Federal Register Vol. 82, No.229,

The National School Lunch Program (NSLP) and School Breakfast Program (SBP) provide nutritious and well-balanced meals to millions of children daily. Section 9(a)(4) of the Richard B. Russell National School Lunch Act, 42 U.S.C. 1758(a)(4), requires that school meals reflect the latest Dietary Guidelines for Americans (Dietary Guidelines). On January 26, 2012, USDA published a final rule, Nutrition Standards in the National School Lunch and School Breakfast Programs (77 FR 4088), which updated the school meal requirements consistent with the Dietary Guidelines and the recommendations issued by the Health and Medicine Division of the National Academies of Science, Engineering, and Medicine (formerly, Institute of Medicine) in the report School Meals: Building Blocks for Healthy Children. 1 In part, the 2012 regulatory requirements: (1) Allowed flavoring only in fat-free milk, effective school year (SY) 2012-2013; (2) established a requirement that, effective SY 2014-2015, all grains served in the NSLP and SBP must comply with the whole grain-rich requirement (meaning the grain product contains at least 50 percent whole grains and the remaining grain content of the product must be enriched); and (3) required schools to gradually reduce the sodium content of the average weekly school meals offered to each grade group in the NSLP and SBP by meeting progressively lower sodium targets over a period of 10 years.

USDA subsequently published two additional final rules making conforming amendments to the requirements for the service of milk in competitive foods sold outside of the school meal programs (National School Lunch Program and School Breakfast Program: Nutrition Standards for All Foods Sold in School as Required by the Healthy, Hunger-Free Kids Act of 2010, on July 29, 2016, 81 FR 50132) and to the Child and Adult Care Food Program (CACFP) meal requirements and the Special Milk Program for Children (SMP) milk requirements (Child and Adult Care Food Program: Meal Pattern Revisions Related to the Healthy, Hunger-Free Kids Act of 2010, on April 25, 2016, 81 FR 24348).

Over the past five years, since the NSLP and SBP regulations were updated in 2012, some Program operators have experienced challenges with the whole grain-rich requirement and the sodium limits. To address these challenges, USDA took administrative steps, such as allowing enriched pasta exemptions for SYs 2014-2015 and 2015-2016, to provide flexibilities and ease the transition to the updated standards. Congress recognized the challenges as well, and, through Section 751 of the Consolidated and Further Continuing Appropriations Act, 2015 (Pub. L. 113-235), expanded the pasta flexibility to include other grain products.

Through successive legislative action, Congress directed the Secretary to allow State agencies that administer the NSLP and the SBP to grant individual exemptions from the regulatory whole grain-rich requirement in those programs, and delay compliance with Sodium Target 2 (Section 743 of the Consolidated and Further Continuing Appropriations Act, 2012 (Pub. L. 112-55); Section 752 of the Consolidated and Further Continuing Appropriations Act, 2015 (Pub. L. 113-235); and Section 733 of the Consolidated Appropriations Act, 2016 (Pub. L. 114-113)). In addition, Section 747 of the Consolidated Appropriations Act, 2017 (Pub. L. 115-31) (2017 Appropriations Act) provided flexibilities related to flavored milk, whole grains, and sodium for SY 2017-2018. Most recently, Section 101(a)(1) of the Continuing Appropriations Act, 2018, Division D of the Continuing Appropriations Act, 2018 and Supplemental Appropriations for Disaster Relief Requirements Act, 2017, Public Law 115-56, enacted September 8, 2017, extends the flexibilities provided by section 747 of the Consolidated Appropriations Act, 2017 through December 8, 2017.

The 2017 Appropriations Act provides authority for exemptions for the whole grain-rich requirement through the end of SY 2017-2018, keeps Sodium Target 1 in place through the end of SY 2017-2018, and requires the Secretary to grant State agencies that administer the NSLP and SBP discretion to allow school food authorities (SFAs) that demonstrate a reduction in student milk consumption or an increase in milk waste to serve flavored, low-fat milk as part of a reimbursable meal or as a competitive beverage for sale (as specified in 7 CFR 210.11) through the end of SY 2017-2018.

This interim final rule provides optional flexibilities for SY 2018-2019 in a manner that is consistent with appropriations legislation in effect for SY 2017-2018 and previous administrative actions. In addition, this rule provides an opportunity for public comments that will inform USDA's development of a final rule on the long-term availability of the flexibilities. USDA intends to issue a final rule well in advance of school year 2019-2020, when the final regulations are expected to take effect.

In summary, the flexibilities provided by this interim final rule for SY 2018-2019 are the following:

• This rule allows Program operators in the NSLP, SBP, SMP, and CACFP (the Child Nutrition Programs (CNPs)) the option to offer flavored, low-fat (1 percent fat) milk as part of a reimbursable meal for students in grades K through 12, and for SMP and CACFP participants 6 years of age and older. Schools may also offer flavored, low-fat milk as a competitive beverage for sale. This optional flexibility expands the variety of milk in the CNPs and may encourage children's consumption of fluid milk nationwide.

• This rule allows State agencies to continue granting an SFA's exemption request to use specific alternative grain products if the SFA can demonstrate hardship(s) in procuring, preparing, or serving specific products that are acceptable to students and compliant with the whole grain-rich requirement. This rule responds to challenges experienced by some SFAs with the purchase, preparation, or service of products that comply with the whole grain-rich requirement in the NSLP and SBP.

• This rule retains Sodium Target 1 as the regulatory limit in the NSLP and SBP through the end of SY 2018-2019. Currently, USDA anticipates retaining Target 1 in the final rule through at least the end of SY 2020-2021 to provide SFAs more time to procure and introduce lower sodium food products, allow food industry more time for product development and reformulation, and give students more time to adjust to school meals with lower sodium content. Also, USDA anticipates that the sodium requirement will continue to be reevaluated for consistency with the Dietary Guidelines, which are updated every five years, and in response to Congressional action, as appropriate. To help inform the final rule, USDA seeks public comments on the long-term availability of this flexibility and its impact on the sodium reduction timeline established in 2012 and, specifically, the impact on Sodium Target 2.

This rule also includes minor technical corrections that remove obsolete dates related to the phased-in implementation of the school meal patterns. These technical revisions do not affect the intent or content of the regulations.

As noted earlier, Congress has provided mandates regarding flavored, low-fat milk, whole grains, and sodium effective for SY 2017-2018; therefore, this interim final rule is intended to address the optional flexibilities in effect for SY 2018-2019. No changes made under this interim final rule will extend beyond SY 2018-2019. Comments from State agencies, local Program operators, food industry, nutrition advocates, parents and other stakeholders on the day-to-day impact of these flexibilities will be extremely helpful in the development of the final rule. USDA will carefully consider all relevant comments submitted during the 60-day comment period for this rule, and intends to issue a final rule in fall 2018. USDA is committed to publication of a final rule well before implementation in SY 2019-2020. This will ensure that stakeholders have ample opportunity to make any necessary operational changes.

Legislative action taken by Congress through the annual appropriations process, starting with the 2012 fiscal year, provides short-term assistance to Program operators facing challenges but does not allow enough lead time to have a significant beneficial impact on menu planning, procurement, and contract decisions made in advance of the school year. To implement recurring appropriations legislation, USDA must take additional steps such as developing and disseminating implementation memoranda for Program operators. This creates a time lag that reduces the potential impact of the flexibilities, and causes confusion for Program operators who must keep track of multiple memoranda. For example, USDA issued several memoranda in response to annual appropriations legislation addressing the whole grain-rich requirement. These include SP 20-2015, Requests for Exemption from the School Meals' Whole Grain-Rich Requirement for School Years 2014-2015 and 2015-2016; SP 33-2016, Extension Notice: Requests for Exemption from the School Meals' Whole Grain-Rich Requirement for School Year 2016-2017; and SP 32-2017, School Meal Flexibilities for School Year 2017-2018.

When the 114th Congress began, but did not complete, the reauthorization process for the CNPs, the House and Senate authorizing committees drafted bills granting flexibilities in the three areas addressed by this rule—milk, whole grains and sodium. These preliminary reauthorization efforts reflected Congress' interest in providing stakeholders with additional flexibility in these areas.2

Through this interim final rule, USDA is responding to Program operators' need for more flexibility to accommodate menu planning and procurement challenges, local operational differences, and community preferences. This rule also responds to the need for clarity and certainty regarding key requirements and flexibilities for the near term. USDA recognizes that all stakeholders have made significant efforts to implement the 2012 school meal regulations. This interim final rule does not undo their hard work. The intent of this rule is to assist Program operators with specific challenges that limit their ability to offer nutritious and appealing meals that reflect community preferences, and that students enjoy and consume.

This rule signals USDA's commitment to an expeditious rulemaking process that will result in a final rule that provides long-term certainty on the flexibilities for milk, whole grains, and sodium. As explained next, food manufacturers need clarity and certainty prior to committing resources for research and product development/reformulation. School districts also need clarity and certainty in order to make menu planning, procurement, and contract decisions in advance of the school year.

USDA acknowledges that the flexibilities granted through annual appropriations do not provide food manufacturers the certainty they need to engage in product development and reformulation in support of the whole grain-rich and sodium requirements. Manufacturers must overcome numerous challenges before some of the school meal products are widely acceptable to children and schools or commercially available. As explained in the preamble to the 2012 final rule, Nutrition Standards in the National School Lunch and School Breakfast Programs (77 FR 4088, 4097-98), exceeding Target 1 requires product reformulation and innovation in the form of new technology and/or food products and can present significant challenges to school lunch providers.

Commenters advised USDA in 2012 that food providers need time for product development and testing, and schools need time for procurement changes, menu development, sampling, and fostering student acceptance. (See 77 FR 4097). Through informal conversations with 300 food manufacturers over the past three years at each of the annual National Restaurant Association Shows, FNS senior policy officials learned that product research and reformulation involves numerous steps over a period of several years. Food manufacturers indicated that it takes at least two to three years to reformulate and develop food products that support new requirements. The process involves innovation of new products, product research and development, testing, commercialization, launch, and marketing of the new products. Food manufacturers have also noted several specific barriers to meeting the lower sodium targets, including a low level of demand for these products outside of the school audience, the cost and time involved in reformulating existing products, and challenges with replacing sodium in some foods given its functionality (e.g., adding flavor or preserving food). They have also indicated that a significant investment of time and resources is necessary to effect even marginal sodium reductions.

Regular interaction with food manufacturers at the National Restaurant Association Show and other events, such as the School Nutrition Association Annual Conference, reveals that innovations for grain products can also take several years and involve steps similar to those needed to reformulate products lower in sodium. The formulation and processing of foods made with whole grains differ from and can be more challenging to manufacture than those made with refined grains. Manufacturers are challenged with developing technologies to help overcome consumers' sensory barriers (taste and texture), while optimizing the flavor, color, and texture of foods made with whole grain ingredients. Manufacturers have indicated that in the past when companies reformulated products early, they incurred significantly more costs, such as research and development, product testing, and creating new labels, as opposed to those who took a “wait and see” approach. Therefore, because manufacturers perceive uncertainty about the whole grain-rich requirement and the possibility of further meal pattern changes resulting from legislative activity, USDA understands they are not currently investing time or resources to develop new whole grain-rich products.

While product-specific information is proprietary, the overwhelming and consistent message is that the food industry needs consistency and certainty of the regulatory requirements. In addition, ample lead time and predictability about the regulatory requirements must be promptly provided to food manufacturers to enable them to offer products to schools that support the meal patterns and nutrition standards. While this interim final rule is intended to provide certainty for the near term, input from the food industry and school food service staff will be important to help USDA develop a final rule providing reasonable certainty regarding Program requirements and flexibilities.

SFAs also need ample lead time and certainty about regulatory requirements and flexibilities in order to make menu planning, procurement, and contract decisions in advance of the school year; therefore, it is urgent that USDA clarifies the regulatory requirements that impact these processes. The menu, which must reflect the meal patterns and nutrition standards established by Program regulations, drives the procurement process and must be completed first. The menu and standardized recipes help SFAs determine the types of food products to purchase. Menu planners must make many advance decisions involving, first, availability of USDA Foods entitlement commodities, and then soliciting, procuring, ordering, processing, and planning for the delivery of food. Planning in advance saves time, helps avoid repetitive tasks, reduces labor, and implements cost-effective inventory management, according to the Institute for Child Nutrition (ICN).3

Once menu planning is complete, SFAs need lead time to screen products, forecast food quantities needed, write product specifications, create solicitation documents, announce the solicitation, and award the contract. As shown in the following chart, due to the numerous steps involved, ICN estimates that the entire procurement process may take up to a year to complete, beginning in August of the previous school year. Public comments from local operators and their State agencies will enable USDA to develop a final rule that provides long-term certainty regarding Program requirements and flexibilities, which will help SFAs conduct procurement more efficiently.

Fluid milk is an integral part of the procurement cycle as it is ordered for millions of preschoolers and students nationwide through the CNPs. According to USDA's Agriculture Marketing Service, fluid milk processors require certainty around school meal program milk needs at the beginning of the school procurement cycle to ensure that they can bid appropriately and successfully to supply schools with the desired types of milk in appropriate packaging. Specifically, schools must be in a position to specify fat content required for both flavored and unflavored milk so that processors can provide bids with accurate and appropriate pricing. The fat content of milk is a significant determinant of cost. In addition, providing flavored, low-fat milk requires processors to modify package labeling and, potentially, adjust other aspects of flavored milk formulation associated with the change in fat content. These changes require planning and adequate lead time to provide a product in a timely and cost-efficient manner.

This interim final rule seeks to address the operational challenges experienced by some Program operators regarding their ability to offer nutritious and appealing meals that are consistent with the Dietary Guidelines and conform to local operational differences and community preferences. It provides schools with specific, optional flexibilities for SY 2018-2019 that will help children gradually adjust to and enjoy school meals that are aligned with science-based recommendations. This rule places more control in the hands of local Program operators to make specific menu and procurement decisions that reflect local tastes, preferences and circumstances, empowering them in ways that may increase both participation in the meal programs and food consumption by children. It is important to stress that the flexibilities are optional, intended as additional tools for schools across the country to provide meals that make sense for their communities. States and Program operators may opt to use some or all of these flexibilities and some schools may not use any.

During the initial years of implementation of the 2012 school meal regulations, nearly one third of SFAs reported challenges finding products to meet the updated nutrition standards.5 According to USDA administrative data, the largest decrease in NSLP lunch participation (−3 percent) occurred in school year 2012-2013, which was the first year of implementation. This decrease was primarily driven by a substantial decrease in the paid lunch participation category. While paid lunch participation had been decreasing since 2008, the drop in school year 2012-2013 was the largest decrease in over 20 years (−10 percent). There were other changes implemented during this timeframe, most notably the requirement to incrementally increase paid lunch prices; however, some of the drop may have been due to students choosing not to participate due to the updated meal standards. Paid lunch participation continues to decline but at a slower rate in recent years. Total participation remained relatively stable for the past three years.6

USDA recognizes that many Program operators have had great success in implementing the updated meal patterns and nutrition standards. We applaud their efforts and encourage them to continue their successful school food service practices. For these Program operators, as well as those who continue to have challenges, publication of this interim final rule ensures that the flexibilities described above will be available for the near term. If there is continued Congressional action in these areas, USDA will provide additional guidance. Public comments, operational experience, and any Congressional directives will help inform USDA's development of a final rule that will provide more certainty with regard to the milk, whole grain, and sodium requirements.

The 2015-2020 Dietary Guidelines recommend consumption of fat-free (skim) and low-fat (1 percent fat) dairy products as an important source of beneficial nutrients. The current regulatory provisions on fluid milk for the affected CNPs (NSLP, SMP, SBP, and CACFP) require Program operators to offer fat-free or low-fat milk 7 and restrict the use of flavored milk to fat-free milk.

This interim final rule will allow NSLP, SBP, SMP, and CACFP operators the option to serve flavored, low-fat milk, including as a competitive beverage for sale in schools, in SYs 2018-2019. Under this rule, NSLP and SBP operators that choose to exercise this option are not required to demonstrate a reduction in student milk consumption or an increase in milk waste, but are expected to incorporate this option into the weekly menu in a manner consistent with the dietary specifications for these programs. For consistency across CNPs, this interim final rule allows flavored, low-fat milk in the SMP and CACFP for participants six years of age and older, in SY 2018-2019. This flexibility is intended to encourage children's consumption of fluid milk in the CNPs and to ease administrative burden for Program operators participating in multiple CNPs. This flexibility is consistent with the flexibility regarding flavored, low-fat milk mandated by Congress for the SY 2017-2018.

This rule addresses concerns raised by Program operators and industry partners about declining daily milk consumption among Program participants. Declining milk consumption is a specific concern for children and adolescents because milk is a key source of calcium and vitamin D, which are nutrients necessary for optimizing bone health.8 Recent Centers for Disease Control and Prevention (CDC) survey data show that among adolescents attending U.S. high schools, self-reported daily milk consumption did not change significantly during 2007-2011, then decreased significantly from 2011-2015.9

Additionally, FNS collected data on milk consumption during the school meals as part of the School Nutrition and Meal Cost Study conducted in SY 2014-2015. The study has not yet been released but a review of preliminary tables from this study compared to the same data from the previous study using comparable methodology in SY 2004-2005 suggests a decline in milk consumption during lunch among NSLP participants from SY 2004-2005 (from 75 percent to 66 percent). The decline was observed in elementary, middle, and high school students. We plan to release the updated data from School Nutrition Meal Cost Study in early 2018.

Fluid milk is a required component in all school meals, and also must be served in the SMP and CACFP. Some studies suggest that the availability of flavored milk products influences student decisions about, and consumption of, milk in school.10 The research on the impact of lowering the fat content of flavored milk is limited. Only one study looked at milk intake before and after the new standards and the focus was on the amount of milk consumed among those selecting milk, not whether there was a change in the percentage of children selecting milk.11 However, prior to implementation of the 2012 final rule, Nutrition Standards in the National School Lunch and School Breakfast Programs (77 FR 4088), flavored, low-fat milk was the most frequently purchased milk by public school districts.12 It was also among the most commonly offered varieties of milk in NSLP menus (63 percent).13 Based on this information, offering the additional variety of flavored, low-fat milk across the CNP may increase student milk consumption.

With the implementation of the 2012 final rule on school meals, NSLP and SBP meal requirements limited flavor to fat-free milk to help schools meet weekly saturated fat and calorie limits, as flavored, fat-free milk contains no saturated fat and approximately 20-40 calories less per 8 fluid ounces than flavored, low-fat milk.14 The calorie difference is almost entirely due to a difference in fat content. Calories from added sugar vary by only 1-2 calories between the fat-free and low-fat flavored milk varieties.

Data from a recent survey of school food service professionals suggests that roughly a third of schools are well within the weekly calorie maximums for school meals and some are below the weekly calorie minimums.15 Given the experience of these schools, coupled with the marked decreases in daily milk consumption among high school students across the Nation and the nutritional value of milk for children and adolescents, USDA has determined that it is consistent with the objective of encouraging milk consumption to reduce potential limits on fluid milk by providing schools flexibility to offer flavored, low-fat milk in addition to flavored, fat-free milk. Comments on this interim final rule will help inform USDA's decision regarding the long-term availability of this milk flexibility.

The 2012 final rule Nutrition Standards in the National School Lunch and School Breakfast Programs (77 FR 4088) revised the NSLP and SBP meal patterns to require that, beginning SY 2014-2015, all grains in the school menu meet the FNS whole grain-rich criteria (a product must contain at least 50 percent whole grains and the remaining grain content of the product must be enriched). Due to reported limitations on the availability of certain products that met the whole grain-rich criteria at that time, FNS allowed State agencies the option to provide certain exemptions to this requirement in SY 2014-2015. As noted earlier, successive legislative action in 2012, 2015, and 2016 has impacted full implementation of the whole grain-rich requirement. More recently, Congress extended through SY 2017-2018 the option allowing State agencies that administer the NSLP and SBP to grant whole grain-rich exemptions to SFAs that request them and demonstrate hardship in procuring or preparing specific products that meet the established criteria and are acceptable to students. This interim final rule allows State agencies to continue to grant whole grain-rich exemptions through SY 2018-2019, thus providing certainty about this flexibility for the near term.

Although this rule retains the whole grain-rich regulatory requirement, extending the exemptions for SY 2018-2019 will give Program operators that continue to experience challenges the opportunity to plan and serve meals that are economically feasible and acceptable to their students and communities. Since certain regional foods are not yet widely available in acceptable whole grain-rich varieties, granting more local control through the whole grain-rich exemption can help ensure that culturally appropriate foods are available to the student population. Pasta, bread, and tortillas are among the most common food items for which exemptions have been requested, and other regionally popular products, such as grits and breakfast biscuits, are also reported. For SY 2016-2017, 49 State agencies indicated that they are offering exemptions to SFAs for specific food items. Reports from State agencies indicated that approximately 2,500 SFAs were approved for such exemptions. This was an increase of approximately 10 percent in the number of approvals for exemptions over the previous school year, providing further indication of the need for continuing the option for State agencies to grant exemptions to local SFAs.

Given the challenges expressed by SFAs and the reported increase in exemption approvals, continued and consistent flexibility in meeting the whole grain-rich requirement is necessary. Therefore, this rule extends through SY 2018-2019 the State agency's discretion to grant an exemption from the whole grain-rich requirements if requested by SFAs that demonstrate hardship in providing specific products that meet the whole grain-rich criteria and as long as at least 50 percent of the grains served are whole grain-rich. Hardships may include those caused by lack of availability in the market, financial concerns, an increase in plate waste, lack of student acceptability, and others.

USDA believes the food industry will continue efforts to develop more acceptable, affordable products that are appealing to students. Through interaction with industry at multiple food shows, including the National Restaurant Association's Annual Show, USDA has learned that manufacturers are continuing their efforts to expand their product lines for schools. For instance, whole grain-rich pizza crust and different types of breads, such as whole grain-rich pita and flatbread, are now available to schools. Continuing the State agency's option to offer whole grain-rich flexibility will enable SFAs experiencing challenges to more effectively develop menus and procure foods that are acceptable to students. It also provides manufacturers additional time to develop whole grain-rich food products that are suitable for reheating and hot holding in the food service facility and result in more acceptable meals for students. This will assist schools in sustaining student participation, encouraging meal consumption, and limiting food waste. USDA will evaluate school and food industry progress over time and consider public comments in order to develop a final rule that address the whole grain-rich exemptions.

As a reminder, State agencies that elect to consider whole grain-rich exemption requests by SFAs for specific items are required to develop procedures for accepting and evaluating SFA requests for such exemptions. Because this exemption has been available for several years, many State agencies have already developed such procedures based on FNS guidance (SP 32-2017, School Meal Flexibilities for SY 2017-18; May 22, 2017). Therefore, most State approval procedures are already in place and no changes to those procedures are required by this rule. Additional guidance will be provided to State agencies that have not already developed such procedures.

The 2012 final rule Nutrition Standards in the National School Lunch and School Breakfast Programs (77 FR 4088) also established average weekly sodium limits for school meals. In order to reduce the sodium content of meals consistent with the report by the Health and Medicine Division of the National Academies of Science, Engineering, and Medicine and the Dietary Guidelines recommendations, the 2012 final rule established two intermediate sodium targets and a final target that were calculated based on the sodium recommendation from the 2010 Dietary Guidelines, which were subsequently reinforced by the 2015-2020 Dietary Guidelines.

To facilitate sodium reduction over a 10-year period, the current regulations, established in 2012, require compliance with Sodium Target 1 beginning July 1, 2014 (SY 2014-2015), Target 2 beginning July 1, 2017 (SY 2017-2018), and the Final Target beginning July 1, 2022 (SY 2022-2023). Based on Program operators' certification of compliance with the 2012 updated meal pattern requirements, USDA anticipates that nearly all schools have begun the process of reducing the sodium content of school meals. To facilitate this change, USDA makes a wide variety of low-sodium food products available to Program operators through USDA Foods. However, USDA understands that sodium reduction in school meals must be consistent with broader, overall reductions in the food supply and reductions in children's consumption patterns outside of school. The most recent available data from the CDC indicates that, in 2009-2012, approximately 92 percent of school-age children in the United States exceeded the 2015-2020 Dietary Guidelines upper intake level for dietary sodium.16

While USDA recognizes the importance of reducing the sodium content of school meals, reaching this objective will likely require a more gradual process than the planned 10 years to accommodate the individual challenges of SFAs and their access to new products lower in sodium. Factors such as sodium preferences and consumption patterns suggest that retaining Target 1 is appropriate and necessary to ensure student consumption of school meals and adequate nutrient intake.

Therefore, this interim final rule retains Sodium Target 1 for an additional school year—from July 1, 2018, through June 30, 2019 (SY 2018-2019)—which has an impact on the overall sodium reduction timeline established in current regulations. However, this sodium flexibility is consistent with previous Congressional actions directing USDA to maintain Sodium Target 1 for the near term. While USDA anticipates retaining Sodium Target 1 as the regulatory limit in the final rule through at least the end of SY 2020-2021, the Department seeks public comments on the long-term availability of this flexibility and suggestions on how to best address the overall sodium requirement in school meals. In the future, USDA will also reevaluate the sodium and other school meal requirements in light of the 2020 Dietary Guidelines. Section 9(a)(4) of the Richard B. Russell National School Lunch Act, 42 U.S.C. 1758(a)(4), requires that school meals reflect the latest Dietary Guidelines.

USDA will continue to engage with the public, health advocates, nutrition professionals, schools, and the food industry to gather ongoing input on needs and challenges associated with managing sodium levels in school meals. In addition, USDA will continue to expand the availability of low-sodium products offered through USDA Foods; develop recipes that assist with sodium reduction; and provide menu planning resources, technical assistance, and information to schools through the FNS What's Shaking? sodium reduction initiative and the FNS Team Up for School Nutrition Success initiative.

This interim final rule provides continued flexibility in SY 2018-2019 in three specific menu planning areas—milk, whole grains, and sodium. Implementation of this interim final rule will allow all CNP operators the discretion to offer flavored, low-fat milk as an allowable milk type in the reimbursable meal or as a competitive beverage for sale in schools in SY 2018-2019. It also will provide State agencies with the authority to continue granting exemptions to the whole grain-rich requirement in SY 2018-2019 for schools demonstrating hardship. Finally, by retaining Sodium Target 1 as the regulatory limit through SY 2018-2019 and inviting public comments, this interim final rule will allow children more time to adjust to school meals with less sodium content. Additionally, this interim rule will provide schools and manufacturers with additional time and predictability to make appropriate menu and product changes. Throughout, USDA will continue to encourage steady progress on sodium reduction in school meals and provide technical assistance to Program operators.

USDA will conduct a thorough review of all public comments on the three flexibilities addressed in this interim final rule and submitted within the comment period. Stakeholders and the public are encouraged to provide comments that will assist USDA in developing a final rule on the long-term availability of the milk, whole grains, and sodium flexibilities.

USDA, under the provisions of the Administrative Procedure Act at 5 U.S.C. 553(b)(B), is issuing this as an interim final rule and finds for good cause that, in this limited instance, use of prior notice and comment procedures for issuing this time-limited interim final rule is impracticable.

Following enactment of the Healthy, Hunger-Free Kids Act of 2010, Public Law 111-296, and USDA's codification of effecting regulations beginning in 2012, Program operators have experienced hardships due to persistent uncertainties regarding nutrition requirements as a result of repeated short-term Congressional legislative directives and responsive USDA implementation. As noted in the preamble to this rulemaking, for each of the five intervening school years, Congress has directed USDA to provide exemptions and flexibilities for codified nutrition standards relative to whole grain-rich products, sodium levels, and most recently, flavored fluid milk, consistent with specific legislative provisions. See Consolidated and Further Continuing Appropriations Act, 2012 (Pub. L. 112-55) enacted November 18, 2011, Consolidated and Further Continuing Appropriations Act, 2015 (Pub. L. 113-235) enacted December 16, 2014, Consolidated and Further Continuing Appropriations Act, 2016 (Pub. L. 114-113) enacted December 18, 2015, and Consolidated Appropriations Act, 2017 (Pub. L. 115-31) enacted May 5, 2017. Most recently, Section 101(a)(1) of the Continuing Appropriations Act, 2018, Division D of the Continuing Appropriations Act, 2018 and Supplemental Appropriations for Disaster Relief Requirements Act, 2017, Public Law 115-56, enacted September 8, 2017, extends the flexibilities provided by section 747 of the Consolidated Appropriations Act, 2017. Following each legislative directive, USDA timely authored implementing memoranda, notifying affected stakeholders of the availability of exemptions and flexibilities and facilitating utilization despite the inopportune timing.17 This repetitive legislative action manifests a clear Congressional message to USDA: The current regulatory provisions limiting fluid milk, whole grain-rich, and sodium options in the CNPs are causing operational challenges and need further consideration.

Recently, USDA has come to understand that the cumulative impact of the unpredictable legislative mandates on Program operators has substantially harmed their ability to accomplish fundamental administrative responsibilities ranging from advance menu planning, to school district budgeting and competitive procurement of allowable foods. As noted elsewhere in this rulemaking, Program operators begin procurement for a school year as early as the previous autumn, after assessing the availability of USDA Foods entitlement commodities and respecting the time and labor required for a fulsome procurement process. Perhaps most importantly, procurement process timing for school meal products is locally determined so as to meet the administrative and planning needs of Program operators.

The successive legislative exemptions and flexibilities for whole grain-rich products and sodium targets significantly impaired Program operators' timely completion of competitive procurements of affected products. Most recently, USDA understands that the exemptions and flexibilities provided by Public Law 115-31, enacted May 5, 2017, could not be effectively incorporated into Program operators' regular procurement processes and menu planning for the 2017-2018 school year, which began July 1, 2017. It is likely that some Program operators were thus deprived of the intended legislated opportunities. Similarly, at this time, many Program operators have already initiated menu-planning for SY 2018-2019, which begins July 1, 2018, with these exemptions and flexibilities in place. Expediting the availability of the three flexibilities for the entire 2018-2019 school year by way of this interim final rule, then, is essential insofar as it provides local Program operators timely notice of the opportunity to utilize the flexibilities in menu-planning for the upcoming school year. Consistent with USDA's understanding, use of an interim final rule to provide sufficient notice of the flexibilities available during SY 2018-2019, rather than a proposed rulemaking, is essential in meeting the needs of local Program operators.

With that in mind, USDA has determined that schools and other local Program operators need reliable nutrition standards in place in order to procure compliant products in the near term through SY 2018-2019 and beyond. Given the realities and time sensitivity of the local procurement process, this interim final rule, with a final rule planned for publication in fall 2018, is the most effective method for securing that reliability. Current flexibilities affecting nutrition standards for fluid milk, whole grain-rich, and sodium have been accomplished administratively and are legislatively driven. Without that legislative directive, the Secretary would not have the authority to extend or waive regulatory nutrition standards in the affected programs. See 42 U.S.C. 1760(l). The sole method for USDA to relieve the hardship, providing certainty prior to the local-level decision-making for SY 2018-2019, is by amending these regulatory standards through issuance of this interim final rule. USDA intends to provide reliable and conclusive regulatory support for local procurement decision-makers at schools and other Program operators prior to the beginning of the local procurement process for SY 2019-20.

The interim final rule reflects Congressional direction and provides Program operators certainty in local-level procurement and menu planning operations during SY 2018-19. To that end, this interim final rule aims to maintain the whole grain-rich and sodium standards that Congress has consistently enunciated, continue the fluid milk options legislatively directed for the current school year with slight modifications, and provide the urgent relief stakeholders need. Finally, this interim final rule presents a framework which will benefit from public comments received. In turn, those comments will advise the framework of the final rule, which USDA plans to publish in fall 2018.

Also, based on its ongoing engagement with industry partners USDA believes the critical clarity provided by this interim final rule is necessary for manufacturers, producers, and vendors to develop and produce the products needed by Program operators to meet CNP objectives. Legislative and regulatory uncertainty has reduced research and development of CNP-compliant food and beverage products. Implementation of this interim final rule, with the intent to publish a final rule in fall 2018, provides the certainty needed to stimulate research and development of cost-effective, CNP-compliant products so Program operators can meet the need of America's children. Finally, this interim final rule affords food industry stakeholders an opportunity to comment and aid the Department in developing a final rule that will address these flexibilities for future school years.

Consequently, this interim final rule providing for the three menu planning flexibilities discussed above, will enable Program operators, including schools, day care centers, and family day care homes, to exercise the increased options provided in this de-regulatory rulemaking, increase integrity and accuracy of their local procurement processes and menu planning in the near term. In addition, the interim final rule will provide food suppliers with additional clarity needed to encourage research and develop cost-effective, customized products compliant with CNP standards and responsive to the unique needs of Program operators and America's children. Similarly, the interim rule affords the public, including program operators, food suppliers, and other engaged stakeholders, an opportunity to provide meaningful comments aiding the Department during the development of a final rule which we intend to publish in fall 2018.

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). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This interim final rule has been determined to be significant and was reviewed by the Office of Management and Budget (OMB) in conformance with Executive Order 12866.

A regulatory impact analysis (RIA) must be prepared for major rules with economically significant effects ($100 million or more in any one year). USDA does not anticipate that this interim final rule is likely to have an economic impact of $100 million or more in any one year, and therefore, does not meet the definition of “economically significant” under Executive Order 12866. The RIA for the 2012 final rule, Nutrition Standards in the National School Lunch and School Breakfast Programs, (77 FR 4088), underscores the importance of recognizing the linkage between poor diets and health problems such as childhood obesity. In addition to the impacts on the health of children, the RIA also cites information regarding the social costs of obesity and the additional economic costs associated with direct medical expenses of obesity. The RIA for the 2012 rule did not estimate individual health benefits that could be directly attributed to the change in the final rule: “Because of the complexity of factors that contribute both to overall food consumption and to obesity, we are not able to define a level of disease or cost reduction that is attributable to the changes in meals expected to result from implementation of the rule. As the rule is projected to make substantial improvements in meals served to more than half of all school-aged children on an average school day, we judge that the likelihood is reasonable that the benefits of the rule exceed the costs, and that the final rule thus represents a cost-effective means of conforming NSLP and SBP regulations to the statutory requirements for school meals.” 18

To the extent in which the specific flexibilities in this interim final rule allow Program operators still facing challenges to more efficiently operate within the meal patterns established in 2012, we expect the health benefits in this rule to be similar to the overall benefits of improving the diets of children cited in the RIA for the final meal standard rule. An analysis assessing the costs and benefits of this action is presented below.

As explained above, this interim final rule provides optional flexibilities to the meal patterns established in 2012 by allowing for a more gradual implementation of the whole grain-rich and sodium requirements, as well as offering an additional low-fat milk option. USDA anticipates minimal if any costs associated with the changes to the school meal standards due to the discretionary nature of the additional flexibilities. The overall meal components, macro nutrient, and calorie requirements remain unchanged and Program operators may choose to utilize the additional flexibilities offered in this interim final rule within these constraints. Further, we do not anticipate this interim final rule will deter the significant progress made to date 19 by State and local operators, USDA, and industry manufacturers to achieve healthy palatable meals for students.

These changes are also promulgated in the context of significant progress made to date by State and local operators, USDA, and industry manufacturers to achieve healthy appealing meals for students. The USDA Special Nutrition Program Operations Studies for SYs 2012-2013 and 2013-2014 suggest that, as with any major change, there were some challenges. For example, food costs, student acceptance, and the availability of product meeting the standards were the primary challenges anticipated in implementing the whole grain-rich requirement in full. As industry has increased the variety and quality of their offerings, SFAs are finding this requirement has become easier to fulfil, so these early studies may not be representative of current status.20 That said, there are still some Program operators struggling with certain requirements, and regional differences sometimes result in less acceptance of some foods. Based on current exemption data, SFAs in 49 States have requested a waiver for exemption of products not meeting the whole grain-rich criteria. For these reasons, we expect that the flexibilities extended in this interim final rule will be needed and used primarily by the schools still facing challenges to planning and offering healthy meals that students will eat and make sense for their communities.

Local operators struggling with one or all of these requirements may choose to adopt any of the options to balance current and future resources in preparing healthy meals. The flexibilities for flavored milk and the whole grain-rich requirement, and the additional time to implement sodium reduction provide certainty for Program operators for the near term to effectively procure food for appealing and healthy menus. The public comments on this interim final rule will be particularly critical in assisting the process to establish a long-term approach to these flexibilities.

Flexibility to offer flavored, low-fat (1 percent fat) milk: The regulatory impact analyses for the 2012 final rule, Nutrition Standards in the National School Lunch and School Breakfast Programs (77 FR 4088), did not estimate the separate costs of including specifically flavored, low-fat milk as an option to meet the milk variety requirement. Nonfat, flavored milk is currently an allowable option and the addition of flavored, low-fat at local discretion should not impact overall costs. Local operators may choose to incorporate the new options of milk into their current menus as they deem appropriate for their calorie ranges and available resources. There may be some cases in which flavored, low-fat milk is slightly more expensive and for some it might be slightly less expensive than the varieties currently permitted by regulations established in 2012, but any overall difference in cost is likely to be minimal.

Flexibility to exempt certain schools from the whole grain-rich requirements: The 2012 final rule, Nutrition Standards in the National School Lunch and School Breakfast Programs (77 FR 4088), revised the meal patterns of both the NSLP and the SBP to require that all grains provided in the programs meet FNS whole grain-rich criteria by SY 2014-2015. Due to limitations on the availability of products that meet the whole grain-rich criteria at that time, State agencies were allowed to provide certain exemptions to this requirement in SY 2014-2015. Congress directed the Secretary through successive legislative action 21 to continue to allow State agencies that administer the NSLP and the SBP to grant an exemption from the regulatory whole grain-rich requirement in the meal programs through SY 2017-2018. SFAs must demonstrate hardship in procuring specific products that meet the whole grain-rich criteria, which are acceptable to students and compliant with the whole grain-rich requirements. State agencies have developed procedures for accepting and evaluating exemption requests based on FNS guidance (SP 33-2016, Extension Notice: Requests for Exemption from the School Meals' Whole Grain-Rich Requirement for School Year 2016-2017, April 29, 2016). As specified in this guidance, the exemptions must be based on demonstrated hardship, such as financial hardship, limited product availability, unacceptable product quality, and/or poor student acceptability.

Currently, less than 15 percent of SFAs (2,868/19,530) request the whole grain-rich exemption. Aside from the administrative costs of requesting and recording exemptions, we do not estimate any costs associated with extending the whole grain-rich exemption option, given that this is a discretionary provision. The extent to which SFAs will continue to utilize this option will vary greatly; individual Program operators will need to balance resources, product availability, and student acceptability.

The RIA for the 2012 final rule, Nutrition Standards in the National School Lunch and School Breakfast Programs (77 FR 4088), estimated an overall small net cost savings when factoring in the whole grain-rich requirement and the overall reduction in total refined grains offered. The net savings was the result of the overall reduction in refined grains served due to the restrictions on the maximum number of weekly grain servings offered and limits on calories and sodium.22 The final rule RIA estimated that after “FY 2014, when the rule's 100 percent whole grain-rich requirement takes effect, the added cost of serving higher priced whole grain products about equals the savings from a reduction in grains products served.” 23

Forty-nine States indicated to USDA that they are offering whole grain-rich exemptions to approximately 2,500 SFAs for SY 2016-2017. This was an increase of approximately 10 percent. That said, the individual costs/savings to the SFAs are estimated to be minimal with the extension of the exemption options. Any additional costs associated with a whole grain-rich product would be offset with the overall reduction in refined grain offerings. We also expect that as more products become available, any differential costs associated with whole grain-rich products will normalize in the market. The availability of whole grain-rich products through USDA Foods and the commercial market has increased significantly since the implementation of the meal standards and continues to progress, providing new and affordable options for local operators to integrate into menus.

Extending Sodium Target 1 through SY 2018-2019: In the RIA for the 2012 final rule, Nutrition Standards in the National School Lunch and School Breakfast Programs (77 FR 4088), meeting the first sodium target was not estimated as a separate cost due to the fact that the first target was meant to be met using food currently available when the target went into effect in SY 2014-2015 (or by making minimal changes to the foods offered). While the regulatory impact analyses did not estimate a separate cost to implement Sodium Target 1, it did factor in higher labor costs for producing meals that meet all the meal standards at full implementation to factor in the costs of schools replacing packaged goods to food prepared from scratch. Over 5 years, the final rule estimated that total SFAs costs would increase by $1.6 billion to meet all standards. The cost estimate extended only through FY 2016, two years before the final rule's second sodium target would have taken effect. The second sodium target was designed to be able to be met with the help of industry changing food processing technology.

This interim final rule retains Sodium Target 1 as the regulatory limit through June 30, 2019 (SY 2018-2019) and seeks public comments on the long-term sodium requirement. We do not anticipate any additional costs associated with this change as it is simply allowing for additional time for Program operators and industry to reduce sodium levels.

This interim final rule is an E.O. 13771 deregulatory action. It provides regulatory flexibilities in the meal pattern and nutrition requirements that are consistent with those currently available as a result only of appropriation legislation in effect for SY 2017-2018 and administrative actions.

The Regulatory Flexibility Act (5 U.S.C. 601-612) requires Agencies to analyze the impact of rulemaking on small entities and consider alternatives that would minimize any significant impacts on a substantial number of small entities. Because Program operators would have discretion to exercise the provisions of this rule and the flexibilities in this rule are only a small part of the overall changes in 7 CFR parts 210, 215, 220, and 226, it has been determined that the rule would not have a significant impact on a substantial number of small entities.

Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public Law 104-4, establishes requirements for Federal agencies to assess the effects of their regulatory actions on State, local, and Tribal governments and the private sector. Under section 202 of the UMRA, the Department generally must prepare a written statement, including a cost benefit analysis, for proposed and final rules with “Federal mandates” that may result in expenditures by State, local or Tribal governments, in the aggregate, or the private sector, of $100 million or more in any one year. When such a statement is needed for a rule, Section 205 of the UMRA generally requires the Department to identify and consider a reasonable number of regulatory alternatives and adopt the most cost effective or least burdensome alternative that achieves the objectives of the rule.

This interim final rule does not contain Federal mandates (under the regulatory provisions of Title II of the UMRA) for State, local and Tribal governments or the private sector of $100 million or more in any one year. Thus, the rule is not subject to the requirements of sections 202 and 205 of the UMRA.

The NSLP, SMP, SBP, and the CACFP are listed in the Catalog of Federal Domestic Assistance under NSLP No. 10.555, SMP No. 10.556, SBP No. 10.553, and CACFP No. 10.558, respectively, and are subject to Executive Order 12372, which requires intergovernmental consultation with State and local officials. Since the Child Nutrition Programs are State-administered, USDA's Food and Nutrition Service (FNS) Regional Offices have formal and informal discussions with State and local officials, including representatives of Indian Tribal Organizations, on an ongoing basis regarding program requirements and operation. This provides FNS with the opportunity to receive regular input from program administrators which contributes to the development of feasible program requirements.

Executive Order 13132 requires Federal agencies to consider the impact of their regulatory actions on State and local governments. Where such actions have federalism implications, agencies are directed to provide a statement for inclusion in the preamble to the regulations describing the agency's considerations in terms of the three categories called for under Section (6)(b)(2)(B) of Executive Order 13132.

The Department has considered the impact of this rule on State and local governments and has determined that this rule does not have federalism implications. Therefore, under section 6(b) of the Executive Order, a federalism summary is not required.

This interim final rule has been reviewed under Executive Order 12988, Civil Justice Reform. This rule is intended to have preemptive effect with respect to any State or local laws, regulations or policies which conflict with its provisions or which would otherwise impede its full and timely implementation. This rule is not intended to have retroactive effect. Prior to any judicial challenge to the provisions of the interim final rule, all applicable administrative procedures must be exhausted.

FNS has reviewed this interim rule in accordance with USDA Regulation 4300-4, “Civil Rights Impact Analysis,” to identify any major civil rights impacts the rule might have on program participants on the basis of age, race, color, national origin, sex or disability. After a careful review of the rule's intent and provisions, FNS has determined that this rule is not expected to limit or reduce the ability of protected classes of individuals to participate in the NSLP, SMP, SBP, and CACFP.

This rule has been reviewed in accordance with the requirements of Executive Order 13175, “Consultation and Coordination with Indian Tribal Governments.” Executive Order 13175 requires Federal agencies to consult and coordinate with tribes on a government-to-government basis on policies that have tribal implications, including regulations, legislative comments or proposed legislation, and other policy statements or actions that 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.

The Food and Nutrition Service (FNS) has assessed the impact of this rule on Indian tribes and determined that this rule does not, to our knowledge, have tribal implications that require tribal consultation under E.O. 13175. If a Tribe requests consultation, FNS will work with the Office of Tribal Relations to ensure meaningful consultation is provided where changes, additions and modifications identified herein are not expressly mandated by Congress.

The Paperwork Reduction Act of 1995 (44 U.S.C. Chap. 35; 5 CFR part 1320) requires the Office of Management and Budget (OMB) to approve all collections of information by a Federal agency before they can be implemented. Respondents are not required to respond to any collection of information unless it displays a current valid OMB control number. The provisions of this rule do not impose new information collection requirements subject to approval by the OMB under the Paperwork Reduction Act of 1994.

The Department 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.

Accordingly, 7 CFR parts 210, 215, 220 and 226 are amended as follows:

Discussion

We learned from CFM that there was a quality escape at the manufacturer that resulted in cracks appearing during forging of CFM LEAP-1A HPT stage 2 disks. This condition, if not corrected, could result in failure of the HPT stage 2 disk, uncontained release of the disk, damage to the engine, and damage to the airplane. We are issuing this AD to correct the unsafe condition on these products.

We reviewed CFM Service Bulletin (SB) LEAP-1A-72-00-0167-01A-930A-D, Issue 001, dated September 28, 2017. The SB describes procedures for removal, inspection, rework, and re-identification of HPT stage 2 disk, P/N 2466M52G03. 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.

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

This AD requires removal, inspection, rework, and re-identification of the HPT stage 2 disk, P/N 2466M52G03.

An unsafe condition exists that requires the immediate adoption of this AD without providing an opportunity for public comments prior to adoption. The FAA has found that the risk to the flying public justifies waiving notice and comment prior to adoption of this rule because the compliance time for the required action is shorter than the time necessary for the public to comment and for us to publish the final rule. Therefore, we find good cause that notice and opportunity for prior public comment are impracticable. In addition, for the reason stated above, we find that good cause exists for making this amendment effective in less than 30 days.

This AD is a final rule that involves requirements affecting flight safety and was not preceded by notice and an opportunity for public comment. However, we invite you to send any written data, views, or arguments about this final rule. Send your comments to an address listed under the ADDRESSES section. Include the docket number FAA 2017-1044 and Product Identifier 2017-NE-38-AD at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this final rule. We will consider all comments received by the closing date and may amend this final rule 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 final rule.

We estimate that this AD affects 7 engines installed on airplanes of U.S. registry.

We estimate the following costs to comply with this AD:

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.

This AD is issued in accordance with authority delegated by the Executive Director, Aircraft Certification Service, as authorized by FAA Order 8000.51C. In accordance with that order, issuance of ADs is normally a function of the Compliance and Airworthiness Division, but during this transition period, the Executive Director has delegated the authority to issue ADs applicable to engines, propellers, and associated appliances to the Manager, Engine and Propeller Standards Branch, Policy and Innovation Division.

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 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.

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

I. Background

SoundExchange, Inc. (SoundExchange) is the Collective designated by the Copyright Royalty Judges (Judges) to receive, administer, and distribute royalty funds due from entities making digital transmissions of sound recordings under the statutory licenses described at 17 U.S.C. 114.1 Sirius XM Radio, Inc. (Sirius XM) 2 is a licensee, transmitting sound recordings digitally over its satellite radio network.3 In 2007, after considering oral and written evidence and arguments of counsel, the Copyright Royalty Judges (Judges) determined that Sirius XM's royalty obligations for its satellite radio business would be determined as a percentage of Gross Revenues. See Determination of Rates and Terms for Preexisting Subscription Services and Satellite Digital Audio Radio Services (SDARS I), Docket No. 2006-1 CRB DSTRA (Determination), 73 FR 4080, 4084 (Jan. 24, 2008). Gross Revenues are defined in the regulations the Judges adopted as part of the Determination and codified as 37 CFR 382.11 (2008).

In 2013, SoundExchange filed a complaint in the United States District Court for the District of Columbia (District Court) against Sirius XM seeking additional royalty payments for the period 2007-2012. See SoundExchange, Inc. v. Sirius XM Radio, Inc. 65 F. Supp. 3d 150 (D.D.C. 2014) (DC Action). On January 10, 2017, the Judges issued a Ruling (Initial Ruling) on two questions referred by the District Court under the doctrine of primary jurisdiction. See id. at 157. The issues referred by the District Court arose from the CRB's 2008 regulations. The District Court Judge concluded that in the promulgated regulations “the gross revenue exclusions are ambiguous.” Id. at 155.

After seeking an opinion from the Register of Copyrights (Register) under 17 U.S.C. 802(f)(1)(B) regarding their authority to render the interpretation required by the District Court referral, the Judges proceeded with the analysis that resulted in the Initial Ruling. The Judges transmitted the Initial Ruling to the Register for the legal review required by the Copyright Act. See 17 U.S.C. 802(f)(1)(D).

In March 2017, upon further reflection, the Judges withdrew the Initial Ruling from the parties and from the Register's statutorily required review for legal error. See Order Withdrawing Ruling and Soliciting Briefing on Unresolved Issues (Mar. 9, 2017) at 2. The Judges solicited briefs from the parties to address specifically the breadth of the District Court referral. The Judges sought memoranda of law from the parties to the District Court controversy to address:

(1) Whether section (V)(C)(1)(b) of the Initial Ruling (at pp. 14-16 therein) constituted an interpretation of the 2008 regulations or an application of the Judges' interpretation of those regulations;

(2) Whether the District Court referral to the Judges under the doctrine of primary jurisdiction included not only a referral of questions of interpretation of the 2008 regulations, but also a referral of questions relating to the application of the 2008 regulations;

(3) Whether, regardless of the District Court's intent, the Judges have jurisdiction under the Copyright Act to apply their interpretations of the regulations to the facts in the record and reach binding conclusions regarding the parties' compliance with the interpreted regulations;

(4) Whether question (3) poses a material question of substantive law under the Copyright Act that the Judges may refer to the Register of Copyrights under 17 U.S.C. 802(f)(1)(A) or a novel material question of substantive law under the Copyright Act that the Judges must refer to the Register of Copyrights under 17 U.S.C. 802(f)(1)(B); and

(5) Whether, under the doctrine of primary jurisdiction, the Judges may recommend to the District Court applications of their interpretations of the regulations to the facts in the record before the District Court regarding the parties' compliance with the interpreted regulations.

In its briefing, SoundExchange asserted that (1) the language the Judges are reconsidering constituted an allowable interpretation of the CRB regulations; (2) even if the subject portions of the Initial Ruling conducted or required an application of the Judges' interpretation, that application was responsive to the District Court's inquiries in the referral; (3) the Judges have jurisdiction to interpret and apply their regulations; (4) this aspect of the Judges' authority need not be referred to the Register as a material or novel material question of law requiring the Register's input; and (5) the Judges may not make nonbinding recommendations to the District Court regarding application of the CRB regulations. See SoundExchange's Brief in Response to the Judges' Order Dated March 9, 2017 (SoundExchange Initial Brief) at 1-2. SoundExchange took the position that the Judges' Initial Ruling was appropriately broad in offering interpretation of the subject regulation. In fact, SoundExchange asserted that it would be inappropriate to distinguish between interpretation and application of the regulations in this context. Id. at 5-7. SoundExchange asserted that the Judges' conclusions should be binding on the parties, thus its opposition to the Judges making nonbinding recommendations to the District Court. Id. at 12-14.

Sirius XM countered that (1) the section about which the Judges inquired constitutes both an interpretation and application of the CRB regulations, that “goes beyond the limited interpretive guidance appropriate for a primary jurisdiction referral;” (2) the District Court's referral was limited to a request for regulatory interpretation; (3) the Judges' continuing jurisdiction to interpret their regulations does not extend to a detailed review of the facts of the parties' application of the regulation; (4) the question regarding the limits of the Judges' jurisdiction is a material question the Judges may refer to the Register, but not a novel question that the Judges must refer to the Register; and (5) the Judges are not authorized to make findings or recommendations regarding specific rulings regarding a party's compliance with the regulations. See Sirius XM Radio Inc.'s Memorandum of Law . . . on Unresolved Issues (Sirius XM Initial Brief) at 1-2. Sirius XM reinforced its position by noting that, in presenting the referred issues for the Judges' ruling, the parties engaged in limited discovery. Regardless of resolution of the interpretation vs. application question,4 Sirius XM argued that the limits on discovery left the Judges insufficiently informed to apply their interpretation of the subject regulation in this instance. See id. at 6.

In its Reply Brief, Sirius XM summarized the points at which it perceived agreement between the parties regarding the Initial Ruling. See Sirius XM Radio Inc.'s Reply Memorandum of Law . . . on Unresolved Issues (Sirius XM Reply Brief) at 1-2. The Judges agree with Sirius XM's statement of the parties' points of agreement. The Judges disagree with SoundExchange's argument that it is inappropriate to draw a distinction between interpretation and application in this circumstance. The distinction might not always be a bright-line, but it is not a distinction totally without difference in the present circumstance.

After consideration of the arguments of both parties, the Judges conclude: (1) Section V(C)(1)(b) of the Initial Ruling applies the Judges' interpretive conclusions to facts the parties presented in their merits presentations; (2) the District Court referral was ambiguous in the task referred to the Judges; (3) regardless of the scope or intended scope of the District Court's referral, in this particular circumstance, the Judges' application of their interpretations of the regulations was inappropriate; (4) the question of interpretation vs application in this instance is not a material or novel question of law referable to the Register; and (5) the application of the Judges' interpretations is more appropriately carried out by the District Court, so it is unnecessary for the Judges to recommend proposed findings or conclusions.

In the Initial Ruling, the Judges concluded that GAAP standards did not offer guidance for interpreting the subject regulations. The Judges concluded, therefore, that a standard of reasonableness should prevail. To the extent the Judges observed what actions might meet the reasonableness standard, they were appropriately offering interpretation relating to the regulations. Going beyond that guidance, the Judges' ruling was an application of the regulations to the present dispute pending in the District Court. Application of the Judges' interpretation is better done by the District Court, after a review of the complete factual record.

The District Court referred this issue of regulatory interpretation to the Judges under the doctrine of primary jurisdiction. The doctrine provides that a court may defer to an administrative agency when, based on its special competency, the agency “is best suited to make the initial decision on the issues in dispute.” See SoundExchange, 65 F. Supp. 3d at 154 (citations omitted). Whatever the interpretation of the language of the District Court's Memorandum Opinion,5 the District Court could not have referred to the Judges resolution of the ultimate issues of fact presented by the SoundExchange litigation. The District Court is the forum in which resolution of the factual dispute lies. That factual dispute requires full discovery. The issues presented to the CRB were not the subject of full discovery nor were the factual issues fully developed, briefed, or argued for the Judges' determination. Notwithstanding language or rhetoric regarding the application of the CRB regulations to the facts of the District Court matter, the narrow question referable to the Judges was one of interpretation.6

Sirius XM argued to the District Court that the CRB bore or should bear the task of both interpretation and application of the 2008 regulations. See, e.g., SoundExchange, 65 F.Supp.3d at 154 (both disputes best suited to CRB resolution as they involve interpreting and applying regulations). In response to the Judges' request for additional briefing after withdrawing the Initial Ruling, Sirius XM argued forcefully the other side of the coin. See Sirius XM Initial Brief at 11-14. SoundExchange, which initially challenged the Judges' authority to interpret their regulations, argued in their reply papers that the Judges have the authority to both interpret and apply their regulations. SoundExchange Initial Brief at 9 (Register's confirmation of continuing jurisdiction to resolve ambiguity equivalent to conclusion of jurisdiction to apply interpretation).

The Judges accept the scope of their “continuing jurisdiction” under 17 U.S.C. 803(c)(4) as described by the Register. The Judges do not agree with SoundExchange, however, that the continuing jurisdiction to interpret, or their ability to provide “interpretive guidance,” somehow endows them with jurisdiction to resolve factual disputes relating to application of those regulations. As Sirius XM represented, the parties agree that the Judges “lack enforcement jurisdiction and, therefore, can neither order compliance nor fix penalties.” Sirius XM Reply Memorandum . . . on Unresolved Issues (Sirius XM Reply) at 2. Lacking those enforcement and remedial powers necessarily leads to the conclusion that the Judges' jurisdiction does not extend to application and factual dispute resolution regarding application of the regulations.

The parties agree that the question of the Judges' jurisdiction to apply their regulatory interpretations is not a novel question requiring referral to the Register. Id. The Register reviewed and analyzed the question of the Judges' continuing jurisdiction in her April 2015 opinion.

The parties agree, as do the Judges, that nothing in the doctrine of primary jurisdiction or in the Judges' authority would suggest that the Judges could or should make recommendations to the District Court regarding its determination of the factual questions properly before the Court.

In light of the foregoing conclusions, the Judges hereby reissue the Initial Ruling as an Amended Ruling, the text of which follows.

The issues before the Judges arose in the context of SoundExchange's action against Sirius XM in District Court. SoundExchange sued to recover additional sound recording royalties from Sirius XM for licenses used during the period 2007 to 2012. The alleged underpayment occurred, according to SoundExchange, because Sirius XM improperly excluded two categories of revenue when calculating “Gross Revenues,” before it determined the royalties due to SoundExchange. 65 F. Supp. 3d at 153. Because the royalties in SDARS I were set as a percentage of Sirius XM's “Gross Revenues” (rather than on a per-performance basis), exclusions of revenue by Sirius XM had the effect of reducing the royalties paid to SoundExchange. See 73 FR at 4084. Sirius XM controverted the SoundExchange complaint and moved the District Court to stay or dismiss the DC Action in favor of a resolution by the Judges. In August 2014, the District Court stayed the DC Action and referred this matter to the Judges citing the doctrine of primary jurisdiction.

In the DC Action, SoundExchange alleged that Sirius XM had misinterpreted and misapplied the Judges' 2008 regulations regarding exclusions from Gross Revenues for (1) sound recordings made before 1972 (and therefore exempt from the federal statutory license) and (2) a portion of subscription revenues that Sirius XM allocated to “premier” channels with primarily talk content that use only incidental performances of sound recordings. With regard to these allegations, the District Court referred two questions to the Judges for resolution. 65 F. Supp. 3d at 154-55. Specifically, the District Court described two “open” questions for the Judges: (1) Whether Sirius XM improperly applied the Judges' regulations in calculating the amount of royalties it paid to SoundExchange “such that it owes SoundExchange additional [royalties] for times past” and (2) whether the Judges consider the Sirius XM Premier channels to be “offered for a separate charge” permitting Sirius XM to exclude Premier subscription revenues from Gross Revenues. Id. at 156.

In response to the District Court Judge's Memorandum Opinion (Referral Opinion), and on motion of SoundExchange, the Judges reopened the SDARS I proceeding. Order Reopening Proceeding for Limited Purpose (Dec. 9, 2014). In their Order, the Judges requested briefing by the participants regarding the existence and scope of the Judges' jurisdiction and authority to entertain the issues raised in the DC Action. On March 9, 2015, after considering the participants' briefs, the Judges referred three legal questions to the Register of Copyrights (Register) pursuant to 17 U.S.C. 802(f)(1)(B):

(1) Do the Judges have jurisdiction under title 17, or authority otherwise, to interpret the regulations adopted in the captioned proceeding?

(2) If the Judges have authority to interpret regulations adopted in the course of a rate determination, is that authority time-limited?

(3) Would the answer regarding the Judges' jurisdiction or authority be different if the terms at issue regulated a current, as opposed to a lapsed, rate period?

The Register opined that the Judges have jurisdiction under 17 U.S.C. 803(c)(4) to clarify the regulations adopted in SDARS I. The Register added that the Judges' jurisdiction is not time-limited and the Judges do not lose their jurisdiction and authority when the issues relate to a lapsed rate period. Register's Memorandum Opinion on a Novel Question of Law at 4-5 (Apr. 8, 2015) (Register's Opinion).7 Based on the language of the Referral Opinion and the Register's Opinion, the Judges hereby address the issues presented to them in the Referral Opinion. 8

To address the revenue-exclusion issues, the Judges have engaged in a thorough review of the SDARS I record. Additionally, the Judges ordered the participants to supplement the extant record by engaging in discovery, exchanging expert reports and filing Opening (Initial) and Rebuttal Submissions. See Case Scheduling Order (Oct. 6, 2015). The participants appended to their Initial and Rebuttal Submissions discovery and expert materials on which they rely.

As detailed in this Ruling, the Judges conclude that Generally Accepted Accounting Principles (GAAP) apply broadly to the definition of Gross Revenues in 37 CFR 382.11 (2008). GAAP does not, however, address specifically the two revenue exclusions at issue in this referral; consequently, the Judges must look beyond the specific words of the regulation to answer the questions posed by the District Court. For the reasons explicated in this Ruling, the Judges conclude that a reasonableness standard must apply to both inclusions and exclusions from Gross Revenues. Based on the following reasoning, the Judges conclude that Sirius XM employed different methodologies with regard to excluding revenues attributable to pre-1972 sound recordings. A determination of reasonableness of either methodology, or both, will require closer examination.9 Further, because Sirius XM did not offer the channels included for subscribers to the Premier package for a separate charge, it could not reasonably exclude from Gross Revenues revenue attributable to the Premier subscription price differential.

On January 9, 2006, the Judges commenced the original SDARS I proceeding to determine “reasonable rates and terms of royalty payments for . . . transmissions by preexisting satellite digital audio radio services [SDARS] . . . .” 17 U.S.C. 114(f)(1)(A).10 See Notice Announcing Commencement of Proceeding with Request for Petitions to Participate, 71 FR 1455 (Jan. 9, 2006). Three parties: SoundExchange, on behalf of the licensors, and two licensees, Sirius and XM (Sirius XM's pre-merger predecessors) participated in the rate determination hearing. Id. 11

Following a twenty-six day hearing,12 and the participants' submission of Proposed Findings of Fact (PFF) and Conclusions of Law (COL) and replies thereto, the Judges issued their Initial Determination on December 3, 2007. See SDARS I, 73 FR at 4080, 4081 (Jan. 24, 2008) (SDARS I Determination). Thereafter, SoundExchange filed a Motion for Rehearing. Upon the Judges' request, Sirius XM responded to the Motion for Rehearing. Id. On January 8, 2008, the Judges issued an Order Denying Motion for Rehearing (Rehearing Order).13

SoundExchange appealed the Judges' SDARS I Determination and the U.S. Court of Appeals for the D.C. Circuit affirmed all aspects of the Judges' SDARS I Determination relating to the rates and terms established for the section 114 licensing of sound recordings. SoundExchange, Inc. v. Librarian of Congress, 571 F.3d 1220 (D.C. Cir. 2009).14

SoundExchange commenced the D.C. Action in 2013, seeking additional royalties from Sirius XM for the period 2007-2012. SoundExchange alleged that, in order to reduce its royalty payments during that period Sirius XM improperly

(1) Reduced Gross Revenues by an amount it estimated was attributable to pre-1972 sound recordings; 15 [and]

(2) excluded from Gross Revenues the revenue received from the price difference between its standard [Basic] package and its premium [Premier] package, the latter of which includes additional talk channels, but no additional music channels . . . .16

65 F. Supp. 3d at 153 (citations omitted); see also Sirius XM's Initial Submission at 2.17 SoundExchange contends that the actions by Sirius XM resulted in significant royalty shortfalls.

During the SDARS I rate period, the regulations stated “Gross Revenues shall mean revenue recognized by the Licensee in accordance with GAAP from the operation of an SDARS, and shall be comprised of . . . [s]ubscription revenue recognized by Licensee directly from residential U.S. subscribers for Licensee's SDARS . . . .” 37 CFR 382.11 (2008) (definition of Gross Revenues). The regulations permitted a number of exclusions from Gross Revenues, two of which are relevant to the present dispute, namely, those recognized by Licensee (1) for the provision of “[c]hannels, programming, products and/or other services offered for a separate charge where such channels use only incidental performances of sound recordings” and (2) for the provisions of “[c]hannels, programming, products and/or other services for which performance of sound recordings and/or the making of ephemeral recordings is exempt from any license requirement or is separately licensed, including by a statutory license . . . .” 37 CFR 382.11(2008).

SoundExchange asserts that the Sirius XM interpretation of the regulation is contrary to the standards of GAAP.18 SoundExchange focuses on (1) the term “recognized” revenue, (2) the methodology employed by Sirius XM to exclude revenues it attributes to pre-`72 sound recordings, and (3) Sirius XM's exclusion from Gross Revenues of the subscription revenue differential between its Basic package of channels and the Premier package Sirius XM offers for an increased subscription fee.19 Sirius XM contends the pre-'72 recordings satisfied the requirement in paragraph (3)(vi)(D) of the Gross Revenues definition that, for the revenue exclusion to apply, performances must be “exempt from any license requirement.” According to Sirius XM the exclusion of the “additional charge” (Upcharge) paid for Premier channels satisfied the requirement in paragraph (3)(vi)(B) of the definition that channels be offered for a “separate charge.” Id.

In invoking the doctrine of primary jurisdiction, the District Court tasked the Judges with interpreting the Gross Revenues regulation and, to the extent appropriate, providing “interpretive guidance.” The District Court concluded that the “gross revenue exclusions are ambiguous and do not, on their face, make clear whether Sirius XM's approaches were permissible under the regulations.” 65 F. Supp. 3d at 155. The District Court instructed the Judges, in interpreting the Gross Revenues regulation, to utilize their “technical and policy expertise.” Id. The District Court specifically noted that the “technical and policy expertise” to which it referred were in the domains of “copyright law” and “economics.” Id. at 155-56.

Based on its application of the principles of primary jurisdiction, the District Court identified two broad questions for the Judges to answer:

(1) Were Sirius XM's attribution of revenues to performances of pre-'72 recordings and its exclusion of those attributed revenues from the Gross Revenues royalty base permissible under the SDARS I regulations?

(2) Were the additional talk channels on Sirius XM's Premier service “offered for a separate charge,” and therefore excludable from Gross Revenues?

See id. at 154-55. The District Court concluded that the Judges have the statutory authority to answer these questions pursuant to their continuing jurisdiction to “issue an amendment to a written determination to correct any technical . . . errors in the determination or to modify the terms, but not the rates, of royalty payments in response to unforeseen circumstances that would frustrate the proper implementation of such determination.” Id. at 156 (quoting 17 U.S.C. 803(c)(4)). The Register echoed the District Court's assessment of the Judges' task in this referred proceeding, accepting “the district court's conclusion that both the meaning of the relevant regulatory provisions, and the application of those provisions to the particular fact pattern presented here, are uncertain.” Register's Opinion at 6.

To address the issues presented in the Referral Opinion, the Judges answer the following specific questions.

(1) Does the Gross Revenues definition require that the revenue exclusions satisfy applicable GAAP?

(2) If so, what GAAP principles, if any, apply to the two exclusions?

A. (3) If no GAAP principles are applicable, what is the standard, if any, that the two exclusions must satisfy?

The parties and their experts disagree regarding the application of the regulatory phrase “recognized in accordance with GAAP.” 20 Section 382.11, in paragraph (1) of the definition of “Gross Revenues,” defines “Gross Revenues” as “revenue recognized by the Licensee in accordance with GAAP from the operation of an SDARS.” 37 CFR 382.11, paragraph (1) of the definition of “Gross Revenues.”

SoundExchange argues that GAAP applies in full and equal measure to the regulatory exclusions as to the inclusions that comprise the definition of “Gross Revenues.” SoundExchange Memorandum of Law at 9-10. In support of this point, SoundExchange and its expert, Dr. Thomas Lys, rely on paragraph (3)(vi) of the definition of “Gross Revenues” in § 382.11, which limits the categorical revenue exclusions at issue in this proceeding to “[r]evenues recognized by Licensee . . . .” Id.; see also SoundExchange Initial Submission, App. Ex. 1 at A.131, (Deposition of Professor Lys) at 129 (Lys Dep.) SoundExchange notes that “GAAP is the only accounting standard mentioned in the definition of “Gross Revenues” and argues that it would be “implausible” to suppose that the Judges “actually meant to incorporate sub silentio some other accounting standard elsewhere in the definition . . . or for that matter, that the Judges meant to divorce portions of the definition from any accounting standard at all . . . .” SoundExchange Memorandum of Law at 10.

Sirius XM does not disagree with these broad points. Rather, it contends that its treatment of revenue from pre-'72 recordings is fully consistent with GAAP, stating:

Sirius XM's exclusion of revenue for its transmissions of pre-1972 sound recordings and its separately charged premium non-music channels during the Satellite I period was consistent with the plain language and purpose of the regulations. Sirius XM implemented the regulations in a clear and straightforward manner in line with . . . GAAP.

Written Merits Rebuttal Submission of Sirius XM . . . (Sirius Merits Rebuttal) at 2.

The Judges find and conclude that the applicable regulations require that Sirius XM's inclusions and exclusions of revenue in the Gross Revenues definition must not be inconsistent with GAAP. The Judges utilize the double negative intentionally, because an issue exists as to whether GAAP in fact provides rules or guidance regarding the method by which the pre-'72 exclusions may be taken. That is, if GAAP does not address a particular issue, then a party's treatment of that issue cannot be “inconsistent” with GAAP, and, equally so, it would be senseless to consider whether such treatment was “consistent” with GAAP.

Sirius XM makes two arguments regarding the applicability of GAAP to its calculation and exclusions of revenue. First, Sirius XM asserts that all its revenues were recognized pursuant to GAAP. With regard to pre-'72 recordings, Sirius XM's financial and accounting expert, John W. Wills states “there is no doubt that all of its subscription revenue—including that earned for performing pre-1972 recordings—is `recognized' consistent with GAAP” since “the subscriber revenue recognized by Sirius XM on its financial statements includes the entirety of its entertainment and information content delivered during the period at issue.” Expert Report of John W. Wills, at 7 (May 9, 2016) (Wills Report). Mr. Wills employs the same reasoning to reach the same conclusion regarding the Upcharge revenue. See Wills Rebuttal Report at 11.

Based on that 100% recognition argument, Sirius XM contends that it had no obligation, under the regulations or the authority of GAAP, to separately recognize the excluded revenue it attributed to pre-'72 recordings or to the Upcharge. See Wills Report at 8 ([“T]here is no requirement in GAAP to record revenue separately for pre-1972 recordings (or any other type of content), and no support for the idea that it is not recognized if not separately reported.”); Wills Rebuttal Report at 11 (“GAAP is irrelevant . . . to the further question of how much of Sirius XM's recognized subscription revenue is attributable to non-music content offered for a separate charge . . . .”).

SoundExchange does not dispute the first point, tacitly acknowledging that all of the subscription revenue—including any revenue that allegedly could be attributable to pre-'72 sound recording performances—was recognized pursuant to GAAP as part of an undifferentiated sum. See, e.g., SoundExchange Rebuttal Submission at 10 (“It is . . . irrelevant whether Sirius XM recognized all of its subscription revenue at the most aggregated level . . . .”). However, SoundExchange strongly disputes the second point, viz., Sirius XM's assertion that the latter need not separately comply with GAAP in quantifying an excludable sub-set of that revenue as attributable to the performance of pre-'72 sound recordings. Id. (“The regulation actually provides that excludable revenue must be `recognized by Licensee . . . .' ”).

The Judges find that Sirius XM cannot rely on the fact that 100% of its undifferentiated subscription revenue was “recognized” as a sufficient basis to support its assertion that an excluded sub-set of that revenue was independently “recognized” in accordance with GAAP. The repetition of the word “recognized” in the exclusionary language clearly indicates that in SDARS I the Judges did not intend to supersede or disregard GAAP as it might pertain to the standards applicable to potentially excludable revenue.21

The Judges agree with SoundExchange that “[t]he only reasonable reading of the Gross Revenues definition is that [GAAP] flows through its entirety.” SoundExchange Memorandum of Law at 10. Accordingly, if there are GAAP provisions that required Sirius XM to recognize pre-'72 revenue separately, it would have been obliged to follow them.22 Thus, in order for the Judges to decide whether Sirius XM ran afoul of GAAP—and therefore the regulations—the Judges must determine whether any GAAP provisions in fact apply to this pre-'72 exclusion.

SoundExchange argues at length that Sirius XM failed to abide by GAAP in identifying and quantifying revenues supposedly attributable to the performance of pre-'72 sound recordings, SoundExchange Initial Submission ¶¶ 25-38, and to the Upcharge. Id. at ¶¶ 60-66. According to SoundExchange, “GAAP sets forth clear rules on how a company should recognize revenue for bundles or packages . . . which GAAP sometimes calls “multiple element arrangements' or `MEAs.' ” Id. ¶ 24. The entirety of SoundExchange's GAAP-based argument is conditioned on the categorization of (i) the pre-'72 recordings; and (ii) the premium nonmusic channels, respectively, as MEAs.

However, SoundExchange's accounting and economic expert, Professor Lys, expressly declined to opine that the MEA concept is even applicable to the two exclusions.

Professor Lys's candid refusal to answer his own question in the affirmative, i.e., “whether GAAP's . . . MEA rules can be used to justify Sirius XM's exclusions,” leaves the Judges with no basis to conclude that such an MEA-based approach is mandated in these circumstances. Rather, the Judges agree with Mr. Wills that SoundExchange has misapplied GAAP's MEA rules to the issues in this proceeding. As Mr. Wills stated, the key point is that “while ASC 605-25 may serve as a mandate as to recognition where an MEA and separate units of accounting exist, it is not a block or limit on recognition where such conditions do not exist.” Wills Rebuttal Report at 6 (emphasis added).

Thus, the Judges decline to adopt Dr. Lys's decision to analyze Sirius XM's treatment of either pre-'72 recordings or the Premier Upcharges “as if” the product/service delivered by Sirius XM to its customers would constitute an MEA.24 Rather, the Judges conclude that the record fails to identify particular provisions of GAAP that apply to the accounting treatment of the two exclusions at issue.

The Judges reject the application of the MEA approach for an additional reason. Even assuming the MEA approach is not inapplicable for the foregoing reasons, the MEA approach would still be inapplicable because it is only relevant in a context in which several elements are deliverable over time. That is, GAAP's “separate unit of accounting” principles do not apply to the allocation of revenue between or among products or services that are provided simultaneously to the customer.

Neither SoundExchange nor its expert, Professor Lys, point to any language within either EITF 00-21 or ASC 605-25 that expressly applies the MEA process to simultaneous deliverables. Professor Lys also relies on SEC Staff Accounting Bulletin No. 13, which he understands to provide that entities “first evaluate whether an element is a separate unit of accounting and then evaluate whether each unit of accounting has been delivered and therefore whether revenue for that element has been earned.” Lys Rebuttal Report ¶ 28. However, the SEC document, like the other documents upon which Professor Lys relies, does not indicate that the “separate unit of accounting” approach applies to elements that are delivered simultaneously.

At any rate, in the present case, the timing of deliverables is irrelevant. SoundExchange is not concerned with the timing of revenue recognition. SoundExchange does not contest that any Sirius XM revenue properly within the definition of Gross Revenues (and not excluded by that definition) will be subject to royalties at the applicable rate. Therefore, SoundExchange's reliance on the timing rationale behind revenue recognition principles is not applicable in the present case.

SoundExchange conducted two audits of Sirius XM relating to the 2007-2012 rate period.25 Importantly, the results of those audits confirm the inapplicability of GAAP in evaluating Sirius XM's application of the two exclusions at issue here. SoundExchange engaged two auditing firms, PricewaterhouseCoopers, d/b/a PwC (PwC) and EisnerAmper LLP (EisnerAmper), to audit Sirius XM's books and records for the SDARS I period. Sirius XM asserts that the results of the audits confirm the inapplicability of GAAP in determining the appropriate manner in which to evaluate Sirius XM's application of the two exclusions. Further, according to Sirius XM, neither of the firms concluded that its exclusions violated GAAP or were otherwise improper. See Written Merits Opening Submission of Sirius XM . . . (Sirius XM Merits Submission) at 13-14. Rather, as Sirius XM points out, EisnerAmper concluded that the dispute regarding the two exclusions was a “legal issue.” Id.

SoundExchange attempts to minimize the importance of the auditing firms' conclusions, arguing that the auditors simply “declined to take sides on how the regulations should be interpreted” because they were told by Sirius XM “that this matter is a legal issue.” SoundExchange Written Merits Rebuttal Submission (SoundExchange Rebuttal Submission) at 7 n.5.

The Judges find SoundExchange's point unsupportive of its position. The gravamen of SoundExchange's argument is that GAAP applies to the propriety of Sirius XM's two categorical revenue exclusions. That is, SoundExchange asserts that the legal interpretation of the Gross Revenues definition must be determined by applying GAAP. Indeed, that it is precisely what SoundExchange's expert, Professor Lys, purported to do in this proceeding. Thus, SoundExchange argues that if GAAP applies, the proper legal result is wholly dependent upon the proper accounting treatment under GAAP. In fact, the Judges agree with that line of reasoning, but only to the extent GAAP actually addresses the issues in dispute.

SoundExchange offers no explanation for why neither of its auditing firms opined that Sirius XM's exclusions of revenue for performances of pre-'72 recordings and for the subscription price differential for the Premier package (the Upcharge) were inconsistent with GAAP. If the auditors had so concluded, SoundExchange could have perhaps bootstrapped such a conclusion into its legal argument. The fact that neither auditing firm reached the conclusion proffered by SoundExchange supports the Judges' conclusion that the revenue exclusion issues in this proceeding are not addressed by GAAP.

For these reasons, the Judges find no record evidence indicating that GAAP provides a particular method for quantifying the two exclusions at issue in this proceeding.26 Given the absence of any applicable GAAP, the Judges seek to answer the District Court's inquiries by analyzing the applicable standard to interpret and apply the two revenue exclusions at issue.

Without specifically applicable GAAP principles, the Judges must construe and interpret their regulation using legal principles. The Judges consider both the language and the purposes of the regulations to determine those standards.27 The non-applicability of specific GAAP principles did not and does not afford Sirius XM unfettered discretion regarding its application of the two revenue exclusions at issue.28

Absent guidance from the participants, the Judges look first to the authority by which they are bound: The Copyright Act. In SDARS proceedings under section 114(f)(1)(B), the Copyright Act contains a core requirement that the Judges set terms (and rates) that are “reasonable.” 17 U.S.C. 801(b)(1). The obligation to set reasonable rates and terms imposes upon the Judges a requirement to assure that the rates and terms they codify are neither vague nor ambiguous, but rather are subject to reasonable interpretation. In its referral, the District Court has termed ambiguous the provisions of the regulations at issue here. 65 F. Supp. 3d at 155.

Further, assuming the Judges' regulations are reasonable or may be reasonably interpreted,29 the Judges' clarification must likewise be reasonable and aimed at reasonable interpretation going forward. Ultimately, licensors and licensees should be confident of compliance when attempting a reasonable interpretation and application of those regulations. Even though the Judges find no specific GAAP guideline applicable to the interpretation of the regulation at issue, they nonetheless look to the standard established by the overarching concepts within GAAP. GAAP requires that an entity provide a “faithful representation” of the facts in its financial reporting, i.e., a presentation that is “complete” and “free of error . . . to the extent possible.” FASB Statement of Financial Accounting Concepts No. 8 at 27 (Quality Characteristic (QC) 12) (September 2010). This overarching GAAP standard guides the Judges' regulatory interpretation notwithstanding the absence of any GAAP principle specifically applicable to the regulations at issue.

Moreover, QC 30 in FASB Statement of Financial Accounting Concepts No. 8 also requires that financial reporting be “understandable.” That GAAP pronouncement notes that “understandability” embodies “transparency.” Id. at 21, 31 (QC 30; Basis for Conclusion (BC) 3.44) (“transparency, high quality, internal consistency, true and fair view or fair presentation are different words to describe information that has the qualitative characteristic[ ] of . . . understandability.”) emphasis added).

These GAAP standards are consonant with the Judges' application of the pre-'72 exclusion in SDARS II. There, the Judges concluded that the statutory requirement for reasonable terms is satisfied when those terms are “precise” (i.e., “reasonably accurate”) and “methodologically transparent.” 78 FR at 23073.30 The Judges thus apply the GAAP standards of understandability (embodying transparency), faithfulness, accuracy, and transparency, in shorthand, “reasonableness,” in the circumstances at issue.

Paragraph (3)(vi)(D) of the definition of Gross Revenues, relating to exclusions, does not explicitly identify pre-'72 sound recordings as excludable from Gross Revenues. Rather, Sirius XM deemed such pre-'72 performances excludable pursuant to the broader exclusion for revenues recognized for the provision of “[c]hannels, programming, products and/or other services for which the performance of sound recordings and/or the making of Ephemeral Recordings is exempt from any license requirement . . . .” 37 CFR 382.11 (2008) (emphasis added); see Sirius XM Initial Submission at 18 (describing “core precept” that Sirius XM should not pay for non-statutory activities).

SoundExchange disagrees, arguing that as Sirius XM never packaged or marketed separately performances of pre-'72 recordings, revenues generated on account of those performances do not fall within the regulatory exclusions from Gross Revenues. SoundExchange Memorandum of Law at 4-5. Additionally, SoundExchange points to the “the avoidance of doubt” clause noting it does not identify pre-'72 recordings as excludable. Finally, SoundExchange asserts that it would be absurd to construe the regulatory word “programming,” or any of the other excluded categories, as embracing the “performance of sound recordings,” as the regulation at issue already uses the phrase “performance of sound recordings.” Id. at 5.

Addressing SoundExchange's first and last assertions, the Judges find that the language of the paragraph (3)(vi)(D) exclusion clearly embraces revenue properly attributable to the performance of pre-'72 recordings. Contrary to SoundExchange's argument, the word “programming” is not redundant of the phrase “performance of sound recordings.” In ordinary parlance, broadcast music programming consists of the aggregation of sound recordings played pursuant to a sequence selected by the broadcaster. In the 2006 SDARS I proceeding, XM's Executive Vice President for programming, Eric Logan, testified that the “fundamental value proposition” for XM was that it aggregated a “diverse variety of programming” into a single “170-channel platform . . . .” Sirius XM Ex. 20 (Direct Testimony of Eric Logan on behalf of XM Satellite Radio Inc., SDARS I ¶¶ 2, 12, 14 (Jan. 17, 2007). The word “programming” as used in the regulations should be read to include programming across a satellite platform and within or across channels, consisting of both older music, such as pre-'72 recordings, and relatively more contemporary music, i.e., music that falls within the collection of post-'72 recordings.

The Judges reject SoundExchange's assertion that the final words of the regulation, “for the avoidance of doubt”, preclude an exclusion of revenue from pre-'72 recordings. In paragraph (3)(vi)(D) of the Gross Revenues definition, the phrase “for the avoidance of doubt” follows immediately after the phrase “is separately licensed, including by a statutory license . . . .” The string of four items that follows is comprised of “separately licensed uses.” Thus, the syntax of the paragraph makes it clear that the “for the avoidance of doubt” clause does not address, and therefore does not prohibit exclusions for, performances that are “exempt from any license requirement,” such as performances of pre-'72 recordings.31

The Judges also discount SoundExchange's argument that an interpretation of “programming, products, and/or other services” as embracing “the performance of sound recordings” would yield a result that is linguistically “nonsensical.” SoundExchange Memorandum of Law at 5. Quite the contrary, substituting “the performance of sound recordings” for “programming, products, and/or other services” in this manner would cause the regulation to be understood as excluding revenue from “the performance of sound recordings . . . for which the performance of sound recordings and/or the making of ephemeral recordings is exempt from any license requirement . . . .” That interpretation plainly is not “nonsensical.”

Finally, the Judges conclude that it would be anomalous to require Sirius XM to pay for pre-'72 recordings under a federal compulsory license when, by the unambiguous statutory language in section 301 of the Copyright Act, those recordings are not subject to federal copyright protection. Further, it seems implausible to the Judges that the parties did not understand, or that they could reasonably have failed to understand, that the language “exempt from any license requirement” included pre-'72 sound recordings. Indeed, it is not clear exactly what other sound recordings that phrase would cover except for pre-'72 sound recordings.

During the course of the SDARS I rate period, Sirius XM appears to have used two different methods to estimate revenue attributable to its performance of pre-'72 recordings. According to the evidence before the Judges relating to the referred questions, [REDACTED] 32 Declaration of Catherine Brooker ¶ 23 (Brooker Decl.).33 [REDACTED] Id. ¶ 24. SoundExchange does not dispute Ms. Brooker's description of the two ways in which Sirius XM applied the pre-'72 exclusion. See SoundExchange Initial Submission ¶¶ 12-13.

During the SDARS I period, Sirius XM offered (under different names before and after the merger of Sirius and XM) both a Base subscription package that included channels performing broadcasts of sound recordings covered by the statutory license, and a Premier subscription package that included the Basic package plus premium channels that did not make use of sound recordings subject to the statutory license.34 Brooker Decl. ¶ 13; see Declaration of Brian S. Wood ¶¶ 8-10 (Wood Decl.).35 At all times, Sirius XM offered the Basic package as a stand-alone product. The parties acknowledge that subscription revenue paid for the Basic package is part of the Gross Revenues royalty base.

Sirius XM did not offer the additional channels included in the Premier package as a separate, standalone product. Rather, Sirius XM customers could obtain those Premier additional talk and other non-music channels as part of a package that included all channels in the Basic package. Sirius XM treated the Premier package as a service “offered for a separate charge” and thus excludable under paragraph (3)(vi)(B) of the regulatory definition of Gross Revenues.36

SoundExchange challenges Sirius XM's exclusion asserting it is not supported by the text of the regulation, in that Sirius XM did not offer the Premier channels “for a separate charge” as required by the regulation. SoundExchange Memorandum of Law at 18-19. SoundExchange also notes that Sirius XM regularly invoiced and billed customers a combined price rather than a separate price for the basic and premium components of the Premier package. Id. at 21 (and record citations therein). Further, SoundExchange points out that, when marketing the premium package, Sirius XM did not “give recipients the opportunity to purchase just the premium channels,” nor did it “identify a price for the premium channels.” Id. (and record citations therein).

Sirius XM does not deny that it did not consistently call out the “additional upcharge” on marketing materials or customer bills. However, Sirius XM contends that its communications with customers “left no doubt that all subscribers whether existing subscribers looking to upgrade or new subscribers deciding which combination of content they preferred” were presented with information making it clear that “for $4.04 more,” they could “obtain[ ] the additional premium channels.” Sirius XM Rebuttal Submission at 13. As explained by Brian Wood, Sirius XM's consultant and former employee, it was perfectly plain that the premium package represented a charge for the basic package, plus the additional charge for the additional premium channels. Wood Decl. ¶¶ 13-18; see Sirius XM Initial Submission at 9-11, 16.

The Judges find and conclude that the language in the revenue exclusion described in paragraph (3)(vi)(B) did not permit Sirius XM to exclude from the Gross Revenues royalty base the price difference, i.e., the Upcharge, between the Premier package and the Basic package.

Construction of a regulation “must begin with the words in the regulation and their plain meaning.” Pfizer v. Heckler, 735 F.2d 1502, 1507 (D.C. Cir. 1984); see also Freeman v. Dep't of the Interior, 37 F. Supp. 3d 313, 331 (D.D.C. 2014). In the present case, the plain language of the regulation disallows this revenue exclusion. Sirius XM did not offer the premium channels “for a separate charge.” Sirius XM's use of a bundled price is inconsistent with the regulatory requirement that premium channels must be priced at a “separate charge.” In ordinary usage, the adjective “separate” is defined as: “detached, disconnected, or disjoined; unconnected; distinct; unique; being or standing apart; distant or dispersed; existing or maintained independently; individual or particular.” http://www.dictionary.com/browse/separate (last visited January 3, 2017). The Judges can find no portion of this definition that applies to the bundled subscription charge at which Sirius XM priced its Premier package. Indeed, a “bundled” charge is the antithesis of a separate charge. See http://www.thesaurus.com/browse/bundled?s=t (classifying “separate” as an antonym of “bundle”) (last visited January 3, 2017). Thesaurus entries, like dictionary definitions, are valuable sources for the ascertainment of the meaning of statutory and regulatory words and phrases. See, e.g., McLaughlin v. Richland Shoe Co., 486 U.S. 128, 133 (1988) (relying on thesaurus as aid in statutory interpretation).

The Judges recognize that dictionary definitions and thesaurus entries are not necessarily dispositive as to the meaning of statutory (or regulatory) language. See, e.g., Yates v. U.S., __ U.S. __ , 135 S. Ct. 1074, 1081-82 (2015) (“the plainness or ambiguity of statutory language is determined not only by reference to the language itself, but as well by the specific context in which that language is used, and the broader context of the statute as a whole.”) (citation omitted). Accordingly, in ascertaining the meaning of the “separate charge” requirement, the Judges also look to the context in which the “separate charge” provision was adopted. That contextual analysis explains why the SDARS I regulations distinguish a “separate charge” from other charges when classifying revenue to be included in or excluded from the royalty base.

First, the Judges consider the express language in the SDARS I Determination regarding this “separate charge” issue as it relates to a premium service—the precise issue here.

Second, the SDARS I Determination also noted that the “separate charge” exclusion from Gross Revenues was designed to “enhance business flexibility” in a manner that offset the flexibility foregone by the Judges' rejection of a “per play metric.” Id. at 4086. In reaching this conclusion, the Judges again made reference to use of a separate charge for a premium nonmusic service:

The Sirius XM interpretation of the “separate charge” requirement to include its Upcharge for the Premier subscription package does not relate to the benign and appropriate “flexibility” benefit of permitting Sirius XM to perform fewer royalty-bearing sound recordings in order to minimize royalty costs. Rather, the bundle of royalty-bearing and premium non-royalty-bearing channels in a single price introduces an economically indeterminate and self-serving “flexibility” that simply confuses the issue as to which portion of the entire subscription price reflects which type of channel.

Sirius XM's Upcharge methodology is “economically indeterminate” because it ignores the fundamental economic reason why downstream sellers such as Sirius XM decide to bundle products within one offering price—to maximize revenue from the sale of both products.37 As SoundExchange notes, in the record Sirius XM candidly acknowledged that the opportunity to increase total revenues was the raison d'etre for offering the Premier channels only in a bundle with the Basic channels. See SoundExchange Initial Submission ¶¶ 56-57, 65 (and record citations therein).38 When this pricing/revenue bundling phenomenon exists, a seller who owes revenue-based royalties to the provider of only one of the bundled inputs has created an indeterminate revenue base, absent some additional data or information from which to identify or reasonably estimate the revenues attributable to each item in the bundle. The price difference between the bundle and an unbundled item fails to reflect the revenue attributable to each item. Rather, that price difference is necessarily severed from the calculation of revenue attributable to each item.

SoundExchange's expert, Dr. Lys, cogently explained why the bundled price fails to satisfy the economic purpose of the regulatory “separate charge” requirement:

Sirius XM made no attempt to rebut Professor Lys's economic point regarding bundling and the concomitant indeterminacy in allocating revenue as between or among the bundled items. Rather, its expert, Mr. Wills, attempted to present an analogy which only served to underscore Dr. Lys's analysis. Specifically, Mr. Wills focused instead on a singular “reasonable buyer.” Wills Expert Rebuttal Report at 13. However, the essence of the bundling process is to segregate buyers into heterogeneous sub-classes of buyers, each of which is comprised of “reasonable” buyers with a different—not singular—WTP.

Moreover, Mr. Wills's point that “when additional features are available at additional cost . . . the reasonable buyer can do the simple math to compute the cost differential, and decide whether the additional features are worth the additional cost” misses the economic point. Id. In any market transaction (and regardless of whether the market is monopolized, competitive or somewhere in-between), some consumers have a WTP greater than the market price for a bundle of products or a bundle of product characteristics, as compared with their WTP if the products were offered separately. If the seller cannot engage in bundling (or some other form of price discrimination) consumers with a WTP above the market-clearing price realize the benefit of the “consumer surplus” described supra. The consumer surplus is value foregone by the seller. By bundling, the seller captures some of that consumer surplus. See, e.g., W. Adams and J. Yellen, “Commodity Bundling and the Burden of Monopoly,” 90 Q.J. Econ. 475, 476 (1976) (profitability of bundling stems “from its ability to sort customers into groups with different reservation price characteristics, and hence to extract consumer surplus.”).40

Third, the Judges find guidance in the Rehearing Order in SDARS I. In their Initial Determination, the Judges approved a Gross Revenues exclusion that covered revenues attributable to “data services.” SoundExchange moved for rehearing on this issue, arguing “there is no way to determine the value [data services] contribute to the overall subscription price” and thus “how much revenue should be deducted from the revenue base” because data services “are not separately priced,” and predicting that “[t]he parties almost certainly will not agree on the value of such services.” SoundExchange Motion for Rehearing at 7 (Dec. 18, 2007) (emphasis added). In response, Sirius XM asserted that SoundExchange offered nothing but “speculation” that Sirius XM “will not properly recognize revenues for the provision of data services . . . .” Response . . . to SoundExchange Motion for Rehearing at 10 n. 8 (Jan. 4, 2008).

Although the Judges styled their decision as an “Order Denying Motion for Rehearing,” they in fact modified their Initial Determination to clarify that only data services offered for a “separate charge” could be excluded from the revenue base. The Judges accomplished this by adding the “separate charge” language that they had included in the paragraph (3)(vi)(B) exclusion, the language on which Sirius XM relies now to justify its single, bundled charge for its Premier package (i.e., Basic + additional channels). Citing that language in paragraph (3)(vi)(B) of the Gross Revenues definition, the Judges stated that “to avoid any doubt as might be suggested by SoundExchange's arguments, we hereby clarify that subsection (3)(vi)(A) of the definition of Gross Revenues at § 382.11 Definitions, dealing with data services also does not contemplate an exclusion of revenues from such data services, where such data services are not offered for a separate charge from the basic subscription product's revenues. . . . The phrase `offered for a separate charge' will be added to the regulatory language of subsection (3)(vi)(A) . . . .” Rehearing Order at 4-5 and n.5. Thus, the SDARS I Judges clearly understood that a failure by Sirius XM to set separate charges for bundled services that included services both in the royalty base and outside the royalty base would be contrary to the regulatory scheme, rendering the royalty base indeterminate.

Consistent with the Judges' reliance on the “separate charge” language in the paragraph (3)(vi)(B) exclusion to clarify and amend the paragraph (3)(vi)(A) exclusion, the Judges now conclude that Sirius XM's combined charge for the Premier package is inconsistent with the plain meaning of the paragraph (3)(vi)(B) exclusion and with the purpose of the “separate charge” requirement, viz., to clearly distinguish between revenue included in the royalty base and revenue excluded from the royalty base.41

The Judges thus conclude that the Sirius XM Premier package is not a service offered for a separate charge. Consequently any revenues Sirius XM excluded from its Gross Revenues royalty base attributable to the incremental Upcharge for the channels in the Premier package were improper.

Based on the foregoing findings and reasoning, the Judges answer the District Court by concluding that Sirius XM properly interpreted the revenue exclusion to apply to pre-`72 sound recordings. Given the limitations on the Judges' jurisdiction, they defer to the District Court to determine whether Sirius XM developed a consistent, transparent, reasonable methodology for valuing those exclusions. The Judges also conclude that Sirius XM was incorrect to claim a revenue exclusion based upon its Premier package upcharge, as that Premier package was not a service offered for a separate charge. The Judges' responses to the District Court are based upon that reasoning.

The Judges issued the Amended Decision to the parties in interest on September 11, 2017. This published Amended Decision redacts confidential information that is subject to a protective order in the proceeding. The Register of Copyrights reviewed this ruling and found no legal error.

So ordered.

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).

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.

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-2016-0600 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 January 29, 2018. 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-2016-0600, by one of the following methods:

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

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

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

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

In the Federal Register of July 26, 2017 (82 FR 34664) (FRL-9963-50), 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 6E8503) by BASF Corporation, 26 Davis Drive, P.O. Box 13528, Research Triangle Park, NC 27709. The petition requested that 40 CFR 180.589 be amended by increasing the existing tolerance for residues of the fungicide boscalid, 3-pyridinecarboxamide,2-chloro-N-(4′-chloro[1,1′-biphenyl]-2-yl), in or on vegetable, legume, edible podded subgroup 6A at from 1.6 parts per million (ppm) to 5.0 ppm. This document referenced a summary of the petition prepared by BASF Corporation, the registrant, which is available in the docket, http://www.regulations.gov. There were no comments received in response to the notice of filing.

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 boscalid including exposure resulting from the tolerances established by this action. EPA's assessment of exposures and risks associated with boscalid follows.

In the Federal Register of March 18, 2015 (80 FR 14009) (FRL-9921-01), EPA published a final rule concerning tolerances for residues of boscalid. The preamble to that rule contains a summary of the toxicological profile and endpoints for assessing risk that EPA is incorporating by reference here, as those elements have not changed.

The petitioned-for tolerance increase is intended to facilitate imports of commodities in subgroup 6A, rather than accommodate residues resulting from changes in domestic uses; therefore, the only potential impact on the Agency's previous exposure assessment is through consumption of imported food containing boscalid residues. To assess the new dietary exposure levels, EPA considered exposure under the petitioned-for tolerances as well as all existing boscalid tolerances in 40 CFR 180.589. EPA assessed dietary exposures from boscalid in food as follows:

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. No such effects were identified in the toxicological studies for boscalid; therefore, a quantitative acute dietary exposure assessment is unnecessary.

Chronic exposure. In conducting the chronic dietary exposure assessment EPA used food consumption information from the 2003-2008 food consumption data from the U.S. Department of Agriculture's (USDA's) 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 used some percent crop treated (PCT) information as described below.

Cancer. As discussed in Unit III.A. of the March 18, 2015 Federal Register, EPA has concluded that the chronic endpoint will be protective of potential cancer effects. EPA's estimate of chronic exposure as described above is relied upon to evaluate whether any exposure could exceed the chronic population adjusted doses (cPAD) and thus pose a cancer risk.

Anticipated residue and percent crop treated (PCT) information. Section 408(b)(2)(F) of FFDCA states that the Agency may use data on the actual percent of food treated for assessing chronic dietary risk only if:

• Condition a: The data used are reliable and provide a valid basis to show what percentage of the food derived from such crop is likely to contain the pesticide residue.

• Condition b: The exposure estimate does not underestimate exposure for any significant subpopulation group.

• Condition c: Data are available on pesticide use and food consumption in a particular area, the exposure estimate does not understate exposure for the population in such area.

In addition, the Agency must provide for periodic evaluation of any estimates used. To provide for the periodic evaluation of the estimate of PCT as required by FFDCA section 408(b)(2)(F), EPA may require registrants to submit data on PCT.

The Agency used the following chronic PCT for existing uses:

Almonds 45%; apples 15%; apricots 30%; green beans 5%; blueberries 35%; broccoli 2.5%; brussels sprouts 2.5%; cabbage 5%; caneberries 45%; cantaloupes 5%; carrots 20%; cauliflower 2.5%; celery 10%; cherries 50%; chicory 5%; cucumbers 5%; dry beans/dry peas 5%; garlic 5%; grapes 30%; hazelnuts 5%; lemons 2.5%; lettuce 30%; nectarines 15%; onions 25%; oranges 1%; peaches 25%; peanuts 1%; pears 20%; green peas 1%; peppers 2.5%; pistachios 30%; plums/prunes 5%; potatoes 25%; pumpkins 10%; squash 5%; strawberries 60%; sweet corn 1%; tomatoes 2.5%; walnuts 5%; and watermelons 25%.

In most cases, EPA uses available data from the United States Department of Agriculture/National Agricultural Statistics Service (USDA/NASS), proprietary market surveys, and the National Pesticide Use Database for the chemical/crop combination for the most recent six years. EPA uses an average PCT for chronic dietary risk analysis and a maximum PCT for acute dietary risk analysis. The average PCT figure for each existing use is derived by combining available public and private market survey data for that use, averaging across all observations, and rounding to the nearest 5%, except for those situations in which the average PCT is less than 2.5%. The maximum PCT figure is the highest observed maximum value reported within the most recent 6 years of available public and private market survey data for the existing use and rounded up to the nearest multiple of 5%, except for situations in which the maximum PCT is less than 2.5%. In cases where the estimated value is less than 2.5% but greater than 1%, the average and maximum PCT used are 2.5%. If the estimated value is less than 1%, 1% is used as the average PCT and 2.5% is used as the maximum PCT.

The Agency believes that the three conditions discussed above have been met. With respect to Condition a, PCT estimates are derived from Federal and private market survey data, which are reliable and have a valid basis. The Agency is reasonably certain that the percentage of the food treated is not likely to be an underestimation. As to Conditions b and c, regional consumption information and consumption information for significant subpopulations is taken into account through EPA's computer-based model for evaluating the exposure of significant subpopulations including several regional groups. Use of this consumption information in EPA's risk assessment process ensures that EPA's exposure estimate does not understate exposure for any significant subpopulation group and allows the Agency to be reasonably certain that no regional population is exposed to residue levels higher than those estimated by the Agency. Other than the data available through national food consumption surveys, EPA does not have available reliable information on the regional consumption of food to which may be applied in a particular area.

Because this tolerance increase does not impact drinking water or residential exposures, the drinking water and non-dietary exposure discussions from the March 18, 2015 Federal Register continue to be valid. Those assumptions were used to assess aggregate exposure for this tolerance action, and EPA incorporates them here by reference. Moreover, the current action does not impact the Agency's previous conclusions on cumulative effects; therefore, EPA incorporates the cumulative effects section from the March 18, 2015 Federal Register as well.

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 Food Quality Protection Act (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. Conclusion. The finding for the FQPA SF in the March 18, 2015 rule remains valid for this action. Therefore, for the reasons stated in the March 18, 2015 Federal Register, 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 for all scenarios, except residential handler inhalation exposure.

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. An acute aggregate risk assessment takes into account acute exposure estimates from dietary consumption of food and drinking water. No adverse effect resulting from a single oral exposure was identified and no acute dietary endpoint was selected. Therefore, boscalid is not expected to pose an acute risk.

2. Chronic risk. Using the exposure assumptions described in this unit for chronic exposure, EPA has concluded that chronic exposure to boscalid from food and water will utilize 12% of the cPAD for the general U.S. population and 27% of the cPAD for all infants (less than 1 year 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 boscalid is not expected.

3. Short-term and intermediate-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).

Boscalid is currently registered for uses that could result in short-term residential exposure, which the Agency previously assessed and discussed in the March 18, 2015 Federal Register. The preamble to the March 18, 2015 rule concluded that there were no short-term risks of concern. Because the chronic dietary exposure has only increased potential chronic risk 1% of the cPAD to 27% of the cPAD, which is still well below EPA's level of concern for chronic risk, and there is no change to the domestic use pattern to impact the non-occupational exposure, EPA concludes that the increase in dietary exposure will not meaningfully impact the aggregate risk and the short-term risk will continue to be below the Agency's levels 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, boscalid 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 boscalid.

5. Aggregate cancer risk for U.S. population. As discussed in Unit III.A. of the March 18, 2015 Federal Register, EPA has concluded that the cPAD is protective of possible cancer effects. Given the results of the chronic risk assessment, cancer risk resulting from exposure to boscalid is not of concern.

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 boscalid residues.

An adequate gas chromatography/mass spectrometric detection (GC/MS) method (Method D0008) using selected ion monitoring (SIM) of major ions is available for enforcing boscalid tolerances in plant commodities, and an adequate GC/electron capture detection method (ECD) (Method DFG S19) is available for enforcing the tolerances in livestock commodities. The validated limit of quantitation (LOQ) for boscalid residues in most plant matrices is 0.05 ppm. These methods have been found adequate by the Analytical Chemistry Branch (ACB) of BEAD. Residues of boscalid and its metabolite M510F01 were not adequately recovered using the multiresidue methods.

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].

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 established MRLs for boscalid in or on vegetable, legume, edible-podded subgroup 6A at 3.0 ppm. These MRLs are different than the tolerances established for boscalid in the United States. The registrant has petitioned the EPA to increase the existing tolerance level for edible-podded legume vegetable subgroup 6A from 1.6 ppm to 5.0 ppm in order to harmonize with MRL established by the European Union of 5.0 ppm. This is not anticipated to cause a trade irritant since the CODEX MRL will be lower than the U.S. tolerance, and CODEX countries will still be able to export to the U.S. For these reasons, EPA has determined it is appropriate to amend the tolerance for residues of boscalid on edible podded legume vegetable subgroup 6A as petitioned from 1.6 ppm to 5.0 ppm.

Therefore, a tolerance is established for residues of boscalid, boscalid, 3-pyridinecarboxamide,2-chloro-N-(4′-chloro[1,1′-biphenyl]-2-yl), in or on vegetable, legume, edible podded subgroup 6A at 5.0 ppm.

This action amends a tolerance under FFDCA section 408(d) in response to a petition submitted to the Agency. The Office of Management and Budget (OMB) has exempted these types of actions from review under Executive Order 12866, entitled “Regulatory Planning and Review” (58 FR 51735, October 4, 1993). Because this action has been exempted from review under Executive Order 12866, this action is not subject to Executive Order 13211, entitled “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001), Executive Order 13045, entitled “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997), or Executive Order 13771, entitled “Reducing Regulations and Controlling Regulatory Costs” (82 FR 9339, February 3, 2017). 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).

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

Therefore, 40 CFR chapter I is amended as follows:

I. 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).

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.

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-2016-0295 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 January 29, 2018. 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-2016-0295, by one of the following methods:

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

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

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

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

In the Federal Register of July 20, 2016 (81 FR 47150) (FRL-9948-45), 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 6F8470) by Dow AgroSciences, 9330 Zionsville Road, Indianapolis, IN 46268. The petition requested that 40 CFR 180.350 be amended by establishing tolerances for residues of the herbicide, nitrapyrin [2-chloro-6-(trichloromethyl) pyridine] and its metabolite, 6-chloropicolinic acid (6-CPA), in or on nut, tree group 14-12 at 0.02 parts per million (ppm) and almond, hulls at 0.07 ppm. That document referenced a summary of the petition prepared by Dow AgroSciences, the registrant, which is available in the docket, http://www.regulations.gov. There were no comments received in response to the notice of filing.

Based upon review of the data supporting the petition, EPA has modified the level at which the tolerance is being established for almond hulls. The reason for this change is explained in Unit IV.C.

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 nitrapyrin including exposure resulting from the tolerances established by this action. EPA's assessment of exposures and risks associated with nitrapyrin follows.

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 liver is the major target organ of nitrapyrin in both subchronic and chronic studies via the oral route; no toxicity was seen in the subchronic dermal study. Effects in the oral studies were generally consistent among the species tested (rat, mouse, rabbit, and dog), progressed with time, and typically included increased liver weights, enlarged livers, and/or hepatocellular hypertrophy. Only increased liver weights in the absence of other toxic effects in the liver were noted in the rabbit; however, by study design no other liver parameters were measured. Although some of the observed liver effects (i.e., increased liver weights and hypertrophy) suggest an adaptive response, pronounced decreases in body weight were evident in mice at higher doses and clear signs of hepatotoxicity (i.e., marked changes in clinical chemistry, indicative of liver toxicity and histopathology, leading to malignant tumor formation in mice) are seen only after prolonged exposure. In the chronic dog study, liver toxicity was indicated by marked changes in clinical chemistry parameters (alkaline phosphatase and cholesterol), increased liver weight, and hypertrophy. In rats, increased liver weights were also associated with clinical chemistry changes and histopathology (vacuolation consistent with fatty changes). By contrast to the other species, liver toxicity in mice progressed from liver weight alterations (associated with histopathological findings of hypertrophy, mitotic figures and necrosis) to significantly increased liver adenomas and non-significantly increased liver carcinomas at ≥250 mg/kg/day.

Kidney effects (increased kidney weights accompanied by intratubular mineralization and multifocal necrosis of the intratubular epithelium) were observed in male rats only, in both the two generation reproduction study and the chronic toxicity study. These kidney effects are indicative of α-2u-globulin accumulation with eventual progression to renal tumors. This finding of α-2u-globulin was confirmed by immunoperoxidase stain in the rat chronic study. The response, which only occurs in male rats, is not relevant to humans.

Nitrapyrin did not show qualitative or quantitative susceptibility in the rabbit or rat developmental studies. In the developmental toxicity in the rabbit, an increased incidence of crooked hyoid bones was seen at the highest dose tested (HDT). This effect is considered to be treatment-related but not adverse because it does not affect the health of the animal. In the rat developmental study, delayed ossification and decreased fetal body weight occurred at the same dose as maternal toxicity (reduced body weight/weight gain and reduced food consumption) and are not considered more severe than the maternal effects. Toxic effects in the two generation reproduction study occurred at the same dose in both parental animals and the offspring and included increased liver weights (parental M and F; both generations), enlarged livers in F2 pups (M and F), and hepatic vacuolation consistent with fatty changes in parental and offspring animals (both sexes and both generations).

In the acute neurotoxicity study, following a single oral dose of 400 mg/kg nitrapyrin, male and female rats showed slight tremors; females also showed gait incoordination, palpebral closure, and perineal fecal staining accompanied by decreased total motor activity (≉40% M & F) and an effect on distribution of motor activity (i.e., characterized as a more rapid decline activity than control in both sexes) on Day 1 only. In the subchronic neurotoxicity study, increased landing foot splay in males and females, and increased motor activity in females (equivocal in males) were observed at the same Lowest Observed Adverse Effect Level (LOAEL) (120 mg/kg/day) as systemic effects (increased liver weights, pale livers and increased liver size) in rats. However, there was no evidence of gross pathology or neuropathology in these studies or in any other study throughout the database.

There is also no evidence of immunotoxicity or mutagenicity.

The available data on carcinogenicity of nitrapyrin includes reports of multiple tumor types that were reported (renal tumors in male rats, stomach, epididymis, or Harderian gland neoplasms in either male or female mice). Following five peer review meetings to evaluate the carcinogenic potential of nitrapyrin as a nitrification inhibitor, EPA concluded that the reported tumors were either not treatment-related or not relevant for the human risk assessment, with the exception of the mouse liver tumors. At that time, the Agency classified nitrapyrin as “suggestive evidence of carcinogenic potential”. Following this classification, mode of action (MOA) studies were submitted that suggest that nitrapyrin is a mitogen that induces the male mouse liver tumors through activation of the constitutive androstane receptor (CAR), a nuclear receptor. Since the MOA data were not considered complete (no MOA data on female mice), a final decision on the MOA has not been made. The weight of evidence remains as suggestive of carcinogenicity for the following reasons:

1. Liver tumors were not seen in the 2-year carcinogenicity study in rats.

2. The response is driven by benign adenomas.

3. Mutagenicity was ruled out as a MOA.

4. There are adequate data supporting the MOA of mitogenesis through activation CAR nuclear receptors in male mice.

Based on the available information and the fact that the chronic reference dose (0.03 mg/kg/day) is approximately 4000X lower than the dose at which tumors are seen in the female mouse, the Agency concludes that quantification of cancer risk using a non-linear Reference Dose (RfD) approach will be protective of all chronic toxicity.

Specific information on the studies received and the nature of the adverse effects caused by nitrapyrin 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 “Nitrapyrin. Human Health Risk Assessment for Registration Review and New Use on Tree Nuts (Crop Group 14-12)” in docket ID number EPA-HQ-OPP-2016-0295.

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.

A summary of the toxicological endpoints for nitrapyrin used for human risk assessment is shown in Table 1 of this unit.

1. Dietary exposure from food and feed uses. In evaluating dietary exposure to nitrapyrin, EPA considered exposure under the petitioned-for tolerances as well as all existing nitrapyrin tolerances in 40 CFR 180.350. EPA assessed dietary exposures from nitrapyrin 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 nitrapyrin. 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).

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.

iii. Cancer. Based on the data summarized in Unit III.A., EPA has concluded that quantification of cancer risk using a non-linear Reference Dose (RfD) approach adequately accounts for all chronic toxicity, including carcinogenicity that could result from exposure to nitrapyrin.

iv. Anticipated residue and PCT information. EPA did not use anticipated residue or PCT information in the dietary assessment for nitrapyrin. Tolerance-level residues and 100 PCT were assumed for all food commodities.

2. Dietary exposure from drinking water. The Agency used water exposure models in the dietary exposure analysis and risk assessment for nitrapyrin in drinking water. These simulation models take into account data on the physical, chemical, and fate/transport characteristics of nitrapyrin. 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 Tier II pesticide water calculator (PWC), the estimated drinking water concentrations (EDWCs) of nitrapyrin residues of concern for acute exposures are estimated to be 51 parts per billion (ppb) for surface water and 76 ppb for ground water, and for chronic exposures are estimated to be 15 ppb for surface water and 67 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 76 ppb was used to assess the contribution to drinking water. For chronic dietary risk assessment, the water concentration of value 67 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). Nitrapyrin is not registered for any specific use patterns that would result in residential exposure.

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 nitrapyrin to share a common mechanism of toxicity with any other substances, and nitrapyrin does not appear to produce a toxic metabolite produced by other substances. For the purposes of this tolerance action, therefore, EPA has assumed that nitrapyrin 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.

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. Neither quantitative nor qualitative susceptibility was seen in either the rabbit or rat developmental studies or in the two generation reproduction study. In the developmental toxicity in the rabbit, an increased incidence of crooked hyoid bones was seen at the highest dose tested (HDT). This effect is considered to be treatment-related but not adverse. In the rat developmental study, delayed ossification and decreased fetal body weight occurred at the same dose as maternal toxicity. Toxic effects in the two generation reproduction study also occurred at the same dose in both parental animals and the offspring and included increased liver weights (parental M and F; both generations), enlarged livers in F2 pups (M and F), and hepatic vacuolation consistent with fatty changes in parental and offspring animals (both sexes and both generations). Similarly, gross pathological or neuropathological findings in the neurotoxicity studies were negative.

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. This decision is based on the following findings:

i. The toxicity database for nitrapyrin is complete.

ii. In an acute neurotoxicity study, nitrapyrin induced tremors and other functional observation battery effects, (i.e., slight gait incoordination, palpebral closure and perineal fecal staining) at the high dose (400 mg/kg) only. Decreased motor activity was seen in both sexes at 400 mg/kg and in females at 80 mg/kg. In contrast, increased motor activity was observed in the subchronic neurotoxicity study in female rats but only at high doses (≥500 mg/kg/day). Because (1) there are clear NOAELs/LOAELs in the available studies for these effects and the selected endpoints are protective of the observed effects; (2) there is no corroborating gross pathological or neuropathological findings; and (3) there was no evidence of neurotoxicity in other studies in the database, the Agency's concern for potential neurotoxicity is low. Accordingly, and due to the lack of concerns for increased susceptibility in infants and children, there is no need to require a developmental neurotoxicity to further assess the potential for neurotoxicity in infants and children.

iii. There is no evidence that nitrapyrin results in increased susceptibility in in utero rats or rabbits in the prenatal developmental studies or in young rats in the 2-generation reproduction study. Effects on the offspring were not adverse or occurred only at the same parental dose.

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 to assess exposure to nitrapyrin in drinking water. The EPA believes that these assessments will not underestimate the exposure and risks posed by nitrapyrin.

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, drinking 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 nitrapyrin will utilize 8.5% of the aPAD for all infants less than 1-year-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 nitrapyrin from food and drinking water will utilize 15% of the cPAD for children 1-2 years old, the population group receiving the greatest exposure. There are no residential uses for nitrapyrin.

3. Short- and intermediate-term risk. Short- and intermediate-term aggregate exposure takes into account short- and intermediate-term residential exposure plus chronic exposure to food and water (considered to be a background exposure level). However, nitrapyrin is not registered for, or proposed for, any residential uses. Therefore, because there is no short- or intermediate-term residential exposure and chronic dietary exposure has already been assessed under the appropriately protective cPAD, no further assessment of short-or intermediate-term risk is necessary for nitrapyrin.

4. Aggregate cancer risk for U.S. population. Based on the discussion in Unit III.A., EPA considers the chronic aggregate risk assessment to be protective of any aggregate cancer risk. As there is no chronic risk of concern, EPA does not expect any cancer risk to the U.S. population from aggregate exposure to nitrapyrin.

5. 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 nitrapyrin residues.

Seven analytical methods are available in Volume II of the Pesticide Analytical Manual (PAM II—Pesticide Reg. Sec. 180.350) for tolerance enforcement for nitrapyrin and/or for metabolite 6-CPA.

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 nitrapyrin.

The tolerance being established for almond hulls is different than that proposed by the registrant. This difference is due to EPA using the Organization for Economic Cooperation and Development (OECD) Maximum Residue Limits (MRL) calculation procedures to determine appropriate tolerance levels. The results from the spreadsheet calculator supports a tolerance of 0.06 ppm for almond hulls, rather than 0.07 ppm as proposed.

Also, EPA has revised the tolerance expression to clarify (1) that as provided in FFDCA section 408(a)(3), the tolerance covers metabolites and degradates of nitrapyrin not specifically mentioned; and (2) that compliance with the specified tolerance levels is to be determined by measuring only the specific compounds mentioned in the tolerance expression.

Therefore, tolerances are established for residues of nitrapyrin, including its metabolites and degradates, in or on almond, hulls at 0.06 ppm and the nut, tree, group 14-12 at 0.02 ppm.

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).

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

Therefore, 40 CFR chapter I is amended as follows:

On August 12, 2016, FRA published a final rule requiring commuter and intercity passenger railroads to develop and implement an SSP to improve the safety of their operations. See 81 FR 53850. On February 10, 2017, FRA stayed the SSP final rule's requirements until March 21, 2017, consistent with the new Administration's guidance issued January 20, 2017, intended to provide the Administration an adequate opportunity to review new and pending regulations. See 82 FR 10443 (Feb. 13, 2017). To provide additional time for that review, FRA extended the stay until May 22, 2017, June 5, 2017, and then December 4, 2017. See 82 FR 14476 (Mar. 21, 2017), 82 FR 23150 (May 22, 2017), and 82 FR 26359 (June 7, 2017). These stays of the rule's requirements did not affect the SSP final rule's information protection provisions in 49 CFR 270.105, which took effect for information a railroad compiles or collects solely for SSP purposes on August 14, 2017.

FRA's review included petitions for reconsideration of the SSP final rule (Petitions). Various rail labor organizations (Labor Organizations) filed a single joint petition.1 State and local transportation departments and authorities (States) filed the three other petitions, one of which was a joint petition (State Joint Petition).2 The State Joint Petition requested that FRA stay the SSP final rule, and NCDOT specifically requested that FRA stay the rule while FRA was considering the petitions. All Petitions were available for public comment in the docket for the SSP rulemaking. On November 15, 2016, the Massachusetts Department of Transportation (MassDOT) submitted a comment supporting the State Joint Petition, also asking FRA to stay the SSP final rule. FRA did not receive any public comments opposing the States' requests for a stay.

On October 30, 2017, FRA met with the Passenger Safety Working Group and the System Safety Task Group of the Railroad Safety Advisory Committee (RSAC) to discuss the Petitions and comments received in response to the Petitions.3 FRA specifically invited its state partners to this meeting, which was also open to the public. This meeting was necessary for FRA to receive input from industry and the public, and to discuss potential paths forward to respond to the Petitions prior to FRA taking final action. During the meeting, a representative from the Oregon Department of Transportation asked whether the SSP final rule would be further stayed pending FRA's development of a response to the Petitions and public input received at the meeting. An FRA representative indicated that he anticipated a further stay of the rule to provide time to resolve the issues raised by the petitions. None of the meeting participants expressed opposition to a further stay.4

Given the multiple requests for a continued stay of the rule, the comment received supporting a stay, the lack of opposition to a stay in either the comments or at the public RSAC meeting, and FRA's interest in addressing the issues raised in the State petitions prior to requiring full compliance with the SSP final rule, FRA is issuing this final rule extending the stay until December 4, 2018.

This final rule is a non-significant regulatory action within the meaning of Executive Order 12866 and DOT policies and procedures. See 44 FR 11034 (Feb. 26, 1979). The final rule follows the direction of Executive Order 13563 “Improving Regulation and Regulatory Review”, which emphasizes the importance of quantifying both costs and benefits, reducing costs, harmonizing rules, and promoting flexibility. Finally, the final rule also follows the guidance of Executive Order 13771 “Reducing Regulation and Controlling Regulatory Costs” (E.O. 13771), which directs agencies that “for every one new regulation issued, at least two prior regulations be identified for elimination, and that the cost of planned regulations be prudently managed and controlled through a budgeting process.” FRA identified this final rule as a deregulatory effort to comply with E.O. 13771. For more information on E.O. 13771, refer to Office of Management and Budget's April 5, 2017 publication “Memorandum: Implementing Executive Order 13771, titled `Reducing Regulation and Controlling Regulatory Costs.' ”

In July 2016, FRA issued the System Safety Program final rule (2016 Final Rule) as part of its efforts to continuously improve rail safety and to satisfy the statutory mandate in sections 103 and 109 of Rail Safety Improvement Act of 2008. The 2016 Final Rule requires passenger railroads to establish a program that systematically evaluates railroad safety risks and manages those risks with the goal of reducing the numbers and rates of railroad accidents, incidents, injuries, and fatalities. Paperwork requirements are the largest burden of the 2016 Final Rule.

FRA believes that the final rule, which will stay the requirements of the 2016 Final Rule until December 4, 2018, will reduce regulatory burden on the railroad industry. By staying the requirements of the 2016 Final Rule, railroads will realize a cost savings. Railroads will not sustain any costs during the first year of this analysis. In addition, because the analysis discounts future costs and the final rule will move forward all costs by one-year, the present value cost of the final rule is lower as compared to the present value cost of the 2016 Final Rule. FRA estimates this cost savings to be approximately $164,480, at a 3% discount rate, and $76,788, at a 7% discount rate. The following table shows 2016 Final Rule total cost, delayed one-year implementation date total costs (final rule total cost), and the cost savings from a one-year implementation date delay.

The Regulatory Flexibility Act of 1980, 5 U.S.C. 601 et seq., and E.O. 13272, 67 FR 53461 (Aug. 16, 2002), require agency review of proposed and final rules to assess their impact on small entities. An agency must prepare an initial regulatory flexibility analysis (IRFA) unless it determines and certifies that a rule, if promulgated, would not have a significant impact on a substantial number of small entities. Pursuant to the Regulatory Flexibility Act of 1980, 5 U.S.C. 605(b), the FRA Administrator certifies that this final rule will not have a significant economic impact on a substantial number of small entities.

This final rule will affect passenger railroads, but will have a beneficial effect, lessening the burden on small railroads.

“Small entity” is defined in 5 U.S.C. 601 as including a small business concern that is independently owned and operated, and is not dominant in its field of operation. The U.S. Small Business Administration (SBA) has authority to regulate issues related to small businesses, and stipulates in its size standards that a “small entity” in the railroad industry is a for profit “linehaul railroad” that has fewer than 1,500 employees, a “short line railroad” with fewer than 1,500 employees, or a “commuter rail system” with annual receipts of less than $15.0 million dollars. See “Size Eligibility Provisions and Standards,” 13 CFR part 121, subpart A. Additionally, 5 U.S.C. 601(5) defines as “small entities” governments of cities, counties, towns, townships, villages, school districts, or special districts with populations less than 50,000. Federal agencies may adopt their own size standards for small entities, in consultation with SBA and in conjunction with public comment. Pursuant to that authority, FRA has published a final statement of agency policy that formally establishes “small entities” or “small businesses” as being railroads, contractors, and hazardous materials shippers that meet the revenue requirements of a Class III railroad as set forth in 49 CFR 1201.1-1, which is $20 million or less in inflation-adjusted annual revenues, and commuter railroads or small governmental jurisdictions that serve populations of 50,000 or less. See 68 FR 24891 (May 9, 2003), codified at Appendix C to 49 CFR part 209. The $20-million limit is based on the Surface Transportation Board's revenue threshold for a Class III railroad. Railroad revenue is adjusted for inflation by applying a revenue deflator formula in accordance with 49 CFR 1201.1-1. FRA is using this definition for this rulemaking.

This final rule will apply to passenger railroads. Based on the definition of “small entity,” only two passenger railroads are considered small entities: Saratoga & North Creek Railway (SNC), and the Hawkeye Express (operated by the Iowa Northern Railway Company (IANR)). As the final rule is not significant, if it did impact these two small entities, this final rule would merely provide these entities with additional compliance time without introducing any additional burden.

Pursuant to the Regulatory Flexibility Act, 5 U.S.C. 601(b), the Administrator of the FRA hereby certifies that this final rule will not have a significant impact on a substantial number of small entities. A substantial number of small entities may be impacted by this regulation; however, any impact on these entities will be minimal and positive.

There are no new collection of information requirements contained in this final rule and, in accordance with the Paperwork Reduction Act of 1995, 44 U.S.C. 3501 et seq., an information collection submission to the Office of Management and Budget is not required. The record keeping and reporting requirements already contained in the SSP final rule were approved by the Office of Management and Budget on October 5, 2016. The information collection requirements thereby became effective when they were approved by OMB. The OMB approval number is OMB No. 2130-0599, and OMB approval expires on October 31, 2019.

Executive Order 13132, “Federalism” (64 FR 43255, Aug. 10, 1999), requires FRA to develop an accountable process to ensure “meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications.” “Policies that have federalism implications” are defined in the Executive Order to include regulations that have “substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.” Under Executive Order 13132, the agency may not issue a regulation with federalism implications that imposes substantial direct compliance costs and that is not required by statute, unless the Federal government provides the funds necessary to pay the direct compliance costs incurred by State and local governments or the agency consults with State and local government officials early in the process of developing the regulation. Where a regulation has federalism implications and preempts State law, the agency seeks to consult with State and local officials in the process of developing the regulation.

This final rule has been analyzed in accordance with the principles and criteria contained in Executive Order 13132. FRA has determined that this rule 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. In addition, FRA has determined that this rule does not impose substantial direct compliance costs on State and local governments. Therefore, the consultation and funding requirements of Executive Order 13132 do not apply.

The Trade Agreement Act of 1979 prohibits Federal agencies from engaging in any standards or related activities that create unnecessary obstacles to the foreign commerce of the United States. Legitimate domestic objectives, such as safety, are not considered unnecessary obstacles. The statute also requires consideration of international standards and where appropriate, that they be the basis for U.S. standards. This rulemaking is purely domestic in nature and is not expected to affect trade opportunities for U.S. firms doing business overseas or for foreign firms doing business in the United States.

FRA has evaluated this rule in accordance with its “Procedures for Considering Environmental Impacts” (FRA's Procedures) (64 FR 28545, May 26, 1999) as required by the National Environmental Policy Act (42 U.S.C. 4321 et seq.), other environmental statutes, Executive Orders, and related regulatory requirements. FRA has determined that this rule is not a major FRA action (requiring the preparation of an environmental impact statement or environmental assessment) because it is categorically excluded from detailed environmental review pursuant to section 4(c)(20) of FRA's Procedures, which concern the promulgation of railroad safety rules and policy statements that do not result in significantly increased emissions of air or water pollutants or noise or increased traffic congestion in any mode of transportation. See 64 FR 28547, May 26, 1999.

In accordance with section 4(c) and (e) of FRA's Procedures, the agency has further concluded that no extraordinary circumstances exist with respect to this regulation that might trigger the need for a more detailed environmental review. As a result, FRA finds that this rule is not a major Federal action significantly affecting the quality of the human environment.

Pursuant to section 201 of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4, 2 U.S.C. 1531), each Federal agency shall, unless otherwise prohibited by law, assess the effects of Federal regulatory actions on State, local, and tribal governments, and the private sector (other than to the extent that such regulations incorporate requirements specifically set forth in law).

Section 202 of the Act (2 U.S.C. 1532) further requires that before promulgating any general notice of proposed rulemaking that is likely to result in the promulgation of any rule that includes any Federal mandate that may result in expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100,000,000 or more (adjusted annually for inflation) in any 1 year, and before promulgating any final rule for which a general notice of proposed rulemaking was published, the agency shall prepare a written statement.

This written statement must detail the effect on State, local, and tribal governments and the private sector. For the year 2017, this monetary amount of $100,000,000 has been adjusted to $156,000,000 to account for inflation. This final rule would not result in such an expenditure, and thus preparation of such a statement is not required.

Executive Order 13211 requires Federal agencies to prepare a Statement of Energy Effects for any “significant energy action.” 66 FR 28355, May 22, 2001. Under the Executive Order, a “significant energy action” is defined as any action by an agency (normally published in the Federal Register) that promulgates, or is expected to lead to the promulgation of, a final rule or regulation (including a notice of inquiry, advance notice of proposed rulemaking, and notice of proposed rulemaking) that (1)(i) is a significant regulatory action under Executive Order 12866 or any successor order and (ii) is likely to have a significant adverse effect on the supply, distribution, or use of energy; or (2) is designated by the Administrator of the Office of Information and Regulatory Affairs as a significant energy action. FRA has evaluated this rule in accordance with Executive Order 13211. FRA has determined that this rule will not have a significant adverse effect on the supply, distribution, or use of energy. Consequently, FRA has determined that this regulatory action is not a “significant energy action” within the meaning of Executive Order 13211.

In accordance with 5 U.S.C. 553(c), DOT solicits comments from the public to better inform its rulemaking process. DOT posts these comments, without edit, including any personal information the commenter provides, to www.regulations.gov, as described in the system of records notice (DOT/ALL-14 FDMS), which can be reviewed at www.dot.gov/privacy.

On September 1, 2017, NMFS restricted the retention, transshipment and landing of bigeye tuna captured by longline gear in the western and central Pacific Ocean (WCPO) because the U.S. longline fishery reached 2017 U.S. bigeye tuna limit of 3,554 mt (82 FR 47642, October 13, 2017). Regulations at 50 CFR 300.224(d) provide an exception to this closure for bigeye tuna caught by U.S. longline vessels identified in a valid specified fishing agreement under 50 CFR 665.819(c). Further, 50 CFR 665.819(c)(9) authorized NMFS to attribute catches of bigeye tuna made by U.S. longline vessels identified in a valid specified fishing agreement to the U.S. territory to which the agreement applies.

Effective on October 10, 2017, NMFS specified a 2017 catch limit of 2,000 mt of longline-caught bigeye tuna for the U.S. territories of American Samoa, Guam and the Commonwealth of the Northern Mariana Islands or CNMI (82 FR 49143, October 24, 2017). NMFS also authorized each territory to allocate up to 1,000 mt of its 2,000 mt bigeye tuna limit to U.S. longline fishing vessels permitted to fish under the Fishery Ecosystem Plan for Pelagic Fisheries of the Western Pacific (FEP).

On October 6, 2017, the Western Pacific Fishery Management Council, through its Executive Director, transmitted to NMFS a specified fishing agreement between the CNMI and Quota Management, Inc. (QMI) dated April 14, 2016. NMFS reviewed the agreement and determined that it was consistent with the requirements at 50 CFR 665.819, the FEP, the Magnuson-Stevens Fishery Conservation and Management Act, and other applicable laws (82 FR 49143, October 24, 2017). The criteria that a specified fishing agreement must meet, and the process for attributing longline-caught bigeye tuna, followed the procedures in 50 CFR 665.819—Territorial catch and fishing effort limits.

In accordance with 50 CFR 300.224(d) and 50 CFR 665.819(c)(9), NMFS began attributing bigeye tuna caught in the WCPO by vessels identified in the CNMI/QMI agreement to the CNMI, beginning on October 10, 2017. NMFS monitored catches of longline-caught bigeye tuna by the CNMI longline fisheries, including catches made by U.S. longline vessels operating under the CNMI/QMI agreement. Based on this monitoring, NMFS forecasted that the CNMI territorial allocation limit of 1,000 mt will be reached by December 6, 2017, and is, as an accountability measure, prohibiting the catch and retention of longline-caught bigeye tuna by vessels in the CNMI/QMI agreement.

Effective 12:01 a.m. local time December 6, 2017, through December 31, 2017, NMFS closes the U.S. pelagic longline fishery for bigeye tuna in the western and central Pacific Ocean as a result of the fishery reaching the 2017 allocation limit of 1,000 mt for the CNMI.

During the closure, a U.S. fishing vessel operating under the CNMI/QMI agreement may not retain on board, transship, or land bigeye tuna captured by longline gear in the WCPO, except that any bigeye tuna already on board a fishing vessel upon the effective date of the restrictions may be retained on board, transshipped, and landed, provided that they are landed within 14 days of the start of the closure; that is, by December 20, 2017.

Additionally, U.S. fishing vessels operating under the CNMI/QMI agreement are also prohibited from transshipping bigeye tuna caught in the WCPO by longline gear to any vessel other than a U.S. fishing vessel with a valid permit issued under 50 CFR 660.707 or 665.801.

During the closure, all other restrictions and requirements NMFS established on September 1, 2017, as a result of the U.S. longline fishery reaching the 2017 U.S. bigeye tuna limit of 3,108 mt (82 FR 37824, August 14, 2017) shall remain valid and effective.

However, any vessel included in the CNMI/QMI agreement that is also included in a valid specified fishing agreement in effect on December 6, 2017, may continue to transship, retain, and land bigeye tuna caught by longline gear in the WCPO. Additionally, if any such vessel is engaged in a longline fishing trip in the WCPO on December 6, 2017, that vessel would not need to return to port before December 20, 2017. NMFS would announce any subsequent valid specified fishing agreement in the Federal Register.

There is good cause under 5 U.S.C. 553(b)(B) to waive prior notice and the opportunity for public comment on this action, because it would be impracticable and contrary to public interest, as discussed below. This rule closes the U.S. longline fishery for bigeye tuna in the WCPO as a result of reaching the bigeye tuna allocation limit established by the 2017 specification for catch and allocation limits of bigeye tuna for the CNMI, and the specified fishing agreement between the Government of the CNMI and QMI dated April 14, 2016.

NMFS forecasted that the fishery would reach the 2017 CNMI allocation limit by December 6, 2017. Fishermen have been subject to longline bigeye tuna limits in the western and central Pacific since 2009. They have received ongoing, updated information about the 2017 catch and progress of the fishery in reaching the U.S. bigeye tuna limit via the NMFS Web site, social media, and other means. The publication timing of this rule, moreover, provides longline fishermen with seven days' advance notice of the closure date, and allows two weeks to return to port and land their catch of bigeye tuna. This action is intended to comply with regulations managing this stock, and, accordingly NMFS finds it impracticable and contrary to the public interest to have prior notice and public comment.

For the reasons stated above, there is also good cause under 5 U.S.C. 553(d)(3) to waive the 30-day delay in effectiveness for this temporary rule. NMFS must close the fishery to ensure that fishery does not exceed the allocation limit. NMFS implemented the catch and allocation limits for the CNMI consistent with management objectives to sustainable manage the bigeye tuna stock and restore the stock to levels capable of producing maximum sustainable yield on a continuing basis. Failure to close the fishery before the limit is reached would be inconsistent with bigeye tuna management objections and in violation of Federal law.

This action is required by 50 CFR 665.819(d), and is exempt from review under Executive Order 12866.