moreover, DOE may not prescribe a standard (1) for certain equipment, including dedicated-purpose pool pumps, if no test procedure has been established for the product, or (2) if DOE determines by rule that the standard is not technologically feasible or economically justified. (42 U.S.C. 6295(o) and 6316(a)) In deciding whether a proposed standard is economically justified, DOE must determine whether the benefits of the standard exceed its burdens. DOE must make this determination after receiving comments on the proposed standard, and by considering, to the greatest extent practicable, the following seven statutory factors:

    1. The economic impact of the standard on manufacturers and consumers of the equipment subject to the standard;

    2. The savings in operating costs throughout the estimated average life of the covered equipment in the type (or class) compared to any increase in the price, initial charges, or maintenance expenses for the covered equipment that are likely to result from the standard;

    3. The total projected amount of energy (or as applicable, water) savings likely to result directly from the standard;

    4. Any lessening of the utility or the performance of the covered equipment likely to result from the standard;

    5. The impact of any lessening of competition, as determined in writing by the Attorney General, that is likely to result from the standard;

    6. The need for national energy and water conservation; and

    7. Other factors the Secretary of Energy (Secretary) considers relevant.

    (42 U.S.C. 6295(o)(2)(B)(i)(I)-(VII)) and 6316(a))

    Further, EPCA establishes a rebuttable presumption that a standard is economically justified if the Secretary finds that the additional cost to the consumer of purchasing a product complying with an energy conservation standard level will be less than three times the value of the energy savings during the first year that the consumer will receive as a result of the standard, as calculated under the applicable test procedure. (42 U.S.C. 6295(o)(2)(B)(iii)) and 6316(a))

    EPCA also contains what is known as an “anti-backsliding” provision, which prevents the Secretary from prescribing any amended standard that either increases the maximum allowable energy use or decreases the minimum required energy efficiency of a covered product. (42 U.S.C. 6295(o)(1)) and 6316(a)) Also, the Secretary may not prescribe an amended or new standard if interested persons have established by a preponderance of the evidence that the standard is likely to result in the unavailability in the United States in any covered product type (or class) of performance characteristics (including reliability), features, sizes, capacities, and volumes that are substantially the same as those generally available in the United States. (42 U.S.C. 6295(o)(4) and 6316(a))

    Additionally, EPCA specifies requirements when promulgating an energy conservation standard for a covered product that has two or more subcategories. DOE must specify a different standard level for a type or class of products that has the same function or intended use if DOE determines that equipment within such group (a) consumes a different kind of energy from that consumed by other covered equipment within such type (or class); or (b) has a capacity or other performance-related feature that other equipment within such type (or class) do not have and such feature justifies a higher or lower standard. (42 U.S.C. 6295(q)(1) and 6316(a)) In determining whether a performance-related feature justifies a different standard for a group of equipment, DOE must consider such factors as the utility to the consumer of such a feature and other factors DOE deems appropriate. Id. Any rule prescribing such a standard must include an explanation of the basis on which such higher or lower level was established. (42 U.S.C. 6295(q)(2) and 6316(a))

    Federal energy conservation requirements generally supersede State laws or regulations concerning energy conservation testing, labeling, and standards. (42 U.S.C. 6297(a)-(c) and 6316(a)) DOE may, however, grant waivers of Federal preemption for particular State laws or regulations, in accordance with the procedures and other provisions set forth under 42 U.S.C. 6297(d).

    With particular regard to direct final rules, the Energy Independence and Security Act of 2007 (EISA 2007), Pub. Law 110-140 (December 19, 2007), amended EPCA, in relevant part, to grant DOE authority to issue a type of final rule (i.e., a “direct final rule”) establishing an energy conservation standard for a product or equipment (including dedicated-purpose pool pumps) on receipt of a statement submitted jointly by interested persons that are fairly representative of relevant points of view (including representatives of manufacturers of covered equipment, States, and efficiency advocates), as determined by the Secretary. (42 U.S.C. 6295(p)(4)(A)) and 6316(a)) That statement must contain recommendations with respect to an energy or water conservation standard that are in accordance with the provisions of 42 U.S.C. 6295(o). (42 U.S.C. 6295(p)(4)(A)(i)) A notice of proposed rulemaking (NOPR) that proposes an identical energy efficiency standard must be published simultaneously with the direct final rule and a public comment period of at least 110 days provided. (42 U.S.C. 6295(p)(4)(A)-(B)) Not later than 120 days after issuance of the direct final rule, if DOE receives one or more adverse comments or an alternative joint recommendation relating to the direct final rule, the Secretary must determine whether the comments or alternative joint recommendation may provide a reasonable basis for withdrawal under 42 U.S.C. 6295(o) or other applicable law. (42 U.S.C. 6295(p)(4)(C)(i)) If the Secretary makes such a determination, DOE must withdraw the direct final rule and proceed with the simultaneously published NOPR, and publish in the Federal Register the reason why the direct final rule was withdrawn. (42 U.S.C. 6295(p)(4)(C)(ii))

    B. Background

    DOE began the separate rulemaking for dedicated-purpose pool pumps on May 8, 2015, when it issued a Request for Information (RFI) (May 2015 DPPP RFI). 80 FR 26475. Consistent with feedback from these interested parties, DOE began a process through the ASRAC to charter a working group to recommend energy conservation standards and a test procedure for dedicated-purpose pool pumps rather than continuing down the traditional notice and comment route that DOE had already begun. (Docket No. EERE-2015-BT-STD-0008) On August 25, 2015, DOE published a notice of intent to establish a working group for dedicated-purpose pool pumps (the DPPP Working Group). 80 FR 51483. DOE selected the members of the DPPP Working Group to ensure a broad and balanced array of interested parties and expertise, including representatives from efficiency advocacy organizations and manufacturers, as well as one representative from a state government organization. Additionally, one member from ASRAC and one DOE representative were part of the group.

    The DPPP Working Group completed its initial charter on December 8, 2015, with a consensus vote to approve a term sheet containing recommendations to DOE on scope, metric, and the basis of test procedure (“December 2015 DPPP Working Group recommendations”). ASRAC subsequently voted unanimously to approve the December 2015 DPPP Working Group recommendations during its January 20, 2016 meeting. (Docket No. EERE-2015-BT-STD-0008, No. 0052) At the January 20, 2016 ASRAC meeting, the DPPP Working Group also requested more time to discuss potential energy conservation standards for dedicated-purpose pool pumps. In response, ASRAC recommended that the DPPP Working Group continue its work in a second phase of negotiations to recommend potential energy conservation standards for dedicated-purpose pool pumps. (Docket No. EERE-2013-BT-NOC-0005, No. 71 at pp. 20-52)

    The second phase of meetings commenced on March 21, 2016 and concluded on June 23, 2016, with approval of a second term sheet (June 2016 DPPP Working Group recommendations). This term sheet contained DPPP Working Group recommendations on performance-based energy conservation standard levels, scope of such standards, certain prescriptive requirements, certain labeling requirements, certain definitions, and certain amendments to its previous test procedure recommendations. (Docket No. EERE-2015-BT-STD-0008, No. 82) ASRAC subsequently voted unanimously to approve the June 2016 DPPP Working Group recommendations during the July 29, 2016 meeting.

    After carefully considering the consensus recommendations submitted by the DPPP Working Group and adopted by ASRAC, DOE has determined that these recommendations comprised a statement submitted by interested persons who are fairly representative of relevant points of view on this matter. In reaching this determination, DOE took into consideration the fact that the Working Group, in conjunction with ASRAC members who approved the recommendations, consisted of representatives of manufacturers of covered products, States, and efficiency advocates—all of which are groups specifically identified by Congress as relevant parties to any consensus recommendation. (42 U.S.C. 6295(p)(4)(A)

    DOE has considered the recommended energy conservation standards and believes that they meet the EPCA requirements for issuance of a direct final rule. As a result, DOE published a direct final rule establishing energy conservation standards for pool pumps elsewhere in Federal Register. If DOE receives adverse comments that may provide a reasonable basis for withdrawal and withdraws the direct final rule, DOE will consider those comments and any other comments received in determining how to proceed with this proposed rule.

    For further background information on these proposed standards and the supporting analyses, please see the direct final rule published elsewhere in Federal Register. That document includes additional discussion of the EPCA requirements for promulgation of energy conservation standards; the history of the standards rulemaking for pool pumps; and information on the test procedures used to measure the energy efficiency of pool pumps. The document also contains an in-depth discussion of the analyses conducted in support of this rulemaking, the methodologies DOE used in conducting those analyses, and the analytical results.

    II. Proposed Standards 1. Benefits and Burdens of Standards Considered for Dedicated-Purpose Pool Pumps

    Table II.1 and Table II.2 summarize the quantitative impacts estimated for each trial standard level (TSL) for pool pumps. The national impacts are measured over the lifetime of dedicated-purpose pool pumps purchased in the 30-year period that begins in the anticipated year of compliance with new standards (2021-2050). The energy savings, emissions reductions, and value of emissions reductions refer to full-fuel-cycle results. The efficiency levels contained in each TSL are described in section V.A of the direct final rule.

    Table II.1—Summary of Analytical Results for Pool Pumps TSLs: National Impacts Category TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 Cumulative FFC National Energy Savings quads 0.79 3.0 3.8 4.1 4.6 NPV of Consumer Costs and Benefits billion 2015$ 3% discount rate 5.1 17 24 21 25 7% discount rate 2.5 8.1 11 10 12 Cumulative FFC Emissions Reduction CO2 million metric tons 42 160 202 216 246 SO2 thousand tons 31 116 147 156 178 NOX thousand tons 53 203 257 275 313 Hg tons 0.10 0.39 0.50 0.53 0.60 CH4 thousand tons 200 765 968 1,035 1,179 N2O thousand tons 0.62 2.3 3.0 3.2 3.6 Value of Emissions Reduction CO2 billion 2015$ * 0.327 to 4.388 1.207 to 16.402 1.524 to 20.724 1.624 to 22.104 1.841 to 25.113 CH4 billion 2015$ 0.069 to 0.549 0.256 to 2.082 0.324 to 2.632 0.346 to 2.812 0.393 to 3.202 N2O billion 2015$ 0.002 to 0.019 0.007 to 0.072 0.008 to 0.091 0.009 to 0.097 0.010 to 0.110 NOX—3% discount rate billion 2015$ 0.103 to 0.231 0.378 to 0.851 0.477 to 1.075 0.508 to 1.144 0.575 to 1.297 NOX—7% discount rate billion 2015$ 0.047 to 0.106 0.167 to 0.377 0.210 to 0.475 0.222 to 0.503 0.25 to 0.566 Parentheses indicate negative (−) values. * Range of the economic value of CO2 reductions is based on estimates of the global benefit of reduced CO2 emissions. Table II.2—Manufacturer and Consumer Impacts for Dedicated-Purpose Pool Pumps TSLs Category TSL 1* TSL 2* TSL 3* TSL 4* TSL 5* Manufacturer Impacts Industry NPV million 2015$ (No-standards case INPV = $212.8) 201.0-210.9 178.8-200.2 166.5-219.8 126.2-195.9 36.8-110.5 Industry NPV % change (5.5)-(0.9) (16.0)-(5.9) (21.8)-3.3 (40.7)-(7.9) (82.7)-(48.1) Consumer Average LCC Savings 2015$ Standard-Size Self-Priming Pool Filter Pump 669 1,779 2,140 2,140 2,085 Small-Size Self-Priming Pool Filter Pump 295 322 295 360 414 Standard-Size Non-Self-Priming Pool Filter Pump 191 35 191 10 93 Extra-Small Non-Self-Priming Pool Filter Pump 36 36 36 10 10 Waterfall Pump (3) (3) n/a (20) 13 Pressure Cleaner Booster Pump 111 111 111 (372) (313) Integral Cartridge Filter Pump n/a n/a 128 n/a n/a Integral Sand Filter Pump n/a n/a 73 n/a n/a Consumer Simple PBP years Standard-Size Self-Priming Pool Filter Pump 0.6 0.7 0.7 0.7 0.6 Small-Size Self-Priming Pool Filter Pump 0.8 2.0 0.8 2.1 1.9 Standard-Size Non-Self-Priming Pool Filter Pump 0.2 2.3 0.2 2.3 2.1 Extra-Small Non-Self-Priming Pool Filter Pump 0.9 0.9 0.9 1.6 1.6 Waterfall Pumps 4.5 4.5 n/a 5.4 3.7 Pressure Cleaner Booster Pumps 0.6 0.6 0.6 6.0 5.1 Integral Cartridge Filter Pump n/a n/a 0.4 n/a n/a Integral Sand Filter Pump n/a n/a 0.5 n/a n/a Percent of Consumers that Experience a Net Cost % Standard-Size Self-Priming Pool Filter Pump 1 5 10 10 8 Small-Size Self-Priming Pool Filter Pump 4 27 4 29 26 Standard-Size Non-Self-Priming Pool Filter Pump 0 58 0 51 47 Extra-Small Non-Self-Priming Pool Filter Pump 4 4 4 39 39 Waterfall Pumps 50 50 n/a 70 55 Pressure Cleaner Booster Pumps 0 0 0 69 68 Integral Cartridge Filter Pump n/a n/a 3 n/a n/a Integral Sand Filter Pump n/a n/a 3 n/a n/a * Parentheses indicate negative (−) values.

    DOE first considered TSL 5, which represents the max-tech efficiency levels. TSL 5 would save an estimated 4.6 quads of energy, an amount DOE considers significant. Under TSL 5, the NPV of consumer benefit would be $12 billion using a discount rate of 7 percent, and $25 billion using a discount rate of 3 percent.

    The cumulative emissions reductions at TSL 5 are 246 Mt of CO2; 178 thousand tons of SO2; 313 thousand tons of NOX; 0.60 tons of Hg; 1,179 thousand tons of CH4; and 3.6 thousand tons of N2O. The estimated monetary value of the GHG emissions reduction at TSL 5 ranges from $1.8 billion to $25 billion for CO2, from $393 million to 3,202 million for CH4, and from $10 million to $110 million for N2O. The estimated monetary value of the NOX emissions reduction at TSL 5 is $250 million using a 7-percent discount rate and $575 million using a 3-percent discount rate.

    At TSL 5, the average LCC impact is a savings that ranges from $10 for extra-small non-self-priming pumps, to $2,085 for standard-size self-priming pump, except for pressure cleaner booster pumps, which have a savings of negative $313. The simple payback period ranges from 0.6 years for standard-size self-priming pumps to 5.1 years for pressure cleaner booster pumps. The fraction of consumers experiencing a net LCC cost ranges from eight percent for standard-size self-priming pumps to 68 percent for pressure cleaner booster pumps.

    At TSL 5, the projected change in INPV ranges from a decrease of $176.0 million to a decrease of $102.3 million, which correspond to decreases of 82.7 percent and 48.1 percent, respectively. DOE estimates that industry must invest $199.5 million to comply with standards set at TSL 5. Manufacturers would need to redesign a significant portion of the equipment they offer, including hydraulic redesigns to convert the vast majority of their standard-size self-priming pool filter pumps.

    The Secretary tentatively concludes that at TSL 5 for dedicated-purpose pool pumps, the benefits of energy savings, positive NPV of consumer benefits, emission reductions, and the estimated monetary value of the emissions reductions would be outweighed by the economic burden on some consumers, and the significant impacts on manufacturers, including the large conversion costs and profit margin impacts that could result in a large reduction in INPV. Consequently, the Secretary has tentatively concluded that TSL 5 is not economically justified.

    DOE then considered TSL 4, which represents efficiency levels based on variable speed technology for most equipment classes. TSL 4 would save an estimated 4.1 quads of energy, an amount DOE considers significant. Under TSL 4, the NPV of consumer benefit would be $10 billion using a discount rate of 7 percent, and $21 billion using a discount rate of 3 percent.

    The cumulative emissions reductions at TSL 4 are 216 Mt of CO2, 156 thousand tons of SO2, 275 thousand tons of NOX, 0.53 tons of Hg, 1,035thousand tons of CH4, and 3.2 thousand tons of N2O. The estimated monetary value of the GHG emissions reduction at TSL 4 ranges from $1.6 billion to $22 billion for CO2, from $346 million to $2,812 million for CH4, and from $8.8 million to $97 million for N2O. The estimated monetary value of the NOX emissions reduction at TSL 4 is $222 million using a 7-percent discount rate and $508 million using a 3-percent discount rate.

    At TSL 4, the average LCC impact is a savings that ranges from $10 for extra-small non-self-priming pumps, to $2,140 for standard-size self-priming pumps, except for pressure cleaner booster pumps, which have a savings of negative $372, and waterfall pumps, which have a savings of negative $20. The simple payback period ranges from 0.7 years for standard-size self-priming pumps to 6.0 years for pressure cleaner booster pumps. The fraction of consumers experiencing a net LCC cost ranges from 10 percent for standard-size self-priming pumps to 70 percent for waterfall pumps.

    At TSL 4, the projected change in INPV ranges from a decrease of $86.6 million to a decrease of $16.9 million, which correspond to decreases of 40.7 percent and 7.9 percent, respectively. DOE estimates that industry must invest $68.4 million to comply with standards set at TSL 4.

    The Secretary tentatively concludes that at TSL 4 for dedicated-purpose pool pumps, the benefits of energy savings, positive NPV of consumer benefits, emission reductions, and the estimated monetary value of the emissions reductions, would be outweighed by the economic burden on some consumers, and the significant impacts on manufacturers, including the large conversion costs and profit margin impacts that could result in a large reduction in INPV. Consequently, the Secretary has tentatively concluded that TSL 4 is not economically justified.

    DOE then considered TSL 3, the recommended TSL, which would save an estimated 3.8 quads of energy, an amount DOE considers significant. Under TSL 3, the NPV of consumer benefit would be $11 billion using a discount rate of 7 percent, and $24 billion using a discount rate of 3 percent.

    The cumulative emissions reductions at TSL 3 are 202 Mt of CO2, 147 thousand tons of SO2; 257 thousand tons of NOX, 0.50 tons of Hg, 968 thousand tons of CH4; and 3.0 thousand tons of N2O. The estimated monetary value of the GHG emissions reduction at TSL 3 ranges from $1.5 billion to $21 billion for CO2, from $324 million to $2,632 million for CH4, and from $8.3 million to $91 million for N2O. The estimated monetary value of the NOX emissions reduction at TSL 3 is $210 million using a 7-percent discount rate and $477 million using a 3-percent discount rate.

    At TSL 3, the average LCC impact is a savings that ranges from $36 for extra-small non-self-priming pool filter pumps to $2,140 for standard-size self-priming pumps. The simple payback period ranges from 0.2 years for standard-size non-self-priming pool filter pumps to 0.8 years for extra-small non-self-priming pool filter pumps. The fraction of consumers experiencing a net LCC cost ranges from zero percent for standard-size non-self-priming pumps and pressure cleaner booster pumps to 10 percent for standard-size self-priming pumps.

    At TSL 3, the projected change in INPV ranges from a decrease of $46.3 million to an increase of $7.0 million, which represents a decrease of 21.8 percent to an increase of 3.3 percent, respectively. DOE estimates that industry must invest $35.6 million to comply with standards set at TSL 3.

    After considering the analysis and weighing the benefits and burdens, the Secretary has tentatively concluded that, at TSL 3 for dedicated-purpose pool pumps, the benefits of energy savings, positive NPV of consumer benefits, emission reductions, the estimated monetary value of the emissions reductions, and positive average LCC savings, would outweigh the potential negative impacts on manufacturers. Accordingly, the Secretary has tentatively concluded that TSL 3 would offer the maximum improvement in efficiency that is technologically feasible and economically justified, and would result in the significant conservation of energy.

    Therefore, based on the above considerations, DOE proposes the energy conservation standards for pool pumps at TSL 3. The proposed performance-based energy conservation standards for pool pumps, which are expressed as kgal/kWh, are shown in Table II.3. The proposed prescriptive energy conservation standards for pool pumps are shown in Table II.4.

    Table II.3—Proposed Performance-Based Energy Conservation Standards for Dedicated-Purpose Pool Pumps Equipment class Dedicated-purpose pool pump variety hhp Applicability* Motor phase Minimum allowable WEF score
  • [kgal/kwh]
  • Self-priming pool filter pumps 0.711 hp ≤ hhp < 2.5 hp Single −2.30 * ln (hhp) + 6.59. Self-priming pool filter pumps hhp < 0.711 hp Single 5.55, for hhp ≤ 0.13 hp
  • − 1.30 * ln (hhp) + 2.90, for hhp > 0.13 hp.
  • Non-self-priming pool filter pumps** hhp < 2.5 hp Any 4.60, for hhp ≤ 0.13 hp
  • − 0.85 * ln (hhp) + 2.87, for hhp > 0.13 hp.
  • Pressure cleaner booster pumps Any Any 0.42. * All instances of hhp refer to rated hydraulic horsepower as determined in accordance with the DOE test procedure at 10 CFR 431.464 and applicable sampling plans. ** Because DOE selected the same efficiency level for both extra-small and standard-size non-self-priming pool filter pumps, the two equipment classes were ultimately merged into one.
    Table II.4—Proposed Prescriptive Energy Conservation Standards for Dedicated-Purpose Pool Pumps Equipment class Dedicated-purpose pool pump
  • variety
  • hhp
  • Applicability
  • Motor phase Prescriptive standard
    Integral sand filter pool pump Any Any Must be distributed in commerce with a pool pump timer that is either integral to the pump or a separate component that is shipped with the pump. Integral cartridge filter pool pump Any Any Must be distributed in commerce with a pool pump timer that is either integral to the pump or a separate component that is shipped with the pump.
    2. Summary of Annualized Benefits and Costs of the Proposed Standards

    The benefits and costs of the proposed standards can also be expressed in terms of annualized values. The annualized net benefit is (1) the annualized national economic value (expressed in 2015$) of the benefits from operating equipment that meet the adopted standards (consisting primarily of operating cost savings from using less energy, minus increases in product purchase costs, and (2) the annualized monetary value of the benefits of GHG and NOX emission reductions.

    Table II.5 shows the annualized values for dedicated-purpose pool pumps under TSL 3, expressed in 2015$. The results under the primary estimate are as follows.

    Using a 7-percent discount rate for benefits and costs other than GHG reduction (for which DOE used average social costs with a 3-percent discount rate),4 the estimated cost of the standards in this rule is $138 million per year in increased equipment costs, while the estimated annual benefits are $1.3 billion in reduced equipment operating costs, $449 million in GHG reductions, and $22 million in reduced NOX emissions. In this case, the net benefit amounts to $1.7 billion per year.

    4 DOE used average social costs with a 3-percent discount rate these values are considered as the “central” estimates by the interagency group.

    Using a 3-percent discount rate for all benefits and costs, the estimated cost of the adopted standards for dedicated-purpose pool pumps is $149 million per year in increased equipment costs, while the estimated annual benefits are $1.5 billion in reduced operating costs, $449 million in CO2 reductions, and $27 million in reduced NOX emissions. In this case, the net benefit amounts to $1.8 billion per year.

    Table II.5—Annualized Benefits and Costs of Proposed Standards (TSL 3) for Dedicated-Purpose Pool Pumps Discount rate
  • %
  • Million 2015$/year Primary
  • estimate
  • Low-net-benefits estimate High-net-benefits estimate
    Benefits Consumer Operating Cost Savings 7 1,340 1,221 1,467 3 1,516 1,367 1,678 GHG Reduction (using avg. social costs at 5% discount rate)** 5 147 129 164 GHG Reduction (using avg. social costs at 3% discount rate)** 3 449 392 504 GHG Reduction (using avg. social costs at 2.5% discount rate)** 2.5 642 560 721 GHG Reduction (using 95th percentile social costs at 3% discount rate)** 3 1,346 1,175 1,510 NOX Reduction † 7% 22 20 55 3% 27 24 70 Total Benefits ‡ 7% plus GHG range 1,509 to 2,708 1,369 to 2,416 1,686 to 3,032 7% 1,811 1,633 2,026 3% plus GHG range 1,690 to 2,890 1,520 to 2,566 1,912 to 3,258 3% 1,993 1,783 2,252 Costs Consumer Incremental Equipment Costs 7% 138 124 151 3% 149 133 164 Manufacturer Conversion Costs †† 7%
  • 3%
  • 3
  • 2
  • 3
  • 2
  • 3
  • 2
  • Net Benefits Total ‡ 7% plus GHG range 1,371 to 2,570 1,245 to 2,292 1,535 to 2,881 7% 1,673 1,509 1,875 3% plus GHG range 1,542 to 2,741 1,387 to 2,433 1,748 to 3,094 3% 1,844 1,651 2,088 * This table presents the annualized costs and benefits associated with pool pumps shipped in 2021-2050. These results include benefits to consumers which accrue after 2050 from the pool pumps purchased from 2021-2050. The incremental equipment costs include incremental equipment cost as well as installation costs. The costs account for the incremental variable and fixed costs incurred by manufacturers due to the proposed standards, some of which may be incurred in preparation for the rule. The Primary, Low Net Benefits, and High Net Benefits Estimates utilize projections of energy prices and real GDP from the AEO2016 No-CPP case, a Low Economic Growth case, and a High Economic Growth case, respectively. In addition, incremental equipment costs reflect the default price trend in the Primary Estimate, a high price trend in the Low Benefits Estimate, and a low price trend in the High Benefits Estimate. The methods used to derive projected price trends are explained in section IV.F.1 of the DFR. Note that the Benefits and Costs may not sum to the Net Benefits due to rounding. ** The interagency group selected four sets of SC-CO2 SC-CH4, and SC-N2O values for use in regulatory analyses. Three sets of values are based on the average social costs from the integrated assessment models, at discount rates of 5 percent, 3 percent, and 2.5 percent. The fourth set, which represents the 95th percentile of the social cost distributions calculated using a 3-percent discount rate, is included to represent higher-than-expected impacts from climate change further out in the tails of the social cost distributions. The social cost values are emission year specific. The GHG reduction benefits are global benefits due to actions that occur nationally. See section IV.L of the DFR for more details. † DOE estimated the monetized value of NOX emissions reductions associated with electricity savings using benefit per ton estimates from the Regulatory Impact Analysis for the Clean Power Plan Final Rule, published in August 2015 by EPA's Office of Air Quality Planning and Standards. (Available at www.epa.gov/cleanpowerplan/clean-power-plan-final-rule-regulatory-impact-analysis.) See section IV.L.3 for further discussion. For the Primary Estimate and Low Net Benefits Estimate, DOE used national benefit-per-ton estimates for NOX emitted from the Electric Generating Unit sector based on an estimate of premature mortality derived from the ACS study (Krewski et al. 2009). For the High Net Benefits Estimate, the benefit-per-ton estimates were based on the Six Cities study (Lepuele et al. 2011); these are nearly two-and-a-half times larger than those from the ACS study. ‡ Total Benefits for both the 3-percent and 7-percent cases are presented using the average social costs with 3-percent discount rate. In the rows labeled “7% plus GHG range” and “3% plus GHG range,” the operating cost and NOX benefits are calculated using the labeled discount rate, and those values are added to the full range of social cost values. †† Manufacturers are estimated to incur $35.6 million in conversion costs between 2017 and 2020.
    III. Other Prescriptive Requirements

    As part of the DPPP Working Group's extended charter, the DPPP Working Group considered requirements for pumps distributed in commerce with freeze protections controls. (Docket No. EERE-2013-BT-NOC-0005, No. 71 at pp. 20-52) Freeze protection controls, as defined in the test procedure final rule, are controls that, at certain ambient temperature, turn on the dedicated-purpose pool pump to circulate water for a period of time to prevent the pool and water in plumbing from freezing. As the control schemes for freeze protection vary widely between manufacturers, the resultant energy consumption associated with such control can also vary depending on control settings and climate. To ensure freeze protection controls on dedicated-purpose pool pumps only operate when necessary and do not result in unnecessary energy use, the DPPP Working Group recommended establishing prescriptive requirements for dedicated-purpose pool pumps that are distributed in commerce with freeze protection controls. Specifically, the DPPP Working Group made the following recommendation, which it purports to maintain end-user utility while also reducing energy consumption:

    All dedicated-purpose pool pumps distributed in commerce with freeze protection controls must be shipped either with freeze protection disabled, or with the following default, user-adjustable settings: (1) The default dry-bulb air temperature setting is no greater than 40 °F; and (2) the default run time setting shall be no greater than 1 hour (before the temperature is rechecked); and (3) the default motor speed shall not be more than half of the maximum available speed. Id. (Docket No. EERE-2015-BT-STD-0008, No. 82, Recommendation #6A at p. 4). DOE agrees with the DPPP Working Group's reasoning, and given the considerations discussed in section III.A of the Direct Final Rule, DOE proposes to adopt the recommended prescriptive standard for dedicated-purpose pool pumps distributed in commerce with freeze protection controls.

    IV. Procedural Issues and Regulatory Review

    The regulatory reviews conducted for this proposed rule are identical to those conducted for the direct final rule published elsewhere in Federal Register. Please see the direct final rule for further details.

    V. Public Participation A. Submission of Comments

    DOE will accept comments, data, and information regarding this proposed rule before or after the public meeting, but no later than the date provided in the DATES section at the beginning of this proposed rule. Interested parties may submit comments, data, and other information using any of the methods described in the ADDRESSES section at the beginning of this proposed rule.

    Submitting comments via www.regulations.gov. The www.regulations.gov Web page will require you to provide your name and contact information. Your contact information will be viewable to DOE Building Technologies staff only. Your contact information will not be publicly viewable except for your first and last names, organization name (if any), and submitter representative name (if any). If your comment is not processed properly because of technical difficulties, DOE will use this information to contact you. If DOE cannot read your comment due to technical difficulties and cannot contact you for clarification, DOE may not be able to consider your comment.

    However, your contact information will be publicly viewable if you include it in the comment itself or in any documents attached to your comment. Any information that you do not want to be publicly viewable should not be included in your comment, nor in any document attached to your comment. Otherwise, persons viewing comments will see only first and last names, organization names, correspondence containing comments, and any documents submitted with the comments.

    Do not submit to www.regulations.gov information for which disclosure is restricted by statute, such as trade secrets and commercial or financial information (hereinafter referred to as Confidential Business Information (CBI)). Comments submitted through www.regulations.gov cannot be claimed as CBI. Comments received through the Web site will waive any CBI claims for the information submitted. For information on submitting CBI, see the Confidential Business Information section.

    DOE processes submissions made through www.regulations.gov before posting. Normally, comments will be posted within a few days of being submitted. However, if large volumes of comments are being processed simultaneously, your comment may not be viewable for up to several weeks. Please keep the comment tracking number that www.regulations.gov provides after you have successfully uploaded your comment.

    Submitting comments via email, hand delivery/courier, or mail. Comments and documents submitted via email, hand delivery/courier, or mail also will be posted to www.regulations.gov. If you do not want your personal contact information to be publicly viewable, do not include it in your comment or any accompanying documents. Instead, provide your contact information in a cover letter. Include your first and last names, email address, telephone number, and optional mailing address. The cover letter will not be publicly viewable as long as it does not include any comments

    Include contact information each time you submit comments, data, documents, and other information to DOE. If you submit via mail or hand delivery/courier, please provide all items on a CD, if feasible, in which case it is not necessary to submit printed copies. No telefacsimiles (faxes) will be accepted.

    Comments, data, and other information submitted to DOE electronically should be provided in PDF (preferred), Microsoft Word or Excel, WordPerfect, or text (ASCII) file format. Provide documents that are not secured, that are written in English, and that are free of any defects or viruses. Documents should not contain special characters or any form of encryption and, if possible, they should carry the electronic signature of the author.

    Campaign form letters. Please submit campaign form letters by the originating organization in batches of between 50 to 500 form letters per PDF or as one form letter with a list of supporters' names compiled into one or more PDFs. This reduces comment processing and posting time.

    Confidential Business Information. Pursuant to 10 CFR 1004.11, any person submitting information that he or she believes to be confidential and exempt by law from public disclosure should submit via email, postal mail, or hand delivery/courier two well-marked copies: one copy of the document marked “confidential” including all the information believed to be confidential, and one copy of the document marked “non-confidential” with the information believed to be confidential deleted. Submit these documents via email or on a CD, if feasible. DOE will make its own determination about the confidential status of the information and treat it according to its determination.

    Factors of interest to DOE when evaluating requests to treat submitted information as confidential include (1) a description of the items, (2) whether and why such items are customarily treated as confidential within the industry, (3) whether the information is generally known by or available from other sources, (4) whether the information has previously been made available to others without obligation concerning its confidentiality, (5) an explanation of the competitive injury to the submitting person that would result from public disclosure, (6) when such information might lose its confidential character due to the passage of time, and (7) why disclosure of the information would be contrary to the public interest.

    It is DOE's policy that all comments may be included in the public docket, without change and as received, including any personal information provided in the comments (except information deemed to be exempt from public disclosure).

    B. Public Meeting

    As stated previously, if DOE withdraws the direct final rule published elsewhere in the Federal Register pursuant to 42 U.S.C. 6295(p)(4)(C), DOE will hold a public meeting to allow for additional comment on this proposed rule. DOE will publish notice of any meeting in the Federal Register.

    VI. Approval of the Office of the Secretary

    The Secretary of Energy has approved publication of this notice of proposed rulemaking.

    List of Subjects in 10 CFR Part 431

    Administrative practice and procedure, Confidential business information, Energy conservation, Imports, Intergovernmental relations, Small businesses.

    Issued in Washington, DC, on December 23, 2016. David J. Friedman, Acting Assistant Secretary Energy Efficiency and Renewable Energy.

    For the reasons set forth in the preamble, DOE proposes to amend part 431 of chapter II, subchapter D, of title 10 of the Code of Federal Regulations, as set forth below:

    PART 431—ENERGY EFFICIENCY PROGRAM FOR CERTAIN COMMERCIAL AND INDUSTRIAL EQUIPMENT 1. The authority citation for part 431 continues to read as follows: Authority:

    42 U.S.C. 6291-6317; 28 U.S.C. 2461 note.

    2. Section 431.462 is amended by adding the definition for “pool pump timer” in alphabetical order to read as follows:
    § 431.462 Definitions.

    Pool pump timer means a pool pump control that automatically turns off a dedicated-purpose pool pump after a run-time of no longer than 10 hours.

    3. Section 431.465 is amended by adding paragraphs (e), (f), (g) and (h) to read as follows:
    § 431.465 Pumps energy conservation standards and their compliance dates.

    (e) For the purposes of paragraph (f) of this section, “WEF” means the weighted energy factor and “hhp” means the rated hydraulic horsepower, as determined in accordance with the test procedure in § 431.464(b) and applicable sampling plans in § 429.59 of this chapter.

    (f) Each dedicated-purpose pool pump that is not a submersible pump and is manufactured starting on July 19, 2021 must have a WEF rating that is not less than the value calculated from the following table:

    Equipment class Dedicated-Purpose Pool Pump Variety hhp
  • Applicability
  • Minimum
  • allowable
  • WEF score
  • [kgal/kWh]
  • Motor phase Minimum allowable WEF score [kgal/kWh]
    Self-priming pool filter pumps 0.711 hp ≤ hhp < 2.5 hp Single WEF = −2.30 * ln (hhp) + 6.59. Self-priming pool filter pumps hhp < 0.711 hp Single WEF = 5.55, for hhp ≤ 1.30. hp
  • − 1.30 * ln (hhp) + 2.90, for hhp > 0.13 hp.
  • Non-self-priming pool filter pumps hhp < 2.5 hp Any WEF = 4.60, for hhp ≤ 0.13 hp
  • −0.85 * ln (hhp) + 2.87, for hhp > 0.13 hp.
  • Pressure cleaner booster pumps Any Any WEF = 0.42

    (g) Each integral cartridge filter pool pump and integral sand filter pool pump that is manufactured starting on July 19, 2021 must be distributed in commerce with a pool pump timer that is either integral to the pump or a separate component that is shipped with the pump.

    (h) For all dedicated-purpose pool pumps distributed in commerce with freeze protection controls, the pump must be shipped with freeze protection disabled or with the following default, user-adjustable settings:

    (1) The default dry-bulb air temperature setting is no greater than 40 °F;

    (2) The default run time setting shall be no greater than 1 hour (before the temperature is rechecked); and

    (3) The default motor speed shall not be more than 1/2 of the maximum available speed.

    [FR Doc. 2016-31665 Filed 1-17-17; 8:45 am] BILLING CODE 6450-01-P
    DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 39 [Docket No. FAA-2010-0755; Directorate Identifier 2010-NE-12-AD] RIN 2120-AA64 Airworthiness Directives; Rolls-Royce plc Turbofan Engines AGENCY:

    Federal Aviation Administration (FAA), DOT.

    ACTION:

    Notice of proposed rulemaking (NPRM).

    SUMMARY:

    We propose to supersede airworthiness directive (AD) 2012-04-01 that applies to all Rolls-Royce plc (RR) RB211-Trent 800 model turbofan engines. AD 2012-04-01 requires removal from service of certain critical engine rotating parts based on reduced life limits. Since we issued AD 2012-04-01, RR has further revised the life limits of certain critical engine rotating parts. This proposed AD would make additional revisions to the life limits of certain critical engine rotating parts. We are proposing this AD to correct the unsafe condition on these products.

    DATES:

    We must receive comments on this proposed AD by March 6, 2017.

    ADDRESSES:

    You may send comments, using the procedures found in 14 CFR 11.43 and 11.45, by any of the following methods:

    Federal eRulemaking Portal: Go to http://www.regulations.gov. Follow the instructions for submitting comments.

    Fax: 202-493-2251.

    Mail: U.S. Department of Transportation, Docket Operations, M-30, West Building Ground Floor, Room W12-140, 1200 New Jersey Avenue SE., Washington, DC 20590.

    Hand Delivery: Deliver to Mail address above between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays.

    Examining the AD Docket

    You may examine the AD docket on the Internet at http://www.regulations.gov by searching for and locating Docket No. FAA-2010-0755; or in person at the Docket Management Facility between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The AD docket contains this proposed AD, the mandatory continuing airworthiness information, regulatory evaluation, any comments received, and other information. The address for the Docket Office (phone: 800-647-5527) is in the ADDRESSES section. Comments will be available in the AD docket shortly after receipt.

    FOR FURTHER INFORMATION CONTACT:

    Robert Green, Aerospace Engineer, Engine Certification Office, FAA, Engine & Propeller Directorate, 1200 District Avenue, Burlington, MA 01803; phone: 781-238-7754; fax: 781-238-7199; email: [email protected]

    SUPPLEMENTARY INFORMATION:

    Comments Invited

    We invite you to send any written relevant data, views, or arguments about this proposed AD. Send your comments to an address listed under the ADDRESSES section. Include “Docket No. FAA-2010-0755; Directorate Identifier 2010-NE-12-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this proposed AD. We will consider all comments received by the closing date and may amend this proposed AD because of those comments.

    We will post all comments we receive, without change, to http://www.regulations.gov, including any personal information you provide. We will also post a report summarizing each substantive verbal contact we receive about this proposed AD.

    Discussion

    On February 10, 2012, we issued AD 2012-04-01, Amendment 39-16956 (77 FR 10355, February 22, 2012), “AD 2012-04-01,” for all RR RB211-Trent 800 model turbofan engines. AD 2012-04-01 requires removal from service of certain critical engine rotating parts based on reduced life limits. AD 2012-04-01 resulted from RR reducing the life limits of certain critical engine rotating parts. We issued AD 2012-04-01 to prevent the failure of critical engine rotating parts, which could result in damage to the engine and damage to the airplane.

    Actions Since AD 2012-04-01 Was Issued

    Since we issued AD 2012-04-01, RR has reduced the life limit of two affected critical engine rotating parts and extended the life of an additional critical engine rotating part. Also since we issued AD 2012-04-01, the European Aviation Safety Agency (EASA) has issued AD 2016-0223, dated November 8, 2016, which imposes new life limits on certain critical engine rotating parts.

    FAA's Determination

    We are proposing 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.

    Proposed AD Requirements

    This proposed AD would require replacement of certain critical engine rotating parts at a newer, lower life limit. This proposed AD would also extend the life limit for an additional critical engine rotating part.

    Costs of Compliance

    We estimate that this proposed AD affects 16 engines installed on airplanes of U.S. registry.

    We estimate the following costs to comply with this proposed AD:

    Estimated Costs Action Labor cost Parts cost Cost per
  • product
  • Cost on U.S. operators
    Replacement of critical engine rotating parts 0 work-hours × $85 per hour = $0 $45,000 (pro-rated cost of parts) $45,000 $720,000
    Authority for This Rulemaking

    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.

    Regulatory Findings

    We have determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would 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 above, I certify that the proposed regulation:

    (1) Is not a “significant regulatory action” under Executive Order 12866,

    (2) Is not a “significant rule” under the 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.

    List of Subjects in 14 CFR Part 39

    Air transportation, Aircraft, Aviation safety, Incorporation by reference, Safety.

    The Proposed Amendment

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

    PART 39—AIRWORTHINESS DIRECTIVES 1. The authority citation for part 39 continues to read as follows: Authority:

    49 U.S.C. 106(g), 40113, 44701.

    § 39.13 [Amended]
    2. The FAA amends § 39.13 by removing airworthiness directive (AD) 2012-04-01, Amendment 39-16956 (77 FR 10355, February 22, 2012), and adding the following new AD: Rolls-Royce plc: Docket No. FAA-2010-0755; Directorate Identifier 2010-NE-12-AD. (a) Comments Due Date

    We must receive comments by March 6, 2017.

    (b) Affected ADs

    This AD supersedes AD 2012-04-01, Amendment 39-16956 (77 FR 10355, February 22, 2012).

    (c) Applicability

    This AD applies to all Rolls-Royce plc (RR) RR RB211-Trent 875-17, 877-17, 884-17, 884B-17, 892-17, 892B-17, and 895-17 turbofan engines.

    (d) Subject

    Joint Aircraft System Component (JASC) Code 7200, Engine (Turbine/Turboprop).

    (e) Unsafe Condition

    This AD was prompted by RR revising the life limits of certain critical engine rotating parts. We are issuing this AD to prevent the failure of critical engine rotating parts, damage to the engine, and damage to the airplane.

    (f) Compliance

    Comply with this AD within the compliance times specified, unless already done.

    (1) After the effective date of this AD, remove from service the parts listed in Table 1 to paragraph (f) of this AD before exceeding the new life limit indicated:

    Table 1 to Paragraph (f)—Reduced Part Lives Part nomenclature Part No. Life in
  • standard
  • duty cycles
  • Life in cycles using the HEAVY profile
    Intermediate Pressure (IP) Compressor Rotor Shaft FK24100 12,500 11,500 IP Compressor Rotor Shaft FK24496 8,860 8,180 High-Pressure Compressor (HPC) Stage 1 to 4 Rotor Discs Shaft FK24009 4,560 4,460 HPC Stage 1 to 4 Rotor Discs Shaft FK26167 5,580 5,280 HPC Stage 1 to 4 Rotor Discs Shaft FK32580 5,580 5,280 HPC Stage 1 to 4 Rotor Discs Shaft FW11590 8,550 6,850 HPC Stage 1 to 4 Rotor Discs Shaft FW61622 8,550 6,850 HPC Stage 5 and 6 Discs and Cone FK25230 5,000 5,000 HPC Stage 5 and 6 Discs and Cone FK27899 5,000 5,000 IP Turbine Rotor Disc FK21117 11,610 10,400 IP Turbine Rotor Disc FK33083 0 0

    (2) Reserved.

    (g) Installation Prohibition

    After the effective date of this AD, do not install any IP turbine discs, P/N FK33083, into any engine.

    (h) Alternative Methods of Compliance (AMOCs)

    The Manager, Engine Certification Office, FAA, may approve AMOCs for this AD. Use the procedures found in 14 CFR 39.19 to make your request. You may email your request to: [email protected]

    (i) Related Information

    (1) For more information about this AD, contact Robert Green, Aerospace Engineer, Engine Certification Office, FAA, Engine & Propeller Directorate, 1200 District Avenue, Burlington, MA 01803; phone: 781-238-7754; fax: 781-238-7199; email: [email protected]

    (2) Refer to MCAI European Aviation Safety Agency, AD 2016-0223, dated November 8, 2016, for more information. You may examine the MCAI in the AD docket on the Internet at http://www.regulations.gov by searching for and locating it in Docket No. FAA-2010-0755.

    Issued in Burlington, Massachusetts, on January 11, 2017. Colleen M. D'Alessandro, Manager, Engine & Propeller Directorate, Aircraft Certification Service.
    [FR Doc. 2017-00890 Filed 1-17-17; 8:45 am] BILLING CODE 4910-13-P
    DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 39 [Docket No. FAA-2017-0019; Directorate Identifier 2016-CE-038-AD] RIN 2120-AA64 Airworthiness Directives; GROB Aircraft AG Gliders AGENCY:

    Federal Aviation Administration (FAA), Department of Transportation (DOT).

    ACTION:

    Notice of proposed rulemaking (NPRM).

    SUMMARY:

    We propose to adopt a new airworthiness directive (AD) for GROB Aircraft AG Models GROB G 109 and GROB G 109B gliders. This proposed AD results from mandatory continuing airworthiness information (MCAI) originated by an aviation authority of another country to identify and correct an unsafe condition on an aviation product. The MCAI describes the unsafe condition as broken pivots of the tail wheel mounting bracket resulting from corrosion and damage due to wear. We are issuing this proposed AD to require actions to address the unsafe condition on these products.

    DATES:

    We must receive comments on this proposed AD by March 6, 2017.

    ADDRESSES:

    You may send comments by any of the following methods:

    Federal eRulemaking Portal: Go to http://www.regulations.gov. Follow the instructions for submitting comments.

    Fax: (202) 493-2251.

    Mail: U.S. Department of Transportation, Docket Operations, M-30, West Building Ground Floor, Room W12-140, 1200 New Jersey Avenue SE., Washington, DC 20590.

    Hand Delivery: U.S. Department of Transportation, Docket Operations, M-30, West Building Ground Floor, Room W12-140, 1200 New Jersey Avenue SE., Washington, DC 20590, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays.

    For service information identified in this proposed AD, contact GROB Aircraft AG, Product Support, Lettenbachstrasse 9, D-86874 Tussenhausen-Mattsies, Germany, telephone: + 49 (0) 8268-998-105; fax: + 49 (0) 8268-998-200; email: [email protected]; Internet: grob-aircraft.com. You may review this referenced service information at the FAA, Small Airplane Directorate, 901 Locust, Kansas City, Missouri 64106. For information on the availability of this material at the FAA, call (816) 329-4148.

    Examining the AD Docket

    You may examine the AD docket on the Internet at http://www.regulations.gov by searching for and locating Docket No. FAA-2017-0019; or in person at the Docket Management Facility between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The AD docket contains this proposed AD, the regulatory evaluation, any comments received, and other information. The street address for the Docket Office (telephone (800) 647-5527) is in the ADDRESSES section. Comments will be available in the AD docket shortly after receipt.

    FOR FURTHER INFORMATION CONTACT:

    Jim Rutherford, Aerospace Engineer, FAA, Small Airplane Directorate, 901 Locust, Room 301, Kansas City, Missouri 64106; telephone: (816) 329-4165; fax: (816) 329-4090; email: [email protected]

    SUPPLEMENTARY INFORMATION:

    Comments Invited

    We invite you to send any written relevant data, views, or arguments about this proposed AD. Send your comments to an address listed under the ADDRESSES section. Include “Docket No. FAA-2017-0019; Directorate Identifier 2016-CE-038-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this proposed AD. We will consider all comments received by the closing date and may amend this proposed AD because of those comments.

    We will post all comments we receive, without change, to http://regulations.gov, including any personal information you provide. We will also post a report summarizing each substantive verbal contact we receive about this proposed AD.

    Discussion

    The European Aviation Safety Agency (EASA), which is the Technical Agent for the Member States of the European Community, has issued EASA AD No.: 2016-0228, dated November 14, 2016 (referred to after this as “the MCAI”), to correct an unsafe condition for the specified products. The MCAI states:

    Occurrences were reported of broken pivots of the tail wheel mounting bracket. Subsequent investigation attributed these events to corrosion and damage due to wear.

    This condition, if not detected and corrected, could lead to loss of rudder control, resulting in reduced control of the powered sailplane.

    To address this potentially unsafe condition, Grob Aircraft AG issued Mandatory Service Bulletin (MSB) 817-70 (hereafter referred to as `the MSB' in this AD) to provide inspection and repair instructions.

    For the reasons described above, this AD requires repetitive inspections of the tail wheel mounting bracket and, depending on findings, accomplishment of applicable corrective action(s).

    You may examine the MCAI on the Internet at http://www.regulations.gov by searching for and locating Docket No. FAA-2017-0019.

    Related Service Information Under 1 CFR Part 51

    GROB Aircraft AG has issued Service Bulletin No. MSB817-70, dated September 28, 2016, and GROB Aircraft AG Repair Instruction RI 817-015, dated September 16, 2016. In combination, this service information describes procedures for inspection of the tail mounting bracket and instructions for any necessary repair. This service information is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in the ADDRESSES section of this NPRM.

    FAA's Determination and Requirements of the Proposed AD

    This product has been approved by the aviation authority of another country, and is approved for operation in the United States. Pursuant to our bilateral agreement with this State of Design Authority, they have notified us of the unsafe condition described in the MCAI and service information referenced above. We are proposing this AD because we evaluated all information and determined the unsafe condition exists and is likely to exist or develop on other products of the same type design.

    Costs of Compliance

    We estimate that this proposed AD will affect 57 products of U.S. registry. We also estimate that it would take about 3 work-hours per product to comply with the basic requirements of this proposed AD. The average labor rate is $85 per work-hour. Required parts would cost about $50 per product.

    Based on these figures, we estimate the cost of the proposed AD on U.S. operators to be $17,385, or $305 per product.

    In addition, we estimate that any necessary follow-on actions would take about 5 work-hours and require parts costing $100, for a cost of $525 per product. We have no way of determining the number of products that may need these actions.

    Authority for This Rulemaking

    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.

    Regulatory Findings

    We determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would 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 above, I certify this proposed regulation:

    (1) Is not a “significant regulatory action” under Executive Order 12866,

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

    (3) Will not affect intrastate aviation in Alaska, 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.

    List of Subjects in 14 CFR Part 39

    Air transportation, Aircraft, Aviation safety, Incorporation by reference, Safety.

    The Proposed Amendment

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

    PART 39—AIRWORTHINESS DIRECTIVES 1. The authority citation for part 39 continues to read as follows: Authority:

    49 U.S.C. 106(g), 40113, 44701.

    § 39.13 [Amended]
    2. The FAA amends § 39.13 by adding the following new AD: GROB Aircraft AG: Docket No. FAA-2017-0019; Directorate Identifier 2016-CE-038-AD. (a) Comments Due Date

    We must receive comments by March 6, 2017.

    (b) Affected ADs

    None.

    (c) Applicability

    This AD applies to GROB Aircraft AG Models GROB G 109 and GROB G 109B gliders, all serial numbers, certificated in any category.

    (d) Subject

    Air Transport Association of America (ATA) Code 32: Landing Gear.

    (e) Reason

    This AD was prompted by mandatory continuing airworthiness information (MCAI) originated by an aviation authority of another country to identify and correct an unsafe condition on an aviation product. The MCAI describes the unsafe condition as broken pivots of the tail wheel mounting bracket resulting from corrosion and damage due to wear. We are issuing this proposed AD to detect and correct if necessary any corrosion or damage to the tail wheel mounting bracket, which could cause loss of rudder control and result in reduced control.

    (f) Actions and Compliance

    Unless already done, do the following actions:

    (1) Within the next 3 months after the effective date of this AD or 100 hours time-in-service (TIS) after the effective date of this AD, whichever occurs first, and repetitively thereafter at intervals not to exceed every 100 hours TIS or 12 months, whichever occurs first, inspect the tail wheel mounting bracket following the Accomplishment Instructions in section 1.8 of GROB Aircraft AG Service Bulletin (SB) No. MSB817-70, dated September 28, 2016.

    (2) If any damage is found during any inspection required in paragraph (f)(1) of this AD, before further flight, repair following GROB Aircraft AG Repair Instruction RI 817-015, dated September 16, 2016.

    Note 1 to paragraph (f)(2) of this AD:

    The bolt in Figure 1, Pos. 10 of GROB Aircraft AG Repair Instruction RI 817-015, dated September 16, 2016, is welded into place onto the steel base plate. Therefore, in order to facilitate the removal of the bolt, the welding seams may be carefully ground off using caution to not damage the steel base plate, instead of completely cutting off the bolt head.

    (3) Repairs made as required by paragraph (f)(2) of this AD do not qualify as terminating action for the repetitive inspections required in paragraph (f)(1) of this AD.

    (g) Other FAA AD Provisions

    The following provisions also apply to this AD:

    (1) Alternative Methods of Compliance (AMOCs): The Manager, Standards Office, FAA, has the authority to approve AMOCs for this AD, if requested using the procedures found in 14 CFR 39.19. Send information to ATTN: Jim Rutherford, Aerospace Engineer, FAA, Small Airplane Directorate, 901 Locust, Room 301, Kansas City, Missouri 64106; telephone: (816) 329-4165; fax: (816) 329-4090; email: [email protected] Before using any approved AMOC on any airplane to which the AMOC applies, notify your appropriate principal inspector (PI) in the FAA Flight Standards District Office (FSDO), or lacking a PI, your local FSDO.

    (2) Airworthy Product: For any requirement in this AD to obtain corrective actions from a manufacturer or other source, use these actions if they are FAA-approved. Corrective actions are considered FAA-approved if they are approved by the State of Design Authority (or their delegated agent). You are required to assure the product is airworthy before it is returned to service.

    (h) Related Information

    Refer to MCAI European Aviation Safety Agency (EASA) AD No.: 2016-0228, dated November 14, 2016, for related information. You may examine the MCAI on the Internet at http://www.regulations.gov by searching for and locating Docket No. FAA-2017-0019. For service information related to this AD, contact GROB Aircraft AG, Product Support, Lettenbachstrasse 9, D-86874 Tussenhausen-Mattsies, Germany, telephone: + 49 (0) 8268-998-105; fax: + 49 (0) 8268-998-200; email: [email protected]; Internet: grob-aircraft.com. You may review this referenced service information at the FAA, Small Airplane Directorate, 901 Locust, Kansas City, Missouri 64106. For information on the availability of this material at the FAA, call (816) 329-4148.

    Issued in Kansas City, Missouri, on January 6, 2017. Melvin Johnson, Acting Manager, Small Airplane Directorate, Aircraft Certification Service.
    [FR Doc. 2017-00658 Filed 1-17-17; 8:45 am] BILLING CODE 4910-13-P
    DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT 24 CFR Parts 982 and 983 [Docket No. FR-5976-N-03] Housing Opportunity Through Modernization Act of 2016: Implementation of Various Section 8 Voucher Provisions AGENCY:

    Office of the Assistant Secretary for Public and Indian Housing, HUD.

    ACTION:

    Implementation and request for comment.

    SUMMARY:

    On July 29, 2016, President Obama signed into law the Housing Opportunity Through Modernization Act of 2016 (HOTMA). Several of the statutory amendments made by HOTMA affect the Project-Based Voucher (PBV) program or the Housing Choice Voucher (HCV) program. HOTMA also gave HUD the authority to implement many of those changes by notice, and those statutory changes are not effective until HUD issues that notice. This document serves as the implementation notice for several of the provisions of HOTMA that impact the HCV and PBV programs, and seeks additional public input on both the implementing requirements in this document and future changes to these programs.

    DATES:

    Effective date: April 18, 2017.

    Comment due date: March 20, 2017.

    ADDRESSES:

    Interested persons are invited to submit comments regarding this document. All communications must refer to the above docket number and title. There are two methods for submitting public comments.

    1. Submission of Comments by Mail. Comments may be submitted by mail to the Regulations Division, Office of General Counsel, Department of Housing and Urban Development, 451 7th Street SW., Room 10276, Washington, DC 20410-0500.

    2. Electronic Submission of Comments. Interested persons may submit comments electronically through the Federal eRulemaking Portal at www.regulations.gov. HUD strongly encourages commenters to submit comments electronically. Electronic submission of comments allows the commenter maximum time to prepare and submit a comment, ensures timely receipt by HUD, and enables HUD to make comments immediately available to the public. Comments submitted electronically through the www.regulations.gov Web site can be viewed by other commenters and interested members of the public. Commenters should follow the instructions provided on that site to submit comments electronically.

    No Facsimile Comments. Facsimile (fax) comments are not acceptable.

    Public Inspection of Public Comments. All properly submitted comments and communications submitted to HUD will be available for public inspection and copying between 8 a.m. and 5 p.m., weekdays, at the above address. Due to security measures at the HUD Headquarters building, an advance appointment to review the public comments must be scheduled by calling the Regulations Division at 202-708-3055 (this is not a toll-free number). Individuals with speech or hearing impairments may access this number via TTY by calling the Federal Relay Service at 800-877-8339 (this is a toll-free number). Copies of all comments submitted are available for inspection and downloading at www.regulations.gov.

    FOR FURTHER INFORMATION CONTACT:

    Please direct all questions about this notice to [email protected]

    SUPPLEMENTARY INFORMATION: I. Background

    On July 29, 2016, President Obama signed HOTMA into law (Public Law 114-201, 130 Stat. 782). HOTMA made numerous changes to statutes that govern HUD programs, including section 8 of the United States Housing Act of 1937 (1937 Act) (42 U.S.C. 1437f). HUD issued a notice on October 24, 2016, at 81 FR 73030, announcing to the public which of the statutory changes made by HOTMA could be implemented immediately, and which required further guidance from HUD before owners, public housing agencies (PHAs), or other grantees may use the new statutory provisions.

    This document implements new statutory provisions regarding certain inspection requirements for both HCV tenant-based and PBV assistance (found in § 101(a)(1) of HOTMA), the definition of PHA-owned housing (§ 105 of HOTMA), and changes to the PBV program at large (§ 106 of HOTMA) by providing the additional information needed for PHAs and owners to use those provisions. The document also implements and provides guidance on the statutory change to the HCV housing assistance payment (HAP) calculation for families who own manufactured housing and are renting the manufactured home space (§ 112 of HOTMA).

    While this document makes the provisions below effective, HUD seeks further public comment on the implementation of these provisions. Below each section describing the implementation of a statutory provision, HUD has included specific questions for public comment. All comments must be submitted using the two methods detailed above.

    II. Implementation Information A. Inspections of Dwelling Units (HOTMA § 101(a)(1))

    Section 101(a)(1) of HOTMA adds a modified subparagraph (A) to section 8(o)(8) of the 1937 Act (42 U.S.C. 1437f(o)(8)). The amended subparagraph continues the requirement of inspections of dwelling units assisted under section 8(o) of the 1937 Act to determine that the units meet housing quality standards (HQS) prior to the PHA making a housing assistance payment. However, new language provides an exception to this requirement, allowing the PHA to approve the assisted tenancy and commence housing assistance payments if the unit fails the inspection but only has non-life-threatening HQS deficiencies. If a PHA makes payments under that exception, the PHA must withhold any assistance payments if the non-life-threatening deficiencies are not remedied within no more than 30 days of the PHA notifying the owner of the unit, in writing, of the unit's failure to comply with HQS.

    In addition, new language authorizes occupancy of a unit prior to the inspection being completed if the unit had, in the previous 24 months, passed an alternative inspection method under section 8(o)(8)(E). The PHA must inspect the unit within 15 days of receiving the Request for Tenancy Approval. Once the unit passes the HQS, the PHA may make assistance payments retroactively, dating back to the beginning of the assisted lease term, which is the effective date of the HAP contract. Per 24 CFR 982.309(b), the term of the HAP contract begins on the first day of the lease term and ends on the last day of the lease term.

    This document does not implement other provisions in section 101(a) of HOTMA.

    1. Occupancy Prior to Meeting HQS (§ 8(o)(8)(A)(ii) of 1937 Act)

    As a result of the HOTMA amendments to Section 8(o)(8)(A)(ii) of the 1937 Act, PHAs may choose to approve an assisted tenancy, execute the HAP contract, and begin making housing assistance payments on a unit that fails the initial HQS inspection, provided the unit's failure to meet HQS is the result only of non-life-threatening conditions, as such conditions are defined by HUD. In exercising this administrative flexibility under § 8(o)(8)(A)(ii), PHAs must comply with the definitions and requirements in this section, in addition to those provided in HUD regulations and requirements. If the PHA exercises this authority, this document overrides the requirement at 982.305(a)(2) and (b)(i) that the PHA has determined that the unit meets HQS before approval of the tenancy and beginning of the initial lease term. (The PHA must still conduct the HQS inspection prior to approval of the tenancy and the beginning of the initial lease term in accordance with those regulations.)

    A. HUD Definition of Non-Life-Threatening and Life-Threatening Conditions

    For the purposes of implementing § 8(o)(8)(A)(ii), HUD is defining a non-life-threatening condition as any condition that would fail to meet the housing quality standards under 24 CFR 982.401 and is not a life-threatening condition. Further, for the purposes of this implementation notice, HUD is defining life-threatening conditions as follows:

    (1) Gas (natural or liquid petroleum) leak or fumes. A life-threatening condition under this standard is one of the following: (a) A fuel storage vessel, fluid line, valve, or connection that supplies fuel to a HVAC unit is leaking; or (b) a strong gas odor detected with potential for explosion or fire, or that results in health risk if inhaled.

    (2) Electrical hazards that could result in shock or fire. A life-threatening condition under this standard is one of the following: (a) A light fixture is readily accessible, is not securely mounted to the ceiling or wall, and electrical connections or wires are exposed; (b) a light fixture is hanging by its wires; (c) a light fixture has a missing or broken bulb, and the open socket is readily accessible to the tenant during the day to day use of the unit; (d) a receptacle (outlet) or switch is missing or broken and electrical connections or wires are exposed; (e) a receptacle (outlet) or switch has a missing or damaged cover plate and electrical connections or wires are exposed; (f) an open circuit breaker position is not appropriately blanked off in a panel board, main panel board, or other electrical box that contains circuit breakers or fuses; (g) a cover is missing from any electrical device box, panel box, switch gear box, control panel, etc., and there are exposed electrical connections; (h) any nicks, abrasions, or fraying of the insulation that expose conducting wire; (i) exposed bare wires or electrical connections; (j) any condition that results in openings in electrical panels or electrical control device enclosures; (k) water leaking or ponding near any electrical device; or (l) any condition that poses a serious risk of electrocution or fire and poses an immediate life-threatening condition.

    (3) Inoperable or missing smoke detector. A life-threatening condition under this standard is one of the following: (a) the smoke detector is missing; or (b) the smoke detector does not function as it should.

    (4) Interior air quality. A life-threatening condition under this standard is one of the following: (a) the carbon monoxide detector is missing; or (b) the carbon monoxide detector does not function as it should.

    (5) Gas/oil fired water heater or heating, ventilation, or cooling system with missing, damaged, improper, or misaligned chimney or venting. A life-threatening condition under this standard is one of the following: (a) The chimney or venting system on a fuel fired water heater is misaligned, negatively pitched, or damaged, which may cause improper or dangerous venting of gases; (b) a gas dryer vent is missing, damaged, or is visually determined to be inoperable, or the dryer exhaust is not vented to the outside; (c) a fuel fired space heater is not properly vented or lacks available combustion air; (d) a non-vented space heater is present; (e) safety devices on a fuel fired space heater are missing or damaged; or (f) the chimney or venting system on a fuel fired heating, ventilation, or cooling system is misaligned, negatively pitched, or damaged which may cause improper or dangerous venting of gases.

    (6) Lack of alternative means of exit in case of fire or blocked egress. A life-threatening condition under this standard is one of the following: (a) Any of the components that affect the function of the fire escape are missing or damaged; (b) stored items or other barriers restrict or prevent the use of the fire escape in the event of an emergency; or (c) the building's emergency exit is blocked or impeded, thus limiting the ability of occupants to exit in a fire or other emergency.

    (7) Other interior hazards. A life-threatening condition under this standard is a fire extinguisher (where required) that is missing, damaged, discharged, overcharged, or expired.

    (8) Deteriorated paint, as defined by 24 CFR 35.110, in a unit built before 1978 that is to be occupied by a family with a child under 6 years of age. This is a life-threatening condition only for the purpose of a condition that would prevent a family from moving into the unit. All lead hazard reduction requirements in 24 CFR part 35, including the timeline for lead hazard reduction procedures, still apply.

    (9) Any other co