Federal Register Vol. 83, No.84,

In a proposed rule published in the Federal Register on January 5, 2017 (82 FR 1231), Food Nutrition Service (FNS) proposed to amend Food Distribution regulations at 7 CFR part 250 to revise and clarify requirements for the processing of donated foods, in order to formalize processing options already being used in current practice, incorporate input received from processors and State and local agencies administering child nutrition programs, and rewrite much of 7 CFR part 250 Subpart C in a more user-friendly, “plain language” format. The Department of Agriculture (the Department or USDA) provides donated foods to State distributing agencies for distribution to recipient agencies (e.g., school food authorities) participating in the National School Lunch Program (NSLP) and other child nutrition or food distribution programs. In accordance with Federal regulations in 7 CFR part 250, distributing agencies may provide the donated foods to commercial processors for processing into end products for use in NSLP or other food programs.

For example, a whole chicken or chicken parts may be processed into precooked grilled chicken strips for use in NSLP. The ability to divert donated foods for further processing provides recipient agencies with more options for using donated foods in their programs. Program regulations ensure that State and recipient agencies, and program recipients, receive the full benefit of the donated foods provided to such processors for processing into end products.

FNS solicited comments through April 5, 2017, on the provisions of the proposed rulemaking. These comments are discussed below and are available for review at www.regulations.gov. To view the comments received, enter “FNS-2017-0001” in the search field on the main page of www.regulations.gov. Then click on “Search.” Under “Document Type”, select “Public Submission”.

FNS received 31 written comments regarding the proposed provisions from three associations and advocacy groups, eight State agencies, one recipient agency, thirteen private companies, and six individuals who did not identify an affiliation with an organization. Twelve of the comments received were duplicates of the comment submission from the American Commodity Distribution Association (ACDA). Two comments were supportive of the rule as proposed, in its entirety. The majority of the comments were supportive but recommended changes to add clarity and consistency to the language in the regulations.

Some commenters were supportive of the rule but opposed to a specific provision. There were no comments in opposition of the proposed rule as a whole.

Most commenters in support of the proposed rule indicated they were in favor of the clarifying changes and the consolidation of requirements previously tested in demonstration projects. Commenters also supported measures in the proposed rule to reduce administrative and reporting burdens on State distributing agencies and to streamline participation for industry stakeholders processing USDA Donated Foods.

Most commenters requested further clarification and guidance on the proposed rule and the provisions being changed. Specifically, commenters requested clarification on:

• The terminology used in the rule to ensure clear understanding of the intent and meaning of proposed provisions and requests to include commonly-used industry terms;

• The roles and responsibilities of FNS, State distributing agency, recipient agency, processor, and distributor staff in implementing some of the proposed provisions;

• The rationale behind some of the proposed provisions, including the allowable duration of some agreements required in the proposed rule;

• Whether certain entities, such as commercial entities using USDA Donated Foods in the preparation of meals, are designated as processors under the proposed rule;

• The process by which FNS establishes and disseminates the replacement value for USDA Donated Foods; and

• The method of oversight and enforcement that would be used for some of the proposed provisions including the proposed requirement for processors and distributors to enter into agreements with each other and the proposed requirement for any credit for the sale of by-products to be passed through to the recipient agency.

Commenters also requested that USDA:

• Collect, review, and file the agreements between processors and distributors required by the proposed rule;

• Include a provision in the final rule prohibiting distributors from acting as authorized agents of recipient agencies;

• Remove the provision in the proposed rule that discourages the pooling of inventory at distributors acting as the authorized agent of recipient agencies and instead establish a requirement for each distributor to enter into an agreement with FNS that (1) outlines distributor requirements, (2) transfers title of USDA Donated Foods to distributors when foods are in their possession, and (3) requires distributors to submit a surety bond to FNS to protect the value of USDA Donated Foods in their possession; and

• Include a provision in the final rule establishing the required method of calculation of inventory levels at processors and reducing the number of months used in the calculation from 12 to 10. This calculation, including the number of months used, is currently described in a Policy Memorandum.

In § 250.2 we proposed to remove, revise, and add definitions relating to processing of donated foods. We proposed to remove the definitions of “Contracting agency” and “Fee-for-service.” We proposed to replace the term “Contracting agency” throughout the regulation with the specific agency (i.e., distributing and/or recipient agency) that may enter into a processing agreement. The meaning of the term “Fee-for-service” is clear in the context of the proposed regulatory provisions and no longer requires a separate definition. No comments were received on these proposed definition removals. Thus, the proposed removals are retained without change in this final rule.

We proposed to add definitions of “Backhauling,” “Commingling,” “End product data schedule,” “In-State Processing Agreement,” “National Processing Agreement,” “Recipient Agency Processing Agreement,” “Replacement value,” and “State Participation Agreement.” The definition of “Backhauling” would describe a means of delivery of donated food to a processor from a recipient agency's storage facility.

The definition of “Commingling” would describe the common storage of donated foods with commercially purchased foods.

The definition of “End product data schedule” would convey the important function of this document in describing the processing of donated foods into finished end products. The definitions of “National Processing Agreement,” “Recipient Agency Processing Agreement,” “State Participation Agreement,” and “In-State Processing Agreement” would help the reader understand the different types of processing agreements permitted. These processing agreements are further described in § 250.30 of this final rule. No comments were received on these proposed definition additions. Thus, the proposed definitions are retained without change in this final rule.

The definition of “Replacement value” would clarify the donated food value that must be used by processors to ensure compensation for donated foods lost in processing or other activities. The definition of “Replacement value” reflects the price in the market at the time that the Department assigns the value whereas the definition of “Contract value” in current regulations reflects the Department's current acquisition price, which is set annually. One commenter requested that the definition be amended to include any justifications that may be used to determine when the values will be changed and the method USDA would use to disseminate changed values. Replacement value is only changed by the Department in rare cases and only under special circumstances.

Under these special circumstances, the need to adjust the replacement value is determined on a case-by-case basis through consultation with the relevant State and local agencies. Changes are communicated directly to State and local agencies and the justifications for changes will vary significantly from case to case. Thus, the proposed definition is retained without change in this final rule.

In § 250.11(e), we proposed to describe the timing of transfer of title to donated foods and the agency to which title is transferred, in accordance with the amendments made by Section 4104 of the Agricultural Act of 2014 (Pub. L. 113-79) to Section 17 of the Commodity Distribution Reform Act and WIC Amendments of 1987, 7 U.S.C. 612c note, and the requirements under National Processing Agreements in this rule. In § 250.11(e) we proposed that the title to donated foods provided to a multi-State processor, in accordance with its National Processing Agreement, transfers to the distributing or recipient agency, as appropriate, upon the acceptance of finished end products at the time and place of delivery. No comments were received on this proposed change. Thus, the proposed language is retained without change in this final rule.

In § 250.11(e), we also proposed to require that when a distributor is contracted by the recipient agency for the transportation and/or storage of finished end products and is acting as the recipient agency's authorized agent (i.e., purchasing processed end products containing donated foods on behalf of the recipient agency), title of donated foods would transfer to the recipient agency upon the acceptance of finished end products at the time and place of delivery at the recipient agency, or the distributor acting as the authorized agent of the recipient agency, whichever happens first. Many recipient agencies receiving finished end products from multi-State processors contract with a distributor to store end products and/or transport the finished end products to their facilities. The inclusion of distributors in the supply chain for finished end products creates challenges related to tracking and reporting the value of donated foods. Because processors are not a party to the contractual relationship between recipient agencies and distributors, processors lose control of finished end products once they are delivered to the distributors designated by each recipient agency. Pursuant to current regulations, however, processors are required to maintain a bond for the value of those finished end products.

As a result, in situations where recipient agencies contract with a distributor to store and/or transport processed end products containing donated foods and act as their authorized agent, complications can arise that may impede the transfer of title described above. Some processors and distributors, working in this manner, manufacture and/or order some processed end products prior to receiving donated food orders from recipient agencies. This is sometimes termed “inventory pooling” (as illustrated below). Under current regulations, title cannot transfer to the recipient agency at the time of delivery at its contracted distributor because neither the processor nor the distributor know which recipient agency will receive which products.

The intent of § 250.11(e) is to discourage the pooling of processed end products.

Many comments were received on this provision ranging from overall support to overall opposition. One commenter expressed strong support for the provision, claiming that it would increase efficiency and program integrity.

One commenter expressed support for the provision but requested clarification that title for donated foods will never transfer to the distributor but will only transfer from USDA to the recipient agency. Thirteen commenters expressed understanding of the Department's position to include the provision but requested clarifying language be included to instruct processors to closely monitor distributor transactions and reporting practices, and to label the practice as it is known, inventory pooling.

In response, we would point out that processors should always closely monitor distributor transactions and reporting practices to ensure that all parties are adhering to the requirements of 7 CFR part 250 and the processor's processing agreement. Transaction monitoring and reporting maybe outlined in the agreement between the distributor and processor required in § 250.30(i). Inventory pooling, in this context, refers to a practice employed by distributors. § 250.11(e) is focused on clarifying when title transfers, ensuring that processors know which School Food Authority (SFA) is accepting ownership of end products. Therefore, the term “pooling” is not referenced in the regulatory text.

One commenter acknowledged the challenges that the practice of inventory pooling creates for entities within the end product supply chain but suggested alternate methods for addressing them. The alternate methods suggested were prohibiting distributors from acting as authorized agents of SFAs and requiring that distributors enter into agreements with FNS to furnish a surety bond for donated foods in their inventory or transfers title to donated foods to distributors while in their inventory. Current statutory provisions do not permit the transfer of title of donated foods to a distributor or a requirement for a distributor to furnish a surety bond to USDA. In addition, a regulatory change of this magnitude must be subject to public review and comment prior to being codified. Therefore, FNS is not able to implement these alternatives at this time.

Two commenters expressed strong opposition to the provision. The commenters felt that inventory pooling provided flexibility for distributors and allowed them to more easily serve recipient agencies. Similar to other commenters on this provision, the commenters felt that an alternative could be to require distributors to enter into agreements with FNS to furnish a surety bond for donated foods in their inventory. For the reasons described in the previous paragraph, this proposed alternative cannot be implemented at this time. The commenters also expressed concerns about the administrative burden associated with maintaining separate school-owned inventories for each eligible recipient agency, including individual stock keeping units (SKUs) for each end product and recipient agency. This interpretation of the intent of this provision is incorrect. FNS does not expect distributors to maintain separate physical inventories for every eligible recipient agency as the commenters describe. Doing so would be overly burdensome and would contradict the long-established concept of substitution in USDA Foods processing. However, FNS understands that this provision may require further guidance and that there may be potential benefits of establishing a different accountability mechanism for processed end products at distributors through agreements or other mechanisms. FNS will explore whether potential pilot projects could be used to test these approaches. The proposed provision is retained without change in this final rule.

In § 250.18(b) we proposed to retain the requirement for processors to submit monthly performance reports to the distributing agency. However, we proposed to replace the reference to § 250.30(m) with § 250.37(a) as the section is being re-designated and revised. No comments were received on this proposed change. Thus, the proposed language is retained without change in this final rule.

In § 250.19(a) we proposed to amend the recordkeeping requirements for processors and instead reference specific recordkeeping requirements for processors contained in Subpart C. No comments were received on this proposed change. Thus, the proposed language is retained without change in this final rule.

FNS proposed to completely revise current Subpart C of 7 CFR part 250 to more clearly present the specific processing requirements and rewrite these sections in plain language. We proposed to include the requirements for specific processing activities in the order in which they most commonly occur; i.e., entering into processing agreements, processing of donated foods into end products, sale of end products, submission of reports, etc. We also proposed to change the heading of Subpart C to Processing of Donated Foods. Comments received on this Subpart are outlined below. The new sections proposed under the revised Subpart C include the following:

In § 250.30, we proposed to state clearly why donated foods are provided to processors for processing, and we proposed to describe the different types of processing agreements permitted, including National, In-State, and Recipient Agency Processing Agreements. However, we proposed to include the specific provisions required for each type of agreement in § 250.38, as the reason for their inclusion would only be clear with an understanding of the processing requirements contained in the preceding sections.

In § 250.30(a), we proposed to describe the benefit of providing donated foods to a processor for processing into end products, and we proposed to clarify that a processor's use of a commercial facility to repackage donated foods, or to use donated foods in the preparation of meals, is also considered processing in 7 CFR part 250. Two commenters requested that this provision be amended to clarify that repackaging of USDA Donated Foods in meals that are vended to a school food authority is subject to the processing requirements in 7 CFR part 250. To clarify our intent in this final rule, the words “A processor's” are deleted from the last sentence of § 250.30(a) to indicate that any commercial entity's use of a commercial facility to repackage donated foods, or to use donated foods in the preparation of meals, is also considered processing in 7 CFR part 250.

Two commenters expressed concerns that considering meal vendors as processors under 7 CFR part 250 could impact competition and limit the use of USDA Donated Foods at recipient agencies contracted with meal vendors. The commenters requested that meal vendors be permitted to operate in a similar manner as Food Service Management Companies which must receive USDA Donated Foods and prepare meals at the recipient agency's facility. Meal vendors have long been considered processors under current regulations. The final rule is only clarifying an already established requirement. Thus, the proposed provision is retained without change in this final rule. We also want to clarify that SFAs providing meals containing USDA Donated Foods to another recipient agency under an intergovernmental agreement are not considered processors in this part.

In § 250.30(b), we proposed to clarify that processing of donated foods must be performed in accordance with an agreement between the processor and FNS, between the processor and the distributing agency, or, if permitted by the distributing agency, between the processor and a recipient agency (or subdistributing agency). We proposed to include in § 250.30(b) the stipulation in current § 250.30(c)(5)(ix) that an agreement may not obligate the distributing or recipient agency, or FNS, to provide donated foods to a processor for processing. We proposed to clarify that the agreements described in this section are required in addition to, not in lieu of, competitively procured contracts required in accordance with § 250.31. We proposed to revise the requirement in current § 250.30(c)(4) that indicates which official of the processor must sign the processing agreement and more simply state in proposed § 250.30(b) that the processing agreement must be signed by an authorized individual acting for the processor. We proposed to remove the stipulation in current § 250.30(c)(1) that a processing agreement must be in standard written form. No comments were received on the proposed changes in this subsection. Thus, the proposed provision is retained without change in this final rule.

In § 250.30(c), we proposed to require that a multi-State processor enter into a National Processing Agreement with FNS to process donated foods into end products, in accordance with end product data schedules approved by FNS. We also indicated that, in the proposed § 250.32, FNS holds and manages the multi-State processor's performance bond or letter of credit to protect the value of donated food inventories under the National Processing Agreement. We indicated that FNS does not itself procure or purchase end products under such agreements, and that a multi-State processor must enter into a State Participation Agreement with the distributing agency in order to sell nationally approved end products in the State, as in the proposed § 250.30(d). No comments were received on the proposed changes in this subsection. Thus, the proposed provision is retained without change in this final rule.

In § 250.30(d), we proposed to require the distributing agency to enter into a State Participation Agreement with a multi-State processor to permit the sale of end products produced under the processor's National Processing Agreement in the State, as previously indicated. The State Participation Agreement is currently utilized in conjunction with National Processing Agreements in the demonstration project. Under the State Participation Agreement, we proposed to permit the distributing agency to select the processor's nationally approved end products for sale to eligible recipient agencies within the State or to directly purchase such end products. The processor may provide a list of such nationally approved end products in a summary end product data schedule. We also proposed to permit the distributing agency to include other processing requirements in the State Participation Agreement, such as the specific methods of end product sales permitted in the State, in accordance with the proposed § 250.36, (e.g., a refund, discount, or indirect discount method of sales), or the use of labels attesting to fulfillment of meal pattern requirements in child nutrition programs. We proposed to require the distributing agency to utilize selection criteria in current § 250.30(c)(1) to select processors with which to enter into State Participation Agreements. No comments were received on State Participation Agreements overall.

However, one commenter requested that “the marketability or acceptability of end products” be removed from the list of selection criteria that State agencies must evaluate prior to entering into State Participation Agreements with multi-State processors. The commenter felt that the requirement was burdensome and impractical for large States. Marketability and acceptability are important factors for end products served in child nutrition programs to ensure that products are well-suited to the local market and promote the use of donated foods. The requirement to include marketability and acceptability as selection criteria is long standing, and State agencies have discretion in how they evaluate products under these criteria. Thus, the proposed provision is retained without change in this final rule.

In § 250.30(e), we proposed to clarify the distinction between master agreements and other In-State Processing Agreements and to include in this proposed section the required criteria in current § 250.30(c)(1) for distributing agencies that procure end products on behalf of recipient agencies or that limit recipient agencies' access to the procurement of specific end products through its master agreements. We proposed to require that the distributing agency enter into an In-State Processing Agreement with an in-State processor (i.e., a processor which only services recipient agencies in a single State via a production facility located in the same State) to process donated foods, as currently required under the demonstration project. Under all In-State Processing Agreements, the distributing agency must approve end product data schedules submitted by the processor, hold and manage the processor's performance bond or letter of credit, and assure compliance with all processing requirements.

No comments were received on In-State Processing Agreements overall, however one commenter requested that marketability and acceptability be removed from the list selection criteria that State agencies must evaluate prior to entering into an In-State Processing Agreement with an in-State processor. As stated above, marketability and acceptability are important factors for end products served in child nutrition programs and the requirement to include them as a selection criteria is long standing. One commenter also requested that additional detail be included instructing State agencies on how to calculate bond and letter of credit levels for in-State processors. As proposed, § 250.30(e), provides State agencies with the flexibility to set bond and letter of credit levels to reflect State laws and the status of their State's processing market. However, FNS recognizes that State agencies may benefit from further guidance and will explore whether policy guidance can be used to aid States on this matter. Thus, the proposed provision is retained without change in this final rule.

In § 250.30(f), we proposed to allow distributing agencies to permit recipient agencies (or subdistributing agencies) to enter into agreements with processors to process donated foods and to purchase the finished end products. These agreements are referred to as Recipient Agency Processing Agreements. We also proposed to clarify that, under such agreements, the distributing agency may also delegate oversight and monitoring to the recipient agency to approve end product data schedules or select nationally approved end product data schedules, review processor performance reports, manage the performance bond or letter of credit of an in-State processor, and monitor other processing activities. All such activities must be performed in accordance with the requirements of this part. We proposed to clarify that a recipient agency may also enter into a Recipient Agency Processing Agreement, and perform the activities described above, on behalf of other recipient agencies, in accordance with an agreement between the parties (such as in a school cooperative). We proposed to require the recipient agency to utilize selection criteria in current § 250.30(c)(1) to select processors with which to enter into Recipient Agency Processing Agreements. The distributing agency must approve all Recipient Agency Processing Agreements. No comments were received on this proposed provision. Thus, the proposed language is retained without change in this final rule.

In § 250.30(g), we proposed to retain the requirement that distributing agencies must test end products with recipient agencies prior to entering into processing agreements, to ensure that they will be acceptable to recipient agencies. We proposed to clarify that the requirements only apply to distributing agencies that procure end products on behalf of recipient agencies or otherwise limit recipient agencies' access to the procurement of specific end products, and we proposed to clarify that the distributing agency may permit recipient agencies to test end products. We also proposed to amend the current requirement that the distributing agency develop a system to monitor product acceptability on a periodic basis by requiring instead that the distributing agency, or its recipient agencies, must monitor product acceptability on an ongoing basis. No comments were received on this proposed provision. Thus, the proposed language is retained without change in this final rule.

In § 250.30(h), we proposed that a processor may not assign any processing activities under its processing agreement, or subcontract with another entity to perform any aspect of processing, without the written consent of the other party to the agreement, which may be the distributing, subdistributing, or recipient agency, or FNS. We proposed to permit the distributing agency to provide the required written consent as part of its State Participation Agreement or In-State Processing Agreement with the processor. One commenter requested that we require distributing agencies to approve of subcontractors in its State Participation Agreement with the processor. The National Processing Agreement requires subcontractor agreements but States should have flexibility in how they provide written consent for subcontracting. Thus, the proposed language is retained without change in this final rule.

In § 250.30(i), we proposed to require agreements between processors and distributors. We proposed that the agreement, initiated by the processor before releasing finished end products to a distributor, must reference, at a minimum, the financial liability (i.e., who must pay) for the replacement value of donated foods, not less than monthly end product sales reporting frequency, requirements under § 250.11, and the applicable value pass through system to ensure that the value of donated foods and finished end products are properly credited to recipient agencies. We also proposed that distributing agencies could set additional requirements such as requiring that copies or templates of these agreements be included with the submission of signed State Participation Agreements. Many comments were received on this provision.

One commenter noted strong support for this provision overall, but requested that clarifying language be added to the provision to prescribe that financial liability for donated foods in the agreement is assigned to the party that caused a loss or negative balance to occur. These agreements are designed to allow processors and distributors to draft an agreement that mutually protects each of their interests, including financial liability. FNS will not be a party to these agreements and does not want to dictate, in regulations, the structure of specific provisions for all situations that the parties may encounter. Therefore, this language will not be included in the final rule. However, FNS will explore whether further policy guidance on this matter is needed. The commenter also requested that provisions be added to specifically address distributors, including requiring written agreements between a distributor and FNS that covers liability, reporting, and delivery requirements. FNS does not maintain a direct relationship with distributors. Therefore, this language will not be included in the final rule.

Fourteen commenters noted support for the provision but requested that we add a requirement that agreements between processors and distributors must be submitted to FNS for review and record keeping. FNS will not be a party to these agreements and is not in a position to evaluate if individual agreements are appropriate. States will also not be required to review or collect these agreements. However, we agree with the importance of having an oversight mechanism in place to ensure that the agreements are in place as required. Verification of these agreements will be required as part of the audits that processors must obtain under current requirements at § 250.20(b). Moreover, requiring processors to submit these agreements to FNS for review and record keeping would impose an additional information collection burden. Such a provision would require a separate rule and would be subject to public comment. Therefore, this language will not be included in the final rule.

One commenter noted support for the provision but requested that agreements between processors and distributors be made permanent. Under the proposal, the duration of these agreements is up to the specific processor and distributor in the agreement. If both parties agree, the agreement could be permanent. Therefore, no change is being made in the final rule. The commenter also requested that the required reporting frequency in the agreement be increased from the proposed “not less than monthly” to “not more than five calendar days.” The commenter felt that the more frequent reporting would improve coordination between the processor and distributor and allow the processor to be more timely with the monthly performance reports. Improvements in technology are allowing many distributors to report end product sales to processors much more frequently than monthly. This is a positive trend which FNS supports insofar as it should result in improved transparency and coordination. However, not all distributors are currently capable of meeting that requirement. Therefore, this language will not be included in the final rule.

Two commenters were opposed to requiring agreements between processors and distributors. One of these commenters noted that some of the required topics in the agreements, such as financial liability, reporting frequency, and value pass through method are already the responsibility of the processor via the National Processing Agreement or regulations and that that may diminish the usefulness of the agreements between processors and distributors. This commenter also stated a concern that State agencies may create additional burdensome requirements for these agreements that may discourage processor and distributor participation. The required topics are only intended to be a starting point. Processors and distributors may include additional provisions that more accurately reflect their interests or business model. State agencies must be able to add requirements to reflect State laws or the status of the market within their State. The second of these commenters requested that agreements between processors and distributors be encouraged as opposed to required. Requiring these agreements will ensure more communication, transparency, and cooperation between processors and distributors. This provision was widely supported in other comments. Thus, the proposed language is retained without change in this final rule.

In § 250.30(j), we proposed to permit all agreements between a distributing, subdistributing, or recipient agency and a processor to be up to five years in duration, as opposed to the current one year limit with an option to extend for two additional years. This proposal would permit the appropriate agency to determine the length of agreement that would be to its best advantage, within the five-year limitation, and would reduce the time and labor burden imposed on such agencies. We proposed to make National Processing Agreements permanent. We proposed that amendments to any agreements may be made as needed (e.g., when new subcontractors are added), with the concurrence of the parties to the agreement, and that such amendments would be effective for the duration of the agreement, unless otherwise indicated.

One commenter requested that all agreements, including the State Participation, In-State Processing, and Recipient Agency Processing Agreements are made permanent. In-State and Recipient Agency Processing Agreements are sometimes subject to frequent updates and are often executed in conjunction with a procurement action. Therefore, the proposed five year duration limit is retained in this final rule for In-State and Recipient Agency Processing Agreements. However, State Participation Agreements are designed to allow State agencies to supplement requirements in the National Processing Agreement for multi-State processors. Therefore, the final rule is amended to allow State agencies to make their State Participation Agreements permanent. Amendments to State Participation Agreements should still be made when needed, for example, to approve subcontractors arrangements or approve end products to be sold in the State.

We proposed to remove the following requirements or statements in current § 250.30 related to processing agreements, as they are overly restrictive or unnecessary given current practice and administrative structure:

• The requirement in current § 250.30(c)(1) that the FNS Regional Office review processing agreements.

• The requirement in current § 250.30(c)(3) that the agreement be prepared and reviewed by State legal staff to ensure conformance with Federal regulations.

• The requirement in current § 250.30(l) that the distributing agency provide a copy of the 7 CFR part 250 regulations to processors and a copy of agreements to processors and the FNS Regional Office.

No comments were received on these proposed removals. Thus, the proposed removals are retained without change in this final rule.

The requirements for the procurement of goods and services under Federal grants are established in 2 CFR part 200 and USDA implementing regulations at 2 CFR part 400 and part 416, as applicable. In § 250.31(a), we proposed to indicate the applicability of these requirements to the procurement of processed end products, distribution, or of other processing services related to donated foods. We also proposed that distributing or recipient agencies may use procurement procedures that conform to applicable State and local laws, as appropriate, but must ensure compliance with the Federal procurement requirements. No comments were received on this provision. Thus, the proposed language is retained without change in this final rule.

In § 250.31(b), we proposed to require specific information in procurement documents, to assist recipient agencies in ensuring that they receive credit for the value of donated foods in finished end products. We proposed to require that procurement documents include the price to be charged for the finished end product or other processing service, the method of end product sales that would be utilized, an assurance that crediting for donated foods would be performed in accordance with the applicable requirements for such method of sales in proposed § 250.36, the contract value of the donated food in the finished end products, and the location for the delivery of the finished end products. We proposed to remove current requirements for the provision of pricing information outside of the procurement process, including:

(1) The requirement in current § 250.30(c)(5)(ii) that pricing information be included with the end product data schedule; and

(2) The requirements in current § 250.30(d)(3) and (e)(2) that the processor provide pricing information summaries to the distributing agency, and the distributing agency provide such information to recipient agencies, as soon as possible after completion of the agreement.

One commenter requested clarification on the applicability of these requirements to subsequent procurements conducted by a distributor acting as a recipient agency's authorized agent. The information required in procurement documents in this provision apply to all procurements for end products containing donated foods, regardless of who performed the procurement. The commenter also requested clarification that the requirement to include the value of the donated food in the end products in procurement documents does not remove the requirement to include the value of the donated food in the end products on the end product data schedule. This reflects an incorrect understanding of current requirements. The value of donated foods is no longer required on end product data schedules. Including the value on the end product data schedule would require it to be revised with every change in value. However, FNS publishes summary end product data schedules which include the value of donated food for each end product. The summary end product data schedules can be used to confirm the accuracy of the value of donated food listed in the procurement documents. Thus, the proposed language is retained without change in this final rule.

In § 250.32(a), we proposed to include the requirement that the processor obtain financial protection to protect the value of donated foods prior to their delivery for processing, by means of a performance bond or irrevocable letter of credit. We proposed to remove escrow accounts as an option for financial protection. Multi-State processors must provide the performance bond or irrevocable letter of credit to FNS, in accordance with its National Processing Agreement. We proposed to clarify that the amount of the performance bond or letter of credit must be sufficient to cover at least 75 percent of the value of donated foods in the processor's physical or book inventory, as determined annually, and at the discretion of FNS, for processors under National Processing Agreements. For multi-State processors in their first year of participation in the processing program, the amount of the performance bond or letter of credit must be sufficient to cover 100 percent of the value of donated foods, as determined annually, and at the discretion of FNS. In-State processors must provide the performance bond or letter of credit to the distributing or recipient agency, in accordance with its In-State or Recipient Agency Processing Agreement. No comments were received on this provision. Thus, the proposed language is retained without change in this final rule.

In § 250.32(b), we proposed to indicate the conditions under which the distributing or recipient agency must call in the performance bond or letter of credit. We also proposed to indicate that FNS would call in the performance bond or letter of credit under the same conditions and would ensure that any monies recovered by FNS are reimbursed to distributing agencies for losses of entitlement foods. No comments were received on this provision. Thus, the proposed language is retained without change in this final rule.

In § 250.33, we proposed to retain the required submission of the end product data schedule and to more specifically describe the required processing yields of donated food, which is currently referred to as the yield. In § 250.33(a), we proposed to require submission of the currently required information on the end product data schedule, with the exception of the price charged for the end product or other pricing information and the contract value of the donated food. As described above, in the proposed § 250.31, pricing information must be included in the procurement of end products or other processing services relating to donated foods. Inclusion of such information on end product data schedules may be misleading, as it may lead some recipient agencies to conclude that a competitive procurement has been performed by the distributing agency under its In-State Processing Agreement or State Participation Agreement. Prices currently included on end product data schedules generally reflect the highest price that a processor would charge for the finished end product and not necessarily the actual price of the end product.

We also proposed to require inclusion of the processing yield of donated food, which may be expressed as the quantity of donated food (pounds) needed to produce a specific quantity of end product or as the percentage of donated food returned in the finished end product. We proposed to retain the requirement that end product data schedules be approved by the distributing agency under In-State Processing Agreements. We proposed to clarify that the end product data schedules for products containing donated red meat or poultry must also be approved by the Department, as is currently required under program policy. We proposed to require that, under National Processing Agreements, end product data schedules be approved by the Department. Lastly, we proposed to clarify that an end product data schedule must be submitted in a standard electronic format dictated by FNS, and approved for each new end product that a processor wishes to provide or for a previously approved end product in which the ingredients or other pertinent information have been altered. No comments were received on this provision. Thus, the proposed language is retained without change in this final rule.

In § 250.33(b), we proposed to describe the different processing yields of donated foods that may be approved in end product data schedules. In an effort to simplify the yield requirements and streamline monitoring for distributing and recipient agencies we proposed to limit the processing yields to 100 percent yield, guaranteed yield, and standard yield. In § 250.33(b)(1), we proposed to include the current 100 percent yield requirement. We proposed to indicate that FNS may make exceptions to the 100 percent yield requirement, on a case-by-case basis. Exceptions to the 100 percent yield requirement can result in one of the alternate processing yields described below. Two commenters expressed support for the removal of guaranteed minimum yield. Thus, the proposed language is retained without change in this final rule.

In § 250.33(b)(2), we proposed to describe guaranteed yield. Under guaranteed yield, the processor must ensure that a specific quantity of end product would be produced from a specific quantity of donated food put into production. The guaranteed yield for a specific product is determined and agreed upon by the parties to the processing agreement, and, for In-State and Recipient Agency Processing Agreements, approved by the Department. Guaranteed yield is generally used when significant variance is present across processors in manufacturing and yield for a particular end product. The guaranteed yield must be indicated on the end product data schedule. One commenter requested clarification that a specific quantity of end product is tracked or reported as pounds of donated food per case of end product. This is correct. Thus, the final rule is amended to clarify.

In § 250.33(b)(3), we proposed to describe standard yield. Under standard yield, the processor must ensure that a specific quantity of end product, as determined by the Department, would be produced from a specific quantity of donated food. The standard yield is determined and applied uniformly by the Department to all processors for specific donated foods. The established standard yield is higher than the average yield under normal commercial production and serves to reward those processors that can process donated foods most efficiently. If necessary, the processor must use commercially purchased food of the same generic identity, of U.S. origin, and equal or better in all USDA procurement specifications than the donated food to provide the number of cases required to meet the standard yield to the distributing or recipient agency, as appropriate. The standard yield must be indicated on the end product data schedule. No comments were received on this provision. Thus, the proposed language is retained without change in this final rule.

In § 250.33(c), we proposed to require that the processor compensate the distributing or recipient agency, as appropriate, for the loss of donated foods, or for commercially purchased foods substituted for donated foods. Loss of donated foods may result for a number of reasons, including the processor's failure to meet the required processing yield or failure to produce end products that meet required specifications, spoilage or damage of donated foods in storage, or improper distribution of end products. In order to compensate for such losses of donated foods, we proposed to require that the processor:

(1) Replace the lost donated food or commercial substitute with commercially purchased food of the same generic identity, of U.S. origin, and equal or better in all USDA procurement specifications than the donated food; or

(2) Return end products that are wholesome but do not meet required specifications to production for processing into the requisite quantity of end products that meet the required specifications; or

(3) Pay the distributing or recipient agency, as appropriate, for the replacement value of the donated food or commercial substitute only if the purchase of replacement foods is not feasible and the processor has received approval. In-State processors would be required to obtain distributing agency approval for such payment and multi-State processors would be required to obtain FNS approval.

No comments were received on this provision. Thus, the proposed language is retained without change in this final rule.

In § 250.33(d), we proposed to retain the requirement that processors must credit the distributing or recipient agency, as appropriate, for the sale of any by-products resulting from the processing of donated foods or of commercially purchased foods substituted for donated foods. However, we proposed to require crediting through invoice reductions or another means of crediting. We also proposed to clarify that the processor must credit the appropriate agency for the net value received from the sale of by-products after subtraction of any documented expenses incurred in preparing the by-product for sale. We proposed to remove the requirement in current § 250.30(c)(5)(viii)(D) that the processor credit the distributing or recipient agency for the sale of donated food containers because the burden required to monitor the credit outweighed the value returned. One commenter requested clarification on the method of oversight to ensure that distributing or recipient agencies are credited for the sale of by-products by processors. Verification that appropriate credits for the sale of by-products have occurred is required as part of the audits required of processors under current requirements at § 250.20(b). Thus, the proposed language is retained without change in this final rule.

In § 250.33(e), we proposed to retain the requirements that processors must meet applicable Federal labeling requirements, and must follow the procedures required for approval of labels for end products that claim to meet meal pattern requirements in child nutrition programs. No comments were received on this provision. Thus, the proposed language is retained without change in this final rule.

In § 250.34(a), we proposed to permit a processor to substitute any donated food that is delivered to it from a USDA vendor with commercially purchased food of the same generic identity, of U.S. origin, and of equal or better quality in all Departmental purchase specifications than the donated food. We proposed to clarify that commercially purchased beef, pork or poultry must meet the same specifications as donated product, including inspection, grading, testing, and humane handling standards, and must be approved by the Department in advance of substitution. We proposed to remove the required elements of a processor's plan for poultry substitution in current § 250.30(f)(1)(ii)(B). We also proposed to allow a processor the option to substitute any donated food in advance of the receipt of the donated food shipment and to more clearly describe the processor's assumption of risk should the Department be unable to purchase and deliver any donated food so substituted. Lastly, we proposed to require that commercially purchased food substituted for donated food meet the same processing yield requirements that would be required for the donated food, as in the proposed § 250.33. No comments were received on this provision. Thus, the proposed language is retained without change in this final rule.

In § 250.34(b), we proposed to prohibit substitution or commingling of all backhauled donated foods and to require that the processor, if amenable to reformulation, process such end products into end products for sale and delivery to the same recipient agency that provided them and not to any other recipient agency. In other words, the recipient agency which backhauls a previously processed end product to a processor for reformulation must in turn use the reformulated end products, containing their backhauled product, in their food service. Additionally, we proposed to prohibit the processor from providing payment to the recipient agency in lieu of processing and prohibit the distributing or recipient agency from transferring the backhauled food to another processor. No comments were received on this provision. Thus, the proposed language is retained without change in this final rule.

In § 250.34(c), we proposed to retain current requirements at § 250.30(g), which state that the processing of donated beef, pork and poultry must occur under Federal Quality Assessment Division grading in order to assure that substitution and yield requirements are met and that end products conform with the applicable end product data schedule. The Department's Agricultural Marketing Service conducts such grading. The processor is responsible for paying the cost of the acceptance service grading. The processor must maintain records (including grading certificates) necessary to document that substitution of all donated foods has been conducted in accordance with the requirements in 7 CFR part 250. One commenter expressed that the financial burden of grading can be overwhelming for small processors. FNS recognizes that the cost of grading requirements is not insignificant to small processors. However, grading requirements are important for ensuring that Federal regulations are adhered to. Further, small processors are typically in-State processors and not multi-State processors and, when circumstances warrant it, State distributing agencies can waive grading requirements under In-State and Recipient Agency Processing Agreements, according to proposed § 250.34(d). Thus, the proposed language is retained without change in this final rule.

In § 250.34(d), we proposed to permit distributing agencies to approve a waiver of the grading requirement for donated beef, pork, or poultry under certain conditions. However, we proposed to indicate that such waivers may only be approved on a case by case basis—e.g., for a specific production run. The distributing agency may not approve a blanket waiver of the requirement. We also included the stipulation that a waiver may only be approved if the processor's past performance indicates that the quality of the end product would not be adversely affected. No comments were received on this provision. Thus, the proposed language is retained without change in this final rule.

In § 250.34(e), we proposed to include the current provision that the processor may use any substituted donated food in other processing activities conducted at its facilities. We proposed to remove the stipulation, in current § 250.30(f)(4), that title to the substituted donated food passes to the processor upon the initiation of processing of the end product with the commercial substitute. The transfer of title to donated foods, which are part of the Federal grant, is limited to the distributing agency or recipient agency, as the recipients of the grant. Subsequent donated food activities may be performed in accordance with Federal regulations and the terms of processing agreements but would not include a further transfer of title. No comments were received on this provision. Thus, the proposed language is retained without change in this final rule.

In § 250.35, we proposed to include requirements for the storage, food safety oversight, quality control, and inventory management of donated foods provided for processing. In § 250.35(a), we proposed to require the processor to ensure the safe and effective storage of donated foods, including compliance with the general storage requirements in current § 250.12, and to maintain an effective quality control system at its processing facilities. We proposed to require the processor to maintain documentation to verify the effectiveness of its quality control system and to provide such documentation upon request. No comments were received on this provision. Thus, the proposed language is retained without change in this final rule.

In § 250.35(b), we proposed to require that all processing of donated foods is conducted in compliance with all Federal, State, and local requirements relative to food safety. This represents a simplification of current regulations. One commenter requested that the Agricultural Marketing Service (AMS) be explicitly listed along with Federal, State, and local requirements. AMS is only one of many Federal agencies with pertinent requirements that would be included in this list and applicable requirements will vary from processor to processor depending on the type of product produced, among other factors. Thus, the proposed language is retained without change in this final rule.

In § 250.35(c), we proposed to clarify that a processor may commingle donated foods and commercially purchased foods, unless the processing agreement specifically stipulates that the donated foods must be used in processing, and not substituted, or the donated foods have been backhauled from a recipient agency. However, such commingling must be performed in a manner that ensures the safe and efficient use of donated foods, as well as compliance with substitution requirements, and with reporting of donated food inventories on performance reports, as required in 7 CFR part 250.

We also proposed to require that processors ensure that commingling of finished end products with other food products by distributors results in the sale to recipient agencies of end products that meet substitution requirements. One way that this may be achieved is by affixing the applicable USDA certification stamp to the exterior shipping containers of such end products. No comments were received on this provision. Thus, the proposed language is retained without change in this final rule.

In § 250.35(d), we proposed to include the current limitation on inventories of donated foods at a processor and to clarify that distributing agencies are not permitted to submit food orders for processors reporting no sales activity during the prior year's contract period unless documentation is submitted by the processor which outlines specific plans for donated food drawdown, product promotion, or sales expansion. A processor may not have on hand more than a six-month supply of donated foods, based on an average amount utilized for that period. However, the distributing agency may, at the processor's request, provide written approval to allow the processor to maintain a larger amount of donated foods in inventory if it determines that the processor may efficiently store and process such an amount. We also proposed to include an allowance for FNS to require an inventory transfer to another State distributing agency or processor when inventories are determined to be excessive for a State distributing agency or processor, i.e., more than six months on-hand or exceeding the established inventory protection, to ensure full utilization prior to the end of the school year.

Many comments were received on this provision. One commenter requested clarification that the inventory limit was not based on the average usage over a six-month period. That is correct. The inventory limit is intended to be based on average usage for the year being evaluated. Thus, the final rule is amended to clarify.

One commenter expressed concern that including a provision allowing FNS to transfer inventories to another State distributing agency or processor when inventories are determined to be excessive for a State distributing agency or processor will prevent a distributing agency from providing justification that accounts for the overage. This is not the intent of the proposed provision. Consistent with inventory transfers generally, inventory transfers due to excessive inventories will only occur after consultation with all the involved parties. The commenter also inquired whether advancements in technology and improvements in the Department's business practices will eventually eliminate the need for the six-month inventory limit. The Department consistently endeavors to improve our service and the technology with which stakeholders interface. However, elimination of the current inventory limits is not currently proposed. Thus, the proposed language is retained without change in this final rule

One commenter requested that the six-month inventory limit be eliminated and that an annual three-month inventory carryover limit be imposed. Such a provision would require a separate rule and would be subject to public comment. Therefore, this language will not be included in the final rule.

Fourteen commenters requested that language be included in this provision to establish the method by which the six-month inventory level is calculated. Additionally, the commenters requested that average monthly usage, which is used to determine the six-month inventory limit, be calculated using a ten month period as opposed to a twelve month period. The commenters felt that a ten month period more accurately reflects the average school year and the period during which products are delivered. Although the six-month inventory limit is contained in current regulations, the method by which it is calculated is prescribed in a Policy Memorandum (FD-064; dated March 20, 2012). FNS will consider the position of the commenters and determine whether to issue program policy to reflect this change. Thus, the proposed language is retained without change in this final rule.

In § 250.35(e), we proposed to clarify that the distributing agency may permit the processor to carry over donated foods in excess of allowed levels into the next year of its agreement, if the distributing agency determines that the processor may efficiently process such foods. We also proposed to include the distributing agency's current option to direct the processor to transfer or re-donate such donated foods to another distributing or recipient agency or processor. Lastly, we proposed to clarify that, if these options are not practical, the distributing agency must require the processor to pay for the donated foods held in excess of allowed levels in an amount equal to the replacement value of the donated foods. No comments were received on this provision. Thus, the proposed language is retained without change in this final rule.

In § 250.35(f), we proposed to expand the current options for the disposition of substitutable donated foods at the termination of an agreement to all donated foods, in accordance with our proposal in the proposed § 250.34 to permit substitution of all donated foods. We proposed to clarify that the disposition of donated foods may include a transfer; i.e., the distributing agency may permit a transfer of donated foods to another State distributing agency, with FNS approval, in accordance with current § 250.12(e). We also proposed to permit the transfer of commercially purchased foods that meet the substitution requirements in the proposed § 250.34 in place of the donated foods. We proposed to permit the processor to pay the distributing or recipient agency, as appropriate, for the donated foods only if returning or transferring the donated foods or commercially purchasing food that meets the substitution requirements is not feasible and if FNS approval has been granted. We proposed to include the current requirement that the processor pay the cost of transporting any donated foods when the agreement is terminated at the processor's request or as a result of the processor's failure to comply with the requirements of 7 CFR part 250. One commenter requested that the higher value not be used between the contract value and replacement value when processors pay the distributing or recipient agency under § 250.35(f)(3). However, FNS wants to ensure that distributing and recipient agencies are made whole in these situations. Thus, the proposed language is retained without change in this final rule.

In § 250.36, we proposed to describe the methods of end product sales. A processor must sell end products to recipient agencies under a system that assures such agencies receive credit or “value pass through” for the contract value of donated food contained in the end product. Processors must also ensure that, when end products are provided to commercial distributors for sale and delivery to recipient agencies, such sales occur under a system that provides such agencies with a credit for the contract value of donated food contained in the end product. In § 250.36(a), we proposed to require that the sales of end products, either directly by the processor or through a commercial distributor, be performed utilizing one of the methods of end product sales contained in this section, to ensure that the distributing or recipient agency, as appropriate, receives credit for the value of donated foods contained in end products. We also proposed to require that all systems of sales utilized must provide clear documentation of crediting for the value of the donated foods contained in the end products. One commenter requested that language be added to this provision that clarifies that method of end product sales is synonymous with value pass through system. Thus, the final rule is amended to clarify.

In § 250.36(b), we proposed to permit end product sales through a refund or rebate system, in which the processor or distributor sells end products to the distributing or recipient agency, as appropriate, at the commercial or gross price, and provides the appropriate agency with a refund for the contract value of donated foods contained in the end products. We proposed to require the processor to remit the refund to the distributing or recipient agency, as appropriate, within 30 days of receiving a request for a refund from the appropriate agency. We proposed to clarify that the refund request must be in writing but may be transmitted via email or other electronic means. No comments were received on this provision. Thus, the proposed language is retained without change in this final rule.

In § 250.36(c), we proposed to permit end product sales through a discount system, in which the processor sells end products at a net price that provides a discount from the commercial case price for the value of the donated foods contained in the end products. We proposed to refer to this system as a direct discount system to distinguish it from the method of end product sales described in the following paragraph. One commenter requested that the word “provides” be replaced with “incorporates” to clarify the provision. Thus, the final rule is amended to clarify.

In § 250.36(d), we proposed to permit end product sales through a net price that provides a discount from the commercial case price for the value of the donated foods contained in the end products. The processor then compensates the distributor for the discount provided for the value of the donated food in its sale of end products. We proposed to refer to it as an indirect discount system. We proposed to require the processor to ensure that the distributor notify it of such sales, at least on a monthly basis, through automated sales reports or other submissions. Fifteen commenters requested that the term “net off invoice” be incorporated into the provision to refer to the practice as it is commonly known. Thus, the final rule is amended to clarify. Twelve commenters requested that language be included in the provision to encourage recipient agencies to closely monitor invoices to ensure correct discounts are applied. Thus, the final rule is amended to clarify. One commenter requested that the word “provides” be replaced with “incorporates” to clarify the provision. Thus, the final rule is amended to clarify. One commenter requested that the frequency at which distributors must report end product sales to processors be increased from at least monthly to weekly. Not all distributors are currently capable of meeting that requirement. Moreover, such a provision would require a separate rule and would be subject to public comment. Therefore, this language will not be included in the final rule.

In § 250.36(e), we proposed to permit end product sales through a fee-for-service system, which includes all costs to produce the end product minus the value of the donated food put into production. The processor must identify any charge for delivery of end products separately from the fee-for-service on its invoice. One commenter requested clarification on how a processor would know a distributor's delivery charge in order to identify it separately on its invoice. If the delivery charge is listed on the processor's invoice, the processor may have procured the services of the distributor to store and/or deliver the product to the recipient. Therefore, the delivery charge would be known by the processor. If the processor did not procure the services of the distributor, the processor can request that the distributor directly bill the recipient agency for the distributor's services. Thus, the proposed language is retained without change in this final rule. Thirteen commenters requested that this provision be expanded to identify three distinct variations of fee-for-service. The commenters' preferred breakdown is: (1) Direct shipment and invoicing from the processor to the recipient agency; (2) Fee-for-service through a distributor, where the processor ships multiple pallets of product to a distributor with a breakout of who owns what products; and (3) What is commonly known as Modified Fee-for-service, when the recipient agency has an authorized agent bill them for the total case price. Thus, the final rule is amended to clarify.

In § 250.36(f), we proposed that the processor and distributor may sell end products to the distributing or recipient agency under an alternate method of end product sales that is approved by FNS and the distributing agency. Such alternate methods of sale must ensure that the distributing or recipient agency, as appropriate, receives credit for the value of donated foods contained in the end products. No comments were received on this provision. Thus, the proposed language is retained without change in this final rule.

In § 250.36(g), we proposed to clarify that the contract value of the donated foods must be used in crediting for donated foods in end product sales and to refer to the definition of contract value included in current § 250.2. No comments were received on this provision. Thus, the proposed language is retained without change in this final rule.

In § 250.36(h), we proposed to require that the distributing agency provide the processor with a list of recipient agencies eligible to purchase end products along with the quantity of raw donated food that is to be delivered to the processor for processing on behalf of each recipient agency. This is intended to ensure that only eligible recipient agencies receive end products and that those end products are received only in the amounts for which they are eligible. For end products sold through distributors, we proposed to require that the processor provide the distributor with a list of eligible recipient agencies and either the quantities of approved end products that each recipient agency is eligible to receive or the quantity of donated food allocated to each recipient agency along with the raw donated food (pounds or cases) needed per case of each approved end product. One commenter expressed concern that this provision has the potential for abuse by processors because it may provide them with information that can be used for marketing and that it may impact deliveries for direct delivery donated foods. Processors and distributors must know which recipient agencies are eligible to receive end products containing donated foods to ensure that only eligible recipient agencies receive such products. FNS believes that processors will use this provision to promote the use of processed end products by recipient agencies but not to a degree that could be seen as abuse. Thus, the proposed language is retained without change in this final rule.

In § 250.37, we proposed to include the reporting and recordkeeping requirements for the processing of donated foods, and the use of such reports and records to review processor performance. In current § 250.30(m), the processor must submit a monthly performance report to the distributing agency, including the following information for the reporting period, with year-to-date totals:

(1) A list of all eligible recipient agencies receiving end products;

(2) The quantity of donated foods on hand at the beginning of the reporting period;

(3) The quantity of donated foods received;

(4) The quantity of donated foods transferred to the processor from another entity, or transferred by the processor to another entity;

(5) The quantity of end products delivered to each eligible recipient agency; and

(6) The quantity of donated foods remaining at the end of the reporting period.

In § 250.37(a), we proposed to retain the requirement that the processor submit the performance report to the distributing agency (or to the recipient agency, in accordance with a Recipient Agency Processing Agreement) on a monthly basis. We proposed to retain all of the currently required information in the report. We proposed to require the processor to also include quantities of donated food losses, and grading certificates and other documentation, as requested by the distributing agency, to support the information included in the performance reports. Such documentation may include, for example, bills of lading, invoices or copies of refund payments to verify sales and delivery of end products to recipient agencies. We proposed to retain the current deadlines for the submission of performance reports in the proposed § 250.37(a). Twelve commenters requested that the additional month for reporting year-end transactions be removed from the provision. The commenters felt that the advanced tracking methods instituted with improved technology permits processors to complete the necessary tasks without additional time and that this will assist state agencies in expediting the analysis of processor inventory. Thus, the final rule is amended accordingly. The commenters also requested clarification that a processor can stop reporting on a given USDA Food to a state agency for products with a beginning balance of zero and by which there have been no receipts, adjustments, or shipments of end products for that USDA Foods code. This is a correct interpretation. FNS will explore policy guidance to provide clarification on this issue.

In § 250.37(b), we proposed to require that the processor must include reductions in donated food inventories on monthly performance reports only after sales of end products have been made or after sales of end products through distributors have been documented. We proposed to require that, when a distributor sells end products under a refund system, such documentation must be through the distributing or recipient agency's request for a refund (under a refund system) or through the distributor's automated sales reports or other electronic or written submission (under an indirect discount system or under fee-for-service). No comments were received on this provision. However, FNS received many comments on the proposed provision at § 250.11(e) and language was included in § 250.37(b) of this final rule to clarify the impact of that provision.

In § 250.37(c), we proposed to require that a multi-State processor submit a summary performance report to FNS, on a monthly basis and in a standard format established by FNS, containing information from the performance report that would allow FNS to track the processor's total and State-by-State donated food inventories. The purpose of this report is to assess the amount of the performance bond or letter of credit required of the processor under its National Processing Agreement. However, each distributing agency would still be responsible for monitoring the multi-State processor's inventory of donated foods received for processing in the respective State, in accordance with the proposed § 250.37(a). No comments were received on this provision. Thus, the proposed language is retained without change in this final rule.

In § 250.37(d), we proposed to require processors to maintain specific records to demonstrate compliance with processing requirements in 7 CFR part 250, including, for example, assurance of receipt of donated food shipments, production, sale, and delivery of end products, and crediting for donated foods contained in end products. No comments were received on this provision. Thus, the proposed language is retained without change in this final rule.

In § 250.37(e), we proposed to require distributing agencies to maintain specific records to demonstrate compliance with processing requirements in 7 CFR part 250, including, for example, end product data schedules, performance reports, copies of audits, and documentation of the correction of any deficiencies identified in such audits. No comments were received on this provision. Thus, the proposed language is retained without change in this final rule.

In § 250.37(f), we proposed to require that recipient agencies maintain specific records to demonstrate compliance with processing requirements in 7 CFR part 250, including, for example, the receipt of end products purchased from processors or distributors, crediting for the value of donated foods included in end products, and procurement documents. No comments were received on this provision. Thus, the proposed language is retained without change in this final rule.

In § 250.37(g), we proposed to clarify the review requirements for the distributing agency including the review of performance reports to ensure that the processor:

(1) Receives donated food shipments, as applicable;

(2) Delivers end products to eligible recipient agencies, in the types and quantities for which they are eligible;

(3) Meets the required processing yields for donated foods; and

(4) Accurately reports donated food inventory activity and maintains inventories within approved levels.

No comments were received on this provision. Thus, the proposed language is retained without change in this final rule.

We proposed to remove the requirements in current § 250.30(m)(2) and (n)(2) relating to the submission of reports and the performance of reviews to ensure that substitution of concentrated skim milk for donated nonfat dry milk is in compliance with requirements. Donated nonfat dry milk is no longer available for donation to schools. No comments were received on this removal. Thus, the proposed removal is retained without change in this final rule.

In § 250.38, we proposed the required provisions for each type of processing agreement included in the proposed § 250.30, to ensure compliance with the requirements in 7 CFR part 250. In § 250.38(a), we proposed to establish that the National Processing Agreement is inclusive of all provisions necessary to ensure that a multi-State processor complies with all applicable requirements relating to the processing of donated foods. FNS has developed a prototype National Processing Agreement that includes all such required provisions. No comments were received on this provision. Thus, the proposed language is retained without change in this final rule.

In § 250.38(b), we proposed to require that the State Participation Agreement with a multi-State processor contain specific provisions or attachments to assure compliance with requirements in 7 CFR part 250 that are not included in the multi-State processor's National Processing Agreement. Such provisions include, for example, a list of recipient agencies eligible to receive end products, summary end product data schedules that contain a list of end products that may be sold in the State, a requirement that processors enter into a written agreement with distributors handling end products containing donated foods, and the allowed method(s) of end product sales implemented by the distributing agency. One commenter requested clarification that physical processor to processor transfers are not included in the term backhauled in § 250.38(b)(5). The commenter is correct that physical processor to processor transfers are not included in the term backhaul. The term backhauling is defined in the proposed § 250.2 to only include distributing or recipient agency origin. Thus, the proposed language is retained without change in this final rule.

In § 250.38(c), we proposed to require that the In-State Processing Agreement contain specific provisions or attachments to assure compliance with requirements in 7 CFR part 250, including assurance that the processor will meet processing yields for donated foods and substitution requirements, report donated food inventory activity and maintain inventories within approved levels, enter into a written agreement with distributors handling end products containing donated foods, credit recipient agencies for the value of all donated foods contained in end products, and obtain required audits. One commenter requested clarification on which party is responsible for holding the bond or irrevocable letter of credit for donated foods at the subcontractor of an in-State processor under the proposed § 250.38(c)(4). The distributing agency has discretion under an In-State Processing Agreement, including discretion in determining which party holds the bond or irrevocable letter of credit for donated foods at the subcontractor of an in-State processor. Thus, the proposed language is retained without change in this final rule.

In § 250.38(d), we proposed to require that the Recipient Agency Processing Agreement contain the same provisions as an In-State Processing Agreement, to the extent that the distributing agency permits the recipient to perform activities normally performed by the distributing agency under an In-State Processing Agreement (e.g., approval of end product data schedules or review of performance reports). However, a list of recipient agencies eligible to receive end products need not be included unless the Recipient Agency Processing Agreement represents more than one (e.g., a cooperative) recipient agency. No comments were received on this provision. Thus, the proposed language is retained without change in this final rule.

In § 250.38(e), we proposed to prohibit a distributing or recipient agency, as appropriate, from extending or renewing an agreement when a processor has not complied with processing requirements. We proposed to allow a distributing or recipient agency to immediately terminate an agreement in the event of such noncompliance. One commenter expressed concern that requiring an agency to terminate or not renew an agreement can cause hardship for either agency. The commenter felt that this should be at the discretion of the agency as extenuating circumstances may apply and processors may be able to rectify their issues and provide sufficient service the following year. Thus, the final rule is amended to allow distributing and recipient agencies discretion in determining whether or not to extend or renew agreements when a processor has not complied with processing requirements. However, these decisions will be evaluated by FNS during reviews of distributing and recipient agencies to ensure compliance with processing requirements.

In § 250.39(a), we proposed that FNS may waive any of the requirements in 7 CFR part 250 for the purpose of conducting demonstration projects to test program changes which might improve processing of donated foods. No comments were received on this provision. Thus, the proposed language is retained without change in this final rule.

In § 250.39(b), we proposed to require the distributing agency to develop and provide a processing manual or similar materials to processors and other parties to ensure sufficient guidance is given regarding the requirements for the processing of donated foods.

Consistent with the current demonstration project, the distributing agency would be permitted to provide additional information relating to State-specific processing procedures upon request. No comments were received on this provision. Thus, the proposed language is retained without change in this final rule.

In § 250.39(c), we proposed to clarify that guidance or information relating to the processing of donated foods is included on the FNS website or may otherwise be obtained from FNS. Such guidance and information includes program regulations and policies, the FNS Audit Guide, and the USDA National Processing Agreement. No comments were received on this provision. Thus, the proposed language is retained without change in this final rule.

Executive Orders 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. Executive Order 13771 directs agencies to reduce regulation and control regulatory costs and provides that for every one new regulation issued, at least two prior regulations be identified for elimination, and that the cost of planned regulations be prudently managed and controlled through a budgeting process.

This final rule has been determined to be not significant and was not reviewed by the Office of Management and Budget (OMB) in conformance with Executive Order 12866. FNS considers this rule to be an Executive Order 13771 deregulatory action.

This rule has been designated as not significant by the Office of Management and Budget, therefore, no Regulatory Impact Analysis is required.

The Regulatory Flexibility Act (5 U.S.C. 601-612) requires Agencies to analyze the impact of rulemaking on small entities and consider alternatives that would minimize any significant impacts on a substantial number of small entities. Pursuant to that review, the Administrator of FNS has certified that this rule would not have a significant impact on a substantial number of small entities.

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

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

The donation of foods in USDA food distribution and child nutrition programs is included in the Catalog of Federal Domestic Assistance under 10.555, 10.558, 10.559, 10.565, 10.567, and 10.569 is subject to Executive Order 12372, which requires intergovernmental consultation with State and local officials. (See 2 CFR chapter IV)

Executive Order 13132 requires Federal agencies to consider the impact of their regulatory actions on State and local governments. Where such actions have federalism implications, agencies are directed to provide a statement for inclusion in the preamble to the regulations describing the agency's considerations in terms of the three categories called for under Section (6)(b)(2)(B) of Executive Order 13121.

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

FNS has reviewed this final rule in accordance with USDA Regulation 4300-4, “Civil Rights Impact Analysis,” to identify any major civil rights impacts the rule might have on program participants on the basis of age, race, color, national origin, sex or disability. After a careful review of the rule's intent and provisions, FNS has determined that this rule would not in any way limit or reduce the ability of participants to receive the benefits of donated foods in food distribution or child nutrition programs on the basis of an individual's or group's race, color, national origin, sex, age, or disability. FNS found no factors that would negatively and disproportionately affect any group of individuals.

Executive Order 13175 requires Federal agencies to consult and coordinate with Tribes on a government-to-government basis on policies that have Tribal implications, including regulations, legislative comments or proposed legislation, and other policy statements or actions that have substantial direct effects on one or more Indian Tribes, on the relationship between the Federal Government and Indian Tribes, or on the distribution of power and responsibilities between the Federal Government and Indian Tribes. FNS consulted with Tribes on this proposed rule on November 19, 2014; however, no concerns or comments were received. We are unaware of any current Tribal laws that could conflict with the final rule.

The Paperwork Reduction Act of 1995 (44 U.S.C. Chap. 35) requires the Office of Management and Budget (OMB) to approve all collections of information by a Federal agency before they can be implemented. Respondents are not required to respond to any collection of information unless it displays a current, valid OMB control number. No changes have been made to the proposed information collection requirements in this final rulemaking. Thus, in accordance with the Paperwork Reduction Act of 1995, the information collection requirements associated with this final rule, which were filed under 0584-0293, have been submitted for approval to OMB. When OMB notifies FNS of its decision, FNS will publish a notice in the Federal Register of the action.

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

Accordingly, 7 CFR part 250 is amended as follows:

The substance of these special conditions previously has been published in the Federal Register for public comment. These special conditions have been derived without substantive change from those previously issued. It is unlikely that prior public comment would result in a significant change from the substance contained herein. Therefore, the FAA has determined that prior public notice and comment are unnecessary, and finds that, for the same reason, good cause exists for adopting these special conditions upon publication in the Federal Register.

We invite interested people to take part in this rulemaking by sending written comments, data, or views. The most helpful comments reference a specific portion of the special conditions, explain the reason for any recommended change, and include supporting data.

We will consider all comments we receive by the closing date for comments. We may change these special conditions based on the comments we receive.

On May 30, 2012, Bombardier applied for an amendment to Type Certificate No. T00003NY to include the new Model BD-700-2A12 and BD-700-2A13 series airplanes. The Bombardier Model BD-700-2A12 and BD-700-2A13 series airplanes, which are derivatives of the Model BD-700 airplane currently approved under Type Certificate No. T00003NY, are business jets, with a maximum certified passenger capacity of 19. The maximum takeoff weight of Model BD-700-2A12 is 106,250 lbs. and 104,800 lbs. for the Model BD-700-2A13.

Under the provisions of title 14, Code of Federal Regulations (14 CFR) 21.101, Bombardier must show that the Model BD-700-2A12 and BD-700-2A13 series airplanes meet the applicable provisions of the regulations listed in Type Certificate No. T00003NY or the applicable regulations in effect on the date of application for the change except for earlier amendments as agreed upon by the FAA.

If the Administrator finds that the applicable airworthiness regulations (i.e., 14 CFR part 25) do not contain adequate or appropriate safety standards for the BD-700-2A12 and BD-700-2A13 series airplanes because of a novel or unusual design feature, special conditions are prescribed under the provisions of § 21.16.

Special conditions are initially applicable to the model for which they are issued. Should the type certificate for that model be amended later to include any other model that incorporates the same novel or unusual design feature, or should any other model already included on the same type certificate be modified to incorporate the same novel or unusual design feature, these special conditions would also apply to the other model under § 21.101.

The FAA issues special conditions, as defined in 14 CFR 11.19, in accordance with § 11.38, and they become part of the type certification basis under § 21.101.

The Model BD-700-2A12 and BD-700-2A13 series airplanes will incorporate the following novel or unusual design features:

A high incidence protection system that replaces the stall warning system during normal operating conditions, prohibits the airplane from stalling, limits the angle of attack at which the airplane can be flown during normal low speed operation, and cannot be overridden by the flight crew. The application of this angle-of-attack limit impacts the stall speed determination, the stall characteristics and stall-warning demonstration, and the longitudinal handling characteristics.

The high incidence protection function prevents the airplanes from stalling at low speeds and, therefore, a stall warning system is not needed during normal flight conditions. If there is a failure of the high incidence protection function that is not shown to be extremely improbable, theses special conditions will apply. For example, stall warning must be provided in a conventional manner and the flight characteristics at the angle of attack for CLMAX must be suitable in the traditional sense.

These special conditions addressing the high incidence protection system will replace the applicable sections of 14 CFR part 25. Part I of the following special conditions is in lieu of §§ 25.21(b), 25.103, 25.145(a), 25.145(b)(6), 25.201, 25.203, 25.207, and 25.1323(d). Part II is in lieu of §§ 25.103, 25.105(a)(2)(i), 25.107(c) and (g), 25.121(b)(2)(ii)(A), 25.121(c)(2)(ii)(A), 25.121(d)(2)(ii), 25.123(b)(2)(i), 25.125(b)(2)(ii)(B), and 25.143(j)(2)(i).

These special conditions address this novel or unusual design feature on the Bombardier Model BD-700-2A12 and BD-700-2A13, and contain the additional safety standards that the Administrator considers necessary to establish a level of safety equivalent to that established by the existing airworthiness standards.

As discussed above, these special conditions are applicable to Bombardier Model BD-700-2A12 and BD-700-2A13 series airplanes. Should Bombardier apply at a later date for a change to the type certificate to include another model incorporating the same novel or unusual design feature, these special conditions would apply to that model as well.

This action affects only certain novel or unusual design features on one model series of airplanes. It is not a rule of general applicability.

The authority citation for these special conditions is 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 supports a change to restricted area R-4403A, Stennis Space Center, MS, to safely accommodate NASA test programs.

The FAA published a notice of proposed rulemaking (NPRM) in the Federal Register for Docket No. FAA-2017-1109 (83 FR 1319; January 11, 2018). The NPRM proposed to amend the time of designation for restricted area R-4403A, Stennis Space Center, MS, from “Intermittent, 1000 to 0300 local time, as activated by NOTAM at least 24 hours in advance,” to “Intermittent by NOTAM at least 24 hours in advance.” Interested parties were invited to participate in this rulemaking effort by submitting written comments on the proposal. No comments were received.

The FAA is amending 14 CFR part 73 by changing the time of designation for restricted area R-4403A, Stennis Space Center, MS, from “Intermittent, 1000 to 0300 local time, as activated by NOTAM at least 24 hours in advance,” to “Intermittent by NOTAM at least 24 hours in advance.”

This change is required to provide the additional restricted area activation time needed to accommodate NASA's SLS Core Stage engine testing program. The current boundaries and designated altitude for R-4403A remain unchanged. Additionally, this action does not affect restricted areas R-4403B, C, E, or F (Note: there is no “D” subdivision).

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 determined the modification of restricted area R-4403A, Stennis Space Center, MS, to be within the scope of the Navy and NASA's Environmental Assessment (EA) and Finding of No Significant Impact (FONSI) for the Redesignation and Expansion of Restricted Airspace R-4403 to Support Military Air-To-Ground Munitions Training and NASA Rocket Engine Testing At Stennis Space Center, Mississippi dated November 24, 2015; and the FAA's decision document adopting the airspace portion of the above cited EA titled “Federal Aviation Administration, Adoption of the Environmental Assessment and FONSI/ROD for Redesignation and Expansion of Restricted Airspace R-4403, Stennis Space Center, Hancock and Pearl River County, MS, and St Tammany Parrish, LA, signed on March 22, 2016; and that no further environmental review is required.

In consideration of the foregoing, the Federal Aviation Administration amends 14 CFR part 73 as follows:

Background

As part of the Omnibus Crime Control Act of 1970, Congress enacted 18 U.S.C. 1752 (Temporary residence of the President) (“Section 1752”), making it unlawful to willfully and knowingly enter or remain in any building or grounds designated by the Secretary of the Treasury as a temporary residence of the President or the temporary offices of the President and his staff. Public Law 91-644, Title V, Sec. 18, 84 Stat. 1891-92 (Jan. 2, 1971). Subsection (d) of Section 1752 further authorized the Secretary of the Treasury:

(1) To designate by regulation the buildings and grounds which constitute the temporary residences of the President and the temporary offices of the President and his staff, and

(2) to prescribe regulations governing ingress or egress to such buildings and grounds and to posted, cordoned off, or otherwise restricted areas where the President is or will be temporarily visiting.

Department of Treasury regulations designating the temporary residence of the President and the temporary offices of the President and his staff and governing ingress and egress to those buildings and grounds are set forth in Chapter IV, part 408 of title 31 of the Code of Federal Regulations and consist of sections 408.1-408.3 (31 CFR 408.1-408.3). Section 1752 has been amended several times since its enactment in 1971. For example, amendments in 1982 modified subsection (d) to include the authority to issue regulations concerning the residences of USSS protectees in addition to the President. But further modifications in 2006 have eliminated the need for implementing regulations and have removed provisions regarding the issuance of regulations.

In 2006, the Secret Service Authorization and Technical Modification Act of 2005, Public Law 109-177, Title VI, Sec. 602, 120 Stat. 252 (Mar. 9, 2006), amended Section 1752 to eliminate any reference to regulations. Subsection (d), which authorized the Secretary of the Treasury to issue regulations, was stricken. References to residences as “designated” were also eliminated throughout the text. Instead, the offense conduct was described as willfully and knowingly entering or remaining in any posted, cordoned off, or otherwise restricted area of a building or grounds where the President or other person protected by the USSS is or will be temporarily visiting or in any posted, cordoned off, or otherwise restricted area of a building or grounds so restricted in conjunction with an event designated as an event of national significance. With those amendments, the regulations found at 31 CFR part 408 became obsolete.

While Section 1752 was amended again in 2012, the authorization to the promulgate regulations was not reintroduced, and the statute in its current form makes no reference to regulation. Those amendments, made in the Federal Restricted Buildings and Grounds Improvement Act of 2011, Public Law 112-98, Sec. 2, 126 Stat. 263 (Mar. 8, 2012), reflect the most recent expression of Congressional intent. As in 2006, the 2012 amendments to Section 1752 reflect that the offense conduct is fully described in the text of the statute itself. Rather than identifying restricted residences and offices through regulation, the 2012 statutory amendments define those venues as any posted, cordoned off, or otherwise restricted of the White House or its grounds, the Vice President's official residence and its grounds, the building or grounds where a Secret Service protectee is or will be temporarily visiting, or a building or grounds that is restricted in conjunction with an event designated as a special event of national significance. There have been no amendments to Section 1752 since 2012.

The regulations found in part 408 were not removed after the enactment of the Secret Service Authorization and Technical Modification Act of 2005 or the Federal Restricted Buildings and Grounds Improvement Act of 2011. The regulations have also not been updated since 1984, well before the statutory language was changed in 2006 to eliminate all references to regulation. For instance, the regulations currently list the President's designated temporary residence in Santa Barbara County, California, as it was in the Reagan Administration.

The existing regulations are now obsolete and retaining them maintains an inconsistency between the terms of the statute itself and the outdated regulations. As a result, USSS is repealing part 408 in its entirety. This change will align the provisions of the CFR with the express language of the statute and eliminate any potential confusion as to the offense conduct at issue in Section 1752.

Executive Orders 13563 and 12866 direct agencies to assess the costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. Executive Order 13771 (“Reducing Regulation and Controlling Regulatory Costs”) directs agencies to reduce regulation and control regulatory costs. This rule is not a “significant regulatory action,” under section 3(f) of Executive Order 12866. Accordingly, the Office of Management and Budget has not reviewed this regulation.

DHS considers this final rule to be an Executive Order 13771 deregulatory action. See OMB's Memorandum titled “Guidance Implementing Executive Order 13771, Titled `Reducing Regulation and Controlling Regulatory Costs' ” (April 5, 2017).

This rule will serve to remove obsolete provisions and will eliminate any inconsistency between the offense conduct set forth in Section 1752 and the outdated regulatory provisions. This rule will not affect the current application of the terms of the statute. Instead, the rule will provide greater clarity for the public of its application. Therefore, this rule will not impose any costs on USSS or the public. DHS believes that removing the obsolete regulations will reduce confusion for the public and that streamlining the regulations will provide non-monetized efficiencies.

Pursuant to 5 U.S.C. 553(b)(B) of the Administrative Procedure Act (APA), an agency may, for good cause, find that notice and public comment procedure on a rule is impracticable, unnecessary, or contrary to the public interest. Part 408 of 31 CFR contains obsolete regulations, which are no longer required pursuant to statutory authority. Further, USSS believes that maintaining outdated regulations causes confusion for the public. Therefore, USSS has determined that it would be unnecessary and contrary to the public interest to delay publication of this rule in final form pending an opportunity for public comment.

Under 5 U.S.C. 553(d)(3) of the APA, USSS has, for the same reasons, determined that there is good cause for this final rule to become effective immediately upon publication. USSS currently applies the terms of Section 1752 as they appear in the text of the statute as a matter of law. The repeal of obsolete regulations will serve to align the Code of Federal Regulations with the terms of the authorizing statute itself.

The Regulatory Flexibility Act (5 U.S.C. 601 et seq.), as amended by the Small Business Regulatory Enforcement and Fairness Act of 1996, requires agencies to assess the impact of regulations on small entities. A small entity may be a small business (defined as any independently owned and operated business not dominant in its field that qualifies as a small business per the Small Business Act); a small not-for-profit organization; or a small governmental jurisdiction (locality with fewer than 50,000 people). The Regulatory Flexibility Act applies only to rules subject to notice and comment rulemaking requirements under the APA or any other law (5 U.S.C. 553(a)(2)). Because this rule is not subject to such notice and comment rulemaking requirements, the provisions of the Regulatory Flexibility Act do not apply. However, as discussed above in the “Executive Orders 13563, 12866, and 13771” section, this rule will impose no costs on the public, including small entities, because it merely eliminates outdated USSS regulations.

Prior to March 1, 2003, USSS was a component of the Department of the Treasury. On November 25, 2002, the President signed the Homeland Security Act of 2002, 6 U.S.C. 101 et seq., Public Law 107-296, (the “HSA”), establishing the Department of Homeland Security (“DHS”). Pursuant to section 821 of the HSA, the USSS was transferred from Treasury to DHS effective March 1, 2003. Accordingly, this final rule to repeal Treasury regulations impacting USSS functions may be signed by the Secretary of Homeland Security.

The Coast Guard is issuing this temporary rule without prior notice and opportunity to comment pursuant to authority under section 4(a) of the Administrative Procedure Act (APA) (5 U.S.C. 553(b)). This provision authorizes an agency to issue a rule without prior notice and opportunity to comment when the agency for good cause finds that those procedures are “impracticable, unnecessary, or contrary to the public interest.” Under 5 U.S.C. 553(b)(3)(B), the Coast Guard finds that good cause exists for not publishing a notice of proposed rulemaking (NPRM) with respect to this rule because it is impracticable. This safety zone must be established by May 19, 2018 and we lack sufficient time to provide a reasonable comment period and then consider those comments before issuing this rule. The NPRM process would delay the establishment of the safety zone until after the dates of the high speed boat races and compromise public safety.

Under 5 U.S.C. 553(d)(3), the Coast Guard finds that good cause exists for making it effective less than 30 days after publication in the Federal Register. Delaying the effective date of this rule would be impracticable and contrary to public interest because immediate action is needed to protecting participants, spectators, and other persons and vessels from the potential hazards during a high speed boat race on a navigable waterway.

The Coast Guard is issuing this rule under authority in 33 U.S.C. 1231. The Captain of the Port Marine Safety Unit Port Arthur (COTP) has determined that the potential hazards associated with high speed boat races are a safety concern for vessels operating on the Sabine River. Possible hazards include risks of injury or death from near or actual contact among participant vessels and spectators or mariners traversing through the safety zone. This rule is needed to protect all waterway users, including event participants and spectators, before, during, and after the scheduled event.

This rule establishes a temporary safety zone from 8:30 a.m. through 6 p.m. each day on from May 19, 2018 through May 20, 2018. The safety zone covers all navigable waters of the Sabine River, extending the entire width of the river, adjacent to the public boat ramp located in Orange, TX bounded by the Navy Pier One at latitude 30°05′50″ N to the north and latitude 30°05′33″ N to the south. The duration of the safety zone is intended to protect participants, spectators, and other persons and vessels, in the navigable waters of the Sabine River during the high speed boat races and will include breaks and opportunity for vessels to transit through the regulated area.

No vessel or person is permitted to enter the safety zone without obtaining permission from the COTP or a designated representative. They may be contacted on VHF-FM channel 13 or 16, or by telephone at 409-719-5070. A designated representative may be a Patrol Commander (PATCOM). The PATCOM may be aboard either a Coast Guard or Coast Guard Auxiliary vessel. The PATCOM may be contacted on Channel 16 VHF-FM (156.8 MHz) by the call sign “PATCOM”. The “official patrol vessels” consist of any Coast Guard, state, or local law enforcement and sponsor provided vessels assigned or approved by the COTP or a designated representative to patrol the zone. All persons and vessels not registered with the sponsor as participants or official patrol vessels are considered spectators.

Spectator vessels desiring to transit the zone may do so only with prior approval of the COTP or a designated representative and when so directed by that officer must be operated at a minimum safe navigation speed in a manner that will not endanger any other vessels. No spectator vessel shall anchor, block, loiter, or impede the through transit of official patrol vessels in the zone during the effective dates and times, unless cleared for entry by or through the COTP or a designated representative. Any spectator vessel may anchor outside the zone, but may not anchor in, block, or loiter in a navigable channel. Spectator vessels may be moored to a waterfront facility within the zone in such a way that they shall not interfere with the progress of the event. Such mooring must be complete at least 30 minutes prior to the establishment of the zone and remain moored through the duration of the event.

The COTP or a designated representative may forbid and control the movement of all vessels in the zone. When hailed or signaled by an official patrol vessel, a vessel shall come to an immediate stop and comply with the directions given. Failure to do so may result in expulsion from the zone, citation for failure to comply, or both.

The COTP or a designated representative may terminate the operation of any vessel at any time it is deemed necessary for the protection of life or property. The COTP or a designated representative will terminate enforcement of the safety zone at the conclusion of the event.

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

Executive Orders 12866 and 13563 direct agencies to assess the costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits. Executive Order 13771 directs agencies to control regulatory costs through a budgeting process. This rule has not been designated a “significant regulatory action,” under Executive Order 12866. Accordingly, it has not been reviewed by the Office of Management and Budget, and pursuant to OMB guidance it is exempt from the requirements of Executive Order 13771.

This regulatory action determination is based on the size, location, and duration of the safety zone. This safety zone encompasses a less than half-mile stretch of the Sabine River for nine and a half hours on each of two days. Moreover, the Coast Guard will issue Broadcast Notice to Mariners (BNMs) via VHF-FM marine channel 16 about the zone, daily enforcement periods will include breaks that will provide an opportunity for vessels to transit through the regulated area, and the rule allows vessel to seek permission to enter the zone.

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

While some owners or operators of vessels intending to transit the safety zone may be small entities, for the reasons stated in section V.A above, this rule will not have a significant economic impact on vessel owners or operators.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this rule. If the rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact the person listed in the FOR FURTHER INFORMATION CONTACT section.

Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247). The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard.

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

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. We have analyzed this rule under that Order and have determined that it is consistent with the fundamental federalism principles and preemption requirements described in Executive Order 13132.

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

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

We have analyzed this rule under Department of Homeland Security Directive 023-01 and Commandant Instruction M16475.1D, which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (42 U.S.C. 4321-4370f), and have determined that this action is one of a category of actions that do not individually or cumulatively have a significant effect on the human environment. This rule involves a safety zone lasting nine and a half hours on each of two days that will prohibit entry on less than a one-half mile stretch of the Sabine River. It is categorically excluded from further review under paragraph L60(a) of Appendix A, Table 1 of DHS Instruction Manual 023-01-001-01, Rev. 01. A Record of Environmental Consideration supporting this determination is available in the docket where indicated under ADDRESSES.

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

For the reasons discussed in the preamble, the Coast Guard amends 33 CFR part 165 as follows:

The Coast Guard is issuing this temporary rule without prior notice and opportunity to comment pursuant to authority under section 4(a) of the Administrative Procedure Act (APA) (5 U.S.C. 553(b)). This provision authorizes an agency to issue a rule without prior notice and opportunity to comment when the agency for good cause finds that those procedures are “impracticable, unnecessary, or contrary to the public interest.” Under 5 U.S.C. 553(b)(B), the Coast Guard finds that good cause exists for not publishing a notice of proposed rulemaking (NPRM) because it is impractical to provide and publish an NPRM with a full comment period. This safety zone is necessary to ensure the safety of vessels and persons in the East Passage before, during, and after the event. It is impractical to publish an NPRM, request comment, and then publish a final rule as this safety zone must be effective by May 17, 2018.

Under 5 U.S.C. 553(d)(3), the Coast Guard also finds that good cause exists for making this rule effective less than 30 days after publication in the Federal Register. Delaying the effective date of this rule would be impracticable because, in order to protect persons and vessels from the dangers associated with the scheduled event, it is necessary the safety zone is established by May 17, 2018.

The Coast Guard is issuing this rule under authority in 33 U.S.C. 1231. The Captain of the Port (COTP) Southeastern New England has determined that the Newport Volvo Ocean Race presents a potential safety concern to vessels, people, and the navigable waters of the East Passage of Narragansett Bay in the vicinity of Newport, R.I. This event is part of a world-wide race and it is expected to generate national and international media coverage, in addition to spectators on a number of recreational and excursion vessels. As a result, this rule is needed to ensure the safety of vessels and the navigable waters in the East Passage before, during, and after the scheduled event.

The Coast Guard is establishing this safety zone, in conjunction with the Volvo Ocean Race Newport, to ensure the protection of the maritime public and event participants from the hazards associated with large-scale marine events. This safety zone is of similar dimension and duration to the one established in 2015. The safety zone will extend from an east-west line across the East Passage of Narragansett Bay at the Newport Pell Bridge south to the COLREGS demarcation line between Brenton Pt and Beavertail Pt. The safety zone will be enforced only during times of actual sailing vessel racing.

The East Passage of Narragansett Bay is the site of many marine events each year. As a result, vessel traffic, particularly recreational vessel traffic, is frequently required to utilize the West Passage of Narragansett Bay. Accordingly, the West Passage of Narragansett Bay may be a viable option for recreational vessels as well as many tug/barge combinations and smaller commercial vessels during the Volvo Ocean Race Newport.

Regardless, the Coast Guard anticipates that some commercial and/or recreational vessels may still need to transit the East Passage of Narragansett Bay for a variety of reasons, including destination, familiarity with the waterway, tide restrictions, etc. Vessels may be able to continue transits through the East Passage, even during enforcement of the safety zone, as there may be sufficient room for most recreational vessels, and some commercial vessels, to pass to the west of the safety zone. Also, the Coast Guard routinely works with the local marine pilot organization and shipping agents to coordinate vessel transits during marine events in the East Passage, and will continue to do so for the entire event to avoid major interruptions to shipping schedules.

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

Executive Orders 12866 and 13563 direct agencies to assess the costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits. Executive Order 13771 directs agencies to control regulatory costs through a budgeting process. This rule has not been designated a “significant regulatory action,” under Executive Order 12866. Accordingly, this rule has not been reviewed by the Office of Management and Budget (OMB), and pursuant to OMB guidance it is exempt from the requirements of Executive Order 13771.

This regulatory action determination is based on the size, location, duration, and time-of-day of the safety zone. We expect the adverse economic impact of this rule to be minimal. Although this regulation may have some adverse impact on the public, the potential impact will be minimized for the following reasons: the safety zone will be in effect for a maximum of eight hours each day for five consecutive days; vessels will only be restricted from the zone in the East Passage of Narragansett Bay during those limited periods when the races are actually ongoing; during periods when there is no actual racing (e.g., racing vessels transiting from the pier to the racing site, downtime between races, etc.) vessels may be allowed to transit through the safety zone; there is an alternate route, the West Passage of Narragansett Bay, that does not add substantial transit time, is already routinely used by mariners, and will not be affected by this safety zone; many vessels, especially recreational vessels, will still have sufficient room to transit the affected waterway; and vessels may enter or pass through the safety zone with the permission of the COTP or the COTP's representative.

Notification of the Volvo Ocean Race Newport and the associated safety zone will be made to mariners through the Rhode Island Port Safety Forum, Local Notice to Mariners, event sponsors, and local media well in advance of the event.

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

This rule will affect the following entities, some of which might be small entities: owners or operators of vessels intending to transit, fish, or anchor in the East Passage of Narragansett Bay, RI, during the Volvo Ocean Race Newport sailing races.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this rule. If the rule will affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact the person listed in the FOR FURTHER INFORMATION CONTACT section.

Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247). The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard.

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

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. We have analyzed this rule under that Order and have determined that it is consistent with the fundamental federalism principles and preemption requirements described in Executive Order 13132.

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

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

We have analyzed this rule under Department of Homeland Security Directive 023-01 and Commandant Instruction M16475.1D, which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (42 U.S.C. 4321-4370f), and have determined that this action is one of a category of actions that do not individually or cumulatively have a significant effect on the human environment. This rule involves the establishment of a temporary safety zone in conjunction with the four-day Volvo Ocean Race Newport event and a fifth day reserved as a “rain date” should inclement weather delay scheduled races. It is categorically excluded from further review under paragraph L60(a) of Appendix A, Table 1 of DHS Instruction Manual 023-01-001-01, Rev. 01. A Record of Environmental Consideration supporting this determination will be available in the docket where indicated under ADDRESSES.

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

For the reasons discussed in the preamble, the Coast Guard amends 33 CFR part 165 as follows:

On March 19, 2018, Sector Long Island Sound was made aware of an emergency wire replacement project for the Devon Railroad Bridge over the Housatonic River near Stratford and Milford, CT. The Captain of the Port (COTP) Long Island Sound has determined that the potential hazards associated with the wire replacement project could be a safety concern for anyone within the safety zone.

The project runs from April 5, 2018 through May 15, 2018. During this project, CIANBRO Construction work boats will be in place to remove frayed guy wires currently spanning between two high towers above the Devon Railroad Bridge. Once the frayed guy wires are removed, CIANBRO Construction work boats will stretch new replacement guy wires across the navigable channel and will hoist the wires to the top of the high towers via a pull rope attached to a work boat, starting on the west side of the river, then finishing on the east side of the river. No vessel or person will be permitted to enter the safety zone without obtaining permission from the COTP Long Island Sound or a designated representative. The safety zone will be enforced only when wires, cables, and rigging equipment are stretched across the navigable channel at low elevations during the wire replacement project or when other hazards to navigation arise. The Coast Guard will issue a Broadcast Notice to Mariners via VHF-FM marine channel 16 twenty-four (24) hours in advance to any period of enforcement or as soon as practicable in response to an emergency. If the project is completed prior to May 15, 2018, enforcement of the safety zone will be suspended and notice given via Broadcast Notice to Mariners.

The Coast Guard is issuing this temporary final rule without prior notice and opportunity to comment pursuant to authority under section 4(a) of the Administrative Procedure Act (APA) (5 U.S.C. 553(b)). This provision authorizes an agency to issue a rule without prior notice and opportunity to comment when the agency for good cause finds that those procedures are “impracticable, unnecessary, or contrary to the public interest.” Under 5 U.S.C. 553(b)(B), the Coast Guard finds that good cause exists for not publishing an NPRM with respect to this rule because doing so would be impracticable and contrary to the public interest. The late finalization of project details did not give the Coast Guard enough time to publish an NPRM, take public comments, and issue a final rule before the wire replacement project is set to begin. It would be impracticable and contrary to the public interest to delay promulgating this rule as it is necessary to protect the safety of the public and waterway users.

Under 5 U.S.C. 553(d)(3), and for the same reasons stated in the preceding paragraph, the Coast Guard finds that good cause exists for making this rule effective less than 30 days after publication in the Federal Register.

The legal basis for this temporary rule is 33 U.S.C. 1231. The COTP Long Island Sound has determined that potential hazards associated with the wire replacement project, which runs from April 5, 2018 through May 15, 2018, will be a safety concern for anyone on the navigable waters within 100 yards of the wire replacement project. This rule is needed to protect people, vessels, and the marine environment within the safety zone until the wire replacement project is completed.

This rule establishes a safety zone from 6:00 a.m. on April 5, 2018 through 6:00 p.m. on May 15, 2018. The safety zone will cover all navigable waters of the Housatonic River near Milford and Stratford, CT contained within the following area: Beginning at a point on land in position at 41°12′14.5″ N, 073°06′40.8″ W south of the Governor John Davis Lodge Turnpike (I-95) Bridge; then northeast across the Housatonic River to a point on land in position at 41°12′17.7″ N, 073°06′29.1″ W south of the Governor John Davis Lodge Turnpike (I-95) Bridge; then northwest along the shoreline to a point on land in position at 41°12′25″ N, 073°06′31″ W; then southwest across the Housatonic River to a point on land in position at 41°12′22″ N, 073°06′43″ W; then southeast along the shoreline back to point of origin (NAD 83). All positions are approximate.

The duration of the safety zone is intended to ensure the safety of vessels on the navigable waters within this zone before, during, and after each wire and cable suspension operation, or during any instance that necessitates a temporary closure of the Housatonic River at the project site. No vessel or person will be permitted to enter the safety zone without obtaining permission from the COTP Long Island Sound or a designated representative.

The Coast Guard will notify the public and local mariners of this safety zone through appropriate means, which may include, but are not limited to, publication in the Federal Register, the Local Notice to Mariners, and Broadcast Notice to Mariners via VHF-FM marine channel 16 twenty-four (24) hours in advance of any scheduled enforcement period. The regulatory text we are enforcing appears at the end of this document.

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

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

This regulatory action determination is based on the size, location, duration, and enforcement of the safety zone. The safety zone will impact only a small designated portion on the Housatonic River for 41 days. Although vessels will not be able to transit around this safety zone, this waterway is typically transited by small recreational craft on an infrequent basis prior to Memorial Day Weekend. Additionally, the safety zone will only be enforced when the wire replacement project necessitates closure of the waterway or during an emergency. The Coast Guard will issue a Broadcast Notice to Mariners via VHF-FM marine channel 16 about the zone and any periods of enforcement. Moreover, the rule allows vessels to seek permission to enter the zone.

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

While some owners or operators of vessels intending to transit this safety zone may be small entities, for the reasons stated in section V.A above, this rule will not have a significant economic impact on any vessel owner or operator. Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this rule. If the rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact the person listed in the FOR FURTHER INFORMATION CONTACT.

Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247). The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard.

This rule calls for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. We have analyzed this rule under that Order and have determined that it is consistent with the fundamental federalism principles and preemption requirements described in Executive Order 13132.

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

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

We have analyzed this rule under Department of Homeland Security Management Directive 023-01 and Commandant Instruction M16475.lD, which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (42 U.S.C. 4321-4370f), and have made a determination that this action is one of a category of actions that do not individually or cumulatively have a significant effect on the human environment. This temporary rule creates a safety zone lasting 41 days. During those 41 days, the safety zone will be enforced only when the wire replacement project necessitates closure of the waterway or during an emergency. It is categorically excluded from further review under paragraph L60(a) of Appendix A, Table 1 of DHS Instruction Manual 023-01-001-01, Rev. 01. A Record of Environmental Consideration supporting this determination will be available in the docket where indicated under ADDRESSES.

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

For the reasons discussed in the preamble, the Coast Guard amends 33 CFR part 165 as follows:

This is a summary of the Commission's Report and Order in WC Docket Nos. 10-90; FCC 18-37, adopted on March 27, 2018 and released on April 5, 2018. The full text of this document is available for public inspection during regular business hours in the FCC Reference Center, Room CY-A257, 445 12th Street SW, Washington, DC 20554 or at the following internet address: https://transition.fcc.gov/Daily_Releases/Daily_Business/2018/db0405/FCC-18-37A1.pdf.

1. In this Report and Order (Order), for the period beginning January 1, 2017, the Commission increases the amount of operating costs that carriers that predominantly serve Tribal lands can recover from the universal service fund (USF) in recognition that they are likely to have higher costs than carriers not serving Tribal lands. This action will provide additional funding to these carriers to provide both voice and broadband services to their customers.

2. In March 2016, the Commission adopted the Rate-of-Return Reform Order and FNPRM establishing a new mechanism for the distribution of Connect America Fund support in rate-of-return areas. In the March 2016 Rate-of-Return Reform Order and Further Notice of Proposed Rulemaking (FNPRM), 81 FR 24282, April 25, 2016 and 81 FR 21511, April 12, 2016, the Commission adopted a limitation on the amount of operating expenses (opex) for which rate-of-return carriers may receive high-cost support, such that each carrier's opex eligible for high-cost support is limited to a regression model-generated opex per location plus 1.5 standard deviations. In the FNPRM, the Commission asked whether the opex limitations should be modified for carriers serving Tribal lands.

3. The Commission is persuaded based on the record before us that there is good reason to increase the opex limitation for carriers receiving legacy high-cost support that primarily serve Tribal lands because of the increased costs of providing service on Tribal lands. Both the National Tribal Telecommunications Association (NTTA) and Gila River Telecommunications, Inc. (GRTI) cite a number of unique costs faced by carriers serving Tribal lands. They explain that carriers generally must invest significant time and financial resources in securing rights-of-way and easements to install new broadband facilities on Tribal lands due to the number of permissions that must be obtained. Such permissions include the consent of multiple owners of allotted lands, as well as the consent of Tribal authorities, the Bureau of Indian Affairs (BIA), and other administrators and managers of Native trust lands. In some cases, letters of support from Tribal villages in or near the construction areas are also required. NTTA and GRTI represent that the process of obtaining Tribal cultural clearances, as well as the cost of compliance with the Archeological Resources Protection Act of 1979 and the National Historic Preservation Act of 1966, and coordination of National Environmental Protection Act compliance with BIA, are often significant. Commenters also point out that Tribal sovereignty issues require additional negotiation and legal review, that many Tribes require that qualified members of the Tribe be given preference in hiring and promotion, and that some Tribal authorities require construction observation by a Tribal member. In sum, the Commission is persuaded based on the record before us that there are unique costs associated with serving Tribal lands that warrant revisiting the opex limit adopted by us for this subset of carriers. Therefore, the Commission relaxes the opex limit for those study areas most in need where a majority of the housing units are on Tribal lands, as determined by the Bureau using U.S. Census data.

4. The Commission declines at this time to remove the opex limitation altogether and instead raise the limitation to 2.5 standard deviations above the regression-determined amount for those carriers that qualify subject to the criteria set out below. All carriers, including those that predominantly serve Tribal lands, should have incentives to prudently manage their operating expenditures. Although the Commission finds that carriers serving Tribal lands have expenses that are significantly greater than those serving non-Tribal lands, commenters have failed to show in this circumstance that there is no need for any opex limitation. Taking into account that factor, and mindful of the generally higher costs of serving Tribal lands, the Commission therefore decides that carriers whose opex limit will be relaxed will have their opex limitation raised to 2.5 standard deviations above the regression-determined amount. For example, as shown below, a carrier with $20,000 in opex costs and 58 percent of its opex eligible for support will now have 89 percent of its opex eligible for support. Moreover, when other carrier costs, such as taxes and capital expenses are considered, the opex limitation has a small effect on a carrier's revenue requirement.

5. In addition, the Commission limits this relief to those carriers meeting the following conditions. First, the carrier has not deployed broadband service of 10 Mbps download/1 Mbps upload to 90 percent or more of the housing units on the Tribal lands in its study area. Second, unsubsidized competitors have not deployed broadband service of 10 Mbps download/1 Mbps upload to 85 percent or more of the housing units on the Tribal lands in its study area. The Commission believes that these conditions will limit this relief to those carriers with the greatest need to accelerate broadband deployment.

6. All universal service support must be necessary and reasonable for the provision, maintenance, and upgrading of facilities and services for which the support is intended. The Commission understands that some carriers serving Tribal lands may have significant sources of telecommunications-associated revenue which is passed through to a tribe or may have particular costs imposed by a tribe. The Commission expects Tribal carriers to be able to demonstrate in the event such revenue or costs are questioned that in fact the revenues or cost are necessary and reasonable for the provision, maintenance, and upgrading of facilities and services for which the support is intended.

7. Bureau staff estimates in 2017 and/or 2018 that five carriers that have been affected by the opex cap are eligible for the relief. The Commission concludes that a 2.5 standard deviation limit will still provide an incentive for eligible carriers to avoid imprudent or unnecessary expenses, while recognizing the higher costs associated with providing service on Tribal lands. Because we determine that an opex limit of 2.5 standard deviations is appropriate for those study areas where a majority of the housing units are on Tribal lands and that meet our other conditions, we direct the Universal Service Administrative Company (USAC) to use the 2.5 standard deviation metric for these study areas for support calculations for the period beginning January 1, 2017, when the opex limitation was implemented.

8. This document does not contain new information collection requirements subject to the Paperwork Reduction Act of 1995 (PRA), Public Law 104-13. In addition, therefore, it does not contain any new or information collection burden for small business concerns with fewer than 25 employees, pursuant to the Small Business Paperwork Relief Act of 2002, Public Law 107-198, see 44 U.S.C. 3506(c)(4).

9. The Commission will send a copy of this Report and Order to Congress and the Government Accountability Office pursuant to the Congressional Review Act, see 5 U.S.C. 801(a)(1)(A).

10. As required by the Regulatory Flexibility Act of 1980 (RFA), as amended, an Initial Regulatory Flexibility Analyses (IRFA) was incorporated in the Rate-of-Return Reform Order and/or FNPRM. The Commission sought written public comment on the proposals in the Rate-of-Return Reform FNPRM, including comment on the IRFA. The Commission did not receive any relevant comments in response to this IRFA. This Final Regulatory Flexibility Analysis (FRFA) conforms to the RFA.

11. The Report and Order increases the amount of operating expenses that rate-of-return carriers predominantly serving Tribal lands can recover from the universal service fund (USF). This increase recognizes that carriers serving Tribal lands are likely to have higher operating costs than carriers serving non-Tribal areas.

12. The RFA directs agencies to provide a description of, and where feasible, an estimate of the number of small entities that may be affected by the proposed rules, if adopted. The RFA generally defines the term “small entity” as having the same meaning as the terms “small business,” “small organization,” and “small governmental jurisdiction.” In addition, the term “small business” has the same meaning as the term “small-business concern” under the Small Business Act. A small-business concern” is one which: (1) Is independently owned and operated; (2) is not dominant in its field of operation; and (3) satisfies any additional criteria established by the Small Business Administration (SBA).

13. There are three comprehensive, statutory small entity size standards. First, nationwide, there are a total of approximately 28.2 million small businesses, according to the SBA, which represents 99.7% of all businesses in the United States. In addition, a “small organization” is generally “any not-for-profit enterprise which is independently owned and operated and is not dominant in its field.” Nationwide, as of 2007, there were approximately 1,621,215 small organizations. Finally, the term “small governmental jurisdiction” is defined generally as “governments of cities, towns, townships, villages, school districts, or special districts, with a population of less than fifty thousand.” Census Bureau data for 2011 indicate that there were 90,056 local governmental jurisdictions in the United States. The Commission estimates that, of this total, as many as 89,327 entities may qualify as “small governmental jurisdictions.”

14. The action taken in this Report and Order would affect a maximum of approximately 50 small entities and will likely only affect approximately seven or eight entities per year.

15. No additional reporting, recordkeeping, or other compliance requirements are required by this Report and Order.

16. The RFA requires an agency to describe any significant alternatives that it has considered in reaching its proposed approach, which may include (among others) the following four alternatives: (1) The establishment of differing compliance or reporting requirements or timetables that take into account the resources available to small entities; (2) the clarification, consolidation, or simplification of compliance or reporting requirements under the rule for small entities; (3) the use of performance, rather than design, standards; and (4) an exemption from coverage of the rule, or any part thereof, for small entities. The Commission has considered all of these factors subsequent to receiving substantive comments from the public and potentially affected entities. The Commission has considered the economic impact on small entities, as identified in comments filed in response to the Rate-of-Return Reform FNPRM and its IRFA, in reaching its final conclusions and taking action in this proceeding.

17. The Commission has, at the request of the carriers, increased the amount of operating expenses that rate-of-return carriers predominantly serving Tribal lands can recover from the universal service fund (USF). By raising this limitation, we recognize the higher costs of these small carriers in serving Tribal areas. The higher operating expense limit does not involve additional reporting or recordkeeping requirements.

18. Accordingly, it is ordered, pursuant to the authority contained in sections 1, 2, 4(i), 5, 201-206, 214, 218-220, 251, 252, 254, 256, 303(r), 332, 403, and 405 of the Communications Act of 1934, as amended, and section 706 of the Telecommunications Act of 1996, 47 U.S.C. 151, 152, 154(i), 155, 201-206, 214, 218-220, 251, 252, 254, 256, 303(r), 332, 403, and 1302 that this Report and Order is adopted.

19. It is further ordered that part 54, of the Commission's rules, 47 CFR part 54, is amended as set forth in the following.

20. It is further ordered that the rules adopted herein will become effective May 31, 2018.

21. It is further ordered that USAC implement the rule adopted herein for support calculations beginning January 1, 2017.

For the reasons discussed in the preamble, the Federal Communications Commission amends 47 CFR part 54 as follows:

This is a summary of the Commission's Report and Order and Third Order on Reconsideration in WC Docket Nos. 10-90, 14-58, 07-135, CC Docket No. 01-92; FCC 18-29, adopted on March 14, 2018 and released on March 23, 2018. The full text of this document is available for public inspection during regular business hours in the FCC Reference Center, Room CY-A257, 445 12th Street SW, Washington, DC 20554 or at the following internet address: https://transition.fcc.gov/Daily_Releases/Daily_Business/2018/db0323/FCC-18-29A1.pdf. The Notice of Proposed Rulemaking (NPRM) that was adopted concurrently with the Report and Order and Third Order on Reconsideration was published in the Federal Register on April 25, 2018.

1. Universal service can—and must—play a critical role in helping to bridge the digital divide to ensure that rural America is not left behind as broadband services are deployed. The directive articulated by the Commission in 2011 remains as true today as it did then: “The universal service challenge of our time is to ensure that all Americans are served by networks that support high-speed internet access.” Though the Commission has made progress for rural Americans living in areas served by our nation's largest telecommunications companies, the rules governing smaller, community-based providers—rate-of-return carriers—appear to make it more difficult for these providers to serve rural America. As a result, approximately 11 percent of the housing units in areas served by rate-of-return carriers lack access to 10 Mbps downstream/1 Mbps upstream (10/1 Mbps) terrestrial fixed broadband service while 34 percent lack access to 25 Mbps downstream/3 Mbps upstream (25/3 Mbps). It is time to close this gap and ensure that all of those living in rural America have the high-speed broadband they need to participate fully in the digital economy.

2. By improving access to modern communications services, the Commission can help provide individuals living in rural America with the same opportunities that those in urban areas enjoy. Broadband access fosters employment and educational opportunities, stimulates innovations in health care and telemedicine and promotes connectivity among family and communities. And as important as these benefits are in America's cities, they can be even more important in America's more remote small towns, rural, and insular areas. Rural Americans deserve to reap the benefits of the internet and participate in the 21st century society—not run the risk of falling yet further behind.

3. In the Report and Order and Third Order on Reconsideration, the Commission takes the next step in closing the digital divide through actions designed to stimulate broadband deployment in rural areas. To reach its objective, the Commission must continue to reform its existing high-cost universal support programs. Building on earlier efforts to modernize high-cost universal service support, the Commission seeks to offer greater certainty and predictability to rate-of-return carriers and create incentives to bring broadband to the areas that need it most.

4. Specifically, in this Report and Order the Commission takes several steps to increase broadband deployment in rural areas. First, to maximize available funding for broadband networks, the Commission codifies existing rules that protect the high-cost universal service support program from waste, fraud, and abuse by explicitly prohibiting the use of federal high-cost support for expenses that are not used for the provision, maintenance, and upgrading of facilities and services for which the high-cost support is intended. The Commission also adopts additional compliance obligations that will assist us in determining whether high-cost recipients comply with the requirement to spend high-cost funds only on eligible expenses. Additionally, for rate-of-return carriers, the Commission adopts a presumption against recovery through interstate rates for specific types of expenses not used and useful in the ordinary course and identify other expenses that the Commission presumes are not used and useful unless customary for similarly situated companies. Second, in exchange for increased broadband deployment obligations, the Commission offers additional high-cost support to those rate-of-return carriers that previously accepted model-based support. Next, to ensure stability in the contribution factor pending ongoing implementation of various high-cost reforms, the Commission directs the Universal Service Administrative Company (USAC) to continue forecasting a uniform quarterly amount of high-cost demand pending further Commission action.

5. In the Third Order on Reconsideration, the Commission resolves or clarifies a number of issues raised in several petitions for reconsideration of the Commission's 2016 Rate-of-Return Reform Order, 81 FR 24282, April 25, 2016. Taken together, the Commission expects that these actions will provide greater stability and certainty in the high-cost program and therefore spur additional broadband deployment to the areas that need it most.

6. In this Report and Order, the Commission adopts reforms to ensure that high-cost universal service support provided to eligible telecommunications carriers (ETCs) is used only for the provision, maintenance, and upgrading of facilities and services for which the high-cost support is intended pursuant to section 254(e) of the Act. The Commission also adopts reforms to ensure that the investments and expenses that rate-of-return carriers recover through interstate rates are reasonable pursuant to section 201(b) of the Act. The Commission's findings here do not prevent rate-of-return carriers from incurring any particular investment or expense, but simply clarify the extent to which investments and expenses may be recovered through federal high-cost support and interstate rates. The rules the Commission adopts are prospective but the underlying obligations are preexisting and many of the rules the Commission adopts codify existing precedent. The Commission's rules and the used and useful standard have long governed ETCs and rate-of-return carriers' behavior. Nothing the Commission does in this Report and Order is intended to undermine its precedent.

7. Discussion.—Recent events by carriers involving large-scale abuses in the recovery of expenses that are unrelated to the provision of a universal service supported services give us cause to provide more specific rules for compliance with section 254(e). The Commission has a duty to the public to protect against waste, fraud, and abuse and ensure ETCs utilize finite universal service funds most effectively for their intended purpose. Unrelated expenses detract from universal service goals. The Commission finds that section 254(e) provides that carriers can recover those expenses from high-cost support to the extent those expenses are used only for, directly related to, and incurred for the sole purpose of, the provision, maintenance, and upgrading of facilities and services for which the support is intended, i.e., supported voice and broadband. The use by Congress of the word “only” to modify the description of the uses of universal service support indicates that such support must be used exclusively for providing, maintaining and upgrading of facilities and services, so that support is not used for purposes other than those “for which the support is intended.” To the extent an expense is incurred in part for a recoverable business use and in part for a non-recoverable use, carriers may only recover from high-cost support that portion of expenses incurred for the provision, maintenance, and upgrading of facilities for which support is intended.

8. Because the Commission establishes the contours of universal service programs under section 254, the statute vests it with the authority to determine the scope of expenditures “for which support is intended.” Having reviewed the record, the Commission now codifies a simple, clear, and carefully defined, non-exclusive, list of expense categories that are precluded from recovery via the high-cost programs of the Fund because the Commission finds it is not used “for the provision, maintenance and upgrading of facilities and services for which the support is intended.” In codifying a list of ineligible expenses, the Commission incorporates, with some modifications, expense categories the Commission previously identified as ineligible for high-cost support in the High-Cost Oct. 19, 2015 Public Notice and in the Rate-of-Return Reform Further Notice of Proposed Rulemaking (FNPRM), 81 FR 21511, April 12, 2016, and the Commission provides guidance going forward on the eligibility of expenses on which the Commission sought comment in the Rate-of-Return Reform FNPRM. The Commission recognizes that its approach differs from that proposed by the rural associations; however, the Commission finds that its approach is more consistent with the statutory requirements that high-cost support be used only for the provision, maintenance, and upgrading of facilities and services for which the support is intended. To the extent the Commission adopts new prohibitions on expenses that may be recovered from high-cost support, the Commission's rules apply on a prospective basis.

9. The Commission organizes the types of goods and services as ineligible for support into three broad expense categories—personal expenses, expenses unrelated to operations, and corporate luxury goods—and within each broad category specify certain types of goods and services not eligible for support. The Commission cautions that this list is based on the record before us. As specified in the Commission's revised rules, this list is not a comprehensive list of expenses ineligible for high-cost support. This list provides a codified bright-line prohibition on seeking high-cost support for some types of expenses. However, the Commission reminds carriers that it is also prohibited from seeking support for any expenses that are not used only for the provision, maintenance, and upgrading of facilities and services for which the support is intended. The Commission intends to remain vigilant in protecting the Fund from waste, fraud, and abuse.

10. Personal Expenses.—Initially, the Commission codifies the existing prohibition on recovery from the high-cost program for personal expenses of employees, board members, family members of employees and board members, contractors, or any other individuals affiliated with the ETC, including but not limited to personal expenses for personal travel, personal vehicles, housing, such as rent, mortgages, or housing allowances, childcare, employee gifts, and entertainment-related expenses including food and beverage, regardless of whether such expenses are paid directly by the individual or indirectly by the carrier in the form of allowances or gifts. Personal expenses are clearly not used for the provision of supported services and thus may not be recovered through high-cost support. Furthermore, the Commission cautions recipients of high-cost support that recovering these types of expenses from high-cost support may constitute outright fraud, waste, and abuse on the Fund, subjecting employees, executives, and board members to personal civil and criminal liability.

11. The Commission already explicitly excludes personal travel expenses from high-cost support recovery. Personal travel expenses include airfare, car rentals, gas, lodging, and meals for personal use. Commenters overwhelmingly agree that personal travel is unrelated to the provision of a supported service and may not be recovered through high-cost support. In response to concerns raised by commenters, the Commission finds that, in contrast to personal travel expenses, reasonable work-related travel expenses are recoverable to the extent they are used for the provision, maintenance, and upgrading of facilities and services for which high-cost support is intended. For example, if an ETC's technician travels to repair a supported facility and such travel requires overnight accommodation, the ETC may recover that employee's reasonable hotel costs.

12. The Commission already explicitly excludes expenses for personal vehicles and housing for personal use from high-cost support recovery. Commenters supported the continued exclusion. For example, an ETC is prohibited from recovering from high-cost support the purchase of a vehicle and home for personal use. To the extent a vehicle is used for both legitimate business purposes and non-business purposes, an ETC may only recover from high-cost support that portion of expenses incurred in connection with the provision, maintenance, and upgrading of supported services and facilities for which high-cost support is intended.

13. Subject to the very narrow exception the Commission describes below, the prohibition concerning housing for personal use precludes ETCs from using high-cost support to provide housing allowances for employees. Some commenters claim that housing allowances are necessary to attract qualified employees and may be essential if affordable housing is not available in rural areas. Another commenter asserts that housing allowances are not a common operating expenditure. Regardless of whether such allowances are beneficial or commonly provided, they are not generally used for the provision, maintenance, and upgrading of facilities and services. Expenses for employee housing allowances are no different than other personal expenses for housing, which are disallowed, and the Commission codifies this prohibition.

14. However, the Commission recognizes that it may be appropriate to seek high-cost support to recover the cost of providing temporary or seasonal lodging for employees providing service in remote areas with rugged terrain and extreme weather conditions where no other lodging is available. The Commission views this situation as analogous to per diem travel expenses for lodging, which can be a recoverable operating expense when such travel meets the statutory test for recoverable expenses. Reasonable temporary or seasonal lodging may only be recovered if used for the provision, maintenance, and upgrading of services and facilities for which high-cost support is intended. Housing allowances outside of this very narrow exception are prohibited and are excluded from high-cost support.

15. Childcare expenses are not recoverable from high-cost support. Commenters argue that childcare is important to “attract and retain qualified employees.” Another commenter asserts that the “vast majority” of rural incumbent LECs are “too small to afford childcare” which they do not provide. Although the provision of childcare may be desirable and beneficial, such expenses are not used only for the provision, maintenance, and upgrading of supported facilities and services. Accordingly, such expenses are excluded from high-cost support.

16. It is undisputed that gifts to employees may not be recovered through high-cost support. Gifts to employees are unrelated to the provision, maintenance, and upgrading of facilities and services for which high-cost support is intended, and therefore are excluded from high-cost support.

17. Entertainment and food and beverage expenses, including but not limited to expenses incurred for meals to celebrate personal events, such as weddings, births, or retirements, are explicitly not recoverable through high-cost support. Some commenters agree that entertainment expenses in particular have not been recoverable in the past. Other commenters disagree, claiming that recovering entertainment expenses incurred for “client or vendor meetings, or attendance at board meetings” is a “common and accepted practice.” Some commenters maintain that they should be able to include food and beverage and entertainment expenses related to annual meetings, employee recognition, parties or picnics because such events build morale and improve service quality. The question is whether these expenses are used only for the provision, maintenance, and upgrading of facilities and services for which high-cost support is intended—not whether they are beneficial, desirable or common practice. Because these expenses do not meet the Commission's interpretation of what the statutory standard requires, the Commission excludes them from high-cost support. As noted above, the Commission acknowledges that meals provided during business-related travel may qualify as a reasonable per diem travel expense recoverable from high-cost support consistent with the Commission's interpretation of section 254(e).

18. Finally, some commenters misread § 32.6720(j) of the Commission's rules as permitting universal service recovery for “`food services (e.g., cafeterias, lunch rooms and vending facilities).'” While cafeterias and dining facilities should be recorded in corporate operations accounts (Account 6720), it does not follow that these expenses can be recovered from high-cost support. Commenters argue that such costs are “insignificant and immaterial” and “offset by increased efficiencies.” At the same time, some commenters acknowledge that the vast majority of rate-of-return carriers do not provide cafeterias and dining facilities. Most rate-of-return carriers are able to serve their customers without having cafeterias and dining facilities for their employees precisely because these expenses are not solely related to the provision, maintenance, and upgrading of facilities and services for which the support is intended. Thus, consistent with the Commission's interpretation of section 254(e), ETCs may not recover from high-cost support expenses for food services and dining facilities, including cafeterias, lunch rooms, and vending facilities.

19. Expenses Unrelated To Operations.—The Commission next codifies the existing prohibitions on recovering support for expenses unrelated to operations—including political contributions, charitable donations, scholarships, membership fees and dues in clubs and organizations, sponsorships of conferences or community events, and penalties or fines for statutory or regulatory violations, penalties or fees for late payments on debt, loans, or other payments—from high-cost support. ETCs calculate high-cost universal support, including high cost loop support (HCLS) and Connect America Fund Broadband Loop Support (CAF BLS) (formerly interstate common line support (ICLS)), based on their eligible capital investment and operating expenses pursuant to § 54.303. Expenses unrelated to operations, however, are not currently included in these high-cost support calculations. Instead, under the Commission's current rules, “nonoperating expenses”—including political contributions, contributions for charitable, social, or community welfare purposes, membership fees and dues in social, service and recreational or athletic clubs and organizations, and penalties and fines on account of violations of statutes—are recorded in Account 7300, presumed excluded from the costs of service in setting rates, and not included in high-cost support calculations. Expenses unrelated to operations have historically not been recoverable from high-cost support because by definition these expenses are not operational in nature and are ancillary to core business objectives. Expenses must fall within the scope of the statutory requirement that support be used “only for the provision, maintenance, and upgrading of facilities and services for which support is intended.” Below the Commission finds that various expenses unrelated to operations, including various Account 7300 nonoperating expenses, do not satisfy this standard and, thus, may not be recovered from high-cost support.

20. Political contributions are expenses unrelated to operations that may not be recovered from high-cost support. The record supports the continued exclusion of political contributions from recovery through high-cost support. No commenter opposed this. Political contributions are not used only for the provision, maintenance, and upgrading of facilities and services for which support is intended. ETCs are still, of course, free to make political contributions to the extent permitted by other laws, but they cannot recover those expenses from high-cost support.

21. In a related vein, the National Exchange Carrier Association (NECA) sought clarification on the extent to which the costs of “`[m]aintaining relations with government, regulators, other companies and the general public' such as `performing public relations and non-product-related corporate image advertising activities'” (Account 6720) should be included in universal service data submissions. At the outset, no commenter has provided any persuasive basis for determining how non-product-related corporate image advertising expenses are used for the provision, maintenance, and upgrading of supported services and facilities. Accordingly, corporate image advertising expenses may not be recovered from high-cost support. By contrast, expenses incurred to meet state, local, or federal regulatory requirements or obligations to provide supported services including preparing tariff and service cost filings and obtaining plant construction permits are allowable under section 254(e) to the extent that they are a precondition to providing supported services. Additionally, contracting expenses (excluding sales contracts) such as negotiating pole attachment rights-of-way and interconnection agreements that are a precondition to providing supported service are recoverable from the high-cost program consistent with the Act.

22. Charitable donations and scholarships are expenses unrelated to operations that may not be recovered from high-cost support. The Commission recognizes the benefits charitable donations provide to the community, as raised by multiple commenters. However, charitable donations are unrelated to the provision, maintenance, and upgrading of facilities and services for which the high-cost support is intended.

23. Membership fees and dues in clubs and organizations, including social, service, and recreational or athletic clubs and organizations, as well as trade associations and organizations that provide professional or trade certifications such as state bar associations, are expenses unrelated to operations excluded from high-cost support. Commenters agree that these expenses related to social and recreational clubs and organizations are already excluded from high-cost support recovery. But those same and other commenters also argue that membership fees and dues in trade associations, chambers of commerce, state bar associations and professional certifications for specialized employees should be recoverable. The Commission recognizes the educational and training benefits that trade associations provide and that membership in chambers of commerce may help stimulate business. However, as other commenters acknowledge, a function of many of these organizations is advocacy on behalf of their members for the purpose of influencing public policy which is not used for the provision, maintenance, and upgrading of facilities and services for which support is intended. Just as ETCs may not recover lobbying expenses under the Commission's rules, similarly, they may not recover membership fees in organizations that engage in lobbying. Further, professional affiliations or certifications such as state bar associations, accounting associations, or other professional groups may facilitate general corporate functions but are not used only for the provision of supported facilities and services.

24. No commenter opposed the prohibition on using high-cost support to sponsor conferences or community events. As the Commission has explained, sponsorships may be related to community interests but are not used for the provision, maintenance, and upgrading of facilities and services for which support is intended. The Commission continues to recognize that sponsorships of conferences or community events may benefit the community and the ETC, but such expenses do not satisfy the statutory standard for recovery.

25. Costs incurred as penalties or fines on account of violations of statutes, including judgments and payments in settlement of civil and criminal suits alleging antitrust violations, are excluded from high-cost support. Such expenses are not used for the provision, maintenance, and upgrading of facilities and services for which the support is intended. Commenters did not take issue with this exclusion.

26. Similar to penalties or fines for statutory or regulatory violations, costs incurred as penalties or fees for any late payments on debts, loans, or other payments are not used for the provision, maintenance, and upgrading of facilities and services for which the support is intended. Indeed, commenters recognize that such expenses “have typically not been recoverable in the past.” Penalties or fees for late payments on debt, loans, or other payments arguably are costs of doing business and mistakes will happen, but the costs of these mistakes and inefficiencies should not be borne by universal service contributors.

27. Corporate Luxury Goods.—The Commission next codifies the prohibition on recovery from the high-cost program of expenses for corporate luxury goods, including artwork and other objects which possess aesthetic value, and corporate aircraft, watercraft, and other vehicles, with limited exception discussed below and codify the existing prohibitions on using high-cost support for tangible luxury goods, including consumer electronics for personal use, and tangible property used for entertainment purposes. None of these goods is used only for the provision, maintenance, and upgrading of facilities and services for which high-cost support is intended. Likewise, kitchen appliances are unrecoverable with a limited exception noted below.

28. No commenter argues that artwork is used only for the provision, maintenance, or upgrading of facilities; instead commenters claim that artwork creates a pleasant work environment. While this may be the case, it is irrelevant to the question of whether such expenses meet the statutory standard. Because artwork is not used for the provision, maintenance, and upgrading of supported facilities and services, expenses for artwork must be excluded from high-cost support.

29. Corporate aircraft, boats, and other off-road vehicles to the extent used by executives or board members are more akin to luxuries for personal benefit and not used for provision, maintenance, and upgrading of supported facilities and services. The Commission's proposed rule in the Rate-of-Return Reform FNPRM did make allowances “insofar as necessary to access inhabited portions of the study area not reachable by motor vehicles traveling on roads.” Commenters supported this exception and opposed a blanket exclusion of aircraft, watercraft, and the like as contrary to the Commission's objective of reducing waste and promoting efficiency. The Commission is persuaded that the use of aircraft and off-road vehicles often can be the “fastest, safest, most reliable and most efficient and least expensive way for technicians to reach remote areas to install, inspect or repair facilities.” The Commission encourages such efficiencies because they reduce burdens on the Fund and thus reduce universal service fees for subscribers. The Commission cautions ETCs that they may only recover from high-cost support that portion of aircraft, watercraft, and other vehicle expenses used for the provision, maintenance, and upgrading of supported services and facilities, not expenses used for the benefit of corporate executives and board members. Thus, the Commission will closely scrutinize these expenses, and ETCs seeking to recover these costs from high-cost support must retain records of their use in sufficient detail to justify recovery.

30. Consumer electronics for personal use may not be recovered from high-cost support. Consumer electronics such as video games, televisions, and radios designed, marketed, and sold for everyday personal use by consumers, not business use, are analogous to a personal expense or an entertainment expense, both of which are not recoverable from high-cost support. The Commission acknowledges that consumer electronic devices such as laptops, monitors, smart phones, or other hand-held devices may serve valid business purposes. Accordingly, ETCs may only seek high-cost support for that portion of the expense associated with work use, consistent with the Commission's narrow interpretation of section 254(e). The Commission emphasizes that consumer electronics for personal use are never used for the provision, maintenance, and upgrading of facilities and services for which high-cost support is intended.

31. Tangible property used for entertainment purposes (e.g., pool tables) may not be recovered from high-cost support. Commenters argue that property used for entertainment purposes builds morale and improves overall service quality. But, these expenses have no direct nexus to the provision, maintenance, or upgrading of facilities or supported services.

32. Except in narrow circumstances referenced above, kitchen appliances may not be recovered from high-cost support except to the extent provided as part of temporary or seasonal lodging for employees providing supported service in rugged, remote areas as explained above. Commenters argued that kitchen appliances are useful for employees in “fulfillment of their company obligations in rural areas” and “relatively inexpensive and last for years.” The Commission recognizes that kitchen appliances may be a good investment for rural providers, but ultimately the standard is whether the item is used only for the “provision, maintenance, and upgrading of facilities and services for which the support is intended,” and kitchen appliances do not meet this standard, except in the very narrow circumstance described above.

33. Compliance.—Based on the record received in response to the Rate-of-Return Reform FNPRM, the Commission adopts measures to ensure carrier compliance with the permitted expense rules adopted above for universal service support. Specifically, the Commission requires rate-of-return ETCs to identify on their annual FCC Form 481 (Carrier Annual Reporting Data Collection Form) their cost consultants and cost consulting firm, or other third party, if any, used to prepare cost studies, or other calculations used to calculate high-cost support for their submission. Disclosure of an ETC's cost consultants is a low-burden measure that will help the Commission identify waste, fraud, and abuse during audits. As at least one commenter explained, it is common business practice for rate-of-return carriers to hire cost consultants to prepare their financial and operations data disclosures used to justify high-cost support. The Commission agrees with commenters that discrepancies in permitted expenses disclosed on Form 481 prepared by a cost consultant may flow through to other carriers' represented by the same cost consultant. Identifying a carrier's cost consultants and cost consulting firms will help NECA, the Commission, and USAC identify and rectify patterns of noncompliance, and potentially fraud, during audits. This disclosure will ultimately help preserve the integrity of the Fund by ensuring that carriers only recover permitted expenses.

34. The Commission declines at this time, however, to adopt a number of other compliance measures proposed in the Rate-of-Return Reform FNPRM. Specifically, the Commission declines to require a new certification from carriers attesting that they have not included any prohibited expenses in their cost submissions used to calculate high-cost support. Carriers' corporate officers are already required to certify that they are compliant with the Commission's rules. Carriers are also required to certify to the accuracy of their cost studies used to calculate HCLS pursuant to § 69.601(c) and CAF BLS pursuant to § 54.903(a)(3) and (4). The Commission further requires similar certifications for filings with NECA, Tariff Review Plans (TRPs), tariff filings for carriers that elect to receive CAF support, cost studies used to calculate high-cost support submitted to NECA and USAC and high-cost support. For example, willful false statements in data submissions to NECA or USAC are punishable by fine or imprisonment pursuant to U.S. Code, Title 18, Section 1001. Requiring carriers to submit an additional certification would not further encourage compliance but would be needlessly duplicative and burdensome. To the extent a carrier's corporate officer certifies compliance with the Commission's rules, such certification would cover compliance with the eligible expense rules, as amended.

35. The Commission also does not believe it is necessary to alter NECA's role to enforce the rules adopted herein. NECA is an association of LECs established in 1984, at the direction of the Commission, to administer interstate access tariffs for LECs that do not file separate tariffs and to collect and distribute access charge revenues for those companies. NECA administers the process by which average schedule companies submit sampled data and cost companies submit cost studies that are ultimately used to calculate revenue requirements, rate base, and universal service disbursements. Carriers are required to submit certain cost data necessary to calculate high-cost support payments to NECA, certifying that they are accurate to the best of their knowledge, and NECA in turn analyzes that cost data, performs certain calculations and submits that information to USAC for use in determining support payments for eligible carriers. NECA has a responsibility to take reasonable precautions to ensure that the data it uses in preparing interstate access tariff filings and distributing interstate revenue comply with the Commission's rules. The Commission believes that NECA has sufficient authority and operational capability to provide oversight of its members with respect to high-cost support. Rather than expel carriers from the NECA pools as some commenters propose, the Commission encourages NECA to continue its oversight role, which it must do in compliance with the Commission's rules, and subject to Commission review. The Commission directs NECA to work with its members to develop processes to ensure compliance with the eligible expenses rules adopted herein to ensure that universal service support is being used only for its intended purposes. The Commission reminds NECA members that it is their responsibility to ensure that the expenses submitted to and used by NECA to calculate high-cost support are accurate and consistent with the Commission's rules. The Commission has authority to revoke section 214 authorizations based on misconduct, a finding that disqualifies that carrier from participation in the NECA pools.

36. Finally, the Commission declines to adopt a “safe harbor” standard proposed by commenters that would insulate carriers from audit and enforcement liability if a carrier includes prohibited expenses but the “overall impact” is “immaterial.” The only way to determine if excluded expense are immaterial would be to conduct an audit. Moreover, the Commission believes that such an approach would not be in the public interest because it would not encourage strict compliance with the existing and revised permitted expense rules.

37. The Commission reminds carriers that failure to keep Commission-prescribed accounts, records, and memoranda on the books is a violation of section 220(d) of the Act and may subject carriers to forfeiture liability in the amount of $6,000 for each day of the continuance of each such offense. Carriers' employees, executives, and board members may also be subject to personal liability for violations. Carriers' employees, executives, and board members that willfully make any false entry in Commission-prescribed accounts may be subject them to monetary penalties for violations of section 220(e) of the Act will be deemed guilty of a misdemeanor, and shall be subject, upon conviction, to a fine of not less than $1,000 nor more than $5,000 or imprisonment for a term of not less than one year nor more than three years, or both such fine and imprisonment. Furthermore, persons making willful false statements in data submissions to NECA, USAC, or the Commission can be punished by fine or imprisonment under the provisions Title 18, Section 1001, of the U.S. Code.

38. Section 201(b) of the Communications Act requires that only reasonable investments and expenses be recovered through regulated interstate rates—a requirement the Commission has historically enforced through the “used and useful” standard. The Commission amends its rules to provide guidance to legacy rate-of-return LECs regarding investments and expenses that are presumed not used and useful (and thus unreasonable under section 201) and thus, as a general matter, may not be recovered through interstate rates. The Commission divides such investments and expenses into two broad categories: Those that the Commission does not expect would be used and useful in the ordinary course and those the Commission would not expect to be used and useful unless customary for similarly situated companies. The Commission notes that the second category is intended to capture types of expenses that may be customary among small companies (and based on their widespread usage the Commission may consider more likely to be used and useful) but are subject to abuse. For example, a small company may reasonably host a company picnic (to boost the morale of employees operating the interstate telecommunications network), which would be customary for small companies, but might not reasonably host an expensive banquet for employees at an out-of-state venue.

39. The Commission makes clear that its actions are not intended to alter the scope of the used and useful standard—instead only to provide prospective guidance and a default presumption in certain cases. Legacy rate-of-return LECs are free to attempt to rebut the presumption by showing particular factual circumstances justifying recovery of these investments and expenses through interstate rates but cannot recover for such costs absent a particularized showing. To the extent that these investments and expenses are recovered through interstate rates, in the event of an audit or other investigation, the carrier bears the burden of demonstrating that such investments and expenses are used and useful despite the presumption that they are not.

40. Discussion.—Commenters agree that several of the expenses and investments discussed in the Rate-of-Return Reform FNPRM are already excluded from ratemaking, while others argue they should be excluded prospectively. Based on the record, below the Commission discusses the specific categories of investments and expenses that it presumes are not used and useful in the ordinary course and those not used and useful unless customary for similarly situated companies.

41. Personal Expenses.—Personal expenses including vehicles for personal use, and personal travel (such as transportation, lodging and meals) are presumed excluded from recovery through interstate rates. There is broad consensus in the record that personal expenses are not used and useful for the provision of interstate telecommunications services and therefore cannot, and should not, be recovered through interstate rates. Personal expenses are for the benefit of an individual affiliated with the rate-of-return LEC without an articulable business-related purpose and are not necessary or incurred to provide regulated service. Personal expenses are presumed not used and useful in the ordinary course.

42. To the extent a rate-of-return LEC provides its employees, executives or board members, or any other individuals affiliated with the LEC with additional benefits, such as gifts, housing allowances, and childcare that are not part of taxable compensation, the Commission finds that these expenses are presumed not used and useful unless customary for similarly situated companies. As noted by commenters, cash or in-kind bonuses, housing allowances, or childcare may qualify as part of a taxable compensation package—and are subject to a presumption-free review under the used and useful standard. The Commission agrees with commenters that temporary housing offered as part of businesses-related travel lodging or a temporary work assignment may qualify as legitimate business expenses, not a personal expense, and do not warrant the presumption.

43. Personal food and beverage expenses are presumed not used and useful whereas food and beverage expenses for work and work-related travel as well as costs of operating cafeterias and dining facilities are presumed not used and useful unless customary for similarly situated companies. The Commission clarifies that food and beverages purchased during business-related travel are not personal expenses. As noted by commenters, reasonable per diem travel expenses, including food and beverages, are commonly-accepted business expenses. Similarly, food and beverage expenses incurred as part of work-related entertainment such as company parties or picnics are likewise presumed not used and useful unless customary. The Commission's existing rules allow rate-of-return LECs to include expenses incurred operating cafeterias and dining facilities in general and administrative accounts used to calculate interstate rates. At the same time, ratepayers should not be forced to pay for excessive or imprudent expenses unrelated to business purposes or unnecessary to the provision of regulated services.

44. Although commenters disagree on whether entertainment expenses should be recoverable, the Commission finds that entertainment expenses are presumed not used and useful unless customary for similarly situated companies. Entertainment expenses, such as musical entertainment or food and beverage expenses incurred at company parties or picnics, are a common business practice to improve employee morale but are subject to potential abuse.

45. Expenses Unrelated to Operations.—The Commission clarifies that certain expenses unrelated to operations—including political contributions, membership fees and dues in social, service and recreational or athletic clubs and organizations, penalties or fines for statutory or regulatory violations, and penalties or fees for late payments on debt, loans, or other payments—are presumed not used and useful. As several commenters note, most of these nonoperating expenses are currently presumed to be excluded from the cost of service in setting rates. The record supports the continued presumption that these expenses are excluded from recovery through interstate rates.

46. Although penalties or fees for late payments on debt, loans, or other payments have typically not been recovered through ratemaking, as noted by commenters, the Commission's rules do not contain an explicit prohibition. The Commission fails to see how these expenses can be distinguished from penalties or fines for statutory or regulatory violations which are currently presumed excluded from ratemaking. All of these expenses are imprudent—incurred when a carrier fails to adequately manage its business and operations. Ratepayers should not pay for expenses incurred due to irresponsible business practices. Accordingly, the Commission finds that penalties or fees for any late payments on debt, loans, or other payments are presumed not used and useful (and thus unreasonable).

47. Under the Commission's current rules, membership fees and dues in social, service and recreational, or athletic clubs and organizations are presumed not used and useful and must be excluded from recovery via interstate rates. The Commission declines at this time to expand the scope of excluded fees and dues to cover additional types of fees, such as memberships in professional organizations and associations. As some commenters have argued, there is utility to customary memberships in professional organizations such as trade associations, chambers of commerce, and bar associations. As a result, membership fees and dues associated with professional organizations, unless customary for similarly situated companies, are presumed not used and useful.

48. The Commission clarifies that other expenses unrelated to operations—including charitable donations, scholarships, sponsorships of conferences or community events—raise the potential for abuse and thus are presumed not used and useful unless customary for similarly situated companies. As commenters note, there appears to be a conflict in the Commission's rules regarding the treatment of charitable donations for ratemaking purposes. The Commission clarifies here, consistent with the justification provided in the 1987 Rate Base Order, 53 FR 1027, January 15, 1988, that the Commission's rules allow recovery of reasonable charitable donations through the interstate revenue requirement. The Commission agrees with commenters that reasonable charitable donations may to be appropriate to support the community in which it operates as a cost of doing business and part of “good corporate citizenship.” For similar reasons as charitable donations, the Commission finds that scholarships and sponsorships of conferences or community events likewise serve an important role in the community.

49. Corporate Luxury Goods.—Although some corporate luxury goods are in fact customary, as a category it is subject to potential abuse. As such, expenses associated with corporate luxury goods—specifically corporate aircraft, watercraft, and other off-road vehicles used for work and work-related purposes, as well as artwork and other objects which possess aesthetic value that are displayed in the workplace—are presumed not used and useful (and thus unreasonable) unless customary for similarly situated companies. In the Rate-of-Return Reform FNPRM, the Commission proposed to allow recovery for corporate aircraft, watercraft, and other vehicles “insofar as necessary to access inhabited portions of the study area not reachable by motor vehicles traveling on roads.” Commenters support this proposal, asserting that a blanket ban is contrary to the Commission's objective of reducing waste and promoting efficiency. The Commission agrees that the use of aircraft and off-road vehicles can be the “fastest, safest, most reliable and most efficient and least expensive way for technicians to reach remote areas to install, inspect or repair facilities.” However, to avoid the risk of abuse, the Commission presumes that even vehicles used for work and work-related purposes are not used and useful unless customary for similarly situated companies. Based on the record, the Commission fully expects that carriers using such vehicles to access areas not seasonably reachable by road travel will be able to overcome the presumption, so long as they limit the use of aircraft, watercraft and off-road vehicles to work and work-related purposes. The Commission acknowledges that office artwork is a common business expense and should not place excessive burdens on ratepayers. Accordingly, expenses associated with artwork and other objects which possess aesthetic value that are displayed in the workplace are presumed not used and useful unless customary for similarly situated companies.

50. The Rate-of-Return Reform FNPRM also proposed to prohibit recovery from interstate support “expenses for tangible property not logically related or necessary to offering voice or broadband service.” Such expenses include, for example, recreational equipment and consumer electronics not used for work purposes. These expenses are not used in the ordinary course for providing interstate telecommunications services, and so the Commission will presume them not used and useful (and thus unreasonable). Further, the Commission's rules provide that rate-of-return LECs may not recover investments and expenses unless “recognized by the Commission as necessary to the provision” of interstate telecommunications services. The Commission notes that, by definition, tangible property not logically related or necessary to offering voice or broadband service is not necessary or incurred to provide regulated interstate telecommunications service.

51. Also in the Report and Order, the Commission directs the Bureau to offer additional Alternative Connect America Cost Model (A-CAM) support up to $146.10 per-location to all carriers that accepted the revised offers of model-based support. Under the revised offer, all locations with costs above $52.50 per location will be funded up to a per-location funding cap of $146.10, and the Bureau should adjust deployment obligations accordingly. If all eligible carriers accept this offer, the Commission anticipates that it would result in approximately $36.5 million more support per year for the 10-year A-CAM term. Increasing support immediately will result in additional broadband deployment, while balancing budgetary constraints pending the outcome of this proceeding. This increase in support does not impact legacy support.

52. There is ample support in the record from carriers and state government officials, as well as from members of Congress, for increasing the budget for A-CAM. With additional funding, these parties have made clear the economic, educational, and healthcare benefits that will directly follow. The Commission's action today addresses these requests by extending a revised offer at $146.10, the same maximum per-location support amount as the Commission offered to price cap carriers for the Phase II offer of model-based support and as the Commission has proposed for the maximum reserve price in the Phase II auction. By raising the per-location cap to a uniform $146.10 for all current A-CAM recipients, the Commission could increase by more than 17,700 the number of locations that will receive 25/3 Mbps over the course of the support term, with another 14,000 locations receiving 10/1 Mbps. Although the Commission declines to extend the per-location funding cap to $200 at this time, the Commission seeks comment on doing so in the concurrently adopted NPRM, along with potential increases to the overall budget.

53. The Commission directs the Bureau to release a public notice announcing the revised model-based support amounts and corresponding deployment obligations, and providing carriers with 45 days to confirm that they are will accept the revised offer. Any such election shall be irrevocable. In order to true up support that would have been disbursed in 2017 at the $146.10 per-location cap support amounts, the Commission directs USAC to make a one-time lump sum payment from excess cash in its high-cost account. USAC shall disburse that support the month following a Bureau public notice authorizing those carriers that accept this revised offer. The Commission further directs USAC to collect additional funds going forward to cover the increase in A-CAM support for the remainder of the support term.

54. Finally, in the Report and Order, pursuant to § 54.709(a)(3) of the Commission's rules, the Commission directs USAC to continue forecasting a quarterly amount of high-cost demand at no less than one quarter of $4.5 billion until further Commission action, such as addressing the issues raised in the concurrently adopted NPRM. The concerns raised by the Commission in 2011 regarding support fluctuations resulting from implementation of the CAF remain true today. The Commission expects that there will continue to be shifts in support levels as the Commission transitions to paying winners of both upcoming universal service auctions (CAF Phase II and Mobility Fund II) while phasing down payments to current ETCs receiving frozen support amounts. At this time, the Commission cannot predict how those transitions will impact the overall CAF budget but will have a better sense of the impacts after the outcome of the auctions. It is in the public interest to collect a uniform amount to minimize unpredictable fluctuations in consumers' bills by allowing USAC to build up some excess cash to cover transitions without causing a dramatic shift in the quarterly contribution factor. Moreover, the Commission seeks comment in the concurrently adopted NPRM on whether to make certain adjustments to the rate-of-return support mechanisms, and building up excess cash leading up to an order on those decisions could lessen later increases to the contribution factor.

55. USAC forecasted contributions based on an estimated demand of $1.06 billion for the first quarter of 2018, given that USAC's directive to collect $1.125 billion ended in 2017. To collect at least $4.5 billion for 2018, the Commission directs USAC to project for each of the final quarters of 2018 a total high-cost demand of at least $1.125 billion plus the difference between what it has already projected in 2018 based only on demand and the amount it would have collected had the Commission's prior direction continued into 2018, equally spread out over the final quarters. USAC shall place those excess funds in its high-cost account, pending further Commission decisions. USAC shall not take those excess funds into account when forecasting demand for 2018. If high-cost quarterly demand actually exceeds $1.125 billion plus the additional amount, no additional funds will accumulate in the high-cost cash account for that quarter and excess cash will be used to constrain the high-cost demand in the contribution factor. In other words, by the end of 2018, absent further direction by the Commission, USAC will have collected at least $4.5 billion for the deployment of broadband networks in high-cost areas. The Commission anticipates that it will take action on the concurrently adopted NPRM prior to the end of 2018 and will issue additional guidance to USAC at that time.

56. On May 25, 2016, five petitions were filed requesting that the Commission reconsider or clarify various aspects of the Rate-of-Return Reform Order. In April 2017, the Commission adopted an Order on Reconsideration, 82 FR 22901, May 19, 2017, in which it amended the capital investment allowance (CIA) rule limiting support for new construction projects with high average capital expenses. In a Second Order on Reconsideration and Clarification, 83 FR 14185, April 3, 2018, the Commission addressed the surrogate method for estimating consumer broadband-only loops (CBOLs) and the Access Recovery Charge imputation rule. In this Third Order on Reconsideration, the Commission addresses certain additional issues petitioners raised, including the mitigation of the budget control mechanism from July 2017 to June 2018; the addition of an inflation factor to calculate the operating expenses limitation; inclusion of broadband-only loops in calculating each carrier's corporate operations expense limitation; treatment of transferred exchanges; streamlined waivers; and the effect of the first A-CAM election on current budget for legacy rate-of-return carriers.

57. Discussion.—To address the concerns raised by NTCA-The Rural Broadband Association (NTCA), the Commission grants its petition in part and eliminate the effect of the budget control mechanism for the period current budget year (from July 2017 to June 2018).

58. During this budget year, the support claims of legacy rate-of-return carriers have been reduced by approximately $180 million due to application of the budget control mechanism—a 13 percent reduction in support. Moreover, the reductions in support are not evenly distributed among states or carriers. For example, carriers in Virginia are subject to an average 17 percent reduction in support while carriers in New Mexico have their support reduced overall by only 9 percent. Similarly, carriers within each state may be subject to drastically different reductions. In Iowa, one carrier has its support reduced by 17 percent while another carrier's support is only reduced by 8 percent. In Texas, carrier reductions range from 8 percent to 16 percent.

59. NTCA claims these legacy support reductions, which are even greater than it predicted, endanger legacy carriers' ability to offer service at reasonably comparable rates, and could result in rural consumers paying “tens of dollars (or even hundreds of dollars) more per month than urban consumers for standalone broadband.” That claim has been borne out in fact: Based on FCC Form 481 data, 27 eligible telecommunications carriers could not certify to meeting the broadband reasonable comparability benchmark.

60. Several parties support NTCA's assertions regarding the insufficient budget for legacy carriers as enforced through the budget control mechanism. GVNW states that the Commission should revisit the budget “to ensure sufficient support so that rural consumers may pay affordable rates.” The National Tribal Telecommunications Association also argues that “inadequate funding is leading to unreasonably comparable rates between rural Tribal areas and the urban areas of the United States,” and that the Commission “must act soon to provide the support necessary to ensure broadband capable facilities are deployed in these areas that allow for services being provided at affordable rates.” ITTA “shares the concerns expressed by NTCA . . . regarding the insufficiency” of the budget. The WTA-Advocates for Rural Broadband (WTA) Petition for Reconsideration of the Rate-of-Return Reform Order similarly asserts that the budget control mechanism is contributing to rates that are not reasonably comparable to urban areas.

61. The Commission agrees with these concerns and find here that it is in the public interest to grant in part NTCA's petition for reconsideration. Specifically, the Commission reconsiders implementation of the budget control mechanism affecting claims from July 2017 to June 2018 by fully funding carrier claims during that period—such large and variable reductions in support have made support not sufficiently “predictable” for affected rate-of-return carriers to engage in the long-term planning for the high-speed broadband deployment needed in rural America. The Commission directs USAC, working with the Bureau, to determine an efficient methodology to calculate the amounts withheld as a result of the budget control mechanism and make payments to fully fund support claims to the affected carriers in a lump sum payment in the second full quarter after the effective date of this Third Order on Reconsideration, drawing first upon funds available in USAC's reserve account.

62. Nonetheless, the Commission disagrees with NTCA's suggestion that it should go farther immediately and instead initiate a budget review to determine whether the current level of support is sufficient and predictable enough for carriers serving rural areas to provide service at rates comparable to those in urban areas. The Commission also seeks comment on how it can encourage more efficient use of carrier support and modify the budget control mechanism to provide more predictable support.

63. Discussion.—The Commission grants NTCA's request regarding the opex limitation. The Commission recognizes that the opex limitation, which does not account for inflation, may constrain support for rising costs, potentially diminishing carriers' ability to maintain and support their networks, thereby potentially reducing service quality, and in turn harming consumers. The Commission therefore reconsiders how the opex limitation is calculated to include the inflationary adjustment factor GDP-CPI. The GDP-CPI is the same adjustment factor proposed by industry and that the Commission uses for the Rural Growth Factor (RGF). Using this adjustment factor will alleviate any harm caused by inflation in application of the opex limitation. Moreover, using the same series for both the opex adjustment and the RGF will reduce confusion and facilitate administrative efficiency. This inflation adjustment will be applicable for five years. Thereafter, the Commission anticipates that it may revisit the inflation adjustment to assess whether it accurately reflects carriers' experienced changes in costs and if it remains necessary to protect carriers from inflation-driven cost increases.

64. The Commission directs NECA to calculate each carrier's opex limitation for the following calendar year by multiplying the inflation adjustment factor used in the RGF, as described in its annual September 30 filing, by the carrier's opex limitation for the current year. For example, if the inflation adjustment in NECA's September 30, 2018 annual filing is 2 percent, then each carrier's opex limit for 2019 will be calculated by multiplying its 2018 opex limit by 1.02. Adjusting the opex limitation on this schedule will provide sufficient notice for carriers in preparing their budgets for the upcoming calendar year.

65. The inflation adjustments will be implemented beginning with expenses incurred in 2017. It would be administratively burdensome to apply the inflation adjustment to 2016 expenses because NECA has already made its annual filing setting 2018 HCLS amounts based on 2016 expenses. Therefore, the Commission will include in the 2017 opex limitation a compounded inflation adjustment so as to account for the effects of inflation for 2016 expenses. Specifically, the inflation adjustment will be implemented as follows.

66. On reconsideration, as requested by NTCA, the Commission amends § 54.1308(a)(4) of the Commission's rules to include CBOLs in the calculation of each carrier's corporate operations expense limitation. The rule operates by creating a limit on total corporate operations expenses based on the number of lines, and then apportioning those costs among common line and other cost categories. The Commission did not amend this rule in the Rate-of-Return Reform Order, and the rule currently includes only common line (voice and voice-broadband) loops in the calculation. As a result, NTCA argues that the rule now sets an inappropriately low limit on the corporate operations expenses for carriers with broadband-only lines. In an extreme case, a carrier with customers that exclusively have chosen to subscribe through broadband-only lines would not be eligible to recover any of its corporate operations expenses. The Commission concurs and amends the rule accordingly to allow broadband-only loops, as well as voice and voice-broadband loops, in the corporate operations expense limitation calculations. The Commission expects that this action will provide parity for carriers with broadband-only lines and create incentives for broadband deployment.

67. At the request of WTA, the Commission clarifies the treatment of transferred exchanges under the rules adopted in the Rate-of-Return Reform Order.

68. Specifically, the Commission first clarifies that when any entity that is not a rate-of-return carrier (including a price cap carrier, competitive local exchange carrier, interexchange carrier, or non-carrier entity) acquires exchanges from a rate-of-return carrier, § 54.902(c) applies. This means that, “absent further action by the Commission, the carrier will receive model-based support.” The Commission notes that the language about which WTA raises its specific question—“entity other than a rate-of-return carrier”—is retained from the prior ICLS rule. Given that CAF BLS is predicated on rate-of-return regulation, there does not appear to be any basis for automatically providing CAF BLS to an entity that is not a rate-of-return carrier. The rule expressly contemplates that the Commission may consider alternatives on a case-by-case basis, but provides a default mechanism whereby the acquiring entity becomes subject to the Connect America Model support and obligations. WTA suggests that this result does not appear to be the intent of the Rate-of-Return Reform Order but provides no support for this assertion.

69. Second, the Commission clarifies, as requested by WTA, that the term “exchanges” in § 54.902 does not apply to entire study areas, but instead to areas smaller than a complete study area. This approach is consistent with how the Commission has previously treated transfers of control, as well as § 54.305 (the “parent trap rule”) and study area waivers. The Commission notes that the sale of a complete study area does not necessarily present the same potential for manipulating universal service support as the sale of exchanges because support is calculated on a study area basis. The transfer of exchanges or other parts of a study area, on the other hand, likely would affect the amount of universal service support for which a study area would qualify under its rules. The Commission is concerned that transfers of exchanges could be structured in order to maximize and increase high-cost support and could put additional pressure on scarce high-cost resources.

70. Next, the Commission declines to eliminate § 54.305 as proposed by Madison Telephone Company (Madison Telephone). Madison Telephone argues that the parent trap rule is no longer necessary because § 54.902 is sufficient to address the consequences to high-cost universal service support resulting from transfers of exchanges. The Commission disagrees. Section 54.902, entitled “Calculation of CAF BLS Support for transferred exchanges,” does not apply to HCLS. Without § 54.305, therefore, there is no constraint on increases to HCLS resulting from the strategic transfer of portions of study areas. Further, the Commission is not persuaded by Madison Telephone's arguments that the parent trap rule should be eliminated because only a relatively small number of carriers are currently subject to the rule. Currently, 28 carriers are subject to the parent trap rule. Madison Telephone's argument fails to address the fact that the absolute number of carriers subject to the rule is not an adequate measure of the potential financial effects to universal service posed by the elimination of the parent trap rule. Madison Telephone does not, for example, estimate the amount of additional support that affected carriers would receive if the parent trap rule were eliminated. The Commission further notes that the Commission relied on the applicability of § 54.305 as a constraint on universal service support in granting study area waivers to many of the carriers currently subject to the parent trap rule. Eliminating the parent trap rule without further analysis of the consequences would undermine the rationale for granting those waivers.

71. The Commission is also not persuaded by Madison Telephone's argument that the build-out requirements of the Rate-of-Return Reform Order necessitate the provision of additional support to carriers currently subject to the parent trap rule. Each carrier's build-out obligations have been determined based on the amount of support a carrier was forecasted to receive, which takes into account the effect of the parent trap rule. Therefore, the Commission expects that eliminating the parent trap rule would increase the build-out obligations for those carriers, rather than provide additional support to achieve the same obligations. Finally, the Commission rejects Madison Telephone's argument that the complications of the parent trap rule perpetuate a disincentive to further consolidation among rate-of-return carriers. Although the Commission agrees that rate-of-return carriers should have appropriate incentives for further consolidation, the Commission must have adequate safeguards to protect the Fund from transfers of exchanges that result in excessive increases in high-cost support. As described above, the Commission disagrees that there would be adequate safeguards if the Commission eliminates the parent trap rule and find that it continues to serve an important purpose.

72. In general, the rules governing the transfer of exchanges are intended to prevent an increase in high-cost universal service, driven by a change in the area over which costs are averaged, without a Commission finding that such an increase would be in the public interest. Although budget constraints now prevent the Fund's total size from increasing as the result of transactions, increases in universal service awarded to one carrier result in decreases in support to other carriers. Therefore, the Commission must carefully review new or additional demands on resources to ensure that the overall effect is in the public interest. Although the Commission may consider a systematic review of the rules governing transfers of exchanges in light of the recent reforms, it does not believe that the current petitions are the appropriate means by which to do so.

73. The Commission also addresses two requests, one from NTCA and the other from WTA, related to streamlining waivers. NTCA's petition for reconsideration, in part, asks the Commission to clarify (or to the extent necessary, reconsider) the circumstances in which a “streamlined waiver” process may be used, whereby an “engineer-certified estimate of construction costs could be substituted for the CIA-estimated investment allowance. Specifically, NTCA argues that a streamlined process should be permitted for circumstances beyond the narrow instance of compliance with defined buildout obligations.” For example, NTCA states that, “a RLEC may be unable to obtain financing to perform any buildout—whether tied to a specific obligation or otherwise intended to advance broadband—unless it can obtain such a waiver.” NTCA also notes that “timing considerations with respect to buildout and hiring of contractors, especially in certain locales where build seasons are shorter, may drive the need for a waiver.”

74. First, the Commission clarifies that it did not adopt a “streamlined waiver” process in the Rate-of-Return Reform Order. Although the Commission noted that several commenters argued a streamlined waiver process was needed “to ensure that carriers can seek a waiver if it needs to make investments greater than those allowed by the capital budget limitation to provide broadband to the carrier's customers,” the Commission determined that any carrier could file a waiver under the Commission's existing rules. The Commission then explained what would enable “expeditious” treatment of a waiver and further stated that “carriers who cannot meet their deployment obligation even by expending the full amount of their TALPI [Total Allowed Loop Plant Investment] allowance should submit information regarding the costs expected to be incurred to meet the deployment obligation certified by an engineer licensed in the state(s) in which the construction will take place.” The Commission noted that this information would assist the Commission in reviewing a waiver request expeditiously.

75. Second, the Commission clarifies that in assessing whether “good cause” exists to grant a request for waiver of the CIA, the Commission is likely to view as highly relevant cost estimate information certified by an engineer licensed in the state where the construction will take place. The Commission anticipates that certification will help ensure that any cost estimates are reasonably accurate and objective. The Commission further clarifies that it will review any waiver petitions of the CIA on a case-by-case basis, and carriers should submit all relevant information, certified appropriately, to justify the relief requested to help expedite the review process.

76. WTA asks the Commission to address the “extremely likely” situation of material/labor shortages and corresponding price increases by adopting a rule that allows rate-of-return carriers receiving CAF BLS to “request and obtain via a streamlined process a reduction of their applicable build-out requirements if they can show that their cost per location has increased by thirty percent (30.0%) or more above the cost per location used to compute their initial buildout requirement.” WTA further requests a streamlined waiver process for all CAF BLS and A-CAM carriers to “extend their deadlines for meeting interim and/or ultimate build-out requirements if they can show that they had made bona fide attempts to obtain the requisite pre-construction approvals, fiber optic cable and/or contractor arrangements, and had been unsuccessful in doing so for reasons significantly outside their control.”

77. The Commission denies WTA's request. The Commission finds that the situations for which WTA requests streamlined waivers must each be considered individually and that there is an existing process by which to seek relief. As stated above and in the Rate-of-Return Reform Order, any carrier may file a waiver under existing rules to address the specific hardships that it faces. Carriers should submit all relevant information, certified appropriately, to justify the relief requested to help expedite the review process, and the Commission will evaluate the circumstances on a case-by-case basis. The Commission further notes that WTA does not provide a concrete proposal for how a streamlined waiver process would work. For instance, it is not clear whether after a specific period of time the waiver would be deemed granted; or whether a request to reduce the number of locations by a third or extend a deadline by two years would qualify for streamlined treatment. Given the availability of an existing mechanism to address WTA's concerns, and its lack of a specific proposal, the Commission concludes that WTA's request lacks merit and is thereby denied. The Commission reminds carriers that detailed petitions for waiver, substantiated by data (and certified appropriately) will help to facilitate expeditious review.

78. The Commission dismisses as moot NTCA's request regarding the budgetary impact in cases where a carrier that initially elected to receive model support in 2016 subsequently declined the revised offer. In the Rate-of-Return Reform Order, the Commission decided how the budget for the first offer of A-CAM support would be determined if carriers that initially elected to receive model support subsequently declined to accept a revised second offer. Specifically, the Rate-of-Return Reform Order provided that “[i]f the carrier received more support from the legacy mechanisms in 2015 than it was offered by the final model run, the overall budget for all carriers that receive support though the rate-of-return mechanisms (HCLS and reformed ICLS) will be reduced by the difference between the carrier's 2015 legacy support amount and the final amount of model support offered to that carrier.”

79. NTCA seeks clarification of whether this statement means that the difference reduces that carrier's own support, or whether it reduces the overall budget for carriers remaining on legacy support. To the extent the Commission intended to reduce the overall budget, NTCA seeks reconsideration of this decision. NTCA is concerned that such an approach could dramatically reduce the budget for carriers remaining on legacy support and undermine their ability to offer voice and broadband service at reasonably comparable rates. Similarly, Custer Telephone Cooperative et al. seeks clarification, or reconsideration, regarding the reduction of support available to carriers remaining on legacy support mechanisms.

80. In the A-CAM Revised Offer Order, 82 FR 4275, January 13, 2017, the Commission concluded that its approach to revising the first A-CAM offers largely addressed the concerns raised by NTCA because the Commission did not change the support amounts for those carriers for which the offer of model-based support was less than the legacy support. The 35 such carriers that accepted the initial offer contributed to the overall A-CAM budget and were authorized by the Bureau to receive support because their support was unchanged and their initial elections were irrevocable. When the Bureau extended revised offers to the remaining carriers that accepted the initial offer, it resulted in only 18 instances in which the carrier was offered a revised amount that was less than the legacy support received in 2015. Because the net decrease in legacy support for this group of carriers was only approximately $4.2 million, the Commission determined that the difference was only a de minimis amount in the context of the overall rate-of-return budget. Therefore, the potential harm identified by the parties in their petitions for clarifications or reconsideration of this issue—“to ensure that non-model carriers and their consumers will not be harmed by the decisions of RLECs that choose to `jump in and out' of the model election process”—did not come to pass. Accordingly, the Commission dismisses as moot those portions of these requests.

81. The Report and Order adopted herein contains new or modified information collection requirements subject to the Paperwork Reduction Act of 1995 (PRA), Public Law 104-13. It will be submitted to the Office of Management and Budget (OMB) for review under section 3507(d) of the PRA. OMB, the general public, and other Federal agencies will be invited to comment on the new or modified information collection requirements contained in this proceeding. In addition, the Commission notes that pursuant to the Small Business Paperwork Relief Act of 2002, Public Law 107-198, see 44 U.S.C. 3506(c)(4), it previously sought specific comment on how the Commission might further reduce the information collection burden for small business concerns with fewer than 25 employees. In this present document, the Commission has assessed the effects of the new and modified rules that might impose information collection burdens on small business concerns, and find that they either will not have a significant economic impact on a substantial number of small entities or will have a minimal economic impact on a substantial number of small entities.

82. The Commission will send a copy of the Report and Order, Third Order on Reconsideration and Notice of Proposed Rulemaking to Congress and the Government Accountability Office pursuant to the Congressional Review Act, see 5 U.S.C. 801(a)(1)(A).

83. As required by the Regulatory Flexibility Act of 1980 (RFA), as amended, Initial Regulatory Flexibility Analyses (IRFAs) were incorporated in the Report and Order, Order, and Order on Reconsideration, and Further Notice of Proposed Rulemaking (Rate-of-Return Reform Order and Further NPRM). The Commission sought written public comment on the proposals in the Rate-of-Return Reform Order and Further NPRM, including comment on the IRFA. The Commission did not receive comments on the Rate-of-Return Reform Order and FNPRM IRFA. This present Final Regulatory Flexibility Analysis (FRFA) conforms to the RFA.

84. In the Report and Order, the Commission adopts reforms to ensure that high-cost universal service support provided to eligible telecommunications carriers (ETCs) is used only for the provision, maintenance, and upgrading of facilities and services for which the high-cost support is intended. Specifically, this Report and Order addresses whether specific expenses are eligible for recovery from federal high-cost support pursuant to section 254(e) of the Act.

85. The Commission also adopts measures to ensure carrier compliance with the permitted expense rules adopted above for high-cost support. The Commission requires rate-of-return ETCs to identify on their annual FCC Form 481 (Carrier Annual Reporting Data Collection Form) their cost consultants and cost consulting firm, or other third party, if any, used to prepare cost studies, or other calculations used to calculate high-cost support for their submission. Disclosure of such parties is a low-burden measure that will help the Commission identify waste, fraud, and abuse during audits. Identifying such parties will help the Commission and USAC identify and rectify patterns of noncompliance, and potentially fraud, during audits. This will ultimately help preserve the integrity of the Universal Service Fund by ensuring that carriers use high-cost support only for the provision, maintenance, and upgrading of facilities and services for which the high-cost support is intended.

86. In the Report and Order, the Commission further amends the rules to provide guidance to legacy rate-of-return LECs regarding investments and expenses that are presumed not used and useful (and thus unreasonable under section 201 of the Communications Act) and thus, as a general matter, may not be recovered through interstate rates. The Commission divides such investments and expenses into two broad categories: Those that it does not expect would be used and useful in the ordinary course and those it would not expect to be used and useful unless customary for similarly situated companies.

87. The Report and Order also addresses two matters for which Final Regulatory Flexibility Analysis is unnecessary.

88. First, the Report and Order provides additional support to fund model-based deployment. In the April 2014 Connect America FNPRM, 79 FR 39196, July 9, 2014, the Commission proposed a framework for a voluntary election by rate-of-return carriers to receive model-based support and tentatively concluded that such a framework could achieve important universal service benefits by creating incentives for deployment of voice and broadband-capable infrastructure. The Commission sought written comment on the proposal, including comment on the Initial Regulatory Flexibility Analysis (IRFA). The Commission did not receive any comments on the April 2014 Connect America FNPRM IRFA. In the Rate-of-Return Reform Order, the Commission adopted a voluntary path under which rate-of-return carriers may elect to receive model-based support for a term of 10 years in exchange for meeting defined build-out obligations. The Commission issued a Final Regulatory Flexibility Analysis (FRFA) that conforms to the Regulatory Flexibility Act of 1980 (RFA), as amended. This present Report and Order further implements the framework previously adopted by the Commission. Therefore, the Commission certifies that it will not have a significant economic impact on a substantial number of small entities.

89. Second, the Report and Order directs USAC to continue the practice of uniform quarterly collections. The Commission's directive to USAC to continue uniform quarterly collection is not a rule subject to notice-and-comment rulemaking and therefore no Regulatory Flexibility Analysis is required. Further, the Commission notes that is only applicable to USAC and will not have a significant economic impact on a substantial number of small entities.

90. The RFA directs agencies to provide a description of, and where feasible, an estimate of the number of small entities that may be affected by the proposed rules, if adopted. The RFA generally defines the term “small entity” as having the same meaning as the terms “small business,” “small organization,” and “small governmental jurisdiction.” In addition, the term “small business” has the same meaning as the term “small-business concern” under the Small Business Act. A small-business concern” is one which: (1) Is independently owned and operated; (2) is not dominant in its field of operation; and (3) satisfies any additional criteria established by the Small Business Administration (SBA).

91. The Commission's actions, over time, may affect small entities that are not easily categorized at present. The Commission therefore describes here, at the outset, three broad groups of small entities that could be directly affected herein. First, while there are industry specific size standards for small businesses that are used in the regulatory flexibility analysis, according to data from the SBA's Office of Advocacy, in general a small business is an independent business having fewer than 500 employees. These types of small businesses represent 99.9% of all businesses in the United States which translates to 28.8 million businesses.

92. Next, the type of small entity described as a “small organization” is generally “any not-for-profit enterprise which is independently owned and operated and is not dominant in its field.” Nationwide, as of Aug. 2016, there were approximately 356,494 small organizations based on registration and tax data filed by nonprofits with the Internal Revenue Service (IRS).

93. Finally, the small entity described as a “small governmental jurisdiction” is defined generally as “governments of cities, counties, towns, townships, villages, school districts, or special districts, with a population of less than fifty thousand.” U.S. Census Bureau data from the 2012 Census of Governments indicates that there were 90,056 local governmental jurisdictions consisting of general purpose governments and special purpose governments in the United States. Of this number there were 37,132 General purpose governments (county, municipal and town or township) with populations of less than 50,000 and 12,184 Special purpose governments (independent school districts and special districts) with populations of less than 50,000. The 2012 U.S. Census Bureau data for most types of governments in the local government category shows that the majority of these governments have populations of less than 50,000. Based on this data the Commission estimates that at least 49,316 local government jurisdictions fall in the category of “small governmental jurisdictions.”

94. In the Report and Order, the Commission codifies a list of ineligible expenses and expense categories the Commission previously identified as ineligible for high-cost support, and it provides guidance going-forward on the eligibility of expenses on which the Commission sought comment in the Rate-of-Return Reform Order and FNPRM. The revised rules adopted herein provide more specificity and certainty to ETCs and do not impose any additional recordkeeping requirements. Additionally, the Commission requires all rate-of-return ETCs to identify on their annual FCC Form 481 (Carrier Annual Reporting Data Collection Form) their cost consultants and cost consulting firm, or other third party, if any, used to prepare cost studies, or other calculations used to calculate high-cost support for their submission. The Commission expects this reporting obligation to have a minimal impact.

95. The Report and Order amends the rules to provide guidance to legacy rate-of-return LECs regarding investments and expenses that are presumed not used and useful and thus, as a general matter, may not be recovered through interstate rates. Such investments and expenses are divided into two broad categories: Those that the Commission does not expect would be used and useful in the ordinary course and those it would not expect to be used and useful unless customary for similarly situated companies. These changes do not impact reporting obligations, and are necessary to ensure that recovery of these investments and expenses via interstate rates is consistent with section 201(b) of the Act.

96. The RFA requires an agency to describe any significant alternatives that it has considered in reaching its proposed approach, which may include (among others) the following four alternatives: (1) The establishment of differing compliance or reporting requirements or timetables that take into account the resources available to small entities; (2) the clarification, consolidation, or simplification of compliance or reporting requirements under the rule for small entities; (3) the use of performance, rather than design, standards; and (4) an exemption from coverage of the rule, or any part thereof, for small entities. The Commission has considered all of these factors subsequent to receiving substantive comments from the public and potentially affected entities. The Commission has considered the economic impact on small entities, as identified in comments filed in response to Rate-of-Return Reform Order and FNRPM and IRFA, in reaching its final conclusions and taking action in this proceeding.

97. The rules that the Commission adopts in the Report and Order provide greater certainty to rate-of-return carriers, many of which are small entities. The Commission codifies a simple, clear, and carefully defined list of categories of expenses that are precluded from recovery via the universal service fund. The Commission incorporates expenses categories previously identified as ineligible for high-cost support, High-Cost Oct. 19, 2015 Public Notice and in the Rate-of-Return Reform FNPRM and the Commission provides guidance going-forward on the eligibility of expenses on which the Commission sought comment in the Rate-of-Return Reform FNPRM. Providing a clear list of expenses that are not reimbursable will ensure that more resources are available in the universal service fund. Although the Commission provides guidance going-forward on the eligibility of expenses on which the Commission sought comment, such guidance should have only a minimal impact on small entities.

98. Similarly, the Commission provides greater certainty to legacy rate-of-return carriers by codifying a list of investments and expenses that are presumed not used and useful and thus, as a general matter, may not be recovered through interstate rates. This guidance provides more certainty and predictability, while also providing carriers the opportunity to recover these costs via regulated interstate rates if the presumption can be overcome.

99. The Commission also acts to modify its existing reporting requirements. The Commission requires carriers to identify on their annual FCC Form 481 their cost consultants and cost consulting firm, or other third party, used to prepare cost studies or other calculations used to calculate high-cost support for their submission will have a minimal economic impact because small entities already prepare this filing. The Commission revises ETCs' annual reporting requirements to align better those requirements with the Commission's statutory and regulatory objectives. This addition will allow the Commission to identify themes and trends among both rate-of-return carriers and third-party cost consultants and to eliminate waste, fraud, and abuse.

100. The Third Order on Reconsideration above amends rules adopted in the Rate-of-Return Reform Order by (1) implementing, for a five-year period, an inflation adjustment for the operating expense limitation, (2) incorporating broadband-only loops into the corporate operations expense limitation, and (3) reconsiders the application of the budget control mechanism for July 2017 to June 2018. These revisions do not create any burdens, benefits, or requirements that were not addressed by the Final Regulatory Flexibility Analysis attached to the Rate-of-Return Reform Order. Therefore, the Commission certifies that the rule revisions adopted in this Third Order on Reconsideration and Clarification will not have a significant economic impact on a substantial number of small entities.

101. Accordingly, it is ordered that, pursuant to the authority contained in sections 1-4, 5, 201-206, 214, 218-220, 251, 252, 254, 256, 303(r), 332, 403, and 405 of the Communications Act of 1934, as amended, and section 706 of the Telecommunications Act of 1996, 47 U.S.C. 151-155, 201-206, 214, 218-220, 251, 256, 254, 256, 303(r), 403 and 405, this Report and Order, Third Order on Reconsideration is adopted, effective thirty (30) days after publication of the text or summary thereof in the Federal Register, except for those rules and requirements involving Paperwork Reduction Act burdens, which shall become effective immediately upon announcement in the Federal Register of OMB approval. It is the Commission's intention in adopting these rules that if any of the rules that the Commission retains, modifies, or adopts herein, or the application thereof to any person or circumstance, are held to be unlawful, the remaining portions of the rules not deemed unlawful, and the application of such rules to other persons or circumstances, shall remain in effect to the fullest extent permitted by law.

102. It is further ordered that part 54 and 64 of the Commission's rules, 47 CFR part 54 and 64, are amended as set forth in the following, and such rule amendments shall be effective May 31, 2018, except that those rules and requirements which contain new or modified information collection requirements that require approval by the Office of Management and Budget under the Paperwork Reduction Act will become effective after the Commission publishes a document in the Federal Register announcing such approval and the relevant effective date.

103. It is further ordered that, pursuant to the authority contained in section 405 of the Communications Act of 1934, as amended, 47 U.S.C. 405, and §§ 0.331 and 1.429 of the Commission's rules, 47 CFR 0.331 and 47 CFR 1.429, the Petition for Reconsideration filed by NTCA on May 25, 2016 is granted in part and dismissed as moot in part to the extent described herein.

104. It is further ordered that, pursuant to the authority contained in section 405 of the Communications Act of 1934, as amended, 47 U.S.C. 405, and §§ 0.331 and 1.429 of the Commission's rules, 47 CFR 0.331 and 47 CFR 1.429, the Petition for Reconsideration filed by CUSTER TELEPHONE COOPERATIVE, ET AL., on May 25, 2016 is dismissed as moot in part to the extent described herein.

105. It is further ordered that, pursuant to the authority contained in section 405 of the Communications Act of 1934, as amended, 47 U.S.C. 405, and §§ 0.331 and 1.429 of the Commission's rules, 47 CFR 0.331 and 47 CFR 1.429, the Petition for Reconsideration filed by WTA on May 25, 2016 is granted in part and denied in part to the extent described herein.

106. It is further ordered that, pursuant to the authority contained in section 405 of the Communications Act of 1934, as amended, 47 U.S.C. 405, and §§ 0.331 and 1.429 of the Commission's rules, 47 CFR 0.331 and 47 CFR 1.429, the Petition for Reconsideration filed by MADISON TELEPHONE COMPANY on May 25, 2016 is denied.

For the reasons discussed in the preamble, the Federal Communications Commission amends 47 CFR parts 54 and 64 as follows:

The Northeast multispecies (groundfish) sector management system allows us to allocate a portion of available groundfish catch by stock to each sector. Each sector's annual allocations are known as annual catch entitlements (ACE) and are based on the collective fishing history of a sector's members. The ACEs are a portion of a stock's annual catch limit (ACL) available to commercial groundfish vessels. A sector determines how to harvest its ACEs and may decide to limit operations to fewer vessels. Atlantic halibut, windowpane flounder, Atlantic wolffish, and ocean pout are not managed under the sector system, and sectors do not receive allocations of these groundfish species. With the exception of halibut, which has a one-fish per vessel trip limit, possession of these stocks is prohibited.

Because sectors elect to receive an allocation under a quota-based system, the Northeast Multispecies Fishery Management Plan (FMP) grants sector vessels several “universal” exemptions from the FMP's effort controls. The FMP allows sectors to request additional exemptions to increase flexibility and fishing opportunities for consideration and approval by NMFS. Sectors are prohibited from requesting, and NMFS from approving, exemptions from permitting restrictions, gear restrictions designed to minimize habitat impacts, and most reporting requirements.

In addition to the sectors, there are several state-operated permit banks, which receive allocations based on the fishing history of permits that the state holds. The final rule implementing Amendment 17 to the FMP allowed a state-operated permit bank to receive an allocation without needing to comply with sector administrative and procedural requirements (77 FR 16942; March 23, 2012). Instead, permit banks are required to submit a list of permits to us, as specified in the permit bank's Memorandum of Agreement between NMFS and the state. These permits are not active vessels; instead, the allocations associated with the permits may be leased to other sectors. State-operated permit banks contribute to the total allocation under the sector system.

We approved nineteen sectors to operate in fishing years 2017 and 2018, and also approved 21 requested exemptions for sectors (82 FR 19618; April 28, 2017). On November 20, 2017, we withdrew approval of Northeast Fishery Sector IX (NEFS 9) (82 FR 55522; November 22, 2017). This action allocates 2018 ACE to 17 of 19 sectors based on the specifications in Framework Adjustment 57 to the Northeast Multispecies FMP. This action also approves a new regulatory exemption to increase fishing opportunities for monkfish while fishing on a groundfish sector trip.

The 2018 allocations in this rule are based on sector enrollment in fishing year 2018 as determined by preliminary roster submissions. All permits enrolled in a sector, and the vessels associated with those permits, have until April 30, 2018, to withdraw from a sector and fish in the common pool for fishing year 2018. The allocations in this rule are based on the fishing year 2018 specifications in Framework 57 to the FMP. As explained in more detail below, this rule does not allocate 2018 ACE to NEFS 7 or NEFS 9, or make any determinations on their operations plans.

We calculate a sector's allocation for each stock by summing its members' potential sector contributions (PSC) for a stock and then multiplying that total percentage by the available commercial sub-ACL for that stock. Table 1 shows the total PSC by stock for each sector receiving an allocation under this rule for fishing year 2018. Tables 2 and 3 show the allocations for each sector, in pounds and metric tons, respectively, for fishing year 2018, based on their submitted fishing year 2018 rosters. The common pool sub-ACLs are also included in each of these tables. Framework 57 sets the fishing year 2018 common pool sub-ACLs, and are calculated using the PSC of permits not enrolled in sectors. The common pool sub-ACL is managed separately from sectors and does not contribute to available ACE for leasing or harvest by sector vessels, but is shown for comparison.

We do not assign a permit separate PSCs for the Eastern Georges Bank (GB) cod or Eastern GB haddock; instead, we assign each permit a PSC for the GB cod stock and GB haddock stock. Each sector's GB cod and GB haddock allocations are then divided into an Eastern ACE and Western ACE, based on each sector's percentage of the GB cod and GB haddock ACLs. For example, if a sector is allocated 4 percent of the GB cod ACL, the sector is allocated 4 percent of the commercial Eastern U.S./Canada Area GB cod total allowable catch. The Eastern GB haddock allocations are determined in the same way. These amounts are then subtracted from the sector's overall GB cod and haddock allocations to determine its Western GB cod and haddock ACEs. A sector may only harvest its Eastern GB cod and haddock ACEs in the Eastern U.S./Canada Area. A sector may also “convert,” or transfer, its Eastern GB cod or haddock allocation into Western GB allocation and fish that converted ACE outside the Eastern GB area.

All sectors were required to submit preliminary fishing year 2018 sector rosters to us by March 26, 2018. Prior to the start of each fishing year, we review preliminary rosters to determine, among other issues, whether the vessels enrolled in sectors are eligible, whether the sectors have signed contracts from permit holders demonstrating membership, and whether the sector continues to fulfill the “rule of three” requirement, which requires sectors to be composed of permits held by at least three distinct entities. Enrollment of sectors may change each year, but these changes in enrollment are usually minor and require minimal review.

Subsequent to the proposed rule for this action (83 FR 12706; March 23, 2018), there were significant changes in sector enrollment for NEFS 7, NEFS 8, and NEFS 9 for the 2018 fishing year. Sector roster submissions indicated that all permits enrolled in NEFS 7 in fishing year 2017 are leaving the sector for fishing year 2018, with several moving to the common pool and the remainder moving to NEFS 8. Additionally, sector roster submissions indicated that nearly all permits enrolled in NEFS 9 (55 of 60 permits) during fishing year 2017 are enrolling in NEFS 7 for fishing year 2018. Five of these permits are subject to forfeiture as a result of the criminal case against Carlos Rafael. Two permits from NEFS 9 enrolled in NEFS 8. Only three permits remain enrolled in NEFS 9. These changes are especially significant given ongoing efforts to account for misreported catch by NEFS 9 vessels in prior fishing years and resolve other issues that caused withdrawal of approval of the NEFS 9 operations plan. We are also working to resolve whether the five permits subject to forfeiture can be enrolled in a sector given that Mr. Rafael's interest in them has been forfeited to the U.S. Government.

These significant roster changes, including substantive operational and overage payback issues, require further consideration. Therefore, we are delaying a decision regarding allocating 2018 ACE to NEFS 7 or NEFS 9, and this final rule does not include allocations for either sector. Although the proposed rule for this action included allocations for both NEFS 7 and NEFS 9, issuing an allocation to either sector in this rule would be premature until the large-scale changes to sector enrollment and related issues are fully considered and resolved, and we consult with the New England Fishery Management Council. Any allocation to NEFS 7 or NEFS 9, or operations plan approvals, will be completed in a separate rulemaking.

The FMP authorizes us to hold 20 percent of a sector's ACE up to, and through, June 30 to allow time to complete catch accounting and reconcile overages, if necessary. At the start of fishing year 2018, we will withhold 20 percent of NEFS 8's allocation. We are requiring a holdback because two vessels enrolled in NEFS 9 for 2017 have joined NEFS 8 for fishing year 2018, and we are evaluating potential pound-for-pound payback of allocation necessary to account for NEFS 9 overages in previous fishing years. If we have not finalized our analysis and catch accounting prior to June 30, 2018, NEFS 8 will receive the holdback allocation. No other sectors receiving an allocation for 2018 in this rule will be subject to the holdback provision. Holding back this quota will ensure that NEFS 8 has sufficient allocation to begin operating on May 1, 2018, while also ensuring sufficient allocation is available to cover any potential overage associated with vessels previously enrolled in NEFS 9, if payback is determined to be necessary. In 2018, NEFS 7 and 9 will be almost entirely made up of permits that were enrolled in NEFS 9 in 2017. Therefore, we determined that a 20-percent holdback is potentially not sufficient to ensure proper accounting of overages that may affect these two sectors.

We expect to finalize 2017 catch information for all groundfish sectors in the summer of 2018 consistent with the normal sector process. We will allow sectors to transfer fishing year 2017 ACE for 2 weeks upon our completion of year-end catch accounting to reduce or eliminate any fishing year 2017 overages. If necessary, we will reduce any sector's fishing year 2018 allocation to account for a remaining overage in fishing year 2017. We will notify managers of any overages their sector has for 2017 and the 2-week trading window when we have finalized 2017 catch information.

Federal regulations at § 648.82(n)(2)(ii) require the Regional Administrator to close a common pool Trimester Total Allowable Catch (TAC) Area for a stock when 90 percent of the Trimester TAC is projected to be caught. The closure applies to all common pool vessels fishing with gear capable of catching that stock for the remainder of the trimester.

Based on catch data through April 23, 2018, the common pool fishery is projected to have caught approximately 90 percent of the Trimester 3 TAC (3.0 mt) for Gulf of Maine (GOM) cod on April 24, 2018. Projections show that catch will likely reach 100 percent of the annual quota by April 26, 2018. Effective April 26, 2018, the GOM Cod Trimester TAC Area is closed for the remainder of Trimester 3, through April 30, 2018. This closure applies to all common pool vessels fishing on a Northeast multispecies trip with trawl gear, sink gillnet gear, and longline/hook gear. The GOM Cod Trimester TAC Area consists of statistical areas 513 and 514. The area reopens at the beginning of Trimester 1 of the 2018 fishing year on May 1, 2018.

If a vessel declared its trip through the Vessel Monitoring System (VMS) or the interactive voice response system, and crossed the VMS demarcation line prior to April 26, 2018, it may complete its trip within the GOM Cod Trimester TAC Area. A vessel that has set gillnet gear prior to April 26, 2018, may complete its trip by hauling such gear.

If the common pool fishery exceeds its total quota for a stock in the 2017 fishing year, the overage must be deducted from the common pool's quota for that stock for fishing year 2018. Any uncaught portion of the common pool's total annual quota may not be carried over into the following fishing year.

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

This action is required by 50 CFR part 648 and is exempt from review under Executive Order 12866. The Assistant Administrator for Fisheries, NOAA, finds good cause pursuant to 5 U.S.C. 553(b)(B) and 5 U.S.C. 553(d)(3) to waive prior notice and the opportunity for public comment and the 30-day delayed effectiveness period because it would be impracticable and contrary to the public interest.

The regulations require the Regional Administrator to close a trimester TAC area to the common pool fishery when 90 percent of the Trimester TAC for a stock has been caught. Updated catch information through April 23, 2018, only recently became available indicating that the common pool fishery is projected to have caught 90 percent of its Trimester 3 TAC for GOM cod on April 24, 2018. The time necessary to provide for prior notice and comment, and a 30-day delay in effectiveness, would prevent the immediate closure of the GOM Cod Trimester TAC Area. This would be contrary to the regulatory requirement and would increase the likelihood that the common pool fishery would exceed its trimester or annual quota of GOM cod to the detriment of this stock. This could undermine management objectives of the Northeast Multispecies Fishery Management Plan. Fishermen expect these closures to occur in a timely way to prevent overages and their payback requirements. Overages of the trimester or annual common pool quota could cause negative economic impacts to the common pool fishery as a result of overage paybacks deducted from a future trimester or fishing year.

This action approves the management measures in Framework Adjustment 57 to the Northeast Multispecies Fishery Management Plan (FMP). The measures implemented in this final rule are:

• Fishing year 2018 shared U.S./Canada quotas for Georges Bank (GB) yellowtail flounder and eastern GB cod and haddock;

• Fishing year 2018-2020 specifications for 20 groundfish stocks;

• Revisions to the common pool trimester total allowable catch (TAC) allocations for several stocks;

• Revisions to the accountability measures (AM) for Atlantic halibut for vessels issued any Federal permit;

• Revisions to the AMs for southern windowpane flounder for non-groundfish trawl vessels;

• Revisions to the trigger for the scallop fishery's AM for Southern New England/Mid-Atlantic (SNE/MA) yellowtail flounder; and

• Regional Administrator authority to adjust recreational measures for GB cod.

This action also implements a number of other measures that are not part of Framework 57, but that are implemented under Regional Administrator authority included in the Northeast Multispecies FMP or Secretarial authority to address administrative matters under section 305(d) of the Magnuson-Stevens Fishery Conservation and Management Act. We are implementing these measures in conjunction with the Framework 57 measures for expediency purposes, and because these measures are related to the catch limits in Framework 57. The additional measures implemented by this action are listed below:

• Management measures for the common pool fishery—this action adjusts fishing year 2018 trip limits for the common pool fishery.

• Adjustments for fishing year 2016 catch overages—this action reduces the 2018 allocations of GB cod, Gulf of Maine (GOM) cod, and witch flounder due to catch limit overages that occurred in fishing year 2016.

• Other regulatory corrections—this action corrects a minor rounding error in the regulations for the common pool trimester TACs.

As described in the proposed rule, eastern GB cod, eastern GB haddock, and GB yellowtail flounder are jointly managed with Canada under the United States/Canada Resource Sharing Understanding. This action adopts shared U.S./Canada quotas for these stocks for fishing year 2018 based on 2017 assessments and the recommendations of the Transboundary Management Guidance Committee (TMGC). The 2018 shared U.S./Canada quotas, and each country's allocation, are listed in Table 1. For a more detailed discussion of the TMGC's 2018 catch advice, see the TMGC's guidance document at: https://www.greateratlantic.fisheries.noaa.gov/sustainable/species/multispecies/announcements/2017tmgcguiddoc.pdf.

The regulations implementing the U.S./Canada Resource Sharing Understanding require deducting any overages of the U.S. quota for eastern GB cod, eastern GB haddock, or GB yellowtail flounder from the U.S. quota in the following fishing year. If catch information for the 2017 fishing year indicates that the U.S. fishery exceeded its quota for any of the shared stocks, we will reduce the respective U.S. quotas for the 2018 fishing year in a future management action, as close to May 1, 2018, as possible. If any fishery that is allocated a portion of the U.S. quota (e.g., scallop fishery, sectors, or common pool) exceeds its allocation and causes an overage of the overall U.S. quota, the overage reduction would only be applied to that fishery's allocation in the following fishing year. This ensures that catch by one component of the overall fishery does not negatively affect another component of the overall fishery.

Framework 55 (81 FR 26412; May 2, 2016) adopted fishing year 2016-2018 catch limits for all groundfish stocks, except for the U.S./Canada stocks, which are set annually. Framework 56 (82 FR 35660; August 1, 2017) implemented fishing year 2017-2019 catch limits for witch flounder and 2017 U.S./Canada quotas. This rule adopts catch limits for the 2018-2020 fishing years for all groundfish stocks. The catch limits implemented in this action, including overfishing limits (OFL), acceptable biological catches (ABC), and annual catch limits (ACL), can be found in Tables 2 through 9. A summary of how these catch limits were developed, including the distribution to the various fishery components, was provided in the proposed rule and in Appendix II (Calculation of Northeast Multispecies Annual Catch Limits, FY 2018—FY 2020) to the Framework 57 Environmental Assessment, and is not repeated here.

The sector and common pool sub-ACLs implemented in this action are based on fishing year 2018 potential sector contributions (PSC) and final fishing year 2017 sector rosters. All permits enrolled in a sector, and the vessels associated with those permits, have until April 30, 2018, to withdraw from a sector and fish in the common pool for the 2018 fishing year. In addition to the enrollment delay, all permits that change ownership after December 1, 2017, may join a sector through April 30, 2018. We will publish final sector and common pool sub-ACLs based on final 2018 sector rosters as soon as practicable after the start of the 2018 fishing year. Initial 2018 sector allocations are being established in a separate, concurrent rulemaking.

Overall fishing effort by both common pool and sector vessels in the Closed Area I Hook Gear Haddock Special Access Program (SAP) is controlled by an overall TAC for GB haddock, which is the target species for this SAP. The GB haddock TAC for the SAP is based on the amount allocated to this SAP for the 2004 fishing year (1,130 mt) and adjusted according to the change of the western GB haddock biomass in relationship to its size in 2004. Based on this formula, the GB Haddock TAC for this SAP is 2,511 mt for the 2018 fishing year. Once this overall TAC is caught, the Closed Area I Hook Gear Haddock SAP will be closed to all groundfish vessels for the remainder of the fishing year.

Background

The ocean salmon fisheries in the EEZ off Washington, Oregon, and California are managed under a “framework” FMP. Regulations at 50 CFR part 660, subpart H, provide the mechanism for making preseason and inseason adjustments to the management measures, within limits set by the FMP, by notification in the Federal Register. 50 CFR 660.408, in addition to the FMP, governs the establishment of annual management measures.

The management measures for the 2018 and pre-May 2019 ocean salmon fisheries that are implemented in this final rule were recommended by the Council at its April 5 to 11, 2018, meeting.

The Council announced its annual preseason management process for the 2018 ocean salmon fisheries in the Federal Register on December 27, 2017 (82 FR 61268), and on the Council's website at www.pcouncil.org. NMFS published an additional notice of opportunities to submit public comments on the 2018 ocean salmon fisheries in the Federal Register on January 23, 2018 (83 FR 3133). These notices announced the availability of Council documents, the dates and locations of Council meetings and public hearings comprising the Council's complete schedule of events for determining the annual proposed and final modifications to ocean salmon fishery management measures, and instructions on how to comment on the development of the 2018 ocean salmon fisheries. The agendas for the March and April Council meetings were published in the Federal Register (83 FR 7457, February 21, 2018, and 83 FR 11991, March 19, 2018, respectively) and posted on the Council's website prior to the actual meetings.

In accordance with the FMP, the Council's Salmon Technical Team (STT) and staff economist prepared four reports for the Council, its advisors, and the public. All four reports were made available on the Council's website upon their completion. The first of the reports, “Review of 2017 Ocean Salmon Fisheries,” was prepared in February when the first increment of scientific information necessary for crafting management measures for the 2018 and pre-May 2019 ocean salmon fisheries became available. The first report summarizes biological and socio-economic data for the 2017 ocean salmon fisheries and assesses the performance of the fisheries with respect to the Council's 2017 management objectives. The second report, “Preseason Report I Stock Abundance Analysis and Environmental Assessment Part 1 for 2018 Ocean Salmon Fishery Regulations” (PRE I), provides the 2018 salmon stock abundance projections and analyzes the impacts on the stocks and Council management goals if the 2017 regulations and regulatory procedures were applied to the projected 2018 stock abundances. The completion of PRE I is the initial step in developing and evaluating the full suite of preseason alternatives.

Following completion of the first two reports, the Council met in Rohnert Park, CA, from March 7 to 14, 2018, to develop 2018 management alternatives for proposal to the public. The Council proposed three alternatives for commercial and recreational fisheries management for analysis and public comment. These alternatives consisted of various combinations of management measures designed to ensure that stocks of coho and Chinook salmon with low abundance meet conservation goals, and to provide for ocean harvests of more abundant stocks. After the March Council meeting, the Council's STT and staff economist prepared a third report, “Preseason Report II Proposed Alternatives and Environmental Assessment Part 2 for 2018 Ocean Salmon Fishery Regulations” (PRE II), which analyzes the effects of the proposed 2018 management alternatives.

The Council sponsored public hearings to receive testimony on the proposed alternatives on March 26, 2018, in Westport, WA, and Coos Bay, OR; and on March 27, 2018, in Salinas, CA. The States of Washington, Oregon, and California sponsored meetings in various fora that also collected public testimony, which was then presented to the Council by each state's Council representative. The Council also received public testimony at both the March and April meetings and received written comments at the Council office and electronic submissions via www.regulations.gov.

The Council met from April 5 to 11, 2018, in Portland, OR, to adopt its final 2018 salmon management recommendations. Following the April Council meeting, the Council's STT and staff economist prepared a fourth report, “Preseason Report III Analysis of Council-Adopted Management Measures for 2018 Ocean Salmon Fisheries” (PRE III), which analyzes the environmental and socio-economic effects of the Council's final recommendations. After the Council took final action on the annual ocean salmon specifications in April, it transmitted the recommended management measures to NMFS, published them in its newsletter, and posted them on the Council website (www.pcouncil.org).

The environmental assessment (EA) for this action comprises the Council's documents described above (PRE I, PRE II, and PRE III), providing analysis of environmental and socioeconomic effects under NEPA. The EA and its related Finding of No Significant Impact are posted on the NMFS West Coast Region website (www.westcoast.fisheries.noaa.gov).

The FMP requires that the fisheries be shaped to meet escapement-based Annual Catch Limits (ACLs), Endangered Species Act (ESA) consultation requirements, obligations of the Pacific Salmon Treaty (PST) between the U.S. and Canada, and other conservation objectives detailed in the FMP. Because the ocean salmon fisheries are mixed-stock fisheries, this requires “weak stock” management to avoid exceeding limits for the stocks with the most constraining limits. Abundance forecasts for individual salmon stocks can vary significantly from one year to the next; therefore, the stocks that constrain the fishery in one year may differ from those that constrain the fishery in the next. For 2018, limits for six stocks are the most constraining on the fisheries; these are described below.

Fisheries south of Cape Falcon, OR, are limited in 2018 primarily by conservation concerns for Klamath River fall-run Chinook salmon (KRFC) and Sacramento River fall-run Chinook salmon (SRFC); both stocks meet the FMP criteria for being overfished, although NMFS has not made a determination at this time. Fisheries north of Cape Falcon are limited primarily by the low abundance forecast for Queets and Grays Harbor coho which are managed subject to provisions of the Pacific Salmon Treaty as well as those specified in the Council's FMP. The Queets coho stock, as well as Juan de Fuca and Snohomish coho stocks, meets the FMP criteria for being overfished; although again, NMFS has not made a determination at this time. Additionally, collective fisheries impacts on the tule component of the ESA-listed Lower Columbia River Chinook salmon evolutionarily significant unit (ESU) and Puget Sound Chinook salmon ESU are limiting primarily to fisheries north of Cape Falcon. The limitations imposed in order to protect these stocks are described below. The alternatives and the Council's recommended management measures for 2018 were designed to avoid exceeding these limitations.

Klamath River fall-run Chinook salmon (KRFC): Abundance for this non-ESA-listed stock in recent years has been historically low, and it currently meets the FMP's status determination criteria (SDC) for an overfished condition based on spawning escapement in 2015, 2016, and 2017. The FMP defines “overfished” status in terms of a three-year geometric mean escapement level and whether it is below the minimum stock size threshold. Forecast abundance for KRFC in 2017 was the lowest on record. Forecast abundance for KRFC in 2018 is improved from 2017, and fisheries will be managed to meet the FMP conservation objective, a maximum sustainable yield spawning escapement goal (SMSY) of 40,700 natural area spawners. Fisheries south of Cape Falcon, particularly in the Klamath Management Zone (KMZ) from Humbug Mountain, OR to Humboldt South Jetty, CA will be somewhat constrained to meet this goal, but less so than in 2017 when there was a complete closure of commercial and recreational ocean salmon fishing in the KMZ.

Sacramento River fall-run Chinook salmon (SRFC): SRFC is not an ESA-listed stock; however, abundance for this stock in recent years has been low. In 2017, spawning escapement was 33 percent of what was forecast. The stock currently meets the FMP's SDC for an overfished condition based on escapements in 2015, 2016, and 2017. Abundance forecast for SRFC in 2018 is nearly identical to the forecast in 2017. However, preseason abundance forecasts for SRFC have tended to be optimistic in recent years, when compared to postseason abundance estimates. For example, in 2017 the preseason forecast for SRFC abundance was 230,700, whereas the postseason estimate was 139,997. In order to be conservative given the frequent upward bias in the abundance forecasts and the fact that SRFC meet the FMP criteria for overfished, the Council has recommended fisheries to achieve a spawning escapement of 151,000, the mid-point of the FMP Conservation Objective range (122,000 to 180,000 natural and hatchery adult spawners). Meeting this risk averse spawning escapement goal will constrain fisheries south of Cape Falcon in 2018.

Queets coho: Queets coho are managed in Council-area and northern fisheries subject to the provisions of the PST. The 2018 abundance forecast for this non-ESA-listed stock is low; 7,000 fish compared to a 2008-2017 average of 16,620 fish. The stock currently meets the FMP's criteria for an overfished condition based on escapements in 2014, 2015, and 2016 (the three most recent years for which escapement data are available). The FMP's conservation objective for Queets coho is an SMSY spawning escapement of 5,800 fish after ocean and in-river fishery impacts. Under the criteria of the PST's Southern Coho Management Plan, Queets coho abundance is in the “low” category in 2018 and subject to a total exploitation rate limit of 20 percent. The Council has recommended fisheries that will meet both the FMP's escapement requirement and the PST exploitation rate limit. Meeting the conservation and management objectives for Queets coho will constrain fisheries north of Cape Falcon.

Grays Harbor coho: Grays Harbor coho is another non-ESA-listed stock that, like Queets coho, is managed in Council-area and northern fisheries subject to provisions of the PST. The forecast abundance for Grays Harbor coho places this stock in the “low” category under the PST, which limits the exploitation rate to 20 percent. The U.S. Commissioner that represents Washington State informed the Canadian Chair of the Pacific Salmon Commission that we anticipate a total exploitation rate of 20.7 percent for Grays Harbor coho and, given the small deviation from the 20 percent limit, recommended that we not invoke the provisions of PST Chapter Five, Paragraph 11(c) that involve the Southern Panel. The Canadian Chair did not object to the recommendation. The result is that the action is in compliance with provisions of the PST.

The FMP also includes a conservation objective for Grays Harbor coho—a spawning escapement of 35,400 fish. Although the Council's recommendations would allow for an ocean escapement of 40,500 Grays Harbor coho, the conservation objective in the FMP is for a spawning escapement that accounts for in-river fishery impacts. The FMP provides flexibility in setting the annual spawning escapement for several Washington coho stocks, provided there is agreement between the Washington Department of Fish and Wildlife (WDFW) and the treaty tribes, under the provisions of U.S. v Washington. Based on agreement between those parties, the Council adopted a 2018 spawning escapement target of 33,700 Grays Harbor coho to allow for limited harvest opportunity in ocean and in-river fisheries directed at other higher-abundance stocks. Meeting the conservation and management objectives for Grays Harbor coho will constrain fisheries, primarily north of Cape Falcon.

Lower Columbia River Chinook salmon (LCR Chinook)—ESA-listed Threatened: In 2012, NMFS consulted under ESA section 7 and issued a biological opinion that applies to fisheries beginning in 2012, concluding that the proposed fisheries, if managed consistent with the proposed action analyzed in the biological opinion, are not likely to jeopardize the continued existence of LCR Chinook salmon. The LCR Chinook salmon ESU is comprised of a spring-run component, a “far-north” migrating bright component, and a component of north migrating tules. The bright and tule components both have fall-run timing. Unlike the spring-run or bright populations of the ESU, LCR tule populations are caught in large numbers in Council fisheries, as well as fisheries to the north and in the Columbia River. Therefore, this component of the ESU is the one most likely to constrain Council fisheries in the area north of Cape Falcon, Oregon. Consistent with the proposed action for the 2012 biological opinion, NMFS and the Council use an abundance-based management (ABM) framework to set annual exploitation rates for LCR tule Chinook salmon below Bonneville Dam. Applying the ABM framework to the 2018 preseason abundance forecast, the LCR tule exploitation rate is limited to a maximum of 38 percent. In 2018, LCR Chinook will primarily constrain salmon fisheries north of Cape Falcon.

Puget Sound Chinook—ESA-listed Threatened: Impacts on threatened Puget Sound Chinook from Council-managed fisheries are addressed through a 2004 biological opinion. Generally, these impacts are quite low and well within the range contemplated in the 2004 opinion. However, because Puget Sound Chinook are also impacted by fisheries in Puget Sound and associated freshwater fisheries (collectively referred to as “inside” fisheries), the Council and NMFS usually consider the impacts of Council-area and inside fisheries on Puget Sound Chinook together, and they base their analysis of the combined impacts on a package of Puget Sound fisheries to which the State of Washington and Indian tribes with treaty rights to fish in Puget Sound have agreed through a negotiation process that runs concurrent with the Council's salmon season planning process. In 2018, fisheries north of Cape Falcon will be constrained to avoid jeopardy to several populations within the Puget Sound Chinook salmon ESU, when combined with inside fisheries.

Sacramento River winter-run Chinook salmon (SRWC)—ESA-listed Endangered: The endangered SRWC ESU is one of NMFS' Species in the Spotlight, eight species that are among the most at risk of extinction in the near future. Impacts on SRWC from Council-managed fisheries are addressed through a set of management measures analyzed in NMFS' 2018 biological opinion and approved by NMFS, including a new harvest control rule recommended by the Council for limiting impacts on SRWC based on projected abundance. The harvest control rule was developed through the Council process over two years. NMFS published a final rule to approve the Council's recommendation (83 FR 18233, April 26, 2018). The SRWC management measures include management-area-specific fishing season openings and closures and minimum size limits for both commercial and recreational fisheries, these restrictions were included in a 2012 Reasonable and Prudent Alternative NMFS issued for the fishery. The new harvest control rule establishes an allowable age-three impact rate based on the forecast of age-three SRWC escapement absent fishing. The forecast of the age-three escapement absent fishing is based on juvenile survival rates spanning outmigration in freshwater and early ocean residence. The forecast of SRWC age-three escapement absent fishing in 2018 is 1,594. Application of the harvest control rule results in a maximum age-three impact rate of 14.4 percent for the area south of Point Arena in 2018. However, constraints in place for SRFC will limit impacts to SRWC to 8.5 percent; therefore, SRWC will not constrain fisheries south of Cape Falcon in 2018.

Annual Catch Limits (ACLs) are set for two Chinook salmon stocks, SRFC and KRFC, and one coho stock, Willapa Bay natural coho. The Chinook salmon stocks are indicator stocks for the Central Valley Fall Chinook complex and the Southern Oregon/Northern California Chinook complex, respectively. The Far North Migrating Coastal Chinook complex includes a group of Chinook salmon stocks that are caught primarily in fisheries north of Cape Falcon, Oregon, and other fisheries that occur north of the U.S./Canada border. No ACL is set for these stocks because they are managed subject to provisions of the PST between the U.S. and Canada. Other Chinook salmon stocks caught in fisheries north of Cape Falcon are ESA-listed or hatchery produced, and are managed consistent with ESA consultations or hatchery goals. Willapa Bay natural coho is the only coho stock for which an ACL is set, as the other coho stocks in the FMP are either ESA-listed, hatchery produced, or managed under the PST.

ACLs for salmon stocks are escapement-based, which means they establish a number of adults that must escape the fisheries to return to the spawning grounds. ACLs are set based on the annual potential spawner abundance forecast and a fishing rate reduced to account for scientific uncertainty. For SRFC in 2018, the overfishing limit (OFL) is SOFL = 229,432 (potential spawner abundance forecast) multiplied by 1−FMSY (1−0.78) or 50,475 returning spawners (FMSY is the fishing mortality rate that would result in maximum sustainable yield−MSY). SABC is 229,432 multiplied by 1−FABC (1−0.70) (FMSY reduced for scientific uncertainty = 0.70) or 68,830. The SACL is set equal to SABC, i.e., 68,830 spawners. The adopted management measures provide for a projected SRFC spawning escapement of 151,000. For KRFC in 2018, SOFL is 59,733 (potential spawner abundance forecast) multiplied by 1−FMSY (1−0.71), or 17,323 returning spawners. SABC is 59,733 multiplied by 1−FABC (1−0.68) (FMSY reduced for scientific uncertainty = 0.68) or 19,115 returning spawners. SACL is set equal to SABC, i.e., 19,115 spawners. The adopted management measures provide for a projected KRFC spawning escapement of 40,700. For Willapa Bay natural coho in 2018, SOFL = 20,645 (potential spawner abundance forecast) multiplied by 1−FMSY (1−0.74) or 5,368 returning spawners. SABC is 20,645 multiplied by 1−FABC (1−0.70) (FMSY reduced for scientific uncertainty = 0.70) or 6,194. SACL is set equal to SABC, i.e., 6,194 spawners. The adopted management measures provide for a projected Willapa Bay natural coho ocean escapement of 19,000.

As explained in more detail above under “Stocks of Concern,” fisheries north and south of Cape Falcon are constrained by impact limits necessary to protect ESA-listed salmon stocks including LCR and Puget Sound Chinook salmon, as well as four salmon stocks that are not ESA-listed. For 2018, projected abundance of the three stocks with ACLs (SRFC, KRFC, and Willapa Bay natural coho), in combination with the constraints for ESA-listed and non-ESA-listed stocks, are expected to result in escapements greater than required to meet the ACLs for all three stocks with defined ACLs.

The Council's final recommendation for the ocean salmon fishing seasons that commence May 1, 2018, deviates from the FMP specifically with regard to the FMP's allocation schedule for coho harvest in the area north of Cape Falcon, between commercial and recreational fisheries. The total allowable catch (TAC) of coho in non-treaty commercial and recreational fisheries north of Cape Falcon is 47,600 marked coho in 2018. At that TAC level, the FMP allocates 25 percent (16 percent marked coho equivalent) of coho to the commercial fishery and 75 percent (84 percent marked coho equivalent) of coho to the recreational fishery. To limit fishery impacts on coho consistent with the adopted spawning escapement and exploitation rates described above, the Council recommended the following allocations of marked coho TAC: 12 percent commercial and 88 percent recreational. Recreational fisheries are more dependent on coho, while commercial fisheries are more dependent on Chinook salmon. Additionally, in mark-selective fisheries, recreational fisheries have a lower impact rate than commercial fisheries due to lower hook and release mortality. This deviation from the FMP allocation schedule should provide fishing opportunity on abundant stocks while limiting fishery impacts on Queets coho.

The Council considered three alternative fishery management schemes for the fisheries north of Cape Falcon; one of the three alternatives was inconsistent with the FMP coho allocation schedule. Alternative I would have limited the commercial fishery to 12 percent of the north of Falcon marked coho TAC, inconsistent with the FMP allocation schedule between commercial and recreational fisheries; Alternatives II and III would have been consistent with the FMP coho allocation schedule. The Council's state and tribal representatives, and industry advisory committee, supported consideration of these three alternatives. The Council's final recommended management measures are within the range of the three alternatives in terms of impacts to coho and they meet the FMP conservation objectives. The Council voted unanimously to adopt these measures, and members spoke about the need to conserve Queets and Grays Harbor coho while providing harvest opportunity on abundant stocks to provide economic benefit to fishery dependent communities.

The proposed fisheries are designed to minimize impacts on Queets and Grays Harbor coho and are not expected to jeopardize the capacity of the fishery to produce maximum sustainable yield on a continuing basis. The FMP defines overfishing and overfished status for these stocks. No coho stock would be subject to overfishing under the proposed management measures. Queets coho currently meet the FMP's SDC for an overfished condition based on escapements in 2014, 2015, and 2016. Escapement for Queets coho is not yet available for 2017; however, fisheries in 2017 were managed similar to the Council's proposed 2018 fisheries, to conserve fishery impacts to Queets and other coho stocks.

The temporary rule for emergency action implements the 2018 annual management measures for the West Coast ocean salmon fisheries for the area from the U.S./Canada border to Cape Falcon, OR, for 180 days, from May 1, 2018, through October 28, 2018 (16 U.S.C. 1855(c)).

The Council invited written comments on developing 2018 salmon management measures in their notice announcing public meetings and hearings (82 FR 61268, December 27, 2017). At its March meeting, the Council adopted three alternatives for 2018 salmon management measures having a range of quotas, season structure, and impacts, from the least restrictive in Alternative I to the most restrictive in Alternative III. These alternatives are described in detail in PRE II. Subsequently, comments were taken at three public hearings held in March, staffed by representatives of the Council and NMFS. The Council received several written comments directly. The three public hearings were attended by a total of 229 people; 80 people provided oral comments. Comments came from individual fishers, fishing associations, fish buyers, and processors. Written and oral comments addressed the 2018 management alternatives described in PRE II, and generally expressed preferences for a specific alternative or for particular season structures as well as concern over economic impacts of restricting fisheries for conservation of weak stocks. All comments were included in the Council's briefing book for their April 2018 meeting and were considered by the Council, which includes a representative from NMFS, in developing the recommended management measures transmitted to NMFS on April 19, 2018. In addition to comments collected at the public hearings and those submitted directly to the Council, several people provided oral comments at the April 2018 Council meeting. NMFS also invited comments to be submitted directly to the Council or to NMFS, via the Federal Rulemaking Portal (www.regulations.gov) in a notice (83 FR 3133, January 23, 2018). Twenty comments were submitted via www.regulations.gov; of these, two were relevant to the 2018 ocean salmon fishery.

Comments on alternatives for fisheries north of Cape Falcon. For fisheries north of Cape Falcon, Alternative I was favored by most commercial and recreational fishery commenters at the public hearing in Westport, WA. A variety of modifications to the alternatives were presented, most designed to maximize fishing opportunity or extend the season in both commercial and recreational fisheries.

Comments on alternatives for fisheries south of Cape Falcon. Comments supporting a particular alternative south of Cape Falcon varied with geographic location of the meeting or commenter. Those attending the meeting in Coos Bay, OR, largely favored Alternative I for both commercial and recreational fisheries, while those attending the meeting in Salinas, CA, did not express support for any of the commercial fishery alternatives and the few attendees who expressed a preference for any of the recreational alternatives favored Alternative I. Comments on fisheries south of Cape Falcon largely focused on the economic consequences of continuing constrained fisheries.

Comments on incidental halibut retention in the commercial salmon fisheries. At its March meeting, the Council identified three alternatives for landing limits for incidentally caught halibut that are retained in the salmon troll fishery. The alternatives included: (1) A range of trip limits for halibut possession and landing, (2) two alternatives for the ratio of halibut to Chinook salmon landed in a trip, and (3) the number of halibut that could be retained prior to catching any Chinook salmon. There were a few comments received on halibut and these focused on the ability to access the full halibut allocation as Chinook salmon landing limits will be constrained in many areas (severely constrained salmon fisheries in 2016 resulted in the commercial fleet being unable to access all of the incidental halibut allocation available).

Comments from treaty tribe representatives. At its March and April meetings, the Council heard testimony from members of several treaty tribes; additional comments were submitted in writing. There was strong concern about environmental conditions in the Klamath and Trinity Rivers that are deleterious to salmon survival, including promoting increased rates of infection by the parasite Ceratonova shasta. Comments were made on the need for sufficient spawning escapement in the Columbia River Basin and in support of successful artificial propogation and reintroduction efforts implemented there by the tribes. Comments were made on the reserved treaty rights of tribes to fish and frustration with insufficient salmon for tribal needs.

The Council, including the NMFS representative, took all of these comments into consideration. The Council's final recommendation generally includes aspects of all three alternatives, while taking into account the best available scientific information and ensuring that fisheries are consistent with impact limits for ESA-listed stocks, ACLs, PST obligations, and tribal fishing rights. These management tools assist the Council in meeting impact limits on weak stocks. The Council adopted an alternative for incidental halibut retention that is within the range of the alternatives considered, including a per trip landing limit that is lower than was adopted for 2017 salmon fisheries (82 FR 19631, April 28, 2017).

The Council's recommended ocean harvest levels and management measures for the 2018 fisheries are designed to apportion the burden of protecting the weak stocks identified and discussed in PRE I equitably among ocean fisheries and to allow maximum harvest of natural and hatchery runs surplus to inside fishery and spawning needs. NMFS finds the Council's recommendations to be responsive to the goals of the FMP, the requirements of the resource, and the socioeconomic factors affecting resource users. The recommendations are consistent with the requirements of the MSA, U.S. obligations to Indian tribes with federally recognized fishing rights, and U.S. international obligations regarding Pacific salmon. The Council's recommended management measures are consistent with the proposed actions analyzed in NMFS' ESA consultations for those ESA-listed salmon species that may be affected by Council fisheries. Accordingly, NMFS, through this final rule and temporary rule, approves and implements the Council's recommendations.

North of Cape Falcon, 2018 management measures for non-Indian commercial troll and recreational fisheries have decreased quotas for Chinook salmon compared to 2017, and coho quotas are the same as in 2017.

Quotas for the 2018 treaty-Indian commercial troll fishery North of Cape Falcon are 40,000 Chinook salmon and 12,500 coho in ocean management areas and Washington State Statistical Area 4B combined. These quotas are unchanged from 2017. The treaty-Indian commercial fisheries include a May and June fishery with a quota of 16,000 Chinook, and a July and August fishery, with quotas of 24,000 Chinook and 12,500 coho.

Recreational fisheries south of Cape Falcon will be directed primarily at Chinook salmon and are shaped to meet conservation and management goals for KRFC and SRFC spawning escapement. Commercial fisheries south of Cape Falcon will be directed at Chinook and have no coho retention.

The timing of the March and April Council meetings makes it impracticable for the Council to recommend fishing seasons that begin before May 1 of the same year. Therefore, this action also establishes the 2019 fishing seasons that open earlier than May 1. The Council recommended, and NMFS concurs, that the commercial season off Oregon from Cape Falcon to the Oregon/California border, the commercial season off California from Horse Mountain to Point Arena, the recreational season off Oregon from Cape Falcon to Humbug Mountain, and the recreational season off California from Horse Mountain to the U.S./Mexico border will open in 2019 as indicated in the “Season Description” section of this document. At the March 2019 meeting, NMFS may take inseason action, if recommended by the Council or the states, to adjust the commercial and recreational seasons prior to May 1 in the areas off Oregon and California.

The following sections set out the management regime for the ocean salmon fishery. Open seasons and days are described in Sections 1, 2, and 3 of the 2018 management measures. Inseason closures in the commercial and recreational fisheries are announced on the NMFS hotline and through the U.S. Coast Guard (USCG) Notice to Mariners as described in Section 6. Other inseason adjustments to management measures are also announced on the hotline and through the Notice to Mariners. Inseason actions will also be published in the Federal Register as soon as practicable.

The following are the management measures recommended by the Council, approved, and implemented here for 2018 and, as specified, for 2019.

Parts A, B, and C of this section contain restrictions that must be followed for lawful participation in the fishery. Part A identifies each fishing area and provides the geographic boundaries from north to south, the open seasons for the area, the salmon species allowed to be caught during the seasons, and any other special restrictions effective in the area. Part B specifies minimum size limits. Part C specifies special requirements, definitions, restrictions, and exceptions.

When it is projected that approximately 60 percent of the overall Chinook guideline has been landed, or approximately 60 percent of the Chinook subarea guideline has been landed in the area between the U.S./Canada border and the Queets River, or approximately 60 percent of the Chinook subarea guideline has been landed in the area between Leadbetter Point and Cape Falcon, inseason action will be considered to ensure the guideline is not exceeded.

July 1 through the earlier of September 19 or 11,000 Chinook or 5,600 coho, no more than 4,600 Chinook may be caught in the area between the U.S./Canada border and the Queets River, and no more than 1,300 Chinook may be caught in the area between Leadbetter Point and Cape Falcon (C.8). Open seven days per week. All salmon may be retained, except no chum retention north of Cape Alava, Washington, in August and September (C.4, C.7). Chinook minimum size limit of 28 inches total length. Coho minimum size limit of 16 inches total length (B, C.1). All coho must be marked with a healed adipose fin clip (C.8.e). See compliance requirements (C.1) and gear restrictions and definitions (C.2, C.3). In the area between the U.S./Canada border and the Queets River and the area between Leadbetter Point and Cape Falcon, a landing and possession limit of 50 Chinook per vessel per landing week (Thursday through Wednesday) will be in place (C.1, C.6). Landing and possession limit of 10 coho per vessel per landing week (C.1). When it is projected that approximately 60 percent of the overall Chinook guideline has been landed, or approximately 60 percent of the Chinook subarea guideline has been landed in the area between the U.S./Canada border and the Queets River, or approximately 60 percent of the Chinook subarea guideline has been landed in the area between Leadbetter Point and Cape Falcon, inseason action will be considered to ensure the guideline is not exceeded.

For all commercial troll fisheries north of Cape Falcon: Mandatory closed areas include: Salmon Troll Yelloweye Rockfish Conservation Area (YRCA), Cape Flattery and Columbia Control Zones, and, beginning August 13, Grays Harbor Control Zone (C.5). Vessels must land and deliver their salmon within 24 hours of any closure of this fishery. Vessels fishing, or in possession of salmon while fishing, north of Leadbetter Point must land and deliver all species of fish within the area and north of Leadbetter Point. Vessels fishing, or in possession of salmon while fishing, south of Leadbetter Point must land and deliver all species of fish within the area and south of Leadbetter Point, except that Oregon permitted vessels may also land all species of fish in Garibaldi, OR. Under state law, vessels must report their catch on a state fish receiving ticket. Oregon State regulations require all fishers landing salmon into Oregon from any fishery between Leadbetter Point, WA, and Cape Falcon, OR, must notify Oregon Department of Fish and Wildlife (ODFW) within one hour of delivery or prior to transport away from the port of landing by either calling (541) 867-0300 ext. 271 or sending notification via email to [email protected]. Notification shall include vessel name and number, number of salmon by species, port of landing and location of delivery, and estimated time of delivery. Inseason actions may modify harvest guidelines in later fisheries to achieve or prevent exceeding the overall allowable troll harvest impacts (C.8). Vessels in possession of salmon north of the Queets River may not cross the Queets River line without first notifying WDFW at (360) 249-1215 with area fished, total Chinook, coho, and halibut catch aboard, and destination. Vessels in possession of salmon south of the Queets River may not cross the Queets River line without first notifying WDFW at (360) 249-1215 with area fished, total Chinook, coho, and halibut catch aboard, and destination.

Open seven days per week. All salmon except coho may be retained (C.4, C.7). Chinook minimum size limit of 28 inches total length (B, C.1). All vessels fishing in the area must land their fish in the state of Oregon. See gear restrictions and definitions (C.2, C.3) and Oregon State regulations for a description of special regulations at the mouth of Tillamook Bay. Beginning September 1, no more than 50 Chinook allowed per vessel per landing week (Thursday through Wednesday); and only open shoreward of the 40 fathom management line beginning October 1.

In 2019, the season will open March 15 for all salmon except coho. Chinook minimum size limit of 28 inches total length. Gear restrictions same as in 2018. This opening could be modified following Council review at its March 2019 meeting.

Open seven days per week. All salmon except coho may be retained (C.4, C.7). Chinook minimum size limit of 28 inches total length (B, C.1). See compliance requirements (C.1) and gear restrictions and definitions (C.2, C.3). Prior to June 1, all salmon caught in this area must be landed and delivered in the state of Oregon. June 4 through August 29 weekly landing and possession limit of 50 Chinook per vessel per landing week (Thursday through Wednesday). Any remaining portion of a monthly Chinook quota may be transferred inseason on an impact neutral basis to the next open quota period (C.8.b). All vessels fishing in this area from June through August must land and deliver all salmon within this area or into Port Orford, within 24 hours of any closure of this fishery, and prior to fishing outside of this area. For all quota managed seasons, Oregon state regulations require fishers to notify ODFW within one hour of landing and prior to transport away from the port of landing by calling (541) 867-0300 extension 252 or sending notification via email to [email protected], with vessel name and number, number of salmon by species, location of delivery, and estimated time of delivery. In 2019, the season will open March 15 for all salmon except coho. Chinook minimum size limit of 28 inches total length. Gear restrictions same as in 2018. This opening could be modified following Council review at its March 2019 meeting.

Open five days per week (Friday through Tuesday). All salmon except coho may be retained (C.4, C.7). Chinook minimum size limit of 26 inches total length (B, C.1). Landing and possession limit of 20 Chinook per vessel per day (C.8.f). Any remaining portion of a monthly Chinook quota may be transferred inseason on an impact neutral basis to the next open quota period (C.8.g). See compliance requirements (C.1) and gear restrictions and definitions (C.2, C.3). All fish caught in this area must be landed within the area and within 24 hours of any closure of the fishery and prior to fishing outside the area (C.10). Klamath Control Zone closed (C.5.e). See California State regulations for additional closures adjacent to the Smith and Klamath Rivers.

For all commercial fisheries south of Cape Falcon: When the fishery is closed between the Oregon/California border and Humbug Mountain and open to the south, vessels with fish on board caught in the open area off California may seek temporary mooring in Brookings, OR, prior to landing in California, only if such vessels first notify the Chetco River Coast Guard Station via VHF channel 22A between the hours of 0500 and 2200 and provide the vessel name, number of fish on board, and estimated time of arrival (C.6).

Open seven days per week. All salmon except coho may be retained (C.4, C.7). Chinook minimum size limit of 26 inches total length (B, C.1). See compliance requirements (C.1) and gear restrictions and definitions (C.2, C.3). All salmon must be landed in California. All salmon caught in the area prior to September 1 must be landed and offloaded no later than 11:59 p.m., August 30 (C.6). When the California KMZ fishery is open, all fish caught in the area must be landed south of Horse Mountain until the California KMZ fishery has been closed for at least 24 hours (C.6). During September, all fish must be landed north of Point Arena (C.6). In 2019, the season will open April 16-30 for all salmon except coho, with a 27 inch Chinook minimum size limit and the same gear restrictions as in 2018. All salmon caught in the area must be landed in the area. This opening could be modified following Council review at its March 2019 meeting.

Open seven days per week. All salmon except coho may be retained (C.4, C.7). Chinook minimum size limit of 26 inches total length (B, C.1). See compliance requirements (C.1) and gear restrictions and definitions (C.2, C.3). All salmon must be landed in California. All salmon caught in the area prior to September 1 must be landed and offloaded no later than 11:59 p.m., August 30 (C.6). When the California KMZ fishery is open, all fish caught in the area must be landed south of Horse Mountain until the California KMZ fishery has been closed for at least 24 hours (C.6). During September, all fish must be landed south of Point Arena (C.6).

Open five days per week, Monday through Friday. All salmon except coho may be retained (C.4, C.7). Chinook minimum size limit of 26 inches total length (B, C.1). All salmon caught in this area must be landed between Point Arena and Pigeon Point (C.6). See compliance requirements (C.1) and gear restrictions and definitions (C.2, C.3).

Open seven days per week. All salmon except coho may be retained (C.4, C.7). Chinook minimum size limit of 26 inches total length (B, C.1). See compliance requirements (C.1) and gear restrictions and definitions (C.2, C.3). All fish must be landed in California. All salmon caught in the area must be landed and offloaded no later than 11:59 p.m., July 15 (C.6). When the California KMZ fishery is open, all fish caught in the area must be landed south of Horse Mountain until the California KMZ fishery has been closed for at least 24 hours (C.6).

For all commercial troll fisheries in California: California State regulations require all salmon be made available to a California Department of Fish and Wildlife (CDFW) representative for sampling immediately at port of landing. Any person in possession of a salmon with a missing adipose fin, upon request by an authorized agent or employee of the CDFW, shall immediately relinquish the head of the salmon to the state (California Fish and Game Code § 8226).

All salmon on board a vessel must meet the minimum size, landing/possession limit, or other special requirements for the area being fished and the area in which they are landed if the area is open or has been closed less than 48 hours for that species of salmon. Salmon may be landed in an area that has been closed for a species of salmon more than 48 hours only if they meet the minimum size, landing/possession limit, or other special requirements for the area in which they were caught. Salmon may not be filleted prior to landing.

Any person who is required to report a salmon landing by applicable state law must include on the state landing receipt for that landing both the number and weight of salmon landed by species. States may require fish landing/receiving tickets be kept on board the vessel for 90 days or more after landing to account for all previous salmon landings.

a. Salmon may be taken only by hook and line using single point, single shank, barbless hooks.

b. Cape Falcon, Oregon, to the Oregon/California border: No more than 4 spreads are allowed per line.

c. Oregon/California border to U.S./Mexico border: No more than 6 lines are allowed per vessel, and barbless circle hooks are required when fishing with bait by any means other than trolling.

Trolling defined: Fishing from a boat or floating device that is making way by means of a source of power, other than drifting by means of the prevailing water current or weather conditions.

Troll fishing gear defined: One or more lines that drag hooks behind a moving fishing vessel engaged in trolling. In that portion of the fishery management area off Oregon and Washington, the line or lines must be affixed to the vessel and must not be intentionally disengaged from the vessel at any time during the fishing operation.

Spread defined: A single leader connected to an individual lure and/or bait.

Circle hook defined: A hook with a generally circular shape and a point which turns inward, pointing directly to the shank at a 90′ angle.

a. Except as provided under C.4.b below, it is unlawful for a vessel to have troll or recreational gear in the water while in any area closed to fishing for a certain species of salmon, while possessing that species of salmon; however, fishing for species other than salmon is not prohibited if the area is open for such species, and no salmon are in possession.

b. When Genetic Stock Identification (GSI) samples will be collected in an area closed to commercial salmon fishing, the scientific research permit holder shall notify NOAA Office of Law Enforcement, USCG, CDFW, WDFW, and Oregon State Police at least 24 hours prior to sampling and provide the following information: The vessel name, date, location and time collection activities will be done. Any vessel collecting GSI samples in a closed area shall not possess any salmon other than those from which GSI samples are being collected. Salmon caught for collection of GSI samples must be immediately released in good condition after collection of samples.

a. Cape Flattery Control Zone—The area from Cape Flattery (48°23′00″ N lat.) to the northern boundary of the U.S. EEZ; and the area from Cape Flattery south to Cape Alava (48°10′00″ N lat.) and east of 125°05′00″ W long.

b. Salmon Troll YRCA (50 CFR 660.70(c))—The area in Washington Marine Catch Area 3 from 48°00.00′ N lat.; 125°14.00′ W long. to 48°02.00′ N lat.; 125°14.00′ W long. to 48°02.00′ N lat.; 125°16.50′ W long. to 48°00.00′ N lat.; 125°16.50′ W long. and connecting back to 48°00.00′ N lat.; 125°14.00′ W long.

c. Grays Harbor Control Zone—The area defined by a line drawn from the Westport Lighthouse (46°53′18″ N lat., 124°07′01″ W long.) to Buoy #2 (46°52′42″ N lat., 124°12′42″ W long.) to Buoy #3 (46°55′00″ N lat., 124°14′48″ W long.) to the Grays Harbor north jetty (46°55′36″ N lat., 124°10′51″ W long.).

d. Columbia Control Zone—An area at the Columbia River mouth, bounded on the west by a line running northeast/southwest between the red lighted Buoy #4 (46°13′35″ N lat., 124°06′50″ W long.) and the green lighted Buoy #7 (46°15′09″ N lat., 124°06′16″ W long.); on the east, by the Buoy #10 line which bears north/south at 357° true from the south jetty at 46°14′00″ N lat., 124°03′07″ W long. to its intersection with the north jetty; on the north, by a line running northeast/southwest between the red lighted Buoy #4 and tip of the south jetty (46°14′03″ N lat., 124°04′05″ W long.), and then along the south jetty to the point of intersection with the Buoy #10 line.

e. Klamath Control Zone—The ocean area at the Klamath River mouth bounded on the north by 41°38′48″ N lat. (approximately 6 nautical miles north of the Klamath River mouth); on the west by 124°23′00″ W long. (approximately 12 nautical miles off shore); and on the south by 41°26′48″ N lat. (approximately 6 nautical miles south of the Klamath River mouth).

f. Waypoints for the 40 fathom regulatory line from Cape Falcon to Humbug Mountain (50 CFR 660.71(k)).

If prevented by unsafe weather conditions or mechanical problems from meeting special management area landing restrictions, vessels must notify the USCG and receive acknowledgment of such notification prior to leaving the area. This notification shall include the name of the vessel, port where delivery will be made, approximate number of salmon (by species) on board, the estimated time of arrival, and the specific reason the vessel is not able to meet special management area landing restrictions.

In addition to contacting the USCG, vessels fishing south of the Oregon/California border must notify CDFW within one hour of leaving the management area by calling (800) 889-8346 and providing the same information as reported to the USCG. All salmon must be offloaded within 24 hours of reaching port.

During authorized periods, the operator of a vessel that has been issued an incidental halibut harvest license by the International Pacific Halibut Commission (IPHC) may retain Pacific halibut caught incidentally in Area 2A while trolling for salmon. Halibut retained must be no less than 32 inches in total length, measured from the tip of the lower jaw with the mouth closed to the extreme end of the middle of the tail, and must be landed with the head on. When halibut are caught and landed incidental to commercial salmon fishing by an IPHC license holder, any person who is required to report the salmon landing by applicable state law must include on the state landing receipt for that landing both the number of halibut landed, and the total dressed, head-on weight of halibut landed, in pounds, as well as the number and species of salmon landed.

License applications for incidental harvest must be obtained from the IPHC (phone: 206-634-1838). Applicants must apply prior to mid-March 2019 for 2019 permits (exact date to be set by the IPHC in early 2019). Incidental harvest is authorized only during April, May, and June of the 2018 troll seasons and after June 30 in 2018 if quota remains and if announced on the NMFS hotline (phone: (800) 662-9825 or (206) 526-6667). WDFW, ODFW, and CDFW will monitor landings. If the landings are projected to exceed the IPHC's 35,620 pound preseason allocation or the total Area 2A non-Indian commercial halibut allocation, NMFS will take inseason action to prohibit retention of halibut in the non-Indian salmon troll fishery.

May 1, 2018, until the end of the 2018 salmon troll season, and April 1-30, 2019, license holders may land or possess no more than one Pacific halibut per each two Chinook, except one Pacific halibut may be possessed or landed without meeting the ratio requirement, and no more than 25 halibut may be possessed or landed per trip. Pacific halibut retained must be no less than 32 inches in total length (with head on). IPHC license holders must comply with all applicable IPHC regulations.

Incidental Pacific halibut catch regulations in the commercial salmon troll fishery adopted for 2018, prior to any 2018 inseason action, will be in effect when incidental Pacific halibut retention opens on April 1, 2019, unless otherwise modified by inseason action at the March 2019 Council meeting.

a. “C-shaped” YRCA is an area to be voluntarily avoided for salmon trolling. NMFS and the Council request salmon trollers voluntarily avoid this area in order to protect yelloweye rockfish. The area is defined in the Pacific Council Halibut Catch Sharing Plan in the North Coast subarea (Washington marine area 3), with the following coordinates in the order listed:

In addition to standard inseason actions or modifications already noted under the season description, the following inseason guidance applies:

a. Chinook remaining from the May through June non-Indian commercial troll harvest guideline north of Cape Falcon may be transferred to the July through September harvest guideline if the transfer would not result in exceeding preseason impact expectations on any stocks.

b. Chinook remaining from the June or July non-Indian commercial troll quotas in the Oregon KMZ may be transferred to the Chinook quota for the next open quota period if the transfer would not result in exceeding preseason impact expectations on any stocks.

c. NMFS may transfer salmon between the recreational and commercial fisheries north of Cape Falcon if there is agreement among the areas' representatives on the Salmon Advisory Subpanel (SAS), and if the transfer would not result in exceeding preseason impact expectations on any stocks.

d. At the March 2019 meeting, the Council will consider inseason recommendations for special regulations for any experimental fisheries (proposals must meet Council protocol and be received in November 2018).

e. If retention of unmarked coho (adipose fin intact) is permitted by inseason action, the allowable coho quota will be adjusted to ensure preseason projected impacts on all stocks is not exceeded.

f. Landing limits may be modified inseason to sustain season length and keep harvest within overall quotas.

g. Chinook remaining from the remaining May, June, and/or July non-Indian commercial troll quotas in the California KMZ may be transferred to the Chinook quota for the next open period if the transfer would not result in exceeding preseason impact expectations on any stocks.

Consistent with Council management objectives:

a. The State of Oregon may establish additional late-season fisheries in state waters.

b. The State of California may establish limited fisheries in selected state waters. Check state regulations for details.

Parts A, B, and C of this section contain restrictions that must be followed for lawful participation in the fishery. Part A identifies each fishing area and provides the geographic boundaries from north to south, the open seasons for the area, the salmon species allowed to be caught during the seasons, and any other special restrictions effective in the area. Part B specifies minimum size limits. Part C specifies special requirements, definitions, restrictions and exceptions.

June 23 through earlier of September 3 or 4,370 marked coho subarea quota with a subarea guideline of 4,900 Chinook (C.5).

Open seven days per week. All salmon may be retained, except no chum beginning August 1; two salmon per day, no more than one of which may be a Chinook. All coho must be marked with a healed adipose fin clip (C.1). Beginning August 1, Chinook non-retention east of the Bonilla-Tatoosh line (C.4.a) during Council managed ocean fishery. See gear restrictions and definitions (C.2, C.3).

June 23 through earlier of September 3 or 1,090 marked coho subarea quota with a subarea guideline of 1,500 Chinook (C.5).

Open seven days per week. All salmon may be retained, two salmon per day. All coho must be marked with a healed adipose fin clip (C.1). See gear restrictions and definitions (C.2, C.3).

July 1 through earlier of September 3 or 15,540 marked coho subarea quota with a subarea guideline of 13,100 Chinook (C.5).

Open five days per week (Sunday through Thursday). All salmon may be retained; two salmon per day, no more than one of which may be a Chinook. All coho must be marked with a healed adipose fin clip (C.1). See gear restrictions and definitions (C.2, C.3). Grays Harbor Control Zone closed beginning August 13 (C.4.b).

June 23 through earlier of September 3 or 21,000 marked coho subarea quota with a subarea guideline of 8,000 Chinook (C.5).

Open seven days per week. All salmon may be retained; two salmon per day, no more than one of which may be a Chinook. All coho must be marked with a healed adipose fin clip (C.1). See gear restrictions and definitions (C.2, C.3). Columbia Control Zone closed (C.4.c).

For all recreational fisheries north of Cape Falcon: Inseason management may be used to sustain season length and keep harvest within the overall Chinook and coho recreational TACs for north of Cape Falcon (C.5).

March 15 through October 31 (C.6), except as provided below during the mark-selective coho fishery and the non-mark-selective coho fishery (C.5).

Open seven days per week. All salmon except coho may be retained; two salmon per day (C.1). Chinook minimum size limit of 24 inches total length (B). See gear restrictions and definitions (C.2, C.3). October 1-31: The fishery is only open shoreward of the 40 fathom management line.

In 2019, the season will open March 15 for all salmon except coho; two salmon per day (C.1). Chinook minimum size limit of 24 inches total length (B); and the same gear restrictions as in 2018 (C.2, C.3). This opening could be modified following Council review at the March 2019 Council meeting.

Mark-selective coho fishery: June 30 through the earlier of September 3, or a landed catch of 35,000 marked coho (C.6). Open seven days per week. All salmon may be retained, except all retained coho must be marked with a healed adipose fin clip, two salmon per day (C.1). See minimum size limits (B). See gear restrictions and definitions (C.2, C.3, C.5.e).

Non-mark-selective coho fishery: September 7-8, and each Friday through Saturday thereafter through the earlier of September 29 or a landed catch of a 3,500 non-mark-selective coho quota (C.6). Open days may be modified inseason. All salmon may be retained, two salmon per day (C.1). See minimum size limits (B). See gear restrictions and definitions (C.2, C.3).

May 19-August 26 (C.6).

Open seven days per week. All salmon except coho may be retained, two salmon per day (C.1). Chinook minimum size limit of 24 inches total length (B). See gear restrictions and definitions (C.2, C.3).

For recreational fisheries from Cape Falcon to Humbug Mountain: Fishing in the Stonewall Bank YRCA restricted to trolling only on days the all depth recreational halibut fishery is open (call the halibut fishing hotline (800) 662-9825 for specific dates) (C.3.b, C.4.d).

June 1-September 3 (C.6).

Open seven days per week. All salmon except coho may be retained, two salmon per day (C.1). Chinook minimum size limit of 20 inches total length (B). See gear restrictions and definitions (C.2, C.3). Klamath Control Zone closed in August (C.4.e). See California State regulations for additional closures adjacent to the Smith, Eel, and Klamath Rivers.

Open seven days per week. All salmon except coho may be retained; two salmon per day (C.1). Chinook minimum size limit of 20 inches total length (B). See gear restrictions and definitions (C.2, C.3).

In 2019, season opens April 6 for all salmon except coho, two salmon per day (C.1). Chinook minimum size limit of 20 inches total length (B); and the same gear restrictions as in 2018 (C.2, C.3). This opening could be modified following Council review at the March 2019 Council meeting.

Open seven days per week. All salmon except coho may be retained, two salmon per day (C.1). Chinook minimum size limit of 20 inches total length (B). See gear restrictions and definitions (C.2, C.3).

In 2019, season opens April 6 for all salmon except coho; two salmon per day (C.1). Chinook minimum size limit of 24 inches total length (B); and the same gear restrictions as in 2018 (C.2, C.3). This opening could be modified following Council review at the March 2019 Council meeting.

Open seven days per week. All salmon except coho may be retained; two salmon per day (C.1). Chinook minimum size limit of 24 inches total length (B). See gear restrictions and definitions (C.2, C.3).

In 2019, season opens April 6 for all salmon except coho; two salmon per day (C.1). Chinook minimum size limit of 24 inches total length (B); and the same gear restrictions as in 2018 (C.2, C.3). This opening could be modified following Council review at the March 2019 Council meeting.

California State regulations require all salmon be made available to a CDFW representative for sampling immediately at port of landing. Any person in possession of a salmon with a missing adipose fin, upon request by an authorized agent or employee of the CDFW, shall immediately relinquish the head of the salmon to the state (California Code of Regulations Title 14 Section 1.73).

All salmon on board a vessel must meet the minimum size or other special requirements for the area being fished and the area in which they are landed if that area is open. Salmon may be landed in an area that is closed only if they meet the minimum size or other special requirements for the area in which they were caught. Salmon may not be filleted prior to landing.

Ocean Boat Limits: Off the coast of Washington, Oregon, and California, each fisher aboard a vessel may continue to use angling gear until the combined daily limits of Chinook and coho salmon for all licensed and juvenile anglers aboard have been attained (additional state restrictions may apply).

Salmon may be taken only by hook and line using barbless hooks. All persons fishing for salmon, and all persons fishing from a boat with salmon on board, must meet the gear restrictions listed below for specific areas or seasons.

a. U.S./Canada border to Point Conception, California: No more than one rod may be used per angler; and no more than two single point, single shank barbless hooks are required for all fishing gear.

b. Horse Mountain, California, to Point Conception, California: Single point, single shank, barbless circle hooks (see gear definitions below) are required when fishing with bait by any means other than trolling, and no more than two such hooks shall be used. When angling with two hooks, the distance between the hooks must not exceed five inches when measured from the top of the eye of the top hook to the inner base of the curve of the lower hook, and both hooks must be permanently tied in place (hard tied). Circle hooks are not required when artificial lures are used without bait.

a. Recreational fishing gear defined: Off Oregon and Washington, angling tackle consists of a single line that must be attached to a rod and reel held by hand or closely attended; the rod and reel must be held by hand while playing a hooked fish. No person may use more than one rod and line while fishing off Oregon or Washington. Off California, the line must be attached to a rod and reel held by hand or closely attended; weights directly attached to a line may not exceed four pounds (1.8 kg). While fishing off California north of Point Conception, no person fishing for salmon, and no person fishing from a boat with salmon on board, may use more than one rod and line. Fishing includes any activity which can reasonably be expected to result in the catching, taking, or harvesting of fish.

b. Trolling defined: Angling from a boat or floating device that is making way by means of a source of power, other than drifting by means of the prevailing water current or weather conditions.

c. Circle hook defined: A hook with a generally circular shape and a point which turns inward, pointing directly to the shank at a 90° angle.

a. The Bonilla-Tatoosh Line: A line running from the western end of Cape Flattery to Tatoosh Island Lighthouse (48°23′30″ N lat., 124°44′12″ W long.) to the buoy adjacent to Duntze Rock (48°24′37″ N lat., 124°44′37″ W long.), then in a straight line to Bonilla Point (48°35′39″ N lat., 124°42′58″ W long.) on Vancouver Island, British Columbia.

b. Grays Harbor Control Zone—The area defined by a line drawn from the Westport Lighthouse (46°53′18″ N lat., 124°07′01″ W long.) to Buoy #2 (46°52′42″ N lat., 124°12′42″ W long.) to Buoy #3 (46°55′00″ N lat., 124°14′48″ W long.) to the Grays Harbor north jetty (46°55′36″ N lat., 124°10′51″ W long.).

c. Columbia Control Zone: An area at the Columbia River mouth, bounded on the west by a line running northeast/southwest between the red lighted Buoy #4 (46°13′35″ N lat., 124°06′50″ W long.) and the green lighted Buoy #7 (46°15′09″ N lat., 124°06′16″ W long.); on the east, by the Buoy #10 line which bears north/south at 357° true from the south jetty at 46°14′00″ N lat., 124°03′07″ W long. to its intersection with the north jetty; on the north, by a line running northeast/southwest between the green lighted Buoy #7 to the tip of the north jetty (46°15′48″ N lat., 124°05′20″ W long. and then along the north jetty to the point of intersection with the Buoy #10 line; and on the south, by a line running northeast/southwest between the red lighted Buoy #4 and tip of the south jetty (46°14′03″ N lat., 124°04′05″ W long.), and then along the south jetty to the point of intersection with the Buoy #10 line.

d. Stonewall Bank YRCA: The area defined by the following coordinates in the order listed:

e. Klamath Control Zone: The ocean area at the Klamath River mouth bounded on the north by 41°38′48″ N lat. (approximately 6 nautical miles north of the Klamath River mouth); on the west by 124°23′00″ W long. (approximately 12 nautical miles off shore); and, on the south by 41°26′48″ N lat. (approximately 6 nautical miles south of the Klamath River mouth).

f. Waypoints for the 40 fathom regulatory line from Cape Falcon to Humbug Mountain (50 CFR 660.71(k)).

Regulatory modifications may become necessary inseason to meet preseason management objectives such as quotas, harvest guidelines, and season duration. In addition to standard inseason actions or modifications already noted under the season description, the following inseason guidance applies:

a. Actions could include modifications to bag limits, or days open to fishing, or extensions or reductions in areas open to fishing.

b. Coho may be transferred inseason among recreational subareas north of Cape Falcon to help meet the recreational season duration objectives (for each subarea) after conferring with representatives of the affected ports and the Council's SAS recreational representatives north of Cape Falcon, and if the transfer would not result in exceeding preseason impact expectations on any stocks.

c. Chinook and coho may be transferred between the recreational and commercial fisheries north of Cape Falcon if there is agreement among the representatives of the SAS, and if the transfer would not result in exceeding preseason impact expectations on any stocks.

d. Fishery managers may consider inseason action modifying regulations restricting retention of unmarked (adipose fin intact) coho. To remain consistent with preseason expectations, any inseason action shall consider, if significant, the difference between observed and preseason forecasted (adipose-clipped) mark rates. Such a consideration may also include a change in bag limit of two salmon, no more than one of which may be a coho.

e. Marked coho remaining from the Cape Falcon to Humbug Mountain recreational mark-selective coho quota may be transferred inseason to the Cape Falcon to Humbug Mountain non-mark-selective recreational fishery if the transfer would not result in exceeding preseason impact expectations on any stocks.

Consistent with Council management objectives, the States of Washington, Oregon, and California may establish limited seasons in state waters. Check state regulations for details.

Parts A, B, and C of this section contain requirements that must be followed for lawful participation in the fishery.

May 1 through the earlier of June 30 or 16,000 Chinook quota.

All salmon may be retained except coho. If the Chinook quota is exceeded, the excess will be deducted from the later all-salmon season (C.5). See size limit (B) and other restrictions (C).

July 1 through the earlier of September 15, or 24,000 Chinook quota (C.5), or 12,500 coho quota.

All salmon. See size limit (B) and other restrictions (C).