Federal Register Vol. 83, No.111,

This rule, in accordance with 7 CFR 900.14(c), is the Secretary's final rule in this proceeding and issues a marketing order as defined in 7 CFR 900.2(j).

Accordingly, this final rule adopts amendments detailed in the proposed rule (83 FR 14110), with one minor technical correction to paragraph numbering in § 1051.73(c)(2). The proposed rule designated two consecutive paragraphs in that section as paragraph (c)(2)(vii). This final rule corrects the proposed rule by redesignating the second paragraph as paragraph (c)(2)(viii).

This rule is effective with publication of the Announcement of Advanced Prices and Pricing Factors on October 17, 2018 (see § 1051.53). Affected parties must comply with all provisions of this rule beginning November 1, 2018.

This administrative action is governed by the provisions of Sections 556 and 557 of Title 5 of the United States Code and is therefore excluded from the requirements of Executive Order 12866.

This final rule is not considered an Executive Order 13771 regulatory action because it does not meet the definition of a “regulation” or “rule” under Executive Order 12866.

The amendments adopted in this final rule have been reviewed under Executive Order 12988, Civil Justice Reform. This rule is not intended to have retroactive effect and will not preempt any state or local law, regulations, or policies, unless they present an irreconcilable conflict with this rule.

AMS is committed to complying with the E-Government Act to promote the use of the internet and other information technologies, to provide increased opportunities for citizen access to Government information and services, and for other purposes.

The Agricultural Marketing Agreement Act of 1937 (AMAA), as amended (7 U.S.C. 601-674 and 7253), provides that administrative proceedings must be exhausted before parties may file suit in court. Under section 608c(15)(A) of the AMAA, any handler subject to a marketing order may request modification or exemption from such order by filing with the U.S. Department of Agriculture (USDA) a petition stating that the order, any provision of the order, or any obligation imposed in connection with the order is not in accordance with law. A handler is afforded the opportunity for a hearing on the petition. After a hearing, USDA would rule on the petition. The AMAA provides that the district court of the United States in any district in which the handler is an inhabitant, or has its principal place of business, has jurisdiction in equity to review USDA's ruling on the petition, provided a bill in equity is filed not later than 20 days after the date of the entry of the ruling.

Pursuant to the requirements set forth in the Regulatory Flexibility Act (RFA) (5 U.S.C. 601-612), the Agricultural Marketing Service (AMS) considered the economic impact of this action on small entities. Accordingly, AMS prepared this final regulatory flexibility analysis.

The purpose of the RFA is to fit regulatory actions to the scale of businesses subject to such actions so that small businesses will not be unduly or disproportionately burdened. Small dairy farm businesses have been defined by the Small Business Administration (SBA) (13 CFR 121.601) as those businesses having annual gross receipts of less than $750,000. The SBA's definition of small agricultural service firms, which includes handlers that will be regulated under this marketing order, varies depending on the product manufactured. Small fluid milk and ice cream manufacturers are defined as having 1,000 or fewer employees. Small butter and dry or condensed dairy product manufacturers are defined as having 750 or fewer employees. Small cheese manufacturers are defined as having 1,250 or fewer employees.

For the purpose of determining which California dairy farms are “small businesses,” the $750,000 per year criterion was used to establish a production guideline that equates to approximately 315,000 pounds of milk per month. Although this guideline does not factor in additional monies that may be received by dairy farmers, it is a standard encompassing most small dairy farms. For the purpose of determining a handler's size, if the plant is part of a larger company operating multiple plants that collectively exceed the employee limit for that type of manufacturing, the plant is considered a large business even if the local plant has fewer than the defined number of employees.

Interested persons were invited to present evidence at the hearing on the probable regulatory and informational impact of the California FMMO on small businesses. Specific evidence on the number of large and small dairy farms in California (above and below the threshold of $750,000 in annual sales) was not presented at the hearing. However, data compiled by CDFA1 suggests that between 5 and 15 percent of California dairy farms would be considered small business entities. No comparable data for dairy product manufacturers was available.

Record evidence indicates that implementing the California FMMO would not impose a disproportionate burden on small businesses. Currently, the California dairy industry is regulated by a California State Order (CSO) that is administered and enforced by CDFA. While the CSO and FMMOs have differences, they both maintain similar classified pricing and marketwide pooling functions. Therefore, it is not expected that the regulatory change will have a significant impact on California small businesses.

The record evidence indicates that while the program is likely to impose some costs on the regulated parties, those costs would be outweighed by the benefits expected to accrue to the California dairy industry. In conjunction with the publication of the final decision (83 FR 14110), AMS released a Regulatory Economic Impact Analysis (REIA) to study the possible impacts of the California FMMO. The analysis reflects the provisions of this FMMO and may be viewed at www.ams.usda.gov/caorder.

In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35), this final rule also announces AMS's intention to merge the OMB Report Forms under a California Federal Milk Marketing Order (from Milk Handlers and Milk Marketing Cooperatives, 0581-0298), and the forms used to conduct the producer referendum (Referendum Ballots, 0581-0300) with the reporting forms used in the rest of the dairy marketing orders (Report Forms Under the Federal Milk Marketing Order Program, 0581-0032). Any additional information collection and recordkeeping requirements that may be imposed under the order would be submitted to OMB for public comment and approval.

Notice of Hearing: Issued July 27, 2015; published August 6, 2015 (80 FR 47210);

Notice to Reconvene Hearing: Issued September 25, 2015; published September 30, 2015 (80 FR 58636);

Recommended Decision and Opportunity To File Written Exceptions: Issued February 6, 2017; published February 14, 2017 (82 FR 10634);

Documents for Official Notice: Issued August 8, 2017; published August 14, 2017 (82 FR 37827);

Information Collection—Producer Ballots: Issued September 27, 2017; published October 2, 2017 (82 FR 45795);

Delay of Rulemaking: Issued February 1, 2018; published February 6, 2018 (83 FR 5215);

Ratification of Record: Issued March 14, 2018; published March 19, 2018 (83 FR 11903); and

Final Decision: Issued March 23, 2018; published April 2, 2018 (83 FR 14110).

The findings and determinations hereinafter set forth are hereby ratified and confirmed, except where they may conflict with those set forth herein.

(1) Findings upon the basis of the hearing record.

The promulgation of the marketing agreement and order is based on the record of a public hearing held September 22 through November 18, 2015 in Clovis, California. The hearing was held to receive evidence on four proposals submitted by dairy farmers, handlers, and other interested parties. Notice of this hearing was published in the Federal Register on August 6, 2015 (80 FR 47210), pursuant to the provisions of the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), and the applicable rules of practice and procedure (7 CFR part 900).

Upon the basis of the evidence introduced at the public hearing and its record, it is found that:

(a) The order as hereby promulgated, and all of the terms and conditions thereof, will tend to effectuate the declared policy of the AMAA;

(b) The parity prices of milk, as determined pursuant to section 2 of the AMAA, are not reasonable in view of the price of feeds, available supplies of feeds, and other economic conditions that affect market supply and demand for milk in California. The minimum prices specified in the tentative marketing agreement and order, as hereby established, are prices that will reflect the aforesaid factors, ensure a sufficient quantity of pure and wholesome milk, and be in the public interest; and

(c) The tentative marketing agreement and order, as hereby established, will regulate the handling of milk in the same manner as, and applies only to, persons in the respective classes of industrial and commercial activity specified in, marketing agreements upon which a hearing has been held.

(2) Determinations.

It is hereby determined that:

(a) The refusal or failure of handlers (excluding cooperative associations specified in section 8c(9) of the AMAA) of more than 50 percent of the milk marketed within the specified marketing areas to sign a proposed marketing agreement, tends to prevent the effectuation of the declared policy of the AMAA;

(b) The issuance of this order establishing the California order is the only practical means pursuant to the declared policy of the AMAA of advancing the interests of producers as defined in the order as hereby promulgated; and

(c) The issuance of this order establishing the California order is favored by at least two-thirds of the producers who were engaged in the production of milk for sale in the respective marketing areas.

It is therefore ordered, that on and after the effective date hereof, the handling of milk in the California marketing area shall be in conformity to and in compliance with the terms and conditions of the order.

We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 by adding an AD that would apply to all The Boeing Company Model 737-100, -200, -200C, -300, -400, and -500 series airplanes. The NPRM published in the Federal Register on February 9, 2018 (83 FR 5743). The NPRM was prompted by reports of cracks found in the rear spar web and lower chord on the left and right wings. The NPRM proposed to require repetitive detailed inspections for cracking of the rear spar web and lower chord, and applicable on-condition actions.

We are issuing this AD to address cracks in the rear spar of the left and right wing between wing buttock line (WBL) 91 and WBL 155, which could lead to the inability of a principal structural element to sustain required flight loads and adversely affect the structural integrity of the airplane.

We gave the public the opportunity to participate in developing this final rule. The following presents the comments received on the NPRM and the FAA's response to each comment.

The Boeing Company stated its support for the NPRM.

Southwest Airlines (Southwest), requested that we revise paragraph (h) of the proposed AD, which refers to the “Compliance” section of Boeing Alert Requirements Bulletin 737-57A1337 RB, dated September 14, 2017, regarding the different compliance times for the two inspection methods given in Table 1 of the “Compliance” section for Group 2 airplanes. Southwest stated that the planned inspection method should have no bearing on the timing of the inspection, and therefore the compliance times should be the same for both options. They did not specify which of the two compliance times they would favor.

We acknowledge the commenter's request. While the compliance times for inspections are not normally dependent on the planned inspection method, in this case, the initial compliance times were adjusted to account for differences in the probability of detection using a visual inspection versus an eddy current inspection. Because an eddy current inspection is more capable of detecting smaller cracks than a visual inspection, the initial compliance time was shortened for those airplanes that are inspected using the visual inspection option. We have not changed this AD in this regard.

Aviation Partners Boeing stated that the installation of winglets using Supplemental Type Certificate (STC) ST01219SE does not affect the actions specified in the NPRM.

We agree with the commenter. We have redesignated paragraph (c) of the proposed AD as paragraph (c)(1) of this AD and added paragraph (c)(2) to this AD to state that installation of STC ST01219SE does not affect the ability to accomplish the actions required by this AD. Therefore, for airplanes on which STC ST01219SE is installed, a “change in product” alternative method of compliance (AMOC) approval request is not necessary to comply with the requirements of 14 CFR 39.17.

We reviewed the relevant data, considered the comments received, and determined that air safety and the public interest require adopting this final rule with the changes described previously and minor editorial changes. We have determined that these minor changes:

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

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

We also determined that these changes will not increase the economic burden on any operator or increase the scope of this final rule.

We reviewed Boeing Alert Requirements Bulletin 737-57A1337 RB, dated September 14, 2017. This service information describes procedures for repetitive detailed or surface High Frequency Eddy Current (HFEC) inspections for cracking of the rear spar web and lower chord, and applicable on-condition actions. 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 estimate that this AD affects 160 airplanes of U.S. registry. We estimate the following costs to comply with this AD:

We have received no definitive data that would enable us to provide cost estimates for the on-condition actions specified in 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 transport category airplanes and associated appliances to the Director of the System Oversight 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:

We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 by adding an AD that would apply to all Airbus Model A318-111 and -112 airplanes; Model A319-111, -112, -113, -114, and -115 airplanes; Model A320-211, -212, -214, and -216 airplanes; and Model A321-111, -112, -211, -212, and -213 airplanes. The NPRM published in the Federal Register on October 24, 2017 (82 FR 49146) (“the NPRM”). The NPRM was prompted by a review of maintenance instructions for a blend repair of the snout diameter of the main beam assembly of the forward engine mount that would create an excessive gap between the bearing mono-ball and the snout. The NPRM proposed to require modifying the main beam assembly of the forward engine mount. We are issuing this AD to prevent in-flight failure of a forward engine mount, and consequent detachment of an engine, which could result in reduced controllability of the airplane.

The European Aviation Safety Agency (EASA), which is the Technical Agent for the Member States of the European Union, has issued EASA AD 2017-0132R1, dated November 22, 2017 (referred to after this as the Mandatory Continuing Airworthiness Information, or “the MCAI”), to correct an unsafe condition for all Airbus Model A318-111 and -112 airplanes; Model A319-111, -112, -113, -114, and -115 airplanes; Model A320-211, -212, -214, and -216 airplanes; and Model A321-111, -112, -211, -212, and -213 airplanes. The MCAI states:

Required actions include modifying the main beam assembly of the forward engine mount. The modification includes repairing, replacing, or reworking the main beam assembly. You may examine the MCAI in the AD docket on the internet at http://www.regulations.gov by searching for and locating Docket No. FAA-2017-1020.

We gave the public the opportunity to participate in developing this AD. The following presents the comments received on the NPRM and the FAA's response to each comment.

The Air Line Pilots Association, International (ALPA) and Jake Watson stated their support for the proposed AD. American Airlines (AAL) stated that it has no objection to the intent of the NPRM.

AAL stated that the proposed AD should require Goodrich Aerospace Service Bulletin RA32071-159, Rev 1, dated July 25, 2017 (“SB RA32071-159 Rev 1”), which corrects part number references, revises illustrations, and clarifies the procedure. Alternatively, AAL asserted that the proposed AD should allow the use of RA32071-159 Rev 1, or later revisions. AAL stated that Goodrich Aerospace Service Bulletin RA32071-159, dated November 20, 2016, is not useable due to multiple issues.

We do not agree to require RA32071-159 Rev 1. Goodrich Aerospace Service Bulletin RA32071-159 is referenced as an additional source of guidance in Airbus Service Bulletin A320-71-1065, Revision 01, dated July 28, 2017; and Airbus Service Bulletin A320-71-1066, dated December 1, 2016; for inspecting and corrective actions. We acknowledge that RA32071-159 Rev 1 contains several improvements. Therefore, we recommend operators incorporate the latest approved service information. However, in paragraphs (g)(2)(ii) and (h) of this AD, we refer to “Goodrich Aerospace Service Bulletin RA32071-159” and not to any specific revision. Therefore, we have not changed this AD in this regard.

AAL stated that Goodrich Aerospace Service Bulletin RA32071-159 requires operators to “fully disassemble the engine mount assembly”, which is not necessary for the dimensional inspection of the snout. AAL noted that, as long as the mount is not installed on the engine, the bearing assembly can be removed to expose the snout, clean, and measure the snout. AAL added that if an operator is forced to fully disassemble the mount, it will drive the mount to an overhaul, which is time consuming and costly.

We infer that the commenter is asking that we exclude full disassembly of the engine mount assembly from the inspection specified in paragraph (h) of the proposed AD. We do not agree. Neither Airbus nor the state of design authority, EASA, has informed the FAA that the snout diameter can be conclusively measured without full disassembly of the engine mount assembly. AAL did not provide any justification supported by approval from EASA; or Airbus's EASA Design Organization Approval (DOA) to allow deviation from the required for compliance section of the service information. However, under the provisions of paragraph (n) of this AD, we will consider requests for approval of an alternative method of compliance if sufficient data are submitted to substantiate that a deviation would provide an acceptable level of safety. We have made no change to this AD in this regard.

AAL also asked that the FAA compel Goodrich Aerospace to incorporate FAA Advisory Circular 20-176A, dated June 16, 2014, into Goodrich Aerospace Service Bulletin RA32071-159 for the purpose of “. . . distinguishing which steps in an SB will have a direct effect on detecting, preventing, resolving, or eliminating the unsafe condition identified in an AD.” AAL asserted that Goodrich Aerospace has had 7 years to evaluate and incorporate the best practices for drafting service bulletins related to ADs.

We disagree with the commenter's request. FAA Advisory Circular 20-176A, dated June 16, 2014, provides best practices for drafting service bulletins related to ADs. Although we recommend that the original equipment manufacturer (OEM) specify “RC” steps in service information, the FAA advisory circular is not mandatory, only a recommendation as best practices. We have not changed this AD in this regard.

Delta Airlines (Delta) asked that the proposed AD not specify a revision level for Goodrich Aerospace Service Bulletin RA32071-159. Delta added that, if one must be specified, all revisions published prior to the effective date of the AD should be acceptable methods of compliance.

We agree with the commenter's request that the revision level of Goodrich Aerospace Service Bulletin RA32071-159 not be specified. As previously explained, this AD does not specify a revision level for Goodrich Aerospace Service Bulletin RA32071-159. Therefore, no change to this AD is necessary in this regard.

Delta requested that paragraph (g)(1) of the proposed AD be revised to specify that maintenance records must confirm that Repair 10 of Component Maintenance Manual (CMM) 71-21-08, Revisions 1 through 46, has never been performed. Delta stated that, based on the NPRM and service information, it is clear that the discrepant repair is Repair 10 of CMM 71-21-08, Revisions 1 through 46. Delta added that paragraph (g)(1) of the proposed AD does not specify that maintenance records must show only that forward mount main beams have not been repaired per the discrepant Repair 10 of CMM 71-21-08, Revisions 1 through 46, which would classify them as affected main beams.

We disagree with the commenter's request; however, we provide the following clarification. The intent of paragraph (g)(1) of this AD is that if no maintenance record exists then there is a possibility that the main beam has been repaired using Repair 10 of CMM 71-21-08 Revisions 1 through 46, and, therefore, qualifies as an “affected main beam.” We have not changed this AD in this regard.

Delta asked that the exceptions in paragraphs (g)(2)(i) through (g)(2)(iii) of the proposed AD also apply to parts for which maintenance records are not available to confirm repair history. Delta stated that this will account for mounts that are not installed on-wing and future spare purchases. Delta added that paragraph (g)(2) of the proposed AD does not permit parts with unknown repair history to be excluded if the criteria in paragraphs (g)(2)(i) through (g)(2)(iii) of the proposed AD are met. Delta noted that paragraph (g)(1) of the proposed AD, parts with unknown repair history, are considered “affected main beams” and have the same compliance requirements as parts that have been repaired per discrepant Repair 10 of CMM 71-21-08, Revisions 1 through 46.

We do not agree with the commenter's request. Exceptions in paragraphs (g)(2)(i) through (g)(2)(iii) of this AD are based on the fact that maintenance records exist. Therefore, these exceptions do not apply to parts with unknown repair history in paragraph (g)(1) of this AD. We have not changed this AD in this regard.

Delta and Lufthansa Technik (Lufthansa) asked that we allow use of later revisions of the CMM repairs in paragraphs (g)(2)(ii) and (h) of the proposed AD. Delta noted that paragraph (g)(2)(ii) doesn't specify that a repair per the corrected Repair 10 of CMM 71-21-08, Revision 47 (and later), or Repair 21 of CMM 71-21-06, Revision 59 (and later), excludes forward mount main beams from the effectivity. Delta added that the dimensional requirements of corrected Repair 10 and Repair 21 are equivalent to the requirements of Goodrich Aerospace Service Bulletin RA32071-159, and ensure that any main beams repaired will meet the intent of the proposed AD.

Delta stated that paragraph (h) of the proposed AD doesn't specify that a qualifying inspection can be done as specified in the instructions of the later revisions of CMMs 71-21-08 and 71-21-06 that introduced the corrected Repair 10 and Repair 21. Delta explained that CMM 71-21-08, Revision 48 (and later), and CMM 71-21-06, Revision 60 (and later), contain the correct snout diameters as specified in Repair 10 of CMM 71-21-08, Revision 47, and Repair 21 of CMM 71-21-06, Revision 59. Delta further noted that EASA AD 2017-0132R1, dated November 22, 2017, permits the use of later revisions of the CMMs with corrected Repairs 10 and 21.

We disagree with the commenters' requests. We cannot use the phrase, “or later approved revisions,” in an AD when referring to the service document because doing so violates Office of the Federal Register (OFR) regulations for approval of materials “incorporated by reference” in rules. In general terms, we are required by these OFR regulations to either publish the service document contents as part of the actual AD language; or submit the service document to the OFR for approval as “referenced” material, in which case we may only refer to such material in the text of an AD. The AD may refer to the service document only if the OFR approved it for “incorporation by reference.” To allow operators to use later revisions of the referenced document (issued after publication of the AD), either we must revise the AD to reference specific later revisions, or operators must request approval to use later revisions as an alternative method of compliance (AMOC) with this AD under the provisions of paragraph (n) of this AD. We have not changed this AD in this regard.

Delta asked that paragraph (i) of the proposed AD clarify that airplanes on which the main beams have never been replaced are considered Group 2 airplanes. Delta stated that paragraph (i) of the proposed AD doesn't specify that airplanes on which the main beams have never been replaced (and thus never repaired) since aircraft delivery should be considered Group 2 airplanes. Delta added that an airplane on which the forward mounts have never been replaced since aircraft delivery will not have the discrepant Repair 10 of CMM 71-21-08, Revisions 1 through 46.

We do not agree to revise paragraph (i) of this AD; however, we have clarified the airplane group as follows. Paragraph (i) of this AD specifies Group 2 airplanes are airplanes on which an affected main beam has not been installed as of the effective date of this AD. Therefore, airplanes with main beams that have never been replaced since aircraft delivery might be considered Group 2 airplanes, if the original main beam is not an affected main beam as defined in paragraph (g) of this AD. However, if for example, an airplane with main beams that have never been replaced does not have maintenance records to conclusively confirm the part has never been repaired, as specified in paragraph (g)(1) of this AD, then it is a Group 1 airplane. We have not changed this AD in this regard.

Delta asked that the proposed AD use the language “inspect and disposition” instead of “modify” to describe the action required by paragraph (j) of the proposed AD. Additionally, Delta asked that the proposed AD specify that replacement of a forward mount assembly containing an affected main beam with a forward mount assembly that contains an AD-compliant main beam is an acceptable means of compliance. Delta stated that paragraph (j) of the proposed AD uses the term “modify” to describe compliance with the requirements of the inspection and repair of the mounts. Delta added that, based on the instructions in the service information, the intent of the work instructions is to inspect affected main beams and disposition based on inspection findings; the dispositions range from scrapping the main beam to blending, based on measured snout diameter. Delta noted that the replacement of a forward mount assembly that contains an affected main beam with a forward mount assembly with an AD-compliant main beam meets the intent of the proposed AD to remove affected main beams from service.

We partially agree. We do not agree to replace “modify” with “inspect and disposition,” because corrective action cannot be defined by the term “disposition,” which is open to interpretation. Operators must follow the instructions in the Airbus service information referenced in paragraph (j) of this AD for the applicable method of compliance. However, we acknowledge that, while the Accomplishment Instructions of Airbus Service Bulletin A320-71-1066, dated December 1, 2016, specify to do a “Modification of the FWD Engine Mount Assembly on Engine 1 and Engine 2,” the Accomplishment Instructions of Airbus Service Bulletin A320-71-1065, Revision 01, dated July 28, 2017, specify to do inspections and applicable corrective actions. Therefore, we have changed paragraph (j) of this AD to replace “modify” with “modify, including doing all applicable inspections and corrective actions.”

Lufthansa requested that we include Goodrich Aerospace Service Bulletin RA32071-159 in paragraph (j) of the proposed AD to “make it more clear.”

We do not agree. The commenter provided no explanation of what is unclear in paragraph (j) or how adding the Goodrich Aerospace service bulletin will clarify the requirements of paragraph (j). Therefore, we have not changed this AD in this regard.

Delta and Lufthansa asked that the proposed AD include credit for doing previous actions by accomplishing Goodrich Aerospace Service Bulletin RA32071-159; Repair 10 of CMM 71-21-08, Revision 47 (and later); or Repair 21 of CMM 71-21-06, Revision 59 (and later). Delta stated that paragraph (l) of the proposed AD includes credit for previous actions only for compliance with Airbus Service Bulletin A320-71-1065, Revision 01, dated July 28, 2017. Delta asserted that the intent of the proposed AD is met by the accomplishment of Goodrich Aerospace Service Bulletin RA32071-159; Repair 10 of CMM 71-21-08, Revision 47 (and later); or Repair 21 of CMM 71-21-06, Revision 59 (and later); due to the correction of the inspection and repair requirements.

We do not agree with the commenter's request. Goodrich Aerospace Service Bulletin RA32071-159 is referenced in the airplane level Airbus service information as a secondary document; therefore, it is not an alternate for the instructions in the airplane level service information. All of the steps in paragraph 3.C. of Airbus Service Bulletin A320-71-1065, Revision 01, dated July 28, 2017, are required for compliance and must be done to comply with this AD. If not done before the effective date of this AD, paragraph (f) of this AD states that you must comply with the actions in the AD, “unless already done.”

Regarding future revisions of CMM repairs, we may not refer to any document that does not yet exist. To allow operators to use later revisions of a required document (issued after publication of the AD), either we must revise the AD to reference specific later revisions, or operators must request approval to use later revisions as an alternative method of compliance with the requirements of an AD under the provisions of the AMOC paragraph of the AD. However, as explained previously, the identified CMM repairs are not required for accomplishment of any action in this AD; therefore, no change to this AD is necessary in this regard.

Delta asked that paragraph (m) of the proposed AD, “Parts Installation Prohibition,” be changed to permit the same allowance to install an affected main beam onto an aircraft equipped with an affected forward engine mount assembly within the compliance windows defined in paragraph (j) of the proposed AD. Delta stated that paragraph (m) of the proposed AD prohibits the installation of an affected main beam on any airplane after the effective date of the AD. Delta further points out that the parallel EASA AD 2017-0132R1, dated November 22, 2017, permits the installation of an affected main beam onto an aircraft equipped with an affected forward engine mount assembly within the compliance times defined in paragraph (j) of the proposed AD.

We agree with the commenter's request. After the NPRM was issued, EASA issued AD 2017-0132R1, dated November 22, 2017, which revised its parts installation requirement. We have revised paragraph (m) of this AD to match the EASA AD. In addition, we have revised this AD to refer to EASA AD 2017-0132R1, dated November 22, 2017.

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

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

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

We also determined that these changes will not increase the economic burden on any operator or increase the scope of this AD.

Airbus has issued Service Bulletin A320-71-1065, Revision 01, dated July 28, 2017. This service information describes procedures for modifying the main beam assembly of the forward engine mount. The modification includes, among other things, repair or replacement of the main beam assembly.

Airbus has also issued Service Bulletin A320-71-1066, dated December 1, 2016. This service information describes procedures for modifying the main beam assembly of the forward engine mount. The modification includes, among other things, rework of the main beam assembly.

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 estimate that this AD affects 500 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 transport category airplanes to the Director of the System Oversight Division.

We determined that this AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed above, I certify that this AD:

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

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

3. Will not affect intrastate aviation in Alaska, and

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

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

We have received a report that members of the cabincrew on a Model 787 airplane were injured when hot water escaped during the opening of the steam oven door. The incident occurred with Jamco steam ovens, part number (P/N) ASN2001-1 and P/N ASN2001-12. Investigation revealed that the current water filter configuration allows foreign objects to enter the water system, which can prevent the solenoid valve from moving to a fully closed position and subsequently allow water to enter the steam oven cavity. Water in the steam oven cavity can become heated and then released when the door is opened. A new water filter assembly has been developed, which includes a larger screen to prevent foreign object debris from moving downstream to block the solenoid valve from moving to a fully closed position. This condition, if not addressed, could result in water becoming heated as it collects in the bottom of the oven during the cooking cycle, resulting in hot water escaping when the oven door is opened, and subsequent injury to the cabincrew.

The Jamco steam ovens installed on Model 777-300ER series airplanes have the same part numbers as those installed on the affected Model 787 airplane; therefore, Model 777-300ER series airplanes are subject to the same unsafe condition revealed on the Model 787 airplane. The unsafe condition on Model 787 airplanes has been addressed.

We reviewed Boeing Service Bulletin 777-25-0617, dated June 6, 2014. The service information describes procedures for replacing the water filter assembly in Jamco steam ovens, P/N ASN2001-1 and P/N ASN2001-12. 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 accomplishing the actions specified in the service information described previously.

There are currently no domestic operators of this product. Therefore, we find that notice and opportunity for prior public comment are unnecessary and 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-2018-0507 and Product Identifier 2018-NM-027-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.

Currently, there are no affected U.S.-registered airplanes. If an affected airplane is imported and placed on the U.S. Register in the future, we provide the following cost estimates to comply with this AD:

According to the manufacturer, some or all of the costs of this AD may be covered under warranty, thereby reducing the cost impact on affected individuals. We do not control warranty coverage for affected individuals. As a result, we have included all known costs in our cost estimate.

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 transport category airplanes and associated appliances to the Director of the System Oversight 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:

Authority for This Rulemaking

The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the United States Code. Subtitle I, Section 106 describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority. This rulemaking is promulgated under the authority described in Subtitle VII, Part A, Subpart I, Section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it establishes Class E airspace extending upward from 700 feet above the earth at Pago Pago International Airport, Pago Pago, American Samoa, to support IFR operations at the airport.

The FAA published a notice of proposed rulemaking (NPRM) in the Federal Register for Docket No. FAA-2018-0082 (83 FR 12289; March 21, 2018). The NPRM proposed to establish Class E airspace extending upward from 700 feet above the surface at Pago Pago International Airport, Pago Pago, American Samoa. Interested parties were invited to participate in this rulemaking effort by submitting written comments on the proposal to the FAA. One comment was received, supporting the proposal.

Class E airspace designations are published in paragraph 6005 of FAA Order 7400.11B, dated August 3, 2017, and effective September 15, 2017, which is incorporated by reference in 14 CFR 71.1. The Class E airspace designation listed in this document will be published subsequently in the Order.

This document amends FAA Order 7400.11B, Airspace Designations and Reporting Points, dated August 3, 2017, and effective September 15, 2017. FAA Order 7400.11B is publicly available as listed in the ADDRESSES section of this document. FAA Order 7400.11B lists Class A, B, C, D, and E airspace areas, air traffic service routes, and reporting points.

The FAA is amending Title 14 Code of Federal Regulations (14 CFR) part 71 by establishing Class E airspace extending upward from 700 feet above the surface at Pago Pago International Airport, Pago Pago, AS. This airspace is necessary to accommodate the redesign for IFR operations in standard instrument approach and departure procedures at the airport. Class E airspace is established within a 7-mile radius of Pago Pago International Airport and within 4 miles either side of the 071° bearing extending from the 7-mile radius to 10.6 miles northeast, and within 4 miles either side of the 240° bearing extending from the 7-mile radius to 10.4 miles southwest; and that airspace extending upward from 1,200 feet above the surface within a 20-mile radius of Pago Pago International Airport, excluding that airspace extending beyond 12 miles of the shoreline.

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

The FAA has determined that this action of establishing Class E airspace extending upward from 700 feet above the surface at Pago Pago International Airport, Pago Pago, American Samoa (AS) to accommodate new area navigation (RNAV) procedures at the airport qualifies for categorical exclusion under the National Environmental Policy Act and its implementing regulations at 40 CFR part 1500, and in accordance with FAA Order 1050.1F, Environmental Impacts: Policies and Procedures, Paragraph 5-6.5a, which categorically excludes from further environmental impact review rulemaking actions that designate or modify classes of airspace areas, airways, routes, and reporting points (see 14 CFR part 71, Designation of Class A, B, C, D, and E Airspace Areas; Air Traffic Service Routes; and Reporting Points). As such, this action is not expected to cause any potentially significant environmental impacts. In accordance with FAA Order 1050.1F, paragraph 5-2 regarding Extraordinary Circumstances, the FAA has reviewed this action for factors and circumstances in which a normally categorically excluded action may have a significant environmental impact requiring further analysis. The FAA has determined that no extraordinary circumstances exist that warrant preparation of an environmental assessment or environmental impact study.

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

Authority for This Rulemaking

The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the United States Code. Subtitle I, Section 106 describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority. This rulemaking is promulgated under the authority described in Subtitle VII, Part A, Subpart I, Section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of the airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it modifies the San Francisco, CA, Class B airspace area to improve the flow of air traffic and enhance safety within the National Airspace System (NAS).

This document amends FAA Order 7400.11B, airspace Designations and Reporting Points, dated August 3, 2017, and effective September 15, 2017. FAA Order 7400.11B is publicly available as listed in the ADDRESSES section of this document. FAA Order 7400.11B lists Class A, B, C, D, and E airspace areas, air traffic service routes, and reporting points.

The FAA published a notice of proposed rulemaking (NPRM) in the Federal Register for Docket No. FAA-2017-0653 (83 FR 2747; January 19, 2018). The NPRM proposed to modify the San Francisco, CA, Class B airspace area. Interested parties were invited to participate in this rulemaking effort by submitting written comments on the proposal. Ten written comments were received in response to the NPRM. All comments received were considered before making a determination on the final rule.

Class B airspace designations are published in paragraph 3000 of FAA Order 7400.11B, dated August 3, 2017, and effective September 15, 2017, which is incorporated by reference in 14 CFR 71.1. The Class B airspace designations listed in this document will be subsequently published in the Order.

In the response to the NPRM, several individuals and three aviation groups: Airline Pilots Association, International (ALPA), Aircraft Owners and Pilot Association (AOPA), and Experimental Aircraft Association (EAA) submitted comments expressing support for the proposed design of the San Francisco Class B and provided substantive comments and recommendations to further the design. The comments were grouped in the following:

Having considered the issues and recommendations provided by the commenters, the FAA offers the following responses.

One individual commenter stated glider operations are just outside of the current lateral limits of the airspace and expanding the airspace may cause issues for the operations that exist in those locations.

Prior to publishing the NPRM, the FAA formed an ad-hoc committee and held informal airspace meetings to present a pre-rulemaking outline of the revised Class B airspace. At that time, representatives from the glider community expressed concern that the changes to the airspace would have a negative impact on glider activity near Mount Diablo. Based on this input, the proposal put forth in the NPRM reflected changes to the Class B airspace over Mt. Diablo by eliminating some of the Class B airspace previously suggested during the pre-rulemaking phase and raising the floor in other areas to 7000 feet. The FAA is retaining these changes in the final rule to accommodate glider operations in the Mount Diablo area. In addition, the airspace over Pacifica was raised in the design proposal, accepted during the ad-hoc and thereby accommodating hang gliders.

Four comments were received regarding the shape and altitudes associated with Area C and Area D. One commenter expressed concern that the boundaries of Areas C and D are very close to one another and stated that general aviation pilots risk unintentionally violating lateral or vertical limits as they try to transition around the airspace. The commenter suggested that the cutouts exist due to the poor design of three departure procedures and recommended amending the departure procedures to allow for higher floors to the airspace and will enable the incorporation of Area C into Area D.

Areas C and D were not designed to capture the Area Navigation (RNAV) departure procedures (DPs). These areas were designed to contain the instrument approaches to Runway (RWY) 10. Track data shows that the SNTNA DP, GNNRR DP and WESLA DPs do not enter Area C or D. All of these DPs have an initial climb gradient of at least 500 feet per nautical mile and standard aircraft performance places them above the C and D areas. The DPs were designed in compliance with the current RNAV DP design criteria in concert with industry and air traffic control standards. They were flown in simulators under varied wind conditions and have been utilized without incident since March 2015.

Three other comments were concerned that lowering the floor of Areas C and D would impede VFR transiting along the coast.

Area C is an arrival extension to Area A and was built to contain RNAV approaches to RWY10. Area D provides a longer arrival extension from the west and also contains the RWY10 arrival approaches and neither can be raised. The RNAV approach to RWY10L crosses NORMM (intermediate fix) which is located just outside of Area D at or above 3,500 feet descending on a 3-degree glide path to cross XATTU (final approach fix) at or above 1,800 feet descending. XATTU is located on the border of Area C and Area A. Area D is needed to contain this descent path. The RNAV approaches to RWY10R cross DOTNE (intermediate fix) at 3,500 feet descending on a 3-degree glide path to cross JULOS (final approach fix) at 1,900 feet descending. DOTNE is just outside of Area D and JULOS is in the center of Area C. Area D is needed to contain this decent path. Area C is needed to capture the descent through 1,900 feet to 1,600 on the approach.

Two individual commenters stated lowering Area B from 1500 to 1400 feet will almost certainly lead to inadvertent Class B violations from pilots making a right crosswind departure from KSQL RWY30. Additionally, they indicate that it will put a general aviation pilot at a disadvantage if flying over water.

The FAA concurs and raised the floor of Area B to 1,500 feet.

Two aviation groups (AOPA and EAA) stated lowering the floor of Area F would reduce the airspace available for aircraft to transit the VFR flyway simultaneously in both directions from San Carlos Airport (SQL) and Palo Alto (PAO) airport. AOPA also indicated the FAA must justify the reduction of the Class B floor, as it does not appear to be aligned with any final approach course. AOPA and EAA both raised concerns for the potential of a mid-air collision due to compression and congestion. One aviation group (ALPA) concurs with the NPRM design, which was suggested by the ad hoc committee.

The FAA policy for airspace design directs that Class B airspace designers have the flexibility to use the configuration that best meets the purposes of reducing mid-air collision potential, assures containment of instrument approaches, and enhances the efficient use of airspace. The floor of the Area F airspace takes into account the visual approaches to the runway, which enhances the efficiency of the airspace.

Published procedures, separation minimum, track data, and local experience were used to determine the required airspace floor in this area. Additionally, SFO arrivals to RWY28 have two charted visual approaches that are highly used, thereby increasing efficiency to the airport. San Francisco's air traffic control tower and Northern California TRACON (NCT) advertise and issue side-by-side visual approaches approximately 86% of the time. Visual approaches are a critical component of the efficiency of the San Francisco Airport. The arrival rate during visual meteorological conditions (VMC) when using side-by-side visual approaches is 54 arrivals and during instrument meteorological conditions (IMC) it is 36 arrivals. The higher efficiency rate is only possible through the use of visual approaches. While operating at the higher rate the FAA has a requirement to maintain vertical separation between the two visual approach aircraft until visual separation is applied. Aircraft altitudes are stepped down when using visual approaches. Aircraft arriving RWY28L are kept lower than aircraft on RWY28R. This allows the FAA to safely transition to simultaneous ILS approaches quickly if a weather front comes in, which is a common occurrence in the San Francisco Bay area. Additionally, a special flyway was developed to facilitate PAO and SQL airports traffic. The highest minimum vectoring altitude (MVA) on RWY28L final is 2100 feet. NCT uses the airspace to 2100 feet in Area F; however, due to the mid-air collision concerns raised by the aviation group commenters, the floor is being raised to 2300 feet in this final rule.

The floor inside of Area F will be raised to 2,300 feet and VFR aircraft will have adequate maneuvering altitude with this design.

AOPA and EAA requested justification for the establishment of a 10,000-foot ceiling to the Class B airspace. AOPA noted that the 10,000-foot ceiling will require general aviation pilots seeking to transit the Class B airspace to fly at a low altitude (less than 1,600 feet MSL) or a high altitude (over 10,000 feet MSL). AOPA states that the FAA should improve the opportunity for general aviation aircraft to overfly the coast at cruise altitudes more normally utilized, such as 7,500 and 8,500 feet MSL. AOPA recommended that the Class B areas west of the U.S. coast have a ceiling of 7,000 feet MSL to facilitate general aviation overflight without the requirement to obtain a clearance. One aviation group (ALPA) concurred with the NPRM design stating departure and arrival procedures enter and exit the Class B at higher altitudes.

Generally, the standard design for Class B airspace is from the surface to 10,000 feet MSL. Class B airspace surrounds the nation's busiest airports in terms of airport operations or passenger enplanements. The configuration of each Class B airspace area is individually tailored and is designed to contain all published instrument procedures. The current Class B airspace between 8,000 and 10,000 feet at San Francisco International Airport is used to do much of the vectoring of aircraft to facilitate sequencing and provide for separation on final. The airspace around the Bay Area is very congested and the only airspace available for vectoring that facilitates the sequencing of arrivals and prevents conflict with other arrivals and departures is offshore. Fifty percent of the aircraft on the SERFR from the south are vectored. Aircraft from the east cannot be vectored without conflicting with multiple other arrival and departure routes. There are a significant number of arrivals from the west, northwest, and southwest offshore. The FAA is being asked by the public to perform more vectoring offshore to mitigate aircraft noise. Additionally, new arrival procedures are being developed originating from offshore that will also utilize this airspace. For these reasons, AOPA's recommendation to establish a ceiling of 7,000 feet MSL west of the U.S. coast is not feasible, as it will deteriorate the arrival rate of the SFO airport.

One individual commenter stated, because the lateral boundaries of Class B airspace are being expanded, the Mode C veil will be extended as well. The commenter noted that this change will cause financial loss due to the equipment requirements (Mode C transponder/ADS-B Out) associated with this airspace expansion. Additionally, one individual commenter contends the expansion of the Class B airspace will have a negative financial burden to aircraft owners due to Automatic Dependent Surveillance-Broadcast (ADS-B) requirement in 14 CFR 91.225(d)(3)”; stating privately owned aircraft will have to move their aircraft further away from the Class B airspace if they do not equip for ADS-B.

The FAA does not agree with the commenter who states the Mode C Veil will expand with the expansion of the Class B airspace. The Mode C veil was established by an independent 14 Code of Federal Regulation (CFR) rulemaking action under part 91.215 “ATC transponder and altitude reporting equipment and use.” Although the Class B airspace extends beyond 30 miles in certain areas around SFO, the Mode C veil does not extend with the Class B airspace and remains a 30-mile ring around SFO.

The FAA does not agree with the individual commenters that stated expansion beyond 30 miles for the Class B will expand the forthcoming ADS-B equipment mandate. The ADS-B requirement in 14 CFR 91.225 states ADS-B equipment is required in 1) Class B, 2) within 30 miles and up to 10,000 feet MSL of a Class B, 3) above the ceiling and within the lateral boundaries of a Class B upward to 10,000 feet MSL. In the three locations where SFO's Class B extends beyond 30 miles all altitudes for those areas are 8,000 feet to 10,000 feet MSL. Considering these areas are Class B (from 8,000 to 10,000 feet MSL) they require ADS-B equipment. There is no provision stating you must equip with ADS-B below the floor and within the boundaries of a Class B outside the 30-mile ring. Hence, aircraft that choose not to equip with the ADS-B mandate in the year 2020, will not have to extend beyond 30 miles to other airports because the SFO Class B expanded beyond 30 miles at higher altitudes.

In the NPRM, the FAA proposed lower floor altitudes for Areas B and F but have raised these altitudes in response to comments received to the NPRM. Initially, Area B was proposed at 1,400 feet MSL and has been changed to 1,500 feet MSL. Area F was proposed at 2,100 feet MSL and has been changed to 2,300 feet MSL.

Additionally, a charting error is being corrected to Area C. The initial geographic lat/long coordinate (lat. 37°41′25″ N, long. 122°30′23″ W) in Area C was duplicated at the end of the description in the NPRM. The FAA is removing the unnecessary secondary geographic lat/long coordinate to correct the charting error.

The FAA is amending Title 14 of the Code of Federal Regulations (14 CFR) part 71 to modify the SFO Class B airspace area. This action (depicted on the attached graphic) moves away from the three concentric circle (upside down wedding cake) design configuration and is redrawn based on arrival and departure routes into and out of SFO. Using this design approach allows the FAA to minimize the Class B airspace necessary to contain instrument procedures within Class B airspace for aircraft arriving and departing SFO and to re-designate current Class B airspace as Class E or Class G to make it available for aircraft circumnavigating the Class B airspace area. Additionally, the proposed modifications would better segregate IFR aircraft arriving/departing SFO and VFR aircraft operating in the vicinity of the SFO Class B airspace area. The modifications to the SFO Class B airspace area are discussed below.

Area A. Area A is amended as proposed by moving the southern boundary northward to accommodate local hang glide operations and incorporating minor modifications to the northeast boundary by using geographic coordinates to define the surface area. Area A extends upward from the surface, to and including 10,000 feet MSL.

Area B. Area B is amended by incorporating portions of existing Area B and Area F and establishing a floor at 1,500 feet MSL. The existing Area B southern boundary is moved northward and eastern boundary is moved westward, and a small portion of existing Area F is added. The floor of the existing Area F portion is lowered from 2,100 feet MSL to 1,500 feet MSL. Area B extends upward from 1,500 feet MSL, to and including 10,000 feet MSL.

Area C. A new Area C is established, as proposed in the NPRM, west of SFO beyond Area A, by incorporating small portions of existing Area F and Area I and establishing a floor at 1,600 feet MSL. The floor of the existing Area F portion is lowered from 2,100 feet MSL to 1,600 feet MSL and the floor of the existing Area I portion is raised from 1,500 feet MSL to 1,600 feet MSL. Area C extends upward from 1,600 feet MSL, to and including 10,000 feet MSL.

Area D. A new Area D is established, as proposed in the NPRM, west of SFO beyond the new Area C, by incorporating small portions of existing Area F, Area G, and Area I. The floor of the existing Area F portion is retained at 2,100 feet MSL, the floor of the existing Area G portion is lowered from 3,000 feet MSL to 2,100 feet MSL, and the floor of the existing Area I portion is raised from 1,500 feet MSL to 2,100 feet MSL. Area D extends upward from 2,100 feet MSL, to and including 10,000 feet MSL.

Area E. A new Area E is established, as proposed in the NPRM, northwest of SFO extending clockwise to the east of SFO beyond Area A, by incorporating a sliver of existing Area A and small portions of existing Area F and Area G. The floor of the existing Area A portion is raised from the surface to 2,100 feet MSL, the floor of the existing Area F portion is retained at 2,100 feet MSL, and the floor of the existing Area G portion is lowered from 3,000 feet MSL to 2,100 feet MSL. Area E extends upward from 2,100 feet MSL, to and including 10,000 feet MSL.

Area F. A new Area F is established, located southeast of SFO beyond the new Area B, by incorporating small portions of existing Area B, Area C, Area F, and Area G. The floor of the existing Area B portion is raised from 1,500 feet MSL to 2,300 feet MSL, the floor of the existing Area C portion is lowered from 2,500 feet MSL to 2,300 feet MSL and the existing Area G portion is lowered from 3,000 feet MSL to 2,300 feet MSL, and the floor of the existing Area F portion is retained at 2,300 feet MSL. Area F extends upward from 2,300 feet MSL, to and including 10,000 feet MSL.

Area G. A new Area G is established, as proposed in the NPRM, northwest of SFO beyond the new Area D and Area E, by incorporating small portions of existing Area A, Area F, Area G, Area H, and Area I. The floor of the existing Area A portion is raised from the surface to 3,000 feet MSL, the existing Area F portion is raised from 2,100 feet MSL to 3,000 feet MSL, and the existing Area I portion is raised from 1,500 feet MSL to 3,000 feet MSL; the floor of the existing Area G portion is retained at 3,000 feet MSL; and the floor of the existing Area H portion is lowered from 4,000 feet MSL to 3,000 feet MSL. Additionally, a sliver of Class B airspace is established beyond the existing Area H external SFO Class B airspace boundary with a floor of 3,000 feet MSL. Area G extends upward from 3,000 feet MSL, to and including 10,000 feet MSL.

Area H. A new Area H is established, as proposed in the NPRM, southeast of SFO beyond the new Area E and Area F, by incorporating small portions of existing Area A, Area B, Area C, Area D, Area F, and Area G. The floor of the existing Area A portion is raised from the surface to 3,000 feet MSL, the existing Area B portion is raised from 1,500 feet MSL to 3,000 feet MSL, the existing Area C portion is raised from 2,500 feet MSL to 3,000 feet MSL, and the existing Area F portion is raised from 2,100 feet MSL to 3,000 feet MSL; the floor of the existing Area G portion is retained at 3,000 feet MSL; and the floor of the existing Area D portion is lowered from 4,000 feet MSL to 3,000 feet MSL. Area H extends upward from 3,000 feet MSL, to and including 10,000 feet MSL.

Area I. A new Area I is established, as proposed in the NPRM, north of SFO extending clockwise to the west of SFO beyond the new Area E, Area G, and Area H, by incorporating small portions of the existing Area A, Area C, Area D, Area E, Area F, Area G, Area H, Area I, and Area K. The floor of the existing Area A portion is raised from the surface to 4,000 feet MSL, the existing Area C portion is raised from 2,500 feet MSL to 4,000 feet MSL, the existing Area F portion is raised from 2,100 feet MSL to 4,000 feet MSL, the existing Area G portion is raised from 3,000 feet MSL to 4,000 feet MSL, and the existing Area I portion is raised from 1,500 feet MSL to 4,000 feet MSL; the floor of the existing Area D and Area H portions are retained at 4,000 feet MSL; and the floor of the existing Area E portions are lowered from 6,000 feet MSL to 4,000 feet MSL and the existing Area K portion is lowered from 5,000 feet MSL to 4,000 feet MSL. Additionally, a small portion of Class B airspace is established beyond the existing Area E and Area H external SFO Class B airspace boundaries with a floor of 4,000 feet MSL. Area I extends upward from 4,000 feet MSL, to and including 10,000 feet MSL.

Area J. A new Area J is established, as proposed in the NPRM, north of SFO beyond the new Area G and Area I, by incorporating small portions of the existing Area D, Area E, Area G, and Area H. The floor of the existing Area G portion is raised from 3,000 feet MSL to 5,000 feet MSL and the existing Area D and Area H portions are raised from 4,000 feet MSL to 5,000 feet MSL, and the floor of the existing Area E portion is lowered from 6,000 feet MSL to 5,000 feet MSL. Additionally, a small portion of Class B airspace is established beyond the existing Area D, Area E, and Area G external SFO Class B airspace boundaries with a floor of 5,000 feet MSL. Area J extends upward from 5,000 feet MSL, to and including 10,000 feet MSL.

Area K. A new Area K is established, as proposed in the NPRM, north of SFO beyond the new Area I and Area L (described below), by incorporating small portions of the existing Area D and Area E. The floor of the existing Area D portion is raised from 4,000 feet MSL to 5,000 feet MSL and the floor of the existing Area E portion is retained at 6,000 feet MSL. Additionally, a sliver of Class B airspace is established beyond the existing Area E external SFO Class B boundary with a floor of 6,000 feet MSL. Area K extends upward from 6,000 feet MSL, to and including 10,000 feet MSL.

Area L. A new area is established, as proposed in the NPRM, northeast of SFO beyond the new Area I, by incorporating small portions of the existing Area D and Area E. The floor of the existing Area D portion is raised from 4,000 feet MSL to 5,000 feet MSL and the floor of the existing Area E portion is lowered from 6,000 feet MSL to 5,000 feet MSL. Area L extends upward from 5,000 feet MSL, to and including 10,000 feet MSL.

Area M. A new area is established, as proposed in the NPRM, south of SFO beyond the new Area I, by incorporating portions of the existing Area D, Area E, Area G, Area J, and Area K. The floor of the existing Area D portion is raised from 4,000 feet MSL to 6,000 feet MSL, the existing Area G portion is raised from 3,000 feet MSL to 6,000 feet MSL, and the existing Area K portion is raised from 5,000 feet MSL to 6,000 feet MSL; the floor of the existing Area E portion is retained at 6,000 feet MSL; and the floor of the existing Area J is lowered from 8,000 feet MSL to 6,000 feet MSL. Additionally, a portion of Class B airspace is established beyond the existing Area E and Area J external SFO Class B boundaries with a floor of 6,000 feet MSL. Area M extends upward from 6,000 feet MSL, to and including 10,000 feet MSL.

Area N. A new area is established, as proposed in the NPRM, south-southeast of SFO beyond the new Area M, by incorporating small portions of the existing Area E and Area J. The floor of the existing Area E portion is raised from 6,000 feet MSL to 8,000 feet MSL and the floor of the existing Area J portion is retained at 8,000 feet MSL. Additionally, a portion of Class B airspace is established beyond the existing Area J external SFO Class B boundary with a floor of 8,000 feet MSL. Area N extends upward from 8,000 feet MSL, to and including 10,000 feet MSL, to accommodate VFR aircraft operating in higher terrain below the Class B airspace.

Area O. A new area is established, as proposed in the NPRM, northeast of SFO beyond the new Area L, within a portion of the existing Area E. The floor of the existing Area E portion is raised from 6,000 feet MSL to 7,000 feet MSL. Additionally, a sliver of Class B airspace is established beyond the current Area E external SFO Class B boundary with a floor of 7,000 feet MSL. Area O extends upward from 7,000 feet MSL, to and including 10,000 feet MSL, to accommodate frequent use by VFR traffic operating in higher terrain (Mount Diablo) below the Class B airspace.

Area P. A new area is established, as proposed in the NPRM, east-southeast of SFO beyond the new Area M, within a portion of the existing Area J. The floor of the existing Area J portion is lowered from 8,000 feet MSL to 7,000 feet MSL. Additionally, a small portion of Class B airspace is established beyond the existing Area J external SFO Class B boundary with a floor of 7,000 feet MSL. Area P extends upward from 7,000 feet MSL, to and including 10,000 feet MSL.

Area Q. A new area is established, as proposed in the NPRM, east of SFO beyond the new Area I and Area P, within a portion of the existing Area E and Area J. The floor of the existing Area E portion is raised from 6,000 feet MSL to 8,000 feet MSL and the floor of the existing Area J portion is retained at 8,000 feet MSL. Additionally, a portion of Class B airspace is established beyond the existing Area E and Area J external SFO Class B boundaries with a floor of 8,000 feet MSL. Area Q extends upward from 8,000 feet MSL, to and including 10,000 feet MSL, to capture delay vectoring for runway 10 and 19 IFR arrival aircraft.

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

The FAA has determined that this action of redesigning Class B airspace associated with the KSFO for the purpose of reducing the potential for midair collisions in airspace around airports with high-density air traffic, qualifies for categorical exclusion under the National Environmental Policy Act and its agency-specific implementing regulations in FAA Order 1050.1F, “Environmental Impacts: Policies and Procedures” regarding categorical exclusions for procedural actions at paragraph 5-6.5.a, which categorically excludes from full environmental impact review rulemaking actions that designate or modify classes of airspace areas, airways, routes, and reporting points. This airspace action is an editorial change only and is not expected to result in any potentially significant environmental impacts. In accordance with FAA Order 1050.1F, paragraph 5-2 regarding Extraordinary Circumstances, this action has been reviewed for factors and circumstances in which a normally categorically excluded action may have a significant environmental impact requiring further analysis, and it is determined that no extraordinary circumstances exist that warrant preparation of an environmental assessment.

The Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) requires that the FAA consider the impact of paperwork and other information collection burdens imposed on the public. We have determined that there is no new information collection requirement associated with this rule.

Changes to Federal regulations must undergo several economic analyses. First, Executive Order 12866 and Executive Order 13563 direct that each Federal agency shall propose or adopt a regulation only upon a reasoned determination that the benefits of the intended regulation justify its costs. Second, the Regulatory Flexibility Act of 1980 (Pub. L. 96-354) requires agencies to analyze the economic impact of regulatory changes on small entities. Third, the Trade Agreements Act (Pub. L. 96-39) prohibits agencies from setting standards that create unnecessary obstacles to the foreign commerce of the United States. In developing U.S. standards, the Trade Act requires agencies to consider international standards and, where appropriate, that they be the basis of U.S. standards. Fourth, the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) requires agencies to prepare a written assessment of the costs, benefits, and other effects of proposed or final rules that include a Federal mandate likely to result in the expenditure by State, local, or tribal governments, in the aggregate, or by the private sector, of $100 million or more annually (adjusted for inflation with base year of 1995).

Department of Transportation Order DOT 2100.5 prescribes policies and procedures for simplification, analysis, and review of regulations. If the expected cost impact is so minimal that a proposed or final rule does not warrant a full evaluation, this order permits that a statement to that effect and the basis for it to be included in the preamble if a full regulatory evaluation of the cost and benefits is not prepared. Such a determination has been made for this final rule. The reasoning for this determination follows.

It is appropriate to redesign SFO Class B airspace for reasons described earlier including the availability of new procedures such as the use of “Optimized Profile Descents,” advances in technology; migration to GPS from ground based navigation facilities and updated charting criteria.

This regulation will modify the San Francisco, CA, (SFO) Class B airspace area to improve the flow of air traffic, enhance safety and reduce the potential for midair collision in the SFO Class B airspace area while accommodating the concerns of airspace users. This effort supports the FAA's national airspace redesign goal of optimizing terminal and enroute airspace to reduce aircraft delays and improve system capacity.

The Class B airspace redesign may enhance opportunities for more fuel-efficient descent profiles.

Further, the SFO Class B airspace redesign will enhance safety by containing IFR traffic arriving and departing SFO within the confines of Class B airspace and will better segregate IFR and VFR aircraft.

Finally, the regulation will return current Class B airspace that is not being used for SFO airport arrivals or departures to the NAS. Because it will modify SFO Class B airspace to take advantage of more fuel efficient approaches and optimize terminal and enroute airspace to reduce delays and improve system capacity, the rule is expected to be a minimal cost rule with the potential to result in minor cost savings.

FAA has, therefore, determined that this final rule is not a “significant regulatory action” as defined in section 3(f) of Executive Order 12866, and is not “significant” as defined in DOT's Regulatory Policies and Procedures.

The Regulatory Flexibility Act of 1980 (Pub. L. 96-354) (RFA) establishes “as a principle of regulatory issuance that agencies shall endeavor, consistent with the objectives of the rule and of applicable statutes, to fit regulatory and informational requirements to the scale of the businesses, organizations, and governmental jurisdictions subject to regulation.” To achieve this principle, agencies are required to solicit and consider flexible regulatory proposals and to explain the rationale for their actions to assure that such proposals are given serious consideration. The RFA covers a wide-range of small entities, including small businesses, not-for profit organizations, and small governmental jurisdictions. Agencies must perform a review to determine whether a rule will have a significant economic impact on a substantial number of small entities. If the agency determines that it will, the agency must prepare a regulatory flexibility analysis as described in the RFA. However, if an agency determines that a rule is not expected to have a significant economic impact on a substantial number of small entities, section 605(b) of the RFA provides that the head of the agency may so certify and a regulatory flexibility analysis is not required. The certification must include a statement providing the factual basis for this determination, and the reasoning should be clear.

The redesign of the SFO Class B airspace will not affect a substantial number of small entities because the redesign does not alter or amend any existing flight path at SFO. Any change to an existing flight path will be achieved through a separate action. Therefore, the expected outcome, if any, will be a minimal economic impact on small entities affected by this rulemaking action.

If an agency determines that a rulemaking will not result in a significant economic impact on a substantial number of small entities, the head of the agency may so certify under section 605(b) of the RFA. Therefore, as provided in section 605(b), the head of the FAA certifies that this rulemaking will not result in a significant economic impact on a substantial number of small entities.

The Trade Agreements Act of 1979 (Pub. L. 96-39), as amended by the Uruguay Round Agreements Act (Pub. L. 103-465), prohibits Federal agencies from establishing standards or engaging in related activities that create unnecessary obstacles to the foreign commerce of the United States.

Pursuant to these Acts, the establishment of standards is not considered an unnecessary obstacle to the foreign commerce of the United States, so long as the standard has a legitimate domestic objective, such as the protection of safety, and does not operate in a manner that excludes imports that meet this objective. The statute also requires consideration of international standards and, where appropriate, that they be the basis for U.S. standards. The FAA has assessed the potential effect of this final rule and determined that it will improve safety and is consistent with the Trade Agreements Act.

Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) requires each Federal agency to prepare a written statement assessing the effects of any Federal mandate in a proposed or final agency rule that may result in an expenditure of $100 million or more (in 1995 dollars) in any one year by State, local, and tribal governments, in the aggregate, or by the private sector; such a mandate is deemed to be a “significant regulatory action.” The FAA currently uses an inflation-adjusted value of $155 million in lieu of $100 million. This final rule does not contain such a mandate; therefore, the requirements of Title II of the Act do not apply.

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

I. Background

Upon request, FDA has classified the microneedling device for aesthetic use as class II (special controls), which we have determined will provide a reasonable assurance of safety and effectiveness. In addition, we believe this action will enhance patients' access to beneficial innovation, in part by reducing regulatory burdens by placing the device into a lower device class than the automatic class III assignment.

The automatic assignment of class III occurs by operation of law and without any action by FDA, regardless of the level of risk posed by the new device. Any device that was not in commercial distribution before May 28, 1976, is automatically classified as, and remains within, class III and requires premarket approval unless and until FDA takes an action to classify or reclassify the device (see 21 U.S.C. 360c(f)(1)). We refer to these devices as “postamendments devices” because they were not in commercial distribution prior to the date of enactment of the Medical Device Amendments of 1976, which amended the Federal Food, Drug, and Cosmetic Act (FD&C Act).

FDA may take a variety of actions in appropriate circumstances to classify or reclassify a device into class I or II. We may issue an order finding a new device to be substantially equivalent under section 513(i) of the FD&C Act (21 U.S.C. 360c(i)) to a predicate device that does not require premarket approval. We determine whether a new device is substantially equivalent to a predicate by means of the procedures for premarket notification under section 510(k) of the FD&C Act (21 U.S.C. 360(k)) and part 807 (21 CFR part 807).

FDA may also classify a device through “De Novo” classification, a common name for the process authorized under section 513(f)(2) of the FD&C Act. Section 207 of the Food and Drug Administration Modernization Act of 1997 established the first procedure for De Novo classification (Pub. L. 105-115). Section 607 of the Food and Drug Administration Safety and Innovation Act modified the De Novo application process by adding a second procedure (Pub. L. 112-144). A device sponsor may utilize either procedure for De Novo classification.

Under the first procedure, the person submits a 510(k) for a device that has not previously been classified. After receiving an order from FDA classifying the device into class III under section 513(f)(1) of the FD&C Act, the person then requests a classification under section 513(f)(2).

Under the second procedure, rather than first submitting a 510(k) and then a request for classification, if the person determines that there is no legally marketed device upon which to base a determination of substantial equivalence, that person requests a classification under section 513(f)(2) of the FD&C Act.

Under either procedure for De Novo classification, FDA shall classify the device by written order within 120 days. The classification will be according to the criteria under section 513(a)(1) of the FD&C Act. Although the device was automatically placed within class III, the De Novo classification is considered to be the initial classification of the device.

We believe this De Novo classification will enhance patients' access to beneficial innovation, in part by reducing regulatory burdens. When FDA classifies a device into class I or II via the De Novo process, the device can serve as a predicate for future devices of that type, including for 510(k)s (see 21 U.S.C. 360c(f)(2)(B)(i)). As a result, other device sponsors do not have to submit a De Novo request or premarket approval application in order to market a substantially equivalent device (see 21 U.S.C. 360c(i), defining “substantial equivalence”). Instead, sponsors can use the less burdensome 510(k) process, when necessary, to market their device.

On July 5, 2016, Bellus Medical, LLC, submitted a request for De Novo classification of the SkinPen Precision System. FDA reviewed the request in order to classify the device under the criteria for classification set forth in section 513(a)(1) of the FD&C Act.

We classify devices into class II if general controls by themselves are insufficient to provide reasonable assurance of safety and effectiveness, but there is sufficient information to establish special controls that, in combination with the general controls, provide reasonable assurance of the safety and effectiveness of the device for its intended use (see 21 U.S.C. 360c(a)(1)(B)). After review of the information submitted in the request, we determined that the device can be classified into class II with the establishment of special controls. FDA has determined that these special controls, in addition to the general controls, will provide reasonable assurance of the safety and effectiveness of the device.

Therefore, on March 1, 2018, FDA issued an order to the requester classifying the device into class II. FDA is codifying the classification of the device by adding 21 CFR 878.4430. We have named the generic type of device microneedling device for aesthetic use, and it is identified as a device using one or more needles to mechanically puncture and injure skin tissue for aesthetic use. This classification does not include devices intended for transdermal delivery of topical products such as cosmetics, drugs, or biologics.

FDA has identified the following risks to health associated specifically with this type of device and the measures required to mitigate these risks in table 1.

FDA has determined that special controls, in combination with the general controls, address these risks to health and provide reasonable assurance of safety and effectiveness. For a device to fall within this classification, and thus avoid automatic classification in class III, it would have to comply with the special controls named in this final order. The necessary special controls appear in the regulation codified by this order. This device is subject to premarket notification requirements under section 510(k) of the FD&C Act.

The Agency has determined under 21 CFR 25.34(b) that this action is of a type that does not individually or cumulatively have a significant effect on the human environment. Therefore, neither an environmental assessment nor an environmental impact statement is required.

This final order establishes special controls that refer to previously approved collections of information found in other FDA regulations and guidance. These collections of information are subject to review by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). The collections of information in the guidance document “De Novo Classification Process (Evaluation of Automatic Class III Designation)” have been approved under OMB control number 0910-0844; the collections of information in 21 CFR part 814, subparts A through E, regarding premarket approval, have been approved under OMB control number 0910-0231; the collections of information in part 807, subpart E, regarding premarket notification submissions, have been approved under OMB control number 0910-0120; and the collections of information in 21 CFR part 801, regarding labeling, have been approved under OMB control number 0910-0485.

Therefore, under the Federal Food, Drug, and Cosmetic Act and under authority delegated to the Commissioner of Food and Drugs, 21 CFR part 878 is amended as follows:

I. Background

Upon request, FDA has classified the in vivo cured intramedullary fixation rod as class II (special controls), which we have determined will provide a reasonable assurance of safety and effectiveness. In addition, we believe this action will enhance patients' access to beneficial innovation, in part by reducing regulatory burdens by placing the device into a lower device class than the automatic class III assignment.

The automatic assignment of class III occurs by operation of law and without any action by FDA, regardless of the level of risk posed by the new device. Any device that was not in commercial distribution before May 28, 1976, is automatically classified as, and remains within, class III and requires premarket approval unless and until FDA takes an action to classify or reclassify the device (see 21 U.S.C. 360c(f)(1)). We refer to these devices as “postamendments devices” because they were not in commercial distribution prior to the date of enactment of the Medical Device Amendments of 1976, which amended the Federal Food, Drug, and Cosmetic Act (FD&C Act).

FDA may take a variety of actions in appropriate circumstances to classify or reclassify a device into class I or II. We may issue an order finding a new device to be substantially equivalent under section 513(i) of the FD&C Act (21 U.S.C. 360c(i)) to a predicate device that does not require premarket approval. We determine whether a new device is substantially equivalent to a predicate by means of the procedures for premarket notification under section 510(k) of the FD&C Act (21 U.S.C. 360(k)) and part 807 (21 CFR part 807).

FDA may also classify a device through “De Novo” classification, a common name for the process authorized under section 513(f)(2) of the FD&C Act. Section 207 of the Food and Drug Administration Modernization Act of 1997 established the first procedure for De Novo classification (Pub. L. 105-115). Section 607 of the Food and Drug Administration Safety and Innovation Act modified the De Novo application process by adding a second procedure (Pub. L. 112-144). A device sponsor may utilize either procedure for De Novo classification.

Under the first procedure, the person submits a 510(k) for a device that has not previously been classified. After receiving an order from FDA classifying the device into class III under section 513(f)(1) of the FD&C Act, the person then requests a classification under section 513(f)(2).

Under the second procedure, rather than first submitting a 510(k) and then a request for classification, if the person determines that there is no legally marketed device upon which to base a determination of substantial equivalence, that person requests a classification under section 513(f)(2) of the FD&C Act.

Under either procedure for De Novo classification, FDA shall classify the device by written order within 120 days. The classification will be according to the criteria under section 513(a)(1) of the FD&C Act. Although the device was automatically placed within class III, the De Novo classification is considered to be the initial classification of the device.

We believe this De Novo classification will enhance patients' access to beneficial innovation, in part by reducing regulatory burdens. When FDA classifies a device into class I or II via the De Novo process, the device can serve as a predicate for future devices of that type, including for 510(k)s (see 21 U.S.C. 360c(f)(2)(B)(i)). As a result, other device sponsors do not have to submit a De Novo request or premarket approval application in order to market a substantially equivalent device (see 21 U.S.C. 360c(i), defining “substantial equivalence”). Instead, sponsors can use the less burdensome 510(k) process, when necessary, to market their device.

On December 28, 2016, IlluminOss Medical, Inc. submitted a request for De Novo classification of the IlluminOss Photodynamic Bone Stabilization System. FDA reviewed the request in order to classify the device under the criteria for classification set forth in section 513(a)(1) of the FD&C Act.

We classify devices into class II if general controls by themselves are insufficient to provide reasonable assurance of safety and effectiveness, but there is sufficient information to establish special controls that, in combination with the general controls, provide reasonable assurance of the safety and effectiveness of the device for its intended use (see 21 U.S.C. 360c(a)(1)(B)). After review of the information submitted in the request, we determined that the device can be classified into class II with the establishment of special controls. FDA has determined that these special controls, in addition to the general controls, will provide reasonable assurance of the safety and effectiveness of the device.

Therefore, on December 19, 2017, FDA issued an order to the requester classifying the device into class II. FDA is codifying the classification of the device by adding 21 CFR 888.3023. We have named the generic type of device in vivo cured intramedullary fixation rod, and it is identified as a prescription implanted device consisting of a balloon that is inserted into the medullary canal of long bones for the fixation of fractures. The balloon is infused with, and completely encapsulates, a liquid monomer that is exposed to a curing agent that polymerizes the monomer within the balloon creating a hardened rigid structure.

FDA has identified the following risks to health associated specifically with this type of device and the measures required to mitigate these risks in table 1.

FDA has determined that special controls, in combination with the general controls, address these risks to health and provide reasonable assurance of safety and effectiveness. For a device to fall within this classification, and thus avoid automatic classification in class III, it would have to comply with the special controls named in this final order. The necessary special controls appear in the regulation codified by this order. This device is subject to premarket notification requirements under section 510(k) of the FD&C Act.

At the time of classification, in vivo cured intramedullary fixation rods are for prescription use only. Prescription devices are exempt from the requirement for adequate directions for use for the layperson under section 502(f)(1) of the FD&C Act (21 U.S.C. 352(f)(1)) and 21 CFR 801.5, as long as the conditions of 21 CFR 801.109 are met (referring to 21 U.S.C. 352(f)(1)).

The Agency has determined under 21 CFR 25.34(b) that this action is of a type that does not individually or cumulatively have a significant effect on the human environment. Therefore, neither an environmental assessment nor an environmental impact statement is required.

This final order establishes special controls that refer to previously approved collections of information found in other FDA regulations and guidance. These collections of information are subject to review by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). The collections of information in the guidance document “De Novo Classification Process (Evaluation of Automatic Class III Designation)” have been approved under OMB control number 0910-0844; the collections of information in 21 CFR part 814, subparts A through E, regarding premarket approval, have been approved under OMB control number 0910-0231; the collections of information in part 807, subpart E, regarding premarket notification submissions, have been approved under OMB control number 0910-0120; and the collections of information in 21 CFR part 801, regarding labeling, have been approved under OMB control number 0910-0485.

Therefore, under the Federal Food, Drug, and Cosmetic Act and under authority delegated to the Commissioner of Food and Drugs, 21 CFR part 888 is amended as follows:

Background 1. Overview

On June 12, 2015, the Department of the Treasury (and the IRS published final and temporary regulations (TD 9722) under section 337(d) of the Internal Revenue Code (Code) in the Federal Register (80 FR 33402). On July 8, 2015, corrections to TD 9722 were published in the Federal Register (80 FR 38940-38941) (together with TD 9722, the temporary regulations). The temporary regulations expire on June 11, 2018.

A notice of proposed rulemaking (REG-149518-03) withdrawing proposed regulations under section 337(d) published in 1992, and proposing new proposed regulations by cross-reference to the temporary regulations, was published in the Federal Register (80 FR 33451) on the same date as TD 9722. Additionally, on June 12, 2015, the Treasury Department and the IRS published proposed regulations (REG-138759-14) under section 732(f) in the Federal Register (80 FR 33452) (together with the 2015 proposed regulations under section 337(d), the 2015 regulations).

The Treasury Department and the IRS received one comment letter in response to the 2015 regulations. Except as described below, the commenter largely supported the 2015 regulations while recommending some minor modifications and clarifications to the 2015 regulations under both section 337(d) and section 732(f). The comment letter is discussed in detail in the Explanation of Provisions section of this preamble.

After considering this comment letter, this Treasury decision adopts as final regulations the rules set forth in the 2015 regulations under section 337(d) (with only minor, nonsubstantive clarifications in response to the commenter's request for additional certainty regarding certain collateral effects) and section 732(f) (without any change). However, the Treasury Department and the IRS are considering publishing a new notice of proposed rulemaking to propose more substantive amendments to the final regulations under section 337(d) and to allow for additional public comment with respect to these more substantive proposals in response to the comment letter, further reflection by the Treasury Department and the IRS, and concerns raised by practitioners.

In General Utilities & Operating Co. v. Helvering, 296 U.S. 200 (1935), the Supreme Court held that corporations generally could distribute appreciated property to their shareholders without the recognition of any corporate level gain (the General Utilities doctrine). Beginning with legislation in 1969 and culminating in the Tax Reform Act of 1986, Public Law 99-514 (100 Stat. 2085) (the Act), Congress repealed the General Utilities doctrine by enacting section 336(a) to apply gain and loss recognition to liquidating distributions.

Under current law, sections 311(b) and 336(a) require a corporation that distributes appreciated property to its shareholders to recognize gain determined as if the property were sold to the shareholders for its fair market value. Additionally, section 631 of the Act added section 337(d) to permit the Secretary to prescribe regulations that are necessary or appropriate to carry out the purposes of the General Utilities repeal, “including regulations to ensure that [the repeal of the General Utilities doctrine] may not be circumvented through the use of any provision of law or regulations.”

After the enactment of sections 311(b) and 337(d), the Treasury Department and the IRS became aware of transactions in which taxpayers used a partnership to postpone or avoid completely gain generally required to be recognized under section 311(b). In one example of this transaction, a corporation entered into a partnership and contributed appreciated property. The partnership then acquired stock of that corporate partner, and later made a liquidating distribution of this stock to the corporate partner. Under section 731(a), the corporate partner did not recognize gain on the partnership's distribution of its stock. By means of this transaction, the corporation had disposed of the appreciated property it formerly held and had acquired its own stock, permanently avoiding its gain in the appreciated property. If the corporation had directly exchanged the appreciated property for its own stock, section 311(b) would have required the corporation to recognize gain upon the exchange.

In response to these types of abusive transactions, the Treasury Department and the IRS issued Notice 89-37, 1989-1 CB 679, on March 9, 1989. Notice 89-37 announced that future regulations under section 337(d) would address the use of partnerships to avoid the repeal of the General Utilities doctrine.

On December 15, 1992, the Treasury Department and the IRS published a notice of proposed rulemaking under section 337(d) (PS-91-90, REG-208989-90, 1993-1 CB 919) in the Federal Register (57 FR 59324) addressing abusive partnership transactions involving stock of a corporate partner (the 1992 proposed regulations). The 1992 proposed regulations set forth a deemed redemption rule and a separate distribution rule to prevent a corporate partner from avoiding corporate-level gain through transactions with a partnership involving stock of the corporate partner, stock of the partner's affiliate, and other equity interests in the corporate partner or affiliate. The 1992 proposed regulations treated a corporation as an affiliate of a partner at the time of a deemed redemption or distribution by the partnership if, immediately thereafter, the partner and corporation were members of an affiliated group as defined in section 1504(a) without regard to section 1504(b) (section 337(d) affiliation). On January 19, 1993, the Treasury Department and the IRS issued Notice 93-2, 1993-1 CB 292, which stated that the 1992 proposed regulations would be amended to limit the application of the regulations to transactions in which section 337(d) affiliation existed immediately before the deemed redemption or distribution. The Treasury Department and the IRS received comments on the 1992 proposed regulations, and adopted a number of these comments in the 2015 regulations.

The 2015 regulations under section 337(d) set forth a rule (the deemed redemption rule) that was aimed at protecting the repeal of the General Utilities doctrine. The 2015 regulations provided that certain transactions create the economic effect of an exchange of appreciated property for Stock of the Corporate Partner and, to tax such exchange appropriately, the deemed redemption rule provided that a Corporate Partner recognizes gain at the time of, and to the extent that, any transaction (or series of transactions) has the economic effect of an exchange by the partner of its interest in appreciated property for an interest in Stock of the Corporate Partner owned, acquired, or distributed by the partnership. (The terms Corporate Partner and Stock of the Corporate Partner are defined in section 1.B.i. of the Explanation of Provisions.)

The 2015 regulations did not adopt the separate distribution rule set forth in the 1992 proposed regulations. Instead, the 2015 regulations applied the deemed redemption rule to partnership distributions of Stock of the Corporate Partner to the Corporate Partner as though the partnership amended its agreement, immediately before the distribution, to allocate 100 percent of the distributed stock to the Corporate Partner. The 2015 regulations also set forth de minimis and inadvertence exceptions to the deemed redemption rule.

Section 538 of the Ticket to Work and Work Incentives Improvement Act of 1999, Public Law 106-170 (113 Stat. 1860) (December 17, 1999), added section 732(f) generally effective for distributions of made after July 14, 1999. Section 732(f) provides that if (1) a corporate partner receives a distribution from a partnership of stock in another corporation (distributed corporation); (2) the corporate partner has control of the distributed corporation, defined as ownership of stock meeting the requirements of section 1504(a)(2), immediately after the distribution or at any time thereafter (control requirement); and (3) the partnership's basis in the stock immediately before the distribution exceeded the corporate partner's basis in the stock immediately after the distribution, then the basis of the distributed corporation's property must be reduced by this excess. The amount of this reduction is limited to the amount by which the sum of the aggregate adjusted basis of property and the amount of money of the distributed corporation exceeds the corporate partner's adjusted basis in the stock of the distributed corporation. The corporate partner must recognize gain to the extent that the basis of the distributed corporation's property cannot be reduced.

Congress enacted section 732(f) due to concerns that a corporate partner could otherwise negate the effects of a basis step-down to distributed property required under section 732(b) by applying the step-down against the basis of the stock of the distributed corporation.

For example, assume a corporate partner has a partnership interest with zero basis and receives a partnership distribution of high-basis stock in a corporation. The corporate partner's basis in the distributed corporation's stock is reduced to zero under section 732(a) or section 732(b). If the partnership has elected under section 754, then the basis of other partnership property is increased by an equal amount under section 734(b). The section 732 basis decrease and the section 734(b) basis increase generally offset each other. However, if the corporate partner owned stock in the distributed corporation that satisfied the control requirement, the corporate partner could liquidate the distributed corporation under section 332, and section 334(b) would generally provide for a carryover basis in the distributed corporation's property received by the corporate partner in the liquidation. Taken together, these rules could permit the partnership to increase the basis of its retained property without an equivalent basis reduction following the liquidation of the distributed corporation. Section 732(f) generally precludes this result by requiring that either the distributed corporation must reduce the basis of its property or the corporate partner must recognize gain (to the extent the distributed corporation is unable to reduce the basis of its property). Thus, section 732(f) generally ensures that any basis increase under section 734(b) is offset.

Section 732(f)(8) grants the Secretary authority to prescribe regulations that may be necessary to carry out the purposes of this subsection, including regulations to avoid double counting and to prevent the abuse of such purposes.

In the preamble to the 2015 regulations under section 732(f), the Treasury Department and the IRS stated that the application of section 732(f) was too broad in some circumstances and too narrow in others. Specifically, the application was overbroad because section 732(f) could require basis reduction or gain recognition even though that basis reduction or gain recognition did not further the purposes of section 732(f). Alternatively, the application was too narrow because corporate partners could inappropriately avoid the purposes of section 732(f) by engaging in transactions that allow corporate partners to receive property held by a distributed corporation without reducing the basis of that property to account for basis reductions under section 732(b) made when the partnership distributed stock of the distributed corporation to the corporate partner.

To address these concerns, the 2015 regulations set forth specific rules governing the application of section 732(f) in two specific sets of circumstances. The first rule would permit consolidated group members to aggregate the bases of their respective interests in the same partnership, in certain circumstances, for section 732(f) purposes. The second rule would restrict corporate partners from entering into certain transactions or a series of transactions (gain elimination transactions), such as a distribution followed by a reorganization under section 368(a), that might eliminate gain in the stock of a distributed corporation while avoiding the effects of a basis step-down under section 732(f) because the control requirement would not be immediately satisfied.

In addition, the 2015 regulations under section 732(f) required taxpayers to apply those rules to tiered partnerships in a manner consistent with the purpose of section 732(f).

The final regulations under section 337(d) provide that the purpose of the regulations is to prevent corporate taxpayers from using a partnership to circumvent gain required to be recognized under section 311(b) or section 336(a). These final regulations, including the rules governing the amount, timing, and character of recognized gain, must be applied in a manner consistent with, and which reasonably carries out, this purpose.

These final regulations apply when a partnership, either directly or indirectly, owns, acquires, or distributes Stock of the Corporate Partner (as defined in § 1.337(d)-3(c)(2) of these final regulations). Under these final regulations, a Corporate Partner (as defined at § 1.337(d)-3(c)(1) of these final regulations) may recognize gain when it is treated as acquiring or increasing its interest in Stock of the Corporate Partner held by a partnership in exchange for appreciated property in a manner that avoids gain recognition under section 311(b) or section 336(a). These final regulations also provide exceptions under which a Corporate Partner is not required to recognize gain.

The 2015 regulations defined a Corporate Partner as a person that holds or acquires an interest in a partnership and that is classified as a corporation for federal income tax purposes. The 2015 regulations defined Stock of the Corporate Partner expansively to include the Corporate Partner's stock, or other equity interests, including options, warrants, and similar interests, in the Corporate Partner, or in a corporation that controls the Corporate Partner within the meaning of section 304(c), except that section 318(a)(1) and (3) shall not apply (referred to in this Explanation of Provisions as a Controlling Corporation). Stock of the Corporate Partner also included interests in any entity to the extent that the value of the interest is attributable to Stock of the Corporate Partner.

The commenter asked whether an equity interest issued by a third party on a Corporate Partner's stock, such as an option issued by a bank on the Corporate Partner's stock, was considered Stock of the Corporate Partner. The Treasury Department and the IRS confirm that all options, warrants, and other similar interests issued by third parties on a Corporate Partner's stock, a Controlling Corporation's stock, or any interests in any entity to the extent that the value of the interest is attributable to Stock of the Corporate Partner, are Stock of the Corporate Partner under both the temporary regulations and these final regulations. No inference is intended regarding whether options, warrants, and other similar interests are subject to section 1032 where they create an equity interest in the Stock of the Corporate Partner.

The 2015 regulations provided that Stock of the Corporate Partner includes the stock (or other equity interests) in a Controlling Corporation. The commenter asked whether stock in a Controlling Corporation wholly constitutes Stock of the Corporate Partner or only constitutes Stock of the Corporate Partner to the extent the value of the Controlling Corporation's stock is attributable to that corporation's interest in the Corporate Partner. These final regulations clarify that it is intended that stock (or any other equity interest) in a Controlling Corporation will wholly constitute Stock of the Corporate Partner irrespective of the ratio of the Controlling Corporation's interest in the Corporate Partner to the Controlling Corporation's total assets. In response to this comment, the final regulations also include a new example to clearly illustrate this point. See Example 2 of § 1.337(d)-3(h) in these final regulations.

With respect to the rule that Stock of the Corporate Partner includes an interest in an entity to the extent that the value of the interest is attributable to the Stock of the Corporate Partner (Value Rule), the commenter asked that, in cases in which the entity is not controlled by the Corporate Partner and which is not a Controlling Corporation, that a limitation be added that the interest in the entity would not be treated as Stock of the Corporate Partner if less than 20 percent of the assets of the entity consisted of Stock of the Corporate Partner. The Treasury Department and the IRS agree with the commenter that the Value Rule in the 2015 regulations could be overbroad in certain situations but decline to adopt the commenter's specific suggestion in these final regulations because such a rule would be too generous and could permit taxpayers to structure transactions that would contravene the purpose of section 337(d) and these regulations. However, the Treasury Department and the IRS are considering publishing new proposed regulations to limit the application of the Value Rule to entities that are not Controlling Corporations but which own, directly or indirectly, 5 percent or more of the stock, by vote or value, of the Corporate Partner and clarifying how taxpayers would determine what portion of the value of the interest in the entity is attributable to Stock of the Corporate Partner.

The 2015 regulations defined Stock of the Corporate Partner to include stock in a Controlling Corporation. The 2015 regulations employed the section 304(c) definition of control, which generally requires the ownership of stock with either 50 percent of the voting power in the corporation or 50 percent of the value of the corporation. While section 304(c) incorporates the constructive ownership rules of section 318(a) with some modifications, the 2015 regulations excluded the application of sections 318(a)(1) and (3) from its definition of control.

The commenter agreed with excluding section 318(a)(3) attribution from the application of section 304(c) under the 2015 regulations, but noted that it may be inappropriate to exclude section 318(a)(1) family attribution. The commenter suggested that families could invoke this exclusion to structure partnerships in such a way to avoid these regulations but which would be transactions that should otherwise be subject to these final regulations. The Treasury Department and the IRS agree that excluding family attribution under section 318(a)(1) could produce inappropriate results. Additionally, the Treasury Department and the IRS have also determined that taxpayers could structure transactions designed to take advantage of the lack of section 318(a)(3) attribution. Therefore, the Treasury Department and the IRS are considering publishing new proposed regulations to further modify the definition of Stock of the Corporate Partner so that it would no longer exclude attribution under sections 318(a)(1) and (3) when determining whether an interest in an entity is Stock of the Corporate Partners under section 304(c), but which would limit the proposed expanded scope of section 304(c) control to entities that own, directly or indirectly, an interest in the Corporate Partner.

The 2015 regulations provided an exception from the definition of Stock of the Corporate Partner in the case of certain related-party partnerships. Under this exception, Stock of the Corporate Partner did not include any stock or other equity interests held or acquired by a partnership if all interests in the partnership's capital and profits are held by members of an affiliated group defined in section 1504(a) that includes the Corporate Partner (Affiliated Group Exception).

The commenter suggested that the final regulations extend the Affiliated Group Exception to partnerships in which a high percentage, but not all, of its interests are owned by affiliated group members. The commenter asserted that, under these facts, there would be no reason to require gain recognition. The commenter also recommended that the final regulations extend the affiliated group exception to lower-tier partnerships owned by one or more upper-tier partnerships, if the upper-tier partnerships are entirely owned by members of an affiliated group that includes the Corporate Partner.

After further study of this issue, and in light of the other exceptions to the deemed redemption rule, the Treasury Department and the IRS decline to adopt these comments because even without such extensions the Affiliated Group Exception could permit inappropriate elimination of corporate level built-in gain. For example—

Although these final regulations retain the Affiliated Group Exception, the Treasury Department and the IRS are considering publishing new proposed regulations to remove the Affiliated Group Exception because this exception can permit corporations to engage in transactions with partnerships to eliminate permanently the built-in gain on appreciated assets or otherwise to avoid the purposes of General Utilities repeal and these regulations.

The 2015 regulations provided that, for partnerships that hold Stock of the Corporate Partner, the 2015 regulations apply to a transaction (or a series of transactions) that is a “Section 337(d) Transaction.” The 2015 regulations defined a Section 337(d) Transaction as a transaction (or series of transactions) that has the effect of an exchange by a Corporate Partner of its interest in appreciated property for an interest in Stock of the Corporate Partner owned, acquired, or distributed by a partnership. For example, a Section 337(d) Transaction may occur if: (i) A Corporate Partner contributes appreciated property to a partnership that owns Stock of the Corporate Partner; (ii) a partnership acquires Stock of the Corporate Partner; (iii) a partnership that owns Stock of the Corporate Partner distributes appreciated property to a partner other than the Corporate Partner; (iv) a partnership distributes Stock of the Corporate Partner to the Corporate Partner; or (v) a partnership agreement is amended in a manner that increases a Corporate Partner's interest in the Stock of the Corporate Partner (including in connection with a contribution to, or distribution from, a partnership).

In certain circumstances, a partnership's acquisition of Stock of the Corporate Partner does not have the effect of an exchange of appreciated property for that stock. For example, if a partnership with an operating business uses the cash generated in that business to purchase Stock of the Corporate Partner, the deemed redemption rule does not apply to the stock purchase because the Corporate Partner's share in appreciated property has not been reduced, and thus no exchange has occurred. The Treasury Department and the IRS acknowledge that such stock acquisitions would not trigger the deemed redemption rule. The Treasury Department and the IRS note, however, that because of the administrative difficulties in tracing the source of cash used to acquire Corporate Partner stock, taxpayers wishing to invoke this exception must maintain appropriate records or other documentation to affirmatively demonstrate that the consideration used in the exchange to acquire the Stock of the Corporate Partner at issue came from operating cashflow.

The commenter asked whether the 2015 regulations encompassed other types of acquisitions of Stock of the Corporate Partner for cash, and requested that the final regulations include examples of transactions that do not have the effect of an exchange of appreciated property for Stock of the Corporate Partner. The Treasury Department and the IRS considered this comment, but decline to add additional examples because those examples would go beyond the scope of these final regulations which is to prevent the exchange of appreciated property for Stock of the Corporate Partner.

The 2015 regulations provided that if a transaction is a Section 337(d) Transaction, a Corporate Partner must recognize gain under the deemed redemption rule. To determine the amount of gain, the Corporate Partner must first determine the amount of appreciated property (other than Stock of the Corporate Partner) effectively exchanged for Stock of the Corporate Partner (by value) and then calculate the amount of taxable gain recognized.

The deemed redemption rule applies only to the extent that the transaction has the effect of an exchange by the Corporate Partner of its interest in appreciated property for Stock of the Corporate Partner. Thus, this rule does not apply to the extent a transaction has the effect of an exchange by a Corporate Partner of non-appreciated property for Stock of the Corporate Partner or has the effect of an exchange by a Corporate Partner of appreciated property for property other than Stock of the Corporate Partner.

The 2015 regulations set forth general principles that apply in determining the amount of appreciated property effectively exchanged for Stock of the Corporate Partner. These general principles require that the Corporate Partner's economic interest with respect to both Stock of the Corporate Partner and all other appreciated property of the partnership be determined based on all facts and circumstances, including the allocation and distribution rights set forth in the partnership agreement.

A Corporate Partner must recognize gain under the 2015 regulations even if the Section 337(d) Transaction would not otherwise change the Corporate Partner's allocable share of gain under section 704(c). For example, if a Corporate Partner contributes appreciated property to a newly-formed partnership and an individual contributes cash that the partnership subsequently uses to purchase Stock of the Corporate Partner, then the purchase of the stock is a Section 337(d) Transaction even though the Corporate Partner's allocable share of gain in the appreciated property under section 704(c) is the same before and after the purchase. See Example 4 of § 1.337(d)-3(h) in these final regulations.

The Treasury Department and the IRS did not receive comments on this general deemed redemption rule. Therefore, these final regulations adopt the rule set forth in the 2015 regulations.

Under the 2015 regulations, the deemed redemption rule did not apply to transactions involving stock that does not meet the definition of Stock of the Corporate Partner. The commenter asked whether, in cases in which the deemed redemption rule does not apply to an initial transaction because the definition of Stock of the Corporate Partner is not satisfied, if certain subsequent transactions would trigger gain recognition by treating those transactions as Section 337(d) Transactions. The Treasury Department and the IRS intend for certain subsequent transactions to trigger gain recognition as Section 337(d) Transactions. Therefore, in response to this comment, the Treasury Department and the IRS clarify that these final regulations apply to certain transactions involving related parties in which a first transaction does not constitute a Section 337(d) Transaction because the partnership does not own stock in either a Corporate Partner or in a Controlling Corporation, but the Corporate Partner in a later, separate transaction transfers its partnership interest to a related corporation whose stock the partnership owns. In these transactions, the deemed redemption rule will trigger gain as if the first transaction was a Section 337(d) Transaction with the result that the transferee corporation who is now itself a Corporate Partner will “step into the shoes” of the first Corporate Partner and will be subject to the deemed redemption rule to the extent of the first Corporate Partner's remaining built-in gain in the appreciated asset immediately prior to the transfer.

The 2015 regulations provided that, if the Corporate Partner has an existing interest in the partnership's Stock of the Corporate Partner prior to the Section 337(d) Transaction, the deemed redemption rule applies only with respect to the Corporate Partner's incremental increase in the Stock of the Corporate Partner. For example, changing allocations to increase a Corporate Partner's interest in the Stock of the Corporate Partner from 50 percent to 80 percent and to decrease the Corporate Partner's interest in other appreciated property from 80 percent to 50 percent would have the effect of an exchange by the Corporate Partner of the 30-percent incremental decrease in its interest in the appreciated property for the 30-percent incremental increase in the Stock of the Corporate Partner. The Treasury Department and the IRS did not receive comments on this rule, and therefore, these final regulations adopt the rule set forth in the 2015 regulations.

For purposes of recognizing gain under the deemed redemption rule, the 2015 regulations provided that a Corporate Partner's interest in an identified share of Stock of the Corporate Partner will never be less than the Corporate Partner's largest interest (by value) in that share of Stock of the Corporate Partner that was taken into account when the partnership previously determined whether there had been a Section 337(d) Transaction (regardless of whether the Corporate Partner recognized gain in the earlier transaction). See Example 7 of § 1.337(d)-3(h) in these final regulations. This rule ensures that alternating increases and decreases in a Corporate Partner's interest in Stock of the Corporate Partner do not cause duplicate gain recognition.

This limitation does not apply if any reduction in the Corporate Partner's interest in the identified share of Stock of the Corporate Partner occurred as part of a plan or arrangement to circumvent the purpose of these final regulations. See Example 8 of § 1.337(d)-3(h) in these final regulations.

The commenter raised a question regarding the numbers used in this Example 8 (which was numbered as Example 7 in the 2015 regulations under section 337(d)). The commenter pointed out that under the example's facts, the two partners make initial contributions to the partnership in a 99 to 1 ratio, and make subsequent contributions in a 50 to 50 ratio. The commenter questioned why the example stated that the two partners are “equal partners” in all respects after the subsequent contributions. In response to this comment, the Treasury Department and the IRS clarify the example to provide that the subsequent contributions resulted in the partners' total contributions as being in a 50 to 50 ratio, so that, after the partners make these subsequent contributions, the partners have equal interests in the partnership in all respects. The aim of the example is to illustrate the rule that partners cannot utilize this special rule for determining a Corporate Partner's interest to circumvent the purpose of these final regulations. The Treasury Department and the IRS did not receive any other comments on this rule, and therefore, these final regulations adopt the rule set forth in the 2015 regulations.

The 2015 regulations provided that, if a transaction is a Section 337(d) Transaction, the deemed redemption rule requires the Corporate Partner to recognize a percentage of the total gain in partnership appreciated property that is subject to the exchange equal to a fraction, the numerator of which is the Corporate Partner's interest (by value) in appreciated property effectively exchanged for Stock of the Corporate Partner under the deemed redemption rule, and the denominator of which is the Corporate Partner's interest (by value) in appreciated property immediately before the Section 337(d) Transaction. The 2015 regulations define this fraction as the Gain Percentage. The Corporate Partner's gain under the deemed redemption rule equals the product of (i) the Corporate Partner's Gain Percentage and (ii) the gain from the appreciated property that is the subject of the exchange that the Corporate Partner would recognize if, immediately before the Section 337(d) Transaction, all assets of the partnership and any assets contributed to the partnership in the Section 337(d) Transaction were sold in a fully taxable transaction for cash in an amount equal to the fair market value of such property (taking into account section 7701(g)), reduced, but not below zero, by any gain the Corporate Partner is required to recognize with respect to the appreciated property in the Section 337(d) Transaction under any other section of the Code.

The gain from the hypothetical sale used to compute gain under the deemed redemption rule is determined by applying the principles of section 704(c), which generally requires the partnership to take into account variations between the adjusted tax basis and fair market value of partnership property at the time it is contributed to the partnership and upon certain other events that allow or require the value of partnership property to be redetermined under § 1.704-1(b)(2)(iv)(f). See Examples 4 and 6 of § 1.337(d)-3(h) in these final regulations. A partner's share of gain under section 704(c) for this purpose includes any remedial allocations under § 1.704-3(d) for a partnership that has elected under section 704(c) to report notional items of offsetting tax gain and loss to its partners to eliminate distortions that may arise when the partnership's total tax gain or loss on the sale of partnership property is less than all partners' aggregate share of gain or loss from the property. The Treasury Department and the IRS did not receive comments on this general rule governing the amount of gain from a Section 337(d) Transaction. These final regulations therefore adopt the rule set forth in the 2015 regulations. However, the commenter asked whether section 743(b) basis adjustments are taken into account when determining a Corporate Partner's gain in a Section 337(d) Transaction. The Treasury Department and the IRS confirm that basis adjustments, including adjustments made pursuant to section 743(b), are taken into account when calculating this gain, so that the Corporate Partner would not be subject to a duplication of tax liability.

The commenter also noted that the 2015 regulations do not specify the character of the gain that a Corporate Partner recognizes in a Section 337(d) Transaction. In response to this comment, the final regulations clarify that the character of the gain that the Corporate Partner recognizes in a Section 337(d) Transaction is the same character of the gain that the Corporate Partner would have recognized if, immediately before the Section 337(d) Transaction, the Corporate Partner had disposed of the appreciated property in a fully taxable transaction for cash in an amount equal to the fair market value of such property (taking into account section 7701(g)).

The 2015 regulations contained two rules related to the effect of the deemed redemption rule on partner and partnership basis. First, the 2015 regulations require the Corporate Partner to increase its basis in its partnership interest by an amount equal to the gain that the Corporate Partner recognizes in a Section 337(d) Transaction. This basis increase is necessary to prevent the Corporate Partner from recognizing gain a second time when the partnership liquidates (or, if property is distributed to the Corporate Partner, when that property is sold). Under the 2015 regulations, this basis increase applies regardless of whether the partnership has a Section 754 election in effect. The commenter suggested that the final regulations clarify how a basis increase is treated for basis-recovery purposes. The final regulations provide this clarification by specifying that this increase is treated as property that is placed in service by the partnership in the taxable year of the Section 337(d) Transaction.

Second, the 2015 regulations require the partnership to increase its adjusted tax basis in the appreciated property that is treated as the subject of a Section 337(d) Transaction by the amount of gain that the Corporate Partner recognized with respect to that property as a result of the Section 337(d) Transaction. The Treasury Department and the IRS did not receive comments on this basis increase rule and, accordingly, these final regulations adopt the rule set forth in the 2015 regulations.

The 2015 regulations extended the deemed redemption rule to certain distributions to the Corporate Partner of Stock of the Corporate Partner. These rules governing distributions applied only if the distributed stock had previously been the subject of a Section 337(d) Transaction or became the subject of a Section 337(d) Transaction as a result of the distribution (a section 337(d) distribution). The 2015 regulations did not apply to a distribution to the Corporate Partner of the Stock of the Corporate Partner to which section 732(f) applied at the time of the distribution.

If the deemed redemption rule applied to a distribution, the 2015 regulations deem the partnership to amend its agreement immediately before the distribution to allocate a 100 percent interest in that portion of the stock to the Corporate Partner that is distributed and to allocate an appropriately reduced interest in other partnership property away from the Corporate Partner. The 2015 regulations employ this deemed allocation solely for purposes of recognizing gain, and no inference is intended with regard to the treatment of such allocations generally.

The Treasury Department and the IRS did not receive comments on this general rule governing partnership distributions and, accordingly, these final regulations adopt the rule set forth in the 2015 regulations.

The 2015 regulations provided that if a distribution is a section 337(d) distribution, then in addition to any gain recognized under the deemed redemption rule upon the distribution of Stock of the Corporate Partner to the Corporate Partner, the 2015 regulations also would require the Corporate Partner to recognize gain to the extent that the partnership's basis in the distributed Stock of the Corporate Partner exceeds the Corporate Partner's basis in its partnership interest (as reduced by any cash distributed in the transaction) immediately before the distribution.

The commenter noted that the language used in this provision differs from the gain recognition provision of section 732(f)(1)(C), which evaluates whether the partnership's adjusted basis in the distributed stock immediately before the distribution exceeded the Corporate Partner's adjusted basis in that stock immediately after the distribution. The commenter asked whether these differences were intentional and, if so, for the explanation of the differences. The differences were not intentional and the Treasury Department and the IRS have determined that the provisions should be the same. Accordingly, the language of the gain recognition rule in these final regulations is modified to conform to the language used in the section 732(f) gain recognition provision.

The 2015 regulations set forth two rules under sections 337(d) and 732 to coordinate the effects of the rule requiring gain recognition when the basis of the Stock of the Corporate Partner is stepped down on a section 337(d) distribution with existing rules for determining the basis of property upon partnership distributions.

The first rule applied for purposes of: (1) Determining the basis of property distributed to the Corporate Partner (other than the basis of the Corporate Partner in its own stock); (2) determining the basis of the Corporate Partner's remaining partnership interest; (3) determining the partnership's basis in undistributed Stock of the Corporate Partner; and (4) computing gain on the distribution. For these purposes, the basis of Stock of the Corporate Partner distributed to the Corporate Partner equals the greater of (i) the partnership's basis of that distributed Stock of the Corporate Partner immediately before the distribution, or (ii) the fair market value of that distributed Stock of the Corporate Partner immediately before the distribution, less the Corporate Partner's allocable share of gain from all of the Stock of the Corporate Partner, if the partnership sold all of its assets in a fully taxable transaction for cash in an amount equal to the fair market value of such property (taking into account section 7701(g)) immediately before the distribution. See Examples 3 and 4 of § 1.337(d)-3(h) in these final regulations. This special rule is necessary to prevent basis from shifting away from distributed Stock of the Corporate Partner to other property. This basis shift could occur, for example, upon a distribution of less than all of the partnership's Stock of the Corporate Partner to the Corporate Partner.

The commenter asked whether this basis rule applies solely to the Corporate Partner or whether it applies for all purposes and recommended expanding Example 4 of § 1.337(d)-3(h) in these final regulations (which was numbered as Example 3 in the 2015 regulations under section 337(d)) to address the basis consequences to the partnership and to the non-corporate partner. The Treasury Department and the IRS confirm that this basis rule applies for all purposes, and these final regulations expand Example 4 of § 1.337(d)-3(h) to discuss the basis that AX partnership and partner A have in the X stock that is distributed to A.

The second rule applied when a Corporate Partner receives both Stock of the Corporate Partner and other property in a section 337(d) distribution. Under this rule, the basis to be allocated to the properties distributed under section 732(a) or (b) is allocated first to the Stock of the Corporate Partner before taking into account the distribution of any other property (other than cash). Therefore, before taking into account the distribution of other property, the Corporate Partner will reduce its basis in its partnership interest by the Corporate Partner's basis in the distributed Stock of the Corporate Partner (but not below zero). The Corporate Partner will determine its basis in other distributed partnership property and in its remaining partnership interest after giving effect to this reduction. The 2015 regulations set forth this rule to ensure that the purposes of the repeal of the General Utilities doctrine are not circumvented through the use of any provision of law or regulations.

When a Corporate Partner receives a partnership distribution of its own stock, it is unclear under existing law whether the Corporate Partner has basis in that stock. (See, for example, Rev. Rul. 2006-2, 2006-1 CB 261.) The resolution of this question is beyond the scope of these final regulations. However, because the distribution to a Corporate Partner of its own stock affects the Corporate Partner's basis in other distributed property and any retained partnership interest, these final regulations make clear that the partnership and the Corporate Partner must determine the basis of other distributed property and any retained partnership interest by reference to the partnership's basis in the distributed Stock of the Corporate Partner. That is, the Corporate Partner determines its basis in other distributed property and in any retained partnership interest as though the distributed stock was stock other than Stock of the Corporate Partner. Similarly, the 2015 regulations computed any gain recognition on the distribution by comparing the Corporate Partner's basis in its partnership interest to the basis of that Stock of the Corporate Partner in the hands of the partnership (without regard to whether the Corporate Partner can have basis in the distributed stock). No inference is intended with respect to the question of whether a corporation does or does not have basis in its own stock.

The commenter noted that duplication of gain under sections 337(d) and 732(f) may occur under the 2015 regulations. The commenter provided an example in which a Corporate Partner could potentially recognize gain first under section 337(d) from a partnership distribution to which section 732(f) does not apply, because its control requirement is not satisfied at the time of the distribution, but then later be subject to the 732(f) basis reduction if the control requirement is subsequently satisfied. The Treasury Department and the IRS agree with the commenter and therefore, these final regulations set forth a basis rule providing that, for purposes of determining the amount of the decrease to the basis of property held by a distributed corporation pursuant to section 732(f), the amount of this decrease is reduced by the amount of gain that a Corporate Partner has recognized under this section in a Section 337(d) Transaction, both in cases where section 732(f) applies at the time of the Section 337(d) Transaction and in cases where section 732(f) is subsequently triggered. This rule prevents the Corporate Partner from recognizing the same gain twice.

The 2015 regulations set forth a de minimis rule providing that the 2015 regulations do not apply to a Corporate Partner if three conditions are satisfied. These conditions are tested upon the occurrence of a Section 337(d) Transaction and upon any subsequent revaluation event described in § 1.704-1(b)(2)(iv)(f).

The first condition requires that both the Corporate Partner and any persons related to the Corporate Partner under section 267(b) or section 707(b) own, in the aggregate, less than 5 percent of the partnership. The second condition requires that the partnership hold Stock of the Corporate Partner worth less than 2 percent of the value of the partnership's gross assets, including Stock of the Corporate Partner. The third condition requires that the partnership has never, at any point in time, held more than $1,000,000 in Stock of the Corporate Partner or more than 2 percent of any particular class of Stock of the Corporate Partner.`

The 2015 regulations provided a special rule that applies if the conditions of the de minimis rule are satisfied at the time of a Section 337(d) Transaction, but are not satisfied at the time of a subsequent Section 337(d) Transaction or revaluation event described in § 1.704-1(b)(2)(iv)(f). This rule provided that, solely for purposes of the deemed redemption rule, a Corporate Partner may determine its gain on the subsequent acquisition or revaluation event as if it had already recognized gain at the previous event. Accordingly, the Corporate Partner would only recognize gain with respect to appreciation arising between the earlier acquisition or revaluation event and the subsequent event. Neither the Corporate Partner nor the partnership increases its basis by the gain the Corporate Partner would have recognized if the de minimis rule did not apply to the prior acquisition or revaluation event.

The Treasury Department and the IRS are concerned that taxpayers could intentionally plan to combine entities, each meeting the de minimis limits, to avoid the purposes of these final regulations. To address this concern, in these final regulations, the Treasury Department and the IRS add a clarifying provision to the de minimis exception stating that the exception does not apply to Stock of the Corporate Partner that is acquired as part of a plan to circumvent the purpose of these final regulations.

The 2015 regulations set forth another exception titled the “inadvertence rule.” This exception provided that the 2015 regulations do not apply to Section 337(d) Transactions in which the partnership satisfies two requirements. First, the partnership must dispose of, by sale or distribution, the Stock of the Corporate Partner before the due date (including extensions) of its federal income tax return for the taxable year in which the partnership acquired the stock (or in which the Corporate Partner joined the partnership, if applicable). Second, the partnership must not have distributed the Stock of the Corporate Partner to the Corporate Partner or a person possessing section 304(c) control of the Corporate Partner.

The commenter asked, whether, notwithstanding the exception's title, the dispositions needed to be inadvertent to qualify for the exception. In order to avoid any ambiguity or any assumption that these dispositions must be inadvertent, these final regulations rename the exception to state that the exception simply applies to “certain dispositions of stock” that qualify for the exception and that inadvertence is not a requirement.

The Treasury Department and the IRS also note that this exception requires that the stock at issue is not distributed to the Corporate Partner or a Controlling Corporation. As discussed in (1)(B) of this Explanation of Provisions with respect to the general definition of Stock of the Corporate Partner, the Treasury Department and the IRS are considering publishing new proposed regulations to modify the definition of Stock of the Corporate Partner to remove the exception for attribution under section 318(a)(1) and (3) from the scope of section 304(c) control.

The commenter requested that these final regulations provide examples on how to measure a Corporate Partner's partnership interest in more complex partnership agreements, such as situations in which the agreement contains a distribution waterfall. Similarly, the commenter requested that these final regulations provide more detailed examples relating to tiered partnership structures. The Treasury Department and the IRS believe that the purpose of these final regulations is to set forth rules of general applicability to prevent a corporate partner from avoiding corporate level gain through transactions with a partnership. The Treasury Department and the IRS therefore believe that providing such detailed examples is beyond the scope of these final regulations.

These final regulations adopt the rules set forth in the 2015 regulations under section 732(f) without any change to conform the application of section 732(f) with Congress' identified purposes for enacting sections 337(d), 732(f), and 1502 in certain situations.

As discussed in the Background, section 732(f) generally applies on a partner-by-partner basis. However, the Treasury Department and the IRS determined that, in certain circumstances, it is appropriate to aggregate the bases of consolidated group members in a partnership for purposes of applying section 732(f).

The 2015 regulations provided that corporate partners that are members of the same consolidated group (as defined in § 1.1502-1(h)) could aggregate their bases in interests in the same partnership for purposes of section 732(f) when two conditions are met. First, two or more of the corporate partners receive a distribution of stock in a distributed corporation from the partnership. Second, the distributed corporation is or becomes a member of the distributee partners' consolidated group following the distribution.

Under this rule, section 732(f) only applies to the extent that the partnership's adjusted basis in the distributed stock immediately before the distribution exceeds the aggregate basis of the distributed stock in the hands of all members of the distributee corporate partners' consolidated group immediately after the distribution. The 2015 regulations included the requirement that the distributed corporation be a member of the consolidated group in order to avoid unintended consequences that could result if that corporation were a controlled foreign corporation.

The commenter recommended that the final regulations extend this basis-aggregation rule to include a distributed corporation (including a controlled foreign corporation) that is owned by members of the distributee partners' consolidated group following the distribution. The commenter stated that the distributed corporation need not be a member of the distributee partners' consolidated group, and that the rule should apply to corporations like a controlled foreign corporation that cannot be a member of a consolidated group. The Treasury Department and the IRS decline to adopt the comment because there could be unanticipated consequences if the distributed corporation were a controlled foreign corporation.

The 2015 regulations also provided rules that restrict corporate partners from entering into transactions or a series of transactions (gain elimination transactions), such as a distribution followed by a reorganization under section 368(a), that might eliminate gain in the stock of a distributed corporation while avoiding the effects of a basis step-down in transactions, because the section 732(f) control requirement is not immediately satisfied.

Accordingly, the 2015 regulations provided that, in the event of a gain elimination transaction, section 732(f) shall apply as though the corporate partner acquired control (as defined in section 732(f)(5)) of the distributed corporation immediately before the gain elimination transaction.

The Treasury Department and the IRS did not receive comments on the proposed rule governing gain elimination transactions. These final regulations adopt the rules set forth in the 2015 regulations.

The 2015 regulations required taxpayers to apply its rules to tiered partnerships in a manner consistent with the purpose of section 732(f). These final regulations maintain this requirement. The commenter requested that these final regulations provide examples illustrating their application to tiered partnerships. The Treasury Department and the IRS decline to adopt this comment, because such examples are beyond the scope of these final regulations, which is to set forth rules of general applicability governing the application of section 732(f) to two specific sets of circumstances.

These final regulations apply to transactions occurring on or after June 12, 2015.

This regulation is not subject to review under section 6(b) of Executive Order 12866 pursuant to the Memorandum of Agreement (April 11, 2018) between the Department of the Treasury and the Office of Management and Budget regarding review of tax regulations.

Further, pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it is hereby certified that these final regulations would not have a significant economic impact on a substantial number of small entities. This certification is based on the fact that these final regulations would primarily affect sophisticated ownership structures involving corporations that own partnerships owning stock or other equity interests in corporate partners. Additionally, these final regulations contain a number of de minimis and other exceptions that render the final regulations inapplicable to most small businesses, and do not impose a collection of information on small entities.

Pursuant to section 7805(f), these final regulations have been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business, and no comments were received.

Notice 89-37 cited in this document is published in the Internal Revenue Bulletin (or Cumulative Bulletin) and is available from the Superintendent of Documents, U.S. Government Publishing Office, Washington, DC 20402, or by visiting the IRS website at http://www.irs.gov.

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

Accordingly, 26 CFR part 1 is amended as follows:

The Massachusetts Department of Transportation (Craigie) Bridge across Charles River, mile 1.0, at Boston, Massachusetts, has a vertical clearance of 12 feet at normal pool in the closed position. The existing drawbridge operating regulations are listed at 33 CFR 117.591(e).

The Massachusetts Department of Transportation requested a temporary deviation from the normal operating schedule. This temporary deviation will allow the bridge to remain closed from 11 p.m. on July 4, 2018 through 1 a.m. on July 5, 2018 to allow pedestrian traffic to exit the Boston Pops Fireworks Spectacular. The waterway is used extensively by recreational traffic during the fireworks display. A State Police Unit will be on-scene to direct vessel traffic. Vessels that can pass under the bridge in the closed position may do so at any time. The bridge will be able to open for emergencies. There is no alternate route for vessels to pass. The Coast Guard will inform users of the waterway of the change in operating schedule through our Local and Broadcast Notices to Mariners so that vessel operators can arrange their transits to minimize any impact caused by the temporary deviation.

In accordance with 33 CFR 117.35(e), the drawbridge must return to its regular operating schedule immediately at the end of the effective period of this temporary deviation. This deviation from the operating regulations is authorized under 33 CFR 117.35.

Background Criminal Penalty Provisions

Paragraph (a) of 36 CFR 1.3 describes the penalties for violating a provision of NPS regulations contained in parts 1 through 7, part 9 subpart B, and parts 12 and 13 of chapter I of title 36. These penalties are payment of a fine as provided by law or imprisonment not exceeding six months, or both, and payment of the costs of all proceedings. The authority to impose these penalties is found in the NPS Organic Act (54 U.S.C. 100751) and 18 U.S.C. 1865. The NPS has the authority to impose these penalties for a violation of any regulation relating to the use and management of the units of the National Park System.

Paragraphs (b), (c), and (d) of 36 CFR 1.3 describe lesser penalties that apply to violations of NPS regulations that occur within units of the National Park System that originated as military parks or national historic sites. These additional provisions are superfluous because the NPS has the authority to impose greater penalties under the NPS Organic Act for violations of NPS regulations that occur in any unit of the National Park System, including those units referred to in paragraphs (b), (c), and (d). This rule removes these unnecessary provisions to reduce the chance of confusion and clarify that a uniform penalty structure applies to the entire National Park System.

Existing NPS regulations at 36 CFR 4.23(c) state that a driver suspected of operating a motor vehicle while under the influence of alcohol or drugs must submit to a blood test (if requested) for the purpose of determining blood alcohol and drug content. This language could be misleading because it does not explicitly state that—absent exigent circumstances—a search warrant must be present in order to require a blood test. This is the Constitutional requirement under the Fourth Amendment following the U.S. Supreme Court decisions in Missouri v. McNeely (2013) and Birchfield v. North Dakota (2016). This rule revises section 4.23(c) to explicitly state this general requirement for a warrant for blood tests. Law enforcement officers will still have the regulatory authority to require an operator to submit to less intrusive tests such as the extraction of saliva, breath tests, or urine samples without a warrant. In practice, NPS law enforcement officers generally stopped requiring blood tests after the McNeely decision in 2013.

Consistent with McNeely and Birchfield, this rule deletes the requirement that a suspected operator submit to a blood test under 36 CFR 4.23(c)(1). This rule clarifies that 36 CFR 4.23(c)(2)'s prohibition on refusing tests applies to those tests allowed under (c)(1) (and would thus no longer apply to the refusal of a blood test, since blood tests have been deleted from that paragraph). This rule creates a new 36 CFR 4.23(c)(3) that provides that absent exigent circumstances, an operator cannot ordinarily be required to submit for a blood test unless it occurs through a search warrant. Existing paragraphs (c)(3) and (c)(4) are redesignated as paragraphs (c)(4) and (c)(5) but otherwise do not change.

Executive Order 12866 provides that the Office of Information and Regulatory Affairs in the Office of Management and Budget will review all significant rules. The Office of Information and Regulatory Affairs has determined that this rule is not significant.

Executive Order 13563 reaffirms the principles of Executive Order 12866 while calling for improvements in the nation's regulatory system to promote predictability, to reduce uncertainty, and to use the best, most innovative, and least burdensome tools for achieving regulatory ends. The executive order directs agencies to consider regulatory approaches that reduce burdens and maintain flexibility and freedom of choice for the public where these approaches are relevant, feasible, and consistent with regulatory objectives. Executive Order 13563 emphasizes further that regulations must be based on the best available science and that the rulemaking process must allow for public participation and an open exchange of ideas. The NPS has developed this rule in a manner consistent with these requirements.

This rule is an E.O. 13771 deregulatory action because, once finalized, it will impose less than zero costs by removing unnecessary criminal penalty provisions and clarifying the current law regarding the valid use of blood tests to measure blood alcohol and drug content.

This rule is not a major rule under 5 U.S.C. 804(2), the Small Business Regulatory Enforcement Fairness Act. This rule:

(a) Does not have an annual effect on the economy of $100 million or more.

(b) Will not cause a major increase in costs or prices for consumers, individual industries, Federal, State, or local government agencies, or geographic regions.

(c) Does not have significant adverse effects on competition, employment, investment, productivity, innovation, or the ability of U.S.-based enterprises to compete with foreign-based enterprises.

This rule does not impose an unfunded mandate on State, local, or tribal governments or the private sector of more than $100 million per year. The rule does not have a significant or unique effect on State, local or tribal governments or the private sector. It addresses public use of national park lands, and imposes no requirements on other agencies or governments. A statement containing the information required by the Unfunded Mandates Reform Act (2 U.S.C. 1531 et seq.) is not required.

This rule does not effect a taking of private property or otherwise have takings implications under Executive Order 12630. A takings implication assessment is not required.

Under the criteria in section 1 of Executive Order 13132, the rule does not have sufficient federalism implications to warrant the preparation of a Federalism summary impact statement. This rule only affects use of federally-administered lands and waters. It has no outside effects on other areas. A Federalism summary impact statement is not required.

We recognize that under 5 U.S.C. 553(b) and (c), notice of proposed rules ordinarily must be published in the Federal Register and the agency must give interested parties an opportunity to submit their views and comments. We have determined under 5 U.S.C. 553(b) and 318 DM HB 5.3, however, that notice and public comment for this rule are not required. We find good cause to treat notice and comment as unnecessary. As discussed above, the penalty provisions being removed are superfluous and not used by the NPS. The clarification that the NPS must obtain a warrant to require a blood sample is settled law and comports with NPS practice since 2013. These regulatory changes will not benefit from public comment, and further delaying them is contrary to the public interest.

We also recognize that rules ordinarily do not become effective until at least 30 days after their publication in the Federal Register. We have determined, however, that good cause exists for this rule to be effective immediately upon publication for the reasons stated above.

This rule complies with the requirements of Executive Order 12988. This rule:

(a) Meets the criteria of section 3(a) requiring that all regulations be reviewed to eliminate errors and ambiguity and be written to minimize litigation; and

(b) Meets the criteria of section 3(b)(2) requiring that all regulations be written in clear language and contain clear legal standards.

The Department of the Interior strives to strengthen its government-to-government relationship with Indian Tribes through a commitment to consultation with Indian tribes and recognition of their right to self-governance and tribal sovereignty. The NPS has evaluated this rule under the criteria in Executive Order 13175 and under the Department's tribal consultation policy and have determined that tribal consultation is not required because the rule will have no substantial direct effect on federally recognized Indian tribes.

This rule does not contain information collection requirements, and a submission to the Office of Management and Budget under the Paperwork Reduction Act is not required. The NPS may not conduct or sponsor and you are not required to respond to a collection of information unless it displays a currently valid OMB control number.

This rule does not constitute a major Federal action significantly affecting the quality of the human environment. A detailed statement under the National Environmental Policy Act of 1969 (NEPA) is not required because the rule is covered by a categorical exclusion. We have determined the rule is categorically excluded under 43 CFR 46.210(i) because it is administrative, legal, and technical in nature. We also have determined the rule does not involve any of the extraordinary circumstances listed in 43 CFR 46.215 that would require further analysis under NEPA.

This rule is not a significant energy action under the definition in Executive Order 13211. A Statement of Energy Effects in not required.

The National Park Service amends 36 CFR parts 1 and 4 as follows:

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

On February 16, 2018 (83 FR 6996), the EPA proposed to approve the second 10-year maintenance plan for the Douglas, Arizona SO2 maintenance area. Submitted by the Arizona Department of Environmental Quality on December 14, 2016, the Douglas second 10-year SO2 maintenance plan (“plan”) demonstrates maintenance of the 1971 SO2 standards through 2030.

We proposed to approve the plan because we determined that it complied with the relevant Clean Air Act (CAA or “Act”) requirements. Our proposed action contains more information on the plan and our evaluation (83 FR 6996, February 16, 2018).

The EPA's proposed action provided for a 30-day public comment period. The EPA received eleven anonymous comment letters in response to the proposed action. All eleven comments concerned issues that are outside the scope of our proposed approval of the Douglas second 10-year SO2 maintenance plan. The issues raised in those comments include, but are not limited to, air quality in China and India, natural gas, mining, electric vehicles, wind farms, and wind turbines.

The EPA is taking final rulemaking action to approve the Douglas second 10-year SO2 maintenance plan under sections 110 and 175A of the CAA. As authorized in section 110(k)(3) of the Act, the EPA is approving the submitted SIP revision because it fulfills all relevant requirements.

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

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

• Is not an Executive Order 13771 (82 FR 9339, February 2, 2017) regulatory action because SIP approvals are exempted under Executive Order 12866;

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

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

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

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

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

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

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

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

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

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

Under section 307(b)(1) of the CAA, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by August 7, 2018. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this action for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action approving the revision to the State of Arizona's SIP may not be challenged later in proceedings to enforce its requirements. (See section 307(b)(2)).

Chapter I, title 40 of the Code of Federal Regulations is amended as follows:

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

This document is simply an announcement of a finding that we have already made. EPA Region 2 sent a letter to the New York State Department of Environmental Conservation on April 19, 2018, stating that the 2017 motor vehicle emissions budgets (“budgets”) in the submitted state implementation plan (“SIP”) for the 2008 national ambient air quality standard for ozone for the New York portions of the New York-Northern New Jersey-Long Island 8-hour ozone nonattainment area are adequate for transportation conformity purposes. These budgets are associated with the SIP's reasonable further progress milestone demonstration and must apply to future transportation conformity determinations conducted by the New York Metropolitan Transportation Council (“NYMTC”).

On November 10, 2017, the New York State Department of Environmental Conservation submitted a SIP revision for the New York portion of the New York-Northern New Jersey-Long Island, NY-NJ-CT, 2008 8-hour ozone nonattainment area. This revision to the SIP included 2017 summer day volatile organic compound (“VOC”) and nitrogen oxides (“NOX”) motor vehicle emissions budgets associated with the SIP's reasonable further progress demonstration. We announced availability of the plan and related budgets on the EPA's transportation conformity website on December 6, 2017, requesting comments by January 5, 2018. We received no comments in response to the adequacy review posting.

This finding will also be available at the EPA's conformity website: https://www.epa.gov/state-and-local-transportation/conformity-adequacy-review-region-2.

The motor vehicle emissions budgets are provided in Table 1 below.

Transportation conformity is required by Clean Air Act section 176(c). The EPA's conformity rule requires that long-range transportation plans, transportation improvement programs, and transportation projects conform to a state's air quality SIP and establishes the criteria and procedures for determining whether or not they conform. Conformity to a SIP means that transportation activities will not produce new air quality violations, worsen existing violations, or delay timely attainment of the NAAQS.

The criteria the EPA uses to determine whether a SIP's motor vehicle emission budgets are adequate for conformity purposes are outlined in 40 CFR 93.118(e)(4). We have further described our process for determining the adequacy of submitted SIP budgets in 40 CFR 93.118(f), and we followed this rule in making our adequacy determination. Please note that an adequacy review is separate from the EPA's completeness review and should not be used to prejudge the EPA's ultimate action on the SIP. Even if we find a budget adequate, the SIP could later be disapproved.

Pursuant to 40 CFR 93.104(e), within 2 years of the effective date of this document, NYMTC and the U.S. Department of Transportation will need to demonstrate conformity to the new budgets. For demonstrating conformity to the budgets in this plan, the on-road motor vehicle emissions from implementation of the long-range transportation plan should be projected consistently with the budgets in this plan.

Throughout this document “we,” “us,” or “our” refer to EPA. The word “budget(s)” refers to the motor vehicle emission budgets (MVEBs) for volatile organic compounds and nitrogen oxides. For the purposes of this document, “SIP” refers to the St. Louis Area 2008 8-Hour Ozone Redesignation Request and Maintenance State Implementation Plan, submitted by Missouri Department of Natural Resources to EPA as a SIP revision on September 12, 2016. The Plan was revised on February 16, 2018.

This document is an announcement of a finding that EPA has already made. EPA Region 7 sent a letter to Missouri Department of Natural Resources on May 15, 2018, stating that the MVEBs contained in the Redesignation Request and Maintenance Plan are adequate for transportation conformity purposes. As a result of EPA's finding, the State of Missouri must use the MVEBs from the February 16, 2018, Redesignation Request and Maintenance Plan for future transportation conformity determinations for the St. Louis area. The finding is available at EPA's conformity website: https://www.epa.gov/state-and-local-transportation.

Transportation conformity is required by section 176(c) of the Clean Air Act, as amended in 1990. EPA's conformity rule requires that transportation plans, programs and projects conform to state air quality implementation plans and establishes the criteria and procedure for determining whether or not they do. Conformity to a SIP means that transportation activities will not produce new air quality violations, worsen existing violations, or delay timely attainment of the national ambient air quality standards.

The criteria by which we determine whether a SIP's motor vehicle emission budgets are adequate for conformity purposes are outlined in 40 CFR 93.118(e)(4). Please note that an adequacy review is separate from EPA's completeness review, and it should not be used to prejudge EPA's ultimate approval of the SIP. EPA plans to take action on the SIP at a later date. We have described our process for determining the adequacy of submitted SIP budgets in 40 CFR 93.118(f), and have followed this rule in making our adequacy determination.

Throughout this document “we,” “us,” and “our” refer to EPA. This section provides additional information by addressing the following:

On September 15, 2017, EPA proposed to approve revisions to the Iowa State Implementation Plan (SIP), the 111(d) plan, and the Operating Permits Program. See 82 FR 43315. In conjunction with the September 15, 2017 notice of proposed rulemaking (NPR), EPA issued a direct final rule (DFR) approving revisions to the Iowa SIP, the 111(d) plan, and the Operating Permits Program. See 82 FR 43303. In the DFR, EPA stated that if adverse comments were submitted to EPA by October 16, 2017, the action would be withdrawn and not take effect.

EPA received three comments prior to the close of the comment period; one in support of the rule revisions and two of which were adverse. EPA withdrew the DFR on November 14, 2017. See 82 FR 52667. This action is a final rule based on the NPR. A detailed discussion of Iowa's SIP revisions, the 111(d) plan revision, and the Operating Permits Program revisions were provided in the DFR and will not be restated here, except to the extent relevant to our response to the public comment we received.

EPA is taking final action to approve revisions to the Iowa SIP, the 111(d) plan, and the Operating Permits Program. These revisions update and clarify rules and make minor revisions and corrections. Approval of these revisions will ensure consistency between the state and federally-approved rules, and ensure Federal enforceability of the state's revised air program rules. Chapters with revisions are as follows:

* Title V Operating Permit Program rules are included in chapter 22 starting at 22.100.

The state submittal has met the public notice requirements for SIP submissions in accordance with 40 CFR 51.102. The submittal also satisfied the completeness criteria of 40 CFR part 51, appendix V. In addition, as explained above and in more detail in the TSD which is part of this docket, these revisions meet the substantive SIP requirements of the CAA, including section 110 and implementing regulations. These revisions are also consistent with applicable EPA requirements of the 111(d) plan submission and Title V of the CAA and 40 CFR part 70.

The public comment period for EPA's proposed rule opened September 15, 2017, the date of its publication in the Federal Register, and closed on October 16, 2017. During this period, EPA received three comments; one in favor of the rule revision, and two with adverse comments.

Below are adverse comments from the first commenter with EPA's responses:

First commenter, comment 1: The commenter stated that EPA must disapprove 567 Iowa Administrative Code (IAC) 22.1(2), “Exemptions” as applied to construction permits for existing stationary sources, because existing sources already subject to PSD cannot use a plantwide applicability limit (PAL) to avoid PSD requirements. The commenter also stated that EPA must disapprove this provision because it does not ensure that the minor sources exemptions will not cause or contribute to a violation of a NAAQS or increment.

EPA's response: Under 40 CFR 52.21(aa)(1), existing major stationary sources may be issued an “actuals PAL”. As stated in the New Source Review (NSR) Reform Final Rule (67 FR 80185), sources subject to an actuals PAL that maintain their emissions below a plantwide actual emissions cap (that is, an actuals PAL), may use the PAL process instead of the major NSR permitting process when modifications are made to the facility or individual emissions units to determine PSD applicability. Iowa's PAL program was approved by EPA on May 4, 2007. See 72 FR 27056.

While compliance with an actuals PAL may allow a source to avoid PSD applicability, it does not necessarily exempt a source from compliance with a state's minor NSR program. Therefore, a source with an actuals PAL in Iowa may still need obtain a permit when there is a physical change or change in method of operation under Iowa's minor NSR program in 567 IAC 22.1. The exclusion of PAL sources from the list of sources that cannot use the exemptions from 567 IAC 22.1 simply allows those PAL sources to use the same exemptions as other sources in order to avoid the permitting requirements of 567 IAC 22.1(1).

Furthermore, allowing PAL sources to use the exemptions in 567 IAC 22.1(2) does not require EPA to disapprove the SIP. The state performs technical reviews of construction permit exemptions to insure the minor sources will not cause or contribute to a violation of a NAAQS or increment. For example, on October 25, 2013, EPA approved a construction permit exemption for certain temporary diesel engines used in periodic testing and maintenance of natural gas pipelines in 567 IAC 22.1(2) paragraph “oo”. See 78 FR 63887. As demonstrated in the docket for that action, Iowa conducted an air quality assessment and determined that the exemption was appropriate and included conditions in the exemption that insured that the engine emissions would not exceed the emission limits allowed under the small unit exemption in 567 IAC 22.1(2), paragraph “w”. As an additional safeguard, 567 IAC 22.1(2) specifies that permitting exemptions do not relieve the owner or operator of any source from any obligations to comply with any other applicable requirements, including Title V requirements and PSD requirements.

First commenter, comment 2: The commenter stated that EPA must disapprove 567 IAC 22.1(3) (as applicable to construction permits for animal feeding operations) because it allows animals feeding operations to be exempt from air pollution permitting, and because it only requires animal feeding operations to obtain a permit under Iowa's chapter 65 regulations that are not approved into the SIP. Finally, the commenter stated that 567 IAC 22.1(3) illegally allows a source category to be exempt from air pollution regulation.

EPA's response: The modification to 567 IAC 22.1(3) clarifies that a new or modified anaerobic lagoon for an animal feeding operation shall apply for a construction permit as provided in 567 IAC chapter 65. It does not exempt animal feeding operations from air pollution permitting, and solely applies to anaerobic lagoons at animal feeding operations.

On October 9, 2002, EPA approved modifications to 567 IAC 22.1(3), 567 IAC 22.1(3), paragraph “c”, subparagraph (3), and 567 IAC 22.3(2) to include new air construction permitting requirements for anaerobic lagoons at animal feeding operations. See 67 FR 62889. EPA notes that 567 IAC 22.1(3), paragraph “c”, which is enforceable by the state and EPA as it is approved as part of Iowa's SIP, contains air construction permit requirements that specifically apply to persons constructing anaerobic lagoons at animal feeding operations. 567 IAC 22.3(2), which is also enforceable by the state and EPA as it is approved as part of Iowa's SIP, also contains air construction permitting requirements for anaerobic lagoons at animal feeding operations. In addition, the EPA notes that anaerobic lagoons for animal feeding operations are not exempt from air construction permitting requirements under 567 IAC 22.1(2), which contains exemptions from air construction permitting requirements for certain sources.

Concerning the comment that Iowa's Chapter 65 regulations are not approved as part of the SIP, the EPA notes that in its October 9, 2002 approval of the modifications to 567 IAC 22.1(3), 567 IAC 22.1(3), paragraph “c”, subparagraph (3), and 567 IAC 22.3(2), the EPA stated that chapter 65 requirements have not been requested by Iowa to be approved into the SIP because chapter 65 includes requirements (for example, odor controls) not pertaining to the requirements of section 110 of the CAA.

First commenter, comment 3: The commenter stated that EPA should make clear that the current New Source Performance Standards (NSPS) apply to sources in Iowa, even if the NSPS was subject to a legal challenge and even if Iowa has not adopted the current NSPS.

EPA's response: While the state included revisions to its adoption of the NSPS in the submittal dated April 13, 2017, the state specifically requested that EPA not act on the revisions, and therefore this comment is outside of the scope of this action. The EPA notes that the NSPS is applicable to sources in Iowa regardless of whether Iowa has adopted the NSPS. Iowa adopts the NSPS in order to obtain concurrent enforcement authority of the NSPS with the EPA.

First commenter, comment 4: The commenter stated that 567 IAC 25.1(9), “Methods and Procedures” should be disapproved as the rule claims that the Department can authorize the use of alternative methodologies for testing and monitoring. The commenter further stated that the state does not have authority to alter stack test and monitoring methodologies for NSPS and NESHAP standards.

EPA's response: 567 IAC 25.1, paragraph “(a)” was revised in order for the state rules to be consistent with the most current Federal rules. In addition to provisions within each NSPS and NESHAP that preserve EPA's authority to approve certain alternative methodologies for testing and monitoring, EPA also retains this authority in accordance with sections 111(h)(3) and 112(e)(3) of the CAA, 40 CFR 60.8(b)(2) and (3), 61.14, and part 63, subpart E.

First commenter, comment 5: The commenter stated that EPA must disapprove 567 IAC 26.2(2) because it is missing PM2.5 thresholds for air pollution alerts and air pollution warnings.

EPA's response: Iowa revised 567 IAC 26.2 in order to be consistent with 40 CFR part 51, appendix L, which addresses example regulations for prevention of air pollution emergency episodes that would cause imminent and substantial endangerment to the health of persons. States are required under 40 CFR part 51, subpart H, to develop emergency contingency plans that are classified as Priority 1 regions where ambient concentrations of a pollutant exceed specific thresholds. In accordance with 40 CFR 51.151, each plan for a Priority 1 region must include a contingency plan that provides for taking action necessary to prevent ambient pollutant concentrations at any such area in the region from reaching a significant harm threshold.

To date, EPA has not promulgated a significant harm threshold for Priority 1 areas for PM2.5. However, EPA has recommended PM2.5 priority levels through guidance,1 and has recommended that states develop emergency episode contingency plans for any area that has monitored and recorded 24-hour PM2.5 levels greater than 140.4 µm/m3 since 2006. If a state has monitored and recorded PM2.5 levels greater than 140.4 µm/m3, the EPA also recommends that the state develop emergency action levels and a significant harm level for PM2.5 in accordance with EPA guidance and consistent with the requirements of 40 CFR 51.150 through 51.153.

Because Iowa has not monitored and recorded 24-hour PM2.5 levels greater than 140.4 µm/m3 since 2006, Iowa is not required to develop an emergency action plan nor establish emergency action levels and a significant harm level for PM2.5.

First commenter, comment 6: The commenter stated that EPA must disapprove paragraph 27.2(4)“c” as this paragraph implies that local air agencies have authority to grant variances for emission limits and other applicable requirements. In addition, the commenter stated that Iowa Code 455B-133, 134, and 143 must be disapproved due to director's variance provisions.

EPA's response: The EPA has interpreted this as a comment on EPA's proposed approval of 567 IAC 27.3(4), paragraph “c”. The current local air pollution control agencies in Iowa do not have federally approved variance procedures. See 40 CFR 52.820(c). As such, EPA's approval of 567 IAC 27.3(4), paragraph “c” does not create a federally-approved variance program for the local air pollution control agency. In addition, Iowa Code 455B-133, 134, and 143 are not a part of Iowa's SIP.

First commenter, comment 7: The commenter stated that Iowa removed the title “Significant Impact Levels (SILs)” of the table in 567 IAC 33.3(20) but left the SILs in place. The commenter stated that removing the title does not fix the problem of SILs not being authorized by the Clean Air Act. The commenter stated that therefore the last sentence of 567 IAC 33.3(20) and the table must be disapproved and expressed further reasons to disapprove the SILs.

EPA's response: As acknowledged by the commenter, the only change to the table in 567 IAC 33.3(20) was the removal of the table's title. The title was removed by the state to be consistent with the table in 40 CFR 51.165(b)(2), which also does not have a title. Because the state only removed the title of the table, and did not otherwise revise the text or table of 567 IAC 33.3(20), the comments concerning the last sentence of the 567 IAC 33.3(2) and the table are outside the scope of this action. In addition, the referenced sentence and table are consistent with the text and table of 40 CFR 51.165(b)(2).

First commenter, comment 8: The commenter stated that EPA must disapprove 567 IAC 33.3(22) in its entirety as the Clean Air Act does not allow for the rescission of PSD permits.

EPA's response: 40 CFR part 52 implements the PSD provisions of the CAA. PSD permits may be rescinded in accordance with 40 CFR 52.21(w).

Second commenter: A second commenter stated that EPA cannot rescind 567 IAC 21.1(4) unless the Clean Air Interstate Rule (CAIR) is removed from the Iowa SIP.

EPA's response: 567 IAC 21.1(4) specifies emissions inventory requirements for Iowa's implementation of CAIR. Iowa's CAIR regulations are found in 567 IAC chapter 34 and remain a part of the approved SIP. The Federal CAIR regulations have been phased out and replaced by the Cross-State Air Pollution Rule (CSAPR). (See 76 FR 48208). Because the emissions inventory requirements of 567 IAC 21.1(4) were implemented in Iowa in order to comply with CAIR and are not relied upon for any other provision of Iowa's SIP, and because CAIR has been replaced by the CSAPR, EPA is approving Iowa's request to remove 567 IAC 21.1(4) from Iowa's SIP.

EPA is taking final action to approve revisions to the Iowa State Implementation Plan, the 111(d) plan, and the Operating Permits Program. These revisions update and clarify rules and makes minor revisions and corrections. Approval of these revisions will ensure consistency between the state and federally-approved rules, and ensure Federal enforceability of the state's revised air program rules.

In this rule, EPA is finalizing regulatory text that includes incorporation by reference. In accordance with requirements of 1 CFR 51.5, EPA is finalizing the incorporation by reference of the Iowa Regulations described in the final amendments to 40 CFR part 52 set forth below. EPA has made, and will continue to make, these materials generally available through www.regulations.gov and at the EPA Region 7 Office (please contact the person identified in the For Further Information Contact section of this preamble for more information).

Therefore, these materials have been approved by EPA for inclusion in the State implementation plan, have been incorporated by reference by EPA into that plan, are fully federally enforceable under sections 110 and 113 of the CAA as of the effective date of the final rulemaking of EPA's approval, and will be incorporated by reference in the next update to the SIP compilation.2

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

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

• Is not an Executive Order 13771 (82 FR 9339, February 2, 2017) regulatory action because SIP approvals are exempted under Executive Order 12866.

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

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

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

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

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

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

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

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

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

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

Under section 307(b)(1) of the CAA, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by August 7, 2018. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this action for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements. (See section 307(b)(2)).

For the reasons stated in the preamble, EPA amends 40 CFR parts 52, 62, and 70 as set forth below:

I. Background

In the Medicare Program; Cancellation of Advancing Care Coordination Through Episode Payment and Cardiac Rehabilitation Incentive Payment Models; Changes to Comprehensive Care for Joint Replacement Payment Model: Extreme and Uncontrollable Circumstances Policy for the Comprehensive Care for Joint Replacement Payment Model final rule and interim final rule with comment period published on December 1, 2017 (82 FR 57066 through 57104), we issued an interim final rule with comment period in conjunction with the final rule in order to address the need for a policy to provide some flexibility in the determination of episode costs for providers located in areas impacted by extreme and uncontrollable circumstances. Specifically, we finalized an extreme and uncontrollable events policy for the performance years 2 through 5 reconciliation and sought comment on potential refinements we might make to this policy for future performance year reconciliations after performance year 2. The 30-day comment period for that rule closed on January 30, 2018. We received 3 comments on our comment solicitation on potential refinements we might make to the extreme and uncontrollable circumstances policy for future performance year reconciliations after performance year 2. Those 3 comments and our responses are discussed in the following paragraphs. We also received 4 comments that did not relate to the extreme and uncontrollable circumstances policy comment solicitation.

In the interim final rule with comment period published on December 1, 2017, we established an extreme and uncontrollable circumstances policy for CJR performance years 2 through 5 reconciliation to provide some flexibility in determining episode spending for CJR participant hospitals located in areas impacted by extreme and uncontrollable circumstances. While this policy most notably addressed Hurricane Harvey, Hurricane Irma, Hurricane Nate, and the California wildfires of August, September, and October 2017, we noted that this policy could also include other similar events that occur within a given performance year, including performance year 2, if those events meet the requirements we set forth in this policy. While Hurricane Maria, which also occurred in the same timeframe, had and, as of the writing of this final rule, continues to have a significant and crippling effect on Puerto Rico and the U.S. Virgin Islands, Hurricane Maria was not part of the interim final rule with comment period as the CJR model is not in operation in the areas impacted by Hurricane Maria, and, therefore there are no CJR participant hospitals that have been impacted by Hurricane Maria. Hurricane Harvey, Hurricane Irma, Hurricane Nate, and the California wildfires of August, September, and October of 2017 affected large regions of the United States where the CJR model operates, leading to widespread destruction of infrastructure that impacted residents' ability to continue normal functions afterwards.

As we stated in the interim final rule with comment period, at least 101 CJR participant hospitals are located in the areas affected by Hurricane Irma and Hurricane Harvey, at least 22 CJR participant hospitals are located in areas impacted by the California wildfires and approximately 12 are in the areas affected by Hurricane Nate. Based on a review of news articles focusing on the hurricanes, at least 35 hospitals evacuated for Hurricane Irma 1 and several hospitals evacuated at least partially for Hurricane Harvey.2 In Florida, at least two CJR participant hospitals in Miami, (Anne Bates Leach Eye Hospital and University of Miami Hospital) and one CJR participant hospital in Miami Beach—Mount Sinai Medical Center—had to close because of Hurricane Irma.3 Tampa General Hospital, a CJR participant hospital in Tampa, evacuated all patients except for those too ill to move.4 In response to Hurricane Irma, on September 9, 2017, Tampa Community Hospital, a CJR participant hospital, suspended all services and evacuated all patients to two other CJR participant hospitals, Brandon Regional Hospital and Medical Center of Trinity.5 In Texas, Baptist Beaumont Hospital, a CJR participant hospital in Beaumont, Texas, had to shut down and evacuate on August 31, 2017.6 On the same day, Christus Southeast Texas St. Elizabeth, another CJR participant hospital in Beaumont, Texas, left only the emergency and trauma center of the hospital open in order to ensure it had enough water for the patients still at the hospital.6 Patients seeking care at the Medical Center of Southeast Texas, a CJR participant hospital in Port Arthur, Texas, had to be taken by dump truck through the submerged hospital parking lot to the perimeter of the property, where a boat would take them to the hospital.6 An additional review of news related to California wildfires also shows that the fires caused various hospitals to evacuate patients.7 On November 16, 2017, five counties in Alabama were declared as major disaster areas due to the destruction of structures, piers, roads and bridges caused by Hurricane Nate.6 Although we did not yet have enough data to evaluate these event-specific effects on CJR episodes at the time of the publication of the interim final rule with comment period, we stated that we anticipated that at least some CJR participant hospitals might have experienced episode cost escalation as a result of hurricane or fire damage and subsequent emergency evacuations.

Under § 510.305(e), as of performance year 2, CJR participant hospitals who have episode costs as calculated under § 510.305(e)(1)(iii) (for example, episode costs that exceed the target price for the performance year) will owe CMS 5 percent of the loss. While the intent of this loss repayment policy is to incentivize providers to manage costs while improving the quality of CJR patient care, we noted in the interim final rule with comment period that in extreme and uncontrollable circumstances, prudent patient care management might involve potentially expensive air ambulance transport or prolonged inpatient stays when other alternatives are not practical due, for example, to state and local mandatory evacuation orders or compromised infrastructure. In addition to the news reports of disaster conditions that impacted several CJR participant hospitals, a number of research studies on natural disasters and rushed evacuations for hospitals supported our assumption that costs can rise during disaster situations.7

Prior to January 1, 2018, the effective date of the interim final rule with comment period, CJR regulations at § 510.210 did not allow cancellation of episodes for extreme and uncontrollable circumstances. The CJR regulations at § 510.305 also did not permit an adjustment to account for episode spending that may have escalated significantly due to events driven by extreme and uncontrollable circumstances.

As discussed in the interim final rule with comment period, for purposes of developing a policy to identify hospitals affected by extreme and uncontrollable circumstances, we consulted section 1135 of the Social Security Act (the Act). That section allows the Secretary to temporarily waive or modify certain Medicare requirements to ensure that sufficient health care items and services are available to meet the needs of individuals enrolled in Social Security Act programs in the emergency area and emergency period. It also allows the Secretary to temporarily waive or modify certain Medicare requirements to ensure that providers who provide such services in good faith can be reimbursed and exempted from sanctions (absent any determination of fraud or abuse). The Secretary has invoked this authority in response to significant natural disasters such as Hurricane Katrina in 2005 and Superstorm Sandy in 2012. Though the section 1135 waiver authority enables us to take actions that give healthcare providers and suppliers greater flexibility, it does not allow for payment adjustment for participant hospitals in the CJR model. However, as we noted in the interim final rule with comment period, the extreme and uncontrollable circumstance policy should only apply when a disaster is widespread and extreme. A section 1135 waiver identifies the “emergency area” and “emergency period,” as defined in section 1135(g) of Act, for which waivers are available. As we stated in the interim final rule with comment period, we believe it is appropriate to establish an extreme and uncontrollable circumstance policy that applies only when and where the magnitude of the event calls for the use of special waiver authority to help providers respond to the emergency and continue providing care.

In the interim final rule with comment period, we noted that the extreme and uncontrollable circumstance policy also should be tailored to the specific areas experiencing the extreme and uncontrollable circumstance. Section 1135 waivers typically are authorized for a geographic area that may encompass a greater region (that is, an entire state) than is directly and immediately affected by the relevant emergency. In addition, section 1135(g) of the Act defines the emergency area as that area covered by both a Secretarial and a Presidential declaration; consequently, the scope of the emergency area is not entirely in the Secretary's control.8 For purposes of this policy, we stated that a narrower geographic scope, rather than the full emergency area, would ensure that the payment policy adjustment is focused on the specific areas that experienced the greatest adverse effects from the extreme and uncontrollable circumstance and is not applied to areas sustaining little or no adverse effects.

Therefore, to narrow the scope of this policy to ensure it is applied to those providers most likely to have experienced the greatest adverse effects, we also required that the area be declared as a major disaster area under the Stafford Act. Once an area is declared as a major disaster area under the Stafford Act, the specific counties, municipalities, parishes, territories, and tribunals that are part of the major disaster area are identified and can be located on the Federal Emergency Management Agency (FEMA) website at www.FEMA.gov/disasters.

For this policy, only major disaster declarations under the Stafford Act in combination with issued section 1135 waivers are used to identify the specific counties, municipalities, parishes, territories, and tribunals where the extreme and uncontrollable circumstance took place. Using the major disaster declaration as a requirement for the extreme and uncontrollable event policy also ensures that the policy will apply only when the event is extreme, meriting the use of special authority, and targeting the specific area affected by the extreme and uncontrollable circumstance. As we noted in the interim final rule with comment period, we are not including emergency declarations under the Stafford Act or national emergency declarations under the National Emergencies Act in this policy, even if such a declaration serves as a basis for the Secretary's invoking the section 1135 waiver authority. This is because we believe it is appropriate for our extreme and uncontrollable circumstance policy to apply only in the narrow circumstance where the circumstance constitutes a major disaster, which are more catastrophic in nature and tend to have significant impacts to infrastructure, rather than the broader grounds for which an emergency could be declared.

In the policy we established to define extreme and uncontrollable circumstances for the CJR model, an area is identified as having experienced 'extreme and uncontrollable circumstances,' if it is within an “emergency area” and “emergency period” as defined in section 1135(g) of the Act, and also is within a county, parish, U.S. territory or tribal government designated in a major disaster declaration under the Stafford Act.

As we stated in the interim final rule with comment period, we believe Hurricanes Harvey, Irma, and Nate and the California wildfires in August, September, and October of 2017 triggered the automatic extreme and uncontrollable circumstance policy we adopted in the interim final rule with comment period. For the performance year 2 reconciliation conducted in March 2018, this extreme and uncontrollable circumstance policy applies to those CJR participant hospitals whose CMS Certification Number (CCN) has a primary address located in a state, U.S. territory, or tribal government that is within an “emergency area” and “emergency period,” as those terms are defined in section 1135(g) of the Act, for which the Secretary has issued a waiver under section 1135 of the Act and that is designated in a major disaster declaration under the Stafford Act. The states and territories for which section 1135 waivers were issued in response to Hurricanes Harvey, Irma, Nate, and the California wildfires (during the fall of 2017) are Alabama, California, Florida, Georgia, South Carolina, Texas, Louisiana, and Mississippi. Section 1135 waivers also were issued for Puerto Rico and the Virgin Islands as a result of Hurricane Maria, but, as we noted in the interim final rule with comment period, there are no CJR participant hospitals with CCNs with a primary address in either of these areas. To view the 1135 waiver documents and for additional information on section 1135 waivers see: https://www.cms.gov/About-CMS/Agency-Information/Emergency/. The major disaster declarations are located on FEMA website at https://www.fema.gov/disasters. When locating the counties, municipalities, parishes, tribunals, and territories for the major disaster declaration, FEMA designates these locations as 'designated areas' for that specific state, or tribunal. All counties, municipalities, parishes, tribunals, and territories identified as designated areas on the disaster declaration are included.

The counties, parishes, and tribal governments that met the criteria for the CJR policy on extreme and uncontrollable circumstances in performance year 2 are as follows: 9

• The following counties in Alabama: Autauga, Baldwin, Choctaw, Clarke, Dallas, Macon, Mobile, and Washington.10

• The following counties in California: Butte, Lake, Mendocino, Napa, Nevada, Orange, Sonoma, and Yuba.11

• All 67 counties 12 and Big Cypress Indian Reservation, Brighton Indian Reservation, Fort Pierce Indian Reservation, Hollywood Indian Reservation, Immokalee Indian Reservation, and Tampa Reservation in Florida.13

• All 159 counties in Georgia.14

• All 46 counties, and the Catawba Indian Reservation in South Carolina.15

• The following counties in Texas: Aransas, Austin, Bastrop, Bee, Bexar, Brazoria, Calhoun, Chambers, Colorado, Dallas, Dewitt, Fayette, Fort Bend, Galveston, Goliad, Gonzales, Hardin, Harris, Jackson, Jasper, Jefferson, Karnes, Kleberg, Lavaca, Lee, Liberty, Matagorda, Montgomery, Newton, Nueces, Orange, Polk, Refugio, Sabine, San Jacinto, San Patricio, Tarrant, Travis, Tyler, Victoria, Walker, Waller, and Wharton.16

• The following parishes in Louisiana: Acadia, Allen, Assumption, Beauregard, Calcasieu, Cameron, De Soto, Iberia, Jefferson Davis, Lafayette, Lafourche, Natchitoches, Plaquemines, Rapides, Red River, Sabine, St. Charles, St. Mary, Vermilion, and Vernon.17

Using these criteria, in the interim final rule with comment period, we stated that we were able to identify at least 101 CJR participant hospitals located in the areas affected by Hurricanes Harvey and Hurricane Irma, approximately 12 CJR participant hospitals in the areas affected by Hurricane Nate, and at least 22 CJR participant hospitals in areas impacted by the California wildfires. As there are no CJR model areas in Puerto Rico or the U.S. Virgin Islands, we again noted that no CJR participant hospitals were impacted by Hurricane Maria. CJR participant hospitals for whom this extreme and uncontrollable circumstances policy applies for performance year 2 (and subsequent performance years if and when the policy is invoked) receive notification via the initial reconciliation reports CMS delivers to providers upon completion of the reconciliation calculations, which under § 510.305(d) are initiated beginning 2 months after the close of the performance year.

Though the Hurricanes and California wildfires were the driving force for developing the extreme and uncontrollable circumstance policy, in the interim final rule with comment period, we stated that this policy is being implemented for the duration of the CJR model, and that we are amending the CJR regulations accordingly, as further outlined later in this final rule.

In the interim final rule with comment period, we noted that without a policy to provide CJR participant hospitals some flexibility in extreme and uncontrollable circumstances, we might inadvertently create an incentive to place cost considerations above patient safety, especially in the later years of the CJR model when the downside risk percentage increases. In considering policy alternatives to help ensure beneficiary protections by mitigating participant hospitals' financial liability for costs resulting from extreme and uncontrollable circumstances, we considered and rejected a blanket cancellation of all episodes occurring during the relevant period. As we stated in the interim final rule with comment period, we do not believe that a blanket cancellation would be in either beneficiaries' or CJR participant hospitals' best interests, as it is possible that hospitals can manage costs and earn a reconciliation payment despite these extreme and uncontrollable circumstances.

Furthermore, we would not want CJR participant hospitals to limit case management services for beneficiaries in CJR episodes during extreme and uncontrollable circumstances, when prudent care management could potentially involve using significantly more expensive transport or care settings. Therefore, we determined that capping the actual episode spending at the target amounts for those episodes would be the best way to protect beneficiaries from potential care stinting and hospitals from escalating costs. As we stated in the interim final rule with comment period, this will also ensure that those hospitals are still able to earn reconciliation payments on those eligible episodes where the disaster did not have a noticeable impact on cost.

In determining the start date of episodes to which this extreme and uncontrollable circumstances policy will apply, we determined that a window of 30 days prior to and including the date that the emergency period (as defined in section 1135(g) of the Act) begins should reasonably capture those beneficiaries whose high CJR episode costs could be attributed to extreme and uncontrollable circumstances. As we stated in the interim final rule with comment period, we believe this 30-day window is particularly appropriate due to the 90-day CJR model episode length. Including all episodes that begin within 30 days before the date the emergency period begins should enable us to include the majority of beneficiaries still in institutional settings and who are still within the first third of their episodes when the extreme and uncontrollable circumstance arises. We note that the average length of stay for DRG 469 is between 5 and 6 days and the average length of stay for DRG 470 is between 2 and 3 days (see https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Downloads/FY2018-CMS-1677-FR-Table-5.zip).

Under § 510.300(a)(1), we differentiated fracture and non-fracture CJR episodes and pricing, noting that lower extremity joint replacement procedures performed as a result of a hip fracture are typically emergent procedures. Fracture episodes typically occur for beneficiaries with more complex health issues and can involve higher episode spending. As we stated in the interim final rule with comment period, we do not expect a high volume of CJR non-fracture episodes to be initiated once extreme and uncontrollable circumstances arise, given that it is not prudent to conduct non-fracture major joint replacement surgeries, which generally are elective and non-emergent, until conditions stabilize and infrastructure is reasonably restored. Therefore, for non-fracture episodes, the extreme and uncontrollable circumstances policy we established in the interim final rule with comment period only applies to dates of admission to anchor hospitalization that occur between 30 days before and up to the date on which the emergency period (as defined in section 1135(g) of the Act) begins. We believe this policy empowers hospitals to decide whether they can safely and appropriately perform non-fracture THA and TKA procedures after the commencement of the emergency period and whether or not performing these procedures will subject their organization to undue financial risk resulting from increased costs that are beyond the organization's control.

However, for CJR fracture episodes, the extreme and uncontrollable circumstances policy we established in the interim final rule with comment period applies to dates of admission to the anchor hospitalization that occur within 30 days before, on, or up to 30 days after the date the emergency period (as defined in section 1135(g) of the Act) begins. As we stated in the interim final rule with comment period, we recognize that fracture cases in CJR are often emergent and unplanned, and it may not be prudent to postpone major joint surgical procedures in many of those CJR fracture cases. Therefore, fracture episodes with a date of admission to the anchor hospitalization that is on or within 30 days before or after the date that the emergency period (as defined in section 1135(g) of the Act) begins are subject to this extreme and uncontrollable circumstances policy. As we stated in the interim final rule with comment period, we believe that this 30-day window before and after the emergency period should ensure that hospitals caring for CJR fracture patients during extreme and uncontrollable circumstances are adequately protected from episode costs beyond their control.

In the interim final rule with comment period, we established that, for performance years 2 through 5, for participant hospitals that are located in an emergency area during an emergency period, as those terms are defined in section 1135(g) of the Act, for which the Secretary has issued a waiver under section 1135 of the Act, and in a county, parish, U.S. territory or tribal government designated in a major disaster declaration under the Stafford Act, the following conditions apply. For a non-fracture episode with a date of admission to the anchor hospitalization that is on or within 30 days before the date that the emergency period (as defined in section 1135(g) of the Act) begins, actual episode payments are capped at the target price determined for that episode under § 510.300. For a fracture episode with a date of admission to the anchor hospitalization that is on or within 30 days before or after the date that the emergency period (as defined in section 1135(g) of the Act) begins, actual episode payments are capped at the target price determined for that episode under § 510.300.

We codified this new extreme and uncontrollable circumstance policy at § 510.305(k). We sought comment on potential refinements to this policy for future performance year reconciliations after performance year 2.

Comment: All of the comments we received in response to our comment solicitation expressed support for an extreme and uncontrollable circumstances policy for the CJR model. All commenters supported the application of the policy to episodes with anchor stays beginning on or within 30 days before the date of the emergency period. A commenter supported the policy as established in the interim final rule with comment period and stated that it should apply to future performance years beyond performance year 2. Another commenter, who also supported the policy, noted that due to the substantial disruptions in the post-acute care market from significant infrastructure damage, the policy could be significantly improved if CMS capped payments for both fracture and non-fracture episodes with an anchor hospitalization within 30 days before or after the date that the emergency period begins. A different commenter, who also supported the policy, urged CMS to expand it to include more episodes by developing specific, recovery-focused criteria, such as the number of patients remaining displaced from their homes, the proportion of health care services remaining unavailable and distance to comparable services for rural areas to determine the end date for episodes. This commenter, who noted that extensive damage to infrastructure, housing and post-acute care services in Texas due to Hurricane Harvey continue to be substantial in certain counties, stated that delaying services to Medicare beneficiaries who meet the criteria for LEJR is detrimental to the health and well-being of the beneficiaries. This commenter recommended that the extreme and uncontrollable circumstances policy for all CJR episodes should apply to dates of admission to anchor hospitalization that occur 30 days before the emergency period (as defined in section 1135(g) of the Act) begins and up to 90 days after the date the emergency period ends or when health care services has reached 90 percent of the pre-emergency period level and beneficiary displacement issues have been resolved to ensure CJR participants are protected from episode costs beyond their control.

Response: We appreciate the support expressed by commenters for our extreme and uncontrollable circumstances policy and agree with commenters that it is appropriate for the policy to cover both fracture and non-fracture episodes with anchor stays occurring on or within 30 days before the date of the emergency period. In response to the commenter who stated that our extreme and uncontrollable circumstances policy should apply to future performance years, we can confirm that it does. While we note that recovery efforts from major disasters can take extensive time and resources, as we stated in the interim final rule with comment period, we continue to believe that it is not prudent to conduct non-fracture major joint replacement surgeries, which generally are elective and non-emergent, until conditions stabilize and infrastructure is reasonably restored. Although we acknowledge that joint replacements can have a substantial impact on quality of life for beneficiaries, we are not persuaded by commenters that it is appropriate to extend the extreme and uncontrollable events policy to non-fracture CJR episodes beginning on or within the 30 days after the onset of an emergency period. If lasting infrastructure damage has severely crippled post-acute care access and limited offerings in a community, we are not convinced that elective surgeries should resume, especially for beneficiaries likely to need institutional post-acute care, until there is some assurance that that care will be available.

When we originally finalized the CJR target amounts in the November 24, 2015 final rule (80 FR 73273), we distinguished between hip fracture and non-fracture CJR episodes and pricing in response to comments. Commenters on that rule noted that lower extremity joint replacement procedures performed as a result of a hip fracture are typically emergent procedures (80 FR 73301) which can be more clinically complex in nature and more costly to treat due to their emergent nature. Therefore, as we stated in the interim final rule with comment period, given the frequent emergent nature of fractures, we acknowledge that it may not be prudent to postpone major joint surgical procedures in many of those CJR cases. Consequently, we believe it is appropriate, as was established in the interim final rule with comment period, to extend coverage under the extreme and uncontrollable circumstances policy to fracture cases occurring on or within 30 days after the date of the disaster, and we thank the commenters for their support of this policy that covers fracture cases on or within 30 days of the emergency period in the extreme and uncontrollable events policy.

In considering the commenter's suggestion that we develop on-going specific, recovery-focused criteria, such as the number of patients remaining displaced from their homes, the proportion of health care services remaining unavailable and distance to comparable services for rural areas to determine the end date for episodes we note that it would be extremely difficult to establish general criteria that would apply broadly to all emergency periods that might trigger the extreme and uncontrollable circumstances policy; this type of criteria would likely need to be specific to each individual emergency period and would therefore be more subjective and less predictable for providers in the CJR model. We believe the time-based criteria we established for this policy are more straightforward and create clear guidelines for CJR participant hospitals that may need an advanced, predictable understanding of which episodes will be subject to the extreme and uncontrollable circumstances policy. We established this policy to limit financial liability under the CJR model for participant hospitals caring for CJR fracture patients during extreme and uncontrollable circumstances where costs can escalate beyond their control. While we acknowledge that disaster recovery efforts can be prolonged beyond 30-day periods, we believe that care management planning is even more essential when communities are recovering from major disasters. However, we do not believe that altering the post emergency window from 30 to 90 days, as suggested by a commenter, would be appropriate, as a longer post emergency window might incentivize providers to disengage from the care management the CJR model is focused on improving.

We note a technical correction to the preamble of the interim final rule with comment period. In several places we described our extreme and uncontrollable circumstances policy as applying when a major disaster declaration served as the condition precedent to an section 1135 waiver. However, this was incorrect, as in several of the events to which our policy applies, an emergency declaration under the Stafford Act was the condition precedent for the Secretary's exercise of the section 1135 waiver authority. For example, the section 1135 waiver for Hurricane Nate was based on an emergency declaration under the Stafford Act, but a major disaster declaration under the Stafford Act subsequently was made. The regulation text at 42 CFR 510.305(k), which we are finalizing without modification, accurately reflects the policy.

This final rule incorporates the provisions of the interim final rule with comment period without changes. Therefore, this extreme and uncontrollable circumstances policy, as codified at 42 CFR 510.305(k) will apply to CJR participant hospitals that are both located in an emergency area during an emergency period (as those terms are defined in section 1135(g) of the Act) for which the Secretary has issued a waiver under section 1135; and that are also located in a county, parish, or tribal government designated in a major disaster declaration under the Stafford Act.

As stated in section 1115A(d)(3) of the Act, Chapter 35 of title 44, United States Code, shall not apply to the testing and evaluation of models under section 1115A of the Act. As a result, the information collection requirements contained in this final rule need not be reviewed by the Office of Management and Budget. However, we have summarized the anticipated cost burden associated with the information collection requirements in section V. (Regulatory Impact Statement) of this final rule.

We have examined the impact of this rule as required by Executive Order 12866 on Regulatory Planning and Review (September 30, 1993), Executive Order 13563 on Improving Regulation and Regulatory Review (January 18, 2011), the Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), section 1102(b) of the Act, section 202 of the Unfunded Mandates Reform Act of 1995 (March 22, 1995; Pub. L. 104-4), Executive Order 13132 on Federalism (August 4, 1999), the Congressional Review Act (5 U.S.C. 804(2)), and Executive Order 13771 on Reducing Regulation and Controlling Regulatory Costs (January 30, 2017).

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). A Regulatory Impact Analysis (RIA) must be prepared for major rules with economically significant effects ($100 million or more in any 1 year). This rule does not reach the economic threshold and thus is not considered a major rule.

The RFA requires agencies to analyze options for regulatory relief of small entities. For purposes of the RFA, small entities include small businesses, nonprofit organizations, and small governmental jurisdictions. Most hospitals and most other providers and suppliers are small entities, either by nonprofit status or by having revenues of less than $7.5 million to $38.5 million in any 1 year. Individuals and states are not included in the definition of a small entity. We are not preparing an analysis for the RFA because we have determined, and the Secretary certifies, that this final rule will not have a significant economic impact on a substantial number of small entities.

In addition, section 1102(b) of the Act requires us to prepare an RIA if a rule may have a significant impact on the operations of a substantial number of small rural hospitals. This analysis must conform to the provisions of section 604 of the RFA. For purposes of section 1102(b) of the Act, we define a small rural hospital as a hospital that is located outside of a Metropolitan Statistical Area for Medicare payment regulations and has fewer than 100 beds. We are not preparing an analysis for section 1102(b) of the Act because we have determined, and the Secretary certifies, that this final rule will not have a significant impact on the operations of a substantial number of small rural hospitals.

Section 202 of the Unfunded Mandates Reform Act of 1995 also requires that agencies assess anticipated costs and benefits before issuing any rule whose mandates require spending in any 1 year of $100 million in 1995 dollars, updated annually for inflation. In 2018, that threshold is approximately $150 million. This rule will have no consequential effect on state, local, or tribal governments or on the private sector.

Executive Order 13132 establishes certain requirements that an agency must meet when it promulgates a proposed rule (and subsequent final rule) that imposes substantial direct requirement costs on state and local governments, preempts state law, or otherwise has Federalism implications. Since this regulation does not impose any costs on state or local governments, the requirements of Executive Order 13132 are not applicable.

Executive Order 13771, titled Reducing Regulation and Controlling Regulatory Costs, was issued on January 30, 2017. It has been determined that this final rule is not a “significant regulatory action” and thus does not trigger the aforementioned requirements of Executive Order 13771.

In the December 1, 2017 interim final rule with comment period, we utilized 2016 CJR episode level data to approximate the impact to projected CJR model savings resulting from the extreme and uncontrollable circumstances policy for performance year 2 (82 FR 57096). Specifically, we first identified the CJR participant hospitals located in Alabama, California, Florida, Georgia, South Carolina, Mississippi, Texas, and Louisiana (those states for which 1135 waivers were issued) that were also located in the counties listed in section II.B. of this final rule and listed on www.FEMA.gov/disasters as having a major disaster declaration. To approximate the date of the emergency, we used the date of the disasters as listed on the FEMA website from 2017 (resetting the year to 2016 to align with the claim dates of service) and selected all CJR episodes for these providers that initiated in the month preceding (that is, 30 days prior) the date of the disaster. Date of disaster declaration dates were matched to the CJR participant hospitals based on the hospitals' state addresses.

For non-fracture episodes, we capped the actual episode payment at the target price determined for that episode if the date of admission to the anchor hospitalization was on or within 30 days before the date that the emergency period (as defined in section 1135(g) of the Act) begins. For fracture episodes, we capped the actual episode payment at the target price determined for that episode if the date of admission to the anchor hospitalization was on or within 30 days before or after the date that the emergency period (as defined in section 1135(g) of the Act) begins. Our analyses indicated that the impact of capping the actual episode payments at the episode target prices based on the 2017 extreme and uncontrollable circumstances policy could result in a decrease to the CJR model estimated savings ranging between $1.5 to $5.0 million for performance year 2, quantifying the dollar impact for that year based on a point estimate of $2 million. We also noted that this performance year 2 projected impact was mitigated by the 5 percent stop-loss/stop-gain levels applicable to performance year 2 and added that if these disasters had occurred in a future performance year with higher stop-loss/stop-gain levels then we would expect the projected impact to increase. The performance year 2 savings estimates did not assume any change in spending or volume due to these extreme and uncontrollable circumstances, neither before nor after the date of the disaster as listed on the FEMA website.

For purposes of assessing the impact of finalizing this policy for performance years 3 through 5, we note that we are unable to accurately or reasonably model an impact due to our inability to predict future disaster events. It is entirely possible future years could be completely free of major disasters and emergencies that might qualify as triggering events under the extreme and uncontrollable circumstances policy. Likewise, it is entirely possible that future years could have many more significant disaster events that might qualify as triggering events for the extreme and uncontrollable circumstances policy. In the absence of any future knowledge of potential disasters that might qualify as events that would invoke the extreme and uncontrollable circumstances policy, we are assuming that the performance year 2 extreme and uncontrollable circumstances $1.5 to $5 million range estimate, quantified using a 2 million dollar point estimate, can be extrapolated across the remaining 3 performance years of the CJR model since we modeled this using knowledge of actual 2017 events. Extrapolating the $2 million per year across performance years 3 through 5 results in an estimated cost of $6 million which could potentially net against savings predicted for the CJR model. We note that extrapolating the range estimate could make the impact of this policy for the remaining 3 years of the model as low as $4.5 million or as high as $15 million. However, we again reiterate that this assumption may be inaccurate as this $2 million per year figure was based on an estimate of known events in 2017 on modeled payments for performance year 2. Specifically, future years could be disaster free or could experience more frequent and destructive disasters, either of which could render this impact estimate incorrect. However, in absence of future knowledge we believe this extrapolation estimate can be used to approximate an impact for this extreme and uncontrollable circumstances policy for performance years 3 through 5 of the CJR model.

In accordance with the provisions of Executive Order 12866, this final rule was reviewed by the Office of Management and Budget.

For the reasons set forth in the preamble, the interim final rule published in the December 1, 2017 Federal Register (82 FR 57066), is adopted as final without change.